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

[Cox022]

Building off what WBfan said earlier...

 

Is it logical to think the 80% ownership threshold will prevent Treasury from converting its Senior Preferred into common stock since they already have warrants for 79.9%?

 

Can we evaluate the future based on these 2 near-certainties?

1)  The senior pref cannot remain in its current place, and

2)  the government will not go over 80% ownership

 

Where does that leave us...an increased likelihood the Senior Pref gets cancelled?

 

[Midas, does this line of thinking change your thinking from what you said earlier today?]

 

 

[orthopa]

Building off what WBfan said earlier...

 

Is it logical to think the 80% ownership threshold will prevent Treasury from converting its Senior Preferred into common stock since they already have warrants for 79.9%?

 

Can we evaluate the future based on these 2 near-certainties?

1)  The senior pref cannot remain in its current place, and

2)  the government will not go over 80% ownership

 

Where does that leave us...an increased likelihood the Senior Pref gets cancelled?

 

[Midas, does this line of thinking change your thinking from what you said earlier today?]

 

Wasnt the Sr Preferred "always" going to get cancelled and NWS going to end to move forward with recap? Treasury plan laid these options out pretty clearly. If one bought assuming par value for preferred at some value for common this was always pretty much assumed IMO.

 

I would also add what ever private capital offering occured would effectively lower the level of treasury ownership if it happened according to cherzeca's layout before public offering.

[Midas79]

Is it logical to think the 80% ownership threshold will prevent Treasury from converting its Senior Preferred into common stock since they already have warrants for 79.9%?

 

No. The warrants can be exercised in pieces or all at once, there is no reason to believe a senior conversion couldn't be structured the same way. In the scenario we're talking about (Treasury sends FnF $120B and converts the seniors to commons), there shouldn't be a need for an SPO, Treasury would just sell its shares directly. They could sell the shares piecemeal, for example they convert $1B of seniors to X commons and sell them, rinse and repeat 193 times. The chunks just have to be sized so that Treasury's ownership never hits 80%.

 

Actually, on further thought, the warrants allow Treasury to assign the shares rather than ever taking possession of them. A senior conversion could easily be structured the same way. Check section 7 on page 7 of the warrant document.

 

https://www.treasury.gov/press-center/press-releases/Documents/warrantfnm3.pdf

 

As long as the final share count is set in stone the investors will flock in, and they represent the private and third-party capital that Mnuchin mentioned.

 

Where does that leave us...an increased likelihood the Senior Pref gets cancelled?

 

If the seniors are canceled then Treasury will be sending $25B back to FnF at the most. That is the amount past the 10% moment. This leaves a $70-100B shortfall under Watt's two proposed minimum capital requirements. The private and third-party capital would then come in via the SPO.

[orthopa]

I dont have all of the preferred tickers in front of me but looks like the previous gap implied by dividend is closing.

[DRValue]

 

"Watch the IU website today as we will be posting details of a conference call with David Thompson of Cooper and Kirk. He will update us on the 5th Circuit EnBanc opinion.  Wednesday afternoon!"

[Gregmal]

I know you all know, but if anybody is still looking to initiate a position or add and you want to avoid all the action of the high volume series, then take a look at FMCCL (50-par) and FNMAH (25-par).  The everyday Joe is going to be looking at FNMAS first so the others may lag a bit giving you a better entry.  Yes, talking my book as those are my two largest concentrations in this name, but what I said still holds true.  Wish you well!

 

Gracias. Was able to grab a few FNMAH at a hair over $12

[Guest cherzeca]

I dont have all of the preferred tickers in front of me but looks like the previous gap implied by dividend is closing.

 

fnma 55%par

fnmfn 47%par

 

delta down just a bit

[james22]

reasonable operating assumptions:

1. there will be a global settlement in connection with recap.

2. junior prefs agree by class to a exchange into common at or close to par.

3. some kind of private offering for common is first step before a large public offering.

4. this private offering will "set the price" for the common.  I expect this price will be relatively low, to entice private investor(s) to buy.  junior pref holders in favor on low common price as well.

5. once common private placement is done and some retained earnings build up, large common offering(s).

6. junior pref holders who hold their exchanged for common could see future price appreciation

 

I'd sure like to see Berkshire make a private offering.

 

Good for Berkshire:

 

1. They're looking for an elephant.

2. FNF is just the kind of regulated, utility-like investment they favor.

3. They've a history with FNF.

 

Good for FNF:

 

1. They've the cash.

2. They can make an offer quickly.

3. They'll make a fair offer.

4. The Berkshire name will reassure some that FNF will not likely require a future bailout.

5. Buffett's name is some defense against accusations of cronyism (announce with picture of Obama draping Presidential Medal of Freedom over Buffett).

[hardincap]

re: berkshire, this keeps coming up but someone asked this very question at the shareholders meeting a few years back and buffett flatly said he has no interest

[Luke 532]

https://seekingalpha.com/article/4290548-gse-shareholders-win-landmark-5th-circuit-legal-victory#alt1

 

Treasury now has a plan out with the stated purpose of recapitalizing Fannie and Freddie as promptly as practicable. That said, if Trump loses the next election and this separation of powers lawsuit is not resolved, an incoming democrat can fire Mark Calabria and change the course here. That's hypothetical, of course. As such, preferred shareholders are basically in the drivers seat. They have valid claims and there's really no reason to settle for just par anymore, especially with the Treasury plan having come out.

 

It is now impossible to raise money in the next 15 months without settling the lawsuits because who is going to invest a meaningful amount of money with courts ruling that the government broke the law to hurt shareholders and not only that but the shareholders are making it so that the people running the government can get fired by an incoming administration thereby changing course midway through a recapitalization.

 

Preferred shareholders have valid claims that the government jumped the shark when it entered into the net worth sweep and violated their contracts. Todd Sullivan says plaintiff lawyers are talking 150% of par for an expected settlement.

 

That's more or less what I heard. My point is that the government needs to settle this and get it done quick at this point and they just lost a major legal ruling so now they really have no choice.

 

In other words, the government just released a plan to recapitalize the companies and the plaintiffs can prevent that from happening if they refuse to settle the lawsuits. As such, plaintiffs now are in a position to determine what they are arguably owed in order to drop the lawsuits in order to help facilitate the recapitalization.

[Guest cherzeca]

re: berkshire, this keeps coming up but someone asked this very question at the shareholders meeting a few years back and buffett flatly said he has no interest

 

GSEs as an investment opportunity much different now than a few years back.  but I could see a consortium of PE/HF guys doing a private placement if WEB doesn't want to...and mnuchin knows them all on first name basis

[Midas79]

I want no part of WB. I think he would want preferred shares, and non-cumulative ones are the only kind that help the recap. The terms he would demand would likely be punitive to both commons and existing prefs, I think it's possible to issue new non-cumulative prefs that are nevertheless senior to the existing juniors.

 

I would rather bring in risk-seeking hedge funds and such that are looking to buy commons.

[investorG]

https://seekingalpha.com/article/4290548-gse-shareholders-win-landmark-5th-circuit-legal-victory#alt1

 

Treasury now has a plan out with the stated purpose of recapitalizing Fannie and Freddie as promptly as practicable. That said, if Trump loses the next election and this separation of powers lawsuit is not resolved, an incoming democrat can fire Mark Calabria and change the course here. That's hypothetical, of course. As such, preferred shareholders are basically in the drivers seat. They have valid claims and there's really no reason to settle for just par anymore, especially with the Treasury plan having come out.

 

It is now impossible to raise money in the next 15 months without settling the lawsuits because who is going to invest a meaningful amount of money with courts ruling that the government broke the law to hurt shareholders and not only that but the shareholders are making it so that the people running the government can get fired by an incoming administration thereby changing course midway through a recapitalization.

 

Preferred shareholders have valid claims that the government jumped the shark when it entered into the net worth sweep and violated their contracts. Todd Sullivan says plaintiff lawyers are talking 150% of par for an expected settlement.

 

That's more or less what I heard. My point is that the government needs to settle this and get it done quick at this point and they just lost a major legal ruling so now they really have no choice.

 

In other words, the government just released a plan to recapitalize the companies and the plaintiffs can prevent that from happening if they refuse to settle the lawsuits. As such, plaintiffs now are in a position to determine what they are arguably owed in order to drop the lawsuits in order to help facilitate the recapitalization.

 

It's important, imo, that if things do ever reach settlement discussions, that the plaintiffs resist any potential urge for excess greed. 

[TwoCitiesCapital]

https://seekingalpha.com/article/4290548-gse-shareholders-win-landmark-5th-circuit-legal-victory#alt1

 

Treasury now has a plan out with the stated purpose of recapitalizing Fannie and Freddie as promptly as practicable. That said, if Trump loses the next election and this separation of powers lawsuit is not resolved, an incoming democrat can fire Mark Calabria and change the course here. That's hypothetical, of course. As such, preferred shareholders are basically in the drivers seat. They have valid claims and there's really no reason to settle for just par anymore, especially with the Treasury plan having come out.

 

It is now impossible to raise money in the next 15 months without settling the lawsuits because who is going to invest a meaningful amount of money with courts ruling that the government broke the law to hurt shareholders and not only that but the shareholders are making it so that the people running the government can get fired by an incoming administration thereby changing course midway through a recapitalization.

 

Preferred shareholders have valid claims that the government jumped the shark when it entered into the net worth sweep and violated their contracts. Todd Sullivan says plaintiff lawyers are talking 150% of par for an expected settlement.

 

That's more or less what I heard. My point is that the government needs to settle this and get it done quick at this point and they just lost a major legal ruling so now they really have no choice.

 

In other words, the government just released a plan to recapitalize the companies and the plaintiffs can prevent that from happening if they refuse to settle the lawsuits. As such, plaintiffs now are in a position to determine what they are arguably owed in order to drop the lawsuits in order to help facilitate the recapitalization.

 

It's important, imo, that if things do ever reach settlement discussions, that the plaintiffs resist any potential urge for excess greed.

 

Agreed, but keep in mind 150% is what they're asking at the start. Not likely to be the minimum they'd settle for.

 

At some point, now that we have a court that agrees that the NWS was illegal, there needs to be compensation for unpaid dividends that very-well could have been paid if the govt hadn't stolen the funds.

 

We're never going to be made entirely whole if you want this to happen quickly, but I have a hard time characterizing asking for what you're owed as being greedy. Methinks this gets settled somewhere between 100-125% of par and we move forward with the remainder coming out in a favorable conversion ratio into common as part of the recap.

[Luke 532]

 

Media Teleconference at 2:00 p.m. ET Wednesday, September 11 on Fifth Circuit Court Strike Down of Net Worth Sweep. More here: https://investorsunite.org/media-teleconference-at-200-p-m-et-wednesday-september-11-on-fifth-circuit-court-strike-down-of-net-worth-sweep/

[orthopa]

https://seekingalpha.com/article/4290548-gse-shareholders-win-landmark-5th-circuit-legal-victory#alt1

 

Treasury now has a plan out with the stated purpose of recapitalizing Fannie and Freddie as promptly as practicable. That said, if Trump loses the next election and this separation of powers lawsuit is not resolved, an incoming democrat can fire Mark Calabria and change the course here. That's hypothetical, of course. As such, preferred shareholders are basically in the drivers seat. They have valid claims and there's really no reason to settle for just par anymore, especially with the Treasury plan having come out.

 

It is now impossible to raise money in the next 15 months without settling the lawsuits because who is going to invest a meaningful amount of money with courts ruling that the government broke the law to hurt shareholders and not only that but the shareholders are making it so that the people running the government can get fired by an incoming administration thereby changing course midway through a recapitalization.

 

Preferred shareholders have valid claims that the government jumped the shark when it entered into the net worth sweep and violated their contracts. Todd Sullivan says plaintiff lawyers are talking 150% of par for an expected settlement.

 

That's more or less what I heard. My point is that the government needs to settle this and get it done quick at this point and they just lost a major legal ruling so now they really have no choice.

 

In other words, the government just released a plan to recapitalize the companies and the plaintiffs can prevent that from happening if they refuse to settle the lawsuits. As such, plaintiffs now are in a position to determine what they are arguably owed in order to drop the lawsuits in order to help facilitate the recapitalization.

 

It's important, imo, that if things do ever reach settlement discussions, that the plaintiffs resist any potential urge for excess greed.

 

Agreed, but keep in mind 150% is what they're asking at the start. Not likely to be the minimum they'd settle for.

 

At some point, now that we have a court that agrees that the NWS was illegal, there needs to be compensation for unpaid dividends that very-well could have been paid if the govt hadn't stolen the funds.

 

We're never going to be made entirely whole if you want this to happen quickly, but I have a hard time characterizing asking for what you're owed as being greedy. Methinks this gets settled somewhere between 100-125% of par and we move forward with the remainder coming out in a favorable conversion ratio into common as part of the recap.

 

This form of relief seems to be something that has just came up very recently. Is this/has this been documented anywhere? I'm all for whatever they can get but where does the 150% come from? When would the preferred have been able to pay a dividend? Not until after the 10% moment and company recapped right? I dont think you can look at the funds just paid over 10% as divs would not have been paid out while still in conservatorship?

 

The immediately blowback you would get with what you suggest (and Im all preferred so Im all for it) is that your screwing the common. They will not want to hear the divs would have been paid if recapped and money not taken but its true. When they would have left conservatorship is really the question then.

 

Is the 150% coming from total par value of all jr preferred plus some of the 25B that would be returned via a tax credit?

[Luke 532]

Is the 150% coming from total par value of all jr preferred plus some of the 25B that would be returned via a tax credit?

 

Plaintiffs want 6% interest for the 7 years since NWS started.  That's probably where the rough 150% of par calculation came from.  I'm hearing this 3rd party so take it for what it's worth, but it does seem to make a lot of sense to ask for more than par.

[Guest cherzeca]

this 150% is BS

 

treasury can put away litigation by killing the SP and giving FnF a $20B rebate against future taxes.  and then juniors get par.  the what about the extra 50%? its BS because some like to hear themselves talk

[Midas79]

This form of relief seems to be something that has just came up very recently. Is this/has this been documented anywhere? I'm all for whatever they can get but where does the 150% come from? When would the preferred have been able to pay a dividend? Not until after the 10% moment and company recapped right? I dont think you can look at the funds just paid over 10% as divs would not have been paid out while still in conservatorship?

 

The immediately blowback you would get with what you suggest (and Im all preferred so Im all for it) is that your screwing the common. They will not want to hear the divs would have been paid if recapped and money not taken but its true. When they would have left conservatorship is really the question then.

 

Is the 150% coming from total par value of all jr preferred plus some of the 25B that would be returned via a tax credit?

 

The best way to give the juniors more than 100% of par is just convert them to commons. A conversion at 150% of par at, say, $4 per share gets the juniors more than par without costing either Treasury or FnF a penny. The common would likely dive afterward as it did with Citi, but I would expect a recovery in the medium term, and getting more than 100% of par in the conversion is a form of protection against just such a dive.

 

That said, I don't really expect this to happen. I bought the prefs with the expectation of par if things went well. 150% is a good starting place for a negotiation though. Far better than asking for par first and going down from there.

[Guest cherzeca]

Is the 150% coming from total par value of all jr preferred plus some of the 25B that would be returned via a tax credit?

 

Plaintiffs want 6% interest for the 7 years since NWS started.  That's probably where the rough 150% of par calculation came from.  I'm hearing this 3rd party so take it for what it's worth, but it does seem to make a lot of sense to ask for more than par.

 

for collins, federal rate ="the rate of interest used in calculating the amount of post judgment interest is the weekly average 1-year constant maturity (nominal) Treasury yield, as published by the Federal Reserve System."

 

nowhere near 6%pa of course.  compounded, something like 10%, not another 50%.

 

now, if Ps in fairholme think they can hold out on litigating in front of Judge Lamberth for next two years, and then through all appeals, and get a judgment with 6% interest compounded, well I dont think that is very realistic...but more power to them if they want to spend their money on legal bills to do so

[rros]

this 150% is BS

 

treasury can put away litigation by killing the SP and giving FnF a $20B rebate against future taxes.  and then juniors get par.  the what about the extra 50%? its BS because some like to hear themselves talk

Agree. And I am long Jrs. since 2010. The only thing that has been deemed illegal is the sweep. Not the Srs. at 10%. Not sure why people forget that. At this point, the likely scenario is that the Srs. are modified to carry a low nominal rate to allow for maximum earnings retention, still sitting on top of the Jrs. Mnuchin used the words "treasury still has meaningful (?) claims" which can only refer to the Srs.

 

None of the money is coming back if the original PSPAs, ex-nws, stand. I think we still rely on that *Presidential pardon" by which the Srs. will disappear or somehow deemed repaid. Hopefully, this will not require an act of Congress. It will be wise not to get extra greedy.

[Ahab]

Ideally we get 100% of par plus some sort of sweetener for converting to common. I would be ecstatic if we netted 125% through such a process.

[TwoCitiesCapital]

https://seekingalpha.com/article/4290548-gse-shareholders-win-landmark-5th-circuit-legal-victory#alt1

 

Treasury now has a plan out with the stated purpose of recapitalizing Fannie and Freddie as promptly as practicable. That said, if Trump loses the next election and this separation of powers lawsuit is not resolved, an incoming democrat can fire Mark Calabria and change the course here. That's hypothetical, of course. As such, preferred shareholders are basically in the drivers seat. They have valid claims and there's really no reason to settle for just par anymore, especially with the Treasury plan having come out.

 

It is now impossible to raise money in the next 15 months without settling the lawsuits because who is going to invest a meaningful amount of money with courts ruling that the government broke the law to hurt shareholders and not only that but the shareholders are making it so that the people running the government can get fired by an incoming administration thereby changing course midway through a recapitalization.

 

Preferred shareholders have valid claims that the government jumped the shark when it entered into the net worth sweep and violated their contracts. Todd Sullivan says plaintiff lawyers are talking 150% of par for an expected settlement.

 

That's more or less what I heard. My point is that the government needs to settle this and get it done quick at this point and they just lost a major legal ruling so now they really have no choice.

 

In other words, the government just released a plan to recapitalize the companies and the plaintiffs can prevent that from happening if they refuse to settle the lawsuits. As such, plaintiffs now are in a position to determine what they are arguably owed in order to drop the lawsuits in order to help facilitate the recapitalization.

 

It's important, imo, that if things do ever reach settlement discussions, that the plaintiffs resist any potential urge for excess greed.

 

Agreed, but keep in mind 150% is what they're asking at the start. Not likely to be the minimum they'd settle for.

 

At some point, now that we have a court that agrees that the NWS was illegal, there needs to be compensation for unpaid dividends that very-well could have been paid if the govt hadn't stolen the funds.

 

We're never going to be made entirely whole if you want this to happen quickly, but I have a hard time characterizing asking for what you're owed as being greedy. Methinks this gets settled somewhere between 100-125% of par and we move forward with the remainder coming out in a favorable conversion ratio into common as part of the recap.

 

This form of relief seems to be something that has just came up very recently. Is this/has this been documented anywhere? I'm all for whatever they can get but where does the 150% come from? When would the preferred have been able to pay a dividend? Not until after the 10% moment and company recapped right? I dont think you can look at the funds just paid over 10% as divs would not have been paid out while still in conservatorship?

 

The immediately blowback you would get with what you suggest (and Im all preferred so Im all for it) is that your screwing the common. They will not want to hear the divs would have been paid if recapped and money not taken but its true. When they would have left conservatorship is really the question then.

 

Is the 150% coming from total par value of all jr preferred plus some of the 25B that would be returned via a tax credit?

 

Totally - I'm not certain of the 150% calculation either, but it's probably NOT the amount in excess of 10% moment.

 

The argument likely is that if net worth/profits WEREN'T unconditionally swept @ 100%, there was enough money in many years following 2012 to have been able to have paid the 10% coupon to the govt and the divvy on preferreds AND have retained some earnings for capital building. My guess is the missed dividends for the past 7 years is how they get near the 150% mark. It could also be a small adjustment to what the value of these securities would trade foe today IF they were paying a divvy while the 10 year Treasury is at 1.5% as many of these instruments would trade at a premium to par.

 

Contractually the preferreds are owed a MINIMUM of par. I don't think it's greedy to try to negotiate for more than that if you can make the case dividends could've been paid if not for the government's illegal actions.

 

Further - this isn't a new idea. This has been mentioned as far back as 2013 when I first started following the investments. It seemed less and less likely with courts ruling against shareholder's, but having a court say the NWS was inappropriate reopens the argument dividend could have been paid but for the inappropriate NWS.

 

150% is not my base case, but I don't fault them for trying on my behalf to get more as I believe it is a pretty reasonable case to make.

[Luke 532]

Mnuchin prepared remarks for Tuesday...

Mnuchin_Testimony_9-10-19.pdf

[rros]

Mnuchin prepared remarks for Tuesday...

Thank you. It is clear from his prepared remarks how much needed that explicit guarantee is for the normalcy of the GSEs debt market.

So a) narrow, explicit, paid-for guarantee; b) charter away. My guess, Brown is not going to like neither a) nor b). And given how clear Treasury's path is there may not be much talk about the 5cc ruling. Treasury will still work with FHFA on a 4th amendment, anyway and anyday.