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

[orthopa]

Just to throw my 2 pennies in I think it the past mnuchin and others have talked about taking FnF out of conservatorship, capital etc and then separately about finance reform. I think the WH is willing to work with congress on actual reform of FnF not the plan Otting etc have.

 

Otting and Mnuchin administratively can do a ton obviously; stop NWS, possibly cancel sr prfd, exercise warrants etc all before or along side any actual "reform" the WH and congress decide to do. I think shareholders can still make out nicely before or along side anything congress or WH come out with.

 

I maybe naive but believe everything Otting said on the recording and implied with his comments.

[investorG]

imo it's not as easy (if it's possible at all) as people casually write about for the Tsy scty to simply 'cancel' a nearly $200bn asset (sr pref) of the federal government.  if we ever win a court case, that can change.  but without that, Mnuchin likely needs Congress to fully retire the sr pref.  in the absence of a court win or congress, then we're possibly looking at some negotiated bargain between Tsy, berkowitz (and peers) and Ackman on a restructured company whereby the Tsy has the leverage and converts Sr pref to common in addition to the warrants - which would very likely lead to reduced investor share price targets vs. current expectations for both common and jr preferred.

 

long story short: a Moelis-type plan (and accompanying price targets) likely needs either a court win or out of nowhere a comprehensive and balanced legislative deal.

[rros]

imo it's not as easy (if it's possible at all) as people casually write about for the Tsy scty to simply 'cancel' a nearly $200bn asset (sr pref) of the federal government.  if we ever win a court case, that can change.  but without that, Mnuchin likely needs Congress to fully retire the sr pref.  in the absence of a court win or congress, then we're possibly looking at some negotiated bargain between Tsy, berkowitz (and peers) and Ackman on a restructured company whereby the Tsy has the leverage and converts Sr pref to common in addition to the warrants - which would very likely lead to reduced investor share price targets vs. current expectations for both common and jr preferred.

 

long story short: a Moelis-type plan (and accompanying price targets) likely needs either a court win or out of nowhere a comprehensive and balanced legislative deal.

You may have information I may not or you may hear things I don't. But from where I sit only the political side is not easy. The technical one is simple to solve. Politicians ultimately will not shoot themselves in their feet. At some point, all will come to the understanding that the Srs. in place are a major roadblock to move forward, on any plan. I can't find one reason why anybody will risk their money with that sword over their head.

 

The nws, its concept, is antithetical to capitalism. It is at odds in an essential way. The PSPAs were already bad as they were originally structured with no possible redemption of the investment. As much as Congress likes to have these companies chained one day they will realize that this has been the issue all along. Maybe that day, some Administration will simply act.

[allnatural]

Not only that but it would also require the GSEs to somehow raise an additional $180b to account for the sr prefs... the current task of $150-$200b is already large enough as is. Good luck getting investors to pony up capital w. the senior pfds outstanding. O so the government received $300b, + they will earn $100b on the common, + they want another $200b for their sr prefs. So they will get $600b on this total? Good luck

 

 

imo it's not as easy (if it's possible at all) as people casually write about for the Tsy scty to simply 'cancel' a nearly $200bn asset (sr pref) of the federal government.  if we ever win a court case, that can change.  but without that, Mnuchin likely needs Congress to fully retire the sr pref.  in the absence of a court win or congress, then we're possibly looking at some negotiated bargain between Tsy, berkowitz (and peers) and Ackman on a restructured company whereby the Tsy has the leverage and converts Sr pref to common in addition to the warrants - which would very likely lead to reduced investor share price targets vs. current expectations for both common and jr preferred.

 

long story short: a Moelis-type plan (and accompanying price targets) likely needs either a court win or out of nowhere a comprehensive and balanced legislative deal.

You may have information I may not or you may hear things I don't. But from where I sit only the political side is not easy. The technical one is simple to solve. Politicians ultimately will not shoot themselves in their feet. At some point, all will come to the understanding that the Srs. in place are a major roadblock to move forward, on any plan. I can't find one reason why anybody will risk their money with that sword over their head.

[blackcoffee]

Not only that but it would also require the GSEs to somehow raise an additional $180b to account for the sr prefs... the current task of $150-$200b is already large enough as is. Good luck getting investors to pony up capital w. the senior pfds outstanding. O so the government received $300b, + they will earn $100b on the common, + they want another $200b for their sr prefs. So they will get $600b on this total? Good luck

 

 

imo it's not as easy (if it's possible at all) as people casually write about for the Tsy scty to simply 'cancel' a nearly $200bn asset (sr pref) of the federal government.  if we ever win a court case, that can change.  but without that, Mnuchin likely needs Congress to fully retire the sr pref.  in the absence of a court win or congress, then we're possibly looking at some negotiated bargain between Tsy, berkowitz (and peers) and Ackman on a restructured company whereby the Tsy has the leverage and converts Sr pref to common in addition to the warrants - which would very likely lead to reduced investor share price targets vs. current expectations for both common and jr preferred.

 

long story short: a Moelis-type plan (and accompanying price targets) likely needs either a court win or out of nowhere a comprehensive and balanced legislative deal.

You may have information I may not or you may hear things I don't. But from where I sit only the political side is not easy. The technical one is simple to solve. Politicians ultimately will not shoot themselves in their feet. At some point, all will come to the understanding that the Srs. in place are a major roadblock to move forward, on any plan. I can't find one reason why anybody will risk their money with that sword over their head.

 

and the best part is - they didn't deserve any of it!

[investorG]

Not only that but it would also require the GSEs to somehow raise an additional $180b to account for the sr prefs... the current task of $150-$200b is already large enough as is. Good luck getting investors to pony up capital w. the senior pfds outstanding. O so the government received $300b, + they will earn $100b on the common, + they want another $200b for their sr prefs. So they will get $600b on this total? Good luck

 

 

imo it's not as easy (if it's possible at all) as people casually write about for the Tsy scty to simply 'cancel' a nearly $200bn asset (sr pref) of the federal government.  if we ever win a court case, that can change.  but without that, Mnuchin likely needs Congress to fully retire the sr pref.  in the absence of a court win or congress, then we're possibly looking at some negotiated bargain between Tsy, berkowitz (and peers) and Ackman on a restructured company whereby the Tsy has the leverage and converts Sr pref to common in addition to the warrants - which would very likely lead to reduced investor share price targets vs. current expectations for both common and jr preferred.

 

long story short: a Moelis-type plan (and accompanying price targets) likely needs either a court win or out of nowhere a comprehensive and balanced legislative deal.

You may have information I may not or you may hear things I don't. But from where I sit only the political side is not easy. The technical one is simple to solve. Politicians ultimately will not shoot themselves in their feet. At some point, all will come to the understanding that the Srs. in place are a major roadblock to move forward, on any plan. I can't find one reason why anybody will risk their money with that sword over their head.

 

 

The govt has made ~100bn so far in interest / profits.  after structural changes warrants might be worth $50-75bn in some out years. 

 

I do not believe they would make another $200bn from the sr pref in the potential scenario I mentioned.  Rather, instead of owning around 80pct of the pre-new-money restructured companies (from warrants), maybe that ownership stake would be [90]pct, squeezing out the existing common and jr pref, in some negotiated settlement. 

 

Why would they do this? in the absence of a court win or legislative blessing, they might a) want to cap the optics of hf returns and b) gain some modest value from the sr pref so that they are not exposed (legally or politically) to wasting taxpayer assets.

 

 

[blackcoffee]

Not only that but it would also require the GSEs to somehow raise an additional $180b to account for the sr prefs... the current task of $150-$200b is already large enough as is. Good luck getting investors to pony up capital w. the senior pfds outstanding. O so the government received $300b, + they will earn $100b on the common, + they want another $200b for their sr prefs. So they will get $600b on this total? Good luck

 

 

imo it's not as easy (if it's possible at all) as people casually write about for the Tsy scty to simply 'cancel' a nearly $200bn asset (sr pref) of the federal government.  if we ever win a court case, that can change.  but without that, Mnuchin likely needs Congress to fully retire the sr pref.  in the absence of a court win or congress, then we're possibly looking at some negotiated bargain between Tsy, berkowitz (and peers) and Ackman on a restructured company whereby the Tsy has the leverage and converts Sr pref to common in addition to the warrants - which would very likely lead to reduced investor share price targets vs. current expectations for both common and jr preferred.

 

long story short: a Moelis-type plan (and accompanying price targets) likely needs either a court win or out of nowhere a comprehensive and balanced legislative deal.

You may have information I may not or you may hear things I don't. But from where I sit only the political side is not easy. The technical one is simple to solve. Politicians ultimately will not shoot themselves in their feet. At some point, all will come to the understanding that the Srs. in place are a major roadblock to move forward, on any plan. I can't find one reason why anybody will risk their money with that sword over their head.

 

 

The govt has made ~100bn so far in interest / profits.  after structural changes warrants might be worth $50-75bn in some out years. 

 

I do not believe they would make another $200bn from the sr pref in the potential scenario I mentioned.  Rather, instead of owning around 80pct of the pre-new-money restructured companies (from warrants), maybe that ownership stake would be [90]pct, squeezing out the existing common and jr pref, in some negotiated settlement. 

 

Why would they do this? in the absence of a court win or legislative blessing, they might a) want to cap the optics of hf returns and b) gain some modest value from the sr pref so that they are not exposed (legally or politically) to wasting taxpayer assets.

 

are they not at all concerned about being able to raise $0 dollars based on the optics to date?

[rros]

Not only that but it would also require the GSEs to somehow raise an additional $180b to account for the sr prefs... the current task of $150-$200b is already large enough as is. Good luck getting investors to pony up capital w. the senior pfds outstanding. O so the government received $300b, + they will earn $100b on the common, + they want another $200b for their sr prefs. So they will get $600b on this total? Good luck

 

 

imo it's not as easy (if it's possible at all) as people casually write about for the Tsy scty to simply 'cancel' a nearly $200bn asset (sr pref) of the federal government.  if we ever win a court case, that can change.  but without that, Mnuchin likely needs Congress to fully retire the sr pref.  in the absence of a court win or congress, then we're possibly looking at some negotiated bargain between Tsy, berkowitz (and peers) and Ackman on a restructured company whereby the Tsy has the leverage and converts Sr pref to common in addition to the warrants - which would very likely lead to reduced investor share price targets vs. current expectations for both common and jr preferred.

 

long story short: a Moelis-type plan (and accompanying price targets) likely needs either a court win or out of nowhere a comprehensive and balanced legislative deal.

You may have information I may not or you may hear things I don't. But from where I sit only the political side is not easy. The technical one is simple to solve. Politicians ultimately will not shoot themselves in their feet. At some point, all will come to the understanding that the Srs. in place are a major roadblock to move forward, on any plan. I can't find one reason why anybody will risk their money with that sword over their head.

 

 

The govt has made ~100bn so far in interest / profits.  after structural changes warrants might be worth $50-75bn in some out years. 

 

I do not believe they would make another $200bn from the sr pref in the potential scenario I mentioned.  Rather, instead of owning around 80pct of the pre-new-money restructured companies (from warrants), maybe that ownership stake would be [90]pct, squeezing out the existing common and jr pref, in some negotiated settlement. 

 

Why would they do this? in the absence of a court win or legislative blessing, they might a) want to cap the optics of hf returns and b) gain some modest value from the sr pref so that they are not exposed (legally or politically) to wasting taxpayer assets.

I do not understand this math. If they end up owning 90% of a 200+ bill mkt cap investment, doesn't that mean warrants+srs will be worth $180+ bill in common shares that they could possibly sell around this value? Or your belief is that they will get rid of their stake way before companies reach that valuation?

[Guest cherzeca]

@IG

 

the other issue with the SPs is that the treasury line is necessarily at risk.  you cant eliminate that risk if you cant build up capital.  you cant build up capital with SPs.  so you can eliminate draw risk and turn warrant position into >$100B and settle lawsuits, or keep SPs.  this after you have been fully repaid on the SP original terms.

 

I don't see your issue. treasury has no problem here.

[SnarkyPuppy]

I think everyone is over complicating what is obvious:

 

Announce plan for broader reform simultaneously with specific administrative steps to be taken to protect taxpayers and recommendations to congress for broader legislative steps: 

1. Legislative recommendations

a.  Ask federal charters to be modified to allow for private competition and explicit paid for catastrophic guarantee

b.  Other recommendations (such as changes to affordable housing specifics or ginnie item mentioned by cherz recently which are not relevant to our thesis)

 

2.  Administrative actions to reduce taxpayer risk

a.  Amend agreement to original contract terms and deem fully repaid (10% moment) consistent w/ mulvaney prior legislation and w/ Calabria's views on NWS

b.  Finalize capital requirements

c.  Implement capital requirements through some moelis type recap

d.  Unwind govt "line of credit" relative to recap progress (moelis)

e.  FHFA to deem conservatptship ended once these steps have been accomplished

 

When asked why administrative actions are being taken without approval by congress:

- lack of capital exposes taxpayers and does not adequately price current explicit limited backstop under all scenarios

- existence of SPSA and conservatorship does not allow capital to build (secondary offering)

- government makes $150bn and private capital bears risk of impairment of net income stream

- explain conservatoeship and SPSA are mutually exclusive from congress reforms and for reasons described above create hidden taxpayer risk

- won't be said but will be true:  congress can't do jack sh1t

[Guest cherzeca]

@SP. +1

[Luke 532]

@SP. +1

 

Agreed. Good post, Snarky.

[investorG]

@IG

 

the other issue with the SPs is that the treasury line is necessarily at risk.  you cant eliminate that risk if you cant build up capital.  you cant build up capital with SPs.  so you can eliminate draw risk and turn warrant position into >$100B and settle lawsuits, or keep SPs.  this after you have been fully repaid on the SP original terms.

 

I don't see your issue. treasury has no problem here.

 

I agree, the Sr pref needs to go away to raise capital.  What I'm saying is that absent a court win or congress deeming the sr pref repaid, it's harder for the Tsy scty to merely cancel a $200bn taxpayer asset than many here assume, either legally or politically. 

 

in Moelis, let's assume the IPO price is 10.  Jr pref get about $33bn in value (assume all convert at par), existing common around $20bn (2bn shares x 10), govt $80bn (8bn shares x 10), and the rest to new buyers.  what i'm saying is a potential scenario if no court win and no congress retiring the sr pref is that in addition to the warrants (8bn shares), the govt also converts the whole sr pref (eliminating it) to say another $20bn of common shares at the IPO in a negotiated transaction with all the parties.  this comes out of the ~$53bn pot that goes to jr pref and common.  so commoners get maybe $5 and jr pref 60% of par. 

 

 

[investorG]

Not only that but it would also require the GSEs to somehow raise an additional $180b to account for the sr prefs... the current task of $150-$200b is already large enough as is. Good luck getting investors to pony up capital w. the senior pfds outstanding. O so the government received $300b, + they will earn $100b on the common, + they want another $200b for their sr prefs. So they will get $600b on this total? Good luck

 

 

imo it's not as easy (if it's possible at all) as people casually write about for the Tsy scty to simply 'cancel' a nearly $200bn asset (sr pref) of the federal government.  if we ever win a court case, that can change.  but without that, Mnuchin likely needs Congress to fully retire the sr pref.  in the absence of a court win or congress, then we're possibly looking at some negotiated bargain between Tsy, berkowitz (and peers) and Ackman on a restructured company whereby the Tsy has the leverage and converts Sr pref to common in addition to the warrants - which would very likely lead to reduced investor share price targets vs. current expectations for both common and jr preferred.

 

long story short: a Moelis-type plan (and accompanying price targets) likely needs either a court win or out of nowhere a comprehensive and balanced legislative deal.

You may have information I may not or you may hear things I don't. But from where I sit only the political side is not easy. The technical one is simple to solve. Politicians ultimately will not shoot themselves in their feet. At some point, all will come to the understanding that the Srs. in place are a major roadblock to move forward, on any plan. I can't find one reason why anybody will risk their money with that sword over their head.

 

 

The govt has made ~100bn so far in interest / profits.  after structural changes warrants might be worth $50-75bn in some out years. 

 

I do not believe they would make another $200bn from the sr pref in the potential scenario I mentioned.  Rather, instead of owning around 80pct of the pre-new-money restructured companies (from warrants), maybe that ownership stake would be [90]pct, squeezing out the existing common and jr pref, in some negotiated settlement. 

 

Why would they do this? in the absence of a court win or legislative blessing, they might a) want to cap the optics of hf returns and b) gain some modest value from the sr pref so that they are not exposed (legally or politically) to wasting taxpayer assets.

I do not understand this math. If they end up owning 90% of a 200+ bill mkt cap investment, doesn't that mean warrants+srs will be worth $180+ bill in common shares that they could possibly sell around this value? Or your belief is that they will get rid of their stake way before companies reach that valuation?

 

new investors get something too.  alot of shares for putting up the required capital.

[investorG]

Not only that but it would also require the GSEs to somehow raise an additional $180b to account for the sr prefs... the current task of $150-$200b is already large enough as is. Good luck getting investors to pony up capital w. the senior pfds outstanding. O so the government received $300b, + they will earn $100b on the common, + they want another $200b for their sr prefs. So they will get $600b on this total? Good luck

 

 

imo it's not as easy (if it's possible at all) as people casually write about for the Tsy scty to simply 'cancel' a nearly $200bn asset (sr pref) of the federal government.  if we ever win a court case, that can change.  but without that, Mnuchin likely needs Congress to fully retire the sr pref.  in the absence of a court win or congress, then we're possibly looking at some negotiated bargain between Tsy, berkowitz (and peers) and Ackman on a restructured company whereby the Tsy has the leverage and converts Sr pref to common in addition to the warrants - which would very likely lead to reduced investor share price targets vs. current expectations for both common and jr preferred.

 

long story short: a Moelis-type plan (and accompanying price targets) likely needs either a court win or out of nowhere a comprehensive and balanced legislative deal.

You may have information I may not or you may hear things I don't. But from where I sit only the political side is not easy. The technical one is simple to solve. Politicians ultimately will not shoot themselves in their feet. At some point, all will come to the understanding that the Srs. in place are a major roadblock to move forward, on any plan. I can't find one reason why anybody will risk their money with that sword over their head.

 

 

The govt has made ~100bn so far in interest / profits.  after structural changes warrants might be worth $50-75bn in some out years. 

 

I do not believe they would make another $200bn from the sr pref in the potential scenario I mentioned.  Rather, instead of owning around 80pct of the pre-new-money restructured companies (from warrants), maybe that ownership stake would be [90]pct, squeezing out the existing common and jr pref, in some negotiated settlement. 

 

Why would they do this? in the absence of a court win or legislative blessing, they might a) want to cap the optics of hf returns and b) gain some modest value from the sr pref so that they are not exposed (legally or politically) to wasting taxpayer assets.

 

are they not at all concerned about being able to raise $0 dollars based on the optics to date?

 

i wish but unfortunately not likely.  lots of sharks in DC and wall street.

 

[Midas79]

I agree, the Sr pref needs to go away to raise capital.  What I'm saying is that absent a court win or congress deeming the sr pref repaid, it's harder for the Tsy scty to merely cancel a $200bn taxpayer asset than many here assume, either legally or politically. 

 

in Moelis, let's assume the IPO price is 10.  Jr pref get about $33bn in value (assume all convert at par), existing common around $20bn (2bn shares x 10), govt $80bn (8bn shares x 10), and the rest to new buyers.  what i'm saying is a potential scenario if no court win and no congress retiring the sr pref is that in addition to the warrants (8bn shares), the govt also converts the whole sr pref (eliminating it) to say another $20bn of common shares at the IPO in a negotiated transaction with all the parties.  this comes out of the ~$53bn pot that goes to jr pref and common.  so commoners get maybe $5 and jr pref 60% of par.

 

About the share count: if the juniors all convert at $10, that's 3.3B shares. Added to the 1.8B current shares it's 5.1B. Then the warrants can be exercised for 4x that amount, or 20.4B shares.

 

Why would the juniors agree to a conversion that only gets them 60% of par? And why would the new buyers accept a $10 price? If the companies need to raise $100B, that price only gives them 10B shares out of a total of total of 35.5B (3.3B converted juniors + 1.8B current + 20.4B Treasury warrant + 10B new money). If I were a new buyer I would never accept less than 1/3 of the companies when I'm putting in essentially all of the capital.

 

Instead, IPO the shares at $2. Convert half of the juniors at par: $16.6B of total par divided by $2 = 8.3B new shares. Treasury gets 40.4B shares (1.8B current + 8.3 converted juniors, then times 4), worth $80B in cash. Then the other $100B is raised at $2 a share. The new buyers get 50B out of a total of 100.5B shares, about half the companies. Even that might not be enough!

 

To take it to the extreme, IPO the shares at $0.25. Convert half the juniors at par: $16.6B divided by $0.25 = 66.4B new shares. Treasury gets 272.8B shares (1.8 current + 66.4B converted juniors, then times 4), worth $68.2B in cash. The new buyers get 400B shares for their $100B. Now they get 400B out of a total of 741B shares, for a 54% stake.

 

I don't think we can do offering price estimates like this. A conversion plus warrant exercise just adds too many shares, when you add the condition that the junior conversion price is the same as the IPO price. Maybe we have to start with asking ourselves what percentage of the companies the new buyers will want for their $100B. If it's too high then Treasury starts getting squeezed; will they let that happen?

 

In any case, I wouldn't want to be in the common shareholders' shoes when all this goes down. They're the one party that nobody will be looking out for. Imagine if the warrants actually were cancelled. Then the price could get driven down to a few pennies. The same is true if Treasury lets FnF buy back the warrants for a certain amount of money. That has the advantage of guaranteeing Treasury that amount, regardless of where the market sets the price of the commons later.

[investorG]

I agree, the Sr pref needs to go away to raise capital.  What I'm saying is that absent a court win or congress deeming the sr pref repaid, it's harder for the Tsy scty to merely cancel a $200bn taxpayer asset than many here assume, either legally or politically. 

 

in Moelis, let's assume the IPO price is 10.  Jr pref get about $33bn in value (assume all convert at par), existing common around $20bn (2bn shares x 10), govt $80bn (8bn shares x 10), and the rest to new buyers.  what i'm saying is a potential scenario if no court win and no congress retiring the sr pref is that in addition to the warrants (8bn shares), the govt also converts the whole sr pref (eliminating it) to say another $20bn of common shares at the IPO in a negotiated transaction with all the parties.  this comes out of the ~$53bn pot that goes to jr pref and common.  so commoners get maybe $5 and jr pref 60% of par.

 

About the share count: if the juniors all convert at $10, that's 3.3B shares. Added to the 1.8B current shares it's 5.1B. Then the warrants can be exercised for 4x that amount, or 20.4B shares.

 

Why would the juniors agree to a conversion that only gets them 60% of par? And why would the new buyers accept a $10 price? If the companies need to raise $100B, that price only gives them 10B shares out of a total of total of 35.5B (3.3B converted juniors + 1.8B current + 20.4B Treasury warrant + 10B new money). If I were a new buyer I would never accept less than 1/3 of the companies when I'm putting in essentially all of the capital.

 

Instead, IPO the shares at $2. Convert half of the juniors at par: $16.6B of total par divided by $2 = 8.3B new shares. Treasury gets 40.4B shares (1.8B current + 8.3 converted juniors, then times 4), worth $80B in cash. Then the other $100B is raised at $2 a share. The new buyers get 50B out of a total of 100.5B shares, about half the companies. Even that might not be enough!

 

To take it to the extreme, IPO the shares at $0.25. Convert half the juniors at par: $16.6B divided by $0.25 = 66.4B new shares. Treasury gets 272.8B shares (1.8 current + 66.4B converted juniors, then times 4), worth $68.2B in cash. The new buyers get 400B shares for their $100B. Now they get 400B out of a total of 741B shares, for a 54% stake.

 

I don't think we can do offering price estimates like this. A conversion plus warrant exercise just adds too many shares, when you add the condition that the junior conversion price is the same as the IPO price. Maybe we have to start with asking ourselves what percentage of the companies the new buyers will want for their $100B. If it's too high then Treasury starts getting squeezed; will they let that happen?

 

In any case, I wouldn't want to be in the common shareholders' shoes when all this goes down. They're the one party that nobody will be looking out for. Imagine if the warrants actually were cancelled. Then the price could get driven down to a few pennies. The same is true if Treasury lets FnF buy back the warrants for a certain amount of money. That has the advantage of guaranteeing Treasury that amount, regardless of where the market sets the price of the commons later.

 

jr's might agree to convert at discount to par because they have limited leverage in this situation and something is better than nothing.  convert @ 60pct (theoretically) or hold some jr pref where dividends might not be turned on for many years.

 

If we go down the recapitalization, I doubt the govt wants to squeeze all the juice out of the existing commoners.  it's bad optics and not a lot gained given their market capitalization is so small relative to the final end game value of the companies.

 

i'll leave it here rather than clog the board, I just believe it's most likely that a full Moelis outcome needs either congress or a court win.  I know that many FnF supporters believe otherwise.

[Midas79]

jr's might agree to convert at discount to par because they have limited leverage in this situation and something is better than nothing.  convert @ 60pct (theoretically) or hold some jr pref where dividends might not be turned on for many years.

 

If we go down the recapitalization, I doubt the govt wants to squeeze all the juice out of the existing commoners.  it's bad optics and not a lot gained given their market capitalization is so small relative to the final end game value of the companies.

 

i'll leave it here rather than clog the board, I just believe it's most likely that a full Moelis outcome needs either congress or a court win.  I know that many FnF supporters believe otherwise.

 

If the big junior holders are willing to settle for 60% of par, I won't really have a choice but to follow along. I thought one lawyer team called their clients "par-seeking missiles" though.

 

As for the squeeze on the existing commons, that comes from three sources: junior conversion, warrants, new buyers. However, the government's squeeze factor against the existing commons is the same no matter what the IPO price is, so any "bad optics" from the common price dropping is solely attributable to the junior conversion and the IPO itself. Those parties probably don't care how badly they squeeze the existing commons, they have no reputation to preserve here.

 

If this truly is clutter I will stop after this as well.

[Luke 532]

If this truly is clutter I will stop after this as well.

 

I don't think it's clutter and I'm probably not alone.  I appreciate the conversation taking place and hope it continues.

[DRValue]

I think we're re-litigating old points, and at this point you're either in or out. We're days away from the end after all this time, going over this again won't get us any closer to being right. But remember, you can't screw shareholders with the left hand and then ask for money with the right hand.

[Midas79]

But remember, you can't screw shareholders with the left hand and then ask for money with the right hand.

 

Would you mind being more clear here? As I said above, the government exercising the warrants dilutes the commons 5x no matter what the offering price is. If you think it's the low offering price that screws the commons, remember that a lower IPO price directly benefits the new buyers because they end up with more of the companies (by percentage) in the end. In that case, screwing the existing commons is actually an attractant to new money, not a deterrent.

[rros]

If this truly is clutter I will stop after this as well.

 

I don't think it's clutter and I'm probably not alone.  I appreciate the conversation taking place and hope it continues.

Yes, not clutter. Thank you for adding these scenarios. IG's is quite probable in that a negotiated settlement will require everyone to contribute. A 40% par cut is a pretty big chunk for us.

[DRValue]

But remember, you can't screw shareholders with the left hand and then ask for money with the right hand.

 

Would you mind being more clear here? As I said above, the government exercising the warrants dilutes the commons 5x no matter what the offering price is. If you think it's the low offering price that screws the commons, remember that a lower IPO price directly benefits the new buyers because they end up with more of the companies (by percentage) in the end. In that case, screwing the existing commons is actually an attractant to new money, not a deterrent.

 

If existing shareholders are screwed, would you want to be a new shareholder?

[DRValue]

But remember, you can't screw shareholders with the left hand and then ask for money with the right hand.

 

Would you mind being more clear here? As I said above, the government exercising the warrants dilutes the commons 5x no matter what the offering price is. If you think it's the low offering price that screws the commons, remember that a lower IPO price directly benefits the new buyers because they end up with more of the companies (by percentage) in the end. In that case, screwing the existing commons is actually an attractant to new money, not a deterrent.

 

If existing shareholders are screwed, would you want to be a new shareholder?

 

And thinking about this, this is why you hedge with some prefs  ;D ;D

[Spekulatius]

I think we're re-litigating old points, and at this point you're either in or out. We're days away from the end after all this time, going over this again won't get us any closer to being right. But remember, you can't screw shareholders with the left hand and then ask for money with the right hand.

 

Yes you can, as long as the shareholders you screwed and the new shareholders are different. It happens all the time.