DDIC Version 2.0 Announcement

The redesign of the Distressed Debt Investors Club was launched today with many improvements to the user interface and functionality. And we are just getting started. Over the next few months, more and more features will be added to the site to make members' experience better than it has ever been.

One of the requests I seem to get often is a listing of all the ideas that have been written up on the site. From now on, you can access a listing of names / tickers of all ideas ever submitted to the site from the main launch page. Or by clicking this link: All DDIC Ideas Ever Submitted.

It is my goal to close membership applications when we get to 250 members on the site. Members have access to all of the historical ideas on the site (including attachments which guests are unable to see) as well as the DDIC forum where I post 3-4x more frequently than I do on the blog.

A number of the largest hedge funds investing in distressed debt are represented (anonymously of course) on the site. And as the distressed market has effectively dried up, more and more actionable event driven ideas have made their way to the site which I absolutely love.

To those that are concerned with privacy, it is our policy to NEVER reveal personal information about the member or the member's affiliation (whether that be on the buy-side or the sell side). No users, outside of myself, can see personal information of other members except for the ideas that user has written up on the site. I oftentimes get background check service providers asking me if a member (who has placed the DDIC membership on their resume) is in fact a member. I fully ferret out these requests and get the member's consent before revealing even this type of information. In the next few weeks, I will have a letter that you can present to your compliance officer if you have concerns about our practices and disclosures.

For those that have questions or concerns about applying, please email me. The community we have built thus far has been remarkable and I only expect it to get better with time.

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ACAS and the Distressed Debt Investors Club Update

I wanted to give all our readers a quick update on the Distressed Debt Investors Club. Each week we are getting more and more member and guest application and we could not be any happier with the growth and progress of the site. Throughout the second half of the year I plan on devoting a significant amount of resources to expand the functionality and membership of the site. Currently we have nearly 1500 guests and 140 members. As mentioned in previous posts, the membership for the site closes when we get to 250 members so I encourage those that are interested to apply - you get access to all the previous posted ideas and the Distressed Debt Investors Club forum, a place where I am posting 2 to 3 times a day.

With that, and I try to do this once every few months, I provide you with a recent idea submitted to the site: American Capital (ACAS) [Note - All attachments have not been included in the below write-up. You will just have to join the site to get the 17 page supporting attachment]

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Investment Thesis

ACAS is potentially undervalued relative to the fair value ("FV") of its investment portfolio and its earnings potential as measured by NOI. Meaningfully more leveraged than its peers, ACAS is currently going through a balance sheet restructuring. In the past management was able to leverage the business through issuance of on-balance sheet unsecured obligations-- a capital structure strategy that is unsustainable given the volatility of the underlying assets. The reorganization plan calls for the use of the company's large cash position to pay down debt and exchange unsecured debt for secured issues. More equity has been raised (including appx. 58mm shares 75% of which was sold to Paulson & Co. -- on appx. 280 mm existing) Additionally, in the future, management hopes to sustain leverage through securitization trusts, which has been a successful source of low-cost funds in the past.

There are several catalysts that may realize value in the short term/medium term:

(1) Finalization of the exchange offer/presentation by management with PF-capital structure and business projections.

(2) Continued realization of its current investment portfolio at or greater than FV.

(3) Eventual reinstatement of the dividend on a cash basis.

(4) Mark up of European subsidiary European Capital "ECAS."

Business Model

ACAS is a business development company "BDC," a form of publicly traded private equity vehicle in the United States. Historically, in the United States, there had been a group of publicly traded private equity firms that were registered as business development companies (BDCs) under the Investment Company Act of 1940.

Typically, BDCs are structured similar to real estate investment trusts (REITs) in that the BDC structure reduces or eliminates corporate income tax. In return, REITs are required to distribute 90% of their income, which may be taxable to its investors.

Relative to other BDCs, ACAS's investment portfolio has a higher concentration of equities leading to a more volatile asset base. BDCs generally trade as a multiple of book relative to the FV/Cost of the investment portfolio.

Valuation

Valuation was looked at three different ways:

(1) Current NAV/Share

(a) 5% discount

(b) 15% discount

(c) 35% discount

This indicates potential upside of (-3.4% to +41.2%) or an expected value of (+21%)

(2) Multiple of FYE 2011 NOI:

(a) Base Case: Asset leverage of 45%. Asset Interest Income Yield of 13%. Equity Dividend Yield of 5.5%

(b) Low Case: Asset leverage of 40%. Asset Interest Income Yield of 13%. Equity Dividend Yield of 4.0%

(c) High Case: Asset leverage of 50%. Asset Interest Income Yield of 14%. Equity Dividend Yield of 6.5%

This indicates potential upside of (-32.2% to +90.4%) or an expected value of (+23.3%)

(3) Comparable Basis:

(a) Min, Max, & Median multiples of NAV/share

(a) Min, Max, & Median multiples of FYE 2011 NOI

This indicates potential upside of (-1.3% to +135.5%) or an expected value of (+45.0%)

Taking it all together:

Risks

(1) Even if the reorganization is successful, a worsening of the macroeconomy will negatively effect the fundamental performance of ACAS's investment portfolio companies. Coupled with a further contraction in middle-market transaction multiples, there may be an even more significant decline in the FV of the portfolio.

(2) It is unclear how an inflationary environment will affect the business:

(a) On the one hand, the interest income will rise as rates rise, but,

(b) Inflation may erode fundamental value at the portfolio level.

(3) Any liquidity crisis will make portfolio realizations and further balance sheet restructuring difficult to execute.

(4) It is unclear how dilutive future equity offerings may be (esp. at a discount to book) although it seems that management is very valuation sensitive to this risk.

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Distressed Debt Investors Club Update

Over the past few weeks I have received a number of emails on the status of the Distressed Debt Investors Club. And because I have not provided an update here for sometime, I thought I would take a few minutes to talk about the amazing success of the site.

As noted before, we have capped the limit of users to 250, with an unlimited number of guests. Currently, nearly half the member spots have been filled with well over 1000 guests logging onto the site. For reference, we are receiving 5-15 applications a week for full membership and admitting 2-4 of those same applications (this number has been declining as the number of available spots decreases). For those that are interested, I would encourage you to join as a guest member to see the quality of ideas on the site (when asked for idea synopsis / text just write in guest) For more information on applying, please read the FAQ.

In terms of ideas, we have well over 100 ideas fully written up on the site. The diversity of ideas is simply amazing. For example, in the past week we had a member write-up a long thesis on Visteon's equity and the same week another member wrote-up a short thesis on Visteon's equity and bonds. Ideas range from full blown Chapter 11 distressed, to stressed high yield investments, to event-driven equity longs, and finally to equity shorts. While I have not fully run the numbers, I would estimate that 90% of the ideas presented to the site have generated positive absolute returns.

One of the main reasons I set out to develop the site was to develop a platform where smart, dedicated analysts and portfolio managers could share ideas with one another to develop a culture of alpha generating security selection where all incentives were aligned. By joining, members have access to a plethora of actionable ideas and research, while at the same time adding to the collection of ideas through the application process. I have always been wary of sell side and desk analyst recommendations as you do not know if a broker or dealer is talking up an idea to move inventory. Here, each member realizes that XYZ member pitching ABC credit probably has a position, and thus can better judge the situation at hand. Further, because ideas are rated by the community of analysts and portfolio managers on the site, and each member's idea recommendation history can be easily pulled up, it is in every member's best interest to submit their best ideas on the site to avoid being labeled someone simply out to talk his or her book.

Finally, and what I have been most surprised about, is the success of our message board where members discuss ideas more informally and talk about general macroeconomic and thematic concepts (for example, there is a recent thread on the China real estate bubble and how to play it). We also have a job board which I am fully ramping in the next few months with the help of some outside partners.

Overall, I have to say the success of the site has fully exceeded my expectations. We continue to add features to the site and have a number of interesting developments in the pipeline. If you have any questions, please feel free to email me (hunter [at] distressed-debt-investing [dot] com). I hope to see you on the site soon.

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Distressed Debt Investing: Tembec

Every few months, I like to put up an example of the quality work the members of the Distressed Debt Investors Club are sharing with other users of the site. The DDIC now has over 100 members and as many ideas ranging from distressed bankrupt companies to equity shorts. Our forum has over 350 posts where users are sharing commentaries on the market, ideas, job discussions etc. It really has exceeded all my wildest expectations. Without further ado, here is an idea on Tembec.

(all figures in CAD $)

At 86, Tembec term loan allows one to create a Canadian pulp business with sales of $1.7bln at below liquidation value of current assets alone while offering a current yield of ~ 9% and a yield to a 2/28/2012 maturity of 17.2%. Catalyst: partial paydown of term loan from near-term asset sale/s and cash generated from the pulp business as a result of record pulp prices. If 30% of the bank debt is paid down before year-end, the IRR jumps to 23%.

Catalysts

During the latest conference call, management claimed they have a number of initiatives in place to raise $71mm over the next 12 months. The $71mm would come from asset sales they deem "non-strategic” which includes the sale of a hydroelectric dam and, IMO, its newsprint facilities. The dam generates 3-4MW, which at $2,000/kw should be valued ~ $7-10mm and should be easy to find a bid given the demand for these assets. Maybe they get $10mm from liquidating the idled Pine Falls mill (185k tons - newsprint) and maybe they could get $130/ton for the Kapuskasing, Ontairo mill (330K tons - newsprint) and bring in another $40mm. The Kapuskasing mill produces grades other than newsprint and is not idled so it should sell for above liquidation value. It seems that management’s liquidity initiative can be realized.

In addition to the liquidity initiative, management announced plans to sell two Kraft pulp mills in Europe (both idled) with total capacity of 565,000 tons, which at $70-$140/ton are worth $40mm to $80mm (note that I am being very conservative here - some analyst believe they can fetch ~$200mm). This is all gravy as after paying down the $81mm o/s on its revolver, I believe management will start paying down the term loan.

The pulp division is on fire. The devastating earthquake in Chile on February 27th resulted in closure for at least a few months of 4.9mm tons (just under 9% of global chemical paper grade market pulp). Already, there was a large amount of pulp at Chilean ports that was meant to be shipped to Asia which was destroyed or damaged. Bear in mind this is all coming at a time when global pulp supply/demand characteristics are very tight due to wood shortages from wet and cold weather (whose effects continue today) in the southern part of the United States, Northern Europe, Russia, and to a lesser extend Indonesia. Pulp prices are currently US$890/tonne and with the recent price increase will get up to $930/ton. For some context, average pulp prices in 2009 were $709/ton, which caused the pulp division to lose $61mm in EBITDA. However, in 2008 when average pulp prices were $875/ton, the pulp division generated $118mm in EBITDA and in 2007 when average pulp prices were $803/ton, EBITDA was $149mm. Year over year comparison relative to pulp prices is difficult because Tembec’s total shipment tons varied (they shipped just under 2mm tons in 2007 vs. 1.8mm in 2008 and 1.348mm in 2009), but it does give you a broad sense for what they are capable of generating when pulp prices are high. Estimates provided by consultants suggest 2010 pulp prices will average $865/ton. In its annual report, the company estimates that in 2010 every $25 increase in the price of pulp will add ~ $40mm to EBITDA. If we assume average prices in 2010 of $865/ton, then EBITDA for that division should be $180mm. Needless to say, I expect a lot of cash to come out of this business in 2010 and hopefully Jim Lopez will use it to pay down as much of the term loan as possible.

Liquidity

Unlikely as it may appear, barring asset sales, a turn in the market might cause Tembec to have to restructure, yet again (see paragraph on restructuring below). The company had liquidity of $129mm as of Dec 26, 2009 ($80mm in cash and $49mm in revolver avail) and bare bones annual cash obligations of $60mm comprising of $31mn interest and $25-30mn of maintenance capex. This is low compared to historical levels ($75mm in 2007 and $86mm in 2006), but I attribute that decrease to the capacity management has taken off-line. The company has seasonal working capital requirements which could exacerbate cash burn dramatically. In FY 2009, Tembec burned through $170mm of cash.

Quick Overview Industry Dynamics

The long-term demand story with any pulp player is that China has no fibre, so they have to import from northern Europe, Russia, Canada and Indonesia. Tembec is well positioned to benefit from this trend. There are no material new pulp mills coming online before 2013, so pulp prices should, all things being equal, remain strong for a while.

That noted, higher pulp prices, now having surpassed last year’s 13-year peak will tend to increase pulp supply at a time when paper demand is in secular decline. Consultants seem to believe that pulp supply will be pushed higher through Q2 and Q3 while demand should contract so that pulp prices are likely to move lower in the 2H of 2010. So far there is 3.235mm tons of capacity slated to restart/come online in late 2009 – mid 2010, or 5.57% of global capacity.

Valuation

Looking at this from a liquidation lens, current assets alone should cover the secured debt. As of December 2009, the company had $80mm in cash, $259mm in AR, $318mm in Inventory. I assume NO value for cash since this company has been burning cash ($170mm in negative FCF in 2009). I discounted AR by 15% and discounted Inventory as follows: (finished goods by 15% and WIP and raw materials by 50%). I then took another $20mm hair-cut to account for further cash burn and fees. That leaves $402mm to cover $430mm of secured debt including the $307mm term loan. This suggests the secured debt is covered by 93% on a liquidation of current assets alone. Note that the book value of Tembec’s PP&E is $617mm - which I ascribe no value to for purpose of this analysis. Even if we assume a further max draw of $49mm from factoring facilities and the CIT revolver for total secured debt of $479mm, the secured debt would still be covered by 84%, or right around current trading levels.

On thing to bear in mind when considering a hypothetical liquidation for Tembec is the pension liability of $197mm and $24mm of “other long term liabilities” such as govt assistance, environmental, reforestation, etc. In the interest of erring on the conservative side, let’s assume the $24mm of govt assistance,reforestation & environmental liability is treated as a priority claim (in Abitibi, the Provence of Newfoundland is making the case that environmental liabilities should be treated as an administrative claim) and let’s assume $150mm of the pension liab (ex OPEB) is pari-passu with the secured debt (it is Canada, after all), then secured debt coverage from the liquidation of the current assets comes to 60%-65%. Needless to say, I view this as the worst case scenario – one that is mitigated by the current yield on the bank debt of 9% and any value coming from the liquidation of the plants which, even at $30-$50mm for the three pulp plantsm, should add another 5pts to 9pts of recovery (Tembec’s pulp mills have a book value of $454mm). Tembec also has $15mm of guaranteed notes (booked as “investments”) in West Feliciana Acquisition – a company that purchased a paper mill from Tembec in April 2009 (a portion of the consideration included these notes). WFA filed for bankruptcy in January 2010 and the ranking of the notes Tembec owns is still unclear so I am treating this as pure optionality, but still worth noting as it could add another 3pts to recovery.

Tembec’s EBITDA in fiscal 2009 (FYE Sept) was negative $108mm. Lately, things seemed to have turned a corner primarily as a result of the pulp markets. In the 1st quarter of FY 2010 (ending December 2009), the company generated $4mm of EBITDA. The Pulp division generated $17mm of EBITDA in the 1stquarter which was offset by negative EBITDA in other segments (forest products & paper). I think Tembec will shed its paper division (newsprint) and continue as a going concern with pulp, forrest products (the two are integrated) and the chemicals business. Based on my math, it is not unreasonable to assume that a going concern value for these three divisions is worth over $300mm. Add to that proceeds from hypothetical asset sales (there may be some double counting from the kraft mills in France - which historically may have contributed to the pulp division’s EBITDA) and it seems the term loan is money good.

Capital Structure

-$205mm CIT credit facility maturing December 2011, of which $127mm was available under the current borrowing base and $81mm was drawn and $36mm was reserved for LC’s. $9mm was unused.

-$307mm term loan (L+700) maturing February 2012 ($300mm USD @ exch rate of 1.024)

-$67mm of factoring facilities supporting the French operations. $27mm was drawn. $40mm was unused.

-$7mm Tembec Energie SAS capital lease obligation maturing in 2014

-$8mm Bionerg SAS 5.5% secured term loan maturing in 2020

-Total Drawn Secured Debt: $430mm

-Unsecured Debt: $53mm

-Equity Market Cap: $142mm (100mm shares @ $1.42)

Restructuring Background

In February 2008, Tembec went through an out-of-court restructuring which resulted in the $1.2bln of bonds receiving 95% of the equity with the remaining 5% going to existing shareholders. The bondholders backstoped the current $306mm term loan. The term loan pays L+700 and has a 1st Lien on assets other than receivables and inventory and a 2nd lien on AR and inventory. The loan has a prepayment premium of 3% in 2010 and 2% in 2011. There are certain covenants with respect to debt incurrence, permitted liens, limitation on guarantees and transactions. There seems is one financial maintenance covenant that matches the covenant in the company’s existing working capital facility. Needless to say, this is somewhat “covi-lite”. The market value at the time of the restructuring was ~ $570mm. Today’s market value is ~ $500mm.

Risks

As with any Canadian paper and pulp business, one has to keep in mind that there are severe cash flow swings resulting from exchange rate fluctuations. In Tembec’s case, a 1% increase in CAD$ vs. the USD equates to a $20-$25mm hit to EBITDA. Along those same lines, the competitiveness of Canadian producers relative to other major competing regions remains under pressure due to the high level of the Canadian dollar. With an exchange rate of around US$0.95/C$, Canada is one of the high-cost regions for the production of pulp, newsprint, and lumber. The Canadian dollar has also rapidly strengthened against the euro over the past three months, which has reduced the competitiveness of Canadian pulp producers relative to their European counterparts. Further, Tembec’s mills are smaller than their competitors and older and they have been under-spending on capex. Finally, Forest products division is obviously levered to housing starts. However, when demand comes back, that the Forest products division is poised to do well since there is a lot of operating leverage in that division as a result of low inventories and cost cuts that were implemented over the last few years.

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DDIC: Guests Admitted

I wanted to give a heads up that all guests that have requested access to the Distressed Debt Investors Club should now have access. If you do not remember your password, please visit: Distressed Debt Investors Club Forgotten Password. If you are still having problems, please contact me.

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Distressed Debt Research - Tronox

Every few months, I am going to take a recent submission from the Distressed Debt Investors Club and post it to the blog. This week, Tronox, a distressed debt situation authored by member jnahas, will be presented. This allows readers to see the quality / type of ideas being posted to the site which will help you decide if you would like to apply as a member or a guest. Currently, there are over 200 guest membership requests for the site - I have not approved them yet as we add some new and exciting functionality - member requests are being processed as they come in (we are up to 75 high caliber members posting a number of ideas each week). I will write an "Inside Look" post on the DDIC later on in the week for all that are curious.

One quick point before posting this case: The Distressed Debt Investors Club allows users to upload attachments (Excel, PDFs, etc) to add to one's ideas. The author of the idea below attached a phenomenal Excel file to the write-up which goes through each point / comment in crucial detail. If you would like to see that Excel, well you are just going to have to apply as current members have access to it.

Tronox

Situation Type: Distressed/Bankruptcy

Investment Idea Synopsis

• Recommend purchase of 9.5% Senior Unsecured Notes (Ticker: TRX) at 75 and subscribing to rights offering at $10.40 per share a 40% discount to implied market value.
• Recommend purchase of L+700 bp (2% LIBOR Floor) DIP/Exit Facility at approximately 96(W/OID) at syndication.

With a strong management team, reduced debt burden and settlement of legacy liabilties Tronox represents an attractive investment opportunity. Tronox's projections are conservative and they should be able to achieve $145mm of EBITDAR in 2010. They have expsoure to fast growing markets in Asia through Australian JV and 40% of their volume is on long-term multi-year contracts with blue chip customers. At current trading levels you are creating the post-reorg equity at 6.5x 2010 projected EBITDAR of $130mm. Plan EV will likely be struck around this valuation as well, approximately $850mm. At exit the company will have $450mm of secured debt and net debt of $390mm and have 3x net leverage. In estimating potential returns, Tronox is best looked at as a distressed LBO, with the equity being created through the bond. No multiple expansion is need to generate a 30% IRR under relatively conservative assumptions for free cash flow with every dollar of debt paydown increasing equity value. The following analysis is base on the bonds having 80% pro forma ownership post-reorg. It would not be unlikely to see a sale to Huntsman in the future, albeit at a much higher valuation.

Investment Idea Write-Up

Tronox was spun off from Kerr-McGee Corporation in 2006. At the time of the spin-off, the Company was burdened with substantial legacy liabilities that are not related to its operating TiO2 or Electrolytic businesses. Legacy liability costs have consumed substantial cash flow, resulting in an inability to continue to service Tronox’s debt. Due to the continued impact from legacy liabilities, exacerbated by credit market conditions and the resulting tight liquidity situation, certain of Tronox’s U.S. businesses and foreign affiliates filed for protection under Chapter 11 of the United States Code on January 12, 2009

The Chapter 11 filing does not include any of Tronox’s foreign operating subsidiaries. Tronox was set to sell the majority of its assets in a 363 sale to Huntsman for $415mm. An ad hoc bondholder group of the 9.5% Senior Unsecured Noteholders has proposed a plan of reorganization in conjunction with Goldman Sachs as replacement DIP and exit lender and the support of the Debtor. In, addition the EPA, a major other unsecured creditor, has reached an agreement to take $115mm cash and 88% of litigation proceeds against Anadarko Petroleum (purchased Kerr-McGee). The $115mm will be funded by a $105mm rights offering backstopped by the bondholder group and open to unsecured creditors who are accredited investors. On December 22, Huntsman dropped its motion to enforce the 363 Sale Bid Procedures and the debtor is committed to moving towards confirmation of the ad hoc bondholder plan. The timeline assumes approval of a replacement DIP facility(converts to exit facility) by 12/31/2009; 4/30/2010 approval of the Disclosure statement; 6/30/2010 plan cofirmation.

Company Brief Overview

Tronox Incorporated (TRXAQ or the Company) is the fourth largest producer of titanium dioxide (TiO2) pigments (93% of sales) in the world. Titanium dioxide is used in a range of products for its ability to impart whiteness, brightness and opacity. The pigment product is used in coatings for residential and commercial paint, industrial, automotive, specialty market, plastics such as polyolefins, PVC, engineered plastics, and paper and specialty products such as inks, food, cosmetics. The Company also produces electrolytic and other chemicals (7% of sales) used in batteries, pulp and paper, and pharmaceuticals, semiconductors, high-performance fibers, specialty ceramics, and epoxies.

− Sales by Geography: United States 53%, Australia 18%, Germany 18%, and the Netherlands 12%.

− Sales by Segment: Pigments 93% and Electrolytic/Other Chemicals 7%.

− Sales by End-markets: Coatings 70%, Plastics 21% and Paper and Specialty 9%.

− TiO2 Market Share: DuPont 22%, Cristal (owned by Saudi National Industrialization Company), 14%, Tronox 12%, Kronos 10%, Huntsman 10% Other 32%

With a strong management team, reduced debt burden and settlement of legacy liabilties Tronox representsan attractive investment opportunity. Tronox's projections are conservative and they should be able to achieve $145mm of EBITDAR in 2010. They have expsoure to fast growing markets in Asia through Australian JV and 40% of their volume is on long-term multi-year contracts with blue chip customers. At current trading levels you are creating the post-reorg equity at 6.5x 2010 projected EBITDAR of $130mm. Plan EV will likely be struck around this valuation as well, approximately $850mm. At exit the company will have $450mm of secured debt and net debt of $390mm and have 3x net leverage. In estimating potential returns Tronox is best looked at as a distressed LBO, with the equity being created through the bond. Nomultiple expansion is need to generate a 30% IRR under relatively conservative assumptions for free cash flow and every dollar of debt paydown increasing equity value. The following analysis is base on the bonds having 80% pro forma ownership post-reorg. It would not be unlikely to see a sale to Huntsman in the future, albeit at a much higher valuation.

Recovery

Adjusted for particpation in the rights-offering you are fully covered if you purchase the bonds at 75 with 2009P EBITDAR of $126mm at a 6.5x multiple and maintain significant upside.

Comps

Huntsman, which was bidding for Tronox has 6.5x leverage and trades at 8.2x 2010E EBITDA and Kronos trades at 50x LTM EBITDA and 12.2x 2008 (Sr Sec Notes due 2013 yields 15%). Dupont (albeit far more diversified), the largest TiO2 producer with 20% of the market trades at 8.1x. Solutia, a post-reorg chemical name with 50% of its revenues tied to automotive and 3.5x levered trades at 7x 2009 and 6.3x 2010. Tronox should trade at a premium to Solutia.

Plan Summary

− Reorganized Business: Reorganized Tronox will emerge from chapter 11 as the owner and operator of the headquarters facility at Oklahoma City, Oklahoma and the titanium dioxide facilities at Hamilton, Mississippi and Botlek, Netherlands. Reorganized Tronox also will own and operate the electrolytic chemical facility at Henderson, Nevada (but Reorganized Tronox will not be responsible for environmental remediation at that site related to legacy contamination) and will hold Tronox’s interests in BMI, Landwell and the Tiwest Joint Venture in Australia. Reorganized Tronox will be funded by the Replacement DIP Facility, which will convert to exit financing on the Effective Date.

− Recoveries for the Government/Environmental Settlement: In full satisfaction of all claims filed by the United States and its instrumentalities, and state, local or municipal governmental entities and in settlement of all civil obligations arising under environmental laws related to Tronox’s legacy environmental liabilities, these governmental entities will receive, collectively, $115 million in cash, 88% of Tronox’s interest in the Anadarko Litigation and certain other consideration. These amounts will be used to fund custodial trusts that will conduct remediation at sites presently owned by Tronox and satisfy remediation obligations at sites that are not owned by Tronox but at which Tronox may be liable for certain remediation costs. Under the Plan, reorganized Tronox will emerge from chapter 11 free and clear of such liabilities to the maximum extent provided under the law and all such claims shall be discharged.

− Recoveries for Tort Claimants: Tort Claimants, who include, among others, holders of claims for personal injury and property damages arising from or related to environmental contamination, chemical, asbestos, benzene, creosote and other exposure, collectively will receive $7 million in cash, 12% of Tronox’s interest in the Anadarko Litigation and proceeds of applicable insurance policies.

− Rights Offering: Holders of allowed general unsecured claims that are “accredited investors”, as that term is defined in Rule 501 of Regulation D of the rules and regulations promulgated under the Securities Act of 1933, will have the opportunity to participate in a $105 million rights offering that will be backstopped by the Bondholders. Participants in the rights offering will receive 70% of the equity in Reorganized Tronox.

− Recoveries for Holders of General Unsecured Claims: Holders of allowed general unsecured claims will receive their pro rata share of the GUC Pool, which will be funded with 30% of the equity in Reorganized Tronox.

− Recoveries for Holders of Private Party CERCLA Claims: Recoveries for claims of private parties under CERCLA and similar state statutes will be divided equally between participation in the GUC Pool and the Tort Claims Pool.

− Anadarko Litigation: Interests in the Anadarko Litigation will be transferred to a litigation trust for the benefit of the government entities and those claimants sharing in the Tort Claims Pool. This trust will be administered by a trustee to be appointed by Tronox and the United States, in consultation with the representatives for the Tort Claimants and other governmental entities.

- Recovery for Existing DIP and Prepetition Lenders/Lender Litigation: The Existing DIP Facility and Prepetition Facilities will be paid in full in cash with the proceeds of the Replacement DIP Facility. While the Term Sheet preserves the suit of the Creditors’ Committee currently pending against the Prepetition Lenders (Adv. Proc. No. 09-01388), Tronox, the Creditors’ Committee and the Prepetition Lenders have reached an agreement to resolve that suit. Such resolution will include a release of the Prepetition Lenders from the claims underlying that suit. The parties intend to seek the Court’s approval of that settlement once it is documented

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Distressed Debt Investors Club Update

First off, I wanted to thank all the members and applicants of the Distressed Debt Investors Club. The site is currently populated with nearly 50 ideas (corresponding to 50 members) ranging from spin off analysis, merger arbitrage, distressed municipal bonds, and many straight bond and bank debt ideas. If you are like me, finding yourself scratching your head, looking for relevant, alpha-generating ideas in this market where good ideas are hard to come by, the Distressed Debt Investors Club provides you with a community of professional investors pitching and discussing long and short ideas, up and down the capital structure, on a daily basis.

The goal of the site is simple: To create the very best community of distressed debt and credit investing professionals out there. The site is structured so that new members are given access to all ideas presented in the database meaning from Day 1 you are exposed to a litany of due diligence performed by vetted professionals that will give you a head start when looking and researching new ideas.

I know it's a different idea than anything out there right now because this site is focused on credit and distressed debt investing. Other "investment club" websites may have one or two ideas in the span of a few months related to a high yield or distressed debt situation. Over 75% of our ideas are credit / distressed related with the balance being event-driven equities and equity shorts. I guarantee that you will find no other place where buy-siders and sell-siders alike are exchanging ideas of this quality in the credit space.

If you would like to apply, please click the logo below. For tips on applying, please visit the FAQ as well as our post on tips when applying to the DDIC. Hope to see you on the site.

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Distressed Debt Example - Accuride

The applications for the Distressed Debt Investors Club continue to roll in. As noted in previous posts, I am trying to stagger the number of people I admit so people that are just learning about the club get a fair chance to apply through the end of the year and into early 2010. That being said, if you have not heard from me one way or the other regarding your membership status, please give me a few more weeks to wade through all the applications.

Currently 40 members have been admitted from a wide range of hedge funds and buy and sell side shops. You would know most of these funds. The strength of the site is the community that is developing - that and the amount and quality of ideas presented to members. I have already learned of three or four situations that I had never even heard of that look to be quite lucrative.

Here is an example of an idea from one of the members of the site:

Accuride

Synopsis:

Accuride filed for a pre-negotiated bankruptcy on October 8, 2009. The proposed plan gives 95% of the re-org equity to the Sub Note holders. The company's operating assets are conservatively worth $715 mln ($130 mln EBITDA x 5.5x EV multiple). As planned by the POR, a $715 mln EV implies an equity value of ~$537 mln. As such, 95% of the new equity would be worth approximately ~$510 mln, providing a 42% return (on all capital invested). The investment's IRR would be materially higher than 42% as the rights offering purchase of the convertible notes would take place at emergence

Investment Thesis:

COMPANY DESCRIPTION:

Accuride is a North American manufacturer and supplier of commercial vehicle components. The company’s products include commercial vehicle wheels, wheel-end components and assemblies, truck body and chassis parts, seating assemblies and other commercial vehicle components. Accuride management believes the company has #1 or #2 market shares in nearly all of its major product lines. The company’s primary customers are commercial vehicle OEMs, namely Daimler Truck, PACCAR, International Truck and Volvo/Mack. Accuride operates 19 facilities in the U.S., Canada and Mexico and employs nearly 3,000 people. (Source: 2008 10k)

PATH TO BANKRUPTCY:

The commercial vehicle industry, already well-known as a “deep cyclical”, is suffering from its lowest demand levels in recent history. Class 8 truck production is expected to be ~116k vehicles in 2009, down nearly 50% from the past two years. As a commercial vehicle parts supplier, Accuride’s top line has suffered accordingly. For example, the company’s second quarter sales were down 45% y/y. As a result, the company was in violation of its financial covenants under its credit agreement at the end of the second quarter. On July 8, Accuride entered into the first of what would later become five temporary waivers with its credit facility lenders. Additionally, Accuride missed the August 3 coupon payment to its subordinated note holders. On August 31 the company entered into the first of a series of forbearance agreements with its bondholders. Accuride filed for bankruptcy (Delaware) on October 8. The pre-negotiated filing includes a support agreement with 57% (principal amt) of the credit agreement lenders and 70% (principal amt) of the noteholders.

PRE-NEGOTIATED PLAN:

The proposed plan has six key components:

a) $50 mln of a two-tranche new money DIP

b) The pre-petition credit agreement loans will be amended and re-instated

c) The pre-petition notes will be cancelled in exchange for 98% of post re-org equity (subj. to dilution)

d) A $140 mln rights offering of new senior unsecured notes convertible into 60% of the post re-org equity. The rights offering is available to the Sub Note holders and backstopped by the plan supporters

e) The proceeds from the rights offering will be used, in part, to repay the $70 mln “Last-out Loans” made by Sun Capital

f) The pre-petition equity holders will receive 2% of the new equity warrants for up to 15% of the company, subject to further dilution

VALUATION:

Accuride’s enterprise value is conservatively worth $715 mln based on a $130 mln (mid-cycle) EBITDA and a 5.5x enterprise value multiple. I estimate that the new company will have $110 mln of cash at emergence, reducing net debt and increasing equity value.

Mid-cycle EBITDA estimate = $130 mln

- During Accuride’s last trough-to-peak cycle (2002-2006) the company’s EBITDA averaged nearly $120 mln (source: company financials)

- Based on management projections the 2009-2013 trough-to-peak cycle will see average EBITDA of $139 mln (source: 8k filed 10/15/2009)

- Also note that free cash flow should be stronger than in the past as management projects lower than historical capital expenditures (obviously cash interest will be much lower given the new capital structure)

Enterprise value multiple = 5.5x

- Accuride only has a handful of semi-relevant peers. In descending order of relevance I believe the best comps are ArvinMeritor (5.6x 2011E), Allison Transmission (> 6.5x), and Navistar (6.0x). Purchasing AURD 8.5s at $80 “creates the company” at just over 4.0x my mid-cycle EBITDA estimate. Also note that the exit multiple of 5.5x is below that of each peer. Further, I believe new Accuride should trade at a premium to a company such as ArvinMeritor.

RISKS:

- I think there is very limited “plan risk” in this situation, however, if the pre-negotiated plan were to fall apart significant delays could occur, which would negatively affect the estate as a prolonged bankruptcy could cause the OEMs to seek out replacement suppliers.

- Valuation risk should be limited given the conservatism built into my valuation. That said, a lack of confidence in the prospects for the commercial vehicle industry could reduce multiples for Accuride and its peers.

RECOMMENDATION:

Buy Accuride Subs and participate fully in the rights offering. Accuride is a textbook example of a good business with a bad balance sheet. The company has leading market shares in its core products and has delivered low-single-digit operating margins over the past ten years. The model below shows my recovery estimates more explicitly. Note that I am assuming the New Converts are indeed converted on issuance, as is allowed according to the term sheet.

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Distressed Debt Investors Club Update

Last week we announced the launching of the Distressed Debt Investor Club. I am happy to say that we are getting more members and guest applications than we had ever expected at this point. Remember, the goal of this group is not to bring in thousands of people to crank ideas out left and right. Given the choice between quantity and quality, I will always choose the latter.

I am trying to establish a group of the top high yield, distressed debt, and event driven portfolio managers and analysts (buy-side and sell-side) where information is valuable and can be relied upon. That is why there is an application process. I want to be able to rely on the DDIC and its members to produce alpha generating ideas up and down the capital structure.

And, in the illiquid securities that many of us distressed debt investors deal with on a daily basis, having TOO many eyeballs on a particular situation is self-defeating.

Right now, the only users on the site are the beta testers. I have gone through about 25% of the applications at this point and expect to get the balance done through the weekend. By Wednesday of next week (I will be at G2E on Monday and Tuesday), I expect to invite a number of applicants to become members of the site. And by the end of the year, I hope to have at least 50% of the 250 total spots filled with high caliber professionals sharing and bouncing ideas off one another.

To give you a flavor of some of the applications, here is just a sample of situations that have been submitted for applications:

General Growth Properties

Blockbuster

Accuride

Smurfit-Stone

CCRT

Alion

Reader's Digest

ILFC

True Temper Sports

Horizon Lines

And about 30 other truly fantastic opportunities ranging from equity shorts to distressed debt long.

If you would like to apply, please visit the Distressed Debt Investors Club. We hope to see you there.

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A few quick tips when applying to the DDIC

We are very excited with the launch of the Distressed Debt Investors Club. A few very quick points about the application:

1. We encourage you to use the Attachment Option when submitting your application. This makes it easier for us to sort through certain applications.
2. The Synopsis section: Try to keep it a reasonable length. 4 sentences is the most preferable.
3. When cut and copying into our editor from Excel or Word, 95% of you will be able to use a simple CTRL V...if that does not work, please use the editor to select "Paste from Word"
4. When pasting, and our editor asks you "Would you like to clean formats?" Selecting no is probably your best bet.
5. And finally - Despite constant tweaking and fixes, we are getting an error that involves the term "&nbsp" in the editor (as an aside, if anyone is a techie and can enlighten me why this is...let me know). If you submit your preview of your application, and that term is scattered through the document, simply submit it like that, and I will go and clean it up as it shows clear on my side.
6. Try to keep your synopsis to plain text (i.e. no bullet points, tables) ... makes the site look a lot cleaner!

Thanks again - and I hope to see your application.

-Hunter

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The Distressed Debt Investors Club

A few years ago, a number of distressed debt professionals, myself included, sat down and sketched out an idea of a community of investors dedicated to sharing ideas and helping each other navigate the sometimes mine-filled path of the distressed debt world.

I am pleased to announce: That community is ready to launch. After a number of months of planning, tweaking, and beta testing (thank you beta testers!), we are ready to launch the site.

The Distressed Debt Investors Club will be THE community of top investors and analysts in the distressed debt and high yield investing fields. As stated previously, members are selected by the strength of their application and the thought process going into the investment idea. Only 250 members will be admitted to the club.

Over the next week or so, we will take applications and then admit all those accepted to the site at the same time. This will allow each member to see other admitted applicant's ideas and thus begin the process of idea generation and sharing.

For those looking for more information, here is the FAQ

We sincerely hope you apply. If you have questions, feel free to shoot me an email at hunter[at]distressed-debt-investing[dot]com.

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Distressed Debt Investors Club FAQ

This post will serve as the running FAQ for the Distressed Debt Investors Club (URL soon to follow). There will be a link on the new site, pointing back to this post for easy updating / commenting.

Overview/Application Process

What is the Distressed Debt Investors Club (DDIC)?

The Distressed Debt Investors Club is a community of buy side and sell side professionals that focus on distressed, high yield, credit, fixed income, and special situations. For too long, most investing forums / sites have overly relied on equity driven ideas. Our site will be the first focused on the fixed income aspect of the investment business which, by our estimation, is far larger than the equity markets.

What are the benefits of the DDIC?

Currently, idea generation in the fixed income world really boils down from sell-side recommendations and building a community of like minded professionals. This, in my opinion, will be the strongest community out there.

In addition to the ideas presented to the site, the member forum will be a place for members to share their thoughts on current happenings in the credit / fixed income markets.

And finally, going forward, I am going to post case studies exclusively to the DDIC. The blog will be a place where I discuss current events as well as value investing and distressed debt concepts (don't worry ... more Seth Klarman content will be coming). But full blown case studies will solely be found on the DDIC. That being said, I expect to post more frequently to the blog, with richer content, upon the launch of the site.

How does one become a member of DDIC?

Members will be chosen via an application process. Potentials members will submit an idea that they find particularly compelling, current and relevant. Myself and two of my colleagues will go through each application. If we have questions on the idea, we will email you and wait for a response back. If you are accepted, you will be given membership access to the site as well as the member forum. If you are not accepted, your status will be set to "guest" until you submit another application.

How does one become a guest of DDIC?

Guests will apply in the same fashion as potential members, except for submitting an idea, they will simply write a note in the text fields that they are applying as a guest. Guests will not be approved until after Jan 1, 2010. In the future, guests will be set on a 50 day delay. This means that when a member submits an idea, guests will not see the idea or the comments of the idea until 50 days after the idea has been posted. Guests will also not be able to access the forums on the site.

Do I have to provide my real name or firm on the site?

Yes. But no users will be able to see this information. I am collecting this information for book keeping purposes. Users will only be identifiable via their user name (i.e. mine is Hunter) The Distressed Debt Investors Club is committed to protecting your privacy. We will not sell, trade or rent your personal information to other companies or third-parties.

What type of ideas are considered "fair game" on the site?

In no particular order:

• High Yield
• Distressed/Bankruptcy
• Investment Grade
• Agency / Government Securities
• Structured Product
• Equity or Credit Short
• Post Reorg Equity
• Undervalued Equity
• Special Situation

I thought you said this site was fixed income focused? Why allow any type of equity?

There comes a time in any fixed income professionals life where he/she finds an equity situation that is too good to pass up. We do not want to handcuff our members in the chance they find a particularly compelling opportunity. Further, and we will expand on this below, but each user must submit 1 idea per every half year (in addition to their application that will also be visible to users once accepted), but undervalued equity will not count towards this total.

How many members will be admitted?

For 2010, the number of active members will be capped at 250. In the future, this may decrease or increase depending on how the user base is interacting and whether a solid community is already functioning. If we feel we can handle more users, then we may accept another 50 in 2011 for example.

What is the format of the application / idea submission?

The two main components of the application are the "Synopsis" and "Investment Write-Up." The Synopsis is no more than 4 sentences explaining why this is a particularly compelling investment. In the synopsis you should include your target price and potential IRR on the investment. The synopsis is your "elevator pitch" if you will.

The Investment Idea Write Up section is the meat of the thesis. This is where you will expand and defend your synopsis. The site will enable (90% of the time) to cut and copy from word with near exact formatting.

In addition to the Synopsis and Write Up, you may attach a file to each idea (no larger than 300kb). You should reference this file in your write-up if you feel it is justified.

How long between application and decision on membership?

In the first few weeks, expect at least 4 or 5 days. In the future, I expect applications to come in at a slower pace, and therefore status could be decided that same day. Also -if you have no received an email yet, check your Spam filter.

How much does it cost to be a member?

The annual cost for 2010 is $49.95 dollars. No fees will be collected until January 2010 to give users and members a chance to see the benefits of the site. Therefore, no money is required up front in the application process. If you do not like the site and want to revoke your membership, all you have to do is contact me. In the future, fees will be collected via PayPal.

How much does it cost to be a guest?

Guests will not be charged an annual fee in 2010.

What if I become a member, and decide this boondoggle is not for me?

I, more so than most, know how busy and time consuming the investment world is today. If you feel you cannot contribute enough to the site to remain a member, or feel that you just are not deriving any value from the site, you can contact me to change your status to a guest. Please make this decision prior to January 2010, as 2010 refunds will be given after that time.

Site Navigation

How do I submit an idea?

In the upper right of the member page, you will see the Submit an Idea button. Here you will see something similar to the application page, with synopsis and write-up text. Fill those out and add an attachment if you see fit (remember 300 kbs). You then will preview the idea. Make necessary changes and then submit the idea.

The formatting is showing up all strange when I preview the idea...

Unfortunately, web based editors sometime like to make me angry and you will see certain errors (like ";nbsp") throughout your idea submission. To offset this, open up WordPad or another simple text based editor, and copy your idea into WordPad (from Word for example). Then from WordPad cut and copy right back into the DDIC. This has been the reason the site has been delayed for two weeks and there are still kinks. If you are completely frustrated, email me and I will help you out.

Can I edit an idea after I have submitted it?

Yes. You are able to edit your ideas in the future if need be.

Can I comment on/ rate other users' ideas?

Yes. Ideas are scored on a 0-5 basis with the site aggregating the best ideas on a weekly / monthly and yearly basis. To see the best ideas from the week, simply click "Last 7 days" ... to see the most recent ideas, ranked in chronological order, click "Recent." On the right rail, you will see a section for Highest Rated Investment Ideas. Currently, that section will feature the highest rated ideas ever submitted to the site.

In terms of commenting, all members may comment on one another member's ideas. Comments should be tasteful and more than likely, pose questions to the original author of the idea.

What is the User Profile?

Admittedly a work in progress. In the future, this section will be a place where users can send messages with one another. Currently, messaging is delivered via the member forum.

How will the Search Function Work?

The search function is VERY robust. You can find a needle in a haystack with that thing. You can search anything ranging from company name, idea/synopsis text, rating, date, etc.

Tell me about the Forum

The forum will be a place where members can discuss whatever they please. Whether it be concepts, news, passing around hedge fund letters, idea discussion, making fun of me, setting up meet and greets, etc. While it will not be a lawless wild west, I will be more apt to be a "hands off referee." Users can also let me know if they want new forums set up, or other taken down, etc.

Other General Questions / Info

What are the "rules" of membership?

Each user will be required to submit an idea for their application. If approved, this idea will go into the database and count as one idea for the site. Each member thereafter will be required to post 1 idea per half year, as well as rate 15 ideas per half year. I do not want a situation where everyone is submitting 2 ideas at the end of the year and hence have split the requirement into half year increments.

Why are you doing this?

I have been absolutely humbled by the response to Distressed Debt Investing. I have always been awed by the success of other investment club websites yet feel like one devoted solely to credit and fixed income would be an invaluable tool to its members. The credit markets are so deep and wide that the diamonds in the rough are countless: you just have to know where to find them. And I know that this site will accomplish that goal. That means a lot of people are going to make a lot of money from the ideas presented on the site.

So I ask you: Why wouldn't I be doing this?

Last Updated: 10/27/2009

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Distressed Debt Investors Club

As discussed in previous posts: Distressed Debt Investors Club - Intro and Distressed Debt Investors Club - FAQ and Distressed Debt Investors Club - Follow Up #2 we are very excited to say that the beta test (with real live users) is currently underway. Feedback has been remarkable. Development is tweaking some final design / technical flaws, but in a week or so, we will be ready to launch.

In the meantime, if you are planning to apply, get that investment idea ready. Here is what you will need: Company Name, Equity/Bond Ticker, a 4 sentence synopsis of the idea, and a longer write-up. The database allows you to upload a file (whether that be an image, XLS file) so if you want to include that, it is strongly encouraged. The User Base is anonymous meaning you are able to use an alias on the site - and no one will be able to see personal information.

Myself and two of my cohorts will read through each application and make a decision on an applicants status. My biggest concern with this entire boondoggle is the QUALITY OF INVESTMENT IDEAS. I want this to be a place where I can go and if I need to find an equity short, I can search the database for recent equity short ideas and trust that the user knows his shit.

Let me repeat: My #1 purpose for this site is to create the very fucking best community of investment thinkers in the distressed / high yield world.

Users will be able to interact with each other on a member only forum and with comments on each idea. Buy siders and sell siders alike are encouraged to apply. There will be a limited number of member spots for students, as I am hoping the vast majority of users (call it 95%) are currently practicing members and can talk about their investment ideas in the context of the larger market.

If you having questions on any of this, feel free to shoot me an email at hunter [at] distressed-debt-investing [dot] com. Stay tuned in a few weeks for when we open up the site for applications.

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FAQ: Distressed Debt Investors Club

The Distressed Debt Investors Club is currently in development. My developers have the back end largely completed, with the front end being worked on next. I am hoping a beta launch will occur at the end of September. I am still working out a number of debatable issues; some that readers have proposed and others that inherently arose from developing a site from the ground up. With that being said, the objective is still the same: To foster a strong community where high-quality investors can share / vet out investment ideas. This community will be high caliber. I promise you that. Now on to some FAQ.

When can I send you my application for the DDIC ? - Right now, we are working on a system to have all the applications go directly through the website. If that doesn't pan out, I will set up a unique email address where you can send them. The beta test for the site will last probably 1 month. That being said, I will take applications for beta sometime in mid-late September, and applications for full-blown membership in October, once all the kinks have been worked out.

Who can apply ? - Theoretically anyone can apply. That being said, I am limiting the number of members to 250 for at least the first year. There will be an unlimited number of guest spots that will have a 50 day delay to the database.

How will you evaluate the application ? - On a few criteria really. While the site is completely anonymous, when you apply, you will have to provide your real name to me, and the number of years you worked in the industry (buy-side or sell side). This information will be kept solely by me and will not be released. I do not want to discriminate against MBA students or recent graduates, but tenure and quality of investing experience will be weighed in the application. Outside of that, it really is going to come down to your write-up, which I will discuss in great detail next week.

Do the ideas on the site have to be distressed related? - Not distressed related specifically. The site will have a number of categories: Distressed, Stressed, High Yield, Investment Grade, Post-Reorg Equity, Liquidation (for the Greenbackd in you), Special Situation, Other (Credit Related), Other (Equity Related). As you can see, undervalued/overvalued equities do not really impress me and unfortunately that is not what this site is about. This site is specifically geared to what I have written about on this blog and to investors that follow it. While members will be able to contribute equity related ideas, they will not count to the annual requirements and probably should not be submitted for the application process.

Tell me a little bit more about the guest access? - Guests will be able to read the database on a 50 day delay, similar in nature to VIC. They will not be able to comment on investment ideas, but will be able to read the comments in full.

Will you continue with the blog after DDIC is launched? - Yes. Absolutely. In fact, each month, I will take a particular write up (with the member's permission) and post it on the blog.

Why are you making it anonymous? What if I want to network with the investors on the site? - I run this blog anonymously. I would never ask someone to reveal their identity/background to the general public. For networking, there will be a messenging system for Members (makes my life a lot easier as administrator) that will fascilitate offline conversations.

Will the DDIC membership cost anything? In all honesty, I have struggled with this one. Sadly, I am not Joel Greenblatt or Divya Narendra (first here, then look up the story of ConnectU), so I am going to have to charge a nominal amount to cover future development, maintenance, and site fees. This will amount to somewhere less than $40/year if I have done my math right. That equates to 5 beers in Manhattan (4 Red Bull vodkas to all you investment banking analysts) which I think is well worth the sacrifice. Guests will also be asked to contribute a nominal amount annually - nothing required though. I will not collect any $$ until January to give members / guests the time to opt out in the small chance the site fails miserably.

Why only 250 members? There are a few reasons for this, but the main one is that I believe a number of the situations that will be proposed on the site will have minimal liquidity. I have seen in the past few months a number of VIC ideas that have just taken off because everyone was bid-without. Secondly, I want to keep the quality of members and ideas at the highest level and do not want to dilute the offering with a barrage of ideas that are merely presented to pump a stock/bond price. Member will only be required to post 2 ideas on the topics I mentioned above a year. If it works out the way I hope, member will post more than that and comment significantly more, so there should be a constant stream of information. One idea will be in the first half of the year and the second in the second half (or two in the first half)...I have never liked that so many people throw up ideas at the same time when annual requirement are just being met.

Will members be able to offer suggestions / make changes to the siet? Yes. While I might seem like a dictator now, once the site gets up and running, any major change will be proposed to the members for commenting / discussion (in tandem with the site will be an internal forum where users can talk about whatever they please). New ideas can be suggested and assuming my developers can make the change, we will be fluid and hopefully, constantly improving.

I am very excited of everything that is going on and I want to thank the twenty or so of you that sent me comment / suggestions on what would make the site better. If you have any questions or further comments, please email me at hunter [at] distressed-debt-investing.com.

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Distressed Debt Investors Club

As some of you are aware, one of the reasons for the lack of posting in the last month (despite the dearth of solid investment opportunities) is that I have been working on a side project related to the site; more specifically related to Distressed Debt. Since the information seems to be spreading (I am getting requests about it), I might as well go ahead and discuss it in a public forum.

Many of us are either Value Investor Club Members or SumZero members (and some both). Both sites are incredible. That being said, they both have their advantages and disadvantages. But overall, they are fantastic resources.

In my opinion though, a member contributed site, in a similar vein to VIC or SumZero, focused on credit, distressed, and fixed income special situation opportunities (make whole take-outs, CDS arbitrage, fixed income arb, etc) would be incredibly beneficial to its members.

So that is what I have been working on. And here is a little FAQ I put together:

Is that all you can tell us? - No. Here are a few more salient points:

• The site will be set up very similar to VIC. 250 members with real time access, guests will have read-only access on a 60 day delay window. Members will be asked to contribute, like VIC, 2 credit related posts per year. Again like VIC, but unlike SumZero, (and because I love anonymity), we will be using aliases instead of our real names - so members do not have to worry about posting their fund information or their real identities. There will be more details in the coming months.

How can I become a member? - Potential members will be asked to write a 2-3 page write up on a credit or investment opportunity of their choosing. There will be no template for this. I hate templates and so should you. Myself, and two of my colleagues will go through each one, offer questions to each applicant, and then take it from there. In the next month or two, there will be more and more posts about all this, which leads us too...

When is this launching? - 3Q 2009. Exact date depending on beta tests and all that good stuff. Therefore, hold off on sending me anything until I ask =]

I am already a member of VIC and SumZero. Why do I need another community of hedgies talking their book? - Good question. As I mentioned earlier, this site will be credit focused (not to say that equity ideas will be forbidden...but in general I hope we are talking credit / fixed income special sits 90% of the time). I would like us to carve out a little niche here and make lots of money. Plus, given how small the site will be (I am talking about members here), it should be an incredible networking opportunity.

Further, on launching, the site will have 250 ideas (the applications) ready for all members to pounce on. If you can't find one or two ideas out of 250 to make a killing on...well you sir, are a better man that I.

Can anyone join? Theoretically yes. As long as you add LOTS of value. That being said, I have to think that their will be a heavy weighting of credit / fixed income professionals in the mix.

Where can I find out more information? You can email me or leave a comment. And stay tuned for future posts.

I'm hoping this distressed debt boondoggle gets off the ground in a timely fashion. Support, hate, or praise can be left via comments.

Thanks -

Hunter

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