Comprehensive Annual Financial Report FY 2016

Termination Risk The derivative contract uses the International Swap Dealers Association Master Agreement, which includes standard termination events, such as failure to pay and bankruptcy. The City will have the right to terminate the swap at any time over the life of the swap at the current market value on short-term notice. The respective Schedule to the respective Master Agreement includes an “additional termination event.” That is, the swap may be terminated by the counterparty if the outstanding debt of the City, secured by its faith, credit and taxing power, ceases to be rated at least A3 by Moody’s or any successor thereto, A- by S&P or any successor thereto, or A- by Fitch, or any successor thereto or shall fail to be rated by at least one of Moody’s, S&P, and Fitch. The City or the counterparty may terminate the swap if the other party fails to perform under the terms of the contract. If the swap is terminated, the variable-rate bonds would no longer carry a synthetic interest rate. Termination will result in the City either making or receiving a termination payment based upon the market value on the date of termination. Market Access Risk/Roll Over Risk The City’s swap is for the term (maturity) of the bonds and therefore there is no market-access risk or rollover risk. Method of Evaluating Hedge Effectiveness The City evaluated its derivative instrument by using the synthetic instrument quantitative method and deemed the instrument to be an effective hedge as of June 30, 2016. B. Long-Term Notes Receivable The City entered into an agreement with Duke Power Company, effective July 1, 1991, which authorized the discontinuance of transit services provided by Duke Transit in Greensboro, pursuant to a franchise agreement scheduled to expire on July 1, 2028. In exchange, the City is to receive $55,500,000 in 37 equal annual installments of $1,500,000 from Duke Power Company with the first installment on July 1, 1991 and the final installment on July 1, 2027, to assist in financing operations of the GTA. The annual payment is secured by a First and Refunding Mortgage Bond issued by Duke Power Company to the City. The present value of the note receivable as of June 30, 2016 is $10,768,196. Interest income of $6,268,050 will be recognized by the effective yield method over the remaining 11-year term of the note, based on an imputed interest rate of 8.95%. Terms of certain of the notes receivable of the Redevelopment Commission are such that principal and interest may be forgiven upon meeting certain conditions. In addition, corresponding revenue was not recognized at the government-wide financial statement level because the loans were not considered substantially collectible.

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