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Preserving value for the current equity holders hinges on these catalysts:
1. Being able to successfully win the $70 million Delta Lawsuit and collect the additional $10 Million due;
2. Successfully negotiate the return of the excess planes under lease without eroding all of the equity value;
3. Place other excess planes into service and perhaps place into service some of the planes they currently intend to return;
4. Economic recovery, in general, picks up and results in top-line growth as well as increased equity.
Let's just look at things realistically. Nothing in "Q" land is a given. If there were any guarantees then it would not have fallen to $0.04. At this point, this stock has a nice chart since it is following its 5 DMA, which is sloping upwards. There is also the "Gap" theory in effect. There are others that can speak with more clarity on the chart aspects. It also is a potential long-term play, IF the pieces fall into place. We need to see some MORs and need to see how the negotiations go with respect to the return of the planes. Along those lines you are looking for:
1. How much liability remains after the plane(s) are returned. Each returned plane, unless otherwise stipulated, will represent an unsecured claim listed on the balance sheet between the long-term liabilities and the equity as a "liability subject to compromise"
2. Will the planes have to be returned in "airworthy" condition and how much will it cost to make that happen.
These are the catalysts and risks as I see them. I hope this helps.
The company has indicated that they think they may be able to restructure in about 6 months so we likely won't see a plan of reorganization for several months. They have to deal with the plane leases first and it would be nice to see the Delta issues completely resolved as well.
I have had some communications with the operator of that blog and I can assure you that he is a sophisticated distressed debt and equity investor. Admittedly, he has much more advanced knowledge of these concepts than I do, based on our communications. He and others like him that I have had the privilege to talk to have challenged me to better and more thoroughly analyze situations like Chemtura's. Any information on his blog that resembles mine is more likely to be because we found the same information, not because he copied it. This guy is very familiar with the case and is obviously an avid reader of the court docs and likley the transcripts as well. If he put a price target and a POR together it is the result of a lot of due diligence work and critical analysis on his part.
Just needed to clarify that.
There is a big misconception about what constitutes an ownership change and whether the retail shareholder must be preserved in order to preserve the NOL. In bankruptcy, the ownership group(s) that must (collectively) be preserved are the stockholders owning 5% or more of the company and the "old and cold" creditors (i.e. those that held the debt for a period of 18 months consecutively). This collective group must hold greater than 50% of the voting rights and value of the new company upon reorganization in order to avoid NOL limitations. The group of stockholders who (on an individual basis) do not own 5% are treated as one group of 5% shareholders.
NOL's can be looked upon by shareholders as a benefit if the company is expected to use them, going forward. Mesa has stated that they expect to be able to make use of their NOL's, which means that they are expecting a return to profitability once they can restructure the lease terms and fleet size to better match their revenue streams.
NOL's cannot be looked upon as an unfailing saftey net for retail shareholders or any group of shareholders during bankruptcy. I often see statements like "They cannot cancel the commons because they want to save their NOLs." This is untrue because the new capital structure could be set up so that old stockholders receive no distribution and the "old and cold" creditors become 100% owners in the new company. In this scenario, the NOLs may be preserved or partially preserved as the case may be, assuming all of the other section 382 stipulations have been met. It is very difficult to preserve the entire value of an NOL and it takes great coordination and planning by all constituencies. Even if preserved, they are often reduced by forgiveness of debt provisions among other things.
Here is a good article on the subject that explains the whole process better than I can.
http://www.gibbonslaw.com/news_publications/articles.php?action=display_publication&publication_id=2754
When life gives you lemons, make lemonade.
Did my loading just above you then.
Apparently another one of those infamous letters was sent out to company employees. There is a reference to it on Yahoo. This is not the first time that Fiduciary Counselors has done this. It looks like the selling may have been a bunch of market orders from employees, and you know what that can do for a stock on the Pinksheets as sell stops are triggered in the process. I see no other reason for today's action.
Knight Capital Initiates Coverage of Chemtura Bonds
Here is the report I mentioned a few days ago. I just got permission to post it on the Blog. See page 11 for a chart of recovery potential at varying entity values.
http://chemturaresearch.blogspot.com/2010/01/knight-capital-initiates-coverage-of.html
Chemtura Calendar of Events Updated January 20, 2010
http://chemturaresearch.blogspot.com/2010/01/chemtura-calendar-of-events-updated.html
Best wishes to you and all of our Belgian friends. Tomorrow will be exciting even if it just moves sideways. Parabolic moves on strong volume that are followed by sideways consolidation will tend to give you some comfort that the breakout is based on a fundamental shift in market sentiment and not some anomaly. We have been seeing that shift for a while now.
Just confirmation from the court that the Judge has signed off on the claims objections procedures. Basically it lays out the ground rules for the claims that will be summarily rejected at first blush based on deficiencies in their filings, timing issues or those that somehow didn't comply with the bar date order. Those folks have a certain period to cure any deficiencies in their claims (ex. not enough info provided to investigate). It also lays out which parties claims will be treated differently due to prior negotiations. Nothing new here.
My gut feeling on this process from reading the transcripts and from reading other court cases and such is that those who assert claims that are not already reflected on the balance sheet will have to put together an iron clad case. There are just too many claims for the debtors or the court to entertain deficient claims documentation. My guess is that the group that filed the 3 claims for $3 billion might be held to a higher standard. There ought to be a way to charge those clowns because it is our money that is being spent to investigate their frivolous claims. No one on this earth believes for a second that there is any legitimacy to to that $9 billion garbage. We need no further confirmation than the bond prices to tell us that. If they were legitimate then we would be talking about a liquidating Ch. 11 and not a reorganization proceeding.
At this stage of the claims process it's kinda like "Don't just sing it...bring it."
No Problem. It also lays out what the EC's vision is for a plan of reorganization which implies that they have likely had communication with Skadden, SVP and/or Canyon Partners. IHUB may be in this for the long haul but we are just along for the ride now. The big players have moved in and will be the driving force behind where we go from here. I think that with the numbers we are likely to see on the next three 10-Q's it will be hard to put a target entity value at a level that would suggest anything other that a substantial recovery. Barring any material changes to the liabilities subject to compromise, my guess would be that our opposition will be hard pressed to convince the court that there is no place for the current equity in reorganization. They will be lucky if the entity value is not well above $2.2 billion based on the most recent 3 months of EBITDA from the MORs.
Knight Capital Initiates Coverage on Chemtura Bonds
There wasa 15 page report issued by Knight Capital on Chemtura today. The have a "Hold" rating on the 2016, and buy ratings on the other two. Their report discusses the equity committee and the potential reinstatement of certain bonds as areas of risk for the bondholders. Also mentions that the market cap is roughly one turn of 2010 estimated EBITDA and that the stock currently trades at a 60% discount to the $2.50 target equity value based on an entity value of $2.2 Billion. There's a lot more stuff in there that is of great value.
I am attempting to get permission to redistribute the report on the blogsite. If I can't, then I will have to write up a summary tonight.
December 2009 MOR is on KCCLLC
http://www.kccllc.net/documents/0910156/0910156100119000000000002.pdf
Today was a good day to take advantage of the A & B arbitrage. If only there were more liqidity. The spread between the bid on the B's and the ask on the A's during market hours today was abnormally large. To my knowledge, there will be no distinction between the two when it comes time to assign a final distribution upon reorganization. If anyone knows otherwise, please advise.
I noticed that there was something to the tune of a 700k block offered on the B's towards the end of the trading day and it didn't last long.
Mesa Motions for Assumption of Amended Code Share Agreement with Delta
Some excerpts are listed below, but are not designed to be a substitute for reading the document in its entirety:
“The Debtors currently utilize approximately 220 aircraft pilots, 110 flight attendants,and over 100 maintenance and support staff, to provide services under or in connection with the Delta Agreement. As discussed further below, the Delta Agreement has historically been a source of a substantial portion of the Debtors' revenues, and will constitute approximately 18% of Mesa's consolidated passenger revenues, effective May 2010. Further, at that point, the aircraft used in connection with the Delta Agreement will constitute approximately 22% of the Debtors' entire operating fleet.”
“Debtors believe that Delta owes the Debtors approximately $10.1 million as of the date hereof in claims arising under or relating to the Delta Agreement (in addition to the over $70 million in damages discussed in paragraph 17 below), including pre-billed items, 2009 rate increases mitigated by the MFN provisions (discussed below), maintenance related charges, and other miscellaneous items. The Debtors reserve their rights with respect to such claims and any other claims that they may have against Delta related to or under the Delta Agreement.”
http://chap11.epiqsystems.com/viewdocument.aspx?DocumentPk=5cce97fd-3c0c-440c-929a-23a4d761df94
No, I don't believe that at all. My guess would be that the company itself is not opposed to its shareholders banding together to protect their interests. This would be true, if for no other reason than their employees (including the CFO) are themselves shareholders.
I'll take a guess as to why. IMO, the lack of an overt and outward showing of excitement is due in large part because this stock is held by mature investors who have done their DD or who have the discipline to constantly seek the DD provided by others. There are many people on this board that knew little of distressed equity investing when we began this journey in late March. Many of those people are now seasoned and capable of doing their own DD. When you get a distressed equity in BK with the kind of institutional ownership coupled with a sophisticated retail following, the stockholders tend to "Act like they've been there before," and that is what we are seeing. This recent MOR is a confirmation of what many of us believed the company could become once again, from an operational earnings and EBITDA perspective.
Those who have held long-term as opposed to flipping shares on a daily or weekly basis have "been there, done that." This is not a penny stock board anymore. This is not and never was a pump and dump, shell company, sub penny, fraudulous, here-today gone tomorrow, massive and multiple dilution bagholder scheme. The traders who live for those type of investments know better than to bring that noise in here and they don't own this stock anymore because it moves on news and events, not internet spamming and pumping penny-stock schemes. They're also not here anymore because it trades like a mature stock even though it is still in the "distressed" category and despite the fact that it trades on the infamous Pinksheets where prices can move on more than just "supply and demand." Most of those traders would find this stock "boring." These people dream of buying a penny stock that goes to the dollars but it is extremely rare to have this occur when your time horizon and tolerance for pain is only a few days or weeks down the road.
Join us soon, UltimateMan. We all know if you're in, then we're golden. Best wishes to you.
Chemtura MOR Spread December 2009
December Operating Profit $40 million
Run Rate EBITDA $468 million
http://chemturaresearch.blogspot.com/2010/01/chemtura-mor-spread-december-2009.html
Chemtura MOR Spread December 2009
http://chemturaresearch.blogspot.com/2010/01/chemtura-mor-spread-december-2009.html
In a sense, it is all included. On the income statement, the account classified as "Equity in net loss of subs" is the earnings (loss) for the period, of the subsidiaries of the debtors. On the balance sheet the account classified as "Investment in subsidiaries" is the equity attributable to the debtors from those subsidiaries. Use extreme caution in relying in the balance sheet of an MOR. They are designed to present a picture of the "Operations" of the company and less designed to accurately reflect the balance sheet. The reason you cannot rely on the MOR balance sheet is because it is not consolidated.
This company will be evaluated based on future earnings projections and not so much the balance sheet of the MOR.
This December MOR shows the following from an income statement perspective:
Operating profit $40 Million
Plus Depreciation and Amort $9 million
Plus Impairment $5 million
less equity in net loss of sub $15 million
Total EBITDA (net of one time charges and BK costs) $39 million
Run-Rate (Annualized) EBITDA = $468 million
Now each person must assign their own EBITDA multiple to arrive at a price target, remembering that the winter months are not exactly "peak season" for the chemical industry.
Chemtura December 2009 MOR is out
Operating Profit $40 million
http://chemturaresearch.blogspot.com/2010/01/chemtura-december-2009-monthly.html
I can assure you that Gary is a good guy and a straight shooter.
The bonds of MESA are not likely to be a good litmus test for us because there are so few outstanding. I cannot find any instance of the 2012's having traded publicly. If any of the bonds are traded, they will be thinly traded. The last time the 2023 bonds traded was in February 2009 and the 2024's last traded in November 2009. Here is a description of the notes and the amounts outstanding:
The 2012 Notes
Mesa, as borrower, issued 8% senior unsecured notes in the face amount of $16.2 million due February 10, 2012 pursuant to an agreement, dated February 10, 2009 (the “2012 Notes”), between Mesa and U.S. Bank National Association in its capacity as indenture trustee. The 2012 Notes were issued in conjunction with the restructuring of the 2023 Notes and 2024 Notes (each as defined below). As of the Petition Date, approximately $17.2 million is outstanding under the 2012 Notes.
The 2023 Notes
Mesa, as borrower, issued 6.25% senior convertible notes due June 16, 2023 pursuant to an agreement, dated June 16, 2003 (the “2023 Notes”), between Mesa and U.S. Bank National Association in its capacity as indenture trustee. The 2023 Notes resulted in gross proceeds of approximately $100 million. Mesa used the proceeds of the 2023 Notes to fund general working capital requirements.
The outstanding amounts under the 2023 Notes were reduced through a series of transactions with certain holders of the 2023 Notes in which Mesa agreed to pay cash, issue common stock, and issue the 2012 Notes. After the consummation of these transactions and as of the Petition Date, approximately $6.8 million is outstanding under the 2023 Notes.
The 2024 Notes
Mesa, as borrower, issued 3.625% senior convertible notes due February 10, 2024 pursuant to an agreement, dated February 10, 2004 (the “2024 Notes”), between Mesa and U.S. Bank National Association in its capacity as indenture trustee. The 2024 Notes resulted in gross proceeds of $100 million. Mesa used the proceeds of the 2024 Notes to fund general working capital requirements.
The outstanding amounts under the 2024 Notes were reduced through a series of transactions with certain holders of the 2024 Notes in which Mesa agreed to pay cash, issue common stock, and issue the 2012 Notes. After the consummation of these transactions and as of the Petition Date, approximately $1.9 million is outstanding under the 2024 Notes.
You know, it is funny to see people talking about disbanding the EC based on the WAMU motion to disband that was filed within a few hours of the announcement of their EC. Apples and oranges.
It was almost 7 months ago that I was slapped in the face with a document which contained a message stating as such:
"The equity holders of Chemtura Corp. have not met - and cannot meet - their heavy burden of demonstrating a substantial likelihood of a meaningful recovery in these chapter 11 cases."
Now we have an equity committee formed after Having Met that burden of proof in addition to a litany of other hurdles concocted at the 11th hour. Not only that, but we accomplished that feat in one of the most difficult districts to get an EC. Several people donated countless hours to digging up and presenting the info used to meet those burdens of proof. Let's agree to turn our attention to what the EC is about to accomplish as opposed to who might unsuccessfully oppose them.
Wall, thanks for your continued service in that regard.
A fine moderator you will make, Jax. Just remember now, that as the moderator of an IHUB board, it is not a good idea to embark on an incessant bashing campaign against the stock on the Yahoo boards. It didn't work the last time it was attempted, lol.
In the absence of news, research, due diligence etc. one can sometimes rely on the "follow the money" concept...but that's just me.
Nice day so far. I will be on the road for the next 6 hours or so. You guys hold down the fort and close this thing at the HOD. Best wishes to all.
Pacific heights is required by the SEC to file a 13f-hr on a quarterly basis. There are various reporting forms like an N-CSR or an NCSRS that are required for different types of entities. I don't know what the rules are as far as which entity must file which form I just know that they have to file them and the information is of great value if found in a timely manner.
Pacific Heights Asset Management reported today that they still held 3,050,000 shares as of December 31, 2009.
I concur, thanks for passing that along.
Yes, NOL stands for "Net Operating Loss". The company had the following to say with respect to its NOL:
"The Debtors estimate that as of December 31, 2009, they had a consolidated NOL carry forward of approximately $89,503,317. In addition, the Debtors anticipate generating additional NOLs during 2010. Based on current projections, the Debtors expect to use a substantial portion of their NOL carry forwards to offset future income and dramatically reduce their federal income tax liability, subject to certain limitations. The Debtors’ consolidated NOL carry forwards are valuable assets of the Debtors’ estates, because 26 U.S.C. § 172 (“Section 172”) generally permits corporations to carry forward NOLs to offset future income, thereby reducing federal income tax liability on such future income and significantly improving their cash position. The ability of the Debtors to use their NOL carry forwards is subject to certain statutory limitations. One limitation is contained in 26 U.S.C. § 382 (“Section 382”), which, for a corporation that undergoes a change of ownership, limits that corporation’s ability to use its NOLs and certain other tax attributes to offset future income."
http://chap11.epiqsystems.com/viewdocument.aspx?DocumentPk=ffd3dee3-ee87-4b5a-ab39-5375194c7b8d
No problem. I hope others will find it to be of some value. Glad to see you around.
Mesa Air Group Bankruptcy Case Summary
http://www.scribd.com/doc/25133884/MESA-Air-Group-Bankruptcy-Case-Summary
It's a long read (about 8 pages) but if you own this stock or are looking to take a position it may be worth your time to read it.
Just to follow-up, it appears that the number I reported earlier for the value of the planes is old and incorrect. As of December 31, 2009 the 20 planes subject to rejection and putback to Raytheon had a value of $16 million. These planes are subject to a loan whose principal balance is approximately $33.5 million. So Raytheon will become an unsecured creditor to the tune of about $17.5 million. These nubers differ slightly from the September 30, 2009 balance sheet posted here:
http://www.scribd.com/doc/24956837/MESA-Air-Group-Balance-Sheet-09-30-09
It appears that as of 09/30/2009 the reported book value of the planes was $13.1 million and the related liability was $33.6 million. You will find these numbers on the balance sheet under the accounts "Assets of Discontinued Operations" and Liabilities of Discontinued Operations."
Drawbridge Purchases Bandag's $14.35 Million Judgement vs. Chemtura
http://chemturaresearch.blogspot.com/2010/01/drawbridge-purchases-bandags-1435.html
I guess Drawbridge feels pretty secure in their investment here to be a part of a group that owns 19.3% of the common stock and now they own over $14 million in unsecured claims.
Nice find. They are looking to shed about 77 planes and that will take care of 20 of them depending on what the agreement is. We should know soon. The book value of the Raytheon planes they were looking to unload had a book value of $32,753,103. I am not sure what the related debt was.
This is just a required statement that they must file. They reported that they no longer owned any shares. On November 13, 2009 they had reported owning 7,315,268 shares as of September 30, 2009. This will not be the last institution reporting a complete divestiture. There were 186 million shares traded last week which is 11 million more than the 175 million outstanding shares. That volume had to come from somewhere and now we know where 7.3 million of those came from. That is what they call capitulation. After a complete turnover of the entire float the price bottomed out at about 3.6 cents. There is nothing to say that bottom won't get tested again or that it can't drift lower but if 186 million shares being dumped in one week couldn't push it lower then the current volume levels might have trouble breaching that level again.
Link to BNP Paribas 11/13/09 13f-hr filing
http://www.sec.gov/Archives/edgar/data/1166588/000116658809000051/bnpparb13fhr.txt
Could Chemtura Reinstate Certain Debt Under Bankruptcy Code §1124?
http://chemturaresearch.blogspot.com/2010/01/could-chemtura-reinstate-certain-debt.html