Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
Private Equity Hub – A group of hedge funds that provided bankruptcy funding to Delphi Corp on Monday won a high-stakes auction to take control of the auto parts supplier, scuttling a rival deal brokered by the Obama administration.
Delphi’s board of directors and GM both offered their support for the proposed deal that would hand the company’s assets over to its debtor-in-possession lenders in exchange for their forgiveness of nearly $3.5 billion in loans.
The result, announced by Delphi late Monday, came after a two-day auction in New York.
The Business Insider – Nassim Taleb and his hedge-fund partner Mark Spitznagel weigh in in the FT with an analysis of the world’s problem (too much debt) and a reasonable solution (convert some of the debt to equity).
As usual, Taleb lards up his argument with guru-speak and smug swipes at every other economist on the planet, which undermine the point. But in this case, the point is a good one.
Converting debt to equity is what corporations do when they go bankrupt. GM and Chrysler just did it, and the airlines will do it next time they go bust. Same for the hundreds of other companies that go broke every year.
Reuters – General Motors Corp will file for bankruptcy later on Monday, U.S. officials said, forcing the 100-year-old automaker once seen as a symbol of American economic might and dynamism into a new and uncertain era of government ownership.
The planned filing, confirmed by Obama administration officials, would be the third-largest in U.S. history and the largest-ever U.S. manufacturing bankruptcy.
The decision to push GM into a fast-track bankruptcy, and provide $30 billion of additional taxpayer funds to restructure the automaker is a huge gamble for the Obama presidency.
Cape Cod Times – General Motors Corp. could get as much as $5 billion more in federal loans, while Chrysler LLC could get $500 million as they race against government-imposed deadlines to restructure, according to a government report filed yesterday.The quarterly report by a special inspector general on the auto industry and bank bailout programs says the money will be made available for working capital. GM has until June 1 to complete restructuring plans that satisfy the government’s auto task force, while Chrysler has until April 30
New York (HedgeCo.Net) – The Obama administration is considering a deal in which they would forgive part of the $13.4 billion owed to them from General Motors Corp. in exchange for an equity stake in the company, according to a report by Bloomberg News who citing people familiar with the matter.
The deal comes as GM approaches their June 1 deadline to show they can become viable, the sources said.
GM is already considering breaking up the company into a sector comprised of only the profitable parts, such as Chevrolet and Cadillac, while the non-profitable entities, such as Hummer, can be liquidated.
GM still has major debt obligations to its bondholders, who are owed about $27.5 billion. The company also owes its health care fund about $20 billion. Retirees who are entitled to health care benefits would most likely get more equity in the new entity than the bondholders.
Bondholders previously opposed a plan by GM that would give them 90 percent equity in the newly restructured company, though that would have required them to swap most of their stake at the time.
President Obama has been vocal in his belief that bankruptcy is the best option for GM, though new CEO Fritz Henderson is doing everything he can to avoid that scenario. GM continues to work with the U.S. Treasury and the Obama administration in hopes of achieving a new, reorganized business model.
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Traverse City Record Eagle – General Motors and Chrysler, which have received $17.4 billion in federal aid and face upcoming deadlines to restructure their companies, will designate the auto parts suppliers that need the financing, giving them a large role in determining which suppliers will survive. Ford Motor Co., which has not sought the government aid, has said it does not intend to use the program.
The White House sent a team of 15 people to Detroit on Wednesday to work with GM over the next two weeks to accelerate the restructuring process, an administration official said.
CNNMoney.com – General Motors and Chrysler LLC have about a week or less before they find out if they’ll get the additional help they need from taxpayers, creditors and unions to avoid bankruptcy.
What they already know is that any assistance they receive won’t be given happily.
The two companies face a March 31 deadline to win concessions from bondholders and unions in order to prove to the Treasury Department that they can be viable in the long term. Without such a finding, the government can recall the $13.4 billion it has already lent to GM (GM, Fortune 500) and the $4 billion it loaned to Chrysler.
Few expect Treasury to take such a drastic step.Still, it’s clear that the automakers need more than the loans they already have received. Chrysler is on record as saying it needs as much as $5 billion in additional funds by March 31 to avoid being forced into bankruptcy.
Reuters – General Motors Corp on Thursday said its auditors had raised "substantial doubt" about its ability to survive outside bankruptcy if it fails to stem its losses and stop burning cash.
The "going concern" warning from the struggling U.S. automaker had been expected, but underscored the stakes for GM as it seeks up to $30 billion in U.S. government aid to restructure outside a court-supervised bankruptcy process.
GM’s shares dropped 15 percent to $1.87 in premarket trading.
GM said its creditors had agreed to waive a requirement that could have allowed them to force the automaker to repay more than $6 billion in loans because of the warning in order to allow GM to press its case for government aid.
Bloomberg – General Motors Corp. said its European Opel unit risks running out of cash next quarter, threatening three factories with closure and imperiling as many as 300,000 jobs across the region.
Opel, based in Ruesselsheim, near Frankfurt, is struggling with 30 percent overcapacity as sales slide, GM’s European chief, Carl-Peter Forster, said today in a press briefing at the Geneva International Motor Show. He didn’t specify which sites might close. The U.S. company has major plants in Germany, Spain, Poland, Belgium and the U.K.
GM expects European governments to reach decisions in “days or weeks” on aid the carmaker is seeking to help save operations in the region, Chief Operating Officer Fritz Henderson said. Any interest in the Saab brand depends on a bailout from the Swedish government, according to the executive, who said GM is determined to eliminate failing units in order to channel resources toward more successful models.
“GM will be global, we think,” Henderson said in an interview earlier. “But we have to be realistic, and the environment today requires us to take a lot of tough measures. We need to focus our brand portfolio. We need to get down to fewer brands that can focus very clearly on the market.”
Hummer, Saturn and Saab may all be surplus to requirements and will play “a diminished role,” Henderson said, while Pontiac will be reduced to a niche brand in the U.S. GM, already relying on $13.4 billion in government loans to survive, said Feb. 17 it needs as much as $16.6 billion in additional funds to avoid bankruptcy, including $2 billion by the end of this month.
“We’re quite confident that we can execute a product program and build a brand to be successful going forward,” Henderson said. “After all, it’s about revenue.”
DealBreaker.Com – Morgan Stanley and Goldman Sachs are linking their lending to hedge funds to the market’s assessment of the credit worthiness of the investment banks. Morgan Stanley will reportedly evaluate the amount of leverage it will supply to hedge funds based on the price of its own credit insurance pricing. Goldman is said to be linking its willingness to provide loans to hedge funds based on its bond prices.
The report of both changes ran in the Financial Times. The changes would limit the ability of hedge funds to borrow from either firm if borrowing by Morgan and Goldman became too expensive, indicating a lack of market confidence in the financial health of the firms.
In one sense, this seems a practical response to volatility in the credit markets, reducing exposure to hedge fund leverage as credit markets for financial companies become unsettled. It does, however, create a self-serving dynamic for the investment banks. If hedge funds taking the view that the companies have become unstable push up CDS or bond yields on the firms, they may find themselves unable to borrow from the firms. In other words, it gives the hedge funds an incentive not to bet against Goldman and Morgan.
24/7 Wall St. – On Sunday, T. Boone Pickens issued a press release stating that he had met with Senator Obama in Reno, Nevada to discuss his energy plans. This follows the statement he issued Friday stating that he had met with Senator McCain in Aspen, Colorado to discuss his energy plans.
Pickens calls this non-partisan in both meetings and stressed that the Pickens movement hopes to get legislation passed in the first 100 days of the next administration.
As far as the Obama meeting Pickens stated (among other things): "I shared my feeling of encouragement at the Senator’s willingness to speak out on energy issues recently in the campaign, but told him that there is still much more that needs to be done……. It would be inappropriate for me to speak for Senator Obama. I have a real sense, however, that he was very engaged. He understands the issues and is interested and excited by the work we are doing to educate and involve the people of this great nation."
