Freddie Mac 2006 Annual Report Download - page 77

Table 36 Ì Derivative Counterparty Credit Exposure
December 31, 2006
Weighted Average
Total Exposure, Contractual
Number of Notional Exposure at Net of Maturity Collateral Posting
Rating(1) Counterparties(2) Amount Fair Value(3) Collateral(4) (in years) Threshold
(dollars in millions)
AAAÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 $ 3,408 $ 411 $411 1.6 Mutually agreed upon
AA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8 269,126 2,134 92 4.7 $10 million or less
AA¿ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12 278,993 6,264 161 5.2 $10 million or less
A° ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4 142,332 1,393 7 6.1 $1 million or less
A¿ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 210 1 1 5.0 $1 million or less
Subtotal(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27 694,069 10,203 672 5.2
Other derivatives(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 49,554 Ì Ì
Forward purchase and sale commitmentsÏÏÏÏ 10,012 24 24
Credit derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,605 Ì Ì
Swap guarantee derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 957 Ì Ì
Total derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $757,197 $10,227 $696
December 31, 2005
Weighted Average
Total Exposure, Contractual
Number of Notional Exposure at Net of Maturity Collateral Posting
Rating(1) Counterparties(2) Amount Fair Value(3) Collateral(4) (in years) Threshold
(dollars in millions)
AAAÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 $ 3,102 $ 93 $ 93 2.7 Mutually agreed upon
AA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 148,135 619 16 4.3 $10 million or less
AA¿ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8 156,058 2,499 73 5.8 $10 million or less
A° ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5 227,842 5,297 2 5.8 $1 million or less
AÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 24,879 364 5 4.0 $1 million or less
A¿ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 210 3 1 6.0 $1 million or less
Subtotal(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25 560,226 8,875 190 5.3
Other derivatives(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 98,033 Ì Ì
Forward purchase and sale commitmentsÏÏÏÏ 21,961 35 35
Credit derivative ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,414 Ì Ì
Swap guarantee derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 738 Ì Ì
Total derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $683,372 $8,910 $225
(1) We use the lower of S&P and Moody's ratings to manage collateral requirements. In this table, the rating of the legal entity is stated in terms of the
S&P equivalent.
(2) Based on legal entities. AÇliated legal entities are reported separately.
(3) For each counterparty, this amount includes derivatives with a net positive fair value (recorded as Derivative assets, at fair value), including the related
accrued interest receivable/payable (net) (recorded in Accounts and other receivables, net or Accrued interest payable).
(4) Total Exposure at Fair Value less collateral held as determined at the counterparty level.
(5) Consists of OTC derivative agreements for interest-rate swaps, option-based derivatives (excluding written options), foreign-currency swaps and
purchased interest-rate caps. Written options do not present counterparty credit exposure, because we receive a one-time up-front premium in
exchange for giving the holder the right to execute a contract under speciÑed terms, which generally puts us in a liability position.
(6) Consists primarily of exchange-traded contracts and written options.
Over time, our exposure to individual counterparties for OTC interest-rate swaps, option-based derivatives and foreign-
currency swaps varies depending on changes in fair values, which are aÅected by changes in period-end interest rates, the
implied volatility of interest rates, foreign-currency exchange rates and the amount of derivatives held. Our uncollateralized
exposure to counterparties for these derivatives, after applying netting agreements and collateral, increased to $672 million
at December 31, 2006 from $190 million at December 31, 2005. This increase was primarily due to a signiÑcant increase in
uncollateralized exposure to AAA-rated counterparties, which typically are not required to post collateral given their low
risk proÑle.
At December 31, 2006, the uncollateralized exposure to non-AAA-rated counterparties was primarily due to
uncollateralized exposure below the applicable counterparty collateral posting threshold as well as market movements during
the time period between when a derivative was marked to fair value and the date we received the related collateral.
Collateral is typically transferred within one business day based on the values of the related derivatives.
As indicated in Table 36, approximately 93 percent of our counterparty credit exposure for OTC interest-rate swaps,
option-based derivatives and foreign-currency swaps was collateralized at December 31, 2006. If all of our counterparties
for these derivatives had defaulted simultaneously on December 31, 2006, our maximum loss for accounting purposes
would have been approximately $672 million. Our economic loss, as measured by our potential additional uncollateralized
exposure, may be higher than the uncollateralized exposure of our derivatives if we were not able to replace the defaulted
derivatives in a timely fashion. We monitor the risk that our uncollateralized exposure to each of our OTC counterparties
for interest-rate swaps, option-based derivatives and foreign-currency swaps will increase under certain adverse market
65 Freddie Mac