Fannie Mae-No Politics (FNMA)

[kthomp19]

The Liquidation Preference is to structured to give the FHFA absolute control over any restructuring and was done before Collins.

FHFA already had control over any restructuring because of the succession clause in HERA. There will be no Special Committees or anything similar because FHFA, and thus the boards, has no fiduciary duty to shareholders. This has been stated for years in FnF's 10-K reports.

There will be grounds for new takings and constitutional challenges if the UST attempts a conversion.

Ones that Treasury will laugh off.

1) The NWS was not a takings, why would a senior-to-common conversion be one?
2) A takings claim would have to be direct because the conversion would help the companies. That would limit damages to the drop in share price from the day before to the day of the conversion. That's a maximum of less than 50 cents per share right now, or less than $1B. A trivial amount compared to what Treasury stands to gain.

The UST and existing common will be diluted by sales of new shares but there is no clear incentive to attempt a conversion before a public fundraising.

If Treasury is going to convert the seniors to commons, it will have to be before capital is raised. Nobody will buy new shares while the seniors are in place.

In the end the UST will waive all or part of the Liquidation Preference to get the deal done and in fact will probably maximize its value

In what universe does Treasury maximize the value of the seniors by waiving them?!

A senior-to-common conversion is essentially super warrants that let Treasury get more than 79.9%. Forced balance sheet consolidation is not a concern anymore because SFFAS No. 47 has a specific exception for conservatorships and receiverships.