Mayor Stewart Acts To Save City $1 Million In $58 Million Swap

October 27, 2005

Acting on market conditions last seen in May of 2002, New Britain Mayor Timothy Stewart committed the City to enter into an agreement to sell an option to the Bank of Montreal for a fixed-to-floating interest rate swap on $58 million of the City's outstanding bonds sold to finance the fire and police department pension funds.

The contract gives the Bank the option to exchange interest rate payments in three years on $58 million of the City's taxable fixed-rate pension bonds. In return, the City will receive an upfront payment of $1 million.

Commenting on the so-called "Swaption" Mayor Stewart said today, "I am very pleased to inform the taxpayers of New Britain that by entering into this agreement with the Bank of Montreal, we have realized a $1 million windfall. By taking this timely action, we are once again, reducing costs of running our City government and saving the taxpayers real dollars."

Mayor Stewart indicated that he had originally proposed this transaction to the Common Council in his fiscal 2006 budget recommendations. This "Swaption" is the second such agreement the City has entered into, the first being made in April 2003 with the French Bank, Societe Generale.

The City and its swap advisor, William Blair & Company, had been monitoring the market since May 2005 for market conditions that would facilitate both the targeted fixed rate the City will receive as well as the upfront payment. "I believe that by taking this timely action, my administration has acted in the best interests of the taxpayers of New Britain. It demonstrates my deep commitment to managing the City's finances in a frugal and effective manner and, in the long run, will lead to potential property tax reductions in the future," Mayor Stewart concluded.