Fannie Mae 2014 Annual Report Download - page 33

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We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding commitment under
the senior preferred stock purchase agreement. Moreover, we are not permitted to pay down the liquidation preference of the
outstanding shares of senior preferred stock except to the extent of (1) accrued and unpaid dividends previously added to the
liquidation preference and not previously paid down; and (2) quarterly commitment fees previously added to the liquidation
preference and not previously paid down. In addition, if we issue any shares of capital stock for cash while the senior
preferred stock is outstanding, the net proceeds of the issuance must be used to pay down the liquidation preference of the
senior preferred stock; however, the liquidation preference of each share of senior preferred stock may not be paid down
below $1,000 per share prior to the termination of Treasury’s funding commitment. Following the termination of Treasury’s
funding commitment, we may pay down the liquidation preference of all outstanding shares of senior preferred stock at any
time, in whole or in part.
Common Stock Warrant
Pursuant to the senior preferred stock purchase agreement, on September 7, 2008, we, through FHFA, in its capacity as
conservator, issued a warrant to purchase common stock to Treasury. The warrant gives Treasury the right 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
on the date of exercise, for an exercise price of $0.00001 per share. The warrant may be exercised in whole or in part at any
time on or before September 7, 2028.
Covenants under Treasury Agreements
The senior preferred stock purchase agreement and warrant contain covenants that significantly restrict our business activities
and require the prior written consent of Treasury before we can take certain actions. These covenants prohibit us from taking
a number of actions, including:
• paying dividends or other distributions on or repurchasing our equity securities (other than the senior preferred stock
or warrant);
• issuing additional equity securities (except in limited instances);
• selling, transferring, leasing or otherwise disposing of any assets, except for dispositions for fair market value in
limited circumstances including if (a) the transaction is in the ordinary course of business and consistent with past
practice or (b) in one transaction or a series of related transactions if the assets have a fair market value individually
or in the aggregate of less than $250 million;
• issuing subordinated debt;
• entering into any new compensation arrangements or increasing amounts or benefits payable under existing
compensation arrangements for any of our executive officers (as defined by SEC rules) without the consent of the
Director of FHFA, in consultation with the Secretary of the Treasury; and
• seeking or permitting the termination of our conservatorship, other than in connection with a receivership.
We also are subject to limits, which are described below, on the amount of mortgage assets that we may own and the total
amount of our indebtedness. As a result of these covenants, we can no longer obtain additional equity financing (other than
pursuant to the senior preferred stock purchase agreement) and we are limited in the amount and type of debt financing we
may obtain.
• Mortgage Asset Limit. We are restricted in the amount of mortgage assets that we may own. Pursuant to the August
2012 amendment to the agreement, the maximum allowable amount of our mortgage assets was reduced to
$650.0 billion on December 31, 2012 and, 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 in 2018. Our
mortgage asset limit under the agreement was $469.6 billion as of December 31, 2014 and will be $399.2 billion as
of December 31, 2015. For purposes of the agreement, the definition of mortgage asset is based on the unpaid
principal balance of such assets and does not reflect market valuation adjustments, allowance for loan losses,
impairments, unamortized premiums and discounts and the impact of our consolidation of variable interest entities.
Based on this definition, our mortgage assets were $413.3 billion as of December 31, 2014. We disclose the amount
of our mortgage assets on a monthly basis under the caption “Gross Mortgage Portfolio” in our Monthly Summaries,
which are available on our Web site and announced in a press release.
FHFA’s 2014 conservatorship scorecard required us to submit a portfolio plan to FHFA outlining how we will meet,
even under adverse conditions, the reductions in our portfolio required by our senior preferred stock purchase
agreement with Treasury. We submitted this plan to FHFA in July 2014. In October 2014, FHFA requested that we