Freddie Mac 2008 Annual Report Download - page 26

Subpoena Power
The Reform Act provides the Conservator, with the approval of the Director of FHFA, with subpoena power for
purposes of carrying out any power, authority or duty with respect to Freddie Mac.
Treasury Agreements
The Reform Act granted Treasury temporary authority (through December 31, 2009) to purchase any obligations and
other securities issued by Freddie Mac on such terms and conditions and in such amounts as Treasury may determine, upon
mutual agreement between Treasury and Freddie Mac. As of March 10, 2009, Treasury had used this authority as described
below:
Purchase Agreement and Related Issuance of Senior Preferred Stock and Common Stock Warrant
Purchase Agreement
On September 7, 2008, we, through FHFA, in its capacity as Conservator, and Treasury entered into the Purchase
Agreement. The Purchase Agreement was subsequently amended and restated on September 26, 2008, and Treasury
Secretary Geithner announced additional changes to the Purchase Agreement on February 18, 2009. Pursuant to the Purchase
Agreement, on September 8, 2008 we issued to Treasury one million shares of senior preferred stock with an initial
liquidation preference equal to $1,000 per share (for an aggregate liquidation preference of $1 billion), and a warrant for the
purchase of our common stock. The terms of the senior preferred stock and warrant are summarized in separate sections
below. We did not receive any cash proceeds from Treasury as a result of issuing the senior preferred stock or the warrant.
However, as discussed below, deficits in our net worth have made it necessary for us to make substantial draws on Treasury’s
funding commitment under the Purchase Agreement.
The senior preferred stock and warrant were issued to Treasury as an initial commitment fee in consideration of the
initial commitment from Treasury to provide up to $100 billion (which Treasury has committed to increase to $200 billion)
in funds to us under the terms and conditions set forth in the Purchase Agreement. In addition to the issuance of the senior
preferred stock and warrant, beginning on March 31, 2010, we are required to pay a quarterly commitment fee to Treasury.
This quarterly commitment fee will accrue from January 1, 2010. The fee, in an amount to be mutually agreed upon by us
and Treasury and to be determined with reference to the market value of Treasury’s funding commitment as then in effect,
will be determined on or before December 31, 2009, and will be reset every five years. Treasury may waive the quarterly
commitment fee for up to one year at a time, in its sole discretion, based on adverse conditions in the U.S. mortgage market.
We may elect to pay the quarterly commitment fee in cash or add the amount of the fee to the liquidation preference of the
senior preferred stock.
The Purchase Agreement provides that, on a quarterly basis, we generally may draw funds up to the amount, if any, by
which our total liabilities exceed our total assets, as reflected on our GAAP balance sheet for the applicable fiscal quarter
(referred to as the deficiency amount), provided that the aggregate amount funded under the Purchase Agreement may not
exceed Treasury’s commitment. The Purchase Agreement provides that the deficiency amount will be calculated differently if
we become subject to receivership or other liquidation process. The deficiency amount may be increased above the otherwise
applicable amount upon our mutual written agreement with Treasury. In addition, if the Director of FHFA determines that the
Director will be mandated by law to appoint a receiver for us unless our capital is increased by receiving funds under the
commitment in an amount up to the deficiency amount (subject to the maximum amount that may be funded under the
agreement), then FHFA, in its capacity as our Conservator, may request that Treasury provide funds to us in such amount.
The Purchase Agreement also provides that, if we have a deficiency amount as of the date of completion of the liquidation
of our assets, we may request funds from Treasury in an amount up to the deficiency amount (subject to the maximum
amount that may be funded under the agreement). Any amounts that we draw under the Purchase Agreement will be added
to the liquidation preference of the senior preferred stock. No additional shares of senior preferred stock are required to be
issued under the Purchase Agreement.
The Purchase Agreement provides that the Treasury’s funding commitment will terminate under any of the following
circumstances: (1) the completion of our liquidation and fulfillment of Treasury’s obligations under its funding commitment
at that time; (2) the payment in full of, or reasonable provision for, all of our liabilities (whether or not contingent, including
mortgage guarantee obligations); and (3) the funding by Treasury of the maximum amount of the commitment under the
Purchase Agreement. In addition, Treasury may terminate its funding commitment and declare the Purchase Agreement null
and void if a court vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of the
Conservator or otherwise curtails the Conservator’s powers. Treasury may not terminate its funding commitment under the
Purchase Agreement solely by reason of our being in conservatorship, receivership or other insolvency proceeding, or due to
our financial condition or any adverse change in our financial condition.
The Purchase Agreement provides that most provisions of the agreement may be waived or amended by mutual written
agreement of the parties; however, no waiver or amendment of the agreement is permitted that would decrease Treasury’s
23 Freddie Mac