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 four 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 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 September 30, 1997
included transactions with an aggregate notional principal
amount of $218 billion. Each of those transactions is
matched with an offsetting trade with SBHC, producing a
total notional portfolio of $437 billion.
In addition, at September 30, Swapco had guaranteed
options written by Salomon affiliates with an aggregate
notional amount of $54 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 September
30, 1997 by counterparty credit rating follows (dollar
amounts in thousands).
Notional Percent
Moody's rating
Aaa
$ 49,411,754
22.6%
Aa1
16,879,453
7.7
Aa2
46,186,261
21.1
Aa3
60,035,209
27.5
A1
17,302,030
7.9
A2
6,286,910
2.9
A3
5,821,422
2.7
Baa1
7,753,078
3.5
Baa2
156,000
.1
Baa3
1,222,000
.6
Other acceptable
counterparties
7,411,928
3.4
Counterparties rated below
investment grade
0
.0
$218,466,045
100.0%
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