Harbinger Group Inc.
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SEC Filings

10-K
HRG GROUP, INC. filed this Form 10-K on 11/23/2016
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Spectrum Brands had the following commodity swaps outstanding as of September 30, 2016 and 2015:
 
 
September 30, 2016
 
September 30, 2015
 
 
Notional
 
Contract Value
 
Notional
 
Contract Value
Silver (troy oz.)
 
31
 
$
0.6

 
25
 
$
0.4

Foreign exchange contracts - not designated as hedges for accounting purposes- Spectrum Brands. Spectrum Brands periodically enters into forward and swap foreign exchange contracts to economically hedge the risk from third party and intercompany payments resulting from existing obligations. These obligations generally require Spectrum Brands to exchange foreign currencies for U.S. Dollars, CAD, Euros, Pounds Sterling, Taiwanese Dollars, Hong Kong Dollars or Australian Dollars. These foreign exchange contracts are economic hedges of a related liability or asset recorded in the accompanying Consolidated Balance Sheets. The gain or loss on the derivative hedge contracts is recorded in earnings as an offset to the change in value of the related liability or asset at each period end. At September 30, 2016, Spectrum Brands had a series of forward exchange contracts outstanding through October 2016. At September 30, 2016 and 2015, Spectrum Brands had $131.4 and $126.8, respectively, of notional value for such foreign exchange derivative contracts outstanding.
Foreign exchange contracts - not designated as hedges for accounting purposes- Salus. During Fiscal 2015, Salus executed a CAD swap agreement with FGL Insurance, to convert the CAD cash flows into U.S. Dollars cash flows. Under this swap agreement, Salus would reimburse FGL Insurance for certain realized foreign exchange losses related to cash flows on these loan participations from origination date through maturity date. The cumulative foreign exchange losses related to such cash flows at September 30, 2015 were $11.0 included in “Other liabilitieswith an equal and offsetting asset included inAssets of business held for sale” on the accompanying Consolidated Balance Sheets. The swap agreements were settled and terminated during Fiscal 2016. During Fiscal 2016 and 2015, the Company recognized $2.4 and $(11.0), respectively of other income (expense) associated with the CAD swap agreements and a corresponding (loss) income from discontinued operations on the accompanying Consolidated Statements of Operations.
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 September 30, 2016 and 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 September 30, 2015, there was $3.5 of posted cash collateral related to such liability positions. As of September 30, 2016, there was no cash collateral outstanding. In addition, as of September 30, 2016 and 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 Consolidated Balance Sheets.
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, at September 30, 2016, 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 was $5.9.
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 with reinsurance contracts in the accompanying Consolidated Statements of Operations, and are largely offset by an expense for index credits earned on annuity contractholder fund balances.

(6) Securitizations and Variable Interest Entities
Collateralized Loan Obligations
In February 2013, Salus completed a collateralized loan obligation (“CLO”) securitization with a notional aggregate principal amount of $175.5 of the asset-based loans that it had originated through that date. In September 2013, Salus increased the CLO securitization to a notional aggregate principal amount of $331.1 of the asset-based loans that it had originated through that date. Salus’ continuing involvement with the trust created as part of the securitization include servicing the receivables; retaining an undivided interest (seller’s interest) in the receivables; and holding certain retained interests in subordinate securities, subordinate

F-39

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