Print Page  Close Window

SEC Filings

424B1
DITECH HOLDING CORP filed this Form 424B1 on 09/16/1997
Entire Document
 
<PAGE>   89
 
stock or debt instruments acquired with the proceeds from the sale of stock or
certain debt obligations ("new capital") of HCHI, received during the one-year
period beginning on the day such proceeds were received ("qualified temporary
investment income").
 
     Under the second test (the "95% of income test"), in addition to deriving
75% of its gross income from the sources qualifying under the 75% of income
test, at least an additional 20% of HCHI's gross income for the taxable year
(excluding gross income from "prohibited transactions;" see "-- Taxation of
HCHI") must be derived from the sources qualifying under the 75% of income test,
dividends, interest and gains from the sale or disposition of stock or other
securities that are not dealer property.
 
     Under the third test (the "30% of income limit"), subject to certain
exceptions in the year of its liquidation, HCHI must derive less than 30% of its
annual gross income (including gross income from "prohibited transactions;" see
"Taxation of HCHI") from the sale or other disposition of (i) Qualified REIT
Assets held for less than four years (other than foreclosure property or
property involuntarily or compulsorily converted through destruction,
condemnation or similar events), (ii) stock or securities held for less than one
year (including Qualified Hedges) and (iii) property in prohibited transactions
(see "-- Taxation of HCHI"). The 30% of income limit has been repealed effective
for taxable years beginning after August 5, 1997. See "-- New Tax Legislation."
 
     HCHI anticipates that the investments it will make will give rise primarily
to mortgage interest qualifying under the 75% of income test. Interest on
mortgage backed securities (other than Qualified REIT Assets), dividends on
stock (including any dividends from HCP), interest on any other obligations not
secured by real property, and gains from the sale or disposition of stock or
other securities that are not Qualified REIT Assets will be qualified income for
purposes of the 95% of income test but will not be qualified income for purposes
of the 75% of income test. Loan guarantee fees and income from mortgage
servicing and other service contracts will not qualify for either the 95% or 75%
of income tests if such income constitutes fees for services rendered by HCHI or
HCLP or is not treated as interest on obligations secured by mortgages on real
property or on interests in real property for purposes of the 75% of income
test. Similarly, income of HCHI from hedging, including from the sale of hedges,
will not qualify under the 75% or 95% of income tests unless the hedges
constitute Qualified Hedges, in which case such income will qualify under the
95% of income test.
 
     It is anticipated that HCP and HCMC will recognize income that, if
recognized by HCHI, would fail to qualify under the 75% and 95% of income tests.
Such non-qualifying income will include income from HCP's due diligence
operations and from HCMC's servicing operations. In addition, it is anticipated
that HCP and HCMC will have income from loan sales which would, if recognized by
HCHI, be subject to the 30% of income limit and constitute income from
prohibited transactions (see "-- Taxation of HCHI"). The Company intends to
issue REMICs primarily through HCP, HCMC or one or more other taxable
subsidiaries. Since REMIC issuances are treated as taxable sales of the
securitized loans, the issuances are also expected to generate income that would
be subject to the 30% of income limit and constitute income from prohibited
transactions if recognized by HCHI. Income of HCP or HCMC is not treated as
income of HCHI for purposes of the income-based tests except to the extent that
such income is distributed as a dividend. As described above, HCHI's share of
dividends paid by HCP are qualified income for purposes of the 95% of income
test but are not qualified income for purposes of the 75% of income test.
 
     HCHI intends to maintain its REIT status by carefully monitoring its
income, including income from dividends, hedging transactions, services and
sales of Mortgage Assets to comply with the 75% of income test, the 95% of
income test and the 30% of income limit. See "-- Taxation of HCHI" for a
discussion of the potential tax cost of HCHI's selling certain mortgage
securities on a regular basis. In order to help insure its compliance with the
REIT requirements of the Code, HCHI has adopted guidelines the effect of which
will be to limit HCHI's ability to earn certain types of income, including
income from hedging, other than income from Qualified Hedges. See
"Business -- Hedging." The policy of HCHI to maintain REIT status may limit the
type of assets, including hedging contracts, that might otherwise be acquired.
In addition, as a result of HCHI's having to closely monitor its gains,
Qualified REIT Assets may be held for four or more years, and securities (other
than securities that are Qualified REIT Assets) and hedges may be held for one
year or more, at times when HCHI might otherwise have opted for the disposition
of such assets for short term gains.
 
                                       89