Freddie Mac 2009 Annual Report Download - page 235

Purchase Agreement
Overview
The Conservator, acting on our behalf, and Treasury entered into the Purchase Agreement on September 7, 2008. Under
the Purchase Agreement, as amended in December 2009, Treasury made a commitment to provide up to $200 billion in
funding under specified conditions. The $200 billion cap on Treasury’s funding commitment will increase as necessary to
accommodate any cumulative reduction in our net worth during 2010, 2011 and 2012. Pursuant to the Purchase Agreement,
on September 8, 2008 we issued to Treasury one million shares of senior preferred stock with an initial liquidation
preference equal to $1,000 per share (for an aggregate initial liquidation preference of $1 billion), and a warrant for the
purchase of our common stock. The terms of the senior preferred stock and warrant are summarized in separate sections in
“NOTE 10: FREDDIE MAC STOCKHOLDERS EQUITY (DEFICIT).” We did not receive any cash proceeds from Treasury
as a result of issuing the senior preferred stock or the warrant.
The senior preferred stock and warrant were issued to Treasury as an initial commitment fee in consideration of the
commitment from Treasury to provide funds to us under the terms and conditions set forth in the Purchase Agreement. In
addition to the issuance of the senior preferred stock and warrant, beginning on March 31, 2011, we are required to pay a
quarterly commitment fee to Treasury. This quarterly commitment fee will accrue beginning on January 1, 2011. The fee, in
an amount to be mutually agreed upon by us and Treasury and to be determined with reference to the market value of
Treasury’s funding commitment as then in effect, must be determined on or before December 31, 2010, and will be reset
every five years. Treasury may waive the quarterly commitment fee for up to one year at a time, in its sole discretion, based
on adverse conditions in the U.S. mortgage market. We may elect to pay the quarterly commitment fee in cash or add the
amount of the fee to the liquidation preference of the senior preferred stock.
Under the terms of the Purchase Agreement, Treasury is entitled to a dividend of 10% per year, paid on a quarterly
basis (which increases to 12% per year if not paid timely and in cash) on the aggregate liquidation preference of the senior
preferred stock, consisting of the initial liquidation preference of $1 billion plus funds we receive from Treasury and any
dividends and commitment fees not paid in cash. To the extent we draw on Treasury’s funding commitment, the liquidation
preference of the senior preferred stock is increased by the amount of funds we receive. The senior preferred stock is senior
in liquidation preference to our common stock and all other series of preferred stock. In addition, beginning on March 31,
2011, we are required to pay a quarterly commitment fee to Treasury as discussed above.
The Purchase Agreement provides that, on a quarterly basis, we generally may draw funds up to the amount, if any, by
which our total liabilities exceed our total assets, as reflected on our GAAP consolidated balance sheet for the applicable
fiscal quarter (referred to as the deficiency amount), provided that the aggregate amount funded under the Purchase
Agreement may not exceed the maximum amount of Treasury’s commitment. The Purchase Agreement provides that the
deficiency amount will be calculated differently if we become subject to receivership or other liquidation process. The
deficiency amount may be increased above the otherwise applicable amount upon our mutual written agreement with
Treasury. In addition, if the Director of FHFA determines that the Director will be mandated by law to appoint a receiver for
us unless our capital is increased by receiving funds under the commitment in an amount up to the deficiency amount
(subject to the maximum amount that may be funded under the agreement), then FHFA, in its capacity as our Conservator,
may request that Treasury provide funds to us in such amount. The Purchase Agreement also provides that, if we have a
deficiency amount as of the date of completion of the liquidation of our assets, we may request funds from Treasury in an
amount up to the deficiency amount (subject to the maximum amount that may be funded under the agreement). Any
amounts that we draw under the Purchase Agreement will be added to the liquidation preference of the senior preferred
stock. No additional shares of senior preferred stock are required to be issued under the Purchase Agreement.
Purchase Agreement Covenants
The Purchase Agreement provides that, until the senior preferred stock is repaid or redeemed in full, we may not,
without the prior written consent of Treasury:
• declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to any Freddie Mac
equity securities (other than with respect to the senior preferred stock or warrant);
• redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock
or warrant);
• sell or issue any Freddie Mac equity securities (other than the senior preferred stock, the warrant and the common
stock issuable upon exercise of the warrant and other than as required by the terms of any binding agreement in effect
on the date of the Purchase Agreement);
• terminate the conservatorship (other than in connection with a receivership);
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