Complicated Frontier Communications bond transaction

Jeffrey Wilens
Jeffrey Wilens Member ✭✭✭
edited May 2021 in Investing (Windows)
As part of Frontier Communications (new ticker FYBR) recent bankruptcy, all existing bond holders had their existing bonds liquidated and replaced with some shares of a new stock, new bonds and cash.

I had 100 June 2025 bonds in a TAXABLE account that were supposed to pay 11% interest. Those bonds were converted into the following:

223 shares of FYBR at $25.91 (worth $5780)
0.69 of a newly issued 11-1-2029 bond with market price of 95.4 (worth $474)
$23 in cash for sale of fractional share of FYBR
$1357 in cash for conversion of the 2025 bonds to 2029 bonds.

How handle in Quicken?


  • NotACPA
    NotACPA SuperUser ✭✭✭✭✭
    What type of account is this held in?  Taxable or non-taxable?
    Q user since DOS version 5
    Now running Quicken Windows Subscription, Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • Jeffrey Wilens
    Jeffrey Wilens Member ✭✭✭
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    Do you know what your new basis is in the 223 shares of FYBR and in the 2029 partial (?) bond?

    Do you know what the tax consequences are - in particular for the $1357 cash for the bond conversion? 

    (The $23 cash in lieu of the fractional share of FYBR would normally be handled in Quicken as you having received 223+ shares and then the +share being sold for the $23.)
  • Jeffrey Wilens
    Jeffrey Wilens Member ✭✭✭
    I am assuming the $1357 cash should be treated as the "sale" price of the defunct 2025 bonds so that would result in a capital loss on the transaction.

    I am assuming new shares and the 2029 bonds would have a tax basis of zero. That would treat all this as a taxable sale and not a recapitalization.

    Last year, I had a similar nasty issue when Unit Corp. bonds were converted into Unit Corp. (new) stock. I thought there would be a big capital loss but when I got the 1099 from that brokerage I saw that the conversion was not a taxable event at all and the stock was showing with the big (unrealized) capital loss.
    I am not sure how to handle that kind of recapitalization in Quicken.

    So really two part question: How do you handle the bonds to stock conversion when it is a taxable event and how do you handle when it is a recapitalization?
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited May 2021
    There is a section about tax consequences - "CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN" - starting at page 86 of an Exhibit filed with the SEC here:
  • Jeffrey Wilens
    Jeffrey Wilens Member ✭✭✭
    Thanks Tom. That exhibit page 86 states: ""The tax consequences of the implementation of the Plan to the Debtors will differ depending on whether the Restructuring Transactions are structured as a taxable sale of the assets and/or stock of any Debtor (a “Taxable Transaction”) or as a recapitalization of the Debtors (a “Recapitalization Transaction”). Although not free from doubt, the Debtors currently expect that the Restructuring Transactions will be structured as a Taxable Transaction. The discussion below assumes that the Restructuring Transactions are structured as a Taxable Transaction."

    That suggests I treated it correctly in Quicken by considering the cash as the proceeds of the sale of the defunct bonds resulting in a capital loss.

    I did not find similar guidance for the Unit Corp. transaction. I suspect handling a recapitalization is beyond Quicken.
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    I'm not sure that you're correct in the accounting you've outlined above.
    Generally in fully taxable deals where you receive cash and "boot" you need to calculate your gain or loss by treating everything you received as "proceeds" for the sale, not just the cash.  After that the boot does have a basis and the boot's "purchase date" is the same as the date of the taxable sale.
    So I think you need to pretend that everything you received came to you as "cash" and treat that "cash" as the proceeds of your sale.  Then you use that "cash" to buy the boot at it's FMV on the sale date as your sale.  You end up with some "new to you" securities and some cash left over.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    I agree with the comments from @Tom Young re such taxable transactions.  Not specific to this bankruptcy resolution, in most cases I would be entering in Quicken:
    • Sale of original Bond for total proceeds received (= basis value of 223+ shares + basis value of 0.69 2029 bond + $1357 cash).  That likely is a loss.
    • Buy 223+ shares of FYBR for basis value (note that includes the basis attributable to the fractional share)
    • Buy 0.69 'shares' of the 2029 Bond at its basis value.
    • Sell the fractional share of the FYBR holding for the $23
    That should leave your account $1380 (1357 + 23) richer in cash and have the 'correct' basis for your two remaining holdings.  You might choose to 'correct' the acquisition dates for those two holdings if you are concerned about LT/ST capital gain distinctions when they are sold.  

    Caveat:  I am not a CPA, tax pro, financial advisor, or otherwise qualified at any level to give such advise.  Just a nameless, faceless voice on the internet.  Do your own due diligence.  What I offered above might be what I would do with the same information presented so far.  
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    q_lurker said:
    You might choose to 'correct' the acquisition dates for those two holdings if you are concerned about LT/ST capital gain distinctions when they are sold.     
    I don't think there's necessarily any corrections needed here.  Typically in a fully taxable sale transaction where everything you receive - cash, stock, bonds. live chickens, etc. - is considered "proceeds" of the sale, the "stuff" acquired is considered to have an acquisition date the same as the sale date.  It's "as if" you received all the proceeds in cash and immediately used some of the cash to buy that stuff.  Maybe there are exceptions but that's "typical."
    As @q_lurker advised, do your own diligence.