View Full Version : Equity Participation Notes, warrents, and AIG. What is the straight dope?
09-17-2008, 12:04 PM
Anyone know what the actual deal is? The shorthand is that in return for the $85 billion loan the Feds not only get their money plus a handsome rate of return but a nearly 80% stake in the company. The reality is that it is not really a stake but warrents or those EPNs. But I cannot find out what the terms of those things are.
09-17-2008, 02:36 PM
A Warrant is a note that gives the holder the right to obtain a certain number of shares of a specified type of stock. They are usually a part of a bankruptcy or other corporate ownership reorganization. One example taken from when I worked in the reorg department of a stock transfer agent: each owner of 10 shares of old ABC Steel Corporation stock gets 1 warrant. Each warrant can then be exchanged for one share of new ABSteelCO stock with the payment of $10.50.
They are kind of like options, except that there is no strike date (although they usually have an expiration date) and that the issuer of the old stock isn't the same as the new one.
As you can see, this means that the U.S. government isn't really buying AIG, it's dismantling it. Instead of letting AIG fall over like a very tall, heavy tree in a crowded forest, bringing a number of other trees down, we're carefully propping it up while we carefully (hopefully) topping and bring it down in sections, leaving the other trees standing.
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