Settlement Assets and Obligations and Non-Settlement Related Investments

6 Months Ended

Jun. 30, 2019

Settlement Assets and Obligations and Non-Settlement Related Investments

Settlement Assets and Obligations and Non-Settlement Related Investments

9. Settlement Assets and Obligations and Non-Settlement Related Investments

Settlement assets represent funds received or to be received from agents for unsettled money transfers, money orders, and consumer payments. The Company records corresponding settlement obligations relating to amounts payable under money transfers, money orders, and consumer payment service arrangements. Settlement assets and obligations also include amounts receivable from, and payable to, customers for the value of their cross-currency payment transactions related to the Business Solutions segment.

Settlement assets and obligations consisted of the following (in millions):

	June 30,		December 31,
	2019		2018
Settlement assets:
Cash and cash equivalents	$	791.7	$	1,247.8
Receivables from selling agents and Business Solutions customers		1,390.6		1,355.4
Investment securities		1,546.1		1,210.6
	$	3,728.4	$	3,813.8
Settlement obligations:
Money transfer, money order, and payment service payables	$	2,812.9	$	2,793.6
Payables to agents		915.5		1,020.2
	$	3,728.4	$	3,813.8

Investment securities included in "Settlement assets" in the Company’s Condensed Consolidated Balance Sheets consist primarily of highly-rated state and municipal debt securities, including fixed-rate term notes and variable-rate demand notes. Variable-rate demand note securities can be put (sold at par) typically on a daily basis with settlement periods ranging from the same day to one week, but have varying maturities through 2052. These securities may be used by the Company for short-term liquidity needs and held for short periods of time. The Company is required to hold highly-rated, investment grade securities and such investments are restricted to satisfy outstanding settlement obligations in accordance with applicable state and foreign country requirements.

The substantial majority of the Company’s investment securities are classified as available-for-sale and recorded at fair value. Investment securities are exposed to market risk due to changes in interest rates and credit risk. Western Union regularly monitors credit risk and attempts to mitigate its exposure by investing in highly-rated securities and through investment diversification.

Unrealized gains and losses on available-for-sale securities are excluded from earnings and presented as a component of accumulated other comprehensive loss, net of related deferred taxes. Proceeds from the sale and maturity of available-for-sale securities during the six months ended June 30, 2019 and 2018 were $3.5 billion and $4.9 billion, respectively.

Gains and losses on investments are calculated using the specific-identification method and are recognized during the period in which the investment is sold or when an investment experiences an other-than-temporary decline in value. Factors that could indicate an impairment exists include, but are not limited to: earnings performance, changes in credit rating or adverse changes in the regulatory or economic environment of the asset. If potential impairment exists, the Company assesses whether it has the intent to sell the debt security, more likely than not will be required to sell the debt security before its anticipated recovery or expects that some of the contractual cash flows will not be received.

The components of investment securities are as follows (in millions):

					Gross		Gross		Net
	Amortized		Fair		Unrealized		Unrealized		Unrealized
June 30, 2019	Cost		Value		Gains		Losses		Gains/(Losses)
Settlement assets:
Cash and cash equivalents:
Money market funds	$	9.2	$	9.2	$	—	$	—	$	—
Available-for-sale securities:
State and municipal debt securities (a)		1,117.5		1,144.7		27.5		(0.3)		27.2
State and municipal variable rate demand notes		316.3		316.3		—		—		—
Corporate and other debt securities		74.6		75.1		0.6		(0.1)		0.5
United States Treasury securities		9.9		10.0		0.1		—		0.1
		1,518.3		1,546.1		28.2		(0.4)		27.8
Other assets:
Held-to-maturity securities:
Foreign corporate debt securities		18.2		18.4		0.2		—		0.2
	$	1,545.7	$	1,573.7	$	28.4	$	(0.4)	$	28.0

					Gross		Gross		Net
	Amortized		Fair		Unrealized		Unrealized		Unrealized
December 31, 2018	Cost		Value		Gains		Losses		Gains/(Losses)
Cash and cash equivalents:
Money market funds	$	27.0	$	27.0	$	—	$	—	$	—
Settlement assets:
Cash and cash equivalents:
Money market funds		23.9		23.9		—		—		—
Available-for-sale securities:
State and municipal debt securities (a)		963.4		962.7		6.1		(6.8)		(0.7)
State and municipal variable rate demand notes		168.7		168.7		—		—		—
Corporate and other debt securities		70.0		69.5		—		(0.5)		(0.5)
United States Treasury securities		9.9		9.7		—		(0.2)		(0.2)
		1,212.0		1,210.6		6.1		(7.5)		(1.4)
Other assets:
Held-to-maturity securities:
Foreign corporate debt securities		32.9		32.9		—		—		—
	$	1,295.8	$	1,294.4	$	6.1	$	(7.5)	$	(1.4)

(a) The majority of these securities are fixed-rate instruments.

The following summarizes the contractual maturities of settlement-related debt securities as of June 30, 2019 (in millions):

	Fair
	Value
Due within 1 year	$	141.2
Due after 1 year through 5 years		508.3
Due after 5 years through 10 years		403.8
Due after 10 years		492.8
	$	1,546.1

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay the obligations or the Company may have the right to put the obligation prior to its contractual maturity, as with variable-rate demand notes. Variable-rate demand notes, having a fair value of $7.6 million, $21.6 million, and $287.1 million were included in the categories "Due after 1 year through 5 years," "Due after 5 years through 10 years," and "Due after 10 years", respectively, in the table above. The held-to-maturity foreign corporate debt securities are due within one year.