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06/18/2012 Attachment 2 has a lower all-in TIC, lower total payments, and leaves the Port with sufficient free cash flow to finance its CIP in future years. City staff advised Port staff that it would recommend compensation to the general fund for underwriting the Port's credit risk were the City Council to consider using the general fund to guarantee the Port's credit. No specifics were mentioned. A 50/50 split is a reasonable estimate. Additionally, as the general fund would be exposed to the Port's business risk, it is reasonable to assume that the City would require some increased level of oversight of the Port's operational and financial affairs. A gross savings of $25,000 (20-year to 20-year amortization), reduced (by sharing savings with the City) to only $12,000, is inadequate savings to justify the likely long- term loss of the Port's financial and operational independence from the City. While a gross savings of $70,000/year (30-year to 30-year amortization), reduced to $35,000/year, is substantially more, there is no compelling reason to either pay more interest for a 30-year loan or to sacrifice independence. The coverage ratios for a 30- year BBB Port bond are more than adequate for future market access. And finally, the $125,000/year debt service savings between a 30-year City guarantee and a 20-year GE loan is not really a savings at all. The difference in annual payments is due to a more rapid repayment of loan principal, not an interest rate savings. Both in future value terms (total debt service payments) and net present value terms (all-in TIC), the 20-year GE loan is less expensive2 than a 30-year bond wrapped by the City's general fund. WEMF recommended to staff that the Port begin negotiation with GE. All of the foregoing analysis was conducted assuming an $8 million loan. Based on Port staff recommendations, the Port Board Finance Committee subsequently determined that the Port should retain higher unrestricted reserve balances and directed staff to increase the size of the financing to $10 million. z Actually, the TICs are so close that these two alternatives are essentially equivalent in present value terms. 3 RESO. # 15199 MUFF# 505