The two-year battle for control of bankrupt auto supplier Venture Holdings Co. LLC has left creditors with one of the worst possible outcomes.
Banks that loaned Venture money before its 2003 bankruptcy filing will own the company, after no other party bid on the Fraser, Mich.-based supplier.
The banks' offer, known as a ``credit bid,'' will leave little for those owed money by Venture. In essence, the banks bid their collateral for most of the assets of Venture. J.P. Morgan Chase & Co. is the agent for the banks.
U.S. Bankruptcy Judge Thomas Tucker approved the sale April 19. The banks will need to pay about $157 million cash to post-bankruptcy lenders and to cover other Chapter 11 costs. The deal still is subject to closing requirements.
What's not clear is who will run the new Venture, a company with about $1 billion in annual sales. That will be announced when the deal closes, which should be soon, said William Burgess, a member of Detroit-based Dickinson Wright PLLC who represented the bank group.
The assets include nine companies that were not part of Venture before the bankruptcy filing. Venture's bank group seized those companies - which handle tooling, some patents and real estate - last May and put them into Chapter 11.
Creditors with no collateral will have to recover cash through their lawsuit against Venture's former owner, Larry Winget. They accuse him of improperly siphoning $314 million from Venture and its subsidiaries into other businesses he controlled.
Winget fought the banks and unsecured creditors over terms of a reorganization plan. Tucker eventually ruled for Winget, who objected to the plan, and the company was put up for sale. Winget resigned from Venture during the bankruptcy and the company took the unusual step of joining the unsecured creditors in the lawsuit against him.
Venture was not able to bid on new business in bankruptcy and no qualified buyers came forward.
A lawyer representing unsecured creditors said the banks' bid was the best anyone could do under the circumstances.
``We were disappointed in the outcome in terms of restructuring the business,'' said Joel Applebaum, a lawyer with Detroit-based Pepper Hamilton LLP. ``But we supported the sale because of the agreement we reached with the pre-petition lenders.''
Under that deal, unsecured creditors get funding to continue the lawsuit against Winget. They also get proceeds if they win the case. Unsecured creditors were led by bondholders owed about $455 million.
Winget did not make a bid for Venture. He still owns operations in Australia and South Africa where the banks didn't have an interest.
Applebaum said the banks probably will try to improve Venture's profitability, then sell the company.
But the question is how Venture will survive with no backlog of business. That situation will erode sales over the next few years.
Venture will need to be aggressive in grabbing business automakers want to re-source. But Venture still is dependent on the Big Three for most of its work, and volumes at General Motors Corp. and Ford Motor Co. are down, said Eric Merkle, senior auto analyst at Grand Rapids, Mich.-based IRN Inc., a consulting and forecasting firm.
``It's a real difficult situation for them,'' he said. ``If you look at sales and auto production, it's really not that bad if you have a diverse customer portfolio. But Venture isn't one of those companies.''
Venture's troubles started in 2002 when four members of the company's main European subsidiary, Peguform GmbH, asked a German court to declare it insolvent. The Peguform directors said they were concerned about Venture taking money out of Europe to the United States. The court declared Peguform insolvent in September 2002, shutting Venture out of a company it paid $475 million for in 1999. Peguform also was responsible for nearly half of Venture's $1.9 billion in 2001 sales.
The loss of Peguform put Venture into a cash crunch that led to its Chapter 11 filing.