Tricadia (Daily Bankruptcy)
Tricadia Urges A New Look At Washington Mutual Tax Breaks
Peg Brickley
November 16, 2010
Tax breaks that could potentially be worth billions of dollars have been overlooked in Washington Mutual Inc.'s bankruptcy, says Tricadia Capital Management LLC, an investment fund that has a plan to save them.
In a court filing Tuesday, Tricadia urged Washington Mutual to freeze trading in a class of debt that is still largely in the hands of investors who owned it long before the company filed for bankruptcy.
The investors, who hold so-called CCB Guarantee Claims, are being promised payment in full under the Chapter 11 plan Washington Mutual is trying to push through the courts. But they could be the key to salvaging the value of huge losses tied to the September 2008 seizure of Washington Mutual Bank, or WaMu, according to Tricadia.
"A spokesman and an attorney for Washington Mutual did not respond Tuesday to requests to comment on Tricadia's arguments, which are set out in a filing with the U.S. Bankruptcy Court in Wilmington, Del."
By freezing trading in the CCB Guarantee Claims and revamping its Chapter 11 plan, Washington Mutual could preserve "billions of dollars" of additional value in bankruptcy, according to Tricadia, which owns some CCB Guarantee Claims.
WaMu's former parent filed for Chapter 11 protection after losing the thrift to a regulatory seizure. The bank-holding company is headed to confirmation hearings in December on a Chapter 11 plan that divides its remaining assets, including an estimated $2 billion share of tax refunds, among creditors.
There are more tax refunds to be had, according to Tricadia, if Washington Mutual takes advantage of a loophole that avoids Internal Revenue Service limitations on the use of past losses to offset tax liabilities.
Washington Mutual is entitled to book billions of dollars of losses because of WaMu's seizure. Transforming those losses into tax refunds, however, means making it past IRS rules that limit the ability of companies to carry their losses year after year, especially when the company has changed hands.
The loss of WaMu and bankruptcy of Washington Mutual set off a frenzy of trading in the parent company's stock and most classes of debt. That trading will make it difficult to turn billions of dollars of losses from WaMu's seizure into much of a tax break, according to Joshua Hochberg, an examiner who looked at the company's Chapter 11 plan to see whether assets had been left untapped.
Depending on when Washington Mutual emerges from bankruptcy - before or after midnight on Dec. 31 - the post-Chapter 11 company may be able to transform those losses into tax breaks, according to the report filed by Hochberg, who's with McKenna Long & Aldridge. However, there are limits on the usefulness of the losses because of the change of control at the company.
Tricadia said Tuesday that the relative stability of ownership in the CCB Guarantee Claims can potentially get a reorganized Washington Mutual though the loopholes, allowing the company to use "one of the largest net operating losses in history."
About 69% of the CCB guarantee claims are still owned by people who owned them 18 months before the bankruptcy, the firm said. Washington Mutual's advisers may not have been aware of that when analyzing the tax picture, Tricadia said.
By acting now to limit trades in the CCB guarantee claims, Washington Mutual can preserve the option to amend the plan to make the most of the tax breaks, Tricadia said in court papers.
An analysis by Kevin Starke of CRT Capital Group LLC says WaMu's former parent can claim a $5 billion worthless stock loss as well as nearly $18 billion worth of losses carried forward from 2008 due to being stripped of WaMu. Whether those losses ultimately pay off in tax breaks, however, is "complicated," according to Starke.
