Information regarding FGL’s exposure to credit loss on the call options it holds is presented in the following table:
|
| | | | | | | | | | | | | | | | | | |
| | | | June 30, 2013 | | September 30, 2012 |
Counterparty | | Credit Rating (Moody's/S&P) | | Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
Bank of America | | Baa2/A- | | $ | 2,098.4 |
| | $ | 76.4 |
| | $ | 1,884.0 |
| | $ | 64.1 |
|
Deutsche Bank | | A2/A+ | | 1,564.0 |
| | 57.4 |
| | 1,816.5 |
| | 61.7 |
|
Morgan Stanley | | Baa1/A- | | 2,024.7 |
| | 64.5 |
| | 1,634.7 |
| | 51.6 |
|
Royal Bank of Scotland | | Baa1/A- | | 479.0 |
| | 24.6 |
| | 353.9 |
| | 19.6 |
|
Barclay's Bank | | A2/A+ | | 127.1 |
| | 4.5 |
| | 131.3 |
| | 3.1 |
|
Credit Suisse | | A2/A | | — |
| | — |
| | 10.0 |
| | 0.6 |
|
| | | | $ | 6,293.2 |
| | $ | 227.4 |
| | $ | 5,830.4 |
| | $ | 200.7 |
|
Collateral Agreements
FGL is required to maintain minimum ratings as a matter of routine practice under its ISDA agreements. Under some ISDA agreements, FGL has agreed to maintain certain financial strength ratings. A downgrade below these levels provides the counterparty under the agreement the right to terminate the open derivative contracts between the parties, at which time any amounts payable by FGL or the counterparty would be dependent on the market value of the underlying derivative contracts. FGL’s current rating allows multiple counterparties the right to terminate ISDA agreements. No ISDA agreements have been terminated, although the counterparties have reserved the right to terminate the ISDA agreements at any time. In certain transactions, FGL and the counterparty have entered into a collateral support agreement requiring either party to post collateral when the net exposures exceed pre-determined thresholds. These thresholds vary by counterparty and credit rating. As of June 30, 2013 and September 30, 2012, no collateral was posted by FGL’s counterparties as they did not meet the net exposure thresholds. Accordingly, the maximum amount of loss due to credit risk that FGL would incur if parties to the call options failed completely to perform according to the terms of the contracts was $227.4 and $200.7 at June 30, 2013 and September 30, 2012, respectively.
FGL held 1,244 and 2,835 futures contracts at June 30, 2013 and September 30, 2012, respectively. The fair value of futures contracts represents the cumulative unsettled variation margin (open trade equity net of cash settlements). FGL provides cash collateral to the counterparties for the initial and variation margin on the futures contracts which is included in "Cash and cash equivalents" in the Condensed Consolidated Balance Sheets. The amount of collateral held by the counterparties for such contracts was $4.3 and $9.8 at June 30, 2013 and September 30, 2012, respectively.
(6) Securitizations and Variable Interest Entities
Collateralized Loan Obligations (CLOs)
In February 2013, Salus completed a CLO securitization with a notional aggregate principal amount of $175.5 of the asset-backed loans that it had originated through that date as part of a facility that could issue up to $250.0 of collateralized loan obligations. 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 "Asset-backed loans" under Investments in the Condensed Consolidated Balance Sheet as of June 30, 2013 were asset-based loans of $212.0 that serve as collateral to the obligations of the CLO of $225.0, of which $57.5 are held by unaffiliated entities. The unaffiliated obligations of the CLO are included within "Debt" in the Condensed Consolidated Balance Sheet as of June 30, 2013. At June 30, 2013, the asset-backed loans receivable included $62.5 of seller's interest.
