Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Check my last two posts. Moelis is a distant memory now. It's pretty much over. Commons about to drop like an anvil.
Someone obviously knew about this report, hence the never-ending selling
Warrants + still have to pay down SPSPA.
"Upon the government’s exercise of the warrants, the GSEs would be required under the terms of the PSPAs to apply the net cash proceeds to pay-down the liquidation preference of the senior preferred stock"
Quick Carlos, we need another Average Joe blog post; otherwise, this is the end
BOMBSHELL Report from the Treasury. This is DEVASTATING!
https://www.treasury.gov/about/budget-performance/Documents/CJ_FY2012_GSE_508.pdf
"Upon the government’s exercise of the warrants, the GSEs would be required under the terms of the PSPAs to apply the net cash proceeds to pay-down the liquidation preference of the senior preferred stock"
AWFUL
The Rotation from Commons => Preferreds will continue. At least until Moelis is implemented and the Preferreds are converted to Commons at Par.
Then we will all be Average Joe's
Unless they exercise the Warrants and then immediately sell their shares. Then they could run the GSE's through Receivership and get paid out on their Sr. Preferreds. That would be the biggest double-dip in history and a terrible ending to this story.
But it's certainly a possibility. HERA says the FHFA is untouchable, and the Courts continue to agree.
Expect nothing, be ready for anything
Official documents that have meant nothing to judges thus far. None of that matters as per the court's interpretation of HERA. That is our reality.
Stop thinking your analysis matters because it doesn't, besides to yourself and a few senile Average Joe's.
Keep closing your eyes and saying: "The Warrants won't be exercised, the Warrants won't be exercised ... If I say it enough times, it won't happen. Please let me be right."
That's all this post is -- Wishful thinking not grounded in reality.
Then I make more. You're forgetting Preferreds become Commons at Par. This occurs around the $4-6 IPO price. Then they're long Commons from that point forward and participate in any further upside.
It's all about the initial conversion at Par. Commons just get to sit and watch the dilution reign down upon them
I wouldn't buy Commons until there's more visibility into which Plan is decided upon. No reason to buy that uncertainty. That's probably why they are drifting lower. Too many awful situations face the Common shareholders and very few outcomes that work out well for them.
The best-case scenario -- Moelis -- still destroys future EPS for the Commons. But at least under Moelis, Commons could see ~$15 in the next decade.
But the not-so-great scenarios could have Commons valued around ~$5, and in some scenarios they could even get Cancelled altogether
If I were an Average Joe, i'd be pissed that traders are making money on my back. AJ's are sitting here down 50% while others are making 10-20% a week buying the dip and selling those small pops.
Moelis would really help Commons at this point.
Average Joe's should read HERA over the weekend. Then read the Moelis blueprint.
Will $1.25 hold again or are we going to test sub-$1 before things start looking up?
I'm what you get if Glen and Crazy Carlos had a baby. You get the best of both worlds
Not a recco
Buying Preferred at these prices means ~5x ROI to Par Value. Upon conversion to Commons, that means I'm getting 5x more Commons by buying Preferreds now.
Buying Commons now means the most I will see is ~2-3x from these prices assuming IPO of $4-5. That's a net-negative versus buying Preferreds.
Because all of us JPS holders will eventually become Common shareholders. We just don't want to be in Jr. Equity (Commons) when all the dilution comes pouring down. Why would anyone want to be in Commons knowing there's going to be anywhere from 20-100 Billion new Common shares needing to be issued (Jr. Preferred Conversion + Warrants), along with another $50-100B+ in new Commons/Preferreds?
Bye-Bye earnings per share.
No matter how many times you close your eyes and repeat "the Warrants won't be exercised," eventually you will wake up to the reality that they will be exercised.
We may not be in Kansas anymore, little Toto, but I think we can all agree the wicked FHFA/Treasury will get their Warrants. Let's stop kidding ourselves and move on to more productive discussions, such as:
1) How much capital will the GSEs need to raise?
2) Will all Preferreds be converted to Commons or only certain classes?
3) How much will this dilution hurt future EPS?
4) When will the Average Joe's release the SEC Letter re: the Warrants?
5) Will any new Senators endorse the Average Joe Plan?
Humorous, Yes. Valuable, No. Most of the comments are just pie in the sky dreams from Average Joe's that refuse to understand capital structure. Time to face the music -- Commons haven't been invited to the negotiation table and they're going to get the Berko Shaft
Not a recco
I'd rather take the advice of the Average Joe's living in their parent's basement with dreams of owning a Camaro.
I heard these same folks have a top secret letter from the SEC stating the Warrants are illegal. But they're keeping hidden until after Moelis is implemented.
They also claim there's a fund storing all the NWS payments waiting to return the funds to the GSE's. You can't make this stuff up, LMAO ... oh wait, yes they can
Commons lose everything in that scenario. Preferred would get a % of Par. Then they also have to deal with new Charters. Seems unlikely, but that's the risk of being an Average Joe Spectator in Commons
They'll benefit more via Moelis by buying Preferred in anticipation of the conversion at Par to Commons. It will be an easy win.
After the conversion, we can all work together to get a new version of the Average Joe Plan implemented. We'll all be on the same team after Moelis!
Great article! All Average Joe's should read it and understand it.
https://seekingalpha.com/article/4180267-reviewing-gse-recapitalization-mechanics-potential-outcomes
Actually, Common shares have $0 Par Value -- straight from their financial disclosures: "Common stock, no par value". Typically it's $0.001, but for some reason the GSE's elected to use $0. That's really scary to think about, Common shares might actually be worthless junk!
I wonder if this was the plan all along. They can buy Commons back at $0 and move the profitable portion of the business to a new LLC and bring the Jr. Preferreds along since they don't have enough capital to redeem them at Par.
It's all starting to make sense. The LLC reference in HERA is regarding taking the Jr. Preferreds to a new LLC. Maybe it's the Common Securitization Platform that will IPO with the Jr. Preferreds? That would imply a Utility Model, which Jr. Preferreds would be more than happy with.
There will be a lot more vulture attorneys representing the Average Joe's once Moelis is implemented and the AJ's are crying about the unrelenting dilution that's sure to demolish EPS down below $0.50/year. That'll be a very sad day, but it's coming. You've been warned.
I just hope none of the Average Joe's will have to sell shares to pony-up the 10s-100s of millions of dollars an attorney will cost to fight the government for 5+ years.
Can you explain how the debt just disappears? I'm surprised more companies aren't going this route -- you know, just move the profitable portion of the business to an LLC and then just walk away from their debt/obligations.
Truly genius thinking! Are you possibly a CFO for a TBTF bank?
Expect Moelis, because it's coming!
Reorganized into an LLC like $WMIH? That didn't work out too well, just ask Washington Mutual shareholders. I sure hope that isn't Commons fate, that would be terrible. I'd rather have my shares Cancelled that thrown into some garbage LLC.
Make or break day tomorrow. Average Joe's selling at the 50-day MA. Not much new money coming, just day-traders. Dollar Menu is looking more and more likely.
Time to release the SEC Letter.
Release the Letter before Moelis; otherwise, it will be too late. The damage will already be done.
Average Joe's deserve a fighting chance against all that dilution Moelis calls for.
Until the Letter Reveal Party occurs, we will probably continue this downward trend. I'm really hoping the contents of the SEC Letter are brought to light immediately! The price needs to stabilize, and that can't happen until the Letter and its contents are revealed to everyone.
Counting on the Average Joe's to deliver the Letter for the world to see. Please live-stream the Letter Reveal Party
Preferred => Common Conversion makes the most sense. It costs no capital and it eliminates the Preferred dividend, which would negatively impact the GSE's ability to recapitalize.
The good thing is, after Moelis we'll all just be Average Joe's.
Most Average Joe's have a higher cost average than current prices (much higher, probably $2.50+). The majority of them don't have funds to buy any more either. It's unfortunate they didn't trade this last pop as the day traders are going to be running this up and down like clockwork.
Seems to be a real threat. This potential occurrence was why the GSEs traded as low as they did earlier this year. It's certainly possible and within the realm of reason considering the Treasury's/FHFA's actions thus far.
Fear not though, Moelis is coming to rescue us all. It'll just benefit the Preferred shareholders more than the Average Joe's holding Jr. Equity Common shares.
FHFA could opt not to draw on the Treasury's funding next time the GSEs report a loss. They would be forced into Receivership within 60 days of them having no capital. HERA outlines this clearly.
Traders paradise! Flip those 20% moves and sell it off. Re-buy around $1.30, rinse and repeat.
This will continue to occur for the next 6+ months. We need some type of confirmation that Commons won't be cancelled; otherwise, we will continue to trade in this range or possible go sub-$1 (aka, Value Menu Land)
#Moelis
Broke below the 50-day and previous support. This doesn't look good
Commons have no voting rights at this time. They may never get voting rights again if FHFA decides to cancel them. Preferreds have a little thing called a Contract which protects their rights. Commons have no such thing. Considering FHFA's previous actions, I would much rather be invested in the safety net of Preferreds.
#Moelis
According to Yahoo Finance, we up-listed again this weekend. Let's see if we are still trading on the OTC tomorrow morning.