Replies to post #151921 on Fannie Mae-No Politics (FNMA)

[obiterdictum]

Good investigation. I did not think to check for the GSEs preferred issuances.

http://www.federalreserve.gov/pubs/ifdp/2012/1045/ifdp1045.pdf

Table 1: GSE Preferred Stock Issuances on pages 34-35 showing the of issuance value of the preferred shares has been reduced to 33.24 billion according to the 2013 3rd quarter balance sheets of Fannie and Freddie on September 30, 2013.

It seems that the calculations are made by taking the number of shares issued and multiplying the by the redemption values which are alternately $25 and $50.

So how did Berkowitz calculate the 34.6 billion number? He does not tell us exactly how he arrived at the amount in numbers but the result will be greater than either of the amounts given above.

He describes the calculation and the composition of the Restricted Capital in note 1 on page 3 of the Discussion Terms Sheet -

The amount of Restricted Capital available at the Purchasers would be equal to (x) the
liquidation preference of the preferred stock held by participating New Owners in the
applicable Enterprise plus (y) any unpaid dividends on that preferred stock from the first
date the applicable Enterprise declared excess dividends to the United States Treasury
after the August 2012 Net Worth Sweep.

So, what he is suggesting here is that x plus y equals 34.6 billion and not just the converted preferred shares redemption value. y are unpaid dividends having some significant amount of value that he does not mention. So it may be that he would like to have 100% participation but he has a cushion of unpaid dividends to increase the pot of money he draws out that $34.6 billion.

It must be correct as you said that he hopes for 100% participation given that the 34.6 billion number is actually greater than the liquidation preference for all the preferred shares.
He is aware that he may not get all and that others will doubt it as well and so confidently says:

A minimum participation threshold for owners of Preferred Stock
would be set to ensure success. Fairholme believes that market
support will be very strong if the Transaction could be agreed and
completed in the near term.

Pari passu means "equal footing" and so it seems that the dividends coming from the 17.3 billion will be distributed to both both those converting, those with rights and those who converted with rights and those who purchased rights without ever owning preferred before such as common stockholders and any other who is allowed to participate in the transferable rights.

It is all becoming clear. Thanks rosen62 for digging deep into it.