Monday, March 30, 2009

Autos: Cerberus Loses Equity, New GM CEO Says Bankruptcy "may be best option"

by Bill McBride on 3/30/2009 05:59:00 PM

From the WSJ: Cerberus’s Equity in Chrysler’s Auto Company to Be Eliminated

Cerberus Capital Management will lose its equity stake in Chrysler ... as a condition of the Treasury Department’s bailout deal with the U.S. auto maker ...

The New York private-equity firm purchased an 80% stake in Chrysler in 2007 ... In term sheets released by the Treasury Department on Monday, the government said Chrysler’s restructuring “at a minimum will require extinguishing the vast majority of Chrysler’s outstanding secured debt and all of its unsecured debt and equity.”
I wonder if any banks still hold Chrysler debt?

And from CNBC: New GM CEO: Bankruptcy May Be Best Option for Automaker
General Motors's new chief executive told CNBC that filing for Bankruptcy may be the best option for the struggling automaker. ... Henderson told reporters that the company would still prefer to restructure outside of court, but the level of support Washington is offering would help the company quickly restructure through bankruptcy.
A bankruptcy sounds very likely.

Added: I think a reasonable role for government is to guarantee the warranties (so people keep buying cars) and provide DIP (debtor-in-possession) financing. There are many other issues too - like making sure the vendors don't all go bankrupt, and the U.S. Pension Benefit Guarantee Corp. (PBGC) will probably be taking significant losses on GM and Chrysler pensions.

Good thing the PBGC invested so wisely recently, see: Pension insurer shifted to stocks
Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.

Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.
Heckuva job.

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