Community Health Systems, Inc. (CYH)

[Buckey]

well it hasnt traded today after 19 million shares friday on 227 trades and I do not see it on any daily list but it is Nasdaq so I am guessing it had final distribution and fully belly up.

Remember it is not a stock. It is a payable of some sort on CYH on NYSE - I forget details - they are on here somehwhere - Lawsuite remnants or something - beleived to be nil so CYHHZ worrthless - it was a lotto play that there might be a payout
https://investorshub.advfn.com/FROGGERS-HIDEOUT-26301/
searched CYHHZ on IHUB and found this
CYHHZ is a contingent value right (CVR). This security was issued by Community Health (CYH) when they merged with Health Management Associates (HMA). For each share of HMA, CYH paid $10.5 per share of cash + 0.06842 shares of CYH ad 1 share of CYHHZ. The value of CYHHZ depends on the an out of investigation of HMA medicaid practice by DOJ and HHS. Here is the full proxy of the CYHHZ:

http://www.secinfo.com/d14D5a.x9F9v.b.htm

This security was discovered by one of my msg board-mate. Did I mentioned that we need a good msg board to share ideas?

There are a few sections that is relevant to the discussion of why I am interested in CYHHZ:

“CVR Payment Amount” means $1.00 in cash per CVR; provided, however, that if the aggregate amount of Losses as of the Payment Event Date exceeds $18,000,000 (the “Deductible”), the CVR Payment Amount shall be reduced by an amount equal to the quotient obtained by dividing: (a) the product of (i) all Losses in excess of the Deductible and (ii) 90%; by (b) the number of Outstanding Securities on the Payment Event Date; provided, that the CVR Payment Amount shall not be reduced to an amount below zero. All payments of the CVR Payment Amount shall be made without interest thereon and less any applicable withholding of Taxes. In no event shall the Company be obligated to pay the CVR Payment Amount on more than one occasion.


“Existing Litigation” means any litigation, investigation (whether formal or informal, including subpoenas), or other action or proceeding involving the HHS-OIG, the DOJ, the Commission or any other Governmental Entity, relating to whether HMA or any of its Affiliates violated any Law, and any civil litigation or other action or proceeding, including any shareholder or derivative action or proceeding, arising out of or relating to the foregoing, in eachcase existing on or prior to the date of the Merger Agreement; provided that Existing Litigation shall not include any such litigation, investigation or other action or proceeding involving only individuals or entities other than HMA unless HMA is required to indemnify Losses incurred by such individuals or entities. For the avoidance of doubt, for purposes of this definition, the Company and its Subsidiaries shall not be considered Affiliates of HMA.


“Final Resolution” means (i) receipt of written confirmation from each applicable Governmental Entity that it has closed its investigation into HMA with respect to the Existing Litigation; or (ii) resolution of the Existing Litigation pursuant to a written settlement agreement, consent decree or other final non-appealable judgment by a court of competent jurisdiction.

So the payout of CYHHZ can range from 0 to $1 depending on how much CYH eventually need to spend in settling or pay the fine for HMA transgression. The formular to the payout is

$1 - (settlement cost-18M)*0.9/total number of CYHHZ outstanding

And the timing for the resolution can be 1 to 4-5 years. There are 261.927M shares of diluted HMA shares outstanding in the latest 10Q (November 2013) before the merger. So the reserve for this particular settlement is in the 262M range. And the 0.9 factor there is to give CYH incentive to try it's best to negotiate a good deal. CYH will have to pay 10% of whatever settlement/cost that they negotiated. The 18M is probably what the HMA folk believe the lawyer cost will be and they want to make sure that CYH won't skim on the lawyers.

Currently the share trade between $0.06 to $0.07 per shares. It was trading as low as $0.04xx per shares for a few days a couple weeks ago. The interesting part of this CVR compare to options is that it never expire. If the settlement / trial drag on for 10 years, the CVR will still be in effect. And I don't have to hit home run with this CVR to make it worthwhile. If the CVR pay back 10 cents and my average cost is in the 6-7 cents range, I make a pretty decent profit. And it is not a particular big case. HMA and CYH management already estimate that the cost of this investigation/potential litigation will be between 0 and $262M.