Laidlaw Transportation, Inc. and Subsidiaries - Page 69

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          petitioners' value during the years in issue.  Petitioners' other           
          experts used Poppei's values and conclusions to evaluate                    
          petitioners' financial condition, including capitalization.                 
          Poppei testified that LII's financial performance was better than           
          WMI's and BFI's.  However, her peer group financial performance             
          charts show that WMI and BFI performed better financially than              
          petitioners did.  These charts are corroborated by petitioners'             
          credit analyst, Carol Verschell, who said in her expert report              
          that the debt to equity ratios for BFI and WMI were superior to             
          petitioners'.                                                               
                    b.   Use of Fair Market Values To Compute Debt to                 
                         Equity Ratios                                                
               Petitioners contend that we should use fair market values              
          and not book values to compute debt to equity ratios.                       
          Petitioners point out that Jacobs testified that there is an                
          "increasing focus on market value of equity versus book equity in           
          analyzing capital structure" especially in the leveraged buyout             
          market, and that he concluded that petitioners were adequately              
          capitalized.  Jacobs also testified that investment bankers                 
          provided funds for highly-leveraged transactions based on cash-             
          flow.                                                                       
               We disagree.  As discussed at pars. I-H-2 and II-D-3, above,           
          petitioners' cash-flow was poor.  The leverage ratios and                   
          coverage ratios in petitioners' loan agreements were based on               
          book values.  None of the loan documents stated that the leverage           






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