Replies to post #744709 on Fannie Mae-No Politics (FNMA)

[JOoa0ky]

Man with no name can correct me if I'm wrong...

I don't think you're quite understanding what the restructuring is conceptually.
- Who owns what
- Who is the one selling
- How is capital being raised

After a senior cramdown and warrant execution, UST will own 99.9% of FnF.
- What UST is left with is an undercapitalized FnF.
- What UST needs to do is RAISE capital for FnF.

Conceptually what happens is UST will dilute itself in order to raise capital for FnF.
- In other words the govt will be taking haircuts to bring FnF from undercapitalized to fully capitalized.
- UST will give a slice to JPS to wipe the JPS debt off the balance and bring in 33B.
- UST will continue to give up slices of itself to new common equity until FnF is capitalized to what they like.
- What UST's stake is worth is what are the slices leftover.

There is no risk to a senior cramdown and warrant execution.

Everyone keeps getting tripped up with the idea that IPO'ing shares are based on the current price... That's what Tim Howard seems to think as well... But that's not how it works...

The process doesn't move front to back but rather it starts from the end and moves backwards.

My question is what scenarios are there where common equity is retained but the UST Liquidation Preference is eliminated, frozen or reduced and what impact any UST may have on investor confidence and the required rate of return for new investors. My assumption is that the UST will find that there is less execution risk in relying on their warrants rather than wiping out commons because new investors will require a risk premium that will make a cramdown sub-optimal and make execution risk for a cramdown too high.