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

[Guest cherzeca]

Partly to help myself think this out but per HoldenWalker99 on twitter one way Treasury could get FnF to statutory capital levels then regulatory levels is to first let the GSEs start to retain capital via letter agreement before Sept 30. Start to retain capital. Then cancel Sr Preferred. Jr preferred then would contribute 33B to core capital. Retained earnings would build over time to get to DFAST level of 43B in capital. Then operate under consent decree until remainder of capital raised.

 

I would think preferred would immediately trade to par once the Senior preferred are cancelled in this scenario as they would be counting towards core capital.

 

I would add one important point.  the agreement would kick in and the conservatorship would end at the closing of the re-ipo.  the proceeds of the re-ipo would get the GSEs capital up to statutory level (this is based upon Rosner's tweeting which makes sense), but new investors would never have their money subject to conservatorship. the terms of the agreement would be what fhfa wants the GSEs to do until capital rule level is reached, at which point presumably many agreement items would terminate.

[rros]

Partly to help myself think this out but per HoldenWalker99 on twitter one way Treasury could get FnF to statutory capital levels then regulatory levels is to first let the GSEs start to retain capital via letter agreement before Sept 30. Start to retain capital. Then cancel Sr Preferred. Jr preferred then would contribute 33B to core capital. Retained earnings would build over time to get to DFAST level of 43B in capital. Then operate under consent decree until remainder of capital raised.

 

I would think preferred would immediately trade to par once the Senior preferred are cancelled in this scenario as they would be counting towards core capital.

Instant 100% face value.

[Midas79]

Partly to help myself think this out but per HoldenWalker99 on twitter one way Treasury could get FnF to statutory capital levels then regulatory levels is to first let the GSEs start to retain capital via letter agreement before Sept 30. Start to retain capital. Then cancel Sr Preferred. Jr preferred then would contribute 33B to core capital. Retained earnings would build over time to get to DFAST level of 43B in capital. Then operate under consent decree until remainder of capital raised.

 

I would think preferred would immediately trade to par once the Senior preferred are cancelled in this scenario as they would be counting towards core capital.

 

That tweet is wrong about one thing: the juniors already do count towards core capital. If you go look at one of the 10-K forms they show their core capital amount on one page, and if you go to the balance sheets and add up everything in the equity section other than the seniors and AOCI, it adds up to exactly that number.

 

As of the last 10-K, FnF had a combined core capital of -$181B, but that includes the juniors. Calling in the juniors, for example, would drop that by $33B to -$214B. That's why calling them is not going to happen. Converting them to commons keeps core capital the same by contrast.

 

Either extinguishing the seniors or converting them to something that counts as core capital (commons or non-cumulative prefs) would add $187B to core capital instantly. That's why this is such a necessary step.

[Guest cherzeca]

@midas

 

actually that tweet was wrong thinking that extinguishing the seniors adds $33B capital. yes if debt but no since preferred

[DRValue]

Can anyone point me to the latest filings in Washington federal v u.s.? They're seeking damages of 41b for pre conservatorship shareholders and I'm not sure of the current status of the suit. Gselinks seems to have stalled out.

 

While I don't know if it'll be successful, I'm curious about how it may be settled as part of the recap plan.

[muscleman]

Can anyone point me to the latest filings in Washington federal v u.s.? They're seeking damages of 41b for pre conservatorship shareholders and I'm not sure of the current status of the suit. Gselinks seems to have stalled out.

 

While I don't know if it'll be successful, I'm curious about how it may be settled as part of the recap plan.

 

I don’t think the recap can settle that, but I don’t think that one has any foot to stand on. The AIG case pretty much makes this impossible.

[DRValue]

Can anyone point me to the latest filings in Washington federal v u.s.? They're seeking damages of 41b for pre conservatorship shareholders and I'm not sure of the current status of the suit. Gselinks seems to have stalled out.

 

While I don't know if it'll be successful, I'm curious about how it may be settled as part of the recap plan.

 

I don’t think the recap can settle that, but I don’t think that one has any foot to stand on. The AIG case pretty much makes this impossible.

 

I don't think it has a chance either but curious how they make it go away before raising capital.

[Guest cherzeca]

Can anyone point me to the latest filings in Washington federal v u.s.? They're seeking damages of 41b for pre conservatorship shareholders and I'm not sure of the current status of the suit. Gselinks seems to have stalled out.

 

While I don't know if it'll be successful, I'm curious about how it may be settled as part of the recap plan.

 

I don’t think the recap can settle that, but I don’t think that one has any foot to stand on. The AIG case pretty much makes this impossible.

 

I don't think it has a chance either but curious how they make it go away before raising capital.

 

[DRValue]

Can anyone point me to the latest filings in Washington federal v u.s.? They're seeking damages of 41b for pre conservatorship shareholders and I'm not sure of the current status of the suit. Gselinks seems to have stalled out.

 

While I don't know if it'll be successful, I'm curious about how it may be settled as part of the recap plan.

 

I don’t think the recap can settle that, but I don’t think that one has any foot to stand on. The AIG case pretty much makes this impossible.

 

I don't think it has a chance either but curious how they make it go away before raising capital.

 

Cheers Chris. A wildcard it is.

[allnatural]

Not necessarily. The AIG case essentially ruled that even though the government violated shareholder rights, they weren't entitled to damages because without the governments bailout, shareholders would have been zeroed out. In this case, shareholders are arguing that the bailout was improper and shareholders had plenty of value without the governments involvement. That said, I think any case challenging the original bailout terms is a 1% chance at best.

 

Can anyone point me to the latest filings in Washington federal v u.s.? They're seeking damages of 41b for pre conservatorship shareholders and I'm not sure of the current status of the suit. Gselinks seems to have stalled out.

 

While I don't know if it'll be successful, I'm curious about how it may be settled as part of the recap plan.

 

I don’t think the recap can settle that, but I don’t think that one has any foot to stand on. The AIG case pretty much makes this impossible.

[Luke 532]

Calabria live now: https://www.bloomberg.com/live/us

 

"4th Q 2020 for IPO, lot has to happen before we do that..."

 

Asked about settlement due to recent court ruling: "Looking to rebuild capital and once NWS ends which is part of our plan then a lot of these suits go away."  Didn't say no to settlement, didn't say yes to settlement.

 

Interview done, was very short.

[Cox022]

Calabria live now: https://www.bloomberg.com/live/us

 

"4th Q 2020 for IPO, lot has to happen before we do that..."

 

Asked about settlement due to recent court ruling: "Looking to rebuild capital and once NWS ends which is part of our plan then a lot of these suits go away."  Didn't say no to settlement, didn't say yes to settlement.

 

Thanks Luke.  I missed it, can someone post a link when available?

 

[Guest cherzeca]

Calabria live now: https://www.bloomberg.com/live/us

 

"4th Q 2020 for IPO, lot has to happen before we do that..."

 

Asked about settlement due to recent court ruling: "Looking to rebuild capital and once NWS ends which is part of our plan then a lot of these suits go away."  Didn't say no to settlement, didn't say yes to settlement.

 

well unless fhfa/treasury are willing to kill the senior pref and put back $20B+- somehow, not sure the litigation will go away.  so I take this as either calabria is clueless, or he is telling us that the Ps will get what they want

[Midas79]

well unless fhfa/treasury are willing to kill the senior pref and put back $20B+- somehow, not sure the litigation will go away.  so I take this as either calabria is clueless, or he is telling us that the Ps will get what they want

 

Killing the seniors and the $25B putback is what the Collins plaintiffs wanted. Is it really a settlement if FHFA and Treasury just knuckle under and give them everything? I don't know if the plaintiffs would really hold out if Treasury offered to kill the seniors and NWS but keep the $25B, or part of it.

 

It's a tense negotiation. The plaintiffs have a lot to lose too if this doesn't all get done by the end of 2020. If I were them I would be leery of taking too hard a line at the negotiating table.

[Guest cherzeca]

well unless fhfa/treasury are willing to kill the senior pref and put back $20B+- somehow, not sure the litigation will go away.  so I take this as either calabria is clueless, or he is telling us that the Ps will get what they want

 

Killing the seniors and the $25B putback is what the Collins plaintiffs wanted. Is it really a settlement if FHFA and Treasury just knuckle under and give them everything? I don't know if the plaintiffs would really hold out if Treasury offered to kill the seniors and NWS but keep the $25B, or part of it.

 

It's a tense negotiation. The plaintiffs have a lot to lose too if this doesn't all get done by the end of 2020. If I were them I would be leery of taking too hard a line at the negotiating table.

 

yes, I could see fhfa/treasury doing something less after a period of retaining earnings after shutting off sweep, lets say just killing senior pref, and then they say to Ps, ok do you want us to do an offering or not?  a stare down. if Ps dont capitulate after getting most of what they want, then it is just coasting along with retained earnings.

[Midas79]

Further thought on the seniors. Calabria said today that the letter agreement will increase the seniors' liquidation preference by 1.5-2 years of earnings. That's right around $30B. Adding that to the seniors would bring FnF back to the 10% moment, give or take. Then Treasury could just straight up keep the $25B in question, no tax credit at all.

[DocSnowball]

Further thought on the seniors. Calabria said today that the letter agreement will increase the seniors' liquidation preference by 1.5-2 years of earnings. That's right around $30B. Adding that to the seniors would bring FnF back to the 10% moment, give or take. Then Treasury could just straight up keep the $25B in question, no tax credit at all.

That's the part I am struggling with. Despite the court ruling, the current admin plan is to simply add all the retained earnings to the seniors liquidation preference. So all 100% profits are still flowing to the Treasury from a legal standpoint. This one aspect is bothersome - or it may be a negotiating tactic that they want to make sure lawsuits are settled in return for extinguishing this senior liquidation preference or converting it into an explicit commitment fee.

[Luke 532]

Calabria live now: https://www.bloomberg.com/live/us

 

"4th Q 2020 for IPO, lot has to happen before we do that..."

 

Asked about settlement due to recent court ruling: "Looking to rebuild capital and once NWS ends which is part of our plan then a lot of these suits go away."  Didn't say no to settlement, didn't say yes to settlement.

 

Interview done, was very short.

 

Here's the interview: https://www.bloomberg.com/news/videos/2019-09-16/fannie-mae-and-freddie-mac-won-t-go-to-market-until-end-of-2020-fhfa-director-says-video

[Guest cherzeca]

Calabria live now: https://www.bloomberg.com/live/us

 

"4th Q 2020 for IPO, lot has to happen before we do that..."

 

Asked about settlement due to recent court ruling: "Looking to rebuild capital and once NWS ends which is part of our plan then a lot of these suits go away."  Didn't say no to settlement, didn't say yes to settlement.

 

Interview done, was very short.

 

Here's the interview: https://www.bloomberg.com/news/videos/2019-09-16/fannie-mae-and-freddie-mac-won-t-go-to-market-until-end-of-2020-fhfa-director-says-video

 

thanks Luke!  (questionable legality.....HA!)

[orthopa]

Another nicely timed interview(on purpose) with some more new vague comments and some clarity of some older vague comments.  Great questions by the interviewer also.

[orthopa]

Anyone have thoughts on the 6-12 month time period before IPO? It seems after ~6 months of retained earnings and preferred conversion we should be pretty much on way building capital. Potential investors/at least the heavy hitters are aware of the potential and earnings of FNF. Do they really need to see another year of what they can earn before they would invest? Seems like gov giving themselves some cushion but I don't see it being necessary. Thoughts?

 

Also noticed in the inteview that he said its up to the companies to raise the money/IPO. He is only there to regulate, just like Treasury only there to protect tax payers investment. Nice way to deflect the enriching shareholders. Everyone just doing their job to protect their agency. Hopefully there is a big internal push within FnF to IPO quickly and not dick around for a year.

[Midas79]

Anyone have thoughts on the 6-12 month time period before IPO? It seems after ~6 months of retained earnings and preferred conversion we should be pretty much on way building capital. Potential investors/at least the heavy hitters are aware of the potential and earnings of FNF. Do they really need to see another year of what they can earn before they would invest? Seems like gov giving themselves some cushion but I don't see it being necessary. Thoughts?

 

Also noticed in the inteview that he said its up to the companies to raise the money/IPO. He is only there to regulate, just like Treasury only there to protect tax payers investment. Nice way to deflect the enriching shareholders. Everyone just doing their job to protect their agency. Hopefully there is a big internal push within FnF to IPO quickly and not dick around for a year.

 

The 6-12 month period seems excessive. It's even worse when you consider that Calabria pegged the IPO date at Q4 2020 or Q1 2021. Pushing things out that far is really risky. It's not like investors need some sort of track record of earnings. They know exactly what they are getting.

 

6 months of retained earnings could be Q2 and Q3 2019, putting a Q1 2020 IPO in play, if not for the Q4 2020/Q1 2021 comment.

 

Election season is going to take more and more of Trump's attention as 2020 goes on. I bet he wants this done ASAP. If investors are willing to put in $100B after 12 months of retained earnings, why would they not be willing to put in that same money in Q1 2020?

[Jcmeg35]

I tend to agree with this thinking. Two thoughts:

 

1. It is possible that after the Treasury plan took much longer to come out than initially indicated, Calabria is taking the conservative approach on timelines.

2. Playing devil's advocate - assuming that this is in fact the "planned" timeline, perhaps the thinking is that they want to be able to say that the companies will have met full capital requirements and be released following the IPO. So if you are a new investor putting money in you know that once raise is finished conservatorship will be over.

 

 

 

Anyone have thoughts on the 6-12 month time period before IPO? It seems after ~6 months of retained earnings and preferred conversion we should be pretty much on way building capital. Potential investors/at least the heavy hitters are aware of the potential and earnings of FNF. Do they really need to see another year of what they can earn before they would invest? Seems like gov giving themselves some cushion but I don't see it being necessary. Thoughts?

 

Also noticed in the inteview that he said its up to the companies to raise the money/IPO. He is only there to regulate, just like Treasury only there to protect tax payers investment. Nice way to deflect the enriching shareholders. Everyone just doing their job to protect their agency. Hopefully there is a big internal push within FnF to IPO quickly and not dick around for a year.

 

The 6-12 month period seems excessive. It's even worse when you consider that Calabria pegged the IPO date at Q4 2020 or Q1 2021. Pushing things out that far is really risky. It's not like investors need some sort of track record of earnings. They know exactly what they are getting.

 

6 months of retained earnings could be Q2 and Q3 2019, putting a Q1 2020 IPO in play, if not for the Q4 2020/Q1 2021 comment.

 

Election season is going to take more and more of Trump's attention as 2020 goes on. I bet he wants this done ASAP. If investors are willing to put in $100B after 12 months of retained earnings, why would they not be willing to put in that same money in Q1 2020?

[investorG]

if they need $100bn+, it would likely take more than 12 months of retained earnings plus 1 re-IPO to reach that number; there's a limit to how much IPO money can be confidently assumed to be raised.  perhaps, and mnuchin has mentioned, an intermediate private capital round is potentially necessary in whatever theoretical plan they are working off of.  I agree the plaintiffs ideally should be firm but not greedy in any potential settlement negotiation.

[Guest cherzeca]

if they need $100bn+, it would likely take more than 12 months of retained earnings plus 1 re-IPO to reach that number; there's a limit to how much IPO money can be confidently assumed to be raised.  perhaps, and mnuchin has mentioned, an intermediate private capital round is potentially necessary in whatever theoretical plan they are working off of.  I agree the plaintiffs ideally should be firm but not greedy in any potential settlement negotiation.

 

time is not an enemy here.  I know hardincap will argue that it reduces IRR but my IRR calculation has already been blown to hell.  once the senior pref is eliminated, then I dont see potus warren or anyone else messing with the juniors or common, as that will be a huge litigation claim.  when the capital rule is satisfied is less an issue for me than when the senior prefs have been nuked.