Pleading, urging, begging, whatever. Call it what you will, this one isn’t going to drift by as “easily” as Chrysler. But then, the Chicago machine is just getting warmed up, isn’t it? Either way, we continue to be amused by the (1 – 0.65) reverse spin on the debt holder (dis)approval numbers.
Advisers to General Motors Corp bondholders representing $27 billion in the automaker’s debt urged investors on Friday to support a debt swap negotiated over the past week with the Obama administration.
Bondholders have until Saturday to register their support for the terms of a deal that would give them up to 25 percent of a reorganized GM. That offer is contingent on the U.S. Treasury determining that enough investors have signed on in support.
Investors representing at least 35 percent of GM’s bonds are expected to support the sweetened offer from the U.S. Treasury, which will be the automaker’s largest shareholder and creditor.
In a conference call open to GM bondholders, advisers to an ad hoc committee representing institutional investors urged other bondholders to offer their support for the deal.
But we wonder if the real story here isn’t this:
For the government to be repaid in full, GM would have to have an enterprise value of $69 billion based on its expected 72.5 percent stake in the company, Siegert said.
Really, the jobs we are “saving” are getting obscenely expensive. What happened to a “bridge loan” and the rough backhand pimp-slap that Treasury and company were supposed to deliver to a GM that was not viable by the deadline?
Day late, dollar short?
The situation is fluid.
It is, of course, the goal of everyone involved to shift businesses with large government stakes back into the private sector quickly. The question is, how do we define “quickly,” exactly. How about almost two decades?
GMAC LLC, which is giving the U.S. Treasury Department a 35.4 percent equity stake, said on Friday it might take 17 years for the government to shed its investment if the auto and mortgage lender were to go public.
The timetable suggests that federal involvement in GMAC’s affairs could persist long after troubles plaguing the economy and the auto industry end.
The reality is that if time lines like this are the only realistic alternative, we should consider another option:
Punt.
Directly related to this issue is a missive on credit penned by Megan McArdle recently. She closes with:
But maybe it’s worth remembering that the tyranny that credit scores exercise over our imagination have everything to do with the fact that we’ve built a society so utterly dependent on credit. If you didn’t need a credit card, an auto loan, and probably a mortgage to be considered middle class in this society, these opaque and unresponsive bureaus wouldn’t be the most important source of information about us.
Of course, we recognize that to save UAW jobs you have to save car companies and that means boosting car company revenue and that means getting consumers to buy more cars than the situation would generally warrant and that means providing them (all of them) with loads of cheap debt to finance their purchases and that means subsidizing loans and that means saving GMAC no matter what the cost and even if it takes 18 years, $750,000 per UAW job and hundreds of lives. We also recognize that this is supposed to be the brilliant “new way” to reform crony capitalism.
We repeat: Punt.
U.S. could take 17 years to exit GMAC after an IPO [Reuters]
Remember the good ole’ days? You know, back when it was believable fantasy that Chrysler and General Motors would be fine if only they could get several billion dollars to patch things up for the several months it was going to take until unit sales got back up to 2007 levels? Back when the cash sent to GM and Chrysler was a “loan” that might be paid back? Times have changed. Even GM’s own CFO admits that about the only hope for GM at this point is the total socialization of the automobile market in the United States. Can you remember a time in recent memory when this paragraph from GM’s CFO would have been greeted with anything but howling laughter?
Young said there were sales bright spots in such markets as China, Germany and Brazil, where governments implemented programs to stimulate demand. Results in those countries support GM’s argument in favor of U.S. incentives to promote auto purchases, he said.
So not only do we have to pay you to stay alive, we have to pay customers to buy your product? We pay customers to push revenue to pay ourselves back with and increase the number of cars on the road at a time when consuming oil is one of the nation’s cardinal sins. Mind you, this plan is actually delivered with a straight face.
Well, there is always the forward, out of the box thinking that gives us brilliant epiphanies like the GM-Segway PUMA partnership. (Crashtesting should be interesting to watch here). That ought to bolster revenues!
As for bondholders? Those evil fat cats with the arrogance to expect bankruptcy law to have meaning? Prepare to be demonized: The Treasury isn’t planning to give bondholders more than 10% of equity in any case. Bondholders value their stake at 58% which would frustrate the government’s plan to control the company post-bankruptcy. This makes GM’s bankruptcy, which seems a near certainty now, likely to be the massive, megabudget Hollywood blockbuster remake of that little independent picture “Chrysler,” that was filmed by the no-name director with some stolen film stock, a few friends and $15,000 in a Mexican border town. Remember, GM’s debt is all over the place, not concentrated 70% with four TARP wards.
General Motors Corp. said its first- quarter net loss widened to $5.98 billion as sales plunged by almost half, ratcheting up the prospect of a bankruptcy filing by a U.S.-imposed June 1 deadline.
The net loss of $9.78 a share swelled from $3.3 billion, or $5.74, a year earlier, Detroit-based GM said today. Revenue tumbled 47 percent to $22.4 billion, while cash consumption almost doubled from the previous quarter.
The results add to the pressure on GM as it races to cut costs and debt to avoid bankruptcy. With bondholders resisting a plan ordered by the Obama administration to exchange $27 billion in debt for a minority stake in a reorganized GM, the 100-year- old automaker may end up in court.
But don’t worry. According to GM, GM is ready to go “in and out” of bankruptcy “quickly.”
That’s a relief.
GM Loss Widens to $5.98 Billion as Bankruptcy Deadline Nears [Bloomberg]
With all the talk of buying American lately, and with Obama taking the opportunity with the cameras to give Chrysler a bit of free endorsement work (Chrysler, we hope you file that on your taxes)…
So these are some of the steps that we’re taking to make it easier for Americans to buy a car. If you are considering buying a car, I hope it will be an American car. I want to remind you that if you decide to buy a Chrysler, your warrantee will be safe — because it is backed by the United States government. And to further boost demand for autos, we are working to accelerate the purchase of a federal fleet, and we’re also working with Congress on fleet modernization legislation that can provide a credit to consumers who turn in old cars and purchase cleaner, more fuel-efficient cars.
…we thought we would revisit the Administration’s driving habits.
Of course, one fact missing from our old exploration on the topic was that Obama traded in his Chrysler 300C for a Ford Escape Hybrid in 2007 after putting a mere 20,000 miles on the Chrysler. Odd, Chrysler wasn’t good enough to hang on to back then. What’s changed?
Who drives what, after the jump.
Continue reading »
Well, if the details interest you, Chrysler’s petition in the United States Bankruptcy Court of Southern New York is an entertaining start. Our favorite section in these cases has to be the list of creditors holding the 50 largest unsecured claims. Woops.
Chrysler_043009_Petition.pdf
Meet the evil villains that won’t let Chrysler just escape its obligations to pay its creditors:
As of last night’s deadline, we were part of a group of approximately 20 relatively small organizations; we represent many of the country’s teachers unions, major pension and retirement plans and school endowments who have invested through us in senior secured loans to Chrysler. Combined, these loans total about $1 billion. None of us have taken a dime in TARP money.
As much as anyone, we want to see Chrysler emerge from its current situation as a viable American company, and we are committed to doing what we can to help. Indeed, we have made significant concessions toward this end — although we have been systematically precluded from engaging in direct discussions or negotiations with the government; instead, we have been forced to communicate through an obviously conflicted intermediary: a group of banks that have received billions of TARP funds.
Perhaps showing a seven season West Wing marathon wasn’t the best Oval Office training film after all?
Statement From Non-Tarp Lenders of Chrysler [The Wall Street Journal - Deal Journal]
12:08 pm:
Obama in ‘da house.
12:13 pm:
I can announce that I saved Chrysler, nothing is fucked, I am safeguarding taxpayer dollars, Fiat is going to save the day (oh and Canada too).
12:13 pm:
Bob Nardelli is a cool guy. No. Seriously. (But he’s fired).
The UAW cut down to the bone, and then found more muscle to cut. It was amazing.
You, America, will also be sacrificing.
12:15 pm:
Some stakeholders did NOT cooperate.
Damn hedgefunds held out waiting for a unjustified taxpayer bailout.
Some demanded twice the return of other stakeholders.
I don’t stand with them I stand with Chrysler’s (everything).
12:16 pm:
Bankruptcy is not a sign of weakness.
This process will be quick.
12:18 pm:
Oh, I almost forgot.
Hedge Funds suck.
It is unacceptable for a small group of speculators to endanger my success.
As such an effective and diligent steward of your taxpayer dollars I was not prepared to provide unlimited bailout funds or to reward greed.
This is going to be our finest hour 30 60 days. Seriously. ‘kaythanksbye.
One of the disadvantages of taking strong positions on economic events before the fact is the credibility sink one is subjected to on the flip side. Ouch. Failing one’s predictive tasks as an asset manager is a potentially career limiting mistake. Missing a call as a gambler is expensive, even dangerous- at least to limb if not also to life. But missing a call while occupying the Executive Branch of government of the United States is a different matter all together. Now add the detail that your office was actively leveraging the rather substantial resources of the Executive Branch in pursuit of the effort and you have a bit of a problem. You either have been making a show of it, or your office is far more impotent than it appears. Neither outcome is desirable.
The solution, of course, is not to publicly intertwine yourself in industrial policy with such visible and unbridled enthusiasm unless you have matters well in hand. With J.P. Morgan Chase leading the creditors, 90 minutes of discussion before voting wasn’t enough time to tip the hands in favor of the latest deal. It wasn’t even close. It should surprise no one that once an outsider (Fiat) was introduced into the mix the subsidized and coddled “avoid Chapter” process was split wide open.
Can we please… please move on?
Chrysler Chapter 11 Is Imminent [The Wall Street Journal]
It is difficult not to be entertained by the coverage on the meteoric plunge towards bankruptcy that is Chrysler. The Journal article is pretty circumspect about some rather important details, failing even to mention bondholders until the 18th paragraph in a 19 paragraph article. The deep and heartfelt sacrifices the UAW is making are front and center:
The United Auto Workers union would eventually own 55% of the stock in a restructured Chrysler LLC under the deal reached by the union and the auto maker, according to a summary of the agreement that was reviewed by the Wall Street Journal.
Fiat SpA “eventually” will own 35%, and the U.S. government and Chrysler’s secured lenders together will end up owning 10% of the company once it is reorganized, that summary said.
Hmmm, employee owned and operated. Where have we heard that before?
The Washington Post, however, claims to have the scoop on bondholders with:
The Treasury Department reached an agreement with Chrysler’s creditors late last night that may prevent the troubled automaker from going into bankruptcy, a source familiar with the matter said this morning.
The carmaker had owed a fractious group of 45 banks, hedge funds and other firms about $6.9 billion. These creditors have agreed to write down the debt to $2 billion, the source said.
As long as one can watch from a distance, this charade is quite entertaining.
UAW to Get 55% Stake in Chrysler for Concessions [The Wall Street Journal]
Chrysler Creditors Agree to Deal With Treasury [The Washington Post]
