Tower Creditors Object to Union Deal

Tower Automotive's creditors have objected to a settlement the company reached with two big unions to cut its labor costs, saying the pact improperly puts the interests of Tower's workers ahead of those of its creditors. Tower's creditors committee already has appealed a bankruptcy judge's approval of a similar settlement Tower reached with its retired workers in Milwaukee. The group has said in court papers that pact was "anathema to the basic precepts of Chapter 11" because it offered the Milwaukee workers a guaranteed minimum payment once Tower completes its bankruptcy reorganization.

From AFX News Limited

WASHINGTON — Tower Automotive’s creditors have objected to a settlement the company reached with two big unions to cut its labor costs, saying the pact improperly puts the interests of Tower’s workers ahead of those of its creditors.

Tower’s creditors committee already has appealed a bankruptcy judge’s approval of a similar settlement Tower reached with its retired workers in Milwaukee. The group has said in court papers that pact was "anathema to the basic precepts of Chapter 11" because it offered the Milwaukee workers a guaranteed minimum payment once Tower completes its bankruptcy reorganization.

The latest settlement, negotiated with the United Auto Workers and the International Union of Electric Workers/Communications Workers of America, involves workers in Kalamazoo and Greenville, MI. It grants the Greenville workers a general unsecured claim of $12 million against Tower. It grants the other workers a $2.5 million unsecured claim. Holders of unsecured claims typically recover only a small fraction of their claims in Chapter 11 reorganizations.

But the creditors committee said the latest settlement, like the one involving the Milwaukee retirees, provides "guaranteed minimum recoveries" to the Kalamazoo and Greenville employees. Accordingly, the settlements "impermissibly dictate the terms of a future plan of reorganization and violate the principal underpinnings of the Bankruptcy Code," the committee said in papers filed Friday with the U.S. Bankruptcy Court in Manhattan.

Tower is one of a growing number of automobile-parts manufacturers that have tumbled into bankruptcy proceedings amid production cuts by the biggest U.S. vehicle manufacturers. The company and 25 of its subsidiaries filed for Chapter 11 protection from creditors in February 2005, listing $1.3 billion in debts.

The Novi, MI-based company has said it needs to cut labor costs by at least $30 million if it is to emerge from bankruptcy. Tower said its deal with unions to cut workers retirement benefits allowed it to achieve nearly all of its cost-cutting objectives. The UAW union had previously threatened to strike if Tower cut benefits without its consent.

"Aside from certain minimal upfront cash funding obligations, Tower will be freed from virtually all cash obligations to the retirees represented by the UAW and the IUE/CWA," the company said.

U.S. Bankruptcy Judge Allan Gropper is scheduled to consider the settlement at a hearing Wednesday. Gropper previously overruled the creditors’ committee’s objections, saying bankruptcy law doesn’t require creditors to be treated on par with the employees of a bankrupt company.

The U.S. Bankruptcy Code grants a company in bankruptcy "broad authority to alter the rights of unsecured creditors in a plan of reorganization," Gropper said. The code, "by contrast," gives a company considerably less discretion to alter the rights of retirees, he said.

Besides, he said, "the court has no reason not to endorse a settlement that satisfies (Tower’s) principal goal, saving cash, while affording significant protection for the rights that Congress required be preserved for the retirees," he said in a ruling. The settlement, Gropper said, should allow Tower and its creditors to negotiate a reorganization plan and bring an end to the bankruptcy case.