Garret Motion (GTXMQ) – Expected Better Offer – 10%+ Upside

Current Price: $6.40

Offer Price: $7.00+ (with potential increase)

Upside: 10%+

Expiration date: TBD

 

This idea was posted on VIC when the share price was lower and uncertainty much higher. At this point the situation presents close to risk-free opportunity to benefit from the expected better offer for the minority shareholders in GTX voluntary bankruptcy case. Keep in mind that this write-up and investment idea include various legal issues and nuances – I am not a lawyer so take whatever I am saying with a grain of salt and do your own due diligence before investing.

Garrett Motion (manufacturer of turbochargers) voluntary bankruptcy is proceeding very fast and seems to be geared to enrich the controlling shareholders (58% ownership) at the expense of minority owners. Recently the offer by controlling shareholders was selected as a winning bid and includes an equity cash-out option of $6.25/share – making the downside well-protected at current share price levels. Meanwhile, the equity committee and minority shareholders are opposing the winning bid and claim that other bidders have made superior proposals (for both creditors as well as minority shareholders). On top of that, equity committee came up with its own reorganization plan, which at least on paper seems to offer more than 100% upside for minority shareholders in the long term and the latest revision includes $7.00/share cash-out option (documents have not been finalized yet).

However, for the equity committee proposal to be considered, bankruptcy court needs to terminate GTX management’s exclusivity to select the winning bid on its own (the management is obviously favoring the interests of its controlling shareholders). There are a number of arguments – outlined in the sections below – suggesting the exclusivity is very likely to be terminated. And if it does happen, shareholders can expect higher cash-out price, further bidding war, or simply a more favorable outcome from the equity committee’s plan.

Equity committee motion to modify exclusivity will be heard by the court on the 16th of February.

Bankruptcy filings docket can be found here.

 

Bankruptcy Background

GTX was spun-off from Honeywell in March’18. Together with the spin-off, it has entered into an Indemnification and Reimbursement Agreement, which bound the company to cover Honeywell’s costs of personal injury claims of the employees exposed to asbestos-containing products stemming from the Honeywell Bendix division. In Dec’19 GTX went to court arguing that the agreement was improper and seeking relief from these liabilities. The court hearing for this litigation is set for the first half of Feb’21.

In Sept’20 GTX filed for Chapter 11. The company was actually solvent and the main purpose of this bankruptcy was to eventually get rid of Honeywell’s legacy liabilities ($1.4bn at the time of the filing). Honeywell is fighting to keep these liabilities intact and has partnered with two GTX controlling shareholders (Centerbridge and Oaktree) to win GTX bankruptcy auction with a proposal that would see Honeywell’s liabilities almost fully covered.

 

Bankruptcy Auction

Through bankruptcy proceedings, Garret Motion has conducted an auction for the operating business where three parties showed interest and have been increasing their offers multiple times.

  • KPS (family of investment funds with $11bn AUM) – was the initial stalking horse bidder, whos offer came first when GTX filed for bankruptcy. From the filing of Chapter 11 until the end of the auction, KPS bid was officially the favored one by GTX, and eventually, on the 8th of January’20 (Friday) it was chosen as the winning bid. However, after the weekend debtors have strangely changed the winner to COH group (see section below) without any explanation. KPS final offer was a business takeover proposal with an opportunity for equity shareholders to subscribe to up to 40% of post-restructuring equity. Worth noting that KPS valued Honeywell’s liabilities at 0.
  • COH – a group of two prominent PE firms (Centerbridge and Oaktree) and Honeywell (ex-parent of GTX). In total, the group controls 58% of GTX shares. Their latest offer was chosen as the winning bid in the auction and was the only bid to include a straightaway cash-out option at $6.25/share (or subscribe for up to 31% of post-restructuring equity). Under the terms of the agreement, Honeywell would receive payment for nearly all of their asbestos claims ($1.1bn) just extended several years out.
  • Investors group led by Owl Creek (PE firm). Their final proposal included a debt and pref share injection while giving shareholders an opportunity to participate in up to 80% of post-restructuring equity. Honeywell’s liabilities would be largely paid back.

Right after the announcement of the winning bidder, equity committee (formed to protect the interests of the equity holders), has started an opposition campaign against COH’s offer claiming it is favoring the controlling shareholders and significantly and unnecessarily dilutes the minority investors. As reported by the committee, most minority shareholders (40%-50% of them) also objected to COH’s offer. Consequently, the committee has proposed its own standalone plan, which would have similar creditor settlement terms as the COH offer (including Honeywell), but significantly less dilutive to minority equity holders. The latest iteration of the equity committee plan also seems to come with a $7/share cash-out option.

All of the offers came in different structures and terms, however, the most important value factor for minority shareholders is the actual percentage of the equity being reinstated for pre-petition owners after the restructuring. This is illustrated in the following table (as presented by the equity committee):

Clearly, COH proposal was designed to favor controlling shareholders at the expense of the minority investors. Assuming full shareholder participation in the pref offering, equity would still get diluted significantly – current equity holders would own only 30.7% of the post-organized equity, with the rest of value transferred almost solely to the controlling shareholders through issuance of very lucrative preferred convertible shares. Meanwhile, equity committee’s standalone plan would allow significantly larger participation in the reorganization resulting in 96% of the equity being reinstated. The value difference caused by the dilution also very visible in the long term projections:

Equity committee has stated that the COH proposal “needlessly transfers $1.1bn value away from shareholders” and now has filed a motion to terminate GTX exclusivity to file a plan of reorganization.

 

Equity Committee’s motion

Under the bankruptcy laws, when the company files for Chapter 11, debtors (i.e. the company that filed) gets an exclusivity period of 120 days to file a plan of reorganization. Exclusivity allows the company to be in control of its own reorganization and, in this case, choose the winning bid in the auction. The reorganization plan then has to be approved by the bankruptcy court. The exclusivity period can be extended or terminated by the request of other interested parties. Its termination allows other interested parties to come up with their own reorganization plan that will be equally evaluated in court.

For the court to consider the termination request it must pass the requirement of “cause” – the interested party must demonstrate that there is sufficient ground for such a request. The are several “cause” factors that the court considers, yet not all of them are relevant for each case (page 2).

Equity committee is currently seeking to terminate debtors’ (=GTX) exclusivity and have its own standalone plan to compete with COH proposal. The whole case is presented in detail in the Equity Committee’s Motion Filing, which also provides a lot of details on the background of the sale process and is well worth reading.

The committee argues that termination would make a “good faith progress toward reorganization”, which debtors failed to achieve by completely ignoring its equity holders. It also clearly shows how one-sided COH proposal is and throws light on rather strange debtors’ behavior during the whole process, e.g. filing bankruptcy for a solvent company to nullify Honeywell’s liabilities, then choosing COH proposal (which largely keeps those liabilities intact) over KPS during the last minute. In fact, the whole background and auction sale process described in the docket would make a rather good script for Billions (TV show).

Overall, to my uneducated eye, the committee’s case seems sound and there are several reasons to believe that the court might make a favorable decision here:

  • The whole case is clearly set up to argue that termination would be in good faith progress towards reorganization and be very beneficial for shareholders, while not actually harming the company or its creditors (under the standalone proposal, all creditors would receive precisely the same treatment as with COH).
  • The equity committee states that it is common practice for courts to terminate the exclusivity when debtor “has inappropriately sought to favor equity or another stakeholder group; has sought to feather the nest of incumbent management; or has caused the Court to lose confidence that it could ever come up with a confirmable plan”. The case shows that the debtors have chosen COH proposal despite there being numerous other alternatives that treated creditors equally well and equity shareholders more favorably.
  • The judge seems to be considerate towards the minority shareholders. He has previously delayed the auction approval and ordered for the bidding parties (only KPS and COH at the time) to continue negotiations stating that one bid is not clearly superior to another (at the time KPS offer was $2.6bn, while COH offer did not include the cash out option yet). Later on, he allowed the auction approving KPS as the stalking horse bid stating: “I’m not happy with my options […] If I let KPS walk or take a risk that they walk, there’s no baseline”. Moreover, the court indicated that they actually want to see someone to make a similar proposal to COH. One of the comments made by the court was:

It would be an interesting conundrum for Honeywell if somebody else proposed a plan that had the exact settlement terms . . . as to Honeywell but different terms as to other people as to how exactly Honeywell would explain that that was improper.

The standalone plan from the equity committee offers exactly that – same settlement for the creditors + significantly less dilution for the minority shareholders and now even the cash-out option at a higher price. Thus, it would be hard to imagine the judge turning away from the interests of the minority s and approve COH proposal.

Worth noting that even if the exclusivity termination is not granted, the current opposition of the equity committee can still be valuable when the court will evaluate COH offer:

Even if the court does not terminate exclusivity, the parties will have alerted the court as to their concerns and will have previewed issues that may arise when the debtor ultimately files a plan.

I’m not exactly sure if under these circumstances the judge could singlehandedly block COH proposal and to what further developments it could lead (if anyone has an insight on this, please share).

Debtors have, of course, objected the motion. However, I think their contra-arguments are significantly weaker than the equity committees.

 

Potentially further developments

With the situation that we currently have on our hands, the downside is protected at $6.25/share (COH cash out option). However, there are several potentially favorable developments that could take place in the future. The most important is whether the court will grant the termination of exclusivity. As quoted by the equity committee:

Termination of exclusivity provides an open market for competition in the form of competing plans.

This should get decided during the upcoming weeks – equity committee motion hearing set for the 16th of February.

If the exclusivity is terminated and the equity committee files its own standalone plan then we have a number of ways to win here as GTX minority shareholders:

  • If the equity committee’s plan eventually wins, there will be $7.0/share cash out option and GTX could be an interesting long-term investment opportunity (if equity committee targets are to be trusted)
  • It’s very likely that COH would increase its bid (quite possibly in the cash-out portion as well). The group has already raised its bid 3 times (see the timeline below), while the equity cash-out option has been added only at the last minute. COH clearly believes GTX is worth significantly more than the $6.25/share cash-out option. At current terms, COH is getting a real bargain here with all the involved parties of the group looking at multi-bagger returns. The group’s proposal includes an issue of $1.25bn of preferred shares that pay 11% annually and are convertible to common at $3.50/share. Meanwhile, GTX is expected to generate $672m adj. EBITDA in 2024. Using the same 6.54x multiple that all bidders used to evaluate their offers, this would translate into about $8/share price in 2024 with their current offer. Considering the dividends from pref. shares, etc. the returns for Centerbridge and Oaktree would be even higher. Honeywell is also highly incentivized to proceed with their bid as this is their only chance to secure a large portion of their asbestos claims, which otherwise would likely be cut significantly.  At the current COH offer terms, Honeywell has secured $1.1bn in payments. So current terms are indeed favorable for the COH group and there should be enough headroom for an improved offer.
  • There is also a chance that the other bidders (KPS and Owl Creek) will decide to submit improved offers. Based on my (minimal) understanding of bankruptcy laws, after the exclusivity termination, any interested party can submit their own proposal. Creditors and shareholders are considered to be interested parties. Owl Creek owns nearly 5% of GTX and according to the equity committee’s calculations (table above) their offer was quite close to the one presented by the equity committee (in terms of equity reinstatement for pre-petition shareholders). I haven’t found any information regarding KPS ownership, so its not clear if they would also be eligible to participate after the termination. The appearance/return of another bidder would further incentivize COH to increase their proposal.

If the exclusivity termination is not granted, then as stated above, there is still a possibility that the judge would consider all the issues raised by the committee and minority shareholders and decline to approve the COH offer at its current terms.

The worst-case seems to be that if COH offer goes through at current terms, the downside is protected at $6.25/share cash-out option.

 

Haircut to Honeywell liabilities

Just a quick note regarding the asbestos claims. The hearings regarding the validity of Honeywell liabilities are set for the first half of February. Overall, it’s quite likely that Honeywell’s claims will be cut significantly by the court.

Honeywell has been acquiring GTX shares from October to mid-December (paid up to $4.20/share). At this time, KPS proposal was considered to be the leading bid. However, under KPS offer, for equity shareholders to recover anything of Honeywell’s liabilities had to be cut by 63% and for shareholders to recover anything above $4.2/share those liabilities have to be cut by 80%-90%. These purchases seem to suggest Honeywell itself expected the court to cut these liabilities significantly (this theory fails if there was some kind of secret pre-agreement that COH offer would be announced as a winning bid eventually). KPS bid was valuing Honeywell’s liabilities at zero. Gabelli Funds also called Honeywell’s claims overstated and eventually sued the company.

 

Timeline

The background of the situation is provided in the section below. Some additional details on the background and auction process can be found in the equity committee’s filing (docket 794).

  • 20 September’20 – GTX filed for Chapter 11 and entered into a $2.1bn stalking horse purchase agreement with KPS – a combined stock and asset plan sale of the Company.
  • 13th October – Centerbridge and Oaktree (two large asset managers with $25bn AUM and $140bn AUM respectively), which at the time held 48.6% of GTX, partnered with Honeywell and submitted a reorganization proposal, which oversaw reinstatement of the common equity, $1.15bn preferred stock injection in GTX (with 12% dividend rate and convertible at $3.50/share) and payment for all creditors except Honeywell. Honeywell would be left as a single impaired creditor, with its claims converted into $275m upfront cash and the rest into preferred stock with payouts scheduled over a 14 year period. Total payments for Honeywell would sum up to $1.45bn. Centerbridge and Oaktree would come out owning 60% of GTX.
  • 19th October – KPS increased their bid to $2.6bn and added an option for equity investors to subscribe up to $350m of common shares.
  • 23rd October – Bankruptcy court authorized GTX to proceed with an auction and sale process. Despite COH slightly upping their offer (including $84m or $1.11/share distribution), KPS was chosen as the leading bidder putting. The summary of both proposals as illustrated by COH can be found in docket 273.

  • 18th November – GTX appointed an equity committee.
  • 10th December – Owl Creek (private equity) submitted a competing proposal with EV at $2.7bn, which included $1.2bn of new debt financing and $735m rights offering for new preferred shares. According to the offer, equity investors would be able to participate in up to 80% of the preferred stock issuance. The plan oversaw that equity shareholders would be reinstated and own 80%-90% of the post-bankruptcy shares.
  • 18th December – Auction was postponed for the 21st of December.
  • 21st December – COH slightly sweetened their proposal, mainly dropping the Series A Preferred Stock rate from 12% to 11%.
  • 4th January – During the second round of the auction Owl Creek increased their proposal from $2.7bn to $2.75bn and then later to $2.765bn.
  • 5th January – KPS increased their bid from $2.6bn to $2.765bn and then to $2.9b + up to $250m of new money rights offering of new common stock.
  • 8th of January – GTX selected KPS as the winner of the auction.
  • 8th of January – GTX announced a new plan of reorganization.
  • 11th January – COH improved offer was selected over KPS instead (without any explanation). A newly updated proposal included an option for common shareholders to choose whether to cash out at $6.25/share or retain their shares and subscribe for up to $200m out of $1.25bn of series A pref stock (convertible at $3.50/share). Some changes of payment for Honeywell claims were made – larger initial payment in exchange for smaller short term (in 2022) installment payments. The pref stock conversion price remained the same, however, given that COH held 58% of the equity, the offered subscription amount to minority shareholders was very small (7% of the total offering). Nonetheless, for the first time in the GTX sale process, a proposal included a clear cash-out option for equity holders.
  • 13th January – equity committee heavily criticized the whole auction process and debtor’s actions stating that debtors have consistently disregarded equity shareholder’s interests and have chosen the least attractive offer (COH) for the minority shareholders. Equity committee claimed that the initial goal of the bankruptcy (to nullify Honeywell’s claims) was not reached and that by choosing COH debtors were transferring $1bn of shareholders value to COH group this way significantly diluting the minority shareholders. The committee also claimed that most of the minority shareholders were actually opposing the COH bid

Against the Equity Committee’s clear, consistent, and strenuous opposition, the Debtors nevertheless chose to pursue what the Debtors believe is the path of least resistance rather than the path to maximize shareholder value, in abdication of their fiduciary duties to the estate and shareholders. […] The committee claimed that most of the minority shareholders were actually opposing the COH bid. Following conversations with numerous shareholders that the Equity Committee estimates represent between 40% and 50% of the unaligned GMI shareholders, the Equity Committee believes that the overwhelming majority of that group opposes the COH Group Bid

  • The committee has also presented their own standalone plan, which involved $800m preferred stock financing from Atlantic Park and $1.85bn senior secured financing. Prefs would be non-convertible, redeemable after 3 years, and include at the money warrants for 15% of the company’s equity. 75% of the preferred shares would be available for the shareholders (32% for the minority vs 7% with COH offer). A comparison of the bids was provided in the docket 726.
  • 22nd January – GTX filed an amended reorganization plan.
  • 26th January – equity committee filed a motion for debtors exclusivity termination. It was also stated that previous debtors’ concerns over standalone plan funding had been alleviated – the plan now had two major financial institutions ready to provide the funds on a “highly confident” basis.

    Debtors expressed doubt whether the Equity Committee could secure equity financing and senior debt financing for the Stand-Alone Plan. Those misgivings have now been dispelled.

  • 26th January – debtors objected the equity committee’s motion to terminate exclusivity.

 

GTX

Garrett Motion designs, manufactures and sells highly engineered turbocharger, electric-boosting, and connected vehicle technologies for original equipment manufacturers.

The company took a hit due to the COVID outbreak – Q1 revenues fell 11% YoY, adj. EBITDA -32% YoY, Q2 revenues decreased 40% YoY and adj. EBITDA was -59% YoY, Q3 revenues fell -3% YoY.

Revised business outlook (Dec’20) estimated the company to recover to pre-COVID adj. EBITDA levels in 2022-2023:

 

69 COMMENTS

  1. Terence

    About 2-3x heavier volume today, rose up to $7.06 from 6..51, but back down to about 6.70 close. Maybe some “knowledgeable” players trading, ahead of the 2/16 hearing (which I understand might decide the exclusivity issue).

  2. dt

    Two recent updates that have likely caused GTXMQ share price movements.

    During the 16th of February hearing, the judge ordered / parties agreed to start negotiations. This likely sent the shares to $7+ range. The transcript of the hearing is restricted till May:
    https://www.law360.com/articles/1355435/garrett-motion-favors-mediation-over-competing-ch-11-plans

    Then yesterday it was announced that the weekend negotiations have failed and that parties will be heading for mediation (planned for Wednesday):
    https://www.reuters.com/article/bankruptcy-garrett-motion/garrett-motion-looks-to-bankruptcy-mediation-with-equity-group-idUSL1N2KS33N
    https://www.law360.com/articles/1357363/garrett-motion-equity-holders-head-for-ch-11-plan-mediation

  3. R

    Anyone following this story have a view on continuing to hold or buying now in order to participate in the preferred rights offering? 8-K released today with revised $5.25 series A pref conversion price.

    3
    1. sminte

      Likewise, I’m curious to hear anyone’s view on how the situation is evolving…

      1
  4. rc99ar

    Trading below cashout value today. What am I missing? Is the date of record set for the subscription rights?

    1. Vinn

      I do think it’s because of the record date, in the latest 8k filing, you’ll see the record date is set at march 15.

  5. Zulu Investor

    Interesting sell off today – the stock is trading about 7% lower today ($6.05).

      1. sminte

        7.00 off the table. It’s now 6.25 for cash out. Any shares purchased after March 15th will not be eligible for cash out nor for participation in the rights offering.

        With the new plan dilution will be reduced for existing common holders.

        The convertible series A will be issued at 5.25 per share, will convert to common at 5.25 per share, and will carry an 11% dividend yield, which may be PIK.

        While the backstoppers are definitely getting an incredible deal, I think participating in the rights offering as a minority shareholder is worthwhile.

        This is a negative cash cycle business with very impressive profitability metrics historically.

        By my ham-fisted back of the napkin math, implied enterprise value of this reorg is around 2.5bn, which means EV to revenue is below 1. It’s not hard to imagine this turning into a home run…

      2. Vinn

        The record date is March 15, so you had to purchase it 2 or 3 business days earlier than that right.

  6. sminte

    Good idea to dump common shares today? You’d still get to participate in the rights offering, correct? (Since you’d be a holder of record on the 15th.)

    This is uncharted territory for me. Thanks everyone for their ongoing feedback and analysis.

    1. snowball

      For a record date of 03/15, the ex-rights date was 03/12 (last Friday), and the last day to purchase GTXMQ and be eligible for cash-out option/rights-offering was 03/11 (last Thursday).

    2. Dan Silverstein

      If you sell the common stock after the record date, you sell the rights to the backstop party (in effect).

      “The 1145 Subscription Rights are not detachable or transferable separately from the Existing Common Stock held by 1145 Eligible Holders, other than those held by Equity Backstop Parties in accordance with the Equity Backstop Commitment Agreement.

      Rather, such 1145 Subscription Rights will trade together with the underlying 1145 Eligible Shares and be evidenced by the underlying 1145 Eligible Shares, until the Subscription Expiration Deadline.

      Furthermore, the 1145 Subscription Rights may only be exercised by 1145 Eligible Holders, except as otherwise contemplated by the Equity Backstop Commitment Agreement.

      Accordingly, if an 1145 Eligible Holder sells or transfers its Eligible Share after the Record Date, the purchaser or transferee will not be eligible to receive or exercise 1145 Subscription Rights in respect of such Eligible Share.”

  7. AG

    The subscription rights are not detachable. If you sell your shares before the Subscription Expiration Deadline (April 16th) you will lose your subscription rights.

    The 1145 Subscription Rights are not detachable or transferable separately from the Existing Common Stock held by 1145 Eligible Holders (the “1145 Eligible Shares”), other than those held by Equity Backstop Parties in accordance with the Equity Backstop Commitment Agreement or those held by Honeywell3, Centerbridge4 or Oaktree5 in accordance with the Plan Support Agreement. Rather, such 1145 Subscription Rights will trade together with the underlying 1145 Eligible Shares and be evidenced by the underlying 1145 Eligible Shares, until the Subscription Expiration Deadline. Furthermore, the 1145 Subscription Rights may only be exercised by 1145 Eligible Holders, except as otherwise contemplated by the Equity Backstop Commitment Agreement. Accordingly, if an 1145 Eligible Holder (other than an Equity Backstop Party, Honeywell, Centerbridge or Oaktree) sells or transfers its Eligible Share after the Record Date, the purchaser or transferee will not be eligible to receive or exercise 1145 Subscription Rights in respect of such Eligible Share.

    The Accredited Investor Subscription Rights are not detachable or transferable separately from the Existing Common Stock held by Accredited Investor Eligible Holders (the “Accredited Investor Eligible Shares”), other than those held by the Equity Backstop Parties in accordance with the Equity Backstop Commitment Agreement or those held by Honeywell3, Centerbridge4 or Oaktree5 in accordance with the Plan Support Agreement. Rather, such Accredited Investor Subscription Rights will trade together with the underlying Accredited Investor Eligible Shares and be evidenced by the underlying Accredited Investor Eligible Shares, until the Subscription Expiration Deadline. Furthermore, the Accredited Investor Subscription Rights may only be exercised by Accredited Investor Eligible Holders, except as otherwise contemplated by the Equity Backstop Commitment Agreement. Accordingly, if an Accredited Investor Eligible Holder (other than an Equity Backstop Party, Honeywell, Centerbridge or Oaktree) sells or transfers its Eligible Share after the Record Date, the purchaser or transferee will not be eligible to receive or exercise Accredited Investor Subscription Rights in respect of such Eligible Share.

  8. fishwithwings

    Did they release a timeline as to when one can participate in the preferred rights offering?

  9. Terence

    Filing today, including Subscription Form with a deadline of April 16:
    http://archive.fast-edgar.com/20210315/A72LM22CZZ2RR2Z222ZN22YOM4GHZZ22323G/

    Cash out option of $6.25 per share is on page D-6-8. Anyone who cashes out cannot participate in rights offering. Not sure now, but I seemed to have read that the cash-out is “all-shares or none”.

    Towards the end of the document: holders as of the March 15 record date can subscribe for (1) “1145 Offered Shares”, plus (2) “Accredited Investor Offered Shares”. Both at $5.25 per share. Maximum number of shares is up to the number of old shares for the “1145” shares, and 0.448951 shares of the “Accredited Investor” shares per old shares.

    Can anyone explain? $5.25 per share of preferred or common? Can any individual investor subscribe for the 1145 shares? If accredited, does this mean one can subscribe for a total of 1448 new shares per 1000 of old shares? What’s the difference between the two types of shares, and what are the restrictions on future sales, if any? Is Sminte correct in dumping the shares today (or tomorrow), and still able to buy new shares? Obviously, I have no clue regarding this rights offering.

    1. patrick

      I am wondering the same thing here Terence. If anyone figures this out please give an update here.

  10. patrick

    Okay I emailed IR and got this reply.

    “Specific instructions are being delivered to your broker later this week regarding your options. While EQ is our stock transfer agent and they can handle any issues related to you existing account, KCC is the agent handling the rights offering. Their phone number is 877 499 4509 and they can help with the mechanics for the election process for your specific situation.”

    Not sure if this means our broker will offer us something by Friday or Morning or if we need to contact the broker and ask. Is there a tight time table on this rights offering? Is there a reason not to participate?

  11. George

    does anyone have a guess as to what the cvt. pfd. “should”sell at? $5.25? If so, and if the accredited owner of 1000 shares could subscribe for 1448 without putting up new money, it would indicate a value of $7.50 a share, plus or minus, wouldn’t it? Have not seen document and am only guessing with this premise, but it sounds plausible.

  12. patrick

    So if we have 1,000 shares of GTXMQ do we submit for 1,000 preferred shares AND 448 regular shares?

  13. patrick

    Anyone else in this headache still? I just got all the options and I am thinking I am not a backstop party and so I should choose either option 3, 5, or 6 if I want to be done with all of this and take a tiny loss.

    The terms of the offer are below. Anyone decide which one to go with? Looking at all the forms now, what a pain this position has become.

    Option 1 – Take no action
    Option 2 – Backstop Parties: Participate in the 1145 rights offering
    Option 3 – Non-Backstop Parties: Participate in the 1145 rights offering
    Option 4 – Backstop Parties: Participate in the Accredited Investor Rights Offering
    Option 5 – Non-Backstop Parties: Participate in the Accredited Investor Rights Offering
    Option 6 – Cash Out Option: receive 6.25 USD per share, holders participating in this option cannot participate in the rights offering and must submit all shares owned for the cash out (see Beneficial Holder Ballot)

    1. nostradamus

      If you’re not an accredited investor (net worth > 1M and/or 200K income over last two years+current year), only option 3 or 6 are an option.

      1. patrick

        I am an accredited investor so I think option 5 is my choice. So does this mean both are combined? For example, lets say I have 10,000 shares which means I have 10,000 rights. I can subscribe for

        10,000 + (10,000 * 0.448915) = 14,489 shares of the 1145 stock?

        Do I have that right or am I missing something? Thanks again for the help here.

        2
      2. fishwithwings

        So accredited investors should select option 5 and non accredited investors should select option 3?

  14. jwestern

    For peoples’ reference, preferred share terms (with the old $3.50 price) are on the 3rd-last slide here: https://www.sec.gov/Archives/edgar/data/1735707/000119312521051551/d57069dex991.htm

    Can someone explain the conversion price? Everything I read online about convertible preferred shares talk about a fixed conversion ratio (e.g. 1 preferred convertible into 2 common means a conversion ratio of 2x). Do the Series A Convertible Preferred Shares in question have a conversion ratio? Or would we have to pay $5.25 to convert into 1 common share? (In which case, you’d be paying $5.25 to buy the Preferred share in the rights offering, and then another $5.25 to convert to common for a total cost of $10.50).

    1. R

      I believe the preferred would essentially convert 1:1 to common in the future without any incremental payment beyond the initial $5.25 / share. The $5.25 is cited as the conversion price (not exercise price) and is the same value as the initial cost of the preferred (thus 1:1).

  15. Terence

    Buying now near $5.25 (the conversion price set) might be good value. Just for the longer term after emerging from bankruptcy. Nothing to do with the bankruptcy provisions. As DT pointed out, this idea is “inactionable” by new buyers, but buying near $5.25 now for the value is entirely a separate idea. Anyone else think this is a good play?

    1. bvalue

      Why not wait til after the rights offering is complete? A lot of common stock holders can’t sell before then because they lose their rights to the preferreds which then go to the backstop parties.

      Those restrictions come off after the rights get exercised. Of course, it’s always difficult to forecast price action but compare daily trading volumes up to March 15th and then after. Trading volume dried up which supports the thesis that would-be sellers can’t sell.

      What happens to the price when they are free to sell? Will the stock go up or down initially on that day?

      Of course, you should buy based on your assessment of value and not theoretical trading scenarios….

      2
    2. rc99ar

      It all became too hard for me to evaluate. A lot of bad faith dealing which may continue coming out the other side of the restructuring. As is I’m leaning towards taking the $6.25 over the rights offering to be done with it.

      1
  16. Terence

    Possible price goes down significantly after exercise deadline, but as you said, hard to tell. Thanks for the input.

    Holders of record who want to sell will tender at 6.25. Holders of record who want to hold will probably buy more at 5.25 using their rights, or maybe buy more at the open market below 5.25. The 5.25 was probably determined by the main players as the price set since they think it is good value at that price.

    This is just my speculation. Not reliable since I do not fully understand the rights offering as evidenced by my questions above weeks ago. More knowledgeable players please correct.

    1. jwestern

      Thanks Fish.

      Is anyone here having the luxury that their broker will do the paperwork for them? My broker has not yet received any info about the rights offering. I’m not sure whether to just keep calling them every day, or to fill these forms out and submit them myself.

  17. jk3

    is the tracking portfolio cashing out at 6.25 or submitting for the preferred shares?

    1. dt

      For tracking portfolio purposes we will consider cash-out option at $6.25, which will be a loss of $0.15/share from the write-up price.
      Participating in the rights offering might lead to higher-value eventually, however that was not the thesis we posted and so we will be marking a loss here.

      1
  18. jk3

    What are the complications of subscribing to the accredited shares when you hold the common shares in an IRA? I’m under the impression that such a subscription will result in a distribution from the account. Has anyone else looked into this?

    “The Debtors intend that the Accredited Investor Offered Shares will be issued to the Accredited Investor Eligible Holders through direct registration on the books and records of New GMI’s registrar and transfer agent. The Accredited Investor Offered Shares will not be represented by a stock certificate.”

  19. W51W52

    This will result in a distribution from the IRA/Roth IRA. Whether or not you will pay income taxes / penalty on it is up to the skill of the accountant / precedent. The bigger issue is whether or not you can put the shares back into the IRA/Roth IRA once Accredited Shares become registered.

  20. Dan Silverstein

    I spoke with Etrade. I was told that it would not be classified as a withdrawal. The shares will be restricted and be represented as a CUSIP number in my account. I can’t vouch for the representative at ETRADE, but my documents state that the owner of the preferred shares are ETRADE IRA FBO of me and my account number. Pretty sure that even if ETRADE classifies it as a withdrawal, I have a defensible case with the IRS that it was not.

    1
  21. Slow

    I spoke with Vanguard regarding Roth IRA. Their corporate actions has been excellent. It doesn’t mean they are correct but super friendly and helpful. Here is what I have learned so far: They have not heard anything about the unregistered, restricted shares for accredited investors being considered a withdrawal, even though these shares will be held at the transfer agent in book entry. If they discover something, they will notify investors in advance (best effort). The representative also felt that if it was to be considered a withdrawal there would have been a lot of info in the documents regarding this. They also feel the shares will somehow be represent in the Roth IRA, whether by cusip (as Dan Silverstein mentioned in informative post above regarding E-trade) or some other means. Lastly, for those wondering if you have to write a check, Vanguard confirmed the money is simply removed from your Roth IRA and replaced with some sort of marker, cusip, or other representation, meaning as long as you have enough cash in your Roth IRA, you don’t have to worry how the money gets the the transfer agent. I am inexperienced in special situations and this information could be wrong but wanted to pass along what Vanguard said. I will likely continue to follow up with them.

    1
  22. Terence

    Subscription of shares is a purchase of an asset by the IRA, and should be treated as such just like purchases of a regular stock. However, the broker or trustee of the IRA might make a mistake and treat it as a withdrawal, and it becomes your problem to have it fixed or deal with it. (I agree with Dan S.) — Just my opinion in case it helps, I’m not an expert.

  23. sminte

    Quick update: Doesn’t look like purchasing in the IRA presented any issues at all.

    I have CORPACT shares in my account with Interactive Brokers.

    However, nothing has shown up in my Fidelity account yet. Anyone else?

    1. patrick

      I got more forms to fill out. Another PDF asking for information because I went with accredited investor shares. I think I’ve got 10+ hours into this one with all the web tickets at IBKR and emails to the lawyers asking how to fill it all out. This one has been a total nightmare trying to salvage the position.

      2
      1. sminte

        It will be worth it Patrick. IMO we are getting a ridiculously favorable deal.

      2. nostradamus

        It’s been sort of interesting I think. I never owned restricted shares that are about to be registered through a registration statement before: this is the kind of stuff we all learn from, right?

  24. sminte

    Does anyone have thoughts on the common at $5.50? Any recent analysis done?

    It will relist on Nasdaq ~May 3rd according to yesterday’s filing.

  25. jwestern

    I still don’t have my preferred shares. I worry my broker dropped the ball — they always keep me on the edge of my seat with these corporate actions.

  26. Terence

    $5.25, at or around this price (even below) — anyone could have bought this common stock in the open market for most of the month of April. I posted on April 6 asking if this is good value or not. Although, the preferred in the rights offering is probably worth more than the common since it has downside protection. Wonder how trading will be on Monday, and as Sminte is asking, is the common good value now?

  27. Terence

    $8.55 now, up from 6.30 on big volume 3 days ago. On hindsight, the easiest way is to buy common at $5 and hold on to it. Of course, everything’s easy on hindsight!

      1. George

        Believe cvt.pfd started trading late last week. Is obviously at a premium to common, given seniority and (currently pik)dividend. Think premium could get to be significantly larger if trades like other in the money pfds., but time will tell.

  28. jwestern

    Is anyone able to sell the common shares which they used to get the preferreds? Seems I’m unable to, but I can sell the preferreds (then I assume I could sell the common).

    1. sminte

      I have had no issue selling my common. I switched all mine into preferred.

      1. jwestern

        Ok probably a broker screw-up then. Thanks

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