Freddie Opens Tender Offer to Go Long

Freddie Mac (FRE) will carry out this week the largest tender offer in its nearly four decade long history. Freddie will offer to purchase from investors up to $30bn principal amount in targeted securities, in attempt to reduce its effective short-term debt. The offer’s marked debt contains issues totaling nearly $70bn with maturities between September 2009 and August 2010. “We’re buying back these contractually maturing securities, and over time we’ll be issuing longer maturities,” Mohit Sudhakar, senior director of debt portfolio management, told Reuters. “It’s just a simple liability management trade.” Freddie Mac is signaling a reduced reliance on short-term funding, and a move toward larger, long-term deals with lower rates. Freddie Mac’s short-term funding fell in first-quarter 2009 by $35bn, while its long-term funding increased by $64bn, according to RBS Securities data. All purchases will be offered through lead dealer manager, Barclays Capital, Inc., and managers Morgan Stanley (MS) and Deutsche Bank. The tender offer period will expire at 5pm EST this Friday. The company says it will use a variety of funding sources to finance the offer including discount notes and longer maturing debt. Freddie Mac reported last month a $9.85bn loss in Q109, driven largely by the costs associated with increasing mortgage defaults and said it will need an additional $6.1bn of fresh capital from the government. Write to Kelly Curran.

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