Mercury Insurance 2015 Annual Report Download - page 85

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The $120 million credit facility is secured by municipal bonds held as collateral. The collateral requirement is calculated
as the fair market value of the municipal bonds held as collateral multiplied by the advance rates, which vary based on the credit
quality and duration of the assets held and range between 75% and 100% of the fair value of each bond. Effective December 3,
2014, the Company extended the maturity date of the $120 million credit facility from July 31, 2016 to December 3, 2017.
On December 12, 2014, the Company extended the maturity date of the $20 million bank loan from January 2, 2015 to
December 3, 2017. The $20 million bank loan has collateral requirements similar to those of the $120 million credit facility.
The credit facilities and bank loan contain financial covenants pertaining to minimum statutory surplus, debt to capital ratio,
and risk-based capital ("RBC") ratio. The Company was in compliance with all of its loan covenants at December 31, 2015.
The aggregated maturities of notes payable are as follows:
Maturity
(Amounts in thousands)
2016 $—
2017 $ 140,000
2018 $—
2019 $ 150,000
8. Derivative Financial Instruments
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using
derivative instruments are equity price risk and interest rate risk. Equity contracts (options sold) on various equity securities are
intended to manage the price risk associated with forecasted purchases or sales of such securities.
The Company also enters into derivative contracts to enhance returns on its investment portfolio.
On February 13, 2014, Fannette Funding LLC ("FFL"), a special purpose investment vehicle, formed by and consolidated
into the Company, entered into a total return swap agreement with Citibank. Under the total return swap agreement, FFL receives
the income equivalent on underlying obligations due to Citibank and pays to Citibank interest on the outstanding notional amount
of the underlying obligations. The total return swap is secured by approximately $30 million of U.S. Treasuries as collateral,
which are included in short-term investments on the consolidated balance sheets. The Company paid interest equal to LIBOR
plus 135 basis points on approximately $95 million of underlying obligations as of December 31, 2015. The agreement had an
initial term of one year, subject to annual renewal, and was renewed for an additional one-year term expiring February 13, 2017,
with interest equal to LIBOR plus 145 basis points.
On August 9, 2013, Animas Funding LLC ("AFL"), a special purpose investment vehicle, formed by and consolidated into
the Company, entered into a three-year total return swap agreement with Citibank. Under the total return swap agreement, AFL
receives the income equivalent on underlying obligations due to Citibank and pays to Citibank interest equal to LIBOR plus 120
basis points on the outstanding notional amount of the underlying obligations, which was approximately $124 million as of
December 31, 2015. The total return swap is secured by approximately $40 million of U.S. Treasuries as collateral, which are
included in short-term investments on the consolidated balance sheets.
Fair value amounts, and (losses) gains on derivative instruments
The following tables present the location and amounts of derivative fair values in the consolidated balance sheets and
derivative (losses) gains in the consolidated statements of operations:
Asset Derivatives Liability Derivatives
December 31, 2015 December 31, 2014 December 31, 2015 December 31, 2014
(Amounts in thousands)
Total return swaps - Other assets $ —$ —$ —$ —
Options sold - Other liabilities — — 260 194
Total return swaps - Other liabilities — — 11,525 4,025
Total derivatives $—$ — $ 11,785 $ 4,219