Salomon Swapco Inc
Notes to Financial Statements
Note 5. Receivables from and payables to
affiliates (continued)
Salomon
Other
Brothers Inc affiliates Total
Payable to affiliates
Payable in settlement
of securities purchased
$80,549
$80,549
Costs incurred on
Swapco's behalf
726
726
Management and
other fees charged
by Swapco
(596)
(596)
Management and
other fees charged
to Swapco
134
$30
164
$80,813
$30
$80,843
Costs incurred by Salomon Brothers Inc or other
affiliates on behalf of Swapco are reimbursed monthly.
Fee amounts are payable at least quarterly. Swapco has
arranged a committed revolving credit facility with
SBHC under which it may borrow up to $150 million
(and for which Swapco pays a negotiated commitment
fee). Unsecured loans from SBHC bear interest at market
rates. Interest payments made during the three months
ended March 31, 1997 (both to third parties and to
SBHC) totaled $8 million.
Note 6. Capital
By resolutions adopted by its board of directors, and in
accordance with agreements with rating agencies,
Swapco is required to maintain a level of capital, as
defined, which varies with the size and composition of its
derivatives portfolio. Minimum required capital is
recomputed every New York business day and is
compared with actual capital, as defined. Any excess of
minimum required capital over actual capital must be
eliminated within two New York business days or
Swapco will terminate its outstanding transactions at
mid-market values.
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Salomon Swapco Inc
Notes to Financial Statements
Capital, as defined for capital adequacy purposes, differs
from Stockholder's equity on the Statement of Financial
Condition in a number of respects. Most significantly,
Prepaid expenses and other assets and Deferred revenue,
which appear as assets and liabilities on the Statement of
Financial Condition, are not included in the evaluation of
capital adequacy. Those balances represent amounts that
have already been exchanged in cash and which will not
be recovered (in the case of
Prepaid expenses) or
refunded (in the case of
Deferred revenue) in the event of
a termination. They are, therefore, not relevant to an
assessment of capital adequacy.
In addition, permitted investments are presented on the
Statement of Financial Condition at their market values
but are subject to haircuts (which vary by security) in the
evaluation of capital adequacy. These haircuts also vary
between Swapco's rating agencies, producing differences
in the computation of capital for capital adequacy
purposes.
At March 31, 1997, the most conservative (i.e., lowest)
computation of capital for capital adequacy purposes was
$265 million. The difference between that measure and
Stockholder's equity is accounted for as follows (dollars
in thousands):
Stockholder's equity
$119,418
Prepaid expenses and other assets
(15,600)
Deferred revenue
189,674
Haircuts on permitted investments
(19,987)
Other differences
(8,129
Capital for capital adequacy purposes
$265,376
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