Replies to post #51195 on Chemtura Corp (fka CHMT)

[slaternation]

Mac, dilution means the creation of shares and sending them out into the market, and in this case of dilution trading those new shares (equity) to pay off the bondholders (debt), thus the phrase debt for equity swap.

Today there are 242Million shares of Chemtura stock out there, the A/S, think of it as a big Chemtura pie that you own a little slice of. What could happen here is that, and just to make it simple, I will choose to have Chemtura create 242Million more shares and trade them to people that the company owes money to, the bond holders. The Chemtura pie is now doubled in size, but has the same value. You will still own the same amount of shares, your slice of the pie is the same size, but the pie is twice the size it used to be, but the pie has not changed in value.

But as the company comes out of bankruptcy, your shares will (hopefully) remain in tact and the price per share will go up considerably. Let's say that if we came out of bankruptcy right now, with a leaner, more profitable company and the value of the company was that each share was worth $14. If they were to double the A/S and we came out of bankruptcy with the same new company, the shares would be worth $7 each. Which is a whole heck of a lot better than the shares being canceled.

[kidmaxxxx]

Someone has probably answered this already, but I will just in case. Share dilution is simply adding more shares outstanding. It doesn't effect your personal share holdings, that would be only during a forward or reverse split of shares. If they do an equity swap/share dilution, X ammount of shares would be issued at X price into the market. The negative side is the more shares out there, the less value per share...The positive side, it would be paying off important debt, which I think is fine. As to how many shares or when this could happen, I have no idea. They plan on exiting Ch-11 by Summer 2010 according to yesterdays PR, so part of their plan, if indeed this is what they plan, would be to present to the courts and publically announce a share offering. I think this would have to be part of the POR, but not exactly sure...Either way if you follow the court docs and news, you'll be well informed ahead of time. For an example of what is meant by an equity swap, Bank of America (BAC), and Citigroup (C), are perfect examples of this. BAC did about a 12% share dilution recently in order to raise funds to pay back TARP...Citigroup is doing the same thing. Hope that helps.