derivatives portfolio report - mta...derivatives portfolio report mta finance department ... october...
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Derivatives Portfolio Report
MTA Finance Department
Patrick J. McCoy, Director
October 21, 2019
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MTA’s derivatives program reduces budget risk by
employing interest rate and fuel hedging strategies
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• MTA’s synthetic fixed rate portfolio remains low cost
• $2.2 billion notional with 8 counterparties
– Executed 2001 thru 2007
– Weighted average synthetic fixed rate of 4.16%
• MTA’s fuel hedging program mitigates budget risk by dollar cost
averaging half of our ultra-low sulfur diesel (“ULSD”) expenses
– 23 hedges with 4 counterparties
– Final maturity 2021
– Average locked in rate for the next 12 months is $2.06
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Interest Rate Swaps
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MTA’s debt portfolio is designed to
manage budget volatility while
maintaining a low cost of capital
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Traditional Fixed$30.780 Bn 1
87.8%
Unhedged Variable$2.037 Bn
5.8%
Synthetic Fixed Rate$2.246 Bn
6.4%
• Interest rate exposure is managed through a combination of low cost synthetic fixed rate, fixed rate
portfolio management through refundings and reasonable level of floating rate debt
• Exposure to liquidity events is manageable with a total variable rate debt load of $4.282 billion
allocated between bank facilities and FRNs
Note: As of October 1, 2019 and excludes Special Obligation Bonds and Hudson Rail Yard Obligations.1 Excludes Put Bonds and BANs.
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Outstanding synthetic fixed rate debt is
declining and remains low cost
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– The weighted average cost of the synthetic fixed rate portfolio is 4.16% (including fees, excluding benefit of up-front payments)
– Synthetic fixed rate exposure continues to be manageable
– Mark-to-Market values do not impact capital or operating budgeting
– Remaining weighted average life of 9.4 years
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Outstanding counterparty exposure is
manageable across strong counterparties
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Swap CounterpartyRatings
Moody's/S&P/FitchNotional Amount
($000)% of Total Notional MTM (mid)
2018(1) 2019(1) 2018(1) 2019(1) 2018(1) 2019(1) 2018(1) 2019(1)
AIG Financial Products Corp.2 Baa1/BBB+/BBB+ Baa1/BBB+/BBB+ $95,175 $91,465 4 4 ($12,149) ($19,601)
BNP Paribas US Wholesale Holdings, Corp.3 Aa3/A/A+ Aa3/A+/A+ 190,300 189,300 8 8 (19,382) (37,400)
Citibank, N.A. A1/A+/A+ Aa3/A+/A+ 190,300 189,300 8 8 (19,382) (37,400)
JPMorgan Chase Bank, N.A. Aa3/A+/AA Aa2/A+/AA 758,600 746,075 33 33 (132,078) (215,501)
The Bank of New York Mellon Aa2/AA-/AA Aa2/AA-/AA 326,860 324,670 14 14 (30,593) (50,486)
UBS AG Aa3/A+/AA- Aa3/A+/AA- 475,825 463,695 21 21 (55,828) (96,202)
US Bank, N.A. A1/AA-/AA- A1/AA-/AA- 130,088 120,588 6 5 (10,485) (15,465)
Wells Fargo Bank, N.A. Aa2/A+/AA- Aa2/A+/AA- 130,088 120,588 6 5 (10,485) (15,465)
Total $2,297,235 $2,245,680 ($290,380) ($487,519)
• MTA continues to seek novation opportunities to increase counterparty credit strength and/or improve economic and credit terms
1 Data from Mohanty Gargiulo LLC Interest Swap Portfolio Reports dated 9/28/2018 and 9/30/2019.2 Guaranteed by AIG Inc. (AIG Financial Products Corp. parent company).3 Guaranteed by BNP Paribas.
Totals may not add due to rounding.
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Fuel Hedging Program
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MTA hedges 50% of its fuel costs to protect
ULSD budget from volatility
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– Currently hedging 50% of annual ultra-low sulfur diesel (“ULSD”)
expenditures pursuant to existing Board Authorization in
September 2012
– Hedges are procured through a competitive bidding process withpre-approved counterparties:
– J. Aron & Company (26,070,664 gallons hedged)
– Merrill Lynch Commodities Inc. (10,799,744 gallons hedged)
– Cargill (8,481,071 gallons hedged)
– Macquarie Energy LLC (4,177,130 gallons hedged)
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Current portfolio hedges 50% of the next 12 months
of projected fuel purchases laddered in over time
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• The goal of the program is to be 50% hedged for the next 12 months.
• Hedges are entered into monthly for roughly 4% of the projected fuel purchases expected to occur 13-24 months
from each hedge execution date.
0%
50%
100%
-
1
2
3
4
5
6
7
8
Ga
llo
ns
(M
illio
ns
)
Gallons Hedge Ratio
Projected Gallons Purchased (Millions) Gallons Hedged (Millions) Percent of Gallons Hedged
He
dg
e R
atio
%
50% hedged for next 12 months
46% Hedged
4% Hedged
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Hedge program provides budget stability while
protecting against commodity price spikes
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• Sometimes this will result in not realizing the full effect of lower prices in a budget year, as was the case in 2016.
• But we do realize the benefit of falling prices in future years, e.g., second-half 2017 and in 2018.
• Executing monthly forward hedges results in deferring the impact of major market moves in any current budget year
by shifting them 12 months forward into future budgets
• With limited resources to protect the budget from negative volatility this strategy will reduce the immediate impact of
potential spikes in fuel prices
1.151.251.351.451.551.651.751.851.952.052.152.252.352.452.552.652.75
Jan
-16
Ap
r-1
6
Jul-
16
Oct
-16
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
Oct
-20
Jan
-21
Ap
r-2
1
Jul-
21
Pri
ce
Date
Hedged ULSD Price
Actual Fuel Price PaidIncluding Charges andHedges
Actual Unhedged FuelPrice Paid IncludingCharges
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Appendix
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Interest Rate Derivative Contract Bond Allocation
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Interest Rate Derivative Contract Bond Allocation
Issue Bond Series
Par Amount
($Mn)
Fixed Rate Paid
(%)
Variable Rate Index
Received Maturity Date
MTM Values
($Mn)
Transportation Revenue
2002D-2 $200.00 4.450% 69% 1-Month LIBOR November 1, 2032 ($77.042)
2002G-11 112.73 3.520 67% 1-Month LIBOR January 1, 2030 (9.029)
2005D & 2005E 365.86 3.561 67% 1-Month LIBOR November 1, 2035 (78.403)
2011B1 84.52 3.520 67% 1-Month LIBOR January 1, 2030 (17.374)
2012G 356.78 3.563 67% 1-Month LIBOR November 1, 2032 (101.060)
Total $1,119.89 ($282.908)
Dedicated Tax Fund
2008A $324.67 3.316 67% 1-Month LIBOR November 1, 2031 ($50.486)
Total $324.67 ($50.486)
Bridges and Tunnels --General Revenue
2001C $21.28 3.520 67% 1-Month LIBOR January 1, 2030 ($1.495)
2002F& 2003B 189.30 3.076 67% 1-Month LIBOR January 1, 2032 (37.400)
2005A 22.65 3.520 67% 1-Month LIBOR January 1, 2030 (3.032)
2005B 567.90 3.076 67% 1-Month LIBOR January 1, 2032 (112.200)
Total $801.13 ($154.127)
Notes: Data for derivative contracts outstanding as of 9/30/19.
Totals may not add due to rounding.1 Associated swap is with TBTA.