Thanks, FFFacts - the best reason for the poor trading prices of JPS AND Common is the risk of litigation that could delay the whole recap. If the common gets screwed - common will have a lot of incentive to sue and could delay any recap which will push out any potential dividends for JPS even further. This is another reason that Bessent is probably smart enough not to try to force a SPS conversion.
I thought the ROLG had a good explanation of this in his paid comment - he based his analysis on a hypothetical or real conversation of some old-time mortgage traders - Lou from Solly and Sal from Merrill:
Lou: “So, you got your Fannie Mae junior preferred and the common, pick your poison. I would position the juniors as the cake and the common as the frosting.”
Sal: “They are trading like dog doo right now if you believe that Trump will do a big deal first Q 26.”
Lou: “Yup. Mr. Market is afraid that Treasury Secretary Bessent will convert the senior preferred into common, and smack all existing common stockholders”.
Sal: “That explains the common price. Why are the juniors still cheap?”
Lou: “People are afraid that some common stockholders will sue Treasury and FHFA if they try to screw the common stockholders again, like they did in 2012. Muck up the whole GSE recap/release. Bad also for the junior preferred.”
Sal: “But didn’t Trump write that letter¹ indicating that he was on the side of the common shareholders?”
Lou: “As we just agreed, Trump has the attention span of a kid.”
Sal: “So how realistic is this litigation threat? “
Lou: “Hard to say, depends on what they bring. The common stockholders already have won a case, now on appeal, claiming damages for the Net Worth Sweep. A senior preferred stock conversion would be a Net Worth Sweep 2.0 in effect, so I see it surviving a quick motion to dismiss the case.”
Lou (continuing): “I can even see common stockholders bringing a case that by converting the senior preferred stock, Treasury has gone over the 80% ownership limit for control, requiring Treasury to add the GSEs’ $7 trillion of liabilities onto the federal government balance sheet. Imagine what that claim would do to the yields on Bessent’s beloved Treasuries? Now, that claim may well get thrown out on a motion to dismiss, but just think about how the Wall Street Journal and Bloomberg would trumpet that story in their publications…they hate the GSEs.”
Sal: “This will be a huge offering as it is, hard enough, why put hair on it by trying to squeeze more juice from what is already the best deal the federal government has made since the Louisiana Purchase?”
Lou: “That is my thought as well. Sanity will prevail. Bessent knows that an 80% equity kicker on a fully paid off 10% senior preferred is already a banker’s wet dream. Would make no sense to reach for more.”
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