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Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
result of this realignment, substantially all of the portfolio is invested in cash and cash equivalents as of December 31, 2008. Components
of our investment portfolio as of December 31, 2008 are as follows:
Fair
(Amounts in thousands) Value
Cash $ 1,575,601
Money Markets 1,626,788
Time Deposits 874,992
Cash and cash equivalents 4,077,381
Trading investments 21,485
Available-for-sale investments 438,774
Total Investment Portfolio $ 4,537,640
Cash and Cash Equivalents — Cash and cash equivalents consist of cash, money-market securities and time deposits. Cash primarily
consists of interest-bearing deposit accounts and clearing accounts. The Company's money-market securities are invested in nine funds,
all of which are AAA rated and are comprised of U.S. Treasury bills, notes or other obligations issued or guaranteed by the
U.S. government and its agencies, as well as repurchase agreements secured by such instruments. The time deposits have maturities no
longer than six weeks and are issued from well-established financial institutions that are rated AA as of the date of this filing.
Trading Investments — Trading investments have historically consisted of auction rate securities, which are publicly issued securities
with long-term stated maturities for which the interest rates are reset periodically through an auction process. At the end of each reset
period, investors can sell or continue to hold the securities at par. The Company's auction rate securities were insured by monolines and
collateralized by commercial paper with a rating of A-1/P-1 and original maturities of less than 28 days. The auction rate securities also
had contractual maturities in the year 2049 and auction dates typically every 28 days.
All of the Company's auction rate securities have had failed auctions during 2008 due to sell orders exceeding buy orders. Under the
contractual terms, the issuer of the auction rate security is obligated to pay penalty rates should an auction fail. In addition, the monoline
insurer has the right to replace the auction rate security with the insurer's preferred stock (the "preferred put option"), which would
effectively convert the Company's security into a long-term, less liquid investment. During 2008, the credit rating agencies downgraded
and/or placed several monoline insurers on negative credit watch due to concerns over their capital position. A rating downgrade is
viewed by the market as an indicator that it is more likely the insurer would exercise its preferred put option, and negatively impacts the
fair value of an auction rate security. In December 2008, two of the monoline insurers of the auction rate securities held by the Company
exercised their preferred put options. As a result of the exercise of the preferred put options, the Company now holds one auction rate
security collateralized by commercial paper with a rating of A-1/P-1 and original maturities of less than 28 days; one auction rate security
collateralized by perpetual preferred stock issued by the monoline insurer and paying a discretionary dividend; and perpetual preferred
stock of a monoline insurer with a discretionary dividend. The combined fair value of the trading investments is $21.5 million on a par
value of $62.3 million. Due to the failed auctions, general disruption of the credit markets and concerns regarding the capital position of
the monoline insurers and their intent to pay dividends on their preferred stock, the Company recorded an unrealized loss on its trading
investments of $40.6 million in "Net securities losses" in the Consolidated Statements of (Loss) Income for 2008 as compared to
$0.2 million in 2007. The Company has received all contractual interest payments, including the penalty rate payments, as of the date of
this filing.
During the fourth quarter 2008, the Company opted in to a buy-back program sponsored by the trading firm that sold the Company all
three of its original auction rate securities. Under this program, the Company received the right to require the trading firm to redeem the
securities at full par value beginning June 30, 2010 through June 30, 2012 (the "put options"). The trading firm maintains the right to
purchase the securities at any time through June 30, 2012 and
F-27