Washington Mutual demanda a la FDIC por 17 billones US$ + daños

The ghost of Washington Mutual still walks the land, and it’s ready to go shopping.
WaMu, the huge Seattle-based thrift, became the nation’s largest bank failure in 2008, devastating employees and investors while ensuring years of lucrative legal wrangling for banking and restructuring experts. The Federal Deposit Insurance Corp. arranged for JPMorgan Chase to take over the nationwide WaMu banking franchise.
But one minor operating business remains in WMI Holdings Corp., as the shell corporation that used to own the bank is now called. More importantly, within WMI resides massive potential tax deductions that could be used to shelter the earnings of a big, profitable company — if only WMI had one.
The financial engineers at investment-banking powerhouse KKR are eager to walk down the aisle with this ghost, hoping for a fruitful future.
WMI disclosed last week that KKR has agreed to invest $10 million now and another $150 million during the next three years, which “would be used by the company to fund future acquisitions.” KKR also has rights to buy half of any stock offering up to $1 billion that WMI might make during that period.
Right now WMI, still based here, consists mostly of WM Mortgage Reinsurance, which is officially domiciled in Hawaii and is not issuing any new policies — “operated in runoff mode,” in insurance jargon. That insurance operation yielded about $6.8 million in net revenue for the nine months ended Sept. 30, while WMI reported a net loss of $7.2 million.
After years of skirmishing in bankruptcy court, WMI doled out assets to various WaMu creditors in a global settlement in 2012. Ownership of WMI itself was distributed too — about two thirds to former WaMu preferred stockholders, and almost 30 percent to the common stockholders, according to reports at the time.
The prize for KKR — and potentially for any long-suffering WaMu stockholders who still own a piece of WMI — is the nearly $6 billion in “net operating loss carry forwards” attributed to WMI.
That could offset the income from other businesses the company might acquire, and clearly some deals are in the cards.
Michael Willingham, the chairman of WMI’s reconstituted board of directors, said KKR’s expertise in raising money, running companies and making deals “will augment our ability to execute on our stated acquisition strategy.”

En base a 202m acciones actuales, y $ 1,36 MM en valor, las acciones de WMIH parecen tener la capacidad de sonar en dólares 6.73/share

Dissecting The Washington Mutual KKR Deal by Troy Racki
This article was published at 2:42pm ET on 15 December 2013.

http://seekingalpha.com/article/1899381-dissecting-the-washington-mutual-kkr-deal?source=feed

Read the full article now »
Dissecting The Washington Mutual KKR Deal

Dec 15 2013, 14:42 | about: WMIH, includes: KKR

Disclosure: I am long OTCQB:WMIH. (More...)

On December 9, shares in the reincarnated Washington Mutual (OTCQB:WMIH) surged some 50% after the company's board of directors announced a commitment for strategic investment with KKR & Co. L.P. (KKR), which instantaneously added 70% the company's market value. The announcement caught most unaware, a positive shock to the few holdout retail shareholders who have remained deeply involved with the former banking giant since its FDIC forced seizure and following bankruptcy in September 2008. Many were not expecting any significant news announcements by WaMu until after the company's two-year post-bankruptcy anniversary in March because of IRS Section 382 limitations regarding the carry forward the company's NOL tax assets.

The Deal

Under the terms of the agreement, and pending final approval, KKR has agreed to purchase $10.55M in WMIH convertible preferred stock, exchangeable into 9.6M shares of common equity. In addition, KKR will commit to purchase up to $150M in yet to be issued WMIH subordinated 7.5% PIK notes. Combined with its previous credit line of $125M at 7% obtained during bankruptcy negotiations, WaMu now has the ability to obtain $275M in immediate financing towards a leveraged buy out that allows it to best utilize its current NOL tax assets. The deal also grants KKR five year warrants in WaMu, allowing it to acquire 61.4M shares at a blended rate of $1.38/share.

While the deal adds 71M shares to the company's current issuance, or a 26% dilution for a $95M capital injection, it does immediately raise the company's bottom line market value to $365M from its previous bankruptcy court appointed value of $210M. Shares closed up over 45% on the news, setting an intraday high of $1.81/share that matched the $365M market value based on 202M . Shares closed up over 45% on the news, setting an intraday high of $1.81/share that matched the $365M market value based on 202M current shares, before settling down some. The agreement creates a new point of resistance against short sellers by establishing a true floor price for the company, which some online message boards pushed heavily as having no real floor at all; right up until the news was released. While the dilution does decrease WMIH's upside some, it significantly decreases the downside risk.

Seat at the Table

While the deal injects needed capital into WaMu to pursue future M&A activities, what is more important is that WaMu now has a seat at the big table, so to speak. All too often, the best deals on Wall Street are based on whom you know. Even though the agreement does subject current shareholders to a 26% dilution, it partners them with a leading global investment firm that would not be dealing unless they saw significant money to be made. With $90.2B of assets under management, and a market cap of $7.2B on the open market, KKR should be able to shop WaMu's NOLs out and close a deal in short order. It should be noted that publicly traded KKR shares represent only 30% of the firm's actual ownership equity, with the remainder held by the firm's partners. This raises KKR's true market power $24B. Consequently, KKR should have no problem harvesting all of WaMu's $5.97B in NOLs before their expiration date.

Upwards Spiral

The NOLs, estimated to be $5.97B, is WaMu's most significant asset. At a 35% corporate tax rate the short answer is that the NOLs could be worth up to $2.1B in cash from future tax savings. The long answer is that it is much more complicated than that. As testified in court, the NOLs would likely be discounted by 25% to 35% for transaction risk if WaMu merged in an all-stock transaction with another entity. Further reduction would come in the form of discounted cash flow, namely a reduction of the NOLs value based upon how long it would take to use them up. Consequently a value of $1.05B seems a much more reasonable and lower risk valuation, though the court assigned the NOLs a value of just $51M based in part on a "worst case" ongoing operations only situation. With KKR's pairing however the "worst case" is now off the table. As shares in WaMu continue to rise, its ability to use its NOL assets increases proportionally, given how they hinge heavily upon M&A activities and further capitalization, both of which are strongly dictated by market cap. Consequently the higher its stock moves the easier it becomes for WaMu to "cash in" on its NOLs, thereby making them worth more, which in turn increases share price, resulting in a positive loop.

It's Called Synergy

KKR's agreement with WaMu has not been a one sided affair. KKR shares have risen some 7% since the announcement, in part because its warrants and convertible preferred stock in WMIH have already added $56.3M to the company's bottom line, even before the ink has dried on the deal. The $56.3M in paper profits represents a 60% return for KKR on its investment in just five trading days. Furthermore, in a somewhat more ambiguous yet encouraging forecast, KKR has wrangled the additional right to participate in future WMIH equity offerings, up to an aggregate of $1B and including a cap in ownership by KKR of 42.5% of WMIH's common shares, for the next three years. This forecast gives WMIH a greatly improved market value. Based on the $1B for 42.5% ownership valuation, WMIH's market cap would weigh in at $2.36B. Under this evaluation, KKR's 26% interest in WMIH for $95M would reap $620M for KKR's equity, a tidy 650% return. Meanwhile WaMu's shareholders would retain $1.36B in value from such a deal.

An Exceptionally High Alpha

Based upon 202M current shares, and $1.36B in value, WMIH's shares appear to have the ability to ring in at $6.73/share, pending no further third party dilution than the additional 16.5% detailed above. At its current trading price of $2.13/share, this represents an upside of 315%, against an established floor of $1.81, a 15% loss. The time frame to reach such a price is somewhere between March 2014 and December 2016, based upon WaMu's soon to be expiring 2 year IRS Section 382 limitations and KKR's three year equity offering rights, or a 105% yearly return, assuming three. While such price appreciation may appear overly rosy, shares based purely on the company's NOL cash estimated value of $1.05B, and a 57.5% ownership retention of such, still returns a comfortable $2.99/share. That works out to a decent 40% return for simply purchasing "cash" and no ongoing activities. Buying cash alone should not be a major concern as WaMu is highly likely to become an ongoing company in order to best use it NOLs.

$2.26 (+6.10%) ...rompiendo máximos y con mucho carrete...

Symbiosis can create instant revenues for WMIH.

It's what Blackstone did do to grow Alliant for the sale. And the Financial Times projects KKR will do the same thing.

Is it possible they're do the same with WMMRC? My guess is, yes.

“…KKR has focused on the insurance industry for years. But it has recently avoided insurance companies because premium prices are falling at a time when investment income is also down, squeezing insurers’ profits.”

Next paragraph--Now substitute “WMMRC” for “Alliant” and “strong-arm” for “encourage,” and see how earnings can be quickly generated:

“..KKR will probably do what Blackstone did when it first acquired Alliant, which is to encourage its portfolio of companies to use Alliant. With a new owner, Alliant can continue its strategy of making incremental acquisitions. “

This is exactly what I posited in a post about the use of the WMMRC and its captive – by whomever has access to it. All businesses have to have insurance—so cover your risks, but take a piece of the action for yourself.

Fill a facility with the risks of companies over which you have strong risk control, which keeps claims low. This generates your own premium volume, which you reinsure yourself [via your own company] and reap the profits while covering—and controlling--your own risks!

If it took dilution to do it – so be it. It’s the underlying strategy that will make it or break it.

det

Source – “KKR buys Alliant in ‘pass the parcel’ deal,” Nov 23, 2012, Financial Times.
Website’s a bit of a pain:
http://www.ft.com/cms/s/0/5b8c406c-3593-11e2-bf64-00144feabdc0.html#axzz2nBXKJzPJ

The more I think about it, if Alliant is growing, or wants to that means they expect revenues. Perhaps WMIH will buy Alliant, and KKR's 'seed money' is designed to help WMIH do that. Although KKR only bought it recently, so may not be ready to 'turn it over.'

That way KKR ends up with a piece of WMIH, which succeeds via buying one of KKR's businesses [Alliant or another], so KKR gets paid twice.

Furthermore, KKR ensures the new WMIH endeavor's success by directing its portfolio companies to use their services, thus ensuring their quick-start success and revenues.

KKR also has a company that handles transactions for banks that does quite well; that could be a business they might want to sell to WMIH to make use of the NOLs.

If those kinds of plans aren't in the works, I still say--regardless of what type of business WMIH buys or enters--by virtue of KKR's investment, WMIH will benefit by having KKR direct its portfolio companies to USE services of WMIH, another of its investments.

That's the M.O. I outlined in this post. Let me know what you think.

http://www.marketwatch.com/story/kkr-to-acquire-kkr-financial-holdings-for-26-billion-in-an-all-equity-transaction-2013-12-16?reflink=MW_news_stmp

-- Acquisition of a finance business with a complementary and known portfolio of assets and an attractive capital structure. KFN is a specialty finance company with a $2.9 billion portfolio invested in a complementary set of strategies, which KKR currently manages. In addition, KKR will preserve KFN's attractive funding structure, including $1 billion of long-term, largely fixed-rate debt and perpetual preferred securities, all of which will remain obligations of KFN without recourse to any other KKR entity.

Would KKR still be interested in specialty finance division of JPM spanning Asia, USA and Europe?

The transaction is subject to approval by KFN's shareholders as well as customary regulatory approvals and other customary closing conditions. Upon closing of the transaction, which is expected in the first half of 2014, KFN will become a subsidiary of KKR. KFN's perpetual preferred shares as well as its junior subordinated and senior notes will remain outstanding securities of KFN.

Goldman, Sachs & Co. and Simpson Thacher & Bartlett LLP are representing KKR, and Lazard and Cravath Swaine & Moore LLP are serving as independent financial and legal advisors to the independent directors of KKR. Sandler O'Neill + Partners, L.P. and Wachtell, Lipton, Rosen & Katz are serving as independent financial and legal advisors to the independent committee of the KFN board of directors.