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 versus Things 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: 1.Transaction date 2.Purpose 3.Debt Outstanding at balance sheet date 4.Accounting Treatment

12 SEC Disclosure Secondary Market 1994 Bond Transactions of $1 million or more $10 Million Debt Exemption Dissemination Agent Follow the Financial Statements Material Events- key ones: 1.Rating change 2.Change in security 3.Using the debt service reserve fund 4.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