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John Hewlett, of Susquehanna Group Advisors, presents information on a what he defines as a Fixed Receiver Swaption Opportunity. The proposed swaption would be related to the counties LCSWMA Guaranteed Authority Bonds, Series B of 2013, the principle amount of the bonds are $24 million with an obligation of the county to pay a fixed rate of 4.00% Video. Current Market Opportunity. PDF. Fixed Receiver Swaption Opportunity. The following information was provided to the commissioners. ___________________________________ The County’s total non‐electoral debt outstanding is currently $108,552,723, all of which is currently outstanding at a fixed interest rate. • The County currently has two outstanding swap agreements: 1.) 2015 Swap: $20,330,000 Notional / Effective May 15, 2015 / County Pays 2.252% / Receives 70% 3mo LIBOR; 2.) 2016 Swap: $14,405,000 Notional / Effective May 15, 2016 / County Pays 2.403% / Receives 70% 3mo LIBOR. • The County’s total lease rental debt outstanding is currently $233,823,283, of which $165,625,503 is deemed self‐ liquidating. • One of the lease rental debt issues that is not self‐liquidating is the LCSWMA Guaranteed Authority Bonds, Series B of 2013 (the “2013B Bonds”) in the principal amount of $24,000,000. ‐ The fixed rate on the 2013B Bonds is 5.00%. The County is obligated to pay 4.00%. ‐ The maturity date of the 2013B Bonds is December 15, 2033, at which time the entire principal amount is due. • In connection with the 2013B Bonds, the County has the opportunity to execute a fixed receiver swaption in order to: 1.) Potentially convert its fixed rate obligation to a floating rate; and 2.) Receive an upfront cash payment. By executing a fixed receiver swaption, the County would potentially convert its fixed rate obligation under the 2013B Bonds to a floating rate (on a future date) by selling an option to a swap counterparty (for the right to commence swap payments) in exchange for a cash payment today. • Terms: ‐ Exercise (Effective) Date: April 15, [2017] or [2018] (European‐style option) ‐ County Receives: Fixed (Strike) Rate of [4.00%] (only if exercised, commencing on the exercise date) ‐ County Pays: Floating Rate [3‐month LIBOR] (only if exercised, commencing on the exercise date) ‐ Upfront Payment: [>$1,750,000] depending on final structure and market conditions on execution date. * If exercised by the counterparty on the exercise date, the exchange of swap payments commences. If not exercised, the County keeps the upfront payment and no additional payments are exchanged. • The proposed floating swap rate [3‐Month LIBOR] is currently 0.236%. ‐ 10‐year average = 2.042% ‐ 10‐year maximum = 5.725% ‐ 20‐year average = 3.301% ‐ 20‐year maximum = 6.851% • Key risks include: 1.) Interest Rate Risk 2.) Termination Risk 3.) Counterparty Risk 4.) Event Risk • The County previously executed three (3) fixed receiver swaptions in 2007 with a combined notional amount of $40,055,000 and a combined upfront payment to the County of $1,001,000. The swaptions expired in 2012 without being exercised, at which point the County was released from all future obligations.    FIXED RECEIVER SWAPTION (if exercised)* Upfront Payment = >$1,750,000** * The Counterparty would have the right to exercise the swaption (commencing swap payments) only on April 15, [2017] or [2018]. ** Estimated. The County keeps the upfront payment regardless of whether or not the swaption is exercised. NET INTEREST RATE ON 2013B BONDS: Before Exercise Date = 4.00% After Exercise Date (if exercised) = [3‐Month LIBOR] After Exercise Date (if not exercised) = 4.00% Photo/Natalie Cake(Read More)
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