Distressed Investing News

So let's say you are a distressed debt investor already, where do you go for distressed investing news? Admittedly, it took me a long time to figure out how to best stay on top of all the happenings in the distressed debt community (outside of working the phones and talking to advisers).

So here is just a sample of what I do to make sure I am in the know on the various stories coming across the tape in relation to distressed investing news.

1. I set up my Bloomberg Launchpad with lots of news panels: Now, I know not all of us are fortunate enough to have a Bloomberg. But if you do, for reference, I currently have a number of News Panels running: Forbearance Agreements / Credit Waivers, High Yield Bonds, AmendedLoans, Syndicated Loans, Distressed Corporate Bonds to name just a few. I also have one for my main monitor which shows me all new stories related to the equity and bond tickers that we own, and all the comps for the companies.
2. In relation to #1 above, I always read Bill Rochelle's column on Bloomberg. I have done this every morning for over 3 years now. To access the article type in: NSE ROCHELLE ... now if you do not have a Bloomberg, you can access the stories at the Bloomberg Bankruptcy News page
3. Like most people that trade / invest in corporate bonds, I get approximately 3,000 runs from brokers and dealers. A lot of time it is just noise, but every now and then something will come across the tape that adds value. Therefore, I am checking that screen intermittently. For example, on the day before Lear filed for bankruptcy, the bank debt was up 7 point on no news. Obviously something was happening behind the scenes. The equity market and the corporate market weren't really responding. If I had any balls, I would of shorted the equity (at 0.50)...and be up 50% in a day and a half.
4. I read CreditSights and BondHub research pretty much every day. Now I know some people are going to moan this: "Who cares what the sell side thinks" ... well a lot of idiots do, and in my experience, idiots are pricing the market. If you do your research, and you are coming up with an EBITDA number that is materially lower than the forecasts or published research numbers, well that is a potential short candidate. In terms of news though, every now and then there might be something that missed our radar screen and an analyst will talk about it...there could (or could not) be an investment opportunity there.
5. I check Pacer and various Court Dockets so many times it makes me sick: No seriously. It is such a tedious process. If anyone knows a way to automate this or wants to start a company that automates this with me, let me know. This is important because rulings move markets, new information from court filings move markets, you want to be ahead of the news.
6. I know when my companies are reporting, what the consensus is, and what to do if there is any crazy price action. I know this sounds more traderesque, but if you were forecasting $100M of EBITDA in the quarter, and the company comes out with $10M what are you going to do? These are important questions in illiquid markets like the corporate and levered loan markets.

So those are just some of my methods to stay on top of distressed investing news. There probably is a few more ways people stay in the know of what is going on in this nutty world. If you know of any more distressed investing news resources, please post a comment and share. Happy 4th!

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More Chrysler Bankruptcy Information

So the docket is beginning to fill up: Chrysler Bankruptcy Information

As of 12/31/2008, the "Chrysler Companies" (as defined as debtors and non-debtors direct and indirect subsidiaries) listed $39.3B of assets and $55.2B of liabilities. Revenue in 2008 looks to be $48.4B.

From the joint administration filing: Under a liquidation "Chrysler's first lien secured creditors will receive net present value recoveries of less than 38 cents on the dollar and possibly as little as 9 cents; the U.S. government, another secured creditor, will receive less than that; and Chrysler's unsecured creditors will receive nothing."

And the real juice: Chrysler Bankruptcy Affidavit

My takeaways:

• Filed by the CFO, Ronald Kolka.
• Goes on to talk about how imperative it is to avoid a liquidation.
• Asking the Court to approve a 363 sale, financially backed by the U.S. Gov't. 
• 30% of first lien debt holders are against the sale. The affidavit goes on to say that Chrysler bank debt trades at 15 cents on the dollar. That is definitely not the market that a certain dealer that starts with Goldman and ends in Sachs is making right this very moment.
• Goes on to talk about the things I talked about in my last post: Chrysler Bankruptcy
• Upon consummation of the 363 sale, the major assets of old Chrysler would be 8 manufacturing facilities, and related machinery and equipment with a book value of $2.3B. The U.S. Gov't would provide $200M through the DIP loan to run a wind-down and sale of the estate.
• Description of Business: No need to rehash what everyone knows.
• Organizational and Capital Structure: Outstanding amount under the First Lien is $6.9B (as of petition date). Secured by first lien in all Chrysler's assets, a 65% equity pledge of foreign subs, and other guarantees. $2B second lien delayed draw term loan. $4B TARP loan, third lien to first lien's security. $5.3B of trade debt.
• Events Leading to the Petition: Again, everyone knows this. Blame Cerberus.
• More talk on the FIAT alliance
• And lots of first day motions, fairly typical in nature.

Here is Balance Sheet:

We can try to put some kind of recovery on each of these assets, and compare to the $6.9B of First Lien Bank debt (and some trade, estimated at $800M, will have critical vendor status / 20 day rule [503b9 claims], as well as bankruptcy administration fees).  

Assuming bankruptcy fees of $1B and $800M of "20-day claims" are ahead of you, at 25-30 cents on the dollar, the bank debt is implying $3.5B-$3.8B of value. Versus $39B of listed assets, with $1.9B of that cash.  Doesn't seem that too far of a stretch - unless the DIP gets super priority, and primes the shit out everyone. Maybe those crazy hedge fund pirates holdouts had the right idea. 

There are some other interesting affidavits from the head of manufacturing, head of procurement, head of dealers, etc. These are filed under Dockets Item Numbers: 48-54. They are interesting reads. Basically go on to say how imperative this Fiat deal is to everyone in the world. 

More tomorrow on the Chrysler bankruptcy.

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Distressed Debt Exchange - GM

I know we have been pounding the topic of Distressed Debt Exchanges into a pulp on this blog.  But there is a reason for that. They are going to be happening with such frequency in the coming years as levered entities try to "solve" their problems with a coercive exchange (one defined as threatening Chapter 11).  The big news this morning is GM's Debt Exchange. You can find it here: GM Debt Exchange.  I just finished reading the exchange offer.  Here is an executive summary of the press release:

• Commencing exchange for $27B of unsecured notes
• Exchange is vital to restructuring out of court
• 225 shares per $1,000 of bond principal.  
• Cash will be paid out for accrued interest. According to the press release, USD interest accruals range anywhere from $7.5 per $1000 bonds (less than a 1 point) to $43 per $1000 bonds (4.3 points)
• If GM does not receive enough exchange by June 1, 2009, will file for bankruptcy
• Exchange expires 11:59PM, Tuesday May 26th
• Inserting a call option on non-USD notes
• Consummation is conditioned upon: Treasury approval (they believe they need 90% of principal to tender to get approval), U.S. Treasury issued 50% of pro forma common stock in exchange for cancellation of at least 50% of GM's outstanding treasury debt and cancellation of the Treasury Warrants, evidence that the Treasury will provide an additional $11.6B of funding that GM believe it will need after May 1st, 2009, VEBA modification (discussed more below), U.S. Treasury and VEBA ownership not more than 89% of Pro Forma stock, binding labor modifications.

Note holders will get 10% of the new GM, existing common will get 1%, and the Treasury and VEBA the balance (exact ratio to be determined). The VEBA negotiations call for GM to issue stock instead of cash for at least 50% of their future obligations to the VEBA (the balance paid in cash).

Bonds are currently trading somewhere around 9 bid, 10 offer. Maybe slightly higher for more liquid issues. The Revolver is trading 50.5-52.5, up a few points from Friday's close, and the Term Loan is trading at 61 bid without, up 3 points from Friday's close.  Obviously the secured lender are liking this deal. The stock is also up - I do not know why though. 

This exchange offer is significantly worse for bondholders than the one being discussed a few weeks back where debtholders would get a substantial portion of the equity. According to press releases, the GM break even point for SAAR would be 10M. Of course, the company is saying this, and you can make your own decision if you want to believe what GM is telling you. 

There was other news on GM today (cutting lots of jobs, phasing out Pontiac, speeding up closing of factories, cutting dealerships by 34%). For more details on these read the WSJ piece

Admittedly, I have nothing positive to say about this plan.  GM should of filed years and years ago.  They've spent ~$145B in capex since 1990 ... AND THEY STILL NEED MORE MONEY TO SURVIVE. They are still going to have 40,000 unionized workers. They are still going to need more tax payer money. They are cancelling tax payer debt in exchange for stock. 

As a bondholder, I really do not know what you should do. If they file, the government is going to surely prime you, and your recovery could be less than ten cents on the dollar where the bonds are trading. The exchanged stock though - how much is that really worth?  I'd be a seller of the bonds at these levels.  I don't want the stock, and I do not like the risks that a bankruptcy brings.

This whole situation is a damn shame.

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Distressed Debt News Weekly Round-Up

As noted in this post, Distressed Debt News, we are going to try to provide readers a short summary of some of the happenings and news in distressed debt world. This list if far from comprehensive as distressed news is a hot topic these days, and I expect coverage to increase as the default rate continues to climb throughout 2009 and 2010. Some other people do too.

If you have any tips or news stories regarding distressed debt, email me at hunter [at] distressed-debt-investing [dot] com.

Distressed Debt News - Week Ended 4/26/2009

• Quebecor (US) Files its Chapter 11 Plan and Disclosure Statement: Under the plan, unsecured creditors are getting back notes for up to 50% of their claim as long as total claims in that class do not exceed $150M. Secured creditors (revolver and others) are to receive some combination of stock, cash, and preferred stock. The bond holders are to receive new common stock and warrants. A hearing is set for May 15th regarding the plan and disclosure statement. You can read the disclosure statement here: Quebecor Disclosure Statement
• Motor Coach Industries Exits Chapter 11: Motor Coach received $230M in financing to emerge from Chapter 11. Motor Coach, a bus manufacturer, paid off its pre-petition first lien lenders with debt borrowed from the reorg, paid off its 2nd lien with a rights offering, and converted the third lien into all of the new equity. Debt was reduced by $300M. Affiliates of Franklin Mutual (Michael Price's old firm) are now the controlling shareholders. The bankruptcy docket can be found here: Motor Coach restructuring information
• Hayes Lemmerz in Talks with Creditors: Auto supplier Hayes Lemmerz is in discussion with its creditors. Yet to file its annual report, Hayes is in a tough spot given what is going on with the domestic automarkets. If anyone is following this situation closely, please let me know
• Masonite Schedules Confirmation Hearing: Masonite has scheduled its confirmation hearing for May 29th. The prepackaged plan was filed on March 16th. I am going to do a write-up on Masonite in the coming weeks. For a quick summary on the plan, see this press release: Masonite Restructuring Plan. Here is the docket: Masonite Docket
• Eurofresh Files for Chapter 11 Protection: A producer of tomatoes, Eurofresh filed for Chapter 11 on April 21st in the U.S. Bankruptcy Court of Phoenix. There is $180M in Senior Notes, ~$40M of sub notes, and a ~$55M Term Loan. The Chapter 11 was prepackaged with the plan to convert $210M of debt into equity with an infusion of $10M of capital. Here is the bankruptcy information: Eurofresh Docket
• Broder Brothers Threatens Chapter 11 is Bondholders do not Accept Exchange Offer: As we discussed in Distressed Debt Exchange Offers, distressed debt exchanges are becoming more and more popular. In Broder Brother case, the company is trying to solicit a 98% approval for an exchange that would give old bond holders new stock plus $444.44 in new notes for each $1000 of old notes they own. Kirkland Ellis is the legal advisor and Miller Buckfire is the financial advisor.
  
• Emmis and Barrington Broadcast buy back debt at a discount: In an interesting trend, Emmis and Barrington bought back their term loan and bonds at a discount. Barrington bought over 1/2 of its existing senior sub bonds at a massive discount. The purchase was funded by an equity infusion from its sponsors. Emmis, a radio station owner, held a dutch auction to purchase some of its bank debt back. This is an interesting development as generally bank debt holders want their loans to be paid back at par. But I guess for certain funds and CLOs, getting back cash instead of going through a protracted bankrupty makes sense.
• Spectrum Brands sets June 15 Confirmation: I have been following the Spectrum Brands bankrupty case for a while. It is a fascnitating one. Why? Generally speaking I see Spectrum Brands as a global business that will eventually come back. It's issues are one of high debt loan and cyclicality. Once the high debt load is gone, and the market for its products come back, a lot of money can be made by buying the debt on the cheap. This was originally a prepack - but bank debt holders do not like the plan in its current form. And frankly, neither do I. I believe too much debt was going to be reinstated and that bond holders were getting more than they deserve. Here is the objection, which is an incredible read. For more information here is the docket: Spectrum Brands docket
• Other News That I haven't gotten time to go over: Star Tribune, Objections to the Charter Plan, Asarco stalking horse bid, Spansion, SGLP, Home Mortgage Cram Down Bill, Tronox, Chrysler (which we will be sure to report on early next week).
  

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