But the potential effects of a rescue become more complex for the holders of Fannie’s and Freddie’s $19 billion in subordinated debt, so-called because it ranks below other bonds in the companies’ capital structures.

As UBS analysts point out, because Fannie’s and Freddie’s subordinated debt is used when they calculate capital  the financial cushion regulators require to support the companies’ operations  interest payments on the debt may have to stop if a bailout occurs. Such a hiatus could last up to five years.

While this would hurt subordinated debt holders, a deferral of interest payments has even broader ramifications. Halting those payments would put the bonds into default and force payouts on credit insurance that has already been written. In the debt market, this is known as a “credit event.”

ON its Web site, and in language that only a lawyer could love, Fannie Mae describes some terms of its subordinated debt. For the debt to qualify for capital calculations, it must require the deferral of interest payments “for up to five years if (1) Fannie Mae’s core capital falls below minimum capital and, pursuant to Fannie Mae’s request, the secretary of the Treasury exercises discretionary authority to purchase the company’s obligations under Section 304(c) of the Fannie Mae Charter Act, or (2) Fannie Mae’s core capital falls below 125 percent of critical capital.”

Here’s a translation: A bailout could mean no interest payments on the subordinated debt.

“If we reasonably assume that the Treasury would only intervene in the event that Fannie or Freddie is declared significantly undercapitalized by its regulator,” UBS analysts wrote, “then interest payments on the qualifying subordinated debt is automatically deferred for up to five years.”

Because nonpayment of interest would be seen as a credit event, UBS added, entities that have bought protection on Fannie’s and Freddie’s subordinated debt would be entitled to payment by the entities that wrote the insurance. This, even though taxpayers are standing behind Fannie’s and Freddie’s debt, not allowing it to fail. Talk about the laws of unintended consequences.

It is not clear how much insurance has been written on the subordinated debt. The actual holders of the debt very likely hedged their stakes with credit insurance, which is intended to protect buyers in the event of a default.