Sallie Mae 2008 Annual Report Download - page 178

9. Derivative Financial Instruments (Continued)
counterparties that are reviewed periodically by the Company’s credit department. The Company also
maintains a policy of requiring that all derivative contracts be governed by an International Swaps and
Derivative Association Master Agreement. Depending on the nature of the derivative transaction, bilateral
collateral arrangements generally are required as well. When the Company has more than one outstanding
derivative transaction with the counterparty, and there exists legally enforceable netting provisions with the
counterparty (i.e. a legal right to offset receivable and payable derivative contracts), the “net” mark-to-market
exposure represents the netting of the positive and negative exposures with the same counterparty. When there
is a net negative exposure, the Company considers its exposure to the counterparty to be zero. At December 31,
2008 and 2007, the Company had a net positive exposure (derivative gain positions to the Company less
collateral which has been posted by counterparties to the Company) related to corporate derivatives of
$234 million and $463 million, respectively.
The Company’s on-balance sheet securitization trusts have $11.0 billion of Euro and British Pound
Sterling denominated bonds outstanding as of December 31, 2008. To convert these non-U.S. dollar denomi-
nated bonds into U.S. dollar liabilities, the trusts have entered into foreign-currency swaps with highly-rated
counterparties. As of December 31, 2008, the net positive exposure on these swaps is $926 million. As
previously discussed, the Company’s corporate derivatives contain provisions which require collateral to be
posted on a regular basis for changes in market values. The on-balance sheet trusts’ derivatives are structured
such that swap counterparties are required to post collateral if their credit rating has been withdrawn or is
below a certain level. If the swap counterparty does not post the required collateral or is downgraded further,
the counterparty must find a suitable replacement counterparty or provide the trust with a letter of credit or a
guaranty from an entity that has the required credit ratings. In addition to the credit rating requirement, trusts
issued after November 2005 require the counterparty to post collateral due to a net positive exposure on cross-
currency interest rate swaps, irrespective of their counterparty rating. The trusts, however, are not required to
post collateral to the counterparty.
F-58
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)