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© 2003 Dechert LLP
Rights Offerings: Pay To Play?
Is the Right to Participate in the Acquisition Of Your Obligor a Recovery on Your Claim?
Seventh Annual East Distressed Debt Investing ForumJune 29, 2004, 9:45 - 10:30 a.m.Roosevelt Hotel 45 East 45th Street New York, NY 10017
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 2
© 2003 Dechert LLP
Panelists
Panelists: William Q. Derrough
Jefferies & Company, Inc.New York, NY
James K. SchaefferPPM America Inc.Chicago, IL
Glenn E. SiegelDechert LLPNew York, NY
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 3
© 2003 Dechert LLP
Getting Out of Bankruptcy
Management Doesn’t Want to Sell to Strategic Buyers
Private Equity is Competing With Existing Investors
Large Potential Upside
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 4
© 2003 Dechert LLP
Existing Investors to the Rescue
Allow Other Creditors to Participate in a Rights Offering on the Same Basis
Go Private
Preserve Long Term Upside of Business
Contribute Cash and Claims to Acquire Debtor
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 5
© 2003 Dechert LLP
Is This A Good Deal?
Chance to Preserve Your Upside Chance to Make A Good Investment in a Company You Know Don’t Need to Write Off Your Investment
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 6
© 2003 Dechert LLP
What If You Can’t Invest?
No Available Funds Existing Fund Can’t Take Equity Existing Fund Can’t Buy Into a Private Company Can You Put It in Through Another Fund?
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 7
© 2003 Dechert LLP
Is This Even A Recovery? You Have to Pay Something to Get Anything You Don’t Get Any Credit for Your Existing Investment You Can’t Transfer the Right to Participate You Don’t Like the New Investment Anyway
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 8
© 2003 Dechert LLP
Can You Find Another Bidder?
Sell Your Position to Someone Who Can Participate Find an Equity Sponsor With a Better Deal Find a Strategic Buyer
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 9
© 2003 Dechert LLP
Confirmation Fight
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 10
© 2003 Dechert LLP
Vote Against the Plan
They Can’t Vote, They’re an Interested Party You Vote No Since You Have to Pay to Play Force Valuation and Cramdown
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 11
© 2003 Dechert LLP
Valuation
We’re in the Money
The Bidding Was Rigged
This Is Undervalued
You Can’t Buy This for Less Than What It’s Worth, Even If No One Else Wants It
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 12
© 2003 Dechert LLP
Unfair Discrimination They Are
Using Their Blocking Position As Debtholders to Buy the Company
The Deal Actually Gives Them Credit for Their Claims
They Get Something for Their Claims and We Don’t
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 13
© 2003 Dechert LLP
Absolute Priority
The Secured Creditors Have Received More Than They Are Owed
Management Can’t Get Anything If We Don’t
Trade Can’t Get Anything If We Don’t
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 14
© 2003 Dechert LLP
Best Interests
We Might As Well Liquidate
The Company Is Worth More in Pieces Than As a Going Concern
If You Liquidated, We Would Get More
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 15
© 2003 Dechert LLP
Can You Win? The Right to Participate is of limited duration and non-transferable
Force Valuation of the right to buy in and create a cash alternative
Get Equity For Your Existing Investment
Pay to Play: Are Rights Offerings A Recovery on Your Claim? 16
© 2003 Dechert LLP
Can You Avoid the Problem? Is It the Only Way to Do a Deal? If You Can’t Pay, Maybe You Shouldn’t Get Anything Maybe Your Investment Isn’t Worth Anything Anymore