First Data 2007 Annual Report Download - page 112

Less than 12 months More than 12 months
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Total
Fair Value
Total
Unrealized
Losses
State and municipal obligations $ 893.7 $ (3.7) $ 5,545.2 $ (85.3) $ 6,438.9 $ (89.0)
Mortgage-backed securities (a) 2.0 — 15.0 (0.2) 17.0 (0.2)
(a) Unrealized losses less than 12 months are less than $50,000.
Note 8: Nonderivative and Derivative Financial Instruments
Concentration of credit risk
FDC maintains cash and cash equivalents, investment securities and certain hedging instruments (for specified purposes) with various financial
institutions. The Company limits its concentration of these financial instruments with any one institution, and periodically reviews the credit standings of
these institutions. FDC has a large and diverse customer base across various industries, thereby minimizing the credit risk of any one customer to FDC's
accounts receivable amounts. In addition, each of the Company's business units perform ongoing credit evaluations on certain of their customers' financial
condition.
Management of nonderivative financial instrument risks
FDC does not hold or issue financial instruments for trading purposes. FDC encounters credit and market risks related to the Company's financial
instruments, principally its investment securities. The Company attempts to mitigate credit risk by making high-quality investments. A majority of all its
investments were in short-term securities at December 31, 2007, with a large portion of its settlement assets in cash and cash equivalents.
Fair value of financial instruments
Carrying amounts for certain of FDC's financial instruments (cash and cash equivalents, short-term investments and short-term borrowings)
approximate fair value due to their short maturities. Accordingly, these instruments are not presented in the following table. The following table provides the
estimated fair values of certain nonderivative financial instruments and derivative financial instruments (in millions):
Successor Predecessor
December 31, 2007 2006
Carrying
Value Fair Value
Carrying
Value Fair Value
Nonderivative financial instruments:
Long-term investment securities $ 1,156.9 $ 1,156.9 $ 12,234.2 $ 12,234.2
Long-term debt 21,953.5 20,331.0 2,294.3 2,235.0
Derivative financial instruments:
Interest rate swaps related to certain long-term investment securities, net — — 44.7 44.7
Interest rate swaps related to fixed rate debt — — (51.9) (51.9)
Interest rate swaps related to variable rate debt (194.5) (194.5) — —
Foreign currency forward contracts (2.3) (2.3) (1.6) (1.6)
Foreign currency swaps related to net investments in foreign entities (7.0) (7.0) (62.2) (62.2)
Other foreign currency swaps (3.4) (3.4) (3.2) (3.2)
Costless collars related to investment in certain equity securities (12.8) (12.8) — —
The estimated fair value of long-term investment securities is based primarily on market quotations. As discussed in Note 10, a portion of the
Company's long-term debt as of December 31, 2007 represents bridge financing ("bridge facilities") for which quoted market values do not exist. The fair
market value of this bridge financing in the form of the senior unsecured cash-pay term loan facility was estimated using the quoted market value of the senior
unsecured cash-pay notes as a basis as they have similar terms and the fair market value of the senior unsecured PIK term loan facility and the senior
subordinated unsecured term loan facility were estimated using a PIK calculator and bond calculator, respectively, based upon certain assumptions made by
the Company. Assumptions included the following: estimated yields based upon instruments with similar terms, durations and credit ratings; and
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