I challenge the pesimistic ones:
Each BK process has its specific profile. Most are triggered by the fact that the Debtor is not able to pay short term creditors - which is basically a matter of short term cash flow. In most cases this is combined with a real long term diseasse: the balance net is negative with liabilities above assets.
A) When both things happen simultaneously the BK process helps at the end the creditors more than the debtor and its shareholders. Why? because the urgent need to pay short term debt and/or the regular operating expenses ( salaries included) often would force de managment of the company to sell-off at low value the company assets ( basically missusing them ) to gain time. This is contrary to the long term creditors interest. He is where a judge in charge helps since for creditors it's better to stop operations, so reduce operatin expenses and to settle down to value what is worth and administer the sell off o the remaining assets at maximun value (eventually auctions). The result is that the shareholders get wiped out and the creditors ( prefered owners included) get paid a % of the debt overtime.
B) Things are different when the BK is just triggered by the short term cash flow issue - WHICH IS THE CASE OF WM Inc, who seeked protection by itself - but there are more assets than liabilities... let's refresh the key WM Inc numbers - in their books - after the seizure:
Cash:..................................$4.5B
Other non cash assets:........$27B
Debt ( short and long term).. -8B
========
23.5B
I have not even counted with the 1.9B paid by JPM to WM Inc for the WM Bank. But let's be more realistic ... whatever was in these books probably the 27B in assets have been severely devaluated ..... by let's say 70% of their value ( remaining only 30% of 27B --> 8.1B ). Let see numbers now
Cash:..................................$4.5B
Other non cash assets:........$8.1B
Debt ( short and long term).. -8B
========
4.6B ....pps = $2.7
( even a most extremelly negative view of non cash devaluation up to 85% instead of 70% would give pps = $0.332 - five times current value)
In the case of WM Inc being bought by a profitable entity, we can add the past NOL taxes benefits (35% taxes out of 20B NOL = 7B). Once again, let's be very pesimistic and assume that the court would just let the holding/parent company to get only 30% of it.. .. this is 2.3B extra value for a possible bider..
So in case of buyout you may add at least 2.3B ... extra pps $1.35 ... to be added to the previous 2.7 = aprox pps $4.
As you see this pps of $2.7 without buyout or $4.0 with buyout is based in conservative assumptions.
Can this evolve long term down to zero as the pesimistics say?( I leave apart the daily/weekly swings due to flippers that can push it down for a while)
Yes it can ... provided that almost every point of the following happens simultaneously:
1.- TGP give up to recover its billions invested in Common
2.- Out lawyers got to play poker or dring instead of keep working fine as they are today
3.- The court decides that zero of the 4.4B is for WM Inc
4.- The court decides that zero of the NOL tax benefit is for any WM Inc potential buyer ( by her "findings" as filed in court it seems the opposite).
5.- The current administrators as well as the court manage the current assets to produce zero value. So instead of the 27B it comes down to zero. I mean buildings as well as above 100 real companies that currently belong to WM Inc and are still operating out of the BK process in almos business as usual mode.
6.- That Kantor senator as well as the Attorneys find that everything in this seizure and overnight sell-off at bargain price was fine and neat.
7.- WM Inc and TGP acknowledge all losses without even sueing JPM or the FDIC
Common !! what is more realistic...?? it's just about leaving time enough for our guys to get things through court and proceed to nail down a real value of current assets.
The evolution of this process will dictate a possible price negotiation with a possible bider ( JPM one of them ).. this is the best choice because the Tax Benefits get value if we are bought ( otherwise not)
... or eventually that WM Inc cleans its books, restructure based in the fact that there are real operations running in its subsidiaries and it can pay short term creditors as well as has more assets than liabilities... therefore gets out of the BK
AI
