AMERICAN GENERAL
- Positive on the entire cap structure (bank debt YTM = 14.5%; bonds 13-14%)
- Not just a sub-prime portfolio – had a different business than most because they knew they were keeping the loans being made
- Thinks they are able to handle the July 2010 bank debt maturity through internal liquidity, bank group extension, or a loan/cash from AIG given the ILFC precedent
- Like the steering committee loans because they have ‘B’ yields for ‘BB’ risk
- Thinks the Series B Notes go to par upon emergence
- Estimates $6 bln of book equity, which implies 18 points of additional bond value
- New notes should return 20+% over next 6 months
- Bonds trade at 107 area, downside is your claim
- 2016 Notes are structurally senior to other notes
- IF EV > 1.2 bln then you get par on the 2016s
- Upside comes from equity value
- Risk is that you are taken out for cash or reinstated somehow
- (Note that GM bonds were marching up to 23 from 17 throughout this day)
- Base case recovery is 29.5
- Q3 #’s show they are ahead of plan
- GM bonds cheaper than Ford equity
- Macro bet on the economy
- (Citi’s analyst did an amazing job with this presentation. He gave out a 30 page slide deck that I would highly recommend for those with Citi coverage. The bullets below are from the first page alone!)
- Resolution of Lehman’s many estates will be very difficult and there is no way to determine assets and claims with precision
- However, there is enough information to set reliable ranges for many variables
- Estimate base case recoveries of 25-32
- Recovery is most sensitive to changes in asset value assumption, setoff and collection
- Time to distribution and discount rate are next most important drivers
Hunter
[www.distressed-debt-investing.com]
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