Freddie Mac 2009 Annual Report Download - page 57

undercapitalized, we are not permitted to make a capital distribution that would result in our being reclassified as
significantly undercapitalized or critically undercapitalized. If FHFA classifies us as significantly undercapitalized, approval
of the Director of FHFA is required for any dividend payment; the Director may approve a capital distribution only if the
Director determines that the distribution will enhance the ability of the company to meet required capital levels promptly,
will contribute to the long-term financial safety-and-soundness of the company or is otherwise in the public interest. Our
capital requirements have been suspended during conservatorship.
Restrictions Relating to Charter
Without regard to our capital classification, we must obtain prior written approval of FHFA to make any capital
distribution that would decrease total capital to an amount less than the risk-based capital level or that would decrease core
capital to an amount less than the minimum capital level. As noted above, our capital requirements have been suspended
during conservatorship.
Restrictions Relating to Subordinated Debt
During any period in which we defer payment of interest on qualifying subordinated debt, we may not declare or pay
dividends on, or redeem, purchase or acquire, our common stock or preferred stock. Our qualifying subordinated debt
provides for the deferral of the payment of interest for up to five years if either: (i) our core capital is below 125% of our
critical capital requirement; or (ii) our core capital is below our statutory minimum capital requirement, and the Secretary of
the Treasury, acting on our request, exercises his or her discretionary authority pursuant to Section 306(c) of our charter to
purchase our debt obligations. FHFA has directed us to make interest and principal payments on our subordinated debt, even
if we fail to maintain required capital levels. As a result, the terms of any of our subordinated debt that provide for us to
defer payments of interest under certain circumstances, including our failure to maintain specified capital levels, are no
longer applicable. As noted above, our capital requirements have been suspended during conservatorship.
Restrictions Relating to Preferred Stock
Payment of dividends on our common stock is also subject to the prior payment of dividends on our 24 series of
preferred stock and one series of senior preferred stock, representing an aggregate of 464,170,000 shares and
1,000,000 shares, respectively, outstanding as of December 31, 2009. Payment of dividends on all outstanding preferred
stock, other than the senior preferred stock, is also subject to the prior payment of dividends on the senior preferred stock.
On December 31, 2009, we paid dividends of $1.3 billion in cash on the senior preferred stock at the direction of the
Conservator. We did not declare or pay dividends on any other series of preferred stock outstanding in 2009.
Restrictions on Dividends from REIT Subsidiaries
On September 19, 2008, FHFA, as Conservator, advised us of FHFA’s determination that no further common or
preferred stock dividends should be paid by our REIT subsidiaries, Home Ownership Funding Corporation and Home
Ownership Funding Corporation II, until directed otherwise. Since we are the majority owner of both the common and
preferred shares of these two REITs, this action eliminated our access through such dividend payments to the cash flows of
the REITs. However, at our request and with Treasury’s consent, FHFA directed us and the boards of directors of our REIT
subsidiaries to (i) declare and pay dividends for one quarter on the preferred shares of our REIT subsidiaries during the
fourth quarter of 2009 which the REITs paid for the quarter ended September 30, 2008 and (ii) take all steps necessary to
effect the elimination of the REITs by merger in a timely and expeditious manner. As a result of this dividend payment, the
terms of the REIT preferred stock that permit the preferred stockholders to elect a majority of the members of each REIT’s
board of directors were not triggered. No other common or preferred dividends were declared by our REIT subsidiaries
during 2009. For more information, see “Defaults Upon Senior Securities.”
54 Freddie Mac