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Keywords

lawsuitsettlementlitigationequitybankruptcychapter 11 bankruptcycorporationobjectiongood faith
settlementprecedentwill

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In re Chemtura Corp., 439 B.R. 561

Facts

Chemtura Corporation, a publicly-traded specialty chemicals company, and its affiliates filed for Chapter 11 bankruptcy on March 18, 2009, due to significant debts and liabilities, including environmental claims and litigation. The company had a funded debt of approximately $1.37 billion and faced various lawsuits and regulatory issues. After filing, Chemtura improved its financial condition by settling claims and reducing liabilities, leading to a proposed Chapter 11 plan supported by the Creditors' Committee and the Bondholders Committee, but opposed by the Equity Committee, which argued that the plan undervalued the company.

On March 18, 2009 (the “Filing Date”), Chemtura, a publicly-traded company, and 27 of its affiliates filed chapter 11 petitions in this Court. The Debtors produce specialty chemicals, polymer products, crop protection chemicals, and pool and spa chemicals. They have operations in the U.S. and Canada and hold direct and indirect interests in more than 140 nondebtor affiliates world-wide.

Issue

The main legal issue was whether the proposed Chapter 11 plan was 'fair and equitable' to creditors and whether it complied with the requirements of the Bankruptcy Code, particularly in light of the objections raised by the Equity Committee.

But the most serious of them is that the Plan—which as described below, effects its distributions to bondholders and most other creditors by means of a combination of cash and stock—undervalues the Debtors, and that a global settlement of several constituencies' entitlements (the “Settlement”), upon which the Plan is based, does likewise.

Rule

The court applied the 'fair and equitable' standard under section 1129(b) of the Bankruptcy Code, which requires that a plan must not pay creditors more than in full and must be proposed in good faith.

To determine that the Plan does not violate section 1129(b)'s “fair and equitable” requirement by paying creditors more than in full, I need only find that the Debtors' TEV doesn't exceed the TEV underlying the Settlement.

Analysis

The court analyzed the valuation of Chemtura Corporation, concluding that the total enterprise value (TEV) was no higher than the valuation upon which the settlement was based. The court found that the creditors would not be overpaid and that the plan was proposed in good faith. The court also addressed the objections from the Equity Committee, ultimately rejecting their claims regarding undervaluation and confirming the plan.

As previously indicated, Lazard's valuation presented a TEV in the range of from $1.9 to $2.2 billion, with a midpoint of $2.05 billion. The Settlement was based on that midpoint valuation. Lazard's valuation conclusion was reached after consideration of three traditional methods—value implied by consideration of: (1) discounted cash flow (2) comparable companies; and (3) prices in precedent comparable transactions.

Conclusion

The court confirmed the Chapter 11 plan as amended, finding it to be fair and equitable to creditors and in the best interests of the estate. The plan allowed for distributions to creditors while addressing the concerns raised by the equity holders.

The Plan will be confirmed. The Plan Supporters may, if they wish, give me more extensive Findings of Fact and Conclusions of Law that also cover matters that were not in controversy.

Who won?

The Debtors prevailed in the case as the court confirmed their Chapter 11 plan, finding it fair and equitable to creditors despite objections from the Equity Committee.

The Plan will be confirmed. The Plan Supporters may, if they wish, give me more extensive Findings of Fact and Conclusions of Law that also cover matters that were not in controversy.

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