Freddie Clears SEC Hurdle Towards Major Stock Sale

On Friday, Freddie Mac (FRE) moved ever-closer to a planned stock sale by becoming a registrant with the Securities and Exchange Commission; the company’s filing of a Form 10 registration statement with the SEC is a large milestone for the company, and paves the way for the company to offer shares. “Becoming an SEC registrant marks an important milestone for the company and demonstrates our commitment to enhanced transparency and financial reporting,” said chairman and CEO Richard F. Syron. While Syron said that the “registration statement does not relate to an offering of securities,” it certainly moves the GSE closer to a planned $5.5 billion capital raise that has been in the offing since the company reported its first quarter results. The Wall Street Journal reported Friday that the company may be planning a stock sale of preferred and common shares totaling as much as $10 billion; executives were reportedly working feverishly over the weekend to complete details surrounding the GSE’s registration. The benchmark moment for the company, however, comes under tough circumstances. The company’s share prices have been battered by investors in the past two weeks over concerns that neither GSE has enough available capital to weather the current housing downturn. “This is great news for the company — but it must be bittersweet, as their schedule was overtaken by the investor panic over pending FAS 140 changes that could force the MBS onto balance sheets, ballooning assets,” said one source, an ABS analyst that asked not to be identified. The FASB change in question would not go into effect until 2010, she said, suggesting that investors had overreacted. Fannie Mae has been registered with the SEC since 2003; the accounting scandal encompassing both GSEs, starting that year, had delayed Freddie Mac’s own efforts to do so. Which explains why Freddie execs saw the registration step as an important one, in terms of putting the accounting scandal even further into the rear-view mirror. “We conclude what was a difficult chapter in Freddie Mac’s history and join the ranks of other large, public financial institutions as an SEC registrant,” said Buddy Piszel, executive vice president and chief financial officer. “Along the path to SEC registration, we’ve upgraded our internal controls and financial reporting to strengthen our business, resulting in a return to timely quarterly financial reporting.” Freddie did reiterate in a press statement that it would raise at least $5.5 billion of new core capital via “one or more offerings, which will include both common and preferred securities.” It also said that it expects to exceed capital targets established by the Office of Federal Housing Enterprise Oversight, its regulator, when it reports second quarter results. “Becoming an SEC registrant is a major step forward in the history of Freddie Mac, one that OFHEO and investors have been awaiting for a long time,” said OFHEO director James Lockhart. Share in Freddie were at $8.96, up 7.56 percent, when this story was published. For more information, visit http://www.freddiemac.com. Disclosure: The author was long FRE and held no other positions of relevance when this story was written, although indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.