General Motors 2011 Annual Report Download - page 71
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GENERAL MOTORS COMPANY AND SUBSIDIARIES
Securitizations
In GM Financial’s securitization transactions, it transfers fixed rate finance receivables to securitization trusts that, in turn, sell
either fixed rate or floating rate securities to investors. Derivative financial instruments, such as interest rate swaps and caps, are used
to manage the gross interest rate spread on the floating rate transactions. GM Financial uses interest rate swaps to convert the variable
rate exposures on securities issued by its securitization trusts to a fixed rate (“pay rate”) and receive a floating or variable rate
(“receive rate”), thereby locking in the gross interest rate spread to be earned by it over the life of a securitization. Interest rate swaps
purchased by GM Financial do not affect the amount of cash flows received by holders of the asset-backed securities issued by the
trusts. The interest rate swaps serve to offset the effect of increased or decreased interest paid by the trusts on floating rate asset-
backed securities on the cash flows received from the trusts. GM Financial utilizes such arrangements to modify its net interest
sensitivity to levels deemed appropriate based on risk tolerances. Its SPEs are contractually required to purchase a derivative financial
instrument to protect the net spread in connection with the issuance of floating rate securities. The fair value of the interest rate caps
purchased in connection with securitization transactions are included in GM Financial Other assets and the fair value of the interest
rate caps sold are included in GM Financial Other liabilities. Changes in the fair value of the interest rate cap derivatives are a
component of interest expense recorded in GM Financial operating and other expenses.
GM Financial has entered into interest rate swaps to hedge the variability in interest payments on seven of its active securitization
transactions. Portions of these interest rate swaps are designated and qualify as cash flow hedges. The fair value of interest rate swaps
designated as hedges is included in GM Financial Other liabilities. Interest rate swaps that are not designated as hedges are included in
GM Financial Other assets.
General Motors Company 2011 Annual Report 69