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

[Guest cherzeca]

@midas

 

once treasury got its 10% return on, and of, its investment, the original deal terms and putting aside the extra $20B+ for a moment, it occurs to me that treasury may view its 80% warrant position as excessive, in the sense that it inhibits the recap.  remember, the recap isn't just to go public, it is to raise a targeted capital level.  treasury's 80% position adds no capital, so the larger the treasury position, the harder it is to satisfy the capital requirement from the remaining equity...harder with 20% left to work with than a greater minority %.  a lesser warrant position can be more valuable than the 80% position if the lesser position results in a greater likelihood of recap, understood as a greater likelihood to reach that capital target.  that is all.  now, if treasury "gives up" economics to get a deal done, there will be plenty of criticism by the anti-GSE crowd, so my thought may be only wishful thinking.  but it is absolutely clear in my mind that bankers selling new common would rather have a lesser treasury ownership in the common than 80%

[DRValue]

Congressional recess starts Saturday August 3rd. Would that make it our month for plans?

[orthopa]

Congressional recess starts Saturday August 3rd. Would that make it our month for plans?

 

Could be. I think its more the MBA/Bank crowd that is more of an opposition and causing trouble behind the scenes then congress. Sure things will be quieter with congress on recess but I dont think  they are the opposition at all.

[Luke 532]

Hamish Hume article today in American Banker:

https://www.americanbanker.com/opinion/recap-of-fannie-and-freddie-must-protect-shareholder-rights

[orthopa]

Hamish Hume article today in American Banker:

https://www.americanbanker.com/opinion/recap-of-fannie-and-freddie-must-protect-shareholder-rights

 

Nice find. Problem as many of us know keeping the preferred shares as they are do not help build capital and time is going to be of the essence. Preferred will convert and  in such still protect the rights of the common shareholders.

[DRValue]

Hamish Hume article today in American Banker:

https://www.americanbanker.com/opinion/recap-of-fannie-and-freddie-must-protect-shareholder-rights

 

Thanks Luke.

 

Seems an odd stance on common conversion as i wouldn't expect him to be concerned as long as plaintiff get par. Unless clients are concerned about having to hold and accept the volatility of common shares. I also believe that fnmas are redeemable every 5 years so they might be hoping for dividends and then par.

Good article though and I expect it will largely go that way +/- the conversion.

[DRValue]

Hamish Hume article today in American Banker:

https://www.americanbanker.com/opinion/recap-of-fannie-and-freddie-must-protect-shareholder-rights

 

Thanks Luke.

 

Seems an odd stance on common conversion as i wouldn't expect him to be concerned as long as plaintiff get par. Unless clients are concerned about having to hold and accept the volatility of common shares. I also believe that fnmas are redeemable every 5 years so they might be hoping for dividends and then par.

Good article though and I expect it will largely go that way +/- the conversion.

 

Another angle could be leverage against the other preferred holders and treasury that need a 60pct vote to change terms.

Seems like a stake in the ground to me and it could be to get a higher than par conversion.

[Guest cherzeca]

if there is to be a conversion of jr pref into common, treasury will want to use exit consents to get >2/3rds of the holders of each class to convert as well, by forcing amended adverse terms if they stay.  so there will be some coercion of the minority which is what Hume may be referring to.  but generally if 2/3rds think its a good conversion, then the rest have no right to hostage value

[Midas79]

if there is to be a conversion of jr pref into common, treasury will want to use exit consents to get >2/3rds of the holders of each class to convert as well, by forcing amended adverse terms if they stay.  so there will be some coercion of the minority which is what Hume may be referring to.  but generally if 2/3rds think its a good conversion, then the rest have no right to hostage value

 

"Amended adverse terms" cannot be forced. It's right there in the contract, at the end of this paragraph.

 

Without  the  consent  of  the  holders  of  the  Preferred  Stock,  we  will  have  the  right  to  amend  the  Certificate of Designation to cure any ambiguity, correct or supplement any term which may be defective or  inconsistent  with  any  other  term  or  to  make  any  other  provisions  so  long  as  the  amendment  does  not  materially and adversely affect the interest of the holders of the Preferred Stock.

 

Now if the government says that nothing can move forward until all junior series convert we might have a different story. But there is no reason for the government to care at what ratio the conversion happens, as long as it happens before the warrants are exercised.

 

If 2/3 of a series' holders choose to convert then the whole series is converted, that's also right there in the contract. The other 1/3 cannot hold out.

[rros]

"It appears that the decision may have leaked and may have prompted this filing at such an odd timing"

 

The following transaction was entered on 07/09/2019 at 11:08:36 AM CDT and filed on 07/09/2019

 

Case Name: Patrick Collins, et al v. Steven Mnuchin, Secretary, et al

Case Number: 17-20364

Document(s): Document(s)

 

Docket Text:

LETTER filed by Appellees Federal Housing Finance Agency and Joseph M. Otting, Acting Director of the Federal Housing Finance Agency To advise the Court of a leadership change that necessitates substitution of parties under Fed. R. App. P. 43©(2), and that its new leadership has reconsidered the constitutional issue in this case.. Date of Service: 07/09/2019 via email - Attorney for Appellants: Barnes, Cooper, Flores, Patterson, Thompson; Attorney for Amici Curiae: Bayne, Mapes, Nelson, Wydra; Attorney for Appellees: Cayne, Hoffman, Katerberg, Mooppan, Phillips, Sinzdak, Stern, Varma, Wright [17-20364] (Robert J. Katerberg )

I am confused. Why is Otting filing this instead of Calabria, who seems to be the interested party reconsidering the constitutional issue? Shouldn't be Calabria the one claiming change of leadership?

[stevevri]

That is just a summary. Here is the actual document.

Document.pdf

[DRValue]

That is just a summary. Here is the actual document.

 

So now fhfa believe it's constitutional.

 

Trying to push the decision back? Would that even work?

[Midas79]

That is just a summary. Here is the actual document.

 

Damn if this isn't confusing as all hell. Also bad news with Calabria evidently supporting the continuance of the NWS. Perhaps he wants to be able to negotiate it away with Treasury rather than having it pulled out from under him?

 

Still, isn't it pretty late in the game to be doing stuff like this? I would imagine that the decisions are mostly written at this point. Why jeopardize things at this late juncture?

 

One silver lining is if this really does sway the court, then Calabria can stay on if a new president is elected. However, that new president would have their own Treasury secretary and could thus derail everything.

 

I'm rather surprised that the shares aren't sliding more than they have today.

[Wiggins]

That is just a summary. Here is the actual document.

 

It makes sense that Calabria would reverse direction regarding the constitutionality of HERA, given that he helped write it and he keeps an original dog-eared copy of it. In that sense, perhaps he is merely arguing that an unconstitutional structure cannot be a reason for the NWS to be invalid. A key sentence supporting this is: "At all relevant times FHFA argued and continues to argue the issue does not affect the Third Amendment’s validity."

I believe his prior arguments against the validity of the NWS were based on the fact that it does not fall within the power of a conservator, i.e. the APA claim. He doesn't speak to this in this latest letter. Does anyone else see it this way?

[orthopa]

Would like to see cherzeca's opinion. Maybe a delay tactic to hopefully release plan and in turn settle with plaintiffs via stopping NWS and recap but one would assume that stuff would not occur until the fall. Will the en banc opinion take that long? Maybe the gov wants to be in control and not be at the mercy of the courts?

[Wiggins]

Would like to see cherzeca's opinion. Maybe a delay tactic to hopefully release plan and in turn settle with plaintiffs via stopping NWS and recap but one would assume that stuff would not occur until the fall. Will the en banc opinion take that long? Maybe the gov wants to be in control and not be at the mercy of the courts?

 

+1

[Guest cherzeca]

first, this last minute about face by calabria on the separation of powers claim is completely amateurish and makes fhfa look foolish. the en banc 5th C judges have been twisted a full 360 degrees on this and must be laughing in their chambers. my bet is that the majority opinion(s) are written and the dissents are soon to be finished, so this embarrassing letter likely is to be given no weight by the en banc.

 

second, calabria did not touch upon the APA claim (regarding validity of NWS as a conservator power...although he has said in the past that the NWS is not within conservator's powers). fhfa has always argued that no relief should be given for the separation of powers claim, first (watt) because removal of single director only for cause was constitutional, second (otting) because even though it was unconstitutional no remedy should be provided Ps, and third (calabria) back to it was constitutional.

 

why would Calabria do this? lots of possible reasons: make the deal with mnuchin look more at arms length between co-equal officials (potus cant remove me, so I can stick to my guns in the negotiation with mnuchin), protect his tenure and the recap/release beyond 2020 in case trump loses election, tell treasury that calabria has final say about capital(this assumes that calabria has been getting "advice" from treasury about capital and he wants treasury to bug off) etc.

 

I think this is much ado about nothing, but makes fhfa look something less like a "world class " regulator that seems to be Calabria's aspiration

 

[Luke 532]

Hannah Lang (American Banker) article out tonight...

 

Edited for link to entire article: https://www.twitlonger.com/show/n_1squmr4

[Guest cherzeca]

Hannah Lang (American Banker) article out tonight... https://www.americanbanker.com/news/what-to-expect-when-youre-expecting-a-report-on-gse-reform

 

she's a lazy journalist and I dont have a subs.  anything worthwhile?

[Luke 532]

Hannah Lang (American Banker) article out tonight... https://www.americanbanker.com/news/what-to-expect-when-youre-expecting-a-report-on-gse-reform

 

she's a lazy journalist and I dont have a subs.  anything worthwhile?

 

Not much in it. She gets quotes from Bright and Zandi if that gives you an idea of the gist of her article.

 

Better link to entire article: https://www.twitlonger.com/show/n_1squmr4

[muscleman]

That is just a summary. Here is the actual document.

 

So now fhfa believe it's constitutional.

 

Trying to push the decision back? Would that even work?

 

Wow. I was busy working yesterday and just saw this.  :o This is mind blowing to me.

Once again the price behaviors change and TA warnings all over the place before bad news came out.

 

[SnarkyPuppy]

That is just a summary. Here is the actual document.

 

So now fhfa believe it's constitutional.

 

Trying to push the decision back? Would that even work?

 

Wow. I was busy working yesterday and just saw this.  :o This is mind blowing to me.

Once again the price behaviors change and TA warnings all over the place before bad news came out.

 

Forecasting is always easier in hindsight

[allnatural]

I wouldn't read much into the pullback. FNMAS is $12.95... ~7% off the highs of $13.91 after being up 100% YTD...

 

That is just a summary. Here is the actual document.

 

So now fhfa believe it's constitutional.

 

Trying to push the decision back? Would that even work?

 

Wow. I was busy working yesterday and just saw this.  :o This is mind blowing to me.

Once again the price behaviors change and TA warnings all over the place before bad news came out.

[muscleman]

That is just a summary. Here is the actual document.

 

So now fhfa believe it's constitutional.

 

Trying to push the decision back? Would that even work?

 

Wow. I was busy working yesterday and just saw this.  :o This is mind blowing to me.

Once again the price behaviors change and TA warnings all over the place before bad news came out.

 

Forecasting is always easier in hindsight

 

This is an absurd comment. I've always commented in real time. Where did you get the impression that I was talking about this in hindsight?

[allnatural]

You used past tense. "Once again the price behaviors change and TA warnings all over the place before bad news came out."

 

That is just a summary. Here is the actual document.

 

So now fhfa believe it's constitutional.

 

Trying to push the decision back? Would that even work?

 

Wow. I was busy working yesterday and just saw this.  :o This is mind blowing to me.

Once again the price behaviors change and TA warnings all over the place before bad news came out.

 

Forecasting is always easier in hindsight

 

This is an absurd comment. I've always commented in real time. Where did you get the impression that I was talking about this in hindsight?