Nachfolgend der original Kommentar in englischer Sprache:
Bailout plan rejected
Markets are negative this day as the US Senate surprisingly rejected the bailout plan ($14bn emergency bridge loan) for General Motors and Chrysler. The troubled carmakers would get the bailout if they presented a (painful) restructuring plan making their business viable again. In return for the loan the government would get warrants worth 20% of the money loaned.
Key reason for the Senate to reject the plan is that the US taxpayer should not pay for bad run companies. Furthermore, in the restructuring plan presented by the carmakers, employees were not willing to take a wage cut. Wages of the US carmakers are currently much higher than foreign carmakers operating in the US and the Senate was not prepared to sponsor these wages with tax money. According to the US Senate everybody should feel the pain of the current situation and the potential bailout. This includes bond holders, pension plans and unions. A key question for the financial market is how big an impact a failure of GM will have on the US economy. Unemployment, private consumption, further company failures, credit losses, a further correction in equity markets and the extent of any spill over to the European car industry must be anticipated.
Equity of GM is today, at time of writing, down 35%. Bonds of GM that mature Monday are trading at bid prices of around 90 cents…the market is clearly questioning if GM survives the weekend or have to file for a chapter 11 under which no bond payment is required next Monday.
So what are the scenarios going forward? Below we give the most likely ones:
- GM struggles on and survives up to January 6 when the new Senate (with more seats for the democrats) takes over where likely vote for a government loan would pass
- The FED allocates money available under the TARP programme to support them in the near term while a new bailout plan is discussed
- GM files for bankruptcy and the government then provides DIP financing
How is the ING Global High Yield Strategy exposed to General Motors?
We at ING IM believe GM will receive some sort of support (a combination of scenario 1 and 2). We have been significantly underweight GM (benchmark weight is 2%) for quite some time as we foresaw the potential troubles of the carmaker. After the sharp drop in bond prices we gradually reduced our underweight. We are comfortable with our current positioning.
We do not feel comfortable with implementing a more pronounced bet, either a strong underweight or strong overweight. The different scenarios are all likely and although we believe GM will receive some sort of support, our conviction is not that high. Furthermore, in current markets we see other opportunities where our conviction level is much higher and where a pronounced view (significant overweight or underweight a certain bond) will most likely pay off better.