Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3566175 times)

Jcmeg35

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12750 on: June 19, 2019, 08:51:36 AM »
the pivot point in this capital raise will be what capital level will fhfa set.  a high level means that investors will want a low re-IPO price, meaning treasury proceeds go down.  fhfa has no skin in the game, whereas treasury has all of the skin the game.

Watch out for the possibility of Treasury selling the warrants back to FnF for a fixed amount, then. If that happens then their incentive to push for lower capital levels, and thus a higher share price, disappears.

@Midas, this is an interesting thought and would make it much easier for Treasury to quickly "get out" of its position. The one pushback I would have is how would FnF buyback the warrant position pre cap raise? I would think, this would only be able to take place after FnF had been fully recapped and then + some, which would have to be many years down the road. As @chereza mentions, would still require lower capital levels for Treasury to realize max value, otherwise, once we got to that point, the warrants would have a lower value.


DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12751 on: June 19, 2019, 09:16:25 AM »
the pivot point in this capital raise will be what capital level will fhfa set.  a high level means that investors will want a low re-IPO price, meaning treasury proceeds go down.  fhfa has no skin in the game, whereas treasury has all of the skin the game.

Watch out for the possibility of Treasury selling the warrants back to FnF for a fixed amount, then. If that happens then their incentive to push for lower capital levels, and thus a higher share price, disappears.

Conservator would never allow it and the business would never do it if  it leads to more dilution than the treasury retaining the warrants and selling in the market.
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Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12752 on: June 19, 2019, 09:46:33 AM »
@Midas, this is an interesting thought and would make it much easier for Treasury to quickly "get out" of its position. The one pushback I would have is how would FnF buyback the warrant position pre cap raise? I would think, this would only be able to take place after FnF had been fully recapped and then + some, which would have to be many years down the road. As @chereza mentions, would still require lower capital levels for Treasury to realize max value, otherwise, once we got to that point, the warrants would have a lower value.

FnF wouldn't buy them back before the raise, they would do it in conjunction with it. Instead of raising, say, $60B in commons with an implied warrant value of $40B, they raise $100B and give $40B of it to Treasury in exchange for the warrants.

This gives Treasury some certainty over what they would get and also gets them their money right now, allowing them to "get out" quickly as you say.

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12753 on: June 19, 2019, 10:25:41 AM »
Conservator would never allow it and the business would never do it if  it leads to more dilution than the treasury retaining the warrants and selling in the market.

Why would FHFA care? And what do you mean by "the business would never do it"? More dilution equals more money for the new investors, not less.

DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12754 on: June 19, 2019, 10:40:55 AM »
Conservator would never allow it and the business would never do it if  it leads to more dilution than the treasury retaining the warrants and selling in the market.

Why would FHFA care? And what do you mean by "the business would never do it"? More dilution equals more money for the new investors, not less.

Well, as you point out doing the raise and then buying the warrants may be a possibility, I guess SPO investors would see that as a massive share buyback. I agree the conservtor wouldn't have an issue with that in that order.

I thought your original post implied that treasury would no longer push for a high share price which means more dilution than exercising the warrants, something I would assume the directors wouldn't go for.
[E]xpedience does not license omnipotence.

Not Investment Advice. Do Your Own Research.

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12755 on: June 19, 2019, 11:14:19 AM »
Well, as you point out doing the raise and then buying the warrants may be a possibility, I guess SPO investors would see that as a massive share buyback. I agree the conservtor wouldn't have an issue with that in that order.

I thought your original post implied that treasury would no longer push for a high share price which means more dilution than exercising the warrants, something I would assume the directors wouldn't go for.

Instead of a share buyback, I see it as a cost of doing business. A reason to get Treasury to agree to the deal, since they have to approve release anyway.

Your second statement is correct, that's exactly what I was implying. What you're missing is that the directors won't have any say over it because it will happen during, and likely right at the end of, conservatorship. FHFA and Treasury hold all the cards, and neither has a fiduciary duty to shareholders. FHFA has no reason to care at what price the share offering is conducted, and if the warrants are sold for a fixed price then Treasury doesn't either. At that point the "more dilution equals more money for new investors" principle kicks in.

This is one downside scenario for the commons, especially compared to the juniors.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12756 on: June 19, 2019, 11:15:27 AM »
if treasury sells its exercised warrants in the market, this is capital neutral.  if it redeems the warrants, this is capital negative.

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12757 on: June 19, 2019, 11:35:05 AM »
Conservator would never allow it and the business would never do it if  it leads to more dilution than the treasury retaining the warrants and selling in the market.

Why would FHFA care? And what do you mean by "the business would never do it"? More dilution equals more money for the new investors, not less.

Well, as you point out doing the raise and then buying the warrants may be a possibility, I guess SPO investors would see that as a massive share buyback. I agree the conservtor wouldn't have an issue with that in that order.

I thought your original post implied that treasury would no longer push for a high share price which means more dilution than exercising the warrants, something I would assume the directors wouldn't go for.

I think the one thing the common holders forget or get mixed up is the thought that treasury will push for a high share price but forget about how that essentially dilutes the new money.  A share price higher then 3 and change would be good for common holders but treasury owns 80% of the business for nothing. They paid .00000001 for their 80% and can exercise whenever and however much they want. Also how much more did get they get in the sweep as a profit? Is anyone counting that towards what the treasury would count? What if the treasury counts this as profit in addition and is willing to take less to raise more capital? I know its altruistic but should be considered

 Looking back at other TARP bailouts how much did the gov make?
13.4B from Citi
5B from AIG
4.5B from BAC
3.5B from GMAC

The gov has gotten paid back on the sr prfd, swept extra (although could be considered fee for backstop), and is going to make $$$ on the warrants even at a penny a share. Again I dont think for one second the fed gov is going to be nice and not make extra $$$ but the people buying the new shares are in the drivers seat. Not the gov. The gov needs to unload and can only dictate price so much. Yes they will push for a high price but the new $$$ will push back. Wound'nt you?

I have talked about this with many common holders and the end arguement is always who is going to buy the new shares if they cant get a good return? Correct! But what they confuse is the fact that there is an inverse relationship between the new capitals' return and the legacy common share price. Same with the Sr. Preferred via conversion.

What if the gov puts execution/speed over gross profit in light of the demands of new money/market expectations?

DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12758 on: June 19, 2019, 11:48:54 AM »
Well, as you point out doing the raise and then buying the warrants may be a possibility, I guess SPO investors would see that as a massive share buyback. I agree the conservtor wouldn't have an issue with that in that order.

I thought your original post implied that treasury would no longer push for a high share price which means more dilution than exercising the warrants, something I would assume the directors wouldn't go for.

Instead of a share buyback, I see it as a cost of doing business. A reason to get Treasury to agree to the deal, since they have to approve release anyway.

Your second statement is correct, that's exactly what I was implying. What you're missing is that the directors won't have any say over it because it will happen during, and likely right at the end of, conservatorship. FHFA and Treasury hold all the cards, and neither has a fiduciary duty to shareholders. FHFA has no reason to care at what price the share offering is conducted, and if the warrants are sold for a fixed price then Treasury doesn't either. At that point the "more dilution equals more money for new investors" principle kicks in.

This is one downside scenario for the commons, especially compared to the juniors.

Calabria has said a few times that Fannie and Freddie will be left to raise the capital themselves. How much behind the scenes input treasury and fhfa have in reality is something that probably won't ever be known.

If it is left up to the co's then i don't see the need for a super low common price, especially if they have multiple years to raise capital, but we'll see. You pay your money, you take your choice.
[E]xpedience does not license omnipotence.

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cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12759 on: June 19, 2019, 11:57:26 AM »
Well, as you point out doing the raise and then buying the warrants may be a possibility, I guess SPO investors would see that as a massive share buyback. I agree the conservtor wouldn't have an issue with that in that order.

I thought your original post implied that treasury would no longer push for a high share price which means more dilution than exercising the warrants, something I would assume the directors wouldn't go for.

Instead of a share buyback, I see it as a cost of doing business. A reason to get Treasury to agree to the deal, since they have to approve release anyway.

Your second statement is correct, that's exactly what I was implying. What you're missing is that the directors won't have any say over it because it will happen during, and likely right at the end of, conservatorship. FHFA and Treasury hold all the cards, and neither has a fiduciary duty to shareholders. FHFA has no reason to care at what price the share offering is conducted, and if the warrants are sold for a fixed price then Treasury doesn't either. At that point the "more dilution equals more money for new investors" principle kicks in.

This is one downside scenario for the commons, especially compared to the juniors.

Calabria has said a few times that Fannie and Freddie will be left to raise the capital themselves. How much behind the scenes input treasury and fhfa have in reality is something that probably won't ever be known.

If it is left up to the co's then i don't see the need for a super low common price, especially if they have multiple years to raise capital, but we'll see. You pay your money, you take your choice.

disagree.  the entire capital raise will be multistep process and fhfa/treasury will run the show at the beginning.  at some point after the initial raise the companies will take over