Cleveland Clinic Health System Obligated Group - FMSbonds.com

Cleveland Clinic Health SystemNotes to Consolidated Financial Statements (continued)11. Hospital Revenue Bonds and Interest Rate Swaps (continued)During the term of the various agreements and leases, the System is required to make specifieddeposits with trustees to fund principal and interest payments due, which were $3.7 million and$4.4 million at December 31, 2007 and 2006, respectively. Unexpended bond proceeds held bythe trustee were $95.0 million and $259.6 million at December 31, 2007 and 2006, respectively.The current portion of the unexpended bond proceeds were $43.6 million and $23.8 million atDecember 31, 2007 and 2006, respectively, and included in investments for current use. TheSystem is subject to certain restrictive covenants, including provisions relating to certain debtratios, days cash on hand and other matters. The System was in compliance with these covenantsat December 31, 2007.Combined current aggregate maturities of the bonds for the five years subsequent toDecember 31, 2007, are as follows (in thousands): 2008 – $3,990; 2009 – $3,305; 2010 – $6,190;2011 – $24,285; and 2012 – $25,610.Total interest paid approximated $66.6 million and $62.3 million in 2007 and 2006, respectively.Capitalized interest cost and income approximated $14.8 million and $5.6 million, respectively,in 2007 and $12.9 million and $9.0 million, respectively, in 2006.Interest Rate SwapsThe System’s objectives with respect to management of interest rate risk include 1) managing therisk of increased debt service resulting from rising market interest rates and 2) managing the riskof an increase in the fair value of outstanding fixed rate obligations resulting from decliningmarket interest rates. Consistent with its interest rate risk management objectives, the Systementered into various interest rate swap agreements with a total outstanding notional amount of$560.3 million and $332.1 million at December 31, 2007 and 2006, respectively. During the termof these transactions, the fixed rate swaps convert variable rate debt to a fixed rate and thefloating rate swap converts fixed rate debt to a variable rate. Under the floating rate swap, theSystem pays a rate equal to the Securities Industry and Financial Markets Association MunicipalSwap Index (SIFMA Index), an index of seven day high grade tax exempt variable rate demandobligations. The SIFMA Index rates ranged from 3.09% to 3.95% (average rate of 3.62%) in2007 and 2.93% to 3.97% (average rate of 3.45%) in 2006. In return, the System received a fixedrate of 5.35% in 2007 and 2006. Net interest paid or received under the swap agreements isincluded in interest expense.27