Replies to post #753292 on Fannie Mae-No Politics (FNMA)

[Rodney5]

Chessmaster, I have a question?

On the link you provided, seems to me if the liquidation preference of the SPS keeps growing and the SPS is not cancelled, the legally available assets for distribution will not be enough to distribute to stockholders both JPS and common. All monies go to the Treasury. This will wipe out both common and the JPS?

"In the event the assets legally available for distribution to stockholders are insufficient to pay the liquidation preference of all Preferred Stock in full, the assets available for distribution will be divided among all holders of Preferred Stock on a pro rata basis, based on the value of the liquidation preference of each series of Preferred Stock." Page 5

Link: https://www.sec.gov/Archives/edgar/data/310522/000031052220000121/descriptionofsecuritie.htm

[kthomp19]

There is much misinformation, about the preferreds and commons.

Then stop adding to it. You are completely wrong in both of your assertions.

1) Common shareholders have NO voting rights whatsoever in conservatorship.

For example, see this quote from p. 39 of Fannie Mae's 2022 10-K form:

No voting rights during conservatorship.
During conservatorship, our common shareholders do not have the ability to elect directors or to vote on other matters unless the conservator delegates this authority to them.

2) The juniors CAN be offered a conversion to common that common shareholders WILL NOT be able to prevent.

Citi's Series AA preferred stock prospectus says, on page S-3:

Preemptive and Conversion Rights
The holders of the depositary shares and the Preferred Stock do not have any preemptive or conversion rights.

But in 2009, Citi announced a preferred-to-common conversion offer:

Assuming full participation of holders of convertible and non-convertible public preferred and trust preferred securities in the exchange offers, Citi will convert into common shares approximately $58 billion in aggregate liquidation value of preferred stock and trust preferred securities.

More details about the conversion offer are on this overview sheet, which clearly lists the Series AA ("public preferred stock") as one of the series to be exchanged.

To connect the dots, the Series AA preferred shares got converted to common even though their contract said they don't have conversion rights.

That language clearly didn't prevent Citi from offering a conversion. That means the analogous FnF situation is exactly the same: FHFA (with all common voting rights it succeeded to as conservator) CAN offer the juniors a conversion to common, even though the juniors' contracts say they have no conversion rights. Which means you're wrong yet again.