On April 29, 2010, U.S. Concrete (RMIX) filed for Chapter 11 protection in Bankruptcy Court in the District of Delaware. Chapter 7, unlike Chapter 11, is when a company terminates all of its operations and simply goes out of business. U.S. Concrete, through Chapter 11 protection will still operate customer programs and proceed with its employee benefit and wage programs – they will move forward and continue operating as a business.
President and Chief Executive Officer, Michael Harlan, acknowledged that he was content with the support from bondholders to exchange the 8.325% Senior Subordinated Notes due in 2014 for equity in the reorganized company. This will alleviate U.S. Concrete of roughly $272 million in debt resulting in a stronger balance sheet down the road. Consider the following words from Michael Harlan: “As a result of the restructuring, we should be positioned to be a financially strong competitor in our markets.” I still believe with construction spending bottoming (Bottom in Construction), U.S. Concrete, as I suggested to be a long-term (more risky) play, could still work. The company is eagerly trying to expedite the restructuring so in other words, U.S. Concrete should emerge from bankruptcy within 75-90 days.
U.S. Concrete has until September 7, 2010 to reclaim compliance from NASDAQ otherwise the existing (old) shares will be delisted. However, current shareholders would obtain warrants to acquire 15% of the new equity following the restructuring. So I am not entirely sure what the future holds for the existing equity and if NASDAQ’s notice of being delisted to U.S. Concrete is even relevant considering there is new equity as a result from the restructuring. According to the Securities and Exchange Commission, if a public company emerges from bankruptcy (which presumably will happen with RMIX), there can be two types of common stock: old and new. Nonetheless, the old common stock again I assume will be cancelled (which is possible) due to the warrants current shareholders will receive. Refer to the following SEC page about corporate bankruptcies: http://www.sec.gov/investor/pubs/bankrupt.htm. On this page, the SEC confirms that shareholders can participate in the restructuring plan (with warrants) yet substantial dilution is likely – evident with current shareholders receiving 15% of each new share for every old share.
Therefore, it is essential to know what the new equity on a per share basis will be valued at. I will keep my eyes and ears open for any relevant information. Any reader with thoughts or ideas, please comment!
Some final notes: Wallace H. Johnson, a top executive with U.S. Concrete, once held various management positions at W.R. Grace & Co. (GRA). W.R. Grace is a concrete/construction company as well but also has exposure to the chemicals industry and markets abroad. GRA also went through a plan or reorganization in bankruptcy court not too long ago from asbestos lawsuits. GRA emerged from bankruptcy and since, has been trading to the upside. However, following GRA’s bankruptcy reorganization, the ‘old’ shares continued trading. GRA, during its seven years of bankruptcy protection, improved its businesses and almost doubled their sales. GRA also preserved all employee benefits, something that U.S. Concrete stated they will do as well during this restructuring period. The point that I am making is that U.S. Concrete can still grow sales and create long-term value for shareholders. I firmly believe so based on my thesis about Total Construction Spending (Back to U.S. Concrete). Therefore, the warrants current shareholders will receive as a result to this restructuring, I feel are worth it. As I stated earlier, U.S. Concrete is also expediting this process. I plan to keep my readers informed and I will continue to follow this story.
Full disclosure: Long RMIX at time of writing, bought more shares.
