transferable direct-pay Letter of Credit (“2008 Letter of Credit”) was issued by The Bank of Nova Scotia (“BONS”) pursuant to the “Reimbursement Agreement” dated as of July 1, 2008 between the County and BONS The 2008 Letter of Credit is an irrevocable obligation of BONS The 2008 Letter of Credit was issued in an amount equal to the aggregate principal amount of the outstanding Series 2008 bonds, plus 56 days’ interest thereon at the rate of 15% per annum The Trustee, upon compliance with the terms of the 2008 Letter of Credit, is authorized and directed to draw amounts sufficient to pay principal and interest of the Series 2008 Bonds when due because of maturity, redemption or acceleration, delivered for purchase pursuant to a demand for purchase by the owner thereof or a mandatory tender for the purchase and not remarketed among other provisions Basis risk - Municipal interest rate swaps are normally based on a fixed payment and an indexed variable receipt instead of the actual variable debt payment Any difference between the indexed variable receipt and the actual market-determined variable rate paid on the bonds is called “basis risk.” Under the swap, the County will be paid the actual market-determined variable borrowing rate on the swap, as determined by the remarketing agent, which eliminates the basis risk Termination risk -Under certain conditions, the County or the counterparty may terminate the swap If the swap is terminated, the variable-rate bonds would no longer carry a synthetic interest rate but would become fixed-rate bonds While this could increase the County’s total debt service if at the time of termination the swap has a negative fair value by approximately the amount of such negative fair value, the counterparty would have no claim against the County for any other compensation Swap payments and associated debt - As interest rates vary, the variable-rate interest payments and swap payments will vary Using rates as of September 30, 2008, debt service requirements of the variable-rate bonds and the swap payments, assuming current interest rates remain the same for their term, were as follows (in thousands): Year Ending September 30 2009 2010 2011 2012 2013 2014-2018 2019-2023 2024-2027 Total Variable Rate Bonds Principal Interest $1,670 $1,615 1,730 1,554 1,795 1,491 1,860 1,430 1,930 1,358 10,760 5,690 12,880 3,586 12,095 1,079 $44,720 $17,803 Total $3,285 3,284 3,286 3,290 3,288 16,450 16,466 13,174 $62,523 The interest rate swap agreement does not affect the obligation of the County under the Indenture to repay the principal and variable interest on the Series 1998 bonds However, during the term of the swap agreement, the County effectively pays a fixed rate on the debt The debt service requirements to maturity for these bonds [presented in this note] are based on that fixed rate The County will be exposed to variable rates if the counter party to the swap defaults or if the swap agreement is terminated A termination or default of the swap agreement may also result in the County making or receiving a termination or default payment Defeased Bonds The County has entered into refunding transactions whereby refunding bonds have been issued to facilitate the retirement of the County’s obligation with respect to certain bond issues already outstanding The proceeds of the refunding issues have been placed in irrevocable escrow accounts and invested in U.S Treasury obligations that, together with interest earned thereon, will provide amounts sufficient for future payments of interest and principal on the bond issues being refunded Refunded bonds are not included in the County’s outstanding long-term debt since the County has legally satisfied its obligations through the refunding transactions 48 This is trial version www.adultpdf.com 2008 Comprehensive Annual Financial Report • Broward County, Florida