A governmental entity may enter into and manage swap agreements, but only for permitted purposes. It must not deal in swap agreements as a business, and an unrated counterparty must collateralize its obligations if the rating condition is met.
35-1002 - Swap agreements; provisions; purposes; credit enhancement 35-1002 . Swap agreements; provisions; purposes; credit enhancement A. A governmental entity may enter into, modify, amend and terminate one or more swap agreements that it determines to be necessary or desirable in connection with, or incidental to, the conduct of its activities, including in connection with the issuance, carrying or securing of obligations or the acquisition or carrying of investments. A governmental entity may enter into swap agreements that are to be effective at a future date or that constitute an option to enter into swap agreements. Swap agreements entered into by a governmental entity shall contain such provisions, including payment, term, security, collateralization, termination penalty, default and remedy provisions, and shall be with such parties as the governmental entity determines to be necessary or desirable after due consideration to the creditworthiness of the parties. If the party to the swap agreement that is not the governmental entity is not rated by a nationally recognized rating agency in one of the top two rating categories of the rating agency at the time the swap agreement is entered into, the party shall collateralize its obligations under the swap agreement with securities or cash acceptable to the governmental entity. Swap agreements may be payable from revenues of a utility undertaking, excise taxes, ad valorem taxes, street and highway revenues, monies that may be pledged to pay debt service on any bonds or other long-term obligations relating to the swap agreements, or any other legally available monies, as determined by the governmental entity. B. A governmental entity shall not enter into a swap agreement other than to implement its investment policy or for the purpose of managing an interest rate, commodity price, investment or similar risk that arises in connection with, or incidental to, the activities of the governmental entity. A governmental entity shall not carry on a business of acting as a dealer in swap agreements. C. In connection with entering into any swap agreement a governmental entity may enter into agreements that enhance the governmental entity's credit in the swap agreement or enhance the liquidity of the swap agreement, including a line of credit, letter of credit, insurance policy or other security.