GM 7.2% coupon bonds maturing 1/15/11 - YTM* - 384.367%

[A HERETIC I AM]

*YTM = Yield To Maturity

Amazing. A $1,000.00 face value bond selling for $42.38. Rated C/CCC+ by Moody's/S&P

http://cxa.marketwatch.com/finra/BondCenter/BondDetail.aspx?ID=MzcwNDQyQkIw

GM common stock touched $1.00/share shortly after the open this morning. Closed at $1.23 +$.02 for the day. It reached $1.35 just after noon before settling back to roughly where it opened.

http://www.marketwatch.com/investing/stock/gm

[Yupster]

1. Might be a good buy at that price

Depends on how bankruptcy court treats the bondholders.

Is there a chance the President may pay off the bondholders 50 cents on the dollar to go away?

That would make it a great buy.

[A HERETIC I AM]

2. Even if they got twenty cents....

you would still do very well. 20% would settle that bond at $200.00. Plus, unless they have suspended the coupon payment, each bond is going to pay a $36.00 interest payment every 6 months, with the next one due in July.

[Yupster]

3. I wouldn't count on dividends

GM's next bond dividends are due on June 1, and they aren't going to pay that.

They'll either be bankruptcy or a deal before then.

The bondholders are voting right now until May 26 on the offer GM gave them and that's going to be a big thumbs down.

Then either the President will offer a better deal to the bondholders or GM will declare bankruptcy before June 1.

The it will be up to the bankruptcy judge.

[A HERETIC I AM]

4. This bond pays its coupon in January and July and at the moment...

there is currently no indication that this particular bond will not make that next payment. I wouldn't count on dividends either, but these do not pay dividends, they pay interest.

Not all of GM's bonds pay their interest payments on the same day. The June 1st interest payment you are referring to has to do with another bond series, not this one.

However it is quite likely they will default between now and July 15 (when the next coupon is due) as that's what they're priced for.

Still, if they settle for 7% to 8% of par or higher, a buyer at this price would come out ahead.

Either way, it is still an extremely speculative play. I posted this merely because I found it interesting and I'm not suggesting anyone seek out and purchase these bonds.

[Common Sense Party]

5. Wow. Just wow.

Ten years ago, if you told me GM's stock would be at this level in 2009, and their bonds rated CCC+, I would have thought you insane.

What a world.

[trof]

6. My GM 7.5% $25 par Senior Notes pay $1.875 interest annually.

They closed at $1.24 yesterday.
At that price they're paying over 100% return annually.
Wanna buy mine?
;-)

[A HERETIC I AM]

7. I'm curious if you have gotten mail from GM re: the offer for common stock.

I have to do some more reading on the offer but it is currently my understanding that all bond holders, be they senior debt or preferreds will be offered 250 shares of common for every $1000 face value of debt securities they hold.

Did you get that notice Trof?

That is going to be the play with the bonds I mentioned in my OP - an arbitrage play. Of course, it's only profitable if your cost basis on your bonds is below the level of what ever 250 shares of common is trading at on the day you take the deal.

[trof]

8. I did. I said 'no thanks'. Here's my take:

Looked like a no-win situation for me.
If I keep the Senior Notes and GM files for chapter 11, they'll do it anyway. Swap me equity (common stock) for debt (the Senior Notes).
Delta Airlines did the exact same thing years ago.

If GM somehow manages to avoid bankruptcy (very doubtful) I'll still be closer to the front of the line to recoup at least some of my investment.
And if they are (somehow) able to borrow enough money at lower interest rates to retire (call in) those notes, they'll have to pay $25 per share for them.
Again, not very likely.

Also, my broker tells me that after whatever GM does is done, they plan a reverse stock split. 100 shares of 'old' GM for ONE share of the 'new' GM.

As you might have guessed, I've written this one off.
:-(

[Yupster]

9. The reverse stock split is a nice little touch

They offer 225 shares per $ 1,000 bond but then change it to 2 shares. Oops.

An amazingly unfair offer.

[trof]

10. And I didn't even get kissed.

;-)

[A HERETIC I AM]

11. Sure you did....

just not in a good way!

I hope you didn't lose too much on those.

[trof]

12. About 20 grand.

Although I have gotten around $7500 in interest payments.
So 'only' around $12,500 loss.
meh