Given the current credit environment, many issuers will be deciding whether or not to refinance variable or auction rate programs into fixed rate bonds. Should an issuer decide to refinance, the implicit choice is that over the long term, the overall cost of the fixed rate program will be lower than the ongoing costs and risks associated with the variable rate (or synthetic fixed) financing. This workbook provides a breakeven analysis of this decision using a simple interest rate model, swap terms (if applicable), and current fixed rate bond yields.
This workbook is a companion to the Intuitive Analytics white paper, "The Time Has Come: Interest Rate Modeling for Liability Cash Flow Analysis". It provides the calculations for 200 trials of a simple interest rate model with mean reverting drift and lognormal, Black-Scholes-Merton style volatility parameter.
Debt service charts in public finance are as ubiquitous as business cards at a shortlist presentation and date back to before Lotus 123 offered WYSIWYG. Unfortunately, they usually don’t look much different despite just a few improvements in technology over the last 20+ years. But what can you do to make a principal and interest graph sizzle? Download the companion work book to our articles on 4 Ways to Make Killer Public Finance Debt Service Charts.