SunTrust 2011 Annual Report Download - page 152
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Please find page 152 of the 2011 SunTrust annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Notes to Consolidated Financial Statements (Continued)
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Other Variable Interest Entities
In addition to the Company’s involvement with certain VIEs related to transfers of financial assets, the Company also has
involvement with VIEs from other business activities.
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 CP.
The Company has determined that Three Pillars is a VIE as Three Pillars has not issued sufficient equity at risk. In
accordance with the VIE consolidation guidance, the Company has determined that it is the primary beneficiary of Three
Pillars as certain subsidiaries have both the power to direct its significant activities and own potentially significant VIs.
The assets and liabilities of Three Pillars were consolidated by the Company at their unpaid principal amounts at January 1,
2010; upon consolidation, the Company recorded an allowance for loan losses on $1.7 billion of secured loans that were
consolidated at that time, resulting in an immaterial transition adjustment, which was recorded in the Company’s
Consolidated Statements of Shareholders’ Equity.
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 revenue for the Company, net of direct salary and administrative costs, of $65 million, $68 million, and $59 million
for the years ended December 31, 2011, 2010, and 2009, respectively.
At December 31, 2011, the Company’s Consolidated Balance Sheets included approximately $2.9 billion of secured loans
held by Three Pillars, which are included within commercial loans. Other assets and liabilities were not material to the
Company's Consolidated Balance Sheets, and no CP was outstanding at December 31, 2011. At December 31, 2010, the
Company's Consolidated Balance Sheets included commercial loans and short-term borrowings of $2.4 billion and $99
million, respectively. Short-term borrowings, excluding intercompany liabilities, consisted of the CP issued by Three
Pillars to third parties. No losses on any of Three Pillars’ assets were incurred during the years ended December 31, 2011,
2010, and 2009.
Funding commitments extended by Three Pillars to its customers totaled $4.1 billion with outstanding receivables totaling
$2.9 billion at December 31, 2011; the majority of which generally carry initial terms of one to three years and may be
repaid or refinanced at any time. At December 31, 2010, Three Pillars had funding commitments and outstanding
receivables totaling $4.1 billion and $2.4 billion, respectively. 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. Trade
receivables and commercial loans collateralize 40% and 20%, respectively, of the outstanding commitments, as of
December 31, 2011, compared to 48% and 14%, respectively, as of December 31, 2010. Total assets supporting
outstanding commitments have a weighted average life of 2.8 years and 2.3 years at December 31, 2011 and 2010,
respectively.
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. Three Pillars also 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.
For the years ended December 31, 2011, 2010, and 2009, there were no writedowns of Three Pillars' assets.
The assets of Three Pillars generally provide the sources of cash flows for the CP. However, the Company has issued
commitments in the form of liquidity facilities and other credit enhancements to support the operations of Three Pillars.
Due to the Company’s consolidation of Three Pillars as of January 1, 2010, these commitments are eliminated in