If the General Motors bondholders are being asked to trade in their bonds for equity, where does this equity come from? (treasury stock, the market, new issue) And why would the bondholders do this? Shouldn’t equity be wiped out first?
i’m not following what’s going on with gm but what you’re describing sounds like a preapproved or prepackaged(?) bankruptcy
new issue. there are situations where its in the favour of bondholders to switch to equity rather than force liquidation. a firm like gm would have little to cover their ST creditors in this market, let alone their LT creditors. this would basically make the equity worth nothing for the current equityholders anyway as the dilution would be unreal.
moneysupply Wrote: ------------------------------------------------------- > If the General Motors bondholders are being asked > to trade in their bonds for equity, where does > this equity come from? (treasury stock, the > market, new issue) And why would the bondholders > do this? Shouldn’t equity be wiped out first? change bonds to equity, GM doesn’t owe interest payments anymore. Hopefully, that can alleviate some of their liabilities, their balance sheet becomes better (less debt) and just hope that they can get their sh1t together and sell a couple of cars. I doubt bondholders are gonna get anything if GM goes bankrupt. Might as well bet your money on the stock price going up on some positive news and then get out.
> where does this equity come from Here’s an example. Say the EV is 100; D is 90 and E is 10. Now we ask the bondholders to swap 10 of D for E; so D becomes 80 and E becomes (100-80)=20. (Company cancels the bonds and issues new shares.)