Replies to post #747149 on Fannie Mae-No Politics (FNMA)

[JOoa0ky]

The damages for taking would be the loss suffered from the day the takings occurred.

So... if cramdown happens today.... and it drops from 47 cents to 1 cent... you'd get back a grand total of 46 cents...

To vegas ya go...

Exactly Robert - once the UST starts getting cash from IPO proceeds from a cramdown - a new takings cause of action is ripe. This may actually happen post conservatorship because we are talking about the UST selling its shares for payment directly to the UST coffers which assumes that the necessary outside capital raised on behalf of the GSE itself goes on the GSE balance sheet. In any case injunction or not - there will be another whole set of taking issues with real cash transferred ( taken) by the UST.

Then there are practical issues like Underwriters Liability, Special Committees, Fairness Opinions. It really is a pipe dream making a whole lot of assumptions. Lots of risks for the UST and FHFA to screw common shareholders for 10 to 19.5 % of equity.

Kthomp - you really need to think about the mechanics of a cramdown? When does the UST actually get the cash from the sale of stock? Before or after the GSEs get their regulatory capital? If it is after it is likely post Conservatorship - isnt it?

What about Underwriters liability for selling shares that are not legally owned by the UST post facto?

Will there be a Special Committee? Will the Underwriters require a Special Committee?

Will the Special Committee get a legal opinion that opines that the cramdown is legal?

What about a fairness opinion ?

How does Delaware and Virginia minority shareholder rights come into play pre and post conservatorship - especially if the UST sells their shares post Conservatorship?

Doesnt this seem like a whole lot for a bureaucrat who may loose their job in the next Administration?

[kthomp19]

In any case injunction or not - there will be another whole set of taking issues with real cash transferred ( taken) by the UST.

1) The cash would come from outside investors who willingly buy the shares. Certainly not a takings.
2) The only provable economic harm that legacy common shareholders could show is the share price drop from the day before to the day of the cramdown. That's a pittance compared to what Treasury stands to gain.
3) The January 2021 letter agreement makes it clear that Treasury sees its maximum liability in a takings case over warrant exercise to be $5B. The damages from a senior-to-common conversion cannot be more than 125% of that (99.9% is 125% of 79.9%), or $6.25B. Again, a pittance and nothing for Treasury to be afraid of.

you really need to think about the mechanics of a cramdown?

Is that a question or a statement?

When does the UST actually get the cash from the sale of stock? Before or after the GSEs get their regulatory capital? If it is after it is likely post Conservatorship - isnt it?

Treasury would get its new common shares before conservatorship ends, which means before they hit their regulatory capital requirements. Treasury wouldn't really be able to sell those shares until after conservatorship ends due to a lack of willing buyers. They would likely dispense of their stake over time like they did with AIG.

What about Underwriters liability for selling shares that are not legally owned by the UST post facto?
Will there be a Special Committee? Will the Underwriters require a Special Committee?
Will the Special Committee get a legal opinion that opines that the cramdown is legal?
What about a fairness opinion ?
How does Delaware and Virginia minority shareholder rights come into play pre and post conservatorship - especially if the UST sells their shares post Conservatorship?
Doesnt this seem like a whole lot for a bureaucrat who may loose their job in the next Administration?

1) Any common shares that Treasury ends up with via warrant exercise or senior-to-common conversion will be legally owned by them.
2) Of course not. The conversion would happen during conservatorship where FHFA exercises all powers of the shareholders.
3) See #2.
4) Fairness? According to whom? And see #2.
5) Pre-conservatorship not at all, again due to the succession clause. Post-conservatorship, Treasury can just agree to vote its common shares proportionally with all non-Treasury common shareholders, effectively giving up its voting rights. That's what they did with AIG when they had a 92% common stake.
6) FHFA has no reason to say no if Treasury asks for a senior-to-common conversion. It would help the companies and their regulatory capital levels immensely.