Dan Weiss

Playing the Auto Bailout With Yields as High as 45%

Bush threatened congressional republicans that he would use TARP money for the bailout if this did not pass Congress. I would expect an announcement over the weekend that a limited amount of TARP money will be used.

Playing the Auto Bailout With Yields as High as 45%

GM has very little secured debt so its likely the bondholders would get something back regardless but its possible in a worst case scenario they get money back at slightly lower than current levels and have to wait a significant period of time to receive it while courts negotiate it.

Playing the Auto Bailout With Yields as High as 45%

A couple of things to keep in mind. The mini-bonds are unsecured bonds that trade on exchanges therefore they are naturally less risky than the equity but at the same do still have risk. THat being said most are trading at about 16 cents on the dollar (they have a par value per share of $25). GM has said on multiple occassions that they plan to try to restructure this debt which would most likely result in a double or more from current levels if it is completed.

Betting on Ford: Ugly Stock, Intriguing Options Opportunity

You could sell the March 3's for about 0.60 if you think they will survive until a bailout or for some the January 2010 2 1/2 or 5 could be interesting. Now ,personally I like the bonds of GM which are extremely attactive at current levels (they actually sell for less than the equity in some cases) and would likely give holders some value even if GM went bankrupt unlike the equity.

Disclosure: I have bought both GMW and RGM (these are traded on the markets but are senior unsecured debt) with yields close to 60%. Both have a $25 par value and are selling at just below $2.50 or less than 10 cents on the dollar.