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remember, if the judge rules against els that esl is a secured creditor with first take on some of the properties. he made sure his loans were secured by property.
either way, lampert wins but he wins much bigger if his bid is approved.
if the judge doesn't approve i'm out and hope to not have a total loss.
if the judge approves, i'm holding until something definitive comes out re: the por. again, if commons don't survive i'm out and hope to not have a total loss.
if the por comes out and the commons survive, i am skeptical newco will have a game plan which keeps the stores viable and i will be looking for an exit point within a 1-3 year timeframe.
if newco becomes a reit, i will feel a little more encouraged about longer term prospects which would include selectively repurposing stores. i believe there is a lot of upside in the chicago metro corporate headquarters. they have over 2 million square feet of office space which over time could produce great value. additionally, i believe they have over 200 acres in their corporate hq site which can be developed.
i hold no prospects this will be a $40 stock. i would feel great if this were to get into the $10-$15 range.
who knows? maybe eddie will surprise us all.
if there really are 12mm shares short and some type of insane squeeze were to occur, i might look to cash out.
i'm not in this looking for a double or triple. already have more than a double and can't really sit on my computer to day trade and maximize flips.
no, i don't think that. i'm holding 40k shares and i do think commons will survive in some way which is why i'm still holding.
my basis is .232 so if it gets flushed it's a scratch, not a cut, a wound, or anything fatal for me.
i still look at all of the stock esl/lampert and his other entities own and even though he might trade his debt for shares in newco (transform holdco) why wouldn't he want to get additional consideration for his commons? with only 109 million shares outstanding and he and his entities have control over 70+% of those shares, he's not giving up much to have ALL commons preserved, again, in some fashion.
also seems retaining all or a portion of the nol's is linked to common shareholder survival.
if you decide to hold on until certainty is obtained, the rush to the exits if commons are screwed will probably mean a severe buzzcut.
that could all happen this week if esl's bid is not approved by the court. even if esl's bid is approved it will probably be weeks and weeks before a por provides any certainty.
linda,
why does transform holdco have to merge with sears holdings if holdco has purchased specific assets (a lot of which gave rise to the nols at issue)?
my thought (totally uneducated by my own admission) is that the sears holding company will in fact be liquidated and go away and there will be nothing left to merge with newco.
notice in the example given on the diagram on page 85 of 157, the debtor (shc in our case) was left with the unwanted assets (i.e. the closed stores and some other things which it is liquidating) and then according to the verbiage in the example "debtor then planned to liquidate, distributing its remaining assets to debtor's claimholders. (esl is no longer a claimholder at this point).
also note on page 86 of 157 that debtor must retain more than an INSIGNIFICANT active trade or business. the complete discussion on page 86 of 157 leads me to think sch will not survive to be merged.
linda,
as noted on page 78 of 157 of docket 2339, the nol's were specific to various entities within the sears umbrella. there is some discussion which seems to indicate all of the nol's might not flow as a lump sum because of that.
also, cancellation of debt may be specific to an entity and that could cause a reduction in nol's via the cod.
for instance, it would seem that the cancellation of $1.3 billion of esl debt would serve to reduce some of the nol.
deloitte is still working on those issues.
and to think i was departing for the evening.
linda, you asked:
"How can ESL’s Debt cancellation be converted
into NEWCO - Transform Holdco - Stock when Newco
is a separate Entity from Sears Holdings?
May I ask where you read the above? Thanks."
my first thought would be that newco, which IS a separate entity from shc, will be issuing shares in its own company (i.e. newco) and some of those shares will be issued to esl (probably as newco's main principal investor/owner) in consideration for what esl contributed to newco as part of the purchase price paid to shc. that contribution (esl's secured debt from shc) is what is being contributed and the compensation for that debt will be shares of newco.
so, where did this scheme get hatched? look at page 85 of 157 of docket 2339. that diagram represents a bc section 363 exchange which was put forth as one way to preserve some/all of the nol's for newco. while that specific diagram was based on an irs private letter ruling to some other company, deloitte or weil used it as an example of what could be done in the particular case of transform holdco providing consideration to shc (in this case, partially in the form of a credit bid).
don't try downloading docket 2344 on your phone or it will blow up or lock up. it is quite long.
look on page 237 of 598 of docket 2344 and starting at line 20 which continues onto page 238 of 598 from lines 1-3 there is a specific provision in esl's revised bid (which is the bid accepted by shc as a qualified bid) which provides for the issuance of newco stock in exchange for the credit bid.
shc's consideration is $1.3 billion in debt to esl which they do not have to repay and esl's consideration is stock in newco.
IF, IF, IF esl's bid is approved by the court, it is my expectation that transform holdco will get a "real" name, a filing/prospectus will be submitted to the sec authorizing shares in the newly named company, and some of those shares will be issued to esl in consideration of the $1.3 billion debt cancellation.
it is my expectation that shldq shares will be cancelled and IF, IF, IF those shares do not become worthless, we will see in a plan of reorganization a provision for issuance of newco (whatever the renamed company is) shares to commons (in some fashion) probably to some other secured creditors, and then to unsecured creditors as well.
in order to determine what number of shares might go to the creditors, it seems that knowing the surplus from the shc liquidation is paramount, unless creditors waiting to be paid agree to take newco shares in exchange for cancelling their debt. at that point, not sure, but if there is still any surplus remaining, that might go to transform holdco (real named company)
those are my thoughts on how this might play out but the exchange of debt for shares was part of esl's revised bid as noted above.
you're welcome, cf
done for the weekend. will just wait and see what breaks. not particularly a football fan but for those who are, enjoy the superbowl. as usual, looking forward to the commercials.
finished going through the transcript and exhibits to the auction sale.
of note was a comment that sears had specifically picked this particular venue to file for bankruptcy because of the court's favorable treatment of workers. certainly seems the argument of keeping 45k jobs might loom large.
additionally, after seeing all of the coverage of federal workers on furlough and not being paid standing in food lines and worrying about losing their homes, it would be a difficult decision to rule for liquidation and throw them out of work at this time.
esl did step up in its final offer to guarantee some 40k+ jobs through sears fiscal 2020 which ends january 31, 2020. so if the judge approves, those workers will have at least 1 year of guaranteed benefits which i believe would include severance.
in my post 17653 i laid out the major concerns raised by the committee of unsecured creditors. below are the changes esl made to its bid which were those final changes leading to shc agreeing to make esl's offer an approved bid.
(1) esl agreed to assume the entirety of the $350 MM junior dip which will be rolled over into newco
(2) newco to pay $19 MM in transfer taxes
(3) newco to assume $4 MM in mechanics liens
(4) newco to purchase the cash and store registers estimated at $17 MM
(5) debtors to retain $13 MM in hurricane insurance proceeds
(6) newco to acquire proceeds of ship sale to service.com
(7) $35 MM payment at closing, esl permitted to credit bid all of its debt claims that would be allowed and no collateral attack on any conversion of debt into newco equity or any transaction approved by the court. THIS POINT GOES BACK TO AN EARLIER POST I HAD MADE IN WHICH IT WAS SPECIFICALLY DISCUSSED THAT ESL'S DEBT CANCELLATION WOULD BE CONVERTED INTO NEWCO STOCK. THIS IS THE FIRST AND ONLY MENTION OF NEWCO STOCK THAT I HAVE SEEN OTHER THAN PART OF NEWCO'S CONSIDERATION TO DEBTORS WOULD BE NEWCO COMMON STOCK AND WARRANTS.
(8) esl would retain deficiency in 507(b) claims subject to the following limitations: (i) esl to waive recovery on account of 507(b) claims and deficiency claims related to seritage, lands end or other transactions involving intentional misconduct by esl, (ii) esl recovery on account of 507(b) claims capped at $50 MM and any other recovery beyond $50 MM would be shared pro rata with unsecured claims and (iii) esl would not use any 507(b) claim to block any confirmation of any plan by sears.
shc approved the above changes and approved esl's bid as a confirmed bid. they closed by saying "in making our decision, we did take into account the court's direction at the chambers conference today (1/19/19) and trying to come up with a solution where the debtors could attempt to maximize value, preserve thousands of jobs, and also eliminate risk of administrative insolvency where possible."
the judge did warn sears there was still risk of administrative insolvency and that financial burden would fall on sears for anything beyond what esl had agreed to absorb.
lawyers for the unsecured creditors objected to the approval of esl's bid.
so, this is what will be discussed this coming week. so much has been filed i can't see any way this will not carry over into wednesday.
had esl's bid not been an approved bid by shc as a result of the auction process, it had the following plan for achieving its wind down recoveries which assumed 4 waves of GOB's
(1) wave 1 - 142 stores beginning on 10/28/18 ending on 1/5/19
(2) wave 2 - 40 stores beginning on 11/18/18 ending on 1/26/19
(3) wave 3 - 80 stores beginning on 1/3/19
(4) wave 4 - 425 stores beginning on 1/21/19
since esl's bid was approved by shc and is pending approval by judge drain, only the first 3 waves have been implemented. so, if esl's bid is approved by the court, seems like shc's wind down liquidation involves the first three waves consisting of 262 stores, all of which have already commenced the liquidation process with their GOB's.
so, the unsecured want wave 4 included in the liquidation, esl and sears do not, and that's what will be decided by drain this coming week.
if esl's bid is approved by the judge, following is how shc might be utilizing its cash while liquidating everything not included in the apa.
this is from docket 2344 and originally would have applied to a complete liquidation in the event esl's bid were not to be approved by shc as part of the auction process. am assuming, while it was not developed for a smaller universe of assets, the framework would be similar.
again, can not recall if esl has subsequently stepped in to mitigate any of these items.
at any rate, if esl's bid is approved by the judge, this may be the primary way in which the unsecureds will be paid.
(1) gross proceeds from GOB sales of merchandise inventory. as inventory is sold, expenses related to the inventory liquidation are deducted from proceeds, resulting in an assumed orderly liquidation inventory value to the estate of approximately 90%
(2) the first $240 MM of previously unencumbered sale proceeds realized (which are segregated into a separate account) after which previously unencumbered asset sale proceeds are used to repay the $350 MM junior DIP in full; after the junior DIP has been repaid in full, additional asset proceeds are used to pay administrative expenses and unsecured creditors.
(3) the imposition of a 4% charge on encumbered assets sold throughout the case pursuant to 506(c) of the BC, with the exception of the first lien and prepetition ABL collateral (including non-insider portions of the FILO and citi L/C), and junior DIP collarteral due to the 506(c) waivers granted to those lenders solely in their capacity as DIP lenders
(4) excess proceeds (proceeds above lien value) from sales of encumbered collateral.
footnote: prior to 1/14/2019, the company is assumed to operate in the ordinary course while transitioning from a 505 to a 425 store footprint
some or all of the following will be concerns raised by unsecured creditors which will be argued in front of judge drain tomorrow.
following are the major concerns raised by counsel for the unsecured creditor's committee prior to the start of the auction held in weil's offices. while some of these concerns may have already been addressed and resolved, i have not delved into that aspect at this time. maybe some of you know and can comment.
since the auction had neither commenced nor had any bid(s) been deemed successful, the lawyer addressed concerns with both esl's bid as well as the wind down proposal shc put forth:
esl's bid concerns:
(1) administrative costs. thought $300 million was too low. these are the legal and professional fees shc is incurring as a result of chapt 11
(2) felt there was an inherent conflict with esl's credit bid
(3) issues with leases and releases vis-a-vis the credit bid
(4) feels the $35 million release is inappropriate
(5) concerned esl's bid included assets which the debtors did not own asking how debtors could sell something they did not own
(6) didn't feel there were adequate assurances of future performance
(7) objected that esl did not provide them with a copy of esl's business plan
(8) thinks bid includes consents esl will be unable to provide
(9) concerns over (i) conditionality of closing items (ii) milestones as well as (iii) inability to pay 503(b)9 claims and other administrative expense claims. FYI, a 503(b)9 claim deals with a supplier's ability to be paid for goods delivered within 20 days of a bk filing.
shc wind down concerns:
(1) concern about a 507(b) claim which shc footnoted but the committee feels should be valued at zero as it is impossible to prove. FYI, a 507(b) claim is one in which a secured creditor is granted a super priority over all unsecured creditors as well as administrative claims.
(2) difference of opinion between shc's liquidation value of real estate versus that of the unsecured creditors. the unsecured creditors feel the real estate was valued between $300 million - $600 million low.
(3) the wind down doesn't provide for litigation claims
(4) unsecured creditors feel that esl's debt should be surcharged whether or not it is deemed to be a beneficiary of a 506(c) waiver. FYI, a 506(c) waiver grants the ability to avoid fees associated with preserving or disposing of properties otherwise subject to these fees.
after the comments from the lawyer for the unsecured creditors, esl's lawyer said the following:
we will be -- we disagree with virtually everything you said though we love you dearly, and we will be sending you a business plan right after this as well as the ABA (sic, think that should be the "APA" which is the asset purchase agreement). thank you
Judge Drain has said he expects the hearing will spill into multiple days and that he could issue his ruling from the bench at the end of the process. The filings show that Sears hopes to have a decision approving the sale by Friday February 8, and that it hopes to close the sale by February 19.
Not all the objections filed in the case are seeking to have the the company liquidate. Most are arguing specific objections to one or more terms of the proposed sale. If Judge Drain agrees with some of the objections, it could kill the deal and leave no choice but liquidation.
So far, the judge has appeared to be giving Sears every chance to save itself. At a January 18 hearing he said "it would be a very good thing" if there were a way to save the 45,000 jobs at Sears and Kmart. But those employees are not the top priority under the nation's bankruptcy law.
Instead, the hearing will focus on returning as much money as possible to those who are owed money from Sears. And the committee of major creditors objecting to the deal are owed more than $3 billion. They have argued repeatedly they don't believe it makes sense to try to save Sears. They called the plan to stay in business "nothing more than wishful thinking " and "an unjustified and foolhardy gamble with other people's money," in one of their filings.
https://www.kion546.com/news/economy/sears-moment-of-truth-is-coming/998976747
linda,
have you spent any time with page 85 of docket 2339?
it is put forth as an example of how a 363 exchange would/might work as a tax reorg.
deloitte cites an irs letter ruling 201025018 which they utilized to prepare this chart. although private letter rulings can not be relied on by other parties, it does provide evidence of what might be able to be done in this case. i downloaded that letter ruling and it does track with the diagram but doesn't specifically provide for shareholders.
what bothers me about the diagram example is the "strike line" between the SH's (shareholder) circle and that of the Debtor. certainly seems to imply shareholders are disenfranchised in some way. any thoughts on that?
that aside, as i see it, the diagram applies in our case in the following ways from what i have gleaned from the various docs and comments.
newco is esl and the lenders 1 and 2 are representative of the bank lenders esl lined up when they made their final bid which was approved by shc.
newco (esl) is providing $5.2 billion in consideration to debtor (shc and its various subsidiaries).
part of esl's bid was a "credit bid" which served as a cancellation of debt "cod" and which probably also served to reduce a portion of the nol benefit. in exchange for that cancellation of debt, esl (according to the transcript of the auction sale) received stock in newco.
when the debtor offered to sell esl certain assets, shc retained the unwanted assets. my assumption is the unwanted assets were the locations which were closed and are currently in the process of being liquidated an/or monetized in some way. what assets other than the announced store closures are being retained by shc i do not know.
if esl's bid is approved, shc must liquidate its remaining assets in some discrete period of time in order to preserve whatever nol's esl might be able to utilize. in other words, shc can not drag out the liquidation process for years.
deducting $1.3 from the $5.2 bid leaves $3.9 billion going to the debtors from esl. the "apa" provided for the rollover of senior debt and provided for paying off the 2020 real estate loan ($544 million) and various items associated with the second lien term notes, credit facility and pik notes ($433 million). that takes the consideration down to $2.9 billion.
seems like the fly in the ointment will be unsecured creditors. going back to the diagram, it says the debtors plan to liquidate, distributing it remaining assets to debtors claimholders (unsecureds?). guessing the unsecureds don't feel those proceeds will be enough to make them whole and they want complete liquidation.
notice also that part of the consideration to debtors from newco is common stock and warrants of newco (which debtors say they may sell. possible that unsecureds don't want to have to take stock and warrants in newco as part of their consideration (although the judge could force that).
SO, while this diagram doesn't show any consideration going to common shareholders, the provisions of executing a 363 exchange certainly do indicate the composition of newco be similar to that of what was acquired. this is where all of the discussion of not having commons wiped out comes into play.
it certainly seems since the debtors are getting newco shares and newco is not getting shc shares that there will be a shldq cancellation with the elephant in the room being whether or not newco shares are distributed to shc shareholders in some prorata way.
if shares of newco are considered to be of greater value than the shares being surrendered, then one could expect the exchange would not be 1 to 1.
so much is left undone regarding how this restructuring will be handled pending judge drain's ruling this week. if approved, then there will begin some real work on a por, holdco's structure, liquidation of those things for which sears will be responsible, the execution of a cooperation agreement (not the exact term but a docket was recently filed indicating that would be coming).
posting excerpts from a very recent article commenting on judge drain's activities this week after i submit this.
no, never have said i think commons will be cancelled. as i have posted many weeks ago, i am long and at this point will continue to remain long.
seems like too many want to dream about what might be and ignore documents readily available which could be used to try to figure out where this may actually go as opposed to where one wishes it might go, based on virtually nothing.
if the transcript of the auction and discussion in docket 2339 are to be believed, let's say that esl does cancel its $1.3 billion debt in exchange for shares.
there has been discussion on the board regarding some docket discussion that $1000 of debt could be exchanged for 200 shares. applying that math to esl's $1.3 billion means that an additional 260 million shares would be issued to esl.
apply that same math to any other secured or unsecured creditors who might be exchanging debt for equity and the outstanding shares will be significantly more than what's out there now pretty much shredding the $41/share fantasy.
while i don't mind the dilution and believe it will be necessary to get this deal done if the commons are to be saved, there will still be multiples over the $0.20 - $0.50 basis some now have.
linda,
regarding the nol's, pages 77-86 of docket 2339 discuss various scenarios under which some, all, or none of the nol's could be utilized.
one on which i would initially like to focus is the loss of some nol's in the event of "cod", cancellation of debt.
as i quoted from the transcript of the auction, it was contemplated that in return for cancellation of esl's $1.3 billion in debt, esl would receive shares in holdco/newco or whatever it is/will be called before a formal renaming. that seems to be a cancellation which would reduce nol's.
i really would like to re-read these pages (78-86) a few more times before venturing what would still be a pretty much uninformed opinion, but there are a lot of permutations discussed in those pages which i do not fully understand. as you can see from reading those pages, even their accounting firm, deloitte, had only been working on that issue for about 3 weeks and docket 2339 begged off on "knowing" how any of this might eventually shake out.
of course, it ALL depends on whether or not the judge approves esl's bid.
also notice on pages 77 and 79 there are $900 million in tax CREDITS most of which are foreign tax credits. although esl's apa included some foreign assets, not sure how these might be utilized if they were to pass to esl/transform holdco.
there was also a discussion within these pages that in the event the $4 billion or so of secured debts were cancelled, that could/would reduce the nol's from $5 billion to $1 billion, but apparently still leaving the $900 million in foreign tax credits.
lastly on this point, if shc were to retain the nols, then shc must retain "more than an insignificant active trade or business". that's from page 86 of docket 2339.
there seem to be so many "what ifs" that are still being fleshed out by the tax accounts and tax lawyers we are left best guessing at this time.
that doesn't mean there is not enough information to draw some informed speculation.
important to note that esl's apa did make a comment they wanted the sale to be considered as a tax reorganization, which if possible, bodes well for shareholders.
linda,
spent a little bit of time with docket 2339 and will make various comments either standing alone or in response to/discussion with some of your posts re: that docket.
first thing would be to bring attention to page 98/157 of that docket. notice that late december was the target date for filing their por. based on meeting that target date, they didn't expect to get plan confirmation until march 2019.
however, realizing the complexity of their chapt 11 filing, just a couple of days ago shc filed in docket 2312 a request to extend the exclusivity period for being able to file a por out to june 12, 2019 with one 60 day extension to august 12, 2019.
although they reserved the right to further extend, if they meet the above dates, based on the calendar shown on pg 98, one could reasonably assume the plan would not be confirmed until sept 2019 to nov 2019.
even if esl's plan is approved on monday or wednesday of this coming week, it will be MONTHS before any clarification is obtained regarding issues like whether or not the commons survive (although is seems highly likely looking at pages 77-86 of docket 2339) or how much, if any, of the nol's there are.
brain fried. travelling and in training the past two days. still seems like for shc to retain the nols around one or more businesses those businesses would have had to have been material in the accumulation of the nol's in the first place.
will look at docket 2339 tomorrow with a fresher mind.
linda,
following is also from the transcript of the auction which also leads me to believe there will be nothing left in shc if esl bid is approved and based on fact all other stores are being liquidated and/or monetized.
_________________________________________________________________
Okay. Let me give a short overview of the Debtors organized wind down plan, against, which the Debtors' restructuring committee is comparing the ESL bid. First, I note that the Debtors' wind down recoveries has been shared with the consultation parties and ESL on a confidential basis. We did make a few changes to the wind down recoveries overnight. But largely, it's substantially similar to what people have been reviewing previously. The wind down plan contemplates a company administered wind down to be run by the Debtors and the professionals and for purposes of comparison includes the Debtors liquidation advisors, Abacus and also contemplates a partner with SB 360. In particular, in conducting this organized wind down, the company would file a notice of commencement of liquidation of all inventory and the remaining retail stores and distribution centers with GBO sales beginning later this month. Reject all remaining store and distribution center leases other than valuable leases, which will be monetized. Reject all remaining nonessential contracts, commence an appropriate reduction in the companies workforce in a staged and organized manner; sell or monetize all or remaining incumbered or unincumbered assets including sales of individual businesses within Sears, such as Sears Home Services and the Debtors' real estate assets. The Debtors restructuring committee views is that the wind down plan is conservative and does not contain outside potential that would be pursued on the company's alternatives. Those potential alternatives include in pursuit of a Chapter 11 plan involving the sale, or reorganization around Sears Home Service or certain other businesses, and the distribution of the Debtors' tax attributes to creditors.
linda,
"There are lots of Stores left that have not been
liquidated yet. I read in a filing today that the ESL
Plan was for 505 Stores but it was the Debtors
who reduced the number to 425."
remember, after esl made its original bid, sears announced the closure of an additional 80 stores (80 + 425 = 505) those 80 stores are in the process of being liquidated in addition to the other 200 +/- stores closed since the beginning of 2018.
just don't see there will be anything left.
linda,
that quote was from docket #2312 filed on 1/31 as were the other quoted sections i posted following the one you referenced.
the following is from the transcript of the auction:
In addition, there have been extensive discussions concerning a release, and I will now describe the terms of the release that ESL has proposed. For a 35 million dollar cash payment at closing, ESL would be permitted to credit bid all of its debt claims that would be allowed and there would be no collateral attack on any conversion of the debt into NewCo equity or any transactions that are approved by the court.
linda,
if the transform holdco deal is approved, i'm not exactly sure what assets would be left for shc around which they might reorganize to utilixr any of the nol benefits.
there don't seem to be any real assets left. after liquidating the closed stores and utilizing that money to pay ongoing bills, what's left?
i guess they could leave a corporate shell with nol's as their surviving asset and then try to sell that.
under that scenario, guess they could merge with holdco but as of now, understanding that is beyond me although it does present an interesting option.
for the nol's to survive, my understanding is the company acquiring the nol's has to operate in substantially the same arena as that which gave rise to the nol's in the first place.
think my brain was a little fried when i first thought shc had missed the deadline for requesting an exclusivity extension for filing a por. was thinking it was a 3 month time period instead of a 4 month period.
at any rate, from reading that doc, it doesn't seem like much, if any, progress has been made to draft a por.
The request for extending the Exclusive Periods is not a negotiation tactic, but rather reflects that these cases are not yet sufficiently mature for the formulation, filing, and prosecution of a feasible and,
hopefully, consensual chapter 11 plan.
C. The Debtors have Demonstrated Reasonable Prospects for Filing a Viable Plan.
30. The first phase of these chapter 11 cases have centered on stabilizing the Debtors’ businesses and pursuing the sale process. The Debtors have commenced formulation of a chapter 11 plan and are evaluating the contours of a potential plan including the Debtors’ significant tax attributes. The Debtors are currently highly focused on the sale process, following which the Debtors will engage in discussions with their stakeholders on the terms of a chapter 11 plan. The Debtors are prepared to quickly proceed with the plan negotiation, solicitation and confirmation process. Given the Debtors’ track record to date in these cases and the achievements summarized above, the Debtors have demonstrated reasonable prospects for filing a viable chapter 11 plan.
The Debtors are at a critical juncture in these cases. Specifically, the
Debtors are in the midst of securing Court approval of a going concern sale of the Company. If the Exclusive Periods are not extended and control of the administration of the Debtors’ estates is improperly wrested away now, it could ruin the Debtors’ prospects of confirming a chapter 11 plan. Such an outcome is contrary to the fundamental objectives of chapter 11 and should not be permitted. Even if the going concern sale is not achieved, the Debtors simply have had insufficient time to negotiate a chapter 11 plan with their constituents. To say that the workload has been enormous is truly an understatement. As the professional fee statements attest, these efforts have been all-consuming. Termination of the Exclusive Periods at this critical juncture in these chapter 11 cases would defeat the very purpose of section 1121 of the Bankruptcy Code— to afford the debtor a meaningful opportunity to propose a confirmable chapter 11 plan based on
adequate information that maximizes value and that is fair and equitable to all of the Debtors’ economic stakeholders. Accordingly, for the reasons set forth herein, the Debtors’ request for an extension of the Exclusive Periods should be granted.
from docket #2312:
___________________________________________________________________
Sears Holdings Corporation and its debtor affiliates, as debtors and debtors in possession in the above-captioned chapter 11 cases (collectively, the “Debtors” and, together with their non-debtor affiliates, “Sears” or the “Company”), file this motion (the “Motion”) for
entry of an order extending the periods during which the Debtors have the exclusive right to file a chapter 11 plan (the “Exclusive Filing Period”) and to solicit acceptances thereof (the “Exclusive Solicitation Period,” and together with the Exclusive Filing Period, the “Exclusive Periods”) by four (4) months through and including June 12, 2019 and August 13, 2019, respectively.
____________________________________________________________________
had posted earlier i thought they had missed the deadline for filing for such an extension.
at any rate, if this get approved, doesn't appear there will be a por for some time.
don't believe they are exiting the chapt 11 with eddie's offer. look at today's filing.
sears comments there the process will be going on for a long time. there are scores of stores which have been closed and on which eddie did not bid. those assets have to be liquidated and shc will be in bk until that process is complete which will be long after eddie takes control of the assets on which he bid, if that bid is approved.
i would think that feb 1 is more of a status hearing to see where things stand and if all ok the hearing for the 4th will be confirmed.
from the prime clerk info page:
Important Upcoming Dates and Deadlines Related to the Global Asset Sale Process:
• January 26, 2019 (4:00 p.m. ET): Deadline to object to (i) the proposed Sale Transaction for a Successful Bidder, (ii) Debtors’ proposed Cure Costs for Proposed Assumed Contracts not included in any Stalking Horse Bid, (iii) the assumption of and assignment to a Successful Bidder of any Proposed Assumed Contracts or any Contracts or Leases that may later be designated by such Successful Bidder for assumption and assignment, and (iv) conduct of the Auction
• February 4, 2019 (10:00 a.m. ET): Commencement of the Sale Hearing
i think you are misinterpreting the meaning of "hearing to be confirmed"
can't believe they are confirming the sale and then having a number of motions which drain will hear on the 4th objecting to the sale.
i do in this case, but it might be a stretch.
a tax credit is a 1 for 1 deduction against taxes. if you owe 50 dollars in taxes and you have a 50 dollar tax credit, your tax liability is zero.
nol's deal with income deductions. such that if you have 5 million of income against which you owe taxes of (say 10%) you would owe $500,000 in taxes. if you had a $4 million nol and could apply all of it against the $5 million of income, you would reduce your taxable income from $5 million to $1 million and in the same example would now only owe $100,000 of taxes.
as you can see, that is not a 1 for 1 avoidance of taxes as in the tax credit example.
now for the stretch part, is it semantics or intentional. why did the apa refer to these purchases assets as "credit of taxes" as opposed to tax credits.
the term "tax credit" has a very specific accounting meaning. is that the same meaning applied to the term "credit of taxes"?
don't know, but that's the jump i took from the language.
seems to me the apa was structured to preserve nol's for esl and both sides certainly had high powered accounting and legal professionals drafting this document.
if lampert were to make some kind of "side deal" outside of bk with the creditord, then what you would have is a "de facto" or "sub rosa" offer by him and that would probably negate the apa or cost him things like the nol's. look at the docs in the auction results section of the docket. it specifically states els's bid is not de facto.
from page 6 of 315, a description of assets to be purchased:
i. Certain prepaid taxes and certain rights to any refund, rebate or credit of taxes;
additionally, the apa had the following language:
Section 2.12 Tax Reorganization. (a) The Parties intend that the transactions set forth in this Agreement, asstructured 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 elects otherwise with respect to a particular Seller or Sellers 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”).
Final analysis from an article on the issue from a Jones Day Publication:
High profile bankruptcy cases such as the chapter 11 cases filed by WorldCom, Enron, Global Crossing, Kmart and Conseco have focused attention on investing in the debt of troubled companies and highlighted the arguably dominant role played by vulture investors in large and medium-sized chapter 11 cases. These cases and many others also illustrate some of the challenges confronted by companies seeking to reorganize in bankruptcy. The practical challenge for debtors that possess sizeable NOLs is to safeguard these tax attributes by avoiding an ownership change (or excessive claims trading) until confirmation and consummation of a plan of reorganization. Notwithstanding rulemakers’ efforts in 1991 to remove the bankruptcy court from the claims trading market, recent developments indicate that the courts are still very much involved in regulating trading of claims and interests if the success of the debtor’s reorganization is at stake.
These developments also suggest that as part of pre-bankruptcy strategic planning, potential debtors should determine whether they have any NOLs or other tax attributes (like built-in losses) that require protection. The unwary debtor may find that it has already undergone an ownership change (or has lost its ability to qualify for section 382(l)(5)) prior to filing, or that it is dangerously close to the threshold. Swift action may be necessary given the robust market for trading in the claims and stock of financially troubled companies. Creditors should also be vigilant to ensure that when a debtor seeks court approval of procedures restricting claim and equity trading, it demonstrates that the benefit to the estate through preserving tax attributes outweighs prejudice to creditors and shareholders who are being precluded from liquidating their holdings.
the apa seems to be structured such that esl would get the nol's. think there was language to the effect it was being considered as a tax reorganization.
from the google machine:
________________________________________________________________
You have an exclusive right to file your plan of reorganization within 120 days from the date that you file your bankruptcy petition. If the court approves your request, you may be able extend this time period for up to 18 months. Once the period of exclusivity is over, your creditors or case trustee, if appointed, can submit a competing plan. It’s usually better to submit the plan of reorganization within the period of exclusivity in order to get the most favorable terms and proceed with your case in a timely manner.
____________________________________________________________________
shc filed for bk in october. it has been over 120 days since their filing. anybody know whether or not shc filed for an extension to extend their period of exclusivity?
guess i am coming to the conclusion that shc will have to file a por. that por will detail how creditors are going to be paid. part of that equation will be what's provided in the apa. looking at the apa, since it was entered into by and among transform holdco and shc, guess it is reasonable to think that the asset sale to esl, if approved, would become part of shc's por which then could presumably include how commons will be handled.
again, if transform holdco and shc are separate entities and one will not be merged into the other, then existing shldq shares will have to have something done to or with them.
but again, feel a key issue is whether or not shc filed to get an extension to their period of exclusivity to file an por.
anyone?
robcula,
that is an interesting question. it's also why i have suggested that esl may take these assets and create a "public" reit structure.
if in fact it were to stay private, then commons could face the possibility of getting some type of restricted shares which have little or no market. going back to my post about parker drilling emerging from bk and the commons surviving, digging a little deeper into that structure indicated it would be a restricted share situation. however, there was the caveat that even though restricted at the time of issuance, that did not prevent sec registration of those securities at a later date which would then have all of the benefits of a publicly traded stock.
also, i'm not sure whether or not that parker drilling situation was not a work around because of the gov't shutdown. the parker por was signed off on just last week and there is a gimmick of some sorts where stock can be issued like parker proposed doing. not sure if it was shutdown related or not.
linda,
i still want to think about your closing comment which i have pasted below:
________________________________________________________________
However - I do not think that the SHLDQ shares
will be exchanged with new Holdco Shares
because Holdco is not a reorganization of Sears
and is its own Entity. I do think that the new
Holdco Common Shares will be distributed
according to the POR and the SHLDQ Shares
will continue to trade until either the Debtors
emerge from Bankruptcy as a newly
Reorganized Company with the remaining Assets
and Stores not sold off, or until the end of a
Liquidation Plan and all proceeds of the
Liquidation are paid out.
__________________________________________________________________
docket # 1989 at page 15 is a schedule of retained restructuring professional fee disbursements and u.s. trustee fees. note there are no trustee fees.
as opined in a previous post, it is my feeling that if/when the apa is approved, the shc chapter 11 case will be converted to a chapt 7 case and there will be a trustee appointed to oversee the liquidation of shc's remaining assets which were not part of the apa.
that process will take some time.
here's where i am conflicted as to the direction this will take. IF the chapt 11 case is transferred to a chapt 7 case, there will be no reorganization since shc will be liquidated. if there is no reorganization, it seems there would be no need for a plan of reorganization.
that somewhat begs the question if the shldq shares survive to be converted to some type of transform holdco shares, where will that transaction/exchange be memorialized?
esl didn't file bk so els wouldn't need to file a por. if shc is liquidated, there is nothing to reorganize.
any thoughts on how this might be resolved would be most appreciated.
i agree that shldq shares will continue to trade until some resolution is reached. for an exchange to occur, seems like shldq shareholders have to be identified as of some decision point in time, shc would cancel the shldq shares, and those shldq shareholders on some "date of record" would get new shares in some proportion to the # of shldq shares which they held. whether that is 1 for 1 or some other ratio, i don't know.
again, struggling with the mechanics since i don't see the need for shc to be filing a por if there is no reorganization of shc.
help!
would also be worth looking at docket #1986 filed on friday by amazon. although not objecting to assignments to esl of various contracts, amazon is asserting it rights under those contracts to return over $5 million in undamaged overstock kenmore and diehard items for credit. have cut/pasted amazon's conclusion below:
__________________________________________________________
CONCLUSION
WHEREFORE, for the foregoing reasons, Amazon respectfully requests that the Court (i) condition assumption and assignment of the Assumed Amazon Contracts on the terms and conditions requested by Amazon herein, including the description of the Assumed Amazon Contracts set forth in Exhibit “A” hereto for purposes of the Asset Purchase Agreement; and (ii) condition entry of any order approving the Global Asset
Transaction and Asset Purchase Agreement on the incorporation of the proposed order language set forth above.
Dated: January 25, 2019 Respectfully submitted,
/s/ Robert T. Honeywell
Robert T. Honeywell III
K&L GATES LLP
599 Lexington Avenue
New York, NY 10022-6030
Telephone: (212) 536-3900
Facsimile: (212) 536-3901
Counsel to Amazon.com Services, Inc. and
Certain Affiliate
well, from looking at docket #2029 filed yesterday (1/26), it appears that shc terminated service.com's $60 million bid for sears home improvement (ship) the day after esl's apa was approved and shc claims that service.com forfeits its $6 million good faith deposit.
service.com filed their objection saturday and is asking it to be heard on the 4th along with a wagon load of other objections.
looking like the 4th will be a busy day for judge drain and it wouldn't surprise me if he didn't rule on the 4th given the flood of filings since sears' approval of esl's apa.
he might ask for further briefings on some matters or just say he needs more time to consider everything before making his decision.
think the sideways trading will continue until a ruling has been made. also think that sub average trading volume will also be the norm until a ruling has been made.
sorry, actually looked it up and just typed it wrong