Fannie Mae-No Politics (FNMA)

[kthomp19]

A bankruptcy filing. Liquidation is not a requirement in all bankruptcy filings. Restructuring happens all the time in bankruptcy courts without liquidation. These companies will not be liquidated.

Since it's not a liquidation, the assets and liabilities have to go somewhere. What entities will inherit those?

Doesn't matter. Congress can re-issue charters or not.

FHFA doesn't have the power to revoke, annul, or terminate the charter of an enterprise. And trying to transfer the assets and liabilities without the charters would set off a nuclear bomb in the housing finance industry; who would do business with these new companies without those charters?

My view right now is that the only feasible path forward with a restructuring, whether it's handled like a bankruptcy or not, is either to have Fannie and Freddie continue to exist in their current corporate forms with charters intact, or create newcos and transfer the charters to them. In the former case junior pref holders retain their current contractual rights, and I don't see any path to the latter outside of receivership. I am trying to prove or disprove this sentiment.

There are numerous instances in which the absolute priority rule is not so absolute.

Thanks for the link.

I see the footnote on page 32 stating "Percentage of New Equity Interests for existing preferred and common shareholders to total 10%.  Company to determine equity splits in consultation with the Required Consenting Noteholders." But the actual percentages have "[TBD]" on page 33. Do you know what percentages the Preferred and Common classes ended up with?

The Preferred and Common classes had the option to vote against the Plan, but they would receive no recovery on it in that case. Why would they choose to vote against it? I can only presume that they would do so to preserve legal claims.