Sunday, April 05, 2009

Autoblog: GM Bondholders might WANT bankruptcy - A troubling AIG tie-in

Here's a link to a post on that discusses the possibility that a good portion of GM bondholders might be trying to force GM into bankruptcy. Although bondholders are whining that they are not treated as well as some other unsecured creditors (think labor) in out of court plans proposed to date, the fact is that many of the current bondholders may have bought their bonds at 10-20% of face value. The irony is that some of these bonds may be backed by credit default swaps issued by AIG and backed 100% by the United States Government. Bankruptcy would be a triggering event for the Credit Default Swap to pay out, thus bondholders may be holding out for a bankruptcy to make a 400% profit courtesy of the US government. Now some of this may be speculation by the folks at Autoblog, but you get the sense that things are so screwed up right now that it must be true. For more on GM and the politics of bondholders, check out this article.

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