Marty Whitman dips a toe into GM's sea of debt

Aaron Pressman

Another day, another fascinating read from one of the planet's great investors, in this case, Marty Whitman of the Third Avenue Value Fund (TAVFX). In his first quarter letter to shareholders (PDF file), he says he bought a small position of $2 million in unsecured General Motors debt at about 50 cents on the dollar and a yield of 15%.

By his reasoning, GM will have to reorganize either through a bankruptcy or a voluntary deal that most creditors sign onto. In both cases, Whitman figures the debt he bought will be worth a lot more (for a fuller explanation, check out the letter - I can't paraphrase Marty any better than he can explain it). But what really caught my eye was his final statement on the matter:

"Neither Chapter 11, nor a voluntary exchange, can do
more than put General Motors on the road to recovery.
Success is not assured. Yet given the background just
described, Third Avenue is prepared to be a big player in
General Motors Senior Unsecureds insofar as it can
acquire such securities at prices around, say, 50% - 55%
of claim."

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