Freddie Mac 2009 Annual Report Download - page 149

Table 55 — Derivative Counterparty Credit Exposure
Rating
(1)
Number of
Counterparties
(2)
Notional or
Contractual
Amount
(3)
Total
Exposure at
Fair Value
(4)
Exposure,
Net of
Collateral
(5)
Weighted Average
Contractual
Maturity
(in years)
Collateral Posting
Threshold
December 31, 2009
(dollars in millions)
AA+......................... 1 $ 1,150 $ — $ — 6.4 $—
AA.......................... 3 61,058 — — 7.3 $10 million or less
AA–......................... 4 265,157 2,642 78 6.4 $10 million or less
A+.......................... 7 440,749 61 31 6.0 $1 million or less
A........................... 4 241,779 511 19 4.6 $1 million or less
Subtotal
(6)
..................... 19 1,009,893 3,214 128 5.9
Other derivatives
(7)
............... 199,018 — —
Forward purchase and sale
commitments . . . .............. 13,872 81 81
Swap guarantee derivatives . . . ....... 3,521 — —
Total derivatives . . . .............. $1,226,304 $3,295 $209
Rating
(1)
Number of
Counterparties
(2)
Notional or
Contractual
Amount
(3)
Total
Exposure at
Fair Value
(4)
Exposure,
Net of
Collateral
(5)
Weighted Average
Contractual
Maturity
(in years)
Collateral Posting
Threshold
December 31, 2008
(dollars in millions)
AAA......................... 1 $ 1,150 $ — $ — 7.4 Mutually agreed upon
AA+......................... 1 27,333 — — 5.2 $10 million or less
AA.......................... 2 16,987 500 — 3.1 $10 million or less
AA⫺........................ 5 342,635 1,457 4 7.0 $10 million or less
A+.......................... 8 355,534 912 162 5.7 $1 million or less
A........................... 4 296,039 1,179 15 4.5 $1 million or less
Subtotal
(6)
..................... 21 1,039,678 4,048 181 5.7
Other derivatives
(7)
............... 175,788 — —
Forward purchase and sale
commitments . . . .............. 108,273 537 537
Swap guarantee derivatives . . . ....... 3,281 — —
Total derivatives . . . .............. $1,327,020 $4,585 $718
(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. Affiliated legal entities are reported separately.
(3) Notional or contractual amounts are used to calculate the periodic settlement amounts to be received or paid and generally do not represent actual
amounts to be exchanged.
(4) For each counterparty, this amount includes derivatives with a net positive fair value (recorded as derivative assets, net), including the related accrued
interest receivable/payable (net) and trade/settle fees.
(5) Calculated as Total Exposure at Fair Value less cash collateral held as determined at the counterparty level. Includes amounts related to our posting of
cash collateral in excess of our derivative liability as determined at the counterparty level.
(6) Consists of OTC derivative agreements for interest-rate swaps, option-based derivatives (excluding certain written options), foreign-currency swaps and
purchased interest-rate caps.
(7) Consists primarily of exchange-traded contracts, certain written options and certain credit derivatives. 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 specified terms,
which generally puts us in a liability position.
Over time, our exposure to individual counterparties for OTC interest-rate swaps, option-based derivatives, foreign-
currency swaps and purchased interest rate caps varies depending on changes in fair values, which are affected 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, or our maximum loss for accounting
purposes, after applying netting agreements and collateral, decreased to $128 million at December 31, 2009 from
$181 million at December 31, 2008. Four of our derivative counterparties each accounted for greater than 10% and
collectively accounted for 92% of our net uncollateralized exposure, excluding commitments, at December 31, 2009. These
counterparties were JP Morgan Chase Bank, Royal Bank of Canada, Royal Bank of Scotland and Merrill Lynch Capital
Services, Inc., all of which were rated A or higher at February 11, 2010.
As indicated in Table 55, approximately 96% of our counterparty credit exposure for OTC interest-rate swaps, option-
based derivatives, foreign-currency swaps and purchased interest rate caps was collateralized at December 31, 2009. The
uncollateralized exposure to non-AAA-rated counterparties was primarily due to exposure amounts below the applicable
counterparty collateral 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. Collateral is typically transferred within one
business day based on the values of the related derivatives.
146 Freddie Mac