Fannie Mae-No Politics (FNMA)

[kthomp19]

It substitutes an agreement on Senior shares for UST's benefit, but at a lesser value than 79.9% warrant equity.

You're talking about a senior-to-common conversion that involves Treasury getting less than 79.9% of the commons? Why would they do that instead of just exercising the warrants?

As you pointed out with AIG, Treasury ended up with a 92% stake there. With FnF it would likely be much more; the seniors have a liquidation preference of $200B, while the commons have a liquidation preference of zero since FnF's current $23B in capital doesn't even cover the seniors, let alone the juniors, both of which stand ahead of the common.

Even using the total common market cap right now of $3B or so leads to Treasury getting 98.5% of the commons ($200B / $203B).

With a senior cramdown there should be no need for a re-IPO, so at least the existing commons would get to keep that 1.5% of the equity. That's scant comfort, though.