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.
