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to Resources' creditors, because Sanwa has liens which would be <br />satisfied before any distribution to other creditors. <br />Coal & Coke's accounts receivable usually run about $12 <br />million (as of May 8, accounts receivable were about $8 million). <br />Much of this is due from firms which also sell coke on open <br />account to Coal & Coke. If Coal & Coke were liquidated, set offs <br />by these sellers would reduce collectable accounts from about $12 <br />million to about $6 million. <br />Inventory usually runs about $19 million. This is <br />discounted 40% by Sanwa for borrowing base purposes, to $11.4 <br />million, which probably is a fair estimate of liquidation value. <br />Equipment has a depreciated book value of about $2 million, and a <br />probable liquidation value of about $1 million. <br />The amount which could be realized by Sanwa from a <br />liquidation of Coal & Coke thus is about $18 or 19 million, which <br />would leave Sanwa with an approximate $5 million deficiency, even <br />after application of all proceeds from the proposed lease /sale of <br />Resources' assets to Crystal Springs. <br />Conclusions <br />While the legal impediments to marshalling are <br />formidable in this case, the most compelling reason not to dwell <br />on marshalling is economic. Since Sanwa is undersecured even <br />when one looks at all of the corporate affiliates, I see no <br />conceivable recovery to Resources' general creditors through <br />marshalling. Similarly, efforts to pierce the corporate veil are <br />pointless, because Sanwa has liens which would consume all assets <br />before any distribution could be made to other creditors. <br />A trade down of value to unsecured creditors of <br />Resources remains the best course. There are strong indications <br />that Sanwa will agree to trade down some value to Resources' <br />unsecured creditors in order to facilitate a resolution of this <br />case. However, a trade down of value in Resources' estate by <br />Sanwa only makes sense to the extent that Sanwa is comfortable <br />that it can recover the balance of its claim from Coal & Coke. <br />Because Sanwa appears to be undersecured, Sanwa needs to have <br />some comfort that Coal & Coke will remain a viable enterprise <br />that will pay Sanwa from future earnings. <br />Efforts by junior creditors to pierce the corporate <br />veil or to otherwise require Coal & Coke to pay money to <br />Resources' creditors thus are counterproductive. If Sanwa <br />believes that Coal & Coke is at risk, it will simply take a <br />harder line with respect to releasing a portion of its liens on <br />Resources' assets. <br />-7- <br />