Why Micron’s Elpida buy is undeterred by unsecured bondholder action

July 12, 2012 — A group of unsecured Elpida bondholders filed court documents in a Tokyo district court indicating an alternative proposal to Micron’s (MU) sponsorship and acquisition of Elpida Memory’s assets. Barclays Capital, in its analysis of the filing, believes the vote against the deal by a subset of unsecured bondholders is unlikely to have a material impact on the actual outcome.

Micron won the bankrupt DRAM maker’s equity for $750 million plus a separate payment of $1.75 billion to be paid over 7 years to its creditors, using cash flows from Elpida’s operations. The deal was largely considered favorable for Micron, bringing in additional memory capacity and mobile DRAM capabilities. It is not surprising that creditors are unhappy with the deal, Barclays notes, as Micron will pay only 140 billion Yen to debt holders vs. liabilities of 448 billion Yen (as of February 2012).

Concerns about this unsecured debt holders’ action are overblown. This type of action by unsecured bondholders is fairly standard. While the bondholders were not identified, according to Micron this is coming from a subset of unsecured bondholders who purchased the bonds after Elpida filed for bankruptcy.

Indeed, it is still not clear as to whether or not the bondholders have enough votes (needs 2/3 vote) to even influence the transaction. Even with the necessary voting power, this set of unsecured debt holders would need to get their plan approved by Elpida’s secured creditors and the court. The submission of an alternative plan would require the approval of the court before it could be put to a vote by all of Elpida’s creditors.

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