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Are you kidding? The bondholders were supposed to know that the ing US GOVERNMENT was going to DENY them a bankruptcy hearing and steal their money?
There was ZERO precedent for that.
NONE
They are virtually not!
Are you kidding? The bondholders were supposed to know that the ing US GOVERNMENT was going to DENY them a bankruptcy hearing and steal their money?
There was ZERO precedent for that.
NONE
The only risk bondholders normally have is interest rate related as it affects the current value of the bond. If they are simply planning to buy and hold and clip coupons there is essentially no risk unless the government decides to steal your money.
TeyshaBlue saw it coming. I know stocks are different, but it was clear they were looking for something other than a bankruptcy. Bondholders expecting to be treated as they would in a bankruptcy weren't very smart, or they chose to assume the risk they would be.
This was not a normal situation and essentially there was risk.
The smart and risk-averse saw it coming.
They are, but those risks are limited via bankruptcy laws which put them at the head of the line when a company goes under. According to the bankruptcy laws the only scenario I can think of where bondholders would get completely wiped out would be if a company somehow managed to enter bankruptcy with $0 in assets.
see, you got it. it's all right there.
This wasn't a bankruptcy.
their debt was greater than their assets.
Which is why they wouldn't have gotten $1.00 / $1.00. Nor should they have. Still, they deserved to get something > $0.
No it's not, head.
If you buy a bond for retirement with an 8% coupon with the intention of holding it there is normally no risk. You don't care about the day to day fluctuation of the bond price as interest rates rise and fall because you aren't trading the bond.
In this case, the government stepped in and denied the bondholders their rights to a GM bankruptcy and flat out stole their money.
You guys can dance around and play your cute word games by picking on specific qualifying words I use but it was THEFT. Plain and simple.
head?
Did you lose bond money in GM, CC?
and you can't dance around those qualifying words.
because they are the reality.
What has happened at GM ...
http://articles.moneycentral.msn.com...f-2010-gm.aspx
... does not seem all that different from this example ...The holders of $27 billion of GM's public debt, as well as other creditors, got a 10% equity stake, plus warrants for an additional 15% of the company.
http://en.wikipedia.org/wiki/Bond_%28finance%29
... and seems in line with what general info I could easily find.There is no guarantee of how much money will remain to repay bondholders. As an example, after an accounting scandal and a Chapter 11 bankruptcy at the giant telecommunications company Worldcom, in 2004 its bondholders ended up being paid 35.7 cents on the dollar. In a bankruptcy involving reorganization or recapitalization, as opposed to liquidation, bondholders may end up having the value of their bonds reduced, often through an exchange for a smaller number of newly issued bonds.
http://stocks.about.com/od/investing...2709busted.htm
http://stocks.about.com/od/understan...21308bank3.htmBondholders may receive some payment, but often have their bonds converted to shares of stock in the reorganized company.
If the company emerges from bankruptcy and does well, the previous bondholders (now stockholders) may come out OK. However, some companies don’t survive even after Chapter 11.
...
If you own stocks or bonds in a company the files for Chapter 7 bankruptcy, you will probably receive nothing for your investment. Bondholders may receive a partial payment, but not always.
What happens to bond owners?
As noted in Part 2 of this series, bondholders are second in line for proceeds in either reorganization (Chapter 11) or liquidation (Chapter 7).
Under the best of cir stances, bond owners may receive pennies on the dollar in a Chapter 11 and could possibly receive some of the proceeds from Chapter 7 liquidation.
It is unlikely that bondholders will see their original principal returned.
Wait.
So they weren't wiped out?
The agreement, revealed in a Securities and Exchange Commission filing by GM (GM, Fortune 500) early Thursday, would essentially give the bondholders 10% of the company but also give them the rights to buy an additional 15% of the company's stock at a low price.
http://money.cnn.com/2009/05/28/news...ion=2009052810
So if these are still the terms (anyone is free to correct me here), former bondholders could make quite a bit of money from this IPO.
Is that a correct assumption, CC?
That remains to be see. So far their new "stock" is worthless.
The fact remains that the bondholders were SENIOR CREDITORS and their claim was subordinated to the claims of an UNSECURED CREDITOR (The United Auto workers). The unsecured creditor ended getting almost twice as much "stock" in the new company as the secured creditor.
No it is not a correct assumption. The two are unrelated. The bondholders who had 100% of old GM debt still only own 10% of "new" GM which is still essentially worthless. Any money from the IPO goes to pay off the Feds and is not invested in productive capacity as is normal with IPO money.
So you are saying they weren't wiped out.
Thanks.
Here's more:
The original bondholders have been hammered -- the debt traded at 95 cents on the dollar as recently as 2007 -- but prices have tripled from about 10 cents since before the bankruptcy filing as Wall Street has warmed to the company's story.
The debt carries obvious risk, given the uncertain recovery value. Many ins utional investors avoid such complex distress-debt situations....
....GM bond bulls, including analysts at JPMorgan and Morgan Stanley, have argued that the debt could rise to 40 cents on the dollar if the company's recovery plays out and equity investors gravitate toward the debt ahead of an IPO. Probably the best plays are GM's old convertible debt, including the 6.25% and 5.25% issues formerly listed under the tickers GPM and GBM. They trade for about $6.50 -- 26% of their $25 face value.
http://articles.moneycentral.msn.com...f-2010-gm.aspx
Things have probably changed since March, but equity in the company and a possible 40% of the initial bond investment?
It's clear the unions got the better deal (though they made several billions of dollars worth of concessions as well), but how much better do you think the bondholders would have made out through a traditional bankruptcy?
If a bondholder owns stock and buys more stock at a low price, and the price goes up after an IPO, does that bondholder make any money?
Yes or no.
Even if the debt rallies, bondholders will fare the worst, reflecting the restructuring of GM by the Obama administration that favored the union over bondholders despite their similar legal claims. The union is also apt to do better than taxpayers, based on its sweet deal.
I guess the original bondholders no longer own that debt, but a majority of them agreed to the terms of the deal -- so contrary to what has been claimed in this thread, they knew exactly what was happening.
Three if's to end up making money?
I think you should buy GM bonds, CHUMP since you think they are such a ing good investment.
In short:
1) The bondholders weren't completely wiped out.
2) The majority of bondholders approved of the deal that was reached outside of bankruptcy.
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