Replies to post #774115 on Fannie Mae-No Politics (FNMA)

[LuLeVan]

I agree that it is impossible to know if there will be a cramdown or not. No one knows, except maybe a few insiders. I also agree that a cramdown is an act that could undermine confidence. But some people here claim that this is not the case because the underwriters of the new shares are selfish and want to get the most for themselves (at the expense of legacy commons). The same goes for the government.

What definitely supports a cramdown is the fact that Calabria claims in his book that Congress considers a write-down of the SPS illegal. This may or may not be true. In any case, it fits perfectly with the FHFA's and Treasury's previous ignorance of existing shareholders.

The government doesn't have to fear a lawsuit over the cramdown because 1) according to Scotus, the FHFA can do whatever it wants, and 2) the most common shareholders will gain from this decision is the loss in share price. That's less than 73 cents per share at today's price. The Lamberth trial also showed that the FHFA only had to pay 38% of the price loss on the day of the NWS announcement for its breach of good faith, even though Lamberth had previously ruled 100%.

[LuLeVan]

...nor is there any rational basis to expect that a public offering could be successful if it comes after such a cramdown.

I don't think the IPO (or SPO) comes after the cramdown decision.

I think the decision for or against a cramdown could be made in the course of the IPO negotiations. The parties involved in these negotiations are (in order of influence and importance)

1. the underwriters of the new shares (bringing $140 billion in fresh capital)
2. the government (holds SPS worth $191 billion and LP worth $300 billion)
3. the holders of JPS

So the question is whether the institutional underwriters of the new shares (e.g. large Middle Eastern sovereign wealth funds) will forgo a favorable IPO price in order to be "fair" to the legacy commons. Please decide for yourself whether you think this is likely or unlikely.

[sortman]

A cram down has to do with creditors, not stock. This would be exercise of warrants and a conversion of jps, with permission of a majority of the jps holders. Not a cram down.

[bradford86]

Enjoy the ride my clueless friend

[trunkmonk]

the GB way is market dumb and preferred fantasy, if it turns out anything other than in the commons favor, they will wind up with hudred billion law suit. bank on it, i know im ready to file

[The Man With No Name]

Hi LuLeVan - I disagree with you that GB will be right on most everything he has stated. Someday recap/release will ultimately happen, but it is very unlikely that the commons will be worth $0.10 as he predicted. There is no rational basis to assume that the UST has the expertise to execute on a cram down with such draconian consequences for common shareholders nor is there any rational basis to expect that a public offering could be successful if it comes after such a cramdown. There will just be too much incentive for new lawsuits and perhaps push back by new institutional shareholders. For example, Investment Policy restrictions of prospective institutions again investing in companies which previously harmed or discriminated against common shareholders.

LMAO.

10 cents?? Ppffffft, that'd be a gift.

BTW, this isn't a bankruptcy....."cram down" is a bankruptcy plan term. In this case, it's called dilution. Something any company can do at will to common shareholders.

[kthomp19]

There is no rational basis to assume that the UST has the expertise to execute on a cram down with such draconian consequences for common shareholders nor is there any rational basis to expect that a public offering could be successful if it comes after such a cramdown.

The AIG resolution refutes both of your points. Treasury did execute a preferred-to-common "cramdown" that resulted in them owning 92% of the common shares, and outside investors did later buy those shares from Treasury.

There will just be too much incentive for new lawsuits and perhaps push back by new institutional shareholders.

The most that legacy shareholders could obtain in a lawsuit is the drop in share price. They won't be able to undo the dilution; any injunctive relief request will run smack into the anti-injunction clause 4617(f).

Why on earth would new shareholders push back against this? If they have such a problem with the cramdown they wouldn't buy shares and thus wouldn't be shareholders at all.

For example, Investment Policy restrictions of prospective institutions again investing in companies which previously harmed or discriminated against common shareholders.

Do you have an example of an institution with such a clause in its bylaws? I could see something like this being an internal company policy (though not at enough places to prevent Treasury from selling its converted shares), but that would be difficult to impossible to prove.