Author Topic: GMAC Leaves Individuals Holding Car Lender's Junk (Update2)  (Read 1364 times)

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Offline Black Swan

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GMAC Leaves Individuals Holding Car Lender's Junk (Update2)
« on: November 10, 2008, 11:00:03 AM »
By Ari Levy and David Mildenberg

 Nov. 7 (Bloomberg) -- GMAC LLC may leave thousands of individuals on the hook for about $15 billion of junk-rated debt unless the auto and home lender finds a way to pay its bills.

GMAC, the largest lender to car dealers of General Motors Corp., issued more than $25 billion of debt called SmartNotes over the past decade to retail investors. While GMAC has paid off the debts as they matured, five straight unprofitable quarters raised doubt about GMAC's survival, and SmartNotes due in July 2020 have lost about three-quarters of their value.

``An investment like this is totally unsuitable for the retail investor,'' said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, who rates GMAC bonds junk, or below investment grade. ``You're selling it to the widows and orphans who think of GMAC as being this strong, long- standing corporation when the reality is far from that.''

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``When you don't diversify in any portfolio, you expose yourself to risk that you're not getting paid for,'' Ricketts, 43, said in an interview. ``Typically, investment-grade corporate bonds are very good investments.''

GMAC and underwriters of its debt were sued in a 2005 class action that claimed the lender misrepresented SmartNotes in financial statements. A federal judge in eastern Michigan dismissed the case in February 2007, and the plaintiffs are appealing.

Bloomberg

Can we say, Lies, lies and more damn lies?  Or didn't these people do their homework?  In either case, never fear the government is here, step to the window, may I help you please.