Replies to post #17689 on Sears Holdings Corp. (fka SHLDQ)

[justthefactsmam]

and to think i was departing for the evening.

linda, you asked:

"How can ESL’s Debt cancellation be converted
into NEWCO - Transform Holdco - Stock when Newco
is a separate Entity from Sears Holdings?

May I ask where you read the above? Thanks."

my first thought would be that newco, which IS a separate entity from shc, will be issuing shares in its own company (i.e. newco) and some of those shares will be issued to esl (probably as newco's main principal investor/owner) in consideration for what esl contributed to newco as part of the purchase price paid to shc. that contribution (esl's secured debt from shc) is what is being contributed and the compensation for that debt will be shares of newco.

so, where did this scheme get hatched? look at page 85 of 157 of docket 2339. that diagram represents a bc section 363 exchange which was put forth as one way to preserve some/all of the nol's for newco. while that specific diagram was based on an irs private letter ruling to some other company, deloitte or weil used it as an example of what could be done in the particular case of transform holdco providing consideration to shc (in this case, partially in the form of a credit bid).

don't try downloading docket 2344 on your phone or it will blow up or lock up. it is quite long.

look on page 237 of 598 of docket 2344 and starting at line 20 which continues onto page 238 of 598 from lines 1-3 there is a specific provision in esl's revised bid (which is the bid accepted by shc as a qualified bid) which provides for the issuance of newco stock in exchange for the credit bid.

shc's consideration is $1.3 billion in debt to esl which they do not have to repay and esl's consideration is stock in newco.

IF, IF, IF esl's bid is approved by the court, it is my expectation that transform holdco will get a "real" name, a filing/prospectus will be submitted to the sec authorizing shares in the newly named company, and some of those shares will be issued to esl in consideration of the $1.3 billion debt cancellation.

it is my expectation that shldq shares will be cancelled and IF, IF, IF those shares do not become worthless, we will see in a plan of reorganization a provision for issuance of newco (whatever the renamed company is) shares to commons (in some fashion) probably to some other secured creditors, and then to unsecured creditors as well.

in order to determine what number of shares might go to the creditors, it seems that knowing the surplus from the shc liquidation is paramount, unless creditors waiting to be paid agree to take newco shares in exchange for cancelling their debt. at that point, not sure, but if there is still any surplus remaining, that might go to transform holdco (real named company)

those are my thoughts on how this might play out but the exchange of debt for shares was part of esl's revised bid as noted above.

[justthefactsmam]

linda,

ampuzzo posted an article relating to the nol's (post 17733). while it is an article filed before the bk it is nevertheless informative.

following taken from the article with my thoughts:
_____________________________________________________________________

Creditors who have held debt for 18 months before the filing and whose debt rose in the ordinary course of Sears’s business are "qualified creditors" who can thus avoid losing the tax assets even if there’s a shift in control towards them.
____________________________________________________________________

if esl's bid is approved, certainly seems that a "shift in control" will occur. esl's credit bid was approved by shc and to do that, esl's debt had to be deemed qualified and esl had to be determined to be a qualified creditor.

_____________________________________________________________________

Avoiding liquidation is also crucial to keeping the tax assets. If Sears unwinds in bankruptcy, the net operating losses could disappear, Haya said.

______________________________________________________________________

i believe that above comment from the article was made assuming that esl would not get its bid approved.

if esl owned more than 50% of the stock, then no other entity could which would mean if the going concern was sold to anybody else there would be a shift in control which would nullify the nol's.

seems like esl could not selectively wipe out common shares he did not own while keeping his own common shares intact.

the wrinkle for me is how a transaction in which esl exchanges shc debt for shares in holdco might impact the argument on a shift in control. since esl still has over 50% of the stock, maybe no impact at all and when all is said and done if "q" commons are exchanged for holdco commons then esl will just control even more than 50% which further cements his position and fortifies the "no shift in control" issue.

guessing if esl's bid is approved that all of this will shake out in a por.

hurry up and wait seems to be the order of the day

[justthefactsmam]

linda,

this from page 14 of docket #2379 filed this morning:

30. ESL holds approximately $2.4 billion of senior secured debt of Sears.

In the Buyer’s capital structure, more than $1.3 billion of this debt will be converted into equity.

ESL is investing over $300 million in cash to facilitate its credit bid, including buying out other senior debt holders under the IP/Ground Lease, the FILO Facility, the Real Estate Loan 2020 and the Sparrow mortgage debt. Furthermore, ESL will be extending substantial long-term credit to New Sears, including a minimum of $106 million of the New Letter of Credit Facility and $87.5 million as part of the three-year Real Estate Loan. ESL therefore has much to lose if the Buyer’s go forward business plan is not successful.

____________________________________________________________________
notice reference by esl to "New Sears"