Goldman Sachs 2007 Annual Report Download - page 116

Notes to Consolidated Financial Statements
LETTERS OF CREDIT. The firm provides letters of credit issued
by various banks to counterparties in lieu of securities or cash
to satisfy various collateral and margin deposit requirements.
Letters of credit outstanding were $8.75 billion and $5.73 billion
as of November 2007 and November 2006, respectively.
INVESTMENT COMMITMENTS. In connection with its merchant
banking and other investing activities, the firm invests in private
equity, real estate and other assets directly and through funds
that it raises and manages. In connection with these activities,
the firm had commitments to invest up to $17.76 billion and
$8.24 billion as of November 2007 and November 2006,
respectively, including $12.32 billion and $4.41 billion, respectively,
of commitments to invest in funds managed by the firm.
CONSTRUCTION-RELATED COMMITMENTS. As of November 2007
and November 2006, the firm had construction-related
commitments of $769 million and $1.63 billion, respectively,
including outstanding commitments of $642 million and
$500 million as of November 2007 and November 2006,
respectively, related to the firm’s new world headquarters in
New York City, which is expected to cost between $2.3 billion
and $2.5 billion. The firm is partially financing this construction
project with tax-exempt Liberty Bonds. The firm borrowed
approximately $1.40 billion and approximately $250 million
in 2005 and 2007, respectively, through the issuance of
Liberty Bonds.
UNDERWRITING COMMITMENTS. As of November 2007 and
November 2006, the firm had commitments to purchase
$88 million and $2.62 billion, respectively, of securities in
connection with its underwriting activities.
OTHER. The firm had other purchase commitments of $420 million
and $393 million as of November 2007 and November 2006,
respectively.
In addition, the firm entered into an agreement in 2007 to
acquire Litton Loan Servicing LP (Litton), the mortgage servicing
unit of Credit-Based Asset Servicing and Securitization LLC
(C-BASS). The transaction closed in December 2007 at a purchase
price of $428 million, plus the repayment of $916 million of
outstanding Litton debt obligations.
■ WILLIAM STREET PROGRAM. Substantially all of the
commitments provided under the William Street credit
extension program are to investment-grade corporate
borrowers. Commitments under the program are extended
by William Street Commitment Corporation (Commitment
Corp.), a consolidated wholly owned subsidiary of Group Inc.
whose assets and liabilities are legally separated from
other assets and liabilities of the firm, William Street Credit
Corporation, GS Bank USA, Goldman Sachs Credit
Partners L.P. or other consolidated wholly owned subsidiaries
of Group Inc. The commitments extended by Commitment
Corp. are supported, in part, by funding raised by William
Street Funding Corporation (Funding Corp.), another
consolidated wholly owned subsidiary of Group Inc. whose
assets and liabilities are also legally separated from other
assets and liabilities of the firm. The assets of Commitment
Corp. and of Funding Corp. will not be available to their
respective shareholders until the claims of their respective
creditors have been paid. In addition, no affiliate of either
Commitment Corp. or Funding Corp., except in limited cases
as expressly agreed in writing, is responsible for any
obligation of either entity. With respect to most of the William
Street commitments, Sumitomo Mitsui Financial Group, Inc.
(SMFG) provides the firm with credit loss protection that is
generally limited to 95% of the first loss the firm realizes on
approved loan commitments, up to a maximum of $1.00 billion.
In addition, subject to the satisfaction of certain conditions,
upon the firm’s request, SMFG will provide protection for
70% of the second loss on such commitments, up to a
maximum of $1.13 billion. The firm also uses other financial
instruments to mitigate credit risks related to certain William
Street commitments not covered by SMFG.
■ WAREHOUSE FINANCING. The firm provides financing for the
warehousing of financial assets to be securitized. These
financings are expected to be repaid from the proceeds of
the related securitizations for which the firm may or may not
act as underwriter. These arrangements are secured by the
warehoused assets, primarily consisting of corporate bank
loans and commercial mortgages as of November 2007
and residential mortgages and mortgage-backed securities,
corporate bank loans and commercial mortgages as of
November 2006. In connection with its warehouse financing
activities, the firm had loans of $44 million collateralized by
subprime mortgages as of November 2007.
114 Goldman Sachs 2007 Annual Report