ZINC - Horsehead Holding Corp

[rishig]

Also what would unsecured creditor do once they have all the assets? Would they sell half working/constructed plant to someone? Would they try to start it?

 

I think ZINC has already spent close $550 million on getting that plant started. In addition other assets were working so they should have value of around book or around 0.75 of book value.

 

So total value of assets outside book current plant would be about $220 million to $300 million. If plant can be sold for $100-150 million. Remaining equity could be worth 0 to $30 million provided debt is around $420 million.

 

If plant gets valued above $150 million or if other assets fetch value above $300 million the equity value could increase from $13.5 million (current market cap).

 

The result of a bankruptcy is not necessarily a sale of the assets. When assets are sold in Ch. 11. it is known as a section 363 sale. Currently, management has the option to put forward a restructuring plan. I doubt that management is going to push for a 363 sale of any of their assets, given that the plant is non-operational. No one is likely to pay them anything but a fire sale price for such an asset.

 

So, all that happens at the end is the capital structure gets restructured with the debt holders recovering a portion of their debt and the rest of the debt is swapped for equity. The fulcrum security in the capital structure is the debt that gets most of the equity. Post bankruptcy you have a company with hopefully more manageable debt and new owners (i.e. the debt holders). The equity committee being setup by Guy Spier is to make a case for the old equity owners to get a portion of the new equity. The U.S. Trustee decides if such a committee is admissible.

 

[NoCalledStrikes]

I couldn't help myself.  My take on the futility of creating a stockholder committee.

 

http://i.imgur.com/IZhjPQn.jpg

[Guest roark33]

My day is better because you couldn't help yourself.  Thank you! 

[GSpier]

Hi Folks,

 

I am writing to thank all of the shareholders who have contacted me regarding an equity committee for Horsehead. 

 

On Tuesday February 16, 2016, I submitted a petition to the US Trustee on the case, which has been acknowledged and we have subsequently been in touch with both the US Trustee and the SEC.

 

To date you should know that we have heard from over 700 shareholders representing more than 35% of the outstanding shares, which may be an unprecedented response bearing in mind that I only posted my intentions just one week ago.

 

We expect to hear back from the US Trustee within the next ten days and we have indicated that we will send him an updated list of shareholder support in the middle of next week.

 

Meanwhile,  I am asking all who might not yet have emailed their support to send me an e-mail to zinc@aquamarinefund.com stating:

 

1. Your name

2. How many shares you own

3. The approximate date that they were acquired

4. Your support for the creation of a shareholders committee to protect the interests of the shareholders

 

As I said before, getting an equity committee formed is our only chance to preserve value for the equity and being able to show the broadest possible shareholder support is critical.

 

Sincerely,

 

Guy Spier

 

[valueinvesting101]

Andrew Vara, acting U.S. trustee for Region 3, appointed seven creditors of Horsehead Holding Corp. to serve on the official committee of unsecured creditors.

 

The unsecured creditors are:

 

(1) Delaware Trust Company as Trustee

Attn: Sandra E. Horwitz

2711 Centreville Rd.

Wilmington, DE, 19808

Phone: 877-374-6010

Fax: 302-636-8666

 

(2) Wilmington Trust as Trustee

Attn: Steven Cimalore

1100 N. Market Street

Wilmington, DE, 19801

Phone: 302-636-6058

Fax: 302-636-4140

 

(3) Hudbay Marketing & Sales Inc.

Attn: Eugene Lee

25 York St. Ste. 800

Toronto, ON M5J 2V5 Canada

Phone: 416-601-9540

 

(4) Chemicals Inc.

Attn: Richard Winans

1270 Osborne Dr.

Fairfield, OH 45014

Phone: 513-682-2000

Fax: 513-682-2008

 

(5) Powers Coal and Coke

Attn: Martin J. Powers

4807 Rocksied Road, Ste. 240

Cleveland, OH 44131

Phone: 216-264-4804

Fax: 216-264-4815

 

(6) United Steelworkers

Attn: David R. Jury

60 Boulevard of the Allies, Rm 807

Pittsburgh, PA 15222

Phone: 412-562-2545

Fax: 412-562-2574

 

(7) Dhandho Holdings Corp.

Attn: Fahad Missmar

206 Tetuan Street, Ste. 703

San Juan, Puerto Rico 00902

Phone: 1 787-395-7287

 

Official creditors' committees have the right to employ legal and accounting professionals and financial advisors, at a debtor's expense.  They may investigate the debtor's business and financial affairs.  Importantly, official committees serve as fiduciaries to the general population of creditors they represent.

[rishig]

Macquarie Bank filed objection to Debtor's Motion for DIP Financing. Attached.

Objection_to_Final_Approval_of_the_Debtor_-_Main_Document_1.pdf

[Guest roark33]

Looks like Pabrai is unsecured creditor or one of his entities?  Didn't realize he was also in the debt? 

[TwoCitiesCapital]

Looks like Pabrai is unsecured creditor or one of his entities?  Didn't realize he was also in the debt?

 

He has to be at this point to protect help protect his equity interests.

[Picasso]

Looks like Pabrai is unsecured creditor or one of his entities?  Didn't realize he was also in the debt?

 

He has to be at this point to protect help protect his equity interests.

 

[Guest roark33]

Looks like Pabrai is unsecured creditor or one of his entities?  Didn't realize he was also in the debt?

 

He has to be at this point to protect help protect his equity interests.

 

Let me translate for Picasso: Two Cities: what do you mean he has to be in the debt to protect his equity? 

[rishig]

Looks like Pabrai is unsecured creditor or one of his entities?  Didn't realize he was also in the debt?

 

He has to be at this point to protect help protect his equity interests.

 

Let me translate for Picasso: Two Cities: what do you mean he has to be in the debt to protect his equity?

 

One way to get some recovery for the equity holders is to push for a high valuation / moderate leverage in recovery. I posted a few threads earlier a waterfall chart for recovery using low valuation / low leverage vs. high valuation /  moderate leverage.

[TwoCitiesCapital]

Looks like Pabrai is unsecured creditor or one of his entities?  Didn't realize he was also in the debt?

 

He has to be at this point to protect help protect his equity interests.

 

Let me translate for Picasso: Two Cities: what do you mean he has to be in the debt to protect his equity?

 

One way to get some recovery for the equity holders is to push for a high valuation / moderate leverage in recovery. I posted a few threads earlier a waterfall chart for recovery using low valuation / low leverage vs. high valuation /  moderate leverage.

 

He needs a seat at the table for bankruptcy negotiations to maximize the value he gets for his equity. He's not guaranteed a seat without owning the debt. I don't know if the debt was purchased prior to the filing (as opposed to buying more equity given the possibility of bankruptcy) or if he bought it after bankruptcy with the intent of making a recovery on the debt and help negotiate the value of his equity, but I'm pretty sure he picked up the debt to protect his interests in a bankruptcy scenario regardless of when he purchased.

[Picasso]

Then why did he dump his ZINC stock if that's the case? 

[TwoCitiesCapital]

Then why did he dump his ZINC stock if that's the case?

 

Hadn't been watching the situation closely enough to realize that had dumped his stock. My apologies. So not protecting his common equity interest, but still wanting at the equity/assets through bankruptcy proceedings.

[racemize]

Then why did he dump his ZINC stock if that's the case?

 

Did he sell the whole portion?  I thought he sold some, but I didn't think it was all of it.

[valueinvesting101]

Dalal Street (I think this is parent company for Pabrai funds) sold 5.2 million shares but still holds 1.1 million shares. May be has sold those as well.

 

Is Dhando holding completed owned by Dalal street?

 

If not could there be conflict of interest if Pabrai fund holds equity and Dhando holds debt?

[BG2008]

Looks like Pabrai is unsecured creditor or one of his entities?  Didn't realize he was also in the debt?

 

He has to be at this point to protect help protect his equity interests.

 

One way to interpret this is that Pabrai doesn't see recovery in the equity and he's moving onto a more senior portion of the capital structure. 

[ERICOPOLY]

Looks like Pabrai is unsecured creditor or one of his entities?  Didn't realize he was also in the debt?

 

He has to be at this point to protect help protect his equity interests.

 

One way to interpret this is that Pabrai doesn't see recovery in the equity and he's moving onto a more senior portion of the capital structure.

 

But he was already at his max for the position.  Throwing more money into it would exceed the max.

[schin]

Looks like Pabrai is unsecured creditor or one of his entities?  Didn't realize he was also in the debt?

 

He has to be at this point to protect help protect his equity interests.

 

One way to interpret this is that Pabrai doesn't see recovery in the equity and he's moving onto a more senior portion of the capital structure.

 

He dumped the equity of Delta Financial back in the day too. Rack this up to another one of his blowups.

[BG2008]

Looks like Pabrai is unsecured creditor or one of his entities?  Didn't realize he was also in the debt?

 

He has to be at this point to protect help protect his equity interests.

 

One way to interpret this is that Pabrai doesn't see recovery in the equity and he's moving onto a more senior portion of the capital structure.

 

But he was already at his max for the position.  Throwing more money into it would exceed the max.

 

Probably took his sales proceeds from the equity and bought trade claims or a unsecured debt.  Upside is likely less than the equity in case of a full recovery.  That way he stays under position size but increases chance of recovery in case the unsecured is the fulcrum and the equity is wiped out. 

[Guest roark33]

You don't have to make it back the same way you lost it.

[BG2008]

The bonds are trading at about $11 on a $100 par.  So, you could potentially get a 10 bagger.  If the the bonds become the fulcrum security post re-org, then it's got more than 10x upside.  This is clearly in the "too hard" pile for me.  What's good for Zinc now is that they don't have to issue press release and talk to shareholders.  Sometimes a company in BK can operate better without the intense public scrutiny. 

[rishig]

The bonds are trading at about $11 on a $100 par.  So, you could potentially get a 10 bagger.  If the the bonds become the fulcrum security post re-org, then it's got more than 10x upside.  This is clearly in the "too hard" pile for me.  What's good for Zinc now is that they don't have to issue press release and talk to shareholders.  Sometimes a company in BK can operate better without the intense public scrutiny.

 

If one purchases the unsecured notes thinking they are going to go to par, I think that is very unrealistic. When one of you main assets is not operational and requires a liquidity of $80-$100M to get going (and I don't believe much of this anymore), you are not going to get the court to agree to an valuation higher than 3-4x EV/EBITDA. And in that case, the unsecured really don't recover much. Focus on downside first before the upside.

 

Sometimes bringing up a plant is harder than what it really seems. Case in point, Berkshire wrote off a $500M related to a "zinc recovery project". Here is an excerpt from the 2004 letter:

 

Last year (2004) MidAmerican wrote off a major investment in a zinc recovery project that was initiated in 1998 and became operational in 2002. Large quantities of zinc are present in the brine produced by our California geothermal operations, and we believed we could profitably extract the metal. For many months, it appeared that commercially-viable recoveries were imminent. But in mining, just as in oil exploration, prospects have a way of “teasing” their developers, and every time one problem was solved, another popped up. In September, we threw in the towel. Our failure here illustrates the importance of a guideline – stay with simple propositions – that we usually apply in investments as well as operations. If only one variable is key to a decision, and the variable has a 90% chance of going your way, the chance for a successful outcome is obviously 90%. But if ten independent variables need to break favorably for a successful result, and each has a 90% probability of success, the likelihood of having a winner is only 35%. In our zinc venture, we solved most of the problems. But one proved intractable, and that was one too many. Since a chain is no stronger than its weakest link, it makes sense to look for – if you’ll excuse an oxymoron – mono-linked chains.

 

[RadMan24]

Why does it matter?

[Grenville]

 

Sometimes bringing up a plant is harder than what it really seems. Case in point, Berkshire wrote off a $500M related to a "zinc recovery project". Here is an excerpt from the 2004 letter:

 

Last year (2004) MidAmerican wrote off a major investment in a zinc recovery project that was initiated in 1998 and became operational in 2002. Large quantities of zinc are present in the brine produced by our California geothermal operations, and we believed we could profitably extract the metal. For many months, it appeared that commercially-viable recoveries were imminent. But in mining, just as in oil exploration, prospects have a way of “teasing” their developers, and every time one problem was solved, another popped up. In September, we threw in the towel. Our failure here illustrates the importance of a guideline – stay with simple propositions – that we usually apply in investments as well as operations. If only one variable is key to a decision, and the variable has a 90% chance of going your way, the chance for a successful outcome is obviously 90%. But if ten independent variables need to break favorably for a successful result, and each has a 90% probability of success, the likelihood of having a winner is only 35%. In our zinc venture, we solved most of the problems. But one proved intractable, and that was one too many. Since a chain is no stronger than its weakest link, it makes sense to look for – if you’ll excuse an oxymoron – mono-linked chains.

 

Thanks for posting that piece from the '04 BRK letter!