NYC-WTC_000195490

NYC 9/11 Public Portal Document

4, VARIABLE RATE DEBT ISSUANCE: Variable rate indebtedness up to a level of 20 percent of overall indebtedness represents a prudent and balanced approach to liability management for the City.

In calendar 2000, the State Legislature responded to the City’s request that statutory limits on variable rate indebtedness for GO and TFAbonds be raised to 20 percent. The City is currently utilizing the 20 percent variable rate debt target as a guideline for all of its sources of financing including the Water Authority and for the City’s overall debt service budget including subject-to-appropriation lease financings.

S, COMPETITIVE VERSUS NEGOTIATED BOND AND NOTE SALES: • Issuance of bonds in amounts of less than $250 Million per issue and notes in amounts of less than $2 Billion should be sold by competitive sale (Advertised bids) unless market conditions are sufficiently unsettled or the particular credit being marketed is so complicated as to warrant negotiated sale. != • Negotiatedfiriancings as 'small as $100 Million in size are also appropriate 1) when a smaller “emerging ” securitiesflrm among several leadfirms in a largerfiiiahcing program ha,s earned a book running position but is not experienced in running deals of $250 Million or larger and 2) when a securities firm has- structured and earned the right to lead a financing which for various reasons, technical or market, ends up smaller than $250 Million in size, r Financings larger than these amounts should be marketed by negotiated sale in order to mobilize optimal underwriter support and to make possible the use of retail pre-sale order periods necessary to ensure the lowest interest cost on the borrowing. J • Ar least once every four years underwriters for negotiated sales should be reviewed and selected in a competitive process by means of a formal request for proposals process. The Mayor’s underwriter’s- selection committee consisting of the Director ofManagement and Budget, the corporation Counsel, the Deputy Mayorfor Finance and the Commissioner ofFinance ensures that this process isfair and equitable.

V- The City together with its financing authorities is a recognized leader in the development of the technique of presale retail order periods which have significaptly\^roadened the rnarket for New York City bonds and contributed to the reduction in relative interest rates on City-related financings. Retail order periods are . I ! particularly helpful for the large financings which are common for New York City. Such presale retail i!' marketing can only be accomplished as part of a negotiated bond sale.

6, INTEREST RATE SWAPS AND OTHER DERIVATIVE INSTRUMENTS: Any use these techniques should only be upon express approval of the budget director on the Mayor’s behalf, and pursuant to the standards on the use of swaps and derivatives instruments enumerated below.

' The City has not utilized interest rate swaps and other derivatives in recent years. There is a good case to be made that utilization of such financial products, in limited amount, and as a prudent hedge (for example against foreign exchange risk on international borrowings) or as a means to achieve a balanced liability structure (for example fixed-to-floating swaps used as an alternative to variable rate debt) can be useful tools in the City’s overall debt management. To ensure that they are used prudently, swaps and derivative instruments should be used only upon express approval of the Mayor or his designated representative and pursuant to the ' following guidelines dealing with the extent and criteria for the use:

• risks (including counterparty risk, interest rate risk, renewal risk, basis risk and leveraging) should be carefully identified and compared to benefits obtained. • the City should seek to obtain at least a 10 basis point benefit and should obtain a greater benefit if the derivative product is leveraged or if the product is long-dated (greater than 10 years in duration). • counterparties used should have long-term bond ratings in the double-A rating category or higher

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