John Deere 2014 Annual Report Download - page 50

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13. SECURITIZATION OF FINANCING RECEIVABLES
The company, as a part of its overall funding strategy,
periodically transfers certain financing receivables (retail notes)
into variable interest entities (VIEs) that are special purpose
entities (SPEs), or a non-VIE banking operation, as part of its
asset-backed securities programs (securitizations). The structure
of these transactions is such that the transfer of the retail notes
did not meet the criteria of sales of receivables, and is, therefore,
accounted for as a secured borrowing. SPEs utilized in securiti-
zations of retail notes differ from other entities included in the
company’s consolidated statements because the assets they hold
are legally isolated. Use of the assets held by the SPEs or the
non-VIE is restricted by terms of the documents governing the
securitization transactions.
In securitizations of retail notes related to secured
borrowings, the retail notes are transferred to certain SPEs or
to a non-VIE banking operation, which in turn issue debt to
investors. The resulting secured borrowings are recorded as
“Short-term securitization borrowings” on the balance sheet.
The securitized retail notes are recorded as “Financing receivables
securitized - net” on the balance sheet. The total restricted
assets on the balance sheet related to these securitizations include
the financing receivables securitized less an allowance for credit
losses, and other assets primarily representing restricted cash.
For those securitizations in which retail notes are transferred
into SPEs, the SPEs supporting the secured borrowings are
consolidated unless the company does not have both the power
to direct the activities that most significantly impact the SPEs’
economic performance and the obligation to absorb losses or
the right to receive benefits that could potentially be significant
to the SPEs. No additional support to these SPEs beyond what
was previously contractually required has been provided during
the reporting periods.
In certain securitizations, the company consolidates the
SPEs since it has both the power to direct the activities that
most significantly impact the SPEs’ economic performance
through its role as servicer of all the receivables held by the
SPEs, and the obligation through variable interests in the
SPEs to absorb losses or receive benefits that could potentially
be significant to the SPEs. The restricted assets (retail notes
securitized, allowance for credit losses and other assets) of the
consolidated SPEs totaled $3,011 million and $2,626 million
at October 31, 2014 and 2013, respectively. The liabilities
(short-term securitization borrowings and accrued interest)
of these SPEs totaled $2,942 million and $2,547 million at
October 31, 2014 and 2013, respectively. The credit holders
of these SPEs do not have legal recourse to the company’s
general credit.
In certain securitizations, the company transfers retail
notes to a non-VIE banking operation, which is not consoli-
dated since the company does not have a controlling interest in
the entity. The company’s carrying values and interests related
to the securitizations with the unconsolidated non-VIE were
restricted assets (retail notes securitized, allowance for credit
losses and other assets) of $368 million and $353 million
at October 31, 2014 and 2013, respectively. The liabilities
(short-term securitization borrowings and accrued interest)
were $351 million and $338 million at October 31, 2014 and
2013, respectively.
In certain securitizations, the company transfers retail notes
into bank-sponsored, multi-seller, commercial paper conduits,
which are SPEs that are not consolidated. The company does
not service a significant portion of the conduits’ receivables,
and therefore, does not have the power to direct the activities
that most significantly impact the conduits’ economic
performance. These conduits provide a funding source to the
company (as well as other transferors into the conduit) as they
fund the retail notes through the issuance of commercial paper.
The company’s carrying values and variable interest related to
these conduits were restricted assets (retail notes securitized,
allowance for credit losses and other assets) of $1,331 million
and $1,274 million at October 31, 2014 and 2013, respectively.
The liabilities (short-term securitization borrowings and accrued
interest) related to these conduits were $1,267 million and
$1,225 million at October 31, 2014 and 2013, respectively.
The company’s carrying amount of the liabilities to the
unconsolidated conduits, compared to the maximum exposure
to loss related to these conduits, which would only be incurred
in the event of a complete loss on the restricted assets, was as
follows at October 31 in millions of dollars:
2014
Carrying value of liabilities .............................................................. $ 1,267
Maximum exposure to loss ............................................................. 1,331
The total assets of unconsolidated VIEs related to securiti-
zations were approximately $40 billion at October 31, 2014.
The components of consolidated restricted assets related to
secured borrowings in securitization transactions at October 31
were as follows in millions of dollars:
2014 2013
Financing receivables securitized (retail notes) ............... $ 4,616 $ 4,167
Allowance for credit losses ............................................ (14) (14)
Other assets ................................................................. 108 100
Total restricted securitized assets .......................... $ 4,710 $ 4,253