Debt Financing

1. Debt Financing County Tax Managers Meeting Presented by Joe Aguilar Vavrinek Trine Day & Co., LLP

2. Types of Debt GO Bonds Certificates of Participation (“COPS”) Mello Roos Bonds aka CFD’s Revenue Bonds Lease backed bonds Redevelopment Bonds Tax & Revenue Anticipation Notes (“TRANS”) Financing Authority Bond Pools (“Mark Roos Pool”)

3. Debt Compliance Tracking Tracking Worksheet SEC Disclosure Arbitrage Rebate Pledged Assets Commitments & Guarantees

4. Financing Those Bonds and Where to Start Start with the Financial Advisor then call Bond Counsel A New World is now watching Wall Street Recent municipal bankruptcies changes everything Low interest rates and a tight credit market

5. Assemble Your Financing Team • Never start with the Underwriter • Devise a calendar and clarify when legal documents begin • Lean on your Financial Advisor • Get a good bank trustee • Read your documents

6. What to Look For in the Bond World • Not all bonds are created equal, separate the “Plain Janes” from the complicated ones • Not all bonds are your responsibility: obligatory vs. non-obligatory, what’s conduit debt? • Variable rate debt or hedged debt have major issues • Unspent proceeds are also at risk: remember Executive Life…no, you don’t remember…

7. Things Happening Now • Lots of debt being refinanced or restructured • CFD’s and Assessment Districts may be drawing on reserve funds, watch for subsequent events • Bond covenants on revenue coverage for enterprise operations & CRA bonds may come up short • Credit providers (letters of credit) backing some of your bonds may be replaced by other entities, may not be the same deal

8. Separate Your Thoughts:Things You Need to Understand versusThings You Need to Worry About • Understand your disclosure requirements especially any significant events • Understand the economics behind every bond issue • Keep a master list of all items and supporting files for each bond issue

9. Things to Worry About • Variable rate debt with a default rate especially when weekly auction fails • Bonds backed by a letter of credit when the bank no longer meets bond rating • Insufficient assessment collections for making bond payments • Potential draw on bond reserve fund

10. Things You Need to Know • Understanding complex debt ….why didn’t you know about that default rate • Understanding assessment districts, purpose of bonds, project size, amount financed by debt vs. other sources • Understanding conduit debt…housing bonds, hospital bonds and industrial bonds • Tracking your defeased debt…how much debt outstanding at year end • Do we owe arbitrage on any bonds?

11. Tracking Your Bonds Obligatory Debt Non-Obligatory Debt Conduit Debt Defeased Debt Note Disclosures: Transaction date Purpose Debt Outstanding at balance sheet date Accounting Treatment

12. SEC DisclosureSecondary Market 1994 Bond Transactions of $1 million or more $10 Million Debt Exemption Dissemination Agent Follow the Financial Statements Material Events- key ones: Rating change Change in security Using the debt service reserve fund Defeased bonds

13. Pledges, Commitments& Guarantees Buildings & Equipment Debt Service Reserve Funds Debt Service Funds Defeasance Escrows Credit Enhancements Revenue Ratio Covenants Property Insurance

14. Things That Will Happen More Frequently Tomorrow • Bond defaults on non-obligatory debt and conduit debt • Depletion of debt service reserve funds and insolvent surety providers • Inability to restructure debt