GMAC Prospect
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I got a referal today and the client was 71 and had $74,000 in a money
market account and $175,000 in GMAC Bonds (Due 06, 08, 10, 12)- Par
$200,000. That is it. She is “nervous, but said she will
follow any advice…either way”. Thoughts?
What else does she have?
Could she handle a drop in yield?
Personally, I would sell at least the two longer maturity issues. If this is all her money I would def sell the shorter ones two. Seems like in between bad news the bonds have rallied a bit. I took the last opportunity and cleared the GM issues out of my book. Not worth the headache.
If she has another 300k somewhere you might keep the shorter ones, my gut tells me this doesn't end well for GM or their investors either debt or equity holders. Either way, not worth the headache.
Could she use the tax loss this year?
[quote=rightway]I got a referal today and the client was 71 and had $74,000 in a money market account and $175,000 in GMAC Bonds (Due 06, 08, 10, 12)- Par $200,000. That is it. She is "nervous, but said she will follow any advice...either way". Thoughts? [/quote]
Are these the ones with the "death put"? I assume they're way down from where s/he bought them. If they're for income, I wonder why s/he really needs to part with them. IOW, more info, please.
[quote=mikebutler222]
[quote=rightway]I got a referal today and the client was 71 and had $74,000 in a money market account and $175,000 in GMAC Bonds (Due 06, 08, 10, 12)- Par $200,000. That is it. She is "nervous, but said she will follow any advice...either way". Thoughts? [/quote]
Are these the ones with the "death put"? I assume they're way down from where s/he bought them. If they're for income, I wonder why s/he really needs to part with them. IOW, more info, please.
[/quote]
Are you betting she dies before GM files chapter 11?
No Death put- she does not care about that anyway.
She paid $200K.
This is ALL she has.
She needs income, but can sacrifice.
I guess I am in a quandry in selling the shorter ones at such terrible prices (mid-low $90’s).
no reason to sell them. If GM spins off GMAC, you will probably
see an upgrade in the ratings. S&P has already stated they may
increase the bond rating within the next 6 months.
If GMAC is spun-off from GM, the ratings should rise (since they are the only profitable arm of GM right now), and you would look like a hero.
Are the bonds maturing or become callable in those dates. Interest rates may rise and the long bonds may not be called and she might be able to keep her income stream. You might want to consider selling the long term bonds, take a capital loss if she can use it and reinvest into better credit worthy bonds or other income instruments. But I imagine she has a good income stream from the existing GMAC holdings?
I have clients with GMAC and as has been pointed out GM and GMAC are two different things. Remember when Sears owned Discover Card and sold it off? If GM sells a major portion of GMAC as seems likely the credit rating on GMAC will rise to above investment grade again and their should be a recovery in the market value of the bonds. I always have to remind my clients why we bought the bonds (income) and that the value on the statement is only IF they sell the bond. Barring GMAC going BK too (unlikely) the bonds will return principle when held to maturity or if called. I am advising my clients to hold on and not panic. Selling now will definitely lock in a loss.
I have had 2 phone calls this morning from clients who hold GMAC 2018. We are holding tight, for the same reasons that have been stated above. One client now wants to buy insurance on the bonds for 12% of the original value…therefore, we have been discussing annuities for the last half hour.
[quote=joedabrkr][quote=mikebutler222]
[quote=rightway]I got a referal today and the client was 71 and had $74,000 in a money market account and $175,000 in GMAC Bonds (Due 06, 08, 10, 12)- Par $200,000. That is it. She is "nervous, but said she will follow any advice...either way". Thoughts? [/quote]
Are these the ones with the "death put"? I assume they're way down from where s/he bought them. If they're for income, I wonder why s/he really needs to part with them. IOW, more info, please.
[/quote]
Are you betting she dies before GM files chapter 11?
[/quote]
No, GMAC and GM aren't the same, the risk isn't the same. GMAC is a very likely spin-off story, and has assets to cover their bonds.
The question about the "death out" has to do with the fact that if you sell them now, the loss is realized, but if she don't outlive the bonds, her heirs get 100% back. If she owns them for income, given the fact her family is protected, I'd be very slow to sell them now.
Why would GM spin off the only profitable thing it has? If it did so it would be suicide for GM?
Just my opinion and I could be way off base?
I have foundation that is a prospect that a TOP PRODUCER ( Mentioned in magazine article last month) Who stuck this 70% of this foundation in GMAC bonds! The investment policy clearly states no junk! And why would you risk 70% of a foundations money in one companies bond?
Needless to say he will be gone the next meeting. Like I have said before just because a rep can sell does not mean he knows #$@# about managing money!
GB -
GMAC is a health organization, attached to GM, as we all know is on shaky ground (imagine gangrene). They are looking for a financial institution (most likely), to partner with on GMAC.......to raise cash to invest in GM, and so they can get a seperate bond rating for GMAC. People who hold GMAC should be ok, although it has become a little too volitle for many clients who own them. Meanwhile, there is some opportunity in buying GMAC secondary paper right now, for obvious reasons.
[quote=Greenbacks]
Why would GM spin off the only profitable thing it has? If it did so it would be suicide for GM?
Just my opinion and I could be way off base?
I have foundation that is a prospect that a TOP PRODUCER ( Mentioned in magazine article last month) Who stuck this 70% of this foundation in GMAC bonds! The investment policy clearly states no junk! And why would you risk 70% of a foundations money in one companies bond?
Needless to say he will be gone the next meeting. Like I have said before just because a rep can sell does not mean he knows #$@# about managing money!
[/quote]
70% of anything in one account is dumb, but were they junk when he bought them.
who cares if they were junk or AAA rated. To have 70% of a foundations account in one issue is retarded. The guy deserves to see those ACAT requests come Monday morning… Green backs- what kind of coin you looking at there? What are your reco’s gonna be? You know, just for $hits and giggles…
The unions are fighting any separation of GM and GMAC. They realize that without GMAC, their company and their union contracts are toast. I predict that a bankruptcy court will ultimately decide whether to separate GM and GMAC, but all this is speculation.
Here's the crux of the matter: you and I don't know what's going to happen, and this client appears to have a large chunk of her life savings tied up in an investment that could be subject to extraordinary risk. What does common sense tell you to recommend?
Read an interesting article over the summer on GM that said it was basically an HMO and a pension manager. The article talked about how the unions have basically taken the company away from the shareholders over the years...a classic example of how being chronically soft with unions can ruin a company's profitability.
I believe that in the end analysis, GM will find a way to survive...at least long enough for my 2-3 year GMAC bonds to mature with their 8% YTM intact. If you think that's risky, you shouldn't be in the stock market. As long as you are issuer diversified, it's a reasonable risk to take for most folks.