PIMCO Plays Chicken with Treasury

A friend Andrew, all around big firm Analyst, writes:“Correct me if I’m wrong, but didn’t PIMCO just win another game of chicken with the authorities when it refused to tender its GMAC debt for restructuring? Didn’t that effectively force the Fed to use clause 13(3) to save GMAC?

As I understand it, a debt restructuring would have smoothed GMAC’s conversion into a bank holding company, but PIMCO balked and didn’t tender because a restructuring also meant big losses for PIMCO. I don’t believe Tarp funds are senior to any existing GMAC debt, so GMAC debt will probably rally now that it got Bank Holding Company status without the restructuring…I’m not a bond guy but I think that’s how it’ll work…meaning PIMCO wins again at the expense of the taxpayer.

By the way, from the Treasury website regarding Tarp injections:

The senior preferred shares will qualify as Tier 1 capital and will rank senior to common stock and pari passu, which is at an equal level in the capital structure, with existing preferred shares, other than preferred shares which by their terms rank junior to any other existing preferred shares.

So I don’t see how GMAC debt doesn’t rally at least initially on that (benefitting PIMCO), since it must be senior to preferred stock. A Tarp injection would increase its tier 1 capital without endangering the claims of the debt holders.

I should mention that [Hedge Fund Manager X] just sent me a research note that, although it doesn’t go into the PIMCO involvement, does cast doubt on GMAC’s fate, with or without Tarp support. Might want to ask him about that (I can’t forward it to you myself under penalty of death!) ”

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See also: Pimco Said to Balk at GMAC Debt Swap Dealbook, DECEMBER 19, 2008, 7:32 AM http://dealbook.blogs.nytimes.com/2008/12/19/pimco-said-to-balk-at-gmac-debt-swap/

GMAC Swap Remains Short of Goal as Pimco Holds Out Caroline Salas Bloomberg, Dec. 18 2008 http://www.bloomberg.com/apps/news?pid=20601103&sid=adlTWMv.To_U&

Pimco snubs GMAC debt offer; bank bid may fail-WSJ Dec 19, 2008 2:01am EST http://www.reuters.com/article/privateEquity/idUSBNG40247620081219

8 Responses to "PIMCO Plays Chicken with Treasury"

  1. Guest   December 27, 2008 at 10:32 pm

    Isn’t the Fed’s approval of GMAC’s conversion to a bank holding company contingent on completion of the debt exchange? That’s what it says in the Fed’s statement on its approval of GMAC’s application. GMAC, however, hasn’t yet said whether they have met the 75% participation required, and the deadline was Friday, Dec 26, at 11:59pm. I assume the powers that be are busily hosting conference calls this weekend, with some sort of statement coming Monday before the open.

    • lottopol   December 28, 2008 at 8:41 pm

      The Fed statement makes no mention of the bond exchangehttp://www.federalreserve.gov/newsevents/press/orders/orders20081224a1.pdf

  2. CLS   December 28, 2008 at 4:23 pm

    I’m tired of being on the short end of the taxpaying stick. Just like the investors who will have to return their withdrawals and profits from the Madoff funds because they were in the nature of fraudulent conveyances, let the highly paid and bonused executives and employess of these firms using taxpayer money return their spoils. This is disgusting.

  3. Guest   December 29, 2008 at 9:39 am

    Why are we continually allowing criminal banksters and Corps like PIMPCO to hold the American public hostage??This is outrageous!!

  4. Guest   December 31, 2008 at 6:07 am

    PIMCO is working for it’s shareholders, not taxpayers. They are just doing their job.

    • Anonymous   December 31, 2008 at 10:34 am

      Of course they are just doing their job – just like the the Nazis, just like Idi Amin, just like the Serbs in Bosnia, just like the Hutus in Rwanda – they all just did their jobs and acted in the best interest of those who directed them. The police in Zimbabwe are just doing their job. “Just doing their job” is the most worn-out and lame excuse for any dirty thing that’s happening; it never has and doesn’t justify now what’s going on – we have a few well-connected robbing the whole nation – there is no excuse for that.

      • John F   December 31, 2008 at 11:18 am

        I’m a taxpayer too, but I fully realize that PIMCO has an obligation under the law to act in the best interests of it’s shareholders. Failure to do so would surely render PIMCO legally liable. There is no reasonable comparison to PIMCO’s actions and those of the Nazis, etc. Such talk is irresponsible.

  5. Guest   December 31, 2008 at 9:43 am

    The last time I checked seemingly every 401k or asset allocation fund has a PIMCO Bond Fund in it. So this is helping many people with their retirement funds. PIMCO’s priority and existence is to benefit shareholders. That is what they are doing. Bravo to PIMCO for helping my 401k and others as this year is needing all of the help we can get.