Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3562826 times)

muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12410 on: May 17, 2019, 08:05:55 AM »
from Glen:
Judge Lamberth entered an order today denying FHFA, Fannie and Freddie’s request that he reconsider his not decision that preserved shareholders’ contractual claims.  Judge Lamberth declined FHFA and the GSEs’ invitation.  Accordingly, shareholders’ implied covenant breach claims will not be dismissed and will proceed to trial.  A copy of Judge Lamber’s decision is attached to this e-mail message.

Court doc attached...


Thank you Luke. I was using my mobile phone when I pasted Glen's twit, and it was hard to attach the pdf from the phone.

What's the timeline for this? I'd expect the en banc to come out way ahead of this trial right?
I am muslceman. I have more muscle than brain!


allnatural

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12411 on: May 17, 2019, 08:12:37 AM »
If everything goes according to the timeline laid out, we wont hear decision until back half of 2020.

from Glen:
Judge Lamberth entered an order today denying FHFA, Fannie and Freddie’s request that he reconsider his not decision that preserved shareholders’ contractual claims.  Judge Lamberth declined FHFA and the GSEs’ invitation.  Accordingly, shareholders’ implied covenant breach claims will not be dismissed and will proceed to trial.  A copy of Judge Lamber’s decision is attached to this e-mail message.

Court doc attached...


Thank you Luke. I was using my mobile phone when I pasted Glen's twit, and it was hard to attach the pdf from the phone.

What's the timeline for this? I'd expect the en banc to come out way ahead of this trial right?

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12412 on: May 17, 2019, 09:17:02 AM »
Collin en banc "should" come out in late June (5 months from orals). Lamberth is a trial for next year. same with Sweeney.

my guess is that you will see the common trend up in anticipation of collins.  common should have a bigger % upside than prefs on collins.  of course collins is not assured, and the juniors are way "safer", but if you want to play collins itself that would probably be best done with commons
« Last Edit: May 17, 2019, 09:44:53 AM by cherzeca »

rros

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12413 on: May 17, 2019, 09:33:20 AM »
from Glen:
Judge Lamberth entered an order today denying FHFA, Fannie and Freddie’s request that he reconsider his not decision that preserved shareholders’ contractual claims.  Judge Lamberth declined FHFA and the GSEs’ invitation.  Accordingly, shareholders’ implied covenant breach claims will not be dismissed and will proceed to trial.  A copy of Judge Lamber’s decision is attached to this e-mail message.

Court doc attached...
Thank you, Luke. And Muscle. Don't you guys love this logic?

DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12414 on: May 17, 2019, 09:47:06 AM »
Collin en banc "should" come out in late June (5 months from orals). Lamberth is a trial for next year. same with Sweeney.

my guess is that you will see the common trend up in anticipation of collins.  common should have a bigger % upside than prefs on collins.  of course collins is not assured, and the juniors are way "safer", but if you want to play collins itself that would probably be best done with commons

Newb legal question; If the prefs are redeemed prior to the Lamberth trial, would you still have a claim?

Assuming it's not settled.
« Last Edit: May 17, 2019, 09:56:22 AM by DRValue »
[E]xpedience does not license omnipotence.

Not Investment Advice. Do Your Own Research.

DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12415 on: May 17, 2019, 09:49:50 AM »
[E]xpedience does not license omnipotence.

Not Investment Advice. Do Your Own Research.

allnatural

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12416 on: May 17, 2019, 10:34:56 AM »
I think this is first time anyone in admin has admitted theyve been fully paid back on GSEs bailout (and more)... Phillips from yesterday.. Claims taxpayer IRR is up to 12%.. Easy to write off senior pfds when you share that view.

https://pbs.twimg.com/media/D6yMjFSW0AgFxoT.png:large

muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12417 on: May 17, 2019, 10:35:59 AM »
from Glen:
Judge Lamberth entered an order today denying FHFA, Fannie and Freddie’s request that he reconsider his not decision that preserved shareholders’ contractual claims.  Judge Lamberth declined FHFA and the GSEs’ invitation.  Accordingly, shareholders’ implied covenant breach claims will not be dismissed and will proceed to trial.  A copy of Judge Lamber’s decision is attached to this e-mail message.

Court doc attached...
Thank you, Luke. And Muscle. Don't you guys love this logic?

what logic? Lamberth’s reasoning in his order?
I am muslceman. I have more muscle than brain!

muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12418 on: May 17, 2019, 10:37:02 AM »
Collin en banc "should" come out in late June (5 months from orals). Lamberth is a trial for next year. same with Sweeney.

my guess is that you will see the common trend up in anticipation of collins.  common should have a bigger % upside than prefs on collins.  of course collins is not assured, and the juniors are way "safer", but if you want to play collins itself that would probably be best done with commons


Thank you. I find it hard to believe that the Lamberth and Sweeney cases are moving so slowly. If trial is immediate, why can’t they just schedule it next week and get the decision the week after? Why another year?
I am muslceman. I have more muscle than brain!

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12419 on: May 17, 2019, 10:53:56 AM »
But my current base case is based on Moelis, so around $18 a share.

I would be very, very careful about basing a common share investment thesis on the Moelis plan, and especially careful about anchoring yourself on that $18 number.

1. There are two projections, and you're taking the higher one ($17.75) and rounding it up while ignoring the lower one ($14.19). Investing based on the best case is a recipe for trouble, especially if you fall victim to the anchoring effect. This zaps a lot of investors that hold on to a bad stock hoping to break even before they sell.

2. Those two prices ($14.19, $17.75) assume that the common stock price rises 10% each of the next two years following recap and release. While this is certainly plausible, optimism doesn't make for a good investment thesis. This is even more true if you plan to sell your position soon after recap and release is complete. The better numbers to anchor on are their IPO prices of $11.73 and $14.67.

3. Moelis assumes that retained earnings all the way through the end of 2021 (and all the way back to Q4 2018) will go towards the recap. This is almost certainly off the table, because it all needs to be done by late 2020 at the latest to assure the Trump administration that they can get it done (and more likely it gets done much sooner to avoid running into the campaign and election cycle). For a new president, keeping FnF in conservatorship is much, much easier than putting them back in. All this means that the capital raise will be even bigger, and the easiest way to do so is to sell more common shares.

4. The new Moelis plan assumes that the juniors will convert at par at the IPO price, for a ratio of either 1.7 to 1 or 2.1 to 1 (divide $25 by the IPO prices). Why would they agree to this when the market ratio is 4.4 to 1 right now? If I was a junior pref holder, and especially if I was a plaintiff, such an offer would insult me; I could have made 2-2.5 times as much if I had converted in the market right now.

5. This plan also has a (then) current price of $1.43, but an IPO price 8-10 times that (and 4-6 times current prices). In reality, offering prices are usually at a discount to that of the market, not at a huge premium. Doing the math on the optimistic scenario (page 29) shows that the final share count breakdown is 1.8B for existing commons, 1.13B for the half of converted juniors, 7.2B for Treasury, and the rest (4.9B) for the new investors. That gives those new investors only about 32.5% of the equity. Are they really going to provide almost all of the recap money for that little of a stake? I wouldn't if I were them, and they are much smarter and more ruthless than me. Treasury needs these new investors; they cannot afford for this to fail. They will need to offer much more than 32.5%. The scenario on page 28 works out to 37%, which is better but still not nearly enough in my opinion. Both of these large effects lead me to believe that the offering price will be much, much lower than Moelis projects, and Treasury will just have to accept the diminishment in warrant value. (as an aside, this is part of why I think Treasury might sell its warrants back to FnF rather than exercise them, but then the floor for the offering price drops out and the commons could lose a lot of money from here)

6. Comparing the projected returns on the prefs and commons is also not completely straight-forward. The naive way to do things is say "prefs go from 40% of par to 100% for a gain of 150%, while the commons go from $2.75 to $17.75 for a gain of 545%". However, taking the conversion into account, the prefs actually go to more than par (around 114%) because they participate in half of the two-year 10% annual gain, which narrows the gap on that end. My other points talk about why I think the $17.75 number is much too high.


To summarize, there are many assumptions in the Moelis plan that lead to their valuations for the common shares, and in my opinion almost every single one of them is either at or above the high end of realistic.
« Last Edit: May 17, 2019, 10:58:52 AM by Midas79 »