MoneyGram 2009 Annual Report Download - page 54

Table of Contents
Credit Risk
Credit risk, or the potential risk that we may not collect amounts owed to us, affects our business primarily through receivables,
investments and derivative financial instruments. In addition, the concentration of our cash, cash equivalents and investments at large
financial institutions exposes us to credit risk.
Financial Institution Risk — Our cash, cash equivalents and investments are concentrated at a few large financial institutions. These
institutions act as custodians for our asset accounts, serve as counterparties to our foreign currency transactions and conduct cash
transfers on our behalf for the purpose of clearing our payment instruments and related agent receivables and agent payables. Through
certain check clearing agreements and other contracts, we are required to utilize several of these financial institutions; in certain cases, we
are required to maintain pre-defined levels of cash, cash equivalents and investments at these financial institutions overnight. As a result
of the credit market crisis, several financial institutions have faced capital and liquidity issues which led them to restrict credit exposure.
We manage financial institution risk by entering into clearing and cash management agreements with only major financial institutions
and regularly monitoring the credit ratings of these financial institutions. Our financial institution risk is further mitigated as the majority
of our cash equivalents and investments held by these institutions are invested in securities issued by United States government agencies
or money market instruments collateralized by United States government agencies, which have the implicit or explicit guarantee of the
United States government depending upon the issuing agency. Our non-interest bearing cash held at our domestic clearing and cash
management banks is covered under the Temporary Liquidity Guarantee Program ("TLGP") as those banks opted in to the program. The
Federal Deposit Insurance Corporation ("FDIC") has created the TLGP program to strengthen confidence and encourage liquidity in the
banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts and certain holding companies and providing full
coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount. In addition, official checks issued by our
financial institution customers are treated as deposits under the TLGP. Components of TLGP have been extended into 2010. With respect
to our credit union customers, our credit exposure is partially mitigated by National Credit Union Administration insurance. However, as
our credit union customers are not insured by a TLGP-equivalent program, we have required certain credit union customers to provide us
with larger balances on deposit and/or to issue cashier's checks only. While the value of these assets are not at risk in a disruption or
collapse of a counterparty financial institution, the delay in accessing our assets could adversely affect our liquidity and potentially our
earnings depending upon the severity of the delay and corrective actions we may need to take. Corrective actions could include draws
upon our Senior Facility to provide short-term liquidity until our assets are released, reimbursements of costs or payment of penalties to
our agents and higher banking fees to transition banking relationships in a short timeframe.
At December 31, 2009, we held $1.7 billion, or 41 percent of our investment portfolio, in cash accounts at 11 financial institutions with a
rating of BBB or better, time deposits at two financial institutions with a rating of AA or better and a certificate of deposit at one financial
institution with a rating of AA or better. We held another $1.9 billion, or 47 percent of our investment portfolio, in cash equivalents
collateralized by securities issued by United States government agencies at eight financial institutions. Our trading and available-for-sale
investments totaling $325.6 million, or 8 percent of our investment portfolio, are held at three financial institutions with a rating of AA or
better. The remaining $171.7 million, or 4 percent, of our investment portfolio is composed of cash and cash equivalents held at foreign
banks for use by our international subsidiaries and branches or to comply with local requirements.
Receivables — Credit risk related to receivables is the risk that we are unable to collect the funds owed to us by our agents and financial
institution customers who have collected the principal amount and fees associated with the sale of our payment instruments from the
consumer on our behalf. Substantially all of the business conducted by our Global Funds Transfer segment is conducted through
independent agents, while the business conducted by the Financial Paper Products segment is conducted through both independent
financial institution customers and agents. Our agents and financial institution customers receive the principal amount and fees related to
the sale of our payment instruments, and we must then collect these funds from them. As a result, we have credit exposure to our agents
and financial institution customers. Agents typically have from one to three days to remit the funds, with longer remittance schedules
granted to international agents and certain domestic agents. As of December 31, 2009, we had credit exposure to our agents of
$436.4 million in the aggregate spread across over 14,000 agents, of which
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