AgdaPkt 2012-06-18 Special - Laserfiche WebLink

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8.A. - Page 4 PLAN OF FINANCE Private Placement Sale — The Port intends to conduct a private placement sale of its Bonds to GE Capital. The Port received one proposal for privately placed Bond sale from GE Capital and two such proposals from Holman Capital. In addition, the Port solicited proposals from three banks, all of whom declined to submit a proposal. In a private placement the issuer negotiates the interest rate, repayment terms, and security features associated with the sale of its bonds directly with the investor, and sells its bonds directly to that investor. Ina public offering interest rates, repayment terms, and security features are developed without direct participation of the investor and bonds are sold to an intermediary, such as securities firm, that re-offers the bonds to the investing public. Because there are only half a dozen or so small port enterprises similar to the Redwood City Port in California, and because it has a low investment grade credit rating of BBB, demand for the Port's bonds is quite limited in the current credit-sensitive market. After evaluating the cost of selling BBB rated bonds, AA-rated bonds issued by the City and secured by the City's general fund (with City debt service payments repaid by the Port), and a private placement purchase proposal submitted by GE Capital, the Port determined that a private placement sale of its bonds to GE Capital, which intends to hold the Port's bonds to maturity, would likely be the most cost-effective alternative. A summary analysis prepared the Port's financial advisor, William Euphrat Municipal Finance, evaluating the relative costs of these financing options is attached (Attachment Three). Because the leases for the Wharves provide for preferential use for private businesses the bonds are considered tax-exempt private activity bonds under by the U.S. Treasury Department. Consequently, Treasury regulations require that a public hearing be held prior to the bonds being issued. The Port Board held this hearing on June 18 at which only one member of the public appeared and offered comments. The comments from this individual were support of the proposed project. Bond Terms — The bonds will fully amortize over 20-years and will be priced on June 20, 2012 at a 2.10% spread over the 20-year Interest Rate Swap Index rate, an index published daily by the Federal Reserve. Were the bonds to have closed on June 1, the rate would be 4.135%. The Bonds are expected to close on June 26, 2012. The bonds may not be redeemed or called until 10 years from now (the Lock Out Period). Bond Security — The 2012 Bonds are secured by the Net Revenues of the Port (gross revenues less operation and maintenance expenses). The 1999 Bonds master indenture requires the Port to maintain Net Revenues in excess of debt service by a factor of 1.2 times (debt service coverage). Historically, the Port's debt service