Fannie Mae-No Politics (FNMA)

[kthomp19]

If there is some sort of settlement - some "offer" - I can see where such offer might have preferred converted to common at some % (not 100) of PAR

"Conversion at par", or a percentage thereof, can have many different meanings. I see it more in terms of "how many common shares will 1 share of a $25-par pref be converted to?" Moelis has it at 3:1, but that's back when the market ratio was around 2.5:1, i.e. selling 1 share of FNMAS would get you enough money to buy 2.5 shares of FNMA. The 3:1 gives pref holders and incentive to accept.

The market ratio now sits around 4.3:1. If Moelis offers less than that, the pref holders could just refuse and convert their shares in the market. An equivalent offer now would be just shy of 5:1.

I own commons and prefs but am weighted towards the prefs because I see them as a cheaper way to own common shares in the future after the conversion. A conversion offer makes total sense because it saves the company money on dividends (they can turn common dividends back on without having to pay junior pref dividends), allows them to issue new prefs at market interest rates (and actually be able to keep the proceeds towards a recap), and best of all doesn't cost the companies or the government a penny.

Even takings lawsuits can be defused by doing the conversion after release so that it is the action of a private company.