Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3706345 times)

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14420 on: December 03, 2019, 04:00:56 AM »
@onyx

"If he is referencing the common, no issue.  But if the prevailing market value of the Jr's is included in the exchange calculus, and the Jr's aren't trading at or near par, Jr holders won't view this as "fair"."

this junior pref for common exchange at par as opposed to trading price is something that the Ps will insist on in order to settle litigation.  now, it is fair to say that the rafter case before Sweeney is a common shareholder case (Ackman) and the Fairholme action before Lamberth includes both junior prefs and common classes, so there will be some division within the P ranks but I think the balance of power among Ps falls decidedly to the junior prefs

I took the "prevailing market prices" part of Phillips's exchange comment to refer to the common share price, i.e. the juniors will be offered a conversion at a common share price based on that in the market at the time of conversion. Citi offered their prefs a conversion at 85-95% of par at $3.25, where $3.25 was the average of the previous 22 trading days' common closing prices.

That's what I'm expecting with FnF, and is the basis for the tweet I made earlier today. Shorting the commons to buy prefs, driving the common price down for a bigger conversion ratio, and then covering the short with some of the converted shares is highly tempting if there is a strong reason to believe that FnF's conversion will work like Citi's.

https://twitter.com/midas79_/status/1201551381733281792

imo it's apples / oranges bc -- among other reasons -- the government wasn't aligned with commoners in Citi the same was as it is here with $50bn+ in potential equity value from warrants.   I do agree that the Jr pref has some litigation and perhaps precedent advantages in this potential negotiation.  the relationships to me are a wash due to possible public perception problems. I sincerely hope that all 3 buckets don't get greedy, there's likely a lot of potential market cap to share with each (and the new investors as the 4th) if it's done right.

actually this is wrong.  there are many similarities.  see pps 14-16 of https://fas.org/sgp/crs/misc/R41427.pdf

some similarities, more differences.  a) I believe the government converted their TARP preferred to common at the same time and same terms as other preferred securities (much of which they were actually not senior to) --- going into the negotiation they were actually on the same team as the other preferred, which is not the case here on the warrants.  and b) there was hysteria back then to increase the common equity component of capital vs preferred and so they needed a big bang to incentivize the prefs to convert; I agree in this instance there would need to be incentivization, I'm just suggesting I wouldn't advise par / $3 (8x+) as a likely ratio in this potential scenario.


investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14421 on: December 03, 2019, 04:47:52 AM »
@investorG

"I don't think a common dividend is necessary to sell shares."


Can you explain how you have come to this conclusion in the context of raising $60bln or more in capital?

Well it seems like putting the cart before the horse at the moment with the delays but if they get going I'd expect most of the ~ $125bn or so in capital needed to come from retained earnings and private investments compared with the re-IPO.   Also, many potential investors understand the situation to build rather than dispense capital for a few year period, plenty of companies come out the gate not paying dividends for some time if there are good reasons not to.

emily

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14422 on: December 03, 2019, 06:16:06 AM »
“If preferreds acquisition date is before NWS date ,  you may get 3 or more common shares for a $25 preferred. If you bought after NWS date, the max you may get is 1.3 common shares for each $25 preferred share.  Have you considered this possibility where least dilution is important for taxpayers? I understand your logic of contract rights traveling with shares but in a settlement/conversion scenario, that is fair, plausible and even Sweeney brought it up and even Scotus may decide that.  I bet you don’t see that despite preferreds trading at 40% even after what all has happened.  There must be a reason for such a low valuation. Now, did you stay at Holiday Inn before or after NWS is the question you need to ask if this possibility becomes a reality? It is a possibility amongst many possibilities”

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14423 on: December 03, 2019, 07:18:05 AM »
@investorG

the biggest dissimilarity between C and GSEs is the presence of substantial GSE junior pref that is expensive and the holders of which hold a litigation get out of jail card against the govt, which works in favor of the junior pref.  if you have been through a few restructurings, you would know that financial advisors will want to eliminate existing expensive prefs, get everyone in the pool, and then be able to build the capital book with common and maybe some new cheaper prefs.  as for being able to pay dividends on common, the big point is that the book will be much larger with more buyers that will consider buying common; if the street believes that common won't get a dividend then you have lost a huge swath of potential buyers.

the most interesting takeaway from C that I forgot is that the govt expunged some of its warrants to make the capital raising successful.  could be a precedent for GSEs, which is a similarity that is interesting.

DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14424 on: December 04, 2019, 12:49:25 PM »
If Collins is found as direct claims does that end Washington federal as they argue that claims are derivative?
[E]xpedience does not license omnipotence.

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emily

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14425 on: December 04, 2019, 01:11:11 PM »
“Biggest risk is time. Not sure why the delay after 11 years as if they do not know everything by know.  Delay of each day adds up to the risk that is unwarranted at this point.  The previous admin is probably cooking up something to derail it “

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14426 on: December 04, 2019, 02:54:35 PM »
FSOC
https://home.treasury.gov/system/files/261/FSOC2019AnnualReport.pdf

In September 2019, Treasury and the FHFA agreed to modifications to the Preferred Stock Purchase Agreements (PSPAs) that will permit Fannie Mae and Freddie Mac to retain additional earnings in excess of the $3 billion capital reserves previously permitted by their PSPAs. Under these modifications, Fannie Mae and Freddie Mac will be permitted to maintain capital reserves of $25 billion and $20 billion, respectively. Treasury and Fannie Mae and Freddie Mac also agreed to negotiate an additional amendment to the PSPAs adopting covenants that are intended to further enhance taxpayer protections.
A wise husband, a wise father, asks God for help. Don't be a prideful, self-reliant fool. "Father, lead me, 'cause I can't do this alone..." Lead Me by Sanctus Real: https://www.youtube.com/watch?v=yLr6G8Xy5uc

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14427 on: December 04, 2019, 04:29:38 PM »
If Collins is found as direct claims does that end Washington federal as they argue that claims are derivative?

apples and oranges.  in collins Ps are seeking to invalidate NWS as being beyond authority of conservator under HERA.  now whose claim is this, shareholders (direct) or corp (derivative)?  wash fed is a takings/illegal exaction claim under 5th A US const...which is clear that it is a claim of the shareholders' whose property was taken without compensation.  so no read over.

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14428 on: Today at 12:55:37 PM »
https://twitter.com/CGasparino/status/1202689866368200704
SCOOP: @FHFA soon to select adviser on massive @FannieMae @FreddieMac
 stock offering list narrorwed to several investment banks, including Perella Weinberg Partners, possibly PJT Partrners; Govt signaled decision after Thanksgiving to oversee massive IPO more now @FoxBusiness
A wise husband, a wise father, asks God for help. Don't be a prideful, self-reliant fool. "Father, lead me, 'cause I can't do this alone..." Lead Me by Sanctus Real: https://www.youtube.com/watch?v=yLr6G8Xy5uc

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14429 on: Today at 01:32:26 PM »
https://twitter.com/CGasparino/status/1202689866368200704
SCOOP: @FHFA soon to select adviser on massive @FannieMae @FreddieMac
 stock offering list narrorwed to several investment banks, including Perella Weinberg Partners, possibly PJT Partrners; Govt signaled decision after Thanksgiving to oversee massive IPO more now @FoxBusiness


either firm would be an excellent choice.  fhfa needs advisory work, not capital raising work which is where the bigger money will be, and those firms (JPM, Goldman etc) will do the underwritings.  PJT is a spin off from Blackstone, one of whose funds is partly behind the moelis blueprint.

I went to the moelis blueprint to confirm that Paulson and a Blackstone fund paid for the moelis blueprint, but their identities which I remember from the 2017 version seem to be absent from the 2018 update.  but I did reread the summary and recommendations again:

"The first step must be to begin rebuilding capital by suspending dividends paid to Treasury. The second step is to recognize the government’s profits by acknowledging that Treasury’s senior preferred stock has been repaid with interest. While the senior preferred remains outstanding, it will be impossible for the GSEs to raise equity from the private markets. The third step is for FHFA to direct Fannie and Freddie to submit capital restoration plans, as authorized by HERA. Taking these three steps immediately starts on the path towards restoring safety and soundness to protect American taxpayers."

seems like the moelis blueprint is off to a good start