Page 92 - 2018 Comprehensive Annual Financial Report - City of Winston-Salem

As of June 30, 2018, rates were as follows:

Series 2015
A-2, B-2 and
Terms C-2 Rates
Fixed payment to Citigroup, Inc. Fixed 2.960%
Variable payment from Citigroup, Inc. provided the Bond Rate has not exceeded 69% of
the average monthly USD-LIBOR-BBA for a period of more than the next preceding
180 days. Bond Rate N/A
Variable payment from Citigroup, Inc. provided the Bond Rate limited to 69% of the Limited to
average monthly USD-LIBOR-BBA provided the Bond Rate has exceeded the LIBOR 69% of Average
percentage for a period of more than the next preceding 180 days. Monthly LIBOR -1.208%
Net interest rate swap payment 1.752%
Actual variable Bond Rate Bond Rate 2.021%
Synthetic fixed interest rate on Series C Bonds 3.773%
The Bond Buyer Revenue Bond Index on 12/4/2002 5.240%

As of June 30, 2018, the agreement had a negative fair value of $2,924,807. The fair value was developed by Citigroup, Inc.
using the zero coupon method. This method calculates the future net settlement payments required by the agreement
assuming that the current forward rates implied by the yield curve correctly anticipate future spot interest rates. These
payments are then discounted using the spot rates implied by the current yield curve for hypothetical zero-coupon
bonds due on the date of each future net settlement on the swap. The swap agreement is cancelable at par at the option
of Citigroup, Inc. on any date on or after July 1, 2011, upon 30-days irrevocable notice delivered to the City. Upon exercise
of the cancellation option, neither party shall have any further payment obligations. The City may terminate the swap with
30 days written notice to Citigroup, Inc. Should the City exercise its option to cancel the swap, the City shall have su cient
funds to pay any Settlement amount. The fair value of this interest rate swap is categorized as a Level 2 of the fair value
hierarchy. (Level 2 – Inputs to the valuation methodology are other than quoted prices available in active markets, which
are either directly or indirectly observable as of the reporting date, and fair value can be determined through the use of
models or other valuation methodologies.)
As of June 30, 2018, the City was not exposed to credit risk because the swap had a negative fair value. However, should
interest rates change and the fair value of the swap becomes positive, the City would be exposed to credit risk in the
amount of the derivative’s positive fair value. Citigroup Global Markets Holdings, Inc. has executed and delivered a
Guarantor Agreement to the City, which “absolutely” and “unconditionally” guarantees the payment to the City of any
obligation of its wholly owned subsidiary, Citigroup, Inc. At June 30, 2018, Citigroup Global Markets Holdings, Inc. was
rated “Baa1” by Moody’s Investors Service, “BBB+” by Standard & Poor’s Ratings Services, and “A” by Fitch Ratings.
The derivative contract uses the International Swap Dealers Association Master Agreement, which includes standard
termination events, such as failure to pay and bankruptcy. Termination could result in the City being required to make or
being entitled to receive an unanticipated termination payment based upon the market value on the date of termination.

86 2018 AN NUAL R E P O R T