WEST SACRAMENTO, Calif. (April 15, 2019) – California State Teachers’ Retirement System announced that trustee Sharon Hendricks was elected to the PRI Association Board. As an independent organization, PRI encourages investors to use responsible investment to enhance returns and better manage risks.
The Credit Enhancement Program commenced in 1994 with the purpose of generating additional fee income for CalSTRS by underwriting credit instruments (e.g., letters of credit, lines of credit) on variable rate municipal debt. Over this timeframe, the availability of credit in the capital markets and the banking system has fluctuated.
The CalSTRS Credit Enhancement Program is an off-balance sheet component of CalSTRS Investments. The CEP conducts its business in the short-term, variable rate municipal bond market. The primary objective of the program is to earn fee income through the enhancement of high quality municipal financings, such as tax-exempt bonds, industrial development bonds, tax and revenue anticipation notes, and commercial paper.
The Credit Enhancement Program management philosophy is to credit enhance investment grade transactions with an expected underwriting objective of zero losses. The CEP mitigates underwriting risk by carefully analyzing potential investments and by partnering with another financial institution. CalSTRS conducts its own due diligence, including a thorough credit analysis of the obligor, and presents its findings to an investment review committee. Credit approval by CalSTRS’ partner as well as by the CEP’s investment review committee is required before a transaction is underwritten.
Over its 20-year history, the Credit Enhancement Program has earned $101.3 million for the Fund. At calendar year-end 2013, CEP commitments totaled $1.2 billion, a decline of approximately 28 percent from the previous year, and the annual net fee income was $10.5 million, approximately a 15 percent decrease over the 2012 level.
