equivalent to 2.0 percent and the 6 month i think was approximately .28%. if you're talking about shift and manipulation in this current environment it doesn't demonstrate to be that much higher. so if it you're looking at that as a back of the envelope calculation what is being proposed here as estimated impact seems more realistic. but i have heard the range as high in some instances or lower. >> supervisor avalos: thank you. >> uh-huh. this next slide demonstrates the analysis of the financial impact as relates to libor manipulation requires an analysis of the debt side and the investment side of the city's operation. as you can see on the debt side, which showed you the fixed rate and the variable rate.

on the fixed rate, libor manipulation was not impacted. we have listed all the city agencies that have a debt portfolio, including the city's general fund, the airport, the public utilities commission, the port of san francisco, and the san francisco municipal transportation authority. we haven't reached out to include external agencies, but we know that the city college as well as the san francisco unified school district has debt portfolio and would fall under this category and would not be impacted. on the variable side of the house, the department is issuing variable rate indebtedness index to libor may have been impacted. in terms of the airport, if it is backed by -- or index to libor they could have exposure and kevin cohen will speak specifically to the airport's

portfolio as relates to that. in terms of the city we have variable rate debt in our portfolio that is not -- is unhedged and it doesn't have a swap. it is approximately $129 million or 5% of the city's 2.9 billion in debt outstanding. and so for purposes of this illustration we haven't included commercial paper program, even though they're considered variable but we don't feel they're impacted and would make this slide more complicated. and then if you move on to the next side which is the investment side, there's the treasury component, which has the treasury -- and we have -- from the treasurer's office will speak to that as well. and then we have the retirement fund which has employees retirement system fund trust, who jay is here also, who can speak to that. with that, i can turn it over to kevin cohen from the san francisco international is airport to given more details on

their portfolio. >> supervisor avalos: thank you for your work on this presentation. you mentioned briefly the city -- add the school district that they don't have investments who have been affected by libor, is that what you said? >> yes. in terms of the debt the 30r8 -- so they wouldn't have been affected but because they're -- all the different entities are they could potentially be impact but on the debt side of the house, no. >> supervisor avalos: very good. thank you. >> thank you. >> good afternoon, chair farrell, members of the committee, kevin cohen, assistant deputy director near capital finance at san francisco international airport. before we move into the airport portion of the presentation i wanted to take a couple of minutes to kind of give you some background on the airport's debt portfolio. the airport currently has 4.3 billion in outstanding debt of

what we call airport revenue bonds where the principle and interest is solely paid by the users of the airport. it does not receive any support from the taxpayers of san francisco. in fact, last year, the airport contributed 15% of our concession revenue to the general fund, which was 34 million. that figure has since doubled over the last 10 years to this figure today. the airport currently held a credit rating of a plus from the three credit rating agencies. in general airports require a lot of capital. we want to ensure the traveling public has a safe, comfortable and inviting facility to travel through on a daily basis. in the upcoming slides i hope you will see the use of financial instruments has allowed sfo to be one of the most competitive airports in the united states with 12 years of growth over the past 12 years, even through the the most recent

financial recession. next slide please. so the airport uses interest rate -- manages interest rate risks with the use of swaps but let me give you context as to why the airport is using those mechanisms. in the early 2000 we know living in the bay area that we went through the dotcom bust, 9/11. the airport opened a new international terminal and facility supporting the new international terminal. the traffic in the bay area for air travel dropped off 25%. so we quickly moved to introduce variable rate debt to our portfolio to better align the debt portfolio with the traffic in the bay area. by doing so what we did was we converted what was then a 100% fixed rate debt portfolio. we then moved 20% of that fixed

debt portfolio into variable rate. by doing so it saved the airport about $30 million a year. and by doing that, it relieved the finances and made again put the finances more in line with the traffic that was traveling through the airport. so in doing so what we did is when we entered into the variable rate we then hedged the variable interest rates with interest rate swapped tied to libor. at that time back in 2007 we entered into approximately $790 million worth of interest rate swaps that again hedged potential rising interest rates over the next 30 years. as -- >> supervisor avalos: can you explain how swap works for those hearing for the first time. >> sure. for example a variable rate bond may reset at 1%, and next week it may reset at 1 1/2%. if you put in an interest rate swap, it will lock it at for example 3%.

so even though rates are going up, the airport would never be at risk to pay more than 3% with the interest rate swap. if you didn't have the swap there, and interest rates went from 1% let's say dramatically went to 5%, the airport would have to quickly come up with that difference. and through the city budgeting process, it's not always easy to get a quick appropriation to take care of that spike in interest rates. so, again, the interest rate swap helps level out and provides an insurance policy that the airport won't have to worry about going above that 3% rate. does that help? okay. so as time went on, in 2010, long-term interest rates stabilized a little bit so we began to move variable rates back in the fixed rates and reduced the airport swap portfolio from $790 million to $580 million and did that again in 2010. we had an opportunity to convert

more variable rate back to fixed rate because long-term fixed rates were dropping and we then converted those variable rate bonds and terminated the appropriate swap. today we're down to $483 million in swaps. so how does it work? the impact of libor is if it is artificially set high then the airport receives more from the interest rate swaps or payments. if libor is artificially low then the airport receives less from the swaps which is one of the concerns with the libor manipulation. in terption of the order of magnitude we haven't done a order of magnitude of how we were affected but back in 2010 we tried to roughly estimate if libor were manipulated 10 basis points for one year, the airport would have paid $371,000 more than it should have. and through a sensitivity analysis we also did that for 20

basis points. the airport would have paid $723,000 a year and for 30 basis points it would be $1.1 million a year. in the prior slide between 2007 and 2012, you could make some assumptions of what do we think the timeframe was in that zone that we would multiply those numbers by. but we have not done an exact calculation because we don't know exactly what timeframe our swaps were moving up and down. there could have been some times where the the interest rates were being manipulated on the low side and there could have been some times that the interest rates could have been manipulated on the high side, and at the same time those could have canceled. so that has not been discussed. >> supervisor avalos: is there anything that can be discerned looking forward? >> we would -- it would take more research to try and figure that out. >> supervisor avalos: is there an intent to do that?

>> we haven't made any -- look into that since 2010 when this first came about. >> supervisor avalos: and why not. >> -- but certainly talk about it. >> supervisor avalos: and why not? is there -- was there discussion about wanting to do that, and the decision made not to? or it just hasn't been a decision about whether to look at that or not? >> i don't think anybody knows the methodology to actually do it, to actually look at the libor reset every day, to then determine which of the 18 banks did the manipulation, to then determine how that manipulation would affect the libor rate for the airport. our libor is affected on a rate called a one month libor. so this is happening every day and you have to calculate into the one month libor and it would entail a lot of research and we don't know the methodology but it's something we could consult our financial advisers on.

so on to the next slide. so as i said, the interest rate swaps have -- was a hedge for the airport. and in fact it actually saved the airport a significant amounts of money. to answer your question that you posed earlier, if you look at the bar chart on the slide we show that variable rate demand bonds with swaps incurs a hedged interest rate of 3.69%. if we had otherwise sold those as fixed rate bonds which is the bar chart on the right the average for fix rate bond was 4%. so the difference between the two numbers is what the airport has saved since the implementation of swaps. in fact, since we implemented swap to date the airport has saved $100 million by using these financial instruments. and we expect to save at least another $100 million using this financial instrument out to the termination of the swap which is

in about 2029. so they've been a very effective tool. they've been functioning as planned and designed and we are happy to have them in place. >> supervisor avalos: these rates that you have for the fixed rates, at 4.09% is that the current rate? >> that's actually an average of long-term fixed rates kind of across the board. that's what the municipal finance people use as benchmarks to understand how you're performing against how others are performing. >> supervisor avalos: and this 3.6% is that what the maximum could be for variable rate? is that -- >> correct. >> supervisor avalos: do you know where we're at in terms of where we're at on the average? >> that is the actual rate of all of our swaps blended together. we will never go above that rate. even if interest rates raised to 6% the airport will never pay more than 3.69. so it's a very good tool. >> supervisor avalos: how does this compare to other swraps that -- >> well, it depends on when

different entities enter into swaps. the the market is always changing. in general we're very pleased with these interest rates that we locked into because when we entered into these interest rates, you know, back in 2007, long-term fixed rates were actually much higher then, they were in the 5 to 6% range so the fact that we could lock in at 3.5 or 3.6 we were very pleased to do that. you could probably, in today's market, probably couldn't get this kind of rate today. so we feel we've done well. again, we've saved $100 million to date and there's a lot of savings coming in the future with the use of these tools. >> supervisor avalos: do you think this might be a question for the city attorney but do you think because there has been manipulation of the market that we would have some leverage to be able to renegotiate our interest rates for swaps? >> well, like most agreements,

these agreements are long-term. and when we entered into these agreements, they were for 30 years. there's really no -- in terms of today, there's no legal reason -- we don't have any legal leverage to actually renegotiate these rates. the only way that would happen is that if these swap providers actually got a credit downgrade. we would have the ability to terminate the swap in our favor. but in terms of negotiating a lower rate than the 3.69, i hadn't heard -- i haven't heard a swap being negotiated free willing today. >> supervisor avalos: who are the major swap providers? >> j.p. bore gan, bair sterns which merged with j.p. morgan. i have it all here. so our swap providers are j.p. morgan, merrill, and goldman.

>> supervisor avalos: how many of those were part of libor manipulation? >> if i were the chart it was j.p. morgan, just one. >> supervisor avalos: do you know how our airport swaps differ from the h&r museum swaps? >> i don't know the nature of the asian museum swap. that's all the information i have. thank you. >> good afternoon. jay hugy from the san francisco retirement system. retirement system staff and our consultants have been evaluating the potential libor related losses in the portfolio since the city of bawlt more filed its suit in the summer of 2012. we initiated this investigation or the evaluation pursuant to the retirement board's securities litigation policy

which it adopted in 2005, and is an ongoing policy where we have consultants and staff routinely monitor securities litigation related to any potential holdings that we would have in the trust. the scope of our evaluation included all of our assets, all of our holdings that would have any kind of index to libor including but not limited to investment rate swaps. for the time period august 2007 through february 2009 and this was the time period that was put forth in the city o baltimore lawsuit. we had exposure. the trust had exposure in its real estate portfolio as well as in its fixed income portfolio. generally speaking we would benefit from artificially low

libor rates in our real estate portfolio and be disadvantaged with artificially low libor rates in our income portfolio. the result of our evaluation is that we -- during the period had interest rate swaps in place. currently we have no interest rate swaps in our portfolio. the scope of our interest rate swaps were as high as 41 million, as low as 3 million and now we currently have no interest rate swaps in our portfolio. what we've estimated its for every 10 basis points based on our overall holdings if there is settlement we might be required to pay back some of the excess interest -- or pay back the benefit that we got, as well as collect our losses. but what we have determined from our analysis is, from a thet

standpoint, for every 10 basis points we assume potentially 200,000 worth of losses, net losses to the fund, during this period of time. and i'd be happy to answer any questions that you might have. >> supervisor avalos: just wondering how you went about estimating the timeframe for the libor manipulation and what the magnitude is, like what is the process? >> since it was city of baltimore litigation that triggered our evaluation, it was set in the city of baltimore which was august, 2007, through february 2009. we looked at it again in relation to the city of san mateo county and san diego county filing and extending that period in early 2011, and our analysis based on net positions in our real estate and fixed income really was not significantly different for that extended period. >> supervisor avalos: so do you think it's possible for the

city, and this can be a city attorney question, to pursue losses that we've had regardless of what any gains we may have had in -- due to libor manipulation? >> i would suggest that it's the retirement board's determination pursue. they feel very strongly we should pursue any losses that would accrue to the detriment of the plan÷hñ?ñ?ñ?ñ beneficiaries. like i said, through thercñ?ñ? n brothers settlement, we were in fact required to pay money back that, because of mñ?ñ?ñ? the manipulation, we were not entitled to.veñ?ñ?ñ?ñ? and in exchange, we received money wherenlñ?ñ?ñ?ñ we lost. so i'm not saying or suggesting? that this would necessarily be the the case, but weliñ?ñ?ñ?ñ? e that circumstance under which the retirement system,ñ?ñ?ñ?ñ hg holdings on both sides, which would have benefitedñ?ñ?ñ? or bn disadvantaged, were required to -- on]jñ?ñ?ñ? the settlement,

pay both sides. >> supervisor avalos: does the pursue recovery of losses? >> we are confident -- and part of our evaluation is all of the holdings that we had during this period, from 2007 through 2011 are covered in the class of securities that are the subject of all the litigation and we know, and we have in the past, and we reteenly participate as a member of the class to recover our claims. so the retirement board has shown no interest in initiating a lawsuit, per say, as a retirement board, knowing that we will be able to participate to our full extent of our holdings, again any kind of recovery and claims recovery. >> supervisor avalos: thank you. >> thank you. >> good afternoon, supervisors. gregg coto from the san francisco treasurer's office. i'm here to talk about the city

and county of san francisco treasurer's pool fund portfolio and to give you context over the period of time from 2007 up 'til present, the actual size of the portfolio has ranged from $3 billion to $6 billion. during the time that we've been talking about with the manipulation from it 2007 through 2011, the treasurer's pool fund did have investments in securities that had interest rates that were based on the libor rate and that was roughly about 5% of our portfolio. and none of these investments experienced any principle losses. our analysis does show that due to an active trading strategy our portfolio yield and our earnings were not materially or significantly impacted by the libor manipulation. >> supervisor avalos: what does that mean in terms of dollars, not materially

impacted? >> less than three basis points. less than 3/100 of 1% and we're making over 1% on our portfolio this year. >> supervisor avalos: what would that be in dollars. >> the three basis points i referred to would be under 1 million dollars at the most. >> supervisor avalos: okay. we have investments in commercial paper linked to libor to the treasurer's office? >> that's -- we were -- those libor based investments were the ones i was discussing. i don't believe they're commercial paper. we don't hold very much commercial paper at all. >> supervisor avalos: in terms of what your review has been, what you looked at, your research, is it possible to share that publicly or is that something that's closed? is it possible to share the copies of documents that you reviewed for looking into the

extent and magnitude of the scandal, and its impact on san francisco? is that something that's available to the public? >> i can certainly see -- i mean we didn't necessarily have documents. we looked at what our positions were. one of the things about this, why we weren't impacted is we are not an issuer like the airport or the office of finance. so what we do is buy the securities that might be based on this interest rate. so because we're active traders, if the interest rate was high, we traded on that. if the interest rate was low, we traded on that because we went into the market every day and picked the best investment for the city. so that's why -- i can certainly provide you what information we have. but what we just did was look back at that period and saw what that impact might have been. >> supervisor avalos: okay. we could follow up on that if the future if we need to. thank you.

>> good afternoon, supervisors. deputy city attorney tom lock rits. as the three departments have talked about, we've been looking at the potential impact of the libor manipulation on the city finances. we've been monitoring the ongoing litigation, and trying to work with the departments and determine what is the best avenue for the city to pursue. and we haven't made that decision yet. and i think that supervisor avalos had a few questions for the city attorney's office along the way. i've remembered a few of them but not all of them. i'm not aware of any settlements

where any investors have obtained any funds or recovered any funds. the settlement with the department of justice, with bar clay was with the criminal division of the department of justice. i don't -- it's been a while since i looked at the document. i don't recall whether there were convictions. but it was a settlement. and i apologize. i forgot the other questions but i'm happy to answer them. >> supervisor avalos: let me add a couple other questions. what's the city's position right now on joining any class action lawsuits? >> well, as you mentioned, at the opening, there was a significant data point in the litigation on friday, which was a dismissal of a number of the

claims that were brought. >> supervisor avalos: the city of baltimore? >> the city of baltimore and other claims as well, that were consolidated into the same court. >> supervisor avalos: i think what was thrown out was a portion of the claims that were about that there was -- the antitrust claims that were brought forward, and the judge had said that she did not believe that there was an effort to limit -- eliminate competition. and do you feel that her opinion is a strong one, that would hold up if there was any kind of an appeal? were you able to review her opinion? >> i have not -- i have it here -- >> supervisor avalos: 165 pages. >> i got it on monday and i was out of the office yesterday. so i haven't fully digested it yet. that's one of the data points

that we're looking at. we're also looking at the suit that you mentioned that was filed by the counties of san mateo and san diego. so we're trying to decide -- there are a number of avenues that the city could pursue, to seek restitution, or recovery of any losses. >> supervisor avalos: and then i'm trying to understand if we have a statute of limitations under federal security clause, or like a five year statute of limitation? >> it depends on the type of claim. and that was one of the significant issues that was addressed in the court's opinion on friday, as what is the applicable statute of limitations, and when did the plaintiff have notice, and so that is also something that we are taking a look at. >> supervisor avalos: so i

guess i have a concern that if, as a city, we take a wait and see approach, as we're seeing the statute of limitations, you know, the beginning of the manipulation, we see in the distance, does that limit our ability to recover from the earliest points of manipulation? if we wait and see, and there's time passes, and we see the beginning of the manipulation we won't be able to recover any losses if it happened earlier. >> it depends on the financial instruments that we're talking about and whether or not they are covered by an existing class suit. >> supervisor avalos: and so could you say how that might vary from financial instrument to financial instrument? >> i would have to be -- i would have to go back to the client and figure out which instruments we're talking about exactly and figure out what the overlay is

with the existing litigation. >> supervisor avalos: so do you know when you'll -- are you planning on looking into the baltimore case and the dismissal of the antitrust aspect of the claims? >> yes. >> supervisor avalos: is that something we can talk about off line, talk about it off line in the future? >> sure. i'm happy to report back where we are with the analysis of that decision, and how that case is going to move forward. >> supervisor avalos: okay. >> anything else? >> supervisor avalos: thank you. no questions from the committee. so thank you. are there other presenters that are part of the city presentation? okay. i want to thank the city staff for presenting their work on their research and