Corey Ribotsky – NIR Group

After General Motors Corporation filed for bankruptcy the U.S. Government created a bailout plan that looked and felt remarkably like a PIPE transaction. Or as Corey Ribotsky puts it in his insightful opinion piece about the bailout, “If it looks like a duck and quacks like a duck, then it must be a duck.”

The heart of the bailout plan includes giving $30.1 billion in financing which take GM through the process of bankruptcy while the government takes a 60% stake. This stake includes $8.8 billion in debt and preferred stock in the new company that will be created. Ontario, Canada will also lend GM a huge sum, $9.5 billion and will receive in return $1.7 billion in debt and preferred stock in addition to 12% of the equity in the new company which will be a public entity. All the preferred stock will be registered with the SEC so that resale of the shares to the public can be carried out.

According to Corey Ribotsky these transactions look obviously like the PIPE transactions he has been involved in for over 10 years as an investment manager at the NIR Group in Roslyn, New York. Quack!

In response to being asked his opinion on the recent bailout plan of General Motors Corporation by the U.S. government, Corey Ribotsky of the NIR Group hedge fund firm offered the assessment that the bailout is actually

“a PIPE transaction funded by the largest, most accredited investor in the world, the United States of America.”

This view was published in June, 2009 on the internet business news magazine Reuters Hedgeworld, entitled “A Duck is Still a Duck-GM and the Greatest PIPE Deal of Our Time.”

In this opinion piece Ribotsky lays out his theory by first explaining what a PIPE transaction is, and then comparing the bailout plan’s particular requirements and features to convincingly show readers the striking similarity between the financing strategies.

According to Corey Ribotsky, the General Motors Corporation bailout bears an uncanny resemblance to a traditional PIPE transaction. To prove this point Ribotsky first explains what a PIPE transaction is.

A Private Investment in a Public Equity (PIPE) is a special transaction in which investors that are accredited purchase stock in a company for a price that has been predetermined in advance. The stock must be registered with the SEC (Securities and Exchange Commission) so that the stock can be resold sometime in the future. There can be additional aspects to the PIPE transaction as well, such as including a coupon rate if there is debt associated with the transaction or including a detached option or warrant package.

Ribotsky goes on to explain that even before the long predicted bankruptcy of G.M. the U.S. government had invested $19.4 billion in a structure which already had the look and feel of a typical PIPE deal. This move by the U.S. government gave important legitimacy to this particular type of investment structure and certainly validates it as a mainstream form of financing.