§ 15-5-317 - Power to enter into an interest rate exchange agreement or similar agreement or contract. - Arkansas Statutes

15-5-317. Power to enter into an interest rate exchange agreement or similar agreement or contract.

(a) In connection with bonds issued before, on, or after March 18, 2003, the Arkansas Development Finance Authority shall have the power to:

(1) (A) Enter into an interest rate exchange agreement or similar agreement or contract with any person on a competitive or negotiated basis under the terms and conditions as the authority shall determine.

(B) The terms and conditions of the agreements under subdivision (a)(1)(A) of this section in which the authority may enter shall include terms as to default or early termination and indemnification by the authority or any other party to the agreement for loss of benefits as a result of default or early termination;

(2) Procure insurance, letters of credit, or other credit enhancement with respect to an interest rate exchange agreement or similar agreement or contract;

(3) Provide security for the payment or performance of its obligations with respect to an interest rate exchange agreement or similar agreement or contract in accordance with existing state law governing security for its bonds; and

(4) Modify, amend, or replace an interest rate exchange agreement or similar agreement or contract.

(b) Any interest rate exchange agreement or similar agreement or contract entered into under this section is subject to the following limitations, and the authority shall not enter into an interest rate exchange agreement or similar agreement or contract unless:

(1) The counterparty to the agreement has obtained a credit rating from at least one (1) nationally recognized statistical rating agency that is at least equal to the lowest investment grade rating of any of the authority's bonds by the rating agency or the payment obligations of the counterparty are unconditionally guaranteed by an entity with the credit ratings stated in this section;

(2) The written contract evidencing the agreement provides that if the rating of the counterparty or of the guarantor of the counterparty falls below the rating level stated in subdivision (b)(1) of this section during the term of the agreement, the obligation of the counterparty or guarantor to pay the aggregate security value of the contract to the authority shall be collateralized by the counterparty's or guarantor's investment obligations to the extent required by the authority's guidelines adopted under this section; and

(3) The authority files in its records a finding by independent financial advisors to the authority that the terms and conditions of the interest rate exchange agreement or similar agreement or contract reflect a fair market value regardless of whether the agreement was solicited on a competitive or negotiated basis.

(c) Prior to authorizing the approval of any contract for an interest rate exchange agreement or a similar agreement, the authority shall adopt guidelines for the use of an interest rate exchange agreement or a similar agreement or contract that shall include the following:

(1) The methods by which those agreements are to be solicited and procured;

(2) The standards and procedures for counterparty selection;

(3) The aspects of risk exposure associated with those agreements;

(4) The types of agreements to be entered into;

(5) The collateralization requirements imposed upon a counterparty or guarantor in the event of a rating agency downgrade; and

(6) The long-term implications associated with entering into those agreements, such as:

(A) Costs of borrowing;

(B) Historical trends;

(C) Any potential impact on the future ability to redeem bonds, including opportunities to refund related debt obligations; or

(D) Any similar consideration.

(d) The authority may amend the guidelines for an interest rate exchange agreement or similar agreement or contract and shall make the guidelines available for public inspection at the offices of the authority.

(e) Pursuant to the authority's reporting requirement under 15-5-212, the authority shall disclose to the Governor and to the Legislative Council each interest rate exchange agreement or a similar agreement or contract to which the authority is a party.