DERIVATIVE INSTRUMENTS

12 Months Ended

Sep. 30, 2011

DERIVATIVE INSTRUMENTS [Abstract]

DERIVATIVE INSTRUMENTS

NOTE 15 – DERIVATIVE INSTRUMENTS

The Company's investments in commercial finance assets have been structured on a fixed-rate basis, but some of the Company's related borrowings were obtained on a floating-rate basis.  As a result, the Company was exposed to risk if interest rates rose, which in turn would increase the Company's borrowing costs.  In addition, when the Company acquired commercial finance assets, it based its pricing, in part, on the spread it expected to achieve between the interest rate it charged its customers and the effective interest cost the Company paid when it funded the respective borrowings.  Increases in interest rates that increased the Company's permanent funding costs between the time the assets were originated and the time they were funded could narrow, eliminate or even reverse this spread.  In conjunction with the securitization of its commercial finance assets in October 2011 (see Note 27), three of the four outstanding swap contracts were terminated.

Historically, to manage its interest rate risk, the Company employed a hedging strategy using derivative financial instruments such as interest rate swaps, which were designated as cash flow hedges.  Accordingly, changes in fair value of those derivatives were recorded in accumulated other comprehensive loss and were subsequently reclassified into earnings when the hedged forecasted interest payments were recognized in earnings.  The Company does not use derivative financial instruments for trading or speculative purposes.  The Company managed the credit risk of possible counterparty default in the derivative transactions by dealing exclusively with counterparties with high credit quality.  The Company has an agreement with its derivative counterparty that incorporates the loan covenant provisions of the Company's indebtedness with a lender affiliate of the derivative counterparty.  Failure to comply with the loan covenant provisions could result in the Company being in default on any derivative instrument obligations covered by the agreement.  As of September 30, 2011, the fair value of derivatives in a net liability position related to these agreements was $404,000, net of accrued interest.  As of September 30, 2011, the Company had posted $300,000 in cash collateral as security for any unfunded liability related to these agreements.  If the Company had breached any of these provisions at September 30, 2011, it could have been required to settle its obligations under the agreements at their termination value of $421,000.

Derivative instruments were reported at fair value as of September 30, 2011 as follows (in thousands, except number of contracts):

	Notional Amount		Termination Date of Swap	Derivative Liability Reported in Accrued Expenses and Other Liabilities		Number of Contracts
Interest rate swaps designated as cash flow hedges	$	60,615	March 15, 2015	$	404		4

As of September 30, 2011, included in accumulated other comprehensive loss were unrealized net losses of $181,000 (net of tax benefit and noncontrolling interests of $223,000) on four swaps.  The Company recognized no gain or loss during fiscal 2011 for hedge ineffectiveness.

In addition, included in accumulated other comprehensive loss as of September 30, 2011 and 2010 is a net unrealized loss of $41,000 (net of tax benefit of $28,000) and a net unrealized loss of $171,000 (net of tax benefit of $146,000 and noncontrolling interest of $25,000), respectively, related to hedging instruments held by investment funds sponsored by LEAF Financial, in which the Company owns an equity interest.