OT: Buying GM Stock, a steal at $2?

[tboyer]

GM Craters! Stopped at 1.71, lost about hundred bucks, the only winner here is Sharebuilder.com :-) Appears that investors are worried that GM may convert a sizeable amount of debt into equity stock, not exactly sure what that means but it doesn't sound good.

[Lil bastard]

Sorry for your news. It could be linked to the fact that SAAB, a GM subsidiary filed today for Bankrupcy Protection. The Market, I believe sees this as just the beginning.

[ekam]

So what made you buy GM stock?

[jmatta]

Originally Posted by tboyer

Appears that investors are worried that GM may convert a sizeable amount of debt into equity stock, not exactly sure what that means but it doesn't sound good.

Converting debt into equity is a fairly common resolution when a troubled company attempts to restructure. The process removes the debt from a company's balance sheet and converts it to net equity, diluting the existing shareholders. In the long run, the original debt holders get fair value as the company becomes profitable in the future. The problem here is there's so much debt, the holders essentially get stake in a company that's going down anyway (% ownership of nothing still equals nothing) and would likely recoup zero.

Obama will likely write the check to GM and it's suppliers to keep the house of cards from collapsing and appease the unions which showed strong support during his candidacy.

[Brucelee]

Originally Posted by jmatta

Converting debt into equity is a fairly common resolution when a troubled company attempts to restructure. The process removes the debt from a company's balance sheet and converts it to net equity, diluting the existing shareholders. In the long run, the original debt holders get fair value as the company becomes profitable in the future. The problem here is there's so much debt, the holders essentially get stake in a company that's going down anyway (% ownership of nothing still equals nothing) and would likely recoup zero.

Obama will likely write the check to GM and it's suppliers to keep the house of cards from collapsing and appease the unions which showed strong support during his candidacy.

Debt holders get preference over shareholders in a liquidation. Hence, most debt guys won't do this. Moreover, even if GM can come out of Chapt 11, I think the equity would be so diliuted, it would be a penny deal for them.