Speaker A
Oh my gosh, it's about time. Forgive me if I lose my voice. Uh, and I apologize for the delay for this video.
Explores the strategic roles of Sixth Street and HBC in securing BBBYQ's NOL and control, clarifying affiliate definitions and timeline events.
Ask about this video. Answers come from its transcript only — with the timestamp, so you can check them.
Generated from the transcript and can be wrong — check the timestamp.
Key Takeaways
- Sixth Street and HBC worked together to secure control and preserve BBBYQ's NOL.
- Amendments to bylaws allowed shareholders with 50%+ ownership to bypass board approval for fundamental transactions.
- Non-voting securities ownership was not required to be reported to the SEC in 2023, allowing significant ownership to remain undisclosed.
- JP Morgan's cash dominion timing was influenced by HBC's potential cash injection into the company.
- The chosen legal definition of 'affiliate' was critical to establishing control and justifying bylaw changes.
What the video covers
- The video discusses the importance of shares in securing the Net Operating Loss (NOL) for BBBYQ and the interplay between Sixth Street and HBC.
- Explains why Sixth Street alone could not secure the NOL and why HBC's involvement was crucial, likening them to two sides of the same sandwich.
- Highlights amendments to company bylaws that allowed fundamental transactions with 50% or more share ownership, neutralizing board opposition.
- Clarifies SEC reporting rules in 2023, noting non-voting securities ownership did not require disclosure, explaining how large ownership stakes could remain hidden.
- Details the timeline of events around January-February 2023, including JP Morgan's cash dominion decision linked to HBC's cash injection potential.
- Discusses changes in board membership, severance payments, confidentiality agreements, and Lazard engagement amendments during this critical period.
- Focuses on the legal definition of 'affiliate' from the bankruptcy code, emphasizing the choice of this definition to reflect control via 20%+ voting shares.
- Argues that ownership was actually greater than 50%, justifying bylaw amendments and explaining the strategic control achieved.
- Mentions the importance of legal and financial maneuvers to preserve the NOL and prevent tax avoidance issues under section 269.
- Encourages viewers to watch video 8 for foundational context, as this video builds on that analysis with additional evidence and timeline clarification.
Chapters
- 00:00Introduction and Apology for Delay
- 02:38Ownership Reporting and SEC Rules
- 05:14Lazard Engagement and Transaction Amendments
- 07:36Definition of Affiliate and Legal Implications
- 10:16Ownership Control and Bylaw Amendments
- 12:51Tax Avoidance and Section 269 Considerations
- 20:31Board Control and Creditor Relations
- 28:15Summary and Strategic Conclusions
Full Transcript — Download SRT & Markdown
Speaker A
Uh, I got extraordinarily ill over the last two weeks of July, and I'm only finally recovering. But, um, I hope everyone's having a wonderful summer.
Speaker A
Uh, I apologize the video is late, but let's do nine videos to celebrate class 9 and BBBYQ shareholders and why shares were pretty important into the overall picture of what happened here. And, um, this is going to be mostly a supporting
Speaker A
video for number eight, but I will also, no, that's wrong to say. This will support video 8 with more evidence of the affiliate, uh, but is also going to help us try to narrow down and identify what's going on with the timeline, um, and
Speaker A
why the shares were very important in order to secure the NOL. Um, obviously the conversation, uh, and a very good debate centers around, you know, well why would they need shares when they had Sixth Street? They had
Speaker A
control from the top down. Um, but in this video, I'm going to explain why Sixth Street and HBC were two buns of the same hamburger, two, uh, two sides of the same sandwich. Um, because they work together. Uh, and you cannot or would
Speaker A
not have been able to secure the NOL with just Sixth Street alone. And I'll explain why. Um, and that's why HBC was needed. So, uh, let's get into it without further ado. Um, I was originally going to do a bit of a review
Speaker A
of video 8, but I'm not going to because I would like this to be a short and sweet video and so I don't lose my voice. I really think that everyone should watch or have a listen to part
Speaker A
eight. It's probably one of the best, if not the best of, uh, my video series, um, identifying that Ryan is the affiliate and, uh, supporting evidence for it. And I think it's really well done.
Speaker A
But what gets overlooked and I think what really got overlooked with the HBC transaction overall was, um, not only the fact that a shareholder was able to attain a very significant level of control over the company and
Speaker A
establish a very good position, but that the, uh, company bylaws were amended at the same time to allow and make change to basically neutralize the board from being able to say no if someone had attained enough control of the company.
Speaker A
Um, so I highlighted in video 8 that for the first time, uh, the bylaws were amended that you could, uh, you could undergo a fundamental transaction if you had 50% or more of the shares of the company. Um, funny enough, obviously
Speaker A
natural, uh, push back on that theory is how could you have 5% or 20% or as I claimed in video 8, 50%, which I'll prove today, ownership without reporting. Uh, but you have to remember a fun fact that
Speaker A
in 2023 when this was happening, um, you only had to report voting securities to the SEC. Beneficial ownership of non-voting securities did not require disclosure. And that was something that if I recall correctly was amended and changed by the SEC in October of 2023.
Speaker A
Um, completely coincidentally immediately after this event of the effective date of BBBYQ. Um, but until these became voting securities or were converted, um, if they went to one individual, um, they did not have to be reported. And so that
Speaker A
explains that. But let's, let's get into a little bit more of the framework, right? Because the theory and the understanding because of what was presented in the news media was that HBC came at the last minute at the beginning
Speaker A
of February to save the company from having to declare insolvency because JP Morgan was beating the drum about wanting to secure their, um, AL value through their liens on company assets to make sure that they could get out
Speaker A
unscathed. But as the truth is, HBC was around in January and as part of the credit agreement and the covenants of the credit agreement, this would have had to have been disclosed to the agent, to the administrative agent, and to the
Speaker A
creditors. So JP Morgan would have known about it. So this answers, in my opinion at least partially if not fully, why JP Morgan randomly decided to choose a date of cash dominion, right? Like they did, which even though the events that
Speaker A
compelled the cash dominion had occurred weeks earlier, I think it was this. It was the arrival of HBC and the potential that, uh, over a billion dollars of cash could be injected into the company which would have obviously solved all the
Speaker A
problems. Uh, JP Morgan being smart enough to count would have realized that this could have potentially even paid the AL off and removed them out of the senior creditor position. Um, and so there was a bit of a panic and I believe
Speaker A
that this answers the question of why they chose the period that they did for the cash dominion is because that's when HBC showed up and there's a lot of events that happened at the end of January, right? Uh, suddenly the night
Speaker A
before his severance payment, Mark Dritton is told that he's not going to get a severance payment. We have a new board member that comes along around this period of time in Carol Flattton.
Speaker A
We have the legacy board members have their RSUs taken away just to have their RSUs given back. We have, uh, the confidential, excuse me, confidentiality agreement that was signed with Overstock on January of 2024, uh, 24th of 2023 that we also don't
Speaker A
know very much about. Um, and also there's an edit to the Lazard, um, engagement agreement between the company and Lazard to, uh, account for other ways that a transaction could happen to make sure that they got paid. Um, the only
Speaker A
engagement letter that's not revealed publicly in the court. Um, even though the other amendments all are. So, a very busy time, right? And so, answers a lot of questions in my opinion as to why there was a lot of panic and a lot of
Speaker A
going back and forth. Um, but it's important again to highlight not only the definition of affiliate but which definition of affiliate was taken because this was a big focus of the last video, right? So in these documents especially in the plan anytime
Speaker A
you use a capitalized term or word the meaning is only what that legal document says, right? And so this is taken from the plan and so it says that affiliate means whatever section 1012 of the code says which is this, right? So all of the other
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definitions don't apply. The only definition that applies is this one because there's no way that a joint venture agreement with your, if you're leasing your name, you're going to give that entity access to recovery of your
Speaker A
shipping claims. Um, if the corporation had owned 20% or more of their own shares, right? So that's like if the company BBBY at the time had 20% or more of the shares, they would have just sold them into the open market to, um, allow
Speaker A
themselves to have a financial roadway, right? Because cash was, uh, severely crunched and they had, they had no way of accessing cash because of their holiday season. So that doesn't apply. So logically the only one that's
Speaker A
left is someone who owns 20% or more of the company, right? Which is why HBC came in the entire point of video 8.
Speaker A
Please watch it. I don't want to waste any time going over it. But the point I want to highlight is there are other definitions of affiliate that could have also, um, conveyed the same level of control, right? And there are other
Speaker A
elements and places in the federal law where you can have an affiliate definition drawn just like the holder of interest, right? Interest is drawn from the Securities Act of 1933. You could have taken affiliate from this section of the federal law, right? Which is
Speaker A
again securities law, but they chose not to, right? They specifically chose to use the one in the bankruptcy code that also includes having 20% or more of the voting securities. And today I'm going to explain that it was even greater than
Speaker A
50% and it explains why the amendments to the bylaws were made, um, because someone took complete control. Right?
Speaker A
But again, why choose the definition of affiliate that you did unless it's going to involve this? Naturally, of course, it does, right? So again, I want to just highlight why that's...
Speaker A
law firms are allowing affiliates to have a claim and beneficial ownership of the result of hundreds of millions of dollars of litigation for whatever is being sued in the Federal uh maritime commission. Right? So there were multiple lawsuits in the in the FMC and
Speaker A
they total like even the singular one was like over $300 million. Right? you're you're not going to allow anyone to be able to lay a claim to that kind of a recovery to a company that's in chapter 11 unless it's intentional. I
Speaker A
mean, they would be ridiculous to assert anything otherwise. So, just important to highlight that it doesn't say that shipping and price price claims are claims of the debtors, right? It says they're affiliates and any successors.
Speaker A
Why would it include affiliates? And you'll note that affiliates is capitalized because whoever owns 20% or more of the shares also has the entitlement to have the recovery of those claims. Right? Again, we went over that in video 8. Um here I just wanted
Speaker A
to highlight again this is from the uh billing of the special counsel for the ad hoc bondholder group which was trying to sabotage the super priority of sixth street to try to take the nol for themselves. Um, but they they mention
Speaker A
again it doesn't really matter if you use three hours or 30 minutes or three minutes or three seconds of time. You're not going to record any sort of billable amount of time for activity unless it relates to the situation. Right? So if
Speaker A
here they say stock trades with public groups and how that may affect ownership changes, section 32 is the NOL, that means that there were public groups, right? Again, you're you're not going to be talking about stock trades with public groups unless that actually
Speaker A
happened, right? So, we can assert from this disclosure that the HBC transaction was not done by a singular person, but maybe it was done by a public group.
Speaker A
Maybe that's how they avoided having to do SEC reporting. I don't know, but it's there and it and it's related to stock trades, right? The only logical one would be through HBC because that was the largest one and there was no other
Speaker A
5% beneficial owner that filed with the SEC at any point in time. again covering questions about an ownership change which is relating to the NOL for options and derivatives that's you know the preferred warrants the common stock warrants those are
Speaker A
options other derivatives would have been the preferred shares that could have been converted right again we talked about um the required holder we talked about the successor we talked about anyone who the reporting person who took 20,000 or more would be have
Speaker A
the ownership uh of a successor of the company again this was planned with intent I think from the beginning and video 8 goes over this in detail, but again, you wouldn't have that in there unless it was obviously related to what
Speaker A
they were looking at. Okay, so that kind of lays the groundwork and I really want to highlight again why it's Ryan because this is the voting version of the plan that went out on on the 1st of August
Speaker A
and the initial first draft version on the 21st of July also had this. You'll notice that exculpation as a definition includes released parties, right? It says each exc, right? What exculpation is is that if you are conducting a transaction with
Speaker A
property or assets of the company and let's say you buy it, excitors can't come after you for that asset, claiming that, well, it was part of what we had a claim to, so you know, we have to be
Speaker A
able to sue you now because you have it and we got to get our recovery.
Speaker A
Excopation prevents that. But importantly, Ryan Cohen doesn't have that because looking back again, just to highlight from video 8, Brata, which was the who was the plaintiff from his class action, had objected to the confirmation of the plan, saying they were not going to
Speaker A
allow confirmation to happen unless he was well, they settled and negotiated for him not being an exclated party.
Speaker A
They wanted to know everything about everything with the chapter 11 because excavation for Ryan would have completely stopped their lawsuit in in its tracks. Right? So I want to highlight again you look at the timing here and looking at citation 98 and then
Speaker A
look at the reference the plan defines excies and this was a huge focus of of the eighth video that excies includes affiliates right and again affiliates are capitalized. So excedated parties would include anyone who owns 20% or more of the shares, right? And then we
Speaker A
talked about in video 8 how the definition of excely after Ryan is identified as not being excated has to remove affiliates, right? So it has to remove anyone who is a 20% or greater shareholder. That's how I conclude that it's him. Right? So now
Speaker A
like I just said the moment that this happens and again this is the only individual who has this identification of having his released status or excavated status removed. It's not like there are a group or a party or a series
Speaker A
of of disclosures saying that you know 25 other people are also not released or exculpated. This is the only entry. It is only Ryan. And we talked about how in the other video immediately after that in the same document the excation
Speaker A
definition removes the word affiliates. Right? And here we see that no longer does the excavated definition say each exced and excavated. Right? Released is removed. And it's removed at the same time that Ryan is no longer released. If
Speaker A
you look at the top of the page, it's on the 8th of September, 9 minutes after midnight. In the same document, on the 8th of September, 9 minutes after midnight, the excation definition has been changed. Right? So here's how I
Speaker A
know it's him because the difference in time, right? And these this is a compilation. It's like you have to follow a a train of logic here because the first time we see affiliates crossed out is in a in a further version of the
Speaker A
plan that comes out after the confirmation. But right up until the moment that Ryan is not mentioned as having not been released or excavated, look on the left side. The excies includes the definition of affiliates.
Speaker A
Then look at the right side of the screen. 43 minutes later, when only Ryan has been identified as no longer being excavated or released, released is removed from the definition of excavation.
Speaker A
That's how I know it's him. 43 minutes later, that is the gap in time. And the only change in those 43 minutes is his status as no longer being released or excavated from an earlier thing. And so this is again just to show
Speaker A
side by side this definition shows and it's in the same section. This is really the same as this. This is citation 98 that includes affiliates. But this one here excation is no longer extended to released parties. Right? Because it says
Speaker A
each exc. They are no longer released. The change happens after Ryan has his status changed. Right? So therefore obviously the affiliate must be the holder of interest because they have 20% or more of the shares and in fact they
Speaker A
have more than 50% of the shares. Why do they have more than 50% of the shares?
Speaker A
So that the affiliate does not need the board's permission to do a fundamental transaction.
Speaker A
Okay. So again going back to those details I talked about in the billing. You would not be discussing something if it did not relate to the case. Right?
Speaker A
You would not be talking about public groups if you didn't find public groups identified relating to an ownership change. You would not be talking about the NOL and loss limitations pursuant to IRC269 if that didn't apply to the situation.
Speaker A
Why do I have that emoji there? Oh yeah, it's just a little confirmation post confirmation entity to preserve the NOL.
Speaker A
So there's a confirmation there that there's going to be an entity after September 14th that will hold the NOL. I mean, that should be pretty obvious by now, but just I just identified a moment where it's plain as day said, so you
Speaker A
can't really argue against it. But the key here is looking above that. So, I apologize for that a red arrow. The key here is to look at loss limitations rule IRC269.
Speaker A
Why would any attorney be spending any amount of time looking at IRC269 as it relates to the NOL?
Speaker A
Because it pertained to it. Right now, IRC269 is a very specific thing. That's why I'm talking about it. Again, review additional articles and identify additional sources of law on application of section 269 regulations. Why are the special counsel attorneys for the ad hoc
Speaker A
bondholder committee that is really trying to undo Six Street? Why do they care about section 269?
Speaker A
I'll give you a hint. It has to do with shareholders. Because if you're a dork like me, you would read this research paper from the Case Western Reserve Law Review, uh, this was not an entertaining read.
Speaker A
Um, but it answers the question that I was looking for, which is why those guys are looking at section 269 so much.
Speaker A
Forgive me. So, long story short, section 269 is the IRS's ability to look back and retroactively remove the nol of a shell company if it is determined that an acquirer only acquired the shell to have the tax benefits.
Speaker A
Okay, so that's really what it is. 269 basically says if you were trying to avoid tax law, if you were trying to commit tax fraud, if you were trying to purchase a vehicle to shelter you from tax liabilities,
Speaker A
that is a no-go. Because if you'd like to bring an entity out of Chapter 11 to preserve the NOL, there has to be some sort of business use. That shell has to exist as a new business and you have to
Speaker A
issue shares of that shell in order to satisfy the requirements for the tax code.
Speaker A
In addition to that, section 269 makes sure that you're not dorking around and trying to avoid paying taxes. But what's really important here is to look at citation number three. And then citation number three references acquisitions made to avoid income tax. And look at
Speaker A
the bottom definition there. It's intended when someone wants to take control or ownership of a company possessing at least 50% of the total combined voting power of all classes of stock. entitled to vote or 50% of the total value of shares of all classes of
Speaker A
stock of the corporation. So why would the special counsel for the ad hoc bond holder committee who is arguing with Sixth Street about their ability to be a DIP lender?
Speaker A
Why are they looking into how section 269 affects the NOL? because someone acquired 50% of the shares.
Speaker A
It's the only reasonable explanation, right? Section 269 works only when you take 50% or more of the shares. I talked about earlier at the in the beginning of the video that Six Street on its own would not be enough to secure the NOL. Why?
Speaker A
Because they are not what is called an old and cold creditor. They do not satisfy the requirement of having been a creditor for 18 months prior to the application for the voluntary chapter 11. So you cannot come in as Sixth
Speaker A
Street on its own and take the NOL because you haven't been around for 18 months. The other definition is well you have to be there for 18 months or it has to be over the course of ordinary business. Well,
Speaker A
offering a DIP loan because there is an emergency catastrophe of a comp of a company that's filing for Chapter 11 is not ordinary course of business.
Speaker A
Ordinary course of business is like ordinary trade. So, since they had not been around for 18 months, they need another way to get the NOL. That's why Sixth Street and HBC are two buns of the same burger because Sixth Street at the
Speaker A
top ensures that the shareholder who is you acquire the shares to be able to get the shell with the tax benefits. But the problem is if you're a shareholder, you have creditors above you that can trump you, right? Because they are higher
Speaker A
class. Bond holders are a higher class than shareholders. JPM as the AL was a higher class than the credit than both the bond holders and the shareholders.
Speaker A
That is why they systematically acted in the way that they did. They used the HBC equity offering to provide a a public group or an affiliate 50% of the shares or more. Right? They also at the same time changed the bylaws
Speaker A
of the company that if you had 50% of the shares, you don't need to go ask the board for anything. You can do whatever kind of transaction you want to do.
Speaker A
While at the same time knowing that since they had to go into chapter 11 to be able to execute this and pull this off, they needed someone in the creditor structure above them. And that's where Sixth Street came in. And that's why Six
Speaker A
Street attached itself to the credit agreement. That's why Sixth Street was a party in the same credit agreement of the ABL, right? That's why that was all written out how it was and why they paid the AL off early. In paying the AL early
Speaker A
and removing JP Morgan as the administrative agent, they're now at the top of the structure, right? In being at the top of the structure, they have full control. That's why the ad hoc bond holder committee was kicking and
Speaker A
streaming to try to remove that control because they knew. And what was really smart about Sixth Street is they broke up their thing into two classes. But what they knew is that if they were to vote in favor of the plan, even though
Speaker A
their recovery may have been potentially impaired, you can do what's called a cradown. And you don't have to ask for the permission of the bond holders to confirm the plan, right? And so this is how all of this
Speaker A
played out because as we saw in a previous video that I talked about, I think it was 14% of all of the bond holders had almost 50% of all of the bonds. And they used that to make sure
Speaker A
that the class 6 would not give a 2/3 67% vote in favor of the plan. But since Sixth Street was established at the top of the structure, they didn't need it.
Speaker A
However, since Sixth Street had not been around for 18 months, they themselves are not enough to secure the shell with the tax benefits. you need a shareholder that is the holder of interests.
Speaker A
Okay? And again, section 269 only applies when a shareholder comes in and takes more than 50% of the shares to take control of a company.
Speaker A
Oh, I guess there's a better version of that. Okay, so we were all reading from that really old scanned law review, but there it is right there. So taking control of a company IRC269 is when you take control of a company by
Speaker A
having more than 50% of the shares. Remember the amendment was made to the bylaws that if you took 50% of the shares, you don't need the board's permission to do whatever you want. Right now the ad hoc bondholder committee is looking at ways
Speaker A
that they can invoke 269 to stop or look at ways that it would affect the NOL to say that their plan is no good.
Speaker A
The only way that they that that these guys are looking at the application of section 269 is to try to make an argument that the super priority is not going to help the NOL. The only way this works is if someone has 50% of the
Speaker A
shares. Okay, I hope that makes sense. Oh, and yeah, someone had 50% of the shares because then that way they don't have to ask the board permission to do something that Ryan was trying to do a year earlier, right? How do I know they have
Speaker A
50% of the shares? Because these guys are looking at these guys are looking at applying this law, which only works when you have control by having 50% of the shares. Okay, this is how we come up with these deductions. Oh, there we go.
Speaker A
This is the change that was made to the bylaws when HBC came that you can do a fundamental transaction if you have at least 50% of the outstanding shares. Then you don't need the board's permission, which is what
Speaker A
was stopping Ryan in all of 22 2022. and the stand still agreement, right? And so here again, I don't know why I have this again, maybe just for review. Um, forgive me, I made this thing like a month ago and then I got sick. When Ryan
Speaker A
had his status changed is when we saw all the changes, right? But again, we know that the affiliate is defined as someone who has 20% or more of the shares, right? Obviously, 50% is more than 20%. That's the reason that HBC
Speaker A
came into the picture, right? So we have someone who is an affiliate who has 50% of the shares and we have the definition of an affiliate being removed from exca parties the moment this happens and this person is the only person who
Speaker A
has their status changed. Therefore who do you think is the affiliate? Who do you think has 50% of the shares? That is the holder of interests. Right? So the next version of the plan and forgive me I said the 14th
Speaker A
of September it's the 11th. The next version of the plan that shows the definitions which is immediately before the confirmation hearing. Excapated parties have affiliates with a capital A removed. Again, affiliates are someone who has more than 20% of the shares. Why
Speaker A
is that removed from the definition of exc? Because it's him, right? So, kind of explained this already, but the reason that you needed both is because you have to protect the ability to secure the outcome from the top. That's what Sixth Street does
Speaker A
because they're above the bond holders. And in removing JP Morgan from money brought in by HBC, JP is not above Sixth Street anymore, which they were. The AL sat above the PHO, right? They were also the administrative agent. That means
Speaker A
that you have to ask their permission for any transaction. They tried staying the administrative agent even when they were paid off. That was the tell that they wanted control. They wanted to know what was going to happen. Their status
Speaker A
as the administrative agent was removed. That's why they were forced into the third party release discussion because they had no way to execute any sort of control anymore. So, Sixth Street gives you control over the way to control over
Speaker A
the outcome. HBC gives you the ownership that you need to be able to secure the NOL in the shell because Six Street would not have given it to you because they're not old and cold creditors.
Speaker A
Okay, they don't qualify. Uh why is this in here? I guess just again another confirmation research concerning structure of postconfirmation entity to preserve NOLs. Sorry again I made this a month ago. Just confirming I guess that that's there. Uh, and then
Speaker A
this one is why are these guys discussing the day before the voting on the plan ends? They already know about a tax strategy for after 9:30, right? And that's the shell. That's DK- Butterfly versus DK- Butterfly-1. And I had a
Speaker A
slide in here that I think is going to come up talking about that. So, I'll save that there. Again, just more proof that just because September 14th, 2023 happened, just because September 30th happened, doesn't mean that nothing can
Speaker A
happen after those days. There's a plan for after September 30th. It couldn't be more clear. Um, again, this is just from the ETH video again, but I just wanted to highlight the conversion notice for the preferred stock is categorized under
Speaker A
the section 363 sale under the asset sales that connects it to either a type G reorganization uh that I talked about in a previous video which I think happened or just taking the shares to acquire the stock of the company to have
Speaker A
the ownership of the shell to take it that way and remove the control from the board. But there's a link between the shares that HBC had to asset sales which connects the sandwich. It completes the burger. Um again, this is just more of
Speaker A
the same that they're corporate and governance. They're talking about the share count. Uh this one I wanted to highlight because um I had said in a previous video that on July 20th is when the third party release was negotiated and we saw the
Speaker A
updated share count. But then here on July 25th, I hadn't paid enough attention to this. They're still reviewing the share count. I'm not really sure why. Um, but after that last video, we saw some interesting things happen with the bonds on July 20th and
Speaker A
um, I'll probably do a space call for that one because uh, it was a very significant thing that happened with the bonds on July 20th. And in my opinion, uh, things kicked off and they need time, right? You have to submit to the
Speaker A
exchange. You have to submit to FINRA. You have to potentially, well, you don't have to submit to the SEC because you have exemptions, but you do still have to submit to the exchange where you're going to be issuing your rights or your
Speaker A
warrants, whatever. So, there's still notice that has to be given. Um, and I wouldn't be surprised if things kicked off on on July 20th.
Speaker A
Uh, again, I just want to highlight that why would anyone do this, right? And it's important to understand that, you know, a lot of the counterarguments against Ryan wanting to continually participate in this would be like, well, it doesn't make sense for him to do so.
Speaker A
He could just start a new company. Why would he waste his time? Um, well, it's a simple real counter-argument. If you can have a tax sheltered entity or a shell that has these tax benefits, um, you can acquire
Speaker A
it as a subsidiary. You can do what's called a double dummy merger. You can do a reverse triangle merger. whatever you want. You can acquire any business inside of that shell and then any, you know, if that business makes money, then
Speaker A
you can offset that profit with the tax sheltering you have. And it would make a lot of sense to do so just from a profit and loss standpoint. But if you are going to have parties paying for your
Speaker A
acquisition of this entity, well, I mean, then it makes even more sense, right? And so it's been my belief for a long time that the third party release and the settlements incorporated therein are what's paying for this. And so it's
Speaker A
not really going to be a matter of, you know, how much would this be have to cost for it to be worth it if it's just being funded by the people that were caught, right? Um, and again, this just
Speaker A
supports that there that they had adjusted the TSO in September. This was after the confirmation. This came out, I think, on September 20th. Um, that as of July 20th, that was the share count. And so obviously that indicated that there
Speaker A
was a settlement that was made in my opinion. I could be wrong, but that just makes the most sense. I try to boil things down to their simplest form. um that they had arrived at a conclusion to straighten out the accounting books in
Speaker A
exchange for for a settlement. And again, a lot of people say, "Well, why would Ryan care?" Um it's right here. I talked about this before, too. It's the October 2020 plan. Um it was the fabrication of the projected results. It
Speaker A
was the cooking of the books to try to get the B board to vote in favor of the share buybacks with the ASR. And it was the October 2020 plan to basically remove all of the inventory the customers loved, replace it with high
Speaker A
margin inventory at a time when global shipping was screeching to a halt because of co um it was the perfect mixture. And even in 2022, Ryan is asking Mark Tritton, are you going to stand beside stand behind, you know, rationalizing the
Speaker A
business with relating to Mark Triton mentioning the 2020 plan from a settling and general administrative expenses standpoint? and he's like, "Yeah, yeah, we sure do." Even two years after they had been cooking the projections um on those numbers to the board, he's like,
Speaker A
"Yeah, of course we do." Yeah. He went so far as to even sign a cooperation agreement with Ryan saying that he has 9% ownership of the company when he had been doing buybacks without even telling him at the time. So, he was really
Speaker A
saying anything. And again this just again to support uh what we had been saying earlier that you know um why would they say that there's all this complexity and all the various transactions implicated by the plan um and they're saying this in you know se
Speaker A
midepptember right as confirmation's approaching um so obviously there was a plan between September 14th and 30th to make modifications to the plan gone over that in detail and that's when all kind of all of this was was edited out and
Speaker A
you know the voting version of the plan and the plan that was confirmed confirmed could have been modified with, you know, the new value exemption, the gifting exemption, the third party release settlements, yada yada yada. All of that played out. And again, important
Speaker A
to note that, you know, one of the things I had noticed early on was that the monthly operating reports for um Bye-Bye Baby and for the BBBY Texas foreign had different accounting book closing dates than the rest of the
Speaker A
companies. They had their accounting going up until September 22nd, which was a Saturday, which is uh I found it is a typical strategy to use a non-b business day to close the books so that when you give them to an acquirer, you have a
Speaker A
clean financial accounting. Um and again, at the same time here, we note that um on September 21st, right, which is probably when they had concluded the modifications and the edits to the plan, they renamed the entity that has the NOL
Speaker A
to DK- Butterfly. And again, DK- Butterfly-1 is going to be the liquidating trust probably or whatever entity survives just for the purpose of litigation and is not going to survive.
Speaker A
Again, the shares of the old company were for DK Butterfly-1, those are not continuing anymore. There will be new a new issuance, whether it's rights, whether it's warrants, whether it's a combination of many things. I don't know. It's going to come out of DK-
Speaker A
Butterfly. And we talked about the difference between butterfly and dash one um for a very long period of time.
Speaker A
So no need to go over that as well. But there's confirmation there again. Right?
Speaker A
So that's the entity that has the NOL. There's another confirmation. Oh, that might even be the same slide that there is a tax strategy for preserving the NOL after September 30th. And I think that's the end of the slideshow. So then what
Speaker A
happens now, right? So an important thing to note is that the bond holders had or the bonds had that identification change of the renaming which on its own may have not been anything huge although I do think it's not nothing that the
Speaker A
bonds were renamed to this right but what really stands out to me is that the bonds had what showed up as a guarantor right now this is something that you can't really dismiss because interactive brokers had shown that there was a
Speaker A
guarantor interactive brokers doesn't collect that data themselves they don't upload that data themselves, right? They pay financial vendors and information aggregators from the exchange to provide them that real-time data, right? So, when that showed up on the bonds in
Speaker A
IBKR, it came from upstream, right? It was pushed as part of a change of some sort. Now, in my opinion, that change happened to the bond indenture, right?
Speaker A
because having a guarantor like the name change in and of itself is pretty significant especially since it's being renamed to this entity but the guarantor is the giveaway and I'll explain quickly why that most likely was a change to the
Speaker A
actual indenture itself. However, since BBB YQ filed a form 25 and a form 15 they are no longer an SEC public reporting company. So you don't have to report that the bonded denture was modified. Now why do I believe the
Speaker A
indenture was modified? Well, you have to understand the dynamics of the creditor structure. As of April 21st, 2023, as of that day when the company filed for chapter 11, the bonds no longer existed as their own individual thing.
Speaker A
The bonds became part of class 6, right? They were not the entirety or the totality of class 6, right? They joined a group with trade vendors, uh other partners and creditors, uh whatever.
Speaker A
there was a there was a there was a a larger group and the debt of class 6 was larger than just the bonds. Right? So now realistically you have to think if a guarantor which the definition of a
Speaker A
guarantor and I'm sorry I don't have a slide for this. I'm just kind of going off brainstorming here. The definition of a guarantor is someone who's financially backing that debt. Right?
Speaker A
Logically and realistically a guarantor is not going to back all of the debt of class 6.
Speaker A
That would be foolish. Why would you do that? You don't have to do that. Right?
Speaker A
So, in my opinion, the fact that the guarantor was identified and was pushed into into the information populating the bond signals to me that the bonds were potentially detached from class 6, right? Or will be detached as part of a
Speaker A
future transaction. Now, I was of the belief all the time that the bonds would be paid in cash as part of the waterfall because that's what the plan said. But again, if you are going to receive a cash distribution, there's no need to
Speaker A
provide a financial backer for that. There's no need to provide a guarantor, right? Because you would just receive the proceeds of the waterfall. If a guarantor has shown up and the bond indenture has been modified, in my opinion, and I'm just speculating, that
Speaker A
suggests that the bonds could be removed from class 6 because they are going to survive and there's going to be what's called a debt for debt exchange. So the bonds of the old company could potentially become now bonds of the new
Speaker A
shell company in a prat of value. So what does that mean? It's encouraging because if they were potentially going to be removed from class 6, that means that the structure of the new company is being assembled, right? And again, this may need 30 days,
Speaker A
this may need 60 days to report to the exchange, to report to FINRA, to report to the regulators, right? And so if it happened on July 20th or transactions are being um initiated, you might have to wait till August. You might have to
Speaker A
wait till this window in September. I don't know. But potentially bonds would be being removed from class 6 because they are being converted into debt of the new company. Then the remainder of class 6 would receive cash proceeds just
Speaker A
like the waterfall, right? Or maybe they're offered prata debt of the new company as well. I don't know. But let's isolate the bonds for a second, right?
Speaker A
The only way that happens is if a few other conditions are satisfied. One, the sharing mechanism is going to be reached, right? Because the sharing mechanism basically said that Sixth Street was going to agree to give the bond holders recovery ahead of the
Speaker A
absolute priority rule, which is allowed according to what's called the gifting mechanism after they reached a certain threshold, which I believe was $515 million. So once Six Street had us had asserted a certain level of recovery, they could incorporate the sharing
Speaker A
mechanism. Now, if there's going to be a change here to how the bond holders are being handled, and if there's going to be a debt-to-b conversion, well, suddenly that $1 billion of bond debt is not being paid out in cash, right? You
Speaker A
are now being offered a pratted distribution of new debt to cover your old debt, right? And so, what happens here is that all of the cash that was set aside for that group is now going to be pushed down, right? Because if you
Speaker A
are offering a debt for debt conversion, you are giving a adequate satisfaction to the bond holders and now you only have to pay in cash the remainder of class 6 and then whatever is left over could potentially flow downstream to
Speaker A
class 9, right? And so there's potentially over a billion dollars worth of um waterfall payout. I don't know.
Speaker A
We'll see what happens. That can go downstream. Again, this is all really speculative, but in my opinion, it's not nothing to see that the renaming of the bonds have been renamed to this entity.
Speaker A
and you also have a financial backer show up. In my opinion, it it leans towards the bonds being exchanged for new debt, which means they're leaving class 6. Um, and it would indicate that there's the beginning of a transaction
Speaker A
that's going on. And I think within, you know, realistically, you apply to the FTC for 30 days, they have to have a review period, then you can apply to the exchange, then you can apply to FINRA, they need 10 days. So these things
Speaker A
happen. So, it's not like, you know, on July 20 20th you saw these things and by July 21st you should have your result, right? It may take another month or two.
Speaker A
I don't know. But, you know, I think it's really exciting to see movement and I really think it's exciting that they were renamed to coincide with this entity that also has the NOL, right?
Speaker A
They don't say DK Butterfly one on the bones, which again supports the argument that I was making earlier and falls into the identification of an entity of a company after 9:30. So, those are all my thoughts for now. I hope that you
Speaker A
enjoyed listening to my confirmation of supporting my arguments for the affiliate and for identifying how the affiliate became a 50% shareholder and why and the confirmation of the ad hoc bond holder committee identifying that they wanted to try and use the IRS uh
Speaker A
retroactive law of a 50% shareholder that took control of a of an entity to try to elicit an ownership change to try and basically nullify their ability to establish superiority for their intentions. Um because that's really what it was is the uh the special
Speaker A
counsel of the ad hoc bond holder committee was trying to identify ways that there would be too many changes of control and therefore it would result in the NOL not having any value and then they could have presented that as a
Speaker A
reasoning or a basis to object to the dip because it would not have worked for the greater idea and for the larger structure. But they admitted that they failed. They admitted that they could not isolate the NOL for the benefit of
Speaker A
their bond holders, which was the specific subset of bond holders, right? That's why they're the ad hoc committee.
Speaker A
They were acting outside of class 6 because they were not in agreement with the fiduciary duty that the unsecured creditor committee was holding over all of class 6. Right? So, they were acting rogue and they failed because obviously
Speaker A
the burger stayed together. Six Street having the creditor protection at the top ensured the outcome could be arrived to because no one above them could object but they themselves could not have isolated the NOL in a typical credit bid situation because they had
Speaker A
not been around for long enough. So you need a shareholder and I hope I've identified pretty clearly that someone the affiliate came in took 20% then took 50%. Obviously the share the TSO expanded from like 117 million to 739
Speaker A
and then 782. So, it should be no uh no real concern about how the math works that someone could get 50% of the shares. Um, and yeah, by keeping them as non- voting securities, they did not have to report to the SEC. I don't know
Speaker A
how they handled the actual conversion to make sure that didn't happen later, but I think there's more than enough evidence to assert that it did happen in one way or another. Um, and someone got control. And I mean, by now you know who
Speaker A
I think the affiliate is. And I think I've presented a very good explanation for why. um because in those 43 minutes difference between those two documents, no one else was identified as having been removed from excation or released
Speaker A
and yet in those 43 minutes, one person was and then affiliate had to be removed as from the definitions of exc. So that's how I arrived at that conclusion and I hope you found the video helpful.
Topics:BBBYQSixth StreetHBCNet Operating Lossaffiliate definitioncompany bylawsJP Morgansecurities reportingbankruptcy codecorporate control
