NOT AN ANALYST

Investment Thesis BGP carries an intrinsic value of $6.5 based on the relative valuation of comparable multiples. The stock is expected to reach its fair value by the end of 2010, giving an annualized IRR of 77% from current levels. BGP represents a value opportunity in a mature industry. The Company’s shares have been pushed lower over the last year due to significant price competition among book retailers and unfunded bankruptcy rumors. Now the scenario has shifted; the implementation of a new business strategy and the commitment of fresh capital from a group of lenders, are clear signs that BGP can effectively manage through its troubles and focus on regaining market share.

General BGP is an operator of book, music, movie superstores and mall-based bookstores. The business is organized three main segments: Borders Superstores, which includes Borders.com launched in May 2008, Waldenbooks Specialty Retail Stores, which operates small boutiques located in malls, airports and outlet malls, and International Stores.

Restructuring Efforts In the last three years, BGP has suffered a significant price competition from online book retailers such as AMZN, which has squeezed Borders’s margins and profitability. However, due to a conservative capital structure, consistently positive FCFF and cost cutting initiatives, the Company was able to survive. In the beginning 2008, Borders launched a turnaround effort designed to return to profitability. These efforts included store closings, staff reductions, advertising cuts and reduction in inventory for stagnant segments like music and movies. The efforts are ongoing and are expected to continue through 2010. BGP is also planning to gradually exit the Waldenbooks Specialty Retail Stores segment because it has not delivered the amount of growth expected, given the capital invested. The international Stores segment accounts only for a very small fraction of the overall revenue.

New Business Strategy The U.S. book retailing industry is a mature industry, which experienced little or no growth in recent years. In the beginning of 2010, Borders have developed a new strategy designed to grow certain segments, increase revenue in the long-run and drive traffic into stores. There are three main points of the new strategy:

1-Leverage Boarders.com and the power of social media –Grow the online sales business on Borders.com and introduce new technologies. A new shop zone will be introduced called “Area-e”, where multiple e-Readers will be available for sale.

2-Become a community gathering place –Host customer events including author and celebrity signings, local events, educator appreciation weekends, which are expected to drive traffic into stores and sales.

2-Improve in-store experience – Retain customers through reward and coupon programs.

Availability of Capital The ability to refinance its debt and to obtain credit are key ingredients for the Company’s recovery.  On March 31, 2010, the Company entered into a Third Amended and Restated Revolving Credit Agreement, which replaces the prior Senior Revolving Credit Agreement. The commitments are divided into a $270.5 mm existing tranche maturing in 2011 and a $700 mm extended tranche maturing in 2014. Also, on March 31, 2010 BGP entered into a Term Loan Agreement under which the lenders committed to provide $80 mm in capital maturing in 2014. The commitments by the lenders are subject to which include borrowing base and availability restrictions, which are pretty “lax” and should not trigger a credit event in any circumstance.

Unfunded Bankruptcy rumors In late 2009, rumors that the Company was close to file for Bankruptcy skunked the shares below $1. However, when we look at the historical current ratio and various capitalization rations, we can clearly see that liquidity and solvency have never been an issue for BGP. The capital structure has always been conservative and compliance with financial covenants was always maintained. The new financing received on March 31^st, which provides capital for the next four years, confirms that investors are confident about Border’s ability to repay its obligations over time and the risk of bankruptcy is now remote.  However, the share price still doesn’t reflect that.

Valuation BGP trades at multiples that are significantly lower than its direct competitors. Comparison with the book retail industry is not meaningful, because multiples of the industries include online retailers such as AMZN, which have a much higher growth rate than BGP. Applying these multiples to BGP would overstate its value. The most meaningful comparison can be made with Barnes and Noble (BKS) because it has a very similar business model, it operates in the same geographical areas and it has similar fundamental characteristics. However, a relative comparison based on multiples of EPS, EBITDA and FCFF is not meaningful.  BGP is experiencing negative earnings and BKS had high capital expenditures in the last twelve months, generating a negative FCFF. A valuation based on Adjusted CFO, which is CFO plus after-tax interest, Total Revenue and Book Value seems more accurate. When we apply multiples to BGP fundamental, we find an average price of $6.50, which equates to an IRR of 133% over 8 months or represents an annualized IRR of 77%.

Potential Dilution Resulting from Equity Offering In connection with the term loan made by Pershing Square, which was repaid in the 1^st Quarter of 2010, BGP issued warrants to Pershing Square to acquire 14.7 million shares of our common stock, which currently represent approximately 19.7% of the outstanding shares.

Synopsis Chemtura Corp is among the largest publicly traded chemical Companies in the United States, dedicated to the manufacturing and marketing of specialty chemical products. The Company filed for bankruptcy protection on March 18, 2009, as a result of a sharp decline in demand for its products and restricted access to credit. The Debtor has until June 2010 to file a plan of reorganization and it estimates to emerge from bankruptcy by the 3^rd Q of 2010.

Investment Thesis Buy the 7% 2009 notes as they provide an attractive risk/reward ratio compared to other debt in the capital structure. The notes trade around 107 cents on the dollar and have virtually no downside and have significant upside potential if converted into equity.

Valuation The Company is worth around $2,000 mm, which should cover all the unsecured debt and existing liabilities, including a large diacetyl claim. The valuation is based on 2009 EBITDA growth of 10% to 18% and a multiple of 7.72 derived from comparable Companies.

EBITDA In 2010, EBITDA will range between $285 and $300 mm, which represents a growth of 10% to 18% from 2009 levels. The growth is justified by a stronger demand for the Company’s products and emergence from bankruptcy. Peak cycle EBITDA was recorded around $400-450 mm during 2005-2007, but these level will be probably be attainable after 2015.

Multiple The 6.78 multiple represents an average of the EV/2010E EBITDA multiple extracted from Companies in the industry with similar fundamentals like market capitalization and debt (Albermale-ALB, Ashland-ASH and Lubrizol-LZ). I applied a 10% growth rate to the 2009 EBITDA level of the Companies analyzed. For reference, Chemtura’s market capitalization in 2007 was $1,050 and total debt to capital was 38.2%.

Capital Structure The DIP loan was refinanced at a lower rate on February 12 and increased by $50 mm to $450 mm to fund bankruptcy charges and ongoing capital requirements. The Term Loan, which constitutes part of DIP financing, has been fully drawn as of February 12. Borrowing under the 2007 Credit Facility were $154 mm as of January 31^st 2010, however this amount can increase following the drawing of certain letters of credit issued under the Facility. The 2009 notes and the 2016 notes are senior unsecured and guaranteed by certain subsidiaries. The 2026 notes senior unsecured parent Company notes and are not guaranteed by any subsidiary.  

2009 Notes Senior unsecured and guaranteed by Great Lakes Chemical, a subsidiary of the Debtor, which merged with Crompton Corp. to form Chemtura Corp. in 2005. In virtue of their maturity, the notes cannot be reinstated. In the worst case scenario, they’ll be repaid out at par plus post-petition interest. In the best case scenario, they’ll be converted to equity and participate in an upside potential materially above par.  

Other Liabilities The Debtor is subject to various other legacy liabilities, including environmental liabilities, estimated to be around $146 mm over 10 years, pension and OPEB (other-post-retirement-obligations) of about $172 mm. The Company, primarily through its non-Debtor subsidiary, Chemtura Canada, is also exposed to diacetyl litigation, estimated around $300 mm. Claims have been filed arguing that exposure to diacetyl, a chemical used to enhance and mimic food flavorings, caused workers to develop a disease that affected their lungs.

Risks The 2009 notes have virtually no downside risk. However, the risk of reinstatement for the 2016 and 2026 notes, will force repayment for the 2009 notes. The negative pledge clause in the notes would be triggered, so the notes would need to be reinstated as secured debt. In case of a debt to equity conversion, the creditors will have a lower claim on the Company’s assets if the Equity Committee will push for a high valuation above $2,500 mm.