N.Y. State Finance Law § 69-d: Interest rate exchange or similar agreements

§ 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.