Thursday, December 11, 2008

Too obvious

Guambat's suggestion that the car industry fold itself into their finance arms and morph to a bank to get bailout money was obviously too obvious.

GMAC Extends Debt Swap Offer (WSJ - needs a ticket to read)
GMAC, the financing arm of General MotorsCorp., warned Wednesday it will drop its effort to become a bank holding company -- and see its business suffer further -- if it doesn't get the required support from bondholders for its $38 billion debt exchange offer.

"We continue to believe that pursuing the bank holding company status would offer GMAC the most opportunity to resume providing auto and mortgage financing to customers and businesses," said Gina Proia, a GMAC spokeswoman.

"The bond exchange is a critical part of the capital plan to meet the regulatory requirements to become a bank holding company," she said.

In the absence of these funds and because of GMAC's inability to tap alternative sources of cash, GMAC will have to further scale back lending to shore up its debt-heavy balance sheet.

This means that the financing arm, co-owned by GM and a group of investors led by Cerberus Capital Management LP, will be restricted in its ability to make auto loans, deepening the sales erosion at GM. A lack of funds also means that GMAC may have to pull the life support plug on its ailing mortgage unit.

Wednesday, December 03, 2008

Bank on the auto industry

Guambat was perusing this article, Ford to 'Aggressively Restructure,' Seeks $9 Billion in Bridge Financing, and thought, why don't the auto companies fold themselves into their finance arms and mutate them into banks, ala Goldman Sachs?

Then they could avoid all that embarrassing Congressional cup-passing and such and go straight to the Fed.

That's the problem with waking up a Guambat in the middle of the night to catch up on world events from his rockhole high above beautiful Tumon Bay on a sleepyish Micronesian island.


Private equity equals public debt

Case in point: Hawaiian Telecom.

Carlyle's Bet on Telecom in Hawaii Ends Badly
Hawaiian Telcom Communications Inc. filed for bankruptcy protection Monday

Carlyle bought Hawaii's largest telephone carrier from Verizon Communications Inc. in 2005 for $1.6 billion, putting up $425 million in equity and using debt to finance the rest.

Of the 109 U.S. companies that have filed for bankruptcy this year with assets of $1 million or more, 67 have been owned by buyout shops or been spun off by them

From 2005 through the third quarter of 2008, private-equity firms added $741 billion of debt on company balance sheets

Such was the case of Hawaiian Telecom, which in the nine months ended in September paid $68.2 million in interest expenses, on top of a $35.7 million operating loss.
Guambat was particularly amused by the cynical juxtaposition of this little aside at the end of that article:
Separately, Hawaiian Telcom's lead law firm, Kirkland & Ellis LLP, beefed up its restructuring group over the weekend by rehiring James Sprayregen, who previously spent 16 years at the firm. In 2006, he decamped to Goldman Sachs Group Inc. to work as an investment banker.

"I feel like this next wave of corporate bankrupticies is just starting," said Mr. Sprayregen, who will co-chair the law firm's bankruptcy group.