WILMINGTON, Del., May 4 (Reuters) - Holders of Spansion Inc convertible notes asked a federal court to block part of the chipmaker's approved bankruptcy plan that would wipe out their investment, according to court documents.
The plan to reorganize the world's No. 3 maker of flash memory chips was confirmed by Delaware's Bankruptcy Court last month. Under the plan, holders of secured debt would get cash and new debt, while senior unsecured noteholders and holders of trade claims would get stock.
The plan would wipe out convertible notes, and holders of those notes asked the U.S. District Court in Wilmington to block the distribution of stock to senior noteholders.
The convertible note holders said U.S. Bankruptcy Judge Kevin Carey failed to consider their alternative plan. Under that plan, senior noteholders would be paid cash and holders of convertible notes would receive stock.
The convertible note holders said they had financing for their plan.
Creditors who have been able to finance alternative plans have generally been able to convince judges to accept their proposals, as junior bondholders did with theme park operator Six Flags.
'I thought it was supposed to win the day,' Paul Silverstein, of the law firm Andrews Kurth, said of financed plans. Andrews Kurth represents the holders of Spansion convertible notes.
The note holders asked the U.S. District Court to stay the stock distribution until their appeal can be heard, or for two weeks to allow them time to take their complaint to the U.S. Court of Appeals.
Sunnyvale, California-based Spansion filed for bankruptcy protection in March 2009. It reported sales of $1.4 billion last year.
Flash memory is used in such products as digital cameras and DVD players, and allows the devices to retain data even when power is turned off.
Shares of Spansion, which will be wiped out when it emerges from bankruptcy, rose 38 percent to 3.85 cents in pink sheet trading.
Spansion did not immediately return calls seeking comment.
The case is In re: Spansion Inc, U.S. Bankruptcy Court, District of Delaware, No. 09-10690.
(Reporting by Tom Hals; editing by John Wallace) Keywords: SPANSION/ (thomas.hals@thomsonreuters.com; + 1 302-993-6283; Reuters Messaging: thomas.hals.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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