TD Bank 2012 Annual Report Download - page 129

TD BANK GROUP ANNUAL REPORT 2012 FINANCIAL RESULTS 127
SPECIAL PURPOSE ENTITIES
NOTE 9
restricted from accessing the SPE’s assets under the relevant
arrangements. The Bank’s maximum potential exposure to loss was
$10.5 billion as at October 31, 2012 (October 31, 2011 – $7.4 billion;
November 1, 2010 – $2.2 billion). The fair value of the loans and
associated liabilities is $12.8 billion and $10.3 billion, respectively, as
at October 31, 2012.
SIGNIFICANT NON-CONSOLIDATED SPECIAL PURPOSE ENTITIES
The Bank holds interests in certain significant non-consolidated SPEs
where the Bank is not exposed to the majority of the residual risks
of the SPEs. The Bank’s interests in these non-consolidated SPEs are
as follows:
Multi-Seller Conduits
Multi-seller conduits (also referred to as customer securitization vehicles)
provide customers with alternate sources of financing through the
securitization of their assets. The customers sell their receivables to the
conduit and the conduit funds its purchase of the receivables through
issuance of short-term commercial paper to outside investors. Each
seller continues to service its assets and absorb first losses. The Bank
has no rights to the assets as they are owned by the conduit. The Bank
administers the conduits and provides liquidity facilities as well as secu-
rities distribution services; it may also provide credit enhancements.
The liquidity agreements are structured as loan facilities between the
Bank, as the sole liquidity lender, and the Bank-sponsored trusts. If a
trust experiences difficulty rolling over asset-backed commercial paper
(ABCP), the trust may draw on the loan facility, and use the proceeds
to pay maturing ABCP. The liquidity facilities cannot be drawn if a trust
is insolvent or bankrupt, preconditions that must be satisfied preceding
each advance (i.e., draw-down on the facility). These preconditions
are in place so that the Bank does not provide credit enhancement via
the loan facilities to the trust.
From time to time, the Bank in its capacity as distribution agent may
hold commercial paper issued by the conduits. During the years ended
October 31, 2012 and 2011, no amounts of ABCP were purchased
pursuant to liquidity agreements. The Bank maintained inventory posi-
tions of ABCP issued by multi-seller conduits as part of its market-
making activities in ABCP. As at October 31, 2012, October 31, 2011
and November 1, 2010, the Bank held $128 million, $790 million
and $243 million of ABCP inventory, respectively, out of $7.5 billion,
$5.5 billion and $5.3 billion total outstanding ABCP issued by the
conduits as at the same dates. The commercial paper held is classified
as trading securities on the Consolidated Balance Sheet. The Bank
earns fees from the conduits which are recognized when earned. The
Bank monitors its ABCP inventory positions as part of the on-going
consolidation assessment process. The inventory positions did not
cause any change in consolidation conclusions during the year ended
October 31, 2012 and October 31, 2011.
The Bank’s maximum potential exposure to loss due to its ownership
interest in commercial paper and through the provision of liquidity
facilities for multi-seller conduits was $7.5 billion as at October 31, 2012
(October 31, 2011 – $5.5 billion; November 1, 2010 – $5.3 billion).
Further, the Bank has committed to an additional $2.2 billion (October
31, 2011 – $2.1 billion; November 1, 2010 – $1.8 billion) in liquidity
facilities for ABCP that could potentially be issued by the conduits. As
at October 31, 2012, the Bank also provided no deal-specific credit
enhancement (October 31, 2011 – $17 million; November 1, 2010 –
$73 million).
SIGNIFICANT CONSOLIDATED SPECIAL PURPOSE ENTITIES
A special purpose entity (SPE) is an entity that is created to accomplish
a narrow and well-defined objective. SPEs are consolidated when the
substance of the relationship between the Bank and the SPE indicates
that the SPE is controlled by the Bank. The Bank’s interests in consoli-
dated SPEs are discussed as follows:
Personal Loans
The Bank securitizes personal loans through consolidated SPEs to
enhance its liquidity position, to diversify its sources of funding and
to optimize management of its balance sheet. Where the SPEs are
created primarily for the Bank’s benefit and the Bank is exposed to the
majority of the residual risks of the SPEs, consolidation is required.
As at October 31, 2012, the SPEs related to personal loans had
$5.1 billion (October 31, 2011 – $5.1 billion; November 1, 2010 –
$5.1billion) of issued commercial paper outstanding and $0.3 billion
(October 31, 2011 – $1.8 billion; November 1, 2010 – nil) of issued
notes outstanding. As at October 31, 2012, the Bank’s maximum
potential exposure to loss for these conduits was $5.5 billion
(October 31, 2011 – $7.2 billion; November 1, 2010 – $5.1 billion)
of which $1.1 billion (October 31, 2011 – $1.1 billion; November 1,
2010 – $1.1 billion) of underlying personal loans was government
insured. The Bank is restricted from accessing the SPE’s assets
under the relevant arrangements. The fair value of the loans and
associated liabilities is $5.5 billion and $5.4 billion respectively as at
October 31, 2012.
Credit Cards
The Bank securitizes credit card loans through an SPE. Through the
acquisition of substantially all of the credit card portfolio of MBNA,
the Bank has consolidated the SPE as it serves as a financing vehicle
for the Bank’s assets and the Bank is exposed to the majority of the
residual risks of the SPE. As at October 31, 2012, the Bank’s maximum
exposure to loss for this SPE was $1.3 billion. Prior to December 1,
2011, the Bank did not consolidate this SPE. The Bank is restricted
from accessing the SPE’s assets under the relevant arrangements.
The fair value of the loans and associated liabilities is $1.3 billion and
$1.3 billion respectively as at October 31, 2012.
Other Significant Consolidated SPEs
The Bank consolidates two other significant SPEs as they were created
primarily for the Bank’s benefit and the Bank is exposed to the majority
of the residual risks of the SPEs. One of the SPEs is funded by the Bank
and purchases senior tranches of securitized assets and loan portfolios
from the Bank’s existing customers. As at October 31, 2012, the SPE
had $42 million (October 31, 2011 – $88 million; November 1, 2010 –
$598 million) of assets, which included credit card loans, automobile
loans and leases, and equipment loans and leases. The Bank is not
restricted from accessing the SPE’s assets to the extent of its entitle-
ment under arrangements with the sellers. The Bank’s maximum
potential exposure to loss as at October 31, 2012 was $42 million
(October 31, 2011 – $88 million; November 1, 2010 – $598 million).
The second SPE was created to guarantee principal and interest
payments in respect of covered bonds issued by the Bank. The Bank
sold assets to the SPE and provided a loan to the SPE to facilitate
the purchase. As at October 31, 2012, this SPE had $11.7 billion
(October 31, 2011 – $14.1 billion; November 1, 2010 – $9.5 billion)
of assets which are reported as consumer instalment and other
personal loans on the Consolidated Balance Sheet. The Bank is