GM Close to Bankruptcy
Bankruptcy Looms for GM As Bond Holders Reject Offer
A Taipan Publishing Group Market News Article
By Sandy Franks, Executive Publisher, Taipan Publishing Group
Yesterday the markets rallied on news of a dramatic spike in consumer confidence. But today markets showed signs of weakness as General Motors (GM:NYSE) moves one step closer to filing Chapter 11.
According to an article in USA Today, bondholders rejected GM offer to swap company debt for stock. The amount of bondholders who agreed to the swap was "substantially less" than the 90% required by the Treasury Department, which has loaned GM $19.4 billion.
The offer, which expired at 11:59 p.m. Tuesday, was widely viewed as "unlikely to tempt GM's unsecured bondholders." The deal's rejection could push GM to file bankruptcy papers by next Monday.
The bondholders own $27 billion in corporate notes. GM needed owners of 90% of those bonds to accept stock in return for the debt in order to reduce its interest expenses to a more manageable level.
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If GM does indeed file for bankruptcy, it could result in the U.S. and Canadian governments owning three-quarters of its stock. The Obama administration is drafting a bankruptcy restructuring proposal that would in essence nationalize GM and put most of the rest of the company in the hands of a union trust fund.
The Washington Post reports the bankruptcy overhaul plan would require the U.S. government to lend GM about $30 billion on top of the $19.4 billion already invested, giving it the majority stake. Canada is preparing to lend about $9 billion for a smaller interest.
Out of the three big U.S. car companies, Ford Motor Company (F:NYSE) has rejected bailout money from the U.S. government. Its stock is up 1%.
In fact, this is exactly what Adam Lass, senior analyst for WaveStrength Options Weekly predicted would happen. Of the three car companies, Lass suggested Ford’s stock would rise.
Lass prompted his readers to take options on Ford, noting that as share prices rose, their gains could reach 306%. Adam suggests Ford’s share price could soar to $6 over the next six months.
Ford plans to release its new Fiesta next year. “The new Fiesta is an engaging, fun to drive car that is off to a very successful start in Europe and Asia,” said Jim Farley, Group Vice President, Ford Global Marketing and Communications.
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Originally published May 27, 2009.
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