GMAC: Why the Bond-Exchange Silence?

Strangely, GMAC is not saying a word about the success or failure of its bond-exchange program. The offer to exchange debt for equity expired Friday night but the company has yet to say if it succeeded or failed.

The offer is crucial to GMAC’s transformation into a bank holding company and thus for access to TARP funds. The company had proposed that bondholders convert 75% of their debt into equity. They have extended the offer deadline several times as they continued to fall short.

According to reports, there may be other things afoot.

If GMAC was unable to get the approval of 75 percent of bondholder, it has other options. It could ask the Federal Reserve to allow GMAC to become a bank holding company with less capital.

It might also be possible for G.M. and Cerberus Capital, which owns 51 percent of GMAC, to put more of their own capital into GMAC. Another possibility would be for the Treasury Department to use some of the $700 billion in bailout money approved by Congress to buy preferred shares in GMAC, which would also increase its capital base.

The bailout funds that the Bush administration has approved for GM make little sense if GMAC can’t resurrect itself as a viable entity. Without financing, you can’t sell cars. Don’t be a bit surprised if this little hiccup isn’t finessed by the government.

Comments

[Jackson Cash:]

Even Ray Charles can see that GM is a corpse.

Perhaps bondholders are waiting for the unicorn-Volt.

2008 Dec 29 10:26 AM

[User 283977:]

In this situation, silence speaks a thousand words... if they had been successful, they would have been sounding the trumpets... they are probably working plans B and C now. It will probably happen since the stake holders have too much to loose (taxpayers money) if it fails. They are working the problem now.

2008 Dec 29 10:32 AM

[hoffman23:]

Let me correct you. I think it is now Plan M,N,O,P. The bondholders can continue to play hardball because they know there is no line in the sand. But, if they take it a little too far, they will screw up the GM bridge loans and have less than nothing. Having tax losses in a year where you lose money doesn't do you any good.

2008 Dec 29 11:04 AM

[Bill M:]

Maybe it didn't go down as expected, don't you think all the news wires would have captured already?

2008 Dec 29 11:21 AM

[Paul Price:]

Game theory in action.

Bondholders keep hoping enough 'other bondholders' will take the haircut thus keeping their original claims intact.

This is the same crap the UAW is playing in refusing to change their contracts before 'other stakeholders' take their bitter medicine.

Only bankruptcy can solve this problem for GM and GMAC.

2008 Dec 29 11:26 AM

[uncle bubba:]

This article and speculation written at 10:15 am, at 11:05 anounced over the wires they have completed and are approved as a bank holding company. I never had a doubt, and I knew this morning at 7:30am when I saw a GMAC commercial for the FDIC insured bank offering savings accounts that they had all in place. Your gossip a little behinf the curve, would be nice to have info ahead of the curve.

2008 Dec 29 12:04 PM

[steve577:]

Bankruptcy for GM and GMAC would be like a hospital admitting an
accident patient and then deciding treatment is hopeless so let's
just euthanize.

2008 Dec 29 12:13 PM

[Quickdraw:]

Unlike in the case of terminally ill humans, there exist no laws to prevent the euthanization of businesses ...

Pull the plug! Like most Americans, we'd prefer to see the Big 3 survive and become healthy once again ... unless that means we all must ante-up from our own pockets an absurdly large sum, to continue life support.

I see the analogy more closely resembling this: The phoenix that will rise from the ashes of their galactic short-sightedness and failure will be a better business model. Let them die ... in a few months, perhaps a year or so, the economy will resurrect itself and be stronger for the experience. If we continue feeding this monolithic failure, and throwing good money after the bad, then our grandchildren will still be paying for the priviledge of poorer choices regarding their vehicle purchase options.

2008 Dec 29 01:16 PM

[Tom Lindmark:]

Uncle Bubba,

The Fed's approval of the GMAC application to become a bank holdiing company was conditional upon GMAC achieving certain target capitalization levels. They need to do the debt swap in order to meet those levels. So far as I know, they have not announced that they have achieved that threshold.

The ad you saw for GMAC accounts with FDIC insurance was for GMAC bank. A small bank that GMAC has operated since 2001. It is not pertinent to the move by GMAC to become a bank holding company and gain access to TARP funds.

2008 Dec 29 03:01 PM

[User 283977:]

Uncle... This is what Bloomberg has to say about the tabulation of the votes...
______________________...
Dec. 29 (Bloomberg) -- GMAC LLC, the financing arm of General Motors Corp., is still tabulating the results of its debt exchange with bondholders, a company spokeswoman said.

Last Updated: December 29, 2008 14:07 EST
______________________...

So its not a done deal according to a GM spokeswoman as of 2:07 PM EST. So the article and comments posted before yours were ahead of the curve.

2008 Dec 29 03:03 PM

[User 283977:]

oops... sorry Tom... you must have posted while I was writting my note.

2008 Dec 29 03:05 PM

[4eyedbuzzard:]

Perhaps some bond houses that are holding out(like PIMCO et al) also hold CDS's that would pay them more in the event of a default than GM is currently offering? Just wondering...

2008 Dec 29 03:33 PM

[ss01:]

The deal is done. Clearly the bondholders didn't stump up enough so the Fed came up with $5B + $1B to be invested through GM. It's preferred shares with an 8% div which isn't nearly enough of a deal. Rip-off city again. I'd guess the markets will love this one tomorrow.

2008 Dec 29 09:57 PM

[thatguy57z:]

this is just another way for GM and GMAC to f--k the tax payer out of more money and the government dose not give a dam about you the tax payer..GM sucks and the prices are to high thats why no one are buying them and only GMAC will finances them. Because other banks don't want to mess with over priced and under rated. Let them start over just like the guy that has paid his tax's and no longer has a job and is losing his home because GMAC was doing sub prime loans

this will give you some in site how it is going to start working. and how they've all ready have it moving foreword go to.
www.youtube.com/watch?.... copy and paste to your web browser , or click on my website

2008 Dec 30 03:43 AM