GE 2013 Annual Report Download - page 132

130 GE 2013 ANNUAL REPORT
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agreements, each party also has the ability to require termina-
tion if the short-term rating of the counterparty were to fall below
A-1/P-1. Our master agreements also typically contain provisions
that provide termination rights upon the occurrence of certain
other events, such as a bankruptcy or events of default by one
of the parties. If an agreement was terminated under any of
these circumstances, the termination amount payable would be
determined on a net basis and could also take into account any
collateral posted. The net amount of our derivative liability, after
consideration of collateral posted by us and outstanding interest
payments was $1,234 million at December 31, 2013. This excludes
embedded derivatives.
Note 23.
Variable Interest Entities
We use variable interest entities primarily to securitize fi nancial
assets and arrange other forms of asset-backed fi nancing in
the ordinary course of business. Except as noted below, inves-
tors in these entities only have recourse to the assets owned by
the entity and not to our general credit. We do not have implicit
support arrangements with any VIE. We did not provide non-con-
tractual support for previously transferred fi nancing receivables
to any VIE in 2013 or 2012.
In evaluating whether we have the power to direct the
activities of a VIE that most signifi cantly impact its economic
performance, we consider the purpose for which the VIE was
created, the importance of each of the activities in which it is
engaged and our decision-making role, if any, in those activities
that signifi cantly determine the entity’s economic performance
as compared to other economic interest holders. This evaluation
requires consideration of all facts and circumstances relevant to
decision-making that affects the entity’s future performance and
the exercise of professional judgment in deciding which decision-
making rights are most important.
In determining whether we have the right to receive benefi ts
or the obligation to absorb losses that could potentially be signifi -
cant to the VIE, we evaluate all of our economic interests in the
entity, regardless of form (debt, equity, management and servic-
ing fees, and other contractual arrangements). This evaluation
considers all relevant factors of the entity’s design, including: the
entity’s capital structure, contractual rights to earnings (losses),
subordination of our interests relative to those of other investors,
contingent payments, as well as other contractual arrangements
that have the potential to be economically signifi cant. The evalu-
ation of each of these factors in reaching a conclusion about the
potential signifi cance of our economic interests is a matter that
requires the exercise of professional judgment.
Consolidated Variable Interest Entities
We consolidate VIEs because we have the power to direct the
activities that signifi cantly affect the VIEs economic performance,
typically because of our role as either servicer or manager for the
VIE. Our consolidated VIEs fall into three main groups, which are
further described below:
• Trinity comprises two consolidated entities that hold invest-
ment securities, the majority of which are investment grade,
and were funded by the issuance of GICs. The GICs included
conditions under which certain holders could require immedi-
ate repayment of their investment should the long-term credit
ratings of GECC fall below AA-/Aa3 or the short-term credit
ratings fall below A-1+/P-1. The outstanding GICs are subject
to their scheduled maturities and individual terms, which may
include provisions permitting redemption upon a downgrade
of one or more of GECC’s ratings, among other things, and
are reported in investment contracts, insurance liabilities and
insurance annuity benefi ts.
• Consolidated Securitization Entities (CSEs) were created to
facilitate securitization of fi nancial assets and other forms of
asset-backed fi nancing that serve as an alternative funding
source by providing access to variable funding notes and term
markets. The securitization transactions executed with these
entities are similar to those used by many fi nancial institutions
and substantially all are non-recourse. We provide servicing
for substantially all of the assets in these entities.
The fi nancing receivables in these entities have similar risks
and characteristics to our other fi nancing receivables and
were underwritten to the same standard. Accordingly, the
performance of these assets has been similar to our other
fi nancing receivables; however, the blended performance of
the pools of receivables in these entities refl ects the eligibil-
ity criteria that we apply to determine which receivables are
selected for transfer. Contractually the cash fl ows from these
fi nancing receivables must fi rst be used to pay third-party
debt holders as well as other expenses of the entity. Excess
cash fl ows are available to GE. The creditors of these entities
have no claim on other assets of GE.
• Other remaining assets and liabilities of consolidated VIEs
relate primarily to three categories of entities: (1) joint ven-
tures that lease equipment of $1,539 million of assets and
$727 million of liabilities; (2) other entities that are involved
in power generating and leasing activities of $762 million of
assets and no liabilities; and (3) insurance entities that, among
other lines of business, provide property and casualty and
workers’ compensation coverage for GE of $1,209 million of
assets and $566 million of liabilities.