FY2016 CCDOA Financial Report as of 6302016.pdf - page 107

CLARK COUNTY DEPARTMENT OF AVIATION
CLARK COUNTY, NEVADA
Notes to Financial Statements
For the Fiscal Years Ended June 30, 2016 and 2015
94
The mark-to-market value for each swap is estimated using the zero-coupon method. Under
this method, future cash payments are calculated either based on using the contractually-
specified fixed rate or based on using the contractually-specified variable forward rates as
implied by the SIFMA (Securities Industry and Financial Markets Association) Municipal Swap
Index yield curve (formerly known as the Bond Market Association Municipal Swap Index yield
curve, or BMA Municipal Swap Index yield curve), as applicable. Each future cash payment is
adjusted by a factor called the swap rate, which is a rate that is set, at the inception of the
swap and at the occurrence of certain events, such as a refunding, to such a value as to
make the mark-to-market value of the swap equal to zero. (For this reason, the swap rate is
sometimes referred to as the "at-the-market" rate of the swap.) Future cash receipts are
calculated either based on using the contractually-specified fixed rate or based on using the
contractually-specified variable forward rates as implied by the LIBOR (London Interbank
Offered Rate) yield curve or the CMS (Constant Maturity Swap rate) yield curve, as applicable.
The future cash payment, as modified by the swap rate factor, and the future cash receipt
due on the date of each and every future net settlement on the swap is netted, and each
netting is then discounted using the discount factor implied by the LIBOR yield curve for a
hypothetical zero-coupon rate bond due on the date of the future net settlement. These
discounted nettings are then summed to arrive at the mark-to-market value of the swap.
All the swaps entered into by the Department comply with the County’s swap policy. Each
swap is written pursuant to guidelines and documentation promulgated by the International
Swaps and Derivatives Association ("ISDA"), which include standard provisions for termination
events such as failure to pay or bankruptcy. The Department retains the right to terminate any
swap agreement at market value prior to maturity. The Department has termination risk under
the contract, particularly if an additional termination event ("ATE") were to occur. An ATE
occurs either if the credit rating of the bonds associated with a particular swap agreement
and the rating of the swap insurer fall below a pre-defined credit rating threshold or if the
credit rating of the swap counterparty falls below a threshold as defined in the swap
agreement.
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