Fannie Mae-No Politics (FNMA)

[kthomp19]

kthomp19 - what are your thoughts on Michael Kao's thesis that SPS have become the fulcrum security, given that by the time the GSEs exit, SPS will amount to more than the entire market cap of the GSEs? As he argued, the standard recap playbook is to offer special deals to junior security holders that require them to pay up 1:1 in order to partake in recap.

It's quite simple: junior pref holders can just say no and hold onto their shares, knowing that no common dividends can be paid until the juniors get their dividends in full.

If the restructuring involved newcos being formed, Treasury could dictate the terms to both the junior prefs and legacy commons due to the senior prefs' position in the capital stack. However, newcos that have FnF's charters would require them to either go through receivership or have Congress pass a bill to that effect. I don't see either of those as being remotely likely, leaving the junior prefs in a strong negotiating position.