Freddie Mac 2006 Annual Report Download - page 63

‚ borrowings against mortgage-related securities and other investment securities we hold;
‚ other cash Öows from operating activities, including guarantee activities; and
‚ issuances of common and preferred stock.
We measure our cash position on a daily basis, netting uses of cash with sources of cash. We manage the net cash
position over a rolling forecasted 120-day period, with the goal of providing the amount of debt funding needed to cover
expected net cash outÖows without adversely aÅecting our overall funding levels. We maintain alternative sources of liquidity
to allow normal operations for 120 days without relying upon the issuance of unsecured debt consistent with industry
practices of sound liquidity management. Our daily liquidity management activities are consistent with the liquidity
component of our commitment with OFHEO to maintain alternative sources of liquidity to allow normal operations for
90 days without relying upon issuance of unsecured debt. See ""RISK MANAGEMENT AND DISCLOSURE COMMIT-
MENTS'' for further information.
The Federal Reserve Board revised its payments system risk policy, eÅective in July 2006, to restrict or eliminate
daylight overdrafts by GSEs in connection with their use of the Fedwire system. The revised policy also includes a
requirement that the GSEs fully fund their accounts in the system to the extent necessary to cover payments on their debt
and mortgage-related securities each day, before the Federal Reserve Bank of New York, acting as Ñscal agent for the
GSEs, will initiate such payments. We have taken actions to fully fund our account as necessary, such as opening lines of
credit with third parties. Certain of these lines of credit require that we post collateral that, in certain limited circumstances,
the secured party has the right to repledge to other third parties, including the Federal Reserve Bank. As of December 31,
2006, we pledged approximately $20.2 billion of securities to these secured parties. These lines of credit, which provide
additional intraday liquidity to fund our activities through the Fedwire system, are uncommitted intraday loan facilities. As a
result, while we expect to continue to use these facilities, we may not be able to draw on them if and when needed. See
""NOTE 5: RETAINED PORTFOLIO AND CASH AND INVESTMENTS PORTFOLIO'' to our consolidated
Ñnancial statements for further information. We believe that the revisions to the Federal Reserve Board's policies will not
have a material adverse eÅect on our liquidity.
To fund our business activities, we depend on the continuing willingness of investors to purchase our debt securities.
Any change in applicable legislative or regulatory exemptions, including those described in ""REGULATION AND
SUPERVISION,'' could adversely aÅect our access to some debt investors, thereby potentially increasing our debt funding
costs. However, because of our Ñnancial performance and our regular and signiÑcant participation as an issuer in the capital
markets, our sources of liquidity have remained adequate to meet our needs and we anticipate that they will continue to be
so.
Under our charter, the Secretary of the Treasury has discretionary authority to purchase our obligations up to a
maximum of $2.25 billion principal balance outstanding at any one time. However, we do not rely on this authority as a
source of liquidity to meet our obligations.
Depending on market conditions and the mix of derivatives we employ in connection with our ongoing risk management
activities, our derivative portfolio can be either a net source or a net use of cash. For example, depending on the prevailing
interest-rate environment, interest-rate swap agreements could cause us either to make interest payments to counterparties
or to receive interest payments from counterparties. Purchased options require us to pay a premium while written options
allow us to receive a premium.
We are required to pledge collateral to third parties in connection with secured Ñnancing and daily trade activities. In
accordance with contracts with certain derivative counterparties, we post collateral to those counterparties for derivatives in
a net loss position, after netting by counterparty, above agreed-upon posting thresholds. See ""NOTE 5: RETAINED
PORTFOLIO AND CASH AND INVESTMENTS PORTFOLIO'' to our consolidated Ñnancial statements for informa-
tion about assets we pledge as collateral.
We are involved in various legal proceedings, including those discussed in ""NOTE 13: LEGAL CONTINGENCIES''
to our consolidated Ñnancial statements, which may result in a use of cash.
Debt Securities
We fund our operating cash needs and Ñnance our purchases of mortgage loans, mortgage-related securities and non-
mortgage-related securities held in our Retained portfolio and Cash and investments portfolio primarily through the
issuance of short-term and long-term debt. Table 30 summarizes the par value of the debt securities we issued, based on
settlement dates, during 2006 and 2005. We seek to maintain a variety of consistent, active funding programs that promote
high-quality coverage by market makers and reach a broad group of institutional and retail investors. By diversifying our
investor base and the types of debt securities we oÅer, we believe we enhance our ability to maintain continuous access to
the debt markets under a variety of market conditions.
51 Freddie Mac