SunTrust 2009 Annual Report Download - page 125

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
Three Pillars Funding, LLC
SunTrust assists in providing liquidity to select corporate clients by directing them to a multi-seller CP conduit, Three
Pillars. Three Pillars provides financing for direct purchases of financial assets originated and serviced by SunTrust’s
corporate clients by issuing highly rated CP.
The Company’s involvement with Three Pillars includes the following activities: services related to the administration
of Three Pillars’ activities and client referrals to Three Pillars; the issuing of letters of credit, which provide partial
credit protection to the CP holders; and providing liquidity arrangements that would provide funding to Three Pillars in
the event it can no longer issue CP or in certain other circumstances. The Company’s activities with Three Pillars
generated total fee revenue for the Company, net of direct salary and administrative costs incurred by the Company, of
approximately $58.8 million, $48.2 million, and $28.7 million for the years ended December 31, 2009, December 31,
2008, and December 31, 2007, respectively.
Three Pillars has issued a subordinated note to a third party, which matures in March 2015; however, the note holder
may declare the note due and payable upon an event of default, which includes any loss drawn on the note funding
account that remains unreimbursed for 90 days. The subordinated note holder absorbs the first dollar of loss in the event
of nonpayment of any of Three Pillars’ assets. Only the remaining balance of the first loss note, after any incurred
losses, would be due. The outstanding and committed amounts of the subordinated note were $20.0 million at
December 31, 2009 and December 31, 2008, and no losses had been incurred through December 31, 2009. Subsequent
to December 31, 2009, Three Pillars repaid and extinguished the subordinated note.
The Company has determined that Three Pillars is a VIE, as Three Pillars has not issued sufficient equity at risk. The
Company and the holder of the subordinated note are the two significant VI holders in Three Pillars. The Company and
this note holder are not related parties or de facto agents of one another. The Company uses a mathematical model that
calculates the expected losses and expected residual returns of Three Pillars’ assets and operations, based on a Monte
Carlo simulation, and allocates each to the Company and the holder of the subordinated note. The results of this model,
which the Company evaluates monthly, have shown that the holder of the subordinated note absorbs the majority of the
variability of Three Pillars’ expected losses. The Company believes the subordinated note is sized in an amount
sufficient to absorb the expected loss of Three Pillars based on current commitment levels and the forecasted growth in
Three Pillars’ assets; as such, the Company has concluded it is not Three Pillars’ primary beneficiary and is not required
to consolidate Three Pillars. See Note 1, “Significant Accounting Policies,” to the Consolidated Financial Statements for
a discussion of the impacts of the amendments to ASC 810-10 on the Company’s involvement with Three Pillars.
As of December 31, 2009 and December 31, 2008, Three Pillars had assets not included on the Company’s
Consolidated Balance Sheets of approximately $1.8 billion and $3.5 billion, respectively, consisting primarily of
secured loans. Funding commitments and outstanding receivables extended by Three Pillars to its customers totaled $3.7
billion and $1.7 billion, respectively, as of December 31, 2009, almost all of which renew annually, as compared to $5.9
billion and $3.5 billion, respectively, as of December 31, 2008. The majority of the commitments are backed by trade
receivables and commercial loans that have been originated by companies operating across a number of industries
which collateralize 50% and 18%, respectively, of the outstanding commitments, as of December 31, 2009, as compared
to 47% and 20%, respectively, as of December 31, 2008. Assets supporting those commitments have a weighted average
life of 1.25 years and 1.52 years at December 31, 2009 and December 31, 2008, respectively. At December 31, 2009,
Three Pillars’ outstanding CP used to fund the assets totaled approximately $1.8 billion, with remaining weighted
average lives of 5.9 days and maturities through February 2010.
Each transaction added to Three Pillars is typically structured to a minimum implied A/A2 rating according to
established credit and underwriting policies as approved by credit risk management and monitored on a regular basis to
ensure compliance with each transaction’s terms and conditions. Typically, transactions contain dynamic credit
enhancement features that provide increased credit protection in the event asset performance deteriorates. If asset
performance deteriorates beyond predetermined covenant levels, the transaction could become ineligible for continued
funding by Three Pillars. This could result in the transaction being amended with the approval of credit risk
management, or Three Pillars could terminate the transaction and enforce any rights or remedies available, including
amortization of the transaction or liquidation of the collateral. In addition, Three Pillars has the option to fund under the
liquidity facility provided by the Bank in connection with the transaction and may be required to fund under the
liquidity facility if the transaction remains in breach. In addition, each commitment renewal requires credit risk
management approval. The Company is not aware of unfavorable trends related to Three Pillars assets for which the
Company expects to suffer material losses. During the years ended December 31, 2009 and 2008, there were no write-
downs of Three Pillars’ assets.
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