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Conexant Gets OK For Ch. 11 Disclosure Statement

A Delaware bankruptcy judge signed off on Conexant Systems Inc.'s Chapter 11 amended disclosure statement Friday, allowing the private equity-owned microchip developer to begin soliciting votes for its prepackaged reorganization plan.

The revised document incorporates a global settlement between Conexant, secured lender QP SFM Capital Holdings Ltd. and the official committee of unsecured creditors that resolves all objections to the disclosure statement, ensuring that the company can meet the milestones for its expedited reorganization, debtors' counsel Joshua A. Sussberg of Kirkland & Ellis LLP told the court.

U.S. Bankruptcy Judge Mary F. Walrath gave her blessing to the unopposed statement and scheduled a plan confirmation hearing for June 4.

Hit by unanticipated weakness of the semiconductor industry and the unexpected loss of customers, California-based Conexant and four U.S. subsidiaries enter bankruptcy Feb. 28 looking to deleverage its debt and shed a collection of burdensome leases under a prepackaged Chapter 11 plan, according to court documents.

The global settlement incorporated in the amended statement and plan increases returns for unsecured creditors and resolves objections which could have derailed Conexant's reorganization time table and forced the company to resort to a Section 363 sale instead, Sussberg said.

Under the agreement, the recovery pool for unsecured creditors will be increased to $2.9 million from $2 million and QP SFM will waive its $114 million deficiency claim upon the plan going effective, he said.

Conexant has worked carefully with the committee to estimate unsecured claims, which are now believed to be $33 million, down $16 million from the original projection, Sussberg said.

That change, combined with the pool increase, means projected recovery for unsecured creditors will be nearly 9 percent, more than double the original projection, he said.

The global agreement also resolves objections over outstanding leases from two major landlords, committee counsel Gilbert R. Saydah of Kelley Drye & Warren said, "very significant issues that could have impeded this reorganization."

The U.S. trustee is satisfied with the disclosure statement, but intends to raises issues with the plan's "overbroad" releases and exculpations at the confirmation hearing, counsel for the office said.

QP SFM and PE owners Golden Gate Capital and August Capital had already agreed to back the plan, having entered into a prepetition restructuring support agreement, according to court documents.

Judge Walrath also signed off on a series of other pleadings Friday, including motions giving final approval for Conexant's $15 million debtor-in-possession loan and authorizing the company to enter into a new warehouse lease.

The lease is part of Conexant's relocation of corporate headquarters to Irvine, Calif., a move that will save the company $2.5 million annually, said debtors' counsel Joseph Pack of Kirkland & Ellis.

Formerly based in Newport Beach, Calif., Conexant employs more than 225 research and development employees worldwide and holds more than 650 patents for its chips and related technology, and it has more than 200 patents pending, according to court documents.

Spun off from Rockwell International in 1999, Conexant had been an industry giant from the get-go, with 6,300 employees and revenue of $1.2 billion, and grew even bigger following an initial $2 billion acquisition spree, according to court documents

But factors including the bursting of the dot-com bubble, declining prices and demand, and increasing debt forced divestitures and downsizing, eventually reducing annual revenue to $166 million by 2011.

Conexant is represented by Paul M. Basta, Joshua A. Sussberg, Christopher T. Greco and Joseph Pack of Kirkland & Ellis LLP and Domenic E. Pacitti, Michael W. Yurkewicz and Morton Branzburg of Klehr Harrison Harvey Branzburg LLP.

The committee is represented by James S. Carr, Craig A. Wolfe and Gilbert R. Saydah of Kelley Drye & Warren LLP and Kevin J. Mangan and Matthew P. Ward of Womble Carlyle Sandridge & Rice LLP.

The case is In re: Conexant Systems Inc., case number 1:13-bk-10367, in the U.S. Bankruptcy Court for the District of Delaware.