Replies to post #457192 on Fannie Mae-No Politics (FNMA)

[kthomp19]

“Deficiency Amount” means, as of any date of determination, the amount, if any, by which (a)
the total liabilities of Seller exceed (b) the total assets of Seller (such assets excluding the Commitment
and any unfunded amounts thereof), in each case as reflected on the balance sheet of
Seller as of the applicable date set forth in this Agreement, prepared in accordance with GAAP;
provided, however, that:
(i) for the avoidance of doubt, in measuring the Deficiency Amount liabilities shall exclude
any obligation in respect of any capital stock of Seller, including the Senior Preferred
Stock contemplated herein

Of course senior pref doesn't count towards liabilities: it isn't a liability, it's equity.

The amount by which total liabilities exceed total assets is exactly what net worth is, when it's negative. So at the end of Q4 2017 Fannie's assets were 3,345,529M and liabilities were 3,349,215M, so net worth was negative 3,686M meaning the deficiency amount was 3,686M as well.

Thus "deficiency amount" and "net worth" are exactly the same whenever net worth is negative, except that I guess technically "deficiency amount" is a positive number.

For determining "deficiency" the draw (and resulting increase in liquidation preference) is excluded by FHFA/Treasury.

Yes the draw is excluded from the calculation because it is the result of the calculation, not an input.

When the draw was taken cash and senior preferred stock both increased by the amount of the draw, keeping the balance sheets balanced. Liabilities didn't change. Therefore net worth increased by that amount, it's just that the increase in assets only accrued to senior prefs and not other equity.

So the draw did not change their net worth - it was still negative.

If this were true FnF would have gone into receivership last week if not earlier. Net worth did change, from negative 3,686M to zero. That was the entire purpose of the draw.