In our coverage of lender GMAC’s struggle to become a bank (i.e. suckle on Uncle Sugar to avoid bankruptcy), we pretty much assumed it was a done deal. The Fed’s decision to grant GMAC bank status if/when they completed a mega-debt-for-equity swap seemed like the come-on reluctant investors needed to take their chances with the U.S. taxpayer, rather than a bankruptcy judge. The dealine for the d-for-e swap expired last night at 11:59. If GMAC made it, it’s just another step down the road to recovery, or nationalization, depending on your perspective. If they didn’t, all HELL will break loose. GM simply can’t survive without GMAC covering its dealers’ floorplan costs (loans for inventory). If GMAC goes down, thousands of GM dealers go belly-up. While that’s exactly what GM needs, they don’t need it all at once. The market would be flooded with hundreds of thousands of units of unsold inventory, supplier confidence would disappear, etc. So which way did it go, then? “We have not yet issued final results,” GM spinmeister Gina Proia told the AP. “But intend to in the near term. I have no further comment on the exchange until then.” Someone somewhere is holding their breath.
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gm can’t survive even with gmac – the bailout money won’t be used for loans to consumers – most banks haven’t done jack squat to improve liquidity with the trillions of dollars they’ve been given – no one knows what anyone else’s financial situation is (individual or company) so they’re all just keeping the money for themselves.
My guess is GM and Cerberus are going back to the Fed to get an even sweeter deal–and they’ll likely get one because they know Bush doesn’t want to see GM fold before he leaves office.
From the AP story:
“So far, GMAC has received a commitment of $750 million from GM and Cerberus Capital Management.”
Both of which just got money from the taxpayer’s so called bridge loans. These guys continue to shuffle debt from one credit card to another.
As far as the Friday deadline is concerned, no news is certainly not good news.
If I was a GMAC bondholder getting pressured to convert my debt to equity I’d say “Screw Off”. Here’s why….
Most of the GMAC debt is now owned by speculators (God Bless ’em, nothing wrong with that) who bought these GMAC debt instruments at significant discounts from face value -like 50 cents on the dollar. The reason for the discount was that GMAC was the perceived (real) risk if GMAC went broke.
Now, that Uncle Sugar is fronting some cash so the $1000 bond that I bought last month for $500 is going to be worth $750+, because of the lower risk. So why would I give up a sure thing for some worthless GMAC stock?
MBA’s, anyone? Thoughts?
GMAC debt is now owned by speculators (God Bless ‘em, nothing wrong with that) who bought these GMAC debt instruments at significant discounts from face value -like 50 cents on the dollar.
Someone feel free to double check this, but I think that the recent market price of GM bonds has been in the 10-20 cent range. I would imagine that GMAC wouldn’t be much different.
I’ve mentioned the potential of this bondholder problem on other threads as it relates to a prepackaged bankruptcy and Senator Corker’s requirement that the bondholders be paid off and sent packing.
There just isn’t much reason for the bondholders to swap debt for equity, unless there is something else to sweeten the deal for them. If I was a bondholder, I’d at least want an upfront cash payment to go with my equity, along with preferred stock that earns a high interest rate.
I don’t know who owns how much of GMAC’s bonds, but if there are some powerful institutions in the mix, those bondholders would be wise to collectively bargain for better terms. Since Uncle Sam has made it clear that he desperately wants a deal, the price ought to be pretty high. The deal may come down to who owns the bonds and whether they can work together to get better terms.
http://www.canadiandriver.com/thenews/2008/12/26/gmac-approval-expands-auto-financing-opportunities.htm
It appears a done deal.
oldguy: That was old news – they still had to get the debt/equity swap by Friday and that is what is unanswered.
JH above is right – no news is not good news; either they didn’t make the minimum exchange requirements or Cerberus isn’t taking the deal that would cut their stake in GMAC from 51% to just over 14%. Doing so would obviously muck up their grand plans – no doubt they are trying to extract something from GM over this as its GM’s blood in the water.
I agree. I’m putting my money on Cerberus throwing a wrench in the works to in order to get better terms.
They know that the operations side (ChryCo) is shot, so all that’s left to profit from is GMAC and ChryCo Finance.
Love them or hate them, they know the dark arts of finance better then anyone and now that the Gov’t has shown their hand (Please take our money) they’re in it, to win it.
Folks: it all depends on what the offer said. If it was delivery of the securities and other papers to a certain person at a certain place by the end of Friday, that would be one thing.
On the other hand, if the stuff had to be mailed by Friday (or Fed Ex-ed or whatever), that would be a different story — one that might take a few days to untangle.
Another issue is that a lot of European banks and businesses were closed on Friday.
I don’t know what provisions governed those institutions and their customers.
My suggestion is to wait until the Fat Lady hits high C.
When the “TARP” was authorized the gov’t said they were going to buy up some of the “toxic debt” said to be clogging the credit system.
But, they never did it! Instead they spent the money buying preferred stock in banks with no say over how the funds are to be used.
Might it not have been easier for the Fed or the Treasury to go on the open market and buy up that GMAC debt at the 10-20 cents on the dollar it is going for instead of getting GMAC to do a make believe recapitalization where the debt holders magically become equity investors? The TARP authorization gave them the authority to do just that.
“Madness takes its toll.”