An Excerpt:
STATEMENT
6. As set forth in the Motion, the Debtors estimate that, as of the date thereof,
Lehman had accrued NOLs of $48 billion. According to the Debtors, any Tax Attributes that
remain at the time of emergence from bankruptcy could prove to be of significant value to the
reorganized Debtors by reducing future U.S. federal income tax liabilities. However, the ability
of the Debtors to use the Tax Attributes to offset future taxable income is subject to certain
limitations, which are contained in Sections 382 and 383 of the Internal Revenue Code of 1986
(as amended from time to time, and together with the Treasury Regulations promulgated
thereunder, the “Tax Code”).
7. More specifically, Tax Code Sections 382 and 383 imposes restrictions on
the amount of Tax Attributes eligible for future offset purposes that could materially reduce the
benefit of the Tax Attributes ….
……unless the Debtors take steps to preserve the value thereof in
advance of confirmation of a plan of reorganization. In this connection, Section 382(l)(5) (the
“(l)(5) Exception”) excepts from application of the aforementioned statutory limitations a
corporation that undergoes an ownership change by reason of the confirmation of a chapter 11
plan of reorganization, if certain conditions, relating primarily to continuity of equity ownership,
are met. To preserve maximum flexibility for the Debtors to qualify for the (l)(5) Exception,
certain procedures are being imposed to allow the Debtors to request that certain creditors sell
down some of their positions if such a sell-down would provide a reorganized Debtor with more
flexibility to use its NOLs and other tax attributes. That ability, which is reflected in the
Procedures, is necessary to prevent certain acquisitions of claims following the date of the
Motion from causing the Debtors to cease to qualify for the (l)(5) Exception and, thus, be unable
to use the Tax Attributes to offset future taxable income to the maximum extent possible.
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8. Prior to filing the Motion, the Debtors sought the Committee’s input and
approval. In reaching its decision to support the Motion, the Committee considered various
issues that might arise in connection with seeking relief of this type, including the effect it could
have on creditors and their claims. In the end, however – bearing in mind both its fiduciary duty
to protect the value of all the assets of the Debtors’ estates and the fact that the NOLs might
prove to be of significant value to the Debtors’ estates – the Committee resolved to support the
filing of the Motion.
9. In this connection, the Committee and its advisors expended considerable
time and effort working with the Debtors to appropriately tailor the Procedures to minimize the
adverse effect thereof on creditors. Additionally, in response to concerns informally raised by
certain creditors, the Committee worked with the Debtors to modify the Procedures to ensure
that all such concerns were fully addressed in the form of order ultimately presented to the Court.
Having carefully reviewed and considered the Motion, the Committee believes that the
Procedures, as modified, are in the best interests of the Debtors’ estates.
10. Given the significant value that the NOLs may provide to the reorganized
Debtors, the Committee shares the Debtors’ view that granting the Debtors the authority to
implement the Procedures is an appropriate exercise of both the Debtors’ business judgment and
this Court’s equitable powers under section 105(a). If approved, the Procedures should enable
the Debtors to preserve the potentially substantial value of the Tax Attributes for the benefit of
their estates and creditors.
CONCLUSION
11. For the foregoing reasons, the Committee respectfully requests that the
Court grant (a) the Motion; and (b) such other relief as the Court deems just.
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