messages.finance.yahoo.com/Stocks_(A_to_Z)/...;frt=2&off=1
When going into the Confirmation hearing, I had a single goal and several objectives in my mind. The goal is to seek/obtain the maximum recovery for the equity. Now, after the hearing, written and oral arguments, and most importantly, in light of the Court Order and Opinions, how did we do so far in advancing our goal and objectives? Here is what I think.
(1)FJR. Yes, we got it. On my list, this is the second minimum objective we should, and will be able to achieve (with or without IT). Even though it is not ideal (awarded on the petition date instead of lower rate afterwards), and it can hurt H holders too, looking at the big picture, FJR enhances the overall prospects of recovery for the equity. After all, this was one of EC’s strategic objectives too.
(2)IT and Equitable Disallowance. I’m glad that the Court granted EC Motion for standing to prosecute for equitable disallowance (but stay pending mediation). The Court used some strong languages in the Opinions to express her concern and belief that SNHs had committed IT misconducts, but was short of applying the penalty of disallowance immediately and by herself. The reason for the absence of immediate penalty, in my view, was out of two concerns. (1) As the Judge said, “full discovery on the Settlement Noteholders’ internal trading decisions has not been permitted to date, the Court is unable to reach any conclusion based on the trades alone.” And, “Further discovery would help
shed light on how the Settlement Noteholders internally treated the settlement discussions and if they considered them material to their trading decisions.” In other words, full discovery is almost guaranteed if no conciliatory actions are taken by SNHs. (2) More importantly, she wants a settlement between Equity, SNHs, and others, and is using IT charges as a big stick. Clearly, the pressure is on SNHs. Both further discovery and disallowance penalty are bad options for them.
(3)Ownership and Control of NewCo. On my list, this is the most basic or the minimum objective. In her Opinions, the Court didn’t address the ownership issue directly (She’s still using the Plan’s assumption of creditors taking control of NewCo. to illustrate her points). However, since SNHs and debtors are forced into mediation with the Equity, the ownership and control of NewCo. are very much in play. Based on the aborted May settlement proposal, NewCo. is an easy yet important asset target. The Court was very measured in assessing the valuation of re-organized debtor. She acknowledged that the debtors’s expert undervalued the NewCo. while she played down the valuation herself, and capped the NewCo. at $210M ($160M current assets + $50M present value of NOLs). The most important thing, however, was that she acknowledged that (a) NewCo. can be a on-going business (after exiting BK); and (b) the section 269 is unlikely hinder the company’s growth and its future use of NOLs. In other words, NewCo. has great potential going forward. (On my original list, I don’t have Litigation Trust. Based on the Opinion, and also due to forced mediation, Litigation Trust is also clearly in play now. Both NewCo. and Ligation Trust, in my view, have excellent potential to add value to Equity recovery (if we can get hold of them).
(4)GSA/POR. The single most disappointing thing in the Opinions is that the Court preserved GSA as “reasonable” (I noticed that the opinion omitted “fair” part). Of course, we are relieved that the Court denied POR nonetheless. Another major disappointment is that the Court still let JPM and FDIC go untouched. I don’t know I should fault her on this or the BK system, which places too much emphasis on “compromise” and “lowest point in the range of reasonableness”.
No doubt, the debtors have an urgent need to pass POR. However, they are facing the biggest hurdle in mediation and the impact of potential disallowances. Put it another way, POR was denied in part because of IT charges. How do you remedy that in mediation? Without a successful mediation, POR will be out on a limb. I’m confident that EC will not give in an inch without first obtaining meaningful recoveries for the Equity. I still believe, just like what I thought after January Opinions, that the Court tries to preserve GSA as a general framework, and meanwhile leveled the playing field to induce/force players to come to their senses (fair and equitable play). Only this time, the leverages are stronger, the consequences much severe, and incentives more urgent. The risks and uncertain factors are still out there, to be sure. Will SNHs be so stubborn to refuse to cooperate with EC during mediation? Can JPM and FDIC still be drawn into mediation talk to end the impasse? And finally, what will be the solution for TPS and its impact on the ultimate settlement? I don’t know but we shall see soon.
Overall, I feel cautiously optimistic about the recovery prospects for the Equity. We may see better by the date of status hearing (10/07).
Zurück
Weiter
