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Recent California POB ratings support the view that a restructuring would not trigger adverse rating agency <br />reactions. S&P has rated nearly all of the POBs issued by California municipalities over the past two years. Of <br />the more than 25 POBs rated by S&P from the start none of the municipalities incurred a rating downgrade in <br />conjunction with their POB issuance. <br />We also would observe that moderating the near -to -mid-term total UAL -associated payments (including POB <br />debt service) is prudent, given CalPERS' transition to a more front -loaded, level -dollar amortization of the <br />incremental UAL that may arise over time. A payment curve restructured with POBs provides more headroom <br />to accommodate potential contribution increases, while mitigating budget stress that would have occurred <br />under the original payment schedule. As previously discussed, the BofA team has extensive experience modeling <br />pension risk and is fully prepared to assist the City as it navigates this process. <br />Preliminary Interest Rate Scale. The following table includes the requested interest rate scale assuming market <br />conditions as of March 9, 2021 and two ratings in the 'AA' category. We present spreads to Treasuries assuming <br />a 10-year optional par call and a make whole call. As previously mentioned, we expect index eligibility to be <br />worth up to an additional 10 basis points for a 2044 term bond sized to at least $300 million. To help support <br />our preliminary spreads, we include the pricing results for the City of Orange's POBs that sold on March 3, 2021. <br />ORANGECITY OF SANTA ANA PRELIMINARY SCALE CITY OF <br />- Assumed Underlying Ratings: - .. ..Ratings:.. <br />in-vo.,, r..0 MnLn_iAn i- r-ii in- ve.,, r..0 <br />Maturity <br />2022 <br />Ref. <br />UST <br />2Y <br />UST <br />(3/9/2021) <br />0.170% <br />Coupon/ ^ <br />Yield <br />0.42% <br />Spread <br />(bp) <br />25 <br />Coupon/ <br />Yield <br />0.42% <br />Spread <br />(bp) <br />25 <br />2023 <br />3Y <br />0.350% <br />0.65% <br />30 <br />0.65% <br />30 <br />2024 <br />5Y <br />0.830% <br />1.18% <br />35 <br />1.18% <br />35 <br />2025 <br />5Y <br />0.830% <br />1.13% <br />30 <br />1.13% <br />30 <br />2026 <br />7Y <br />1.230% <br />1.73% <br />50 <br />1.73% <br />50 <br />2027 <br />7Y <br />1.230% <br />1.68% <br />45 <br />1.68% <br />45 <br />2028 <br />10Y <br />1.550% <br />2.20% <br />65 <br />2.20% <br />65 <br />2029 <br />10Y <br />1.550% <br />2.15% <br />60 <br />2.15% <br />60 <br />2030 <br />l0Y <br />1.550% <br />2.25% <br />70 <br />2.25% <br />70 <br />2031 <br />10Y <br />1.550% <br />2.35% <br />80 <br />2.35% <br />80 <br />2032 <br />10Y <br />1.550% <br />2.45% <br />90 <br />2.45% <br />90 <br />2033 <br />10Y <br />1.550% <br />2.55% <br />100 <br />2.50% <br />95 <br />2034 <br />l0Y <br />1.550% <br />2.65% <br />110 <br />2.55% <br />100 <br />2035 <br />10Y <br />1.550% <br />2.75% <br />120 <br />2.65% <br />110 <br />2036 <br />10Y <br />1.550% <br />2.85% <br />130 <br />2.70% <br />115 <br />2044T 30Y <br />r Represents term bond <br />2.260% <br />3.16% <br />90 <br />3.06% <br />80 <br />Maturity Ref. UST <br />(6/1) UST (3/3/2021) Coupon/ Spread <br />Yield (bp) <br />2022 2Y 0.130% 0.291% 16 <br />2023 2Y 0.130% 0.391% 26 <br />2024 3Y 0.260% 0.587% 33 <br />2025 5Y 0.670% 0.974% 30 <br />2026 5Y 0.670% 1.224% 55 <br />2027 7Y 1.080% 1.587% 51 <br />2028 7Y 1.080% 1.787% 71 <br />2029 10Y 1.420% 2.070% 65 <br />2030 10Y 1.420% 2.220% 80 <br />2031 10Y 1.420% 2.270% 85 <br />2032 10Y 1.420% 2.450% 103 <br />2033 10Y 1.420% 2.550% 113 <br />2034 10Y 1.420% 2.650% 123 <br />2035 10Y 1.420% 2.750% 133 <br />2036 10Y 1.420% 2.820% 140 <br />2040 T 30Y 2.210% 3.015% 80 <br />2044T 30Y 2.210% 3.115% 90 <br />r Represents term bond <br />Private Placement Option. As discussed above, depending upon how quickly the City can come to market, we <br />believe a short-term note through a bank direct purchase to pre -pay the City's FY 2022 UAL may be appropriate <br />and help increase savings for the City. BANA has purchased short-term notes to prepay UALs for the City of San <br />Jose, Oakland and Los Angeles. With respect to long-term financings, banks typically prefer transactions that <br />have shorter tenors (less than 15 years) and are moderately sized. <br />Multiple Underwriter Engagement. Pleaser reference our responses under Section 3. Question viii and Section <br />4. Pension Obligation Bond Experience which details our experience serving as book -running senior manager <br />on large, high profile transactions with numerous syndicate members. <br />Provide an estimate of your total, not to exceed, underwriting costs associated with serving as senior manager to the City on a not -to -exceed approximately <br />$671 million issue of fixed rate POBs. <br />Proposed Gross Spread. Serving as senior managing underwriter is a high priority for BofA. Our proposed fees <br />and expenses are detailed in the following table based on an estimated $671 million financing. We propose an <br />average takedown of $1.75 per bond across all maturities and estimate the all -in gross spread, including <br />expenses, to be approximately $1.89 per bond. We are not proposing any management fee for our services. <br />�9' , Page 13 BofA SECURITIES ���� <br />