Replies to post #657381 on Fannie Mae-No Politics (FNMA)

[RumplePigSkin]

Donot - once you exercise, you hold the warrants. It would be a lot of work to walk back the exercise of the warrants, especially if SCOTUS deems the PSPA paid.

[kthomp19]

to me to exercise a warrant - based on my reading - is to pay to issuer of equity the required amount and to get shares in return

that is the exercise

there is no requirement to exercise and SELL the same time

Right. If Treasury were to exercise the warrants right now they would receive 7.2B shares. They would be under no obligation to sell those shares at any point and certainly would not have to sell those shares immediately. Ostensibly they would wait for an advantageous time to do so rather than dumping them all into the market at once, but seeing how Treasury didn't try to squeeze every penny out of its other 2008-era warrants I don't see them necessarily doing so with FnF's.

FnF would be forced to put the $72,000 (the amount Treasury would pay for the 7.2B shares) towards paying down the seniors, but that's just a rounding error here.

[contrarian bull]

The US government cannot own shares in a private company. That's why they get warrants, not shares. Warrants the US got for other companies were sold prior to exercise. It is not clear whether an "Exercise and Sell" trade would be legal since there may be a millisecond while the government owned the shares, but exercising and holding is clearly illegal.

The F&F warrants specifically allow the government to sell them - that's how they would do it. They would sell them for the current price of shares minus the exercise price which is basically zero. They might sell at a discount if they want to reward some potential buyer. They might even sell them to fannie and freddie for just the option price if they felt like it.

Sometimes selling warrants to the parent company is part of the recapitalization plan. The companies can then sell those shares on the open market to raise cash instead of doing a secondary IPO. They did that with AIG as I recall.

The government could BUY a company, but then they can't have any publicly traded shares. I think the gov't actually took ownership of Chrysler for a while.

there is no requirement to exercise and SELL the same time