Re: Development costs vs exploration costs First, a question.
That could go to the Receiver directly but interesting to discuss maybe.
My understanding is that interest accrual on debt (sec. and unsec.) stopped on the day of filing.
Wording of the 5th report tends to say that at least secured debt still accrues.
Any thoughts?
Yes this forum is more interesting.
Back to the pools.
Good work Kasparovisme,
Expertchoc, are you a corporate tax expert?
Here's where I'm at.
I know this may all be fairly delusional but when I bought TBE debentures paying 5/6 of an interest coupon (that amounted to a large part of the purchase price) which I was pretty sure to never see, perhaps the situation looked delusional also then.
The CDN Income Tax Act is 100 years old this year apparently and contains thousands of pages. Well, that did not stop business development, did it not?
For tax pools, there are are complex legal transfer rules and specific accounting rules that may be triggered causing the residual value to be less but let's keep in mind the substance of the transaction here.
-TBE is liquidated in BIA but TBE assets are, in substance, "emerging" from bankruptcy as a going concern.
-The buyer bought essentially all the tangible assets and will continue to run, in substance, the same operations. (some would say in a better way, but that's another topic)
-TBE has amassed very large tax pools (predecessors and TBE explored and drilled a lot, helps to explain the leverage but did not have the opportunity to use the deductions as the going forward became a going concern). In substance, the tax pools still exist.
-My understanding is that a portion of the tax pools is not available with the transaction as stated now (asset sale).
-The buyer maybe has a PE minsdet and looks to re-sell the assets rapidly but my take is that the new owner has a long term view with expected long term positive cashflows AND profits. My thinking: why would a foreign firm with related expertise come to Canada to buy a conventional heavy/medium oil producer if it did not believe in the long term potential? I would say that the buyer is financially sophisticated. Better to keep eyes wide open.
-Then, for the buyer, the residual tax pools in the shell have potential value. I would bet that this was carefully evaluated beforehand.
-My understanding then is that, in substance, to get a the residual tax pools, the buyer needs to come up, if worthwhile from a NPV perspective, with more funds.
-There just may be some kind of tax deferral rollover mechanism that would allow to reveal the true subtance of the transaction and permit maximal use of the tax pools.
Now, to whom the pools belong? (if there is no value, this is a waste of time, I know)
The answer is simple but not easy.
In a typical case, SH=owner but TBE is not a typical case.
With filing, the ownership gets redefined with the capital structure and priority rules.
TBE is going through a BIA liquidation with debenture holders possessing the fulcrum security. DHs are next in line and the original indenture specified that our security contains a conversion option.
If this goes down to the wire, without making the next in line whole, perhaps we need to talk more?
My education/training is completely outside of investment but I happen to think that this topic is fascinating. Sorry then for the enthusiam.
For the real fanatics with free time, I looked into the Whitecap acquisition of Midway in 2012. The metrics used look unusually high versus the present environment but the price paid likely included a significant amount for undeveloped land AND tax pools.
Also, along the same line, some may want to look at the 2014-2015 "acquisition" of Anderson Energy by Freehold. I think it shows to what extent a motivated buyer may be ready to engineer a transaction in order to go, among others, after tax pools. But these were the good ole days of 95 000 per boe/d though. Better control your enthusiasm.
https://www.freeholdroyalties.com/index.php?page=news_releases&op=view&id=275