Official Statement Airport Commission City and County of San ...

INTEREST RATE SWAP POLICY MAXIMUM NET TERMINATION EXPOSURE
Counterparty Maximum Net Total Maximum
Counterparty Maximum Net Termination Exposure Net Termination
Credit Ratings Termination Exposure (Uncollateralized) Exposure
AAA Category N/A $40 million N/A
AA Category $40 million 30 million $40 million
A Category 30 million 20 million 30 million
BBB Category 20 million 10 million 20 million
Below BBB Category None None None
Swap Aggregate Maximum Net Termination Exposure. As of the date of execution of any Swap, the
aggregate Maximum Termination Exposure for all of the Commission’s then existing Swaps with all counterparties,
as determined by a swap advisor, shall not exceed the sum of (i) the funds available in the Airport’s Contingency
Account, plus (ii) the Commission’s then available utilized capacity (but not to exceed $100 million) under its
Commercial Paper program, plus (iii) so long as the Airport is rated no lower than an “A” category by at least
two rating agencies, $50 million.
Interest Rate Swap Agreements
The obligation of the Commission to make regularly scheduled payments to the Swap Provider under the
Swap Agreements is an obligation of the Commission payable from Net Revenues on a parity with payments of
principal of or interest on the applicable series of Bonds. Under certain circumstances, the Swap Agreements are
subject to termination and the Commission may be required to make a substantial termination payment to the
respective Swap Providers depending upon the then current market value of the swap transaction. Any payment due
upon the termination of a Swap Agreement is payable from Net Revenues subordinate to payments of principal of or
interest on the Bonds.
Issue 36A-D. The Commission entered into four forward starting interest rate swap agreements in
connection with the issuance of its variable rate Issue 32A-E Bonds, which were transferred to the Issue 36A-D
Bonds in May 2008. The counterparties to these interest rate swap agreements are Bear Stearns Capital Markets Inc.
(“BSCM”) with respect to an aggregate notional amount of $59,970,000, and J.P. Morgan Chase Bank, N.A. (“J.P.
Morgan”) with respect to an aggregate notional amount of $139,930,000. The payment obligations of BSCM are
guaranteed by J.P. Morgan. As of January 15, 2010, the J.P. Morgan guarantor credit ratings were “Aa3” by
Moody’s, “A+” by Standard & Poor’s and “AA-” by Fitch. As of January 15, 2010, the J.P. Morgan counterparty
ratings were “Aa1” by Moody’s, “AA-” by Standard & Poor’s and “AA-” by Fitch.
The Commission’s payments under these interest rate swap agreements are secured by surety bonds issued
by Financial Security Assurance Inc. (now known as Assured Guaranty Municipal Corp. (“Assured”)) and FGIC
Insurance Corporation (which policy is reinsured by MBIA Insurance Corporation, now known as National Public
Finance Guarantee Corporation and formerly MBIA Insurance Corporation of Illinois). In addition certain
termination payments which may be payable by the Commission in the event of the termination of these interest rate
swap agreements are also insured by these insurers.
Pursuant to these interest rate swap agreements, the Commission receives a monthly variable rate payment
from each counterparty equal to 63.5% of USD-LIBOR-BBA, plus 0.29%, times the notional amount of the swap,
which was intended to approximate the variable rate interest payments the Commission would pay on such Bonds.
The Commission makes a monthly fixed rate payment to the counterparties as set forth below. These interest rate
swap agreements are terminable at any time at the option of the Commission at their market value. The objective of
these interest rate swap agreements was to achieve a synthetic fixed rate with respect to $199.9 million principal
amount of the Issue 32A-E Bonds. In May 2008, the Commission applied a portion of the proceeds from the
issuance of the Issue 36A Bonds and the Issue 36B Bonds to purchase and hold in trust certain Issue 32 Bonds
hedged by the J.P. Morgan interest rate swap agreements. The J.P. Morgan interest rate swap agreements continue
to hedge the Issue 36A/B Bonds.
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