Replies to post #521101 on Fannie Mae-No Politics (FNMA)

[kthomp19]

Thank you for the reply and the link back to that previous post. That is helpful in understanding the various possible outcomes.

I believe the framework is sound, no matter who is using it, be they 100% common, 100% pref, or somewhere in between.

If the Gov does a secondary offering for $70/share, would there not be plenty of capital lining up to buy them?

Probably not, in my opinion. Even without the warrants, whoever is putting up $100B will certainly want at least a controlling interest in the companies. They are putting up almost all of the cash, after all. With 1.8B currently outstanding shares, they would want at least 2B (with no other dilution at all), leading to a share price of $50. Tacking on the warrants drops this to $10, or even lower if a junior-to-common conversion happens somewhere.

And that assumes that the new buyers will only be looking at how much money they are putting in compared to the future market caps of FnF (the most logical view, in my opinion). If they instead look at it as "we're putting in $100B, the companies only have $6B in capital, we should be getting almost everything!" then the price they are willing to pay goes way down.

You’re either in or your out. You, as an investor, either want the discounted shares or you don’t.

I don't think the offering will be a take-it-or-leave-it thing, but instead I think it will be an auction. This post, like many of mine, is wordy but it illustrates the concept with an example.

If the government tries to do a take-it-or-leave-it price and the capital raise fails, it will be quite embarrassing. And quite unnecessary if the warrants aren't exercised.

I wholeheartedly believe that they will not just obliterate the common equity to meet their end goal of recap. There must be a better way.

Better for whom? The answer to that is always in the eye of the beholder.