"GM is on the Highway to Hell, There is No Signal There is a Way Out for Them"
Who knew that Jochen Felsenheimer, the Munich-based head of credit strategy at UniCredit SpA, was an AC/DC fan? One things for sure: he's no fan of GM. After Moody's downgraded GM's creditworthiness, Felsenheimer pronounced "Recovery on GM might be significantly below 40 percent.'' Bloomberg provides the quote and explains the math. "Bondholders may lose as much as 73 percent in the event of a default by the world's biggest automaker, based on the price of contracts used to fix a recovery value for the securities. The recovery swap rate on GM dropped to 26.5 percent, from 39.5 percent at the end of June, meaning investors expect to get only 26.5 cents on the dollar in an insolvency, CMA Datavision pricing models show. Investors are pricing in a lower recovery rate than the average of 40 percent in bankruptcies as capital is eroded by $69.8 billion of losses since 2004." In other words, the market's confidence in GM's ability to stave-off C11 is at an all-time low. And headed lower.
Gee, you think Wall Street is figuring out that companies with negative equity, huge yearly losses and doubtful survival prospects aren't good places to invest your money? Well, is Ford a better bet? From the article: "Ford, the second largest U.S. automaker, shows the same recovery rate at 26.5 percent, down from 37 percent at the end of June, CMA data show. Combined with Chrysler LLC, the probability that one of the three car companies will be unable to fund its business over the next five years is more than 95 percent, Felsenheimer wrote in a note to investors last week." I think Blackjack gives you better odds.
Bondholders will recover some because post-retirement health care expenses are not as senior as pensions. Pensions get first call, then secured senior debt. Then secured junior debt. Then unsecured debt and health care. GM pensions are actually overfunded. It's everything else that is the problem.
Wonder how many people are retaining law firms for the eventual law suit against the BOD and Executive management who walk away with millions free and clear? I know if I owned stock in any of the big three and was a lawyer, I'd be starting the class action already.
Don't count on any payout in the event of them going down - the Northern Rock fiasco proved that the small investor will get scewed by the government whilst the big fish walk away with bulging pockets