Few hedge funds have been as active, or as successful, in making investments in distressed enterprises as Appaloosa Management, and it certainly is highly experienced in utilizing the Chapter 11 process to effect its goals. However, even Appaloosa recently found itself enmeshed in the recent trend in bankruptcy courts (particularly in the Southern District of New York) towards more extensive disclosure. While Dana Corp. did not involve a court decision, it further highlights a development (see 10/26 post below) that is butting up directly against hedge funds’ customary reluctance to make public any information that could provide insights into proprietary strategies.
According to a report in Daily Bankruptcy Review, Appaloosa’s bid to gain control of auto parts manufacturer Dana Corp. was ultimately stymied by its refusal to disclose the identities of the investors who were, together with Appaloosa, to provide a new equity infusion as part of a proposal to acquire Dana for $2.25 billion. Dana earlier had agreed to a deal with Centerbridge Capital Partners to fund the company’s emergence from Chapter 11, and Appaloosa had been trying to woo Dana and its creditor constituencies with a counter-proposal. Dana’s labor unions, which favored the Centerbridge deal (and which had agreed to wage and benefit concessions in connection therewith) demanded in its negotiations with Appaloosa that it disclose the names of of the “standby purchasers” who were to buy a portion of the new equity in Dana to be issued under a plan of reorganization. In a letter to Dana’s board, the unions stated, “The unions have made clear that ownership and governance issues are of critical importance, yet Appaloosa fails to identify the ‘standby purchasers’ specified in its proposal.” Because the unions’ concessions are crucial to Dana’s future viability, without the unions’ support the Appaloosa bid foundered.