Freddie Mac 2012 Annual Report Download - page 72

in our net worth during 2010, 2011, and 2012 no longer apply. While 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, the costs of our debt funding could vary due to the uncertainty about the
future of the GSEs. The cost of our debt funding could increase if debt investors believe that the risk that we could be placed
into receivership is increasing. Our access to the debt markets and the cost of funding could also be adversely affected if we
were to make significant draws in the future, and thereby significantly reduce the amount of available funding remaining
under the Purchase Agreement. In addition, under the Purchase Agreement, without the prior consent of Treasury, we may
not increase our total indebtedness above a specified limit or become liable for any subordinated indebtedness. For more
information, see “MD&A — LIQUIDITY AND CAPITAL RESOURCES — Liquidity — Actions of Treasury and FHFA.”
We do not currently have a liquidity backstop available to us (other than draws from Treasury under the Purchase
Agreement and Treasury’s ability to purchase up to $2.25 billion of our obligations under its permanent statutory authority) if
we are unable to obtain funding from issuances of debt or other conventional sources. At present, we are not able to predict
the likelihood that a liquidity backstop will be needed, or to identify the alternative sources of liquidity that might be
available to us if needed, other than from Treasury as referenced above.
Demand for Debt Funding
The willingness of investors to purchase or hold our debt securities, and any changes to such willingness, may
materially affect our liquidity, business and results of operations. The willingness of domestic and foreign investors to
purchase and hold our debt securities can be influenced by many factors, including changes in the world economy, changes
in foreign-currency exchange rates, regulatory and political factors, as well as the availability of and preferences for other
investments. If investors were to divest their holdings or reduce their purchases of our debt securities, our funding costs could
increase and our business activities could be curtailed.
Competition for Debt Funding
We compete for debt funding with Fannie Mae, the FHLBs, and other institutions. Competition for debt funding from
these entities can vary with changes in economic, financial market, and regulatory environments. Increased competition for
debt funding may result in a higher cost to finance our business, which could negatively affect our financial results. 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 business, liquidity, financial condition, and results of operations. See
“MD&A — LIQUIDITY AND CAPITAL RESOURCES — Liquidity — Other Debt Securities” for a description of our
debt issuance programs. Our funding costs may also be affected by changes in the amount of, and demand for, debt issued by
Treasury.
Line of Credit
We maintain a secured intraday line of credit to provide additional intraday liquidity to fund our activities through the
Fedwire system. This line of credit requires us to post collateral to a third party. In certain circumstances, this secured
counterparty may be able to repledge the collateral underlying our financing without our consent. In addition, because the
secured intraday line of credit is uncommitted, we may not be able to continue to draw on it if and when needed.
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.
Nationally recognized statistical rating organizations play an important role in determining, by means of the ratings they
assign to issuers and their debt, the availability and cost of funding. Our credit ratings are important to our liquidity. We
currently receive ratings from three nationally recognized statistical rating organizations (S&P, Moody’s, and Fitch) for our
unsecured borrowings. These ratings are primarily based on the support we receive from Treasury, and therefore are affected
by changes in the credit ratings of the U.S. government. Any downgrade in the credit ratings of the U.S. government would
be expected to be followed or accompanied by a downgrade in our credit ratings.
In August 2011, S&P lowered our senior long-term debt credit rating to “AA+” from “AAA” and assigned a negative
outlook to the rating. This action followed S&P’s downgrade of the credit rating of the U.S. government. In addition,
Moody’s confirmed our senior long-term debt and subordinated debt ratings and assigned a negative outlook to the ratings in
August 2011. This action accompanied Moody’s confirmation of the U.S. government’s AAA long-term credit rating and
assignment of a negative outlook to the rating. In November 2011, Fitch affirmed our long-term Issuer Default Rating (IDR)
67 Freddie Mac