PNC Bank 2005 Annual Report Download - page 32

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limited. All of Market Street’ s assets at December
31, 2005 and 2004 collateralize the commercial
paper obligations. For the most part, PNC is not
required to fund under the liquidity facilities if
Market Street’ s assets are in default. Our
obligations are secondary to the risk of first loss
provided by the sellers or another third party.
Neither creditors nor equity investors in Market
Street have any recourse to our general credit. PNC
received program administrator fees and
commitment fees related to PNC’ s portion of the
liquidity facilities of $9.5 million and $3 million,
respectively, for the year ended December 31,
2005.
.
Under the provisions of FASB Interpretation No.
46, “Consolidation of Variable Interest Entities
(“FIN 46”), we consolidated Market Street
effective July 1, 2003 as we were deemed the
primary beneficiary of Market Street. In October
2005, Market Street was restructured as a limited
liability company and entered into a subordinated
Note Purchase Agreement (“Note”) with an
unrelated third party. The principal amount of
the Note was increased to $4.6 million by
December 31, 2005 and has an original maturity
of eight years. The Note bears interest at 18%
with any penalty interest/fees charged by Market
Street on specific transactions accruing to the
benefit of the Note holder. Proceeds from the
is suance of the Note were placed in a first loss
reserve account that may be used to reimburse
any losses incurred by Market Street, PNC Bank,
N.A. or other providers under the liquidity
facilities and the credit enhancement
arrangements. As a result of the Note issuance,
we reevaluated whether PNC continued to be the
primary beneficiary of Market Street under the
provisions of FIN 46R. Based on this analysis,
we determined that we were no longer the
primary beneficiary and deconsolidated Market
Street from our Consolidated Balance Sheet
effective October 17, 2005.
• We make certain equity investments in various
limited partnerships that sponsor affordable
housing projects utilizing the Low Income
Housing Tax Credit (“LIHTC”) pursuant to
Section 42 of the Internal Revenue Code. The
purpose of these investments is to achieve a
satisfactory return on capital, to facilitate the sale
of additional affordable housing product offerings
and to assist us in achieving goals associated with
the Community Reinvestment Act. The primary
activities of the limited partnerships include the
identification, development and operation of
multi-family housing that is leased to qualifying
residential tenants. Generally, these types of
investments are funded through a comb ination of
debt and equity, with equity typically comprising
30% to 60% of the total project capital.
We consolidated those LIHTC investments in
which we own a majority of the limited
partnership interests. We also consolidated
entities in which we, as a national syndicator of
affordable housing equity, serve as the general
partner (together with the aforementioned LIHTC
investments), and no other entity owns a majority
of the limited partnership interests. In these
syndication transactions, we create funds in
which our subsidiary is the general partner and
sells limited partnership interests to third parties,
and in some cases may also purchase a limited
partnership interest in the fund. The fund’ s
limited partners can generally remove the general
partner without cause at any time. The purpose of
this business is to generate income from the
syndication of these funds and to generate
servicing fees by managing the funds. General
partner activities include selecting, evaluating,
structuring, negotiating, and closing the fund
investments in operating limited partnerships, as
well as oversight of the ongoing operations of the
fund portfolio. The assets are primarily included
in Other assets on our Consolidated Balance
Sheet. Neither creditors nor equity investors in
the LIHTC investments have any recourse to our
general credit. The consolidated aggregate assets
and debt of these LIHTC investments are
provided in the Consolidated VIEs – PNC Is
Primary Beneficiary table and reflected in the
Corporate & Institutional Banking business
segment.
We have a significant variable interest in certain
other limited partnerships that sponsor affordable
housing projects. We do not own a majority of
the limited partnership interests in these entities
and are not the primary beneficiary. We use the
equity method to account for our investment in
these entities. Information regarding these
partnership interests is reflected in the Non-
Consolidated VIEs – Significant Variable
Interests table.
We also have subsidiaries that invest in and act as the
investment manager for a private equity fund that is
organized as a limited partnership as part of our equity
management activities. The fund invests in private equity
investments to generate capital appreciation and profits. As
permitted by FIN 46R, we have deferred applying the
provisions of the interpretation for this entity pending
further action by the FASB. Information on this entity
follows:
Investment Company Accounting – Deferred Application
In millions
Aggregate
Assets
Aggregate
Equity
PNC Risk
of Loss
Private Equity Fund
December 31, 2005 $109 $109 $25
December 31, 2004 $78 $76 $20