AIG 2014 Annual Report Download - page 168

ITEM 7 / LIQUIDITY AND CAPITAL RESOURCES
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Collateral posted by operations included in the DIB to third parties was $3.5 billion at December 31, 2014 and $4.2 billion at
December 31, 2013. This collateral primarily consists of securities of the U.S. government and government sponsored entities
and generally cannot be repledged or resold by the counterparties.
Global Capital Markets
Derivative transactions between AIG and its subsidiaries and third parties are generally centralized through GCM, specifically
through AIG Markets. GCM is required to clear certain derivatives transactions through central regulated clearing organizations
pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). To the extent a derivatives
transaction is subject to a clearing obligation, GCM is required to post collateral in amounts determined by the relevant
clearing organization and GCM’s clearing agreements with its futures commission merchants. To the extent a derivatives
transaction is not subject to a clearing obligation, these derivative transactions are governed by bilateral master agreements,
the form of which is published by the International Swaps and Derivatives Association, Inc. (ISDA). Many of these agreements,
primarily between GCM and third party financial institutions, require collateral postings. Many of GCM’s transactions with AIG
and its subsidiaries also include collateral posting requirements, the purpose of which are to provide collateral to GCM, which
in turn is used to satisfy posting requirements with third parties, including the margin requirements of clearing organizations
and futures commission merchants.
In addition, most of GCM’s CDSs within AIGFP are subject to collateral posting provisions. The collateral posting provisions
contained in the ISDA Master Agreements and related transaction documents with respect to CDSs differ among
counterparties and asset classes. The amount of future collateral posting requirements for super senior CDSs is a function of
our credit ratings, the rating of the relevant reference obligations and the market value of the relevant reference obligations,
with market value being the most significant factor. We estimate the amount of potential future collateral postings associated
with the super senior CDSs using various methodologies. The contingent liquidity requirements associated with such potential
future collateral postings are incorporated into our liquidity planning assumptions.
As of December 31, 2014 and 2013, GCM had total assets of $4.5 billion and $7.7 billion, respectively, and total liabilities of
$3.1 billion as of both dates. GCM’s assets consist primarily of cash, short-term investments, other receivables, net of
allowance, and unrealized gains on swaps, options and forwards. GCM’s liabilities consist primarily of unrealized losses on
swaps, options and forwards. Collateral posted by GCM to third parties was $3.0 billion at both December 31, 2014 and 2013.
GCM obtained collateral from third parties totaling $1.1 billion and $572 million at December 31, 2014 and 2013, respectively.
The collateral amounts reflect counterparty netting adjustments available under ISDA Master Agreements and are inclusive of
collateral that exceeded the fair value of derivatives as of the reporting date.
Credit Facilities
We maintain a committed, revolving syndicated credit facility (the Five-Year Facility) as a potential source of liquidity for
general corporate purposes. The Five-Year Facility provides for aggregate commitments by the bank syndicate to provide
unsecured revolving loans and/or standby letters of credit of up to $4.0 billion without any limits on the type of borrowings and
is scheduled to expire in June 2019.
As of December 31, 2014, a total of $4.0 billion remains available under the Five-Year Facility. Our ability to borrow under the
Five-Year Facility is not contingent on our credit ratings. However, our ability to borrow under the Five-Year Facility is
conditioned on the satisfaction of certain legal, operating, administrative and financial covenants and other requirements
contained in the Five-Year Facility. These include covenants relating to our maintenance of a specified total consolidated net
worth and total consolidated debt to total consolidated capitalization. Failure to satisfy these and other requirements contained
in the Five-Year Facility would restrict our access to the Five-Year Facility and could have a material adverse effect on our
financial condition, results of operations and liquidity. We expect to borrow under the Five-Year Facility from time to time, and
may use the proceeds for general corporate purposes.