City and County of Denver Municipal Airport System ANNUAL ...

City and County of Denver
Municipal Airport System
NOTES TO FINANCIAL STATEMENTS
December 31, 2010 and 2009
for three month deposits of U.S. dollars payable by Loop Financial Products I LLC. The City received $22,100,000
from Loop Financial Products I LLC to assist in paying the settlement amount of $22,213,550 due to Lehman Brothers
Special Financing. As a result of receiving $22,100,000 from Loop Financial Product I LLC, the fixed rate to be paid
by the City to Loop Financial Products I LLC will take into account such payments and will be above the market rate.
The net effect of the 2008B Swap Agreement, when considered together with the variable rate Series 2008C1 bonds, is
that the Airport System will effectively pay a fixed rate on $100 million, plus or minus the difference between the
actual rate on $92.6 million of the Series 2008C1 Bonds and 70% of three month LIBOR on $100 million notional
amount of swaps.
The Airport System is exposed to basis risk under the 2008B Swap Agreement, due to the differences between the
variable interest rate it pays on the associated debt and 70% of three month LIBOR received under the 2008B Swap
Agreement. The fixed rate payable by the Airport System under the 2008B Swap Agreement is 4.76%. The 2008B
Swap Agreement became effective on January 8, 2009 and payments under this Agreement commenced on
February 1, 2009.
The 2009A Swap Agreement – On January 12, 2010, the Airport System terminated the 1999 and 2002 Swap
Agreements with RFPC, Ltd. Due to the deterioration in the credit ratings of AMBAC, the credit support provider for
the swap. The Airport System simultaneously entered into an interest rate swap agreement (“the 2009A Swap
Agreement”) with Loop Financial Products I LLC. The fixed rate payable and variable rate index receivable on the
2009A Swap is identical to the terminated 1999 Swap. Because the fixed rate was higher than current market
conditions; however, the Airport System received $10,570,000 from Loop Financial Products I LLC for the off-market
portion of the swap. These proceeds were used to pay a portion of the settlement amount of $11,460,000 due to RFPC,
Ltd. As a result of receiving proceeds of $10,570,000 from Loop Financial Products I LLC, this transaction is booked
as a loan, including interest imputed at an implied rate of 5.667%, which will be paid through the fixed rate to be paid
by the Airport System to Loop Financial Products I LLC.
The 2009A Swap Agreement has a notional amount of $50 million and provide for certain payments to or from the
financial institution equal to the difference between a fixed rate payable by the Airport System under the Agreement
and the SIFMA Index payable by the respective financial institution.
Swap Payments and Associated Debt
Interest Rate Swap Profile (all rates as of December 31, 2010)
Swaps
1999,2002, 2009A (1)
2005,2006B
2006A,2008A
1998
2008B
Associated Debt
2002C, 2008B,
2009C(2)
2006A
2007F-G,
2002C(3)
2008C2-C3
2008C1,
2002C(4)
Payment to Counterparty: 5.943% 4.002% 4.008% 4.740% 4.760%
Payment from Counterparty: .539% 4.268% .182% .360% 0.312%
Net Swap Payment: 5.404% (0.266%) 3.826% 4.380% 4.448%
Associated Bond Interest
Rate:
.334% 4.950% 0.600% 0.360% 0.378%
Net Swap & Bond Payment: 5.738% 4.684% 4.426% 4.740% 4.826%
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