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I'll update the MOR comparison spreadsheet tonight and post the link to it on the board. Net income has been the same for 3 straight months. $1 mil each time. Operating profit has been $8 mil, $8 mil and now $5 mil. Equity in earnings of subs jumped up $3 mil this month.
I am going back to work myself, just thought i'd check in during lunch to see if the MOR was out. Since it was, I thought I might just take a look at it. Will have to read it in full tonight and do a little number crunchin'. See you guys this evening.
One correction, Change in cash was positive $25 mil, with $26 mil in cash provided from ops, $1 mil borrowed on the DIP facility, and $2 mil in Capital expenditures.
August MOR is out on PACER $5 Mil operating profit, $1 mil net profit, net cash provided by ops $25 mil, Total equity $334 mil
I am not familiar with any entities that have applied fresh start accounting where the pre-petition shareholder retained a stake in the reorganized entity. I am not saying that it can't happen or hasn't happened, rather, my experience in that regard is limited. To the best of my knowledge, you are correct that fresh start accounting requires that pre-petition shareholders with voting rights must receive less than 50% of the voting shares of the reorganized company.
The main requirement for fresh start, though, is that the company must be balance sheet insolvent to qualify in the first place after comparing the market value of all assets (whether previously recognized on the balance sheet or not) to the post petition liabilities plus pre-petition allowed claims. This is where the asset valuations, offers to purchase assets, post-petition liabilities and claims filed before the claims bar date all collide. Part of the process of determining the fair value of the assets is assessing what a willing buyer would pay for those assets. Typically these valuations would have to be agreed upon by all parties in interest before confirmation of the plan of reorganization.
For AVRNQ, we will just have to wait and see. It can be an extremely complicated and highly contentious process, especially when there are numerous parties in interest at varying levels in the claim structure. The parties in interest that have priority claims will typically try to argue that subordinated claims are substanitally impaired while the subordinated claims holders are trying to argue that they are not substantially impaired or are not impaired at all.
Specialty Chemical Company Valuation Measures 09.14.09
http://chemturaresearch.blogspot.com/2009/09/specialty-chemical-company-valuation.html
Blip, AVRNQ trades lower volume in its stock because it only has about 42 million shares outstanding and 21 million are held in the company's Treasury, so effectively there are only 21 million to be had, less however many shares are now in strong hands. CEMJQ has 243 million O/S so it will naturally trade with higher volume. Lower volume in the bonds of AVRNQ vs. CEMJQ may be due to less conviction at this point but AVRNQ bonds are seeing some million dollar par value trades so there is some big money moving in.
As far as the PPS expectations go, if we can string together some more positive months/quarters we can start to evaluate this company using EPS and PEG. That is something that is awfully difficult to do during periods of negative earnings. If the next MOR shows positive earnings on a managed basis, as expected, it will go a long way towards aiding in that effort. Up until now, book value has been one of the few financial ratios that could be used and that is not the best measure to use. Looking forward to tomorrow with great anticipation.
Thanks for the post. Just do a Google search with the "past 24 hours" setting for "Chemtura" and see how many news services have picked up the GeoBrom article. This company is getting some nice coverage at a time when all the stars were already aligned for other reasons already covered on this board.
CMM, i'd wait to purchase a new one until expectations of a meaningful recovery are priced into the stock and bonds ;)
Aventine Stock Based Compensation
According to the July MOR released on 08/20/09 the company awarded a total of $574,469 in stock based compensation during the cumulative bankruptcy period ended July 31, 2009. This is an increase of $384,866 over the total amount that had been awarded thru the end of June, which was $189,603. The total was calculated from the sum of the amounts listed in COGS plus the amounts listed in SG&A expense.
Look to pages 16 thru 18 of the latest 10-Q for a description of the stock based incentive plan and related vesting periods. Of the 2.2 million total exerciseable shares there are just over 1 million shares that are exerciseable in the $0.18 to $0.23 range.
Here's to hoping that those shares get exercised because the option holders see remaining value. It would help to create further incentive for the company to submit a plan of reorganization that includes preserving maeningful value for current shareholders.
Link to latest 10-Q:
http://www.sec.gov/Archives/edgar/data/1285043/000110465909048540/a09-18650_110q.htm
Link to July MOR:
http://www.aventineinfo.com/405_11214.pdf
Link to 3rd Monthly Application for Compensation for "Houlihan Lokey."
http://www.aventineinfo.com/396_11214.pdf
This document reveals the details of what Aventine's attorneys have been working on during the month of July 2009. Some of the line items of interest include:
Several references to "meetings with potential investor" - this is language usually used to indicate a potential asset sale.
References to calls with "potential exit financing investor"
References to "potential acquirer of assets"
References to "call with potential investors about opportunity"
References to "Review of Bond Trading Activity" see my earlier post about bond prices. This is an exercise that is performed by the attorneys and trustee to aid in determining whether the market prices of debt indicate the expectations of a meaningful recovery. In this regard, Aventine's bond prices have recovered from a low of about $10 to Friday's closing price of $56.50. Indicates a positive trend. In order to form an equity committee, if one is even in the works, it will be paramount to establish that the market for debt and equity is anticipating a meaningful recovery.
References to "Review of term sheet and plan of reorganization" - indicates the POR is in the works or is near completion
References to "Strategic discussion regarding term sheets received" - This could be for asset sales or terms for providing exit financing.
References to "strategic discussion regarding potential sale of minority investment"
References to "Discussion with board member regarding potential recoveries" - There were 4 calls in successive days totalling 5 hours of discussion at the end of July. Must be a board member who has a large equity stake to be so concerned as to rack up 5 hours times probably $500 to $600 per hour. Most likely those discussions totaled about $2,500 to $3,000 on the company's nickel.
Let me know what you think. I am new to the AVRNQ board and just hoping to generate a little discussion and potentially share some due diligence. I've been watching this stock for several months but have not performed any real DD on it until today. The bond recovery is what has attracted me here. It looks like the stock has moved sideways with a hint towards the upside during the period in which the bonds enjoyed the bulk of their recovery from the teens to now 56 cents on the dollar.
Bond Price Comparisons Updated 09/11/09
Within the website linked below is a chart of the current bond prices for 25 selected companies currently operating within Chapter 11 bankruptcy. Just scroll down to the most recent blog post and click on the title "Bond Comparisons Updated 09/11/09" to navigate to the SCRIBD website where you can download the file into excel or PDF. Each bond is hyperlinked to the FINRA webiste where greater detail can be viewed for each security.
http://chemturaresearch.blogspot.com/
Chemtura Bond Price Comparisons Updated 09/11/09
Linked below is a chart comparing the current bond prices of Chemtura Corporation to that of other companies currently operating within Chapter 11 bankruptcy. Within the document is also a comparison of Chemtura's bond prices to that of selected companies operating within the specialty chemical sector.
Just scroll down to the most recent blog post and click on the title "Bond Comparisons Updated 09/11/09" to navigate to the SCRIBD website where you can download the file into excel or PDF. Each bond is hyperlinked to the FINRA webiste where greater detail can be viewed for each security.
http://chemturaresearch.blogspot.com/
Nice recovery in Aventine's bond issuance. It traded as low as $10.75 on some small block trades in April and has rebounded sharply to $56.50. These are some of the same trends we have seen with Chemtura, although the volume and size of trades is much larger with CEMJQ. I am looking to potentially take a position here but I need to do a lot of reading before I do. I am working on updating a spreadsheet that compares the current bond prices of 25 companies currently in Chapter 11 bankruptcy to see what kind of recovery rate the bond market has priced in for each issuance. I will post it over here when I have finished it.
For now, here is a link to the pricing of Aventine's $300 mil bond issuance (AREY.GC) over at FINRA.
http://cxa.marketwatch.com/finra/BondCenter/BondDetail.aspx?ID=MDUzNTA1QUEx
Good luck to all.
Heartland Advisors also owns 7 million shares.
http://www.sec.gov/Archives/edgar/data/937394/000114420409043270/v157738_13fhr.txt
Thanks for letting me know the location of the picture. I had been wondering where it was. Absolutely beautiful. I would like to go there someday.
At these price levels, the buyers are most likely positioning themselves for an equity stake in the restructured Chemtura, because they like what they see. I would imagine they have also considered the possibility that the company could complete an asset sale and pay off those bonds. In that case, they would stand to gain the difference between the price paid and the face value plus any unpaid interest plus any other remedies outlined in the original bond indenture.
If you want to know what Chemtura's Bonds look like relative to other Bankrupt companies as well as how they stack up against their industry competitors follow the link below. There are some non-bankrupt competitors who do not have bonds trading as high as Chemtura's. The chart was put together on 09/02/09. I will update it this weekend to reflect tomorrow's closing prices.
http://chemturaresearch.blogspot.com/2009/09/chemtura-bond-comparisons.html
Thanks for your DD. Glad your posting restrictions have been lifted.
The next two events I have on my calendar would be the MOR that is anticipated next week and the September 29, 2009 Omnibus hearing. Below are some of the items to be addressed at that next meeting:
Chemtura’s Motion to Reject Base Contract with British Petroleum. Approval would afford Chemtura an $800k per month cost savings; estimated $5 Million total savings through the end of 2009;
Prudential Relocation’s Motion to Compel Rejection or Termination of an executory contract;
Hearing regarding applications for allowance of interim compensation and reimbursement of expenses for the period March 18, 2009 through June 30, 2009 (the "First Interim Fee Applications") filed by certain professionals who have provided services in connection with Chemtura’s chapter 11 cases;
Pretrial conference for the adversary proceeding filed by the Official Committee of Unsecured Creditors of Chemtura Corporation against Citibank, NA.
2009 reached a new high of $93.062. There has been a lot of activity in that bond over the past two days.
Regarding Heartland: Read and post your thoughts
Although the N-CSRS form filed on 08/20/09 as of 06/30/09 for Heartland Group Inc - Heartland Value Fund on MFFAIS shows -7,000,000 divestiture, look at the 13F-HR filed with the SEC on 08/14/09 for Heartland Advisors Inc. It shows that they still hold 7,000,000 shares as of 06/30/09.
Heartland Group inc. was the entity that held a 7,000,000 share position as of 03/31/09 and was the one we saw on "The Buy List" a few months back. Perhaps it was not a divestiture at all but rather a transfer from the Heartland Value Fund to the Heartland Advisors Inc entity as a means of window dressing to make that annual shareholder report for the mutual fund look a little cleaner while still holding the position "in the family".
Perhaps this is not the only entity making such a move? Quarter end "window dressing" is a lesser-known but time honored tradition within the funds management industry.
Link to Heartland Advisors Inc 13F-HR filing on 08/14/09 as of 06/30/09:
http://www.sec.gov/Archives/edgar/data/937394/000114420409043270/v157738_13fhr.txt
Bottom line is that all debt must be dealt with before exiting bankruptcy. The sources of funds to "deal" with the debt could come from cash, preferred stock, common stock, refinancing or a combination of all.
Cash could come from sales of assets, operating profitability, cash infusion from private groups in exchange for debt or equity or a combination of all.
Equity issuance could come from existing common shares that have been authorized but not issued, preferred shares that have been authorized but not issued or newly created equity.
WallStreet_61 covered these and other possible scenarios that could occur. There are still too many moving parts, at this point, for me to speculate as to what the most likely scenario would be or at what price the equity should trade, given any particular scenario. All I can suggest for anyone to do is what I am doing, just stay tuned. As facts and circumstances present themselves that serve to remove uncertainty, we will have a better handle on what the future might hold.
Chemical Industry M & A Article 09/07/09
http://www.icis.com/Articles/2009/09/14/9245773/chemical-industry-mergers-and-acquisitions-slow-down-but-bankers-look-for-a.html
WHILE OVERALL merger and acquisition (M&A) activity in 2009 will no doubt be significantly down from last year, with caution reigning among the strategic and financial buyers who were just about knocked out of the game due to lack of financing, there is hope that the M&A cycle has bottomed.
The volume of M&A activity in the global chemical industry plunged through the first half of 2009 and will be down substantially for all of 2009 in terms of the number of completed deals, according to Peter Young, president of New York, US-based investment bank Young & Partners.
"As a result of the prolonged debt crisis, the economic recession, retreating buyers, and valuation disagreements, we believe that the chemical M&A market in 2009 will be a lot slower than in 2008," he says. "Buyers are more conservative due to earnings shortfalls and cash needs, and are also having difficulty forecasting their own earnings and those of targets. If your own house is on fire, you're less likely to want to buy a second house."
There were only four deals greater than $25m (€17.5m) in value completed in the first quarter (Q1) and seven in Q2. The increase in Q2 broke a string of six consecutive quarters of lower numbers of completed deals, according to Young & Partners.
A total of 11 transactions were completed in the first half of 2009 - well off the pace of 55 for all of 2008.
"Through the first half, most companies just froze - they didn't know where the economy and or own businesses were headed," says Chris Cerimele, managing director and co-head of global chemicals at global investment bank Lincoln International.
And as prices for all assets tumbled, buyers and sellers could not come to terms.
"It is typical that after an asset value peak, sellers still cling to peak prices, while buyers adjust perhaps too quickly to a conviction that values should be lower. When this happens, volume collapses," says Young.
Through the first half, $21.1bn in deals on an equity basis were closed, versus $40bn for all of 2008, according to Young & Partners. US-based Dow Chemical's purchase of US specialty chemical firm Rohm and Haas for an equity value of $15.4bn accounted for the bulk of the figure.
While there were two other billion-dollar deals completed - German giant BASF's $4.7bn acquisition of Switzerland's Ciba Specialty Chemicals (in equity), and Japan-based Mitsubishi Rayon's $1.6bn purchase of UK-based methyl methacrylates firm Lucite International - these were legacy deals agreed to prior to the start of the economic crisis and are not indicative of activity in today's market, notes Young.
A further indication of the slowdown is the fact that the backlog of deals announced but not completed at the end of the first half was just $5.6bn, says the banker.
WHERE ARE THE DISTRESSED SALES?
The avalanche of sales of distressed assets that many were expecting failed to materialize in the first half, notes Cerimele.
"Lenders in the first half were a lot more willing to restructure existing debt and work with companies rather than push them into bankruptcy," he says. "The old strategy was to put a company into Chapter 11 [bankruptcy] and then sell off some assets to raise cash. But with no DIP [debtor-in-possession] financing available and the M&A market dead, that wasn't an option. So many lenders have granted waivers and extensions in exchange for repricing the debt."
"Many lenders have granted waivers and extensions"
Chris Cerimele, managing director, Lincoln International
After months of negotiations starting in autumn 2008, UK-based petrochemical firm INEOS reached an agreement with its lenders in July to amend its financing terms, including the loosening of covenants.
Also in July, US-based polyvinyl chloride (PVC) and building products company Georgia Gulf completed a debt-for-equity swap with bondholders, reducing its debt load by $736m, or 50%.
Even companies that have gone bankrupt have been focused on restructuring debt rather than selling off assets, Cerimele notes.
However, there are signs that distressed sales may be picking up. US specialty chemical firm Chemtura put its PVC additives business on the selling block, said a source in August.
And the last day of that month saw US chemical major Huntsman make a bid to acquire most of bankrupt US titanium dioxide producer Tronox's assets, for $415m.
Now that the economy has stabilized and companies have some level of earnings visibility, M&A activity may be poised for a rebound. At least companies are talking.
"In the last two months, the level of discussions on chemical M&A has increased. People that had held off during the economic and financial crisis are now coming back to the table," says Cerimele. "The M&A market is allergic to instability and uncertainty. Business can be flat for a while, but as long there's stability, it is conducive to doing transactions."
"There are more conversations going on now on M&A than there were three to six months ago," notes Telly Zachariades, cofounder and partner of global chemical investment bank Valence Group. "There is more confidence that we've hit the bottom and that profitability has stabilized. I'm optimistic that we'll see a modest pickup in the fourth quarter and through 2010."
"There is a belief that the economy has bottomed and that it is easier to forecast earnings," says Young. "There are some buyers getting a bit braver."
SELLING POINT
Potential changes in US tax laws and the fact that it could take years before valuations recover significantly may also drive potential sellers to sell now, says Zachariades.
"Private owners are getting a bit concerned about changes in taxation," he says. "If you had a business you were contemplating selling, and you missed the boat in 2007-2008, then you might want to move now if you're concerned about rising capital gains taxes."
While it is a buyer's market, quality assets under $500m in value could fetch a decent price if there are enough strategic buyers interested, Zachariades says.
"Today, there is going to be a rarity value for quality assets because there are not many out there," he says. "If everyone waits until things improve and puts assets out for sale at the same time, buyers will have an abundance of properties to choose from."
Cerimele is also highlighting what he calls "scarcity value" for quality assets.
"Most of the businesses available for sale have been troubled assets," he notes. "There has to be scarcity value for good companies on the market right now in areas such as green chemistry, sustainability or counter-cyclical areas like food ingredients. The companies willing to make acquisitions have been frustrated with the quality of assets for sale."
The global economic recovery, led by China, could also spur more deals, according to Saverio Fato, global chemicals leader for consultancy PricewaterhouseCoopers (PwC).
"As China and other emerging markets rebound faster than perhaps the more mature markets, there is potential for an increase in deal activity, which could positively impact the industry as a whole," says Fato.
Targets in Asia-Pacific in Q2 accounted for 25% of the 25 announced chemical deals with values greater than $50m, according to PwC.
THE RETURN OF PRIVATE EQUITY?
Private equity firms have been largely absent from the chemical M&A market this year, contributing to the overall drop-off in activity.
"The current financial and economic crisis has forced financial buyers to the sidelines," says Young. "If you can't borrow, you're dead in the water."
But one M&A specialist says private equity firms will soon start buying chemical assets once again. "PE firms in general believe we have reached the bottom of the cycle and that now is a good time to buy," says Jean Cayanni, managing partner of US-based M&A and capital-raising consultancy Cayanni Associates. "We have seen a stronger appetite lately from PE firms compared to strategic buyers."
For quality chemical assets that are not leveraged, private equity firms can put in 60% in equity, financing 40% with debt, he adds.
In the heyday of private equity two years ago, firms could put down as little as 20% in equity and finance the rest with debt.
The only chemical acquisitions by private equity firms in the first half have been US-based SK Capital, buying compatriot Solutia's nylon business for $50m in June and Luxembourg-based BLUO buying Swiss specialty and fine chemical company Rohner, from German private equity counterpart ARQUES Industries for €30m ($43m) in January.
In September, SiVance, an affiliate of US-based GenNx360 Capital Partners, bought Swiss specialty chemical firm Clariant's specialty silicones business for an undisclosed sum. On the sell side, Charterhouse Capital Partners, of the UK, completed the sale of Lucite International to Mitsubishi Rayon for $1.6bn in May.
"The availability of financing is still an issue, but many PE firms have excess funds and the smart ones will make investments now," Cayanni says.
Financial buyers are either putting more equity into deals or "disintermediating banks" - going to hedge funds for other sources of financing, according to Zachaiades. Constrained by the lack of financing options, PE firms are also looking at other ways of making money in chemicals.
"A number of financial buyers have shifted their attention to buying the debt of their chemical portfolio companies at a discount and pursuing financially stressed companies by acquiring their discounted debt and extending DIP financing," says Young.
US-based Hexion Specialty Chemicals, owned by compatriot private equity firm Apollo Management, has been buying up its own debt at deep discounts to reduce leverage. During Q2, the company purchased $180m of Hexion LLC outstanding debt for $24m. After Q2, Hexion bought $71m in face value of its various unsecured bonds for around $31m.
"Private equity firms in general have been buying up distressed debt for pennies on the dollar, either as a trading exercise or as a means to getting equity," says Zachariades. "There has been activity in a bunch of names, including Georgia Gulf, [Netherlands-based producer] LyondellBasell and Chemtura."
And there are signs that the traditional financing market is coming back, although slowly, and only for companies with investment-grade credit ratings.
In August, US industrial gases firm Air Products sold $400m in senior notes with a 4.375% coupon, while compatriot Praxair sold $600m in 4.5% notes. US-based chlor-alkali producer Olin sold $150m in 8.875% senior notes while Dow sold $2.75bn in various debt instruments. More are lining up, according to John Rogers, head of the chemical group at US credit rating agency Moody's Investors Service.
With financing markets improving, the economy stabilizing and confidence returning, the M&A market could be at a critical turning point.
"While the floodgates are not likely to open in the fourth quarter, we have probably seen the bottom in the M&A market," says Cerimele.
Read the ICIS Chemicals & the Economy blog
By: Joseph Chang
+1 713 525 2653
The only way I can rationalize the price spikes in those situations is that it is the final short covering that is driving it. I have never shorted a stock so I haven't had to keep the paperwork but it is probably easier to document for tax purposes if you have a completed transaction. I am not sure what steps you have to take if you don't close out the position while the stock is still trading on an exchange. Maybe someone else can weigh in on this issue.
The chart for WCIMQ sure looked like a short covering spike on the date that the POR was released with the price doubling on considerably lower volume than the ensuing 4 trading days during which the bottom fell out.
The fact that the price did not begin to decline until the company issued a press release is evidence enough for me that the people who become disciplined enough to read court filings on a daily basis can stay a step ahead of the people who wait for the information to come to them. Proactive vs. reactive.
Probably getting a bit off topic but it is handy to know what to expect with all possible outcomes.
It is an interesting study to watch what happens to the price of a stock after it has been announced that the equity will be cancelled. Take Lear (LEARQ) for example. Their POR was released in an SEC filing on August 18, 2009. The closing price on August 17th was $0.25 and within days of the announcement it actually traded as high as $0.39 but has since come back down to $0.27 but that is still higher than when the company announced that it had submitted a plan to the court that would wipe out the equity.
What I mean is that, up to this point, the decisions made and actions taken by the Creditor's Committee have been favorable for the equity holders and the formation of an additional committee would have been duplicating efforts, adding substantial restructuring costs. When those interests are no longer aligned, or decisions are made that are to the detriment of shareholders, the argument for an equity committee gains more traction. It will also be very beneficial to have the bonds trading near face value. The point at which the interests of creditors and equity diverge is when it becomes time to decide "who gets what" under a plan of reorganization.
Heretofore in this bankruptcy case, Chemtura Corp has made many imrovements that will benefit the company and its shareholders going forward. There are no guarantees, but I would expect them to put forth a plan of reorganization that is favorable to the shareholders. If they fail to do this, then I would expect to see swift action taken to voice the concerns of shareholders.
You are well advised to look at the balance sheet and question how much of it is subject to impairment. That is something that should be done long before one invests in a company. As far as Chemtura goes, they have been on an aggressive campaign to assign fair value to the goodwill and PP&E. This resulted in nearly $1 billion of impairments in 2008. That is called "taking your medicine" and this was done prior to the petition date. Post-petition, the company has hired KPMG to assist in evaluating these accounts for further impairment.
Following this evaluation, further impairment was warranted for several business lines, most recently an additional $60 million, largely to the PVC additives business. In the most recent 10-Q it was noted that further impairments would occur in Q3 2009 for the consumer products division, but I do not expect that they will be detrimental to the current equity figure. Each investor has to make that determination for themselves, though. It is my belief that the material impairments have already been made and priced in to the stock.
I could go on for longer than most would be willing to listen about many of the BK stock names bandied about on various IHUB boards and how those equity holders are dead in the water and just don't know it yet either because those companies have not "taken their medicine" or their liabilities far exceed their assets. Based on the preponderence of evidence documented on this board and other places I just don't believe that this stock is one of them, but that is only my opinion.
With all due respect, there is no Judge that would have defied the Obama Administration. It is Obama that put the screws to the bondholders, not Judge Gerber. I think you will find that, with respect to this case, all of his rulings have gone in favor of Chemtura. To have defied the orders of the Executive office would have been career suicide. The decision to circumvent the bankruptcy priority structure was politically motivated and was all part of a prearranged plan.
I have not chronicled his tenure at Hercules. I have only a passing knowledge of the turnaround story as it pertained to the sale of Hercules to Ashland. By most accounts I have read, Hercules did quite well in that deal. Ashland is still trying to capture the synergies it hoped to create with that acquisition and it is evident in the pricing of equity. In that respect, Rogerson did quite well in selling them something they did not need or know what to do with.
In past months, I was in a position that I needed to be silent on the subject of an EC because there was a possibility that I would be serving on the EC if it would have been formed some months ago. That possibility still exists, in the future, but I had to withdraw my name from consideration in the near term due to family and other professional commitments. Since the possibility still exists, it is in my best interest to speak as little as possible on the subject, and only in general terms. But, as of now, I am out of the loop on EC matters.
If you look at the blog posts, polls, spreadsheets and basically everything on my blogsite, it has been designed to present the a good portion of the information required to meet the burden of proof established by the court and prior case law to form an EC. There is a method to my madness. It is also why I do not get into expressing opinions or price predictions etc. I may have the opportunity to serve in a fiduciary capacity at some point, so I have to choose my words carefully.
This is just not a conversation I want to be engaged in on a daily basis on the message boards because so few people actually understand the process enough to know how to react to any EC related news. I believe there were only about 30 ECs formed in the U.S. from 2000 to 2006 so there aren't that many people who have served on one, much less understand what it all entails. I can tell you that from what I understand, it requires much personal sacrifice, namely, no longer being able to trade the undelying stock. Basically you have to ride it out to the end, win or lose, otherwise you might find yourself defending an insider trading charge. For those who have a substantial portion of their investing portfolio tied up in the stock, the decision is gut check time and will keep you up at night.
Since I was one of the individuals who originally requested the formation of an equity committee I was privy to information that was not allowed to be made public, specifically, the responses of the debtors and creditors to our requests. Basically what we learned in the process was the criterion for meeting the burden of proof. Each Disctict Court applies the statutory standards and prior case law in a slightly different way and that makes some courts easier to get an EC approved. What I have learned is that the Southern District of New York is one of the most difficult venues to obtain formation of an EC. Another way of saying that is that the burden of proof is much tougher to meet within the court system that Chemtura is operating in. To my knowledge an EC has not been formed in Chemtura's case but we have not been shut out either. We are still waiting on market prices of the secrities to improve and reflect a meaningful recovery so that a strong legal argument can be presented to the Trustee and Judge for approval. There are other tests to meet as well. At this point, the formation of an EC or lack thereof would not benefit or damage the equity holders because our interests and that of the creditors are in perfect alignment. When the time comes that our interests are no longer aligned, appropriate action will be taken, if warranted.
Part of the reason for trying to get an EC early on was so that equity would have a voice if the company were to start selling off a lot of core assets, which was the plan in the months leading up to bankruptcy. Once it became apparent that the company would remain largely intact and that only non-core assets would likely be divested, the formation of a EC would have been a waste of money for us as individuals and for the company. Hiring lawyers is not cheap and it is not easy to take up a collection from scattered investors. It really takes some deep pockets to push through an EC. I suspect that if it became apparent that equity was not being treated fairly by the company or the creditors, we would see large equity holders taking immediate action. I also believe that our Judge and Trustee would object to any unfair treatment.
Final Chemtura Blog Site Poll Results
What Caused the Recent Spike in Price and Volume of CEMJQ.PK? (149 Votes)
Reaction to Bond Price Movement - 69 (46%)
Potential Asset Sale News - 56 (37%)
Other – 14 (9%)
Random Chance - 5 (3%)
Price and Volume Spiked??? - 5 (3%)
Should an Equity Committee Be Formed In Chemtura's Chapter 11 cases? (125 Votes)
Yes - 81 (64%)
No, it is an unnecessary expense. The interests of equity and debt holders are aligned, at this time. - 38 (30%)
No, the burden of proof has not been met to establish expectations of a meaningful recovery. - 6 (4%)
Here is the language used regarding equity holders with respect to the claims bar date:
"Any person who holds a Claim that is based on an interest in an equity security of the Debtors is not required to file a proof of claim; except, that if you wish to assert a Claim against any of the Debtors based on, without limitation, Claims for damages or rescission based on the purchase or sale of an equity security, or any other litigation Claim, you must submit a Proof of Claim by the Bar Date."
Could argue that it is a positive due to less competition. I think it also says something about the current landscape for PVC businesses. That would probably be why Chemtura just wrote off tens of millions of dollars woth of Goodwill & PP&E related to that business line. Just more confirmation that Chemtura's focus has shifted from selling the crown jewels like the ag chemicals business and has shifted to ridding itself of the underperformers.
Global chemical company, Arkema to shut down its vinyl chloride / vinyl acetate copolymer production in Saint-Auban (France).
http://bit.ly/2IRS07
This group was one of the defendants in the recent Solvay antitrust settlement negotiated with plaintiff Chemtura.
Thanks for posting. This article has been on Twitter for several hours. I say this not to chastize, but to inform. If anyone wants to stay ahead of the curve, I suggest joining the Twitter revolution. ICIS sends out many tweets per day concerning the chemical industry and seems to mention Chemtura with some regularity. The information flow on Twitter is much faster, more widespread and more efficient that traditional media channels. It is moving markets. Took me a while to warm up to it. I only started using it within the last 2 weeks, but I am now a believer.
Nice post. It is true that in most cases the creditors will try to argue that there is no value left for shareholders. It is in their best interest because if equity does remain and equity holders are removed from the equation then the creditors essentially "steal" the equity from shareholders. The hope is that you have a Trustee and a Judge that will not allow that to happen. An equity committee is very important for shareholders as they represent their interests alone, just as the creditors committee does that for the creditors. As we see the market prices of equity and debt increase, so will the chances of the formation of an equity committee.
To form an EC it usually takes shareholders banding together to retain legal counsel and forming an Ad Hoc Committee of Equity Shareholders. It will also require that there are significant equity holders willing to serve on such a committee.
If one is not formed before the POR is released and the POR is not favorable for shareholders, then we may see the larger shareholders pushing for the formation of an EC on a expedited basis. It may well be that the larger shareholders just don't think the added cost is justified, at this point. No sense throwing good money away if it is not necessary. Just remember that we have equity holders with 21 million and 11 million shares that have a lot more at risk here than the rest of us. They will take appropriate action at the appropriate time.
Sklauble, send him a link to the blogsite or to the IHUB post below. I think it will help to show what the market thinks of Chemtura's bonds relative to other bk companies as well as some of its peers in the chemical industry. If you look closely at the spreadsheet you will find that the 2016 bonds are trading above some of the bond prices of its peers (HUN, MLM and ALB)that are not in bankruptcy.
Huntsman (HUN) currently has a stalking horse bid for some of the assets of Tronox so there is some additional M&A activity brewing in the chemical industry outside of the potential asset sales of Chemtura. Interesting times in the specialty chemical sector.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=41099885
CEMJQ - Chemtura Bond Comparisons
http://chemturaresearch.blogspot.com/2009/09/chemtura-bond-comparisons.html
Linked above is a chart comparing the current bond prices of Chemtura Corporation to that of other companies within Chapter 11 bankruptcy. Within the document is also a comparison of Chemtura's bond prices to that of selected companies operating within the specialty chemical sector.
Click on the link below to navigate to the SCRIBD website where you can download the file into excel of PDF. Each bond is hyperlinked to the FINRA webiste where greater detail can be viewed for each security.
Chemtura Bond Comparisons
http://chemturaresearch.blogspot.com/2009/09/chemtura-bond-comparisons.html
Linked above is a chart comparing the current bond prices of Chemtura Corporation to that of other companies within Chapter 11 bankruptcy. Within the document is also a comparison of Chemtura's bond prices to that of selected companies operating within the specialty chemical sector.
Click on the link below to navigate to the SCRIBD website where you can download the file into excel of PDF. Each bond is hyperlinked to the FINRA webiste where greater detail can be viewed for each security.