Tuesday, October 22, 2013

Suntech's Miscalculations

Suntech filed a notice yesterday that it is appealing the bondholder judgments to the Second Circuit Court of Appeals.

One of the funny things about Suntech attorney Gilbert Samberg's line of argument at the summary judgment motion hearing was that he simultaneously disputed the bondholders actual ownership of any bonds (implicitly accusing all three of them of submitting forged documents to the court) while at the same time protesting that the bondholders had been invited by Suntech to participate in restructuring negotiations.

MR. SAMBERG: Yes. In this case, Suntech Holdings is a New York Stock Exchange listed company. And it has made ample disclosures and press releases with regard to the progress of those discussions. But, more importantly, your Honor, I myself have put Mr. Teitelbaum in contact with representatives of -- with a representative of that negotiating group. And as I understand it, he was invited to participate in it if he chose to do so.

[later] MR. SAMBERG: Well, the -- the creditors who are in negotiations with Suntech stand for -- stand to make an arrangement that benefits all creditors. It is not for individual creditors. And these creditors were never excluded, they were always welcome to join in that negotiation. However, because -- I would point out to your Honor -- 
THE COURT: There is no showing there is any negotiation before August 30th in these papers. August 30th is after this action had been brought and fully briefed.
MR. SAMBERG: Yes, your Honor. It's true that these papers are -- relate to most recent developments in connection with those negotiations. But, Mr. Teitelbaum is aware, and I believe Mr. Dugaw is aware, that these negotiations have been going on for -- since probably the beginning of the year or before then, that they have been publicized amply, and that they were never excluded. In fact, in the case --
THE COURT: Well, the
MR. SAMBERG: -- as I mentioned with regard to Mr. Teitelbaum, I introduced him to a representative of that group, if he chose to join in that discussion, on behalf of his clients. And with regard to Mr. Dugaw, I made him aware and asked him if he wished to be contacted by a member of thatgroup. It has never been -- it has never been a question of exclusion.
What argument is Suntech going to make to the Court of Appeals? Any dispute regarding the bondholders' ownership of the bonds [which was the only argument made at trial, and therefore preserved for appeal] is directly contradicted by Samberg's insistence that it invited those bondholders to participate in the restructuring negotiations. 

People ask what is Suntech's long term strategy by stonewalling the restructuring. It's sort of like asking what's the endgame for a police chase on the freeway in LA.

Appealing the judgments signals to everyone, including a bankruptcy judge, loud and clear that the only tool in their toolbox is stonewalling and delay.


Anonymous said...

When is the date of appeal?

Anonymous said...

Who cares?

Anonymous said...

Does the CH 7 BK response date (Nov 4th?) get delayed now?

If they are appealing the summary judgment then all signs point to STP contesting the involuntary petition.

When will this end?

Anonymous said...

They may try to argue that the debts are disputed (one of the elements of section 303). However, that won't work.

It just makes them look crazy and desperate.

wildcat said...

Is there literally no standard for continued listing on the NYSE? No financials, no press release that they are subject to an involuntary BK filing, 7 months in default . . . do they have an auditor? Officers? What exactly does a company have to do to get delisted?

MrGotham said...

The NYSE has ample grounds to boot this company off the exchange tomorrow. Apparently, the fees that come with all this stock's trading activity are too much to pass up. You would think after all the Chinese stock frauds of the past few years that the NYSE would be more circumspect of companies that show utter disregard for proper disclosure and have ample evidence of fraudulent activity such as this one. It seems that the corporate equivalent of the "fog a mirror" standard is all that a company need meet to continue its NYSE listing.

Under section 802.01D of the NYSE Listed Company Manual, the exchange has the discretion to delist securities which nominally meet its requirements for market value and revenue levels, but which are otherwise deemed unsuitable. The NYSE Manual states:

“The Exchange…may make an appraisal of, and determine on an individual basis, the suitability for continued listing of an issue in the light of all pertinent facts whenever it deems such action appropriate, even though a security meets or fails to meet any enumerated criteria. Other factors which may lead to a company's delisting include:

• The failure of a company to make timely, adequate, and accurate disclosures of information to its shareholders and the investing public.
• Failure to observe good accounting practices in reporting of earnings and financial position…
• Unsatisfactory financial conditions and/or operating results.
• Inability to meet current debt obligations or to adequately finance operations”

Given the company’s failure to disclose material corporate events, the increasing evidence of its inability to perform basic operating functions, and the departing independent directors' concerns about the company’s financial and operating prospects, one has to ask what is the justification for continued listing of this company on the NYSE? There has been no current disclosure of financial results for over 18 months, a default at the holding company that has persisted for over 210 days, and an inability or unwillingness to report material legal actions initiated against the company.

Is there anyone home at NYSE Corporate Compliance Department????

Anonymous said...

Suntech will likely make another request for discovery (with the aim of buying more time).

STP has no choice but to deny the judgement ruling since it is unable to respond to the involuntary bankruptcy filing with a factual defense.

Gilbert Samberg is "grasping at the straws," to use Judge Patterson's words.

The judgement ruling is an effective court order and Suntech will need to respond to it before November.

If STP chooses not respond to the involuntary bankruptcy filing, then relief will be granted and Suntech will be put into Chapter 7.

It is surprising Mintz Levin has not advised it's client to voluntarily enter bankruptcy under Chapter 11.

John said...

"It is surprising Mintz Levin has not advised it's client to voluntarily enter bankruptcy under Chapter 11."

STP cannot file for Chapter 11 because there is nothing left to reorganize. Absent the trustee filing actions against auditors and past and present officers, creditors are likely to end up with nothing.

Notice that the 60% bond holder group did not grant Suntech another extension.

Having sensibly given up on the idea of a bailout from China, the 60 percent group is sitting on its hands.

At this point someone other than that group is trying to delay until the statutes of limitation have run on all the director suits, and fraud suits.

Call it the "Cool Hand Luke" play. If you are desperate and broke, "sometimes nothing is a real cool hand."

Solar has a cult like following of stock investors who obviously believe that the future is so bright for the group that fundamental research is irrelevant and every company in the group must be bought.

Anonymous said...

Suntech doesn't get to make "another request for discovery."

The appeals court sees whether Judge Patterson made an error. He didn't. So the appeals court affirms.

Then the bondholders file a motion for sanctions against Suntech and Mintz. What will Patterson say?

Meanwhile, a frivolous appeal doesn't help the bankruptcy case.

It just underlines the question in everyone's minds: why is it so desperately, desperately important to keep the holding company financials secret and the company itself out of restructuring?

CP said...

Why is it so desperately, desperately important to keep the holding company financials secret and the company itself out of


Anonymous said...

One question I hope we can answer someday is, how did they get Gilbert Samberg to humiliate himself for Suntech?

It would be one thing to put up a spirited but reasonable defense. Maybe ask for an extra couple weeks to look into the bond ownership.

But to debase yourself for this mess of a company? Incredible?

Anonymous said...

Why are the other bondholders too cowardly to do anything about this company?

Mack: Shame what this town's come to.
Charley Waite: You could do something about it.
Mack: What? We're freighters. Ralph here's a shopkeeper.
Charley Waite: You're men, ain't you?
Mack: I didn't raise my boys just to see 'em killed.
Charley Waite: Well you may not know this, but there's things that gnaw at a man worse than dying.

Anonymous said...

Suntech may have tried reaching a settlement with bondholders who filed the involuntary bankruptcy paperwork.

Trondheim has publicly stated (in Bloomberg article a months ago) that it maintains a short position in Suntech so even if Suntech offered them full value and a sweetener, Trondheim will still not settle.

An appeal of the judgement ruling offers Suntech an avenue towards a settlement.

If Suntech posts a performance bond to guarantee its performance on the court order, then even if Suntech looses the appeal, it would force Trondheim to accept the performance bond payment as a settlement to advert an involuntary bankruptcy ruling.

It is very unlikely STP has the cash (or credibility with lenders) to make a cash performance bond.

Suntech has no assets in the US and all of it's assets in Asia were reorganized into Wuxi Suntech who's administrator could care less about Suntech Holding's obligation to creditors.

So, Suntech must be frantically trying to liquidate assets in Europe to post a performance bond.

It really only has the GSF SICAR in Luxembourg as well as KSL Kuttler GmbH in Germany.

Given that nobody was willing to bid for GSF (as a result of it's legal issues), Suntech's last hope would for payday cash would be to liquidate it's stake in KSL Kuttler.

Suntech Power International LTD (in Switzerland) paid 54 million Euros for KSL Kuttler in 2008 (http://www.china-investiert.de/suntech/).

wildcat said...

I'm not sure if the exchange has any potential for liability here (somehow I imagine every stock investor in the world has signed away their rights in the fine print to their brokerage agreement), but . . .

It would be interesting if some enterprising class action lawyer decided to go after the NYSE at some point for the ~$250 million in losses that investors in the common stock are about to take. Despite having no ongoing business (a requirement for listing), no financials (a requirement for listing), and being basically an ongoing fraud (debatably a requirement for listing), the NYSE continues to bless this rat ship of a company with their imprimatur of respectability.

Suntech satisfies the vast majority of subjective reasons for delisting from the NYSE . . . I assume these subjective criteria are left over from a kinder gentler time when the exchange had any interest whatsoever in maintaining a modicum of respectability and transparency.

I realize the regulators are asleep at the switch, but what exactly does a company have to do to set off some alarm bells?

They have failed the quantitative tests for listing twice, defaulted on their debts, all of their assets are in BK (with the first lien being the fulcrum security if it sees any recovery), they are having their European assets seized after being possibly complicit in the forgery of 550 million euros in loan collateral . . . and yet here they are.

No financials. No audit committee. No assets to speak of. No operations. No press releases to address material events like an involuntary bankruptcy filing. Board members quitting in the most embarrassing and damning way possible . . . and the game goes on.

Anonymous said...

I'm sure a Clearwater or Spinnaker Capital would kick in 580k for the performance bond.

MrGotham said...

Looks like Shunfeng is only going to pay the creditors about 30 cents on the dollar for the Wuxi assets. They also don't have a deal yet.

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