GE 2009 Annual Report Download - page 108

106 GE 2009 ANNUAL REPORT
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The consolidated VIEs included in our financial statements
include the following:
• Securitization entities that hold financing receivables and
other financial assets. Since they were consolidated in 2003,
these assets have continued to run off; totaled $2,608 million
at December 31, 2009; and are primarily included in Note 6
($4,000 million in 2008). There has been no significant differ-
ence 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 $2,504 million at December 31,
2009, and are included in Note 10 ($3,868 million in 2008).
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
$2,497 million at December 31, 2009. The borrowings of these
entities are reflected in our Statement of Financial Position.
• Trinity, a group of sponsored special purpose entities, holds
investment securities, the majority of which are investment
grade, funded by the issuance of guaranteed investment
contracts. At December 31, 2009, these entities held
$6,629 million of investment securities, included in Note 3,
and $716 million of cash and other assets ($8,190 million and
$1,001 million, respectively, at December 31, 2008). The asso-
ciated guaranteed investment contract liabilities, included in
Note 11, were $8,310 million and $10,828 million at the end
of December 31, 2009 and 2008, 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 approxi-
mately $2,383 million to such entities as of December 31,
2009, pursuant to letters of credit issued by GE Capital. To the
extent that the 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 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. As of December 31, 2009, the value of these
entities’ liabilities was $8,519 million and the fair value of their
assets was $7,345 million (which included unrealized losses on
investment securities of $1,448 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.
The remaining assets ($7,040 million) and liabilities ($4,208 million)
of consolidated VIEs are primarily the result of transactions by
acquired entities; asset-backed financing involving commercial
real estate and equipment collateral and on-balance sheet
securitizations by GE. We have no recourse arrangements with
these entities.
Unconsolidated Variable Interest Entities
Our involvement with unconsolidated VIEs consists of the follow-
ing 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 depend-
ing 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 investments 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
$9,680 million at year-end 2009 and are classified in two captions
in our financial statements: “All other assets” for investments
accounted for under the equity method, and “GECS financing
receivables” for debt financing provided to these entities. At
December 31, 2009, “All other assets” totaled $8,911 million
($2,919 million at December 31, 2008) and financing receivables,
included in Note 6, totaled $769 million ($1,045 million at
December 31, 2008). In addition to our existing investments, we
have contractual obligations to fund additional investments in
the unconsolidated VIEs of $1,396 million ($1,159 million at
December 31, 2008). Together, these represent our maximum
exposure to loss if the assets of the unconsolidated VIEs were to
have no value.
The largest unconsolidated VIE with which we are involved is
PTL, which is a rental truck leasing joint venture. The total consoli-
dated assets and liabilities of PTL at December 31, 2008, were
$7,444 million and $1,339 million, respectively. In the first quarter
of 2009, we sold a 1% limited partnership interest in PTL, a previ-
ously consolidated VIE, to Penske Truck Leasing Corporation, the
general partner of PTL, whose majority shareowner is a member of
GE’s Board of Directors. The disposition of the shares, coupled with
our resulting minority position on the PTL advisory committee and
related changes in our contractual rights, resulted in the decon-
solidation of PTL. We recognized a pre-tax gain on the sale of
$296 million, including a gain on the remeasurement of our retained
investment of $189 million. The measurement of the fair value of
our retained investment in PTL was based on a methodology that
incorporated both discounted cash flow information and market
data. In applying this methodology, we utilized different sources
of information, including actual operating results, future business
plans, economic projections and market observable pricing mul-
tiples of similar businesses. The resulting fair value reflected our
position as a noncontrolling shareowner at the conclusion of the
transaction. At December 31, 2009, our remaining investment in
PTL of $5,751 million comprised a 49.9% partnership interest of
$923 million and loans and advances of $4,828 million.