Midas79 Posted June 6, 2019 Posted June 6, 2019 Why wouldn't new investors be ok waiting? The more capital raised/shares issued, the more dilution to all participants. AIG also took a couple years to fully exit government control. The execution risk rises dramatically once the timeline gets pushed out past the next election. A new president can fire Mnuchin, and will likely have the ability to fire Calabria. I think the entire thing, recap and release, needs to be done in the next 12 months at the most. I don't think Trump wants any part of this hanging over his head going into the campaign and election cycle. Therefore I wouldn't count on more than 4 quarters of retained earnings, and probably less. Do you have more info about the Petrobras offering? If they can oversubscribe $70 billion then FnF should be able to easily hit $120 billion. As cherzeca points out, the price of getting this done quickly is probably a rather low offering price. This is one big reason that I own only prefs, the commons can still come out lower than they are now in the end.
allnatural Posted June 6, 2019 Posted June 6, 2019 I can see them expediting it from 18-24 months to 12 months at the expense of legacy common. But again once the recap release is in motion, there is no "firing" the squad and stopping everything in its tracks. The risk outweighs any rewards. You would have to have a better alternative to replace that plan in place before you do such an action, and it would have to pass Congress, all before the recap and release is completed, which is very unlikely for reasons mentioned above. Also FHFA is an independent agency and its within its mandate to execute on this plan / build capital. So far every court has told us you can not challenge their actions, so i'm not sure how you would even halt this once its signed off on. Especially once the senior pfds are amended in Q3-Q4 according to Calabrias timeline (to stop the NWS and probably write down the senior pfds in connection with settlement). No one will be able to reverse that amendment. PBR info: https://www.reuters.com/article/us-petrobras-offer/brazils-petrobras-poised-for-record-share-sale-idUSTRE68M0AE20100923
Guest cherzeca Posted June 6, 2019 Posted June 6, 2019 Amazing how clueless some people are even if his analysis is off base, his conclusion on timing might not be, unfortunately. after reading tim rood's twitter commentary yesterday about involving congress, I'm guessing the early feedback from investors is that raising ~$100bn+ is going to be harder than some expected without a congressional foundation. In theory this issue could be somewhat addressed if FnF exit conservatorship in advance or in conjunction with the first potential large capital raise, but I'm not sure if this is logistically possible. disagree. assuming that treasury sometime this month issues a plan that calls for a recap and release of GSEs, then it will be done...painfully, with great difficulty, probably at lower issue price than moelis blueprint assumes etc, but it will begin once FHFA sets capital target. now when it ends I wouldn't care to predict, but it will start with deliberate speed, assuming treasury issues the plan that I think it will, and Calabria starts working and stops talking EDIT: there is inertia to overcome and many investors will have doubts. but once the ball starts rolling, there will be increasing momentum, not least of which is massive fees for Wall Street. from start to finish, this will be a deal of the decade for Wall Street, and assuming we don't go into a recession and that stock market doesn't tank, this will get done the main risk, imo, is that multiple capital raises would be needed. that means the first tranche of investors are exposed to what you describe - an economic or market shock that could derail the completion of the project and leave them in conservatorship much longer than planned. thus, the first new investors would require imo a deal they couldn't refuse, which possibly means either a very low investment price and/or the gov't giving up both the sr pref and perhaps a good bit of option value. it would be easier if the capital requirement was say 50bn in total and in theory they could get out of conservatorship soon after the first and only equity raise. I agree with all of this. I guess my point is that I have done a lot of capital market deals as a corp fin lawyer (mostly underwriters' counsel). every deal had hair on it, and every time the deal book looked like shit, the bankers simply did what they had to do, and the issuer did what it had to do. I will say however that I never worked on a deal which had the cash flow numbers like what you see with the GSEs.
Luke 532 Posted June 6, 2019 Posted June 6, 2019 Interesting. Ruling could be coming soon... 5th Circuit En Banc files decision on Langley (16-30486). Oral arguments on January 23, 2019, same day as Collins.
muscleman Posted June 6, 2019 Posted June 6, 2019 Interesting. Ruling could be coming soon... 5th Circuit En Banc files decision on Langley (16-30486). Oral arguments on January 23, 2019, same day as Collins. Thank you! Is this another decision that overturned the original ruling? Before this, there were like 16 cases, and 14 were overturned, right?
allnatural Posted June 6, 2019 Posted June 6, 2019 What's more interesting is the 9 majority judges all ruling on the same side here. "ANDREW S. OLDHAM, Circuit Judge, joined by JONES, SMITH, OWEN, SOUTHWICK, WILLETT, HO, DUNCAN, and ENGELHARDT" All GOP. Let's hope they follow same party lines in Collins. Positive to see Willet and Jones in that camp.
Guest cherzeca Posted June 6, 2019 Posted June 6, 2019 Interesting. Ruling could be coming soon... 5th Circuit En Banc files decision on Langley (16-30486). Oral arguments on January 23, 2019, same day as Collins. double-checked, and yes it was argued 1/23/19
Guest cherzeca Posted June 7, 2019 Posted June 7, 2019 Interesting. Ruling could be coming soon... 5th Circuit En Banc files decision on Langley (16-30486). Oral arguments on January 23, 2019, same day as Collins. Thank you! Is this another decision that overturned the original ruling? Before this, there were like 16 cases, and 14 were overturned, right? en banc decision was indeed a reversal of a prior merits panel decision
muscleman Posted June 7, 2019 Posted June 7, 2019 Interesting. Ruling could be coming soon... 5th Circuit En Banc files decision on Langley (16-30486). Oral arguments on January 23, 2019, same day as Collins. Thank you! Is this another decision that overturned the original ruling? Before this, there were like 16 cases, and 14 were overturned, right? en banc decision was indeed a reversal of a prior merits panel decision Thank you Chris!
muscleman Posted June 8, 2019 Posted June 8, 2019 Cool. Thank you Luke. Do you have Bloomberg subscription? I heard it is a bit expensive.
Luke 532 Posted June 8, 2019 Posted June 8, 2019 Cool. Thank you Luke. Do you have Bloomberg subscription? I heard it is a bit expensive. I don't. Got screenshot second-hand from Twitter.
Midas79 Posted June 8, 2019 Posted June 8, 2019 Is this the first time that Mnuchin has mentioned capital retention? I know Calabria had said it a couple of times, but I don't recall Mnuchin doing so before. As for the various lawsuits, if the Collins plaintiffs get what they want (seniors and NWS gone, $20B tax credit with Treasury), will that be enough to get all the other lawsuits dismissed as moot? Or will some of the plaintiffs claim that they are still due damages even on top of all that? I am wondering if it's possible to get rid of the lawsuits without any settlements if the government can convince the judges that the plaintiffs are getting what they want anyway.
SnarkyPuppy Posted June 8, 2019 Posted June 8, 2019 Mnuchin today (attached)... As others are discussing on twitter, it's interesting that he delineates between IPO and Private Capital. Private capital could be a rights offering where existing investors contribute (might account for why Berkowitz has been positioning himself so heavily in cash). But it could also mean a Buffett or Blackstone sweetheart deal which could be a risk here. FHFA as regulator can deem current senior prefs repaid while also saying oops you're undercapitalized - and duty to safety/soundness warrants a swift recap - and Buffett/Blackstone put up $150bn in new senior prefs in a private placement with the government. What's stopping FHFA from making this deal while FHFA is in control? Of course this negates the value of the warrants but possible Calabria/Mnuchin don't care?
Luke 532 Posted June 8, 2019 Posted June 8, 2019 Snarky (and others), how do you think the scenario Snarky laid out would impact junior prefs? Thanks. Mnuchin today (attached)... As others are discussing on twitter, it's interesting that he delineates between IPO and Private Capital. Private capital could be a rights offering where existing investors contribute (might account for why Berkowitz has been positioning himself so heavily in cash). But it could also mean a Buffett or Blackstone sweetheart deal which could be a risk here. FHFA as regulator can deem current senior prefs repaid while also saying oops you're undercapitalized - and duty to safety/soundness warrants a swift recap - and Buffett/Blackstone put up $150bn in new senior prefs in a private placement with the government. What's stopping FHFA from making this deal while FHFA is in control? Of course this negates the value of the warrants but possible Calabria/Mnuchin don't care?
Guest cherzeca Posted June 8, 2019 Posted June 8, 2019 A private placement at least to start things off would be ideal. Hard to speculate how much and to who but I think bankers will certainly sound this out first. That is when the jps conversion might be proposed
SnarkyPuppy Posted June 8, 2019 Posted June 8, 2019 Snarky (and others), how do you think the scenario Snarky laid out would impact junior prefs? Thanks. Mnuchin today (attached)... As others are discussing on twitter, it's interesting that he delineates between IPO and Private Capital. Private capital could be a rights offering where existing investors contribute (might account for why Berkowitz has been positioning himself so heavily in cash). But it could also mean a Buffett or Blackstone sweetheart deal which could be a risk here. FHFA as regulator can deem current senior prefs repaid while also saying oops you're undercapitalized - and duty to safety/soundness warrants a swift recap - and Buffett/Blackstone put up $150bn in new senior prefs in a private placement with the government. What's stopping FHFA from making this deal while FHFA is in control? Of course this negates the value of the warrants but possible Calabria/Mnuchin don't care? The situation I described, while I don't believe is likely due to warrant incentives, is entirely possible and would F* jr prefs. Not clear what legal recourse there would be given the sr pref deemed repaid overhang would go away...
Luke 532 Posted June 8, 2019 Posted June 8, 2019 The situation I described, while I don't believe is likely due to warrant incentives, is entirely possible and would F* jr prefs. Not clear what legal recourse there would be given the sr pref deemed repaid overhang would go away... Thank you for the prompt response. That scenario is something to ponder.
beaufort Posted June 8, 2019 Posted June 8, 2019 If there is a swift recap as Snarky suggests with a private sweetheart deal, how does that forcibly hurt the jr. pref position? Perhaps no favourable conversion. There will still be par and dividends to come in due course.
SnarkyPuppy Posted June 9, 2019 Posted June 9, 2019 If there is a swift recap as Snarky suggests with a private sweetheart deal, how does that forcibly hurt the jr. pref position? Perhaps no favourable conversion. There will still be par and dividends to come in due course. Nothing stopping BRK from asking for a ridiculous coupon and getting it
Mephistopheles Posted June 9, 2019 Posted June 9, 2019 If there is a swift recap as Snarky suggests with a private sweetheart deal, how does that forcibly hurt the jr. pref position? Perhaps no favourable conversion. There will still be par and dividends to come in due course. Nothing stopping BRK from asking for a ridiculous coupon and getting it So you’re saying the companies recapitalize with prefs that supersede the juniors with a massive dividend and thus juniors can’t get their dividend which means we don’t come close to par ?
allnatural Posted June 9, 2019 Posted June 9, 2019 Yes lets screw over the same jr pfd shareholders that we are going to ask to contribute private capital (blackstone paid for Moelis). Also that may solve the APA cases but no way the shareholders from the Sweeney and Lambert case where we are seeking monetary damages agree to settle. Remedy there isnt to mark down snr pfds as paid down. So back to the hiccup of not being able to raise new capital with the legal overhang outstanding (as recently explained by Freddie Macs CEO).
Guest cherzeca Posted June 9, 2019 Posted June 9, 2019 this snarky nightmare is extremely unrealistic imo. there is a lot of smart money in the existing junior prefs so these are exactly the people you would be coming to see for new money...why would they invest so as to destroy their current investment. also from a finance POV this would be an extremely top heavy capitalization which would forcelose additional capital raises, much like existing capitalization.
Luke 532 Posted June 9, 2019 Posted June 9, 2019 why would they invest so as to destroy their current investment. If the terms of the new Senior Pref are good enough they might not care about their current Junior Pref position.
Mephistopheles Posted June 9, 2019 Posted June 9, 2019 why would they invest so as to destroy their current investment. If the terms of the new Senior Pref are good enough they might not care about their current Junior Pref position. But as long as they screw the current Juniors they handicaps the common stock capital raise. I think the smarter (in terms of capital raising), legally sound move is to treat the Juniors fairly.
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