Largest creditor and sole proponent of successful joint plan of reorganization; the US$690 million successful bankruptcy reorganization of Fortune 200 Allegheny International.
An investment in senior secured bank debt and several classes of senior bonds resulted in a 185% IRR and a TVPI of 1.62x 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.
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.
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.
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.
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.
Allegheny had a value destruction culture rooted in insider self-dealing, politics over performance, environmental toxification, and complete disregard for stockholder and bond holder value. Japonica executed a total culture change program starting with acquiring only select assets via a reorganization and re-naming the company, changing the board, relocating the headquarters, and replacing senior management.
Japonica built its business plan for Allegheny International by exploiting a menu of then cutting-edge technologies to identify opportunities to increase sales, profits, and cash flow. Examples of value creating technologies include but are not limited to: satellite technology to assess hidden company properties, supply change management software to increase cash balances, and collaborative virtual workspaces to better manage a very large and highly dispersed transaction team.
Regarding ESG for Allegheny International, Japonica rescued a Fortune 300 company out of very messy and prolonged bankruptcy proceeding. During the process, Japonica significantly increased the financial recovery for creditors and set a new standard of creditor democratic rights in a reorganization. Saved over 10,000 jobs and entire communities. Proposed a plan accepted by the court and creditors for the environmental remediation of toxic chemical sites that had a very checkered prior record of ESG responsibility.