Bank on Banking » Bankruptcy

In the News: Rejoice, for CIT is Spared!

IBanker — Tue, 21 Jul 2009 00:49:56 +0000

This one’s a short one, but a significant one.

Unable to come to a solution with anyone else, CIT has surprised us all yet again, by securing a $3 billion loan from a group of its bondholders. The terms of the loan are 2.5 years at L+1000bps (yup, 10% over LIBOR – sweet). The hope here is that this loan will provide CIT with enough time to adequately restructure and resize their current obligations – otherwise, it is back to the steps of bankruptcy court for them.

CIT is Saved (Probably…Maybe…Hopefully)

In the News: GM Files For Bankruptcy Protection

IBanker — Mon, 01 Jun 2009 13:08:52 +0000

It’s no longer a threat, a fear or a consequence – it’s now official, GM has filed for Chapter 11 Bankruptcy Protection. As part of the process, the government has started that they will provide GM with an additional $30.1 billion to usher the company through bankruptcy, and, in exchange, will initially receive a 60% ownership ake in the new company. Another 12.5% will be owned by the Canadian government in exchange for a $9.5 billion infusion. Bondholders and the UAW healthcare fund will be allocated the remaining ownership stakes and more as the process comes to fruition – current shareholders, as mentioned before, will get nothing.

There will be, of course, a bit of argument, finger-pointing, and angered negotiation exchanged, especially on the part of the shareholders, out of work dealers and smaller parts makers who are all being stiffed and shafted by the foreseen outcome. Maybe they can squeeze a few more nickels (or in the shareholders’ case a few nickels period) out of the bankrupt firm – we’ll see. On the bright side, the new Camaro is out – any thoughts?

GM Makes It Official

In the News: GM Bankruptcy – The Good and The Bad Companies

IBanker — Fri, 29 May 2009 13:41:30 +0000

As Bloomberg reports, GM is planning to file for bankruptcy protection as early as Monday. The plan being brought forth before the court will be that of splitting GM into a Good GM and a Bad GM. Sound familiar – it should. The “Good X/Bad X” is not a new strategy for this administration by any means. This strategy is the same one being implemented for the speedy Chrysler bankruptcy, and is the same idea that was used back in the day for the toxic mortgage assets on bank balance sheets. Will it work…who knows…the alternative, however, is GM failure, so I guess it is worth a shot, and, honestly, sounds decent enough in theory.

Specifically, the Good GM will be the “new” GM, and will ideally be performing as a viable company within 60-90 days, while the court liquidates and disperses the Bad GM assets and such. Rather than ramble on and on about what the new entity will look like, I’ll just provide a quick summary, and allow you to skim through the full article, which I recommend, on Bloomberg.

Good GM:

Will consist of Cadillac, GMC, Chevrolet and Buick

Will slash debt to about $17 billion, excluding financing obligations to suppliers and warranty programs

Will pay union employees lower wages

Will be controlled by the U.S. government, with the Canadian government possibly owning a small share. A union health-care trust will own 17.5%, a whopping 10% will be given to the old GM bondholders to resolve claims – so generous, and a big goose egg (0%) will be given to shareholders (down from the 1% previously discussed)

Will offer warrants to buy an additional 15% of equity, provided a “satisfactory” number of bondholders agree to go along with GM’s restructuring program – otherwise they may end up getting nothing

Bad GM:

Will sell off Saab, which is already in bankruptcy, Hummer, Saturn, Pontiac, and as many as 16 factories

Will be the child of the shareholders, along with the bondholders remaining claims – so, essentially, stockholders should be getting pretty much nothing, considering bondholders are entitled to recover their money first

GM: The Good and The Bad

In the News: Down with the Autos, Up with the Banks!

IBanker — Wed, 27 May 2009 22:02:49 +0000

A really compelling piece was put out just a day or so ago discussing the rationale behind “saving” the big banks (with the exception of a few early drops), while allowing the auto makers to panic, shrink, potentially collapse, and ideally, reemerge. While the idea is not terribly far fetched to many, this article does a great job of comparing and contrasting the similarities between our current situation and those of Japan’s and Korea’s pasts.

In short, giving up on the banks would cause an illiquid environment, and a lending freeze – in other words, allowing the banks to fend for themselves would cause lending practices to drastically tighten, which will result in many other industries and businesses, both unhealthy and healthy, that need fresh capital to survive, to, simply put, fail. Allowing the auto industries, however, to collapse (not entirely, but to an extent), will ideally force new entities to form, and a vast restructuring to occur, which will, ideally, allow the surviving and combined entities to be well equipped to take on the next stage of the game in far healthier and better balanced capacity. I am, of course, giving a mile-high overview of the article, but, hopefully, it was enough to whet your appetite for the full length piece. So, take a few minutes and give it a read.

Save the Banks (and the Bankers)