GAAP Reporting

If the reporting entity is an VIE after it has acquired the variable interest of an entity. According to ASC 10, a subsidiary is defined as an entity whose controlling financial interests is done by the parent either by means of variable interests or voting interest. When the controlling financial interest is being reported by an entity, it will account for liabilities, assets and other non-controlling interest of the entity which has been consolidated into the financial statements following the ASC 810-10-45 guiding the consolidation principles. The main US GAAP consolidation techniques are two and they include voting model and variable interest. The principles are of similar size for consolidated entities based on the Variable Interest Model and the Voting Model.

SPV Analysis

The SPV will be used by the MLF to offer liquidity backstop from various Eligible Issuers. The Exchange Stabilization Funds are appropriation funds from the Treasury secretary based on the CARES Act and an initial investment amounting to $500 billion for Eligible Notes will be issued. The establishment of the SPV is based on Delaware Limited Liability Company based on the following member equity:

a)The preferred equity member is the Treasury and will make $17.5billion of initial investment and they will not exercise more rights regarding the control of the SPV activities with $17.5 billion from the second investment tranche in future so that the total investment becomes $35bilion for the LLC. The managing member is the FRBNY and have numerous control rights regarding the SPV activities. Treasury will exercise some rights to guide the investment of funds being contributed as agreed by the FRBNY.

An entity is described as a VIE if they possess the following features

First, the entity has insufficient equity to fund various operations without support of additional subordinated finance. In our case, the above condition is applicable. The FRBNY gives support to the SPV activities through provision of liquidity backstop by issuing it to Eligible Notes. The investment of Equity made by the Treasury has failed in being used to finance the SPV activities. Second, is when the equity holders in general don’t have the features of a controlling interest in its financial obligations. This is also applicable in our case. As the main equity holder, Treasury lacks the features of a controlling financial interest capable of precluding the consideration of VIE. An entity is described as VIE if the risk of the overall equity holders has all the above following features for a controlling interest.