Fannie Mae 2008 Annual Report Download - page 55

will increase to $16.2 billion as a result of our expected draw on Treasury’s funding commitment. The
liquidation preference could increase substantially as we draw on Treasury’s funding commitment, if we do
not pay dividends owed on the senior preferred stock or if we do not pay the quarterly commitment fee under
the senior preferred stock purchase agreement. If we are liquidated, there may not be sufficient funds
remaining after payment of amounts to our creditors and to Treasury as holder of the senior preferred stock to
make any distribution to holders of our common stock and other preferred stock.
Warrant may substantially dilute investment of current shareholders. If Treasury exercises its warrant to
purchase shares of our common stock equal to 79.9% of the total number of shares of our common stock
outstanding on a fully diluted basis, the ownership interest in the company of our then existing common
shareholders will be substantially diluted. It is possible that private shareholders will not own more than
20.1% of our total common equity for the duration of our existence.
Market price and liquidity of our common and preferred stock has substantially declined and may not recover.
After our entry into conservatorship, the market price for our common stock declined substantially (from
approximately $7 per share immediately before the conservatorship to less than $1 per share after the
conservatorship) and the investments of our common and preferred shareholders have lost substantial value.
Our common and preferred stock may never recover their value and could be delisted from the NYSE as
described below under “Noncompliance with NYSE rules could result in the delisting of our common and
preferred stock from the NYSE.” In addition, we do not know if or when we will pay dividends on those shares
in the future.
No longer managed for the benefit of shareholders. According to a statement made by the then Secretary of
the Treasury on September 7, 2008, because we are in conservatorship, we “will no longer be managed with a
strategy to maximize shareholder returns.”
We do not know when or how the conservatorship will be terminated, and if or when the rights and powers of
our shareholders, including the voting powers of our common shareholders, will be restored. Moreover, even if
the conservatorship is terminated, by their terms, we remain subject to the senior preferred stock purchase
agreement, senior preferred stock and warrant, which can only be cancelled or modified by mutual consent of
Treasury and the conservator. For a description of additional restrictions on and risks to our shareholders, see
“Item 1—Business—Conservatorship, Treasury Agreements, Our Charter and Regulation of Our Activities—
Conservatorship—Effect of Conservatorship on Shareholders” and “Item 1—Business—Conservatorship,
Treasury Agreements, Our Charter and Regulation of Our Activities—Treasury Agreements—Effect of
Treasury Agreements on Shareholders.”
During the second half of 2008, our ability to access the debt capital markets, particularly the long-term or
callable debt markets, was limited. Similar limitations in future periods could have a material adverse effect
on our ability to fund our operations and on our costs, liquidity, business, results of operations, financial
condition and net worth.
Our ability to operate our business, meet our obligations and generate net interest income depends primarily
on our ability to issue substantial amounts of debt frequently, with a variety of maturities and call features
and at attractive rates. In July 2008, market concerns about our capital position, the future of our business
(including future profitability, future structure, regulatory actions and agency status) and the extent of
U.S. government support for our business began to severely negatively affect our access to the unsecured debt
markets, particularly for long-term or callable debt, and increase the yields on our debt as compared to
relevant market benchmarks. In October and November 2008, we experienced further deterioration in our
access to the long-term debt market and a significant increase in the yields on our debt as compared to
relevant market benchmarks. In addition, in recent months we have relied on the Federal Reserve as an active
and significant purchaser of our long-term debt in the secondary market. There can be no assurance that the
recent improvement in our access to funding will continue. We describe our access to the debt markets in
“Part II—Item 7—MD&A—Liquidity and Capital Management—Liquidity Management—Debt Funding.”
If our ability to access the debt capital markets is limited in future periods, we would likely need to meet our
funding needs by issuing short-term debt, increasingly exposing us to the risk of increasing interest rates,
adverse credit market conditions and insufficient demand for our debt to meet our refinancing needs. This
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