Florida Municipal Power Agency. Executive Committee. Taylor Swaps Workshop

Size: px

Start display at page:

Download "Florida Municipal Power Agency. Executive Committee. Taylor Swaps Workshop"

Marian Booker
6 years ago
Views:

1 Florida Municipal Power Agency Executive Committee Taylor Swaps Workshop March 21, :00 p.m. Executive Committee Howard McKinnon, Havana - Chairman Matt Brower, Ocala - Vice Chairman Vince Ruano, Bushnell Vacant, Clewiston Fred Hilliard, Fort Meade Bill Thiess, Fort Pierce Robert Page, Green Cove Springs Roy Trotter, Jacksonville Beach Lynne Tejeda, Key West Larry Mattern, Kissimmee Clay Lindstrom, Lake Worth Paul Kalv, Leesburg Bill Conrad, Newberry Marc Oody, Starke Workshop Held 12:00 p.m. Thursday, March 21, 2013 Florida Municipal Power Agency 8553 Commodity Circle Orlando, FL Page 1 of 42

2 TO: FROM: FMPA Executive Committee Nicholas P. Guarriello DATE: March 12, 2013 RE: PLACE: Taylor Swaps Workshop Thursday, March 21, 2013 at 12:00PM (Or Immediately following the Executive Committee Meeting) Florida Municipal Power Agency, 8553 Commodity Circle, Orlando, FL Board Room, Orlando, Florida DIAL-IN INFORMATION: or ; ACCESS CODE 91583# (If you have trouble connecting via phone or internet, please call ) Chairman Howard McKinnon, Presiding 1. Call to Order, Roll Call 2. Information Item: a. Introduction (Nick Guarriello) AGENDA b. Taylor Swaps Discussion (Mark Larson/Fred Bryant/Nat Singer/Craig Dunlap) 3. Member Comments 4. Adjournment One or more participants in the above referenced public meeting may participate by telephone. At the above location there will be a speaker telephone so that any interested person can attend this public meeting and be fully informed of the discussions taking place either in person or by telephone communication. If anyone chooses to appeal any decision that may be made at this public meeting, such person will need a record of the proceedings and should accordingly ensure that a verbatim record of the proceedings is made, which includes the oral statements and evidence upon which such appeal is based. This public meeting may be continued to a date and time certain, which will be announced at the meeting. Any person requiring a special accommodation to participate in this public meeting because of a disability, should contact FMPA at (407) or 1-(888) , at least two (2) business days in advance to make appropriate arrangements. Page 2 of 42

3 AGENDA ITEM 1 Call To Order, Roll Call Executive Committee Taylor Swaps Workshop March 21, 2013 Page 3 of 42

4 VERBAL REPORT AGENDA ITEM 2 INFORMATION ITEMS a) Introduction Executive Committee Taylor Swaps Workshop March 21, 2013 Page 4 of 42

5 AGENDA ITEM 2 INFORMATION ITEMS b) Taylor Swaps Discussion Executive Committee Taylor Swaps Workshop March 21, 2013 Page 5 of 42

6 AGENDA PACKAGE MEMORANDUM TO: Executive Committee FROM: Mark Larson DATE: March 12, 2013 ITEM: EC 2b Taylor Swap Discussion Strategic Relevance FMPA s Relevant Strategic Goals 1. Identify, understand and manage risk responsibly 2. Maintain sound financial policies and practices Background The workshop speakers Craig Dunlap, Agency Financial Advisor and Nat Singer, Agency Swap Advisor will present additional information that they have prepared on three of the alternatives mentioned at the February 20, 2013 Taylor Swap workshop, hosted by the Executive Committee. Mr. Dunlap will provide explanation and some detail about the use of the Taylor swaps in the refinancing of portions of the ARP s 2008A and 2009A bonds. Mr. Singer will elaborate on two alternatives; one on the application of the swaps to new project bonds and the other to the amendment of the existing swap contract terms. Both speakers will explain the transactions and discuss the pros/cons and economics of each, putting into perspective the impact on the ARP s all-in rate. My presentation slides, wherein I bring forward a few concepts and ideas from the February 20 th workshop, including reflecting on the current net zero termination standard, as well as slides to be used by both Mr. Dunlap and Mr. Singer are attached for your early review. At the conclusion of the workshop presentations and discussions, a date for the next workshop will be discussed. It is expected that the next workshop will provide information and analysis about several more of the alternatives under consideration and study by the Finance Committee. Recommended Action No recommendation at this time. For information purposes only. Attachments Page 6 of 42

7 Executive Committee Workshop Taylor Interest Rate Swaps March 21, 2013 Mark Larson, AGM, Finance & Information Technology and CFO Craig Dunlap, Financial Advisor Nat Singer, Swap Advisor Page 7 of 42

8 Workshop Purpose Discuss yield curve movement and ARP rate impact Open the dialog on net zero cost Explore three specific alternatives Listen to your thoughts and preferences Page 8 of 42 2

9 The Problem On October 1, 2015 (the effective date) No Bonds No Swaps Even if the effective date is moved out beyond October 1, 2015, there must be an acceptable project or financing purpose shown to exist. No interest rate speculation; must have a public purpose; otherwise the swaps must be terminated. Page 9 of 42 3

10 Question to ponder: Today, and going forward, is there an amount, which is bigger than net zero at which you would authorize termination to occur? Page 10 of 42 4

11 Current ARP Alternatives Broadly speaking, there are 3 approaches*: 1) Do nothing, pay termination cost (financed), if any, October 1, ) Issue Bonds to which the swaps can be associated economically 3) Modify swap contracts to eliminate or delay triggering event * In each of the above approaches, there are different solutions with each having unique characteristics and risk dimensions. Page 11 of 42 5

12 Approach 1 Do Nothing/Pay i. Waiting until last possible date or at a predetermined date/event and monetize the MTM valuation which becomes our termination payment if MTM is negative. If payable, issue taxable bonds. Choose financing period. ii. Enter into offsetting fixed receiver swaps to fund the termination cost. The difference in cash flows of the current and new offsetting swap amortizes the termination cost over swap period. Page 12 of 42 6

13 Nat Singer: MTM and ARP rate impact Page 13 of 42 7

14 Approach 2 Issue Bonds i. Issue variable rate bonds for any needed capital projects ( brick and mortar ) ii. Issue variable rate bonds to refinance existing ARP bonds (Series 2008A/2009A can be advance refunded now) iii. Issue fixed rate bonds for a gas prepay and also enter into offsetting fixed receiver swaps. iv. Issue variable rate bonds for a gas prepay v. Issue variable rate, taxable bonds New vi. Issue variable rate bonds to capitalize the long-term payment commitments under TARP agreements vii. Issue variable rate bonds for Public Gas Partners annual capital expenditures Page 14 of 42 8

15 Craig: Use swaps with refinancing Page 15 of 42 9

16 Nat Singer: two alternatives Page 16 of 42 10

17 Question to ponder: Today, and going forward, is there an amount, which is bigger than net zero at which you would authorize termination to occur? Page 17 of 42 11

18 Discussion/Questions? Page 18 of 42 12

19 Executive Committee Workshop Taylor Interest Rate Swaps March 21, 2013 Mark Larson, AGM, Finance & Information Technology and CFO Craig Dunlap, Financial Advisor Nat Singer, Swap Advisor Page 19 of 42

20 Taylor Swaps March 21, 2013 Swap Financial Group Page 20 of 42

21 What is the Cost of Terminating the Swaps Now? As of 3/1/13, $ million Swap Financial Group Page 21 of 42 2

22 What is the Related Impact on Power Cost? Termination Cost Over 30 Months 1 Over 10 Years 2 Over 20 Years 3 Over 30 Years 4 $100 million ($7.49) ($2.15) ($1.41) ($1.19) $75 million ($5.62) ($1.61) ($1.06) ($0.90) $50 million ($3.74) ($1.08) ($0.71) ($0.60) $25 million ($1.87) ($0.54) ($0.35) ($0.30) 1 Assumes 1.5% COF 2 Assumes 3% COF 3 Assumes 4.5% COF 4 Assumes 5.0% COF * Based upon million Megawatt hours per year Swap Financial Group Page 22 of 42 3

23 What is the Relationship Between the Increase in Interest Rates and the Termination Cost? $25,000,000 $- $(25,000,000) $(50,000,000) $(75,000,000) Approx. yield curve move required for corresponding termination cost bps bps bps + 70 bps $(100,000,000) $(125,000,000) $(150,000,000) Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Swap Financial Group Page 23 of 42 Note that the total swap notional amounts decrease over this time period. Originally $700mm, $50mm was terminated in Jan. 2010, $100mm in Feb 2010 and $100mm in Apr Current remaining notional is $450mm. 4

24 Historical 30-year LIBOR Rates Five of the swaps were terminated (at no cost) during this period in early All 14 swaps were traded in late Swap Financial Group Page 24 of 42 5

25 How Can I Follow 30-year LIBOR Rates? * LIBOR swap rates are published daily in the Wall Street Journal Swap Financial Group Page 25 of 42 6

26 Can FMPA Keep the Swaps Past 10/1/15? Apply to other projects Amend agreements with counterparties Amend and extend Amend and pay cash flows Amend and issue taxable bonds Swap Financial Group Page 26 of 42 7

27 Apply the swaps to other projects/refundings 3.82% New Capital/ Refundings $ FMPA 72% LIBOR Swap Dealers $ Variable Rate Variable Rate Bonds Swap Financial Group Page 27 of 42 8

28 Amend and Extend Start Date Up-Front $* Fixed Rate Adjustment* 10/1/15 $ % 10/1/16 $10.64 million % 10/1/17 $19.47 million % 10/1/18 $26.30 million % * These are mid-market levels based on market rates as of 3/1/13 and total notional of $450mm. Swap Financial Group Page 28 of 42 9

29 Amend and Pay Cash Flows FMPA 3.82% 72% LIBOR Swap Dealers LIBOR Annual Cash Flow* Swap Financial Group Page 29 of % ($16,542,000) 1.00% ($13,950,000) 2.00% ($10,710,000) 3.00% ($7,470,000) 4.00% ($4,230,000) 5.00% ($990,000) 6.00% $2,250,000 * Based on $450 million initial notional amount (9 swaps x $50 million). Amounts will decrease as the swaps amortize. 3.82% is the average fixed payer rate for all the remaining swaps. 10

30 Historical 1-month LIBOR Rates Swap Financial Group Page 30 of 42 11

31 Amend and Issue Taxable Bonds 100% LIBOR - Spread % Taxable Investment FMPA Swap Dealers $324 million 72% LIBOR $324 million 100% LIBOR + Spread 1 Taxable Bonds Net Cash Flow = $450 million (3.82% - 72% LIBOR) + $324 million (Spread 1 + Spread 2 ) Spread 1 = FMPA Issuance Spread Spread 2 = Investment Spread * Plus cost of issuance Swap Financial Group Page 31 of 42 12

32 Page 32 of 42 Florida Municipal Power Agency Summary of Outstanding Principal Amounts (08A, 09A, and Taylor Swaps) Maturity ARP 2008A ARP 2009A Taylor Swaps 10/1/2013 1,505,000 3,925,000 10/1/2014 1,480,000 4,120,000 10/1/2015 7,900,000 4,320,000 10/1/2016 8,690,000 4,845,000 6,795,000 10/1/ ,810,000 5,070,000 7,110,000 10/1/ ,975,000 5,295,000 7,470,000 10/1/ ,515,000 5,145,000 7,830,000 10/1/ ,415,000 7,430,000 8,235,000 10/1/ ,280,000 7,945,000 8,640,000 10/1/ ,835,000 8,510,000 9,090,000 10/1/ ,110,000 8,855,000 9,540,000 10/1/ ,305,000 9,405,000 9,990,000 10/1/ ,530,000 10/1/ ,800,000 9,435,000 11,025,000 10/1/ ,860,000 9,690,000 11,610,000 10/1/ ,845,000 9,915,000 12,150,000 10/1/ ,325,000 14,770,000 12,780,000 10/1/ ,165,000 15,570,000 13,410,000 10/1/ ,150,000 16,420,000 14,040,000 10/1/ ,760,000 10/1/ ,480,000 10/1/ ,290,000 10/1/ ,100,000 10/1/ ,000,000 10/1/ ,900,000 10/1/ ,800,000 10/1/ ,790,000 10/1/ ,870,000 10/1/ ,950,000 10/1/ ,075,000 10/1/ ,290,000 10/1/ ,550,000 10/1/ ,900,000 Total 503,965, ,665, ,000,000 Callable 394,090, ,945,000 Call Date Par Par Anytime 1

33 Types of Refundings i. Current Refunding the bonds being refunded will all mature or be redeemed within 90 days or less from the date of issuance of the refunding issue. ii. Advance Refunding the refunded issue remains outstanding for a period of more than 90 days after the issuance of the refunding issue. Page 33 of 42 2

34 Advance Refunding of ARP Series 2008A and 2009A Summary of Results Series 2008A Series 2009A Series 2008A Series 2009A (Mirror Taylor Swaps) (Mirror Taylor Swaps) (Same Maturity) (Same Maturity) Dated Date 10/1/ /1/ /1/ /1/2015 Par Amount 256,500, ,700, ,540, ,595, Bonds Refunded (Partial Refund - 58%) (Partial Refund - 58%) Par Amount of Refunded Bonds 228,800, ,945, ,800, ,945, All-In TIC 4.67% 4.56% 4.70% 4.73% % of PV Savings % -9.51% % % $ of PV Savings (25,364,570.85) (11,211,878.12) (25,364,710.85) (12,709,056.93) Page 34 of 42 3

35 Advance Refunding of ARP Series 2008A and 2009A Comparison of Debt Service Mirror Taylor Swaps Amortization Maintain Existing Amortization Maturity Series 2008A Series 2009A Total Debt Service Series 2008A Series 2009A Total Debt Service Difference 10/1/ ,195, ,965, ,160, ,852, ,449, ,301, (2,141,039.00) 10/1/ ,494, ,140, ,634, ,502, ,709, ,211, (4,576,880.00) 10/1/ ,823, ,315, ,139, ,500, ,711, ,211, (4,072,832.00) 10/1/ ,136, ,490, ,627, ,501, ,710, ,211, (3,584,179.00) 10/1/ ,477, ,558, ,036, ,802, ,141, ,944, (4,907,440.00) 10/1/ ,800, ,368, ,169, ,715, ,266, ,981, (27,812,394.00) 10/1/ ,149, ,193, ,342, ,945, ,416, ,361, (17,018,764.00) 10/1/ ,477, ,018, ,495, ,953, ,314, ,268, (16,772,648.00) 10/1/ ,784, ,843, ,627, ,878, ,401, ,279, (16,651,964.00) 10/1/ ,161, ,668, ,829, ,866, ,486, ,353, ,475, /1/ ,467, ,493, ,960, ,783, ,922, ,705, (10,745,223.00) 10/1/ ,841, ,318, ,159, ,192, ,673, ,865, (12,706,433.00) 10/1/ ,142, ,142, ,285, ,687, ,337, ,024, (23,739,058.00) 10/1/ ,509, ,967, ,477, ,502, ,647, ,150, (25,673,289.00) 10/1/ ,847, ,792, ,639, ,894, ,524, ,418, (25,779,136.00) 10/1/ ,155, ,617, ,773, ,409, ,402, ,812, (34,038,984.00) 10/1/ ,524, ,442, ,967, ,967, /1/ ,860, ,267, ,128, ,128, /1/ ,253, ,999, ,253, ,253, /1/ ,609, ,732, ,341, ,341, /1/ ,017, ,464, ,482, ,482, /1/ ,383, ,197, ,580, ,580, /1/ ,708, ,929, ,638, ,638, /1/ ,081, ,662, ,743, ,743, /1/ ,498, ,394, ,893, ,893, /1/ ,866, ,127, ,994, ,994, /1/ ,229, ,859, ,089, ,089, /1/ ,630, ,592, ,222, ,222, /1/ ,019, ,324, ,344, ,344, Page 35 of 42 10/1/ ,440, ,057, ,498, ,498, Total 513,589, ,949, ,538, ,988, ,115, ,104, ,434,435.00

36 Advance Refunding Pros and Cons 1) Advance Refunding Mirroring Taylor Swaps a) Pros: -Allows time for rates to increase and swap termination payment to decrease -Can currently refund at any time in the future at par -Extension allows for debt service relief in the early years -Extends Maturity -$396,200,000 of Taylor Swaps Utilized a) Cons: -May extend maturity beyond the useful life of the asset -Will cost more money if allowed to mature in More dissavings than maintaining existing maturities ($36,576,448.97) 1) Advance Refunding Maintain Existing Maturity a) Pros: -Allows time for rates to increase and swap termination payment to decrease -Can currently refund at any time in the future at par -Less dissavings than mirroring Taylor Swaps ($36,064,423.41) -$396,135,000 of Taylor Swaps Utilized a) Cons: -Less Taylor Swaps Utilized ($396,135,000) Page 36 of 42

37 Current Refunding of ARP Series 2008A and 2009A Summary of Results Series 2008A Series 2009A Series 2008A Series 2009A (Mirror Taylor Swaps) (Mirror Taylor Swaps) (Same Maturity) (Same Maturity) Dated Date 9/5/2018 9/4/2019 9/5/2018 9/4/2019 Par Amount 396,225, ,570, ,230, ,565, Bonds Refunded (Partial Refunding) (Partial Refunding) Par Amount of Refunded Bonds 394,090, ,825, ,090, ,355, All-In TIC 4.67% 5.00% 4.70% 5.22% % of PV Savings 1.78% 3.85% 1.79% 4.18% $ of PV Savings 7,031, , ,038, ,102, Page 37 of 42 6

38 Current Refunding of ARP Series 2008A and 2009A Comparison of Debt Service Mirror Taylor Swaps Amortization Maintain Existing Amortization Maturity Series 2008A Series 2009A Total Debt Service Series 2008A Series 2009A Total Debt Service Difference 10/1/ /1/ /1/ /1/ ,627, ,627, ,627, ,627, (247.68) 10/1/ ,595, ,165, ,760, ,615, ,718, ,334, (32,573,732.68) 10/1/ ,663, ,036, ,700, ,464, ,719, ,184, (32,483,842.76) 10/1/ ,758, ,992, ,751, ,906, ,718, ,624, (13,873,562.50) 10/1/ ,831, ,949, ,781, ,928, ,723, ,651, (13,870,530.26) 10/1/ ,884, ,905, ,790, ,802, ,719, ,521, (13,731,462.00) 10/1/ ,007, ,861, ,868, ,217, ,721, ,939, ,929, /1/ ,059, ,818, ,877, ,021, ,720, ,741, (4,864,115.50) 10/1/ ,178, ,774, ,953, ,175, ,724, ,899, (8,946,942.26) 10/1/ ,225, ,730, ,956, ,967, ,723, ,691, (28,734,790.00) 10/1/ ,338, ,687, ,025, ,203, ,723, ,927, (24,902,385.76) 10/1/ ,421, ,643, ,064, ,873, ,724, ,597, (25,532,314.50) 10/1/ ,475, ,599, ,075, ,544, ,724, ,268, (40,193,144.26) 10/1/ ,590, ,556, ,146, ,146, /1/ ,672, ,512, ,184, ,184, /1/ ,810, ,468, ,279, ,279, /1/ ,911, ,425, ,336, ,336, /1/ ,065, ,381, ,446, ,446, /1/ ,177, ,337, ,515, ,515, /1/ ,247, ,294, ,542, ,542, /1/ ,366, ,250, ,617, ,617, /1/ ,529, ,206, ,736, ,736, /1/ ,643, ,163, ,806, ,806, /1/ ,751, ,119, ,871, ,871, /1/ ,898, ,075, ,973, ,973, /1/ ,033, ,032, ,065, ,065, Page 38 of 42 10/1/ ,200, , ,188, ,188, Total 714,966, ,979, ,946, ,349, ,661, ,010, ,935,261.08

39 Current Refunding Pros and Cons 1) Current Refunding Mirroring Taylor Swaps a) Pros: -Allows time for rates to increase and swap termination payment to decrease -Extends Maturity -$420,795,000 of Taylor Swaps Utilized (Outstanding Balance) -PV Savings of 1.90% when refundings are combined a) Cons: -Current Refundings do not meet FMPA Policy of 3% Present Value Savings when combined 1) Current Refunding Maintain Existing Maturity a) Pros: -Allows time for rates to increase and swap termination payment to decrease -PV Savings of 1.94% when refundsings are combined -$420,795,000 of Taylor Swaps Utilized (Outstanding Balance) a) Cons: -Current Refundings do not meet FMPA Policy of 3% Present Page 39 of 42 Value Savings when combined 8

40 Traditional Advance Refunding of ARP Series 2008A and 2009A Summary of Results Series 2008A Series 2009A Dated Date 10/1/ /1/2015 Par Amount 220,380, ,930, Bonds Refunded Par Amount of Refunded Bonds 228,800, ,945, All-In TIC 3.29% 3.33% % of PV Savings 2.26% 3.31% $ of PV Savings 5,181, ,906, Page 40 of 42 9

41 Traditional Advance Refunding of ARP Series 2008A and 2009A Debt Service Traditional Advanced Refunding Maturity Series 2008A Series 2009A Total Debt Service 10/1/ ,019, ,987, ,006, /1/ ,019, ,202, ,221, /1/ ,019, ,201, ,220, /1/ ,019, ,202, ,221, /1/ ,849, ,633, ,482, /1/ ,762, ,754, ,517, /1/ ,990, ,906, ,896, /1/ ,005, ,804, ,809, /1/ ,926, ,890, ,817, /1/2025 6,706, ,975, ,682, /1/ ,826, ,411, ,238, /1/ ,240, ,160, ,401, /1/ ,733, ,828, ,561, /1/ ,549, ,137, ,687, /1/ ,936, ,016, ,953, /1/ ,453, ,894, ,348, Total 344,057, ,006, ,064, Page 41 of 42 10

42 AGENDA ITEM 3 Member Comments Executive Committee Taylor Swaps Workshop March 21, 2013 Page 42 of 42

Florida Municipal Power Agency. Executive Committee. Taylor Swaps Workshop

Florida Municipal Power Agency Executive Committee Taylor Swaps Workshop February 20, 2013 3:00 p.m. Executive Committee Howard McKinnon, Havana - Chairman Matt Brower, Ocala - Vice Chairman Vince Ruano,