With $17.4b pledged to GM and Chrysler, and the Canadian “plus one” on the way (er, “plus several billion,” actually), the dark days of Carpocamageddon are all but over, right? Of course not. As several of the B&B point out in comments on the bailout announcement, GMAC is a giant question mark hanging over the entire situation. The former GM captive lender is headed for a massive GDIF (God Damn, It’s Friday) moment today unless about $5b of healthy capital lands on its lap… within hours. The AP reports that GMAC admits that it has no way of extending or sweetening the deal, implying that bankruptcy is an inevitability. And here’s the kicker: according to Brian Johnson of Barclays Capital, if GMAC were to fail, GM could need an additional $9 billion to $13 billion in funding to supply financing to its dealers. And GM only gets $9.4b from the bailout until February. One step forward and two steps back? Actually, the real bad news which the bailout does nothing to stop comes from GM bondholders. And their newly hired legal help.
According to Debtwire (via The Financial Times), 12-20 large GM bond holders, including asset management giant PIMCO heard pitches from potential advisors at a meeting this week. Several sources report that this committee has hired Paul Weiss as legal counsel and is leaning toward Houlihan Lokey as a financial advisor. And they’re gearing up for a fight, thanks to what bondholders see as unrealistic aspects of GMs recovery plan. To whit: “The baseline scenario in the restructuring strategy GM submitted to Congress on 2 December, forecasts a pro forma EBITDA in 2012 to be USD 15.3bn, with a downside scenario of USD 12.1bn, according to a public version of the plan. But that figure should be closer to USD 10bn of EBITDA while the reworked capital structure should be based around USD 8bn of EBITDA to provide for a cushion should conditions worsen, said one of the sources. Bond holders have nothing to gain from swapping for equity in an unsustainable capital structure, he said.”
So if the initial $9.4 swirls into the abyss left by a GMAC bankruptcy, and bondholders resist a quick-and-dirty cramdown (now that it’s not a condition of federal aid) you’ve got trouble in River City. Again. Still. Etcetera. And then there’s always the possibility of more bad news from Delphi. By the way, does anyone have a subscription to Delphi Bankruptcy News, now celebrating 153 depressing issues? Ultimately, this bridge loan does nothing to address the underlying problems, and provides no real incentive for reform. And what we’re learning about a possible bondholder revolt proves that everyone is already treating GM as if its bankrupt. What a time to put taxpayers on the hook.
Ha! I called it…the creditors are gonna sue! Tee-hee…
The price of the deal just went up. The government has an unlimited wallet, and the bondholders intend to reach into it.
This illustrates why a deal that involves a sale of assets, followed by Chapter 7, is far better than an alternative involving Chapter 11.
With Chapter 7, there would be no negotiation. In that scenario, the bondholders could try to litigate, but they’ll ultimately get little for their trouble. With Corker’s brilliant plan, they now have plenty of negotiating power, and the deal won’t be cheap.
The UAW bailout is complete.(Democrat wishlist)
The George Bush is not the new Herbert Hoover Plan is complete(temporarily).(George Bush wishlist)
Bush is hoping if he props these failed companies up, he will not be remembered as the new Herbert Hoovar. It ain’t gonna work. When the economy completes it’s tumble Preident B.O. will not get the blame and it will fall squarely on Bush.
Stablenow and Dingo are already whining about the pay cut the Gettelfinger Gang has to take. You can bet they’ve already made a call to Chicago.
Yeah, WTF is up with Delphi? It’s too quiet…
Um, today is Friday. Why does it say that GMAC is going to have a GDIF moment tomorrow? Wouldn’t that moment occur today?
The UAW bailout is complete.(Democrat wishlist)
Not quite – check out: http://www.reuters.com/article/marketsNews/idINN1939501220081219?rpc=44
uaw will ask Obama to reverse unfair conditions singling out workers.
And:
http://www.reuters.com/article/marketsNews/idINN1926558320081219?rpc=44
Fitch downgraded gm due partially to gmac.
It’s starting to get interesting again…
If I was a GMAC bondholder why would I take a chump change Debt-Equity swap, when I can just hold out and the government will either buy, or at least guarantee the bonds that I’m holding?
Remember, most bondholders are now speculative investors, widows and orphans have pretty much sold out. Since they bought their GM paper at a 30-50% discount of face value even a government guarantee will boost their value to 90% or better of face value. These guys will make a killing.
“implying that bankruptcy is an inevitability”
In politics, there are things I call inadmissible truths.
Bill Clinton used to call measures such as the D3 bailout “kicking the can a little further down the road.” If Crosby and Hope were making a movie about the bailout, it’d be called “The Road to January 20”.
Runfromcheney, they have until 5 PM or end of the day for conditions to be met (forgot which), so they deal with the results tomorrow.
ihatetrees: “Yeah, WTF is up with Delphi? It’s too quiet…”
…corporation wide layoffs at the beginning of the year, benefit cuts, severance packages cut in half, 10% additional salary headcount reduction, BYOTP, no soap in the bathrooms, dimmed stairwell lights, chilly, no emergence date…Merry Christmas…
Runfromcheney: Oh man thanks for catching my Big Lebowski moment there…
The Big Lebowski: Are you employed, sir?
The Dude: Employed?
The Big Lebowski: You don’t go out looking for a job dressed like that? On a weekday?
The Dude: Is this a… what day is this?
The Big Lebowski: Well, I do work sir, so if you don’t mind…
The Dude: I do mind, the Dude minds. This will not stand, ya know, this aggression will not stand, man.
So, what happens to the UAW once all 2.8 are gone? Molative the import factories or beg for jobs?
“The UAW bailout is complete.(Democrat wishlist)
Not quite – check out:”
It’s a given when President B.O. takes over the office he will take very good care of his UAW allies. There is also the matter of a secret ballot vote on whether one should join a union. That will have to end.
The one phrase that I constantly want to interject into these discussions is “surely they can’t be THAT stupid!” Just before I hit send, I cancel it out. Good thing, because each time, it becomes obvious that they can be that stupid.
The interesting thing is that the THEY in question changes. Surely they can’t be stupid enough to go to this much trouble arranging a $9 billion dollar loan, when they need $9 billion plus another $13 billion for GMAC. Oh, never mind.
>>The price of the deal just went up. The government has an unlimited wallet, and the bondholders intend to reach into it.
This illustrates why a deal that involves a sale of assets, followed by Chapter 7, is far better than an alternative involving Chapter 11.
With Chapter 7, there would be no negotiation. In that scenario, the bondholders could try to litigate, but they’ll ultimately get little for their trouble. With Corker’s brilliant plan, they now have plenty of negotiating power, and the deal won’t be cheap.<<
What you are describing is what is known in the business as a liquidating 11. You keep the company going with a DIP loan to preserve the going concern value of the assets and sell the assets off (as going concerns) in 363 sales. While it is technically an 11 the end result is a liquidation just as you would have in a 7 except that you generally get mountains more for the assets than you would get in Chapter 7.
What you are describing is what is known in the business as a liquidating 11. You keep the company going with a DIP loan to preserve the going concern value of the assets and sell the assets off (as going concerns) in 363 sales. While it is technically an 11 the end result is a liquidation just as you would have in a 7 except that you generally get mountains more for the assets than you would get in Chapter 7.
In this case, I think that the problem with that is that the main hurdle is the compromise of the liabilities, not the sale of the assets.
The assets aren’t worth much of anything. From the government’s standpoint, the main goal should be to find a new operator who would contribute working capital and can build cars with at least some US employees while generating a profit. The net cash paid to GM and Chrysler in this situation would be zero or close to zero. Trying to earn more on the asset sales would be a futile effort.
The real problem we have here are is with the creditors and their ability to kill a reorganization plan. That gives them negotiating power, since this is a high profile situation involving the top of government. This is a lot more like high stakes poker than a typical bankruptcy case.
I wish I knew someone with their finger directly on the pulse of the angry puppy.
Now that we have come to the cross-roads, and the side deal that is the *real* dealbreaker has moved closer to being out in the open (ie, MSM) who’s gonna get served?
The play for GMAC bankdom may or may not be dead. The trick will be this…
How does Cerberus get paid for it’s share of GMAC?
As many folks beyond myself have posited from jump street, the angle was, and still is for Cerberus to own the financial side of the equation. Walk away from making cars? Cerberus has no problem with that. Walk away from all that future money? Tough to believe the puppy wanders away from that bowl.
Sound like this is
“Post Bailout Watch #1”
This can hardly even be described as a bailout. Cop-out stall tactic is more like it.
It looks tough, but in truth Bush knows none of his conditions will come to pass. Obama will change the whole deal, the UAW and creditors will turn the screws, more money will be spent, etc. The beauty part is Bush/Paulson forcing Congress to authorize the OTHER $350B in shameless giveaway money by Feb 1 in order to keep GM out of bankruptcy at that point.
This is just Bush making sure he doesn’t get blamed. Nothing more.
The question should be: “What will go right?” Probably nothing.
This is why “kinder, gentler, conservatism” is a sham. Conservatism is tough love. That’s why it’s the best medicine for what ails us.
GMAC alert!
Can anyone translate what on earth is going on here?
GMAC Likely Using Derivatives In Gambit On Bond Exchange
bluecon:
There is also the matter of a secret ballot vote on whether one should join a union. That will have to end.
The debate over Card-Check will be epic. I have no idea what way it’ll go – but there’s hope. Never underestimate the Senate’s Darth Vader, Mitch McConnell. Or the potential disfunction of Democrats in power when confronted with tough choices…
Can anyone translate what on earth is going on here?
Short version — GMAC is trying to put the squeeze on the ResCap investors, using the threat of being able to crush the value of their positions in order to get them to play ball. If those investors take the deal, then there should be enough money to put GMAC Bank into the federal funds system, in which case GMAC won’t need the GMAC bondholders like PIMCO to agree to anything.
GM obviously has some smart guys in the finance department. It’s a shame that they don’t have that kind of talent for building cars.