Freddie Mac to offer $6 billion preferred stock, some convertible, to reach federally mandated capital surplus

By Evan Weinberger

New York, Nov. 27 - Freddie Mac announced plans to launch $6 billion in non-cumulative perpetual preferred stock Tuesday after the market close as part of near-term capital actions the government-supported mortgage backer announced last week. The majority of the offering will be in nonconvertible preferreds with a smaller offering of convertible non-cumulative perpetual preferreds.

As part of its capital plan, Washington-based Freddie Mac announced that it was halving its fourth quarter common stock dividend to 25 cents per share Tuesday.

Goldman Sachs and Lehman Brothers are the lead managers in a syndicate of banks underwriting the offering.

The dividend on the straight preferreds will be fixed for five years and then float at three-month Libor plus the Libor-equivalent of the new issue spread, with a to-be-decided coupon floor, according to a market source. The preferreds will be callable on Dec. 31, 2012 and every five years following.

Pricing is expected later this week. One-on-one meetings with investors are scheduled for Wednesday and Thursday.

The convertibles will be marketed concurrently.

Par will be $25.

The Office of Federal Housing Enterprise Oversight directed Freddie Mac to have a 30% capital surplus last week. In a statement, Freddie Mac said that the preferred stock offerings and the slashed dividend would meet the 30% surplus order.

"Freddie Mac is announcing today a proactive capital management plan that will help us meet the 30 percent surplus and address regulatory concerns and GAAP accounting requirements, provide sufficient capital to continue fulfilling our important housing mission through the current market environment, and better position us to effectively manage the company going forward," Freddie Mac chairman and chief executive officer Richard F. Syron said in the statement.

A source close to the deal said price talk for the convertible preferreds would be available in "a couple days," after the final terms for the nonconvertible preferreds is set.

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