Replies to post #710674 on Fannie Mae-No Politics (FNMA)

[LuLeVan]

I would guess JPS holders will end up with around 8% of the newco.

Market cap after capital raise will be around $250 billion. 8% of that is $20 billion. There are about 1.3 billion JPS shares (all series).

This would give the JPS a final (average) value of $20 billion divided by 1.3 billion shares = $15.38.

This is less than Glen Bradford and KThomp19 expect. Both expect JPS to reach at least par value ($25).

So who is wrong here?

[kthomp19]

With conversion, they'll use the trumped up SPS liquidation preference. Add that to the amount of new money that needs to be raised to meet the capital buffer, plus the face value of JPS, and you'll need an Enterprise Value of over $410 billion for the warrants to be in the money. They aren't now under this scenario, which means legacy commons are worthless as well as warrants.

Well put.

A small nitpick is that EV includes debt (over $7T), so a better term might be "equity value" or just "market cap".

So I expect the Feds will manipulate the numbers in coordination with the investment banks running the re-ipo so that whatever Treasury gets for the SPS, it puts the warrants 'in the money'. In doing so they will, as you point out, convert the SPS to grab essentially all of the newco equity, sans the portion that will go to JPS holders that converted.

I would guess JPS holders will end up with around 8% of the newco.

I agree with this, except perhaps the 8% part. I can't see the juniors agreeing to any conversion that gives them less than $33B of post-conversion value, which is 13.2% of an assumed market cap of $250B.

Of course, if this is a take-it-or-leave-it deal, the juniors could very well accept less than par to get the deal done. 8% (on an assumed $250B market cap) would only be 61% of par, which I think is a bit low to take.

This is my opinion based upon experience. I have never seen a party in a senior position in the capital stack,,,that's holding all the cards,,,all-of-a-sudden become charitable to those junior in the capital stack,,,especially those without any contractual rights.

To play devil's advocate, why would Treasury be charitable to the juniors but not the common?