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Fresh Start Accounting (Tables) | 9 Months Ended
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Sep. 30, 2013
Text Block [Abstract] |
Assets and Liabilities at Fair Value | Adjustments recorded to the Predecessor, after giving effect to the implementation of the Plan and to record assets and liabilities at fair value pursuant to the adoption of fresh start accounting are summarized below (dollars in thousands):
|  | Predecessor March 19, 2012 |  |  | Reorganization Adjustments (a) |  |  | Fair Value Adjustments (b) |  |  | Successor March 19, 2012 |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investments held in trust, at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed-maturity securities |  | $ | 303,169 |  |  | $ | — |  |  | $ | — |  |  | $ | 303,169 |
Cash equivalents held in trust |  |  | 26,249 |  |  |  | — |  |  |  | — |  |  |  | 26,249 |
Total investments held in trust |  |  | 329,418 |  |  |  | — |  |  |  | — |  |  |  | 329,418 |
Cash and cash equivalents |  |  | 7,014 |  |  |  | 75,000 | (c) |  |  | — |  |  |  | 82,014 |
Fixed-maturity securities, at fair value |  |  | 6,049 |  |  |  | — |  |  |  | — |  |  |  | 6,049 |
Accrued investment income |  |  | 2,313 |  |  |  | — |  |  |  | — |  |  |  | 2,313 |
Other assets |  |  | 3,389 |  |  |  | 210,000 | (d) |  |  | (210,000 | )(i) |  |  | 3,389 |
Total assets |  | $ | 348,183 |  |  | $ | 285,000 |  |  | $ | (210,000 | ) |  | $ | 423,183 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Notes payable - principal |  | $ | — |  |  | $ | 130,000 | (e) |  | $ | — |  |  | $ | 130,000 |
Losses and loss adjustment reserves |  |  | 141,010 |  |  |  | — |  |  |  | — |  |  |  | 141,010 |
Losses payable |  |  | 7,585 |  |  |  | — |  |  |  | — |  |  |  | 7,585 |
Unearned premiums |  |  | 409 |  |  |  | — |  |  |  | — |  |  |  | 409 |
Accrued ceding commissions |  |  | 466 |  |  |  | — |  |  |  | — |  |  |  | 466 |
Loss contract fair market value reserve |  |  | — |  |  |  | — |  |  |  | 63,064 | (j) |  |  | 63,064 |
Other liabilities |  |  | 27,156 |  |  |  | (23,109 | )(f) |  |  | 2 | (f) |  |  | 4,049 |
Total liabilities |  |  | 176,626 |  |  |  | 106,891 |  |  |  | 63,066 |  |  |  | 346,583 |
Shareholders’ equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock, $.00001 par value; 500,000,000 authorized, 200,000,000 shares issued and outstanding |  |  | — |  |  |  | 2 | (g) |  |  | — |  |  |  | 2 |
Common stock, $1 par value, 1,000 shares issued and outstanding |  |  | 1 |  |  |  | — |  |  |  | (1 | )(k) |  |  | — |
Additional paid-in capital (Predecessor) |  |  | 69,879 |  |  |  | — |  |  |  | (69,879 | )(l) |  |  | — |
Additional paid-in capital (Successor) |  |  | — |  |  |  | 154,998 | (g) |  |  | (78,400 | )(m) |  |  | 76,598 |
Retained earnings |  |  | 101,677 |  |  |  | 23,109 | (h) |  |  | (124,786 | )(n) |  |  | — |
Total shareholders’ equity |  |  | 171,557 |  |  |  | 178,109 |  |  |  | (273,066 | ) |  |  | 76,600 |
Total liabilities and shareholders’ equity |  | $ | 348,183 |  |  | $ | 285,000 |  |  | $ | (210,000 | ) |  | $ | 423,183 |
The following notes relate to the table above and should be read in conjunction with the information in such table.
(a) | These adjustments are necessary to give effect to the Plan, including the receipt of cash proceeds associated with the contribution of cash from certain creditors, issuance of debt securities, issuance of 200 million shares of common stock and other transactions as contemplated under the Plan.
(b) | These adjustments are necessary to reflect assets and liabilities at fair value and elimination of Predecessor equity. The primary operating business of the Successor is the WMMRC subsidiary which has a net asset value higher than its Fair Market Value (“FMV”).
(c) | This adjustment reflects $75.0 million of cash contributed to the Company on the Effective Date by certain creditors.
(d) | This adjustment reflects the Court’s valuation of WMMRC of $140.0 million and additional value attributable to the NOLs. These items have been adjusted to FMV as part of the application of Fresh Start Accounting. The Court’s valuation is presented solely for information purposes, however, because management does not believe that the Court’s valuation necessarily reflects the actual or FMV of the Company’s assets and liabilities under GAAP. This adjustment is eliminated as described in (i) below.
(e) | This adjustment reflects the issuance of $130.0 million of Runoff Notes as described in Note 8: Notes Payable.
(f) | This adjustment reflects eliminating an intercompany payable occurring from carve-out allocated costs related to historic charges allocated as if services had been performed and charged to the Predecessor in accordance with Staff Accounting Bulletin (“SAB”) Topic 1B and 1B1. The methodology for these charges is based on applying the current contractual relationships described in Note 7: Service Agreements and Related Party Transactions as if they had been in place since the formation of WMMRC. The impact on historic earnings is described in (h) below. Additionally, this eliminates the offsetting intercompany amount created when Predecessor common stock is eliminated.
(g) | This adjustment reflects the calculated value of the 200 million shares of common stock issued before adjusting for FMV as a result of Fresh Start Accounting. This amount results from the use of the Court-assigned (non-GAAP) values attributed to assets and liabilities which are then utilized in calculating the resulting balance attributable to equity. The common stock is recorded at par value calculated as 200 million shares at a par value of $0.00001 per share. The remainder of the value is then attributed to additional paid-in capital.
(h) | This adjustment increases the retained earnings of the Predecessor due to the elimination of the carve-out costs which decreased historic earnings of the Predecessor. The resulting intercompany payable is described in (f) above. These costs and the related retained earnings are eliminated as the costs were allocated in accordance with SAB Topics 1B and 1B1 and would have eliminated in consolidation.
(i) | This adjustment reflects the elimination of the Court assigned values described in (d) above. There has been no goodwill recorded as a result of this transaction. WMMRC is reported as the Predecessor and therefore is carried at FMV in individual line items. Management believes that the Court’s valuation was inconsistent with GAAP and such information related to such valuation is being presented here for informational purposes only. Therefore, elimination is required to present the opening balance sheet in accordance with GAAP.
(j) | This adjustment is required to reflect a loss contract fair market value reserve of $63.1 million relating to contractual obligations of WMMRC. This is 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 net assets or equity value of WMMRC totaled $171.6 million prior to reorganization and fair value adjustments. The elimination of the costs and intercompany payable allocated to the Predecessor in accordance with SAB Topic 1B and 1B1 and described in (f) above increase the equity value to $194.7 million. The value of WMMRC was reduced by $63.1 million based upon the FMV analysis described above.
Predecessor retained earnings |  | $ | 101,677 |
Adjustment for carve-out allocations |  |  | 23,109 |
Predecessor adjusted retained earnings |  |  | 124,786 |
Predecessor additional paid-in capital |  |  | 69,879 |
Predecessor common stock eliminated in consolidation |  |  | (1 | )
Predecessor equity value |  |  | 194,664 |
Fair market value of WMMRC |  |  | 131,600 |
Loss contract fair market reserve allowance |  | $ | 63,064 |
(k) | This adjustment reflects the elimination of common stock of the Predecessor.
(l) | This adjustment reflects the elimination of additional paid-in capital of the Predecessor.
(m) | This adjustment reflects the reduction of equity value resulting from Fresh Start Accounting. It is comprised of a reduction (relative to Court assigned FMV) in WMMRC’s FMV totaling $8.4 million and the elimination of the Court assigned value of $70 million related to NOLs. Although the Company has substantial NOLs they are subject to a 100 percent valuation allowance as described in Note 6: Federal Income Taxes, and there can be no assurance the Company will be able to realize any benefit from the NOLs.
Fair market value of WMMRC (Court assigned) |  | $ | 140,000 |
Fair market value of WMMRC |  |  | 131,600 |
Fair market value reduction |  |  | 8,400 |
Elimination of Court assigned value related to NOLs |  |  | 70,000 |
Total change in fair market value affecting Equity Value |  | $ | 78,400 |
Court assigned Equity Value recorded as additional paid-in capital |  | $ | 154,998 |
Total change in fair market value affecting Equity Value |  |  | 78,400 |
Additional paid-in capital at March 19, 2012 |  | $ | 76,598 |
(n) | This adjustment reflects the elimination of adjusted retained earnings of the Predecessor.
Predecessor retained earnings |  | $ | 101,677 |
Adjustment for carve-out allocations |  |  | 23,109 |
Predecessor adjusted retained earnings |  | $ | 124,786 |
Adjustment in Fair Value and Reorganization |
Predecessor retained earnings |  | $ | 101,677 |
Adjustment for carve-out allocations |  |  | 23,109 |
Predecessor adjusted retained earnings |  |  | 124,786 |
Predecessor additional paid-in capital |  |  | 69,879 |
Predecessor common stock eliminated in consolidation |  |  | (1 | )
Predecessor equity value |  |  | 194,664 |
Fair market value of WMMRC |  |  | 131,600 |
Loss contract fair market reserve allowance |  | $ | 63,064 |
Adjustment Reflects the Elimination of Adjusted Retained Earnings |
Predecessor retained earnings |  | $ | 101,677 |
Adjustment for carve-out allocations |  |  | 23,109 |
Predecessor adjusted retained earnings |  |  | 124,786 |
Predecessor additional paid-in capital |  |  | 69,879 |
Predecessor common stock eliminated in consolidation |  |  | (1 | )
Predecessor equity value |  |  | 194,664 |
Fair market value of WMMRC |  |  | 131,600 |
Loss contract fair market reserve allowance |  | $ | 63,064 |
(k) | This adjustment reflects the elimination of common stock of the Predecessor.
(l) | This adjustment reflects the elimination of additional paid-in capital of the Predecessor.
(m) | This adjustment reflects the reduction of equity value resulting from Fresh Start Accounting. It is comprised of a reduction (relative to Court assigned FMV) in WMMRC’s FMV totaling $8.4 million and the elimination of the Court assigned value of $70 million related to NOLs. Although the Company has substantial NOLs they are subject to a 100 percent valuation allowance as described in Note 6: Federal Income Taxes, and there can be no assurance the Company will be able to realize any benefit from the NOLs.
Fair market value of WMMRC (Court assigned) |  | $ | 140,000 |
Fair market value of WMMRC |  |  | 131,600 |
Fair market value reduction |  |  | 8,400 |
Elimination of Court assigned value related to NOLs |  |  | 70,000 |
Total change in fair market value affecting Equity Value |  | $ | 78,400 |
Court assigned Equity Value recorded as additional paid-in capital |  | $ | 154,998 |
Total change in fair market value affecting Equity Value |  |  | 78,400 |
Additional paid-in capital at March 19, 2012 |  | $ | 76,598 |
(n) | This adjustment reflects the elimination of adjusted retained earnings of the Predecessor.
Predecessor retained earnings |  | $ | 101,677 |
Adjustment for carve-out allocations |  |  | 23,109 |
Predecessor adjusted retained earnings |  | $ | 124,786 |
Adjustment Reflects Reduction of Equity Value Resulting from Fresh Start Accounting |
Fair market value of WMMRC (Court assigned) |  | $ | 140,000 |
Fair market value of WMMRC |  |  | 131,600 |
Fair market value reduction |  |  | 8,400 |
Elimination of Court assigned value related to NOLs |  |  | 70,000 |
Total change in fair market value affecting Equity Value |  | $ | 78,400 |
Court assigned Equity Value recorded as additional paid-in capital |  | $ | 154,998 |
Total change in fair market value affecting Equity Value |  |  | 78,400 |
Additional paid-in capital at March 19, 2012 |  | $ | 76,598 |

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