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
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
University Approx. Notional Amount
University of Texas $500,000,000
Louisiana State University $22,940,000
University of New Mexico $125,000,000
American University $21,000,000
Boston University (in process) $29,000,000 - $56,000,000
Potential Cost Savings
The Primary Risk is Curve Flatness/Inversion
Higher Execution/Termination Costs
Higher Risk/Reward for CMS