Fannie Mae 2013 Annual Report Download - page 295

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
F-71
Commitment Fee
Pursuant to the August 2012 amendment to the senior preferred stock purchase agreement described in “Note 1, Summary of
Significant Accounting Policies,” effective January 1, 2013, the periodic commitment fee under the agreement will not be set,
accrue or be payable. Treasury waived the quarterly commitment fee under the senior preferred stock purchase agreement for
each quarter of 2012 and 2011.
Covenants
The senior preferred stock purchase agreement provides that, until the senior preferred stock is repaid or redeemed in full, we
may not, without the prior written consent of Treasury:
• Declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to any Fannie Mae
equity securities (other than with respect to the senior preferred stock or warrant);
• Redeem, purchase, retire or otherwise acquire any Fannie Mae equity securities (other than the senior preferred stock or
warrant);
• Sell or issue any Fannie Mae equity securities (other than the senior preferred stock, the warrant and the common stock
issuable upon exercise of the warrant and other than as required by the terms of any binding agreement in effect on the
date of the senior preferred stock purchase agreement);
• Terminate the conservatorship (other than in connection with a receivership);
• Sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value: (a) to a limited life
regulated entity (in the context of receivership); (b) of assets and properties in the ordinary course of business,
consistent with past practice; (c) of assets and properties having fair market value individually or in aggregate less than
$250 million in one transaction or a series of related transactions; (d) in connection with a liquidation of Fannie Mae by
a receiver; (e) of cash or cash equivalents for cash or cash equivalents; or (f) to the extent necessary to comply with the
covenant described below relating to the reduction of our mortgage assets;
• Incur indebtedness that would result in our aggregate indebtedness exceeding $780.0 billion through December 31,
2013. For every year thereafter, our debt cap will equal 120% of the amount of mortgage assets we are allowed to own
on December 31 of the immediately preceding calendar year;
• Issue any subordinated debt;
• Enter into a corporate reorganization, recapitalization, merger, acquisition or similar event; or
• Engage in transactions with affiliates unless the transaction is (a) pursuant to the senior preferred stock purchase
agreement, the senior preferred stock or the warrant, (b) upon arm’s-length terms or (c) a transaction undertaken in the
ordinary course or pursuant to a contractual obligation or customary employment arrangement in existence on the date
of the senior preferred stock purchase agreement.
The agreement, as amended, also provides that we may not own mortgage assets in excess of $552.5 billion as of
December 31, 2013. On each December 31 thereafter, we are required to reduce our mortgage assets to 85% of the maximum
allowable amount that we were permitted to own as of December 31 of the immediately preceding calendar year, until the
amount of our mortgage assets reaches $250 billion.
Under the agreement, the effect of changes in generally accepted accounting principles that occurred subsequent to the date
of the agreement and that require us to recognize additional mortgage assets in our consolidated balance sheets are not
considered for purposes of evaluating our compliance with the limitation on the amount of mortgage assets we may own. In
addition, the definition of indebtedness in the agreement was revised to clarify that it also does not give effect to any change
that may be made in respect of the FASB guidance on accounting for transfers of financial assets or any similar accounting
guidance.
In addition, the agreement provides that we may not enter into any new compensation arrangements with, or increase
amounts or benefits payable under existing compensation arrangements of, any named executive officer or other executive
officer (each as defined by SEC rules) without the consent of the Director of FHFA, in consultation with the Secretary of the
Treasury. As of December 31, 2013, we were in compliance with the senior preferred stock purchase agreement covenants.
We are required to provide an annual risk management plan to Treasury no later than December 15 of each year we remain in
conservatorship, beginning in 2012. Each annual risk management plan is required to set out our strategy for reducing our