Principal of Finance 4 - Essay Example

General Motors Bondholders’ Gain College It is apparent that the investors that held bonds in the General Motors Corporation will be given stock warrants to obtain shares in the company that was saved from the edge of melt down by the American people with their government. However, experts say that such an action might depress stock prices. Bond holders will be given 150 million shares by General Motors and issued with warrants to purchase 272.8 million more in shares (Welch, 2011). These shares will be distributed to the brokerage accounts of the bondholders by a trust holding them.

This is according to Wilmington Trust Inc, a firm hired for money management purposes by the corporation’s creditors’ committee.Since a section of the bondholders is in retail investment, they might sell the shares and cause a temporary drop in the General motors’ stock price. This is according to David Whitson, who is an analyst with Morningstar Inc. based in Chicago. He also says that the investors have probably factored in the dilution that would result from the sales and therefore, General Motors’ value in the long term will remain unchanged.

He reiterates that he values the shares at $48 each because of their release to bondholders. The promise to the bondholders was made to help them cover some ground financially and investment wise, since they had made losses when the old version of the company declared themselves bankrupt (Welch, 2011). The warrants that were issued to the bondholders for the new General Motors stock are currently in the funds. This is according to Kirk Ludke, CRT capital group’s vice president’s report. This displays the edge bonds have over its peers in the financial market today.

References:Welch, David. "Old GM Bondholders Getting Shares in New General Motors May Depress Price - Bloomberg." Bloomberg - Business, Financial & Economic News, Stock Quotes. N.p., n.d. Web. 20 Sept. 2012. .