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.
