The financing structure consisting of principal amortization, call provisions, coupons/yields, credit enhancement, use of hedging products, etc. will be developed for each financing after considering relevant market conditions and then current practices. Each structure will be developed to provide the lowest long-term effective financing cost while providing the greatest flexibility to extract additional value as market conditions change over time (i.e. refund debt, terminate swaps, etc.)
The CBO will monitor outstanding debt in relation to existing financial market conditions and recommend to the Board the refinancing/refunding of any outstanding debt when sufficient cost savings can be realized, or when other factors make such refinancings advisable. Primarily, the goal of any refunding of outstanding debt shall be to ensure the net present value savings is at least three percent (3%) of the refunded obligation’s par amount. The goal for the net present value savings threshold for non-traditional advance refunding structures (such as synthetic fixed rate refundings), should be at least four percent (4%) or as deemed appropriate by the Board, upon recommendation of the CBO and the FA. This general criterion will be adjusted as outlined in the Debt Management Guidelines.
Interest derivatives, including interest rate swaps, caps, collars, and other hedging products (collectively referred to herein as "derivatives”) can be an effective tool to reduce financing costs, diversify certain risks, and take advantage of unique market conditions. In evaluating and recommending the use of derivative instruments to the Board, the CBO shall be guided by Board Policy 6146 "Derivative Debt Management.”
Revised January 15, 2019