ITEM NO.: _   7a_______
DATE OF MEETING:  10/05/2010

Commercial Paper Letter of Credit
Extension

October 5, 2010

Introduction
Bank of American Letter of Credit (LOC) for $100 million commercial
paper (CP) expires in November, 2010
Port has negotiated an extension of the LOC
Due to numerous changes since 1997, the LOC agreement will be
amended and restated
Pursuant to Resolution No. 3456, authority to extend the letter is
delegated to the Port's CFO
This briefing will highlight key changes included in this extension
Impact of financial crisis
Negative and positive changes
Update on the next LOC expiration in January, 2011


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Introduction  Variable Rate Debt
The Port uses LOCs to provide liquidity and credit support to its variable
rate debt
The Port uses two types of variable rate debt
Long-term bonds with floating interest rates
Short  term commercial paper
Variable rate debt is a useful component of the Port's debt portfolio
Low cost - short term rates are lower than long term rates
Currently  about 30  50 basis points
Average since 1997  approximately 2.5%
Risk management - variable rates on debt off-set variable rates on
investments


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Background  Commercial Paper
1997 Port instituted a CP program for $100 million
Issued on the Port's Subordinate Lien, secured by operating
revenues after payment of prior lien debt service
Short-term borrowing  maturities less than 270 days
Can "roll over" multiple times (revolving credit)
Used as bridge financing in anticipation of grant receipts or long-
term debt issuance
Initial program backed by an LOC from Bank of America
2001 Port increased the program to $250 million
Added an LOC for $150 million with Bayerische Landesbank (BLB)


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Letter of Credit function
A direct pay LOC provides immediate liquidity support
When the Port rolls-over maturing CP, if there are no investors the
LOC bank will buy and hold the CP until
1. an investor is found
2. the Port pays off the CP
If repayment has not occurred after 6 months (liquidity period), the
Port begins repayment to the bank over an extended time period.
This feature of the LOC is referred to as "term out" or "term out
loan".
Port LOCs typically provide for a 5-year "term-out" or 5 years to
repay the CP held by the bank
While the bank holds CP, the Port pays the bank an interest rate to
the bank established in the LOC documents

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2008 Financial Crisis
The financial crisis resulted in significant constraints on credit and
therefore, the LOC market
Fewer LOC providers
Providers are more selective  prefer existing clients or clients with
whom they have more extensive relationships
Credit approvals are slower and often involve bank staff who are
not familiar with municipal credits
More cost and risk have shifted to the borrower
Fees have increased significantly
LOCs are typically now 1-3 years in term rather than 3-7 years
Liquidity periods (period bonds or notes are held by the bank prior
to term-out) and term-out periods are shorter
Covenants have become more restrictive and there are more
Events of Default
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Bank of America LOC - Changes
Consistent with the current LOC market this LOC extension includes
several changes adverse to the Port
LOC fee  increases from 20 basis points to 140 basis points
Early termination  Port can terminate at any time, but fee is paid
for first 3 years instead of first 1 year (unless the banks credit is
downgraded)
Bank rate  the interest rate the Port pays if CP is held by the bank
is a minimum 7.5% rather than Fed Funds + 50-150 basis points
Downgrade  A below investment grade rating on the Port's
Subordinate Lien is an Event of Default


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Bank of America LOC - Changes
There are several provisions that are better than the Port's current
agreement and lower the Port's risk
The Port was able to preserve
Expiration  LOC is issued for 5 years
Liquidity period  6 months
Term out - 5 years
Port was able to improve
Set-off - re-written with appropriate restrictions and clarifications to
protect the Port and maintain the integrity of existing liens
Cure periods  extended for certain Events of Default
Lower risk of triggering a default
Higher threshold for certain problems to become a default
Fewer repetitive representations that could trigger a default

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Schedule
Bank of America LOC for CP
Extension and amendments will take effect in November upon
expiration of the current LOC
New LOC for Seaport Variable Rate bonds
Existing LOC expires January, 2011
provider is not longer offering LOCs
Per FT-01 policy  competitive solicitation for a new LOC
Only 3 responses
Best offer from Bank of America
Resolution No. 3238 delegates authority to the CFO to negotiate
and execute the LOC agreement

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