a little more on MTLQQ–Motors Liquidation

The website is better

I happened to look at the MTLQQ website last Thursday.  It has been expanded considerably since my last visit, some months ago.  The site now has links to thousands of pages of bankruptcy-related documents.  And for nostalgia fans, you can also get past General Motors annual reports.

One section of the bankruptcy filing gives 852 pages of pending lawsuits.

Another lists MTLQQ’s properties, which include the Hyatt Hills golf complex in Clark, New Jersey.  HH has nine holes of regulation golf and a miniature golf layout.  It’s being carried at about $5 million.  How did that get in there?  Why only nine holes?

The most important section lists MTLQQ’s assets, as of the bankruptcy, at $2.1 billion and its liabilities at $27.4 billion–meaning a total company  deficit of $25.3 billion.

Monthly SEC filings

The newest are an 8-K and a copy of the monthly report for September to the bankruptcy court, filed on November 12th.

Excerpts:

MTLQQ had a $100 million loss for the three months ending September.  That’s not so surprising if you read the interview summary below.

Liabilities have expanded to about $35 billion.  The major creditors are unsecured bond holders ($27.3 billion), unions ($3.5 billion) and product liability claims ($1.5 billion).

A Financial Times interview with the CEO

The interview with Al Koch, a liquidation specialist whose firm was hired by the bankruptcy court, has a few salient points:

1.  he’s developing a ten-year plan to dissolve MTLQQ

2.  MTLQQ is still receiving about a thousand new claims a day, which is more than had been expected.  They fall into three main categories–vehicle liability, tax, and environment.

3.  Koch doesn’t expect to net anything from asset sales.  “It’s not so much about how much we’re going to get as about how much we’re going to pay,” since maintaining an idled car plant can cost $3 million a year.

Conclusion

Yes, MTLQQ does own 10% of the “new” GM plus warrants to buy another 15%.  But, even assuming the liabilities don’t expand from here, which they have already shown a tendency to do, the first $35 billion of that is owed to MTLQQ’s creditors.  In other words, for you to make any money from owning MTLQQ, you have to believe that when it eventually relists, the “new” GM will have a market cap as big as IBM or GE.  What are the chances of that?

You can also see my first post, dated September 9, 2009.

Motors Liquidation (MTLQQ.PK): a pink sheet stock

Q is for bankrupt

My friend Tom (Hi, Tom!) mentioned this stock to me when he and his wife were visiting a week or so ago.  And, yes, an added Q at the end of a ticker symbol does mean the company in question is in bankruptcy.

What is Motors Liquidation?  As part of its Chapter 11 bankruptcy proceedings, General Motors separated its assets into two piles:  those that it thought were economically viable, and the real junk.  It  transferred the good pile into a new corporate entity that is not (yet) publicly traded, in return for a 10% interest in the new company and warrants to buy 15% more.  It left the junk, plus a lot of liabilities, inside the “old” GM, which was delisted from the New York Stock Exchange and re-tickered as GMGMQ.  The bankruptcy court’s instructions to the GMGMQ managers were  to sell what they could, pay the proceeds to GM creditors and then turn out the lights for good.

What’s inside MTLQQ?

Besides the “new” GM stock, there are a bunch of obsolete plants being taken out of service, a lot of debt, plus legal, environmental, and union claims.  MTLQQ has repeatedly said that creditors are highly unlikely to be paid in full and that, therefore, there will almost certainly be nothing left for MTLQQ shareholders.

SEC filings for MTLQQ aren’t chock full of information, but I tend to believe the MTLQQ management.  It would be hard to believe that in such a high profile and carefully scrutinized bankruptcy–one in which unions and boldholders are going to lose billions of dollars–there would be any value left for common equity holders.  Remember, too, that common shareholders are routinely wiped out in any Chapter 11 filing.

In other words, a lottery ticket has better prospects than MTLQQ.  Lotteries are set up to pay out only a fraction of what the state takes in, but that does mean something to some ticket holders.  MTLQQ is set up to pay zero.

MTLQQ generates lots of trading volume…

Yet, the stock has had average daily trading volume of over 25 million shares through July and August.  This big volume has gone through even after the regulators stopped trading for three days, changed the ticker from the initial designation of GMGMQ, doubled the Qs and issued a public warning that MTLQQ was worthless.  Here’s a link to the SEC statement.

Where is the investor interest coming from?  The SEC cites “confusing, potentially misleading information” disseminated by “rumors in fax or email newsletters, Internet message rooms or on web sites offering online stock tips.”  The Washington Post also cites interest from MIchigan residents who want to support the auto industry and who are unaware of the facts, despite having the GM restructuring going on in their own backyard.

…and trades on the pink sheets

as a “Pink Sheets Limited” stock.

True, the stock is labelled as providing “limited” information to potential investors and the pinksheets website makes it clear the company is in bankruptcy.  And, of course, Enron was an NYSE stock, so a listing pedigree isn’t a foolproof guarantee against fraud.  MTLQQ volume was, I think, produced by a combination of laziness and ignorance as well as  deception.

Nevertheless, information is the lifeblood of investing.  Information is particularly important in the case of small- or medium-sized stocks.  Domestic pink sheet stocks, almost by definition, lack this commodity.  So the mere fact of pink sheet trading should mean that you must be especially vigilant and do your own research before buying.

November 15, 2009

See my update dated today.