Freddie Mac 2009 Annual Report Download - page 25

Treasury Agreements
The Reform Act granted Treasury temporary authority (through December 31, 2009) to purchase any obligations and
other securities issued by Freddie Mac on such terms and conditions and in such amounts as Treasury may determine, upon
mutual agreement between Treasury and Freddie Mac. Pursuant to this authority, Treasury entered into several agreements
with us, as described below.
Purchase Agreement and Related Issuance of Senior Preferred Stock and Common Stock Warrant
Purchase Agreement
On September 7, 2008, we, through FHFA, in its capacity as Conservator, and Treasury entered into the Purchase
Agreement. The Purchase Agreement was subsequently amended and restated on September 26, 2008, and further amended
on May 6, 2009 and December 24, 2009. 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
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 below. We did not receive any cash proceeds from Treasury as a
result of issuing the senior preferred stock or the warrant. However, as discussed below, deficits in our net worth have made
it necessary for us to make substantial draws on Treasury’s funding commitment under the Purchase Agreement.
The senior preferred stock and warrant were issued to Treasury as an initial commitment fee in consideration of the
initial commitment from Treasury to provide up to $100 billion (subsequently increased to $200 billion and further modified
as described below) in funds to us under the terms and conditions set forth in the Purchase Agreement. Under the
amendment to the Purchase Agreement adopted on December 24, 2009, 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. Specifically, the Purchase Agreement provides that the aggregate amount that may be funded under Treasury’s
commitment may not exceed the greater of (a) $200 billion, or (b) $200 billion plus the cumulative total of deficiency
amounts determined for calendar quarters in calendar years 2010, 2011, and 2012, less any surplus amount (defined as the
amount by which our total assets exceed our total liabilities, as reflected on our balance sheet in accordance with GAAP)
determined as of December 31, 2012.
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, will 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.
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 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 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. As a result, the expiration on December 31, 2009 of Treasury’s temporary authority to
purchase obligations and other securities issued by Freddie Mac does not affect Treasury’s funding commitment under the
Purchase Agreement.
The Purchase Agreement provides that the Treasury’s funding commitment will terminate under any of the following
circumstances: (1) the completion of our liquidation and fulfillment of Treasury’s obligations under its funding commitment
at that time; (2) the payment in full of, or reasonable provision for, all of our liabilities (whether or not contingent, including
mortgage guarantee obligations); and (3) the funding by Treasury of the maximum amount of the commitment under the
Purchase Agreement. In addition, Treasury may terminate its funding commitment and declare the Purchase Agreement null
and void if a court vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of the
22 Freddie Mac