You know those Libor interest rate swaps – much like those that Metro Sewer District in Louisville did? You know, the ones that are the main culprit in Detroit?
The largest part is $350 million owed for derivatives meant to lower borrowing costs on variable-rate debt.
Municipal borrowers from the Metropolitan Water District of Southern California to Harvard University in Cambridge, Massachusetts, have paid billions to banks to end interest-rate swaps that didn’t protect them. In the bets, a municipal issuer and another party exchange payments tied to interest-rate indexes.
Sounds like a lot of fun for cities like Louisville.