Freddie Mac 2008 Annual Report Download - page 173

Table 75 — Derivative Counterparty Credit Exposure
Rating
(1)
Number of
Counterparties
(2)
Notional or
Contractual
Amount
Total
Exposure at
Fair Value
(3)
Exposure,
Net of
Collateral
(4)
Weighted Average
Contractual
Maturity
(in years)
Collateral Posting
Threshold
December 31, 2008
(dollars in millions)
AAA......................... 1 $ 1,150 $ — $ — 7.4 Mutually agreed upon
AA+......................... 1 27,333 — — 5.2 $10 million or less
AA.......................... 2 16,987 500 — 3.1 $10 million or less
AA⫺......................... 5 342,635 1,457 4 7.0 $10 million or less
A+ .......................... 8 355,534 912 162 5.7 $1 million or less
A........................... 4 296,039 1,179 15 4.5 $1 million or less
Subtotal
(5)
..................... 21 1,039,678 4,048 181 5.7
Other derivatives
(6)
............... 175,788 — —
Forward purchase and sale
commitments.................. 108,273 537 537
Swap guarantee derivatives . . . ....... 3,281 — —
Total derivatives . . . .............. $1,327,020 $4,585 $718
Rating
(1)
Number of
Counterparties
(2)
Notional or
Contractual
Amount
Total
Exposure at
Fair Value
(3)
Exposure,
Net of
Collateral
(4)
Weighted Average
Contractual
Maturity
(in years)
Collateral Posting
Threshold
December 31, 2007
(dollars in millions)
AAA......................... 2 $ 1,173 $ 174 $174 3.4 Mutually agreed upon
AA+......................... 3 181,439 941 — 4.4 $10 million or less
AA.......................... 9 465,563 1,324 38 5.3 $10 million or less
AA–......................... 6 160,678 2,230 29 5.8 $10 million or less
A+ .......................... 5 170,330 1,696 5 6.1 $1 million or less
A........................... 2 35,391 239 18 5.7 $1 million or less
Subtotal
(5)
..................... 27 1,014,574 6,604 264 5.4
Other derivatives
(6)
............... 234,343 — —
Forward purchase and sale
commitments.................. 72,662 465 465
Swap guarantee derivatives . . . ....... 1,302 — —
Total derivatives . . . .............. $1,322,881 $7,069 $729
(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. Affiliated legal entities are reported separately.
(3) For each counterparty, this amount includes derivatives with a net positive fair value (recorded as derivative assets, net), including the related accrued
interest receivable/payable (net) and trade/settle fees.
(4) Total Exposure at Fair Value less cash collateral held as determined at the counterparty level. 2008 includes amounts related to our posting of cash
collateral in excess of our derivative liability as determined at the counterparty level.
(5) Consists of OTC derivative agreements for interest-rate swaps, option-based derivatives (including certain written options), foreign-currency swaps and
purchased interest-rate caps. Certain prior period written options within subtotal that were previously reported as a component of other derivatives have
been reclassified to conform to the current year presentation.
(6) Consists primarily of exchange-traded contracts, certain written options and certain credit derivatives. 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 specified terms,
which generally puts us in a liability position.
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 affected 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, decreased to $181 million at
December 31, 2008 from $264 million at December 31, 2007. This decrease was primarily due to a significant decrease in
uncollateralized exposure to AAA-rated counterparties, which we typically do not require to post collateral given their low
risk profile.
The uncollateralized exposure to non-AAA-rated counterparties was primarily due to exposure amounts 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 75, approximately 96% of our counterparty credit exposure for OTC interest-rate swaps, option-
based derivatives and foreign-currency swaps was collateralized at December 31, 2008. If all of our counterparties for these
derivatives had defaulted simultaneously on December 31, 2008, our maximum loss for accounting purposes would have
been approximately $181 million. During 2008, an entity affiliated with Lehman was our counterparty in certain derivative
transactions. Upon Lehman’s bankruptcy filing, we terminated the transactions and requested payment of the settlement
170 Freddie Mac