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Told 'Ya So (GM: ZERO!)
Mr. Koch, a managing director at the advisory firm AlixPartners LLP, will be named to the post when GM files its bankruptcy papers at 8 a.m. Monday at the U.S. Bankruptcy Court in New York's Southern District, these people said. He will be the highest-ranking outsider in GM's officer ranks and oversee about 60 Alix employees working for the auto maker.
Hope you sold whatever common stock you had into the ramp job the last few weeks.
Now here's the bad news:
Assuming a New GM emerges from Chapter 11, Mr. Koch will then sit atop a new, separate management team winding down the "Old GM" that remains in bankruptcy court. In this role, he'll likely report directly to Old GM's board, which will be different from the New GM board.
As the steward of the Old GM, Mr. Koch will help negotiate contracts between the New GM and Old GM for certain services. He'll also lead efforts to spin-off or liquidate Old GM's assets, including the Saturn, Hummer, Saab and Pontiac brands, and as many as 20 factories.
Odds are that if you're a general creditor (e.g. a supplier) you're going to get zero for whatever is outstanding on your book in receivables from GM.
Sorry.
This will produce bankruptcies up and down the supply chain.
Count on it.
Oh, and you have to love the report that was on Bloomberg earlier, then disappeared.
Apparently, about 975 of GM's bondholders agreed to the restructuring they sought, holding just over 50% of the debt.
The other one hundred thousand+ bondholders, including individuals who had their children's college funds and personal retirement savings in this debt, had no say, did not vote for this action, and in fact oppose it.
They will be wiped out, recovering about ten cents on the dollar.
Under bankruptcy law it is generally true that a "significant" majority of the debtholders must agree to restructuring, not a razor-thin majority. Of course the law doesn't seem to matter any more in this country when it comes to bankruptcy (or any other kind of law for that matter) so long as the government wants things to go a certain way, and neither Democrat or Republican parties can take the high road on this matter - they both stink.
The really ugly part of this mess is that had GM been forced into bankruptcy last year when it started reporting monstrous (integer-level) negative earnings recovery would have been decent. It was only through the profligate lies and fraud promulgated by "propping up" the company that the remainder of the value that could and should have been recovered by the bondholders was squandered.
My view of this entire mess is that GM had no business operating past last summer. In the 2nd quarter of 2008 GM reported a loss of more than $27 dollars a share, a number that exceeded their share price at the time by nearly twice.
The equity value in the business was at that point declared gone more than twice - period - and there was absolutely no excuse of any sort for any institution that held their debt to allow them to get away with continuing to operate for so much as one more day.
They should have had an involuntary bankruptcy petition filed against them; instead GM went on to lose $7.35, $15.71 and then $9.78 in the next three quarters.
There are 610 million (roughly) shares outstanding. If my math is correct this means that by refusing to perform their fiduciary responsibility to the beneficial owners of these bonds the "major holders" caused to be dissipated over $20 billion dollars of recoverable monies in the form of destruction of the recovery value of those notes!
The total outstanding debt at the present time is listed as $54.40 billion.
This means that had the bondholding companies that have this debt as part of a portfolio where the ultimate beneficiary is other parties (e.g. your grandma's retirement that happens to in part hold GM bonds through a bond fund) they have, through malfeasance, dissipated approximately 37% of the face value of those notes - funds that were recoverable as recently as last summer!
I don't care who the government thinks they have the right to bully and push around. You, as a bondholder if you held those bonds in some sort of fund, had every right to expect the managers of those funds holding that debt for your benefit to act in a fiduciary capacity. They did not and you got screwed as a direct and proximate consequence.
In my opinion if you're one of the debtholders you need to seek counsel NOW.
This is what I wrote in July of 2007, nearly two years ago:
GM is a company that is functionally BANKRUPT. Right now and here! Look at their balance sheet. They have a negative net worth, negative free cash flow, and negative sales trends! This is a stock that should be upgraded?! Oh hell no.
But - they're a DOW component so if we pump them, the Dow doesn't go down (as much.) Oh wait - we got a problem here; its called Chucky crapped in the bed and the stink has become overpowering! GM and Ford eh? You want a conspiracy theory? Tell me how JP Morgan justifies that call. I don't see it and I ain't buying either of these swirling turds. In fact I have a bear PUT vertical on GM. Bite me JP Morgan; may you drown in your own subprime sewage! Betcha this attempted pump game doesn't last long enough to keep my PUTs from being profitable; I've got a while - longer than GM does!
That PUT vertical paid to the tune of five figures - before the decimal.
Do not expect GM stock to open for trading tomorrow; it should be halted before the premarket trading session opens. With luck it will trade on the pinks for a while before it is canceled; any new issue will be 100:1 diluted as previously noted in my article of about a month ago, meaning that at Friday's closing price it will be worth just under one cent a share when re-issued.
If you hold PUTs what you get for them will depend on how many daytrading fools there are on the pinks, assuming the old issue re-opens there. In any event any thoughts you might have had about "grand designs" for the stock's value are nonsense.
The real damage to the economy, however, is going to come from the suppliers - this is a whack that nobody is really prepared for. Everyone expects GM to lay off more people and close plants, but the ripple effect for suppliers who are owed money by the "Old" GM, and who will not get paid, is going to be particularly severe.
Disclosure: No GM-related positions at the present time; I made my money on that dying pig over a year ago.
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Spazznout wrote:My cousin works at the Honda Plant in Marysville, Ohio. Last week there was Grave concern going through the plant because of the impending GM bankruptcy. The problem is that GM, Chrysler, Honda and Toyota use many of the same parts suppliers. The parts suppliers are telling Honda they do not know if they will be able to stay in operation without GM and Chrystlers bizz. This is reinforced this week with 2 parts suppliers filling for chapter 11. The problem is without parts even Honda cant build cars.
This bankruptcy may be a much larger turning point than many realize in this economic crisis.
And to top it off Timmay is in china trying to show how his Magical Math is gonna save the economy.
This is gonna be one Hell of a week in the Markets....Logic and unfixed markets would demand a slum if not dive...
However with these rigged markets and illogical players Im gonna say overall mood this week will be buy, buy, buy, Green shoots GM bankruptcy over now, Buy, rally, buy
None of it makes sense anymore!
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We Are In Looneyville
When a market rally drags a firm's stock that has declared bankruptcy, and which has filed a plan that will result in the effective total destruction of its common stock, into the green by 20%, you know we live in looneyland.
That would be GM, which opened down at 50 cents but now is trading at 90, up fifteen cents from Friday.
Note that the common is worthless; the prepackaged bankruptcy and Section 363 sale will strip all of the value from the current GM and transfer it to the new GM.
The "old" GM will have a negative net value, which means the common stock (which represents "old" GM) is worth exactly bupkis.
Yes, this is all daytraders playing around - I get that.
But I'd like anyone to explain how GM's common stock has any value in it whatsoever, and is trading on anything more than pure hype on a big up day.
Good luck with that analysis.
Disclosure: No positions material to this idiocy.
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Indeep wrote: The only explanations that make perfect sense are all Tin.
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Themortgagedude wrote:
Marked to dumbass - gotta love it.
Well from here on out. Sold to you dumbass.
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Blankfiend wrote: I've got one word for this - RABID!
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Misterb wrote: I've seen this GM situation before. United, Delta and Northwest had similar strange trading and traded up in the HIGH $1.00 range at times DURING bankruptcy. (All of these stocks were canceled in bankruptcy with ZERO value. At first I think that it is short covering. After that it is a weird day-trading gambling thing. I think that because of the large number of shares this day trading is more possible on these large bankruptcies.
As far as the market itself: we are definitely back to that old inflation/deflation argument. The mood right now in stocks, bonds and commodities is that the U.S. will have a rampant inflation. Therefore sell bonds and move to commodities and stocks. The idea with stocks is that they will hold up better with inflation.
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Sledge: These bankrupt stocks with a large number of shares are very weird. In this case, the OLD GM will continue in bankruptcy for 18 months or longer. The OLD GM stock will not be cancelled until the bankruptcy of OLD GM is final; that will take the aforementioned 18 months etc. Therefore, the options may expire during the time that OLD GM stock still trades and the stock will still be trading at some price that will be in excess of zero. It is very strange and it does tell you that stock prices do have a gambling factor to them that can, in this case, have NO relation to the fundamental value.
I got sucked into something similar with Comdisco. Bought the shares in bankruptcy. Thought there would enough left over to make the shares worth something. Well, they just kept going down, month after month. Then Warren Buffet alledgedly came in and bought a huge block. I think the price went up to $2. But like most little piggies, I didn't get out. The stock has been as low as 2 cents or less. Now it's up to a whopping 11 cents last time i checked (i try not to look too often).
what about the tax loss explanation? from http://seekingalpha.com/article/140361-g....
GM Common Stock Is Worth More Than You Think
Let me start by saying that I have no GM (GM) position. I sold the last of my bonds today, but may buy some next week. I like the prospects for the "new GM."
The GM that is expected to file bankrupcy on Monday isn't worthless. First of all, it will get some very small piece of the "new GM."
Secondly, GM has lost about $69 per share in the last 3 years. That loss is very valuable. It may be a record for any American corporation. Someone will want that corporate shell when all the assets are stripped away. That someone will want it for the loss.
On a different scale, assume you could buy a $690,000 tax loss for $7500. Every 75 cents buys $69 of tax loss.
Would you be interested? I know I would.
Microsoft (MSFT) should buy the GM shell. Can you imagine the uproar? The GM tax loss for the last 4 years is almost $32 billion. I did the math based on Microsoft's recent earnings and taxes, and the GM tax loss would save MSFT around $9 billion in taxes. At today's close, GM has a total market value of less than $500 million.
Remember Penn Central? Lots of losses. It is currently owned by an Ohio insurance company, Carl Lindner's hedge fund. He is one of the richest people in the world.
So, maybe all those smart talking heads on TV (like Cramer) who think that only stupid retail investors are buying GM will be surprised at the ultimate outcome.
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