UNIVERSITY OF SOUTH ALABAMA
BOARD OF TRUSTEES
Executive Committee Meeting
December 5, 2007
2:00 p.m.
The Executive Committee of the University of South Alabama Board of Trustees was duly convened
by Chairman Donald L. Langham on Wednesday, December 5, 2007, at 2:00 p.m. in the Frederick
P. Whiddon Administration Building.
Members Present:
Trustees Cecil Gardner, Donald Langham, Bettye Maye, Steven Stokes,
and James Yance.
Members Absent:
Trustees Samuel Jones and James Nix.
Other Trustees:
Trustees Scott Charlton, Steven Furr, Christie Miree, Arlene Mitchell,
Sheriff Mixon, John Peek.
Administration
and Others:
President Gordon Moulton; Drs. Dale Adams, Michael Boyd, Joe Busta,
Pat Covey, Ron Franks, Russ Lea, Bob Shearer, and David Stearns;
Messrs. Wayne Davis; and Mss. Jennifer Edwards (SGA), Vicki Tate
(Faculty Senate), and Jean Tucker.
Press:
Messrs. George Altman (Press-Register) and Jason Shepard (Vanguard).
Chairman Stokes convened the meeting and President Moulton welcomed Trustees and guests.
President Moulton said that the University has an opportunity to achieve substantial financial
benefits from entering into a transaction with Wachovia Bank, National Association (“Wachovia”),
and called upon Mr. Wayne Davis to introduce ITEM 1 entitled Option to Enter Financial
Transaction Respecting Certain Outstanding Bonds of the University. Mr. Davis said that the
University’s Series 2004 and 2006 bonds may be redeemed at the University’s election in 2014 and
2016, and that the redemption privilege is a right that is valuable and quantifiable in the derivatives
market. Ordinarily, the value of a bond’s redemption privilege is recognized over many years.
However, the Wachovia transaction will allow the University to recognize the value of the
redemption in the present, without having to wait. Mr. Davis explained that the value is recognized
by selling Wachovia two options to enter into one interest rate swap for each option. The interest
rate swaps, if the options are exercised, would be entered into on each of the Series 2004 and 2006
redemption dates. The value of the options change continuously, based on the financial markets,
but if the options are granted today, the University would receive $8.47 million. In the future, 90
days before the redemption dates of the two bond issues, Wachovia must decide whether or not to
exercise the options. If it decides to not exercise the options, the options expire unexercised and the
University is free to treat the bond issues as it would any other bond issue. But, if the options are
exercised, an interest rate swap would be entered into between the University and Wachovia on the
related redemption date. At this point the University is expected to issue bonds to redeem the
outstanding bonds and use the swaps as hedges, or possibly terminate the transactions. That choice
would be made based on input from the University’s financial, legal and bond advisors at that time.
Executive Committee
Page 2
December 5, 2007
Mr. Davis reminded the Committee that at the September 2007 meeting of the Board of Trustees,
the Board authorized President Moulton to proceed with negotiating this transaction. Also at that
Board meeting, the Board approved the University of South Alabama Derivatives Policy
(“Derivatives Policy”). The Derivatives Policy requires the University to undertake extensive
financial and legal analyses of the transaction. Mr. Davis told the Committee that Mr. John Harrell,
of Bradley, Arant, Rose & White, LLP has acted as the University’s legal advisor and that Messrs.
Jim White and Johan Grahs of the firm of Porter, White & Company have acted as the University’s
financial advisors. Drawing the Committee’s attention to Exhibit I, Synthetic Advance Refunding
Analysis, Series 2004 and 2006 Bonds, Mr. Davis said that the appropriate analyses have been
concluded. He further said that the University has exercised due diligence and had considerable
discussion among members of management, and that the administration is in favor of entering into
the options and recommends approval of ITEM 1 as follows:
RESOLUTION
OPTION TO ENTER FINANCIAL TRANSACTION RESPECTING CERTAIN OUTSTANDING BONDS OF THE
UNIVERSITY
WHEREAS, the University of South Alabama has heretofore issued its
$100,000,000
UNIVERSITY OF SOUTH ALABAMA
University Tuition Revenue Refunding and Capital Improvement Bonds
Series 2006
Dated December 1, 2006
and its
$51,080,000
UNIVERSITY OF SOUTH ALABAMA
University Tuition Revenue Refunding and Capital Improvement Bonds
Series 2004
Dated March 15, 2004
together, the “Outstanding Bonds,” and
WHEREAS, Those of the Series 2006 Bonds having a stated maturity on December 1, 2017, and thereafter
will be subject to redemption prior to their respective maturities, at the option of the University, as a whole or in
part, on December 1, 2016, and on any date thereafter (and if in part, in such maturities as the University shall
select, and if less than all of a single maturity is to be redeemed those to be redeemed to be selected by the
Trustee by lot) at and for a redemption price with respect to each Series 2006 Bond (or principal portion thereof
redeemed) equal to the par or face amount of each Series 2006 Bond redeemed plus accrued interest to the
date fixed for redemption, and
WHEREAS, Those of the Series 2004 Bonds having a stated maturity on March 15, 2015, and thereafter
will be subject to redemption prior to their respective maturities, at the option of the University, as a whole or in
part, on March 15, 2014, and on any date thereafter (and if in part, in such maturities as the University shall
select, and if less than all of a single maturity is to be redeemed those to be redeemed to be selected by the
Trustee by lot) at and for a redemption price with respect to each Series 2004 Bond (or principal portion thereof
redeemed) equal to the face or par amount thereof plus accrued interest to the date fixed for redemption, and
University of South Alabama
SyntheticAdvance Refunding Analysis
Series2004 and 2006 Bonds
TABLE OF CONJENTS
Descrintion
SyntheticAdvanceRefundingAnalysis
Series2004and2006Bonds
Wachovia Presentation-September 12, 2007
Draft TradeConfirmation
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Table of Contents
1
2.
3.
Summary
1..1. Timeline of Events
1.2. Summaryof Analysis
RefundingAnalysis
2.1. Series2004Bonds
2.1.1
Summaryof Proposal
2.1.2
Analysis
a. SwaptionBasedon SIFMAIndex
b.SwaptionBasedon I-Month UBOR
2.1.3
Summary
2.2. Series2006 Bonds
2.2.1
Summaryof Proposal
2.2.2
Analysis
a. SwaptionBasedon SIFMAIndex
b.SwaptionBasedon I-Month UBOR
2.2.3
Summary
2.3. IssuanceCostsand Ongoing Liquidity Fees
FinancialAnalysis as Requiredby SwapPolicy
3.1. Hedge Considerations
3..1.1 HedgeEffectiveness
3.1.2
HedgeEffectivenessSummary
3.2. Risks
3.2.1
InterestRateRisk
3.2.2
Market AccessRisk
3.2.3
Basis Risk
3.2.4
Mark-to-MarketRisk
3.2.5
CounterpartyRisk
3.2.6
TerminationRisk
3.2.7
Tax Risk
3.2.8
Rollover Risk
3.2.9
Insurance,Liquidity, Remarketing,and Expensesof IssuancesRisk
3.2.10 Credit Risk
3.2.11 ContractLiquidity
3.3. StressedValues
3.3.1
StressedValues for SwaptionsFollowing Transaction
3.3.2
StressedValues for Swapsas SwaptionsExpire
3.4. Other Financial Benefits
3.5. Fully Liquidating the Call Options
3.6. TransactionCosts
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1. Summary
WachoviaBank ("Wachovia") is offering a syntheticadvancerefunding of
outstandingSeries2004and 2006 bonds,issuedby the University of SouthAlabama (the
"University"). The refunding is proposedto be effected throughthe saleof two swaptionsby the
University to Wachovia(the "Transaction"). The proposedswaptionsexpire March 15,2014 for
the 2004bondsand on December1,2016 for the 2006 bonds. Wachoviawould pay the
University for the right to call into effect (i.e. enterinto) the swapsunderlying the swaptionsat
the future dateswith 90 daysnotice.
The proposedTransactionis expectedto createapproximately$8 millionI in
upfrOntproceeds,which is $7 million in exceS:s
of a traditional advancerefunding, assumingthat
sucha refunding werepemIitted underapplicabletax laws. Wachovia's fee for executingthe
transactionreducesthe proceedsto $7.1 million net cash. In executingthe transaction,the
University would be partially selling its call option on the old bondsand acceptingbasisrisk if
the swaptionsare structuredas LmOR basedswaptions.
I
Sincethe University electsto realize debtservicesavingsfrom the refunding
upfront, therecould be a future liability associatedwith the refunding. After accountingfor the
expectedvalueof this liability and taking into accountthe fact that there areno restrictionson
reinvestmentsof proceeds,the Transactionis expectedto createan economicbenefit in the range
of $2.8 million to $4.7 million dependingon whetherthe transactionis LffiOR or SIFMA based.
Seesection3.4 for details.
The Transactionappearsreasonableandbeneficial to the University as compared
to a tJ"aditional
advancerefunding, but thereare severalrisks that are associatedwith this
TranSactionand they are discussedin section3.2. Threeprominentrisks are basis risk, mark-tomarket risk and, market accessrisk and are discussedin section3.2.3, 3.2.4, and 3.2.2.
The University could potentially improve the upfront proceedsby an additional
$1,126,000by fully liquidating the call optionsembeddedin the outstandingfixed rate bonds.
This would require a slight restructuringof the proposaland this is discussedin section3.5.
Wachovia indicatesthat it will chargea spreadof 11.02basispoints if the
swaptionsare LIBOR basedand 12.33basispoints if the swaptionsare SIFMA basedfor
executingthe proposedTransaction. The dollar value of the spreadis equivalentto $891,000
and $992,250,respectively. This spreadappearsreasonableto us basedon current market
conditions.
1 As of September12, 2007, subjectto market change.
2 1.5 bps for hedging,5.5 bps for credit, and 4.0 for profit.
32.75 bps for hedging, 5.5bps for credit, and 4.0 for profit.
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1.1 Timeline of Events
In exchangefor the upfront paymentreceivedby the University, Wachovia
acquiresthe right to call the underlying swapsinto effect at future dates. If Wachovia exercises
its right to call the underlying swapsinto effect,Wachoviawould pay an additional amountof
money, expectedto cover issuancecostsof variable rate bonds,at thosefuture datesand the
University would be required to call the outstandingfixed rate bonds,issuevariable rate bonds,
and begin to makepaymentson the swap(s). The two swaptionsare separateobligationsand the
exerCiseof onedoesnot necessarilyrequireexerciseof the other. Figure 1 and Figure 2 shows
the timeline of eventsfor the series2004and 2006 swaptions.
Figure 1: Series2004 Swaption Timeline
Trade Date
September12,2007
Ex«cise Date
December 16, 2013
I
Effective Date
March IS, 2014
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I
Clmentseries2004fixed ratebonds
I
k
/\.
y
Bond Maturity
March IS 2024
~
Variable RateDebt (VRDNs)
--y- pllLf fixed-foT-floating swap
~ --OR
-'-..
Currentseries2004fixedratebondsremainoutstanding
/
Paymcotreceivedby the UDivcrsity
Figure 2: Series 2006 Swaption Timeline
Trade Date
September]2,2007
Exercise Date
September1,20]6
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,,\
-I
,,'.,
-y
Effective Dale
Decomber 1,20]6
Bond Maturity
December I, 2036
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/'"
-y
k
Cunent
series
2006
fixed
rate
bonds
~
Varlab1e
Dcbt(VRDNs)pb..
fixed-fur-floating
!
swap
--OR
,
Paymmt received by !be University
Rate
/
Currmt series2006 fixed ratebonds remain outstanding
If Wachovia exerciseswaption on SeptemberI, 2016:
-Fixed for floating swap becomeseffective December 1,2016
-University ca1lsoutstandingseries2006 bonds and issuesVRDNs
-The University receives52,212,814on December 1,2016
OR
IfWachovia doesnot ex«cise swaption:
-" is
2006 fixed rate bonds remain0
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1.2. Summaryof Analysis
The analysisof the proposedTransactionis donein two steps. First, a breakdown
of the proposalfor eachseriesis madeto identify the structureand sourceof upfront payments
from the proposedTransaction,as shownin Figure 3, and thenan analysisof the Transactionis
done as requiredby the University's SwapPolicy.
Figure 3: Sourcesfor Premium
Premium Offered
Sourcesfor Premium
SIFMA
Swaption
Time Value
$3,590.,000
LffiOR
Swaption
Co~sation for
SIFMA/LIBOR
BasisRisk
$2,813,000
The analysisis performedusing market dataasof closeof businesson September
12, 2007,4and the valuescalculatedin the analysisare at mid-market. The difference between
the premiumreceivedat the time of transactionand mid-marketvalueswill equalWachovia's
gross compensationfor executingthe Transaction. The valuespresentedin this analysisshould
not be comparedto thosepresentedby Wachovia on September12,2007 to calculatea spread
from mid-market,as it maybe misleadingdue to marketmovements.
The proposedTransactionrepresentscombinedinterestsavingsof approximately
$1,596,000plus a partial exerciseor 1ransfer,at an estimatedvalue of $3,590,000,of the call
option embeddedin the outstandingfixed rate bOnds.The embeddedcall option is partially
exercisedsinceWachoviacan only exerciseits right at one future date,while the fixed rate
bondScan be called at severalfuture dates. The estimatedtotal value of the proposed
TranSactionis $5,186,000if the underlying swapsare basedon the SIFMA Index.
4Sourceof datais Bloomberg and Delphis Hanover.
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If the University acceptsthe potential for basisrisk associatedwith the future
relationshipbetweenthe SIFMA Indexand I-Month LIBOR and basesthe underlying swapson
a percentof I-month LffiOR instead,the estimatedmid-marketvalue or the Transactionis
$7,999,000.Table I summarizesthe sourcesof the estimatedvalues. Thesevalues are midmarketvaluesand do not include a spreadthat Wachoviais expectedto chargefor transacting
the proposal.
Table 1: Summary of Values (Computed on a PresentValue Basis)
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OutstandingBond Series
Value of interestsavingsavailable
Time value of embeddedcall options
Series2004
Series2006
Total
$ 477,000 $ 1,119,000 $ 1,596,000
872,000
3,844,000
4,716,000
1,349,000
4,963,000
6,312,000
477,000
687,000
1,119,000
2,903,000
1,596,000
3,590,000
1,164,000
4,022,000
5,186,000
547,000
2,266,000
2,813,000
1,711,000
6,288,000
7,999,000
Proposed Swaptions
Paymentfor interestsavings
Partialtransferof time value in call options
.SIFMA Based Swaption
Compensationfor potentialbasisrisk
LlBORBasedSwaptions
Under the assumptionthat Wachovia exercisesits rights underthe Transaction
and the University issuesvariableratebondsas a replacementof existingbonds,the payments
receivedunderthe underlying swapsare expectedto effectively hedgevariable rate paymentson
the bonds suchthat debtserviceremainsthe same. Thereare severalfinancial risks associated
with this transactionand they are discussedunder section3.2.
Wachoviaindicatesthat it will chargea total spreadof$891,000 if the swaptions
are LIBOR basedand $992,250if the swaptionsare SIFMA based,to executethe transaction.
The breakdownof thesespreadsis shownin Table 2 below.
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2. RefundingAnalysis
2.1. Series2004Bonds
2.1.1 SummaryofProposal
The Series2004bondswere issuedto refund outstandingbondsas well as for
capital improvements.The seriesis cunently outstandingin the amountof $47.525million, with
an averagecouponof 4.96%, it is callable at par starting March 15, 2014and hasa final maturity
on March 15,2024. The amountoutstandingwhen the seriescanbe called at par in 2014is
$41.245million.
Wachovia'sproposalsinvolves purchasinga swaptionfrom the University that
would, at Wachovia's option, force the University into an underlying swap. IfWachovia
exercisesthe swaption,which can bedone March 15,2014,6the University would be requiredto
begin makingpaymentson the underlying swapcontract. It is also expectedthat ifWachovia
exercisesthe swaption,the University would call the outstanding2004bondsand issuevariable
rate bonds ("VRDNs") in its place. Underthe swapcontract,the University would pay a fixed
rate of 4.96% to Wachoviaand would receivepaymentsbasedon either 68% of I-Month LffiOR
or the SIFMA Indexplus 25 basispoints.
I
Wachoviahasoffered an upfront paymentfor the swaptionof $1,663,000if the
underlying swapis basedon 68% of I-Month LffiOR and $1,000,000if it is basedon the
SIFMA Index. In addition,Wachoviahasoffered to pay a fixed amountof$803,215, intendedto
cover issuancecostsof the VRDNs if the swaptionis exercised.
The variable rate receivedunderthe swapis intendedto offset the variable rate
paymentson the VRDN s as well as ongoing liquidity and renlarketingfees. As a result,the
interestis expectedto be "syntheticallyfixed" when all cashflows, both on the VRDNs andthe
swapcontract,aretaken into account.
2.1.2 Analysis7
The analysisand breakdownof the proposalis divided into severalstepsin order
to identify the financial componentsthat createthe value for the upfront payment. The analysis
includesa traditional advancerefunding,Sseparationof the value of the option from the
underlying swap,and separationof valuedue to additionalbasisrisk.
5Terms are based on draft Confirmation for Series2006 swaptionand weighted averagecoupon of Series2004
bonds.
6Notice must be given 90 days prior to exercise.
7 Market dataunderlying the analysisis as of close of businessSeptember12,2007.
8Although a traditional advancerefunding would be limited due to IRS regulations,an assumptionis made that the
entire issuecan be refunded in order to make a fair comparison.
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A traditional advancerefundingwould producepresentvalue savings of
approximately$642,500.9In a traditional advancerefunding, new fixed rate bondsare issued
andproceedsareplacedin an escrowto pay the old bonds until they can be called. For all
practical pwposes,this is equalto exercisingthe call option embeddedin the outstandingbonds
and purchasinga new call option embeddedin the refunding bonds,althoughof shortermaturity.
The value of the call option included in the 2004 bondsis estimatedat
$1,349,000.10This option canbe exercisedon any date,beginningMarch 15,2014 through
maturity of the bonds.
To removethe effect of any optionality includedin fixed rate bonds, the "pure"
interestratesavingsare calculatedby evaluatinga forward starting swap,I I effective March 15,
2014 through March 15,2024. This analysisassumesa forward starting swapcombined with the
issuanceofVRDNs in 2014and calculatesthe presentvalue of interestsavingsavailable during
thoseyears. The presentvalue of sucha swapis $783,000and if the presentvalue of issuance
costsadjustedfor the probability of occurrenceis takeninto account,the netvalue of sucha
contractis $477,000.
a. Swaption
Basedon SIFMAIndex
A syntheticadvancerefunding, as proposed,whereWachoviapurchasesa
swaption,wherethe underlying swapis basedon the SIFMA Index, would representpartial
exerciseof the option embeddedin the fixed rate bonds,since it can only be exercisedon March
15,2014and not on any subsequentdates. The mid-marketvalue of this swaption,as of
September12,is estimatedto be $1,164,000.
Under the assumptionthat the University will issueVRDNs, the variable rate
bondscanbe expectedto have resetratesreasonablyclose to the SIFMA Index sincethe SIFMA
Index is calculatedbasedon variableratebonds with characteristicstypical for thoseissuedin
the tax-exemptmarket. Therefore,the swappayments,wherethe University receivespayments
basedon the SIFMA Index, can reasonablybe expectedto offset paymentson the VRDNs with
very little variation. The risk of thesepaymentsbeing different is referred to as basisrisk.
If the assumptionis madethat the variablerate paymentsreceivedunder the swap
completelyoffsetsthe paymentson the VRDNs, the net interestpaymentsfor the University is
the fixed rate paid to Wachovia on the swap. Hence,the interestrate may beconsidered
syntheticallyfixed. Pleaseseediscussionof risk factorsas in Section3.2pertaining to basisrisk.
b. SwaptionBasedon i-MonthUBOR
A syntheticadvancerefunding,whereWachoviapurchasesa swaption,wherethe
underlying swapis basedon a percentageof I-Month LffiOR, representsa partial exerciseof the
option embeddedin the fixed rate bondsas well as compensationfor the additionalbasis risk
I
9 Debt servicesavings are discountedat LIBOR.
lOUsingsynthetic replication and assumingfreely traded value. It includes exercisefee equalto issuancecosts.
II Swapbasedon SIFMA Index plus 25 bpsand 4.%% coupon.
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absorbedby the University. The mid-marketvalue of the LmOR basedswaption,as of
September12,is estimatedto be $1,711,000.
While 68% of I-Month LffiOR hashistorically provided enoughcashflow to
offset paymentsbasedon the SIFMA IndexI2thereis no guaranteethat this relationshipwill
continue in the future. In financeand otherareasof life, the pastis not necessarilyindicative of
the future. While related,the tax-exemptshort-termmarketis separatefrom the taxableshortterm marketandthe relationshipbetweenthe two is not confined to marginal tax rates. For
example,thereis no guaranteethat the tax-exemptstatusof municipal bondswill be in effect 20
yearsfrom now. While the expectedratio of I-Month LffiOR to the SIFMA Index, basedon
historical data,is estimatedat 68010,
the LffiOR basedswaptionincludes compensationfor the
additional risk of variability in this relationship.
The value of the basisrisk potentially absorbedby the University is the difference
in value betweenthe swapsunderlying the SIFMA swaptionand the LmOR swaptionand it is
equalto $1,039,000.The University only absorbsthis risk if the swaptionis exercisedand the
derived marketvalue of this additionalbasisrisk, given that the swaptionis exercised,is
therefore$547,000.
2.1.3 Summary
The table below summarizesthe embeddedvalue in the series2004 bondsaswell
as the breakdownof the value componentsof the proposedswaptions. To make a fair
comparison,all valuesinclude estimatedissuancecosts,weightedby the likelihood of its
occurrence.
I
Table 3: Summary of Value
Series2004Bonds
Value of interestsavingsavailable 2014-2024
Time value of embeddedcall option
$
477,000
872,000
1,349,000
ProposedSwaptions
Paymentfor interestsavings2014-2024
Partial transferof time value in call option
SIFMABasedSwaption
Compensationfor potential basisrisk
LIBOR BasedSwaption
477,000
687,000
1,164,000
547,000
1,711,000
12Basedon information included in Wachovia presentationSeptember12,2007.
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The University will not be required to call the fixed rate bonds. It could issue
variable rate new moneybondswhoseinterestrate risk would be effectively hedged. Or it would
repurchasethe swaptionfrom Wachoviaand do a conventionalrefunding. Should it choosenot
to call the outstandingbonds,the University would retain the exercisepremiumof $803, 215.
Series2006 Bonds
2.2.1 SummaryofProposal
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The Series2006 bondswereissuedto refund outstandingbondsas well as for
capital improvements.The seriesis currentlyoutstandingin the amountof $100 million, coupon
of 5%, is callable at par starting December1, 2016 and hasa final maturity on December1,
2036.
Wachovia'sproposalinvolves purchasinga swaptionfrom the University that
would, at Wachovia's option,force the University into an underlying swap. If Wachovia
exercisesits rights underthe swaption,which canbe doneDecember1,2016,13the University is
expectedto begin to make paymentson the underlying swapcontract. It is also expectedthat in
conjunctionwith Wachoviaexercisingthe swaption,the University would call outstanding2006
bondsand issueVRDNs in their place. Underthe swapcontract,the University would pay a
fixed rate of 5% to Wachoviaand would receive paymentsbasedon either 68% of I-Month
LIBOR or the SIFMA Index plus 25 basispoints.
Wachoviahasoffered an upfront paymentfor the swaptionof $6,240,000if the
underlying swapis basedon 68% of I-Month LffiOR and $3,325,000if it is basedon the
SIFMA Index. In addition, Wachoviahasoffered to pay a fixed amountof$2,212,814, intended
to coverissuancecostsof the VRDNs if and when the swaptionis exercised.
The variable ratereceivedunder the swapis intendedto offset the variable rate
paymentson the VRDNs as well as ongoing liquidity and remarketingfees. As a result, the
interestis expectedto be "syntheticallyfixed" whenall cashflows, both on the VRDNs and the
swapcontract,aretakeninto account.
2.2.2 Analysis14
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2.2.
The analysisfollows the sameprocedureas for the 2004bondsand a breakdown
of the proposalis madein order to identify the financial componentsthe University gives up in
return for the upfront payment. The analysisincludesa traditional advancerefunding,15
separationof the value of the option from the underlying swap,and separationof value due to
additionalbasisrisk.
13Notice must be given by September1,2016.
14Market data underlyingthe analysisis asof closing of businessSeptember12,2007.
ISEven if a traditional advancerefunding would be limited due to IRS regulations,assumingthat the entire issue can
be refunded is done in order to make a fair comparison.
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A traditional advancerefunding would producepresentvalue savings of
approximately$311,000.16In a traditional advancerefunding, new fixed rate bonds are issued
and proceedsareplacedin an escrowto pay the old bondsuntil they can be called. For all
practicalpwposes,this is equalto exercisingthe embeddedcall option embeddedin the
outstandingbondsandpurchasinga new call option in the refundingbonds.
The value of the call option included in the 2006 bondsis estimatedat
$4,963,000.17
This option can be exercisedon any date,beginning December1,2016 through
maturity of the bonds.
I
To removethe effect of any optionality included in fixed ratebonds,the "pure"
interestrate savingsare calculatedby evaluatinga forward startingswap,18effective December
1,2016 through December1,2036. This analysiswould assumea forward starting swap
combinedwith an issuanceofVRDNs in 2016 and calculatesthe presentvalue of interest
savingsavailableduring thoseyears. The presentvalue of sucha swapis $1,779,000and if the
presentvalue of issuancecostsand likelihood of occurrenceis taken into account,the net value
of sucha contractis $1,119,000.
a. SwaptionBasedon SIFMAIndex
A syntheticadvancerefunding,as proposed,19
whereWachoviapurchasesa
swaption,wherethe underlying swapis basedon the SIFMA Index, would representpartial
exerciseof the option embeddedin the fixed rate bonds,since it can only be exercisedon
December1,2016 and not on any subsequentdates. The mid-market valueof the swaption,as of
September12,is estimatedto be $4,022,000.
Underthe assumptionthat the University will issueVRDNs, the variable rate
bonds canbe expectedto have resetratesreasonablyclose to the SIFMA Index since the SIFMA
Index is calculatedbasedon variablerate bonds with characteristicstypical for thoseissuedin
the tax-exemptmarket. Therefore,the swappayments,wherethe University receivespayments
basedon the SIFMA Index, can reasonablybe expectedto offset paymentson variable rate
bonds with very little variation. The risk of thesepaymentsbeing different is referredto asbasis
risk.
If the assumptionis madethat the variablemte paymentsreceived underthe swap
completelyoffsetsthe paymentson the VRDNs, the net interestpaymentsfor the University is
the fixed mte paid to Wachovia on the swap. Hence,the interestmte may be considered
syntheticallyfixed. Pleaseseediscussionof risk factorsas it relatesto basisrisk.
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16Debt service savingsare discountedat LffiOR.
17Including exercisefee equalto issuancecosts.
18Swap basedon SIFMA Index plus 25 bps and 5.0% coupon.
19Terms basedon draft confirmation supplied by Wachovia.
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b. SwaptionBasedon i-Month LIBOR
A syntheticadvancerefunding whereWachoviapurchasesa swaption,where the
underlying swapis basedona percentageof I-Month LffiOR representsa partial exerciseof the
option embeddedin the fixed rate bondsaswell as compensationfor the additional basisrisk
absorbedby the University. The mid-marketvalue of the LffiOR basedswaption, as of
September12,was estimatedto $6,288,000.
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While 68% of I-Month LmOR has historically provided enoughcashflow to
offset paymentsbasedon the SIFMA Index2othere is no guaranteethatthis relationship will
continuein the future. The tax-exemptshort-termmarketis separate,althoughrelated, from the
taxable short-termmarketand the relationshipbetweenthe two is not Confinedto marginal tax
rates. For example,there is no guaranteethat the tax-exemptstatusof municipal bondswill be in
effect 20 yearsfrom now. While the expectedratio of I-Month LmOR to the SIFMA Index,
basedon historical data,is estimatedat 68%, the LmOR basedswaptionincludes compensation
for the additionalrisk of variability in this relationship.
The value of the basisrisk potentially absorbedby the University is the difference
in value betweenthe swapsunderlyingthe SIFMA swaptionandthe LmOR swaptionand it is
equalto $4,366,000.The University only absorbsthis risk if the swaptionis exercisedand the
derived marketvalue of this additionalbasisrisk, given that the swaptionis exercised,is
therefore$2,266,000.
2.2.3 Summary
The table below summarizesthe embeddedvalue in the series2006 bondsaswell
the breakdownof the value componentsof the proposedswaptions. To make a fair comparison,
all valuesinclude estimatedissuancecosts,weighted by the likelihood of its occurrence.
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Table 4: Summary of Value
Series2006Bonds
Value of interest savings available 2016-2036
Time value of embedded call option
ProposedSwaptions
Paymentfor interestsavings2016-2036
Partial transferof time value in call option
SIFMA BasedSwaption
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Compensationfor potential basis risk
LlBORBasedSwaption
$ 1,119,000
3,844,000
4,963,000
1,119,000
2,903,000
4,022,000
2,266,000
6,288,000
"~O
Basedon information included in WachoviapresentationSeptember12,2007.
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The University will not be required to call the fixed ratebonds. It could issue
variable rate new moneybondswhose interestrate risk would be effectivelyhedged. Or it would
repurchasethe swaptionfrom Wachoviaand do a conventionalrefunding. Should it choosenot
to call the outstandingbonds,the University would retainthe exercisepremiumof$2,212,814.
2.3. IssuanceCostsand OngoingLiguidi!y Fees
The paymentsoffered by Wachovia in conjunctionwith exerciseof the swaptions,
$803,215for the series2004bondsand $2,212,814for the series2006bonds,appearsreasonable
as presented.The feesarebasedon the following assumptions:
1. Cost of Issuanceof$150,000 and $350,000respectively,
2. Underwriter's discount of $4.75 per $1,000facevalue, and
3. Bond Insuranceof 80 basis pointstimes total debtservice!!
Wachoviaalso assumesa spreadof25 basispoints underthe swapcontracts
intendedto coverongoing liquidity and remarketingexpensesnormally incun-edwhen VRDNs
are outstanding. A spreadof 25 basispoints appearsreasonableunderthe assumptionthat the
bondsare insured.
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21Based on existing debt service.
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3. Financial Analysis as Required by Swap Policy
3.1 Hed2eConsiderations
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As requiredby the University's swappolicy, a proposedderivatives transaction
should to be analyzedas to whether it constitutesa hedge. Sincethe proposedTransaction
effectively constitutesa combinationof two elements,an option to enterinto a swapand the
actual swap,eachwill be addressedas to whetherit constitutesa hedge.
A hedgehasbeendefined as "Reducing your risks. Hedging involves deliberately
taking on a new risk that offsetsan existing one, suchas your exposureto an adversechangein
an exchangerate,interestrate, or commodityprice.,,22Therefore,before a financial instrument
can be classifiedas a hedge,the risk againstwhich it hedgesmustbe defined.
The University intendsto transacta syntheticadvancerefunding by selling two
swaptions,which arethe options on the underlying swaps. The economicconsequencesof
selling the proposedswaptionsare equivalentto partially liquidating the call optionsembedded
in the fIXedrate bonds. Extinguishinga call option is not in and of itself a hedge exceptthat the
transactionwill remove any uncertaintyas to whether or not the call option's value is ever
realized. In this sense,the proposedTransactionis a hedgeagainsta reductionin the value of the
embeddedcall options, as a result of passageof time, sincea significant portion of the options'
value is time value.
If the swaptionsexpire "out-of-the money," therewould be no further liability for
the University in 2014and 2016 respectively,exceptfor the fixed rate bonds,and the University
will have fully capitalizedon the time value includedin the embeddedcall options. However,
sincethere are inherentinterestsavingsavailable,the probability of exerciseof the swaptionsis
thereforegreaterthannot.
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The remainderof this analysisthereforeassumes,whererelevant, that the
swaptionsare exercisedby Wachoviaand the underlying swapsbecomeeffective, series2004
and 2006 bondsare called on March 15,2014 and December1,2016 respectively,thatVRDNs
are iSsued,and syntheticfixed mte debtis createdas a result. Whether or not the underlying
swapsmay be consideredeffective hedgesis thereforeaddressednext.
3.1.1 HedgeEffectiveness
The critical terms for the swapsunderlying the proposedTransactionand thoseof
an assumedVRDNs issueare, with the exceptionof the variablerate chosenor actuallypaid,
expectedto be the same.23The assumedVRDN issuesare for this analysisexpectedto be issued
as variable ratedemandnotes,with bond insuranceinsuring timely paymentsof principal and
22Bishop, Matthew, Essential &onomics, The&onomist in Association with Profile Books Ltd. (London, 2004).
23Based on draft confirmation from Wachovia for Series2006 bondsand assumingthat Series2004 bonds would
have a fixed rate of 4.96%.
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intereston the bonds,and theyare expectedto have a supportingliquidity facility. Further, the
assumedVRDN issuesare expectedto havebond balancesoutstandingin the sameamountsas
the series2004and 2006 and interestwould be paid monthly.
With regardsto the floating mte actuallypaid on the VRDNs and the floating mte
receivedunderthe swap(s),they can be expectedto deviatefrom eachothermore or less
dependingon whetherthe floating mte receivedunderthe swapcontmctis basedon the SIFMA
Index or 68%of I-Month LffiOR.
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If the floating rate receivedunder the swapcontractis basedon the SIFMA Index,
the ratepaid on the VRDNs is expectedto be offset by the floating paymentsreceivedunder the
swapcontractwith little variation. The SIFMA Index is essentiallyan averagerate on high
gradevariableratebonds thattradein the tax-exemptmarket:4 Even thoughthe SIFMA Index
and the assumedVRDNs may resetat different rates,sincethe SIFMA Index is an averageof
bonds with similar characteristicsas the assumedVRDNs, they are expectedto be substantially
the same.
If the floating rate receivedunderthe swapcontractis basedon 68% of I-Month
LffiOR, the rate paid on the VRDNs is expectedto be offset,basedon historical data, by the
floating ratereceivedunderthe swapcontract. However, i-Month LIBOR is a taxable interest
rate c?argedby bankson loansto.other banksand there may befactor~ that wil12aj!;ct~nterest
rates In tax-exemptmarket,but wIll not affect theLIBOR market,and VIceversa. While 68%
of I-Month LffiOR canbe expectedto be the sameas the SIFMA Index overtime, basedon
historical data,they are expectedto vary from this relationshipat a given point in time. Figure 4
showsthe historical relationshipbetweenthe SIFMA Index and 68% of I-Month LffiOR As
shownin the graph,the SIFMA Index and 68% of I-Month LffiOR have over time moved
together,however,on a weeklybasis, 68% of I-Month LffiOR is rarely equalto the SIFMA
Index.
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24For moredetails on how the SIFMA Index, seehtt12://www
.sifma.or2/caDital_markets/swagindex.shtrnl.
25For more information on LmOR, seeh
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Figure 4: SIFMA Index and 68% of I-Month LIBOR
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Source:Bloomberg
As of September12,2007,the averageratio betweenthe SIFMA Index and 1Month LffiOR sinceSeptember199226that would createoffsetting cashflows was 69%.
However,Wachoviaproposesto use Act/Act day count on I-Month LIBOR, which normally use
Act/360 day count, and as a resultthe historical ratio betweenthe SIFMA Index and I-Month
LffiOR would rise to 70%. Either day count conventioncan be usedin the swapwhen it is
executed,but the marketvalue of the swapis affectedby the methodchosen. Further, if future
hedging relationshipis basedon a historical relationshipthat is expectedto continue,a 2%
difference in the ratio used,with a 5% averageI-Month LffiO R, would result in an average10
basispoint basisdifference.
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3.1.2 HedgeEffectivenessSummary
If the University electsto basethe swapson the SIFMA Index, the floating rate
cashflows receivedunderthe swapsare,as a resultof similar critical terms,27expectedto
effectively hedgethe variable rate interestpaymentson the assumedVRDN issues. As a result,
debtservicepaymentscan reasonablybe expectedto staythe sameas thoseunder the fixed rate
bondsand the swapmaybe consideredan effective hedge.
26Based on market standardday countconventions.
27Notional amounton swapsand outstandingbalanceon bond issue, index usedto calculatefloating paymentson
swap,payment frequency,reset frequency,and day count convention.
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If the University electsto basethe swapson 68% of I-Month LffiOR, the floating
rate cashflows receivedunderthe swapscan reasonablybe expected,basedon historical data, to
effectively hedgethe floating rate interestpaymentson the assumedVRDN issues,assumingall
other critical termsare equal. However, due to factors that may affect the tax-exemptand/orthe
LffiOR market,the variationfrom this relationshipcan be expectedto be greater. As a result,
debt servicepaymentscanbe expectedto be the sameover time as thoseunder fixed ratebonds.
The swapmaybe consideredan effective hedgebut it doesadd basisrisk.
3.2.~
The risks commentedon hereare those that canbe reasonablycommentedon
under currentcircumstances.Tax and other regulatoryrules, suchas accountingrules, as well as
market conditionsmay changeand unforeseenrisks may becomeapparentas a result. This list
shouldthereforebe updatedwith possibleadditionsas part of the oversightresponsibility on the
swaptionpositions.
3.2.1 InterestRateRisk
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Interestrate risk, as a resultof rising short-terminterestrates,causinghigher
interestratepaymentsis effectively hedgedby the University by its fixed rate bonds. If the
swaptionsare exercised,the underlying swapsare expectedto effectively hedgethe potential
higher paymentson VRDNs as well.
Interestrate risk, as a result of changesin long-term interestrates, may causethe
value of fixed rate bondsor interestratederivativesto change. If the University executesthe
proposedTransactionand long-term inter~strates subsequentlyfall, the value of the swaptions
would change,with negativeconsequences
for the University. Unlessthe University is required
to postcollateralunderthe agreements,this is not expectedto have any cash flow consequences.
3.2.2 MarketAccessRisk
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The proposedTransactionassumesthat VRDNs will be issuedas a replacementof
existing series2004and 2006 fixed rate bonds. If the University is unable to issuevariablerate
bonds,after Wachoviaexercisesits right underthe swaps,the University would still be required
to begin to makeperiodic paymentson the swaps,eventhough thereareno relatedbonds,or the
University would have to liquidate the swaps,which may createa substantialcashoutlay. See
section3.3 for stressedvalues.
3.2.3 Basis Risk
If the University electsto basethe swaptionson 68% of I-Month LIBOR, the
University assumesthe potential for basisrisk. As discussedunder3.1.1 HedgeEffectiveness,
there is a risk that, assumingthe swaptionsare exercised,the floating paymentsreceivedunder
the swapsdo not fully offset the variable ratepaymentsdue on the assumedVRDNs. There is
also somebasisrisk associatedwith swapsbasedon the SIFMA Index sincethe SIFMA Index is
an averagerate on tax-exemptbonds,althoughthe differenceis expectedto be small.
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3.2.4 Mark-to-MarketRisk
Mark-to-marketrisk arethe consequences
as a resultin the mark-to-marketvalue
changesof swaptionsor swaps. If proposedGASB accountingrules are implemented,one such
consequence
could be thatreportedannualresultsfor the University maybe negatively impacted
as a resultof the changesin value in derivativepositions,evenif there areno current cashflow
implications.
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Fixed rate liabilities are generallymeasuredat historical values on the balance
sheetand derivative positionsare currently only disclosedin the notes for entities that report
underGASB. However, thereis currentlyan initiative from GASB to requirederivative
positionsto berecordedon the balancesheetand unlessthe positionqualifies for "hedge
accounting" its value changefrom oneperiod to the next will bepassedthrough the income
statement.As a result from this initiative, the changein time value in the proposedswaptions
from one accountingperiod to the next could be requiredto be passedthroughthe income
statement.
3.2.5 Counterparty
Risk
While the swaptionsremainunexercised,the University is not exposedto
Counterpartyrisk. However,if the swaptionsare exercisedand the underlyingswapsbecome
effective, the University would becomeexposedto counteIpartyrisk, as Wachovia may be
unableto fulfill its obligationsunderthe contracts. This risk is to a large extentmitigated since
Alabama law requirescounteIpartiesto postcollateral when a contractis in the University's
favor.
3.2.6 Termination
Risk
The University may be required to terminate the swaptions or swaps under certain
circmnstances, such as credit downgrades or other events specified in the contracts. In the event
that a position needs to be terminated, the University may owe a substantial amount of money to
terminate the contracts. See section 3.3 for stressedvalues.
TaxRisk
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3.2.7
The Unive~ity is subjectto the risk of changesin tax laws and regulationsas it
relatesto the expectedrelationshipbetween68% of I-Month LIBOR and the SIFMA Index,
which servesas a good proxy for interestpaymentson the assumedVRDNs. If for example,
marginal tax rates decrease,the expectedmtio of I-Month LIB OR that would be necessaryto
offset paymentsbasedon the SIFMA Index would increase. Anotherexamplewould be a repeal
of the tax-exemptionof municipal bonds by the FedemlGovernment.The SIFMA Indexunder
thesecircumstancescould reasonablybe expectedto have resetmtes at 100%of I-Month
LffiOR and a swapwhere paymentsarebasedon 68% of I-Month LIBOR would be insufficient
as a hedge.
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3.2.8 RolloverRisk
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The University doesnot have any rollover risk as it relatesto the Proposed
Transactionsincethe underlyingswapswould coverthe life of the assumedVRDNs.
3.2.9 Insurance,Liquidity, Remarketing,and ExpensesofIssuancesRisk
The University bas risks as it basmadeassumptionsaboutfuture costsof bond
insurance,liquidity facility, andremarketing. Current assumptionsare basedon fixed payouts
from Wachoviaif the swaptionsare exercised.Bond insuranceis assumedto be 80 basispoints
of total debtserviceand maybe reasonableunder currentcircumstances.However, if costsfor
bond insurancewere to increase,the fixed payout from Wachoviawould remainthe same.
The University also assumesthat 25 basispoints, in additionto the floating rate
receivedunderthe swap,is sufficient to coverongoing liquidity and remarketingcosts.
Similarly, an original placementfee of 47.5 basispoints currentlyseemsgenerousfor initially
underwriting the VRDNs, but that too couldchange.
3.2.10 CreditRisk
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The University is subjectto credit risk as assumedcostsof bond insurancewould
likely increaseif the University's credit mting were to deteriomte.
3.2.11 ContractLiquidity
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Swaptionsand swapsbasedon 68% of I-Month LIBOR are more liquid and price
transparentthanif they arebasedon the SIFMA Index. The LffiOR marketis substantially
larger and more active thanthe SIFMA market.
3.3. Stressed
Values
In orderto gaugepotential exposureand loss by the University as a result of the
Transaction,stressedvaluesare calculatedfor the LffiOR basedswaptions. Thesevalueswould
not necessarilybe cashlosses,unlessthe positionsneedto be terminated,sincethe University
intendsto hedgethe assumedVRDNs with the swaps.
The value of the proposedswaptionsare driven mainly by two factors;the level of
interestratesand implied volatility of thoseinterestrates. If the swaptionsare exercisedsuch
that the underlying swapsbecomeeffective,the main driver of the value is the level of interest
rates. The lower the level of rates,the greaterthe liability the swaptionsand underlying swaps
would be for the University.
Figure 5 showsthree different term structures;the one in effect on September12,
2007, a "Projected," which is expectedto be in effect December1, 2016 as implied by mtes on
September12,2007, and an "Extreme," which is a constructof historical mtes. The Extreme
term structureis consistentwith the lowestmid points in the LffiOR swapmarketrecordedby
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Bloomberg sinceMay 10, 1994. The lowestratesrecordedon eachpoint did not necessarily
occur simultaneouslywith the other low points and the Extremeterm structuremay be
consideredan extraordinaryevent.
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Figure 6 showsthe marketimplied volatility for the 20-year LIBOR swaprate, for
a given strike level and optionmaturity. For the series2006 swaption,the strike rate would be
5% and option maturity would be approximatelynine years (September12, 2007 until December
1,2016). The higher the level of implied volatility, the moretime value a swaptionhas. The
University would want to sell the swaptionwhen implied volatility is high and buy (or temIinate)
when implied volatility is low.
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3.3.1 StressedVa/uesfor SwaptionsF oJ/owingTransaction
The total mid-marketvalue for the proposedTransactionas of September12,
2007was $7,999,000for the swaptionsbasedon 68% of I-Month LmOR. Table 5 showstwo
potential value changesin the proposedswaptionfor changesin either volatility or volatility and
rates. If volatility were to increaseto its highestpointsrecordedby Bloomberg since January26,
200428immediatelyfollowing execution,the University would suffer a loss of $587,000,
assumingthe term structureof interestratesdoesnot change. In the eventthat volatility were to
reachits highestlevel and the term structureof interestratesfalls by 100basis points acrossall
maturities,the University would suffer a loss of $ 6,087,000,althoughsuchan eventwould be
consideredvery unlikely. This loss would be an opportunitycost, not a cashloss.
28Limited by availability of data.
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Table 5: StressedSwaption Values
Item
Settlement StressedValoe
Date
($)
Series2006 Swaption
9/12/2007
Series2004 Swaption
9/12/2007
Stress
Factor(s)
(6,691,000) Volatility
(1,895,000) Volatility
Subtotal
(8.586.000)
Series2006 Swaption
9/12/2007
Series2004 Swaption
9/12/2007
Subtotal
(11,113,000) Vol. andRates
(2,973,000) Vol. andRates
(14,086,000)
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3.3.2 StressedValuesfor Swapsas SwaptionsExpire
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As the swaptionsapproachesmaturity, their time value approacheszero and their
overall value approachesthat of the underlyingswaps,currentlyexpectedat $2,496,000and
$9,747,000for settlementon March 15,2014 and December1, 2016, respectively. In the event
that the term st11lcturefalls to the Extremelevel describedabove,the resultingvalues for the
swapsarepresentedin Table6. Again, thesevaluesrepresentopportunity cost, not cashcosts.
3.4. OtherFinancial Benefits
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Sincethe University intendsto executea syntheticadvancerefunding and realize
the debtservicesavingsupfront, therecould be a future liability associatedwith the refunding.
In addition, thereare no restrictionswith regardto reinvestmentrates on the proceedsreceived
by the University and the University usesa 7% expectedreturn on its investments.
Table 7 S11mmarizes
the expectedgain as a resultof reinvestingthe upfront
paymentsat 7% by selling the LffiOR basedswaptions. The expectedfuture liabiliiy29 resulting
from realizing debtservicesavingsupfront is the "Expected SwapValue, excl. Fee" column.
This liability takesthe form of higher debtservicethan what would otherwisebe necessary.
Note that the grossproceedsreceivedon September12, 2007 do not include a spreadfrom midmarketchargedby Wachovia for executingthe Transaction,which would directly affect the
29Bastd on marketdata as of September12,2007.
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expectedgain. Table 8 showsthe expectedgain for SIFMA basedswaptions. This also exclude
Wachovia' s fee for executingthe transactions.
Table 7: Expected Reinvestment Gain (LmOR Swaption)
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Gross
Proceeds Settlement
(9/12/2007)
Date
~
Series 2004 Swap
Series 2006 Swap
1,711,000
6,288,000
Expected
SwapValue,
excl. Fee
3/15/2014
(2,496,000)
12/1/2016
(9,747,000)
2,657,599
11,733,150
PresentValue
of Expected
Gain @ 7%
964,814
4,198,964
621,161
2.250.298
$
2,871,459
Table 8: Expected Reinvestment Gain (SIFMA Swaption)
Gross
Proceeds Settlement
(9/12/2007)
Date
Series 2006 Swap
1,164,000
4,022,000
Expected
SwapValue,
excLFee
3/15/2014
(1,072,000)
12/1/2016
(2,822,000)
Total
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803,215
2,212,814
ExpectedGain
(Future Value)
Total
Series :4004 Swap
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ExerciseFee
Expected
Reinvestment
Value
ExerciseFee
Expected
Reinvestment
Value
803,215
2,212,814
1,807,975
7,504,887
ExpectedGain
(Future Value)
PresentValue
of Expected
Gain @7-1.
1,539,190
6,895,701
990,952
3,695,527
$
4,686,479
Fully Liauidatin!! the Call Qntions
The proposedTransactionis economicallyequivalentto partially liquidating the
call optionsembeddedin the fixed rate bondssinceWachoviacan only exerciseits right on
March 15,2014 and December1, 201630while the fixed rate bondsca1be called beginningon
thosesamedatesand on any subsequentdatesthrough maturity of the bonds. By restructuring
the proposedswaptionssuchthat they are exercisableby Wachoviaevery six months,starting on
March 15,2014 and December1,2016, respectively,throughmaturity of the bonds,the call
optionswould be fully liquidated. The estimatedadditionalproceedsfrom sucha restructuring
would be approximately$1,126,000.31
3.6. Transaction
Costs
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Wachoviahasindicated that their costsand profit for executingthe proposed
TranSactionwould be as presentedin Table 9 below. Thesespreadsappearto be reasonableand
the presentvalue of 1 basispoint is $18,800and $62,200for the series2004 and 2006
respectively. The total transactioncost,in dollars, is shownin Table 10.
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30Notice must be given 90 daysprior to exercise.
31AsSumingthe swaptionsarebasedon the SIFMA Index. Proceedswould be greater if swaptionswere LIBOR
baseddue to additional basisrisk.
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Table 10: Transaction Cost ($)
Spread($)
LffiOR
SIFMA
Swaption
Swaption
206,800
230,300
684,200
761,950
Swaption
Series2004
Sereis2006
$
891,000
$
992,250
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Wachovia's implied costsand profit appearreasonableto us. Consideringthe
size and structureof the transaction,the costsand profits aboveare within marketranges. The
inter"dealermarket for similar swaptionsoffers bid-askspreadsof approximately4 basispoints.
A costof hedgingof 1.5basispoints thereforeappearsfavomble.
The credit chargeof 5.5 basispoints appearsreasonableand within cuuent market
rangesbasedon anecdotalevidence. The credit would equateto a total cost of approximately
$342.100for Wachovia's exposureof approximately$5.6 million initially for a term of either
nine or possibly29 years.32
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Wachovia's profit of 4 basispoints is fair and reasonableconsideringthe size and
structureof the proposedtransactionsbasedon currentmarketconditions.
32Basedon the Series2006 LIBOR basedswaption.
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University of South Alabama
Derivatives Policy
September 24, 2007
Porter, White & Company
Table of Contents
1.
2.
3.
4.
5.
General
1.1. Scope and Purpose
1.2. Legal Authority
Analysis of Proposed Transactions
2.1. Financial Analysis
2.1.1
Does the Proposed Transaction Constitute an Effective Hedge?
a. Overall Considerations
b. Hedge Effectiveness
2.1.2
Risks
2.1.3
Other Financial Benefits
2.1.4
Transaction Costs
2.2. Legal, Tax, and Accounting Analysis
2.2.1
Legality of Agreement
2.2.2
Integration for Tax Purposes
2.2.3
Expected Accounting Treatment
2.3. Documentation
2.3.1
Required Provisions
a. Collateral
b. Termination Events
2.4. Selection of Eligible Counterparties
Procurement.
3.1.1
Negotiated or Bid
3.1.2
Fairness Opinion
Management and Monitoring
4.1. Oversight Responsibility
4.1.1
Payment Management
4.1.2
Monitoring of Mark-to-Market, Counterparties, Collateral, and Termination
Events
4.1.3
Risk Monitoring
4.2. Disclosure
4.3. Annual Report to Board
4.4. Termination of Transaction
4.4.1
Optional termination
4.4.2
Mandatory Termination
Appendix
5.1. Definition of Terms
5.2. GFOA Derivatives Checklist
5.3. Code of Alabama, section 41-1-40 to 41-1-44, inclusive
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1. General
1.1. Scope and Purpose
The purpose of this Policy is to guide the use of derivative financial instruments by the
University of South Alabama (the “University”) in terms of the University’s authority to enter
into such transactions and the process that should be followed when such transactions are
contemplated. The Code of Alabama, section 41-1-40 to 41-1-44, inclusive (attached in
Appendix), authorizes derivative transactions by governmental entities in Alabama for the
purpose of hedging financial risks associated with debt obligations or investments. This Policy
does not address transactions that do not qualify as Hedges or the issue of whether such
transactions may be separately authorized as investments.
Rating agencies and the Government Finance Officers Association (GFOA) recommend that
derivative instruments should be used only for Hedging activities and not for speculation.
GFOA’s publication Use of debt-Related Derivative Products and the Development of a
Derivatives Policy (2003 and 2005) (DEBT) states: “Governmental issuers must understand fully
the characteristics of derivative instruments, have the ability to determine a fair market price and
be aware of the legal, accounting, credit and disclosure issues involved. These instruments
should not be used for speculation, but only to manage risks associated with an issuer’s assets or
liabilities and only in conformance with financial policies that reflect the risk tolerances and
management capabilities of the issuer.”
Standard and Poor’s Public Finance Criteria: Debt Derivative Profiles, published September 29,
2004, states “Hedges are designed to offset risk. Derivatives entered into to generate revenues or
relieve rate pressures are viewed as essentially gambling on interest rates and are viewed
negatively in the overall analysis.”
The National Federation of Municipal Analysts recommends that issuers publicly disclose how
they use derivatives to manage risk and how each transaction hedges an investment or debt issue.
A Hedge has been defined as “Reducing your risks. Hedging involves deliberately taking on a
new risk that offsets an existing one, such as your exposure to an adverse change in an exchange
rate, interest rate, or commodity price.”1
The objective of this Policy is therefore to prescribe a process to properly evaluate derivative
transactions before they are executed in order to ensure that a transaction under consideration
constitutes a lawful, fairly priced and effective Hedge.
1
Bishop, Matthew, Essential Economics, The Economist in Association with Profile Books Ltd. (London, 2004).
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1.2. Legal Authority
The University is a governmental entity under the Code of Alabama and is authorized to enter
into derivative transactions for the purpose of hedging financial risks. The applicable statute
requires as a condition of entering into a derivative transaction that the University’s governing
body find and determine that the transaction will constitute a Hedge. In considering such a
finding and determination the University’s governing body should have available to it for
reliance the analysis hereinafter described. The authority of the University to enter into a
derivative transaction should be confirmed in each instance by a legal opinion which should
consider the analysis hereinafter described.
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2. Analysis of Proposed Transactions
Proposed derivative transactions should be analyzed by University staff or independent advisers.
The analysis should address, at a minimum, the issues described in this section. The interest of
the persons or firms performing the analysis should be aligned with those of the University. A
potential counterparty to a proposed transaction will not be considered independent, although the
potential counterparty may provide information and perspective useful in the analysis.
The overall purpose of the analysis should be to evaluate the relative risks, benefits, transaction
costs and legality of the proposed derivative transaction. A determination of tax and accounting
treatment will also be appropriate in most cases. Legal issues will likely involve mixed
questions of fact, law, and finance and will require a joint effort of the lawyer and staff or
independent advisers performing the financial analysis.
The scope of the analysis will depend upon the situation. Reference to authoritative guidelines
and checklists, such as the GFOA Derivatives Checklist (attached in Appendix), is appropriate.
The analysis should be completed prior to consideration of the proposed transaction by the
governing body.
2.1. Financial Analysis
The Financial Analysis should address:
a) Whether or not the proposed transaction constitutes an effective Hedge,
b) The risks attendant to the proposed transaction,
c) Verification of other benefits expected for the transaction,
d) Estimates of transaction costs, whether paid upfront or over time.
2.1.1
Does the Proposed Transaction Constitute an Effective Hedge?
a. Overall Considerations
A proposed derivatives transaction should be analyzed in the context of the entire balance sheet
of the University. Once the University has identified an item and specific risk(s) relating to that
item that it wishes to hedge, the extent to which existing assets or liabilities do not “naturally”
offset those risks should be determined. For example, the variability of interest rates on shortterm debt may be naturally hedged or partially offset by the existence of short-term fixed assets.
The “unhedged” portion of a proposed or existing asset or liability can then be compared to the
proposed transaction. Further, the University should not have derivatives in effect with Notional
Amounts exceeding existing and proposed debt.
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b. Hedge Effectiveness
To ensure that a proposed transaction will constitute an effective hedge, the analysis should
address the expected relationship between the item the University wishes to hedge and the
proposed transaction. This should be done by comparing the critical terms, such as those
normally found in a trade confirmation, of the proposed transaction to those of the item to be
hedged. In accounting rules and literature this is sometimes referred to as the “short-cut method”
or “consistent critical terms method.” If the terms of the proposed transaction and the item the
University wishes to hedge are different, the characteristics of the target asset or liability should
be explored and data relating to the historical performance of the target asset or liability should
be reviewed and analyzed. The proposed Hedge should be "back tested" by determining whether
and to what extent the proposed Hedge would have reduced the risk of the targeted asset or
liability if it had been in effect during historical periods. Relevant statistical methods, such as
regression and correlation analysis, may also be employed. Acknowledging that "past
performance is not necessarily indicative of future performance," consideration should be given
to factors that might cause future performance to deviate from past performance.
2.1.2
Risks
The risks arising from using derivatives are not entirely attributable to the derivative agreement,
but may also arise from obligations, such as variable rate debt, that are used in conjunction with
a derivative agreement. The analysis should comment on the following risks:
Interest Rate Risk
Interest rate risk is the risk of changes in current, or
expectations about future, interest rates such that it negatively
impacts an entity’s financial position. It may or may not have
current cash flow implications.
Mark-to-Market Risk
The potential adverse effect on the organization as a result of
changes in the mark-to-market valuation of positions, such as
non-cash charges due to accounting treatment.
Basis Risk
The risk of a deviation from the expected relationship between
two payment streams, whose changes are intended to offset
each other.
Counterparty Risk
The risk of failure, by Counterparty, to fulfill obligations under
an Agreement.
Termination Risk
The risk of a payment being due to terminate an Agreement at
market value, when that market value is negative.
Rollover Risk
The risk of higher interest rate cost, than expected, as a result of
shorter maturity on an Agreement than on associated liabilities.
Tax Risk
The risk of future tax law changes, which would affect the
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expected relationship between two payment streams. This is a
form of basis risk.
Liquidity /Remarketing Risk
The risk of an increase in the cost of or inability to renew a
liquidity facility and/or remarketing agreement for variable rate
notes or the risk of a failed auction in the case of auction rate
securities.
Credit Risk
The risk of an event that would negatively impact an entity’s
credit quality.
Market Access Risk
The risk of not being able to access capital markets as intended.
Contract Liquidity
As the University's circumstances change, it may want to
unwind the transaction or enter into an offsetting transaction
with another counterparty. It is important, therefore, that the
proposed transaction be liquid in the sense that it can be
terminated with the Counterparty or offset with another
counterparty on financial terms that can be readily determined.
2.1.3 Other Financial Benefits
Benefits of the proposed transaction that are represented or expected should be evaluated and
quantified. In this connection, all aspects of the proposed transaction should be considered.
Optionality foregone or acquired should be separately valued in light of alternative transactions
containing optionality. For example, if variable rate bonds are issued in conjunction with a fixed
for floating rate swap, creating synthetic fixed rate debt, instead of issuing fixed rate bonds, the
analysis should show how much of the advertised interest savings is attributable to omitting the
cost of the call option included in traditional fixed rate bonds.
2.1.4
Transaction Costs
The analysis should show the gross economic cost to the University expected to result from a
transaction. Gross economic cost refers to the difference between (i) the estimated market value
of a transaction and (ii) the value of the transaction as executed. This difference is sometimes
referred to as the “spread from mid-market,” and the analysis should reveal this amount in
relevant industry terms as well as in dollar amounts. In the case of a negotiated transaction (see
Procurement) the gross economic cost to the University is the gross income booked by a
Counterparty in a transaction.
If an Agreement, such as a swap, is entered into in conjunction with an insured bond issue, the
additional cost of insuring the payment obligation of the University under the Agreement should
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be evaluated. If the University agrees to collateralize its payment obligation in a transaction, an
estimate of the cost of collateralization should be made.
In addition, all legal and other expenses anticipated in connection with a transaction should be
estimated and included in the analysis.
2.2. Legal, Tax, and Accounting Analysis
2.2.1
Legality of Agreement
Prior to considering a derivative transaction, the University should receive a legal opinion that
the proposed transaction is a valid and legally binding contract. The legal opinion should
comment on the sources of funds available to make payments, potential termination payments,
and collateral postings, if applicable.
2.2.2
Integration for Tax Purposes
The University should request an opinion from bond counsel, or other qualified party, stating
whether or not the proposed transaction can be expected to be treated as a qualified hedge under
IRS regulations, and thereby taken into consideration for the purpose of calculating bond yield in
applying applicable arbitrage rules.
2.2.3
Expected Accounting Treatment
The University should request an opinion from its auditor, or other qualified party, on the
expected disclosure and accounting treatment for the proposed transaction and whether or not it
will qualify for Hedge Accounting. Consideration will be give to proposed accounting standards
as well as those currently in effect.
2.3. Documentation
Generally, documentation will be based on the industry standard documents developed by the
International Swap and Dealers Association (ISDA) that are used in derivative transactions. This
documentation is comprised of:
a) Master Agreement,
b) Schedule,
c) Credit Support Annex, and
d) Trade Confirmation.
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As a general rule, the terms of the Master Agreement as modified in the Schedule and Credit
Support Annex should be reviewed by legal counsel, understood by the University, and agreed
upon with any potential Counterparty prior to negotiation or bidding of a derivative transaction.
The terms of the Trade Confirmation, leaving out only final price or rate, should be agreed upon
prior to any execution through negotiation or bidding. The specific financial terms of a proposed
transaction, such as day count conventions and other terms found in a trade confirmation, should
be analyzed. These terms should generally conform to those that are used for the asset or
liability hedged unless there are industry conventions otherwise used and the effect of such
differences can be analyzed. The financial analysis should comment on the terms of the Hedge
and those of the hedged asset or liability and, if they are different, provide justification for why
the terms differ.
The University may elect to use documentation that it considers to be more advantageous than
ISDA documents when considering derivative transactions and these alternative documents may
reference ISDA definitions. However, the principle of agreeing on terms, with the exception of
price, with potential Counterparties prior to any execution should be followed.
The sources of funds available to make payments resulting from a proposed transaction should
be identified and analyzed and confirmed by counsel as being lawfully available for the purpose.
2.3.1
Required Provisions
The Code of Alabama, section 41-1-40 to 41-1-44, inclusive (attached in Appendix), requires
Counterparties to post collateral at least quarterly in an amount equal to what would be payable
at that valuation date to the governmental entity if the Counterparty defaulted. The University is
allowed, but not required, to post collateral under the statute as well.
a. Collateral
Eligible collateral is defined as cash in United States dollars or obligations eligible for
investments in Alabama of municipal and county funds, and postings should be based on
monthly valuations or other periodic valuation as requested by either party.
Collateral should be held by an independent third party.
b. Termination Events
The University should have the right of optional termination of an Agreement at any time “at
market” with the termination value determined by Market Quotation and Second Method, or any
other method the University deems appropriate.
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2.4. Selection of Eligible Counterparties
An Eligible Counterparty will have unsecured long-term debt rated no lower than A+ or
equivalent by Standard and Poor’s, Moody’s Investor Service, or Fitch Ratings. Under the
statute, a Counterparty must have a net worth of at least $100,000,000 or its obligations must be
guaranteed by a person or an entity with a net worth of at least $100,000,000.
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3. Procurement.
3.1.1
Negotiated or Bid
It is the objective of the University to attempt to have at least three Eligible Counterparties
compete, through bidding, when considering derivative transactions, unless the University
determines that it is inefficient to arrange bidding. The University will attempt to simplify the
terms of a proposed transaction such that it is transparent in pricing and amenable to valuation,
attractive for Eligible Counterparties to bid, and does not favor one Eligible Counterparty over
another.
The University may elect to privately negotiate an Agreement with an Eligible Counterparty if it
deems that a proposed transaction contains too many unique provisions for bidding or if it wants
to reward an Eligible Counterparty for proposing innovative ideas. In such cases a written
justification for a negotiated as opposed to a bid transaction will be prepared explaining in detail
the justification for the negotiated transaction.
In a negotiated transaction it is important to determine that the Counterparty's compensation is
reasonable, as unreasonable compensation can lead to excess costs and potential violations of
arbitrage regulations relating to tax exempt bonds (and the potential taxability of the interest on
such bonds). Since the Counterparty's compensation in most derivative transactions is hidden
from view, if an Agreement is to be negotiated, the following steps should be followed:
a) The University and the Eligible Counterparty will agree on the level of compensation, in
dollar amounts, that the Eligible Counterparty will earn on the Agreement,
b) The level of compensation must be verifiable at the time of execution, and
c) The Eligible Counterparty will agree that the level of compensation agreed upon is the
amount that it will record on its books as a result of executing the Agreement.
3.1.2
Fairness Opinion
A competent independent analyst (referred to in the industry as “Swap Adviser”) should provide
the University with a fairness opinion simultaneously with execution of an Agreement describing
the terms and the fair value of the transaction. If an Agreement is negotiated, the fairness
opinion will verify that that terms agreed upon with the Counterparty were achieved at
execution. The fairness opinion should state the estimated gross cost, in dollar amounts, to the
University of executing the Agreement.
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4. Management and Monitoring
4.1. Oversight Responsibility
The University will designate a party responsible (“Swap Manager”) for oversight of any
executed Agreements. The Swap Manager may rely upon a qualified independent analyst. Such
oversight includes, but is not limited to:
4.1.1 Payment Management
The Swap Manager will ensure that procedures are in place to verify and manage scheduled
payments as required under any Agreement.
4.1.2 Monitoring of Mark-to-Market, Counterparties, Collateral, and Termination Events
The Swap Manager will ensure that procedures are in place for periodic Mark-to-Market
valuation and monitoring of terms as agreed upon in Documentation, including such terms as
collateral postings and possible termination events.
4.1.3
Risk Monitoring
The Swap Manager will on a periodic basis review the performance of any derivatives with
regards to risks commented on in the financial analysis.
4.2. Disclosure
The University will fully disclose to interested parties, such as credit rating agencies, insurance
providers, and bond investors a description of each transaction entered into, the hedged item, the
potential risks associated with each hedge, and Counterparty for each transaction. The
University will report derivative positions in its financial statements in compliance with
standards of the Government Accounting Standards Board or other applicable authority.
4.3. Annual Report to Board
The Swap Manager will report annually to the governing body the hedge’s performance,
potential termination exposure, and any material events related to any Agreements, such as credit
downgrades or payment defaults. Such a report will contain:
a) A description of each individual Agreement, the hedged asset or liability, effectiveness of
hedge, liquidity/remarketing risk, market access risk, rollover risk, and current estimated
market value,
b) Mark-to-market valuation of Agreements by Counterparty,
c) Collateral held or posted by Counterparty,
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d) Credit ratings of each Counterparty, or its guarantor,
e) Any other material events related to any transaction, Counterparty, or risk, such as tax or
mark-to-market risk, and
f) Suggested actions to be taken with regards to the above mentioned or other relevant
items.
4.4. Termination of Transaction
In the event that it is desirable to terminate a transaction, the University will consider feasible
alternatives to termination “at market” with its current Counterparty. Such alternatives may be
to arrange bidding among Eligible Counterparties to take over the University’s obligations to
ensure that the cost of terminating a transaction is fair.
4.4.1
Optional termination
The University may terminate a transaction if it determines, through appropriate financial
analysis, that it is advantageous to do so. The financial analysis shall review the original
intentions for the transaction and justify why it is more advantageous to terminate the transaction
than to leave it in place. This financial analysis is to be done by persons or entities, such as
internal staff or outside Swap Adviser, whose interest are aligned with those of the University,
and that are qualified to perform such analysis. The Counterparty in a proposed transaction
should not perform this analysis.
4.4.2
Mandatory Termination
In the event that a transaction is terminated as a result of a termination event, such as a default or
a decrease in credit rating of either the University or a Counterparty, the University will through
appropriate financial analysis determine whether or not it is appropriate and cost efficient to
enter into a replacement transaction.
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5. Appendix
5.1. Definition of Terms
Hedge A transaction that, possibly by absorbing a new risk, reduces the risk of another
transaction.
Agreement A derivatives contract such as, but not limited to, futures contract, swap, swaption,
or cap.
Counterparty A party in a derivative transaction.
Notional Amount The amount underlying an Agreement that is used to calculate payments.
Hedge Accounting Accounting rules allowing for related assets and liabilities or income and
expenses to be offset against each other in presentation of financial results.
Eligible Counterparty A financial institution making a market in derivatives.
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5.2. GFOA Derivatives Checklist
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5.3. Code of Alabama, section 41-1-40 to 41-1-44, inclusive
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DERIVATIVES CHECKLIST
Introduction
This checklist is a supplement to the Recommended Practice on Use of Debt-Related
Derivatives Products and the Development of a Derivatives Policy (2005) and is designed to be
an attachment to a government issuer’s derivatives policy. It is designed to be used prior to
entering into any derivatives transaction. This checklist presumes an issuer’s compliance with
the Recommended Practice—to wit, that the issuer has adopted a derivatives policy and that the
issuer’s staff has been trained in the evaluation and use of derivative products. An issuer that
cannot answer the questions in this checklist is advised to continue its training prior to
completing a derivatives transaction.
While the principles enunciated in the Recommended Practice are generally applicable
to all derivatives transactions, it is impracticable to create a “one size fits all” checklist to
address the specific issues of all derivatives transactions. First, over-the-counter derivatives
transactions are not uniform. Each is customized to fit the needs of the parties. Second, the
derivatives market and the products being used in that market change over time, sometimes quite
quickly, in response to changes in the broader financial markets. Third, the experience and
sophistication of users of derivative products varies. Many experienced users of derivatives will
already have developed their own means of assuring that all relevant issues in a derivatives
transaction have been considered and addressed. Therefore, this checklist is intended mostly to
assist issuers that meet the presumptions described above but are relatively new to the
derivatives market. The issues addressed in this checklist are broadly applicable, but the form of
the checklist is one that issuers are encouraged to adapt to their particular circumstances.
Many of the capitalized terms used in this checklist are used as defined in International
Swaps and Derivatives Association, Inc. (“ISDA”) documents, and this checklist presumes that
an issuer is familiar with such documents.
General Information
1.
Name of Governmental Issuer: ______________________________________________
2.
Date of most recent update to Issuer’s Derivatives Policy: _________________
3.
(a)
Names of Official and Backup(s) Responsible for Procurement of Derivative:
________________________________________________________________________
(b)
Names of Official and Backup(s) Responsible for Monitoring Derivative:
________________________________________________________________________
(c)
Have all of them satisfied the training standards prescribed in the Issuer’s
Derivatives Policy?
Yes ___ No ___
4.
Independent Derivatives Advisor, if any: ______________________________________
5.
Independent Derivatives Monitor, if any: ______________________________________
Authority
1.
Will the Issuer’s counsel deliver an unqualified opinion on the Issuer’s authority to enter
into the derivative?
Yes ___ No ___
General Terms
1.
Type of Derivative: _______________________________________________________
2.
Counterparty/ies: _________________________________________________________
3.
(a)
(b)
(c)
(d)
4.
Notional Amount: ________________________
5.
Identify debt, or assets, with which the derivative is associated:
________________________________________________________________________
Expected Trade Date: _________________
Effective Date: __________________
Scheduled Termination Date: ________________
If derivative is an option, Exercise Date(s): _____________________________
Financial Terms
1.
(a)
(b)
(c)
(d)
Basis for calculating Issuer’s payments: _____________________________
Frequency of calculation: __________________________
Frequency of payment: ______________________
Can the passage of time or future market conditions cause the basis for calculating
these payments to change?
Yes ___ No ___
If yes, explain: _____________________________________________________
__________________________________________________________________
__________________________________________________________________
2.
(a)
(b)
(c)
(d)
Basis for calculating Counterparty’s/ies’ payments: _______________________
Frequency of calculation: __________________________
Frequency of payment: _____________________________
Can the passage of time or future market conditions cause the basis for calculating
these payments to change?
Yes ___ No ___
If yes, explain: _____________________________________________________
2
__________________________________________________________________
__________________________________________________________________
3.
Identify any embedded options in the derivative: ________________________________
_______________________________________________________________________
_______________________________________________________________________
4.
Will either party make an upfront payment upon execution of the derivative?
Yes ___ No ___
Purpose
1.
2.
State the reason(s) for entering into the derivative.
_______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Were other means considered for achieving such purpose(s)?
Yes ___ No ___
If yes, why was the derivative chosen? ________________________________________
________________________________________________________________________
________________________________________________________________________
Risks
1.
2.
Has the Issuer evaluated the extent
upon execution of the derivative?
(a)
Basis Risk
(b)
Tax Risk
(c)
Interest Rate Risk
(d)
Counterparty Risk
(e)
Termination Risk
(f)
Market-access Risk
(g)
Rollover Risk
(h)
Credit Risk
to which each of the following risks will be assumed
Yes ___
Yes ___
Yes ___
Yes ___
Yes ___
Yes ___
Yes ___
Yes ___
No ___
No ___
No ___
No ___
No ___
No ___
No ___
No ___
Are the risks to be assumed within the risk parameters of the Issuer’s Derivatives Policy?
Yes ___ No ___
3.
Has Issuer run, or had run for it, stress tests on how the derivative could affect Issuer’s
budget and financial position under various market conditions?
Yes ___ No ___
____________________________________________________
4.
How do the benefits of entering into the derivative outweigh the risks being assumed?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
3
5.
Upon execution of this derivative,
(a)
How many derivatives will Issuer have outstanding? _________________
(b)
What is the total notional amount of those derivatives? _______________
(c)
What percent of Issuer’s long-term debt will be associated with derivatives?
_______
Documentation
1.
Is Issuer’s counsel experienced in derivatives transactions?
Yes ___ No ___
2.
Has Issuer discussed with its counsel:
(a)
Required consents and approvals?
(b)
Relation of derivative payments to bond payments?
(c)
Default provisions?
(d)
Termination provisions?
(e)
Other remedies?
Yes ___ No ___
Yes ___ No ___
Yes ___ No ___
Yes ___ No ___
Yes ___ No ___
Counterpartv/ies
1.
On what basis did Issuer select Counterparty/ies?
Competitive
Negotiated
2.
If competitive,
(a)
Who was bidding agent? ________________________
(b)
How many firms were invited to bid? ______________
(c)
How many firms bid? __________________________
(d)
Is bidding agent providing a closing certificate?
Yes ___ No ___
3.
If negotiated,
(a)
State reasons for negotiating derivative: _________________________________
__________________________________________________________________
(b)
State reasons for choosing Counterparty/ies: _____________________________
__________________________________________________________________
(c)
Estimated spread relative to mid-market or benchmark rate? _______________
(d)
Is Derivatives Advisor providing a certificate as to fair market valuation?
Yes ___ No ___
If no, what comfort will Issuer receive that the terms for the derivative are
commercially reasonable? ____________________________________________
4.
Does Counterparty/ies meet credit criteria of Issuer’s Derivatives Policy? Yes ___ No __
5.
What percentage of Issuer’s total notional amount of derivatives will be with the same
Counterparty/ies?______________
4
6.
If Issuer will have more than one derivatives transaction with Counterparty or any of the
Counterparties, will there be netting between or among separate derivatives transactions?
Yes ___ No ___
Credit Support
1.
Credit Support will be provided for:
(a)
Issuer
Yes ___
No ___
If yes, name of provider: ____________________________________________
(b)
Counterparty/ies
Yes ___
No ___
If yes, name of provider: ____________________________________________
2.
Has Issuer’s counsel reviewed Issuer’s credit support obligations? Yes ___ No ___
3.
Has Issuer established procedures sufficient to:
(a)
Comply with any such obligations?
Yes ___ No ___
(b)
Renew or replace Credit Support, if required?
Yes ___ No ___
(c)
Monitor the credit level of the Counterparty/ies?
Yes ___ No ___
(d)
Receive the benefit of, and comply with any obligations relating to, any credit
support obligations of Counterparty/ies?
Yes ___ No ___
Tax Issues
1.
Tax counsel reviewing the documentation: _____________________________________
2.
Has Issuer discussed with tax counsel:
(a)
Integration of the derivative with a bond issue?
Yes ___ No ___
(b)
Whether yield monitoring is required?
Yes ___ No ___
(c)
Whether the derivative’s performance or mark-to-market value should be
included in arbitrage compliance calculations?
Yes ___ No ___
3.
Will tax counsel deliver an opinion in connection with the derivative? Yes ___ No ___
Operations and Monitoring
1.
If the Expected Trade Date and the Effective Date are different, is the derivative part of a
series of transactions?
Yes ___ No ___
If yes,
(a)
Describe the subsequent transactions being considered: ____________________
________________________________________________________________________
________________________________________________________________________
(b)
Has Issuer established procedures or mechanisms to:
(i) Determine how and when any subsequent transaction will occur?
Yes ___ No ___
(ii) Evaluate and handle risks to completion of any subsequent transaction?
Yes ___ No ___
5
(iii)Complete, and pay expenses of, any subsequent transactions?
Yes ___ No ___
2.
Has Issuer discussed the appropriate accounting treatment for the derivative with its
independent auditor?
Yes ___ No ___
3.
Does the Issuer intend to use hedge accounting?
Yes ___ No ___
If yes, has the issuer received or made arrangements to receive confirmation of hedge
effectiveness?
Yes ___ No ___
If yes, from: ___________________________________________________________
4.
Who is responsible for confirming payment amounts and making necessary payments?
______________________________________________________________
5.
What is the source for Issuer’s regular payments? _______________________________
6.
How are such payments budgeted? ___________________________________________
7.
Who is responsible for monitoring mark-to-market valuations? ____________________
8.
What is the frequency of such monitoring? ________________________
9.
What is the frequency of:
(a)
Reporting monitoring results to Chief Executive Officer/Chief Financial Officer?
________________________
(b)
Sharing monitoring results with independent auditor? ______________________
10.
Has Issuer discussed this derivative with the rating agencies?
11.
Who is responsible for delivery of future documents required by the derivative’s
documentation? ___________________________
12.
Who is responsible for answering investors’ questions about Issuer’s derivatives
exposure? _______________________________________________________________
________________________________________________________________________
Yes ___ No ___
Information Provided By:
____________________________________
(signature)
6
Page 14
5.3. Code of Alabama, section 41-1-40 to 41-1-44, inclusive
G:\721-2\docs\derivatives policy-final.doc | 9/24/2007
Porter, White & Company
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1/11
DRAYI'
SWAPTRANSACTIONCONFIRMATION
Dalte:
To:
Address:
Fa:l:
Attention:
Fn)m:
I
Ref. No.
September
18,2007
TBD ("Counterparty")
TBD
TBD
Sir orMadam
Wachovia Bank,N.A. ("Wachovia")
XXXXX
Dear Sir or Madam:
This confirms the terms of the Transactiondescribedbelow betweenCounterpartyand Wachovia. The definitions and
provisions containedin the 2006 ISDA Definitions, as published by the InternationalSwapsand Derivatives Association,
Inc., are incorporatedinto this Confirmation. In the eventof any inconsistencybetweenthose de~tions and provisions and
this Confirmation,this Confirmation will govern. Fixed Amounts and Floating Amounts for eachapplicable PaymentDate
hereunderwill be calculatedin accordancewith the ISDA Definitions, and if any Fixed Amount and Floating Amount are
due for the samePaymentDate hereunder,then those amountsshall not be payableand insteadthe Fixed Rate Payer shall
pay the positive difference,if any, betweenthe Fixed Amount andthe Floating Amount, and the Floating Rate Payer shall
pay the positive difference,if any,betweenthe Floating Amount and the Fixed Amount.
The Transactionto which this Confirmation relatesis a Swaption,the terms of which are as follows:
1. £wantion Terms:
Trade Date:
xxxxxxxxxx
Option Style:
Seller:
European
Counterparty
Buyer:
Premium:
PremiumPaymentDate:
ExerciseBusinessDays:
Wachovia
XXXXXxxxxx
XXXXXXXXXX
New York
2. Plocedurefor Exercise;
I
I
:ExpirationDate:
EarliestExerciseTime:
Expiration Time:
Partial Exercise:
Automatic Exercise:
Fallback Exercise:
Written Confirmation:
3. 5..ecttlement
Terms:
~;ettlement:
September01, 2016
9:00 a.1n.New York time
11:00 a.1n.New York time
Inapplicable
Inapplicable
Applicable
Applicable as provided in Section12.2 of the ISDA Definitions.
Physical
4. The tenns of the particular Underlying Swap Transactionto which this Swaptionrelatesare as follows:
I
I
I
I
Inn!;action T~:
C!!J:IC:nc~
for Pa~ents:
InterestRate Swap
U.S. Dollars
Imn~
Trade Date:
Effective Date:
Tennination Date:
XXXXXXXXXX
December01,2016
December01,2036 in respectof Fixed Amounts
December01,2036 in respectof Floating Amounts, subjectto the Following Business
Day Convention.
Wachovia: DRAFT
2/11
I
fixed Amounts:
Fixed RatePayer:
Notional Amount:
PeriodEnd Dates:
Payment
Dates:
BusinessDayConvention:
Business
Day:
FixedRate:
FixedRateDayCount
Fraction:
Mlitional
Counterparty
For a CalculationPeriod, the amountset forth opposite that Calculation Period on
Attachment I hereto
Semi-annuallyon the 1stof eachJuneand DecembercommencingJune 01, 2017,
through and including the Termination Date; No Adjustment.
Semi-annuallyon the 1stof eachJuneand DecembercommencingJune 01, 2017,
through and including the Termination Date.
Following
New York
5.000/0
30/360
Fixed Amount:
Fixed Amount Payer:
Fixed Amount:
PaymentDate:
Wachovia
XXXXXXXXXX
Simultaneouslywith the issuanceof the Related Bonds, but in no eventlater than
December01, 2016
~~ting Amounts:
FloatingRatePayer:
NotionalAmount:
PeriodEnd Dates:
PaymentDates:
I
BusinessDay Convention:
BusinessDay:
Floating Rate Option:
DesignatedMaturity:
:Spread:
Floating Rate Day Count
Fraction:
ResetDates;
J\1ethodof Averaging:
~:::ompounding:
Rounding convention:
Wachovia
For a Calculation Period, the amount set forth opposite that Calculation Period on
Attachment II hereto
Monthly on the 1st of each month, commencing January 03, 2017, through and
including the Termination Date, subject to adjustment in accordance with the
Following Business Day Convention.
Monthly on the 1st of each month, commencing January 03, 2017, through and
including the Termination Date.
Following
New York
68% ofUSD-LIBOR-BBA
1 Month
Plus 0.25%
Actual/Actual
Weekly on Thursday
WeightedAverage
Inapplicable
5 decimalplacesper the ISDA Definitions.
5. The additionalprovisions of this Confirmation are as follows:
~llation A~ent:
~lent Instructions:
I
.I
I
Wachovia
WachoviaBank,N.A.
CIB Group,ABA 053000219
Ref: Derivative Desk (TradeNo: XXXXX)
Account#: 04659360006116
~ovia
Contacts:
Settlements
and/orRateResets:
Tel: (800)249-3865
Fax:(704)383-9139
Wachovia: DRAFT
I
Documentation:
Tel: (704) 383-4599
Fax: (704) 383-9139
I
Collateral:
Tel: (704)383-9529
I
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~nents to Counte!12~:
Pleasequote transactionreferencenumber.
Pleaseprovide written paymentinstructions.
Wachovia will makeno payments until
written payment instructionsare received.
Phone: 1-800-249-3865Fax: 1-704-383-8429
A.4ditional T~§
Bon.iI-RelatedTransaction. This Transactionis a Bond-RelatedTransactionfor all purposesof the ISDA Master
Agre:ementand the "RelatedBonds" for the Transactionshall be the Counterparty'sBonds which are issuedto [
maturing on [ ].
~lmentation
I
I
I
If at anytime there exists an executedISDA Master Agreementbetweenthe parties governing this Transaction,this
Confirmation supplements,fonns part of and will be governed by that ISDA Master Agreement,and all provisions contained
or incorporatedby referencein that ISDA Master Agreementwill govern this Confirmation exceptas expresslymodified
herein. In the absenceof that ISDA Master Agreernent,this Confirmation shall supplement,fonn a part of, and be subject to
an agreementin the fonn of the ISDA Master Agreement(Local Currency-Single Jurisdication)published in 1992 by the
International Swapsand Derivatives Association,Inc. as if the parties had executedan agreementin suchfonn (the
provisions of which are herebyincorporated by reference),but without any Scheduleexceptfor the electionof New York
law (without regard to conflicts of law principles) asthe governing law. Referencesin this Confirmation to the "ISDA
Master Agreement" shall be to whichever of the foregoing is applicable.Neither party is acting asthe other party's financial
advisor for this Transactionnor is it relying on the other party for any evaluationof the presentor future results,
consequences,
risks, and benefits of this transaction,whether financial, accounting,tax, legal, or otherwise.
I
I
I
I
.
],
3/11
Wachovia: DRAFr
4/11
Pleaseconfirm that the foregoing correctly setsforth the terms of our agreementby executinga copy of this Confumation
and teturniiig it to us.
Very truly yours,
WachoviaBank,N.A.
I
By:
Name:
Title:
Ref.No. XXXXX
Acceptedand confirmed as of date first abovewritten:
TBD
By:
DRAFT
Name:
Title:
I
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I
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..
DRAFr
Wachovia: DRAFT
I
5/11
ATTACHMENT I -DRAFT
AmortizationSchedulefor xx:xx:x
I
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I
Calculation Period
(from and including, to but excluding)
01 Dec 16
to
01 Jun 17
01 Jun 17
to
01 Dec 17
01 Dec 17
to
01 Jun 18
01 Jun 18
to
01 Dec 18
01 Dec 18
to
01 Jun 19
01 Jun 19
to
01 Dec 19
01 Dec 19
to
01 Jun 20
01 J\m 20
to
01 Dec 20
01 Dec 20
to
01 Jun21
01 J\m 21
to
01 Dec 21
01 Dec 21
to
01 Jun 22
01 J\m 22
to
01 Dec 22
01 Dec 22
to
01 Jun 23
01 Jun 23
to
01 Dec 23
01 Dec 23
to
01 Jun 24
01 Jun 24
to
01 Dec 24
01 Dec 24
to
01 Jun 25
01 Jun 25
to
01 Dec 25
01 Dec 25
to
01 Jun 26
01 Jun 26
to
01 Dec 26
01 Dec 26
to
01 Jun 27
01 Jun 27
to
01 Dec 27
01 Dec 27
to
01 Jun 28
01 Jun 28
to
01 Dec 28
01 Dec 28
to
01 Jun 29
01 Jun 29
to
01 Dec 29
01 Dec 29
to
01 Jun 30
01 Jun 30
to
01 Dec 30
01 Dec 30
to
01 Jun31
01 Jun31
to
01 Dec 31
01 Dec 31
to
01 Jun 32
01 Jun 32
to
01 Dec 32
01 Dec 32
to
01 Jun 33
01 Jun 33
to
01 Dec 33
01 Dec 33
to
01 Jun 34
01 Jun 34
to.
01 Dec 34
01 Dec 34
to
01 Jun 35
01 Jun 35
to
01 Dec 35
01 Dec 35
to
01 Jun 36
01 Jun36
to
01 Dec 36
usn Notional Amount
usn
Notional
Redur.tion
(at end of period)
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
94,400,000.00
94,400,000.00
88,515,000.00
88,515,000.00
82,325,000.00
82,325,000.00
75,820,000.00
75,820,000.00
68,980,000.00
68,980,000.00
61,790,000.00
61,790,000.00
54,230,000.00
54,230,000.00
46,285,000.00
46,285,000.00
37,930,000.00
37,930,000.00
29,145,000.00
29,145,000.00
19,910,000.00
19,910,000.00
10,205,000.00
10,205,000.00
Wachovia: DRAFT
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
5,600,000.00
0.00
5,885,000.00
0.00
6,190,000.00
0.00
6,505,000.00
0.00
6,840,000.00
0.00
7,190,000.00
0.00
7,560,000.00
0.00
7,945,000.00
0.00
8,355,000.00
0.00
8,785,000.00
0.00
9,235,000.00
0.00
9,705,000.00
0.00
10,205,000.00
I
6/11
ATTACHMENT n -DRAYI'
Amortization Schedulefor XXXXX
I
Calculation Period
(from and including,to but excluding)
01 Dec 16
to
03 Ian 17
031an17
to
01 Feb 17
01 Feb 17
to
01 Mar 17
01 Mar 17
to
03 Apr 17
03 Apr 11
to
01 May 17
01 May 17
to
011un17
01 Jun 17
to
03 lul17
03 Jul17
to
01 Aug 17
01Aug17
to
01Sep17
01Sep17
to
02qct17
02 Oct 17
to
01 Nov 17
01 Nov 17
to
01Dec17
01 Dec 17
to
02 Ian 18
02 Ian 18
to
01 Feb 18
01 Feb 18
to
01 Mar 18
01 Mar 18
to
02 Apr 18
02 Apr 18
to
01 May 18
01 May 18
to
01 Jun 18
01 lun 18
to
02 lul18
02 Jul18,
to
01 Aug 18
01 Aug 18
to
04 Sep 18
04 Sep 18
to
01 Oct 18
01 Oct 18
to
01 Nov 18
01 Nov 18
to
03 Dec 18
03 Dec 18
to
02 Jan 19
02 Jan 19
to
01 Feb 19
01 Feb 19
to
01 Mar 19
01 Mar 19
to
01 Apr 19
01 Apr 19
to
01 May 19
01 May 19
to
03 lun 19
03 lun 19
to
01 Jul19
01 lul19
to
01 Aug 19
01 Aug 1~
to
03 Sep 19
03 Sep 19
to
01 Oct 19
01 Oct 19
to
01 Nov 19
01 Nov 19
to
02 Dec 19
02 Dec 19
to
02 Ian 20
02 Ian 20
to
03 Feb 20
03 Feb20
to
02 Mar 20
02 Mar 20
to
01 Apr 20
01 Apr 20
to
01 May 20
01 May 20
to
01 lun 20
01 Jun 20
to
01 lul20
01 Ju120
to
03 Aug20
03 Aug 20
to
01 Sep 20
usn NotionalAmount
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
I
I
Wachovia:DRAFf
usn Notional Reduction
(at end of period)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
I
I
I
I
I
I
I
I
I
I
I
I
I
7/11
Calculation Period
(fI-omand including,to but excluding)
01 Sep 20
to
01 Oct 20
01 Oct 20
to
02 Nov 20
02 Nov 20
to
01 Dec 20
01 Dec 20
to
04 Jan21
04 Jan21
to
01 Feb21
01 Feb 21
to
01 Mar 21
01 Mar 21
to
01 Apr 21
01 Apr 21
to
03 May 21
03 May 21
to
01 Jun21
01 Jun21
to
01 Jul21
01 Jul21
to
02 Aug 21
02 Aug 21
to
01 Sep21
01 Sep21
to
01 Oct 21
01 Oct21
to
01 Nov 21
01 Nov 21
to
01 Dec 21
01 Dec 21
to
03 Jan 22
03 Jan 22
to
01 Feb 22
01 Feb 22
to
01 Mar 22
01 Mar 22
to
01 Apr 22
01 Apr 22
to
02 May 22
02 May 22
to
01 Jun 22
01 Jun 22
to
01 Jul22
01 Jul22
to
01 Aug 22
01 Aug 22
to
01 Sep22
01 Sep22
to
03 Oct 22
03 Oct 22
to
01 Nov 22
01 Nov 22
to
01 Dec 22
01 Dec 22
to
03 Jan 23
03 Jan 23
to
01 Feb23
01 Feb23
to
01 Mar 23
01 Mar 23
to
03 Apr 23
03 Apr 23
to
01 May 23
01 May 23
to
01 Jun23
01 Jun 23
to
03 Jul23
03 Jul23
to
01 Aug 23
01 Aug 23
to
01 Sep23
01 Sep23
to
02 Oct 23
02 Oct 23
to
01 Nov 23
01 Nov 23
to
01 Dec 23
01 Dec 23
to
02 Jan 24
02 Jan 24
to
01 Feb 24
01 Feb 24
to
01 Mar 24
01 Mar 24
to
01 Apr 24
01 Apr 24
to
01 May 24
01 May 24
to
03 Jun 24
03 Jun 24
to
01 Jul24
01 Jul24
to
01 Aug 24
01 Aug 24
to
03 Sep 24
usn NotionalAmount
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
Wachovia: DRAFT
usn Notional Reduction
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
I
8/11
CalculationPeriod
I
I
I
I
I
I
I
I
(from and including,to
03 Sep24
to
01 Oct 24
to
01 Nov 24
to
02 Dec 24
to
02 Jan 25
to
03 Peb25
to
03 Mar 25
to
01 Apr 25
to
01 May 25
to
02 Jun25
to
01 hll25
to
01 Aug 25
to
02 Sep25
to
01 Oct 25
to
03 Nov 25
to
01 Dec 25
to
02 Jan 26
to
02 Peb 26
to
02 Mar 26
to
01 Apr 26
to
01 May 26
to
01 Jun 26
to
01 Jul26
to
03 Aug26
to
01 Sep 26
to
01 Oct 26
to
02 Nov 26
to
01 Dec 26
to
04 Jan 27
to
01 Peb 27
to
01 Mar 27
to
01 Apr 27
to
03 May 27
to
01 Jun 27
to
01 Jul 27
to
02 Aug 27
to
01 Sep 27
to
01 Oct 27
to
01 Nov 27
to
01 Dec 27
to
03 Jan 28
to
01 Peb 28
to
01 Mar 28
to
03 Apr 28
to
01 May 28
to
01 Jun 28
to
03 Jul28
to
01 Aug 28
to
but excluding)
01 Oct 24
01 Nov 24
02 Dec 24
02 Jan 25
03 Peb 25
03 Mar 25
01 Apr 25
01 May 25
02 Jun 25
01 Jul25
01 Aug 25
02 Sep25
01 Oct 25
03 Nov 25
01 Dec 25
02 Jan 26
02 Peb 26
02 Mar 26
01 Apr 26
01 May 26
01 Jun 26
01 Jul26
03 Aug 26
01 Sep 26
01 Oct 26
02 Nov 26
01 Dec 26
04 Jan 27
01 Peb 27
01 Mar 27
01 Apr 27
03 May 27
01 Jun 27
01 Jul27
02 Aug 27
01 Sep 27
01 Oct 27
01 Nov 27
01 Dec 27
03 Jan 28
01 Peb28
01 Mar 28
03 Apr 28
01 May 28
01 Jun28
03 Jul28
01 Aug 28
01 Sep28
usn Notional Amount
100,000,000.00
100,000,000.00
100,000,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
Wachovia: DRAFT
.
usn Notional Reduction
0.00
0.00
5,600,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
5,885,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
6,190,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
6,505,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
9/11
I
I
I
Calculation Period
(froM and including,to but excluding)
01 Sep 28
to
02 Oct 28
02 Oct 28
to
01 Nov 28
01 Nov 28
to
01 Dec 28
01 Dec 28
to
02 Jan 29
02 Jan 29
to
01 Feb 29
01 Feb 29
to
01 Mar 29
01 Mar 29
to
02 Apr 29
02 Apr 29
to
01 May 29
01 May 29
to
01 Jun 29
01 Jun 29
to
02 Jul29
02 Jul 29
to
01 Aug 29
01 Aug 29
to
04 Sep 29
04 Sep 29
to
01 Oct 29
01 Oct 29
to
01 Nov 29
01 Nov 29
to
03 Dec 29
03 Dec 29
to
02 Jan 30
02 Jan 30
to
01 Feb 30
01 Feb 30
to
01 Mar 30
01 Mar 30
to
01 Apr 30
01 Apr 30
to
01 May 30
01 May 30
to
03 Jun 30
03 Jun 30
to
01 Jul30
01 Jul30
to
01 Aug 30
01 Aug 30
to
03 Sep30
03 Sep 30
to
01 Oct 30
01 Oct 30
to
01 Nov 30
01 Nov 30
to
02 Dec 30
02 Dec 30
to
02 Jan 31
02 Ian 31
to
03 Feb31
03 Feb 31
to
03 Mar 31
03 Mar 31
to
01 Apr 31
01 Apr 31
to
01 May 31
01 May 31
to
02 Jun 31
02 Iun 31
to
01 Jul31
01 Iul31
to
01 Aug 31
01 Aug 31
to
02 Sep 31
02 Sep31
to
01 Oct 31
01 Oct 31
to
03 Nov 31
03 Nov 31
to
01 Dec 31
01 Dec 31
to
02 Ian 32
02 Jan 32
to
02 Feb32
02 Feb 32
to
01 Mar 32
01 Mar 32
to
01 Apr32
01 Apr 32
to
03 May 32
03 May 32
to
01 Iun 32
01 Iun 32
to
01 Iul32
01 Iul 32
to
02 Aug 32
02 Aug 32
to
01 Sep32
usn NotionalAmount
75,820,000.00
75,820,000.00
75,820,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
I
I
Wachovia: DRAFI'
usn NotionalReduetion
0.00
0.00
6,840,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7,190,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7,560,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7,945,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
10/11
I
I
I
I
I
I
I
I
Calculation Period
(from and including,to but excluding)
01 Sep32
to
01 Oct 32
01 Oct 32
to
01 Nov 32
01 Nov 32
to
01 Dec 32
01 Dec 32
to
03 Jan 33
03 Jan 33
to
01 Feb 33
01 Feb 33
to
01 Mar 33
01 Mar 33
to
01 Apr 33
01 Apr 33
to
02 May 33
02 May 33
to
01 Jun 33
01 Jun 33
to
01 Jul 33
01 Jul33
to
01 Aug 33
01 Aug 33
to
01 Sep 33
01 Sep33
to
03 Oct 33
03 Oct 33
to
01 Nov 33
01 Nov 33
to
01 Dec 33
01 Dec 33
to
03 Jan 34
03 Jan 34
to
01 Feb 34
01 Feb 34
to
01 Mar 34
01 Mar34
to
03 Apr34
03 Apr 34 .to
01 May 34
01 May 34
to
01 Jun 34
01 Jun 34
to
03 Jul 34
03 Jul34
to
01 Aug 34
01 Aug 34
to
01 Sep 34
01 Sep 34
to
02 Oct 34
02 Oct 34
to
01 Nov 34
01 Nov 34
to
01 Dec 34
01 Dec 34
to
02 Jan 35
02 Jan 35
to
01 Feb 35
01 Feb3$
to
01 Mar 35
01 Mar 35
to
02 Apr35
02 Apr 35
to
01 May 35
01 May 35
to
01 Jun 35
01 Jun35
to
02 Jul35
02 Jul 35
to
01 Aug 35
01 Aug 35
to
04 Sep 35
04 Sep35
to
01 Oct 35
01 Oct 35
to
01 Nov 35
01 Nov 35
to
03 Dec 35
03 Dec 35
to
02 Jan 36
02 Jan 36
to
01 Fob 36
01 Feb36
to
03 Mar 36
03 Mar 36
to
01 Apr 36
01 Apr 36
to
01 May 36
01 May 36
to
02 Jun36
02 Jun36
to
01 Jul36
01 Jul 36
to
01 Aug 36
01 Aug 36
to
02 Sep 36
usn Notional Amount
46,285,000.00
46,285,000.00
46,285,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19.910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
Wachovia: DRAFT
usn Notional Reduction
0.00
0.00
8,355,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
8,785,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
9,235,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
9,705,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
11/11
Calculation Period
(frotn and including, to but excluding)
02 Sep36
to
01 Oct 36
01 Oct 36
to
03 Nov 36
03 Nov 36
to
01 Dec 36
usn Notional Redut!tion
10,205,000.00
10,205,000.00
10,205,000.00
0.00
0.00
10,205,000.00
I
I
I
I
I
I
I
I
I
I
I
I
.
usn Notional Amount
Wachovia: DUFf
(LocalCurrency-Single Jurisdiction)
Exhibit
II
ISDA@
InternationalSwapDealers Association,Inc.
MASTER AGREEMENT
dated as of November -'
WACHOVIA BANK, NAnONAL ASSOCIAnON
and
2007
UNIVERSITYOF sourn ALABAMA
have enteredand/oranticipateenteringinto one or more transactions(eacha "Transaction")that are or will
be governedby this MasterAgreement,which includesthe schedule(the "Schedule"),and the documents
and other confirming evidence (eacha "ConfIrmation") exchangedbetweenthe parties confirming those
Transactions.
Accordingly, the parties agreeas follows: -
1.
Interpretation
(a)
Definitions. The terms defined in Section12 and in the Schedulewill have the meaningstherein
specified for the purposeof this MasterAgreement.
(b)
Inconsistency.In the event of any inconsistencybetweenthe provisions of the Scheduleand the
other provisions of this Master Agreement,the Schedulewill prevail. In the event of any inconsistency
betweenthe provisions of any Confirmation and this Master Agreement (including the Schedule), such
ConfIrmation will prevail for the purpose of the relevantTransaction.
(c)
Single Agreement. All Transactions are entered into in reliance on the fact that this Master
Agreementand all Confirmationsform a single agreementbetweenthe parties (collectively referred to as
this "Agreement"), and the parties would not otherwise enterinto any Transactions.
2.
Obligations
(a)
General Conditions.
(i) Eachparty will make eachpaymentor delivery specified in eachConfirmation to be made by
it, subjectto the other provisions of this Agreement.
(ii) Paymentsunderthis Agreementwill be made on the due date for value on that date in the place
of the accountspecified in the relevant Confirmation or otherwisepursuantto this Agreement, in
freely transferablefunds and in the mannercustomaryfor paymentsin the requiredcurrency.Where
settlementis by delivery (that is, other than by payment),such delivery will be made for receipt on
the due date in the mannercustomaryfor the relevant obligationunlessotherwisespecified in the
relevant ConflrInation or elsewherein this Agreement.
(iii) Each obligation of eachparty under Section2(a)(i) is subjectto (1) the condition precedent
that no Event of Default or PotentialEvent of Default with respectto the otherparty has occurred
and is continuing, (2) the condition precedentthat no Early Termination Date in respect of the
relevant Transactionhas occurred or been effectively designatedand (3) each other applicable
condition precedentspecified in this Agreement.
Copyright @1992by International SwapDealers Association,Inc.
SecondPrinting
(b)
Change of Account. Either party may change its account for receiving a payment or delivery by
giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment
or delivery to which such change applies unless such other party gives timely notice of a reasonable objection
to such change.
(c)
Netting.
If on any date amounts would otherwise be payable:-
(i)
in the same currency; and
(ii)
in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make payment of any such amount
will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been
payable by one party exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate amount would have been
payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount will be determined in respect
of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of
whether such amounts are payable in respect of the same Transaction. The election may be made in the
Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions
identified as being subject to the election, together with the starting date (in which case subparagraph (ii)
above will not, or will cease to, apply to such Transactions from such date). This election may be made
separately for different groups of Transactions and will apply separately to each pairing of branches or offices
through which the parties make and receive payments or deliveries.
(d)
Default Interest; Other Amounts. Prior to the occurrence or effective designation of an Early
Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any
payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on demand in the same currency
as such overdue amount, for the period from (and including) the original due date for payment to (but
excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of
daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation
of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of
any obligation required to be settled by delivery, it will compensate the other party on demand if and to the
extent provided for in the relevant Confirmation or elsewhere in this Agreement.
3.
Representations
Eachparty representsto the otherparty (which representationswill be deemedto be repeatedby eachparty
on eachdate on which a Transactionis enteredinto) that:(a)
Basic Representations.
(i) Status. It is duly organised and validly existing under the laws of the jurisdiction of its
organisationor incorporationand, if relevant under suchlaws, in good standing;
(ii) Powers. It has the power to executethis Agreementand any other documentationrelating to
this Agreementto which it is a party,to deliverthis Agreementand any other documentationrelating
to this Agreementthat it is required by this Agreementto deliver and to perform its obligations
underthis Agreementand any obligationsit has under any Credit SupportDocumentto which it is
a party and has taken all necessaryaction to authorisesuchexecution,deliveryandperformance;
(ill) No Violation or Conflict. Suchexecution, delivery and performancedo not violate or conflict
with any law applicableto it, any provision of its constitutionaldocuments,any order or judgment
of any court or other agencyof governmentapplicableto it or any of its assetsor any contractual
restriction binding on or affecting it or any of its assets;
2
ISDA@1992
Second
Printing
(iv) Consents.All governmentaland other consentsthat are required to have been obtained by it
with respectto this Agreementor any Credit SupportDocumentto which it is a party have been
obtainedand are in full force and effectand all conditionsof any suchconsentshave beencomplied
with; and
(v) Obligations Binding. Its obligationsunderthis Agreementand any Credit SupportDocument
to which it is a party constitute its legal, valid and binding obligations,enforceablein accordance
with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency,
moratorium or similar laws affecting creditors' rights generallyand subject,as to enforceability,to
equitable principles of general application (regardless of whether enforcement is sought in a
proceedingin equity or at law».
(b)
Absence of CertainEvents.No Event of Default or PotentialEvent of Default or, to its knowledge,
TerminationEvent with respectto it hasoccurredand is continuingandno sucheventor circumstancewould
occuras a result of its enteringinto or performingits obligationsunderthis Agreementor any Credit Support
Documentto which it is a party.
(c)
Absence ofLitigation. There is not pendingor, to its knowledge,threatenedagainstit or any of its
Affiliates any action, suit or proceedingat law or in equity or before any court, tribunal, governmentalbody,
agencyor official or any arbitratorthat is likely to affect the legality, validity or enforceabilityagainstit of
this Agreementor any Credit SupportDocumentto which it is a party or its ability to perform its obligations
underthis Agreementor such Credit SupportDocument.
(d)
Accuracy ofSpecified information. All applicableinformationthat is furnishedin writing by or on
behalf of it to the otherparty and is identified for the purpose of this Section3(d) in the Scheduleis, as of
the date of the information, true, accurateand complete in every material respect.
4.
Agreements
Each party agreeswith the other that, so long as either party has or may have any obligation under this
Agreementor under any Credit SupportDocumentto which it is a party:(a)
Furnish Specified Information. It will deliver to the other party any forms, documents or
certificates specified in the Scheduleor any Confirmation by the date specified in the Schedule or such
Confirmation or, if none is specified, as soonas reasonablypracticable.
(b)
Maintain Authorisations. It will use all reasonableefforts to maintain in full force and effect all
consentsof any governmentalor other authority that are required to be obtained by it with respectto this
Agreementor any Credit SupportDocumentto which it is a party and will use all reasonableefforts to obtain
any that may becomenecessaryin the future.
(c)
Comply with Laws. It will comply in all material respectswith all applicablelaws and ordersto
which it may be subjectif failure so to complywould materially impair its ability to perform its obligations
underthis Agreementor any Credit SupportDocumentto which it is a party.
5.
Events ofDefault and Termination Events
(a)
Events of Default. The occurrenceat any time with respectto a party or, if applicable, any Credit
SupportProviderof suchparty or any SpecifiedEntity of suchparty of any of the following eventsconstitutes
an event of default (an "Event of Default") with respectto suchparty:(i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this
Agreementor delivery under Section2(a)(i) or 2(d) requiredto be made by it if suchfailure is not
remediedon or beforethe third Local BusinessDay afternotice of suchfailure is given to the party;
(ii) Breach of Agreement. Failure by the party to comply with or perform any agreementor
obligation (otherthan an obligationto make any paymentunder this Agreementor delivery under
Section2(a)(i) or 2(d) or to give notice of a TerminationEvent) to be complied with or performed
3
ISDA@1992
SecondPrinting
by the party in accordancewith this Agreement if such failure is not remedied on or before the
thirtieth day after notice of such failure is given to the party;
(ill) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such party to comply with or
perform any agreementor obligation to be complied with or performed by it i~ accordance
with any Credit Support Document if such failure is continuing after any applicable grace
period has elapsed;
(2) the expiration or termination of such Credit Support Document or the failing or ceasing
of such Credit SupportDocumentto be in full force and effect for the purposeof this Agreement
(in either case otherthan in accordancewith its terms) prior to the satisfactionof all obligations
of such party under each Transactionto which such Credit Support Document relates without
the written consent of the other party; or
(3) the party or such Credit Support Provider disaffinns, disclaims, repudiates or rejects, in
whole or in part, or challenges the validity of, such Credit Support Document;
(iv) Misrepresentation. A representation made or repeated or deemed to have been made or
repeatedby the party or any Credit SupportProvider of suchparty in this Agreement or any Credit
Support Documentproves to have been incorrect or misleading in any material respect when made
or repeatedor deemedto have beenmade or repeated;
(v) Default under Specified Transaction. The party, any Credit Support Provider of such party or
any applicable Specified Entity of such party (I) defaults under a Specified Transactionand, after
giving effect to any applicablenotice requirementor grace period, there occurs a liquidation of, an
accelerationof obligations under, or an early termination of, that Specified Transaction,(2) defaults,
after giving effect to any applicable notice requirementor grace period, in making any payment or
delivery due on the last payment, delivery or exchangedate of, or any payment on early termination
of, a Specified Transaction(or such default continues for at leastthree Local BusinessDays if there
is no applicable notice requirement or grace period) or (3) disafflrIns, disclaims, repudiates or
rejects, in whole or in part, a Specified Transaction(or such action is taken by any person or entity
appointed or empoweredto operate it or act on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as applying to the party, the
occurrenceor existenceof (I) a default, event of default or other similar condition or event (however
described) in respect of such party, any Credit Support Provider of such party or any applicable
Specified Entity of such party under one or more agreementsor instruments relating to Specified
Indebtednessof any of them (individually or collectively) in an aggregateamount of not less than
the applicableThreshold Amount (as specified in the Schedule)which has resulted in such Specified
Indebtednessbecoming, or becomingcapableat suchtime of being declared,due and payable under
suchagreementsor instruments,before it would otherwisehave beendue and payable or (2) a default
by such party, such Credit Support Provider or such Specified Entity (individually or collectively)
in making one or more paymentson the due date thereof in an aggregateamount of not less than the
applicable Threshold Amount under such agreements or instruments (after giving effect to any
applicablenotice requirementor graceperiod);
(vii) Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified
Entity of suchparty:(I) is dissolved (other than pursuantto a consolidation, amalgamationor merger); (2) becomes
insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay
its debts as they become due; (3) makes a general assignment, arrangement or composition
with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding
seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors' rights, or a petition is presentedfor its
4
ISDA@1992
SecondPrinting
winding-up or liquidation, and, in the case of any such proceeding or petition instituted or
presented against it, such proceeding or petition (A) results in a judgment of insolvency or
bankruptcy or the entry of an order for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed,discharged,stayed or restrainedin eachcase within 30 days
of the institution or presentationthereof; (5) has a resolution passedfor its winding-up, official
managementor liquidation (other than pursuantto a consolidation, amalgamation or merger);
(6) seeks or becomes subject to the appointment of an administrator, provisional liquidator,
conservator,receiver, trustee, custodian or other similar official for it or for all or substantially
all its assets;(7) has a securedparty take possessionof all or substantiallyall its assetsor has
a distress, execution, attachment,sequestrationor other legal process levied, enforced or sued
on or against all or substantiallyall its assetsand such securedparty maintains possession,or
any suchprocessis not dismissed,discharged,stayed or restrained, in eachcase within 30 days
thereafter; (8) causesor is subject to any event with respectto it which, under the applicable
laws of any jurisdiction, has an analogouseffect to any of the events specified in clauses (1)
to (7) (inclusive); or (9) takes any action in furtheranceof, or indicating its consentto, approval
of, or acquiescencein, any of the foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit Support Provider of such party
consolidatesor amalgamateswith, or mergeswith or into, or transfersall or substantially all its assets
to, another entity and, at the time of suchconsolidation, amalgamation,merger or transfer: (1) the resulting, surviving or transferee entity fails to assumeall the obligations of suchparty
or such Credit Support Provider under this Agreement or any Credit Support Document to
which it or its predecessor was a party by operation of law or pursuant to an agreement
reasonably satisfactory to the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend (without the consent of the
other party) to the performance by such resulting, surviving or transferee entity of its
obligations under this Agreement.
(b)
Termination Events. The occurrenceat any time with respectto a party or, if applicable, any Credit
SupportProvider of suchparty or any Specified Entity of suchparty of any event specified below constitutes
an Illegality if the event is specified in (i) below, and, if specified to be applicable, a Credit Event Upon
Merger if the event is specified pursuantto (ii) below or an Additional Termination Event if the event is
specified pursuant to (iii) below:(i) Illegality. Due to the adoption of, or any change in, any applicable law after the date on which
a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by
any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after
such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b» for
such party (which will be the Affected Party):(1) to perform any absolute or contingent obligation to make a payment or delivery or to
receive a payment or delivery in respect of such Transaction or to comply with any other
material provision of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to perform, any contingent
or other obligation which the party (or such Credit Support Provider) has under any Credit
Support Document relating to such Transaction;
(ii) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the Scheduleas applying
to the party, suchparty ("X"), any Credit SupportProvider of X or any applicable Specified Entity of X
consolidatesor amalgamateswith, or mergeswith or into, or transfers all or substantially all its assets
to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the
creditworthinessof the resulting, surviving or transfereeentity is materially weakerthan that of X, such
Credit SupportProvider or suchSpecified Entity, asthe casemay be, immediately prior to such action
(and, in suchevent, X or its successoror transferee,as appropriate, will be the Affected Party); or
5
ISDA@1992
Second Printing
(ill) Additional Termination Event. If any "Additional Termination Event" is specified in the
Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the
Affected Party or Affected Parties shall be as specified for such Additional Termination Event in
the Schedule or such ConfIrmation).
(c)
Event of Default and Illegality. If an event or circumstance which would otherwise constitute or
give rise to an Event of Default also constitutesan Illegality, it will be treatedas an Illegality and will not
constitutean Event of Default.
6.
Early Termination
(a)
Right to Terminate Following Event of Default. If at any time an Event of Default with respectto
a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non-defaulting
Party") may, by not more than 20 daysnotice to the DefaultingParty specifyingthe relevantEvent of Default,
designatea day not earlier than the day suchnotice is effective as an Early TerminationDate in respect of
all outstandingTransactions.If, however, "Automatic Early Termination" is specified in the Schedule as
applying to a party, then an Early Termination Date in respect of all outstandingTransactionswill occur
immediately upon the occurrence with respect to such party of an Event of Default specified in
Section 5(a)(vii)(I), (3), (5), (6) or, to the extent analogousthereto, (8), and as of the time immediately
preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the
occurrencewith respectto suchparty of an Event of Default specified in Section5(a)(vii)(4) or, to the extent
analogousthereto,(8).
(b)
Right to TerminateFollowing TerminationEvent.
(i)
Notice. If a TerminationEvent occurs,an Affected Party will, promptly upon becomingaware of
it, notify the other party, specifyingthe nature of that TerminationEventand eachAffected Transaction
and will alsogive suchotherinformationaboutthat TerminationEventasthe otherparty may reasonably
require.
(ii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) occurs and there are two
Affected Parties, eachparty will use all reasonableefforts to reach agreementwithin 30 days after
notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event.
(ill)
Right to Terminate.If: (1)
an agreementunder Section 6(b)(ii) has not beeneffected with respectto all Affected
Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or
(2)an Illegality other than that referred to in Section 6(b)(ii), a Credit Event Upon Merger
or an Additional Termination Event occurs,
either party in the case of an Illegality, any Affected Party in the case of an Additional Termination
Event if there is more than one Affected Party, or the party which is not the Affected Party in the
caseof a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected
Party may, by not more than 20 days notice to the other party and provided that the relevant
Termination Event is then continuing, designatea day not earlier than the day suchnotice is effective
as an Early Termination Date in respect of all Affected Transactions.
(c)
Effect ofDesignation.
(i) If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early
Termination Date will occur on the date so designated,whether or not the relevant Event of Default
or Termination Event is then continuing.
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(ii) Upon the occurrence or effective designation of an Early Termination Date, no further
payments or deliveries under Section 2(a)(i) or 2(d) in respect of the Terminated Transactions will
be required to be made, but without prejudice to the other provisions of this Agreement. The amount,
if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6( e).
(d)
Calculations.
(i) Statement. On or as soon as reasonably practicable following the occurrence of an Early
Termination Date, eachparty will make the calculations on its part, if any, contemplated by Section 6( e)
and will provide to the other party a statement (1) showing, in reasonable detail, such calculations
(including all relevant quotations and specifying any amount payable under Section 6(e» and (2) giving
details of the relevant account to which any amount payable to it is to be paid. In the absence of written
confIrmation from the source of a quotation obtained in determining a Market Quotation, the records of
the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such
quotation.
(ii) Payment Date. An amount calculated as being due in respect of any Early Termination Date
under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the
case of an Early Termination Date which is designated or occurs as a result of an Event of Default)
and on the day which is two Local Business Days after the day on which notice of the amount payable
is effective (in the case of an Early Termination Date which is designated as a result of a Termination
Event). Such amount will be paid together with (to the extent permitted under applicable law)
interest thereon (before as well as after judgment), from (and including) the relevant Early
Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such
interest will be calculated on the basis of daily compounding and the actual number of days elapsed.
(e)
Payments on Early Termination. If an Early Termination Date occurs, the following provisions
shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation"
or "Loss", and a payment method, either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation"
or the "Second Method", as the case may be, shall apply. The amount, if any, payable in respect of an Early
Termination Date and determined pursuant to this Section will be subject to any Set-off.
(i)
Events of Default. If the Early Termination Date results from an Event of Defau1t:(I) First Method and Market Quotation. If the First Method and Market Quotation apply, the
Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of
(A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of
the Terminated Transactions and the Unpaid Amounts owing to the Non-defaulting Party over
(B) the Unpaid Amounts owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the Defaulting Party will pay
to the Non-defaulting Party,ifa positive number, the Non-defaulting Party's Loss in respect
of this Agreement.
(3) Second Method and Market Quotation. If the Second Method and Market Quotation apply,
an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the
Non-defaulting Party) in respect of the Terminated Transactions and the Unpaid Amounts
owing to the Non-defaulting Party less (B) the Unpaid Amounts owing to the Defaulting Party.
If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party;
if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount
to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an amount will be payable
equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a
positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative
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number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting
Party.
(ii) Termination Events. If the Early Teffilination Date results from a Teffilination Event:(I) One Affected Party. If thereis oneAffected Party,the amountpayablewill be deteffilined in
accordancewith Section6(e)(i)(3), if Market Quotation applies, or Section6(e)(i)(4), if Loss
applies, exceptthat, in eithercase,referencesto the Defaulting Party and to the Non-defaulting
Party will be deemedto be referencesto the Affected Party and the party which is not the
Affected Party, respectively,and, if Loss applies and fewer than all the Transactionsare being
teffilinated,Loss shallbe calculatedin respectof all Teffilinated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:(A) if Market Quotationapplies,eachparty will deteffiline a SettlementAmount in respect
of the Teffilinated Transactions,and an amount will be payable equal to (1) the sum of
(a) one-half of the differencebetweenthe SettlementAmount of the party with the higher
SettlementAmount ("X") andthe SettlementAmount of the party with the lower Settlement
Amount ("Y") and (b) the Unpaid Amountsowing to X less(II) the Unpaid Amounts owing
to Y; and
(B) if Loss applies,eachparty will deteffiline its Loss in respectof this Agreement(or, if
fewer than all the Transactions are being terminated, in respect of all Teffilinated
Transactions)and an amountwill be payableequalto one-halfof the difference betweenthe
Loss of the party with the higher Loss ("X") and the Loss of the party with the lower
Loss ("Y").
If the amountpayable is a positive number, Y will pay it to X; if it is a negative number, X
will pay the absolutevalue of that amountto Y.
(ill) Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs
because "Automatic Early Termination"applies in respectof a party, the amountdeterminedunder
this Section 6( e) will be subject to such adjustmentsas are appropriate and permitted by law to
reflect anypaymentsor deliveriesmadeby one party to the other underthis Agreement(and retained
by such other party) during the period from the relevant Early Termination Date to the date for
payment determined under Section6(d)(ii).
(iv) Pre-Estimate. The parties agreethat if Market Quotationapplies an amountrecoverableunder
this Section6(e) is a reasonablepre-estimateof loss and not a penalty. Such amountis payable for
the loss of bargain and the loss of protection againstfuture risks and exceptas otherwise provided
in this Agreementneitherparty will be entitled to recover any additional damagesas a consequence
of suchlosses.
7.
Transfer
Neither this Agreementnor any interestor obligationin or under this Agreementmay be transferred(whether
by way of security or otherwise)by eitherparty without the prior written consentof the other party, except
that:(a)
a party may make such a transfer of this Agreement pursuant to a consolidation amalgamation
with, or merger with or into, or transfer of all or substantiallyall its assetsto, anotherentity (but without
prejudice to any other right or remedyunderthis Agreement);and
(b)
a party may make such a transferof all or any part of its interest in any amountpayableto it from
a DefaultingParty under Section6(e).
Any purported transfer that is not in compliancewith this Sectionwill be void
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8.
Miscellaneous
(a)
Entire Agreement.This Agreementconstitutesthe entire agreementand understandingof the parties
with respectto its subject matter and supersedesall oral communication and prior writings with respect
thereto.
(b)
Amendments.No amendment,modification or waiver in respectof this Agreementwill be effective
unless in writing (including a writing evidencedby a facsimile transmission)and executedby each of the
parties or confirmed by an exchangeof telexes or electronicmessageson an electronic messagingsystem.
(c)
Survival of Obligations. Without prejudiceto Sections2(a)(iii) and 6(c)(ii), the obligations of the
parties underthis Agreementwill survive the termination of any Transaction.
(d)
Remedies Cumulative. Except as provided in this Agreement,the rights, powers,.remediesand
privileges provided in this Agreementare cumulative and not exclusive of any rights, powers, remedies
and privileges provided by law.
(e)
Counterpartsand Confirmations.
(i) This Agreement (and each amendment, modification and waiver in respect of it) may be
executedand delivered in counterparts(including by facsimile transmission),eachof which will be
deemedan original.
(ii) The partiesintend that they are legallybound by the terms of eachTransactionfrom the moment
they agreeto thoseterms (whether orally or otherwise). A Confirmation shall be enteredinto as
soon as practicable and may be executedand delivered in counterparts (including by facsimile
transmission)or be createdby an exchangeof telexes or by an exchangeof electronicmessageson
an electronic messagingsystem,which in eachcasewill be sufficient for all purposesto evidence
a binding supplementto this Agreement.The partieswill specifythereinor through anothereffective
meansthat any suchcounterpart,telex or electronic messageconstitutesa Confirmation.
(f)
No Waiver ofRights. A failure or delay in exercisinganyright, power or privilege in respectof this
Agreementwill not be presumedto operateas a waiver, and a single or partial exerciseof any right, power
or privilege will not be presumedto preclude any subsequentor further exercise, of that right, power or
privilege or the exerciseof any otherright, power or privilege.
(g)
Headings. The headingsused in this Agreementare for convenienceof referenceonly and are not
to affect the constructionof or to be taken into considerationin interpretingthis Agreement.
9.
Expenses
A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all
reasonableout-of-pocket expenses,including legal fees, incurred by such other party by reason of the
enforcementand protection of its rights underthis Agreementor any Credit SupportDocumentto which the
DefaultingParty is a party or by reasonof the early terminationof any Transaction,including, but not limited
to, costs of collection.
10.
Notices
(a)
Effectiveness.Any notice or other communicationin respectof this Agreementmay be given in any
mannerset forth below (exceptthat a notice or other communicationunder Section5 or 6 may not be given
by facsimile transmissionor electronic messagingsystem)to the addressor number or in accordancewith
the electronic messaging system details provided (see the Schedule)and will be deemed effective as
indicated:(i)
if in writing and delivered in personor by courier, on the date it is delivered;
(ii)
if sentby telex, on the datethe recipient's answerbackis received;
9
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(ill) if sent by facsimile transmission,on the date that transmissionis received by a responsible
employeeof the recipientin legible form (it beingagreedthat the burdenof proving receiptwill be
on the senderand will not be met by a transmissionreport generatedby the sender's facsimile
machine);
(iv) if sent by certified or registeredmail (airmail, if overseas)or the equivalent (return receipt
requested),on the date that mail is delivered or its delivery is attempted;or
(v) if sentby electronicmessagingsystem,on the datethat electronicmessageis received,
unlessthe date of that delivery (or attempteddelivery) or that receipt,as applicable,is not a Local Business
Day or that communicationis delivered(or attempted)or received,as applicable,afterthe close of business
on a Local BusinessDay, in which casethat communicationshallbe deemedgiven and effective on the first
following day that is a Local BusinessDay.
(b)
Change ofAddresses.Eitherparty may by noticeto the otherchangethe address,telex or facsimile
numberor electronicmessagingsystemdetails at which notices or other communicationsare to be given to
it.
11.
Governing Law and Jurisdiction
(a)
Governing Law. This Agreement will be governed by and construed in accordance with the law
specified in the Schedule.
(b)
Jurisdiction. With respect to any suit, action or proceedings relating to this Agreement
("Proceedings"),eachparty irrevocably: (i) submitsto the jurisdiction of the Englishcourts, if this Agreementis expressedto be governed
by English law, or to the non-exclusivejurisdiction of the courts of the Stateof New York and the
United States District Court located in the Borough of Manhattan in New York City, if this
Agreementis expressedto be governedby the laws of the Stateof New York; and
(ii) waives any objectionwhich it may have at anytime to the laying of venue of anyProceedings
brought in any such court, waives any claim that such Proceedingshave been brought in an
inconvenientforum and further waives the right to object, with respectto suchProceedings,that
suchcourt doesnot have anyjurisdiction over suchparty.
Nothing in this Agreementprecludes either party from bringing Proceedingsin any other jurisdiction
(outside, if this Agreementis expressedto be governedby English law, the ContractingStates,as defined
in Section 1(3) of the Civil Jurisdiction and JudgmentsAct 1982 or any modification, extension or
re-enactmentthereof for the time being in force) nor will the bringing of Proceedingsin anyone or more
jurisdictions precludethe bringing of Proceedingsin any otherjurisdiction.
(c)
Waiver ofImmunities. Eachparty irrevocablywaives,to the fullest extentpermitted by applicable
law, with respectto itself andits revenuesandassets(irrespectiveof their use or intendeduse), all immunity
on the groundsof sovereigntyor othersimilar groundsfrom (i) suit, (ii) jurisdiction of any court, (iii) relief
by way of injunction, order for specificperformanceor for recoveryof property, (iv) attachmentof its assets
(whetherbefore or after judgment) and (v) executionor enforcementof any judgment to which it or its
revenuesor assetsmight otherwise be entitled in any Proceedingsin the courts of any jurisdiction and
irrevocablyagrees,to the extentpermittedby applicablelaw, that it will not claim any suchimmunity in any
Proceedings.
12.
Definitions
As usedin this Agreement:"Additional TerminationEvent" hasthe meaningspecifiedin Section5(b).
"AffectedParty" hasthe meaningspecifiedin Section5(b).
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"Affected Transactions" means (a) with respectto any Termination Event consisting of an Illegality, all
Transactions affected by the occurrence of such Termination Event and (b) with respect to any other
Termination Event, all Transactions.
"Affiliate~ means, subject to the Schedule,in relation to any person, any entity controlled, directly or
indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person.For this purpose,"control" of any entity or personmeans
ownership of a majority of the voting power of the entity or person.
"Applicable Rate" means:(a) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii))
by a Defaulting Party, the Default Rate;
(b) in respectof an obligation to pay an amountunder Section6(e) of eitherparty from and after the date
(determined in accordancewith Section 6(d)(ii)) on which that amountis payable,the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would have been but for
Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and
(d)
in all other cases,the Termination Rate.
"consent' includes a consent, approval, action, authorisation, exemption, notice, filing, registration or
exchangecontrol consent.
"Credit Event Upon Merger" hasthe meaningspecified in Section5(b).
"Credit Support Document' meansany agreementor instrumentthat is specified as such in this Agreement.
"Credit Support Provider" has the meaningspecified in the Schedule.
"Default Rate" meansa rate per annum equalto the cost (without proof or evidence of any actual cost) to
the relevantpayee(as certified by it) if it were to fund or of funding the relevant amountplus 1% per annum.
"Defaulting Party" has the meaningspecified in Section6(a).
"Early Termination Date" meansthe date determined in accordancewith Section 6(a) or 6(b)(iii).
"Event ofDefault' has the meaningspecified in Section5(a) and, if applicable, in the Schedule.
"Illegality" hasthe meaningspecified in Section5(b).
"law~ includesanytreaty, law, rule or regulationand"lawful" and"unlawfuP' will be construedaccordingly.
" Local BusinessDay" means, subject to the Schedule,a day on which commercial banks are open for
business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any
obligation under Section2(a)(i), in the place(s)specified in the relevant Confirmationor, if not so specified,
as otherwiseagreedby the parties in writing or determinedpursuantto provisionscontained,or incorporated
by reference,in this Agreement,(b) in relation to any otherpayment, in the place where the relevant account
is located, (c) in relation to any notice or other communication, including notice contemplated under
Section5(a)(i), in the city specified in the addressfor notice provided by the recipient and, in the case of a
notice contemplatedby Section2(b), in the place where the relevant new accountis to be located and (d) in
relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified
Transaction.
"Loss" means,with respectto this Agreementor one or more TerminatedTransactions,as the casemay be,
and a party, an amountthat party reasonablydeterminesin good faith to be its total lossesand costs(or gain,
in which case expressed as a negative number) in connection with this Agreement or that Terminated
Transactionor group of TerminatedTransactions,asthe casemay be, including any loss of bargain, cost of
funding or, at the election of such party but without duplication, loss or cost incurred as a result of its
terminating, liquidating, obtaining or reestablishingany hedge or related trading position (or any gain
11
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resulting from any of them). Loss includeslossesand costs (or gains) in respectof any payment or delivery
requiredto have beenmade (assumingsatisfactionof eachapplicable condition precedent)on or before the
relevantEarly TerminationDate and not made,except,so as to avoid duplication, if Section6(e)(i)(I) or (3)
or 6(e)(ii)(2)(A) applies.Loss does not include a party's legal fees and out-of-pocketexpensesrefeued to
under Section9. A party will determineits Loss as of the relevantEarly TerminationDate, or, if that is not
reasonablypracticable,as of the earliestdate thereafteras is reasonablypracticable.A party may (but need
not) determineits Loss by referenceto quotationsof relevantrates or prices from one or more leading dealers
in the relevantmarkets.
"Market Quotation" means,with respectto one or more TerminatedTransactionsand a party making the
determination, an amount determined on the basis of quotations from Reference Market-makers. Each
quotationwill be for an amount, if any, that would be paid to suchparty (expressedas a negative number)
or by suchparty (expressedasa positive number)in considerationof an agreementbetweensuchparty (taking
into accountany existing Credit SupportDocument with respectto the obligations of such party) and the
quoting ReferenceMarket-makerto enter into a transaction(the "ReplacementTransaction") that would
have the effect of preservingfor suchparty the economic equivalentof any payment or delivery (whether
the underlying obligation was absolute or contingent and assumingthe satisfaction of each applicable
condition precedent)by the parties under Section2(a)(i) in respectof suchTerminatedTransactionor group
of TerminatedTransactionsthat would, but for the occurrenceof the relevant Early TerminationDate, have
beenrequired after that date. For this purpose,Unpaid Amounts in respectof the TerminatedTransactionor
group of TerminatedTransactionsare to be excludedbut, without limitation, any payment or delivery that
would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each
applicable condition precedent) after that Early Termination Date is to be included. The Replacement
Transactionwould be subjectto suchdocumentationas suchparty and the ReferenceMarket-makermay, in
good faith, agree. The party making the determination (or its agent) will request each Reference
Market-makerto provide its quotation to the extent reasonablypracticable as of the same day and time
(without regard to different time zones) on or as soon as reasonablypracticable after the relevant Early
TerminationDate. The day and time as of which thosequotationsare to be obtainedwill be selectedin good
faith by the party obliged to make a determinationunder Section6(e), and, if eachparty is so obliged, after
consultationwith the other. If more than three quotationsare provided, the Market Quotation will be the
arithmetic mean of the quotations,without regardto the quotationshaving the highestand lowest values. If
exactly three such quotations are provided, the Market Quotation will be the quotation remaining after
disregardingthe highestand lowest quotations.For this purpose, if more than one quotationhas the same
highestvalue or lowestvalue, then one of suchquotationsshall be disregarded.If fewer than three quotations
areprovided, it will be deemedthat the Market Quotationin respectof suchTerminatedTransactionor group
of Terminated Transactionscannotbe determined.
"Non-default Rate" meansa rate per annum equalto the cost (without proof or evidenceof any actual cost)
to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount.
"Non-defaulting Party" has the meaningspecified in Section6(a).
" Potential Event ofDefault' meansany eventwhich, with the giving of notice or the lapse of time or both,
would constitute an Event of Default.
"Reference Market-makers" means four leading dealers in the relevant market selected by the party
determininga Market Quotation in good faith (a) from amongdealers of the highest credit standing which
satisfy all the criteria that suchparty applies generally at the time in deciding whetherto offer or to make
an extensionof credit and (b) to the extentpracticable,from amongsuchdealershaving an office in the same
city.
"Scheduled PaymentDate" meansa date on which a paymentor delivery is to be madeunder Section2(a)(i)
with respectto a Transaction.
"Set-off' meansset-off, offset, combination of accounts,right of retention or withholding or similar right
or requirementto which the payer of an amountunder Section6 is entitled or subject(whetherarising under
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this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such
payer.
"Settlement Amount" means,with respectto a party and any Early TerminationDate, the sum of:(a) the Market Quotations (whether positive or negative) for each Terminated Transaction or group of
Terminated Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without referenceto any Unpaid Amounts) for
eachTerminated Transactionor group of Terminated Transactionsfor which a Market Quotation cannot be
determined or would not (in the reasonable belief of the party making the determination) produce a
commercially reasonableresult.
"Specified Entity" has the meaningspecified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation (whether present or future,
contingent or otherwise, as principal or surety or otherwise) in respectof borrowed money.
"Specified Transaction" means,subjectto the Schedule,(a) anytransaction(includingan agreementwith respect
thereto) now existing or hereafterenteredinto betweenone party to this Agreement(or any Credit Support
Providerof suchparty or any applicableSpecifiedEntity of suchparty) andthe otherparty to this Agreement(or
any Credit SupportProvider of suchotherparty or any applicableSpecifiedEntity of suchother party) which is
a rate swaptransaction,basis swap, forward rate transaction,commodity swap, commod~tyoption, equity or
equity index swap, equity or equity index option, bond option, interestrate option, foreign exchangetransaction,
cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currencyrate swap
transaction,currency option or any other similar transaction(including any option with respectto any of these
transactions),(b) any combinationof these transactionsand (c) any other transactionidentified as a Specified
Transactionin this Agreement or the relevant confIrmation.
"Terminated Transaction/' means with respect to any Early Termination Date (a) if resulting from a
TerminationEvent, all Affected Transactionsand (b) if resulting from an Event of Default, all Transactions
(in either case)in effect immediatelybefore the effectivenessof the notice designatingthat Early Termination
Date (or, if "Automatic Early Termination" applies, immediately before that Early Termination Date).
"Termination Event" meansan Illegality or, if specified to be applicable,a Credit Event Upon Merger or
an Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the cost (without proof or
evidence of any actual cost) to eachparty (as certified by such party) if it were to fund or of funding such
amounts.
"Unpaid Amounts" owing to any party means,with respectto an Early Termination Date, the aggregateof
(a) in respect of all Terminated Transactions,the amountsthat becamepayable (or that would have become
payable but for Section 2(a)(iii» to suchparty under Section 2(a)(i) on or prior to such Early Termination
Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated
Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for
Section 2(a)(iii» required to be settled by delivery to suchparty on or prior to such Early Termination Date
and which has not been so settled as at such Early Termination Date, an amount equal to the fair market
value of that which was (or would have been) required to be delivered as of the originally scheduled date
for delivery, in eachcasetogetherwith (to the extentpermitted underapplicable law) interest, in the currency
of suchamounts,from (and including) the date such amountsor obligationswere or would have beenrequired
to have beenpaid or performed to (but excluding) suchEarly TerminationDate, at the Applicable Rate. Such
amounts of interest will be calculated on the basis of daily compounding and the actual number of days
elapsed.The fair marketvalue of any obligation referredto in clause(b) above shall be reasonablydetermined
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SCHEDULE
Exhibit
to the
MASTER AGREEMENT
datedas of November---' 2007between
WACHOVIA BANK, NATIONAL ASSOCIATION ("Party A")
and UNIVERSITY OF SOUTH ALABAMA ("PartyB")
Part 1. Termination Provisions
(a)
"SpecifiedEntity": nonespecified.
(b)
"Specified Transaction" has its meaningasdefinedin Section12
(c)
"Cross Default" applies to both parties. With respectto Party B, "Cross Defaulf' is amendedby inserting atthe
end of Section 5(a)(vi): "or (3) any default, event of default or other similar condition or event (however
described)under any Financial Agreement (as defmed in the Schedule)."
"Specified Indebtedness" means any obligation (whether present,future, contingent or otherwise, as principal
or surety or otherwise) in respectof borrowed money or relating to the paymentor delivery offunds, securities or
other property (including, without limitation, collateral), other than indebtednessin respectof anybank deposits
received in the ordinary course of business by any foreign branch of a party the repaymentofwmch is prevented,
hindered or delayed by any governmental or regulatory action or law unrelated to the financial condition or
solvency of such party or that foreign branch.
"Threshold Amount" means, with respectParty A, an amount (including its equivalent in another currency)
equal to the higher of $10,000,000 or 2% of its stockholders' equity as reflected on its most recent fmancial
statementsor call reports, and with respectto Party B, $5,000,000, provided that for any Specified Indebtedness
payable by Party B (or any Credit Support Provider of Party B) to Party A or to any of Party A's Affiliates,
Threshold Amount means any amount of such Specified Indebtedness.
(d)
Bankruptcy. Clause(6) of Section5(a)(vii)of this Agreementis herebyamendedto read in its entiretyas
follows:
"( 6)(A) seeksor becomes subjectto the appointmentof an administrator,provisional liquidator, conservator,
receiver,1rustee,custodian or other similar official for it or for all or substantially all its assetsor (B) in the
caseof the Government Entity, any Credit Support Provider of the Government Entity or any applicable
Specified Entity of the Government Entity, (I) there shall be appointed or designated with respectto it, an
entity such as an organization, board, commission, authority, agency or body to monitor, review, oversee,
recommend or declare a fmancial emergency or similar state offmancial distress with respectto it or (ll)
there shall be declared or introduced or proposed for consideration by it or by any legislative or regulatory
body with competentjurisdiction over it, the existence of a state of fmancial emergency or similar stateof
fmancial distress in respect of it;"
(e)
Merger Without Assumption. SectionS(a)(viii)of this Agreementis herebyamended
to readin its entiretyas
follows:
(viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates
or amalgamateswith, or merges with or into, or transfers all or substantially all its assetsto, another entity
(or, without limiting the foregoing, if such party is a Government Entity, an entity suchas an organization.
Rev10/22/04
1
III
board, commission, authority, agency or body succeedsto the principal functions of, or powers and duties
granted to, such party or any Credit Support Provider of such party) and, at the time of such consolidation,
amalgamation, merger, transfer or succession:
(1) the resulting, surviving, transferee or successorentity fails to assumeall the obligations of such party or
such Credit Support Provider under this Agreement or any Credit Support Document to which it or its
predecessorwas a party by operation of law or pursuant to an agreementreasonably satisfactoryto the other
party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend (without the consentof the other party) to the
performance by such resulting, surviving, transferee or successor entity of its obligations under this
Agreement."
(t)
"Credit Event Upon Merger" applies to both parties. Section 5(b )(ii) of this Agreement is hereby amended to
read in its entiretYas follows:
"(ii) Credit Event Upon Merger. If"Credit Event Upon Merger" is specified in the Schedule as applying
to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X
consolidates or anlalganlateswith, or merges with or into, or transfers all or substantially all its assetsto,
another entity (or, without limiting the foregoing, if X is the Government Entity, an entity such as an
organization, board, commission, authority, agency or body succeedstothe principal functions of, or powers
and duties granted to, X, any Credit Support Provider of X or any Specified Entity of X) and such action
does not constitute an event described in Section S(a)(viii) but the creditworthiness of the resulting,
surviving, transferee or successorentity is materially weakerthan that ofx, such Credit SupportProvider or
such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its
successoror transferee,as appropriate, will be the Affected Party); or"
(g)
(h)
(i)
"Automatic Early Termination" doesnot applyto eitherparty.
Payments on Early Termination. Except as otherwise provided in this Schedule,"Market Quotation" and
the "Second Method" apply. In the case of any Terminated Transaction that is, or is subject to, any
unexercised option, the words "economic equivalent of any paymentor delivery" appearing in the definition of
"Market Quotation" shall be construed to take into accountthe economic equivalent of the option.
"Additional Termination Event": nonespecified.
G)
Events orDerault. An Event of Default shall not occur with respect to a party under Section 5(a)(v)(l) or (2)
or Section 5(a)( vi) when the failure to payor deliver, or the default, event of default or other similar condition
or event,as the casemay be, arises solely (i) out of a wire transfer problem or an operational or administrative
error or omission (so long as the required funds or property required to make that payment or delivery were
otherwise available to that party), or (ii) from the general unavailability of the relevant currency due to
exchange controls or other similar governmental action, but in either case only if the payment or delivery is
made within three Local Business Days after the problem has been corrected,the error or omission has been
discovered or the currency becomes generally available.
(k)
Notice of Incipient EventsofDefault and Termination Events. Section5 of the Agreementis herebyfurther
amendedby adding newsubsection(d) atthe end thereof,suchnewsubsection(d)to readasfollows:
"(d) Notice oflncipient Events ofDefault and Termination Events. Upon learning of an event
or condition which could lead or give rise to an Event of Default or a Termination Event, the party learning
of such event shall give notice to the other party pursuant to provisions of Section 12 of the Agreement."
Rev 10/22/04
2
(1)
Right to Terminate Following Termination Event. Section6(b)(ili) of the Agreementis amendedby adding
the following last sentence:
Notwithstanding anything to the contrary in this Agreement, an Affected Party will not have the right to
designatean Early Termination Date under Section 6(b )(iii) as a result of an illegality under Section 5(b )(i) if
the Illegality relates to performance by such party of an obligation to make payment under Section 6( e) and
does not relate to an obligation to make payment or delivery under Section 2(a)(i).
(m)
Optional Termination. Party B may, upon at leasttwo (2) BusinessDays' written notice to Party A, terminate
any Transaction in whole or in part, on any Business Day, by designating to Party A the termination date for
suchTransaction. In the eventParty B exercises its right of optional termination hereunder,such termination
shall constitute an Additional Termination Event under Section 6(e) of this Agreementwith Party B asthe sole
Affected Party, and the identified Transaction as the sole Affected Transaction.
In such case, Party A will determine a u.s. Dollar value for the terminated
portion of the Transaction (the
"Cash Settlement Amounf') in accordance with Section 6(e)(i)(4) of the ISDAForm, where Party B is the sole
Affected Party and the Transaction is the sole Affected Transaction. If such Cash Settlement Amount is not
mutually acceptable to Party A and Party B, Party A shall determine the Cash Settlement Amount with respect
to the Transaction in accordance with Section 6(e)(i)(3) of the Agreement, where (A) Party B is the sole
Affected Party and the Transaction is the sole Affected Transaction, (B) the Reference Market Makers
providing quotations are acceptable to both Party A and Party B, and (C) each Reference Market Maker
certifies in writing that such Reference Market Maker is prepared to take an assignment of the Transaction
based upon their respective quotation.
If upon a termination by Party B pursuantto Section 6, Party B would owe a Cash Settlement Amount, then
Party B may terminate pursuant to Section 6 of the Agreement only upon demonstrating to the reasonable
satisfaction of Party A its ability to pay any amount due under Section 6( e) of the Agreement.
Documents
For the purpose of Section 4(a) of this Agreement, eachparty agreesto deliver the following documents:
Party required to
deliver document
Date by which to
be delivered
F 0 rm/Docu m ent/Certifica te
PartyA and
PartyB
Rev10/22/04
Covered by
Section 3(d)
Representation
Evidenceof the authorityandtrue
signaturesof eachofficial or
representative
signingthis
Agreementor, asthe casemaybe,
a Confirmation,on its behalf
On or before
executionof this
Agreementand each
Confirmation
forminga part of
this Agreement.
Yes
Opinionof counselto PartyA, in
form andsubstance
reasonably
satisfactory
to PartyB
On or before
executionof this
Agreementand each
Confirmation
hereunder
No
3
Party required to
deliver document
Date by which to
be delivered
F 0rm/Document/C ertifica te
Covered by
Section3(d)
Representation
PartyB
Opinion of legal counselto Party
B in form and substance
reasonably satisfactoryto Party A
On or before
executionof this
Agreementand each
Confirmation
hereunder
No
Party A and Party
A copyof the annualreportof
suchparty,which in the caseof
PartyA will beWachovia
Corporation,containingaudited
consolidated
financial statements
for eachsuchfiscal year,certified
by independent
certifiedpublic
accountants
Uponrequest,
within 180days(or
assoonas
practicableafter
becomingpublicly
available)afterthe
end of eachof its
fiscalyearswhile
thereare any
obligations
outstandingunder
this Agreement
providedthatParty
A will bedeemedto
havedeliveredsuch
annualreportupon
postingthe sameon
Wachovia
Yes
B
Corporation's
public websiteand
providedfurther
thatPartyB will be
deemedto have
deliveredsuch
annualreportupon
filing the samewith
a Nationally
Recognized
Municipal
Securities
Information
Repository,as
defmedin Rule
l5c2-l2 underthe
SecuritiesExchangeAct of 1934
Rev 10/22/04
4
Party required to
deliver document
Date by which to
be delivered
F 0rm/Docu mentlCertifica te
Coveredby
Section3(d)
Representation
CreditSupportDocument
describedin Part 3(c)
Uponexecutionof
this Agreement.
Yes
PartyB
A certifiedcopyof the most
currentversionof the Covered
Indenture
On or before
executionof this
Agreement
Yes
Party A and Party
Confmnations,updatesand
additionaldocumentation
concerningthe opinionof
counsel,resolutionsand
certificatesdeliveredpursuantto
eachof the foregoingdocuments
to be deliveredasthe otherparty
mayreasonably
request
Priorto the
EffectiveDate of
eachTransaction
afterthe initial
Transaction
hereunder
Yes
Suchotherdocumentsrelevantto
anyTransactionhereunder
asthe
otherpartymayreasonably
request.
Uponrequest
Yes
Party A
And
PartyB
B
Party A and
PartyB
Part 3. Miscellaneous
(a)
Addresses for Notices. For purposes of Section lO(a) of this Agreement, all notices to a party shall, with
respectto any particular Transaction, be sentto its address,telex number or facsimile number specified in the
relevant Confirmation (or as specified below if not specified in the relevant Confirmation), provided that any
notice under Section 5 or 6 of this Agreement, and any notice under this Agreement not related to a particular
Transaction, shall be sent to a party at its addressspecified below.
To Party A:
W ACBOVIA BANK, NAnONAL
301 South College, DC-8
ASSOCIAnON
Charlotte,NC 28202-0600
Attention:BruceM. Young
SeniorVice President,Risk Management
Fax: (704)383-0575
Phone:(704)383-8778
To Party B:
Rev10/22/04
5
UNIVERSITY OF SOUTH ALABAMA
Attention:
Fax:
Phone:
(b)
(c)
"Calculation Agent" means Party A.
"Credit Support Document" means with respectto Party A, the Credit Support Annex dated as of the date
hereto, and with respect to Party B, means the Credit Support Annex dated as of the date hereto and each
document which by its terms secures,guaranteesor otherwise supportsParty B' sobligations hereunderfrom time
to time, whether or not this Agreement, any Transaction, or any type of Transaction entered into hereunderis
specifically referenced or described in any such document.
"Credit Support Default" is amendedby addingatthe end of SectionS(a)(iii)(l):
", any default, event of default or other similar condition or event (however described)exists under any Credit
Support Document, any action is taken to realize upon any collateral provided to secure such party's
obligations hereunder or under any Transaction, or the other party fails at any time to have a valid and
perfected first priority security interest in any such collateral;"
(d)
"Credit Support Provider" meanseachparty to a CreditSupportDocumentthatprovidesor is obligatedto
providesecurity,a guarantyor othercredit supportfor PartyB's obligationshereunder.
(e)
GoverningLaw. This Agreementwill be governedby andconstruedin accordance
with the law(andnotthe
lawof conflicts)of the Stateof NewYork.
(t)
Waiver of Jury Trial. To the extent permitted by applicable law, each party irrevocably waives any and all
right to trial by jury in any legal proceeding in connection with this Agreement, any Credit Support Documentto
which it is a party, or any Transaction.
(g)
Netting of Payments. Section 2(c)(ii) will apply in respectof all Transactionsfrom the date of this
Agreement,provided that Section 2(c)(ii) will not apply with respectto any Transactionsor group of
Transactionsfor whichthe partiesmutuallyagreeshall benettedoperationally.
(h)
Notice of Incipient Illegality. If an Incipient Illegality occurs,the GovernmentEntity will, promptlyupon
becomingawareof it, notify PartyA, specifyingthe natureof that Incipientillegality and will alsogive such
otherinformationaboutthat IncipientIllegalityas PartyA mayreasonably
require.
"'Incipientlllegality'
means (a)the enactmentby any legislative body with competentjurisdiction over the
Government Entity of legislation which. if adopted as law, would render unlawful (i) the performance by the
Government Entity of any absolute or contingent obligation to make a payment or delivery or to receive a
payment or delivery in respectof a Transaction or the compliance by the Government Entity with any other
material provision of this Agreement relating to such Transactionor (ii) the performance by the Government
Entity or a Credit Support Provider of the Government Entity of any contingent or other obligation which
the Government Entity (or such Credit Support Provider)has under any Credit Support Document relating to
suchTransaction, (b) any assertionin any proceeding, forum or action by the Government Entity, in respect
Rev10/22/04
6
of the Government Entity or in respectof any entity located or organized underthe lawsof the statein which
the Government Entity is located to the effect that performance underthis Agreement or similar agreements
is unlawful or (c) the occurrence with respectto the Government Entity or any Credit Support Provider of
the Government Entity of any event that constitutes an illegality."
(i)
Jurisdiction. Section11(b)of this Agreementis herebyamendedto readin its entiretyasfollows:
"(b) Jurisdiction. With respectto any suit, action or proceedingsrelating to this Agreement ('Proceedings'),
each party irrevocably:
(i) submits, to the fullest extent pemlitted by applicable law, to the non-exclusive jurisdiction of each of the
courts of the State of New York, the United States District Court located in the Borough of Manhattan in
New York City, the courts of the state in which the Government Entity or the principal executive offices of
the other party are located and the United States District Court with jurisdiction over the location of the
Government Entity or the principal executive offices of the other party; and
(ii) waives,to the fullest extent pennitted by applicable law, (1) any objection which it may have at anytime
to the laying of venue of any Proceedings brought in any such court, (2) any claim that such Proceedings
have been brought in an inconvenient forum and (3) the right to object, with respectto such Proceedings,
that such court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction nor
will the bringing of Proceedings in anyone or more jurisdictions precludethe bringing of Proceedingsin any
otherjurisdiction."
G)
Deferral of Paymentsand Deliveries in Connectionwith Illegality and Incipient Illegality; Interest on
Deferred Payments. Section2(a)(iii)is herebyamendedto readin its entiretyasfollows:
"(iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no
Event of Default, Illegality, Potential Event ofDefault or Incipient Illegality with respectto the other party
has occurred and is continuing, (2)the condition precedentthat no Early Termination Date in respectof the
relevant Transaction has occurred or been effectively designated and (3) each other applicable condition
precedentspecified in this Agreement."
(k)
Representations. (i) The introductory clause of Section 3 of this Agreement is hereby amendedto read in its
entirety asfollows:"Each party represents to the other party (which representations will be deemed to be repeated by each party
on each date on which a Transaction is entered into and, in the case of the representations in Section 3(a)
and 3(e), at all times until the termination
of this Agreement) that:"
(ii) Section 3(a)(ii) of this Agreement is hereby amendedto read in its entirety asfollows:
"(ii) Powers. It has the power to execute this Agreement and any other documentation relating to this
Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to perform its obligations under this
Agreement and any obligations it has under any Credit Support Document to which it is a party and has
taken all necessary action and made all necessary determinations and findings to authorize such execution.
delivery and performance, the individual(s) executing and delivering this Agreement and any other
documentation (including any Credit Support Document) relating to this Agreement to which it is a pl!rtY or
Rev 10/22/04
7
that it is requiredto deliverareduly empoweredand authorizedto do so,and it has duly executedand
deliveredthis Agreementand anyCreditSupportDocumentto which it is a party";
(iii) Section3(b)of this Agreementis herebyamendedto readin its entiretyasfollows:
"(b) Absence of Certain Events. No Event of Default or Potential Event ofDefault or, to its knowledge,
Incipient Illegality (in the case of the Government Entity) or Termination Event with respect to it has
occurred and is continuing and no such event or circumstancewould occur as a result of its entering into or
performing its obligations under this Agreement or any Credit Support Document to which it is a party."
(1)
Additional Representations. Section 3 is amended by adding the following Sections 3(e), (t), (g), (h), (i), G),
(k), and (1):
"(e) Arm's Length. For any Relevant Agreement: (i) it actsas principal and not as agent, (ii) it acknowledges
that the other party acts only at arm's length and is not its agent,broker, advisor or fiduciary in any respect,and
any agency,brokerage, advisory or fiduciary services that the other party (or any of its Affiliates) may otherwise
provide to the party (or to any of its Affiliates) excludes the Relevant Agreement, (iii) it is relying solely upon its
own evaluation of the Relevant Agreement (including the presentand future results, consequences,risks, and
benefits thereof, whether financial, accounting, tax, legal, or otherwise) and upon advice from its own
professional advisors, (iv) it understands the Relevant Agreement and those risks, has determined they are
appropriate for it, and willingly assumesthose risks, and (v) it has not relied and will not be relying upon any
evaluation or advice (including any recommendation, opinion, or representation) from the other party, its
Affiliates or the representatives or advisors of the other party or its Affiliates (exceptrepresentations expressly
made in the Relevant Agreement or an opinion of counselrequired thereunder).
"Relevant Agreement" means this Agreement, each Transaction, each Confirmation, any Credit Support
Document, and any agreement(including any amendment,modification, transfer or early termination) between
the parties relating to any of the foregoing.
(f) Eligibility. It is an "eligible contractparticipant"within themeaningof the CommodityExchangeAct (as
amendedbythe CommodityFuturesModernizationAct of 2000).
(g) Enforcement of Government Entity's Obligations. The Government Entity representsthat Party A may,
under the laws of the State of Alabama, compel by writ of mandamuspayment by the Government Entity or any
appropriate officer thereof of any amount detennined to be due and owing by the Government Entity under the
tenns of this Agreement and each Transaction hereunder.
(h)Non-Speculation. The GovernmentEntity representsthatthis Agreementhasbeen,andeachTransaction
hereunderwill be (and, if applicable,has been),enteredinto for purposesof managingits borrowingsor
investments
and not for purposesof speculation.
(i) Hedging Purposes. The Government Entity representsthat this Agreementhas been,and eachTransaction
hereunderwill be (and, if applicable, has been), entered into for the purpose of hedging againstan interest rate,
payment, investment, or other similar risk that arises in connection with, or incidental to, the proper activities of
the Government Entity.
G) Net Worth of Party A. PartyA representsthatits networth exceedsUSD100,000,000.
(k) Compliance with Swap Statute. The Government Entity representsthat this Agreement has been, and
each Transaction hereunder will be (and, if applicable, has been), entered into in compliance with Article 3 of
Chapter 1 of Title 41 of the Code of Alabama (1975).
Rev10/22/04
8
(1) Compliance with Derivatives Policy. The Government Entity representsthat (i) the governing body of the
Government Entity has duly adopted that certain Derivatives Policy dated September24,2007 and prepared by
Porter, White & Company (the "Derivatives Policy") and (ii) this Agreement has been, and each Transaction
hereunder will be (and, if applicable, has been),entered into in compliance with the Derivatives Policy.
(m)
Government Entity. As used in this Agreement, "Government Entity" means Party B.
Part4. Other Provisions
(a)
2000
ISDA
(including
Definitions.
its Annex)
This
published
Agreement
and each Transaction
by the International
Swaps
are subject
and Derivatives
to the
2006
Association,
ISDA
Inc.
Definitions
(together,
the
"2006 ISDA Definitions") and will be governed by the provisions of the 2006 ISDA Defmitions. The
provisions of the 2006 ISDA Definitions are incorporated by reference in, and shall form part of, this
Agreement and eachConfirmation. Any referenceto a "Swap Transaction" in the 2006 ISDA Definitions is
deemed to be a reference to a "Transaction" for purposes of this Agreement or any Confirmation, and any
reference to a "Transaction" in this Agreement or any Conflnnation is deemed to be a reference to a "Swap
Transaction" for purposes of the 2006 ISDA Defmitions. The provisions of this Agreement (exclusive of the
2006 ISDA Defmitions) shall prevail in the eventof any conflict between suchprovisions and the 20061SDA
Definitions.
(b)
Scope of Agreement. Any Specified Transaction now existing or hereafterentered into betweenthe parties
(whether or not evidenced by a Confirmation) which constitutes (i) a swap, cap, collar, floor or option on
interest rates in which the transaction is denominated U.S. Dollars, (ii) any other interest rate derivatives
transactiondenominated in U.S. Dollars, (iii) any option on or with respectto any of the foregoing, or (iv) any
combination of any of the foregoing, shall constitutea "Transaction" under this Agreementand shallbe subject
to, governed by, and construed in accordance with the terms of this Agreement, unless the confirming
document(s) for that Specified Transaction provide(s) otherwise. For any such Specified Transaction not
evidenced by a Confirmation, Section 2(a)(i) of this Agreement is amendedto read as follows: "(i) Each party
will make eachpayment or delivery to be made by it under eachTransaction,as specified in eachConfirmation
(or otherwise in accordancewith the terms of that Transaction if not evidenced by a Confirmation), subjectto
the other provisions of this Agreement." In addition, any Specified Transactionbetweenthe parties evidenced
by a Confirmation that by its terms specifies that it is subject to or governed by this Agreement (or an ISDA
Master Agreement betweenthe parties), whether entered into before, on or after the date of this Agreement,
shall constitute a Transaction under this Agreement and shall be subject to, governed by, and construed in
accordance with the terms of this Agreement.
(c)
Set-off. Any amount ("Early Temlination Amounf') payable to one party ("Payee") by the other party
("Payer") under Section 6(e), in circumstanceswhere there is a Defaulting Party or one Affected Party in the
casewhere a Termination Event under Section 5(b )(ii) has occurred, will, atthe option of the party ("X") other
than the Defaulting Party or the Affected Party (and without prior notice to the Defaulting Party or the Affected
Party), bereduced by meansof set off againstany amount(s)("Other Agreement Amounf') payable (whether at
suchtime or in the future or upon the occurrenceof a contingency) by the Payeeto the Payeror to anyAffiliate
of the Payer(irrespective of the currency,place of payment or booking office of the obligation) under any other
agreement(s)between the Payee and the Payer (or between the Payee and any Affiliate of the Payer) or
instrument(s) orundertaking(s) issued or executed by the Payeeto, orin the favor of, the Payeror any Affiliate
of the Payer(and the Other Agreement Amount will be discharged promptly and in all respectsto the extent it
is so set-off). X will give notice to the other party of any set-off effected under this paragraph.
Rev10/22/04
9
For this purpose, either the Early Teffilination Amount or the Other Agreement Amount (or the relevant
portion of such amounts)may be converted by X into the currency in which the otheris denominatedatthe rate
of exchange at which suchparty would be able, acting in a reasonablemauner and in good faith, to purchase
the relevant amountof suchcurrency. The teffil "rate of exchange" includes,without limitation, anypremiums
and costs of exchange payable in connection with the purchase of or conversion into the relevant currency.
Nothing in this paragraph shall be effective to create a charge or other security interest. This paragraph shall
be without prejudice and in addition to any right of set-off, combination of accounts, lien or other right to
which any party is at any time otherwise entitled (whether by operation of law, contract or otherwise).
(d)
Change of Account. Any account designated by a party pursuant to Section 2(b) shall be in the same legal
and tax jurisdiction as the original account.
(e)
Recorded Conversations. Each party and any of its Affiliates may electronically record any of its telephone
conversations with the other party or with any of the other party's Affiliates in connectionwith this Agreement
or any Transaction, and any suchrecordings may be submitted in evidence in anyproceeding to establish any
matters pertinent to this Agreement or any Transaction.
(t)
Confirmation Procedures. Upon receipt thereof, Party B shall examine the terms of eachConfirmation sent
by Party A, and unless Party B objects to the terms within three New York businessdays after receipt of that
Confmnation, those terms shall be deemed accepted and correct absent manifest error, in which case that
Confmnation will be sufficient to form a binding supplementto this Agreement notwithstanding Section
8(e)(ii) of this Agreement.
(g)
Covenantsof Financial Agreements.
(i) Party B shall provide Party A at all times hereunder with the same covenant protection as Party A requires
of Party B under Financial Agreements. Therefore, in addition to the Cross Default provisions of this
Agreement, and notwithstanding the satisfaction of any obligation or promise to pay money to Party A under
any Financial Agreement, or the termination or cancellationof any Financial Agreement,Party B herebyagrees
to perform, comply with and observe for the benefit of Party A hereunder all affIrmative and negative
covenantscontained in eachFinancial Agreementapplicableto Party B (excluding any obligation or promise to
pay money under any Financial Agreement) at any time Party B has any obligation (whether absolute or
contingent) under this Agreement.
(ii) For purposeshereof: (A) the affirmative and negative covenantsof eachFinancial Agreementapplicable to
Party B (together with related definitions and ancillary provisions, but in any eventexcluding any obligation or
promise to pay money under any Financial Agreement) are incorporated (and upon execution of any future
Financial Agreement, shall automatically be incorporated) by reference herein (mutatismutandis); (B) if other
lenders or creditors are parties to any Financial Agreement, then references therein to the lenders or creditors
shall be deemed references to Party A; and (C) for any such covenant applying only when any loan, other
extension of credit, obligation or commitment under the Financial Agreement is outstanding, that covenant
shall be deemedto apply hereunder at any time Party B has any obligation {whether absolute or contingent)
under this Agreement
(iii) Notwithstanding the foregoing, if the incorporation of any provision by reference from any Financial
Agreement would result in the violation by Party B of the terms of that Financial Agreement, or be in violation
of any law, rule or regulation (as interpreted by any court of competentjurisdiction), thenthis Agreement shall
not incorporate that provision.
Rev10/22/04
10
(h) "Financial Agreernent" rneans (i) each existing or future agreernent or instrument relating to any loan or
extension of credit frorn Party A to Party B (whether or not anyone else is a party thereto), asthe sameexists
when executedand without regard to any termination or cancellation thereof, or unlessconsentedto in writing by
Party A, any amendment, modification, addition, waiver or consent thereto or thereof, and (ii) the Covered
Indenture, as the same exists when executed and without regard to any termination or cancellation thereof, or
unless consented to in writing by Party A for purposes of this Agreement, any amendment, modification,
addition, waiver or consentthereto or thereof.
"Covered Indenture" means that certain r
] dated as of
by and [among]
[between] r
], as amendedand supplemented prior to the date hereof in accordancewith the
terms thereof and asamendedand supplementedfollowing the date hereof in accordance with the terms hereof
and thereof.
(i)
Section4 of this Agreementis herebyamendedby addingthe following subsection"(d)" thereto:
"(d) The obligation of Party B to make payments to Party A under this Agreement and any Transaction
hereunderconstitutes a general obligation of Party B, payable from any legally available source. Except for
Additional Bonds permitted by the Covered Indenture, Party B will not voluntarily create or permit to be
created or causethe creation of any lien on Pledged Revenues that is superior to the obligations of Party B to
make payments to Party A under this Agreement and any Transaction hereunder without the prior written
consentof Party A. Without the prior written consentof Party A, Party B will not voluntarily create or permit
to be created or causethe creation of any lien on any real or tangible personal property or revenues (other than
Pledged Revenues)of Party B in favor of a swap or other derivative provider as security for a swap or other
derivative agreementobligation, unless such lien is also granted to Party A on a parity basis.
For purpose of subsection (d) of Section 4, capitalized tenns used but not defined in this Agreement shallhave
the respective meanings ascribed to them in the covered Indenture."
Rev 10/22/04
11
IN WITNESS WHEREOF, the parties have executedthis Schedule by their duly authorizedsignatoriesas of the date
hereof.
WACHOVIA BANK, NAllONAL ASSOCIAllON
By:
~
Name:
Title:
UNIVERSITY OF SOUTH ALABAMA
By:
Name:
Title:
015679512
Rev10/22/04
12
(C)
"Credit Support Amount" has the meaning specified in Paragraph3
(ii)
Eligible Collateral. The following items will qualify as "Eligible Collateral" for$e party specified,
provided that the SecuredParty shall be entitled at any time, and from time to time, not to accept as
Eligible Collateral any of the following which constitute Ineligible Securities as defmed below:
Party
A~
Party B Valuation
Percentage
(A)
Cash:U.s. Dollars in depositaryaccountform.
YES
YES
100%
(B)
Treasury Bills: negotiable debt obligations issued by the U.S.
Treasury Department having a remaining maturity of not more
than one year.
YES
YFJs
98%
(C)
Treasury Notes: negotiable debt obligations issued by the U.S.
Treasury Department having a remaining maturity of more than
one year but not more than 10 years.
YES
YES
98%
(D)
Treasury Bonds: negotiable debt obligations issued by the U.S.
Treasury Department having a remaining maturity of more than
10 years but not more than 30 years.
YES
YES
98%
(E)
Agency Securities: negotiable debt obligations of the Federal
National Mortgage Association (FNMA), Federal Home Loan
Mortgage Corporation (FHLMC), Federal Home Loan Banks
(FHLB), Federal Farm Credit Banks (FFCB), Student Loan
Marketing Association (SLMA), TennesseeValley Authority
(TV A) having a remaining maturity of not more than 30 years.
NO
YES
92%
(F)
FHLMC Certificates. Mortgage participation certificatesissued
by FHLMC evidencing undivided interests or participations in
pools of first lien conventional or FRAN A residential
mortgages or deedsof trust, guaranteedby FHLMC, and having
a remaining maturity of not more than 30 years.
NO
YES
92%
(G)
FN.MA Certificates. Mortgage-backed pass-throughcertificates
issued by FNMA evidencing undivided interests in pools of
first lien mortgages or deeds of trust on residential properties,
guaranteed by FNMA, and having a remaining maturity of not
more than 30 years.
NO
YES
92%
Rev7/28/04
2
Illegality
Party A
Party B
YES
YES
provided that if the Affected Party would be entitled to receive Eligible Credit Support or Posted Credit
Support but for that Specified Condition, then notwithstanding Sections6(bXii) and (iii) of this Agreement,the
Affected Party may designatean Early Termination Date in respectof all Affected Transactions pursuant to
Section 6(b )(iv) asthe result of any such Termination Event( s) regardlessof whether the condition set forth in
Section 6(b)(iv)(1) has been satisfied.
(e)
(t)
(g)
Substitution.
(i)
"SubstitutionDate" hasthe meaningspecifiedin Paragraph4(d)(ii).
(ii)
Consent. The Pledgor is not required to obtain the Secured Party's consent for any substitution
pursuant to Paragraph4( d) unless the Pledgor is organized under the laws of England or Wales, in
which case such consentshall not be unreasonablywithheld.
DisputeResolution.
(i)
"Resolution Time" means1 :00 p.m., New York time, on the Local Business Day following the date
on which the notice is given that gives rise to a dispute under Paragraph5.
(ii)
Value. For the purpose of Paragraphs5(i)(C) and 5(ii), the Value of Posted Credit Support otherthan
Cashwill be calculated basedupon the mid-point betweenthe bid and offered purchaseratesor prices
for that Posted Credit Support as reported on the Bloomberg electronic service as of the Resolution
Time, or if unavailable, as quoted to the Valuation Agent as of the Resolution Time by a dealer in that
Posted Credit Support of recognized standing selected in good faith by the Valuation Agent, which
calculation shall include any unpaid interest on that Posted Credit Support.
(iii)
Alternative. The provisionsof Paragraph5 will apply.
Holding and UsingPostedCollateraL
(i)
Eligibility to Hold PostedCollateral; Custodians.
(A)
Party A will be entitled to hold Posted Collateral itself or through a Custodian pursuant to Paragraph
6(b), provided that the following conditions applicable to it are satisfied:
(B)
Rev7/28/04
(1)
Party A is not a DefaultingParty.
(2)
PostedCollateralmaybe held only in the followingjurisdiction: the United States.
(3)
The party or entity holdingthe Collateralmaintainsa Credit Rating of at leastBBB+ from
S&P and Baal from Moody's.
(4)
The Custodianis a bank or trust companyhavingtotal assetsin excessof $10 billion.
Party B will be entitled to hold Posted Collateral itself or through its Custodian pursuant to Paragraph
6(b), provided that the following conditions applicable to it are satisfied:
4
1/8
Exhibit
WACHOVIA
V
DRAFT
SWAP TRANSACTION CONFIRMATION
Date:
To:
Address:
Fax:
Attention:
From:
Sir or Madam
WachoviaBank,N.A. ("Wachovia")
Ref.No.
XXXXX
November26,2007
TBD ("Counterparty")
USA
XXX-XXX -:x:xxx
Dear Sir or Madam:
This confinns the tenns of the Transactiondescribed below betweenCounterparty and Wachovia. The defmitions and
provisions contained in the 2006 ISDA Definitions, aspublished by the International Swaps and Derivatives Association,
Inc., are incorporated into this Confinnation. In the event of any inconsistency betweenthose definitions and provisions and
this Confirmation, this Confinnation will govern. Fixed Amounts and Floating Amounts for eachapplicable PaymentDate
hereunderwill be calculated in accordancewith the ISDA Defmitions, and if any Fixed Amount and Floating Amount are
due for the same PaymentDate hereunder,then those amounts shall not be payable and instead the Fixed Rate Payer shall
pay the positive difference, if any, betweenthe Fixed Amount and the Floating Amount, and the Floating Rate Payer shall
pay the positive difference, if any, betweenthe Floating Amount and the Fixed Amount.
The Transactionto which this Confirmation relates is a Swaption, the terms of which are as follows:
1. SwaptionTerms:
Trade Date:
XXXXXXXXXX
Option Style:
Seller:
Buyer:
Premium:
Premium PaymentDate:
Exercise BusinessDays:
2. Procedure for Exercise:
Expiration Date:
Earliest Exercise Time:
European
Counterparty
Wachovia
Expiration Time:
Partial Exercise:
Automatic Exercise:
Fallback Exercise:
Written Confirmation:
3. SettlementTerms:
Settlement:
11:00 a.m. New York time
Inapplicable
Inapplicable
Applicable
Applicable as provided in Section 12.2 of the ISDA Defmitions.
New York
December 16,2013
9:00 a.m. New York time
Physical
4. The terms of the particular Underlying Swap Transactionto which this Swaption relates are as
TransactionType:
Currency for Pavments:
I.em1;.
Trade Date:
Effective Date:
Termination Date:
Interest Rate Swap
U.S. Dollars
XXXXXXXXXX
March 15,2014
March 15, 2024 in respect of Fixed Amounts
March 15,2024 in respectof Floating Amounts, subject to the Following Business
Day Convention.
Wachovia:DRAFT
2/8
FixedAmounts:
FixedRatePayer:
NotionalAmount:
Counterparty
Fora CalculationPeriod,the amountsetforthoppositethat CalculationPeriodon
AttachmentI hereto
PeriodEndDates:
Semi-annually on the 15th of each Septemberand March commencing September15,
2014, through and including the Termination Date; No Adjustment.
PaymentDates:
Semi-annually on the 15th of each September and March commencing September 15,
2014, through and including the Termination Date.
BusinessDayConvention:
BusinessDay:
FixedRate:
FixedRateDay Count
Fraction:
Following
New York
4.9753%
AdditionalFixedAmount:
Fixed AmountPayer:
FixedAmount:
PaymentDate:
30/360
Wachovia
USD 803,215.00
March 15,2014
FloatingAmounts:
FloatingRatePayer:
NotionalAmount:
PeriodEndDates:
PaymentDates:
BusinessDayConvention:
BusinessDay:
FloatingRateOption:
DesignatedMaturity:
Spread:
FloatingRateDay Count
Fraction:
ResetDates:
Methodof Averaging:
Compounding:
Roundingconvention:
Wachovia
For a Calculation Period, the amount set forth opposite that Calculation Period on
Attachment n hereto
Monthly on the 15th of eachmonth, commencing April 15, 2014, through and
including the Termination Date, subjectto adjustment in accordancewith the
Following Business Day Convention.
Monthly on the 15th of eachmonth, commencing April 15, 2014, through and
including the Termination Date.
Following
New York
68% ofUSD-LffiOR-BBA, provided that for purposes of this Transactionthe
defmition ofUSD-LffiOR-BBA appearing in the ISDA Definitions, is amendedby
replacing the words "the day that is two London Banking Days preceding" with the
words "the day that is one London Banking Day preceding". This means that USDLffiOR-BBA for any ResetDate will be setone London Banking Day prior to that
ResetDate rather than two London Banking Days prior to that ResetDate.
1 Month
Plus 0.25%
Actual/Actual
Weeklyon Thursday
WeightedAverage
Inapplicable
5 decimalplacesperthe ISDA Definitions.
5. The additional provisions of this Confmnation are as follows:
Calculation Agent:
PaymentInstructions:
Wachovia
WachoviaBank,N.A.
CIB Group,ABA 053000219
Ref: Derivative Desk (Trade No: XXXXX)
Account #: 04659360006116
Wachovia Contacts:
Settlements
and/orRateResets:
Wachovia: DRAFT
3/8
Tel: (800)249-3865
Fax: (704)383-9139
Documentation:
Tel: (704)383-4599
Fax: (704)383-9139
Collateral:
Tel: (704)383-9529
Payments
to CountefR~:
Pleasequote transactionreferencenumber.
Pleaseprovide written payment instructions.
Wachovia will make no paymentsuntil
written payment instructions are received.
Phone: 1-800-249-3865Fax: 1-704-383-8429
Documentation
If at any time there exists an executedISDA Master Agreement betweenthe parties governing this Transaction,this
Confirmation supplements,forms part of and will be governed by that ISDA Master Agreement, and all provisions contained
or incorporated by reference in that ISDA Master Agreement will govern this Confirmation except as expresslymodified
herein. In the absenceof that ISDA Master Agreement,this Confirmation shall supplement,form a part of, and be subject to
an agreementin the form of the ISDA Master Agreement (Local Currency-Single Jurisdication) published in 1992 by the
International Swaps and Derivatives Association, Inc. asif the parties had executedan agreementin such form (the
provisions of which are hereby incorporated by reference),but without any Schedule except for the election of New York
law (without regard to conflicts of law principles) asthe governing law. Referencesin this Confirmation to the "ISDA
Master Agreement" shall be to whichever of the foregoing is applicable. Neither party is acting as the other party's financial
advisor for this Transaction nor is it relying on the other party for any evaluation of the present or future results,
consequences,risks, and benefits of this transaction, whether financial, accounting, tax, legal, or otherwise.
Wachovia:DRAFT
4/8
Pleaseconfirm that the foregoing correctly setsforth the terms of our agreementby executing a copy of this Confirmation
and returning it to us.
Very truly yours,
WachoviaBank,N.A.
By:
DRAFT
Name:
Title:
Ref.No. XXXXX
Accepted and confinned asof date first abovewritten:
TBD
By:
Name:
Title:
DRAFT
Wachovia:DRAFT
5/8
ATTACHMENT
I -DRAFT
AmortizationSchedulefor xx:xxx
Calculation Period
(from and including, to but excluding)
15 Mar 14
to
15 Sep 14
15 Sep 14
to
15 Mar 15
15 Mar 15
to
15 Sep 15
15 Sep 15
to
15 Mar 16
15 Mar 16
to
15 Sep 16
15 Sep 16
to
15 Mar 17
15 Mar 17
to
15 Sep 17
15 Sep 17
to
15 Mar 18
15 Mar 18
to
15 Sep 18
15 Sep 18
to
15 Mar 19
15 Mar 19
to
15 Sep 19
15 Sep 19
to
15 Mar 20
15 Mar 20
to
15 Sep20
15 Sep20
to
15 Mar 21
15 Mar 21
to
15Sep21
15 Sep21
to
15 Mar 22
15 Mar 22
to
15 Sep22
15 Sep 22
to
15 Mar 23
15 Mar 23
to
15 Sep23
15 Sep23
to
15 Mar 24
USD Notional Amount
us» NotionalReduction
(at
41,245,000.00
41,245,000.00
40,775,000.00
40,775,000.00
40,285,000.00
40,285,000.00
39,670,000.00
39,670,000.00
39,030,000.00
39,030,000.00
38,365,000.00
38,365,000.00
31,440,000.00
31,440,000.00
24,160,000.00
24,160,000.00
16,505,000.00
16,505,000.00
8,455,000.00
8,455,000.00
Dates subject to the Business Day Convention set forth in the Confinnation.
Wachovia:DRAFT
end
of
period)
0.00
470,000.00
0.00
490,000.00
0,00
615,000.00
0.00
640,000.00
0.00
665,000.00
0.00
6,925,000.00
0.00
7,280,000.00
0.00
7,655,000.00
0.00
8,050,000.00
0.00
8,455,000.00
6/8
AlTACHMENT
11- DRAFT
AmortizationSchedulefor XXXXX
Calculation Period
(from and including, to but excluding)
15 Mar 14
to
15 Apr 14
15 Apr 14
to
15 May 14
15 May 14
to
16 Jun 14
16 Jun 14
to
15 Jul14
15 Jul14
to
15 Aug 14
15 Aug 14
to
15 Sep 14
15 Sep 14
to
15 Oct 14
15 Oct 14
to
17Nov14
17 Nov 14
to
15 Dec 14
15 Dec 14
to
15 Jan 15
15 Jan 15
to
17 Feb 15
17 Feb 15
to
16 Mar 15
16 Mar 15
to
15 Apr 15
15 Apr 15
to
15 May 15
15 May 15
to
15 Jun 15
15 Jun 15
to
15 Jul15
15 Jul15
to
17Aug 15
17 Aug 15
to
15 Sep 15
15 Sep 15
to
15 Oct 15
15 Oct 15
to
16 Nov 15
16 Nov 15
to
15 Dec 15
15 Dec 15
to
15 Jan 16
15 Jan 16
to
16 Feb 16
16 Feb 16
to
15 Mar 16
15 Mar 16
to
15 Apr 16
15 Apr 16
to
16 May 16
16 May 16
to
15 Jun 16
15 Jun 16
to
15 Jul16
15 Jul16
to
15 Aug 16
15 Aug 16
to
15 Sep 16
15 Sep 16
to
17 Oct 16
17 Oct 16
to
15 Nov 16
15 Nov 16
to
15 Dec 16
15 Dec 16
to
17 Jan 17
17Jan17
to
15Feb17
15 Feb 17
to
15 Mar 17
15Mar17
to
17Apr17
17Apr17
to
15 May 17
15 May 17
to
15Jun17
15 Jun 17
to
17Jul17
17Jul17
to
15Aug17
15Aug17
to
15Sep17
15 Sep 17
to
16 Oct 17
16 Oct 17
to
15 Nov 17
15Nov17
to
15Dec17
usn NotionalAmount
usn NotionalReduction
41,245,000.00
41,245,000.00
41,245,000.00
41,245,000.00
41,245,000.00
41,245,000.00
41,245,000.00
41,245,000.00
41,245,000.00
41,245,OaO.00
41,245,000.00
41,245,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,775,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
40,285,000.00
39,670,000.00
39,670,000.00
39,670,000.00
39,670,000.00
39,670,000.00
39,670,000.00
39,670,000.00
39,670,000.00
39,670,000.00
(at endof period)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
470,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
490,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
615,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Wachovia:DRAFT
8/8
CalculationPeriod
(from and including,to but excluding)
15Dec21
to
18Jan22
18Jan22
to
15 Feb22
15 Feb22
to
15Mar 22
15Mar 22
to
15 Apr 22
15 Apr 22
to
16 May 22
16 May 22
to
15Jon22
15Jon 22
to
15Jul22
15Jul22
to
15Aug 22
15Aug 22
to
15 Sep22
15 Sep22
to
17Oct22
17Oct22
to
15Nov 22
15 Nov 22
to
15Dec22
15Dec 22
to
17Jan23
17Jan23
to
15 Feb23
15 Feb23
to
15Mar 23
15Mar 23
to
17Apr23
17Apr23
to
15 May 23
15 May 23
to
15Jon23
15Jon23
to
17Jul23
17Jul23
to
15Aug 23
15Aug 23
to
15 Sep23
15 Sep23
to
16 Oct23
16 Oct23
to
15Nov 23
15 Nov 23
to
15Dec23
15Dec23
to
16Jan24
16Jan24
to
15 Feb24
15 Feb24
to
15Mar 24
usn NotionalAmount
24,160,000.00
24,160,000.00
24,160,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
16,505,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
8,455,000.00
Wachovia:DRAFT
USD Notional Reduction
0.00
0.00
7,655,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
8,050,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
8,455,000.00
1/11
Exh~bit VI
WACHOVIA
Date:To:
Address:
Fax:
Attention:
From:
Ref.No.
DRAFf
SWAP TRANSACTION CONFIRMATION
November13,2007
TBD("Counterparty")
USA
XXX-XXX -XXXX
Sir or Madam
WachoviaBank,N.A.("Wachovia")
x:xx:xx
Dear Sir or Madam:
This confinns the tenus of the Transactiondescribedbelow betweenCounterpaIiy and Wachovia. The definitions and
provisions contained in the 2006 ISDA Definitions, as published by the International Swapsand Derivatives Association,
Inc., are incorporated into this Confinnation. In the event of any inconsistencybetweenthose defmitions and provisions and
this Confinnation, this Conflrtnation will govern. Fixed Amounts and Floating Amounts for eachapplicable PaymentDate
hereunderwill be calculated in accordancewith the ISDA Defmitions, and if any Fixed Amount and Floating Amount are
due for the same PaymentDate hereunder,then those amounts shall not be payable and insteadthe Fixed Rate Payer shall
pay the positive difference, if any, betweenthe Fixed Amount and the Floating Amount, and the Floating Rate Payer shall
pay the positive difference, if any, betweenthe Floating Amount and the Fixed Amount.
The Transactionto which this Confirmation relates is a Swaption,the terms of which are asfollows:
1. Swaption Terms:
Trade Date:
XXXXXXXXXX
Option Style:
Seller:
Buyer:
Premiunt:
Premiunt PaymentDate:
Exercise BusinessDays:
2. Procedure for Exercise:
Expiration Date:
Earliest Exercise Time:
European
Counterparty
Wachovia
Expiration Time:
Partial Exercise:
Automatic Exercise:
Fallback Exercise:
Written Confirmation:
3. SettlementTerms:
Settlement:
11:00 a.m. New York time
Inapplicable
Inapplicable
Applicable
Applicable as provided in Section 12.2 of the ISDA Definitions.
New York
September01, 2016
9:00 a.m. New York time
Physical
4. The tenns of the particular Underlying Swap Transaction to which this Swaption relates are asfollows:
TransactionTYl2e:
Currency for Pavments:
InterestRate Swap
U.S. Dollars
Tenn:
Trade
Date:
Effective Date:
Tennination Date:
XXXXXXXXXX
I
December01,2016
December 01, 2036 in respectof Fixed Amounts
December01,2036 in respect of Floating Amounts, subjectto the Following Business
Day Convention.
Wachovia: DRAFT
2/11
FixedAmounts:
FixedRatePayer:
NotionalAmount:
PeriodEndDates:
PaymentDates:
BusinessDayConvention:
BusinessDay:
FixedRate:
FixedRateDay Count
Fraction:
AdditionalFixedAmount:
Fixed AmountPayer:
FixedAmount:
Paymentdate:
FloatingAmounts:
FloatingRatePayer:
NotionalAmount:
PeriodEndDates:
PaymentDates:
BusinessDayConvention:
BusinessDay:
FloatingRateOption:
Designated
Maturity:
Spread:
FloatingRateDay Count
Fraction:
ResetDates:
Methodof Averaging:
Compounding:
Roundingconvention:
Counterparty
For a Calculation Period, the amount set forth opposite that Calculation Period on
Attachment I hereto
Semi-annually on the 1st of eachJune and Decembercpmmencing June 01, 2017,
through and including the Termination Date; No Adjustment.
Semi-annually on the 1stof eachJune and Decembercommencing June 01, 2017,
through and including the Termination Date.
Following
New York
5.00%
30/360
Wachovia
USD 2,212,814.00
December1,2016
Wachovia
For a Calculation Period, the amount set forth opposite that Calculation Period on
Attachment II hereto
Monthly on the 1st of eachmonth, commencing January 03, 2017, through and
including the Termination Date, subject to adjustment in accordancewith the
Following Business Day Convention.
Monthly on the 1st of eachmonth, commencing January 03, 2017, through and
including the Termination Date.
Following
New York
68% ofUSD-LmOR-BBA, provided that for purposes of this Transactionthe
definition ofUSD-LmOR-BBA appearing in the ISDA Defmitions, is amended by
replacing the words "the day that is two London Banking Days preceding" with the
words "the day that is one London Banking Day preceding". This means that USDLmOR-BBA for any ResetDate will be setone London Banking Day prior to that
ResetDate rather than two London Banking Days prior to that ResetDate.
1 Month
Plus 0.25%
Actual/Actual
Weeklyon Thursday
WeightedAverage
Inapplicable
5 decimalplacesperthe ISDA Definitions.
5. The additional provisions of this Confirmation are as follows:
CalculationAgent:
PaymentInstructions:
WachoviaContacts:
Wachovia
WachoviaBank,N.A.
CIB Group,ABA 053000219
Ref: DerivativeDesk(TradeNo: XXXXX)
Account#: 04659360006116
Settlements
and/orRateResets:
Tel: (800)249-3865
Wachovia:DRAFT
3/11
Fax: (704)383-9139
Documentation:
Tel: (704)383-4599
Fax: (704)383-9139
Collateral:
Tel: (704)383-9529
Paymentsto Counte!:12~:
Pleasequote transactionreferencenumber.
Pleaseprovide written payment instructions.
Wachovia will make no payments until
written payment instructions are received.
Phone: 1-800-249-3865Fax: 1-704-383-8429
Documentation
If at any time there exists an executedISDA Master Agreement betweenthe parties governing this Transaction,this
Confirmation supplements,forms part of and will be governed by that ISDA Master Agreement, and all provisions contained
or incorporated by reference in that ISDA Master Agreement will govern this Confmnation exceptas expresslymodified
herein. In the absenceof that ISDA Master Agreement,this Confirmation shall supplement,form a part of, and be subjectto
an agreementin the form of the ISDA Master Agreement (Local Currency-Single Jurisdication) published in 1992 by the
International Swaps and Derivatives Association, Inc. as if the parties had executedan agreementin such form (the
provisions of which are hereby incorporated by reference),but without any Schedule except for the election of New York
law (without regard to conflicts of law principles) as the governing law. Referencesin this Confirmation to the "ISDA
Master Agreement" shall be to whichever of the foregoing is applicable. Neither party is acting as the other party's financial
advisor for this Transactionnor is it relying on the other party for any evaluation of the presentor future results,
consequences,risks, and benefits of this transaction, whether financial, accounting, tax, legal, or otherwise.
Wachovia:DRAFT
4/11
Please confinn that the foregoing correctly sets forth the tenDSof our agreementby executing a copy of this Confinnation
and returning it to us.
Very truly yours,
WachoviaBank,N.A.
By:
Name:
Title:
DRAFT
Ref.No.xxx:xx
Accepted and continued asof date first above written:
TBD
By:
Name:
Title:
DRAFT
Wachovia:DRAFT
5/11
ATTACHMENT I -DRAFT
Amortization Schedule for XXXXX
Calculation Period
(from andincluding,to but excluding)
01 Dec 16
to
01 Jun 17
01 Jun 17
to
01 Dec 17
01 Dec 17
to
01 Jun 18
01 Jun 18
to
01 Dec 18
01 Dec 18
to
01 Jun19
01 Jun19
to
01 Dec 19
01 Dec 19
to
01 Jun20
01 Jun20
to
01 Dec 20
01 Dec20
to
01 Jun21
01 Jun21
to
01 Dec21
01 Dec21
to
01 Jun22
01 Jun22
to
01 Dec 22
01 Dec22
to
01 Jun23
01 Jun23
to
01 Dec 23
01 Dec23
to
01 Jun 24
01 Jun24
to
01 Dec 24
01 Dec 24
to
01 Jun25
01 Jun25
to
01 Dec 25
01 Dec25
to
01 Jun26
01 Jun26
to
01 Dec26
01 Dec26
to
01 Jun27
01 Jun27
to
01 Dec 27
01 Dec 27
to
01 Jun28
01 Jun28
to
01 Dec28
01 Dec28
to
01 Jun29
01 Jun29
to
01 Dec 29
01 Dec 29
to
01 Jun30
01 Jun30
to
01 Dec30
01 Dec30
to
01 Jun31
01 Jun31
to
01Dec31
01 Dec31
to
01 Jun32
01 Jun32
to
01 Dec32
01 Dec32
to
01 Jun33
01 Jun33
to
01 Dec33
01 Dec33
to
01 Jun 34
01 Jun34
to
01 Dec 34
01 Dec 34
to
01 Jun35
01 Jun35
to
01 Dec 35
01 Dec 35
to
01 Jun36
01 Jun36
to
01 Dec 36
usn Notional Amount
us» NotionalReduction
(at
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
94,400,000.00
94,400,000.00
88,515,000.00
88,515,000.00
82,325,000.00
82,325,000.00
75,820,000.00
75,820,000.00
68,980,000.00
68,980,000.00
61,790,000.00
61,790,000.00
54,230,000.00
54,230,000.00
46,285,000.00
46,285,000.00
37,930,000.00
37,930,000.00
29,145,000.00
29,145,000.00
19,910,000.00
19,910,000.00
10,205,000.00
10,205,000.00
Dates subject to the Business Day Convention set forth in the Confirmation.
Wachovia: DRAFT
end
of
period)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
5,600,000.00
0.00
5,885,000.00
0.00
6,190,000.00
0.00
6,505,000.00
0.00
6,840,000.00
0.00
7,190,000.00
0.00
7,560,000.00
0.00
7,945,000.00
0.00
8,355,000.00
0.00
8,785,000.00
0.00
9,235,000.00
0.00
9,705,000.00
0.00
10,205,000.00
6/11
ATTACHMENT 11-DRAFT
AmortizationSchedulefor XXXXX
Calculation Period
(from and including, to but excluding)
01 Dec 16
to
03 Jan 17
03 Jan 17
to
01 Feb 17
01Feb17
to
01 Mar 17
01 Mar 17
to
03Apr17
03 Apr 17
to
01 May 17
01 May 17
to
01 Jun 17
01 Jun 17
to
03Jul17
03 Jul17
to
01 Aug 17
01Aug17
to
01 Sep 17
01 Sep 17
to
02 Oct 17
02 Oct 17
to
01Nov17
01Nov17
to
01Dec17
01 Dec 17
to
02 Jan 18
02 Jan 18
to
01 Feb 18
01 Feb 18
to
01 Mar 18
01 Mar 18
to
02 Apr 18
02 Apr 18
to
01 May 18
01 May 18
to
01 Jun 18
01 Jun 18
to
02 Jul18
02 Jul18
to
01 Aug 18
01 Aug 18
to
04 Sep 18
04 Sep 18
to
01 Oct 18
01 Oct 18
to
01 Nov 18
01 Nov 18
to
03 Dec 18
03 Dec 18
to
02 Jan 19
02 Jan 19
to
01 Feb 19
01 Feb 19
to
01 Mar 19
01 Mar 19
to
01 Apr 19
01 Apr 19
to
01 May 19
01 May 19
to
03 Jun 19
03 Jun 19
to
01 Jul19
01 Jul19
to
01 Aug 19
01 Aug 19
to
03 Sep 19
03 Sep 19
to
01 Oct 19
01 Oct 19
to
01 Nov 19
01 Nov 19
to
02 Dec 19
02 Dec 19
to
02 Jan 20
02 Jan 20
to
03 Feb 20
03 Feb 20
to
02 Mar 20
02 Mar 20
to
01 Apr 20
01 Apr20
to
01 May 20
01 May 20
to
01 Jun20
01 Jun 20
to
01 Jul20
01 Jul20
to
03 Aug 20
03 Aug 20
to
01 Sep20
usn Notional Amount
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
Wachovia: DRAFT
usn Notional Reduetion
(atend of period)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7/11
Calculation Period
(from and including, to but excluding)
01 Sep20
to
01 Oct 20
01 Oct 20
to
02 Nov 20
02 Nov 20
to
01 Dec 20
01 Dec 20
to
04 Ian 21
04 Ian 21
to
01 Feb21
01 Feb21
to
01 Mar 21
01 Mar 21
to
01 Apr 21
01 Apr 21
to
03 May 21
03 May 21
to
01 IuD 21
01 Iun 21
to
01 Iul21
01 Iul21
to
02 Aug 21
02 Aug 21
to
01 Sep21
01 Sep21
to
01 Oct 21
01 Oct 21
to
01 Nov 21
01 Nov 21
to
01 Dec 21
01 Dec 21
to
03 Ian 22
03 Ian 22
to
01 Feb 22
01 Feb 22
to
01 Mar 22
01 Mar 22
to
01 Apr22
01 Apr 22
to
02 May 22
02 May 22
to
01 Iun 22
01 Iun 22
to
01 Iul22
01 Iul22
to
01 Aug 22
01 Aug 22
to
01 Sep 22
01 Sep22
to
03 Oct 22
03 Oct 22
to
01 Nov 22
01 Nov 22
to
01 Dec 22
01 Dec 22
to
03 Ian 23
03 Ian 23
to
01 Feb 23
01 Feb 23
to
01 Mar 23
01 Mar 23
to
03 Apr 23
03 Apr 23
to
01 May 23
01 May 23
to
01 Iun 23
01 Iun 23
to
03 IuI 23
03 Iul23
to
01 Aug 23
01 Aug 23
to
01 Sep23
01 Sep23
to
02 Oct 23
02 Oct 23
to
01 Nov 23
01 Nov23
to
01 Dec23
01 Dec 23
to
02 Ian 24
02 Ian 24
to
01 Feb 24
01 Feb 24
to
01 Mar 24
01 Mar 24
to
01 Apr24
01 Apr 24
to
01 May 24
01 May 24
to
03 Iun 24
03 Iun 24
to
01 Iul24
01 Iul24
to
01 Aug 24
01 Aug 24
to
03 Sep 24
usn Notiona! Amount
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
100,000,000.00
Wachovia:DRAFT
usn Notional Reduction
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
8/11
Calculation Period
(from and including, to but excluding)
03 Sep 24
to
01 Oct 24
01 Oct 24
to
01 Nov24
01 Nov 24
to
02 Dec 24
02 Dec 24
to
02 Jan 25
02 Jan 25
to
03 Feb 25
03 Feb 25
to
03 Mar 25
03 Mar 25
to
01 Apr 25
01 Apr 25
to
01 May 25
01 May 25
to
02 Jon 25
02 Jon 25
to
01 Jul25
01 Ju125
to
01 Aug 25
01 Aug 25
to
02 Sep25
02 Sep25
to
01 Oct 25
01 Oct 25
to
03 Nov 25
03 Nov 25
to
01 Dec 25
01 Dec 25
to
02 Jan 26
02 Jan 26
to
02 Feb 26
02 Feb 26
to
02 Mar 26
02 Mar 26
to
01 Apr26
01 Apr26
to
01 May 26
01 May 26
to
01 Jon 26
01 Jon 26
to
01 Ju126
01 Jol26
to
03 Aug 26
03 Aug 26
to
01 Sep26
01 Sep26
to
01 Oct 26
01 Oct 26
to
02 Nov 26
02 Nov 26
to
01 Dec 26
01 Dec 26
to
04 Jan 27
04 Jan 27
to
01 Feb 27
01 Feb 27
to
01 Mar 27
01 Mar 27
to
01 Apr27
01 Apr 27
to
03 May 27
03 May 27
to
01 Jon 27
01 Jon 27
to
01 Ju127
01 Jol27
to
02 Aug 27
02 Aug 27
to
01 Sep 27
01 Sep 27
to
01 Oct 27
01 Oct 27
to
01 Nov27
01 Nov 27
to
01 Dec 27
01 Dec 27
to
03 Jan 28
03 Jan 28
to
01 Feb 28
01 Feb 28
to
01 Mar 28
01 Mar 28
to
03 Apr 28
03 Apr 28
to
01 May 28
01 May 28
to
01 Jon 28
01 Jon 28
to
03 Ju128
03 Jul28
to
01 Aug 28
01 Aug 28
to
01 Sep28
USD Notional Amount
100,000,000.00
100,000,000.00
100,000,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
94,400,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
88,515,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
82,325,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
75,820,000.00
Wachovia: DRAFT
USD Notional Reduction
0.00
0.00
5,600,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
5,885,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
6,190,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
6,505,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
9/11
Calculation Period
(from and including, to but excluding)
01 Sep28
to
02 Oct 28
02 Oct 28
to
01 Nov 28
01 Nov 28
to
01 Dec 28
01 Dec 28
to
02 Jan 29
02 Jan 29
to
01 Feb 29
01 Feb 29
to
01 Mar 29
01 Mar 29
to
02 Apr 29
02 Apr 29
to
01 May 29
01 May 29
to
01 Jun 29
01 Jun 29
to
02 Jul29
02 Jul29
to
01 Aug 29
01 Aug 29
to
04 Sep 29
04 Sep 29
to
01 Oct 29
01 Oct 29
to
01 Nov 29
01 Nov 29
to
03 Dec 29
03 Dec 29
to
02 Jan 30
02 Jan 30
to
01 Feb 30
01 Feb 30
to
01 Mar 30
01 Mar 30
to
01 Apr 30
01 Apr 30
to
01 May 30
01 May 30
to
03 Jun 30
03 Jun 30
to
01 Jul30
01 Jul 30
to
01 Aug 30
01 Aug 30
to
03 Sep30
03 Sep30
to
01 Oct 30
01 Oct 30
to
01 Nov 30
01 Nov 30
to
02 Dec 30
02 Dec 30
to
02 Jan31
02 Jan31
to
03 Feb 31
03 Feb31
to
03 Mar 31
03 Mar 31
to
01 Apr31
01 Apr 31
to
01 May 31
01 May 31
to
02 Jun31
02 Jun31
to
01 Jul31
01 Jul31
to
01 Aug31
01 Aug 31
to
02 Sep31
02 Sep31
to
01 Oct 31
01 Oct 31
to
03 Nov 31
03 Nov 31
to
01 Dec 31
01 Dec 31
to
02 Jan 32
02 Jan 32
to
02 Feb 32
02 Feb 32
to
01 Mar 32
01 Mar 32
to
01 Apr 32
01 Apr 32
to
03 May 32
03 May 32
to
01 Jun 32
01 Jun 32
to
01 Jul32
01 Jul32
to
02 Aug 32
02 Aug 32
to
01 Sep32
usn Notional Amount
75,820,000.00
75,820,000.00
75,820,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
68,980,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
61,790,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
54,230,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
46,285,000.00
Wachovia:DRAFT
usn NotionalReduction
0.00
0.00
6,840,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7,190,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7,560,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
7,945,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
10/11
Calculation Period
(from and including, to but excluding)
01 Sep32
to
01 Oct 32
01 Oct 32
to
01 Nov 32
01 Nov 32
to
01 Dec 32
01 Dec 32
to
03 Jan 33
03 Jan 33
to
01 Peb 33
01 Feb 33
to
01 Mar 33
01 Mar 33
to
01 Apr 33
01 Apr 33
to
02 May 33
02 May 33
to
01 Jun 33
01 Jun 33
to
01 Jul33
01 Jul33
to
01 Aug 33
01 Aug 33
to
01 Sep33
01 Sep33
to
03 Oct 33
03 Oct 33
to
01 Nov 33
01 Nov 33
to
01 Dec 33
01 Dec 33
to
03 Jan 34
03 Jan 34
to
01 Peb 34
01 Feb 34
to
01 Mar 34
01 Mar 34
to
03 Apr 34
03 Apr 34
to
01 May 34
01 May 34
to
01 Jun 34
01 Jun 34
to
03 Jul34
03 Jul34
to
01 Aug 34
01 Aug 34
to
01 Sep 34
01 Sep 34
to
02 Oct 34
02 Oct 34
to
01 Nov 34
01 Nov 34
to
01 Dec 34
01 Dec 34
to
02 Jan 35
02 Jan 35
to
01 Feb 35
01 Feb 35
to
01 Mar 35
01 Mar 35
to
02 Apr35
02 Apr 35
to
01 May 35
01 May 35
to
01 Jun 35
01 Jun 35
to
02 Jul 35
02 Jul35
to
01 Aug 35
01 Aug 35
to
04 Sep 35
04 Sep35
to
01 Oct 35
01 Oct 35
to
01 Nov 35
01 Nov 35
to
03 Dec 35
03 Dec 35
to
02 Jan 36
02 Jan 36
to
01 Feb 36
01 Feb 36
to
03 Mar 36
03 Mar 36
to
01 Apr 36
01 Apr 36
to
01 May 36
01 May 36
to
02 Jun 36
02 Jun 36
to
01 Jul36
01 Jul36
to
01 Aug 36
01 Aug 36
to
02 Sep36
usn Notional Amount
46,285,000.00
46,285,000.00
46,285,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
37,930,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
29,145,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
19,910,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
10,205,000.00
Wachovia: DRAFT
USD Notional Reduction
0.00
0.00
8,355,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
8,785,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
9,235,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
9,705,000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
11/11
Calculation Period
(from and including, to but excluding)
02 Sep36
to
01 Oct 36
01 Oct 36
to
03 Nov 36
03 Nov 36
to
01 Dec 36
usn Notional Amount
10,205,000.00
10,205,000.00
10,205,000.00
Wachovia: DRAFT
USD Notional Reduction
0.00
0.00
10,205,000.00
Name:
Exhibit
VII
GENERALCERTIFICATEOFUNIVERSITY OFSOUm ALABAMA
The undersignedofficers of University of SouthAlabama,a public corporationorganizedunder
the laws of the Stateof Alabama(the "Party B"), do herebycertify asfollows:
1.
This certificate is being delivered in connectionwith the executionand delivery of the
Master Agreement dated as of
, 2007 between Party B and Wachovia Bank, National
Association("Party A") (the "ISDA MasterAgreement"),a Scheduleto the Master Agreementdatedas
of
, 2007betweenParty A andParty B (the "ISDA Schedule"),and a Credit SupportAnnex to
the Master Agreementdatedas of
.2007 betweenParty A and Party B (the "ISDA Credit
SupportAnnex", together with the ISDA Master Agreementand the ISDA Schedule,the "Master
Agreement"). The Master Agreementis supplementedby a Confirmationof a Transactiondated as of
.2007 of a $
swaption between Party A and Party B (the "2014
Confmnation") and by a Confmnation of a Transaction dated as of
.2007 of a
$
swaptionbetweenParty A and Party B (the "2016 Confmnation", together with the
Master Agreementand the 2014 Confmnation, the "Financing Documents"). Capitalized terms not
otherwisedefmedhereinshallhavethe meaningassignedin the FinancingDocuments.
2.
Eachof the following namedpersonsis (and was at the time of executionby him or her
of anydocumentsor instrumentsdeliveredon behalfof Party B in connectionwith executionand delivery
of the FinancingDocuments)a duly elected,qualified and acting officer of Party B holding the office or
offices setforth belowhis or hername:
Name and Office
Signature
Title:
Name:
Title:
Name:
Title:
The signatureappearingoppositethe nameof eachpersonidentified aboveis his or her genuinesignature.
3.
Attached hereto as Exhibit A is a true, correct and complete copy of the original
certificate of incorporationof Party B and any amendments
thereto. Said certificateof incorporationhas
not beenamendedor changed(exceptas setforth in the amendments,if any, includedin Exhibit A) and is
in full force and effect.
4.
Attachedheretoas Exhibit B is a true, correctand completecopy of the bylaws of Party
B. Saidbylaws have not beenamendedor changedandare in full force and effect.
01567102.2
Dated:
Secretary
[S EAL]
2
01567102.2
Exhibit A
Certificate of Incorporation
Seeattached.
01567102.2
Exhibit B
Bylaws
Seeattached.
01567102.2
Exhibit C
Derivatives Policy
Seeattached.
01567102.2
Exhibit D
Authorizing Resolution
Seeattached.
01567102.2
Exhibit E
CoveredIndenture
Seeattached.
01567102.2
Exhibit
VIII
XXXX,2007
University of SouthAlabama
Attn: Ken Davis
380 Administration Building
Mobile, Alabama 36688
Fairness Opinion on Series 2004 and 2006 Swaptions
Executed on [ J with Wachovia Bank N.A.
Dear Mr. Davis
We perfonned a mid-market valuation at the time of executionof the Series
2004 and 2006 Swaptionstransactedwith Wachovia Bank N .A. on [ ]. The details of
the transactionsare as specified in the attachedtrade confirmationsnumberedXX and
YY. It is our opinion that the transactionswere [fairly] priced and [confonned] to the
terms negotiatedprior to execution.
Prior to transactingthe Swaptions,Wachovia and the University had agreed
that Wachovia would earn a spreadof 6.5 basis points on eachtransaction.! The present
value of one basispoint, at the time of transaction,was approximatelyequal to $[19,500]
and $[65,500] for the series2004 and 2006 swaptionsand would result in a dollar spread
of$[126,750] and $[425,750] respectively. It is our opinion that theseare reasonable
spreadsbased on the negotiatedterms of the Schedule,Credit SupportAnnex, and Trade
ConflrInations as well current marketconditions.
At the time of the transactions,the mid-marketvalue, transactionprice, and
actual spreadsfrom mid-marketwere asfollows:
Transaction
Series2004 Swaption
Series2006 Swaption
Mid-Market Value
TransactionPrice
TransactionSpread
1 Wachovia' s breakdown of the spreadis 1.5 bps for hedging, 1 bps for credit, and 4 bps for profit.
G:\721-3\docs\fairness opinion xx.xx.2007 .doc 111/30/200711:57 PM 11
The method used by Porter,White & Companyto value swapsis
commonly referred to asthe zero couponmethod, which as~umesthat future floating
rates arethosepredicted by the currentterm structureof interestrates. Expectedfuture
cashflows are then discountedto a presentvalue using discountfactors derived from
current interestrates. Options on swapsare accountedfor using an option valuation
model that takes into accountmarketimplied volatility of future interestrates.
Do not hesitateto contactme if you have anyquestions.
Sincerely,
C. JohanGrabs
Enclosures:
Trade ConfIrmations
Market Data Sheet
G:\721-3\docs\fairness opinion xx.xx.2007.doc 111/30/200711:57 PM 12
2.2 HedgeEffectiveness/Summary:Underthe LffiOR basedoption, the
cashflows tied to the floating rate interestrate paymentscan reasonably
be expected,basedon historicalrates,to effectivelyhedgethe floating
rate interestpaymentsonthe assumedVariable RateDemandNotes
(VRDN) issues,assumingall othercritical tenns areequal. However,
dueto factorsthat may affectthe tax-exemptmarketand lor the LffiOR
market,additionalbasisrisk will needto be considered.
2.3 InterestRateRisks: If the Universitychoosesto collateralizethe value of
the swaption,it will haveto postadditionalcollateralif long-term.
interestratesdecrease.
2.4 MarketAccessRisk: If the University is unableto issueVRDNs at the
time of exercisethey will still be requiredto make swappayments
without a relatedbond issuance.
2.5 BasisRisk: Underthe LffiOR basedoption,if the swaptionis exercised,
the floating paymentreceivedmay not fully offsetthe variable rate
paymentsdue on the VRDNs.
2.6 Mark-to-MarketRisk: If the proposalfor derivativesaccounting
changesunderGASB anychangesin the swaptionswapvalue may need
to passthroughthe incomestatement.
2.7 CounterpartyRisk: If exercised,the University is at risk if Wachoviais
unableto fulfill its obligationsunderthe contracts. Counterpartyrisk is
mitigatedthrough mutual collateralpostingsequalto the marketvalue of
the swaptions. The Universitywill initially post collateral
approximatelyequalto the cashproceedsfrom the transactions.
2.8 TenninationRisk: The University may needto tenninatethe swapfor
different circumstancessuchas a credit downgrade. This may require
the University to pay a substantialamountat the time of early
tennination.
2.9 Tax Risk: Underthe LffiOR basedoptionthe University is at risk if
thereare any changesto tax laws or tax rates. For example,if marginal
tax ratesdecreasethe expectedratio of i-month LmOR that would be
necessaryto offset paymentsdue on the VRDNs would increase.
2.10 RolloverRisk: Thereis no rollover risk sincethe underlying swaps
would coverthe life of the assumedVRDNs.
2.11 Insurance,Liquidity, Remarketing,and Expensesof IssuancesRisk:
The University hasmadeassumptionson the costof insurance,liquidity,
remarketing,and expenses.If theseassumptionsdo not hold true for
futurecostthe Universitynms the risk of payinga substantialamount
largerthan that budgeted.
2.12 CreditRisk: If the University's creditrating is downgradedthe costof
bond insurancewould likely increase.
2.12 ContractLiquidity: Sincethe University hasoptedfor the more widely
usedLIB OR basedoption, contractliquidity is more transparentthanthe
SIFMA basedoption.
3. StressedValues:
3.1 StressedValue for SwaptionsFollowing Transaction: The value of the
LffiOR basedSwaptionon September12,2007was $7,999,000.Based
on volatility, the highestpoint recordedby BloombergsinceJanuary26,
2004 immediatelyfollowing execution,the University would have
suffereda lossof $587,000. Basedon volatility andthe term structureof
interestmtes,in the eventthat volatility wereto reachits highestlevel
andthe term structureof interestmtesfall 100basispointsthe
University would have suffereda lossof $6,087,000.This is very
unlikely.
3.2 StressedValues for Swapsas SwaptionsExpire: The expectedvalue of
the swaptionsat maturity is $2,496,000for the 2004bondsand
$9,747,000for the 2006bonds. Assumingthe samevolatility and rate
structureasin 3.1, the stressedvalueswould be $6,690,000for the 2004
bondsand$21,187,000for the 2006bonds.
4. OtherFinancialBenefits:
4.1 Fully Liquidating the Call Options: SinceWachoviacan only exercise
its right on March 15,2014and December1,2016 it is the economic
equivalentto partially liquidating the call optionsembeddedin the fixed
ratebonds. The fixed ratebondscanbe called at the beginning on those
datesand on any subsequent
datesthrough maturity of the bonds. By
restructuringthe proposedswaptionssuchthat they are exercisableby
Wachoviaeverysix months,startingon the datesabovethrough
maturity of the bonds,the call optionswould be fully liquidated. The
e~ated additionalproceedsfrom sucha restructuringwould be
approximately$1,126,000.
4.2 TransactionCosts: The costsassociatedwith the swapon page22 of
the full analysisappearto be reasonable.Wachovia'sprofit of 4 basis
pointsis fair and reasonablebasedon the sizeof the transactionand
currentmarketconditions. Wachoviawill chargeadditionalspreadfor
credit andhedgingcosts. As a resultof negotiations,the total spread
Wachoviahascommittedto is 6.5basispoints.