Case Study

Energy Northwest

Intra-day Trading
In 1993 Energy Northwest executed a $1 billion refunding through the issuance of its 1993C revenue refunding bonds. The refunding had over 30% present value savings despite having nearly $13 million of negative arbitrage in the refunding defeasance escrows. PFM devised a trading strategy to recapture these lost earnings that has produced in the aggregate $12 million. The strategy was based on a series of three different mechanisms of trading back and forth between open market securities and SLGS.

Call Value Analysis
Energy Northwest executed 14 refunding transactions since 1990 which exceeds in the aggregate $9 billion. In each sale Energy Northwest was confronted with an underwriter offering multiple coupons and multiple call features all priced at different yields.

The question was: Which options presented the best choice to Energy Northwest?

To answer this perennial question, PFM developed an analytical model to measure the optionality embedded in different call features at different coupon rates to determine the lowest effective yield for each bond offered.