Fannie Mae-No Politics (FNMA)

[kthomp19]

FandF owe about 200B (you note a 199B liquidation preference - which I assume has many purposes but represents money in to FandF)

As of right now, yes. But if the NWS is overturned, or settled away in court (more likely imo), either the seniors will completely disappear and FnF will have $25B worth of credit at Treasury, or Treasury will have to send FnF $131B in cash to keep the seniors as they are.

Up to 10% divvy is viewed as legal - right?

I am not aware of any legal challenges to it. Only Washington Federal even brings it up, and they only want money damages for pre-conservatorship shareholders. (Man I'm getting tired of having to point out the Washington Federal exception!)

So would not the legal payments on senior preferred paper be viewed as dividends and not pay down anything a penny ?

Right. Even if the seniors could be paid down (I'm not sure the SPSPAs allow for that), the 10% dividends don't count towards that. That money just goes straight to Treasury, and represents the bulk of the $300+B FnF have paid.

Only the money FnF sent over the 10% dividend would count towards repayment. Luckily for shareholders, that extra money would have been enough to pay off the seniors completely plus $25B. Everything would have been more complicated if all this happened before the 10% moment, because some seniors would have still existed no matter what.

That leaves 100B for FnF in one way or another as over payment

I do not see how the overage over 10% - on a NON declining balance equity investment - gets to pay off the 200B and leave 25B

It's the two different scenarios, depending on what one assumes FnF would have done with the extra cash each quarter after paying the 10% cash dividend:

1) Put all that money towards paying down the seniors. The seniors would be gone by now and FnF have overpaid by $25B.
2) Keep all that money. Then the seniors would be fully intact ($199B liquidation preference) but FnF would have $131B more in cash than they do now.

For Treasury to remedy this, as in make the world as if the NWS had never happened, they either have to extinguish the seniors and give FnF $25B in cash or credits (corresponds to #1), or pay FnF $131B in cash and keep everything else the same (#2).

The $25B scenario does involve a declining balance, because once the NWS started FNF were making more money than needed to pay the 10%. That was Treasury's primary motive for imposing the NWS in the first place, so that FnF could never recap and escape conservatorship.