June 13, 2006 Marco Island

1. June 13, 2006 Marco Island

2. Planning the Deal or Issuance of Bonds Determine how the need for the project(s) is created Why do you need the money? How are the bonds sold? How long will you need the funds? What types of government bonds can be sold to the markets? How will the debt be repaid? Authority to Issue Bonds Feasibility of the financing Policy decision to determine whether or not to sell the bonds competitively or negotiated Getting the Money and Spending the Money When is a public education campaign necessary? Who develops the financial model? the feasibility study? What�s included in bond expenses? What is reasonable and customary? How are they accounted for? What�s better in the long run: insurance or reserves? How does the flow of funds correspond to the budget? When is it time for a refunding? How do you decide? Is there a best time for a ratings review? What makes it successful?

3. Continuing Disclosure: Securities Exchange Act of 1934 � Rule 15c2 Who does it apply to? What information is required to be disclosed? How do you file? SEC Rule 15c2-12 amended in 1994 Issuer must agree to provide� What type of Annual Information? What events must be disclosed? � List of 11 Where to file The Central Post Office Planning to Comply with Arbitrage Regulations Importance of Arbitrage Planning Fundamentals Pre-issuance Planning Amounts Subject to Requirements Exceptions to Requirements Investing Bond Proceeds Project/Proceeds Expenditure Phase Arbitrage Rebate Payments vs. Yield Reduction Payments Defeasance vs. Redemption After Bonds are Redeemed

4. Planning the Deal or Issuance of Bonds William F. Underwood, II, CGFO, CGFM Director of Budget and Finance Town of Davie, Florida

5. How Was the NEED for the Project (s) Created: Political pandering Manager mission Department delight Legislative mandates Needed capital improvements Desirable or useful

6. Why Do You Need the Money? Local governments need money for: Water systems, improvements, or major repairs Sewer systems , improvements, or major repairs Electrical systems , improvements, or major repairs Mass transit systems , improvements, or major repairs Road systems , improvements, or major repairs Current operating expenses Government buildings , improvements, or major repairs

7. What�s Next? Now that the local government has determined: The purpose of the debt, and Why they need the money Put the Team Together! City/town commission or council Government attorney Engineer or other professionals Bond counsel Disclosure counsel Financial advisor Trustee/paying agent Registrar

8. Which markets? Local geographic area investors State or regional markets National markets Global markets How Long Will You Need the Funds? Short term Intermediate term Long term

9. Types of local government bonds: General obligation bonds Revenue bonds Zero coupon & capital appreciation bonds Variable rate demand bonds Refunding bonds Commercial paper Foreign-denomination bonds Mini-bonds Debt derivatives

10. Legally backed by the full faith and credit of the issuing government Generally, requires citizen voter approval Self-supporting Not self-supporting Legally secured only by a specified revenue source Generally, does not require voter approval Self-supporting Not self-supporting

11. Sold below face value Interest payment on zero bonds accumulates and paid at maturity Interest component is held by issuer and compounded at a stated rate - paid at maturity Interest rate is reset periodically according to a specified index Bondholder is able to require the purchase of the bonds by issuer Proceeds are used to retire the outstanding debt of a prior bond issue

12. Short-term debt At maturity, the debt can be paid off or rolled over into a new commercial paper issue at the prevailing market interest rate Also known as foreign-currency bonds Bonds issued in a currency other than U.S. Dollars Small denomination bonds of $1,000, $500 or $100 face value Encourages small investors

13. Hybrid financial instruments whose value is �derived� from or based upon the value of another underlying security Caps, floors & collars Inverse floaters Forward purchase contracts Interest rate swaps Bond banks

14. Associated with variable rate debt Issuers can maintain interest rate payments on variable rate bonds within set boundaries Caps - a contract in which a counterparty, in exchange for a one-time premium, agrees to pay the bond issuer if an interest rate index rises above a certain percentage rate, known as the cap or strike rate. Also called a ceiling Floors - an agreement in which the bond issuer receives an up front fee from a counterparty in exchange for making payments when the interest rate index falls below the floor or strike level Collars - the simultaneous purchase of a cap and sale of a floor by the issuer in which it trades any benefits from a potential fall in the interest rate index for protection against an excessive rise. The issuer defines a specific range for its interest rate payments

15. Inverse floaters Breaks a fixed rate bond into two floating rate issues Floater portion pays a coupon that rises with interest rates Inverse floater portion consists of the remaining fixed rate bond and moves against the direction of interest rates Forward purchase contracts An agreement by an investor to purchase bonds from the issuer on a specific, future date at a specified date, at a specified rate of interest

16. Interest rate swaps Contract that allow a debt issuer to �swap� the interest rate it currently pays on an outstanding debt issue Issuer enters into a floating-to-fixed swap, whereby the issuer will now pay a fixed interest rate Bond banks Financial mechanisms sponsored by an entity that are designed to allow smaller, local governments lower costs and greater financial flexibility Typically, the sponsoring entity will issue bonds and use the proceeds to purchase the debt of local governments that want to participate in the bond bank Often allows local governments to obtain lower interest costs and lower debt issuance costs

17. Local governments are generally authorized to raise revenues through: Taxes User fees Special assessments Intergovernmental transfers Other e.g., appropriations

18. Getting the Money &Spending the Money

19. When is a public education campaign necessary? Critical issues need to publicly presented Evidence of the public not understanding the issues Potential for negative campaign by opposing group Multiple issues being presented requires clearer focus

20. Who develops the financial model? the feasibility study? Issuer Staff and Financial Advisor agree on the� Financial Plan Financial Advisor develops the initial model for structuring purposes Underwriting team and Staff�assist in refining the model Issuer consultants ( for e.g.;Engineer, Rate Consultant, Architect)�conducts detailed project plans; all working group members assist in review and provide input

21. What�s included in bond expenses? What is reasonable and customary? How are they accounted for? Bond expenses can include some or all of the following: Underwriters Counsel fee and expenses,�cost of� wiring funds, certain loan transaction�costs incurred by the Underwriters, and closing expenses Costs of Issuance�can include: Bond Counsel and Disclosure Counsel fees and expenses, Financial Advisor fees and expenses, Issuer� Counsel fee, cost of Bond Insurance, Rating Agency fees, other Consultant fees (see above ), Paying Agent�and Registrar costs,�External Auditor�charges, Bond�Printing�costs The Financial Advisor�will assist in determining�which fees are reasonable and customary for similar issues� All costs of issuance and Underwriting expenses are�calculated in the Use of Funds and are paid from bond proceeds

22. What is better in the long run...a reserve fund insurance policy or fully funded reserve? In some revenue bond financings a fully funded reserve provides rating agencies additional assurance of an Issuers ability to "step up"�and meet its debt obligations.���� Rating agencies and bond insurers often like for�a new or infrequent issuer in the capital markets to provide for a fully funded reserve. A debt service reserve fund insurance policy will reduce the�par amount�of�a bond issue. A fully funded reserve can provide�additional project�funds to the Issuer if a reserve surety�is used in the future to replace�a fully funded reserve. General Obligation Bonds generally to not require a funded reserve.

23. How does the flow of funds correspond to the budget? Revenue Fund deposits are made annually per the flow of funds as provided for in the Bond Resolution The flow of funds determines the Principal and Interest payments which will be budgeted annually Budgeted debt payments will correspond each year to the Debt Service Schedule�shown in the Final Official Statement Payments into a Debt� Service Reserve Fund can sometimes be provided for over time versus fully funding�the reserve at the bond closing�

24. When is it time for a refunding? How do you decide? The refunding of an outstanding bond issue is often done to provide Net Present Value savings The GFOA recommends that Net Present Value (NPV) savings�should�be between 3-5% of bonds being refunded Refundings are�also done for additional reasons including the restructuring of debt and�to provide for updated and/or less restrictive�bond covenants

25. Is there a best time for a ratings review? What makes it successful? Issuers seek bond ratings for a variety of reasons. Some examples are: They are�beginning a new Capital Improvement initiative They�are issuing new type of debt not issued before They�have a complex financing to present They have not sought a ratings review for some time They have an improved financial profile which�could result in�upgrade of an outstanding bond issue

26. Continuing Disclosure:Securities Exchange Actof 1934 � Rule 15c2-12

27. Who does it apply to? What is a �Disclosure Undertaking�? What information is required to be disclosed? Annual Disclosure List of Events How do you file? What are NRMSIRs? What is the �Central Post Office�?

28. Continuing disclosure gives the investors confidence in the municipal bond market SEC Rule 15c2-12 amended in 1994 Applies to underwriters-Unlawful to underwrite unless there exists a �Disclosure Undertaking� (exception for the private placement, short term borrowings and for the small issuer)

29. Issuer must agree to provide: Annual financial information by a certain date Timely notice of certain material events Notice when the required information is not provided by the required date

30. What type of annual information? Financial information or operating data Official statement sets the standard Except if the OS contains projections or annual projections are not required

31. What events must be disclosed? List of 11 P&I payment delinquencies Nonpayment related defaults Unscheduled draws on debt service reserves Unscheduled draws on credit enhancement Substitution of credit or liquidity providers Adverse tax opinions Changes to bond holders rights Bond calls Defeasances Release or sale of property securing repayments Rating changes

32. Where to file? NRMSIRs (4) Nationally Recognized Municipal Securities Information Repository With an approved cover sheet with your CUSIP numbers

33. The Central Post Office (CPO) DisclosureUSA.org distributes the disclosures through to the NRMSIRs and SIDs electronically The CPO offers Return receipt from the NRMSIRs E-mail reminders of future filing dates Ability to review documents filed for a 30 days A publicly available index of filings searchable