ETFnerd

What Does GMAC's Bond Exchange Failure Mean for Detroit?

When a company is operating profitably, the debt is not usually offered at a discount. In the cases when it is profitable and debt is discounted the firm will probably buy their debt in the open market if that is their best use for their capital.

The automakers are not profitable companies. Their equity is [just about]worthless. Money to buy back debt would have to be borrowed from other debtholders or new equity holders like the govt. New lenders/owners would want to see that the proceeds are used to make the business viable, not to settle debts with previous debtholders. If they allow it, they may well be next in line to get shafted at $0.20 on the dollar or likely less in the next iteration.


On Dec 31 12:30 PM prudentinvestor wrote:

> Good. Now a question for you or others on this forum:
>
> Not being knowledgeable about bond covenants, I've always wondered
> why a company can't simply buy back its bonds on the open market,
> just like a stock buyback. When a company's bond is trading at $0.20
> on the dollar, why don't they just buy it on the market?
>
> Thanks.