Swap Advisory

Lamont Investment Advisers Corporation (“LIA”) was established in 2007 as a registered investment advisor under the laws of the State of New Jersey to serve clients requiring advice on investments and interest rate derivatives. 

LIA is a leading swap advisory firm, having negotiated or bid competitively over $6 billion of interest rate swaps and swaptions on behalf of its clients, and served as a co-advisor/bidding agent for an additional $3 billion. Presently, LIA has served as swap advisor to a number of large municipal issuers including the State of Connecticut, the State of New Jersey, the Massachusetts Turnpike Authority, MBTA, the Massachusetts Water Resources Authority, Maine State Housing Authority, and the Connecticut Housing Finance Authority.  LIA has assisted issuers in the fields of transportation and housing in execution of swaps, and works with a variety of issuers who are considering swap options and forward refunding agreements.

Our general view is that derivative products should only be used to save money, hedge interest rate risk, and to capitalize on certain inefficiencies/opportunities between the taxable and tax-exempt markets. The advisability of such products should be based upon various additional considerations, such as duration matching, asset/liability management, redistribution of risk to other parties, and the availability of sufficient management and administrative support. Because LIA can provide its clients with the necessary independent analysis to make informed decisions on complex derivative transactions, they can consider more  efficient financing structures, without relying on investment banks or swap counterparties for analysis.  LIA prepares reports for various audiences, including legislative committees and Authority boards, outlining their derivative alternatives and the associated risks.

LIA has considerable experience in the use of interest rate swaps to convert variable rate obligations to synthetic fixed rate debt, to provide a minimum rate of return on short term investments, as well as the use of forward investment contracts for escrows, debt service funds, and reserve funds. LIA has also provided evaluations to our clients on the proposed use of interest rate caps and floors, various inverse floater products, and Dutch auction floating rate securities. While some of these products have proven useful to certain issuers, we generally recommend them only if their pricing delivers substantial net benefits, including offsetting the cost of documentation and administration.

LIA has provided significant analysis of opportunities for governmental issuers of tax-exempt bonds to use forward swaps as a means of currently locking in refunding savings for bonds that are not refundable for several years into the future. Our general advisory duties in connection with such swap transactions include the preparation of the swap documents and term sheet(s) for negotiated or competitive procurement.

Swaps and swaptions can be effectively incorporated to achieve specific goals, including refunding debt in low market rate environments; lowering borrowing costs; creating synthetic fixed rate debt on existing variable rate bonds; generating additional portfolio value, and improving the overall yield on an investment portfolio. In pursuit of such goals, we advise our clients to evaluate the amount of basis risk inherent in interest rate swaps and determine the most appropriate plan to manage that risk.  As part of LIA's analysis in connection with entering into swaps, we use existing floating rate data to construct a LIBOR-based floating rate index that will best match the expected performance of the floating rate bonds.  We can further adjust the index for anticipated changes in tax rates and imbed cancellation options in the swaps.