Legislation

Search OpenLegislation Statutes
This entry was published on 2014-09-22
The selection dates indicate all change milestones for the entire volume, not just the location being viewed. Specifying a milestone date will retrieve the most recent version of the location before that date.
SECTION 69-D
Interest rate exchange or similar agreements
State Finance (STF) CHAPTER 56, ARTICLE 5-D
§ 69-d. Interest rate exchange or similar agreements. 1. Authorized
issuer; powers. In connection with the issuance of State-supported debt,
or in connection with such State-supported debt already outstanding, an
authorized issuer shall have the power to:

(a) enter into interest rate exchange or similar agreements with any
person under such terms and conditions as the authorized issuer may
determine, including provisions as to default or early termination and
indemnification by the authorized issuer or any other party thereto for
loss of benefits as a result thereof;

(b) procure insurance, letters of credit or other credit enhancement
with respect to agreements described in paragraph (a) of this
subdivision;

(c) provide security for the payment or performance of its obligations
with respect to agreements described in paragraph (a) of this
subdivision from such sources and with the same effect as is authorized
by applicable law with respect to security for its bonds, notes or other
obligations, provided, however, that any payment or performance of
obligations with respect to agreements described in paragraph (a) of
this subdivision in connection with debt obligations which carry the
full faith and credit of the state shall be subject to appropriation;

(d) the state, acting through the director of the budget or other
state officials who are so authorized by applicable law with respect to
such bonds, notes or other obligations, shall also be authorized to
enter into or amend agreements related to such State-supported debt to
provide for payment, subject to appropriation, to such authorized issuer
of any amounts required to be paid by such authorized issuer under any
such interest rate exchange or similar agreement;

(e) if such funds are available, provide collateral for its own
obligations under any such interest rate exchange or similar agreement;
and

(f) modify, amend, or replace, such agreements.

2. Interest rate exchange; limitations. Any interest rate exchange or
similar agreements entered into pursuant to subdivision one of this
section shall be subject to the following limitations:

(a) the counterparty thereto shall have credit ratings from at least
one nationally recognized statistical rating agency that is within the
two highest investment grade categories and ratings which are obtained
from any other nationally recognized statistical rating agencies shall
also be within the three highest investment grade categories, or the
payment obligations of the counterparty shall be unconditionally
guaranteed by an entity with such credit ratings;

(b) the written contract shall require that should the rating: (i) of
the counterparty, if its payment obligations are not unconditionally
guaranteed by another entity, or (ii) of the entity unconditionally
guaranteeing its payment obligations, if so secured, fall below the
rating required by paragraph (a) of this subdivision, that the
obligations of such counterparty shall be fully and continuously
collateralized by direct obligations of, or obligations the principal
and interest on which are guaranteed by, the United States of America,
with a net market value of at least one hundred two percent of the net
market value of the contract to the authorized issuer and such
collateral shall be deposited with the authorized issuer or an agent
thereof;

(c) the total notional amount of all interest rate exchange or similar
agreements for all authorized issuers to be in effect shall not exceed
an amount equal to fifteen percent of the total amount of
state-supported debt outstanding as of the initial date of entering into
each new agreement; provided, however, that such total notional amount
shall not include any excluded agreements.

(d) no interest rate exchange or similar agreement shall have a
maturity exceeding the maturity of the related State-supported debt;

(e) each interest rate exchange or similar agreement shall be subject
to an independent finding that its terms and conditions reflect a fair
market value of such agreement as of the date of its execution,
regardless of whether such agreement was solicited on a competitive or
negotiated basis; and

(f) each interest rate exchange or similar agreement, including the
modification or termination thereof, shall be subject to the approval of
the director of the budget, the governing board of such authorized
issuer, and shall not be considered a project for the purposes of
article one-A of the public authorities law.

3. Guidelines and reports. (a) Prior to authorizing the approval of
any contract for interest rate exchange or similar agreement pursuant to
subdivision one of this section, the authorized issuer's governing board
shall adopt guidelines for the use of interest rate exchange or similar
agreements which shall include, but not be limited to the following:

(i) the conditions under which such contracts can be entered into;

(ii) the methods by which such contracts are to be solicited and
procured;

(iii) the form and content such contracts shall take;

(iv) the aspects of risk exposure associated with such contracts;

(v) standards and procedures for counterparty selection;

(vi) standards for the procurement of credit enhancement, liquidity
facilities, or the setting aside of reserves in connection with such
contracts;

(vii) provisions for collateralization or other requirements for
securing the financial interest in such contracts;

(viii) the long-term implications associated with entering into such
agreements, such as costs of borrowing, historical trends, use of
capacity for variable rate bonds and related credit enhancements, and
any potential impact on the future ability to call bonds, including
opportunities to refund related debt obligations, and similar
considerations;

(ix) the methods to be used to reflect such contracts in the
authorized issuer's financial statements;

(x) financial monitoring and periodic assessment of such contracts by
the authorized issuer; and

(xi) such other matters relating thereto as the governing board shall
deem necessary and proper.

(b) The guidelines to be adopted pursuant to paragraph (a) of this
subdivision shall be developed in consultation with and subject to the
approval of the director of the budget.

(c) The authorized issuer shall issue a monthly report to the director
of the budget, the chairs of the senate finance committee and the
assembly ways and means committee, and the state comptroller, on or
before the fifteenth day of each month in any state fiscal year in which
it enters into or continues to be a party to a contract for interest
rate exchange or similar agreement, which shall list all such contracts
entered into pursuant to this section, and shall include, but not be
limited to, the following information for each such contract, as
applicable:

(i) a description of the contract, including a summary of the terms
and conditions, rates, maturity, the estimated market value of each
agreement, and other provisions thereof and the method of procurement;

(ii) any amounts which were required to be paid and received, and any
amounts which actually were paid and received thereunder;

(iii) any credit enhancement, liquidity facility or reserves
associated therewith including an accounting of all costs and expenses
incurred, whether or not in conjunction with the procurement of credit
enhancement or liquidity facilities;

(iv) a description of each counterparty;

(v) an assessment of the counterparty risk, termination risk, and
other risks associated therewith; and

(vi) such report shall include a copy of the guidelines required by
paragraph (a) of this subdivision in the month after they are adopted or
subsequently modified.

(d) In addition, the director of the budget shall issue and make
public on or before October thirtieth of each year an annual performance
report for the prior state fiscal year on interest rate exchange and
similar agreements to the chairs of the senate finance committee and the
assembly ways and means committee, which shall list all such interest
rate exchange or similar agreements entered into pursuant to this
section and in effect, and shall include, but not be limited to their
annual and cumulative performance, including the net impact of the
related variable rate debt instruments, support and related costs, and,
for any excluded agreement entered into during such state fiscal year,
an independent finding on how it reduced or eliminated a situation of
risk or exposure under an existing interest rate exchange or similar
agreement. The authorized issuers shall be required to provide such
information in a timely manner on their respective interest rate
exchange and similar agreements as the director of the budget determines
necessary for the purpose of producing such annual performance report.