Ultra Petroleum Corp fka UPLCQ

[Kallie]

heather59 Friday, 05/13/16 12:20:18 AM
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2742
of 2836 Go
Paragraph 2 on this page is very interting it explains UPL's situation..,

The effects of hedge fund presence on the equity committee, reported in
Table VI, share similarities to, as well as exhibit differences from, those related
to their presence on unsecured creditors committee. Similar to their creditor
counterparts, hedge fund equity holders are just as vigilant in pushing out
failed CEOs. The effect is significant in both the simple probit model and
the instrumented model, indicating that hedge funds constitute a strong force
ousting CEOs of underperforming companies. Moreover, as in the case for hedge
fund creditors, the exogeneity of hedge fund presence on the equity committee
is rejected at the 1% level in favor of a negative selection (? < 0), that is, hedge
fund shareholders target companies with more entrenched management. This
evidence is consistent with the findings of Brav et al. (2008), who show that
managerial entrenchment invites activism and that the CEO turnover rate
among firms targeted by activist hedge funds doubles the normal level.


Equity holders in bankrupt firms seldom receive payoffs if the firm is liquidated.
Hence, hedge fund equity holders should target firms that are more
likely to survive and should exert their influence to favor emergence. Table
IV shows that hedge funds are more likely to have a presence on the equity
committee in firms with lower leverage and higher profitability; such evidence
suggests firm-picking by the hedge funds. Table VI confirms that the coefficient
on HFEquityCommittee is indeed positive in the outcome equation for Emerge.
Importantly, the coefficient is significant (at the 10% level) in the instrumented
model, which is also supportive of a causal relation.
The ultimate payoff to hedge fund equity holders can be summarized by
the variable DistEquity, which indicates the occurrence of a distribution to
existing shareholders and happens in 21% of the cases. Hedge fund presence
on the equity committee is associated with a 43 percentage point increase in
the probability of a positive distribution to existing equity holders, controlling
for firm and case characteristics. The effect is rendered insignificant when
the instrumented model is employed. Similarly, the log-likelihood ratio test
rejects the exogeneity of hedge fund participation at the 5% level in favor of
a positive selection. Together these results offer strong evidence in support of
hedge funds’ ability to pick stocks of distressed firms with better prospects for
existing shareholders, but offer less evidence for hedge funds’ activist role in
making the distribution happen.
We next make two refinements to the analysis on emergence and distribution
to equity holders. First, we collect information on the stated purpose in Item 4
of Schedule 13D filings by hedge funds in the bankrupt firms. It turns out that
in 21 of the 50 Schedule 13D filings both before and during Chapter 11, hedge
funds state that influencing the restructuring process is their goal, suggesting
a strong activist bias in hedge funds’ investment in distressed firms. When
we include an indicator variable for the stated goal in the probit regression
to explain emergence (results are reported in the Internet Appendix), the new
variable is positively associated with the likelihood of emergence (significant at
the 10% level). Moreover, the marginal effect associated with this new indicator
variable is close to 20 percentage points, which is economically significant as
compared to the sample average emergence frequency of 60%.

https://www.managedfunds.org/wp-content/uploads/2012/05/HedgeFundsAndChapter11.pdf