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

[Josh4580]

With this improved plan, the old equity is worth around $.30-$.50 per share.  At a current $.65 its most likely a sell.

[tnp20]

Josh, would you mind sharing your calculation and thought process to $0.30-0.50 ? Thx.

 

My estimate is proforma post-bk debt $470M, equity $600M. => EV $1070M

 

If strike prices is at average $1.45B, and if you assume it will trade closer to EV $1800M than $1070M, it should trade above the strike price not long after post-BK emergence. If it doesn't than buying equity post emergence would make sense assuming Kronos comparisson is valid.

 

$350M * 7.5% / 42M shares = $0.625 (not counting 7 year optinality value).

 

Its trading currently in the 0.58 - 0.65 range but that doesn't mean much.......

[Baoxiaodao]

Josh, very good call, thanks.

 

As an equity only investor, sometimes I wanted to do this kind of special situation. However, if I put let's say 5% of my money in there, I could lose them all; if I put less than 1%(an amount I am comfortable with), assuming I make a double, the gain is still not that significant. So you see I am kind of in a dilema. I understand I need to find a lot of those kind of situations in order to make the risks justified, but how many situations you can find in a year like this?

 

Can you please share your thoughts here? I am not talking about risk-arbitrage here, it is totally different.

[Myth465]

I think these are good ideas, but I cant play this game very well due to limited time. I prefer to find deep value with a catalyst and buy with options or shares, alternatively I hope to find good cheap companies which I can hold for quite a while.

[Josh4580]

The Tranche A Warrants have a $60 strike price, convert to 3.5% of new common (15.53mm fully diluted shares) and 7 year term

The Tranche B Warrants have a $66.45 strike price, covert to 4% of new common (15.53mm fully diluted shares) and 7 year term

 

Bond price was $129.5 this morning, which equates to a $1.22B EV-468M debt gives you $750M equity, divided buy 15.53 gets you a bond implied equity price of $48.29. 

 

The rest is just black sholes.  At 5% risk free rate and 25% volatility, the A warrant is worth $14.96 and the B warrant is worth $13.07.  This equates to a $.47 value. 

 

Now you could make the argument that $1.22B is not the right EV to use but remember that just because KRO is trading at 14.4x LTM EBITDA doesnt mean thats a correct valuation. 

[junto.investing]

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. 

 

Josh, have you received any paperwork for MMPIQ yet?

[twacowfca]

Josh, MMPIQ looks very interesting.  Would you be so kind to provide a very brief outline of what equity holders will get from each of the three plans of reorganization?  Could you comment on the current value of the properties that are still available for post reorganization equity holders and their cash flows?  Many thanks.

[junto.investing]

Josh, MMPIQ looks very interesting.  Would you be so kind to provide a very brief outline of what equity holders will get from each of the three plans of reorganization?  Could you comment on the current value of the properties that are still available for post reorganization equity holders and their cash flows?  Many thanks.

 

All info is now available on KCC LLC's website. Below is my interpretation of the 3 plans:

 

Charlestown Plan - Charlestown will purchase 55% of the company. Shareholders can retain their shares or sell their shares for 35 cents. In the event that Charlestown is unable to acquire enough shares to meet the 55% mark, shareholders will have to sell a portion of their shares. In the event that more than 55% of shares are tendered, shareholders will have to keep a portion of their shares. All in all, this plan will contribute $38 million. (23 in equity; 15 in secured debt) Furthermore, existing management will be replaced.

 

Legendary Plan - Existing shareholders will receive $20 million of "New MMPI", which should be the equivalent of $0.23 a share of "Current / Old MMPI." Existing shareholders will also be given the right to purchase an additional $10 million worth of stock at this price. No cash out option on this one. This plan will contribute $80 million. (15 in equity; 65 in debt-to-equity conversion) In the end, shareholders should end up with approximately 30% of the company - give or take, depending on each shareholders level of participation in the rights offering. Legendary's principals assume CEO role.

 

Debtor Plan - "No dilution" for first 4 years, after which Watermark Properties can convert its $15 million worth of debt (this serves also serves as the cash infusion). Cash out option of 25 cents a share. Existing management stays in place.

 

Creditors committee has pretty much recommended all 3 plans, while the equity committee (Chaired by Stephen Taylor, who is a beneficial owner of more than 10% of the co.) has recommended the Charlestown Plan.

 

All 3 plans are similar in the sense that they will have to dispose of assets. MMPI seems to have some good assets, but unfortunately they do not generate much cash. Their vacancy rates are also relatively high for the Greater LA area.

 

Certainly an interesting situation. They will still have a lot of work to do upon emergence.

 

As stated above, this is simply my interpretation. For those of you who have followed this a bit more closely, let me know what I've missed or misinterpreted.

 

Full Disclosure: Long MMPIQ

[doc75]

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. 

 

Josh, have you received any paperwork for MMPIQ yet?

 

I don't know about Josh, but I received notice about the MMPIQ vote via my BMO Investorline Account (an email).  It instructs me to contact them.  I don't think I'll get any paperwork.

 

This is a very interesting situation.  Shares trade at 0.28. There's a .35 buyout in one of the proposed plans, but (A) it is restricted, in the sense that the backer will only buy up to 55% of the equity at that price, and (B) there's no guarantee the plan will be approved.  There's a 0.25 buyout in the debtor's plan.

 

The implied value of the shares in each plan is somewhere between 0.20 and 0.25 (depends on the plan).  The KCC website has all the necessary documents and they're well presented.  The big question is simply "how much are the assets worth?".  It's clear that all the players think they're worth more than .20/share. Planmaestro did some valuation work a while back and (at one point) was convinced the shares are worth north of $1.  That's the most optimistic estimate I've seen. 

 

In any case, it appears as though there's lots of potential upside with very limited downside.  (Note:  The Legendary plan does NOT have a buyout option... so if that one is confirmed then the value of the shares is entirely up to the market and downside isn't forcibly limited.)

 

 

 

[Josh4580]

Josh, MMPIQ looks very interesting.  Would you be so kind to provide a very brief outline of what equity holders will get from each of the three plans of reorganization?  Could you comment on the current value of the properties that are still available for post reorganization equity holders and their cash flows?  Many thanks.

 

I am no MMPIQ expert but junto has laid out the description of the three plans adequetely.  I have not received any paperwork yet on MMPIQ.  Valuation could be significant but I have not done the necessary work yet.  

 

The confirmation hearing is Nov 29

[PlanMaestro]

As stated above, this is simply my interpretation. For those of you who have followed this a bit more closely, let me know what I've missed or misinterpreted.

 

Full Disclosure: Long MMPIQ

 

Pretty good summary, there is also a nice table in the Charlestown's plan support letter (http://www.kccllc.net/mmpi)

 

I would only clarify that the debtor's plan suffers no dilution. It is using the Watermarke loan convertible at $0.4 to buyout willing sellers at $0.25 so it is actually accretive. The only reason I am voting for the Charlestown plan is to give them leverage in the subsequent negotiations. It is very probable that all 3 plans will get rejected and Richard Meruelo must be kept in check. The OEC support letter provides details of Meruelo's machinations. (http://www.kccllc.net/documents/0913356/0913356101021000000000012.pdf)

 

I have not received the paperwork either.

 

 

[keerthiprasad]

I noticed that MMPIQ had a drop today.  Does anyone know if the story has changed?  I was a bit late in following this story, but definitely find it interesting.

 

K P

[PlanMaestro]

I noticed that MMPIQ had a drop today.  Does anyone know if the story has changed?  I was a bit late in following this story, but definitely find it interesting.

 

K P

 

I have been trying to follow it but it gets expensive pretty fast so I may missing something. The most relevant news is that Richard Meruelo keeps fighting dirty and the consequence is that probably the confirmation hearing could be delayed. Also the unsecured creditors are complaining that all plans lack supporting evidence of funding, but even in that complain most of their darts were directed to Dirty Richie.

[PlanMaestro]

A friend just told me that Berkadia withdrew objection to the debtors plan (MMPIQ). Confirmation hearing now set for 1/27/11.

[PlanMaestro]

From the Wall Street Journal today. Legendary is the largest secured creditor and one of the few that has not settled. It was also the proponent of one of the two opposing plans. Look like things are going fine:

 

Downtown Los Angeles landowner Meruelo Maddux Properties Inc. is slated to square off with a group of shareholders Thursday in Woodland Hills, Calif., over their separate plans to bring the developer out of bankruptcy protection.

 

But first the company will ask Judge Kathleen Thompson, who is overseeing Meruelo Maddux's Chapter 11 case, to sign off on a settlement with lender Legendary Investors Group that turns over seven properties to Legendary in return for the lender forgiving $67.8 million in debt.

 

Legendary had floated its own proposal to bring Meruelo Maddux out of bankruptcy that called for it to pump $5 million in cash and convert $65 million in debt into an 80% equity stake in the reorganized company. They also had wanted to oust the company's existing management, including founders Richard Meruelo and John Maddux.

 

Under the company's own bankruptcy-exit plan, shareholders (including Meruelo, the company's largest holder) would retain their ownership, and creditors (such as Bank of America) would be repaid either through the sale of the properties or a refinancing of their debts.

 

A rival plan proposed by minority shareholders would pump $30 million into the company, including $23 million for the purchase of 55% of the existing shares. The plan also sought to remove management, including Meruelo .

[Josh4580]

Meruelo Maddux Deal Removes Bankruptcy Exit Plan Challenger

 

Downtown Los Angeles land owner Meruelo Maddux Properties Inc. (MMPIQ) has struck a deal to settle its differences with a lender group that had threatened to blow up the company's bankruptcy-exit plan with a rival proposal. Meruelo Maddux is now set to ask a bankruptcy judge on Monday to approve a settlement it reached with Legendary Investors Group. Under the deal, Legendary will swap its $67.8 million in Meruelo Maddux mortgage debt for ownership of seven properties. As part of the agreement, Legendary and fellow lender East West Bancorp Inc. (EWBC) will drop their rival takeover plan that would have pushed out the company's senior management, including Chief Executive Richard Meruelo. Legendary had earlier acquired all of East West's interest in Meruelo Maddux loans.

 

The deal removes a major road block to Meruelo Maddux gaining court approval of its Chapter 11 plan, which keeps existing shareholders in control and repays creditors either through the sale of the properties or a refinancing of their debts. A plan confirmation hearing is scheduled for Thursday. However, the company's plan still faces a challenge from a second competing plan that minority shareholders put forth. That plan from Charlestown Capital Advisors LLC and Hartland Asset Management proposes to pump $30 million into Meruelo Maddux, including $23 million for the purchase of 55% of the existing shares. The company's unsecured creditors committee is backing Meruelo Maddux's plan and its proposal to settle with Legendary. The settlement will avoid the significant costs associated with the complex and litigious confirmation hearing that would have resulted if Legendary continued to pursue its plan, the creditors said in papers filed with the U.S. Bankruptcy Court in Woodland Hills, Calif. Under the settlement deal, Legendary will assume seven Meruelo Maddux properties on which it currently holds mortgage loans.

The most valuable of those properties is the $29 million Sky Arc property, a 7.9-acre site where 635 residential units were planned. Also, as part of the deal, Legendary will drop its liens on three other Meruelo Maddux properties. The lender received interest in those properties as additional collateral for its loans. Meruelo Maddux sought Chapter 11 protection for dozens of its projects in March 2009 as the real-estate market spiraled downward. The company claims to be the largest nongovernment property owner in downtown Los Angeles, holding industrial, mixed-use and residential buildings in the city and elsewhere in Southern California. (Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection)

 

-By Eric Morath; Dow Jones Daily Bankruptcy Review; 202-862-9279; eric.morath@dowjones.com (END) Dow Jones NewswiresJanuary 21, 2011 15:46 ET (20:46 GMT)

[PlanMaestro]

Under the deal, Legendary will swap its $67.8 million in Meruelo Maddux mortgage debt for ownership of seven properties.  

 

Basically, MMPIQ gets to keep its prime property Southpark that is 3 blocks from Staples Center and right up front the AT&T Center (former Transamerica). It has all the permits to start construction, The deal also releases $68 million of secured debt.

 

http://en.wikipedia.org/wiki/AT%26T_Center_(Los_Angeles)

 

In turn, MMPI looses the Southern California School of Architecture and a large adjacent  lot both worth $35 million book value and 5 other secondary properties.

 

http://en.wikipedia.org/wiki/Southern_California_Institute_of_Architecture

 

An OK deal that will probably have an impact between $10 and $20 million in book value but clears the largest secured debtor. Legendary was one of the few remaining unsettled secured creditors, having Berkadia also settled, and had the only competing plan of the three that diluted common equity.

 

$2 per share of book value priced at the bottom of the market with a conservative balance sheet selling for just ... $0.28 per share. Ready for Thursday, blue skies in Los Angeles

[PlanMaestro]

I have not posted on MMPIQ for the last 4 months but things took a turn for the best with everything indicating that the Charlestown/Hartland plan will get approved. That means that we will get diluted of 50% of our shares at $0.35. There is a silver lining though, Dirty Ricky is losing his company and the new team will try to accelerate the realization of MMPIQ's value.

 

There has been substantial interest in even marginal properties (non-Southpark) at valuations close to book value. With book value close to $2 per share I can wait for this company to emerge.

 

Here is a summary of the current stand of the proceedings

 

End of an Era for Meruelo Maddux Properties

 

DOWNTOWN LOS ANGELES - Meruelo Maddux Properties, the biggest private land owner in Downtown, is poised for a shakeup that would see the ouster of its top two executives, including founder Richard Meruelo.

 

After two years of often bitterly contested Chapter 11 bankruptcy proceedings, U.S. Bankruptcy Court Judge Victoria Kaufman is expected to rule soon in favor of a reorganization plan from shareholders Charlestown Capital Advisors and Hartland Asset Management.

 

Kaufman approved the plan, which would infuse the struggling real estate firm with $23.6 million in equity from two investors in addition to replacing the firm’s executives, in May. A Meruelo motion asking the judge to reconsider her decision was denied on Monday.

 

The court is slated to consider revisions to the Charlestown plan this week, but Kaufman is expected to finalize the plan in July.

 

According to court documents, the Charlestown plan would use some of the new equity to pay for physical improvements at several MMPI industrial properties in order to reduce the firm’s vacancy rate. Despite an industrial vacancy rate in Downtown of approximately 3%, MMPI’s vacancy rate was nearly 40% in December, according to court filings.

 

The plan could involve the sale of several Downtown properties. Ted McGonagle, a former MMPI employee working with Charlestown, who would serve as COO under the firm’s reorganization proposal, told the court in December that the new company would aim to sell holdings including the property that houses J Restaurant & Lounge, the Union Lofts and a 32,000-square-foot produce facility at 788 S. Alameda St.

 

Nothing in the Charlestown plan binds the new company to actually sell any properties, but reports of assets coming on the block have created somewhat of a broker frenzy in the market, according to multiple real estate sources.

Meruelo Maddux declined to comment through a spokesman. It remains unclear whether the firm will pursue an appeal.

 

The situation marks a profound defeat for Meruelo, a politically connected investor whose real estate empire grew out of his mother’s Downtown dress shop. He has received praise from some community leaders for providing storage for homeless people to store their belongings in one of his vacant Skid Row warehouses.

 

Meruelo also earned criticism for an array of dealings, including the un-permitted demolition in 2006 of buildings he owned near Union Station (the Department of Building and Safety banned Meruelo from building on the site for five years).

 

The firm, for the most part a buyer and holder of industrial and warehouse properties in Skid Row and east of Alameda Street, went public in 2007 as Meruelo and partner John Maddux began pursuing development projects.

 

Its first housing effort, the adaptive reuse Union Lofts on Hill Street, opened in 2008. Its follow-up, the company’s most ambitious project, a 35-story high-rise initially known as 717 W. Ninth St., couldn’t have been timed worse — the project was financed out of pocket when an initial loan fell through, and work temporarily stopped before the company secured an $84 million loan in 2008 at 12% interest. It was sold out of bankruptcy last year to Watermarke Properties.

 

While the reorganization of MMPI, which will likely come with a new name for the firm, is bad news for current company officials, it could be good for the Downtown market, said broker Mark Tarczynski, senior vice president at Colliers.

 

“The resolution brings fresh capital into the marketplace and frees up stagnated properties and so now there’s a chance that something will be done on pieces that before were just languishing in court,” he said.

[onyx1]

Plan,

 

Thanks for posting this idea!  I can sell my shares right now for more than 2X cost, but seeing the bid indications on the properties there may be another double from here.  Your original thesis appears to be working out as expected.  Nice work...  :)

 

[twacowfca]

Plan,

 

Thanks for posting this idea!  I can sell my shares right now for more than 2X cost, but seeing the bid indications on the properties there may be another double from here.  Your original thesis appears to be working out as expected.  Nice work...   :)

 

 

Many thanks from us as well.  :)

[eclecticvalue]

Good to hear the right reorganization is going to be approved. One question, Since Charlestown is going to buying at .35 do you think the shares will be trading at that price when the tender of shares occur?

[onyx1]

One question, Since Charlestown is going to buying at .35 do you think the shares will be trading at that price when the tender of shares occur?

 

The shares closed today at .56, so the implied price after 52% of shares are sold on the effective date at the non-insider price of .35 is .79.  But after the effective date, the company will be a new public company without all the trappings of CPT 11, so I would expect it to trade higher than that the implied by the last Q price.

[PlanMaestro]

POR becomes effective today!

 

Mon Jul 25, 2011 4:26pm EDT

Plan of Reorganization for Meruelo Maddux Properties, Inc. Has Become Effective

 

Company Appoints New CEO Marty Caverly

 

Meruelo Maddux Properties, Inc. (“MMPI”) (OTC: MMPIQ.PK) announced today that the Charlestown Capital Advisors, LLC’s and Hartland Asset Management Corporation’s plan of reorganization (the “Plan”) for MMPI and its subsidiaries, which was previously confirmed by the United States Bankruptcy Court for the Central District of California, became effective today.

 

Under the terms of the Plan, MMPI Acquisition, LLC has acquired 55% of the outstanding shares of common stock of MMPI, and the non-insider shareholders of MMPI are receiving $0.35 per share in exchange for approximately 52.838% of their shares (except for those shareholders who previously elected to sell all of their shares) . Subsequent to this transfer of shares, under the terms of the Plan, the shares of MMPI common stock will undergo a 5-to-1 reverse stock split in which any fractional shares that result will be cancelled and receive $0.35 per pre-reverse stock split share.

 

The company also announced that Marty Caverly has been appointed as Chief Executive Officer, effective immediately. Caverly is a seasoned real estate professional with more than 20 years of experience. Most recently, he ran the acquisitions department at Hackman Capital and he also is founder of 2120 Partners, a real estate consulting, advisory and principal investing firm. Prior experience includes serving as Principal at real estate private equity firm O’Connor Capital Partners, and head of European acquisitions for both core and opportunistic funds for Tishman Speyer. Caverly began his career at Citigroup Real Estate in New York. He is a graduate of Harvard College and Northwestern University’s Kellogg Graduate School of Management.

 

Caverly stated: “I am pleased to take the reins at this pivotal time. I want to thank our employees and our many partners who supported the Company throughout this process. We look forward to moving ahead under the plan of reorganization.”

 

Caverly noted that the Company will likely be renamed in the near future.

[junto.investing]

POR becomes effective today!

 

Mon Jul 25, 2011 4:26pm EDT

Plan of Reorganization for Meruelo Maddux Properties, Inc. Has Become Effective

 

Company Appoints New CEO Marty Caverly

 

Meruelo Maddux Properties, Inc. (“MMPI”) (OTC: MMPIQ.PK) announced today that the Charlestown Capital Advisors, LLC’s and Hartland Asset Management Corporation’s plan of reorganization (the “Plan”) for MMPI and its subsidiaries, which was previously confirmed by the United States Bankruptcy Court for the Central District of California, became effective today.

 

Under the terms of the Plan, MMPI Acquisition, LLC has acquired 55% of the outstanding shares of common stock of MMPI, and the non-insider shareholders of MMPI are receiving $0.35 per share in exchange for approximately 52.838% of their shares (except for those shareholders who previously elected to sell all of their shares) . Subsequent to this transfer of shares, under the terms of the Plan, the shares of MMPI common stock will undergo a 5-to-1 reverse stock split in which any fractional shares that result will be cancelled and receive $0.35 per pre-reverse stock split share.

 

The company also announced that Marty Caverly has been appointed as Chief Executive Officer, effective immediately. Caverly is a seasoned real estate professional with more than 20 years of experience. Most recently, he ran the acquisitions department at Hackman Capital and he also is founder of 2120 Partners, a real estate consulting, advisory and principal investing firm. Prior experience includes serving as Principal at real estate private equity firm O’Connor Capital Partners, and head of European acquisitions for both core and opportunistic funds for Tishman Speyer. Caverly began his career at Citigroup Real Estate in New York. He is a graduate of Harvard College and Northwestern University’s Kellogg Graduate School of Management.

 

Caverly stated: “I am pleased to take the reins at this pivotal time. I want to thank our employees and our many partners who supported the Company throughout this process. We look forward to moving ahead under the plan of reorganization.”

 

Caverly noted that the Company will likely be renamed in the near future.

 

Plan, where can I find the POR? Is it only up on PACER?

[PlanMaestro]

The latest one is only PACER, but my understanding is that the only difference with the one submitted for voting is that insiders (Meruelo and Maddux) are being forced to sell all their shares at $0.45 instead of $0.35 as was the original Charlestown plan. The judge made that decision for a control premium (read the whole thread to see the reasons) to ease the approval. Insiders are still battling trying to oppose the plan but now on appeal court.

 

http://www.kccllc.net/mmpi