Fannie Mae 2007 Annual Report Download - page 131

In June 2006, the Department of the Treasury announced that it would undertake a review of its process for
approving our issuances of debt, which could adversely impact our flexibility in issuing debt securities in the
future. We cannot predict whether the outcome of this review will materially impact our current debt issuance
activities.
Other Sources of Funds
In addition to the issuance of debt securities, we also obtained funds in 2007 through the issuance of preferred
stock. We had not previously issued preferred stock since December 2004. As described in “Capital
Management—Capital Activity” below, we issued a total of $8.9 billion in preferred stock in the second half
of 2007, after retiring $1.1 billion in preferred stock in the first half of the year, in order to maintain sufficient
capital levels. These preferred stock issuances increased our core capital and resulted in a material change in
the mix and relative cost of our capital resources. We believe we will be able to access this source of funds
again if needed in the future; however, the cost of issuing additional preferred securities may be significantly
higher than the cost of issuing debt securities.
We also maintain five intraday lines of credit with financial institutions. These lines of credit are uncommitted
intraday loan facilities. As a result, while we expect to continue to use these facilities, we may not be able to
draw on them if and when needed.
Future Funding Needs
Our short-term and long-term debt funding needs during 2008 are expected to be relatively consistent with our
needs during 2007, and with the uses of cash described above under “Liquidity—Sources and Uses of Cash.”
We expect that, over the long term, our funding needs and sources of liquidity will remain relatively consistent
with current needs and sources. We may increase our issuance of debt in future years if we decide to increase
our purchase of mortgage assets.
As described in “Capital Management—Capital Activity—Capital Management Actions” below, if market
conditions in 2008 are significantly worse than anticipated, we may need to access sources of funding that
enhance our regulatory capital position, such as issuing preferred, convertible preferred or common stock.
Credit Ratings and Risk Ratings
Our ability to borrow at attractive rates is highly dependent upon our credit ratings from the major ratings
organizations. Our senior unsecured debt (both long-term and short-term), subordinated debt and preferred
stock are rated and continuously monitored by Standard & Poor’s, a division of The McGraw Hill Companies
(“Standard & Poor’s”), Moody’s Investors Service (“Moody’s”), and Fitch Ratings (“Fitch”), each of which is
a nationally recognized statistical rating organization. Table 36 below sets forth the credit ratings issued by
each of these rating agencies of our long-term and short-term senior unsecured debt, subordinated debt and
preferred stock as of February 26, 2008. Table 36 also sets forth our “risk to the government” rating and our
“Bank Financial Strength Rating” as of February 26, 2008.
Table 36: Fannie Mae Credit Ratings and Risk Ratings
Senior
Long-Term
Unsecured Debt
Senior
Short-Term
Unsecured Debt Subordinated Debt
Preferred
Stock
Risk to the
Government
(1)
Bank
Financial
Strength
(1)
Standard & Poor’s
(2)
. . . . . . AAA A-1+ AA- AA- AA- —
Moody’s
(3)
. . . . . . . . . . . . . Aaa P-1 Aa2 Aa3 — B+
Fitch
(4)
............... AAA F1+ AA- AA- — —
(1)
Pursuant to our September 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.
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