Tuesday, November 10, 2009

Georgia Gulf (GGC) 10-Q Gives Management's Perspective on Valuation

Here's an interesting tidbit from the recently released Georgia Gulf (GGC) Third Quarter 2009 Report.

In accordance with ASC subtopic 470-60, Troubled Debt Restructuring by Debtors this debt for equity exchange was a troubled debt restructuring and thus an extinguishment of the notes for which we recognized a net gain of $400.8 million. [...] This gain included $731.5 million of principal debt, net of original issuance discounts, $53.7 million accrued interest, $14.1 million deferred financing fees written off and $12.4 million of third party fees which was exchanged for the $357.9 million fair value of the common and preferred shares. The $357.9 million fair value of the common and preferred shares was estimated using a combination of discounted future cash flows, market multiples for similar companies and recent comparable transactions. In addition, the resulting fair value of the equity approximates $11.36 per share that was also evaluated relative to the public markets and determined to be reasonable.

Due to the fact that the determination of the fair value of the equity exchanged was primarily derived by projected future cash flows we evaluated the sensitivity of the major assumptions including discount rates and forecasted cash flows. A 100 basis points increase or decrease in the discount rate or a 10% increase or decrease in the annual forecasted cash flows results in an approximately $30.0 million increase or decrease in the estimated fair value of the equity exchanged.
So, management's calculation values the equity as $11.36. That's close to the $12.5 that I came up with at my most recent attempt.

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