http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=GM%3 AUS&sid=acnCyu4KZjI4 **** GM will need to persuade debt holders such as Franklin Resources Inc. and Pimco Advisors LP to accept two-thirds less than the face value of their bonds as part of a plan to cut about $62 billion in debt, including future obligations to the health- care fund. Excluding the retiree-fund obligations, GM's debt was $43.3 billion at the end of September. ***** Fitch Ratings cut both GM and Chrysler debt to C, the last grade above default, from CCC, on concern the automakers don't have enough equity to meet the federal requirements or the debt exchange, and may still have to seek court protection. "The threat of a bankruptcy remains," Fitch said. GM's 8.375 percent bonds due in July 2033 rose 3 cents to 18.5 cents on the dollar, yielding 45.2 percent, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority. Ford's 7.45 percent bonds due in July 2031 gained 0.5 cent to 25.5 cents on the dollar, yielding 29.4 percent, Trace data showed. ***** I'm still amazed that the stock is above $4. To me this is a situation similar to FRE and FNM in July and August ... stocks that held up before they were diluted towards zero.
GM equity may be wiped out: Credit Suisse http://finance.yahoo.com/news/GM-equity-may-be-wiped-out-rb-13891216.html (Reuters) - General Motors Corp's (NYSE:GM - News) equity may be largely if not entirely wiped out as it complies with the restructuring targets laid out in the federal auto bailout, an analyst at Credit Suisse said, cutting his price target to $1 and his rating to "underperform." GM shares were down about 7 percent at $4.19 in trading before the bell Monday. "Over the next two months...it will become increasingly clear that the enormous sacrifice of value on the part of the union and bondholders will require the complete or near-complete elimination of the existing GM equity," analyst Christopher Ceraso wrote in a note titled "Game Over for Existing Equity." The U.S. government on Friday came to the rescue of U.S. automakers with $17.4 billion in emergency loans, some $13.4 billion of which will be made available in December and January, taken from a $700 billion Wall Street bailout fund originally designed to rescue struggling financial institutions. The government attached a string of conditions to the three-year loans and set a deadline of March 31 for the automakers to prove they can restructure enough to ensure their survival or have the loans called back. As part of the rescue, GM is required to reduce debt by two-thirds via debt-for-equity swaps, pay half of the contributions to a retiree health care trust using stock, make union workers' wages competitive with foreign automakers and eliminate the union jobs bank, which pays laid-off workers. "If GM and its stakeholders can navigate through a tricky set of negotiations, and all parties can agree to sacrifice value in a manner consistent with the targets laid out by the government, we still arrive at a discounted cash flow-derived equity value of less than one dollar per share," Ceraso said. If the bondholders and unions cannot come to an agreement over the amount of value to be sacrificed, GM may still end up in bankruptcy court, Ceraso said. Ceraso previously rated the stock "neutral" with a price target of $2. ***************** m22au: Even at $1 per share, I think the Credit Suisse analyst is being quite generous. However as we know from the FRE and FNM experience, at prices that low, there are an amazing number of people who are willing to step up to the plate, treating the stock as a $0 strike price, infinity expiration call option.
I have held my short position for many weeks / months now. The only issue is that I am paying about 70% to hold the position. I am extremely confident about a decline in the share price (especially given the upcoming loan drawdowns on 29 December and 16 January). However I'm considering covering (some of) the position and selling an equivalent amount of $2.50 calls instead, in order to avoid the interest charge. If I do that, then I'd miss out on participation in a share price decline below $2.50, but I'd still make a good return on the trade. The January options lost a bit of volatility on Friday - and I might also consider buying puts as another alternative to selling $2.50 calls.
http://moneynews.newsmax.com/streettalk/gm_default_fitch/2008/12/19/163705.html Fitch Ratings: GM Default is Near Friday, December 19, 2008 12:16 PM Fitch Ratings has downgraded the Issuer Default Rating (IDR) of General Motors Corporation to 'C', indicating that default is imminent. The rating action reflects the terms of federal government assistance that were announced today, which include a reduction in the company's current debt load. Debt reduction is expected to take the form of a distressed debt exchange, which is a default under Fitch's methodology, although how the exchange is to be accomplished remains highly uncertain. The ability of GM to use equity to address debt and VEBA obligations is very limited given the size of the obligations and GM's current market capitalization. The threat of a bankruptcy remains, given the terms of the federal assistance, and the maturity. Fitch expects the current agreement will be significantly restructured prior to its maturity. Recovery ratings for unsecured holders could move down further from current estimates of 10%-30%. Under GM's plan, unsecured holders could lose 50% immediately under a distressed debt exchange. Recoveries will also be impaired by the potential elimination of any remaining value ascribed to GM's equity interest in GMAC, and the fact that government loans (or loan guarantees) will be placed in a senior position to exiting unsecured debt. Changes to other liabilities, such as health care, and other changes to GMs cost structure will also be factored into the recovery analysis as details become available. Fitch has downgraded the following ratings: General Motors Corporation --IDR to 'C' from 'CCC'; --Senior secured to 'CCC/RR1' from 'B/RR1'; --Senior unsecured to 'C/RR5' from 'CCC-/RR5'. General Motors of Canada Ltd. --Long-term IDR to 'C' from 'CCC'; --Senior unsecured to 'C/RR5' from 'CCC-/RR5'.