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HomeMy WebLinkAbout2005-05-25 IFC Regular Meeting Agenda Packet �•� CITY OF PALM DESERT / FINANCE DEPARTMENT INTEROFFICE MEMORANDUM TO: RACHELLE KLASSEN, CITY CLERK FROM: NIAMH ORTEGA, RECORDING SECRETARY ' " DATE: JULY 5, 2005 SUBJECT: APPROVED MINUTES OF THE MAY 25, 2005 INVESTMENT & FINANCE COMMITTEE MEETING Please find attached the Minutes of the Investment & Finance Committee meeting which took place on Wednesday, May 25, 2005, and were approved by the Committee at the meeting of June 22, 2005. A memorandum has also been included as part of the Minutes packet for Council review. Please include on the upcoming agenda for review and acceptance by City Council. Please feel free to contact me at Ext. 382 if you have any questions. Thank you. nmo Attachment (as noted) -To P V--15 G:ffinanceWlam OnegaMpEo lhwslmenl Co IteeWempsWassen012605.w d MINUTES �`•� REGULAR MEETING OF THE PALM DESERT INVESTMENT & FINANCE COMMITTEE Wednesday, May 25, 2005 I. CALL TO ORDER Chairman Gibson called to order a regular meeting of the Palm Desert Investment & Finance Committee at 10:30 a.m. II. ROLL CALL Present: Absent: Paul Gibson, Chairman Thomas Lee Wormley, Member Buford Crites, Mayor Jim Ferguson, Mayor Pro-Tempore Carlos Ortega, City Manager Justin McCarthy, ACM/Redevelopment Thomas Jeffrey, Deputy City Treasurer Dave Erwin, City Attorney Russ Campbell, Member Bill Veazie, Member Everett Wood, Member Also Present: Mike Cavanaugh, Wedbush Mortgage Securities Dennis Coleman, RDA/Housing Finance Manager Luis Espinoza, Assistant Finance Director Niamh Ortega, Recording Secretary Rodney Young, Desert Willow Golf Resort III. ORAL COMMUNICATIONS None. IV. APPROVAL OF MINUTES A. MINUTES OF THE REGULAR MEETING OF APRIL 27, 2005 MOTION was made by Mr. Wood and seconded by Mr. Campbell to approve the Minutes of the April 27, 2005 regular meeting. Motion passed; Mr. Ortega abstained. INVESTMENT & FINANCE COMMITTEE MINUTES MAY 25, 2005 V. NEW BUSINESS A. CITY AND REDEVELOPMENT AGENCY INVESTMENT SCHEDULES AND SUMMARY OF CASH REPORTS FOR APRIL 2005 Mr. Jeffrey submitted the report for April 2005, and highlighted the following areas: For the month ended April 30, 2005, the book value of the City Portfolio was approximately $146.3 million. Interest earnings were approximately $321,000. Yield-to-maturity was approximately 2.94%. For the month ended April 30, 2005, the book value of the RDA Portfolio was approximately $125.2 million. Interest earnings were approximately $283,000. Yield-to-maturity was approximately 2.80%. Mr. Jeffrey pointed out that the RDA Portfolio reports a significant drop due to the maturation of a $23 million treasury note that was used to refund a project area, and approximately $9 million in debt service. Mr. Ortega referenced the Ford report included in the agenda packet, and stated that he agreed with staffs analysis and recommendation. B. LOCAL AGENCY INVESTMENT FUND (L.A.I.F.) ACCOUNT STATEMENTS FOR APRIL 2005 The reports were reviewed and placed on file. C. CALIFORNIA ASSET MANAGEMENT PROGRAM (C.A.M.P.) ACCOUNT STATEMENTS FOR APRIL 2005 The reports were reviewed and placed on file. D. CITY AND REDEVELOPMENT AGENCY FINANCIAL REPORTS FOR APRIL 2005 The reports were reviewed and placed on file. Mr. Gibson emphasized that the State's payment of sales tax has not yet been received. Year-to- date expenditures are similar to last year's expenditures. Mr. Gibson also informed the Committee that the State is in the process of changing the method for calculations of DMV increases. The same increase percentage will be applied to DMV fees as to property tax fees rather than basing the calculation on the auto volume and value within the City. 2 G:IFinancewiamh OrtegalWpdocsVnvestment Committee120051MinutesMinutes 052505 finat.doc INVESTMENT & FINANCE COMMITTEE MINUTES MAY 25, 2005 Mr. Coleman highlighted that supplemental income in the amount of $1.527 million was received. The most significant expenditures occur in capital projects, a large portion being for Wallaroo Childcare Center. Mr. Coleman also informed the Committee that in response to a query at the previous meeting, College of the Desert has retained approximately $1 million in non-obligated funds over the past five years. Approximately $1.924 million remains outstanding. E. PARKVIEW PROFESSIONAL OFFICE BUILDINGS FINANCIAL REPORT FOR APRIL 2005 The report was reviewed and placed on file. Two tenants are vacating and an item is being placed on the Council agenda to discuss prospective tenants. CVAG has the option to take part of the space formerly occupied by UCR, and Virginia Waring is being considered for the remainder of the space. F. PALM DESERT GOLF COURSE FACILITIES CORPORATION FINANCIAL REPORT FOR APRIL 2005 Mr. Young reported that the course continues to do well, as evidenced by its cash flow of $1.8 million, $815,000 more than last year. 85,000 rounds of golf were sold this year, as opposed to 81,000 last year and 72,000 two years ago. The good weather in March and April compensated for poor weather at the beginning of the year. Group business has doubled for June, and the course is within 15,000 rounds of capacity. Broker rates will be increased next year. Mr. McCarthy asked how many of the 85,000 rounds would be considered low-value capacity that could be offset by captive demand rounds. It was estimated that about 50% were lower-paying rounds, and about 70% of those are non-resident players. It was agreed that the Senior Financial Analyst would conduct additional research with Mr. Young to evaluate the uses at Desert Willow. VI. CONTINUED BUSINESS None. VII. OLD BUSINESS A. PUBLIC AND PRIVATE PARTNERSHIP BACKGROUND CHECKS No report. 3 GAFinancewiamh OrtegaMpdocskinvestment Committee12005WOutesVvfinutes 052505 finaLdoc INVESTMENT & FINANCE COMMITTEE MINUTES MAY 25, 2005 B. PALM DESERT FINANCING AUTHORITY BOND ISSUANCE Requests for Qualifications (RFQ) were received on May 13, 2005. A meeting has been scheduled for June 7, 2005 to review the RFQs. Vlll. ADJOURNMENT Mr. Gibson adjourned the meeting at 10:55 a.m. Niamh Ortega, Reco ing Secretary 4 G:IFinancewiamh OrtegalWpdocsllnvestment Committee120051MinutesV.finutes 052505 final.doc CITY OF PALM DESERT OFFICE OF THE CITY TREASURER STAFF REPORT TO: Investment and Finance Committee DATE: May 25, 2005 SUBJECT: S&P Downgrade of Ford Motor Credit Corporation Bonds to High-Yield CONTENTS: Exhibit "A": Comparative Credit Ratings of FMCC as of 5-18-05 Exhibit "B": Merrill Lynch Credit Monitor Report dated 5-12-05 On May 5, Standard and Poors ("S&P") downgraded Ford Motor Credit Company's ("FMCC") long-term debt one notch from "BBB-" to "BB+" ("high yield" or "junk"). Although the timing of the action came as a surprise, the action itself did not. FMCC is still considered to be "investment grade", however, since Moody's and Fitch continue to rate it as such. Ford has two core businesses: Ford Motor Company ("FMC"), the carmaker, and FMCC, the captive finance arm. Over the last few years, FMC's profitability has been mediocre, while FMCC's profitability has been excellent (the corporate "cash cow"). In 2004, FMCC accounted for 80% of Ford's $3.5 billion after-tax profit. As a Finance Committee member noted, "Ford is a finance company that sells cars to raise debt." The City owns FMCC bonds. On April 8, 2005, Ford reversed an earnings guidance affirmation that it had made two weeks earlier, and announced that it was abandoning its target of $7 billion of pretax profit in 2006 ($4 billion from FMC; $3 billion from FMCC). This target was the centerpiece of Ford's five-year recovery plan, and was considered non-negotiable. It was intended to restore car making as Ford's most profitable core business. Although Ford had made a $1.2 billion profit in 1Q2005 (GM, in contrast, lost $1.1 billion), profits were down 38% from prior year due primarily to plunging large SUV sales. The trigger for the downturn was spiraling gasoline prices caused by high Chinese oil demand. Ford was caught transitioning from large SUVs to smaller, more fuel-efficient, crossover SUVs (where future demand will be). y Staff Report S&P Downgrade of Ford Motor Credit Corporation Bonds to High Yield May 25, 2005 Page 2 of 3 All three rating agencies (S&P, Moody's, and Fitch) reacted by putting Ford on "Negative Outlook," thereby signaling a likely downgrade. This caused Ford to become one of the most heavily traded names for a week. The City Treasurer's Office discussed whether to reduce the City's position in Ford, and concluded that it would not be prudent, due to market volatility. Subsequent conversations with brokers confirmed that this was a sound decision (Ford bonds were trading hundreds of basis points over the average high-yield level). S&P's rating action on Ford was not based upon management fraud or any specific event. S&P had reviewed Ford's operations, and competitive market conditions over the next two years, and had concluded that if current trends continued, then there would be an increased risk that Ford might default on intermediate- and long-term bonds (maturing in 5+ years). S&P expressed "skepticism about whether management's strategies will be sufficient to counteract mounting competitive challenges." These challenges included intensified market competition, continued market share loss, and increased health care costs. S&P noted, however, that Ford currently had good liquidity, and that FMCC would probably generate $3 billion in pretax profit for 2005. Ford has completed 50-75% of its funding requirements for 2005, and can finance the remainder by issuing asset-backed securities that will carry a "AAA" rating. The S&P downgrade has effectively precluded Ford from issuing unsecured debt, however, due to the high interest rates that would be required. Accordingly, Ford now issues debt exclusively through the asset-backed securities market. MGM, AT&T, Xerox, Georgia Pacific, J.C. Penny, Lucent Technology, and General Motors are other well-known names that have had high-yield downgrades. The Bottom Line [1) Majority View: Still Investment Grade. Two of three major credit agencies still rate FMCC as "investment grade" (see Exhibit "A"). Moody's rates FMCC long-term debt at "Baa2" (two notches above high yield, after a two-notch downgrade on May 12); Fitch rates Ford at "BBB" (two notches above high yield, after a one-notch downgrade on May 19). S&P's BB+ high-yield rating is the minority view. The Lehman bond indexes are used by 90% of institutional investors. Due to S&P's action, Ford will move to the Lehman high-yield index in June 2005, only to return to the Lehman investment grade index in July 2005, when Fitch ratings are included, and an average is taken. (2] Strong Balance Sheet. According to Merrill Lynch (see Exhibit "B"), Ford has one of the strongest balance sheets in the auto industry. Ford's bank lines have no ratings triggers or other financial covenants. Ford has only $3.2 billion of debt maturing within the next 10 years. Ford continues to pay $2 billion in dividends to its shareholders annually. Staff Report S&P Downgrade of Ford Motor Credit Corporation Bonds to High Yield May 25, 2005 Page 3 of 3 FMC has cash and cash equivalents of $22.9 billion; net liquidity of $5.2 billion; and $7.2 billion of committed bank lines. FMCC has cash and cash equivalents of$13.1 billion; $13.8 billion of global credit lines; and $18 billion of committed liquidity facilities. FMCC could raise additional cash by either: 1) continuing to shrink its receivables base; or 2) selling Hertz Rent-A-Car (a non-core business), which would eliminate $8 billion of debt from Ford's balance sheet, and generate $6-8 billion in cash. [3] Good Pay. The City's Ford position will completely mature within 25 months (June 2007). Staff has talked to two of the top analysts in the securities industry: Mary Rooney, Director of Credit Analysis for Merrill Lynch, and Girard Miller, a noted economist, former CEO of ICMA Retirement Corporation, and the current COO of Janus Capital Group. Both have studied Ford, and have confirmed that it will be able to pay off its debt within the next two years. [4] Successful New Product Models. Ford's April 2005 sales numbers indicated that F-series pick-up truck sales had increased 2% over prior year, after dropping in the first quarter (F-series trucks are the best-selling vehicles in the U.S.). The restyled Mustang is currently selling so rapidly that Ford is having trouble restocking inventory. The Five Hundred Sedan, and the Mercury Montego, after a slow start, are beginning to gain in popularity. The Ford Escape is the second-best selling crossover SUV, and is more fuel efficient than its Japanese counterparts. [5] Majority of Creditors Standing Firm. A May 5 survey of Ford creditors (Bloomberg News Service) revealed that the majority planned to hold onto their Ford bonds, despite the S&P downgrade. The only forced selling over the next few months will come from private and public pension funds, mutual funds, and insurance companies that are prohibited from owning high- yield bonds. Hedge funds and high-yield investors will be the buyers. In summary, Ford remains an investment-grade credit that has sufficient cash to redeem its debt through June 2007. As a short-term creditor, the City is indifferent to Ford's long-term debt ratings. While the California Government Code prohibits local agencies from acquiring bonds that do not have a "A" credit rating, it is silent on the treatment of legally acquired bonds that have been downgraded below "A". Consequently, the City has the flexibility to hold the bonds to maturity. Staff is currently tracking Ford's balance sheet on a quarterly basis in order to identify any significant erosion of liquidity, should it occur. Submitted By: Thomas W. JeffnW, 09putyCity Treasurer EXHIBIT "A" 5/19/05 FORD MOTOR CREDIT CORPORATION 2:03 PM COMPARATIVE CREDIT RATINGS FOR LONG-TERM DEBT AS OF MAY 19, 2005 STANDARD & DESCRIPTION FITCH POORS MOODY'S CLASSIFICATION HIGHEST QUALITY AAA AAA Ada AA+ AA+ Aal VERY HIGH QUALITY AA AA Aa2 AA- AA- Aa3 INVESTMENT A+ A+ Al GRADE HIGH QUALITY A A A2 A- A- A3 BBB+ BBB+ Baal GOOD QUALITY BBB BBB- BBB- Baa3 BB+ Bat SPECULATIVE BB BB Ba2 BB- BB- Ba3 B+ B+ Bl HIGHLY SPECULATIVE B B B2 HIGH YIELD B- B- B3 ("JUNK") CCC+ CCC+ Caa HIGH DEFAULT RISK CCC CCC Ca CCC- CCC- C CC CC C C DEFAULT DDD D DD D FOOTNOTES: "LONG TERM DEBT" IS DEFINED AS BONDS HAVING A MATURITY OF 5 YEARS OR MORE, FROM TIME OF RATING. RATING AGENCIES DO NOT RATE BONDS BY INDIVIDUAL MATURITY. SO, A FORD BOND MATURING IN 2 YEARS WILL CARRY THE SAME CREDIT RATING AS A FORD BOND MATURING IN 10 YEARS, EVEN THOUGH THE RISK OF DEFAULT FOR FORD IS MUCH GREATER OVER TIME. "SPECULATIVE" MEANS THAT CREDIT RISK MIGHT DEVELOP DUE TO ADVERSE ECONOMIC CHANGE OVER TIME. BUT FINANCIAL MEANS MAY BE AVAILABLE TO ALLOW FINANCIAL COMMITMENTS TO BE MET. EXHIBIT "B" WMerrill hyneh Credit Strategies- 10 May 2005 Table 1). While some bonds have cheapened due to Moody's or Fitch by late June,GM,GMAC,F,and FMC fundamentals(e.g.Morgan Stanley,Viacom,Albertson) will all fall out of Lehman's high grade index at the end of many,especially those of higher quality should be mean this month,only to return in July. reverting.Also,comparing to CDS mitigates fundamental steepening as SYR CDS/5 Year Cash bonds beta is Both F and FMC will likely go back to high grade in July typically greater than I. while GM/GMAC has less margin for error for a return (basically,Fitch must not downgrade I h months). Pension Reform may quell Treasury Steepening.But Benefit High Quality Corporates NAIC Remains Unchanged at Znd Highest All Auto bonds will retain their current NAIL rating of There is some debate as to how much more the Treasury curve will steepen if the proposed pension reform is "to Recall,the NAIC recognizes four NRSROs e is more passed. It is quite possible that demand for long dated Standard&P RO r Fitch,and DBR-hi When there is more assets will exceed any incremental supply. than one to an N rating the second-highest toting n translated to an NAIC Designation(Similar to the new However,if Pension reform were to become reality,it is Lehman schema). also true that long dated Corporates should benefit even For example,if the ratings are"A","A",and"BBB" then more. Recall that in the proposed legislation pension highest rating is"A",and the second-highest rating is also liabilities will be discounted by Single A Corporate curve. "A" so the asset becomes NAIC I (the equivalent of"A"). Single A Corporates should be the hedge asset of choice The NAIC equivalents are:>A-= 1;BBBt=2; BBt= and thus benefit in either a treasury steepening or a 3;Bf=4;on down to in or near default=6. pension-driven flattening environment. Changing Index Rules Confusing Table 3:Summary of the Index Rules the Auto Migration to High Yield Index Rule GMCurremRadng ML Average of Moodys,SP Fitch 10.7-HY ML Takes the Average Lehman Cumera Lower of Moodys,SP 12-HY ML index criteria is based upon an average of the Moodys, Lehman starting 611 21d highest of Moodys,SP and 10-IG S&P and Fitch numerical ratings(where AAA=1, Fitch AAI/AA+=2,Aa2/AA=3,etc.). A composite rating of NAIC Second Highest of Moodys,SP, 2-IG 10.5 or higher falls below investment grade.(An average Filch,and DBRS rating between 10.5 and 11.499=BB+). 5°mce'ML GM falls to High Yield, GMAC,F,FMC and Hertz all remain investment grade Ford versus GM: Relative Value in As shown in Table 2,GM's Baa3BBBBB-rating the Curve averages to 10.7,which rounds to I 1 or BB+. Underweight GM,Marketweight F Since GMAC's average rating is 10.3,its rating rounds to In the comes of GM and Fs new reality as high yield BBB-. Based on the ML scheme,both Ford and FMC credits, we continue to favor F over GM. While the action have a decent cushion(5 and 7 notches,respectively) from S&P on F came sooner than we had expected,bonds before falling to high yield. discount the fundamental and technical risks in our view. Despite wider trading levels at GM,we expect Table 2:ML Index Rules and GM and Ford incrementally negative fundamentals and technicals to Complex:The"10.5"Cutoff continue to pressure spreads. We believe F spreads fairly AIM Vahre compensate investors for a traditional"5-13"credit. CredalRatin Nunwical RatBt Aura o Index tars Liquid balance sheet. F maintains the strongest balance GM(Baa3BBBBB•) AVG(10,12,10) 10.7 112.1 sheet in the sector with industrial cash of S23bn(incl. GMAC(Baa2/BBIBB8-) AVG(9,12,10) 10.3 $31.0 VEBA),and net liquidity of SSbn. This compares to GM's F(BAAIBB+BBB+) AVG(8,11,8) 9.0 $16.6 cash and S-T VEBA balance of S20bn,but a net debt FMC(A31BB+BBB+) AVG(7,1118) 8.3 $24.9 balance of 512.51n. Liquidity is substantial w/sizeable bank HRTZ(Baa2I8BB•1BBB+) AVG(9,10,8) 9.0 $3.7 lines&minimal near-term industrial debt maturities. sauce:MeniLrch.Lem mb%am mapped toordinalmanek ramp:AAA"1,AA More operational flexibility. F's structural cost base 2....Rm-10,RR-12... affords it a relative advantage over GM,and we acknowledge the strides F has made toward its restructuring Lehman Takes the Middle goals laid out in 2002. Given its smaller size and more This contrasts to the Lehman index schema. It is our moderate legacy obligations(pensions and OPEB),F can understanding that Lehman Brothers currently takes the adjust its volume to focus on higher margin opportunities. "lower of Moody's and S&P,but commencing July 1, GM must absorb the costs of carrying about 2.4 retirees for will use the middle or 2nd highest rating of every active employee,whereas F's ratio is approximately Moody's\S&P\Fitch.Assuming no rating change by Refer to importem disclosures on page 11. 3 Credit Strategies- 10 May 2005 Merrill layneh Product initiative. While not a distinct advantage for either company,we are modestly more positive regarding F's near Table 4:Auto Comparable Financial Summary term product momentum relative to GM. Both companies FY05 Estimates($s in mms)-Industrial Only are getting hit hard by declines in overall market share,with F GE particular weakness in SUNS. GM has lost 1.6 points of Ratings"OYsl IF" Baa11B8+1688+ Baa31BBMS share YTD,while F has lost 1.1 share points. For its part, Outlooks XDYs/S&PlFitch) WL fte9fWlf'f NUN GM will be experiencing somewhat of a product dry-spell blcoriiestitaclardAMhs„ until its GMT 900 platform(large SUVs and pickups)ramps Teal Net Sales and Revenues $148,028 $152,033 up in early 2006. Further,the success of this platform is EBITDA 7,415 6,294 hard to predict given(1)the secular shifts in the industry Depredation and Amortization 6,340 8,008 away from traditional SUVs and(2)GM has not released EBIT(a) 1.075 design photos of the new products. F's recent car/CW (1',7 5 launches have been building momentum,which is partly OdieInterest Expense,Gross (255) 2,200 mitigating weakness in its light truck performance. p Expenses(Irtwme) (255) 200 EBT 30 14,69% Stronger credit metrics. Across-the-board,F has stronger Tstila credit metrics. For FY05,we expect F to post an EBITDA Cash and Equivalents $19,492 $15,542 margin of 5%versus GM's 4%. Interest coverage of 5.7x Total Debt 18,435 32.512 compares with GM's 2.3x. Debt-to-EBITDA is forecast at Total Shareholders'Equdy(b) 17,539 27,772 2.5x,well below GM's 5.2x.Though global unfunded Total Capitalization 35,974 60,294 pensions total$121n at F versus SBbn at GM,F's OPEB sii�arid'Roubs., obligation is effectively half the size of GM's. We also EBITDA Margin 5.0% 4.1% expect F to post close to breakeven cash flow this year,in EBITDA Coverage of Interest 5.7x 2.3x contrast to a$5bn cash outflow expected at GM. EBITDA-cap-ex Coverage of Interest 0.9x -0.6x Hertz sale would be positive for fundamentals and Total Debt/Capitalization 51.2% 53.9% technicaLL Net Liquidity(Cash-Debt) $1,057 ($16,980) We continue to expect F will move toward a separation of Ac§usted Net Ligtdr84(c) $5,157 ($13,461) Hertz. While the company has not indicated what form a Total Debt I EBITDA 2.5x 5.2x separation would take,management stated it would be h/vmc Ltdk0/bdpaxd0n $12 $0 done in conjunction with boosting liquidity. We believe a Lhlff bdOP® $32 $51 sale is most likely,and ML estimates the business could be sa.n:SEC mcenen.FILM.K&a smarms. FOOMML worth over$6bn. Such a sale would be welcome news for meMADsa2se+a=2ats Ace the wdWaseyrertwycnrnerxl. the market,enabling the company to further strengthen its tan(a) eIIi0"i°ea4 y 1tl° te1 tan nodes nlaes:snme. balance sheet(which may include further debt reduction) Nlsmcu,aare*,kykeFrc+t,eaesensmnsawaseagmwbuer'eW4. and/or offset the potential charges/cash outlays Icl"*tsM°n"epee"me°vEe,.wwd'a&Wned0nn efluYOY. surrounding a further Visteon restructuring. Further,the technical implications are also favorable as almost$46n of Chart 2:GNAC vs F89C Credit Curves:Wallow Basis in'09s and Hertz bonds are removed from the F ticker. 1105 We expect F to remain in the high grade indices this am year(ex-June),while GM drops out aMzrsm.drn Collectively,the rating agencies do differentiate between F and GM. Though S&P takes a harsher view,we believe — ° t wea+ Moody's and Fitch will be more tolerant of F's recent ""'- „s missteps and keep it at investment grade,allowing F to 4eo remain in the MULehman high grade indices for the near ^^ tern(except for the month of June). That said,the pending °00 Wei .;91Q,,,. a„ Moody's review of F is expected to be concluded in the d a tie •' ^' `>ss° 4.,s coming days, which may add some near term volatility. Conversely,we believe it is just a matter of time before GM d e °' ,is°, '••w w roe u o.m is rated high yield at all 3 rating agencies, forcing it out of all major investment grade indices. r 3 3 4 5 e ) e 9 Scarce:Mara Lynch What Looks Cheap:FMC '10s, FMC '09s in Z There are many factors affecting valuation at these levels: dollar price, liquidity and Repo dynamics. Dollar prices Relay to important disclosures on page 11. 4 ®"® CITY OF PALM DESERT / FINANCE DEPARTMENT INTEROFFICE MEMORANDUM TO: RACHELLE KLASSEN, CITY CLERK FROM: NIAMH ORTEGA, RECORDING SECRETARY DATE: JULY 5, 2005 SUBJECT: COMPLIANCE ANALYSIS AND INVESTMENT REPORTS Please find attached the Compliance Analysis and Investment Reports for May 2005 which were presented and approved at the meeting of June 22, 2005. Please include on the upcoming agenda for review and acceptance by City Council. Please feel free to contact me at Ext. 382 if you have any questions. Thank you. nmo Attachment (as noted) G Tinanm\Niam Ortega\Wpdp klnvestrnent Cp tteeWemoeWassemnvrep aO12605.wpd -G RK--)P5 COMMITTEE MEETING WORKSHEET Meeting Description Investment Committee Meeting Date 5/25/05 Time: 10:30 a.m. Location North Wing Conference Room Mailed Agenda 5/19/05 Posted Agenda 5/19/05 Time Convene Adjournment � 0,6(o Staff Members Attending Yes No Others Attending Yes No 1 Paul Gibson, Chairperson 12 Dennis Coleman 2 Council Member- Crites 13 Luis Espinoza 3 Council Member- Ferguson V4 14 Anthony Hernandez 4 iyttorney 15 Rodney Young 5 Carlos Ortega, City Mgr. 16 Recording Secretary-Niamh O. 6 Thomas Jeffrey 7 Justin McCarthy Public Members Attending Guests Attendin 8 Russ Campbell 17 9 Bill Veazie 18 10 Everett Wood 19 11 Thomas Wormley 20 21 22 Foil ow-Ups/Tasks Assigned Person Responsible Due Date 1 2 3 4 5 6 7 8 Spoke Mtn (1) Mtn (2) MEETING NOTES �W C 1 Iry cilw RM Quo-A Lac O W o 0 -At t' Spokes ,Mtn (1") Min (2} MEETING NOTESa4 `% =aK , +,"`, rJ 5 5 S s U Y-� ( " r {� Vp Alb i ®'"® CITY OF PALM DESERT FINANCE DEPARTMENT INTEROFFICE MEMORANDUM TO: RACHELLE KLASSEN, CITY CLERK FROM: NIAMH ORTEGA, RECORDING SECRETARY DATE: MAY 25, 2005 SUBJECT: COMPLIANCE ANALYSIS AND INVESTMENT REPORTS Please find attached the Compliance Analysis and Investment Reports for March and April 2005 which were presented and approved at the meeting of May 25, 2005. Please include on the upcoming agenda for review and acceptance by City Council. Please feel free to contact me at Ext. 382 if you have any questions. Thank you. nmo Attachment (as noted) GiFinanmNia"OneP%Wpdo MnvWmant Co tteeVAemost+ImwninwepW012605 Wpd CITY OF PALM DESERT FINANCE DEPARTMENT INTEROFFICE MEMORANDUM TO: RACHELLE KLASSEN, CITY CLERK ,`��� FROM: NIAMH ORTEGA, RECORDING SECRETARY ( DATE: MAY 25, 2005 SUBJECT: APPROVED MINUTES OF THE APRIL 27, 2005 INVESTMENT & FINANCE COMMITTEE MEETING Please find attached the Minutes of the Investment & Finance Committee meeting which took place on Wednesday, April 27, 2005, and were approved by the Committee at the meeting of May 25, 2005, Please include on the upcoming agenda for review and acceptance by City Council. Please feel free to contact me at Ext. 382 if you have any questions. Thank you. nmo Attachment (as noted) G Timn"Nla"GnepaMpd=%In es t CManitleeVAe VYJaa n012605.wpd MINUTES REGULAR MEETING OF THE PALM DESERT INVESTMENT & FINANCE COMMITTEE Wednesday, April 27, 2005 I. CALL TO ORDER Chairman Gibson called to order a regular meeting of the Palm Desert Investment & Finance Committee at 10:30 a.m. II. ROLL CALL Present: Absent: Paul Gibson, Chairman Jim Ferguson, Mayor Pro-Tempore Buford Crites, Mayor Justin McCarthy, ACM/Redevelopment Thomas Jeffrey, Deputy City Treasurer Carlos Ortega, City Manager Dave Erwin, City Attorney Russ Campbell, Member Bill Veazie, Member Everett Wood, Member Thomas Lee Wormley, Member Also Present: Dennis Coleman, RDA/Housing Finance Manager Luis Espinoza, Assistant Finance Director Niamh Ortega, Recording Secretary III. ORAL COMMUNICATIONS None. IV. APPROVAL OF MINUTES A. MINUTES OF THE REGULAR MEETING OF MARCH 23, 2005 MOTION was made by Mr. Wood and seconded by Mr. Campbell to approve the Minutes of the March 23, 2005 regular meeting. Motion passed. INVESTMENT & FINANCE COMMITTEE MINUTES APRIL 27, 2005 V. NEW BUSINESS A. CITY AND REDEVELOPMENT AGENCY INVESTMENT SCHEDULES AND SUMMARY OF CASH REPORTS FOR MARCH 2O05 Mr. Jeffrey submitted the report for March 2005, and highlighted the following areas: For the month ended March 31, 2005, the book value of the City Portfolio was approximately $146.9 million. Interest earnings were approximately $325,000. Yield-to-maturity was approximately 2.79%. For the month ended March 31, 2005, the book value of the RDA Portfolio was approximately $158.3 million. Interest earnings were approximately $375,000. Yield-to-maturity was approximately 2.58%. B. LOCAL AGENCY INVESTMENT FUND (L.A.I.F.) ACCOUNT STATEMENTS FOR MARCH 2O05 The reports were reviewed and placed on file. C. CALIFORNIA ASSET MANAGEMENT PROGRAM (C.A.M.P.) ACCOUNT STATEMENTS FOR MARCH 2O05 The reports were reviewed and placed on file. D. CITY AND REDEVELOPMENT AGENCY FINANCIAL REPORTS FOR MARCH 2O05 The reports were reviewed and placed on file. Mr. Gibson highlighted that revenues were approximately $700,000 more than the same period last year. Mr. Coleman pointed out that most of the RDA revenue received for the month of March was interest income. The Housing Authority received $386,000 in rental fees. A second payment of tax increment in the amount of approximately $28 million is expected in May 2005. From that amount, approximately $24 million will be paid in pass-through funds and will be reflected on the report for July or August 2005. Mayor Crites asked how much of the pass-through payment for College of the Desert would be held back as repayment of the library, and the time remaining on that note. Mr. Coleman stated that he would research this item. 2 GlFinancewiamh OrtegalftdocsVnvestment Committee120051MinuteslMinutes 042705(nal.doc i INVESTMENT & FINANCE COMMITTEE MINUTES APRIL 27, 2005 E. PARKVIEW PROFESSIONAL OFFICE BUILDINGS FINANCIAL REPORT FOR MARCH 2O05 The report was reviewed and placed on file. One tenant has vacated, and the City Attorney is reviewing a prospective tenant to determine if it is an appropriate use for the building. F. PALM DESERT GOLF COURSE FACILITIES CORPORATION FINANCIAL REPORT FOR MARCH 2O05 Mr. Gibson reported that Desert Willow has performed well for the month of March. Club Intrawest has expressed a desire to relocate their facility, which would provide for more available space at the clubhouse for possible restaurant use. The operating income reflects a profit of about $559,000 at this point. G. 457 DEFERRED COMPENSATION REPORTS FOR 1Q05 (NATIONWIDE & ICMA) Mr. Gibson reviewed the California code that states that all cash must be reported to Council. The information is provided to the Committee for informational purposes only, as it is not included as a part of the City's investment strategy. VI. CONTINUED BUSINESS None. VII. OLD BUSINESS A. PUBLIC AND PRIVATE PARTNERSHIP BACKGROUND CHECKS No report. B. PALM DESERT FINANCING AUTHORITY BOND ISSUANCE Requests for Qualifications (RFQ) have been distributed to sixteen firms who have expressed interest in the past. It is expected that between five and seven firms will respond. A meeting will be scheduled for the first week of June so that the subcommittee can review the received RFQs. Mr. Coleman commented that two potential assessment districts are being reviewed. Staff is exploring how fees for improvements could be spread between property owners, as well as a possible community facilities 3 G:TinanceWiamh Ortega)WpdocsVnvestment Committee12005Ninutes Aftutes 042705 final.doc INVESTMENT & FINANCE COMMITTEE MINUTES APRIL 27, 2005 district. Palm Desert Highlands is also being considered as a potential assessment district for utility undergrounding. Vill. ADJOURNMENT Mr. Gibson adjourned the meeting at 11:07 a.m. Niamh Ortega, Recordii Secretary 4 GlFinanceWiamh Ortegal ftdocsllnvestment Commitfee12005kMinutesMnufes 042705(nal.doc / ON .§ LU � \ f/ ( g 5 ; � s / § 4 } k E w M. u § b\ Say q B \ ) K � 0 \ � � \ ƒ / \ $ } / oz ® 3 § y / \ I < £ Aye CO) k \ \ \ z_ 2 & \ \ � \ } { . . \ \ AGENDA REGULAR MEETING OF THE PALM DESERT INVESTMENT & FINANCE COMMITTEE Wednesday, May 25, 2005 — 10:30 a.m. North Wing Conference Room, City Hall I. CALL TO ORDER II. ROLL CALL III. ORAL COMMUNICATIONS A. Any person who wishes to discuss an item not on the agenda may do so after he/she has given his/her name and street address for the record. Speakers must limit their remarks to three (3) minutes unless the Committee authorizes additional time. B. Any person who wishes to comment on an agenda item may do so. At the Committee's discretion, however, such comments may be deferred until the item is discussed on the agenda. Speakers must limit their remarks to three (3) minutes unless the Committee authorizes additional time. IV. APPROVAL OF MINUTES A. MINUTES OF THE MEETING OF APRIL 27, 2005 Rec: By Minute Motion, approve the Minutes of the regular meeting of the Palm Desert Investment and Finance Committee of April 27, 2005, as presented. V. NEW BUSINESS A. CITY AND REDEVELOPMENT AGENCY INVESTMENT SCHEDULES AND SUMMARY OF CASH REPORTS FOR APRIL 2005 Rec: By Minute Motion, recommend that the City Council approve the City and Redevelopment Agency Investment Reports for the periods ended April 30, 2005. B. LOCAL AGENCY INVESTMENT FUND (L.A.I.F.) ACCOUNT STATEMENTS FOR APRIL 2005 Rec: Review and file. C. CALIFORNIA ASSET MANAGEMENT PROGRAM (C.A.M.P.) ACCOUNT STATEMENTS FOR APRIL 2005 Rec: Review and file. INVESTMENT & FINANCE COMMITTEE AGENDA MAY 25, 2005 D. CITY AND REDEVELOPMENT AGENCY FINANCIAL REPORTS FOR APRIL 2005 Rec: Review and file. E. PARKVIEW PROFESSIONAL OFFICE BUILDINGS FINANCIAL REPORTS FOR APRIL 2005 Rec: Review and file. F. PALM DESERT GOLF COURSE FACILITIES CORPORATION FINANCIAL REPORTS FOR APRIL 2005 Rec: Review and file. VI. CONTINUED BUSINESS None. VII. OLD BUSINESS A. PUBLIC AND PRIVATE PARTNERSHIP BACKGROUND CHECKS Rec: Review and file. B. PALM DESERT FINANCING AUTHORITY BOND ISSUANCE Rec: Review and file. Vill. ADJOURNMENT Rec: By Minute Motion, adjourn the meeting. Next Meeting: Wednesday, June 22, 2005 at 10:30 a.m. in the North Wing Conference Room, City Hall. I hereby certify, under penalty of perjury, under the laws of the State of California that the foregoing agenda for the Palm Desert Investment and Finance Committee was posted on the City Hall bulletin board not less than seventy-two (72) hours prior to the meeting. Dated this 18' day of May 2005. Niamh Ortega, RecQding Secretary 2 G:TinanceWiamh OrtegalWpdocsVnvestment CommitteM2005IAgendalagenda 052505.doc MINUTES REGULAR MEETING OF THE PALM DESERT INVESTMENT & FINANCE COMMITTEE Wednesday, April 27, 2005 I. CALL TO ORDER Chairman Gibson called to order a regular meeting of the Palm Desert Investment & Finance Committee at 10:30 a.m. II. ROLL CALL Present: Absent: Paul Gibson, Chairman Jim Ferguson, Mayor Pro-Tempore Buford Crites, Mayor Justin McCarthy, ACM/Redevelopment Thomas Jeffrey, Deputy City Treasurer Carlos Ortega, City Manager Dave Erwin, City Attorney Russ Campbell, Member Bill Veazie, Member Everett Wood, Member Thomas Lee Wormley, Member Also Present: Dennis Coleman, RDA/Housing Finance Manager Luis Espinoza, Assistant Finance Director Niamh Ortega, Recording Secretary III. ORAL COMMUNICATIONS None. IV. APPROVAL OF MINUTES A. MINUTES OF THE REGULAR MEETING OF MARCH 23, 2005 MOTION was made by Mr. Wood and seconded by Mr. Campbell to approve the Minutes of the March 23, 2005 regular meeting. Motion passed. INVESTMENT & FINANCE COMMITTEE p MINUTES APRIL 27 2005 V. NEW BUSINESS A. CITY AND REDEVELOPMENT AGENCY INVESTMENT SCHEDULES AND SUMMARY OF CASH REPORTS FOR MARCH 2O05 Mr. Jeffrey submitted the report for March 2005, and highlighted the following areas: For the month ended March 31, 2005, the book value of the City Portfolio was approximately $146.9 million. Interest earnings were approximately $325,000. Yield-to-maturity was approximately 2.79%. For the month ended March 31, 2005, the book value of the RDA Portfolio was approximately $158.3 million. Interest earnings were approximately $376,000. Yield-to-maturity was approximately 2.58%. B. LOCAL AGENCY INVESTMENT FUND (L A.I.F.) ACCOUNT STATEMENTS FOR MARCH 2O05 The reports were reviewed and placed on file. C. CALIFORNIA ASSET MANAGEMENT PROGRAM (C.A.M.P.) ACCOUNT STATEMENTS FOR MARCH 2O05 The reports were reviewed and placed on file. D. CITY AND REDEVELOPMENT AGENCY FINANCIAL REPORTS FOR MARCH 2O05 The reports were reviewed and placed on file. Mr. Gibson highlighted that revenues were approximately $700,000 more than the same period last year. Mr. Coleman pointed out that most of the RDA revenue received for the month of March was interest income. The Housing Authority received $386,000 in rental fees. A second payment of tax increment in the amount of approximately $28 million is expected in May 2005. From that amount, approximately $24 million will be paid in pass-through funds and will be reflected on the report for July or August 2005. Mayor Crites asked how much of the pass-through payment for College of the Desert would be held back as repayment of the library, and the time remaining on that note. Mr. Coleman stated that he would research this item. 2 GIFinanceWiamh OttegalWpdocsllnvestment Committee120051MOuteslMinutes 042705.doc i INVESTMENT & FINANCE COMMITTEE MINUTES APRIL 27, 2005 E. PARKVIEW PROFESSIONAL OFFICE BUILDINGS FINANCIAL REPORT FOR MARCH 2O05 The report was reviewed and placed on file. One tenant has vacated, and the City Attorney is reviewing a prospective tenant to determine if it is an appropriate use for the building. F. PALM DESERT GOLF COURSE FACILITIES CORPORATION FINANCIAL REPORT FOR MARCH 2O05 Mr. Gibson reported that Desert Willow has performed well for the month of March. Club Intrawest has expressed a desire to relocate their facility, which would provide for more available space at the clubhouse for possible restaurant use. The operating income reflects a profit of about $559,000 at this point. G. 457 DEFERRED COMPENSATION REPORTS FOR 1Q05 (NATIONWIDE & ICMA) Mr. Gibson reviewed the California code that states that all cash must be reported to Council. The information is provided to the Committee for informational purposes only, as it is not included as a part of the City's investment strategy. VI. CONTINUED BUSINESS None. VII. OLD BUSINESS A. PUBLIC AND PRIVATE PARTNERSHIP BACKGROUND CHECKS No report. B. PALM DESERT FINANCING AUTHORITY BOND ISSUANCE Requests for Qualifications (RFQ) have been distributed to sixteen firms who have expressed interest in the past. It is expected that between five and seven firms will respond. A meeting will be scheduled for the first week of June so that the subcommittee can review the received RFQs. Mr. Coleman commented that two potential assessment districts are being reviewed. Staff is exploring how fees for improvements could be spread between property owners, as well as a possible community facilities 3 GAFinanceWiamh OrtegalWpdocsvnvestment commiffee12005'Mimdeslmnutes 042705.doc INVESTMENT & FINANCE COMMITTEE MINUTES APRIL 27. 2005 district. Palm Desert Highlands is also being considered as a potential assessment district for utility undergrounding. Vill. ADJOURNMENT Mr. Gibson adjourned the meeting at 11:07 a.m. Niamh Ortega, Recording Secretary 4 G:IFinanceWiamh OrtegalWpdocsVnvestment Committee12005WimutesWinutes 042705.doc ♦ City of Palm Desert �♦ City and Redevelopment Agency Portfolios COMPLIANCE ANALYSIS AND INVESTMENT REPORT _ April 2005 Paul S. Gibson, C.C.M.T., Treasurer Thomas W. Jeffrey, J.D., M.B.A., Deputy City Treasurer Treasurer's Commentary On May 3rd, the Federal Open Market Committee (FOMC) raised the Federal Funds Rate by 25 basis points to 3.00% --the eighth consecutive Increase since June 2004. While acknowledging that long-term inflation remained well-contained,the FOMC cited near-term pressures on inflation, such as an improving labor market, and increased pricing power. The next FOMC meeting will be on 30 June 2005. The current market expectation is that there will be another 25 basis-point increase in the Federal Funds Rate, and that it will be at 4.00% by year-end. The 2 - 10 year segment of the Treasury Yield Curve flattened another 15 basis points in April, due to continued low inflation expectations, and strong demand for longer Treasury maturities. The latter is one of the reasons that the U.S. Treasury is discussing the reissuance of 30-year Treasury bonds. A more subtle dynamic may be inflating demand, however. The "Baby Boomers", who fueled the Great Bull Market of the 1990s, will be retiring during the 2005 -2025 period. According to Merrill Lynch, their portfolios are overweighted in stock. In order to provide income during retirement, they will be compelled to sell stock, and buy bonds. This will raise bond prices and depress bond yields, since the two move inversely. The book value of the RDA Portfolio declined by$33 million in April due primarily to a$23 million refunding of Project Area No. 1, Series 1995. The rest of the difference was principally$9 million of debt service. Pis 4iau ry C.C.Al.7- Treasurer PORTFOLIO STATISTICS Dollars in Thousands APR-05 MAR-05 FEB-05 JAN-05 DEC-04 NOV-04 CITY Month-End Book Value"` $ 146,327 $ 146,856 $ 142,687 $ 140,218 $ 124,724 $ 128,602 Month-End Market Value— $ 146,072 $ 146,787 $ 142,852 $ 140,446 $ 124,992 $ 128,877 Paper Gain (Loss) $ (255) $ (69) $ 165 $ 228 $ 268 $ 275 Prior Year Book Variance $ (2,529) $ 20,165 $ 17,749 $ 12,381 $ (8,112) $ (3,536) Interest Earnings $ 321 $ 325 $ 283 $ 243 $ 222 $ 214 Yield-To-Maturity 2.94% 2.79% 2.66% 2.54% 2.26% 2.08% Weighted Maturity(Days) 166 170 172 178 121 119 Effective Duration 0.25 0.28 0.30 0.32 0.14 0.15 RDA Month-End Book Value"` $ 125,236 $ 158,324 $ 159,105 $ 160,560 $ 147,802 $ 148,730 Month-End Market Value"` $ 125,054 $ 158,129 $ 159,134 $ 160,623 $ 147,862 $ 148,761 Paper Gain(Loss) $ (182) $ (195) $ 29 $ 63 $ 60 $ 31 Prior Year Book Variance $ (33,088) $ (5,191) $ (5,466) $ (2,570) $ 6,079 $ 4,546 Interest Earnings $ 283 $ 375 $ 285 $ 268 $ 239 $ 221 Yield-To-Maturity 2.80% 2.58% 2.37% 2.23% 2.00% 1.84% Weighted Maturity(Day5) 101 80 136 127 65 65 Effective Duration 0.22 0.18 0.20 0.20 0.05 0.07 "` Omits SLGaSs. City of Palm Desert-- Portfolio Characteristics 30 April 2005 Dollars in Thousands Ageing Interval Market Value < 1 M $ 67,467 General Fund Ageing <2M 13,041 <3M 2,989 100 - <6M - 80 71 < lYR - <2YR 3,156 0 60 < 3YR 8,509 0 40 <4YR - 0 <5YR - a20 14 9 0 >5YR - 3 0 0 3 Total: $ 95,162 <1M <2M <3M <6M < 1YR <2YR <3YR Ratings Market Value Credit Quality AAA AAA $ 25,165 19% Unrated " 72,785 Unrated" AA 2,408 9% 9% 54% A 6,169 A-1 14,010 A-1 BB+ 11,714 11% A Total: $ 132,251 5% AA 2% Sector Market Value Asset Allocation LAIF RDA Loan Money Market Funds $ 19,121 30% 25% LAIF 40,000 RDA Loan 32,785 MTNs MTNs 20,291 Money Market 15% Federal Agency 6,044 Funds Commercial Paper 14,010 14% Commercial Federal Total: $ 132,251 Paper Agency 11% 5% Month City Yield LAIF Yield Variance Performance May04 1.53 1.43 0.11 Jun 1.58 1.47 0.11 3.0 Jul 1.68 1.60 0.07 Aug 1.74 1.67 0.06 2.6 Sep 1.84 1.77 0.07 Oct 1.96 1.89 0.07 Z 2.2 d Nov 2.08 2.00 0.08 1.8 Dec 2.26 2.20 0.06 Jan05 2.54 2.26 0.28 1.4 Feb 2.66 2.37 0.29 May04Jun Jul Aug Sep Oct Nov Dec Jan05Feb Mar Apr Mar 2.79 2.54 0.25 Apr 2.94 2.72 0.21 ❑LAIF Yield ®City Yield Standard and Poors LAIF, and City Loan to RDA Page 2 of 8 City of Palm Desert Portfolio Holdings 30 April 2005 Market Ratings Par Value Issuer lCouponj Maturity I Cost I YTM I Price I Value IMoody'sl S&P Medium-Term Notes $ 2,406,000 ABBOTT LABS 6.80 5/15/05 $ 2,410,349 2.08 100.10 $ 2,408,312 Al AA $ 3,000,000 BANK ONE 4.13 9/1/07 $ 3,032,019 3.64 100.43 $ 3,012,921 Aa3 A+ $ 3,000,000 FORD MOTOR CREDIT CORP 7.20 6/15/07 $ 3,081,133 5.75 99.91 $ 2,997,345 Baal BB+ $ 2,500.000 FORD MOTOR CREDIT CORP 7.20 6/15/07 $ 2,567,611 5.75 99.91 $ 2,497,787 Baa2 BB+ $ 1,610,000 FORD MOTOR CREDIT CORP 6.75 5/15/05 $ 1,612,437 2.80 100.07 $ 1,611,076 Baa2 BB+ $ 4,612,000 FORD MOTOR CREDIT CORP 7.20 6/15/07 $ 4,802,904 5.10 99.91 $ 4,607,918 Baa2 BB+ $ 3,000,000 GOLDMAN SACHS 7.20 3/1/07 $ 3,194,433 3.50 105.20 $ 3,155,850 Aa3 A+ $ 20,128,000 Subtotal $ 20,700,886 4.29 $ 20,291,210 Commercial Paper--Discount $ 3,000,000 GENERAL ELECTRIC 2.56 5/13/05 $ 2,976,107 2.62 99.89 $ 2,996,739 P-1 A-1+ $ 3,000,000 GENERAL ELECTRIC 2.63 6/15/05 $ 2,968,221 2.70 99.89 $ 2,996,750 P-1 A-1+ $ 3,000,000 GENERAL ELECTRIC 2.71 7/15/05 $ 2,960,479 2.78 99.64 $ 2,989,238 P-1 A-1+ $ 5,050,000 GENERAL ELECTRIC 2.73 6/22/05 $ 4,999,067 2.80 99.55 $ 5,027,324 P-1 A-1+ " $ 14,050,000 Subtotal $ 13,903,873 2.73 $ 14,010,051 Federal Agencies--Discount -$ 1,015,000 FED NATIONAL MTG ASSOC 1.92 5/2/05 $ 997,021 2.00 100.00 $ 1,015,000 Aaa AAA $ 5,047,000 FED NATIONAL MTG ASSOC 2.71 6/15/05 $ 4,999,129 2.77 99.65 $ 5,029,335 Aaa AAA $ 6,062,000 Subtotal $ 5,996,150 2.65 $ 6,044,335 LGIP $ 40,000,000 L.A.I.F. 0.00 5/1/05 $ 40,000,000 2.72 100.00 $ 40,000,000 U U $ 40,000,000 Subtotal $ 40,000,000 2.72 $ 40,000,000 LGIP $ 9,459,056 C.A.M.P. 0.00 5/1/05 $ 9,459,056 2.60 100.00 $ 9,459,056 U AAA $ 9,459,056 Subtotal $ 9,459,056 2.60 $ 9,459,056 LGIP $ 9,661,993 AIM PRIME PORTFOLIO 0.00 5/1/05 $ 9,661,993 2.46 100.00 $ 9,661,993 Aaa AAA $ 9,661,993 Subtotal $ 9,661,993 2.46 $ 9,661,993 City Loan to RDA $ 32,785,480 CITY OF PALM DESERT 0.00 5/1/05 $ 32,785,480 2.72 100.00 $ 32,785,480 U U $ 32,785,480 Subtotal $ 32,785,480 2.72 $ 32,785,480 Total Investments $ 132,146,529 $ 132,507,438 2.94 $ 132,252,124 "NR"=Not Rated Page 3 of 8 City of Palm Desert Portfolio Holdings 30 April 2005 Market Ratings Par Value Issuer Coupon Maturity Cost YTM Price Value Moody's S&P Cash $ 12,000,762 CITY MAIN CHKG 0.00 5/1/05 $ 12,000,762 0.00 100.00 $ 12,000,762 N/A N/A $ 1,205,530 DESERT WILLOW CHKG 0.00 5/1/05 $ 1,205,530 0.00 100.00 $ 1,205,530 N/A N/A $ 613,267 RECREATIONAL FAC CHKG 0.00 5/1/05 $ 613,267 0.00 100.00 $ 613,267 N/A N/A $ 13,819,559 Subtotal $ 13,819,559 $ 13,819,559 Total Cash and Investments $ 145,966,088 $ 146,326,998 $ 146,071,684 %of Portfolio Corporate Issuers (Market Value) GENERAL ELECTRIC CAPITAL CORPORATION 9.59% FORD MOTOR CREDIT CORPORATION 8.02% GOLDMAN SACHS 2.16% BANK ONE 2.06% ABBOTT LABS 1.65% "NR"=Not Rated Page 4 of 8 Palm Desert Redevelopment Agency-- Portfolio Characteristics 30 April 2005 Dollars in Thousands Ageing Interval Market Value Portfolio Ageing < 1 M $ 63,515 w/o SLGSs <2M - <3M - 100 <6M 2,964 90 80 77 < 1YR 3,566 0 70 <2YR 6,054 a 60 <3YR 5,878 _ 50 t 40 <4YR - a° 30 <5YR - 200 0 0 4 4 7 7 0 >5YR 0 . Total: $ 81,977 < 1M <2M <3M <6M < 1YR <2YR <3YR <4YR Quality Market Value Credit Quality AAA $ 52,535 AAA Unrated" 43% 50% Unrated" 60,704 A-1 2,972 BB+ 6,565 BB+ Total: $ 122,776 5% A-1 2% Sector Market Value Asset Allocation LAIF LAIF $ 60,704 50% Money Market Funds 43,602 Money Market Federal Agency 8,933 Corporate Funds Commercial Paper 2,972 Bonds 36%5% Corporate Bonds 6,565 Commercial U.S.Treasury - Paper Federal p Agency Total: $ 122,776 2/, 7 Month RDA Yield LAIF Yield Variance Performance May04 1.17 1.43 -0.26 Jun 1.37 1.47 -0.10 3.0 Jul 1.53 1.60 -0.08 Aug 1.51 1.67 -0.16 2.5 Sep 1.61 1.77 -0.17 Oct 1.73 1.89 -0.16 m 2.0 Nov 1.84 2.00 -0.17 y 1.5 Dec 2.00 2.20 -0.20 Jan05 2.23 2.26 -0.03 1.0 - 16,h , 1.0 , 11 H I Feb 2.37 2.37 0.00 May04Jun Jul Aug Sep Oct Nov Dec Jan05 Feb Mar Apr Mar 2.58 2.54 0.04 Apr 2.80 2.72 0.08 ❑LAIF Yield ©RDA Yield Standard and Poors " LAIF Page 5 of 8 Palm Desert Redevelopment Agency Portfolio Holdings 30 April 2005 Market Ratings Par Value Issuer Coupon Maturity Cost YTM Price Value Moody's S&P Medium-Term Note $ 3,000,000 FORD MOTOR CREDIT CORP 6.50 1/25/07 $ 3,080,618 4.85 99.99 $ 2,999,700 Baal BB+ $ 3,525,000 FORD MOTOR CREDIT CORP 6.88 2/1/06 $ 3,600,232 3.94 101.15 $ 3,565,594 Baa2 BB+ $ 6,525,000 Subtotal $ 6,680,850 4.364 $ 6,565,294 Commercial Paper--Discount $ 3,000,000 GENERAL ELECTRIC 2.77 8/15/05 $ 2,952,448 2.87 99.06 $ 2,971,823 P-1 A-1+ $ 3,000,000 Subtotal $ 2,952,448 2.87 $ 2,971,823 Federal Agency--Coupon $ 3,000,000 FED FARM CREDIT BANK 2.63 9/17/07 $ 2,944,827 3.43 97.06 $ 2,911,875 Aaa AAA $ 3,000,000 FED HOME LOAN BANK 3.38 9/14/07 $ 2,993,466 3.82 98.88 $ 2,966,250 Aaa AAA $ 3,000,000 FED HOME LOAN MTG 4.88 3/15/07 $ 3,080,209 3.38 101.81 $ 3,054,375 Aaa AAA $ 9,0 00,000 Subtotal $ 9,018,502 3.54 $ 8,932,500 LGIP $ 40,000,000 L.A.I.F. 0,00 5/1/05 $ 40,000,000 2.72 100.00 $ 40,000,000 U U $ 5,727,930 L.A.I.F. (HOUSING) 0.00 5/1/05 $ 5,727,930 2.72 100.00 $ 5,727,930 U U $ 5,092,135 L.A.I.F. BOND PROCEEDS 0.00 5/1/05 $ 5,092,135 2.72 100.00 $ 5,092,135 U U $ 9,883,828 L.A.I.F. BOND PROCEEDS 0.00 5/1/05 $ 9,883,828 2.72 100,00 $ 9,883,828 U U $ 60,703,893 Subtotal $ 60,703,893 2.72 $ 60,703,893 LGIP $ 17,574,736 C.A.M.P. 0.00 5/1/05 $ 17,574,736 2.60 100.00 $ 17,574,736 U AAA $ 17,574,736 Subtotal $ 17,574,736 2.60 $ 17,574,736 LGIP $ 26,027,522 AIM PRIME PORTFOLIO 0.00 5/1/05 $ 26,027,522 2.46 100.00 $ 26,027,522 Aaa AAA $ 26,027,522 Subtotal $ 26,027,522 2.46 $ 26,027,522 Total Investments $ 122,831,151 $ 122,957,951 2.80 $ 122,775,768 Cash $ 1,950,602 HOUSING AUTH CHKG 0.00 5/1/05 $ 1,950,602 0.00 100.00 $ 1,950,602 N/A N/A $ 327,549 HOUSING AUTH TRUST 0.00 5/1/05 $ 327,549 0.00 100.00 $ 327,549 N/A N/A $ 2,278,150 Subtotal $ 2,278,150 $ 2,278,150 Total Cash and Investments $ 125,109,301 $ 125,236,101 $ 125,053,918 'U"= Unrated Page 6 of 8 Palm Desert Redevelopment Agency Portfolio Holdings 30 April 2005 Market Ratings Par Value Issuer Coupon I Maturity Cost YTM Price Value Moody's S&P %of Portfolio Corporate Issuers (Market Value) FORD MOTOR CREDIT CORPORATION 5.25% GENERAL ELECTRIC CAPITAL CORPORATION 2.38% "U" =Unrated Page 7 of 8 STATEMENT OF COMPLIANCE The investment portfolios of the City of Palm Desert("City") and the Palm Desert Redevelopment Agency("RDA")are governed by federal, state,and local law. The City Treasurer's"Statement of Investment Policy" is more restrictive than the California Government Code. The Palm Desert Investment Committee and the Palm Desert City Council review the Statement of Investment Policy annually. For the month ended 30 April 2005,the City and the RDA investment portfolios were in compliance with all applicable federal, state, and local laws and regulations. The City Treasury continued to pursue conservative and prudent investment strategies,based upon the stated objectives of safety, liquidity, and yield(in order of priority). Barring unforeseen events,the City Treasury should have sufficient cash to finance the operations of the City of Palm Desert and the Palm Desert Redevelopment Agency over the next six months. In addition, portions of either the City or the RDA portfolio could be liquidated in order to meet any significant, unexpected cash requirements. Bloomberg L.P. and Interactive Data Corporation provided the data and the analytical tools that were used to calculate the market value of all securities in the City and the RDA investment portfolios. State and Local Government Series securities are held in escrow accounts and are therefore not included in this report as assets. All balances are bank balances. Respectfully submitted on 25 May 2005, Pis Gdbdon C.C.M r. City Treasurer SUMMARY OF AUTHORIZED INVESTMENTS • California Government Code City Investment Policy CA Govt Maximum Maximum Quality Maximum Maximum Quality %of City %of RDA Code Investment Category Maturity Limit S&P/Mdys Maturity Limit S&P/Mdys Portfolio Portfolio 53601(a) Palm Desert Bonds 5 Years No Limit Not Authorized(1) 53601(b) U.S.Treasuries 5 Years No Limit 5 Years No Limit I 1 0.0% 0.0% 53601(c) CA State Debt 5 Years No Limit Not Authorized 53601(d) CA Local Agency Debt 5 Years No Limit Not Authorized 53601(e) Federal Agencies 5 Years No Limit 5 Years 30% 6% 4.5% 7.3% 53601(f) Bankers's Acceptances 180 Days 40% 180 Days 40% A-1 & P-1 - - 53601(g) Commercial Paper 270 Days 25% A-1+or P-1 270 Days 25% A-1+or P-1 10.5% 2.4% 53601(h) Negotiable CDs 5 Years 30% 5 Years 30% AA-or Aa3 - - 53601(i) Repos 1 Year No Limit 30 Da vs 20% AAA&Aaa - 53601(i) Reverse Repos 92 Da vs 20% Not Authorized 53601 Q) Medium-Term Notes 5 Years 30°% A 5 Years 30% 1 A 1 15.6% 5.4% 53601(k) Mutual Funds 90 Days 20% AAA&Aaa 90 Days 20% (2) 1 AAA& Aaal 7.3% 21.2% 53601(I) Trust Indenture Debt Not Authorized 53601(m) Secured Bank Deposits 5 Years No Limit Not Authorized 53601(k) Local Government AAA&Aaa I AAA&Aaa Investment Pools 90 Days 20% or Advisor 90 Days 20% (2) or Advisor 7.1% 14.3% 53601(n) Mortgage-Backed 5 Years 20% A(Issuer)& Not Authorized Securities AA(Security) LAIF No Limit No Limit 30.2% 49.4% (1) The City loan to RDA,which is not a bond, has been approved by the Palm Desert City Council. 75.3% 100.0% (2) Maximum limit for mutual funds and local government investment pools, excluding bond proceeds. Certified California Municipal Treasurer Page 8 of 8 CITY OF PALM DESERT OFFICE OF THE CITY TREASURER STAFF REPORT TO: Investment and Finance Committee DATE: May 25, 2005 SUBJECT: S&P Downgrade of Ford Motor Credit Corporation Bonds to High-Yield CONTENTS: Exhibit "A": Comparative Credit Ratings of FMCC as of 5-18-05 Exhibit "B": Merrill Lynch Credit Monitor Report dated 5-12-05 On May 5, Standard and Poors ("S&P") downgraded Ford Motor Credit Company's ("FMCC") long-term debt one notch from "BBB-" to "BB+" ("high yield" or "junk"). Although the timing of the action came as a surprise, the action itself did not. FMCC is still considered to be "investment grade", however, since Moody's and Fitch continue to rate it as such. Ford has two core businesses: Ford Motor Company ("FIVIC"), the carmaker, and FMCC, the captive finance arm. Over the last few years, FMC's profitability has been mediocre, while FMCC's profitability has been excellent (the corporate "cash cow"). In 2004, FMCC accounted for 80% of Ford's $3.5 billion after-tax profit. As a Finance Committee member noted, "Ford is a finance company that sells cars to raise debt." The City owns FBflCC bonds. On April 8, 2005, Ford reversed an earnings guidance affirmation that it had made two weeks earlier, and announced that it was abandoning its target of $7 billion of pretax profit in 2006 ($4 billion from FMC; $3 billion from FMCC). This target was the centerpiece of Ford's five-year recovery plan, and was considered non-negotiable. It was intended to restore car making as Ford's most profitable core business. Although Ford had made a $1.2 billion profit in 1Q2005 (GM, in contrast, lost $1.1 billion), profits were down 38% from prior year due primarily to plunging large SUV sales. The trigger for the downturn was spiraling gasoline prices caused by high Chinese oil demand. Ford was caught transitioning from large SUVs to smaller; more fuel-efficient, crossover SUVs (where future demand will be). J Staff Report S&P Downgrade of Ford Motor Credit Corporation Bonds to High Yield May 25, 2005 Page 2 of 3 All three rating agencies (S&P, Moody's, and Fitch) reacted by putting Ford on "Negative Outlook," thereby signaling a likely downgrade. This caused Ford to become one of the most heavily traded names for a week. The City Treasurer's Office discussed whether to reduce the City's position in Ford, and concluded that it would not be prudent, due to market volatility. Subsequent conversations with brokers confirmed that this was a sound decision (Ford bonds were trading hundreds of basis points over the average high-yield level). S&P's rating action on Ford was not based upon management fraud or any specific event. S&P had reviewed Ford's operations, and competitive market conditions over the next two years, and had concluded that if current trends continued, then there would be an increased risk that Ford might default on intermediate- and long-term bonds (maturing in 5+ years). S&P expressed "skepticism about whether management's strategies will be sufficient to counteract mounting competitive challenges." These challenges included intensified market competition, continued market share loss, and increased health care costs. S&P noted, however, that Ford currently had good liquidity, and that FMCC would probably generate $3 billion in pretax profit for 2005. Ford has completed 50-75% of its funding requirements for 2005, and can finance the remainder by issuing asset-backed securities that will carry a "AAA" rating. The S&P downgrade has effectively precluded Ford from issuing unsecured debt, however, due to the high interest rates that would be required. Accordingly, Ford now issues debt exclusively through the asset-backed securities market. MGM, AT&T, Xerox, Georgia Pacific, J.C. Penny, Lucent Technology, and General Motors are other well-known names that have had high-yield downgrades. The Bottom Line [1] Majority View: Still Investment Grade. Two of three major credit agencies still rate FMCC as "investment grade" (see Exhibit "A"). Moody's rates FMCC long-term debt at "Baa2" (two notches above high yield, after a two-notch downgrade on May 12); Fitch rates Ford at "BBB" (two notches above high yield, after a one-notch downgrade on May 19). S&P's BB+ high-yield rating is the minority view. The Lehman bond indexes are used by 90% of institutional investors. Due to S&P's action, Ford will move to the Lehman high-yield index in June 2005, only to return to the Lehman investment grade index in July 2005, when Fitch ratings are included, and an average is taken. [2] Strong Balance Sheet. According to Merrill Lynch (see Exhibit "B"), Ford has one of the strongest balance sheets in the auto industry. Ford's bank lines have no ratings triggers or other financial covenants. Ford has only $3.2 billion of debt maturing within the next 10 years. Ford continues to pay $2 billion in dividends to its shareholders annually. J Staff Report S&P Downgrade of Ford Motor Credit Corporation Bonds to High Yield May 25, 2005 Page 3 of 3 FMC has cash and cash equivalents of $22.9 billion; net liquidity of $5.2 billion; and $7.2 billion of committed bank lines. FMCC has cash and cash equivalents of $13.1 billion; $13.8 billion of global credit lines; and $18 billion of committed liquidity facilities. FMCC could raise additional cash by either: 1) continuing to shrink its receivables base; or 2) selling Hertz Rent-A-Car (a non-core business), which would eliminate $8 billion of debt from Ford's balance sheet, and generate $6-8 billion in cash. [3] Good Pay, The City's Ford position will completely mature within 25 months (June 2007). Staff has talked to two of the top analysts in the securities industry: Mary Rooney, Director of Credit Analysis for Merrill Lynch, and Girard Miller, a noted economist, former CEO of ICMA Retirement Corporation, and the current COO of Janus Capital Group. Both have studied Ford, and have confirmed that it will be able to pay off its debt within the next two years. [4] Successful New Product Models. Ford's April 2005 sales numbers indicated that F-series pick-up truck sales had increased 2% over prior year, after dropping in the first quarter (F-series trucks are the best-selling vehicles in the U.S.). The restyled Mustang is currently selling so rapidly that Ford is having trouble restocking inventory. The Five Hundred Sedan, and the Mercury Montego, after a slow start, are beginning to gain in popularity. The Ford Escape is the second-best selling crossover SUV, and is more fuel efficient than its Japanese counterparts. [5] Majority of Creditors Standing Firm. A May 5 survey of Ford creditors (Bloomberg News Service) revealed that the majority planned to hold onto their Ford bonds, despite the S&P downgrade. The only forced selling over the next few months will come from private and public pension funds, mutual funds, and insurance companies that are prohibited from owning high- yield bonds. Hedge funds and high-yield investors will be the buyers. In summary, Ford remains an investment-grade credit that has sufficient cash to redeem its debt through June 2007. As a short-term creditor, the City is indifferent to Ford's long-term debt ratings. While the California Government Code prohibits local agencies from acquiring bonds that do not have a "A" credit rating, it is silent on the treatment of legally acquired bonds that have been downgraded below "A". Consequently, the City has the flexibility to hold the bonds to maturity. Staff is currently tracking Ford's balance sheet on a quarterly basis in order to identify any significant erosion of liquidity, should it occur. Submitted By: rLhlomad • Thomas W. Jeffr64, 09putyCity Treasurer EXHIBIT "A" snsros FORD MOTOR CREDIT CORPORATION 2:03 PM COMPARATIVE CREDIT RATINGS FOR LONG-TERM DEBT AS OF MAY 19, 2005 STANDARD ✓li DESCRIPTION FITCH DOORS MOODY'S CLASSIFICATION HIGHEST QUALITY AAA AAA Ada AA+ AA+ Aal VERY HIGH QUALITY AA AA Aa2 AA- AA- Aa3 INVESTMENT A+ A+ Al GRADE HIGH QUALITY A A A2 A- A- A3 BBB+ BBB+ Baal GOOD QUALITY 81314 BBB Baa2 BBB- BBB- Baa3 BB+ BB+ Bal SPECULATIVE BB BB Ba2 BB- BB- Ba3 B+ B+ B1 HIGHLY SPECULATIVE B B B2 HIGH YIELD B- B- B3 ("JUNK") CCC+ CCC+ Caa HIGH DEFAULT RISK CCC CCC Ca CCC- CCC- C. CC CC C C DEFAULT DDD D DD D FOOTNOTES: "LONG TERM DEBT" IS DEFINED AS BONDS HAVING A MATURITY OF 5 YEARS OR MORE, FROM TIME OF RATING. RATING AGENCIES DO NOT RATE BONDS BY INDIVIDUAL MATURITY. SO, A FORD BOND MATURING IN 2 YEARS WILL CARRY THE SAME CREDIT RATING AS A FORD BOND MATURING IN 10 YEARS, EVEN THOUGH THE RISK OF DEFAULT FOR FORD IS MUCH GREATER OVER TIME. "SPECULATIVE" MEANS THAT CREDIT RISK MIGHT DEVELOP DUE TO ADVERSE ECONOMIC CHANGE OVER TIME. BUT FINANCIAL MEANS MAY BE AVAILABLE TO ALLOW FINANCIAL COMMITMENTS TO BE MET. f EXHIBIT "B" Merrill 6yneh Credit Strategies- 10 May 2005 Table 1). While some bonds have cheapened due to Moody's or Fitch by late June,GM,GMAC,F,and FMC fundamentals(e.g.Morgan Stanley,Viacom,Albertsons) will all fall out of Lehman's high grade index at the end of many,especially those of higher quality should be mean this month,only to return in July. reverting.Also,comparing to CDS mitigates fundamental Both F and FMC will likelyo back to hiJuly steepening as 5YR CDS/5 Year Cash bonds beta is B high grade in typically greater than 1. while GM/GMAC has less margin for error for a return (basically,Fitch must not downgrade 1/r months). Pension Reform may quell Treasury Steepening:But NAIC Remains Unchanged at lnd Highest Benefit High Quality Corporates There is some debate as to how much more the Treasury All Auto bonds will retain their curter NAIC rating of curve will steepen if the proposed pension reform is Standard Recall,the NAIC recognizes four NRSROe e is more passed. It is quite possible that demand for long dated Standard& SROPrice r Fitch,and D nd-hi When there is more assets will exceed any incremental supply. than one to an N rating the second-highest[sting n translated to an NAIC Designation(Similar to the new However,if Pension reform were to become reality, it is Lehman schema). also true that long dated Corporates should benefit even For example,if the ratings are"A","A",and"BBB"then more. Recall that in the proposed legislation pension highest rating is"A",and the second-highest rating is also liabilities will be discounted by Single A Corporate curve. „A„ so the asset becomes NAIC 1 (the equivalent of"A"). Single A Corporates should be the hedge asset of choice The NAIC equivalents are:?A-= I;BBB±=2;BBt= and thus benefit in either a treasury steepening or a 3;Bf=4;on down to in or near default=6. pension-driven flattening environment. Changing Index Rules Confusing Table 3:Summary of the Index Rules the Auto Migration to High Yield Ind811 Rme GM Current Radng ML Average of Moodys,SP Fitch 10.1-HY ML Takes the Average Lehman Current Lower of Moodys,SP 12-HY ML index criteria is based upon an average of the Moodys, Lehman starting 611 2w highest of Moodys,SP and 10-IG S&P and Fitch numerical ratings(where AAA=1, Fitch NAIC Second Highest of Moodys,SP, 2-IG AA /AA+=2,Aa2/AA=3,etc.). A composite rating of F'ach,and DBRS 10.5 or higher falls below investment grade.(An average rating between 10.5 and 11.499=BB+), sow.ML GM falls to High Yield, GMAC,F,FMC and Hertz all remain inveshnent grade Ford versus GM: Relative Value In As shown in Table 2,GM's Baa3BBBBB-rating the Curve averages to 10.7,which rounds to 1 I or BB+, Underweight GM,Marketweight F Since GMAC's average rating is 10.3, its rating rounds to In the context of GM and F's new reality as high yield BBB-. Based on the ML scheme,both Ford and FMC credits, we continue to favor F over GM. While the action have a decent cushion(5 and 7 notches,respectively) from S&P on F came sooner than we had expected,bonds before falling to high yield. discount the fundamental and technical risks in our view. Despite wider trading levels at GM,we expect Table 2:ML Index Rules and GM and Ford incrementally negative fundamentals and technicals to Complex:The"10.5"Cutoff continue to pressure spreads. We believe F spreads fairly Mitt Value compensate investors for a traditional"5-13"credit. LI ui g CrediVRtlin Numerical Averse Index Bra q d balance sheet. F maintains the strongest balance. GM(Baa3BBIBB8.) AVG(10,12,10) 10.7 f12.2 sheet in the sector with industrial cash of S23bn(incl. GMAC(Bae2BBIB8&) AVG(9,12,10) 10.3 $31.0 VEBA),and net liquidity of S51n. This compares to GM's F(BAAIBB+BB&) AVG(B.11,8) 9.0 f16.6 cash and S-T VEBA balance of S201n,but a net debt FMC(A31BB+BBB+) AVG(7,10,B) 8.3 $24.9 balance of$12.56n. Liquidity is substantial w/sizeable bank HRTZ(Baa2BsMBB+) AVG(9,10,8) 9.0 $3.7 lines&minimal near-term industrial debt maturities. Soria:Mari Lyrdt Lean Ming ere mapped at VOW nmrak n gS:AAA•1,AA More operational flexibility. F's structural cost base t...BB&•10.Be-12... affords it a relative advantage over GM,and we acknowledge the strides F has made toward its restructuring Lehman Takes the Middle goals laid out in 2002. Given its smaller size and more This contrasts to the Lehman index schema. It is our moderate legacy obligations(pensions and OPEB),F can understanding that Lehman Brothers currently takes the adjust its volume to focus on higher margin opportunities. "lower of Moody's and S&P,but commencing July 1, GM must absorb the costs of carrying about 2.4 retirees for will use the middle or 2°d highest rating of every active employee,whereas F's ratio is approximately Moody's\S&P\Fitch. Assuming no rating change by Refer to important disclosures on page 11. 3 Credit Strategies- 10 May 2005 Merrill Lynch Product Initiative. While not a distinct advantage for either company,we are modestly more positive regarding F's near Table 4:Auto Cangarable Financial Summary term product morentum relative to GM. Both companies FY05 Estimates($s in nuns)-Industrial Only are getting hit hard by declines in overall market share,with F GB particular weakness in SLJVs. GM has lost 1.6 points of Ramp WYslS&PIFddO Baa1B&IBBB* U01181986 share YTD,while F has lost 1.1 share points. For its part, Outlooks ORDYs/SWffitch) WL NeglU NUN GM will be experiencing somewhat of a product dry-spell Idea Steteineid 0�ts„ until its GMT 900 platform(large SUVs and pickups)ramps Total Net Sales and Revenues $148,028 $152,033 up in early 2006. Further,the success of this platform is EBITDA 7,415 6,294 hard to predict given(1)the secular shifts in the industry Depredation and AmaOzatim 6,340 8,008 away from traditional SUVs and(2)GM has not released EBIT(a) 1,075 (1,714) design photos of the new products. F's recent car/CW Interest Expense,Gross 1,300 2,785 launches have been building momentum,which is partly Odw Expenses(Income) . (255) 200 mitigating weakness in its light truck performance. EBT 30 (4,699) Stronger credit metrics. Across-the-board,F has stronger CCm*e<f arm Tbtilb, credit metrics. For FY05,we expect F to post an EBITDA Cash and Equivalents $19,492 $15,542 margin of 5%versus GM's 4%. Interest coverage of 5.7x Total Debt 18,435 32.522 compares with GM's 23x. Debt-to-EBITDA is forecast at Taal Shareholders'Equity(b) 17,539 27,772 2.5x,well below GM's 5.2x.Though global unfunded Taal Capitalization 35,974 60,294 pensions total$12bn at F versus$8bn at GM,F's OPEB obligation is effectively half the size of GM's. We also EBITDA Margin 5.0% 4.1% expect F to post close to breakeven cash flow this year,in EBITDA Coverage of Interest 5.7x 2.3x contrast to a$5bn cash outflow expected at GM. EBITDA-cap-ex Coverage of Interest 0.9x -0.6x Hertz sale would be positive for fundamentals and Total Debt I Capitalization 51.2% 53.9% technicals. Net Liquidity(Cash-Debt) $1,057 ($16,980) We continue to expect F will move toward a separation of AdJusted Net Liquidly(c) $5,157 ($13,461) Hertz. While the company has not indicated what form a Taal Debt I EBITDA 2.5x 5.2x separation would take,management stated it would be mar, Lith01awpold0^ $12 is done in conjunction with boosting liquidity. We believe a UdkaQWCF® $32 !Sr sale is most likely,and ML estimates the business could be Sdece:SEC dw tuft,FncM.MLe worth over$6bn. Such a sale would be welcome news for bMmxuprese WnMb kr dw rdmVW mg,cmo[+rlew-uvticet. die market,enabling the company to further strengthen its (a)ESIT i°iOe caeo°""t . - EBn enweWkWas Heedeayt balance sheet(which may include further debt reduction) rblSbWddesegU4krFSMrep<exnswrwwadmamWmegAy. and/or offset the potential charges/cash outlays to^diusWM4jdky kk0Aspr rb edvEaA"n is asuaM w mnain m'YOY. surrounding a further Visteon restructuring. Further,the technical implications are also favorable as almost$41n of Chart 2:Gd1AC vs FMC Credit Curves:Marrow Basis in'00s and Hertz bonds are removed from the F ticker. 110s We expect F to remain in the high grade indices this - year(cc-June), while GM drops out Collectively,the rating agencies do differentiate between F �•er ' w,a'7 en and GM. Though S&P takes a harsher view,we believe �""°°.. '; .,.i• Moody's and Fitch will be more tolerant of F's recent missteps and keep it at investment grade,allowing F to aw 51[4 remain in the MULehman high grade indices for the near n term(except for the month of June). That said,the pending i00 cwe,a ":r e, e+•[ Moody's review of F is expected to be concluded in the •.es " coming days, which may add some near term volatility. '60 we"' _ Conversely,we believe it is just a matter of time before GM m [, I-oamo.m is rated high yield at all 3 rating agencies,forcing it out of all major investment grade indices. zso Souce:Merril Lrxh What Looks Cheap: FMC`10s, FMC`09s in Z There are many factors affecting valuation at these levels: dollar price,liquidity and Repo dynamics. Dollar prices Refer to important disclosures on page 11. 4 z ( & & § § o O G E \ \\ 0 Fa z /j 3 E .— / } . E ° ! Z E [ ` ) ) } / / : . \ \ \ . c [ w \ L Ln « 2 / \ © (LLI / \ r LLa \ \ ( _ (71 ■ ®k # E ° - w § ^ . 2 \ ) u g Ci Cl) m a IL ■ ® LLI� k \ S w § § / 0 § / w & \ _ to _ _ a § ) / \ ad U) ) § § § § § § c 2 2 ui � w § , ! � \ \ 2 ) } mLL, E STATE OF CALIFORNIA PHILIP ANGELIDES, Treasurer OFFICE OF THE TREASURER SACRAMENTO Local Agency Investment Fund PO Box 942809 Sacramento, CA 94209-0001 (916) 653-3001 April, 2005 Statement CITY OF PALM DESERT Account Number : 98-33-621 Attn: CITYTREASURER 73510 FRED WARING DRIVE PALM DESERT CA 92260 Transactions Effective Transaction Tran Confirm Authorized Amount Date Date Type Number Caller 04-15-2005 04-14-2005 QRD 1020423 SYSTEM 234,674.36 04-20-2005 04-19-2005 RW 1023349 THOMAS JEFFREY - 234,674.36 Account Summary Total Deposit : 234,674.36 Beginning Balance : 40,000,000.00 Total Withdrawal : 234,674.36 Ending Balance : 40,000,000.00 I—I— m D=Z N LU U)g & w L--)w a �r< J w 01 ii 0 1 LL LU Y QU Q C)LL 8 Page : 1 of 1 STATE OF CALIFORNIA PHILIP ANGEL]DES, TreasureA OFFICE OF THE TREASURE]. SACRAMENTO - Local Agency Investment Fund PO Box 942809 Sacramento, CA 94209-0001 (916) 653-3001 April, 2005 Statement PALM DESERT REDEVELOPMENT AGENCY Account Number : 65-33-015 Attn: TREASURER 73-510 FRED WARING DRIVE PALM DESERT CA 92260 Transactions Effective Transaction Tran Confirm Authorized Amount Date Date Type Number Caller 04-15-2005 04-14-2005 QRD 1021591 SYSTEM 234,674.36 04-20-2005 04-19-2005 RW 1023350 THOMAS W. JEFFREY - 234,674.36 Account Summary Total Deposit : 234,674.36 Beginning Balance : 40,000,000.00 Total Withdrawal : 234,674.36 Ending Balance : 40,000,000.00 1 co LU LU Z N U)� CV LIJ n� a �>C Cn I H Lu Y 0 Z i C)Ll 8 Page : 1 of 1 Ir STATE OF CALIFORNIA PHILIP ANGELI DES, Treasurer i OFFICE OF THE TREASUREF% SACRAMENTO Local Agency Investment Fund PO Box 942809 Sacramento, CA 94209-0001 (916) 653-3001 April, 2005 Statement PALM DESERT HOUSING AUTHORITY Account Number : 25-33-003 Aw DEPUTY CITY TREASURER 73-510 FRED WARING DRIVE PALM DESERT CA 99260-2578 Transactions Effective Transaction Tran Confirm Authorized Amount Date Date Type Number Caller 04-15-2005 04-14-2005 QRD 1022034 SYSTEM 33,566.33 Account Summary Total Deposit : 33,566.33 Beginning Balance : 5,727,930.09 Total Withdrawal : 0.00 Ending Balance : 5,761,496.42 I— ao �Z CV LU LLco CV UJ �cc: a C' w01 LU r 07 UL� B Page : I of I C C, CffY OF P.,4LNi DESERT CAARP FII,!ANCE DEPARTMENT CALIPORNIA Ass CT MNAY ii PM12� 30 STATEMENT MANAGEMENT IFOI'RASSLT Io1NT row R R S AU'I'H O R 1'1'Y sU CAUFORNIA\CREEL' 23RIJ FLUUIi SA\ FRANCIISCO CALIFORNIA 94111 FOR ACCOUNT INFORMATION: 800-729-7665 STATEMENT DATE: 4/30/2005 CITY OF PALM DESERT ACCOUNT NUMBER: 553-00 OPERATING FUND ATTN: PAUL GIBSON FUND NAME: Cash Reserve Portfolio 73-510 FRED WARING DRIVE PALM DESERT,CA 92260 Page 1 of 1 `AccounitilAma, as o 4/30/2005 3 t' " Statement Income Dividends Capital Gains Total Shares Account Date Paid This Year Paid This Year Owned Value 4/30/2005 $75,236.66 $0.00 9,459,055.890 $9,459,055.89 s a -.v-. s.s a'nt+ - - . Transaction S TIFI"u`ry4fo ol40 ,Y,D5o •4/30Y1005 *W4 ' Beginning Balance Purchases Reinvestments Redemptions Ending Balance $9,438,877.59 $0.00 $20,178.30 $0.00 $9,459,055.89 E -'SETTLE " tom 1lAR AMOU SHARE SHApEB THIS TOTAL > DATE pp SACf1�01 - SACT'IQN PRICE TRANSACTION SHARES OWNED 04/01/05 Beginning Balance 9,438,877.590 04/30/05 5/2/2005 Accrual Income Div Reinvestment-DIV $20,178.30 $1.00 20,178.300 9,459,055.890 Message Line: THE DIVIDEND YIELD FOR THE MONTH IS 2.60% THE ANNUALIZED YIELD IS 2.630/a C CI fYCAAMP 0 RALivI DESERT CA 1- 1 r- o a N i n AS s ET FIi;F\i,CE DtPARTNIENT STATEMENT ,VIANAGEN4FNT PROGRAM POD Eixs I HOR„', Z05 MAY I I Phi 12: 30 qo l':�1,1 rc>HNI:\.CIIiFEI' 2dlilt PLOUa snN Fnnn:csco C:16 FosN,n osi 1� FOR ACCOUNT INFORMATION: 800-729-7665 STATEMENT DATE: 4/30/2005 PALM DESERT REDEVELOPMENT AGENCY ACCOUNT NUMBER: 553-02 GENERALFUND ATTN: PAUL GIBSON FUND NAME: Cash Reserve Portfolio 73-510 FRED WARING DRIVE PALM DESERT,CA 92260-2578 Page f of 1 'eAccotint:Sumrilary as of,4/30/20052221 Statement Income Dividends Capital Gains Total Shares Account Date Paid This Year Paid This Year Owned Value 4/30/2005 $144,235.77 $0.00 17,574,735.590 $17,574,735.59 Tansactlon;Summary for.411f2005'-4730 005` Beginning Balance Purchases Reinvestments Redemptions Ending Balance $17,537,244.72 $0.00 $37,490.87 $0.00 $17,574,735.59 DA-fE . SDATE M TRANSA ON DO j g' N PRICE, STFifWSACTiON 4 SHARESQWNED. 04/01/05 Beginning Balance 17,537,244.720 04/30/05 5/2/2005 Accrual Income Div Reinvestment-DIV $37,490.87 $1.00 37,490.870 17,574,735.590 Message Line: THE DIVIDEND YIELD FOR THE MONTH IS 2.60%. THE ANNUALIZED YIELD IS 2.63%. 0 v � v u u E d n E u a ® a _ '' •a_ '6 ro o 6 N ur ui co OO O,3 W W O ,D vO�LU P7 C1 P r � a ❑ T M a r r N O r 0 --i a0 N 7 00 O ,O ✓� �n N r ® M N m W O ,O 7 Q Q �' N O O V5 l N hl F r O r oo v E O W a ^ b m Not O ..+ .. N C U n LL i. Q a 17° r o ® Z �O n � N m M 7 •-- O M O M y � N E N V N N O O 00 O T V 00 O In ^� r a, w N Vl O O ee}} �y ^ N 7 r N f M 7 r OE b O� Yt O N r .-- la N d' O- M �/1 D\ ul N o0 7 m N Oi ✓Q O r "I .-� h [`: Vf V�Q 'It O �/1 m N N 0 r• ell N U .,y. B Q N iE' 0 v N O O u'i vl O O N m N ,O O v1 M 00 Id. N p M •"' N m 0 0 0 r PT N N O N ^ N O O H1 O O O as O ^ O Vl O 7 O O. 7 u1 f� fV Nl fV C1 of m O� v 9 — 7 O, .. v v •O d d u cn Q N a, u, � m a m 7 emi o rri, v�i rn 0 ° L cz• U ..O " N.. 1� b M ,O r• 00 \D 7 N A L N y 0 V 'C v }}p.. .0 T 706 O P " E E F a� A w pd y o ° oa ... a. H �$ a ` A o •o v 0 0 0 N O Wda. .' r 7 N W �( 3 .E C t9 dts a� is n — F o' o v o o c °J « Z eoOv � rnP .lo. Dw ViQO W a0A. P. U -• F W F Z7, Z N O� N -I W l� mIn In . T N In N Obi C N N 12 M N ti N W C M h aT N "It N M M Mg O: aa�� . C' In O�c/i T�O N L4 b O C In W N O I\ h w W C D �D I!� h V h W 'cT N O W W W C N ry N N q d' Iri O � O F F O O O O O O O O O O CO lL W l� C W W N � O O O K N] N OJ In (T li, [V M M IT If�M W W "M d W W N h W M rq d CI O b N N ti N x m ni N vi N �D N TT O 16 N .p d d' � -n. ti P CWrI n M C C N ti �p O+ O O� O O O O O O O �D N W 0 CI 0 0 0 0 O N M W. I O N O� IO lV N �D Z,U h �O ri I � c��O m m �O N h �O � � vi O� N P — � N n IN SJ N N N "O T W N tV W L� O M d� N N N t(1 In N W N N lO l� xr N d' m W m M M M V 19 M. Oo M. 0 o W IN o Nom In N N �Gch IN IN O� � �G O 1t� N � In � C) Vl It) v] � T a0 N W O� 'C N N N Oz 1 yt O6 Cq M ON d N N �D a0 O� N Iti m Q o0 N ri O W �N-1 T N \D [NCI e-i N h N G N 0 n V d G O O O O O O O O O O N N hIn V O O O O O O O O O p ti cF N O O O N M h (T b b IN h W O e} d N 'G M N N ~ H N (V ~ m N V M W h - m z N n x cam. a v O 6 N O O O O O O O O O O O h a ID T W ip N N WW W O O O O O O o O O O O h M a .o h rn W Q 6 g N O �p O N N M m O W (V N N N N O N o0 r+ H O O O p O M M O �O N �O N N O� fV O] N O h t+1 pi O W M f+ M O '1 M m M m N yk O� M m W N O W M m �O I W W O I!� h r, M N b N f7 [[�� ri L6 M 4 .6 � � d O� M In W C N C C N Q� O W Q M O� M N m C O O N N M N f. W In m v w v w V) O U S A G U {i 07 •• N N w � 5 v t� lE v uV C� v m vHOH o a¢ c: OUQH o y >yFO E- c P. 0UpF G y c4 F w Fz G F w Fz } Lo m N M. N a C h lV [V h O W T T C F e � o+ � m oom I�RvNi W rn e a D N C Ft F a 4 m m rn .6 14 w m m i C „ a yOy�� co o p ti x mom -COrN � v°Oi, "aa vNi c o 0 a Ll m - �O 0 N r e C O�iF �O N M N V� �D l� m N YG LL w A woTcri .: io ri �� � ~iQ. v LO N > > v � in In Ni O� w �➢ �D �-i N Ni b � kG �' v - moa. om m N C ti c m m n m m oo N N C N v N W N OJ W N N N O� Cl! N �O my 0 N N N 14 � e W r-i P r+ 14 .6 n ui OUOF c v 9 3 C F F Z { City of Palm Desert Parkview Office Complex Financial Statement for Fiscal Year 2004-2005 April-05 April-05 # % YTD Y1'D # % Budget Actual Variance Variance Budget Actual Variance Variance Revenues Rental $ 69,000 $ 72,234 $ 3,234 104.69%1. $ 688,500 $ 736,068 $ 47,568 106.91% Dividends/Interest $ 700 $ - $ (700) 0.00%1 $ 7,000 $ - $ (7,000) 0.00% i Total Revenues $ 69,700 $ 72,234 $ Z534 103.64%1 1 $ 695,500 $ 736,069 $ 40,568 105.83% Expenses Professional-Accounting&Auditing $ 8,500 $ 8,829 $ (329) 103.87%1 $ 85,000 $ 88,290 $ (3,290) 103.87% Professional-Consultants $ 6,000 $ 5,694 $ 316 94.74%� $ 60,000 $ 56,511 $ 3,489 94.19% Tenant Improvements $ 3,000 $ 86,529 $ (83,529) 2884.31% . $ 30,000 $ 126,126 $ (96,126) 420.42% Repairs&Maintenance Building $ 8,000 $ 9,059 $ (1,059) 113.24% $ 80,000 $ 95,492 $ (15,492) 119.36% Repairs&Maintenance-Landscaping $ 2,300 $ 1,300 $ 1,000 56.52% $ 23,000 $ 3,900 $ 19,100 16.96% Utilities-Water $ 150 $ 164 $ (14) 109.03%1 $ 1,500 $ 1,120 $ 380 74.66% Utilities-Gas/Electric $ 7,000 $ 3,850 $ 3,150 55.01%1 $ 70,000 $ 50,013 $ 19,987 71.45% Utilities-Waste Disposal $ 600 $ 561 $ 39 93.43% $ 6,000 $ 5,495 $ 506 91.58% Telephone $ 250 $ 194 $ 56 77.78%j $ Z500 $ Z594 $ (94) 103.78% Insurance $ 521 $ - $ 521 0.00% $ 5,208 $ - $ 5,208 0.00% Total Expenses $ 36,321 $ 116,171 $ (79,850) 319.84%j (f{ $ 363,208 $ 429,541 $ (66,333) 118.26% O eratin intone - S 33,379 $ 43,93 $ ,316 1 iCW.' --__,�_ _ p s 1_ � l� ) ✓ $ 337292" s 306,52$ ._ .s (55;764) 9225°{° Equipment Replacement Reserve $ 16,700 $ 16,666 $ 34 99.80% $ 167,000 $ 166,660 $ 340 99.80% Net income S 16,679 S (60,603) $(77,782) -363.3b°!o $ 165,292 S 139,868 --$ (25A24) 84.62%. Please note that the cost of Installing the audio visual upgrade at the City/CVAG conference room is recorded as an expense during this month,however at year and the cost will be capitalized as a fixed asset and amortized over the useful life of the assets.Therefore,the actual monthly net Income is$25,926,and the year-to-date income is$165,794. 2005 Investment Reportlnv Report 2005 City of Palm Desert Parkview Office Complex Vacancy Rate Schedule by Suite April 2005 Suite Square No. Tenant Feet 73-710 Fred Waring Drive-Two (2) Story Building 100 Hanover 1,915 100A William Bonneheim 645 102 Cove Commission-Fire Marshal 1,360 103 National Multiple Sclerosis 488 104 Arthritis Foundation 960 106 Coachella Valley Economic Partnership 928 108 Assembly Rules Committee-Assemblyman Benoit 450 112 Senator Baffin 1,741 114 Chamber of Commerce 1,478 118 Goodwill Industries 1,250 119 City/CVAG Conference Room 1,380 120 Duke Gerstal 1,750 200 CVAG 4,292 200A University of California Riverside 841 (Space will be vacated by May 31,2005-CVAG has first right of refusal) 201 University of California Riverside 604 (Space will be vacated by May 31,2005-Currently negotiating with prospective tenant) 203 Mountain Conservancy 480 205 Adopt-A-Class 700 208 Alzheimer's Association-Vacated Mid-April %0 (Space vacated mid-April;Currently negotiating with prospective tenant) 210 Wilson,Pesota&Pichardo 3,040 211 State of California Department of Food&Agriculture 937 2005 Investment ReportVacancy Report v City of Palm Desert Parkview Office Complex Vacancy Rate Schedule by Suite April 2005 217 Joe B.McMillan,.Esq. 775 220 Environmental Products Applications 1,607 222 Riverside County Supervisor-Roy Wilson 3,345 Total square footage(2 story Building) 31,929 Vacancy Rate-3.00% 3.00% 73-720 Fred Waring Drive- One Story Building 100 State of California-Water Resources 15,233 102 State of California-Rehabilitation Department 4,396 Total Square Footage 19,629 Vacancy Rate--0.000/6 0.00% Overall Vacancy Rate for Both Buildings: Vacancy Rate-3.00% 3.00% Occupancy Rate-97.00% 97.00% 2005 Investment ReportVacancy Report PalmDesert Recreation Facilities Corporation Income Statement Apr-05 Apr-05 N % Budget Actual Variance Variance Food & Beverage Revenues $215,620 $284,086 $68,466 131.75% Total Revenues $215,620 $284,086 $68,466 131.75% Salaries $86,606 $82,315 $4,291 95.05% Cost of Goods Sold-F&B $66,131 $80,494 ($14,363) 121.72% Food & Beverage Expense $24,423 $40,437 ($16,014) 165.57% Total Expenses $177,160 $203,246 ($26,086) 114.72% Net Income (Loss) $38,460 $80,840 $42,380 210.19% Note: The above revenues and expenditures are also included in the Desert Willow analysis. DW2005;PDRFC Budget Page 1 • City of Palm Desert Desert Willow Budget VS Actual For the month of April 2005 Budgeted Actual Budgeted Actual April Apra S Percentage Year to Year to S Percentage Revenue 2005 2005 Variance Variance Date Date Variance Variance Course&Ground S 688,615 S 744,288 S 55,673 108.08% S 4,365.997 S 4.572,230 S 206.233 104.72% Cans S 48,944 S 58,060 S 9,116 118.63% S 314,223 S 321,460 $ 7,237 102.30% Golf Shoo S 102.690 S 124,291 $ 21601 121.04% S 763,233 S 790,705 S 27,472 103.60% Range $ 4,000 S 4,217 S 217 105.43% S 31,100 S 37,132 S 6,032 11940% Food&Beverage $ 215.620 S 294,096 S 68,466 131.75% $ 1,404,050 S 1.537,392 $ 133,342 109,50% Interest Income S - S - $ - 0.00% $ - S - S - 0.00% Total Revert e4 S 1.059.869 1.214.942 155.073 114.63% 6 879 603 1 7,258,919 380 16 105.53 Payroll Proshop S 4,501 $ 2,400 S 2,101 53.32% $ 33,643 S 17,634 S 16,009 52,42% Can $ 35,930 $ 29,601 S 6,329 92,39% S 250,047 S 216,446 S 33601 86,56% Course&Ground E 128,343 S 119,586 S 8,757 93.18% $ 1,298,598 S 1,243,037 S 55,561 95.72% Golf Operations $ 31,250 S 35,855 S (4,605) 114.74% S 275,424 S 249,516 S 25.908 90.59% General&Administration S 43,121 S 34,111 S 9,010 79.11% S 419,985 S 376,231 S 43,754 89.58% Food&Beverage $ 86.606 S 82,315 S 4,291 95.05% $ 685,817 S 691,911 S (6,094) 100.89% Total P rot S 329 751 S 303.968 S 25.983 92.15% S 2.963.514 2.794.775 168.739 94.31% Other Expendituro Perimeter Landscaping $ - S - S - 0,00% S - E - E - 0.00% Proshop S 3,540 $ 2.210 S 1330 62,43% S 45,415 S 46918 $ 01503) 103.31% Proshop-COGS S 56,260 S 56,074 S 186 99.67% S 348,846 $ 330,366 $ 18,480 94,70% Can $ 17,940 S 18,291 $ (351) 101,96% S 150,350 $ 147,796 S 2.554 98.30% Course&Ground-North Course S 36,574 S 26,030 S 10,544 71.17% S 549,519 S 541,938 $ 7.581 98.62% Course&Ground-South Course S 33,325 S 35,640 S (2,315) 106.95% S 500,149 S 493.949 S 6.200 98.768'o Course&Ground-Desert Pallet-N S 425 S - $ 425 0.00% S 4,850 $ 6,138 $ (1,288) 126.56% Course&Ground-Desen Pallet-S $ 1,025 S - S 1,025 0.00% S 7,250 S 4,247 $ 3.003 58.58% Golf Operations $ 1,175 S 699 S 476 59.49% $ 15,100 $ 10,638 S 4,462 70.45% General&Administration $ 59,910 S 81.434 S (21,524) 135,93% S 631,760 S 674,484 S (42,724) 106,76% Range S 145 $ 1,009 $ (864) 695.86% S 12,280 S 13,738 S (1,458) 111.87% Food&Beverage S 24.423 S 40,437 S (16,014) 165.57% S 227,085 S 335,471 S (108,386) 147.73% Food&Beverage COGS S 66,131 S 80.494 S (14.363) 121.72% S 432,681 S 476,780 S (44,099) 110.19% Management Fee S 25,000 S 25,000 S - 100.00% S 250,000 S 247,787 $ 2,213 99.11% FinancinaTease $ 3,751 S 3.500 S 251 93.31% S 42,210 S 42,005 $ 205 99.51% Tatal Cher Ex enditures 329,624 370.819 5 141.1941112.50% S 3.217.495 3.372.255 (154,760) 104.81 Daem Willow Gaff Academy Desert Willow Golf Academy $ 16.800 S 14,028 S (2,772) 83.50% $ 142,750 S 123,690 S (19,060) 86.65% COGS-Merchandise $ (7,461) S (12,176) $ (4,715) 163.20% S (65,840) S (71031) $ (5,191) 107.88% Other Expenditures $ (8,050) S (5,105) S 2,945 63.42% S (53.900) S (48,119) S 5.781 89.27% S Learning Center Income(Lou) $ 1,289 S (3,253) S (4,542) -252.37% $ 23,010 S 4,540 $ (18,470) 19.73% Operating Income(Lou) S 401,783 $ 537,003 $ 135.220 133.65% S 720,604 S 1,096,429 S 375,825 152.15% Equipment Reserve Replacement S 70,000 S 69,234 S (766) 98,91% S 700,000 $ 696,202 S (3,798) 99.46% Net Income s 33U7U S 467.769 5 135996 14099% S 20604 S 400227 S 379623 1942.47% Snapshot of Golf Rounds Budgeted mo Actual mo Variance Variance% Budgeted td Actual td Variance Variance% Resident 2.125 2,706 581 12714. 17,010 17,062 52 100% Non Resident 7.830 8,732 902 112% 46,474 52,331 5,857 113% Other - - 101 101 100% - 621 621 100% Complimentary 350 393 43 112% 3,182 2,926 256 92% Total 10,305 11,932 1,627 116% 66,666 72,940 6,274 109% Folder:Dewrt Willow 2004:DW2005;Fim veial Statement Page I 00 kCd \ cc ; § § § 91 \ Cd<vP. \ {0 = � E : § / ! , 2 3 u ± a < 3 . a a37 » , ; l : ; \ _ ) \ 2 ) ~ 0 � \ � �{ Co � 2 § cd ® ) � >1 \ / ; 7 �] \ 0 k ; _ / a A w ) ( ® / { / CA g / ) v ! { \ 0 m 4 X 'to g e2 aga ' b� 7 N»w»w« w »ww»«» N w»„w w w w w w w NN N »ww w » » « - � $ - o < N»»w»w«» w w N N »»c N N N n g woe - G Y7• � � a �QN� ww» www »»NNNw wNNrwww» »» »Xw NwN » w 6 a X 6 � � »«« NNw «w„Nww Nwww»»ww««wN www N w f .yEiyrye a, 7 $M = .1 nn ryn 3 v S ^ v M8 m - _ ry 8 e n w - qq a N rNN » » « Nw»w» w w Nw»w»»w»N«NN w w« N « » « w 8 U U U Y �i � F 6 U U V V S 6 LL LL Z� F O uY Z Vai Z Z U F km / § R Ci Cd � e 0kC6§ k3 ) , u � � 0 0 >I ( k \ ) t12 e 0 / } ƒ E] } k R } ] $ . } - ) : \ ] § 2 E [ - � , /] - « | § L k0 _ ( tkk - /� a( / C k 0 § ) � / � 0k 02 { 0 k _ & 0 ` } 0 _ : k � a 5 IS aucecece nceee. R 8888888888 g a N. r^R»NmA: S S� S` cexcer�cecececece ye ces Sm� ^ _'❑ 3 eSC�e�n�;R cececececececececece � cecewceexcemcema d mSm-�� w.5 nm FK Zm cececececececertcece d ed S 6 8me5a'^x�°° i m w z° 3 0 8 F� F < F p 8 E - 8 ° yy�ig $$qppq 9� gp 4 �j�X 25ilt< u < 852 € `u� C Y63�u " � 2�< V <' i P<' U <' z° Et V t r 7 6 0 0 0 IR OQ*8 8, 8, IX 8 8"S''s IR 8888 g g; to > WeP%K"YYa LeWM ef. ceS >yy o g< ce 2888m�saas a � > i --- ❑ � _ _ a " - ae�"ww"r cernw tlt o3F $C_^99-A �n�.A�66aX s 8 _ 5 f f F � yp �❑ � f g p@gp � � b�C C 4 Y 8� rz ik. µGp @y pp c G $ybB8 GB8y � L- L qpSyOy3q`e� � �x ypy3 �e' 3 2 \ ° , , ° / 0 \> / 2 - . � ■ � ; | a cl e 00 ID } ! 2 2 a | 0 § k \| Ia 4 % I a � � � Cd � 7 ) $ � - a § ■ � ; ! 10 \ . ;s [s ! ] ° ~ o0■ ) ° ; ea � ) Desert Willow Breakdown of Rounds per point of sale system Desert Willow - Combined Analysis- APRIL 2005 Resident 2,706 $ 121,770 $ 45.00 22.70% Non-Resident 8,732 $ 677,361 $ 77.57 73.20% Other 101 $ 1,010 $ 10.001 0.80% Complimentary 393 $ F1 $ - 1 3.30% Desert Willow Totals 11,932 800,141 1 67.06 � 100.00% DW2005;POS AVG RD Page 9 Desert Willow Breakdown of Rounds per point of sale system FIRECLIFF COURSE- APRIL 2005 I Description �— No. Of Revenue Avg. Per Pet to I Rounds Per POS Round Total Resident Rounds I � I Resident Fee 1,302 1 $ 58,590 1 1 $ 45.00 20.88% I I Total Resident 1,302 58,590 1 45.00 20.88% I I Non Resident _ IROC Member/ Guest 36 1 $ 3,688 1 $ 102.44 1 0.58% IROC Designated Party 123 $ 7,995 $ 65.001 1.97% Sunrise 108 $ 14,0401 1.73% Prime 490 $ 63,560 1 1 $ 129.71 7.86% Midday 175 1 $ 16,6251 95.00 2.81% Sunset 1 795 1 $ 35,775 1 45.00 12.75% Wholesale 1,131 I $ 83,539 1 1 $ 73.86 18.14% Outing 1,227 1 $ 103,025 1 $ 83.97 1 19.68% Twilight 376 1 $ 26,220 1 1 $ 69.73 1 6.03% Fee Special Event Variable 197 1 $ 11,915 1 $ 60.481 3.16% Total Non Resident Rounds 1 4,6581 $ 366,382 78.66 74.71% I I I Other Rounds 1 Junior Walking 45 1 $ 450 1 $ 10.00 0.72% Total Other I 45 4501 1 $ 10.001 0.72% I II I Complimentary 1 I II VIP 50 $ I $ 0.800/. PGA Member 5 $ - I $ 0.08% USGA Kids on Course ! - 1 $ is - 0.00% Champions Club - $ - 1 1 $ - 0.00% Donation 1 24 $ 1 $ - 0.38% PDHS/COD 129 I $ - 1 $ - 2.07% Employee / Employee Guest 22 1 $ - $ - 0.35% Total Complimentary 1 230 - - 3.69% T __ I otal Rounds (FireCliff) 1 6,2351 $ 425,4221 1 $ 68.23 1 100.00% DW2005;POS AVG RD Page 10 Desert Willow Breakdown of Rounds per point of sale system MOUNTAIfiTiTIEW COURSE- APRIL 2005 Description No. Of Revenue Avg. Per Pct to Rounds Per POS Round Total Resident Rounds Resident Fee 1,404 $ 63,180 $ 45.00 24.64% Total Resident 1,404 63,180 1 45.00 1 24.64% Non Resident T IROC Member/ Guest 1 32 1 $ 3,160 1 1 $ 98.75 0.56% IROC Designated Party 129 1 $ 8,385 $ 65.00 2.26% Sunrise 103 $ 13,390 $ 130.00 1.81% Prime 309 $ 40,170 1 $ 130.00 1 5.42% Midday 131 $ 12,445 1 1 $ 95.00 2.30% Sunset 736 $ 33,120 $ 45.00 12.92% Wholesale 1,100 1 $ 79,245 1 1 $ 72.04 19.31% Outing 1,078 1 $ 89,4941 1 $ 83.02 18.92% Twilight 1 352 $ 24,590 $ 69.861 6.18% Fee Special Event Variable 104 $ 6,980 $ 67.12 1.83% Total Non Resident Rounds 4,074 310,979 76.33 71.51% Other Rounds I Junior Walking 1 56 1 $ 5601 1 $ 10.001 0.98% Total Other 56 5601 1 $ 10.001 0.98% Complimentary 1 I PGA Member 1 is - 1 $ - 1 0.02% VIP 50 $ - - 1 $ 0.88% Donations 22 $ - 1 $ - 1 0.39% Champions Club $ - 1 $ - 0.00% PDHS/COD 67 $ - 1 1 $ - Employee / Employee Guest 23 $ 1 I $ - 0.40% 1 Total Complimentary 163 - 2.86% _ i L� Total Rounds )Mountainview) 5,697 1 $ 374,719 $ 65.77 1 1000/. DW2005;POS AVG RD Page 11 City of Palm Desert Desert Willow Cash Reserve Analysis for the month of April 2005 Cash Reserve Analysis One Month Re uired Reserve $ 500,000.00 ash on Hand $ 1,850,302.31 Variance- Favorable Unfavorable $ 1,350,302.31 Page 12 AGENDA REGULAR MEETING OF THE PALM DESERT INVESTMENT & FINANCE COMMITTEE Wednesday, May 25, 2005 — 10:30 a.m. North Wing Conference Room, City Hail I. CALL TO ORDER II. ROLL CALL III. ORAL COMMUNICATIONS A. Any person who wishes to discuss an item not on the agenda may do so after he/she has given his/her name and street address for the record. Speakers must limit their remarks to three (3) minutes unless the Committee authorizes additional time. B. Any person who wishes to comment on an agenda item may do so. At the Committee's discretion, however, such comments may be deferred until the item is discussed on the agenda. Speakers must limit their remarks to three (3) minutes unless the Committee authorizes additional time. IV. APPROVAL OF MINUTES A. MINUTES OF THE MEETING OF APRIL 27, 2005 Rec: By Minute Motion, approve the Minutes of the regular meeting of the Palm Desert Investment and Finance Committee of April 27, 2005, as presented. V. NEW BUSINESS A. CITY AND REDEVELOPMENT AGENCY INVESTMENT SCHEDULES AND SUMMARY OF CASH REPORTS FOR APRIL 2005 Rec: By Minute Motion, recommend that the City Council approve the City and Redevelopment Agency Investment Reports for the periods ended April 30, 2005. B. LOCAL AGENCY INVESTMENT FUND (L.A.I.F.) ACCOUNT STATEMENTS FOR APRIL 2005 Rec: Review and file. C. CALIFORNIA ASSET MANAGEMENT PROGRAM (C.A.M.P.) ACCOUNT STATEMENTS FOR APRIL 2005 Rec: Review and file. INVESTMENT & FINANCE COMMITTEE AGENDA MAY 25, 2005 D. CITY AND REDEVELOPMENT AGENCY FINANCIAL REPORTS FOR APRIL 2005 Rec: Review and file. E. PARKVIEW PROFESSIONAL OFFICE BUILDINGS FINANCIAL REPORTS FOR APRIL 2005 Rec: Review and file. F. PALM DESERT GOLF COURSE FACILITIES CORPORATION FINANCIAL REPORTS FOR APRIL 2005 Rec: Review and file. VI. CONTINUED BUSINESS None. VII. OLD BUSINESS A. PUBLIC AND PRIVATE PARTNERSHIP BACKGROUND CHECKS Rec: Review and file. B. PALM DESERT FINANCING AUTHORITY BOND ISSUANCE Rec: Review and file. Vill. ADJOURNMENT Rec: By Minute Motion, adjourn the meeting. Next Meeting: Wednesday, June 22, 2005 at 10:30 a.m. in the North Wing Conference Room, City Hall. I hereby certify, under penalty of perjury, under the laws of the State of California that the foregoing agenda for the Palm Desert Investment and Finance Committee was posted on the City Nall bulletin board not less than seventy-two (72) hours prior to the meeting. Dated this 18"' day of May 2005. Niamh Ortega, Rec ing Secretary 2 G:1FinanceWiamh ortegalWpdocsVnvestment Committee120051AgenMagenda 052505.doc J r � MINUTES REGULAR MEETING OF THE PALM DESERT INVESTMENT & FINANCE COMMITTEE Wednesday, April 27, 2005 I. CALL TO ORDER Chairman Gibson called to order a regular meeting of the Palm Desert Investment & Finance Committee at 10:30 a.m. II. ROLL CALL Present: Absent: Paul Gibson, Chairman Jim Ferguson, Mayor Pro-Tempore Buford Crites, Mayor Justin McCarthy, ACM/Redevelopment Thomas Jeffrey, Deputy City Treasurer Carlos Ortega, City Manager Dave Erwin, City Attorney Russ Campbell, Member Bill Veazie, Member Everett Wood, Member Thomas Lee Wormley, Member Also Present: Dennis Coleman, RDA/Housing Finance Manager Luis Espinoza, Assistant Finance Director Niamh Ortega, Recording Secretary Ill. ORAL COMMUNICATIONS None. IV. APPROVAL OF MINUTES A. MINUTES OF THE REGULAR MEETING OF MARCH 23, 2005 MOTION was made by Mr. Wood and seconded by Mr. Campbell to approve the Minutes of the March 23, 2005 regular meeting. Motion passed. INVESTMENT & FINANCE COMMITTEE MINUTES APRIL 27, 2005 V. NEW BUSINESS A. CITY AND REDEVELOPMENT AGENCY INVESTMENT SCHEDULES AND SUMMARY OF CASH REPORTS FOR MARCH 2O05 Mr. Jeffrey submitted the report for March 2005, and highlighted the following areas: For the month ended March 31, 2005, the book value of the City Portfolio was approximately $146.9 million. Interest earnings were approximately $325,000. Yield-to-maturity was approximately 2.79%. For the month ended March 31, 2005, the book value of the RDA Portfolio was approximately $158.3 million. Interest earnings were approximately $375,000. Yield-to-maturity was approximately 2.58%. B. LOCAL AGENCY INVESTMENT FUND (L.A.I.F.) ACCOUNT STATEMENTS FOR MARCH 2O05 The reports were reviewed and placed on file. C. CALIFORNIA ASSET MANAGEMENT PROGRAM (C.A.M.P.) ACCOUNT STATEMENTS FOR MARCH 2O05 The reports were reviewed and placed on file. D. CITY AND REDEVELOPMENT AGENCY FINANCIAL REPORTS FOR MARCH 2O05 The reports were reviewed and placed on file. Mr. Gibson highlighted that revenues were approximately $700,000 more than the same period last year. Mr. Coleman pointed out that most of the RDA revenue received for the month of March was interest income. The Housing Authority received $386,000 in rental fees. A second payment of tax increment in the amount of approximately $28 million is expected in May 2005. From that amount, approximately $24 million will be paid in pass-through funds and will be reflected on the report for July or August 2005. Mayor Crites asked how much of the pass-through payment for College of the Desert would be held back as repayment of the library, and the time remaining on that note. Mr. Coleman stated that he would research this item. 2 G:IFinancewiamh OrtegalWpdocsllnvestment Committee12005VVinutesMnutes O42705.doc INVESTMENT & FINANCE COMMITTEE MINUTES APRIL 27, 2005 E. PARKVIEW PROFESSIONAL OFFICE BUILDINGS FINANCIAL REPORT FOR MARCH 2O05 The report was reviewed and placed on file. One tenant has vacated, and the City Attorney is reviewing a prospective tenant to determine if it is an appropriate use for the building. F. PALM DESERT GOLF COURSE FACILITIES CORPORATION FINANCIAL REPORT FOR MARCH 2O05 Mr. Gibson reported that Desert Willow has performed well for the month of March. Club Intrawest has expressed a desire to relocate their facility, which would provide for more available space at the clubhouse for possible restaurant use. The operating income reflects a profit of about $559,000 at this point. G. 457 DEFERRED COMPENSATION REPORTS FOR 1Q05 (NATIONWIDE & ICMA) Mr. Gibson reviewed the California code that states that all cash must be reported to Council. The information is provided to the Committee for informational purposes only, as it is not included as a part of the City's investment strategy. VI. CONTINUED BUSINESS None. VII. OLD BUSINESS A. PUBLIC AND PRIVATE PARTNERSHIP BACKGROUND CHECKS No report. B. PALM DESERT FINANCING AUTHORITY BOND ISSUANCE Requests for Qualifications (RFQ) have been distributed to sixteen firms who have expressed interest in the past. It is expected that between five and seven firms will respond. A meeting will be scheduled for the first week of June so that the subcommittee can review the received RFQs. Mr. Coleman commented that two potential assessment districts are being reviewed. Staff is exploring how fees for improvements could be spread between property owners, as well as a possible community facilities 3 GAFinanceWiamh OitegalWpdocsllnvestment Committee120051MinutesMinutes 042705.doc INVESTMENT & FINANCE COMMITTEE MINUTES APRIL 27, 2005 district. Palm Desert Highlands is also being considered as a potential assessment district for utility undergrounding. VIII. ADJOURNMENT Mr. Gibson adjourned the meeting at 11:07 a.m. Niamh Ortega, Recording Secretary 4 G:WinanceWiamh OrtegaMpdocslinvestment Committe02005WinutesMinutes 042705.doc City of Palm Desert City and Redevelopment Agency Portfolios COMPLIANCE ANALYSIS AND INVESTMENT REPORT April 2005 Paul S. Gibson, C.C.M.T., Treasurer Thomas W. Jeffrey, J.D., M.B.A., Deputy City Treasurer Treasurer's Commentary On May 3rd, the Federal Open Market Committee (FOMC) raised the Federal Funds Rate by 25 basis points to 3,00% --the eighth consecutive increase since June 2004. While acknowledging that long-term inflation remained well-contained,the FOMC cited near-term pressures on inflation, such as an improving labor market,and increased pricing power. The next FOMC meeting will be on 30 June 2005. The current market expectation is that there will be another 25 basis-point increase in the Federal Funds Rate, and that it will be at 4.00% by year-end. The 2 - 10 year segment of the Treasury Yield Curve flattened another 15 basis points in April, due to continued low inflation expectations, and strong demand for longer Treasury maturities. The latter is one of the reasons that the U.S. Treasury is discussing the reissuance of 30-year Treasury bonds. A more subtle dynamic may be inflating demand, however. The "Baby Boomers", who fueled the Great Bull Market of the 1990s, will be retiring during the 2005 - 2025 period. According to Merrill Lynch, their portfolios are overweighted in stock. In order to provide income during retirement, they will be compelled to sell stock, and buy bonds. This will raise bond prices and depress bond yields, since the two move inversely. The book value of the RDA Portfolio declined by $33 million in April due primarily to a$23 million refunding of Project Area No. 1, Series 1995. The rest of the difference was principally$9 million of debt service. Pis (jd4on, C.C.Af.7- Treasurer PORTFOLIO STATISTICS Dollars in Thousands APR-05 MAR-05 FEB-05 JAN-05 DEC-04 NOV-04 CITY Month-End Book Value"' $ 146,327 $ 146,856 $ 142,687 $ 140,218 $ 124,724 $ 128,602 Month-End Market Value— $ 146,072 $ 146,787 $ 142,852 $ 140,446 $ 124,992 $ 128,877 Paper Gain (Loss) $ (255) $ (69) $ 165 $ 228 $ 268 $ 275 Prior Year Book Variance $ (2,529) $ 20,165 $ 17,749 $ 12,381 $ (8,112) $ (3,536) Interest Earnings $ 321 $ 325 $ 283 $ 243 $ 222 $ 214 Yield-To-Maturity 2.94% 2.79% 2.66% 2.54% 2.26% 2.08% Weighted Maturity(Days) 166 170 172 178 121 119 Effective Duration 0.25 0.28 0.30 0.32 0.14 0.15 RDA Month-End Book Value"` $ 125,236 $ 158,324 $ 159,105 $ 160,560 $ 147,802 $ 148,730 Month-End Market Value "` $ 125,054 $ 158,129 $ 159,134 $ 160,623 $ 147,862 $ 148,761 Paper Gain (Loss) $ (182) $ (195) $ 29 $ 63 $ 60 $ 31 Prior Year Book Variance $ (33,088) $ (5,191) $ (5,466) $ (2,570) $ 6,079 $ 4,546 Interest Earnings $ 283 $ 375 $ 285 $ 268 $ 239 $ 221 Yield-To-Maturity 2.80% 2.58% 2.37% 2.23% 2.00% 1.84% Weighted Maturity(Days) 101 80 136 127 65 65 Effective Duration 0.22 0.18 0.20 0.20 0.05 0.07 "' Omits SLGSs. City of Palm Desert-- Portfolio Characteristics 30 April 2005 Dollars in Thousands Ageing Interval Market Value General Fund Ageing < 1 M $ 67,467 <2M 13,041 <3M 2,989 100 - <6M - 80 71 < 1YR - o <2YR 3,156 0 so <3YR 8,509 0 t- 40 - <4YR - o.0 <5YR - 20 14 9 0 El> 5YR - 3 I 3 Total: $ 95,162 <1M <2M <3M <6M <1YR <2YR <3YR Ratings* Market Value Credit l]uality AAA AAA $ 25,165 19% Unrated" 72,785 AA 2,408 9% Un 54% " 4% A 6,169 A-1 14,010 A-1 BB+ 11,714 11% A AA Total: $ 132,251 5/° 2% Sector Market Value Asset Allocation LAIF RDA Loan Money Market Funds $ 19,121 30% 25% LAIF 40,000 RDA Loan 32,785 MTNs 20,291 Money Market _ MTNs Federal Agency 6,044 Funds 15% Commercial Paper 14,010 14% Commercial Federal Total: $ 132,251 Paper Ag ency 11% 5/0 Month City Yield LAIF Yield Variance Performance May04 1.53 1.43 0.11 Jun 1.58 1.47 0.11 3.0 Jul 1.68 1.60 0.07 Aug 1.74 1.67 0.06 2.6 Sep 1.84 1.77 0.07 Oct 1.96 1.89 0.07 m 2.2 m Nov 2.08 2.00 0.08 Y 1.8 Dec 2.26 2.20 0.06 Jan05 2.54 2.26 0.28 1.4 - - Feb 2.66 2.37 0.29 May04Jun Jul Aug Sep Oct Nov Dec Jan05 Feb Mar Apr Mar 2.79 2.54 0.25 Apr 2.94 2.72 0.21 OLAIF Yield EICity Yield Standard and Poors " LAIF, and City Loan to RDA Page 2 of 8 City of Palm Desert Portfolio Holdings 30 April 2005 Market Ratings Par Value Issuer lCouponj Maturity Cost YTM Price Value Moody'sl S&P Medium-Term Notes $ 2,406,000 ABBOTT LABS 6.80 5/15/05 $ 2,410,349 2.08 100.10 $ 2,408,312 Al AA $ 3,000,000 BANK ONE 4.13 9/1/07 $ 3,032,019 3.64 100.43 $ 3,012,921 Aa3 A+ $ 3,000,000 FORD MOTOR CREDIT CORP 7.20 6/15/07 $ 3,081,133 5.75 99.91 $ 2,997,345 Baa2 BB+ $ 2,500,000 FORD MOTOR CREDIT CORP 7.20 6115/07 $ 2,567,611 5.75 99.91 $ 2,497,787 Baa2 BB+ $ 1,610,000 FORD MOTOR CREDIT CORP 6.75 5/15/05 $ 1,612,437 2.80 100.07 $ 1,611,076 Baa2 BB+ $ 4,612,000 FORD MOTOR CREDIT CORP 7.20 6/15/07 $ 4,802,904 5.10 99.91 $ 4,607,918 Baa2 BB+ $ 3,000,000 GOLDMAN SACHS 7.20 3/1/07 $ 3,194,433 3.50 105.20 $ 3,155,850 Aa3 A+ $ 20,128,000 Subtotal $ 20,700,886 4.29 $ 20,291,210 Commercial Paper--Discount $ 3,000,000 GENERAL ELECTRIC 2.56 5/13/05 $ 2,976.107 2.62 99.89 $ 2,996,739 P-1 A-1+ $ 3,000,000 GENERAL ELECTRIC 2.63 6/15/05 $ 2,968,221 2.70 99.89 $ 2,996,750 P-1 A-1+ $ 3,000,000 GENERAL ELECTRIC 2.71 7/15/05 $ 2,960,479 2.78 99.64 $ 2,989,238 P-1 A-1+ $ 5,050,000 GENERAL ELECTRIC 2.73 6/22/05 $ 4,999,067 2.80 99.55 $ 5,027,324 P-1 A-1+ $ 14,050,000 Subtotal $ 13,903,873 2.73 $ 14,010,051 Federal Agencies--Discount - $, 1,015,000 FED NATIONAL MTG ASSOC 1.92 5/2/05 $ 997,021 2.00 100.00 $ 1,015,000 Aaa AAA $ 5,047,000 FED NATIONAL MTG ASSOC 2.71 6/15/05 $ 4,999,129 2.77 99.65 $ 5,029,335 Aaa AAA $ 6,062,000 Subtotal $ 5,996,150 2.65 $ 6,044,335 LGIP $ 40,000,000 L.A.I.F. 0.00 5/l/05 $ 40,000,000 2.72 100.00 $ 40,000,000 U U $ 40,000,000 Subtotal $ 40,000,000 2.72 $ 40,000,000 LGIP $ 9,459,056 C.A.M.P. 0.00 5/1/05 $ 9,459,056 2.60 100.00 $ 9,459,056 U AAA $ 9,459,056 Subtotal $ 9,459,056 2.60 $ 9,459,056 LGIP $ 9,661,993 AIM PRIME PORTFOLIO 0.00 5/1/05 $ 9,661,993 2.46 100.00 $ 9,661,993 Aaa AAA $ 9,661,993 Subtotal $ 9,661,993 2.46 $ 9,661,993 City Loan to RDA $ 32,785,480 CITY OF PALM DESERT 0.00 5/1/05 $ 32,785,480 2.72 100.00 $ 32,785,480 U U $ 32,785,480 Subtotal $ 32,785,480 2.72 $ 32,785,480 Total Investments $ 132,146,529 $ 132,507,438 2.94 $ 132,252,124 "NR"= Not Rated Page 3 of 8 City of Palm Desert Portfolio Holdings 30 April 2005 Market Ratings Par Value Issuer JCouponj Maturity Cost YTM I Price Value Moody's S&P Cash $ 12,000,762 CITY MAIN CHKG 0.00 5/1/05 $ 12,000,762 0.00 100.00 $ 12,000,762 N/A N/A $ 1,205,530 DESERT WILLOW CHKG 0.00 5/1/05 $ 1,205,530 0.00 100.00 $ 1,205,530 N/A N/A $ 613,267 RECREATIONAL FAC CHKG 0.00 5/1/05 $ 613,267 0.00 100.00 $ 613,267 N/A N/A $ 13,819,559 Subtotal $ 13,819,559 $ 13,819,559 Total Cash and Investments $ 145,966,088 $ 146,326,998 $ 146,071,684 %of Portfolio Corporate Issuers Market Value) GENERAL ELECTRIC CAPITAL CORPORATION 9.59% FORD MOTOR CREDIT CORPORATION 8.02% GOLDMAN SACH5 2.16% BANK ONE 2.06% ABBOTT LABS 1.65% "NR"=Not Rated Page 4 of 8 Palm Desert Redevelopment Agency-- Portfolio Characteristics 30 April 2005 Dollars in Thousands Ageing Interval Market Value < 1 M $ 63,515 Portfolio Ageing w/o SLGSs <2M - <3M - 100 <6M 2,964 80 77 < 1YR 3,566 a 70 <2YR 6,054 c 0 5 <3YR 5,878 0 40 <4YR - 0 30 <5YR 20 10 0 0 4 4 7 7 0 > 5YR 0 Total: $ 81,977 <1M <2M <3M <6M < 1YR <2YR <3YR <4YR ouality Market Value Credit Duality AAA AAA $ 52,535 43% Unrated 3% 50% Unrated " 60,704 A-1 2,972 BB+ 6,565 BB;, ) Total: $ 122,776 5% A-1 2% Sector Market Value Asset Allocation LAIF _ LAIF $ 60,704 501/6 Money Market Funds 43,602 Money Market Federal Agency 8,933 Corporate Funds Commercial Paper 2,972 Bonds 36%5% Corporate Bonds 6,565 Commercial U.S.Treasury - Paper Federal Total: $ 122,776 2°p/ Agency 7% Month RDA Yield LAIF Yield Variance Performance May04 1.17 1.43 -0.26 Jun 1.37 1.47 -0.10 3.0 Jul 1.53 1.60 -0.08 Aug 1.51 1.67 -0.16 2.5 ' Sep 1.61 1.77 -0.17 Oct 1.73 1.89 -0.16 2.0 Nov 1.84 2.00 -0.17 Y 1.5 Dec 2.00 2.20 -0.20 Jan05 2.23 2.26 0.03 1.0 . Feb 2.37 2.37 0.00 May04Jun Jul Aug Sep Oct Nov DecJan05 Feb Mar Apr Mar 2.58 2.54 0.04 Apr 2.80 2.72 0.08 OLAIFYield 9RDA Yield Standard and Poors " LAIF Page 5 of 8 Palm Desert Redevelopment Agency Portfolio Holdings 30 April 2005 Market Ratings Par Value Issuer Coupon Maturity Cost YTM Price Value Moody's S8P Medium-Term Note $ 3,000,000 FORD MOTOR CREDIT CORP 6.50 1/25/07 $ 3,080,618 4.85 99.99 $ 2,999,700 Baa2 BB+ $ 3,525,000 FORD MOTOR CREDIT CORP 6.88 2/1/06 $ 3,600,232 3.94 101.15 $ 3,565,594 Baa2 BB+ $ 6,525,000 Subtotal $ 6,680,850 4.364 $ 6,565,294 Commercial Paper--Discount $ 3,000,000 GENERAL ELECTRIC 2.77 8/15/05 $ 2,952,448 2.87 99.06 $ 2,971,823 P-1 A-1+ $ 3,000,000 Subtotal $ 2,952,448 2.87 $ 2,971,823 Federal Agency--Coupon $ 3,000,000 FED FARM CREDIT BANK 2.63 9/17/07 $ 2,944,827 3.43 97.06 $ 2,911,875 Aaa AAA $ 3,000,000 FED HOME LOAN BANK 3.38 9/14/07 $ 2,993,466 3.82 98.88 $ 2,966,250 Aaa AAA $ 3,000,000 FED HOME LOAN MTG 4.88 3/15/07 $ 3,080,209 3.38 101.81 $ 3,054,375 Aaa AAA is 9,000,000 Subtotal $ 9,018,502 3.54 $ 8,932,500 LGIP $ 40,000,000 L.A.I.F. 0.00 5/1/05 $ 40,000,000 2.72 100.00 $ 40,000,000 U U $ 5,727,930 L.A.I.F. (HOUSING) 0.00 5/1/05 $ 5,727,930 2.72 100.00 $ 5,727,930 U U $• 5,092,135 L.A.I.F. BOND PROCEEDS 0.00 5/1/05 $ 5,092,135 2.72 100.00 $ 5,092,135 U U $ 9,883,828 L.A.I.F. BOND PROCEEDS 0.00 5/1/05 $ 9,883,828 2.72 100.00 $ 9,883,828 U U $ 60,703,893 Subtotal $ 60,703,893 2.72 $ 60,703,893 LGIP $ 17,574,736 C.A.M.P. 0.00 5/1/05 $ 17,574,736 2.60 100.00 $ 17,574,736 U AAA $ 17,574,736 Subtotal $ 17,574,736 2.60 $ 17,574,736 LGIP $ 26,027,522 AIM PRIME PORTFOLIO 0.00 5/1/05 $ 26,027,522 2.46 100.00 $ 26,027,522 Aaa AAA $ 26,027,522 Subtotal $ 26,027,522 2.46 $ 26,027,522 Total Investments $ 122,831,151 $ 122,957,951 2.80 $ 122,775,768 Cash $ 1,950,602 HOUSING AUTH CHKG 0.00 5/1/05 $ 1,950,602 0.00 100.00 $ 1,950,602 N/A N/A $ 327,549 HOUSING AUTH TRUST 0.00 5/1/05 $ 327,549 0.00 100.00 $ 327,549 N/A N/A $ 2,278,150 Subtotal $ 2,278,150 $ 2,278,150 Total Cash and Investments $ 125,109,301 $ 125,236,101 $ 125,053,918 'U" = Unrated Page 6 of 8 Palm Desert Redevelopment Agency Portfolio Holdings 30 April 2005 Market Ratings Par Value Issuer Coupon I Maturity Cost YTM I Price I Value I Moody's S&P %of Portfolio Corporate Issuers (Market Value) FORD MOTOR CREDIT CORPORATION 5.25% GENERAL ELECTRIC CAPITAL CORPORATION 2.38% "U"= Unrated Page 7 of 8 STATEMENT OF COMPLIANCE The investment portfolios of the City of Palm Desert("City") and the Palm Desert Redevelopment Agency("RDA")are governed by federal, state,and local law. The City Treasurer's'Statement of Investment Policy" is more restrictive than the California Government Code. The Palm Desert Investment Committee and the Palm Desert City Council review the Statement of Investment Policy annually. For the month ended 30 April 2005,the City and the RDA investment portfolios were in compliance with all applicable federal, state, and local laws and regulations. The City Treasury continued to pursue conservative and prudent investment strategies, based upon the stated objectives of safety, liquidity,and yield (in order of priority). Barring unforeseen events,the City Treasury should have sufficient cash to finance the operations of the City of Palm Desert and the Palm Desert Redevelopment Agency over the next six months. In addition, portions of either the City or the RDA portfolio could be liquidated in order to meet any significant, unexpected cash requirements. Bloomberg L.P. and Interactive Data Corporation provided the data and the analytical tools that were used to calculate the market value of all securities in the City and the RDA investment portfolios. State and Local Government Series securities are held in escrow accounts and are therefore not included in this report as assets. All balances are bank balances. Respectfully submitted on 25 May 2005, pizuLs. ridlons C..C..R r 11 City Treasurer SUMMARY OF AUTHORIZED INVESTMENTS California Government Code City Investment Policy CA Govt Maximum Maximum Quality Maximum Maximum Quality %of City %of RDA Code Investment Category Maturity Limit S&P/Mdys Maturity Limit S&P/Mdys Portfolio Portfolio 53601(a) Palm Desert Bonds 5 Years No Limit Not Authorized(1) 53601(b) U.S.Treasuries 5 Years No Limit 5 Years No Limit 0.0% 0.0% 53601(c CA State Debt 5 Years No Limit Not Authorized 53601(d) CA Local Agency Debt 5 Years No Limit Not Authorized 53601(e Federal A encies 5 Years No Limit 5 Years 30% 6% 4.5% 7.3% 53601(f) Bankers's Acceptances 180 Days 40% 180 Days 40% A-1 & P-1 - - 53601(g) Commercial Paper 270 Days 25% A-1+or P-1 270 Da s 25% A-1+or P-1 10.5% 2.4% 53601(h) Negotiable CDs R 30% 5 Years 30% AA-or Aa3 - - 53601(i) Repos No Limit 30 Days 20% AAA&Aaa - 53601(i) Reverse Repos 20% NotAuthorzed 53601Q) Medium-Term Notes 30% A 5 Years 30% A 15.6% 5.4% 53601(k) Mutual Funds 20% AAA&Aaa 90 Da s 20% (2) AAA&Aaa 7.3% 21.2% 53601(I) Trust Indenture Debt Not Authorized 53601(m) Secured Bank Deposits No Limit Not Authorized 53601(k) Local Government AAA &Aaa AAA&Aaa Investment Pools 90 Days 20% or Advisor 90 Days 20% (2) or Advisor 1 7.1% 14.3% 53601(n) Mortgage-Backed 5 Years 20% A(Issuer)& Not Authorized Securities AA(Securi LAW No Limit I No Limit 30.2% 49.4% (1) The City loan to RDA,which is not a bond,has been approved by the Palm Desert City Council. 75.3% 100.0% (2) Maximum limit for mutual funds and local government investment pools, excluding bond proceeds. Certified California Municipal Treasurer Page 8 of 8 CITY OF PALM DESERT OFFICE OF THE CITY TREASURER STAFF REPORT TO: Investment and Finance Committee DATE: May 25, 2005 SUBJECT: S&P Downgrade of Ford Motor Credit Corporation Bonds to High-Yield CONTENTS: Exhibit'W: Comparative Credit Ratings of FMCC as of 5-18-05 Exhibit "B": Merrill Lynch Credit Monitor Report dated 5-12-05 On May 5, Standard and Poors ("S&P") downgraded Ford Motor Credit Company's ("FMCC") long-term debt one notch from "BBB-" to "BB+" ("high yield" or "junk"). Although the timing of the action came as a surprise, the action itself did not. FMCC is still considered to be "investment grade", however, since Moody's and Fitch continue to rate it as such. Ford has two core businesses: Ford Motor Company ("FMC"), the carmaker, and FMCC, the captive finance arm. Over the last few years, FMC's profitability has been mediocre, while FMCC's profitability has been excellent (the corporate "cash cow"). In 2004, FMCC accounted for 80% of Ford's $3.5 billion after-tax profit. As a Finance Committee member noted, "Ford is a finance company that sells cars to raise debt." The City owns FMCC bonds. On April 8, 2005, Ford reversed an earnings guidance affirmation that it had made two weeks earlier, and announced that it was abandoning its target of $7 billion of pretax profit in 2006 ($4 billion from FMC; $3 billion from FMCC). This target was the centerpiece of Ford's five-year recovery plan, and was considered non-negotiable. It was intended to restore car making as Ford's most profitable core business. Although Ford had made a $1.2 billion profit in 1Q2005 (GM, in contrast, lost $1.1 billion), profits were down 38% from prior year due primarily to plunging large SUV sales. The trigger for the downturn was spiraling gasoline prices caused by high Chinese oil demand. Ford was caught transitioning from large SUVs to smaller, more fuel-efficient, crossover SUVs (where future demand will be). Staff Report S&P Downgrade of Ford Motor Credit Corporation Bonds to High Yield May 25, 2005 Page 2 of 3 All three rating agencies (S&P, Moody's, and Fitch) reacted by putting Ford on "Negative Outlook," thereby signaling a likely downgrade. This caused Ford to become one of the most heavily traded names for a week. The City Treasurer's Office discussed whether to reduce the City's position in Ford, and concluded that it would not be prudent, due to market volatility. Subsequent conversations with brokers confirmed that this was a sound decision (Ford bonds were trading hundreds of basis points over the average high-yield level). S&P's rating action on Ford was not based upon management fraud or any specific event. S&P had reviewed Ford's operations, and competitive market conditions over the next two years, and had concluded that if current trends continued, then there would be an increased risk that Ford might default on intermediate- and long-term bonds (maturing in 5+ years). S&P expressed "skepticism about whether management's strategies will be sufficient to counteract mounting competitive challenges." These challenges included intensified market competition, continued market share loss, and increased health care costs. S&P noted, however, that Ford currently had good liquidity, and that FMCC would probably generate $3 billion in pretax profit for 2005. Ford has completed 50-75% of its funding requirements for 2005, and can finance the remainder by issuing asset-backed securities that will carry a "AAA" rating. The S&P downgrade has effectively precluded Ford from issuing unsecured debt, however, due to the high interest rates that would be required. Accordingly, Ford now issues debt exclusively through the asset-backed securities market. MGM, AT&T, Xerox, Georgia Pacific, J.C. Penny, Lucent Technology, and General Motors are other well-known names that have had high-yield downgrades. The Bottom Line [1] Majority View: Still Investment Grade. Two of three major credit agencies still rate FMCC as "investment grade" (see Exhibit "A"). Moody's rates FMCC long-term debt at "Baal" (two notches above high yield, after a two-notch downgrade on May 12); Fitch rates Ford at "BBB" (two notches above high yield, after a one-notch downgrade on May 19). S&P's BB+ high-yield rating is the minority view. The Lehman bond indexes are used by 90% of institutional investors. Due to S&P's action, Ford will move to the Lehman high-yield index in June 2005, only to return to the Lehman investment grade index in July 2005, when Fitch ratings are included, and an average is taken. [2] Strong Balance Sheet. According to Merrill Lynch (see Exhibit "B"), Ford has one of the strongest balance sheets in the auto industry. Ford's bank lines have no ratings triggers or other financial covenants. Ford has only $3.2 billion of debt maturing within the next 10 years. Ford continues to pay $2 billion in dividends to its shareholders annually. Staff Report S&P Downgrade of Ford Motor Credit Corporation Bonds to High Yield May 25, 2005 Page 3 of 3 FMC has cash and cash equivalents of $22.9 billion; net liquidity of $5.2 billion; and $7.2 billion of committed bank lines. FMCC has cash and cash equivalents of $13.1 billion; $13.8 billion of global credit lines; and $18 billion of committed liquidity facilities. FMCC could raise additional cash by either: 1) continuing to shrink its receivables base; or 2) selling Hertz Rent-A-Car (a non-core business), which would eliminate $8 billion of debt from Ford's balance sheet, and generate $6-8 billion in cash. [3] Good Pay. The City's Ford position will completely mature within 25 months (June 2007). Staff has talked to two of the top analysts in the securities industry: Mary Rooney, Director of Credit Analysis for Merrill Lynch, and Girard Miller, a noted economist, former CEO of ICMA Retirement Corporation, and the current COO of Janus Capital Group. Both have studied Ford, and have confirmed that it will be able to pay off its debt within the next two years. [4] Successful New Product Models. Ford's April 2005 sales numbers indicated that F-series pick-up truck sales had increased 2% over prior year, after dropping in the first quarter (F-series trucks are the best-selling vehicles in the U.S.). The restyled Mustang is currently selling so rapidly that Ford is having trouble restocking inventory. The Five Hundred Sedan, and the Mercury Montego, after a slow start, are beginning to gain in popularity. The Ford Escape is the second-best selling crossover SUV, and is more fuel efficient than its Japanese counterparts. [5] Majority of Creditors Standing Firm. A May 5 survey of Ford creditors (Bloomberg News Service) revealed that the majority planned to hold onto their Ford bonds, despite the S&P downgrade. The only forced selling over the next few months will come from private and public pension funds, mutual funds, and insurance companies that are prohibited from owning high- yield bonds. Hedge funds and high-yield investors will be the buyers. In summary, Ford remains an investment-grade credit that has sufficient cash to redeem its debt through June 2007. As a short-term creditor, the City is indifferent to Ford's long-term debt ratings. While the California Government Code prohibits local agencies from acquiring bonds that do not have a "A" credit rating, it is silent on the treatment of legally acquired bonds that have been downgraded below "A". Consequently, the City has the flexibility to hold the bonds to maturity. Staff is currently tracking Ford's balance sheet on a quarterly basis in order to identify any significant erosion of liquidity, should it occur. Submitted By: Thomas W. Jeffircy, 04putVCity Treasurer EXHIBIT "A" 5/19/05 FORD MOTOR CREDIT CORPORATION 2:03 PM COMPARATIVE CREDIT RATINGS FOR LONG-TERM DEBT AS OF MAY 19, 2005 STANDARD & DESCRIPTION FITCH POORS MOODY'S CLASSIFICATION HIGHEST QUALITY AAA AAA Aaa AA+ AA+ Aal VERY HIGH QUALITY AA AA Aa2 AA- AA- Aa3 INVESTMENT A+ A+ Al GRADE HIGH QUALITY A A A2 A- A- A3 BBB+ BBB+ Baal GOOD QUALITY BBBBaa BBB- BBB- Baa3 BB+ Bat SPECULATIVE BB BB Ba2 BB- BB- Ba3 "B+ B+ B 1 HIGHLY SPECULATIVE B B B2 HIGH YIELD B- B- B3 ("JUNK") CCC+ CCC+ Caa HIGH DEFAULT RISK CCC CCC Ca CCC- CCC- C CC CC C C DEFAULT DDD D DD D FOOTNOTES: "LONG TERM DEBT" IS DEFINED AS BONDS HAVING A MATURITY OF 5 YEARS OR MORE, FROM TIME OF RATING. RATING AGENCIES DO NOT RATE BONDS BY INDIVIDUAL MATURITY. SO, A FORD BOND MATURING IN 2 YEARS WILL CARRY THE SAME CREDIT RATING AS A FORD BOND MATURING IN 10 YEARS, EVEN THOUGH THE RISK OF DEFAULT FOR FORD IS MUCH GREATER OVER TIME. "SPECULATIVE" MEANS THAT CREDIT RISK MIGHT DEVELOP DUE TO ADVERSE ECONOMIC CHANGE OVER TIME. BUT FINANCIAL MEANS MAY BE AVAILABLE TO ALLOW FINANCIAL COMMITMENTS TO BE MET. EXHIBIT "B" Merrill Lynch Credit Strategies- 10 May 2005 Table 1). While some bonds have cheapened due to Moody's or Fitch by late June,GM,GMAC,F,and FMC fundamentals(e.g.Morgan Stanley,Viacom,Albertson) will all fall out of Lehman's high grade index at the end of many,especially those of higher quality should be mean this month,only to return in July. reverting. Also,comparing to CDS mitigates fundamental Both F and FMC will likely go back to high grade in July steepening as 5YR CDS/5 Year Cash bonds beta is while GM/GMAC has less margin for error for a retum typically greater than 1. (basically,Fitch must not downgrade I%:months). Pension Reform may quell Treasury Steepening:But NAIC Remains Unchanged at Ind Highest Benefit High Quality Corporates All Auto bonds will retain their current NAIC rating of There is some debate as to how much more the Treasury "T'.Recall,the NAIC recognizes four NRSROs(Moody's, curve will steepen if the proposed pension reform is Standard&Prices,Fitch,and DBRS).When there is more passed. It is quite possible that demand for long dated assets will exceed any incremental supply. than one rating the second-highest taring is to an N translated to an NAIC Designation(Similarto the new However,if Pension reform were to become reality,it is Lehman schema). also true that long dated Corporates should benefit even For example,if the ratings are"A","A",and"BBB"then more. Recall that in the proposed legislation pension highest rating is"A",and the second-highest rating is also liabilities will be discounted by Single A Corporate curve. "A„so the asset becomes NAIC I (the equivalent of"A"). Single A Corporates should be the hedge asset of choice The NAIC equivalents are:>a ui and thus benefit in either a treasury steepening or a q - I,B -2,BBt- 3;Bf=4;ov down to in or near defaultt=6=6. pension-driven flattening environment. Changing Index Rules Confusing Table 3:Summary of the Index Rules the Auto Migration to High Yield Index Rule GM Current Rating ML Takes the Average Lehman Current Average ofM Moodys,SP Fitch 112 -HY Moodys,SP 12-HY ML index criteria is based upon an average of the Moodys, Lehman starting 611 20 highest of Moodys,SP and 10-IG and Fitch numerical ratings(where AAAte Fitch AA I AA /AA+=2,Aa2/AA=3,etc.). A composite ratingNAIC Second Highest of Moodys,SP, 2-IG of Filch,and DBRS 10.5 or higher falls below investment grade.(An average rating between 10.5 and 11.499=BB+), Source.ML GMfalls to High Yield, GMAC,F, FMC and Hertz all remain investment grade Ford versus GM: Relative Value in As shown in Table 2,GM's Baa3BBBBB-rating the Curve averages to 10.7,which rounds to 11 or BB+. Underweight GM,Marketweight F Since GMAC's average rating is 10.3,its rating rounds to In the context of GM and F's new reality as high yield BBB-. Based on the ML scheme,both Ford and FMC credits, we continue to favor F over GM. While the action have a decent cushion(5 and 7 notches,respectively) from S&P on F came sooner than we had expected,bonds before falling to high yield. discount the fundamental and technical risks in our view. Despite wider trading levels at GM,we expect Table 2:ML Index Rules and GM and Ford incrementally negative fundamentals and technicals to Complex:The"10.5"Cutoff continue to pressure spreads. We believe F spreads fairly Mid VOAcompensate investors for a traditional"5-B"credit. CrediVRatirt Numerical Ratbt Avere a Index fins Liquid balance sheet. F maintains the strongest balance GM(BaOIBBIBB&) AVG(10,12,10) 10.7IV$ sheet in the sector with industrial cash of S23bn(incl. GMAC(BaaLBBIBBB-) AVG(9,12,10) 10.3 VEBA),and net liquidity of SSbn. This compares to GM's F(BAAIBB+BBB+) AVG(8,11,8) 9.6 cash and S-T VEBA balance of S20bn,but a net debt FMC(A3BB+BBB+) AVG(7,10,8) 8.3 balance ofSI2.5bn. Liquidity is substantial w/sizeable bank HRTZ(Baa2/BBB-BBB+) AVG(9,10,8) 9.0 lines&minimal near-term industrial debt maturities. Source:tears Lynch.Lear rat:g ere mapped to o*ml mmieric ratings:AAA"1,AA More operational flexibility. F's structural cost base -Z...BBB-.10,88.12... affords it a relative advantage over GM,and we acknowledge the strides F has made toward its restructuring Lehman Takes the Middle goals laid out in 2002. Given its smaller size and more This contrasts to the Lehman index schema. It is our moderate legacy obligations(pensions and OPEB),F can understanding that Lehman Brothers currently takes the adjust its volume to focus on higher margin opportunities. "lower of Moody's and S&P,but commencing July 1, GM must absorb the costs of carrying about 2.4 retirees for will use the middle or 2"d highest rating of every active employee,whereas F's ratio is approximately Moody's\S&P\Fitch.Assuming no rating change by Refer to important disclosures on page 11. 3 Credit Strategies- 10 May 2005 Merrill 6ynch Product Initiative, While not a distinct advantage for either company,we are modestly more positive regarding F's near Table 4:Auto Comparable Financial Summary term product momentum relative to GM. Both companies FY05 Estimates(Ss in tutus)-Industrial Only are getting hit hard by declines in overall market share,with F GM particular weakness in SUVs. GM has lost 1.6 points of Ratings(MOYSISBPIF-dd) Baa1BBaBBBa Baa91BOMES share YTD,while F has lost 1.1 share points. For its part, Outlooks(NOYs/SBP/FftN WL Negn401 WNB GM will be experiencing somewhat of a product dry-spell Income Statement until its GMT 900 platform(large SUVs and pickups)ramps Total Net Sales and Revenues $148,028 $152,033 up in early 2006. Further,the success of this platform is EBITDA 7,415 6,294 hard to predict given(I)the secular shifts in the industry Depredation and Amortization 6,340 0,008 away from traditional SUVs and(2)GM has not released EBIT(a) 1,075 (1,714) design photos of the new products. F's recent car/CW Interest Expense,Gross 1,300 2,785 launches have been building momentum,which is partly ONer Expenses(Income) (255) 200 mitigating weakness in its light truck performance. EBT 30 (4,699) Stronger credit metrics. Across-the-board,F has stronger CCOpiWafitedoo Tow credit metrics. For FY05,we expect F to post an EBITDA Cash and Equivalents $19,492 $15,542 margin of 5%versus GM's 4%. Interest coverage of 5.7x Tom Debt 18,435 32,522 compares with GM's 2.3x. Debt-to-EBITDA is forecast at Total Shareholders'Equity(b) 17,539 27,772 2.5x,well below GM's 5.2x.Though global unfunded Total Capitalization 35,974 60,294 pensions total$12bn at F versus$8bn at GM,F's OPEB Financial Sishn Pill'Kft�` obligation is effectively half the size of GM's. We also EBITDA Margin 5.0% 4.1% expect F to post close to breakeven cash flow this year,in EBITDA Coverage of Interest 5.7x 2.3x contrast to a$5bn cash outflow expected at GM. EBITDA-cap-ex Coverage of Interest 0.9x -0.6x Hera sale would be positiveforfundamentals and Total Debt I Capitalization 51.2% 53.9% technicals. Net Liquidity(Cash-Deb0 $1,057 ($16,980) We continue to expect F will move toward a separation of Adjusted Net Liquidity(c) $5,157 ($13,461) Hertz. While the company has not indicated what form a Total Debt I EBITDA 2.5x 5.2x separation would take,management stated it would be Atw= UfurdadPordan $12 done in conjunction with boosting liquidity. We believe a t1*FmbdCFE9 $32 $61 sale is most likely,and NIL estimates the business could be Swm:SEC da,xnenK F,GM,ML esEmales worth over$61n. Such a sale would be welcome news for enema pesae kWKI&hr On.dLOW segnae aer(ex aenxat. the market,enabling the company to further strengthen its ara"Se1d tlee1ea�di ° (al EBn wide,beam"ft. balance sheet(which may include further debt reduction) Nt smawue 'equet er FIGM repasaxa mnsofdaed smrwMaYewLr and/or offset the potential charges/cash outlays 1`f"^�e°n"taeexl"°d.ep`ROLWtEeti Which a°sumdmrmmnUYev. surrounding a further Visteon restructuring. Further,the technical implications are also favorable as almost$41n of Chart 2:GMAC vs FMC Credit Curves:Narrow Basis IWO%and Hertz bonds are removed from the F ticker. 1101; We expect F to remain in the high grade indices this year(ex-June), while GM drops out. o.>,s,e.o,,: Collectively,the rating agencies do differentiate between F �,a., '" and GM. Though S&P takes a harsher view,we believe ""°69°•. 1,M •� 1'- � an •cv�em Moody's and Fitch will be more tolerant of F's recent missteps and keep it at investment grade,allowing F to add _,f remain in the ML(Lehman high grade indices for the near A u term(except for the month of June). That said,the pending .ro 1°W � dam •Yee a'•xsas^e Moody's review of F is expected to be concluded in the �.e coming days, which may add some near term volatility. 1S0 Conversely, we believe it is just a matter of time before GM o�amo a is rated high yield at all 3 rating agencies, forcing it out of • �—ncrrvr all major investment grade indices. zw r 3 e s a r a Y Sauce:Mare Lynch What Looks Cheap: FMC '10s, FMC 109s in Z There are many factors affecting valuation at these levels: dollar price,liquidity and Repo dynamics. Dollar prices Refer to inWortam dWasures on page 11. 4 z ( & ( § � a o O $ ) COL 22 ƒ c - ' i § 2 § ; = 6 § w ! ® E 0 \ / \ .11 . ` \ / % / r o a 7 ) \ IL & e o Ix \ \ \ } § ( � S ) § ƒ \ \ . < . _ d) led In / n r R k ( Cl) S w N § § _ _ _ Ok § § 0 a 2 E � w Cl) \E § \ \ CD k } k \ \ \ 06 / > IL 0 \ \ (a © o � ` 0 w / § § § ) $ / � ! j } \ a / ƒ 7 ƒ STD OF CALIFORNIA PHILIP ANGELIDES, Treasurer OFFICE OF THE TREASUREK SACRAMENTO Local Agency Investment Fund PO Box 942809 Sacramento, CA 94209-0001 (916) 653-3001 April, 2005 Statement CITY OF PALM DESERT Account Number : 98-33-621 Attn: CITY TREASURER 73510 FRED WARING DRIVE PALM DESERT CA 92260 Transactions Effective Transaction Tran Confirm Authorized Amount Date Date Type Number Caller 04-15-2005 04-14-2005 QRD 1020423 SYSTEM 234,674.36 04-20-2005 04-19-2005 RW 1023349 THOMAS JEFFREY - 234,674.36 Account Summary Total Deposit : 234,674.36 Beginning Balance : 40,000,000.00 Total Withdrawal : 234,674.36 Ending Balance : 40,000,000.00 F-I,— co ccZ N Uj cwn g & W L-D Q 4 d� 1 W W y QU i U LL Page : 1 of 1 STATE OF CALIFORNIA PHILIP ANGELID Tr surer OFFICE OF THE TREASUREK SACR.4MENT0 Local Agency Investment Fund PO Box 942809 Sacramento, CA 94209-0001 (916) 653-3001 April, 2005 Statement PALM DESERT REDEVELOPMENT AGENCY Account Number : 65-33-015 Attn: TREASURER 73-510 FRED WARING DRIVE PALM DESERT CA 92260 Transactions Effective Transaction 'Tian Confirm Authorized Amount Date Date Type Number Caller 04-15-2005 04-14-2005 QRD 1021591 SYSTEM 234,674.36 04-20-2005 04-19-2005 RW 1023350 THOMAS W. JEFFREY 234,674.36 Account Summary Total Deposit : 234,674.36 Beginning Balance : 40,000,000.00 Total Withdrawal : - 234,674.36 Ending Balance : 40,000,000.00 z co N U) N LIJ �rT- a d` d� i w z C L B Page : 1 of 1 >r y 5Tf OF CALIFORNIA PHILIP ANGELIDES, Treasurer i OFFICE OF THE TREASURER SACRAMENTO Local Agency Investment Fund PO Box 942809 Sacramento, CA 94209-0001 (916) 653-3001 April, 2005 Statement PALM DESERT HOUSING AUTHORITY Account Number : 25-33-003 Attn: DEPUTY CITY TREASURER 73-510 FRED WARING DRIVE PALM DESERT CA 99260-2578 Transactions Effective Transaction Tran Confirm Authorized Amount Date Date Type Number Caller 04-15-2005 04-14-2005 QRD 1022034 SYSTEM 33,566.33 Account Summary Total Deposit : 33,566.33 Beginning Balance : 5,727,930.09 Total Withdrawal : 0.00 Ending Balance : 5,761,496.42 CE Z N W Lu W CV W W a n 1 WW U �a U ti Page : 1 of 1 �_ � �. a, CffY OF RAWCFS- T FCANWIf,;AIJCE uEF�iRTiv1ENT CALIFORNIA ASSET (nn[[ STATEMENT MANAGEMENT PROGRAM ZO1J MAY I I 1OI N'r rOWERs ;\u"r Flo Ri'I I PM 12: 30 Sq�.V_IFOIt NIA�1'REE"r 23RIJ FLOUR SAN FRANGISCO CALIFORNIA O.t 111 FOR ACCOUNT INFORMATION: 800-729-7665 STATEMENT DATE: 4/30/2005 CITY OF PALM DESERT ACCOUNT NUMBER: 553-00 OPERATING FUND ATTN:PAUL GIBSON FUND NAME: Cash Reserve Portfolio 73-510 FRED WARING DRIVE PALM DESERT,CA 92260 Page 1 of 1 1 Account:Summai7yr as of,�,, U/200 �7 Statement Income Dividends Capital Gains Total Shares Account Date Paid This Year Paid This Year Owned Value 4/30/2005 $75,236.66 $0.00 9,459,055.890 $9,459,055.89 TfansactlonFSummary forppo&g4730/2005P fp _ Beginning Balance Purchases Reinvestments Redemptions Ending Balance $9,438,877.59 $0.00 $20,178.30 $0.00 $9,459,056.89 .. ;DTHADE " -'PA $ 0 tTRM19ACT1 N PRIC'E TRANS,AC'TIO SHARES OWNED 04/01/05 Beginning Balance 9,438,877.590 04/30/05 5/2/2005 Accrual Income Div Reinvestment-DIV $20,178.30 $1.00 20,178.300 9,459,055.890 Message Line: THE DIVIDEND YIELD FOR THE MONTH IS 2.60% THE ANNUALIZED YIELD IS 2.63%,. CI FY OF PALM CLSERT Flf,!AIdCE DEP,*TVIEN T CA 1- 1 FOR N I A ASS LT STATEMENT NIANAGENILNT PROGRAM 2Q]5 hiAY I I PI.1 12 30 I C1INI roWFRs Ali�I'FIORIIY SV C.A LI[+OIiNI;A<TRFYT 1]Rl�PI_OIJR s XN FR,.NC"CC1 CALEFORNI,.v�l 11 FOR ACCOUNT INFORMATION: 800-729-7665 STATEMENT DATE: 4/30/2005 PALM DESERT REDEVELOPMENT AGENCY ACCOUNT NUMBER: 553-02 GENERALFUND ATTN: PAUL GIBSON FUND NAME: Cash Reserve Portfolio 73-510 FRED WARING DRIVE PALM DESERT,CA 92260.2578 Page 1 of 1 :;Account Summary as of M30/2005 Statement Income Dividends Capital Gains Total Shares Account Date Paid This Year Paid This Year Owned Value 4/30/2005 $144,235.77 $0.00 17,574,735.590 $17,574,735.59 Transaction Summary'for 4G1/2U05+-4/30/2005F; 3' ' Beginning Balance Purchases Reinvestments Redemptions Ending Balance $17,537,244.72 $0.00 $37,490.87 $0.00 $17,574,735.59 .. . .�.. .s.... .._ jj A SOLE e TRANSAON: ° pFTtiAySF1CT1 N PRICE STMNSAC710N TOTAL SNAR_ES�OWNE_d 04/01/06 Beginning Balance _ 17,537,244.720 04/30/05 5/2/2005 Accrual Income Div Reinvestment-DIV $37,490.87 $1.00 37,490.870 17,574,735.590 Message Line: THE DIVIDEND YIELD FOR THE MONTH IS 2.60% THE ANNUALIZED YIELD IS 2.63% O G — � C 0 7 H � W � Q [• C V] � n R Q w ran :Q N • ,. i• o v ti m -A • I-, c rn Y eQ,e °a. o o z c 1 y a13 m v •e 7 wrn oWo .-. rnwrnJN ry c n — y °� d a a c 3 O �: O W N N N W N J W O' A O CD rn G y O O O w N oo r 0 9 Q y yOy 00 O O O W Oyy y Oy a J - w O w w d N to T — N O N N N to C W p J N A J O O\ Oo �O IJ y a O IJ Li :.l C O C 1N tJ Q w O N Q` to O D\ O W w ? Oo W In O U Oo N Ay C� D\ l.n N tl� .Wy Ny O O tl� Vy1 .Oy G �p go v. » A W R W O N J 1 J ? O C 6 9 A W N D, -+ N O C Vqq� �yAy y O� O In yyN oo * J E (A o ON n. ny P7 � e � M Q 11 O^ O O O J O A N O p � w y 0 w W 0 Ot J IJ tJ �l O O ? N m po d A O� 0, 00 N A W d 4 o W e c Q, J Oo 00 O p o 0 0 o C 9 a 5 v a d � � m 0 3 City of Palm Desert Parkvlew Office Complex Financial Statement for Fiscal Year 2004-2005 April-05 April-05 0 % YI'D YID 8 % Budget Actual Variance Variance Budget Actual Variance Variance Revenues Rental $ 69,000 $ 72,234 $ 3,234 104.69%1 $ 688,500 $ 736,068 $ 47,568 106.91% Dividends/Interest $ 700 $ - $ (700) 0.00%1 $ 7,000 $ - $ (7,000) 0.00% Total Revenues $ 69,700 $ 72,234 $ Z534 103.64%, ) $ 695,500 S 736,068 $ 40,568 105.83% i Expenses I Professional-Accounting&Auditing $ 8,500 $ 8,829 $ (329) 103.87%i $ 85,000 $ 88,290 $ (3,290) 103,87% Professional-Consultants $ 6,000 $ 5,694 $ 316 94.74% $ 60,000 $ 56,511 $ 3,489 94.19% Tenant Improvements $ 3,000 $ 86,529 $ (83,529) 2884.31% $ 30,000 $ 126,126 $ (96,126) 420.42% Repairs&Maintenance Building $ 8,000 $ 9,059 $ (1,059) 113.24% , $ 80,000 $ 95,492 $ (15,492) 119.36% Repairs&Maintenance-landscaping $ 2,300 $ 1,300 $ 1,000 56.52%1 $ 23,000 $ 3,900 $ 19,100 16.96% Utilities-Water $ 150 $ 164 $ (14) 109.03%� $ 1,500 $ 1,120 $ 380 74.66% Utilities-Gas/Electric $ 7,000 $ 3,950 $ 3,150 55.01%� $ 70,000 $ 50,013 $ 19,987 71,45% Utilities-Waste Disposal $ 600 $ 561 $ 39 93.43%t $ 6,000 $ 5,495 $ 506 91,58% Telephone $ 250 $ 194 $ 56 77.78% $ 2,500 $ 2,594 $ (94) 103.78% Insurance $ 521 $ - $ 521 0.00%( $ 5,208 $ - $ 5,208 0.00% Total Expenses $ 36,321 S 116,171 $ (79,850) 319.84% ) $ 363,208 $ 429,541 $ (66,333) 118.26% i -_- l �.S 32�;292_.. ----- 5' (257 ) 92.25%O eratin Income S 379 S (43,937) $(-7 ,316) -1316 %a Equipment Replacement Reserve $ 16,700 $ 16,666 $ 34 99.80% $ 167,000 $ 166,660 $ 340 99.80% Net Income . . -... _. ---~$ 16,679 S (60,603) $ (T7,282) .i63.35%._.���. B 165;292 $ 139,868 $ (25,424) 94.62a/a Please note that the cost of Installing the audio visual upgrade at the City/CVAG conference room is recorded as an expense during this month,however at year end the cost will be capitalized as a fixed asset and amortized over the useful life of the assets.Therefore,the actual monthly net income is$25,926,and the year-to-date income is$165,794. 2005 Investment Reportlnv Report 2005 \ City of Palm Desert Parkview Office Complex Vacancy Rate Schedule by Suite April 2005 Suite Square No. Tenant Feet 73-710 Fred Waring Drive -Two (2) Story Building 100 Hanover 1,915 100A William Bonneheim 645 102 Cove Commission-Fire Marshal 1,360 103 National Multiple Sclerosis 488 104 Arthritis Foundation 960 106 Coachella Valley Economic Partnership 928 108 Assembly Rules Committee-Assemblyman Benoit 450 112 Senator Battin 1,741 114 Chamber of Commerce 1,478 118 Goodwill Industries 1,250 119 City/CVAG Conference Room 1,380 120 Duke Gerstal 1,750 200 CVAG 4,292 200A University of California Riverside 841 (Space will be vacated by May 31,2005-CVAG has first right of refusal) 201 University of California Riverside 604 (Space will be vacated by May 31,2005-Currently negotiating with prospective tenant) 203 Mountain Conservancy 480 205 Adopt-A-Class 700 208 Alzheimer's Association-Vacated Mid-April 960 (Space vacated mid-April;Currently negotiating with prospective tenant) 210 Wilson,Pesota&Pichardo 3,040 211 State of California Department of Food&Agriculture 937 2005 Investment ReportVacancy Report City of Palm Desert Parkview Office Complex Vacancy Rate Schedule by Suite April 2005 217 Joe B. McMillan,. Esq. 775 220 Environmental Products Applications 1,607 222 Riverside County Supervisor-Roy Wilson 3,348 Total square footage(2 story Building) 31,929 Vacancy Rate-3.00% 3.00% 73-720 Fred Waring Drive- One Story Building 100 State of California-Water Resources 15,233 102 State of California-Rehabilitation Department 4,396 Total Square Footage 19,629 Vacancy Rate-0.00% 0.00% Overall Vacancy Rate for Both Buildings: Vacancy Rate-3.00% 3.00% Occupancy Rate-97.001/6 97.00% 2005 Investment ReportVacancy Report