Next GGWPQ? Tronox Equity at $0.38...Plan Value of $2.50

[Josh4580]

Always invert!  Whats the downside???

 

 

From the Debtors Amended Plan Sept 1st:

 

Equity Interests in Tronox Incorporated will be cancelled. For settlement purposes, Holders of Equity

Interests in Tronox Incorporated shall be entitled to vote on the Plan. If the class of Equity Interests

votes in favor of the Plan, Holders of Equity Interests in Tronox Incoproated shall receive their Pro Rata

share of the New Warrants to be issued on the Effective Date pursuant to the terms of the New Warrant

Agreement, the form of which will be included in the Plan Supplement. The New Warrants will be

convertible into 5% of the New Common Stock to be issued on the Effective Date based on a total

enterprise value for Reorganized Tronox of $1.5 billion. If the class of Equity Interests votes to reject

the Plan, no distributions will be made on account of Equity Interests in Tronox Incorporated.

 

They estimate this recovery to be worth $1-$4 million or $.02-$.10 per share.  But this is using their EV valuation of $975 million to $1,150 million.  If we use Kronos's (KRO) current EV, which is an exact if not conservative comp, of $2.31 billion, these 5% warrants will be way in the money and the recovery to the equity holders would likely be around the current stock price....do I smell limited downside?

 

 

Can anyone calculate the value of these warrants using $2.31B EV and 2 year term.  Please post if you do.  Thanks

[alertmeipp]

>>Can anyone calculate the value of these warrants using $2.31B EV and 2 year term. 

 

What's the term on those warrants?

 

Seems a risky bet with the CEAA settlement.

 

Why ppl always think it's the right thing to punish shareholders for management or operation mistakes is beyond me.

[Josh4580]

the term isnt disclosed...the POR states they assumed a 2 year term.

 

Also it wouldnt be $2.31B EV because Tronox has 80% of KRO capacity...so it would be $1.85B EV.  So 2 year warrants to buy 5% of New Common at $1.5B EV for the old equity if the Debtors plan is accepted. 

 

 

[Josh4580]

Fourth Amended Joint Plan and Disclosure Statement filed (9/21/10)

 

Class: 1E

Class Descriptions: Equity Interests

Impaired/Unimpaired: Impaired

Treatment: Holders retain their Interests.

 

"This Class is Impaired, and the Holders are entitled to vote on the Plan. Each Holder of Allowed Interests in this Class, as of the Record Date, shall retain its Interests in the Debtor. In the alternative, the Holder may elect to have its Interests redeemed, which redemption shall occur on, or as soon as practicable after, the Effective Date. If the Holder elects to have its stock redeemed, such Holder shall receive on account of and in exchange for its Interests cash in the amount of $0.25 for each share of MMPI Existing Common Stock held by the Holder.

 

The deadline for Holders of Interests to elect redemption of its MMPI Existing Common Stock shall be the date set as the deadline for casting Ballots to accept or reject the Plan (the “Election Deadline”). Holders who do not make a redemption election as of the Election Deadline will be deemed to have irrevocably elected to retain their Interests in the Debtor.

 

 

PlanMaestro, does this effectively create a 25 cent downside for MMPIQ given that its the DEBTORS plan.  Also is there still time for the other groups to up the ante for the stock?

[keerthiprasad]

About MMPIQ - I have been trying to follow this story. At the moment, this appears to be the best plan for equity holders, however I am not sure if creditors will react well to this plan.  My impression is that most people are not likely to support this debtor, as management has proven to be selfish and rather inept.  I think the various parties have until Friday to file amendments? 

 

Please share your thoughts or correct me if I am wrong.  I am really a newbie when it comes to these types of cases and am trying to work through it.

 

PlanMaestro - you seem to have a very thorough understanding of MMPIQ.  Any thoughts on the recent price increase?

[Packer16]

In looking at the plans (latest 2 issued 9-21 and 9-22), the equity plan gets to participate in the rights offering (@14.5% of total) plus 5% new warrants with SP of $24.64.  The rights offering will be for $9.70 for stock worth $16 to $18 per share.  The debtors plan receives the warrants only. 

 

Some questions: 1) can individual investors participate in the rights offering and 2) what incentives do the debtors have to accept or compromise with the equity holders?  Uncertainty over these items is what is drving the stock price down. 

 

Packer

[Josh4580]

1. the rights offering is not restricted to accredited investors...anyone can participate

 

2.  whats holding the stock down is that the ruling to approve the EC plan was delayed until monday sept 27 and the debtors POR was approved today.  The debtors have a strong incentive to compromise with the equity holders if the judge approves the EC plan on monday

[Packer16]

I admit I don't know much about the details of the case but if the judge approves both plans what happens next?  Does each class then vote and the majority plan wins?  What are the rules? Do a majority of each class have to approve or can the debtors cram down?  To what extent are more shareholder proceeds above the warrants (i.e. participation in the rights offering) dependent upon the judge?  TIA for the responses as I find this situation interesting.

 

Packer 

[Josh4580]

http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter11.aspx

 

When competing plans are presented that meet the requirements for confirmation, the court must consider the preferences of the creditors and equity security holders in determining which plan to confirm.

 

http://www.extension.umn.edu/distribution/businessmanagement/df7296.html

 

Cram-down – Under certain circumstances, the bankruptcy court may "cram down" a plan over the objection of creditors. In order to confirm a Chapter 11 plan over the objection of a secured creditor, a holder of a secured claim must receive the entire value of the property securing the claim or the entire value of the claim, whichever is smaller. Unsecured creditors must either accept the Chapter 11 plan or the owners of the business must not receive any property under the plan on account of their prebankruptcy interest in the farming operation. Finally, a plan cannot be confirmed if the plan does not pay each claim holder as much as he would have received under a Chapter 7 liquidation unless those who receive less accept the plan.

 

Objections to Plan – Creditors may object to the confirmation of the debtor's plan in a Chapter 11 case. Such objections will usually challenge whether the debtor has met the technical requirements of Chapter 11. However, creditors may also challenge the debtor's valuation of their collateral and the feasibility of the debtor's plan. As a result, it is usually necessary for the debtor to obtain expert testimony concerning the current value of machinery, equipment, livestock, and crops. In addition, it will be necessary for the debtor to provide his creditors with detailed financial projections which will assist the bankruptcy court in determining that the business may be successfully restructured.

 

Competing Plans – As previously mentioned, only the debtor may submit a plan of reorganization within 120 days of the initiation of the bankruptcy case. Any interested party may file a plan thereafter. A plan, including a plan proposed by a creditor, may provide for the liquidation of some or all of the debtor's nonexempt assets. Such a liquidating plan may be proposed and approved by the court even in the case of a farmer.

 

Confirmation – Confirmation of a plan under Chapter 11 acts as a discharge of all debts, filed or not, excluding those specified as not dischargeable elsewhere in the bankruptcy code. Upon confirmation of a plan, the debtor receives back all his property free and clear of all liens and encumbrances unless such liens are preserved by the plan. Both the debtor and the creditors are bound by the terms of the confirmed plan.

 

[PlanMaestro]

FIRST> If someone has Pacer, can you please send me a data dump of the last month? I am still small fish so paying for each document is making a dent . I have had to pick and choose and so I may be missing some details. Buyer beware.

 

 

does this effectively create a 25 cent downside for MMPIQ given that its the DEBTORS plan.  Also is there still time for the other groups to up the ante for the stock?

 

Yes and no. The previous plan already left equity unimpaired so it was a best case scenario for equity... much better than the $0.25. It was even better than liquidation, that I estimate at $1 per share, given MMPI's value as an operating company. It is a pity that we have to endure R. Meruelo but at least he will be pressured by his new partner (Watermarke Properties) to make things happen. Also the Official Equity Committee (OEC) gets 3 of the 7 new board directors.

 

I see this extra $0.25 proposal as a preemptive move to avoid a cash counter offer by the other plans that could confuse equity voters. And if you can finance that $0.25 buyback with a partner  accepting debt at 5% interest convertible at $0.5, what is not to like.

 

About MMPIQ - I have been trying to follow this story. At the moment, this appears to be the best plan for equity holders, however I am not sure if creditors will react well to this plan.  My impression is that most people are not likely to support this debtor, as management has proven to be selfish and rather inept.  I think the various parties have until Friday to file amendments? 

 

My understanding is also that the disclosure hearings end today, so this is going to be the plan approved by equity holders. I imagine that the almost 66% of settled secured creditors will vote for it and Legendary/East West will most probably disent. And given that they are being paid in full over time and they are retaining the liens securing their claims I suppose they will be crammed down.

 

I do not like R. Meruelo but it has its advantages to have a debtors fighting for equityholders given their substantial equity share.

[PlanMaestro]

It looks like the Charlestown plan was amended today to give access to the non accredited investors in their rights offering (not bad). Still reading it.

[keerthiprasad]

It looks like the Charlestown plan was amended today to give access to the non accredited investors in their rights offering (not bad). Still reading it.

 

Just read this.  With the exception of Meruelo, I think the debtors plan is a better offer to the average equity holder.  It seems like Watermarke is willing to take on more risk initially, thereby providing equity holders with a better deal.  Any thoughts?

 

[PlanMaestro]

Just read this.  With the exception of Meruelo, I think the debtors plan is a better offer to the average equity holder.  It seems like Watermarke is willing to take on more risk initially, thereby providing equity holders with a better deal.  Any thoughts?

 

Exactly.

 

Remember that equity would emerge mostly unimpaired under the debtors plan . The Watermarke secured loan is only $15 million and is payable in kind at $0.5/share only at the DEBTORS choice.

 

I do not want to sound promotional, so you may discount that MMPI IPOed in 2007 at $10 per share and that it was above $2 right before Lehman. But still, under conservative assumptions I think it could be liquidated at $1 per share. The debt structure is also favorable with several properties unencumbered... for example the ones being used for the Watermarke loan.

 

Chapter 11 is an uncertain process but it seems that the incentives are aligned, there is liquid equity, and the judge has showed a legitimate concern about the recovery for equity holders. I think there is no dispute now that common equity is the fulcrum security.

 

The Debtors have obtained a commitment from Watermarke Properties, Inc. (or its

designated affiliate) for a $15 million secured loan (the "Loan") for the Debtors use in funding operations and payments under the Plan.  The Loan will be made as of the Effective Date and will bear interest at the rate of 5% per annum.  The Loan will be secured by a first priority deed of trust on two of the Debtors' real properties,

 

(i) 1211 East Washington Boulevard

(ii) 230 W Ave. 26 and 129 W. College Street owned by affiliated Debtor, Chinatown.  

 

The Loan has a maturity date of the fifth anniversary after the date of closing and funding (the “Loan Date”).  The principal amount of the Loan is due at the maturity date.  Interest is payable quarterly; however, interest may be paid "in kind" by adding the interest to the principal if approved by the Lender.  The Loan is convertible into 30 million shares of MMPI Existing Common Stock (which amount shall be increased pro rata in the event interest is paid in kind) with the conversion right being exercisable between the fourth anniversary and the fifth anniversary of the Loan Date.  This Plan shall constitute a motion for approval of the Loan and the Confirmation Order shall provide that the Loan is approved.

[PlanMaestro]

MMPIQ: getting the details, but it seems that Charlestown/Hartland increased their buyout offer from $0.16 to $0.35 per share

 

[Josh4580]

Well it was a good thing I bought TRXAQ AND MMPIQ.  At least the losses on TRXAQ are being offset by MMPIQ.  Thanks Plan for putting this name forward.  Tronox equity committee has withdrawn their plan and no more information has been released.  The debtors plan has been approved in which TRXAQ gets warrants to purchase 5% of the company at an EV of $1.5 billion.  If the equity committee's plan is actually out of play than the best thing we can hope for is that they at least settled on getting a lower warrant strike price.  

 

However, even at the current strike of $1.5B, the warrants are way in the money if we use KRO's current EV of $2.46B.  

[PlanMaestro]

Well, at this price I am starting to check TRXAQ again. Even without an OEC plan there is still the possibility of a valuation battle like CEMJQ's. TRXAQ has been raising prices and the whole sector has better multiples.

 

The incentives are not aligned, but the warrant should provide some margin of safety.

 

Am I reading this right Josh?

 

 

[Josh4580]

But how does a higher valuation from a valuation fight increase the value of those warrants? 

[PlanMaestro]

But how does a higher valuation from a valuation fight increase the value of those warrants?  

 

Well if the valuation supports it, debtors might have to throw another bone or a better bone.

[tnp20]

Why not just buy the bonds in Tronox....they are going for 92.5 cents on the dollar.....and they'll capture more of the easy upside before warrants even kick in ?

 

Is there some aversion to Tronox bonds ?

[Josh4580]

Some people dont have access to buying the bonds.  Also the upside seems limited versus the pre-petition equity.  The post reorg equity is going to come out at 5.5X EV/2010P EBITDA while Kronos (KRO) trades for 17.5X EV/LTM EBITDA.  Kronos has 33% more capacity than Tronox but Tronox has much better margins, which almost make up for the reduced capacity.  Huntsman is predicting consumer demand in Ti02 to overtake capacity in a couple years and the industry should be running at full capacity for years (hasn't happened since 1984-86). The lead time to build another Ti02 plant is 3-5 years and no new ones are currently planned.  Could be a cheap reorg equity.

 

Visteon (VSTOV.OB) recently came out at $48 and the stock has already moved up to $58.    Lyondell (LALLF) also looks cheap.  Smurfit-Stone (SSCC) is something to look into.

 

AbitibiBowater is another large reorg coming out soon.  

[Josh4580]

Kronos raised $300mm at $40 a share in a secondary offering.  The stock will now be much more liquid. 

 

http://finance.yahoo.com/news/Kronos-Worldwide-Announces-prnews-1224267697.html?x=0&.v=1

 

"The estimated net proceeds to the Company from the offering, before giving effect to any exercise of the underwriters' overallotment option, are expected to be $293.5 million after deducting the underwriting discount and estimated offering expenses payable by the Company.  The Company intends to use the net proceeds of this offering for general corporate purposes, which may include possible acquisitions of additional TiO2 facilities that may become available in the future."

 

Tronox bond is up to $130 from $92 when I first posted and Tronox equity is up to $0.55.  No news out just people buying on valuation.  I think the bond is the way to play this and use KRO as a direct comp.  The plan confirmation date is Nov 17th fyi.

[doc75]

 

I sold some TRXAQ today at .60.  I tried to sell a few days ago at .30 and my order wasn't filled.  Talk about luck.

 

Lots of speculation here on the valuation.  It seems there's a very strong case for shareholders to get something but once the OEC withdrew I was looking for a good exit.  In hindsight, I suppose it was always going to come down to valuation fight at confirmation.  I just didn't like the lack of communication regarding the withdrawal.

 

 

 

Josh:  Are you still following MMPIQ?  Very interesting story there...  Any thoughts on the vote?  Any ideas as to the chances that the C/H plan is confirmed?

 

 

 

[Josh4580]

All three plans should provide sizeable upside for MMPIQ.  I think it is a great long term hold.  I think TRXAQ should be sold at current prices as the downside is effectively zero regardless of the upside. 

[Josh4580]

Why not just buy the bonds in Tronox....they are going for 92.5 cents on the dollar.....and they'll capture more of the easy upside before warrants even kick in ?

 

Is there some aversion to Tronox bonds ?

 

tnp20, nice call.  The bonds are up to $129 from $92.5, for a 40% gain.  I agree that this should have been the way to play this company. 

 

On the other hand,

 

Tronox equity should be sold at $.76 for 95% gain since I posted at $.38.  Downside is currently $.04-$.09 which is not worth the risk given maybe 100% more upside.  Its a coin flip as of now.

[tnp20]

Under the current Plan, shareholders of Tronox Incorporated would have received two-year warrants convertible into 5% of the common equity in reorganized Tronox at a strike price indicative of a $1.5 billion enterprise value for reorganized Tronox, but only if the class of shareholders of Tronox Incorporated voted to accept the Plan.  As a result of the settlement, existing shareholders of Tronox Incorporated will receive an improved package of warrants, consisting of two tranches of warrants, each exercisable for seven years, on the following terms:  

 

 

•Tranche A warrants convertible into 3.5% of the common equity in reorganized Tronox Incorporated issued on the Effective Date, at a strike price based on a $1.4 billion total enterprise value for reorganized Tronox; and

•Tranche B warrants convertible into 4.0% of the common equity in reorganized Tronox Incorporated issued on the Effective Date, at a strike price based on a $1.5 billion total enterprise value for reorganized Tronox.

 

 

>>>>>> So the new plan gives 7.5% equity in new Tronox at average $1.45B EV and a 7 year term.

 

 

Compare to Kronos and assuming more realistic EV of $1.8B ....that gives $350M difference >>>>>>> 42M outstanding gives ~0.63 cents not counting the option value.