On Mon, May 4, 2009 at 4:11 PM, David B. Shemano <[email protected]>wrote:
> To distinguish the absolute priority rule from the liquidation rule, assume > a situation where the Debtor proposes a plan in which creditors will > receive 50 cents on the dollar and the existing shareholders retain 100% of > the equity in the company. Such a plan on its face violates the absolute > priority rule because a junior class (the old equity) is receiving value > without the senior class (the creditors) being paid in full. However, if > the class of creditors votes in favor, the violation of the absolute > priority rule is negated by the class acceptance. However, even if the > class votes in favor, the Debtor must still establish that each creditor > will receive at least as much under the plan as the creditor would receive > in a liquidation where the absolute priority rule applied. If creditors > would receive more than 50 cents on the dollar in a liquidation, the plan > cannot be confirmed. On the other hand, if the Debtor can establish > (through appraisal and expert testimony) that in the event of a liquidation > the creditors would receive 50 cents on the dollar or less, the plan is > confirmable. > Fair enough. This makes sense. Note, however, the hedge funds have the burden of proof to demonstrate that the liquidation value is more than the offer on hand. So far, they have utterly failed to do this. All they have offered so far is the false claim that the absolute priority rule is inviolable. You also noted the $1.7B cash balance. But that number needs closer scrutiny. Is the number up to date? Also, I expect certain kinds of short-term liabilities are even higher priority than bond-holders (tax dues?), so how much of that cash would actually be available in the event of liquidation? At the very least you have to offer a much more detailed analysis before you can establish that the hedge funds have somehow been unfairly treated. It is not at all clear to me that they have. -raghu. -- Never get into fights with ugly people, they have nothing to lose.
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