Fannie Mae-No Politics (FNMA)

[The Man With No Name]

How would this work technically? Senior conversion leads to a dilution by factor 170. Warrants exercise adds another factor of 5. Makes a total factor 850.

This would mean that commons would drop from around 85 cents now to 0.1 cents.

If - afterwards - the JPS are converted at par value of $25, each JPS holder would have to receive 25,000 commons per JPS.

Because 25,000 x 0.1 cents = $25.

Is this a realistic expectation?

Could be. There's no need to be technical. How it works: Seniors aren't redeemed, they're converted. With conversion, they'll use the trumped up SPS liquidation preference. Add that to the amount of new money that needs to be raised to meet the capital buffer, plus the face value of JPS, and you'll need an Enterprise Value of over $410 billion for the warrants to be in the money. They aren't now under this scenario, which means legacy commons are worthless as well as warrants.

So I expect the Feds will manipulate the numbers in coordination with the investment banks running the re-ipo so that whatever Treasury gets for the SPS, it puts the warrants 'in the money'. In doing so they will, as you point out, convert the SPS to grab essentially all of the newco equity, sans the portion that will go to JPS holders that converted.

I would guess JPS holders will end up with around 8% of the newco.

If the government chooses to take 91.999% with JPS holding the other 8%, legacy commons are worth around 2 cents.

Whether is 2, 5, 10 cents, it really doesn't matter. If Treasury takes what they can, commons will be diluted beyond what anyone ever imagined. Only 79.9% is a pipe dream at this point.

^^^ This is my opinion based upon experience. I have never seen a party in a senior position in the capital stack,,,that's holding all the cards,,,all-of-a-sudden become charitable to those junior in the capital stack,,,especially those without any contractual rights.