Replies to post #517952 on Fannie Mae-No Politics (FNMA)

[Donotunderstand]

seriously indepth analysis

now if IPO price is 10.87 for common - does the plan assume this price is for stock we hold - warrants - jps conversion - capital raise

IMO it has to be one price across all issues to meet needs and raise capital


Say 11 - is a triple from here and more which is cool


And second question --- what happens to some one holding 100 shares of a JPS par 25


Does half become common at 10.87


If so - is that done at par so that the number of shares is 1.15 (which I get from (50% PAR) = 12.50/$10.87

[kthomp19]

Good work, FD. I believe you are right here, the math checks out. That means I was wrong in my 3:1 assumption, at least as a blanket statement.

The ratio on page 36 of the original plan comes out to 3.16:1 (half of the $33.19B in par value, divided by $25 to get the number of "units" gives 0.6638B, and the 2.1B number in the footnote divided by 0.6638B gives 3.16). But the ratio on page 37 is 2.26:1. That's a bit below what the FNMAS:FNMA ratio was at the time (around 2.5:1). This reflects my incomplete DD here: I took the 3.16:1, rounded it to 3:1, and ran with it.

That makes the numbers in the updated plan even more puzzling. Page 28's numbers give 1.85:1 and page 29's numbers give 1.74:1. This is at a time when the market ratio was between 4:1 and 5:1. This raises three questions:

1) Why would the junior pref holders agree to this conversion when it is so far below market?
2) Why do some people think that Moelis disproportionately favors junior pref holders? The updated plan involves around 200% returns for juniors and 300-400% returns for commons, and the gap widens with the assumption that the share price will rise 10% per year (because only half the juniors get converted).
3) Why is the FNMAS:FNMA ratio still around 3.5:1?

The first question could be answered by saying that the juniors, if converted at par, will get par no matter what the ratio is. While this is correct, they might push for more due to the leverage of being able to just continue the lawsuits. I won't push this point too hard.

The second question, though, gives me pause. Ackman bought a bunch of prefs, enough to bring his allocation to 38% prefs, partially because he fears that a restructuring could disproportionately benefit the juniors. What is it that he's afraid of? Whatever it is, it has to be much worse for commons than Moelis.

The third question can only be answered by asserting that the market doesn't think this Moelis plan, as presented, is all that likely. If there was large-scale belief that it would be implemented, the market ratio would converge to around 1.8:1. Instead, the market evidently believes that there is still a good chance of Ackman's fears coming to pass.




This has given me food for thought, I appreciate the DD on your part.