Fannie Mae Preferred S (FNMAS)

[jmbell42]

Hey Kylie,

Because the preferred shares are senior to commons, the opposite is true. It is more likely that commons would be wiped out while the preferred holders get partially or fully redeemed.

This happens quite commonly in other distressed securities. Again, I would recommend examining recent receivership cases (since I can't think of any other conservatorship cases to examine right off the bat).

The main aspect is this: Preferred shares must be made whole prior to commons getting anything, unless the majority of preferred shares approve any "gifting" of assets to lower equity classes. That's the essence of the capital structure, and why they are considered senior equity classes.

Thus, you invest in the preferred shares based upon the likelihood that they will return to facevalue, nothing more (possibly dividends re-instated). That's the thesis for FNMAS/FMCKJ.

The investment thesis for FNMA, FMCC is that the two companies will be returned to going concerns with common equity intact. The preferred holders that populate this board have obviously chosen one path (myself included).

No one here is really interested in the commons, so I would seek out the FNMA/FMCC board to discuss issues related to those securities.

Best,

Jared