NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Unless otherwise
indicated, financial information, including dollar values stated in the text of the notes to financial statements, is expressed in thousands.
References herein to the Company, we, us or our generally are intended to refer to WMI Holdings Corp. and
its subsidiaries on a consolidated basis. WMMRC means WM Mortgage Reinsurance Company, Inc. (a wholly-owned subsidiary of WMIHC). WMIIC means WMI Investment Corp. (a wholly-owned subsidiary of WMIHC).
Note 1: The Company and its Subsidiaries
WMI Holdings Corp.
WMI Holdings Corp.
(WMIHC) is a holding company organized and existing under the law of the State of Washington. WMIHC, formerly known as Washington Mutual, Inc. (WMI), is the direct parent of WM Mortgage Reinsurance Company, Inc.
(WMMRC), a Hawaii corporation, and WMI Investment Corp. (WMIIC), a Delaware corporation. As described below, WMIHC is a successor to WMI, as and to the extent described in the Plan (defined below).
Prior to September 26, 2008 (the Petition Date), WMI was a multiple savings and loan holding company that owned Washington Mutual Bank
(WMB) and, indirectly, WMBs subsidiaries, including Washington Mutual Bank fsb (FSB). As of the Petition Date, WMI also owned, directly or indirectly, several non-banking, non-debtor subsidiaries. Prior to the Petition
Date, WMI was subject to regulation and examination by the Office of Thrift Supervision (the OTS). WMB and FSB, in turn, as depository institutions with federal thrift charters, were subject to regulation and examination by the OTS. In
addition, WMIs banking and non-banking subsidiaries were overseen by various federal and state authorities, including the Federal Deposit Insurance Corporation (FDIC).
On September 25, 2008, the OTS, by order number 2008-36, closed WMB, appointed the FDIC as receiver for WMB (the FDIC Receiver) and advised
that the FDIC Receiver was immediately taking possession of WMBs assets. Immediately after its appointment as receiver, the FDIC Receiver sold substantially all the assets of WMB, including the stock of FSB, to JPMorgan Chase Bank, National
Association (JPMC), pursuant to that certain Purchase and Assumption Agreement, Whole Bank, effective September 25, 2008, in exchange for payment of $1.88 billion and the assumption of all of WMBs deposit liabilities. As a
result of this transaction, substantially all of the business and accounting records of WMI became the property of JPMC and WMIHC had extremely limited access to such records. The foregoing notwithstanding, over time, limited access to such records
was obtained through information sharing arrangements. Access to WMMRCs historical records was not significantly affected by WMBs closure and receivership.
On the Petition Date, WMI and WMIIC (together, referred to herein as the Debtors) each filed voluntary petitions for relief under Chapter 11 of
Title 11 of the United States Code in the Bankruptcy Court for the District of Delaware (the Court) (Case No.08-12229 (MFW)).
On
December 12, 2011, the Debtors filed with the Court the Seventh Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code (the Filed Plan) and a related disclosure statement. The Filed Plan
was subsequently modified and, on February 24, 2012, the Court entered an order (the Confirmation Order) confirming the Filed Plan as modified by such modifications (the Plan). On March 19, 2012 (the Effective
Date), the Plan became effective and we emerged from bankruptcy with a new board of directors and certain new officers.
In connection with the Plan
becoming effective, among other things:
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approximately $6.5 billion was distributed to parties-in-interest on account of their allowed claims;
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WMIHC received $75.0 million in cash from certain creditors;
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WMIHC obtained access to a $125.0 million senior credit facility, approximately $25.0 million of which can be used for working capital and $100.0 million of which can be utilized in addition to the amount available for
working capital for certain acquisitions and originations, subject to certain criteria and conditions set forth in the Financing Agreement (see Note 8: Financing Arrangements);
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WMIHC issued: (a) $110.0 million aggregate principal amount of its 13% Senior First Lien Notes due 2030 (the First Lien Notes) under
an indenture, dated as of March 19, 2012 (the First Lien Indenture), between WMIHC and Wilmington Trust, National Association, as Trustee; and (b) $20.0 million aggregate principal amount of its 13% Senior Second Lien Notes due
2030 (the Second Lien Notes and, together with the First Lien Notes, the Runoff Notes) under
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an indenture, dated as of March 19, 2012 (the Second Lien Indenture and, together with the First Lien Indenture, the Indentures), between WMIHC and Law Debenture
Trust Company of New York, as Trustee; and with limited exceptions the Runoff Notes are solely payable from Runoff Proceeds Distributions (as defined in the Indentures) received by WMIHC from WMMRC, and therefore are generally nonrecourse to WMIHC
(see Note 7: Notes Payable);
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WMIHC issued 200,000,000 shares of common stock, of which 194,670,501 shares were issued to new WMIHC shareholders and 5,329,499 shares of common stock were issued and deposited into a Disputed Equity Escrow (as defined
in the Plan); and
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based on our analysis, we believe WMIHC experienced an ownership change under Section 382 of the Internal Revenue Code (the Code). Prior to emergence, WMI abandoned the stock of WMB, thereby generating
a worthless stock deduction of approximately $8.37 billion, which gives rise to a net operating loss (NOL) carry forward for the year ended December 31, 2012. We believe that the total available and utilizable NOL carry forward at
December 31, 2013 was approximately $5.96 billion and at March 31, 2014 we believe that there was no limit under Section 382 of the Code on the use of these NOLs (see Note 5: Income Taxes).
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Upon emergence from bankruptcy on March 19, 2012, we had limited operations other than WMMRCs legacy reinsurance business which is being operated
in runoff and has not written any new business since September 26, 2008.
WMIHC is authorized to issue up to 500,000,000 shares of common stock, and
up to 5,000,000 shares of preferred stock (in one or more series), in each case with a par value of $0.00001 per share. On the Effective Date of the Plan and pursuant to its terms, WMIHC issued 200,000,000 shares of common stock, with 194,670,501
shares issued to WMIHCs new shareholders and 5,329,499 shares issued and deposited into the Disputed Equity Escrow. As of March 31, 2014, 2,922,037 shares of common stock remain on deposit in the Disputed Equity Escrow. On
October 18, 2012, 1,156,078 restricted shares of WMIHCs common stock were issued under the Companys 2012 Long-Term Incentive Plan (the 2012 Plan) to our outside directors. On August 13, 2013, 686,273 restricted
shares of WMIHCs common stock were issued under the 2012 Plan to our directors. On February 10, 2014, 250,000 restricted shares of WMIHCs common stock were issued under the 2012 Plan to members of our Corporate Strategy and
Development Committee and our Chairman, Michael Willingham. As of March 31, 2014, 202,092,351 shares of WMIHCs common stock were issued and outstanding. On January 30, 2014, 1,000,000 shares of WMIHCs preferred stock were
issued in conjunction with the KKR Transaction, described in Note 8: Financing Arrangements, and remain outstanding as of March 31, 2014.
WMMRC
WMMRC is a wholly-owned subsidiary of WMIHC. Prior to August 2008 (at which time WMMRC became a direct subsidiary of WMI), WMMRC was a wholly-owned
subsidiary of FA Out-of-State Holdings, Inc., a second-tier subsidiary of WMB and third-tier subsidiary of WMI. WMMRC is a pure captive insurance company domiciled in the State of Hawaii. WMMRC was incorporated on February 25, 2000, and
received a Certificate of Authority, dated March 2, 2000, from the Insurance Commissioner of the State of Hawaii.
WMMRC was originally organized to
reinsure private mortgage insurance risk for seven primary mortgage insurers then offering private mortgage insurance on loans originated or purchased by former subsidiaries of WMI. The seven primary mortgage insurers are United Guaranty Residential
Insurance Company (UGRIC), Genworth Mortgage Insurance Corporation (GMIC), Mortgage Guaranty Insurance Corporation (MGIC), PMI Mortgage Insurance Company (PMI), Radian Guaranty Incorporated
(Radian), Republic Mortgage Insurance Company (RMIC) and Triad Guaranty Insurance Company (Triad).
Due to
deteriorating performance in the mortgage guarantee markets and the closure and receivership of WMB, the reinsurance agreements with each of the primary mortgage insurers were terminated or placed into runoff during 2008. The agreements with UGRIC
and Triad were placed into runoff effective May 31, 2008. The agreements with all other primary mortgage insurers were placed into runoff effective September 26, 2008. As a result, effective September 26, 2008, WMMRC ceased assuming
new mortgage risks from the primary carriers. Consequently, WMMRCs continuing operations consist solely of the runoff of coverage associated with mortgages placed with the primary mortgage carriers prior to September 26, 2008. In runoff,
an insurer generally writes no new business but continues to service its obligations under in force policies and otherwise continues as a licensed insurer. Management does not believe any additional adjustments to the carrying values of assets and
liabilities which were recorded at fair market value as a result of fresh start accounting as of March 19, 2012 are required as a result of WMMRCs runoff status.
The reinsurance agreements with Triad and PMI were commuted on August 31, 2009 and October 2, 2012, respectively. As more fully described in Note
13: Subsequent Events, on April 3, 2014, WMMRC and UGRIC entered into a Commutation Agreement and Mutual Release which is subject to a number of conditions including obtaining all necessary consents, approvals and waivers.
8
WMIIC
WMIIC
does not currently have any operations and is fully eliminated upon consolidation. Prior to September 26, 2008, WMIIC held a variety of securities and investments; however, such securities and investments were liquidated and the value thereof
distributed in connection with implementing the Plan.
Note 2: Significant Accounting Policies
Basis of Presentation
During the
bankruptcy, WMI adopted so-called Modified Exchange Act Reporting under the Securities and Exchange Commission (the SEC) Staffs Legal Bulletin No. 2 (SLB 2). Following the Effective Date, WMIHC
continues to rely upon the guidance set forth in SLB 2 and we filed as of the Effective Date a Form 8-K pertaining to emergence from bankruptcy and subsequently filed a Form 8-K/A, which included WMIHCs audited balance sheet as of the
Effective Date. As provided under the SLB 2 Modified Exchange Act Reporting framework, WMIHC resumed filing periodic reports under the Exchange Act for all periods after the Effective Date of the Plan. Subsequent to the Effective Date, we have
timely filed our Exchange Act periodic reports.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the
rules and regulations of the SEC for quarterly reporting. Certain information and footnote disclosures normally included in the financial statements and prepared in accordance with generally accepted accounting principles in the United States of
America (GAAP) have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures included are adequate.
These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Companys consolidated
financial statements and notes thereto filed in the Companys Annual Report on Form 10-K, filed with the SEC on March 14, 2014. Interim information presented in the unaudited condensed consolidated financial statements has been prepared by
management. In the opinion of management, the financial statements include all adjustments necessary for a fair presentation and that all such adjustments are of a normal, recurring nature and necessary for the fair statement of the financial
position, results of operations and cash flows for the periods presented in accordance with GAAP. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the results to be expected for the full year
ending December 31, 2014.
All significant intercompany transactions and balances have been eliminated in preparing the condensed consolidated
financial statements.
Use of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements. Management has made significant estimates in certain areas, including valuing certain financial instruments and other assets, the determination of the contingent risk liabilities, and in determining appropriate insurance
reserves. Actual results could differ substantially from those estimates.
Fair Value of Certain Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Generally, for assets that are reported at fair value, the Company uses quoted market prices or valuation models to estimate their fair value. These models incorporate inputs such as forward yield curves, market
volatilities and pricing spreads, utilizing market-based inputs where readily available. The degree of management judgment involved in estimating the fair value of a financial instrument or other asset is dependent upon the availability of quoted
market prices or observable market inputs. For financial instruments that are actively traded in the marketplace or whose values are based on readily available market value data, little judgment is necessary when estimating the instruments
fair value. When observable market prices and data are not readily available, significant management judgment often is necessary to estimate fair value. In those cases, different assumptions could result in significant changes in valuation.
The Company classifies certain fixed-maturity investments as trading securities, which are recorded at fair value. The remaining fixed-maturity investments
treated as hold-to-maturity investments are recorded at amortized cost which, in the case of much of our investment holdings, approximates fair value. As such, changes in unrealized gains and losses on investments held at the balance
sheet date are recognized and reported as a component of net investment income on the statement of operations. The Company believes fair value provides better matching of investment earnings to potential cash flow generated from the investment
portfolio and reduces subjectivity related to evaluating other-than-temporary impairment on the Companys investment portfolio.
9
The carrying value of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities
approximates their fair value because of their short term nature.
The carrying value of notes payable approximates fair value based on time to maturity,
underlying collateral, and prevailing interest rates.
Fair Value Option
The Company has recorded a liability related to a loss contract fair market value reserve (the Reserve) and applies Financial Accounting Standards
Board (FASB) Fair Value Option accounting guidance to this liability. The Reserve was initially established in compliance with ASC 805-10-55-21(b)(1) which defines a loss contract as a contract in which the unavoidable costs of
meeting the obligations under the contract exceed the economic benefits expected to be received under it. The Company recorded this Reserve to properly value the net economic value of the WMMRC subsidiary. At each reporting date, the Company
reassesses the loss contract reserve which may result in a change to this line item in the balance sheet and a corresponding contra-expense which is reflected in the statement of operations. Accordingly, any changes in the loss contract reserve at
the balance sheet date are recognized and reported within the loss contract reserve fair market value change in the statement of operations. The Company believes Fair Value Option accounting provides better matching of earnings to potential cash
flow generated from the WMMRC operating business.
Fair Value Measurement
The Companys estimates of fair value for financial assets and financial liabilities are based on the framework established in the FASB Fair Value
Measurements and Disclosures accounting guidance. The framework is based on the inputs used in valuation and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the fair value
accounting guidance hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in
active markets and the lowest priority to unobservable inputs that reflect the Companys significant market assumptions.
The three levels of the
hierarchy are as follows:
Level 1Inputs to the valuation methodology are quoted prices for identical assets or liabilities traded in active
markets.
Level 2Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market corroborated inputs.
Level 3Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Companys own assumptions
about the inputs that market participants would use.
Fair values are based on quoted market prices when available (Level 1). The Company receives
the quoted market prices from a third party, nationally recognized pricing service. When market prices are not available, the Company utilizes a pricing service to determine an estimate of fair value. The fair value is generally estimated using
current market inputs for similar financial instruments with comparable terms and credit quality, commonly referred to as matrix pricing (Level 2). These valuation techniques involve some level of management estimation and judgment. The Company
recognizes transfers between levels in the fair value hierarchy at the end of the reporting period.
Fixed-Maturity Securities
Fixed-maturity securities consist of U.S. Treasury securities, obligations of U.S. government agencies, commercial mortgage-backed securities and corporate
debt securities. Fixed-maturity securities held in trust are for the benefit of the primary insurers as more fully described in Note 3: Insurance Activity. Investments in fixed-maturity securities are reported at their estimated fair values or
amortized cost (as the case may be) and are classified as trading securities in accordance with applicable accounting guidance. Realized gains and losses on the sale of fixed-maturity securities are determined using the specific identification
method and are reported as a component of net investment income within the statement of operations.
Cash Equivalents and Investments Held in Trust
Cash equivalents, which include highly liquid overnight money market instruments, and fixed-maturity securities are held in trust for the benefit of
the primary insurers as more fully described in Note 3: Insurance Activity and the following information regarding restrictions on distribution of net assets of subsidiaries.
10
Third Party Restrictions on Distribution of Net Assets of Wholly-Owned Subsidiaries
The net assets of WMMRC are subject to restrictions from distribution from multiple sources including the primary insurers who have approval control of
distribution from the trust, the Insurance Commissioner of the State of Hawaii who has approval control prior to distributions or intercompany advances, and additional restrictions as described in Note 7: Notes Payable.
Premium Recognition
Premiums assumed are earned on a
daily pro-rata basis over the underlying policy terms. Premiums assumed relating to the unexpired portion of policies in force at the balance sheet date are recorded as unearned premiums. Unearned premiums also include a reserve for post default
premium reserves. Post default premium reserves occur when a loan is in a default position and the servicer continues to advance the premiums. If the loan ultimately goes to claim, the premiums advanced during the period of default are subject to
recapture. The Company records a default premium reserve based on information provided by the underlying mortgage insurers when they provide information on the default premium reserve separately from other reserves. The change in the default premium
reserve is reflected as a reduction or increase, as the case may be, in premiums assumed. The Company has recorded unearned premiums totaling $1.3 million and $1.4 million as of March 31, 2014 and December 31, 2013, respectively.
The Company recognizes premium deficiencies when there is a probable loss on an insurance contract. Premium deficiencies are recognized if the sum of the
present value of expected losses and loss adjustment expenses, unamortized deferred acquisition costs, and maintenance costs exceed unearned premiums and anticipated investment income. Premium deficiency reserves have been recorded totaling $2.0
million and $2.4 million as of March 31, 2014 and December 31, 2013, respectively.
The Companys premium deficiency analysis was performed
on a single book basis and includes all book years and reinsurance treaties aggregated together using assumptions based on the actuarial best estimates at the balance sheet date. The calculation for premium deficiency requires significant judgment
and includes estimates of future expected premiums, claims, loss adjustment expenses and investment income as of the balance sheet date. To the extent ultimate losses are higher or premiums are lower than estimated, additional premium deficiency
reserves may be required in the future.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from banks, U.S. Treasury bills and overnight investments. Except as described above in Cash
Equivalents and Investments Held in Trust, the Company considers all amounts that are invested in highly liquid over-night money market instruments to be cash equivalents. The FDIC insures amounts on deposit with each financial institution up to
limits as prescribed by law. The Company may hold funds with financial institutions in excess of the FDIC insured amount, however, the Company has not experienced any losses in such accounts and management believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Restricted Cash
Restricted cash consists of amounts held for the express purposes of paying principal and interest and related fees on the Runoff Notes pursuant to the terms
of the Indentures.
Ceding Commission Expense
The
Company is required to pay a ceding commission to certain primary insurers pursuant to certain reinsurance agreements.
Losses and Loss Adjustment
Reserves
The losses and loss adjustment reserve includes case basis estimates of reported losses and supplemental amounts for incurred but not
reported losses (IBNR). A default is considered the incident (e.g., the failure to make timely payment of mortgage payments) that may give rise to a claim for mortgage insurance. In establishing the losses and loss adjustment reserve,
the Company utilizes the findings of an independent consulting actuary. The consulting actuary estimates ultimate loss rates based upon industry data and claims and exposure data provided by the primary mortgage insurance carriers and assumptions of
prepayment speed relative to loans reinsured by the Company. The fully developed ultimate loss rates are then applied to cumulative earned premium and reduced for cumulative losses and loss adjustment expenses paid to arrive at the liability for
unpaid losses and loss adjustment expenses. Actuarial methods utilized by the consulting actuary to derive the ultimate loss rates include the loss development method, simulated loss development method, Bornhuetter-Ferguson method and simulated
Bornhuetter-Ferguson method on a paid and incurred basis. Due to the current condition of the mortgage insurance market, WMMRC has recorded reserves at the higher of (x) reserves estimated by the consulting actuary for each primary mortgage
guaranty carrier and (y) ceded case reserves and IBNR levels reported by the primary mortgage guaranty carriers as of March 31, 2014 and December 31, 2013, respectively. Management believes that its aggregate
11
liability for unpaid losses and loss adjustment expenses at period end represents its best estimate, based upon the available data, of the amount necessary to cover the current cost of losses.
However, due to the inherent uncertainty arising from fluctuations in the persistency rate of mortgage insurance claims, the Companys size and lack of prior operating history, external factors such as future changes in regional or national
economic conditions, judicial decisions, federal and state legislation related to mortgage restructuring and foreclosure restrictions, claims denials and coverage rescissions by primary carriers and other factors beyond managements control, it
is not presently possible to determine whether actual loss experience will conform to the assumptions used in determining the estimated amounts for such liability at the balance sheet date. Accordingly, the ultimate liability could be significantly
higher or lower, as the case may be, of the amount indicated in the financial statements and there can be no assurance that the reserve amounts recorded will be sufficient. As adjustments to these estimates become necessary, such adjustments are
reflected in current operations.
Loss Contract Fair Market Value Reserves
A loss contract fair market value reserve relating to contractual obligations of WMMRC was established at March 19, 2012 as a result of applying Fresh
Start Accounting and in compliance with ASC 805-10-55-21(b)(1) which defines a loss contract as a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received
under it. The fair market value of this reserve is analyzed quarterly and is adjusted accordingly. This adjustment to the reserve produces an expense or contra-expense in the statement of operations.
Fresh Start Accounting
The Company adopted fresh start
accounting in accordance with ASC 852 (Reorganizations) (ASC 852) upon emergence from bankruptcy on March 19, 2012. Under ASC 852, the application of fresh start accounting results in the allocation of reorganization value to the
fair value of assets, and is required when (a) the reorganization value of assets immediately prior to confirmation of a plan of reorganization is less than the total of all post-petition liabilities and allowed claims and (b) the holders
of voting shares immediately prior to the confirmation of the plan of reorganization receive less than 50 percent of the voting shares of the emerging entity. The Company adopted fresh start accounting as of the Effective Date, which represents the
date on which all material conditions precedent to the effectiveness of the Plan were satisfied or waived. As of the Effective Date, the Company believes that it satisfied both of the aforementioned conditions.
The Companys reorganization value (Equity Value), upon emergence from bankruptcy, was determined to be $76.6 million, which represented
managements best estimate of fair value based on a calculation of the present value of the Companys consolidated assets and liabilities as at March 19, 2012. As part of our fresh start reporting, we applied various valuation
methodologies to calculate the reorganization value of the Company. These methods included (a) the comparable company analysis, (b) the precedent transactions analysis and (c) the discounted cash flow analysis. The application of
these methodologies requires certain key estimates, judgments and assumptions, including financial projections, the amount of cash available to fund operations and current market conditions. Such projections, judgments and assumptions are inherently
subject to significant uncertainties and there can be no assurance that such estimates, assumptions and projections reflected in the valuation will be realized and actual results may vary materially. The Company filed a Form 8-K pertaining to
emergence from bankruptcy and subsequently filed a Form 8-K/A, which included WMIHCs audited balance sheet as of the Effective Date.
Comprehensive Income (Loss)
The Company has no
comprehensive income (loss) other than the net income (loss) disclosed in the condensed consolidated statement of operations.
Earnings (Loss) Per
Common Share
Basic earnings (loss) per common share is computed by dividing net income (loss) applicable to the Companys common shareholders by
the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per common share is computed by dividing net income (loss) applicable to the Companys common shareholders by the weighted average number of common
shares outstanding during the period and the effect of all dilutive common stock equivalents (of which we had zero prior to the current quarter). If common share equivalents exist, in periods where there is a net loss, diluted loss per common share
would be equal to or less than basic loss per common share, since the effect of including any common share equivalents would be antidilutive.
Share
Based Compensation
On May 22, 2012, WMIHCs board of directors (the Board) approved the 2012 Plan to award restricted stock to
its non-employee directors and to have a plan in place for awards to executives and others in connection with the Companys operations and future strategic plans. A total of 2 million shares of common stock were initially reserved for
future issuance under the Plan, which became
12
effective upon the Board approval on May 22, 2012. On February 10, 2014, the Board approved and adopted a First Amendment to the 2012 Plan, pursuant to which the number of shares of
WMIHCs common stock reserved and available for grants under the 2012 Plan was increased from 2 million shares to 3 million shares, and that modified the terms under which the 2012 Plan may be amended to permit such an increase
through action of the Board except when shareholder approval is necessary to comply with any applicable law, regulation or rule of any stock exchange on which WMIHCs shares are listed, quoted or traded. The 2012 Plan provides for the granting
of restricted shares and other cash and share based awards. The value of restricted stock is determined using the fair market value of the shares on the issuance date.
Income Taxes
The Company follows the asset and liability
method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the carrying amounts and tax bases of assets and liabilities and
losses carried forward and tax credits. Deferred tax assets and liabilities are measured using enacted tax rates and laws applicable to the years in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to the extent that it is more likely than not that deferred tax assets will not be realized.
The Company recognizes the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position
will be sustained upon examination. Penalties and interest, of which there are none, would be reflected in income tax expense. Tax years are open to the extent the Company has net operating loss carry-forwards available to be utilized currently.
Dividend Policy
WMIHC has paid no dividends on or
after the Effective Date and currently has no plans to pay a dividend. The Financing Agreement and the Note Purchase Agreement (as such are defined in Note 8: Financing Arrangements) includes restrictions related to the payment of dividends.
New Accounting Pronouncements
In March 2014 the
FASB issued Accounting Standards Update 2014-06, Technical Corrections and Improvements Related to Glossary Terms amendments in this update relate to glossary terms and cover a wide range of topics in the codification. The Company has
reviewed this standard and determined it has no material impact on the Companys consolidated financial position, results of operations or disclosure requirements.
Note 3: Insurance Activity
The Company, through WMMRC, reinsures mortgage guaranty risks of mortgage loans originated by affiliates of the Company during the period
from 1997 through 2008. WMMRC is (or was) a party to reinsurance agreements with UGRIC, GMIC, MGIC, PMI, Radian, RMIC and Triad. The agreements with UGRIC and Triad were placed into runoff effective May 31, 2008. The agreements with all other
primary mortgage insurers were placed into runoff effective September 26, 2008. The reinsurance agreements with Triad and PMI were commuted on August 31, 2009 and October 2, 2012, respectively. On April 3, 2014, WMMRC and UGRIC
entered into a Commutation Agreement and Mutual Release which is subject to a number of conditions including obtaining all necessary consents, approvals and waivers as more fully described in Note 13: Subsequent Events.
All agreements are on an excess of loss basis, except for certain reinsurance treaties with GMIC and Radian during 2007 and 2008, which are reinsured on a 50
percent quota share basis. Pursuant to the excess of loss reinsurance treaties, WMMRC reinsures a second loss layer which ranges from 5 percent to 10 percent of the risk in force in excess of the primary mortgage insurers first loss percentage
which range from 4 percent to 5 percent. Each calendar year, or book year, is treated separately from other years when calculating losses. In return for accepting a portion of the risk, WMMRC receives, net of ceding commission, a percentage of the
premium that ranges from 25 to 40 percent.
As security for the ceding insurers, WMMRC has entered into separate trust agreements with each of the primary
mortgage insurance companies whereby a portion of the funds from premiums assumed are held in trust accounts for the benefit of each separate insurer. Pursuant to the terms of the reinsurance agreements, WMMRC is required to keep such assets in
trust for a minimum of five (5) years and are subject to claims for up to ten (10) years from termination of obligations arising from the last year in which insurance business was written prior to runoff. Release of funds from the trust by
WMMRC requires approval from the primary mortgage guaranty companies.
13
Premiums assumed and earned are as follows for the periods ended March 31, 2014 and 2013, respectively:
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Three Months
Ended March 31,
2014
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Three Months
Ended March 31,
2013
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Premiums assumed
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$
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2,039
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$
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3,374
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Change in unearned premiums
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127
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31
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Premiums earned
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$
|
2,166
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|
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$
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3,405
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The components of the liability for losses and loss adjustment reserves are as follows as of March 31, 2014 and
December 31, 2013, respectively:
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March 31,
2014
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December 31,
2013
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Case-basis reserves
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$
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32,133
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$
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41,159
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IBNR reserves
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|
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668
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|
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713
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Premium deficiency reserves
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2,036
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|
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2,442
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Total losses and loss adjustment reserves
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$
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34,837
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$
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44,314
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|
|
Losses and loss adjustment reserve activity are as follows for the three months ended March 31, 2014 and the year ended
December 31, 2013, respectively:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2014
|
|
|
December 31,
2013
|
|
Balance at beginning of period
|
|
$
|
44,314
|
|
|
$
|
82,524
|
|
Incurred - prior periods
|
|
|
1,104
|
|
|
|
(6,159
|
)
|
Paid - prior periods
|
|
|
(10,581
|
)
|
|
|
(32,051
|
)
|
|
|
|
|
|
|
|
|
|
Total losses and loss adjustment reserves
|
|
$
|
34,837
|
|
|
$
|
44,314
|
|
|
|
|
|
|
|
|
|
|
The loss contract fair market reserve balance is analyzed and adjusted quarterly. The balance in the reserve was $46.3 million
at March 31, 2014 and $46.3 million at December 31, 2013. The fair market value of this reserve remained unchanged during the three months ended March 31, 2014 and decreased by $1.0 million during the three months ended March 31,
2013, resulting in no impact on expense at March 31, 2014 and a decrease in expense of $1.0 million for the three months ended March 31, 2013.
Note 4: Investment Securities
The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of fixed-maturity securities held in trust at
March 31, 2014, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
Obligations of U.S. government sponsored enterprises
|
|
$
|
8,491
|
|
|
$
|
46
|
|
|
$
|
(40
|
)
|
|
$
|
8,497
|
|
Corporate debt securities
|
|
|
89,529
|
|
|
|
1,306
|
|
|
|
(104
|
)
|
|
|
90,731
|
|
Commercial paper
|
|
|
96,115
|
|
|
|
|
|
|
|
|
|
|
|
96,115
|
|
Foreign corporate debt securities
|
|
|
21,064
|
|
|
|
178
|
|
|
|
(105
|
)
|
|
|
21,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity securities
|
|
|
215,199
|
|
|
|
1,530
|
|
|
|
(249
|
)
|
|
|
216,480
|
|
Less total unrestricted fixed-maturity securities trading
|
|
|
7,303
|
|
|
|
234
|
|
|
|
(12
|
)
|
|
|
7,525
|
|
Less total unrestricted fixed-maturity securities held to maturity
|
|
|
78,638
|
|
|
|
|
|
|
|
|
|
|
|
78,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity securities held in trust
|
|
$
|
129,258
|
|
|
$
|
1,296
|
|
|
$
|
(237
|
)
|
|
$
|
130,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of fixed-maturity
securities held in trust at December 31, 2013, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair Value
|
|
Obligations of U.S. government sponsored enterprises
|
|
$
|
15,868
|
|
|
$
|
127
|
|
|
$
|
(163
|
)
|
|
$
|
15,832
|
|
Corporate debt securities
|
|
|
80,624
|
|
|
|
1,450
|
|
|
|
(182
|
)
|
|
|
81,892
|
|
Commercial paper
|
|
|
98,929
|
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
98,932
|
|
Foreign corporate debt securities
|
|
|
22,166
|
|
|
|
149
|
|
|
|
(170
|
)
|
|
|
22,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity securities
|
|
|
217,587
|
|
|
|
1,730
|
|
|
|
(516
|
)
|
|
|
218,801
|
|
Less total unrestricted fixed-maturity securities trading
|
|
|
7,326
|
|
|
|
232
|
|
|
|
(13
|
)
|
|
|
7,545
|
|
Less total unrestricted fixed-maturity securities held to maturity
|
|
|
65,352
|
|
|
|
|
|
|
|
|
|
|
|
65,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity securities held in trust
|
|
$
|
144,909
|
|
|
$
|
1,498
|
|
|
$
|
(503
|
)
|
|
$
|
145,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost and estimated fair value of fixed-maturity securities at March 31, 2014 by contractual maturity are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
Maturity in:
|
|
|
|
|
|
|
|
|
2014
|
|
$
|
120,156
|
|
|
$
|
120,186
|
|
2015-2019
|
|
|
94,040
|
|
|
|
95,265
|
|
2020-2023
|
|
|
1,003
|
|
|
|
1,029
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity securities
|
|
$
|
215,199
|
|
|
$
|
216,480
|
|
|
|
|
|
|
|
|
|
|
Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.
Net investment income for the three months ended March 31, 2014 and 2013, respectively, is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
2014
|
|
|
Three Months
Ended March 31,
2013
|
|
Investment income:
|
|
|
|
|
|
|
|
|
Amortization of premium or discount on fixed-maturity securities
|
|
$
|
(529
|
)
|
|
$
|
(488
|
)
|
Investment income on fixed-maturity securities
|
|
|
1,102
|
|
|
|
1,858
|
|
Interest income on cash and equivalents
|
|
|
2
|
|
|
|
4
|
|
Realized net gain from sale of investments
|
|
|
27
|
|
|
|
134
|
|
Unrealized (losses) gains on trading securities held at period end
|
|
|
66
|
|
|
|
(812
|
)
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
668
|
|
|
$
|
696
|
|
|
|
|
|
|
|
|
|
|
15
The following tables show how the Companys investments are categorized in accordance with fair value
measurement, as of March 31, 2014 and December 31, 2013, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Class of Security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government sponsored enterprises
|
|
$
|
3,042
|
|
|
$
|
5,455
|
|
|
$
|
|
|
|
$
|
8,497
|
|
Corporate debt securities
|
|
|
29,813
|
|
|
|
60,918
|
|
|
|
|
|
|
|
90,731
|
|
Commercial paper
|
|
|
96,115
|
|
|
|
|
|
|
|
|
|
|
|
96,115
|
|
Foreign corporate debt securities
|
|
|
6,842
|
|
|
|
14,295
|
|
|
|
|
|
|
|
21,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity securities
|
|
|
135,812
|
|
|
|
80,668
|
|
|
|
|
|
|
|
216,480
|
|
Money market funds
|
|
|
42,019
|
|
|
|
|
|
|
|
|
|
|
|
42,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
177,831
|
|
|
$
|
80,668
|
|
|
$
|
|
|
|
$
|
258,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Class of Security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government sponsored enterprises
|
|
$
|
6,299
|
|
|
$
|
9,533
|
|
|
$
|
|
|
|
$
|
15,832
|
|
Corporate debt securities
|
|
|
11,891
|
|
|
|
70,001
|
|
|
|
|
|
|
|
81,892
|
|
Commercial paper
|
|
|
98,932
|
|
|
|
|
|
|
|
|
|
|
|
98,932
|
|
Foreign corporate debt securities
|
|
|
7,652
|
|
|
|
14,493
|
|
|
|
|
|
|
|
22,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity securities
|
|
|
124,774
|
|
|
|
94,027
|
|
|
|
|
|
|
|
218,801
|
|
Money market funds
|
|
|
44,863
|
|
|
|
|
|
|
|
|
|
|
|
44,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
169,637
|
|
|
$
|
94,027
|
|
|
$
|
|
|
|
$
|
263,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A review of the fair value hierarchy classifications of the Companys investments is conducted quarterly. Changes in the
observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications are reported as transfers in or transfers out of the applicable Level at the end of the calendar quarter in which the
reclassifications occur. During the three months ended March 31, 2014 and the year ended December 31, 2013, $12.1 million and $7.1 million, respectively, of investments were transferred from Level 2 to Level 1 as a result of improving
market conditions for short-term and investment grade corporate securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2014 to March 31, 2014
|
|
|
January 1, 2013 to December 31, 2013
|
|
|
|
Transfers
from
Level 1 to
Level 2
|
|
|
Transfers
from Level 2
to Level 1
|
|
|
Transfers
from
Level 1 to
Level 2
|
|
|
Transfers
from Level 2
to Level 1
|
|
Class of securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
|
$
|
|
|
|
$
|
11,299
|
|
|
$
|
|
|
|
$
|
4,598
|
|
Foreign corporate debt securities
|
|
|
|
|
|
|
768
|
|
|
|
|
|
|
|
2,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total transfers
|
|
$
|
|
|
|
$
|
12,067
|
|
|
$
|
|
|
|
$
|
7,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5: Income Taxes
For the three months ended March 31, 2014, the Company recorded a net loss of approximately $3.4 million. Due to projected tax losses
for the year ended December 31, 2014 and the existence of net operating loss carry forwards which have a 100% valuation allowance recorded to reduce them to zero, the Company has not recorded an income tax expense or benefit for the three
months ended March 31, 2014. The Company recorded no income tax expense or benefit for the year ended December 31, 2013 due to tax losses in that period.
The Company files a consolidated federal income tax return. Pursuant to a tax sharing agreement, WMMRCs federal income tax liability is calculated on a
separate return basis determined by applying 35 percent to taxable income, in accordance with the provisions of the Code that apply to property and casualty insurance companies. WMIHC, as WMMRCs parent, pays federal income
16
taxes on behalf of WMMRC and settles the federal income tax obligation on a current basis in accordance with the tax sharing agreement. WMMRC made no tax payments to WMIHC during the three months
ended March 31, 2014 or the year ended December 31, 2013 associated with the Companys tax liability from the preceding year.
Deferred
federal income taxes arise from temporary differences between the valuation of assets and liabilities as determined for financial reporting purposes and income tax purposes. Temporary differences principally relate to discounting of loss reserves,
accruals, net operating losses and unrealized gains and losses on investments. As of March 31, 2014 and December 31, 2013, the Company recorded a valuation allowance equal to 100 percent of the net deferred federal income tax asset due to
uncertainty regarding the Companys ability to realize these benefits in the future.
On March 19, 2012, WMIHC emerged from bankruptcy. Prior to
emergence, WMI abandoned the stock of WMB, thereby generating a worthless stock deduction of approximately $8.37 billion which gives rise to a NOL for the year ended December 31, 2012. Under Section 382 of the Code, and based on the
Companys analysis, we believe that the Company experienced an ownership change (generally defined as a greater than 50 percent change (by value) in our equity ownership over a three-year period) on March 19, 2012, and our
ability to use our pre-change of control NOLs and other pre-change tax attributes against our post-change income was limited. The Section 382 limitation is applied annually so as to limit the use of our pre-change NOLs to an amount that
generally equals the value of our stock immediately before the ownership change multiplied by a designated federal long-term tax-exempt rate. Due to applicable limitations under Section 382 and a reduction of tax attributes due to cancellation
of indebtedness, a portion of these NOLs were limited and will expire unused. We believe that the total available and utilizable NOL carry forward at December 31, 2013 is approximately $5.96 billion. At March 31, 2014 there was no
limitation on the use of these NOLs. These NOLs will begin to expire in 2029. The Companys ability to utilize the NOLs or realize any benefits related to the NOLs is subject to a number of risks.
The Company accounts for uncertain tax positions in accordance with the income taxes accounting guidance. The Company has analyzed filing positions in the
federal and state jurisdictions where it is required to file tax returns, as well as the open tax years in these jurisdictions. Tax years 2008 to present are subject to examination by the Internal Revenue Service. The Company believes that its
federal income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain federal income tax positions
have been recorded. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the provision for federal income taxes. The Company did not incur any federal income tax related interest income, interest
expense or penalties for the periods ended March 31, 2014 and December 31, 2013.
Note 6: Service Agreements and Related Party Transactions
WMMRC has engaged a Hawaiian-based service provider, Marsh Management Services, Inc., to provide accounting and related management services
for its operations. In exchange for performing these services, WMMRC pays such service provider a management fee.
WMIHC entered into an Investment
Management Agreement and an Administrative Services Agreement with WMMRC on March 19, 2012. Each of these agreements was approved by WMMRCs primary regulator. Total amounts incurred under these agreements totaled $421 thousand and $443
thousand for the three months ended March 31, 2014 and 2013, respectively. The expense and related income eliminate on consolidation. These agreements are described below.
Under the terms of such Investment Management Agreement, WMIHC receives from WMMRC a fee equal to the product of (x) the ending dollar amount of assets
under management during the calendar month in question and (y) .002 divided by 12. WMIHC is responsible for investing the funds of WMMRC based on applicable investment criteria and subject to rules and regulations to which WMMRC is subject.
Under the terms of such Administrative Services Agreement, WMIHC receives from WMMRC a fee of $110 thousand per month. WMIHC is responsible for providing
administrative services to support, among other things, supervision, governance, financial administration and reporting, risk management and claims management as may be necessary, together with such other general or specific administrative services
that may be reasonably required or requested by WMMRC in the ordinary course of its business.
On March 23, 2012, WMIHC and the WMI Liquidating Trust
(the Trust) entered into a Transition Services Agreement (the TSA). Pursuant to the TSA, each party makes available certain services and employees. The TSA provides the Company with office space for its current employees and
basic infrastructure and support services to allow the Company to operate. The TSA provides the Trust with access to certain of the Companys employees and, initially, limited use of the Companys health insurance plan for its employees.
The TSA was amended on September 18, 2012 and the term of the agreement was initially extended through March 31, 2013 with automatic renewals thereafter for successive additional three-month terms, subject to non-renewal at the end of any
additional term upon written notice by either party at least 30 days prior to the expiration of the additional term. The agreement has automatically renewed per its terms and is currently in place through September 30, 2014, subject to
additional renewals. Either party may terminate one or more of the services offered upon ten (10) days written notice to the other party.
17
In connection with implementing the Plan, certain holders of specified Allowed Claims had the right
to elect to receive such holders Pro Rata Share of the Common Stock Allotment. Essentially, the Plan defines the Pro Rata Share of the Common Stock Allotment as a pro rata share of ten million (10,000,000) shares
of WMIHCs common stock (i.e. five percent (5%)) issued and outstanding on the Effective Date. Holders exercising the foregoing election did so in lieu of receiving (i) 50% of such holders interest in and to certain litigation
proceeds that could be realized by the Trust on account of certain claims and causes of action asserted by the Trust as contemplated by the Plan (Litigation Proceeds), and (ii) some or all of the Runoff Notes to which such holder
may be entitled (if such holder elected to receive Runoff Notes in accordance with the terms of the Plan).
If a holder exercised the election described
above and, as a result of such election, received shares of WMIHCs common stock, then such holders share of Runoff Notes to which the election was effective (i.e., One Dollar ($1.00) of original principal amount of Runoff Notes for each
share of WMIHCs common stock) were not issued. In addition, as a result of making the aforementioned election, such holders conveyed to WMIHC, and WMIHC retains an economic interest in, the Litigation Proceeds equal to fifty percent
(50%) of the Litigation Proceeds to which the electing holder otherwise would have been entitled and such holders rights in respect of distributions from the Trust will be adjusted to the extent Litigation Proceeds are received by WMIHC).
Distributions, if any, to WMIHC on account of the foregoing will be effected in accordance with the Plan and Confirmation Order.
As of March 31,
2014, WMIHC had not received any Litigation Proceeds in connection with the foregoing. Given the speculative nature of litigation, there can be no assurance that WMIHC will receive any value or distributions on account of Litigation Proceeds. The
Trusts Litigation Subcommittee recently disclosed in its Form 10-K for the period ended December 31, 2013 that it has investigated potential claims against various third parties, including breach of contract claims, breach of fiduciary
duty claims, professional malpractice claims and business tort and antitrust claims. Based on this investigation, the Litigation Subcommittee has determined not to assert claims against such third parties, other than those which are currently
pending and being litigated. As a result of the Trusts public disclosures on these matters, at this time WMIHC believes it is increasingly unlikely that it will realize any value on account of Litigation Proceeds.
Note 7: Notes Payable
On the Effective Date, WMIHC issued $110.0 million aggregate principal amount of its First Lien Notes under the First Lien Indenture,
between WMIHC and Wilmington Trust, National Association, as Trustee. Additionally, WMIHC issued $20.0 million aggregate principal amount of its Second Lien Notes under the Second Lien Indenture, between WMIHC and Law Debenture Trust Company of New
York, as Trustee. The Runoff Notes are scheduled to mature on March 19, 2030 and pay interest quarterly.
The Runoff Notes are secured by, and have a
specified priority in right of payment in, a securities or deposit account into which WMIHC will deposit distributions it receives of Runoff Proceeds (as defined in the Indentures) (the Collateral Account).
WMIHC will, and has agreed to cause WMMRC to, deposit all distributions, dividends or other receipts in respect of Runoff Proceeds Distributions (as defined
in the Indentures) on the date paid to WMIHC in the Collateral Account established in accordance with the terms of the Indentures. On any interest payment date, payments are made from the Collateral Account and from any other Runoff Proceeds
Distributions in the priority set forth in the Indentures. The obligations created by the Runoff Notes are nonrecourse to WMIHC (except for certain actions for specific performance) and, except in certain limited circumstances as more fully
described in Section 7.16 of the Indentures with respect to Runoff Proceeds Distributions in the Collateral Account or for failure to comply with certain specified covenants relating to (i) the deposit of Runoff Proceeds in the Collateral
Account, (ii) payment of Runoff Proceeds in the Collateral Account in accordance with the order of priority established in the Indentures, (iii) failure to seek to obtain the appropriate regulatory approval to permit the dividend of Runoff
Proceeds to WMIHC and (iv) the failure to cause WMMRC to deposit Runoff Proceeds into a segregated account.
In connection with certain interest
payments due and payable in respect of the First Lien Notes, WMIHC elected, consistent with the terms of the Indentures, to issue PIK Notes (as defined in the Indentures) in lieu of making such interest payment in cash when no cash was available. In
connection with interest payments due and payable in respect of the Second Lien Notes since inception, WMIHC elected, consistent with the terms of the Indentures, to issue PIK Notes (as defined in the Indentures) in lieu of making such interest
payment in cash. The aggregate face amount of PIK Notes issued as of March 31, 2014 and December 31, 2013 totals approximately $15.8 million and $13.9 million, respectively. Outstanding amounts under these notes totaled approximately
$107.4 million and $105.5 million as of March 31, 2014 and December 31, 2013, respectively. No First Lien Notes principal was paid during the three months ended March 31, 2014, and approximately $36.3 million of First Lien Notes
principal was paid during the year ended December 31, 2013. Interest on First Lien Notes paid in cash totaled approximately $1.5 million and $3.7 million during the three months ended March 31, 2014 and 2013, respectively.
As of March 31, 2014 and December 31, 2013, the Collateral Account contained $0.1 million and $0.1 million, respectively, of cash received from
WMMRC which were or will be ultimately used for future administrative expenses, interest and principal payments.
18
Note 8: Financing Arrangements
As of March 19, 2012, a Financing Agreement (the Financing Agreement) was entered into by and among WMIHC, WMIIC, the
lenders, severally and not jointly, party thereto (each a Lender and collectively, the Lenders) and U.S. Bank National Association, a national banking association, as administrative agent for the Lenders. The credit facility
established by the Financing Agreement may be used for only certain specific purposes.
The facility consists of (a) a tranche A term loan commitment
and a tranche A-1 term loan commitment in the aggregate principal amount of $25 million and (b) a tranche B term loan commitment in the aggregate principal amount of $100.0 million. The proceeds of (a) the tranche A term loan and tranche
A-1 term loan can be used to fund working capital and for general corporate purposes, and (b) the tranche B term loan can be used to fund certain permitted acquisitions and permitted originations (as these terms are defined in the Financing
Agreement) which are limited to acquisitions and originations of business in the financial services or insurance sectors. The Lenders are severally, and not jointly, obligated to extend such credit to WMIHC.
As of March 31, 2014 and December 31, 2013, no loans were outstanding under the Financing Agreement. The facility is secured by substantially all of
WMIHCs assets and the Lenders must have an additional first priority lien on any new business and assets acquired. Pursuant to the terms and conditions of the Financing Agreement, the commitment of the Lenders to extend credit under the
Financing Agreement will terminate no later than March 19, 2015.
On January 30, 2014, WMIHC entered into (i) a note purchase agreement,
dated as of January 30, 2014 (the Note Purchase Agreement), with the guarantors party thereto and KKR Management Holdings L.P. (KKR Management), (ii) an investment agreement, dated as of January 30, 2014 (the
Investment Agreement), with KKR Fund Holdings L.P. (KKR Fund and, together with KKR Management, KKR) and, for limited purposes, KKR Management and (iii) an investor rights agreement, dated as of
January 30, 2014 (the Investor Rights Agreement), with KKR Fund (together, the KKR Transaction).
Pursuant to the terms and
conditions of the Note Purchase Agreement, KKR Management has committed to purchase up to $150 million aggregate principal amount (at issuance) of subordinated 7.50% PIK notes (the Subordinated Notes) from the Company.
The Subordinated Notes may be issued by WMIHC, at WMIHCs option, in one or more tranches over a three year period, subject to certain terms and
conditions, including the conditions that (i) all or substantially all of the proceeds from the issuance of the Subordinated Notes are used by WMIHC to fund the acquisition of the assets of, or equity interests of, or a business line, unit or
division of, any entity that has been approved by the Board, (ii) no defaults or events of default shall have occurred under the Note Purchase Agreement and (iii) no violation of certain provisions of the Investor Rights Agreement shall
have occurred. KKR Management may refuse to purchase Subordinated Notes from WMIHC in the event that a third party (other than KKR or any of its affiliates) (i) has completed a successful proxy contest against WMIHC or (ii) has publicly
initiated or threatened to initiate a proxy contest and, in connection therewith, such third party is granted the right to designate more than one nominee to the Board. Upon such refusal, KKR Management will automatically forfeit a percentage of
warrants described below in Note 9: Capital Stock.
Additionally, WMIHCs ability to issue the Subordinated Notes is subject to no default or event
of default under the Financing Agreement, and limited by the Financing Agreement to the greater of (i) $25 million and (ii) 25% of consolidated tangible assets, as defined in the Financing Agreement. The lenders under the Financing
Agreement have provided their consent to the subordination provisions of the Note Purchase Agreement, in accordance with the terms of the Financing Agreement.
Each Subordinated Note will mature on the date that is seven years from the date that the initial Subordinated Note is first issued (the Initial Issue
Date). Interest on the Subordinated Notes is due semi-annually and will be paid entirely by capitalizing accrued and unpaid interest on each interest payment date and adding the same to the principal amount of the Subordinated Notes then
outstanding. Following an increase in the principal amount of the outstanding Subordinated Notes as a result of the capitalization of accrued interest, interest will accrue on such increased principal amount from and after the date of such interest
capitalization.
The Subordinated Notes will be unsecured obligations of WMIHC that rank junior to WMIHCs existing and future senior indebtedness.
The payment of all obligations owing in respect of the Subordinated Notes is expressly subordinated in right of payment to the prior payment in full of all existing and future senior indebtedness. The Subordinated Notes will be irrevocably and
unconditionally guaranteed, on a joint and several basis, by certain of WMIHCs existing and future subsidiaries.
On and after the date that is
three years after the Initial Issue Date, the Subordinated Notes may be redeemed by WMIHC, in whole or in part, at the redemption prices (expressed as a percentage of principal amount of the Subordinated Notes to be redeemed) set forth below, plus
accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the 12-month period beginning on the dates specified below:
|
|
|
|
|
Date
|
|
Percentage
|
|
3rd anniversary of the Initial Issue Date
|
|
|
103.750
|
%
|
4th anniversary of the Initial Issue Date
|
|
|
101.875
|
%
|
5th anniversary of the Initial Issue Date and thereafter
|
|
|
100.000
|
%
|
19
Prior to the date that is three years after the Initial Issue Date, the Subordinated Notes may be redeemed by the
Company, in whole or in part, at a redemption price equal to 100% of the principal amount of Subordinated Notes redeemed plus a make whole premium calculated in the manner set forth in the Note Purchase Agreement.
The Note Purchase Agreement contains covenants that, among other things, limit WMIHC and WMIHCs restricted subsidiaries ability to:
|
|
|
incur additional indebtedness;
|
|
|
|
(i) pay dividends or make other distributions, (ii) purchase, redeem or retire the capital stock of WMIHC, (iii) pay, purchase or redeem, prior to scheduled maturity, certain subordinated obligations and
(iv) make certain restricted investments;
|
|
|
|
incur or suffer to exist liens;
|
|
|
|
allow to exist certain restrictions on the ability of WMIHCs restricted subsidiaries to pay dividends or make other payments to the Company;
|
|
|
|
designate WMIHCs subsidiaries as unrestricted subsidiaries;
|
|
|
|
enter into transactions with affiliates;
|
|
|
|
consolidate, merge or sell all or substantially all of WMIHCs assets.
|
Additionally, the Note Purchase
Agreement contains covenants that require WMIHC to:
|
|
|
file reports with the SEC within certain time periods;
|
|
|
|
cause certain future restricted subsidiaries to guarantee the Subordinated Notes; and
|
|
|
|
make an offer to purchase Subordinated Notes from holders in the event of certain types of change of control of WMIHC or in certain circumstances related to the sale of WMIHCs or a restricted subsidiarys
assets.
|
The covenants are subject to a number of important exceptions, limitations and qualifications set forth in the Note Purchase
Agreement.
The Subordinated Notes have not been registered under the Securities Act and may not be sold or transferred in the United States without
registration or an applicable exemption from the registration requirements. As of March 31, 2014, no Subordinated Notes were outstanding under the Note Purchase Agreement.
The foregoing description of the Note Purchase Agreement is qualified in its entirety by reference to the Note Purchase Agreement, which was filed with the
SEC as Exhibit 4.1 on Form 8-K on January 31, 2014, and incorporated by reference.
Note 9: Capital Stock
On the Effective Date, all shares of common and preferred equity securities previously issued by WMI were cancelled and extinguished. As of
the Effective Date, and pursuant to WMIHCs Amended and Restated Articles of Incorporation (the Articles), WMIHC is authorized to issue up to 500,000,000 shares of common stock and up to 5,000,000 shares of blank check preferred
stock, each with a par value of $0.00001 per share. 200,000,000 shares of common stock were issued by WMIHC pursuant to the Court approved Plan and in reliance on Section 1145 of the Bankruptcy Code on the Effective Date.
As described in Note 8: Financing Arrangements, WMIHC entered into (i) the Note Purchase Agreement, (ii) the Investment Agreement and (iii) the
Investor Rights Agreement on January 30, 2014.
Pursuant to the terms and conditions of the Investment Agreement, the Company has sold to KKR Fund
1,000,000 shares of the Series A Convertible Preferred Stock (the Convertible Preferred Stock) having the terms, rights, obligations and preferences contained in the Articles of Amendment of the Company dated January 30, 2014 (the
Articles of Amendment) for a purchase price equal to $11.1 million and has issued to KKR Fund warrants to purchase, in the aggregate, 61.4 million shares of the Companys common stock, 30.7 million of which have an
exercise price of $1.32 per share and 30.7 million of which have an exercise price of $1.43 per share (together, the Warrants).
The
Convertible Preferred Stock has rights substantially similar to those associated with WMIHCs common stock, with the exception of a liquidation preference, conversion rights and customary anti-dilution protections. The Convertible Preferred
Stock has a liquidation preference equal to the greater of (i) $10.00 per one million shares of Convertible Preferred Stock plus declared but unpaid dividends on such shares and (ii) the amount that the holder would be entitled to in a
relevant transaction had the Convertible Preferred Stock been converted to common stock of WMIHC. The Convertible Preferred Stock is convertible at a
20
conversion price of $1.10 per share into shares of common stock of WMIHC either at the option of the holder or automatically upon transfer by KKR Fund to a non-affiliated party. As a result of
the calculation of a beneficial conversion feature as required by ASC 470 a preferred deemed dividend of $9.5 million was recorded in conjunction with the issuance of the preferred stock. This preferred deemed dividend is reflected as an
increase to our accumulated deficit, and as an increase in additional paid in capital. Further, KKR Fund, as the holder of the Convertible Preferred Stock and the Warrants, has received other rights pursuant to the Investor Rights Agreement as
described below.
The Warrants have a five-year term from the date of issuance and are subject to customary structural adjustment provisions for stock
splits, combinations, recapitalizations and other similar transactions.
KKR Funds rights as a holder of the Convertible Preferred Stock and the
Warrants, and the rights of any subsequent holder that is an affiliate of KKR Fund (together with KKR Fund, the Holders) are governed by the Investor Rights Agreement. Pursuant to the Investor Rights Agreement, for so long as the Holders
own 50% of the Convertible Preferred Stock issued as of January 30, 2014 (or the underlying common stock of WMIHC), the Holders will have the right to appoint one of seven directors to the Board. As of May 8, 2014, the Holders have not
exercised this right of appointment.
Additionally, until January 30, 2017, the Holders will have the right to purchase up to 50% of any future
equity rights offerings or other equity issuance by WMIHC on the same terms as the equity issued to other investors in such transactions, in an aggregate amount of such offerings and issuances by WMIHC of up to $1.0 billion (the Participation
Rights). The foregoing Participation Rights do not include any issuances of securities by WMIHC constituting any part of the consideration payable by it in connection with any acquisitions or investments (including any rollover equity) or in
respect of any employee options or other income compensation. The aggregate beneficial ownership by Holders of equity securities of WMIHC after giving effect to any equity issuances (and on a pro forma basis after taking into account any
acquisitions) shall at no time exceed 42.5% of the equity securities of WMIHC without the prior written consent of WMIHC. Any such rights to acquire equity securities are subject to limitation to the extent they would cause a loss of all or
substantially all of the benefit of the Companys tax benefits (as such term is defined in the Articles). Except for the foregoing Participation Rights and the issuance of common stock in respect of the Warrants and the Convertible Preferred
Stock, KKR Fund and its affiliates shall not purchase or acquire any equity securities of WMIHC or its subsidiaries without WMIHCs prior written consent, subject to certain exceptions.
In connection with the issuance of the Convertible Preferred Stock and the Warrants, KKR Fund and its affiliates have agreed that, until December 31,
2016, they will not:
|
|
|
request the call of a special meeting of the shareholders of WMIHC; seek to make, or make, a shareholder proposal at any meeting of the shareholders of WMIHC; seek the removal of any director from the Board; or make any
solicitation of proxies (as such terms are used in the proxy rules of the SEC) or solicit any written consents of shareholders with respect to any matter;
|
|
|
|
form or join or participate in a partnership, limited partnership, syndicate or other group within the meaning of Section 13(d)(3) of the Exchange Act, with respect to any voting securities of WMIHC;
|
|
|
|
make or issue, or cause to be made or issued, any public disclosure, statement or announcement (including filing reports with the SEC) (x) in support of any solicitation described above, or (y) negatively
commenting upon WMIHC;
|
|
|
|
except pursuant to any exercise of any Warrant, the conversion of the Convertible Preferred Stock, or the exercise of the Participation Rights, acquire, agree or seek to acquire, beneficially or otherwise, any voting
securities of the Company (other than securities issued pursuant to a plan established by the Board for members of the Board, a stock split, stock dividend distribution, spin-off, combination, reclassification or recapitalization of WMIHC and its
common stock or other similar corporate action initiated by WMIHC);
|
|
|
|
enter into any discussions, negotiations, agreements or undertakings with any person with respect to the foregoing or advise, assist, encourage or seek to persuade others to take any action with respect to the
foregoing, except pursuant to mandates granted by WMIHC to raise capital by WMIHC to KKR Capital Markets LLC and its affiliates; or
|
|
|
|
short any of WMIHCs common stock or acquire any derivative or hedging instrument or contract relating to WMIHCs common stock.
|
In the event that any shareholder or group of shareholders other than KKR Fund calls a shareholder meeting or seeks to nominate nominees to the Board, then
KKR Fund shall not be restricted from calling a shareholder meeting in order to nominate directors as an alternative to the nominees nominated by such shareholder or group, provided that KKR Fund shall not nominate or propose a number of directors
to the Board that is greater than the number of directors nominated or proposed by such shareholder or group.
The Investor Rights Agreement also provides
the Holders with registration rights, including three long form demand registration rights, unlimited short form demand registration rights and customary piggyback registration rights with respect to common stock (and common stock underlying the
Convertible Preferred Stock and the Warrants), subject to certain minimum thresholds, customary blackout periods and lockups of 180 days.
21
For as long as the Holders beneficially own any shares of common stock of WMIHC or Convertible Preferred Stock or
any of the Warrants, WMIHC has agreed to provide customary Rule 144A information rights, to provide the Holders with regular audited and unaudited financial statements and to allow the Holders or their representatives to inspect WMIHCs books
and records.
As described above in Note Purchase Agreement, in certain circumstances KKR Management may refuse to purchase Subordinated
Notes. Upon the occurrence of KKR Managements refusal, pursuant to and in accordance with the terms and conditions of the Note Purchase Agreement, to purchase Subordinated Notes, Holders will automatically forfeit a percentage of the Warrants.
The foregoing description of (i) the Investor Rights Agreement is qualified in its entirety by reference to the Investor Rights Agreement, which was
filed with the SEC as Exhibit 4.2 on Form 8-K on January 31, 2014, and incorporated by reference, (ii) the Warrants are qualified in their entirety by reference to the Form of Tranche A Warrant and Form of Tranche B Warrant, which were
filed with the SEC as Exhibits 4.3 and 4.4, respectively, on Form 8-K on January 31, 2014, and incorporated by reference, (iii) the Convertible Preferred Stock is qualified in its entirety by reference to the Articles of Amendment, which
were filed with the SEC as Exhibit 4.5 on Form 8-K on January 31, 2014, and incorporated by reference, and the Form of Series A Convertible Preferred Stock Certificate, which was filed with the SEC as Exhibit 4.6 on Form 8-K on January 31,
2014, and incorporated by reference and (iv) the Investment Agreement is qualified in its entirety by reference to the Investment Agreement, which was filed with the SEC as Exhibit 10.1 on Form 8-K on January 31, 2014, and incorporated by
reference.
WMIHC issued restricted share grants to members of our Corporate Strategy and Development Committee and our Chairman, Michael Willingham,
totaling $0.6 million of aggregate intrinsic value during the three months ended March 31, 2014, and to members of the Board totaling $0.7 million of aggregate intrinsic value during the year ended December 31, 2013. The restricted shares
vest over a three year period and the resulting unamortized value related to the unvested restricted share grant totals $1.2 million and $0.7 million at March 31, 2014 and December 31, 2013, respectively. The unamortized value of $1.2
million at March 31, 2014, if all are ultimately vested will be amortized according to the following schedule.
|
|
|
|
|
Amortization Schedule (in thousands)
|
|
|
|
2nd quarter 2014
|
|
$
|
153
|
|
3rd quarter 2014
|
|
|
153
|
|
4th quarter 2014
|
|
|
153
|
|
1st quarter 2015
|
|
|
146
|
|
2nd quarter 2015
|
|
|
107
|
|
3rd quarter 2015
|
|
|
107
|
|
4th quarter 2015
|
|
|
107
|
|
1st quarter 2016
|
|
|
100
|
|
2nd quarter 2016
|
|
|
53
|
|
3rd quarter 2016
|
|
|
53
|
|
4th quarter 2016
|
|
|
53
|
|
1st quarter 2017
|
|
|
23
|
|
|
|
|
|
|
Total Unamortized value
|
|
$
|
1,208
|
|
|
|
|
|
|
Net stock-based compensation totaled $129 thousand and $46 thousand for the three months ended March 31, 2014 and 2013,
respectively. The share grants were issued at the fair market value determined to be the trading price at the close of business on the respective date the grants were approved by the Board.
22
A summary of WMIHCs restricted share award activity for the three months ended March 31, 2014 and year
ended December 31, 2013 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Restricted
Stock Awards
Outstanding
|
|
|
Weighted
Average Grant
Date Fair
Value
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
OutstandingJanuary 1, 2013
|
|
|
1,156,078
|
|
|
$
|
0.4761
|
|
|
$
|
550
|
|
Restricted stock awards granted during 2013
|
|
|
686,273
|
|
|
|
1.0200
|
|
|
|
700
|
|
Restricted stock awards released or forfeited during 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OutstandingDecember 31, 2013
|
|
|
1,842,351
|
|
|
|
.6787
|
|
|
|
1,250
|
|
Restricted stock awards granted during 2014
|
|
|
250,000
|
|
|
|
2.5300
|
|
|
|
633
|
|
Restricted stock awards released or forfeited during 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OutstandingMarch 31, 2014
|
|
|
2,092,351
|
|
|
$
|
0.8999
|
|
|
$
|
1,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WMIHC has issued the total number of shares subject to the restricted stock grants, however, until vested they are subject to
repurchase. Shares subject to repurchase totaled 1,092,870 on March 31, 2014 and 1,456,987 on December 31, 2013. The shares subject to repurchase at March 31, 2014 will vest according to the following schedule.
|
|
|
|
|
Vesting schedule of shares subject to repurchase
|
|
|
|
2nd quarter 2014
|
|
|
|
|
3rd quarter 2014
|
|
|
|
|
4th quarter 2014
|
|
|
|
|
1st quarter 2015
|
|
|
697,451
|
|
2nd quarter 2015
|
|
|
|
|
3rd quarter 2015
|
|
|
|
|
4th quarter 2015
|
|
|
|
|
1st quarter 2016
|
|
|
312,087
|
|
2nd quarter 2016
|
|
|
|
|
3rd quarter 2016
|
|
|
|
|
4th quarter 2016
|
|
|
|
|
1st quarter 2017
|
|
|
83,332
|
|
|
|
|
|
|
Total
|
|
|
1,092,870
|
|
|
|
|
|
|
WMIHC has the right, but not the obligation, to repurchase any unvested (but issued) shares of common stock at $0.0001 per
share upon the termination of service in the case of a director.
A summary of the Companys restricted shares issued and subject to repurchase as of
the three months ended March 31, 2014 and year ended December 31, 2013 is presented below:
|
|
|
|
|
Shares subject to repurchaseJanuary 1, 2013
|
|
|
1,156,078
|
|
Shares issued subject to vesting during 2013
|
|
|
686,273
|
|
Unvested shares repurchased during 2013
|
|
|
|
|
Shares vested during 2013
|
|
|
(385,364
|
)
|
|
|
|
|
|
Unvested sharesDecember 31, 2013
|
|
|
1,456,987
|
|
Shares issued subject to vesting during 2014
|
|
|
250,000
|
|
Unvested shares repurchased during 2014
|
|
|
|
|
Shares vested during 2014
|
|
|
(614,117
|
)
|
|
|
|
|
|
Unvested sharesMarch 31, 2014
|
|
|
1,092,870
|
|
|
|
|
|
|
As of March 31, 2014 and December 31, 2013, 202,092,351 and 201,842,351 shares, respectively, of WMIHCs common
stock were issued and outstanding. As of March 31, 2014, 1,000,000 shares of WMIHCs preferred stock were issued and outstanding. As of December 31, 2013, no shares of WMIHCs preferred stock were issued or outstanding. As of
March 31, 2014, 61,400,000 Warrants to purchase WMIHCs common stock were issued and outstanding. No warrants were issued and outstanding at December 31, 2013.
23
See Note 12: Net (loss) Income Per Common Share for further information on shares used for EPS calculations.
Note 10: Pending Litigation
As of March 31, 2014, the Company was not a party to, or aware of, any pending legal proceedings or investigations requiring disclosure
at this time.
Note 11: Restriction on Distribution of Net Assets from Subsidiary
WMMRC has net assets totaling $144.6 million and $145.8 million as of March 31, 2014 and December 31, 2013, respectively. These
net assets are not immediately available for distribution to WMIHC due to restrictions imposed by trust agreements, and the requirement that the Insurance Commissioner of the State of Hawaii must approve dividends from WMMRC. Distributions from
WMMRC to WMIHC are further restricted by the terms of the Runoff Notes described in Note 7: Notes Payable.
Note 12: Net (loss) Income Per Common Share
Basic net (loss) income per share attributable to common shareholders is computed by dividing net (loss) income, excluding net (loss) income
allocated to participating securities, by the weighted average number of shares outstanding less the weighted average of unvested restricted shares outstanding.
There were no dilutive effects from any equity instruments for any of the periods presented, therefore diluted net (loss) income per share was the same as
basic net (loss) income for all periods presented.
The following table sets forth the computation of basic and diluted net (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
|
|
Three months
ended March 31,
2014
|
|
|
Three months
ended March 31,
2013
|
|
Numerator for basic and diluted net (loss) per share:
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(3,380
|
)
|
|
$
|
(3,816
|
)
|
Preferred deemed dividend
|
|
|
(9,455
|
)
|
|
|
|
|
Less: Net (loss) allocated to participating securities
|
|
|
(96
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
Net (loss) attributable to common shareholders, net of loss attributable to participating securities
|
|
$
|
(12,739
|
)
|
|
$
|
(3,795
|
)
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted net (loss) per share:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
201,978,462
|
|
|
|
201,156,078
|
|
Weighted average unvested restricted shares outstanding
|
|
|
(1,504,392
|
)
|
|
|
(1,100,414
|
)
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted net (loss) per share:
|
|
|
200,474,070
|
|
|
|
200,055,664
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net (loss) per share attributable to common shareholders
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
24
Note 13: Subsequent Events
On April 3, 2014, WMMRC and UGRIC entered into a Commutation Agreement and Mutual Release (the Commutation Agreement).
Pursuant to the Commutation Agreement, WMMRC and UGRIC agreed to the commutation and termination of the (i) trust and trust account (the Trust Account) established by that certain trust agreement dated December 31, 1998 between
WMMRC, UGRIC and US Bank, National Association, as trustee (the Trust Agreement), pursuant to which WMMRC established a Trust Account for the benefit of UGRIC, in order to secure obligations of WMMRC and (ii) the reinsurance
agreements and related arrangements described more specifically in the Commutation Agreement (the Commutation). In accordance with the terms of the Commutation Agreement and upon the consummation of the Commutation, UGRIC will be paid
$17.7 million in cash and WMMRC will be paid all remaining cash and assets remaining in the Trust Account, which is estimated to be approximately $65.4 million (the WMMRC Amount) from the Commutation.
The effectiveness of the Commutation Agreement and the consummation of the Commutation thereunder is subject to a number of conditions including obtaining all
necessary consents, approvals and waivers including the approval of the Commutation by the State of Hawaii, Insurance Division, approval of a limited waiver by the requisite holders of 13% Senior First and Second Lien Notes issued by the Company
pursuant to the Indentures, dated March 19, 2012 and approval of the requisite lenders under the Companys Financing Agreement, dated March 19, 2012 ( the Financing Agreement). In the event these conditions are not
satisfied, the Commutation Agreement will be null and void. The Indentures mean: (a) the Senior First Lien Notes Indenture dated as of March 19, 2012 by and between the Company and Wilmington Trust, National Association, as
trustee (First Indenture Trustee) (the First Lien Indenture) and (b) the Senior Second Lien Notes Indenture dated as of March 19, 2012 by and between the Company and Law Debenture Trust Company of New York, as
Trustee (Second Indenture Trustee) (the Second Lien Indenture).
The State of Hawaii, Insurance Division has approved the
Commutation Agreement and the Company is seeking to enter into Limited Waiver Agreements with the First Indenture Trustee and Second Indenture Trustee in order to permit the Commutation under the terms of the First Lien Indenture and Second Lien
Indenture. WMI Liquidating Trust, the beneficial owner of at least two-thirds in aggregate principal amount of the notes outstanding under the First Lien Indenture and the Second Lien Indenture, and Cede & Co., the registered holder of at least
two-thirds in aggregate principal amount of the notes outstanding under the First and Second Lien Indentures, have consented to the limited waiver under the First and Second Lien Indentures. The Company is also seeking to enter into a Consent
Agreement with the lenders and agent under the Financing Agreement in order to permit the Commutation under the Financing Agreement, which consent had not been obtained as of May 8, 2014.
Provided that the necessary consents, approvals and waivers are obtained and following the consummation of Commutation, the WMMRC Amount will be deposited
into WMMRCs custodial account. WMMRC requested and received approval from the State of Hawaii, Insurance Division to declare a dividend or distribution of all or a portion of the WMMRC Amount to the Company. Upon consummation of the
Commutation and after we have obtained the necessary consents and waivers, the Company will deposit such dividend or distribution to the extent constituting Runoff Proceeds (as defined in the Indentures) directly into the Collateral Account (as
defined in the Indentures) for distribution to the note holders in accordance with the Indentures.
Under the Commutation Agreement and upon consummation
of the Commutation, the parties to the Commutation Agreement will be released from all liabilities and obligations under (i) the Trust Agreement, by and between UGRIC, as beneficiary, WMMRC, as grantor and U.S. Bank, National Association, as
trustee and (ii) the reinsurance and related arrangements, described more specifically in the Commutation Agreement (the Reinsurance Agreements) and the Trust Agreement and Reinsurance Agreements will be terminated.
25