In re Exide Technologies

• Decision Date: 30 December 2003
• Docket Number: No. 02-11125 (KJC).,02-11125 (KJC).
• Citation: 303 B.R. 48
• Parties: In re EXIDE TECHNOLOGIES, et al.<SMALL><SUP>1</SUP></SMALL>, Debtors.
• Court: U.S. District Court — District of Delaware

303 B.R. 48

In re EXIDE TECHNOLOGIES, et al.¹, Debtors.

No. 02-11125 (KJC).

United States District Court, D. Delaware.

December 30, 2003.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Christopher James Lhulier, James E. O'Neill, Kathleen Marshall DePhillips, Laura Davis Jones, Pachulski, Stang, Ziehl, Young & Jones, PC, Wilmington, DE, Matthew N. Kleiman, Yosef Riemer, Craig Primis, and Tim Elliott, Kirkland & Ellis, LLP, Chicago, IL, for Debtors.

Frederick B. Rosner, Jaspen Schlesinger Hoffman, Wilmington, DE, Itai David Tsur, Dechert LLP, New York City, for Trustee.

OPINION ON CONFIRMATION²

KEVIN J. CAREY, Bankruptcy Judge.

The Debtor asks that this Court confirm its Fourth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (the "Plan").³ Objections to the Plan have been filed by various parties, including, the Official Committee of Unsecured Creditors, Smith Management, LLC, HSBC Bank USA as Indenture Trustee, Enersys, Inc., and others. The hearing to consider confirmation of the Debtor's Plan was held on October 21, 22, 25, 27, and November 1, 6, and 12, 2003. For the reasons set forth below, I conclude that the Debtor's Plan cannot be confirmed in its present form.

BACKGROUND

1. The Bankruptcy Filing.

On April 15, 2002 (the "Petition Date"), Exide Technologies, f/k/a Exide Corporation, Exide Delaware, L.L.C., Exide Illinois and RBD Liquidation, L.L.C. (the "Original Debtors") filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. On November 21, 2002, Dixie Metals Company and Refined Metals Corporation (the "Additional Debtors") also filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. An order consolidating the cases for the Original Debtors and the Additional Debtors (collectively, the "Chapter 11 Cases") was entered by the Court on November 29, 2002. The Debtor continues in possession of its properties and is operating and managing its businesses as a debtor and debtor in possession pursuant to §§ 1107(a) and 1108 of the Bankruptcy Code.

On April 29, 2002, the United States Trustee appointed the Official Committee of Unsecured Creditors (the "Creditors Committee"). On September 23, 2002, the Court entered an order appointing the Official Committee of Equity Security Holders of Exide Technologies (the "Equity Committee").⁴

2. Summary of the Debtor's Business.⁵

The Debtor manufactures and supplies lead acid batteries for transportation and industrial applications worldwide, with operations in Europe, North America and Asia. The Debtor's operations outside the United States are not included in the chapter 11 proceedings. The Debtor's transportation segment represented approximately 63% of its business in fiscal year 2003. Transportation batteries include starting, lighting and ignition batteries for cars, trucks, off-road vehicles, agricultural and construction vehicles, motorcycles, recreational vehicles, boats, and other applications. In North America, Exide is the second largest manufacturer of transportation batteries. In Europe, Exide is the largest manufacturer of transportation batteries.

The Debtor's industrial business consists of two segments: motive power and network power. Sales of motive power batteries represented approximately 20% of the company's net sales for fiscal year 2003. Exide is a market leader in this segment of the worldwide industrial battery market. The largest application for motive power batteries is the materials handling industry, including forklifts, electric counter balance trucks, pedestrian pallet trucks, low level order pickers, turret trucks, tow tractors, reach trucks and very narrow aisle trucks.

Sales of network power batteries represented approximately 17% of the company's net sales for fiscal year 2003. Network power (also known as standby or stationary) batteries are used for back-up power application to ensure continuous power supply in case of main (primary) power failure.

On September 29, 2000, the Debtor acquired GNB Technologies, Inc. ("GNB"), a U.S. and Pacific Rim manufacturer of both industrial and transportation batteries, from Pacific Dunlop Limited.

3. Prepetition and DIP Lending.

On the Petition Date, the Debtor and certain lenders (the "DIP Lenders") entered into the Secured Super Priority Debtor in Possession Credit Agreement (the "DIP Agreement"). Also on the Petition Date, the Debtor, its foreign non-debtor affiliates and the Prepetition Lenders⁶ executed the Standstill Agreement and Fifth Amendment to the Credit Agreement (the "Standstill Agreement"), in which the Prepetition Lenders agreed to forbear from exercising any of their rights and remedies relating to defaults under the prepetition credit agreement against the Debtor's non-debtor affiliates until December 18, 2003.⁷ The Standstill Agreement contains a cross-default provision, which provides that a default under the DIP Agreement also constitutes a default under the Standstill Agreement. On April 17, 2002, the Court approved the DIP Agreement on an interim basis, and by Order dated May 10, 2002, the DIP Agreement was approved on a final basis (the "Final DIP Order").⁸

4. The Creditors Committee's Adversary Proceeding.

In the Final DIP Order, the Debtor agreed with the Prepetition Lenders not to investigate the conduct or claims of the Prepetition Lenders and waived any claims it might have against the Prepetition Lenders. Thereafter, the Creditors Committee negotiated for and obtained the right to pursue investigations of and causes of action against the Prepetition Lenders as part of the Final DIP Order. After conducting its own investigation and analysis, the Creditors Committee took the position that the estate had significant causes of action against the Prepetition Lenders and, on January 16, 2003, the Creditors Committee commenced a suit against the Prepetition Lenders in the adversary proceeding styled Official Committee of Unsecured Creditors, et al v. Credit Suisse First Boston et al. (No. 03-50134-KJC)(the "Adversary Proceeding").⁹ The Adversary Proceeding alleges that, in financing the Debtor's purchase of GNB in 2000, the Prepetition Lenders were able to obtain significant control over the Debtor, enabling the Prepetition Lenders to force the Debtor to provide them with additional collateral and to control the Debtor's bankruptcy filing. The Adversary Proceeding complaint included counts to recharacterize part of the Prepetition Credit Facility as an equity contribution, to equitably subordinate the Prepetition Credit Facility Claims to the payment of general unsecured claims, to avoid certain transfers from the Debtor to the Prepetition Lenders as insider preference payments and/or as fraudulent transfers, to find that the Prepetition Lenders aided and abetted the Debtor's breach of its fiduciary duties to the Debtor's unsecured creditors, and for deepening insolvency.

On February 27, 2003, the Prepetition Lenders filed a motion to dismiss the Adversary Proceeding. By this Court's Order and Memorandum dated August 21, 2003, the motion to dismiss was granted, in part, and denied, in part, so that R² was dismissed as a party plaintiff and Count I (Recharacterization) and Count XVIII (objection to the Prepetition Lenders' claims under § 502) were dismissed.¹⁰ Other Counts were dismissed with leave to amend and the Creditors Committee filed an amended complaint on September 4, 2003 (the "Amended Complaint").¹¹ Discovery was limited during the pendency of the Prepetition Lenders' motion to dismiss and, although intense discovery activity took place prior to the confirmation hearing, the Creditors Committee argues that yet more discovery is necessary in connection with claims raised in the Adversary Proceeding.

5. The Debtor's Plan.

On September 8, 2003, the Debtor filed the Second Amended Disclosure Statement for the Debtor's Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (the "Disclosure Statement") and the Third Amended Plan. On September 10, 2003, this Court entered the Order (A) Approving the Debtor's Disclosure Statement; (B) Scheduling a Hearing to Confirm the Plan; (C) Establishing A Deadline for Objecting to the Debtor's Plan; (D) Approving Form of Ballots, Voting Deadline and Solicitation Procedures; and (E) Approving Form and Manner of Notices (the "Disclosure Statement Order"). The Disclosure Statement Order, among other things, approved the Disclosure Statement and authorized the Debtor to solicit acceptances of the Plan.

The Plan summarized its classification and treatment of claims and equity interests as follows:

Summary of Classification and Treatment of Claims and Equity Interests: Exide¹²

                -----------------------------------------------------------------------------
                Class Claim Status Voting Right
                -----------------------------------------------------------------------------
                P1     Other Priority Claims               Unimpaired  Deemed to Accept
                -----------------------------------------------------------------------------
                P2     Other Secured Claims                Unimpaired  Deemed to Accept
                -----------------------------------------------------------------------------
                P3     Prepetition Credit Facility Claims  Impaired    Entitled to vote
                -----------------------------------------------------------------------------
                P4     General Unsecured Claims            Impaired    Entitled to vote
                -----------------------------------------------------------------------------
                P5     2.9% Convertible Note Claims        Impaired    Deemed to reject
                -----------------------------------------------------------------------------
                P6     Equity Interests                    Impaired    Deemed to reject
                -----------------------------------------------------------------------------
                

Summary of Classification and Treatment of Claims and Equity Interests: Subsidiary Debtor¹³

...