GM bankruptcy fears rising on Wall Street
An increasing number of investors are betting
that General Motors Corp. may be forced to seek bankruptcy protection within the
next 12 months as it struggles with slumping sales and high health care costs
for workers and retirees.
An increasing number of investors are betting that General Motors Corp. may be forced to seek bankruptcy protection within the next 12 months as it struggles with slumping sales and high health care costs for workers and retirees.
Concerns about the future of the world's largest automaker are showing up in the credit default swaps market, where investors effectively buy insurance protection against defaults. Holders of GM debt who want to arrange a hedge against the risk that they won't be repaid are finding that the cost of buying the protection has risen dramatically in recent days.
"The markets are telling you that more traders are starting to see a greater risk that a default scenario could happen sooner in time than later," said John Tierney, a credit strategist at Deutsche Bank Securities in New York. "You cannot deny there is a pattern here."
I would hate to be a GM pensioner reading this. You spend your whole life creating profits for a bunch of thugs and, then, when their lousy decisions turn around and bite them on the butt, you get screwed.
If GM went away, tomorrow, I don't think there would be any members of their management reduced to homelessness. The rich and powerful always have property and politicians to provide aid and comfort.
GM spokesman Jerry Dubrowski responded by saying the automaker has "no plans to declare bankruptcy," and he noted that GM has about $19 billion in cash on hand. Beyond that, he declined to discuss recent pricing trends for credit default swaps. "Typically we don't comment on stock prices or bond prices," he said. "We don't think it is appropriate to do that."
At issue is the nearly $31 billion in debt related to GM automaking operations that ratings agencies already have downgraded to junk status, or below investment grade. Dubrowski said GM's total debt, including debt sold by its General Motors Acceptance Corp. unit, now stands at $276 billion.
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Michiko Whetten, a quantitative credit analyst at Nomura Securities International Inc., said GM debt had previously never traded on an upfront basis. But now that it is, it puts GM in an unenviable category with Delphi Corp. and Delta Air Lines Inc. — other companies whose debt traded on an upfront basis ahead of their petitioning for bankruptcy.
Auto parts maker Delphi, once owned by GM declared bankruptcy in October, and Delta, the nation's third largest carrier, went bankrupt in September.
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GM's outlook in the credit default swaps market took on a bleaker tone after last week's disclosure by GM that it plans to restate its earnings for recent years. GM said its 2001 earnings were overstated by approximately $300 million to $400 million, but the final amount hasn't been determined. GM plans to issue the restated earnings for 2001 and any subsequent years before it issues its 2005 annual report next year.
Is this where I disclose that I don’t own any GM stock?
Posted: Wed - November 16, 2005 at 06:31 AM