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What's up with all these news articles mentioning "Thursday"...
If it drops well below 2 I'll have to pick up more again...
Apocalypse incoming...
Well I sort of decided to stop adding to my position but it looked hard resist.
Haha... picked up 1k of freddie today at 1.93
Feels weird, will allocate towards cash for next few weeks and see what happens.
Because he's got some explaining to do after he pulls a fast one over everyone the night before
Wow JPS taking a beating. Might have to report for domestic violence
The WARRANTS must be taken care of before any influx of new capital. The ways that it will be extinguished...
A) Warrants sold back to FnF at a nominal price
B) Warrants exercised and sold via secondary IPO
If we are to go with option "B" you all realize that if we were to follow CITI/AIG, that is a 2 year process right? In addition to that, this secondary IPO raises zero dollars. Then immediately after that is completed, FnF would technically be conducting a tertiary IPO where they sell shares that actually DO raise capital.
- Realistically they would be IPO'ing for at least 5 years straight. Would the market be all tapped out?
I would argue that the secondary IPO by the warrants are pretty worthless... What is each share going to sell for? Less than 2 bux each multiplied by approximately 8B shares. Less than 16B total.
It is also counterproductive to FHFA's mission right now of raising capital and putting them in a sound/solvent condition.
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The idea of exercising warrants and holding them until they are worth more is also implausible. No new capital will enter. If they do hold and try to maximize their value, it would be exercise warrants and retain earnings for the next decade.
Therefore... option A will probably be it.
Vision
FHFA is a world-class independent regulatory Agency that ensures a competitive, liquid,
efficient, and resilient (CLEAR) housing finance market.
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What a crummy vision. The people writing it have no idea what they are doing.
Yes, that was how I interpreted it as well. It was actually similar to the case of CITI and AIG as well. They were executing warrants to pay down the debt and then after they've fully received what they were owed, the warrants were sold back to the companies towards the end.
But for some reason everyone seems to just focus on the warrant execution portion.
Yeah... still not the fulcrum lol. Not like the entire recap position pivots on the JPS 33B. The conversion is also not a catalyst either.
There is always the possibility of a JPS conversion at the very end for example when earnings reach 250B and then you convert for the last 33B to reach 280+
If JPS converts early then you know that munckin has stakes in one of the funds.
But my theory is that this isn't really about making X or Y or Z rich. It is about determining who the new owners of FnF or rather the 5T mortgage market will be. Every so called investor is just being taken along for the ride...
You give me valuewalk, I counter with Merriam Webster:
https://www.merriam-webster.com/dictionary/fulcrum
It is incorrect to call the JPS conversion if it happens the fulcrum security. In the event of a large capital raise, the majority of equity control will come from fresh capital. The 33B the JPS puts in pales in comparison to the incoming 200B+ raise.
"The fulcrum security is a concept long entrenched in the investment philosophy of TAM and written
about by firm founder Marty Whitman over the years.1
Marty Whitman defines the fulcrum
security as the most senior security that will likely convert into equity ownership in a restructuring.
The fulcrum security is the part of the company’s capital structure which will ultimately control the
company in the event of a reorganization, usually in the form of equity. One of the biggest
challenges with the fulcrum security is that identifying its location in the capital structure ex ante is
far from a trivial feat."
Source:
https://www.valuewalk.com/wp-content/uploads/2014/09/2014_Q3_The-Fulcrum-Security.pdf
SPS $229 billion? According to their 9/30/2020 balance sheets it's $193.4 billion. It's not a concern once Mnuchin writes it down to zero.
$33 billion jps will be used as the fulcrum to raise the commons.
Return of $30 billion in overpayments increases the CET1 capital to $64.4 billion. They are expected to earn $30 billion annually. They don't need to raise much in new equity.
All thanks to the $33 billion in fulcrum security that pays no dividend until the corporations are fully capitalized.
I do love capital structures.
Bradford, there is no retroactive commitment fee. The commitment fees have already been baked into the senior liquidation preference. All of the increases in the liquidation preference were due to FnF being unable to pay the commitment fee.
Hence in the first few years, it kept increasing. Then came the third amendment where the NWS replaced the commitment fee.
All bills have been paid on time since then and in EXCESS of what was required.
Please stop trying to scare people away.
Reference:
https://www.fhfa.gov/Conservatorship/Pages/Senior-Preferred-Stock-Purchase-Agreements.aspx
As much as the US govt can keep doing whatever they want with FnF. They still need the right context to perpetually punish FnF. Right now the context for extensive punishment isn't really quite there.
Regardless, it can only move forwards and it cannot back track. They cannot impose punishments at this time because there is no context for it.
I think you may be surprised as to what may happen.
No retroactive commitment fee. It was suspended with 3rd amendment.
"Third Amendment
On August 17, 2012, Treasury and the Enterprises amended the SPSPAs. The Third Amendment recalibrated the calculation of the quarterly dividends the Enterprises pay to Treasury. Rather than use 10% (or in some cases 12%) of the liquidation preference to calculate the Dividend Amounts - a practice which was contributing to the Enterprises need to draw on Treasury’s commitment of financial support - the Third Amendment based the Dividend Amounts on net worth. This helped ensure financial stability, fully captured financial benefits for taxpayers, and eliminated the need for Fannie Mae and Freddie Mac circularly to borrow from Treasury only then to pay dividends back to Treasury. The Third Amendment suspended the periodic commitment fee for so long as the Dividend Amounts were based on net worth. The Third Amendment also eliminated the requirement that the Enterprises obtain Treasury consent for asset dispositions with a fair market value (individually or in aggregate) of less than $250 million, but required the Enterprises to submit annual risk management plans to Treasury."
But mnuchin has a pay out waiting for him some how.
He'll be fired in June. He currently is unfirable.
Calabria has 30 days left on the Job !
He will be Fired on Jan 21st.
"But I expect — and actually why is that relevant? It’s relevant because one of the remaining risks for common stockholders is dilution from an IPO. And one of the — part of the bear thesis is that the stock’s going to get issued at something approximating the current share price. And therefore, there’ll be massive dilution.
What’s interesting about that is it’s incredibly reminiscent of the commentary around if you go back and look, call it 10 or 11 years ago, circa 2010 — actually nine years ago, when general growth was making its way through the bankruptcy process, which reminds me very much of the conservatorship process and the bear case. And someone actually shorted the stock and put out a public presentation.
We had fun defending the company in that circumstance. But the bare case was the company was going to do a massive equity issuance at a very low share price. And the point we made is that as we made then and that applies here is that, as each of these sort of hurdles are addressed and achieved, so for example, the capital rule was finalized, we expect the stock prices to move significantly up on that development.
More materially, the preferred stock purchase agreements, when that gets resolved, we expect the stock prices of both companies to go up significantly. When — we have an expected date for an IPO. At a certain point in time, the government will be in the best interest. I would say we’re getting very close to that time now.
The government owns warrants on both companies. And in order — the other development which we did not mention is that the government has an RFP out for a financial adviser with a target date of hiring them sometime in the relative short term mid-November I think.
Anthony Massaro
Yes, by the end of November.
William Ackman
End of November. So you’re going to have an investment bank and adviser, whose objective is to raise the required — help the government raise the required capital that’s I think the first priority but also to do it in a way that’s least dilutive to the government that owns 79.9% of both of these companies.
So you now have the government working alongside a financial adviser that has an obligation on behalf of their clients to maximize the outcome and then what we expect to be a series of positive developments as each of these hurdles get chipped away. And so what’s fascinating is about the company, both companies is the higher the stock prices go the more the businesses are worth.
What I mean by that is, since there’s a large equity offering that will get done here and we don’t — $100 billion is not the number but something in the order of we think $25 billion, $30 million, $35 billion IPO. It’s still potentially quite dilutive that as the stock prices go up, the amount of the company that remains owned by the current shareholders increases, which again makes the company more valuable, which increases the profitability of the stock going up. And you get into this sort of upward virtuous cycle. And it’s worthwhile to take a look at the experience we have with general growth, which had a very analogous situation where there was a large equity backstop that got funded once the companies emerged from Chapter 11.
So the emergence from conservatorship will be yet another catalyst. And a listing ultimately on New York Stock Exchange or a major exchange, I think will allow the securities to be owned by a much broader array of investors.
The last point I would make is what’s interesting in the last period is that the preferred stock has been actually somewhat weak. And I think what’s going on is many of the investors that own preferred are now finally realizing that the common stock is if you will the fulcrum security.
So many distressed investors always lean toward owning kind of senior securities, I think have begun recognized that the upside here all the residual benefit will inure to the benefit of the common stockholders. And we believe that some of the very large holders of preferred have now been buying common and may even be selling off some of their preferred stock in order to acquire the common, which we think offers a more attractive risk-reward and better outcome in almost every circumstance."
Does JPS even know what the worse case scenario for them is?
Retained earnings for 10 years. Then on the 11th year, JPS conversion.
Why? Because they can lol. There's no need to rush, JPS aren't going anywhere.
You can't go backwards. Worse case scenario is stagnation.
You cannot go backwards and impose punitive terms when the current context does not support it. Punitive terms were imposed due to impending doom. There is no impending doom. FnF are akin to Atlas holding the entire mortgage world on its back right now.
Your only problem with that is new man in charge will undo any last minute quick fix. Enjoy moment in sun for now being a dark (FNMA) winter has been promised.
JPS seem to have this idea that they go last and that makes them immune to dilution.
Lo and Behold... JPS are junior to the seniors and warrants. In any dilution scenario, JPS going to dilution oblivion along with the commons.
They should be praying for common success if anything.
That may be what is sitting on Moochie's desk right now.
Black Swan Event:
FnF dumps its entire MBS portfolio.
BOOM capital buffers automatically met.
Exit conservatorship.
Restart business as usual...
Except JPS conversion which only adds oxygen. Can't pay no bills with it.
At this point, there is no difference with the retained earnings and capital raise.
The ONLY difference is the JPS conversion because that does not add to liquidity. JPS conversion would not count towards liquidity requirements. Meaning the conversion is useless in regards to liquidity requirements.
What's the difference between Liquidity Requirements and Capital Rule?
"Should we just wait for retained earnings to build? Small lenders say no, because in the YEARS it takes to get there, a large negative economic event CAN and WILL happen, depleting the inadequate capital & destabilizing the entire US secondary, which in turn harms taxpayers, 3/"
We just went through a large negative economic event and we bailed out every single one of their rear ends with less than 30B in capital.
Read the entire thread from CMLA:
Small lenders see the GSE capital question as very straightforward.
— THE CMLA (@the_CMLA) December 17, 2020
First, they are concerned the capital rule may be too conservative relative to actual risks. They'll continue to work on this going forward.
But on the general question of capital on the books, it's not 1/
whats with the sudden influx of good news; was negative nancy and debby downy an hour ago
I'll believe its over when there is notice of FnF firing JPM and MS as CRP advisors.
Well, picked up another 500 shares today. Its at the price point where I don't mind accumulating more... Maybe pick up another lot later in the week if it goes lower.
If share prices stay down here, its going to be half mil club.
Welcome to the 100k plus club!!! Gl to ya
4th Amendment or lift capital buffers to 300B.
With the ball being in SCOTUS, they can't reverse and do another NWS.
Slow capital build all the way please.
PSPA amendment coming.
I clicked. Started reading. Saw Dick Bove's name. Closed the page.
Or if they want they can keep the 30B and just give back the warrants. I'll take that as well.
That might be the cleanest way to do it IMO. That way the US GOVT doesn't look like a dunce by returning money.
"The excess payments of 30B were used to repurchase the warrants" will be the news headline.
Here is my interpretation. We have paid $124B total in dividends. We have overpaid by $30B. So they need to return $30B to us and the government keeps the remaining $94B.
I thought the warrants were non voting.
It feels like they are drumming up publicity for the case tomorrow.
Mooochie is going to "have to respond" after the hearing.
Low morale? Volume low too.
Another wave of lawsuits if they exercise it!
IIRC after CITI or AIG sufficiently repaid back most of it, treasury let them repurchase the rest of the warrants back.
The true prize will be the rights offering as part of the capital restoration plan and the PPS in 20 years for all commons.