Freddie Mac 2009 Annual Report Download - page 134

outstanding, net of associated premiums and discounts, was reduced to $0.7 billion at December 31, 2009, compared to
$4.5 billion at December 31, 2008. Our subordinated debt in the form of Freddie SUBS˛securities is a component of our
risk management and disclosure commitments with FHFA. See “RISK MANAGEMENT AND DISCLOSURE
COMMITMENTS” for a discussion of changes affecting our subordinated debt as a result of our placement in
conservatorship and the Purchase Agreement, and the Conservator’s suspension of certain requirements relating to our
subordinated debt. Under the Purchase Agreement, we may not issue subordinated debt without Treasury’s consent.
Debt Retirement Activities
We repurchase or call our outstanding debt securities from time to time to help support the liquidity and predictability
of the market for our debt securities and to manage our mix of liabilities funding our assets. When our debt securities
become seasoned or one-time call options on our debt securities expire, they may become less liquid, which could cause
their price to decline. By 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 changes in interest rates. For example, when interest rates decline,
the expected lives of our investments in mortgage-related securities decrease, reducing the need for long-term debt. We use a
number of different means to shorten the effective weighted average lives of our outstanding debt securities and thereby
manage the duration gap, including retiring long-term debt through repurchases or calls; changing our debt funding mix
between short- and long-term debt; or using derivative instruments, such as entering into receive-fixed swaps or terminating
or assigning pay-fixed 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 accounted for as debt
exchanges.
In order to take advantage of spread compression on agency debt and improved access to the long-term debt markets
that occurred during the first half of 2009, in June 2009, we executed a tender offer for certain debt securities with
remaining maturities ranging between September 2009 and August 2010. We accepted $18 billion of the tendered debt
securities. This buyback was consistent with our effort to reduce reliance on short term funding and, over time, replace the
shorter-term funding with longer-term debt at favorable spreads. As a result, our outstanding short-term debt, including the
current portion of long-term debt, has decreased as a percentage of our total debt outstanding to 44% at December 31, 2009
from 52% at December 31, 2008.
In addition, during the three months ended June 30, 2009 we executed a tender offer to purchase all of our AReference
Notes»securities outstanding. We accepted $6 billion of the tendered AReference Notes»securities. In July 2009 we made a
tender offer to purchase outstanding Freddie SUBS»securities. We accepted $3.9 billion of the tendered securities. These
tender offers were consistent with our effort to reduce our funding costs by retiring higher cost debt.
Table 47 provides the par value, based on settlement dates, of debt securities we repurchased, called and exchanged
during 2009 and 2008.
Table 47 — Debt Security Repurchases, Calls and Exchanges
2009 2008
Year Ended
December 31,
(in millions)
Repurchases of outstanding AReference Notes˛securities . ........................................... $ 5,814 $ 277
Repurchases of outstanding medium-term notes . .................................................. 35,795 7,724
Repurchases of outstanding Freddie SUBS»securities . . . ........................................... 3,875 —
Calls of callable medium-term notes . . ........................................................ 198,940 180,015
Exchanges of medium-term notes ............................................................ 551 9,921
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 48 indicates our credit ratings at February 11, 2010. After FHFA placed us into
conservatorship and announced the elimination of our preferred stock dividends in September 2008, our preferred stock
ratings were changed by three nationally recognized statistical rating organizations.
131 Freddie Mac