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I worked for Wall Street firms for 25 years and since 1997 I have been running a "long bias" hedge fund.
  • Why GM stock is trading above $1.00 4 comments
    Jun 26, 2009 09:08 AM

    There are still many millions of shares short on GMGMQ.

    Today GMGMQ is trading at $1.16 in the pre market.

    The current price of GMGMQ takes into account:
    1) the cost to borrow GM stock to remain short;
    2) the estimated but unknown rate of time decay on GMGMQ;
    3) end value of GMGMQ, if any.

    Think of an institution or hedge fund that owns 1 million shares of GM. They can sell it today for $1.16 or they can loan it to a short seller and get, let's say, 50 cents a month for the loan.

    What would you do? It's like owning a slum with very high rent.

    Disclosure: no positions

     

    Themes: GM
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This post has 4 comments:

  •  
    Gerry - In June after reading your articles, I bought some GM Bonds (BGM, GXM). Now that the bankruptcy has gone through, what are the next steps for the bond conversion?
    Jul 10 09:36 PM | Link | Reply
  •  
    The $25 par GM bonds are trading around $3.50 and GM plans to go public around the middle of 2010. Holders of GM debt can expect to receive shares in the "new GM" probably in the second quarter of 2010.

    The value of the GM shares received in the exchange should exceed the current value of the GM bonds.
    Aug 17 08:01 AM | Link | Reply
  •  
    Gerry - Thanks for the reply!

    The original conversion that was tossed about was 225 shares per $1000 face value of the bonds, plus warrents for an additional 15% of the company.

    Any idea of how that will turn out?
    Aug 17 09:46 AM | Link | Reply
  •  
    I think you are referring to the offer that was made to and rejected by GM bondholders prior to the GM bankruptcy. In that offer, GM wasn't going to go bankrupt, but was going to reduce debt by a equity for debt deal.

    In my understanding, the new idea is that the bondholders will get 10% of the equity in the "new GM" and warrants for an additional 5%. What that equity will be worth is unknown.

    The economy and stock market have both improved since GM filed bankruptcy and the bonds have risen approximately from 12% of par to 14-15% of par since the filing on June 1.
    Aug 19 08:00 AM | Link | Reply
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