Saving GM To Avoid Lehman Fiasco; Adelson Bails Out Sands Again

GOV’T GETS A SECOND BITE AT LEHMAN WITH GM

A compelling reason to have the federal government bail out General Motors (GM) has gained increasing currency among market watchers. And it has nothing to do with saving jobs, remaining competitive in the global automotive market or protecting the interests of retirees who bet big on the auto maker’s common stock and publicly traded bonds. As the New Yorker suggested in an online posting Tuesday, the government is looking long and hard at bailing out the ailing auto maker because it regrets letting Lehman expire without a public lifeline.

The consequences of letting GM fail - by slumping into Chapter 11 bankruptcy protection or into Chapter 7 liquidation, or by simply letting the auto maker default on its credit and expire under the weight of its own obligations - certainly aren’t nearly as dramatic as the impact of Lehman’s failure. Lehman represented the largest failure in U.S. corporate history; although nobody can be sure exactly what kind of assets were at stake, at one point this year it possessed something on the order of $600 billion. General Motors probably has closer to about $100 billion in assets, according to published reports.

Many people in the financial food chain, especially financial institutions in Europe that suffered from counter-party risk when Lehman disappeared, blamed the Bush Administration for letting the investment bank collapse even though it was aggressively pursuing plans to salvage American International Group (AIG), Fannie Mae (FNM) and Freddie Mac (FRE). Like the budget-setting process, spending is often a reflection of public policy, and, in its collective wisdom, the federal government decided that allowing Lehman to collapse would have fewer adverse consequences than letting the others fail.

Estimates have projected that it would cost the government $10 billion to keep GM afloat through the end of the year, when the company is expected to have burned through its remaining cash pile. As of close September, GM had about $16 billion cash, down from $21 billion at the end of the second quarter. Buckingham Research threw out the $10 billion figure, which is a much larger capital allocation than GM has been slated to receive in the government’s $25 billion auto industry loan aimed at financing the conversion of manufacturing operations so they can churn out smaller, more fuel-efficient vehicles.

GM itself has resisted any suggestion that it would pursue bankruptcy protection, because that avenue wouldn’t address its immediate liquidity concerns, and thus creates more problems than it would solve. Chief executive Rick Wagoner recently talked about the ”unimaginable consequences” of a bankruptcy filing - though without specifying what those consequences would amount to.

Presumably, GM believes that the debtor-in-possession financing market that bankrupt companies avail themselves of would be closed to it. Credit markets overall, of course, have contracted to an enormous extent, and there’s no reason why DIP financing alternatives would be immune to those trends. On the other hand, Circuit City (CC) managed to scare up sources of DIP financing when it declared bankruptcy this week. Perhaps it’s simply a case that huge gobs of government money would come at more attractive terms and conditions than GM can raise privately. After all, the feds showed in the restructuring of the AIG bailout, which enormously reduced the obligations that AIG faced in order to compensate the government for its loans, that the Treasury can serve as a more accommodating lender than the average bank.

Still, there’s no clarity on when - or even if - the government is going to bow to GM’s commands and ride to the fiscal rescue. As a result, GM shares have fallen another 15% Tuesday, the fifth consecutive session of declines for the stock, which has traded at a 65-year low.

ADELSON SOLVES SANDS’ LIQUIDITY PROBLEMS

On one hand, Las Vegas Sands (LVS) has forestalled the kind of liquidity calamity that shareholders have worried about the last three weeks, and eased the liquidity worries that dropped the stock sharply lower. On the other hand, the company is still majority owned by a chief executive and majority shareholder who has been quarreling with his own management, and probably still hasn’t adjusted its expectations for the kind of performance it should expect out of some of the projects it’s going to continue to fund.

The good news is that Sands solved the covenant issues that it raised several weeks ago when it admitted it wasn’t certain that it would continue as a going concern if it couldn’t raise some fresh capital in a climate that’s antagonistic to raising capital. But, in fact, it succeeded in doing just that, ginning up more than $2 billion in a common and preferred equity issuance, though only after Sheldon Adelson agreed to pump another $525 million into the company he runs. That brings to a round $1 billion the funds that Adelson has contributed to his company since the end of September. While the effects of the common share issuance are going to dilute his stake in the gaming company, he’s still likely to retain a majority stake in Sands.

Is that a good thing? After posting a steeper loss for the fiscal third quarter late Monday, the company said it appointed a new executive committe that would function seperate from the board, meeting between board meetings, effectively to abritrate disputes between management, which has been quarrelling with Adelson about issues like financial structure, and the chief executive.

While the company also shelved several ambitious expansion plans, including some new developments in Cotai as well as a condo project in Vegas, Sands plans to go ahead with the $4 billion Singapore project that some analysts think won’t generate as much cash flow as the company has been counting on.

However unsightly some details of the capital raise may have proved to be, the company found itself on one of those do-it-or-collapse kinds of missions, analysts said. So the moves effectively secured - at least for now - the gaming company’s ability to continue as a going concern. But shareholders don’t have to be happy about the dilutive effect, and they’ve bid shares down some 17% Tuesday.