Own GM SmartNotes®? Read This.

[Perian]

Link: http://www.bloomberg.com/apps/news?p...TAM&refer=news

GMAC Puts Individuals After Institutions in Bond Plan

By Caroline Salas and Ari Levy

Dec. 1 (Bloomberg) -- GMAC LLC, the financing unit of General Motors Corp., is placing individual investors who loaned the company $14.6 billion behind institutions should the company file for bankruptcy.

Holders of so-called SmartNotes, which GMAC sold to individuals since 1996, aren’t included in the company’s $38 billion plan to exchange securities for new, discounted debt and preferred shares or cash, said Gina Proia, a spokeswoman for the Detroit-based company. SmartNotes investors “would be subordinated to the new notes, but they’re not being asked to take a principal discount,” she said.

SmartNotes show how perilous the bond market can be for private investors in times of financial stress. Individuals continued buying the debt as recently as last year, even as the world’s biggest carmaker reported losses. GMAC lost $7.9 billion over the past five quarters, and October was its worst month for sales since 1945. Moody’s Investors Service cut the company’s credit rating to C on Nov. 20, the lowest ranking.

Retail holders “could get virtually nothing if the company files for bankruptcy,” said Kathleen Shanley, an analyst at Chicago research firm Gimme Credit LLC, who recommends investors sell GMAC debt. “If the exchange goes through, they would be subordinate. That would not be a good position to be in.”

Article continues at link.

[Buickman]

Originally Posted by Perian

Link: http://www.bloomberg.com/apps/news?p...TAM&refer=news

GMAC Puts Individuals After Institutions in Bond Plan

By Caroline Salas and Ari Levy

Dec. 1 (Bloomberg) -- GMAC LLC, the financing unit of General Motors Corp., is placing individual investors who loaned the company $14.6 billion behind institutions should the company file for bankruptcy.

Holders of so-called SmartNotes, which GMAC sold to individuals since 1996, aren’t included in the company’s $38 billion plan to exchange securities for new, discounted debt and preferred shares or cash, said Gina Proia, a spokeswoman for the Detroit-based company. SmartNotes investors “would be subordinated to the new notes, but they’re not being asked to take a principal discount,” she said.

SmartNotes show how perilous the bond market can be for private investors in times of financial stress. Individuals continued buying the debt as recently as last year, even as the world’s biggest carmaker reported losses. GMAC lost $7.9 billion over the past five quarters, and October was its worst month for sales since 1945. Moody’s Investors Service cut the company’s credit rating to C on Nov. 20, the lowest ranking.

Retail holders “could get virtually nothing if the company files for bankruptcy,” said Kathleen Shanley, an analyst at Chicago research firm Gimme Credit LLC, who recommends investors sell GMAC debt. “If the exchange goes through, they would be subordinate. That would not be a good position to be in.”

Article continues at link.

warned 'ya.

[Clownzilla]

This is the case in ANY bankruptcy. Stock and bond holders are always on the bottom of the list of creditors to pay.

[D C]

Originally Posted by Clownzilla

This is the case in ANY bankruptcy. Stock and bond holders are always on the bottom of the list of creditors to pay.

Incorrect

Generally speaking:
Secured Debt is paid first
Unsecured, Unsubordinated debt is paid second (most bondholders are in this group)
Subordinated Debt is paid last (stockholders are in this group)

GMAC is now telling individual investors that the bonds they bought as unsubordinated debt is being turned into subordinated debt. That's f'd up right there and I suspect a class-action lawsuit will result.

Unsubordinated GM and GMAC bonds are trading near an expected liquidation value of 20 cents on the dollar. Turn those into subordinated notes and they're worthless.

[wescoent]

Originally Posted by D C

Incorrect

Generally speaking:
Secured Debt is paid first
Unsecured, Unsubordinated debt is paid second (most bondholders are in this group)
Subordinated Debt is paid last (stockholders are in this group)

GMAC is now telling individual investors that the bonds they bought as unsubordinated debt is being turned into subordinated debt. That's f'd up right there and I suspect a class-action lawsuit will result.

Unsubordinated GM and GMAC bonds are trading near an expected liquidation value of 20 cents on the dollar. Turn those into subordinated notes and they're worthless.

Unless you have a thing for high-risk debt instruments.

[motorman]

this is why GM is in financial trouble now because for years any money GM made came from GMAC not selling cars in the USA

[wescoent]

Originally Posted by motorman

this is why GM is in financial trouble now because for years any money GM made came from GMAC not selling cars in the USA

The only reason GMAC should exist ought to be to provide financing for people who want to buy GM cars.

GM let this mission go astray, then SOLD a controlling interest, so they can't use GMAC to their auto operation's advantage.

[delmarjohn]

gm should sell remaining stake in the gmac arm that pertains to mortgages and reacquire gmac auto side...I have read and seen where the mortgage side is separate and could be spunoff....if they could once again control of the auto arm financing it would go along way to helping sales....and the renewing of leases ...something that is crippling a large portion of sales

[mechgmguy]

they can't sell GMAC cause its currently essentially worthless.

GMAC got screwed by the resale value of all the trucks coming off leases. With the fuel efficiency hype, demand for trucks is way down, therefore value drops, and the calculations performed by GMAC at the time the leases were written become seriously flawed.

GMAC was profitable in the past and it has nothing to do with whether they were selling only GM cars or not. The problem is felt by companies who have large quatities of trucks or large SUV's coming off leases.

[Clownzilla]

Originally Posted by D C

Incorrect

Generally speaking:
Secured Debt is paid first
Unsecured, Unsubordinated debt is paid second (most bondholders are in this group)
Subordinated Debt is paid last (stockholders are in this group)

GMAC is now telling individual investors that the bonds they bought as unsubordinated debt is being turned into subordinated debt. That's f'd up right there and I suspect a class-action lawsuit will result.

Unsubordinated GM and GMAC bonds are trading near an expected liquidation value of 20 cents on the dollar. Turn those into subordinated notes and they're worthless.

They are still bonds regardless of their security status. Sure, stocks will always get the bottom tier but bonds are next in line. In this circumstance, stocks and bonds holders will both be screwed regardless of their security position. I don't think people realize how massive this restructuring will be and how many people will not get their money back from GM. The fact that bond holders will not get their money back is not news at all and the buyers of the bonds should of known that bonds are a risk investment much like stocks (just not as high of a risk).

[Clocker]

What does this mean for Demand Notes? I have my account balance down to the minimum to keep the account open ($1,000). Should I just cash it all out?

[tirediron]

Originally Posted by Clocker

What does this mean for Demand Notes? I have my account balance down to the minimum to keep the account open ($1,000). Should I just cash it all out?

I got out of Demand Notes 2 weeks ago!

[tgagneguam]

Originally Posted by Clocker

What does this mean for Demand Notes? I have my account balance down to the minimum to keep the account open ($1,000). Should I just cash it all out?

At one point, I kept my emergency cash in Demand Notes; while not FDIC insured, I couldn't resist the significantly higher interest that they were paying. I, too, have spent down that amount to $1,000 and have moved the monies to vehicles that, while they pay less, are at least FDIC insured. No matter what people are saying both pro and con, it's hard to justify keeping any money in GMAC. I guess I will have to put up with placing emergency funds in accounts earning slightly less than inflation-rate interest. Zut alors!

[D C]

Originally Posted by Clocker

What does this mean for Demand Notes? I have my account balance down to the minimum to keep the account open ($1,000). Should I just cash it all out?

If you have demand notes, my personal opinion is that is quite possibly the WORST place to have ANY money right now.

Know what you get if GMAC goes under? ZERO!! You are the LAST in line to get paid. Nothing secures that debt. There's no FDIC insurance. Nothing. You're giving it to GMAC out of the kindness of your heart and they're giving you a decent return in exchange. That's IT.

[gardnet1]

Originally Posted by delmarjohn

gm should sell remaining stake in the gmac arm that pertains to mortgages and reacquire gmac auto side...I have read and seen where the mortgage side is separate and could be spunoff....if they could once again control of the auto arm financing it would go along way to helping sales....and the renewing of leases ...something that is crippling a large portion of sales

Too bad GM didn't do this from the start, but hindsight is 20/20. At the time of the sale GMAC was a cash cow and I didn't even want them to sell any of it. cerberus really screwed GM out of about 100,000 sales over the last four months due to not making auto funding available and GM should sue them.