Freddie Mac 2010 Annual Report Download - page 150

of debt maturities and closely monitor our monthly maturity profile. Under these practices and policies, we maintain a
backup core reserve portfolio of liquid non-mortgage securities designed to provide additional liquidity in the event of a
liquidity crisis.
Our liquidity management policies provide for us to:
• maintain funds sufficient to cover our maximum cash liquidity needs for at least the following 35 calendar days,
assuming no access to the short- or long-term unsecured debt markets. At least 50% of such amount, which is based
on the average daily 35-day cash liquidity needs of the preceding three months, must be held: (a) in U.S. Treasury
securities with remaining maturities of five years or less or other U.S. government-guaranteed securities with
remaining maturities of one year or less; or (b) as uninvested cash at the Federal Reserve Bank of New York;
• maintain a portfolio of liquid, high quality marketable non-mortgage-related securities with a market value of at least
$10 billion, exclusive of the 35-day cash requirement discussed above. The portfolio must consist of securities with
maturities greater than 35 days. The credit quality of these investments is monitored by our risk management group
on a daily basis;
• limit the proportion of debt maturing within the next year. We actively manage the composition of short- and long-
term debt, as well as our patterns of redemption of callable debt, to manage the proportion of effective short-term debt
to reduce the risk that we will be unable to refinance our debt as it comes due; and
• maintain unencumbered collateral with a value greater than or equal to the largest projected cash shortfall on any one
day over the following 365 calendar days, assuming no access to the short- and long-term unsecured debt markets.
This is based on a daily forecast of all existing contractual cash obligations over the following 365 calendar days.
No more than an aggregate of $10 billion of market value may be held in U.S. Treasury notes with remaining maturities
of between one and five years to satisfy the short-term liquidity requirements described above.
We also continue to manage our debt issuances to remain in compliance with the aggregate indebtedness limits set forth
in the Purchase Agreement.
Throughout 2010, we complied with all liquidity requirements under these policies. Furthermore, the majority of funds
for covering our short-term cash liquidity needs are invested in short-term assets with a rating of A-1/P-1 or AAA, as
appropriate. In the event of a downgrade of a position, our credit governance policies require us to exit from the position
within a specified period.
To facilitate cash management, we forecast cash outflows. These forecasts help us to manage our liabilities with respect
to asset purchases and runoff, when financial markets are not in crisis. For further information on our management of
interest-rate risk associated with asset and liability management, see “QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.”
Notwithstanding these practices, our ability to maintain sufficient liquidity, including by pledging mortgage-related and
other securities as collateral to other financial institutions, could cease or change rapidly and the cost of the available funding
could increase significantly due to changes in market confidence and other factors. For more information, see “RISK
FACTORS — Competitive and Market Risks — Our business may be adversely affected by limited availability of financing
and increased funding costs.”
Actions of Treasury, the Federal Reserve and FHFA
Since our entry into conservatorship, Treasury, the Federal Reserve and FHFA have taken a number of actions that
affect our cash requirements and ability to fund those requirements. The conservatorship, and the resulting support we
received from Treasury, enabled us to access debt funding on terms sufficient for our needs. The support we received from
the Federal Reserve through its debt purchase program, which was completed in March 2010, also contributed to our ability
to access debt funding.
Under the Purchase Agreement, Treasury made a commitment to provide funding, under certain conditions, to eliminate
deficits in our net worth. The Purchase Agreement provides that the $200 billion maximum amount of the commitment from
Treasury will increase as necessary to accommodate any cumulative reduction in our net worth during 2010, 2011, and 2012.
If we do not have a capital surplus (i.e., positive net worth) at the end of 2012, then the amount of funding available after
2012 will be $149.3 billion ($200 billion funding commitment reduced by cumulative draws for net worth deficits through
December 31, 2009). In the event we have a capital surplus at the end of 2012, then the amount of funding available after
2012 will depend on the size of that surplus relative to cumulative draws needed for deficits during 2010 to 2012, as follows:
• If the year-end 2012 surplus is lower than the cumulative draws needed for 2010 to 2012, then the amount of
available funding is $149.3 billion less the surplus.
• If the year-end 2012 surplus exceeds the cumulative draws for 2010 to 2012, then the amount of available funding is
$149.3 billion less the amount of those draws.
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