6

Here's an example of a corporate fixed income issue: GOM. General Motors Acceptance is paying 7.375%. It's callable at $25, which is right around where it's trading. (That's par.) Since interest rates are at historic lows, couldn't they find cheaper money? Every month I expect them to call it but they don't. Here's another one: GMA. Paying 7.3% and trading right around par.

2
  • They would be employing the capital to generate a rate of return more than what they have to pay. And to take out all the investment just to repay the loan would be much more costly than paying the interest on the bond.
    – DumbCoder
    Nov 6, 2012 at 8:40
  • 1
    Obviously their credit rating stinks. Nov 6, 2012 at 18:07

1 Answer 1

8

GMA would call back the notes provided they are able to find alternative funds at cheaper rates.

Yes you are right the interest rates are at all time low ... however not one would lend me a Billion dollars, people have to trust me that I would be able to return the funds ... even if I am willing to pay 50% interest per annum, I would not get the funds ...

Similarly GMA notes are unsecured notes, not backed by any assets. Further there is history to it ... in short today GMA is not in a position to get a cheaper funds available to them ... the day they get it, they will call in the older notes and maybe issues new notes or get some other form of funding

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .