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. . I . . .. is used in this case to purchase the property. The repayments, under the loan agreement ITom that entity to pay the bonds, are strictly ITom the amounts of revenues that are - generated by the project itself. This is a revenue-based project, and the repayment of the bonds is only ITom those particular revenues. Very specifically, this type of financing is used quite regularly in California to do multi-family housing. The actual documents themselves recite the fact that the bonds are only payable ITom the revenues generated from the project and are not repayable ITom any moneys of the City, nor is the City obligated to levy taxes or in any way is the full faith and credibility of the City involved in the transaction. The only amounts that are ever going to repay these bonds are the amounts that are generated by the project itself." In response to another question ITom Council Member Hartnett regarding the safeguards, Mr. Downey said, "Within the bond documents themselves, it is standard to include that the bonds cannot be sold to anyone purchaser unless they are in a denomination of at least $250,000. That particular standard is included in some FCC regulations that show the particular party, which buys in $250,000 denominations, has some degree of sophistication in purchasing. In this particular instance, also, this type of revenue bond is generally placed with institutions, and in fact the underwriter has told us that the market for this particular type of bond is only institutions. We have in the documents put in the $250,000 as an additional safeguard to make sure it is a sophisticated. In addition, in the disclosure document itself that we use to market the bonds, we have gone to great lengths to point out the fact that only these revenues from this project are available to pay the bonds. That does create a degree of risk people should be aware of because if anything happened to this - project, that is your only source of money to pay the bonds, and so you should be on notice from day one as far as the risk in this particular type of bond transaction." In response to a question ITOm Vice Mayor Ruskin regarding the City's credit rating in the event of a default, Mr. Downey said, "Because they are revenue bonds, the marketplace recognizes the fact that the entity or issuer is only acting as a conduit. That is to say, the Federal Govemment has allowed specific provisions in the Internal Revenue Code that allow govemmental entities to issue these types of bonds to create the benefits they can create for the public-at-large. The buyers of these types of bonds are aware of the fact that this particular issuer does not have any obligation, and it has been my experience that with respect to any obligations that are direct obligations of the entity itself, there is no impact on that entity at all. I think that Bill Euphrat can also deal with that because it does have to do with your credit rating." Vice Mayor Ruskin referred to the sentence in the report that stated that the City's reputation might be tarnished in the credit markets, if the bonds were to default. Advisor Euphrat said, "Anytime a bond transaction has a problem, investors that would buy Redwood City backed bonds are going to know the difference between multi-family revenue bonds secured solely by project revenues. . .I think that effect, if any, is one that is not lasting and does not have a rational basis. I do not think that should this project have problems, that the City's credit reception in the markets would be adversely impacted at - all. If it were, it would be the type of thing that people would say, 'Now Redwood City, REGULAR COUNCIL MEETING MINUTE BOOK NO. 56 JANUARY 26,1998 MINUTES Page No. 187 PAGE 15