Replies to post #620150 on Fannie Mae-No Politics (FNMA)

[Louie_Louie]

Thanks Yank
Very well thought out and presented. Expose the hypocrisy! JPS really think government is that stupid, or JPM and MS. I've always said their conversion perversion was laughable. The best shot they get is dividend reinstatement or maybe bought out at 50-70% par.

[TRCPA]

Amen. Well said again.

[RumplePigSkin]

Yanks - Yep!

[stockprofitter]

+100

sticky worthy

[philipmax]

Mr. GHOST you make perfect sense. But, what about this insanity is sensible? Nevertheless, i agree with you.

[10yrsholding]

I think Holden’s guarantee was a bit of intended hyperbole. No one knows for sure, but logically working backwards from our objective.

To privatize GSEs, you need to raise outside capital. To raise outside capital, we need a set goal post in terms of capital requirements and minimize/quantify litigation risk (that could be anywhere from donuts to the size of the aggregate outside raise). You can’t raise capital without taking out the litigation risk - you’re not going to maximize the capital raise because they will not subscribe to a low rate of return with material litigation risk unless it’s at a deep discount.

So who is the consortium that is sponsoring the plaintiffs? My information is a bit dated, but when a fund I knew were asked to “pitch in” to the direct claim suits, in the way back when, the parties involved were primarily institutional preferred holders. (No I will not say who is the consortium.) Those claims are now dismissed, but follow the trail.

Anecdotally and diverging a bit, there are articles and podcasts of former officials and “so-called” Industry experts, opponents mainly, that even said the prefs have standing but behind the taxpayers and new investors, and the commons have little to no legal standing for profits. Right or wrong, even they acknowledge the cap structure hierarchy that prefs get paid before the commons.

So there is a strong case that behind treasury, it’s the litigating shareholders who are in pole position right now and they are likely still mainly preferred shareholders. Hence the Holden Walker guarantee. Lol.

[JOoa0ky]

The "guarantee" of JPS conversion is nonsensical bullshit. The conversion only accomplishes two things. It eliminates the coupon future dividend drag on earnings when/if eventually declared. And it increases CET1 capital by approximately $33 B (combined) but does not increase Tier 1 capital by even a dime. The rulemaking comments already signal a fight on both the amount of and type of capital proposed in the Capital Rule put forth by Calabria.

So let's just lay the truth out on the table on the motive behing the Moelis conversion scam. Any conversion requires consent by a super-majority of JPS holders. They will want a conversion at or as close to par value as possible. Then the conversion would be priced, historically for such equity swaps, on a trailing 30 day common share prive average basis. So the simple math is that the trailing average, at present, would be about $2. So to convert $33 B in JPS (at par) into common, the deal would require about 16.5 B common shares. There are only 1.8 B total FnF shares in the float, now. So JPS holders would net about 90% equity ownership of the GSEs, leaving existing shareholders with less than 10%.

Talk about a wrest of control.

Nice try, but this is NEVER gonna fly. JPS needs to stop trying to steal the company as it approaches the brink of restored value once conservatorship ends. The combined total of a released/recapitalized/relisted FnF is somewhere between 5X and 10X multiples of $33 B in JPS par.

We have gone through nearly 13 years of government stealing everything from shareholders. It is unacceptable to contemplate some new SCAM where JPS follow the government theft with a continued 90% stealing of everything belonging to the emaciated common masses, going forward.

That makes a lot of sense.

Currently, existing shareholders have 24B... it doesn't make sense for the 33B JPS to net 90% of equity.

[Brooge warrants cancelled]

has to be the best contributor to this board

Shalom

[curious999]

congrats that the lightbulb has finally flashed re the dilution risk to existing common.

capital structures do matter in bankruptcies/reorganizations and, while think your example way too extreme, yes it could happen

curious why existing common don’t take advantage of the currently mispriced jps and swap? what a shame to have endured this battle and not maximize gains

as holdenwalker said in an earlier post, consider this a public service announcement

[kthomp19]

The conversion only accomplishes two things. It eliminates the coupon future dividend drag on earnings when/if eventually declared. And it increases CET1 capital by approximately $33 B (combined) but does not increase Tier 1 capital by even a dime.

There's a third thing: it removes $33B worth of liquidation preference from in front of the newly-issued commons.

Liquidation preference absolutely matters outside of a liquidation, by the way. First, Calabria said that FnF's conservatorship is like an administrative bankruptcy, and resolving those involves respecting the capital stack. Second, the variable driver of value of any non-dividend-paying common stock is its liquidation preference. The market places value on liquidation preference even if the company itself is nowhere near going insolvent.

Any conversion requires consent by a super-majority of JPS holders.

No, not necessarily. FHFA can direct FnF to offer a voluntary conversion, like Citi did. Then each shareholder can choose whether or not to convert. Citi's conversion offer saw a 97% acceptance rate, by the way.

They will want a conversion at or as close to par value as possible.

Naturally.

Then the conversion would be priced, historically for such equity swaps, on a trailing 30 day common share prive average basis.

Not necessarily. This did happen with Citi, but that sentence shows that you haven't actually read the Moelis plan. Moelis envisions the juniors converting to commons at a re-IPO price in the teens.

Talk about a wrest of control.

The bottom of the capital stack is rarely treated very well in a bankruptcy/restructuring. Deal with it.

Nice try, but this is NEVER gonna fly.

Categorical denial is easy, but you never actually gave a reason why it wouldn't fly.

At the moment, were the seniors to be extinguished the juniors would be impaired (FnF book value is less than total junior pref par value). If the restructuring occurs while this is true, the prefs get less than par and the commons would be lucky to get pennies.

Treasury also has other ways of making money (e.g. monetizing the seniors), so counting on them to prop up the share price due to the warrants is wishful thinking.

It is unacceptable to contemplate some new SCAM where JPS follow the government theft with a continued 90% stealing of everything belonging to the emaciated common masses, going forward.

If you have seen enough bankruptices and resturcturings, you wouldn't at all be surprised to see the commons significantly underperform the prefs. These things happen all the time, and painting it with words like "theft" and "stealing" only shows that you are expressing an opinion here, not a fact.

[Guido2]

Shared your post on Seeking Alpha in response to Glen's latest article.