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Recent California POB ratings support the view that a restructuring would not trigger adverse rating agency <br />reactions. S&P has rated nearly all of the POBS issued by California municipalities over the past two years. Of <br />the more than 25 POBs rated by 5&P from the start none of the municipalities incurred a rating downgrade in <br />conjunction with their POB issuance. <br />We also would observe that moderating the near -to -mid-term total UAL -associated payments (including POB <br />debt service) is prudent, given CalPERS' transition to a more front -loaded, level -dollar amortization of the <br />incremental UAL that may arise over time. A payment curve restructured with POBs provides more headroom <br />to accommodate potential contribution increases, while mitigating budget stress that would have occurred <br />under the original payment schedule. As previously discussed, the BofA team has extensive experience modeling <br />pension risk and is fully prepared to assist the City as it navigates this process. <br />Preliminary Interest Rate Scale. The following table includes the requested interest rate scale assuming market <br />conditions as of March 9, 2021 and two ratings in the 'AA' category. We present spreads to Treasuries assuming <br />a 10-year optional par call and a make whole call. As previously mentioned, we expect index eligibility to be <br />worth up to an additional 10 basis points for a 2044 term band sized to at least $300 million. I o help support <br />our preliminary spreads, we include the pricing results for the City of Orange's POBs that sold on March 3, 2021. <br />2022 <br />2Y <br />0. 170%, <br />0.42% <br />25 <br />0.42% <br />25 <br />2022 <br />2Y <br />0.130% <br />0.291%, <br />16 <br />2023 <br />3Y <br />03501Y <br />0.ub'Yn <br />30 <br />U.6S96 <br />30 <br />2023 <br />2Y <br />01301A <br />0 391% <br />2(, <br />2024 <br />SY <br />0 830% <br />11844 <br />35 <br />118% <br />35 <br />2024 <br />3Y <br />0260% <br />0587% <br />33 <br />202S <br />SY <br />0.830%K <br />1.13% <br />30 <br />1.1336 <br />30 <br />2025 <br />SY <br />0.670-A <br />0.914% <br />30 <br />2026 <br />7Y <br />1.23U% <br />1.73% <br />50 <br />1.7356 <br />50 <br />202b <br />5Y <br />067096 <br />1 )94% <br />55 <br />2027 <br />7Y <br />1230% <br />1.68% <br />45 <br />1.68% <br />45 <br />2027 <br />7Y <br />1.0800A <br />1.SH Pffi <br />51 <br />2029 <br />10Y <br />1550'S6 <br />2.20'% <br />Ei5 <br />2.20% <br />ES <br />202H <br />7Y <br />1 090% <br />1787% <br />71 <br />909 <br />1UY <br />1.550% <br />9,15% <br />60 <br />9.15% <br />C+U <br />2029 <br />1uY <br />1.490% <br />2070% <br />65 <br />2030 <br />MY <br />1_v056 <br />22b"/n <br />10 <br />2.2b% <br />/0 <br />2030 <br />10Y <br />1420`A <br />2.22UY6 <br />HU <br />2U31 <br />l0Y <br />15su% <br />235% <br />80 <br />235% <br />80 <br />2031 <br />l0Y <br />1420% <br />2.270% <br />8s <br />2032 <br />My <br />1.55086 <br />2.4S% <br />90 <br />2.4S% <br />90 <br />2032 <br />l0Y <br />1.4200A <br />2.450% <br />102 <br />2033 <br />10Y <br />1.550% <br />2.55% <br />100 <br />2.50% <br />95 <br />2033 <br />10Y <br />1.420'16 <br />2.550% <br />113 <br />2034 <br />10Y <br />1.550% <br />2.65% <br />110 <br />2.55% <br />100 <br />2034 <br />10Y <br />1.4200/6 <br />2650% <br />123 <br />2035 <br />10Y <br />1550'}6 <br />2.75y <br />120 <br />2.65%, <br />110 <br />2035 <br />1oY <br />1420% <br />2750% <br />133 <br />2036 <br />10Y <br />1.65u% <br />2.85% <br />130 <br />2.7096 <br />115 <br />2036 <br />10Y <br />1.420% <br />2.820% <br />140 <br />2040' <br />30Y <br />2 210% <br />3 015% <br />80 <br />2U44 <br />3UY <br />226u% <br />3.161% <br />90 <br />3.U6% <br />80 <br />2u44' <br />30Y <br />221u% <br />3.11s% <br />9u <br />' H2arese"s <br />term 00"d <br />' Hep,esents <br />tern, bond <br />Private Placement Option. As discussed above, depending upon how quickly the City can come to market, we <br />believe a short-term note through a bank direct purchase to pre -pay the City's FY 2022 UAL may be appropriate <br />and help increase savings for the City. BANA has purchased short-term notes to prepay UALS for the City of San <br />Jose, Oakland and Los Angeles. With respect to long-term financings, banks typically prefer transactions that <br />have shorter tenors (less than 15 years) and are moderately sized. <br />Multiple Underwriter Engagement. Pleaser reference our responses under Section 3. Question viii and Section <br />4. Pension Obligation Bond Experience which details our experience serving as book -running senior manager <br />on large, high profile transactions with numerous syndicate members. <br />Pro viae an esrimore of your total, nor to exceed, u'rderwrir/ng costs associated mrh se, ving as senior manager to the City on a not -to -exceed approximately <br />i671 milfinn inur of fixnd rnrr PON <br />Proposed Gross Spread. Serving as senior managing underwriter is a high priority for BotA. Our proposed tees <br />and expenses are detailed in the following table based on an estimated $671 million financing. We propose an <br />average takedown of $1.7S per bond across all maturities and estimate the all -in gross spread, including <br />expenses, to be approximately $1.89 per bond. We are not proposing any management fee for our services. <br />Council 23 - 112 5/18/2021 <br />Page 13 BafA SECURITIES �� <br />