FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[Seahug]

It's possible for the SP's to be converted to a low coupon/ 2 pct 20 yr redeemable pref or loan and I believe they could still raise money. There are many permutations. The impact on valuation would be the interest expense which would be offset by the earnings on actual capital raised.

[Seahug]

But yes I agree the warrants would be exercised before capital raise. But warrants can be exercised after conversion of JP s which would be much more dilutive to common and JP's. I hold JP's

[DRValue]

But yes I agree the warrants would be exercised before capital raise. But warrants can be exercised after conversion of JP s which would be much more dilutive to common and JP's. I hold JP's

 

JP's need to vote on the conversion. They wouldn't vote for conversion if a post conversion warrant exercise went against them. However as long as they got par I guess they wouldn't care. Depends if they own common as well I guess.

[Seahug]

But yes I agree the warrants would be exercised before capital raise. But warrants can be exercised after conversion of JP s which would be much more dilutive to common and JP's. I hold JP's

 

JP's need to vote on the conversion. They wouldn't vote for conversion if a post conversion warrant exercise went against them. However as long as they got par I guess they wouldn't care. Depends if they own common as well I guess.

 

Warrants can convert at anytime for 80% on fully diluted basis so likely senior to the JP's. We (JP) can be deemed to object to a conversion prior to warrant conversion but we may not have a choice.. In reality a lot depends on some goodwill from administration absent some kind of court victory. The terms of the SP, even without the NWS is quite severe.

 

Am just trying to be realistic here. I'd love to get par or par +.  Am not a lawyer so these are guesses. But have bought defaulted securities and have gone through the Chap 11 process several times.

[SnarkyPuppy]

From my calc's the only way prefs can generate significant value is SP's deemed repaid. Not sure how this can be done without congress. From an accounting perspective, payments were considered revenue by the govt and spent, while the SP is a loan from Treasury. 

 

Why specifically would this require Congress?  Treasury and FHFA (in its capacity as conservator on behalf of FNMA Board) can modify the terms of the existing contract.  Only these two parties are needed.  If both agree that the original terms have been paid off and negate the 2012 terms, and there is no actual exchange of money but rather a simple agreement that the loan has been deemed paid, why then would Congress need to be involved?

[DRValue]

I don't understand why congress is needed either.

[Guest cherzeca]

SPs can be deemed repaid through a 4th A without congress.  while many things could be done, the more feasible and practical way is something akin to the moelis blueprint.

[ValueMaven]

SPs can be deemed repaid through a 4th A without congress.  while many things could be done, the more feasible and practical way is something akin to the moelis blueprint.

 

Moelis is the answer to the test ... they gave the Administration the answers... what we will see is some minor modifications to the blueprint.  The next 6-18 months will be very interesting...

[allnatural]

That unsealed document is old (from 2017).. or am i missing something. I remember reading it months ago

[Guest cherzeca]

That unsealed document is old (from 2017).. or am i missing something. I remember reading it months ago

that unsealed email is old but I never remember seeing this before.  it predates the fnma cfo conversation with treasury by about 6 weeks plus it is attributed to no-one else but the fhfa acting director himself

[hardincap]

SPs can be deemed repaid through a 4th A without congress.  while many things could be done, the more feasible and practical way is something akin to the moelis blueprint.

 

i fear moelis plan underestimates the ability of motivated politicians to stymie administrative reform.. how? i dont know but looking at the news these days im sure they can find some way. this execution risk makes me think even with admin coming out in support of a moelis type plan, prefs will still be a far ways off from par

 

collins win will be cleanest path as it gives much helpful political cover, but i no longer dare to get my hopes up on positive sounding oral arg...

[hardincap]

more on collins, we saw that judges who sided with govnt came to their decision from a textualist interpretation of law, whereas willet & brown believed it must be viewed in wholistic context. there were clear indications that the texan judge leans towards the latter, as she struggled with the ramifications fo a conservator who could do literally anything, but we have no idea how the other judges lean. all the positive reactions ive read by shareholders seem to totally miss this point.. its simply presumptuous to believe judges will interpret legal text the same wa aggrieved and motivated shareholders would

[Guest cherzeca]

SPs can be deemed repaid through a 4th A without congress.  while many things could be done, the more feasible and practical way is something akin to the moelis blueprint.

 

i fear moelis plan underestimates the ability of motivated politicians to stymie administrative reform.. how? i dont know but looking at the news these days im sure they can find some way. this execution risk makes me think even with admin coming out in support of a moelis type plan, prefs will still be a far ways off from par

 

collins win will be cleanest path as it gives much helpful political cover, but i no longer dare to get my hopes up on positive sounding oral arg...

 

agreed, but remember that the most vocal opponents of GSEs, badboys hensarling and corker, are gone.  even Stevens is out of a job (lol).  the only one who I have seen reacting to the otting news is Warner, and he is milquetoast compared to the badboys.

 

if it is true that potus, mnuchin, Calabria and otting have all "signed off" on a recap plan, as otting is quoted to have said, and given that waters is head of house FSC, then the political landscape actually looks pretty good to me

[hardincap]

@cherzeca all that has to be done to present a serious political obstacle for mnuchin & otting is to fuel the evil hedge funds narrative (as stevens well knows). i can easily see politicians bent on knocking down this admin (warren coming foremost to mind) pushing hard on this.. and i can easily see this narrative spreading far and wide in msm.

[Guest cherzeca]

more on collins, we saw that judges who sided with govnt came to their decision from a textualist interpretation of law, whereas willet & brown believed it must be viewed in wholistic context. there were clear indications that the texan judge leans towards the latter, as she struggled with the ramifications fo a conservator who could do literally anything, but we have no idea how the other judges lean. all the positive reactions ive read by shareholders seem to totally miss this point.. its simply presumptuous to believe judges will interpret legal text the same wa aggrieved and motivated shareholders would

 

fair points, but think about this for a moment.  what if the en banc court decides that it would prefer not to decide the "harder" constitutional case in collins, knowing that all-American will be argued before 5th circuit in march, alleging same unconstitutional structure claim against CFPB.  collins can avoid dealing with constitutional claim by giving Ps relief under the APA claim.  so if you posit that there is a strong nucleus of judges agreeing with Ps on APA claim (I would say to begin with ms. jones and the 5 young turks appointed by trump, 4 of who were indeed silent), then there might be an institutional disposition for some of  the others to join an APA majority at least in part to avoid deciding the constitutional claim.  I believe this kind of "politicking" does indeed happen, especially among 16 judge panels.

[Guest cherzeca]

@cherzeca all that has to be done to present a serious political obstacle for mnuchin & otting is to fuel the evil hedge funds narrative (as stevens well knows). i can easily see politicians bent on knocking down this admin (warren coming foremost to mind) pushing hard on this.. and i can easily see this narrative spreading far and wide in msm.

 

I don't see warren coming out anti-GSE resurrection.

[ValueMaven]

It is in the Govt's best interets to maximum value here for tax payers - ie: highest common share price possible; assuming a normal recap

 

Everyone is forgetting that the Gov't also 'owns' a part of FnF 's net income through taxes ... something which they have a right to in perpetuity ... 

[hardincap]

doesnt have to be about GSEs--99% of americans have no idea what they do anyway (facepalm). pushing the enriching greedy hedge fund pals narrative will surely rile up warren's support base, and as any opportunistic politician would she'll play that card hard as she campaigns for '20

 

could this give trump pause? 

[hardincap]

It is in the Govt's best interets to maximum value here for tax payers - ie: highest common share price possible; assuming a normal recap

 

Everyone is forgetting that the Gov't also 'owns' a part of FnF 's net income through taxes ... something which they have a right to in perpetuity ...

 

cold calculus of wall st fails hard in the logorrhea driven circus that is washington

[Guest cherzeca]

I suspect that the admin plan referred to by otting is based upon moelis blueprint, and if it is and anybody from congress quacks, admin can simply say, fine go ahead, pass what you want, we are not stopping you...and then of course congress will do nothing

[hardincap]

I suspect that the admin plan referred to by otting is based upon moelis blueprint, and if it is and anybody from congress quacks, admin can simply say, fine go ahead, pass what you want, we are not stopping you...and then of course congress will do nothing

 

Agreed but there is a very limited window of time to get f&f released. i was very pleased to see that otting emphasized that Mnuchin is commited which tells me he won’t back down bc of political blowback but one can’t be sure

[hardincap]

fair points, but think about this for a moment.  what if the en banc court decides that it would prefer not to decide the "harder" constitutional case in collins, knowing that all-American will be argued before 5th circuit in march, alleging same unconstitutional structure claim against CFPB.  collins can avoid dealing with constitutional claim by giving Ps relief under the APA claim.  so if you posit that there is a strong nucleus of judges agreeing with Ps on APA claim (I would say to begin with ms. jones and the 5 young turks appointed by trump, 4 of who were indeed silent), then there might be an institutional disposition for some of  the others to join an APA majority at least in part to avoid deciding the constitutional claim.  I believe this kind of "politicking" does indeed happen, especially among 16 judge panels.

 

This is fun to think about but far too speculative to bank on

[rros]

The SP has always been treated as an "investment" by Treasury. This is why the charters were modified prior to the PSPAs. And that was the only involvement by Congress. The one other involvement was the Jumpstart Act tying Tsy's hand, which expired. Other than these 2 instances SP and warrants are all about the PSPAs and its amendments.

 

I embrace the skepticism of Seahug but as Chris said the political landscape has changed and Mnuchin has placed key people in key positions. Including Mulvaney now being Chief of staff which adds to the tailwind. Not that the hedge fund vile couldn't be revived but as long as affordable housing goals remain untouched, Democrats will go along. I think this is their only concern.

 

In that regard, Otting was supportive of CRA and Mnuchin implicitly OKs government support through his stance on the 30y mortgage. So in a way, issues appear in alignment.

 

It is too late to stir any kind of opposition. In my view, this will be avoided as trying to prevent further delays. So the simplest solution will prevail. And the simplest math.

[SnarkyPuppy]

doesnt have to be about GSEs--99% of americans have no idea what they do anyway (facepalm). pushing the enriching greedy hedge fund pals narrative will surely rile up warren's support base, and as any opportunistic politician would she'll play that card hard as she campaigns for '20

 

could this give trump pause?

 

Reasonable concern but surely shutting down the government arbitrarily for weeks isn't any worse from the perspective of creating a narrative dems can run with?

[DRValue]

Thoughts on whether Buffett will participate in the recap? I can see it happening...