Understanding of Obsolescence Results in Reduction of Tax Burden to Five Cents on the Dollar
Client: Fiber Optic Cable Venture
Challenge: Reduce Property Tax Assessments by Considering Obsolescence Factors
During the fiber optic cable boom of the late 1990s, two major communications companies – one a voice and data transmission company, the other a networking provider – formed a joint venture to lay $117 million worth of underground cable from Chicago to Denver. The boom soon went bust: The market for fiber optic cable was bloated with overcapacity, and the Chicago-Denver cable route was rendered "dark." Consequently, the market value of the fiber optic line plummeted. Nevertheless, states and counties along the cable route continued to generate tax assessments for the property using methods that did not entirely take into account the obsolescence faced by the industry. The venture was now in bankruptcy and wanted to liquidate, but the time to challenge tax assessments was expiring. Recognizing that the value of the fiber optic line had continued to depreciate, the bankruptcy court engaged AccuVal to negotiate an acceptable offer with the tax authorities.
AccuVal Approach
Because the valuation methodology being used by the jurisdictions did not reflect market considerations, AccuVal prepared detailed documentation to support a negotiation position that would greatly reduce the overall tax liability. AccuVal effectively communicated with the tax authorities in the affected seven states and 27 counties, working to negotiate the tax bills down to a more realistic value that reflected the slumping market. In some cases, the governmental entities were prohibited by statute from settling below the original assessments, but others agreed to negotiate. After 18 months of negotiations, the process was completed.
Bottom Line: Tax Burden Reduced to Five Cents on the Dollar; Case Closed
Based on its negotiations with governmental taxing authorities along the cable route, AccuVal structured a deal that reduced the tax liability to five cents on the dollar in many jurisdictions. The bankruptcy court pronounced the case closed and, as a result, unsecured creditors and equity holders were able to realize a higher return on their investment in the venture.
The AccuVal AdVantage™
A reputation for understanding tax and bankruptcy laws. An ability to negotiate with governmental taxing authorities. An unparalleled understanding of assets and their worth, regardless of market conditions. A name recognized by international investors, money-center banks, venture capitalists and financial syndicators. That's The AccuVal AdVantage™ at work.
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