Free Redacted Document - District Court of Delaware - Delaware

Case 1:07-cv-00799-JJF

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

In re:
Oakwood Homes Corporation, et aI., Debtors. OHC Liquidation Trust, )
)

Chapter 11 Case No. 02-13396 (PJW) Jointly Administered

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)

) ) )
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Plaintiff, v. Credit Suisse (flk/a Credit Suisse First Boston, a Swiss banking corporation), Credit Suisse Securities (USA), LLC (flkJa Credit Suisse First Boston LLC), Credit Suisse Holdings (USA), Inc. (flk/a Credit Suisse First Boston, Inc.), and Credit Suisse (USA), Inc. (flkJa Credit Suisse First Boston (U.S.A.), Inc.), the subsidiaries and affiliates of each, and Does 1 through 100, Defendants.

)
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Civil Action No. 07-0799 (JJF)

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Re: Civil Docket No. 81


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DECLARATION OF WHITMAN L. HOLT
IN SUPPORT OF PLAINTIFF'S CONSOLIDATED ANSWERING BRIEF IN
OPPOSITION TO DEFENDANTS' MOTIONS TO EXCLUDE PLAINTIFF'S
EXPERT TESTIMONY


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I, Whitman L. Holt, declare as follows: 1. I am over 18 years of age, and I have personal knowledge of each of the

facts stated in this declaration. If called as a witness, I could and would testify as to the matters set forth below based upon my personal knowledge. 2. I submit this declaration in support of the Consolidated Answering Brief in

Opposition to Defendants' Motions to Exclude Plaintiffs Expert Testimony filed by the OHC
Liquidation Trust ("Plaintiff') in the above-captioned proceeding. 3. I am an attorney at the law firm of Stutman, Treister & Glatt, P.C., special

counsel for Plaintiff in this proceeding. 4. Attached hereto as Exhibit "A" is a true and correct copy of the

Supplemental Report ofAlan C. Shapiro, Ph.D., dated August 28, 2007.
5. Attached hereto as Exhibit "B" is a true and correct copy of the Expert

Witness Report of Thomas F. Boland, dated February 29, 2008. This document was previously
marked as deposition exhibit 621. 6. Plaintiff's counsel deposed Mr. Thomas F. Boland - a proposed expert

witness on Defendants' behalf - on March 25,2008. A true and correct copy of the transcript of Mr. Boland's deposition is attached hereto as Exhibit "e." 7. Attached hereto as Exhibit "D" is a true and correct copy of a May 31,

2007 e-mail from Allen Pfeiffer, attaching a draft Expert Rebuttal Report dated June 18, 2007 (the "2007 Pfeiffer Report"), which was produced by Defendants with bates numbers CSFB 00523314 - CSFB-00523346. This document was previously marked as deposition exhibit 630. 8. Attached hereto as Exhibit "E" is a true and correct copy of certain data

and spreadsheets that Defendants' counsel has represented to be the exhibits and schedules

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referenced in the 2007 Pfeiffer Report, which was produced by Defendants with bates numbers CSFB-00523839 - CSFB-00523848. 9. Attached hereto as Exhibit "F" is a true and correct copy of a February 6,

2008 e-mail from Michael Vitti, which was produced by Defendants with bates number CSFB 00521759.

I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct.

Executed un April]2 2008, at Los

AngelellifOrni~ "-;2~
Whitman L. Holt

2

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Exhibit "A"


. 1

,;

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UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE


) ) OAKWOOD HOMES CORPORATION,
) et al., ) ) Debtors. ) ) ) OHC LIQUIDATION TRUST, ) ) Plaintiff, ) ) vs. ) ) CREDIT SUISSE FIRST BOSTON, et al., ) ) Defendants. )


In re:

Chapter 11 Case No. 02-13396 (PJW) Jointly Administered

Adv. Proc. No. 04-57060 (PJW)

SUPPLEMENTAL REPORT OF ALAN C. SHAPIRO, PH.D.
August 28, 2007

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1.

Introduction

In my report dated April 30, 2007, I opine that Credit Suisse First Boston did not behave in a reasonable or reasonably prudent manner with respect to services it provided to Oakwood Homes Corporation ("Oakwood"). In forming this opinion, I was asked by counsel to assume that Oakwood was insolvent in September 2001 - more than a year prior to when the company filed for bankruptcy on November 15, 2002. This assumption is based on the expert report of Dr. Michael Tennenbaum. I have since been informed by counsel that a recent decision, VFB LLC v. Campbell Soup

Company, 482 F.3d 624, places emphasis on the use of market data in reaching economic
conclusions. Based on this additional information, I have analyzed market data to test the validity of that assumption. This supplemental report summarizes this analysis. As I explain, market data indicate that Oakwood was economically insolvent by June 30, 2000.

2.

Market Data Demonstrate Oakwood Was Insolvent On June 30, 2000

A company is balance sheet insolvent, from an economic perspective, if the market value of its assets is less than the value of its outstanding debt. I assessed Oakwood's economic solvency by calculating the market value of its equity and its debt (the sum of which equals the market value of its assets),l and comparing this figure to the company's debt. As I show below, Oakwood was insolvent as of June 30, 2000.

Market Value ofEquity
The market value of a company's equity is obtained by multiplying its share price by the number of shares outstanding. Oakwood's share price began a downward spiral in March 1998, declining by more than 72 percent from late March 1998 to early October 1998. After a brief recovery in late 1998, the share-price decline resumed in 1999. By September 1999, Oakwood's shares were trading below $5.00 and had lost nearly 90 percent of their March 1998 value. The share price fell to $1.50 by September 2000, down 96 percent from its March 1998 value. The resulting decline in the market value of its equity is shown in Figure 1.

I This approach relies on the fact that the market value of assets equals the market value of claims against those assets (that is why it is called a balance sheet). These claims come in the form of debt and equity, with equity as the residual claimant receiving the value remaining (if any) after paying off all debt claims.

1

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Figure 1: Steep Decline in Market Value of Equity Beginning in 1998
$2,000 $1,800 $1,600 $1,400
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The steep decline in Oakwood's market value of equity is indicative not just of recent dismal operating performance, but of diminished expectations regarding the company's future performance, as a company's equity value represents the present value of all expected future corporate earnings, Beginning in March 1998, the market's expectations of Oakwood's future earnings declined markedly and remained low until the company's bankruptcy filing. While the market value of equity is still positive, this is just a reflection of its option value, not that it provides any cushion for the claims of bondholders.

Market Value ofDebt
I then calculated the market value of Oakwood's reported debt. Exhibit 1 provides a summary of Oakwood's outstanding debt for each year from 1996 to 2002, as per its balance sheet. 2 To derive the market value of reported debt, I first calculated the ratio of the market price of Oakwood's 10-year, 8.125 percent coupon, $175 million, senior note issued March 1, 1999, to its face value of $175 million (please see Exhibit 2 for details regarding Oakwood's note issues).3 This ratio fell from 52 percent on March 31, 2000, to 30 percent on December 31, 2000, and was approximately 40 percent for 2001 and early 2002. The deep discount at which the note traded indicates that creditors did not expect to be paid in full (and were thus willing to accept 50 cents, or less, on the dollar for the debt), meaning that they considered Oakwood to be insolvent.

2 Data after June 30, 2002 were not available because Oakwood did not file a Form IO-Q with the Securities and
Exchange Commission for the third quarter of 2002.
3 I obtained the bond price data from JP Morgan's research website (www.morganmarkets.com). Data prior to
January 2000 were not available.


2

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As the 8.125 percent coupon senior note was the only Oakwood note or bond for which pricing was available, I used the discount on this note as a proxy for the discount on both of the notes reported on Oakwood's balance sheet. 4 The 8.125 percent coupon bond represented between 35 percent and 49 percent of Oakwood's reported liabilities in each year from 1999 to 2002. Oakwood's other note during this period was a similar senior note, also issued March 1, 1999, with a five-year maturity, a 7.875 percent coupon rate, and a face value of $125 million. This note represented another 25 percentto 35 percent of the company's reported liabilities during those years. I applied the price discount on the 8.125 percent coupon note to the face value of Oakwood's notes ($300 million) to estimate the market value of the notes for each quarter from 2000 through the second quarter of 2002. I next added the face value of Oakwood's other debt, with no discount applied, to calculate the market value of debt. I then added the market value of debt to the market value of equity to calculate the market value of Oakwood's assets (Table 1).
Table 1: Calculation of Market Value of Assets (in thousands, except share price)
3/00 6/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02

Market Value of Equity Shares Outstanding Share Price MVEquity Market Value of Debt BV LongTerm Debt Discount on Face Value of Notes MVofDebt Market Value of Assets
$389,948 $391,739 $395,429 $452,368 $356,637 $378,633 $370,620 $323,107 $363,912 $339,214 47,125 $3.81 $179,664 47,125 $1.81 $85,414 47,125 $1.50 $70,688 47,125 $0.62 $29,453 47,694 $1.06 $50,556 9,529 $5.00 $47,645 9,531 $4.15 $39,554 9,532 $5.30 $50,520 9,530 $7.20 $68,616 9,530 $4.99 $47,555

48% $245,948 $425,612

64% $199,739 $285,153

68% $191,429 $262,117

70% $242,368 $271,821

58% $182,637 $233,193

62% $192,633 $240,278

60% $190,620 $230,174

60% $143,107 $193,627

59% $186,912 $255,528

42% $213,214 $260,769

4 My insolvency date conclusions do not change even if it is assumed that the 7.875% coupon note was worth its face value during the period - the market value of Oakwood's assets was still less than the company's outstanding debt by June 30, 2001.

3

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Comparing the Market Value ofAssets to Outstanding Debt I then compared the market value of assets first with the book value of reported debt. As shown in Table 2 and Figure 2, Oakwood was insolvent as of June 30, 2000. The market value of Oakwood's assets is less than the book value of the company's reported debt for each quarter from June 2000 through June 2002. The difference is never less than $78 million. That is, for each quarter from June 2000 to June 2002, Oakwood's balance sheet debt exceeded the market value of its assets by at least $78 million. This analysis understates Oakwood's insolvency, as it does not include the Company's off balance sheet liabilities, such as those associated with the guarantees on the principal and interest payments of$275 million ofsubordinated B-2 REMIC securities (the B-2 guarantees are discussed in my original report).
Table 2: Market Value of Assets Less than Face Value of Debt ($ 000)
3/00 MY Equity MY of Debt MY Assets BY Debt MY Assets Less BY Debt Insolvency Conclusion $179,664 $245,948 $425,612 $389,948 $35,664 6/00 $85,414 $199,739 $285,153 $391,739 -$106,586 9/00 $70,688 $191,429 $262,117 $395,429 -$133,313 12/00 $29,453 $242,368 $271,821 $452,368 -$180,547 3/01 $50,556 $182,637 $233,193 $356,637 -$123,444 6/01 $47,645 $192,633 $240,278 $378,633 -$138,355 9/01 $39,554 $190,620 $230,174 $370,620 12/01 $50,520 $143,107 $193,627 $323,107 3/02 $68,616 $186,912 $255,528 $363,912 -$108,384 6/02 $47,555 $213,214 $260,769 $339,214 -$78,445

-$140,446 -$129,480

No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

4

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Figure 2: Market Value of Assets Below Book Value of Debt by June 30, 2000
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CSFB's Own Analysis Is Consistent with My Findings
CSFB also concluded that the market value of Oakwood's assets was less than the value of the debt owed by the company by June 2001. In a presentation dated June 26, 2001, CSFB calculated the market value of Oakwood's assets as $358 million, compared with total debt outstanding of $460 million. 5 In a March 2002 presentation, CSFB also calculated the market value of Oakwood's assets ($238.4 million) to be less than the company's outstanding debt ($324.1 million).6 As such, CSFB's own internal analysis demonstrated that Oakwood was economically insolvent by no later than June 2001. CSFB's analysis also understates Oakwood's insolvency as it does not include liabilities associated with the B-2 guarantees.

5
6

CSFB 00052973. CSFB 00033241.

5

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Oakwood Solvency Analysis
Exhibit 1
Oakwood'.';' Existing Debt per 10-.K Filings
In Thousands USD
1996 Short Tenn Notes 12.58% subordinated notes payable 1997 -2001 8.65% Notes Due 2000 10.5% subordinated notes payble 2001 to 2004 Tenn Notes Due July 2000 Capitalized Leases 8 1/8% senior notes due March 2009 77/8% senior notes due March 2004 Industrial revenue bonds due in installments through 2011 Industrial revenue bonds due in installments through 2001 Industrial revenue bonds due in installments through 1996 Facilities Loans due in installments through 1996 8% reset debentures due 2007 Other notes payable ESOP Notes Total $175,000 $8,350 $22,936 $12,954 $25,740 $4,916 1997 $175,000 $7,372 $9,699 $12,954 $18,334 $3,835 1998 $282,200 $4,692 $3,246 $11,876 $11,076 $3,270 1999 $144,800 $2,075 $231 $8,837 $12,615 $174,050 $124,693 $7,099 $1,925 2000 $64,000 2001 $49,000 2002 $49,000

$3,560 $174,120 $124,754 $6,700 $1,825 $174,196 $124,819 $6,200 $174,280 $124,530 $5,565

$2,250 $4,700 $8,000 $39,908 $2,945 $1,680 $309,379

$2,125 $4,000 $16,945 $2,351 $1,200 $253,815

$5,492 $2,025

$16,945 $2,542 $720 $344,084

$16,925 $3,474 $240 $496,964

$16,783 $2,187 $393,929

$16,194 $1,711 $372,120

$2,633 $2,159 $358,167

Source: Oakwood 10-k filings

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Oakwood Solvency Analysis
Exhibit 2
Details olBond')' .l','sued
8 1/8% senior notes due March 2009 Settlement Date Maturity Date Coupon Amount Issued ($mil.)

3/2/1999 3/1/2009 8.125% $175.0

7 7/8% senior notes due March 2004 Settlement Date Maturity Date Coupon Amount Issued ($mil.)

3/2/1999 3/1/2004 7.875% $125.0

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE ) ) ) Oakwood Homes Corporation, et al., ) ) Debtors. _________________________________________ ) ) OHC Liquidation Trust, ) ) Plaintiff, ) ) v. ) ) Credit Suisse (f/k/a Credit Suisse First Boston, a ) Swiss banking corporation), Credit Suisse ) Securities (USA), LLC (f/k/a Credit Suisse First Boston LLC), Credit Suisse Holdings (USA), Inc. ) (f/k/a Credit Suisse First Boston, Inc.), and Credit ) Suisse (USA), Inc. (f/k/a Credit Suisse First Boston ) ) (U.S.A.), Inc.), the subsidiaries and affiliates of ) each, and Does 1 through 100, ) ) Defendants. ) In re: Chapter 11 Case No. 02-13396 (PJW) Jointly Administered

Civil Action No. 07-0799 (JJF)

CERTIFICATE OF SERVICE I, Kathryn S. Keller, of Campbell & Levine, LLC, hereby certify that on May 6, 2008, I caused a copy of the Declaration of Whitman L. Holt in Support of Plaintiff's Consolidated Answering Brief in Opposition to Defendants' Motions to Exclude Plaintiff's Expert Testimony, to be served upon the individuals listed below via the method indicated. Lee E. Kaufman, Esq. Russell C. Silberglied, Esq. Richards, Layton & Finger, P.A. One Rodney Square 920 North King Street Wilmington, DE 19801 VIA HAND DELIVERY Mary K. Warren, Esq. Michael Osnato, Esq. J. Justin Williamson, Esq. Paul R. Wickes, Esq. Linklaters 1345 Avenue of the Americas Nineteenth Floor New York, NY 10105 VIA FEDERAL EXPRESS

{D0111000.1 }

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Dated: May 6, 2008

CAMPBELL & LEVINE, LLC /s/ Kathryn S. Keller Kathryn S. Keller (No. 4660) 800 N. King Street, Suite 300 Wilmington, DE 19801 (302) 426-1900

{D0111000.1 }