FY2016 CCDOA Financial Report as of 6302016.pdf - page 114

Notes to Financial Statements
For the Fiscal Years Ended June 30, 2016 and 2015
As a means of lowering its borrowing costs when compared against fixed-rate bonds at the
time of issuance, the Department executed floating-to-fixed interest rate swaps in connection
with its issuance of variable rate bonds. The intention of implementing these swaps was to
convert the Department’s variable interest rates on the bonds to synthetic fixed rates. As of
June 30, 2016 and 2015, the Department had five outstanding hedging swaps that had been
structured with step-down coupons to reduce the cash outflows of the fixed leg of those swaps
in the later years of the swap.
Forward Starting Swap Agreements
On January 3, 2006, the Department entered into five swap agreements (swaps #7A, #7B,
#12A, #12B, and #13) to hedge future variable rate debt as a means to lower its borrowing
costs and to provide favorable synthetically fixed rates for financing the construction of
Terminal 3 and other related projects. Swaps #7A and #7B, with a notional amounts of $150
million each, became effective July 1, 2008, while swaps #12A and #12B, with notional
amounts totaling $550 million, became effective July 1, 2009. Swap #13, with a notional
amount totaling $150 million, was scheduled to become effective July 1, 2010. However, due
to the attractive market rates for fixed rate bonds, together with the favorable provisions of
ARRA, the Department chose to refinance its outstanding bond anticipation notes and issue
fixed rate bonds to complete financing for the construction of Terminal 3, and, as a result, the
planned $550 million of 2009 Series A and B variable rate bonds was not issued on July 1, 2009.
In addition, to better match its outstanding notional of floating-to-fixed interest rate swaps to
the cash flows associated with its outstanding variable rate bonds, on April 6, 2010, the
Department terminated $543.3 million in notional amounts of its outstanding floating-to-fixed
interest rate swaps (swaps #3, #5, #10A, and #11) and $150 million in the notional amount of
the July 1, 2010, forward starting swap #13. On April 17, 2007, the Department entered into two
additional forward starting swaps, swaps #14A and #14B, with notional amounts totaling $275
million, which became effective on July 1, 2011, as scheduled.
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