Replies to post #5410 on Mesa Air Group, Inc. (fka MESAQ)

[sometimes_right]

furthermore, Equity may remain INTACT without the company utilizing any NOLs... It's just that the utilization of NOLs makes for a very good indicator that equity will remain intact and shareholders will have value upon successful emergence from Chapter 11... Without this indicator other clues must be relied upon, such as: assets > liabilities; requires no DIP financing; company insiders still holding, etc.

imo

[Madclown]

There is a big misconception about what constitutes an ownership change and whether the retail shareholder must be preserved in order to preserve the NOL. In bankruptcy, the ownership group(s) that must (collectively) be preserved are the stockholders owning 5% or more of the company and the "old and cold" creditors (i.e. those that held the debt for a period of 18 months consecutively). This collective group must hold greater than 50% of the voting rights and value of the new company upon reorganization in order to avoid NOL limitations. The group of stockholders who (on an individual basis) do not own 5% are treated as one group of 5% shareholders.

NOL's can be looked upon by shareholders as a benefit if the company is expected to use them, going forward. Mesa has stated that they expect to be able to make use of their NOL's, which means that they are expecting a return to profitability once they can restructure the lease terms and fleet size to better match their revenue streams.

NOL's cannot be looked upon as an unfailing saftey net for retail shareholders or any group of shareholders during bankruptcy. I often see statements like "They cannot cancel the commons because they want to save their NOLs." This is untrue because the new capital structure could be set up so that old stockholders receive no distribution and the "old and cold" creditors become 100% owners in the new company. In this scenario, the NOLs may be preserved or partially preserved as the case may be, assuming all of the other section 382 stipulations have been met. It is very difficult to preserve the entire value of an NOL and it takes great coordination and planning by all constituencies. Even if preserved, they are often reduced by forgiveness of debt provisions among other things.

Here is a good article on the subject that explains the whole process better than I can.

http://www.gibbonslaw.com/news_publications/articles.php?action=display_publication&publication_id=2754