hope no one has GM stock

[muldoon]

GM announced their new debt restructuring plan.

The SEC filing: http://edgar.sec.gov/Archives/edgar/data/40730/000119312509100053/dpre14c.htm

If the U.S. Treasury Debt Conversion is consummated, the U.S. Treasury (or its designee) would own at least 50% of the aggregate amount of pro forma outstanding GM common stock. This notice and the accompanying Information Statement are being furnished to our stockholders with respect to action that may be taken in connection with this restructuring by the U.S. Treasury (or its designee), as holder of a majority of the issued and outstanding shares of GM common stock as of the record date described in the accompanying Information Statement, approving, by written consent (in lieu of a meeting of our stockholders), amendments to our restated certificate of incorporation that would:


  • increase the number of authorized shares of GM common stock to 62 billion shares;
  • reduce the par value of GM common stock from $1 2/3 per share to $0.01 per share; and
  • effect a 1-for-100 reverse stock split of GM common stock, whereby each 100 shares of GM common stock registered in the name of a stockholder at the effective time of the reverse stock split will be converted into one share of GM common stock.


If the restructuring as currently contemplated occurs, there will be very substantial dilution to existing holders of GM common stock. After the restructuring, as currently contemplated (assuming full participation in the exchange offers described in the accompanying Information Statement), existing holders of GM common stock would hold approximately 1% of the outstanding GM common stock.

oops.  if the stock was worth $1.85 yesterday - it should be $0.0185. - 1.85 cents.  less than 2 pennies. 

not seeing much on the news about this.  some coverage, but this is huge in my opinion.  If I was a gambling man, I would say our spring rally is going to run out of gas pretty soon. 

Reuters original link: http://www.reuters.com/article/businessNews/idUSTRE54471X20090506
Mish covers it here: http://globaleconomicanalysis.blogspot.com/2009/05/gm-shareholder-wipeout.html
Karl covers it here: http://market-ticker.org/archives/1010-GM-Shareholders-Poof!.html


Question - if the concept of senior debt is gone, who is going to invest in corporations?  why would anyone invest in any company - especially one that the government has any involvement in "saving".  Does the government want to be the only lender in the country? 

why cant they just go into bankruptcy and to hell with the UAW? 

[pagan]

If I read this correctly if you have 100 shares of GM common stock currently valued at $1.85 each which means you have $185.00 worth of GM stock...it now becomes one single share of common stock worth $0.01. A quick loss of $184.99. Of course some pundit will spout off about how NOW is the time to be buying up shares of GM.

[Windpower]

http://globaleconomicanalysis.blogspot.com/



scroll down a bit

[muldoon]

windpower, I posted a direct link to the same article. 

They are doing a reverse stock split of 100 to 1, this means that if you have 100 shares at 1.85, you will now have 1 share worth $185.  That by itself is not the problem, the problem is that they intend to create 62billion new shares (100 times more than they have now), or dilute the stock price by 99%, After creating 100 times more shares than exist today, the value of each share is cut down in value.  effectively, putting the *new* stock around 1-2 cents. 

Those holding stock get screwed.  not too big of a deal in my opinion, as it is to be expected with this one. 


The deal to bondholders is the scary one which is what I was getting to by saying the government appears as though they want to be the only lender.  The GM proposal includes a conversion of $1000 in bond indebtedness into 225 share of common stock which means that a $1000 note would end up being worth $2-4 dollars. This kills the "senior debt" and commercial paper market as the bondholders *SHOULD* be able to collect their money in bankruptcy court instead of having this sham rammed down their throat by the treasury.

If you were holding bonds for GE, or hell JPM or Wells Fargo, or any other corporation right now, how would you feel about holding it?  The government just made it very clear that the existing protections are void, this is a hand grenade into the debt market. 

At the same time, the stress tests results are saying that banks need to solicit "private capital" .. meanwhile private capital market just got killed.

[Windpower]

Thanks Muldoon

I sure am glad I'm out of stocks


but the 401 is in comercial paper and bonds

no safe haven I guess

[pagan]

Looks like more wealth destruction to me.

[peternap]

Not Me! I saw this one coming a long time ago.

I'm more convinced than ever the meltdown is here and now.

[pagan]

Wonder how many retirement funds have GM stock?

[glenn kangiser]

I understood that GM was going to get as much money from gov as possible, close down US operations and just import from it's non-us plants.  Seems the others had that plan too.  Don't recall where I read it.

[pagan]

I read about Ford using the economic downturn to get huge concessions from the UAW, close their US plants, and then produce small fuel efficient cars in its new plant in Mexico. Another reason why they want the Mexico/US highway. We'll see how it all plays out.

[apaknad]

ford has closed its gas guzzling suv and truck line at wayne, mi. assembly and are tooling it up to make the new fuel efficient small cars including all electric models. they will be called the next generation of the focus(really a european car) and have not only kept many jobs in usa but also put more laid off employees back to work. i live about 10 miles from the plant and believe me it is big, welcome news in this hardest of hit states(economics wise that is). ford stock is creeping up also.