Fannie Mae Preferred S (FNMAS)

[Joe Stocks]

Rosen, Did you happen to follow the Great Atlantic Pacific (GAP) bankruptcy? I owned some of the senior unsecured debt on speculation and was just under the secured senior debt. What happened there was that an investment group came in and bought 67% of the senior unsub. Then they partnered up with another investment group that put up new capital to pull GAP out of BK. They agreed to take nothing for the debt they held and voted the unsecured senior to accept they deal since they held 67% of the vote with nothing going to the other senior unsub holders. Since they were putting up capital to fund the reorganized enterprise the court approved the deal.

I am not saying FnF is in bankruptcy but...

I could see here that this hedge fund private equity group wants to make a deal with Fannie and Freddie to spin-off the insurance portion in exchange for them to put back the jr preferreds they own and drop their lawsuits. In other words, the hedge funds will forgive THEIR jr preferreds in exchange for the FnF core businesses of guaranteeing mortgage-backed securities. The remaining preferreds and common would remain with what is left of FnF.

Put yourself in the shoes of the hedge funds - are they going to recapitalize the insurance unit with their forgiveness of the junior preferreds, and provide new fresh capital to recapitalize, and let those of us that own jr preferreds to ride along with them for nothing? I don't see that happening. I don't see why the hedge funds would want to dilute their new ownership with others that are not providing new capital.

I bet if we had a copy of the presentation I think we would see a scheme that is nearer to what I am saying.