Fannie Mae 2005 Annual Report Download - page 22

satisfy our funding and risk management requirements, but also to access the market in an orderly manner
with debt securities designed to appeal to a wide range of investors. International investors, seeking many of
the features offered in our debt programs for their U.S. dollar-denominated investments, have been a
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 qualifying 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 $9.0 billion in qualifying subordinated debt
outstanding. We have not issued any subordinated debt since 2003 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 qualifying 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.”
We engage in periodic repurchases of our debt securities to support the liquidity and strength of our debt
programs, among other reasons. 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.”
Although 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
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