SunTrust 2013 Annual Report Download - page 201

Notes to Consolidated Financial Statements, continued
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value the debt was made to align the accounting for the debt with the accounting for the derivatives without having
to account for the debt under hedge accounting, thus avoiding the complex and time consuming fair value hedge
accounting requirements.
The Company’s public debt carried at fair value impacts earnings predominantly through changes in the Company’s
credit spreads as the Company has entered into derivative financial instruments that economically convert the interest
rate on the debt from fixed to floating. The estimated earnings impact from changes in credit spreads above U.S.
Treasury rates were $40 million and $78 million of losses and $57 million of gains for the years ended December
31, 2013, 2012, and 2011, respectively.
The Company also carries approximately $256 million of issued securities contained in a consolidated CLO at fair
value to recognize the nonrecourse nature of these liabilities to the Company. Specifically, the holders of the liabilities
are only paid interest and principal to the extent of the cash flows from the assets of the vehicle, and the Company
has no current or future obligations to fund any of the CLO vehicle’s liabilities. The Company classified these
securities as level 2, as the primary driver of their fair values are the loans owned by the CLO, which the Company
also elected to carry at fair value, as discussed herein under “Loans Held for Sale and Loans Held for Investment–
Corporate and other LHFS.”
Other liabilities
The Company’s other liabilities that are carried at fair value on a recurring basis include contingent consideration
obligations related to acquisitions, as well as the derivative that the Company obtained as a result of its sale of Visa
Class B shares. Contingent consideration associated with acquisitions is adjusted to fair value until settled. As the
assumptions used to measure fair value are based on internal metrics that are not market observable, the earn-out is
considered a level 3 liability. During the second quarter of 2009, in connection with its sale of Visa Class B shares,
the Company entered into a derivative contract whereby the ultimate cash payments received or paid, if any, under
the contract are based on the ultimate resolution of litigation involving Visa. The value of the derivative was estimated
based on the Company’s expectations regarding the ultimate resolution of that litigation, which involved a high
degree of judgment and subjectivity. Accordingly, the value of the derivative liability is classified as a level 3
instrument. See Note 17, "Guarantees," for a discussion of the valuation assumptions.