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GM bankruptcy expected as bondholder offer fails

Redress said:
I phrased it poorly. You are correct. However, the investors do stand to make more from the company going into bankruptcy, than from agreeing to the deals outside of bankruptcy.
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From what I've seen the secured creditors have a lot to bitch about.

Getting a lesser stake while taking more risk is not an equal trade off.
Bond holders get a lesser interest rate because their debt is considered secured.

Where as a common stock holder does not have a secured debt and could potentially get nothing. They generally earn more than bond holders as long as the company does well.
 
winston53660 said:
Neither do investors. If I own 10k shares of GM or a 100k bond I do not own the corp.
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Your right but with bonds you have a secured debt via U.S. law.

You have something at risk while a person who works at GM can find another job.

Edit: Share holders are by definition owners.
 
Harry Guerrilla said:
From what I've seen the secured creditors have a lot to bitch about.

Getting a lesser stake while taking more risk is not an equal trade off.
Bond holders get a lesser interest rate because their debt is considered secured.

Where as a common stock holder does not have a secured debt and could potentially get nothing. They generally earn more than bond holders as long as the company does well.
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Actually, I should correct what I said anyway. A large portion of GM debt was bought up in the last year at discount prices by some hedge funds who are set up to do this. They are betting on getting more from the restructuring than they spent.

Getting a lesser stake than whom? More risk how?
 
Redress said:
I phrased it poorly. You are correct. However, the investors do stand to make more from the company going into bankruptcy, than from agreeing to the deals outside of bankruptcy.
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That's because the deals outside of bankruptcy are blatant attempts to do end runs around bankruptcy law.

Imagine that you own 50% of a company, I own 30%, and someone else owns 20%. Say that the rule is that if the company goes into bankruptcy, it loses 50% of its value, but each of us get the same proportion (so you get 25% of original value, I get 15, someone else gets 10%).

Now say that right before it goes into bankruptcy, the government comes in and proposes a solution. They will save the company from bankruptcy by injecting an extra 10% of value (so the company will only drop to 60% of original value now). The only catch is that I get my full 30%, someone else gets their full 20%, and you're left with the remaining 10%.

Is the government solution a better overall solution for the collective company? Yes, because it ends up with an extra 10% of value.

Is the government solution a better value for me and the third dude? Definitely, because we make out much better than it would have if it had gone to bankruptcy.

Is the government solution a better value for you? Absolutely not, because you're getting screwed. Instead of the 25% you would be entitled to in bankruptcy, you're only getting 10% in this deal. So, while the deal might be better in the aggregate, it's ****ing you over.

If you had the legal right to prevent that government deal from going down, wouldn't you?
 
RightinNYC said:
Create paperwork and uphold the rule of law.
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So paper work and billing fees are the rule of law? I've been involved in a few situations where lawyers took advantage of the situation.




If a large manufacturer lost half its machine workers, .
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Great so sell a piss poor product. It might work for a little bit on late night TV.
 
Redress said:
Actually, I should correct what I said anyway. A large portion of GM debt was bought up in the last year at discount prices by some hedge funds who are set up to do this. They are betting on getting more from the restructuring than they spent.

Getting a lesser stake than whom? More risk how?
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Don't let hedge funds obscure you view of things.
Smaller investors do this all the time.
Thats what speculators do, hedge funds at times are giant speculation machines. Sometimes they win big, other times the loose big.

The managers are paid to do that, their capital is still at risk.

I could buy GM bonds tomorrow but at this point I'm not even playing the currency market because things are crazily unstable.

The deal presented by the gov put bond holders lower and gave a stake to the UAW.

That is not how it is supposed to work.
 
Harry Guerrilla said:
Don't let hedge funds obscure you view of things.
Smaller investors do this all the time.
Thats what speculators do, hedge funds at times are giant speculation machines. Sometimes they win big, other times the loose big.

The managers are paid to do that, their capital is still at risk.

I could buy GM bonds tomorrow but at this point I'm not even playing the currency market because things are crazily unstable.

The deal presented by the gov put bond holders lower and gave a stake to the UAW.

That is not how it is supposed to work.
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I am not suggesting that the hedge funds are inherently bad.
 
Redress said:
Actually, I should correct what I said anyway. A large portion of GM debt was bought up in the last year at discount prices by some hedge funds who are set up to do this. They are betting on getting more from the restructuring than they spent.
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And if they hadn't stepped in to buy, GM would have collapsed even quicker. That's how the market is supposed to work.

Now, where the rules are being changed at will, companies are less willing to take those risks, thus ensuring that troubled companies will take the plunge a lot quicker.
 
winston53660 said:
So paper work and billing fees are the rule of law? I've been involved in a few situations where lawyers took advantage of the situation.
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They're a necessary part of it. If people could do without it, they would.

Great so sell a piss poor product. It might work for a little bit on late night TV.
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The auto companies have lost a lot more than half of their workforce and their quality of product hasn't dropped much lower than the **** it was making before.
 
RightinNYC said:
They're a necessary part of it. If people could do without it, they would.
.
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Yes they are and they should abide by their own rules. Unfortunately that rarely happens and the methods of recourse for the common citizen are so laced with legalese it is not economically viable to contest.
 
winston53660 said:
Yes they are and they should abide by their own rules. Unfortunately that rarely happens and the methods of recourse for the common citizen are so laced with legalese it is not economically viable to contest.
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But we're talking about multi-billion dollar bankruptcies. There aren't many common citizens as parties here. Everyone involved has the best lawyers money can buy, and they're certainly worth it.

winston53660 said:
No I do not own the corp. I have shares or debt that I hope to make a buck off of, that is all.
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A share is by definition an ownership interest in a corporation. If I create a company and issue 1 share to each of my cousins, we own the company.
 
MrVicchio said:
A very fair, unbiased, and open minded source and article...
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You are familiar with Stephen J. Lubben? What do you have against his work?
 
Redress said:
You are familiar with Stephen J. Lubben? What do you have against his work?
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I'm just laughing at the idea that anyone who talked about CDO swaps being a bad idea in 2007 is "prescient." The fact that they were going south was public knowledge for years.

Aside from that, he's using circular logic to avoid the point - if the assets aren't worth $2b, then going into bankruptcy is theoretically a bad idea for the bondholders. However, the bondholders obviously think there's something to gain from going into the bankruptcy, and they're entitled under law to make that decision, so what's the problem? If they're right, they're right, if not, they're not. Since we can assume that sophisticated investors aren't retards, they probably have a good basis for their assumptions.
 
Redress said:
You are familiar with Stephen J. Lubben? What do you have against his work?
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actually, the link wanted some sort of premium login, it's Salon.com, not really a site I have much respect for.
 
MrVicchio said:
actually, the link wanted some sort of premium login, it's Salon.com, not really a site I have much respect for.
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Wonder why it works for me, not something I would pay money for...

Sorry about that, thought it was a good link. The guy in question predicted a couple years ago the stuff coming up with hedge funds that we are seeing today. His take on the Chrysler bankruptcy is interesting, basically condemning everyone involved.
 
Redress said:
They make more money from bankruptcy, so tend to hold out and not settle. Something wrong with the system there.
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While that generally is true for most bankruptcies, is that actually true for GM? What is the face value of the bonds held by the debt holders compared to the fair market value of the assets that can be liquidated? Furthermore, as these bond holders perfected or are they just general bold holders?
 
Redress said:
Ok, I know for sure you know more on this than me, so maybe you can answer a question for me in this regard: shouldn't the system be that the bondholders benefit more from settling outside of bankruptcy, than in bankruptcy?
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I feel that would normally be the case without the governments hands up certain companies azzes.
 
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