Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 4351191 times)

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14500 on: December 14, 2019, 11:39:19 AM »
so the govt can have a taking whether or not it acts legally or illegally...it just doesnt pay for what it has taken.  eg govt may have legal authority to take your property for a public purpose, but it has to pay you for it.  so Ps have to establish that even though govt had statutory authority to enter into NWS, it didn't have statutory authority to take something for nothing. 

but also remember, Judge Sweeney is not the final arbiter of this point of law...scotus will determine if it takes APA claim.


onyx1

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14501 on: December 14, 2019, 12:19:02 PM »
so the govt can have a taking whether or not it acts legally or illegally...it just doesnt pay for what it has taken.  eg govt may have legal authority to take your property for a public purpose, but it has to pay you for it.  so Ps have to establish that even though govt had statutory authority to enter into NWS, it didn't have statutory authority to take something for nothing. 

but also remember, Judge Sweeney is not the final arbiter of this point of law...scotus will determine if it takes APA claim.


In your opinion, will Sweeney influence SCOTUS on this point? 

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14502 on: December 14, 2019, 03:24:04 PM »
so the govt can have a taking whether or not it acts legally or illegally...it just doesnt pay for what it has taken.  eg govt may have legal authority to take your property for a public purpose, but it has to pay you for it.  so Ps have to establish that even though govt had statutory authority to enter into NWS, it didn't have statutory authority to take something for nothing. 

but also remember, Judge Sweeney is not the final arbiter of this point of law...scotus will determine if it takes APA claim.

In your opinion, will Sweeney influence SCOTUS on this point?

Willett might influence scotus' 5 "conservative" majority...not Sweeney

edit:  to be clear this is not so much a question of personality or statute as remit...willett is squarely interpreting HERA and scotus will likely review that interpretation; Sweeney is not so much interpreting HERA as determining that under the tucker act, because she finds that fhfa is the govt for purposes of the tucker act, if it can be said that the govt effected a taking without compensation or (if fhfa is unconstitutionally structured) an illegal exaction, then the ball is in her court to consider damages. 
« Last Edit: December 14, 2019, 05:42:36 PM by cherzeca »

ValueMaven

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14503 on: December 14, 2019, 06:28:17 PM »
I've what Sweeney wrote to be more meaningful for shareholders of FNMA then en banc ... personal opinion I know - but all of this really gives us holders of either prefs or common another angel.  Basically speeds up settlement if you ask me. 

emily

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14504 on: December 15, 2019, 07:48:38 AM »
“Sweeney is most important from discovery perspective. She has read everything, redacted or not and everything she wrote will be used by cases going forward. In other cases, most judges had no clue what was going on let alone read discovery documents. The last hammer will be when rest of the 10000 docs are released. Anyone who is still justifying NWS or even conservatorship in press is simply yellow journalism
https://en.wikipedia.org/wiki/Yellow_journalism  “

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14505 on: December 16, 2019, 11:58:47 AM »
ok, so you are saying treasury writes GSEs a check for $XXXB...which, lets assume, is enough to fully capitalize GSEs.  treasury and GSEs work out a deal by which treasury converts its senior prefs into common, and exercises its warrants to boot.

then everyone goes home.

I suppose that would be possible, and I suppose the common would be upset, though the juniors would be money good.

Yes, this is exactly what I mean. With the caveat that it takes both the check and a senior conversion to reach regulatory (minimum, in this case) capital levels. Neither alone is enough because core capital stands at something like -$170B right now.

By the terms of the PSPAs, repayment of the $124B and an end to the NWS (via converting the seniors) constitutes a full unwinding. Can the judges in the injunctive relief cases dismiss those cases as moot at that point? I'm not sure what else the plaintiffs could want that the terms of the PSPAs allow them to get. (Voluntary repayment of the seniors was never technically possible)

Also, it's the plaintiffs who claimed that the overpayment amount was $124B, and they didn't include interest. Would Sweeney be able (and willing) to add interest in? If so, what's an appropriate ballpark rate?

and I give this scenario about a 1% chance of occurring in the real world.  treasury will be rather long GSEs common with a huge overhang and would have to sell it off in drips and drabs over the next decade.

edit:  to summarize, I think this scenario only increases treasury's investment in GSEs rather than reduces it.

The more I think about this cramdown, the more plausible it seems to me. It checks all the boxes, and I don't see who says no, other than existing commons who don't have a say anyway.

Treasury selling its commons essentially takes the place of the SPO, and there are possibilities like Treasury converting the seniors to non-cumulative convertible prefs that keep them from ever approaching 80% ownership.

I also don't think it would take Treasury anywhere close to 10 years to unwind its converted senior position. I don't think the dollar amount of the total common shares sold is going to be hugely different in the two scenarios (warrants + SPO versus senior conversion), and the SPO part of the first one has to be done rather quickly. So while the $124B is a significant outlay to Treasury, it should be able to recoup it without too much trouble. If it can't, the SPO was never all that realistic anyway.

One argument against the cramdown is that it results in FnF being fully capitalized nigh instantaneously. This conflicts with the idea of release with a consent decree before full capitalization.
« Last Edit: December 16, 2019, 12:01:10 PM by Midas79 »

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14506 on: December 16, 2019, 03:13:22 PM »
@midas

I think the path you have laid out is the path of greatest resistance.  moelis and phillips are wall streeters and they have the other side of your argument.  I see mncuhin lining up there as well, and calabria lining up wherever mnuchin tells him

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14507 on: December 16, 2019, 04:52:58 PM »
@midas

I think the path you have laid out is the path of greatest resistance.  moelis and phillips are wall streeters and they have the other side of your argument.  I see mncuhin lining up there as well, and calabria lining up wherever mnuchin tells him

I suppose I have a blind spot when it comes to this, then. I am not seeing how the senior cramdown option is any more difficult than cancel seniors + SPO + warrants.

I'm estimating the value of the warrant shares plus the SPO shares to be $120B; $50B for the warrants and $70B for the SPO. The $70B of SPO shares would all have to be sold at once: investors won't buy before release, and I don't see a path to FnF getting enough capital for release (even with a consent decree) without the SPO.

On the other hand, if Treasury converts the seniors to commons they will get somewhere around $160B worth. I don't think this is materially different enough than the $120B above to say that it is only a remote possibility.

If you see a flaw in my reasoning please point it out, I won't take it personally. I would much rather be corrected than persist with a fallacy.

beaufort

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14508 on: December 16, 2019, 07:09:27 PM »
Midas,
Do you think all of the various financial interests involved in the recap and release (ie. investment bankers etc) stand to make as much money in your scenario?

Luke 5:32

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« Last Edit: December 17, 2019, 03:00:22 PM by Luke 5:32 »
"You are life, You are life, in You death has lost its sting.  I'm running to Your arms, I'm running to Your arms.  The riches of Your love will always be enough, nothing compares to Your embrace.  Light of the world, forever reign." Listen: https://www.youtube.com/watch?v=ADuWzd7x25c