In my opinion Alibaba is not nearly as good a comparison as Petrobras. Petrobras managed to raise $70B, and the Brazilian government retained control of the company afterward. If they could raise $70B, I think FnF could easily raise over $100B.
Yes, a senior-to-common conversion would render the warrants worthless. The two main reasons for Treasury to convert the seniors to commons rather than cancel them is to gain more value for the taxpayer (99.9% > 79.9% after all), and to leave less value for the "evil hedge funds".
(Whether or not that last characterization is accurate doesn't matter. It will be talked about as if it were.)
The capital raise will need to happen alongside release from conservatorship. The government won't want to release FnF while they are significantly undercapitalized, and new investors won't buy shares in companies they have no control over. Simultaneity is the only solution here.
I think it's exactly the opposite. TINA (There Is No Alternative) is my primary investment thesis for FnF, and a consequence is that the junior pref shareholders will have to be dealt with (i.e. offered at the very least a significant percentage of par) to accomplish release from conservatorship. By contrast, the senior-to-common conversion possibility shows that FnF can be recapped and released while the existing common get crushed at the same time. It's the commons who are much more dependent on a court victory that either kills the seniors (Collins) or gets $125B returned to the companies (USCFC cases).
Some food for thought: Treasury could convert the seniors to convertible non-cumulative prefs with a total par value of $193B, a dividend rate of zero, and a mandatory conversion to common at a pre-determined rate upon sale to anyone else. This raises core capital by $193B (the same as cancelling the seniors or converting them to commons), gives Treasury no incentive to hold the shares (due to the zero dividend), and lets investors buy the shares at their own pace. It basically gives Treasury as many (pre-capital raise) common shares as they want (probably 1T or more pre-reverse split) while never giving Treasury ownership of any common shares at all. This avoids voting rights problems as well as any potential forced balance sheet consolidation.
Agree on all points. With the news of reduced capital requirements....I think this is Treasury's doing. They are in the same boat as we are until release...just a waiting game for decades unless the cap requirements are changed. So they will be. This will put the warrants well in the money...and this also gives them room to create that scenario that crushes equity and it's Treasury that gets the big windfall. I can also see a scenario whereby a release moots or all but moots the outstanding lawsuits.
As you noted above a senior to common conversion would render the warrants worthless, but let us not forget the warrants are worthless as it stands right now. I expect some tricky accounting in a recap/release.
Furthermore, Biden needs a win. They would spin this into some kind of great accomplishment of government intervention.
In summary, TINA. If Collins accomplished anything, I think it put this on a path to release.
I own a good bit of Petrobas. The Brazilian government does a lot better job of running companies than Treasury and FHFA.
AI
