Replies to post #352574 on Fannie Mae-No Politics (FNMA)

[rekcusdo]

No....it just determines the pecking order. If theres nothing to give, theres nothing to give.

[big-yank]

Yes. That is 100% correct under normal circumstances.

To be fair... here we have the added and highly unusual complication of SENIOR PREFERRED SHARES being given to government under a law that appears to grant a free pass to government for almost anything. So an answer to your question really depends on whether any court has the gonads to rule that such largesse is excess or legal.

That being said as a cautionary warning, check back in time for an excellent analysis by brandemarcus awhile back where he estimated the liquidation value of the Twins. By recollection, his proforma was that after senior preferred liquidation preference was "settled", around $60 B would remain for junior preferred shareholders. In a pure liquidation, this would put settlement at a near-par level... $25 in the case of the FNMAS I own.

Maybe he stays tuned in and would care to comment from the accountant's perspective that I miss, now, amidst the lawyer-wannabe content? Brandy, you still out there?

My personal investment thesis pegs recovery in liquidation at somewhere above $16 per $25 par share value. Recovery in 2019. If release & recap should magically appear, great. Then the 8.25% coupon after full recovery will drive S/P well above $25, with divvies recommenced at no less than 50% payout, pretty much from the get go of release. I'll put that in perspective. Buy a preferred share for around $3. Start restored divvies with a half off discount on an 8.25% coupon = $2.06 X .5 = $1.03. That's a 30%+ return on a $3/share investment.

The vigorish is why so many hitters took positions in preferreds.

Me too.

This is a yield driven market in a macro sense. Coming here from the mReit sector, this looks like a hedged-risk bet on an above average return for people patient for a two year payback. And if the courts come through with a coup, the reward will only come sooner.

JMHO

[big-yank]

As a follow up, I ran across brandemarcus on another message board and asked him to repost his analysis on Fannie Mae breakup value based on liquidation preference. I don't know if he saved his data, but be on the look out for a post from him, here. His analysis was really thorough and well researched... something you might expect from a well-heeled accountant like him. I hope he will add his data to the mix for discussion.

I think the overall discussion is important because receivership is very much a possibility with both GSEs under several scenarios. Each month that goes by with no reform measure passed, with no judicial decision changing anything significant, with income dwindling in each subsequent Q both both Twins is another month closer to December/2017 when the $$$ runs out.

JMHO.

[Donotunderstand]

nope

preferred is not any where near debt

we need only look at what happened all over the place during the recent crash

equity is equity and debt is debt.

Their are volumes of law which distinguish between those two - that is the dividing line

Not counting the now disappearing Trust Preferred Securities (preferred stock with an indirect debt relationship to the parent company) - preferred stock is really only preferred in its dividend needing to be paid in full prior to any dividends to common and in some cases a cumulative feature