ByrneShill (64.50)

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GM bonds

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May 12, 2009 – Comments (1) | RELATED TICKERS: GM , GMS , HGM

GM senior bonds (GMS) is currently sitting at 4.6¢ on the dollar (1.15$ for a face value of 25$). With an original yield of 7.5%, the current yield is roughly 165%. Should GM avoid bankrupcy for 3 quarters, the yield would be enough to repay your money back.

So either GM declares bankrupcy within a few months or weeks (maybe days, who knows?) or some people will make a killing with those bonds. The market is definitely pricing GM's bond as if the bankrupcy was already declared. As far as I'm concerned, the question is how much will bond holders receive per dollar of debt? I have no clue how to calculate that, I know nowhere near enough about GM or the auto industry, but if you're at the top of the capital ladder you should at least receive something. So maybe even in the case of a bankrupcy these bonds could be a good opportunity. Anyone has an opinion?

1 Comments – Post Your Own

#1) On May 12, 2009 at 1:11 PM, BACtoBasics (75.27) wrote:

I know a lot of people are asking these questions as well.

The question you have to consider here is, "how long will the bankruptcy proceedings/payouts take?"

For instance, you buy a 25,000 GM bond. They go bankrupt tomorrow. You don't have 25,000 in your account by Friday. The time the debtors are being organized, the funds are being found, the firm is being liquidated, you're money is not collecting anything... Perhaps a small ESCROW %, but probably not even that. Moreover, you do not have access to these funds. It could be awhile.

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