The magic formula is just a little off. Doesn't take in to consideration that bonds aren't needed once common are available. That and bondholders still don't know if they are getting what is expected.
Not sure if it was the right thing, but I sold my RGM bonds for 6.30 per unit yesterday. I figured Toyota's woes were working in GM's favor in the short-term. And, having cost-averaged down during pre-bankruptcy, I got out above my original cost basis. (I had a bunch of bonds at the original price given to me, and no reason to think they were anything but savings bonds until GM's crisis.)
It was a pretty easy procedure via Etrade, though there was no certainty of getting the price - it goes through as a guestimated market order put in after someone on the buy side makes an uncommitted offer.
I'm not saying it was right or wrong - and I have absolutely no stake in the matter anymore, except as an American who would rather see GM succeed and provide jobs while creating green vehicles and so on. I just thought the actual information of a selling experience and price from a real human might be useful.
The bankruptcy judge is not a dictator. The bankruptcy judge cannot take your money and give it to somebody else unless you agree to the plan. There is NO DISCHARGE for debotr corporations in bankrtuptcy court. The stocks and bonds MUST be repurchased at FULL VALUE. The bonds MUST be paid at the FULL FACE VALUE the stocks MUST be repurchased at an agreed upon price by the shareholders, certificated and non-certificated. The banks and short sellers GUARANTEE that public investors will be paid in FULL.
The short sellers are trying to swindle the public investors out of their savings by selling the public phoney stocks and bonds at a high price and then buying them back cheaper.
You do not have to sell. For that matter you don't have to buy any phoney stocks and bonds for the Wall Street swindlers either.
No, I intentionally stated it as $10,000. I moved the decimal point to reduce some rounding errors.
You have to realize that we aren't talking about shares of NewGM being valued at $5 or $10 in this scenario. If NewGM has a market cap of $40B, the common stock would be $67.69 per share. The value of the executed warrants, plus the common stock, would be around $2,250 ... or about 22 cents on the dollar.
Consider the recent news about NewGM's financials: the amount of cash they have on hand, the significant cost reductions about to go into effect January 1st (VEBA), the elimination of any union wage talks for five years, the massive debt burdens that were lifted, and the fact that they still hold significantly more market share than Ford. $40B is a very conservative estimate of the market cap. I can easily see an enterprise value of more than $100B, with a market cap of closer th $60B, as an achievable possibility.
If NewGM has a market cap of $60B, we bond holders are looking at a 42 percent recovery instead of a 22 percent recovery. Forty percent is what senior unsecured creditors recover in a typical bankruptcy. While it is unlikely we will be made whole, I would welcome the 42 cents on a dollar recovery.
We won't know the exact (to the decimal point) number of shares and warrants issued until all of the senior unsecured debt class has been identified in court, but here's the general guideline, derived directly form the purshase agreement that created NewGM from the ashes of OldGM:
For every $10,000 in par value
about 18 shares of common
about 17 undiluted warrants issued at $30
about 17 undilited warrants issued at $55
(each estimate has a margin of error of about +/- 0.5)
If NewGM has a market capitalization of $40 Billion (a very conservative estimate, in my opinion), then each bond is currently worth about $5.22, or 21 cents on the dollar. That's what the institutional bonds are currently trading.