GM pays off government loan - 5 years early

[Jeffbx]

GM just paid off the entire balance of the loan portion of the government bailout - $8.1B (http://www.google.com/hostednews/ap/article/ALeqM5hij2hVGuCY0y8eoe3MwKGnw7WW_QD9F7IM600)

Now they're working on removing ownership from the US & Canadian governments by buying back the remaining $50 or so billion of invesment from them - probably through stock offerings.

That was pretty impressive - I'm sure it was helped along greatly by Toyota's crappy business practices being brought to light.

[cheapie]

that's fantastic!

[Chgoman]

The danger in GM going forward is with the governemnt owning 70% of the company, they (we) are liable for 70% of the massively underfunded pension at this point in time. The pension issue is a ticking time bomb, so hopefully the government can get out of the ownership stake before that shoe drops or the losses could be huge.

[LPMiller]

all we need to do is wait for the IPO. Chances are pretty good we will come out of this with a profit.

[cheapie]

i work for an ex-GM company. many of the benefits are really good because of the GM influence. for instance, i get a 100% 401k match for up to 8% of my pay. that's unheard of. and most people have a pension as well. i don't because i joined after the pension plan was discontinued.

[Daedalus]

The danger in GM going forward is with the governemnt owning 70% of the company, they (we) are liable for 70% of the massively underfunded pension at this point in time. The pension issue is a ticking time bomb, so hopefully the government can get out of the ownership stake before that shoe drops or the losses could be huge.
We taxpayers are on the hook anyway I think. Like a lot of the large underfunded pensions, they're insured by the PBGC, which is govt-backed, and which guarantees a majority of the promised benefits. That's my understanding at least.

[Prngr44]

Mostly a PR stunt if you ask me. They used another government loan to pay off the first.

:shrug:

[LPMiller]

Source? I've not heard anything like that at all.

[Markel]

Source? I've not heard anything like that at all.
I just noticed this today (link (http://www.tarppayback.com/2010/04/gm-pays-back-tarp-loan-with-other-tarp.html)):

GM Pays Back TARP Loan With Other TARP funds
GM announced earlier this week that they have fully paid back the outstanding amount of their TARP loans. Apparently, it's not quite that simple.

Senator Charles Grassley sent a letter to Treasury Secretary Timothy Geithner asking for some clarification. It looks like GM paid back the TARP loans using money from an escrow fund that was established with other TARP money. It sounds like it was just a accounting shuffle paying back a TARP loan with TARP funds.

Here's a quote from GM's Nov. 16, 2009 SEC filing:


As of September 30, 2009, cash and marketable securities totaled $42.6 billion. Included in this amount was $17.4 billion held in escrowed funds from the United States Treasury (UST) and Export Development Canada (EDC), with $8.1 billion of this amount allocable for future repayments of the UST and EDC loans, $2.8 billion for the recently completed Delphi settlement and $900 million for healthcare in Canada, leaving a remaining escrow cash balance of $5.6 billion.

Read Senator Grassley's letter here.

Read GM's Nov. 16, 2009 8-K filing here.

Read GM's April 22, 2010 8-K filing here.
Go to the linked story to follow the above links if desired.

[cheapie]

sonnova!

[LPMiller]

yeah, that's kinda cheap.

[DarkFury]

Isn't this the equivalent of giving back some of the money that was originally borrowed? At least they didn't lose that money.

[Prngr44]

Isn't this the equivalent of giving back some of the money that was originally borrowed? At least they didn't lose that money.

It's like saying I'm going to loan you $1000.

I'm also going to give you a line of credit you can borrow against AFTER you pay me back.

You then say, I'm going to borrow the money against the line of credit so I can pay you back.

It's not really paying anything off, it's just shifting balances.

[DarkFury]

It's called... "reduction of debt".

They must've gotten too much money to begin with... so why not return it if you don't need it? They do owe less now than they did before. But call it what you want.

Don't forget... there is still that equity in the shares of the company that the Government still owns. They have a long way to go before that is paid off and those shares are returned/sold to the public.

[Prngr44]

It's called... "reduction of debt".

They must've gotten too much money to begin with... so why not return it if you don't need it? They do owe less now than they did before. But call it what you want.

Don't forget... there is still that equity in the shares of the company that the Government still owns. They have a long way to go before that is paid off and those shares are returned/sold to the public.

The problem is it didn't reduce anything. It "reduced" the debt on the loan by taking out another loan to pay the first one off.

[Chgoman]

It's the mentality we had when we were kids. Who doesn't fondly remember the "if you give me 8.1 Billion I'll give you 8.1 Billion" game (adjusted for inflation, it used to be more give me a dollar I'll give you a dollar) :)

[DarkFury]

The problem is it didn't reduce anything. It "reduced" the debt on the loan by taking out another loan to pay the first one off.
Seriously, you are arguing circularly here.

I'm just saying.. "maybe they were given too much money to begin with... therefore a return of the excess funds were proper".

That is all. Or are you just trying to argue the point?

[LPMiller]

if that were true, Dark, they would have said so up front. Instead, they tried to imply they are doing SO well, they managed to pay of something 5 years earlier. This turns out to be not true.

[VTGreg]

if that were true, Dark, they would have said so up front. Instead, they tried to imply they are doing SO well, they managed to pay of something 5 years earlier. This turns out to be not true.

Exactly. They tried to gain some positive PR and make it sound like GM is recovering so well that they were able to get out from under the loan early.

[Prngr44]

Seriously, you are arguing circularly here.

I'm just saying.. "maybe they were given too much money to begin with... therefore a return of the excess funds were proper".

That is all. Or are you just trying to argue the point?

They didn't return anything.

That's the whole point I'm trying to make.

They owe as much as they did a month ago today.

[cheapie]

:heh:

[LPMiller]

escrowed funds (http://www.businessweek.com/news/2010-04-28/gm-properly-used-escrow-to-repay-u-s-treasury-says-update1-.html)

GM Properly Used Escrow to Repay U.S., Treasury Says (Update1)
April 28, 2010, 4:38 PM EDT

By Angela Greiling Keane

April 28 (Bloomberg) -- General Motors Co., which repaid $4.7 billion in U.S. loans last week, properly used escrowed cash for the payment, a Treasury Department official said in responding to complaints from a Republican senator.

GM, based in Detroit, used the escrowed funds created with government loans and overseen by the Treasury after determining the cash wasn’t needed for “extraordinary” expenses, Treasury Assistant Secretary for Financial Stability Herbert M. Allison said yesterday in a letter to Senator Charles Grassley.

Grassley, the top Republican on the Senate Finance Committee, on April 22 wrote to Treasury Secretary Timothy Geithner that GM’s repayment “appears to be nothing more than an elaborate TARP money shuffle” because the money came from the U.S. Troubled Asset Relief Program.

Allison said Grassley was incorrect in saying the escrow account was held at the Treasury, when the funds were held by the automaker.

GM Chief Executive Officer Ed Whitacre last week met U.S. lawmakers, including House Speaker Nancy Pelosi, in Washington after announcing the repayment. Taxpayers own 61 percent of GM, a stake worth about $2.1 billion, as part of its 2009 bankruptcy financing.

The Treasury will start selling its GM shares when the automaker begins an initial public offering, Allison said.

[ray]

I love the fact that GM is pushing a new television commercial where their top executive is bragging about how they've repaid TARP money. The commercial is a perfect example of how GM is trying to mislead the consumer by using less-than-honest PR practices to essentially say they're financially capable...which they are still a far cry from seeing that taxpayers still own 61% of the company. I wonder why they don't share that fact in the television commercial.

http://www.youtube.com/watch?v=SSNPFVLIWjI

[DarkFury]

if that were true, Dark, they would have said so up front. Instead, they tried to imply they are doing SO well, they managed to pay of something 5 years earlier. This turns out to be not true.
OK... :shrug:

Maybe they shouldn't toot their collective horns then... agreed.


Either way, I'm happy that they gave those funds back personally... but that's all I really feel about that. All of it is a "big game" to the corporates anyways and you guys already somewhat know how I feel about corporates...

[DarkFury]

They didn't return anything.

That's the whole point I'm trying to make.

They owe as much as they did a month ago today.
They were given that money up front as a direct loan... so yes, they did give some of it back.

The thing is... they did put up equity in the company for the funds outside of the 6.4 billion in direct loans. They are still on the hook for that bailout money due to that equity position.

Obviously, they didn't need the "direct loans" in lieu of the escrow established from the original bailout funding for the stock trade... so YES... they did return excess funds that they borrowed. Yes, they didn't do it with profits, but at least they did return the money instead of holding on to it and potentially losing it (or banking it and drawing interest for themselves off of it... whatever the case may be.)

Either way, I understand the point that the repayment didn't come from profits... but from their equity position. And I do also realize that eventually they will have to settle up on that when it is determined that the Government will cash in those stocks. Either way, just look at the bright side that some money was returned now versus later.

This is merely a case of liquid assets/debt versus equity position.

[cheapie]

the problem is that (unless i'm mistaken) they owe they same amount now as they did last month.

[Jeffbx]

Well think of it this way - they had 3 big loans:

Loan A - the bailout
Loan B - TARP
Loan C - Stock equity

They just used loan B to pay off loan A - outcome would have been the same had they just given loan B back, but they did some creative shuffling with it instead. So they owe less than they did last month, but only because they gave back one of their loans that they didn't need.

[Prngr44]

I guess I'm failing to understand then.

Did they not borrow the money from the escrow account in order to pay off the direct loan?

The way I understand it is as follows:

GM gets a loan for 5B. The government also sets up an escrow account which has the following rules: "You can't touch this money until the first loan is paid off." GM then dips into that escrow account in order to pay off the first loan.

Did they not just incur another loan by tapping those other TARP funds that were there? I didn't think the TARP part was actually in their possession, just there at their disposal if absolutely necessary. I thought of it more like a line of credit for emergency use.

Please correct me if I'm wrong.

[Jeffbx]

See LPM's post above:


Allison said Grassley was incorrect in saying the escrow account was held at the Treasury, when the funds were held by the automaker.

So GM had the funds & 'gave them back' by paying off the first loan. However you look at it, they just shuffled some money around.

[Prngr44]

See LPM's post above:



So GM had the funds & 'gave them back' by paying off the first loan. However you look at it, they just shuffled some money around.

I get the shuffle, but after some more digging I don't think they incurred another loan and it's like DF said, they gave some back but the payment had nothing to do with equity/profit/etc. They just got too much.

They owe LESS today than they did a month ago! :king:

[DarkFury]

That's all I was trying to say...

I think folks got too hung up around them "tooting their horns" braggin' about how they paid off the debt (which was pointless since they still owe the Government if they ever want to re-capture their financed equity position)

But yeah... in the end, they just got too much and admittedly returned what liquid funds they didn't need right now.

[ArkiStan]

This is all too familiar to me cause it's pretty much my story when I was in college. I was always short on cash so I'd borrow $20 from a friend A. Then, while I technically couldn't afford to pay him back yet, in order to give the impression that I'm responsible with money, I'd borrow $20 from friend B to pay back friend A quickly. In the end, I was ALWAYS in debt.

:disa:

[DarkFury]

Well technically they didn't rob Peter to pay Paul...

They gave Peter an IOU and a lien against assets to cover his end. :D