Mark Galvin Senior Vice President Mark.galvin@firstsw 450 S. Orange Avenue Suite 460

1. Mark Galvin Senior Vice President Mark.galvin@firstsw.com 450 S. Orange Avenue Suite 460 Orlando, FL 32801 407.426.9611 407.426.7835 Fax February 19, 2012 CITY OF PALM COAST, FLORIDA City Council Meeting Preliminary Financing Plan

2. Credit Considerations – Importance of Bond Ratings • City has an opportunity to refinance their Series 2003 Utility Revenue Bonds and save approximately $500,000 per year and $11 million over the life. • Since the City has identified significant capital improvements the City has the opportunity to finance a portion of these CIP improvements at today’s historical low interest rates • Goal is to keep debt service as low as possible while maintain flexibility in order to lessen the impact to water and sewer rate payers. • The Financing plan includes using existing $6.2 million of existing Bond Reserves to help fund the capital improvements – Reducing the bond issue size and debt service. • As part of this refinancing the City will need to update the existing Utility bond ratings.

3. Credit Considerations – Importance of Bond Ratings The City’s Series 2003 and Series 2007 Bonds current stand alone / underlying ratings are “A1” from Moody’s Investors Service (Moody’s),” A+” from Fitch Ratings (Fitch) and “A” from Standard & Poor’s Rating Services (S&P). • The Series 2003 and Series 2007 Bonds also purchased bond Insurance (credit enhancement) from MBIA to increase the bond ratings to “AAA” from all three rating agencies. The ratings on MBIA are lower than the City’s bond rating. • Currently there is only one viable bond insurer that is currently selling bond insurance in Florida “Assured Guaranty Municipal Corp.” are they are currently rated A2 / AA- by Moody’s and S & P respectively. • The collapse of the bond insurers means: • Issuer’s underlying ratings are extremely important. • Institutional Investors now do their own credit analysis prior to purchasing any bonds. • At the City’s current ratings bond insurance is currently not cost effective.

4. Credit Considerations – Importance of Bond Ratings Why maintaining your rating is so important: • The higher the rating the lower the interest rate / yield and lower the interest cost. • Strong ratings translate into lower rates not only on the Series 2013 Bonds but future Bonds (Series 2014/15 Bonds) as well. • Since the financing plan includes a transferring $6.2 million of Bond Reserves to the project fund a ratings downgrade by Moody’s and Fitch or by S&P will probably result in: • Will require funding a Bond Reserve which will increase the bond size by over $7 million • Increase in Interest rates / yields by approximately 15 basis points • Annual debt service will increase approximately $ 530,000 • Total debt service will increase by approximately $12 million* * Excludes the DSR and investment earnings

5. Conclusions • Increasing the rates as proposed in the rate ordinance will be viewed positively by the rating agencies increasing the probability the City’s bond ratings will not be downgraded. • If the City ratings are downgraded it will still be able to sell it’s bonds and fund it’s capital improvement plan. It will simply cost more - Issue more debt at higher interest rates and more debt more often. • If actual future financial performance is better than the projected, the City has the option when reviewing their rates to make future adjustments.