Ellington

A multi-year financial transaction will provide Hinds County a final payment of $1.52 million next month. The transaction, an interest-rate swap on two bond issues, has saved the county money on its bond debt.

A multi-year financial transaction will provide Hinds County a final payment of $1.52 million next month. The transaction, an interest-rate swap on two bond issues, has saved the county money on its bond debt.

Porter Bingham, CEO of Atlanta-based Malachi Group, which advised the county on the swap, told supervisors that the transaction has earned the county more than $6 million over almost five years on bonds totaling $47 million.

Based on a changing market, however, the county Board of Supervisors voted unanimously today to end the typically risky swap April 1, with an option to resume the transaction after four years.

In their most basic form, swaps exchange payments based on a variable interest rate--subject to fluctuations in the market--for ones based on a fixed rate. Parties benefit from the transaction based on whether interest rates rise or fall. Municipalities typically use interest-rate swaps to lower the cost of their bond debt, exchanging their interest-rate payments for payments by a "counter-party," usually an investment bank.

During the economic crisis of the past few years, interest-rate swaps have nearly bankrupted some municipalities, as interest rates plummeted.

Bingham said that the county's swap, which he classified a "basis swap," was tied to fixed rates, which lowered its risk. He also credited a protective "collar" on the swap (which supervisors reauthorized in October) with further insulating the county from losses

Also see: "Stopping the Swap"

"Our view has been very conservative from the beginning," Bingham said. "Of course people think in terms of swaps--it is a derivative transaction--they automatically think the worst. But there are varying degrees of how you can participate in these transactions, and we've always known that the county is very conservative fiscally and we wanted to respect that."

In October, the board gave Bingham advance permission to end the transaction if he found an opportunity to terminate it for $1 million or more in gains for the county.

The county's final payment from the transaction will be $1.7 million total; $180,000 of that will go to fees for Malachi and two law firms involved in the swap, Chambers and Gaylor, and Balch and Bingham.