Replies to post #409024 on Mr Cooper Group Inc (COOP)

[barefoot123]

Please explain again why you think KKR would benefit from a lower PPS in the near term. I don't see the logic.

I am confused by this also. My understanding is if you exercise the warrants you capture any gains above the warrant price. I also thought you pay no taxes until the stock is sold, regardless of how long the stock is held. Please correct me if I am wrong. I would really like to know.

[fsshon]

When KKR exercises the warrants, they will realize an "ordianry gain/loss" on the PPS of WMIH - Strike Price = Amount PPS for Ordinary gain. x # of shares for warrants. When KKR exercises the warrants, it is counter-productive for them to exercise at a really high PPS in terms of Tax on the Ordinary Gain. Of course, they may have some losses coming next year, that will help offset the gains. The gain/loss is an ordinary one, which means it is either added to the balance sheet or subtracted.

Example...

$2.00 WMIH - $1.38 (avg of 2 strikes) = .62 x 61.4M Shares = 38M in a booked ordinary gain... Because WMIH is at $2 PPS, KKR has an instant equitable position, but an ordinary gain on taxes 38M x .35% = 13.3M

Because KKR has no intention in selling any of WMIH stock, they do not receive real value on the ordinary gain until they sell. in the commitment letter they stated they want to participate 50% in all equity offerings up to 42.5% ownership. When you look at the "big picture" you can see it benefits KKR shareholders in terms of 2015 profits to exercise the warrants as near the strike price as they can get.

In the commitment letter they stated "they would not short or hedge WMIH until 2016" this is the language... translated... Yes, we understand exercising the warrants at higher PPS than we prefer will give us the ordinary gain, we prefer to exercise them near the strike price, however in terms of the IRS looking over our shoulder. We and our affiliates will not short WMIH stock to get the PPS down to the level we are comfortable with to exercise the warrants. We will not do it, but we have no control over others who may....i.e...Hedge Funds....

Now, as we move forward into next year. WMIH can not let KKR participate in any equity offerings, until those warrants are exercised. They represent 30% of WMIH when you take the one-to-one stock basis per share of preferred stock and the number of shares of the warrants. To raise money for acquisition, I expect WMIH to offer existing equity shareholders "rights offering" to keep the numbers right and avoid an ownership change. However, it is going to be tricky. Jan 1, we pass the testing period for the 5.95 Billion NOL's. I know it is a rolling period, but they will be on the books as "unrestricted."

Once WMIH announces the acquisition, the stock will soar and KKR will be left with a large ordinary gain when they exercise the warrants, so it has to be done on the trading day before the announcement, so the PPS is in the KKR range. If it is not, it is going to be pretty expensive for KKR to make the investment.

This is the discussion I wish this board to have...

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