Level 3 NOL's

[Guest longinvestor]

Whoa!!! longinvestor!

 

Never has a more true statement been declared in relationship to the hardships (3) owners have had to endure. Even tied to the integration mess, a necessary strategic move to advance the communication line radius' closer to end users in order to avoid costly access charges, notwithstanding.

 

Have you bought some (3) shares today?  ;D

 

<Poor execution is the silly syllabus of the (3) story.>

 

Have been buying for 5 years

 

[Guest ValueCarl]

valuecfa,

 

If you find the time to research Carl Icahn's take over via the preferred stock mechanism of XoHO Communications, would you attempt to explain to the board how he would walk away with those NOL's, assuming an imminent sale did take place tied to the rules? tia

[valuecfa]

valuecfa,

 

If you find the time to research Carl Icahn's take over via the preferred stock mechanism of XoHO Communications, would you attempt to explain to the board how he would walk away with those NOL's, assuming an imminent sale did take place tied to the rules? tia

 

Sure, I don't mind looking into it. I've got a lot going on today though (slammed at work right now and my sister is having a baby tonight & I volunteered to help out), so I'll try to get back to you tomorrow on XO. I took a quick peek and it looks like a bankruptcy exception (which is kinda hard to pull off). I'll look more into it later. It does look interesting reading material.

[Guest ValueCarl]

Oh, bankruptcy courts and judges seem to fare well for ICON. That's making more sense now. You're onto something there, I think, valuecfa.  May your sister bring you a healthy niece or nephew tonight.  :)

 

 

[valuecfa]

valuecfa,

 

If you find the time to research Carl Icahn's take over via the preferred stock mechanism of XoHO Communications, would you attempt to explain to the board how he would walk away with those NOL's, assuming an imminent sale did take place tied to the rules? tia

 

 

 

Sorry for the delayed response ValueCarl.

 

This is one dramatic tale that has been going on for nearly a decade. It was a little difficult keeping up with all the history and drama involved with Icahn trying to attain the NOLs all these years.

 

A special exception to the Section 382 limitation rules applies when the ownership change results in a sufficient number of historic creditors and/or shareholders owning the new stock of the reorganized debtor. This is the Section 382(l)(5) Bankruptcy Exception.  If the L5 Exception applies then there is no annual limit on the use of NOLs. Icahn owned the majority of the company's pre-bankruptcy bank debt and term loans. This gave him control of the equity up on reorganization, while preserving the NOLs.

 

Under the tax laws, a shareholder who owns 80% or more of a company may use its NOLs to reduce the tax burden of other, profitable, companies in which the shareholder holds more than an 80% interest. When XO first emerged from bankruptcy, Icahn owned more than 80% of the Company's equity. Icahn used approximately $450 million of XO's NOLs in 2003 and 2004 to reduce the tax liability of other Icahn-controlled companies. However, Icahn fell below the 80% threshold when he failed to participate in an offering of XO stock in January 2004 because he assumed minority shareholders would not be interested in the offering. Icahn then began his efforts to get back his prized NOLs over the next several years, being blocked time and again by lawsuits sprung by minority shareholders, despite Icahn having control of the board of directors.

 

The majority of the rest of this can be found in filings, by minority shareholders:

 

According to filings, Icahn's re-attempt to take XO's NOLs began in or about September 2007. During the preceding months and years, XO's Icahn-controlled Board had failed to take advantage of an extraordinarily liquid credit market to refinance its long-term debt, the majority of which Icahn owned. Instead, the Board had approved an aggressive capital expenditure program but failed to identify the financing for that program. Icahn's strategy of having the Company incur substantial additional expenditures while leaving in place its sizeable debt (owed largely to Icahn) would force the Company into dire financial straits -- and provide an excuse for the self-dealing transaction Icahn would offer to save the Company in exchange for its NOLs.

 

In September 2007, the Board created a Special Committee to consider its financing alternatives. The Special Committee and the Company had their own financial advisors. Both sets of financial advisors recommended that any equity financing be conducted through an equity rights offering and that it be open to as many participants as possible, not just current investors such as Icahn. The Special Committee also initially recommended that "a rights offering be conducted only if Mr. Icahn agrees to a standstill agreement (or other comparable arrangement) that would limit his equity ownership, after any offering, to not greater than 75%." This agreement would have served the specific purpose of keeping Icahn below the 80% threshold so that he could not take the Company's NOLs for his own use.

 

Icahn agreed with the rights offering plan, but not on the terms recommended by the financial advisors. He first insisted that it be a  preferred rights offering of a size that would dwarf any similar rights offering in recent years -- and that was multiples beyond the size recommended by the financial advisors. A preferred rights offering of this size would serve Icahn's strategic purpose: it would so dilute minority shareholders as to dampen any interest in participation and actually exclude participation by some minority shareholders, thus nearly guaranteeing that Icahn would exceed the critical 80% threshold. Although the financial advisors cautioned against Icahn's proposal, the Special Committee ultimately capitulated to his demand. Disregarding the financial advisors' advice, the Special Committee also ignored three different prospective investors who made unsolicited approaches to the Company to provide funding that could have kept Icahn below the 80% threshold (without acquiring any Company assets other than stock).

 

On July 25, 2008, the transaction with Icahn was consummated. The Company issued hundreds of millions of dollars in new preferred stock that Icahn purchased in exchange for cash and retirement of the Company's Icahn-owned debt. Icahn's stake in XO went up to approximately 85% (on a fully-diluted basis).  Icahn obtained the Company's NOLs subject to the Amended Tax Allocation Agreement.

 

I found the following filing to be extremely revealing as to the incredible alleged tactics Icahn went through to attain the company's NOLs. It is amazing to sometimes see what goes on behind the curtain: http://sec.gov/Archives/edgar/data/1111634/000089742309000265/exhibit991.htm

[valuecfa]

Thank you valuecfa.  That's the clearest explanation I've seen about

the limits on how large amounts of NOL's in relatively small companies could be valued in a takeover by a company in a related business.

 

By the way, twacowfca & Cardboard. Just so i don't mess you up on the math if you attempt to value NOLs in other companies...

 

I just used an arbitrary plug amount of 5% as the LT tax-exempt rate for the determining the value of the NOLs in the example I gave. The LT Tax-Exempt rate for a particular month, used under Internal Revenue Code section 382 to compute the annual limitation on the utilization of corporate net operating loss carryovers following any "change in ownership" during such month, is equal to the highest adjusted LT rate for that month and the prior two months. So currently, that rate you would use would actually be 4.03%, and not 5%. It's quite a difference. Just thought i would point that out. Cheers.

[Guest ValueCarl]

valuecfa, you are very valuable sir! What extensive research you have performed and provided to this board! You didn't tell me though, do you now have a niece or nephew?  :D

 

What will become most interesting as a result of this ICON saga, is the ultimate decision by the court of law deciding the merits behind R2 investment's lawsuit against this narcissist, "The Wolf of Wall Street," who DESTROYS VALUE except unto himself.

 

If reasonable minds, especially the judge managing the facts behind this case, cannot see how one man with his board influenced ties, single handedly destroyed value for the whole, it will surely confirm the pitfalls of crony capitalism.   

 

If there were justice in this financial world, this scoundrel would have portions of previously granted NOL's reversed!  >:(

[Guest ValueCarl]

Value CFA, this gentleman blogger brings much VALUE to Telecom land, including or excluding ICON's HO at XO Communications. I encourage telecom investors to pay attention to him. imo

 

http://www.telecomramblings.com/2010/03/xo-finally-reports-q4-2009/

[Guest ValueCarl]

Well, like something out of a Star Wars movie, R2, is it R2D2, gives Darth Veda hell! This is NOT an April Fools Day joke from them. imo 

 

 

 

Mr. Icahn will likely try to convince the board that it is in the company's best interest to allow him to convert his $217.4MM of Class A preferred stock into equity or an equity-linked security. Not only does the company have ample liquidity to completely cash out the Class A preferred stock, but the company could also easily raise enough debt to completely cash this stock out given its recent improvement in operating trends and the strength of the debt capital markets. We believe it would be a tragedy for minority shareholders if the board were to let Mr. Icahn exchange his Class A preferred shares into anything with an equity component. If he is able to surpass 90%, the minority shareholders will be subject to possibly being merged out of existence, and Mr. Icahn will have succeeded in destroying minority shareholder value while being the sole beneficiary of that destruction.

 

Rest assured, we are going to do everything in our power to ensure that justice is served and that the rights of minority shareholders are protected. Should Mr. Icahn succeed in pressuring you to hand over the company to him through what we view as this back door method, we would pursue all legal remedies available to us, including holding each of you personally liable to the maximum extent permitted by law, for this latest infraction in trampling the rights of minority shareholders. Please stand up and do the right thing!

 

http://sec.gov/Archives/edgar/data/1111634/000089742310000065/xoholdings13da4.htm