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Saturday, December 27, 2008


GMAC debt-to-equity conversion

part of the shoestring turnaround plan designed to get general motors into survivable condition has involved the conversion of GM's financing arm into a bank holding company, a la GS or MS, to make it eligible for direct fed lending facilities and participation in recapitalization programs. while this may have significant impact on the ability of GMAC to continue to offer easy lending to GM customers, the other option has become outright failure.

the fed predictably approved GMAC's application, but notable to the approval was the condition that GMAC's bondholders participate in the losses in order to recapitalize the company. this is the first corporate 'cramdown' i recall seeing, in spite of the fact that i think such conversions will become widespread of necessity as corporations face dire pressure to restructure, deleverage and get small.

the deadline for the conversion of $38bn of debt to equity with the approval of 75% of GMAC's bondholders passed at midnight friday -- no word on the results has as yet emerged.

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