CalSTRS Credit Enhancement Program 2013 Annual Report

CalSTRS Credit Enhancement Program 2013 Annual Report

Overview

Credit Enhancement Program Team: Margot Wirth, Director of Private Equity; Seth Hall, Portfolio Manager; Richard Rose, Portfolio Manager; Jean Kushida Uda, Investment Officer; Kathleen Williams, Investment Officer; John-Charles Gish, Investment Officer

General Information

Director’s Summary

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.

General Information

Program Background

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.

General Information

Program Management Philosophy

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.