Muni Case Study CH Jun2011

Restructuring the Troubled Municipality
June 2011
A Case Studyy
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Restructuring the
Troubled
Municipality
Table of Contents
Tab
Introduction
A Civic Crisis
The Path to Perdition
A Dark Period
Cutting the Hydras Heads
A Glimpse
Gli
off the
h Future
F
Appendices
Contact Information
Endnotes
Disclaimer
Introduction
Introduction
Introduction
We welcome you to Portent Falls (Portent), a fictional city that began as a lumber and mining center, grew into a regional transportation and
light industrial hub, and suffered a long decline as the industries that gave birth to the City gradually left or closed. By the start of the 2008
recession, Portent already suffered from a shrinking population, mounting structural deficits and accelerating revenue declines which stretched its
financial resources to the breaking point. The cleanup costs of the April 2011 storms have now pushed Portent past that point, and our case focuses
on the actions Portent and its team of advisors take after it defaulted on its bond debt this month.
Much has been written recently about the potential for governmental defaults, here and abroad, particularly for U.S. states and cities. There is a
school of thought that predicts that the daunting metrics of municipal fiscal distress will lead to a society-shaking level of defaults, and an equally
vocal contingent citing historical data and economic improvement claiming these negative predictions to be overblown. Our thought is that the
current financial environment is indeed conducive to substantial municipal defaults, but future economic conditions, exogenous variables such as
the frequency of natural or man-made disasters, and particularly political will have the potential to materially alter the picture either positively or
negatively. On balance, we believe that over the next decade the odds are that we WILL encounter municipal defaults substantially greater than
historical levels. Given the odds of, at the very least, substantial municipal disruption and some increased level of defaults, our advice (with a nod
to the Scouts) is be prepared, and its in this spirit we visit Portent.
The Portent case is intended to address issues rarely explored or experienced, involving how to gauge the severity of distress in a municipality, the
impact of a debt default, the utility of a chapter 9 filing and the complexity of negotiating a wholesale restructuring (or Plan of Adjustment) for a
major city. Given the paucity of municipal restructurings from which distressed municipalities might otherwise draw important factual and
experiential observations and understanding, we have tried to provide some credible guesses based on our corporate and sovereign restructuring
experience and research into the relevant issues as to what a full blown municipal restructuring might encompass.
IIt is
i our belief
b li f that
h the
h restructuring
i off public
bli debt
d b obligations
bli i
will
ill be
b a centrall concern off the
h global
l b l economy in
i the
h foreseeable
f
bl future.
f
S iki an
Striking
appropriate balance between the legitimate needs and constraints of municipal governments, their citizens and the contractual rights of their
creditors will necessitate unprecedented cooperation between public and private sectors. We offer this case study in an early effort to illuminate that
dynamic.
We are providing these materials to you with the express understanding that they cannot be reproduced without our written permission, and may
not be introduced directly or indirectly in any litigation context in which we may be involved. Neither these materials nor the presentation in which
th are used
they
d are intended
i t d d to
t provide
id legal
l l advice.
d i
R i i t off this
Recipients
thi material
t i l and
d attendees
tt d
att any presentation
t ti using
i this
thi material
t i l should
h ld nott rely
l
on anything in this material, but rather should consult their own counsel for legal advice.
We would like to thank our co-presenters Kelly Stapleton and Bill Roberti from Alvarez & Marsal as well as Marc Levinson and John Knox from
Orrick, Herrington & Sutcliffe LLP for their assistance and cooperation in creating this presentation.
Stephen Spencer
Managing Director
John Popehn
Associate
Jason Vakoc
Associate
Jack Sallstrom
Financial Analyst
Brian Lee
Financial Analyst
Jeffrey Werbalowsky
Co-CEO & Senior Managing Director
A Civic Crisis
A Civic Crisis
Storm Clouds Brewing
Midnight in Portent Falls April 27, 2011. City Manager Cassandra Bodine ushers her kids downstairs when,
with thunder and lightning on the horizon, she hears the civil defense sirens begin to wail
Unlike the rest of Portent Falls citizens, who are worried about their homes and cars being battered by the huge
approaching storm, Cassandras thoughts are on the Citys budget and how to pay for the cleanup costs and
damages for which she has no reserves in her budget
damages,
In the morning, Cassandras worst fears are realized. She steps outside and observes the scattered tree limbs, ruined
traffic lights and several downed power lines the storm damage is widespread
After notifying FEMA and discussing the need for National Guard assistance with the Mayor, Cassandra heads to
her office
By noon, after finally making it to her desk at City Hall, maintenance calls with a preliminary estimate of at least
$4 million in storm damages. After hanging up with maintenance, Cassandra immediately picks up the phone, and
draws the full $30 million available on the Citys tax revenue anticipation note(1) (TRAN), 61 days before her
bankers at CountyTrust
y
expect
p
her to do so
(1)
A TRAN is a short-term financing agreement whereby the funds received from the TRAN must be repaid within the same
fiscal year it was issued
A Civic Crisis
Bank Is Concerned
While requesting the $30 million draw-down, Cassandras conversation with her CountyTrust relationship
banker is cordial and reassuring, but shortly after the call concludes she receives a call from her new
CountyTrust credit officer with whom she has never before spoken
Cassandras banking relationship has become increasingly strained with the deterioration in the Citys budget,
and the bank has not responded to Cassandra
Cassandrass recent requests for an expansion of the TRAN
Since the Citys 2007 fiscal crisis, it has gone from internally financing seasonal cash flow swings, to placing
public TRANs, to a privately placed TRAN with CountyTrust after the public market closed to additional
TRAN issuances based on fears over Portents credit quality
Nervous about the early request, the CountyTrust banker asks
asks Cassandra to provide a weekly liquidity
forecast for the Citys general fund through the end of July (something she has not prepared and does not
immediately know how to pull together)
CountyTrust wants the weekly liquidity forecast in the next 10 days for them to consider expanding, or even
maintaining their facility the requirement is non-negotiable!

Cassandra realizes that she needs immediate help, and contacts the turnaround team at Alonzo & Marshall
(A&M), who had impressed her when she had interviewed them in connection with the Citys near default
in 2007
There is a group within the Portent City Council, however, that is dead-set against hiring expensive
turnaround assistance, which they believe will only compound the City
Cityss cash flow problems
Cassandra asks the Mayor to convene a telephone call where she explains to the City Council that this time
things are much worse, and that Portent Falls has no more flexibility all the rabbits are gone from her hat,
and she insists that the City Council agree to hire A&M immediately which it does
Cassandra calls A&M the next morning to tell them theyve been selected. She follows the call by sending her
financial model and a signed retainer
A Civic Crisis
Liquidity Crunch
May 3, 2011 The A&M team critically analyzes Cassandras liquidity forecast and injects a note of realistic
pessimism
Cassandras model shows that with the storm expenses, the City comes within a few million dollars of
exhausting
h
i generall fund
f d liquidity
li idi at the
h low
l
point
i on June
J
30 when
30,
h the
h semiannual
i
l payment on the
h majority
j i
of the Citys bond debt is due. A more extensive A&M analysis reveals a chronic stretching of payables that
has reached a breaking point and the real liquidity situation is far worse
The A&M monthly historical analysis shows a liquidity compression over the last four years achieved
principally at vendor expense and by reducing,
reducing and finally eliminating,
eliminating required pension contributions
Declining Monthly Liquidity Trends ($ in millions)

$300
$250
Historical Erosion of Peak

Liquidity
$200
$282 million
liquidity
compression
103 days payable
expansion
$150
$100
$50
$0
Feb-0
07
Apr-0
07
Jun-0
07
Aug-0
07
Oct-0
07
Dec-0
07
Feb-0
08
Apr-0
08
Jun-0
08
Aug-0
08
Oct-0
08
Dec-0
08
Feb-0
09
Apr-0
09
Jun-0
09
Aug-0
09
Oct-0
09
Dec-0
09
Feb-1
10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-1
11
Apr-11
Jun-11
($50)
A Civic Crisis
Liquidity Crunch (Cont.)
After a herculean effort, A&M also prepares a weekly analysis for the general fund that shows Cassandras
current liquidity model is predicated on a further expansion by five days of outstanding payables a virtual
impossibility
A&Ms
A&M liquidity
li idi forecast
f
assumes more realistic
li i working
ki
capital
i l assumptions
i
and
d tighter
i h
overall
ll liquidity
li idi
resulting in a negative $11.8 million account balance after payroll and bond payments in other words the
City is out of money
COLAs(1) in the labor contracts effective July 1 render the liquidity crunch even more extreme
Weekly Liquidity Forecast ($ in millions)
$60
Cassandras liquidity low

point of $12.0 million
$40
$20
$0
A&Ms
&
liquidity
q
y low
point of $(11.8) million
after payroll and bond
payments
($20)
($40)
Note:
(1)
COLA = Cost of Living Adjustment
A&Ms Forecast
Cassandras Forecast
A&M forecast assumes static days payable outstanding
A Civic Crisis
Reviewing Liquidity Options
Frightened
h
d by
b the
h implications
l
off the
h revised
d liquidity
l
d forecast,
f
Cassandra
d and
d the
h A&M team meet to assess
liquidity enhancement options
Assessment of Immediate Liquidity Enhancement Options to Avoid Default
Action
Assessment
Rationale
Further
Reductions in
Force
NO
Police and fire services already below minimum levels required to maintain public safety
following reductions in force (RIFs) implemented in 2009 and 2010
Unions have intimated that there could be sick-outs upon RIFs in any department, making
non-police/fire RIFs unachievable as well
Cut Pension
Contributions
NO
City had temporarily

temporarily deferred
deferred pension contributions in 2009 and 2010 and the current
budget already does not contemplate any contributions in 2011
NO
Requires modification of multiple collective bargaining agreements (CBAs)

Even if the City were able to negotiate a reduction in current and retiree benefits for all
employees without a sick-out, the timing of any savings impact would not be sufficient to avert
currentt cash
h crisis
ii
NO
Per state law, further property tax increases must be approved by a vote of residents, and the
Citys tax burden is already higher than any other city in the region
Increase would not take effect until the following years tax cycle
NO
Citys
City s third party vendors have started moving to cash in advance ((CIA)
CIA ) or other severely
limiting payment terms
Suspension or further delay would prompt remaining vendors to follow suit and negatively
impact working capital
Cassandras key deputy has just quit in tears saying he just cannot lie to creditors anymore
NO
Storm cleanup actions unavoidable without substantially disrupting public safety

City already has been dramatically underspending on routine maintenance as evidenced by the
deteriorating condition of the Citys assets. In addition, current urgently required capital
expenditures have been pushed repeatedly into the future
Cut Benefits
Raise Property
Taxes
Suspend or
Additionally Delay
Vendor Payments
Further Reduce
Services and
Infrastructure
Spending
A Civic Crisis
Reviewing Liquidity Options (Cont.)

Assessment of Immediate Financing Options to Avoid Default
Action
New General
Obligation Debt
Assessment
It worked in the
dark days of
2007
Rationale
Meeting with various underwriters to assess viability but deemed a very low probability based
on credit concerns
Tax Revenue
Anticipation Notes
(TRANs)
NO
Market closed to Portent based on credit concerns
Pension Bond
NO
Market closed to Portent based on credit concerns
Expansion of
Private TRAN
Meeting with CountyTrust lenders to assess prospects but deemed low probability as the
private TRAN was an unusual stop-gap financing when originally underwritten (in lieu of
more traditional public TRAN or Pension Bond financings) and CountyTrust is growing
increasingly concerned about Portents declining credit quality
Bridge Financing
Cassandra tasked with seeking out non-traditional sources of capital
Additional
B
Borrowing
i ffrom
Segregated Funds
(1)
NO
The Citys general fund has already borrowed extensively from segregated funds and is in
danger of not being able to pay back the borrowings within the fiscal year as required by
law(1). Cassandra is reluctant to borrow additional segregated funds since the City may not be
able to pay the funds back, as has happened to other municipalities
Portent Falls operates on a calendar year basis. The Citys financial structure includes hundreds of segregated accounts for the Citys various civic entities. By state law, the Citys
general fund is permitted to draw on the segregated accounts only if the funds can be repaid within the fiscal year
10
A Civic Crisis
Worse Than Expected
May 9, 2011 At an emergency closed City Council meeting(1), Cassandra delivers the bad news backed up
with a preliminary report from the A&M team
Even with the recent $30 million TRAN draw, Cassandra concedes that the A&M analysis accurately shows
the City going negative cash by the end of June after making payroll and the upcoming bond payments
Property taxes (due July 31) will not be received in time to save the day this year
One of the council members points out that the City has an additional $250 million of cash spread across its
various appropriated trust and segregated fund accounts and suggests additional borrowing from one or
more accounts to fund the interest and payroll payments, as the City has done in the past
While willing to entertain almost any reasonable solution, Cassandra quickly dismisses the suggestion,
pointing out that there is no plausible way the City would be able to repay additional funds during the
fiscal year within which they are borrowed
The report
p
is sobering
g even for a council accustomed to bad news
Not wanting to abandon all hope, the Mayor directs Cassandra and A&M to prepare an emergency action
plan
Given the gravity of the situation, A&M suggests the City immediately retain legal counsel and a financial
advisor, notwithstanding the considerable additional expenses which A&M deems necessary given the size
and complexity of the situation
Cassandra also reminds the City Council that at some point they will need to present their findings at an
open meeting and could use additional support from legal and financial advisors
The Mayor and City Council members initially bristle at the notion of the additional advisory expenses until
A&M explains that the additional financial and legal teams will be needed to explore options such as
emergency financing, asset monetization strategies and other alternatives
(1)
As the City enters its final phase of acute distress, it holds an increasing number of emergency meetings on a closed basis, which has
spawned complaints from media sources, citizens and a threatened lawsuit
11
A Civic Crisis
Hope Springs Eternal: The Action Plan
With the help of A&M, Cassandra develops a six-part emergency action plan on which the City Council pins
its hopes
Additi
Additional
l Bank
B k or Bond
B d Debt
D bt
Expansion of TRAN facility
Possible general obligation
i
issuance
Alternative Financing
Focus on hedge funds and
non-traditional lenders
Secure emergency bridge loan
(1)
(2)
(2)
Bondholder Negotiations
S k St
Seek
State
t S
Supportt
Emergency financial support
via state loan or loan
guarantee
Seek guidance on legislative
(1)
support for a chapter 9 filing
Payment holiday
Hire Investment Banker & Legal

Counsel
Asset Monetization
Sale of City assets
Potential public to private
transactions
Advise on other five items and

take over financing and asset
monetization role from an
overextended Cassandra
Develop
D l alternatives
lt
ti
and
d help
h l
plan for worst case
State law requires the City to seek legislative authority to file for chapter 9
The Citys general obligation bonds do not contain any reserve accounts on which the City might draw to avert a payment default
12
A Civic Crisis
Action Plan a Bust?
After a week of frantic activity, Cassandra and her team assess their progress
Additional Bank or Bond Debt
Seek State Support
Bondholder Negotiations
No new borrowing capacity

underwriters express concern over
distress and explain junk munis
are a dead market today
Bond issuance not possible due to
credit metrics and market
instability
Expansion of current TRAN not
possible at this time
No emergency financial support

due to state fiscal constraints
the state is grappling with its own
multibillion dollar budget gap
State reinstalls financial review
board that last monitored finances
during the 2007 City crisis and
re-affirms desire to see the City
avoid chapter 9
Bondholders advise Cassandra

We can do absolutely nothing to
help you. Anything you attempt to
do with the bonds would be
counter-productive
Alternative Financing
Asset Monetization
Ajax Capital sends Cassandra an

initial letter offering a bridge
bridge
loan of $30 million at double
digit rates collateralized by
parking ramps and port land
Unlikely to be funded quickly
enough to avoid the day of
reckoning
Although potentially promising,

this is a complex decision process
which requires substantial
planning
Will take time to execute and
require a professional marketing
process
Hire Investment Banker & Legal

Counsel
A minor successimmediate
retention of Simmons & Adler
(S&A) as legal advisor and
Hallahan Laurie (HL) as
financial advisor and investment
banker as the City Council
becomes increasingly
overwhelmed by the scope of the
issues it faces
but their fees add to cash burn
13
A Civic Crisis
How the Hell Did We Get Here?
June 2, 2011 Cassandra and her advisors give an update to the City Council it isnt pretty
In addition to updating her checklist of problems, Cassandras advisors prepare a first cut at a more expansive
structural deficit forecast
After presenting the materials, Portents new legal counsel and investment banker express their view that the
City has no option but to again petition the state, armed with this new data, for emergency financial support.
They also suggest that the City must plan for the worst and lower expectations by requesting the ability to
file for chapter 9 bankruptcy relief
A&Ms latest model makes it crystal clear that there will not be enough money in the coming weeks to
make both the semiannual interest payments on the Citys bond obligations, and also the June month-end
payroll
The City will quickly face a decision to either pay the bonds or the payroll
In exasperation, the Mayor stands up and asks Weve laid off people and raised taxes while our City has
gone downhill every year. Now I have to go begging for money from the Governor just to keep us afloat.
How the hell did we get here?
Cassandra quips A decade of budget deficits due to rising costs and shrinking revenues. At some point we
h
have
to spend
d less
l
than
h we take
k in
i
14
Portent Falls Key Statistics

City of Portent Falls
Founded: 1838
Troy Gardens
p
497,281
,
Population:
2010 Revenues: $883.7 million
80
Debt at December 31, 2010: $1,591 million

General Obligation ((GO)
GO ) Debt: $1
$1,096
096 million
Troy Gardens
20
Revenue Bonds: $495 million
Total Pension Liability: $1,515 million

E i
Estimated
dU
Underfunded
d f d dP
Pension
i Li
Liability:
bili $849 million
illi
Number of Current City Employees: 1,518
Portent Falls
Retired City Employees Receiving Benefits: 4,409

Ratio of Current to Retired City Employees: 25.6%
25 6%
Major Industries: Distribution, Government, Retail and

Healthcare
Flood Plain
16
Portent Falls Government Structure

Voters
Portent Falls operates under a council-manager

government structure which includes a nine-member
City Council elected by the public
The City Council appoints a City Manager who
prepares the budget and hires City department
heads. The City Manager serves as Portent Falls
chief executive
The Mayor is the titular head of Portent Falls but
acts solely as a member of the City Council (as
legislative body) and does not have the power to
veto legislation
g
Mayor (President of
Council) Dave P. Riam
Elected in 2008 to a 44
Year Term
Council (9 Members)
4 Elected in 2008
5 Elected in 2010
All 4-Year Terms
City Manager
Cassandra Bodine
Appointed July 2009
Hires City Department

H d
Heads
Prepares Budget
17
Portent Falls A Protracted Decline
After a period of rapid post World War II expansion,

Portent Falls suffered losses in the forest products
industry that had long been one of the cornerstones of
it economy
its
With the departure of lumber mills and paper
producers in the late 1950s and early 1960s, and
regional mining operations in the 1970s, the Citys
industrial core entered into a long period of decline that
accelerated after the 2001 recession when what was left
of Portent Falls manufacturing base was shuttered due
to overseas competition
Significant
g
milestones in Portent Falls decline include:
Historical Population (in thousands)

700
650
600
550
500
450
400
Source:
Economic Composition (% of total GDP)
Loss of forest products industry in the 1950s and
1960s
U.S. Census Bureau
100%
Loss of regional mining industry in the 1970s
75%
Decline
D li off portt traffic
t ffi in
i the
th 1980s
1980
50%
Departure of Stampcraft last major manufacturer
in 2003
Population losses since 1961
25%
0%
Transition
from manufacturing to distribution,

government, retail and healthcare based economy
Manufacturing
Source:
Non-Manufacturing
U.S. Bureau of Labor Statistics
18
Debt & Other Borrowings
Portent Falls balanced its budget in four ways over the

last decade including:
1.
Issuing bonds and more recently, TRANs
2.
Deferringg p
pension contributions(1)
3.
Deferring infrastructure maintenance capital expenditures
4.
Extending accounts payable
Composition of Long-Term Debt $1.591 Billion

($ in millions)
$144(2)
$75
$180
Over the past 10 years, Portent Falls issued bonds and TRANs in
part to compensate for recurring fiscal deficits
In 2007, the Citys hand-to-mouth budgeting and lack of

sustained investment resulted in a catastrophic failure of the
Citys neglected levee system leading to a devastating flood. This
g y$
$144 million ggeneral obligation
g
bond
necessitated an emergency
issuance underwritten by CountyTrust (coupled with substantial
state and federal assistance) that only partially repaired the
levees, funded extensive cleanup and barely avoided across-theboard defaults
(2)
$952
General
Obligation
Bonds
Backed by $30 million letter of credit from CountyTrust that was

intended to serve as a bridge for a credit wrap which was never
obtained. Letter of credit matures on July 31, 2011
(3)
P t tF
Portent
Falls
ll O
Outstanding
t t di IIndebtedness
d bt d
($ in millions)
$2,500
$2,000
$1 500
$1,500
$1,000
$500
$0
GO Bonds
(3)
Portent Falls pension is a City captive pension that is not part of a state pension system
Tax Increment
Financing Bonds
$240
In 2008, the City

Cityss $30 million private TRAN placement with
CountyTrust was underwritten as a cash management or
smoothing tool. It is now an essential element of financing
(1)
Special
Assessment
B d
Bonds
Port & Sewer

Revenue Bonds
1. Issuing Bonds and TRANs
In 2004, the City issued $180 million in tax increment financing

bonds to fund a downtown revitalization project that was part
gg and p
part badlyy needed investment in the Citys
y
fiscal boondoggle
crumbling urban core
GO Levee
Repair Bonds
Revenue Bonds
Underfunded Pension
Outstanding indebtedness includes all outstanding GO bonds,

revenue bonds and underfunded pension obligations
19
Debt & Other Borrowings (Cont.)
2. Deferring Pension Contributions

In addition to paying significantly less than the actuarially
suggested amounts since 2001, the City temporarily deferred its
2010 pension payment and plans to do the same in 2011. This
serial underfunding coupled with severe portfolio losses,
losses created an
even larger pension funding problem
Historical
Hi
t i l Pension
P i Contributions
C t ib ti
&
Percent Funded ($ in millions)
$50
$40
$31.9
$33.3
$34.9
$36.5 $37.3
$38.9
$40.7
$42.5
120%
$44.4 $44.7
100%
80%
$30
60%
$20
40%
$10
20%
$0.0
0%
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
3. Deferring Infrastructure Maintenance Expenditures

The City
y also borrowed from its annual maintenance capital
p
expenditure budget by chronically underspending over the last 10
years. From 2000 to 2010, the City deferred spending on local road
and pothole repairs, building maintenance and equipment servicing.
The appropriate level of infrastructure investments is subjective,
but A&Ms best estimate is that the City needs to spend
approximately $268 million to upgrade its infrastructure to a
minimum acceptable level
Pension Contribution
Percent Funded
Actual Capex Spending vs.

vs Required
Capex Spending ($ in millions)
$100
$80
$60
$40
$20
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
4. Extending Accounts Payable

Starting in 2007, the City began stretching payables in an effort to
increase liquidity, but an inability to stay current led to
unsustainable accounts payable balances and increasingly frustrated
vendors
Portent Falls had traditionally been a fast payer of its bills
always
y within 30 days
y up
p until 2000. In 2007,, Portent Falls
had average days payable of approximately 46 days, which rose
to 103 days payable by early 2011, amounting to approximately
$95.3 million of additional borrowing in just those four years
Actual Capex Spending
Required Capex Spending
Cumulative Cash Impact of Extending

Accounts Payable ($ in millions)
$100
$80
$60
$40
$20
$0
20
Debt Burden on Citizens of Portent Falls

Total Obligation(1)
$407 Million
$849 Million
$1.6 Billion
Note:
(1)
(2)
Cumulative Obligation per Capita
City OPEB(2)
$818
City Underfunded Pension
City Bond and Bank Debt
$2,526
$5,725
Not drawn to scale

Total obligation does not include approximately $95 million of extended payables and $268 million of deferred infrastructure investment
OPEB = Other post employment benefits. City OPEB expenditures are predominately for healthcare
21
A Pyramid of Pain for Citizens of the United States

Total Obligation
Cumulative Obligation per Capita

$2.8 Billion
$1.3 Trillion
Portent Falls
$5,725
Obligations
State Debt
$3.5 Trillion +
$
$7.9 Trillion
$9.1 Trillion
$13.4 Trillion
$22 8 T
$22.8
Trillion
illi
$35.3 Trillion
Underfunded
Social Security
$9,901
Underfunded State and Local Pension and
(1)
R i
Retiree
Healthcare
H lh
$46,519
Federal Debt
Household Debt
$21,143
$
,
$75,750
$118,792
U d f d dM
Underfunded
Medicare
di
Unfunded Medicaid
Sources: Kleiner Perkins Caufield & Byers USA Inc., Bloomberg and Houlihan Lokey analysis
Note:
Not drawn to scale
(1)
Includes $3.0 trillion of underfunded pension and $0.5 trillion + of retiree healthcare obligations
$192 029
$192,029
$305,417
22
Grasping for Revenue
Current City revenue composition is overly skewed toward property taxes

City aggressively increased property tax to 2.15% of assessed value (highest in the state) and sales tax rates to
1.25% (on top of the state sales tax rate of 6%) in a series of tax hikes from 2007 to present that only partially
offset recent declines in property values and decreased economic (sales) activity. The last newspaper editorial on
the City
Cityss tax policy called it a sad
sad spiral of self-fulfilling
self fulfilling economic decline
decline
Property value assessments have dropped and are coming down further, reassessment requests are flooding into
City Hall and property tax delinquencies have hit a record high, which offsets much of the recent tax increase
In 2008, for the first time in a decade, the state reduced transfers to Portent Falls. In 2009, 2010 and 2011, state
transfers were reduced further and the City is concerned about deeper 2012 reductions given the state
statess own
deep financial troubles
Portent Falls Revenue Composition

$1,250
IIncrease iin sales

l ttax rate
t
from 1.00% to 1.25%
$1,000
$750
Increase in property tax rate

from 2.00%
2 00% to 2.15%
2 15%
Increase in property tax rate
from 1.25% to 2.00%
$500
$250
$0
Increase in sales tax rate

from 0.75% to 1.00%
Property Tax
State and Federal Transfers
Charges for Services
Licenses & Fees
Sales Tax
23
Cost Problems
Permissive Labor Contracts High Labor Expenses
Comparison of Healthcare & OPEB
Despite fiscal weakness, successive mayoral administrations have failed to

achieve wage reductions and needed labor contract revisions from Portent
Falls powerful public unions
City carries pro-union public sentiment given history of mining and
timber unions and resentment over Stampcrafts move to offshore

manufacturing operations. This sentiment has slowly eroded over time
with the Citys finances
A summary of Portent Falls
Falls key personnel cost drivers include:
City Plan
Kaiser Plan
In-Network
In
Network Co-Pay
Co Pay
$0
$20
Out-of-Network CoPay
$0
$40
Total Dependents
Allowed
High wages and high corresponding administrative costs, aggressive
COLA provisions, burdensome work rules,

provisions and unsustainable OPEB practices
generous
pension
Comparison of Labor Contracts to National Average

Fire
Police
Administrative
Portent Falls
National
Average
Portent Falls
National
Average
Portent Falls
National
Average
Wage $/Hour
$30
$25
$35
$30
$25
$20
Retirement Age
52
57
52
57
52
57
Vacation Days
28
21
28
21
28
21
Sick Leave Days
10
10
10
Minimum Work Week

(Hours)
32
38
32
38
32
38
24
Cost Problems (Cont.)
More on CBA Headaches

Rigid wage and staffing requirements in the CBAs limit the Citys ability to cut costs and execute effective
RIFs, and there has been a morale-sapping battle over these issues between Portent and its public unions for a
decade
Modest employee reductions provided some aggregate cost relief but stubbornly high compensation rates and
an extremely high proportion of retirees (and their retiree medical benefits) largely offset these efforts
RIFs Reduce Labor Costs
Retiree Burden Remains High
34.4% Ratio of Active to
Retired Employees
4,000
25.6% Ratio of Active to

Retired Employees
3,000
678 Net Decrease in
Active Employees
2,000
1 000
1,000
2,500
$230
2,000
$210
1,500
$190
1 000
1,000
$170
Active Employeess
214 Net Increase in

Retirees
$250
Annual Labor Cost

A
5,000
High Compensation Rates & Large Proportion of Retirees

Mitigate Cost Reduction Impact of RIFs ($ in millions)
0
2000
2010
$150
500
2000 2001 2002 2003 2004 2005 2006 2007 2008
Active Employees
Retirees
Total Active & Retired Labor Cost
Active Employees
p y
25
Dilapidated Infrastructure
Chronic underinvestment in Portents

infrastructure over the last several
decades left the City vulnerable in many
ways to the elements, most critically to
the once
once in a decade
decade major flood
danger
80
Troy Gardens
Many of Portents roads have slipped

below the safe level on the Federal
Safety Index
Lastly, urban migration to Portents
comparatively safer and more attractive
North end has left Portents Southern
wards with extremely low population
density, leading to significant City
operational inefficiencies
Troy Gardens
20
After 15 years without major flooding,

the Catalyst River breached the Citys
aging under-repaired levee in 2007,
flooding
g a substantial p
portion of the
Citys central business district
Most of the damaged roads, buildings
and infrastructure were repaired with
funding from the 2007 emergency bond
issue and state and federal aid,, but the
City was unable to raise sufficient capital
to execute expensive and comprehensive
repairs to the levee system. It is still
working to secure the necessary funding
from the federal government
Pavement Condition(1)
Population Density
X 2007 Flood
Levee Breach
Portent Falls
Flood
Damage
Zone
Portent Falls
City Hall
Flood Plain
Low Density
Population
High Density
Population
0
Note:
(1)
Pavement Conditions
100
42% of roads rated 50 or worse

Ratings based on federal highway safety
index under which 100 is the top score for a
new road and 85 is the suggested weighted
average
26
Excessive Operating Costs
Portent Falls dilapidated infrastructure has led to excessive operating costs

Because Portent deferred maintenance over an extended period, the streets that can be repaired require
substantial work leading to maintenance costs per mile that are 2.8x greater than the national average
Portent faces an estimated $150 million investment required to bring the pavement condition index from the
current average of 52 to the suggested optimal efficiency average of 85

The Citys insurance costs are significantly higher than comparable mid-sized peers due to, among other
factors, high tort claims associated with an understaffed and underpaid police force
Water treatment costs are also rising with needed sewer treatment upgrades past due,
due and the EPA is actively
investigating certain discharge issues

Escalation of Annual Water Treatment Expenses(1)
($ in millions)
Comparison of Street Rating to Road Maintenance

Cost Per Mile
$10.0
$16,000
Projected operating expense if

investment not made
Cost Per Mile
$14,000
$7.5
$12,000
Suggested Optimal
Efficiency Index
$5 0
$5.0
$10,000
$2.5
Projected operating expense

if investment made
$8,000
$0.0
$6,000
$
,
10
20
30
40
50
60
70
Pavement Condition Index

Source:
Illustrative
investment date
80
90
100
Source:
(1)
Outside water consultant

Consultant estimates four year payback on $8.4 million investment
Outside civil engineering consultant
27
Misaligned Infrastructure A Failed Test of

Political Will
P
Portent
t t Falls
F ll mostt significant
i ifi t period
i d off infrastructure
i f t t
i
investment
t
t occurred
d in
i the
th 1920s
1920 and
d 1950s
1950 in
i areas off the
th City
Cit that
th t have
h
gradually seen significant population decreases
As a result, Portent is left with excessive fire, police and educational infrastructure in low population City quadrants, even after recent
facility closures
In 2002, during the last recession, the City hired a research consultant to determine whether it could achieve meaningful cost savings to
plug
l its upcoming budget
b d
d f
deficit
b consolidating
by
ld
and
d optimizing the
h locations
l
off its police
l and
d fire
f departments
d
and
d schools.
h l The
h study
d
was completed and made public, but was tabled after 600 concerned citizens picketed City Hall armed with Dont Abandon the
Southside pickets and bullhorns
This misalignment of physical infrastructure has led to high fuel costs and inefficient service as measured by police and fire response times
The City
y is also left with too manyy school buildings
g in the southern p
part of Portent Falls
The facilities are large, older buildings have significant deferred maintenance, high operating costs and high capital expenditure
requirements
The efficient long-term solution is to close several South Portent schools and open two new schools in North Portent where there is
greater need. Preliminary school consolidation plans were disrupted in 2006 by a flood of parent objections and over 400 South
Portent parents taking
taking over
over a City Council meeting to debate
debate this issue.
issue No school closures were implemented
Funding for the schools is actually a complex mix of federal, state and local sources
Average Service Response Time
Optimal Infrastructure Facilities & Schools

North
South
Police
Stations
Required Closures: 0
New Facilities: 2
New Facilities: 0
6 minutes
Fire
Stations
New Facilities: 1
New Facilities: 0
5 minutes
Schools
New Facilities: 2
New Facilities: 0
Fire Response
Police Response
North Portent
Falls
12 minutes
10 minutes
South Portent
Falls
9 minutes
Troy Gardens
8 minutes
28
Uneconomic Troy Gardens Relationship
Troy Gardens was founded in 1888, 50 years after Portent Falls. Troy Gardens remained largely isolated from Portent Falls
until the 1980s when Portent Falls northern development bled over into the previously underdeveloped southern end of
Troy Gardens
As a fast growing newer community, Troy Gardens attracted upwardly mobile, former Portent Falls residents because of
deteriorating
g Portent Falls schools and a lower Troy
y Gardens tax burden
Rapid Troy Gardens development outstripped its water, storm water and waste treatment capabilities, and Troy Gardens
contracted with Portent Falls to supply five of Troy Gardens nine southern districts with these three utilities at cost billed
quarterly. This was heralded as win/win at the time
These contracts struck in the late 1980s have been largely untouched and provide significant economic benefit to Troy
Gardens
d
at Portent Falls
ll expense. Charges
h
to Troy Gardens
d
h
have
risen at approximately
l 1.5% per year over the
h 20-year
term of the relationship as cost was interpreted as variable cost and upgrade and maintenance expenditures were largely
ignored by both sides
This imbalance had gone unnoticed until Portent Falls engineers pointed out the need for large facility upgrades in all three
utilities stemming
g from long-term
g
increases in utilization rates and aging
g gp
physical
y
plants. The upgrades
p
pg
are estimated at $19
million over five years for which the utilities, owned and operated by the City, currently lack sufficient reserves
Comparison of Cost Burden & Utilization
Cost Burden
B rden Under Contract
Utili ation
Utilization
Waste Treatment
65% Portent Falls

35% Troy Gardens
55% Portent Falls

45% Troy Gardens
Water
65% Portent Falls

35% Troy Gardens
41% Portent Falls

59% Troy Gardens
Storm Water
65% Portent Falls

35% Troy Gardens
56% Portent Falls

44% Troy Gardens
29
Squandered Capital and Missed Opportunities
IIn 2004,
2004 Portent
P
F ll issued
Falls
i
d $180 million
illi off tax increment
i
fi
financing
i bonds
b d (1) to fund
f d a downtown
d
revitalization
i li i project,
j
the grand vision of a prior mayoral administration was widely criticized in retrospect for at the very least, gross
incompetence
After nearly a year of planning and deliberation over use of proceeds, the City retained a number of engineering and
architectural professionals to develop the initial stages of the project

Work began in 2006, initially targeting bridge reconstruction and road repair but quickly halted when the 2007 flood
severely damaged some of the initial construction and also forced the City to divert efforts (and funds) from
construction to cleanup
y and Cityy Counsel members either p
passed on or were
Haunted byy the result of this financial disaster,, the new Mayor
unable to secure support for several potentially valuable investment opportunities presented in the interim
Missed Opportunities
Opportunity
Description
Capital Outlay
Net Annual Benefit
Paper Recycling
Plant
City received several indications of interest from a paper recycler willing to build a new
recycling plant on the land near the port
City would need to fix and maintain the levee, provide transportation of residential
wastepaper to the plant and retire long-term dock leases with remaining counterparties, but
would avoid costly insurance premiums associated with docking operations, receive
proceeds from the sale of the p
p
port land and revenue from the sale of wastepaper
p p
$35.0 million
$11.0 million (25year contract)
Interpretation
Services
City approached by several vendors offering interpreter services for non-English speaking
residents. The vendors site studies indicated that a substantial portion of property tax
receipts and revenue from traffic citations and construction permits were lost in
translation.
Vendor would provide software up-front and continuing support for an annual fee
$1.5 million
$3.0 million
(reducing over
time)
Municipal Pay
Lots
City has 12 (currently free) municipal parking lots that could be retrofitted with electronic
ticketing stations
$6.0 million
$4.0 million
(1)
The tax increment financing bonds were intended to be serviced by increased tax revenues (above an identified historical average tax
revenue baseline) from the zone impacted by construction. Bond payments are guaranteed by the City
30
Understaffing Essential Functions
RIFs and facility rationalization have left key City functions, such as fire and police, dangerously understaffed
and without adequate infrastructure and equipment
Chief of Police
Staffed
Not Adequately Staffed
Executive Secretary
Head of Field
Operations
Operations
Support
Patrol Division
1st
Precinct
2nd Precinct
Head of Investigators
Bureau
Traffic Division
Planning and
Research
General
Traffic
Detective
Division
Downtown
Traffic
Records
3rd Precinct
Support
Services
4thh
Precinct
Forensics
Divisions
Special
Operations
Juvenile
Division
Head of Professional
Standards
Communications
Internal
Affairs
Training Unit
Labor
Relations
Administrative
Services
31
Understaffing Essential Functions (Cont.)

Fire Chief
Executive Secretary
Suppression
Prevention
Deputy Chief
Assistant Chief
District 1
Assistant Chief
Arson Investigator
Training
Paramedic
Emergency
Preparation
Paramedic
Coordinator
Fire Training
Division
EMS Division
Engineers
Administrative Clerk
Firefighters
District 2
Assistant Chief
Engineers
Inspector 1
Inspector 2
Firefighters
District 3
Assistant Chief
Staffed
Inspector 3
Not Adequately Staffed
Engineers
Firefighters
32
A Dark Period
A Dark Period
Default Thinking the Once Unthinkable
June 2 to June 24, 2011 Thoroughly discouraged yet enlightened by Cassandras recitation of Portent Falls
history the City Council and its team of advisors discuss next steps
Cassandra repeats her view that the City has only two options: obtain additional third party financing or
default on the upcoming
p
g bond p
principal
p and interest p
payments
y
followed by
y continuing
g selective defaults on a
host of other City obligations
The Mayor later reports that progress at the state level has been frustrated by the states own financial
difficulty
Cassandra
Cassandrass new investment banker, HL, indicates that several hedge funds have expressed preliminary interest
in providing a $40 million bridge facility
Unfortunately the loan would bear interest at 9%, plus fees and expenses, and require a pledge of all the
municipal parking lots and the Citys installation of new parking meters. The team agrees that this is
untimely,
y, expensive
p
and unrealistic g
given the legal
g challenges
g of mortgaging
g g gp
public assets
After discussion and negotiations with the lead hedge fund, HL further negotiates a fast track term sheet
from Ajax Capital improving on its original early offer to Cassandra with a $30 million loan, with an 8%
interest rate and a simplified collateral package, which several council members gratefully embrace. This
could save the City! Cassandra openly resists the enthusiasm of the City Council members to this Ajax
advance
d
b predicting
by
d
that
h the
h incrementall liquidity
l
d
will
ll now only
l delay
d l
the
h inevitable
bl a fact
f
sadly
dl
acknowledged by all of her advisors given the reality of the 13-week cash flow projections that are being
completed. Without a long-term solution, this is the proverbial exercise in kicking the can down the
increasingly potholed road, by taking on an expensive new debt burden
34
A Dark Period
Portent Falls: Financial Death of a City?
The City Council unanimously votes to pursue the $30 million loan to kick the can
The next day, The Portent Herald Star runs an article titled Portent Falls: Financial Death of a City? which
analyzes the Citys fiscal crisis in great detail

Several of Ajax
Ajaxss partners read the article and Cassandra receives the bad news from HL the next day that
Ajax will not be able to get there in time at that price

Cassandra asks A&M to recut the weekly and monthly budgets assuming the upcoming principal and interest
payments are skipped which she refers to as the Default Budget
35
A Dark Period
Default Thinking the Once Unthinkable

(Cont.)
June 27, 2011 Given the inevitable fallout from a bond default, both A&M and HL advise Cassandra and
the City Council that things will deteriorate in ways that cannot be fully predicted
HLs assessment of the situation is characteristically blunt
From
From HLs
HLs perspective,
perspective we think default should be your last resort.
resort It will set into motion a very painful
process for everyone connected to this City. However, we just dont see another option
A&Ms advice is even less comforting Even if you default, our longer-term projections show the City
running out of cash in December
S&A begins the first serious
serio s discussion
disc ssion of chapter 9,
9 and briefs the City
Cit Council
Co ncil behind closed doors
A&M Default Budget Monthly Liquidity Forecast ($ in millions)(1)
$110
$
$90
$70
$50
$30
$10
($10)
($30)
($50)
(1)
Default Budget excludes principal and interest expense on debt obligations and includes $1 million per
month of additional professional fees beginning June 2011. Monthly balances calculated as of month-end
36
A Dark Period
Chapter 9 Basics
Purpose of Chapter 9
Provides municipality protection from its creditors via the automatic stay while it develops and negotiates a plan for adjusting its
debts (Plan of Adjustment)
Eligibility
Must be a political subdivision or public agency or instrumentality of a state
Municipality must be specifically authorized to be a debtor by state law or by a governmental officer
Municipality must be insolvent and desire to effect a plan to adjust its debts
M
Municipality
i i li must either
i h obtain
b i agreement off at least
l
a majority
j i in
i amount off claims
l i
off each
h impaired
i
i d creditor
di
class,
l
negotiate
i
i
in
good faith with creditors, be unable to negotiate with creditors or reasonably believe that a creditor may attempt to obtain a
preference
Debtors Power
Municipality has broad powers to use its property, raise taxes and make expenditures as it sees fit
Also permitted to adjust burdensome non-debt contractual relationships under the power to reject executory contracts and
unexpired leases, subject to court approval
Municipalities may also reject collective bargaining agreements and retiree benefit plans
Courts Power
Municipalitys day-to-day activities are not subject to court approval and the municipality may borrow money without court
authority, although court approval necessary if debt is primed or new debt is secured
Court cannot appoint a trustee or examiner, and cannot convert the case to a liquidation case
Court also cannot interfere with the operations of the debtor or with the debtors use of its property and revenues. Moreover, a
chapter 9 debtor may employ professionals without court approval, and the court can only review fees in the context of a plan
confirmation, when the court determines the reasonableness of the fees to be incurred
37
A Dark Period
Parade of Horribles The Beginning
As the bond default debate at City Council continues, a plethora of additional negative factors begin to emerge
Party
Issues
Impact
Bondholders
Agitated by requests to consider principal and interest holiday

Have organized
d as an ad
d hoc
h group, selected
l
d legal
l l and
d financial
f
l
advisors and want City to compensate advisors and support their
diligence efforts
Alluded to possible mandamus action if City defaults
dd
l administrative
d
Additional
burden and expense
Potential legal battle
Vendors
Historically unprecedented extension to over 100 days

Concerned by recent ratings downgrade (from BBB- to BB)
Demanding cash in advance (CIA) and accelerating collection efforts
CIA demands have drained

another $3.5 million of
liquidity
Bank
(CountyTrust)
Letter from bank counsel noting liquidity projections indicates

violation of minimum liquidity covenant in the TRAN
Demanding access to A&M work product or have indicated they
will retain their own advisor at Citys expense
Indicated they do not intend to extend LC supporting GO Levee
Repair Bonds after upcoming July 2011 maturity
Additional administrative
burden and expense; LC lapse
will trigger default under
general obligation bond
indenture
Ratings
Agencies
Demanding additional information on liquidity outlook

Contemplating further downgrades and openly discussing potential
for default
Heavy administrative burden

in responding to additional
requests for information
State
Troubled by downgrade, Governor has re-installed financial review

board
State law precludes chapter 9 municipal bankruptcy proceedings
State budget for 2012 contemplates reduced funding for all cities
including Portent Falls
Precludes avenue for dealing

with debt obligations while
contributing to future revenue
shortfall
38
A Dark Period
Fiscal Emergency Plan
Given the necessity of realizing additional cost concessions to finance the City even in the Default Budget, the
advisors recommend that the City begin preparing a Fiscal Emergency Plan essentially a budget that would
allow the City to operate during a chapter 9 case
After reviewing the elements of the Fiscal Emergency Plan,
Plan Cassandra sadly comments,
comments The
The cost for saving
the City seems to be killing the City
Initial Fiscal Emergency Plan & Estimated Savings
Item
Description
Annual Cost Savings
Wage Reductions & Hiring

Freeze
Employee wages frozen, numerous vacant administrative

positions not filled and no nonessential hiring
$15.2 million
Debt Service & Lease

Payments
Principal and interest payments stopped throughout chapter 9

filing. Payments on nonessential leases stopped
$91.1 million
Municipal Waste Collection
Municipal waste collection operated on reduced pick-up

schedule
$5.1 million
New Vehicle Purchases
All new vehicle purchases eliminated for 2011
$9.5 million
Road Maintenance & Snow

Removal
Road maintenance and snow removal spending reduced
$8.6 million
Park Maintenance & Spending
Maintenance spending further reduced
$5.2 million
Libraries, Community &

Senior Centers
Public libraries, community and senior centers operating days

cut from
f
six days
d
to three
h
d
days
a week.
k Other
h facilities
f l
closed
l d
indefinitely
$
million
ll
$3.8
39
A Dark Period
Reactions to Fiscal Emergency Plan
On a preliminary basis the Citys advisors preview the Fiscal Emergency Plan with the affected parties to gauge
their reactions, contemplate possible modifications and garner support and understanding
Cassandra is deluged with calls from ratings agencies, bondholders, vendors and retirees. Not only is it
exhausting
g for someone who is used to returning
g every
yp
phone call,, it is difficult to explain
p
the complexities
p
of
the Citys problems and approach to those who want merely to advance their own interest
S&A explains the need for disclosure to Cassandra, even when tactical considerations would suggest secrecy,
or at least discretion. In the poker game of municipal restructuring, the City has to play with all its cards
faced up given state and federal disclosure requirements
Reactions are overwhelmingly negative (with no constructive suggestions). The angry tone of the reactions
presages the difficult road ahead
None of these constituencies are sufficiently prepared or educated to understand the true depth of the Citys
problems
40
A Dark Period
Reactions to Fiscal Emergency Plan (Cont.)

Summary of Fiscal Emergency Plan Responses
Bondholders
Support for reduction of service and maintenance expenditures in addition to

exploring more cost cuts
Support tax increases to cover costs
Portent Falls Taxpayers
Gather in front of City Hall with picket signs opposing reductions in services and
potential tax increases. Recall campaigns on Mayor and council members being
organized All agree that taxes should not be raised
organized.
Governor
Expresses concern about impact of the contemplated default, as well as the

human costs of further cost cuts. Asks financial review board to examine all
options and make alternative recommendations
Plan
l is a violation
l
off CBA
C A rights
h and
d immorall
Retirees & Pensioners
Qualified support for reduction of service and maintenance expenditures, as well

as other cost reductions, as long as offensive elements of plan are eliminated
Support tax increases to cover costs
Plan is a violation of CBA rights
Employee Unions Fire,

Police, Administrative &
Other
Rumors of sick-outs as a response to the proposal

Support tax increases to cover costs as opposed to radical and unwarranted benefit
reductions
41
A Dark Period
Stumbling Into Default
June 29, 2011 On the eve of the Citys principal and interest payment due date, with no commitments from
the state and no firm commitments for outside financing, the City Council approves measures to defer the
bond payments indefinitely and immediately adopts the Fiscal Emergency Plan
The advisors embark on a campaign to positively influence the media perception generating a mixed
outcome
Fiscall E
Fi
Emergency Pl
Plan C
Contemplates
l
N
Needed
d d
Changes; All-Star Bankruptcy Advisory Team to
Assist in Implementation
The Portent Herald Star
Cassandra Bodine and the council have some
good ideas for emergency cost reductions
The Observer
State Bungling Could Sound Death Knell for City
in Decline
The State Journal Register
Fiscall E
Fi
Emergency Pl
Plan H
Has Littl
Little H
Hope off
Implementation
The Daily Sentinel
A Portent of Higher
g
Rates For All
The Standard Star
The Portent Falls City
y Council A Decade of
Administrative Incompetence
The Capital Times
42
A Dark Period
The City Makes a Statement
PORTENT FALLS, GD., June 30/PRNewswire-FirstCall/ -- Portent Falls today announced that as a result of declining property tax
revenues, escalating employee costs, reduced state and federal aid and significantly higher than expected storm cleanup costs, the City
did not make its semiannual debt service payments due on June 30, 2011. Additional financial operating data is contained in the
attached budget reports. The City is planning to engage in discussions with its bondholders regarding the current situation and intends
to work closely with them to develop a plan to address these issues.
issues
The City also announced that it has retained a team from the restructuring and corporate advisory firm Alonzo & Marshall, headed by
William Bill Roberti to bolster its accounting and finance functions, seek out immediate cost cutting options and assist in improving
the Citys overall operating performance. In addition to Alonzo & Marshall, the City recently hired Hallahan Laurie to serve as its
independent financial advisor and investment banker to explore financing options, potential asset sales, public to private partnerships
and to evaluate strategic and restructuring alternatives. The City has also hired Simmons & Adler as its legal counsel.
The City plans to continue core operations without interruption while it engages in discussions with its bondholders and other key
economic stakeholders and evaluates its strategic and restructuring alternatives. Moreover, the City will continue to take actions to
conserve cash and reduce its structural deficits. These initiatives include accelerating the closure of sub-optimally located police and fire
stations and schools, realigning the Citys cost structure to better reflect its population and seeking a more sustainable tax and capital
structure. The City intends to consider a number of alternatives, including asset divestitures and public to private partnerships,
recapitalizations, collective bargaining agreement modifications and potential alliances with neighboring cities. The City does not
intend to comment further publicly with respect to its evaluation process of strategic and restructuring alternatives until its conclusion.
Cautionary Note Regarding Forward-Looking
Forward Looking Statements
The statements contained herein may include statements of future expectations and other forward-looking statements that are based on
the Citys current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results,
performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are
forward-looking
forward
looking by reason of context, the words "may",
may , "will",
will , "should",
should , "expects",
expects , "plans",
plans , "intends",
intends , "anticipates",
anticipates , "believes",
believes ,
"estimates", "predicts", "potential", or "continue" and similar expressions identify forward-looking statements.
43
A Dark Period
Fiscal Emergency Plan FalloutThe Path to

Chapter 9
A disastrous 30 days after the bond payment default the state allows the City to file for chapter
9 to obtain the protections of the Bankruptcy Code
City files chapter 9.
Property tax delinquencies
at unprecedented levels
City defaults on debt payment and

g y Plan to
initiates Fiscal Emergency
conserve liquidity
Fiscal Emergency
Plan litigated in
multiple lawsuits
by unions,
pensioners and
bondholders
2011
J l 1
July
Four-alarm fire call at budget

hotel is underserved due to
undermanned fire station and
engine failure on key ladder
truck 11 people die,
die including
3 children
Firefighters and
police officers
begin series of
sick-outs
All vendors
now cash in
advance
J l 8
July
Four police cars not

released by third
party repair shop as
a result of Citys
inability to provide
payment
Trash accumulates in
City streets as private
waste haulers
h l refuse
f
to
cart until past-due
receivables are paid
Violent crime
statistics reach
all-time high
J l 15
July
Governor pressured to back labor

lawsuits. State financial review board
directed by Governor to deliver
analysis / recommendations within
10 days
J l 22
July
Financial review board issues

report backing Fiscal
Emergency Plan cost
reductions and confirming
need for chapter 9. State
legislature holds emergency
session to enact law
J l 29
July
Three City Council

members resign
44
A Dark Period
Governor and Legislature Fiddle While Portent

Falls Burns
In the wake of Portents hotel fire, the backlash is unavoidable and unexpectedly severe for both political
parties. The Capital Tribunes headline says it all: Governor and Legislature Fiddle While Portent Falls Burns
45
A Dark Period
Financial Review Board Advocates Chapter 9
As a result, the Governor puts intense pressure on the state-appointed financial review board to render a
decision on restructuring alternatives
The financial review board issues its preliminary summary report essentially backing Cassandra and the
Cityy Council Members with the following
g concluding
g observations:
provided no financial support from the state is available, something along the lines of the actions
contemplated in the Citys initial Fiscal Emergency Plan must be implemented to allow the City to continue
providing essential services
While the Fiscal Emergency
g y Plan implements
p
various actions that are urgently
g
y needed,, a more
comprehensive approach to the Citys various accumulated obligations must be negotiated to set the City on
the path of long-range viability
The fractious nature of the existing dialogue between the City and various creditor constituencies suggests
the state must intervene to provide a legal framework for dispute resolution and debt adjustment or allow
the City to pursue resolution through a chapter 9 case
The Governors top advisors provide him with stark choices provide an immediate $50 million bailout to
Portent, allow it to file for chapter 9 or watch the states second largest city melt down before your eyes
The Governor p
publicly
y requests
q
that the legislature
g
immediately
y allow a Portent Falls chapter
p 9 filing
g with one
caveat that the City provide him with a chapter 9 timeline that assures all the constituencies of a quick
resolution
In an increasingly rare demonstration of bipartisanship, the new municipal insolvency law clears both
chambers of the state congress in record time
46
A Dark Period
Citys Ideal Chapter 9 Process
July 25, 2011 The day after the Governors edict, the council provides the Governor with the following
timeline which the advisors assure will never be met!
Confirmation of POA and subsequent
q
emergence from bankruptcy
File chapter 9
Court order deeming the City eligible; formation of Official Creditors Committee
Circulate Plan of Adjustment
(POA) to key creditors
Negotiate POA with
key creditors
2011
July
September
November
Objections and
litigation regarding
CBA rejections
File initial POA with bankruptcy court and

obtain approval of disclosure statement
2012
January
Solicitation of POA
March
May
July
Obtain approval to reject CBAs
File motions to reject CBAs that have not been renegotiated by this date
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Portent Fights for Its Life

The Portent Herald Star July 31, 2011
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A Filing Then A Fight!
July 31, 2011 With enactment of the new chapter 9 legislation, Portent files for chapter 9 bankruptcy
protection
Portents bankruptcy filing is immediately contested by an ad hoc bondholder group, six of the Citys nine
public unions and a g
p
group
p representing
p
g the Citys
y retired p
pension holders
The bankruptcy judge sets an October 3 date to hear objections to the filing
In the intervening weeks the City reviews objections to its filing, all of which center around seven primary
arguments:
Contested Filing Key Creditor Arguments
1.
Additional taxation is possible City should raise taxes and not impact creditors
2.
Insufficient examination of asset monetization (public-to-private) opportunities
3.
The City has not fully explored all cost reduction options
4.
The City has over $250 million in various restricted funds that could and should be
responsibly borrowed by the City and repaid over the next seven years
5
5.
The City turned down the Ajax bridge financing,

financing and had money in the bank when it
filed, demonstrating that the filing is a Trojan Horse for its real agenda to kill
collective bargaining
6.
The City has substantial cash on hand after receiving semiannual property tax
payments due on July 31
7.
The City did not bargain in good faith with the unions who were willing to offer a
solution to the problem, which included an extension of the various CBAs
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Response to Creditor Objections
Legal Requirements Met

City proves it was impracticable to negotiate with the required creditors in the brief time period available Win
City wins seven-part argument proving insolvency as elaborated below Win
1.
Additional Taxation Win
City tax burden already highest

in region
Evidence of additional increases
already driving population
declines and deterring industrial
development
Laffer curve inflection point
may already have been reached
Excessive taxation is a form of
modern debtors prison that
d i
deprives
Cit
City off the
th ability
bilit to
t
invest and grow
2.
Asset Monetization Draw
City concedes additional analysis

should be done
Investment bankers currently
pursuing various monetization
options but marketing process
will take time to maximize asset
value
l
Implementation of monetization
strategy is easier in chapter 9
Not sufficient time to avoid
necessity of chapter 9 filing
3.
Cost Reductions Win
Extensive RIFs already executed

at all levels of City
yp
payrolls
y
Closure of extensive number of
existing facilities
Implementation of further
outsourcing initiatives contingent
on various contract rejections
City intends to implement in
bankruptcy
The Judge tells all litigants: This
is not an issue that should be
before me today
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Cutting the Hydras

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4.
Response to Creditor Objections (Cont.)
Restricted Funds Win
Violation
l
off contractuall
obligations
Violation of state law state law
does not permit the City to
borrow from restricted funds
other than for the very short
term
5.
Bridge Financing Win
Ajax financing contains onerous

terms and could not be
completed in required time
frame, and is insufficient in any
case
6.
Cash on Hand Win
Although
lh
h Portent Falls
ll filed
fl d
with substantial cash from
property taxes, the City still
defaulted on its bond payment,
is no longer paying vendors and
does not have access to funds to
pay its debts
7.
Union Bargaining Win
While the unions proposed

solution offered savings in the
near term, it also required more
onerous terms later on that the
City could not agree to
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The Plan of Adjustment Foundational

Principles
During exhaustive testimony contesting Portent Falls Chapter 9 petition, little work was done on the Plan of
Adjustment
Cassandra, HL, A&M and S&A create a set of foundational principles for developing a Plan of Adjustment
Reversing the Cycle of Decline
Principle
Objective
Cut Responsibly
Additional cuts in City government expenditures should come from operational

efficiency initiatives realized by a creative realignment of people and infrastructure as
opposed to blanket staffing cuts
Invest Wiselyy
The Citys limited investment funds should be dedicated to projects that first, reduce
the threat of additional catastrophic losses (from floods, etc.); second, restore totally
d
degraded
d d roads
d and
d City
Ci facilities
f ili i that
h its
i citizens
ii
rely
l on completely;
l l and
d third,
hi d
promote growth in areas with the best prospects
Budget Effectively
The budgeting process will: incorporate a five-year forecast; conservatively estimate

revenues; ensure revenues consistently exceed expenditures; spend one-time revenues
on one-time costs; create a reserve rainy-day fund from annual budgetary surpluses
Recognize All
Indebtedness
Beyond funded debt, the Plan of Adjustment will recognize and address the Citys
indebtedness in all categories, including: underfunded pension obligations, unfunded
OPEB obligations and deferred maintenance expenditures
Pay Back As Much

As Possible and No
More!
Portents severely distressed status necessitates shared sacrifice. Creditors will receive
a recovery based on the value of their claim but the City will balance payments to
creditors against the need to ensure the Citys ongoing viability
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Responsible Forecast Drives Level of Cuts
Based on these principles, Cassandra and her advisors set about the task of developing a comprehensive Plan
of Adjustment identifying four primary plan objectives:
Objectives
Areas Impacted
Execute administrative and structural

changes
g necessaryy to operate
p
City
y more
efficiently
Consolidate, close or sell City properties to
right size civic infrastructure
Personnel wages, staffing, work rules,

overtime management, hiring
Government Structure elimination of
departmental redundancies, outsourcing
options and other streamlining
initiatives
2. Contractual
Execute
ecute co
contractual
t actua modifications
od cat o s necessary
ecessa y
to implement broader operational and
financial restructuring steps and goals
Debt, leases, CBAs, pensions, healthcare

d other
h b
benefits
fi
and
Reset terms of Troy Gardens water,
wastewater and storm-sewer agreements
3 Civic Assets
3.
Make investments in (or divestitures of)

civic assets to create a sustainable long-term
financial model
Divest excess property, buildings and land
Levees, port, roads, parking lots,

buildings and land
Finance necessary ongoing expenditures

with recurring (i.e., non-cyclical) sources of
revenue
Appropriately adjust tax rates, service

fees, prioritize capital investment and
replenish reserve funds
1. Operations
4. Budgeting
Cost
Reductions
Investments
in Efficiency
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1. Operations
A&M plays the key role in identification of operational restructuring initiatives and setting up various
implementation task forces
Execution of each of the following requires modification of multiple CBA contracts and lengthy negotiation
Key Categories
Primary Initiatives
Estimated Annual Financial Impact
Wages
Implementation of progressive wage reduction range of 0%

for lowest civic pay grade to 20% for highest grade
Staffing
Approximate 15% increase in police,

police 15% fire and 5% City
administrative targeting lowest quartile pay grades financed by
attrition at highest pay grades and outsourcing of key functions
Work Rules
Relaxation of work rules to permit easier

termination/promotion, outsourcing of various tasks, eliminate
staffing
ffi requirements
i
and
d allow
ll
more fl
flexible
ibl overtime
i
management
$8.7 million annually, plus

needed
d d flexibility
fl ibili going
i forward
f
d
Facility & Departmental

Redundancies
Closure of 2 police substations, 2 fire houses and 14 schools
$24.5 million annually
Outsource Various
Services
Outsource fleet maintenance on most standard City fleet

vehicles from three preferred suppliers. Outsourcing of various
other nonessential functions. Close down Citys vehicle
maintenance facilities and reduce employee count (but require
suppliers to give hiring preference to terminated employees)
Net zero immediate annual

impact but substantial
impact,
improvement in capabilities
Total: $41.0
$
million annually
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2. Contractual
Debt modification and lease rejections are the only independent initiatives. CBA modification is complex as it
includes pensions, healthcare and the other operational initiatives addressed on the previous slide
Key Categories
Debt
Leases
CBAs
Changes to Current
and Future Employee
Pension Plans
Changes
g to Retiree
Pension Plans
Healthcare & Other

Benefits For Active &
Retired Employees
Primary Initiatives
After extensive discussions with bondholder advisors,
advisors City makes
initial proposal to impair outstanding funded debt by targeting
impairment rates that are in most cases slightly under current trading
prices
Rejection of multiple different vehicle and real property operating
leases consistent with operational restructuring agenda
Rejection of all major CBAs except City sanitation agreement which
was renegotiated eight months prior to chapter 9 filing
All future employee pension contributions go to fund 401(k) defined
contribution plans
Current employees retain value of defined benefits earned-to-date at
reduced
d d levels
l l detailed
d t il d below
b l
Increase retirement age for new employees
Re-set COLA minimums beginning in 2014
10% average benefit reduction on a sliding scale from 15% (for
highest benefit recipients) to 5% (for lowest benefit recipients)
p annual compensation
p
at $75,000
,
Cap
City commits to fund only 78% of underfunded pension obligation.
Catch-up payments on the residual unfunded amount will be made
over 20 years under a back-end weighted funding plan escalating
3.25% each year
Switch to lower cost healthcare provider; initiation of co-pay system;
additional cost for more than three dependents;
dependents and refunds for
purchase of generic drugs only
Estimated Annual Financial Impact


N/A (financial impact quantified in
operational initiatives)
Approximately $10.1 million of
g
annual cost savings
Changes to pension benefits reduce

total underfunded pension obligation
from $849 million to $662 million
$10.7 million 2012 pension
funding savings(1)
$8.8
$8 8 million annually
Total: $68.1 million annually

(1)
Reflects savings versus pension contribution that would otherwise be required to reach 100% funding status over same 20 year period
under same back-end weighted funding schedule
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3. Civic Assets
While the investment component of the Citys Plan of Adjustment is characterized by creditors as yet another
boondoggle at their expense, the City points out that with the possible exception of the port investment, all
other investments are really essential to ensuring Portent Falls viability
Initial Capital Outlay
Estimated Annual Financial

Impact
($30.0) million

over the long-term cycle
(taking into account
mitigation of unusual
flooding years) plus
potential for a riverfront
renaissance
Ports
Raise daily docking rates by 25% to enhance port

revenue but provide substantially enhanced
facilities, security and operational flexibility
Consider selling or leasing port to eliminate general
fund subsidization of port operating losses
None
$1.0 million annually net

of incremental
expenditures to enhance
facilities, security and
operating flexibility
Sale of NonCore Assets
Divest excess property, buildings and land that are

nonessential to City functions
$22.0 million in
proceeds
N/A
Roads
Invest $25 million to immediately refurbish the

most neglected City roads. Capital improvements
will result in substantial savings related to road
maintenance and reduce vehicle wear and tear, and
d
demonstrate
i a very public
in
bli manner that
h Portent
P
Falls is working again
($25.0) million
None direct, but

substantial indirect
impact, including
showing that Portent
F ll is
Falls
i still
ill a functioning
f
i i
City
Key Categories
Primary Initiatives
Levee
Invest $30 million to fix the Citys levee system

which will eliminate the potential for flood
damage. The City
Cityss insurance costs will be reduced
and it will promote new residential, commercial
and industrial activity on the river front
Net $33.0 million investment
Total: $6.6 million annually

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4. Budgeting
After
Af
marathon,
h
contentious
i
di
discussions
i
with
i h the
h Council,
C
il based
b d on the
h need
d to revive
i Portent
P
F ll tax
Falls,
CUTS(!) will be proposed as part of the Plan process. The City expects opposition from bondholders,
pensioners, the Creditors Committee everyone other than voters on the Citys proposed reduction of its
property and sales tax levels
The City also faces an unexpected challenge from Troy Gardens which sues in state court to stop the City from
implementing predatory tax policies and service fee adjustments. The state court declines to provide
injunctive relief
Key Categories
Primary Initiatives
Expected Result
Tax Rates
Reduce property tax rates from 2.15% to 1.75% on all

residential and commercial property (reduces rates to
levels before last increase)
Provides for a more sustainable

property tax structure. Tax rate
reduction initially results in decreased
property tax revenue but will
p
y remove the cloud over
hopefully
property ownership in the City
Service Fees
Troy Gardens sewer and water fees increased by 37%

creates shocking increases for Troy Gardens residents
Rate re-sets reflect current usage and appropriately
allocated expense burdens.
burdens New rate contracts have
automatic cost escalators based on usage rates
New sewer and water agreement

generates substantial incremental fee
income from Troy Gardens
Sale & Use Taxes
Reduce sales tax from 1.25% to 0.75% which is 0.25%

below Troy Gardens
Provides for a sustainable sales tax

structure by eliminating a major
impediment to new business entrants
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The Sources of Friction
As the Citys advisors discuss the Plan of Adjustments with creditors,

creditors multiple points of friction emerge
Something for Everyone to Hate
Chief Proponents
POA Major Categories
Bondholders, Pensioners
i
& Citizens
Ci i
Favor government efficiency to support greater debt
service
Citizen support provided its not THEIR school, fire
station, police station, etc.
Active Employees & Citizens
Operational
Efficiencies
Citizens
Erases the debt, change the CBAs, reduce taxes, increase
service levels and start borrowing again
Improved
p
credit p
profile will improve
p
(not
(
impede)
p ) access
to capital markets in the future
Chief Opponents
Have already endured enough cuts

Citizens oppose if its THEIR school, fire station,
police station, etc.
Bondholders, Pensioners & Current Employees
Contractual
Modifications
Contracts are binding, thats why we signed them

Impairment of obligations will impede access to capital
markets in the future
Citizens
Bondholders & Pensioners
Sell what you have to sell
Pay our claims
Civic Asset
Divestitures
Do not sell our City

There is no bankruptcy estate and creditors have no
equity interest
Tax cuts are NEEDED to save our City
Bondholders, Pensioners & Active Employees
Citizens
W need
d to stop strangling
li P
Portent and
d iits citizens
ii
We
Debtors prison is no longer legal
Budgeting
(Tax Relief)
No more failed revitalization strategies at our expense

We did not buy into the Portent revitalization act and
we did not create the problem
Tax cuts? You have to be kidding!
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Spurring the Process Along
Given the multiple points of friction a deadlock emerges, negotiations are bogged down and the restructuring
process elongates uncomfortably until the Citys advisors develop a negotiating strategy to spur the process
along
Key Strategic Elements
1.
Blaming (But Empowering) the Advisors
2.
Educating All the Constituents
3.
Managing Union Strife
4
4.
Add
Addressing
i Debtholder
D bth ld Diff
Differences
5.
Investing for Success
6.
Monetizing
g a Keyy Asset
7.
Confirmation
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1. Blaming the Advisors
In the midst of negotiations surrounding painful cost cutting and consolidation initiatives, Cassandra and the
elected officials on the City Council a majority of whom now face recall petitions realize the necessity of
casting the advisors as the hatchetmen and women
The strategy leads to questions over who is in charge and to claims from opposing parties that representative
democracy is being flouted
At a family barbeque, the Mayor says to the head of the police union (and his best friend): Look, its out of
our hands. These advisors are going to get this done no matter how long it takes or what it costs
However,
However with the advisors providing the analyses,
analyses simplifying decisions,
decisions explaining consequences and being
the key messengers of the bad news, the traditional problems of elected or appointed officials taking massively
unpopular actions are reduced, enabling progress on the key initiatives
The advisors, impervious to electoral pressure, take the public lead in the difficult negotiations
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2. Educating the Constituents
Beyond serving as the scapegoat, the City advisors play a key role in educating the constituents
The advisors take a step back and create a new financial overview and deliver it to each affected
constituency and follow up with neutral Q&A sessions

The advisors provide a full explanation of negotiating strategy for all constituencies,
constituencies explaining pain sharing
and why the whole Plan of Adjustment is fair

Advisor
Role
Conduct bondholder and union negotiations
HL
Structure, market, identify and negotiate sale transactions

Explore / negotiate new financing options
Provide cost-benefit analyses relating to other strategic alternatives
Advise / execute operational turnaround initiatives
Maintain cash flow forecasts and update budget projections
A&M
Provide interim management resources

Monitor and improve cash management and vendor relations
Assist in all financial negotiations
Work with Cassandra, HL and A&M to develop / negotiate Plan of Adjustment
S&A
Lead Plan of Adjustment related litigation

Assist in implementation of all legal / contractual changes
Provide advice on negotiations and financing / sale strategies
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3. Managing Strife
City advisors (principally A&M) explore the divisions that emerge between active and retired labor
representatives
Pointedly, the advisors note the zeal of well compensated retirees (many of whom no longer live in Portent)
arguing
i to the
h detriment
d i
off current employees
l
Current employees have no choice in accepting work rule and present financial concessions. They in turn
want to make sure future pension and healthcare promises, however reduced, are real
Opposing Arguments
Current Employee Arguments
Retiree Arguments
Majority of concessions should come from retirees in light of

rich contracts enjoyed by retirees when they were active
It is immoral to take away promised benefits from those who

have no recourse and no ability to work any more
Current employees should bear the brunt of future
concessions
Have already provided substantial concessions through the
prior two years when the City chose not to contribute to
their pension
While union CBAs can be adjusted in a chapter 9 process,
state law prohibits any delay in the amount or timing of
previously promised pension payments for retired
employees
Retirees cite a recent article about a retiree in Prichard,
Alabama who died in his home with no water, heat or
electricity after the City refused to honor his pension benefits
The
Th Citys
Ci
pension
i
h enough
has
h assets, such
h that
h even under
d
the worst scenario of no asset growth and no further
contributions, all expected payments could be made for the
next seven years
Current employees
l
h
have
already
l d provided
d d concessions in the
h
form of RIFs, hiring freezes, benefit reductions and poor
staffing levels
Retiree benefits and pension contributions are
unsustainable burden on a disappearing employee base
an
Many retirees have alternate sources of income, some have

alternative health plans and a majority no longer even live in
Portent Falls
35% of all retirees are under 60. A quarter of retirees still
have full
full-time
time jobs
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4. Addressing Debtholder Differences
HL forcefully negotiates with City debtholders who originally represent a united front but fracture after the
City defaults
The divide is first apparent between revenue and GO bondholders with certain revenue bondholders suing
City first in state court, and then bankruptcy court, to force principal and interest payments out of project
revenues. GO holders contemplating their alternatives
As the Plan of Adjustment develops, the City proposes recovery rates based on obligation type
CountyTrust
y
TRAN has a first lien on a segregated
g g
account that was to be funded with p
property
p y tax
receipts. However, the segregated account was not funded as of the petition date. The City originally
offered the same 70% recovery as general unsecured creditors but the offer was rejected. CountyTrust
claimed it had a collateral interest on the property tax receipts as a statutory lien and was entitled to a
100% recovery. Rather than undergoing costly litigation, Portent and CountyTrust agree to settle on an
85% recovery thereby locking-up
locking up CountyTrust
CountyTrustss support for the POA
All general obligation bonds, the CountyTrust letter of credit and trade creditors will receive the same
70% recovery
Revenue bond recoveries will be based on the status of the project and the financial impact of the City
guarantee
t (to
(t the
th extent
t t relevant)
l
t)
HL finally secures the support of many bondholders involved in the negotiations based on acceptable
recovery rates for the GO bonds and project sensitive treatment for the revenue bonds
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4. Addressing Debtholder Differences (Cont.)
Port bondholders originally hope for a 100% recovery based on their financial guarantee policy from
Financial Benefit Insurance Company (FBIC). However, as the POA takes shape, bondholders quickly realize
that payouts under the insurance policy may be in jeopardy due to the wrap providers own insolvency
proceeding
FBIC recently filed a Plan of Rehabilitation due to an unprecedented number of payouts related to financial
guarantees provided for credit-default swaps and other derivative instruments

FBICs Rehabilitation Plan contemplates paying approximately 20% of valid claims in cash in the future and
the remaining 80% in payment in kind ((PIK)

PIK ) notes maturing in 40 years
Port bondholders elect to avoid treatment under FBICs plan and negotiate with FBIC to commute the
insurance policy. Eventual terms of the settlement provide port bondholders with an up-front cash payment
of $5.0 million (25% of the claim) in exchange for a cancellation of the insurance policy
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Bond
Status
Treatment
$100 million 5.25%

Port Revenue Bond
Maturing 2019
(Guaranteed by City /
Wrapped by FBIC) (1)(2)
Accidents and poor docking conditions

have led to exorbitant insurance rates and a
significant decline in port traffic resulting in
the Port Authority
Authorityss inability to cover debt
service payments. After the Port Authority
exhausted the reserve fund, the City began
subsidizing bond payments as a result of its
guarantee. Port viewed as a horribly
managed and poorly operated diamond in
the rough
g byy p
private equity
q y community.
y
Expected to generate substantial cash flow
upon initial port repair and operational
restructuring
FBIC and bondholders reach a settlement to commute the insurance

policy for 25% of its net claim of $20 million. As a result of the
settlement, bondholders ultimately negotiate the terms of their recovery
directly with the City, resulting in a new $80 million cash
cash-pay
pay note
with a 6.25% interest rate maturing in 2032. Total recovery of 85% to
port bondholders
$75 million 5.25%

Special Assessment
B d Maturing
Bond
M t i 2041
(Not Guaranteed by
City / Not Wrapped)
Bondholders have liens
on development
assessments
Project never able to support principal and

interest payments. Abandoned after partial
completion
l ti ((approximately
i t l 65%
completed) by developer
Hecuba Partners, a hedge fund specializing in distressed situations, has

accumulated 94% of the bond issue at an average cost of 15 cents on
th d
the
dollar
ll over th
the pastt nine
i months
th
Hecuba negotiates with the remaining holders (who represent 6% of
the issue) to acquire their positions at 16 cents on the dollar
The City would like to see the property in the assessment district fully
developed, which will require an incremental $30 million investment
The City agrees to foreclose on the property for failure to pay property
tax obligations and conducts a private foreclosure sale
As part of a complex sale agreement, the City agrees to provide priority
infrastructure investment in the roads surrounding the assessment
district and transfer the property to Hecuba, while Hecuba surrenders
its revenue bonds and commits to complete the property development
within five years
(1)
(2)
City owns port land and leases it to the Port Authority. The Port Authority owns port equipment and fixtures including all docks, cranes, lifts, etc. The Port Authority issued debt to fund
equipment acquisition and other improvements
Acropolis Investment Partners has acquired a $50 million position in the Port Revenue Bond and is both negotiating with the City on the level of Port Revenue Bond impairment and also
negotiating to acquire the port
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Bond
Status
Treatment
$140 million 5.25% Sewer

Revenue Bond Maturing
2032 (Not Guaranteed by
City / Not Wrapped)
Development project meeting expectations

and covering all operating costs in addition
to all debt service obligations
Net cash flow comfortably covers debt service on the bonds

which continue to be paid post-petition
$180 million 5.95% Tax

Increment Financing Bond
Maturing 2044 (Guaranteed
by City / Not Wrapped)
Development project has never covered even

operating costs. Project never estimated to
turn cash flow positive
Bond reserve fund fully depleted and City
had been covering principal and interest
d fi i
deficiency
as a result
l off its
i guarantee prior
i to
default
70% recovery on account of guarantee from City

Recovery set at same level as GO bonds
New interest rate of 6.25% with a 2031 maturity
$1,096 million of General

Obligation Bonds
Prior to default City had been current on

principal and interest
70% recovery
All GO bonds treated in same manner
Each GO bondholder receives new debt with a face amount
equal to 70% of the par value of their allowed prepetition claims
New debt is issued at a 6.25% interest rate and matures on June
30, 2033
$180 million of Trade

Claims
Consists of all pre-petition trade vendor

claims
City has been paying post-petition payables
on a current basis
b i
70% recovery in cash
$30 million Letter of Credit

Facility from CountyTrust
Drawn after default
70% recovery in cash same as recovery on GO levee repair

bond for which the LC was supposed to be a bridge for the
credit wrap
$30 million CountyTrust

TRAN
CountyTrust has a lien on a
segregated account(1)
Drawn two months prior to default
85% recovery in cash
(1)
Segregated account funded with property tax receipts. As of the petition date, the segregated account was not funded with property tax receipts that were due July 31
67
Cutting the Hydras

Heads
5. Investing for Success
The Citys Plan of Adjustment is predicated on realization of both the indicated set of cost reductions and also
a series of immediate investments that Cassandra and her advisors characterize as essential to achieving longrange financial stability. We are not going to emerge from this nightmare with a doomed City
The cost reductions and investments are sold as a p
package
g deal and in a departure
p
from p
prior budgeting
g
g
practice, the City prepares a five-year budget outlook to illustrate the financial impact of failing to address
deferred, but essential, capital investment
The calculated cost savings are essential to selling the deal to creditors, some of whom, after years of
negotiations, finally understand they have a vested interest in Portent Falls viability that may be more
important than
h pushing
h
their
h own personall agendas.
d Others
h
still
ll clearly
l l do
d not believe
b l
this
h
Portent Falls Financial Projections(1)
($ in millions)
Projected Pension Asset & Liability Balances

($ in millions)
$1,200
$1 000
$1,000
$1,000
$100
$950
$80
$900
$60
$400
$850
$40
$200
$800
$20
$750
$0
$800
$600
Ending Pension Assets
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
$0
2009
Ending Liability
Revenues
(1)
2010
2011P
2012P
Expenditures
2013P
2014P
2015P
General Fund Ending Balance
2011 and 2012 expenditures exclude debt service and 2013 revenues include $100
million of asset sale proceeds from the port sale
68
Cutting the Hydras

Heads
6. Monetizing a Key Asset
M
Mostt creditors
dit
h
have
strenuously
t
l argued
d that
th t the
th City
Cit should
h ld responsibly
ibl explore
l
assett monetization.
ti ti
T acknowledge
To
k
l d this
thi Greek
G k
chorus (who have the support of the Bankruptcy Judge based on several of his remarks), the City agrees to explore asset
monetization opportunities with HL
HL studied five potential monetization strategies, and selected two as the most likely to succeed and is ready to go when request
is made
Counsel and advisors select the port as the highest value, highest profile asset monetization opportunity (and one that the City
has struggled to make profitable) and HL engages in a 90-day marketing process yielding eight expressions of interest, four
preliminary term sheets and finally two financed offers
Acropolis Investment Partners Offer(1) Key Proposal

Elements
Port Sale
Acropolis proposes to purchase the City port land for $100
million and pay the Port Authority bondholders $80 million
in cash to retire their restructured notes,, which are secured
by the port cash flows. As owner, Acropolis will be
responsible for all costs and be entitled to all net revenues
Contractual requirement that City maintain the road link to
I-80 and service roads to connect rail terminal, both indexed
to a score of 80, which the City estimates will cost
approximately $2.3 million per year (due to excessive use by
trucks, semis and other industrial machinery)
HL estimates a net present value (NPV) for the proposal
of approximately $70 million, after taking into account the
$100 million sale price, and the $2.3 million annual cost to
maintain the I-80 road links and rail terminal service roads.
There should also be an increase in taxable revenues, but this
is not factored into the analysis explicitly
(1)
Huangg Chao Joint Venture Offer Keyy Proposal

p
Elements
Port Joint Venture
Requires $25 million Huang Chao investment, $25 million
City investment and $50 million federal loan that bears no
interest and matures in 10 yyears
City maintains 100% ownership of port land but would
enter into a 20-year profit sharing arrangement, subject to
renegotiations upon expiration, with Huang Chao in
exchange for its management of port operations
Cash flows are first used to repay the federal loan
No requirement to maintain port I-80 road link or rail
terminal service roads
HL estimates a NPV of $80 million for the project from the
Citys perspective due to the profit sharing agreement and
increased port lease payments from the Port Authority.
Authority
Huang Chao simultaneously structures separate but related
deal with the Port Authority
Acropolis Investment Partners has accumulated 50% of the $100 million 5.25% Port Revenue Bond at an average price of 38 cents on the
dollar, greatly enhancing their total project return estimates
69
Cutting the Hydras

Heads
6. Monetizing a Key Asset (Cont.)
After substantial additional dialogue with creditors and overcoming the general civic fear of selling the City
Portent selects the Acropolis offer. While the Huang Chao offer technically provides a higher NPV, the
Acropolis offer provides immediate liquidity to fund the Plan of Adjustment and avoids entering into a
complicated joint venture structure with a foreign entity.
entity Additionally,
Additionally Acropolis discloses in the midst of the
negotiations that it has purchased over 50% of the outstanding Port Revenue Bonds, offering the City their
full support for the POA if their offer is selected
Acropolis Offer Pros & Cons
Pros
Greater upfront cash compensation
Eliminates need for City or federal co-investment
in port assets
Simple ownership structure
City avoids negative net revenues associated with
previously unprofitable port
No
N fi
financing
i or diligence
dili
contingency,
i
ffunds
d are
locked up and ready to go
Acropolis support locks up the bond class
Cons
Divestiture of City asset at point of weakness
could it be worth more after the bankruptcy?
No profit sharing possibilities
Cost of required road maintenance under
increased projected traffic volume
Success of the offering begs the questions: Should
the City have gone farther in marketing its
assets? Are there other hidden gems?
70
Cutting the Hydras

Heads
A Final Hurdle
With this final piece of the Plan puzzle in hand, and as the lawyers are putting the finishing touches on the
disclosure statement, Ajax Capital, who jilted the City two years earlier, announces they have amassed 40% of
the outstanding GO bonds
Based on a variety of sources, HL believes that their cost basis is 58, which HL views as positive as Ajax can
make a reasonable profit at the deal price of 70 (which has become the linchpin payout amount for all
unsecured creditors)
However, Ajax is angling for more. After additional months of contention, HL finally lays it out on the line for
Ajax its 70 or a cram down fight
Ajax
Aj recognizes
i
th t waging
that
i a cram down
d
b ttl based
battle
b d on its
it many objectives
bj ti
will
ill lead
l d it to
t an expensive
i
defeat or an expensive Pyrrhic victory both unacceptable
Convinced that 70 is the most it can get, Ajax enlists the other constituencies in forcing one final concession.
The Citys proposed sales tax cut of 0.5% is eliminated, and instead the City agrees to a small increase in its
sales tax rate from 1.25% to 1.35%. This, the advisors agree, is the FINAL piece in the Plan puzzle
After a variety of histrionics from a wide variety of parties still not on board with the Plan, the disclosure
statement is approved and the Plan is solicited
The good news is that each of the classes have approved the Plan by more than 2/3 of the dollar amount of
their claims voting
The bad news is that despite the support of Ajax Capital or maybe because of it some of the numerous
smaller retail holders of the GO bonds have come out very publicly against the Plan. And thanks to the
internet and some email campaigns, 58% of the bondholders who voted have voted no on the Plan
Notwithstanding the fact that 75% of the dollar value of the bonds have voted yes, the 58% negative vote of
the number of voters voting means that the GO debt class has rejected the Plan,
Plan and the only way for the City
to confirm the Plan is to attempt a cram down of this dissenting class
71
Cutting the Hydras

Heads
Confirmation Requirements
The court can confirm a plan only if the following conditions are met:
Plan complies with the provisions of Title 11 made applicable by Sections 103(e) and 901
Plan complies
p
with the p
provisions of chapter
p 9
All amounts to be paid by the debtor or by any person for services or expenses in the case or incident to the
plan have been fully disclosed and are reasonable

Debtor is not prohibited by law from taking any action necessary to carry out the plan
Except
E
t to
t the
th extent
t t that
th t the
th holder
h ld off a particular
ti l claim
l i has
h agreed
d to
t a different
diff
t treatment
t t
t off such
h claim,
l i
the plan provides that on the effective date of the plan, each holder of a claim of a kind specified in Section
507(a)(1) will receive on account of such claim cash equal to the allowed amount of such claim
Any regulatory or electoral approval necessary under applicable nonbankruptcy law in order to carry out
any provision of the plan has been obtained,

obtained or such provision is expressly conditioned on such approval
Plan is in the best interests of creditors and is feasible
Under chapter 11, a plan is said to be in the best interest of creditors if creditors would receive as much
under the plan as they would if the debtor were liquidated. Because a municipalitys assets cannot be
liquidated to pay creditors,
creditors the best
best interests of creditors
creditors test has generally been interpreted in chapter 9
cases to mean that the plan must be as good, if not better, than other alternatives available to the creditors
If a class of creditors rejects the Plan and cram down is required, the City must show that the Plan is fair
and equitable and does not discriminate unfairly with respect to any dissenting class
72
Cutting the Hydras

Heads
The Last Final Hurdle?
At the confirmation hearing, there are numerous objections:

All classes of impaired creditors have voted to accept the plan except for the GO bondholders, several of
which show up in person to object

A number of trade creditors also object to the Plan, complaining of unequal treatment compared to the
fortunate critical vendors who were paid post-petition

A variety of citizens, pensioners and retirees, also voice their various complaints about the Plan
73
Cutting the Hydras

Heads
7. Confirmation
Legall Counsell for

f the
h City argues that
h while
h l the
h idea
d off tax cuts is certainly
l unpalatable,
l bl without
h
them
h
the
h
City is destined to fail again. He states that the plan is certainly not perfect and it has its objectors, but if this
Plan of Adjustment is not confirmed, all of the hard work and progress made over the last two years will have
been in vain. The people of Portent have the highest taxes in the state and failure to equitably modify taxes
will most certainly lead to greater delinquencies, lower populations and ultimately civic failure. Feasibility
requires
i
that
h the
h tax burden
b d on Portent
P
must be
b bearable,
b
bl and
d by
b raising
i i the
h sales
l tax the
h City
Ci has
h tried
i d to take
k
a balanced approach
Legal counsel for one of the primary dissenting creditor groups responds by pointing out that every other
group has given something up, except for the taxpayers, and that no reasonable person would ever confirm a
Plan of Adjustment
j
that does not seek to employ
p y one of the Citys
y most basic cash g
generatingg tools by
y raising
g
taxes aggressively, rather than cutting net tax collections materially while providing window dressing of a
token sales tax increase. Chapter 9 is not designed to provide municipalities a fresh start or to maximize
their vitality going forward. Chapter 9 is designed merely to allow a municipality to adjust its debts within its
payment capabilities, and Portent Falls has far exceeded those modest parameters with its radical tax cutting
He also points out that the $5,725
$5 725 of debt per person the City previously referenced is less than the average
Americans credit card debt. Allowing a chapter 9 debtor to cut taxes will create an awful precedent, and open
the floodgates to cities who wish to lower their citizens tax bills rather than face painful political choices
Weighing the Citys need to emerge versus the Creditors rights, the Judge reluctantly decides not to confirm
the Plan of Adjustment. Portent Falls has simply gone too far, and even though many classes have accepted
th plan,
the
l
th dissenting
the
di
ti class
l
and
d the
th substantial
b t ti l numbers
b
off dissenting
di
ti creditors
dit
d
deserve
b tt treatment
better
t t
t
weighing all factors
The action leads to several years of protracted litigation and fruitless negotiations that ultimately lead to a
complete civic failure the likes of which the United States has never seen.
Or,
Or for those of you who prefer happy endings,
endings the City appeals to the District Court which reverses the
Bankruptcy Judge and immediately confirms the Plan of Adjustment
74
A Glimpse of the Future
A Glimpse of the
Future
Then and Now
June 17, 2017 Cassandra and the City Council have their monthly budget meeting with the finance
committee. Cassandra gazes out of the window at the river and cannot believe how much Portents financial
outlook has improved over the past four years
The City has come a long way from the dark days of 2011 and 2012
During the debate over a possible new bond issue, Cassandra pulls out a list of accomplishments and objectives
and reviews it with the City Council
Largest decrease in crime rates for the state
Tax rates at Plan of Adjustment levels
Improved fire and emergency response times

(now less than Troy Gardens)
Levee Fixed!
Flexible CBAs and revitalized City workforce

Average road conditions rating of 71
$972 million of total debt. Debt service at
5.1% of revenues (target 3.5%)
Pension Plan 89% funded ((target
g 95%))
Reserve funds at 5% of revenues (target 8%)
Working with Troy Gardens on various

conservation initiatives to reduce costs of
shared
h d utilities
ili i
Attracting more new retail and manufacturing
employers than are leaving for the first time in
decades
Citys
Ci
S h id
Southside
riverfront
i f
development renaissance
experiencing
i i
76
A Glimpse of the
Future
Then and Now (Cont.)
A few clouds
A persistent bitterness still permeates many of the Citys long time employees. The anniversary of the
chapter 9 filing is an unofficial holiday for many of these disaffected workers
Population still decreasing (at slower rates)
Numerous sad stories of elderly City pensioners struggling with reduced pensions and medical care
A number of vendors with large claims went bankrupt after absorbing their losses and suffering
decreases in City
y business
Several long-time City employees who were let go and could not find jobs have swelled the ranks of the
Citys homeless
Several institutional bondholders still continue to publically blacklist Portent Falls
Portents modest bond issue ($15 million) backing the construction of a new school is a success!
77
A Glimpse of the
Future
Presenting Firms
Houlihan Lokey
Houlihan Lokey is an international investment bank with expertise in mergers and acquisitions, capital markets,
financial restructuring, and valuation. The firm is ranked globally as the No. 1 restructuring advisor, the No. 1 M&A
fairness opinion advisor over the past 10 years, and the No. 1 M&A advisor for U.S. transactions under $1 billion,
according to Thomson Reuters. Houlihan Lokey has 14 offices and more than 800 employees in the United States,
Europe and Asia. The firm serves more than 1,000 clients each year, ranging from closely held companies to Global
500 corporations. For more information, visit www.HL.com.
Alvarez & Marsal

Alvarez & Marsal is a global professional services firm specializing in turnaround and interim management,
performance improvement, tax and business advisory services. The firm delivers specialist consulting, operational and
industry expertise to management and investors seeking to overcome challenges, accelerate performance and maximize
value across the corporate and investment lifecycles.
lifecycles Founded in 1983,
1983 the firm is known for its distinctive
restructuring heritage, hands-on approach and relentless focus on execution and results.
Sidley Austin LLP

Sidley Austin LLP is one of the world's premier law firms, with a practice highly attuned to the ever-changing
international landscape. The firm has built a reputation as a powerful adviser for global business, with approximately
1,700 lawyers in 17 offices worldwide. Sidley has a national and international practice in corporate reorganization,
bankruptcy and related areas, with more than 120 lawyers devoted on a full time equivalent basis to restructuring
work.. S
wo
Sidleys
d ey s aalmost
ost 100
00 yea
yearss o
of eexperience
pe e ce in Public
ub c Finance
a ce includes
c udes substa
substantial
t a eexperience
pe e ce as bot
both bo
bond
d cou
counsel
se
and disclosure counsel, advising cities, counties, school districts, states (including Puerto Rico) and other public entities
throughout the United States with respect to the issuance of municipal bonds. For more information, visit
www.sidley.com
78
Appendices
Appendices
Contact Information
Contact Information
Contact Information
Jeffrey Werbalowsky
Houlihan Lokey
Co-CEO & Senior Managing Director
[email protected]
(612) 338-2910
Bill Roberti
Alvarez & Marsal
Managing Director
[email protected]
(212) 759-4433
Matthew Clemente
Sidley Austin LLP
Partner
[email protected]
(312) 853-7000
Stephen Spencer
Houlihan Lokey
Managing Director
SS
[email protected]
@HL
(612) 338-2910
Kelly Stapleton
Alvarez & Marsal
Managing Director
KS l
[email protected]
@ l
d
l
(212) 759-4433
Peter Canzano
Sidley Austin LLP
Partner
PC
[email protected]
@ idl
(202) 736-8000
81
Appendices
Endnotes
Endnotes
Endnotes
Alicia Munnell, Jean-Pierre Aubry and Laura Quinby, The Impact of Public Pensions on State and Local Budgets, Center for
Retirement Research at Boston College, October 2010.
Alicia Munnell, Jean-Pierre Aubry and Laura Quinby, Public Pension Funding in Practice, NBER Working Paper 16442, October
2010.
Andrew Beatty, Fears Grow of Euro-Style Debt Crisis in U.S., Agence France Press,
http://news.yahoo.com/s/afp/20101221/ts_alt_afp/useconomydeficitlocal/print.
Barclays Capital, Municipal Research, Taxable Municipal Market Commentary, 2011 Outlook, December 3, 2010.
Charles Stein, Best Muni-Bond Manager Says Whitney Call Overblown, Bloomberg, January 19, 2011.
Christopher Hoene, Crying Wolf about Municipal Defaults, National League of Cities blog, December 22, 2010,
http://citiesspeak.org.
Christopher Hoene and Michael Pagano, Cities & State Fiscal Structure, National League of Cities, 2008.
Conor Dougherty, Tax Revenue Snaps Back, The Wall Street Journal, March 30, 2011.
David Nowakowski and Prajakta Bhide, States of Despair Part 1: Muni Stress Past, Present and Future, Roubini Global
Economics, February 28, 2011, http://www.roubini.com/strategy/view/149445.php.
David Skeel, Give States a Way to Go Bankrupt, The Weekly Standard, November 29, 2010.
Dustan McNichol, Muni Defaults May Rise Amid Unprecedented Stress on Finances, Bloomberg, February 22, 2010.
The Economist, The Battle Ahead, January 8, 2011.
83
Endnotes
Endnotes (Cont.)
The Economist, (Government) Workers of the World Unite, January 8, 2011.

Edward Harrison, The Coming Collapse of the Municipal Bond Market, Credit Writedowns, November 4, 2009.
Grover G. Norquist and Patrick Gleason, Let States Go Bankrupt, Politico, December 24, 2010.
John Knox and Marc Levinson, Municipal Bankruptcy: Avoiding and Using Chapter 9 in Times of Fiscal Stress, Orrick, Herrington
& Sutcliffe LLP, 2009.
Jon Hurdle, Harrisburg Excludes Debt Payments from 2010 Budget, Reuters, February 14, 2010.
Justin Scheck and Bobby White, Blight Cures Drain City Coffers, The Wall Street Journal, April 9-10, 2011.
Kyle Brandon, Research Quarterly 1Q 2011, SIFMA, May 11, 2011.
Marc Levinson, Comparison of Chapter 9 to Chapter 11, Milken Institute Global Conference, May 2011.
Mary Meeker, USA Inc. A Basic Summary of Americas Financial Statements, Kleiner Perkins Caufield & Byers, February 2011.
Matthew Dolan, Detroit Moves Against Unions, The Wall Street Journal, April 18, 2011.
Mayraj Fahim, Municipal Bonds Have Been Issued by US Local Government Since 1812, City Mayors Finance, July 17, 2010,
http://www.citymayors.com/finance/bonds.html.
Michael Cooper and Mary Williams Walsh, Mounting Debts by States Stoke Fears of Crisis, The New York Times, December 4,
2010.
Michael McConnell and Randal Picker, When Cities Go Broke: A Conceptual Introduction to Municipal Bankruptcy, HeinOnline,
January 25, 2011, http://heinonline.org.
84
Endnotes
Endnotes (Cont.)
National Conference of State Legislatures, NCSL Fiscal Brief: State Balanced Budget Provisions, October 2010,
http://www.ncsl.org/default.aspx?tabid=12651.
Randall Jensen, Vallejo, Calif., Officials to Weigh Chap. 9 Recovery Plan, The Bond Buyer, November 30, 2010.
Robert L. Clark and Melinda Sandler Morrill, Retiree Health Plans in the Public Sector: Is There a Funding Crisis?, 2010.
Robert Novy-Marx and Joshua Rauh, Public Pension Promises: How Big Are They and What Are They Worth?, Journal of
Finance, December 18, 2009.
R b t Trigaux,
Robert
Ti
Fl
Florida
id Ranks
R k No.
N 1 In
I M
Municipal
i i l Bond
B d Defaults,
D f lt Tampabay.com,
T
b
September
S t b 1,
1 2009,
2009
http://www.tampabay.com/blogs/venturebiz/content/florida-ranks-no-1-municipal-bond-defaults.
Roger Lowenstein, Broke Town, U.S.A. The New York Times, March 3, 2011.
Shawn Tully, Meredith
Meredith Whitneys
Whitney s New Target: The States,
States, Fortune, September 28, 2010.
Shelly Banjo, Pondering the Why of Rye, The Wall Street Journal, March 30, 2011.
Shelly Sigo, Districts in Distress, The Bond Buyer, November 12, 2009.
Shelly Sigo, Moodys Sees JeffCo Sewer Receiver as Positive Move, The Bond Buyer, September 28, 2010.
Susan Urahn, State Pensions and Retiree Health Benefits: The Trillion Dollar Gap, The Pew Center on the States, February 18,
2010.
Susan Urahn
Urahn, The Trillion Dollar Gap Grows Wider
Wider, The Pew Center on the States,
States April
April, 25
25, 2011
2011.
85
Endnotes
Endnotes (Cont.)
United States Government Accountability Office, State and Local Government Retiree Benefits: Current Status of Benefit
Structures, Protections, and Fiscal Outlook for Funding Future Costs, September 2007, GAO-07-1156.
U.S. Census Bureau, Annual Survey of State and Local Government Finance, 2008.
Washington Post, Pension Reality Check, December 8, 2010.
William Gross, Investment Outlook Skunked, April 2011, http://www.pimco.com/EN/Insights/Pages/Skunked.aspx.
86
Appendices
Disclaimer
Disclaimer
Disclaimer
2011 Houlihan Lokey. All rights reserved. This material may not be reproduced in any format by any means or redistributed
without the prior written consent of Houlihan Lokey.
Houlihan Lokeyy is a trade name for Houlihan Lokey,
y, Inc. and its subsidiaries and affiliates which include: Houlihan Lokeyy
Financial Advisors, Inc., a California corporation, a registered investment advisor, which provides investment advisory, fairness
opinion, solvency opinion, valuation opinion, restructuring advisory and portfolio management services; Houlihan Lokey Capital,
Inc., a California corporation, a registered broker-dealer and SIPC member firm, which provides investment banking, private
placement, merger, acquisition and divestiture services; and Houlihan Lokey (Europe) Limited, a company incorporated in England
which is authorized and regulated by the U.K. Financial Services Authority and Houlihan Lokey (China) Limited, a company
i
incorporated
d in
i Hong
H
K
Kong
SAR which
hi h is
i licensed
li
d in
i Hong
H
K
Kong
b the
by
h Securities
S
i i and
d Futures
F
C
Commission,
i i
which
hi h provide
id
investment banking, restructuring advisory, merger, acquisition and divestiture services, valuation opinion and private placement
services and which may direct this communication within the European Economic Area and Hong Kong, respectively, to intended
recipients including professional investors, high-net-worth companies or other institutional investors.
p
of
Houlihan Lokeyy ggathers its data from sources it considers reliable;; however,, it does not gguarantee the accuracyy or completeness
the information provided within this presentation. The material presented reflects information known to the authors at the time this
presentation was written, and this information is subject to change. Houlihan Lokey makes no representations or warranties,
expressed or implied, regarding the accuracy of this material. The views expressed in this material accurately reflect the personal
views of the authors regarding the subject securities and issuers and do not necessarily coincide with those of Houlihan Lokey.
Officers, directors and partners in the Houlihan Lokey group of companies may have positions in the securities of the companies
d
discussed.
d This
h presentation does
d
not constitute advice
d
or a recommendation,
d
offer
ff or solicitation
l
with
h respect to the
h securities off
any company discussed herein, is not intended to provide information upon which to base an investment decision, and should not
be construed as such. Houlihan Lokey or its affiliates may from time to time provide investment banking or related services to these
companies. Like all Houlihan Lokey employees, the authors of this presentation receive compensation that is affected by overall
firm profitability.
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Restructuring the Troubled Municipality

Hong Kong +852.3551.2300

The Path to Perdition

Cutting the Hydras Heads

Storm Clouds Brewing

maintaining their facility the requirement is non-negotiable!

Declining Monthly Liquidity Trends ($ in millions)

Historical Erosion of Peak

Liquidity Crunch (Cont.)

Cassandras liquidity low

COLA = Cost of Living Adjustment

A&M forecast assumes static days payable outstanding

Reviewing Liquidity Options

City had temporarily

Requires modification of multiple collective bargaining agreements (CBAs)

Storm cleanup actions unavoidable without substantially disrupting public safety

Reviewing Liquidity Options (Cont.)

Market closed to Portent based on credit concerns

Market closed to Portent based on credit concerns

Cassandra tasked with seeking out non-traditional sources of capital

Worse Than Expected

Hope Springs Eternal: The Action Plan

Hire Investment Banker & Legal

Advise on other five items and

Action Plan a Bust?

Seek State Support

No new borrowing capacity

No emergency financial support

Bondholders advise Cassandra

Ajax Capital sends Cassandra an

Although potentially promising,

Hire Investment Banker & Legal

How the Hell Did We Get Here?

The Path to Perdition

The Path to Perdition

Portent Falls Key Statistics

Debt at December 31, 2010: $1,591 million

Revenue Bonds: $495 million

Total Pension Liability: $1,515 million

Retired City Employees Receiving Benefits: 4,409

Major Industries: Distribution, Government, Retail and

The Path to Perdition

Portent Falls Government Structure

Portent Falls operates under a council-manager

Hires City Department

The Path to Perdition

Portent Falls A Protracted Decline

After a period of rapid post World War II expansion,

Historical Population (in thousands)

Economic Composition (% of total GDP)

Loss of forest products industry in the 1950s and

U.S. Census Bureau

Loss of regional mining industry in the 1970s

Departure of Stampcraft last major manufacturer

from manufacturing to distribution,

U.S. Bureau of Labor Statistics

The Path to Perdition

Debt & Other Borrowings