Oakland University Interest Rate Swap Restructuring Opportunity – Constant Maturity Swap (CMS) CDR Financial Products, Inc. April 4, 2007. Constant Maturity Swap (CMS) - Overview.
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Interest Rate Swap Restructuring Opportunity –
Constant Maturity Swap (CMS)
CDR Financial Products, Inc.
April 4, 2007
Constant Maturity Swap (CMS) - Overview
Take advantage of the current interest rate environment and historically flat yield curve by converting the variable rate index received on the swap from the short-term index to the longer tenor 10-year BMA swap rate index.
Experience significant cost savings in the event the BMA swap curve reverts to its historical average, and the spread between BMA and the 10-year BMA swap rate widens.
Convert at a minimal cost while the BMA swap curve remains relatively flat. An overlay basis swap to the existing deal will complete the transaction with minimal documentation.
Actual Bond Rate1
% 10 yr BMA
CMS Basis Swap
(1) Index converts to the BMA Index upon certain conditions including a rating downgrade of the bonds or default. Furthermore, the index converts to 65% of 1-Month LIBOR upon certain conditions including an event of taxability as described in the confirmation, including if the actual bond rate average exceeds 77% of the 1-Month LIBOR average for a period of more than 180 days
(1) Assumes a forward-start date of 03/01/08 and a dealer spread of 2 ratios. Indicative pricing is as of 03/16/07 and is not a guarantee of future pricing.
Economic Summary (cont.) - Potential benefit/(loss) based on yield curve spreads
UniversityApprox. Notional Amount
University of Texas$500,000,000
Louisiana State University$22,940,000
University of New Mexico$125,000,000
Boston University (in process)$29,000,000 - $56,000,000
Potential Cost Savings
Risks: Mark-to-Market Risk
The Primary Risk is Curve Flatness/Inversion
Higher Execution/Termination Costs
Higher Risk/Reward for CMS
Standard & Poor’s Credit FAQ
Standard & Poor’s Credit FAQ (cont.)