Freddie Mac 2015 Annual Report Download - page 160

Management's Discussion and Analysis Conservatorship and Related Matters
Freddie Mac 2015 Form 10-K 158
preferred stockholders (other than Treasury).
Pursuant to the Purchase Agreement, which we entered into through FHFA, in its capacity as
Conservator, on September 7, 2008, we issued to Treasury one million shares of Variable Liquidation
Preference Senior Preferred Stock with an initial liquidation preference of $1 billion and a warrant to
purchase, for a nominal price, shares of our common stock equal to 79.9% of the total number of shares
outstanding. The senior preferred stock and warrant were issued to Treasury as an initial commitment fee
in consideration of Treasury's commitment to provide funding to us under the Purchase Agreement. We
did not receive any cash proceeds from Treasury as a result of issuing the senior preferred stock or the
warrant. However, deficits in our net worth have made it necessary for us to make substantial draws on
Treasury’s funding commitment under the Purchase Agreement. Under the Purchase Agreement, our
ability to repay the liquidation preference of the senior preferred stock is limited and we will not be able to
do so for the foreseeable future, if at all.
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
consolidated balance sheet for the applicable fiscal quarter, provided that the aggregate amount funded
under the Purchase Agreement may not exceed Treasury's commitment. As of December 31, 2015, the
aggregate liquidation preference of the senior preferred stock was $72.3 billion, and the amount of
available funding remaining under the Purchase Agreement was $140.5 billion. To the extent we draw
additional funds in the future, the aggregate liquidation preference will increase and the amount of
available funding remaining will decrease.
Treasury, as the holder of the senior preferred stock, is entitled to receive cumulative quarterly cash
dividends, when, as and if declared by our Board of Directors. The dividends we have paid to Treasury on
the senior preferred stock have been declared by, and paid at the direction of, the Conservator, acting as
successor to the rights, titles, powers and privileges of the Board. Under the August 2012 amendment to
the Purchase Agreement, our dividend obligation each quarter is the amount, if any, by which our Net
Worth Amount at the end of the immediately preceding fiscal quarter, less the applicable Capital Reserve
Amount, exceeds zero. As a result of the net worth sweep dividend, our future profits will effectively be
distributed to Treasury, and the holders of our common stock and non-senior preferred stock will not
receive benefits that could otherwise flow from any such future profits.
The senior preferred stock is senior to our common stock and all other outstanding series of our preferred
stock, as well as any capital stock we issue in the future, as to both dividends and rights upon liquidation.
We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding
commitment under the Purchase Agreement.
The Purchase Agreement and warrant contain covenants that significantly restrict our business and
capital activities. For example, the Purchase Agreement provides that, until the senior preferred stock is
repaid or redeemed in full, we may not, without the prior written consent of Treasury:
• Pay dividends on our equity securities, other than the senior preferred stock or warrant, or repurchase
our equity securities;
• Issue any additional equity securities, except in limited instances;
• Sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value in
the ordinary course of business, consistent with past practices, and in other limited circumstances;
and