SunTrust 2005 Annual Report Download - page 97

SUNTRUST  ANNUAL REPORT 95
WHENISSUED SECURITIES
The Company enters into transactions involving “when-issued securities.”
When-issued securities are commitments to purchase or sell securities
authorized for issuance but not yet actually issued. Accordingly, they are
not recorded on the consolidated balance sheets until issued. Risks arise
from the possible inability of counterparties to meet the terms of their
contracts and from movements in securities values and interest rates. As
of December ,  and , the Company did not have any commit-
ments to purchase or sell when-issued securities.
VARIABLE INTEREST ENTITIES AND OFFBALANCE SHEET
ARRANGEMENTS
SunTrust assists in providing liquidity to select corporate clients by direct-
ing them to a multi-seller commercial paper conduit, Three Pillars Funding
LLC (“Three Pillars”). Three Pillars provides financing for direct purchases
of financial assets originated and serviced by SunTrust’s corporate clients.
Three Pillars finances this activity by issuing A-/P- rated commercial
paper. The result is a favorable funding arrangement for these clients.
Three Pillars has issued a subordinated note to a third party. The
holder of this note absorbs the majority of Three Pillars’ expected losses.
The subordinated note investor, therefore, is Three Pillars’ primary bene-
ficiary, and thus the Company is not required to consolidate Three Pillars.
As of December ,  and , Three Pillars had assets not included
on the Company’s Consolidated Balance Sheets of approximately . bil-
lion and . billion, respectively, consisting of primarily secured loans and
marketable asset-backed securities.
Activities related to the Three Pillars relationship generated net fee
revenue for the Company of approximately . million, . million,
and . million for the years ended December , , , and ,
respectively. These activities include: client referrals and investment recom-
mendations to Three Pillars; the issuing of a letter of credit, which provides
partial credit protection to the commercial paper holders; and providing a
majority of the temporary liquidity arrangements that would provide fund-
ing to Three Pillars in the event it can no longer issue commercial paper or in
certain other circumstances.
As of December , , off-balance sheet liquidity commitments
and other credit enhancements made by the Company to Three Pillars, the
sum of which represents the Company’s maximum exposure to potential
loss, totaled . billion and . million, respectively, compared to
. billion and . million, respectively, as of December , . The
Company manages the credit risk associated with these commitments by
subjecting them to the Company’s normal credit approval and monitoring
processes.
At December , , the Company had contractual relationships
with a securitization vehicle that is considered a VIE. The Company is the
primary beneficiary of the VIE and therefore, is required to consolidate its
assets and liabilities. As of December , , the assets of this entity,
which serve as collateral for the entity’s obligations, totaled . mil-
lion and are reflected in Interest-bearing deposits in other banks on the
Consolidated Balance Sheets. Creditors of the VIE have no recourse to the
general credit of the Company. As of December , , the Company’s
maximum exposure to potential loss for this VIE was . million.
As part of its community reinvestment initiatives, the Company
invests in multi-family affordable housing properties throughout its foot-
print as a limited and/or general partner. The Company receives affordable
housing federal and state tax credits for these limited partner invest-
ments. Assets in partnerships where SunTrust is only a limited partner of
approximately . million and . million were not included in the
Consolidated Balance Sheets at December ,  and , respec-
tively. The Company’s maximum exposure to loss for these investments at
December ,  totaled . million as compared to . million
at December , , consisting of the limited partnership investments
plus unfunded commitments.
SunTrust is the managing general partner of a number of non-reg-
istered investment limited partnerships which have been established to
provide alternative investment strategies for its clients. In reviewing the
partnerships for consolidation, SunTrust determined that these were voting
interest entities and accordingly considered the consolidation guidance con-
tained in Emerging Issues Task Force (“EITF”) Issue No. -, “Determining
Whether a General Partner, or the General Partners as a Group, Controls
a Limited Partnership or Similar Entity When the Limited Partners Have
Certain Rights.” Under the terms of SunTrust’s non-registered investment
limited partnerships, the limited partnerships have certain rights, such as
those specifically indicated in EITF Issue No. - (including the right to
remove the general partner, or “kick-out rights”). As such, SunTrust, as the
general partner, is precluded from consolidating the limited partnerships.