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STIFEL
<br />Base Year Reason Term
<br />3 2009 Assum Change 10
<br />6 2011 Assum Change 12
<br />11 2014 Assum Change 15
<br />14 2016 Assum Change 17
<br />16 2017 Assum Change 18
<br />18 2018 Assum Change 19
<br />19 2018 Assum Change 19
<br />Short -Term Bases (Less than 20 Years)
<br />4 2009 Loss 20
<br />9 2012 Loss 23
<br />10 2013 Loss 24
<br />15 2016 Loss 27
<br />21 2019 Loss 20
<br />22 2019 Loss 20
<br />Long -Term Bases (20 Years or More)
<br />TOTAL (85% Funded Ratio)
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<br />Balance (20211
<br />96 Pavoff
<br />$14,943,657
<br />Full (100%)
<br />16,001,459
<br />Full (100%)
<br />53,834,473
<br />Full (100%)
<br />19,877,718
<br />Full (100%)
<br />22,905,129
<br />Full (100%)
<br />5,325,258
<br />Full (100%)
<br />38.800.76S
<br />Full (100%)
<br />$171,688,519
<br />45%of Total
<br />$31,977,596
<br />Full (100%)
<br />74,450,415
<br />Full (100%)
<br />70,331,616
<br />Pro-Rata(50%)
<br />27,722,249
<br />Pro -Rita (55%)
<br />5,185,187
<br />Full (100%)
<br />4,463,871
<br />Full (100%)
<br />$214,130,934
<br />55%of Total
<br />$385,819,453
<br />Spread Rather than Concentrate Risk. While historic low interest rates have enticed nearly all recent POB issuers to
<br />refinance 100%of their UAL, the reinvestment side of the equation should carry equal importance in determining if, when,
<br />and how much to issue. As previously mentioned, we would not recommend that the City target the higher funded ratio.
<br />Underperformance on investments, especially in the first few years after issuance, can exponentially exacerbate an
<br />issuer's already burdensome debt and UAL profile. Furthermore, given that POBs are the most powerful tool in the
<br />toolbox, refinancing as much as possible today would significantly limit the City's options to manage future pension
<br />liabilities. If investment returns exceed expectations after the first few years post -issuance, the City could evaluate the
<br />need for a second issuance. Ultimately, while the prevailing sentiment is that a recession is not on the immediate horizon,
<br />the most prudent strategy will be for the City to spread, rather than concentrate rnarket risk through multiple issuances.
<br />Lastly, as explained below, any future issue should be governed by the pension funding policy.
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<br />Structure 'Modified' Level Repayments (A). We recommend a 'modified' level
<br />repayment structure, which is characterized by level payments over the first 19
<br />years that then decline in proportion to the prepaid UAL bases. An alternative
<br />approach is to structure level annual payments over the life of the POBs, which
<br />result in slightly lower payments over time; however, this structure will produce
<br />negative savings in later years and generate less net present value savings
<br />overall (as illustrated in the accompanying graphic).
<br />'Modest' Upfront Savings with Minimal Impact on NPV Savings (B). The City
<br />has the option to structure upfront savings in the first few years by deferring a
<br />pnrtion of principal -savings that, for example, ran he used to hnlstor Goneral
<br />Fund or pension reserves. While this structuring nuance would result in slightly
<br />higher POB payments (and lower UAL savings), the POBs could be structured so
<br />lhdl NPV savings dre nornindlly irnpdcled. We incorporated this slruduring
<br />nuance on the recent Orange PORs, generating $3 million in upfront savings
<br />while only impacting NPV savings by
<br />Shorten the Final Maturity (C). To expedite the payoff of POB and UAL payments, several issuers have shortened the final
<br />POB maturity to match the last significant prepaid UAL payment. As you can see from the chart below, the prepaid Safety
<br />base paymei8tgeg�)ffREDcl FY 2030, slowly decline through FY 22�11_a2j2hen rapidly drop-off urgj"p21ljpj FY 2047 UAL
<br />City of Santa Ana I Proposal to Provide Underwriting Services Page 10
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