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DITECH HOLDING CORP filed this Form 10-K on 04/16/2019
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Fresh Start Accounting
The Company met the conditions to qualify under GAAP for fresh start accounting, and accordingly, adopted fresh start accounting effective February 10, 2018. The actual impact at emergence on February 9, 2018 is shown below. The financial statements as of February 10, 2018 and for subsequent periods report the results of the Successor with no beginning retained earnings. Any presentation of the Successor represents the Company's financial position and results of operations post-emergence and is not comparable to prior periods.
Upon the application of fresh start accounting, the Company allocated the reorganization value to its individual assets based on their estimated fair values. Reorganization value represents the fair value of the Successor’s assets before considering liabilities, and the excess of reorganization value over the fair value of identified tangible and intangible assets is reported separately on the consolidated balance sheets in the Successor periods as goodwill.
The Company, with the assistance of external valuation specialists, estimated the enterprise value of the Company upon emergence from the WIMC Chapter 11 Case to be approximately $1.4 billion to $1.5 billion. Enterprise value is defined as the total invested capital, which includes cash and cash equivalents. The estimate is based on the aggregate fair value of total equity of the Company as approved by the Bankruptcy Court and the aggregate fair value of total debt of the Company. The equity of the Company consists of its publicly-traded common stock, Mandatorily Convertible Preferred Stock, Series A Warrants and Series B Warrants. The debt of the Company consists of a 2018 Credit Agreement and Second Lien Notes Indenture.
In determining the value of total equity, the Company relied on the publicly-traded common stock price as of the time of emergence and the following 30 days, which was considered a level one input, and used a Monte-Carlo simulation to solve for the aggregate equity value across all classes of equity. A Monte-Carlo simulation is an analytical method used to estimate value by performing a large number of simulations or trial runs and thereby determining a value based on the possible outcomes from these trial runs. With the Monte-Carlo simulation, the Company was able to consider the rights and features of each of the equity classes and estimate a total equity value, which resulted in a common stock price equivalent to the publicly-traded price as of the time of emergence. The primary assumptions used in the simulation were risk-free rate, volatility, and terms consistent with the rights and features of the various equity classes.
In estimating the fair value of total debt, a synthetic credit rating analysis was performed based on the underlying financial metrics of the Company to estimate the nonperformance risk and determine appropriate market spreads for each debt security. With the resulting credit rating, market yields were observed for various indices with similar credit ratings, as well as consideration of similar rated bonds, with similar maturity dates. The range of implied credit spreads considered in the valuations were 6.0% to 8.0% and the range of implied yields considered in the valuations were 13.5% to 15.5%.
Pursuant to fresh start accounting, the Company allocated the determined reorganization value to the Successor Company’s assets at emergence as follows (in thousands):
February 10, 2018
Enterprise value

Plus: fair value of liabilities

Reorganization value

Fair value of tangible assets

Fair value of developed technology

Fair value of identifiable intangible assets