Wachtell Drafted Key Components of Fannie/Freddie Rescue

The 17-lawyer team from Wachtell, Lipton, Rosen & Katz advising the Treasury Department on the bailout of Fannie Mae and Freddie Mac was the driving force behind the department’s senior preferred stock purchase agreement, according to a partner who worked on it. The agreement lays out the government’s responsibility to support Fannie and Freddie’s debt and mortgage backed securities holders. It is intended to stabilize the market by ensuring that both companies maintain a positive net worth.

One of the lead partners on the assignment, Harold Novikoff, says Wachtell lawyers put together the entire document during the past two and a half weeks. “There were endless term sheets, and almost endless drafts,” he says. Though Wachtell was responsible for actually drafting the agreement, the lawyers were also working with the Treasury Department and Morgan Stanley, the company acting as Treasury’s financial adviser.

The agreement lays out the key components of the rescue plan, including the provision that the federal government will make a quarterly assessment on whether to push money into Fannie or Freddie, based on whether either company has liabilities exceeding its assets. Novikoff says the team’s goals in structuring the arrangement were to stabilize the market, buoy the mortgage market, and keep taxpayer costs low.

Helping Novikoff lead the Wachtell team is partner Edward Herlihy. Over the weekend, they both represented Treasury at the board meetings where directors from both Fannie and Freddie were asked to consent to the conservatorship. “We were there because the boards had inquired as to what financial support the Treasury was willing to provide upon appointment of a conservator, so we were there to explain that,” says Novikoff.