Freddie Mac 2010 Annual Report Download - page 154

Table 62 — 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) Consists of medium-term notes, U.S. dollar Reference Notes˛securities and AReference Notes˛securities.
(2) Consists of Reference Bills˛securities and discount notes.
(3) Consists of Freddie SUBS˛securities.
(4) Does not include senior preferred stock issued to Treasury.
Effective September 7, 2008, we no longer had a “risk-to-the-government” rating from S&P 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. Our “Bank Financial Strength”
rating from Moody’s remained at “E+” as of February 11, 2011. 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.
Cash and Cash Equivalents, Federal Funds Sold, Securities Purchased Under Agreements to Resell, and Non-Mortgage-
Related Securities
Excluding amounts related to our consolidated VIEs, we held $82.1 billion in the aggregate of cash and cash
equivalents, federal funds sold, securities purchased under agreements to resell, and non-mortgage-related securities at
December 31, 2010. These investments are important to our cash flow and asset and liability management and our ability to
provide liquidity and stability to the mortgage market. At December 31, 2010, our non-mortgage-related securities primarily
consisted of FDIC-guaranteed corporate medium-term notes, Treasury notes, and Treasury bills that we could sell to provide
us with an additional source of liquidity to fund our business operations. For additional information on these assets, see
“CONSOLIDATED BALANCE SHEETS ANALYSIS — Cash and Cash Equivalents, Federal Funds Sold and Securities
Purchased Under Agreements to Resell” and “— Investments in Securities — Non-Mortgage-Related Securities.”
Mortgage Loans and Mortgage-Related Securities
We invest principally in mortgage loans and mortgage-related securities, which consist of securities issued by us, Fannie
Mae, Ginnie Mae, and other financial institutions. Historically, our mortgage loans and mortgage-related securities have been
a potential source of funding. A large majority of these assets is unencumbered. However, we are subject to limits on the
amount of mortgage assets we can sell in any calendar month without review and approval by FHFA and, if FHFA so
determines, Treasury.
During 2010, the market for non-agency mortgage-related securities backed by subprime, option ARM, and Alt-A and
other loans continued to be illiquid as investor demand for these assets remained low. We expect this illiquidity to continue
in the near future. These market conditions, and the continued poor credit quality of the underlying assets, limit our ability to
use these investments as a significant source of funds. See “CONSOLIDATED BALANCE SHEETS ANALYSIS —
Investments in Securities — Mortgage-Related Securities” for more information.
Cash Flows
Our cash and cash equivalents decreased approximately $27.7 billion to $37.0 billion during 2010. The adoption of the
new accounting standards on transfers of financial assets and the consolidation of VIEs effective January 1, 2010 impacted
the presentation of our consolidated statements of cash flows. Cash flows provided by operating activities during 2010 were
$9.8 billion, primarily driven by a decrease in net purchases of held-for-sale mortgages. Cash flows provided by investing
activities during 2010 were $386.6 billion, primarily resulting from net proceeds received on a higher balance of held-for-
investment mortgage loans as repayments of held-for-investment mortgage loans now include both unsecuritized and
securitized loans. Cash flows used for financing activities for 2010 were $424.1 billion, largely attributable to repayments,
net of proceeds from issuances, of debt securities of consolidated trusts held by third parties.
Our cash and cash equivalents increased approximately $19.4 billion during 2009 to $64.7 billion at December 31,
2009. Cash flows provided by operating activities during 2009 were $1.3 billion, which primarily related to increased net
interest income offset by a reduction in cash as a result of a net increase in our held-for-sale mortgage loans. Cash flows
provided by investing activities during 2009 were $47.6 billion, primarily resulting from net proceeds related to sales and
maturities of our available-for-sale securities, partially offset by a net increase in trading securities. Cash flows used for
financing activities for 2009 were $29.5 billion, largely attributable to repayments of short-term debt, partially offset by
$36.9 billion received from Treasury under the Purchase Agreement.
151 Freddie Mac