Fannie Mae-No Politics (FNMA)

[kthomp19]

or such would be a forced conversion

It can't be forced. Junior pref holders have to approve a conversion, or any other material change to their contracts, by a 2/3 majority (1 share = 1 vote).

if the conversion offer - if it occurs - is based on market PPS relationship --- then why bias one way or the other?

The point of offering a premium to market prices is that a junior pref holder could just convert at market rates right now if they were willing to accept that. Someone who holds 100,000 shares of FNMAS could sell them and buy 430,000 (or so) shares of FNMA right now without having to wait for a conversion offer. But they don't because people who hold junior prefs instead of common have good reasons to do so. Getting them to change classes voluntarily involves offering an incentive, like a premium to market prices.

Of course, part of the reason junior pref holders don't convert to common right now is the vast uncertainty behind other possible forms of dilution: the warrants and a post-release equity raise. I can't see junior pref holders agreeing to any conversion until everything is sorted out, so it will be part of the "grand bargain". At that point the conversion offer might not depend on market prices at all so I easily could be wrong here. Thus my 15% allocation to common.