14
Strategy – Debt Service Reserves Proposed Strategy
Cost to Maturity
4.38% 4.04% 4.60%
Cost to Call
10YR Treasury Yield 10YR Treasury Duration
7.9
Reserve Funding Requirement
$ 20,000,000
Annual Income
$
920,000
Potential Deficiency (100bp shift)
$ 1,190,000
Proposed Strategy Initial purchase of ten-year maturity with yield exceeding the bond yield, no net carrying cost. Reasonable tradeoff between return and volatility. Locks in return and price volatility of investment is manageable. Matches duration of investment to call date of the toll revenue bonds. Premium coupon tax-exempt municipal bonds are highly likely to be refinanced for interest cost savings in ten years. Reserve funding will continue post refinancing. TIFIA Loan is continuously callable with ongoing refinancing opportunities in lower rate environments and as lower rate tranches mature. Reserve funding will continue post refinancing. Annually Test for sufficiency and remove excess earnings or add funding as necessary. Reserve funding requirement will decline with amortization of principal. Annually perform break even analysis versus surety. Forward looking carrying cost to probable call date versus premiums. Annually consider extending duration.
Made with FlippingBook Digital Proposal Creator