Fannie Mae has taken a big first step toward strengthening its balance sheet and loosening regulatory restrictions.
As part of a plan to raise $6 billion, announced earlier this week, the nation’s largest mortgage lender said late Thursday that it priced $2.25 billion, or 82 million shares, of common stock at $27.50 per share. That is just $0.13 per share lower than its Thursday closing price, but $3.31 below its closing price on Tuesday.
Fannie also priced $2.25 billion, or 45 million shares, of 8.75 percent noncumulative mandatory convertible preferred stock. The preferred stock has a stated value and liquidation preference of $50 per share, and will pay quarterly cash dividends at an 8.75 percent annual rate. Shares will automatically convert on May 13, 2011, into between 1.5408 and 1.8182 shares of common stock. At any time, holders can convert into 1.5408 shares of common stock.
“Investor demand for these offerings was very strong, which we believe reflects investor confidence in the long-term value of our business and our leading market position,” said David Benson, senior vice president and treasurer of Fannie Mae.
Fannie said it will use the proceeds for general corporate purposes, including maintaining a strong, conservative balance sheet; enhancing long-term shareholder value; and providing stability to the secondary mortgage market.
Earlier this week, the struggling mortgage lender reported a $2.2 billion quarterly loss. It said it would seek to raise $6 billion through a mixture of common, preferred, and convertible preferred stock.
Meanwhile, Fannie said its regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), had lifted a May 2006 consent order, which will enable the company to reduce its capital requirement from 20 percent to 15 percent of its mortgage debt once it completes its capital-raising plan. And, Fannie said, the regulator will cut the requirement to 10 percent in September, provided the company maintains capital well above the regulatory requirement and there is no material adverse change to the company’s ongoing regulatory compliance.