GMAC awaiting approval of debt swap by shareholders to avoid bankruptcy

by Sundeep Kothari

Roswell, Georgia bankruptcy lawyer

GMAC awaiting approval of debt swap

One minute before midnight Friday is GMAC’s deadline for bondholders to swap $38 billion in debt for new bonds that are worth less money — a deal that could help the finance company avert bankruptcy and qualify to become a bank holding company.

Becoming a bank holding company would give GMAC access to financing under the $700 billion government bank rescue fund. The financing company needs about 75% of its bondholders to agree to restructure the debt.

The government has said GMAC must have $30 billion in assets to qualify as a bank holding company. The debt swap is a significant part of the financing arm’s attempt to raise that money.

If it fails to meet that target, bankruptcy looms as a real threat for GMAC, which once was General Motors’ (GM)crown jewel. GMAC has said that failing to become a bank holding company would have dire effects on its business.

Standard & Poor’s said earlier this month that failure would mean “the potential for a bankruptcy filing would be high.”

However, President Bush’s decision last week to use federal financing to help bail out the automakers could be a good sign for GMAC, says Himanshu Patel, an analyst at JPMorgan.

 

“GMAC will probably be safe, regardless of GMAC’s bond-exchange results,” Patel said in a recent research note. “We think Treasury will take the needed steps, in the end, to help GMAC remain solvent.”

So, GM is in good shape, but not totally out of the woods yet. Yesterday, I was reading how Detroit’s unemployment rate right now is at 21%. If the Big 3 had been allowed to go into bankruptcy at this point, that number might have reached 30-40%.

That doesn’t change the fact that the Big 3 still don’t have a realistic plan to make cuts and reorganize to adapt to today’s market. They still are running their companies like it is the 1960s or 1970s or 1980s.

Analysis of Pay Day Lenders

by Sundeep Kothari

Payday loans

This article discusses pay day loans. I am absolutely, 100% against these types of lenders. They charge interest rates which are an abomination.

If President-Elect Obama wants to do something courageous and great, he can either ban these places entirely, or get a law enacted that reduces the maximum annual interest rate to 15% on these loans.

Factors used in lowering credit card limits

by Sundeep Kothari, Atlanta-Sandy Springs Bankruptcy Attorney

Factors used in lowering credit card limits

This article discusses factors that credit card companies use when lowering credit card charge limits.

These include payment history, whether you exceed your credit limit, credit history with other credit cards, where an individual shops, whether other individuals who shop there default on their cards, which mortgage company you have, if you live in an area with falling housing prices.

Many companies are saying they can no longer guarantee customers will be considered low risk if they pay their bills on time and don’t exceed their credit limits.

Shake it like a Polaroid Picture: Polaroid files for Chapter 11 Protection

by Sundeep Kothari

Polaroid files for Chapter 11

Polaroid, famous for its instant film (which is no longer in production), files for Chapter 11 protection.

Polaroid’s owner Tom Petters, is under criminal investigation for fraud.

“Doug Kelley, the court-appoint receiver who oversees Polaroid and a number of other Petters companies, said that a tight credit market and the taint of Petters’ pending criminal charges in an alleged investment fraud scheme have hurt Polaroid’s efforts to obtain financing to help it to move from the old, instant film technology into the digital arena.”

The beat of large companies who have overextended themselves goes on.

Bush forced to use TARP money for auto bailout

by Sundeep Kothari

Bush to use TARP money

With the collapse of a bailout bill, President Bush is expected to use a portion of the $700 billion Troubled Asset Relief Fund (TARP), the massive federal bailout passed a few weeks prior to the election.

For President Bush, this is proving to be the worst of both worlds. The Democrats were unwilling to go ahead and release the previously authorized $25 billion loan, which was given to help the automakers become more fuel efficient. And the Republicans were unwilling to get a bill passed for the $14 billion bailout.

Now President Bush is forced to do something he didn’t want to do: use the TARP money for the auto dealers. Some Republicans are alleging the UAW refused to compromise on wage cuts because they knew if the bailout bill failed, that President Bush would have no choice but to take some TARP money.

Whatever the case may be, everyone looks bad in this deal. The car industry is quickly using up its political capital. What happens next year if the automakers need more bailout money? What kind of reception will they get from Congress then? Especially if they are coming in with the same problems they have now.

GM has said it will cut 30% of its North American production during the first quarter. This, however, may not be enough. The facts are that American cars are not seen by American consumers to be as good as foreign cars, and that with the badly faltering economy, a lot of consumers simply aren’t buying cars anyway.

If GM doesn’t make massive cuts now, even deeper than the ones they propose, they will come back to Congress and they may find a far less receptive audience.

Credit card lines to be cut by $2 trillion

by Sundeep Kothari

Credit card lines to be cut by $2 trillion

Credit card companies are expected to cut credit lines by $2 trillion over the next 18 months.

This will lead to a sharp drop in consumer spending, which will lead to more trouble for retail businesses, which will lead to retailers laying off workers, which will lead to more foreclosures, which will worsen the economy.

But since banks have no money to lend out, they have no choice.

Global car sales slide significantly

by Sundeep Kothari

Global car sales

Swedish, Japanese and South Korean car sales dipped significantly in response to the worsening global financial crisis.

GM and Ford have approached the Swedish government about financial aid for Saab and Volvo.