Fannie Mae-No Politics (FNMA)

[kthomp19]

I still haven't quite wrapped my head around how this would work, but according to David Thomposon, via Tim Howard, "damages in the claim of breach of implied covenant of good faith and fair dealing now before judge Lamberth would, if granted, be payable by the government to the current holders of Fannie and Freddie’s junior preferred securities."

That case is unique in part because it names the companies themselves as defendants, as opposed to direct claims in the USCFC which don't involve the companies directly and derivative claims in which the companies are the nominal plaintiffs. This makes Perry a must-settle case in order for recap and release to move forward (nobody will buy new shares when the companies themselves face legal liability of an unknown size), so those plaintiffs will have to be appeased.

I don't read anything through from the Perry case to any others in terms of damages, though.

My guess is that SPS were paid in full about two years ago.

The 10% moment was crossed by Freddie in Q2 2017 and Fannie in Q3 2018. Each are a little over $14B past that, meaning that if the Supreme Court (in contravention of the original SPSPAs) gives the plaintiffs their desired remedy of treating past after-10%-dividend payments as paying down the seniors, each of Fannie and Freddie would be owed $14B. That benefits Freddie more because $14B represents a larger portion of its capital standard.

HERA allows for SPS repayment in installments.

No. FnF have never had the ability to pay down the seniors any time they wanted. See Section 3(a) on page 4 of the senior preferred stock certificate. Make sure to ignore the part at the beginning that says "Following termination of the Commitment" because the Commitment is and always has been in place. The important part is in the middle:

Prior to termination of the Commitment, and subject to any limitations which may be imposed by law and the provisions below, the Company may pay down the Liquidation Preference of all outstanding shares of the Senior Preferred Stock pro rata, at any time, out of funds legally available therefor, but only to the extent of (i) accrued and unpaid dividends previously added to the Liquidation Preference pursuant to Section 8 below and not repaid by any prior pay down of Liquidation Preference and (ii) Periodic Commitment Fees previously added to the Liquidation Preference pursuant to Section 8 below and not repaid by any prior pay down of Liquidation Preference.

Neither (i) nor (ii) apply because all increases in the senior pref liquidation preference were due to draws, not missed or incomplete dividend or commitment fee payments.

This is an important point that bears repeating: FnF NEVER had the ability to pay down the seniors any time they wanted. This is why Gary Hindes calls the seniors a "concrete life preserver". That's why I don't think the Supreme Court will wipe out the seniors; such a remedy would contravene the original agreement that the plaintiffs are not challenging or seeking to have overturn or changed in any way.