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Cork, I hear you. I never got involved in ABWTQ but I got burned by the depressed valuations and other greedy maneuvers of the players involved in Chemtura and Tronox. I can't begin to tell you how many funds and other professional money managers that I either talked to or shared emails with trying to find people to tell me I was wrong on those names. I try and take a different approach to investing than most of the other Ihubbers who only want to silence the naysayers. In my case, I go looking for them to test my own convictions. With Chemtura and Tronox both, the number of funds that saw value in the equity by far exceeded those that saw no value on the equity side.
In the case of Tronox, aside from the financial advisors to the creditors committee, I had trouble finding anyone who saw an equity zeroing POR coming. In fact if you watched the bond markets, they weren't expecting what happened either. In the end, the market, and more importantly, I personally misjudged the EPA's appetite for coming back to the negotiating table and trying to steal cash that should have been owed to them by Anadarko-Kerr McGee. Tha BP oil spill in the Gulf cost a lot of people money, including equity and debtholders of Tronox. Given that the creditors are being paid in full and that the EPA is receiving an additional $155 million vs. the original plan support agreement from 2009 it just goes to show how much value (almost $4 per share) would/could have flowed into equity's hands had the government not stepped in and siphoned off $270 million in distributable cash.
In the case of Chemtura, if it wasn't enough to have the Debtors and the creditors trying to screw equity with depressed valuations it got worse when the funds comprising the equity committee decided they wanted to get greedy too and gift themselves about 75% of Newco equity in their plan that wasn't even fully funded. Talk about complete boneheads. Basically what they did was to walk up to an adversary and ask them for a favor while insulting them and then walking away wondering why the transaction didn't go their way. I think the hedgefund guys on that EC are very good with numbers but have the proverbial "two left feet" when it comes to navigating through a chapter 11 proceeding on the equity side. There are few walking the earth who can pull it off, and I have learned that those guys are not among them.
I could go on and on listing other could have beens and might be's but the bottom line for all in the audience is that no matter how smart you are and no matter how big of a slam dunk it looks like, ALWAYS expect the unexpected and NEVER underestimate the greed of others. Also, before committing too much capital, make sure you know how the Judge has ruled in the past and which way he leans because that is huge. Most people don't pay attention to it but the Judge carries a very big stick and it gets even bigger in the endgame.
GLTA
Blog Post: Interlachen Capital Files Objection to Chemtura's Reorganization Plan
http://chemturaresearch.blogspot.com/2010/09/interlachen-capital-files-objection-to.html
On Thursday, September 9, 2010, INVESTCORP INTERLACHEN MULTI-STRATEGY MASTER FUND LIMITED, through its retained counsel, filed an objection to Chemtura's reorganization plan. The details of the filing reflect that they are holders of the 2009 Notes in the principal amount of $4,000,000 and also holders of the 2026 Notes in the principal of $6,000,000. In addition, they revealed that they hold 10,009,000 shares of common stock.
Their objection was premised on the following:
• The Plan Is Based on an Erroneous Valuation
• Noteholders Will Receive More Than Full Recovery
• Plan Does Not Attempt To Provide Highest Cash Return To Creditors Or Preserve Equity Value For Shareholders
• Rights Offering Cap Is Nonsensical
• The Plan Unnecessarily And Inappropriately Satisfies And/Or Settles Contingent And Contested Claims
• Noteholder Settlements Are Inappropriate
• PBGC Settlement Is Not Necessary
• Diacetyl Settlements Should Ride Through Bankruptcy Case And Be Addressed In the Ordinary Course Of The Reorganized Debtors Business
• The Plan Provides Inequitable Stock Distribution To Management
• The Plan Releases Are Overly Broad
• The Plan Unjustifiably Discriminates Against Shareholders Based On Their Vote
Link to filing below:
http://www.kccllc.net/documents/0911233/0911233100909000000000018.pdf
CORSQ: As of June 15, 2010, the Debtor had approximately $314 million in assets and $533 million in liabilities. The largest portion of the assets is comprised of Deferred tax assets of about $264 million of which $258 million are seriously in question because they filed a claim against the FDIC receivership to retain possession of the tax refunds and the FDIC had their claim expunged back in 2009. In response, the holding company eventually filed bankruptcy and then filed an adversary complaint against the FDIC to once again try to retain the tax assets. The only folks that the tax assets discussion is even relevant to would be the TOPrS holders and possibly the other general unsecured claimants because the company is hopelessly insolvent.
Someone might want to reorganize around the holding company to get the NOLs but the CORSQ holders will not be receiving any distribution on account of their claims regardless of what happens to the $258 million in contested tax assets. The equity will be zeroed out in either event because the equity gap is just too large. Even though the company has massive NOLs in the order of magnitude of about $600 million, someone has to have earnings in order to take advantage of them. The company estimates the value of the NOLs to be about $100 million in the hands of someone who can generate enough profits to be able to use them. The equity gap is just too large for the NOLs to even be a catalyst for CORSQ holders.
Sorry to be the harbinger of bad news but this is the way I see it. I am open to discussion and would welcome any enlightenment that others may offer but the schedule of assets and liabilities filed by the company reflects hopeless insolvency.
GLTA
Thanks for being honest about not doing any DD before you stopped by to randomly take a dump on a name you haven't researched. I don't like the stock either but I found it odd that you just happened to stop by all 3 of the boards that Wall Street moderates and call them a POS. Must have just been random chance.
As far as Wall_Street61 goes and who he is, he would be one of those rare bastages that has probably forgotten more about chapter 11 bankruptcy and the Federal Rules of Bankruptcy Procedure than most Ihubbers will ever take the time to know. That's saying a lot coming from me because he and I rarely agree on anything but that doesn't mean I wouldn't give him the Rochambeau if I had half a chance.
Here is my post from over at the ATWOQ board that was deleted for some reason. Must have been an accident or it somehow got lost within all of the tremendous DD over there so I thought i'd put it up over here as well.
"I got a good laugh out of both blunders over there. I like to think of it as an Ocean's Eleven type event but instead of the big heist actually being pulled off where you clean out the entire vault, the team members start robbing the casino guests instead and the whole operation is just blown up.
How is this FLD play going to work when it has been front loaded by the very people that were dispatched from the board because they couldn't be trusted? It makes no sense to go thru with it unless everyone is in on the shenanigans. There are hundreds of Q stocks and thousands of penny stocks to pick from and this one is tainted bigtime. But still it remains the pick?
If these guys were really upset about the leakage then the best move would be to make another pick and leave the "loose lips" holding the bag. Wouldn't it?
Does anyone know why it makes perfect sense to change the pick but also why that isn't the move that will be made? I'll give you three guesses, but I hope no one needs to make use of #2 or #3..."
Cork, Ne Trader, and TTR, I agree with your posts. If we stick to the real DD then we can avoid a new type of risk in the Q world which I guess we can call "frontloading risk". Those of us who have researched and traded distressed for several years don't need or want the “pump and dump” on the boards, for a number of reasons. It just takes a bit more patience to wait for a real opportunity to develop and patience is something the world lacks these days. Once you find a real opportunity, you alert the world to it but you don't ram it down their throat with 500 pump posts per day like some of the ones I've seen lately.
Just keep doing what you do and just treat the circus for what it is and that is simply a side show. That pump formula might work for a few months but it is not sustainable because like any circus it eventually leaves town either because it has already tapped the town dry or the operators get run out of town on a rail because they eventually screwed over just the wrong person or the POR comes out and it zeroes out the equity that was supposed to be a can’t miss proposition and the people that looked like geniuses and DD kings get exposed as something quite different. There are a couple of different pump crews out and about but I think most here can figure out on their own what DD is real vs. what is just abject pumping.
In the beginning, one of the new pump operations appeared to have been backed or supported by a group called Beacon Equity Research and they had someone installed on a board to represent their pumping interests but the recent blunders must have been too much negative exposure for them because I see their representative has been uninstalled from the asst. mod status. Driving traffic to that board using person marks was a good idea up until the point where people started getting separated from their money a little too early in the process. At that point all of the additional sets of eyes became a liability and not an asset. The pinksheet pumpers are apparently trying to crossover into “Q” land and are finding the going a bit rough so far. One of the groups can’t keep their hired guns from pick-pocketing people on the way to the big heist and they are screwing the whole operation before it even gets off the ground and the other group(s) have stepped in it and don’t even know it yet.
How prescient is that? Putting in the BK call 10 days after it has already happened, lol. The 3% unsecureds have been trading at 6% to 10% of face since the bk filing so the market is suggesting that the equity is toast.
I know there are folks that want to get the shares cheaper or they just want to put the kibosh on all of the stocks that Wall_Street61 is moderator for but just be patient. Someone is hung in a bad borrow right now and when it unwinds the bid support will vanish and the stock can probably be bought in the low pennies. It will get the "Q" on the end in the coming days and then it will eventually be bid back up again only to have the rug pulled out from underneath it once more when the promoters pull up their stakes.
Blip, I addressed your post at the link below to keep it off the MBRKQ board.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=54094997
TRMA: Blipmazter, you asked about Trico Marine and I think it is a long-shot for the secured bonds to be made whole which makes the outlook even bleaker for the unsecured bonds. So, for me, the equity is untouchable because it has no value. Look no further than the fact that the secured bonds trade at 30 cents on the dollar and the 3% unsecured bonds trade at 10 cents on the dollar. For some insight into what some of the largest holders of the unsecured bonds think about the recovery prospects, read docket # 40 at the link below. I can’t post a direct link to the actual PDF, so just look for document # 40 and click on “documents” and then “main document”.
http://dm.epiq11.com/TMG/docket/Default.aspx?rc=1&DMWin=5ab248dd-211f-4183-94b5-78e6295e5c43
I don’t know exactly why the price has held up for as long as it has but in looking at the share structure, it only has 19 million shares outstanding and it has been distressed for quite some time so the bk filing is not news to anyone, the stock has been an obvious short candidate and the equity has been out of investors hands for many months and has been in the hands of flippers. One possible reason for the unexplained price movement could be because of a “bad borrow” where someone was short too much of the stock and ended up running the price back up to cover. Something similar to this occurred with Japan Airlines ADR shares when they rocketed up from $0.20 to over $2.00 after the bk filing while the shares trading on the Tokyo exchange and the greysheets plummeted to a penny and below.
Anything special about the 7th that will cause "happy happy fun time"? I thought I was fairly well plugged in here. Is someone initiating a "float lock down" play?
Now there's an idea for the exuberant Q Investors of IHUB. Try one of those pump plays on a real company with real assets and earnings so that when the music stops you are not holding worthless paper. This one has a low share structure and it trades ultra thin. Just an idea. It is not really my style but when the circus comes to town (like it is right now) I might just stop by and enjoy a ride or two.
Thanks. Have a nice holiday weekend.
Please repeat the question. Thanks.
I have to say that i'm impressed that they pulled off getting it filed timely. It was coming down to the wire but it got filed by the deadline. As always, there is still a big battle to be waged to get all parties to agree to it but we still have a pulse and that is all we can ask for right now at this stage of the game.
One thing to remember is that in Judge Gropper, we have a Judge that favors consensual negotiation. If it is determined that the EC plan funding is attainable and that the valuations contained therein are reasonable, or at least close, then we have a good shot of achieving a meaningful recovery. With respect to the enterprise value and recovery prospects for equity, perhaps the truth of the matter and the point at which an agreement can be struck lies somewhere in the middle of the two competing plans.
TRXAQ, TRXBQ: Tronox Equity Committee Files Competing Plan of Reorganization
http://tronoxequity.blogspot.com/2010/09/tronox-equity-committee-files-competing.html
On September 2, 2010, the Equity Committee of Tronox filed a Plan of Reorganization to compete with a plan recently submitted by the Debtors. The Equity Committee has also filed a motion with the court that would provide for a deadline to object to the Disclosure Statement of September 17, 2010 and for a hearing to approve the Disclosure Statement to be held on September 23, 2010 which also coincides with the hearing to approve the Debtors Disclosure Statement. Some of the more salient provisions of the Equity Plan and Disclosure Statement and the differences between the competing plans taken from the filing are as follows:
• The Equity Committee Plan is based on a valuation range of $1.2 to 1.3 billion, with a midpoint of $1.25 billion. This valuation better reflects the true value of Reorganized Tronox when compared to the valuation that forms the basis of the Debtors’ Plan.
• Both the Equity Committee Plan and the Debtors’ Plan are employing a rights offering process, which will enable certain stakeholders to purchase new equity in Reorganized Tronox. In both the Equity Committee Plan and the Debtors’ Plan, all holders of General Unsecured Claims and all Holders of Indirect Environmental Claims will be given the opportunity to participate a rights offering to purchase new equity in the reorganized company. Unlike the Debtors’ Plan, however, certain Holders of Equity Stock Interests who are Eligible Holders will also be able to participate in the rights offering pursuant to the Equity Committee Plan. In the Debtors’ Plan, Holders of Equity Stock Interests will be given no such opportunity. Under terms to be arranged with the Debtors, the Equity Committee intends to conduct its Rights Offering to Holders of General Unsecured Claims and Indirect Environmental Claims in conjunction with the rights offering to be conducted under the Debtors’ Plan. The Rights Offering to Holders of Equity Stock Interests, however, will be conducted post-confirmation of the Equity Committee Plan.
• The Equity Committee and its financial advisors believe that the Debtors’ Plan significantly undervalues the value of Reorganized Tronox. Because the Debtors’ Plan undervalues Reorganized Tronox, a greater portion of the New Common Stock will be distributed to a certain ad hoc group of bondholders (the “Ad Hoc Bondholders”) that are backstopping the Debtors’ Rights Offering, to the detriment of all of the other creditors and equity interest holders in this case. Additionally, as noted above, Holders of Equity Stock Interests will not be given an opportunity to participate in the rights offering that will be conducted pursuant to the Debtors’ Plan.
• Under the Equity Committee Plan, 62.5% of the New Common Stock will go to Holders of Allowed General Unsecured Claims as compared to 16.9% under the Debtors’ Plan. This represents a significantly higher recovery received in primary equity that is not based on the requirement to participate in a rights offering.
• The Equity Committee Plan seeks to preserve the settlements reached with the Governmental Environmental Entities and the Holders of Tort Claims and will provide those entities with an equal or greater recovery than that which they would otherwise receive in the Debtors’ Plan. However, the Equity Committee reserves the right to challenge the allowance and amount of claims of the Governmental Environmental Entities and Holders of Tort Claims and/or to modify the treatment of such claims if any classes of such claim vote to reject the proposed treatment in the Equity Committee Plan.
• The Equity Committee Plan also provides value to the public shareholders of Tronox in the form of New Warrants and the ability to participate in a portion of the Rights Offering. Under the Debtors’ Plan, the public shareholders will receive warrants that the Equity Committee believes are essentially valueless and then, only if the class of shareholders votes in favor of the Debtors’ Plan. The Equity Committee believes that the Debtors’ Plan does not adequately value Reorganized Tronox and, as a result, deprives the public shareholders of recovery to which they are legally entitled. The Equity Committee intends to challenge confirmation of the Debtors’ Plan because it does not believe that the Debtors’ Plan is confirmable under the requirements of the Bankruptcy Code.
• The Equity Committee Plan also provides the necessary financing for Reorganized Tronox’s operations post-emergence, including a greater amount of borrowing capacity under the Exit Credit Facility. While there is less debt and reduced borrowing capacity under the Debtors’ Plan, the difference is made up by increasing the rights offering (and thus the shares of stock) being provided to the Ad Hoc Bondholders and leaving less stock (and therefore, less value) to be distributed to the Holders of Allowed General Unsecured Claims. Specifically, the Ad Hoc Bondholders have set aside for themselves the exclusive opportunity to purchase $15 million of New 8% Convertible Preferred Stock, which, aside from being senior to the New Common Stock, is valued at approximately $17 million. This, combined with backstop fees valued at approximately $36 million, means the Ad Hoc Bondholders are paying themselves approximately $53 million on the Effective Date of the Debtors’ Plan.
• According to the EC plan, the estimated ranges of recovery for Tronox Equity holders varies between $1.39, $2.58 per share and $3.75 per share at enterprise valuations of $1.20 billion, $1.25 billion and $1.3 billion respectively.
This blogpost is not meant to be a complete summary of the EC Plan or Disclosure Statement. Readers of this blog post are strongly encouraged to read the Plans and Disclosure statements of both the Debtors and the Equity Committee in their entirety. None of the information contained within this post or anywhere on this blog should be construed as a recommendation to vote for or against any plan that is now or ever will be put before the court.
Link to EC Plan Disclosure Statement:
http://www.kccllc.net/documents/0910156/0910156100902000000000004.pdf
Link to EC Plan of Reorganization:
http://www.kccllc.net/documents/0910156/0910156100902000000000003.pdf
Tronox Equity Committee Files Competing Plan of Reorganization
http://tronoxequity.blogspot.com/2010/09/tronox-equity-committee-files-competing.html
On September 2, 2010, the Equity Committee of Tronox filed a Plan of Reorganization to compete with a plan recently submitted by the Debtors. The Equity Committee has also filed a motion with the court that would provide for a deadline to object to the Disclosure Statement of September 17, 2010 and for a hearing to approve the Disclosure Statement to be held on September 23, 2010 which also coincides with the hearing to approve the Debtors Disclosure Statement. Some of the more salient provisions of the Equity Plan and Disclosure Statement and the differences between the competing plans taken from the filing are as follows:
• The Equity Committee Plan is based on a valuation range of $1.2 to 1.3 billion, with a midpoint of $1.25 billion. This valuation better reflects the true value of Reorganized Tronox when compared to the valuation that forms the basis of the Debtors’ Plan.
• Both the Equity Committee Plan and the Debtors’ Plan are employing a rights offering process, which will enable certain stakeholders to purchase new equity in Reorganized Tronox. In both the Equity Committee Plan and the Debtors’ Plan, all holders of General Unsecured Claims and all Holders of Indirect Environmental Claims will be given the opportunity to participate a rights offering to purchase new equity in the reorganized company. Unlike the Debtors’ Plan, however, certain Holders of Equity Stock Interests who are Eligible Holders will also be able to participate in the rights offering pursuant to the Equity Committee Plan. In the Debtors’ Plan, Holders of Equity Stock Interests will be given no such opportunity. Under terms to be arranged with the Debtors, the Equity Committee intends to conduct its Rights Offering to Holders of General Unsecured Claims and Indirect Environmental Claims in conjunction with the rights offering to be conducted under the Debtors’ Plan. The Rights Offering to Holders of Equity Stock Interests, however, will be conducted post-confirmation of the Equity Committee Plan.
• The Equity Committee and its financial advisors believe that the Debtors’ Plan significantly undervalues the value of Reorganized Tronox. Because the Debtors’ Plan undervalues Reorganized Tronox, a greater portion of the New Common Stock will be distributed to a certain ad hoc group of bondholders (the “Ad Hoc Bondholders”) that are backstopping the Debtors’ Rights Offering, to the detriment of all of the other creditors and equity interest holders in this case. Additionally, as noted above, Holders of Equity Stock Interests will not be given an opportunity to participate in the rights offering that will be conducted pursuant to the Debtors’ Plan.
• Under the Equity Committee Plan, 62.5% of the New Common Stock will go to Holders of Allowed General Unsecured Claims as compared to 16.9% under the Debtors’ Plan. This represents a significantly higher recovery received in primary equity that is not based on the requirement to participate in a rights offering.
• The Equity Committee Plan seeks to preserve the settlements reached with the Governmental Environmental Entities and the Holders of Tort Claims and will provide those entities with an equal or greater recovery than that which they would otherwise receive in the Debtors’ Plan. However, the Equity Committee reserves the right to challenge the allowance and amount of claims of the Governmental Environmental Entities and Holders of Tort Claims and/or to modify the treatment of such claims if any classes of such claim vote to reject the proposed treatment in the Equity Committee Plan.
• The Equity Committee Plan also provides value to the public shareholders of Tronox in the form of New Warrants and the ability to participate in a portion of the Rights Offering. Under the Debtors’ Plan, the public shareholders will receive warrants that the Equity Committee believes are essentially valueless and then, only if the class of shareholders votes in favor of the Debtors’ Plan. The Equity Committee believes that the Debtors’ Plan does not adequately value Reorganized Tronox and, as a result, deprives the public shareholders of recovery to which they are legally entitled. The Equity Committee intends to challenge confirmation of the Debtors’ Plan because it does not believe that the Debtors’ Plan is confirmable under the requirements of the Bankruptcy Code.
• The Equity Committee Plan also provides the necessary financing for Reorganized Tronox’s operations post-emergence, including a greater amount of borrowing capacity under the Exit Credit Facility. While there is less debt and reduced borrowing capacity under the Debtors’ Plan, the difference is made up by increasing the rights offering (and thus the shares of stock) being provided to the Ad Hoc Bondholders and leaving less stock (and therefore, less value) to be distributed to the Holders of Allowed General Unsecured Claims. Specifically, the Ad Hoc Bondholders have set aside for themselves the exclusive opportunity to purchase $15 million of New 8% Convertible Preferred Stock, which, aside from being senior to the New Common Stock, is valued at approximately $17 million. This, combined with backstop fees valued at approximately $36 million, means the Ad Hoc Bondholders are paying themselves approximately $53 million on the Effective Date of the Debtors’ Plan.
• According to the EC plan, the estimated ranges of recovery for Tronox Equity holders varies between $1.39, $2.58 per share and $3.75 per share at enterprise valuations of $1.20 billion, $1.25 billion and $1.3 billion respectively.
This blogpost is not meant to be a complete summary of the EC Plan or Disclosure Statement. Readers of this blog post are strongly encouraged to read the Plans and Disclosure statements of both the Debtors and the Equity Committee in their entirety. None of the information contained within this post or anywhere on this blog should be construed as a recommendation to vote for or against any plan that is now or ever will be put before the court.
Link to EC Plan Disclosure Statement:
http://www.kccllc.net/documents/0910156/0910156100902000000000004.pdf
Link to EC Plan of Reorganization:
http://www.kccllc.net/documents/0910156/0910156100902000000000003.pdf
I can only guess that this might get wrapped up in very late 2010 or early 2011. The governmental bar date is not until October 31, 2010 and the PAR claim also has to be expunged. Rest assured that the debtors and the equity committee will be moving towards a swift winddown because they are both incentivized to return the greatest value to the estate.
This is one of the holdings I am least concerned about. The money is there to make a meaningful distribution to the equity holders it is merely a matter of waiting. This is also a name I am always looking to accumulate on pullbacks when impatient holders move on. I was on vacation when it plummeted to a nickel or else I would have been holding a much larger position. I don't post much on the name and I am not planning on publishing any updates to the valuation. All that has done in the past is to invite and create competition for shares when they reach the most attractive levels.
GLTA
MBRKQ: MiddleBrook Objects to PAR Claim
Debtor’s Motion to PAR Claim
http://www.kccllc.net/documents/1011485/1011485100830000000000004.pdf
Equity Committee Joinder:
http://www.kccllc.net/documents/1011485/1011485100830000000000006.pdf
I know you spend a good bit of your time in Greenwich village and you avidly read the Village Voice so could it be the Tong from the following link, lol?
http://dealbreaker.com/2009/12/blow-jobs-for-trade-approval-sodomy-and-golden-showers-at-sac-capital/
Blogpost: Tronox Files July 2010 MOR; Cetus Capital and Ahab Capital Execute Backstop Agreements for Part of a $135 Million Rights Offering
http://tronoxequity.blogspot.com/2010/08/tronox-files-july-2010-mor-cetus.html
Not sure what to expect from here. It has been fairly quiet on PACER lately. I am still holding some shares in the event that the reverse merger takes place as contemplated by the debtors/management. I am just crazy like that sometimes. I ran some discounted cash flow projections on the residual NOLs based on the taxcode annual limitations much earlier in the year but the value of them depends on the ability of the newly created entity to use them before expiration and also depends on the discount rate that must be applied to account for risk and time value. The uncertainties make them hard to value. In a reorg, these NOLs are not typically factored into the value of the company because they are not a component of EBITDA so a r/m like this is about the only time one has occasion to arrive at a value.
If anyone has experience valuing these things let me hear from you.
Unfortunately, bankruptcy was not designed to return value to the shareholder. Instead it is designed to return value to the creditors. In theory this works fine because it stands to reason that if a company files bk, then it should be insolvent and normally is insolvent. Management teams are now using this process to enrich themselves.
More and more we are seeing companies lever up the balance sheet in an effort to grow but there is a moral hazard in doing so because companies have a safety net underneath them called chapter 11 bankruptcy. Much like the moral hazard of "too big to fail" that permeates the commercial banking world, companies outside of banking are realizing that they can use the bankruptcy process to cram down and steal it from shareholders and then convert bonds to equity after management runs it into the ground.
Management teams are finding that they can take big risks with other peoples money and if it doesn't work out they can always file for bankruptcy and wipe out equity and then equitize the bondholders and then start the process over again. This is where management teams are abusing the bankruptcy process. Its called rinse, wash and repeat. In the case of Chemtura and many other companies, we are seeing management teams that have very little ownership or "skin in the game" pre-bk and they walk away with 5% to 10% of the reorganized company (See Six Flags and Regent Communications as prime examples). There is new legislation in congress that properly seeks to reform this unjust enrichment of management teams at the expense of others but it is too late to affect this case.
In the case of Chemtura, it appears that Rogerson's vision includes almost completely wiping out shareholders, then converting bondholders to equity, all of which is done with a depressed enterprise value. Next, the company will emerge and all of a sudden the numbers will magically start looking better and within a couple of quarters the company will issue new debt (relever) in an effort to make acquisitions in the marketplace or otherwise grow the business with other people's money. It could also be that they will try and sell divisions or sell the whole company to a rival but that will conveniently be done after the shareholders have been unceremoniously dispatched. If they had sold some divisions, particularly the ag division that was highly sought after a couple of years ago, this would be a completely different story. Chemtura only went into bankruptcy because they couldn't refinance $400 million in soon to be matured debt and they have used and abused the BK process to essentially change the entire capital structure. All at the expense of other people and all with other people's money. You think this would have happened if management had owned 50% of the stock? Nope, they would have done what Pilgrims Pride did and found another way to reorganize that preserved shareholder value.
In closing, here's Chemtura's reorganization formula that has been designed to achieve the greatest possible returns for the parties who are in a position to drive this result:
Suppress information, suppress value, suppress recovery, delever, emerge, expose value, then relever.
The market agrees with your assessment that TRMA is slightly less than solid. Junior bonds trading at 4% of par and the secured debt is trading in the 26% to 31% range. Market cap of less than $8 million on the equity.
I haven't done any significant work yet on the name but I know you have looked at the covenants and the timetable for a bk filing. I am wondering if this eventually becomes a liquidating chapter 11 and if so, whether the secured guys will step in and credit bid a 363 sale to take the equity or just let someone else buy the assets and pay them in cash? Choice of venue could be a big indicator as to whether the creditors will proceed with a credit bid. I know some jurisdications have been disallowing such moves by the secured creditors so it will be interesting to watch.
http://cxa.marketwatch.com/finra/BondCenter/QuickScreener.aspx?ShowResult=true&BondType=Corporate&Symbol=trma&YieldMin=&YieldMax=&CouponMin=&CouponMax=&MaturityMin=&MaturityMax=
IMO, there are some important differences to observe between the Chemtura case and the Tronox case with respect to exclusivity termination and with respect to an equity sponsored plan.
The biggest difference I see could well come down to the disposition of the Judge. In Chemtura, the Judge is Robert Gerber who tends to favor each side presenting their case and then he is the final arbiter who decides which position has more merit. What makes this setup difficult for equity is that typically the relevant parties have vastly different incentives and views of the world and the default setting is to side with anything that the Debtors and Creditors see eye to eye on. When this happens, anything that the EC does has to be airtight or it is just noise. In the Chemtura case, the equity committee met only one of the 9 litmus tests necessary for termination of exclusivity. The equity committee of Tronox has the benefit of seeing what happens when you are not prepared to meet the relevant standards and it is my hope and belief that they will prepare and react accordingly.
In the Tronox case, we have Judge Gropper who favors consensual negotiation. Time and time again he encourages the parties to reach consensus. In court today he even offered his chambers as a potential meeting place for the parties to reach a consensus as opposed to seeing equity move to terminate exclusivity. It appears that he truly wants to see something put before him that all parties can agree on, including equity.
As far as an equity sponsored plan goes, I have no idea what the Tronox EC plan looks like but I have to believe they have observed in Chemtura what happens to an equity plan that does not contain full commitments from the purported backstopping parties. One of the many faults of the Chemtura EC plan is that they did not have enough committed funding to completely fill the funding gap, instead they opted to attempt to reinstate certain bonds and that obviously got little traction. Also, their funding was apparently not fully committed and it contained too many “outs”. Also it is important to note that the hedge fund members of the Chemtura EC would have ended up with the lion’s share of the reorganized equity and the Debtor’s were having none of that noise. Their plan was nothing more than a money grab that didn’t even fill the gap and apparently it wasn’t backed by firm commitments. It is my hope that the Tronox EC will be observing these shortfalls and will prepare and react accordingly. One important lesson to be learned from the Chemtura case is that when you are trying to get a company to back an EC sponsored plan that leaves considerably more debt on the books than they are willing to entertain, the last thing you want to do is to be greedy in your term sheet.
Another difference between the two centers on the issue of consensual negotiation and most importantly, getting it on the record when one party is left out of the relevant discussions. The Chemtura EC did not make that plain and it was not reflected on the record that it was left out of settlement discussions until it was far too late. As pointed out today in open court by the Tronox EC, it is now plainly a part of the record that there has not been a good faith effort to include equity in recent settlement negotiations. Given that Judge Gropper favors consensual negotiation by all parties, I think that today’s message delivered by Mr. Crichlow of the Tronox EC has to resonate loud and clear with the Judge. Basically that message was that the EC has not been a part of recent negotiations and that if that trend continued they would move to terminate exclusivity and file their own plan that has equity financing in place.
MBRKQ: Here is a case summary written up on MiddleBrook Pharmaceuticals last month for those interested. This is a Chapter 11 liquidation that is expected to pay (in cash) all allowed claims, in full, and also provide for an equity recovery. Since the write-up, the sale of substantially all assets to Victory Pharma has been court approved. The distribution projected in the summary will have to be revised downward in the event of a protracted litigation battle over the PAR Pharma claim that is in excess of $11 million. It may also have to be revised in the event that there are larger administrative claims than originally contemplated due to the presence of more legal firms.
In any event, the statutory equity committee recently stated in a court filing that they expected the distribution to equity to be in excess of $10 million and that based on information and belief their expectation is that the PAR claim will be disallowed in its entirety.
http://www.scribd.com/doc/33888674/MBRKQ-Case-Summary-Updated-07-03-10
There comes a point in time in the life of any pump and dump where it no longer becomes your choice whether to get out. At some point the bid support completely breaks down and the volume completely disappears. It is funny how those two events seem to occur simultaneously. Right up until that time you will see any number of posts talking about how all buys are locking the float and all sells are either market maker manipulations, short manipulations or just weak hands exiting. Every now and then some really bright and astute investor will come along and throw in a “to da moon” reference for good measure.
The way the company has treated and reported the pendency interest is and has been correct all along. Companies operating within a bankruptcy proceeding that are believed to be insolvent do not accrue interest (on the balance sheets) for unsecured debt. Instead, the insolvent entity will track the accrued and unpaid interest on unsecured debt (off-balance sheet). The insolvent company reports only the amount of interest that is expected to be paid during the pendency of the case and then reports (as a footnote) any shortfall between the amount of interest actually paid and what is actually owed with respect to the contractual rate. To date this is the way the company has handled the reporting of interest and it is correct.
Since the company is now recognizing that it is no longer insolvent, it is now appropriate to recognize the previously unrecorded accrued interest on the unsecured debt. Restatement of prior reports is not required because the question of solvency is only now being answered due to the vetting of claims, filing of the plan and approval of the disclosure statement.
I did not get any response but I didn't expect that I would receive one. I just submitted the letter to float the idea out there and if something comes of it then it was well worth the time. I suspect that if there is anything to it then the EC will act on it accordingly.
Tronox Postpones Disclosure Statement Hearing to September 16, 2010
http://tronoxequity.blogspot.com/2010/08/tronox-postpones-disclosure-statement.html
It is very curious that neither the UCC nor the EC objected to the disclosure statement. That would seem to be a very rare occurrence for two constituencies that received considerably less than they had been anticipating all along, especially in light of the fact that the market for TiO2 is absolutely on fire. I am hoping this means that the Debtors, Creditors and Equity Committee are working consensually on an alternative plan framework but that is only one possible explanation that may have to be filed under the heading of "rank speculation".
If my assumption is incorrect then I guess congratulations are in order to the Debtors for filing the perfect disclosure statement; one that is free of any unfair treatment, is materially correct in all respects, contains no ambiguities and one that contains no uncertainties such that all parties are able to make both an informed investment decision and such that all parties are able to reach an informed decision as to whether they should accept or reject the Plan. Congratulations indeed!
Letter from the Chemtura Equity Committee 08.04.10
http://chemturaresearch.blogspot.com/2010/08/letter-from-chemtura-equity-committee.html
MBRKQ: On Wednesday, Judge Walrath signed an order approving the sale to Victory Pharma so it would seem that the term sheet offered up by EGI at the sale hearing did not curry enough favor with the Debtors or with the court to prevent the sale. I can only guess that the Debtors went with the bird in the hand theory since there was apparently some uncertainty surrounding EGI's standalone plan of reorg that was submitted at literally the last minute. Here are my thoughts on two of the remaining options even though the 363 sale appears to be final:
This is a little easier to value within the context of a Chapter 7 liquidation because we are dealing with a clearly defined pool of assets and a reasonably estimable pool of liabilities. Under the EGI term sheet, they don't clearly define what portion of the pool of assets would be distributable. $2 million of the $22 million is a DIP loan so it looks like the purchase price would be $20 million. Given that they don't define how much they are contemplating distributing I can't get totally comfortable with a value for the stock under the standalone plan contemplated by EGI other than to say that the recovery would be considerably more than the current price. Even though the 363 sale went through, the Judge's order is appealable so perhaps EGI will cure whatever defects their plan term sheet contained and then represent their offer. That option is likely a longshot because of the real threat of Victory walking away if their offer is spurned or challenged.
Right now I am looking at 2 pieces of information to try and value this stock. In docket #226 filed on July 23, 2010 by the equity committee, they stated that they believed the distribution to equity would be in excess of $10 million. That would equate to a per share value of about $0.116 but I am not certain if their distribution value is net of the effects of the payouts due under the Management Incentive Plan. I am assuming that statement by the EC was based on the distributable value under the Victory Asset Purchase agreement. The second piece of information I am looking at comes from the plan term sheet by EGI on Wednesday. In that document they state that the Debtors own assessment of EGI's offer would yield a recovery to equity that is 50% greated than the Victory offer. Based on that statement coupled with the EC's aforementioned statement, I will assume that the distributable value to equity under the EGI plan would be in the $15 million range which would be about $0.17 on a per share basis.
The Diacetyl claims were potentially one of the largest unknown outstanding liabilities. They just settled 90% of them for $50 million less an undisclosed portion of which will be paid by insurance. That outcome seems positive to me. The stated amount of Diacetyl claims had been $60 million but the vast majority of the claims were "unliquidated" so the total potential liability was very large and unknown. The total liability is now more reasonably estimable and almost certainly has to be on the lower end of where the debtors estimated the Diacetyl claims to end up.
Just as a reminder, here are a few Diacetyl related comments from the Knight Capital report issued in January 2010 that will speak to the level of risk that Knight thought was inherent in Chemtura because of the Diacetyl claimants:
"Given where comps trade, Chemtura Corp. is arguably worth $2 billion+, which should cover the Company’s existing liabilities, including a large diacetyl claim."
"Risks to the equity valuation include dilution by diacetyl litigation claims, as well as by substantial noteholder equitization."
"Company may assign a material claim to diacetyl litigants of $500 million+ in order to insure that equity holders are out of the money. Since annual payouts to these litigants have been controlled and manageable, we believe 2026 noteholders would push to stay in bankruptcy and adjudicate the claims individually rather than agree to such an award."
Also of note is that a number of the bond valuations and the equity valuation scenarios contemplated in their write-up were based on a total Diacetyl liability within the $250 to $350 million context.
90% of Diacetyl Claims Settled for $50 million less amounts covered by insurance.
Here are a few excerpts from the filing:
The Agreement resolves 15 pending lawsuits brought by plaintiffs represented by HFM against the Debtors and Chemtura Canada alleging injuries related to exposure to the chemical diacetyl,1 as well as 347 diacetyl-related proofs of claim filed by the HFM Diacetyl Claimants in response to the Debtors’ comprehensive noticing of the October 30, 2009 bar date.
...As explained below, the Agreement calls for a total payment of $50,000,000, of which a portion is expected to be reimbursed by insurance, in order to resolve liabilities that could be several times greater than the settlement amount.
...In response to the Debtors’ comprehensive noticing of the October 30, 2009 bar date set by this Court, the Debtors have received 373 non-duplicative proofs of claim related to diacetyl (the “Diacetyl Claims”). Of the 373 Diacetyl Claims, 347—constituting over 90 percent of the total number—were filed on behalf of individuals represented by HFM (and together with the diacetyl-related claims that could have been asserted in proofs of claim or lawsuits against the Debtors, the “HFM Diacetyl Claims,” and together with the HFM Diacetyl Lawsuits, the “HFM Diacetyl Claims and Lawsuits”).
http://www.kccllc.net/documents/0911233/0911233100729000000000008.pdf
Chemtura Shareholder Letter Requesting the Creation of Certain Litigation Tracking Warrants
http://chemturaresearch.blogspot.com/2010/07/chemtura-shareholder-letter-requesting.html
This hit PACER about an hour ago.
Tronox June 2010 MOR and Non-Debtor Sub Financial Info
http://tronoxequity.blogspot.com/2010/07/tronox-june-2010-mor-and-non-debtor-sub.html
Chemtura EC Plan Term Sheet Valuation 07.14.2010
http://chemturaresearch.blogspot.com/2010/07/chemtura-ec-plan-term-sheet-valuation.html
Despite objections from the unsecured creditors, on July 12,2010 the court approved the Management Incentive Plan that was supported by the official equity committee.
http://www.kccllc.net/documents/1011485/1011485100712000000000003.pdf
Don't skip past this part from paragraph 9 of the EC's Objection to the Plan Support Agreement:
Indeed, concurrent with the filing of this Objection, the Equity Committee is filing its Motion of the Official Committee of Equity Security Holders for an Order, Pursuant to Section 1121(d) of the Bankruptcy Code, Terminating the Exclusive Periods During Which Only the Debtors May File a Chapter 11 Plan and Solicit Acceptances Thereof (the "Termination Motion") to terminate the Debtors' exclusivity in order to file its competing plan that is fully funded with at least $470 million in new equity commitments, raises $800 million in new debt, reinstates $500 million of 2016 Notes, and provides for pass-through of certain claims.
http://www.kccllc.net/documents/0911233/0911233100709000000000011.pdf
Also from the disclosure statement:
"On June 28, 2010, Tronox arranged a meeting with the United States and the Equity Committee to discuss potential ways to reach a consensual arrangement among the Environmental Claimants, the Equity Committee and Tronox. The parties discussed a variety of ideas and, on July 1, 2010, the Equity Committee provided a proposed term sheet to Tronox and the United States. Tronox continues to review the proposal."
It is also interesting that the disclosure statement does not provide for the infusion of new money from equity or the GUC's. Hopefully the above referenced EC term sheet includes infusion of new cash at emergence as opposed to providing it on the back end through warrants.
Nice job Ankit! Congrats on that interview.