hardincap Posted February 4, 2015 Posted February 4, 2015 One positive is that after seeing all the documents thus far in Discovery, Berkowitz did buy more, and apparently got back into the common as well. He said on the call he's not allowed to see any of it, only his lawyers are. Doubtful his lawyers would keep it totally private from him though.
brker_guy Posted February 5, 2015 Posted February 5, 2015 Fairholme Discussion of FNMA and FMCC. I believe this transcript is from yesterday's call: https://www.youtube.com/watch?v=mmlHfEtl6QY
hardincap Posted February 7, 2015 Posted February 7, 2015 Anyone else wonder why Ackman confidently proclaims the 3rd amendment will be reversed, and yet he does not own a meaningful position in the preferreds? Yes, he owns quite a bit of the commons, but its still <3% of his asset base. If he were so confident, you'd think he'd be building up a big position in preferreds. Makes me think he's being coy about the risks he perceives...?
cubsfan Posted February 7, 2015 Posted February 7, 2015 Anyone else wonder why Ackman confidently proclaims the 3rd amendment will be reversed, and yet he does not own a meaningful position in the preferreds? Yes, he owns quite a bit of the commons, but its still <3% of his asset base. If he were so confident, you'd think he'd be building up a big position in preferreds. Makes me think he's being coy about the risks he perceives...? I think he has been pretty clear about this - he could make 25X his money on this position if it goes well, it could also turn out to be a zero because of the litigation risk - so it is sized accordingly.
hardincap Posted February 7, 2015 Posted February 7, 2015 Yes, he's going for the maximum gain scenario. I guess I'm wondering why he believes thats a more attractive risk-adjusted bet than the more simple and straightforward preferred scenario, which still has 6-8x+ upside if the 3rd amendment is reversed. Anyone else wonder why Ackman confidently proclaims the 3rd amendment will be reversed, and yet he does not own a meaningful position in the preferreds? Yes, he owns quite a bit of the commons, but its still <3% of his asset base. If he were so confident, you'd think he'd be building up a big position in preferreds. Makes me think he's being coy about the risks he perceives...? I think he has been pretty clear about this - he could make 25X his money on this position if it goes well, it could also turn out to be a zero because of the litigation risk - so it is sized accordingly.
Jurgis Posted February 8, 2015 Posted February 8, 2015 Assuming cost at ~$5, possible gain to $50 and possible loss to zero, the probability of success has to be higher than XX% (I intentionally did not write a value 8)) for the investment in prefs to have a positive expected return. As it is known, humans are notoriously bad in guessing probabilities of events. However, it would be interesting to hear what probability do people assign for the successful outcome? :) Possibly someone should create a poll. :) I did not write down the value of XX to avoid anchoring. As soon as I write it down, everyone will pretty much anchor to it. ;) So to be unbiased - haha - this is simple calc and some people can probably do it in their heads - perhaps we should not disclose XX before getting some probability guesses. :)
wachtwoord Posted February 8, 2015 Posted February 8, 2015 For your pay off estimates you need at least 1:11 (9.1%) for this to be +EV. Of course you oversimplified (nothing is this binary).
Mephistopheles Posted February 8, 2015 Posted February 8, 2015 For your pay off estimates you need at least 1:11 (9.1%) for this to be +EV. Of course you oversimplified (nothing is this binary). Why only 9.1%? The prefs are trading at an average of like 11% of par. And of course if you add in the time value, the number should be a bit above 11%, depending on how long it takes to break or make it.
wachtwoord Posted February 8, 2015 Posted February 8, 2015 For your pay off estimates you need at least 1:11 (9.1%) for this to be +EV. Of course you oversimplified (nothing is this binary). Why only 9.1%? The prefs are trading at an average of like 11% of par. And of course if you add in the time value, the number should be a bit above 11%, depending on how long it takes to break or make it. In his example he gives a purchase prices of 5 and a max profit of 50. So: -5*10/11 + 50*1/11 = 0 So at least an 1/11 chance of succes is needed for this to be +EV.
Mephistopheles Posted February 9, 2015 Posted February 9, 2015 For your pay off estimates you need at least 1:11 (9.1%) for this to be +EV. Of course you oversimplified (nothing is this binary). Why only 9.1%? The prefs are trading at an average of like 11% of par. And of course if you add in the time value, the number should be a bit above 11%, depending on how long it takes to break or make it. In his example he gives a purchase prices of 5 and a max profit of 50. So: -5*10/11 + 50*1/11 = 0 So at least an 1/11 chance of succes is needed for this to be +EV. I see. Well the gain would be 45, not 50. So at a price of $5 it would be a 10% chance of success needed.
mg0516 Posted February 9, 2015 Posted February 9, 2015 Can anyone confirm the mechanics of the liquidation preference on the SPC and estimates of value? It's an accordion meaning it increases with the size of the draw but couldn't find anywhere in the legal docs that indicate it declines as the funds are paid back. Any help would be appreciated. Thanks
mg0516 Posted February 10, 2015 Posted February 10, 2015 From the 2008 Agreement: http://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/2008-9-26_SPSPA_FannieMae_RestatedAgreement_N508.pdf "3.3. Increases of Senior Preferred Stock Liquidation Preference as a Result of Funding under the Commitment. The aggregate liquidation preference of the outstanding shares of Senior Preferred Stock shall be automatically increased by an amount equal to the amount of each draw on the Commitment pursuant to Article 2 that is funded by Purchaser to Seller, such increase to occur simultaneously with such funding and ratably with respect to each share of Senior Preferred Stock. " Fannie drew $117B (table 1 pg 2): http://www.fhfa.gov/DataTools/Downloads/Documents/Market-Data/TSYSupport10012014.pdf with $130B paid back to Treasury (table 2 page 3) Does the liquidation preference decline byt he amount of the dividends paid back to Treasury or does the Liq Pref remain on the amount drawn of $117B and not decline? Clearly a material item that I don't have a clear answer to...
merkhet Posted February 10, 2015 Posted February 10, 2015 You've hit the nail on the head. The question is whether the amounts paid to Treasury must be classified as a totally kosher Net Worth Sweep of 100% of the profits. If not, then the question is whether they count as a repayment of principal -- and there's no specific provision in any of the documents that outlines exactly how that occurs. And if they don't count as a repayment of principal... what do they count as?
doughishere Posted February 10, 2015 Posted February 10, 2015 http://www.globest.com/news/12_1042/national/multifamily/About-that-191B-Profit-from-the-GSEs-355123-1.html "Last week when the White House released its budget for fiscal year 2016, it included one eyebrow-raising line item: it assumed that Fannie Mae and Freddie Mac could return $191.2 billion in profits to the US Treasury over the next decade if they continue operating under federal conservatorship."
constructive Posted February 10, 2015 Posted February 10, 2015 From the 2008 Agreement: http://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/2008-9-26_SPSPA_FannieMae_RestatedAgreement_N508.pdf "3.3. Increases of Senior Preferred Stock Liquidation Preference as a Result of Funding under the Commitment. The aggregate liquidation preference of the outstanding shares of Senior Preferred Stock shall be automatically increased by an amount equal to the amount of each draw on the Commitment pursuant to Article 2 that is funded by Purchaser to Seller, such increase to occur simultaneously with such funding and ratably with respect to each share of Senior Preferred Stock. " Fannie drew $117B (table 1 pg 2): http://www.fhfa.gov/DataTools/Downloads/Documents/Market-Data/TSYSupport10012014.pdf with $130B paid back to Treasury (table 2 page 3) Does the liquidation preference decline byt he amount of the dividends paid back to Treasury or does the Liq Pref remain on the amount drawn of $117B and not decline? Clearly a material item that I don't have a clear answer to... No, the liquidation preference does not decline as a result of the net worth sweep dividend. You can confirm that by reading FNMA and FMCC financial statements, or by reading FHFA's reports.
Grenville Posted February 10, 2015 Posted February 10, 2015 http://www.globest.com/news/12_1042/national/multifamily/About-that-191B-Profit-from-the-GSEs-355123-1.html "Last week when the White House released its budget for fiscal year 2016, it included one eyebrow-raising line item: it assumed that Fannie Mae and Freddie Mac could return $191.2 billion in profits to the US Treasury over the next decade if they continue operating under federal conservatorship." Thanks for that. I haven't been able to find the 191.2bln number in the Budget main document. I did find this in the Appendix link from here: http://www.whitehouse.gov/omb/budget If you download the Dept. of Treasury Report, they expect 23.3bln and 19.8bln in 2015 and 2016 from "Proceeds, GSE Equity Related Transactions: Enacted/requested" http://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/tre.pdf
doughishere Posted February 10, 2015 Posted February 10, 2015 http://malonigse.blogspot.com/2015/02/a-very-good-week-for-f.html Bill Maloni's GSE Blog
doughishere Posted February 10, 2015 Posted February 10, 2015 http://www.globest.com/news/12_1042/national/multifamily/About-that-191B-Profit-from-the-GSEs-355123-1.html "Last week when the White House released its budget for fiscal year 2016, it included one eyebrow-raising line item: it assumed that Fannie Mae and Freddie Mac could return $191.2 billion in profits to the US Treasury over the next decade if they continue operating under federal conservatorship." Thanks for that. I haven't been able to find the 191.2bln number in the Budget main document. I did find this in the Appendix link from here: http://www.whitehouse.gov/omb/budget If you download the Dept. of Treasury Report, they expect 23.3bln and 19.8bln in 2015 and 2016 from "Proceeds, GSE Equity Related Transactions: Enacted/requested" http://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/tre.pdf Page 368 of this document? Row titled "GSE support" Edit: The Fiscal 2016 Analytical Perspectives document. https://docs.google.com/viewer?a=v&pid=forums&srcid=MDUxNDQwNjExMTIwMzQzNjc3NDIBMDAwODY0NjkwNTU1MzQ3NzA2NjQBYTUtdDFudnM5YjBKATAuMQEBdjI Second Edit: Found it! From the above doc. page 307 Through December 31, 2014, the GSEs have paid a total of $225.4 billion in dividends payments to Treasury on the senior preferred stock. The Budget estimates additional dividend receipts of $153.3 billion from January 1, 2015, through FY 2025. The cumulative budgetary impact of the PSPAs from the establishment of the PSPAs through FY 2025 is estimated to be a net return to taxpayers of $191.2 billion. The Temporary Payroll Tax Cut Continuation Act of 2011 signed into law on December 23, 2011, required that the GSEs increase their fees on security guarantees issued through 2021 by an average of at least 0.10 percentage points above the average guarantee fee imposed in 2011. Revenues generated by this fee increase are remitted directly to the Treasury for deficit reduction and are not included in the PSPA amounts. The Budget estimates resulting deficit reductions from this fee of $39.5 billion from FY 2012 through FY 2025.
mg0516 Posted February 10, 2015 Posted February 10, 2015 thanks constructive...saw in the Q. can't imagine another scenario when the liquidation pref isn't reduced as capital is returned.
Grenville Posted February 10, 2015 Posted February 10, 2015 Found it! From the above doc. page 307 Through December 31, 2014, the GSEs have paid a total of $225.4 billion in dividends payments to Treasury on the senior preferred stock. The Budget estimates additional dividend receipts of $153.3 billion from January 1, 2015, through FY 2025. The cumulative budgetary impact of the PSPAs from the establishment of the PSPAs through FY 2025 is estimated to be a net return to taxpayers of $191.2 billion. The Temporary Payroll Tax Cut Continuation Act of 2011 signed into law on December 23, 2011, required that the GSEs increase their fees on security guarantees issued through 2021 by an average of at least 0.10 percentage points above the average guarantee fee imposed in 2011. Revenues generated by this fee increase are remitted directly to the Treasury for deficit reduction and are not included in the PSPA amounts. The Budget estimates resulting deficit reductions from this fee of $39.5 billion from FY 2012 through FY 2025. Awesome! Thanks for posting the location and details.
constructive Posted February 10, 2015 Posted February 10, 2015 If the budget estimate is accurate, by my math the government will make about 17% annualized on the senior preferred. (Although, maybe $0 on the 80% of common warrants they own.) That is higher than I had assumed. It may or may not be a valid legal argument, but you can make a financial argument against the 2012 Amendment for increasing the senior preferred return from 10% to ~17% without a valid reason. At the same time, the estimate is probably less than what a lot of bulls would hope for (since they assume 15% reduction in assets per year).
doughishere Posted February 10, 2015 Posted February 10, 2015 Constructive....thats a very valid point. The "security" that the government has materially changed from %10 to %17.....an increase of 70%.
doughishere Posted February 11, 2015 Posted February 11, 2015 FHFA - The Little Regulator That Could (but Hasn't) Published by joshrosner http://www.scribd.com/doc/254729408/02-03-15-FHFA-The-Little-Regulator-That-Could-but-Hasn-t
jawn619 Posted February 13, 2015 Posted February 13, 2015 I hear that ackman and icahn own these but i can't seem to find it on their 13Fs. Why is that?
gfp Posted February 13, 2015 Posted February 13, 2015 As with Fairholme, you aren't required to include securities in your 13F that don't trade on a major exchange apparently. I hear that ackman and icahn own these but i can't seem to find it on their 13Fs. Why is that?
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now