FEDERAL HOME LOAN MORTGAGE CORP | 2013 | FY | 3


NOTE 8: DEBT SECURITIES AND SUBORDINATED BORROWINGS
Debt securities that we issue are classified on our consolidated balance sheets as either debt securities of consolidated trusts held by third parties or other debt. We issue other debt to fund our operations.
Under the Purchase Agreement, without the prior written consent of Treasury, we may not incur indebtedness that would result in the par value of our aggregate indebtedness exceeding 120% of the amount of mortgage assets we are allowed to own on December 31 of the immediately preceding calendar year. Because of this debt limit, we may be restricted in the amount of debt we are allowed to issue to fund our operations. Under the Purchase Agreement, the amount of our “indebtedness” is determined without giving effect to the January 1, 2010 change in the accounting guidance related to transfers of financial assets and consolidation of VIEs. Therefore, “indebtedness” does not include debt securities of consolidated trusts held by third parties. We also cannot become liable for any subordinated indebtedness without the prior consent of Treasury. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS” for information regarding restrictions on the amount of mortgage-related securities that we may own.
Our debt cap under the Purchase Agreement was $780.0 billion in 2013 and declined to $663.0 billion on January 1, 2014. As of December 31, 2013, we estimate that our aggregate indebtedness was $511.3 billion, or $268.7 billion below the applicable debt cap. Our aggregate indebtedness is calculated as the par value of other debt.
In the tables below, the categories of short-term debt (due within one year) and long-term debt (due after one year) are based on the original contractual maturity of the debt instruments classified as other debt.
During 2013, 2012, and 2011, we recognized fair value gains (losses) of $(11) million, $16 million, and $91 million, respectively, on our foreign-currency denominated debt, of which $(31) million, $(7) million, and $40 million, respectively, were gains (losses) related to foreign-currency translation.
Other Short-Term Debt
As indicated in "Table 8.1 — Other Short-Term Debt", a majority of other short-term debt consisted of Reference Bills® securities and discount notes, paying only principal at maturity. Reference Bills® securities, discount notes, and medium-term notes are unsecured general corporate obligations. Certain medium-term notes that have original maturities of one year or less are classified as other short-term debt for purposes of this presentation.
The table below summarizes the balances and effective interest rates for other short-term debt.
Table 8.1 — Other Short-Term Debt
 
 
December 31, 2013
 
December 31, 2012
 
Par Value
 
Balance,  Net(1)
 
Weighted Average
Effective Rate(2)
 
Par Value
 
Balance,  Net(1)
 
Weighted Average
Effective Rate(2)
 
(dollars in millions)
Other short-term debt:
 
 
 
 
 
 
 
 
 
 
 
Reference Bills® securities and discount notes
$
137,767

 
$
137,712

 
0.13
%
 
$
117,930

 
$
117,889

 
0.15
%
Medium-term notes
4,000

 
4,000

 
0.16

 

 

 

Total other short-term debt
$
141,767

 
$
141,712

 
0.13

 
$
117,930

 
$
117,889

 
0.15


(1)
Represents par value, net of associated discounts or premiums.
(2)
Represents the weighted average effective rate that remains constant over the life of the instrument, which includes the amortization of discounts or premiums, and issuance costs.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are effectively collateralized borrowing transactions where we sell securities with an agreement to repurchase such securities. These agreements require the underlying securities to be delivered to the dealers who are the counterparties to the transactions. Federal funds purchased are unsecuritized borrowings from commercial banks that are members of the Federal Reserve System. We had no balances in federal funds purchased and securities sold under agreements to repurchase at either December 31, 2013 or 2012.
Other Long-Term Debt
The table below summarizes our other long-term debt.
Table 8.2 — Other Long-Term Debt
 
 
 
 
December 31, 2013
 
December 31, 2012
 
Contractual Maturity(1)
 
Par Value
 
Balance,  Net(2)
 
Weighted Average
Effective Rate(3)
 
Par Value
 
Balance,  Net(2)
 
Weighted Average
Effective Rate(3)
 
(dollars in millions)
Other long-term debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Other senior debt:(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Medium-term notes — callable(5)
2014 - 2037
 
$
101,190

 
$
101,236

 
1.51
%
 
$
94,655

 
$
94,842

 
1.62
%
Medium-term notes — non-callable
2014 - 2028
 
37,878

 
38,107

 
0.99

 
42,623

 
42,877

 
1.08

U.S. dollar Reference Notes securities — non-callable
2014 - 2032
 
190,371

 
190,406

 
2.71

 
225,857

 
225,885

 
2.82

€Reference Notes securities — non-callable
2014
 
528

 
529

 
4.38

 
1,167

 
1,187

 
4.58

Variable-rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Medium-term notes — callable
2014 - 2028
 
6,001

 
6,001

 
1.66

 
6,953

 
6,953

 
2.57

Medium-term notes — non-callable
2014 - 2026
 
18,533

 
18,533

 
0.22

 
46,194

 
46,197

 
0.27

STACR
2023
 
1,107

 
1,155

 
4.29

 

 

 

Zero-coupon:
 
 
 
 
 
 
 
 
 
 
 
 
 
Medium-term notes — callable
2037 - 2040
 
1,200

 
311

 
5.82

 
1,300

 
324

 
5.71

Medium-term notes — non-callable
2014 - 2039
 
12,217

 
8,334

 
3.08

 
15,240

 
10,923

 
4.03

Hedging-related basis adjustments
 
 
N/A

 
41

 
 
 
N/A

 
57

 
 
Total other senior debt
 
 
369,025

 
364,653

 
 
 
433,989

 
429,245

 
 
Other subordinated debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate
2016 - 2018
 
221

 
218

 
6.60

 
221

 
218

 
6.59

Zero-coupon
2019
 
332

 
184

 
10.51

 
332

 
166

 
10.51

Total other subordinated debt
 
 
553

 
402

 


 
553

 
384

 


Total other long-term debt
 
 
$
369,578

 
$
365,055

 
2.08
%
 
$
434,542

 
$
429,629

 
2.15
%
 
(1)
Represents contractual maturities at December 31, 2013.
(2)
Represents par value of long-term debt securities and subordinated borrowings, net of associated discounts or premiums and hedge-related basis adjustments, with $2.6 billion and $2.2 billion, respectively, of other long-term debt that represents the fair value of debt securities with the fair value option elected at December 31, 2013 and 2012.
(3)
Represents the weighted average effective rate that remains constant over the life of the instrument, which includes the amortization of discounts or premiums, issuance costs, and hedging-related basis adjustments.
(4)
For debt denominated in a currency other than the U.S. dollar, the outstanding balance is based on the exchange rate at December 31, 2013 and 2012, respectively.
(5)
Includes callable FreddieNotes® securities of $0.8 billion and $1.2 billion at December 31, 2013 and 2012, respectively.
A portion of our other long-term debt is callable. Callable debt gives us the option to redeem the debt security at par on one or more specified call dates or at any time on or after a specified call date.
Debt Securities of Consolidated Trusts Held by Third Parties
Debt securities of consolidated trusts held by third parties represents our liability to third parties that hold beneficial interests in our consolidated securitization trusts (i.e., single-family PC trusts and certain single-family and multifamily Other Guarantee Transactions).
The table below summarizes the debt securities of consolidated trusts held by third parties based on underlying mortgage product type.
Table 8.3 — Debt Securities of Consolidated Trusts Held by Third Parties
 
 
December 31, 2013
 
December 31, 2012
 
Contractual
Maturity(1)
 
UPB
 
Balance,
Net(2)
 
Weighted
Average
Coupon(1)
 
Contractual
Maturity(1)
 
UPB
 
Balance,
Net(2)
 
Weighted
Average
Coupon(1)
 
(dollars in millions)
 
(dollars in millions)
Single-family:(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30-year or more, fixed-rate
2014 - 2052
 
$
969,270

 
$
993,683

 
4.14
%
 
2013 - 2048
 
$
960,176

 
$
982,718

 
4.53
%
20-year fixed-rate
2014 - 2034
 
75,910

 
78,252

 
3.81

 
2013 - 2033
 
73,902

 
76,079

 
4.09

15-year fixed-rate
2014 - 2029
 
270,513

 
277,018

 
3.23

 
2013 - 2028
 
257,083

 
263,244

 
3.59

Adjustable-rate
2014 - 2047
 
60,683

 
61,830

 
2.64

 
2013 - 2047
 
62,424

 
63,649

 
2.88

Interest-only(4)
2026 - 2041
 
21,352

 
21,390

 
3.70

 
2026 - 2041
 
31,588

 
31,642

 
4.37

FHA/VA
2014 - 2041
 
1,284

 
1,303

 
5.67

 
2013 - 2041
 
1,638

 
1,663

 
5.67

Total single-family
 
 
1,399,012

 
1,433,476

 
 
 
 
 
1,386,811

 
1,418,995

 
 
Multifamily(5)
2018 - 2019
 
444

 
508

 
4.96

 
2018 - 2019
 
448

 
529

 
4.96

Total debt securities of consolidated trusts held by third parties(6)
 
 
$
1,399,456

 
$
1,433,984

 
 
 
 
 
$
1,387,259

 
$
1,419,524

 
 
 
(1)
Based on the contractual maturity and interest rate of debt securities of our consolidated trusts held by third parties.
(2)
Represents par value, net of associated discounts, premiums, and other basis adjustments.
(3)
Debt securities of consolidated trusts held by third parties are prepayable as the loans that collateralize the debt may prepay without penalty at any time.
(4)
Includes interest-only securities and interest-only mortgage loans that allow the borrowers to pay only interest for a fixed period of time before the loans begin to amortize.
(5)
Balance, Net includes interest-only securities recorded at fair value.
(6)
The effective rate for debt securities of consolidated trusts held by third parties was 3.39% and 3.49% as of December 31, 2013 and 2012, respectively.
The table below summarizes the contractual maturities of other long-term debt securities and debt securities of consolidated trusts held by third parties at December 31, 2013.
Table 8.4 — Contractual Maturity of Other Long-Term Debt and Debt Securities of Consolidated Trusts Held by Third Parties
 
 
 
Annual Maturities
Par  Value(1)(2)
 
(in millions)
Other long-term debt:
 
2014
$
78,115

2015
70,303

2016
63,564

2017
51,908

2018
33,418

Thereafter
72,270

Debt securities of consolidated trusts held by third parties(3)
1,399,456

Total
1,769,034

Net discounts, premiums, hedge-related and other basis adjustments(4)
30,005

Total debt securities of consolidated trusts held by third parties and other long-term debt
$
1,799,039

 
(1)
Represents par value of long-term debt securities and subordinated borrowings and UPB of debt securities of our consolidated trusts held by third parties.
(2)
For other debt denominated in a currency other than the U.S. dollar, the par value is based on the exchange rate at December 31, 2013.
(3)
Contractual maturities of debt securities of consolidated trusts held by third parties may not represent expected maturity as they are prepayable at any time without penalty.
(4)
Other basis adjustments primarily represent changes in fair value attributable to instrument-specific credit risk and interest-rate risk related to other foreign-currency denominated debt.
Line of Credit
At both December 31, 2013 and 2012, we had one secured, uncommitted intraday line of credit with a third party totaling $10 billion. We use this line of credit regularly to provide us with additional liquidity to fund our intraday payment activities through the Fedwire system in connection with the Federal Reserve’s payments system risk policy, which restricts or eliminates daylight overdrafts by the GSEs. No amounts were drawn on this line of credit at December 31, 2013 and 2012. We expect to continue to use the current facility to satisfy our intraday financing needs; however, as the line is uncommitted, we may not be able to draw on it if and when needed.
Subordinated Debt Interest and Principal Payments
The terms of certain of our subordinated debt securities provide for us to defer payments of interest in the event we fail to maintain specified capital levels. However, in a September 23, 2008 statement concerning the conservatorship, the Director of FHFA stated that we would continue to make interest and principal payments on our subordinated debt, even if we fail to maintain required capital levels.

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