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The hearing on the estimation of the disputed claims reserve for the LTWs ($250 million vs $337 million) has been moved to the next omnibus hearing scheduled for January 6, 2011.
Here is the agenda for Friday, December 17, 2010.
http://www.kccllc.net/documents/0812229/0812229101215000000000005.pdf
The adequacy of the amounts set aside for the disputed claims reserve is on the agenda for Friday so the hearing is of great import to us. There is an $87 million difference ($0.77 per LTW) between what has been requested by Class Plaintiffs and what has been established by the Debtors.
Sonterra responds:
http://www.kccllc.net/documents/0812229/0812229101214000000000017.pdf
Sonterra and its counsel have been a late but very welcome addition to the team of attorney's fighting on our behalf. They are doing some fine work.
The tax issue has definitely been subject to much debate. The Debtors contemplate a 45.5% tax rate in their calculation. However, according to Pleadings by JPM in the Federal Claims Court, their applicable tax rate is 38.757%. It should be noted that the 8-k issued by WMI on March 12, 2003 defines “Taxes” as set forth below:
"Taxes" equal, regardless of the actual amount of taxes imposed with respect to the damages recovery, the product of (i) the amount of damages recovered less the expenses in the litigation and LTW issuance described in the preceding clauses and (ii) the combined highest federal, New York State and New York City income tax rates applicable to financial institutions in the year (or years) in which the amount of the damages (in whole or in part) is fixed or determinable (after taking into account the effect of the deductibility of such taxes for federal and state income tax purposes); for 2003, this combined rate is 46.05%.
This definition of “Tax” may need to be viewed “outside the four corners” to divine the intent of the drafting parties. To be certain, this is one of many portions of the agreement that fail the “clear and unambiguous” test. If taken strictly, the 8-k would seem to imply that even if WMI were not taxed on the proceeds of the Anchor litigation (or if WMI were to have no tax liability at all for the tax year) it would nonetheless extract an amount equal to the highest applicable local, Federal and NY state tax rates applicable to financial institutions before making a distribution to LTW holders. Surely this was not the intent of the drafting parties and certainly no rational person would think it equitable for the agreement to provide (in the absence of any tax liability on the part of WMI) for WMI to receive 46% right off the top as an extraction for tax that isn’t even due and payable and then another 15% of the remaining award as administration fees. The notion strains credulity.
Also, when looking at Footnote 17 on page 58 (PDF page 97) at http://www.kccllc.net/documents/0812229/0812229101021000000000008.pdf
the Debtors, in their plan and disclosure statement, use the term “effective tax rate” in connection with their estimated 45.5% rate which is conflicting if one were to assume that tax would be extracted regardless of whether tax was owed. The term “effective tax rate” would only be used in connection with taxes actually owed or payable.
When we are talking about taxing over half a billion dollars, the difference in the tax rates is quite material. The award should be taxed in the hands of JPM because that is the rate at which the gross up is to be calculated at the fed claims court level. Since JPM is the entity that is now recognized by the fed claims court as the entity to which the award will be remanded, the gross up must be calculated “in their hands”. As such, it makes no sense to tax the award at WMI's tax rate as they are now irrelevant to the taxation discussion.
We are suing WMI for failing to fulfill their fiduciary duty to represent our interests. Our claims arise because WMI transferred our 85% interest in the Anchor litigation, free and clear of any obligations, to JPM. Remember that this is the only transfer (out of tens of billions in transfers) in the Global Settlement that separates the asset from the underlying obligation. Also, bear in mind that this transfer was not one made under duress at the time of the seizure in 2008, it was a calculated move by the Debtors and JPM made in March 2010 as a “backdated” § 363 sale. As such, the claim we have must be viewed in terms of what we would have received if the transfer or “sale” were done properly. The convoluted manner in which the fraudulent transfer was concocted would result in a windfall for WMI and for JPM because JPM would receive a $550 million pre-tax asset with no related liability and WMI is effectively receiving (through other consideration received in the Global Settlement) the value of the 85% portion that it never owned to begin with. Their windfall occurs if they are successful in expunging the entire obligation that should have been transferred (along with the related asset) to JPM. It would be a “win-win” for both of the settling parties.
The Debtors have argued, ad nauseum, that this transfer was “in the best interests of the estate”. The folly of this argument is that anyone could contemplate any number of scenarios in which a party takes something that doesn’t belong to them and then illegally transfers it to someone else for valuable consideration. Outside of the bankruptcy court this concept is called “theft” or “larceny” and is punishable by fines and/or imprisonment. The Debtors have posited that these actions are merely “in the best interests of the estate”. The concept of “best interests” cannot be raised as a defense for theft otherwise theft would never be a punishable offense. These settling parties enjoy a lot of advantages inside the bankruptcy court but if the bankruptcy court fails to reverse this inequity, a District court will do so on appeal.
Bluzie, it is a must read, no doubt about it. Here is some additional language from today’s filing that put a smile on my face:
"Unfortunately for Defendant, it referenced the wrong agreement and is now “knee deep” in its concocted story. Defendant is exposed with no explanation for the notes to financial statements included in the Form S-1 filed by Golden State Holdings Inc. - - an affiliate of Golden State - - on September 29, 1998 (attached hereto as Exhibit C, the “Golden State S-1”) as it relates to the Final Golden State Agreement. There, Golden State specifically acknowledges that the goodwill litigation was “owned” by the holders of Golden State’s litigation tracking warrants, notwithstanding the tax efficient structure of the litigation tracking warrant."
I read a lot of court documents on almost a daily basis in the course of managing my distressed portfolio and in scouring for new opportunities. Usually it is a very tedious process but in the case of the DIMEQ LTWs, our collective counsel are actually entertaining both in their verbal communication and in their written communication. I have considered it a joy to follow this case and I have had fun with it. In this case we have been treated to the work of some brilliant legal minds on both sides of the aisle. It is not often that you get to see one legal giant impale their opponent with their opponents own sword but that is what we witnessed today.
I join you in your admiration of the counsel representing our interests. I will go further to offer thanks to Broadbill, Nantahala, Blackwell and Sonterra for reaching into their own pockets to represent us as a class. They did not have to do this and the relative size of their holdings vs. the cost outlay in the form of legal expense has always been baffling yet refreshing. Just recognize that this is the rare exception to the rule.
Throughout the adversary and class action proceedings the funds that invested alongside of us have taken a view that they wanted their efforts to be applicable to all LTW holders because they knew that there were holders that did not have the financial wherewithal to pursue this course of action on their own. Their outstanding advocacy was further highlighted when we learned late last week that the Debtors had previously offered to settle only with Broadbill and Nantahala and that those funds rejected those overtures. Their actions have served to restore a bit of confidence and integrity to a process that is, more often than not, sordid and dominated by greed and self serving interests.
My thanks to all of these parties for what they have contributed to this process. Regardless of the outcome, we have received fantastic representation.
The entire award wasn't subject to gross up, only the damages portion. In the scenario where we get the $356 million plus the $63 million I believe there is $169 million that was not subject to gross up. That's why the Tax amount called for in the writeup exceeds the $144 million grossup by approx $66 million. The gross up was allowed for in many of these legacy Goodwill cases to make the damages portion tax neutral at the "Bank" level. By adding in the gross up and then taxing the entire award it effectively renders the portion subject to gross up tax neutral.
If there are still some folks holding these LTW since their original issuance they probably have a strong case as to why they should not pay tax at the individual level in the event that they receive a distribution. I'm not so sure someone who purchased the LTWs in the open market after that time has such a strong argument. That's why I suggested contacting the IRS to avoid any doubt.
It would be a good idea to contact the IRS to obtain a “Letter Ruling” or “Private Letter Ruling” on the tax consequences in the event that Class Plaintiffs prevail and a distribution is made and received by a holder of the Dime LTWs. Here is a portion of the S-3a issued by Dime on 12.15.00 included within the “Tax Consequences” section of the filing. It appears that the proceeds may be taxable to the holder unless the holder was one who received the LTWs in the original distribution. I have bolded some of the pertinent language to consider.
“In the opinion of Sullivan & Cromwell, our counsel, the following summary describes the material United States federal income tax consequences relating to the distribution, receipt and ownership of an LTW. This summary is based upon the Internal Revenue Code of 1986, as amended, Treasury regulations issued thereunder, administrative pronouncements and judicial decisions, all as in effect as of the date hereof and all of which are subject to change, possibly with retroactive effect. This summary addresses only LTWs that are held as capital assets and does not address all of the tax consequences that may be relevant to holders of the LTWs in light of their particular circumstances or to certain types of holders subject to special treatment under the Internal Revenue Code, including, without limitation, certain financial institutions, dealers in securities, currencies or commodities, traders in securities who elect to apply a mark-to-market method of accounting, tax-exempt organizations, persons whose functional currency is not the U.S. dollar, persons who hold an LTW as a position in a "straddle" or as a part of a "hedging," "conversion" or "constructive sale" transaction for federal income tax purposes.
In addition, the discussion below applies only to a holder of our common stock who acquires the LTWs in the initial distribution and who is (i) a citizen or resident of the United States, (ii) a domestic corporation, (iii) an estate the income of which is includible in gross income for federal income tax purposes regardless of its source or (iv) a trust whose administration is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust. In this document, we refer to a stockholder that meets the preceding criteria as a "U.S. holder." This summary does not address the state, local or foreign tax consequences of the distribution, receipt and ownership of LTWs.”
Link :
http://www.secinfo.com/dsvrt.56gn.htm#1sl0
http://thediligentinvestor.blogspot.com/2010/11/look-at-middlebrook-pharmaceuticals.html
I would also add the following as a recent update to the situation:
At first blush, Blue Ridge does appear to have just bot 8% of the outstanding shares of MBRKQ based on SEC filings. What is interesting is that Blue Ridge has invested alongside of Sam Zell's Equity Group Investments(EGI) on a number of occasions in the past few years. EGI held over 30% of the O/S of MBRKQ and were seated on the Board but dividended out their entire holdings to their investors on 11/22/2010. This is likely where the selling presure has come from lately. The only reason I say that Blue Ridge "appears" to have bot is that with their close ties, it is possible to deduce that Blue Ridge is one of the groups that had invested in EGI itself and thus only received a distribution of the shares that EGI just dividended out.
It boggles the mind that heading into a confirmation hearing, William Kosturos, the Chief Restructuring Officer of Washington Mutual Inc., does not have a clear understanding of the Anchor Savings Litigation, the amount of money owed to LTW holders or the rationale behind why it was transferred in the §363 sale to JPM. If the LTW holders, as a group, are successful in the class action proceeding against WMI they will become one of the largest, if not the largest pool of claims within the GUC claims pool. I can understand that he might not have anticipated this outcome at the inception of the case because the actions (and previous lack thereof) on the part of WMI that gave rise to the necessary change in the nature of the claims did not occur until the LTW holders’ interests in the Anchor litigation were stripped away and transferred to JPM free and clear of any obligations.
The part I cannot get past is that the adversary proceeding turned class action proceeding dates back to April 2010 and in the last 7 months the CRO did not avail himself of the requisite knowledge to even be conversant on these subjects while under cross examination at the confirmation hearing. Bear in mind that this individual was admittedly the chief negotiator on behalf of the Debtor’s estates with respect to the global settlement. I guess $770 per hour just doesn’t get you what it used to.
As to the question of whether the TPS can receive different treatment that is separate and apart from what the other preferreds get, the answer is yes. In fact, it has already happened. Under the current settlement agreement they are getting a 1.25% of par recovery as a floor, even if the other preferred classes receive nothing. If those guys get enough traction to bring the parties back to the table for a revised settlement, then they could just bargain for a higher floor amount than the current 1.25% and it would not mean that the other preferred classes would get to enjoy any additional benefits.
I will have to apologize in advance for how long winded this response became. Most people who know me will tell you not to ask what time it is because I will only tell you how to make a watch! I promise I will reference DIMEQ at some point in an attempt to make it relevant to this particular board. I held WAMKQ and WAMPQ from October 2008 until the end of December 2009 when I sold and took the LT capital gains at the lower rate. I bought back a boatload of each on March 12, 2010 during the 90% down day and exited again very soon after. It was not until today that I reentered a position in WAMPQ. I didn’t do so with the idea in mind that I would ever see a recovery in full or maybe even at all. I bought today because of the optionality and time value created in the event that the TPS proceeding yields a result that blows up the global settlement or renders the current plan unconfirmable. What once was a lottery ticket turned long-term investment to me has been rendered nothing more than a trading opportunity because of how the case has unfolded.
I have followed this whole WAMU situation privately since late 2008. It was not until April/May 2010 that I began going public with my DIMEQ summaries. I have read and followed all of the institutional reports (eg. CRT Capital, et al.) I could get my hands on. I have followed the docket, read the examiners report, spoken to legal counsel conversant on the matter , spoken to hedge funds who are/were invested at all levels of the cap structure and even some who were not invested and thus independent. I say all of this to point out that I am fairly conversant on most of the important matters but even with all of that history I have no idea what is going to happen to the Preferreds or DIMEQ for that matter and as each passing event unfolds I struggle like everyone else to try to make the pieces fit so that I can divine who benefits and who loses. It’s a zero sum game afterall.
I have kept quiet on the WAMU front for the past 2 years because there are too many moving parts to even make it worth my while to pontificate on any of it. The shape of the case changes with each passing season. I look back to some of my historical waterfall models and I have to laugh at how drastically they have changed over time at the fulcrum levels and even more so for the “out of the money” constituencies. I have models from early in 2010 that have called for anywhere from 0%-4% recovery for preferreds all the way up to the 40% to 50% levels based on varying outcomes. At this point, I don’t see recovery at the preferred level anymore because of how the tax refunds and the $4billion in TRUPS shook out. The models I had that called for 40% to 50% in a best case scenario for preferreds were contingent upon getting more refunds and also contingent upon the $4 billion in Trups remaining at the holdco level and being available for distribution to the $7.5 billion preferred claims pool (WAMPQ, WAMKQ & Caymans). Bear in mind that the $20 to $30 million per month toll charge for pendency interest and attorneys fees has significantly eroded my previous estimates as well. I can’t argue with the current estimations of 0% to 1% recovery for preferreds. Not saying I like it or that its right, but it’s the reality of the current landscape.
The scenarios I had envisioned (and that the market once envisioned) for a meaningful and significant preferred recovery seem like a distant memory. It is my belief that if the TPS litigation gains traction in the coming days it opens up the door for settlements in their favor, but for them only. The current settlement parties do not want recovery to flow thru to the lower levels of the capital structure because it opens up Pandora’s box with the split allegiances it would create at the equity level. I wanted a separate committee of preferred security holders and I thought it was most appropriate to have that segregation because the common shareholder recovery was always contingent on a litigation path as opposed to the settlement path and a preferred recovery was once attainable under the global settlement but the separate committee didn’t happen and it probably cost the preferreds in terms of the “nuisance” value (at the very least) that such a committee might have created. Being tied to the common shareholders was like having the proverbial “albatross” around the neck. WMI/JPM/FDIC can’t let any holdco equity securities end up “in the money” at confirmation. It is a common bankruptcy tactic to structure things this way because if you put a class in the money, you give them a stronger voice unless they are unimpaired.
It will only be thru excess reserves for contingent claims that the preferreds might possibly end up with anything under the current structure. Also, in order for value to remain it supposes that the Debtor will vigorously oppose the contingent claims on a post confirmation basis. Anyone willing to hold their breath on that one? Just look at the Global Settlement structure, it was cleverly designed so that the fulcrum securities at confirmation would still reside at the junior creditor level. It did not end up there by happenstance. Now, if you blow the current structure up I guess all bets are off but ultimate recovery would possibly be years down the road after contentious litigation and counter claims and the $20 to $30 million per month toll charge would continue to erode recovery with each passing month. The parties who currently have a significant voice are content to take their recovery now as opposed to deferring their payment so that out of the money constituencies can chase what they deem to be speculative recovery prospects under alternative litigation strategies.
This is the DIMEQ board so I will have to steer this conversation back to being relevant on that front. Most of the relevant information in the whole WAMU saga is just flat out unknowable unless you are an insider and even the insiders (WMI, JPM, FDIC, Attorneys, Committee members, Examiner, Trustees, etc.) can’t agree on what is legal, moral, right and just. Bear in mind that this creates scenarios where one party that may be your ally today could very well be your adversary next week. Case in point, DIMEQ holders. If DIMEQ ends up as a GUC class 12 claimant, our financial allegiance will shift from being a Plan opponent to a Plan proponent because it would then be in our best interest for the current settlement and Plan to move forward with great haste even when we know that many injustices are spawned from the plan and settlement. The preferred holders would be in this same dilemma if somehow a future settlement were to call for say a 20% recovery. The preferreds, as a class, would likely cease to care about what happens to commons under such a settlement. This is what is going on at all levels right now. It is very much a “Hey, I got mine, lets move this thing forward” mentality. And every time someone new gets something more it fosters hope for them and renewed angst and litigious tendencies for those just beneath them in the waterfall. This is something that the “in crowd” can ill afford to allow to continue.
End of diatribe.
That was a short but entertaining read and certainly thanks goes out to the attorneys for class plaintiffs on their expedient efforts.
There is a pattern of "ambushing" that the Debtor's attorneys have established throughout these cases but their tactics are seen ever so clearly in this adversary/class action proceeding and to an even larger extent in the TPS proceeding where they seek to introduce as evidence, hearsay and attorney-client privileged information that was shielded from discovery. I just hope the Honorable Mary Walrath is on her “A” game tomorrow. From my experience in the MBRKQ case, Walrath does not like 11th hour surprises. In that case, an investment group comprised of insiders tried some 11th hour maneuverings and she was having none of it. Here’s to hoping she holds true to that same form for our proceeding, the TPS proceeding and confirmation as a whole.
I'll have a look at it tonight. Thanks for the heads up.
In paragraph 4 of exhibit A to the Chamberlain Declaration it states:
“To the best of my knowledge, I was the only equity analyst who covered litigation participation securities.”
But in paragraph 15 we see the following “hedge”:
“My work in this matter is ongoing. and I reserve the right to amend my report and may modify, refine, or revise my opinions if new information comes to light or in light of other discovery or expert testimony.”
So, where are these other “experts” going to come from that might change her opinion? I thought she was the only one…And if “new information” or “discovery” comes to light at this stage of the game that might change her opinion, wouldn’t that be an admission that her client (WMI) failed to provide all of the relevant documentation upon which she would base her determination? Please, lets have these other “experts”, “new information” and “discovery” come to light sooner rather than later.
In paragraph 43 of Ms. Chamberlain’s report, she uses the historical trading prices of WAMU and DIMEZ (Now known as DIMEQ) to support her contention that the market viewed the LTWs as equity instruments and that any impairment to the holdco stock would be viewed by the market to also be an impairment to the LTWs. Specifically she cites the decline in price of WAMU from $9.24 to $2.26 and compares it to the decline in price of DIMEZ from $.355 to $0.13 and on a percentage basis the declines were 75% and 63% respectively. From that point of view I will stipulate that the declines did seem to be in tandem, at that time. Let’s now turn our attention to subsequent events a little further down the time continuum, shall we?
If the price action of these securities in 2008 are to be considered germane to the discussion in November 2010 and if this 2008 price action is to be allowed to support her contention, then should we not also consider subsequent price action to be relevant to the discussion? As we sit here in November 2010, the WAMUQ security trades at roughly $0.05 while DIMEQ trades at $0.40. As I see it, WAMUQ has declined another 98% from the $2.26 level while, curiously, the DIMEQ security has fully recovered and then some. Actually, the current price is a 208% increase from the $0.13 level. 98% decline vs 208% increase. Hmmmm… So what then should we say about this divergence? Isn’t it interesting that WMI and its expert say nothing on the subject. I see it as a half-truth, they stopped the timeline at the point it supports their position and then ignored subsequent events that can only serve to refute the half-baked assertion.
Before anyone tries to make the argument that all of the sophisticated market participants fled the scene in 2008 so all subsequent events can simply be chalked up to a “bankruptcy bounce” (GFY Natasha) let me just offer up that distressed, post petition and post emergence analysts and investors, on the whole, are some of the most sophisticated participants in the capital markets. Why? Because they have to do their own due diligence and because the depth of knowledge they have to obtain to even begin to process and understand the information after they find it is often a daunting task. Distressed investors don’t have the opportunity to rely on the coverage from 20 to 30 analysts to do their research because there aren’t that many operating in the space. You’re lucky if there are even 2 or 3 analysts that cover a distressed name. In the case of DIMEQ, there wasn’t anyone covering this name except for RW Pressprich whom I believe blew the lid off in early 2010. Go look at the chart and you can tell when the word started to circulate. I say all of this to point out that the folks who invested heavily here did so because of many hours of research and many sought legal counsel as well. It is also to say that those who are still in are in for a reason, not just on a whim. So the post-bk price action is meaningful and it is relevant and it should not be ignored so flippantly.
Don’t cut the timeline short in your “expert” witness testimony. Its disingenuous at best.
Nice. Real nice.
This just in...WMI has finally located someone willing to take money in exchange for making the bear case against DIMEQ. Color me shocked that this bought and paid for "opinion" coincides with their need to make the $500 million oversight just go away.
Thanks for the heads up but believe me I am aware of each and every DIMEQ related filing. I don't post or write much publicly anymore but I follow the case daily if I can but certainly on a weekly basis. It is in my best interest to follow it closely because I have invested significant time and capital in this project. I'll reciprocate with a few other nuggets to consider, but these are all simply my opinion.
I have taken note of the fact that our friends at Broadbill, and American Bank (and Sonterra to some extent) are asking for a minimum reserve of $337 million. We get there by taking the max pre-grossup award of $419 million ($356 million + $63 million), less $22 million in est. legal fees and multiplying that amount by 85%. This leaves us with the requested $337 million. This makes sense because the award was designed to be tax neutral. What complicates the calculation of ultimate recovery and proper reserve is the tax rate applied to the court awarded amount. JPM has an applicable tax rate of 38.757% and WMI claims their tax rate is 45.5%.
When we are talking about taxing over half a billion dollars, the difference in the tax rates is quite material. My belief is that the award should be taxed in the hands of JPM because that is the rate at which the grossup was calculated at the fed claims court level. Whether right or not, JPM is the entity that is recognized by the fed claims court as the entity to which the award will be remanded to. Knowing this, it makes no sense to tax the award at WMI's tax rate. They are now irrelevant to the taxation discussion and it is their own oversight and indiscretion that led to this outcome and it is also what led us to the point where we had to sue them to get our rightful recovery. This has become the $500+ million mistake that no one wanted to have to deal with. If we prevail in the class action, we become one of the largest if not the largest GUC claimant pool. That's no small oversight by WMI!
The reference to the $500+ million amount is the "amount recovered" which is approximately $564 million after the gross up award is added in but that number is not the net amount due to LTW holders because to arrive at the net recovery it has to be taxed first in the hands of JPM. Due to the intended tax neutrality of the award as evidenced by the presence of the gross up award, I think we need to look at $337 million as the net amount due to us if we prevail in the class action proceeding and if we get the additional $63 million award at the federal claims court level.
Also of note is the effect this may have on the recoverability of WAHUQ holders. In the event that JPM keeps 100% of the award handed down in the Anchor litigation and at the same time the DIMEQ holders prevail vs WMI in the class action suit as unsubordinated gen. unsecured claimants, then it looks to me like our recovery will come directly out of the pockets of WAHUQ holders because they are currently the fulcrum security. Our recovery comes out of the WAHUQ pool because the Anchor litigation proceeds would be going to JPM and would not be recovered by WMI. All other things being equal, if we win, someone else loses. If WMI had not "sold" 100% of the Anchor litigation then our potential payout would not be coming out of WAHUQ's pockets because the anchor proceeds would be available to WMI to distribute to us.
Just getting prepped for the week ahead and I noticed you already posted the link to Broadbill’s response to the Defendant’s Reply Memorandum that was filed on 11/22/10 so I won't repost it. But just for fun and to entice others to read the filings, here is how that response begins:
“On November 22, 2010, Defendant filed the Reply Memorandum. In the Reply Memorandum, Defendant made factually incorrect and unsupported statements. They have also cited to new authorities that are either taken out of context or are supportive of
Plaintiffs' legal position. Plaintiffs respectfully submit these assertions warrant a sur-reply.”
It is amazing how these well respected, highly educated and highly compensated individuals can have such differing views of the world. I guess any of us could make the bull/bear case in any argument when the rate for advancing your client's position is in the $800 to $1,000 per hour range.
I am just waiting to hear the following words (or something close to it):
"Defendant's motion for summary judgment is denied, but the order is entered without prejudice to Defendant's right to continue to waste WAHUQ's money asserting a position that is not founded in law, contract, fact or logical reason."
GLTA
Scott, they added in the $144 million gross up and kept their tax rate at 45.5%. this gets us to $250.7 million keeping all of their previous numbers the same.
Thanks for the sentiments. If you wanted to buy this company in full before emergence, you would have to buy all of the CEMJQ, all of the publicly traded bonds, all of the publicly traded general unsecured claims and all of what is being given to management. The window of time for a pre-emergence buyout closed many many months ago but a post reorg M & A type deal is very much in play. With this industry hitting peak levels, it makes tons of sense for a bigger player to come in and try to buy Chemtura with stock that is likely trading at multi-year highs.
Whenever this estate finally emerges, the legacy shareholders, bondholders and other GUCs will all be one big happy family, except for those who exit during the inevitable post reorg selloff.
New blog post. Maybe the last one. Do be sure to read the comments section. Someone near and dear to this message board left a message over there. You all might be interested to catch a small glimpse of what it was apparently like for the active retail members of the EC in dealing with the likes of lazard and svp/canyon.
http://chemturaresearch.blogspot.com/2010/10/chemturas-plan-of-reorganization.html
The attorney (Kaufman) is supposedly taking 1.42% of the new company stock in payment for his services. The QSGIQ faithful have held this up as a positive event. But let’s look further at what that means for the implied value of the stock. The attorney (Kaufman) has an administrative claim of $25,000. This can be found on page 2 of docket# 332-3. If his $25,000 administrative claim is supposed to be worth 1.42% of the company’s equity, then we would divide $25,000 by .0142 to arrive at a total equity value of $1.76 million. If GSGIQ holders are to be receiving 13% of the new company equity then we multiply .13 or (13%) times $1.76 million to arrive at a value of $228,873 attributable to current QSGIQ holders. If we divide the 31 million “outstanding” QSGIQ shares into the $228,873 aggregate value then we arrive at a per share value of $0.0074 for QSGIQ.
The exchange of a claim for an equity interest is contemplated here by a “willing buyer and a willing seller”. It should yield an approximate value for the consideration exchanged. I used this calculation because it gives some idea of what QSGIQ is worth. The holders of QSGIQ are going to be given 13% of the new company equity. The implied value of the new company equity is $1.76 million as outlined above. If one were to buy all 31 million shares of QSGIQ on the open market they could convert them into 13% of $1.76 million, which is roughly $229,000. In order to find out what the per-share value is for the 31 million shares you bought you divide it into the value received. That comes to $0.0074. I don’t know how to state it any other way.
GLTA
The DD on QSGIQ takes 20 minutes. It is worth half of a cent. That's my opinion based on real data points. Don't like it? Put me on ignore. I find it humorous that you guys want to come on here and debate someone you think is ignorant. As for me, I don't pay attention to the opinions of people I don't respect. Therefore I don't hang out where the pumpers hang out.
I dont hang out on the QSGIQ pump board because I choose not to wallow in the IHUB sewers. You guys keep your junk over there and I will keep my ignorant drivel over here.
You don't even understand enough for me to waste any more time on it. Respond to the post below since it doesn't involve splits or additional equity raises:
Let’s look at a best-case scenario in which there is no reverse split and there is no additional dilution from an equity infusion, shall we? I’ll make it nice and simple so even you can follow along. On docket # 332 PDF page 18 shows that there would be 237 million outstanding shares in this situation (no r/s and no equity raise). With 600k in EBITDA and a 5x multiple, the EV would be about $3 million. QSGIQ holders will collectively own 13% of the equity in the company. Let’s say all $3 million is equity. So 13% of $3 million is $390k. Now, to get to a value for QSGIQ you divide the value ($390k) by the number of shares. In this scenario, there are 31 million shares. So, 390k divided by 31 million yields a value of $0.0126 per share. That would be best case. Even under a best case scenario the stock is trading 9 times higher than its actual value.
There isn’t anything I don’t know that I “should know better than”. It is you that fails to grasp where the numbers come from, which ones are relevant and how an R/S does or does not affect value. I am not using the authorized share count. In my first valuation, I was using the outstanding count from docket #332 PDF page 19. That chart shows the effects of the reverse split before the new equity raise that causes further dilution. The reverse split issue is irrelevant in terms of what the collective stake of QSGIQ holders is worth. Splits don’t affect aggregate value. The main dilutive effect would come from the additional $1 million equity raise that is contemplated and the nearly 100% increase in shares issued under that scenario if the R/S were to happen first.
Let’s look at a best-case scenario in which there is no reverse split and there is no additional dilution from an equity infusion, shall we? I’ll make it nice and simple so even you can follow along. On docket # 332 PDF page 18 shows that there would be 237 million outstanding shares in this situation (no r/s and no equity raise). With 600k in EBITDA and a 5x multiple, the EV would be about $3 million. QSGIQ holders will collectively own 13% of the equity in the company. Let’s say all $3 million is equity. So 13% of $3 million is $390k. Now, to get to a value for QSGIQ you divide the value ($390k) by the number of shares. In this scenario, there are 31 million shares. So, 390k divided by 31 million yields a value of $0.0126 per share. That would be best case. Even under a best case scenario the stock is trading 9 times higher than its actual value.
You guys can pump this thing to your hearts content over on QSGIQ and tell everyone it is headed for $2.75 per share, I simply could care less. Just don't do it in here. Don't leave a big steaming pile in my yard and I won't come over to yours.
I am glad you're not following this board either. The content is obviously well beyond your level of comprehension if you come in here with that attitude. The fact that you even have access to this board is the classic definition of "pearls before swine". If you come all up in my area and start calling me "ignorant" then I would hope you'd put me on "ignore". You'd do well to shut your mouth and try to learn something. What you fail to grasp is that someone came onto my board and asked me a question. I responded to that question using two different data points that support my valuation. I didn't go onto the QSGIQ pump board and try to rain on anybody's parade but you felt the need to come on here and insult me. Why is that? Over on that QSGIQ dedicated pump board you have thousands of pump posts on your side yet you want to discredit one poster on an unrelated board that has a difference of opinion based on facts as stated in the POR? I think you do this because you know, deep down, that you are holding paper that is trading at 17 to 25 times what it is worth. And even if you lack the capacity to figure it out on your own, you are holding overinflated paper, regardless of how high it is artificially pumped.
Congratulations on your trade. I don't care if you make or lose money. I don't care if the stock goes up, down or sideways. Where the stock trades has nothing to do with what it is worth. If you can make money trading in and out between pumps then more power to you. The truth is that even if I were of a mind to get on board with a massive pump scheme I can't buy a large enough position to even pique my interest. There isn't enough market cap (even at the massively overinflated shareprice) to move the needle for me. So, no I don't lament not taking a position. It is irrelevant to me, as are you. Now, run along and chew on that to figure out what it all means.
Don't invoke my name without showing proof. I don't remember ever offering any public statements on Krusecom or on the survival of the common shares. If I did, then by all means provide a link to it. The first time I remember opining on the stock is yesterday, when someone came on to my board and asked me a question.
QSGIQ POR: Here's why we're not interested
I looked at the QSGIQ POR but decided I would pass on buying a stock that is currently trading at 17 to 25 times what it is actually worth under the terms of the POR which gives 13% of the new stock to current shareholders. The real issue centers on what is 13% of the new company worth and what is the value of a share of QSGIQ? Let’s look at what the new company is worth based on a couple of different data points.
The company is projecting $600k in estimated EBITDA for 2011 based on Docket # 332 Exhibit C. Putting a 5x multiple on the $600k EBITDA yields an estimated enterprise value of $3 million. According to the plan it looks like there will be 21.8 million shares of the new company or “Newco” after reverse splits and after an additional 10 million shares (split adjusted) are issued for working capital. This valuation method would yield value of $0.137 per share for the Newco stock. Do not mistake this for the value of the shares trading right now as QSGIQ, this is because the 20:1 split would yield a value of about $.0069 per share for the current QSGIQ stock. You get there by dividing the very ambitious $0.137 value of the Newco stock by 20. You must do this to determine the value of QSGIQ because for every (20) shares of QSGIQ you own you will exchange them for (1) share of the new company stock as part of the R/S. Don’t like that valuation? Read further and let’s look at the value under a “pump free” market tested condition.
The new Company is issuing up to 10 million new shares or $1 million cash in the aggregate in order to raise operating cash so it looks like they think the Newco stock would be purchased for $0.10 per share. If the company is willing to issue 10 million shares (after the reverse split) in exchange for $1 million dollars then company is suggesting that they are effectively placing a value of $1 million on 46% of the company stock. Under this market tested data point the implied value of the company would be about $2.17 million. Under this method, the value of QSGIQ would appear to be $0.005 because there is a willing buyer and a willing seller at a Newco stock price of $0.10 which has to be adjusted for the 20:1 split to get the QSGIQ value.
I have seen some price predictions of over $2 per share for QSGIQ. This is irrational nonsense. Here’s why. There are approx. 31 million QSGIQ shares outstanding right now, so $2 per share would supposedly mean that the collective stake of QSGIQ stockholders in the new stock would be $62 million. According to the POR, these stockholders will own 13% of the new company. If 13% of the new company is supposedly worth $62 million then that would mean that the total equity in the new company is worth $477 million. If you read the POR and DS it states that the unsecured creditors would have received no recovery in liquidation. Quite simply this strains the sensibilities to think that a company could be hopelessly insolvent in bankruptcy but somehow $477 million could be created out of thin air. It would also mean that the company would supposedly be valued at 795 times the 2011 estimated EBITDA.
With all that having been said, I have no idea how high the stock can or will go based on the pumping and euphoria. The level at which it trades won’t change how little it is actually worth, which is in a range of $0.005 to $0.0069.
That’s a good question. This is supposed to be a straight cash liquidation. That’s basically all that’s left. I believe we have a few employees, a building lease, some receivables, some deposits, a pile of cash in the $18 million range and some pre and post-petition liabilities. However, it is interesting to note that the company has Federal and State NOL carry forwards of approximately $236.2 million and $186.3 million respectively. It would be a shame to see those wither on the vine.
There were some insiders that made an 11th hour play for a whole company buyout, literally hours before the gavel went down approving the sale of the assets. I am assuming that the would-be purchasers had assigned some value to $236 million in NOLs but I can’t be for sure. They are, without a doubt, one of the most complicated assets to accurately value.
I don’t know for certain whether there is anything to do in this case as far as NOL preservation. I am just not sure if “liquidation” and “shell company reverse merger” are compatible situations. It is my understanding that there are some folks on IHUB that do specialize in these things. If you (or anyone else reading this) are in contact with any of them, feel free to mention our situation and see if they can provide some guidance. It might even spark some renewed interest in the stock. If we had enough interest in the stock I might be convinced to update the MBRKQ case summary as events unfold.
PlanMaestro, I'll try to answer your question on Tronox as to whether it looks cheap right now. As it stands, the equity is to be given warrants struck at an implied EV of $1.5 billion while the plan value has the EV at $1.05 or $1.06 illion so these warrants are about $450 million out of the money. The Debtors financial advisors have estimated the value per share of current Tronox to be worth in a range from $0.02 to $0.10 using Black Scholes. If the EC attorneys can negotiate a better deal I would expect that they will try and get the warrants struck at their plan valuation which was $1.25 Billion (6.5 turns of 2010E Ebitda @ $192 million). I would like to see those warrants struck closer to $1.15 Billion to get the number down to 6 turns of Plan Ebitda. This company can trade at either of those multiples and such an outcome would bring the warrants into the money provided the financial world doesn't fall off a cliff.
Whether the stock is over or under priced hinges entirely on the implied EV at which the warrants are struck and what the lifespan is for those warrants. 5 to 7 year warrants at $1.15 EV would be nice but probably not a reality.
For more enthralling reading on the subject, search thru my prior IHUB and blog posts and you can see some of my recent diatribes regarding any number of the players and developments surrounding this whole mess. I only wish I could post what I really think about all of them but there may be women and children following along. I'll just have to save some of my battles for later. The distressed world is a relatively small world and the folks who are your enemy in one case may be your representatives in the next one. Dan Loeb can get away with it, but I can't. Yet.
At this point, i'll take warrants struck at an implied EV of $1.15 billion. This is only 6 turns of 2010E EBITDA. Or maybe we could negotiate an equity stake that is equivalent to what management has carved out for themselves.
... and I can faintly hear the laughter emanating from Oklahoma and New York.
I'll respond on the BAD board later tonight so as not to hijack the discussion on MBRKQ.
According to docket# 2212 it looks like the Fitzgerald "Action" has been dismissed.
What is most confounding is that we were right about the residual and hidden upside value as evidenced by the massive recovery that the EPA received. What we were dead ass wrong about was who was going to get that upside value. When the equity traded up to $1.30 and $1.40 and the bonds traded at $120 to $130 the respective markets were reflecting nice recoveries for all levels of the capital structure. The EPA recognized this and went back to the Debtors who were all too eager to give away the farm just as they were when they had agreed to sell the entire enterprise for less than half of its value to Huntsman. Now this management team that had virtually no equity stake in a debt and environmental liability ridden company will walk away with a nice equity position in a deleveraged company with no remnants of the old legacy liabilities. The EPA gets a hefty payday and 88% of the proceeds of the Anadarko/Kerr McGee litigation. And another perfect masterpiece is painted by Kirkland Ellis.
Maestro, I also subscribe to the "buy when the world is selling and sell when the world is buying" theory.
Congrats on the MMPIQ trade. I had a number of folks, yourself included if I remember, propping that trade down in the 5 to 7 cent range and I just didn't have the energy to take on another complex Chapter 11 case. I needed someone to write up a case summary like the one's I put out there. I saw that first POR that they filed and let them scare me away. Staying up to speed on these situations so you don't get blown out just becomes a full-time job at some point and I already have one of those.
GLTU
CEMJQ Monthly Share Volume Report September 2010
http://www.otcbb.com/asp/tradeact_mv.asp?SearchBy=issue&Issue=CEMJQ&SortBy=volume&Month=9-1-2010&IMAGE1.x=19&IMAGE1.y=8
We would like to welcome Credit Suisse as the hands down volume leader for the month of September. We would also like to bestow our heartfelt congratulations to Citigroup who traded 50% of their 2010 volume in the month of September. Winning the better late than never award, is Raymond James who managed to trade 83% of their total 2010 volume in August and Septmember.
I'll just put another thought out there for feedback.
We should see the POR by November 23, 2010 and since the Par claim will not likely have been arbitrated by that time then we should expect that the full claim of $3.5 million will be included, even if it turns out to be less or even a zero a few months later. It has always been included in full on the MORs so there is no reason to suspect it will be otherwise on the POR. Since the full amount of the claim will be listed on the POR it will not paint the rosiest scenario for equity. In fact, it will likely present the worst-case scenario. But the beauty of the doomsday POR is that it basically establishes and reveals the downside risk.
I am assuming that those who know this all too well are not willing to ride that roller coaster for the next 2 months only to have to wait another 3 to 4 additional months to get the actual distribution. So the trade looks like it is shaping up to be one where you exit ahead of the POR and reenter after the dust settles. That is of course, unless the risk adjusted rate of expected return gets so low in the interim due to selling pressure that the bull case can once again be made.
One things for sure is that the 8 cent bid finally broke down. That had been solid support for many months. I think the extended timetable due to the Par claim arbitration pushes this out several months. The volume uptick coincides with this development and the market reception has not been positive. I am just glad there is someone else alive that I can converse with regarding this stock. This board has been a ghost town. I thought I might be the last to leave and was about to turn out the lights.