Freddie Mac 2014 Annual Report Download - page 134

129 Freddie Mac
Subordinated Debt
During 2014 and 2013, we did not call or issue any Freddie SUBS® securities. At both December 31, 2014 and 2013, the
balance of our subordinated debt outstanding was $0.4 billion. Our subordinated debt in the form of Freddie SUBS securities is
a component of our risk management and disclosure commitments with FHFA. See “BUSINESS — Regulation and
Supervision — Federal Housing Finance Agency — Subordinated Debt” for a discussion of changes affecting our subordinated
debt as a result of our placement into 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.
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. The table below indicates our credit ratings as of February 5, 2015.
Table 59 — Freddie Mac Credit Ratings
Nationally Recognized Statistical
Rating Organization
S&P Moody’s Fitch
Senior long-term debt(1) AA+ Aaa AAA
Short-term debt(2) A-1+ P-1 F1+
Subordinated debt(3) AA- Aa2 AA-
Preferred stock(4) D Ca C/RR6
Outlook Stable Stable Stable
(1) Consists of medium-term notes and U.S. dollar Reference Notes securities.
(2) Consists of Reference Bills securities and discount notes.
(3) Consists of Freddie SUBS securities.
(4) Does not include senior preferred stock issued to Treasury.
Our credit ratings and outlooks are primarily based on the support we receive from Treasury, and therefore, are affected
by changes in the credit ratings and outlooks of the U.S. government. In March 2014, Fitch affirmed our debt ratings, removed
the ratings from Ratings Watch Negative (RWN) and assigned a Rating Outlook of Stable. This action followed Fitch’s
affirmation of the U.S. government’s debt ratings with a Stable Outlook, resolving the RWN placed on the ratings in October
2013.
For information about factors that could lead to future ratings actions, and the potential impact of a downgrade in our
credit ratings, see “RISK FACTORS — Competitive and Market Risks — Any downgrade in the credit ratings of the U.S.
government would likely be followed by a downgrade in our credit ratings. A downgrade in the credit ratings of our debt could
adversely affect our liquidity and other aspects of our business.”
A security rating is not a recommendation to buy, sell or hold securities. It may be subject to revision or withdrawal at
any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.
Cash and Cash Equivalents, Federal Funds Sold, Securities Purchased Under Agreements to Resell, and Non-Mortgage-
Related Securities
Excluding amounts related to our consolidated VIEs, we held $56.0 billion and $77.1 billion in the aggregate of cash and
cash equivalents, securities purchased under agreements to resell, and non-mortgage-related securities at December 31, 2014
and 2013, respectively. These investments are important to our cash flow and asset and liability management and our ability to
provide liquidity and stability to the mortgage market. At December 31, 2014, our non-mortgage-related securities consisted of
U.S. Treasury securities that we could sell to provide us with an additional source of liquidity to fund our business operations.
We also maintained non-interest-bearing deposits at the Federal Reserve Bank of New York, which are included in cash and
cash equivalents on our consolidated balance sheets. For additional information on these assets, see “CONSOLIDATED
BALANCE SHEETS ANALYSIS — Cash and Cash Equivalents, Federal Funds Sold and Securities Purchased Under
Agreements to Resell” and “— Investments in Securities — Non-Mortgage-Related Securities.”
Mortgage Loans and Mortgage-Related Securities
We invest principally in mortgage loans and mortgage-related securities, certain categories of which are largely
unencumbered and highly liquid. Our primary source of liquidity among these mortgage assets is our holdings of single-class
and multiclass agency securities (excluding certain structured agency securities collateralized by non-agency mortgage-related
securities). We hold other mortgage assets that are also potential sources of liquidity; however, we consider them to be less
liquid than agency securities. These assets consist of certain structured agency securities collateralized by non-agency
mortgage-related securities, unsecuritized performing single-family mortgage loans, CMBS, non-agency mortgage-related
securities backed by subprime, option ARM, and Alt-A and other loans, and unsecuritized seriously delinquent and modified
single-family mortgage loans.
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