Fannie Mae 2008 Annual Report Download - page 54

U.S. government holds shares of our common stock issued upon exercise of the warrant. These terms of
Treasury’s investment effectively eliminate our ability to raise equity capital from private sources. Moreover,
our draw under Treasury’s funding commitment, and the required dividend payment thereon could
permanently impair our ability to build independent sources of capital and will make it more difficult for us to
achieve self-sustaining profitability in the future.
Treasury’s funding commitment may not be sufficient to keep us in a solvent condition.
Under the senior preferred stock purchase agreement, Treasury has made a commitment to provide up to
$100 billion in funding as needed to help us maintain a positive net worth, and on February 18, 2009,
Treasury announced that it is amending the agreement to increase its commitment from $100 billion to
$200 billion. The amended agreement has not been executed as of the date of this report. On February 25,
2009, the Director of FHFA submitted a request for $15.2 billion under the funding commitment due to our
net worth deficit as of December 31, 2008. The amount of Treasury’s funding commitment will continue to be
reduced by any amounts we receive under the commitment for future periods, as well as by any dividends or
quarterly commitment fee that we do not pay in cash. If we continue to experience substantial losses in future
periods or to the extent that we experience a liquidity crisis that prevents us from accessing the unsecured debt
markets, this commitment may not be sufficient to keep us in solvent condition or from being placed into
receivership. The announced amendment to increase the commitment of $200 billion reduces, but does not
eliminate, this risk.
We may not be able to rely on the Treasury credit facility in the event of a liquidity crisis.
Treasury is not obligated by the terms of the Treasury credit facility to make any loans to us. In addition, we
must provide collateral securing any loan that Treasury makes to us under the Treasury credit facility in the
form of Fannie Mae MBS or Freddie Mac mortgage-backed securities. Treasury may reduce the value
assigned to the collateral by whatever amount Treasury determines, and may request additional collateral. In
addition, Treasury may require that we immediately repay, on demand, any one or more of the loans
outstanding under the Treasury credit facility, regardless of the originally scheduled maturity date of the loan.
Loans also become immediately due and payable upon the occurrence of specified events of default, which
includes our receivership. Upon the occurrence of any event of default, Treasury may pursue specified
remedies, including sale of the collateral we provided. If Treasury requires us to repay immediately loans
made to us pursuant to the Treasury credit facility, there can be no assurance that we will be able to make
those payments or borrow sufficient funds from alternative sources to make those payments. In addition, the
forced sale of our collateral could adversely affect our business, financial condition, results of operations,
liquidity and net worth.
The conservatorship and investment by Treasury have had, and will continue to have, a material adverse
effect on our common and preferred shareholders.
No voting rights during conservatorship. The rights and powers of our shareholders are suspended during the
conservatorship. The conservatorship has no specified termination date. During the conservatorship, our
common shareholders do not have the ability to elect directors or to vote on other matters unless the
conservator delegates this authority to them.
Dividends to common and preferred shareholders, other than Treasury, have been eliminated. The
conservator has eliminated common and preferred stock dividends (other than dividends on the senior
preferred stock) during the conservatorship. In addition, under the terms of the senior preferred stock purchase
agreement, dividends may not be paid to common or preferred shareholders (other than the senior preferred
stock) without the consent of Treasury, regardless of whether we are in conservatorship.
Liquidation preference of senior preferred stock will increase, potentially substantially. The senior preferred
stock ranks prior to our common stock and all other series of our preferred stock, as well as any capital stock
we issue in the future, as to both dividends and distributions upon liquidation. Accordingly, if we are
liquidated, the senior preferred stock is entitled to its then-current liquidation preference, plus any accrued but
unpaid dividends, before any distribution is made to the holders of our common stock or other preferred stock.
As of February 26, 2009, the liquidation preference on the senior preferred stock was $1.0 billion; however, it
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