Freddie Mac 2005 Annual Report Download - page 66

debt securities. When our debt securities become seasoned or European call options on our debt securities expire, they may
become less liquid, which could cause their price to decline. By periodically repurchasing debt securities, we help preserve
the liquidity of our debt securities and improve their price performance, which helps to reduce our funding costs over the
long-term. Our repurchase activities also help us manage the funding mismatch, or duration gap, created by declines in
interest rates. When interest rates decline, the expected lives of the mortgage-related securities held in our Retained portfolio
decrease, reducing the need for long-term debt. We use a number of diÅerent means to shorten the eÅective weighted
average lives of our outstanding debt securities and thereby manage the duration gap, including retiring long-term debt
through repurchases or calls; issuing additional short-term debt; or using derivative instruments, such as entering into
receive-Ñxed interest-rate swaps or terminating or assigning pay-Ñxed interest-rate swaps. From time to time, we may also
enter into transactions in which we exchange newly issued debt securities for similar outstanding debt securities held by
investors. These transactions are not accounted for as repurchases, but rather as debt exchanges.
Table 30 provides the par value of debt securities we repurchased, called and exchanged (based on settlement dates)
during 2005 and 2004.
Table 30 Ì Debt Security Repurchases, Calls and Exchanges
Year Ended
December 31,
2005 2004
(in millions)
Repurchases of outstanding U.S. dollar Reference Notes»securities and 4Reference Notes» securities ÏÏÏÏÏÏÏÏÏÏÏÏÏ $ Ì $ 9,007
Repurchases of outstanding Medium-term NotesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,663 5,530
Calls of callable Medium-term Notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 36,236 119,987
Exchanges of U.S. dollar Reference Notes»securities and Medium-term Notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,043 717
Credit Ratings. Our ability to access the capital markets and other sources of funding, as well as our cost of funds, are
highly dependent upon our credit ratings. Table 31 indicates our credit ratings at June 1, 2006.
Table 31 Ì Freddie Mac Credit Ratings
Rating Agency
Standard & Poor's Moody's Fitch
Senior long-term debt(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ AAA Aaa AAA
Short-term debt(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ A-1° Prime-1 F-1°
Subordinated debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ AA¿ Aa2 AA¿Watch Negative
Preferred stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ AA¿ Aa3 AA¿Watch Negative
(1) Includes Medium-term Notes, U.S. dollar Reference Notes»securities and 4Reference Notes» securities.
(2) Includes Reference Bills»securities and discount notes.
In addition to the ratings described in Table 31, Standard & Poor's, or S&P, provides a ""Risk-To-The-Government''
rating that measures our ability to meet our debt obligations and the value of our franchise in the absence of any implied
government support. Our ""Risk-To-The-Government'' rating was AA¿ at June 1, 2006. Moody's also provides a ""Bank
Financial Strength'' rating that represents Moody's opinion of our intrinsic safety and soundness and, as such, excludes
certain external credit risks and credit support elements. Ratings under this measure range from A, the highest, to E. Our
""Bank Financial Strength'' rating was A¿ at June 1, 2006.
Equity Securities
During 2005 and 2004, we did not issue, redeem or repurchase any equity securities, other than reissuances of previously
issued treasury stock to employees and non-employee directors under our stock compensation plans. With the release of our
2005 Ñnancial results in May, we have moved forward with the repurchase of common stock and we expect to issue the
authorized preferred stock depending on market conditions and other factors. See ""Capital Resources Ì Capital Transac-
tions'' below for further information.
Cash and Investments Portfolio
We maintain a cash and investments portfolio that is important to our Ñnancial management and our ability to provide
liquidity and stability to the mortgage market. At December 31, 2005, the investments in this portfolio consisted of liquid
non-mortgage-related securities that we could sell or Ñnance to provide us with an additional source of liquidity to fund our
business operations. We also use the portfolio to help manage recurring cash Öows and meet our other cash management
needs. In addition, we use the portfolio to hold capital on a temporary basis until we can deploy it into Retained portfolio
investments or credit guarantee opportunities. We may also sell or Ñnance the securities in this portfolio to maintain capital
reserves to meet mortgage funding needs, provide diverse sources of liquidity, or help manage the interest-rate risk inherent
in mortgage-related assets.
The non-mortgage-related securities in the Cash and investments portfolio consist principally of asset-backed securities
and other marketable assets that can be readily converted to cash. For additional information on our Cash and investments
50 Freddie Mac