Fitch Assesses Interest Rate Swaps and Tax-Exempt Borrowers

Business Wire, Feb 5, 2003

Business Editors

NEW YORK--(BUSINESS WIRE)--Feb. 5, 2003

Fitch Ratings today published its guidelines for the analysis and assessment of variable rate debt and interest rate swaps and its impact on the credit of tax-exempt borrowers. Noting that the current trend of increased use of interest rate swaps has developed during a period of declining interest rates, Fitch expects the use of interest rate swaps and other interest rate hedging products, such as caps and collars, to continue even if the interest rate environment changes.

'Fitch Ratings recognizes that, when used in the context of comprehensive asset and liability management strategies, variable rate debt and interest rate hedges can enhance the finances of some tax-exempt borrowers,' said Katherine McManus, Managing Director, Fitch Ratings. 'However, when used without a coherent strategy or by borrowers with finances that are already vulnerable, variable rate debt and interest rate hedges can result in adverse credit consequences.'

In the new report, Fitch identifies the overall management framework as the most relevant indicator of the use of such financial products on the future credit impact. When borrowers use interest rate swaps to create or mitigate exposure to variable interest rates, Fitch will focus on the priority of swap payments, basis risk, termination provisions and counterparty credit risk.

'In addition to the management and structural elements, the borrower's disclosure policies regarding swap transactions will be a significant component in Fitch's analysis,' said Karl Pfeil, Senior Director, Fitch Ratings. 'Following debt issuance, Fitch and individual investors can judge the performance of innovative financing structures and their impact on credit only if borrowers disclose such information and other related material events.'

The new report 'Guidelines for Effective Uses of Swaps in Asset-Liability Management' can be found on the Fitch web site at 'www.fitchratings.com'.

Fitch will hold a related teleconference tomorrow, Thursday, Feb. 6 at 2:00 p.m. EST. Domestic participants should call 1-888-266-4139 and international participants should call 1-706-643-1860 five minutes prior to the 2:00 p.m. EST start time. In order to ensure there are sufficient telephone lines available, please use internal conferencing capabilities, if possible, for multiple listeners at a single location. A replay of the teleconference will be available until Tuesday, Feb. 11 at the close of the business day at 1-800-642-1687 (domestic) or 1-706-645-9291 (international). Please use the code '8048446' for the replay.

If you would like to participate, please e-mail pfconference.calls@fitchratings.com.