MY RECAP PLAN AFTER FHFA PROPOSAL AND COVID-19
1. I think GOV will sell back warrants to the GSEs at about $5 per converted share. That = $30 B, an exact offset for the "forward asset" amount contemplated in the Collins en banc.
2. I think Treasury will negotiate a swap of Senior shares with FHFA for a new, non-cumulative Junior share with a low coupon, say 3.25%, and a reduced par and no redemption or call allowed until after 2028. Dividends on all Junior shares can commence after the 25% capital tranch in the $99 B Buffer account is exceeded.
3. JPS, today, will not be called or paid at par but will become market valued based on their dividend coupon rate and prevailing market analysis. The dividends paid will reduce retained earnings added to capital, bjut will eliminate the deficit in shareholder equity that was created by the Senior shares in the SPSPA.
4. To exit conservatorship, FnF must have accumulated the $135 B in Risk-based capital in the Proposal, plus 25% of the $99 B Buffer account or, say $25 B. That means a total of $160 B is needed to resume dividend payments and start to consider dividends to JPS.
5. The TWins will have a starting total of $45 B banked by the end of 2020 from the NWS waiver in Amendment 5. That means new common equity required will be about $115 B must be raised. I see $20 B coming from retained earnings, leaving $95 B in combined SPOs.
6. New common shares will be sold in thew saame stock class as existing common shares. The nuances of pulling off a new stock class ( like Google's conversion to Alphabet) is unlikely to fly for a company in conservatorship for 12+ years.
7. My working guesstimate for offering price in Q@/2021 is roughly as follows: Current common value = $2.19. Eliminate warrants: 4x adjustment = $10.95. Bump from relist to NYSE and rising volume = 50% = $16.43.
That would add 5.8 B common shares for a total GSE share count of 7.6 B shares and a Market Capitalization of $124.9 B.
8. EPS estimated at $2.63. at a 10X multiple creates a market valuation of at least $26.30 when all shares are subscribed and C-ship ends.
9. FHFA proposal needs revisions requirinmg consideration since the Q3/2019 metrics were figured including forbearance and risk factors in the succeeding 8 months.
10. If more than 1 SPO is required to accumulate the $95 B, share values would decrease. If the initial IPO is fully subscribed in mid-2021, the share v alues would immediately rise per this pro-forma and the Market Capitalization would become the anticipated $125.9 B level to approximately $200 B.
All just my opinion.
