Hey Donotunderstand,
"SP and LP are different ?"
Yes. Let me start by saying that I'm not a financial expert, so I can just give you my understanding which may be incomplete. I'm sure others can chime in to correct me or add some color.
The Senior Preferred are the shares that stand senior to the JPS and the Common, both when it comes to paying dividends, and in the event of insolvency/receivership.
I guess the easy way for me to illustrate would be to use a JPS example: FNMFO - current share price of ~$5400, has a liquidation preference of $100K per share. So if FNMA goes into receivership, and assuming there is any money legally left to do so, each share would get paid $100K to retire the share. This is different from it's call/redemption amount of $105K. If FNMA is NOT in receivership but wants to retire this share, it would have to pay the holder $105K. Otherwise, while the share is outstanding, it has a fixed dividend coupon rate of 5.375% of the Liquidation Preference ($5,375 per year), and the dividend is currently suspended due to conservatorship. In this example, the share price, redemption/call price, and the liquidation preference are 3 different numbers.
Imagine this share was not the same as the rest of the juniors, but stood above/senior all other shares in priority and dividend rate was 10% of LP instead of the 5.375%. Further imagine if the JPS holders of FNFMO could negotiate to have their liquidation preference increased by one dollar for every dollar of retained earnings? (That would be unprecedented and nonsensical). As the LP grows, the dividend amount also grows and since every profit dollar is getting swept into the LP, it's getting HUGE! Currently the dividend is suspended until the capital requirements are met, at which time the holder expects to get 10% dividend of the future HUGE LP amount ($300B and growing to who knows what amount), or the full earnings of the company (NWS), whichever is less.
That's essentially what Treasury negotiated with FHFA. It started as one million shares of Senior Preferred Stock, with an initial liquidation preference of $1,000 per share and a fixed 10% dividend rate. Since then, the 10% turned into the NWS, and the LP has ballooned to ridiculous proportions. Other than resolving the LP, I don't know of a mechanism to redeem or retire the shares.
It sounds really stupid when we write it out, but that's essentially where we are.
