cash ﬂow analysis, 31–32 new substantial issuer bid, 31 purchase offer, 32 reorganization,...

JWBT771-IND JWBT771-Schultze Printer: Courier Westford August 11, 2012 9:7 Trim: 6in × 9in

Index

Absolute priority rule, 110, 120Acme Metals, 30Adamar, 77Ad hoc committees, 84Agent banks, 101–106, 108–111Agfa-Gevaert, 4Algoma Steel, 29–32

cash flow analysis, 31–32new substantial issuer bid, 31purchase offer, 32reorganization, 30–31special dividend, 31

AlixPartners, 82American Airlines, 66–67American International Group (AIG), 89,

136Ameristar Casinos Inc., 74–75Andrews Plan, 14Appaloosa Management, 5Appel, Larry, 57Arbess, Dan, 109Arch Wireless, 9Armstrong World Industries, 18, 116, 125,

126–129Asbestos producers, 115–129

Armstrong World Industries, 18, 116,125, 126–129

Congoleum, 116, 125–126, 128Federal Mogul, 116, 123–125, 128Johns-Manville, 116, 117–118legal liability as leverage, 115–116, 123,

129, 133–134Owens Corning, 66, 116, 118–121,

177–184USG Corporation, 116, 121–122W. R. Grace, 116Walter Industries, 116

Asian currency devaluation (1990s),103

Asset-based revolving credit facility (ABL),41–45

AT&T Annual Stock Picking Contest, 3Audubon, John James, 17Automatic stay provisions, 98, 136Axe sheets, 7–8Aztar Corporation, 74–75, 77, 78

Bailouts, 89, 95, 98, 112–113, 135–136Bank of America, 27–28, 41–44, 50, 89Basel III, 28, 87Bayou Steel, 30Bear Stearns, 18, 21, 27–28, 96Becker, George, 104Bennett Management, 105Berkshire Hathaway, 65, 117, 118Bethlehem Steel, 30, 104BI-LO, 59–60, 157–176Birmingham Steel, 30Blackstone Group, 22Blocking position, 55Bloom, Ron, 104Bloomberg, Sandy, 41Bond offerings, cash reserve for interest

payments, 13Bonuses, 85, 94, 136Breast implants, 9Breed Technologies, Inc., 50–52, 66Buffett, Warren, 4, 63, 65, 117, 118,

121–122Buybacks, 14–15, 31, 32, 36–37, 57Buy-side analysts, 14, 28–29, 55, 66, 68

Calpine, 18Canada, 9, 30–32Capstone Advisory Group, 82Carlyle Group, 50–51Cerberus Capital Management, 96–100,

104

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Chapter 11 bankruptcy, 6, 18. See alsoFulcrum securities; names of specificcompanies

exemption from SEC registrationrequirements, 49, 92

government interference, 95–96,104–105, 109–111, 112–113, 135–136

net operating loss carryforwards, 29, 36,55, 139–140

“Chapter 22” bankruptcy, 33Chrysler Automotive, 82, 89, 95–113,

135–136acquisition by Daimler, 96–99agent bank, 101–106, 108cash flow analysis, 100Cerberus buyout loans, 98–100, 104corporate structure, 99cost of bailout, 112–113debt-restructuring plan, 100–106,

108employee pension and health liabilities,

102–103, 110first-lien loans, 99–100, 104–108, 112liquidation analysis, 106, 107organizational structure, 96, 97Recovery and Transformation Plan

(2007), 102–103reorganizations, 95–96, 103–105,

108–111second-lien loans, 98–99third-lien loans, 103–104workout analysis, 100–103, 113

Chrysler Financial, 96, 100, 109Chrysler LLC, 96Citigroup, 27–28, 96, 108Class-action lawsuits, 9, 15, 109–110

legal liability as leverage for asbestosproducers, 115–116, 123, 129,133–134

Tropicana, 83, 87Winn-Dixie, 59–61

Cogan, Marshall, 9Collateralized loan obligation (CLO) funds,

87, 98–100Collins & Aikman, 53Colony Capital LLC, 74–75Columbia University, 3–4Companies’ Creditors Arrangement Act

(CCAA; Canada), 30

Compensation:executive, 59, 66, 85, 94, 136professional fees, 81–83, 93–94

Conflicts of interest:agent bank in syndicated bank loans,

101–106, 108–111Chrysler Automotive reorganization,

95–96, 103–105, 108–111professional fees in bankruptcy filings,

81–83, 93–94Tweeter reorganization, 46–47watching for, 134Winn-Dixie Stores, Inc., 59–61, 157–176

Congoleum, 116, 125–126, 128Costco, 71Counterparty risk, 52, 98, 132Covenant-lite loans, 98–99Credit default swaps (CDS), 52–54Credit events, 53, 69, 99Creditors’ committees, 34, 69–70, 88–93,

134Creditor trust, 34–35, 36Credit Suisse, 33, 78, 105

Daily axe sheets, 7–8Daimler, 96, 98–99, 104Daimler-Benz AG, 96Dalton Investments, 36Davis, Carl, 56Deal fatigue, 6, 35Debtor-in-possession (DIP) loans, 33, 40,

44–46, 83–84Delphi Automotive, 53Delphi Corporation, 51Derivatives:

counterparty risk, 52, 98, 132credit default swaps (CDS), 52–54interest-rate swaps, 78quick derivative collateral liquidation,

98subprime loan swaps, 97–98

Dividends, special, 31, 55, 57, 118,128–129

Dixie Home Stores, 56Dodd-Frank Wall Street Reform and

Consumer Protection Act (2010), 28Donaldson, Lufkin & Jenrette (DLJ), 8Dr. Totorra’s Dog Kennel, 2–3Dunne, Pete, 73

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Dynegy Holdings, 22–24cash flow analysis, 24chapter 11 bankruptcy, 22–24reorganization, 23–24short sales, 24silo subsidiaries, 22

Dynegy Inc., 18, 22–24

EBITDA (earnings before interest, taxes,dividends, and amortization), 10–11

Algoma Steel, 31–32Breed Technologies, Inc., 51Dynegy Holdings, 24Marvel Entertainment Group, 10–11, 14Northwest Airlines, 25Tropicana Casinos and Resorts Inc., 75,

76, 91–92Tweeter Home Entertainment Group, 42Washington Group International (WGI),

33, 35–36Winn-Dixie Stores, Inc., 57, 58, 60

80/20 rule, 64, 134Einhorn, David, 35Elliott Management, 108, 109Enron, 85Environmental regulations. See also

Asbestos producersFoamex and, 9

Ernst & Young, 82Essar Steel Algoma, 29–32Executive compensation, 59, 66, 85, 94,

136

FAIR Act, 120, 121Federal Deposit Insurance Corporation

(FDIC), 89Federal Mogul, 116, 123–125, 128Federal Rules of Bankruptcy Procedure,

Rule 2004, 85–87Fiat, 104, 106, 108, 110, 111Fiduciary Partners, 5–659 Maiden Lane Associates, 10Financial crisis of 2008 - 2009, 17, 21,

52–54, 57, 100, 102–103, 131Financial derivatives, 52–54Financial modeling database, 67–68Firestone Tire & Rubber, 9First-lien term loans, 99–100, 104–108,

112

Fleer/Skybox, 10, 11Foamex International Inc. (FMXI), 8–9Foamex-JPS Automotive LP (FJPS), 8–9Foamex LP, 8–9foosball, 71–72Footprint reduction, 56, 57Ford Heights Waste Tire to Energy Facility

(Illinois), 10Ford Motor, 136Franklin Mutual Advisers Funds, 80Fraudulent transfers, 24, 34Freedom Forge Corporation, 30Front-running, 8Fulcrum securities:

in Algoma Steel deal, 29–32debt-to-equity conversion, 27defined, 17–18in Federal Mogul deal, 123forms of corporate debt, 27–28in Marvel Entertainment Group deal, 15nature of, 27–28, 37–38in Northwest Airlines deal, 25–28recognizing, 133, 135regulation of bank balance sheets, 28, 87in Tropicana deal, 80–81, 83–84in Tweeter Home Entertainment Group,

Inc. deal, 45–46in vulture investing, 17–18in Washington Group International

(WGI) deal, 29–30, 32–33, 34–37waterfall effect and, 18, 38, 106,

110–112, 123Fundamental research and analysis, 4–5,

7–11, 16, 40, 64–72

Gabelli, Mario, 4Geithner, Timothy, 104Gendell, Jeffrey, 35General Electric (GE) Capital Corporation,

44–45, 50General Motors (GM), 18, 89, 103, 104,

112, 135–136Geneva Steel, 30Gittis, Howard, 14Global Crossing, 13Globalstar LP, 19Globalstar Telecommunications, 13, 18–21

capital structure, 18, 19short sale, 18–21

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Goldman Sachs, 27–28, 37, 60, 71, 96, 100,108, 136

Goodyear Tire, 30, 104Grace (W.R.), 116Grant of administrative claim status, 136Great American Group Inc., 45Great Depression, 111, 128Great Recession of 2008-2010, 74, 75, 89Greece, 52, 131Greenlight Capital, 35

“Haircuts,” 52Harbinger Capital Partners LLC, 80Hedge funds. See also Vulture investing

hold-out, 111–112proposed tax increase, 111

Hilco Trading, 45Hold-out hedge funds, 111–112Hoover Dam, 33

Iacocca, Lee, 95Icahn, Carl, 6, 15, 23, 89–90, 123Icahn & Co., 89–90Icahn Enterprises, 23Indiana Gaming Commission, 77, 80–81, 86Insider status, 70, 120, 134Interest-rate swap agreements, 78International Steel Group, 104International Swaps and Derivatives

Association (ISDA), 52Internet bubble crash (2000), 35, 96–97Intrieri, Vincent:

Dynegy Holdings bankruptcy, 23Tropicana Casinos bankruptcy, 23,

89–91Investment committee, 67–72Iridium, 13, 19

capital structure, 21, 22Irv Lerner’s, 1–2

Johns, H. W., 117Johns-Manville Asbestos Injury Trust, 117Johns-Manville Corporation, 116, 117–118JPMorgan Chase, 96, 101–106, 108Junk bonds, 19, 27–28

Keystone Consolidated, 30King Street Capital Management, 105Kirkland & Ellis, 82

Kirpalani, Susheel, 24Klarman, Seth, 4Kmart, 18Krause, Tim, 100Kurtzman Carson Consultants, 82

LandCo (Tropicana LV), 77–78, 81, 82, 87,90–91

Lazard Freres, 82, 104Legal liabilities, as leverage, 115–116, 123,

129, 133–134Lehman Brothers, 18, 27–28, 52, 89, 132,

136Leverage. See also Fulcrum securities; Short

salesdebtor-in-possession (DIP) loans, 33, 40,

44–46, 83–84defined, 17junk bonds, 19, 27–28legal liability as, 115–116, 123, 129,

133–134loan-to-own provisions, 39–48, 61–62,

132–133securitized mortgages, 28, 96–97syndicated bank loans, 27–28, 50,

98–106, 108, 113Levitz Furniture, 24Liability channeling injunction, 123Lifland, Burton R., 117Liquidation analysis, 106, 107Litigation trusts, 90–91, 133Loan-to-own arrangements, 61–62,

132–133sourcing deals, 40–41time frame for, 40Tweeter Home Entertainment Group,

Inc., 39–48Lock-up provisions, 39–48, 49Lone Star Funds, 59, 60Long/short trades, 54, 62, 132Loomis Sayles, 105Loral Space & Communications Inc., 19LTV Steel, 30, 104Lurvey, David, 90, 91Lynch, Peter, 57–59

MacAndrews & Forbes, 10–12Magnavox, 2Maidenform, 9–10

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Manville Corporation, 117Marking to market, 101–102Marvel Entertainment Group, 10–15,

89–90acquisitions, 11–12bankruptcy protection, 15bond offerings, 12–13capital structure, 10, 12cash flow analysis, 10–11, 13–14corporate structure, 10–12discount notes, 12emergence from reorganization, 15financial history, 11net enterprise value, 10–11Perelman buyout plan (Andrews plan),

14Marvel Holdings, 10–13Marvel III Holdings, 10–13Marvel Parent, 10–13Mayer, Brown & Platt, 5McGovern, Francis E., 116M.D. Sass, 6, 7–15, 35, 36Merrill Lynch, 6–7, 27–28, 89Metals USA, 30Metrocall, 9MF Global, 132, 136Michigan, State of, 110Michigan Law Review, 112Milton, William, 56MobileMedia, 9Monopoly, value of, 2–3Moral hazard, 136Morgan Stanley, 96, 108, 136Morris, Nichols, Arsht & Tunnel LLP, 82Morrison Knudsen Corporation, 33Mortgages, securitized, 28, 96–97Motorola, 19Mouillard, Louis-Pierre, 63

National Steel, 30Negotiation strategy, 32, 45–46, 64–65,

89–91Net enterprise value, 10–11Net operating loss carryforwards (NOLs),

139–140advantages of, 29, 55nature of, 29Washington Group International (WGI),

36

New Century Financial, 18, 97–98New Jersey Casino Control Commission

(NJCCC), 75–77, 80–81, 86Northwest Airlines, 18, 53

capital structure, 25, 26cash flow analysis, 35short sales, 25–27

“No-shop” provision, 60

Obama, Barack, 95, 104, 106, 111Okeelanta Cogeneration Facility (Florida),

10OpCo (Tropicana AC), 77–78, 80–81,

82–84, 87, 88–93Oppenheimer, 105Original-issue lenders, 133

conflict with equity investors, 48–52Marvel Entertainment Group, 13–15Tropicana Casinos and Resorts, Inc., 74,

80, 87–93Overleverage, 131Owens Corning, 66, 116, 118–121,

177–184

Pacific Ethanol, 18PageNet, 9Panini, 11, 12Pareto, Vilfredo, 64Pareto Principle, 64, 134Par value, 15, 27Passive trading positions, 69Patience, 48–52, 134–135Paulson, Henry (Hank), 103Paulson, John, 31Pension Benefit Guarantee Corporation

(PBGC), 6, 135Perella Weinberg, 105, 109Perelman, Ronald, 10–15, 32Petit, Edward, 71Pinnacle Entertainment Inc., 74–75Presidential Task Force on the Automotive

Industry, 104Private-equity approach, 48–52, 132–133

Breed Technologies, Inc., 50–52Tweeter Home Entertainment Group,

Inc., 41–48, 51–52, 71Werner Co., 49

Professional fees, 81–83, 93–94Proposals, stockholder, 36, 37, 55, 57, 59

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Proxy fights, 55Purchase offers, 32

Qualified settlement fund, 118, 123, 126,128

Quinn Emanuel Urquhart & Sullivan, LLP,24

Railroad bankruptcies, 111Raytheon, 33–34, 36Real estate:

real estate investment trust (REIT), 97–98securitized mortgages, 28, 96–97subprime borrowers, 97–98

Refco, 136Republic Engineered Products, 30Republic Technologies, 30Repurchase of stock, 14–15, 31, 32, 36–37,

57Revlon, 32Richards, Layton & Finger, 82Robinson, Philip, 1Roe, Mark, 112Rogers, Jimmy, 4Royal Bank of Scotland, 78Rubin, Jim, 7–8Rule 2004 motions, 85–87“Run rate” revenues, 57Rutgers College, 3

SALT Hedge Fund Conference (Las Vegas),71

Sass (M.D.), 6, 7–15, 35, 36Say-on-pay shareholder proposals, 59Schuller International Group, 117Schultze Asset Management LLC:

investment methods and strategy, 63–72origins of, 3, 15–16

Second-lien loans, 98–99Securitized mortgages, 28, 96–97Self-dealing, 59–61Sell-side analysts, 29Sell-side brokers, 7–8, 14Settlement rules, CDS market, 53–54Sheetrock, Incorporated, 121Sheffield Steel, 30Short sales, 66–67, 97–98

Congoleum, 126Dynegy Holdings, 24

Globalstar Telecommunications, 18–21long/short trades, 54, 62, 132nature of, 18, 38Northwest Airlines, 25–27short squeeze, 25–26uncovered shorts, 27

Short squeeze, 25–27Silo subsidiaries, 22Silver Point Capital, 83–84Skadden, Arps, Slate, Meagher & Flom, 45SkyBox International, 11Special dividends, 31, 55, 57, 118, 128–129Special-purpose vehicles (SPVs), 100Spin-offs, debt financing for, 19Stairway Capital, 105Standby airline ticket coupons, 6–7State of Michigan, 110Steel industry, 29–32, 104Stein, Gary S., 77, 86–87Stockholder proposals, 36, 37, 55, 57, 59Stock repurchase, 14–15, 31, 32, 36–37, 57Stohler, Gene, 51Stroock & Stroock & Lavan LLP, 82Structured credit funds, 27–28Subprime borrowers, 97–98Summers, Larry, 104Swaps:

credit default, 52–54interest-rate, 78subprime loans, 97–98

Syndicated bank loans, 27–28, 50, 98–106,108, 113

Takings clause, 109–110Taxes. See also U.S. Internal Revenue Code

net operating loss carryforwards (NOLs),29, 36, 55, 139–140

proposed increases on hedge fund, 111TCW Group, 105Tepper, David, 5Third-lien loans, 103–104Third Point Management, 36Tiger Capital Group LLC, 45Tivoli Audio, 47Too-big-to-fail mentality, 89, 112–113,

136Total enterprise value (TEV):

defined, 31Federal Mogul, 125

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Tropicana Casinos and Resorts Inc., 92Washington Group International (WGI),

35–36Toy Biz Inc., 10, 11, 15Trace Foam Company Inc., 8–9Trace International, 9Trade claims, 133Trans World Airlines (TWA), 5–7Trico Steel, 30Tropicana Atlantic City (AC), 74–78, 80–93Tropicana Casinos and Resorts Inc., 23,

73–94Ad Hoc Committee of Subordinated

Noteholders, 84bankruptcy filing, 81–83, 85–87capital structure, 77–83, 87–93cash flow analysis, 75, 76, 91–92credit bid auction of Atlantic City casino,

92–93debtor-in-possession (DIP) loan, 83–84formation of, 74–75Indiana Gaming Commission review of

Aztar license, 77, 80–81, 86LandCo (Tropicana LV), 77–78, 81, 82,

87, 90–91litigation trust, 90–91NJCC denial of license renewal, 75–77,

80–81, 86OpCo (Tropicana AC), 77–78, 80–81,

82–93OpCo Senior Secured Lenders’

Committee, 83, 87, 88–93original-issue lenders, 74, 80, 87–93professional fees, 81–83reorganization plan, 87–93Rule 2004 motions, 86Unsecured Creditors Committee, 82, 84,

85–86working capital needs, 83–87

Tropicana Entertainment, LLC, 73Tropicana Las Vegas (LV), 74, 77–78, 81,

82, 87, 90–91Troubled Asset Relief Program (TARP),

103–105, 108–111Tweeter Home Entertainment Group, Inc.:

capital structure, 42, 43cash flow analysis, 42ethics issues for CEO, 46–47liquidators, 44, 45–46, 47

loan-to-own investment, 39–48private-equity approach, 41–48, 51–52,

71reorganization, 44–46tightening credit cycle, 42–44

Tweeter Newco LLC, 46–48

UBS Prime Brokerage, 24Uncovered short sales, 27Undertaking, 23United Airlines, 18United Auto Workers (UAW), 103, 104,

106, 108, 110, 111U.S. Bank Holding Company Act, 28, 87U.S. Bankruptcy Code, 136

Amendments of 2005, 98automatic stay provisions, 98, 136Canadian equivalent, 30Chapter 11, 6 (see also Chapter 11

bankruptcy)fairness provisions, 110Section 363, 110, 111Section 366, 81Section 524(g), 116Section 1129, 106, 110, 111

U.S. Constitution, takings clause, 109–110U.S. Environmental Protection Agency, 9U.S. Internal Revenue Code:

asbestos trust as qualified settlementfund, 118, 123, 126, 128

net operating loss carryforwards, 29, 36,139–140

Section 382, 139–140Section 386, 29, 36, 139–140

U.S. Justice Department, 82U.S. Securities and Exchange Commission

(SEC), 10Chapter 11 exemption from filing

procedures, 49, 92short sale regulation, 54

United Steelworkers Union (UAW), 104Unsecured creditor warrants, 34–35, 36URS Corporation, 36US Air, 18USG Corporation, 116, 121–122

Valuation gap, 29Van Kampen Funds, Inc., 50Volcker Rule, 28, 87

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Voluntary employee beneficiary association(VEBA), 103

Vulture investing. See also Fulcrumsecurities

activist position, 36–37, 45–46, 54,57–61, 62, 69–70, 81–83, 85, 88–93,109–110

confidence in abilities, 5, 16cutthroat world of, 7–9daily axe sheets in, 7–8daily “scorecard” in, 16fundamental company analysis in, 4–5,

7–11, 16, 40, 64–72goal of, 17, 64, 67–68, 74investment philosophy, 54, 62, 132–137nature of work, 2passive trading positions, 69post-bankruptcy equity, 28–32sell-side brokers and, 7–8, 14special information rights for vulture

funds, 40styles of, 5training for, 3–5vultures (birds) compared with, 1, 17, 39,

63, 73, 95, 115, 131Wak Get Rich Fund (WGRF), 3, 16

W. R. Grace, 116Wak Get Rich Fund (WGRF), 3, 16Wall Street Journal Award for Excellence in

Economics, 3Walter Industries, 116Warrants, unsecured creditor, 34–35, 36

Washington, Dennis, 33, 34Washington Construction Group, 33Washington Group International (WGI),

29–30, 32–37, 141–155capital structure, 33cash flow analysis, 33, 35–36debtor-in-possession (DIP) loans, 33merger with URS Corporation, 37Raytheon engineering and construction

(RE&C) acquisition, 33–34, 36Washington Mutual, 89Waterfall effect, 18, 38, 106, 110–112, 123WCI Steel, 30Weirton Steel, 30Werner Co., 49Wheeling-Pittsburgh Corp., 104Wheeling-Pittsburgh Steel, 30Whitebox Advisors, 36Wimar Tahoe Corporation, 74Winkler, Robert, 71Winn-Dixie Stores, Inc., 55–61

cash flow analysis, 57, 58, 60conflicts of interest, 59–61, 157–176post-reorganization strategy, 56–57reorganization plan, 55–56, 57sale to Bi-Lo, 59–60, 157–176

Winn & Lovett, 56Wolf, Block, Schorr, & Solis-Cohen, 14Wood, John George, 39, 95, 131WorldCom, 85

Yung, William, 74–75, 77, 78, 85, 86,90–91

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cash ﬂow analysis, 31–32 new substantial issuer bid, 31 purchase offer, 32 reorganization,...

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