Freddie Mac 2010 Annual Report Download - page 119

Table 41 — 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
(6)
December 31, 2010
(dollars in millions)
AA............................ 3 $ 53,975 $ — $ — 6.8 $10 million or less
AA⫺........................... 4 270,694 1,668 29 6.4 $10 million or less
A+ ............................ 7 441,004 460 1 6.2 $1 million or less
A ............................. 3 177,277 16 2 5.2 $1 million or less
Subtotal
(7)
....................... 17 942,950 2,144 32 6.1
Other derivatives
(8)
................. 244,640 — —
Commitments
(9)
.................... 14,292 103 103
Swap guarantee derivatives ............ 3,614 — —
Total derivatives
(10)
................. $1,205,496 $2,247 $135
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
(6)
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
(7)
....................... 19 1,009,893 3,214 128 5.9
Other derivatives
(8)
................. 199,018 — —
Commitments
(9)
.................... 13,872 81 81
Swap guarantee derivatives ............ 3,521 — —
Total derivatives
(10)
................. $1,226,304 $3,295 $209
(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) 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.
(7) Consists of OTC derivative agreements for interest-rate swaps, option-based derivatives (excluding certain written options), foreign-currency swaps, and
purchased interest-rate caps.
(8) 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.
(9) Commitments include: (a) our commitments to purchase and sell investments in securities; and (b) our commitments to purchase and extinguish or
issue debt securities of our consolidated trusts.
(10) The difference between the exposure, net of collateral column above and derivative assets, net on our consolidated balance sheets primarily represents
exchange-traded contracts which are settled daily through a clearinghouse, and thus, do not present counterparty credit exposure.
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. If all of our counterparties for these derivatives defaulted simultaneously on December 31, 2010, our
uncollateralized exposure to these counterparties, or our maximum loss for accounting purposes after applying netting
agreements and collateral, would have been approximately $32 million. Our uncollateralized exposure as of December 31,
2009 was $128 million. One of our counterparties, HSBC Bank USA, which was rated AA- as of February 11, 2011,
accounted for greater than 10% of our net uncollateralized exposure to derivatives counterparties at December 31, 2010.
As indicated in Table 41, approximately 99% 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, 2010. 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.
116 Freddie Mac