Replies to post #697648 on Fannie Mae-No Politics (FNMA)

[Guido2]

That’s too complicated for some to understand.

[Achilles deFlandres]

True they won't be liquidated. The only two things that matter are first the bureaucracy and the complete control it has, and third that the government receives most of the money and redistributed some. There is no second and I believe that all of DC has long ago written off any idea of shareholder rights. It turns out any lipservice to those from SCOTUS are immaterial because at best rinse and repeat if plaintiffs appeal again.

[Donotunderstand]

that is not the definition - purpose of the LP

the LP is math for amount put in by GOV

[bradford86]

yes, they will not liquidate. this is a recapitalization

but that does not mean liquidation preference will go to zero

that would have to be part of a legal settlement to restructure the balance sheets to raise $

the way you talk spells "capital structure deficiency"

you should study capital structures.

[kthomp19]

These companies are obviously not going to liquidate

This is true, but don't make the mistake of thinking this means liquidation preference has no value outside of an actual liquidation. If that were true, why would Treasury have bothered to include the liquidation preference ratchet as FnF retain earnings?

Liquidation preference affects the capital stack, FnF have to restructure their equity in order to exit conservatorship (no matter when it happens or how much earnings are retained), and liquidation preference is of huge importance in a restructuring.

The liquidation preference ensures that Treasury continues to hold all the cards in how the restructuring is performed, whenever it happens. FnF's core capital is around negative $133B right now; an organic release through only retained earnings is decades off if that's the route taken, and even then Treasury would have such a huge liquidation preference that it would control the whole capital structure anyway.