Freddie Mac 2010 Annual Report Download - page 29

Attachment of Assets and Other Injunctive Relief
Under the GSE Act, the Conservator may seek to attach assets or obtain other injunctive relief without being required to
show that any injury, loss or damage is irreparable and immediate.
Subpoena Power
The GSE Act provides the Conservator, with the approval of the Director of FHFA, with subpoena power for purposes
of carrying out any power, authority or duty with respect to Freddie Mac.
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:
(a) one million shares of Variable Liquidation Preference Senior Preferred Stock (with an initial liquidation preference of
$1 billion), which we refer to as the senior preferred stock; and (b) a warrant to purchase, for a nominal price, shares of our
common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis at the
time the warrant is exercised, which we refer to as the warrant. 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, deficits in our net worth have made it necessary for us to make substantial draws on
Treasury’s funding commitment under the Purchase Agreement. As a result, the aggregate liquidation preference of the
senior preferred stock has increased from $1.0 billion as of September 8, 2008 to $64.2 billion at December 31, 2010 (this
figure reflects the receipt of funds requested in the draw to address our net worth deficit as of September 30, 2010). Our
dividend obligation on the senior preferred stock, based on that liquidation preference, is $6.42 billion, which exceeds our
annual earnings in all but one period.
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) in funds to us under
the terms and conditions set forth in the Purchase Agreement. Under the Purchase Agreement, 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.
In addition to the issuance of the senior preferred stock and warrant, we are required under the Purchase Agreement to
pay a quarterly commitment fee to Treasury. Under the Purchase Agreement, the fee is to be determined in an amount
mutually agreed to by us and Treasury with reference to the market value of Treasury’s funding commitment as then in
effect, and reset every five years. 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. 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. The fee was originally scheduled
to commence on March 31, 2010, but was delayed until March 31, 2011 pursuant to an amendment to the Purchase
Agreement. Treasury waived the fee for the first quarter of 2011, but has indicated that it remains committed to protecting
taxpayers and ensuring that our future positive earnings are returned to taxpayers as compensation for their investment.
Treasury stated that it would reevaluate whether the quarterly commitment fee should be set in the second quarter of 2011.
Absent Treasury waiving the commitment fee in the second quarter of 2011, this quarterly commitment fee will begin
accruing on April 1, 2011 and must be paid each quarter for as long as the Purchase Agreement is in effect. The amount of
the fee has not yet been determined and could be substantial.
26 Freddie Mac