Tax-Exempt Bond Financing Seminar “How Bonds Are Structured and Sold” Overview of: Variable Rate Demand Bonds Letter of Credit Enhanced November 9, 2005
Bond Financing Information Tax-Exempt Variable Rate Demand Bonds (“VRDBs”) � VRDBs are long-term bonds which are sold at variable short-term rates � Bonds are typically structured to bear interest at a floating rate (daily, weekly, monthly, semi-annual, annual / multi-mode) � Bonds typically priced at a spread to the BMA Index � Typically secured by a letter of credit or a liquidity facility (may be in conjunction with bond insurance, although some issuers with sufficient high quality liquid assets provide self-liquidity) � Holders can demand repurchase of bonds at par plus accrued interest on a periodic basis � Support costs include remarketing fees and letter of credit or liquidity facility fee, possibly with insurance Page 2
Bond Financing Information Considerations Benefits � Allows a Borrower to achieve historically lower interest rate cost � The bonds can eliminate the need for separate construction and permanent lending � The bonds can be structured with very flexible pre-payment options without penalty � No disclosure requirement as bonds are bought on the credit of the enhancement � Greater arbitrage opportunity � Interest rate swaps can be added to hedge interest rate risk Risks � Rising interest rates may cause higher than anticipated debt service payments � A change in marginal tax rate may increase or decrease effective interest rates � Remarketing risk � Enhancement renewal Page 3
Bond Financing Information Tax-Exempt Variable Rate Demand Bonds Transaction Structure Reimbursement Agreement BORROWER Letter of Credit Direct Pay Letter of Credit Trust Indenture Trustee Underwriting & Remarketing Agreement Loan Agreement Bond Debt Service Proceeds Payments Underwriter and Remarketing Bonds Bonds Issuer Bondholder Agent KeyBanc Capital Markets Page 4
Bond Financing Information Tax-Exempt Indices Comparative Interest Rates (1985-Present) 12.00% Tax-Exempt Fixed Rate Revenue Bond Index Tax Exempt Variable Rate Bond Index 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Oct-97 Oct-99 Oct-85 Oct-87 Oct-89 Oct-91 Oct-93 Oct-95 Oct-01 Oct-03 Oct-05 Page 5
Bond Financing Information Tax-Exempt Indices Comparative Statistics - (1985-Present) Tax Exempt Tax Exempt Fixed Variable Rate Rate Index Bond Index Last Observed - October 27, 2005 5.21% 2.70% 90.85% 70.00% % of Observations Above Last Observed Rate 9.15% 30.00% % of Observations Below Last Observed Rate 10.31% 10.75% Peak Rate Since 1985 (LIBOR since 1987) 6.46% 3.51% Average Rate Since 1985 (LIBOR since 1987) 4.72% 0.70% Minimum Rate Since 1985 (LIBOR since 1987) Tax Exempt Fixed Rate Index: Compiles the average of 25 revenue bonds with 30 year maturity with average rating A1/A+. Tax Exempt Variable Rate Index: BMA - High grade tax exempt variable rate municipal bond index. Page 6
Bond Financing Information Quantitative Analysis – Tax-Exempt Weekly & Historical Average 1995 - 2005 1995 - 2005 CURRENT AVERAGE CURRENT AVERAGE YEAR PRINCIPAL RATE INTEREST RATE INTEREST COSTS DEBT SERVICE DEBT SERVICE Closing $239,289 $239,289 $239,289 2006 $170,000 2.67% $213,600 2.81% $224,800 92,861 476,461 487,661 2007 175,000 2.67% 209,061 2.81% 220,023 90,871 474,932 485,894 2008 185,000 2.67% 204,389 2.81% 215,106 88,772 478,161 488,878 2009 195,000 2.67% 199,449 2.81% 209,907 86,559 481,008 491,466 2010 205,000 2.67% 194,243 2.81% 204,428 84,233 483,475 493,660 Rate Summary 2011 215,000 2.67% 188,769 2.81% 198,667 81,792 485,561 495,459 2012 225,000 2.67% 183,029 2.81% 192,626 79,237 487,265 496,862 Current Weekly Rate 2013 235,000 2.67% 177,021 2.81% 186,303 76,568 488,589 497,871 Rate 2.67% 2014 250,000 2.67% 170,747 2.81% 179,700 73,734 494,480 503,433 2015 260,000 2.67% 164,072 2.81% 172,675 70,779 494,851 503,454 Running Rate 3.88% 2016 275,000 2.67% 157,130 2.81% 165,369 67,660 499,789 508,028 All In Rate 4.01% 2017 285,000 2.67% 149,787 2.81% 157,641 64,420 499,207 507,061 2018 300,000 2.67% 142,178 2.81% 149,633 61,016 503,193 510,648 2019 315,000 2.67% 134,168 2.81% 141,203 57,440 506,608 513,643 2020 330,000 2.67% 125,757 2.81% 132,351 53,693 509,450 516,044 10 Year Average Rate 2021 350,000 2.67% 116,946 2.81% 123,078 49,724 516,670 522,802 Rate 2.81% 2022 365,000 2.67% 107,601 2.81% 113,243 45,578 518,179 523,821 2023 385,000 2.67% 97,856 2.81% 102,987 41,210 524,065 529,196 Running Rate 4.02% 2024 405,000 2.67% 87,576 2.81% 92,168 36,613 529,189 533,781 All In Rate 4.15% 2025 425,000 2.67% 76,763 2.81% 80,788 31,788 533,551 537,576 2026 445,000 2.67% 65,415 2.81% 68,845 26,735 537,150 540,580 2027 465,000 2.67% 53,534 2.81% 56,341 21,454 539,988 542,795 2028 490,000 2.67% 41,118 2.81% 43,274 15,894 547,012 549,168 2029 515,000 2.67% 28,035 2.81% 29,505 10,049 553,084 554,554 2030 535,000 2.67% 14,285 2.81% 15,034 3,969 553,253 554,002 TOTAL $8,000,000 $3,302,523 $3,475,689 $1,651,938 $12,954,461 $13,127,627 PV @ 5.00% $3,993,980 $2,139,215 $2,251,383 $1,159,477 $7,292,672 $7,404,840 Page 7
Bond Financing Information Quantitative Analysis - Fees FEES PAYABLE AT CLOSING: Underwriter fee (as a % of bond size): 0.750% $60,000 Estimated Fees & Expenses: - Letter of credit origination fee (as a % of bond size): 0.250% $20,000 - Estimate of counsel fee (excludes corporate counsel) 65,000 - Issuer fee 10,000 - Trustee acceptance 2,000 Notes - Miscellaneous 1,000 Sub-Total Transaction Fees (approximate) $158,000 A. 1.00% annual letter of - 1st year letter of credit fee (See note A) 81,289 credit fee payable in Total Fees at Closing (approximate) $239,289 advance, based on bonds COST BREAKDOWN OF ANNUAL FEES: outstanding plus 98 days TRUSTEE LOC FEE LOC DRAW REMKT accrued interest at 6.0% YEAR (See note B) (See note A) (See note C) (See note D) TOTAL 2006 $2,500 $79,561 $800 $10,000 $92,861 B. Trustee fees are for 2007 2,500 77,783 800 9,788 90,871 administrative and 2008 2,500 75,903 800 9,569 88,772 2009 2,500 73,922 800 9,338 86,559 custodial duties. 2010 2,500 71,839 800 9,094 84,233 2011 2,500 69,654 800 8,838 81,792 C. $200 will be 2012 2,500 67,368 800 8,569 79,237 paid for each draw. 2013 2,500 64,980 800 8,288 76,568 2014 2,500 62,440 800 7,994 73,734 D. 0.125% 2015 2,500 59,798 800 7,681 70,779 remarketing fee will be 2016 2,500 57,004 800 7,356 67,660 assessed semi-annually 2017 2,500 54,108 800 7,013 64,420 2018 2,500 51,060 800 6,656 61,016 in arrears, based on 2019 2,500 47,859 800 6,281 57,440 bonds outstanding. 2020 2,500 44,506 800 5,888 53,693 2021 2,500 40,949 800 5,475 49,724 FEES: 2022 2,500 37,240 800 5,038 45,578 2023 2,500 33,328 800 4,581 41,210 KeyBanc Capital Markets 2024 2,500 29,213 800 4,100 36,613 2025 2,500 24,895 800 3,594 31,788 Commercial Bank 2026 2,500 20,373 800 3,063 26,735 2027 2,500 15,648 800 2,506 21,454 2028 2,500 10,669 800 1,925 15,894 2029 2,500 5,436 800 1,313 10,049 2030 2,500 0 800 669 3,969 Page 8
Bond Financing Information Quantitative Analysis – Tax-Exempt Variable Swap to YEAR PRINCIPAL RATE INTEREST COSTS DEBT SERVICE Fixed Closing $239,289 $239,289 2006 $170,000 3.64% $291,200 92,861 554,061 2007 175,000 3.64% 285,012 90,871 550,883 2008 185,000 3.64% 278,642 88,772 552,414 2009 195,000 3.64% 271,908 86,559 553,467 2010 205,000 3.64% 264,810 84,233 554,043 2011 215,000 3.64% 257,348 81,792 554,140 Rate Summary 2012 225,000 3.64% 249,522 79,237 553,759 Synthetic Fixed Rate 2013 235,000 3.64% 241,332 76,568 552,900 2014 250,000 3.64% 232,778 73,734 556,512 Rate 3.64% 2015 260,000 3.64% 223,678 70,779 554,457 All In Rate 4.98% 2016 275,000 3.64% 214,214 67,660 556,874 2017 285,000 3.64% 204,204 64,420 553,624 2018 300,000 3.64% 193,830 61,016 554,846 2019 315,000 3.64% 182,910 57,440 555,350 2020 330,000 3.64% 171,444 53,693 555,137 2021 350,000 3.64% 159,432 49,724 559,156 2022 365,000 3.64% 146,692 45,578 557,270 2023 385,000 3.64% 133,406 41,210 559,616 2024 405,000 3.64% 119,392 36,613 561,005 2025 425,000 3.64% 104,650 31,788 561,438 2026 445,000 3.64% 89,180 26,735 560,915 2027 465,000 3.64% 72,982 21,454 559,436 2028 490,000 3.64% 56,056 15,894 561,950 2029 515,000 3.64% 38,220 10,049 563,269 2030 535,000 3.64% 19,474 3,969 558,443 TOTAL $8,000,000 $4,502,316 $1,651,938 $14,154,254 PV @ 5.00% $3,993,980 $2,916,383 $1,159,477 $8,069,840 Page 9
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