1. Introduction to Tax-Exempt 501(c)(3) Bonds William P. Scott, Esq. Nixon Peabody LLP

2. Introduction to Tax-Exempt 501(c)(3) Bonds Legal Basis –State Law authorizing issuance State Tax Exemption – Kentucky v. Davis case –Section 145 of Internal Revenue Code 95% Test (no activities producing UBIT)

3. Introduction to Tax-Exempt 501(c)(3) Bonds Bond Financing Documents –Trust Indenture Form of Bond –Redemption Provisions Grant of Security Trustee-held Funds –Purposes: e.g. construction, debt service and reserves –Investment of Funds Defaults and Remedies Defeasance (i.e. refunding)

4. Introduction to Tax-Exempt 501(c)(3) Bonds Bond Interest Rates –Fixed Rate –Variable Rate Demand Bonds Weekly or Daily rate changes Optional Tender by Bondholders –Commercial Paper (or Flexible) Rates Interest pricing on each individual bond –Multi-Annual or Term Rate –Mandatory Tenders of Bonds (when they occur) –Role of Remarketing Agent or Auction Agent

5. Introduction to Tax-Exempt 501(c)(3) Bonds Bond Interest Rates (contd) –Auction Rate (more to come in panel discussion) Auction Process Credit Enhancement –Letter of Credit Confirming letter of credit –Bond Insurance Rating downgrades Liquidity Facility –Standby Bond Purchase Agreement –Used when Credit Enhancer doesnt cover tendered bonds –Relationship between Credit and Liquidity Providers

6. Introduction to Tax-Exempt 501(c)(3) Bonds Interest Rate Swaps –Purpose –Documentation –Termination Payments Mark-to-market effect on financial statements –Effect on financial covenants Entering into swap Financial ratio covenants –Insurance of Swap

7. Introduction to Tax-Exempt 501(c)(3) Bonds Financing Agreement with Borrower –May be loan, lease or sale agreement –In Mass., is combined with Trust Indenture and called a Loan and Trust Agreement –Borrower agrees to pay debt service on Bonds

8. Introduction to Tax-Exempt 501(c)(3) Bonds Master Trust Indenture –Purposes: Repeat borrowings with parity security Pooling credit strength of Obligated Group –Joint and several liability –The Obligated Group uses the Master Indenture to issue Notes and Guaranties –In a bond financing, the Note (or Guaranty) goes to the Bond Trustee under the Bond Indenture.

9. Introduction to Tax-Exempt 501(c)(3) Bonds Timing of a Bond Transaction –Selection of Financing Team Underwriter Financial Advisor? Borrower Counsel Bond Counsel Selection of Issuer? Credit Enhancement? Trustee

10. Introduction to Tax-Exempt 501(c)(3) Bonds Timing of a Bond Transaction (contd) –Determination of Financing Structure Security and covenants –Due Diligence –TEFRA Approval (Public Hearing, Elected Official signs) –Borrowers board approval –Preliminary Official Statement (POS) Inclusion of financial statements, agreed-upon procedures ltr.

11. Introduction to Tax-Exempt 501(c)(3) Bonds Timing of a Bond Transaction (contd) – Marketing of Bonds –Bond Purchase Agreement (Issuer Approval) –Final Official Statement –Closing –Post-closing Reporting required under financing documents Continuing Disclosure – SEC Rule 15c2-12 Arbitrage Rebate (unless exempt)