PNC Bank 2011 Annual Report Download - page 134

M ARKET S TREET
Market Street Funding LLC (Market Street) is a multi-seller
asset-backed commercial paper conduit that is owned by an
independent third-party. Market Street’s activities primarily
involve purchasing assets or making loans secured by interests
in pools of receivables from US corporations that desire
access to the commercial paper market. Market Street funds
the purchases of assets or loans by issuing commercial paper
and is supported by pool-specific credit enhancements,
liquidity facilities and program-level credit enhancement.
Generally, Market Street mitigates its potential interest rate
risk by entering into agreements with its borrowers that reflect
interest rates based upon its weighted-average commercial
paper cost of funds. During 2011 and 2010, Market Street met
all of its funding needs through the issuance of commercial
paper.
PNC Bank, N.A. provides certain administrative services, the
program-level credit enhancement and all of the liquidity
facilities to Market Street in exchange for fees negotiated
based on market rates. Through these arrangements, PNC
Bank, N.A. has the power to direct the activities of the SPE
that most significantly affect its economic performance and
these arrangements expose PNC Bank, N.A. to expected
losses or residual returns that are significant to Market Street.
The commercial paper obligations at December 31, 2011 and
December 31, 2010 were supported by Market Street’s assets.
While PNC Bank, N.A. may be obligated to fund under the
$8.3 billion of liquidity facilities for events such as
commercial paper market disruptions, borrower bankruptcies,
collateral deficiencies or covenant violations, our credit risk
under the liquidity facilities is secondary to the risk of first
loss provided by the borrower such as by the over-
collateralization of the assets or by another third-party in the
form of deal-specific credit enhancement. Deal-specific credit
enhancement that supports the commercial paper issued by
Market Street is generally structured to cover a multiple of
expected losses for the pool of assets and is sized to generally
meet rating agency standards for comparably structured
transactions. In addition, PNC Bank, N.A. would be required
to fund $1.5 billion of the liquidity facilities regardless of
whether the underlying assets are in default. Market Street
creditors have no direct recourse to PNC Bank, N.A.
PNC Bank, N.A. provides program-level credit enhancement
to cover net losses in the amount of 10% of commitments,
excluding explicitly rated AAA/Aaa facilities. PNC Bank,
N.A. provides 100% of the enhancement in the form of a cash
collateral account funded by a loan facility. This facility
expires in June 2016. At December 31, 2011, $857 million
was outstanding on this facility. This amount is eliminated in
PNC’s Consolidated Balance Sheet as we consolidate Market
Street. We are not required to nor have we provided additional
financial support to the SPE.
C
REDIT C ARD S ECURITIZATION T RUST
We are the sponsor of several credit card securitizations
facilitated through a trust. This bankruptcy-remote SPE or
VIE was established to purchase credit card receivables from
the sponsor and to issue and sell asset-backed securities
created by it to independent third-parties. The SPE was
financed primarily through the sale of these asset-backed
securities. These transactions were originally structured as a
form of liquidity and to afford favorable capital treatment. At
December 31, 2011, only Series 2007-1 issued by the SPE was
outstanding. Series 2006-1 and 2008-3 were paid off during
the first and second quarters of 2011, respectively.
Our continuing involvement in these securitization
transactions consists primarily of holding certain retained
interests and acting as the primary servicer. For the remaining
securitization series, our retained interests held are in the form
of a pro-rata undivided interest, or sellers’ interest, in the
transferred receivables, subordinated tranches of asset-backed
securities, interest-only strips, discount receivables, and
subordinated interests in accrued interest and fees in
securitized receivables. We have consolidated the SPE as we
are deemed the primary beneficiary of the entity based upon
our level of continuing involvement. Our role as primary
servicer gives us the power to direct the activities of the SPE
that most significantly affect its economic performance and
our holding of retained interests gives us the obligation to
absorb or receive expected losses or residual returns that are
significant to the SPE. Accordingly, all retained interests held
in the credit card SPE are eliminated in consolidation. The
underlying assets of the consolidated SPE are restricted only
for payment of the beneficial interest issued by the SPE. We
are not required to nor have we provided additional financial
support to the SPE. Additionally, creditors of the SPE have no
direct recourse to PNC.
T AX C REDIT I NVESTMENTS
We make certain equity investments in various limited
partnerships or limited liability companies (LLCs) that
sponsor affordable housing projects utilizing the LIHTC
pursuant to Sections 42 and 47 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 investments 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 combination of debt and
equity. We typically invest in these partnerships as a limited
partner or non-managing member. We make similar
investments in other types of tax credit investments.
Also, we are a national syndicator of affordable housing
equity (together with the investments described above, the
LIHTC investments). In these syndication transactions, we
create funds in which our subsidiaries are the general partner
The PNC Financial Services Group, Inc. – Form 10-K 125