Wednesday, May 27, 2009

GM's All But Certain Bankruptcy Because of Bondholders Refusal

Here we go again! A favorite topic of this blog: The US auto industry restructuring (a.k.a. dismemberment) Part II.

GM all but certain to file for bankruptcy (AP, via Yahoo Finance)

"General Motors, the company that put tail fins on a Cadillac and was once America's largest employer, moved to the edge of bankruptcy Wednesday as debt holders refused a last-ditch deal."

That last ditch deal seems like an effort, rather, to bring about bankruptcy. Who in the right mind would agree to such a raw deal, taking the 10% stake in exchange for $27 billion secured debt, while the union would be getting 39% stake for $10 billion, and the government getting 50% for $15.4 billion?

We'll see how Mr. Steve Rattner the car czar will do this time around in the bankruptcy court.

However, unlike Chrysler's secured debt holders who didn't have CDS protection, GM's debt holders apparently do. Also, there are CDS written on a basket of companies that include GM. (Mr. Rattner has some, by the way, according to Zero Hedge.)

(Data is from

I would assume CDS transaction is outside the bankruptcy court, but I am very curious as to who wrote these CDS, and who hold them, especially people who hold GM-related CDS without the underlying bonds.


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