Bank of America 2009 Annual Report Download - page 65

Off-Balance Sheet Liquidity Arrangements with Special
Purpose Entities
In the ordinary course of business, we support our customers’ financing
needs by facilitating their access to the commercial paper market. In
addition, we utilize certain financing arrangements to meet our balance
sheet management, funding and liquidity needs. These activities utilize
special purpose entities (SPEs), typically in the form of corporations, lim-
ited liability companies, or trusts, which raise funds by issuing short-term
commercial paper or other debt or equity instruments to third party
investors. These SPEs typically hold various types of financial assets
whose cash flows are the primary source of repayment for the liabilities of
the SPEs. Investors have recourse to the assets in the SPE and often
benefit from other credit enhancements, such as overcollateralization in
the form of excess assets in the SPE, liquidity facilities and other
arrangements. As a result, the SPEs can typically obtain a favorable credit
rating from the ratings agencies, resulting in lower financing costs for us
and our customers.
We have liquidity agreements, SBLCs and other arrangements with
SPEs, as described below, under which we are obligated to provide fund-
ing in the event of a market disruption or other specified event or other-
wise provide credit support to the entities. We also fund selected assets
via derivative contracts with third party SPEs under which we may be
required to purchase the assets at par value or the third party SPE’s cost
to acquire the assets. We manage our credit risk and any market risk on
these liquidity arrangements by subjecting them to our normal under-
writing and risk management processes. Our credit ratings and changes
thereto may affect the borrowing cost and liquidity of these SPEs. In addi-
tion, significant changes in counterparty asset valuation and credit stand-
ing may also affect the ability of the SPEs to issue commercial paper. The
contractual or notional amount of these commitments as presented in
Table 14 represents our maximum possible funding obligation and is not,
in management’s view, representative of expected losses or funding
requirements.
The table below presents our liquidity exposure to unconsolidated
SPEs, which include VIEs and QSPEs. VIEs are SPEs that lack sufficient
equity at risk or whose equity investors do not have a controlling financial
interest. QSPEs are SPEs whose activities are strictly limited to holding
and servicing financial assets. As a result of our adoption of new account-
ing guidance on consolidation on January 1, 2010 as discussed in the
following section, we consolidated all multi-seller conduits, asset acquis-
ition conduits and credit card securitization trusts. In addition, we con-
solidated certain home equity securitization trusts, municipal bond trusts
and credit-linked note and other vehicles.
Table 14 Off-Balance Sheet Special Purpose Entities Liquidity Exposure
December 31, 2009
(Dollars in millions) VIEs QSPEs Total
Commercial paper conduits:
Multi-seller conduits $ 25,135 $ – $ 25,135
Asset acquisition conduits 1,232 – 1,232
Home equity securitizations – 14,125 14,125
Municipal bond trusts 3,292 6,492 9,784
Collateralized debt obligation vehicles 3,283 – 3,283
Credit-linked note and other vehicles 1,995 – 1,995
Customer-sponsored conduits 368 – 368
Credit card securitizations – 2,288 2,288
Total liquidity exposure $ 35,305 $ 22,905 $ 58,210
December 31, 2008
VIEs QSPEs Total
Commercial paper conduits:
Multi-seller conduits $41,635 $ – $41,635
Asset acquisition conduits 2,622 – 2,622
Other corporate conduits – 1,578 1,578
Home equity securitizations – 13,064 13,064
Municipal bond trusts 3,872 2,921 6,793
Collateralized debt obligation vehicles 542 – 542
Customer-sponsored conduits 980 – 980
Credit card securitizations – 946 946
Total liquidity exposure $49,651 $18,509 $68,160
At December 31, 2009, our total liquidity exposure to SPEs was
$58.2 billion, a decrease of $10.0 billion from December 31, 2008. The
decrease was attributable to decreases in commercial paper conduits
due to maturities and liquidations partially offset by the acquisition of
Merrill Lynch. Legacy Merrill Lynch related exposures as of December 31,
2009 were $4.9 billion in municipal bond trusts, $3.3 billion in CDO
vehicles and $2.0 billion in credit-linked note and other vehicles.
For more information on commercial paper conduits, municipal bond
trusts, CDO vehicles, credit-linked note and other vehicles, see Note 9 –
Variable Interest Entities to the Consolidated Financial Statements. For
more information on home equity and credit card securitizations, see
Note 8 – Securitizations to the Consolidated Financial Statements.
Customer-sponsored conduits are established by our customers to
provide them with direct access to the commercial paper market. We are
typically one of several liquidity providers for a customer’s conduit. We do
not provide SBLCs or other forms of credit enhancement to these con-
duits. Assets of these conduits consist primarily of auto loans and stu-
dent loans. The liquidity commitments benefit from structural protections
which vary depending upon the program, but given these protections, we
view the exposures as investment grade quality. These commitments are
included in Note 14 – Commitments and Contingencies to the Con-
solidated Financial Statements. As we typically provide less than 20
percent of the total liquidity commitments to these conduits and do not
provide other forms of support, we have concluded that we do not hold a
Bank of America 2009 63