Freddie Mac 2008 Annual Report Download - page 126

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 49 indicates our credit ratings at March 2, 2009. After FHFA placed us into conservatorship
and announced the elimination of our preferred stock dividends in September 2008, our preferred stock ratings were changed
by three nationally recognized statistical rating organizations.
Table 49 — Freddie Mac Credit Ratings
S&P Moody’s Fitch
Nationally Recognized
Statistical
Rating Organization
Senior long-term debt
(1)
................................................................ AAA Aaa AAA
Short-term debt
(2)
.................................................................... A-1+ P-1 F1+
Subordinated debt
(3)
.................................................................. A Aa2 AA–
Preferred stock
(4)
.................................................................... C Ca C/RR6
(1) Includes medium-term notes, U.S. dollar Reference Notes˛securities and AReference Notes˛securities.
(2) Includes Reference Bills˛securities and discount notes.
(3) Includes Freddie SUBS˛securities only.
(4) Does not include senior preferred stock issued to Treasury.
At December 31, 2008, we no longer had a “risk-to-the-government” rating from S&P. On September 7, 2008, S&P
lowered our “risk-to-the-government” rating to “R” (regulatory supervision) from “A–” and withdrew the rating because of
conservatorship. 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. On September 7, 2008,
Moody’s lowered our “Bank Financial Strength” rating to “E+” from “D+” following our placement into conservatorship.
Our “Bank Financial Strength” rating remained at “E+” as of March 2, 2009. See “RISK MANAGEMENT AND
DISCLOSURE COMMITMENTS” for additional information. A security rating is not a recommendation to buy, sell or hold
securities. It may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be
evaluated independently of any other rating.
Equity Securities
See “MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES” and “NOTE 9: STOCKHOLDERS’ EQUITY (DEFICIT)” to our consolidated
financial statements for information about issuances of our equity securities.
Cash and Other Investments Portfolio
We maintain a cash and other investments portfolio that is important to our financial management and our ability to
provide liquidity and stability to the mortgage market. At December 31, 2008, the investments in this portfolio consisted of
liquid non-mortgage-related securities that we could sell to provide us with an additional source of liquidity to fund our
business operations. For additional information on our cash and other investments portfolio, see “CONSOLIDATED
BALANCE SHEETS ANALYSIS — Cash and Other Investments Portfolio.” The non-mortgage-related investments in this
portfolio may expose us to institutional credit risk and the risk that the investments could decline in value due to market-
driven events such as credit downgrades or changes in interest rates and other market conditions. See “CREDIT RISKS —
Institutional Credit Risk” for more information.
Mortgage-Related Investments Portfolio
Historically, our mortgage-related investments portfolio assets have been a significant capital resource and a potential
source of funding, if needed. A large majority of this portfolio is unencumbered. However, deteriorating market conditions
have made it unlikely that we could obtain substantial amounts of funding by using these securities as collateral in
repurchase transactions or other forms of secured borrowing, other than pursuant to the Lending Agreement. During 2008,
the market for non-agency securities backed by subprime, Alt-A and other loans and MTA mortgages continued to
experience a significant reduction in liquidity and wider spreads, as investor demand for these assets decreased. During 2008,
the percentages of our non-agency securities backed by subprime mortgages that were AAA-rated and the total rated as
investment grade, based on the lowest rating available, decreased from 96% to 28% and from 100% to 58%, respectively. In
addition, during 2008, the percentages of our non-agency securities backed by Alt-A and other mortgages that were
AAA-rated and the total rated as investment grade, based on the lowest rating available, decreased from 100% to 45% and
from 100% to 79%, respectively. Also, during 2008, the percentages of our non-agency securities backed by MTA loans that
were AAA-rated and the total rated as investment grade, based on the lowest rating available, decreased from 100% to 45%
and from 100% to 72%, respectively. We expect these trends to continue in the near future. These market conditions, and the
declining credit quality of the assets, limit their availability as a significant source of funds, as their value has declined, and
it may be more difficult to sell them. However, we do continue to receive monthly remittances, although declining, from the
underlying collateral. In addition, we have the ability and intent to hold these securities until recovery and, other than certain
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