Forum Archive Index - May 2000

["Oliver Shapleski" <oliver.shapleski@vuw.ac.nz>]

Snoopy, you're right - I am assuming that the debt has accumulated as a
result of carryiong forward losses.  This may not be the case.  I was
confusing the loss value with the leverage value.  SO, I'll rephrase the
proposition:

If a cashflow rich company acquires the debt as a cheap method of
refinancing, then the interest charges on the debt can be offset against
profits potentially reducing the tax liability (depending on the tax laws of
the acquirer's company or the takeover method).

Oliver


----- Original Message -----
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Sunday, May 28, 2000 8:16 AM
Subject: Re: [sharechat] FFS Debt value - flaw in valuations


> >
> > Thought some people might need the flaw pointed out to them - hence
> > the problems with NTA.  FFS has debt - true.
> > Possibly $700m, I don't know.
> >
> > If a profitable company bought FFS, the value of the debt isn't
> > necessarily -$700m.  It depends entirely on the applicable tax laws,
> > but if the transaction is structured to allow Loss Carry Forward and
> > the tax rate is 33%, then the value of the debt increases by
> > 700m*0.33 i.e. roughly $230m.
> >
> Oliver , I see your point about carrying forward a 'loss'.   But
> surely a 'debt' isn't a 'loss' any more than a mortgage on your house
> is a 'loss'.    Once you sell off your house, hopefully with enough
> money to fully you pay off your mortgage, you then pay off your
> mortgage and it is gone.    Then you pocket whatever money remains
> which is the NTA of your house.  Or am I missing something? SNOOPY
>
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> but that still only makes me wrong once."
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