Fannie Mae 2004 Annual Report Download - page 25

significant and growing source of funding in recent years. The most significant of the debt financing programs
that we conduct are the following:
•Benchmark Securities».Through our Benchmark Securities program, we sell large, regularly scheduled
issues of unsecured debt. Our Benchmark Securities issues tend to appeal to investors who value liquidity
and price transparency. The Benchmark Securities program includes:
•Benchmark Bills have maturities of up to one year. On a weekly basis, we auction three-month and
six-month Benchmark Bills with a minimum issue size of $1.0 billion. On a monthly basis, we auction
one-year Benchmark Bills with a minimum issue size of $1.0 billion.
•Benchmark Notes have maturities ranging between two and ten years. Each month, we typically sell
one or more new, fixed-rate issues of Benchmark Notes through dealer syndicates. Each issue has a
minimum size of $3.0 billion.
•Discount Notes. We issue short-term debt securities called Discount Notes with maturities ranging from
overnight to 360 days from the date of issuance. Investors purchase these notes at a discount to the
principal amount and receive the principal amount when the notes mature.
•Medium-Term Notes. We issue medium-term notes (“MTNs”) with a wide range of maturities, interest
rates and call features. The specific terms of our MTN issuances are determined through individually-
negotiated transactions with broker-dealers. Our MTNs are often callable prior to maturity. We issue both
fixed-rate and floating-rate securities, as well as various types of structured notes that combine features of
traditional debt with features of other capital market instruments.
•Subordinated Debt. Pursuant to voluntary commitments that we made in October 2000, from time to
time we have issued subordinated debt. The terms of our qualifying subordinated debt require us to defer
interest payments on this debt in specified limited circumstances. The difference, or spread, between the
trading prices of our subordinated debt and our senior debt serves as a market indicator to investors of the
relative credit risk of our debt. A narrow spread between the trading prices of our subordinated debt and
senior debt implies that the market perceives the credit risk of our debt to be relatively low. A wider
spread between these prices implies that the market perceives our debt to have a higher relative credit
risk. As of the date of this filing, we had $11.0 billion in qualifying subordinated debt outstanding. We
have not issued any subordinated debt since 2003. During 2004, we suspended further issuances of
subordinated debt and are not likely to resume issuances until we return to timely reporting of our
financial results. Our October 2000 voluntary commitments relating to subordinated debt have been
replaced by an agreement we entered into with OFHEO on September 1, 2005, pursuant to which we
agreed to maintain a specified amount of qualifying subordinated debt. Although we have not issued
subordinated debt since 2003, we are in compliance with our obligations relating to the maintenance of
subordinated debt under our September 1, 2005 agreement with OFHEO. For more information on our
subordinated debt, see “Item 7—MD&A—Liquidity and Capital Management—Capital Management—
Capital Activity—Subordinated Debt.”
For more information regarding our approach to funding our investments and other activities, see
“Item 7—MD&A—Liquidity and Capital Management—Liquidity—Debt Funding.”
While we are a corporation chartered by the U.S. Congress, we are solely responsible for our debt obligations,
and neither the U.S. government nor any instrumentality of the U.S. government guarantees any of our debt.
Our debt trades in the “agency sector” of the capital markets, along with the debt of other GSEs. Debt in the
agency sector benefits from bank regulations that allow commercial banks to invest in our debt and other
agency debt to a greater extent than other debt. These factors, along with the high credit rating of our senior
unsecured debt securities and the manner in which we conduct our financing programs, contribute to the
favorable trading characteristics of our debt. As a result, we generally are able to borrow at lower interest rates
than other corporate debt issuers. For information on the credit ratings of our long-term and short-term senior
unsecured debt, qualifying subordinated debt and preferred stock, refer to “Item 7—MD&A—Liquidity and
Capital Management—Liquidity—Credit Ratings and Risk Ratings.”
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