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Glen Bradford MBA is a wealthy professional that enjoys distressed equity situations. In life, everyone makes stuff up, if you want to be rich, do not pay attention, make them pay. The absolute best you can do is give someone an opportunity and incentive to take it. Take upon yourself worth... More
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  • Treasury Can Void SPSPA With Court Order

    Fannie and Freddie

    The total amount invested in Fannie (OTCQB:FNMA) and Freddie (OTCQB:FMCC) so far is $187B.

    The Treasury has been earning a return on its investments, which has resulted in a profit. So far the companies have paid $225B in dividends to the Treasury.

    This leaves a difference of $38B that can go to capitalize the companies and boost the economy and ensure that affordable housing initiatives are fully funded.

    Treasury can release with Court Order

    Take a look at the original agreement. Section 6.7 emphasis added:

    6.7. Effect of Order; Injunction; Decree. If any order, injunction or decree is issued by any court of competent jurisdiction that vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of Conservator as conservator of Seller or otherwise curtails Conservator's powers as such conservator (except in each case any order converting the conservatorship to a receivership under Section 1367(a) of the FHE Act), Purchaser may by written notice to Conservator and Seller declare this Agreement null and void, whereupon all transfers hereunder (including the issuance of the Senior Preferred Stock and the Warrant and any funding of the Commitment) shall be rescinded and unwound and all obligations of the parties (other than to effectuate such rescission and unwind) shall immediately and automatically terminate.

    The United States Court of Federal Claims

    Judge Margaret Sweeney is running the show here. According to the court:

    "The court hears suits involving government contracts, Constitutional claims"

    "The Court of Federal Claims has had exclusive jurisdiction since 2001 to enter judgment in government contract cases."

    According to Judge Sweeney on June 19, 2014:

    And so far, I haven't gotten - I haven't received a good answer from the Government. Counsel is very able. But counsel has expressed concern of what could happen if certain documents are released, which I do not want to see happen, but counsel didn't answer to my satisfaction the discrepancy between sort of using the deliberative process as sword and shield. On one hand, FHFA is a government entity, you know, for purposes of booting the Plaintiffs out of court and not part of the Government, but for purposes of forwarding discovery, all of a sudden deliberative process is appropriate because they are part of the Government. So, it's a schizophrenic approach and I'm just waiting to hear a reasonable explanation.

    ...

    I will say this, given everything that's been said today -- of course I haven't heard any evidence as yet, but just based upon counsel's arguments, what I've heard so far tends to suggest that FHFA is -- I don't want to say joined at the hip with Treasury -- but it doesn't sound like they're necessarily an independent entity that's just not -- has no connection to the Government.

    The last time everyone came together in court, Judge Sweeney said that it was odd for the government to complain on behalf of the GSEs if the government wasn't controlling them.

    Director Watt says "Law Got Trumped"

    <iframe width="560" height="315" src="www.youtube.com/embed/Wa_4WW_BrZA"; frameborder="0" allowfullscreen></iframe>

    With the director saying the law got trumped, a court order will enable the US Treasury to execute against the terms of section 6.7 of their own agreement that guarantees a release from conservatorship or an entrance to receivership. The Treasury can write a letter to FHFA after a court order from Judge Sweeney that cancels the warrants, recapitalizes the companies with the excess that they've paid back falling to their balance sheets, and ends the conservatorship. This is consistent with the Reuters news release.

    The businesses according to Bruce Berkowitz make $21B/year, but after $2B/year of junior preferred dividends, $19B a year flows to common shareholders on a combined 1.81B shares outstanding. At 10x earnings that is a stock price of over $100 at this level of G-fees. At higher levels of g-fees, which is apparently where things are headed since everyone wants more private market participation, the valuation of the businesses according to Bill Ackman's financial forecast is over $200/share without warrants recapitalized in this way via a letter from Treasury.

    Tags: FMCC, FNMA, long-ideas
    Feb 09 6:43 AM | Link | 18 Comments
  • John Carney Bullish Fannie Mae Bits

    As you'll note, Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) have been in conservatorship 2,555 days now considering that they were thinking 90 or so, they were off to the races and must have gotten lost somewhere.

    In the below twitter exchange John Carney from the Wall Street Journal now sees a viable solution for the Government Owned Enterprises Fannie Mae and Freddie Mac. This is important because he has a law degree and is the leading author of Wall Street Journal's Heard on the Street for covering Wall Street. This means he knows what he is doing and is paid to talk about it publicly to help people like you and me better understand what is going on.

    So, as you can tell, the stock based on $15B of earnings to common shareholders can be valued very high. Right now combined they have 1.81B shares outstanding is $8.28 per share in run rate earnings.

    The industry multiple that people pay for these businesses is 15.0x, but even 1.0x would be over 100% return from here, not bad if I do say so myself.

    Ackman put this slide into his most recent slide deck that illustrates what sort of potential this has. He's done this before with GGP where he made in excess of 100 to 1 times from the bottom in between two decades.

    Meanwhile, Managing Director John Freund of Citigroup (NYSE:C) reminisces about Buffett buying Freddie Mac. My question is why does John Carney like Fannie while Buffett prefers Freddie? Let's get to the bottom of this.

    So, Freund, Buffett's main man Freund recalls earlier this week Buffett's most important decisions, specifically regarding Coca-Cola (NYSE:KO) and Freddie Mac. I think that John Carnie prefers Fannie Mae to Freddie Mac because she is twice as big as he is. John likes the liquidity and for that reason I'm betting against Buffett like John is and I'm going with Fannie. I'm even borrowing to do it. So far I've borrowed $55,000 and I'm borrowing another $30,000 in the next week or so and I might buy more of something like Dex Media (NASDAQ:DXM), which is the only stock that I can think of that has as much upside as Fannie Mae but don't have such a strong supporter like John.

    Tags: FMCC, DXM, C, KO, FNMA, earnings
    Feb 06 1:08 PM | Link | 3 Comments
  • Sell DEXO, Buy SPMD, Thank Shorts, Get 20%

    The short covering is putting in a very strong bid for Dex One. I know because I was slamming it with blocks of shares yesterday as I scrambled to sell Dex One (DEXO) above $1.80 and rolled that cash directly into SuperMedia (SPMD) at less than $3.40.

    Look at the merger ratio history below. If you note that a Dex One share converts to a new share at a ratio of 0.2 and a SuperMedia share converts at a ratio of 0.4386, the merger ratio should be 0.45599. When the chart below is above that value, you should sell DEXO and buy SPMD and when it is below that value you should buy DEXO and sell SPMD.

    (click to enlarge)

    Right now, with a value of 0.556, you can get 21.95% more of the post merger company by selling Dex One and buying Supermedia.

    Take the money and run! Thanks shorts!

    Disclosure: I am long SPMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: I sold all of my Dex One and bought SuperMedia. I intend to sell back and forth between the two companies to maximize my future ownership of Dex Media.

    Tags: DXM, DEXO
    Dec 20 7:10 AM | Link | Comment!
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