Page 34 - May-June 2018 GSE Report Flip Book

Capital Raise Mechanics
The Blueprint utilizes broad public offerings, both with
FANNIE MAE AND FREDDIE MAC
respect to primary offerings and secondary offerings
Our Blueprint raises $155 to $180 billion in core capital within four years. This capital is raised through a combination of (i) retained earnings, (ii) conversion of a substantial portion of outstanding junior preferred shares to common, (iii) rights offerings (or participation in a “priming” equity raise) to raise additional capital from shareholders, and (iv) issuance of new common
MAJAYN-UAJRUYNE20210818
of Treasury’s shares. The capital-raising process would be open to all interested capital providers, subject to customary government policy concerns (e.g., prudential regulation of investing parties, diffusion of systemic risk, etc.). This structure is designed to maximize value to Treasury as a shareholder by relying on a deep, liquid, and market-based mechanism to determine
and junior preferred shares to institutional investors.vi This permanent capital is also augmented by the continued (albeit market dependent and when prudent) use of CRT.
the recovery amounts to existing GSE shareholders. The diagram and table below illustrate the process of rebuilding capital from 2017 through 2020 year-end.
REBUILDING THE ENTERPRISES’ FORTRESS BALANCE SHEET
Figure 7: Rebuilding a Fortress Balance Sheet $ billions
$ Billions
REBUILDING CORE CAPITAL
% ASSETS1
Adj. 2016A Core Capital
SPS principal reduced to reflect
original contractual terms, with any $1B +0.0%
remainder exchanged into equity
Retained Dividends suspended until Earnings2 capital build is completed
$62B +1.2%
Initial
$40B
Follow-on
$40B
Common 2018 relisting, Equity Raised 2019 offering(s)
+1.6%
Preferred 2020 issuances augment existing
Stock Issuances junior preferred stock (to the $25B +0.5%
extent not converted)
2020P Core Capital
Dividends resume
3.25%
Source: Company filings, Moelis estimates
1. Based on 2020 projected total assets of $5.1 trillion
2. Retained earnings net of common and preferred dividends
$167B
Source: Blueprint for Restoring Safety and Soundness to the GSEs, Moelis & Company LLC, June 2017
Advocates for housing finance reform are keen that the process starts sooner rather than later with administrative reform occurring first, if necessary, followed by Congressional approval of the 100% guarantee at a later date.
Moelis’ white paper, Blueprint for Restoring Safety and Soundness to the GSEs, can be vi. Further details, including company earnings projections and assumptions can be found in the Appendix.
dowloaded here. (SCI—Securitization Innovation in Focus, StructuredCreditInvestor.
com, Summer 2018; Blueprint for Restoring Safety and Soundness to the GSEs, Moelis &
Company LLC, June 2017)
Editor’s note: Moelis & Company LLC served as financial advisors to certain non-litigating preferred stockholders of Fannie Mae and Freddie Mac.
Blueprint for Restoring Safety and Soundness to the GSEs 17
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