Freddie Mac 2009 Annual Report Download - page 38

Freddie Mac to pay senior preferred stock dividends by waiving the right to claim future tax benefits of the LIHTC
investments. However, after further consultation with Treasury and consistent with the terms of the Purchase Agreement, the
Acting Director informed us we may not sell or transfer the assets and that he sees no other disposition options. As a result,
we wrote down the carrying value of our LIHTC investments to zero as of December 31, 2009, resulting in a loss of
$3.4 billion. This write-down reduces our net worth at December 31, 2009 and, as such, increases the likelihood that we will
require additional draws from Treasury under the Purchase Agreement and, as a consequence, increases the likelihood that
our dividend obligation on the senior preferred stock will increase. See “NOTE 5: VARIABLE INTEREST ENTITIES” to
our consolidated financial statements for additional information.
The conservatorship is indefinite in duration and the timing, conditions and likelihood of our emerging from
conservatorship are uncertain. Even if the conservatorship is terminated, we would remain subject to the Purchase
Agreement, senior preferred stock and warrant.
FHFA has stated that there is no exact time frame as to when the conservatorship may end. Termination of the
conservatorship (other than in connection with receivership) also requires Treasury’s consent under the Purchase Agreement.
There can be no assurance as to when, and under what circumstances, Treasury would give such consent. There is also
significant uncertainty as to what changes may occur to our business structure during or following our conservatorship,
including whether we will continue to exist. It is possible that the conservatorship will end with us being placed into
receivership.
In addition, Treasury has the ability to acquire a majority of our common stock for nominal consideration by exercising
the warrant we issued to it pursuant to the Purchase Agreement. Consequently, the company could effectively remain under
the control of the U.S. government even if the conservatorship was ended and the voting rights of common stockholders
restored. The warrant held by Treasury, the restrictions on our business contained in the Purchase Agreement and the senior
status of the senior preferred stock issued to Treasury under the Purchase Agreement, if the senior preferred stock has not
been redeemed, also could adversely affect our ability to attract new private sector capital in the future should the company
be in a position to seek such capital. Moreover, our draws under Treasury’s funding commitment and the senior preferred
dividend obligation could permanently impair our ability to build independent sources of capital.
Our regulator may, and in some cases must, place us into receivership, which would result in the liquidation of our assets
and terminate all rights and claims that our stockholders and creditors may have against our assets or under our charter;
if we are liquidated, there may not be sufficient funds to pay the secured and unsecured claims of the company, repay the
liquidation preference of any series of our preferred stock or make any distribution to the holders of our common stock.
Under the Reform Act, FHFA must place us into receivership if FHFA determines in writing that our assets are less than
our obligations for a period of 60 days. FHFA has notified us that the measurement period for any mandatory receivership
determination with respect to our assets and obligations would commence no earlier than the SEC public filing deadline for
our quarterly or annual financial statements and would continue for 60 calendar days after that date. FHFA has also advised
us that, if, during that 60-day period, we receive funds from Treasury in an amount at least equal to the deficiency amount
under the Purchase Agreement, the Director of FHFA will not make a mandatory receivership determination.
In addition, we could be put into receivership at the discretion of the Director of FHFA at any time for other reasons,
including conditions that FHFA has already asserted existed at the time the then Director of FHFA placed us into
conservatorship. These include: a substantial dissipation of assets or earnings due to unsafe or unsound practices; the
existence of an unsafe or unsound condition to transact business; an inability to meet our obligations in the ordinary course
of business; a weakening of our condition due to unsafe or unsound practices or conditions; critical undercapitalization; the
likelihood of losses that will deplete substantially all of our capital; or by consent. A receivership would terminate the
conservatorship. The appointment of FHFA (or any other entity) as our receiver would terminate all rights and claims that
our stockholders and creditors may have against our assets or under our charter arising as a result of their status as
stockholders or creditors, other than the potential ability to be paid upon our liquidation. Unlike a conservatorship, the
purpose of which is to conserve our assets and return us to a sound and solvent condition, the purpose of a receivership is to
liquidate our assets and resolve claims against us.
In the event of a liquidation of our assets, there can be no assurance that there would be sufficient proceeds to pay the
secured and unsecured claims of the company, repay the liquidation preference of any series of our preferred stock or make
any distribution to the holders of our common stock. To the extent that we are placed in receivership and do not or cannot
fulfill our guarantee to the holders of our mortgage-related securities, such holders could become unsecured creditors of ours
with respect to claims made under our guarantee. Only after paying the secured and unsecured claims of the company, the
administrative expenses of the receiver and the liquidation preference of the senior preferred stock, which ranks prior to our
common stock and all other series of preferred stock upon liquidation, would any liquidation proceeds be available to repay
the liquidation preference on any other series of preferred stock. Finally, only after the liquidation preference on all series of
35 Freddie Mac