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 one independent officer responsible for
important aspects of day-to-day operations. Currently,
the Company has three independent directors and two
independent officers.
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 other Salomon affiliates on Swapco's behalf. Such
amounts are reimbursed by Swapco on a monthly basis.
Swapco's 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 March 31, 1997
included transactions with an aggregate notional
principal amount of $172 billion. Each of those
transactions is matched with an offsetting trade with
SBHC, producing a total notional portfolio of $345
billion.
In addition, at March 31, Swapco had guaranteed options
written by Salomon affiliates with an aggregate notional
amount of $55 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 that 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.
The distribution of Swapco's notional book at March 31,
1997 by counterparty credit rating follows (dollar
amounts in thousands).
Notional Percent
Moody's rating
Aaa
$ 48,000,338
27.9%
Aa1
14,253,117
8.3
Aa2
34,711,677
20.1
Aa3
48,328,588
28.0
A1
9,368,878
5.4
A2
5,941,114
3.5
A3
2,680,497
1.6
Baa1
2,973,635
1.7
Baa2
40,000
.0
Baa3
963,000
.6
Other acceptable
counterparties
4,900,663
2.9
Counterparties rated below
investment grade
199,500
.0
$172,361,007
100.0%
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