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These excerpts taken from the WEN 10-K filed Mar 14, 2008. Undesignated
Credit Default Swaps
As of
December 31, 2007 and 2006, the Company held 15 and 20 credit default swaps
(“CDS”), respectively, as the protection seller, with an aggregate notional
amount of $48.0 million and $68.0 million, respectively. A CDS is a financial
instrument used to transfer the credit risk of a reference entity from one party
to another for a specified period of time. In a standard CDS contract, one
party, referred to as the protection buyer, purchases credit default protection
from another party, referred to as the protection seller, for a specific
notional amount of obligations of a reference entity. In these transactions, the
protection buyer pays a premium to the protection seller. The premium is
generally paid quarterly in arrears, but may be paid in full up front in the
case of a CDS with a short maturity. Generally, if a pre-defined credit event
occurs during the term of the CDS, the protection seller pays the protection
buyer the notional amount and takes delivery of the reference entity’s
obligation. As of December 31, 2007 and 2006, these CDSs had a gross positive
fair value of $0.2 million and $1.0 million and a gross negative fair value of
$0.7 million and $4,000, respectively, recorded in derivative assets and
liabilities in the consolidated balance sheet. For the years ended December 31,
2007 and 2006, the Company recognized net gains of $0.2 million and $2.8 million
in net gain (loss) on derivatives, respectively, related to CDSs.
Undesignated Credit Default Swaps As of December 31, 2007 and 2006, the Company held 15 and 20 credit default swaps (“CDS”), respectively, as the protection seller, with an aggregate notional amount of $48.0 million and $68.0 million, respectively. A CDS is a financial instrument used to transfer the credit risk of a reference entity from one party to another for a specified period of time. In a standard CDS contract, one party, referred to as the protection buyer, purchases credit default protection from another party, referred to as the protection seller, for a specific notional amount of obligations of a reference entity. In these transactions, the protection buyer pays a premium to the protection seller. The premium is generally paid quarterly in arrears, but may be paid in full up front in the case of a CDS with a short maturity. Generally, if a pre-defined credit event occurs during the term of the CDS, the protection seller pays the protection buyer the notional amount and takes delivery of the reference entity’s obligation. As of December 31, 2007 and 2006, these CDSs had a gross positive fair value of $0.2 million and $1.0 million and a gross negative fair value of $0.7 million and $4,000, respectively, recorded in derivative assets and liabilities in the consolidated balance sheet. For the years ended December 31, 2007 and 2006, the Company recognized net gains of $0.2 million and $2.8 million in net gain (loss) on derivatives, respectively, related to CDSs. | EXCERPTS ON THIS PAGE:
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