Introduction to Interest Rate Swaps City of Roseville Roseville, - PowerPoint PPT Presentation

Introduction to Interest Rate Swaps City of Roseville

Roseville, CA � Incorporated in 190 9 – Placer County � Located 15 m iles north of Sacram ento � Full Service City � Electric - Water � Wastewater – Garbage � Police – Fire – Parks – Library � Two City-owned Golf Courses � Population: 10 4,655 � http:/ / www.roseville.ca.us

Summary of Debt Synthetic Type Fixed Variable Fixed Electric 93,625,000 60,000,000 115,395,000 Gas Prepay 209,350,000 Water 53,695,000 Wastewater 11,430,000 70,000,000 93,525,000 Golf Course 7,310,000 Public Facilities 16,490,000 Redevelopment 36,405,000 Mello-Roos 402,900,000 $ 8 31,20 5,0 0 0 $ 130 ,0 0 0 ,0 0 0 $ 20 8 ,920 ,0 0 0 Total

Use of Swaps Electric Portfolio � Lower costs w/ synthetic product com pared to fixed � Diversify debt portfolio

Use of Swaps Diversified? Issue Type of Debt Insurer Counterparty Most Recent Reset Rate VRDBs FSA Morgan Stanley 1.70% 20 0 2 Electric Morgan Stanley & ARNs FGIC 6.11% Bear Stearns 20 0 5 Electric ARNs FGIC n/ a 6.47% 20 0 5 Electric 7.00% 20 0 0 VRDBs FGIC n/ a (Held by MS) Wastewater 20 0 3 ARNs FGIC Morgan Stanley 4.08% Wastewater

Use of Swaps Lower Costs? City of Roseville Electric System Variable Rate Debt 12% 10% 8% 6% 4% 2% 0% 7/2005 9/2005 11/2005 1/2006 4/2006 6/2006 8/2006 11/2006 1/2007 3/2007 6/2007 8/2007 10/2007 1/2008 2002 VRDBs 2005 ARS SIFMA

Use of Swaps Lower Costs? City of Roseville Electric System Variable Rate Debt 12% 10% 8% 6% 4% 2% 0% 7/2005 9/2005 11/2005 1/2006 4/2006 6/2006 8/2006 11/2006 1/2007 3/2007 6/2007 8/2007 10/2007 1/2008 2002 VRDBs 2005 ARS SIFMA

Use of Swaps Lower Costs? City of Roseville Electric System Variable Rate Debt 12% 10% 8% 6% 4% 2% 0% 7/2005 9/2005 11/2005 1/2006 4/2006 6/2006 8/2006 11/2006 1/2007 3/2007 6/2007 8/2007 10/2007 1/2008 2002 VRDBs 2005 ARS SIFMA

Use of Swaps Lower Costs? City of Roseville Electric System Variable Rate Debt 12% 10% 8% 6% 4% 2% 0% 7/2005 9/2005 11/2005 1/2006 4/2006 6/2006 8/2006 11/2006 1/2007 3/2007 6/2007 8/2007 10/2007 1/2008 2002 VRDBs 2005 ARS SIFMA Historical Rates 20 0 2 VRDBs 20 0 5 ARS Rate Spread to SIFMA Rate Spread to SIFMA Current 1.70 -0.63 6.12 3.79 3-Month Average 2.37 -0.28 4.87 2.22 1-Yr Average 3.31 -0.12 3.87 0.45 Average since 2005 3.21 -0.11 3.28 -0.03

Use of Swaps Lower Costs? 2005 Electric, Series B Variable Payment vs. Floating Leg Received 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 6/29/2005 8/29/2005 10/29/2005 12/29/2005 2/28/2006 4/29/2006 6/29/2006 8/29/2006 10/29/2006 12/29/2006 2/28/2007 4/29/2007 6/29/2007 8/29/2007 10/29/2007 12/29/2007 2/29/2008 2005B Electric FGIC ARSs $90m 70.5% 1m LIBOR

Risks & Rewards � Risks � Market disruption � Failed auctions � High rates � Rewards � Lower rates = $$$ in savings � Matching assets and liabilities

Risks & Rewards

Critical Factors � More adm inistrative burden � Monitor M-T-M Values � Monitor counterparty credit ratings � Debt service paym ents � Annual swap disclosure � Refunding Issues � Can swap survive a refunding? � Possible increased costs

Introduction to Interest Rate Swaps Questions?