Wednesday, April 1, 2009

C.M.O. 4.1.2009

Credit Market Overview
April 1, 2009

Vladimir Putin, Russia’s Prime Minister made a $1TN cash bid for GM’s Hummer brand last night with the only stipulation being that the 1MM people currently receiving health benefits from Hummer’s parent company GM continue to due so while the 96,000 active employees continue their normal contributions to the plan.

The PM gets two things in return: one kick-butt vehicle to drive around the steppes of Mongolia and living proof that Marx’s was right when he said: “From each according to his ability to each according to his needs”.

APRIL FOOLS!

With President Obama raising the probability of bankruptcy for what was once the crown jewel of American industry and enterprise I thought it would be interesting to look at some of the events in GM’s recent past and see where the stock and CDS were trading.

Nothing too intense, more like Sports Center’s Top Ten Plays.

November 2003: Bond’s of GM rose in value and the spread over Treasuries, at 100bps was the narrowest since 1999. Traders felt at the time that optimism surrounding the economic recovery would boost demand for corporate debt. No CDS data available the stock around $40.00

March 2004: GM’s EBITA hit a 9-yr high at $20.879BN a 30% increase over the year earlier period but cut’s target to $48 on higher health care costs. The company also announced the formation of a bank in Utah to cut borrowing costs and recalled 3.66MM pick-up trucks. No CDS data available stock trading around $45.

October 2004: GM reports a 3rd quarter profit of $440MM or $0.78/share after GMAC earns $656MM helping parent Corp. cover losses. S&P cuts GM’s credit rating to one notch above junk due to worries about the company’s auto business. Stock trading around $38; CDS 240bps.

April 2005: GM asks union for help in cutting benefit costs. Board appears to be losing patience with Wagoner over costs to restructure Europe where the company had already sustained $3BN in losses. Stock around $26; CDS around 850bps

May 2005: S&P cuts GM debt rating to junk. Kerkorian says “shares won’t fall further and can only go higher”. Stock around $31; CDS around 980bps

August 2005: GM rating lowered to junk by Moody’s. Stock around $38; CDS around 500bps

December 2005: S&P cuts GM debt rating to B from BB-. Lowest rating since 1953. Stock around $19; CDS around 1350bps


November 2006: GM offers discounts on 2006 and 2007 models by as much as $2,000 after sales drop 9.1% in past year and Toyota and Honda continue to gain ground. Stock around $30; CDS around 400bps


December 2006: Kerkorian admits to losing approximately $8.6MM in GM trades over previous 19 months. Stock around $30; CDS around 400bps

November 2007: Wagoner flies to Washington on private jet to seek Federal Bailout money. GM lowers earnings estimates ahead of Q3 announcements. Stock around $26; CDS around 825bps

December 2008: Wagoner appears before Congress to ask for $18BN in aid. (He drives this time) Stock around $4.70; CDS around 9925bps

March 2009: President Obama rejects GM turn around plan raising prospect of bankruptcy. Stock hits low of $1.45; CDS hits high of 16870bps.

Having watched GM through out the time period above it is amazing to see in hind sight what few saw coming just a short number of years ago.

Enjoy the week.

Jim Delaney

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