Fannie Mae 2007 Annual Report Download - page 130

addition, debt OAS based on the Lehman U.S. Agency Debt Index to LIBOR decreased by 2.8 basis points to
minus 13.8 basis points as of year-end 2006, resulting in an increase in the fair value of our liabilities that
further decreased the overall fair value of our net assets.
LIQUIDITY AND CAPITAL MANAGEMENT
We actively manage our liquidity and capital position with the objective of preserving stable, reliable and cost-
effective sources of cash to meet all of our current and future operating financial commitments and regulatory
capital requirements. We seek to maintain sufficient excess liquidity in the event that factors, whether internal
or external to our business, temporarily prevent us from issuing debt securities in the capital markets.
Liquidity
Sources and Uses of Cash
We manage our cash position on a daily basis. Our primary source of cash is proceeds from our issuance of
debt securities. Other significant sources of cash include principal and interest payments received on our
mortgage assets and liquid investments, guaranty fees, proceeds from our issuance of preferred stock and
proceeds from our sales of mortgage assets and liquid investments. Our primary uses of cash include the
repayment of debt, interest payments on outstanding debt, purchases of mortgage assets and other investments,
payment of dividends on common and preferred stock, payments made to fulfill our guaranty obligations,
payments made to fulfill our obligations under derivatives contracts, administrative expenses and payment of
federal income taxes.
Debt Funding
We regularly issue a variety of non-callable and callable debt securities in the domestic and international
capital markets in a wide range of maturities to meet our large and ongoing funding needs. Despite an overall
lack of portfolio growth during 2007, we remained an active issuer of short-term and long-term debt securities
to meet our consistent need for funding and rebalancing our portfolio. During 2007, we issued $1.5 trillion in
short-term debt and $194.0 billion in long-term debt. We also redeemed $101.5 billion of debt securities in
2007 prior to maturity. Our short-term and long-term funding needs in 2007 were relatively consistent with
our needs in 2006. For most of the year, we issued fewer short-term debt securities, as we took advantage of
attractive long-term debt funding opportunities to lengthen the average maturity of our debt securities from
45 months in 2006 to 48 months in 2007. However, we significantly increased our issuance of short-term debt
securities in December 2007 in order to fund additional purchases of investment securities for our liquid
investment portfolio. As a result, we had approximately 41% more outstanding short-term debt securities as of
December 31, 2007, as compared with year-end 2006. For more information on our debt activity for the years
ended December 31, 2007, 2006 and 2005, and our outstanding short-term and long-term debt as of
December 31, 2007 and 2006, refer to “Consolidated Balance Sheet Analysis—Debt Instruments.”
We require regular access to the debt capital markets because we rely primarily on the issuance of debt
securities to fund our operations. Our sources of liquidity have historically been adequate to meet both our
short-term and long-term funding needs, and we anticipate that they will remain adequate. We have a
diversified funding base of domestic and international investors. Purchasers of our debt securities include fund
managers, commercial banks, pension funds, insurance companies, foreign central banks, state and local
governments and retail investors. Purchasers of our debt securities are also geographically diversified, with a
significant portion of our investors located in the United States, Europe and Asia. The diversity of our investor
base enhances our financial flexibility and limits our dependence on any one source of funding. Our status as
a GSE and our current “AAA” (or its equivalent) senior long-term unsecured debt credit ratings are critical to
our ability to continuously access the debt capital markets to borrow at attractive rates. The U.S. government
does not guarantee our debt, directly or indirectly, and our debt does not constitute a debt or obligation of the
U.S. government or of any of its agencies or instrumentalities.
108