Home liquidating trust
Many investors in the liquidation of City Investing had been disappointed with the prices received for assets sold previously and with City’s apparent inability to sell Home Insurance and complete its liquidation.
Consequently many disgruntled investors in City Investing quickly dumped the liquidating trust units to move on to other opportunities.
Ambridge’s Liquidating Trustees Liability Insurance policy has been developed to address the unique exposures facing liquidating trusts and their trustees.
Because liquidating trusts are formed to maximize value and distribute to creditors some or all of the proceeds of divested assets of a formerly distressed and now liquidated entity, trusts and trustees are subject to scrutiny of already disgruntled beneficiaries or other third parties who may disagree with the manner in which the trustee is attempting to liquidate otherwise illiquid assets.
Today we complete our series on Seth Klarman, the founder of The Baupost Group, a deep value-oriented private investment partnership that has generated an annual compound return of 20% over the past 25 years, and the author of an iconic book on value investing, Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor Following on from our earlier posts, Seth Klarman on Liquidation Value, and Seth Klarman on Catalysts, we present Seth Klarman’s application of liquidation value investment principles to a specific case: the City Investment Liquidating Trust (from Chapter 10Investing in Corporate Liquidations Some troubled companies, lacking viable alternatives, voluntarily liquidate in order to preempt a total wipeout of shareholders’ investments.
The Trust announced today that the venture in which the Trust holds an 83.7% interest sold its Mosaic Apartments property located in Houston, Texas to an independent third party for a gross sale price of approximately .5 million.Ambridge also offers a unique tax coverage enhancement to its Liquidating Trustees Liability Insurance policy.A liquidating trust is a tax-efficient vehicle to liquidate assets because income of a qualifying liquidating trust is only taxed as income at the beneficiary level.Once the intended spinoff of Home Insurance was announced, many investors purchased City Investing shares as a way of establishing an investment in Home Insurance before it began trading on its own, buying in at what they perceived to be a bargain price.Most of these investors were not interested in the liquidating trust, and sold their units upon receipt of the Home Insurance spinoff.Companies in liquidation are the antithesis of the type of investment they want to make.Even some risk arbitrageurs (who have been known to buy just about anything) avoid investing in liquidations, believing the process to be too uncertain or protracted.A company involved in only one profitable line of business would typically prefer selling out to liquidating because possible double taxation (taxes both at the corporate and shareholder level) would be avoided.A company operating in diverse business lines, however, might find a liquidation or breakup to be the value-maximizing alternative, particularly if the liquidation process triggers a loss that results in a tax refund.City Investing Liquidating Trust In 1984 shareholders of City Investing Company voted to liquidate.The assets of this conglomerate were diverse, and the most valuable subsidiary, Home Insurance Company, was particularly difficult for investors to appraise.