Anyone understand what's going on with GMAC?
zxcvbob
I bought GMAC bonds about 5 or 6 (?) years ago for about 85¢ on the
dollar when they were still rated investment grade by Moody's and S&P.
I was planning to hold them to maturity (2031, I think) or until they
were called-away.
It looks like they are trying to figure out a scheme to throw the bond
holders (me) under the bus to save the equity holders (that would be
Cerberus Capital Management LP.) How is that legal? I knew there was
some risk of default, but thought any default would trigger a bankruptcy
that would wipe out the equity holders first.
I wish I had known I could just go to my mortgage holder and
unilaterally adjust the terms to reduce the loan principal. (best
analogy I can think of)
Can someone 'splain it to me, Lucy? I really am confused by this "debt
swap" stuff I'm reading about. So far they have not missed an interest
payment.
Thanks,
Bob
dapperdobbs
> I bought GMAC bonds about 5 or 6 (?) years ago for about 85¢ on the
> Can someone 'splain it to me, Lucy? I really am confused by this "debt
> swap" stuff I'm reading about. So far they have not missed an interest
> payment.
>
> Thanks,
> Bob
This link might possibly help a bit on GMAC securities.
zxcvbob
> This link might possibly help a bit on GMAC securities.
>
> http://www.marketwatch.com/news/story/court-notify-gm-investors-settlement/story.aspx?guid=%7BECC63C93%2D3189%2D4821%2D9720%2DB173382DB5B2%7D&newsid=942147871&&dist=bigchartssymb=GM&sid=2160
>
Thanks. That really doesn't help much tho'. (also, GMAC securities are
excluded from the settlement according to its FAQ.)
This is what I'm talking about:
http://www.reuters.com/article/rbssConsumerGoodsAndRetailNews/idUSN3146536620081031
Looks like they are planning on stealing equity from the bond holders to
prop-up the company. The concerns in Moody's recent downgrade becomes a
self-fulfilling prophesy.
Another payment is due on 11/08. We'll see what happens.
Bob
Mark Freeland
news:6ne5aqF...@mid.individual.net...
> It looks like they are trying to figure out a scheme to throw the bond
> holders (me) under the bus to save the equity holders (that would be
> Cerberus Capital Management LP.) How is that legal? I knew there was
> some risk of default, but thought any default would trigger a bankruptcy
> that would wipe out the equity holders first.
My understanding is that a default does not automatically trigger a
bankruptcy (which is a more of a legal proceeding than a financial state);
rather it empowers creditors to force a bankruptcy. Involuntary bankruptcy
is often not in the best interest of the creditors, as they would be better
off with larger, albeit late, payments, than with pennies on the dollar. In
this situation, creditor and owner interests align.
http://www.lawdog.com/bkrcy/lib2a1.htm#Involuntary
I believe that debtors owe no duty to bond holders other than to remain
current in payments. If a debtor's actions taken to save a company reduce
the market value of their debt, so be it. Until a company becomes
insolvent, there appears to be no special duty owed to creditors.
Reasonable people may differ on when a fiduciary duty to creditors attaches
(near insolvency, once insolvent, deep into the muck, etc.), but there is a
line that needs to be crossed before debtors have any special duty toward
their creditors.
http://www.georgiabankruptcyblog.com/archives/news-and-comments-fiduciary-duty-to-creditors-during-zone-of-insolvency.html
> I wish I had known I could just go to my mortgage holder and unilaterally
> adjust the terms to reduce the loan principal. (best analogy I can think
> of)
The deal does not appear to be unilateral. The article you cited mentions
an _offer_ to exchange debt. You are not compelled to accept the offer.
> Can someone 'splain it to me, Lucy? I really am confused by this "debt
> swap" stuff I'm reading about. So far they have not missed an interest
> payment.
Here's a Moody's paper on distressed debt exchanges, including a definition,
a discussion of how they can be structured, why creditors are inclined to
accept these exchanges, voluntary vs. involuntary exchanges, etc.
http://www.moodyskmv.com/research/files/wp/distressed_exch.pdf
Mark Freeland
nNe...@nyc.rr.com
zxcvbob
>> Can someone 'splain it to me, Lucy? I really am confused by this "debt
>> swap" stuff I'm reading about. So far they have not missed an interest
>> payment.
>
> Here's a Moody's paper on distressed debt exchanges, including a definition,
> a discussion of how they can be structured, why creditors are inclined to
> accept these exchanges, voluntary vs. involuntary exchanges, etc.
> http://www.moodyskmv.com/research/files/wp/distressed_exch.pdf
>
> Mark Freeland
> nNe...@nyc.rr.com
>
Thanks, that helps a lot.
Bob