Replies to post #569623 on Fannie Mae-No Politics (FNMA)

[YanksGhost]

I would bet on a JPS rights offer for FUTURE stipend under a settlement and consent decree that ends all litigation. This would be cash, not common shares and dilution.

[kthomp19]

I am also puzzled why people are talking of pref for common conversion as part of a settlement.

It's quite simple. Converting the juniors, at a generous enough ratio for them to accept, is by far the cheapest way to get the lawsuits settled. It also makes selling new common shares easier because, compared to a no-conversion scenario, the new commons have $33B less of liquidation preference in front of them and have a greater chance of receiving dividends in the future even if Calabria shrinks FnF's footprint.

None of the cases so far have been certified as class actions, so named common shareholder plaintiffs can be paid off individually.

maybe throw in some payment for back divvies

Back dividends cost cash. A conversion doesn't.

Why on earth would Treasury and FHFA, representing companies, just cough up conversion which hurts common and hence Treasury’s common stake?

Neither FHFA nor Treasury have any fiduciary duty to common shareholders. The warrants consideration is the only valid point here, but you're assuming that maxmimizing the value of the warrants is high on Treasury's priority list. It might be, but it might not be.

Treasury could also sell the warrants back to FnF for a fixed sum, removing their incentive to keep the common share price up.

(If also does nothing for capital raise...)

I made the point above that it makes new commons easier to sell. It also makes new non-cumulative prefs easier to sell because they wouldn't have to share dividends with pre-existing shares.

even normally sound thinking people like Todd Sullivan are pushing this baloney.

You know who else mentioned a junior-to-common conversion as a possibility? Mark Calabria. It would be rather silly to act as if it isn't going to happen. This conversion is decidedly on the table, positioning oneself accordingly would be wise.