In June, 2009 the On-line magazine ‘HedgeWorld’ featured an article written by Corey Ribotsky discussing what he calls “The Greatest PIPE Deal of Our Time,” referring to the United States government’s plan to bailout the giant auto manufacturer General Motors from their imminent financial collapse.
In the article Mr. Ribotsky makes a strong case that what the federal government is doing actually has within it all the elements of a PIPE deal, or rather a Private Investment in a Public Entity, but it is not being referred to as such because of the discomfort the public has with these particular types of financial strategies.
In order to prove his thesis Corey Ribotsky first defines exactly what makes something a PIPE transaction, and then he explains that this is exactly what is going on with the bailout strategy for General Motors by the United States of America.
To quote Mr. Ribotsky,
“When one compares the above definition of a PIPE transaction to the proposed GM bailout plan, the similarities are glaringly obvious.” Summarizing, Corey Ribotsky states that, “the government led bailout plan of GM mirrors a PIPE transaction in many ways. The bondholders who enjoy a secured senior position will survive the new company. They will receive stock, interest on their debt and warrants for future compensation. Finally, we have the ultimate accredited investor—the United States of America—awarded preferred stock in exchange for debt, which is then registered so it can be converted and sold to the public for a profit.”
“If it looks like a duck and quacks like a duck, then it must be a duck.”
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