Replies to post #606762 on Fannie Mae-No Politics (FNMA)

[CatBirdSeat]

Cancelling JPS makes perfect sense. They are nothing but a long-standing liability. If they want to raise more capital via preferred stock just cancel these old JPS and issue a new preferred.

[kthomp19]

No way JPS are getting cancelled because any such move would impair capital needed for release from C-ship.

Correct. This would reduce capital by $33B at a time FnF need to be building it.

This is also why the juniors won't be redeemed for cash. If the re-IPO investors want the juniors gone before they invest, which they almost certainly will (explanation below), a conversion is the best way to do it because it keeps core capital the same.

That also is a reason why no conversion from JPS to common shares makes any sense at all... any such move makes an IPO for commons more diluted and, thus, less desirable than just keeping JPS alive but dividendless until the recap process concludes in a few years.

This, however, is wrong. As long as the conversion happens before the re-IPO, the new investors won't get diluted at all.

In fact, the re-IPO investors have a direct incentive to insist on the juniors converting first. When you compare the conversion and no-conversion scenarios, the former has $33B less of liquidation preference and $2B less of dividend preference ahead of the re-IPO investors' commons compared to the latter. It is clear that a conversion helps the re-IPO process. Since it costs the companies nothing, there would need to be an more compelling reason to not do the conversion in order for it not to happen.

Sadly (depending on your point of view), there is none.

[Louie_Louie]

I agree, JPS won't get canned.
Sorry for confusion....
I was trying to make a point about what MC "says"versus what happens and the vagueness of that HERA clause that the poster Kthompson was basing his argument onwith you. My point being MC can say might, maybe, possibly or may all day, but the proof is in the pudding and MC will not be doing an IPO, he will appoint if necessary and determine, as that clause can be interpreted.