Goldman Sachs 2007 Annual Report Download - page 115

Notes to Consolidated Financial Statements
NOTE 6
Commitments, Contingencies
and Guarantees
Commitments
FORWARD STARTING COLLATERALIZED AGREEMENTS AND
FINANCINGS. The firm had forward starting resale agreements
and securities borrowing agreements of $28.14 billion and
$18.29 billion as of November 2007 and November 2006,
respectively. The firm had forward starting repurchase
agreements and securities lending agreements of $15.39 billion
and $17.15 billion as of November 2007 and November 2006,
respectively.
COMMITMENTS TO EXTEND CREDIT. In connection with its
lending activities, the firm had outstanding commitments to
extend credit of $82.75 billion and $100.48 billion as of
November 2007 and November 2006, respectively. The firm’s
commitments to extend credit are agreements to lend to counter-
parties that have fixed termination dates and are contingent on
the satisfaction of all conditions to borrowing set forth in the
contract. Since these commitments may expire unused or be
reduced or cancelled at the counterparty’s request, the total
commitment amount does not necessarily reflect the actual future
cash flow requirements. The firm accounts for these commitments
at fair value. To the extent that the firm recognizes losses on
these commitments, such losses are recorded within the firm’s
Trading and Principal Investments segment net of any related
underwriting fees.
short-term in nature, as borrowers often seek to replace them
with other funding sources. Included within the non-investment-
grade amount as of November 2007 was $26.09 billion of
exposure to leveraged lending capital market transactions,
$3.50 billion related to commercial real estate transactions
and $12.34 billion arising from other unfunded credit
facilities. Included within the non-investment-grade amount
as of November 2006 was $39.68 billion of exposure to
leveraged lending capital market transactions, $12.11 billion
related to commercial real estate transactions and $5.23 billion
arising from other unfunded credit facilities.
The following table summarizes the firm’s commitments to extend credit as of November 2007 and November 2006:
Year Ended November
(in millions) 2007 2006
Commercial lending commitments
Investment-grade $11,719 $ 7,604
Non-investment-grade 41,930 57,017
William Street program 24,488 18,831
Warehouse financing 4,610 17,026
Total commitments to extend credit $82,747 $100,478
cause payment on the APEX to be deferred. During any such
extension period, the firm will not be permitted to, among
other things, pay dividends on or make certain repurchases of
its common or preferred stock. The junior subordinated notes are
junior in right of payment to all of the firm’s senior indebtedness
and all of the firm’s other subordinated borrowings.
In connection with the APEX issuance, the firm covenanted in
favor of certain of its debtholders, who are initially the holders
of the firm’s 6.345% Junior Subordinated Debentures due
February 15, 2034, that, subject to certain exceptions, the firm
would not redeem or purchase (i) the firm’s junior subordinated
debt issued to the APEX trusts prior to the applicable stock
purchase date or (ii) APEX or shares of the firm’s Series E or
Series F Preferred Stock prior to the date that is ten years after
the applicable stock purchase date, unless the applicable
redemption or purchase price does not exceed a maximum
amount determined by reference to the aggregate amount of
net cash proceeds that the firm has received from the sale of
qualifying equity securities during the 180 day period preceding
the redemption or purchase.
The firm has accounted for the stock purchase contracts as
equity instruments under EITF Issue No. 00-19, “Accounting
for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock,” and, accordingly, recorded
the cost of the stock purchase contracts as a reduction to
additional paid-in capital. See Note 7 for information on the
preferred stock that the firm will issue in connection with the
stock purchase contracts.
■ COMMERCIAL LENDING COMMITMENTS. The firm extends
commercial lending commitments primarily in connection
with contingent acquisition financing and other types of
corporate lending as well as commercial real estate financing.
The total commitment amount does not necessarily reflect
the actual future cash flow requirements, as the firm often
syndicates all or substantial portions of these commitments,
the commitments may expire unused, or the commitments
may be cancelled or reduced at the request of the counter-
party. In addition, commitments that are extended for
contingent acquisition financing are often intended to be
113Goldman Sachs 2007 Annual Report