Tracinda pledges GM stock as collateral for loan

[BigPontiac]

Tracinda pledges GM stock as collateral for loan
Wed Oct 19, 2005 7:59 AM ET

WASHINGTON, Oct 19 (Reuters) - Billionaire investor Kirk Kerkorian's Tracinda Corp. said in a regulatory filing on Wednesday that it is pledging its common shares of General Motors Corp. (GM.N: Quote, Profile, Research) as collateral to secure loans of $200 million or more.

Tracinda recently disclosed that it had boosted its stake in GM to 9.9 percent, after U.S. antitrust authorities said they would not oppose a plan by Tracinda, Kerkorian's investment arm, to increase its stake to that level. The plans also include the possibility of Tracinda seeking a seat on the automaker's board.

Tracinda said in a filing with the U.S. Securities and Exchange Commission on Wednesday that it entered into the pledge agreement with Bank of America on Oct. 14.

The filing did not not disclose information about the intended proceeds from the loan.
© Reuters 2005. All Rights Reserved.

http://today.reuters.com/stocks/QuoteCompa...-Oct-2005+RTRS;

[AAS]

What exactly does that mean to us non-financial stuff nerds? Does that mean that Tracinda is showing a lot of confidence in GM stock, to use them as collateral? Are they doing this to try and strenghten the stock? Am I totally wrong?

[Newbiewar]

if i were a bank i wouldnt honner GM's stock as a collateral... but does that mean Kirk has all he has invested in GM? why doesnt he use his own money?

[Member55]

if i were a bank i wouldnt honner GM's stock as a collateral...

but does that mean Kirk has all he has invested in GM?

why doesnt he use his own money?

[post="31310"]<{POST_SNAPBACK}>[/post]

Why use your own money, dividend alone should just about cover the interest on this loan.

[Newbiewar]

Why use your own money, dividend alone should just about cover the interest on this loan.

[post="31370"]<{POST_SNAPBACK}>[/post]

so why not use you're own money, unless there was another investment what was more worth while...

sure i'm all for using other peoples money, thats what investments are all about... but
okay so he pledges to buy another roughly 7 million more shares... over the course of that year, he will see 14 million dollars... depending on the intrest, probably in the ball park of 4-5% based on a loan of that size... and sure he would be making about 7% in dividens alone...

but why? for a 2-3% increase a year?

if he really had the money he'd sink it in now, that way he'd make 7%...

i mean honnestly... when he puchased his original 50 million shares it was around 30.50$ a share... and it closed today at 28.58... he's down 7% on his original investment... or $100 million below what he paid in ?april?

I'm a big believer in when the market goes down, buy... because thats what brings it back up, and thats when you get more, even though you're loosing money every minute you're dollars are in that certain share...
but why would a bank, Bank of America, who also owns 10% of GM, loan him 200+ Million dollars? if he was going to do it... Bank of America might as well do it for themselves instead of for him... that way they get 7% although when they loan it to him its a secured investment...

the only thing hes trying to do is, to hit the news and get people to invest so he can get back his money... he wants people to think that its safe to invest, he wants to overinflate the price of the stock and then...
he'll pull out as soon as GM hits 70$ per share... which should be... probably be around the first quarter results of 07...

[gmbuoy]

The interest on the loan is tax deductible while the imputted opportunity loss (that's a financial theory term) is not. It is a sound financial structure. Edited October 20, 2005 by gmbuoy

[cmattson]

The more secure the loan is, the better rate you can get. It's no secret that GM's junk-bond status negatively effects it's borrowing rate. While it seems quite circular, Tracinda backing GM's loan with GM stock will let GM borrow that $200m at a better rate than having it unsecured (or secured through some other means). Tracinda owns 56 million shares with the current trading price is $28.38/share, which equates to a shade under $1.6b. Bank of America is obviously confident that GM stock won't loose the kind of value that turns $1.6b into less than $200m & is willing to give GM a better rate. If GM performs better financially (something a lower-interest loan would allow them to do), then Tracinda should see a return on their risk with a better (future) stock price.

[Hogans_Heroes]

I haven't posted much on GMAC, though it is the one area regarding GM I'm most familiar with.

BigPontiac is right to post this headline here. This collateralized Bank of America loan story could have flown under the radar screen any other day. But there really could be something more to this story than meets the eye. BofA (along with Citigroup, JPMorgan Chase, HSBC, and GE Capital) is one of the firms most often connected to the GMAC controlling stake bidding process.

It is speculated, too, that a large, money center bank with checking and savings deposits to invest is the preferred buyer of GMAC. Remember that GM is not "burning the furniture to keep warm" here. They do not need a large infusion of cash, as their liquidity is currently adequate to weather continued near and mid term losses as well as a Delphi OPEB assumption (which would not require significant cash in the short run, merely assumption of liabilities to be paid with cash in future periods). No, this deal is born out of necessity.

GM is looking for a "strategic partner" with GMAC's long-term best interests at heart, not the "highest bidder". For that reason, it is expected the hedge funds, private equity funds and LBOs (likely to form a wolf-pack a la SunGard) will be rebuffed out of fear any deal would be laced with debt, negating the entire purpose of a vastly superior credit rating.

Therefore, a large bank is favored. Citigroup is often recognized as the largest financial institution on Earth. And rightly so. But they are not the nation's largest bank. They are the nation's largest financial institution. BofA has 10% of the nation's cash deposits (Citigroup, for all its heft, has only 3.3%). BofA does not have the diversification Citigroup does, making GMAC a nice complement to their earnings base. Because it's so hand-in-glove, they would be seen as a long-term holder (a "strategic partner", if you will). Plus - perhaps an indication of their interest, they've already entered into the $55 billion / 5 year asset-backed security deal with GMAC. They're familiar with the enterprise.

I think this adds up to BofA AT LEAST being out in front in terms of potential bidders. GE Capital has got to be on the short list, too. Scott Sprinzen's preference probably stops at large institution vs. private equity and GE Capital and GE's credit rating is stellar, but I wonder if BofA would be even more preferred in his eyes than GE Capital.

So, to circle back, Bank of America - one of the rumoured front-runners in the GMAC bidding - has entered into an agreement to loan Kirk Kerkorian (9.9% owner in GM) AT LEAST $200 million (key word = "at least"). Could this be some sort of a behind-the-scenes effort to join forces for a proposed GMAC bid? Perhaps their combined stake could equal 51%?

I dunno.

But one thing is for certain regarding Kerkorian: he is, let's face it, a man with (for obvious reasons) a short-term time horizon. The speculation is he was looking for a spin-off of GMAC to shareholders or a special cash dividend raised as a result of a sale of all or part of GMAC. I think this would be a terrible thing for GM to do. The last thing they need is to further leverage the corporation. They shouldn't even be paying the dividend they do ($1 billion/yr), let alone a special cash dividend of $12 - $15 billion. Any stake raised should be earmarked for debt reduction (repurchase of most expensive long-term debt on the open market, booking a gain and driving down further cost of borrowing).

Anyhow, I don't really know what this all adds up to. But you've got Kerkorian, GM, GMAC, and Bank of America. They're all related in various intricate ways. It's like seeing smoke, but no fire.

One wild theory: maybe there's some type of proposed deal to satisfy all sides.

Could BofA and Kerkorian together share what amounts to a controlling stake in GMAC? Could TRACy-lINDA exchange its GM Common shares for a GMAC stake at a premium? Kirk gets his quick buck. GM gets to retire 9.9% of its float - ammounting to a buyback enhancing share value - mollifying institutional investors and getting Kerkorian off their backs in one fell swoop. BofA gets earnings diversification. Buy Lehman, Bear Stearns, or another Wall Street firm to counter Citigroup Capital Markets, throw in MBNA... and all of a sudden Lewis' BofA can go head-to-head with Chuck Prince.

I don't know. It's a stretcher. But the interconnectedness of it all has got to get one thinking of what could be cooking. Anyhow, the below article seems to be one of the better ones as far as speculating upon who might take on a controlling stake in GMAC... it does a good job explaining the PIPE doubts and making a good case for a company like BofA.

http://today.reuters.com/investing/finance...EKLY-COLUMN.XML Edited October 21, 2005 by Hogans_Heroes

[Ghost Dog]

They shouldn't even be paying the dividend they do ($1 billion/yr), let alone a special cash dividend of $12 - $15 billion.

This would be the typical U.S. big business move. I'll be shocked if it goes down any other way.

[Member55]

I haven't posted much on GMAC, though it is the one area regarding GM I'm most familiar with.

BigPontiac is right to post this headline here.  This collateralized Bank of America loan story could have flown under the radar screen any other day.  But there really could be something more to this story than meets the eye.  BofA (along with Citigroup, JPMorgan Chase, HSBC, and GE Capital) is one of the firms most often connected to the GMAC controlling stake bidding process.

It is speculated, too, that a large, money center bank with checking and savings deposits to invest is the preferred buyer of GMAC.  Remember that GM is not "burning the furniture to keep warm" here.  They do not need a large infusion of cash, as their liquidity is currently adequate to whether continued near and mid term losses as well as a Delphi OPEB assumption (which would not require significant cash in the short run, merely assumption of liabilities to be paid with cash in future periods).  No, this deal is born out of necessity.

GM is looking for a "strategic partner" with GMAC's long-term best interests at heart, not the "highest bidder".  For that reason, it is expected the hedge funds, private equity funds and LBOs (likely to form a wolf-pack a la SunGard) will be rebuffed out of fear any deal would be laced with debt, negating the entire purpose of a vastly superior credit rating.

Therefore, a large bank is favored.  Citigroup is often recognized as the largest financial institution on Earth.  And rightly so.  But they are not the nation's largest bank.  They are the nation's largest financial institution.  BofA has 10% of the nation's cash deposits (Citigroup, for all its heft, has only 3.3%).  BofA does not have the diversification Citigroup does, making GMAC a nice complement to their earnings base.  Because it's so hand-in-glove, they would be seen as a long-term holder (a "strategic partner", if you will).  Plus - perhaps an indication of their interest, they've already entered into the $55 billion / 5 year asset-backed security deal with GMAC.  They're familiar with the enterprise.

I think this adds up to BofA AT LEAST being out in front in terms of potential bidders.  GE Capital has got to be on the short list, too.  Scott Sprinzen's preference probably stops at large institution vs. private equity and GE Capital and GE's credit rating is stellar, but I wonder if BofA would be even more preferred in his eyes than GE Capital.

So, to circle back, Bank of America - one of the rumoured front-runners in the GMAC bidding - has entered into an agreement to loan Kirk Kerkorian (9.9% owner in GM) AT LEAST $200 million (key word = "at least").  Could this be some sort of a behind-the-scenes effort to join forces for a proposed GMAC bid?  Perhaps their combined stake could equal 51%?

I dunno.

But one thing is for certain regarding Kerkorian: he is, let's face it, a man with (for obvious reasons) a short-term time horizon.  The speculation is he was looking for a spin-off of GMAC to shareholders or a special cash dividend raised as a result of a sale of all or part of GMAC.  I think this would be a terrible thing for GM to do.  The last thing they need is to further leverage the corporation.  They shouldn't even be paying the dividend they do ($1 billion/yr), let alone a special cash dividend of $12 - $15 billion.  Any stake raised should be earmarked for debt reduction (repurchase of most expensive long-term debt on the open market, booking a gain and driving down further cost of borrowing).

Anyhow, I don't really know what this all adds up to.  But you've got Kerkorian, GM, GMAC, and Bank of America.  They're all related in various intricate ways.  It's like seeing smoke, but no fire.

One wild theory: maybe there's some type of proposed deal to satisfy all sides.

Could BofA and Kerkorian together share what amounts to a controlling stake in GMAC?  Could TRACy-lINDA exchange its GM Common shares for a GMAC stake at a premium?  Kirk gets his quick buck.  GM gets to retire 9.9% of its float - ammounting to a buyback enhancing share value - mollifying institutional investors and getting Kerkorian off their backs in one fell swoop.  BofA gets earnings diversification.  Buy Lehman, Bear Stearns, or another Wall Street firm to counter Citigroup Capital Markets, through in MBNA... and all of a sudden Lewis' BofA can go head-to-head with Chuck Prince.

I don't know.  It's a stretcher.  But the interconnectedness of it all has got to get one thinking of what could be cooking.  Anyhow, the below article seems to be one of the better ones as far as speculating upon who might take on a controlling stake in GMAC... it does a good job explaining the PIPE doubts and making a good case for a company like BofA. 

http://today.reuters.com/investing/finance...EKLY-COLUMN.XML

[post="31717"]<{POST_SNAPBACK}>[/post]

Very interesting read, please feel free to educate us some more. :)

[Hogans_Heroes]

GMAC has "short list":

http://www.bloomberg.com/apps/news?pid=100...p2hfao&refer=us

[Fiero88]

GMAC has "short list":

http://www.bloomberg.com/apps/news?pid=100...p2hfao&refer=us

[post="32264"]<{POST_SNAPBACK}>[/post]

Do you think BOA will get GMAC for a song? Maybe the intent is to leave Traicinda out in the cold, under that scenario Kerkorian money would be tied up until the stock decides to perform better, or it completely tanks, bankrupting itself (GM) in NA. In the meantime how much of this loan to BOA would Kerkorkian still be responsible for? I also have to question who are these people at BOA who would consider buying GMAC, when interest rates are starting to head up, and wages down, cooling off the economy. Leaving few people or buinesses in NA to do any real borrowing. Wouldn't BOA then have a large amount of funds loaned out at a lower rate than they could replenish those funds with?
The auto industry will probably turn around dramatically once NA sheds the UAW and it's legacy cost ie.. closes down in NA. This would really be a long term plan if Kerkorkian is waiting for that kind of play.
I would guess it won't matter as long as someone in some far away land is building and selling autos for the people that can afford them. Edited October 26, 2005 by Fiero88