Canon-Mac discusses options for swap agreements

CANONSBURG – A financial adviser told Canon-McMillan School Board Monday night to put out a request for proposals to determine the cost of different options for the district’s swap agreements.
The district still has two fixed payor swaps, which are financial agreements used to hedge interest rate risk by synthetically fixing a variable rate. One of them has an exercise date of Dec. 1, 2010, and the other’s is Dec. 1, 2012. The amount of the transaction for the 2010 swap is $23,195,000. The other is $11,755,000.
Scott E. Shearer, managing director of the PFM Group, told the board it has a few options. It can terminate the swap, it can enter into the swap or it can find some kind of middle ground.
Board members said they wanted to know the financial impact of each option before making a decision. Shearer said the RFP would give them the information they are seeking.
There would be a termination fee if the board ended the swap agreement and then sold bonds at a low fixed interest rate. If the board continues with the swap, the rate would become variable, depending on market conditions, he said. He said the current rate is 5.673 percent, but it would probably jump to at least 7 percent.
Canon-McMillan already terminated two of its constant maturity swap agreements, allowing the district to make about $400,000 by getting out of the agreements.