As we mentioned in the Opening Bell, GM is staring default and potentially bankruptcy in the face (“we actually need about $30 billion”). A lot of light and noise has been emanating from GM’s general direction for several weeks now, but it looks like this is the main event. Of course, this isn’t a surprise. GM warned last month that Deloitte & Touche might excommunicate the company from its close circle of friends, and that, certainly, sounds like the beginning of the end.
GM has until the end of March to close deals with the UAW and debt holders to qualify for government assistance (again). One wonder’s if they are likely to make it that far.
GM said its creditors had agreed to waive a requirement that could have allowed them to force the automaker to repay more than $6 billion in loans because of the warning in order to allow GM to press its case for government aid.
In fact, GM has been begging for, and mostly getting, lots of waivers for call and acceleration provisions- at least until the Treasury fails to give the automaker the Goodhousekeeping Seal of Bailout Approval. And why not? The bond holders are really buying an option by laying off of GM here. That government cheese might be the lion’s share of what they see. It would be interesting to know what power creditors waived with respect to forcing liquidation owing to the government involvement.
Separately, GM said in its SEC filing that its lenders had waived “call” provisions that could have forced early payment of its $4.5 billion secured revolving credit facility, a $1.5 billion term loan and a $125-million inventory financing facility.
The new waivers allow GM’s lenders to call those loans if the U.S. Treasury rejects GM’s restructuring plan and request for additional aid and forces it to repay the $13.4 billion it has already borrowed from the U.S. government.
Gotta love priorities.
GM warns it may be forced into bankruptcy [Reuters]
In the topsy-turvy world of contrite investment apology, split-second recognition of the language in a “Dear Investor” letter bearing bad tidings can mean the difference between slow malingering death in the face of debilitating investor lockups, or a quick escape to the islands where you will also conveniently avoid the jealous rage of your (former) fellow limiteds (and the phrase “fraudulent transfer”).
To sharpen your skills, and now that 2008 is drawing to a close, we bring you this DealBreaker quiz on the top ranking Dear Investor letter prose for the year. Match the prose to the firm and the world will be your oyster (in this case “world” is substituted for “present” and “oyster” is exchanged with “Attractive DealBreaker ‘don’t short me bro!’ mug.”
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1
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"There may be residual assets in Madoff to be
distributed or, alternatively, there may be no assets."
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A
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Cerberus |
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2
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"We would like to think that you will remember the returns that we have delivered in the past…." |
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B
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Citadel |
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3
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"For most of the past 3 1/2 hears we have felt good about the job we have done in delivering returns…." |
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C
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Fairfield Sentry |
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4
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"We believe … the steel industry will earn more than the public generally believes in 2009 and 2010." |
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D
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Highbridge |
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5
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"Of course we are totally biased, but we believe that if we continue to get the support from investors as we always have had, we will fall into this category." |
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E
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Ladhe Capital |
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6
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"This represents a month-to-date net decrease of -9.44% from the final October 31, 2008 net asset value per share of US$649.64 and a year-to-date net return of -43.66%." |
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F
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Tontine Associates |
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7
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"The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking." |
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G
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Tontine Associates |
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8
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"We recognize how a suspension impacts our investors, especially those with current financial obligations of their own to meet." |
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H
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Tosca Fund (Link Removed) |
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9
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This conference call may not be recorded, rebroadcast or transcribed without the expressed, written consent of [firm]. |
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I
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TPG-Axon Capital |
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10
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"We do strongly urge all of you to please keep our communications confidential; it is not in the fund’s nor our joint interest to have details widely leaked to the outside world, particularly in a dangerous environment." |
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J
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TPG-Axon Capital |
Ready? Go!
“Your inferiority sickens me. My superiority makes it all but impossible even to endure knowledge of your existence. There is, however, at least this: all your scumbaggery makes you the prefect target for my indignant ire, my evolutionary perfection. Even the likes of the senior Goldman Sachs executive is not worthy enough to painstakingly moisturize in the slow evaporation of my bath water.
You have been trying to ignore me for years, but now, as I reflect the glint from my Nobel Prize from the back row into your eyes during your presentation on the dangers of Value At Risk models, I can hear the irritation in your voice. You cannot ignore me forever. Not anymore. Not now that the New York Times prints whatever I write without so much as editorial review. All your Op-Ed are belong to me. Me, do you hear me? My star is rising. My time has come. I will leave you as you once left me. Buried alive. Even now I can hear the rage rising in you. Before long, the echoing scream ‘Krugman!’”
The Madoff Economy [The New York Times]
No doubt this is timed to dodge the bulk of the hearings.
Bear in mind, of course, that this is not unusual even for a firm that doesn’t eventually end up in Chapter 11, but wants to be prepared for the eventuality.
[Breaking: The Wall Street Journal]
It was pretty dull until just now:
Rep. Paul Kanjorski: Hey, Nardelli, why the hell isn’t Cerberus sending you any of the $24 billion they have if you have any chance of surviving? Corker had you people figured out yesterday. You can’t survive with your present balance sheets. So what’s the story?
Who dresses Nardelli? That pink tie is hurting me. Deep down and personally.
I love listening to Maxine Waters wax poetic on private equity, its role in society and internal economics.
Rep. Carolyn Maloney: Hey, jackasses, you keep suing us to lower state greenhouse gas requirements. Why should I give you any dough?
See, when Robert Rubin publicly scolds investors for taking on too much risk, while simultaneously using his position on Citi’s Board of Directors to urge more risk taking at the bank, a lesser financial journalist might see that as a bit of hypocrisy. Top-tier journalistic professionals understand, however, that Rubin is just highlighting that there are “investors”… and then there are “Investors.” The former, are best limited to making investment decisions with visual aids like Morningstar’s Star Rating system. The later, being, well, Rubin.
Likewise, amateur scribes might look at the mind blowing losses Citi has endued under Robin’s watch as an indicator of abject (and borderline criminal for the really amateur among the amateur) negligence. This view is colored by the fact that these same neophytes do not understand the nuances of organizational strategy and therefore fail to recognize that Mr. Rubin’s position was quite bereft of “operational responsibilities.” Professional journalists with experience in these matters will dig deeply enough in the press kit provided by Mr. Rubin to discover that the responsibility for proper execution of Mr. Rubin’s Investment counsel fell, unfortunately, to other, lesser men and women.
Finally, where as journalists recoil in shock and horror at the $115 million Mr. Rubin has earned in compensation from Citi since 1999, Journalists see that Rubin’s commitment to the firm is really demonstrated by more recent events, not those distant in memory and already spent, in any event, on the accouterments (ahem, client #8) of aged financial power in Manhattan. No, it is the recent waiver of bonus that shows Mr. Rubin’s penchant for self-sacrifice. Those pointing out that recent bonuses might well have been negative and that Mr. Rubin’s sacrifice could be seen as apparition-like probably didn’t even finish their degree in corporate communications.
Rubin, Under Fire, Defends His Role at Citi [The Wall Street Journal]
That giant sucking sound you hear is your hedge fund liquidating. Or, it is if you are Ross Perot. The former presidential hopeful’s fund Parkcentral Global Hub Ltd., had apparently levered up in a big way and the unwinding is proving to be painful. One surmises from the article that a crash in commercial mortgage backed securities is one cause.
We urge Mr. Perot not to feel too bad. There is a long history in the United States of failed bids for president crippling a man, reducing him to an irrelevance as anything but an object of suspicion, and this becoming so withering that the kilowatts consumed by his (admittedly unwieldy) home consume the attentions of dozens of nay-sayer hanger-ons.
The woes of these funds promise to put more strain on the banking sector. Banks that have made short-term loans to these funds mightn’t recoup all their money even if the funds liquidate. Parkcentral Global Hub Ltd., the fund overseen by Parkcentral Capital Management LP, a Plano, Texas, firm controlled by the Perot family, peaked this year at $2.5 billion in assets. It used borrowed money to amplify its bets, said people familiar with the matter, and began dumping assets last week.
That leverage helped hasten the fund’s meltdown as the commercial mortgage-backed securities, or CMBS, market cratered last week, and the borrowings also could leave lenders with tens of millions of dollars in losses, the people said.
A Parkcentral spokesman Tuesday confirmed that the fund has been forced to liquidate to pay off creditors, but he declined to elaborate. He blamed the “unprecedented upheaval of the capital markets in general and the freezing of credit markets in particular.”
12:00: Again?
12:06:
Don’t worry. This is NOT all I’ve got. I’ve got more. I’m just not telling you what yet.
Questions.
Q. You know there is just one president at a time, right?
That president is Barack Obama George W. Bush and will be until I am sworn in. But people need to know that I’m president next. I’m next! I’m next! I’m next! They have to know it’s B-Time.
Peter, Where’s your floppy hat?
Q. Aren’t you totally going to fuck this up with a democratic congress AND a democratic administration?
A. Hey, we won ok? Like, with a wider margin than Clinton did. Ok?
Ok, where’s my plant question about local issues?
Q. What are you going to do about local money grubbing states are bankrupt. Illinois particularly. Huh? Huh? You going to forget your friends?
A. Oh, we are going to be working closely with states, and local governments. Just like we are going to work closely with Republicans. With the current administration. With France. With Iraq. With Iran. With North Korea. And friendship doesn’t come into this. That’s the old way of doing business. So, thanks for the help on the campaign. Now go pound salt. (Shhh, relax, the camera is on, we’ll chat later. ‘kay? Thanks. Bye).
Q. How are you going to keep this massive spending spree from getting out of hand and how are you going to keep these programs from becoming permanent bloodsuckers attached to the treasury?
A. I’m going to make all medical records electronic. Wait for it… wait for it…. No? Ok, cause that’s what my team is here for. They are going to take care of it. No really. Don’t worry. Got it all under control. What? Market? Triple digit gain wiped out since I started talking? Woah… look at the time! I have to jet. Tomorrow. Same time, same place. More appointments.
Bloomberg is trying to play off the biggest two day market gain since 1987 on the Citirescue. Hogwash, we say. Only the revealing of Obama’s Economic Superfriends could have such an impact. 58% gain on a loan guarantee? Next think you know Bloomberg will be claiming Latin American Debt Forgiveness is responsible for emerging market recoveries.
U.S. Stocks Post Biggest Two-Day Rally Since 1987 on Citigroup [Bloomberg]
12:08: Late as usual.
The country is in an economic crisis. (Really?)
Actually, it’s a global crisis. We need Tim. (Chant in background: Tim! Tim! Tim! Tim!)
Larry is the starving middle-class guy’s fat, white, rich guy. (Give up some for the Summ!)
12:14: Christina
Christina (that would be Christina Romer, to everyone else) has done “ground baking research.” So, I suppose Thursday is cookie day in the White House.
We have to start today. Not a minute to waste. So we are going to just ignore the fact that there is still another administration in office. We are taking some immediate actions, and addressing the auto industry, the foreclosure crisis, clean energy, infrastructure and the kitchen sink. So we have cut a deal to borrow the set of The West Wing to get things moving quickly.
12:19:
Q. How soon are you going to start all this?
A. Yesterday.
Q. How big is this plan going to be?
A. Really fucking big. So big I don’t want to talk about it right now.
Q. What about the Bush tax cuts?
A. Well, net, net of the 95% who will be getting a net tax cut, that’s net, as I said during the campaign, there will be cuts and they will be balanced so we aren’t going to touch the cuts since we need to get the economy on track, but those who can afford to pay more will pay more so we can all afford this stuff to avoid avoiding tax cuts. But I really can’t discuss numbers. This thing is BIG.
Q. How are you going to afford all this?
A. Well, people might be wondering how we are going to launch this massive program and throw stimulus money during a recession and a massive crisis. Well, we are going to overhaul the entire budget system, the entire tax system, the entire way business is done in Washington, and the entire role of government before we reform the markets entirely and then… well… then we break for lunch.
Q. Didn’t you forget the auto industry?
A. Oh, right. That’s during our working lunch. I forgot to mention that. Well, we cannot allow the auto industry disappear. Not under any circumstances. But, if we have the circumstance where the auto industry does not have its homework done again in front of Congress then we are going to let the auto industry disappear.
Q. Is anyone in the current administration even speaking with you anymore?
A. Hey, easy there. I spoke with Bush and Paulson today, okay? Listen, Congress gave the current administration a lot of authority. Yes, I haven’t even been sworn into office yet, but I am going to be assessing the TARP and directing it from my West Wing Set office starting tomorrow. Ok. Later guys.
Your mother told you not to bring those filthy things inside, but you snuck them in anyhow. Now, blind, helpless, cold, foul smelling and featherless, the screaming, greedy mouths of the GSEs seem to gape endlessly, never satisfied and eager to suck more capital from the mouths of strained and frantic surrogates, forced to hunt eighteen hours a day to keep the damn things from chewing off a foot in their lust for fiscal calories, or screaming so loudly that your parents may burst in to hear which cat is being brutally tortured. No sooner have they had a hard-won, slime covered bit of roadkill been dumped into their bottomless, sucking orifices than was another immediately required.
Freddie Mac posted a $25.3 billion net loss in the third quarter on surging investment and credit losses as the company announced plans to seek an initial $13.8 billion from the Treasury Department to cover the hole in its shareholder equity.
Treasury pledged up to $100 billion each for Freddie and Fannie Mae when they were put under conservatorship in September to prevent their potential bankruptcy. The government will receive preferred stock for any money given to the firm, and Freddie expects to receive its $13.8 billion request by Nov. 29.
Freddie’s Loss Balloons to $25.3 Billion [The Wall Street Journal]
