Replies to post #744533 on Fannie Mae-No Politics (FNMA)

[kthomp19]

To your main questions....the only way the junior's contracts can be bypassed is with a bankruptcy re-org and the only way newcos can be formed is with a bankruptcy re-org.

What I want to know is the inverse of the latter: is the formation of newcos the only way a bankruptcy re-org can happen?

If the answer is yes, and if is receivership the only way newcos can be formed that inherit FnF's charters, the juniors should be safe because I don't think receivership is a viable option. The juniors could be asked to take a haircut to facilitate the recap process, but they couldn't just be sidestepped.

I heard somewhere that Don Layton (while he was Freddie CEO) tried to come up with ways to sidestep the juniors and repeatedly failed, but I haven't seen a source for that claim so I can't verify it.

With this in mind, the juniors would likely be offered one or more options...a conversion to commons; a haircut cash-out; possibly but not likely newco preferred shares. For those that don't take an offered deal, they will get whatever treasury dictates via the cram down provision of the BK code as determined by the plan of reorganization.

If there do end up being newcos in the re-org, why would the juniors be offered any options at all?