GM Bonds: GM Bonds: Bankruptcy Filings

GM has filed as per Feb 17, 2009 deadline new plans for restructuring.
There are 3 types of bankruptcy filings in consideration.

1. Pre-Packaged Chapter 11.
2. Pre-Negotiated "Cram Down"
3. Conventional Bankruptcy


Out of the 3 Conventional Bankruptcy is a strict No-No due to the amount of time required to complete the same. The best/suggested alternative is pre-packaged chapter 11 filing.


Pre-Packaged Chapter 11 filing salient features:

1. Bond holders are to receive 1/3 30 cents to a dollar and the rest 70 cents in the form of equity interest.
2. This requires that the VEBA (Voluntary Employee Benefitiary Association) gets half their proposed funding of 10 billion in Equity
3. Current Equity shareholders will be reduced next to nothing due to large scale debt to Equity conversion.
===============================
Company Net Present Value Calculations (Current GM Enterprise valuation is around 8 Billion) here is the break down.

Conclusion:

- 30 cents to a dollar for 25 dollar is 7.5 USD. So current bond holders will get new bonds worth 7.5 USD.

- All current bonds are quoting at close to 3.50 USD so there is a still lot of value in the current prices.

- Also for the remaining 17.5 USD bond holders will receive equity (could be 5 to 10 shares average 8)

So all in all a 3.50 USD investment will get you 7.5 USD worth of bond (in a solvent company) and 8 shares of GM. The bond interest rates could be higher than 7.5% also the shares would also get good valuations, if quoting at 2 USD will give you a total value package of 25 USD or more thats a 614 % return by Dec 2009 on investment of 3.5 USD

I would suggest a strong buy for GM bonds at these levels and a Strong Sell for GM shares (already at 2.18 USD)

Here is the link to GM News The complete PDF document can be downloaded here