It's time to focus on 2015 and what is going to happen in the coming months. As many of you know I have been focusing on KKR and the deal they made with WMIH on the Warrants and the future injection of up to 1 Billion in our little shell and these stock warrants that have been contracted by the BOD of WMIH at a strike price of $1.32 and $1.43 respectively. These warrants (when exercised) will give KKR a new larger equity stake in WMIH. But, at what price if KKR willing to pay WMIH shareholders in terms of the risks vs rewards on exercising these benefits? In the language KKR stated "they would not hedge or short WMIH stock until 2016." This was very important to add, because it shows strong support for our success in the future.
We know the NOL language in IRS 382 is clear and concise on what represents a "testing period and a testing date." We know we have passed the 2-year "lock requirement" on the NOL's by the "continuity of business" requirement and are fast-approaching the 3-year NOL "ownership change" restriction being lifted on Jan 1, 2015.
Here is how this has to work in steps..
1. No money other than what is going to the PIERS in terms of the RON's is coming too escrow until at least March 2015. THJMW has allowed all hearings to be pushed back to March 2015 (because WMIH/WMILT lawyers needed it, to not take any chances on jeopardizing what THJMW said "is a very large asset "The NOL"s) on the all claims left-over in the bankruptcy court via the "employee claims and monies set-aside for the benefit of these claims" if these claims are not allowed the equity shares will be returned to the treasury of WMIH and the funds will be disbursed to the WMILT to go down the waterfall to the escrows, once the PIERS are satisfied. This will happen in 2015. However, a couple of things have to happen with WMIH first.
2. Warrants.... KKR can not exercise the warrants until WMIH can legally (w/o jeopardizing the 5.95B NOL's) issue the amount of shares 71M that are necessary to raise the capital for the acquisition. KKR has purchased preferred stock, that is "convertible to common equity on a one-one basis"
Subject to the completion of definitive documentation, due diligence and the terms and conditions of the Commitment Letter, KKR has agreed (i) to purchase approximately $10.55 million face amount of convertible preferred stock of the Company at a price per share of $1.10 convertible on a one-for-one basis into shares of common stock of the Company (the "Convertible Preferred Stock") This gives them rights to 9.59M shares of WMIH.
A. Why would KKR invest up to 85M in exercising these warrants if the tax-implications to them were going to affect any future profit?
Explanation..
In the "white paper" I have posted and that post should been stickied over any other on this board because of the language in it that affects the future of WMIH. You see.. The BOD did not anticipate such a large that the interest in WMIH would be so high, that they price would shoot up to $3.70 PPS in a matter of months "OR DID THEY!". I mean they were at 700M MV and that was not good for KKR or them for that matter, so they had to stay silent to let the interest wane and the stock fall. I mean they even said "we did not authorize the trading of our securities on the exchange/we are not aware of any market maker making a market in our stock." The BOD telegraphed the "subliminal message" to us all, this board was so stuck on the damn escrows, the DD'ers were asleep at the wheel.
You see... This BOD can not issue equity to KKR (warrant exercise) until Jan 1, 2015. So, the stock had to go back down to the strike price KKR needs to exercise w/o affecting their bottom line. Time was the only thing that would do it. Time and shareholders selling into the "lack of communication" by the BOD. It makes sense, it has to go back down near that strike price or it will counter-productive for KKR to exercise the warrants. KKR is hit with a strike price vs equity trading price for the day tax. It is in the regulations, I posted on the "white paper" and this Ihub Board needs to get that stickied... I will post the link at the end of this doc.
Simple math...KKR warrant price (A) is $1.38.. WMIH (B) is PPS on exercise date. C (Total over strike price PPS that KKR will deduct as an ordinary gain) D (# of shares at that price) E (Total tax to KKR) F (amount KKR will pay for warrants)
G (future gain in PPS needed by KKR to make up for Tax that received as part of warrant exercise) G (PPS WMIh will need to go to for KKR to return value from WMIH investment)
B-A=C Cx D= E B= (Today PPS) (B)$1.85-(A)$1.38 = (C).47 (C).47 X (D) 71M = (E) 33.37M (KKR will realized this in instant equity, but they only receive a return when they sell this stock) So it is going to cost that shareholders of KKR in taxes 33.37M to make the WMIH investment. Don't expect KKR to sell "one share" of WMIH when you delve into the #'s for the future. The question is "what is the perfect strike price for KKR?"
If KKR has to take on a tax to make the WMIH investment, how much can they willingly allow?
If WMILT was to give WMI escrow holders funds before the acquisition, would it ever be feasible for KKR to exercise the warrants because of the massive spike in PPS will push WMIH to new highs. I for one, will buy WMIH shares with my funds. That 5.95 Billion in locked NOL's is a big deal to many large-cap companies. The only way for KKR to avoid the massive amount of warrant exercise tax is too just purchase the entire company, which they can not do or simply let the warrants expire. I do not believe they will just let a really good return for their shareholders expire, so here is how it has to go down
1. In Jan 2015. KKR exercises the warrants when the PPS is at that 20-25% warrant exercise price. That is between $1.62-$1.72. I expect you will all of sudden see WMIH has a an O/S of 273M instead of 208M at the end of the first trading day in Jan. Because the BOD of WMIH knows for tax reasons some WMIH shareholders will sell -off their investments at the EOY in DEC. Then purchase them back (causing a large spike in PPS) in Jan. This will affect KKR's shareholders, so they will need to exercise the warrants as soon as the NOL's are locked in for good per IRS 382 and the "white paper" I posted. The first trading day is Jan 2, 2015 (friday) perfect day to buy WMIH shares in morning and announce in afternoon after market closes.
2. Acquisition closed.
3. THJMW releases funds back to WMILT and shares back to WMIH in March 2015.
4. WMIH soars on this news, because money returned to escrows will flow into WMIH trading.
5. We move on from there.
As for BOD message in Meeting about "logistics were not right for acquisition in March 2014." You bet there weren't. KKR would have had to pay a huge sum of warrant exercise money to the IRS because IRS treats it as an ordinary gain/loss and WMIH would have needed to issue more shares via a "rights offering" to WMIH shareholders to keep the calculations for equity right, to not jeopardize the NOL's....
So, the board had to let this pps go back down or KKR could not exercise the warrants. WMIH could not sell any stock at those prices to help the treasury, It was not good for either party...Hence the trading language. I don't think the BOD expected such a huge jump in PPS of WMIH on that news. I mean it went to $2.20 on the announcement and all the way to $3.70.. I bet they knew at that moment.. Nothing was happening in 2014.. The PPS on speculation was too high.
Now the best deal for the WMIH BOD and KKR has to be the 1st trading day in Jan. Many who sell in 2014, will be buying back on that day. This will push that PPS back up and if they do not do it then, they will need to wait quite awhile for it to fall back into range on "no news/silence by them."
It is the only scenario IMHO that makes sense to KKR..Why burden their shareholders with such an ordinary gain just to invest in WMIH when they exercise the warrants? They also want to participate in any equity offering up to 42.5% ownership...
IMO we are golden in early 2015.
I ask two things of these MODS.
1. Please put the KKR deal back in the sticky. It is our future.
2. Please stick post # 408684 the white paper post.
Have a Happy Thanksgiving
Blue
P.S. Sorry my posts are long, but you know why.
Subject to the completion of definitive documentation, due diligence and the terms and conditions of the Commitment Letter, KKR has agreed (i) to purchase approximately $10.55 million face amount of convertible preferred stock of the Company at a price per share of $1.10 convertible on a one-for-one basis into shares of common stock of the Company (the "Convertible Preferred Stock"), and (ii) commit to purchase up to $150 million aggregate principal amount of subordinated 7.5% PIK notes, which may be issued in one or more tranches over a three year period, each with a seven year term from the date of initial issuance (the "Subordinated Notes"), subject to certain terms and conditions. Substantially all of the proceeds from the Subordinated Notes, if and when issued, would be used by the Company to fund future acquisitions. Upon consummation of the transactions contemplated by the Commitment Letter, KKR would receive five-year warrants to purchase approximately 61.4 million shares of the Company's common stock, 30.7 million of which would have an exercise price of $1.32 per share and 30.7 million of which would have an exercise price of $1.43 per share. KKR would also have the right for three years to participate up to 50% in equity offerings up to an aggregate of $1 Billion by the Company subject to certain limitations, including a cap in ownership by KKR (and its affiliates) of 42.5% of the Company's common equity. The Convertible Preferred Stock, if and when issued, will include the right for KKR to appoint one of seven members to the board of directors of the Company. The Commitment Letter terminates on January 31, 2014 in the event that the parties do not enter into definitive documentation on or before such date. The Company has agreed to reimburse KKR for certain expenses incurred by it in connection with the Commitment Letter and has also agreed in certain circumstances to pay KKR a termination fee equal to $2 million.
