Fannie Mae 2004 Annual Report Download - page 179

account at the Federal Reserve Bank for these payments and would make periodic payments throughout the
business day until our account balance was zero. Under the revised policy, we are now required to fund
interest and redemption payments on our debt and Fannie Mae MBS before the Federal Reserve Banks, acting
as our fiscal agent, will execute the payments on our behalf. We compensate the Federal Reserve Banks for
this service.
Because we receive funds and make payments throughout each business day, we have taken steps, including
revising our funding strategies, to ensure that we will have access to funds in a timely manner to meet our
payment obligations. We established and periodically may use secured and unsecured intraday funding lines of
credit with several large financial institutions. We are currently funding security holder payments on a daily
basis and are fully compliant with the revised Federal Reserve policy.
Credit Ratings and Risk Ratings
Our ability to borrow at attractive rates is highly dependent upon our credit ratings. Our senior unsecured debt
(both long-term and short-term), qualifying benchmark subordinated debt and preferred stock are rated and
continuously monitored by Standard & Poor’s, Moody’s and Fitch, each of which is a nationally recognized
statistical rating organization. Table 41 below sets forth the credit ratings issued by each of these rating agencies
of our long-term and short-term senior unsecured debt, qualifying benchmark subordinated debt and preferred
stock as of December 5, 2006.
Table 41: Fannie Mae Debt Credit Ratings
Senior Long-Term
Unsecured Debt
Senior Short-Term
Unsecured Debt
Benchmark
Subordinated Debt Preferred Stock
Standard & Poor’s . . . . . . . . . . AAA A⫺1+ AA⫺
(1)
AA⫺
(1)
Moody’s Investors Service . . . . Aaa P⫺1Aa2
(2)
Aa3
(2)
Fitch, Inc . . . . . . . . . . . . . . . . AAA F1+ AA⫺
(3)
A+
(4)
(1)
On September 23, 2004, Standard & Poor’s placed our preferred stock and subordinated debt ratings on “credit watch
negative.”
(2)
On September 28, 2004, Moody’s placed our preferred stock and subordinated debt ratings on a “negative outlook.” On
December 15, 2005, Moody’s confirmed our preferred stock and subordinated debt ratings with a “stable outlook.”
(3)
On September 29, 2004, Fitch downgraded our subordinated debt rating from ‘AA’ to ‘AA⫺’. On December 23, 2004,
Fitch placed our subordinated debt rating on “rating watch negative.”
(4)
On September 29, 2004, Fitch downgraded our preferred stock rating from ‘AA’ to ‘AA⫺’. On December 23, 2004,
Fitch downgraded our preferred stock rating from ‘AA⫺’ to ‘A+’ and placed our preferred stock rating on “rating watch
negative.”
Pursuant to our September 1, 2005 agreement with OFHEO, we agreed to seek to obtain a rating, which will
be continuously monitored by at least one nationally recognized statistical rating organization, that assesses,
among other things, the independent financial strength or “risk to the government” of Fannie Mae operating
under its authorizing legislation but without assuming a cash infusion or extraordinary support of the
government in the event of a financial crisis. We also agreed to provide periodic public disclosure of this
rating.
Standard & Poor’s “risk to the government” rating for us as of December 5, 2006 was AA⫺and this rating
has been on credit watch negative since September 23, 2004. Standard & Poor’s continually monitors this
rating.
Moody’s “Bank Financial Strength Rating” for us as of December 5, 2006 was B+ with a stable outlook. This
rating was downgraded from A⫺on March 28, 2005. Moody’s continually monitors this rating.
We do not have any covenants in our existing debt agreements that would be violated by a downgrade in our
credit ratings. To date, we have not experienced any limitations in our ability to access the capital markets due
to a credit ratings downgrade. See “Item 1A—Risk Factors” for a discussion of the risks associated with a
reduction in our credit ratings.
174