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Mr. Spiro valued the Sterling preferred stock by referencing
the price-to-book values of comparable publicly traded preferred
stock issues and arriving at a percentage to apply to the
Sterling preferred stock. He concluded that the Sterling
preferred stock was generally equivalent to a "C" and/or "D"
rated security,8 and that the Sterling preferred stock was closer
to a "D" rating because it was nonpaying and much of Sterling's
debt was "technically" in default. He noted that, near the
applicable valuation date, Sterling had $2.8 million in accrued
but undeclared dividends on all of its stock and $3.1 million of
accrued but unpaid interest.
Mr. Spiro identified 10 comparable preferred stock issues.
From those issues, he concluded that the following companies'
issues at the high end of the "D" rating and the low end of the
"C" rating were comparable to the Sterling preferred stock:
TransWorld Airlines (TWA), Rymer Foods (Rymer), and SPI Holding
(SPI). TWA's preferred stock had a "D" rating and was trading
near the alternate valuation date at 11 percent of its call
price. Rymer's preferred stock had a "C" rating and was trading
near the alternate valuation date at 10.9 percent of its call
price. SPI's preferred stock had a "C" rating and was trading
near the alternate valuation date at 12.5 percent of its call
8 A "C" rated security is a nonpaying issue. A "D" rated
security is a nonpaying issue of an issuer that is in default on
its debt.
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