SunTrust 2013 Annual Report Download - page 155

Notes to Consolidated Financial Statements, continued
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generally manifest itself through the retention of senior or subordinated interests. Total assets at December 31, 2013
and 2012, of the unconsolidated trusts in which the Company has a VI are $350 million and $445 million, respectively.
The Company’s maximum exposure to loss related to the unconsolidated VIEs in which it holds a VI is comprised
of the loss of value of any interests it retains and any repurchase obligations it incurs as a result of a breach of its
representations and warranties, which is discussed in Note 17, “Guarantees.”
Commercial and Corporate Loans
The Company has involvement with CLO entities that own commercial leveraged loans and bonds, certain of which
were transferred by the Company to the CLOs. In addition to retaining certain securities issued by the CLOs, the
Company also acts as collateral manager for these CLOs. The securities retained by the Company and the fees received
as collateral manager represent a VI in the CLOs, which are considered to be VIEs. The Company has determined
that it is the primary beneficiary of and, thus, has consolidated one of these CLOs as it has both the power to direct
the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses
and the right to receive benefits from the entity that could potentially be significant to the CLO. The Company's
involvement with the CLO includes receiving fees for its duties as collateral manager, including eligibility for
performance fees, as well as ownership in one of the senior interests in the CLO and certain preference shares of the
CLO. Substantially all of the assets and liabilities of the CLO are loans and issued debt, respectively. The loans are
classified within LHFS at fair value and the debt is included within long-term debt at fair value on the Company’s
Consolidated Balance Sheets. See Note 18, “Fair Value Election and Measurement,” for a discussion of the Company’s
methodologies for estimating the fair values of these financial instruments. At December 31, 2013, the Company’s
Consolidated Balance Sheets reflected $261 million of loans held by the CLO and $256 million of debt issued by
the CLO. At December 31, 2012, the Company’s Consolidated Balance Sheets reflected $319 million of loans held
by the CLO and $286 million of debt issued by the CLO. Although the Company consolidates the CLO, its creditors
have no recourse to the general credit of the Company, as the liabilities of the CLO are paid only to the extent of
available cash flows from the CLO’s assets.
For the remaining CLOs, which are also considered to be VIEs, the Company has determined that it is not the primary
beneficiary as it does not have an obligation to absorb losses or the right to receive benefits from the entities that
could potentially be significant to the VIE. The Company's preference share exposure was valued at $3 million at
December 31, 2013 and 2012. The Company’s only remaining involvement with these VIEs is through its collateral
manager role. The Company receives fees for managing the assets of these vehicles; these fees are considered adequate
compensation and are commensurate with the level of effort required to provide such services. The fees received by
the Company from these entities are recorded as trust and investment management income in the Consolidated
Statements of Income. Senior fees earned by the Company are generally not considered at risk; however, subordinate
fees earned by the Company are subject to the availability of cash flows and to the priority of payments. At December
31, 2013 and 2012, these VIEs had $1.6 billion and $1.8 billion of estimated assets, respectively, and $1.6 billion
and $1.7 billion of estimated liabilities, respectively.
Student Loans
During 2006, the Company completed a securitization of government-guaranteed student loans through a transfer of
loans to a securitization SPE, which previously qualified as a QSPE, and retained the related residual interest in the
SPE. The Company concluded that this securitization of government-guaranteed student loans (the “Student Loan
entity”) should be consolidated. At December 31, 2013 and 2012, the Company’s Consolidated Balance Sheets
reflected $344 million and $384 million, respectively, of assets held by the Student Loan entity and $341 million and
$380 million, respectively, of debt issued by the Student Loan entity.
Payments from the assets in the SPE must first be used to settle the obligations of the SPE, with any remaining
payments remitted to the Company as the owner of the residual interest. To the extent that losses occur on the SPE’s
assets, the SPE has recourse to the federal government as the guarantor up to a maximum guarantee amount of 97%.
Losses in excess of the government guarantee reduce the amount of available cash payable to the Company as the
owner of the residual interest. To the extent that losses result from a breach of the master servicer’s servicing
responsibilities, the SPE has recourse to the Company; the SPE may require the Company to repurchase the loan
from the SPE at par value. If the breach was caused by the subservicer, the Company has recourse to seek
reimbursement from the subservicer up to the guaranteed amount. The Company’s maximum exposure to loss related
to the SPE is represented by the potential losses resulting from a breach of servicing responsibilities. To date, all loss
claims filed with the guarantor that have been denied due to servicing errors have either been cured or reimbursement
has been provided to the Company by the subservicer.