School Board of Palm Beach County Finance Committee Meeting August 12, 2016

Transcription

1 School Board of Palm Beach County Finance Committee Meeting August 12, S. Orange Avenue Suite 1170 Orlando, FL fax

2 Swap Termination Plan

3 Potential Swap Termination Why terminate the swaps? District has been actively working to reduce exposure to the financial market. Conversion to traditional fixed rate obligations eliminates: Rollover risk Basis risk Swap counterparty credit risk District rating downgrade risk Sources: Bond Proceeds: Par Amount 166,010, Premium 25,747, ,757, Financing structure Swap termination is paid from bond proceeds A significant portion of the swap termination payments would be offset by lower interest rates on the refunding certificates Other Sources of Funds: Swap Accrued Interest Account 2,842, FRN Accrued Interest Account 585, August 1, 2014 Principal 150, ,578, Total: 195,336, Uses: Refunding Escrow Deposits: Cash Deposit 165,893, Delivery Day Expenses: Cost of Issuance 393, Underwriter's Discount 627, Swap Termination Payment 28,422, ,442, ,336,

4 Certificates of Participation Summary Annual COP payment budget is $146 million in FY 2017, $145 million in FY 2018 and 2019 then increases thereafter to allow capacity for additional needs COP budget includes bank fees, cushion for variable rate debt fluctuations, etc. The School District of Palm Beach County Outstanding Certificates of Participation $ Millions Outstanding Debt Service Series 2003B Series 2012B Series 2014A Budgeted Annual Debt Service Payment 4

5 Swap Overview The District s Interest Rate Hedging Program has generated significant cash flow savings Savings / Benefit Derived from Swaps and Swaptions as of June 30, 2016 Swap Type/Terms Initial Notional Amount Current Notional Amount Counterparty Savings Since Inception 1 Up-front Payment Received Amount Paid for Termination 2 Total Cumulative Benefit Terminated Swaps 2006 CMS Trade: Pay 67% of 1-month 2006 CMS LIBOR -- Receive 59.93% of 10-yr LIBOR 100,000,000 UBS 12,273, D Basis Swap: Pay BMA less spread -- Receive 67%*LIBOR 100,000,000 Citigroup 6,531, B 2001B Swap 162,980,000 Citigroup 5,870,414 Active Swap / Swaption 2002B Fixed-Payor Swap: Receive Pay 4.22% -- BMA [or 67% * LIBOR (alternate rate)] 115,350, ,350,000 Citigroup 3,464,451 6,142,000 (2,075,000) 7,531, B 2003B Fixed-Payor: Pay 3.91% -- Receive BMA [knockout option] 124,295, ,295,000 UBS 2,939,577 3,010,000-5,949, B 2002D Swap 116,555, ,225,000 Citigroup (521,412) 4,240,000-3,718, Total 356,200, ,870,000 5,882,616 13,392,000 (2,075,000) 41,874,645 Savings on the 2002B, 2003B and 2012B compared to theoretical fixed rate financing (callable) as if priced on effective date of swap Amount shown on 2002B - ($2,075,000) is the actual amount paid to purchase back cancellation option ($2,714,000) less accrued interest earnings of 3.0% through FY 2009 on up-front payment ($639,000) As of June 30,

6 Swap Overview Series 2014A Floating-to-Fixed Cancelable Interest Rate Swap Series 2002B/2014A Initial Notional Amount: $115,350,000 Current Notional Amount: $115,350,000 End Date: August 1, 2027 Cancellation option terminated in 2009 Current MTM: $(27,370,543.86) SIFMA or 70% 1-mo LIBOR + 46bp District 67% 1-mo LIBOR or SIFMA 4.22% Citigroup Financial Products Banc of America (08/01/ /01/2017) As of August 4,

7 Swap Overview Series 2003B Floating-to-Fixed Knockout Interest Rate Swap Series 2003B Initial Notional Amount: $124,295,000 Current Notional Amount: $124,295,000 End Date: August 1, 2029 Knock out expires August 1, 2018 Current MTM: $(36,890,714.46) SIFMA District UBS 3.91% SIFMA + 65 bps Dexia As of August 4,

8 Swap Overview Series 2012B Floating-to-Fixed Interest Rate Swap Series 2002D/2012B Initial Notional Amount: $116,555,000 Current Notional Amount: $107,120,000 End Date: August 1, 2028 Current MTM: $(34,196,610.24) SIFMA District 4.71% Citigroup Financial Products SIFMA+ 49bps Wells Fargo (08/01/ /01/2018) As of August 4,

9 Swap Overview Mark to Market Trends Swap Mark-to-Market values move inverse to interest rates Millions ($) ($120) ($100) ($80) ($60) ($40) Historical MTM Values and Interest Rates 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% ($20) 0.50% $0 0.00% 9/30/2009 9/30/2010 9/30/2011 9/30/2012 9/30/2013 9/30/2014 9/30/2015 Current Series 2014A (2002B) Series 2003B Series 2012B (2002D) 10 Year TSY Bond 10 Year MMD 9

10 Swap Termination Program Strategy Terminate swaps individually or in aggregate as soon as practical and at the lowest possible cost Very low interest rates combined with a steep yield curve drive swap MTM up Other factors Credit spreads on fixed rate bonds, steep yield curve and relationship between taxable and taxexempt market are not favorable As duration of the swaps declines, in a steep yield curve MTM does not decline as much as in a flat yield curve Current market dynamics are not favorable Factors can change quickly 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% Market Conditions 0.00% /4/2016 AAA MMD 20 Year AAA MMD (3-Year Average) 10

11 Other Factors Peaks and valleys in debt service create opportunities to accelerate principal payments, this moving down the yield curve Discounts swap counterparties may take discounts Dexia (2003B) may tender debt at less than par The School District of Palm Beach County Outstanding Certificates of Participation $ Millions Outstanding Debt Service Series 2003B Series 2012B Series 2014A Budgeted Annual Debt Service Payment 11

12 Potential Swap Termination As a result of the refundings over the past few years and the savings realized, the District has the opportunity to terminate all three swaps and keep annual debt service near current maximum annual debt service ( MADS ) Proportional principal amortization results in MADS of $144.7 million which is a slight increase over current MADS of $144.5 million The School District of Palm Beach County MADS: $144.7 million $ Millions Outstanding Debt Service Debt Service of Swap Terminations Budgeted Annual Debt Service Payment 12