Fannie Mae-No Politics (FNMA)

[kthomp19]

just curious what do you view as the absolute worst case outcome for the preferred, and has to happen to get that outcome?

At this point, the worst case scenario might be playing out. Economy crashes, leading to no appetite for an equity raise. The epidemic could even cost Trump his re-election bid, and we could see Biden pick up where Obama left off in his attempt to kill off FnF.

The court cases are much further along now, so even then I see at least some relief for the prefs (and maybe a small amount for the commons). But the worst-case scenario involves FnF not producing profits for shareholders in the future, so even if the prefs do badly the commons will do much worse.



(from another post)

in order to get the 2/3 vote necessary to amend the pref contract (ie convert to common) conversion must be offered at very generous terms.. what would you guess that premium to be?

It's far too early to tell now because there are so many unresolved variables: the fate of the seniors and the NWS, the size of the capital raise, timing, etc. All I know is it will have to be at a substantial premium to the market ratio to get the pref holders to accept. And if the SPO is contingent on such a conversion happening then the ratio could be very generous indeed.

As for the 2/3 part, this only matters if FHFA wants all series converted. If they do a voluntary offer, as with Citi, then 2/3 approval is not needed; instead each individual shareholder could decide whether or not to convert. I don't know if FHFA will go this route, though.