Mr Cooper Group Inc (COOP)

[fsshon]

Section 382 is triggered when a change in ownership occurs, defined loosely as an increase in ownership interest of at least 50% by shareholders owning 5% or more of the target's stock, over a 3-year period. The precise definition of a qualifying ownership change is complex, but it is sufficient to assume that in any taxable or non-taxable business combination, a qualifying ownership change under Section 382 occurs.

Companies seeking to raise substantial equity financing should consider issuing straight preferred stock (no voting or conversion rights or participation in future earnings) rather than common stock. We are in a phase of stability with keeping with the 382 limitation to protect our valuable NOL's.

Now pay attention to this next part....

Section 382 requires that the buyer meet the continuity of business enterprise requirement; continuing use of the target's historic business or a significant portion of the target's assets in an existing business for 2 years following the transaction. If the continuity of business requirement is not met, the annual NOL limitation is zero. The continuity of business requirement, together with the annual NOL usage limitation, effectively discourage acquisitions of loss companies for their NOL alone.

When marking the acquired balance sheet to fair value under purchase accounting, the acquirer must consider whether it can fully utilize the acquired NOL. If not, the target's DTA attributable to NOL must be written down. Whether or not the NOL can be fully utilized is a function of the Section 382 constraint and the remaining life of the NOL

Here is what you really want to know.

Recall from the equation above that the Section 382 annual limitation is a function of the purchase price.

If a prospective acquirer of a distressed, publicly traded target with large NOL waits until the target's stock price falls further to seek a deal, Section 382 may be more punitive and the NOL worth considerably less than had the acquisition been consummated at a higher purchase price.

Therefore, where a target's NOL are important to an acquirer, the acquirer should be somewhat less sensitive to price and may prefer to act quickly in securing the deal before the target's stock price falls too much and destroys the value of the NOL.

To answer your notes question

The IRS created Section 382 to deter acquisitions of companies with substantial NOL solely motivated by tax avoidance objectives, without any valid business purpose. To accomplish this, Section 382 severely restricts the buyer's use of acquired NOL following a change in ownership, limiting annual use of such NOL to:

The Section 382 limitation may be circumvented if the target and buyer collaborate to sell unwanted target assets with unrealized built-in gains before the acquisition occurs. (Motion to Sell Run-off notes) The target may then use its NOL to offset the gain on the sale without limitation. If the unwanted asset disposal occurred after the transaction, on the other hand, the NOL would be subject to limitation under Section 382 would not go as far in shielding the gain.

It is estimated WMIH will pick up another 3 Billion in NOL's if they sell these assets. This adds more value for the acquirer.

You can not (as an acquirer) acquire an NOL rich company for less than the grossed up value.

http://books.google.com/books?id=wpsDAL9HcnAC&pg=PR66&lpg=PR66&dq=treasury+notice+2008-83+bankruptcy&source=bl&ots=xcgof0XL6f&sig=OZJpaVICKFL7POA6IifJJEosFDg&hl=en&sa=X&ei=n78GU8LxC8yHogSvsIHoAQ&ved=0CCYQ6AEwADgK#v=onepage&q=treasury%20notice%202008-83%20bankruptcy&f=false

Start at Chapter 12. Make sure you read 12-85 (1,2,3) and go down from there. In regards to NOL's and value thereof this book explains it all.

If the link does not work. enter the following search phrase into google.

treasury notice 2008-83 bankruptcy

click on

Mergers, Acquisitions, and Buyouts, August 2012
books.google.com/books?isbn=1454809485
Martin D. Ginsburg, ?Jack S. Levin, ?Donald E. Rocap - 2012 - ?Law
11211 2008—10 IRS NOTICES UNDER CODE §382 TO STABILIZE FINANCIAL ... Bankruptcy Rules 12—328 11211.1.4 Regulatory Authority 12—329 11211.2 ...

Here is another really good resource..

http://apps.americanbar.org/buslaw/committees/CL160000pub/newsletter/201302/preserving_nols.pdf

Now why do I take the time to put this info on here. Way back when we were hosed when we were uninformed about the standard practice of using GSA (Global Settlement Agreement) to settle complex issues in BK courts. We were under the impression our attorney representing WMI would sue all parties for everything they could get because a wrong against a solvent bank had been committed. We were naive' about this and got hosed. We were only saved by the constant barrage of shareholders on the Judge and finally it happened Nate Thoma emerged with concrete data that set the new WMIH shares in play. Our NOL's were going to the creditors before this. We emerged as a new entity with the Continuity of Business restriction on our NOL's in stone. We are here now and it is important that every investor realize why KKR is a SIP (Strategic Investment Partner) in this little Shell.

They will use us as a Special Acquisition Vehicle to acquire companies under the shell to build value, meanwhile those companies will go about their business and revenues will flow to the Shell. Distressed debt acquisitions are on the rise, we are heading in that direction. As value is built KKR and their shareholders will benefit from this special vehicle.

When we are where they want us, they will make a play for us and trade in an all-stock acquisition for the Shell.

Ground-Floor Opportunity. I told the investors on here almost 2 years ago to "set it and forget it" and now we are about to realize why. We are fast approaching the 2 year continuity restriction cut-off.