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****PRELIMINARY AND TENTATIVE FINDINGS**** <br />Recommendation: The FMPA should refrain from employing interest rate swaps in the future without <br />concurrently issuing debt to bring its interest rate hedging practices more in line with industry standard risk <br />tolerance. Further, such activities should not be undertaken before required approvals for projects are <br />obtained from regulatory bodies. In addition, the Executive Committee should consider, without regard to <br />prior unrealized losses incurred, developing and executing an exit strategy for the Taylor swaps that <br />removes the ongoing risk to the ARP members. <br />Investments <br />Finding No. 4: Investment Policy <br />The FMPA reported investments with a fair value of approximately $587 million at September 30, 2014. The FMPA <br />promulgated a comprehensive investment policy to establish requirements for investment of idle funds, which <br />includes the required elements specified in Section 218.415, Florida Statutes. However, some elements of the <br />investment plan could be enhanced as described below: <br />Credit Ratings. Appendix A of the investment policy provides that credit risk shall be mitigated by establishing <br />minimum credit ratings for securities purchased by the FMPA and requires that securities be rated in either of the two <br />highest credit rating categories, depending upon security type. However, the policy does not define "two highest <br />credit ratings," which could be interpreted two ways. As shown in Table 10, based on ratings used by Moody's <br />Investors Service (Moody's), Standard & Poor's (S&P), and Fitch, the two highest ratings are AAA and AA+ for both <br />S&P and Fitch and Aaa and Aal for Moody's. However, while the highest ratings description for "prime" <br />investments includes only AAA investments for S&P and Fitch and Aaa investments for Moody's, the next highest <br />description of "high grade" investments includes securities rated AA+, AA, and AA- for S&P and Fitch and Aa1, <br />Aa2, and Aa3 from Moody's. <br />Table 10 <br />Moody's Ratings <br />S & P Ratings <br />Fitch Ratings <br />Rating Description <br />Aaa <br />AAA <br />AAA <br />Prime <br />Aal <br />AA+ <br />AA+ <br />High Grade <br />Aa2 <br />AA <br />AA <br />Aa3 <br />AA- <br />AA - <br />Source: Rating agencies <br />Consequently, the policy could be interpreted as allowing only the top two highest ratings of AAA and AA+ for S&P <br />and Fitch and Aaa and Aal for Moody's, or it could be interpreted as allowing any investments within the prime and <br />high grade descriptions, which would include any securities rated at or above AA- for S&P and Fitch and at or above <br />Aa3 for Moody's. <br />Based on a September 30, 2014, monthly Treasury investment compliance report prepared by FN1PA personnel, <br />securities rated AA by S&P and Fitch and securities rated Aa2 by Moody's were listed as exceptions, which implies <br />that FMPA personnel interpret the investment policy to only allow investments in bonds rated AA+ or higher for <br />S&P and Fitch securities and Aal or higher for Moody's rated securities. In contrast, an e-mail from the FMPA's <br />Treasurer to us indicated that the policy is interpreted to allow any investments rated as prime or high grade. The <br />September 30, 2014, report indicates that FMPA investments included bonds with a face value of $6 million that were <br />13 <br />15 <br />