Hey, I don't really want to argue with you because I believe we are both on the same side here, but it explicitly says in the original certificates for the seniors from 2008 that optional pay down of the liquidation preference can only be made if the Treasury terminates it's commitment to fund FnF. There is a provision that pay down MUST be made if the company issues capital stock in exchange for cash, but that is a whole different aspect.
Whether we dislike that it is being called an equity investment or not, that is what it is on paper. It has to be. If it were a loan, that wouldn't have taken them out of insolvency. (Yeah, one might argue that they weren't insolvent in the first place and it was all accounting mumbo-jumbo, but let's not go there.)
This may well be obvious to you, but maybe some reading here don't yet understand how accounting works in these things... Say your net worth is negative one million dollars, and you go out and get a loan for two millions dollars, what is your net worth then? Still negative one million dollars, because along with that debit of two million to cash you just booked, you also had to book a credit to accounts payable for that two million you now owe to your kind-hearted creditor. They cancel each other out when you figure net worth. But if you get someone to invest two million in equity, then what is your net worth? Positive one million dollars, because that two million debit to cash now goes along with a credit to equity instead of liability.
More briefly, a Line of Credit does not change Net Worth one way or the other. (Actually it might decrease it a bit because of fees, interest, etc.) So a LOC can not undo insolvency. That is how equity is different from a loan, and why it had to be done that way.
Is this accounting mumbo-jumbo? Maybe, but it is what was done and it is how accounting works. (And if you try to play with your accounting, guess who might come after you, yah, dat's right, IRS, aka frickin US Treasury!)
In any case, that is all about what did happen, now it is going to be about what will happen, and clearly (at least to my mind) from Calabria's comments, there is a fourth amendment that will be revealed, hopefully not too long from now. Maybe a court decision on the way before that will throw some kinks in that, but I am not going to hold my breath on that.
AI
