The meaning of what happened yesterday.
Sorry for the excessive word count, but quite alot happened yesterday.
When Walrath asked Rosen for a progress report on POR7 (as if she knew that POR6 was already dead), I found it to be highly interesting that he again raised the issue of the “complexities” of the on-going negotiations as being the reason for the delay of its timely filing with the court. In requesting a mere 9 additional days in which to resolve those “complexities” and reach a “closure date” of June 17th (again, his words), he gave us a valuable means by which to draw rational conclusions about the status of those negotiations and the likelihood of there being a POR7 (as opposed to POR6).
First and foremost, yesterday’s equivocation was all about the 5,000 pound elephant in the room, JPM (Rosen’s REAL client for the past 2 years), and what it would or would not agree to do at this point in the BK. It was telling that Rosen did NOT say that the negotiations – which have no doubt been underway prior to May 13th (i.e., the previous date set for the filing of objections to the DS) – had broken down, or had reached an impasse, or had stumbled upon intractable issues. There was nothing in his words to the court that suggested the presence of any term that might be construed to be a deal-killer. Nor did Rosen extend SG’s time to file its objections to the current DS (i.e., they are still due no later than June 10th); nor did he provide additional time to file such objections to DIMEQ, or Black Horse (both of whom filed no such objections, presumably on the basis of the negotiations which were clearly underway at the time), or any of the hedge funds, or even JPM and the FDIC; all of whom have yet to make a standard filing in support of the current DS. But most tellingly, there was no appearance by SG, reminding the court of its preservation of rights, should it have to proceed with POR6 issues. True to human nature, no one is concerned with anything that is DEAD.
So more and more, it would clearly appear that Version 6 has become a dead letter, and ALL of the parties, including Walrath (with the exception of TPS) are happily awaiting the birth of Version 7, which will have been conceived, in large part (and amazingly), with the input of equity (this was the import of Steinberg’s comment to Ilene yesterday).
The question then becomes what will happen when the good news hits Pacer, sometime during the next several days? If Rosen remains true to form, the filing should consist of both the revised DS and POR7 (the standard “hand in glove” analogy that he flummoxed Venable with in March of last year). If the negotiations broke our way then TPS will be assumed by JPM. That alone would pour $4B into the waterfall, instantly affecting the PPS of the preferreds, causing them to rocket upward to near-FV. As to common (which will get control of NewCo), I tend to believe that the revised DS and POR7 will continue to contain obfuscating language stating that the “present value” of NewCo is a mere $160M, together with whatever the NOLs and other tax attributes and undisclosed assets are worth. There will likely be just enough confusion in that initial valuation to dampen the immediate rise in the price of common, but surely (and instantaneously) taking its PPS back to + $0.025 and then beyond.
But taken together, all this will be very explosive news, and contains the ability to overwhelm the MMs and panic the shorts. So much so, that it would seem unrealistic to believe that such news would just be dumped into the market during trading hours.
Therefore … I think that Rosen will not file the DS/POR7 until minutes before midnight on Friday, July 17th. The delay occasioned by this late filing will unfortunately be seen (by many) as evidence that negotiations have collapsed and that we are heading back to the days of POR6 (Rosen would get a kick out of that). As a result of that dismay, the PPS, of all classes, will continue to deteriorate this week and the next, quite possibly resulting in the UQs falling below a dime. But all should take heart in that … as it will be our absolute final buying opportunity, as the PPS heads steadily toward $0.74 (as it stood on 3/12/10), awaiting the confirmation hearing on July 5th (Incidentally, the judge has given us only ONE, single, uninterrupted day for the confirmation hearing. Does that suggest anything to you? Anything at all?)
Lastly, the dismay that took place yesterday was, in large part, of our own making, and not Rosen's. Many of us ignored the prior let-downs in this case and came to truly believe that the guy from Publisher's Clearinghouse was going to pull up in our driveways with riches that would change our lives. The anticipation of that wonderful moment was used against us by the MMs. Who couldn't have shorted the devil out of that huge disappointment? There's a moral there as we await the morning of June 18th.
AIMO, of course.
