2006 CSMFO Conference Having the Right Finance Team

2006 CSMFO Conference “Having the Right Finance Team for Bond Sales” 1

Speaker Panel o Moderator – Jerry Rogers, City of Riverside o Issuer – Dennis Coleman, City of Solana Beach o Underwriter – Janees Williams, Kinsell, Newcomb & De Dios Inc. o Financial Advisor – Jim Fabian, Fieldman, Rolapp & Associates o Trustee/Fiscal Agent – Carl Boyd, Union Bank of California 2

Bond Issuer Dennis Coleman City of Solana Beach, Finance Director 3

The Players o Issuer n n n o Bond Counsel n n o Hires the team Approves financing Provides financing objectives Issues opinion as to validity and exemption Drafts basic legal documents (e. g. Trust Indenture) and Resolutions Disclosure Counsel n Drafts Offering Document (Preliminary Official Statement – POS) (Official Statement – OS) 4

The Players (cont. ) o Underwriter n n o Financial Advisor n n o Advises on suitability of financial plan, pricing, terms and structure Role will vary, depending upon whether debt offered at public sale, negotiated sale or private placement Trustee/Fiscal Agent n o Provides access to capital markets by purchasing bonds at wholesale and selling bonds at retail Role will vary, depending upon whether debt offered at public sale, negotiated sale or private placement Administers bond proceeds, pays debt service to bondholders, invest bond proceeds Dissemination Agent n Disseminates annually continuing disclosure information 5

The Issuer o Adopts Policy guidelines for the issuance of shortterm and long-term debt. o Determine appropriate process for selecting Finance team members. o Provide Finance Team with objective to be accomplished by the issuance of debt. o Approve all legal and financing documents required to issue short-term or long-term debt 6

Bond Counsel o o Advise the Issuer on appropriate legal structures for the bond issue. Draft the bond documents in accordance with State law and to meet the financing goals of the Issuer. Review proposed use of bond proceeds and advise on any Federal tax issues or state law limitations. Deliver a legal opinion at bond closing that the bonds are legally and validly issued and that interest on the bonds is exempt under Federal and California tax law. 7

Disclosure Counsel o o Prepares Preliminary Official Statement and Final Official Statement to be used to market the Bonds by the Underwriter. Provides required Legal Opinion (10 b-5) for the Official Statement Prepares Continuing Disclosure Agreement specifying the information the Issuer will be required to annually disseminate to the Bond Market. Prepares Bond Purchase Agreement specifying the terms and conditions that the Underwriter agrees to purchase the Bonds from the Issuer and to re-sell them to investors. 8

Underwriting Services Janees Williams, Vice President Kinsell, Newcomb & De Dios Inc. Investment Banking, Advisory and Underwriting Services to municipalities, school districts and governmental entities. 9

Underwriter o The Underwriter is the “Quarterback” for the Financing n n o Coordinate Financing Team and Schedule Finance Structure n n n Bond Characteristics Credit Rating / Credit Enhancement Marketing, Sale of Bonds, and Closing 10

Bond Characteristics o Serial versus Term Bonds n o Par, premium or discount bond n o n Protects bondholder’s position Limits ability to issue debt in future Optional redemption / call protection / call premium n o Coupon versus yield Issuance of parity debt / additional bonds test / coverage test n o Sinking Fund redemptions 10 -year call protection common Funds and accounts n n Capitalized interest account – timing issue Reserve account / liquidity reserve – addresses shortfall but replenished 11

Credit Rating/Credit Enhancement o A Better Rating and Credit Enhancement provides better interest rates n n Major rating agencies – Standard and Poor’s, Moody’s and Fitch AAA Bond insurance - MBIA, FSA, AMBAC, XL Capital o Assessment of probability of timely payment and/or default o Review the facts n n n o Insurer makes financial commitment n n n o Financial condition Major customer / taxpayer Covenants and remedies Guarantees timely payment of principal and interest Paid an upfront premium based on total debt service Economic decision – cost of insurance versus credit spread Bonds issued as “Non-Rated” require more pre-marketing 12

Marketing, Sale of Bonds and Closing o Answer Investor questions n o Pre-pricing n n o n n n o Identify comparable issues Structure / rates put forth for negotiation Pricing n o Site visit Coupons, yields, redemption features negotiated YTM, YTC and average life Over-subscribed maturities may be re-priced Underwriter receives award Orders from buyers confirmed Bond Purchase Contract executed – Issuer and Underwriter committed Mail Final OS Bond proceeds are wired 13

Financial Advisory Services Jim Fabian, Principal Fieldman, Rolapp & Associates Financial Advisory Services to government agencies and non-profit organizations 14

The Role of the Financial Advisor o Planning of the Financing Program: n n Review of Issuer’s Financial Policies Determine how much money is needed When is it needed How much will it cost 15

The Role of the Financial Advisor o Management of the individual sales of debt required to execute the program: n n n Probably the most visible part of what we do, but by no means the most important Role varies depending on whether debt will be sold negotiated or competitively based upon the issuer and the facts Provide recommendation of credit rating process and bond insurance procurement 16

The Role of the Financial Advisor o Assist in the Selection of other Finance Team Members if requested: n n Provide recommendations for sole source selection based upon expertise and experience of firms Solicit proposals based on formal process, evaluate proposals and provide recommendation based upon review of proposals 17

The Role of the Financial Advisor o Advise on the reinvestment of bond proceeds n n n Acts as the Issuer’s Investment Advisor to solicit bids from investment providers Assists the Issuer’s existing Investment Advisor in the solicitation of bids from investment providers Provide recommendations on short-term investment strategies (i. e. Purchase of Treasuries, Agencies or Local Agency Investment Fund) 18

Bond Trustee Services Carl Boyd, Vice President Union Bank of California, N. A. Corporate Trust and Escrow Services 19

Trustee Regulations ¨ The Trust Indenture Act of 1939, as amended, requires a Trustee to be appointed “to protect and enforce the rights and represent the interests of such investors” 20

Bond Trustee Services o Pre-Closing: n n Review documents Hold good faith deposit Deliver bonds to DTC or safekeep bonds for life of issue Authenticate bonds 21

Bond Trustee Services o Closing: n n Receive bond proceeds from underwriter Transfer funds as required Pay costs of issuance Coordinate closing with all parties 22

Bond Trustee Services o Account Setup Systems: n n n Trust Accounting Bondholder Recordkeeping/Payments Account Management/Ticklers 23

What does a Trustee do? o Perform financial and compliance administration as required in the Trust Agreement, Tax Certificate, Disclosure Agreement and related documents ¨ Act as a “Prudent Man” in representing the interests of the investors ¨ Represent investors in a default or settlement matter 24

What does a Trustee do? o ¨ ¨ Read all trust documents Tickler all covenant requirements, request and compile compliance items Schedule, calculate and initiate interest payments and redemptions Open accounts required under Trust Agreement, invest funds, transfer as necessary Serve as central point of contact for all post-issuance information 25

Trustee Services ¨ A Trustee helps the issuer by providing management and reporting services: n Investment and accounting of bond proceeds, collecting revenues and processing disbursements n Ensure compliance with Trust Agreement covenants n Calculate interest, redemptions and pay investors n Act as liaison and disseminate financial information to the industry 26

Trustee Services A Trustee routinely interacts with: o n n n n Bond Insurers Letter of Credit Banks GIC Providers Remarketing Agents Bond Council Repositories Underwriters/Financial Advisors n n n Investors Securities Brokers Auditors Arbitrage Rebate Firms Rating Agencies Investment Advisors 27

Selecting Your Trustee ¨ ¨ ¨ Location? Who is the account officer? References? Check with bond counsel/financial advisor. Issue RFP? Do you feel comfortable working with them for the next 30 years? 28

Other Potential Finance Team Members ¨ Fiscal Consultant n ¨ Verification Agent n ¨ Required to prepare an Engineer’s Report or Facilities Report for the Issuance of Land Secured Bonds. Appraiser n o In a bond refunding an independent party who provides an opinion that there are sufficient funds to defease the Refunded Bonds. Assessment Engineer/Special Tax Consultant n ¨ Required for issuance of Tax Allocation Bonds to project tax increment revenue stream. Required to provide Independent Market Valuation of property that secures the repayment of Land Secured Bonds. Rate Specialist n Required to prepare a rate study for the Issuance of Revenue Bonds 29

Question & Answer 30

Thank You! We sincerely appreciate you joining us today and participating in the 2006 CSMFO Conference. 31

Panel’s Contact information: Jerry Rogers, City of Riverside - Jrogers@riversideca. gov Dennis Coleman, City of Solana Beach – Dcoleman@cosb. org 1 -858 -7202461 Janees Williams, Kinsell, Newcomb & De Dios Inc. – Jwilliams@kndinc. com 1 -858 -793 -5900 Jim Fabian, Fieldman, Rolapp & Associates – Jfabian@fieldman. com 1 -949660 -7307 Carl Boyd, Union Bank of California – Carl. boyd@uboc. com 1 -213 -972 -5683 . 32