HomeMy WebLinkAboutIR 8144 INFORMAL REPORT TO CITY COUNCIL MEMBERS No.
To the Mayor and Members of the City Council July 8, 1998
Subject: Page I of 2
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PERFORMANCE OF WATER AND SEWER
FUND'S INTEREST RATE SWAP
In August 1996, the City entered into two interest rate swaps, one with a notional amount
of $20 million with Lehman Brothers and another one at a similar amount with Rice
Financial Products, secured by revenues from the Water and Sewer System.
Under the terms of the swap agreement, the City pays a variable interest rate to the swap
provider, calculated as a percentage payment on the notional amount of each swap. The
swap provider pays a fixed interest rate to the City. The payments are netted, and as long
as the City's variable rate remains below the fixed rate paid by the swap providers, the
City receives cash which results in debt service savings in the Water and Sewer
Enterprise Fund.
To date, the swaps are performing as projected two years ago. The swap with Rice
Financial Products has produced over $250,000 in additional income for the Water and
Sewer Fund. The next payment date is August 1, and the City should receive an
additional $85,000 on that date. If interest rates remain stable over the remaining three
years of the swap agreement, the City can expect total income from this swap in excess
of$800,000.
The swap with Lehman Brothers, based on a different interest rate index, has produced
over $231,000 in additional income, with another $82,000 expected on August 1. With
stable interest rates, the City can expect total income from this swap in excess of
$770,000.
The two swaps, in a stable interest rate environment, should produce $1,570,000 for the
Water and Sewer Fund over the five year life of the agreement. If interest rates increase
0.25% annually for the remaining three years of the swap agreements, the City's income
from the two swaps would total only $930,000. Interest rates would have to rise by
0.56% to 0.62% annually over the next three years for the City to "break-even" and not
make money on these swap agreements.
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ISSUED BY THE CITY MANAGER-- FORT WORTH,TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8144
Tr
To the Mayor and Members of the City Council
July 9, 1998
x Subject: Page 2 of 2
an PERFORMANCE OF WATER AND SEWER
FUND'S INTEREST RATE SWAP
First Southwest Company, the City's financial advisor, monitors the City's swap
positions on a regular basis and will notify us of any opportunities in the interest rate
markets that relate to these swaps. If you have any questions, please let me know, and
we will be glad to make a detailed presentation.
C � I
Bob Terrell
City Manager
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ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS