Salomon Swapco Inc
Notes to Financial Statements
Note 5. Receivables from and payables to affiliates
(continued)
SBHC
Receivable from affiliates
Costs incurred on behalf of affiliates
$205
$205
Salomon Other
Brothers Inc affiliates Total
Payable to affiliates
Costs incurred on
Swapco's behalf
$549
$549
Management and
other fees charged
by Swapco
(463)
(463)
Management and
other fees charged
to Swapco
163
$37
200
$249
$37
$286
Costs incurred by Salomon Brothers Inc or other affiliates
on behalf of Swapco, and costs incurred by Swapco on
behalf of affiliates, 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- and nine-month periods ended
September 30, 1997 (both to third parties and to SBHC)
totaled $6.3 and $20.6 million, respectively. Interest
payments made during the comparable periods in 1996
were $2.3 and $5.2 million.
20
Salomon Swapco Inc
Notes to Financial Statements
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.
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 September 30, 1997, the most conservative (i.e., lowest)
computation of capital for capital adequacy purposes was
$319 million. The difference between that measure and
Stockholder's equity at the same date is accounted for as
follows (dollars in thousands):
21
