How to deal with Warrants?


M

Miguel

Not sure if anyone here is familiar with Mirant's bankruptcy, but one of the
consequences of their reorganization plan is that former shareholders of the
"old" Mirant received shares in the "new" Mirant plus Warrants that entitle the
holder to purchase additional "new" shares at an exercise price. My problem, as
a longtime Quicken user, is that I can't figure out a way to properly account
for these warrants.

As the warrants can actually be sold, I assume they must also carry some cost
basis. If this was a more typical x number of "new" shares for each y number of
"old" shares one would just do enter a StkSplt transaction and the basis in the
"old" shares would be transferred appropriately to the "new" ones. But I don't
see a way to have a StkSplt that splits into multiple securities. There is a
Corporate Spinoff action that will sort of let you do this, but it works by
doing a Return of Capital and then a purchase of both the "new" shares and the
warrants. Not only does this mess up the timing of any gain/loss (trust me, its
a loss!) for tax purposes, it also creates an Uncategorized Income line to
appear on my budget reports in the amount of the Capital Returned (which is
definitly not right, as I never see any proceeds at all in this transaction.

Any help or ideas?
 
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C

Clark

It almost sounds like they would behave the same as stock options.

You appear to be lucky--my old company, now in bankruptcy, issued warrants
for a lawsuit settlement that allows the holders to buy shares of the OLD
stock at a specified price :-o What they will do when they come out to
account for the old stock, who knows (probably wallpaper)!

Clark
 
M

Miguel

It almost sounds like they would behave the same as stock options.

You appear to be lucky--my old company, now in bankruptcy, issued warrants
for a lawsuit settlement that allows the holders to buy shares of the OLD
stock at a specified price :-o What they will do when they come out to
account for the old stock, who knows (probably wallpaper)!

Clark
Well, I guess "Lucky" is relative! I may have the rights to purchase new stock
instead of old, but the number I received, plus the few "new" shares I got will
have to blow through the roof to overcome my 92% loss....
 
W

Walt Bilofsky

Miguel said:
There is a
Corporate Spinoff action that will sort of let you do this, but it works by
doing a Return of Capital and then a purchase of both the "new" shares and the
warrants. Not only does this mess up the timing of any gain/loss (trust me, its
a loss!) for tax purposes, it also creates an Uncategorized Income line to
appear on my budget reports in the amount of the Capital Returned (which is
definitly not right, as I never see any proceeds at all in this transaction.
Spinoff sounds like the way to do it. The Return of Capital and
purchase transfers the appropriate amount of cost basis from the stock
to the warrants. That's proper.

I'm not clear why it's purchasing the new shares - it seems to me the
way to handle it is to just ignore the difference between the old and
new shares (unless you need to adjust the number of shares by a
reverse split, or unless some of the loss is deductable now), and then
do the spinoff to adjust the cost basis between the shares and
warrants.

Quicken had some longstanding bugs regarding losing the original basis
date, but most (not all) were fixed a few years back. So you can't
assume that the basis date and transaction date are the same - the
spun-off warrants might still have the correct basis date. Suggest
you enter a temporary sale of some of the stock and warrants, and
check that the capital gains report has the correct (original) basis
date.
 
J

Jeff Moore

I am familiar <NG> and have the same problem you do trying to accurately
record this transaction. I have scoured the SEC filings but still come up
short on specific info.

Do you know:
- What, exactly is the distribution ratio of MIR shares per old MIRKQ
share?
- What, exactly, is the distribution ratio of MIRWSA warrants per old
MIRKQ share?

On 1/11/2006 I got some even shares of MIR/MIRWSA in my account, but then I
also got a cash distribution in lieu of fractional shares for each on
1/23/2006. Until I know the exact distribution ratio, I can't accurately
enter the transaction.

How did you end up logging this transaction into Quicken ... as a spinoff of
MIR/MIRWSA for old MIRKQ, or did you do a reverse stock split for the MIRKQ
to MIR transaction and then a spinoff of MIRWSA warrants? Also, how many
shares of MIR does each MIRWSA warrant allow you to purchase? Is it a 1 for
1 or something different? If you can point me to any press release or the
specific portion of the reorganization filing where you found this info, I
would greatly appreciate it.

Thanks,
Jeff
 
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J

Jeff Moore

I discovered answers to most of my questions after posting here on the
Mirant web site in the FAQ page under the Investor Relations section. For
those that care (copied from the FAQ page):
 
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