ALLEGHENY INTERNATIONAL TRANSFORMATIONAL INVESTMENT

(Code Name: Aggie)

Summary: Largest creditor and sole proponent of successful joint plan of reorganization; the US$690 million successful bankruptcy reorganization of Fortune 200 Allegheny International.

Background: Allegheny International had operations spanning the globe with number one market shares in its product categories throughout North America, Latin America, Europe, Asia, and the Middle East. Extensive supplier relationships in Asia, especially China. Regional headquarters in the US, Mexico, Germany, and Hong Kong. Allegheny was a highly diversified conglomerate suffering from a loss of passion for innovation and performance, with an almost countless number of business units spanning the globe including operations in consumer products, professional products, components, real estate, natural resources, etc. Approximately 15,000 employees.

Discovering Systemic Misconceptions: With the reorganization balance sheet at the heart of Japonica research, the superstructure team discovered systemic misconceptions on both sides of the balance sheet. Large amounts of assets were not included and/or undervalued. A long list of operating liabilities thought to make businesses non-viable were unjustified and non-core liabilities were overstated by more than one billion US dollars. Furthermore, Japonica discovered systemic misconceptions by constructing meaningful financial statements from the financials of multiple business groups and product lines that had been frequently regrouped into essentially incoherent financials over almost ten years.

Discover Massive Undervaluation: Japonica assembled a team of approximately 100 entrepreneurs and niche specialists who worked for almost 15 months discovering value gaps based on hidden nuggets of value and transformational business plans. Japonica’s analysis found it could acquire multiple classes in the capital structure with a combined low risk, high return, some of which were super secure in full recovery of principal and interest at a fraction of recovery value and other classes that were well protected and offered very attractive returns upon plan confirmation. Japonica was victorious in a highly competitive process that included more than dozen competitors including KKR, Black & Decker, Electrolux, Matsushita, and a reorganization proposal from a DLJ-led investment group.

Created Extraordinary Value: Japonica created extraordinary value by rescuing in record time a bankruptcy process mired in distress and not moving forward by innovating a new tactical strategy of acquiring multiple classes of claims within the capital structure from stakeholders around the world in both privately negotiated transactions as well as an industry first public bond tender by a non-issuer.

Investment Performance: An investment in senior secured bank debt and several classes of senior bonds resulted in a 1.3x investment multiple and 181% IRR in 7 months with no leverage.

The leading and largest creditors believed it was impossible to reorganize AI in the foreseeable future in part due to conflicting creditors, opaque financials, deteriorating operating performance, and unquantifiable liabilities.

Related Reading:

  1. Allegheny International Reorganization Plan
  2. Vulture Investors: May 2008. Book and kindle book can be purchased on Amazon. See chapters seven and eight.
  3. Japonica Partners Reorganization Plan for Allegheny International, New York Times
  4. Japonica Step At Allegheny, New York Times
  Japonica Partners ®