Motors Liquidation Company (fka MTLQQ)

[eddy2]

How this works is easy to understand. The company will sell shares from the parent company to the sub company but because it is all one company one will hold the debt while the other holds the equity.


This creates millions and millions of shares on the book of the borrower that uses share holders equity for collateral and often noted as leverage with the use of share holders equity by selling shares at a discount from the offering price were this discount will be share holders debt o the parents balance sheet were the sub entity will hold the debt as common shares.


This practice is always done in conjunction to the leveraging of a equity purchase of a company that is making profits the debt again goes on the balance sheet of the parent company and the leveraged revenue will show up on the sub entity as capital surplus and retained earnings were the company could be in a development stage with negative earnings or no earnings and plenty of depreciation for construction not yet completed with no real market value or what one can call third stage mark to market assets " read FAS 157 "



In a deleveraging process the company when she can stand on her own as far as revenue will sell the piggyback positions on both its own stock as well as on the company it leveraged revenue of off to pay of its debt but if the debt should come due before she can stand on her own or should the share debt they purchased to leverage revenue should fall in value they will first try to deliverage there own stock position on a chapter 11 restructuring and try to put more collateral down for the other buying time from the creditors by paying interest only by leveraging now there own assets that they have built should they be in a more advanced stage then the level three stage.



The level one through three have to be noted in the notes if the assets are under the parent company filings " public awareness reporting entity" if the assets are being built under the sub entity " none reporting entity " then one can assume the assets are of a reporting commodity that pricing of the asset is dependent on profits established " retained earnings "