300 S. Orange Ave 407.648.

2208
Suite 1170 www.pfm.com
Orlando, FL 32801

February 18, 2020

Refunding Opportunity Memorandum

To: Guillermo Polanco, Finance Director

From: Jay Glover, Managing Director -- PFM Financial Advisors LLC
Re: Refunding Opportunity Overview

As financial advisor to the City of Marco Island (the “City”), PFM Financial Advisors LLC (“PFM”) continually
reviews the City’s outstanding debt portfolio for potential refunding opportunities. Given the current
historically low interest rate environment, the City has an opportunity to refund the callable portion of the
outstanding Utility System Refunding Revenue Bonds, Series 2013 (the “2013 Bonds” or the “Refunded
Bonds”) for significant net present value (NPV) debt service savings.

The callable 2013 Bonds are outstanding in the par amount of $51,115,000 maturing in years 2024-2033
with interest rates ranging from 4.00% to 5.25%. The 2013 Bonds are callable October 1, 2023 at par (no
penalty). Under current tax law, tax exempt advance refundings are no longer permitted. However, interest
rates have declined to historic low levels, which provides the City with the opportunity to undertake an
advance refunding of the 2013 Bonds via the issue of a Taxable Utility System Refunding Revenue Bond,
Series 2020 (the “2020 Bond”). If the City approves moving forward with the issuance of the 2020 Bond,
we estimate based on current market conditions the City will realize approximately $4.6 million of NPV debt
service savings or over 9% of the Refunded Bonds par amount. This equates to annual savings of
approximately $180,000 in 2020 and $400,000 from 2021-2033 (no extension of the final maturity). Given
the shorter term of the Refunded Bonds, reduced cost of issuance and ability to implement in an expedited
manner; PFM is recommending the 2020 Bond be issued as direct placement bank loan with the loan
provider procured through a competitive RFP process. The City could undertake the issuance of the 2020
Bond via a public offered bond deal, but the NPV savings are similar to the recommended direct placement
bank loan structure and would require a longer timeline for implementation.

The City’s other option would be to wait until the 2013 Bonds can be currently refunding in July of 2023 via
the issuance of tax exempt debt. If the City elected this course of action, the breakeven increase in interest
rates is approximately 75 basis points (0.75%). So if interest rates increased 75 basis points between now
and July 2023, the NPV savings for a tax exempt current refunding would be approximately $4.6 million.

Based on the above described analysis and current historically low interest rates that will allow the City to
achieve substantial savings, we would recommend the City approve moving forward with the RFP process
to procure a lender. By doing so, the City would eliminate the risk that interest rates will rise between now
and the call date on the 2013 Bonds. Assuming favorable proposals are received, the issuance of the 2020
Bond will be brought before City Council for consideration at the April 6 meeting. If you have any questions
please feel free to contact me at 407-406-5760 or gloverj@pfm.com.