Interesting post on Y ...
and I quote:
"NOLs, EC Knows It Fully Well
There is something people on this board largely ignored or paid no attention to. There is a little “secret” I was hesitate to tell before. When I wrote the post “Trial!!!” (11/30) in which the first half of the post was based on Susman October billing statement, I left out one little intriguing item from the billing on purpose. I noticed people who read the billing made no mention of that “item” at all, which made me quite perplexed at the time.
To call it a “little secret” is a stretch. It’s in the open and on the record. On Susman October billing statement, there is a line item dated on October 20th, recording Mr. Seth Ard had a 90 minutes conversation with A. Sole regarding “marketing reorganized company” (SS Oct. Billing Statement, pdf. p. 25). Above the line item, there is another line item “reviewing latest plan and settlement”. It’s clear the “latest plan” was referred to POR v.6; and since the “settlement” can mean many things and we got burnt by speculating on its meaning so many times before, we can toss it aside in this discussion. However, “marketing reorganized company”, what’s that about? If, per the GSA/POR, all equities are supposed to be cancelled and will have no role in the reorganized WMI, so why equity attorneys took hours to even talk about “marketing” the reorganized company among themselves? Besides, EC legal counsel is not the debtors’ marketing consultant after all.
The reason that I didn’t raise the issue earlier was I didn’t want to get people hyped up unnecessarily and for the wrong reasons (regarding our prospects in WMRRC) but only have our hope crashed if things do not turn out our way later. More importantly, I needed to see further evidence to clarify or re-enforce my thinking. Of course, I could be totally wrong in my reading so I remained salient on the information. Even now, I still urge caution against reading too much into the information other than a routine event of discussing the debtors’ marketing plan among our lawyers in order to better understand the value of reorganized company. In a fuller context we are now aware of, it’s most likely that (Ard-Sole) discussion was about the likelihood of “marketing (or perhaps selling) reorganized company” (no matter who owns it) for valuation purpose, and its potential implication to the overall case.
No matter what, I think EC has laid its eyes on reorganized WMI long ago, and knows the inner workings of NOL tax attributes and their potential values all along. Both PJS and EC Chairman Mr. Willingham are forensic accountants. They had cooperated in Mirant and other bankruptcy cases in the past. They understand, in my view, the most valuable asset of reorganized WMI will be its tax attributes that can yield a potentially astonishing amount of future tax benefits. There is no way for professionals like PJS, Willingham, and EC legal experts to overlook the potential tax benefits of NOL carry forwards. I think they knew this issue fully well even before debtors’ motion to abandon and Tricadia motions.
At the December hearing, EC counsel laid a trap for the debtors’ financial experts to admit in open court that (1) NOL owned by the reorganized WMI is limited ($100M) assuming the stock loss would be declared on December 24, 2010; (2) NOL owned by the reorganized WMI will be sky-rocked to an astonishing figure of $5.5B (unlimited NOL) if the stock loss is declared in early 2011; (3) the debtors specifically instructed its expert not to analyze this unlimited NOL in his valuation of reorganized WMI, a sure sign of “bad faith” on the part of debtors to cheat the equity out of the asset distribution process ( EC Supplemental Objection Motion, pdf. p.6). I didn’t have the benefit of listening in to the hearing live, so I don’t have a good grasp of some of the subtleties at the hearing. However, after going through EC supplemental objection motion, especially exhibits of open exchanges between EC attorneys and debtors’ financial consultants, it is clear to me the EC counsel trapped the debtors’ experts with full knowledge about WMI’s NOL tax attributes, their nature and applicability, potential added value to the Estate, and their implication. (Interestingly, with no small coincidence, the EC attorney who did the trick [on Mr. Zelin from Blackstone for his admission] is also the same person [Mr. Seth Ard] who held discussion on “marketing” WMRRC about one and half month ago as shown in Oct. billing). I recall someone (frozenpond & others) reported that Justin asked EC to be involved in (or in charge of?) reorganized WMI at the hearing. I also noticed in EC closing argument, it listed WMRRC NOL $5.5B prominently as part of potential assets (EC Closing Argument, slide 26, also slide 20). These actions and statements are the signs I have been waiting to see to re-enforced my conviction that EC has been on top of NOL issue, and believe me, the issue is far greater than WMRRC itself. Every involved party knows it.
Now, goes to EC supplemental objection motion. The timing is good. EC waited patiently until just a few days away from December 24 to file the motion to allow the adversaries limited time to react. It may be just coincident, but surely a safer and wiser play to show some of the cards right after the judge said she won’t issue an opinion on GSA and the Plan until one month into the new year, by which time, NOL alone, hopefully, could play (perhaps) a game-changing role in re-drawing the asset picture in a very interesting way. The Judge understands EC’s game plan, and maybe even annoyed a little by its tactics (she is probably even more tired of GSA parties’ tricks and blatant manipulations). So the rapid denial (to the supplemental objection motion) was in order (The best explanation of judge’s denial I’ve read is Catz’ connecting dots theory). Nonetheless, everything about NOL carry forward is now on the record, displayed at the hearing, and argued in closing arguments. By the beginning of the new year, it will become the reality (fingers crossed). Her Honor knows it fully well.
Did I say NOL could be one of those breakthrough issues in this deadlock before? Sure (“Debtors’ Weak Spots”). Fingers crossed."
