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

[orthopa]

CNBC reported on it, dont see it yet though.

 

[Guest cherzeca]

“Treasury expects that it will be necessary to maintain limited and tailored Government support for the GSEs by leaving the PSPA commitment in place after the conservatorships," the report says. "The Federal Government should be compensated for its continued support through the periodic commitment fee, as originally established by the PSPAs."

 

still dont have link to entire report...this from ms lang

[DRValue]

"There is nothing in the administration’s plan to address the holders of Fannie and Freddie common shares. The expectation of this plan, however, has sent those shares soaring in the past few weeks."

 

It's 53 pages...

[Guest cherzeca]

 

[Guest cherzeca]

https://www.mortgagemedia.com/wp-content/uploads/2019/09/Treasury-Housing-Finance-Reform-Plan.pdf

[DRValue]

Skimmed. Not expecting stocks to move.

[Luke 532]

https://www.mortgagemedia.com/wp-content/uploads/2019/09/Treasury-Housing-Finance-Reform-Plan.pdf

 

P.4 The existing Government support of each GSE under its Senior Preferred Stock Purchase Agreement (“PSPA”) with Treasury should be replaced with an explicit, paid-for guarantee backed by the full faith and credit of the Federal Government that is limited to the timely payment of principal and interest on qualifying MBS.

 

P.5 To ensure stability in the housing finance system pending comprehensive housing finance reform legislation, Treasury expects that it will be necessary to maintain limited and tailored Government support for the GSEs by leaving the PSPA commitment in place after the conservatorships. The Federal Government should be compensated for its continued support through the periodic commitment fee, as originally established by the PSPAs. Each GSE should be recapitalized with significant first-loss private capital so that Treasury’s ongoing commitment under each PSPA could be drawn upon only in exigent circumstances. To facilitate recapitalization of the GSEs, Treasury and FHFA should consider adjusting the variable dividend (also known as the “net worth sweep”) required by the terms of Treasury’s senior preferred shares, as well as the other approaches set forth in this plan.

 

P.18 Pending legislation, the Federal Government should be compensated for the continued support of the GSEs through the periodic commitment fee, as originally established by the PSPAs. The amount of the periodic commitment fee should be set and adjusted from time to time considering, among other things, the remaining PSPA commitment and the equity financing, CRT, and other loss-absorbing capacity of the GSE. In connection with setting the periodic commitment fee, Treasury and FHFA should also consider adjusting the variable dividend required by Treasury’s senior preferred shares.

 

[Guest cherzeca]

still reading, but if you dont expect congressional action, then you should expect a FHFA/treasury negotiation.  slow moving train, but this train is rilling down the track, and I haven't read anything yet that gives me pause

 

most of what we care about is still to come, the fhfa/treasury negotiation...which will come after congressional hearings and inaction

[Guest cherzeca]

Treasury recommends:

 Treasury and FHFA should develop a recapitalization plan for each GSE after identifying and assessing the full range of strategic options. (administrative)

 

ok

 

Pending that recapitalization plan, and as an interim step toward the eventual PSPA amendment contemplated by this plan, Treasury and FHFA should consider permitting each GSE to retain earnings in excess of the $3 billion capital reserve currently permitted, with appropriate compensation to Treasury for any deferred or forgone dividends. (administrative)

 

dont like this, as treasury already has been paid back and more

 

again, all of this is posturing before the fhfa/treasury negotiation occurs. 

 

[Guest cherzeca]

a lot of what treasury is telling congress that it should do, that it wont do in the next 18 months for sure. 

 

very little of what treasury will do in negotiating a recap plan with fhfa, which they will do in the next 18 months

 

pretty much a yawner if you knew that there would be no kill the GSEs rant.

 

pretty much a shocker if you thought that the GSEs should be liquidated.

[investorG]

the report is thorough imo. 

 

no firm conclusions on some of the recap items that affect us but the receivership drop in there wasn't too friendly and reminds us that the Tsy has leverage.

[investorG]

the wide range of recap options likely raises the stakes for the Collins outcome.

[orthopa]

Skimmed it quick have to go back over, things I highlighted.

 

1. Sounds like the NWS could be stopped sooner then later as an initial small step before a final PSPA amendment is agreed upon. I liked reading that.

 

2.  Wonder what parameters determine "promptly as practicable"?

 

3. Treasury recommends that FHFA start getting the GSE's out of conservatorship and not wait for congress.

 

4. Sounds like FHFA and Treasury are already assessing recap options which hopefully moves up "promptly as practicable"

 

5. Never considered convertible debt in a recap but see that as well as mention of exchange of Sr. Preferred as more dilution concerns for common.

 

6. Negotiation of exchange options of one or more classes of Jr. Preferred. Hopefully all will be offered exchange as previously discussed.

 

 

[Guest cherzeca]

the report is thorough imo. 

 

no firm conclusions on some of the recap items that affect us but the receivership drop in there wasn't too friendly and reminds us that the Tsy has leverage.

 

throw away line to placate the mob

 

we haven't learned anything from this plan that this board didn't know before.

 

the SBC hearing will be interesting. 

 

the big question that I expect from a senator is, gee you have given us a lot of food for thought, would you kindly hold off on administrative reform until we have a chance to pass something?

 

and I expect the answer is that this dual track process has come from POTUS, so no we are not going single track here

[Guest cherzeca]

frankly the biggest item is that the treasury commitment will continue to enable the GSEs to recap.  while I expected this, I am sure pleased to see it

[beaufort]

Does convertible debt count as capital?

[DRValue]

"Issuing shares of common or preferred stock, and perhaps also convertible debt or other

loss-absorbing instruments, through private or public offerings, perhaps in connection

with the exercise of Treasury’s warrants for 79.9% of the GSE’s common stock;"

 

In connection with warrants? What could that be?

 

 

[Guest cherzeca]

@beaufort the only issue for GSEs is that it's divs have to be noncumulative (as far as I know)

[Guest cherzeca]

in addition to an ask by senators at SBC hearing next Tuesday to stop the train on admin reform, I expect a lot of searching questions on what the fhfa/treasury deal looks like.  and I expect mnuchin and Calabria to say, gee, we haven't discussed this yet

[Midas79]

Does convertible debt count as capital?

 

I believe FHFA can count this towards risk-based capital, but they certainly cannot for minimum capital requirements, which can only be met by core capital defined as

 

(7) Core capitalThe term “core capital” means, with respect to an enterprise, the sum of the following (as determined in accordance with generally accepted accounting principles):

(A) The par or stated value of outstanding common stock.

(B) The par or stated value of outstanding perpetual, noncumulative preferred stock.

© Paid-in capital.

(D) Retained earnings.

The core capital of an enterprise shall not include any amounts that the enterprise could be required to pay, at the option of investors, to retire capital instruments.

 

The commons have zero par value, so once retained earnings do what they can (which won't be enough according to Calabria), the only options left are issuing new commons and issuing new non-cumulative prefs. Converting the seniors to one of those classes would also work, in case the Fifth Circuit doesn't extinguish them.

 

The seniors are 10% cumulative, so for Treasury to agree to a conversion to non-cumulative (so they can count as core capital) they would want a higher dividend rate. This would eat up basically all of FnF's earnings forever, a NWS-lite. If the seniors are converted I expect them to be converted to commons, and if that happens Treasury will get at least the 92% stake they got in AIG. This is because if the Fifth Circuit grants a win to the plaintiffs and lets Treasury keep the seniors, it would also order Treasury to pay $133B in cash to FnF. Treasury would then need to convert the seniors into enough commons to recoup this plus what they would have gotten from the warrants (the warrants would be useless in a senior-to-common conversion scenario).

[hardincap]

mm called it again--wow was this report underwhelming. with mnuchin occupied with china trade negotiations why should we expect any real progress rest of the year? the wait for godot continues.

 

this also makes me wonder if craig philips was hamstrung/castrated by admin (excluding mnuchin) and resigned in frustration.

[Guest cherzeca]

mm called it again--wow was this report underwhelming. with mnuchin occupied with china trade negotiations why should we expect any real progress rest of the year? the wait for godot continues.

 

this also makes me wonder if craig philips was hamstrung/castrated by admin (excluding mnuchin) and resigned in frustration.

 

it does seem incongruous that after a few months of calabria talking ex cathedra about the future deal he and mnuchin will negotiate, this long-awaited treasury plan is so mushy.  however, nothing in this plan preempts the deal that calabria has been alluding to. so I dont know why this mushy mish-mash took so long, but at least we are onto next steps

[muscleman]

Today's GSE treasury plan is like when the market is expecting a high growth stock with no earnings to report a 200% revenue growth but it only reported a 190% growth.

 

[DRValue]

Can't find the tweet now but Josh rosner seems to think conservatorship can end if the companies aren't critically under capitalised.

 

Senior conversion, cash refund from Collins and warrant buy back, for an instant recap on the table imo.

[DRValue]

Can't find the tweet now but Josh rosner seems to think conservatorship can end if the companies aren't critically under capitalised.

 

Senior conversion, cash refund from Collins and warrant buy back, for an instant recap on the table imo.

 

Found.