Monday, August 3, 2015

Phila public schools pays $63M for bad interest rate bets

Philadelphia to pay millions to Wall Street bankers who sold it bad bets on interest rates

Phila public schools pays $63M for bad interest rate bets

0 comments

The Philadelphia public school district will pay $63 million to Morgan Stanley, Goldman Sachs and Wells Fargo Bank to cancel interest-rate swaps whose value has collapsed as US interest rates stay at record lows, as part of a $426 million debt refinancing deal. 

School district business manager Michael Masch told me last year the district had bought the swaps in the early 2000s to try to preserve low borrowing costs in case US interest rates rose. Instead, rates have fallen, enriching the banks that sold the contracts to Philadelphia while costing taxpayers millions.

Today, Masch said the payments to end the swaps would be folded into the district's new  bond issue and the costs would be paid by taxpayers over time, with interest. He said the district would also save money because the new bonds are issued at lower rates than previous bonds which were paid off along with the swaps. He couldn't immediately equate the savings and costs of the new arrangement.

Bloomberg LP's Dunstan McNichol reported the massive loss here after reviewing documents for a pending School District bond sale.

0 comments
We encourage respectful comments but reserve the right to delete anything that doesn't contribute to an engaging dialogue.
Help us moderate this thread by flagging comments that violate our guidelines.

Comment policy:

Philly.com comments are intended to be civil, friendly conversations. Please treat other participants with respect and in a way that you would want to be treated. You are responsible for what you say. And please, stay on topic. If you see an objectionable post, please report it to us using the "Report Abuse" option.

Please note that comments are monitored by Philly.com staff. We reserve the right at all times to remove any information or materials that are unlawful, threatening, abusive, libelous, defamatory, obscene, vulgar, pornographic, profane, indecent or otherwise objectionable. Personal attacks, especially on other participants, are not permitted. We reserve the right to permanently block any user who violates these terms and conditions.

Additionally comments that are long, have multiple paragraph breaks, include code, or include hyperlinks may not be posted.

Read 0 comments
 
comments powered by Disqus
About this blog

PhillyDeals posts drafts, transcripts and updates of Joseph N. DiStefano's columns and stories about Philly-area business, which he's been writing since 1989.

DiStefano studied economics, history and a little engineering at Penn and taught writing at St. Joseph's. He has written thousands of columns and articles for the Inquirer, Bloomberg and other media, wrote the book Comcasted, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com, distefano251@gmail.com, 215.854.5194 or 302.652.2004.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
Also on Philly.com:
letter icon Newsletter