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22 Battery Street Phone: 415-912-5630 Suite 500 Fax: 415-912-5636 San Francisco, CA 94111 www.brandistallman.com Jeff Briltz, City Manager January 14, 2009 Nancy Cota, Finance Director Jason Shaw, Project Coordinator City of Lemoore 119 Fox Street Lemoore, California 93245 Re: Proposal for Financing of Solar PV System Projects 1) Projects The City of Lemoore (“the City”) is looking to finance the remaining costs of the Solar PV system at the Cinnamon Municipal Complex. 2) Structure and Sale of Financing We will structure the City’s financing as a lease agreement and use the Private Placement method of sale. • Structure of Financing: Lease Agreement A lease agreement is the root form of Certificates of Participation (“COPs”) that are secured by a lien on the City’s General Fund. Here, the City will make quarterly lease payments to pay off the loan, which is secured by a lease hold on the project that is receiving the financing. • Sale of Financing: Private Placement A private placement is a sale of a new issue of securities directly to an investor or small group of investors without a public offering. Privately placed securities do not require SEC registration. In 1982, the SEC adopted Regulation D, which set forth the guidelines that determine whether an issue is qualified for exemption from registration. The guidelines require that, in general, the securities cannot be offered through any form of general advertising or general solicitation that would prevail for public offerings. Most importantly, the guidelines restrict the sale of securities to “sophisticated” investors. Such “accredited” investors are defined as those who (1) have the capability to evaluate (or who can afford to employ an advisor to evaluate) the risk and return characteristics of the securities, and (2) have the resources to bear the economic risks. Jeff Briltz Page 2 Nancy Cota Jason Shaw For a municipality, it is the placement of a loan directly to a qualified investor, typically a financial institution such as a bank or a high net worth individual. The loan is structured with one fixed interest rate over the duration of the obligation, with prepayment penalties to be negotiated. An interest rate lock can be obtained from the investor while documents are in progress. Typically, maturities on a private placement do not extend past 15 years, however a 20 year term can be obtained depending on the credit. Private placement transactions tend to move quickly and closing can be expected within a few weeks after an investor has been identified. Costs involved in this transaction are minimal compared to a public offering since a fiscal/paying agent is not required, legal counsel services are reduced, and disclosure and registration requirements are not necessary. 3) Interest Rate, Costs of Issuance, Financing Options and General Terms Projects: See 1) above for descriptions. Estimated Project Cost: $624,380. Credit Approval: All proposed interest rates are subject to credit approval by the lender, which includes review of the City’s last three years of audited financials and the current year budget. Bank Qualification: The proposal is subject to the City qualifying the financing for bank funding under Section 265(b) of the Internal Revenue Code. This requires the City and its subordinate entities to issue a total of less than $10,000,000 of tax-exempt financings in total during calendar year 2009. Option 1 Lease Term: Fifteen (15) years. Interest Rate: The lease payments are computed at an interest rate of 4.65% held firm for 60 days from the date of acceptance of this proposal. Jeff Briltz Page 3 Nancy Cota Jason Shaw Lease Payments: The lease agreement will specify (60) equal consecutive lease payments payable quarterly in arrears. Based upon a financing amount of $624,380, annual debt service will be $58,050. The first payment is due 3 months after the closing date, or as directed by the City. Pre-payment: The lease will be callable on any payment date with a 2% pre- payment premium, declining to par after ten years. Costs, Conditions, Obligations: $0 costs and no conditions or obligations. Debt Service Schedule: See Attachment A. Option 2 Lease Term: Twelve (12) years. Interest Rate: The lease payments are computed at an interest rate of 5.45%. Lease Payments: The lease agreement will specify (144) equal consecutive lease payments payable monthly in arrears. Based upon a financing amount of $624,380, annual debt service will be $71,001.45. The first payment is due one month after the closing date, or as directed by the City. Pre-payment: The lease will be callable on any payment date with no pre- payment penalty. Costs, Conditions, Obligations: $6,500 for placement agent fee. No other costs, conditions or obligations. Debt Service Schedule: See Attachment B. Jeff Briltz Page 4 Nancy Cota Jason Shaw Option 3 2009 Clean Renewable Energy Bond Financing (“CREBS”) The coupon (or supplemental interest rate) on the 2009 CREBS financing is estimated to be at or below 3.0%. Considering the project will be used for municipal purposes, the amount required for the project is relatively small, and its purpose of clean renewable energy, we believe it is highly likely the City’s solar project at the Cinnamon Municipal Complex will be approved for a CREBS allocation by the Internal Revenue Service. The Project Manager at the City level would be responsible for the actual application and Brandis Tallman will be available to assist in this capacity. 4) References • Rocky Rogers, City Manager, Reedley California Phone: (559) 637-4200 Email: firstname.lastname@example.org Lori Oken, Finance Director, Reedley California Phone: (559) 637-4200 Email: email@example.com • Dale Bacigalupi, City Attorney in San Joaquin Valley Phone: (559) 431-5600 Email: firstname.lastname@example.org • Connie Wright, Finance Director, Chowchilla California Phone: (559) 665-8615 Email: email@example.com We hope that this proposal meets with your approval. We look forward to working with you. Best Regards BRANDIS TALLMAN LLC Rick Brandis Jeff Land