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Home My WebLink AboutWells Fargo Bank - Assist w/Financing Bonds 4 EIP � CITY OF PALM DESERT FINANCE DEPARTMENT Staff Report REQUEST: RECOMMEND THAT THE CITY COUNCIL AUTHORIZE STAFF TO SELECT WELLS FARGO BANK TO ASSIST THE CITY WITH STARTING THE BOND DOCUMENTS TO PROCEED WITH A VARIABLE RATE BOND ISSUE TO PROVIDE FINANCING FOR THE CITY'S ENERGY INDEPENDENCE PROGRAM SUBMITTED BY: PAUL S. GIBSON, FINANCE DIRECTOR DATE: MAY 21, 2009 CONTENTS: SUMMARY OF RECEIVED PROPOSALS PRELIMINARY FINANCING SCHEDULE WELLS FARGO PROPOSAL Recommendation: By Minute motion, that the City Council authorize staff to select Wells Fargo Bank to assist the City with financing bonds for the City's Energy Independence Program. Background: The Palm Desert program was initially funded via a General Fund loan to the energy program in the amount of $2.5 million. The loan program has been extremely popular with $2.5 million actually loaned to date and another $2.5 million currently committed, but the loans have yet to close. Staff received three responses to the RFP from Wells Fargo, Stone & Youngberg, and Renewable Funding. Attached is a summary of each of the proposals. A committee comprised of nine members was formed to review the proposals. This committee consisted of Mayor Bob Spiegel, Councilmember Jim Ferguson, Carlos Ortega, Bill Strausz, Paul Gibson, John Wohlmuth, David Yrigoyen, Anthony Hernandez and Patrick Conlon. Upon review, the Committee selected Wells Fargo as the most suitable option. In addition, the Committee agreed to require mortgagor consent forms for loans in an amount over $30,000. The recommendation was forwarded to the Audit, Finance and Investment Committee which agreed with the recommendation on April 28, 2009. � Selection of Wells Fargo Bank for EIP bond issue Staff Report May 21, 2009 Page 2 of 2 Conclusion The lease revenue bond structure is a common market-accepted way for public agencies to finance projects or, in our case, the energy efficiency program loans. The Riverside County Palm Desert Financing Authority closed today on a series of lease revenue bonds to finance various County facilities including the Palm Desert Sheriff Station. The leased assets were various County facilities. City would use the Parkview Office Complex as our lease assets backing the bonds. The interest rate could be as low as 2.5% and the maximum rate would be 5.5% with the difference between 7% rate and the 5.5% being placed in a reserve fund to cover potential loan defaults, administration costs or any other bond costs. Staff requests that the City Council authorize staff to enter into formal negotiations with Wells Fargo to finalize the business deal and come back to the City Council for formal approval of the financing and all related bond documents. This action does not approve the bonds; however, staff would be able to start the process to prepare the legal bond documents for the June 25, 2009 City Council meeting. The financing team would include the following: Underwriter: Wells Fargo Institutional Securities, LLC Bond Counsel: Richards, Watson & Gershon Disclosure Counsel:Fulbright & Jaworski, LLP Financial Advisor: Del Rio Advisors, LLC Submitted by: � �` Paul S. Gibson, Finance Director J n M. Wohlmuth, City Manager CTTY CO AC�'i�ON APPROVE DENtED RECEIVED OTHER MEETI G ATE ��` �� AYES: �� .�/ NOF,S: ABSEN1ti ABSTAIN; VERIFIED BY: G:\Finance\Niamh Ortega\Staff Reports\We�l�s�'aago°�Fi��c�i��t�e��i�� l��cx . $5,500,000 �� PALM DESERT FINANCING AUTHORITY ENERGY INDEPENDENCE PROGRAM VARIABLE RATE DEMAND LEASE REVENUE BONDS, SERIES 2009 (FEDERALLY TAXABLE) (1) Preliminary Subject to Change FINANCING SCHEDULE (May 7, 2009 DRAFT) � � � Date _ Event P� . � ies '� M �u��`�a .�ttil T ' � �'. �;u,; � ,, � � '"�, .�� 2 Thurs ❑ Kickoff Conference Call (800-977-8002, ALL s a �s s � 8 9 May 7`h 904711#) �0 11 �2 13 �a �s �s Week of ❑ First Draft Bond Documents Circulated BC 17 18 19 20 21 22 23 Ma 1$th Thurs ❑ City Council Informational Item to Seek ALL 2a 25 2s z� 2s 2s 3o May 215t Approval for Bonds on June 25�'City s� ' � Council Meeting Fri ❑ Email U�date to Financing Team Regarding IS � � May 22"d May 215 City Council Meeting �S� �� '�� Week of ❑ First Draft POS Circulated DC , � z 3, 4 :5 6_' Ma 25tn � s s �0 11 �z 13 Week of ❑ Second Draft Bond Documents Circulated BC June 1 14 15 16 �� s 19 2o Week of ❑ Second Draft POS Circulated DC 21 22 23 24 25 26 27 June g'n 2s zs 3o Tues ❑ Agenda Deadline for City Council Meeting of ALL June 16th June 25`n Thurs ❑ City Council Approves Bonds and Related ALL ' � � June 25th Documents � � , 34 �° S - - `� ' � �' � �� T � � " Week of ❑ LOC Counsel Engaged and Documents LOC �M� . ' �, 1 2 3 4 th June 29 Distributed s s � s s �0 11 Week of ❑ Rating Packages Sent to S&P UW, FA 12 13 14 15 16 17 18 ,1 U I 6th 19 20 2� 22 2s 2a 25 Week of � Bank Rating Affirmed ALL 26 27 28 29 30 31 , JUI 13tn '' Monda� ❑ POS Electronic Posting DC Jul 20 Tues ❑ Pre-Pricing (Market Update Call) IS, FA, July 21St UW Wed ❑ Pricing, FOS Electronic Posting/All IS, FA, July 22"d Documents Executed by City and Authority UW Thurs ❑ Closing (Transfer of Funds) IS, TR, Jul 23�a IS Issuer:Palm Desert Financing Authority BC Bond Counsel: Richards,Watson 8 Gershon DC: Disclosure Counsel: Fulbright 8�Jaworski LLP FA Financial Advisor: Del Rio Advisors,LLC UW: Underwriter:Welis Fargo Institutional Securities,LLC LOC: LOC Counsel:Law O�ces of Kathleen Johnson TR Trustee:Wells Fargo Bank,N.A. Prepared by Del Rio Advisors,LLC May 7, 2009 � � . � I � REQUEST FOR FROPOSAL F4R THE ENERGY FINANCING FROGRAM l `� THE ITY QF PALM DESERT � ��. � � .� J � Submitted B : y � � Welis Fargo Institutional Securities, LLC 1 I February 25, 20Q9 � � J i � THE CITY QF PALM DESERT 1 1 � � Table of Contents Page IA. Cover Letter Summarizing Plan of Finance 7 � B. Wells Fargo Organization Structure and Personnel Assigned to Project 1-2 � C. Experience with Similar Programs in other Jurisdictions 3 � D. References 4 � E. Detailed Plan of Finance 4-� l F. Available Tax Credits and the Role they Play in this Program 7 1 G. Other Matters which Impact the Program 7 ) � Apnendices: �'. Appendix I Term Sheet-Wells Fargo Bank Direct Pay Letter of Credit � Appendix II Tax Credits Available for Energy Efficiency 1 l � _� tie!/s Fury;n DLcclnbrrrr: IVe/Lc/-u��o PnAlic Finnnee(11'FF'F)bmiken. are rel;itilerod reprrsentalire.c n�IVr/Ls Furgu$rokerukr.�'rmices,1J.C.or Ni�7/� FnrKo I,�erinu;u,url.�eruritic�.LI.C.o,hr�rkernge a�liale�njfi'eK�Fnrgn�CoireparrY und McmAtn oj('/.M1'R.1�md A7PC' � 1V'eils F'arK,o Institution:�l Securitic�,LL(' � ' • 1 Public Finance l Margo Kairoff � Senior Vice President MAC#E�8i8-i7o—i7th Floor 707 Wilshire Boulevard � Los Angeles,CA 9ooi7 Direct:2i3-6i4-3327 � February 25,2009 Paul S.Gibson,Finance Director � City of Palm Desert 73-510 Fred Waring Drive Palm Desert,CA 92260-2578 � Re: RFP for City of Palm Desert AB81] Energy Financing Program Dear Mr.Gibson: � On behalf of the Public Finance Division of Wells Fargo Institutional Securities, LLC (WFIS") we would like to � thank you for the opportunity to present our qualifications to provide underwriting services to the City of Palm Desert for the AB811 Energy Loan Program and to present our proposal for a 20-year financing that will deliver a � 20-year fixed rate fully amortizing loan to homeowners at 7%. We have been exploring AB811 bond* financing alternatives since shortly after the measure was approved in July of 2008 but have encountered difficulties arising from two specific points: first,that current 15 to 20-year fixed rate 1 taxable markets will not support a favorable fixed loan rate to homeowners — certainly not at the 7% rate of the Phase I loans already originated by the City, and secondly, from our due diligence with bond counsel firms we learned that AB811, as established under Chapter 29 of the 1911 Act, does not create a priority lien for these l voluntary assessments, unlike other priority assessment liens traditionally created under the 1911 Act. We _I understand that measures are currently underway to try to change the legal underpinnings of this program,just as efforts are also being made to permit AB811 loans to qualify for tax exempt financing. At the present time, however, uncertain of the outcome of current efforts to amend AB811 as enacted, or the timeframe within which such changes may be made,we present the only structure which todav meets the goal cited in the City's RFP. i Proposal Issue taxable variable rate demand Certificates of Participation with a Wells Fargo direct pay letter of credit as � credit enhancement and liquidity protection,which is secured by a General Fund pledge from the City of Palm Desert rather than individual homeowner assessments. As explained in Section E, 1 of this proposal,the bond counsel firm of Orrick, Herrington& Sutcliffe advises that in its current form, AB811 voluntary assessments 1 do not share the same priority position in the event of foreclosure as do other assessments authorized under the 1911 Act. Please refer to Section E, 1 for more detail. i- Key Points ) • The City's General Fund is steeply leveraged;not used dollar for dollar to provide AB811 loans. � • Long-term fixed rate fully amortizing loans up to 20-year terms are available to homeowners at 7%. • There are no prepayment prohibitions or penalties for full or partial redemption of all or part of the bond issue at any time upon 30 days notice. • Phase I originated loan funds are paid back in full to the City's General Fund at bond closing. I Under Section E,4 we have outlined the City's debt service burden utilizing an interest rate cap or"costless"collar. I The interest rate maximum capped at 5.50% will vary in cost, depending upon how long the cap is in place. We � suggest that the City may want to cap portions of the bond issue for staggered periods of time—laddering the capped *jor purposes of this proposa!we may refer to bonds and certificates ofparticiparion interchangeab/y even though we understand that tl�e City rs restricted to the issuance oJcertificates of participatron for this transaction. � J l • - e � Public Finance rates to match up with projected loan amortizations and thereby achieve savings. The pricing estimate for the upfront cost of a cap compares to the level that the "floor" rises on the "costless" collar. The term costless refers to there being no upfront cash outlay at closing but the cost is actually factored into the floor. The rate will float from the � floor to the ceiling up to a maximum of 5.5%. In this section we have offered three debt service scenarios with rates at the 5.50%maximum,with actual rates as they priced this week at 1.50%and if a 20-year collar was instituted,the cost is equal to just under 1%so the rate would price at 2.49%instead of 1.50%. � In the 20-yeaz collar scenario the City's debt burden would float between 2.49% and 5.50%. At the 5.50% � maximum bond rate there would be a small spread of .I24455% available to the City to cover administrative expenses. If homeowner loans are made at the 2.49%20-year collared rate minimum there would be a spread of -� 4.124455% available to cover the City's administrative expenses. Please refer to Section E, 4 for a more graphic summary of the cap/collar operations. � Quite a number of cities around the country have been looking to Palm Desert because this is really where AB811 fever first caught on and this is where loans are already in place to help homeowners start living a greener,cleaner ;� and more efficient lifestyle. In conformance with your request we have presented a full-service proposal which wili deliver a fully amortizing long-term loan to homeowners at 7%. Wells Fargo has an unbroken+158 years delivering � finance solutions to individuals, businesses and municipalities in Califomia and we look forward to working with the City of Palm Desert on this as well as other bond financings in the years to come. If you have any questions or would like additional information or clarification,please do not hesitate to contact me. � Sincerely, 1 -� Margo Kairoff Senior Vice President � Wells Fargo Public Finance 707 Wilshire Boulevard, 17th Floor Los Angeles,CA 90017 Direct line: (213)614-3327 Mar�o.Kairoff(�a,wel I sfargo.com � � 1 i i l � � � THE CITY QF PALM DESERT � A."��In a cover.le�ter,�Lrlejly�itescri�}+ilrrr pla � ` ` ��'' ''�� c� - ,� } �' rt o�;f�nanc,eYn su�rmary form. �� w Please refer to the cover letter. � ��. _ . . e � �:: . � ; � � 'B.S:.Descxlb4 yukr,Cai►+Pany:�a�ari�f.�v�ai sNae�ifa end�be,�seraonad�,aig'nl�l tb�vor�C�itlr t��t'y ,�'lc�e ht"alad'e r =�ef reaunles ojxdtch ptajesalottel ass�gn�d to thtsPml� �' "`' ��, ` � Wells Fargo lnstitutional Securities, LLC, ("WFIS"), Wells Fargo Brokerage Services, LLC ("WFBS") and Wachovia Securities are subsidiaries of Welis Fargo& Company(NYSE: WFC),a corporation organized under the laws of Delaware and a financial holding company and a bank holding company registered under the Bank Holding lAct of 1956. On December 31,2008,Wells Fargo&Company merged with Wachovia Corporation and as a result, � Wachovia became a wholly owned subsidiary of Wells Fargo. T'he merger resulted in the formation of the nation's premier financial institution with $1.4 trillion in assets, $770 billion in deposits and over 11,000 financial centers "� creating a coast-to-coast financial services company capable of providing integrated, comprehensive, and � customized financial solutions for all of the combined firm's retail,corporate,and goverrimental clients. WFIS, WFBS and Wachovia Securities are the legal entities through which Wells Fargo &Company conducts its � public finance and municipal underwriting activities. WFIS/WBS build upon Wells Fargo's remarkable 158-year tradition of financial services leadership and history of providing financing solutions for our client's capital needs. � California Puh/ic Finnnc•e Commitn:enl An important factor differentiating Wells Fargo Institutional Securities, LLC from other municiral debt underwriters is our extensive national brokerage network, providing �. � � F = . «; reliable distribution to sell your debt issue, keeping your �=R.. �-��'��{�!��'�� = �� `y, borrowing costs low. Our institutional fixed income sales '• ��;��P��ta � . + ou exceeds 156 Re istered Re resentatives in twenty ��` �� '�"�'��"��') S�' P g P �� or�� three locations; including 41 professionals located in the �, ��,��>�.` �,�,;�; � � � California cities of Los Angeles(13), Irvine(3), San Diego ��,��'�i�rt�rew�� , � `. (3), San Francisco (15), Sacramento (3), San Jose (3) and <;+� ��' �' �g�'"�,��t � � m� - �' �l x�� Fresno (1). Our retail sales professionais, approximately �� ,,,:��, , ,�-��„ .; 1,700 Registered Representatives, are located in our retail banking stores,including nearly 900 locations throughout Califomia. Additionally,the recent closing of our merger with Wachovia Corporation and Wells Fargo& Co is exceptionally well positioned to maintain and improve its strong presence and ranking in the municipal markets. This acquisition should only serve to improve our ability to serve the City, especially in our capacity to undenvrite bonds during difficult market conditions within California,given our strong and stable capital position, and to distribute bonds to retail investors. The merger has created the 2"d largest retail brokerage, 3,742 brokerage and branch locations and l more than 20,000 brokers (Series 6 and 7 licensed). The merger and integration is expected to combine the 71 1 Wachovia bankers with 45 Wells Fargo bankers,creating the new Wells Fargo Public Finance Deparlment. Not inclusive of the Wells Fargo Institutional Securities, LLC partnership, Wachovia Securities' 96 offices and � 1,327 financial advisors in the state makes California a cornerstone of Wachovia's overall municipal operations and will provide additional retail sales professionals having extensive lrnowledge for the preferences of local investors. j) With our combined resources, Wells Fargo Institutional Securities, LLC will use all the available relationships in Jorder to achieve the lowest possible cost for the City. Our extensive distribution network enables us to provide a depth of market penetration which few of our competitors can match. Due to the wide range of financial products offered by our large institutional and retail sales force,we can cover a greater spectrum of investors and identify and � specifically target investors,whether institutional or retail,most likely to purchase the City's obligations. , WeUs Farqo Disclaimer: Wells Fa�go Pu61ic Finance(WFPf)6ankers are registered representatives of We(ts Fargo Broke�age Services,LLC,or We(fs Fargo Institutional5ecurities,LLC,or brokerage a�(iates of We7ls Fargo&Company and Members of flNRA and S/PC � � Welis Fargo Institutional Securities,LLC I THE CITY OF PALM DESERT _I , � Assig��ed Per.sonnel Wells Fargo Institutional Securities, LLC will enthusiastically commit �� the firm's resources to provide the highest level of service to support the City's proposed financing. Margo Kairojf, Senior Vice President,will �;rt .� �} oversee the finance team and serve as liaison to Wells Fargo affiliates, t ��' � �� •� �; `�i`!,'�'O�� z�a.a� '-�- � as necessary. As a complement to our banking team,Eddie Torres will , ��d��r�sp�dt � have primary responsibility for bringing the proposed bond issue to 'yNe11s��o'Ptii6�ii�ts�iace .- market. Eddie Torres is Wells Fargo's primary senior municipal 7�'�,�hi't�W��7"FI°°r ' , ) underwriter and will provide pricing and market guidance throughout ��°��i�i+��.�� '� ( � the transaction and lead the underwriting syndicate. With more than 20 years experience underwriting and trading municipal securities Mr. � � Torres will be involved at all stages of the financing. Additionally,Laurie Mount will provide remarketing services for the City of Palm Desert. With 20 years experience, Laurie will be managing the short-term variable rate financing cost for the City. Brief resumes of each member involved in the City's financing are included below. � Margo Kairoff 213.614.3327 � Senior Vice President/Project Leader margo.kairof�a?we!lsfargo.com With nearly 25 years of investment banking experience on transactions totaling more than$]0 billion, Margo has � successfully completed tax-exempt and taxable transactions for independently ratable, unrated and issues requiring credit enhancement. Her experience in both private and public sectors brings added balance and perspective to each transaction. Prior to joining Wells Fargo Public Finance in 2002,Margo was president and CEO of Kairoff& Co., � Inc., a California based municipal securities broker/dealer specializing in structured financings, primarily for major commercial real estate projects. Previously she was western regional manager for municipal finance for a major New York bank. �� Margo's public sector experience includes serving as Director of Program Development for the Califomia Housing Financing Agency where she created and marketed housing development and bond finance programs, merging real estate development, mortgage banking and bond financing specialties.Tax-exempt bond issuance during her seven- year tenure averaged$600 million per year. Public sector appointments include serving on the City of Los Angeles Quality & Productivity Commission (appointed by the City Mayor) from 1992 to 1995, as well as the State ._ Technical Advisory Commission (appointed by California State Treasurer) from 1995 to 1997. Registered with FINRA and the MSRB, Ms. Kairoff is licensed as a General Securities Representative, a Municipal Securities Representative and Uniform Securities CA State Agent. � ____ Laurie Mount 612.667.9435 Yice Presiden!/Renrurketing und Rnte Settifrg laurie.Lmount a,wellsfargo.com � Laurie brings over 20 years of industry experience to Institutional Brokerage & Sales office in Minneapolis, MN. Specializing in the management and administration of the short-term variable rate portfolio for Public Finance, her knowledge of short-term markets and interaction with the Wells Fargo sales team makes her a valuable asset when I structuring our variable rate transactions. In addition, Ms. Mount assists in creating and modeling debt structures, credit analysis and other research. Prior to joining WFBS in 1996,Laurie held positions at Norwest Business Credit, Norwest Mortgage and Norwest Bank. Her experience spans a broad range of investment banking, asset based � lending and retail banking. She holds a BS in Economics and a minor in Financial Economics from University of Minnesota. Laurie is registered with the FINRA as a general securities representative, holding Series 7 and 63 securities licensures,and is a member of the National Federation of Municipal Analysts. I Eddie Torres 213.614.2224 � Se�eiur 6 icP Presi�leut/Cn/if'nrnia Mrmicipcd Underwriter eddie.h.torres�"a?wells ar•go.corn Mr. Torres is responsible for all California primary and secondary trading and underwriting for WFIS, bring more lthan 25 years experience underwriting and trading California municipal securities. Mr. Torres is registered with � FINRA as a General Securities Representative,General Securities Principal and Uniform Securities CA State Agent. _) Wel(s Fargo Dixlaimen Welfs Fargo Public finance(WFPF)bankers are iegistered representatives of Welfs Fargo 8roke�age Services,LLC,or Wefls Fargo Institutionat Securities,LLC,or 6rokerage a�liates of Wells Fargo&Company and Members of FIiVRA and SIPC 2 ) Wells Fargo Institutional Sewrities,LLt J i. � THE CITY QF PALM DESERT i �) G ��Descrlbe any�nvolNenrent yeur,�irm has w�th a�ndlar{►!oB►�nrs'lre other jurTadlc�lopx �� ,�'�` � lf'e!/s F�argo's Em�ironme�ttal/uitiuti►�e Environmental stewardship is a key Wells Fargo company value. Our goal is integrate environmental responsibility into everything we do-- into our business practices, operations and culture. In 2005 Wells Fargo announced its 10- � Point Environmental Commitment,described at https�//www.wellsfarg,o.com/aboudcsr/ea.The commitment outlines goals and associated programs in the following areas: responsible lending, finance of environmentally beneficial opportunities, industry leadership through adoption of the Equator Principles,creation of energy-efficient mortgage � products and environmentally-friendly construction and development, internal resource conservation through enhanced operations and employee education, increased giving to environmental nonprofits, and annual reporting. � Additionally we formed internal and external advisory councils to guide our work. Please visit www.wellsfargo.com/environment to view some of our recent initiatives and accomplishments. High[ights as ojDecember 2008: ��` ��a��u� • Provided$2 billion in financing for Leed-Certified buildings • Provided $700 million of equity investments in wind and � � �`�'".�„,;,�;;�*`� � solar energy projects � � ��A�' �� , „ • Provided$500 million in credit commmitments to businesses with core competency in providing environmentally �A' � �'� t�k�'��,��.;: �� beneficial products and services ` , • Provided $50 million in financing for environamental �'� ��.�� '�`��`'�`��. � community development F �. 1 �� . __� Public Firtance Experierice _l Since 2004, Wells Fargo Institutional Securities, LLC and its affiliated company Wells Fargo Brokerage Services provided underwriting services for 147 Special District and Special Assessment transactions nationwide,with a total par value close to $740 million. During 2008 alone, we served as sole or senior manager for over 21 Special � DistricUSpecial Assessment transactions with a par value in excess of$118 million. T'hese transactions include fixed- rate and variable-rate bonds,lease financings and notes,both taxable and tax-exempt. � Variable Rate Experienee and Capabilities Wells Fargo Public Finance has substantive experience in the tax-exempt and taxable short term market. Having structured nearly $10.4 billion in variable rate obligations ("VRDOs"), our ta�c-exempt variable rate portfolio currently stands at approximately$7.7 billion. � Taxable Seeurities Wells Fargo Public Finance has also structured$1 billion in taxable VRDOs T'his total includes$150,420,000 in � taxable VRDOs for cities and counties. Wachovia Securities Additionally, Wachovia Securities, a trade name under which Wells Fargo & Company conducts certain of its � investment banking, capital markets and institutional securities business through Wachovia Capital Markets, LLC ("WCM"),member NYSE,FINRA,SIPC and through other bank,non-bank and broker-dealer subsidiaries of Wells Fargo& Company, including Wachovia Bank,National Association ("WBNA"), is an aggressive participant in the ta�c-exempt and taxable short-term market. Wachovia Securities' current short-term book stands at approximately $21.5 billion in par value. , Weds fargo Disdaimen Welis Fmgo Pubtic Finance(WFPF)bankers are registered represenmtives of Wetfs fargo Brokerage Servkes,LLC,or Welts faryo Institutiona!Sewrities,LtC,or brokerage a�liates of Wells Fargo&Company and Members of FINRA and SIPC 3 1 Wells Fargo Institutional Securities,LlC J � THE CITY QF PALM I�ESERT , � D.'�` Please providr��tl►ree�refeitnces jor esch individual�td to br assigned to tlu profect ';�' �•� ° '� Rete�ences for Marpo Kairol)`' � �,. r� • � �� Michsei Paparian May M•Smith,Maosger pon Voska,CFO,Treasurer Executive Director Community Development Dept Goodwill Industries of Orange County CA Pollution Control Fioaocing Aut6ority of t6e City of Los Angeles 410 North Fairview � 915 Capitol Mall,Rm 587 1200 West 7"'Street,6'"Floor Santa Aoa,CA 92703 Sacramento,CA 95814 Los Angeles,CA 90017 (714)547-6308 ext 2l0 (916)657-4921 (213)744-7111 � Referenees/'or Eddie Torres � Doa Kendall Russell Fuller Will Boschman � General Manager Geoeral Manager Geoeral Manager Calleguas Municipal Water District Antetope Valley-East Kern Water Agency Semitropic Water Storege District 2100 Olsen Road 1101 Central Avenue 6500 West Avenue N Thousand Oaks,CA 91360 Wasco,CA 93280 Palmdale,CA 93551 � (805)579-7111 (661)758-5113 (661)943-3201 References(or Laurre Mount 1 LACMA ��dventist _ _ Health Ann Rowland,CFO Brian Fink,CFO Rodney Wehtje,CFO Los Angeles County Muscum of Art Orange Couoty Performing Arts Center Adventist Halth System West � 5905 Wilshire Blvd. 600 Town Center Drive 2199 Douglas Avenue Los Angeles,CA 90036 Costa Mesa,CA 92626 Roseville,CA 95661 (323)857-6142 (714)556-2122 eat4229 (916)781-4751 � a� �, '�escrlbe in Ae[ail,�oui�ntoposed pt�tt�f',jfr+anc� �� ' _ -� �� %�$ � �� ' _� n. .�y.§..... - �„�� .. .3�:�. __ »..Ji` `�:3 :._3 �" ^Y..w�.t , .�-_,. _: . „, o-_., ai ..;,, I.) If your firm is proposutg the�ssuance��f b��nds,pleasc proi�rde all tlie fiiru+�cing dettrils includi►tg struchrre, 1 securih>interest, etc. .9lsn please discuss in d�tc�i!tlee potentia!buyers o�'this deb!ob/igaliofr nnd any rlisclosure � isst�es related lo/bc�bonds. Proposed Structu�e � Below is our indicative pricing for the cost of a cap, represented as an upfront payment, as well as the floor level associated with that cap(collar structure)which will result in no upfront payment by the City. This is based on a 20- year$S.SMM bond issure. A cap can be acquired for all or a portion of the bond issue. The longer term cap has a higher upfront cash payment and the longer term collar has a higher floor between which the rates will fluctuate up � to the 5.5%cap,so the City should match the term of the cap or collar to the proposed loan amortization schedule. � Wells Fargo Disdaimer. Wells Fargo Public Finance(WFPF)bankers are registered represenmtives of Welis Fargo 8rokerage Services,LLC,oi Wells Fargo Institutiona!Securit+es,lLC,or brokerage a�(iates of Wel(s Fargo&Company and Members of FINRA and SIPC 4 j Welis Fargo Institutional Securities,LLC J i THE CITY OF PALM DESERT I l Cap Interest Interest Rate Upfront Cash � Terms of Rate on the Collar Payment Option Ca Maximum Floor Ca Cost 5 Years 5.50% 1.54% $91,000 i 10 Years 5.50% 2.15% $246,000 i, 20 Yeazs 5.50% 2.49% $530,000 iPotential Buyers � The primary buyers of variable rate securities aze money market funds, although corporations and individuals are also active purchasers. Typically, variable rate securities appeal to investors who seek high liquidity, sound credit , quality and monthly cash flow. 1 Disc[osure The Ciry in tandem with WFIS,the City's Financial Advisor and bond/disclosure counsel will prepare an"Official � Statement"that will disclose security features,and econmic,financial and legal information about the offering. The f S&P ratings on this issue will be long term AA, short term A-1+,the current credit rating for Wells Fargo DPLOC. The structure we have proposed will not trigger any disclosure items that would impede or dampen market demand. � 2.) /f your ftrm bus direct funding available,pleare clescrihe iii detui!al!finu�tcial i�iforniution relaling to the ,�rm's abilitti�to tuke on tlre fincrncing componeir�of tleis project Pteuse describe un�� securit}�featr�res of your � proposed struct��re nnd anv��sclosure issues. We do not propose direct funding to the homeowners. Certificates of Participation issue proposed will provide funding to the City so that the program's individual loan origination can be administered by the City's staff in place. ,.; 3.) Describe curreret murket cnnditinns aurJ the nvnilubility nf the propose�/finnncing. j Market Disloration und Trends JCredit market deterioration has been evident in the pricing of municipal bonds since Lehman declared bankruptcy in late September 2008. Since that time,movements have been erratic and inconsistent,but the one consistent factor has been investors flight to safety,secarity and liquidity. � To illustrate this pointtplease refer below to kev interest rates as of 2/20/09: 1-year Treasury: 0.62% � 20-year Treasury: 3.74% ' 1-month taxable(LIBOR): 0.37% 7-day taxable VRDOs backed by Wells Fargo LOC: 1.50% 1 20-year taxable municipal bonds(rated AA-1 6.95%; 20-year taxable assessment bonds(rated A-1) 7.63% T'he evidence shown by these benchmark rates is that investors will forego yield in return for safety and liquidity. l The VRDO structure has the following positive benefits that inure to the City of Palm Desert: J • There is proven durable investor market aceptance of the 7-day VRDO structure at consistently low rates; I • T'he City can prepay all or a portion of the principal on 30-days notice without prohibition or penalty; J • Interest rate caps create a synthetic fixed rate to contain upside rate fluctutation risk; • The City has the abi(ity to convert the VRDO bonds to fixed rate if/when fixed interest rates are at below 7% (if fixed rate no LOC would be required). ( ) Wells Fago Dixlaimer: Wells fargo Pu6fic Frnance(WFPF)bankers are regisiered representatives of Wells Fargo Brokeroge Services,LtC,or Wel(s Fargo Insiitutionat Securities,tLC,or brokeraqe a�liates of Welts Fargo&Company and Memben of FINRA and SIPC $ � Wells Fargo institutional Sewrities,lLC ) i. . _ � `I`HE CITY 4F PALM DESERT � ( 4.) Pleuse discuss dre pruposed interes� rrrte(.$)for the lncins made to 11te propert�� owi:ers under the prnpu.+ecl progrant.c. The City's Phase I loans have been advanced from the City's General Fund to property owners for 15 and 20-year � terms at a 7%rate of interest. We first began working on this program in September 2008 and since then we have researched every IS to 20 year taxable fixed rate financing alternative in an attempt to devise a funding mechanism that provides for delivery of long-term(15 to 20 year)fixed rate 7%loans to homeowners. T'he only viable structure � available today is to: • issue taxable 20-year VRDOs. • backed by rhe City's General Fund to homogenze the credit on which the bond issue is based, � • provide a bank direct-pay letter of credit(Wells Fargo DPLOC term sheet attached as Appendix I), • VRDO interest rate risk maanged with collaz capped at 5.5%. VRDO interest rate at maximum cap rate 5.50% � Wells Fargo Bank DPLOC 1.25% WFIS Remarketing Fee 0.125% Wells Fargo Trustee Fee($3,000/yr) 0.000545% � 6.875545% Worst case scenario Actual VRDO interest rate as of 2/19/09 1.50% Wells Fargo Bank DPLOC 1.25% � WFIS Remarketing Fee 0.125% Wells Fargo Trustee Fee($3,000/yr) 0.000545% 2.875545% Actual floor rate � VRDO interest rate at 20-yr collared floor 2.49% Wells Fargo Bank DPLOC 1.25% WFIS Remarketing Fee 0.125% Wells Fargo Trustee Fee($3,000/yr) 0.000545% J3.865545% Collared floor rate � Important Erplanations and Disclaimers—PLEASE READ • All derivatives transactions are arm's-(ength transactions,and each party is expected to negotiate with the other party at arm's length and in its own best interests. The decision whether to prceeed with any transaction with us,and the terms and conditions thereof,rests solely wrth you. In our wntten and oral commumcations with you relating to any proposed transaction,we are not giving you any economic,tax, accounting,legal or regulatory advice or recommendations,and aze not acting in a fiduciary relationship with you. � You should conduct a thorough and independent review of the economic, tax, accounting, legal and regulatory characteristics, consequences and risks of the transaction in light of your particulaz circumstances,consulting with such advisors as you consider appropriate. � • All amounts,terms and conditions in our communications with you are estimates as of a particulaz date for indicative purposes only. They should not be relied on as amounts,terms or conditions on which we or anyone else would at any time be willing to enter into, terminate or transfer a transaction with you,or relied on for any other purpose. They may be based on market information we obta�ned from secondary sources without independent verification,and are not binding on us in any way. � .S.) Please list n!!proposed.fr��.c inrolrc�l in t/tenroject n�td their ro/e. Wells Fargo lostitutional Securities,LLC Wells Fargo Bank N/A Wells Fargo Bank N/A 1 Underwriter/Remnrketing Agent Truster/Trustee Counsel DPLOC Provider h.) Please nd�fress whelher y�otrr nro/�osal cr�n reirrthurse Jlre intia! SZ.5110,OOl/ trnnsfer nrnrle h�� !/re Genera! Fund to fiuld Phase I luans. 1 Our proposal does include reimbursement of the initial $2,500,000 transfer made by the General Fund to fund ) Phase I loans. lWeds Farqo Disclaimer:Weps Pa�go Public Finance{WFPF)bankers nre registered representatives af Wells Fargo Brokerage Services,LLC,or Wells Fa�go Insfitutiona(Securities,L[C,ar 6rokerage a�liates of Wells Fargo&Company and Members of F/NRA and StPC s . � 1 Wells Fargo Institutional Securities,LLC J i . . THE �ITY OF PALM DESERT --� � 7.) Please descrihc/he berieJits and drowback of 1�our proposeri�lu�i. Please refer to the cover letter and Section E for plan beenfits. We have provided an interest rate cap to deal with rate _ risk and a Wells Fargo direct pay Letter of Credit to provide the Al+rate which will insure market acceptance of 1 your debt. We see no inherent drawbacks to our proposal plan. { F. Please dlscuss rrll the available tar wedits and thi to�e t�iey ptay us i�applits to lhr pwpostd plan of Jtnbnc� _.f , ;, _ , , . Our proposal dces not include the use of taac credits to reduce interest rates or otherwise impact the homeowners' loans. We would expect that homeowners will secure all available tax credits and direct subsidies(see partial listing �� below)in advance of funding the long-term financing provided by the City's 20-year taxable VRDO issue secured by a Wells Fargo direct pay Letter of Credit. In this way the capital cost of the project is dramatically reduced. The 20- year fixed rate at 7%which can be delivered by the VRDO issue offers affordability to homeowners. Additional tax credits and subsidies available to homeowners from federal,state and local sources further enhances affordability. � � Emergency Economic.Stahitiznlion Act of 2�08 � On October 3, 2008, President Bush signed into law the "Emergency Economic Stabilization Act oj 2008."This bill extended tax credits for energy efficient home improvements (windows, doors, roofs, insulation, HVAC, and non-solar water heaters).Tax credits for these residential products,which had expired at the end of 2007, will now be available for improvements made during 2009. However, improvements made during 2008 are not eligible for a 1 tax credit. J The bill also extended tax credits for solar energy systems and fuel cells to 2016.New tax credits were established =� for small wind energy systems and plug-in hybrid electric vehicles. Tax credits for builders of new energy efficient homes and tax deductions for owners and designers of energy efficient commercial buildings were also extended. Please see Appendix II for a partial summary of tax credits available for energy efficiency. rt - �x. „�x G: 1�le�e;desrr`l�t any d�h�r maEters�Irbt yo�r�X�ar.v+d��l nnt coa�'�il u�d'er i�e�ee�fon arl�►+� y { ,, � � � � �� .. . ..,._�:.� ..._ ��=...,.,, �, �.,e..; ..��._ _.a.:�.. ,. x.,a. . ._ �,. . .. ,. . . , � N/A { � .J .l � Wells Fargo Disdaimer: Wells Fargo Public Finance(WFPf)bankers are reqistered representatives of We!(s Fargo Brokerage Services,LLC,or We!!s Fargo Institutionai Searities,LLC,or brokerage a�liates of Wells Fargo&Company and Members of FINRA and SIPC 7 . � � Wells Fargo Institutional Securities,LLC _I . Conflidential � _( City of Palm Desert $5,000,000 Energy Independence Program Direct Pay Letter of Credit � Summary of Proposed Terms and Conditions (For Discussion Purposes Only— Not a Commitment to Lend) Date 2/19/2009 � BORROWER: City of Palm Desert and applicable financing authority, if any (collectively, � the "Borrower'�. LETTER OF CREDIT ISSUER: Wells Fargo Bank, National Association ("Wells Fargo"). � FACILITY AND PURPOSE: One direct pay letter of credit (the "Letter of Credit'�. The Letter of Credit shall be in an amount sufficient to cover approximately $5,000,000 � in project costs plus accrued and unpaid interest for up to 60 days for a series of bonds which shall finance the Borrower's Energy Independence Program, plus issuance costs as are customary on new bond issuances � (the "Bonds"), with the amount of the interest reserve and issuance costs to be acceptable to Wells Fargo. The Bonds shall amortize according to a schedule acceptable to Wells Fargo. J The Letter of Credit shall be drawn upon by the Trustee for the payment of principal and interest on the Bonds, and for payment of Bonds tendered for purchase and not remarketed ("Bank Bonds"). The Letter of � Credit shall be reinstated upon reimbursement of principal and interest draws (other than in connection with scheduled principal redemptions) and upon receipt of proceeds of the remarketing of Bank Bonds. � REIMBURSEMENT AGREEMENT: The Letter of Credit will be subject to the negotiation, execution and � delivery of a Reimbursement Agreement and other documents, which will contain conditions to borrowings, representations and warranties, covenants, events of default, indemnification, arbitration and other provisions that are customary for similar financings by Wells Fargo, � including, without limitation, those indicated below. The Reimbursement Agreement will be prepared by Wells Fargo's counsel. J TERM: Three (3) years from the date of the Letter of Credit which shall be the date of execution and delivery of the Letter of Credit, Reimbursement Agreement and Bond and loan documents ("Closing Date'�. The � Borrower may request that Wells Fargo extend the expiration date (in any increment), provided it is expressly understood and agreed that: (a) Wells Fargo shall have no obligation whatsoever to grant 1 any such requested extension and may for any reason (or �1 for no reason) elect to decline any such request; � Page 1 � � . Confdential � -� (b) In the event Weils Fargo agrees to extend the Letter of Credit, the Letter of Credit Fee (described below) shall be adjusted to an amount acceptabie to Weiis Fargo; (c) The Borrower will reimburse Wells Fargo for any out-of- �� pocket expenses, including reasonable attorney's fees, incurred by Wells Fargo in connection with its consideration of a request for extension or its preparation � of appropriate documents evidencing such extension; and (d) In the event Wells Fargo provides notice of non-renewal or the Letter of Credit is otherwise not extended, Borrower covenants to cause a substitute letter of credit or a liquidity ,:;; facility to be issued in replacement of the Wells Fargo Letter of Credit, or otherwise convert the Bonds to a form that does not require a letter of credit or liquidity facility. � CLOSING DATE: Not later than May 21, 2009. � SECURITY: The Letter of Credit will be recognized as an obligation under Borrower's Indenture and secured in a first priority position by assignment of � revenues and/or other applicable collateral as pledged to the Trustee as security for all obligations under the Indenture. INSURANCE � GUARANTY: The Bonds will be uninsured. LETTER OF CREDIT -� FEES: A non-refundable letter of credit fee on the stated amount of the Letter of Credit (without reduction in light of any outstanding draw), payable quarterly in arrears, based on the Borrower's Minimum Liquidity Ratio (as defined in Principal Covenants below), per the following pricing grid: Downgrade Pricing � Borrower Liquidity Ratio j bps per annum 3.Ox or above 125 l 2.Sx 145 � 2.Ox 170 µ� Below 2.Oz Default Upon the occurrence of an Event of Default, the Letter of Credit Fee shall be increased by 1.5% per annum, without prejudice to Wells Fargo's 1 other default rights and remedies. J ORIGINATION FEE: $10,000, payable at closing. .J � Page 2 J _l Confidential I OTHER FEES: Borrower shall pay to Wells Fargo the following additional fees: (i) a I drawing fee of $300 at the time of each drawing under the Letter of Credit; (ii) a transfer fee for each transfer of the Letter of Credit in the amount of$2,500 plus associated legal expenses, in the event the Letter � of Credit is transferred; (iii) an amendment fee for each amendment of the Letter of Credit in the amount of$2,500, plus associated legal expenses; and (iv) all other fees charged by Wells Fargo for any other activity � regarding the �etter of Credit determined in accordance with Wells Fargo's then current fee schedule. � REIMBURSEMENT ACCOUNT: Borrower shall deposit into an account maintained at Wells Fargo (the "Reimbursement Account'�: • One business day prior to each interest payment date, an amount � that is equal to the amount due on such interest payment date; and � • One business day prior to each annuat mandatory principal redemption date, an amount that is equal to 100% of the annual mandatory principal redemption due. � In the event there are insu�cient funds in the Reimbursement Account to reimburse Wells Fargo for principal or interest draws under the Letter of Credit, Wells Fargo shall have the right, but not the obligation to declare i an Event of Default under the Reimbursement Agreement. wl OBLIGATION OF `l REIMBURSEMENT: (i) Liquiditv Draws. Draws under the Letter of Credit for the purchase of J Bank Bonds ("Liquidity Draws") shall be payable in full on the date that is 90 days from the applicable Liquidity Draw. The rate of interest on � Liquidity Draws shall be equal to the Base Rate + 2%for the first 30 days, the Base Rate plus 3% for the next 30 days, and the Base Rate plus 4% thereafter (the "Liquidity Rate"); provided however, that in no event shall the Liquidity Rate ever be less than the interest rate otherwise applicable � to Bonds that are not Bank Bonds. Notwithstanding the foregoing, the outstanding principal balance of all l Liquidity D�aws shall become immediately due and payable upon the 1 occurrence of an Event of Default and shall thereafter accrue interest at a rate equal to the "Default Rate" (defined as the Base Rate plus 5%), � without prejudice to Wells Fargo's other default rights and remedies. (ii) All Other Draws. Draws under the Letter of Credit for payments of principal and/or interest of the Bonds (whether scheduled or pursuant to lredemptions) shall be immediately payable by the Trustee from Bond � funds and if not so paid shall be immediately due and payable to Wells Fargo by the Borrower. Amounts not immediately reimbursed shall bear l interest at the Default Rate, without prejudice to Wells Fargo's other J default rights and remedies. � Page 3 J i � Confidential 1 l The "Base Rate" will be defined, as of any day, as the highest of the � current (i) Federal Funds Rate plus 1.50%, (ii) the Wells Fargo Prime Rate and (iii) 1-month LIBOR plus 1.50%. � Interest payments will be paid monthly in arrears. � COMPUTATION BASIS: Computations of the �etter of Credit Fee and interest shall be on the basis of a year of 360 days for the actual number of days elapsed. l INCREASED COSTS OR � REDUCED RETURNS: Borrower will compensate Wells Fargo if certain changes in circumstances result in increased costs or reduced returns such as tax, reserve, special deposit, insurance or capital adequacy requirements. All � payments by Borrower will be made free and clear of present and future � taxes, withholding or deductions, except for Wells Fargo's net income taxes. � CLAWBACK: Wells Fargo will require the inclusion of a customary clawback provision as protection against the possibility of the interest rate payable on advances exceeding the maximum permissible rate thereof. � CONDITIONS PRECEDENT TO ISSUANCE OF THE � LETTER OF CREDIT: Usual and customary conditions precedent for this type of financing, including but not limited to: � 1) Absence of any material adverse change in the business condition, operations, performances or properties of the Borrower since release of the financial statements dated 6/30/2008; � 2) Disclosure of any pending or threatened litigation (with such pending or threatened litigation acceptable to Wells Fargo); 3) Wells Fargo shall have reviewed to its satisfaction any � documentation it finds relevant; 4) Payment of accrued fees and expenses, including fees and expenses of Wells Fargo; l 5) Execution and delivery of the Reimbursement Agreement and J copies of the remarketing agreement(s), indenture(s), leases, and other documents related to the transactions (collectively, � the "Related Documents") and all certificates, authorizations and opinions requested in form and substance satisfactory to Wells Fargo, with legal opinions to cover such matters as Wells Fargo may require; Yl 6) Receipt of any necessary governmental and regulatory 1 approvals; 7) Property to be leased must be satisfactory to Bank; � 8) Appraisals of property to be leased must be satisfactory to Bank; and f Page 4 J J l Confidential I -� 9) Unrestricted cash and investments in the General Fund in an amount no less than 4.Ox principal amount of outstanding debt supported or repaid by the General Fund. � REPRESENTATIONS AND WARRANTIES: As customary, including the following: proper organizational status and authority; letter of credit documents valid, binding and enforceable against � Borrower; letter of credit documents not violating laws or existing agreements or requiring governmental, regulatory or other approvals; payment of taxes; no litigation that may have a material adverse effect; � compliance with ERISA, environmental and other laws and regulations; no adverse agreements, existing defaults or non-permitted liens; financial statements true and correct. PRINCIPAL COVENANTS: The principal covenants expected to be included in the Reimbursement � Agreement are indicated below. Financial terms and calculations will be in accordance with generally accepted accounting principles. � Pled�e of Revenues. Parity priority position on General Fund revenues. � Minimum Appropriation. Borrower shall appropriate sufficient funds annually from the General Fund to make lease payments. Lease Effective. Lease shall remain in effect until all bonds are fully l repaid. J Substitutions. No substitution of leased properties shall be made without l prior written consent of the Bank. J Insurance. Borrower shall provide business interruption insurance with � minimum term of finro (2) years. Minimum Liquidity Ratio. Borrower shall maintain unrestricted cash and investments in the General Fund, tested quarterly as of 3/31, 6/30, 9/30 � and 12/31 of each year, in an amount no less than 2.Ox the principal amount of all outstanding General Fund supported debt. � Other covenants may include the covenants set forth in Borrower's Indenture. In the event that Borrower agrees with any other creditor to financial covenants, ratios or tests which are more �estrictive than those , set forth in the Reimbursement Agreement, the more restrictive Jcovenants shall be deemed incorporated, mutatis mutandis, into the Reimbursement Agreement. � Borrower will provide the following information to Wells Fargo: 1) Annual yearly adopted budget of the Borrower within 30 days � of start of each new fiscal year. � Page 5 � ) . Confidential I � � 2) Annual audited consolidated financial statements of the Borrower with, as to the audited consolidated financial statements, an unqualified opinion from an independent public accounting flrm acceptable to Bank, together with calculations �� confirming Borrower's compliance with all financial covenants, certified by a senior financial officer, within 180 days after the end of each fiscal year. � 3) Calculations confirming Borrower's compliance with all financial covenants, certified by a senior financial officer, no later than 30 days after the end of each quarter. � 4) Concu�rently with delivery to the Trustee, an accountant's statement and/or other financial reports or items delivered to the Trustee pursuant to provisions of the Indenture or other � applicable agreement. 5) Prompt written notice of any event of default under the facility lease, site lease, and all Related Documents. � 6) Other information reasonably requested by Wells Fargo. � EVENTS OF DEFAULT: Including but not limited to the following: failure to make any payments when due; abandonment of leased property; breach of any representation or warranty; breach of any covenant continuing beyond cure period; if � any; default under any other loan or financial obligation; bankruptcy or insolvency event; unpaid judgment; adverse ERISA event; material adverse change; invalidity of any of the documents. � REMEDIES: Upon the occurrence of any Event of Default, Wells Fargo shall have the right to: � (i) Mandatory Tender. Direct the Trustee to redeem or tender for purchase all Bonds; and/or � (ii) Acceleration. Declare the outstanding principal balance of all obligations of Borrower to Wells Fargo, including all Bank Bonds, to be immediately due and payable in full. Y� (iii) Other Remedies. Exercise all other rights and remedies provided by law or contract. Pl TERM SHEET DATE: This Summary shall no longer be current after March 11, 2009. .� ASSIGNMENTS AND � PARTICIPATIONS: Wells Fargo may grant assignments or participations in all or any portion of its loans or commitments under the Facility. � FEES, EXPENSES AND INDEMNIFICATION: Whether or not the Letter of Credit and Reimbursement Agreement are executed, Borrower will (a) pay all fees and expenses of Wells Fargo's � Page 6 � i � Confidential � counsel in connection with the preparation and administration of the � Letter of Credit and Reimbursement Agreement, (b) pay all fees and expenses of Wells Fargo in connection with the enforcement of the Letter of Credit or the Reimbursement Agreement, and (c) indemnify Wells � Fargo and its respective directors, officers and employees against all claims asserted and losses, liabilities and expenses incurred in connection with the Letter of Credit. � REMARKETING AGENT/ TRUSTEE: To be determined, subject to reasonable Wells Fargo approval. � GOVERNING LAW: State of California. CONFIDENTIALITY: This Summary shall be considered proprietary and shall not be disclosed � to any other person other than the Borrower's employees, attorney and financial advisors (but not any financial advisor which may be a provider of financing to the Borrower) who need to know this information. � This Summary of Terms and Conditions is not intended to be, and should not be construed as, a � commitment to issue a Letter of Credit, nor should it be construed as an attempt to establish all of the terms and conditions relating to the Letter of Credit. It is intended only to be indicative of certain terms and conditions around which credit approval may be sought, and once approved, how the Reimbursement Agreement might be structured, and not to preclude negotiations within the general � scope of these terms and conditions. The Reimbursement Agreement containing final terms and conditions will be subject to approval by Borrower and Wells Fargo. �� _� � _� .� � Page 7 t � i _ Appendix II—Tax Credits Available for Energy Efficiency � Solar Ener S stems—under the Emer en Economic Stabili tion Ac10 2008 �v .v g cy za l � Tax credits are available for qualified solar water heating and photovoltaic systems. The credits are available for systems"placed in service"from January 1,2006 through December 31,2016.The tax credit is for 30%of the cost of the system, up to $2,000. After December 3l, 2008, this $2,000 cap will be removed for photovoltaic systems � (but not solar water heaters).This credit is completely separate from the$500 home improvement credit. Expenditures with respect to the equipment are treated as made when the installation is completed.If the installation is on a new home, the "placed in service" date is the date of occupancy by the homeowner. Expenditures include � labor costs for onsite preparation,assembly,or original system installation and for piping or wiring to interconnect a system to the home. If the federal taac credit exceeds tax liability,the excess amount may be carried forward to the succeedingtaxable year. � The credit is calculated based on the individual's expenditures excluding subsidized energy financing, which is defined as °financing provided under a Federal, State, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy."Consumers who receive other incentives � are advised to consult with a tax professional regarding how to calculate this federal tax credit. SUMMARY OF TAX CREDITS FOR HOMEOWNERS � Eeer�y;y�eMt'`, Sei�r Water Hp' `At leest half of the ene !p� rgy generated by the"qualifying !30%of cost,up to 52,000 ` property"must come from the sun.Homeowners may only claim �` �^��r'��r ��a� }spanding on the solar wata heating system propeny,not the i ( � � ': ;enhre water heatmg system ofthe household. � ^ �.-. < < r � ; � _ _ �.______-�.__.. .. ______. _. . : � � ' 9 The credit is not available for expenses for swimrrung pools or ' � ' %"� °^:�.j ihottubs. + ; P; � , � , � , `� �, ; ; �' �j ;The water must be used in the dwelling . ----- -- � `The system must be certified by the Solar Rating and� � Cerhficauon Corporatron(SRCC). �t;= y�t � 1 , . �-^ r i-.. -_ ___------ -- _.__.__ .____...___._._.._... _. _ ._......_.. . { ,�n�. . ...__ .. --� --...__._. ,. � - ` '�:Photovoltaic systems must provide electriciry for the residence �30%of cost,up to 52,000.After lanuary '. � $� ; ,�'t and must meet applicable fire and dectrical code requirement. i 1,2009 the 52,000 cap no longer apphes i � ' ' ! I n° ` Systems must be placed in service from January 1,2006,tivough?Ma�cimum credit of 52,000. �kr '` �, " � `December 31,2016. , �. � _._.___�__..___-----.___. ._ ---_-____ _i � , �+�.�-y �"�"{^� Eqwpment must be certified for perfoTmance by ihe Solar Rahng ; :CertiScation Co[poration(SRCC)or a comparable entiry �` ��endorsed by the government ofthe state in which the property is ` ! � � - � � �:. + ,<�' �T rt� a g�" :mstalled. i `�� '�j�'� `��. �frome otlazein order fo�theo lar water-heawnlling'�s water must be: � ,� ,: 8 P P�' ; ' ' � �x ,� `"-�_� �. expend�haes to be eligible ' i --, ..._.._----- -`---- .___. .�._. � '�°� :`�"�' ��"'S�� -The tax credit does not apply to solar water heating property for� j ��'� '�swimmin Is or hot mbs. � .. .�. ;. r. ,F,� � = 8 P� � � � �� - - --- -�___ ____._. ___._...__ :� . i � �: �� _� ��; � � $ A f "` '°3 y .�;In case ofjoint occupancy,the ma�cimum qualifymg costs that ( � ��,:can be taken into account by all occupants for figuring the credit� ii, ;-a is 56,667.This dces not apply to manied individuals 61ing a R, �, � �joint return.The credit that may be claimed by each individual is; I l ' " � , , proportional rtVo the costs he or she P81 ot have to be the_�_ i � _ � J < r- - -._ �.___. ._- -- ! � �The home se ed by the system doe i ., ' �� `#� � ¢atexpaya sprinc�pal residanceY__ ': J . _. _.._ _.___. .___,.____.___� - _------ --- ---,---.._ �� ';,�;, �30%of the cost,up to 5500 per half kW i 1 � � _ � ,:° �of capacity(not ro cxceed 54,000) � d �i, ��tt Pud Cdle Efficiency of at leact 30%and must have a capaciry of at least i 30%of the cost,up to S I500 per helf k�1' �� 0.5 kW. �of power cepaciry � ,E �Nn... , j J Continued J 1 i . Appendix II—Tax Credits Available for Energy Efficiency � � �pocups <' Systems must be placed m serv�ce from January! 2008,through�Maximum credit of 52,000. i � V December 31 2016. � -— ---_ _ ____ .._..--- _.._..___ --__. , xi°�'i 7he geothermal hoat pump must mxt the roquirements of the ; Enagy Star progtam which are in effect that the time the - installation is wmpleted. ' : ' . ____. ___--.._ __.___. ___.. __._._.. -� � � _�� _ . i �� , In cau of joint occupancy,the�mum quelifymg costs thet � ' can be taken into eccount by all occupants for Sguring the credit ' s=�.N` is 56,667.'Ihis does not apply to married individuals Sling a ' � `` jomt rehun.'Ihe credit that may be claimed by each individual is 1 ° z # '�" proportional to the costs he or she paid j _ .___ _ .. Tl�e home served by the system does not have to be the � . rj. �� .e-: [axpayer's pnncrpol res�dence. I . � State Rebute//ncentive Programs � Southern Calijornia Edison �,� California's solar electric panel system installations under the net metering law provides that all utilities must allow customers with solar e(ectric systems rated up to 1.5 MW to interconnect with the local utility grid and receive retail value for the electricity produced. The owner of a residential grid-connected solar electric power system may buy � and sell electricity each month under the Time-of-Use program. Southern California Edison's Time-of-Use program is designed to encourage customers to reduce electricity use by charging higher rates during peak hours. This is a great advantage for solar electric power system owners. Current incentives are based upon the size and � characteristics of the installation and your customer classification (i.e., an increased incentive level is available to Government and Non-Profit Organizations). Please refer to the following website for more details: http://www.sce.com/residential/rebates-savin s/csi/ J �1 � � � l 1 ] 1 � 1