Fannie Mae-No Politics (FNMA)

[kthomp19]

None of this talk about conversion explains the rationale of a conversion for existing junior preferred stock holders.

There are plenty of reasons for a conversion:

1) It makes the SPO easier to conduct. The new investors will have $33B less of liquidation preference and $2B less of dividend preference in front of their commons in the capital structure with a conversion compared to keeping the juniors as-is.
2) It allows for a costless way to settle with the junior pref shareholder plaintiffs, and there is very little reason (given the above) to offer a conversion only to the plaintiffs as opposed to all junior pref shareholders.
3) It allows for the issuance of new non-cumulative prefs that don't have to compete with the existing ones.

The list goes on. On the other hand, there are no reasons for there not to be a conversion. It breaks no laws. There is a reason that the two major common shareholders (Ackman and the Growth Fund of America) are heavily hedged with prefs.

The future with warrants and sps are unknown as are the legal challenges and until those outstanding factors are known only then would it make or not make sense to convert.

This doesn't affect whether or not to do a conversion, only the ratio at which it is offered.