J.P. Morgan Chase & Co. bond analysts Eric Selle and Atiba Edwards in a report said they expect GM -- which warned Friday that absent government assistance or a dramatic turnaround in the economy it could run out of cash next year -- to weather the storm and survive without a bankruptcy. The analysts rate the automaker's bonds a "buy."
Selle and Edwards argue that GM has several sources of liquidity that can be tapped, including an overfunded pension plan, asset sales, cost cuts and expected government loans. The company, they note, needs primarily to bridge the gap until 2010, when it is expected to benefit from considerable cost cuts including the transfer of retiree healthcare obligations to a union-run trust.
"We view the upside (driven by stabilization of U.S. sales volumes and liquidity enhancement measures) on the bonds as much higher and more likely than the downside of a potential bankruptcy," the analysts wrote. "GM's recent product successes (award-winning styling, performance and quality) and its considerable international profitability give us confidence they can become profitable in North America selling cars."
The good news, unfortunately, could be limited to bondholders. While a general consensus in the industry does not anticipate a bankruptcy filing, those cash sources are likely to come at a steep price for equity holders. Deutsche Bank AG and Barclays Capital equity analysts on Monday lowered their GM target share price to $0 and $1 per share, respectively, on the expected cost of a bailout.
According to Barclays analyst Brian A. Johnson, a government lifeline similar to the 1979 bailout of Chrysler Corp. would likely transfer 98% of the recapitalized GM's equity to a union healthcare trust, existing debtholders and the government, leaving little for shareholders.
So while the patient might survive, any necessary resuscitation figures to be painful. - Lou Whiteman
See Dealscape post summarizing the equity reports
Comments
It has been hard to find many positives from the torrent of bad news flowing out of General Motors Corp. in recent weeks, but at least one research firm sees an opportunity in the troubled automaker.
THERE IS TREMENDOUS POTENTIAL HIDING IN EACH OF THE BIG 3
ONLY VERY DRASTIC ACTION WILL SAVE DETROIT
Congress: Here is a radical, but common sense and workable plan -
http://pacificgatepost.blogspot.com/2008/11/solution-for-detroit-gm-friends.html
It’s this, or bankruptcy. The American Auto industry should be saved but under new conditions.
Do not leave it to the likes of Paulson or Congress to come up with a creative plan resembling interest in taxpayers' wellbeing.