Anyone hold GM bonds?

[dey know yayo]

Ask your parents if they do, too.

They're a popular part of many retirement funds, college savings, etc, but if you hold them, the government is about to wipe you out.

GM is going bankrupt as I have been saying for months. There's no doubt about that. But your unsubordinated debt is about to take a massive haircut inrepayment because of the staggering influence labor unions have on Obama's policies. The UAW is going to take precedence to you in the (imminent) event ofbankruptcy, so I'd get the hell out of any debt position in GM before it goes bankrupt and you lose even more money in your long term plans.

Unionization is why these automakers are worthless. All of their earnings end up in the hands of their laborers and workers rather than being reinvested intoto research and development. No wonder GM cars suck. Socialism is regressive.

"A corporation's responsibility is to the shareholders, not its retirees and employees." never forget it.

 

[justscoreda100]

another loss for Obama

 

[dey know yayo]

not to mention the DISASTER his administration made the Chrysler bankruptcy. the government is just bullying creditors at the expense of unions. as if theworkers financed the company's development.

 

[dey know yayo]

Story here.

May 13 (Bloomberg) -- General Motors Corp.'s likely bankruptcy filing is being cast in some quarters as a fight between "money people" intent onmaking a killing and honest efforts by the government to save a company and jobs.

In reality, GM's demise comes down to a fight between retirees.

On one side are GM's unionized retired workers. On the other, are the rest of us -- either in retirement or saving for it. Guess who will lose as thingsnow stand?

Under the restructuring plan on the table, GM's retirees would get 39 percent of the company, along with the promise of a $10 billion payment into theirhealth-care trust fund. That is in exchange for $20 billion GM owes the fund.

Not making out so well are current or future retirees who depend on the performance of mutual funds, 401(k) plans and insurance companies that invested in GMbonds. These debt investors, who are owed about $27 billion, will get just 10 percent of the company.

And that probably won't change. GM Chief Executive Fritz Henderson said on a conference call Monday that there are no plans to modify the terms on offer tobondholders, even as he said a bankruptcy filing now looks "more probable."

'Waterboarding' Investors

That's outrageous. The deal is nothing short of a political rip-off, with the Obama administration currying favor with an organized voting bloc in the formof the United Auto Workers union at the expense of unorganized retirees.

The current deal "can be seen as one that serves up bondholders on the altar of political self-interest," CreditSights Inc. analyst Glenn Reynoldswrote in a report last week titled, in part, "Waterboarding Bondholders."

"The powers that be will not face any major constituency risks by screwing some mutual funds, insurance companies, pension managers, and hedge funds (whooften manage pension and endowment money etc.) out of their fair and equitable treatment," Reynolds wrote.

Not that you'll hear much about the rights of these investors if and when the fur starts flying over a GM bankruptcy filing. Instead, we'll again heartalk about the "money people" -- the label President Barack Obama pinned on debt investors at Chrysler LLC who refused to swallow the terms foistedon them by the company and government officials.

Expect the fight at GM to be cast in similarly expedient terms of "working man vs. evil money people," Reynolds's report noted. And those whoraise objections to the government's plans "will be dubbed Wall Street holdouts and obstructionists."

Hardly 'Money People'

Yet the "money people" label will be particularly unfair at GM. Unlike Chrysler, whose debt was concentrated in the hands of a small group ofinstitutions, GM's bonds are held far and wide.

The holders include Fidelity Management and Research, Franklin Advisers Inc., and Pacific Investment Management Co., which manage the retirement savings ofmillions of Americans.

The Polish Beneficial Association, the Knights of Columbus, and the Grand Lodge Sons of Hermann in Texas were also recent owners of GM bonds. Not your typicalMasters of the Universe.

Then there are mom-and-pop investors, who may not be happy with the terms on offer. Some of them have gone so far as to create a Web site to air theirgrievances. This site is backed by the 60 Plus Organization, a senior advocacy group that bills itself as a conservative alternative to the AARP.

Backing Down

That's not to say that the Chrysler experience won't cow some GM bondholders. Loomis Sayles & Co. said last week that it had sold all its GM bondsin April and had quit the bondholder group trying to negotiate a better debt-exchange offer.

The odd thing is that the administration probably recognizes that it can't, and shouldn't, rob bondholders. So it came up with a proposal that theywill have little choice but to reject.

GM's offer "must look to bondholders like something Tony Soprano dreamed up," Gimme Credit analyst Shelly Lombard said in a research note latelast month.

No wonder GM's bondholders have groused that Steven Rattner, the Treasury Department's chief auto adviser, has acted as if he has them over a barrel.

Scoring Political Points

The administration, meanwhile, will be able to blame the bankruptcy filing on the "money people." Then, it can go out and attack the bondholders,scoring more political points.

While potentially bringing short-term political gain, this strategy has a long-term cost: further erosion in investor confidence in the financial system.

After all, if bondholders know that the government will deliberately try to trample their rights, or demonize them for trying to exercise them, there are twooptions. Shy away from purchasing debt that exposes an investor to the government, or charge more for the increased risk.

Neither is good for markets or the non-unionized retirees who depend on them. It's also strange coming from an administration that, along with the FederalReserve, has pledged $12.8 trillion to try and restore investor confidence in the financial system.

(David Reilly is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: David Reilly at dreilly14@bloomberg.net
Last Updated: May 13, 2009 00:01 EDT

 

[rexanglorum]

Obama has sent a strong signal to markets, avoid bonds in autos and any sector that he is currently taking over or that he is considering taking over andgiving it to his friends and backers.

 

[dey know yayo]

this lack of ethics is just beyond me

 

[cparkfresh]

Pension funds and retirement accounts are prohibetted by statute or internal regulations from investing in anything as risky as Chrysler or GM.



Originally the bonds which could now go default were 'general' meaning that the original buyers 5-10-20 yrs ago just gave GM money and GM could dowhatever it wanted with it. GM could buy planes, hookers, equipment, bonuses, you name it. These bonds being are very risky. If the company goes BK the bondscould be worthless. That's stated in the prospectus. Everybody who bought them thereafter over the last 5-10-20 yrs knew exactly that.

Most of the commentary here appears to be motivated by political bias and assumptions rather than an understanding of business and bankruptcy law. It seemsthat the bondholders are being held-up as the defenders of the capitalist way and should have more rights. Well, their position in the creditor hierarchy andamount of debt they represent doesn't give them that position in this case. In fact, their loss actually represents a text-book outcome of capitalism.

 

[cparkfresh]

Originally Posted by Dey Know Yayo

not to mention the DISASTER his administration made the Chrysler bankruptcy. the government is just bullying creditors at the expense of unions. as if the workers financed the company's development.

Chrysler Bondholders gambled against the company and lost. They were basically trying to capitalize of of the companies failure.

Bond. Lame Bond.
Chrysler's bondholders are whining about Obama's deal. Don't listen to them.
By Daniel Gross
Posted Monday, May 4, 2009, at 6:07 PM ET
--------------------------------------------------------------------------------

Since last week's announcement of the deal to put Chrysler into bankruptcy and give a chunk of equity to the government and a majority of it to the United Auto Workers, some investors have cried bloody murder. Chrysler's secured bank debt was held by large banks that have been the recipients of federal bailout funds and by smaller investment firms, many of which bought the debt at a discount. It was these smaller firms that President Obama lacerated last week, blaming them for greediness that prevented a better deal. In a normal Chapter 11 filing, their claims on a failed company's assets would be paramount, above the claims of unsecured creditors such as, say, the union health care fund or employee pension fund. But the smaller investment firms say the government tried to strong-arm them into accepting a debt-for-stock swap that would have shortchanged them.

I'm empathetic but not sympathetic to these smaller investment firms. The Chrysler deal, midwifed and financed by the government, does upend the traditional order and sets a precedent that, were it to be repeated, would be dangerous. In ordinary times and circumstances, there's no justification for the government to intervene in a way that privileges unsecured lenders over secured lenders. But the times and circumstances surrounding Chrysler aren't ordinary.

Why give a union pension and health care fund-or any unsecured creditor-better terms than secured bondholders? There are a few reasons.

First, the bank lenders always could have opted out. Chrysler employees couldn't. Over several decades, Chrysler's employees lent a big chunk of their labor in exchange for contracted health care benefits and payments. But there's no secondary market for these types of claims on a company's assets. The employees couldn't cut their losses and sell their pension rights to a third party. Nor could they hedge by trading options or buying credit default swaps. By contrast, holders of bank debt and bonds weren't long-term lenders. They may have jumped in last year, or last month, looking for a quick trade. And when it didn't work out, they had an easy out: sell the debt to another investor.

The debt holders, of course, would say that this is how capitalism works: People willing to assume different types of risk and willing to purchase certain assets in a private market get the legal claims that come along with them. And the government shouldn't get involved. But that argument holds up only so long as you believe that what's been going on with the car companies and in our financial sector is private-sector capitalism. I don't.

Chrysler debt holders have already benefited from taxpayer largesse. The extension of federal loans last year helped support the market value of Chrysler's debt. The extent to which Chrysler was able to stay current on any of its debt over the last few months was because of the federal credit.

The price of distressed debt is dependent on what traders believe they'll be able to recover-i.e., how much the company will be worth after it legally sheds certain debts in bankruptcy. Debt holders can recover in two ways. Companies can reorganize, transfer ownership to the debt holders, continue as going concerns, and emerge from bankruptcy. The recovery comes down the road when the former creditors sell their equity. Or companies can liquidate-wipe out their debt, sell off property and other assets, and distribute proceeds to the creditors. In the case of Chrysler, either path to recovery would require a significant influx of taxpayer money. Companies in bankruptcy require new debt-known as debtor-in-possession in financing-so they can keep the lights on. That market is not functioning particularly well since (irony alert!) so many banks are themselves in danger of bankruptcy. And so, in the case of Chrysler, the taxpayers are providing up to $4.6 billion in such financing.

Liquidation is an option, of course. Instead of fixing up the house, you could sell it in its current state to the first available buyer or break it down and sell the plumbing and fixtures. But even a liquidation of Chrysler would require further taxpayer intervention. Given the precipitous decline in auto sales for the global auto industry, the market for industrial production capacity for cars in the United States isn't exactly robust. Assuming a buyer didn't materialize immediately, Chrysler would have to keep operating to maintain any viability. If Jeep suddenly stopped making cars and advertising, the value of the brand for sale would decline rapidly. You can make the case that if the government didn't intervene at all, a bankruptcy would have happened sooner rather than later, and that, if the government didn't intervene again by providing more financing, it would have required a swift liquidation at the worst possible time.

Finally, secured debt holders' argument that they're getting the shaft relies on their belief that the true value of the bank debt is worth more than what the government was offering. But in this cycle, investors have frequently overestimated the amount of recovery they could get by taking possession of distressed assets. Think about the banks that foreclosed on a borrower and figured they'd be able to recoup 70 percent of the mortgage's value by selling the home-only to find that when they dumped the house onto a market already glutted with thousands of other foreclosed properties at a time when financing wasn't available, the best offer amounted to only 30 percent of the mortgage's value. That's also what is happening in the world of corporate debt. Ed Altman, the sage of high-yield debt at New York University, estimates that so far in 2009, the recovery rate has been 25 percent (25 cents on the dollar), compared with 42 cents on the dollar in 2008 (about the historical average) and 56 cents in 2007. It turns out that the Detroit executives weren't the only ones counting on a taxpayer-funded bailout.

 

[eight2one]

I have never trusted the auto industry...EVER!

 

[JLD1523]

You cant get out of a bond so if you owe bonds in GM you are screwed because you are gonna get paid last when they pay off creditors.

 

[dey know yayo]

Originally Posted by CParkFresh

Pension funds and retirement accounts are prohibetted by statute or internal regulations from investing in anything as risky as Chrysler or GM.



Originally the bonds which could now go default were 'general' meaning that the original buyers 5-10-20 yrs ago just gave GM money and GM could do whatever it wanted with it. GM could buy planes, hookers, equipment, bonuses, you name it. These bonds being are very risky. If the company goes BK the bonds could be worthless. That's stated in the prospectus. Everybody who bought them thereafter over the last 5-10-20 yrs knew exactly that.

Most of the commentary here appears to be motivated by political bias and assumptions rather than an understanding of business and bankruptcy law. It seems that the bondholders are being held-up as the defenders of the capitalist way and should have more rights. Well, their position in the creditor hierarchy and amount of debt they represent doesn't give them that position in this case. In fact, their loss actually represents a text-book outcome of capitalism.

Personal retirement accounts definitely are allowed to hold GM bonds.

VEBA obligations are subordinate to yours. The UAW's debt is unsecured and subordinate and any senior unsubordinated debt SHOULD be higher on teh creditorhieracrchy. But bondholders are losing to the Obama administration's desire to keep political capital with labor unions.

 

[mangudai954]

Unionization is why these automakers are worthless. All of their earnings end up in the hands of their laborers and workers rather than being reinvested into to research and development. No wonder GM cars suck.



Why doesn't Toyota have this problem?