By Ronda Fears
Nashville, Dec. 30 - Federal National Mortgage Association, or Fannie Mae, sold $5 billion of preferred stock, half in convertible form, in its largest capital-raising effort in history via sole bookrunner Lehman Brothers Inc.
The perpetual convertible, for $2.5 billion, priced with a 5.375% dividend and 34% initial conversion premium, at the tight end of yield talk of 5.375% to 5.875% and aggressively outside premium guidance of 28% to 32%.
The private placement deal priced after Wednesday's close along with $2.5 billion of straight floating-rate preferreds, which were upsized from original plans for $1.5 billion. The straight preferreds, with a par of $50, reset quarterly at the higher of 7% and the sum of the 10-year constant maturity Treasury rate plus 237.5 basis points.
The pricings came eight days after Franklin Raines stepped down as chief executive and Timothy Howard stepped down as chief finance officer at Fannie Mae. The officers stepped down under pressure following a Securities and Exchange Commission finding that the company had misapplied accounting rules to "smooth out" its earnings.
Fannie Mae will have to restate earnings for the past 3.5 years, resulting in a multibillion-dollar shortfall, as regulators say the company must take a $9 billion loss as a result of the accounting irregularities. For third quarter 2004, regulators said Fannie Mae had a $3 billion capital shortfall.
But the offerings will only help the company raise part of what it needs as Fannie Mae is required to maintain a capital surplus of 30% over minimum levels. The company has agreed to do so by mid-2005.
Fannie Mae will be the subject of at least two congressional hearings in early 2005.
| Issuer: | Federal National Mortgage Association
|
| Issue: | Convertible perpetual preferreds
|
| Bookrunner: | Lehman Brothers Inc.
|
| Amount: | $2.5 billion
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| Maturity: | Perpetual
|
| Dividend: | 5.375%
|
| Price: | Par, $100,000
|
| Yield: | 5.375%
|
| Conversion premium: | 34%
|
| Conversion price: | $94.31
|
| Conversion ratio: | 10.6033
|
| Call: | Non-callable for 3 years, then at 105
|
| Dividend protection: | Yes
|
| Takeover protection: | No
|
| Expected rating: | Moody's: Aa3
|
| Price talk: | 5.375%-5.875%, up 28%-32%
|
| Pricing date: | Dec. 29, after the close
|
| Settlement date: | Dec. 30
|
| Distribution: | Private placement
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