Are we bailing out GMAC’s bondholders?

By Felix Salmon
May 20, 2009

Amid all the noise about the government doing unspeakable things to Detroit bondholders, it looks very much to me as though in fact we’re shamelessly bailing them out:

The Treasury Department is preparing to announce as early as today that it will invest an additional $7.5 billion in GMAC LLC…

The Treasury and Federal Reserve Board this month announced GMAC needs $11.5 billion in additional capital reserves as the result of government stress tests. The additional assistance to be announced this week is likely not the end of government support for GMAC.

Credit default swaps on GMAC are trading at 900bp these days, and its bonds are trading at yields in the 50% range*. GMAC’s bond investors mark to market: they’ve already taken their losses. So let’s take advantage of that fact, and convert their debt to equity, before pouring billions of fresh dollars into this particular black hole.

Update: There is one possible reason for this: GMAC needs cash — and a debt-for-equity swap doesn’t provide cash.

*As for the bond yields, my commenters are right, I made a mistake reading my Reuters screen. The most near-dated bonds come up first, and the annualized yields on bonds maturing in June and July are over 50%, but that doesn’t mean very much. Still, if you look at say the 8.4% bond maturing in April 2010, it’s trading at 79.5 cents on the dollar, which is a yield of 36.1%.


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Check your facts. Gmac yields are in the 12% range and have only risen modestly since the stress test results were released.

Posted by David | Report as abusive

Felix,You truly don’t understand GMAC, and your facts are way off. Globals are not trading at 50% yields, far from it. Blog about something you understand.

Posted by amg | Report as abusive

Felix,Look at the 6.625% of ’12 trading 1mm+ size at 86 , 12% yld. Distressed debt is about the discount, not the yield.And I believe the bonds you’re looking at aren’t globals. Non-globals have a huge liquidity discount

Posted by amg | Report as abusive

And the 8% of 11/1/2031 are trading at +740-50 in size, in the 11.5% range.They have lots of cash and the car loans they have left have an average life of less than 18 months. Obama and Co need GMAC to make loans, not go into runoff mode.On a side note, you have a decent following and could convince some investors to sell their bonds at a substantial loss if they listened to your less than accurate reporting. There are billions of SmartNotes owned by small investors and retirees. You should be more careful.

Posted by amg | Report as abusive

Why did we not start a real bank from scatch. This GMAC/Ally Fake Bank is onoy worth what we are giving it. Fold this piece nothing. How much stupid can we stand. Please stop this payoff bailout mess, it is making me sick. We loose more money every day we do not fold these worthless bankrupt companies. Forget changing the name, start a different legit ban k, not this fake one.

Posted by ace | Report as abusive

First I bought my no so Smartnotes when they were falsely Rated by Moodys and S&P as a & AB which is a high quality investment grade. My Coupon rates based on my COST are not 36 or 70 % but 8.4 , 7.1 , & 7.3 %I am not a Hedge FundThe current yeilds that are depicted above are based on market value not my and most others purchase price.I just read that individual holder are not part of the current deal being dictated by Tres,Sec.GeithnerIt seems that individuals holding “Smartnotes” will get nothing.This info I got from a Bloomberg site.

Posted by Vincent | Report as abusive

Vincent,Smartnotes are senior unsecured. They have the same security as all other senior unsecured paper of GMAC. If there is a liquidation, which is highly unlikely, you would get the same % as all other senior unsecured. What Bloomberg article are you referring to?AMG

Posted by amg | Report as abusive

Who cares, fake company, fake bankruptcy, fake about everything, makes me sick. Billions down a rathole.

Posted by ASA | Report as abusive

I sold all my GMAC Smart Notes in early 2008 on the openmarket, and would like to know if GMAC is paying off anywith a 2009 Maturity Date.

Posted by Malcolm Fischer | Report as abusive

I had just two 11/15/18 notes left after selling most of them before the housing crisis, so I hung onto them, and I’m glad I did. I started receiving a dividend again back in 2009 and the value is back to .97 on a dollar, up from .18 back in 2008, paying interest of 6.50 monthly- now I wish I had more of them.

Posted by alanh | Report as abusive