Fannie Mae-No Politics (FNMA)

[The Man With No Name]

How would a bankruptcy work? Since FnF have positive net worth I would imagine that bondholders would not be part of the process at all. They will be 100% money good no matter what happens.

My main questions are: can the juniors' contracts be bypassed if FnF continue in their current corporate forms (i.e. no newcos)? And can newcos be formed that inherit FnF's charters without running them through receivership?

I have been assuming that the juniors might be convinced to take a small to moderate haircut in order to actually unlock the value of their shares, but cannot be forced to take a large haircut. It's that assumption that I am trying to justify with these questions.

To your main questions....the only way the junior's contracts can be bypassed is with a bankruptcy re-org and the only way newcos can be formed is with a bankruptcy re-org.

How would a bankruptcy work? Well that's simple. Treasury would have all practical control because they own the senior impaired class and they have a controlling (blocking) position with the most junior class, AKA the commons. Therefore they can dictate pretty much anything within reason, only checked by a newco market valuation, because they can control the "cram down" provisions in the bankruptcy code.

With this in mind, the juniors would likely be offered one or more options...a conversion to commons; a haircut cash-out; possibly but not likely newco preferred shares. For those that don't take an offered deal, they will get whatever treasury dictates via the cram down provision of the BK code as determined by the plan of reorganization.