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It would have been foolish of the ad hoc to push for objection of the Hyperion sale or terms without a cash bidder at the table.
The real battle was getting a committee formed. if accomplished, the committee could go after the hyperion sale and at the very least, attack some of the $25 million of prof fees in the case to benefit of eqty.
To make a big stink of the sale without a qualified bidder ready to put up cash (look up definition of qualified in bid procedures) would have been to tell the court that an equity committee was going to (potentially) argue every issue in the case with or without support typically sought by the court. Not wise.
If anything, ad hoc should have done what it could to prevent objections to the sale. I get that this is to give up potential value for equity, but again, some of that can be recouped and the real battle that day was formation that could potentially lead to recovery for eqty, not a 6-digit topping bid that won't help eqty without standing under a committee.
Wouldn't know. i'm not a BK lawyer. Don't even have a JD. i did worked on the equity desk of one of the largest hedge funds. I have no holdings in this stock and don't care where the price goes. Happy trading to you.
I believe that the Debtors were willing to make concessions for allowing another party to bid. i'm not saying that there was money left on the table, but without support of a bidder with cash ready to go, it would not hold with the court. I've seen plenty of shame 363 processes, but unless you have cash to back that existing bids are undervaluing assets, you cannot hold up a process or even argue that the Debtors are sandbagging value. Creditor Committees fight these issues with success all the time, but only if they have an alternate bidder. What was missing here was an alternate bidder. That not only takes away an argument to fight the sale hearing, but any argument that the debtors are mismanaging the case and need oversight by an EC. Without an alternative biddee (again, cash in hand), the Debtors will say "Your honor, we ask the ad hoc to show us a bidder. We would love to sell Hyperion for more money but we cannot find a better bidder. if the ad hoc has no better bidder, why are they objecting now? they were aware of bid deadlines that expired 8 weeks ago ..."
a fair argument is why the ad hoc didn't pursue other bidders. I cannot comment as i don't know the terms of the engagement letter btwn the ad hoc and its professionals. might be reasonable to conclude, however, that finding a topping bid for $1 million is a lot of work for a professional with bigger matters at hand (e.g. getting a ec formed).
i asked Xena what facts were missing. You replied "read back from Friday, do some XL DD....".
I don't fully understand your response, but my point is that i don't see how any germane points were missed by the Ad Hoc attrnys. my point is that ad hoc attrnys successfully argued for what Boroff wanted. Boroff acknowledged this and still ruled against formation of an EC. Its an odd judgement but not the failure of the Ad Hoc. The Judge changed his mind about how he'd rule and ignored basic principles of going concern value not to mention definitions in the bk code and the very case law he said he'd use as a basis for ruling (see Wang).
Debtors tend to file in the SDNY or Wilmington to avoid this kind of bizarre ruling. Unfortunately, this time around equity lost on the unpredictable and unprecedented ruling.
stockdawg44
i'm a bit short on time so won't read past posts although i think i did read most of 10/16's posts. The ad hoc had access to inside information. There is no more credible source. Further, the Debtors made a mistake with that info in that their own data supported solvency--which is a standard required to support formation of an EC. The Ad Hoc showed that with the Debtors very own data, they were solvent. Debtors did not provide a counter value or attack the Ad hoc position outside of saying that at present, the Debtors are in very bad shape. Current cash burn is not a determination of value, particularly when the debtors are investing in the very future that projects present value for equity.
Hyperion is only a side show. You cannot use innuendo and conjecture in these situations (not without the court questioning everything you say).
The ad hoc's bar was to show that the fair value of assets exceeded $1.0 billion in claims. The Ad Hoc did this in multiple ways. The Ad Hoc presented that numerous claims by the Debtors were without basis, misconstruing facts, and in the case of asserted claims, the Debtors were ignoring that over 25% of their asserted claims were duplicates.
I cannot imagine any outside details that could have bolstered the ad hoc's arguments. If there was something, it should have been presented to the Ad hoc's counsel.
Okay Xena, what was incomplete? What was missed?
Boroff acknowledged that the Ad Hoc established that the Debtors were not hopelessly insolvent. This was the very criteria he said would drive his decision. If the ad hoc supported the very criteria requested by the Judge and the Judge decides to change the rules of the game halfway through, what was missed by the Ad Hoc? Pls respond with something other than conjecture.
On appointment of trustee/examiner
Good find/idea, however, position of UST so far does not seem to indicate that they are inclined to support. On a bright note, anyone can call the attorney to the UST assigned to this case for more details.
Also recall there were two offers for DIP financing (not a sign of a dog with fleas). i understand that the ad hoc profs did use the debtors own numbers to build a compelling case.
where does Xena get his/her facts????
I recall hearing somewhere that ad hoc proved solvency using the Debtors exact projections.
Sorry Xena, but you don't know what you're talking about.
There was blood poured into efforts on behalf of the Ad Hoc and not for financial gain. There are people in the bankruptcy profession who understand acutely well that Debtors are exploiting opportunity at others expense all the time. It's sickening. Those people work long hours at great financial risk sometimes to level playing fields on behalf of those who will not have a chance otherwise.
Up until Boroff's ruling, it looked very good for formation of a committee. Boroff's opinion, unfortunately, ignored some basic tenants of 'going concern' value: (i) that there is future value of a going concern--supported in this case by the Debtors' own figures, (ii) that the Debtors' current liquidity is not in itself an indication of insolvency (ex: by backing out R&D, capex, & WC growth, cash flow is positive), (iii) that 101(32) of the code supports a view of going concern value by defining insolvency via the "fair value of assets" (the Debtors have yet to provide support against this in any capacity), and (iv) that value need not be determined by an ability to pay cash dividends (Boroff's decision appears pinned on liquidity and not potential to issue new shares to equity at some future time pending the outcome of a plan of reorganization).
Judges rule and try to get it right. In this case, Boroff got some fundamental tenants of financing wrong and ruled, imho, wrong as a result. Lawyers get these issues mixed up all the time. While the ad hoc pleaded for testimony by financial experts, Boroff yielded to the debtors who declined opportunity to have their expert testify or to cross examine the ad hoc's expert. Had you been there and seen the facts play out until then, seen Despin hemming and hawing, heard the ad hoc's arguments, you would have felt very good about the prospects for an EC--even without testimony.
But what do i know Xena? Your 2+2 logic is also pretty tight.
Superfly15:
Would like to discuss KVPH with you. Can you call me? Number is:
two one four
four five nine
three four four three
Ross
on the 15th ...
Thanks. Perhaps there is then room for optimism. I thought i heard the Judge speak differently today, but if you are correct, then he should still entertain documents filed yesterday but given the late upload, has not yet had a chance to review.
I just hope that these arguments will not be ignored on some technicality.
WHEN WAS THE 11/15 DEADLINE SET???
I can't find in the docket. Was this a date mentioned on the 11/12 call (which i missed)?
I find it peculiar that all of these letters come in the day after a deadline, are not uploaded to the docket until 11/18, and are then backdated to 11/17.
It's too convenient.
On Valuation Concerns
Good post. Keep in mind that if the voting classes to the plan do not object to the valuation used in the Plan, the judge will not challenge. At present, S/Hs are not a voting class, however, in light of case facts, they very well should be.
Plan exclusivity
Debtor has exclusivity to file for 120 days. if done, no other plan can be filed within the first 180 days after (i think) the order for relief. Court can grant extentions, but i think it's limited to 20 months after order for relief.
Sticking to one point
I think your thought of going to the court with one voice is an excellent one and i fully agree. I believe that the method in which value was allocated is a strong point to raise with the court (although i am not a lawyer and can't say this is THE best argument).
At the same time, i am hesitant to tell anyone to not speak their voice. Unfortunately, we're not organized with good counsel and are limited in our capacity to formulate a strategy in the context of the legal issues of this case. If this does not go the way we wish, i would hate for someone to have thought that they held back on their approach to serve the non-legal opinions of a few.
Having said all that, i'm wholly in favor of speaking through one voice (if it's coming through good counsel).
on interco claims
I agree Janum. Interco is class 8 which is junior to classes 7 and 6 (the general unsecured), etc.
I saw a post on Smurfit via H., and it's good feedback (although i do not know all the implications for interco claims that arose from this case). I'm of the view that we need to fight Class 7 claims & interests, however, right now the bigger battle is futher upstream on the recovery calculation. Currently, the Debtors' assertion is that there are billions of claims in front of both class 8 and 9 claims/interests. If we can't overturn this assertion, the issue of interco clams is moot (although i think Shareholders have voiced some important concerns over class 8 claims in prior communications).
On 503(c) / KERPs
I'm no a lawyer and didn't follow the subject of mgmt payments too closely. I just threw out the topic for perspective.
My view on mgmt payments is that while they are foul and smack of greed at the expense of employees, shareholders, and the moral high-ground, this is not a make-or-break issue that will overturn the plan or parts of it.
The counter-arguement on these payments is whether mgmt would leave without them, further damaging estate value. While that's not an impossible battle to fight, it's a tough one from our vantage.
Kerp
insert-text-here
This was a big deal in '06/'07
to H
Sorry H. I'm puzzeled at the court's anger. I think that the Debtors were perhaps trying to lead the court with a new methodology that had never been presented before and which had little bearing on shareholder arguments. The points presented were sailent and reasonably organized.
I'm not sure where the issue is. If the Court has the clarity it requires and can explain the objective methodology to Shareholders, than we the shareholders should conceed on this point. I'm pretty confident, based on ~20yrs experience, that the court is unable to understand that the Debtors' methodology isn't anything more than a deliberate transfer of wealth to suit the needs of those brokering this process. Perhaps that's where we chaffed some nerves.
i'll follow-up by phone later on.
re: interco claims
existence of intercompany obligations
i don't doubt they exist, the question is how they arose and what should be their treament under BK
whether intercompany obligations should be avoided;
very possibly yes. this is not uncommon as there are often offsetting assets to offset the claims. Howeverm there's not enough information to understand this right now.
whether they should be pari passu with other obligations, subordinated to other obligations, or some other possibility;
BK deals with claims, not obligations and claims are organized into classes with no claim receiving different treatment than other other claims of that class. I think it's not questionable that most of these claims are Class 8 claims. If some are grouped with senior classes, then this is a real isue to examine.
or whether they should be recharacterized to be deemed to be
contributions of equity and not debt.
I'm not sure about this, but i'm not sure you can say that the interco claim is deemed an equity contribution. The interco claim may recover through receipt of new shares (or may contribute "new equity"), but this is different than equating a claim as an equity contribution. Interco claims may contribute to the book value of equity (depending on how accounting entries are booked), but the book value of equity has little bearing in a case like this.
re: judge's feedback. not a big deal. We're not lawyers and didn't know the protocol. now we know ...
So is he ruling today?
Regarding managment comp
If you want to get really irked by management's $5m/head charade, do some research on the concept of KERPs (Key Employee Retention Plans). I suspect that this falls into the category of a KERP, which was specifically banned in the '05 BK Code reform.
KERPs are typically a concept of compensation paid during a BK process, however, it's conceivable that this has been promised from the outset and is just being vetted now to skirt KERP restrictions. To assess, you'd need to research if this kind of pay out is typical in cases of this nature (i do not know the answer).
If it looks like a KERP, smells like a KERP, and acts like a KERP, it probably is one.
agreed. our objections fuel that end and require the Court to give careful consideration before ruling on this high profile case. it's among the reasons for why i'm increasingly optimistic. ergodoc has some of my other thoughts.
Pushing the Pieces
The navigation (negotiation?) of bankruptcy in many ways is akin to a game of chess. Tactics are deployed and moves must be considered far in advance. Game strategy is upheld or pieces/position are lost ... and ultimately the game.
In this respect, one might think that the shareholders are the lowly ranked opponent up against a Grandmaster (i.e. the Debtors). However, a bully's size and sophistication lends to an aggressive playing style that leaves our sophisticated opponent vulnerable. As the vunerable player covers its tracks, it finds itself overextended.
I anticipate that our “grandmaster” bully is losing value on the board and is increasingly exposed. :)
Reason for optimism
As we head into the weekend, there is some good reason to be opportunistic. I heard the judge speaking specifically to issues raised by ergodoc's pleading when addressing the debtor. We thought that perhaps there was some jabs at ergodoc's position towards lunch, but as the day unfolded, I think that this was likely aimed in a different direction. There is also scope to understand that the judge is specifically giving good consideration to some of ergodoc's points (i.e. they will not being dismissed lightly).
This is by no means a slam dunk. Shareholders have not benefited from legal counsel that can address related court cases or find other useful foils for the cause. Keep in mind also that the goal of the process is to get a Plan confirmed, and so unless there are compelling reasons to throw the Plan out the window, the judge will seek to confirm--particularly if the act of not confirming does more harm than good.
Having said all that, I think we've put our best foot forward through some great presentations and all should be eager to see what Tuesday brings. Until then, have a great weekend!
Re: disallowing claims
BK doesn't deal with debt but rather claims. A claim is just that, a claim. The claim must be valid and have lien rights against the debtor's property (even if unsecured). If the claim is not a valid lien right for debtor property, then it might not exist. Even if a claim meets all the above criteria, it might be disallowed as a preference payment, a fraudulent transfer, etc.
If i recall correctly, during the Iridium filing the secured lenders did not properly perfect their liens and became a large, unsecured lender. In another case, i saw a lender forget to perfect liens on real property (90% of assets in case) and therefore suffered reduced recovery.
re: "It's a General Plan"
very interesting. In a recent discussion with an attorney at the UST office, i was told that he understood that the plan represented individual plans for each debtor.
re: shareholders recovery
why wouldn't shareholder's get the stated recovery? If the circumstances justify and procedure allows, then why not?
re: lack of disclosure
Keep in mind that this is an issue only if the voting parties object. If the voting classes (and equity currently has no vote) don't mind the abscense of disclosure, then the court will not stand in the way of approving.
I'm not a lawyer, but this is my understanding
re: painted gun
There's been a bold-faced lie perpetrated in this case that is akin to holding up a large group of people at gunpoint. The absurdity of the situation, however, is that as real as the gun looks, it's fake—comically so.
The specific reference to a painted bar of soap comes from the movie, “Take the Money & Run,” which is a great film if you have not had a chance to see yet. Here’s a clip of the referenced scene:
Clip of Shoe-Polish Gun Prison Break
Do you hear that?
It’s the sound of a storm brewing.
It is said that as our economy’s liquidity washed away with distress in 2008, the jagged rocks of rogue business activities became visibly apparent. In the sphere of bankruptcy, this is everyday occurrence and the bigger the issue, the bigger the enticement to use brute force over reason and logic. I suspect that within our case, the Debtors have been very comfortable in their position for some time. Smugly so.
It’s hard to imagine that you may have the upper hand when confronted by a bully, particularly when that bully has you at gunpoint. But then there is the soft sound of rain drops ...
… and it’s revealed that the bully’s “gun,” is a painted bar of soap.
It’s time to reveal the Debtors for who they are and their flimsy plan for what it is. Look forward to next week. It’s going to be a good one. : )
Now I see hope ...
:p After a full day, I've done some research and found that the tactic whereby shareholders are getting screwed is a widely used vehical in large, complex cases. It looks like, IMHO, that the Debtors and/or certain creditors rolled the dice in this case that they could get away with some dubious assertions at shareholder expense.
I'll keep my cards close to my chest (as we all should at this late juncture), but ergodoc is in the loop and will hopefully be armed with some powerful quivers in his quill.
I'm not a lawyer, but hopefully we have some strong material that will grab the judge's attention.
"Cry 'Havoc,' and let loose the dogs of war"
Anthony speaking to the Senate, vowing vengance against the conspirators who took Caesar's life
Hopefully ergodoc will shortly be able to allay your concerns. We know each other and I'm not a short (nor have i traded this stock in the past two-ish months). I'm looking to help.
Again, the long shareholders need not fear the shorts; they have no power in this play. Our goal s/b to sway the court's opinion. The court and the court alone holds power over our future.
thanks. Just sent an email.
How can i get in touch with you? If you're leading the charge, is there a number/email where I can contact you? You can send to my private mailbox. I may have your contacts from interactions in the past, but it'll take time to dig up. I'll be available after noon today.
I'm a friend
An Appology
I meant no offense and i appologize to those who took offense. I found this community and liked what i saw given that i'm in the equity and find the developments in this case jaw-dropping: The debtors and creditors to this case have ripped the shareholders from their shares and thrown the residual equity value into a mixing pot as a bargining chip. The soup is mixed and to distill into the rudementary elements where shareholders can recover will be challenging as it means going against the grain of both the Debtors and Creditors.
I have not read all posts exhaustively. I did not see that an equity committee was formed and saw no formal strategy. If one exists, fantastic and hats off to those moving the ball. All i saw was commentary about market movements and hope that justice would be served. Make no mistake, this is a legal battle and requires legal advisory. I am not of that cloth, however, don't assume I was born yesterday. I'm looking to help and only seek "justice" in return.
Re: Market manipulation
Corporate homicide is a reality of our market which requires disclosure of shareholders with a 10% long position but not a 50% short position. This (and other tactics) allowed runs on banks going back to ’07 that were particularly nasty in that an insolvent bank goes under receivership (i.e. little to no chance of recovery via an 11).
In our case, however, I could care less about the shorts. Let them short as the damage is done and they do no more damage. Our recovery will hinge on the bare naked truth that the current Plan is in violation of the US Bankruptcy Code. The judge can remedy this with a strike of the gavel.
It would help, however, if we were a bit more organized. Pecking away on a message board is not likely to effect much in the way of justice. As for hope, it is the thing with feathers. But, IMHO, a nice song and warmth are not worth much in the chilliest land …