About (risk)commons getting canceled:
If there was limited risk of commons getting canceled back in Jan/Feb (*), now -at this point of time - there is barely any risk of it.
Besides the past arguments (*), now, there is one very strong argument: WMI's motion requesting to speed up the 2004 rule - originaly demanded in the Texas Action - in the BK court was accepted yesterday by the judge.
An the only reason why the BK court entered into this matter is because the result of that "discovery" may have huge impact in the Debtor's estate, therefore it may reshape totally the possible restructuring plan and the way WMI exits BK. This is the only matter that concerns a BK court. Please read WMI's motion and you will see that this was and is the argument to bring the "Texas Action" into the BK court boiler plate.
So, in essence yesterday the Judge accepted that there is need to speed up this discovery in order to clarify asap what's its impact in the debtor's estate. Only then the judge would be able to consider a BK exit plan, and only a BK exit plan can end in a decision to either cancel the commons or get them severely diluted by new shares issued in exchange of debt.
SO, SINCE YESTERDAY, AND UNTIL THE DISCOVERY PROCESS ENDS, THERE IS NOT ANY RISK OF IT.
ONCE THE DISCOVERY ENDS, ,AND ONLY IN CASE IT ENDS WITH TOTALLY DISAPPOINTING RESULTS FOR WMI, THERE WILL BE AGAIN SOME RISK OF COMMONS GETTING WIPED OUT OR SEVERELY DILUTED. AND EVEN IN THIS CASE, THE RISK WOULD BE AGAIN AS LIMITED (*) AS IT WAS BEFORE YESTERDAY DECISION.
(*) The PRE-24/June arguments against the commons getting wiped out are still all valid:
- A change in ownership by a non banking entity - ownership is commons! - above 4,7% means the NOL rights would be lost.
- The debt is almost long term debt( until 2040). Only 1/8 of the debt was due for 2009. These bond holders expectation is long term reward, and its more likely that they get 100% rewarded if WMI stays alive and intact until the outcome of the legal suits produces results that if they force a liquidation that would give them a limited result. Bear in mind that - besides the 4B - there are several billionare tranches disputed with JPM and FDIC in two courts. This before the discovery results, whatever these are.
- The assets - besides the 4B - will be much more valueable once the economic environment improves. They were valued in the A/L balance at it's worst value, and even so the balance was near to even.
- TPG is still in, loaded of commons and has limited chances to exit without destroying the NOLs rights .. etc. And TPG has resources, vision and experience to manage this situation.
THE ONLY ARGUMENT I HAVE EVER READ IN ANY BOARD SINCE OCTOBER SUPPORTING THE IDEA OF COMMONS CANCELLATION IS THIS ONE:
- In 99% of BK cases the shareholders get wipped -
Ok, if this is a valid argument for you then it's better that you sell this asap, since this argument is constant, and independent of any court decision, any strategy or tactics, any specifics of any company, etc..
The point is that WMI seems to have all the cards to be one of these few 1% of BK cases that exit succesfully the process preserving the value for shareholders.
The rest is MMs plays, short term flipping, etc...
