Institutional Federal Compliance Report 2021

90 • Notes to Basic Financial Statements __________________________________________________________________________

The fair values were calculated utilizing an income approach based on Level 2 (observable) inputs. These inputs include mid-market valuation and then incor- porate the credit risk of the State and the bid/offer spread that would be charged to the State in order to transact. The mid-market values of the swaps were estimated using the zero-coupon method. This method calculates the future net settlement payments required by the swap, assuming that the current forward rates implied by the yield curve correctly anticipate future spot interest rates. These payments are then dis- counted using the spot rates implied by the current

yield curve for hypothetical zero-coupon bonds due on the date of each future net settlement date. During the year, LGAC terminated the 2004 pay- fixed interest rate swap agreement through a refunding and defeasance of the hedged debt. The State made termination payments totaling $3.4 million to the counterparty involved. The table below summarizes the terms of the State’s derivative instruments outstanding at March 31, 2018 for governmental activities and at June 30, 2017 for business-type activities (amounts in millions):

Underlying

Notional Amount

Effective

Final

Issuer/Type

Debt

Date

Maturity Date

Terms

Governmental Activities: Dormitory Authority:

CUNY 5th Res.

Pay 3.36%; Receive 65% Pay 3.044%; Receive 65% LIBOR Pay 3.578%; Receive 65% Pay 3.49%; Receive 65% LIBOR Pay 3.66%; Receive 65% Pay 3.336%; Receive 65% LIBOR LIBOR LIBOR

Pay-fixed interest rate swaps . . . . . . . . Series 2008C,

0 0

1/1/2025- 7/1/2031

D Bonds

$

21

4/10/2003

Mental Health

Pay-fixed interest rate swaps . . . . . . . . Series 2003D-2

0 0

Bonds

141

7/15/2003

2/15/2031

Urban Development Corporation:

Correctional/

Pay-fixed interest rate swaps . . . . . . . . Youth Series

0 0

2008A Bonds PIT (State Fac.

163

11/26/2002

1/1/2030

Pay-fixed interest rate swaps . . . . . . . . & Equip.) Series

0 0

2004A-3 Bonds

224

12/22/2004

3/15/2033

Housing Finance Agency:

Service Contract

Pay-fixed interest rate swaps . . . . . . . . Revenue Series

0 0

2003L, M Bonds PIT (Eco. Dev. & Housing) Series 2005C Bonds

69

8/28/2003

9/15/2021

Pay-fixed interest rate swaps

0 0

80

3/10/2005

3/15/2033

LIBOR

Local Government Assistance Corporation:

Pay 3.15% to 3.26%; Receive 65% LIBOR

Pay-fixed interest rate swaps . . . . . . . . Series 2003A,

0 0

4/1/2022- 4/1/2024

2008B Bonds

367

2/20/2003

Subtotal . . . . . . . . . . . . . . . . . . . . .

1,065

Business-Type Activities (as of June 30, 2017): Dormitory Authority—CUNY:

CUNY 5th Res.

Pay 3.36%; Receive 65%

Pay-fixed interest rate swaps . . . . . . . . Series 2008C,

0 0

1/1/2025- 7/1/2031

D Bonds

415

4/10/2003

LIBOR

Total . . . . . . . . . . . . . . . . . . . . . . . .

$

1,480

Risks Credit Risk

grade categories, or the counterparty’s payment oblig- ations shall be unconditionally guaranteed by an entity with such credit ratings. The swap agreements and Article 5-D of the State Finance Law also require that should the credit rating of a counterparty or an entity unconditionally guaranteeing the counterparty’s pay- ment obligations, if so secured, fall below the rating required, that the obligations of such counterparty shall be fully and continuously collateralized by direct

The State is exposed to credit risk on interest rate swap agreements in asset positions (positive fair values). To minimize its exposure to loss related to credit risk, it is the State’s policy to require each counterparty to have credit ratings from at least one NRSRO within the two highest investment grade categories and ratings from any other NRSRO within the three highest investment