Posted on 05/11/2009 9:38:04 PM PDT by TigerLikesRooster
Credit insurance hampers GM restructuring
By Henny Sender in New York
Published: May 11 2009 23:33 | Last updated: May 11 2009 23:33
Hedge funds and other investors stand to make billions of dollars on credit insurance contracts if GM declares bankruptcy, a prospect that is complicating efforts to persuade creditors to agree to a restructuring plan for the automaker, analysts say.
Holders of $27bn in GM bonds have until June 1 to decide whether to swap their debt for a 10 per cent equity stake in the company as part of an offer that would give the US government 50 per cent of the shares, a United Auto Workers union healthcare fund 39 per cent and existing shareholders 1 per cent.
However, analysts say the chances the proposal will be accepted have been diminished by the large number of credit default swap (CDS) contracts written on GM’s debt.
(Excerpt) Read more at ft.com ...
Ping!
And who bakcs credit default swaps (CDS)? AIG. Which is now backed by the taxpayers...
Looking at what they did with Chrysler and it’s creditors, who would trust any government deal now?
Heh...just who thinks that inverters other than government will provide the cash to continue...
GM is long gone...they just don’t know it yet!
What is wrong with this picture?!!!
Car buyers have already figured it out though.
One wonders who will buy the last GM car.
Liberals don't want a domestic car (it's a "statement" thing.)
Conservatives, many who've bought GMs and GMCs for generations, instinctively know better than to buy a car from Karl Marx Motors.
Sadly, I would sooner buy a used Yugo than a new GM (or Chrysler).
.
Well said! Unfortunately, our current government thinks that we the people are stupid and will continue to buy the GM brand. Oh well, either they know better and are just working for control (likely), or they are just stupid and trying to control the public...(not altogether unlikely since they seem to thing we are too stupid to know what is going on).
At any rate, most of us will go Galt...
..... What do you mean "continue", Keemosabe?
Heh...can’t argue with your ‘continue” point...ha.
No, AIG is not involved here (certainly not in the way you think).
This article misses the point. Owners of CDS can easily trade out of the position now and monetize their gains — CDS is already worth more than 80 cents on the dollar. It’s the bondholders who are, at this point, thinking that they might as well gamble on getting more in bankruptcy court.
There’s nothing wrong with the existing shareholders getting only 1% - they’re lucky to be getting anything.
What’s wrong with this picture is that of bondholders, the gov’t (another class of debt holder) and the UAW, bondholders are being asked to give up the biggest claim and get the smallest slice of the company in exchange.
If I recall correctly, the plan on the table goes something like this:
Private bondholders write off $24 billion and get 10% of the company.
Gov’t writes off $10 billion in debt and gets 50% of the company.
UAW accepts 39% of the company in lieu of a $10 billion dollar payment to the pension plan.
Obama’s administration is even screwing the union in this deal.
Yes, there is something wrong with that picture. The private bond holders are writing off twice as much as the government and UAW and getting the least in return.
Yeah. Screw 'em. They knew they were taking a risk when they bought it. Dummies. Better they give much more to the UAW than the actual company owners.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.