Trinity makes money on swap agreement
By Dawn Goodman
Staff Writer
dgoodman@observer-reporter.com
While many school districts and municipalities across the state lost money because of financial swap agreements, that’s not the case at Trinity School District.
Tom Kinney, who works for HT Capital Markets, updated the school board Thursday about the swap agreement Trinity entered into with Wells Fargo Bank several years ago.
At that time, the board wanted more cash up front instead of having higher monthly payments, Kinney said.
At closing in May 2005, Trinity received $431,000, he said. Since 2006, the district has earned roughly $20,000 from the swap, he said.
“The district wanted to maximize an upfront large payment instead of $10,000 a month cash flow because of the district’s capital needs,” Kinney said.
He said the district has had a positive cash flow with the agreement every year except 2009, which was because of the Lehman Brothers collapse.
That was because the district took a conservative approach to the swap deal, he said.
An interest rate swap is a financial contract between a district and bank. In Trinity’s contract, the district paid Wells Fargo the tax-exempt money market rate and Wells Fargo paid Trinity the taxable money market rate.
Typically, the taxable rate is higher, making it profitable for districts, Kinney said.
The swap must be tied to bonds, he said. Trinity’s is tied to part of its 2003 series bonds. Though they were worth $30.4 million, just $17.03 million was swapped, Kinney said.
Though the swap agreement made money for Trinity, state Auditor General Jack Wagner describes financial agreements as tantamount to gambling with taxpayer money because they are so risky. He supports legislation banning the swaps for school districts, local governments and municipal authorities.
“It’s unconscionable that greedy Wall Street bankers are rewarding themselves with excessive bonuses whose profits were derived, in part, by hard-working Pennsylvanians whose elected officials gambled away their tax dollars in risky financial schemes they didn’t understand,” Wagner said in a March news release. “Interest-rate swaps have no place in local government and the General Assembly should put a stop to this.”
Join the Observer-Reporter’s conversation about education at our blog at http://www.observer-reporter.com/or/behinddesk/
Staff Writer
dgoodman@observer-reporter.com
While many school districts and municipalities across the state lost money because of financial swap agreements, that’s not the case at Trinity School District.
Tom Kinney, who works for HT Capital Markets, updated the school board Thursday about the swap agreement Trinity entered into with Wells Fargo Bank several years ago.
At that time, the board wanted more cash up front instead of having higher monthly payments, Kinney said.
At closing in May 2005, Trinity received $431,000, he said. Since 2006, the district has earned roughly $20,000 from the swap, he said.
“The district wanted to maximize an upfront large payment instead of $10,000 a month cash flow because of the district’s capital needs,” Kinney said.
He said the district has had a positive cash flow with the agreement every year except 2009, which was because of the Lehman Brothers collapse.
That was because the district took a conservative approach to the swap deal, he said.
An interest rate swap is a financial contract between a district and bank. In Trinity’s contract, the district paid Wells Fargo the tax-exempt money market rate and Wells Fargo paid Trinity the taxable money market rate.
Typically, the taxable rate is higher, making it profitable for districts, Kinney said.
The swap must be tied to bonds, he said. Trinity’s is tied to part of its 2003 series bonds. Though they were worth $30.4 million, just $17.03 million was swapped, Kinney said.
Though the swap agreement made money for Trinity, state Auditor General Jack Wagner describes financial agreements as tantamount to gambling with taxpayer money because they are so risky. He supports legislation banning the swaps for school districts, local governments and municipal authorities.
“It’s unconscionable that greedy Wall Street bankers are rewarding themselves with excessive bonuses whose profits were derived, in part, by hard-working Pennsylvanians whose elected officials gambled away their tax dollars in risky financial schemes they didn’t understand,” Wagner said in a March news release. “Interest-rate swaps have no place in local government and the General Assembly should put a stop to this.”
Join the Observer-Reporter’s conversation about education at our blog at http://www.observer-reporter.com/or/behinddesk/
Labels: Trinity swap
posted by Dawn Keller at
12:20 PM
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