MoneyGram 2007 Annual Report Download - page 97

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Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Gross realized gains and losses on sales of investments, using the specific identification method, and other-than-temporary impairments
were as follows for the year ended December 31:
(Amounts in thousands) 2007 2006 2005
Gross realized gains $ 5,611 $ 5,080 $ 7,378
Gross realized losses (2,157) (2,653) (4,535)
Other-than-temporary impairments (1,193,210) (5,238) (6,552)
Net securities losses $ (1,189,756) $ (2,811) $ (3,709)
Through September 30, 2007, the Company recognized $6.1 million of other-than-temporary impairments due to adverse changes in cash
flows resulting from rating downgrades on the collateral securities underlying the Company's investment, as well as widening spreads in
the commercial paper market.
In late November and December 2007, the asset-backed securities and credit markets experienced substantial deterioration due to
increasing concerns over defaults on mortgages and debt in general, as well as an increasingly negative view towards all structured
investments and the credit market in general. This deterioration caused the market to demand higher risk premiums and liquidity
discounts on asset-backed securities, as well as assume higher rates of defaults than previously anticipated. As a result, the fair value for
asset-backed securities in general substantially declined from the September and October 2007 levels. In addition, the rating agencies
continued their review of securities, issuing broad rating downgrades based on high levels of assumed future defaults. Under the terms of
most asset-backed securities, ratings downgrades of collateral securities can reduce the cash flows to all but the most senior investors
even if there have been no actual losses incurred by the collateral securities. Based on these developments, the Company believes that it is
probable that actual losses would have been incurred by many of its asset-backed securities in the future. However, the Company believes
that the impact of broad rating downgrades combined with the uncertainty in the marketplace caused these losses to accelerate and be
higher than what may ultimately be realized by the underlying collateral securities.
In connection with the Capital Transaction described in Note 1 — Description of the Business and Note 18 — Subsequent Events, the
Company commenced a plan in January 2008 to realign its investment portfolio away from asset-backed securities and into highly liquid
assets through the sale of a substantial portion of the investment portfolio. Based on these developments, the Company determined that it
no longer had the intent to hold substantially all of its investments classified as "Obligations of states and political subdivisions,"
"Commercial mortgage-backed securities," "Residential mortgage-backed securities," "Other asset-backed securities," "Corporate debt
securities" and "Preferred and common stock."
F-23