Fannie Mae 2013 Annual Report Download - page 119

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In June 2013, S&P revised its outlook on the long-term rating on the U.S. from negative to stable. As a result, S&P also
revised its outlook on our issue-level rating from negative to stable. In July 2013, Moody’s moved the outlook for both the
U.S. government’s rating and our long-term senior debt rating back to stable, replacing the negative outlook that had been in
place since August 2011. Moody’s also affirmed the “Aaa” rating of both the U.S. government and our long-term senior debt.
In October 2013, Fitch placed our long-term senior debt, short-term senior debt and qualifying subordinated debt ratings on
“Rating Watch Negative,” following a similar action on the debt ratings of the U.S. government. A rating being placed on
Rating Watch is typically event-driven and indicates there is a heightened probability of a rating change. Fitch noted that it
placed our long-term debt, short-term debt and qualifying subordinated debt on “Rating Watch Negative” due to our direct
financial support from the U.S. government.
In November 2013, S&P revised the preferred stock rating to “D” from “C” citing their expectation that Fannie Mae will not
resume dividend payments to common and preferred stockholders in the near term. In December 2013, S&P raised the
qualifying subordinated debt rating to “AA-” from “A” citing, among other factors, the U.S. government’s continued support
for Fannie Mae debt instruments. S&P affirmed the long-term senior debt rating of “AA+” and short-term senior debt rating
of “A-1+” due to the stable outlook on the U.S. sovereign 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 9, Derivative Instruments” and “Risk Factors” for additional information on collateral we would
be required to provide to our derivatives counterparties in the event of downgrades in our credit ratings.
Cash Flows
Year ended December 31, 2013. Cash and cash equivalents decreased by $1.9 billion from $21.1 billion as of December 31,
2012 to $19.2 billion as of December 31, 2013. This decrease in the balance was primarily driven by cash used to (1) acquire
mortgage loans and provide advances to lenders; (2) acquire delinquent loans out of MBS trusts; and (3) pay dividends to
Treasury. In addition, as we continue to reduce our retained mortgage portfolio, we have lower funding needs which caused
funding debt redemptions to outpace funding debt issuances.
Partially offsetting these cash outflows were cash inflows from: (1) issuances of long-term debt of consolidated trusts from
selling Fannie Mae MBS securities to third parties; (2) proceeds from the sale and liquidation of mortgage-related securities
as we reduce our retained mortgage portfolio, including the sale of non-agency mortgage-related assets per FHFA’s 2013
conservatorship scorecard objective; and (3) the sale of our REO inventory. In addition, we received proceeds from resolution
and settlement agreements in 2013 related to representation and warranty and PLS matters.
Year Ended December 31, 2012. Cash and cash equivalents increased by $3.6 billion from $17.5 billion as of December 31,
2011 to $21.1 billion as of December 31, 2012. This increase in the balance was primarily driven by cash provided by (1)
issuances of long-term debt of consolidated trusts, from selling Fannie Mae MBS securities to third parties; (2) proceeds from
the sale and liquidation of mortgage-related and non-mortgage securities, as we reduced our retained mortgage portfolio and
had lower liquidity needs; (3) the sale of our REO inventory and (4) proceeds from the maturities of trading securities.
Partially offsetting these cash inflows were cash outflows from: (1) the acquisition of mortgage loans and advances to
lenders, (2) funding debt redemptions outpacing debt issuances, due to lower funding needs, and (3) the acquisition of
delinquent loans out of MBS trusts.
Capital Management
Regulatory Capital
FHFA has announced that during the conservatorship, our existing statutory and FHFA-directed regulatory capital
requirements will not be binding and FHFA will not issue quarterly capital classifications. We submit capital reports to FHFA
during the conservatorship and FHFA monitors our capital levels. We report our minimum capital requirement, core capital
and GAAP net worth in our periodic reports on Form 10-Q and Form 10-K, and FHFA also reports them on its website.
FHFA is not reporting our critical, risk-based capital or subordinated debt levels during the conservatorship. For information
on our minimum capital requirements see “Note 15, Regulatory Capital Requirements.”