"If, however, the Treasury wanted to raise capital through the sale of new common shares without resorting to receivership for the GSEs, the claims of junior preferred shareholders would have to be addressed. In this analysis, those shareholders are paid the full $35 billion face value of their shares from the proceeds of the common-stock sale, if possible, thus retiring their claims on the assets and income of the recapitalized GSEs."
"Junior preferred shareholders are in line to receive the dividends associated with their shares before holders of new or existing common shares. Thus, they might refuse to allow the GSEs to retire their claims on the GSEs’ assets and income at less than the face value of their shares in the lead-up to a sale of new common stock. That refusal would reduce the value of the new common shares, making recapitalization more difficult. Even though the Treasury’s preferred shares have seniority over the preconservatorship preferred shares owned by investors, the Treasury would have an incentive to make an arrangement that took into account its ownership stake in the GSEs’ common stock."
How does the GOV lose money with a cramdown --- if that is a conversion of their SP as measured by LP ----- into common ? They will have 90% of the equity of the new company when they issue stock at say $40 a share
Now - if you mean by cramdown - going into 11 type stuff ---- then yes - they might well wipe out their own SR PFD equity ---- but that is receivership not dilution of current common with them owning 90% or 80% of it all (from our 20%)