Joe. It's not in there. It's my own interpretation following this trend of thought.
There are 2 components to Total Capital: a) core capital, and b) general reserves against losses. As part of a ratio, preferred shares are valued at redemption Vs. their par value within core capital. You can see this on sub note (7) page 18 at the bottom ("Preferred stock to core capital ratio"). In other words, the prospectus has set core capital by mandate at $1 for preferred shares. Whether the market values them more, even at redemption value, plays favorable in the ratio preferreds/core. Now, that ratio has collapsed.
From this perspective one can draw the conclusion that the absolute minimum value for preferreds as stated by prospectus is and will always be $1. It is a fixed value that is unrelated to the trading price.
Then, the prospectus presents 2 basic hypothetical scenarios: a) termination/liquidation (I say receivership), b) sale of company and/or similar outcomes. Anything under a) will bring up the liquidation distribution provisions where -according to me- values preferreds at an absolute minimum of $1 because of the distinction of being core capital, and distributions will depend on any legally available funds. Instead, b) scenarios will not value preferreds at $1 but at $25 and distributions will be made of only legally available funds. And in both cases, after any seniority issue has been paid.
It is my own interpretation and I admit I pulled it off out of nowhere. So take it as you may. Remember, by law there is a "minimum, critical and risk based capital" the companies must maintain in relation to "core capital". And core capital has a fixed component set in stone (par value) and a variable component (loss reserves). Minimum, critical and risk capital must be higher than core yielding a surplus, a desirable situation.
KEY POINTS:
a) The shares of Preferred Stock we are offering will have a par value of $1.00 per share.
b) Core capital consists of the par value of...
You can't escape this point. It is in there. In a liquidation, core capital is core capital.
I guess more conclusions can be drawn from studying the core and minimum/critical/risk capital sentences in the 10Qs. I have not done this. So anyone who can help with this interpretation is appreciated. I may be off mark...
Here are some generals statements that pertain to us from this prospectus (mildly edited):
* Dividends on shares of the Preferred Stock are not mandatory.
* Dividends on the Preferred Stock are not cumulative.
* We may redeem the Preferred Stock, in whole or in part, out of legally available funds.
* If we redeem less than all of the outstanding shares of the Preferred Stock, we will select shares to be redeemed by lot or pro rata (as nearly as possible) or by any other method which we deem equitable.
* If we voluntarily or involuntarily dissolve, liquidate or wind up our business, then, after payment of... ...holders will be entitled to receive $25.00 per share. (Here is where I assume that if there are not enough funds to distribute to preferred holders, a minimum of $1 will always be available as per core capital... is this a crazy thought?)
* If our assets available for distribution to shareholders are insufficient... ... the assets will be distributed to the holders "pro rata".
* Holders of the Preferred Stock will not be entitled to be paid any amount... ...until holders of any classes ranking prior are paid in full. (Here I assume *any* amount above the $1 of core capital).
* Our consolidation, merger or combination with or into any other corporation or entity... ...will not constitute a liquidation, dissolution or winding up.
* We will have the right to create and issue additional classes or series of stock ranking prior to, equally with or junior to the Preferred Stock without consent of holders.
* Without the consent of the holders of the Preferred Stock, we will have the right to amend the Certificate of Designation to cure any ambiguity, to correct or supplement any term...
* We may amend the Certificate of Designation only with the consent of the holders of at least two-thirds of the outstanding shares.
* Core capital consists of the par value of outstanding... ...perpetual preferred stock...
* Total capital includes core capital and general reserves for mortgage and foreclosure losses...
* When we are classified as "adequately capitalized", we generally can pay a dividend on... ...preferred stock without prior OFHEO approval...
* The class of preferred stock of Freddie Mac created hereby... ... shall have a par value of $1.00 per share and shall consist of 240,000,000 shares.
