Cliffs: Apparently, under the terms of the “bailout”, GM will be required to reduce it’s unsecured debt - which it was going to do via swaps for stock/equity.
Apparently, the amount of debt to be reduced counts as revenue for tax purposes; and the change in ownership amount (e.g. stock swap - some of which went to the government, BTW) triggers an automatic tax levy.
In short, GM might have to pay $7 Billion in taxes to receive $13.4 Billion in loans from the government.
wow, that is ridiculous…if they are going to help at all they shouldn’t take taxes back on their own money they lent out to attempt to save the big three and the economy. fucking idiots
Yeah I don’t think they have an ownership stake in GM.
AUTOMOTIVE INDUSTRY FINANCING PROGRAM
Name of Institution City State
Pricing
Mechanism
12/29/2008 GMAC LLC Detroit MI Purchase Preferred Stock w/ Exercised Warrants $5,000,000,000
Liquidation
Preference
1/ 12/29/2008 General Motors Corporation Detroit MI Purchase Debt Obligation $884,024,131 N/A
2/ 12/31/2008 General Motors Corporation Detroit MI Purchase Debt Obligation w/ Warrants and Additional Note $9,400,000,000 N/A
1/2/2009 Chrysler Holding LLC Auburn Hills MI Purchase Debt Obligation w/ Additional Note $4,000,000,000 N/A
3/ 1/16/2009 Chrysler Financial Services Americas LLC Farmington Hills MI Purchase Debt Obligation w/ Additional Note $1,500,000,000 N/A
TOTAL $20,784,024,131
So the bulk of the money that the government lent could be exchanged for stock at some point, at a predetermined fixed price (if it is exercised, that is). Theoretically, the Government could exercise that warrant and make a big profit if GM’s stock price rallies if GM recovers (depending on the set price of the warrant).
So in a sense, it’s in the Government’s interest to not see GM into bankruptcy, as those warrants (like other stock) become useless.