Salomon Swapco Inc
Notes to Financial Statements
Note 1. Derivatives portfolio (continued)
Swapco's minimum required capital increases with the
level of unsecured receivables from counterparties with
lower credit ratings. Receivables from counterparties
whose ratings have fallen below Baa3/BBB- subsequent to
initiation of Swapco's transactions, and receivables from
counterparties that are not rated and not yet approved by
the rating agencies, are included as part of Swapco's
minimum required capital.
The average final maturity of Swapco's portfolio at
September 30, 1997 was 4.8 years. Notional amounts, by
maturity range, were as follow (in thousands of dollars):
Notional Percent
Under one year
$ 33,260,268
15.2%
One to three years
52,246,546
23.9
Three to five years
42,183,302
19.3
Five to ten years
78,444,242
35.9
Over ten years
12,331,687
5.7
$218,466,045
100.0%
Note 2. Hedge swaps
Hedge swaps, which Swapco uses to protect itself from the
market risk associated with its investment securities, are
not regarded as part of the company's derivatives portfolio
and, accordingly, are not included in the data in Note 1
above. Like all other Swapco/SBHC derivative
transactions, however, hedge swaps are subject to the
Swapco/SBHC bilateral security agreement under which
Swapco is over-collateralized at all times. Summary data
related to these hedge swap transactions is as follows (in
thousands of dollars):
September 30 notional amount
$ 70,025
Average month-end notional amount -
quarter ended September 30
75,356
nine months ended September 30
89,920
September 30 market value (in favor of SBHC)
(593)
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Salomon Swapco Inc
Notes to Financial Statements
Note 2. Hedge swaps (continued)
Average month-end market value (in
favor of SBHC) -
quarter ended September 30
(1,355)
nine months ended September 30
(993)
(Loss) incurred on hedge swaps -
quarter ended September 30
(1,374)
nine months ended September 30
(3,440)
Note 3. Collateral
Swapco exchanges collateral under bilateral security
agreements with a significant number of its customers as
well as with SBHC. Acceptable collateral includes cash,
U.S. and certain other Government securities as well as
certain triple-A rated corporate securities. Detail of
collateral amounts exchanged at September 30, including
securities at their market value, is as follows (in thousands
of dollars):
Collateral advanced by Swapco
to counterparties
$549,968
Collateral advanced by counterparties
to Swapco
281,210
Collateral advanced by SBHC to Swapco
488,314
Note 4. Securities purchased under agreements to
resell
At September 30, 1997, resale agreements were outstanding
with four counterparties, all of which are unrelated to
Swapco. The market value of securities collateralizing
resale agreements was $375 million.
Note 5. Receivables from and payables to affiliates
Amounts receivable from and payable to affiliated
companies are netted, by company, and shown as assets or
liabilities. At September 30, 1997, these amounts included
the following balances (in thousands of dollars):
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