No Runny Eggs

I really should’ve done this last week, but I really need to walk through the numbers behind Government Motors. First, let’s review what went to General Motors before and during its bankruptcy:

• The US Treasury provided the following loan facilities to General Motors before and during bankruptcy – a total of $19.76 billion in unsecured and $30.1 billion in senior secured debt facilities ($22.58 billion used), or $49.86 billion offered ($42.34 billion used):
  • $13.4 billion on 12/31/2008
  • $2 billion on 4/22/2009
  • $4 billion on 5/20/2009
  • $0.36 billion for warranty obligations on 5/27/2009
  • $30.1 billion in Debtor-In-Possession facility during the bankruptcy, with only $22.6 billion ultimately used
• The Canadian and Ontario governments provided the following loan facilities to GM before and during bankruptcy:
  • $6.3 billion in unsecured loans at times unknown
  • $3.2 billion in DIP facility during the bankruptcy, with only $2.7 billion ultimately used

The entirety of the unsecured debt from all governments, except for the $0.36 billion warranty loan (repaid on June 10), as well as a significant portion of the DIP facility, was forgiven to seiz…er, credit bid for 73% of Government Motors (60.8% to the US, 11.7% to Canada). In addition, $1.175 billion of the DIP financing facility ($0.986 billion from the US, $0.189 billion from Canada) remained with Old GM, with first-right claims on the assets generated from its wind-down.

Meanwhile, only $8.9 billion of the DIP facility was tapped during the under-6-week bankruptcy. As mentioned before, $1.2 billion remained with Old GM, to be repaid with the proceeds from its wind-down. The other $7.7 billion of DIP financing used during the bankruptcy was also part of the credit-bid and forgiven outright. The US portion of that is approximately $6.98 billion.

That left $24.4 billion unused in the DIP facility ($22.11 bilion from the US) on July 9, the day before Government Motors assumed its present form. The Treasury and the Canadians could have taken all of that back, but they decided that their new business venture needed $16.4 billion in “seed money”, as well as some help in the creditworthiness department. They structured $8 billion ($6.71 billion from the US) as a “loan” to be immediately used by GM as it saw fit and to be “repaid” from part of the unused DIP facility, with the other $8.4 billion ($7.89 billion from the US) initially requiring Treasury approval to spend but eventually being under GM’s control. The remaining $8 billion of the DIP facility ($7.52 billion from the US) was effectively returned to the loaners (the Treasury and the Canadians) unused either during or after bankruptcy.

So, how far on the hook are we? Let’s review:

• $19.3 billion in pre-bankruptcy loans forgiven upon exit from bankruptcy
• $0.99 billion of DIP financing owed by Old GM (likely to be repaid only in part)
• $6.98 billion of DIP financing forgiven upon exit from bankruptcy
• $7.52 billion given to Government Motors upon exit from bankruptcy, originally in escrow and now theirs to spend as they see fit
• $6.71 billion “loaned” to Government Motors upon exit from bankruptcy and “repaid” with other government money

We’re still on the hook for about $42 billion. Meanwhile, the Canadians are still on the hook for about $9 billion. Who here thinks GM is worth $69 billion (the market capitalization required to make the Treasury whole)-$75 billion (the market capitalization required to make the Canadians whole)?

Revisions/extensions (11:53 pm 4/27/2010) – Two more plot twists:

• (H/T-Phineas) Forbes reports that Government Motors is using this sham of a “loan payback” to justify getting $10 billion from the Department of Energy to retool their plants. Of note, the “sham loan” carried a 7% interest rate, while the DOE loan carries a 5% interest rate.
• (H/T-Fausta) Fox Business found that, unless Government Motors comes up with $12.3 billion for its pension fund in the next 5 years (with Chrysler UAW Motors needing to come up with $3.4 billion) we’ll be on the hook for most of that shortfall. Fox News analyst James Farrell provides the following scenarios if we still have stakes in Government Motors and UAW Motors when the butchers’ bill comes due in 2014:
  

  *It can approve the payments to the pensions, which would benefit the union pension holders but reduce the likelihood that taxpayers will get their money back on the involuntary investment made in GM and Chrysler stock as well as taxpayers’ status as lenders to the automakers; OR

  *Decline to address the underfunding and let the plans get involuntarily terminated–costing union members approximately $23 billion in overall lost benefits ($18 billion for GM; $5 billion for Chrysler), and costing the PBGC (taxpayers) approximately $14.5 billion.

  “The only option where GAO sees taxpayers not getting the short end of the stick?” Farrell says. “Praying that the auto companies rapidly return to profitability and find $15.7 billion in excess cash lying around in the companies’ corporate couches between now and 2014.”

Revisions/extensions (5:59 pm 5/1/2010) – I did forget to factor in the value of the $2.10 billion of prefered stock the Treasury has in Government Motors, the 9% annual dividend it is due ($189 million per year, payable each quarter), and the fact that they’ll be holding onto that until at least the end of 2014 and until GM comes up with both the liquidation value ($25/share, or the full $2.10 billion if they get want to get rid of it all) and any unpaid dividend.

GM did pay out the first two scheduled distributions on September 15 and December 15, giving the Treasury just over $81 million. It is unknown at this point whether they paid out the March 15 distribution of just over $47 million. That leaves the minimum payback value of the Treasury’s prefered stock at $3.04 billion.

Also, related to that, the federal government (as well as the Canadians and the UAW VEBA, the other holders of the prefered stock) will hold that prefered stock until at least 12/31/2014, as part of the terms of the seizu…er, creation of Government Motors. It is only at that point when GM can buy out those prefered shares, for the aforementioned $25/share plus any unpaid dividend (at the aforementioned 9% per annum).

(H/T – Sammy Benoit via Ed Morrissey)

There is something I didn’t know about the Government Motors numbers when I ran them in September – the portion of the Debtor-In-Possession financing unused during GM’s bankruptcy, specifically $16.4 billion total (or about $14.66 in Treasury funds) went into an escrow account and were used to “repay” the post-bankruptcy loans GM had with the Treasury and Canadian governments. Quoting from the year-end 10-K filed with the SEC (emphasis added):

Proceeds of the DIP Facility of $16.4 billion were deposited in escrow and will be distributed to us at our request if the following conditions are met: (1) the representations and warranties we made in the loan documents are true and correct in all material respects on the date of our request; (2) we are not in default on the date of our request taking into consideration the amount of the withdrawal request; and (3) the UST, in its sole discretion, approves the amount and intended use of the requested disbursement. Any unused amounts in escrow on June 30, 2010 are required to be used to repay the UST Loans and the Canadian Loan on a pro rata basis. Any proceeds remaining in the escrow account after the UST Loans and the Canadian Loan are repaid in full shall be returned to us.…

In November 2009 we signed amendments to the UST Credit Agreement and the Canadian Loan Agreement to provide for quarterly repayments of the UST Loans and Canadian Loan. Under these amendments, we agreed to make quarterly payments of $1.0 billion and $192 million to the UST and EDC, which began in the fourth quarter of 2009. Upon making such payments, equivalent amounts were released to us from escrow.…

In short, the $6.7 billion post-bankruptcy loan should not really have been counted as a “new” loan.

The folks on The Wall Street Journal’s editorial board fired for effect on the “Subsidize Government Companies” proposal from Barack Obama on Saturday (emphasis in the original):

Mr. Obama’s new “Financial Crisis Responsibility Fee”—please don’t call it a tax—is being sold as a way to cover expected losses in the Troubled Asset Relief Program. That sounds reasonable, except that the banks designated to pay the fee aren’t those responsible for the losses. With the exception of Citigroup, those banks have repaid their TARP money with interest.

The real TARP losers—General Motors, Chrysler and delinquent mortgage borrowers—are exempt from the new tax. Why the auto companies? An Administration official told the Journal that the banks caused the crisis that doomed the auto companies, which apparently were innocent bystanders to their own bankruptcy. The fact that the auto companies remain wards of Washington no doubt has nothing to do with their free tax pass.

Also exempt are Fannie Mae and Freddie Mac, which operate outside of TARP but also surely did more than any other company to cause the housing boom and bust. The key to understanding their free tax pass is that on Christmas Eve Treasury lifted the $400 billion cap on their potential taxpayer losses expressly so they can rewrite more underwater mortgages at a loss.

In other words, the White House wants to tax more capital away from profit-making banks to offset the intentional losses that the politicians have ordered up at Fan and Fred. The bank tax revenue will flow directly into the Treasury to be spent on whatever immediate cause Congress favors. Come the next “systemic risk” bailout, taxpayers will still be on the hook. “Responsibility” is not the word that comes to mind here.

It also notes that the $50 billion in assets floor for this new tax is not exactly a “too big to fail” threshhold.

(H/T – The Right Scoop via Ed Morrissey)

BB&T CEO John Allison spoke with Fox Business Channel’s John Stossel about how BB&T was forced to take TARP money despite being sufficiently capitalized…

[youtube]http://www.youtube.com/watch?v=gCEdy_yHkQE[/youtube]

To wit:

– The Bush-era regulators “kindly informed” BB&T that the capitalization rules would be changed for banks who did not succumb to TARP to levels that even BB&T could not meet.
– Fed chair Ben Bernanke, Time’s “Person of the Year” for being instrumental in the federalization of the economy, didn’t want we the people to realize which banks were in trouble.

Revisions/extensions (8:32 am 1/8/2010) – Had the hat-tip links reversed. OOPS!

Revisions/extensions (6:45 pm 9/9/2009) – With a tip of the hat to Owen, we have some more-daunting US-specific numbers from the AP, as well as a Idiotic Quote of the Day nominee. Given that, and a review of the actual report, I’ve decided to ReWrite™ the entire post. The original post is archived and struck through below.

The Congressional Oversight Panel, in charge of keeping track of money expended by TARP, issued a report asserting that most of the $14.3 billion spent on UAW Motors and its predecessor, Chrysler LLC, the $49.9 billion spent on Government Motors and its predecessor, General Motors Corporation, and $16.9 billion spent on other elements of the automotive industry will never be repaid. I’m shocked, SHOCKED to find this out.

Let’s review what happened to the money that went out the Treasury door to the two big auto companies:

• Chrysler LLC (now known as Old Carco LLC)/Chrysler Financial/UAW Motors:
  • Originally-loaned-and-used amounts ($14.31 billion total; does not include credit facilities not used):
    • $4 billion went to Chrysler on 1/2/2009
    • $1.5 billion went to Chrysler Financial on 1/16/2009
    • $280 million went to Chrysler for warranty obligations on 4/29/2009
    • $1.89 billion in used Debtor-In-Possession financing went to Chrysler in May
    • $6.64 billion went to UAW Motors in the form of senior secured debt when it emerged from bankruptcy
  • Repaid amounts ($1.78 billion total):
    • $1.5 billion (the entirety) of the Chrysler Financial loan repaid
    • $280 million (the entirety) of the Chrysler warranty loan repaid
  • Remaining obligations ($12.53 billion):
    • $7.14 billion owed by UAW Motors in the form of senior secured debt (includes $500 million of the original $4 billion loan assumed by the new company)
    • $5.39 billion owed by Old Carco LLC in the form of unsecured debt, not expected to be repaid as the assets of the old company are expected to be exhausted before secured debtors are paid in full
  • Assets owned by the US Treasury:
    • 9.85% of UAW Motors common stock (to be reduced to as low as 8% if Fiat meets up to alll three of its goals to raise its stake from 20% to 35%)
    • A claim of the greater of 40% of Chrysler Financial’s equity value or $1.135 $1.375 billion, to be applied toward repayment of the original $4 billion loan
• General Motors Corporation (now known as Motors Liquidation Company)/Government Motors:
  • Originally-loaned-and-used amounts ($49.89 billion total; does not include a $880 million loan to GM made on 12/29/2008 in exchange for GMAC equity):
    • $13.4 billion went to General Motors on 12/31/2008
    • $2 billion went to General Motors on 4/22/2009
    • $4 billion went to General Motors on 5/20/2009
    • $360 million went to General Motors for warranty obligations on 5/27/2009
    • $30.1 billion in Debtor-In-Possession financing went to General Motors in June and July
  • Repaid amounts ($360 million total):
    • $360 million of the DIP financing repaid (the report scores it as a Government Motors debt repaid, though it was repaid before Government Motors assumed its portion of the DIP debt)
  • Obligations that went toward buying 61% of Government Motors common stock ($39.7 billion total) and $2.1 billion of Government Motors prefered stock (all toward the common stock unless otherwise noted):
    • $13.4 billion (the entirety) of the 12/31/2008 loan
    • $2 billion (the entirety) of the 4/22/2009 loan
    • $4 billion (the entirety) of the 5/20/2009 loan
    • $360 million (the entirety) of the 5/27/2009 warranty loan
    • $19.94 billion of the DIP financing for common stock
    • $2.1 billion of the DIP financing for prefered stock
  • Remaining obligations ($7.7 billion):
    • $6.71 billion of former DIP financing owed by Government Motors in senior secured debt
    • $990 million of former DIP financing owed by Motors Liquidation Company in a Wind-Down Facility, which is secured debt
  • Assets owned by the US Treasury:
    • 61% of Government Motors common stock
    • $2.1 billion of Government Motors prefered stock

The CNN story referenced in the original post notes that the $5.4 billion given to UAW Motors is as good as gone. I haven’t seen any plans on how the US and Canadian governments plan to divest themselves of their stakes in the company, but I doubt they’ll get more than $1.1 billion for the remains of Chrysler Financial or $4.3 billion for an 8% stake in UAW Motors.

Meanwhile, The Wall Street Journal reported in July that Government Motors plans on having an IPO sometime in 2010, with full divesture in 2018. Does anybody believe they’ll get $40 billion for 61% of GM or $2.7 billion for the non-voting prefered stock?

That does not address the possibility that UAW Motors and Government Motors will either dip back into the public trough or re-enter bankruptcy. In that case, even the secured debt might not be paid back in full.

That brings me to the Idiotic Quote of the Day. Let’s have the AP deliver it:

“I think they drove a very hard bargain,” said Elizabeth Warren, the panel’s chairwoman and a law professor at Harvard University, referring to the Obama administration’s Treasury Department. “But it may not be enough.”

Hard bargain? For full repayment of the TARP moneys, the Congressional Oversight panel estimates Government Motors would need to reach a total market capitalization of $67.7 billion and UAW Motors would need to reach a total market capitalization of $57.5 billion. That compares very unfavorably to General Motors’ peak market capitalization of $57.2 billion in 2000 (not adjusted for inflation). Further, if memory serves, Chrysler was never worth more than about $25 billion.

Shoebox pointed to a CNN story that says that much of the $60 billion in tax dollars provided to both UAW Motors (nee Chrysler) and Government Motors (nee General Motors) will not be paid back. I’m shocked, SHOCKED to find this out.

Let’s review what happened to the money that went out the door:

– Something north of $13.4 billion from both the US and Canadian governments went to UAW Motors and its predecessor, Chrysler LLC, with $6 billion of that converted to senior secured debt held by the new UAW Motors, and an additional $2 billion spent to buy the assets of Chrysler LLC in exchange for 12.31% of UAW Motors (to be reduced to as low as 10% if Fiat meets certain goals). The remaining $5.4 billion, all unsecured debt, remained with Old Carco LLC, which will almost certainly run out of money and assets before it completes paying the $5 billion it owes its secured debtors.

– Somewhere around $50 billion went to Government Motors and its predecessor, General Motors Corporation, with $7.07 billion in Debtor-In-Possession financing converted to senior secured debt held by the new Government Motors and an additional $1.18 billion in DIP financing converted into a Wind Down Facility loan held by Motors Liquidation Company and given senior secured debt status. The remaining $42 billion was forgiven in exchange for the governments’ nearly-73% share in Government Motors.

The CNN story notes that the $5.4 billion given to UAW Motors is as good as gone. I haven’t seen any plans on how the US and Canadian governments plan to divest themselves of their stakes in the company, but I doubt they’ll get $2 billion for less than 10% of the company.

Meanwhile, The Wall Street Journal reported in July that Government Motors plans on having an IPO sometime in 2010, with full divesture in 2018. Does anybody believe they’ll get almost $42 billion for 73% of GM?

That does not address the possibility that UAW Motors and Government Motors will either dip back into the public trough or re-enter bankruptcy. In that case, even the secured debt might not be paid back in full.

The editorial writers at Investor’s Business Daily slice and dice the first significant post-bankruptcy move by Government Motors – “Cadillac, the new fragrance for men”. That’s right – if you can’t afford a new car, at least you can smell like one (or more likely, just plain smell).

Seriously, there are two GMs – the one that saw a 22% drop in sales for the first 6 months in the US, and the one that saw serious growth nearly everywhere else on the globe. GM sales in China grew by 38%, and sales in several Latin American countries set records. I do discount the market-share growth in Europe, as GM has shed or is about to shed its two major European brands, Opel and Saab.

The money quote from IBD – “We hope GM can survive in the U.S. But we rather doubt it can with a management that thinks that perfume will cover up the stink of political meddling and the lingering bad odor of its ruinous retirement and health care costs.”

Thanks to Sean Hackbarth, I was part of a conference call with Sen. Lamar Alexander (R-TN), discussing his plan to distribute the Treasury-held common stock in Chrysler and GM directly to the taxpayers within a year and his new Car Czar award. Since I managed to have my digital voice recorder working, I was actually able to grab a few notes from that. Of course, partly because of my natural quietness, and partially because of a heavy-hitter lineup on the call so experienced that even Fausta didn’t get to ask questions, all I can offer is a writeup.

• The Auto Stock for Every Taxpayer Act (S. 1198, no text available yet from THOMAS) would require the Treasury to distribute all of the common stock to the 120 million or so Americans who pay individual income taxes within a year of GM leaving bankruptcy (side note; Chrysler has now closed its “sale” to Fiat/UAW/US and Canadian governments and will henceforth be called UAW Motors on this blog).
• Sen. Alexander describes it as the fastest way to get the stock out of the hands of government, and brought up the example of the Green Bay Packers and its community-owned structure (Sean’s influence at work).
• The most-important thing is to stop the political meddling that results from government ownership, citing the White House-ordered firing of Rick Wagoner as CEO of GM, “suggestions” on where the HQ of GM ought to be, Rep. Barney Frank (D-MA) pressuring GM to keep a Massachusetts distribution center open, clamors from Congress on what models to make (do I hear Iowahawk’s Pelosi GTxi SS/RT Sport Edition?), the pay czar to “fix” the price of labor.
• The rationale to the taxpayers is, “You paid for it, you should own it”.
• As part of that, the Car Czar award, first given to Rep. Frank on Monday, will become a regular feature.

Of course, it wouldn’t be a conference call without questions. As I said, we had some heavy hitters.

• Noel Sheppard of Newsbusters started up with a two-parter: How will the inevitable calls from the Democrats to include non-taxpayers be addressed, and will the stock distribution will be based on population or percentage of taxes paid? Sen. Alexander hasn’t heard much from the Dems yet, but the principle is that we should give the shares back to those who actually paid for them. As for the distribution percentage, he acknowledges that a percentage-based would be better, but the population-based split would “give the little guy a break” and be “simpler and cleaner”.

  Side note – the Treasury would have roughly 310,000,000 common shares in “new GM”, and an unspecified number of shares equaling 8% of the membership stake (all non-voting) in UAW Motors, so a population-based split would be “simpler and cleaner”.

• Jennifer Rubin of Commentary Magazine and Pajamas Media wondered if the Chrysler and GM bankruptcies have changed the rule of law regarding private property owners. Sen. Alexander said that we’ve damaged the rule of law and the rights of private property owners. He pointed out that, in the future, private entities will be slower to lend money to enterprises and rely on contracts to pay the money back, and asserted that our system won’t “function very well” in that scenario.
• Travis Griffith at CarGurus.com asked about stock dumping by those that would get the distribution. Sen. Alexander notes that stock distributions happen all the time. The alternative would be for the Treasury to slowly divest over 5-7 years, and he expects the government to run both right into the ground before they can fully divest themselves.

  Side notes – I’d expect each invidiual 3-share stake in GM to be worth somewhere around $30 at the close (based on the $1 billion in VEBA funding the UAW is giving up for 17.5% of the common shares) and each individual membership stake in UAW Motors to be worth somewhere between $4 and $7 as of a couple hours ago (depending on which valuation method one uses). At the same time, the UAW will be looking to dump significant chunks of its holdings, which will depress the estimated values and limit the dumping.

• Stephanie Davis from RFC Radio wondered whether the political meddling would be extended to Ford. Sen. Alexander hopes not, and the faster the stock gets out of the Treasury, the less likely it is that Ford will be meddled with. He read off a long list of enterprises government has been meddling in over the last 9 months.
• Noel Sheppard asked about Sen. Alexander’s thoughts on the European rejection of their leftist leaders. Sen. Alexander pointed out he has been around a while, and he’s seen things change quickly. Europe has been at points in the past a leading political indicator of trends in the US, especially in right turns. Takeaway quote; “(T)he more the Obama administration practices politics of Washington takeover, the more wary Americans are going to be of one-party control in Washington, which is what we have today.”
• Somebody from RedState (interference on my DVR prevented me from catching his name) asked about the politicization of the Chrysler dealership closings (which took effect at the close of business yesterday). Sen. Alexander noted that the mere odor of politicization is reason enough to end the “incestuous relationship” of the government owning the car companies.
• Travis Griffith asked how often we can expect a Car Czar award. Sen. Alexander expects a couple a week because we’re in a target-rich environment. As part of previous answer, he mentioned that he might have to give one to himself for urging that the Spring Hill, Tennessee GM plant stay open.
• Missed who asked this one, but someone asked whether Sen. Alexander had any confidence that the government control of GM will be transparent. He’s hopeful that the demand for transparency will make GM the most-public private company in America, and that the pressure will get the Obama administration to get the government out of GM.

Sean said he would get a recording out to those of us who participated later, so I won’t inflict you with my very-low-quality version.

Revisions/extensions (12:49 pm 6/10/2009) – Ask, and ye shall receive. Sean came through with audio.

I haven’t completed my thoughts on the bill, but it definitely sounds intriguing. One item I haven’t seen addressed yet – the preferred shares that the Treasury will be holding.