He never used "S" in the quote.
the quote in full from page 6. of
Prison Realty has proposed a comprehensive restructuring
pursuant to which Prison Realty wll, pending stockholder
approval, among othe tings, amend its chasrter to permit it
toperate so as to be taded as a subchapter C corporation
rather than as a REIT for federal income tax purposes,
commencing with its 2000 taxable year.
It would be a
perfectly accurate post , if the
word "subchapter" was
"-- a company on parole should be on its best
I guess my point was that this has been a long
downward spiral of failed vision, bad advice, bad
business, etc. The guys who are running it now are probably
somewhat out of their league with the company's current
financial situation - I'm not sure anyone can do any
better. Mistakes can pop up unexpectedly, but they are
kind of predestined. Everyone just has to kind of get
through it. And I'm not just talking about the top couple
of guys. Many solid PZN/CCA employees who followed
Doc when he walked on water must really be struggling
with all that they were left with.
be surprised about the DC Partners/ Fortress
connection. But supposedly several investors were
interviewed, and supposedly Blackstone was the best. I believe
that was when Merrill Lynch was involved as an advisor
on picking a deal.
"...the full removal of
said rot is essential to any hope of renewed trust in
The "rot" includes an oppressive debt burden, empty
facilities, no ability to raise capital, essentially a penny
stock position in the market, and no friends on the
Street. None of that is going away soon. But what is
going on now has to happen before the rebuilding takes
place. Hope they make it.
The two remaining
service companies are being folded in, on terms some find
distasteful (me too - but it was part of the legacy). I
believe Doc is out of them, too. I suspect his advisory
role, if any, is minor.
Here are some elder questions, presented to you
because you seem to have a long-term grasp.
I do not,
and I've wondered about this detail: Where did the
Fortress/Blackstone deal come from? Was it solicited by CCA, and how
were they (FB) able to secure such a lucrative exit
I ask because I don't know if that proposal, which
evidently spurred the fleeting interest of Pacific Life,
was related to the 'Fortress REIT', which was an
apparent child of Mssrs. Devlin and Crants III, via an
entity called "DC Partners". But there may be no
There are so many components, interacting over time, so
it becomes difficult to tell whether or not the
offending limbs have actually been cut away. And I would
say that in structural terms, the full removal of
said rot is essential to any hope of renewed trust in
Given the fact that the remerged company will depend on
the two management companies who are still to some
degree directed by Mr. elder Crants, the present anemic
state of stock is not a mystery. Whatever their level
of sophistication, investors and policymakers alike
will probably tire of being made fools. Which makes
the recent dividend ambiguities all the more
troubling -- a company on parole should be on its best
As you pointed out yesterday the IRS could argue
that the FMV of the preferred is less than $24.46.
Being able to convert that to 24.46 worth of common
gave PZN a good counter agrument. The $1 floor I think
almost totally negates PZN's argument. I am afraid we
will end up with a taxable dividend and PZN may not
qualify for REIT status because it did not issued a large
enough dividend. I guess the IRS would be in it's glory
collecting tax on a 140m from PZN and collecting tax on a
$100m from its shareholders. I hope they got accounting
advice for the $1 floor as I am not convinced it was
Doc, Jr & Devlin led the whole company (and a
bunch of institutional investors who are supposedly
pretty smart)down a blind alley. Amazing what
encouragement from attorneys, accountants and investment
bankers is available when tens of millions of fees are
being spread around. There was the group that said do a
REIT. There was agroup that said merge with the REIT.
There was a group that said undo the REIT with
Blackstone. There was a group that said undo the REIT with
PL. The only good advice was to undo the REIT, a
practical necessity when they ran out of money.
the bad guys are all gone. The new guys are just
trying to survive and get through this mess. The current
Pfd dividend/conversion is based on the theory (tax
law notwhithstanding) that all the common
shareholders convert their preferred into common and the
preferred goes away. Desired result: no change in
proportionate interests, no corporate level tax, no preferred
dividends to pay in the future.
What the markets
(and the shareholders) do in the meantime is out of
their control. Anybody who held this stock for awhile
and still held it on 9/22 should convert and ride it
out. But it won't be pretty in the meantime.
The Internal Revenue Code is made up of chapters,
one of which is "Income Tax". That chapter is made up
of subchapters, two of which are C and S. Subchapter
C is corporate taxation. A "Subchapter C"
corporation is the same as a "C" Corporation, and either
designation is appropriate when distinguishing it (a taxable
C corp) from a corporation whose tax status is
changed by a different subchapter.
also contains rules on dividends and earnings and
profits. Like Need High Yield, I couldn't find
justification there for treating the Pfd Stock distribution as
a taxable dividend. Then again, if someone was
paying me big bucks, maybe I'd look a little harder.
Unlike NHY, I defer to the hired guns.
"The confusion is
arising because the letter
from Ferguson dated
September 5 used the
terminology "taxable sub-chapter "c" corporation. There is no
such animal. There are only taxable C
THANK YOU bensabia for pointing this out.
mean that the new President of PZN made an error and
meant something other than what he said??? Did he mean
that S is the sub chapter corporation?