SEC Filings
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| 10-K | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| HRG GROUP, INC. filed this Form 10-K on 11/23/2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Credit Risk 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 interests in accrued interest and fees on the securitized receivables, and cash reserve accounts. Salus continues to consolidate the loans transferred into the trust as it has determined that it is the primary beneficiary of the variable-interest entity represented by the trust, as result of it holding subordinate interest and servicing the receivables. Neither the Company nor Salus provided guarantees or recourse to the securitization trust other than standard representations and warranties. Included within “Other assets” in the accompanying Consolidated Balance Sheets as of September 30, 2016 and 2015 were asset-based loans of $29.3 and $197.8, respectively, that serve as collateral to the obligations of the CLO. Such obligations include obligations to non-affiliates of $38.9, net of discount of $0.8 and $39.5, net of discount of $0.9, respectively. The unaffiliated obligations of the CLO are included within “Debt” in the accompanying Consolidated Balance Sheets as of September 30, 2016 and 2015, respectively. At September 30, 2016 and 2015, the total liabilities of the consolidated VIE included $96.3 and $317.3, respectively, of seller’s interest. For additional information related to the increases in the provision for credit losses on the asset-based loan portfolio, see Note 9, Other Assets. For additional information related to the reduction in senior secured and subordinated CLO debt, see Note 10, Debt. The table below summarizes select information related to the CLO vehicle in which Salus held a variable interest at September 30, 2016 and 2015:
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