MoneyGram 2009 Annual Report Download - page 88

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
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 United States 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.
Management Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could
differ from those estimates.
Substantially Restricted — The Company's licensed entity MPSI is regulated by various state agencies that generally require the
Company to maintain a pool of assets with an investment rating of A or higher ("permissible investments") in an amount generally equal
to the payment service obligations, as defined by each state, for those regulated payment instruments, namely teller checks, agent checks,
money orders and money transfers. The regulatory payment service assets measure varies by state, but in all cases excludes investments
rated below A-. The most restrictive states may also exclude assets held at banks that do not belong to a national insurance program,
varying amounts of accounts receivable balances and/or assets held in one of the SPEs. The regulatory payment service obligations
measure varies by state, but in all cases is substantially lower than the Company's payment service obligations as disclosed in the
Consolidated Balance Sheets as the Company is not regulated by state agencies for payment service obligations resulting from
outstanding cashier's checks or for amounts payable to agents and brokers.
In connection with the credit facilities, one clearing bank agreement and the SPEs, the Company also has certain financial covenants that
require it to maintain pre-defined ratios of certain assets to payment service obligations. The financial covenants under the credit facilities
are described in Note 10 — Debt. One clearing bank agreement has financial covenants that include the maintenance of total cash, cash
equivalents, receivables and investments in an amount at least equal to payment service obligations, as disclosed in the Consolidated
Balance Sheets, as well as the maintenance of a minimum 103 percent ratio of total assets held at that bank to instruments estimated to
clear through that bank. Financial covenants related to the SPEs include the maintenance of specified ratios of cash, cash equivalents and
investments held in the SPE to the outstanding payment instruments issued by the related financial institution customer.
The regulatory and contractual requirements do not require the Company to specify individual assets held to meet its payment service
obligations, nor is the Company required to deposit specific assets into a trust, escrow or other special account. Rather, the Company
must maintain a pool of liquid assets sufficient to comply with the requirements. No third party places limitations, legal or otherwise, on
the Company regarding the use of its individual liquid assets. The Company is able to withdraw, deposit or sell its individual liquid assets
at will, with no prior notice or penalty, provided the Company maintains a total pool of liquid assets sufficient to meet the regulatory and
contractual requirements.
The Company is not regulated by state agencies for payment service obligations resulting from outstanding cashier's checks; however, the
Company restricts a portion of the funds related to these payment instruments due to contractual arrangements and Company policy.
Assets restricted for regulatory or contractual reasons are not available to satisfy working capital or other financing requirements.
Consequently, the Company considers a significant amount of cash and cash equivalents, receivables and investments to be restricted to
satisfy the liability to pay the principal amount of regulated payment service obligations upon presentment. Cash and cash equivalents,
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