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Thanks. I appreciate the great DD that has been done here by yourself and so many others. Just wanted to do my part.
Unfortunately, I am not a lawyer and I don't have any inside knowledge. The letter was adapted, however, from a motion filed by an attorney on behalf of a large institutional shareholder in another ongoing bankruptcy case. I had to adapt it a bit to fit this case but I did research the referenced code sections to be sure the references were applicable. It took a little while to get it drafted properly and I wanted to wait for the May MOR to confirm my belief that the company is improving and that equity holders deserve fair representation. Hopefully, if enough shareholders take action, we can get a voice with the court.
Equity Committee Request Letter
Here is a letter that was submitted to the court yesterday in support of an equity committee. It should appear on PACER and KCCLLC in a few days. I apologize, in advance, for the length of the post.
June 17, 2009
Honorable Judge Robert E. Gerber
United States Bankruptcy Court
One Bowling Green
New York, NY 10004
Re: Chemtura Corporation Case No. 09-11233
To the Honorable Judge Gerber:
I am a shareholder of Chemtura Corporation and would like to respectfully ask your honor to consider appointing an official committee of equity security holders pursuant to bankruptcy code § 1102(a)(2).
The appointment of an equity committee in the Debtors' chapter 11 cases is both justified and absolutely necessary. Based upon information contained in the most recent 10-Q filing, as of 03/31/2009, the debtor’s reported equity in the amount of $338 million. In the monthly operating report (MOR) filed with this court as of April 30, 2009 equity had grown to $357 million. The MOR for the month of May shows that not only has equity increased again to $404 million but also the company generated an operating profit of $7 million during a period in which two of the debtor’s business lines were throttled due to supply issues, both of which your honor is already aware as they are adversary proceedings before this very court.
In addition, I am submitting an attachment to this correspondence which is a recent letter sent to Chemtura’s suppliers dated May 12, 2009. In this letter, CEO, Craig Rogerson was quoted as saying, “Our U.S. operations are currently outperforming our originally filed DIP budget by a wide margin, evidencing that our performance in the U.S. remains exceptionally strong.”
It has come to my attention through the filings with this court that a few months ago, Chemtura had an offer to be purchased at about $9/share and unfortunately their Board of Directors rejected the offer. It is a matter of public record that the company has also sought to sell one or more of its business segments. I believe that all stakeholders are entitled to receive a fair price in the event of a partial sale or the sale of the entity as a whole. As it now stands, equity stakeholders do not have a voice in either event.
These facts and circumstances demonstrate that the Debtors' chapter 11 cases are a prototypical example of where the appointment of an equity committee is justified. Indeed, the debtor’s did not enter the Chapter 11 restructuring process because of a broken business model, they did so with the intention of restructuring the terms of their maturing and outstanding debt. These actions were necessitated by a global economic crisis which resulted in a frozen credit market over the short-term. As market conditions improved, credit markets began to thaw, as evidenced by the debtor’s success in securing the $400 million DIP financing.
As the leading bankruptcy treatise observes, "if the debtor has a business that is basically sound, but has sought chapter 11 due to excess indebtedness, the case is most likely to involve negotiations over who gets what under a plan. In such a case, equity security holders deserve a committee to represent their interests in that process." COLLIER ON BANKRUPTCY, 15th ed. ¶ 1102.03(2)(b) (emphasis added).
This Court appears to have jurisdiction to consider this request pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409.
Relief is respectfully requested, in this case, because public shareholders are entitled to such relief pursuant to section 1102(a)(2) of the Bankruptcy Code which provides that "on request of a party in interest, the court may order the appointment of additional committees . . . of equity security holders if necessary to assure adequate representation of . . . equity security holders." 11 U.S.C. §1102(a)(2).
Congress has recognized the vulnerability of public investors in chapter 11 cases when it provided for the ability to seek appointment of additional committees of equity holders in Bankruptcy Code § 1102(a)(2). The legislative history of section 1102 indicates that Congress understood the important purpose an equity committee could serve "to counteract the natural tendency of a debtor in distress to pacify large creditors, with whom the debtor would expect to do business, at the expense of small and scattered public investors." S. Rep. No. 95-989, at 10 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5796.
As a result, official committees of equity security holders have been appointed in many recent large and complex chapter 11 cases. See, e.g., In re Oneida Ltd., Case No. 06-10489 (Bankr. S.D.N.Y.); In re Calpine Corporation, Inc., Case No. 05-60200 (Bankr. S.D.N.Y.); In re Delphi Corporation, Case No. 05-44481 (Bankr. S.D.N.Y.); In re Loral Space & Commc'ns Ltd., Case No. 03-41710 (Bankr. S.D.N.Y.); In re Solutia Inc., Case No. 03 17949
In enacting the Bankruptcy Code of 1978, Congress viewed reorganization proceedings as "literally the last clear chance to conserve for [shareholders] values that corporate financial stress or insolvency have placed in jeopardy." S. Rep. No. 95-989, at 10 (1978), as reprinted in 1978 U.S.C.C.A.N. 5787, 5796. 11 (Bankr. S.D.N.Y.); In re Impath Inc., Case No. 03-16113 (Bankr. S.D.N.Y.); In re Adelphia Communications Corp., Case No. 02 41729 (Bankr. S.D.N.Y.).15
The Bankruptcy Code does not define what constitutes "adequate representation"
under section 1102. The analysis of what constitutes "adequate representation" is therefore determined on a case-by-case basis. See Enron Corp., 279 B.R. at 685. Courts have generally applied a number of factors in analyzing the adequacy of a committee's representation, including:
• whether the debtor appears to be hopelessly insolvent;
• whether the interests of equity holders are otherwise already adequately represented;
• the size and complexity of the case;
• whether the stock is widely held and actively traded;
• delay associated with the appointment of a committee; and
• whether the cost of the additional committee significantly outweighs the concerns for adequate representation.
I feel that the preponderance of the facts and circumstances surrounding these Chapter 11 cases dictates that the appointment of an equity committee is reasonable, justified and necessary.
I am looking forward to hearing from you.
Respectfully submitted,
cc: Diana G. Adams, US Trustee
test
Thanks Johnny. I appreciate and applaud your efforts.
I agree, and let's assume for just a moment that any one or even all 14 cases are determined to have a valid claim against Chemtura. Which scenario is in a claimant's best interest?
(1) Go ahead and proceed with the claims and completely disturb all reorganization efforts and attempt to squeeze cash out of a cash strapped organization enthralled in a Chapter 11 bankruptcy case; or
(2) Wait until the organization has successfully emerged from BK, is once again profitable and has sold off one or 2 business lines and is sitting on a pile of cash virtually debt free.
I know this is oversimplifying the matter but I also know which one I would rather try and collect from.
Price/Book value of equity comparison
Here are the price per share/book value per share multiples taken from Yahoo Finance for the most recent quarter (MRQ) of publicly traded stocks operating in the specialty chemical sector. Chemtura’s multiple was calculated from Friday’s closing price and data taken out of the April MOR. Bear in mind that some of the companies below operate in other sectors besides specialty chemicals and have varying degrees of diversification; so all of them are not our direct competitors. The idea here is to compare where Chemtura is now in reference to the rest of the publicly traded companies operating within the same space.
CEMJQ - .20 X
SOA – 1.82 X
DOW – 1.23 X
DD – 3.51 X
ASH - .59 X
HUN – 1.31 X
PPG – 2.64 X
FMC – 4.07 X
LXU – 2.65 X
EMN – 1.98 X
SDTH – 1.63 X
Below is a comparison of where we are now versus recent historical price/book multiples for CEMJQ and CEM.
06/12/2009 - .20 X
04/30/2009 - .05 X
03/30/2009 - .03 X
12/31/2008 - .71 X
09/30/2008 - .75 X
06/30/2008 - .87 X
03/31/2008 - .93 X
12/31/07 – 1.02 X
If you want to check the math in performing your own DD, I encourage everyone to do so, it might just be a great learning experience. What I did to arrive at the figures was to take the closing price as of a particular date and divide it by the book value per share for that date. To get the book value per share you pull up the applicable 10-K or 10-Q from www.sec.gov and find the shareholder’s equity figure and divide it by the average outstanding shares for the period. The whole formula looks like this:
(PPS/(stockholder’s equity/outstanding shares))
Madclown
No offense taken Catdaddy.
I am just taking in all of the advice of the bashers and saviors this weekend and getting a good chuckle out if it. They are either looking for a more advantageous entry point in advance of the MOR and creditors meeting or they are privy to negative insider information and can't sleep at night unless they save us from ourselves, LOL.
GLTA
I got filled at .2965 as well. What was interesting was that prior to that fill I had hit the ask at .2965 but did not get filled and the bid was then raised to .30. I then placed an order above the ask at .301 and it took 10 to 15 minutes to get filled. When it finally filled it was at .2965 instead of .301.
Maybe someone had an "all or nothing" sell order and they waited for enough buyers to fill the order.Seems odd to me to say the least.
Madclown
February 2026 Bonds are up $1.50 from $38.50 to $40.00.
http://cxa.marketwatch.com/finra/BondCenter/BondDetail.aspx?ID=OTc3Mzg1QUs5
Something else to watch for in the court filings during the coming weeks and months will be the monthly billings submitted by 3rd party service providers like Kirkland and Ellis as well as Lazard Freres. These service providers have to submit their billing reports to the court in order to receive payment for services provided in connection with the work performed in the Chapter 11 case. What we want to pay attention to is the line item descriptions of the key issues they have worked on and researched.Unless the descriptions are redacted we will likely be able to decipher if they are currently working on an asset sale and may even be able to determine who the potential suitors are.
The only drawback of this exercise is that the monthly billings are typically submitted 1 or 2 months after the fact, but all of the speculation about a pending sale of one or more of the business lines could be closer to confirmation.
GLTA
I agree that liquidity is of the utmost importance. In outlining the future savings, I am making a leap of faith in assuming that this entity will continue to do business as usual going forward with current the shareholder structure intact. It is under that scenario that I am excited about the future cost savings.
I also agree that every dollar counts. In addition to the $323k setoff with Eastman that you mentioned we also got a $456k setoff from Dow Chemical last week (See docket #498). Together those are near $800k.
I will be interested to see what other efficiencies we can gain from the near 4000 executory contracts that are currently in place.
Chapter 11 bankruptcy can a very powerful weapon.
GLTA.
I believe the original filing of the schedule of financial affairs was due in April but the company was granted an extension on a couple of occasions which is not uncommon or unexpected as this is a very large Bankruptcy case and the company laid out some very solid reasons in justification of an extension.
With that being said, I am not 100% sure of what to expect because the court documents do not provide any more detail than what was listed in my original post. I would not expect this to be a schedule as of a more recent time period other than April but I could be wrong. I would expect to get details like you would see in a 10-K or 10-Q filing. In the case of Spansion Inc., the court mandated that they be prepared by a 3rd party accounting firm and be in accordance with GAAP. To my knowledge, the court here did not specify if it had to be GAAP financials.
We are also expecting a monthly operating report (MOR) as early as Monday June 15th that should cover the activity for May 2009 and although it will be company prepared, it will be very recent information.
Between those 2 filings we will get to see a lot more detail (SOFA) and much more recent financial information (MOR) than we currently have. Our hope is that this information is positive and represents a big boost to both the book value of equity and earnings per share.
Hope this helps. Good luck to you.
Madclown
Schedule of Financial Affairs (SOFA) due tomorrow, June 11, 2009
http://www.kccllc.net/documents/0911233/0911233090601000000000004.pdf
Based on court document 473 (linked above) that was filed on June 1, 2009 Chemtura is due to submit its SOFA tomorrow unless a further extension is granted.
I am not sure what dates will be covered but the following is a list of the items we should expect to see:
• statements of financial affairs;
• schedules of assets and liabilities;
• schedules of current income and expenditures;
• statements of executory contracts and unexpired leases; and
• lists of equity security holders
Madclown
Today’s Court Filings
Some interesting items in today’s court findings that could save us a lot of money over the next year.
http://www.kccllc.net/documents/0911233/0911233090610000000000009.pdf
In court doc # 530 linked above, Chemtura is motioning for the court to approve the amended settlements it has reached with the U.S. and Canadian governments relating to antiturust litigation they originally settled some 5 to 6 years ago. In the motion we learned that Chemtura still owes the U.S. government $16 Million and the Canadian government $2.88 Million Canadian Dollars (About $2.6 Mil. U.S.D.). The new agreements call for the company to now pay $10 million U.S.D and $1.8 million Canadian ($1.6 mil U.S.D) in 12 interest-free monthly installments. If the court approves the motion, that represents a savings of $6.9 million over the next 12 months.
http://www.kccllc.net/documents/0911233/0911233090610000000000008.pdf
In court doc # 529 linked above we learned that the company is petitioning the court to allow it to reject a building lease that is not set to expire until 2014. The monthly savings from this move would be $32,635. The total savings over the next 4.5 years would be $2.3 million according to the filing.
Combine these potential savings with the potential savings from the BP hedging contract ($5,000,000) and were looking at a savings of about $11,900,000 over the next 12 months. It may not sound like much when you have assets in excess of 3 Billion, but it does represent 17% of our current market cap which sits at a paltry $72 Million.
Good times lie ahead. Stay thirsty my friends.
Madclown
Nice find. Thanks for posting.
Houlihan Lokey was ranked #1 in 2008 for being the top Investment Banking restructuring advisory firm. They worked 31 cases in 2008. The closest to them was Mesirow Financial which worked 12 cases. They worked on 11 of the top 15 largest bankruptcies from 2000 to 2008.
The part that interested me most, since they will be working for the committee of unsecured creditors, is that they were rated #1 by Thomson Reuters for their "M&A Fairness Advisory Rankings" for 1999 to 2008.
I'll do that. Thanks!
I posted this last night regarding American Refining Group. I'm not sure if it has been previously discussed. I'd like to hear your thoughts.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=37801820&txt2find=abandon
Very informative I-Box. Nice work!
My "tuition" was bought and paid for as a pre BK holder of Wamu common stock. I was one who thought that the government would never let them go bankrupt so I took a flyer on them in the $2 to $3 range. In the end seeing my holdings go to zero was the best investment I ever made because I have recouped those losses many times over by being an active investor instead of a passive one and actually doing some DD now and then!
GLTA
Great rating system!
I try to do the same thing but the rating system in my head is not as sophisticated as yours. lol. I will identify a name to research either through my own DD or on recommendation of others and then look at the financials to see if there is a glimmer of hope and finally pore through the BK filings to see what the ultimate outcome will be. If cancellation looks like a certainty I steer clear, even if the price action suggests otherwise. With my job I can't monitor my positions constantly so I don't invest in anything that is unsafe to hold overnight or through the weekend, so I have to look long-term.
CEMJQ - Interesting article on Bond recovery rates
http://www.economist.com/finance/displaystory.cfm?story_id=13579236
Credit for this find goes to andrea.rvf20 over at the Yahoo CEMJQ board.
The article is 2 weeks old, but look at the relative strength in Chemtura's bond recovery (45%) versus other auctions within the same window of time. The article states that the average recovery rate in the "pre-crisis" world was about 40%.
Madclown
GGWPQ Credit Default Swaps Worth 44.25 cents
By Kate Haywood
Of DOW JONES NEWSWIRES
Credit-default swaps insuring the loans of mall owner General Growth Properties Inc. (GGP) are worth just over 44 cents on the dollar, according to auction results Wednesday to determine the value of the contracts.
The company filed for Chapter 11 bankruptcy protection last month.
Credit-default swaps on the bond debt settled at 44.25%, or 44.25 cents, requiring sellers of protection of this debt to pay buyers of protection 55.75% of the notional value of the loans they insured. That means sellers have to pay just under $5.6 million for every $10 million of insurance sold, according to administrators Creditex and Markit, which ran the auction. Initial auction results released earlier put the recovery value on the loans at 43.25 cents on the dollar. Credit default swaps are tradable, over-the-counter derivatives that function like a default insurance contract for corporate debt. If a borrower defaults, the protection buyer is paid compensation by the protection seller. Auctions are used to determine how much the seller pays the buyer. Payments on General Growth's loan credit-default swaps contracts were triggered after the company filed for bankruptcy protection last month. The filing ended months of the company struggling to juggle a crushing $27 billion debt load it shouldered because of past acquisition sprees.
-By Kate Haywood, Dow Jones Newswires; 201-938-2348; kate.haywood@dowjones.com
(END) Dow Jones Newswires
May 13, 2009 14:18 ET (18:18 GMT)
That's time well spent, IMO.
Agreed. Good luck to you.
Feeling fine after adding some ASYTQ, SPSNQ, STNLQ & AVRNQ on the dips! Seriously considered adding more CEMJQ but I wanted to diversify a bit. I may be a bit overweight in CEMJQ if it is possible to be overweight in that gem at this point.
How about yourself?
I can't complain.
And yourself?
Evening Harvesters!
I see were currently ranked # 7 tonight. Let's see if we can't scare up some good DD and push it right on up the board!
Madclown
Sale, Transfer or Abandonment of Non-Core Assets
http://www.kccllc.net/documents/0911233/0911233090512000000000009.pdf
ARG filed a motion with the BK court yesterday as a “party in interest” because they own the land in Bradford, PA upon which some of Chemtura’s assets reside. These assets include a wastewater treatment plant that Chemtura maintains because it is the “responsible party” for the environmental remediation required on the site because of the contamination caused by some of its predecessors.
Based on this filing, it appears that ARG has had many communications with Chemtura regarding the company’s desire to abandon the treatment plant. ARG contends that the protections afforded Chemtura by the BK court are not far reaching enough to relieve them of their responsibility to continue to maintain the plant. It would appear, based on the communications revealed in the filing, that Chemtura will try to successfully argue that abandonment is in the best interests of the estate.
This is the first insight I’ve seen as far as what “non-core” assets the company will try to divest themselves of. Even if the court rules in favor of ARG, it would seem that the costs associated with this remediation are already reflected in the financials (and firmly baked into the share price) and indeed environmental remediation is just part of the cost of doing business for a chemical company. I am not sure what the costs associated with this particular remediation effort are but to get relief from it would certainly improve earnings going forward.
Friday's court filings should be interesting
GLTA
Thanks for the post. That's good info.
Thanks. I'll be watching for it.
AVRNQ Down 17%
Watcing stocks during my lunch hour. I like this one a lot. Any thoughts on todays action and whether this is a good buying opportunity at $0.14.
Madclown
What a deal JP Morgan got!
They purchased WAMU for $1.9 Billion, which was only 10% of its Q4 2008 annualized revenues. In connection with the purchase, JPM's Q4 earnings saw a positive reversal of about $.25/share from an $0.18/ share loss to a $.07/share gain (per JPM's Q4 conference call).
Additionally, they got what amounts to an interest free loan of $4.4 Billion as they still have posession of WMI's deposits.
Last time I went to make a major purchase they didn't offer to let me borrow 2x the amount of the purchase price at an interest free rate.
Things that make you go Hmmm...
I have a position in FLTWQ and like it based on the fact that 2 of its BK competitors have already been bought out (Oakwood & Monaco), IIRC. Consolidation in the industry should favor FLTWQ as a prime target as the do make a "cadillac" product.
I had a postion in ASTYQ but I wanted to add to CEMJQ so bad I couldn't resist taking profits and plowing them right back into Chemtura. I have been averaging up from the .03's and have never regretted a single purchase. I have regretted not buying more in the .03's though! lol.
You're right there are many choices in "Q" land and the trick right now is finding enough $$$ to play all of the good ones.
Thanks for the chart!
I am liking what I see from ERPLQ, so far. I want to look at all of the BK stuff tomorrow and get a feel for that landscape. It looks like ERPL and AVRNQ for sure could be a real nice way to combine "Q" trading and both sides of the energy space (current and emerging).
Madclown
Good luck to you as well.
I am heavy into CEMJQ and looking to take a position in SPSNQ and AVRNQ. I am a little more slow and deliberate with my purchases than some. I like to know all the rules before playing the game. That is why I like this board so much. Eventually, the workload can be shared between the people who do their DD.
Madclown
ERPLQ - This one looks interesting.
September 30, 2008 Balance Sheet
$843 Mil Assets
$695 Mil Liabilities
$148 Mil Equity
Cash - $6 Million (Hence, the BK filing)
Q3 Income - $34 Million
Company filed for BK on May 1, 2009 so it is a live one!
52 wk hi - $16.50
52 wk low - $0.09
last trade - $0.115
BV per share as of 09/30/08 - $4.63
Price/Book (MRQ) - .02
May 12, 2009 - Filed an NT 10-Q for notice of late filing so we have annual financials to look for down the road
May 12, 2009 - Interim Order Establishing Notice and Hearing Procedures for Trading in Equity Securities. Final Hearing is scheduled for 6/10/2009 at 10:30 A.M. This order temporarily caps trading at 4.5% or 1,448,881 of the 32,197,360 O/S shares (You always like to see that!)
I will do some more digging tomorrow and post what I find tomorrow night.
Let me hear your thoughts!
Madclown
YBTVQ - Assets & Liabilities
I looked at the 12/31/08 Consolidated Balance sheet and it shows
Assets - $348 Million (Including only $22 Milion in cash)
Liabilities - $936 Million
Equity - ($588) Million
The February 13, 2009 Schedule of Assets filed with the BK court shows that the parent company as a standalone has $1.6 Billion in assets and $800 Million in liabilities but the $1.6 Billion in assets is all intercompany receivables. The filing does not assign a value to the individual subsidiaries but based on the 12/31/08 consolidated balance sheet it would seem that is where the equity deteriorates.
The fact that it only has an estimated 99 shareholders is interesting for a public company. However, the $22Mil cash vs. $800Mil debt scares me.
Madclown
Time is precious and the "Q's" are many... my head is spinning from all the choices.
Oh, and funds are limited too!
Thanks for the heads up!
I am not familiar with the stock but I am familiar with the radio affiliate (KRON) in San Francisco. I subscribe to a podcast that is broadcast out of that station called "Rob Black and Your Money." It is a 2 hour daily podcast. He gives pretty sound advice on all things financial, even individual stock picks with insight into chart patterns and such. That is, if you want to cross over to the "dark side" and invest in something that is lacking its "Q".