Business – No Runny Eggs

The Bucks have been sold for $550 million

steveegg — Wed, 16 Apr 2014 22:10:39 +0000

Today, Milwaukee Bucks owner Herb Kohl announced the sale of the Milwaukee Bucks to hedge-fund managers Wesley Edens and Marc Lasry for $550 million pending NBA approval, with the proviso that the team stay in Milwaukee and not become, potentially, the next incarnation of the Seattle Sonics. The three also announced that they would kick in a total of $200 million toward a replacement for the BMO Harris Bradley Center; $100 million from the new owners and $100 million from the old owner.

On the sports end of the story, hopefully the new owners will put a competitve product out on the court more often than once every 6 years (which, not exactly coincidentally, was inevitably the year Kohl was up for re-election ot the Senate).

The word is that a new arena will cost somewhere north of $500 million. I know Wikipedia is less than fully-reliable, but I went through the entries for the 14 aremas built for existing franchises that opened since 1997, and only the newest arena, the Barclays Center in Brooklyn, came in at over $500 million when it was built. That $1 billion cost shattered the previous record of $480 million for Orlando’s Amway Center, which was built in 2010, and $420 million for Dallas’ American Airlines Center, which was built in 2001.

Even when adjusting for inflation, only 4 modern arenas came in at over $500 million – the Barclays Center ($1.03 billion in 2014 dollars), the American Airlines Center ($559 million in 2014 dollars), Los Angeles’ Staples Center (opened in 1999 for $375 million, or $531 million in 2014 dollars), and the Amway Center ($514 million in 2014 dollars). The average inflation-adjusted cost of the modern NBA arena, including the Barclays Center, was just under $400 million, with that dropping to $351 million if one ignores the New York Bloat.

I have to wonder whether Milwaukee is ready to shell out for the second-most-expensive arena in the NBA. Milwaukee County Executive Chris Abele, just interviewed on the Mark Belling Show, said that he had not heard any solid plans for financing a new arena. Given the most-likely sites of the former Park East freeway just north of the Bradley Center and the lakefront (which are the parts of downtown without any buildings) are county-owned land, one would expect Abele to be in the loop.

Belling is spitballing the idea that it would be privately owned. There’s a world’s worth of difference between $200 million and $500 million, or even $351 million if the historical average holds. Naming rights wouldn’t cover it – not even the record-setting purchase by Barclays for the Brooklyn arena would cover the $300 million spread. Worse, while other sports venues have worked aignificant money out of naming rights, the Bradley Center board hasn’t been nearly as successful. The entire Bradley Center corporate sponsorship package was revealed to be a mere $18 million over 6 years when BMO Harris bought the naming rights 2 years ago.

The $550 million, plus another $100 million committment toward a new arena, is an amazing price, considering Forbes valued the franchise at $405 million just three months ago. Even though there was reportedly a 9-group bidding war, that does not explain that much of a premium given the no-move proviso. Given all three principals are big-time Democrats (Kohl a Democrat as a Senator, Edens and Lasry as massive, active donors to Democrats), someone might want to keep an eye on Kohl’s still-active Senate campaign committee.

Revisions/extensions (5:18 pm 4/16/2014) – The total $650 million (including the $100 million new arena committment) sale price shatters the previous record sale price of an NBA team – the $513 million sale of the Sacramento Kings and their equally-ancient arena, the Sleep Train Arena, last year.

How much down the UAW hole again?

steveegg — Thu, 15 Dec 2011 09:16:09 +0000

It’s been a while since I last ran the numbers on the transfer of taxpayer wealth to UA…er, bailout of GM, Chrysler, and their affiliated credit companies. Due partly to the profit turned today by the UAW VEBA on GM’s bankruptcy, and due partly to wild claim from Car Cza…er, Commissar Steven Rattner that the taxpayers will get back all but $14 billion (I think The Right Scoop misquoted from the clip due to an off-camera cough) of the auto-related bailouts, it’s time to once again go through what has and has not been recovered. Thankfully, the Treasury Department has a PDF-ed spreadsheet to help track all the changes between last October’s look and the end of November 2011. Before I do, however, I have to note Zip caught the expiration of yet another Obama statement – that the Treasury would be paid back in full for the auto bailouts.

To review, back in the beginning of October 2010, $65.89 billion of the $72.59 billion spent on old General Motors, new Government Motors, old Chrysler, new Chrysler/UAW Motors/Fiat, Chrysler Financial, and GMAC/Ally (more-correctly called Government Bank), including $0.04 billion in notes taken out by new Chrysler I was previously unaware of, was still outstanding. Since then, the Treasury has recovered:

$13.50 billion from the sale of some of its common stock in GM between 11/18/2010 and 11/26/2010, leaving it with a 32.04% stake.
$2.14 billion from the early buyback by new GM of all the Series A preferred stock held by the Treasury.
$0.11 billion of the $0.99 billion in loans that remained at old GM, paid to the Treasury on 3/31/2011, 4/5/2011 and 5/3/2011 as old GM was liquidated.
$5.46 billion from new Chrysler to “fully” extinguish the TARP loans, including the previously-undisclosed notes, on 5/24/2011. However, $3.5 billion of that repayment appears to have come from an Energy Department loan program meant for modernization of assembly plants dedicated toward fuel efficient/”clean” vehicles.
$0.56 billion from Fiat for the remaining 6.6% stake (plus the rights to “excessive” proceeds from the sale of the UAW’s share of new Chrysler) the Treasury held in new Chrysler on 7/21/2011.
A bit under $0.01 billion ($9.67 million) as the last bit of cash was wrung out of the remains of old Chrysler, credited on 12/29/2010.
$2.67 billion from Ally for the extinguishing of the Trust Preferred Securities held by the Treasury on 3/2/2011.
$0.79 billion in dividends on preferred stock in Ally between November 2010 and November 2011.

The $25.24 billion recovered over the past 13 months brings the amount still outstanding from the bailout of the auto industry down to $40.65 billion. The Treasury also converted 110 million of the nearly 229 million perferred shares it held in Ally to 531,850 common shares to give it control of 73.8% of the common shares.

The remaining claims on assets the Treasury holds are:

500,065,254 common shares of new GM. At yesterday’s close of $19.47 per share, the Treasury would get about $9.73 billion (give or take brokerage fees) if they were able to sell their 32.04% stake.
$0.88 billion in loans still owed by old GM, which will likely never be recovered.
A continuing stake in whatever assets can still be liquidated from old Chrysler, likely to be very minimal.
118,750,000 Series F-2 Preferred shares in Ally Financial, which if Ally does not pay $5.94 billion plus any outstanding dividend (9% annual dividend, or $0.53 billion per year) to extinguish the preferred shares, will be converted to, at the present value, 513,000 common shares in Ally at the end of 2016. The dividend through the end of 2016 would net the Treasury $2.67 billion.
981,971 common shares in Ally, which represents 73.8% of the outstanding common shares in the privately-held company.

Last year’s estimate of $17 billion down the UAW hole once all the dust settles still seems quite operative, assuming the government is willing to let go of both GM and Ally. If it’s not willing to let its seizures go, then far more money will have gone down the UAW hole.

Let’s compare that to the UAW take. I previously covered the all-but-guaranteed $28.39 billion in post-bankruptcy payments from GM (not counting anything from the sale of the UAW’s stock in GM, currently worth $3.12 billion) on $20.36 billion in pre-bankruptcy liabilities from GM the UAW VEBA will get, and except for the dividend payments that have now made UAW’s profit official, nothing has changed. I hadn’t covered the UAW’s recovery schedule of the $10.5 billion owed it by old Chrysler as, up until earlier this year, it had not fulfilled its (voluntary) promise to file reports with the SEC. Now that it is filing the reports, that can be tracked.

Much like it did from GM, the UAW received the cash set aside by old Chrysler pre-bankruptcy for the VEBA. In this case, it was about $1.5 billion. For the remaining $9 billion in unsecured claims against old Chrysler for its VEBA, the UAW received what is currently a 44.7% stake in new Chrysler (after various options exercised by Fiat diluted its initial 67.7% stake) and a $4.59 billion unsecured note carrying an effective 9% annual interest rate and maturing in July 2023. While the repayment schedule is back-loaded, payments did begin in 2010, with a $315 million payment in 2010 and a $300 million payment in 2011. Assuming all the payments are made, the UAW will get $9.16 billion.

That does not include any money it might get from the liquidation of its stake in new Chrysler. That is limited to $4.25 billion (plus 9% compounded annually starting from 2010, or about $5.05 billion if Chrysler goes public in January 2012 and the UAW sells its entire stake) with any excess going to Fiat after Fiat bought the Treasury’s rights to that excess for $60 million and the Canadian government’s rights to that excess for $15 million. Fiat also holds a call option to buy up to 40% of the original UAW stake between mid-2012 and mid-2016 for, depending on whether Chrysler has gone public, either the going stock price or a formula.

At what point is it a pattern? – Burning Volt edition

steveegg — Sun, 27 Nov 2011 15:00:45 +0000

Last week, the National Highway Traffic Safety Administration attempted to replicate the Volt Flambe by crash-testing 3 Volt battery packs. They were successful:

The National Highway Traffic Safety Administration said Friday that three Volt battery packs were crash-tested last week. In one instance, the battery caught fire afterward, and in another the battery emitted smoke and sparks.

In response, the NHTSA has opened a formal investigation. Paging Ralph Nader. Unlike your smear of the Chevrolet Corvair, you could honestly write “Unsafe At Any Speed” about the Pin…er, Volt.

Crash and burn – Volt edition

steveegg — Fri, 11 Nov 2011 18:26:44 +0000

Jalopnik reports that, 3 weeks after a Chevrolet Volt was whacked in a side-impact test by the NHTSA, it burst into flames.

I’ll chalk that up to the impact creating a an electrical short, which would allow the lithium-ion battery pack to heat up to ignition. Seems a high price to pay to get maybe 35 miles on electricity alone (which itself is a 12.5% reduction from the earlier claims).

Revisions/extensions (9:09 am 11/12/2011) – The Detroit Free Press has a few new details (H/T – Hot Air Headlines):

– This was the 20-mph side-impact test, or something you would expect at your local neighborhood roundabout.
– The battery on the Ford Pint…er, Chevy Volt was punctured. The Bloomberg story on this (H/T – Dad29) notes that metal piercing a lithium-ion battery will do exactly what happened, right down to a small puncture resulting in a fire days or weeks later.
– The NHTSA didn’t follow the Government Motors-recommended procedure of fully-discharging the battery…because GM never told the NHTSA about it.

Unlike NBC’s smear of the 1973-1997 Chevrolet/GMC full-sized pickups and their “‘explode-on-contact’ saddlebag” gas tanks, nobody needs explosives to brew up a Volt. They could either take a car to its side at a relatively-low speed or simply charge it up to 110% (yes, there have been fires involving Volts being charged).

Thursday Fun Read – WSJ’s “How to Measure a Storm’s Fury One Breakfast at a Time”

steveegg — Thu, 01 Sep 2011 14:03:21 +0000

The Wall Street Journal has your post-Irene feel-good story of the day – how the Waffle House recovers so quickly from a disaster like a hurricane. In fact, FEMA director Craig Fugate uses Waffle House as a gauge on how bad a disaster is.

I’ll give you how the Weldon, North Carolina Waffle House dealt with Irene as a tease to get you over to WSJ.com to read the entire thing:

The company began tracking Irene 10 days ago, moving ice and eggs to staging sites outside the potential damage zone.

On Friday, the company’s mobile command center—an RV named EM-50 after Bill Murray’s urban-assault vehicle in the 1981 movie “Stripes”—headed north from the Norcross, Ga., headquarters.

Power went off at the Waffle House just off Interstate 95 in Weldon on Saturday evening as Irene churned through. The restaurant kept serving until it got too dark for the grill cook to see when the food was cooked, then it shut down.

It reopened the next day at dawn. The overhead lights and walk-in freezer weren’t working, but the gas grill was. The cooks boiled water on the grill, then poured it through the coffee machine, over beans ground before the power went out. The district manager, Chris Barnes, handed employees copies of an emergency grill-only menu. The fare included ham-and-egg sandwiches for $3.15 and quarter-pound hamburgers for $2.70. Servers nudged customers to order sausage instead of bacon, because four sausage patties fit on the grill for every two slices of bacon.

By 9 a.m., cars were lining up to get into the parking lot. At 10 a.m., the power came back on, the ceramic waffle irons were plugged in and waffles were added to the menu.

Directive 10-289

Shoebox — Sat, 23 Apr 2011 18:17:06 +0000

This week, the NLRB filed a complaint against Boeing in an attempt to prevent them from opening an new manufacturing facility in South Carolina.

Boeing is opening the new facility for two reasons. First, it wants the ability to manufacture its new airliner in a redundant facility giving it greater capacity. Second, after several contentious years with the Union at it’s Washington State facility, Boeing was looking to find a location to mitigate the Union’s impact on production. Enter South Carolina.

South Carolina is a right to work state. Right to work means many things for employees and employers. Amongst them is that an employee can not be required to join a union and pay union dues as a condition of employment at a particular business i.e. “closed shop.” The benefits for Boeing are obvious. The benefits for Boeing are those that any prudent business would seek given the troubled labor history of Boeing’s Washington State facilities.

In what can only be the missing chapter from Atlas Shrugged, the NLRB’s complaint is based solely on Boeing’s desire to mitigate it’s labor challenges:

The NLRB said its investigation found that the company violated two sections of the National Labor Relations Act in 2009 when it picked Charleston International Airport as the site of its second 787 assembly plant rather than expanding its existing factory in Everett.

Specifically, Boeing officials made “coercive statements” to its unionized employees starting in 2009 that the company would shift or had shifted production work away from the Puget Sound area because of labor walkouts, the agency said.

Wow! “coercive statements,” including their desire to move away from labor disputes are the basis for the NLRB complaint! Can anyone possibly imagine that there may have been some “coercive statements” from the union that may have included threats to shut Boeing plants down which the have done on numerous occasions?

With his desire to “spread the wealth around” and now his NLRB agents attempting to dictate business decisions as basic as where they will do business, I’m beginning to believe that Obama doesn’t view “Atlas Shrugged” as fiction but rather as a road map for full implemention of his socialistic desires. Does anyone really believe Obama would not implement an “Equalization of Opportunity” plan or Directive 10-289?

Government Motors flaming out – both figuratively and literally

steveegg — Tue, 19 Apr 2011 23:52:09 +0000

Item #1 (H/Ts – Kevin and Fausta) – The same Chevrolet Volt involved in a garage fire last week burst into flames a second time Monday.

Item #2 – The Wall Street Journal reports that the US Treasury is looking to dump the remainder of its holdings in Government Motors (500,065,254 shares) over the summer. At the current trading price of $29.51, that would mean we the taxpayers lost over $14 billion on just the auto-manufacturing part of the GM bailout while (assuming GM makes it to the end of 2014 and the UAW fully cashes out), the entity that was most-responsible for the collapse of Old GM, the UAW, would make $12.55 billion on the deal.

That led Warner Todd Huston to unveil the last car from the current version of GM – the Government Motors WeeKan.

Cash for Clunkers II – Electric Boogaloo

steveegg — Tue, 29 Mar 2011 15:58:07 +0000

Kerry Picket caught a change to the $7500-per-electric vehicle giveaway to Government Motors being pushed by Michigan Democrat Senator Debbie Stabenow in a proposed bill and President Barack Obama in his 2012 budget. To wit, instead of a tax credit of $7,500 for buying the Chevy Volt (and the all-electric Nissan Leaf), that $7,500 would be taken off at the dealer, with the dealer hoping to get compensated by the government at a later date. If you don’t believe Kerry’s and my assertion that it is Cash for Clunkers II, allow me to lift a couple paragraphs from the story:

In fact, Department of Energy’s David Sandalow told Bloomberg News in February the insta-credit would operate the “same way the 2009 ‘Cash for Clunkers’ program worked.”

The Detroit News reported Vice President Joe Biden said at an Indiana battery assembly plant, “You won’t have to wait,’ it would be like the cash-for-clunkers program.”

No word if the dealers will have to run glass through the engines of any cars traded in for the overpriced glorified golf carts, or whether the compensation for the dealers would be any faster than it was for the first Cash for Clunkers.

It’s also worth noting that Government Motors is currently trading at somewhere under $31/share. If the Treasury could dump its remaining 33.3% of Government Motors now, it will have lost over $13 billion on the venture, most of it transferred to the UAW.

Revisions/extensions (11:31 am 3/29/2011) – There’s more discussion at Sister Toldjah, who suggested a new liberal motto (“If at first you don’t succeed, fail, fail again”), The PJ Tattler from Bryan Preston, who noted all the Dem-supporting groups who will also be bailed out, and Memeorandum (just because I haven’t linked there lately).

“Somebody” will profit handsomely from Government Motors – revisited

steveegg — Sat, 04 Dec 2010 06:37:15 +0000

When I took a look at this last week, I forgot a rather-significant item – the transfer of the existing internal VEBA assets from Government Motors (which “inherited” it from Old GM) to the UAW’s control. While GM’s 2009 annual report mentioned several times that this transfer happened, the actual amount was mentioned only once. $12.6 billion went to the UAW in early 2010 (the timing is not known – the annual report says it happened within 10 days of 12/31/2009, and the SEC does not appear to have a separate record in EDGAR). The internal VEBA assets were actually part of the $20.56 billion Old GM owed the VEBA (see page 36 of the Congressional Oversight Panel’s September 2009 report, and do note the typographical error in the footnote).

Also, the “IPO” underwriters fully-exercised their option to buy an additional 13.35 million common shares from the UAW. That netted another $437 million for the UAW, with like amounts going into the Treasury and the Canadian government.

Adding those two amounts to the $3.56 billion in cash previously disclosed brings the amount recovered to date by the UAW to $16.6 billion. That means I grossly understated the profit the UAW is going to make from driving GM into bankruptcy. If GM survives as an entity until the middle of 2017, makes its note payments to the UAW, and buys back the preferred stock as soon as it can, the UAW will receive $29.79 billion (or if you will, almost $1.45 for every $1.00 Old GM owed it) before it sells any additional common stock. In fact, the UAW will profit if GM either makes the first of the note payments in 2013 and buys back the preferred stock at the end of 2014 or makes the first two note payments in 2013 and 2015 and just the dividend payments on the preferred stock – again, no common-stock sale required.

Side note – that $12.6 billion is a shocking number because it had been anticipated that only about $10 billion would be available in internal VEBA assets. Indeed, the internal VEBA assets at Old GM amounted to only $10.0 billion on 12/31/2008, and the agreement between Government Motors and the UAW specifying the terms of transfer valued the assets at $9.4 billion as of March 31, 2009. If that is a legitimate increase, I want whoever was in charge of that in charge of my portfolio.

Revisions/extensions (8:03 am 12/4/2010) – I really need to keep on top of the SEC filings. The VEBA note was paid off on October 26 to the tune of $2.8 billion. That does wipe out the future principal and interest payments that I had commented on earlier, bringing the all-but-guaranteed recovery (pre-common-stock-sale, assuming GM makes it to the end of 2014 and buys back all the preferred stock at that point) down to $28.39 billion. However, it also brings the total recovery-to-date of the $20.57 billion Old GM owed the UAW to $19.4 billion. That means that, assuming Government Motors continues to make the payments on the preferred stock the UAW holds, the UAW will turn a profit on driving Old GM to bankruptcy on December 15, 2011.

“Somebody” will profit handsomely from Government Motors

steveegg — Fri, 26 Nov 2010 22:58:24 +0000

(H/T – Darleen Glick via Allahpundit)

No, it won’t be the American taxpayers that will profit from the ongoing saga that is Government Motors. The Washington Times notes that the big winner of last week’s IPO of GM will be the United Auto Workers, specifically their Retiree Medical Benefit Trust Fund (aka the VEBA that all three domestically-owned auto makers shifted their retiree health costs to). The numbers quoted in that story of $3.4 billion from the IPO and a “break-even sale” price of $36 aren’t quite accurate (they’re both high, the latter far more so), so I’ll walk you through the math:

Old GM had, when it went into bankruptcy, $20.56 billion in unsecured liabilities owed to the VEBA.
Exiting bankruptcy, Government Motors gave the VEBA:
- 262.5 million common-stock shares
- $6.5 billion in senior perpetual preferred stock with a 9% dividend and a 5 1/2-year restriction on buy-back by GM, worth a minimum of $9.72 billion if bought back at the earliest possible date.
- A $2.5 billion secured note with a 9% annual interest rate and a maturation date in 2017, payable in three $1.4 billion chunks in 2013, 2015 and 2017.
VEBA already received $3.65 billion in cash as follows:
- $0.73 billion in dividends on the preferred stock.
- $2.92 billion on the stock sold (89 million shares at $32.7525/share – the underwriters took $0.2475/share in underwriting discounts and commissions).
Assuming GM survives through the middle of 2017 to pay off that note and buys back the preferred stock at the end of 2014 as soon as it can, it will get an additional $13.19 billion in cash from:
- The remaining $8.99 billion in future dividends on and buy-back of the preferred stock.
- $4.2 billion from the principal and interest on that $2.5 billion note.

Assuming the underwriters do exercise their over-allotment option to buy another 13.35 million shares at the discounted IPO price (which would get the VEBA another $437 million), that would leave $3.28 billion to come from the remaining 160.15 million shares. That means the UAW would be made whole if they net a fraction $20.48/share for their remaining holdings. Even if JP Morgan and company don’t come riding in to buy the additional shares now, the UAW will need to only net a fraction more than $21.44/share to be made whole. Everything else is pure profit, or at least a further subsidy of UAW Motors (nee Chrysler).

To put it another way, if they dumped their shares now, they would get a total of $22.12 billion in cash from Government Motors, compared to the $20.56 billion liability that Old GM had going into bankruptcy.

Meanwhile, the remaining unsecured creditors of old GM, mostly the bondholders, will be lucky to get 23 cents on the dollar once the liquidation of GM is complete and they get their pro-rated portions of the 150 million-180 million shares in Government Motors.

Prospectus quote of the day – Government Motors edition

steveegg — Fri, 19 Nov 2010 13:38:16 +0000

(H/T – Monty)

David Weidner over at The Wall Street Journal found this little “gem” in the prospectus for Government Motors’ common-stock IPO (emphasis in the original; the emphasized part is quoted in the WSJ article):

We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan.

Our management team for financial reporting, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our internal controls. At December 31, 2009, because of the inability to sufficiently test the effectiveness of remediated internal controls, we concluded that our internal control over financial reporting was not effective. At September 30, 2010 we concluded that our disclosure controls and procedures were not effective at a reasonable assurance level because of the material weakness in our internal control over financial reporting that continued to exist. Until we have been able to test the operating effectiveness of remediated internal controls and ensure the effectiveness of our disclosure controls and procedures, any material weaknesses may materially adversely affect our ability to report accurately our financial condition and results of operations in the future in a timely and reliable manner. In addition, although we continually review and evaluate internal control systems to allow management to report on the sufficiency of our internal controls, we cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting. Any such additional weakness or failure to remediate the existing weakness could materially adversely affect our financial condition or ability to comply with applicable financial reporting requirements and the requirements of the Company’s various financing agreements.

I’m shocked, SHOCKED that a government-run enterprise has no effective control over its disclosure and financial reporting. If I didn’t know any better, I’d say it almost looks like Government Motors is lying in order to shift the cost of propping up the UAW and ensuring millions of dollars in donations to Democrats for the couple years Government Motors will survive from the Treasury to the suckers on Wall Street.

Weidner also noted that the prospectus warned that its defined-pension funds are underfunded to the tune of $17 billion. That $4 billion payment to be made from both cash on hand and the sale of the Series B preferred stock won’t make much more than a short-term dent in that.

New NRE poll – Why did the Treasury sell its GM preferred shares early?

steveegg — Thu, 18 Nov 2010 19:55:16 +0000

Almost completely lost in the shuffle of Government Motors’ IPO is news that GM and the US Treasury agreed to allow GM to buy back the $2.1 billion in preferred stock owned by the Treasury 4 years early at a 2% premium over the liquidation price. That is to be done shortly after GM sells $4.35 billion in new-issue preferred stock to be traded publicly.

Back when the Treasury set up Government Motors as a post-bankruptcy entity, in addition to the 61% stake it took in the common stock of the company, it also took $2.1 billion in perpetual prefered stock that paid an all-but-mandatory 9% annual dividend (well, GM could not declare the dividend, but it would have to make good before it either paid a dividend on any other class of stock or bought back the preferred stock). The Canadian government took a smaller piece of this preferred stock, and the UAW took the lion’s share to help fund the VEBA. One of the restrictions the Treasury put on GM was that it could not buy back this stock before the end of 2014.

Suddenly, on October 27, just a couple weeks before the IPO, GM and the Treasury agreed that, instead of forcing GM to wait until the end of 2014 to buy back the $2.1 billion in preferred stock and pay out $802 million in dividends between now and then, they would let GM get out of it now at a 2% premium on that $2.1 billion price (or a $41 million premium). There are two explanations I can think of for why the Treasury would give up an all-but-guaranteed $755 million over the next 4 years for $41 million now:

By eliminating its first claim on $189 million/year from GM, it believes it will get more from common stock sales than the $761 million it’s giving up from the preferred stock. One of the big knocks on GM is that it is indeed Government Motors. By no longer demanding $189 million per year before anybody else not named government or the UAW gets a taste of the profits (which is what a dividend on common stock is) and demonstrating that once the last of the common stock is out of the Treasury, the government is out of GM, the hope is that investors will actually believe that it isn’t Government Motors. Given that the IPO price jumped from $25/share to $33/share, it isn’t an unreasonable expectation.
The Treasury isn’t hopeful that GM will survive for very long. Even though preferred stock is senior to common stock, and indeed the government/UAW issue preferred stock is senior to the private-issue preferred stock that should be hitting the open market in a few days, it is still junior to all debt. Tom Blumer noted that dealer inventories have been “gamed” in advance of the IPO to make GM appear to be more profitable than it is. Under this line of thinking, getting $2.14 billion now is better than perhaps not getting even $802 million (much less not getting $2.9 billion) over the next 4 years.

Okay, folks – have at it. Which is it, one, the other, both, or did I just bore the living hell out of you?

Note: There is a poll embedded within this post, please visit the site to participate in this post's poll.

The NRE guide to the GM IPO

steveegg — Wed, 17 Nov 2010 15:28:30 +0000

With 478 million of 1.5 billion shares in Government Motors expected to hit the New York Stock Exchange tomorrow under the GM ticker, I thought it would be good to put together a little FAQ on the IPO based on the latest revision of GM’s registration statement at the SEC containing GM’s common stock prospectus, filed early this morning. I can’t stress this enough – This is not a recommendation or solicitation to either buy or not buy shares in any company.

Who is offering the common shares in GM? Three of the four current owners of Government Motors are offering some of their shares – the United States Treasury, Canada Holdings (a Canadian government-owned entity), and the UAW Retiree Medical Benefits Trust. The fourth owner, Motors Liquidation Company (on behalf of the bondholders of the former incarnation of General Motors, with the stock to be distributed to the bondholders upon final liquidation of MLC), is not involved in this sale. Further, GM is not offering any new shares for sale.
How many common shares are each of the entities offering? The Treasury is putting up 358,546,795 of its 912,394,068 shares (roughly 39.3% of its current holdings). The Canadian government is putting up 30,453,205 of its 175,105,932 shares (roughly 17.4% of its current holdings). The UAW is putting up 89,000,000 of its 262,500,000 shares (roughly 33.9% of its current holdings). In addition, each of the three entities have given the underwriters a 30-day option to buy up to an addditional 71,700,000 shares to cover any over-allotments in the IPO process at approximately the same ratio as the “main” offering (a maximum of 53,782,019 shares by the Treasury, 4,567,981 shares by the Canadian government, and 13,350,000 shares by the UAW).
How much of the common stock will each of the 4 current entities hold after the IPO, and how much will be available for the public? Assuming no over-allotment option exercise, the Treasury will hold 36.92% of the stock (down from the current 60.83%), the Canadian government will hold 9.64% (down from 11.67%), the UAW will hold 11.57% (down from 17.50%), MLC (on behalf of the bondholders) will continue to hold 10.00%, and 31.86% will be available for the public. If the over-allotment option is exercised in full, the percentages will change to 33.34% for the Treasury, 9.34% for the Canadian government, 10.68% for the UAW, 10.00% for MLC (on behalf of the bondholders), and 36.65% for the public. Of note, as the single largest shareholder even with full over-allotment exercise, the Treasury will maintain effective control over Government Motors. Also, do note that both MLC and the UAW hold warrants to purchase new-issue common stock.
Where can I get the stock? The New York Stock Exchange has approved the listing of stock under the symbol GM. The Toronto Stock Exchange has conditionally approved the listing of stock under the symbol GMM.
Who gets the money from the IPO of the common stock, and about how much will each entity get out of it? The current holders of the stock and the underwriters get the money, not GM. Earlier reports suggested that the common stock would be offered at $25/share. Current estimates are that it could be as high as $33/share. At the lower $25/share amount, after the underwriter discount and commissions, and other fees, the Treasury should net approximately $8.74 billion, the Canadian government approximately US$742 million, and the UAW approximately $2.17 billion. At the higher $33/share amount, the Treasury should net approximately $11.53 billion, the Canadian government approximately US$980 million, and the UAW approximately $2.86 billion.
What are the prospects of a dividend on common stock? None can be paid until dividends on both Series A Preferred Stock (currently held by mostly the UAW and also the Treasury and Canadian governments) and new-issue Series B Preferred Stock are paid.
What’s this Series B Preferred Stock? It’s a new issue being held simultaneously with with the IPO of common stock. 80 million shares will be offered at $50 per share, a mandatory conversion to common stock sometime in 2013 (date and conversion ratio not yet specified), and a yet-to-be-determined rate of dividend based on the $50/share price. Unlike the common-stock IPO, GM will get the money from this as it is a new issue of stock, estimated at $3.9 billion (or $4.4 billion if that offering’s over-allotment option is fully-exercised).
I heard something about GM buying back the Series A Preferred Stock from the Treasury. What’s up with that? On October 27, GM and the Treasury entered into an agreement to allow GM to buy back the Treasury’s holdings of 83.9 million shares of Series A Preferred Stock three years (and change) earlier than the terms of that stock allowed. Under the former terms, which still apply to the stock held by the Canadian government and the UAW, the stock earned a 9% annual dividend (based on the liquidation price of $25/share), and the stock could not be liquidated prior to December 31, 2014 at $25/share plus any unpaid dividend. Under the terms of the sale, GM agreed to pay $25.50/share (a premium of $0.50/share), a total of $2.14 billion (a total premium of $41.9 million), and the Treasury agreed to forgo a minimum of $755 million of dividends. That money, as well as a portion of a $4 billion voluntary contribution to US hourly and salaried pension plans, will come from the proceeds of the sale of Series B Preferred Stock.

Catepillar buying Bucyrus, Oak Creek hardest hit – UPDATE – not hit

steveegg — Mon, 15 Nov 2010 14:40:14 +0000

Catepillar Inc. and Bucyrus International announced that Cat will be buying Bucyrus for $7.6 billion in cash, plus debt. While it is a consolidation in the grand scheme between two titans of the mining industry, other than the limited number of mining trucks Bucyrus makes, there really is no overlap between the two companies. Further, Catepillar is moving its mining offices to South Milwaukee.

However, that is also the part that is bad news for Oak Creek. Bucyrus has been in the process of moving senior management to the former Midwest Airlines headquarters, lured there in no small part by the creation of a new TIF district that extends north to College Ave. and the proposed site of a couple of hotels that don’t look to be built anytime soon. There won’t be senior management around too much longer to occupy the Oak Creek site.

Revisions/extensins (5:00 pm 11/15/2010) – The BizTimes reports that Catepillar will be using the Oak Creek facility as its mining headquarters after all.

$17 billion down the hole to save UAW

steveegg — Wed, 06 Oct 2010 18:15:44 +0000

TheTruthAboutCars.com found an interesting tidbit in the official TARP 2-year retrospective – $17 billion of the ~~$80~~ $73 billion spent on General Motors/Government Motors, GMAC/Ally Bank, Chrysler/UAW Motors and the former Chrysler Financial will never be recovered. Let’s walk through the numbers, using the August 2010 monthly report to Congress and monthly interest/dividend report, and remembering the $6.71 billion “loan repayment” from Government Motors represented a writedown of TARP money promised to GM:

Net expenditures of $72.55 billion:

$43.15 billion to GM (does not include the $6.71 billion “loan” that was “repaid” with unused DIP financing, which also came out of TARP)
$12.26 billion to various entities using the Chrysler name (Old Chrysler, the former Chrysler Financial and UAW Motors – does not include $2.05 billion of available-yet-unused financing from the US Treasury)
$17.14 billion to GMAC/Ally Financial

Net repayments of $4.09 billion:

$0.36 billion from GM as payment for a loan for its warranty program (note; this does not include the $6.71 billion “repayment” made from unused DIP financing)
$1.5 billion from former Chrysler Financial as full payment of loans made to it plus an additional $0.02 billion from Chrysler Financial for reasons unknown
$1.9 billion from Cerebus (the former owner of Chrysler) to extinguish the remaining $3.5 billion Old Chrysler owed the Treasury and free the former Chrysler Financial from the lien placed on it.
$0.03 billion in proceeds from the liquidation of Old Chrysler

Interest and dividend payments of $2.61 billion:

$0.14 billion from pre-bankruptcy GM in interest payments
$0.34 billion from Government Motors (New GM) in interest payments (it is impossible to separate the legitimate warranty loan repayment and earlier loan payments from the much-larger sham “loan repayment”
$0.18 billion from New GM in dividend payments on preferred stock
$0.01 billion from the former Chrysler Financial in interest payments
$0.06 billion from Cerebus/Old Chrysler in interest payments
$0.25 billion from UAW Motors in interest payments
$1.63 billion from GMAC/Ally Financial in dividend payments on both preferred stock and trust preferred securities

That leaves somewhere around $65.85 billion in expenditures on Government/UAW Motors and their financing arms uncollected thus far. However, there’s still significant amounts of money the Treasury has claim to, and which the 2-year retrospective assumes will be repaid:

$2.10 billion in preferred stock in New GM, which pays an annual 9% dividend (or $0.19 billion per year), which cannot be liquidated by GM until 12/31/2014 and until any outstanding dividend is repaid. That required dividend amount pushes the minimum preferred stock liquidation amount to $3.05 billion.
$0.99 billion in loans still owed by Old GM, almost certainly not to be repaid anywhere near in full.
$2.00 billion in loans to UAW Motors at a minimum 7% interest (or the 3-month LIBOR rate plus 5 percentage points if that’s higher), due at the end of 12/2011, and $3.09 billion in loans to UAW Motors at a minimum 9.91% interest (or the 3-month LIBOR rate plus 7.91 percentage points if that’s higher), due at the end of 6/2017. With a total of $2.55 billion in interest left if both loans go to maturity, that would bring the total amount due from UAW Motors to $7.64 billion.
228,750,000 Series F-2 Preferred shares in Ally Financial, which if Ally does not pay $11.43 billion plus any outstanding dividend (9% annual dividend, or $1.03 billion per year) to liquidate the preferred shares, will be converted to, at the present value, 988,200 common shares in Ally at the end of 2016. The dividend through the end of 2016 would net the Treasury $7.21 billion, at which point it will increase its holdings to a majority of authorized Ally common stock (it currently holds 450,121 shares, 56.3% of outstanding stock and 22.3% of authorized stock).
Trust Preferred Securities in Ally Financial with a liquidation value of $2.67 billion plus any unpaid distributions, which carries an 8% annual distribution rate (or $0.21 billion per year) and is effectively a 30-year note.

Assuming the UAW Motors loans go to maturity and actually get paid back in full, Government Motors liquidates its preferred shares as soon as it can, Ally Financial manages to retire its Trust Preferred Securities at the end of 2011, and Ally decides that just-under-half its common stock is not worth $11.43 billion (likely because 51% of the company was bought by a consortium led by Cerebus for $7.4 billion in 2007), somewhere around $21 billion will come into the Treasury by the end of June 2017. That would leave $44.85 billion unpaid. Given the government assumes it’s still going to lose $17 billion, the sales of the 61% stake in Government Motors, 10% stake in UAW Motors, and 81% stake in Ally Financial together are expected to bring in somewhere less than $28 billion.

Google/Verizon “Net Neutrality” agreement – pros and cons

steveegg — Mon, 27 Sep 2010 17:36:43 +0000

Recently, Google and Verizon made an agreement-in-principle on what forms of new regulation on internet service providers they were willing to and unwilling to accept. The summary from Google’s and Verizon’s CEOs sound completely high-minded, but as always, the potential devils are in the details. Let’s take a quick look at each of the key elements:

Consumer protections – The key word here is “lawful”. I’m leery of overextending this provision as just about any activity, including activity that continuously maxes out the contractually-available bandwith like, say, hosting a web server or watching YouTube videos 24/7, can be on either side of that line. Businesses that self-host web servers do pay a premium for consistent access to said server.
Non-discrimination requirement –The first part, preventing undue discrimination of traffic causing harm to competition, is indeed a worthy goal. A non-binding presumption against prioritization of network traffic is a wee bit inconsistent with another item in the proposal allowing for prioritization of network traffic (which I’ll deal with in a bit).
Transparency –To put it simply, clarity is good.
Network management –Take it from someone who has been at conferences where there has simply been too much traffic for the available wi-fi – this tool is absolutely, positively necessary for ISPs. Indeed, one of the tools allowed is a by-general-class prioritization of network traffic.
Additional online services –As long as the ISP delivers its contractually-obligated speeds for the general internet, all the more power to it if it also uses the network for a faster product. Of course, the way this is written, The Mouse might not be too happy because it would make the current execution of ESPN3.com illegal.
Wireless broadband –I’m shocked, SHOCKED to see that business partners Google and Verizon Wireless don’t want most of these new regulations on wireless broadband, and most-specifically the non-discrimination requirement.
Case-by-case enforcement –I like the idea of limiting the FCC’s role to enforcing the law, and the encouragement of third-party resolution processes.
Regulatory authority –If I’m reading that portion correctly, it establishes a very bright line of what the FCC can (ISPs) and cannot (content and software) regulate, and what other regulatory authorities cannot (ISPs) regulate. As someone who is wary of what some of those pushing for “neutrality” see “neutrality” as, I really like the idea of keeping the FCC out of the content-regulation business.
Broadband access for Americans –What is this doing in here? Seriously, why do ISPs have to bear the burden of making sure content is usable by those with disabilities? Shouldn’t that be left to the makers of consumer hardware that connects to the Internet?

On balance, the agreement could be a bit better, but leaving it solely in the hands of government would almost certainly make things a whole lot worse.

Say good-bye to AirTran (and “hub” status at Mitchell)

steveegg — Mon, 27 Sep 2010 16:10:58 +0000

The Milwaukee Journal Sentinel reports that Southwest will, pending regulatory approval, buy AirTran for $1.4 billion. While most people believe (well, hope) this means more flights out of Milwaukee, I have an alternate take.

AirTran currently has 47 daily departures out of its “second national hub” to, ultimately, only 3 “non-stop/first-stop” destinations not served by Southwest out of its Chicago Midway hub-in-all-but-name on a “non-stop/first-stop” basis in its roughly-210 daily departures – Atlanta (which is directly serviced by AirTran out of Mitchell 4 times daily and AirTran out of Midway 8 times daily), Washington-Reagan National (directly serviced by AirTran out of Mitchell 3 times daily – Southwest directly services “nearby” Baltimore/Washington International out of Mitchell 3 times daily out of 10 total departures from Mitchell, and out of Midway 7 times daily, and “nearby” Washington-Dulles out of Midway 6 times daily), Dallas/Fort Worth (directly serviced twice daily by AirTran; Southwest requires at least 1 stop between Midway and Dallas-Love Field). During the winter, AirTran does offer a daily non-stop flight to Sarasota from Mitchell.

Even though Midway is severely limited in the types of aircraft it can service because it is on a completely-landlocked one square mile plot of land, it is just large enough to service the Boeing 737s that make up Southwest’s fleet and just under half AirTran’s fleet and the Boeing 717s that make up the other part of AirTran’s fleet. Southwest already had the majority of gates at Midway; with the takeover of AirTran, the only non-Southwest service at Midway will be Delta service to their hubs in Atlanta, Minneapolis and Detroit (the latter 2 using contracted regional airlines), Frontier service to their hub in Denver, Porter Airline turboprop service to Toronto (their hub), and not-yet-launched service by Branson AirExpress to their hub in Branson, Missouri. Something tells me that, instead of a combined 57 departures, or even 47 that AirTran has now, the new Southwest/AirTran will have something far closer to the 10 departures the current Southwest has now.

Late-Tuesday Hot Read – WSJ’s “Uncle Sam, Venture Capitalist”

steveegg — Wed, 18 Aug 2010 02:45:32 +0000

The Wall Street Journal editorial board did something that the local presstitutes didn’t do, and looked into the subject of the non-political “justification” for the first day of Obama’s campaign tour so his campaign, Tom Barrett’s campaign, and the DPW didn’t have to pay for the trip, 30-employee ZBB Energy. They’re not-exactly financially viable:

We wonder who in government looked at ZBB’s filings with the Securities and Exchange Commission. Since going public in June of 2007, ZBB has been hemorrhaging money. The firm lost $4.9 million in fiscal 2008 and $5.5 million in fiscal 2009. In its most recent filing, in May, it said it had lost $6.9 million for the first nine months of its current fiscal year. It explained it had a “cumulative deficit” of $44.1 million and informed shareholders that it “anticipates incurring continuing losses.” It acknowledged that its ability to continue as a “going concern” was predicated on its ability to drum up additional funds.

In March the company engaged in various stock transactions—including a private placement to the company’s directors—to raise some $1.9 million. It obtained a $1.3 million loan from the federal stimulus program and borrowed $1.5 million more from Investors Bank. In June it announced a debt agreement, which would allow it to tap a further $10 million….

The company also acknowledged in its May filing that the 72,000 square foot manufacturing facility it bought in 2006 is “currently producing at less than 10% of its expected capacity.” That means it can’t currently access the $14 million in federal tax credits, which were supposed to help with equipment for a new facility. Meanwhile, private investors have soured on some energy-storage companies. ZBB’s initial public offering was priced at $6 a share in 2007, and it closed yesterday at 70 cents. (Note – it closed today at 66 cents)

ZBB’s chief financial officer, Scott Scampini, acknowledges the losses and tells us that one problem was that the old management thought “people would just jump and buy this stuff.” New management, he says, now has a “real business plan” to become cash-flow positive in “short order”—by becoming cheap enough to be “competitive with fossil fuels.”

I hate to break the bad news, but the two methods of producing energy that are dependent on batteries aren’t going to be competitive on a cost basis anytime soon (at least unless all the conventional methods of producing energy are made prohibitively-expensive) – solar is at least twice as costly as conventional power, and at least in Wisconsin, wind farms is going to become even more expensive than the 50% premium as the Public Service Commission is expected to require compensation to nearby landowners.

WISN-AM’s Mark Belling spent much of the first hour of today’s show on this, including taking a rather testy phone call from ZBB CEO Eric Apfelbach (starting at about the 5:40 mark in Hour 1 Part 2 of today’s podcast). Belling got Apfelbach to admit the Porkulus loan (of which $490,000 was already tapped) didn’t create a single new job despite the anticipation that it would create 175 jobs, and that he is a Crony “Capitalist” who is more than happy to suckle off the teat of government.

Government Motors earning its TARP keep

steveegg — Tue, 27 Jul 2010 23:41:34 +0000

(H/T – Van Helsing)

If you thought the Chevy Volt was a bad deal, wait until you get a load of this. I present the lede from Bloomberg’s story on Government Motors buying subprime lender AmeriCredit Corp. for $3.5 billion:

General Motors Co., the automaker 61 percent owned by the U.S., is buying subprime lender AmeriCredit Corp. for $3.5 billion to help it reach more customers with leases and loans to borrowers with faulty credit records.

A couple points of order:

Where, exactly, did Government Motors get the $3,500,000,000 to pay a 24% premium for a company?
Isn’t the bubble of the subprime lending market, something Government Motors explicitly said it would restart, a major contributor to the Double-Dip Dempression we’re in?

Quoting American Enterprise Institute’s John Berlau, “When we bailed out GM, what were we bailing out? The rationale behind the financial-regulatory bill that just passed was that subprime lending was bad, but the government’s in the subprime business.”

Envirowhackos and Government Motors thank you for paying half the lease on the Volt

steveegg — Tue, 27 Jul 2010 22:31:48 +0000

(H/T – Will Collier)

CNN reports that Government Motors announced the price structure for the 2011 plug-in “hybrid” Chevrolet Volt, a 4-seat plug-in “hybrid” that is smaller than the Honda Insight. The retail price will start at $41,000, which after the $7,500 federal tax credit on plug-in vehicles, would create an effective price of $33,500. Even at the full retail price of $41,000, the Volt is going to be a money-loser for GM.

That is bad enough a business deal. What is worse is the 3-year lease terms – ~~$2,000~~ $2,500 down, $350 per month, which CNN helpfully notes puts it in the ballpark of the all-electric Nissan Leaf. The bad part for the taxpayers is that we’re going to be paying just under half the $15,100 that Government Motors will get for the lease.

It gets worse for GM. At the end of the 3 years, GM would need to get $25,900 on the used-car market to get the full retail value of the car back. Meanwhile, used (and larger, and longer-ranged) Honda Insight and Toyota Prius hybrids will likely be going for $15,000-$17,000, and similar-sized conventional cars will be going for less than that. Something tells me that GM won’t get the $10,000 premium they think they’ll get for a plug, which only increases the losses.

Revisions/extensions (10:16 am 8/1/2010) – Corrected the down payment on the Volt lease. The rest of the numbers are unchanged.

Government/UAW Motors and closed dealerships – an alternate take

steveegg — Mon, 19 Jul 2010 20:53:43 +0000

Most of my friends are seizing on the wrong aspect of the report on Government/UAW Motors’ closing of dealerships from TARP’s Special Inspector General. Private (or putatively private) enterprise, especially one in such bad financial shape that it is in bankruptcy, does not have a responsibility to be an employment-for-all agency. Indeed, government has neither the responsibility nor the authority to be an employment-for-all agency.

Rather, it’s the processes used by Government Motors and UAW Motors to shut down certain dealers, and the acceleration of the shutdowns ordered by the Obama administration’s Auto Team, that bear scrutiny. The report noted that the Auto Team ignored advice given by both the companies and outside experts that a rapid shutdown to match foreign car companies’ models might not be appropriate, “particularly in small markets in which the U.S. companies currently have a competitive advantage.” Indeed, both Chrysler execs and at least one outside expert told the Auto Team that shutting down dealers in the middle of a recession could hurt sales even worse and in such a way that it would take years to recover.

The report also noted that in the wake of legislated arbitration applying to both Government Motors and UAW Motors, a senior GM official stated that the final number of dealerships wouldn’t affect the recovery of GM. Taken together with the 216 GM dealerships restored (out of 1,454 cut) and 50 UAW Motors dealerships restored (out of 789 cut), the report “suggests, at the very least, that the number and speed of the terminations was not necessarily critical to the manufacturers’ viability.” At the same point, the report notes Ford Motor Company is closing dealerships at the rate GM had wanted to in its Treasury-rejected February 2009 restructuring plan.

Along the same lines, the report states that the lead advisors for the Auto Team, Ron Bloom and Steven Rattner, did not consider cost savings to be a factor in determining the need for dealership closures. You heard right – there was no business case made by the Auto Team to close the dealerships that were closed. Indeed, it was only after Congress demanded a cost-savings analysis that GM ginned one up out of whole cloth.

While UAW Motors appeared to follow its set of guidelines, the report noted that those guidelines included subjective elements such as choosing which dealers get to add product lines they previously did not carry and whether the market served was a “desirable” one as part of an implementation of Project Genesis (a pre-bankruptcy plan to have every Chrysler Group dealership carry every Chrysler Group brand). In at least one unnamed market, subjectivity cost the top-performing Jeep dealership its franchise in favor of a slightly-lower-performing Dodge dealership in the same market, with only the explanation that UAW Motors wanted the Dodge dealership and a pair of poorer-performing Chrysler/Dodge dealerships, to sell Jeeps.

Further, UAW Motors didn’t include an appeals process for those dealers axed. The stated reason was they wanted to be rid of those 789 dealers by the time they exited bankruptcy.

As for Government Motors, while the purported criteria for selecting their wound-down dealerships were all objective, the report noted that undeterminable factors outside those measures were used to wind down dealerships, including at least two dealerships who otherwise would not have been wound down. GM did not document why some dealers that met wind-down criteria were wound down while others were not, nor did they have complete criteria data for 308 of their then-5,591 dealerships.

While GM did have an appeals process for dealerships selected to be wound down, it was a criteria-free process. GM did not provide guidance for the data dealerships were to submit as part of their appeal, did not establish criteria for the review of the appeal, and did not document the reasonings behind the decisions to either grant or deny the appeal.

All in all, the report leaves the possibility that the closure of dealerships was, at least partially, driven by politics and especially the donation records of the principals of the dealerships, wide open.

The Godfather Presidency

steveegg — Thu, 17 Jun 2010 14:52:32 +0000

The Heritage Foundation explains what happened at the White House yesterday:

This time it was the executives of BP who were summoned directly to the White House to have a little chat with the President and Attorney General Eric Holder (who has threatened BP with criminal prosecution). The exact conversation may never be known, and by the end of their “no-nonsense business meeting” BP emerged from the Roosevelt Room to announce that they would “voluntarily” place $20 billion into an escrow account to begin covering claims associated with the Deepwater Horizon oil disaster and contribute another $100 million to a foundation that will support oil workers made unemployed by President Barack Obama’s indefinite ban on offshore oil drilling.

Don’t buy for a second any of the mainstream media’s line about this being good for BP. The White House made clear yesterday that the $20 billion was just a down payment and in no way represented a cap on BP’s liability. In fact, the President explicitly said that the fund would not preclude individuals or states from pressing claims in court, and that it would remain separate from BP’s liability for the damages to the environment. And these damages may include the costs of cleanup for damage far beyond what BP caused. The Washington Post today reports that a gulf restoration plan of the sort promised by President Obama could cost as much as $30 billion. That’s $50 billion in damages so far. And that does not include any future money, on top of the existing $100 million donation, the White House may press BP to pay to cover the unemployment caused by President Obama’s offshore drilling ban.

They go on to discuss what would happen if BP goes into bankruptcy, noting that the Feds have put a $20 billion lien on some of BP’s American operations. While the White House assured BP that it wasn’t seeking to drive the company out of business, I seem to recall the same promises made to Chrysler and General Motors, and after a manipulation (perversion, really) of the bankrupcy process, we now own two car companies.

I guess it’s time to break out a classic People’s Cube graphic:

Rural Dane County elites whine for cheap broadband

steveegg — Wed, 16 Jun 2010 17:45:56 +0000

(H/T – Dad29)

The Milwaukee Journal Sentinel ran a story today about some residents in Town of Berry, roughly 20 miles west of Madison, trying to get the Public Service Commission to force TDS Telecom, the local telephone provider, to provide DSL broadband to the southwest corner of town. TDS, which was turned down for “stimulus” broadband funds by the FCC because Dane County isn’t “rural enough”, says that those residents live in an area too sparsely-populated to make a business case to install the necessary equipment.

For megabit-class speeds, DSL subscribers need to be within roughly 2 miles of the DSLAM (which connects the DSL lines to a backbone line, and is either installed at the local telephone exchange or in the case of AT&T’s Milwaukee-area fiber-to-the-neighborhood, a cabinet in the neighborhood), and for any DSL service, there cannot be a load coil (which extends the effective range of voice communications but blocks DSL signals) on the line. Meanwhile, the population density of Berry as a whole in 2000 was 30.2 people per square mile (that’s as detailed as the Census Bureau gets). The roads, which the utility poles travel along, are “not-exactly” straight because of the geography of the area, requiring longer runs and, in many cases, prohibiting running a DSL line down from Highway 19, which has DSL service.

Said geography also plays havoc with some peoples’ attempts to use wireless broadband connections, and the compaintants whine in the linked complaint about both the reliabiltiy and cost of that. They also don’t want to use satellite internet service because they don’t want to pay the going rate for that less-than-reliable service. They further think that access to cheap land-based broadband is a right guaranteed by state statute.

Cerebus pays off part of OldChrysler’s TARP loan

steveegg — Thu, 20 May 2010 18:24:19 +0000

Yes, I’m late to this, but I didn’t have time to dig beyond the headline of “Chrysler repays $1.9 billion of its TARP loan” before now. As you can tell by my headline, it wasn’t UAW Motors that repaid it.

Let’s walk back to what went out the door to the Chrysler-related companies run by Cerebus before and during its bankruptcy:

$4 billion went to Chrysler on 1/2/2009 ($500 million assumed by UAW Motors)
$1.5 billion went to Chrysler Financial on 1/16/2009 (repaid before bankruptcy exit)
$280 million went to Chrysler for warranty obligations on 4/29/2009 (repaid before bankruptcy exit)
$1.89 billion in used Debtor-In-Possession financing went to Chrysler in May

In its write-up of the repayment, The Detroit News mentioned something about the original $4 billion loan I had not known before – the Bush administration placed a $2 billion lien on Chrysler Financial. That lien formed the basis of the continuing claim on the greater of $1.375 billion or 40% of Chrysler Financial’s distributions to the Cerebus subsidiary that was the parent Chrysler Holding company (incorrectly reported earlier as 40% of equity in Chrysler Financial) as it wound down following the Obama administration’s decree that GMAC and not Chrysler Financial handle loans for Chrysler vehicles.

I’ll pick up with the Treasury Department press release (which also offered the correction on the “40%”). Old Chrysler was liquidated on April 30, with, as expected, no repayment of the $5.4 billion debt retained by the company. The $1.9 billion in DIP financing was extinguished at that point, with some small unspecified claims from the sale of certain assets retained by the Treasury. That left only the Chrysler Financial claim to repay at least part of the TARP loan.

Cerebus ultimately coughed up $1.9 billion of that. The Detroit News quoted a Treasury spokesperson as saying that the payment came from “both distributions from Chrysler Financial and contributions from its equity owners”. That was sufficient to satisfy the remaining claim on Chrysler Financial, probably because it was more than the $1.375 billion “floor”, even though it was less than the $2 billion lien the Bush administration put on Chrysler Financial and Chrysler Financial isn’t quite fully wound down.

The remaining $2.1 billion of the TARP loan, as well as the $1.9 billion DIP financing, has thus been written off. Combined with the $7.1 billion UAW Motors still owes the federal government, with the first payments scheduled to begin next year, that leaves $11.1 billion still out there. Given Chrysler’s continuing sliding market share, I somehow doubt the Treasury will get $7.1 billion in payments or $4 billion for their 8%-9.85% equity stake.

Graphic of the day – the three classes of American business

steveegg — Tue, 04 May 2010 20:41:12 +0000

Tom McMahon nails it again…

As usual when I “borrow” Tom’s stuff, the comments are off here.