1

2006 CSMFO Conference

“Having the Right Finance Team for Bond Sales”

2

Speaker Panel Moderator – Jerry Rogers, City of Riverside Issuer – Dennis Coleman, City of Solana Beach Underwriter – Janees Williams, Kinsell, Newcomb &

De Dios Inc. Financial Advisor – Jim Fabian, Fieldman, Rolapp &

Associates Trustee/Fiscal Agent – Carl Boyd, Union Bank of

California

3

Bond Issuer

Dennis Coleman

City of Solana Beach, Finance Director

4

The Players Issuer

Hires the team Approves financing Provides financing objectives

Bond Counsel Issues opinion as to validity and exemption Drafts basic legal documents (e.g. Trust Indenture) and

Resolutions Disclosure Counsel

Drafts Offering Document (Preliminary Official Statement – POS) (Official Statement – OS)

5

The Players (cont.) Underwriter

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

Financial Advisor 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

Administers bond proceeds, pays debt service to bondholders, invest bond proceeds

Dissemination Agent Disseminates annually continuing disclosure information

6

The Issuer Adopts Policy guidelines for the issuance of short-

term and long-term debt. Determine appropriate process for selecting Finance

team members. Provide Finance Team with objective to be

accomplished by the issuance of debt. Approve all legal and financing documents required

to issue short-term or long-term debt

7

Bond Counsel 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.

8

Disclosure Counsel Prepares Preliminary Official Statement and Final Official

Statement to be used to market the Bonds by the Underwriter.

Provides required Legal Opinion (10b-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.

9

Underwriting Services

Janees Williams, Vice President

Kinsell, Newcomb & De Dios Inc.

Investment Banking, Advisory and Underwriting Services to municipalities, school districts and governmental entities.

10

Underwriter The Underwriter is the “Quarterback” for the Financing

Coordinate Financing Team and Schedule Finance Structure

Finance Structure Bond Characteristics Credit Rating / Credit Enhancement Marketing, Sale of Bonds, and Closing

11

Bond Characteristics Serial versus Term Bonds

Sinking Fund redemptions Par, premium or discount bond

Coupon versus yield Issuance of parity debt / additional bonds test / coverage test

Protects bondholder’s position Limits ability to issue debt in future

Optional redemption / call protection / call premium 10-year call protection common

Funds and accounts Capitalized interest account – timing issue Reserve account / liquidity reserve – addresses shortfall but replenished

12

Credit Rating/Credit Enhancement A Better Rating and Credit Enhancement provides better interest rates

Major rating agencies – Standard and Poor’s, Moody’s and Fitch AAA Bond insurance - MBIA, FSA, AMBAC, XL Capital

Assessment of probability of timely payment and/or default Review the facts

Financial condition Major customer / taxpayer Covenants and remedies

Insurer makes financial commitment 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

13

Marketing, Sale of Bonds and Closing

Answer Investor questions Site visit

Pre-pricing Identify comparable issues Structure / rates put forth for negotiation

Pricing 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

14

Financial Advisory Services

Jim Fabian, Principal

Fieldman, Rolapp & Associates

Financial Advisory Services to government agencies and non-profit organizations

15

The Role of the Financial Advisor Planning of the Financing Program:

Review of Issuer’s Financial Policies Determine how much money is needed When is it needed How much will it cost

16

The Role of the Financial Advisor Management of the individual sales of debt required

to execute the program: 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

17

The Role of the Financial Advisor Assist in the Selection of other Finance Team

Members if requested: 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

18

The Role of the Financial Advisor Advise on the reinvestment of bond proceeds

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)

19

Bond Trustee Services

Carl Boyd, Vice President

Union Bank of California, N.A.

Corporate Trust and Escrow Services

20

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”

21

Bond Trustee Services Pre-Closing:

Review documents Hold good faith deposit Deliver bonds to DTC or safekeep bonds for life of issue Authenticate bonds

22

Bond Trustee Services Closing:

Receive bond proceeds from underwriter Transfer funds as required Pay costs of issuance Coordinate closing with all parties

23

Bond Trustee Services Account Setup Systems:

Trust Accounting Bondholder Recordkeeping/Payments Account Management/Ticklers

24

What does a Trustee do? 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

25

What does a Trustee do? 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

26

Trustee Services A Trustee helps the issuer by providing management

and reporting services: Investment and accounting of bond proceeds, collecting

revenues and processing disbursements Ensure compliance with Trust Agreement covenants Calculate interest, redemptions and pay investors Act as liaison and disseminate financial information to the

industry

27

Trustee Services A Trustee routinely interacts with:

Bond Insurers Letter of Credit Banks GIC Providers Remarketing Agents Bond Council Repositories Underwriters/Financial

Advisors

Investors Securities Brokers Auditors Arbitrage Rebate Firms Rating Agencies Investment Advisors

28

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?

29

Other Potential Finance Team Members

Fiscal Consultant Required for issuance of Tax Allocation Bonds to project tax

increment revenue stream. Verification Agent

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 Required to prepare an Engineer’s Report or Facilities Report for the

Issuance of Land Secured Bonds. Appraiser

Required to provide Independent Market Valuation of property that secures the repayment of Land Secured Bonds.

Rate Specialist Required to prepare a rate study for the Issuance of Revenue Bonds

30

Question & Answer

31

Thank You!

We sincerely appreciate you joining us today

and participating in the

2006 CSMFO Conference.

32

Panel’s Contact information:Jerry Rogers, City of Riverside - Jrogers@riversideca.gov

Dennis Coleman, City of Solana Beach – Dcoleman@cosb.org 1-858-720-2461

Janees Williams, Kinsell, Newcomb & De Dios Inc. – Jwilliams@kndinc.com 1-858-793-5900

Jim Fabian, Fieldman, Rolapp & Associates – Jfabian@fieldman.com 1-949-660-7307

Carl Boyd, Union Bank of California – Carl.boyd@uboc.com 1-213-972-5683

.