Freddie Mac 2008 Annual Report Download - page 191

Because we expect many of these objectives and initiatives will result in significant costs, and the extent to which we
will be compensated or receive additional support for implementation of these actions is unclear, there is significant
uncertainty as to the ultimate impact they will have on our future capital or liquidity needs. However, we believe that the
increased level of support provided by Treasury and FHFA, as described above, is sufficient in the near-term to ensure we
have adequate capital and liquidity to continue to conduct our normal business activities. Management is in the process of
identifying and considering various actions that could be taken to reduce the significant uncertainties surrounding the
business, as well as the level of future draws under the Purchase Agreement; however, our ability to pursue such actions may
be limited based on market conditions and other factors. Any actions we take will likely require approval by FHFA and
Treasury before they are implemented. In addition, FHFA, Treasury or Congress may direct us to focus our efforts on
supporting the mortgage markets in ways that make it more difficult for us to implement any such actions.
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. There
were 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, various U.S. government programs were still being digested by market participants, which created
uncertainty as to whether competing obligations of other companies were more attractive investments than our debt
securities. An inability to issue debt securities at attractive rates in amounts sufficient to fund our business activities and
meet our obligations could have an adverse effect on our liquidity, financial condition and results of operations.
As our ability to issue long-term debt has been limited, 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. On November 25, 2008, the Federal Reserve announced that it would purchase up to $100 billion in
direct obligations of us, the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Banks, or
FHLBs, and up to $500 billion of mortgage-related securities issued by Freddie Mac, Fannie Mae and Ginnie Mae by the
end of the second quarter of 2009. Since that time, we have experienced improved demand for our issuances of long-term
debt, indicating that these conditions are beginning to improve and demonstrating greater ability for us to access the long-
term debt markets.
On September 18, 2008, we entered into a lending agreement with Treasury, or Lending Agreement, pursuant to which
Treasury established a new secured lending credit facility that is available to us until December 31, 2009 as a liquidity back-
stop. In order to borrow pursuant to the Lending Agreement, we are required to post collateral in the form of Freddie Mac or
Fannie Mae mortgage-related securities to secure all borrowings under the facility. The terms of any borrowings under the
Lending Agreement, including the interest rate payable on the loan and the amount of collateral we will need to provide as
security for the loan, will be determined by Treasury. Treasury is not obligated under the Lending Agreement to make any
loan to us. Treasury does not have authority to extend the term of this credit facility beyond December 31, 2009, which is
when Treasury’s temporary authority to purchase our obligations and other securities, granted by the Federal Housing
Finance Regulatory Reform Act of 2008, or Reform Act, expires. After December 31, 2009, Treasury still may purchase up
to $2.25 billion of our obligations under its permanent authority, as set forth in our charter. We do not currently have plans
to use the Lending Agreement and are uncertain as to the impact, if any, its expiration might have on our operations or
liquidity.
We believe we will continue to have adequate access to the short and medium-term debt markets for the purpose of
refinancing our debt obligations as they become due. We also have had undisrupted access to the derivatives markets, as
necessary, for the purposes of entering into derivatives to manage our duration risk.
For additional information concerning the conservatorship and the effects of the Purchase Agreement, see “NOTE 8:
DEBT SECURITIES AND SUBORDINATED BORROWINGS,” “NOTE 9: STOCKHOLDERS’ EQUITY (DEFICIT)” and
“NOTE 10: REGULATORY CAPITAL.”
Related Parties as a Result of Conservatorship
As a result of our issuance to Treasury of the warrant 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, we are deemed a related party to the
U.S. government. Except for the transactions with Treasury discussed above and in “NOTE 8: DEBT SECURITIES AND
SUBORDINATED BORROWINGS,” and “NOTE 9: STOCKHOLDERS’ EQUITY (DEFICIT),” no transactions outside of
normal business activities have occurred between us and the U.S. government during the year ended December 31, 2008. In
addition, we are deemed related parties with Fannie Mae as we are under common control. All transactions between us and
Fannie Mae have occurred in the normal course of business.
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