Debt Capacity Analysis and Review of Rating Agency Reports

Bonds 101 / Rating Agency Update

Virginia Government Finance Officers Association Richmond 2019

October 11, 2019

Member NYSE|FINRA|SIPC Objectives

 Courtney Rogers: Davenport - Bonds 101

– Participants in a Transaction

– Structuring Considerations; What goes into a Sizing?

– How do you choose Public Sale vs. Direct Bank Loan?

 Tim Barrett: S&P – Virginia Medians

 Evan Hess: Moody’s – Moody’s Scorecard

 Evette Caze: Fitch – Rating Methodology for Revenues & Expenditures

 Joe Paucke: Davenport Fixed Income – 5% Coupon for a 1.5% Yield What are buyers thinking?

 Courtney Rogers: Davenport – Market Update / Taxable Refundings

 Questions

October 11, 2019 Bonds 101 / Rating Agency Update 1 Bonds 101

Courtney Rogers – Davenport & Company LLC

October 11, 2019 Bonds 101 / Rating Agency Update 2 History of Tax-Exempt Bonds

 Tax-Exempt Status of Municipal Securities was Granted by Supreme Court in 1819.

 Federal Government Later Reaffirmed this Ruling Through the Internal Revenue Code.  • Subsequent changes to the Internal Revenue Code modified Issuer’s ability to finance certain projects and refinance tax-exempt debt.

 From the Securities Industry and Financial Markets Association (SIFMA) Capital Markets Fact Book 2019:  In 2018 over $338 Billion of tax-exempt long-term debt was issued in the US; This is down from $448 Billion in 2017.  Roughly, 9,400 issues in 2018 the lowest amount in over 15 years. (Source: SIFMA Capital Markets Fact Book)

October 11, 2019 Bonds 101 / Rating Agency Update 3 Financing Team Members

 Issuer’s Counsel – represents the Issuer

 Bond Counsel – Prepares the Offering & Bond Documents and gives Tax Opinion

 Municipal Advisor – Fiduciary for the Issuer, Plan of Finance, Rating Preparation, Oversees Pricing, Prepares Bank RFPs, Assists in selection of Underwriter’s for Negotiated Sales

 Underwriter – Markets and Sells the Bonds

 Underwriter’s Counsel – Represents the Underwriter in Negotiated Sale

 Rating Agencies – provides ratings

 Paying Agent – Makes sure DTC receives Bond Payments for GO Bonds

 Trustee – Enforces Trust Agreement for Bond Holders and makes sure DTC receives Bond Payments

 Credit Enhancers – Insure repayment of the bonds for a fee

October 11, 2019 Bonds 101 / Rating Agency Update 4 Roles of the Financing Team

 Underwriter – Has an “arm’s-length” relationship with the municipal government. Provides proceeds at closing and obtains funds from investors. Manages the affairs of any underwriting syndicate formed in connection with a new issue. We will discuss more on the role of UW and MA.

 Underwriter’s Counsel – represents the underwriter (Negotiated).

 Trustee – Acts in a fiduciary role for the benefit of bondholders in enforcing the terms of the trust indenture. Transmits principal and interest payments from an issuer of municipal securities to the bondholders. Typically for revenue issue – i.e. utility – not for intergovernmental bond issues.

October 11, 2019 Bonds 101 / Rating Agency Update 5 Roles of the Financing Team

 Escrow Agent – holds the escrow account for the bonds. – Holds securities to pay off old bonds – However, they have been affected by the Tax Cuts and Job Act 2017 –which eliminated Advance refunding.

 Paying Agent – send the Issuer a bill for payment of principal and interest and pays the bond holders. It works with DTC or the Depository Trust Company (securities depositor) on an ongoing basis on servicing activities related to the issuer’s security.

 Rating Agencies - Assigns rating to the bond issue. Updates ratings periodically while debt is outstanding. There are three main rating agencies – Moody’s, S&P and Fitch. Your rating affects the pricing on the bond issue. The story that your financing team presents to the rating Agency is extremely important.

 Credit Enhancers – Support an issuer’s credit in the form of enhancement such as bond insurance, a letter of credit or state intercept program. Prior to 2008 the credit enhancers were rated AAA – however due to the financial crisis many folded. There are a few credit enhancers rated AA that have popped up. However, because many of the issuers in Virginia are strong we do not see many issuers using credit enhancers.

October 11, 2019 Bonds 101 / Rating Agency Update 6 Roles of the Financing Team

 Issuer’s Counsel – ensures all required actions are taken, takes care of validation and delivers a legal, valid and bidding opinion. Typically it is the City and County Authority – they help with the validation process.

 Bond Counsel – Drafts bond resolution, indenture, Preliminary Official Statement, Final Official Statement, and other bond financing documents; Reviews applicable law to confirm the issuer’s authority to issue the bonds and its conformity with other legal requirements. Well they do all the boring stuff – they make sure that all the legal requirements are met concerning the legal tax-exempt opinion for the bondholders.

 Municipal Advisor – Acts in a fiduciary capacity for the Issuer. Develops requests for proposals and qualifications for underwriters, bond counsel, credit enhancement facilities and investment products. Assists in developing the plan of finance and related transaction timetable. The GFOA recommends that issuers hire a municipal advisor prior to the undertaking of a debt financing unless the issuer has sufficient in-house expertise and access to current bond market information.

 Some of you may have heard of an IRMA letter – basically states that you have a Municipal Advisor in place and you can receive unsolicited proposals from underwriters.

October 11, 2019 Bonds 101 / Rating Agency Update 7 Structuring Considerations; What goes into a Sizing?

Repayment Structure Sample Structure - Level Debt Service Sample Structure - Level Principal – Level Debt Service $3,000,000 $3,500,000 $2,500,000 $3,000,000

$2,500,000 – Level Principal $2,000,000 $2,000,000 $1,500,000 – Interest Only $1,500,000 $1,000,000 $1,000,000

– Capitalized Interest $500,000 $500,000

$- $- 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Principal Interest Principal Interest

Amortization Length Sample Structure - Interest Only Sample Structure - Capitalized Interest – 10 Years $3,500,000 $4,000,000 $3,000,000 $3,500,000

$3,000,000 – 20 Years $2,500,000 $2,500,000 $2,000,000 $2,000,000 – 30 Years $1,500,000 $1,500,000 $1,000,000 – Other lengths $1,000,000 $500,000 $500,000

$- $- 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Principal Interest Principal Interest

October 11, 2019 Bonds 101 / Rating Agency Update 8 Methods of Sale – Competitive Public Sale

 A Competitive Sale is a transaction in which potential underwriters submit electronic bids for the purchase of a new issue of municipal securities at a certain date and time.

 The bid allows any number of firms to participate.

 The client can view the bids via a internet portal.

 The securities are awarded to the underwriter or underwriting syndicate presenting the best bid according to the criteria stipulated in the Notice of Sale.

 Professionals involved include: municipal advisor, bond counsel, rating agencies, underwriters, credit enhancers, paying agent and trustee.

October 11, 2019 Bonds 101 / Rating Agency Update 9 Methods of Sale – Negotiated Public Sale

 Unlike the Competitive Bid – the underwriter is selected in advance of the proposed sale date before the issuer has full knowledge of the terms of the purchase.

 As the name implies, the issuer negotiates the underwriter's fee (compensation), pricing levels of the bond issue (coupons, yields and redemption features), as well as syndicate participation.

 Also, depending on the size or complexity the negotiation could be multiple underwriters – where you have a lead (book manager and co managers).

 The professionals involved are the same as a competitive sale but add: underwriter’s counsel (chosen by the underwriter).

October 11, 2019 Bonds 101 / Rating Agency Update 10 Methods of Sale: Direct Bank Loan/Private Placement

 A Request for Proposals (RFP) is mailed to solicit competitive interest rate proposals from local, regional, and national lenders.

 A Direct Bank Loan is generally administered by a Municipal Advisor while a Private Placement is executed by a Underwriter.

 A Private Placement is more like a Negotiated Sale and a Direct Bank Loan is more like a Competitive Sale.

 Neither method obligates the municipal government to move forward.

 Either method can request several different loan term and/or structure options for potential lenders to provide in their proposals.

 The municipal government has the benefit of knowing the terms and conditions before deciding whether or not to move forward.

 The entire process could be completed in approximately 45-60 days.

 The redemption features are generally more favorable than publicly sold bonds.

October 11, 2019 Bonds 101 / Rating Agency Update 11 Public Sale vs. Direct Bank Loan

Direct Bank Loan Case - 3.25% Public Sale - Current Market Rates FY Principal Interest Total Principal Interest Total Surplus 6/30/2020 $ 420,000 $ 283,156 $ 703,156 $ 345,000 $ 305,349 $ 650,349 $ 52,807 6/30/2021 660,000 552,663 1,212,663 525,000 593,449 1,118,449 94,214 6/30/2022 680,000 531,213 1,211,213 550,000 567,199 1,117,199 94,014 All-in-TIC 6/30/2023 705,000 509,113 1,214,113 580,000 539,699 1,119,699 94,414 6/30/2024 730,000 486,200 1,216,200 605,000 510,699 1,115,699 100,501 6/30/2025 750,000 462,475 1,212,475 635,000 480,449 1,115,449 97,026 Public Sale 2.43% 6/30/2026 775,000 438,100 1,213,100 670,000 448,699 1,118,699 94,401 6/30/2027 800,000 412,913 1,212,913 705,000 415,199 1,120,199 92,714 6/30/2028 825,000 386,913 1,211,913 735,000 379,949 1,114,949 96,964 Direct Bank Loan 3.33% 6/30/2029 855,000 360,100 1,215,100 775,000 343,199 1,118,199 96,901 6/30/2030 880,000 332,313 1,212,313 815,000 304,449 1,119,449 92,864 6/30/2031 910,000 303,713 1,213,713 855,000 263,699 1,118,699 95,014 6/30/2032 940,000 274,138 1,214,138 895,000 220,949 1,115,949 98,189 6/30/2033 970,000 243,588 1,213,588 915,000 201,930 1,116,930 96,658 Debt Service Savings: 6/30/2034 1,000,000 212,063 1,212,063 935,000 181,800 1,116,800 95,263 6/30/2035 1,035,000 179,563 1,214,563 965,000 153,750 1,118,750 95,813 6/30/2036 1,070,000 145,925 1,215,925 995,000 124,800 1,119,800 96,125 $1.87 million 6/30/2037 1,105,000 111,150 1,216,150 1,025,000 94,950 1,119,950 96,200 6/30/2038 1,140,000 75,238 1,215,238 1,055,000 64,200 1,119,200 96,038 6/30/2039 1,175,000 38,188 1,213,188 1,085,000 32,550 1,117,550 95,638 Total $ 17,425,000 $ 6,338,719 $ 23,763,719 $ 15,665,000 $ 6,226,965 $ 21,891,965 $ 1,871,754

All-In True Interest Cost: 3.33% All-In True Interest Cost: 2.43%

Direct Bank Loan - 3.25% Public Sale - Current Market Rates Sources Sources

Par Amount $17,425,000 Par Amount $15,665,000 Net Premium/OID - Net Premium/OID 1,964,005 Total Sources $17,629,005 Total Sources $17,425,000

Uses Uses

Project Fund $17,300,000 Project Fund $17,300,000 Cost of Issuance 250,000 Cost of Issuance 125,000 Underwriter's Discount 78,325 Underwriter's Discount - Additional Proceeds 680 Additional Proceeds - Total Uses $17,629,005 Total Uses $17,425,000 ($5 Per Bond)

October 11, 2019 Bonds 101 / Rating Agency Update 12 Virginia Medians

Tim Barrett – S&P Global

October 11, 2019 Bonds 101 / Rating Agency Update 13 Cover

Do not change the size of the title. Keep the title short and use the subtitle area for longer descriptions if Virginia Local Government needed.

Credit Conditions Choose where to add presenter name(s) – upper right corner and under title/ subtitle. Remove unused placeholders. Only use S&P Global Red for key text high- lights, not shapes Timothy Barrett or charts. It’s available in Associate Director the custom color U.S. Public Finance Ratings palette.

October 11, 2019 October 11, 2019 Content – No subtitle

Summary of Local Credit Conditions in Virginia Level 1 has a bullet turned on – you can turn bullets off by marking the • We maintain ratings on 34 municipalities and 35 counties in the Level 1 text and commonwealth unclick the bullet icon on the Home Tab. • More than 95% of local credits in the commonwealth rated high investment grade (‘AA-’ or higher), including 41% at ‘AAA’

• From April 2018 through April 2019, there were five positive rating actions, To get to the next bullet level, due primarily to increased general fund reserves and strong economic use “Increase growth. We did not take any negative actions largely due to stable credit List level” on the Home Tab. conditions that are typically driven by strong economic fundamentals, strong Only use S&P Global Red for financial positions and strong policies/practices key text high- lights, not shapes • Significant economic momentum from Amazon HQ2 in northern Virginia in or charts. It’s available in addition to a number of important transportation improvements throughout the custom color the commonwealth palette. • Typically well funded pension plans • Overall credit quality for Virginia local credits should remain strong over the next year despite possibility of economic slowdown/recession

No content below the line No content below the line

Bonds 101 / Rating Agency Update 15

Data color order: Complimentary colors: Footer : Never change the footer text on individual slides. Change, turn on or off Used with accent colors: footer by using Insert  Header & Footer Enter / change text  Click Apply All. October 11, 2019 Content – No subtitle

Virginia Municipalities: Rating Distribution Level 1 has a bullet turned on – you can turn [CELLRANGE] bullets off by [CELLRANGE] [VALUE]% [VALUE]% marking the [CELLRANGE] Level 1 text and [VALUE]% [CELLRANGE] unclick the bullet [VALUE]% icon on the Home Tab.

To get to the next bullet level, use “Increase [CELLRANGE] List level” on the [VALUE]% Home Tab. [CELLRANGE] [VALUE]% Only use S&P Global Red for key text high- lights, not shapes or charts. It’s available in the custom color palette.

[CELLRANGE] [VALUE]% No content below the line No content below the line As of April 30, 2019

Bonds 101 / Rating Agency Update 16

Level 1 has a Virginia Municipalities: Medians bullet turned on – you can turn bullets off by marking the Level 1 text and unclick the bullet BBB+ or icon on the Lower Home Tab. AAA AA+ AA AA- A+ A

Projected per capita EBI 121 83 77 75 75 78 62 (%) To get to the Market value per capita 146,773 89,247 80,570 67,297 112,232 75,918 66,099 next bullet level, ($) use “Increase List level” on the Available general fund 26 21 30 36 24 15 (0) Home Tab. (%) Only use S&P Global Red for General fund 1.4 1.4 1.2 (4.0) 0.7 (37.9) 10.9 key text high- performance (%) lights, not shapes or charts. Cash and expense (%) 57 37 52 97 47 18 16 It’s available in the custom color Carrying charge (%) 9.3 8.6 7.2 3.6 10.3 43.8 8.8 palette.

Pension ARC + OPEB as 3.6 6.1 4.6 3.7 3.8 2.7 3.4 % expense

EBI – Effective buying income. ARC – Annual required contribution. OPEB – Other postemployment benefits.

No content below the line No content below the line

Bonds 101 / Rating Agency Update 17

Virginia Counties: Rating Distribution Level 1 has a bullet turned on – you can turn bullets off by marking the [CATEGORY NAME] [VALUE]% Level 1 text and unclick the bullet icon on the Home Tab.

[CATEGORY NAME] [VALUE]% To get to the next bullet level, use “Increase List level” on the Home Tab. Only use S&P Global Red for [CATEGORY NAME] key text high- [VALUE]% lights, not shapes or charts. It’s available in the custom color palette.

As of April 30, 2019 [CATEGORY NAME] [VALUE]% No content below the line No content below the line

Bonds 101 / Rating Agency Update 18

Level 1 has a Virginia Counties: Medians bullet turned on – you can turn bullets off by marking the Level 1 text and unclick the bullet icon on the AAA AA+ AA AA- Home Tab. Projected per capita EBI (%) 123 104 90 76

Market value per capita ($) 163,619 127,575 132,614 99,062 To get to the next bullet level, Available general fund (%) 22 31 26 29 use “Increase List level” on the Home Tab. General fund performance (%) 1.6 0.4 0.1 (2.4) Only use S&P Global Red for Cash and expense (%) 53 39 26 38 key text high- lights, not shapes or charts. Carrying charge (%) 7.5 10.7 11.5 8.8 It’s available in the custom color Pension ARC + OPEB as % 2.1 1.6 1.4 2.6 palette. expense

EBI – Effective buying income. ARC – Annual required contribution. OPEB – Other postemployment benefits

No content below the line No content below the line

Bonds 101 / Rating Agency Update 19

VA Counties and Municipalities: Percent of Credits Level 1 has a bullet turned on Receiving Broad & Diverse Adjustment per Rating Level – you can turn bullets off by marking the Counties Level 1 text and unclick the bullet AAA AA+ AA AA All VA Counties icon on the - Home Tab.

Broad and diverse 93% 50% 66% 0% 63% (positive adjustment) Municipalities To get to the next bullet level, BBB use “Increase List level” on the AA AA+ AA AA A A or All VA Munis Home Tab. Only use S&P A - + below Global Red for key text high- Broad and diverse 100% 71% 38% 0% 0% 0% 100% 71% lights, not shapes (positive adjustment) or charts. It’s available in the custom color MSAs in the commonwealth receiving Broad & Diverse adjustment: palette. • Charlottesville • Richmond • Roanoke • Virginia Beach–Norfolk–Newport News • Washington–Arlington–Alexandria • Winchester No content below the line No content below the line

Bonds 101 / Rating Agency Update 20

Virginia Counties and Municipalities: Financial Level 1 has a bullet turned on – you can turn Management Assessment (FMA) bullets off by marking the Counties Level 1 text and unclick the bullet icon on the Score (%) AAA AA+ AA AA- Home Tab.

Strong 92% 78% 0% 0%

Good 8% 22% 100% 50% To get to the Standard 0% 0% 0% 50% next bullet level, use “Increase Vulnerable 0% 0% 0% 0% List level” on the Home Tab. Only use S&P Municipalities Global Red for key text high- lights, not shapes BBB+ or charts. or It’s available in Score (%) AAA AA+ AA AA- A+ A Lower the custom color palette. Strong 93% 100% 50% 0% 0% 0% 0%

Good 7% 0% 50% 100% 0% 0% 0%

Standard 0% 0% 0% 0% 100% 100% 100%

Vulnerable 0% 0% 0% 0% 0% 0% 0%

No content below the line No content below the line

Bonds 101 / Rating Agency Update 21

Potential headwinds to lookout for… Level 1 has a bullet turned on – you can turn bullets off by • Economic slowdown or recession? marking the Level 1 text and – In the most recent quarter, S&P Global's economists raised the chance of a unclick the bullet icon on the recession over the next 12 months to 30%-35%. It has been rising since last Home Tab. fall, when it was 10%-15%.

• Environmental / social / governance (ESG) issues – Severe weather related events, cyber security breaches continue to affect local To get to the next bullet level, governments use “Increase List level” on the • Trade war Home Tab. Only use S&P – Ongoing China trade war has already shaved an estimated 25-30 basis points Global Red for key text high- off S&P Global's projections for 2019 growth, and could create more localized lights, not shapes or charts. credit pressure It’s available in the custom color • Federal budget cuts? Federal and defense related employment important palette. to region • Currently good credit conditions and ongoing revenue growth bodes well for the stability of local government ratings in the short- to medium-term

No content below the line No content below the line

Bonds 101 / Rating Agency Update 22

Contact Information Level 1 has a bullet turned on – you can turn bullets off by marking the Level 1 text and unclick the bullet Tim Barrett icon on the Home Tab.

Phone: (202) 942-8711 Email: [email protected] To get to the next bullet level, use “Increase List level” on the Home Tab. Only use S&P Global Red for key text high- lights, not shapes or charts. It’s available in the custom color palette.

No content below the line No content below the line

Bonds 101 / Rating Agency Update 23

Evan Hess – Moody’s Investors Service

October 11, 2019 Bonds 101 / Rating Agency Update 24 Local Government Scorecard Publication in Credit Opinions Virginia GFOA, Fall 2019

Evan Hess, Analyst October 2019 Agenda

1. Why are we implementing this change and who is impacted? 2. What will the published scorecard include and what will it look like? 3. Questions?

VGFOA Fall 2019: Scorecard Publication Oct. 2019 26 Why are we implementing this change and who is 1 impacted? Publishing scorecards to improve transparency

» In order to provide additional detail regarding the rating process, local government analysts will begin including scorecards in our city, school and county general obligation credit opinions starting May 6, 2019.

» Other rating groups, including the corporate finance, project and infrastructure finance, and financial institution groups already publish scorecards in their credit opinions.

» Initially, scorecards will be included in credit opinions for cities, counties and school districts that have a General Obligation (GO) rating. This will include reports written for new sales, as well as surveillance related reviews.

VGFOA Fall 2019: Scorecard Publication Oct. 2019 28 Purpose of the scorecard

» The scorecard is not new, however publishing it is.

» The US Local Government General Obligation Rating Methodology includes a scorecard that is a tool providing a composite score of a local government’s credit profile based on the weighted factors we consider most important, universal and measurable, as well as possible notching factors dependent on individual credit strengths and weaknesses.

» The scorecard’s purpose is not to definitively determine the rating, but rather to provide a standard platform from which to analyze and compare local government credits.

VGFOA Fall 2019: Scorecard Publication Oct. 2019 29 What will the published scorecard look like? What will it 2 include? What will the scorecard include?

» The most recent audited financial information will be included in the published scorecard along with current U.S. Census Data.

» If the credit opinion is being written for a bond sale, it may also include the most recent data for net direct debt (pro forma) and full value (total assessed value).

» Forward looking information will continue to be used to determine the rating outcome, included in our analysis, and written about in the body of the credit opinion.

VGFOA Fall 2019: Scorecard Publication Oct. 2019 31 Example published GO Scorecard

VGFOA Fall 2019: Scorecard Publication Oct. 2019 32 Notching factors will be highlighted

» Notching considerations, or analyst adjustments, will appear under the broad rating factors (i.e. economy, finances, management, and debt) on the scorecard and will be denoted as “up” or “down”.

VGFOA Fall 2019: Scorecard Publication Oct. 2019 33 Scorecard-indicated outcomes

» There will be a “Scorecard-Indicated Outcome” and an “Assigned Rating”. The Scorecard-Indicated Outcome will incorporate all rating factor inputs and analyst adjustments.

» Often the Scorecard-Indicated Outcome will not equate to the Assigned Rating for a number of reasons, including the following: – In some circumstances, one factor may be weighed more heavily in the final determination of the rating than in the scorecard. – The scorecard may not consider expectations for future performance which can differ from past performance. – The scorecard may not capture certain quantitative or qualitative credit factors that are important to individual rating determinations.

VGFOA Fall 2019: Scorecard Publication Oct. 2019 34 3 Questions? Evan Hess Analyst 212.553.3910 [email protected]

moodys.com This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors affiliates (collectively, “MOODY’S”). All rights reserved. and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE arising from or in connection with the information contained herein or the use of or inability to use any such MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT information. COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING OR SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY MANNER WHATSOEVER. OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.” THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, that is available to retail investors. OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of CONSENT. Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK. consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. FSA Commissioner (Ratings) No. 2 and 3 respectively. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings cannot in every instance independently verify or validate information received in the rating process or in preparing opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000. the Moody’s publications. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

VGFOA Fall 2019: Scorecard Publication Oct. 2019 37 Fitch’s Rating Methodology

Evette Caze – Fitch Ratings

October 11, 2019 Bonds 101 / Rating Agency Update 38 Fitch Tax Supported Criteria Revenue Framework Assessment

Evette Caze Director – U.S. Public Finance State & Local Government Ratings Group October 11, 2019 Topics of Interest Topics of Interest

1 U.S. Tax-Supported Rating Criteria 2

2 Revenue Framework 5

3 Questions 10

Bonds 101 / Rating Agency Update 40 New Criteria Brings Changes

• Fitch released its new U.S. Tax-Supported Rating Criteria in April 2016 • Key Rating Factors (KRFs) ‒ Revenue Framework ‒ Expenditure Framework ‒ Long-Term Liability Burden ‒ Operating Performance • Rating outcome does not reflect standard weighting of KRFs ‒ Consideration of issuer-specific qualitative and quantitative factors

Bonds 101 / Rating Agency Update 41 Tax-Supported Credit Analysis

Traditional Credit Key Rating Analysis Factors

• Economy • Revenue Framework • Debt and Other Liabilities • Expenditure Framework • Finances • Long Term Liability Burden • Management • Operating Performance

Bonds 101 / Rating Agency Update 42 Assessing Key Rating Factors

Bonds 101 / Rating Agency Update 43 Revenue Framework

Revenue Framework Assessments Incorporate: • Growth Prospects for Revenues ‒ 10 year revenue CAGR • Rate-adjusted 10 year revenue CAGR • Independent Legal Ability to Raise Revenues

Key Rating Factors: Revenue Framework

Bonds 101 / Rating Agency Update 45 Independent Legal Ability to Raise Revenues

• Consideration of the range of legal limits on a government’s revenue autonomy • Analyze legal revenue-raising ability in the context of an issuer’s observed revenue sensitivity to economic downturns

• Issuers with revenues that decline steeply in a downturn must have greater revenue raising flexibility than those with more steady performance through the cycle to achieve the same rating category assessment

• Legal framework is a significant differentiating factor among credits with otherwise similar financial profiles in assessing the ability to manage fiscal challenges

Bonds 101 / Rating Agency Update 46 Revised Criteria April 2018

Asymmetric Risk Consideration (Examples)

• Concentrated Taxbase

‒ Single Payer Concentration

‒ Sector/Industry Concentration

• Quality of Management

‒ Repeated Failure to Adopt Budgets on a Timely Basis

‒ Official Allegation of Corruption

• Pending Litigation

‒ Funding Pressures of Litigation Liability

‒ Workers’ Compensation

Bonds 101 / Rating Agency Update 47 Questions?

Bonds 101 / Rating Agency Update 48 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2019 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third-party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001. What are Bond Buyer’s looking for?

Joe Paucke – Davenport Fixed Income / Lead Underwriter

October 11, 2019 Bonds 101 / Rating Agency Update 50 Current Trends in the Municipal Bond Market

 Taxable Refunding

 Forward Settlement

 Coupon Structure

 Overall Market Environment

October 11, 2019 Bonds 101 / Rating Agency Update 51 Taxable Equivalent Yield

Investor Class Taxable Equivalent Yield

Tax-Exempt Yield 2.50%

Individuals (Virginia Resident) 4.68% Life Insurance Company 2.97% Property & Casualty Company 3.13% Bank 3.17%

October 11, 2019 Bonds 101 / Rating Agency Update 52 Taxable Equivalent Yield

Tax Bracket % Tax-Exempt 25% 28% 33% 35% Yield Taxable Equivalent Yield

1.0% 1.33% 1.39% 1.49% 1.54% 1.5% 2.00% 2.08% 2.24% 2.31% 2.0% 2.67% 2.78% 2.99% 3.08% 2.5% 3.33% 3.47% 3.73% 3.85% 3.0% 4.00% 4.17% 4.48% 4.62%

October 11, 2019 Bonds 101 / Rating Agency Update 53 Coupon Structure – Bid Restrictions Dictate Results

Coupon Structure/Bid Restrictions Dictate Results Massapequa NY Blind Brook - Rye NY 21,400,000 44,665,000 Aa1 Aa2 10/1/2027 @ 100 10/1/2027 @ 100 Yield Year Coupon Yield Coupon Yield Spread 2020 5.000% 1.130% 2.250% 1.250% 12 2021 5.000% 1.130% 2.250% 1.250% 12 2022 5.000% 1.130% 2.250% 1.260% 13 2023 5.000% 1.110% 2.250% 1.280% 17 2024 5.000% 1.080% 2.250% 1.300% 22 2025 5.000% 1.090% 2.250% 1.350% 26 2026 5.000% 1.120% 2.250% 1.450% 33 2027 5.000% 1.160% 2.250% 1.650% 49 2028 4.000% 1.230% 2.250% 1.750% 52 2029 4.000% 1.280% 2.250% 1.900% 62 2030 4.000% 1.330% 2.250% 2.050% 72 2031 2.000% 2.000% 2.250% 2.200% 20 2032 2.000% 2.100% 2.250% 2.250% 15 2033 2.000% 2.200% 2.250% 2.300% 10 2034 2.250% 2.300% 2.250% 2.350% 5 2035 2.375% 2.400% N/A 2036 2.375% 2.450% N/A 2037 2.500% 2.500% N/A 2038 2.500% 2.550% N/A 2039 2.500% 2.600% N/A

TIC 1.790% 2.330% TIC to 2034 1.790% 2.080% Gross Spread $4.18 $10.45

October 11, 2019 Bonds 101 / Rating Agency Update 54 Who is Buying your Bonds and Where

Bond Investor Summary City of Richmond $132,885,000 Aa2/AA+/AA+ Call 7/15/2029 @ 100 Maturity Coupon Yield Investors 7/15/2020 5.00% 1.23% Money Managers, SMA, Trust Departments, Individuals 7/15/2021 5.00% 1.24% " 7/15/2022 5.00% 1.24% " 7/15/2023 5.00% 1.26% " 7/15/2024 5.00% 1.27% " 7/15/2025 5.00% 1.28% " 7/15/2026 5.00% 1.32% " 7/15/2027 5.00% 1.36% " 7/15/2028 5.00% 1.42% " 7/15/2029 5.00% 1.48% " 7/15/2030 5.00% 1.55% " 7/15/2031 4.00% 1.75% " 7/15/2032 4.00% 1.80% " 7/15/2033 4.00% 1.85% " 7/15/2034 3.00% 2.30% Bond Funds, SMA, Money Managers, Individuals 7/15/2035 3.00% 2.36% " 7/15/2036 3.00% 2.43% " 7/15/2037 2.60% 2.60% Insurance Companies 7/15/2038 2.65% 2.65% " 7/15/2039 2.70% 2.70% "

October 11, 2019 Bonds 101 / Rating Agency Update 55 Forward Bond Sale

Fairfax Cnty EDA - Forward Analysis Date 9/10/2019 SDA 5/5/2020 S-T Rate 1.10% Time 0.65 Investement $ 1,000.00 1,007.16 Current Breakeven Forward Maturity Coupon Yield Spread AAA Spread Offering Yield Premium Yield 8/1/2021 5.00% 1.35% 28 1.07% 10 1.1700% 1.207% 14 8/1/2022 5.00% 1.38% 30 1.08% 10 1.1800% 1.203% 18 8/1/2023 5.00% 1.39% 31 1.08% 10 1.1800% 1.196% 19 8/1/2024 5.00% 1.41% 32 1.09% 10 1.1900% 1.204% 21 8/1/2025 5.00% 1.46% 34 1.12% 10 1.2200% 1.235% 23 8/1/2026 5.00% 1.51% 35 1.16% 10 1.2600% 1.277% 23 8/1/2027 5.00% 1.57% 37 1.20% 12 1.3200% 1.340% 23 8/1/2028 5.00% 1.65% 39 1.26% 15 1.4100% 1.435% 22 8/1/2029 5.00% 1.72% 41 1.31% 15 1.4600% 1.485% 23 8/1/2030 5.00% 1.81% 44 1.37% 15 1.5200% 1.547% 26

October 11, 2019 Bonds 101 / Rating Agency Update 56 Bond Market

Historical Sales Loudoun County, Virginia Sale Date True Interest Cost June 2006 4.20% May 2007 4.17% June 2019 2.28%

October 11, 2019 Bonds 101 / Rating Agency Update 57 Historic Loudoun County Sales – Spread Comparisons

Series 2019 General Obligation Bonds Series 2017 General Obligation Bonds Series 2015 General Obligation Bonds Sold June 5, 2019 Sold June 1, 2017 Sold June 9, 2015 Year Coupon Yield MMD Spread Year Coupon Yield MMD Spread Year Coupon Yield MMD Spread 1 5.00% 1.30% 1.35% (5) 1 2.00% 0.78% 0.78% 0 1 5.00% 0.30% 0.29% 1 2 5.00% 1.35% 1.36% (1) 2 5.00% 0.85% 0.85% 0 2 5.00% 0.50% 0.50% 0 3 5.00% 1.37% 1.38% (1) 3 5.00% 0.93% 0.94% (1) 3 5.00% 0.92% 0.86% 6 4 5.00% 1.39% 1.39% 0 4 5.00% 1.02% 1.03% (1) 4 5.00% 1.19% 1.17% 2 5 5.00% 1.40% 1.40% 0 5 5.00% 1.15% 1.16% (1) 5 5.00% 1.42% 1.40% 2 6 5.00% 1.40% 1.41% (1) 6 5.00% 1.28% 1.29% (1) 6 3.00% 1.66% 1.63% 3 7 5.00% 1.47% 1.45% 2 7 5.00% 1.41% 1.42% (1) 7 5.00% 1.90% 1.87% 3 8 5.00% 1.50% 1.48% 2 8 5.00% 1.54% 1.55% (1) 8 5.00% 2.05% 2.03% 2 9 5.00% 1.56% 1.54% 2 9 5.00% 1.69% 1.70% (1) 9 5.00% 2.18% 2.16% 2 10 5.00% 1.62% 1.60% 2 10 5.00% 1.83% 1.84% (1) 10 5.00% 2.31% 2.29% 2 11 4.00% 1.73% 1.68% 5 11 5.00% 1.93% 1.94% (1) 11 5.00% 2.43% 2.41% 2 12 4.00% 1.85% 1.74% 11 12 3.00% 2.03% 2.03% 0 12 5.00% 2.56% 2.54% 2 13 3.00% 2.34% 1.79% 55 13 3.00% 2.14% 2.14% 0 13 4.00% 2.78% 2.63% 15 14 3.00% 2.46% 1.86% 60 14 3.00% 2.72% 2.20% 52 14 3.00% 3.00% 2.71% 29 15 3.00% 2.55% 1.90% 65 15 3.00% 2.82% 2.27% 55 15 3.00% 3.11% 2.85% 26 16 3.00% 2.64% 1.94% 70 16 3.00% 2.93% 2.34% 59 16 3.13% 3.20% 2.91% 29 17 3.00% 2.70% 1.98% 72 17 3.00% 3.00% 2.41% 59 17 3.13% 3.30% 2.96% 34 18 3.00% 2.76% 2.02% 74 18 3.25% 3.10% 2.47% 63 18 3.25% 3.40% 3.00% 40 19 3.00% 2.81% 2.06% 75 19 3.25% 3.10% 2.52% 58 19 3.25% 3.45% 3.04% 41 20 3.00% 2.85% 2.10% 75 20 3.25% 3.10% 2.56% 54 20 3.38% 3.50% 3.08% 42

October 11, 2019 Bonds 101 / Rating Agency Update 58 Interest Rate Trends

20 Year AAA MMD (Since 2000) 20 Year AAA MMD (Since November 2016) 6.50% 3.50%

6.00% 3.30% 5.50% 3.10% 5.00% 2.90%

4.50% 2.70%

4.00% 2.50%

3.50% 2.30% 3.00% 2.10% 2.50% 1.90%

2.00% 1.70%

1.50% 1.50%

Jul-17 Jul-18 Jul-19

Apr-17 Apr-18 Apr-19

Oct-17 Oct-18

Jan-17 Jan-18 Jan-19

Jun-17 Jun-18 Jun-19

Feb-17 Feb-18 Feb-19

Aug-18 Aug-19 Aug-17

Sep-17 Sep-18 Sep-19

Nov-16 Nov-17 Nov-18

Dec-16 Dec-17 Dec-18

Mar-17 Mar-18 Mar-19

May-17 May-18 May-19

As shown in the charts above and on the following page, long term interest rates continue to remain near their historic lows.

Source: Thomson Reuters MMD Publication.

October 11, 2019 Bonds 101 / Rating Agency Update 59 Interest Rate Trends (cont.)

10-Year Treasury Since 1962 18.00%

16.00%

14.00% Difference Between Peak (1981) and Today = 14.31%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%

October 11, 2019 Bonds 101 / Rating Agency Update 60 Interest Rate Trends (cont.)

Historical MMD Range (2000 - 2019)

7.00%

6.00%

5.00%

4.00% MMD 3.00%

2.00%

1.00%

0.00% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Year

Historical MMD Range Current MMD

Source: Thomson Reuters MMD Publication.

October 11, 2019 Bonds 101 / Rating Agency Update 61 Market Update

October 11, 2019 Bonds 101 / Rating Agency Update 62 30 Day Visible Supply

30 Day Visible Supply

$18,000

$16,000

$14,000 $12,000 30 Day Visible Supply $10,000

Billions $8,000 . The 30 Day Visible Supply is the dollar volume $6,000 of municipal bonds scheduled to be issued, $4,000 on both a competitive and negotiated basis, $2,000 over the coming month. $-

Negotiated Competitive Average . Used by issuers and other market participants to determine whether the coming month presents a good opportunity to buy, sell or Visible Supply Since Sept 2018 Bid Type High Low Average Current (10/1/19) issue new bonds. Competitive $ 5,658,200,000 $ 1,080,900,000 $ 2,767,370,313 $ 3,527,600,000 Negotiated $ 11,238,600,000 $ 939,000,000 $ 5,836,931,250 $ 9,782,500,000 Total $ 16,896,800,000 $ 2,019,900,000 $ 8,604,301,563 $ 13,310,100,000

October 11, 2019 Bonds 101 / Rating Agency Update 63 Advance Refunding vs. Current Refunding

 Advance Refunding – refinancing an outstanding bond issue in advance of its call date (closing more than 90 days from the call date).

 Current Refunding – refinancing an outstanding bond issue that closes within 90 days of the call date.

 With the passage of the Tax Cuts and Jobs Act of 2017, Advance Refundings using Tax-Exempt Bonds to refinance Tax-Exempt Bonds are no longer allowed.

 Allowed: Taxable Bonds Advance Refunding Tax-Exempt Bonds or Tax-Exempt Bonds Advance Refunding Taxable Bonds.

 Have a Municipal Advisor review any proposed Advance Refundings that you may receive. Just because there are nice looking savings may not mean it is time to refinance.

October 11, 2019 Bonds 101 / Rating Agency Update 64 Time for…………..

October 11, 2019 Bonds 101 / Rating Agency Update 65 Disclaimer

The U.S. Securities and Exchange Commission (the “SEC”) has clarified that a broker, dealer or municipal securities dealer engaging in municipal advisory activities outside the scope of underwriting a particular issuance of municipal securities should be subject to municipal advisor registration. Davenport & Company LLC (“Davenport”) has registered as a municipal advisor with the SEC. As a registered municipal advisor Davenport may provide advice to a municipal entity or obligated person. An obligated person is an entity other than a municipal entity, such as a not for profit corporation, that has commenced an application or negotiation with an entity to issue municipal securities on its behalf and for which it will provide support. If and when an issuer engages Davenport to provide financial advisory or consultant services with respect to the issuance of municipal securities, Davenport is obligated to evidence such a financial advisory relationship with a written agreement.

When acting as a registered municipal advisor Davenport is a fiduciary required by federal law to act in the best interest of a municipal entity without regard to its own financial or other interests. Davenport is not a fiduciary when it acts as a registered investment advisor, when advising an obligated person, or when acting as an underwriter, though it is required to deal fairly with such persons,

This material was prepared by public finance, or other non-research personnel of Davenport. This material was not produced by a research analyst, although it may refer to a Davenport research analyst or research report. Unless otherwise indicated, these views (if any) are the author’s and may differ from those of the Davenport fixed income or research department or others in the firm. Davenport may perform or seek to perform financial advisory services for the issuers of the securities and instruments mentioned herein.

This material has been prepared for information purposes only and is not a solicitation of any offer to buy or sell any security/instrument or to participate in any trading strategy. Any such offer would be made only after a prospective participant had completed its own independent investigation of the securities, instruments or transactions and received all information it required to make its own investment decision, including, where applicable, a review of any offering circular or memorandum describing such security or instrument. That information would contain material information not contained herein and to which prospective participants are referred. This material is based on public information as of the specified date, and may be stale thereafter. We have no obligation to tell you when information herein may change. We make no representation or warranty with respect to the completeness of this material. Davenport has no obligation to continue to publish information on the securities/instruments mentioned herein. Recipients are required to comply with any legal or contractual restrictions on their purchase, holding, sale, exercise of rights or performance of obligations under any securities/instruments transaction.

The securities/instruments discussed in this material may not be suitable for all investors or issuers. Recipients should seek independent financial advice prior to making any investment decision based on this material. This material does not provide individually tailored investment advice or offer tax, regulatory, accounting or legal advice. Prior to entering into any proposed transaction, recipients should determine, in consultation with their own investment, legal, tax, regulatory and accounting advisors, the economic risks and merits, as well as the legal, tax, regulatory and accounting characteristics and consequences, of the transaction. You should consider this material as only a single factor in making an investment decision.

The value of and income from investments and the cost of borrowing may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices, market indexes, operational or financial conditions or companies or other factors. There may be time limitations on the exercise of options or other rights in securities/instruments transactions. Past performance is not necessarily a guide to future performance and estimates of future performance are based on assumptions that may not be realized. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the projections or estimates. Certain assumptions may have been made for modeling purposes or to simplify the presentation and/or calculation of any projections or estimates, and Davenport does not represent that any such assumptions will reflect actual future events. Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein. This material may not be sold or redistributed without the prior written consent of Davenport.

Version 01/13/2014 GL/DJG/CR

October 11, 2019 Bonds 101 / Rating Agency Update 66