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Fairholme offers to buy Fannie, Freddie's insurance activities.


14 November 2013 a[euro]" US investment manager Fairholme Capital Management LLC said it had offered to acquire the mortgage-backed securities insurance operations of the Federal National Mortgage Association (OTCBB:FNMA), also known as Fannie Mae, and the Federal Home Loan Mortgage Corp (OTCBB:FMCC), or Freddie Mac.

Fairholme has made the proposal to the relevant federal government officials, with plans to bring in about USD52bn (EUR38.7bn) of private capital. The scheme involves the formation of two new state-regulated private insurance firms that will buy, recapitalise and operate the insurance businesses of Fannie Mae and Freddie Mac.

These companies would be capitalised with some USD34.6bn in exchange for preferred stock plus at least USD17.3bn of new capital raised from preferred stockholders in a rights offering. The move will enable the liquidation of Fannie Mae and Freddie Mac and put an end to the entitiesa[euro](tm) federal charters and special statuses.

The new companies are expected to keep all capital received in the conversion of preferred stock as locked-in capital for at least five years to back writing new insurance. Thereby, no dividends will be distributed using that amount during the period.

a[euro]oeThis proposal answers the broad bipartisan call for private capital in a way that can advance reform from concept to a viable, sustainable solutiona[euro], stated Bruce Berkowitz, Fairholmea[euro](tm)s managing member and chief investment officer.

The transactions need to be approved by the Federal Housing Finance Agency, the US Treasury and other investors in Fannie Mae and Freddie Mac.Country: USASector: InsuranceTarget: Fannie and Freddie's mortgage-backed securities insurance businessesBuyer: Fairholme Capital Management LLCVendor: Federal Home Loan Mortgage Corporation (Freddie), Federal National Mortgage Association (Fannie)Type: PrivatisationStatus: BiddingComment: The plan envisages bringing in some USD52bn in new capital.

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Publication:M & A Navigator
Date:Nov 14, 2013
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