Freddie Mac 2008 Annual Report Download - page 124

This development may increase our funding costs. We repurchase or call our outstanding debt securities from time to time to
help support the liquidity and predictability of the market for our debt securities and to manage our mix of liabilities funding
our assets.
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 “BUSINESS — Regulation and
Supervision,” could adversely affect our access to some debt investors, thereby potentially increasing our debt funding costs.
During 2008, worldwide financial markets experienced substantial levels of volatility. This was particularly true over the
latter half of 2008 as market participants struggled to digest the new government initiatives, including our conservatorship. In
this environment where demand for debt instruments weakened considerably, and the debt funding markets are sometimes
frozen, our ability to access both the term and callable debt markets has been limited, and we have relied increasingly on the
issuance of shorter-term debt. While we use interest rate derivatives to economically hedge a significant portion of our
interest rate exposure, we are exposed to risks relating to both our ability to issue new debt when our outstanding debt
matures and to the variability in interest costs on our new issuances of debt. In the second half of 2008, we experienced less
demand for our debt securities, as reflected in wider spreads on our term and callable debt. This reflected overall
deterioration in our access to unsecured medium and long term debt markets. However, the Federal Reserve has been an
active purchaser in the secondary market of our long-term debt under its purchase program, and spreads on our debt and our
access to the debt markets have improved in early 2009 as a result of this activity.
There are many factors contributing to the reduced demand for our debt securities in the capital markets, including
continued severe market disruptions, market concerns about our capital position and the future of our business (including its
future profitability, future structure, regulatory actions and agency status) and the extent of U.S. government support for our
debt securities. In addition, the various U.S. government programs are still being digested by market participants creating
uncertainty as to whether competing obligations of other companies are more attractive investments than our debt securities.
As noted above, due to our limited ability to issue long-term debt, we have relied increasingly on short-term debt to
fund our purchases of mortgage assets and to refinance maturing debt. As a result, we have been required to refinance our
debt on a more frequent basis, exposing us to an increased risk of insufficient demand, increasing interest rates and adverse
credit market conditions. It is unclear if or when these market conditions will reverse allowing us increased access to the
longer-term debt markets that is not based on support from Treasury and the Federal Reserve. See “RISK FACTORS” for a
discussion of the risks to our business posed by our reliance on the issuance of debt to fund our operations.
The Purchase Agreement provides that, without the prior consent of Treasury, we may not increase our indebtedness (as
defined in the Purchase Agreement) above a specified limit or become liable for any subordinated indebtedness. For the
purposes of the Purchase Agreement, the balance of our indebtedness at December 31, 2008 did not exceed the specified
limit.
Table 47 summarizes the par value of the debt securities we issued, based on settlement dates, during 2008 and 2007.
Table 47 — Debt Security Issuances by Product, at Par Value
(1)
2008 2007
Year Ended December 31,
(in millions)
Short-term debt:
Reference Bills˛securities and discount notes . ................................................ $ 812,539 $597,587
Medium-term notes — callable ........................................................... 13,237 4,100
Medium-term notes — non-callable
(2)
....................................................... 12,093 202
Total short-term debt. . . . ............................................................. 837,869 601,889
Long-term debt:
Medium-term notes — callable
(3)
.......................................................... 153,318 112,452
Medium-term notes — non-callable . ....................................................... 41,995 25,096
U.S. dollar Reference Notes˛securities — non-callable . .......................................... 49,000 51,000
Total long-term debt . . . . ............................................................. 244,313 188,548
Total debt issued . . . . . . . . . . ............................................................. $1,082,182 $790,437
(1) Excludes federal funds purchased and securities sold under agreements to repurchase and lines of credit.
(2) Includes $3.8 billion and $— of medium-term notes — non-callable issued for the years ended December 31, 2008 and 2007, respectively, which were
accounted for as debt exchanges.
(3) Includes $14.3 billion and $200 million of medium-term notes — callable issued for the years ended December 31, 2008 and 2007, respectively, which
were accounted for as debt exchanges.
Short-Term Debt
We fund our operating cash needs, in part, by issuing Reference Bills˛securities and other discount notes, which are
short-term instruments with maturities of one year or less that are sold on a discounted basis, paying only principal at
maturity. Our Reference Bills˛securities program consists of large issues of short-term debt that we auction to dealers on a
regular schedule. We issue discount notes with maturities ranging from one day to one year in response to investor demand
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