Liquidation? .. By no means!!!
WMI's atty sentence
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... "pay creditors and end BK in 3 months" .. is GOOD NEWS !!
Would you be happier with "not paying creditors" or "ending BK by 2010"?
Today's pps evolution is influencing the mood of many here while reading the sentence. We all be happier with pps going up instead of down. But let's touch ground ..the volume today in WAMUQ was below $380k..
What matters for those who can wait is not the pps these days... but the relevant issue is the BK evolution as well as WMI options in the triangle Creditors-JPM-FDIC.
WMI Debt and Creditors' original expectation. WMI's a peculiar BK case.
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There are 5 uniqueness in this case:
1.- WMI debt is not composed of many diverse items. Creditors are not suppliers of expensive assets ( machinery, real state, data centers, software licensees, commercial inventories, etc ) whose expectation and need is to get paid short term even if it's a %. WMI has 13 employees ... so there are not thoushands of families expecting some cash asap to stay moving or expecting to recover something out of a pension plan.
2.- WMI debt is mainly very long term debt. And most of it is very very long term debt ( up to 2049).
This means two important things:
- the expectation of these creditors was to keep receiving interests as well as to recover their money LONG TERM. If theyy see a plan that allow's this .. then their expectation is fullfilled.
- the creditors cannot force liquidation as long as they keep receiving their payments. And WMI can do so.
3.- WMI is not burning money. Aas holding company WMI does not need to burn monthly money in recurring expenses to just keep opening the door every day. This is also quite unique.
4.- WMI’s assets are not composed of items that are either getting obsolete ( as commercial inventories or intellectual property) or will evaporate if they are not used soon or executed in business as usual mode( as customer contracts/projects, that would produce future incomes OR maintenance/support/services contracts that produce regular income. WMI assets are mainly composed of subsidiaries.
5.- WMI’s key shareholders are concentrated and some own both common and preferred. TPG and a dozed of other groups that can wait have criteria, inside information, strong contacts and long term interests it this. They are strong and they will do whatever they can to avoid commons getting wiped out or extremely diluted by exchanging debt in return of shares.
Those considering statistics of successful/unsuccessful BK cases should bear in mind these 4 uniqueness. Specially the debt structure and cash situation ( the debtor has more that half of the debt up to 2049 in cash today). These two remarkable items help enormously here. Tell me about many other companies - even not in BK - with CASH equivalent to half their debt.
The sentence: "creditors will be paid"
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This is not bad at all for. If the creditors couldn’t be paid then the shareholders much less.
WMI Creditors are aligned with WMI attys because they feel they can be paid. Leaving apart the upsides (below).. let’s just focus in the A/L.
A/L today is basically balanced. How could this evolve?
Assets.
These are valued at their worst possible value. They are either zero, or undetermined or book value, or “mark to market” (MtM). In today’s market conditions MtM and/or book value are likely at their worst. Not to say “undetermined” or zero. For someone with LONG TERM expectations as WMI creditors it just does not make sense pushing WMI to sell off today in a hurry. They can get much more by letting WMI to sell if needed in the next years .. Items valued as MtM and “undetermined” will be worthy in the future. The same for those with “book” value. SO WMI ASSETS VALUATION is more likely to increase than to decrease. Over the years the debtor will be able to keep paying creditors. This fulfills their expectation.
Liabilities.
These are valued at their face value. Part of the BK process means renegotiating the debt in terms of longer term, reducing a % or exchanging other % by ownership ( shares). Although I do not expect much decrease it may happens.
If you are a long term creditor … why force the debtor to pay you just a fraction today when you originally expected to wait and if you wait it’s more likely that you get more.
So the sentence “creditors will be paid” doesn’t necessarily means that they will be paid in cash within months when their original deal was to get paid over many years.
The sentence: “end BK in 3 months”
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This is good news too.
Among other things it means:
- There is a plan
- Creditors are aligned to the plan
- The attys expenses will not last for ever
- A good deal of uncertainty will disappear within months
Ending BK may be interpreted as liquidation with losses. The 4 uniqueness of this BK case ( as reasoned above) opens the door to better solutions for both debtor and creditors.
Other ways or components to exit BK are:
- Renegotiating debt: refinancing longer term, exchanging debt by shares ( may be attractive considering the upsides below)
- Having all assets and liabilities asserted legally by the court, and having creditors aligned to a plan that makes clear that they can keep paying the debt for several years …. Just get out of BK and keep doing business as holding company investing and disinvesting in subsidiaries.
- By negotiating any merge or buyout.
- By liquidation with profit. What? … yes .. if some of the upsides below happen and/or the proper asset valuation brings enough value.. then the parties may agree to liquidate with profit: paying the debts and compensating common and prefereds.
The upsides
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I will not elaborate the details… this post is long enough and there are better and previous posts in iHub and Yahoo explaining these. Here I just keep them in mind to remind every on the potential beyond the points above reasoned.
- NOL/Tax recovery – with it’s implications as an attractive buyout as soon as it comes out of BK and the uncertainty gets cleared.
- Compensaton by litigating with FDIC: either FC or contract breach… again even before the end of a litigation it may be an attractive target for the buy out once the litigation started and the uncertainty gets reduced by coming out of BK.
- Settlement to avoid that litigation and it’s public and embarrassing implications.
- Recovering part of the seized assets or the 1.9B as partial result of litigating against FDIC
- Buyout by JPM just to clean it’s books of uncertainty ( the assets exhibit sold is missing !!. it’s unclear what was sold) but these assets were reported in JPM books – very very important these days – as well as to avoid noise around their role during the seizure and takeover.
AI
