GE 2008 Annual Report Download - page 99

ge 2008 annual report 97
notes to consolidated financial statements
The VIEs included in our consolidated financial statements
include the following:
Þ Securitization entities that hold financing receivables and other
financial assets. Since they were consolidated in 2003, these
assets have continued to run off; totaled $4,000 million at
December 31, 2008; and are included in Note 12 ($5,013 mil-
lion in 2007). There has been no significant difference between
the performance of these financing receivables and our on-
book receivables on a blended basis. The liabilities of these
securitization entities, which consist primarily of commercial
paper, totaled $3,868 million at December 31, 2008, and are
included in Note 18 ($4,834 million in 2007). Contractually the
cash flows from these financing receivables must first be
used to pay down outstanding commercial paper and interest
thereon as well as other expenses of the entity. Excess cash
flows are available to GE. The creditors of these entities have
no claim on the other assets of GE.
If the short-term credit rating of GE Capital or these entities
were reduced below A–1/P–1, we would be required to pro-
vide substitute liquidity for those entities or provide funds
to retire the outstanding commercial paper. The maximum
net amount that we would be required to provide in the
event of such a downgrade is determined by contract, and
totaled $3,753 million at December 31, 2008. As the borrow-
ings of these entities are already reflected in our consoli-
dated Statement of Financial Position, there would be no
change in our debt if this were to occur.
Þ Trinity, a group of sponsored special purpose entities, which
invests in a portfolio of mainly investment-grade investment
securities using proceeds raised from guaranteed investment
contracts (GICs) it issues to investors (principally municipalities).
At December 31, 2008, these entities held $8,190 million of
investment securities, included in Note 9, and $1,002 million
of cash and other assets ($11,101 million and $517 million,
respectively, at December 31, 2007). The associated guaran-
teed investment contract liabilities, included in Note 19, were
$10,828 million and $11,705 million at the end of December 31,
2008 and 2007, respectively.
If the long-term credit rating of GE Capital were to fall below
AA–/Aa3 or its short-term credit rating were to fall below
A–1+/P–1, GE Capital would be required to provide approx-
imately $3,493 million of capital to such entities as of
December 31, 2008, pursuant to letters of credit issued by
GE Capital. To the extent that entities’ liabilities exceed the
ultimate value of the proceeds from the sale of their assets
and the amount drawn under the letters of credit, GE Capital
could be required to provide such excess amount. As of
December 31, 2008, the value of these entities’ liabilities
was $10,749 million and the fair value of their assets was
$9,191 million (which included unrealized losses on investment
securities of $2,055 million). With respect to these investment
securities, we intend to hold them at least until such time as
their individual fair values exceed their amortized cost and we
have the ability to hold all such debt securities until maturity.
As the borrowings of these entities are already reflected in
our consolidated Statement of Financial Position, there would
be no change in our debt if this were to occur.
Þ Penske Truck Leasing Co., L.P. (Penske), a rental truck leasing
joint venture. The total consolidated assets and liabilities of
Penske at December 31, 2008, were $7,444 million and
$1,339 million, respectively ($8,075 million and $1,482 million at
December 31, 2007, respectively). Penske’s main consolidated
asset is property, plant and equipment leased to others,
included in Note 14, which totaled $5,499 million at December 31,
2008, ($6,100 million at December 31, 2007). There are no
recourse arrangements between GE and Penske.
The remaining assets and liabilities of VIEs that are included in our
consolidated financial statements were acquired in transactions
subsequent to adoption of FIN 46(R) on January 1, 2004. Assets
of these entities consist of amortizing securitizations of financial
assets originated by acquirees in Australia and Japan, and real
estate partnerships. There are no recourse arrangements between
GE and these entities.
Off-Balance Sheet Entities
The vast majority of our involvement with unconsolidated VIEs
relates to our securitization activities and is detailed in the table
below.
Our involvement with unconsolidated VIEs consists of the
following activities: assisting in the formation and financing of
an entity, providing recourse and/or liquidity support, servicing
the assets and receiving variable fees for services provided. The
classification in our financial statements of our variable interests in
these entities depends on the nature of the entity. As described
below, our retained interests in securitization-related VIEs and
QSPEs is reported in financing receivables or investment securities
depending on its legal form. Variable interests in partnerships and
corporate entities would be classified as either equity method or
cost method investments.
In the ordinary course of business, we make equity invest-
ments in entities in which we are not the primary beneficiary
but may hold a variable interest such as limited partner equity
interests or mezzanine debt investment. These investments
totaled $2,871 million at year-end 2008 and are classified in
two captions in our financial statements. At December 31, 2008,
“All other assets” included investments in entities accounted
for under either the equity method or the cost method, which
totaled $1,897 million ($1,089 million at December 31, 2007).
In addition, at December 31, 2008, we held financing receivables,
included in Note 12, totaling $974 million ($567 million at
December 31, 2007) representing debt financing provided to
these VIEs. Our maximum exposure to loss related to such
entities at December 31, 2008, was $4,030 million ($2,559 million
at December 31, 2007), and includes our investment in the
unconsolidated VIEs and our contractual obligations to fund new
investments by the entities. None of these investments is
individually significant.