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6.C. - Page 29 of 57 Bond -\liocation and Defeasance Analysis I December G, 2019 j pg 5 \&'e note that the above calculations of the cost of a defeasance escrow are driven by a number of assumptions. For example, the interest rates earned on the investments are based on today's market conditions Depending on market conditions at the time a defeasance may be executed, the results will vary. For example, the portfolio of securities that comprises the defeasance escrow may yield more or less in the future than from what is assumed today — SLGS investments yielding an average of 1.686°-1 — based on market conditions and/or the package of securities utilized. I f the escrow yield is higher, the cost to the Town of Atherton would be lower and, conversely, if the escrow yield is lower, the cost to the Town of Atherton would be higher. .-another factor contributing to the escrow cost is its duration. The current analysis assumes an escrow purchase date of March 2, 2020 and an escrow maturity of September 1, 2029 — a modified duration of 7.01 years. Given the actions that must be taken by the Town of Atherton and SB`TNIA prior to a defeasance, next March is likely an optimistic assumption for execution. A later defeasance would shorten the length of the defeasance escrow, lowering the total cost (assuming no changes in the interest rates earned by the defeasance securities). Execution Cost. Similar to a bond issuance and related cost of issuance, there are several parties that would be required to formally, execute a defeasance transaction — summarized as follows: ■ Bond C'rwn ek Bond Counsel drafts the escrow agreement and renders an opinion that the outstanding bonds have been legally defeased. ■ 1'etiliarliou .•igaeut.- The Indenture of Trust for the outstanding bonds requires an independent certified public accountant to provide an opinion that the escrow account is sufficient to retire the outstanding bonds. ■ Escmw.-lgeui: The bank or trust company that holds the government securities and makes payments to the pa}ring agent for the outstanding bonds is referred to as the escrow agent. The bond trustee on the SB\X MA Series 2019 Bonds would serve this function, ■ Ahwidpal.Iebiror. An advisor ",pically assists \vith the financing plan. The advisor assists in identifying the government securities to be placed in the escrow account, assists in the arrangements for the acquisition of the government securities, reviews the terms of the escrow agreement, and assists the issuer in the transfer of funds to the escrow agent. In addition to payments to outside consultants there may be other ancillary costs of the defeasance transaction (i.e. subscriptions for new CUSIP numbers, which identify bonds for the market). We recommend that SB\C'1L1 estimate approximately $75,000 - $100,000 for the additional cost of execution when communicating the total cost to the Town of Atherton to liquidate is proportional share of the Series 2019 Bonds. We have assumed $100,000 in such costs in our analysis. In Attachment B we provide illustrative cash flows of a partial defeasance of the Series 2019 Bonds for the "Town of Atherton utilizing a 3.25"/o allocable percentage of total SBWMA obligations to the Town of Atherton. 13011 Clar Street, Suite 1000 I Oakland, c:.1 94612 I Main ills-h3'Y-830(1 I hex 5111-208-R282 1451 Quail Strect, Suire 3(111 I Newport Reach, C \ ')—'660 I \lain 749.1.36-4'71111 I Fax 3111-2118-8282 5751 W. Ccntury Boulevard, quite 71111 I Los Angelce, C,\ 911!145 I M.Am 110.34K-29111 I Fax 510-211H-8282 SBWMA BOD PACKET 8/20/2020 AGENDA ITEM: 5A ATTACHMENT 2 - p5