MoneyGram 2008 Annual Report Download - page 98

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
portfolio. The Company follows the accounting guidance in SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities, to determine whether SPEs are qualifying SPEs (a "QSPE"). A QSPE is an entity with significantly
limited permissible activities which are entirely specified in the legal documents establishing the SPE and may only be significantly
changed with the approval of the holders of at least a majority of the beneficial interests held by parties other than the sponsoring
company. If the Company has a variable interest in a QSPE, or is a sponsor of a SPE that does not meet the criteria required to be a
QSPE, the Company follows the accounting guidance in Financial Interpretation ("FIN") 46R, Consolidation of Variable Interest
Entities, to determine if the Company is required to consolidate the SPE.
Working in cooperation with certain financial institutions, the Company has established separate consolidated entities (SPEs) that provide
these financial institutions with additional assurance of our ability to clear their official checks. As the Company has determined these
SPEs meet the definition of a variable interest entity under FIN 46R, they are consolidated in its Consolidated Financial Statements. The
assets of the SPEs are recorded in the Consolidated Balance Sheets in a manner consistent with the assets of the Company based on the
nature of the asset. The Company remains liable to satisfy the obligations of the SPEs, both contractually and by operation of the
Uniform Commercial Code, as issuer and drawer of the official checks. Accordingly, the obligations have been recorded in the
Consolidated Balance Sheets under "Payment service obligations." The investment revenue generated by the assets of the SPEs is
recorded within the Payment Systems segment in the Consolidated Statement of (Loss) Income. The Company's four SPEs had cash, cash
equivalents and investments of approximately $281.2 million and $1.9 billion and payment service obligations of approximately
$239.8 million and $1.7 billion for the years ending December 31, 2008 and December 31, 2007, respectively.
In connection with the SPEs, the Company must maintain certain specified ratios of segregated investments to outstanding payment
instruments, typically 1 to 1. These specified ratios require the Company to contribute additional assets if the fair value of the segregated
assets is less than the outstanding payment instruments at any time. Since the realignment of its investment portfolio during the first
quarter of 2008, substantially all of the Company's portfolio is invested in cash and cash equivalents; therefore, the Company does not
anticipate having to contribute additional assets in the future to maintain the specified ratios as required by the SPEs. Under certain
limited circumstances, the related financial institution customers have the right to either demand liquidation of the segregated assets or to
replace the Company as the administrator of the SPE. Such limited circumstances consist of material (and in most cases continued)
failure of MoneyGram to uphold its warranties and obligations pursuant to its underlying agreements with the financial institution
customers. While an orderly liquidation of assets would be required, any of these actions by the financial institution customer could
nonetheless diminish the value of the total investment portfolio, decrease earnings and result in the loss of the financial institution
customer or other customers or prospects.
Certain structured investments owned by the Company represent beneficial interests in grantor trusts or other similar entities. These trusts
typically contain an investment grade security, generally a U.S. Treasury strip, and an investment in the residual interest in a
collateralized debt obligation, or in some cases, a limited partnership interest. For certain of these trusts, the Company owns a percentage
of the beneficial interests which results in the Company absorbing a majority of the expected losses. Therefore, the Company
consolidates these trusts by recording and accounting for the assets of the trust separately in the Consolidated Financial Statements.
In July 2006, the Company sold investment 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, Accounting for Certain Investments in Debt and Equity Securities. At December 31, 2008 and 2007, the
fair value of the preferred shares was zero and $7.8 million, respectively. In addition, a
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