Freddie Mac 2009 Annual Report Download - page 135

Table 48 — Freddie Mac Credit Ratings
S&P Moody’s Fitch
Nationally Recognized Statistical
Rating Organization
Senior long-term debt
(1)
.............................................................. AAA Aaa AAA
Short-term debt
(2)
.................................................................. A-1+ P-1 F1+
Subordinated debt
(3)
................................................................ A Aa2 AA–
Preferred stock
(4)
.................................................................. C Ca C/RR6
(1) Consists of medium-term notes, U.S. dollar Reference Notes˛securities and AReference Notes˛securities.
(2) Consists of Reference Bills˛securities and discount notes.
(3) Consists of Freddie SUBS˛securities.
(4) Does not include senior preferred stock issued to Treasury.
Effective September 7, 2008, we no longer had a “risk-to-the-government” rating from S&P because of conservatorship.
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. Our “Bank Financial Strength”
rating from Moody’s remained at “E+” as of February 11, 2010. See “RISK MANAGEMENT AND DISCLOSURE
COMMITMENTS” for additional information. A security rating is not a recommendation to buy, sell or hold securities. It
may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated
independently of any other rating.
Equity Securities
The Purchase Agreement provides that, without the prior consent of Treasury, we cannot issue capital stock of any kind
other than the senior preferred stock, the warrant issued to Treasury or any shares of common stock issued pursuant to the
warrant or binding agreements in effect on the date of the Purchase Agreement. Therefore, absent Treasury’s consent, we do
not have access to equity funding except through draws under the Purchase Agreement.
Cash and Cash Equivalents, Federal Funds Sold and Securities Purchased Under Agreements to Resell and Non-
Mortgage-Related Securities
We maintain a balance of at least $20 billion of cash and cash equivalents, federal funds sold and securities purchased
under agreements to resell and non-mortgage-related securities. These investments are important to our cash flow and asset
and liability management and our ability to provide liquidity and stability to the mortgage market. At December 31, 2009,
our non-mortgage-related securities consisted of liquid non-mortgage-related asset-backed securities, FDIC-guaranteed
corporate medium-term notes and Treasury bills that we could sell to provide us with an additional source of liquidity to
fund our business operations. For additional information on these assets, see “CONSOLIDATED BALANCE SHEETS
ANALYSIS — Cash and Cash Equivalents,” “— Federal Funds Sold and Securities Purchased Under Agreements to Resell”
and “— Investments in Securities — Non-Mortgage-Related Securities.” The non-mortgage-related asset-backed investments
may expose us to institutional credit risk and the risk that the investments could decline in value due to market-driven events
such as credit downgrades or changes in interest rates and other market conditions. See “RISK MANAGEMENT — Credit
Risks — Institutional Credit Risk” for more information.
Mortgage Loans and Mortgage-Related Securities
We invest principally in mortgage loans and mortgage-related securities, which consist of securities issued by us, Fannie
Mae, Ginnie Mae and other financial institutions. Historically, our mortgage loans and mortgage-related securities have been
a significant capital resource and a potential source of funding. A large majority of these assets is unencumbered.
During 2009, the market for non-agency securities backed by subprime, option ARM, Alt-A and other loans continued
to be illiquid as investor demand for these assets remained low. We expect this trend to continue in the near future. These
market conditions, and the declining credit quality of the assets, limit our ability to use these investments as a significant
source of funds. See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities — Mortgage-Related
Securities” for more information.
Cash Flows
Our cash and cash equivalents increased approximately $19.4 billion during 2009 to $64.7 billion at December 31,
2009. Cash flows provided by operating activities during 2009 were $1.3 billion, which primarily related to increased net
interest income offset by a reduction in cash as a result of a net increase in our held-for-sale mortgage loans. Cash flows
provided by investing activities during 2009 were $47.6 billion, primarily resulting from net proceeds related to sales and
maturities of our available-for-sale securities, partially offset by a net increase in trading securities. Cash flows used for
financing activities for 2009 were $29.5 billion, largely attributable to repayments of short-term debt, partially offset by
$36.9 billion received from Treasury under the Purchase Agreement.
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