MoneyGram 2006 Annual Report Download - page 79

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At December 31, 2005, the available-for-sale investments had the following aged unrealized losses:
Less than 12 months 12 months or More Total
Unrealized Unrealized Unrealized
(Amounts in thousands) Fair Value Losses Fair Value Losses Fair Value Losses
Obligations of states and political subdivisions $ 62,783 $ (529) $ — $ — $ 62,783 $ (529)
Commercial mortgage-backed securities 209,056 (1,572) 33,770 (663) 242,826 (2,235)
Residential mortgage-backed securities 1,081,400 (13,105) 375,400 (7,695) 1,456,800 (20,800)
Other asset-backed securities 656,313 (10,086) 75,813 (799) 732,126 (10,885)
U.S. government agencies 241,994 (3,327) 80,452 (1,947) 322,446 (5,274)
Corporate debt securities 104,438 (1,847) 30,719 (419) 135,157 (2,266)
Preferred and common stock 9,960 (40) 11,290 (3,174) 21,250 (3,214)
Total $ 2,365,944 $ (30,506) $ 607,444 $ (14,697) $ 2,973,388 $ (45,203)
The Company has determined that the unrealized losses reflected above represent temporary impairments. One hundred and eighty-eight
and 61 securities had unrealized losses for more than 12 months as of December 31, 2006 and 2005, respectively. The Company believes
that the unrealized losses generally are caused by liquidity discounts and risk premiums required by market participants in response to
temporary market conditions, rather than a fundamental weakness in the credit quality of the issuer or underlying assets or changes in the
expected cash flows from the investments. Temporary market conditions at December 31, 2006 are primarily due to changes in interest
rates. The Company has both the intent and ability to hold these investments to maturity.
Of the $43.1 million of unrealized losses at December 31, 2006, $0.1 million relates to one asset-backed security and one investment
grade security, which each have an unrealized loss greater than 20 percent of amortized cost. These securities were evaluated considering
factors such as the financial condition and near and long-term prospects of the issuer and deemed to be temporarily impaired. The
remaining $43.0 million relates to securities with an unrealized loss position of less than 20 percent of amortized cost, the degree of
which suggests that these securities do not pose a high risk of being other than temporarily impaired. Of the $43.0 million, $26.3 million
relates to unrealized losses on investment grade fixed income securities. Investment grade is defined as a security having a Moody's
equivalent rating of Aaa, Aa, A or Baa or a Standard & Poor's equivalent rating of AAA, AA, A or BBB. The remaining $16.7 million is
comprised of $6.6 million of U.S. government agency fixed income securities, $7.8 million of asset backed-backed securities and
$2.3 million of preferred securities.
In July 2006, the Company sold securities with a fair value of $259.7 million to one party (the "acquiring party") for a gain of
$0.1 million. No restrictions or constraints as to the future use of the securities were placed upon the acquiring party by the Company, nor
was the Company obligated under any scenario to repurchase securities from the acquiring party. In August 2006, the acquiring party sold
securities totaling $646.8 million to a QSPE, including substantially all of the securities originally purchased from the Company. The
Company acquired the preferred shares of the QSPE and accounts for this investment at fair value as an available-for-sale investment in
accordance with SFAS No. 115. At December 31, 2006, the fair value of the preferred shares was $7.8 million. In addition, a subsidiary
of the Company serves as the collateral advisor to the QSPE, receiving certain fees and rights standard to a collateral advisor role.
Activities performed by the collateral advisor are significantly limited and are entirely defined by the legal documents establishing the
QSPE. For performing these activities, the collateral advisor receives a quarterly fee equal to ten basis points on the fair value of the
collateral. The collateral advisor also received and recognized a one-time fee of $0.4 million in August 2006 for the placement of the
preferred shares of the QSPE.
The Company evaluated the sale of the securities under the accounting guidance of SFAS No. 140 to determine if the transfer of
securities to the acquiring party constituted a sale for accounting purposes, as well as to determine if the subsequent placement of the sold
securities into the QSPE by the acquiring party would be deemed a transfer of securities by the Company to the QSPE. Based upon the
terms of the sale to the acquiring party and legal documents relating to the
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