Salomon Swapco Inc
Summary of Accounting Policies
Related parties
Swapco is organized as a legally and financially
separate, bankruptcy remote corporation from its
Salomon affiliates. As a result, Swapco's creditors rely
on Swapco's credit, not on Salomon's.
SBHC has contributed capital to Swapco for the purpose
of enhancing the creditworthiness of Swapco's
obligations. This capital is not available for Salomon's
creditors until Swapco's creditors have been paid in full.
Under the terms of its Certificate of Incorporation,
Swapco is required to have two independent directors on
its board and two independent officers responsible for
important aspects of day-to-day operations.
Swapco's assets are invested separately from those of
Salomon and are held by a third-party custodian.
Significant relationships between Swapco and its
affiliates are governed by formal agreements which are
designed to compensate each of the parties on terms
which approximate those which would prevail in
comparable arms-length transactions.
Certain Swapco costs are incurred, in the first instance,
by Salomon Brothers Inc or other Salomon affiliates on
Swapco's behalf. Such amounts are reimbursed by
Swapco on a monthly basis.
Swapco employees are all seconded employees of
Salomon Brothers Inc. As such, those employees
participate in medical and other employee benefit plans
of Salomon Brothers Inc. Swapco reimburses Salomon
Brothers Inc on a monthly basis for the full cost of that
participation.
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Salomon Swapco Inc
Notes to Financial Statements
Note 1. Derivatives portfolio
Swapco's derivatives portfolio at June 30, 1996 included
transactions with an aggregate notional principal amount
of $148 billion. Each of those transactions is matched
with an offsetting trade with SBHC, producing a total
notional portfolio of $296 billion.
In addition, at June 30, Swapco had guaranteed options
written by Salomon affiliates with an aggregate notional
amount of $61 million. For these transactions, Swapco
has accepted a contingent liability only. Swapco will be
called upon to perform only in the event of a default on
the part of the Salomon entity which wrote the option.
The current market value of all guaranteed options, plus
a margin to protect against changes in value, is included
as part of Swapco's minimum required capital. At June
30, 1996, Swapco also had hedge swaps with SBHC,
related to investment securities, with a notional amount
of $193 million.
The distribution of Swapco's notional book at June 30,
1996 by counterparty credit rating follows (dollar
amounts in thousands).
Notional Percent
Moody's rating
Aaa
$ 53,743,191
36.3%
Aa1
5,003,413
3.4
Aa2
34,449,558
23.3
Aa3
18,594,287
12.6
A1
21,172,954
14.3
A2
4,856,877
3.3
A3
3,260,611
2.2
Baa1
275,000
.2
Baa2
50,000
.0
Baa3
1,008,291
.7
Other acceptable
counterparties
5,555,573
3.7
Counterparties rated below
investment grade
0
.0
$147,969,755
100.0
%
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