I'm sure you know by now that GM has worked out a deal to sell what some think is a pretty good asset with the GMAC division. According to what I read on Yahoo Finance, GM is selling 78% of GMAC for $1.5 billion in cash and $7.3 billion in debt is going away. Do I have this right?
Yahoo Finance says that GM has $285 billion in debt. I wonder if this was such a good idea. The significance is that GMAC as a stand alone might get a higher debt rating than what GM has which would probably making lending more profitable.
Even so, taking away $25 billion in debt (more than triple what appears to be happening) seems more like a band aid.
A friend asked the other day with all the stocks in world, why would anyone buy GM? Good question.
A funny comment was left today about wanting to read any posts I put up from a fire and warning me that smoke is bad for a computer. The computer will either be at home or in our evacuation bin.
Wikinvest Wire
3 comments:
I've pointed this out on seeking alpha, but it bears repeating. It's absurd that people are still holding onto GM stock, when GM bonds are so cheap and have the more senior claim. In the event of bankruptcy, the common stock will be vaporised. Any news that is good for the stock will be good for the bonds as well, in equal measure.
As for selling off GMAC, it's a bad idea because GM needs every bit of cashflow they can get to keep servicing their debt. Selling off GMAC allows them to extinguish some debt. But selling GMAC does not help the long term picture. GMAC was profitable, where as the core business of making cars was not.
has there been an analysis of GMAC's cashflow after a possible credit upgrade? GM's cashflow may benefit from GMAC's reduced cost of capital with an improved credit rating.
it may also give management breathing room for buying off UAW. selling the cow to keep the farm, so to speak.
I'm sure it's been done, but I don't have the numbers off the top of my head.
The main purpose of selling GMAC is to increase GM's liquidity. This gives GM a longer "no-profit" interval until bankruptcy sets in because the company can't meet interest payments.
However this could also be a case of GM doing a dying gasp before death. Often severely distressed companies have a sudden increase in liquidity, (from asset sales), before they are forced to file for bankruptcy.
Bankruptcy, might even be a good thing for GM as going concern. The Judge may discharge alot of GM's pension liabilities and force the UAW into new contracts that allow GM to layoff all non productive workers.
In Bankruptcy, bond holders will be a much better positionas they will get fresh bonds and equity in the recapitalised GM. Based on other sucessful recapitalisations, typically the old equity holders got about 10-20% of the new company.
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