Replies to post #1867 on Got Parlay?

[Gileon7]

Right now, the motion for an official equity committee has been denied. That does not mean that another motion cannot be filed in the future. If I am not mistaken it took three tries for CEMJQ to get an equity committee.

In my mind there is something that the HF's will have in their arsenal, something they may be aiming for. Possibly a replacement of the BOD. It is by far a long shot, but still a distant possibility.

Pursuant to § 362 of the Bankruptcy Code, the filing of a bankruptcy petition invokes the automatic stay, which generally prevents the continuation or commencement of actions against the debtor that were or could have been brought prior to the entity’s filing for bankruptcy, including those actions to obtain possession of or "exercise control" over the debtor’s property. In so doing, the automatic stay affords a debtor entity a breathing spell from the financial and other pressures that drove it into bankruptcy.

Equity holders’ action to replace the board of directors of a corporation arguably is an attempt to exercise control over the assets of a debtor-corporation. Nevertheless, in order to ensure the adequate representation of equity holders in a corporate reorganization, courts have held that the power of an equity holder to vote its shares applies with equal force in bankruptcy proceedings as long as the actions of equity holders does not rise to the level of "clear abuse." Clear abuse requires a showing that equity holders’ actions demonstrate a willingness to risk rehabilitation in order to win a larger share for themselves. That equity holders’ actions are motivated by a desire to seize more bargaining power in the negotiation of a plan of reorganization, however, does not constitute clear abuse, due to the relatively little power that equity holders are given in bankruptcy proceedings.

[Kristallweizen]

CTDBQ (.027 -46%) Wins Court Approval of Reorganization Plan
May 18, 2010, 12:04 AM EDT

May 18 (Bloomberg) -- Citadel Broadcasting Corp., the third-largest radio station owner in the U.S., won court approval to exit bankruptcy over the objections of shareholders who said the company is worth more than executives and bankers assert.

U.S. Bankruptcy Judge Burton Lifland in Manhattan said yesterday he will sign a confirmation order approving Citadel’s reorganization plan. He overruled objections by the shareholders.

“The debtor has met the burden of confirmation,” Lifland said at the close of a nine-hour hearing in New York that centered around the subject of the valuation of the company’s worth.

Shareholders led by Aurelius Capital Partners LP opposed the plan, saying that bankers valued the company too low, thus denying owners of stock any recovery on their investment. Lazard Ltd., Citadel’s banker, used the company’s earnings projections to arrive at a valuation showing the company is worth less than its debt.

Citadel, based in Las Vegas, filed for Chapter 11 protection from creditors in December, saying the recession “put a chokehold on advertising spending,” its main source of revenue.

The reorganization plan will give holders of $2.14 billion of secured debt a new $762.5 million loan and 90 percent of the shares of the reorganized company. Holders of unsecured claims will receive the remaining 10 percent of the stock and $36 million in cash. Equity holders will receive nothing.

Packed Courtroom

More than 55 people packed the Manhattan courtroom yesterday for the second of a two-day confirmation hearing during which Lifland heard testimony from bankers, analysts and Citadel’s top executives about the fairness of the valuation.

Lifland refused to delay the hearing on the confirmation, after he denied opponents a chance to have an expert witness testify.

He refused to allow testimony from a professor of finance who planned to testify about the valuation of the company. Lifland agreed with Citadel’s lawyers that the witness didn’t have expertise in valuations of broadcasting companies.

“We’re dealing with the radio industry sandbox and there are a lot of nuances in that sandbox,” Lifland said. “There is no nexus between his credentials and the subject matter of his testimony.”

Allan Brilliant, a lawyer for Aurelius, had asked the judge to postpone the rest of the hearing to give shareholders time to come up with new expert testimony about the valuation. The judge gave them one hour.

Industry Analyst

Christopher Ensley, a former radio industry analyst at Bear Stearns who testified for Aurelius earlier yesterday, was asked by Brilliant to develop an opinion on Citadel’s valuation during that recess and take the stand again.

Upon returning from the recess, Brilliant asked the judge to adjourn the hearing until the end of the week to give Ensley more time to calculate the valuation.

“It’s not fair for Mr. Ensley to prepare this valuation in one hour in the hall,” Brilliant said.

The judge denied the request for extra time.

The witness whom Lifland didn’t allow to testify was Gregg Jarrell, a professor at the University of Rochester.

Brilliant said he had no comment when asked if Aurelius would appeal the ruling confirming the plan.

Low Projections

Aurelius argued that a recovery in radio advertising indicates that Citadel’s projections for earnings and revenue this year are too low.

Citadel updated its projection for 2010 Ebitda -- or earnings before interest, taxes, depreciation and amortization - - after a better-than-expected first quarter. Lazard increased the company’s valuation to reflect that higher Ebitda estimate. Lazard values the company at $1.91 billion to $2.165 billion, with a midpoint of $2.04 billion, less than its $2.28 billion in secured and unsecured claims.

“These are our best estimates as we understand them,” Farid Suleman, the company’s chief executive officer, said in court May 12. He raised the Ebitda estimate for 2010 to $232.4 million after the first quarter from about $210 million in February.

Suleman “has been very credible in his testimony,” Lifland said.

‘Glad It’s Over’

“We’re glad it’s over and we can get on with running the company,” Suleman said in an interview after the judge’s ruling.

Aurelius and two other shareholders, Virtus Capital LLC and the Kenneth S. Grossman Pension Fund, argued that the updated projections are still too low. Aurelius valued Citadel at $2.6 billion.

“What testimony has shown is we have an industry recovery and Ebitda is rising quickly,” Steve Gidumal, co-founder of Orlando-based hedge fund Virtus, said in an interview. “Now there’s testimony that the Lazard banker spent only 45 minutes vetting the increased projections by the debtor.”

Louis Zachary, the Lazard banker who supervised the Citadel valuation, said in court May 12 that he “had ample justification that management’s projections were appropriate.”

Zachary also said the bankers had received no offers from investors to buy Citadel since some expressions of interest last summer when the company was looking to either restructure its debt or be acquired.

17.3 Million Shares

Aurelius bought 17.3 million shares of Citadel beginning on March 30 for $1.35 million, Citadel said in court papers, with the stock trading at pennies.

Citadel owns 224 radio stations in cities including New York and Chicago and distributes programming to 4,000 stations. The company added $2 billion in debt when it acquired the ABC radio stations and network from Walt Disney Co. in 2007.

The largest radio station owner in the U.S. is Clear Channel Communications Inc. and the second-largest is CBS Corp.’s radio unit.

The case is In re Citadel Broadcasting Corp., 09-17442, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

--Editors: Michael Hytha, Peter Blumberg.

To contact the reporter on this story: Don Jeffrey in New York at [e-mail].

To contact the editor responsible for this story: David E. Rovella at [e-mail]