Freddie Mac 2012 Annual Report Download - page 59

Our regulator may, and in some cases must, place us into receivership, which would result in the liquidation of our assets
and terminate all rights and claims that our stockholders and creditors may have against our assets or under our charter;
if we are liquidated, there may not be sufficient funds to pay the secured and unsecured claims of the company, repay the
liquidation preference of any series of our preferred stock, or make any distribution to the holders of our common stock.
We could be put into receivership at the discretion of the Director of FHFA at any time for a number of reasons,
including conditions that FHFA has already asserted existed at the time the then Director of FHFA placed us into
conservatorship. These include: (a) a substantial dissipation of assets or earnings due to unsafe or unsound practices; (b) the
existence of an unsafe or unsound condition to transact business; (c) an inability to meet our obligations in the ordinary
course of business; (d) a weakening of our condition due to unsafe or unsound practices or conditions; (e) critical
undercapitalization; (f) the likelihood of losses that will deplete substantially all of our capital; or (g) by consent. In addition,
FHFA could be required to place us in receivership if Treasury is unable to provide us with funding requested under the
Purchase Agreement to address a deficit in our net worth. For more information, see “— If Treasury is unable to provide us
with funding requested under the Purchase Agreement to address a deficit in our net worth, FHFA could be required to place
us into receivership.”
A receivership would terminate the conservatorship. The appointment of FHFA as our receiver would terminate all
rights and claims that our stockholders and creditors may have against our assets or under our charter arising as a result of
their status as stockholders or creditors, other than the potential ability to be paid upon our liquidation. Unlike
conservatorship, the purpose of which is to conserve our assets and return us to a sound and solvent condition, the purpose of
receivership is to liquidate our assets and resolve claims against us.
In the event of a liquidation of our assets, there can be no assurance that there would be sufficient proceeds to pay the
secured and unsecured claims of the company, repay the liquidation preference of any series of our preferred stock or make
any distribution to the holders of our common stock. To the extent that we are placed into receivership and do not or cannot
fulfill our guarantee to the holders of our mortgage-related securities, such holders could become unsecured creditors of ours
with respect to claims made under our guarantee. Only after paying the secured and unsecured claims of the company, the
administrative expenses of the receiver and the liquidation preference of the senior preferred stock, which ranks senior to our
common stock and all other series of preferred stock upon liquidation, would any liquidation proceeds be available to repay
the liquidation preference on any other series of preferred stock. Finally, only after the liquidation preference on all series of
preferred stock is repaid would any liquidation proceeds be available for distribution to the holders of our common stock.
The aggregate liquidation preference on the senior preferred stock owned by Treasury is $72.3 billion as of December 31,
2012. The liquidation preference will increase further if we make additional draws under the Purchase Agreement.
If we are placed into receivership or no longer operate as a going concern, we would no longer be able to assert that we
will realize assets and satisfy liabilities in the normal course of business, and, therefore, our basis of accounting would
change to liquidation-based accounting. Under the liquidation basis of accounting, assets are stated at their estimated net
realizable value and liabilities are stated at their estimated settlement amounts, which could adversely affect our net worth. In
addition, the amounts in AOCI would be reclassified to earnings, which could also adversely affect our net worth.
If Treasury is unable to provide us with funding requested under the Purchase Agreement to address a deficit in our net
worth, FHFA could be required to place us into receivership.
Under the Purchase Agreement, Treasury made a commitment to provide funding, under certain conditions, to eliminate
deficits in our net worth. Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our
assets are less than our obligations for a period of 60 calendar days. FHFA has notified us that the measurement period for
any mandatory receivership determination with respect to our assets and obligations would commence no earlier than the
SEC public filing deadline for our quarterly or annual financial statements and would continue for 60 calendar days after that
date. FHFA has also advised us that, if, during that 60-day period, we receive funds from Treasury in an amount at least
equal to the deficiency amount under the Purchase Agreement, the Director of FHFA will not make a mandatory receivership
determination. If funding has been requested under the Purchase Agreement to address a deficit in our net worth, and
Treasury is unable to provide us with such funding within the 60-day period specified by FHFA, FHFA would be required to
place us into receivership if our assets remain less than our obligations during that 60-day period.
54 Freddie Mac