Fannie Mae 2014 Annual Report Download - page 223

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
F-8
is terminated and whether we will continue to exist following conservatorship. Under the GSE Act, FHFA must place us into
receivership if the Director of FHFA makes a written determination that our assets are less than our obligations or if we have
not been paying our debts, in either case, for a period of 60 days. In addition, the Director of FHFA may place us in
receivership at his discretion at any time for other reasons set forth in the GSE Act, including if we are critically
undercapitalized or if we are undercapitalized and have no reasonable prospect of becoming adequately capitalized. Should
we be placed into receivership, different assumptions would be required to determine the carrying value of our assets, which
could lead to substantially different financial results. We are not aware of any plans of FHFA to significantly change our
business model or capital structure in the near term.
Senior Preferred Stock and Warrant Issued to Treasury
Senior Preferred Stock
On September 7, 2008, we, through FHFA in its capacity as conservator, entered into a senior preferred stock purchase
agreement with Treasury. This agreement was amended and restated on September 26, 2008. The amended and restated
agreement was subsequently amended on May 6, 2009, December 24, 2009 and August 17, 2012.
Pursuant to the senior preferred stock purchase agreement, Treasury has committed to provide us with funding as described
below to help us maintain a positive net worth thereby avoiding the mandatory receivership trigger described above. As
consideration for Treasury’s funding commitment, we issued one million shares of senior preferred stock and a warrant to
purchase shares of our common stock to Treasury. As of December 31, 2014 and 2013, we have received a total of $116.1
billion from Treasury pursuant to the senior preferred stock purchase agreement. The aggregate liquidation preference of the
senior preferred stock, including the initial aggregate liquidation preference of $1.0 billion, was $117.1 billion as of
December 31, 2014. As of December 31, 2014, the amount of remaining funding available to us under the senior preferred
stock purchase agreement was $117.6 billion.
In August 2012, we, through FHFA acting on our behalf in its capacity as conservator, entered into an amendment to the
senior preferred stock purchase agreement with Treasury. The amendment included, among other things, the following
revisions:
• Dividends. The method for calculating the amount of dividends we are required to pay Treasury on the senior
preferred stock changed as of January 1, 2013. Effective January 1, 2013, when, as and if declared, the amount of
dividends payable on the senior preferred stock for a dividend period is determined based on our net worth as of the
end of the immediately preceding fiscal quarter. Our net worth as defined by the agreement is the amount, if any, by
which our total assets (excluding Treasury’s funding commitment and any unfunded amounts related to the
commitment) exceed our total liabilities (excluding any obligation in respect of capital stock), in each case as
reflected on our balance sheet prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”). For each dividend period from January 1, 2013 through and including December 31,
2017, the dividend amount will be the amount, if any, by which our net worth as of the end of the immediately
preceding fiscal quarter exceeds an applicable capital reserve amount. If our net worth does not exceed the
applicable capital reserve amount as of the end of a fiscal quarter, then no dividend amount will accrue or be payable
for the applicable dividend period. The capital reserve amount was $3.0 billion, $2.4 billion and $1.8 billion for
dividend periods in 2013, 2014 and 2015, respectively, and will continue to be reduced by $600 million each year
until it reaches zero on January 1, 2018. For each dividend period thereafter, the dividend amount will be the entire
amount of our net worth, if any, as of the end of the immediately preceding fiscal quarter.
• Periodic Commitment Fee. Effective January 1, 2013, the periodic commitment fee provided for under the
agreement will not be set, accrue or be payable, as long as the dividend payment provisions described above remain
in effect.
This amendment to the senior preferred stock purchase agreement was not accounted for as an extinguishment of the existing
senior preferred stock purchase agreement. As a result, we did not recognize a gain or loss upon modification of the senior
preferred stock purchase agreement. Consistent with our accounting policy, dividends on the senior preferred stock are
accrued upon declaration, which occurs each quarter when FHFA directs us to pay the quarterly dividend to Treasury.
On December 31, 2014, we paid Treasury a dividend of $4.0 billion based on our net worth as of September 30, 2014. Based
on the terms of the senior preferred stock, we expect to pay Treasury a dividend for the first quarter of 2015 of $1.9 billion,
based on our net worth of $3.7 billion as of December 31, 2014 less the applicable capital reserve amount of $1.8 billion.