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Financial Guaranty Contracts Accounted for as Credit Derivatives (Tables)
6 Months Ended
Jun. 30, 2011
Financial Guaranty Contracts Accounted for as Credit Derivatives 
Credit Derivatives Net Par Outstanding

 

 

 

As of June 30, 2011

 

As of December 31, 2010

 

Asset Type

 

Net Par
Outstanding

 

Original
Subordination
(1)

 

Current
Subordination
(1)

 

Weighted
Average
Credit
Rating

 

Net Par
Outstanding

 

Original
Subordination
(1)

 

Current
Subordination
(1)

 

Weighted
Average
Credit
Rating

 

 

 

(dollars in millions)

 

Pooled corporate obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized loan obligations/Collateralized bond obligations

 

$

41,006

 

32.5

%

31.7

%

AAA

 

$

45,953

 

32.2

%

30.4

%

AAA

 

Synthetic investment grade pooled corporate

 

14,496

 

19.4

 

17.8

 

AAA

 

14,905

 

19.2

 

17.6

 

AAA

 

Synthetic high-yield pooled corporate

 

7,534

 

34.7

 

30.3

 

AA-

 

8,249

 

39.4

 

34.6

 

AA+

 

Trust preferred securities collateralized debt obligations

 

4,784

 

46.6

 

31.6

 

BB+

 

5,757

 

46.8

 

32.0

 

BB+

 

Market value collateralized debt obligations of corporate obligations

 

4,659

 

33.8

 

40.8

 

AAA

 

5,069

 

36.0

 

42.9

 

AAA

 

Total pooled corporate obligations

 

72,479

 

31.1

 

29.3

 

AAA

 

79,933

 

31.7

 

29.3

 

AAA

 

U.S. RMBS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Option ARM and Alt-A first lien

 

4,419

 

19.6

 

15.1

 

B+

 

4,767

 

19.7

 

17.0

 

B+

 

Subprime first lien (including net interest margin)

 

4,230

 

30.0

 

53.9

 

A+

 

4,460

 

27.9

 

50.4

 

A+

 

Prime first lien

 

429

 

10.9

 

9.5

 

B

 

468

 

10.9

 

10.3

 

B

 

Closed-end second lien and HELOCs(2)

 

69

 

—

 

—

 

B

 

81

 

—

 

—

 

B

 

Total U.S. RMBS

 

9,147

 

23.9

 

32.6

 

BBB-

 

9,776

 

23.1

 

32.4

 

BBB-

 

CMBS

 

4,517

 

33.8

 

39.4

 

AAA

 

6,751

 

29.8

 

31.3

 

AAA

 

Other

 

11,862

 

—

 

—

 

A

 

13,311

 

—

 

—

 

A+

 

Total

 

$

98,005

 

 

 

 

 

AA+

 

$

109,771

 

 

 

 

 

AA+

 

 

 

(1)                                     Represents the sum of subordinate tranches and overcollateralization and does not include any benefit from excess interest collections that may be used to absorb losses.

 

(2)                                     Many of the closed-end second lien transactions insured by the Company have unique structures whereby the collateral may be written down for losses without a corresponding write-down of the obligations insured by the Company. Many of these transactions are currently undercollateralized, with the principal amount of collateral being less than the principal amount of the obligation insured by the Company. The Company is not required to pay principal shortfalls until legal maturity (rather than making timely principal payments), and takes the undercollateralization into account when estimating expected losses for these transactions.

Distribution of Credit Derivative Net Par Outstanding by Rating

 

 

 

June 30, 2011

 

December 31, 2010

 

Ratings

 

Net Par
Outstanding

 

% of Total

 

Net Par
Outstanding

 

% of Total

 

 

 

(dollars in millions)

 

Super Senior

 

$

27,321

 

27.9

%

$

29,344

 

26.7

%

AAA

 

44,074

 

45.0

 

50,214

 

45.7

 

AA

 

6,392

 

6.5

 

8,138

 

7.4

 

A

 

6,506

 

6.6

 

7,405

 

6.7

 

BBB

 

5,276

 

5.4

 

6,312

 

5.8

 

BIG

 

8,436

 

8.6

 

8,358

 

7.7

 

Total credit derivative net par outstanding

 

$

98,005

 

100.0

%

$

109,771

 

100.0

%

 

U.S. Residential Mortgage-Backed Securities

 

 

 

June 30, 2011

 

Net Change in
Unrealized Gain (Loss)

 

Vintage

 

Net Par
Outstanding
(in millions)

 

Original
Subordination(1)

 

Current
Subordination(1)

 

Weighted
Average
Credit
Internal
Rating

 

Second Quarter
2011

 

Six Months
2011

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

(restated)

 

(restated)

 

2004 and Prior

 

$

155

 

6.2

%

19.3

%

A-

 

$

0.3

 

$

(3.0

)

2005

 

2,709

 

30.3

 

64.0

 

AA

 

1.9

 

(17.2

)

2006

 

1,693

 

29.1

 

35.4

 

BBB+

 

(60.3

)

(101.0

)

2007

 

4,590

 

18.6

 

12.7

 

B

 

7.0

 

(220.7

)

Total

 

$

9,147

 

23.9

%

32.6

%

BBB-

 

$

(51.1

)

$

(341.9

)

 

 

(1)                                 Represents the sum of subordinate tranches and overcollateralization and does not include any benefit from excess interest collections that may be used to absorb losses.

Commercial Mortgage Backed Securities

 

 

 

June 30, 2011

 

Net Change in
Unrealized Gain (Loss)

 

Vintage

 

Net Par
Outstanding
(in millions)

 

Original
Subordination(1)

 

Current
Subordination(1)

 

Weighted
Average
Credit
Internal
Rating

 

Second Quarter
2011

 

Six Months
2011

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

2004 and Prior

 

$

241

 

29.6

%

56.8

%

AAA

 

$

(0.1

)

$

(0.2

)

2005

 

677

 

17.8

 

26.4

 

AAA

 

—

 

—

 

2006

 

2,184

 

33.5

 

38.7

 

AAA

 

10.3

 

10.9

 

2007

 

1,415

 

42.6

 

43.6

 

AAA

 

(0.4

)

(0.2

)

Total

 

$

4,517

 

33.8

%

39.4

%

AAA

 

$

9.8

 

$

10.5

 

 

 

(1)                                 Represents the sum of subordinate tranches and overcollateralization and does not include any benefit from excess interest collections that may be used to absorb losses.

Net Change in Fair Value of Credit Derivatives

 

 

 

Second Quarter

 

Six Months

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

 

 

(restated)

 

 

 

(restated)

 

 

 

Net credit derivative premiums received and receivable

 

$

47.6

 

$

50.7

 

$

107.2

 

$

104.4

 

Net ceding commissions (paid and payable) received and receivable

 

0.8

 

1.1

 

2.2

 

2.1

 

Realized gains on credit derivatives

 

48.4

 

51.8

 

109.4

 

106.5

 

Termination losses

 

(22.5

)

—

 

(22.5

)

—

 

Net credit derivative losses (paid and payable) recovered and recoverable

 

(36.7

)

(13.4

)

(62.3

)

(41.4

)

Total realized gains and other settlements on credit derivatives

 

(10.8

)

38.4

 

24.6

 

65.1

 

Net unrealized gains (losses) on credit derivatives

 

(54.0

)

35.1

 

(325.6

)

287.2

 

Net change in fair value of credit derivatives

 

$

(64.8

)

$

73.5

 

$

(301.0

)

$

352.3

Net Change in Unrealized Gains (Losses) on Credit Derivatives By Sector

 

 

 

Second Quarter

 

Six Months

 

Asset Type

 

2011

 

2010

 

2011

 

2010

 

 

 

(in millions)

 

 

 

(restated)

 

 

 

(restated)

 

 

 

Pooled corporate obligations:

 

 

 

 

 

 

 

 

 

CLOs/Collateralized bond obligations

 

$

(3.6

)

$

1.8

 

$

(1.6

)

$

3.3

 

Synthetic investment grade pooled corporate

 

(0.8

)

3.6

 

9.7

 

(4.0

)

Synthetic high-yield pooled corporate

 

3.5

 

(5.9

)

0.7

 

14.5

 

TruPS CDOs

 

(15.5

)

35.5

 

(36.3

)

65.2

 

Market value CDOs of corporate obligations

 

(5.2

)

(0.1

)

(5.3

)

0.3

 

Total pooled corporate obligations

 

(21.6

)

34.9

 

(32.8

)

79.3

 

U.S. RMBS:

 

 

 

 

 

 

 

 

 

Option ARM and Alt-A first lien

 

28.1

 

9.6

 

(239.5

)

160.5

 

Subprime first lien (including net interest margin)

 

(67.2

)

0.3

 

(91.3

)

0.9

 

Prime first lien

 

(12.8

)

5.2

 

(12.2

)

19.4

 

Closed-end second lien and HELOCs

 

0.8

 

(14.3

)

1.1

 

(5.9

)

Total U.S. RMBS

 

(51.1

)

0.8

 

(341.9

)

174.9

 

CMBS

 

9.8

 

0.3

 

10.5

 

9.8

 

Other(1)

 

8.9

 

(0.9

)

38.6

 

23.2

 

Total

 

$

(54.0

)

$

35.1

 

$

(325.6

)

$

287.2

 

 

 

(1)                                 “Other” includes all other U.S. and international asset classes, such as commercial receivables, international infrastructure, international RMBS securities and pooled infrastructure securities.

Components of Credit Derivative Assets (Liabilities)

 

 

 

As of
June 30, 2011

 

As of
December 31, 2010

 

 

 

(in millions)

 

 

 

(restated)

 

(restated)

 

Credit derivative assets

 

$

603.9

 

$

592.9

 

Credit derivative liabilities

 

(2,791.4

)

(2,462.8

)

Net fair value of credit derivatives

 

$

(2,187.5

)

$

(1,869.9

)

Net Fair Value and Expected Losses of Credit Derivatives by Sector

 

Asset Type

 

Credit Derivative
Asset
(Liability), net

 

Present Value of
Expected Claim
(Payments)
Recoveries(2)

 

 

 

(in millions)

 

 

 

(restated)

 

 

 

Pooled corporate obligations:

 

 

 

 

 

CLOs/ Collateralized bond obligations

 

$

(12.0

)

$

—

 

Synthetic investment grade pooled corporate

 

(29.8

)

—

 

Synthetic high-yield pooled corporate

 

(14.3

)

(5.5

)

TruPS CDOs

 

(62.1

)

(56.7

)

Market value CDOs of corporate obligations

 

(1.9

)

—

 

Total pooled corporate obligations

 

(120.1

)

(62.2

)

U.S. RMBS:

 

 

 

 

 

Option ARM and Alt-A first lien

 

(1,162.1

)

(263.5

)

Subprime first lien (including net interest margin)

 

(111.6

)

(124.5

)

Prime first lien

 

(103.4

)

—

 

Closed-end second lien and HELOCs

 

(24.3

)

4.6

 

Total U.S. RMBS

 

(1,401.4

)

(383.4

)

CMBS

 

(4.5

)

—

 

Other(1)

 

(661.5

)

(91.6

)

Total

 

$

(2,187.5

)

$

(537.2

)

 

 

(1)                                 “Other” includes all other U.S. and international asset classes, such as commercial receivables, international infrastructure, international RMBS securities and pooled infrastructure securities.

 

(2)                                 Represents amount in excess of the present value of future installment fees to be received of $63.8 million.

Effect of the Company's Credit Spread on Credit Derivatives Fair Value

 

 

 

As of
June 30,
2011

 

As of
March 31,
2011

 

As of
December 31,
2010

 

As of
June 30,
2010

 

As of
March 31,
2010

 

As of
December 31,
2009

 

 

 

(dollars in millions)

 

 

 

(restated)

 

(restated)

 

(restated)

 

 

 

 

 

 

 

Quoted price of CDS contract (in basis points):

 

 

 

 

 

 

 

 

 

 

 

 

 

AGC

 

634

 

724

 

804

 

1,010

 

734

 

634

 

AGM

 

472

 

660

 

650

 

802

 

468

 

541

 

Fair value of asset/ (liability) of credit derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Before considering implication of the Company’s credit spreads

 

$

(5,428.9

)

$

(5,578.8

)

$

(5,539.3

)

$

(5,636.3

)

$

(5,253.5

)

$

(5,830.8

)

After considering implication of the Company’s credit spreads

 

$

(2,187.5

)

$

(2,140.0

)

$

(1,869.9

)

$

(1,274.9

)

$

(1,284.9

)

$

(1,542.1

)