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Mehdi, you asked for my thoughts on a large amount of information, so here it is.
thanks for providing the link to this presentation as well as the link to the congressional report in your post # 26772. Attribution below is for the presentation. I am making comments on each section of the presentation to see how it might relate to Lampert’s purchase of Sears Holdings Corporation assets under a Section 363 Asset Sale and how it relates to a Type (G) reorganization under 368(a)(1)(G) as well as the Committee report on the bankruptcy tax act of 1980.
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Bankruptcy: Special Topics Tracy A. Marion Lanier Ford Shaver & Payne P.C. 2101 West Clinton Ave., Suite 102 Huntsville, AL 35805 256-535-1100 (office) 256-945-0944 (cell) TAM@LanierFord.com www.LanierFord.com © 2014 Tracy A. Marion
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For ease of understanding, I have made parenthetical references to Lampert whether it applies to ESL, Transform Holdco, or any other Lampert controlled entity. I have also made parenthetical reference to “Old Sears” whether it applies to Sears Holdings Corporation (SHC) or any of SHC’s entities and if it seems confusing to SHLDQ (the symbol for SHC stock now that SHLD was delisted from the NASDAQ)
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Tax Aspects of § 363 Asset Sales
? Section 363 of the Bankruptcy Code allows a debtor corporation in a Chapter 11 reorganization to sell some or substantially all of its assets through a court-supervised auction.
DOCKET 1730, FILED ON 1/18/2019, CONFIRMS OLD SEARS SOLD SUBSTANTIALLY ALL OF ITS “GO-FORWARD” ASSETS UNDER A 363 ASSET SALE TO LAMPERT.
Pull up the docket, do a search for “363” and you will get around 45 returns for that item.
? This allows the sale to take place before and outside of the process for confirming the debtor’s plan of reorganization that would otherwise require the vote of creditors.
WE ALL KNOW THIS HAPPENED BECAUSE NOT ONLY HAS A PLAN OF REORGANIZATION NOT BEEN FILED, OLD SEARS APPLIED FOR AND RECEIVED AN EXTENSION OF TIME FOR WHICH THEY HAD THE EXCLUSIVE RIGHT TO FILE SUCH A PLAN.
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Tax Aspects of § 363 Asset Sales
Assets sold pursuant to § 363 are generally transferred free and clear of liens and other prior interests.
JUDGE DRAIN’S ORDER (DOCKET 2507 FILED ON 2/8/2018 SPECIFIED JUST THAT IN THE “TITLE HEADING” OF HIS ORDER:
“ORDER (I) APPROVING THE ASSET PURCHASE AGREEMENT AMONG SELLERS AND BUYER, (II) AUTHORIZING THE SALE OF CERTAIN OF THE DEBTORS’ ASSETS FREE AND CLEAR OF LIENS, CLAIMS, INTERESTS AND ENCUMBRANCES”
? To be free and clear of any “interest in property,” such sales must meet at least one of the following conditions:
• Applicable non-bankruptcy law allows such a sale free and clear of such interest.
• The entity consents. • The interest is a lien and the selling price is more than the aggregate value of all liens on the property.
• Interest is in a bona fide dispute.
• The entity could be compelled to accept a monetary satisfaction of the interest (i.e., in a foreclosure or under receivership).
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? § 363(f) of the Bankruptcy Code.
JUDGE DRAIN’S ORDER SPECIFICALLY STATED THE FOLLOWING ON PAGE 16/83:
R. Satisfaction of Section 363(f) Standards.
SEARCHING “363(f) RETURNS 15 HITS
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Tax Aspects of § 363 Asset Sales
From the federal income tax perspective, § 363 sales occur in one of two forms: a taxable asset sale under IRC § 1001 or a nontaxable reorganization (like G reorganizations).
• 11 USC 368(a)(1)(G)
FROM EXHIBIT B, PAGE 107/1120 OF JUDGE DRAIN’S ORDER:
Sellers (OLD SEARS) agree to cooperate with Buyer (LAMPERT) in order that, for federal income Tax purposes, the transactions effected pursuant to this Agreement, together with the distributions made by, and liquidation of, Sellers (OLD SEARS) pursuant to the Bankruptcy Plan, are treated as one or more plans of reorganization under section 368 of the Code and as qualifying as one or more reorganizations under section 368(a)(1)(G) of the Code
? In a taxable asset sale under IRC § 1012, the purchaser takes a cost basis equal to fair market value of assets at purchase plus the liabilities of seller assumed by purchaser.
THIS DID NOT HAPPEN SINCE LAMPERT AVOIDED THE LIABILITIES OF OLD SEARS AS A RESULT OF THE 363(f) STANDARDS.
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Tax Aspects of § 363 Asset Sales
The debtor/seller’s (OLD SEARS) tax attributes do not carry over to the purchaser (LAMPERT). None of the reductions to debtor/seller’s (OLD SEARS) tax attributes (NOLs, etc.) impact the purchaser’s (LAMPERT’S) attributes.
? Because debtor/seller’s (OLD SEARS) tax attributes do not flow to purchaser (LAMPERT), the seller (OLD SEARS) is able to use its NOLs to shelter any gain on the sale.
? Also, any loss generated by the sale can usually be used to shelter other income of the debtor (OLD SEARS) (or other members if filing as a consolidated group).
THIS PARTICULAR SECTION MIGHT LEAD ONE TO BELIEVE THAT LAMPERT DID NOT GET THE NOL’S. HOWEVER, LOOKING AT THE LAZARD FRERE LETTER WRITTEN AFTER LAMPERT MADE HIS SUCCESSFUL BID, THAT DOESN’T SEEM TO BE THE CASE. ADDITIONALLY THE 368(a)(1)(G) PROVISION WAS FOR THE PURPOSES OF A TAX REORGANIZATION. I THINK IT IS IMPORTANT TO COMMENT THAT THIS “SLIDE” WAS ADDRESSING A SECTION 363 SALE ONLY AND WAS NOT COMBINING IT WITH 368(a)(1)(G).
THE LAZARD LETTER CAN BE FOUND IN EXHIBIT 99.81 OF THE SEC FILING 13D/A FILED ON 12/6/18. IT STATES: OUR (MEANING LAMPERT’S) PROPOSAL PROVIDES THAT NEWCO (THE TERM USED AT THAT TIME FOR LAMPERT’S ORGANIZATION LATER KNOWN AS TRANSFORM HOLDCO) WOULD ACQUIRE SEARS’ (OLD SEARS) TAX ASSETS, THE VALUE OF WHICH WE HAVE INCORPORATED INTO THIS (LAMPERT’S) INDICATIVE BID.
POTENTIALLY ADDING TO THE CONFUSION REGARDING WHETHER OR NOT OLD SEARS OR LAMPERT “HAVE” THE NOLS AT THIS TIME, THE LANGUAGE CLEARLY SHOWS THE NOLS WERE PART OF LAMPERT’S PURCHASE PRICE. HOWEVER, LAMPERT SEEMS TO RECOGNIZE THERE MIGHT BE A POSSIBILITY THE IRS MIGHT NOT APPROVE THE STRUCTURE OF HIS PURCHASE AS QUALIFYING REGARDING LAMPERT’S ABILITY TO UTILIZE THE NOLS WITHIN HIS (LAMPERT’S) TRANSFORM HOLDCO ENTITY AND/OR LAMPERT MAY NOT GET A FAVORABLE TAX OPINION.
THIS CONCERN IS SUPPORTED BY THE FOLLOWING SECTION OF THE ASSET PURCHASE AGREEMENT ATTACHED AS EXHIBIT B OF JUDGE DRAIN’S ORDER AS SHOWN ON PAGE 71/1120 OF DOCKET 2507-1. NOTE, THE JUDGES ORDER COMPRISED PAGES 1-83. THE EXHIBITS TO HIS ORDER WERE NUMBERED 1-1120. ADDING TO POSSIBLE CONFUSION IS THAT PAGE ONE OF THE EXHIBITS (1/1120) IS ALSO SHOWN AS 84/1203 (BECAUSE THE 83 PAGES OF THE JUDGE’S ORDER ARE TACKED ONTO THE 1120 PAGES OF EXHIBITS
TO TRY TO PUT THE FOLLOWING IN PLAIN ENGLISH, EVEN THOUGH LAMPERT’S PURCHASE PRICE INCLUDED OLD SEARS’ TAX ASSETS, HE COULD ELECT TO NOT HAVE THE TRANSACTIONS HE MADE INCLUDE OLD SEARS’ TAX ASSETS. WHY WOULD HE DO THAT? AS YOU CAN SEE IN THE LANGUAGE WHICH WILL BE PASTED BELOW, LAMPERT IS OBVIOUSLY SEEKING A TAX OPINION (AND I BELIEVE PROBABLY ALSO A RULING FROM THE IRS) THAT THE TRANSACTIONS HE MADE UNDER 368(a)(1)(G) QUALIFY. HOWEVER, IF LAMPERT FAILS TO OBTAIN A FAVORABLE TAX OPINION OR AN IRS RULING (A PRIVATE LETTER RULING) THEN LAMPERT CAN OPT TO HAVE THE TAX ASSETS REMAIN WITH OLD SEARS. IT’S THIS UNCERTAINTY, I BELIEVE, WHICH HAS GIVEN RISE TO THE CONFUSION AS TO WHETHER OR NOT THE TAX ASSETS (INCLUDING THE NOLS) RESIDE WITH LAMPERT OR WITH OLD SEARS.
I BELIEVE IT IS INDISPUTABLE THEY RESIDE WITH LAMPERT (SUBJECT TO A FAVORABLE TAX OPINION OR FAVORABLE IRS RULING). IN THE EVENT LAMPERT DOES NOT GET THAT FAVORABLE TAX TREATMENT RULING, THEN IT APPEARS HE IS TRYING TO IDENTIFY SOME REMAINING OLD SEARS ASSETS AROUND WHICH TO HAVE OLD SEARS REORGANIZE. THIS SEEMS TO BE THE CLASSIC “BACK UP PLAN”. SECTION 9.2(a) OF THE APA, CLEARLY STATES THE INTENT OF THE PARTIES IS TO TREAT THE TRANSACTION AS A TAX REORGANIZATION, HOWEVER, IF THEY CAN NOT GET A FAVORABLE RULING THEN “PLAN B” KICKS IN WHICH IS TO HAVE LAMPERT REJECT THE TAX ASSETS THEREBY KEEPING THEM WITH OLD SEARS AND IT APPEARS TO TRY TO “SAVE” SOME BUSINESS(ES) WITHIN OLD SEARS AROUND WHICH A REORGANIZATION COULD BENEFIT FROM RETENTION OF THOSE TAX ASSESTS.
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NOW FOR THE LEGAL TEXT FROM PAGE 71/1120 OF DOCKET 2570:
(b) Buyer may, at any time on or before the earlier of (i) 15 days prior to the effective date of the Bankruptcy Plan and (ii) December 1, 2019, elect, by providing to Sellers written notice of its election, to treat one or more of the transactions (each, a “Designated Sale Transaction”) set forth in this Agreement as not qualifying as a Tax Reorganization, which election shall be effective unless Designated Tax Advisor cannot provide a Tax Opinion that such Designated Sale Transaction can be completed in a manner that would not be treated as a “reorganization” within the meaning of section 368 of the Code; provided, however, that in connection with any such Buyer election to treat all the transactions described in this Article II as Designated Sale Transactions (resulting in no transfer of Sellers’ Tax attributes to Buyer), the Parties shall, if requested by Sellers in writing, identify a business of the Sellers that would become part of the Excluded Assets and consider in good faith any other changes to the structure of the transaction that are reasonable and necessary as a commercial, bankruptcy law and other legal matter to achieve that result. If Buyer does not elect pursuant to this Section 2.12(b) to treat all the transactions described in this Article II as Designated Sale Transactions (resulting in no transfer of Sellers’ Tax attributes to Buyer), or any such election is not effective, then Buyer and Sellers shall continue to comply with Section 9.2(a).
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SO, WHAT THIS MEANS TO ME IS WE WILL JUST HAVE TO WAIT AND SEE WHETHER OR NOT LAMPERT IS SUCCESSFUL IN OBTAINING A FAVORABLE TAX OPINION OR IRS RULING BEFORE WE KNOW FOR CERTAIN WHERE THE TAX ASSETS WILL RESIDE.
IF THOSE TAX ASSETS DON’T END UP WITH LAMPERT THEN I DON’T SEE ANY REASON LAMPERT WOULD BE EXCHANGING ANY TRANSFORM HOLDCO (LAMPERT) STOCK FOR SHLDQ STOCK. IF THAT WERE THE CASE, THE NOLS WOULD BE WITH OLD SEARS AND IT SEEMS TO ME ANY BENEFIT TO BE REALIZED BY SHLDQ STOCKHOLDERS WOULD HAVE TO BE AS A RESULT OF SOME SUCCESSFUL REORGANIZATION OF OLD SEARS, HENCE, MAYBE THE REASON FOR BUYING TIME BY REQUESTING AN EXTENSION OF THE EXCLUSIVE PERIOD FOR OLD SEARS TO FILE A POR.
IT ALSO SEEMS THAT IF THE NOLS REVERTED TO OLD SEARS THAT ANY TYPE OF “MERGER” OF LAMPERT WITH A REORGANIZED OLD SEARS “SHELL” WOULD SUBJECT LAMPERT TO ALL OF THE CREDITOR LIABILITIES HE SUCCESSFULLY AVOIDED BY GETTING HIS PURCHASE APPROVED UNDER 363(f). IF HE WERE TO DO THAT, IT SEEMS ANY LONG TERM TAX BENEFIT WOULD BE COMPLETELY OFFSET IN THE IMMEDIATE TERM FROM HAVING TO REACQUIRE CREDITOR LIABILITIES.
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Tax Aspects of § 363 Asset Sales
To be considered a tax-free transaction (more correctly, a “tax-deferred” transaction), the most popular method is through IRC § 368(a)(1)(G) (a.k.a. “Type G reorganization”).
?In a Type G reorganization, the debtor generally will not recognize any gain or loss on the transfer.
?The debtor’s tax basis typically carries over to the acquiring company.
THIS SEEMS TO BE THE STRATEGY INCORPORATED INTO SECTION 2.12 (a) OF THE APA FROM PAGE 70/1120 OF JUDGE DRAIN’S ORDER.
Section 2.12 Tax Reorganization. (a) The Parties intend that the transactions set forth in this Agreement, as structured and implemented as described in Section 9.2(a), together with the Bankruptcy Plan (as defined below), will, unless and except to the extent that Buyer (LAMPERT) elects otherwise with respect to a particular Seller (OLD SEARS) or Sellers (OLD SEARS) pursuant to Section 2.12(b), (i) constitute one or more plans of reorganization under section 368(a) of the Code (as defined below) and (ii) as qualifying as one or more reorganizations thereunder (a “Tax Reorganization”)
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Type G Requirements
To qualify as a Type G reorganization, the transaction must fulfill several requirements:
• Transfer must be pursuant to a court-approved plan adopted by both sides. • Transfer must be of “substantially all” of transferor's assets to a single acquiring corporation.
AS PREVIOUSLY CITED IN THE LAZARD LETTER, LAMPERT’S BID WAS TO ACQUIRE SUBSTANTIALLY ALL OF THE ASSETS OF OLD SEARS. THAT BID BY LAMPERT TO ACQUIRE SUBSTANTIALLY ALL OF THE ASSETS OF OLD SEARS WAS APPROVED BY THE COURT AS DOCUMENTED IN JUDGE DRAIN’S ORDER.
? 50/70 rule—IRS guidelines in private letter rulings are that transferee (LAMPERT) must acquire more than 50% of fair market value of gross assets and more than 70% of the fair market value of operating assets of transferring (OLD SEARS) company.
OBVIOUS IF LAMPERT ACQUIRED SUBSTANTIALLY ALL OF THE ASSETS OF OLD SEARS AND QUOTED COMMENTS FROM THE BOARD POSTS OF THE LAWYER SAYING LAMERT RESIGNED FROM SEARS BECAUSE HE DIDN’T WANT TO STAY ON WITH OLD SEARS BEING EFFECTIVELY A SHELL, IT MIGHT BE SAFE TO CONSIDER THESE PERCENTAGES HAVE BEEN MET.
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Type G Requirements
Stock of acquirer (LAMPERT) must be distributed by transferring company (OLD SEARS) to its shareholders.
THIS SEEMS TO BE STRAIGHTFORWARD BUT I’M NOT SURE THAT IT IS.
THERE IS A DOCUMENT OUT THERE WHICH I CAN NOT FIND AT THIS POINT. POSSIBLY SCHEDULE 9.2 (I BELIEVE) WHICH IS A DESCRIPTION OF THE “SECURITIES CONSIDERATION” REFERENCED IN THE APA WHICH LAMPERT IS REQUIRED TO DELIVER AT CLOSING. IF MEMORY SERVES ME CORRECTLY, THIS CONSISTS OF 3,000 SHARES OF A CLASS B SECURITY IN TRANSFORM HOLDCO WHICH WAS VALUED AT $300,000. THESE SECURITIES WERE TO BE DISTRIBUTED TO DEBTORS, OTHER THAN SHC, IN ACCORDANCE WITH THE DISTRIBUTION AGREEMENT (WHICH I CAN NOT LOCATE AT THIS TIME). I BELIEVE THE SHAREHOLDERS REFERENCED WERE THE SHAREHOLDERS AND CREDITORS OF SHC SUBSIDIARIES, NOT HOLDERS OF SHLDQ.
• At least one shareholder of transferring company (OLD SEARS) must receive stock of acquiring company (LAMPERT).
OF CONCERN HERE IS THE LANGUAGE DOESN’T PROVIDE THAT ALL SHAREHOLDERS OF OLD SEARS MUGT RECEIVE STOCK OF LAMPERT’S COMPANY. IS THIS THE “SCREW THE REST OF THE SHLDQ SHAREHOLDERS LOOPHOLE” OR NOT?
OBVIOUSLY LAMPERT WAS AND CONTINUES TO BE A SHAREHOLDER OF OLD SEARS AND AS SHOWN ON THE FOLLOWING REFERENCES HE IS ALSO A SHAREHOLDER IN HIS OWN COMPANY, TRANSFORM HOLDCO, WHICH IS THE ACQUIRING COMPANY.
DOCKET 2344 AT THE BOTTOM OF PAGE 237 SAYS THAT LAMPERT, IN EXCHANGE FOR HIS CREDIT BID, WILL RECEIVE SHARES IN TRANSFORM HOLDCO. ADDITIONALLY, DOCKET 2352 ON PAGE 24 SAYS THE SAME THING.
• Must be a bona fide business or corporate purpose for transaction.
SINCE LAMPERT’S COMPANY, TRANSFORM HOLDCO, PURCHASED SUBSTANTIALLY ALL OF THE GO-FORWARD ASSETS ON A GOING CONCERN BASIS, THIS PROVISION SEEMS TO BE SATISFIED.
•Only the transferring corporation (OLD SEARS) or the acquirer (LAMPERT) (or neither) can be an investment company.
OLD SEARS ISN’T AN INVESTMENT COMPANY AND LAMPERT IS
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Type G Requirements
There must be a continuity of the business enterprise of transferor’s (OLD SEARS) business.
SINCE LAMPERT’S COMPANY, TRANSFORM HOLDCO, PURCHASED SUBSTANTIALLY ALL OF THE ASSETS OF OLD SEARS WITH THE STATED INTENT OF CONTINUING THE BUSINESS, THIS HAS ALSO BEEN SATISFIED.
? This requirement is met if acquirer either continues transferor’s business or uses a significant portion of the transferor’s assets in acquirer's business.
SEE COMMENT ABOVE
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Tax Aspects of § 363 Asset Sales
Continuity of proprietary interest requirement:
? Measured by amount of stock received by transferor’s (OLD SEARS) creditors and shareholders as a percentage of total consideration.
? Typically if 40% or more of consideration is transferor’s (OLD SEARS) stock, requirement is met.
WHEN THIS PRESENTATION WAS MADE, I’M NOT SURE IF TRANSFEROR IN THIS SECOND POINT SHOULD HAVE BEEN TRANSFEREE. I CAN’T MAKE SENSE OF IT AS IT READS. THEREFORE, I HAVE DONE A CUT/PASTE DESCRIBING THE CONCEPT OF CONTINUITY OF PROPRIETARY INTEREST. EVEN THOUGH IT IS NOT A PART OF THE ARTICLE, I HAVE INSERTED “OLD SEARS” AND “LAMPERT” FOR CLARITY.
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What is the Continuity Of Interest Doctrine - CID
The Continuity of Interest Doctrine (CID) requires shareholders of an acquired company (OLD SEARS) to hold an equity stake in the acquiring company (LAMPERT) to allow tax deferral. The doctrine, (or CID, also known as Continuity of Proprietary Interest) stipulates that a corporate acquisition of a target firm can be done on a tax-free basis if the shareholders of the acquired company (OLD SEARS) receive and hold an equity stake in the acquiring company (LAMPERT).
The Continuity of Interest Doctrine was intended to ensure that a stockholder in an acquired company (OLD SEARS), who continued to hold an interest in the successor corporation (LAMPERT) or continuing entity created after the reorganization, would not be taxed. In practical terms, however, the doctrine can do little to enforce a continuing interest because shareholders of the acquired company (OLD SEARS) are free to dispose of their holdings as soon as the acquisition transaction is completed.
BREAKING DOWN Continuity Of Interest Doctrine - CID
The Internal Revenue Service (IRS) abandoned the post-reorganization continuity requirement and adopted new regulations in January 1998 and eventually finalized the regulations in December, 2011. The focus of the new regulations was primarily on the consideration received by the shareholders of the acquired company (OLD SEARS), with the objective of preventing a transaction that is actually a sale of the company from receiving tax-free status. The Continuity of Interest doctrine requires that a specified percentage of such consideration be in the form of the acquiring company's (LAMPERT’S) stock. While the IRS required this percentage to be 50% for advance ruling purposes, case law suggests that Continuity of Interest can be maintained even at 40%.
The continuity of interest requirement is determined based upon when a binding contract for acquisition by the parent company (LAMPERT) is signed, and the price at which the stock of the target firm (OLD SEARS) is purchased. In an acquisition, shareholders of the target firm (OLD SEARS) may typically receive stock in the acquiring firm (LAMPERT) as well as cash for their shares originally held in the target firm (OLD SEARS) . In the case of a cash-only sale of stock in a target company, shareholders of the acquired firm would typically pay tax on the sale of shares when the acquisition is completed. Under CID, taxes would be deferred until the point at which they sold the shares acquired in the merger.
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SO, THE QUESTION IS, SINCE LAMPERT ACTUALLY HOLDS 49.5% OF THE STOCK ((WITHOUT TAKING INTO CONSIDERATION OF ANY OF HIS WARRANTS (PROBABLY WORTHLESS SINCE THEY ARE “OUT OF THE MONEY”) AND THE DERIVATIVE SECURITIES WHICH HE CAN CONVERT)) CAN THIS PROVISION REGARDING CONTINUITY OF PROPRIETARY INTEREST BE SATISFIED ALONE ON THE BASIS OF LAMPERT’S SHARES OR DO ALL OF THE SHLDQ SHAREHOLDERS HAVE TO BE INCLUDED? IS THIS A LOOPHOLE LAMPERT COULD EXPLOIT AT THE EXPENSE OF THE REMAINING SHAREHOLDERS? THE 40% RULE (RECENTLY REFERENCED IN A BOARD POST) SEEMS LIKE IT COULD BE SATISFIED BY LAMPERT WITHOUT “TAKING IN” THE REMAINING SHLDQ SHAREHOLDERS.
WHILE I UNDERSTAND HOW THIS COULD BE A P/R NIGHTMARE FOR LAMPERT, REMEMBER HIS COMMENT IN THE WSJ ARTICLE LAST THURSDAY WHEN LAMPERT SAID THAT AS A PRIVATE COMPANY HE COULD DO THINGS WHICH MIGHT NOT BE ACCEPTABLE TO SHAREHOLDERS. THIS COMMENT WAS MADE BEFORE HE COMMENTED HE WOULD BET HIS PRIVATE COMPANY WOULD EVENTUALLY GO PUBLIC.
SO, DO EVERYTHING “DISTASTEFUL” AS A PRIVATE COMPANY AND NOT HAVE TO ANSWER TO ANYBODY AND THEN GO PUBLIC? AGAIN, I’M TRYING TO LOOK AT WHAT MIGHT POSSIBLY BE UNDER THE RUG. I KNOW HE MADE THE COMMENT ABOUT BEST OUTCOME FOR ALL STAKEHOLDERS BUT IS THAT BINDING?
CONFUSING THE ISSUE OF CONTINUITY OF INTEREST IS LANGUAGE FROM THE CONGRESSIONAL REPORT. THE COMMITTEE BILL PROVIDES THAT CREDITORS OF A DEBTOR (OLD SEARS) CORPORATION ARE TO BE TREATED AS SHAREHOLDERS IN APPLYING THE CONTINUITY RULES.
FOOTNOTE 1 ON PAGE 33 OF THIS REPORT SAYS: UNDER PRESENT LAW, IT IS NOT CLEAR TO WHAT EXTENT CREDITORS OF AN INSOLVENT CORPORATION WHO RECEIVE STOCK IN EXCHANGE FOR THEIR CLAIMS MAY BE CONSIDERED TO HAVE “STEPPED INTO THE SHOES” OF FORMER SHAREHOLDERS FOR PURPOSES OF SATISFYING THE NONSTATUTORY “CONTINUITY OF INTEREST” RULE, UNDER WHICH THE OWNERS OF THE ACQUIRED CORPORATION (OLD SEARS) MUST CONTINUE TO HAVE A PROPRIETARY (I READ THIS AS MEANING STOCKHOLDER) INTEREST IN THE ACQUIRING CORPORATION (LAMPERT). GENERALLY, THE COURTS HAVE FOUND THE “CONTINUITY OF INTEREST” TEST SATISFIED IF THE CREDITORS’ INTERESTS WERE TRANSFORMED INTO PROPRIETARY INTERESTS PRIOR TO THE REORGANIZATION.
FOOTNOTE 7 ON PAGE 37 SAYS: CREDITORS OF A DEBTOR CORPORATION IN A TITLE 11 OF SIMILAR CASE ARE TO BE TREATED AS SHAREHOLDERS IN APPLYING THE CONTINUITY RULES OF CODE SEC 382(b).
SO, IF CREDITORS CLAIMS ARE CONVERTED BY ISSUING THEM STOCK, THEY ARE NOW STOCKHOLDERS AS NOTED ABOVE AND LAMPERT, TOGETHER WITH ANY CONVERTED CREDITORS CERTAINLY MAKE UP MORE THAN 50% OF STOCKHOLDERS. AGAIN, THAT FOR ME RAISES THE QUESTION, DOES LAMPERT HAVE TO BRING THE MINORITY SHLDQ SHAREHOLDERS TO THE PARTY?
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Credit Bidding (363(K))
When an asset is sold under 363 and it is subject to a secured creditor’s lien, the creditor may use all or a portion of its claim against the debtor to satisfy the purchase price.
JUDGE DRAIN’S ORDER, DOCKET 2507 ON PAGE 9 SO ORDERED THAT LAMPERT COULD CREDIT BID IN ACCORDANCE WITH 363(K)
? This is known as credit bidding.
? This protects the secured creditor against bias from other parties that would undervalue the property.
? The creditors can also claim the proceeds from a 363 sale to another bidder if the creditor believes the bid represents the true value of the property.
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Credit Bidding (363(K))
?In theory, the creditor recognizes a taxable gain (or loss) equal to the difference between the fair market value of the property and the creditor’s basis in the portion of the claim.
?In practice, however, there is a regulatory presumption that the fair market value of the property equals the amount of the claim exchanged for it, and thus no gain or loss is recognized.
IT WOULD APPEAR THIS SECTION WOULD APPLY SINCE LAMPERT RECEIVED $1.3 BILLION IN VALUE FOR UTILIZING THIS AS PART OF HIS TOTAL $5.2 BILLION BID.
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THE WAY THE LINK DOWNLOADED, I AM NOT ABLE TO CUT/PASTE SECTIONS OF IT. REMEBERING THAT LAMPERT, AS PART OF THE SECURITIES CONSIDERATION DISCUSSED IN THE APA WAS TO PROVIDE 3000 CLASS BE SHARES WHICH WAS PART OF LAMPERT’S PURCHASE PRICE FOR SUBSTANTIALLY ALL OF THE ASSETS OF OLD SEARS, I WOULD ENCOURAGE YOU TO READ THE EXAMPLE ON PAGE 38 OF THE CONGRESSIONAL REPORT WHICH WAS LINKED IN POST # 26722.
shldv was a "when issued" symbol dating back to 2014. it might have been for the warrants which carried a convertible option, but so far as i can see, it has absolutely nothing to do with shldq, the q coming off, or any current "when issued" stock of shc.
if you put shldv in your google machine you should be able to confirm that the hits for that search go back quite some time.
so, i believe it is just noise which does not apply to our situation
never showed the Q on the sec edgar site
anybody know why docket 2539 is unavailable?
did anyone download this docket and know what it is?
shldq is the stock of sears holdings corporation SHC
sears re is a wholly owned captive insurance company of SHC domiciled in bermuda
although not one of the SHC debtors which filed for bankruptcy, it nevertheless is a party to the asset purchase agreement in that it agreed to be bound by some of the provisions of the apa.
mehdi,
here is the link which YOU posted to me.
http://www.woodllp.com/Publications/Articles/pdf/Continuity_of_Interest.pdf
look at footnote 1 on page 33 and footnote 8 on page 37
MEHDI,
in the committee report you linked in your post # 26772 it said "creditors of a debtor corporation in a title 11 or similar case are to be treated as shareholders in applying the continuity rules"
footnote 1 of that same document says "generally, courts have found the "continuity of interest" test satisfied if the creditors interests were transformed into proprietary interest prior to the reorganization"
in response to my question "what post" you said 27041
i don't see how that is responsive. you said "you didn't read my follow up to this". however, as noted from your complete post below.
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And you didn’t read my follow up to this. I am well aware of what you claim, however buying as chair is legal, selling with insider knowledge ahead of investors is very illegal. He stepped down due to these legalities and the difficult position staying chair would have caused.
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post # 27041 is a response from porgie tirebiter TO you. how is this your followup?
what post # was your follow up?
thanks
you say:
Eddie stepping down was the only legal way for him to make that purchase. If he remained chair, it would have been considered insider trading.
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your use of the term "insider trading" is said in a pejorative way. insider trading can be perfectly legitimate since the term insider can be applied to officers and directors of a company as well as any non-officer/director who owns 10% of a company's voting stock. that is why, despite stepping down, eddie was still considered an insider because of the percentage of shldq stock he owned and he's still an insider.
if you go so far as to research the proposal soliciting bids from interested parties, you will see that not only was it anticipated but disclosed that insiders might bid on assets of sears holdings.
the link below shows that eddie's resignation came weeks after his hedge fund had made multiple purchase offers the last of which was both approved by sears as a qualified bid permitting him to participate in the auction and by judge drain in his order aka docket 2507 which i see was referenced to you in a previous post.
https://www.sec.gov/Archives/edgar/data/1310067/000119312519041193/d704657dex992.htm
really?
SHLDQ
Sears Holdings Corp.
Common Stock
1.24
-0.20
-13.89%
No Inside Bid / Offer
Delayed (15 Min) Trade Data: 12:00am 02/15/2019
Overview
Quote
Company Profile
Security Details
News
Financials
Disclosure
Research
Warning! This company is in bankruptcy!
Click here to learn more about the bankruptcy reorganization process.
https://www.otcmarkets.com/stock/SHLDQ/quote#level-2
you say this:
"I'm not sure. My point is that you've done no research on the matter, and neither have I, thus anything we say is opinion. That's how theories and the scientific process work. You only make claims that can be backed with research and data. And that is how I treat stocks."
and then follow it up with this?
Eddie filed this bankruptcy because it allows for a hedge fund to make a bid for common stock, and also opens the massive restrictions on the tax breaks (NOL's) that would have otherwise been in place. The entirety of this situation has been orchestrated by a single individual with the intent to make more money. Eddie made the cake, has it, and is eating it too.
not a single reference, source or link included
Lampert Reveals Plans for Sears After Bankruptcy: WSJ
By Reuters
Feb. 13, 2019
(Reuters) - Sears Holdings Corp will sell or sublease some of the 425 stores of the retail chain and open smaller stores with more focus on tools and appliances than on apparel, said Chairman Edward Lampert in an interview with the Wall Street Journal.
A U.S. bankruptcy judge approved Lampert's hedge fund ESL investments Inc's $5.2 billion takeover of the troubled retailer last week, allowing the department store chain to avert liquidation and preserve tens of thousands of jobs.
"It would be very difficult to keep all 425 stores open," Lampert said in the interview, adding that a few stores have already been closed and would probably be sold soon.
Lampert, who stepped down as CEO of the company that filed for bankruptcy on Oct. 15, 2018, while remaining its chairman, also said he would hire a new CEO.
The restructured company, which has 223 Sears outlets and 202 Kmart stores, will keep Sears Auto Centers, Sears Homer Services and the Kenmore and DieHard brands.
Lampert also hinted that Sears would eventually be taken public, saying he doesn't want the company to stay private indefinitely.
(Reporting by Soundarya J in Bengaluru; Editing by Shinjini Ganguli)
mehdi
that congressional report looks to be a great find. i'm in a working mode for the next few days but will be getting in to it as time allows and will get back to you on that. looks very much pertinent to our situaltion.
thanks
mehdi,
i downloaded that congressional report and my first concern was that it was written to apply to chapter x cases. want to go through it in more detail when i have time to think about and see what its says re: chapt 11 cases.
certainly like what is says about stockholders but again want to see it in relation to a chapt 11 reorganization.
it gives them a few more months to plan their own destiny before someone else could come in and force a plan on them.
maybe they need a little more time to close the deal with transform holdco and don't want the headache of being forced to do something.
i don't believe they have a viable plan of reorganization.
he would still have to report additional accumulations of stock, even though he was no longer with the company.
anyone who owns 10% or more of a traded stock is considered an insider and is still obligated to file forms showing beneficial changes in ownership.
eddie couldn't quietly accumulate the outstanding float without reporting it.
_________________________________________________________
What is an Insider
Insider is a term describing a director or senior officer of a company, as well as any person or entity that beneficially owns more than 10% of a company's voting shares. For purposes of insider trading, the definition is expanded to include anyone who trades a company's shares based on material nonpublic knowledge. Insiders have to comply with strict disclosure requirements with regard to the sale or purchase of the shares of their company.
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if eddie were to either buy or sell it probably be considered a trade worthy of being investigated since anything he might be doing with his shldq stock would be based on knowing what his own intentions were relative to that stock's ultimate fate.
i would love to see a buy from him. on the other hand, an outright sell would have me throwing up
b bob
you asked:
"LINK PLEASE
"""said some are unprofitable and will be closed"""
From what I have seen the 425 he has kept open ARE THE PROFITABLE ONES, all those not have been shut down and are dark or are in the process off, but he plans to move forward with 425 profitable one!"
read post #26466
i have a subscription to the wsj. as posted, the article is from thursday's paper (2/14) and is on the top of page 1 of the business section (section b)
am not sure he forgot to say that, but amazed that some "informed" journalist knowledgeable of the tax issues wouldn't ask that question since it seems to be more than ripe.
lampert has said that not all of the 425 stores will continue to operate. in fact he has said some are unprofitable and will be closed and also said some of the stores he acquired are already closed and will probably be sold.
from thursday wsj article by suzanne kapner, lillian rizzo,contributor:
in what was described as lampert's "first interview since his rescue plan was approved by the bankruptcy court this week" he said:
0 the restructured company doesn't yet have a new corporate name
0 he will sell or sublease some of the chain's 425 remaining stores
0 wants to open smaller stores similar to the one in oak brook, illinois
0 goal is to continue to shrink the size of our stores
0 he plans to devote more space to tools and appliances
o not all of the 425 stores are profitable
0 it would be very difficult to keep all of those stores open
0 would like to maintain a presence in the stores they are already in
0 he is buying a number of closed stores which likely will be sold
0 the restructured company is controlled by lampert
0 doesn't want to see his new sears stay private indefinitely
0 if private could do things that public investors wouldn't endorse
0 however, going public would enable fund raising in public market
0 bets at some point his "new sears" would be public again
the fact that eddie and his cohorts control around 73% of shldq does not mean that he took 73% of the assets when transform holdco won the bid for the majority of sears' assets.
also believe your 73% figure assumes that warrants and derivative securities are exchanged for stock which hasn't happened at this time.
the idea that nols were not part of transform holdco's purchase of shc assets is belied by the documents.
following link will take you to references to the specific places in those documents which indicate transform holdco purchased the tax attributes (nols discussed in post # 26095) and (tax credits discussed in post # 26237)
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=146900213
you seem to have a theory but i can't see that it is supported by the documents. this is not a black box, there are relevant and established facts out there regarding the issues you address.
regarding the difficulty of not only transferring but subsequently benefiting from the nols, the documents also say that transform holdco will be seeking an accounting opinion on the viability of the nols which transform holdco purchased. another poster here also commented that transform holdco will most likely seek a private letter ruling from the irs which is what happened in the wamu deal.
you are correct that deals taking advantage of nols are difficult to carry off. the wamu irs ruling can not be applied to this case because it WAS a private letter ruling which only applied to the party requesting it and could not be relied on by anyone else.
however, it is a template which i'm sure transform holdco will be studying to make sure their deal is structured to take full advantage of these tax assets.
illini,
i AM still a shareholder. i don't view my posts as negative. i try to give all sides of what is going on. just because everything i post doesn't fit nicely with someone's confirmation bias doesn't mean i am negative, a short, or a non-holder.
i would certainly rather go into a situation with my eyes wide open versus eyes wide shut.
stockjunky,
as i've posted a number of times, if the nols go to transform holdco my read is the current shldq stockholders (which includes lampert in a big way) need to survive in some fashion.
if transform holdco were not to get the nols, then there is no need for lampert to be concerned about any "shift in ownership" or equity structure preservation.
in that scenario, since lampert owns virtually 100% of transform holdco, he has no need to preserve or accommodate shldq common stockholders, including himself.
in this latter case, accommodating common stockholder would only serve to reduce his % ownership in transform holdco.
might be a public relations reasons for working out some accommodation with common shareholders especially if you think those who hold the other 30% of the common shares will be your customers for life. i'm not so sure about that logic holding up.
lampert is a billionaire. he didn't become one by giving up money he didn't need to.
omar,
important to note this was structured as a 363(f) sale and those exemptions usually applying to a straight chapt 11 case will not apply
indication of further intent of transform/holdco to acquire tax assets
in addition to the nols, shc indicated there were around $1 million of mostly foreign tax credits. unlike nols which serve to reduce the reported income for calculating taxes owed, a tax credit is an actual reduction, dollar for dollar, in the amount of taxes owned.
so, for instance if after applying the nols you owed $100, in taxes, you could use available tax credits to reduce or fully eliminate the amount of taxes owed.
this cut/paste section is from the first amendment to the apa signed on february 11, 2019 and it applies to foreign entities of shc which transform holdco may need to qcquire. ________________________________________________________________
b) If, at any time prior to the date that is sixty (60) days after the Closing Date, Buyer determines (in its sole discretion) and notifies the Seller that it is necessary or desirable to acquire other minority equity interests in non-U.S. Persons held by Subsidiaries of the Seller (other than any Subsidiary who is a Seller (including, if agreed between Buyer and Sellers, through transferring the equity of any such Subsidiaries holding such minority equity interests)) so as to ensure that Buyer or the applicable Assignee shall be able to secure the benefit of the applicable Acquired Foreign Assets, Buyer may elect, by written notice delivered to the Sellers, to acquire such other minority equity interests directly from the Seller it being agreed by the Parties that such equity interests will be deemed to be Acquired Foreign Assets for the purposes of this Agreement. Following any such election, Buyer and the Seller shall promptly execute all documentation required to effectuate the purchase and sale of such other minority equity interests under applicable Law. If (i) the proposed transfer of any such other minority equity interests triggers any right of first offer, right of first refusal or other preemptive right by a third party and (ii) such third party exercises such right of first offer, right of first refusal or other preemptive right, then the Sellers shall pay or cause to be paid to Buyer any consideration received by the Sellers or their Subsidiaries resulting from such exercise (and such transfer shall be deemed to satisfy the Sellers’ obligation to sell, transfer, assign, convey or deliver the applicable other minority equity interests).”
tsp,
from a management standpoint, he has nothing to do with them. he can't order sales of real estate and inventory and direct how those proceeds are to be utilized. sears holdings is currently under control of the bankruptcy court. eddie can't waltz into the court and start demanding anything based on his status as the largest shareholder.
lampert has nothing to do with sears holdings corporation anymore.
unless he does it as a creditor requesting the chapt 11 be converted to a chapt 7 for purposes of immediate liquidation, lampert has no status to request a dismissal. and if he were to do it as a creditor before all of the i's are dotted and t's are crossed related to the closing, that might actually jeopardize the nol shift to transform holdco.
lampert has nothing to do with selling the inventory and real estate to pay off "whatever agreement holders" you are referencing. those gobs are being conducted by sears holdings and yes, those proceeds will be used to pay for administrative claims and various creditors. so, if the "he" you refer to is lampert, you are just flat wrong in your analysis.
a lot of things could happen, just not any of the things you mention in this post in the way you have described them
mehdi,
read post 26095.
the documents referenced will show that the company you reference as OldCo in fact did sell substantially all of its assets to Transform Holdco. part of those assets were the nols.
OldCo does NOT control the nols
There are serious concerns that NewCo, the Sears Holdings Corporation you reference, may never be created and emerge from bankruptcy as any type of reorganized OldCo as a result of administrative insolvency.
vilhelm,
nevertheless, a lot of funny things are actually true
north,
although it's longer than most, read attached post which references what has actually been said about the nols and posted in various dockets of the bankruptcy as well as with the sec.
again, longer than a tweet so get a cup of coffee.
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=146900213
“Confusion about NOLs”
You say potayto I say potahto, you say tomayto, I say tomahto
When you ask: “why can’t this be answered with a simple yes or no?”, it’s because there are no rules of thumb that can be used for quick problem solving and decision making regarding this issue.
If these things have real value, why can’t you just go to a company’s financial statement and just look it up? The answer is that a company will only show value for these types of assets on its balance sheet if there is a greater than 50% chance the company’s accounting income will be positive in the following accounting period.
Since Sears (SHC) has not shown positive accounting income for a number of years (which is why they have all of these deferred tax assets), when you look at their balance sheet under the line item “Current Assets” you will see minimal to zero value.
So you ask, if there is minimal to zero value, why the fuss? Because a company which has positive income can acquire these deferred tax assets which can then be used to offset their positive income and reduce their income tax liability potentially for many years to come. (recall the recent post in which Lampert commented he expected the assets which he purchased under Transform Holdco to be EBITA positive in 2019). EBITA means “earnings before interest, tax, and amortization”. For Lampert, positive EBITA means the ability to utilize deferred tax benefits and reduce taxes owed.
If you look at the Asset Purchase Agreement (the “APA”), there are 33 pages of definitions. There is not one single definition for NOLs, Tax Credits, Tax Assets, or Tax Attributes. The only suggestive definition is for “Tax Result” which brings us to the “word salad”.
Tax Result is defined as the minimization of liability and maximization of benefit associated with tax attributes. So you ask, “what are tax attributes?, there’re not defined in the APA”. Well, in the Tax Result definition it references IRS CODE 108(b)(2) and also IRS CODE 1504(a). What the hell is that you ask? Now, if you’re not completely frustrated, you are required to look up those two IRS Code #’s.
Finally, some light at the end of the tunnel you think. IRS Code 108(b)(2) talks about “tax attributes” and then you see that the IRS considers one of these “tax attributes” to be NOLs and some tax credits are discussed here as well.
So, problem solved you say. NO, that still begs the question “who gets to realize the benefit of these tax attributes since SHC declared bankruptcy?
So, if you now go back to when SHC was trying to solicit bids for all or various components of the company, it hired Lazard Frere to be its advisor. Lazard Frere sent out a letter to many parties who had expressed an interest in all or some components of SHC and ask them to consider making bid(s).
Going back to November 21, 2018 (from page 6/46 of docket 862) you can see the letter Lazard sent out. Following is an excerpt from that letter:
“We also note that the tax profile of the Company (SHC) represents the potential for substantial future value, and prospective bidders should take into account that an acquisition of the equity of the entire group pursuant to a Chapter 11 plan, through an acquisition of Sears Holdings Corporation, is most likely to preserve this potential value as part of the assets and value acquired”
As you can see, Lazard was looking for someone to acquire everything suggesting that to be the simplest and best way to preserve “tax profile” interests.
The letter also suggested if SHC did not get an acceptable bid that SCH might attempt a reorganization from which it could emerge and utilize its own tax profile benefits.
Now, flash forward to December 2, 2018. SHC filed a 13D/A and the following excerpt is from Exhibit 99.1. It is another letter from Lazard which discussed the bid submitted by ESL (Lampert’s company) in which it described a bid from an ESL entity (what became known to us as Transform Holdco). That letter indicated ESL was making a bid to acquire substantially all of the assets (but not the stock which we know as shldq) pursuant to a sale under section 363 of the U.S. Bankruptcy Code.
That letter went on to say that ESL’s company would acquire Sears’ tax assets, the value of which we have incorporated into this Indicative Bid.
So, it seems pretty plain to me that if ESL’s bid were to be approved by the bankruptcy court that ESL would be acquiring the tax assets of SHC and these tax assets include NOLs.
So, if it’s that plain and straight forward, why the continuing confusion?
Remember, the Unsecured Creditors objected to the sale of substantially all of Sears’ go forward assets to ESL as a going concern and they filed an objection with the court. Sears filed a response to the Unsecured Creditors’ objection and some confusion was sowed in that response. It’s important to remember that both the objection and response were filed before Judge Drain had issued his ruling on the ESL/Transform Holdco bid. Why is that important? Because the Unsecured Creditors were making their arguments hoping the ESL bid would not be approved and Sears responded to those arguments with some assumption that if the ESL bid were not approved that Sears might utilize the tax benefits in some type of reorganization.
Docket 2042 is the objection filed by the Unsecured Creditors. On page 43 of that docket, the Creditors Committee expressed its view to the Debtors (SHC et al) that ESL’s bid failed to offer sufficient consideration for the assets contemplated to be purchased, including … valuable tax attributes that ESL would acquire as part of its bid…
It’s important here to realize the lawyers for the Unsecured Creditors recognized and acknowledged that ESL would acquire valuable tax attributes if ESL’s bid was confirmed by Judge Drain.
Now, let’s look at SHC’s response to the unsecured creditors filed on February 1, 2019 as docket 2320, again keeping in mind their response was filed before knowing whether or not Judge Drain would approve the sale to ESL/Transform Holdco.
In their Preliminary Statement, SHC says : “in less than four months since the petition date, the Debtors have negotiated a transaction that will maximize the value of their estates for the benefit of all creditors.”
Notice, they don’t say ALL Stakeholders.
Furthermore, in the Debtors’ Omnibus Reply in Support of the Going Concern Sale Transaction, docket 2328, also filed on February 1, 2019, they have some interesting as well as confusing comments.
Starting on page 57 of docket 2328, the Debtors acknowledge in (v) that “Administrative Solvency is Not a Precondition to the Sale Transaction”. In other words, the inability of the Debtors to pay administrative costs at any time after the sale to ESL is approved is not a reason to deny approval of the ESL bid. The Debtors go on to acknowledge that Debtors cannot get any plan of reorganization approved unless ALL administrative claims and secured and priority creditors are paid.
That means that if the Debtors ultimately become administratively insolvent after a sale to ESL there will be no reorganization of what’s remaining of Debtors and since no plan can be confirmed, IMO the Debtors would be liquidated.
So, with the Unsecured Creditors asserting the Debtors will become administratively insolvent, the Debtors in their own reporting have acknowledged that possibility, and Judge Drain also warning that possibility could occur after his approval of the sale, it seems the likelihood of what remains of SHC after the ESL/Transform Holdco sale is approved to be reorganized is fading. To me, that means the possibility of monetizing any tax attributes which might remain with the Debtors is also fading.
In fact, footnote 14 on page 32/112 of docket 2328 supports this contention. It states: “A reorganization around a smaller business division of the Debtors was considered but the potential value attributable to an effort to preserve and utilize net operating losses or other tax attributes was recognized as speculative and significantly discounted when compared with the actual value presented by the Sale Transaction.”
Everything I have stated above has been reference back to documents which have been filed in this bankruptcy matter. It seems to be that (i) the Debtors (SHC as the parent company together with all of is debtor subsidiaries), (ii) Lazard Frere, advisor’s to the Debtors, (iii) the lawyers representing the Unsecured Creditors, and ESL have all acknowledged that the tax attributes (NOLs and tax credits) were purchased by ESL/Transform Holdco and will be assets which ESL/Transform Holdco will acquire once the bid is closed.
Again, if you look at the APA and the first amendment to the APA, ESL/Transform Holdco is still needing to get its own tax opinion regarding utilization of these tax attributes and ESL/Transform Holdco are required to direct the Debtors to take specific actions required for ESL/Transform Holdco to maximize these tax attributes.
This still leaves the lingering questions about “shift in ownership” and preserving the equity structure unanswered. While I think the shldq stockholders will survive in some way, I will only be sure once I have seen something official and in writing setting forth this will in fact be done.
Was last week’s run up and subsequent beat down of the stock anything more than a pump and dump? I don’t know. Was it an attempt to shake out nervous nellies so that shares could be acquired by others who “think” they know what’s going on? I don’t know. Is it possible the tax attributes could go to ESL/Transform Holdco and shldq stockholders would not be included as part of that deal given the language around “shift in ownership” and preserving equity structure. I don’t know.
What I think I know is that ESL/Transform Holdco will be getting the majority of the tax attributes. How that impacts shldq stockholders is yet to be determined. So, flip the stock, buy and hold, get out with your current profit or loss and sit on the sidelines waiting for certainty. That’s an individual choice.
you asked:
Question about Bankruptcy?
Does Lampert get whatever is inside all of the Sears and Kmart Stores?
The Warehouses?
D & D tells me that Sears Owns a lot of stores including the property they are on...
____________________________________________________________________
he gets whatever is inside all of the stores he purchsed (the 425 store footprint)
he gets the warehouses he purchased
he gets the corporate headquarters and the undeveloped land on that site. that included around 2 million square feet of office space and around 200 acres of undeveloped property at the hoffman estate site
if you look at the asset purchase agreement and go to section 2.1 i think, or look at the apa indes under assets purchased, you will get a fairly complete picture of the assets which are part of his $5.2 b bid.
tiger (guess we shouldn't shorten your name to the initials)
you ask:
"So, in plain English you are saying that if Eddie has to get NOLs (Tax credits), he has to make commons safe or give them an exchange? Right??"
_____________________________________________________________
i'm saying that i think if eddie gets the tax credits, as i read the irs rules (and i'm no tax/bankruptcy accountant) shldq stock will be exchanged for share of transform holdco.
or said another way, i feel that eddie has to get the tax credits if shldq stock is going to be worth anything since i don't think there is or will be anything of value around which sears holdings can reorganize to monetize the nols if left with the bankrupt company and if eddie's company doesn't get the tax attributes then i don't see any obligation on his part to "save" shldq stockholders.
i'm going to do a post either later on this evening or tomorrow morning quoting from three different sources which will point out the confusion around this tax issue and why it is so difficult to try to make sense of it.
will probably do a new message and let is show up as "tax attribute confusion" or something to that effect.
linda and i have been going back and forth on this tax issue for some time and what i will post will just reinforce the confusion and frustration she has expressed regarding this issue. it's somewhat hard to rely on historical documents which have been filed both with the court and via sec filings which seem to say or suggest different outcomes on the same issue.
and this is were shldq stockholders hope to land:
____________________________________________________________
For companies that have filed Chapter 11 bankruptcy, however, there are two exceptions to that restriction.
Under one, the cap on net operating loss use is calculated after the deal, when the market value would likely be higher.
The other option allows the combined company unlimited access to those tax assets. But for the combined company to qualify, half of its stock must have been held by creditors and shareholders who held the target company’s debt for at least 18 months prior to the Chapter 11 filing or whose debt “arose in the ordinary course” of the target company’s “trade or business.”
The bid is intended to fit within the guardrails of the latter exception, the person familiar with ESL’s plans said.
_____________________________________________________________
again, not a tax professional, but don't see how eddie can preserve his stockholder status in shldq and disenfranchise the remaining stockholders.
this has been the subject of the nols and tax credits on this board recently.
please sticky, important for mr. madness
while private stocks may only be traded on otc, not all stock traded on otc are private.
you are correct that shldq is the stock associated with sears holdings
however, shldq is NOT currently private
the reason shldq is trading otc it that it did not meet the listing requirements of nasdaq which delisted it. it was not delisted because it was private and it did not become private because it was delisted.
eddie has nothing to do with shldq. eddie's company which is associated with purchasing the assets of sears holdings is transform holdco. transform holdco is a private company, sears holding is not.
lastly, all this nonsense about $5/share value is just that, nonsense.
Rule 13d-3(d)(1)(i) states that a security holder is deemed to beneficially own any underlying securities that the security holder has the right to acquire within sixty days, including the right to acquire through conversion.
various lampert entities hold derivative securities which give them the right within 60 days to acquire 200 shares of (currently) shldq stock in exchange for $1000 in principal amount of the second lien term notes they hold. it is a right, not an obligation. if you bother to go back through the prior 13 D filings, you will see this same language about the 60 days in each of them. whether one filed this week, last month, or last year, that same language is there applying to the same underlying securities.
if those derivative securities are not converted, the lampert entities still hold the loans, which are secured, and which have priority to be paid by shldq as part of shldq's continuing bankruptcy process.
this is not some wink to shldq stockholders that eddie is buying in, the "q" will be dropped and the stock will commence trading on nasdaq at $5/share.
paz, you asked:
"Nobody has answered this question regarding SHLDQ. At this moment in time how much interest do the shareholders of SHLDQ own in the 425 stores that Judge Drain has allowed to be moved into the new Holding Company. Is it greater than 0."
____________________________________________________
this question has been asked and answered a number of times on this board.
the 425 stores and all of the rest of those assets which were purchased by the new holding company (transform holdco, a PRIVATE company which is virtually 100% owned by lampert) approved by judge drain has NOTHING to do with shldq shareholders.
shldq shareholders own an interest in whatever is left of sears holding corporation which is still in bankruptcy.
so, the direct answer to your question is that it is NOT greater than "0"
that may change if the new holding company, owned by lampert, obtains the tax attributes and as a result of that is required to maintain the equity structure. lot of discussion as to what that means, but as of now, you own shares of sears holdings which, as of the closing of the new deal, doesn't have much left of value as far as i can see.
linda,
" Certain prepaid taxes and certain rights to
any refund, rebate or credit of taxes “
it's exactly that kind of language you said you had issues with. agree, i think that is kabuki theatre language, the real meaning of which includes nols and tax credits.
regarding "cannot be liquidated" i don't necessarily agree.
there was another interesting article posted and maybe the topic was addressed the the fordham article which indicated an unwillingness to place much emphasis on the nols and tax credits in a bk because the debtors, if they actually were serious about structuring a reorganization, wanted to get as many concessions from creditors, file a plan, get it approved and then emerge, and then voila! have all of these tax attributes they could now use since they were able to clean up their own balance sheet via the bk process. before bk, all they could do was generate nols and tax credits because they had a money losing or poorly run business. emerge more lean and clean and now take advantage, via past mistakes, of their tax attributes which they kept under wraps during the process.
that fordham article criticized this exact process claiming the insiders always had more information regarding the real benefit of these tax attributes and the creditors were just left flapping in the wind. they didn't have enough information to value them and since the company did report them on financials, but valued them very low to zero because of the uncertainty over realization, the creditors weren't left with much of an argument to claim them as an asset.
linda,
" Certain prepaid taxes and certain rights to
any refund, rebate or credit of taxes “
it's exactly that kind of language you said you had issues with. agree, i think that is kabuki theatre language, the real meaning of which includes nols and tax credits.
regarding "cannot be liquidated" i don't necessarily agree.
there was another interesting article posted and maybe the topic was addressed the the fordham article which indicated an unwillingness to place much emphasis on the nols and tax credits in a bk because the debtors, if they actually were serious about structuring a reorganization, wanted to get as many concessions from creditors, file a plan, get it approved and then emerge, and then voila! have all of these tax attributes they could now use since they were able to clean up their own balance sheet via the bk process. before bk, all they could do was generate nols and tax credits because they had a money losing or poorly run business. emerge more lean and clean and now take advantage, via past mistakes, of their tax attributes which they kept under wraps during the process.
that fordham article criticized this exact process claiming the insiders always had more information regarding the real benefit of these tax attributes and the creditors were just left flapping in the wind. they didn't have enough information to value them and since the company did report them on financials, but valued them very low to zero because of the uncertainty over realization, the creditors weren't left with much of an argument to claim them as an asset.
catty,
"Just The Facts: In your opinion, where do we stand with the Commons? TIA "
i've posted numerous times that i think the tax attributes (which i take to mean the nols ((subject to cancellation of debt adjustments)) and the mostly foreign tax credits) will mostly be taken in by transform holdco (lampert's private company which currently owns (subject to closing) substantially ALL of the assets which sears holdings sold.
if those tax attributes are then to be used by lampert's company, as i read the irs rules,there can be no "shift in ownership" or equity restructuring. if that means that the majority owner of shc needs to stay the same, then that box is checked. lampert owned the majority of shc and he owns the majority of transform holdco.
the second box regarding equity restructuring i take to mean there will an exchange of shldq stock for that of transform holdco.
my background is real estate finance, not bankruptcy. bankruptcy is a totally different animal. i have a significant position in shldq and my current bet is the stockholders survive.
i don't blindly buy into the idea that eddie and his inside companies own 70% of shldq and wouldn't "cut their own throats" and wouldn't play any part in cancelling shares of shldq.
lampert owns virtually 100% of the company which purchased the shc assets. if shldq shares are cancelled, he still owns virtually 100% of transform holdco. if he needs the shares to be saved in order to realize the benefit, then i think he will do whatever needs to be done to make that happen.
my read is that one of those things is a share exchange.
if transform holdco can not obtain the benefit of the nols then there is no reason, other than pr or being a "good guy" to try to do anything with the shldq shares.
pr is persuasive. not sure i would hang my hat on lampert being a good guy.
if lampert gets the nols, then whatever transform holdco becomes prior to the closing will have to be it for 2 years or he could lose those nols if there is a subsequent sale.
i don't believe he can't merge back with sears or he would be liable for those obligation he just got erased through the bankruptcy process. the pension issues, the secured and unsecured debt etc.
again, if the nols don't go with lampert then shldq stockholders better hope that sears holdings has some type of plan regarding how they might be monetized to benefit ALL stakeholders, because if they stay with shc, then stockholders WILL be last in line and there will probably be a rush to the exits to sell the stock.
that's my opinion, why i have and continue to hold shldq, and unlike others who don't actually care to do dd, and think looking at th past is a waste of time, past is prologue here and i think understand it and actually keeping with with the progress through the dockets will provide the most information.
survival of this stock is still very uncertain imo. i walked my dog day before yesterday and in the half hour i was away my shldq holding were down over $30k. not a ride for the weak of heart.