Trib: Toxic Swaps to Cost Schools $126.5 million

[Sherman A1]

Fresh from the world of high-stakes trading, David Vitale arrived at Chicago Public Schools a decade ago with a plan to transform the way it borrowed money.

With the district thirsty for cheap cash, plain old municipal bonds weren't good enough anymore, and banks were standing by with attractive new options.

So Vitale, then chief administrative officer at CPS, and other officials pushed forward with an extraordinary gamble. From 2003 through 2007, the district issued $1 billion worth of auction-rate securities, nearly all of it paired with complex derivative contracts called interest-rate swaps, in a bid to lower borrowing costs.

No other school district in the country came close to CPS in relying so heavily on this exotic financial product. In fact, market data show the district issued more auction-rate bonds than most cities, more than the state of California.


http://www.ctunet.com/blog/tribune-toxic-swaps-cost-schools-126-5-million