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Agreed. We also owe thanks to them for rejecting the settlement offer many months ago that was apparently open only to themselves and to Nantahala. These hedgefunds have done the class a great service.
PBSOQ Calendar of Events 05.15.2011
Monday, May 16, 2011 - The consensual and stipulated Stay of discovery and scheduling orders related to the Rule 60(b) motion is lifted at the close of business. After this date, the Equity Committee is free to conduct discovery relating to the alleged "breach of fiduciary duty, self dealing and misconduct" committed by Prescott Group and privet fund stemming from their attempts to use their positions of influence to "manipulate votes" to provide disparate treatment to members of their own constituency while serving on a statutory equity committee. For those failed efforts, Prescott Group and privet fund will be facing, among other things, potential equitable subordination of their DIP lien claims.
Wednesday, May 18 2011 - Ominbus Hearing. Originally this hearing included the Rule 60 motion which has now been pushed back to June 13, 2011 as well as other items that have been continued to a later hearing. The current agenda for this Ominbus hearing has not been released.
Monday, June 6, 2011 - Deadline to object to the Equity Committee's Rule 60(b) motion and other related motions to vacate the interim and final DIP financing.
Monday, June 13, 2011 - Omnibus hearing to consider the Rule 60(b) motion and other related motions to vacate the interim and final DIP financing.
PBSOQ Special Situations Profile 04.06.11
http://www.scribd.com/doc/54916874/Special-Situations-Profile-PBSOQ-04-06-11
This case profile is over a month old but provides some background on the case.
PBSOQ Special Situations Profile 04.06.11
http://www.scribd.com/doc/54916874/Special-Situations-Profile-PBSOQ-04-06-11
This case profile is over a month old but provides some background on the case.
PBSOQ Calendar of Events 05.15.2011
Monday, May 16, 2011 - The consensual and stipulated Stay of discovery and scheduling orders related to the Rule 60(b) motion is lifted at the close of business. After this date, the Equity Committee is free to conduct discovery relating to the alleged "breach of fiduciary duty, self dealing and misconduct" committed by Prescott Group and privet fund stemming from their attempts to use their positions of influence to "manipulate votes" to provide disparate treatment to members of their own constituency while serving on a statutory equity committee. For those failed efforts, Prescott Group and privet fund will be facing, among other things, potential equitable subordination of their DIP lien claims.
Wednesday, May 18 2011 - Ominbus Hearing. Originally this hearing included the Rule 60 motion which has now been pushed back to June 13, 2011 as well as other items that have been continued to a later hearing. The current agenda for this Ominbus hearing has not been released.
Monday, June 6, 2011 - Deadline to object to the Equity Committee's Rule 60(b) motion and other related motions to vacate the interim and final DIP financing.
Monday, June 13, 2011 - Omnibus hearing to consider the Rule 60(b) motion and other related motions to vacate the interim and final DIP financing.
PBSOQ: 04.21.11 Disclosure Statement Hearing Notes and Commentary
Hearing Notes:
• Judge Walsh began by stating:
o that he would not approve the Disclosure Statement;
o Cited a few specific issues that were problematic when cross referencing the Plan and DS and that the DS references agreements such as the “Recovery Trust Agreement” which is not even in existence yet;
o Parties should be able to read and understand the DS without referencing the Plan;
o DS violates the requirements “in spades”; and
o “There is no starting point at which to address the deficiencies” so I’m not going to do that today
• Judge agreed with Equity Committee that 28 days notice would be required for the next DS and Plan as opposed to the 10 days the Debtors tried to cram down;
• More disclosure of the litigation assets and nature of litigation claims is required and EC will have a hand in crafting those disclosures;
• EC attorney, Carmen Lonstein thanked Alan Kornfeld (Debtor Attorney) for admitting on the record that the litigation assets are “valuable assets of the estate” and further pointed out that the Debtors have valued those assets at zero which is unacceptable;
• Connor Bifferato (EC attorney) stated that the change of EC counsel was obtained by a “unanimous” vote of the entire EC;
• EC counsel stated that they thought the case should be converted to a liquidation proceeding;
• Judge Walsh approved the retention of Baker & McKenzie without any fee caps which he said were inappropriate because “This case is starting all over.”; and
• Judge ordered the parties to meet and confer and if those discussions were not fruitful he would likely grant a motion to appoint a Chapter 11 Trustee if only such a motion were put before him.
Commentary:
It was a very positive day for equity. I rarely go on record publicly as being bullish or bearish as I like to leave some room for the reader to make inference and to formulate their own opinion. Leading up to the Disclosure Statement hearing, the EC had posited that equity was better off in liquidation because it wouldn’t have the Plan Funders taking 70% to 80% of the litigation assets away and there is nothing to preclude a liquidating Trustee from pursuing those assets for the benefit of the liquidating estate. This was a position I took in my pleadings back in January and February and repeated again a few weeks ago. The Debtors disagreed in their papers and the EC called their bluff at the DS hearing by stating that the EC thinks the case should be converted to a liquidation proceeding. The Debtors made a big mistake by admitting (at the DS hearing) that the litigation assets are valuable assets because in their written papers and in their liquidation analysis, they have been treating them as “valueless”. That little faux pas validated much of the EC’s pleadings while invalidating a good bit of the Debtor’s pleadings regarding liquidation value.
When the judge approved the retention of Baker & McKenzie without any fee caps “because this case is starting over” he gave the EC some time value and some leverage. When he stated that he would likely approve the appointment of a Chapter 11 Case Trustee if the Meet and Confer is not fruitful, he essentially gave the EC a “Hammer” which conveys considerably more leverage. Getting a Trustee appointed means that the new Trustee takes over as CEO of the company and the current management group is shown the door.
Additionally, the current Debtor counsel would also be shown the door and it opens up the door for legal fee disgorgements for any unnecessary services or services that provided no benefit to the estate. IMO, debtor counsel has done considerably more to damage and fleece the estate than it has to benefit it and that will not be a difficult argument to make. In fact, if one reads the EC’s pleadings close enough, the groundwork is already being laid in that regard. With the Judge favoring the appointment of a Trustee it is tantamount to him admitting that he has lost faith in management and in the Debtors counsel. One needs to remember that last summer, the Office of the U.S Trustee (different from a case Trustee) motioned to appoint a case Trustee and that motion was denied. It was followed up with a motion to appoint an examiner, which was litigated and resulted in a settlement approving a “monitor” on the Board of directors. For the Judge to now favor the appointment of a Trustee suggests that he is now fully apprised of the shenanigans that are going on.
Getting a Chapter 11 Trustee appointed in Delaware … Extremely Rare
Having a Delaware Bankruptcy Judge suggest a Chapter 11 Trustee… Priceless
I think it is very possible that we could see a consensual settlement that leads to a better % share of the potential Recovery Trust distributions flowing to shareholders after payment in full to the unsecured creditors.
Disclosure Statement Hearing Notes April 21, 2011
• Judge Walsh began by stating:
o that he would not approve the Disclosure Statement;
o Cited a few specific issues that were problematic when cross referencing the Plan and DS and that the DS references agreements such as the “Recovery Trust Agreement” which is not even in existence yet;
o Parties should be able to read and understand the DS without referencing the Plan;
o DS violates the requirements “in spades”; and
o “There is no starting point at which to address the deficiencies”
• Judge agreed with Equity Committee that 28 days notice would be required for the next DS and Plan as opposed to the 10 days the Debtors tried to cram down;
• More disclosure of the litigation assets and nature of litigation claims is required and EC will have a hand in crafting those disclosures;
• EC attorney, Carmen Lonstein thanked Alan Kornfeld (Debtor Attorney) for admitting on the record that the litigation assets are “valuable assets of the estate” and further pointed out that the Debtors have valued those assets at zero which is unacceptable;
• Connor Bifferato (EC attorney) stated that the change of EC counsel was obtained by a “unanimous” vote of the entire EC;
• EC Attorneys stated that they favored “converting” the cases to a liquidation proceeding;
• Judge Walsh approved the retention of Baker & McKenzie without any fee caps which he said were inappropriate because “This case is starting all over.”; and
• Judge ordered the parties to meet and confer and if those discussions were not fruitful he would likely grant a motion to appoint a Chapter 11 Trustee if only such a motion were put before him.
PBSOQ Calendar of Upcoming Events
April 18, 2011 – Deadline to object to:
• Disclosure Statement Adequacy
• Amended Plan Support Agreement
• Amendment to DIP Facility
• Subscription Agreement
• Indemnification of Plan Proponents
April 21, 2011 - Omnibus Hearing
• Disclosure Statement Adequacy
• Amended Plan Support Agreement
• Amendment to DIP Facility
• Subscription Agreement
• Indemnification of Plan Proponents
May 23, 2011 – Proposed Deadline to object to the Amended Plan of Reorganization
June 1, 2011 – Proposed Confirmation Hearing Date
PBSOQ Calendar of Upcoming Events
April 18, 2011 – Deadline to object to:
• Disclosure Statement Adequacy
• Amended Plan Support Agreement
• Amendment to DIP Facility
• Subscription Agreement
• Indemnification of Plan Proponents
April 21, 2011 - Omnibus Hearing
• Disclosure Statement Adequacy
• Amended Plan Support Agreement
• Amendment to DIP Facility
• Subscription Agreement
• Indemnification of Plan Proponents
May 23, 2011 – Proposed Deadline to object to the Amended Plan of Reorganization
June 1, 2011 – Proposed Confirmation Hearing Date
No, but the Equity Committee fired its counsel today and replaced them with Carmen Lonstein of Baker and McKenzie. Anyone here associated with the Kasper case from a few years back, the recently concluded Metromedia (MTRMP) case or the ongoing WAMU case will be familiar with her excellent work in the restructuring field. I would liken her advocacy to that of Arthur Steinberg of King and Spalding. No stone will go unturned.
The ultimate result of the de-registration action in the bankruptcy court is that the Debtors won court approval to de-register and they filed a form 15 today. Since the security already trades on the Pinksheets, it is not likely that it will cease trading because of the act of de-registration. There are various opinions on the de-registration issue for and against. Those for it will offer that it saves the company money by not having to deal with the related costs associated with being a registered company and it settles the SEC actions asserted against the company without any related cost and without impairing the Company's ability to continue to secure military contracts.
Those against will offer that the de-registration renders the privatization of the Newco as a fait accompli, the cost savings asserted were not costs that were being borne anyway, the military had not stopped contracting with the Company at any previous point and some shareholders would like the company to remain a public reporting company at least until a Plan has been voted on and approved by the Court. In any event, de-registration is now a done deal and the stock traded all day.
I have seen it.
It is a very interesting case. One of the more notable items to watch for will be how SOX 304 disgorgements are addressed within the context of a Chapter 11 Plan. Looking to other SOX 304 actions outside of bankruptcy, those funds typically revert back to the Company, as is the directive of SOX 304 itself.
At present we are awaiting the release of the Amended POR and DS. At the March 10th Status Conference Hearing, the Debtors announced their intention to file the amended documents by March 28th. Since that hasn't happened, it is reasonable to assume that there is some disagreement among the parties regarding funding, valuation, exculpation/indemnification or "who gets what" etc.
Equity Committee Response to de-registration motion
http://www.scribd.com/doc/50414624
Shareholder Request for Relief Regarding Tax Attributes
http://www.scribd.com/doc/50258550
Objection to Point Blank Solutions De-registration 03.07.11
http://www.scribd.com/doc/50258006
Jacks' Objection to PBSOQ POR & DS 03.03.11
http://www.scribd.com/doc/49989114
Objection to Point Blank Solutions Stock Deregistration 03.02.11
http://www.scribd.com/doc/49877178/Objection-to-Point-Blank-Solutions-Stock-Deregistration
EI - I sent you an email earlier. I don't have PM capabilities at present. You can call tomorrow at your convenience. Evenings are fine as well.
I will attempt to give some short answers to your questions because I am pressed for time. My best advice is if you are not prepared to read the entire docket and then get actively involved in the case, then there are better ways to spend your time and money.
There are a lot of PBOSQ shareholders out there who have been victims of horrible frauds pre-bankruptcy. There is no need for anyone to put themself into a position to be come yet another victim of the bankruptcy process. My only goal here is to promote a bit more awareness of what is going on in the bankruptcy realm. This is not an "investment opportunity" nor should it be viewed as such.
As to your questions/statements:
1)They are in BK and some hedge funds are trying to steal the company even though there was a EC.
There are 3 hedge funds trying to take over the company by injecting new money and they also seek to benefit from the vast majority of the funds that the SEC may be reclaiming from those who were convicted of frauds and from those who have been indicted. Two of the hedge funds were on the Equity Committee and jumped off because they became conflicted.
2)The US Trustee has objected to the POR.
Actually, the Trustee has objected to the Disclosure Statement but some of the objections are digging for information needed to know whether to object to the Plan itself. There are several outstanding issues which may prevent confirmation of the POR by operation of law. Some of the issues could be precedent setting.
3)The SEC has filed criminal proceedings against them and some of their directors.
The indictments handed down today were in regard to 3 former board members, not current board members.
Additional Shareholder Objections
http://www.scribd.com/doc/49738417
Trustee Objection to PBSOQ Disclosure Statement
http://www.scribd.com/doc/49548152/Trustee-Objection-to-PBSOQ-Disclosure-Statement
Statement of Additional Objections by David Cohen [Docket # 1146]
Here is the Main Document and all related exhibits condensed into one document.
http://www.scribd.com/full/49517131?acce...
And the hits just keep coming. Docket #1085 Complaint for Subordination of Claim of D. David Cohen. Looks like "they" want to make sure David Cohen gets his recovery only after the Plan Backstoppers "get theirs". It also ensures he won't be participating on the creditor side of the rights offering for the amount of those claims if they are successful in subordinating him.
...and after all he has done for this company. There likely wouldn't be a $35 million rejected settlement or a $185 million clawback if it weren't for the diligence and efforts of Cohen.
The silver lining is that we probably get to see Cohen file another court document in the near future. That should provide for some entertaining reading.
Shareholder Letter filed document #1081
Well done Mr. Joseph Mason. Hopefully others will take your lead. You are not alone in your objection to the idea of the $35 million in settlement funds being used to recaptalize the business for the sole benefit of the backstopping parties while the real victims (who had the settlement funds ripped from them at the 11th hour) are not allowed to participate in the reorganized business simply because they are not wealthy "accredited" investors.
Limiting the number of eligible participants because they want to take the company private is somehow supposed to serve as a valid excuse for violating the bankruptcy code and trampling shareholder rights in the process. In truth, it is merely a mechanism to feed virtually all of the shares to the backstopping parties via the rights offering. The posture they take in front of the judge is how they are helping everyone and are only "exercising reasonable business judgment".
This rights offering is a sham. When you look at the required holdings one must have to participate in the rights offering and compare that against the shareholder listing filed at the time of the BK announcement, I doubt if there are 10 eligible holders who have a large enough stake to even qualify to participate in the offering. If the judge takes a hard look at it he will see it for what it is but shareholders will have to make him see it.
This will probably end up being owned 95% or more by the 3 backstopping parties not because it is not a good opportunity but because of the way the offering is structured. It is designed to funnel the new company shares to the 3 funds while giving the judge the outward appearance that others had an opportunity to participate then they will go to him and say "look what a great service we have done for the creditors, we stepped up to the plate when no one else would." And if left unchecked, they will get away with it.
1) There has been no response by the equity committee. However, the footnotes to docket #s 1067 and 1071 indicate that the EC does not fully support the current iteration of the rights offering procedures. What is not known is the exact reason why. It could simply be that some of the members of the EC don't hold positions large enough to subscribe to the Rights Offering under the current terms. Since they are "over the wall" they can't trade so they may be seeking to get the minimum of $35,000 reduced so they can all participate. I don't know for sure, that is just one possible reason why. Color me curious and skeptical at the same time.
2) Not sure what the Trustee's posture is at this point. Most likely we won't see any objections from the EC, Trustee or any other parties until the Disclosure Statement objection deadline on Feb 8th. We may see some other objections on Feb 9th to the Debtor's motion to approve the adequacy of the DS. Most objectors wait until the last minute. In this case there was an objection to the Plan that was filed within 12 hours after the Plan was filed, so who knows.
3) I believe March 21st is the deadline to object to the POR. I advise getting it in earlier than that though and that is for this case and for all cases. I believe in some jurisdictions even an e-filed doc is deemed to be filed one day after its release. In this case the Debtors are going to try and get the court to dismiss any and all objections based on technicalities because they cannot defeat any argument regarding 1123(a)(4) on its merits. They have to resort to more creative measures like " reasonable exercise of business judgment" or any of the other excuses they have thrown out in the last few days.
There are a lot of people that are fairly upset about what has transpired over the years. These funds are attempting to swoop in at the 11th hour and steal the $35 million settlement funds, recapitalize the new company with those funds, and then only offer a mere pittance of 30% of the reserve trust that MAYBE gives shareholders some recovery years down the road.
If that is the final result, I wouldn't be surprised if those shareholders don't organize to petition the SEC, and Justice Department en masse to ensure that the $185 million clawback never gets into the hands of the holders of new company stock. The SEC is already leaning that way as they have already objected to the plan supporters telling the SEC what to do with that money. Probably wouldn't take too much public outrage to convince the U.S. Government to find an alternative use for the $185 million in funds. They could always go back into the transfer records and issue the funds to the people who are truly aggreived as opposed to giving it to the funds that used estate resources and their own committee positions to cleverly devise a plan that serves their own "pecuniary interests".
The simple fix is to open the rights offering up to all shareholders and make the new company public. I doubt anyone objects to the Plan Supporters taking a few liberties here and there if the rights offering terms were actually fair but when the end result (for a class 6 or class 7 holder) is not materially different from the zero recovery that would have resulted from a credit bid under a section 363 sale it opens up the possibility that an ultimatum game is in the offing.
I am just wondering if this thing had gone to auction would the $35 million settlement have been rejected? I don't remember the rejection coming into play until these new funds swooped in. Might class 6 claimants argue they were better off under the old terms? Might this be the reason the Plan Supporters are seeking court approval for indemnification?
I could go on and on...
I am tied up today but will address these questions this evening.
Anyone that plans to file any objection or shareholder letter requesting any type of relief should read paragraphs 20 & 21 of docket #1067 and make sure that they provide notice to the parties listed on PDF page 8 of that document.
http://dm.epiq11.com/PBS/docket/Default.aspx?rc=1
Here are the applicable paragraphs:
“20. The Debtors request that the Court require that all objections to the Plan be filed with the Court on or before the Plan Objection Deadline and served in a manner so that they are actually received on or before the Plan Objection Deadline by the following parties (collectively, the "Notice Parties")
21. The Debtors further request that (a) the Court only consider timely filed and served written objections to the Plan; (b) the Court require all objections to (i) conform to the Bankruptcy Rules, the Local Rules and any orders of the Court in these Chapter 11 Cases, (ii) state with particularity the legal and factual grounds for such objection, (iii) provide, where applicable, the specific text that the objecting party believes to be appropriate to insert into the Plan, and (iv) describe the nature and amount of the objector’s Claim or Interest; and (c) objections not timely filed and served in accordance with the procedures of this Motion be overruled.”
Basically, if they can’t beat you on the merits of the argument that their Plan violates 1123(a)(4) of the Bankruptcy Code (and it clearly violates the code), they will try to silence you on technicalities.
Item (iv) above that would require one to “describe the nature and amount of the objector’s Claim or Interest” is ostensibly a reference to 2019(a) of the Federal Rules of Bankruptcy Procedure which, to my knowledge, is only applicable to “every entity or committee representing more than one creditor or equity security holder”. If one is only representing his or her self, then why would one be required to disclose this information if not to provide the Debtors and Plan supporters with but one additional means of silencing the shareholders whose rights are being trampled? The 2019(a) issue is a gray area and is not a settled matter. In fact, this very issue was raised in re Washington Mutual and even those entities that were represented by counsel where counsel represented more than one entity were ultimately not required to comply with 2019(a).
None of my posts should be deemed to be legal advise as I am not an attorney. I am simply trying to be helpful to those shareholders whose rights are being trampled. Obviously the committee that was formed to represent all shareholders is only interested in representing the wealthiest members of the class. The apparent result is that the non-accredited shareholders are effectively left without a voice in this bankruptcy proceeding.
PBSOQ Point Blank Solutions Developments
This just keeps getting better for the Plan Supporters. In the POR, the Rights Offering was limited to only the accredited investors. There was no real restriction on the amount of shares one needed to participate for, so long as one was accredited and so long as one subscribed for all of their shares if they fell below the established ownership threshold. Now, that has changed.
With the filing that was released in the dead of night last night, they are now setting the minimum subscription for the rights offering at $35,000 for equity holders. If that wasn’t enough, the participants will be limited to the largest 100 subscriptions received. So even if one is accredited, they may still be left out in the cold. So, how many shares must one own to meet the minimum? Looks like the maximum raised from the “Eligible” equity holders will be $4,427,500. There are apparently 31,640,000 in that category so this comes out to about $0.14 per share of PBSOQ if one wants to participate. Dividing the minimum participation amount of $35,000 by $0.14 yields a required ownership level of 250,000 shares. However, the Eligible holder can elect to participate or “oversubscribe” at a level that is up to 2x their actual holdings so it looks like one must hold at least 125,000 shares in order to even be in the discussion, they must participate for the full 2x position, and of course one must also be an accredited holder.
And to think that the funds that are driving this result were able to do so because they were on the equity committee. Now that they have used their seats on the EC to get them where they needed to be they jumped off the EC so that they no longer have that annoying “Fiduciary Duty” to represent other equity holders. It wasn’t long ago that so many were bemoaning how bad Steel Partners was behaving and how they were trying to steal everything. As far as Class 7 equity holders are concerned the likely end result here is just the same, only now it is not just one fund but more than one swinging the axe.
This just keeps getting better for the Plan Supporters. In the POR, the Rights Offering was limited to only the accredited investors. There was no real restriction on the amount of shares one needed to participate for, so long as one was accredited and so long as one subscribed for all of their shares if they fell below the established ownership threshold. Now, that has changed.
With the filing that was released in the dead of night last night, they are now setting the minimum subscription for the rights offering at $35,000 for equity holders. If that wasn’t enough, the participants will be limited to the largest 100 subscriptions received. So even if one is accredited, they may still be left out in the cold. So, how many shares must one own to meet the minimum? Looks like the maximum raised from the “Eligible” equity holders will be $4,427,500. There are apparently 31,640,000 in that category so this comes out to about $0.14 per share of PBSOQ if one wants to participate. Dividing the minimum participation amount of $35,000 by $0.14 yields a required ownership level of 250,000 shares. However, the Eligible holder can elect to participate or “oversubscribe” at a level that is up to 2x their actual holdings so it looks like one must hold at least 125,000 shares in order to even be in the discussion, they must participate for the full 2x position, and of course one must also be an accredited holder.
And to think that the funds that are driving this result were able to do so because they were on the equity committee. Now that they have used their seats on the EC to get them where they needed to be they jumped off the EC so that they no longer have that annoying “Fiduciary Duty” to represent other equity holders. It wasn’t long ago that so many were bemoaning how bad Steel Partners was behaving and how they were trying to steal everything. As far as Class 7 equity holders are concerned the likely end result here is just the same, only now it is not just one fund but more than one swinging the axe.
There's no doubt, Bluzie. I believe that has everything to do with Rosen being largely a spectator in the confirmation hearings. He expended his judicial capital and goodwill long ago. I think any document with his name on it has to be viewed with increased skepticism.
As an aside, based on their lack of knowledge and lack of being conversant on any of the LTW related issues, anything with Alvarez & Marsal on it has to be viewed as if it was prepared by or emanated from someone wholly incompetent and unworthy of a $700+ per hour billing rate.
I think the Judge will rule strictly on the merits because I believe her to be of utmost integrity and I find her very reflective but the human mind is a funny thing and their behavior may swing it our way if it is a "tie game" at the end of the day. We are not dealing with black and white here, there is gray area and it opens the door for subjectivity. We had the odds stacked against us for a long time and now I believe we may be playing with house odds.
LTW Reserve was just officially set at $347 million by court order. No link yet, but its out on PACER.
Yesterday, WMI filed a Certification of Counsel (linked below) where Rosen so brazenly stated the following:
"The Debtors believe that the differing amounts in the Confirmation Opinion and the Summary Judgment Opinion are obviously inadvertent errors and that the record from the January 6 Hearing is clear in that the Court was setting the reserve at $337 million.Nevertheless, the LTW Holders are now asserting that the reserve should be set at the higher amount indicated in the Confirmation Opinion. Thus, at the request of the LTW Holders, the proposed form of order, attached hereto as Exhibit A, contains blank spaces for the reserve amount.
WHEREFORE, the Debtors respectfully request entry of the proposed order, with $337 million filled in as the reserve amount, at the Court's earliest convenience."
Score one more for the LTW holders. She handwrote $347 right in the blanks where Debtors counsel asked her to write $337 million. I know it is a small amount relatively speaking, but the message is what spoke volumes to me. Thoughts?
http://www.kccllc.net/documents/0812229/0812229110113000000000008.pdf
Surprisingly enough I believe it was Judge Walrath that originally suggested that perhaps the plaintiffs should represent the entire class in a class action proceeding. I know she is getting roasted on other boards but her 109 page opinion was very well thought out in my opinion. She is sharper than I have her credit for. I think I soured on her last summer when she asked the wmb bondholders counsel if certificates of deposit were FDIC insured. I am changing my opinion based on this case as well as the decisive manner in which she adjudicated the Middlebrook Pharma liquidation.
There are numerous calculations of value floating out there but the rulings from yesterday and today don't establish the actual recovery amount due, they simply attempt to estimate the max payout. The issue of final value is very much a moving target and indeed the matter is not even settled nor is it reduced to a non-appealable judgment at the Federal Claims Court level. The outstanding issues of valuation relate to the potential awarding of an additional $63 million and the potential for a "gross up" award, the max of which would be $144 million. The max estimated claims reserve amount that was at issue in court on Thursday takes the most favorable conditions into account.
So, as to the question of what is the recovery now, no one can say with any certainty. What yesterday was about was determining the maximum disputed claims reserve amount so that, if the max is awarded at the federal claims court level AND if we win the class action proceeding, then there would be an adequate reserve set aside from which to satisfy our claims. Regardless of what happens at the fed claims court, our max payout from the WMI estate would be capped at the max claims reserve amount once the gavel comes down confirming the soon to be amended POR. hence, we needed the value to be placed as high as we could get the court to allow, and our guys delivered on that.
So, what do the various parties say is the maximum payout amount on account of the LTW class:
Debtors say - $248 million
LTW Class Plaintiffs say - $337 million
Madclown says - $295 million (Including pendency interest compounded monthly at the Federal Judgment rate as of the petition date)
Judge Walrath says -
When Judge Walrath ruled in open court on the maximum amount at which to set the disputed claims reserve for LTW holders she mentioned $337 million.
However...In the Confirmation Rejection Opinion she mentioned $347 million:
In the interim,however, the Court concludes that the interests of the LTW Holders are adequately protected by the disputed claims holdback provisions of the Plan so long as the reserve for their claims is set at $347 million
...and for all of the folks coming onto the board asking about what all this means for the potential value of DIMEQ it is a simple math exercise. Take the final award amount (or substitute any of the claims reserve amounts listed above) and divide it by the outstanding LTWs issued. Which just happens to be 112,975,597. I have seen some folks trying to back items out of the estimated claims reserve and that is duplicative. The number in the claims reserve would be the "Net" payout not gross so there is no need to back additional items out, theyre already factored in.
Clear as mud???
Thanks for the kind words. We won a few battles so now lets go out and win the war or at least advance our line far enough to drive a settlement. I think Bluzie has correctly pointed out that the Judge's mentioning of disparate treatment amongst similarly situated creditors is a development that might help drive a settlement. I highly doubt that the funds who set themselves up to be the beneficiaries of the Newco thru the rights ofering would like our $337 million constituency coming in andf diluting their windfall back-end equity money grab.
Congrats Fellow LTW holders. We have had a couple of very good days. Big thanks goes out to the funds who have represented us and financially supported this effort. Without them we would not be in this position. Thanks also to our counsel who are hands down the best legal team involved in these chapter 11 proceedings. Special thanks to Arthur Steinberg who is the star of the show and crowd favorite inside the courtroom. Enjoy the weekend everyone.
As fate would have it, if we win the class action proceeding, we are better suited if the framework for the POR remains intact and at worst we are not harmed by it. If we lose the class action proceeding then rejection of the POR is potentially to our benefit and at worst gives us more time value and optionality. We have options either way and thats what makes DIMEQ different than most of the other Wamu related securities but the POR will likely be ruled on long before we know the ultimate outcome of the fate of the LTWs. As another added benefit if we lose the class action proceeding at the BK level then we will appeal to a district court that is better situated to handle such a proceeding. The Debtor's best chance of success is always at the BK level because the skids are greased for them in that venue. Outside of BK, the courts inject sound reasoning, equity, fairness and reality which are foreign concepts to the BK realm. At the district court, IMO, we could potentially receive our rightful payout outside of a bankruptcy plan which is how it should be anyway and this is in line with Sonterras reasoning that we are actually a secured claimant because there are real And specific assets (cash) backing our claim.
The purpose of tomorrow's hearing is to determine the proper amount. The Debtors have asked for a disputed claims reserve in the amount of $250 million and the Class Plaintiffs (Broadbill & Nantahalla/Blackwell) have asked for $330+ million. We should know tomorrow afternoon, unless they manage to delay this yet again.
I am glad to see that this is no longer being punted down the road, at least as of the day before the hearing. Let's get some answers already! One has to ask, "why has it taken so long to get to this point?" When the toll charge to the estate is $30+ million per month in pendency interest and legal fees there is a very attractive incentive to delay, delay, delay and that is what we have been seeing. There are books written on this very topic and multi-year case studies conducted at major universities focused on the legal cost of chapter 11 proceedings.
These delays are tactical and you better bet your last dollar that they are carefully planned to extract every last dollar out of the estate that they possibly can thru legal fees via legal maneuverings. Now the question is "Who is they?". Follow the money and the monthly billings to figure out who "They" are. I'll give you a hint, "they" is not class plaintiffs, because class plaintiffs are paying for this litigation out of their own pockets. The Debtors know this and are testing the resolve of the class plaintiffs to see how long they will continue to spend their own money to represent the class. The one thing "they" have to consider is that "they" are working for the holders of the parties who own the securities who are driving this process and these same funds also own the fulcrum security. When we prevail, class plaintiffs will then be billing the estate for their legal billings and those billings that "they" purposefully drove up will then come directly out of the hides of the fulcrum security holders and it will be a blessed day on more than one count.
I have a nice bottle of port on reserve to celebrate such an occasion.
Looks like the DIMEQ disputed claims reserve estimation hearing is going forward for tomorrow.
Here is the agenda of matters for tomorrow (see PDF page 31):
http://www.kccllc.net/documents/0812229/0812229110104000000000001.pdf
...and here is the order referred to in the agenda that references our claims in exhibit D of Schedule I. See PDF page 7.
http://www.kccllc.net/documents/0812229/0812229101220000000000002.pdf
GLTA