Mr Cooper Group Inc (COOP)

[radiumsoup]

The $20BB figure to equity is not accurate.

If it were, where would the $20BB come from, exactly? What can be liquidated to generate the cash? The answers: nowhere, and nothing.

The Feb. 2012 MOR that set off the discussion is here: http://www.kccllc.net/documents/0812229/0812229120330000000000007.pdf See page 7 of that PDF for the relevant discussion points.

Note that this is just a balance sheet, and is not controlling as to the distribution of funds. The Plan of Reorganization controls that process, and overrules the numbers found on the balance sheet when it comes to distribution of funds to creditors and equity. We really shouldn't even be talking about distribution in terms of what the balance sheet shows.

But, since everyone is so worked up about the balance sheet, let's examine it for the sake of the discussion. On that balance sheet, you see a section for "Shareholders' Equity". That entire section is just another way of displaying assets already stated, assigning retained earnings for the benefit of different classes of equity. In other words, there are no new assets contained in the "shareholders' equity" section that are not already in the "assets" section at the top. "Total assets" at the top and "total liabilities and shareholders' equity" are the same number for a reason - namely, the shareholders' equity section is just a restatement of the exact same assets and liabilities.

- The line stating "Preferred stock: $7,392,341,954" represents the amount of money raised by the company when they originally sold their preferred stock.
- The line stating "Common stock: $13,026,981,633" represents the amount of money raised by the company when they originally sold their common stock.
- The line stating "Retained earnings - pre-petition: ($20,770,848,942)" represents the losses incurred by the company prior to the BK petition date (Incidentally, this is a reflection on the state of the company which prompted WMI to file bankruptcy in the first place.)
- The line stating "Retained earnings - post-petition: ($1,043,405,792)" represents the losses incurred by the company (at this point, "the estate") after the BK petition date.

So, you take the total amount of money raised from shareholders (that's "shareholders' equity") and subtract out the losses actually incurred, and you're left with ($2,148,342,893) which represents the amount of assets available to pay equity after other liabilities are paid. Notice this is a negative number. Even if we add back the $913,392,629 from WMI Investments (the right side of that same page) we are left with ($1,234,950,264)... still a negative number. Obviously, there are no stated assets that can pay equity yet, as there are still $1.2 Billion in liabilities not yet paid.

Additionally, the idea that somehow WMIH could "liquidate" the $7BB for Preferred and $13BB for Common stocks figures is sadly misguided. Those numbers represent PAST money raised and do not account for the subsequent losses the company incurred. The cash is long gone, they're just showing the original amount for balance sheet purposes. The best analogy I can think of is that it's rather like saying you can take a 10-year old paycheck stub and take it to the bank to cash it as if it were a check. They'll laugh you out of the bank. It's not real money, but it is a record of money you once received.

At this point, the only way equity can be paid for our liquidating trust interests is if the liquidating trust can somehow get more for certain assets than their present stated value, or if certain disputed higher-priority claims can be cancelled or lowered. (Also, if/when the litigation trust is paid, after all other liabilities are satisfied.) Remember, we're still subject to the absolute priority rule for non-equity claims. (Equity settled among ourselves for the 75/25 split, but that doesn't preclude us from being subordinate to claims which are still a higher priority than equity.)