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ratings to the facilities of a customer.50 The credit officers
assigned a risk class rating to each facility with each
customer.51 The rating would reflect not only the
creditworthiness of the customer, but also the risks associated
with a particular transaction. Risks included the tenor of the
swap, the industry in which the customer did business, and the
creditworthiness of the customer. The risk classification rating
for a facility could take into account the presence of various
credit enhancements supporting the transaction, such as a pledge
of collateral or a guaranty. Tax considerations were not taken
into account when assigning credit ratings.
FNBC had a systematic procedure for determining the risk
classification ratings. Before a new facility could be approved
(and at least annually thereafter), the credit officers would
review the customer’s financial statements, news reports, public
debt ratings, and other information, and would meet with the
relationship manager. For customers that were large enough to
use swaps, there would typically be at least three people from
the credit department involved in the evaluation: A credit
50 A facility was a written document entitling FNBC to enter
into credit business with a customer up to a stated maximum
amount of exposure.
51 A swap counterparty could have more than one rating in
that (1) the counterparty could have more than one facility and
(2) different facilities with a single customer could be rated
differently.
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