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.
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