March 14, 2012 - Toho Water Authority

Page 43. Rate Covenant: A bank will often seek additional rate covenants to increasethe security of their loan. The SunTrust Bank proposal is not appearing toseek any change in the existing rate covenant, but since it is expresslyrequired in the proposal, it is uncertain whether the covenant as currentlywritten in the Master Bond Resolution will remain satisfactory to SunTrustBank. It is our understanding that SunTrust Bank will agree to accept theexisting Master Bond Resolution rate covenant provisions but will requirethat the Authority obtain their consent if the Authority wants to decrease therate covenant requirement for parity bonds below what currently exists. Atpresent, such a change would likely require 51% bondholder consent.4. Reserve Requirement: The Master Bond Resolution authorizes a debt servicereserve fund to be established at the highest level permitted by applicablefederal tax laws regulating governmental bonds, but authorizes each series ofparity bonds to have their own reserve requirement, which can be as low aszero. The SunTrust Bank proposal is requiring a fully funded debt servicereserve for the refunding bonds, but has indicated a willingness to accept a50% reserve fund requirement. The existing parity debt has either no reservefund or a reserve fund equal to one-half of the maximum required reserverequirement. The Authority would have to fund the debt service reservefund from its own reserves rather than bond proceeds and incur the cost ofnegative carry for this amount (due to the inability to reinvest at the bondrate).