Replies to post #709176 on Fannie Mae-No Politics (FNMA)

[kthomp19]

Does not imply a loan but just the mechanics of one. Same thing as the net worth sweep cumulative dividend preference. Technically it is a loan because the principal still has to be paid back and the dividends are just payments for the loan.

I guess this analogy (barely) holds if you consider the seniors to be an interest-only loan. Dividend payments have not reduced the liquidation preference ("principal" as it were) at all.

They had already thought of a graduated release based on capital mile markers being raised.

I see a two-step process in the January 2021 letter agreement: release at CET1 capital equal to 3% of adjusted total assets, then hit full capitalization later. However, with Thompson's revisions to the capital rule, that 3% will be greater than her capital standard anyway.

Do you think a lower threshold for release will be established? I can see that happening, but I'm not sure how there could be more than two steps: one for release and then full capitalization. I also see release as a binary thing, it either happens or it doesn't, so I don't understand what a "graduated release" would entail.

That is not correct. They can sell their stake just like they did in graduated phases with the banks that they held a stake in.

Who is going to buy any of Treasury's stake while any of the seniors remain? I say nobody, which means the writedown/conversion of the seniors will have to be complete before any outside capital can be raised.

1. It would be the largest sale in the history of capital markets
2. It ain't gonna happen all at once.

I agree with this, but I said the conversion is what would happen all at once, not the sale of the converted shares. FnF can't raise capital until the seniors are fully converted, and there is no reason to drag the conversion process out.