Replies to post #602709 on Fannie Mae-No Politics (FNMA)

[FOFreddie]

Hi JO

Kthomp19 had a great post regarding the terms of the JPS a few weeks back - maybe other poster or Kthomp has easy access. If they were issued by BAC or JPM they would be trading near par. Regarding the floaters - perhaps they have a floor or minimum fixed rate - also the spread over LIBOR might be higher than LIBOR itself? Have not looked but I am assuming that GSE preferred issued in a financial crisis would have floor dividend rates and relatively high spreads over the floating LIBOR reference rate?

[curious999]

disagree .. even if exchange rates for the various series are different - and that’s a BIG if because the more existing jps converts, the easier it is for the new capital to be raised - it requires 2/3/ approval of holders of each series. if holders of the floaters don’t like the terms, they won’t vote to exchange. and if not redeemed, pls tell me why would a AA rated floater yielding1% trade at big discount?

[kthomp19]

Some of the variable rates are based on 3 month libor or 12 months or w/e and the div rate for those are unbearably poor... Those who hold onto those will get shafted big time. The conversion rate for those will be very very poor.

Even if they make it to par and it yields less 1%... no one will buy them off of you unless you sell for a massive discount so that the yields will be greater. The conversion offer for those will be an ultra low ball.

I think you overvalue dividends and undervalue capitalization of the juniors. Saving dividends is only a minor reason for there to be a share exchange. The re-IPO investors will want as much of FnF's overall capitalization as possible for their money, and exchanging the juniors (all of them) for commons greases the wheels that much more.

There could also come a time when interest rates start rising. I don't think we can count on them being historically low forever.

Still, I am avoiding the really low-yielders for now because there is a chance that div rates matter. I just don't think it's 100%. The market is tending to agree, actually; the correlation between dividend rates and trading prices has trended much lower in the last month, meaning that the market is valuing capitalization more and dividends less.

Also please take note of callability of the prefs. All of them are callable with the exception of FNMAS and FMCKJ. FNMAS is callable every 5 years and is due this year at 12/31/2020 I believe or close to it. The freddie won't be due for another 2 years. Something to think about...

Calling the prefs accomplishes the same goal as exchanging them for commons but costs $33B more. FnF need to be building capital, not depleting it. Redemption of the juniors makes no sense whatsoever.

[Potty]

The thought of having an $8.50 pref called for $25 cash money - yeah, how would I sleep with that hanging over me... lol