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.

6 Questions about Bernie Madoff

by Sundeep Kothari

6 Qs about Bernie Madoff

This article discusses 6 important questions about alleged fraud committed by former NASDAQ chairmen Bernie Madoff.

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.

New Credit Cards Rules Coming

by Sundeep Kothari

New credit card rules

 

New credit card rules are coming. These rules ban:

_Placing unfair time constraints on payments. A payment can’t be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay.

_Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account.

_Unfairly computing balances in a computing tactic known as double-cycle billing.

_Unfairly adding security deposits and fees for issuing credit or making it available.

_Making deceptive offers of credit.

Some opposed the proposed changes as unnecessary government interference. In addition, many are concerned that these rules will make it much more difficult for those with bad credit to get credit cards at subprime rates.

These changes are expected to cost the banking industry more than $10 billion per year in interest payments.

Dealing with credit card line cuts

by Sundeep Kothari

Credit Card Cuts

 

This article discusses the reasons for the expected $2 trillion in credit card line cuts and some strategies for how consumers may deal with those cuts.

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.

Congress considers $15 billion bailout for Big 3 automakers

by Sundeep Kothari

Congress mulls $15 billion bailout

Stunned by the loss of 500,000 jobs, the worst month in 34 years, Congress is considering a $15 billion bailout for the automakers.

Speaker Pelosi has dropped her opposition to re-directing a previously passed $25 billion loan to the Big 3 automakers for the development of environmentally better, more fuel efficient cars. This is something that President Bush supported.

There is no support whatsover from Congress to take a portion of that $700 billion and give it to the automakers. But there is enough support to change that loan and release those funds to the Big 3.

Will the Big 3 automakers be forced into bankruptcy?

by Sundeep Kothari

Will the Big 3 automakers be forced to file for bankruptcy?

My prediction is that they will not be.

Majority Leader Harry Reid is saying that currently there are not enough votes to get a bailout bill passed:

Not enough votes

This is true, but Congress has already approved $25 billion to the Big 3 to help them produce more efficient, environmentally improved vehicles. President Bush, some Republicans and some Democrats are pushing that this $25 billion be used instead for a bailout package, instead of the Big 3 taking money from the previously approved $700 billion bailout package from a few weeks ago.

That $25 billion hasn’t been distributed yet, and President Bush is calling for the release of those funds.

But Congress is doing something by not releasing the money: they are forcing the Big 3 and unions to make wholesale changes in their industry: union contracts, benefits, the types of cars that are made. A complete re-evaluation of the entire industry. Congress is using the purse strings of that $25 billion to hold Detroit’s feet to the fire, so to speak.

And Congress so far has forced a lot of change. And more needs to happen, and will happen.

Eventually that $25 billion will be released. And if that money isn’t enough, then Detroit will have to come back to Congress to ask for more. But then Congress can legitimately ask: what changes have you made in this intervening time period.

Without this push, the Big 3 would continue to do the same old, same old.

Which clearly hasn’t worked.

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.