Freddie Mac 2006 Annual Report Download - page 65

liquidity of our debt securities and improve their price performance, which helps to reduce our funding costs over the long-
term. Our repurchase activities also help us manage the funding mismatch, or duration gap, created by changes in interest
rates. For example, when interest rates decline, the expected lives of the mortgage-related securities held in our Retained
portfolio decrease, reducing the need for long-term debt. We use a number of diÅerent means to shorten the eÅective
weighted average lives of our outstanding debt securities and thereby manage the duration gap, including retiring long-term
debt through repurchases or calls; changing our debt funding mix between short- and long-term debt; or using derivative
instruments, such as entering into receive-Ñxed swaps or terminating or assigning pay-Ñxed swaps. From time to time, we
may also enter into transactions in which we exchange newly issued debt securities for similar outstanding debt securities
held by investors. These transactions are accounted for as debt exchanges. See ""CONSOLIDATED RESULTS OF
OPERATIONS Ì Non-Interest Income (Loss) Ì Gains (Losses) on Debt Retirement'' for more information.
Table 31 provides the par value, based on settlement dates, of debt securities we repurchased, called and exchanged
during 2006 and 2005.
Table 31 Ì Debt Security Repurchases, Calls and Exchanges
Year Ended
December 31,
2006 2005
(in millions)
Repurchases of outstanding 4Reference Notes» securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 5,210 $ Ì
Repurchases of outstanding Medium-term NotesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 28,560 11,663
Calls of callable Medium-term Notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26,559 36,236
Calls of callable Freddie SUBS» securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,000 Ì
Exchanges of U.S. dollar Reference Notes» securities and Medium-term Notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,074 3,043
Exchanges of Freddie SUBS» securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,480 Ì
Credit Ratings. Our ability to access the capital markets and other sources of funding, as well as our cost of funds, are
highly dependent upon our credit ratings. Table 32 indicates our credit ratings at March 1, 2007.
Table 32 Ì Freddie Mac Credit Ratings
Nationally Recognized Statistical Rating Organization
Standard & Poor's Moody's Fitch
Senior long-term debt(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ AAA Aaa AAA
Short-term debt(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ A-1° P-1 F-1°
Subordinated debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ AA¿ Aa2 AA¿
Preferred stockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ AA¿ Aa3 AA¿
(1) Includes Medium-term Notes, U.S. dollar Reference Notes» securities and 4Reference Notes» securities.
(2) Includes Reference Bills» securities and discount notes.
In addition to the ratings described in Table 32, S&P provides a ""Risk-To-The-Government'' rating that measures our
ability to meet our debt obligations and the value of our franchise in the absence of any implied government support. Our
""Risk-To-The-Government'' rating was AA¿ at March 1, 2007. Moody's also provides a ""Bank Financial Strength'' rating
that represents Moody's opinion of our intrinsic safety and soundness and, as such, excludes certain external credit risks and
credit support elements. Ratings under this measure range from A, the highest, to E. Our ""Bank Financial Strength'' rating
was A¿ at March 1, 2007.
Equity Securities
See ""Capital Resources Ì Core Capital'' and ""MARKET FOR THE COMPANY'S COMMON EQUITY, RE-
LATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES'' for information
about issuances and repurchases of our equity securities.
Cash and Investments Portfolio
We maintain a cash and investments portfolio that is important to our Ñnancial management and our ability to provide
liquidity and stability to the mortgage market. At December 31, 2006, the investments in this portfolio consisted of liquid
non-mortgage-related securities that we could sell or Ñnance to provide us with an additional source of liquidity to fund our
business operations. We also use the portfolio to help manage recurring cash Öows and meet our other cash management
needs. In addition, we use the portfolio to hold capital on a temporary basis until we can deploy it into Retained portfolio
investments or credit guarantee opportunities. We may also sell or Ñnance the securities in this portfolio to maintain capital
reserves to meet mortgage funding needs, provide diverse sources of liquidity or help manage the interest-rate risk inherent
in mortgage-related assets.
The non-mortgage-related securities in the Cash and investments portfolio consist principally of asset-backed securities
and other marketable assets that can be readily converted to cash. For additional information on our Cash and investments
portfolio, see ""CONSOLIDATED BALANCE SHEETS ANALYSIS Ì Cash and Investments.'' The non-mortgage-
53 Freddie Mac