Monday, February 18, 2013 7:53:38 PM
'investorhub123 has a good question, and it might be worth a look at what the 2-year change of control rule is versus the 3-year change of control rule.
1. 2-year change of control rule:
This is regarding a "second change of control rule," after a first change of control. As in the case of WMIH, it is believed {the word is what it is} that a change of control took place on the effective date. Subsequent to a "bankruptcy exception, L6, "one change of control is allowed"" so long as a 'second change of control does not take place within the following 2-years.
For WMIH, if there is a "second change of control within 2-years of the effective date," the first change of control "exceptions" to the 382 limitions are "retroactively eliminated," i.e., VOIDED. That would leave NO NOLS. None. Not even the limited amounts under the annual limitation. The $6B becomes $0.
Also under this exception, the 'continuity of business requirement is paramount. Treasury Regulations section 1.269-3(d) lay out that the NOLs be completely voided "if it does not carry on more than an insignificant amount of an active trade or business." This is always a risk.
2. 3-year change of control rule:
This applies to everyone, all the time. WMIH doesn't get freedom from this at any magical date; it applies to all companies, all the time. If there is a change of control, as defined, the NOLs are limited or lost.
If there is a change of control trigger, a 3-year period. This is messy. It involves increases in stock of 5% shareholders during "a testing period." The "testing period" is the lesser three years, the period of time as a loss corporation, or 3) the period of time since the prior change.
To have an ownership change, a cumulative absolute increase in the ownership interest by 5% shareholders => 50% during a "testing period." "Absolute," in that reductions do not count, or offset increases.
Notes: 50% increases are based on "absolute values." That means that the change is based on value % absolute increase," rather than shares or % of stock. Also, the base is the lowest % owned by the 5%-er during the testing period [above].
SO, for WMIH, we can't have a 2nd CIC for two years or retroactively, the $6B is GONE.
Thereafter, for WMIH, like "any other company," we can't have any 50% change in control for 5%-ers "ever." Current 5%-ers are not the only 5%'ers; new stock issuances that create >5% and other transactions (mergers) that create >5% that "exceed the 50% of value cumulative increase of all 5%-ers including them in that transaction," create a new NOL 382 annual limitation and the NOL carryforwards are essentially lost.
WHAT does it mean. To each their own. WMIH is valuable in the long term. IMHO there cannot be any really exciting merger of real dollars because of these limitations and realities. A change in tax law could help. Examination by the IRS and doubting the 'continuity of business using WMMRC could hurt. There is simply no way to know at this time.
I guess we'll wait and see. It would be nice to see "A" support the effort; but when has a hedge fund been nice?
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