Freddie Mac 2010 Annual Report Download - page 153

Reference Notes˛Securities
Reference Notes˛securities are regularly issued, U.S. dollar denominated, non-callable fixed-rate securities, which we
generally issue with original maturities ranging from two through ten years. We have also issued AReference Notes˛
securities denominated in Euros, which remain outstanding, but did not issue any such securities in 2010 or 2009. We hedge
our exposure to changes in foreign-currency exchange rates by entering into swap transactions that convert foreign-currency
denominated obligations to U.S. dollar-denominated obligations. See “QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK — Interest-Rate Risk and Other Market Risks — Sources of Interest-Rate Risk
and Other Market Risks” for more information.
The investor base for our debt is predominantly institutional. From late 2008 through the first quarter of 2010, the
Federal Reserve purchased substantial amounts of our debt securities under its debt purchase program.
Subordinated Debt
During 2010 and 2009, we did not call or issue any Freddie SUBS»securities. At both December 31, 2010 and 2009,
the balance of our subordinated debt outstanding was $0.7 billion. Our subordinated debt in the form of Freddie SUBS˛
securities is a component of our risk management and disclosure commitments with FHFA. See “RISK MANAGEMENT
AND DISCLOSURE COMMITMENTS” for a discussion of changes affecting our subordinated debt as a result of our
placement in conservatorship and the Purchase Agreement, and the Conservator’s suspension of certain requirements relating
to our subordinated debt. Under the Purchase Agreement, we may not issue subordinated debt without Treasury’s consent.
Other Debt Retirement Activities
We repurchase or call our outstanding medium- and long-debt securities from time to time to help support the liquidity
and predictability of the market for our debt securities and to manage our mix of liabilities funding our assets. When our
debt securities become seasoned or one-time call options on our debt securities expire, they may become less liquid, which
could cause their price to decline. By repurchasing debt securities, we help preserve the liquidity of our debt securities and
improve their price performance, which helps to reduce our funding costs over the long-term. Our repurchase activities also
help us manage the funding mismatch, or duration gap, created by changes in interest rates. For example, when interest rates
decline, the expected lives of our investments in mortgage-related securities decrease, reducing the need for long-term debt.
We use a number of different means to shorten the effective weighted average lives of our outstanding debt securities and
thereby manage the duration gap, including retiring long-term debt through repurchases or calls; changing our debt funding
mix between short- and long-term debt; or using derivative instruments, such as entering into receive-fixed swaps or
terminating or assigning pay-fixed swaps. From time to time, we may also enter into transactions in which we exchange
newly issued debt securities for similar outstanding debt securities held by investors. These transactions are accounted for as
debt exchanges.
Table 61 provides the par value, based on settlement dates, of other debt securities we repurchased, called, and
exchanged during 2010 and 2009.
Table 61 — Other Debt Security Repurchases, Calls, and Exchanges
(1)
2010 2009
Year Ended December 31,
(in millions)
Repurchases of outstanding AReference Notes˛securities . . .......................................... $ 262 $ 5,814
Repurchases of outstanding medium-term notes . .................................................. 5,301 35,795
Repurchases of outstanding Freddie SUBS»securities ............................................... — 3,875
Calls of callable medium-term notes . . . ........................................................ 256,256 198,940
Exchanges of medium-term notes............................................................. 1,364 551
(1) Excludes debt securities of consolidated trusts held by third parties.
Credit Ratings
Our ability to access the capital markets and other sources of funding, as well as our cost of funds, is highly dependent
upon our credit ratings. Table 62 indicates our credit ratings as of February 11, 2011.
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