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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