RESCU - Rescap liquidating trust

[roughlyright]

Does that mean that it is ok to hold this in Pre-tax accounts like Roth IRA or 401(K), where the capital gains are deferred till the distributions are taken out?

[johngu]

Does that mean that it is ok to hold this in Pre-tax accounts like Roth IRA or 401(K), where the capital gains are deferred till the distributions are taken out?

 

My understanding is that the answer is "NO".  You can start to understand why by googling MLP's and why you might want to think twice before holding them in your retirement accounts.  The reason is that a pass-through entity (MLP and liquidating trusts) passes the nature of the income to the account.  For retirement accounts, I believe there's an issue of UBTI (unrelated business taxable income) which can apply to the income paid out by the MLP / trust.  This is as far as my understanding goes, and I could be wrong.  But hope this helps you get started.

[misterkrusty]

recently posted the following (below) to the VIC.  got zero responses.  not sure if that's a good sign or a bad one.  let's see if the CoBF is still paying attention.  this looks like it could be a 4-bagger, thus my persistence.

 

 

"so the Greenpoint settlement was disappointing, but is it really that relevant?  Only $7 million out of the $107 million total losses cited in the two Greenpoint cases came from mortgages to which the Client Guide applied.  The rest were governed by the "Mortgage Loan Purchase and Warranties Agreement."  The former is over 1,000 pages long, the latter only 79 pages.  Call me crazy but I'm not sure the MLPWA is as strong a contract. 

 

could the market be overweighting the importance of Greenpoint simply because it's the only datapoint to come out of these cases in some time?

 

I think I can make a case that the current share price ($9) implicitly assumes a legal recovery rate almost as low as Greenpoint's 19%  (= 20.5/107).  This seems silly, as the Client Guide governs the overwhelming majority of remaining OPB.

 

Here goes:  assuming 97.3 fully diluted units, the market cap is $876M.  Subtracting non-litigation assets of $179M gives you a $696M implied litigation recovery.

 

Now let's check how much ResCap is can sue for.  To do so, I have slogged through the latest complaints in cases representing >92% of the total OPB.  From that painful excercise I get the following datapoints:

 

(a) total estimated OPB = $53.9 billion

 

(b) losses cited = $6.64 billion (FYI, this equals 12.3% of OPB)

 

© average breach rate = 52.2%

 

(d) OPB with collectability issues = 22.1% of total  (notably, this includes every case in which defendants have raised a corporate veil defence - e.g. monster-sized cases like Decision One and DB Structured products.  It also includes every case where public data show that the defendants might not have the money - e.g. Impac Funding)

 

 

 

b * c * (1-d) = $2.698 billion.  To this I add $0.228 billion, which is (1-d) * $292M of pre-petition and bankruptcy fees and expenses, for a total of $2.926 billion.  This is the total amount that I'm pretty certain ResCap can suing for.  Note that this figure assumes ZERO pre-judgement interest.  Why?  Simply because we VIC members have had considerable debate on that topic and I want to keep this simple and conservative.

 

$0.696 billion implied litigation recovery divided by my $2.926 billion total from above = ~24%  ...not too far from the 19% recovery in Greenpoint, even though ResCap arguably has a much stronger case in its remaining lawsuits.

 

Yeah, sure, I didn't factor in time value of money even though most of these cases won't go to trial until 2H16 and January 2017.  But I think this is more than offset by some of my assumptions (e.g. does anyone really think ResCap will get ZERO pre-judgement interest?  does anyone really think they'll get ZERO from cases with a corporate veil defence?)

 

To help frame the upside, I keep all assumptions the same but introduce recovery rates of 70% and 80%, which point to a target price range of $24-27 per share.  Again, that's assuming zero pre-judgement interest."

 

thoughts?

 

 

[DavidVY]

I got my fingers burned by litigation companies especially when it involves billions.

 

I try to stay away.

 

If I was to play it, Id do a put/call straddle. Because in either case, its either going to go down fast or go up fast. Maybe less upside but less downside.

 

Just my thoughts.

 

Haven't really looked in depth at it.