The symbiotic relationship between

Fannie Mae


and Wall Street accrued to the former's benefit overnight when the mortgage giant quickly sold one of the biggest private placements in history.

Fannie, which needed money to close a capital deficit, sold $5 billion in preferred stock to institutional investors in the Rule 144a market. The offering was boosted from an initial $4 billion and should keep regulators at bay as the company begins the task of erasing $9 billion of earnings from its balance sheet.


Securities and Exchange Commission

previously ordered Fannie to restate three years of earnings to correct errors in the way it accounted for interest rate hedges. CEO Franklin Raines subsequently left the company under the cloud of the SEC's order.

Specifically, Fannie sold a $2.5 billion floating rate preferred series that pays a 7% coupon that resets each quarter, and a $2.5 billion convertible series that can be redeemed into common stock at a price of $94.31. Fannie closed Wednesday as $70.38 and was recently up about 3% to $71.87 in premarket trading.

Paul Miller, a Friedman Billings Ramsey analyst, estimates that the dividend payment on the preferred offering will dilute Fannie's earnings by 30 cents a share annually. But Miller, in a reearch note, says the quick completion of the deal "shows that there is still very strong demand" for Fannie's stock.

Miller said the 7% coupon is "generous" and was "probably needed to get the deal done so quickly."

Fannie itself said the sale helps it get back to normal.

"This placement of preferred stock is a key component of Fannie Mae's capital restoration plan," said Donald Marron, the Fannie director leading the company's remediation campaign with the Office of Federal Housing Enterprise Oversight. "Working with OFHEO, we will be finalizing the details of the capital plan shortly."

Lehman Brothers was the sole placement agent on the deal.