(Updates with fresh levels on agency debt)
DOW JONES NEWSWIRES
Freddie Mac (FRE) on Monday announced plans to repurchase up to
$30 billion of debt securities coming due in the next 15 months as
the mortgage giant looks at ways to restructure its balance
sheet.
The debt currently has $69.9 billion in principal outstanding.
The tender offer expires at 5 p.m. EDT Friday.
The company is undertaking the buyback as a way of managing its
liabilities, said Mohit Sudhakar, Freddie's senior director of debt
portfolio management.
Freddie wants to retire a portion of its short, floating rate
securities that mature over the next 12 to 15 months and issue
longer maturing debt with cheaper risk premiums paid to investors,
he said. The company included only a portion of its maturing debt,
with nearly $71.75 billion of floating rate securities with
maturities before 2011 not included.
This buyback of debt is consistent with what Freddie and its
sibling, Fannie Mae (FNM), have been doing to decrease refunding
risk, and match modified mortgage loans that are expected to take
longer to pay off, said Margaret Kerins, head of agency strategy at
RBS.
Both Fannie and Freddie have reduced reliance on short-term
funds to nearly 33% of their debt at the end of April, from 38% at
the end of 2008, according to RBS research.
Freddie's short-term funding decreased by $35 billion, while the
long-term securities issued increased by $64 billion during the
period.
The company will use a variety of funding sources to finance the
tender offer including discount notes and longer maturing debt,
Freddie's Sudhakar said.
Since the Federal Reserve started purchasing these debt
securities last year, risk premiums have tightened exponentially on
these bonds.
Freddie Mac's 1.625% two-year bond issue was trading a basis
point wider on Monday at 13/11.5, still at historically tight
levels. While Freddie's 10-year bond was 4 basis points wider at
60/55, according to Tradeweb data.
Federal regulators seized control of Freddie and its larger peer
Fannie Mae, the two main providers of funds for U.S. home
mortgages, in September as growing losses ate through their thin
layers of capital. The Treasury has agreed to provide as much as
$200 billion of capital apiece to Fannie and Freddie by purchasing
preferred stock paying 10% dividends.
Freddie last month reported a loss of $9.85 billion for the
first quarter amid mounting mortgage-default costs and said it will
need another $6.1 billion of capital from the U.S. Treasury
Department. With its latest request, that would bring Freddie's
total to about $51 billion.
-By Kevin Kingsbury, Dow Jones Newswires; 201-938-2136;
kevin.kingsbury@dowjones.com
(Prabha Natarajan contributed to this report.)