Fannie Mae-No Politics (FNMA)

[kthomp19]

We should know this year which way the 5th Circuit will rule on voiding the NWS and SPS Liquidation pref.

Don't conflate those two. The Collins case in the Fifth Circuit has two requested remedies:

1) Retroactive relief from the first go-round at the Supreme Court. The plaintiffs are asking for either the senior pref liquidation preference to be wiped out or for the seniors to be converted to commons.
2) Unwinding the NWS as relief for an Appropriations Clause violation.

The key thing you need to understand is that voiding the NWS does NOT wipe out the senior pref liquidation preference. All it would do is reset all the past NWS dividend payments and liquidation preference increases to what they would have been if the NWS had never happened.

What an NWS unwind would do is:

1) Reset the senior pref liquidation preference to $193B (where it stood on the day of the NWS)
2) Reinstate the 10% cash dividend terms ($19.3B per year for FnF combined)
3) Remove the senior pref liquidation preference ratchet (where it goes up $1 for every $1 increase in FnF's net worth)
4) Have Treasury return $62B in cash to FnF (the difference between what they actually paid under the NWS and what they would have paid under the 10% dividend)

#1 is the most important one here. The senior pref liquidation preference cannot and has never been able to be paid down voluntarily by FnF. That means past NWS payments cannot retroactively be recharacterized as having paid down that liquidation preference.

Since voiding the NWS does not wipe out the senior pref liquidation preference, it also does not remove the possibility of a senior-to-common conversion. In fact, I would argue that voiding the NWS increases the chances of a senior-to-common conversion because it would be just about the only way Treasury could defray that huge cash outlay.