Freddie Mac 2005 Annual Report Download - page 78

Table 35 summarizes our exposure to counterparty credit risk in our derivatives, which represents the net positive fair
value of derivative contracts and related accrued interest after netting by counterparty as applicable (i.e., net amounts due to
us under derivative contracts). This table is useful in understanding the credit risk related to our derivative portfolio.
Table 35 Ì Derivative Counterparty Credit Exposure
December 31, 2005
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
(dollars in millions)
AAA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 $ 3,102 $ 93 $ 93 2.7 Mutually agreed upon
AA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 148,135 619 16 4.3 $10 million or less
AA¿ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8 156,058 2,499 73 5.8 $10 million or less
A° ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5 227,842 5,297 2 5.8 $1 million or less
A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 24,879 364 5 4.0 $1 million or less
A¿ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 210 3 1 6.0 $1 million or less
Subtotal(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25 560,226 8,875 190 5.3
Other derivatives(6) ÏÏÏÏÏÏÏÏÏÏ 98,033 Ì Ì
Commitments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 21,961 35 35
Credit derivative ÏÏÏÏÏÏÏÏÏÏÏÏ 2,414 Ì Ì
Swap guarantee derivativesÏÏÏÏ 738 Ì Ì
Total derivatives ÏÏÏÏÏÏÏÏÏÏÏÏ $683,372 $8,910 $225
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
(dollars in millions)
AAA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 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¿ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 210 11 2 7.0 $1 million or less
Subtotal(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25 459,978 17,186 601 5.0
Other derivatives(6) ÏÏÏÏÏÏÏÏÏÏ 138,822 Ì Ì
Prepayment management
agreementÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 113,692 Ì Ì
Commitments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32,952 40 40
Credit derivativesÏÏÏÏÏÏÏÏÏÏÏÏ 10,926 Ì Ì
Swap guarantee derivativesÏÏÏÏ 408 Ì Ì
Total derivatives ÏÏÏÏÏÏÏÏÏÏÏÏ $756,778 $17,226 $641
(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 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) Consists of OTC derivative agreements for interest-rate swaps, option-based derivatives, excluding written options, foreign-currency swaps and
purchased interest-rate caps. 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.
(6) Consists primarily of exchange-traded contracts.
Over time, our exposure to individual counterparties for OTC interest-rate swaps, option-based derivatives and foreign-
currency swaps varies depending on changes in fair values which are aÅected by changes in period-end interest rates, the
implied volatility of interest rates, foreign-currency exchange rates and the amount of derivatives held. Our uncollateralized
exposure to counterparties for these derivatives, after applying netting agreements and collateral, decreased to $190 million
at December 31, 2005 from $601 million at December 31, 2004. This decrease was due to a signiÑcant decrease in
uncollateralized exposure to AAA-rated counterparties, which typically are not required to post collateral given their low
risk proÑle.
At December 31, 2005, the uncollateralized exposure to non-AAA-rated counterparties was due to uncollateralized
exposure below the applicable counterparty posting threshold as well as market movements during the time period between
when a derivative was marked to fair value and the date we received the related collateral.
As indicated in Table 35, approximately 98 percent of our counterparty credit exposure for OTC interest-rate swaps,
option-based derivatives and foreign-currency swaps was collateralized at December 31, 2005. In the event that all of our
62 Freddie Mac