Freddie Mac 2010 Annual Report Download - page 30

The Purchase Agreement provides that, on a quarterly basis, we generally may draw funds up to the amount, if any, by
which our total liabilities exceed our total assets, as reflected on our GAAP balance sheet for the applicable fiscal quarter
(referred to as the deficiency amount), provided that the aggregate amount funded under the Purchase Agreement may not
exceed Treasury’s commitment. The Purchase Agreement provides that the deficiency amount will be calculated differently if
we become subject to receivership or other liquidation process. The deficiency amount may be increased above the otherwise
applicable amount upon our mutual written agreement with Treasury. In addition, if the Director of FHFA determines that the
Director will be mandated by law to appoint a receiver for us unless our capital is increased by receiving funds under the
commitment in an amount up to the deficiency amount (subject to the maximum amount that may be funded under the
agreement), then FHFA, in its capacity as our Conservator, may request that Treasury provide funds to us in such amount.
The Purchase Agreement also provides that, if we have a deficiency amount as of the date of completion of the liquidation
of our assets, we may request funds from Treasury in an amount up to the deficiency amount (subject to the maximum
amount that may be funded under the agreement). Any amounts that we draw under the Purchase Agreement will be added
to the liquidation preference of the senior preferred stock. No additional shares of senior preferred stock are required to be
issued under the Purchase Agreement. As a result, the expiration on December 31, 2009 of Treasury’s temporary authority to
purchase obligations and other securities issued by Freddie Mac did not affect Treasury’s funding commitment under the
Purchase Agreement.
Under the Purchase Agreement, our ability to repay the liquidation preference of the senior preferred stock is limited
and we may not be able to do so for the foreseeable future, if at all. The amounts payable for dividends on the senior
preferred stock are substantial and will have an adverse impact on our financial position and net worth. The payment of
dividends on our senior preferred stock in cash reduces our net worth. For periods in which our earnings and other changes
in equity do not result in positive net worth, draws under the Purchase Agreement effectively fund the cash payment of
senior preferred dividends to Treasury. It is unlikely that, over the long-term, we will generate net income or comprehensive
income in excess of our annual dividends payable to Treasury, although we may experience period-to-period variability in
earnings and comprehensive income. As a result, we expect to make additional draws in future periods.
The Purchase Agreement provides that the Treasury’s funding commitment will terminate under any of the following
circumstances: (a) the completion of our liquidation and fulfillment of Treasury’s obligations under its funding commitment
at that time; (b) the payment in full of, or reasonable provision for, all of our liabilities (whether or not contingent, including
mortgage guarantee obligations); and (c) the funding by Treasury of the maximum amount of the commitment under the
Purchase Agreement. In addition, Treasury may terminate its funding commitment and declare the Purchase Agreement null
and void if a court vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of the
Conservator or otherwise curtails the Conservator’s powers. Treasury may not terminate its funding commitment under the
Purchase Agreement solely by reason of our being in conservatorship, receivership or other insolvency proceeding, or due to
our financial condition or any adverse change in our financial condition.
The Purchase Agreement provides that most provisions of the agreement may be waived or amended by mutual written
agreement of the parties; however, no waiver or amendment of the agreement is permitted that would decrease Treasury’s
aggregate funding commitment or add conditions to Treasury’s funding commitment if the waiver or amendment would
adversely affect in any material respect the holders of our debt securities or Freddie Mac mortgage guarantee obligations.
In the event of our default on payments with respect to our debt securities or Freddie Mac mortgage guarantee
obligations, if Treasury fails to perform its obligations under its funding commitment and if we and/or the Conservator are
not diligently pursuing remedies in respect of that failure, the holders of these debt securities or Freddie Mac mortgage
guarantee obligations may file a claim in the United States Court of Federal Claims for relief requiring Treasury to fund to
us the lesser of: (a) the amount necessary to cure the payment defaults on our debt and Freddie Mac mortgage guarantee
obligations; and (b) the lesser of: (i) the deficiency amount; and (ii) the maximum amount of the commitment less the
aggregate amount of funding previously provided under the commitment. Any payment that Treasury makes under those
circumstances will be treated for all purposes as a draw under the Purchase Agreement that will increase the liquidation
preference of the senior preferred stock.
The Purchase Agreement has an indefinite term and can terminate only in limited circumstances, which do not include
the end of the conservatorship. The Purchase Agreement therefore could continue after the conservatorship ends.
Issuance of Senior Preferred Stock
Shares of the senior preferred stock have a par value of $1, and have a stated value and initial liquidation preference
equal to $1,000 per share. The liquidation preference of the senior preferred stock is subject to adjustment. Dividends that
are not paid in cash for any dividend period will accrue and be added to the liquidation preference of the senior preferred
stock. In addition, any amounts Treasury pays to us pursuant to its funding commitment under the Purchase Agreement and
any quarterly commitment fees that are not paid in cash to Treasury nor waived by Treasury will be added to the liquidation
27 Freddie Mac