Fannie Mae-No Politics (FNMA)

[kthomp19]

can F and F buy the warrants ?

With what money? FnF have plenty of cash on hand, but buying back the warrants would reduce their net worth dollar-for-dollar. That leaves a maximum of $6B of wiggle room, and I don't see Treasury being willing to settle for that little.

Fast one fiscal year cash in hand --- instead of GOV issuing them over many years with a series of IPOs or SPOs (it is a lot of shares and we need more shares for capital most likely - so the ability of the market to absorb and pay top price might take 3 years or so)

I don't see how FnF buying the warrants from Treasury helps with this.

In any case, the timeline of share issuance can't go more than 2 years: that's all the time Mnuchin has.

F and F would issue an IOU ……… or in more conventional terms a convertible bond series or jr preferred with the right of F and F to call

Neither side of this actually works.

1) If FnF issue debt to fund the warrant buyback, it still decreases net worth the same as if they had just used cash on hand. Spending $40-50B on that drives their net worth into negative territory, making another Treasury draw necessary. That's a non-starter for Treasury, who would have to approve the buyback.
2) Issuing new prefs for the buyback leaves net worth alone, but makes the eventual recap much more difficult. There's already $33B in junior pref par value: adding $40-50B to that makes non-cumulative prefs a large, large part of the capital structure, and the dividends on those would eat up most of not all of company earnings going forward.