Fannie Mae 2009 Annual Report Download - page 141

market conditions, it is unlikely that there would be sufficient market demand for large amounts of these
securities over a prolonged period of time, particularly during a liquidity crisis, which could limit our ability
to borrow against these securities. To the extent that we would be able to obtain funding by pledging
mortgage-related securities as collateral, we anticipate that a “haircut” would be applied that would reduce the
value assigned to those securities. Depending on market conditions at the time, this “haircut” would result in
proceeds significantly lower than the current market value of these assets and would thereby reduce the
amount of financing we could obtain. In addition, our primary source of collateral is Fannie Mae MBS that we
have issued. In the event of a liquidity crisis in which the future of our company is uncertain, counterparties
may be unwilling to accept Fannie Mae MBS as collateral. As a result, we may not be able to borrow against
these securities in sufficient amounts to meet our liquidity needs.
Credit Ratings
Our ability to access the capital markets and other sources of funding, as well as our cost of funds, is highly
dependent on our credit ratings from the major ratings organizations. In addition, our credit ratings are
important when we seek to engage in certain long-term transactions, such as derivative transactions. Factors
that influence our credit ratings include our status as a GSE, Treasury’s funding commitment under the senior
preferred stock purchase agreement, the rating agencies’ assessment of the general operating and regulatory
environment, our relative position in the market, our financial condition, our reputation, our liquidity position,
the level and volatility of our earnings, and our corporate governance and risk management policies.
Management maintains an active dialogue with the major ratings organizations.
Our senior unsecured debt (both long-term and short-term), qualifying subordinated debt and preferred stock
are rated and continuously monitored by Standard & Poor’s, Moody’s and Fitch. There have been no changes
in our credit ratings from December 31, 2008 to February 20, 2010. Table 37 below presents the credit ratings
issued by each of these rating agencies as of February 20, 2010.
Table 37: Fannie Mae Credit Ratings
Standard & Poor’s Moody’s Fitch
As of February 20, 2010
Long-term senior debt . . . . . . . . . . . . . . . AAA Aaa AAA
Short-term senior debt . . . . . . . . . . . . . . . A-1+ P-1 F1+
Subordinated debt . . . . . . . . . . . . . . . . . . A Aa2 AA-
Preferred stock . . . . . . . . . . . . . . . . . . . . C Ca C/RR6
Bank financial strength rating . . . . . . . . . — E+ —
Outlook . . . . . . . . . . . . . . . . . . . . . . . . . Stable Stable Stable
(for Long Term Senior Debt
and Subordinated Debt)
(for all ratings) (for AAA rated Long Term
Issue Default Rating)
We have no covenants in our existing debt agreements that would be violated by a downgrade in our credit
ratings. However, in connection with certain derivatives counterparties, we could be required to provide
additional collateral to or terminate transactions with certain counterparties in the event that our senior
unsecured debt ratings are downgraded. The amount of additional collateral required depends on the contract
and is usually a fixed incremental amount, the market value of the exposure, or both. See “Note 10, Derivative
Instruments and Hedging Activities” for additional information on collateral we are required to provide to our
derivatives counterparties in the event of downgrades in our credit ratings.
Cash Flows
Year Ended December 31, 2009. Cash and cash equivalents of $6.8 billion as of December 31, 2009
decreased by $11.1 billion from December 31, 2008. Net cash generated from investing activities totaled
$117.7 billion, resulting primarily from proceeds received from the sale of available-for-sale securities. These
net cash inflows were partially offset by net cash outflows used in operating activities of $85.9 billion, largely
attributable to our purchases of loans held for sale due to a significant increase in whole loan conduit activity,
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