A GREAT tutorial on VRC valuation
Observer has a great tutorial on Y! on what VRC valuation really means. And honestly, it doesn't mean what I (and many others) thought it meant. This is right up his alley, so believe what he wrote.
(And, before you read this, a public service announcement from Catz:
It's important for all longs to read, and re-read, and re-re-read Observers post to get past the words 'valuation'.
He's got the experience to understand and explain what this VRC is all about.
And it's not 'valuation' as we'd like to see.
It's valuation in the sense of the Liquidating Trust. For tax basis info, etc.
Seeing so few items being 'valued' is a continuation of the same scam. Only a few bones are being tossed into the 'Liquidating Trust', and only -- JUST THOSE -- bones are being valued.
And if you read the proposed engagement, it specifically states that VRC is not going to re-review documents -- like Blackstone, they are going to review what they are given to review.
But this is NOT a valuation as we'd like to see a valuation done. It's a trivial, small, valuation of just those items being tossed into the Liquidating Trust.
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From:
messages.finance.yahoo.com/...22240&tof=5&frt=2#722240 "VRC Some Perspective" by Observer1401
There is so much upcoming in the next week and maybe two. There are depositions scheduled, EC appointments to address the "no fewer than two" rule and the proportional representation requirements for preferreds, shareholder responses to the EC appointments, the potential for special counsel for tax, public company valuation and related, and more.
So, let's put the VRC in perspective and look ahead. It has nothing to do with what we are dealing with regarding the debtor in bankruptcy, or more important, the reorganized debtor thereafter.
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This retention is administrative, although all retentions by the debtor are "friend only." {2}
Background. The debtor Plan includes the use of a Liquidating Trust (with LT Trustees that the EC has asked to have a Representative) which will take specific assets of the debtor and "liquidate them." The Liquidating Trust is important to the lowest level of unsecured creditors as it can, as a result of successful efforts, liquidate assets - which is it's job - at over 100% of the value that was assigned to each asset {1) when it receives the post-confirmation, effective date specific assets "from the debtor."
This application for retention has nothing to do with the Liquidating Trustee. That is where some good things can happen, or bad things.
{1} This application and retention is to assist the debtor in establishing the FMV of the "Liquidating Trust Interests, or LTI's," or tranches [think of LTI interests as stock interests with separate cusip #s]. The reason the debtor has to do this is for purposes of reporting to - and if applicable, witholding of taxes on behalf of - the federal, state and other tax authorities of the "distributions of such LTI's." To those receiving these LTI's, whether employees {little} or creditors by class {big} this is like getting a W-2 or 1099. It is the "selling price" to be used to measure against any cost basis interest in the debtor; gain or loss determination.
Valuation Research Corporation is to perform this service for the debtor solely for this purpose. It appears that the debtor chose not to do this "in-house," however, as with Blackstone, the engagement agreement indicates they will not duplicate the work provided by Alvarez and Marsal [i.e., they will use the starting point information unchallenged, for example, as to completeness or accuracy - NOL provided to Blackstone, Blackstone not responsible if it is understated by $10 or $100B per their agreement].
The BANKRUPTCY DEBTOR TAXES RECEIVABLE identified in the VRC scope are just that. There are numerous refunds for tax years including and prior to 2008 that have not been received by the debtor to date, federal and state, that need to be liquidated {resolved, settled, litigated or however}. The Liquidating Trustee has the authority to amend including and prior to 2008 tax returns.
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The BANKRUPTCY DEBTOR TAX ASSETS known as the NOL carryforwards cannot be liquidated by the Liquidating Trustee as they pass directly to the Reorganized Debtor {they get to pass GO but they do not have a "get out of jail pass."} The debtor has retained responsibility to file the 2009, 2010 and 2011 tax returns, which will significantly increase the NOL carryforwards post confirmation and post effective date.
{2} VRC - San Francisco
Walter O'Haire
Vice President
Mr. O’Haire focuses on business development on the West Coast.
Prior to joining VRC,.., having served as vice president at U.S. Bancorp Piper Jaffray and senior attorney at Perkins Coie, LLP.
Robert Barnett
Senior Vice President
Prior to joining Valuation Research, Mr. Barnett held positions with Ernst & Young, Kroll Associates, Houlihan Lokey Howard & Zukin, and KPMG.
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Part
#2 from Observer:
As unreasonable as it sounds, there are
(a) debtor values for bankruptcy disclosure culminated on Plan confirmation of the assets of the debtor under the Bankruptcy Code,
(b) debtor distribution values for purposes of distributions of assets to the Liquidating Trustee for purposes of reporting, and possibly witholding taxes on - this is VRC engagement, under the Internal Revenue Code,
(c) some time later, other than for cash and items easily converted to cash, actual asset values when non-cash and cash equivalent asets are marketed and sold by the Liquidating Trustee,* and
(d) tangible subsidiaries and intangible debtor assets that our POR/DS indicate will go directly to the reorganized debtor - - WMMRC, the subsidiary, and the related NOL carryforwards. This (d) has a "back and forth" in that WMMRC's values in (a), (b) have to paid to the Liquidating Trustee - - it is like a pre-arranged sale of one component of the debtors assets. This is where the "rub is" with the Judge and one PITA observer; that value is already determined by the debtor via Blackstone and the most senior note holders can capture the whole reorganized debtor for around $150M+- all the changes they keep making. They simply pay the $150M by not taking cash for part of their claim, and the get the reorganized debtor.
For you, as a holder ultimately of LTI cusips for your claims, will get cash at the original major distribution {the largest payout, think noteholders and all of the classes above the Hs} and then at later times when the Liquidating Trustee has sold the other subsidiaries, settled claims and litigation, settle non-NOL tax refund matters at the federal and state level, etc. The Liquidating Trustee will likely provide you with an estimate of the total % of claim on each cash distribution.
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*
Liquidating Trust Structure Is Key to Maximizing Payouts
by Jeffrey Ayres
Oct 1, 2006
(TMA International Headquarters)
www.turnaround.org/Publications/A... The use of liquidating trusts in Chapter 11 reorganizations or other restructurings continues to grow. By segregating into a trust specific assets available for liquidation and eventual payment on creditors’ claims, practitioners have created an effective tool for streamlining the confirmation of a plan of reorganization or an out-of-court restructuring.
,
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Finally, a suggestion about the mechanics of actually liquidating assets in today’s economy is in order. The challenge for every liquidating trustee is locating—or more often, creating—the “market” that results in maximum proceeds for the beneficiaries. Although most governing trust agreements empower a liquidating trustee to liquidate assets through private sales, one also should consider the potential benefits of using Section 363 of the U.S. Bankruptcy Code if it is available.
Presently, a liquidating trustee may easily create a market for an asset by selecting a stalking horse bidder {or, try to do the opposite or a handoff to a friend, that is why the EC has asked for the LT seat} , noticing the asset for sale by auction to qualified bidders under Section 363, and obtaining court approval for the sale with clear title. The expediency of Section 363 sales, coupled with the unprecedented amount of capital seemingly available today, may expand what previously was perceived as potentially limited markets for certain assets and thereby materially increase the anticipated liquidation value. Admittedly this strategy may not result in a “home run” sale price; however, it may result in a consistent series of “doubles” that can add up over the term of the liquidating trustee’s administration.
This article represents the views of the author and not those of JPMorgan.
Jeffrey Ayres
Vice President, Relationship Manager
JPMorgan Bankruptcy & Settlement Services
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