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RAMIREZ:
<br />i'
<br />Wisconsin at Madison and a Master's in Finance and Management from the University of Chicago. Arthur
<br />will be critical in managing our pension optimization model through the engagement and at pricing.
<br />Pension Liability Shape: The City's strategy to refinance between 50%-90% of its outstanding UAL,
<br />coupled with projected budget challenges, allow it to restructure its current pension liability with a more
<br />long-term sustainable repayment schedule. Below are three structuring approaches, commonly used by
<br />California POB issuers. Each structure has a specific savings target.
<br />Uniform Level Hybrid
<br />Target Equal annual savings Level predictable debt service Combination of Level and
<br />Uniform structures
<br />Benefits Highest overall savings; no
<br />negative savings
<br />Lower cash flow relief than
<br />Disadvantages level debt service in in early to
<br />mid -amortization period
<br />Highest cash flow savings in early Level predicable debt service in
<br />to mid -amortization period; early to mid -amortization and no
<br />negative savings in later years negative savings
<br />Negative long-term savings Lower aggregate savings than the
<br />uniform option
<br />We recommend a "Hybrid" approach because it provides a balanced solution that addresses the City's
<br />short and long-term objectives. Key factors supporting this recommendation include the following:
<br />Level debt service in the "front-end" creates a more manageable liability for the City in the short
<br />to medium term. This approach also creates 'capacity' to absorb future UALs, if they arise.
<br />• Hybrid structure option improves overall savings from the level debt service approach; and,
<br />greater savings improves the 'probability of success' for the overall transaction.
<br />■ No negative savings relative to the City's current UAL amortization; this is an important policy
<br />objective for every public agency contemplating the issuance of POBs.
<br />Base -by -Base CaIPERS UAL Refunding Model. Once the strategy for the City's overall pension liability
<br />structure is decided, our Pension Optimization Model evaluates each individual amortization base.
<br />Refinancing the City's UAL is similar to refinancing a portfolio of outstanding loans. The Ramirez & Co.
<br />Pension Optimization Model evaluates and ranks each individual amortization base based on cash flow
<br />and PV savings. Importantly, because each UAL base has a different amortization period, our Pension
<br />Optimization Model also incorporates the average annual savings per par amount as metric to evaluate
<br />and "optimize' the selection of amortization bases to refinance. Preliminary results are summarized
<br />below. The far right column indicates the "Savings Ranking" of each amortization base. The UAL bases
<br />highlighted in blue identify the UAL bases we recommend to refinance, based on current interest rates.
<br />UAL
<br />Base
<br />Reason
<br />Year
<br />Ramp
<br />Amort
<br />Period
<br />Balance
<br />6/30/2021
<br />Savings
<br />PV ($)
<br />PV (%)
<br />Cash Flow
<br />Avg. Ann
<br />Savings
<br />Ranking
<br />PV CF
<br />a.
<br />Miscellaneous
<br />Fresh Start
<br />2006
<br />None
<br />17
<br />(1,507,124)
<br />-
<br />-
<br />-
<br />-
<br />b.
<br />Benefit Change
<br />2007
<br />None
<br />7
<br />27,869,276
<br />5,466,886
<br />19.6%
<br />5,782,902
<br />826,129
<br />32
<br />20
<br />C.
<br />Benefit Change
<br />2007
<br />None
<br />8
<br />130,319
<br />24,073
<br />18.5%
<br />25,721
<br />3,215
<br />33
<br />34
<br />d.
<br />Assump Change
<br />2009
<br />None
<br />10
<br />28,921,692
<br />7,492,002
<br />25.9%
<br />8,301,799
<br />830,180
<br />30
<br />16
<br />e.
<br />Sp (Gain)/Loss
<br />2009
<br />None
<br />20
<br />29,368,098
<br />12,596,219
<br />42.9%
<br />16,717,958
<br />835,898
<br />14
<br />12
<br />f.
<br />Sp (Gain)/Loss
<br />2010
<br />None
<br />21
<br />10,805,290
<br />4,801,175
<br />44.4%
<br />6,492,003
<br />309,143
<br />12
<br />19
<br />9.
<br />Assump Change
<br />2011
<br />None
<br />12
<br />12,883,043
<br />3,830,028
<br />29.7%
<br />4,389,472
<br />365,789
<br />28
<br />23
<br />h.
<br />Sp (Gain)/Loss
<br />2011
<br />None
<br />22
<br />(7,380,480)
<br />-
<br />-
<br />-
<br />-
<br />-
<br />-
<br />i.
<br />Pymt (Gain)/Loss
<br />2012
<br />None
<br />23
<br />5,629,785
<br />2,681,453
<br />47.6%
<br />3,759,058
<br />163,437
<br />7
<br />25
<br />j.
<br />(Gain)/Loss
<br />2012
<br />None
<br />23
<br />(264,265)
<br />-
<br />-
<br />-
<br />-
<br />-
<br />-
<br />k.
<br />(Gain)/Loss
<br />2013
<br />100%
<br />24
<br />100,344,691
<br />46,771,862
<br />46.6%
<br />65,858,728
<br />2,744,114
<br />9
<br />2
<br />I.
<br />Assump Change
<br />2014
<br />100%
<br />15
<br />45,039,235
<br />14,492,788
<br />32.2%
<br />17,231,837
<br />1,148,789
<br />27
<br />11
<br />M.
<br />(Gain)/Loss
<br />2014
<br />100%
<br />25
<br />(63,668,260)
<br />-
<br />-
<br />-
<br />-
<br />-
<br />-
<br />10
<br />
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