Freddie Mac 2004 Annual Report Download - page 117

Table 50 summarizes our exposure to counterparty credit risk in our derivatives. This table is useful in
understanding our credit risk related to our derivative portfolio.
Table 50 Ì Derivative Counterparty Credit Exposure
December 31, 2004
Weighted Average
Total Exposure, Contractual
Number of Notional Exposure at Net of Maturity Collateral Posting
Rating(1) Counterparties(2) Amount Fair Value(3) Collateral(4) (in years) Threshold(5)
(dollars in millions)
AAA(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 $ 3,041 $ 498 $498 2.5 Mutually agreed upon
AA° ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 597 399 32 23.9 $10 million or less
AA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5 110,692 3,096 25 4.4 $10 million or less
AA¿ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 135,041 5,199 36 5.2 $10 million or less
A° ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 153,867 6,505 Ì 5.1 $1 million or less
A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 56,530 1,478 8 5.1 $1 million or less
A- ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 210 11 2 7.0 $1 million or less
Subtotal(7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25 459,978 17,186 601 5.0
Other derivatives(8) ÏÏÏÏÏÏÏÏÏÏ 138,822 Ì Ì
Prepayment management
agreement(9) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 113,692 Ì Ì
Commitments(10) ÏÏÏÏÏÏÏÏÏÏÏÏ 32,952 40 40
Credit derivatives(11) ÏÏÏÏÏÏÏÏÏ 10,926 Ì Ì
Swap guarantee derivatives(9)ÏÏ 408 Ì Ì
Total derivatives ÏÏÏÏÏÏÏÏÏÏÏÏ $756,778 $17,226 $641
December 31, 2003
Weighted Average
Total Exposure, Contractual
Number of Notional Exposure at Net of Maturity Collateral Posting
Rating(1) Counterparties(2) Amount Fair Value(3) Collateral(4) (in years) Threshold(5)
(dollars in millions)
AAA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 $ 2,825 $ 283 $283 3.6 Mutually agreed upon
AA° ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 604 303 5 24.7 $10 million or less
AA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4 119,409 1,610 29 4.6 $10 million or less
AA¿ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 237,048 7,091 250 4.1 $10 million or less
A° ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 236,944 5,922 133 5.4 $1 million or less
A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 87,001 2,143 95 5.2 $1 million or less
A¿ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4 1,018 19 1 3.3 $1 million or less
Subtotal(7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27 684,849 17,371 796 4.8
Other derivatives(8) ÏÏÏÏÏÏÏÏÏÏ 141,381 Ì Ì
Prepayment management
agreement(9) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 152,548 Ì Ì
Commitments(10) ÏÏÏÏÏÏÏÏÏÏÏÏ 89,520 101 101
Credit derivatives(11) ÏÏÏÏÏÏÏÏÏ 15,542 7 7
Swap guarantee derivatives(9)ÏÏ 31 Ì Ì
Total derivatives ÏÏÏÏÏÏÏÏÏÏÏÏ $1,083,871 $17,479 $904
(1) We use the lower of S&P and Moody's ratings to manage collateral requirements. In this table, the rating of the legal entity (or the
guarantor of the legal entity) is stated in terms of the S&P equivalent.
(2) Based on legal entities. AÇliated legal entities are reported separately.
(3) For each counterparty, this amount includes derivatives with a net positive fair value (recorded as Derivative assets, at fair value)
including the related accrued interest receivable/payable (net) (recorded in Accounts and other receivables, net and Accrued
interest payable).
(4) Total Exposure at Fair Value less collateral held as determined at the counterparty level.
(5) Counterparties are required to post collateral when their exposure exceeds agreed-upon collateral posting thresholds. These
thresholds are typically based on the counterparty's credit rating and are individually negotiated.
(6) At December 31, 2004, two of our derivative counterparties were rated AAA. In early 2005, one of these counterparties was
downgraded to AA°. With respect to this downgraded counterparty, there was no Total Exposure at Fair Value at December 31,
2004 as the fair value of the underlying derivatives were in a net liability position at that date.
(7) Consists of OTC derivative agreements for interest-rate swaps, option-based derivatives, excluding written options, and for-
eign-currency swaps. Written options do not present counterparty credit exposure, because we receive a one-time up-front premium
in exchange for giving the holder the right to execute a contract under speciÑed terms, which generally puts us in a liability position.
(8) Consists primarily of exchange-traded contracts, which do not measurably increase our exposure to counterparty credit risk because
changes in value of open exchange-traded contracts are settled daily through a Ñnancial clearinghouse established by each
exchange.
(9) See ""Use of Derivatives and Interest-Rate Risk Management Ì Types of Derivatives'' for additional information concerning the
nature of the prepayment management agreement and swap guarantee derivatives.
(10) Consists of OTC derivative agreements for forward purchase and sale commitments.
(11) See ""Credit Risks Ì Mortgage Credit Risk Ì Mortgage Credit Risk Management Strategies'' for additional information about
credit derivatives.
Freddie Mac
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