First Data 2009 Annual Report Download - page 177

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Financial instruments carried at fair value as of December 31, 2009 and measured at fair value on a
recurring basis are classified in the table below according to the hierarchy described above:
Fair Value Measurement Using
As of December 31, 2009
(in millions)
Quoted prices in
active markets
for identical assets
(Level 1)
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3) Total
Assets:
Settlement assets:
Student loan auction rate securities ....... $— $ — $449.7 $ 449.7
Other available-for-sale securities ....... 0.3 665.5 — 665.8
Other current assets:
Available-for-sale securities ............ — 5.0 — 5.0
Other long-term assets:
Available-for-sale securities ............ — 0.5 — 0.5
Interest rate swap contracts ............. — 1.2 — 1.2
Total assets at fair value ....................... $0.3 $672.2 $449.7 $1,122.2
Liabilities:
Other current liabilities:
Interest rate swap contracts ............. $— $ 6.4 $ — $ 6.4
Other long-term liabilities:
Interest rate swap contracts ............. — 451.5 — 451.5
Foreign currency derivative contracts ..... — 13.6 — 13.6
Total liabilities at fair value .................... $— $471.5 $ — $ 471.5
Settlement assets- Student loan auction rate securities
As of December 31, 2009, the Company held student loan auction rate securities (“SLARS”) which are
long-term debt instruments, issued by student loan trusts, with variable interest rates that historically reset
through a periodic Dutch auction process but do not include a put-back option. Due to the collapse of the auction
market in 2008, the Company will not be able to readily access liquidity for the SLARS until the auction market
successfully resumes, a secondary market is established for long-term investors, or issuers redeem the securities.
A failed auction does not represent a default by the issuer of the underlying security. As of December 31, 2009,
the majority of the SLARS held by the Company were highly rated (“A3” and “A-”or higher) and all were
collateralized by securitized student loans substantially guaranteed by the U.S. government through the Federal
Family Education Loan Program (“FFELP”). The NextStudent Master Trust (“NextStudent”) securities, with a
total fair value of $73.6 million, were also collateralized by securitized student loans substantially guaranteed by
the U.S. government but were rated “B3” by Moody’s, and “BBB” by Fitch. The investment ratings were
considered in determining the fair value of and the estimated credit loss for the NextStudent securities. As a
result of the failed auctions, the trusts are required and continue to pay maximum interest rates as defined in the
security offering documents which are typically based on either LIBOR or Treasury rates plus a spread.
Due to the lack of observable market activity for the SLARS held by the Company as of December 31,
2009, the Company, with the assistance of a third party valuation firm upon which the Company in part relied,
made certain assumptions, primarily relating to estimating both the weighted average life for the securities held
by the Company and the impact of the current lack of liquidity on the fair value. All key assumptions and
valuations were determined by and are the responsibility of management. At December 31, 2009, the securities
were valued based on a probability weighted discounted cash flow analysis. The Company considered each
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