CHICAGO - The Cook County Board of Commissioners yesterday considered the county's first-ever interest-rate swap option on $230 million in outstanding bonds and approved the transfer of $8 million to the financially ailing Cook County Forest Preserve District.
Citing a need for more information, the board sent the swap option proposal to its finance committee for further review. That committee next meets on Sept. 19.
The county is considering working with Lehman Brothers Special Financing Inc. to serve as the counterparty on the synthetic fixed-to-floating-rate swap on $230 million of outstanding capital improvement bonds that carry maturities of 2016 to 2028, said Tom Glaser, the county's chief financial officer.
The county will work for the first time with Public Resources Advisory Group as a financial adviser, along with Siebert Brandford Shank & Co. and Clark Burrus, Glaser said. The county chose Public Resources in an effort to work with a firm experienced in swaps.
The county would receive an up-front paymentfrom Lehman and in turn will pay a floating rate on the bonds, Glaser said. The county's fixed-coupon rate on those bonds has been 5%.
Under the proposed option agreement, the county would swap the rates with Lehman when the floating rate is above 5%, based on The Bond Market Association Index.On average, over the past 22 years, the TBMA's floating-rate index has been about 4.67%, Glaser said. Based on that rate, the county stands to save about 33 basis points with the swap.
The county will use the swap as a debt-management tool to lower the overall cost of the county's debt, Glaser said.
The swap would represent a small piece of the county's overall debt, said Joseph O'Keefe, an analyst with Fitch Ratings. However, any swap adds some vulnerability for the county, since the rate the county will pay could fluctuate. "Any kind of financial exposure related to swaps is something that we would review when we analyze the county's debt profile," he said. "It's added risk, but it's a relatively small amount."
The county won a recent rating upgrade, a point that Cook County Board President John Stroger noted in his letter to board members asking them to approve the transfer of $8 million to the Cook County Forest Preserve budget. Standard & Poor's recently upgraded the county to AA. Fitch rates the county AA, and Moody's Investors Service rates the county Aa.
Stroger asked for the immediate transfer to bridge a gap in funding for the district until November tax collections come in. In addition, he said, the district has brought in lower-than-anticipated revenues from golf fees in the past few months.
The board, in an 11-to-5 vote, approved the transfer after more than an hour of discussion in which several commissioners questioned the county's second transfer to the struggling district in as many years. The funds come from an unrestricted federal grant the county received for housing illegal immigrants, Glaser told the board. Last year, a similar grant and surplus bond proceeds were used to make a $8 million transfer to the district.
The Forest Preserve District, created in 1915, is its own governmental entity, separate from the county, with a $148 million budget, but its board is made up of the same members as those on the county board. At the beginning of yesterday's forest preserve meeting, Stroger said he would call for state legislation that would transfer management of the district to the county.
"Without extraordinary action, the district's structural problem will not be fixed," Stroger said. The Forest Preserve District board has eliminated about 130 jobs, voted to privatize its golf courses, hired a new chief financial officer, and loaned the district money in order to meet its deficit.
If the district became part of county government, there would be more flexibility to eliminate unnecessary programs or upgrade its recreational facilities, Stroger said.
The district is restricted from issuing debt until 2013, in part because of prohibitions on raising capital, Stroger said. The district might otherwise have issued bonds to bridge the gap for tax collection. The forest district's bond rating was dropped a few years ago due to an unexpected deficit.
Though the financial adjustments necessary to take over the district have yet to be worked out, Glaser said he saw no risk for bondholders. The district's outstanding bonds are insured, he said.
