Intel - City of Chandler AZ Series 2022 BofA G-17 Letter 01.18.2022
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1 January 18, 2022 The Industrial Development Authority of the City of Chandler, Arizona City of Chandler P.O. Box 4008 Chandler, AZ 85244 Intel Corporation 2200 Mission College Boulevard Santa Clara, CA 95054 Attn: Ms. Dawn Lang and Ms. Julia Lebedeva: Re: Disclosures by Sole Bookrunning Managing Underwriter Pursuant to MSRB Rule G‐17 Up to $600,000,000 The Industrial Development Authority of the City of Chandler, Arizona Industrial Development Revenue Bonds, Series 2022 (Intel Corporation Project) Dear Ms. Lang and Ms. Lebedeva: We are writing to provide you, as Deputy City Manager – Chief Financial Officer for the City of Chandler and Management Services Director of The Industrial Development Authority of the City of Chandler, Arizona (the “Issuer”) and Assistant Treasurer of Intel Corporation (the “Obligor”), with certain disclosures relating to the above‐ captioned bond issue (the “Bonds”), as required by Municipal Securities Rulemaking Board (MSRB) Rule G‐17 as set forth in MSRB Notice 2019‐20 (November 8, 2019).1 The Obligor has engaged BofA Securities, Inc. (“BofA Securities”) to serve as its underwriter and not as a financial advisor or municipal advisor to the Issuer in connection with the issuance of the Bonds. As the issuer of the Bonds, the Issuer will be a party to the bond purchase agreement and certain other legal documents to be entered into in connection with the issuance of the Bonds, but the material financial risks of the Bonds will be borne by the Obligor, as set forth in those legal documents. As part of our underwriting services, we may provide advice concerning the structure, timing, terms, and other similar matters concerning the issuance of the Bonds. The following Rule G‐17 conflict of interest disclosures are now broken down into three types, including: 1) dealer‐ specific conflicts of interest disclosures (if applicable); 2) transaction‐specific disclosures (if applicable); and 3) standard disclosures. You may receive additional separate disclosure letters pursuant to Rule G‐17 from the co‐ managing underwriters or other syndicate members for the Bonds if they have their own dealer‐specific or transaction‐specific disclosures. I. BofA Securities Conflicts Disclosures BofA Securities has identified the following actual or potential2 material conflicts of interest: Bank of America Corporation (the “Corporation”) together with its affiliates (collectively, the “BAC Group”) comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign 1 Revised Interpretive Notice Concerning the Application of MSRB Rule G‐17 to Underwriters of Municipal Securities (effective March 31, 2021). 2 When we refer to potential material conflicts throughout this letter, we refer to ones that are reasonably likely to mature into actual material conflicts during the course of the transaction, which is the standard required by MSRB Rule G‐17. 2 exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and strategic advisory services and other commercial services and products to a wide range of corporations, governments and individuals, domestically and offshore, from which conflicting interests or duties, or a perception thereof, may arise. In the ordinary course of these activities, parts of the BAC Group at any time may invest on a principal basis or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions, for their own accounts or the accounts of customers, in securities or financial instruments (including derivatives, bank loans or other obligations) of the Issuer, the Obligor or any other party that may be involved in the transaction. Parts of the BAC Group may also communicate independent investment recommendations, and market advice, or trading ideas and/or publish or express independent research views with respect to such securities or other financial instrument. As of May 13, 2019, BofA Securities entered into a separate agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill”) that enables Merrill to distribute certain new issue municipal securities underwritten by or allocated to BofA Securities, which could include the Bonds. Under that agreement, BofA Securities will share with Merrill a portion of the fee or commission paid to BofA Securities. II. Transaction‐Specific Disclosures Disclosures Concerning Complex Municipal Securities Financing: Since BofA Securities has recommended to the Issuer or Obligor a financing structure that may be a “complex municipal securities financing” for purposes of MSRB Rule G‐17, attached is a description of the material financial characteristics of that financing structure as well as the material financial risks of the financing that are known to us and reasonably foreseeable at this time. III. Standard Disclosures Disclosures Concerning the Underwriter’s Role: MSRB Rule G‐17 requires an underwriter to deal fairly at all times with both issuers and investors. An underwriter’s primary role is to purchase the Bonds with a view to distribution in an arm’s‐length commercial transaction with the Issuer. An underwriter has financial and other interests that differ from those of the Issuer. Unlike a municipal advisor, an underwriter does not have a fiduciary duty to the Issuer under the federal securities laws and is, therefore, not required by federal law to act in the best interests of the Issuer without regard to its own financial or other interests. The Issuer may choose to engage the services of a municipal advisor with a fiduciary obligation to represent the Issuer’s interest in this transaction. An underwriter has a duty to purchase the Bonds from the Issuer at a fair and reasonable price, but must balance that duty with its duty to sell the Bonds to investors at prices that are fair and reasonable. The underwriter(s) will review the official statement for the Bonds in accordance with, and a part of, its respective responsibilities to investors under the federal securities laws, as applied to the facts and circumstances of this transaction.3 3 Under federal securities law, an issuer of securities has the primary responsibility for disclosure to investors. The review of the official statement by the underwriters is solely for purposes of satisfying the underwriter’s obligations 3 Disclosures Concerning the Underwriter’s Compensation: The underwriter will be compensated by a fee and/or an underwriting discount that will be set forth in the bond purchase agreement to be negotiated and entered into in connection with the issuance of the Bonds. Payment or receipt of the underwriting fee or discount will be contingent on the closing of the transaction and the amount of the fee or discount may be based, in whole or in part, on a percentage of the principal amount of the Bonds. While this form of compensation is customary in the municipal securities market, it presents a conflict of interest since the underwriter may have an incentive to recommend to the Issuer a transaction that is unnecessary or to recommend that the size of the transaction be larger than is necessary. If you have any questions or concerns about these disclosures, please make those questions or concerns known immediately to the undersigned. In addition, you should consult with your own financial and/or municipal, legal, accounting, tax and other advisors, as applicable, to the extent you deem appropriate. Please note that nothing is this letter should be viewed as a commitment by the underwriter to purchase or sell any the Bonds and any such commitment will only exist upon the execution of any bond purchase agreement or similar agreement and then only in accordance with the terms and conditions thereof. You have been identified as a primary contact for the receipt of these disclosures, and that you are not a party to any disclosed conflict of interest relating to the subject transaction. If our understanding is incorrect, please notify the undersigned immediately. We are required to seek your acknowledgement that you have received this letter. Accordingly, please send me an email to that effect, or sign and return the enclosed copy of this letter to me. Otherwise, an email read receipt from you or automatic response confirming that our email was opened by you will serve as an acknowledgment that you received these disclosures. Depending on the structure of the transaction that the Obligor decides to pursue, or if additional actual or potential material conflicts are identified, we may be required to send you additional disclosures regarding the material financial characteristics and risks of such transaction and/or describing those conflicts. At that time, we also will seek your acknowledgement of receipt of any such additional disclosures. We look forward to working with you and the Issuer and the Obligor in connection with the issuance of the Bonds. Thank you. under the federal securities laws and such review should not be construed by an issuer as a guarantee of the accuracy or completeness of the information in the official statement. 4 Sincerely, BofA Securities, Inc. ________________________ Lawrence N. Tonomura Managing Director 555 California Street, Suite 1160 Mail Code: CA5‐705‐11‐00 San Francisco, CA 94104 lawrence.n.tonomura@bofa.com Acknowledgement: ________________________ Ms. Dawn Lang Deputy City Manager – Chief Financial Officer City of Chandler Date: ___________________ CC: Tiffany Doon Silva, Intel Corporation Randall Towers, Ballard Spahr LLP Timothy Pickrell, Squire Patton Boggs LLP James Marlin, Norton Rose Fulbright LLP James T. Giel, Gust Rosenfeld P.L.C. Version: March 2021 1 BofA Disclosures Pursuant to MSRB Rule G‐17 Variable Rate Demand Obligations The following is a general description of the financial characteristics of Variable Rate Demand Obligations (VRDOs), as well as a general description of certain financial risks that are known to us and reasonably foreseeable at this time and that you should consider before deciding whether to issue VRDOs. If you have any questions or concerns about these disclosures, please make those questions or concerns known immediately to us. In addition, you should consult with your financial and/or municipal, legal, accounting, tax, and other advisors, as applicable, to the extent you deem appropriate. Financial Characteristics Maturity and Interest. VRDOs are debt securities with nominal long‐term maturities (often 20 to 30 years) in which the interest rate is reset by a remarketing agent on a periodic basis (e.g., daily, weekly, monthly, annually, or commercial paper (CP) periods up to 270 days). For each interest reset, subject to any maximum interest rate stated in the VRDOs, the remarketing agent is required to set the interest rate at the rate necessary, in its judgment, as the lowest rate that permits the sale of the VRDOs at 100% of their principal amount (par) on the interest reset date. The maximum interest rate for the VRDOs generally will range between 9% per annum and 15% per annum, depending on, among other factors, the structure of the VRDOs, the terms of any credit or liquidity support and whether interest is intended to be taxable or tax‐exempt. Interest on the VRDOs is paid at the applicable variable rate monthly (for daily, weekly or monthly modes), semiannually (for the annual mode) or at the end of each CP period (for the CP or CP mode). VRDOs typically are offered to investors in minimum authorized denominations of not less than $100,000. Redemption. Optional redemption of VRDOs generally is more flexible than with fixed rate bonds and is usually at a redemption price of par, without redemption premium. Short‐term VRDO modes (daily or weekly) may be subject to optional redemption on any business day or, in some cases, on any interest payment date. Longer term VRDO modes (monthly, annual or CP) typically will be subject to optional redemption on any interest payment date. A notice of optional redemption will be required to be sent out to the holders of the bonds, usually not less than 15 to 30 days prior to the redemption date. Optional and Mandatory Tender. For VRDOs in a daily, weekly, monthly, or annual mode, the owner of the VRDOs generally will have the option to tender (or “put”) its VRDOs for purchase at par at a specified time (typically any business day for daily and weekly modes and on the interest reset date for longer modes) with a specified amount of advance notice (e.g., same day’s notice for VRDOs in the daily mode, 7 days’ notice for VRDOs in the weekly mode and 15 to 30 days’ notice for longer modes). At the end of each CP period for a VRDO in the CP mode, the VRDO will be subject to mandatory tender for purchase at par. VRDOs also may be subject to mandatory tender for purchase upon the occurrence of certain events, including certain conversions from one interest rate mode to another or upon replacement or expiration of a credit or liquidity facility. As described below, the remarketing agent is obligated to use its best efforts to remarket VRDOs subject to optional or mandatory tender. Liquidity Support. In the ordinary course, the source of funds to pay owners of tendered VRDOs will be the proceeds of the remarketing of the VRDOs by the remarketing agent to new investors. You will be required to ensure a source of funds to pay the purchase price due to the tendering owners in the event that the remarketing agent is unable to successfully remarket the VRDOs. While some issuers may provide liquidity support from their own funds (self‐liquidity), in most cases liquidity support will be provided from a financial institution. The liquidity support may take the form of an irrevocable letter of credit issued by a bank (the letter of credit also will provide credit support for the payment of principal of and interest on the VRDOs) or it may be in the form of a standby bond purchase agreement (SBPA). Unlike a letter of credit, the SBPA typically will set forth certain events that will permit the provider of the SBPA to terminate the SBPA upon notice or, in some circumstances, will cause the SBPA to terminate automatically. The authorizing documents for the VRDOs may provide that, if the liquidity facility has been terminated, the VRDOs will be required to be purchased from their owners and/or pay a higher interest rate on the VRDOs, in some cases as high as the maximum permitted rate on the VRDOs. Role of Remarketing Agent. The remarketing agent is a broker‐dealer or municipal securities dealer appointed and paid by you to set the periodic interest rate on the VRDOs in accordance with the terms of the authorizing documents and to use its best efforts to sell VRDOs that have been tendered (optionally or mandatorily) for purchase. Often, the underwriter or senior managing underwriter of the VRDOs is the remarketing agent. The remarketing agent’s annual fee is based on the outstanding principal amount of the VRDO issue and the interest mode then in effect. In some cases, the remarketing agent, in its sole discretion, may acquire tendered VRDOs for its own inventory to achieve a successful remarketing (i.e., because there otherwise are not enough buyers to purchase the VRDOs or for other reasons), thereby avoiding the need to draw on any liquidity facility to pay the tendering bond owners. The remarketing agent, however, is not obligated to purchase VRDOs and may cease doing so at any time without notice. Although not required to do so, the remarketing agent also may make a market in the VRDOs by purchasing and selling VRDOs outside of the formal tender process. Any such purchases and sales may be at prices other than par. The remarketing agent also may sell VRDOs that it owns to one or more affiliated investment vehicles or enter into derivative arrangements with affiliates or others to reduce its exposure to the VRDOs. The purchase of VRDOs by the remarketing agent may create the appearance that there is greater demand for the VRDOs in the market than is the case. Under certain circumstances, you may remove the remarketing agent or the remarketing agent may resign or cease its remarketing efforts. The authorizing documents for the VRDOs will set forth any required notice and will require appointment of a successor remarketing agent. Financial Risk Considerations Certain risks may arise in connection with your issuance of VRDOs, including some or all the following (generally, the obligor, rather than the issuer, will bear these risks for conduit revenue bonds): Interest Rate Risk. Interest rate risk is the possibility that the interest rate that you pay on the VRDOs may increase, which can be triggered by various factors, such as a general increase in short‐term interest rates, a decrease in marginal income tax rates, credit concerns relating to you or your market sector or industry or a reduction in the credit quality or ratings of the entity providing liquidity and/or credit support for the VRDOs. If any of these events occur, the debt service costs associated with the VRDOs will increase, which may negatively affect your coverage ratios and reduce the amount of your available cash. The interest rate on the VRDOs may be capped at a maximum interest rate, which generally will range between 9% per annum and 15% per annum. See “Financial Characteristics – Maturity and Interest” above. Liquidity Risk. You may face liquidity risk since VRDOs may be subject to optional and mandatory tender for purchase by their owners. If the remarketing agent is unable to successfully remarket the tendered VRDOs, in order to pay the tendering owners, the tender agent or trustee will demand funds from you, if you are providing self‐liquidity, or it will draw funds under any applicable liquidity facility. Thereafter, unless and until the VRDOs are successfully remarketed, you will pay interest to the liquidity provider at an agreed‐upon rate on the amount drawn, which is typically higher than the rate otherwise borne by the VRDOs. In addition, you may be required to pay the principal of the unremarketed VRDOs by the date set forth in the letter of credit or SBPA, which date is likely to be earlier than the stated maturity date of the VRDOs. The period of time by which you must pay the principal amount and interest on the VRDOs to the liquidity provider is known as a “term out.” If there is no term out, you will be required to immediately repay the full amount of any draws to the liquidity provider. Depending on the amount of the VRDOs that are not remarketed, you might be obligated to repay the entire principal amount of the VRDOs. Remarketing Agent Risk. In the event that the remarketing agent does not perform its duties in a satisfactory manner or resigns or ceases its remarketing efforts, you may be required to appoint a successor remarketing agent or may experience higher interest rates resulting in an increase in debt service costs. In the event the remarketing agent resigns or ceases its remarketing efforts, you may experience difficulty in engaging a new remarketing agent and in remarketing or refinancing the VRDOs. Refinancing Risk. If you intend to remarket or refinance the VRDOs (whether to another mode, fixed rate bonds, bank loans or other obligations), as a result of changes in market conditions, changes in law, changes in your credit ratings or your financial condition, you may be unable to remarket or refinance the VRDOs or may pay a higher rate. Credit or Liquidity Facility Renewal Risk. Liquidity facilities, such as a letter of credit or SBPA, typically are issued for a term shorter than the stated maturity of the VRDOs, generally from one to five years. Upon expiration of the term, the liquidity facility must be renewed or replaced. You may be unable to replace the expiring liquidity facility or you may have difficulty obtaining a replacement liquidity facility at a reasonable cost. There are a limited number of financial institutions that are acceptable to the market and who are willing to provide liquidity facilities for tax‐exempt VRDOs. In addition, as a result of market conditions and prospective changes in regulatory requirements, the cost of obtaining a liquidity facility may vary from currently prevailing market rates. If a liquidity provider is unwilling to extend the expiring liquidity facility and you are unable to find a suitable replacement, the VRDOs will be subject to mandatory tender for purchase and you will be required to pay the purchase price (par plus accrued interest) of the VRDOs, either by remarketing the VRDOs in a different mode that does not require liquidity (such as converting the VRDOs to fixed rate bonds), issuing refunding bonds, securing a bank loan, finding some other source of repayment or drawing on the liquidity facility. Your ability to convert the VRDOs to a different mode, to issue refunding bonds or to secure a bank loan will depend on a number of factors, including general market conditions and your creditworthiness. In the event of a draw on the liquidity facility, you will have to repay the liquidity provider as described above under “Liquidity Risk.” Liquidity Provider Default Risk. In the event that a liquidity provider is not able to perform under its liquidity facility, a default or a mandatory tender of the VRDOs may result, depending on the terms of the authorizing documents. You may be required to pay a higher rate of interest or, if a mandatory tender is triggered, you may be required to pay the purchase price (par plus accrued interest) of the VRDOs, either by remarketing the VRDOs in a different mode that does not require liquidity (such as converting the VRDOs to fixed rate bonds), issuing refunding bonds, securing a bank loan or finding some other source of repayment. Your ability to convert the VRDOs to a different mode, to issue refunding bonds or to secure a bank loan will depend on a number of factors, including general market conditions and your creditworthiness. If the credit ratings of the liquidity provider are reduced, the remarketing agent may have difficulty remarketing the VRDOs and the VRDOs will likely bear a higher interest rate. Issuer Default Risk. You may be in default if the funds pledged to secure your VRDOs are not enough to pay debt service on the VRDOs when due. The consequences of a default may be serious for you and, depending on applicable state law and the terms of the authorizing documents, the holders of the VRDOs, the trustee and any credit and/or liquidity support provider may be able to exercise a range of available remedies against you. For example, if the VRDOs are secured by a general obligation pledge, you may be ordered by a court to raise taxes. Other budgetary adjustments also may be necessary to enable you to provide sufficient funds to pay debt service on the VRDOs. If the VRDOs are revenue bonds, you may be required to take steps to increase the available revenues that are pledged as security for the VRDOs. A default may negatively impact your credit ratings, including ratings on the VRDOs. If the ratings on the VRDOs are decreased, holders of VRDOs that are subject to optional tender may elect to put their VRDOs, the remarketing agent may have difficulty remarketing the VRDOs and the VRDOs likely will bear a higher interest rate after any applicable interest reset. Further, a default may effectively limit your ability to publicly offer bonds or other securities at market interest rate levels. If you are unable to provide sufficient funds to remedy the default, subject to applicable state law and the terms of the authorizing documents, it may be necessary for you to consider available alternatives under state law, including (for some issuers) state‐mandated receivership or bankruptcy. A default also may occur if you are unable to comply with covenants or other provisions agreed to in connection with the issuance of the VRDOs. This description is only a summary of issues relating to defaults and is not intended as legal advice. You should consult with your bond counsel for further information regarding defaults and remedies. Reinvestment Risk. You may have proceeds of the VRDOs to invest prior to the time that you are able to spend those proceeds for the authorized purpose. Depending on market conditions, you may not be able to invest those proceeds at or near the rate of interest that you are paying on the VRDOs, which is referred to as “negative arbitrage”. Tax Compliance Risk. The issuance of tax‐exempt bonds is subject to several requirements under the United States Internal Revenue Code, as enforced by the Internal Revenue Service (IRS). You must take certain steps and make certain representations prior to the issuance of tax‐exempt bonds. You also must covenant to take certain additional actions after issuance of tax‐exempt bonds. A breach of your representations or your failure to comply with certain tax‐related covenants may cause the interest on tax‐exempt VRDOs to become taxable retroactively to the date of issuance of the VRDOs, which may result in an increase in the interest rate that you pay on the VRDOs or the mandatory redemption of the VRDOs. The IRS also may audit you or your VRDOs or other bonds, in some cases on a random basis and in other cases targeted to specific types of bond issues or tax concerns. If tax‐exempt VRDOs are declared taxable, or if you are subject to audit, holders of VRDOs that are subject to optional tender may elect to put their VRDOs, the remarketing agent may have difficulty remarketing the VRDOs and the VRDOs likely will bear a higher interest rate after any applicable interest reset. Further, your ability to issue other tax‐exempt bonds also may be limited. This description of tax compliance risks is not intended as legal advice and you should consult with your bond counsel regarding tax implications of issuing the VRDOs. Money Market Reforms; Potential Risks from Changes to the Investor Base for VRDOs. Since 2010, the U.S. Securities and Exchange Commission has been adopting reforms designed to reduce investor runs on money market funds in times of financial crisis. Reforms adopted in July, 20141 are effective and money market fund managers have made significant changes to their fund structures and families related to the money market reforms. The reforms have had a significant impact on all money market funds, but particularly institutional prime money market funds, including the portion thereof that invest in municipal securities, such as VRDOs. Changes for such funds included the implementation of a floating net asset value, the implementation of liquidity fees and redemption gates, changes in the use of amortized cost accounting and increased disclosure requirements. Certain money market fund rule changes do not apply or are optional for retail and government money market funds. Though most money market fund families have generally made their changes in connection with incorporating the money market reforms (including some managers moving certain investors into funds not subject to such reforms), changes related to money market funds that invest in VRDOs are still possible. Any further money market reform related changes which reduce the amount of money market fund assets available to purchase VRDOs could result in (i) reduced market demand for VRDOs, (ii) increased rates for VRDOs as investors value the structure relative to other product alternatives or in connection with remarketing tendered VRDOs in order to try to access different investors, (iii) increased optional tenders of VRDOs due to investor changes, and/or (iv) liquidity draws in connection with increased tenders of VRDOs. Additionally, to the extent that further changes occur by the money market fund managers which reduce money market fund assets available to purchase VRDOs, remarketing agents of VRDOs could have a more difficult time remarketing and/or rolling such securities if the universe of potential investors is materially reduced or changed. You should discuss these changes and potential changes and effects with your advisors as you consider whether to issue VRDOs. 1 Money Market Fund Reform; Amendments to Form PF, see http://www.sec.gov/rules/final/2014/33‐9616.pdf Version: March 2021 1 BofA Disclosures Pursuant to MSRB Rule G‐17 Fixed Rate Bonds The following is a general description of the financial characteristics and security structures of fixed rate municipal bonds (“Fixed Rate Bonds”), as well as a general description of certain financial risks that are known to us and reasonably foreseeable at this time and that you should consider before deciding whether to issue Fixed Rate Bonds. If you have any questions or concerns about these disclosures, please make those questions or concerns known immediately to us. In addition, you should consult with your financial and/or municipal, legal, accounting, tax, and other advisors, as applicable, to the extent you deem appropriate. Financial Characteristics Maturity and Interest. Fixed Rate Bonds are interest‐bearing debt securities issued by state and local governments, political subdivisions and agencies and authorities, whether for their benefit or as a conduit issuer for a nongovernmental entity. Maturity dates for Fixed Rate Bonds are fixed at the time of issuance and may include serial maturities (specified principal amounts are payable on the same date in each year until final maturity) or one or more term maturities (specified principal amounts are payable on each term maturity date) or a combination of serial and term maturities. The final maturity date typically will range between 10 and 30 years from the date of issuance. Interest on the Fixed Rate Bonds typically is paid semiannually at a stated fixed rate or rates for each maturity date. Redemption. Fixed Rate Bonds may be subject to optional redemption, which allows you, at your option, to redeem some or all the bonds on a date prior to scheduled maturity, such as in connection with the issuance of refunding bonds to take advantage of lower interest rates. Fixed Rate Bonds will be subject to optional redemption only after the passage of a specified period, often approximately ten years from the date of issuance, and upon payment of the redemption price set forth in the bonds, which may include a redemption premium. A notice of optional redemption will be required to be sent out to the holders of the bonds, usually not less than 30 days prior to the redemption date. Fixed Rate Bonds with term maturity dates also may be subject to mandatory sinking fund redemption, which requires a specified principal amount of the bonds to be redeemed annually in advance of the term maturity date. The mandatory sinking fund redemption price is 100% of the principal amount of the bonds to be redeemed. Security Payment of principal of and interest on a municipal security, including Fixed Rate Bonds, may be backed by various types of pledges and forms of security, some of which are described below. General Obligation Bonds. “General obligation (GO) bonds” are debt securities to which your full faith and credit is pledged to pay principal and interest. If you have taxing power, generally you will pledge to use your ad valorem (property) taxing power to pay principal and interest. The debt service on unlimited tax” GO bonds are paid from ad valorem taxes which are not subject to state constitutional property tax millage limits, whereas “limited tax” GO Bonds are subject to such limits. General obligation bonds constitute a debt and, depending on applicable state law, may require that you obtain approval by voters prior to issuance. In the event of default in required payments of interest or principal, the holders of general obligation bonds generally will have certain rights under state law to compel you to impose a tax levy. Revenue Bonds. “Revenue bonds” are debt securities that are payable only from a specific source or sources of revenues. Revenue bonds are not a pledge of your full faith and credit, and you (or, if you are a conduit issuer, the obligor, as described in the following paragraph) are obligated to pay principal and interest on your revenue bonds only from the revenue source(s) specifically pledged to the bonds. Revenue bonds do not permit the bondholders to compel you to impose a tax levy for payment of debt service. Pledged revenues may be derived from operation of the financed project or system, grants or excise or other specified taxes. Generally, subject to state law or local charter requirements, you are not required to obtain voter approval prior to issuance of revenue bonds. If the specified source(s) of revenue become inadequate, a default in payment of principal or interest may occur. Various types of pledges of revenue may be used to secure interest and principal payments on revenue bonds. The nature of these pledges may differ widely based on state law, the type of issuer, the type of revenue stream and other factors. Some revenue bonds (conduit revenue bonds) may be issued by a governmental issuer acting as a conduit for the benefit of a private sector entity or a 501(c) (3) organization (the obligor). Conduit revenue bonds commonly are issued for not‐for‐profit hospitals, educational institutions, single and multi‐family housing, airports, industrial or economic development projects, and student loan programs, among other obligors. Principal and interest on conduit revenue bonds normally are paid exclusively from revenues pledged by the obligor. Unless otherwise specified under the terms of the bonds, you are not required to make payments of principal or interest if the obligor defaults. The description above regarding “Security” is only a summary of certain possible security provisions for the bonds and is not intended as legal advice. You should consult with your bond counsel for further information regarding the security for the bonds. Financial Risk Considerations Certain risks may arise in connection with your issuance of Fixed Rate Bonds, including some or all the following (generally, the obligor, rather than the issuer, will bear these risks for conduit revenue bonds): Issuer Default Risk. You may be in default if the funds pledged to secure your bonds are not enough to pay debt service on the bonds when due. The consequences of a default may be serious for you and, depending on applicable state law and the terms of the authorizing documents, the holders of the bonds, the trustee and any credit support provider may be able to exercise a range of available remedies against you. For example, if the bonds are secured by a general obligation pledge, you may be ordered by a court to raise taxes. Other budgetary adjustments also may be necessary to enable you to provide sufficient funds to pay debt service on the bonds. If the bonds are revenue bonds, you may be required to take steps to increase the available revenues that are pledged as security for the bonds. A default may negatively impact your credit ratings and may effectively limit your ability to publicly offer bonds or other securities at market interest rate levels. Further, if you are unable to provide sufficient funds to remedy the default, subject to applicable state law and the terms of the authorizing documents, you may find it necessary to consider available alternatives under state law, including (for some issuers) state‐mandated receivership or bankruptcy. A default also may occur if you are unable to comply with covenants or other provisions agreed to in connection with the issuance of the bonds. This description is only a summary of issues relating to defaults and is not intended as legal advice. You should consult with your bond counsel for further information regarding defaults and remedies. Redemption Risk. Your ability to redeem the bonds prior to maturity may be limited, depending on the terms of any optional redemption provisions. If interest rates decline, you may be unable to take advantage of the lower interest rates to reduce debt service. Refinancing Risk. If your financing plan contemplates refinancing some or all the bonds at maturity (for example, if you have term maturities or if you choose a shorter final maturity than might otherwise be permitted under the applicable federal tax rules), market conditions or changes in law may limit or prevent you from refinancing those bonds when required. Reinvestment Risk. You may have proceeds from the issuance of the bonds available to invest prior to the time that you are able to spend those proceeds for the authorized purpose. Depending on market conditions, you may not be able to invest those proceeds at or near the rate of interest that you are paying on the bonds, which is referred to as “negative arbitrage”. Tax Compliance Risk. The issuance of tax‐exempt bonds is subject to several requirements under the United States Internal Revenue Code, as enforced by the Internal Revenue Service (IRS). You must take certain steps and make certain representations prior to the issuance of tax‐exempt bonds. You also must covenant to take certain additional actions after issuance of tax‐exempt bonds. A breach of your representations or your failure to comply with certain tax‐related covenants may cause the interest on bonds to become taxable retroactively to the date of issuance of the bonds, which may result in an increase in the interest rate that you pay on the bonds or the mandatory redemption of the bonds. The IRS also may audit you or your bonds, in some cases on a random basis and in other cases targeted to specific types of bond issues or tax concerns. If tax‐exempt bonds are declared taxable, or if you are subject to audit, the market price of your bonds may be adversely affected. Further, your ability to issue other tax‐exempt bonds also may be limited. This description of tax compliance risks is not intended as legal advice and you should consult with your bond counsel regarding tax implications of issuing the bonds.