Last September, Freddie Mac bought back a majority of its subordinated securities before the company and its counterpart Fannie Mae were taken over by the federal government.
Most investors expressed the most interest in selling longer maturities back to the company. This was largely based on uncertainties surrounding the fates of both Freddie Mac and Fannie Mae once Congress focuses attention on the two largest home lenders in the United States.
On July 20, Freddie Mac repurchased approximately $3.9 billion of its outstanding subordinated securities, intent on slashing its borrowing costs. In order to obtain the sub debt, Freddie Mac allowed investors to be paid as much as 1.25 percentage points more than Treasuries. Of the original $5.85 billion originally issued, the company currently has $909 million in outstanding subordinate debt.
In a recent interview, Doc Ghose, vice president of debt portfolio management at Freddie Mac said, “These have relatively higher coupons and we can issue our reference notes and other debt at lower coupons.”
In terms agreed to with federal regulators last year, Freddie Mac is continuing to make interest and principal payments on its subordinated debt. The lender repurchased almost 90% of the $4.39 billion in debt over the course of a week.
There were three issues in this tender: 5-7/8 percent notes due March 21, 2011, 5-3/4 percent notes of June 27, 2016 and 5 percent notes due Dec. 14, 2018. The tender offer yields were 1.999 percent, 4.482 percent and 4.921 percent, respectively. Yield spreads versus Treasuries were 100 basis points for the 2011 issue and 125 basis points for the two longer maturities.
Freddie Mac’s outstanding debt rates have fallen from a high of $932 billion in March to $893 billion in May.
The company has conducted large repurchases of both dollar and euro-denominated debt in the last few weeks in asset-liability management moves.
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