Replies to post #26735 on Sears Holdings Corp. (fka SHLDQ)

[Mehdi]

Here is something very interesting:
https://lanierford.com/images/NewsPDFs/bankruptcy_special_topics.pdf

Look at pages 23 through 28. In summary, tax attributes do not transfer from debtor to acquiring company unless it is a « tax-deferred « (also called tax-free) transaction under 368(a)(1)(G) exemption. One of the requirements of that exemption is continuity of proprietary interests measured by amount of stock received by transferor’s creditors AND shareholders as a percentage of total consideration. Typically if 40% or more of consideration is transferor’s stock, requirement is met. BIM!

Also this:
http://www.woodllp.com/Publications/Articles/pdf/Continuity_of_Interest.pdf

« The continuity of interest requirement is fundamental. Whatever other statutory tests may be required, to qualify for tax-free reorganization treatment, a transaction must also satisfy this judicially created requirement. The continuity of interest rule ensures that the shareholders of the target must maintain a continuing interest in the acquiring company after closing by receiving at least 40 percent of their aggregate consideration in the form of stock in the acquiring company. »

[Mehdi]

The more I look into this, the more I think the scenario where Sears Holdings buys back Transform Holdco holds strong.

Transform Holdco is not publicly traded. Complying with the continuity of interest (COI) requirements, so that NOLs are preserved, means they will need to offer non publicly traded stocks to old shareholders. That is not practically feasible. A 100% cash offer does not comply with the COI requirement. The only possibility left is for Transform Holdco to elect to a Designated Sale Transaction, ie leave the NOLs with SHLDQ as part of the Asset Purchase Agreement, and then for SHLDQ to buy out Transform Holdco.