Freddie Mac 2015 Annual Report Download - page 261

Financial Statements Notes to the Consolidated Financial Statements | Note 7
Freddie Mac 2015 Form 10-K 259
We engage in dollar roll transactions whereby we enter into an agreement to sell and subsequently
repurchase (or purchase and subsequently resell) agency securities. When these transactions involve
securities issued by consolidated entities, they are treated as issuances and extinguishments of debt.
Cash flows related to debt securities issued by our consolidated trusts are classified as either financing
activities (e.g., repayment of principal to PC holders) or operating activities (e.g., interest payments to PC
holders included within net income (loss)). Other than interest paid, cash flows related to other debt are
classified as financing activities. Interest paid on other debt is classified as operating activities.
Under the Purchase Agreement, without the prior written consent of Treasury, we may not incur
indebtedness that would result in the par value of our aggregate indebtedness exceeding 120% of the
amount of mortgage assets we are allowed to own on December 31 of the immediately preceding
calendar year. Because of this debt limit, we may be restricted in the amount of debt we are allowed to
issue to fund our operations. Under the Purchase Agreement, the amount of our “indebtedness” is
determined without giving effect to the January 1, 2010 change in the accounting guidance related to
transfers of financial assets and consolidation of VIEs. Therefore, “indebtedness” does not include debt
securities of consolidated trusts held by third parties. We also cannot become liable for any subordinated
indebtedness without the prior consent of Treasury. See Note 2 for information regarding restrictions on
the amount of mortgage-related securities that we may own.
Our debt cap under the Purchase Agreement was $563.6 billion in 2015 and declined to $479.0 billion on
January 1, 2016. As of December 31, 2015, our aggregate indebtedness was $418.0 billion. Our
aggregate indebtedness is calculated as the par value of other short- and long-term debt.
DEBT SECURITIES OF CONSOLIDATED TRUSTS HELD BY THIRD PARTIES
Debt securities of consolidated trusts held by third parties represents our liability to third parties that hold
beneficial interests in our consolidated securitization trusts. Debt securities of consolidated trusts held by
third parties are generally prepayable as the loans that collateralize the debt may prepay without penalty
at any time.