Great post from Yahoo board:
In cases such as this, both from a taxing and an ownership standpoint, the courts will always look to the "intent" and "purpose" of the original transaction. Did the parties intend at the time to make a "sale" in fact - when they took these great sums from the banks ($6 Billion) as compensation for divestiture of ownership of the valuable subsidiary corporation in the spin transaction?
Unfortunately, for Verizon, they were so focused on tax avoidance (not to be taxed on the spin as an ultimate sale of the company to the banks that supplied the money - under Sec.355 of the I.R.C.) that they stated an intention and a purpose that amounted to a fraud. This is what they said:
"In connection with the spin-off, Verizon received approximately $2 billion in cash from the proceeds of loans under a term loan facility of the newly formed company and transferred to the newly formed company debt obligations in the aggregate principal amount of $7.1 billion thereby reducing Verizon's outstanding debt at that time." - and: "...Verizon's Board of Directors considered among other things that the spin-off may....allow each company to determine its own capital structure." (in case of Idearc, meaning, necessarily, "restructure", since this was a facially unsustainable burden)- Verizon Communications, Inc. 2007 Annual Report, p. 48.
And to complete that statement by Verizon, if it needed completion, we now have the ADMISSION of the President of IDEARC that the balance sheet, such as was planned and created in the spin-off, is to be recognized today as "terminably sick", and this is reason, now, for the completion of what was started then, the sale and delivery of the common to the banks.
And what's the problem with that: if the spin-off, in legal contemplation (because of the I.R.C. 2 year rule, the obvious size of the indebtedness and the admissions of the Directors) amounted to a sale, then Verizon had no business setting up the spin-co as an investment vehicle, in the first place, and for sale to the innocent at prices upwards of $20/share. For IDEARC to be delivering the common, at this point, to the banks, it has first to be simply "lifted" from the ownership of the innocent, and when it never should have been sold to them in the first place...why: because Verizon and its stockholders didn't own that stock - the banks had equitable ownership already.
And then, finally, and additionally, Idearc is not even bankrupt at this point in time; its bankruptcy is just made up and for a "strategic objective" of the management, not for inability to pay creditors.
The whole entire process is, therefore, illegal, and if legal, Verizon, as recipient, is accountable for the monies received and taken, not Idearc, that never saw the money.
These are the several arguments, as I see it, for the public security holders, both bond and stock, in the bankruptcy proceedings.
