Fannie Mae announced Wednesday that it has agreed to sell an aggregate of $5 billion in two placements of preferred stock to qualified institutional buyers, representing the largest capital placement ever undertaken by the mortgage-financing giant.

The $2.5 billion series of 5.375 percent Non-Cumulative Convertible Series 2004-1 Preferred Stock has a stated value and liquidation preference of $100,000 per share and is convertible by holders into shares of Fannie Mae common stock at a conversion price of $94.31. Fannie Mae also priced $2.5 billion of Non-Cumulative Preferred Stock Series O with a stated value of $50 per share and is a non-convertible floating rate preferred stock with an original coupon of 7 percent, the entity announced today.

The coupon re-prices quarterly at the higher rate of 7 percent and the sum of the 10-year CMT rate plus 237.5 basis points. Lehman Brothers Inc. served as sole placement agent for the transactions.

“This placement of preferred stock is a key component of Fannie Mae’s capital restoration plan,” said Donald Marron, the member of the Board of Directors who is leading the company’s work with OFHEO on the required capital plan. “Working with our safety and soundness regulator OFHEO, we will be finalizing the details of the capital plan shortly.”

The Office of Federal Housing Enterprise Oversight (OFHEO) has a mission to ensure the financial safety and soundness of Fannie Mae and Freddie Mac.

Fannie Mae is the focus of federal investigations and shareholder lawsuits, and the SEC has directed the company to make accounting corrections that could erase millions of dollars in past profit. Former Fannie Mae CEO Franklin Raines was forced out last week and announced an early retirement. Also, J. Timothy Howard, who served as CFO for Fannie Mae, announced his resignation last week.

Office of Federal Housing Enterprise Oversight, has asked Fannie Mae to hold off paying any retirement compensation to Raines until they have time to investigate the terms of his departure.

“Fannie Mae’s announcement today of its placement of preferred stock represents the largest capital placement ever undertaken by Fannie Mae,” said Stephen Ashley, non-executive chairman of the Fannie Mae Board of Directors. “I want to compliment interim CEO Daniel Mudd and company management for its efforts to get this done before the end of the year.”

“The company has pledged to work with OFHEO to take steps to properly address our capital situation,” Ann Korologos, presiding director of the Board of Directors, added. “We thank OFHEO for its willingness to work with the Board and management to take this step expeditiously.”

These transactions are expected to close today. Fannie Mae will file a Form 8-K with the Securities and Exchange Commission within four business days. Fannie Mae the largest non-bank financial services company in the world. Since 1968, Fannie Mae has provided $6.3 trillion of mortgage financing for 63 million families.


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