You're citing an article that is 10 years old. The Treasury Dept changed the legalities of NOL transfers... remember, now Congress wants it overturned?
"Since 1986, the Internal Revenue Service has made it very difficult for a corporation to use old net operating losses when the ownership of the corporation changed hands. This so called "trafficking in net operating losses" was effectively stopped by changes to Section 3821."
This article is talking about a way around the "old law".
"This opportunity exists where, a bankrupt corporation ("Deadbeatco") has unsecured creditors who exchange their debt for stock... Creditors who otherwise might not be paid can receive equity in a business with potential growth, benefit from projected income (without the burden of income taxes) and perhaps receive repayment in that manner."
So creditors would become owners and exchange debt for stock. I may be wrong, but I do believe we already saw that. I don't have time to look now, but I believe we saw an exchange of debt for certain preferred shares.
What I'm not seeing here is anything specifying that original shareholders would be wiped out for this to occur. It sounds as if debt holders would be converted to shareholders... not that they would replace the existing shareholders.
Just because debt owners become "owners" of the company via swapping debt for voting rights a la stock, doesn't mean the other shareholders are wiped out. If anything diluted, but not wiped out.
If I own common shares and the options are a) all of assets are liquidated to pay debt leaving me with nothing or b) debt is converted to stock and my shares are diluted but still intact...
Well, I'd go with option B.
But like I said, I'm 90% we already saw this occur with the talk of a newly created series of preferred shares that appear to have reduced the outstanding debt...
I could be wrong, but that's what I'm seeing here.
Keep in mind, the nature of NOLs and the preservation of such are VERY much different today post bailout than they were in 1998.
I'm not the brightest bulb in the bunch, so I'm hoping others with bigger brains and a better understanding of this topic will drop in a post their more informed opinions.
