Monday, December 7, 2009

Update on Municipal Interest rate swaps

Since Jackson nearly entered into a refinancing plan that would have used the same interest-rate swaps that blew up Jefferson County and have burned other governments earlier this year, JJ has made it a point to keep up with how interest rate swaps have performed for other municipal governments around the country.

The Philadelphia Inquirer explains how these swaps work:
" An interest-rate swap is an agreement between parties to exchange one stream of interest payments for another over a set period. They usually involve the exchange of a fixed-rate payment for a variable-rate payment.
Swaps were attractive when interest rates on variable-rate bonds and notes were low compared with fixed-rate bonds and notes. They allowed public agencies to take advantage of the lower rates while, in theory, providing a hedge against large increases in those rates.
However, the collapse of financial markets exposed the agencies to unanticipated risks - and millions of dollars in losses."

What exactly is happening in the municipal bonds interest rate swap world? Lets take a look around the country and see.

New Jersey just got burned on one deal. Bloomberg reports:
"Dec. 4 (Bloomberg) -- New Jersey taxpayers are being saddled with a bill of about $657,000 a month from Bank of Montreal for an interest-rate swap approved by state officials and linked to bonds that were never sold.
The 11th-largest U.S. state by population, which is cutting expenses to close a $1 billion budget deficit, will pay Canada’s oldest lender $23.5 million The sum, about the same as the salaries for 113 teachers over three years, will allow it to avoid a $50 million penalty for canceling the contract, which was tied to planned sales of school-construction bonds." Article

The Philadelphia Inquirer reports Delaware has its own swap problem:
"Interest-rate swaps" made in 2000 and 2001 provided the DRPA (Delaware Port Authority) with $45 million, but the deals spawned $242 million in liabilities that are beginning to come due...
The DRPA has paid $13 million to settle one swap contract and is going to pay about $40 million to terminate another, Hanson said..." Article

A hospital in Oregon is forced to pay $30 million just to get out of its interest-rate swap contract that is killing its finances:
"Asante Health System could issue as much as $260 million in new bonds to retire or restructure bonds that were sold in 2002, 2005 and 2008. Interest payments on many of those bonds have greatly exceeded original estimates.
Many of the earlier bonds were issued with elaborate "interest swap" provisions that became unfavorable for Asante after the credit markets collapsed in 2008 and interest rates soared.
Marvin Haas, Asante's chief financial officer, said retiring the interest rate swaps will cost Asante about $30 million, over and above the costs of redeeming the face value of the bonds....
We went from 5 percent to 15 percent overnight," he said, describing some of the worst moments of the market collapse in early 2008. Gyrations in the bond market cost Asante $4.5 million in unanticipated interest payments in the budget year that ended Sept. 30, 2008, Haas said. For the budget year that ended Sept. 30, 2009, there was just $758,000 in unanticipated interest
He said the costs of terminating the swaps is "painful," but "it's the right thing to do" because the new bonds come with a fixed interest rate that Asante can budget for..." Article

The Pennsylvania Auditor General has had enough after he issued a report saying over 200 governments in his state had entered into interest-rate swap agreements in the last six years. The study was made after several governments in Pennsylvania were forced to pay several million dollars in early termination fees when interest rates moved the wrong way. Article, Copy of report The Auditor General recommended the legislature ban local governments from entering into such agreements.

Keep in mind Jackson Finance Director Rick Hill and others thought refinancing our bonds with these swaps was a great deal as he claimed Jackson would get ten million dollars up-front from the refinance. JJ reviewed the deal after filing public records requests for the related documents and determined that at best Jackson was going to receive a cash flow of one million dollars for ten years, not a lump sum as Mr. Hill claimed. Such a cash flow was of course dependant on other variables that could change such as the interest rates. The proposed refinance would have also paid $4 million in feeds to politically-connected lawyers and bond advisers even though the original financing for the same bonds only paid $1.5 million in feeds when first closed.

Yes, I know, municipal bonds are boooooring. However, when a bond deal blows up because the Mayor and the City Council were more interested in paying off their friends than in learning the actual details of how these work and your water and sewer rates quadruple like in Jefferson County, it won't seem so boring.

No comments:

Recent Comments

Search Jackson Jambalaya

Subscribe to JJ's Youtube channel


Trollfest '09

Trollfest '07 was such a success that Jackson Jambalaya will once again host Trollfest '09. Catch this great event which will leave NE Jackson & Fondren in flames. Othor Cain and his band, The Black Power Structure headline the night while Sonjay Poontang returns for an encore performance. Former Frank Melton bodyguard Marcus Wright makes his premier appearance at Trollfest singing "I'm a Sweet Transvestite" from "The Rocky Horror Picture Show." Kamikaze will sing his new hit, “How I sold out to da Man.” Robbie Bell again performs: “Mamas, don't let your babies grow up to be Bells” and “Any friend of Ed Peters is a friend of mine”. After the show, Ms. Bell will autograph copies of her mug shot photos. In a salute to “Dancing with the Stars”, Ms. Bell and Hinds County District Attorney Robert Smith will dance the Wango Tango.

Wrestling returns, except this time it will be a Battle Royal with Othor Cain, Ben Allen, Kim Wade, Haley Fisackerly, Alan Lange, and “Big Cat” Donna Ladd all in the ring at the same time. The Battle Royal will be in a steel cage, no time limit, no referee, and the losers must leave town. Marshand Crisler will be the honorary referee (as it gives him a title without actually having to do anything).

Meet KIM Waaaaaade at the Entergy Tent. For five pesos, Kim will sell you a chance to win a deed to a crack house on Ridgeway Street stuffed in the Howard Industries pinata. Don't worry if the pinata is beaten to shreds, as Mr. Wade has Jose, Emmanuel, and Carlos, all illegal immigrants, available as replacements for the it. Upon leaving the Entergy tent, fig leaves will be available in case Entergy literally takes everything you have as part of its Trollfest ticket price adjustment charge.

Donna Ladd of The Jackson Free Press will give several classes on learning how to write. Smearing, writing without factchecking, and reporting only one side of a story will be covered. A donation to pay their taxes will be accepted and she will be signing copies of their former federal tax liens. Ms. Ladd will give a dramatic reading of her two award-winning essays (They received The Jackson Free Press "Best Of" awards.) "Why everything is always about me" and "Why I cover murders better than anyone else in Jackson".

In the spirit of helping those who are less fortunate, Trollfest '09 adopts a cause for which a portion of the proceeds and donations will be donated: Keeping Frank Melton in his home. The “Keep Frank Melton From Being Homeless” booth will sell chances for five dollars to pin the tail on the jackass. John Reeves has graciously volunteered to be the jackass for this honorable excursion into saving Frank's ass. What's an ass between two friends after all? If Mr. Reeves is unable to um, perform, Speaker Billy McCoy has also volunteered as when the word “jackass” was mentioned he immediately ran as fast as he could to sign up.

In order to help clean up the legal profession, Adam Kilgore of the Mississippi Bar will be giving away free, round-trip plane tickets to the North Pole where they keep their bar complaint forms (which are NOT available online). If you don't want to go to the North Pole, you can enjoy Brant Brantley's (of the Mississippi Commission on Judicial Performance) free guided tours of the quicksand field over by High Street where all complaints against judges disappear. If for some reason you are unable to control yourself, never fear; Judge Houston Patton will operate his jail where no lawyers are needed or allowed as you just sit there for minutes... hours.... months...years until he decides he is tired of you sitting in his jail. Do not think Judge Patton is a bad judge however as he plans to serve free Mad Dog 20/20 to all inmates.

Trollfest '09 is a pet-friendly event as well. Feel free to bring your dog with you and do not worry if your pet gets hungry, as employees of the Jackson Zoo will be on hand to provide some of their animals as food when it gets to be feeding time for your little loved one.

Relax at the Fox News Tent. Since there are only three blonde reporters in Jackson (being blonde is a requirement for working at Fox News), Megan and Kathryn from WAPT and Wendy from WLBT will be on loan to Fox. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both and a torn-up Obama yard sign will entitle you to free drinks served by Megan, Wendy, and Kathryn. Get your tickets now. Since this is an event for trolls, no ID is required. Just bring the hate. Bring the family, Trollfest '09 is for EVERYONE!!!

This is definitely a Beaver production.

Note: Security provided by INS.

Trollfest '07

Jackson Jambalaya is the home of Trollfest '07. Catch this great event which promises to leave NE Jackson & Fondren in flames. Sonjay Poontang and his band headline the night with a special steel cage, no time limit "loser must leave town" bout between Alan Lange and "Big Cat"Donna Ladd following afterwards. Kamikaze will perform his new song F*** Bush, he's still a _____. Did I mention there was no referee? Dr. Heddy Matthias and Lori Gregory will face off in the undercard dueling with dangling participles and other um, devices. Robbie Bell will perform Her two latest songs: My Best Friends are in the Media and Mama's, Don't Let Your Babies Grow up to be George Bell. Sid Salter of The Clarion-Ledger will host "Pin the Tail on the Trial Lawyer", sponsored by State Farm.

There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

This is definitely a Beaver production.

Note: Security provided by INS