Chemours Co (CC) Is A Bankruptcy Waiting To Happen! Chemours Was Purposely Designed For Bankruptcy! by Citron Research This is the latest short pitch from the famous short seller – Citron says this is their best idea since their extremely famous Valeant short. This is interesting since CC is not a small company and has some big shareholders involved and this is a REALLY aggressive short. What does the market think? Traders are impressed the stock has tanked 10 percent on the release so at least the robots think it is a good idea – we will await what the company says and what the human investors think – will probably be a few hours but stay tuned.
This Stock is a Zero
After 15 years of publishing, Citron can confidently state that Chemours (NYSE:CC) is the most morally and financially bankrupt company that we have ever witnessed.
Highly material events for Chemours are unfolding nearly every day in the matter of DuPont’s liabilities due to its manufacturing of C8 — also known as PFOA, and its 60 year pattern of willfully hiding its knowledge that the chemical was toxic at extremely low levels of exposure, and was being dumped into the environment at its facilities. DuPont dumped these liabilities into spin-off Chemours.
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But don’t count on Chemours to disclose these material events. The company doesn’t even post reserves on its balance sheet for the snowballing legal and environmental costs.
The bizarre reality is that Chemours was designed to go bankruptcy. The only question is when.
Last week 5.2 million Americans learned that their drinking water is contaminated with man-made chemicals linked to cancer.
Today, a jury trial started in Columbus, Ohio which adjudicates the first of the 260 cancer related lawsuits against DuPont in just the Mid-Ohio Valley.
At this very moment, as you read this story, the National Guard is in Vienna West Virginia facilitating distribution of
drinking water to the public, following the “Do Not Drink” advisory issued in the wake of the recent revision of EPA contamination guidelines for C8 — also known as PFOA.
While this might be a new story to some, it is has been daily life for the people of the Mid-Ohio Valley for 30 years. Most recently, the same problems have been witnessed throughout the United States, and reaching as far as DuPont-implicated facilities in The Netherlands HYPERLINK “http://www.nltimes.nl/2016/04/07/damning-blood-test-results-for-dupont-plant-neighbors/” and Japan.
Chemours, a spin-off from DuPont, is the latest chapter in a well documented 60+ year pattern of wanton and deliberate abuse of humanity, the environment, and now the capital markets.
The Outrageous Story of Chemours Creation
While chemical giant DuPont has spent 60 years dumping waste around its facilities, they have spent the past 11 months dumping this “toxic spinoff” on Wall Street.
It isn’t Citron’s purpose to detail the “moral outrage”, serve as a community activist, or deliver another piece of journalism profiling the victims of this 60 years contamination and cover up that has become the shining example of corporate greed.
Reading the above stories tells readers all they need to know about the role of DuPont/Chemours in damaging their own workers and surrounding communities, while diabolically using the legal system to avoid liability. If not obvious, none of these stories were written by “market participants” or “short-sellers”.
Spinning off environmental liabilities is nothing new to Wall Street. DuPont has merely taken a play out of the Monsanto and Kerr-McGee playbooks with their Solutia and Tronox spinoffs. The gambit: create a bad entity that is designed to fail, so the good entity can be spared the reputational and liability damage.
We are witnessing the same game with Chemours. And for those of you who have read the first page and said “Wait! There are some real businesses in Chemours …” – that is correct. And just like Solutia and Tronox, the businesses will get bought out of bankruptcy once the parent company goes bankrupt.
The Dirty Financials
In July of 2015, DuPont spun off its “performance chemical” division and all of the associated liabilities to its shareholders as Chemours stock, which then indemnified DuPont for the majority of its environmental liabilities. In order to guarantee its failure, DuPont threw it into deep water, the weight of $4 billion debt on its legs.
Chemours’ debt is only 20% less than that of DuPont, a company with 35x the market cap, and 6x more favorable debt to EBITDA ratio.
To put this in perspective, compare this to the two above-referenced environmental liability spinoffs that went bankrupt:
Clearly, Chemours is a company that could NEVER have completed an IPO. Imagine this income statement in a prospectus with the tacked-on warning of potential billions of dollars in contingent liabilities and legal fees … and yes, on top of $4 billion in debt:
With net income swinging red, EBITDA has gone in the tank.
DuPont’s Game Plan Backfires
In order to engage yield chasers for the spinoff stock (more accurately, a dump-off), Chemours declared an unsustainable dividend. But like Teflon,
the dividend could not stick in the face of the two disastrous quarters that yielded massive losses for Chemours.
Within months, having paid the dividend only once, it was slashed 95% from 55c to 3c. The stock price soon plunged 85% from its opening levels.
Within 3 months of going public, Chemours also had to “rewrite the terms” of their adjusted EBITDA, to avoid violating their creditors’ debt covenants.
On September 25, 2015, Chemours filed this:
“The definition of Consolidated EBITDA, which is used solely for the purposes of calculating financial maintenance covenants in the Credit Agreement, has been modified to include cost savings benefits from restructuring and other initiatives announced prior to July 1, 2016 on a pro forma basis”.
NOTE: Given the SEC’s increasing focus on made-up non-GAAP financial measures used by companies to hide or distort results of operations, ( http://www.marketwatch.com/story/sec-stepping-up-its-tackling-of– misleading-disclosure-2016-05-31) we wonder whether Chemours will eventually have to answer to the SEC.
Finally, in what is nothing short of giving “corporate CPR”, daddy DuPont made a $190 million prepayment for goods while “step daddy “ Dow Chemical, bought their aniline business for $140 million.
While Chemours was set up for bankruptcy, DuPont just could not let it happen in its first year, and just prior to its merger with Dow Chemical. If that were to happen, a court might have too easy a time transferring the environmental liabilities right back to DuPont before the spinoff.
See full PDF below.