Freddie Mac 2011 Annual Report Download - page 180

We have also received substantial amounts of cash from Treasury pursuant to draws under the Purchase Agreement,
which are made to address deficits in our net worth. We received $8.0 billion in cash from Treasury during 2011 pursuant
to draws under the Purchase Agreement.
We believe that the support provided by Treasury pursuant to the Purchase Agreement currently enables us to
maintain our access to the debt markets and to have adequate liquidity to conduct our normal business activities, although
the costs of our debt funding could vary.
As a result of the potential that the U.S. would exhaust its borrowing authority under the statutory debt limit and
market concerns regarding the potential for a downgrade in the credit rating of the U.S. government, beginning in the
third quarter of 2011, we changed the composition of our portfolio of liquid assets to hold more cash and overnight
investments. On August 5, 2011, S&P lowered the long-term credit rating of the U.S. government to “AA+” from “AAA”
and assigned a negative outlook to the rating. On August 8, 2011, S&P lowered our senior long-term debt credit rating to
“AA+” from “AAA” and assigned a negative outlook to the rating. While this could adversely affect our liquidity, and the
supply and cost of debt financing available to us in the future, we have not yet experienced such adverse effects. For more
information, see “Other Debt Securities — Credit Ratings” and “RISK FACTORS — Competitive and Market Risks —
Any downgrade in the credit ratings of the U.S. government would likely be followed by a downgrade in our credit
ratings. A downgrade in the credit ratings of our debt could adversely affect our liquidity and other aspects of our
business.”
We may require cash in order to fulfill our mortgage purchase commitments. Historically, we fulfilled our purchase
commitments related to our mortgage purchase flow business primarily by swap transactions, whereby our customers
exchanged mortgage loans for PCs, rather than using cash. However, it is at the discretion of the seller, subject to
limitations imposed by the contract governing the commitment, whether the purchase commitment is fulfilled through a
swap transaction or with cash. We provide liquidity to our seller/servicers through our cash purchase program. Loans
purchased through the cash purchase program can be sold to investors through a cash auction of PCs, and, in the interim,
are carried as mortgage loans on our consolidated balance sheets. See “OFF-BALANCE SHEET ARRANGEMENTS” for
additional information regarding our mortgage purchase commitments.
We make extensive use of the Fedwire system in our business activities. The Federal Reserve requires that we fully
fund our account in the Fedwire system to the extent necessary to cover cash payments on our debt and mortgage-related
securities each day, before the Federal Reserve Bank of New York, acting as our fiscal agent, will initiate such payments.
We routinely use an open line of credit with a third party, which provides intraday liquidity to fund our activities through
the Fedwire system. This line of credit is an uncommitted intraday loan facility. As a result, while we expect to continue
to use the facility, we may not be able to draw on it, if and when needed. This line of credit requires that we post
collateral that, in certain circumstances, the secured party has the right to repledge to other third parties, including the
Federal Reserve Bank. As of December 31, 2011, we pledged approximately $10.5 billion of securities to this secured
party. See “NOTE 7: INVESTMENTS IN SECURITIES — Collateral Pledged” for further information.
Depending on market conditions and the mix of derivatives we employ in connection with our ongoing risk
management activities, our derivative portfolio can be either a net source or a net use of cash. For example, depending on
the prevailing interest-rate environment, interest-rate swap agreements could cause us either to make interest payments to
counterparties or to receive interest payments from counterparties. Purchased options require us to pay a premium while
written options allow us to receive a premium.
We are required to pledge collateral to third parties in connection with secured financing and daily trade activities. In
accordance with contracts with certain derivative counterparties, we post collateral to those counterparties for derivatives
in a net loss position, after netting by counterparty, above agreed-upon posting thresholds. See “NOTE 7:
INVESTMENTS IN SECURITIES — Collateral Pledged” for information about assets we pledge as collateral.
We are involved in various legal proceedings, including those discussed in “LEGAL PROCEEDINGS,” which may
result in a use of cash in order to settle claims or pay certain costs.
For more information on our short- and long-term liquidity needs, see “CONTRACTUAL OBLIGATIONS.”
Liquidity Management
Maintaining sufficient liquidity is of primary importance and we continually strive to enhance our liquidity
management practices and policies. Under these practices and policies, we maintain an amount of cash and cash
equivalent reserves in the form of liquid, high quality short-term investments that is intended to enable us to meet ongoing
cash obligations for an extended period, in the event we do not have access to the short- or long-term unsecured debt
markets. We also actively manage the concentration of debt maturities and closely monitor our monthly maturity profile.
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