Replies to post #40862 on Freddie Mac-No Politics (FMCC)

[obiterdictum]

Preferred's are non-cumulative so any dividends that were not paid in the past cannot be paid in the future.

Yes.

Dividends were paid to senior pref stock (treasury), so technically dividends were paid - just not to the jr pref stock.

I've read a lot about how the preferreds dividends are non-cumulative and since they were paid nothing in the past they will get nothing in the future based off those old dividends. What I don't understand is that dividends were paid, so the preferreds should get prior dividends if ruled upon.

That is so. However, in addition to the Junior Preferred's non-cumulative feature, a specific SPSPA covenant (5.1) states that no dividends or distributions are to be made to any equity interests except the Senior Preferred or Warrant unless allowed by the Purchaser (US Treasury). The agreement and that covenant are binding and that covenant is not directly contested in court.

Covenants
5.1. Restricted Payments. Seller shall not, and shall not permit any of its subsidiaries to, in
each case without the prior written consent of Purchaser, declare or pay any dividend (preferred
or otherwise) or make any other distribution (by reduction of capital or otherwise), whether in
cash, property, securities or a combination thereof, with respect to any of Seller’s Equity Interests
(other than with respect to the Senior Preferred Stock or the Warrant) or directly or indirectly
redeem, purchase, retire or otherwise acquire for value any of Seller’s Equity Interests
(other than the Senior Preferred Stock or the Warrant), or set aside any amount for any such purpose.
http://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/2008-9-26_SPSPA_FannieMae_RestatedAgreement_N508.pdf

This is the covenant that allowed FHFA and US Treasury to make statement and press releases in 2008 that declared that dividends for Junior Preferred and Common Stock are eliminated during the conservatorships.

For example: Seventh, in order to conserve over $2 billion in capital every year, the common stock and preferred stock dividends will be eliminated, but the common and all preferred stocks will continue to remain outstanding.
See: http://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-of-FHFA-Director-James-B--Lockhart-at-News-Conference-Annnouncing-Conservatorship-of-Fannie-Mae-and-Freddie-Mac.aspx or
http://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-of-James-B-Lockhart-III-Director-FHFA-Before-The-US-Senate-Committee-on-Banking-Housing-and-Urban-Affairs.aspx

If the courts rule in favour of plaintiffs (and reverse NWS) could the period where treasury collected 100% of dividends be considered as dividends being paid (just to the wrong parties) and then the jr pref receive the dividends from the period where treasury took it all?

There are different possibilities here. It is not easy to come up with meaningful potential outcomes beforehand, that is, what the decisions and/or remedies the Court of Appeals panel's would look like given the original prayers of relief presented by the institutional plaintiffs in the Perry Appeal. For example, in Perry, and unlike Fairholme and Class Plaintiffs, monetary damages are not explicitly sought by making claims under the Takings Clause of the Fifth Amendment to the United States Constitution. Class plaintiffs take a different tack and have made taking claims in addition to breach of fiduciary duty claims, breach of contract claims, breach of contract and breach of implied covenant claims. It also is uncertain that the Court of Appeals will directly overturn Lamberth and make their decision final with the Supreme Court as the next step for the defendants or the plaintiffs. The case can be remanded with instructions back to the US District Court, DC.

If only the 3rd amendment and NWS is declared unlawful and is vacated as requested by all the plaintiffs, while leaving the remainder of the SPSPAs intact, the legal and compensatory decisions and outcomes are simply not usefully knowable at this point and any speculations made about such outcomes will be insubstantial and will not have any significant impact on the eventual outcome.

Talk of settlements is new and this seems to have arisen in number since the election was decided. If settlements occur, the decisions and terms will be broadly known and the details hidden. Also, it must be considered that if one is not party to a particular suit with direct claims (not a derivative suit) then direct benefits from US Treasury disgorgements (settlement monies), if any, may not accrue to unqualified shareholders. The benefits that would accrue would be the renewal and receipt of dividend distributions, increases in share prices, voting rights and other contractual rights.