Some thoughts on the future of GSE junior preferred (JPS)... fate will be left entirely to the GSEs & their FAs via CRP process. FHFA & their FA/legal counsel will advise. Favorable treatment elim. claims in Sweeney/Lamberth; PSPA resolves Collins. $FNMA $FMCC $FNMAS $FMCKJ (1/8)

Dividend payout exception in final capital rule will be key. If there is an exception (and there MUST be), you cannot leapfrog legacy JPS to pay dividends on new JPS & common. There will be a push for conversion, especially $FNMAS & $FMCKJ, which are ~1/2 of all JPS. (2/8)

Conversion can happen before the 1st equity raise at market price of common or at the time of the 1st equity raise at the offering price. Latter seems more likely, but Craig Phillips' comment last year always makes me think of former. (3/8)

JPS avg. coupon ~5-6%, ~1/2 8%+ & ~1/2 0-6% (educ. guess not fact). K.I.S.S. = conv. all JPS @ 100% of par. Shareholder perspective: home run for var. rate "shitbird" series & "money left on the table" for "luxury"-yield series. GSE perspective: overall dividend savings. (4/8)

A less simple, but not overly complex, approach would be similar to what $C did w/ different rates for different series. In this case, you could see 60-100%+ conversion terms based on coupon rates. More on this here: https://twitter.com/HoldenWalker99/status/1237764349890048001?s=20 (5/8)

Shareholder perspective: ~equitable outcome from today's market prices which indicate that coupons may matter. GSE perspective: overall dividend savings. Is this too complicated and not worth the effort? I don't think so, but maybe the K.I.S.S. approach is preferred. (6/8)

Wildcard: $FMCKJ can be called @ 12/31/20, $FNMAS @ 12/31/22. As such, $FNMAS doesn't have much leverage b/c they will be called soon. $FMCKJ, on the other hand, should get a premium since they can't be called again until 2025; don't think FHFA would approve calling now. (7/8)

Prediction: I'm 50/50 b/n (1) conv. all @ ~100% par (K.I.S.S.) & (2) no conv. for var. & conv. for fixed @ ~100%. I was 100% alloc. var. & spent last few months slowly trading up to 90% fixed (~5% coupon)/10% var. for "free." Other ideas here: https://twitter.com/midas79_/status/1328771795449765889?s=20 (8/8)

Unroll, please. @threadreaderapp