Replies to post #3439 on Freddie Mac-No Politics (FMCC)

[RDG013]

The common are likely to be heavily diluted to the tune of the govt getting an 80% stake. Keep in mind that this does not in fact wipe us out, nor does it mean that the 80% stake is immediate. In addition, if the bailout works, the GSE's become strong a viable again. Last time that was the case, the SP's ranged from the $30's to $60's. If you are hedging for a recovery, figure those prices in with the dilution of govt shares. IF you do this, you will see we have a olong way to climb from here, even if fully diluted.

[brute_force]

Question for the board. With this gov. bail out of FRE are the commons intact or will be wiped out? TIA

Read the purchase agreement. Its a toxic financing deal. The government gets a 79.9% chunk of the common, control, can issue and sell new classes of stock with any preferences & priviliges at any time they desire and can issue and sell any amount of common they desire, at any time for the senior preferred's ROI. The common's dividends have been extinguished by the conservator so no matter how well FRE does, the common will get no dividends on those earnings. The common have also been stripped of their voting rights and have absolutely no say in what the government does with the company. The conservator must make FRE solvent before it is handed over to the government control. That means extinguishing debt, ie, the common.