Oneida: new day in court for shareholder dispute

The dispute between crystal, tableware and flatware supplier Oneida Ltd. and an ad hoc committee of equity holders concerning alleged conflict of interest and equity representation continues. At a hea…

The dispute between crystal, tableware and flatware supplier Oneida Ltd. and an ad hoc committee of equity holders concerning alleged conflict of interest and equity representation continues. At a hearing on 5 April 2006, Judge Allan Gropper of the U.S. Bankruptcy Court for the Southern District of New York adjourned all matters related to the retention of financial adviser and investment banker Credit Suisse Securities (USA) LLC until 17 April 2006 according to committee counsel Robert Stark of Brown Rudnick Berlack Israels LLP. In the meantime, Albert Togut of Togut Segal & Segal LLP, a general conflicts counsel hired by the debtor, will review the issue and present a report at the follow-up hearing on 17 April, Stark said. In addition to the conflict of interest controvery, shareholders claim minority equity holders are being “squeezed out” of value, while the debtor argues it is “hopelessly insolvent,” according to letters filed to US Trustee Dierdre Martini. According to Stark, at the 5 April 2006 hearing Gropper indicated a need for a committee. “He must“ve said a dozen times that there are insufficient checks and balances in this case,” Stark said. “[Because of the] absence of a creditors committee here and with the allegations [received] he was urging the trustee to move quickly to make a decision.” Oneida Ltd. has no unsecured bond debt and may not have any unsecured trade debt, meaning there will likely be no unsecured creditors committee in its case. Since most of Oneida“s secured debtholders have supported the prenegotiated plan (all term B debtholders have agreed to back the plan, as well as 94% of term A debtholders) the equity holders believe that a committee is necessary to provide a “counter-balance” in the flatware maker“s bankruptcy. Shareholders Jordan Capital LP, Luther King Capital Management, Water Island Capital LLC, Xerion Capital Partners LLC and Whippoorwill Associates Inc., have also argued that based on an independent valuation by their financial adviser, Imperial Capital LLC, Oneida will have more than USD 70 million remaining for distributions. These creditors hold more than 30% of Oneida“s equity. Their analysis, based on Oneida“s cash flow projections, show the business to be worth between USD 280 million and USD 320 million, considerably more than the USD 253.5 million face value of the company“s debt, thus leaving money for minority shareholders. The debtors then claimed in a subsequent response letter to Martini that they are insolvent, based on a valuation carried out by the company and Credit Suisse of an estimated enterprise value of between USD 170 million and USD 210 million. That figure is well below a liability total of about USD 270 million that could exceed USD 300 million once one or more of the company“s benefit plans are terminated, according to filings by the debtor. Xerion founding partner Daniel Arbess said a debate was needed on the company“s valuation before recovery for interested parties could be determined, and that could not happen without the participation of the minority shareholders In the response letter, the debtor described the request for an official committee as “nothing more than a transparent attempt to disrupt the [case] in order to inappropriately extract value at the expense of Oneida“s senior stakeholders”. The debtor also described the debate over the alleged conflict of interest of Credit Suisse, which acts as financial adviser, investment banker, and lender of part of Oneida“s USD 170 million exit financing package, as lacking merit. “There is no per se rule prohibiting a financial adviser from providing post-bankruptcy financing,” the debtor retaliated. “Raising the extraneous issue of Credit Suisse“s roles in these cases, and reaching outrageous conclusions from ordinary course investment bank dealings, is a distraction to consideration of whether an equity committee should be appointed”. Prepetition and debtor-in-possession lender J.P. Morgan Chase Bank NA, at the head of a group that owns 62% of Oneida, as well as a having seats on the company“s board, also submitted a response “amplifying the points” made in the debtor“s letter, documents show. The bank showed evidence of Imperial Capital LLC publishing a report in August 2005 pegging an “option value” on Oneida“s stock, and suggesting a restructuring through the conversion of the company“s Term B debt to equity. Oneida“s plan includes the conversion of about USD 98 million in term B debt to all of the company“s equity. The bank also claimed that the company“s projections behind the committee“s valuations are “aggressive” and based on revenue growth in the face of falling sales. Those projections predict that Oneida will have USD 17.3 million in positive free cash flow in 2007, and USD 24.6 million, USD 23.4 million and USD 30.9 million in the following three years. The bank called the conflict of interest charges “baseless”, noting that Credit Suisse has segregated the financial advisor and exit financing teams. “The shrillness of the response by the company and banks suggests they“d rather freeze us out now than have a full and fair airing of the issue,” Xerion“s Arbess argued. At the 5 April 2006 hearing, Gropper also approved Oneida“s USD 40 million debtor-in-possession loan from J.P. Morgan on a final basis, overruling the equity holders“ objections, and also approved the retention of debtor counsel Shearman & Sterling, Stark said. Oneida filed for bankruptcy on 19 March 2006 in the Manhattan court.