Deutsche Bank Comments on GM, Saying Operationally Things Look Good But Stock Still A Zero
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Analysts at Deutsche Bank commented on General Motors (NYSE: GM) after the company presented additional details of its restructuring plan at the Detroit Auto Show Conference on Thursday. They said the operational restructuring could work, but the financial restructuring has big risks. They said the stock is likely a "zero."
The firm said, "For us, a key takeaway was that the company appears to have a reasonable operational restructuring in the works. But we still have doubts regarding GM's financial restructuring—in terms of its execution and its sufficiency. Even if achieved outside of bankruptcy court, we believe that this process is likely to lead to massive dilution to current equity shareholders, potentially to zero."
Operationally, Deutsche Bank believes that GM has tremendous potential, buy they continue to see risk to the execution of GM's debt restructuring.
Analyst said, "GM reiterated that it hopes to execute a voluntary debt exchange, in which unsecured creditors and the UAW would be enticed to voluntarily exchange $27.5 bn of unsecured debt and $20.4 bn of VEBA debt into lesser obligations ($9.2 bn of new general unsecured and $10.2 bn of new VEBA debt). However, GM has 30 different unsecured bonds, many of which are held by retail investors, creating a significant execution/communication challenge; some of these indentures are held by investors who own basis packages in GM (i.e. they are hedged with CDS), and they may be unwilling to voluntarily surrender these indentures outside of bankruptcy. The bottom line is that we expect GM to get only part of the way toward a voluntary financial restructuring."
Deutsche Bank said ultimately GM's capital restructuring will likely require a bankruptcy court.
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