Sidebar Conference - Dan McRae · 1/30/2019 · City of Dahlonega City of Lawrenceville City of...

Member NYSE|FINRA|SIPC

January 30, 2019

Sidebar ConferenceDevelopment Authority Board Member Training

Market Update, Credit Rating Review, How Authorities and Local Governments Work Together

January 30, 2019 Sidebar Conference 1

Table of Contents

1 Davenport Introduction & Overview

2 Market Update & Interest Rate Trends

3 Credit Ratings

4 Financing Options

5 Case Studies

A Appendix - Resumes

Davenport Introduction & Overview



About Davenport & Company LLC

Major Business ConcentrationsAsset Management

Equity Research

Investment Consulting

Public Finance

Retail Brokerage

Founded in 1863, Davenport & Company LLC celebrated its 155th

consecutive year in business in 2018.

Davenport is a wholly employee owned firm.

Public Finance Office

Roanoke

LynchburgFarmville

Danville

Charlottesville

Fredericksburg

Franklin

Williamsburg

Richmond

Norfolk

White Stone

Raleigh

Greensboro

Virginia Beach

Brokerage Office

Sanford

Charlotte

Leesburg

Towson

Atlanta

Suffolk

Hilton Head

Charleston


Davenport’s Georgia Financial Advisory Experience

Note: represents a City/School District/Utility System client(s). Shaded counties indicate County clients.

Catoosa County School District

City of DaltonCity of Dahlonega City of Lawrenceville

City of Norcross

City of Avondale EstatesCity of Brookhaven

City of ChambleeCity of ClarkstonCity of DecaturCity of Tucker

City of Statesboro

Chatham County

City of BrunswickBrunswick-Glynn Joint W&S Comm.

City of Albany

Columbus Consolidated GovernmentHospital Authority of Columbus

Muscogee County School District

City of Hogansville

City of Newnan

City of Villa Rica

Douglasville-Douglas Co. W&S Authority City of Social CircleWalton County

Henry County

Augusta-Richmond County

Columbia County

City of East Point

City of CantonCherokee County School District

Cobb County Marietta Water Authority

Bartow County

City of Hahira

City of Lake City

Total Existing Clients: 36

City of Milton


Top Financial Advisor in Our Footprint

Davenport consistently ranks as the Top Financial Advisor in our primary footprint of Georgia, Maryland, North Carolina and Virginia.

0 50 100 150 200 250 300 350

Davenport & Company LLC

Public Financial Management Inc

Public Resources Advisory Group

DEC Associates

First Tryon Securities LLC

Public Advisory Consultants

Strategic Solutions Center

FirstSouthwest

Caine Mitter & Associates Inc

Hilltop Securities

Financial Advisor Transactions (2013 - 2017)Georgia, Maryland, North Carolina, and Virginia

Source: Thomson Reuters.Note: Data shown is for tax-exempt public bond offerings and does not include bank loans or privately placed transactions.


General Financial Advisory Services

Planning and Analytical Services

Strategic Planning

– Financial Policies

– Alternative Financing Structures

– Strategic Financial Plan

– Monitoring Refunding

Opportunities

Analytics

– Quantitative Analysis

– Financial Pro Forma

– Debt Capacity Analysis

– Peer Group Comparisons

– Debt Structure

– Debt Management Analysis

– Computer Simulation Models

– Cash Management Analytics

Economic Development

Analysis of Local/State Incentives

Identification of Funding Options

Analysis of Incentive Packages

Cost/Benefit Analysis

Special Districts/TADs/CIDs

Investment Consulting

Investment Policies

Investment Strategy

Cash Flow Forecasting

Management Reporting and

Interface

Investment of Bond Proceeds

Transactional Services

Time Schedule

Credit Ratings

Bond Covenants

Disclosure

Market Conditions

Bank Placements

Method of Sale

Competitive/Negotiated Sale

Mechanics

Issue Structure

Mailing Lists

Pre-Sale Marketing

Analyze Bids/Pricing

Post-Sale Analysis

Closing


Role of the Financial Advisor in Financing Process

1. Facilitate Financing Team Coordination and Scheduling– Management

– Borrower’s Counsel

– Bond Counsel

– Outside Consultants

– Underwriters & Bankers

2. Develop the Plan of Finance– Credit Analysis

– Market Research

– Financial Modeling

– Presentation of Alternatives

– Understand Business Model

– Rating Methodology

– Develop Credit Presentation

3. Communicate Risks and Benefits– Board Meetings

– Market Updates

– Risk Analysis

4. Assist in Retaining the Most Qualified Financial Institutions to Execute the Plan– Identify Candidate Firms

– Competitive Selection Process or Underwriter Selection

5. Provide Expert Advice in Market Access and Negotiations– Financing Documents

– Disclosure Documents

– Underwriter/Bank Negotiations

– Sale of Bonds

– Closing of Bonds

Market Update & Interest Rate Trends


Global Markets continue to face uncertainty due to trade policy, Brexit and slowing growth.

Fed Officials have tempered expectations for rate hikes this year as the economic/market outlook has grown cautious.

– The futures market is currently not pricing in any rate hikes for 2019.

The near-term impact of the US Government shutdown remains in question.

Due to reduction in the ability to refinance tax-exempt bonds in advance of their call date, the municipal market volume was down 22% in 2018.

Heightened volatility in the fourth quarter of 2018 drove a flight to quality in November and December.

– Since the first week in November, the 10-year MMD yield has declined 56 basis points.

Demand on the long end of the curve remains tentative.

After experiencing cash outflows in most weeks since October, municipal bond funds have recently seen a reversal to inflows.


Market Highlights


Municipal Market and Economic News

January 14 Market Update:

“Last week, market participants focused on dovish FOMC meeting minutes, domestic economic data releases, and uncertainty surrounding the government shutdown.”

“On January 9, the December FOMC meeting minutes were released which indicated that after hiking rates four times in 2018, the Fed ‘could afford to be patient about further policy firming,’ amid concerns over global growth.”

“J.P. Morgan maintains its forecast of two rate hikes in 2019, while markets are currently pricing in no rate hikes this year.”

January Monthly Outlook:

“Our forecast for 2019 U.S. real GDP growth has fallen slightly to 2.6%. Our outlook for business fixed investment has weakened, but this has been partially offset by a stronger personal consumption outlook due to lower oil prices and continued strength in the labor market.”

“We still look for the unemployment rate to finish 2019 around 3.5%, before trending lower to 3.3% by the end of 2020. With minimal slack left in the labor market, average monthly job gains in 2019 are still likely to be 168,000 (down from about 220,000 in 2018).”

“Thus far, we see the current [government] shutdown having only a minimal negative near-term impact on quarterly GDP growth of 0.1-0.2 percentage points, at most. But the shutdown is unlikely to be the only budget issue this year. The two-year budget deal passed in February 2018 that set top-line spending levels for FY 2018 and FY 2019 will no longer be in effect when FY 2020 begins on October 1. Congress must then determine both the total amount of funds available for 2020 appropriations, as well as complete the actual appropriations process.” Source: J.P. Morgan Municipal Market Update and Wells Fargo Monthly Outlook.

MMD Yie lds 1/11/2019 1Q19 2Q19 3Q19 4Q19

2-Year 1.72% 1.90% 1.90% 2.10% 2.15%5-Year 1.85% 2.00% 2.10% 2.20% 2.25%10-Year 2.21% 2.45% 2.45% 2.70% 2.65%30-Year 3.03% 3.15% 3.10% 3.35% 3.30%Taxable Y ields 1/11/2019 1Q19 2Q19 3Q19 4Q19

Fed Funds 2.40% 2.40% 2.40% 2.65% 2.90%3-Month LIBOR 2.79% 2.70% 2.80% 2.90% 3.15%2-Year T Note 2.54% 2.70% 2.85% 3.00% 3.20%5-Year T Note 2.52% 2.70% 2.85% 3.00% 3.15%10-Year T Note 2.70% 2.85% 2.95% 3.10% 3.20%30-Year T Bond 3.03% 3.10% 3.15% 3.25% 3.30%


Fed Rate Increase History

Date Upper Bound Rate Change

12/16/2008 0.25% -0.75%12/17/2015 0.50% 0.25%12/15/2016 0.75% 0.25%

3/16/2017 1.00% 0.25%6/15/2017 1.25% 0.25%

12/14/2017 1.50% 0.25%3/22/2018 1.75% 0.25%6/14/2018 2.00% 0.25%9/27/2018 2.25% 0.25%

12/19/2018 2.50% 0.25%

Federal Funds Historical Rate Changes

The Federal Reserve has increased short term rates nine times since December 2015.

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Historical Federal Funds Rate Changes Since 2015

Source: Federal Reserve website.

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20 Year AAA MMD (Since November 2016)


Recent 20-Year MMD Trends

*Note: Interest Rates as of January 18, 2019.

Spike in November 2016 related to the Presidential Election.

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20 Year AAA MMD (Since 2000)

The ‘AAA’ MMD Curve is a composite index released on a daily basis by Municipal Market Data, a Thomson Financial company.

Represents the industry benchmark for AAA general obligation tax-exempt municipal yields and is the basis for pricing new issues in the tax-exempt capital markets.

Enables market participants to gauge pricing efficiency relative to market conditions on a given day.

Source: Thomson Reuters MMD Publication.


Tax-Exempt Interest Rate Trends

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Historical MMD Range (2000 - 2018)

Historical MMD Range Current MMD

Source: Thomson Reuters MMD Publication.

Tax Act of 2017 eliminated the ability for Tax-Exempt issuers to Advance Refund existing debt, or in other words, refinance more than 90 days from the call date. Thus in order to refinance tax-exempt bonds, they must be refinanced within 90 days of the call date.

Prior to the Tax Act of 2017 banks were taxed at the corporate tax rate of 35%. However, with the corporate tax rate lowered to 21%, banks increased the tax-exempt interest rates proposed to an issuer in order to get the same after-tax rate of return as they previously received.

– 3.00% tax-exempt interest rate to the issuer returned 4.62% to the bank at a 35% tax rate

– At a 21% tax rate a bank would offer the loan at 3.65%, a 65 basis point increase, in order to get the same 4.62% after-tax return

Part of Davenport’s role is to evaluate the best method for procuring needed funds. This is one of the factors we take into account when performing this evaluation.


How Tax Act of 2017 affected the Tax-Exempt Market


Tax-Exempt Bonds vs. Taxable Bonds

Local governments have the advantage of being able to issue much of their debt at tax-exempt rates, which means that the bondholders’ interest earnings are exempt from federal taxes and in some cases state and local taxes too.

This helps contribute to lowering overall interest costs because the tax benefit helps contribute to lower rates.

However, tax-exempt bonds may only be issued for projects that meet certain public purpose tests under the requirements of the Internal Revenue Service.

Common examples of situations where these requirements are not met and taxable bonds would be required are sports facilities projects, industrial development projects, and economic development bonds.

This distinction is most relevant in the context of potential development projects.

In order for bonds for a development project to be issued on a tax-exempt basis, the IRS’ public use tests would be required to be met .


Tax-Exempt vs. Taxable Rates

Source: Thomson Reuters MMD Publication and Federal Reserve Economic Data website.


Current Market Yield Curve Comparison - Aa3/AA- Issuer

Year Tax-Exempt Taxable Dif ference

1 1.69% 2.82% 1.13%2 1.70% 2.85% 1.15%3 1.71% 2.93% 1.22%4 1.76% 2.98% 1.22%5 1.82% 3.09% 1.27%6 1.87% 3.18% 1.31%7 1.94% 3.32% 1.38%8 2.03% 3.37% 1.34%9 2.12% 3.43% 1.31%

10 2.21% 3.51% 1.30%11 2.33% 3.63% 1.30%12 2.42% 3.74% 1.32%13 2.49% 3.86% 1.37%14 2.56% 3.92% 1.36%15 2.62% 3.99% 1.37%16 2.69% 4.06% 1.37%17 2.75% 4.10% 1.35%18 2.81% 4.14% 1.33%19 2.87% 4.18% 1.31%20 2.92% 4.22% 1.30%

Current Market Yield Curve Comparison (Aa3/AA- Issuer)

Source: Thomson Reuters MMD Publication and Bloomberg.

Fiscal Year Principal Interest Total Fiscal Year Principal Interest Total Dif ference2020 335,000$ 364,928$ 699,928$ 2020 405,000$ 349,818$ 754,818$ 54,891$ 2021 320,000 380,150 700,150 2021 385,000 369,046 754,046 53,896 2022 335,000 364,150 699,150 2022 395,000 358,074 753,074 53,924 2023 350,000 347,400 697,400 2023 405,000 346,500 751,500 54,100 2024 365,000 329,900 694,900 2024 420,000 334,431 754,431 59,531 2025 385,000 311,650 696,650 2025 430,000 321,453 751,453 54,803 2026 405,000 292,400 697,400 2026 445,000 307,779 752,779 55,379 2027 425,000 272,150 697,150 2027 460,000 293,005 753,005 55,855 2028 445,000 250,900 695,900 2028 475,000 277,503 752,503 56,603 2029 470,000 228,650 698,650 2029 495,000 261,211 756,211 57,561 2030 490,000 205,150 695,150 2030 510,000 243,836 753,836 58,686 2031 515,000 180,650 695,650 2031 530,000 225,323 755,323 59,673 2032 545,000 154,900 699,900 2032 550,000 205,501 755,501 55,601 2033 560,000 138,550 698,550 2033 570,000 184,271 754,271 55,721 2034 575,000 121,750 696,750 2034 590,000 161,927 751,927 55,177 2035 595,000 103,781 698,781 2035 615,000 138,386 753,386 54,605 2036 610,000 85,188 695,188 2036 640,000 113,417 753,417 58,230 2037 630,000 65,363 695,363 2037 665,000 87,177 752,177 56,815 2038 655,000 44,888 699,888 2038 695,000 59,646 754,646 54,759 2039 675,000 22,781 697,781 2039 725,000 30,595 755,595 57,814 Total 9,685,000$ 4,265,278$ 13,950,278$ Total 10,405,000$ 4,668,898$ 15,073,898$ 1,123,621$

Sample $10 Million Financing Tax-Exempt

Sample $10 Million Financing Taxable


Taxable vs. Tax-Exempt Rates in Today’s Market

The difference in total debt service between a taxable and tax-exempt Aa3/AA- rated issue in today’s market is roughly $1.1 for a $10 million issuance over a 20 year period.

Note: Incorporates current market tax-exempt and taxable rates as of January 23, 2019. Factors in a cost of issuance of $350,000 and an underwriter’s discount of $5 per bond.

Credit Ratings


Moody's S&P Fitch

Aa1 AA+ AA+ (Highest)Aa2 AA AA (Middle)Aa3 AA- AA- (Lowest)A1 A+ A+ (Highest)A2 A A (Middle)A3 A- A- (Lowest)

Baa1 BBB+ BBB+ (Highest)Baa2 BBB BBB (Middle)Baa3 BBB- BBB- (Lowest)

BB, B, CCC, CC, C, D5th - 10th Tiers "Below

Investment Grade"Below

Investment Grade

Credit Rating Scale

Aaa AAA AAATop Tier "Highest Possible

Rating"

Considered Investment

Grade

2nd Tier "Very Strong

3rd Tier "Strong"

4th Tier "Adequate Capacity to Repay"


Credit Rating Scale


Importance of a Credit Rating

The National Credit Rating Agencies serve as a proxy for the Credit Market’s view of a local government.

Why do Credit Ratings matter?

– Credit Ratings play a primary role in determining what interest rate(s) the issuer is able to achieve when borrowing for New Money Projects and/or Refinancing existing debt.

– Credit Ratings also send a signal to the business community about the Governance, Management, and Financial Health of a Local Government. This can be critical for Economic Development success.

– Strong access to the Credit Markets can also translate to highly favorable interest rates, terms, and conditions for the City on its New Money projects and when Refinancing for savings purposes.

– Additionally, the National Credit Rating Agencies provide an independent, outside perspective on how the issuer operates relative to other Local Governments in four criteria categories:

– Local Economy;

– Financial Performance;

– Debt; and,

– Management.

Little Control

Great Deal of Control


Key Drivers to a Credit Rating

Financial Forecasting and management

Consistent and prudent budgeting practices

Range and growth of services provided in relation to capacity to provide services

Adherence to long-range financial planning and policies

Revenue & Expenditure structure and patterns Annual Operating & Budgetary

performance Financial flexibility/Fund

Balance position Long-Term Financial Plan

Nature of the pledgedsecurity & debt structure

Balance between accelerated debt issuance and under-investment in capital facilities

Debt Burden measured against: Tax Base & Total Budget

Demographic Characteristics Tax Base Industry Mix & Composition Local and Regional

Growth patterns

Economic Base

Economic Base

Financial Performance & Flexibility

Financial Performance & Flexibility

ManagementManagementDebtDebt

[Moody’s = 30% / S&P = 30%]

[Moody’s = 20% / S&P = 10%]

[Moody’s = 30% / S&P = 30%]

[Moody’s = 20% / S&P = 30%]

Note: %’s are from Moody’s updated methodology January 2014 / S&P updated methodology September 2013 / Fitch does not provide a breakout.


Rated vs. Non-Rated Bonds

$54,315,000Development Authority of Rockdale CountyTax-Exempt Refunding Revenue BondsPratt Paper (GA) LLC ProjectSeries 2018Non-Rated

4% due 1/1/2038 @ 100%

MMD on 5/15/2018AAA 2.92%AA 3.13%A 3.42%Baa 3.76%

$79,931,855 Total DS - actual rate$75,881,007 Total DS @ 'A' rated rate

$4,050,848 Difference

$15,000,000Development Authority of Fulton CoTaxable Revenue BondsGrow America NOW ProjectSeries 2017 A-1Non-Rated

3.5% due 4/1/2020 @ 100%

MMD on 10/5/2017AAA 1.09%AA 1.16%A 1.41%Baa 1.73%

$16,062,038 Total DS - actual rate$15,424,974 Total DS @ 'A' rated rate

$637,064 Difference

Source: Electronic Municipal Market Access.


Why It Is Important to Monitor a Bond Pricing

Source: Electronic Municipal Market Access.

How Authorities and Local Governments Can Work Together to Fund a Project



Contract Revenue Bonds

Intergovernmental Contract Revenue Bonds:

– When a City, County, Municipality, or School District enters into a contract with another governmental entity (typically created by the locality) to issue the debt and promises to repay the debt service.

– The contract must be for joint services, provision of services, or for the joint or separate use of facilities.

– No voter approval required. No limitation on amount of payment obligation.

– A City, County or Municipality may pledge its full faith and credit and taxing power to support its payment obligations under the intergovernmental contract.

– Intergovernmental Contracts are often used to finance public facilities including economic development projects.

– This financing structure is commonly referred to as a “Back-Door GO”.


The Intergovernmental Contract

A City, County, Municipality, or School District may contract with another governmental entity (such as another City, County, Municipality, or School District or a Public Authority or Agency).

The contract must be for joint services, provision of services, or for the joint or separate use of facilities.

The contract must deal with activities, services, or facilities that each contracting party is authorized by law to undertake or provide.

Term of contract may not exceed 50 years.

No voter approval required. No limitation on amount of payment obligation.

A City, County, Municipality, or School District may pledge its full faith and credit and taxing power to support its payment obligations under the intergovernmental contract. Intergovernmental contract can be structured to constitute a general obligation payable from any unencumbered funds or a limited recourse obligation payable from specified funds.

Ad valorem taxes levied to pay intergovernmental contract obligations are levied against the maintenance and operation tax digest and are often subject to certain limitations including but not limited municipal charter limitations and economic development limitations, amongst others.


Intergovernmental Experience

Date Issuer Amount Sale Type Date Issuer Amount Sale Type1/31/2019 City of Brookhaven 38,855,000$ Public Market 7/26/2016 Catoosa County School District 40,000,000$ Public Market

12/20/2018 Columbus Building Authority 7,000,000 Direct Bank Loan 5/19/2016 Cherokee County School District 42,685,000 Public Market12/14/2018 City of Albany 18,300,000 Direct Bank Loan 3/1/2016 Walton County Water & Sewer Auth 34,300,000 Public Market10/3/2018 City of Brookhaven Public Facilies Authority 12,640,000 Public Market 3/1/2016 Walton County Water & Sewer Auth 2,365,000 Public Market9/27/2018 Cherokee County School District 11,500,000 Direct Bank Loan 1/26/2016 Macon-Bibb County UDA 4,430,431 Private Placement9/19/2018 City of Decatur 5,095,000 Direct Bank Loan 1/26/2016 Macon-Bibb County UDA 2,000,000 Private Placement8/31/2018 Downtown Develop. Auth City of Chamblee 13,604,185 Direct Bank Loan 1/26/2016 Macon-Bibb County UDA 2,000,000 Private Placement7/12/2018 Urban Redevelopment Auth of Augusta 4,105,000 Direct Bank Loan 10/9/2015 Douglasville-Douglas W&S Authority 44,215,000 Private Placement5/31/2018 Urban Redevelopment Auth of Augusta 26,095,000 Public Market 10/9/2015 Douglasville-Douglas W&S Authority 29,205,000 Private Placement5/16/2018 Cherokee County School District 39,685,000 Public Market 8/20/2015 Lawrenceville Building Authority 56,740,000 Public Market4/17/2018 City of Dalton Building Auth (Whitfield Co Proj) 3,200,000 Direct Bank Loan 8/20/2015 Cherokee County School District 20,002,500 Direct Bank Loan2/28/2018 City of Clarkston 5,150,000 Direct Bank Loan 7/7/2015 Columbia County 15,000,000 Public Market2/21/2018 Hospital Authority of Columbus 27,915,000 Public Market 6/12/2015 Cobb County-Marietta Water Authority 47,315,000 Public Market2/21/2018 Hospital Authority of Columbus 3,395,000 Public Market 5/5/2015 Macon-Bibb County IA 8,250,000 Public Market

12/27/2017 Brunswick Glynn Joint W&S Commission 34,364,000 Direct Bank Loan 4/30/2015 Macon-Bibb County UDA 6,240,000 Public Market10/20/2017 Columbus Consolidated Government 9,200,000 Direct Bank Loan 4/30/2015 Macon-Bibb County UDA 12,190,000 Public Market10/18/2017 Augusta Utilities 94,895,000 Public Market 2/5/2015 Cherokee County School District 108,960,000 Public Market9/28/2017 Cherokee County School District 13,750,000 Direct Bank Loan 1/15/2015 City of Villa Rica Public Facilities Auth. 33,860,000 Public Market9/22/2017 Muscogee County School District 25,000,000 Direct Bank Loan 12/23/2014 Macon-Bibb County TAD-2 3,000,000 Direct Bank Loan7/17/2017 City of Decatur Public Facilities Authority 29,625,000 Public Market 12/23/2014 Macon-Bibb County TAD-4 250,000 Direct Bank Loan7/11/2017 Urban Redevelopment Auth of Augusta 12,000,000 Public Market 12/23/2014 Macon-Bibb County TAD-3 50,000 Direct Bank Loan5/15/2017 City of Milton 23,495,000 Public Market 11/20/2014 Milton Public Buildings & Facilities Auth 10,000,000 Direct Bank Loan5/3/2017 East Point Building Authority 46,055,000 Public Market 10/23/2014 Canton Building Authority 14,651,000 Direct Bank Loan

4/20/2017 Cherokee County School District 18,175,000 Public Market 9/4/2014 Canton Building Authority 5,220,000 Direct Bank Loan12/12/2016 Augusta 26,115,000 Public Market 8/22/2014 Cherokee County School District 21,000,000 Direct Bank Loan9/22/2016 Cherokee County School District 15,500,000 Direct Bank Loan 2/6/2014 Cherokee County School District 81,315,000 Public Market

Davenport & Company Georgia Financial Advisory Deal List (2014 - Present) Davenport & Company Georgia Financial Advisory Deal List (2014 - Present)

Since 2014, Davenport has assisted its clients with issuing bonds via an intergovernmental contract with a governmental authority on over 22 transactions.


Potential Funding Options

Ensuring that the borrower obtains the lowest cost financing available begins at the onset of planning for a project.

Davenport’s experience as a Financial Advisor makes us particularly well suited to provide unbiased analysis of all of the available financing options. Our preference is to ensure that all of the available funding options are taken into account when planning for a new financing such as the public safety building.

The most strategic Plan of Finance may take into account multiple funding sources. For purposes of this analysis, Davenport highlight the following funding options available:

1. Direct Bank Loan; and,

2. Public Market Issuance.


Funding Options

Direct Bank Loan Public Market Issuance

Credit Rating Requirement Credit rating not required to seek financing.Credit rating conventionally required to seek

financing.

Offering DocumentNo formal offering document required.

Approximately 5 page RFP distributed to banks instead.

Comprehensive 100+ page formal offering document required to be prepared by bond

counsel and distributed.

PurchasersSingle institution purchases Bond for its own account. May be local, regional, or

national lender.

Multiple purchasers through underwriting process including insurance companies, pension funds, individual investors, etc.

Timing FlexibilityShorter timeline – financing completed over

the course of 30-45 days.Longer timeline – financing completed over the

course of 60-90 days

Interest Rates Typically a single fixed rate for all maturities Individually fixed rates for each maturity

Structuring Flexibility Somewhat flexible Complete flexibility

Term Limitations Typically up to 20 years Typically up to 30 years

PrepaymentMore flexibility with the possibility of

prepayment without penaltySome flexibility with 10 year call protection

period being industry standard.


Public Market Issuance

The key characteristics of a Public Market issuance can be summarized as follows:

– Davenport, in consultation with staff, would prepare a Credit Rating Package for the National Credit Rating Agencies;

– The Bonds would be sold based upon the bond’s credit rating(s);

– A public offering document is prepared with assistance from the Obligor;

– The Bonds are sold as a series of bonds to the investing public at prevailing interest rates;

– Interest rates are fixed for the entire term of the loan;

– As such, the interest rate and eventual cost of the funds would not be determined until the day the bonds are sold in the Primary Market;

– The repayment structure can be tailored to meet cash-flow needs;

– The Bonds typically cannot be currently called (i.e. paid off or redeemed prior to maturity) during the first ten years of the loan. Generally, bonds maturing after the first ten years can be paid off or redeemed beginning in the 10th year. This is an industry standard prepayment provision for municipal bonds issued in the public markets.


Direct Bank Loan Process

The key characteristics of a Direct Bank Loan financing can be summarized as follows:

– Davenport, on the Obligor’s behalf, distributes a Request for Proposals (RFP) to solicit competitive interest rate proposals from local, regional, and national lenders;

o Note: Sending out the RFP in no way obligates the Obligor to move forward, nor does it cost anything to send out the RFP.

– The RFP can specify several different loan term and/or structure options for bidders to provide in their proposals;

– The repayment structure can be tailored to meet cash-flow needs;

– The entire process could be completed in approximately 45-60 days;

– The Obligor has the benefit of knowing the terms and conditions before deciding whether or not to move forward;

– Direct Bank Loans often allow for the ability to prepay loan at any time in whole or in part, and sometimes without penalty.


Davenport’s Unbiased Approach

Davenport has averaged over 200 transactions and over $5 Billion of volume from 2013 to 2017. While the bulk of Davenport’s 2017 transactional volume is attributable to public market issuances, the

transaction breakdown is split almost evenly between public sales and bank loans.

Public Sales 108 52% Public Sales $4,116,480,000 81%Bank Loans 99 48% Bank Loans 966,558,396 19%Total 207 100% Total $5,083,038,396 100%

Transactions Volume


Typical Financing Timeline

Financial Plan Documents Ratings/Credit Analysis

Public Investors

Private Investors

Direct Bank Loan

3 Months + 2-3 Months <1 Month

Financial Advisor Bond Counsel

Fitch

Moody’s Underwriters

Credit Ratings Based Upon Borrower’s Credit

Rating

Based on Bank’s Internal Credit

Review

Estimated Project Costs Finalized

Bond Indenture, Disclosure

Documents, Validation and

Credit Package

Standard & Poors

Plan of Finance

and

Approvals

Markets

1 Month

Banks

Case Studies



Evaluation of Tax-Supported vs. Self-Supporting Debt

Tax-supported debt is considered any debt where the source of funds for repayment is tax revenues that are paid out of the General Fund.

Tax-supported debt does not exclusively include obligations whose debt service is payable from ad valorem taxes collected by the locality. Rather, any obligation that is supported by a form of tax revenue that is collected in the General Fund may be considered tax-supported.

By comparison, self-supporting debt includes any obligation of a locality whose debt service is to be paid exclusively from specified pledged revenues generated by a project/system.

The advantage of having a self-supporting obligation is that the debt is excluded from the calculation of the key debt ratios. This is because the debt service on those obligations is not dependent on the capacity of the locality to collect taxes in order to make its payments.


Davenport Case Study – Augusta Foundry Project

Foundry Project| Augusta, Georgia

In May 2018, Davenport assisted Augusta, Georgia with the issuance of $26 million in Bonds through its Urban Redevelopment Agency for the purpose of financing an apartment project in Augusta’s Laney-Walker Redevelopment Area.

When complete, the apartment complex will triple the Laney-Walker Redevelopment Area’s progress, providing new jobs and serving as a gateway for future development.

In connection with this transaction, Davenport developed a Plan of Finance based upon developer provided pro-formas, market studies, and the current capital projects that addressed the following:

– The benefits and risks of Augusta’s credit support;

– Augusta’s potential exposure and break even point; and,

– Impact on Augusta’s future capital projects.

In addition, Davenport worked with Augusta to implement a five year call structure, which enables the Bonds to be retired through proceeds from the anticipated sale of the project by the developer.

As part of this financing, Davenport recommended to Augusta that it seek an initial rating from S&P in addition to its existing Moody’s rating to help enhance the Bonds’ credit quality. S&P assigned Augusta a strong rating of “AA,” and Moody’s confirmed its “Aa2” rating.


Davenport Case Study – Augusta Foundry Project (cont.)

Case 2: No market rent increase and an occupancy haircut of 2% annually starting in Year 4.

Case 3: No market rent increase and a flat 75% occupancy rate.

Case 4: No market rent increase and declining rents beginning in Year 4.

Case 5: Same assumptions as Case 4 except that the decline began in Year 2.

Case 1 2018 2019 2020 2021 2022 2023 2024 2025 2026Occupancy % 60% 92% 92% 92% 92% 92% 92% 92%

Rent Haircut 100% 100% 100% 100% 100% 100% 100% 100%Market Rent Growth Factor (annual) 3% 3% 3% 3% 3% 3% 3% 3%

Net Available after Debt Service (40,188) 277,663 354,408 433,627 515,399 580,574 667,691 734,686

Coverage 0.90 1.16 1.21 1.25 1.30 1.34 1.39 1.43

Cumlative net Gain/Loss (40,188) 237,474 591,882 1,025,510 1,540,908 2,121,482 2,789,173 3,523,859

Reserve Funded before Stabilizat ion 0 (40,188) 237,474 591,882 862,500 862,500 862,500 862,500Use of (40,188) 277,663 354,408 270,618 0 0 0 0Balance (40,188) 237,474 591,882 862,500 862,500 862,500 862,500 862,500

Rent 2B/2Ba 1,387 1,429 1,472 1,516 1,562 1,608 1,657 1,706 1,757

Sample Cases Reviewed


Davenport Case Study – Augusta Depot Project

Depot Project| Augusta, Georgia

Over the course of the last several months, Davenport has been advising Augusta as they consider another development project that includes a 140 unit apartment complex, a 100,000 square foot office building, the renovation of Augusta’s historic Depot Building, a parking deck, and certain retail space.

Under the original proposal for the development project, Augusta would provide partial funding for the project (mainly the parking garage) in the amount of approximately $14 million through bond proceeds. The remaining portion of the project would be funded by the developer.

As part of its work with Augusta on this project, Davenport collaborated with Augusta’s Administration and Finance staff to accomplish the following:

– Consideration of creative financing mechanisms such as interest only periods and capitalized interest to enable a portion of the project to be paid with future SPLOST revenues;

– Review and evaluation of the developer agreement to clearly illustrate for Augusta the requirements and expectations of all parties involved; and,

– Development of a series of pro formas and projections that sought to evaluate whether or not the anticipated tax revenues from the project would be sufficient to pay cover its debt service.

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11Apartment & Depot

County M&O 194,154 194,154 194,154 194,154 194,154 194,154 194,154 194,154 194,154 194,154 194,154 Urban M&O - - - - - 103,664 103,664 103,664 103,664 103,664 103,664 Capital 15,475 15,475 15,475 15,475 15,475 15,475 15,475 15,475 15,475 15,475 15,475

Total Phase I 209,629 209,629 209,629 209,629 209,629 313,293 313,293 313,293 313,293 313,293 313,293

Of f iceCounty M&O - - - - - 172,625 172,625 172,625 172,625 172,625 172,625 Urban M&O - - - - - - - - - - 92,169 Capital - - - - - 13,759 13,759 13,759 13,759 13,759 13,759

Total Phase II - - - - - 186,384 186,384 186,384 186,384 186,384 278,553

TotalCounty M&O 194,154 194,154 194,154 194,154 194,154 366,779 366,779 366,779 366,779 366,779 366,779 Urban M&O - - - - - 103,664 103,664 103,664 103,664 103,664 195,833 Capital 15,475 15,475 15,475 15,475 15,475 29,234 29,234 29,234 29,234 29,234 29,234

Grand Total 209,629 209,629 209,629 209,629 209,629 499,678 499,678 499,678 499,678 499,678 591,847

20 Year Level Debt 585,000 585,000 585,000 585,000 585,000 585,000 585,000 1,433,000 1,433,000 1,433,000 1,433,000

Amount Short (375,371) (375,371) (375,371) (375,371) (375,371) (85,322) (85,322) (933,322) (933,322) (933,322) (841,153)

% Covered 36% 36% 36% 36% 36% 85% 85% 35% 35% 35% 41%


Davenport Case Study – Augusta Depot Project (cont.)

Projected Tax Revenues from the Project vs. Debt Service on the Parking Garage

Appendix – Resumes



Courtney E. Rogers, Senior Vice [email protected]

Experience: Courtney E. Rogers has nearly 30 years of municipal finance experience. Mr. Rogers specializes in local government finances including the quantitative aspects of financings, cash flow analysis, multi-year financial forecasting, multi-year capital planning, debt capacity studies, rating agency interaction, debt issuance strategies, advance refunding debt restructuring, financing alternative sensitivity analysis, tax district analysis and execution for general government projects, economic development projects, water/sewer enterprise projects, and, school projects. In 2008, Mr. Rogers was the author of a $35 million General Fund budget for a Virginia County who, at the time, did not have a Budget or Finance Director. In fact, Mr. Rogers directly accessed the County’s budget software.

Other work includes executing complex new money and refunding transactions, creating custom financial forecasts, creating utility ratemodels, structuring refunding escrows using both open market securities and SLGS, creating debt capacity models, creating cash flow models and analyzing refunding and restructuring options for multi-jurisdictional authorities.

Mr. Rogers began his financial advisory career with Wheat First Butcher Singer in 1992, and joined Davenport & Company in 1998. Prior to joining Wheat, he served as a Senior Consultant for Ernst & Young in Birmingham, Alabama where he performed Verification of Advance Refundings for municipal bonds and Arbitrage Rebate calculations. He recently served as co-editor for the fourth edition of the AWWA M29 Fundamentals of Water Utility Capital Financing Manual. He is a member of the Georgia GFOA, the Virginia GFOA, the Georgia Association of Water Professionals, Georgia City County Managers Association and Virginia Water and Waste Authorities Association. He is a member of the Board of Directors for Davenport & Company LLC.

Education: University of Alabama

Licenses Held: General Securities Representative, Series 7 General Securities Principal, Series 24Municipal Securities, Series 52 Uniform Securities Agent, Series 63Uniform Investment Adviser, Series 65 Municipal Advisor Representative, Series 50

Georgia Clients Served: Albany, City of

Brunswick Glynn Joint Water and Sewer Commission

Cobb County-MariettaWater Authority

East Point, City of Muscogee County Schools

Augusta Canton, City of Columbia County Henry County Social Circle, City of

Bartow County Catoosa County Schools Columbus Consolidated Hogansville, City of Statesboro, City of

Brookhaven, City of Chamblee, City of Decatur, City of Lawrenceville, City of Villa Rica, City of

Brunswick, City of Cherokee County SchoolsDouglasville-DouglasCounty W&S Authority

Milton, City of Walton County


Douglas J. Gebhardt, Vice [email protected]

Experience: Douglas J. Gebhardt joined Davenport Public Finance in June 2012 and has since worked with Mr. Rogers on numerous client engagements. Mr. Gebhardt performs a variety of tasks including custom financial pro forma modeling, conducting capital funding and debt capacity analysis, performing investment portfolio analysis, creating comparative ratio analysis, and is experienced in analyzing complex new money, refunding, and restructuring bond sizings using DBC.

Since joining Davenport, Mr. Gebhardt has provided a wide variety of both transaction and non-transaction services to Davenport’s financial advisory clients. Transaction related work includes the execution of both new money and refunding financings in both the public market as well as direct bank loans. Since joining Davenport six years ago, Mr. Gebhardt has advised on over 175 transactions totaling over $5.5 billion in par amount. The financings that Mr. Gebhardt has completed include SPLOST Bonds, Intergovernmental Revenue Bonds, Utility Revenue Bonds, and General Obligation Bonds. Additionally, Mr. Gebhardt has experience assisting clients with projects that involve Tax Allocation Districts. Non-transactional work experience includes, among other projects, advising on economic development initiatives, completion of capital planning analysis, utility system rate studies, credit rating work, investment of bond proceeds and financial policy assessment.

Mr. Gebhardt is a member of the Georgia GFOA, the Virginia GFOA, the Georgia Association of Water Professionals, Georgia City County Managers Association, Association County Commissioners of Georgia, and the Georgia Association of School Business Officials.

Education: Amherst College

Licenses Held: Municipal Advisor Representative, Series 50 Municipal Securities Representative, Series 52General Securities Representative, Series 7 Uniform Combined Securities, Series 66

Georgia Clients Served:

Albany, City ofBrunswick Glynn Joint Water and Sewer Commission

Cobb County-MariettaWater Authority

East Point, City of Muscogee County Schools

Augusta Canton, City of Columbia County Henry County Social Circle, City of

Bartow County Catoosa County Schools Columbus Consolidated Hogansville, City of Statesboro, City of

Brookhaven, City of Chamblee, City of Decatur, City of Lawrenceville, City of Villa Rica, City of

Brunswick, City of Cherokee County SchoolsDouglasville-DouglasCounty W&S Authority

Milton, City of Walton County

Richmond — Headquarters

One James Center901 East Cary Street,Suite 1100,Richmond, Virginia 23219

Telephone:(804) 780-2000

Toll-Free:(800) 846-6666

E-Mail:[email protected]


Douglas J. Gebhardt

Vice President

(404) 825-9467

[email protected]

Ricardo Cornejo

First Vice President

(404) 865-4040

[email protected]

Courtney E. Rogers

Senior Vice President

(804) 697-2902

[email protected]

Atlanta — Branch Office

3350 Riverwood ParkwaySuite 1900,Atlanta, Georgia 30339

January 30, 2019

Disclaimer

Sidebar Conference 45

The U.S. Securities and Exchange Commission (the “SEC”) has clarified that a broker, dealer or municipal securities dealer engaging in municipal advisory activities outside the scope ofunderwriting a particular issuance of municipal securities should be subject to municipal advisor registration. Davenport & Company LLC (“Davenport”) has registered as a municipaladvisor with the SEC. As a registered municipal advisor Davenport may provide advice to a municipal entity or obligated person. An obligated person is an entity other than a municipalentity, such as a not for profit corporation, that has commenced an application or negotiation with an entity to issue municipal securities on its behalf and for which it will providesupport. If and when an issuer engages Davenport to provide financial advisory or consultant services with respect to the issuance of municipal securities, Davenport is obligated toevidence such a financial advisory relationship with a written agreement.

When acting as a registered municipal advisor Davenport is a fiduciary required by federal law to act in the best interest of a municipal entity without regard to its own financial or otherinterests. Davenport is not a fiduciary when it acts as a registered investment advisor, when advising an obligated person, or when acting as an underwriter, though it is required to dealfairly with such persons,

This material was prepared by public finance, or other non-research personnel of Davenport. This material was not produced by a research analyst, although it may refer to aDavenport research analyst or research report. Unless otherwise indicated, these views (if any) are the author’s and may differ from those of the Davenport fixed income or researchdepartment or others in the firm. Davenport may perform or seek to perform financial advisory services for the issuers of the securities and instruments mentioned herein.

This material has been prepared for information purposes only and is not a solicitation of any offer to buy or sell any security/instrument or to participate in any trading strategy. Anysuch offer would be made only after a prospective participant had completed its own independent investigation of the securities, instruments or transactions and received allinformation it required to make its own investment decision, including, where applicable, a review of any offering circular or memorandum describing such security or instrument. Thatinformation would contain material information not contained herein and to which prospective participants are referred. This material is based on public information as of the specifieddate, and may be stale thereafter. We have no obligation to tell you when information herein may change. We make no representation or warranty with respect to the completeness ofthis material. Davenport has no obligation to continue to publish information on the securities/instruments mentioned herein. Recipients are required to comply with any legal orcontractual restrictions on their purchase, holding, sale, exercise of rights or performance of obligations under any securities/instruments transaction.

The securities/instruments discussed in this material may not be suitable for all investors or issuers. Recipients should seek independent financial advice prior to making anyinvestment decision based on this material. This material does not provide individually tailored investment advice or offer tax, regulatory, accounting or legal advice. Prior to enteringinto any proposed transaction, recipients should determine, in consultation with their own investment, legal, tax, regulatory and accounting advisors, the economic risks and merits, aswell as the legal, tax, regulatory and accounting characteristics and consequences, of the transaction. You should consider this material as only a single factor in making an investmentdecision.

The value of and income from investments and the cost of borrowing may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates,securities/instruments prices, market indexes, operational or financial conditions or companies or other factors. There may be time limitations on the exercise of options or other rightsin securities/instruments transactions. Past performance is not necessarily a guide to future performance and estimates of future performance are based on assumptions that maynot be realized. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not takeninto account may occur and may significantly affect the projections or estimates. Certain assumptions may have been made for modeling purposes or to simplify the presentationand/or calculation of any projections or estimates, and Davenport does not represent that any such assumptions will reflect actual future events. Accordingly, there can be noassurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein. This material maynot be sold or redistributed without the prior written consent of Davenport.

A municipal security's credit rating is the grade a rating agency assigns to indicate the risk of default and, in some cases, takes into consideration the potential loss to investors in theevent of default. Further information and a more extensive discussion of credit ratings can be found in the MSRB Education Center. EMMA users should refer to the specific ratingdefinitions provided by each rating agency to gain a more complete understanding of the meanings of ratings assigned by the rating agencies. Users are cautioned that rating agenciesmay assign different meanings to similar terms. http://emma.msrb.org/emmahelp/UnderstandingCreditRatings.aspx

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