NEW YORK (Dow Jones)--Chemtura Corp. (CEMJQ) and its shareholders sparred Thursday in bankruptcy court in day one of what promises to be a protracted fight over the chemical company's plan to exit Chapter 11 protection.
Judge Robert E. Gerber of U.S. Bankruptcy Court in Manhattan heard opening arguments from both Chemtura and the official committee representing its shareholders, which are at odds over how much Chemtura is worth and how much current equity holders should recover in the case.
Chemtura's plan to exit bankruptcy would pay its lenders in full, give unsecured creditors cash and most of the restructured company's stock, and cut Chemtura's debt to $750 million, half of what it was when the company filed for bankruptcy in March 2009.
If they had voted for Chemtura's plan, Chemtura's equity holders would have received 5% of the new company's stock and the right to participate in a $100 million rights offering.
The shareholders have argued the plan would shut them out from recovering leftover money from trusts being set up to handle claims related to the chemical diacetyl. The equity holders voted down the plan, and instead will get whatever is left over after unsecured claims are paid in full and reserves are established for disputed claims.
Chemtura lawyer Natasha Labovitz of Kirkland & Ellis LLP said she thinks the equity holders will receive the high end of what was expected when Chemtura developed its plan. Chemtura places that range at between 0.5% and 9%.
The equity committee said the choice between 5% of the company's equity or rejecting the plan was a "death trap," and that it should get to participate in the rights offering no matter what. After the committee's attempt to present a rival exit plan was rejected by Gerber last month, the two sides have been feuding over the Chemtura's value.
Chemtura says the "middle range" of a Lazard Freres-commissioned valuation is $2.05 billion, a number much lower than the UBS AG (UBS)valuation offered by the committee.
A lawyer for Chemtura's creditors said even Lazard's valuation of Chemtura relies on very optimistic projections, meaning that going any higher would paint an overly rosy picture of how much Chemtura is worth.
If Gerber decides Chemtura is worth more than it says, lawyers for Chemtura and the creditors said creditors who accepted the plan would no longer be bound to its terms.
"That is the fundamental problem we have here, and it's unfortunate," said George Zimmerman of Skadden, Arps, Slate, Meagher & Flom LLP, an attorney for the equity committee. He added, "They're putting a gun to your head. It's $2.05 [billion] or nothing."
Chemtura, which manufactures specialty chemicals including agriculture, pool, spa and home-care products, filed for bankruptcy protection in March 2009 after demand for its product soured. Since then, the Middlebury, Conn., company has seen improved performance and has settled hefty environmental claims.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)
-By Joseph Checkler, Dow Jones Daily Bankruptcy Review; 212-416-2152; joseph.checkler@dowjones.com
(Eric Morath contributed to this article.)
(END) Dow Jones Newswires
September 16, 2010 12:41 ET (16:41 GMT)
