Creditors of General Motors Co’s bankrupt predecessor, who will likely get about $5 billion from the new auto maker’s $20 billion initial public offering, might be able to buy millions more new shares for as little as a third of yesterday’s price.
GM’s bankrupt estate was issued 150 million shares, or 10 per cent of stock in the new company, to help pay off creditors. At yesterday’s closing price of $34.19, that stock is worth about $5.1 billion.
So-called Old GM has warrants that entitle it to buy about 273 million shares at between $10 and about $18 each, according to the company’s November 17 filing with the US Securities and Exchange Commission.
If the shares rise, as CRT Capital Group LLC’s Kirk Ludtke expects, creditors stand to make even more.
“We value the shares of the new GM at $45,” said Ludtke, a senior vice-president at the Stamford, Connecticut-based brokerage firm.
The bankruptcy estate is still resolving its liabilities, which were $35.7 billion as of September 30, according to its last monthly operating report. If unsecured claims are certified as more than $35 billion, the estate would get at least 10 million new GM shares. Old GM filed for bankruptcy in June 2009.
“Without the bankruptcy there would be a high probability that GM as we knew it would have been disassembled, dismembered, and you wouldn’t have this American icon still in existence,” said Harvey Miller, a lawyer with New York-based Weil Gotshal & Manges LLP.