As part of its obligations under its bailout, GM (GM) has forced to quickly reorganize its balance sheet and show a positive net-present value. Can it be done without resorting to unusually creative accounting? Probably not.
Breakingviews runs down the maths
- Even if it swaps two thirds of its unsecured debt for equity, the company will have $12 billion of unsecured and $6 billion of secured debt remaining.
- Add in the $13.4 billion loan from the treasury, and you’re up to $31.4 billion.
- The company owes another $10 billion to the UAW for member healthcare benefits.
- Unfinanced non-UAW healthcare obligations total $8 billion.
- With the stock market having been slammed, the GM general pension is almost certainly underfunded against. One estimate has the shortfall at $23 billion, though Breakingviews uses $10 billion to be conservative.
So these liabilities add up to about $60 billion. How does GM get there?
- $15 billion cash from the government.
- $5 billion stake in GMAC (maybe)
- $5 billion stakes in Asian partners.
The final asset, of course, is the car business. Is it worth $35 billion? Probably not.
…if one takes this relatively charitable view of G.M.’s sales and earnings power, it implies about $4 billion in operating earnings. Once taxed and put on a multiple of 10 — which is basically an assumption that the income stream neither grows nor shrinks over time — G.M.’s car business would be worth about $28 billion.
Note, that’s a charitable interpretation. The earnings picture could be a lot worse if sales keep falling and they can’t scale down fast enough.
So what’s the answer? First, creative accounting. Second, Obama, please save us by renegotiating our deal!
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.