Replies to post #749712 on Fannie Mae-No Politics (FNMA)

[The Man With No Name]

1,002. When will you learn how to read the entire contract?

[kthomp19]

YOU HAVE FAILED TO RECOGNIZE SECTION 8

Wrong. I have read Section 8 and it proves my side true, not yours.

Section 8 ties in with Section 3(a) regarding the optional paydown of liquidation preference.

(b) “Liquidation Preference” shall initially mean $1,000 per share and shall be:
(i) increased each time a Deficiency Amount (as defined in the Preferred Stock Purchase Agreement) is paid to the Company by an amount per share equal to the aggregate amount so paid to the Company divided by the number of shares of Senior Preferred Stock outstanding at the time of such payment;
(ii) increased each time the Company does not pay the full Periodic Commitment Fee (as defined in the Preferred Stock Purchase Agreement) in cash by an amount per share equal to the amount of the Periodic Commitment Fee that is not paid in cash divided by the number of shares of Senior Preferred Stock outstanding at the time such payment is due;
(iii) increased on the Dividend Payment Date if the Company fails to pay in full the dividend payable for the Dividend Period ending on such date by an amount per share equal to the aggregate amount of unpaid dividends divided by the number of shares of Senior Preferred Stock outstanding on such date; and
(iv) decreased each time the Company pays down the Liquidation Preference pursuant to Section 3 or Section 4 of this Certificate by an amount per share equal to the aggregate amount of the pay down divided by the number of shares of Senior Preferred Stock outstanding at the time of such pay down.

I will repeat the bolded part of Section 3(a) from my previous post:

Prior to termination of the Commitment ... the Company may pay down the Liquidation Preference of all outstanding shares of the Senior Preferred Stock pro rata, at any time, out of funds legally available therefor, but only to the extent of (i) accrued and unpaid dividends previously added to the Liquidation Preference pursuant to Section 8 below and not repaid by any prior pay down of Liquidation Preference and (ii) Periodic Commitment Fees previously added to the Liquidation Preference pursuant to Section 8 below and not repaid by any prior pay down of Liquidation Preference.

(i) and (ii) in Section 3(a) there correspond with (ii) and (iii) of Section 8(b) above. Those refer to incomplete or missing commitment fee and dividend payments.

Section 8(b)(iv) only applies if FnF had been able to pay down the seniors, which they never could.

The key point you are missing is Section 8(b)(i) above, regarding increases to the liquidation preference due to draws from the Funding Commitment. Those cannot be repaid, and that is how the liquidation preference went from $1B to $193B.

So why go through the charade of asking Fannie and Freddie raise additional capital to pay off the senior preferred in full when it has already been paid.

The seniors cannot be "repaid in full" because they are equity, not debt. The money Treasury has received from FnF was dividend payments, not interest or principal. Companies cannot just cancel shares after paying an amount in dividends equal to the stated value of the shares.

The mechanism is there as clear as day in the stock certificates and the repurchase option set out is fully consistent with the view that the government advances were, if possible, only a short-term backstop that Fannie and Freddie could refinance at any time with private capital.

Wrong yet again. The seniors were designed to be non-repayable. Even Tim Howard recognized this (emphasis added):

This wiped out their capital and forced them to draw $187 billion in non-repayable senior preferred stock from Treasury

You have repeatedly and consistently misread the contract, which states that prior to termination of the funding commitment (the state FnF have been in since 2008), the ONLY liquidation preference they can repay is that due to incomplete or missing commitment fee or dividend payments, neither of which has ever happened.