Finance Department Presentation to the City of Houston

Finance Department Presentation to the City of Houston Budget and Fiscal Affairs Committee Upcoming Financial Transactions August 7 th, 2018 Presented By: Jaime Alvarez – Division Manager 1

Agenda • Houston Airport System (HAS) a) Pricing Update: Series 2018 CD Pricing Update • Convention and Entertainment System (C&E) a) Auction Rate Securities • Combined Utility System (CUS) a) Pricing Update: Series 2012 B & 2018 C b) Texas Water Development Board (TWDB) SWIRFT Loan, Series 2018 F c) Series B-5 d) Swap Index Conversion Note: This presentation constitutes the written recommendation of the Finance Working Group (FWG). 2

Houston Airport System Pricing Update: Series 2018 CD System: Total Par Amount: Refunded Par Amount: Use: Series: Average Life (Years) : Present Value Savings: Percentage Savings: All-In True Interest Cost (%): Houston Airport System $569. 110 Million $651. 960 Million Refunding 2018 C 8. 220 $12. 881 million 12. 882% 3. 066% 2018 D 12. 766 $77. 441 million 18. 903% 3. 468% Closing Date: August 2, 2018 Note: This presentation constitutes the written recommendation of the Finance Working Group (FWG). 3

Convention and Entertainment System Auction Rate Securities Background: • In an effort to reduce variable rate exposure in line with City’s target of 20%, some variable rate debt amounting to approximately $75 million, is being evaluated to be fixed out. This will help reduce the variable rate exposure for C&E from 22% to approximately 11%, excluding commercial paper. • As a standard course of business, in conjunction with this transaction, the FWG will review possibilities to refinance existing debt if prudent opportunities to achieve present value savings exists. Next Steps: • An RCA is anticipated to be brought before Council in late 2018. Note: This presentation constitutes the written recommendation of the Finance Working Group (FWG). 4

Combined Utility System Series 2012 B & 2018 C Background: • The City had two bond issues containing contract terms that increased the City’s cost due to the corporate tax rate changes taking effect January 1, 2018. • The City undertook negotiations with the counterparties, resulting in the remarketing or refunding of those issues. • These transactions were approved by City Council on June 13, 2018 (Series 2012 B) and June 20, 2018 (Series 2018 C). Note: This presentation constitutes the written recommendation of the Finance Working Group (FWG). 5

Combined Utility System Series 2012 B & 2018 C Pricing Update: • Series 2012 B: – Renegotiated terms resulted in an estimated savings of $186, 794 in year 1 and a savings of approximately $1. 75 million through 2021. • Series 2018 C: – Renegotiated terms resulted in an estimated savings of $656, 027 in year 1 and a savings of approximately $4. 0 million through 2021. Note: This presentation constitutes the written recommendation of the Finance Working Group (FWG). 6

Texas Water Development Board (TWDB) SWIRFT Loan, Series 2018 F Background: • Projects being financed: Northeast Plant Expansion & Second Source Transmission Lines. – The City has $17. 11 million remaining from its 2015 commitment from the Texas Water Development Board (TWDB). – The City Received approval from the TWDB for an additional $153. 155 million. – The loan rates will be at TWDB’s expected AAA rated financing cost, adjusted from for a 20. 2% subsidy. Note: This presentation constitutes the written recommendation of the Finance Working Group (FWG). SWIRFT – State Water Implementation Revenue Fund for Texas 7

Texas Water Development Board (TWDB) SWIRFT Loan, Series 2018 F Next Steps: • 2018 loan installment of approximately $170. 265 million will require two Council Actions. • Council Approval of Financing Agreement in August 2018. – TWDB relies on Financing Agreement when selling its TWDB bonds in September, and imposes financial penalties for terminating close to, or after TWDB’s sale of bonds. • Council Approval of Loan documents, expected in October 2018. – Loan scheduled to close in November 2018. Note: This presentation constitutes the written recommendation of the Finance Working Group (FWG). SWIRFT – State Water Implementation Revenue Fund for Texas 8

Texas Water Development Board (TWDB) SWIRFT Loan, Series 2018 F System: New Money or Refunding: Par Amount: Use of the Debt Proceeds : Revenue Source Securing Debt : Estimated Weighted Average Life of the Debt : Being Refunded(Years) Estimated Change to the Weighted Average Life : of Debt Being Refunded Estimated Present Value Savings : Estimated Percentage Savings : Estimated True Interest Cost (%) : Anticipated Council Agenda Dates : Anticipated Date of Pricing : Anticipated Date Closing : Combined Utility System New Money $170. 265 million NE Plant Expansion & Transmission Lines Net revenues of the Combined Utility System N/A N/A 20. 2% discount from TWDB actual rate August/October September November Note: This presentation constitutes the written recommendation of the Finance Working Group (FWG). 9

CUS Variable Rate Exposure Summary Liquidity Type Commercial Paper Variable Rate Demand Bonds SIFMA Index Floater Series Size ($ millions) Bank / Dealer Expiration Requires Bank Facility Bank of America Morgan Stanley(1) Sumitomo State Street RBC(2) Bank of America 1/8/2019 3/13/2022 1/15/2021 7/12/2019 10/30/2018 7/12/2019 Y N Y Citigroup Sumitomo Bank of Tokyo Wells Fargo Sumitomo 3/29/2019 4/2/2021 4/4/2019 4/2/2021 Y Y Y Bank of America State Street 5/1/2020 6/1/2021 N N B-1 B-2 B-3 B-4 B-5 B-6 Subtotal 2004 B-2 2004 B-3 2004 B-4 2004 B-5 2004 B-6 Subtotal 2012 A 2012 B 100. 00 75. 00 100. 00 250. 00 100. 00 700. 00 100. 00 75. 00 100. 00 78. 33 428. 33 125. 00 100. 00 2018 C Subtotal 249. 08 Bank of America 8/1/2021 (3) Total Debt Outstanding $6, 658. 062 474. 08 (3) Total Commercial Paper Outstanding $220. 00 (3) Total Unhedged Variable Rate Debt 3. 30% N The Morgan Stanley B-2 is an Extendible Commercial Paper product. The RBC facility B-5 is a Forward Purchase Agreement. (3) As of June 30, 2018 Monthly Financial Report. (1) (2) Note: This presentation constitutes the written recommendation of the Finance Working Group (FWG). 10

Combined Utility System Series B-5 Background: • The Series B-5 facility is approximately $250 million in size and is utilized for appropriations capacity by the System to support its capital improvement program. • The current liquidity facility is set to expire on October 30, 2018. Next Steps: • The City will issue a request for term sheet proposals from qualified financial institutions to provide credit facilities. • The FWG will review and recommend credit structure to City Council as it comes due in October 2018. Note: This presentation constitutes the written recommendation of the Finance Working Group (FWG). 11

Combined Utility System Swap Index Conversion Background: • The City has several swaps entered into with the objective of hedging against the potential of rising interest rates associated with variable rate bonds. • As the Controller has presented recently in the Quarterly Swap reports, the FWG has been monitoring the value of the swaps and has internally agreed to explore opportunities to improve the City’s cashflows, under the swap agreements. Note: This presentation constitutes the written recommendation of the Finance Working Group (FWG). 12

Combined Utility System Swap Index Conversion • The City has several swap agreements with 4 counterparties for a combined notional amount of $902. 4 million. • The City has received some proposed swap amendments that would convert the base for the floating rate the City receives from 1 Month LIBOR to a 10 -Yr. LIBOR Swap Rate, for a negotiated period of time. • The final maturity and all other terms of the swap would remain unchanged. Note: This presentation constitutes the written recommendation of the Finance Working Group (FWG). 13

Combined Utility System Swap Index Conversion Next Steps: • The FWG recommends proceeding with negotiations on the proposed swap index conversions with the associated counterparties. • A Request for Council action will be brought to City Council in the fall of 2018. Note: This presentation constitutes the written recommendation of the Finance Working Group (FWG). 14

Finance Department Questions? 15