Meadville Tribune

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May 11, 2013

Proposed legislation targets risky interest swaps

(Continued)

HARRISBURG — Area interest rate swaps completed between 2004-2012

While a group of state senators have proposed making the swaps illegal, state documents only indicate that the transactions took place and do not show whether the school district or county involved lost money in the deal.

Crawford County

PENNCREST School District — $6.35 million swap, 2004

Conneaut School District— $27.34 million swap, 2005

PENNCREST School District — $9.525 million swap, 2005

Crawford Central School District — $20 million swap, 2006

Crawford Central School District — $10 million swap, 2007

Mercer County

West Middlesex School District — $14 million swap, 2005

Mercer County — $28.5 million swap, 2005

Mercer County — $28.5 million swap, 2006

West Middlesex School District — $11.2 million swap, 2006

Mercer County — $29.3 million swap, 2007

West Middlesex School District — $3.3 million swap, 2009

Mercer County — $15.6 million swap, 2011

Mercer County — $28.5 million swap, 2011

What is in an interest rate swap?

A swap is a contract between a bond issuer, such as a school district or other public entity, and an investment bank, in which the parties bet on which way interest rates will move. In theory, swaps allow government entities to enter into variable-rate debt financing in order to take advantage of low interest rates and, at the same time, hedge against the possibility of those same interest rates going up.

Critics say that swaps are just a form of gambling. How much is won or lost is determined by the size of the underlying debt, how much interest rates fluctuate and other factors.

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