Saturday, December 19, 2015

from omnibus 2015

http://docs.house.gov/billsthisweek/20151214/CPRT-114-HPRT-RU00-SAHR2029-AMNT1final.pdf

The changes:
SEC. 702. LIMITATIONS ON SALE OF PREFERRED STOCK.
2 (a) DEFINITIONS.—In this section:
3 (1) SECRETARY.—The term ‘‘Secretary’’ means
4 the Secretary of the Treasury.
5 (2) SENIOR PREFERRED STOCK PURCHASE
6 AGREEMENT.—The term ‘‘Senior Preferred Stock
7 Purchase Agreement’’ means—
Above just defines terms

8 (A) the Amended and Restated Senior Pre-
9 ferred Stock Purchase Agreement, dated Sep-
10 tember 26, 2008, as such Agreement has been
11 amended on May 6, 2009, December 24, 2009,
12 and August 17, 2012, respectively, and as such
13 Agreement may be further amended and re-
14 stated, entered into between the Department of
15 the Treasury and each enterprise, as applicable;
16 and
17 (B) any provision of any certificate in con-
18 nection with such Agreement creating or desig-
19 nating the terms, powers, preferences, privi-
20 leges, limitations, or any other conditions of the
21 Variable Liquidation Preference Senior Pre-
1 ferred Stock of an enterprise issued or sold pur-
2 suant to such Agreement.
Above defines what 'Senior Preferred Stock purchase Agreement' means. No law is added above. 
Nothing stops changes from SPSA other than the SALE of the Senior stock. 
a 4th amendment can be added by FHFA and Treasury. But because sale of treasury cannot be made, conservatorship cannot end without congress passing new law. 

3 (b) LIMITATIONS ON SALE OF PREFERRED STOCK.—
4 Notwithstanding (in any event) any other provision of law or any provi-
5 sion of the 'Senior Preferred Stock Purchase Agreement',
6 until at least January 1, 2018, the Secretary may not sell,
7 transfer, relinquish, liquidate, divest, or otherwise dispose
8 of any outstanding shares of senior preferred stock ac-
9 quired pursuant to the Senior Preferred Stock Purchase
10 Agreement, unless Congress has passed and the President
11 has signed into law legislation that includes a specific in-
12 struction to the Secretary regarding the sale, transfer, re-
13 linquishment, liquidation, divestiture, or other disposition
14 of the senior preferred stock so acquired.
Treasury can not sell, There seems to me NO regard to the Liquidation Preference. (b) is the only part of this that is actual law. A direction is told. May not. Since the Liquidation Preference is Variable, It stands to reason the FHFA and treasury could amend and/or a court could reduce the $188 Billion to $0, also nothing stops the FHFA and treasury from changing the terms of the SPSA. The original shares cannot be sold. 1,000,000 shares at $1000 a share. cannot be sold. 

15 (c) SENSE OF CONGRESS.—It is the Sense of Con-
16 gress that Congress should pass and the President should
17 sign into law legislation determining the future of Fannie
18 Mae and Freddie Mac, and that notwithstanding the expi-
19 ration of subsection (b), the Secretary should (should is funny word for law) not sell,
20 transfer, relinquish, liquidate, divest, or otherwise dispose
21 of any outstanding shares of senior preferred stock ac-
22 quired pursuant to the Senior Preferred Stock Purchase
23 Agreement until such legislation is enacted.
Corker BS to make him feel good, No law in the above

From the SPSA.
3.1. Initial Commitment Fee. In consideration of the Commitment, and for no additional
consideration, on the Effective Date (or as soon thereafter as is practicable) Seller shall sell and
issue to Purchaser, and Purchaser shall purchase from Seller, (a) one million (1,000,000) shares
of Senior Preferred Stock, with an initial liquidation preference equal to $1,000 per share
($1,000,000,000 (one billion dollars) liquidation preference in the aggregate), and (b) the Warrant.

sell, transfer, relinquish, liquidate, divest, or otherwise dispose
of any outstanding shares of senior preferred stock

sell= give up property for money
transfer= give property away
relinquish= give property away
liquidate= wind up the affairs of (a company or firm) by ascertaining liabilities and apportioning assets.
divest= rid oneself of something that one no longer wants or requires
dispose= toss away

outstanding shares of stock= 1,000,000 shares.
shares do not equal, changing liquidation preference value or interest on that liquidation.

So my final take on this omnibus corker law is that it simply stops Treasury from selling the one million shares it owns, that in turn means FHFA cant leave conservatorship since Treasury cant sell. It does not change the fact that Fannie Mae will be in business for another 60 years. Their new office building tells that story.
There will never be a liquidation of Fannie assets even to transfer to a new corporation that does the same business fannie is doing now. You know, a name change and everyone is bankrupt, I do not doubt our government may do that, but it would be illegal. That would be a taking, but I guess GM did just that too, so what do I know. GM is still in business and profits are good, after GM screwed everyone out of the money, then opened the new GM, same as old GM. Anyway, Obama said He was not for releasing Fannie, so i do not see how this omnibus changes anything. Courts and/or time will decide what happens. I can tell you for sure there will be NO receivership, thats not going to happen. This law and the 3rd amendment both run out of time Jan1 2018. Both Fannie and Freddie will have ZERO capital buffer at that time and will be Bankrupt if nothing changes in the next 24 months. The real question when thinking about the bankruptcy idea is, Really? Does that make sense? for over 7 years NOTHING has happened other than housing market is starting to find its traction and Fannie and Freddie have been reformed. You have to remember, by the time the BAD BAD fannie mae is bankrupted by 5 years of treasury pillaging, The FHFA has been running Fannie mae for 9 years! 9 years under full control of Fannie mae! can you imagine blaming the old fannie mae for still being bad after FHFA has run it for 2.2 terms of a president! that would be like obama right now blaming todays economy on not bush, but clinton. No one would believe that the FHFA with full control of 2 fortune 500 companies for 9 years, still has no idea why they are still so horrible today! It is silly to think that way. Fannie mae will be just fine, but our government seems to hate capitalism and stock holders. At least Fannie mae stockholders. Im sure GM stockholders can understand.   

1 comment:

  1. The earnings of a combined Fannie Mae / Freddie Mac are approx. $15 Billion per annum. At a 12 to 1 P/E ratio, the value of 15 Billion times 12 equals $180 Billion. Multiply this 180 number times 79.9% and the result is $143 Billion dollars in equity value recovery through the sale of equity warrants for the US Government. If the US Government closes the GSE's this amount is lost to the US Treasury. If the US Government creates another entity from scratch to support the mortgage market, they would have to raise several hundred billion in private capital so that the US Government would not have capital exposure in the future and the US Government could walk away from the current implicit / explicit backstop. This $143 Billion number does not take into account additional tax revenue from gains that current private capital / shareholders would realize which could also be recovered by the treasury. The alternative of capitalizing on the value of the warrants would value the remaining equity of the company at a value not less than $37 Billion amount. This $37 Billion could be used to satisfy preferred and / or common equity stock holders. Also, the cost the US Government may incur for selling new securities in order to capitalize a new entity may be as much as 1% to 3% of the funds raised charged by the Investment Banks selling the new securities as well. Sooner or later, I believe the US Government and Congress will need to sign off on this solution, either through court victory for plaintiffs or US Congress taking advantage of equity markets to gradually 'sell' their 79.9% stake. If you remove all the lawsuits from the equation and remember the US Government needs private capital for mortgages to be funded and liquid in the US market, the need for the GSE's is substantial and thus private capital should be valued. Also, if you can get past the statements by Senate members against Hedge Funds profits and simply accept that the preferred stock and common stock would need to be honored as part of the corporate balance sheets, some hedge funds would mo money but the US Government would recover multiples above any of these amounts recovered by shareholders. The value of the $143 Billion is well above total amount of the junior preferred securities face amount of $33 Billion; the exercise of these warrants may need to be done sooner rather than later in order to avoid declining US stock market valuations.

    Whether the US Government chooses to continue to support or leave their involvement in the mortgage market, a market valuation of the equity stake at a 12-1 multiple provides significant return to the US Government, private capital (both common shareholders and preferred shareholders) and could go a long way towards the companies recapitalization.

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