Wamook, you oversimplify the situation. (you as well as the media reporting until now).
The priority of creditors, prefs and common is clear. Commons are the last ...But this is so clear just in case of liquidation or WMI not being able to meet its obligations with creditors.
As soon as A>L ( counting only with debt as L, not prefs) .. and considering that most of the As are cash and most of the debt is long term .... then WMI can come out of BK with commons intact.
It's not just about maths, .. the term of the debt matters...
Once WMI gets enough cash to pay the already due debt ( not all debt, only the one due until now ), plus interests ( prefs and debt ) plus delayed iterests fees ... then neither the creditors nor the prefs have to take any haircut .. so they would not have not priority rights.
... if they creditors can get paid for years ...( which would be the case just with A=Debt.. then nobody has the right to force neither a liquidation nor a severe dilution of commons... and WMI can keep litigating for a longer term ...
... and IN PARALELL the discovery is already discovering many dirty things .. and it will get worse as soon as subpoenas get issued to 3rd parties .. this will either create an explosive (medium/long term )and profitable case for a trial or it will end up - again profitably - in settlement.
The key point is .. as long as A>L and there is cash to keep paying creditors and prefs interests over years ( not in a sudden, but in its original term) ... then creditors and prefs cannot force in BK court a liquidation in terms that wipe out commons...
For creditors the best situation is get most of their cash now and gain control of WMI by cancelling current commons and replacing them by shares owned by them.
But THEY CANNOT FORCE THIS SOLUTION IF WMI CAN KEEP PAYING THEM.
The sudden creation of the EC, in my opinion, answers this matter ... only with the new taxes/nol rules and the 4B deposit, ..A>L ... and the reason for the EC creation is not to grant a fair value for shareholders in a liquidation .... but in first instance to AVOID that anyone settles with a liquidation agreement even if it suits creditors, JPM and FDIC.
I am not counting with the other claims in BK court: the Trust, the brand, etc..
And you know what? It just happens that the person that will decide on the key matters is the BK judge. And she's likely the one better informed about what she plans to decide on these key matters. And, again it just happens that THE JUDGE SEEMS ALIGNED WITH THE CREATION OF THE EC. I was impressed with the speed - less that 24 hours - with which the judge approved the UST motion to include the EC topic (list of shareholders) in the last hearing, as well as the way she forced WMI to produce the list within a couple of working days. I am impressed with the UST speed to create the EC (days from receiving the list!!)
And by the way, the DC judge has ruled that the BK judge is the one that should decide on these key matters. These are not insignificant matters:
- 4B deposit
- Motion to leave the automatic stay
- Extension of discovery to 3rd parties
- If the IRS claim against WMI is accepted or not
- If the WMB bondholders claim against WMI is accepted or not
- If the Trust is WMI's or JPM
- What % of the NOLs tax return goes to WMI
- etc...
So the one who will decide on these matters seems to be supporting the EC in alignment with the UST, .. I bet she is the one better informed and better equiped to assess if an EC makes sense or not and if A will be above or below L - in the next months and in her court . and to which extent the creditors can keep getting paid over time and therefore if there will need to liquidate or to transfer ownership to creditors.
In a nutshell:
1- it's not just about adding Debt+Prefs and compare it to assets,,... the debt's term matters because it avoids creditors forcing a liquidation and/or taking control of WMI's ownership
2- as long as current common shareholders keep the ownership, they - and not anyone else - will benefit from the results of the longer term litigation.
3- and with the discovery evolution and the future fight against FDIC in DC, ... either there is plenty of money from these litigations or from the settlement needed to avoid a trials.
I am not saying the prefs are not a good investment, ... I am saying that the commons - at current prices - are good as well if not better over time.
Cheers...
AI
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