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http://www.kccllc.net/documents/0910156/0910156100922000000000027.pdf

 

K. Should Equity Interest Holders vote on the Debtors’ proposed plan of reorganization?

The Debtors have filed a separate, competing plan of reorganization. Under the Debtors’ Plan, holders of

Equity Interests will receive their Pro Rata share of New Warrants if, and only if, the class containing Equity

Interests vote in favor of the Debtors’ Plan. According to the Debtors’ Disclosure Statement, the value of the New

Warrants to the holders of Equity Interests is between $.02 to $.10 for each New Warrant issued. If the holders of

Equity Interests vote to reject the Debtors’ Plan, holders of Equity Interests will not receive the New Warrants and

will receive no recovery under the Debtors’ Plan. THE EQUITY COMMITTEE RECOMMENDS THAT

HOLDERS OF EQUITY INTERESTS SHOULD VOTE TO REJECT THE DEBTORS’ PLAN.

 

The Equity Committee intends to contest the Debtors’ valuation at the hearing on confirmation of the

Debtors’ Plan, if not earlier, and will argue that there should be value available for recovery by the holders of Equity

Interests and that the Debtors’ Plan, as proposed, is not confirmable. If holders of Equity Interests vote to accept the

Debtors’ Plan, this vote could negatively impact the Equity Committee’s ability to contest confirmation of the

Debtors’ Plan, assert Tronox’s true enterprise value, and pursue alternatives for greater recovery to the holders of

Equity interests. HOWEVER, IF HOLDERS OF EQUITY INTERESTS VOTE TO REJECT THE DEBTORS’

PLAN AND THE EQUITY COMMITTEE IS UNSUCCESSFUL IN ITS OBJECTION TO CONFIRMATION OF

THE DEBTORS’ PLAN, THERE MAY BE NO RECOVERY TO HOLDERS OF EQUITY INTERESTS.

 

The outcome of contested litigation proceedings cannot be predicted with certainty. if the Court adopts the

valuation of Tronox in the Debtors’ Plan and/or rejects the Equity Committee’s analyses concerning valuation, the

Debtors will proceed with confirmation of the Debtors’ Plan. In that event, according to the Debtors’ current

valuation and projections, the holders of Equity Interests would not receive any recovery in these cases.

Additionally, if the Court does not confirm the Debtors’ Plan, there is no assurance that any alternative plan or

resolution will provide any recovery to holders of equity interests. In that case, holders of equity interests may

receive no distribution.

 

 

B. There is a risk that the Equity Committee will not be able to confirm the Plan over the objection

of Classes 3, 4, 5, 6, or 7.

If any of Classes 3, 4, 5, 6, or 7 vote to reject the Equity Committee Plan, the Equity Committee Plan can

be confirmed only if it satisfies the “cramdown” requirements of the Bankruptcy Code. In order to satisfy this

requirement, the Equity Committee must establish that the dissenting class of creditors has received payment in full

before the holders of Equity Stock Interests in Class 8 may receive a recovery under the Plan. The Equity

Committee believes the Equity Committee Plan satisfies all of the requirements of the Bankruptcy Code. As part of

the confirmation process, however, it is likely that the Debtors, the Equity Committee and other parties, including

the Ad Hoc Bondholders, will enter into litigation as to whether the Equity Committee Plan satisfies the cramdown

requirements of the Bankruptcy Code. There is a risk that the Bankruptcy Court will that the Equity Committee

Plan does not satisfy such requirements, which would impair the Equity Committee’s ability to confirm the Equity

Committee Plan.

 

C. B. There is a risk that the Equity Committee will not be able to secure sufficient Exit Financing

to fund the Equity Committee Plan.

The Equity Committee’s financial advisors have held discussions with a number of major, established,

global investment banks relating to the financing of an Equity Committee plan of reorganization. Each of these

investment banks has significant asset-based lending, syndicated loan and high yield financing capabilities.

Pursuant to the execution of confidentiality agreements with the Debtors, these investment banks have been

provided access to certain confidential information relating to, among other things, the Debtors’ financial results and

projections. The Equity Committee expects to have fully committed exit financing (the “Exit Financing”) prior to

Confirmation. However, there can be no guaranty that the Equity Committee will be able to secure such Exit

Financing on terms and conditions acceptable to the Equity Committee and Required Plan Equity Sponsors. In that

event, there would be insufficient financing to fund the Equity Committee Plan and the Plan may not be

confirmable.

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To reiterate.  The situation as described normally does not develop favorably for equity holders, to put it mildly.

 

I don't mean to be negative, just realistic.  It's not impossible for equity holders to make a bundle, in fact two out of three of our biggest gainers in percentage and amount of gain have been as holders of equity in companies in Cpt II.  But these favorable situations have become increasingly rare in the last four years after the change in bankruptcy law that limits debtors to only a 120 day period of exclusivity for filing a plan of reorganization.

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