Monday, November 7, 2016 0 comments

Purchase: Motors Liquidation GUC Trust (MTLQU)

This was a mistake. Total newbie mistake. If you are a small investor and/or located outside USA, you have to be really careful with commissions and order fills. The investment is also not very straightforward with all sorts of possible outcomes.

The investment is Motors Liquidation GUC Trust units (PinkSheets: MTLQU). This is a tricky investment and I was going to write it up more but because the investment didn't work out--I'll probably break-even or incur a loss for unfortunate reasons--so I'm not going to write much (I don't really have much of a position and don't intend to increase it). You have to do your homework.

Motors Liquidation GUC Trust handles the payments to creditors and other claimants related to the bankruptcy of General Motors (GM). As some of you may know, this is one of the largest bankruptcies in American history (you can read my old opinion on it here) and there were lots of controversies. The company went bankrupt in 2009 but the bankruptcy proceedings are still ongoing. As you can imagine, there are billions of claims that need to be resolved. A trust was set up to handle the credit claims that need to be paid out. The trust units (MTLQU) represent contingents claims. As the Q2 2016 10Q states about the trust units:

"As described in Note 1, under the Plan, each holder of an Allowed General Unsecured Claim retains a contingent right to receive, on a pro rata basis, additional Distributable Cash (if and to the extent not required for the satisfaction of previously Disputed General Unsecured Claims or potential Term Loan Avoidance Action Claims, or appropriation for the payment of the expenses or tax liabilities of the GUC Trust). The GUC Trust issues units representing such contingent rights (“GUC Trust Units”) at the rate of one GUC Trust Unit per $1,000 of Allowed General Unsecured Claims... The GUC Trust makes quarterly liquidating distributions to holders of GUC Trust Units to the extent that (i)(a) certain previously Disputed General Unsecured Claims asserted against the Debtors’ estates or potential Term Loan Avoidance Action Claims are either disallowed or are otherwise resolved favorably to the GUC Trust (thereby reducing the amount of GUC Trust assets reserved for distribution in respect of such asserted or potential claims) or (b) certain Excess GUC Trust Distributable Assets (as defined in the GUC Trust Agreement) that were previously set aside from distribution are released in the manner permitted under the GUC Trust Agreement, and (ii) as a result of the foregoing, the amount of Excess GUC Trust Distributable Assets (as defined in the GUC Trust Agreement) as of the end of the relevant quarter exceeds thresholds set forth in the GUC Trust Agreement."

So, basically, it is a liquidation and you will receive periodic payments.

I'm not going to go into it here but my calculation implied a return of around 30% from current prices. The are some uncertainties and the final outcome might be slightly higher or lower. If I assume it will take 4 more years, you are looking at something like 7% per year return.

If you assume it will take 3 years (highly likely IMO), you are looking at closer to 10%.

Furthermore, if you account for the fact that payments or return of capital will happen periodically, with 25%+ dividends/return-of-capital earlier along the way, your actual annualized return will be in excess of 15%.

In fact, one of the reasons I wanted to purchase right now was to take advantage of an immediate return-of-capital/dividend. The trust is paying out $3.52 next week (which is about 33% of the security) so that gives an idea of how little capital will be tied up for 4 years (if you think it will take that long to wind down completely). If you do decide to invest within this week, do pay attention to the special dividend rules that apply when payouts are more than 25% of a security (general description on Wikipedia here but you should check exchange regulations and FINRA who set the actual rules). The ex-div is usually after the record date and they trade using a "due-bill" process so make sure you understand the details if you plan to transact around this week or next.


Overall, the investment itself is ok but I had big issues with buying it and ended up paying very high commissions (due to small fills :( :( :( ). It trades on PinkSheets so that's an issue but I never had issues like this before. My commissions were almost 25% in some cases and completely destroyed the investment case. I put in a limit order (from CIBC in Canada) but it just filled a few shares at a time and still charged commission per transaction (for some reason it wouldn't fill with any sizeable chunk; tried many times and never worked). A good example of brokers completely ripping off their customers if you aren't careful.

So, depending on you assumptions and what returns you can tolerate, this is a potentially worthwhile investment. I will barely break-even due to high commissions.

Purchase Price: $10.55

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