How shady is this morning’s delightful Journal story about the travails of Equity Inns preferred stockholders? I think the answer is “just the right amount of shady,” but you might disagree. The gist is that Goldman Sachs real estate private equity funds bought out Equity Inns but left almost $150mm of preferred stock outstanding. Once ENN was no longer a public company (because Goldman owned all its common stock and it had fewer than 300 shareholders), it delisted its preferred stock and stopped providing public financial information.1 This saddened the preferred holders and they expressed their sadness by bidding down the price of the preferred to under 40 cents on the dollar.
Also by complaining to the company, and the SEC, and the Journal, and anyone else who will listen. Also by doing this:
One of the preferred shareholders is responding by creating 300 separate trusts to hold his preferred shares. He argues that should qualify the company for reporting.
Should it? I don’t know but I love it. You gotta fight silly formalism with silly formalism. Read more »
Articles about the Fannie & Freddie preferred trade have been burbling around for a while and I’ve never understood it. The Journal has two good articles on it today, with this being a particularly clear explanation, and … I still don’t get it? Basically the thing is:
- the government seized Fannie and Freddie in 2008 and turned off the (non-cumulative!) preferred stock dividends,
- it recently swore that it would reduce their shareholders’ equity to zero, salt the earth on which they grew, and never ever ever ever unseize them or turn back on the pref dividends, so
- those prefs look like a screaming buy.
Or something? Per the Journal, “Paulson & Co. and Perry Capital LLC are among a handful of hedge-fund firms that have bought so-called preferred shares in Fannie and Freddie.” They’re selling at ~18-20 cents on the dollar, which I suppose reflects a, what, 30% implied probability that they get turned back on in the imaginable future?1 Does that sound like, um, this? Read more »
So David Einhorn won his lawsuit against Apple today, which means that Apple will be forced by a court order to issue $236 billion of “iPref” 4% perpetual preferred stock next week, which I currently see bid at 4.06% in the gray market for $10 million lots.
Hahaha no of course it doesn’t mean that. It means nothing! Except that everyone is kind of peeved. There are some things you could say against Calpers corporate-governance guru Anne Simpson’s position on Apple/Einhorn, but she’s not wrong about this:
“I came off the call deeply puzzled,” Anne Simpson, the pension fund’s director of global governance, told DealBook in an interview after [yesterday's Einhorn] call [pitching iPrefs]. “He finished off by saying you should vote against Proposal 2 to send a message, but he’s in court trying to prevent Proposal 2 from going ahead.”
Right? Read more »