HomeMy WebLinkAboutIR 8266 INFORMAL REPORT TO CITY COUNCIL MEMBERS No.- 8266
To the Mayor and Members of the City Council
August 15, 2000
Subject: 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.
With one year remaining, the swaps are performing as projected. The swap with Rice Financial
Products has produced over $747,000 in additional income for the Water and Sewer Fund. If
interest rates remain stable over the remaining year of the swap agreement, the City can expect
total income from this swap to exceed $800,000.
The swap with Lehman Brothers, based on a different interest rate index, has produced over
$699,000 in additional income. The City will be required to make a payment of $37,000 in
February, 2001 due to the rase in short-terns interest rates over the last year and a half.
Nevertheless, the City can still expect total income from this swap to exceed $637,000.
The two swaps, through their final year, should produce $1,456,000 for the Water and Sewer
Fund over the five year life of the agreements.
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.
Bob Terrell
City Manager
ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS