Replies to post #2396 on Syncora Holdings Ltd. (fka SYCRF)

[DennyCrane550]

Net operating losses ("NOL") are a tax credit created when a company's expenses exceed its revenues, generating negative taxable income as computed for tax purposes. NOL can be used to offset positive taxable income, reducing cash taxes payable.

Many know more about this than I, but thought I would post a missive. I have seen some discussion on NOLs (Net Operating Loss Carryforwards) that hopefully Syncora may monetize in the future.

I believe Syncora has something on the order of ~$2B NOLs... quite a huge possible asset.


Excellent Resource here discussing the limitations and possible M&A transactions:

http://www.macabacus.com/taxes/net-operating-loss

Section 382 is triggered when a change in ownership occurs, defined loosely as an increase in ownership interest of at least 50% by shareholders owning 5% or more of the target's stock, over a 3-year period. The precise definition of a qualifying ownership change is complex, but it is sufficient to assume that in any taxable or non-taxable business combination, a qualifying ownership change under Section 382 occurs.

Companies with unused NOL seeking new equity financing should be careful not to issue so much new equity as to trigger a change in ownership under Section 382. For example, an IPO of a biotech company that accumulated substantial NOL during its start-up phase might trigger a qualifying change in ownership. Companies seeking to raise substantial equity financing should consider issuing straight preferred stock (no voting or conversion rights or participation in future earnings) rather than common stock.

Section 382 requires that the buyer meet the continuity of business enterprise requirement; continuing use of the target's historic business or a significant portion of the target's assets in an existing business for 2 years following the transaction. If the continuity of business requirement is not met, the annual NOL limitation is zero.





Side Note:

(I believe Google used up all Motorola handset NOLs in year 1 -- Example C? here at prior link -- of course prior to deal announced w/ Lenovo)

1:58min video
http://www.bloomberg.com/video/google-lenovo-deal-back-of-the-envelope-math-pX6lrsFCRQqyhdhv0K5zTQ.html

Google-Motorola-Lenovo Deal: Basic Back of the Envelope Math
30 Jan 2014
Bloomberg's Tom Keene breaks down Google's $2.9 billion sale of the Motorola Mobility handset division to Lenovo on Bloomberg Television's'' Bloomberg Surveillance.