Bankruptcy: Donald Bernstein, Davis Polk
Jack Butler is clear on the role that Donald Bernstein played in the rescue of Delphi. “He was instrumental in creating an environment that allowed for the deal to happen,” the Skadden, Arps, Slate, Meagher & Flom bankruptcy veteran says of the Davis Polk & Wardwell partner.
As adviser to JPMorgan Chase & Co., administrative agent to the debtor in possession (DIP) lenders, Bernstein–along with Willkie Farr & Gallagher’s Marc Abrams [page 59]—assumed a crucial role in convincing U.S. bankruptcy court judge Robert Drain to open up the bidding for Delphi after Platinum Equity, LLC, had initially agreed in late May 2009 to take control of the auto parts supplier. When Drain gave a green light to an open auction process, he cleared the way for a competing credit bid and, ultimately, to the DIP lenders taking control of the core of Delphi’s businesses.
“It was unfair to allow a private deal without the possibility of a credit bid,” Bernstein says. “One of the criticisms of the Chrysler auction was that it wasn’t sufficiently open, and I think the judge may have been aware of that.”
Delphi wasn’t Bernstein’s only brush with the auto industry in 2009. The Davis Polk partner was center stage in the restructuring of Ford Motor Company in a set of deals that saw the carmaker reduce its debt burden by more than $10 billion and renegotiate its pension obligations with the United Auto Workers union (UAW)—and ultimately avoid going to the U.S. government for financial support.
In early 2009 Ford’s future–like that of its Big Three siblings, Chrysler and General Motors–looked bleak. The company reported a $14.6 billion loss for 2008, the largest in its history, but crucially had the cushion of a $26 billion line of credit that it had arranged in 2006. That gave Ford and its advisers breathing room, but there was the threat that Ford would be hit by the panic sweeping through the auto industry. “The concern was that Chrysler and GM would go into freefall, creating a ripple effect hitting the industry and the supply chain,” Bernstein says.
At the beginning of March, Ford announced a broad restructuring of its debt, effectively comprising three different transactions–a $4.3 billion exchange offer for Ford’s outstanding convertible debt, a cash tender offer for $3.4 billion of the company’s outstanding unsecured bonds, and a Dutch auction tender offer to repurchase $2.2 billion of senior secured term loans.
With the risk that one tranche of debt holders might refuse Ford’s offer, Bernstein’s co–lead counsel at Davis Polk, capital markets specialist Michael Kaplan, devised a plan to induce them to take the offer. If some didn’t like the offer, Ford would simply take the cash it had allocated for that tranche and use it to increase its offer to the other two and not sell the tranche. The strategy clearly worked. On April 6 Ford announced that it had retired $9.9 billion of its $25.8 billion in debt and sliced $500 million off its annual interest expenses.
In addition, Bernstein, Kaplan, and fellow Davis Polk partner Mark Mendez advised Ford on an agreement with the UAW that enables Ford to use stock to pay up to 50 percent of future payments to the Voluntary Employee Beneficiary Association health care trust.
Through the summer of 2009, the firm completed a remarkable run of deals for Ford, advising it on a $1.6 billion registered offering of common stock (the first underwritten equity offering in the company’s history); taking the lead on a $2.875 billion convertible notes offering (the largest equity-linked offering by a U.S. issuer in 2009); and handling the amendment and extension of maturity on its $11 billion revolving credit facility. Bernstein describes the restructuring as “one of the biggest execution challenges of my career.”
In January, Ford announced a $2.7 billion profit for 2009, its first since 2005. For Bernstein, saving Ford was Job One.
