Printer Friendly

SALOMON SWAPCO INC COUNTERPARTY RISK RATED 'AAA' BY FITCH -- FITCH FINANCIAL WIRE --

 NEW YORK, Feb. 8 /PRNewswire/ -- Salomon Swapco Inc's counterparty risk rating is AAA' by Fitch. The rating is based on the strong capital base to support potential counterparty exposures, including affiliate risk, strict operating guidelines that call for the termination of Swapco under a "Trigger Event," and a strong risk management discipline.
 Swapco was established to engage in derivative transactions as a highly rated counterparty. The company was created as a bankruptcy- remote subsidiary of Salomon Brothers Holding Co. (SBHC), a wholly owned subsidiary of Salomon Inc. Capitalized with $175 million of common equity, Swapco's capital will be invested initially in AAA' rated securities. Swapco plans to market its services worldwide.
 Swapco's initial product focus will be intermediating, as principal, primarily interest rate and currency swaps of investment grade counterparties. Under the operating guidelines, Swapco may participate in varied derivative securities markets with the notable exception of commodity linked derivatives. Derivative securities transactions will be contracted with only investment-grade counterparties and will be offset with contracts having exact opposite cash flow characteristics with SBHC. This "matching" of transactions eliminates market risk, absent counterparty defaults.
 Swapco is structured such that the company will terminate all of its contracts upon a "Trigger Event," which includes the unlikely event of a Salomon bankruptcy, as well as violations in minimum capital and collateral requirements that must be met on an ongoing basis. The termination structure allows Swapco to end all contracts while minimizing liquidity and market risks. As stated in each counterparty contract, upon termination, the contract is cash settled at "mid-market" levels. In conjunction with Swapco's dynamic capital and collateral requirements, this unique termination feature substantially reduces counterparty exposure to a short time horizon.
 Since Swapco fully hedges its portfolio with offsetting transactions to eliminate market risk, counterparty creditworthiness, including affiliate exposure, is the most critical factor in evaluating Swapco's creditworthiness. Under the operating guidelines, Swapco is required to capitalize highly its exposure to its counterparties. Counterparty credit quality and market characteristics are considered. If counterparties are downgraded to below investment grade, Swapco will be required to fully capitalize its exposure. Swapco's exposure to Salomon could be potentially great as each counterparty transaction is offset with a contract with SBHC. SBHC will fully collateralize its payables to Swapco to mitigate this risk.
 Salomon is an active participant in the derivatives securities markets. Hence, Swapco will draw from the expertise that has already been developed by Salomon. Swapco should enhance Salomon's business through increasing eligible counterparties that require the highest ratings.
 The extent to which Swapco can grow its portfolio is largely dictated by strict operating guidelines that include counterparty exposure, affiliate risk, portfolio diversification, and product liquidity and volatility. Fitch believes that Swapco's operating procedures will require the maintenance of high capital and collateral standards relative to its expected operating and financial risks.
 -0- 2/8/93
 /CONTACT: Teri Seelig, 212-908-0638, or Stephen W. Joynt, 212-908-0530, both of Fitch/


CO: Salomon Swapco Inc ST: New York IN: FIN SU: RTG

CK -- NY047 -- 4013 02/08/93 10:41 EST
COPYRIGHT 1993 PR Newswire Association LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:PR Newswire
Date:Feb 8, 1993
Words:506
Previous Article:FULL YEAR AND FOURTH QUARTER 1992 RESULTS ANNOUNCED BY HANDY & HARMAN
Next Article:DR PEPPER/SEVEN-UP REDEEMS PREFERRED STOCK AND $173.34 MILLION PRINCIPAL AMOUNT OF 11-1/2 PERCENT SENIOR SUBORDINATED DISCOUNT NOTES DUE 2002


Related Articles
EIGHTEEN SALOMON BROTHERS MORTGAGE SECURITIES IV CMOS RAISED TO 'AAA' BY FITCH -- FITCH FINANCIAL WIRE --
GS FINANCIAL PRODUCTS INTERNATIONAL RATED 'AAA' BY FITCH -- FITCH FINANCIAL WIRE --
SALOMON BROS. MTG. SECS. VII SERIES 1992-6 RATED 'AAA/AA' BY FITCH --FITCH FINANCIAL WIRE --
GS FINANCIAL PRODUCTS U.S. COUNTERPARTY RISK RATED 'AAA' BY FITCH -- FITCH FINANCIAL WIRE --
SALOMON BROTHERS MORTGAGE SECURITIES VII SERIES 1993-4 RATED 'AAA' BY FITCH -- FITCH FINANCIAL WIRE --
PARIBAS DRIVS GARANTIS COUNTERPARTY RISK RATED 'AAA' BY FITCH -- FITCH FINANCIAL WIRE --
GS FINANCIAL PRODUCTS U.S. $500 MILLION SENIOR DEBT SHELF RATED 'AAA' BY FITCH -- FITCH FINANCIAL WIRE --
FITCH SEES SMALL FINANCIAL INSTITUTION IMPACT FROM BARINGS COLLAPSE -- FITCH FINANCIAL WIRE --
Fitch Affirms Travelers Ratings Upon Acquisition of Salomon - Fitch Financial Wire -
Fitch, IBCA Rate Salomon Smith Barney Senior Debt 'AA' & CP 'F-1+' - Fitch Financial Wire -

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters