Schools

$32M Interest Rate Swap Working in Parkland's Favor

The Parkland School District is recommending that the school board extend the life of a $32 million interest rate swap.

Parkland School District administrators are recommending that the Parkland School Board extend the life of a $32 million interest rate swap deal.

"At this point the swap is working for us," said John Vignone, the district's director of business administration at a Tuesday morning school board committee meeting. "We're recommending that the school board allow the administration to watch the swap and terminate it when it's in the best interest of the Parkland School District. Each August, we'll come back and look at this."

An interest rate swap allows a bond issuer, in this case the Parkland School District, to enter into a contract with an investment bank and speculate on which way interest rates will move.

The party that guesses correctly concerning which way interest rates ultimately move receives what's called a swap interest payment. The amount of the payment, is determined by several factors, including the the amount of debt (bonds) involved and the overall movement of interest rates.

Currently, Vignone said, the $32 million interest rate swap is netting the school district semi-annual payments between $8,000 and $10,000.

"But, that could go the other way if interest rates move," Vignone said.

In this swap, the school district is betting that the London Interbank Offering Rate, commonly referred to as 1-month LIBOR, performs better than another rate pegged to the swap.

Vignone said if swap continued to move in a positive direction for the district, it will limit exposure and even turn a profit of about $100,000. "It's benefitting the school district and it's benefitting the taxpayer," he said.

Currently, it will cost the school district $170,000 to terminate the swap, Vignone said. 

School Board member Rob Cohen said he was uncomfortable with giving the administrators a full year parameter resolution.

"Another year is a long time," Cohen said. "I'm not convinced it's necessary."

The full school board will take up the matter at its Tuesday, Aug. 20 meeting.

Earlier this year, the school district was scolded an audit report by the state's Department of Auditor General for entering into an interest rate swaps.

"You can't lump all swaps into one basket," said Superintendent of School Richard Sniscak. 

In 2009, the Bethlehem School District's use of two of its 13 interest rate swaps cost taxpayers $10.2 million more than if it had issued fixed-rate debt and $15 million more than if it paid simple interest on its variable-rate note without using swaps.

Following that, the auditor general recommended all state school districts stop utilizing swaps.


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