CDO of ABS and TruPs Commutation. In the second quarter of 2012, Radian  Asset Assurance entered into a  commutation with one of its derivative counterparties (the “Counterparty”) to commute: (1) exposure to a directly insured  tranche of an extremely distressed CDO of  ABS transaction (the “CDO of ABS transaction”), for which we had expected to pay  claims on substantially all of the $450.2 million net par that was outstanding at the time of the commutation; and (2) credit  protection through CDS on six directly insured TruPs CDO transactions, representing $699.0 million of net par outstanding at  the time of the commutation (the “T erminated TruPs CDOs”). In consideration for these commutations, Radian  Asset Assurance  paid $210.0 million, a significant portion of which (the “LPV  Initial Capital”) was deposited with a limited purpose vehicle (an  “LPV”) to cover the Counterparty’s potential future losses on the TruPs bonds underlying the Terminated TruPs CDOs (the  “Terminated TruPs Bonds”). The commutations described in this paragraph are referred to herein as the “CDO Commutation  Transactions.” Also as part of the CDO Commutation Transactions, the LPV entered into a credit default swap (the “Residual CDS”)  with the Counterparty to provide for payments to the Counterparty for future losses relating to the  Terminated TruPs Bonds.  The LPV Initial Capital, together with investment earnings thereon (collectively , the “LPV Capital”), represent the only funds  available to pay the Counterparty for amounts due under the Residual CDS. Radian  Asset Assurance has no further obligation  for claims related to the Terminated TruPs CDOs. The Residual CDS terminates concurrently with the  Terminated TruPs Bonds  for which we had provided credit protection and provides for payment to the Counterparty , substantially in accordance with the  terms of our original CDS protection for the  Terminated TruPs Bonds. In addition, pursuant to an agreement with the  Counterparty, if any LPV Capital amount is remaining following the maturity of the Residual CDS, Radian  Asset Assurance is  entitled to these remaining funds. For statutory accounting purposes, we established an associated salvage recovery related to the LPV  Capital that we  expect to ultimately receive upon the expiration of the LPV’ s obligations. This salvage recovery was $76.3 million as of  December 31, 2012. The amount of salvage recovery remains at risk, and the actual amount of salvage that we ultimately  recover will depend on the future performance of the  Terminated TruPs Bonds. If the LPV is required to make payments to the  Counterparty pursuant to the terms of the Residual CDS, our projected and actual recovery from the LPV  may be materially  reduced or eliminated. See Note 6 of Notes to Consolidated Financial Statements for further information regarding the  accounting treatment of this transaction  under accounting principles generally accepted in the United States of  America  (“GAAP”). All of the transactions commuted pursuant to the CDO Commutation  Transactions were rated below investment grade  (“BIG”) internally at the time of the transaction, with $1 billion net par outstanding of the commuted transactions rated B or  below internally. In the aggregate, the transactions commuted pursuant to the CDO Commutation  Transactions represented  approximately 51% of our financial guaranty segment’ s aggregate net par outstanding rated B or below internally at the time of  the transaction. Following the CDO Commutation Transactions, we no longer have any exposure to CDO of  ABS transactions.  CDO Early Terminations. During 2012, CDS counterparties in our financial guaranty business exercised their  termination rights with respect to 35 corporate  CDOs, a foreign infrastructure CDS and a CDS of an investor -owned utility  bond that we insured (collectively, the “CDO Early Terminations”), which further reduced our financial guaranty net par  outstanding by $14.6 billion in the aggregate. There was no material impact on our financial statements as a result of these  terminations. FGIC Commutation. On November 9, 2012, Radian Asset Assurance entered into an agreement with Financial  Guaranty Insurance Company (“FGIC”) to commute the remaining $822.2 million of outstanding par reinsured by Radian  Asset  Assurance from FGIC (the “FGIC Commutation”).  This transaction, which closed in January 2013, included the commutation  of approximately $195.9 million of Radian  Asset Assurance’s $225.3 million in net par outstanding as of December 31, 2012,  related to Jefferson County, Alabama sewer warrants, a large distressed public finance credit. Radian  Asset Assurance made a  commutation payment of approximately $52.4 million as part of this transaction.  The amount of the FGIC Commutation  payment was determined primarily based on existing loss reserves and unearned premium reserves, and therefore, did not have  a material impact on our consolidated financial statements or Radian  Asset Assurance’s statutory capital position. See “—Net  Par Outstanding— Largest Single Insured Risks”  below. 26