Correct Me If I'm Wrong

[Joe C.]

Do any of you hold GM, Ford or Chrysler bonds? If these companies go Chapter 11, those bonds become worthless.
What about those of you that own stock in these companies?
How about those that retired 10-20 years ago?
Do these people lose all their pension benefits?

The govt should supply any necessary loans, in order to protect those people mentioned above, but with strings attached, whereby future contracts are limited and immediate plans are provided. Oversight must be provided, and terms must be strict.

[Bill M.]

Re: Correct Me If I'm Wrong

Joe

I own around 800 shares of GM i bought them with my heart not my head. My broker told me that if they go under the stock goes with them. i have owned at least a dozen new GM cars and trucks in the last 22 years and can not bear the thought of buying anything else. My son who is in the Marines is saving for the Camaro i hope it is here for him when his enlistment is over.

Bill

[Donald T.]

Re: Correct Me If I'm Wrong

Do any of you hold GM, Ford or Chrysler bonds? If these companies go Chapter 11, those bonds become worthless.
What about those of you that own stock in these companies?
How about those that retired 10-20 years ago?
Do these people lose all their pension benefits?

The govt should supply any necessary loans, in order to protect those people mentioned above, but with strings attached, whereby future contracts are limited and immediate plans are provided. Oversight must be provided, and terms must be strict.

Joe, not necessarily. First of all, chapter 11 is a reorganization and not a liquidation of company assets. It allows the company to renegotiate with creditors and adjust terms. The company continues to operate under a reorganization plan, and hopes to eventually pull out of bankruptcy. Even if the company goes into chapter 7 it does not necessarily mean the bonds will be worthless. The company goes into liquidation and assets are sold off. The proceeds satisfy obligations in a specified order. Common stock holders are at the bottom of the list and can expect to receive little if anything. In the case of GM with their huge debt and obligations, common stock holders are not likely to receive anything. Bond holders have priority over stock holders, so they are in a little better position to receive some of the proceeds. However, secured debt takes priority over unsecured debt. Bonds are unsecured debt, so they will only receive proceeds after all of the secured debt is satisfied. Bond holders may get all, some, or none of the bond value depending on what proceeds are left. GM and Ford are racing to zero with their common stock. GM is down over 30% so far today at $1.89 per share and Ford is a little over a buck.

[Steven C.]

Re: Correct Me If I'm Wrong

To expand on Don’s comment, upon a filing (a/k/a DIP financing whereby GM will act as trustee) the court will invoke an automatic stay provision which in effect will create a standstill provision whereby creditors will take certain actions depending on their lien position. It is possible that the judge will permit the debtor to amend the 11 to a 7 while under the courts protection. Moreover, there most likely are several tranches of senior creditors in the food chain.

Regarding the pensions, I assume you are referring to defined benefit plans. These are guaranteed by the Pension Benefit Guarantee Corp. (created thru ERISA in 1974). The downside to this guarantee is that it is underfunded and it is unclear how/when Congress will address the shortfall.

[Stuart F.]

Re: Correct Me If I'm Wrong

The other downside is that one would only get about 40% of their pension amount. I have no idea what would happen to benefits included in the pension such as Employee Life Insurance (Basic and Optional up to 8 x former base salary), and Dependent Life and others such as PAI. In my situation, I took a much lower pension amount in order to Guarantee my pension will get passed to my wife when I pass (love that word). Same with the extra Life Insurance. Being as how I already knew I had a bad ticker, I wanted to be certain my wife was taken care of when the beat stopped. I can't replace those provisions at any cost now.

Ah Yes, "Employment At Will" for us ex-salaried folks means we will get screwed in the end. No union to look after us in our retirement years or anyone else. A word to the young; Loyalty to anyone or thing besides yourself and your family is foolish - that includes your friends, your community, your company or its products, your State, or Your Country.

Stu Fox