Replies to post #596534 on Fannie Mae-No Politics (FNMA)

[FFFacts]

It makes the SPO easier to conduct. The new investors will have $33B less of liquidation preference and $2B less of dividend preference in front of their commons in the capital structure with a conversion compared to keeping the juniors as-is.

Liquidation preference is a non-issue with these companies. They are not traditional in the sense that they are government sponsored and are large and difficult to liquidate. The housing economy would become very volatile if it went through a traditional liquidation. Furthermore, most of Freddie Mac jps are variable and would yield less than 2% a very minor rate compared to potentially issuing new preferreds ta higher yield. For example, h s, j n, m, l g, i q are all variable tied to the libor or cmt rate. I am not sure what you mean when you say that it makes a potential SPO easier to conduct.

It allows for a costless way to settle with the junior pref shareholder plaintiffs, and there is very little reason (given the above) to offer a conversion only to the plaintiffs as opposed to all junior pref shareholders.

2)
Just because it may be a costless way to settle does not mean that all jps will be on board. The holders of jps do not have an obligation to convert and it doesn't make sense for them to without knowing the status of warrants and sps at the very least. Further, holders of higher yielding preferreds will likely not give up their yields for unknown common dividends or higher common equity stake.

It allows for the issuance of new non-cumulative prefs that don't have to compete with the existing ones.

Doesn't explain why existing high yielding preferreds would voluntarily give up their non-cumulative dividends for a new non-cumulative preferred that will likely yield lower given current fed funds rate.

[curious999]

your patience in dealing with these repetitive questions is unbelievable.