TITLE
Recommendation to adopt resolution authorizing and approving a change in the index rate for the Natural Gas Purchase Revenue Bonds Series 2007B, issued by the Long Beach Bond Finance Authority and the related Interest Rate Swaps, authorizing and approving certain documents and actions relating thereto, and delegating authority to officers in connection therewith. (Citywide)
DISCUSSION
On October 18, 2007, the Long Beach Bond Finance Authority (the Authority), issued its Natural Gas Purchase Revenue Bonds, Series 2007B in order to finance the acquisition of a long-term supply of natural gas, for sale to the City of Long Beach (City) over a period of years. The 2007B Bonds are currently bearing an interest rate equal to 67 percent of three-month London Interbank Offer Rate (LIBOR) plus a spread. The Interest Rate Swaps related to the 2007B Bonds contain floating rates of 67 percent of three-month LIBOR plus the same applicable spread. Currently, both the 2007B Bonds and Swaps reference the same three-month LIBOR interest rate, so there is no interest rate differential risk.
Discussion on Interest Rate Change
As the result of a variety of market and industry pressures, the LIBOR interest rate will be discontinued on June 30, 2023, requiring those debt obligations that reference LIBOR to choose a new reference index rate or be subject to the automatic fallback protocol as outlined in federal law for municipal bonds and as outlined by the International Swap and Derivatives Association (ISDA) for interest rate swap agreements. Both fallback protocols change the index rate to the Secured Overnight Financing Rate (SOFR) from LIBOR. As a reference point, on May 3, 2023, three-month SOFR was 5.34 percent, Daily SOFR was 4.81 percent and three-month LIBOR was 5.1 percent. Per federal law, the fallback protocol for municipal bonds (such as the 2007B Bonds) will automatically adjust to 3-month Term SOFR when LIBOR is discontinued. Per ISDA, the fallback protocol for...
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