What the GM bondholders get from the IPO (Detroit Free Press)

Posted: Nov. 15, 2010
In GM IPO, stakeholders could walk away with billions as stock hits the market this week

Some will see billions as stock is released to public this week
By CHRISSIE THOMPSON
FREE PRESS BUSINESS WRITER

This week, General Motors' stakeholders will see some cash. Finally.
If all goes as planned, GM will price its initial public stock offering on Wednesday, and the stock will hit the market on Thursday morning with new owners.

As trading begins, owners such as the U.S. Treasury will walk away with billions of dollars in exchange for releasing their GM stock to the public.

But that doesn't include GM bondholders -- many of whom are Detroiters who supported the home team years ago through their investment portfolio.

During GM's bankruptcy last year, the bondholders were given a 10% stake in the new GM. But they won't actually receive the shares until the liquidation of the cast-off portion of the old GM that is still in bankruptcy. That's expected to take three to six months, according to an insider from a firm that's a major bondholder.

Until then, GM's bonds will continue to trade. And starting this week, so will the stock -- with everyday Joes like Kris Trexler eager to get a piece from the stock's first public owners.

Trexler, a Los Angeles film and video editor, said he cried when he turned in the EV1 electric car that GM canceled a decade ago. He's now one of the consumer advisers testing a Chevrolet Volt for three months -- and he already has a Volt on order for when the test ends.

"After driving this car ... I can't think of any reason I wouldn't buy some stock," Trexler said. "This company is back, and they've proved it to me."

Old GM bonds guarantee shares of new GM stock

"I've been holding them for years. What's another couple of months?"

That's the strategy Northville's Frank Drew says he's using for his General Motors bonds. The bonds, with a face value of about $150,000, are now trading at about a third of their original value. But once the part of the old GM still in bankruptcy is liquidated, Drew will get GM stock. His bonds will be put in a pool with about $37 billion worth of bonds and other unsecured claims, and 10% of GM's 1.5billion common shares will be issued to bondholders proportionately to the value of their bonds.That stock will be Drew's to do with as he wishes -- just as it will be for the buyers of GM's stock when it hits the market Thursday, 16 months after the company exited Chapter 11 bankruptcy.

GM is planning to sell up to 419.75 million common shares and 69 million Series B preferred shares to hedge funds, money managers and long-term investment firms. Those firms will then trade the stock on the New York and Toronto stock exchanges.

The automaker set a target range for the common shares at $26 to $29 each, but GM is expected to raise that range early this week by no more than a few dollars, according to two sources familiar with the situation. As executives finish their road show presentations to investors in North America and Europe, they're gauging the interest of the all-important long-term investment firms. GM needs those firms to hold stock for months, or even years, to keep it stable.

By all accounts, demand for GM stock is strong, likely enough for every possible share to sell. And the recent market improvements only help. The Dow Jones Industrial Average has gained about 500 points in the last month, and more than 1,000 in the last two months, closing Friday at 11,283.

Probable buyers include GM's Chinese automaker partner SAIC and investment funds from the Middle East.

That could create controversy for the IPO's largest seller, the U.S. Treasury, which is planning to use the sale to lower its stake in GM from 60.8% to slightly more than 40%. The treasury has said that some foreign investors would be allowed, but consumer advocate and former presidential candidate Ralph Nader cosigned a letter last week to President Barack Obama, urging him to suspend the IPO, partially because of the need to keep investment in the U.S.

Nader was also concerned that the government plans to sell part of its stake at a loss. The government needs to average $43.67 per share to break even on its $50-billion investment in GM, above the likely range. The treasury is hoping GM's stock will grow in value over the coming months and years so it can make more money when it sells the rest of its shares.

An increase in stock price is likely, said a person from a firm that owns a large number of GM bonds. The firm expects GM's stock to quickly reach the mid-$30 range the bond trading currently implies. And by 2013 or 2014, the person said, the firm expects the stock to hit $60 to $70 each, as long as GM fulfills executives' predictions that the company will make $11 billion to $13 billion annually before interest and taxes in an average sales climate.

GM bondholders will also receive warrants to buy more stock by either 2016 or 2019. Bondholders will be able to receive that extra stock by paying either $10 or $18.33 per share, which will count as revenue for GM. The warrants will take bondholders' total share in GM to 23.85%.Contact Chrissie Thompson: 313-222-8784 or cthompson@freepress.com

The GM IPO (Businessweek, Reuters, Barrons)

Barron's Cover | SATURDAY, AUGUST 21, 2010
Who's Driving?
By ANDREW BARY

Speculation on the new GM: IPO Price, What old GM Bondholders Might Get

"....The way for investors to play the new General Motors is through the debt of the old GM. Valuing that $27 billion (face amount) of debt isn't simple because the bonds are entitled to 50 million GM shares and two issues of warrants to buy more. The warrants, each involving 45.5 million shares, have strike prices of $30 and $55 and aren't easy to value. And there's an additional wrinkle: Bondholders aren't the only creditors entitled to the stock and warrants. There may be at least $37 billion of total claims allowed by the bankruptcy court, GM said in its IPO prospectus. This means that the stock and warrants will be apportioned to a larger group of creditors than just bondholders...."



GM plans to file for IPO during week of August 16: sources
Fri, Jul 23 2010
By Clare Baldwin and Soyoung Kim

NEW YORK/DETROIT (Reuters) - General Motors Co plans to file its registration for an initial public offering during the week of August 16, just after the expected date for its second quarter results, according to two people with direct knowledge of the preparations.

A GM filing with the U.S. Securities and Exchange Commission would be the first step toward an IPO to reduce the U.S. government's ownership in the automaker after a $50 billion bailout in 2009.
By filing with the SEC in August, GM is aiming to complete its IPO before the November U.S. elections, according to the sources, who asked not to be named because the closed-door preparations remain confidential.

GM also remains in talks with Bank of America Corp , JPMorgan Chase & Co , and Wells Fargo & Co for dealer and consumer financing for more credit-worthy borrowers, one of the sources said.

One concern for potential investors has been whether GM dealers and potential car buyers have the same kind of access to financing as competitors with in-house financing operations like Ford Motor Co .

General Motors on Thursday said it would buy auto finance company AmeriCredit Corp for $3.5 billion in cash to form what it called the "core" of a captive finance operation. The move marks a reversal of the position GM took when it sold control of its former in-house financing arm GMAC in 2006.

Any additional financing partnership agreement GM reaches would be complementary to the AmeriCredit transaction, one of the sources said. Many GM dealers have complained that lack of consumer financing has cost them sales.

An IPO for the U.S. automaker, which was restructured in bankruptcy last year, would be the biggest U.S. stock offering since Visa Inc's $19.7 billion March 2008 IPO and one of the biggest IPOs of all time.

GM's second-quarter earnings report is expected to show the automaker generated cash for a second consecutive earnings period, according to one of the sources.

GM Chief Financial Officer Chris Liddell told CNBC on Thursday that the automaker would report results in about three weeks.

GM spokeswoman Renee Rashid-Merem told Reuters on Thursday the automaker would report second quarter results in mid-August.

"Beyond that, we aren't commenting on matters relating to an IPO. We will launch an IPO when the conditions are right and the company is ready," she said.

U.S. officials have said repeatedly that GM's board of directors have a free hand to run the company to try to improve the return for taxpayers.

The automaker posted its first quarterly profit since 2007 in the first quarter. In the June-ended quarter, industry-wide U.S. auto sales were above 11 million vehicles on an annualized and adjusted basis.

But GM's lower cost structure coming out of bankruptcy has allowed the automaker to break even with industry-wide U.S. sales as low as about 10.5 million vehicles, the sources said.

UAW, CANADA SALES PROPORTIONAL

GM's biggest shareholder is the U.S. Treasury, which owns nearly 61 percent of the automaker. The Treasury is expected to sell between 20 and 24 percent of its stake, sources said earlier this month.

The United Auto Workers healthcare trust, which owns 17.5 percent of GM, and the governments of Canada and Ontario, which own 11.7 percent, are expected to sell the same share of their holdings as the U.S. government, one of the sources said on Thursday.

GM, which is not expected to pay dividends on its newly-issued common stock, also plans to sell $3 billion worth of mandatory convertible securities, a source said earlier this month.

The U.S. automaker also is in the process of finalizing a $5 billion revolving credit line, several sources have said.

(Reporting by Clare Baldwin in New York and Soyoung Kim in Detroit, additional reporting by Kevin Krolicki in Detroit; editing by Carol Bishopric





Politics & Policy July 15, 2010, 5:00PM EST
GM's IPO May Require Hefty Incentives
The sales pitch will need hope, contrition, and smooth talking

By Roben Farzad, David Welch and Jeff Green

The initial public offering of recently bankrupt and nationalized General Motors looks to be one of the trickiest deals in memory.

True, the still-enormous carmaker has shed billions in liabilities and legacy costs in its "quick-rinse" 39-day bankruptcy. After a federal rescue, GM is again profitable, and its vehicles are selling briskly in the U.S. and China. Yes, the Treasury Dept., which extended close to $50 billion of aid to the behemoth last year, is a motivated seller, eager to prove the bailout a success in an election year in which many voters say bailouts wasted their money. "The initial public offering will be a significant step in carrying out Treasury's previously announced intention of disposing of TARP investments as soon as practicable," states a Treasury memo on the deal, not yet scheduled but widely expected before the November elections.

The Wall Street underwriters, likely to be Morgan Stanley (MS) and JPMorgan Chase (JPM), are so keen to participate that they are accepting a 75 percent discount on their fees, says one person briefed on the matter. Various estimates peg the flotation, including about 20 percent of the government's 61 percent stake, at $12 billion, which would make it the second-largest in a decade, after Visa's (V) $19.7 billion deal in 2008. And do not underestimate GM Chief Executive Ed Whitacre's resolve. "The new management team desperately wants to feel like a legitimate company again," says Steve Dyer of Craig-Hallum Capital Group, a Minneapolis-based trading and research shop. "That can only happen if they get rid of the perception that they're still reliant on the government."

All great, save for one thing: It's not clear that investors are pining to buy GM 2.0. This could be an IPO unlike any other, and not only because Uncle Sam is hawking the shares. The main selling point will not be a quick return on investment. Instead, it will be that GM's limited record of success—the company just reported its first quarterly profit since 2007—is only the beginning. Throw in contrition and appeals to hope and patriotism, and GM just might have a successful offering.

Job No. 1 is restoring "Government Motors" to a staple investment for institutional shareholders. That means convincing investors it can consistently make a profit in a leaner car-selling market. There's no getting around the reality, though, that GM has a ways to go before it wins over the car-buying public. In an April Consumer Reports study of reliability among 15 automakers, GM scored second to last. GM has shed the Hummer, Pontiac, Saab, and Saturn brands and now consists of Buick, Cadillac, Chevrolet, and GMC.

Then there's the let-bygones-be-bygones part of the IPO sales pitch: GM must persuade investors burned by the government takeover and unconventional bankruptcy to buy its shares again. That might require mediation by the U.N. after a bankruptcy proceeding in which the United Auto Workers union received more of the newly issued stock than some bondholders—a rearranging of the stakeholder pecking order that would not have happened in a traditional court-managed filing. "GM and Treasury will pay a price for that," says Maryann Keller, a veteran auto industry analyst who advises large investors. "Three words," says William Smith of New York-based Smith Asset Management, a former holder of GM's old shares: "Smoke and mirrors." He calls the preference given to the UAW in the bankruptcy "dirty pool," something "unprecedented in a democratic country with bankruptcy rules."
Even after its restructuring, GM has a troubling pension burden. Its retirement plan is underfunded by $26.8 billion. While the company doesn't have to make a payment for three years, at some point more money will have to go into the plan.

There are other questions: The reception for GM's much anticipated all-electric Volt, which the company says it will roll out at the end of next year, is uncertain. So is GM's plan to fix its European operations, which lost $506 million in the first quarter. Another unknown is what kind of auto market GM needs to stay in the black. The sales levels of 16 million to 17 million cars a year that once prevailed? Or the present 11 million?

Keller argues that demand has been reset downward because of lagging personal income, fading consumer confidence, and the end of easy credit. Detroit, she notes, has spent the past four decades extending the typical car loan from two years to five or six, to reduce monthly payments and get more units out the door. Now, she says, "we're really at the limit of what you can do with creative auto financing." GM's lack of a dedicated finance arm could also be a problem. "GM will launch an IPO when the conditions are right and the company is ready," says spokeswoman Nina Price, declining further comment.

Perhaps the strongest case for a resurrected GM stock is that many fund managers will have no choice. What was too big to fail a year ago remains too big to ignore in current investing terms. Ford (F), which is the only other remnant of the Big Three available to investors, is the 53rd-largest component in the Standard & Poor's 500-stock index, according to Bloomberg data. GM, which is now probably worth more than Ford's $40 billion valuation, would almost certainly be restored to the S&P 500, the preferred benchmark for mutual funds. "Most fund managers need and want exposure to the space," says Craig-Hallum's Dyer.

The underwriters have a tricky assignment: Unless the stock market ultimately values the 102-year-old automaker at a truly impressive $80 billion, taxpayers will not break even. With confidence flagging in the overall economic rebound and the auto industry's wobbliness in recent months, "the risk remains high that an IPO in this environment is unlikely to generate the best returns for the taxpayers," writes Bill Visnic, a senior editor at Edmunds' AutoObserver.com. As any good dealer will admit, you need heavy incentives and smooth talking to move a rebuilt car off the lot.

The bottom line: Despite a shaky economy, the White House is eager to refloat General Motors after its government takeover and bankruptcy.

Bloomberg Businessweek Senior Writer Farzad covers Wall Street and international finance. Welch is Bloomberg Businessweek's Detroit bureau chief. Green is a reporter for Bloomberg News .

When is the GM IPO? (Wall St Journal)

The Big Guns Coming Out for GM Deal

By RANDALL SMITH And SHARON TERLEP

Wall Street bankers are salivating over one of their biggest potential paydays since the market meltdown of 2008: the planned initial public offering of General Motors Co.

With a size that may top $10 billion, the GM IPO could generate fees of $275 million or more for the Wall Street underwriters, the most fees from a single stock deal since the $19.7 billion IPO of credit-card giant Visa in March 2008 generated $550 million.

Some Wall Street bankers said they expect the GM initial public offering will be led by just two firms, who would typically command the lion's share of the fees.Above, GM's world headquarters in Detroit.
All of which explains why top officials of several major financial giants personally participated in what is known on Wall Street as a "bake-off," a series of meetings in which the bankers present their best ideas for how to sell the stock.

James Dimon of J.P. Morgan Chase & Co., John Mack of Morgan Stanley and Brian Moynihan of Bank of America Corp. all personally took part in the meetings with officials of both GM and the U.S. Treasury Department, which acquired its current 61% stake in a $50 billion bailout last year.

Vikram Pandit of Citigroup Inc., who was visiting Citi offices in Mexico, took part by phone. Although Lloyd Blankfein of Goldman Sachs Group was in London, Goldman's president, Gary Cohn, attended, along with David Solomon, the firm's co-head of investment banking.

Other firms sent some of their best-known personalities as well. For example, Mr. Dimon attended with James B. Lee, the well-known top deal maker at J.P. Morgan. The Citi delegation also included John Havens, head of Citi's institutional-clients group, and Tyler Dickson, the firm's head of global capital-markets origination. The bake-off meetings were previously reported by Fox Business.

Before the bake-off pitches, the Wall Street firms were sent questionnaires asking how they have supported GM in the past, according to one person told of the meetings.

Some Wall Street bankers said they expect the GM deal will be led by just two firms, who would typically command the lion's share of the fees. Firms with armies of retail brokers such as Morgan Stanley and Bank of America, which has brokers from Merrill Lynch, could have an advantage. Another firm with an edge is J.P. Morgan, which has been the biggest lender to the auto industry over the past decade, one person said.

Although the value of GM's former common stock was vaporized in its visit to bankruptcy court last year, the No. 1 U.S. auto maker by sales has been able to slash its debt from $45.9 billion at the end of 2008 to less than $10 billion currently.

It isn't clear yet to what extent GM's other shareholders will sell stock in the offering. They include a union trust for retired auto workers, which holds 18%, the Canadian government, which owns 12%, and former debt holders who own 10%.Some Wall Street analysts estimate GM's market value could top that of Ford at $41 billion and even exceed $70 billion, the level needed for the U.S. government to break even on its investment. That would top GM's peak market value of $60 billion in 1999, when both the stock market and sales of high-profit sport-utility vehicles were booming. Two months ago, J.P. Morgan Chase debt analyst Eric Selle put GM's stock-market value at $90 billion. By comparison, the market value of Toyota is $116 billion.

The Obama administration has said it is hopeful GM can make an offering by the end of this year and is eager to shed its stake in the company, though the auto maker and the Treasury have stressed that the timing is up to GM.

The company doesn't want to rush the offering and would prefer to address some issues—namely its lack of a company-run finance arm and losses in Europe, the site of clashes with labor and state governments over layoff plans—said people with direct knowledge of the company's strategy.

The IPO pickings have been slim for Wall Street ever since the Visa deal. After peaking at $55.3 billion in 2007, the volume of U.S. IPOs tumbled 70% to $16.7 billion last year, Dealogic said. The biggest U.S. IPO since Visa was just $2.2 billion, Verisk Analytics from last October.

The U.S. Treasury recently chose Lazard Ltd. to advise on the IPO. Among those playing a lead role in the underwriter selection are the Treasury's "car czar," Ron Bloom, himself a Lazard banker in the 1980s, and GM Chief Financial Officer Chris Liddell, an alumnus of software giant Microsoft Corp.

In its most recent financial report, GM showed a profit of $863 million in the first quarter of 2010, compared with a $6 billion loss a year earlier, marking the auto maker's first profitable quarter since 2007. Revenue grew 40% to $31.5 billion, and the company generated $1 billion in cash.

GM has cut its costs in the past few years. Deutsche Bank analyst Rod Lache estimates GM cut fixed costs in North America to $20 billion from $40 billion in 2008. He says the recent results show "these guys are building momentum and they have a lot of positives happening."

Earlier in the decade, the auto maker needed U.S. sales to reach 16 million to 17 million annually to make money. Today, GM says it can be profitable in the U.S. market with 10.5 million sales; analysts expect 11.5 million this year. Because bankruptcy slashed GM's debt, interest costs fell to $337 million in the first quarter, less than one-third the former level. Shifting retiree health costs to a union trust fund and other changes to retirement benefits reduced annual costs by another $3 billion.

Write to Randall Smith at randall.smith@wsj.com and Sharon Terlep at sharon.terlep@wsj.com

The New GM: Initial Public Offering Plans

August 8, 2009
Business Briefing | Company News
General Motors Is Planning to Hold an I.P.O. Next July
By BLOOMBERG NEWS
The General Motors Company, the new automaker majority-owned by the United States Treasury, said Friday that it intended to make an initial public offering of stock by July 10, 2010, the one-year anniversary of its exit from bankruptcy. The target date range for an offering was disclosed Friday in a federal regulatory filing that the company said summarized its activities in the four weeks since it left court protection. G.M. said it was authorized to issue 2.5 billion shares of common stock. G.M. will begin releasing financial data after the third quarter, a spokeswoman, Renee Rashid-Merem, said. The company’s filing did not include financial results. “Today’s disclosures are consistent with our commitment to remain transparent and to keep the public informed of our progress,” the chief executive, Fritz Henderson, above, said in a statement.

MORE FAQS ON THE "NEW" GM (from corporate website, http://phx.corporate-ir.net/phoenix.zhtml?c=231169&p=irol-faq)


1. What is General Motors Company, and how is that different from General Motors Corporation?
General Motors Company is the “new GM.” We were formed when Motors Liquidation Company (formerly named “General Motors Corporation”), used section 363 of the U.S. bankruptcy code to sell the strongest parts of its business to a new company, named “General Motors Company.” Our new company is built upon only the strongest parts of the “old GM” business – our employees; our best brands (Cadillac, Chevrolet, Buick, GMC), and the plants and other hard assets that those brands rely on; the contracts we need to secure supplies and keep our business moving; and the equity in our domestic and global subsidiaries.

2. Is GM out of bankruptcy?
Yes, all of GM’s continuing operations and assets are completely out of bankruptcy and are now operating as an independent and separate company called “General Motors Company”. This includes all operations that interact with customers.

3. Can I buy shares in General Motors Company? Will there be an initial public offering?
There are currently no shares of General Motors Company for sale to the public. It will initially be owned by the U.S. Treasury, the governments of Canada and Ontario, the UAW VEBA and Motors Liquidation Company. We expect that shares of the General Motors Company will be publicly traded in the future, and this may involve an initial public offering. Also, as early as the first quarter of 2010, General Motors Company may be contractually required by its new stockholders to register their stock for sale to the public; however, we do not know when or if any of these stockholders will sell any of their shares.

4. What is Motors Liquidation Company?
After it sold substantially all of its assets in the section 363 sale to General Motors Company, General Motors Corporation was renamed “Motors Liquidation Company.” For the operations, assets and liabilities that were not transferred to General Motors Company, the chapter 11 bankruptcy case will continue in order to resolve creditors’ claims and wind down those operations in an orderly way. Information about Motors Liquidation Company can be found on its website, http://www.motorsliquidation.com.

5. What happened to common stock, bonds and other securities previously issued by General Motors Corporation (now renamed “Motors Liquidation Company”)?
All of the publicly owned stocks and bonds previously issued by General Motors Corporation are still securities of that company, but its name has been changed to Motors Liquidation Company. None of Motors Liquidation Company’s publicly owned stocks or bonds are or will become securities of General Motors Company, which is an independent separate company.


WEBSITE OF THE "OLD" GM
http://www.motorsliquidation.com/?evar10=InvestorInfo_MotorsLiquidation

creditors of OLD GM website:
http://www.motorsliquidationcreditorscommittee.com/