The Revenge Of The GM Bondholders

Bertel Schmitt
by Bertel Schmitt
the revenge of the gm bondholders

Want in on GM’s IPO without being a sovereign wealth fund or Goldman Sachs? Join the BDSM lifestyle for fun and (possible) profit. Buy the very much troubled pre-bankruptcy bond, and you could make out like a banshee. Reuters has the surprising news that bonds issued by GM’s bankrupt predecessor are a good investment. “GM’s 8.375 percent bonds due July 2033, which were issued by old General Motors Corp. and convert to shares in the new GM, rose 0.375 cent to 35.875 cents on the dollar at 4:29 p.m. in New York.” The day before, the bonds had jumped 2.25 cents, the biggest gain since June 14.

Why the sudden interest in the converting bond?

Pre-IPO hype.

“As global light-vehicle demand recovers, we expect GM’s earnings to grow considerably, thanks to a dramatically lower cost base than old GM,” said David Whiston, an analyst at Morningstar.

Other analysts think GM (or the Treasury) are giving the stock away. Kirk Ludtke, SVP of CRT Capital Group LLC, opined that the $27.50 midpoint price is about 41 percent below the “fair value” of GM’s shares.

With all the hype surrounding the IPO, holding the dodgy distressed bond could be the better play. Investing involves risk, including possible loss of principal. Consult your investment adviser before making any investment decisions.

Join the conversation
  • .5MT .5MT on Nov 06, 2010

    I'll stick with Mexican Racehorses.

  • Willman Willman on Nov 06, 2010

    They should've IPOd back the end of August. The only light I see for GM's stock is that some institutions will be required to buy it as a part of basket funds, etc. Depending on the politics, they may even go on a bender and force it back into the Dow.

  • PlentyofCars PlentyofCars on Nov 06, 2010

    No revenge here. Sure you might do well buying GM bonds now; but the original holders had their legal rights violated.

    • See 1 previous
    • Steven02 Steven02 on Nov 09, 2010

      The original holders didn't have their rights violated. Unsecured debt, which is what these bondholders had, means that they should have gotten nothing from bankruptcy. They are getting something when they should have gotten nothing. What is so hard to understand about this?

  • Thomas Nguy Thomas Nguy on Nov 26, 2010
    "The original holders didn’t have their rights violated. Unsecured debt, which is what these bondholders had..." It's call a BOND for a reason; as in 'BOUND' or 'COVENANT. It's not a 'PERHAPS', 'MAYBE' or 'TRY YOUR LUCK' bond certificate. People pick bonds over the Slot Machine as their investment vehicle because they believe in the rule of law, certainty, integrity and good faith of the bond issuer to honor that loan. To say otherwise is anarchy and lawlessness. If a BOND isn't a guarantee of anything...then don't call it a BOND...Be honest and call it a LOTTO Ticket.