Thursday, April 29, 2010

U.S. Concrete (RMIX) Files Prepackaged Bankruptcy

Earlier this year, Credit Bubble Stocks did a successful capital structure arbitrage involving U.S. Concrete (RMIX) notes and equity. We then sold the notes, although kept the short open because the equity looked like a zero.

After a sharp, inexplicable rally in the equity during the first few weeks of April (which didn't scare us), the equity fell 75% today on the news that the company filed for bankruptcy protection.

It appears to be a "prepackaged" plan (i.e. has the support of the impaired classes and should be processed quickly) with the following terms:

  • The 8.325 percent senior subordinated Notes due in 2014 will own all of the equity in the reorganized company.
  • Existing shareholders will get warrants to buy 15 percent of the reorganized company's stock.
What the current equity (owned by existing shareholders) is worth depends on what the warrants they will get will be worth, which depends on what the terms of the warrants will be.

But in order to get the holders of the Notes to agree to this, the plan can't offer much value to existing shareholders. So I am still bearish on the stock.

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