Harbinger Group Inc.
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SEC Filings

10-Q
HRG GROUP, INC. filed this Form 10-Q on 02/05/2016
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Settlements in the normal course of maturities of Derivative Financial Instruments result in cash receipts from, or cash disbursements to, Compass’ derivative contract counterparties. Changes in the fair value of CompassDerivative Financial Instruments, which includes both cash and non-cash changes in fair value, are included in “Net investment losses” in the accompanying Condensed Consolidated Statements of Operations with a corresponding increase or decrease in the Condensed Consolidated Balance Sheets fair value amounts.
The following table presents Compass’ volumes and fair value of the oil and natural gas Derivative Financial Instruments as of December 31, 2015 (presented on a calendar-year basis): 

 
Volume Mmbtus/Mbbls
 
Weighted average strike price per Mmbtu/Bbl
 
Fair Value at December 31, 2015
Natural gas two-way collars (February - December 2016)
 
3,350

 
 
 
$
(0.2
)
Short call
 
 
 
2.77

 
 
Long put
 
 
 
2.15

 
 
Total natural gas
 
3,350

 
 
 
$
(0.2
)
 
 
 
 
 
 
 
Oil three-way collars (January - December 2016)
 
183

 
 
 
$
1.5

Short call
 
 
 
76.00

 
 
Long put
 
 
 
56.00

 
 
Short Put
 
 
 
42.00

 
 
Total oil
 
183

 
 
 
$
1.5

Total oil and natural gas derivatives
 
 
 
 
 
$
1.3

At September 30, 2015, Compass had outstanding Derivative Financial Instruments to mitigate price volatility covering 3,380 Mmbtus of natural gas and 273 Thousand Barrels (“Mbbls”) of oil. At December 31, 2015, the average forward NYMEX oil prices per Bbl for the remainder of 2016 was $41.44, and the average forward NYMEX natural gas prices per Mmbtu for 2016 was $2.50. CompassDerivative Financial Instruments covered approximately 60% of production volumes for the three months ended December 31, 2015 and 71% of production volumes for the three months ended December 31, 2014.
Credit Risk
Spectrum Brands is exposed to the risk of default by the counterparties with which Spectrum Brands transacts and generally does not require collateral or other security to support financial instruments subject to credit risk. Spectrum Brands monitors counterparty credit risk on an individual basis by periodically assessing each such counterparty’s credit rating exposure. The maximum loss due to credit risk equals the fair value of the gross asset derivatives that are concentrated with certain domestic and foreign financial institution counterparties. Spectrum Brands considers these exposures when measuring its credit reserve on its derivative assets, which was insignificant as of December 31, 2015 and September 30, 2015.
Spectrum Brands’ standard contracts do not contain credit risk related contingent features whereby Spectrum Brands would be required to post additional cash collateral as a result of a credit event. However, Spectrum Brands is typically required to post collateral in the normal course of business to offset its liability positions. As of December 31, 2015 and September 30, 2015, there was $4.1 and $3.5, respectively, of posted cash collateral related to such liability positions. In addition, as of December 31, 2015 and September 30, 2015, Spectrum Brands had no posted standby letters of credit related to such liability positions. The cash collateral is included in “Receivables, net” within the accompanying Condensed Consolidated Balance Sheets.
Compass places Derivative Financial Instruments with the financial institutions that are lenders under the Compass Credit Agreement that it believes have high quality credit ratings. To mitigate risk of loss due to default, Compass has entered into master netting agreements with its counterparties on its Derivative Financial Instruments that allow it to offset its asset position with its liability position in the event of a default by the counterparty.
Front Street is exposed to credit risk in the event of non-performance by its counterparties on call options. Front Street seeks to reduce the risk associated with such agreements by purchasing such options from large, well-established financial institutions, but there can be no assurance that Front Street will not suffer losses in the event of counterparty non-performance. No collateral was posted by its counterparties; accordingly, the maximum amount of loss due to credit risk that Front Street would incur if parties to the call options failed completely to perform according to the terms of the contracts is $2.2.
Earnings from FIA reinsurance are primarily generated from the excess of net investment income earned over the sum of interest credited to policyholders and the cost of hedging the risk on FIA policies, known as the net investment spread. With respect to FIAs, the cost of hedging the risk includes the expenses incurred to fund the annual index credits. Proceeds received upon expiration or early termination of call options purchased to fund annual index credits are recorded as part of the fair value changes associated

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