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CITY COUNCIL STAFF REPORT
DATE: April 16, 2008
SUBJECT: 2008 Passenger Facility Charge Bond Restructuring
FROM: David H. Ready, City Manager
BY: Airport Department
SUMMARY
In 2006, the City developed a two-phase debt restructuring plan for its General Airport
Revenue Bonds. The purpose of the plan was to convert the two then-outstanding
series of General Airport Revenue Bonds to bonds secured solely by the Airport's
Passenger Facilities Charges. This would eliminate the need to comply with the
existing bonds rate covenant. The first series of bonds was restructured in 2006 and
the second series of bonds are now eligible for restructuring.
This action would approve the documents necessary to complete this restructuring plan
and authorize the City Manager to execute the necessary documents.
RECOMMENDATION:
Adopt Resolution No. , A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF PALM SPRINGS, CALIFORNIA, APPROVING THE
ISSUANCE, SALE AND DELIVERY OF CITY OF PALM SPRINGS 2008
AIRPORT PASSENGER FACILITY CHARGE SUBORDINATE
REFUNDING REVENUE BONDS (PALM SPRINGS INTERNATIONAL
AIRPORT) AND AUTHORIZING THE EXECUTION OF CERTAIN
DOCUMENTS AND THE TAKING OF CERTAIN ACTIONS IN
CONNECTION THEREWITH
Adopt Resolution No. A RESOLUTION OF THE BOARD OF
DIRECTORS OF THE CITY OF PALM SPRINGS FINANCING
AUTHORITY APPROVING AN ESCROW AGREEMENT IN
CONNECTION WITH THE REFUNDING OF THE CITY OF PALM
SPRINGS FINANCING AUTHORITY AIRPORT REVENUE BONDS,
SERIES 1998 (PALM SPRINGS INTERNATIONAL AIRPORT) AND
AUTHORIZING CERTAIN ACTIONS IN CONNECTION THEREWITH. /�
Item No. rC A I .
City council Staff Report
April 16, 2008 -- Page 2
Bond Restructuring
STAFF ANALYSIS
The City received approval in 1992 from the FAA to impose a Passenger Facilities
Charge ("PFC") to fund an expansion of the Airport. The City issued 1992 General
Airport Revenue Bonds ("GARBs") and 1998 General Airport Revenue Bonds secured
by Net Revenues of the Airport to pay for the expansion. A third series of bonds, 1998
Passenger Facilities Charge Bonds, were also issued, and secured solely by PFCs.
The 1992 and 1998 GARB indentures provided that the Airport would charge fees to the
airlines to generate and guarantee a certain level of debt service coverage (aka "Rate
Covenant"). Even though PFCs could be used to pay the 1992 and 1998 GARBs, they
could not be used to offset the charges to airlines. After 9/11, the Airport struggled and
was unable to meet the Rate Covenant for the GARBs and has not met it in three of the
last five years. This is not a prudent position for the airport to be in and this
restructuring will resolve this issue.
This restructuring plan was developed to refinance the 1992 GARBs and 1998 GARBs
and secure them solely with PFCs. The first phase of the plan was implemented in
2006 for the 1992 GARBs, and the Airport is able to meet the Rate Covenant.
The second phase of the restructuring can now be implemented for the 1998 GARBs.
After the restructuring, all covenants relating to airline rates and charges will be
eliminated. Given that the state of the airline industry is undergoing a significant
changes and restructuring, the plan would put the airport into a better position should
another downturn with the likes of 9/11 occur. Currently, under the existing situations,
even with a record year of passenger activity, the airport's net operating income has a
very thin margin over its minimum threshold. This restructuring will alleviate this
marginal situation by shifting the obligation from net operating revenue to the PFC's
which are a more reliable source.
In addition to the above regarding net revenues, the airport will gain an additional
benefit. The current GARBs also require the Airport to maintain a 25% operating
reserve. With the new restructuring, the covenant will allow the operating reserve to
decrease to 15% (an amount required by the Airline Use Agreements), freeing up
approximately $1.4 million for capital improvement obligations at the Airport.
The City has only two windows of opportunity to refinance the 1998 GARBs each year,
April 1 through June 1 and October 1 through December 1. The current financing is
expected to close prior to end of the current window, June 1 . Because of the changing
bond market, if the City staff, in cooperation with the bond counsel team notice that it is
more advantageous to postpone the process until the second restructuring window later
this year, then such action will be taken.
City Council Staff Report
April 16, 2008 -- Page 3
Bond Restructuring
FISCAL IMPACT:
The refunding bonds will be issued on a non-rated basis, similar to the 2006 refunding
bonds. The limited control that the Airport has over the generation of PFCs, as well as
the possibility that authority to collect PFCs can be terminated by the FAA if the Airport
violates certain covenants, makes it difficult to obtain an investment grade rating without
additional pledges of other revenues.
Non-rated interest rates have increased significantly over the last 6 months. A memo
from the City's underwriter, Stone & Youngberg, is attached, and describes the reasons
for this increase in detail. In summary, non-rated rates have increased because there is
less demand from investors who traditionally buy this type of bond, and there has been a
general widening of the interest rate spread between AAA-rated and non-rated bonds
based on perceived risk and liquidity. The underwriter has indicated that rates are likely
to remain at these levels for quite some time, and they have actually increased by Y%
since February 2008.
Based on current non-rated bond rates, the annual debt service after restructuring may
increase by as much as S85,000, but the repayment term will be shortened by 1 year (an
increase of $1.2M in total over the remaining 20 years), payable from PFCs. There is no
additional cost to the Airport's operating expenses because all PFC revenue is dedicated
entirely to the Debt service on the 1998 PFC Bonds, the 2006 PFC Bonds and these
2008 bonds. The Airport has FAA approval to collect sufficient enough PFCs to pay for
the increased level of debt service. However, if rates continue to increase to a point
where the PFC revenues will not meet the minimum coverage requirement for the
issuance of the refunding Bonds, the refinancing will be put on hold until later this year to
evaluate if interest rates accommodate the program.
The resolution presented to the City Council and the Financing Authority Board
authorizes the City Manager to approve and/or execute the following documents, the
forms of which are on file with the City Clerk:
1. First Supplement to Indenture of Trust, by an between the City and The Bank of
New York Trust Company, as Trustee;
2, Escrow Deposit and Trust Agreement, by and between the City, the Financing
Authority and The Bank of New York Trust Company, as Escrow Bank;
3. Continuing Disclosure Certificate;
4. Purchase Contract with Stone & Youngberg, to purchase the Bonds at negotiated
sale in an amount not to exceed $8 million, at true interest cost not to exceed 7%
with an underwriter's discount not to exceed 1.8% of the principal amount of the
Bonds; and
oaa0U"l3
City Council Staff Report
April 16, 2008 -- Page 4
Bond Restructuring
5. Preliminary Official Statement.
It should be noted that on February 13, 2008, the Airport Commission voted in favor of
recommending that this bond program be presented to the City Council for approval.
rl� •I
Thomas Nolan,
Executive Director, Airport
David H. Ready, City ana
Attachments:
1. City Council Resolution
2, Authority Board Resolution
3. First Supplement to Indenture
4. Escrow Deposit and Trust Agreement
5, Continuing Disclosure Certificate
6. Bond Purchase Agreement
7. Preliminary Official Statement
8. Memo from Stone & Youngberg
26039.11 JH:ACH:brf 04102/08
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
PALM SPRINGS, CALIFORNIA, APPROVING THE ISSUANCE,
SALE AND DELIVERY OF CITY OF PALM SPRINGS 2008
AIRPORT PASSENGER FACILITY CHARGE SUBORDINATE
REFUNDING REVENUE BONDS (PALM SPRINGS
INTERNATIONAL AIRPORT) AND AUTHORIZING THE
EXECUTION OF CERTAIN DOCUMENTS AND THE TAKING OF
CERTAIN ACTIONS IN CONNECTION THEREWITH
WHEREAS, the City of Palm Springs (the "City") is a municipal corporation and charter city, duly
organized and existing under the Constitution and laws of the State of California and, as such is
authorized to issue refunding bonds pursuant to the Refunding Bond Law, constituting Sections
53570 et seq. of the California Government Code (the "Law");
WHEREAS, the City owns and operates the Palm Springs International Airport (the "Airport
Facilities");
WHEREAS, the City of Palm Springs Financing Authority (the "Authority") is a joint exercise of
powers authority organized and existing under the laws of the State of California, and pursuant
to a joint exercise of powers agreement, dated February 1, 1991, between the City and the
Community Redevelopment Agency of the City of Palm Springs (the "Agency"), as amended,
with the authority to assist the City and the Agency in providing for financing and refinancing in
connection with the acquisition, construction and rehabilitation of public improvements for the
benefit of the lands and inhabitants of the City and the Agency, including but not limited to, the
acquisition of land and construction of improvements for the benefit of the Airport Facilities; and
WHEREAS, in order to finance certain improvements to the Airport Facilities, the City of Palm
Springs Financing Authority (the "Authority") issued its $8,260,000 principal amount of City of
Palm Springs Financing Authority Airport Revenue Bonds, Series 1998 (Palm Springs Regional
Airport) (the "1998 Bonds") payable principally from installment payments to be paid by the City
for such improvements pursuant to Amendment No. 1 to First Amended and Restated
Installment Sale Agreement, dated as of April 1, 1998, by and between the City and the
Authority (the "1998 Installment Sale Agreement"); and
WHEREAS, in order to restructure its payment obligations under the 1998 Installment Sale
Agreement, the City has determined to repay in full its installment payment obligations
thereunder and to, thereby, refund and defease the 1998 Bonds; and
WHEREAS, in order to refinance certain improvements to the Airport Facilities, the City issued
its $12,115,000 principal amount of 2006 Airport Passenger Facility Charge Subordinate
Revenue Refunding Bonds (Palm Springs International Airport) (the "2006 Bonds") pursuant to
a Trust Indenture, dated as of April 1, 2006, by and between the City and the Trustee (the
`Indenture"); and
WHEREAS, the Indenture provides that, subject to certain conditions, the City may by
Supplemental Indenture provide for the issuance or incurrence of Parity Obligations payable
000005
Resolution No.
Page 2
from Subordinate Revenues on a parity with the 2006 Bonds (as such terms are defined in the
Indenture) and;
WHEREAS, in order to provide the moneys required to repay in full its installment payment
obligations under the 1998 Installment Sale Agreement and to, thereby, refund and defease the
1998 Bonds, the City desires to authorize the issuance of its 2008 Airport Passenger Facility
Charge Subordinate Revenue Refunding Bonds (Palm Springs International Airport) (the
"Bonds"), in an aggregate principal amount of not to exceed $8,000,000; and
WHEREAS, the payment of principal and interest on the Bonds will be secured by the a lien on
passenger facility charges on a parity with the 2006 Bonds; and
WHEREAS, the pledge of the passenger facility charges by the City to secure the Bonds and
the 2006 Bonds will be subordinate to the pledge provided by the City to secure the outstanding
City of Palm Springs Financing Authority Airport Passenger Facility Charge Revenue Bonds,
Series 1998 (Palm Springs Regional Airport); and
WHEREAS, pursuant to Section 147(f) of the Internal Revenue Code of 1986, as amended, (the
"Code"), the 1998 Bonds were approved, following a public hearing, by the City Council of the
City; and
WHEREAS, the City will issue the Bonds pursuant to the terms of the Indenture, as amended
and supplemented pursuant to a First Supplement to Indenture of Trust, dated as of May 1,
2008, by and between the City and the Trustee (the "First Supplement'); and
WHEREAS, the City desires to sell the Bonds to Stone & Youngberg LLC (the "Underwriter")
pursuant to a Purchase Contract by and between the City and the Underwriter (the "Purchase
Contract'); and
WHEREAS, to provide for the sale of the Bonds to the public by the Underwriter, Harrell &
Company Advisors, LLC, the Financing Consultant, on behalf of the City, has assisted the City
in the preparation of a preliminary official statement (the "Preliminary Official Statement'); and
WHEREAS, the City Council desires to approve the First Supplement, Purchase Contract, the
Preliminary Official Statement, the Continuing Disclosure Certificate (as hereinafter defined) and
the Escrow Agreement (as hereinafter defined), and any other agreements or documents
necessary to issue the Bonds (collectively, the "Financing Documents");
NOW,THEREFORE, THE CITY COUNCIL OF THE CITY OF PALM SPRINGS DOES HEREBY
RESOLVE AS FOLLOWS:
Section 1. The above recitals, and each of them, are true and correct.
Section 2, This City Council hereby approves of the issuance by the City of its aggregate
principal amount not to exceed $8,000,000 City of Palm Springs 2008 Airport Passenger Facility
Charge Subordinate Refunding Revenue Bonds (Palm Springs International Airport), in
accordance with the terms and provisions of the Indenture, as amended and supplemented by
the First Supplement. The form of the First Supplement on file with the City Clerk is hereby
approved with such changes as may be approved by the Mayor, City Manager or the Director of
Finance & Treasurer of the City (or the designees of the Mayor, City Manager or Director of
WON
Resolution No.
Page a
Finance & Treasurer) (each, an "Authorized Officer") or Bond Counsel, such approval to be
conclusively evidenced by the execution and delivery thereof. Each Authorized Officer, acting
alone, is hereby authorized and directed for and in the name of the City to execute and the City
Clerk is authorized to attest to the First Supplement.
Section 3. The form of Purchase Contract on file with the City Clerk and the sale of the
Bonds pursuant to the terms set forth therein is hereby approved with such changes as may be
approved by an Authorized Officer or Bond Counsel, such approval to be conclusively
evidenced by the execution and delivery thereof. Each Authorized Officer, acting alone, is
hereby authorized and directed for and in the name of the City to execute the Purchase
Contract. The final form of the Purchase Contract shall contain a true interest rate on the Bonds
not to exceed 7.00%, and an underwriter's discount on the Bonds not to exceed 1.8% of the
principal amount of the Bonds, all to be approved by an Authorized Officer.
Section 4. The form of Escrow Agreement on file with the City Clerk (the "Escrow
Agreement"), among the City, the Authority and The Bank of New York Trust Company, N.A. is
hereby approved with such changes as may be approved by an Authorized Officer or Bond
Counsel, such approval to be conclusively evidenced by the execution and delivery thereof.
Each Authorized Officer, acting alone, is hereby authorized and directed for and in the name of
the City to execute the Escrow Agreement,
Section 5. The form of Continuing Disclosure Certificate on file with the City Clerk (the
"Continuing Disclosure Certificate"), to be executed by the City, is hereby approved with such
changes as may be approved by an Authorized Officer or Bond Counsel, such approval to be
conclusively evidenced by the execution and delivery thereof. Each Authorized Officer, acting
alone, is hereby authorized and directed for and in the name of the City to execute the
Continuing Disclosure Certificate.
Section 6. The Preliminary Official Statement presented at this meeting is hereby approved
and the distribution of said Preliminary Official Statement to prospective purchasers of the
Bonds is approved with such changes as may be approved by an Authorized Officer, or Bond
Counsel. The City Manager, Finance Director or Airport Director may make such changes to the
Preliminary Official Statement considered necessary or appropriate to make the Preliminary
Official Statement final as of its date, except for the omission of certain information, as permitted
by Rule 15c2-12 under the Securities Exchange Act of 1934. The City Manager, Finance
Director or Airport Director of the City are authorized and directed to execute and deliver the
final Official Statement in accordance with the Purchase Agreement in substantially the form of
the Preliminary Official Statement hereby approved, with such additions thereto and changes
therein as may be recommended or approved by Bond Counsel, such approval to be
conclusively evidenced by the execution and delivery thereof.
Section 7. The Authorized Officers, or the City Clerk, or their designees, and each and
every officer thereof is authorized and directed, jointly and severally, to do any and all things
and to execute and deliver any and all documents which they may deem necessary or advisable
in order to consummate the sale and delivery of the Bonds and the refunding and defeasance of
the 1998 Bonds and otherwise to effectuate the purpose of this Resolution.
Section 8. The firm of Jones Hall, A Professional Law Corporation, is hereby appointed as
Bond Counsel in connection with the issuance of the Bonds, compensation for such services to
be as provided in an engagement letter to be approved by the City Manager.
Resolution No.
Page 4
Section 9. The firm of Harrell and Company Advisors, LLC Is hereby appointed as Financial
Consultant in connection with the issuance of the Bonds, compensation For such services to be
as provided in the existing agreement on file with the City Clerk.
Section 10. The firm of Hunton &Williams LLP is hereby appointed as Disclosure Counsel in
connection with the issuance of the Bonds, compensation for such services to be as provided in
an engagement letter or agreement to be approved by the City Manager.
ADOPTED this 16th day of April, 2008.
Steven Pougnet, Mayor
ATTEST
James Thompson, City Clerk
CERTIFICATION
STATE OF CALIFORNIA )
COUNTY OF RIVERSIDE. ) ss.
CITY OF PALM SPRINGS )
I, JAMES THOMPSON, City Clerk of the City of Palm Springs, hereby certify that Resolution
No. is a full, true and correct copy, and was duly adopted at a regular meeting of the
City Council of the City of Palm Springs on April 16, 2008, by the following votes.
AYES: Councilmember
NOES
ABSENT:
ABSTAIN:
26039-11 JH:ACH-brf 04/02/08
RESOLUTION NO.
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE CITY OF PALM
SPRINGS FINANCING AUTHORITY APPROVING AN ESCROW AGREEMENT
IN CONNECTION WITH THE REFUNDING OF THE CITY OF PALM SPRINGS
FINANCING AUTHORITY AIRPORT REVENUE BONDS, SERIES 1998 (PALM
SPRINGS REGIONAL AIRPORT) AND AUTHORIZING CERTAIN ACTIONS IN
CONNECTION THEREWITH
WHEREAS, the City of Palm Springs (the "City") is a municipal corporation and charter city, duly
organized and existing under the Constitution and laws of the State of California and owns and
operates the Palm Springs International Airport (the "Airport Facilities");
WHEREAS, the City of Palm Springs Financing Authority (the "Authority") is a joint exercise of
powers authority organized and existing under the laws of the State of California, and pursuant
to a joint exercise of powers agreement, dated February 1, 1991, between the City and the
Community Redevelopment Agency of the City of Palm Springs (the "Agency"), as amended,
with the authority to assist the City and the Agency in providing for financing and refinancing in
connection with the acquisition, construction and rehabilitation of public improvements for the
benefit of the lands and inhabitants of the City and the Agency, including but not limited to, the
acquisition of land and construction of improvements for the benefit of the Airport Facilities; and
WHEREAS, in order to finance certain improvements to the Airport Facilities, the City of Palm
Springs Financing Authority (the "Authority") issued its $8,260,000 principal amount of City of
Palm Springs Financing Authority Airport Revenue Bonds, Series 1998 (Palm Springs Regional
Airport) (the 1998 Bonds") payable principally from installment payments to be paid by the City
for such improvements pursuant to Amendment No. 1 to First Amended and Restated
Installment Sale Agreement, dated as of April 1, 1998, by and between the City and the
Authority (the "1998 Installment Sale Agreement'); and
WHEREAS, in order to restructure its payment obligations under the 1998 Installment Sale
Agreement the City has determined to repay in full its installment payment obligations
thereunder and to, thereby, refund and defease the 1998 Bonds; and
WHEREAS, in order to provide the moneys required to repay in full its installment payment
obligations under the 1998 Installment Sale Agreement and to, thereby, refund and defease the
1998 Bonds, the City proposes to authorize the issuance of its 2008 Airport Passenger Facility
Charge Subordinate Revenue Refunding Bonds (Palm Springs International Airport) (the
"Bonds"), in an aggregate principal amount of not to exceed $8,000,000; and
WHEREAS, for the purpose of refunding and defeasing the 1998 Bonds, the City, the Authority
and The Bank of New York Trust Company, N.A. as successor trustee to BNY Western Trust
Company, desire to enter into the 1998 Bonds Escrow Deposit and Trust Agreement, dated as
of May 1, 2008 (the "Escrow Agreement'), in form on file with the Secretary of the Authority;
NOW, THEREFORE, THE BOARD OF DIRECTORS OF THE CITY OF PALM SPRINGS
FINANCING AUTHORITY DOES HEREBY RESOLVE AS FOLLOWS:
Section 1. The form of the Escrow Agreement on file with the Secretary of the Authority,
among the Authority, the City and The Bank of New York Trust Company, N.A. is hereby
Resolution No._
Page 2
approved with such changes as may be approved by the Chair, Executive Director or Treasurer
(each, an "Authorized Officer"), such approval to be conclusively evidenced by the execution
and delivery thereof. Each Authorized Officer, acting alone, is hereby authorized and directed
for and in the name of the Authority to execute the Escrow Agreement.
Section 2. The Authorized Officers and the Secretary, or their designees, and each and
every officer thereof is authorized and directed, jointly and severally, to do any and all things
and to execute and deliver any and all documents and certificates which they may deem
necessary or advisable in order to consummate the refunding of the 1998 Bonds and otherwise
effectuate the purpose of this Resolution.
ADOPTED this 16th day of April, 2008.
Steven Pougnet, Chairman
ATTEST:
James Thompson, Secretary
STATE OF CALIFORNIA )
COUNTY OF RIVERSIDE ) ss.
CITY OF PALM SPRINGS )
I, JAMES THOMPSON, [Secretary] of the City of Palm Springs Financing Authority, hereby
certify that Resolution No. _ is a full, true and correct copy, and was duly adopted at a special
meeting of the Board of Directors of the City of Palm Springs Financing Authority on April 16,
2008, by the following vote:
AYES: Boardmember
NOES: None
ABSENT: None
ABSTAIN: None
26039-11 JKACM brt 04/02/08
FIRST SUPPLEMENT TO
TRUSTINDENTURE
by and between
THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee
and the
CITY OF PALM SPRINGS
$[Bond Amount]
CITY OF PALM SPRINGS
2008 AIRPORT PASSENGER FACILITY CHARGE
SUBORDINATE REVENUE REFUNDING BONDS
(PALM SPRINGS INTERNATIONAL AIRPORT)
Dated as of May 1, 2008
TABLE OF CONTENTS
Paae
ARTICLE XII
The 2008 Bonds
Section 12.01. Definitions......................... ........................ ......................................3
Section 12.02. Authorization of 2008 Bonds. ........................................................................4
Section 12.03. Terms of 2008 Bonds. ............................................................................ 4
Section 12.04. Form of 2008 Bonds.... .......................... ................................................5
Section 1205.. Delivery of 2008 Bonds. ........................... ..................................................5
Section 12.06. Application of Proceeds of 2008 Bonds; Transfers.......................................5
Section 12.07. Terms of Redemption of the 2008 Bonds......................................................6
Section 12.08. 2008 Reserve Fund........................................... . .............8
Section 12.09. Redemption Fund.......................................................... ......... 8
Section 12.10. Tax Covenants. ...................................................................... 8
Section 12.11. Continuing Disclosure....................................................................................8
Section 12.12. Security for the 2008 Bonds. .........................................................................8
Exhibit A Form of 2008
Exhibit B Form of Payment Request
00001
FIRST SUPPLEMENT TO TRUST INDENTURE
THIS FIRST SUPPLEMENT TO TRUST INDENTURE made and entered into as of May
1, 2008 (the "First Supplement to Trust Indenture') by and between THE BANK OF NEW YORK
TRUST COMPANY, N.A., a national banking association duly organized and existing under and
by virtue of the laws of the United States of America, as trustee under the Indenture (the
"Trustee") and the CITY OF PALM SPRINGS, a municipal corporation and charter city duly
organized and existing under and by virtue of the Constitution and laws of the State of California
(the"City").
WITNESSETH:
WHEREAS, the City is a municipal corporation and charter city, duly organized and
existing under the Constitution and laws of the State of California and, as such is authorized to
issue refunding bonds pursuant to the Refunding Bond Law, constituting Sections 53570 et seq.
of the California Government Code (the "Law");
WHEREAS, the City now owns and operates the Palm Springs International Airport (the
"Airport Facilities");
WHEREAS, in order to finance certain improvements to the Airport Facilities, the City of
Palm Springs Financing Authority (the "Authority") issued its $8,260,000 principal amount of City
of Palm Springs Financing Authority Airport Revenue Bands, Series 1998 (Palm Springs
Regional Airport) (the 1998 Bonds") payable principally from installment payments to be paid
by the City for such improvements pursuant to Amendment No. 1 to First Amended and
Restated Installment Sale Agreement, dated as of April 1, 1998, by and between the City and
the Authority (the"1998 Installment Sale Agreement');
WHEREAS, in order to restructure its payment obligations under the 1998 Installment
Sale Agreement the City has determined to repay in full its installment payment obligations
thereunder and to, thereby, refund and defease the 1998 Bonds;
WHEREAS, in order to refinance certain improvements to the Airport Facilities, the City
issued its $12,115,000 principal amount of 2006 Airport Passenger Facility Charge Subordinate
Revenue Refunding Bonds (Palm Springs International Airport) (the "2006 Bonds") pursuant to
a Trust Indenture, dated as of April 1, 2006, by and between the City and the Trustee (the
'Indenture");
WHEREAS, the Indenture provides that, subject to certain conditions, the City may by
Supplemental Indenture provide for the issuance or incurrence of Parity Obligations payable
from Subordinate Revenues on a parity with the 2006 Bonds (as such terms are defined in the
Indenture),-
WHEREAS, in order to provide the moneys required to repay in full its installment
payment obligations under the 1998 Installment Sale Agreement and to, thereby, refund and
defease the 1998 Bonds, the City has authorized the issuance of its 2008 Airport Passenger
Facility Charge Subordinate Revenue Refunding Bonds (Palm Springs International Airport) (the
"2008 Bonds"), in an aggregate principal amount of$[Bond Amount];
1
WHEREAS, the City hereby determines that all of the conditions precedent under the
Indenture to the issuance of the 2008 Bonds as Parity Obligations payable on a parity with the
2006 Bonds have been met;
WHEREAS, in order to provide for the authentication and delivery of the 2008 Bonds, to
establish and declare the terms and conditions upon which the 2008 Bonds are to be issued
and secured and to secure the payment of the principal thereof, premium, if any, and interest
thereon, the City has authorized the execution and delivery of this First Supplement to Trust
Indenture; and
WHEREAS, the City has determined that all acts and proceedings required by law
necessary to make the 2008 Bonds, when executed by the City, authenticated and delivered by
the Trustee and duly issued, the valid, binding and legal obligations of the City payable in
accordance with their terms, and to constitute this First Supplement to Trust Indenture a valid
and binding agreement of the parties hereto for the uses and purposes herein set forth in
accordance with its terms, have been done and taken, and the execution and delivery of this
First Supplement to Trust Indenture have been in all respects duly authorized;
NOW, THEREFORE, the parties to this First Supplement to Trust Indenture agree that
the Indenture is amended by adding thereto an additional Article as follows:
2
SECTION 1. Supplement to Indenture. In accordance with the provisions of Section
8.01(B)(6) of the Indenture, the Indenture is hereby amended by adding a supplement thereto
consisting of a new article to be designated as Article XII. Such Article XII shall read in its
entirety as follows:
ARTICLE XII
THE 2008 BONDS
Section 12.01. Definitions. Unless the context otherwise requires, the terms defined in
this Section 1201. shall, for all purposes of this Article but not for any other purposes of this
Indenture, have the respective meanings specified in this Section 12.01. All terms defined in
Section 1.02 and not otherwise defined in this Section 12.01 shall, when used in this Article XII,
have the respective meanings given to such terms in Section 1.01.
"Continuing Disclosure Certificate" means that certain Continuing Disclosure
Certificate executed by the City and dated the date of issuance and delivery of the 2008 Bonds,
as originally executed and as it may be amended from time to time in accordance with the terms
thereof, and, as applicable, any continuing disclosure certificate or agreement executed and
delivered in connection with any subsequent Series of Bonds.
"Escrow Agreement" means the 1998 Bonds Escrow Deposit and Trust Agreement,
dated as of May 1, 2008, by and between the City and the Escrow Bank, as originally executed
or as it may from time to time be modified or amended in accordance with its terms, providing
for repayment of the City's installment payment obligations under the 1998 Installment Sale
Agreement and to, thereby, refund and defease the 1998 Bonds.
"Escrow Bank" means The Bank of New York Trust Company, N.A., as escrow bank
under the Escrow Agreement, its successors and assigns.
"First Supplement to Trust Indenture" means the First Supplement to Trust Indenture,
dated as of May 1, 2008, by and between the Trustee and the City, providing for the issuance of
the 2008 Bonds.
"1998 Installment Sale Agreement" means Amendment No. 1 to the First Amended
and Restated Installment Sale Agreement, dated as of April 1, 1998, by and between the City
and the Authority.
"1998 Bonds" means the $8,260,000 principal amount of City of Palm Springs
Financing Authority Airport Revenue Bonds, Series 1998 (Palm Springs Regional Airport).
"Original Purchaser" means as the initial purchaser of the
2008 Bonds.
"Participating Underwriter" shall have the meaning ascribed thereto in the Continuing
Disclosure Certificate.
"Resolution" means Resolution No. adopted by the City Council of the
City on April_, 2008.
3 n 6y
. • �U � t�.i4�
"2008 Bonds" means the $[Bond Amount] principal amount of the City of Palm Springs
2008 Airport Passenger Facility Charge Subordinate Revenue Refunding Bonds, (Palm Springs
International Airport) issued pursuant to Section 12.02.
"2008 Costs of Issuance Fund" means the fund by that name established pursuant to
Section 12.06.
"2008 Reserve Fund" means the fund by that name established pursuant to Section
12.08,
"2008 Term Bonds" means the 2008 Bonds maturing on July 1, 20_, and July 1,
20, payable from the Principal Account as provided in Section 5.05 (B).
Section 12.02. Authorization of 2008 Bonds. The 2008 Bonds have been authorized
to be issued by the Agency pursuant to the Resolution. The 2008 Bands are issued as Parity
Obligations in the aggregate principal amount of Million Thousand
Dollars ($[Bond Amount]) under and subject to the terms of this Indenture, the Resolution and
the Law, for the purpose of providing funds to repay in full the City's installment payment
obligations under the 1998 Installment Sale Agreement and to, thereby, refund and defease the
1998 Bonds. This Indenture constitutes a continuing agreement with the Owners of all of the
2008 Bonds issued hereunder and at any time Outstanding to secure the full and final payment
of principal of and premium, if any, and interest on all 2008 Bonds which may from time to time
be executed and delivered hereunder, subject to the covenants, agreements, provisions and
conditions herein contained. The 2008 Bonds shall be designated the "City of Palm Springs
2008 Airport Passenger Facility Charge Subordinate Revenue Refunding Bonds (Palm Springs
International Airport)".
Section 12.03. Terms of 2008 Bonds. The 2008 Bonds shall subject to the provisions
of Section 3.03 and shall be initially issued registered in the name of"Cede & Co.," as nominee
of The Depository Trust Company, New York, New York, and shall be evidenced by one 2008
Bond maturing on each maturity date, to be in a denomination corresponding to the total
principal designated to mature on such date. Registered ownership of the 2008 Bonds, or any
portion thereof, may not thereafter be transferred except as set forth in Section 3.03.
The 2008 Bonds shall be issued as fully registered bonds without coupons in the
denomination of$5,000 or any integral multiple thereof; provided that no 2008 Bond shall have
principal maturing on more than one principal maturity date. The 2008 Bands shall be dated as
of date of delivery of the 2008 Bonds to the Original Purchaser and shall accrue interest from
such date. The 2008 Bonds shall mature on July 1, on the following dates and in the following
amounts and shall bear interest at the following rates per annum payable on January 1, 2009,
and semiannually thereafter on January 1 and July 1 in each year, calculated on the basis of a
360-d8y year consisting of twelve 30-day consecutive months:
Maturity Date Principal Interest
July 1 Amount Rate
[To Come]
The principal of and premium, if any, on the 2008 Bonds shall be payable in lawful
money of the United States of America to the Owner thereof, upon the surrender thereof at the
Corporate Trust Office of the Trustee, in Los Angeles, California, or such other office as may be
designated by the Trustee. The interest on the 2008 Bonds shall be payable in like lawful
4
OG00!8
money to the person whose name appears on the bond registration books of the Trustee as the
Owner thereof as of the close of business on the 15th day of the month immediately preceding
an interest payment date, whether or not such day is a Business Day, such interest to be paid
by check mailed by first class mail to such Owner at such address as appears on such
registration books.
Each 2008 Bonds shall bear interest from the interest payment date next preceding the
date of authentication thereof unless it is authenticated as of a day during the period from the
16th day of the month next preceding any interest payment date to the interest payment date,
inclusive, in which event it shall bear interest from such interest payment date, or unless it is
authenticated on or before December 15, 2008, in which event it shall bear interest from its
original dated date, provided, however, that if, at the time of authentication of any 2008 Bond,
interest is in default on Outstanding Bonds, such Bond shall bear interest from the interest
payment date to which interest has previously been paid or made available for payment on the
Outstanding Bonds and shall be payable to the Owners thereof of record as of a special date as
shall be established by the Trustee following such default.
Only such of the 2008 Bonds as shall bear thereon a certificate of authentication in the
form herein recited, executed by the Trustee, shall be valid or obligatory for any purpose or
entitled to the benefits of this Indenture, and such certificate of the Trustee shall be conclusive
evidence that the 2008 Bonds so authenticated have been duly authenticated and delivered
hereunder and are entitled to the benefits of this Indenture.
The 2008 Bonds shall be subject to redemption as provided in Section 12.07.
(c) The City has reviewed all proceedings heretofore taken relative to the
authorization of the 2008 Bonds and has found, as a result of such review, that all conditions,
things and acts required by law to exist, happen or be performed precedent to and in the
issuance of the 2008 Bonds do exist, have happened and have been performed in due time,
form and manner as required by law, and the City is authorized, pursuant to each and every
requirement of law, to issue the 2008 Bonds in the manner and form provided in this Indenture.
Section 12,04. Form of 2008 Bonds. The 2008 Bonds and the Trustee's certificates of
authentication and registration and the form of assignment to appear thereon shall be in
substantially the forms set forth in Exhibit C attached hereto and hereby made a part hereof
(which Exhibit is attached as Exhibit A to the First Supplement to Trust Indenture), with
necessary or appropriate variations, omissions and insertions as permitted or required by this
Indenture.
Section 12.05. Delivery of 2008 Bonds. At any time after the execution of the First
Supplement to Trust Indenture, the City may sell and execute and the Trustee, upon a Request
or Certificate of the City, shall authenticate and deliver the 2008 Bonds to the Original
Purchaser,
Section 12.06. Application of Proceeds of 2008 Bonds; Transfers. The net
proceeds received from the sale of the 2008 Bonds in the amount of$ (being
the principal amount of the 2008 Bonds less an original issue discount of$ and less
an underwriter's discount of $ ) shall be deposited with the Trustee, who shall
deposit or transfer the net proceeds as follows,
5
(1) The Trustee shall deposit in the 2008 Reserve Fund the amount of
$ which amount is not less than the amount required to be deposited
therein by Section 3.02 (C) upon the issuance of the 2008 Bonds as Parity Obligations.
(2) The Trustee shall transfer to the Escrow Bank for deposit in the Escrow
Fund established under the Escrow Agreement an amount equal to $
providing for repayment of the City's installment payment obligations under the 1998
Installment Sale Agreement and to, thereby, refund and defease the 1998 Bonds.
(3) The Trustee shall deposit in a separate fund to be known as the "2008
Costs of Issuance Fund", which the Trustee hereby agrees to establish and maintain, an
amount equal to $ . The moneys in the 2008 Costs of Issuance Fund
shall be used and withdrawn by the Trustee from time to time to pay the Costs of
Issuance related directly or indirectly to the 2008 Bonds upon submission of a Request
of the City stating (a) the person to whom payment is to be made, (b) the amount to be
paid, (c) the purpose for which the obligation was incurred, (d) that such payment is a
proper charge against the 2008 Costs of Issuance Fund, and (e) that such amounts
have not been the subject of a prior Request of the City; in each case together with a
statement or invoice for each amount requested thereunder. On the earlier of ninety
(90) days from the Closing Date, or the date of receipt by the Trustee of a Written
Request of the Agency therefor, all amounts (if any) remaining in the 2008 Costs of
Issuance Fund shall be withdrawn therefrom by the Trustee and transferred to the Bond
Service Fund,
Section 12.07. Terms of Redemption of the 2008 Bonds
(a) Optional Redemption. 2008 Bonds due on or after July 1, 20_, shall be subject to
redemption prior to their respective stated maturities, at the option of the City, from and to the
extent of any source of available funds, as a whole or in part on any date on or after July 1,
20—, by such maturities or portions thereof as shall be determined by the City and by lot within
any such maturity, at the principal amount thereof and accrued interest thereon to the date fixed
for redemption, without premium.
(b) Mandatory_Sinking Account Redemption. (i) The 2008 Bonds maturing on July 1,
20 , and July 1, 20_, are 2008 Term Bonds and shall also be subject to redemption, in part
by lot, on July 1 in each year as set forth in the following tables, from mandatory sinking account
payments at a redemption price equal to the principal amount thereof to be redeemed together
with accrued interest thereon to the redemption date, without premium, or in lieu thereof shall be
purchased pursuant to the succeeding paragraph (ii) of this subsection (b); provided, however,
that if some but not all of such 2008 Term Bonds have been redeemed pursuant to subsection
(a) above, the total amount of all future mandatory sinking account payments established
pursuant to this subsection (b)(i) shall be reduced by the aggregate principal amount of such
2008 Term Bonds so redeemed, to be allocated among the applicable mandatory sinking
account payments on a basis determined by the City in integral multiples of $5,000 (written
notice of which determination shall be given by the City to the Trustee).
6
2008 Term Bonds Maturing July 1, 20_
Sinking Account Principal Amount
Redemption Date To Be Redeemed
(July 1) or
Purchased
[To Come]
*Maturity
2008 Term Bonds Maturing July 1, 20_,_
Sinking Account Principal Amount
Redemption Date To Be Redeemed
(September 1) or
Purchased
[To Come]
"Maturity
(ii) The 2008 Term Bonds are payable from the Principal Account as provided in
Section 5.05 (B). In lieu of redemption of Term Bonds pursuant to this subsection (b), amounts
on deposit in the Principal Account as mandatory sinking account payments or required to be
deposited to the Redemption Fund may also be used and withdrawn by the Trustee, at the
written direction of the City, at any time for the purchase of 2008 Term Bonds otherwise
required to be redeemed on the following July 1 at public or private sale as and when and at
such prices (including brokerage and other charges and including accrued interest) as the City
may in Its discretion determine. The par amount of any of the 2008 Term Bonds so purchased
by the City and surrendered to the Trustee for cancellation in any twelve-month period ending
on May 1 in any year shall be credited towards and shall reduce the per amount of the 2008
Term Bonds otherwise required to be redeemed on the following July 1 pursuant to this
subsection (b).
(c) Special Mandato Redemption. The Bonds maturing July 1, 20,, are subject to
special mandatory redemption, in part, and by lot each July 1, beginning July 1, 200_, from
Remaining Revenue deposited to the Special Redemption Account in accordance with Section
5.10 at a redemption price equal to the principal amount thereof to be redeemed, plus a
premium (expressed as a percentage of the principal amount of Bonds to be redeemed)
together with accrued interest thereon to the date fixed for redemption as follows:
Redemption Dates Redemption Price
Each July 1, Prior to July 1, 2014 103.0%
July 1, 2014 102.0%
July 1, 2015 101.0%
July 1, 2016 and each July 1 thereafter 100.0%
In addition, the Bonds are also subject to special mandatory redemption, in whole, on
any date, as a result of actions taken by the FAA to reduce the City's authority to collect PFC's
under the Supplemental ROD, from proceeds of refunding obligations or from any available
7
funds of the Airport, at a redemption price equal to the principal amount thereof together with
accrued interest thereon to the date fixed for redemption, without premium.
The Trustee shall undertake said special mandatory redemption when and as directed in
writing by the City-
(d) Rescission. The City shall have the right to rescind any optional redemption of 2008
Bonds by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of
optional redemption shall be cancelled and annulled if for any reason funds will not be or are not
available on the date fixed for redemption for the payment in full of the 2008 Bonds then called
for redemption, and such cancellation shall not constitute an Event of Default under this
Indenture. The City and the Trustee shall have no liability to the Owners or any other party
related to or arising from such rescission of redemption. The Trustee shall mail notice of such
rescission of redemption in the same manner as the original notice of redemption was sent-
(e) Redemption Procedures. Except as provided in this Section 1207. to the contrary,
the redemption procedures and other provisions of Article IV shall apply to the redemption of the
2008 Bonds.
Section 12.08. 2008 Reserve Fund. The Trustee shall establish and hold in trust a
separate fund designated as the "2008 Reserve Fund", which shall be maintained and applied
in accordance with Section 5.08(C) with respect to the 2008 Bonds as Parity Obligations.
Section 12.09. Redemption Fund. The Trustee shall deposit in the Redemption Fund
amounts received by the Trustee at least one day before the redemption date which are to be
applied to the redemption of 2008 Bonds pursuant to Section 12.07(a) and Section 12.07(b) and
as further provided in Section 5.06.
Section 12.10. Tax Covenants. The tax covenants set forth in Section 6.08 shall apply
to the 2008 Bonds.
Section 12.11. Continuing Disclosure. The City hereby covenants and agrees that it
will comply with and carry out all of the provisions of the Continuing Disclosure Certificate.
Notwithstanding any other provision of this Indenture, failure of the City to comply with the
Continuing Disclosure Certificate shall not be considered an Event of Default; however, any
Participating Underwriter may take such actions as may be necessary and appropriate,
including seeking mandate or specific performance by court order, to cause the City to comply
with its obligations under this Section.
Section 12.12. Security for the 2008 Bonds- The 2008 Bonds are Parity Obligations
within the meaning of this Indenture and are secured by a first pledge of Subordinate Revenues
and other funds allocable to the 2008 Bonds in the manner and to the extent set forth in Article
V and in this Article XII on a parity with Outstanding Bonds and any additional Parity
Obligations. In addition, the 2008 Bonds are secured by a pledge of all the moneys in the 2008
Reserve Fund, including the investment earnings thereon
SECTION 2. Attachment of Exhibit C. The Indenture is also hereby further amended
by attaching thereto and incorporating therein an Exhibit C setting forth the form of the 2008
Bonds, which shall read substantially as set forth in Exhibit A which is attached hereto and by
this reference incorporated herein.
8
SECTION 3. Partial Invalidity. If any Section, paragraph, sentence, clause or phrase
of this Second Supplement shall for any reason be held illegal, invalid or unenforceable, such
holding shall not affect the validity of the remaining portions of this First Supplement to Trust
Indenture. The Agency hereby declares that it would have entered into this First Supplement to
Trust Indenture and each and every other Section, paragraph, sentence, clause or phrase
hereof and authorized the issue of the 2008 Bonds pursuant thereto irrespective of the fact that
any one or more Sections, paragraphs, sentences, clauses, or phrases of this First Supplement
to Trust Indenture may be held illegal, invalid or unenforceable.
SECTION 4. Execution in Counterparts. This First Supplement to Trust Indenture
may be executed in several counterparts, each of which shall be an original and all of which
shall constitute but one and the same instrument.
SECTION 5. Governing Law. This First Supplement to Trust Indenture shall be
construed and governed in accordance with the laws of the State of California.
9
IN WITNESS WHEREOF, the parties hereto have executed this First Supplement to
Trust Indenture by their officers thereunto duly authorized as of the day and year first written
above.
THE BANK OF NEW YORK TRUST
COMPANY, N.A., as Trustee
By
CITY OF PALM SPRINGS
By
City Manager
(Seal)
ATTEST;
City Clerk
APPROVED AS TO FORM
By:
City Attorney
10 y�
-• U� dSJi,"z
EXHIBIT A
FORM OF 2008 BOND
UNITED STATES OF AMERICA
REGISTERED
No. $
CITY OF PALM SPRINGS
2008 AIRPORT PASSENGER FACILITY CHARGE
SUBORDINATE. REFUNDING REVENUE BONDS
PALM SPRINGS INTERNATIONAL AIRPORT)
INTEREST RATE MATURITY DATE ORIGINAL ISSUE DATE CUSIP#
[To Come]
REGISTERED OWNER: CEDE & CO.
PRINCIPAL AMOUNT: DOLLARS
THE CITY OF PALM SPRINGS, a municipal corporation and charter city (the "City"),
acting by and through its City Council (hereinafter called the "Council'), FOR VALUE
RECEIVED, hereby promises to pay, solely from Subordinate Revenues, as defined in the
hereinafter defined Indenture, to the Registered Owner named above, unless redeemed prior
thereto as hereinafter provided, the principal amount set forth above, and to pay interest
(calculated on the basis of a 360-day year consisting of twelve 30-day months) on such
principal amount from the Interest Payment Date next preceding the date of authentication
hereof (a) unless this Bond is authenticated during the period after the fifteenth day of the
month preceding such Interest Payment Date (a "Record Date") but on or before the next
Interest Payment Date, in which event this Bond shall bear interest from such Interest Payment
Date, or (b) unless this Bond is authenticated on or prior to December 15, 2008, in which event
this Bond shall bear interest from the Original Issue Date; provided, however, that if as of the
date of authentication interest on this Bond is in default, it shall bear interest from the Interest
Payment Date to which interest has been paid or provided for, semi-annually on January 1, and
July 1, commencing January 1, 2009, at the interest rate set forth above, until the principal
amount hereof is paid or made available for payment. The principal of and premium, if any, on
this Bond are payable to the Registered Owner hereof in lawful money of the United States of
America upon presentation and surrender of this Bond at the principal corporate trust office of
The Bank of New York Trust Company, N.A. in Los Angeles, California (the "Trustee"). Interest
on this Bond shall be paid by check of the Trustee mailed to the Registered Owner hereof as of
the close of business on the applicable Record Date at such Registered Owner's address as it
appears on the registration books maintained by the Trustee, except that a Registered Owner of
$1,000,000 or more in principal amount of the Bonds may be paid interest by wire transfer to an
account in the United States of America if such Registered Owner makes a written request of
the Trustee prior to the Record Date preceding such interest payment date specifying the
account address. Such notice may provide that it will remain in effect for later interest payments
until changed or revoked by another written notice.
Exhibit A-1
This Bond is one of a duly authorized issue of "City of Palm Springs 2008 Airport
Passenger Facility Charge Subordinate Refunding Revenue Bonds (Palm Springs International
Airport) (the "Bonds") issued in the aggregate principal amount of Million
Hundred Thousand Dollars ($[Bond Amount]) pursuant to Section 53570, et. seq., of the
Government Code of the State of California (the "Law"), and the Trust Indenture by and
between the City and Trustee, dated as of April 1, 2006, as amended and Supplemented by a
First Supplement to Trust Indenture, by and between the City and the Trustee, dated as of May
1, 2008 (as amended and supplemented, the "Indenture"). Reference is hereby made to the
Indenture and the Law for a description of the terms on which the Bonds are to be issued, the
provisions with regard to the nature and extent of the Subordinate Revenues, and all of the
terms of the Indenture and the Law are hereby incorporated herein and constitute a contract
between the City and the Registered Owner from time to time of this Bond, and by acceptance
hereof of the Registered Owner of this Bond assents to said terms and conditions. The
Indenture is adopted under, and this Bond is issued under, and is to be construed in
accordance with, the laws of the State of California.
The Bonds are special limited obligations of the City payable from and secured by a
pledge of and a lien and charge upon passenger facility charges derived by the City from the
ownership and operation of the Palm Springs International Airport (PSP) (the "Airport") on a
parity with the City of Palm Springs 2008 Airport Passenger Facility Charge Subordinate
Refunding Revenue Bonds (Palm Springs International Airport) (the "2006 Bonds"). The Bonds
are not a legal or equitable pledge, charge, lien or encumbrance upon any of the City's property
or upon any of Its income, receipts or revenues, except the Subordinate Revenues. The general
fund of the City is not liable for the payment of the Bonds, or their interest, nor is the credit or
the taxing power of the City pledged therefor. The Registered Owner hereof shall not compel
the exercise of any taxing power of the City or the forfeiture of any of its property for the
payment of this Bond or any interest thereon. The Bonds and the 2006 Bonds are payable as to
both principal and interest, and any premium upon redemption thereof, exclusively from the
Subordinate Revenues and other funds pledged under the Indenture.
The Bonds are issued to provide funds to repay certain installment payment obligations
of the City with respect to the Airport and, thereby, refund and defease the outstanding City of
Palm Springs Financing Authority Airport Revenue Bonds, Series 1998 (Palm Springs Regional
Airport).
Bonds due on or after July 1, 20, shall be subject to redemption prior to their
respective stated maturities, at the option of the City, from and to the extent of any source of
available funds, as a whole or in part on any date on or after July 1, 20, by such maturities or
portions thereof as shall be determined by the City and by lot within any such maturity, at the
principal amount thereof and accrued interest thereon to the date fixed for redemption, without
premium.
Bonds maturing on July 1, 20_, and July 1, 20_,, are Term Bonds and shall also be
subject to redemption, in part by lot, on July 1 in each year as set forth in the following tables,
from mandatory sinking account payments at a redemption price equal to the principal amount
thereof to be redeemed together with accrued interest thereon to the redemption date, without
premium, or in lieu thereof shall be purchased pursuant to the succeeding paragraph (ii) of this
subsection (b); provided, however, that if some but not all of such Term Bonds have been
redeemed pursuant to subsection (a) above, the total amount of all future mandatory sinking
account payments established pursuant to this subsection (b)(i) shall be reduced by the
aggregate principal amount of such Term Bonds so redeemed, to be allocated among the
applicable mandatory sinking account payments on a basis determined by the City in integral
Exhibit A-2 rr�� rry
o �C 02 '
multiples of $5,000 (written notice of which determination shall be given by the City to the
Trustee).
Term Bonds Maturing July 1, 20_
Sinking Account Principal Amount
Redemption Date To Be Redeemed
(July 1) or
Purchased
[To Come]
*Maturity
Term Bonds Maturing July 1, 20_
Sinking Account Principal Amount
Redemption Date To Be Redeemed
(September 1) or
Purchased
[To Come]
`Maturity
In lieu of redemption of Term Bonds as described above, amounts on deposit with the
Trustee may also be used and withdrawn by the Trustee, as provided in the Indenture, at any
time for the purchase of Term Bonds otherwise required to be redeemed on the following July 1
at public or private sale as and when and at such prices (including brokerage and other charges
and including accrued interest) as the City may in its discretion determine. The par amount of
any of the Term Bonds so purchased by the City and surrendered to the Trustee for cancellation
in any twelve-month period ending on May 1 in any year shall be credited towards and shall
reduce the par amount of the Term Bonds otherwise required to be redeemed on the following
July 1.
The City shall have the right to rescind any optional redemption of Bonds by written
notice to the Trustee on or prior to the date fixed for redemption. Any notice of optional
redemption shall be cancelled and annulled if for any reason funds will not be or are not
available on the date fixed for redemption for the payment in full of the Bonds then called for
redemption, and such cancellation shall not constitute an event of default under the Indenture.
The City and the Trustee shall have no liability to the Owners or any other parry related to or
arising from such rescission of redemption. The Trustee shall mail notice of such rescission of
redemption in the same manner as the original notice of redemption was sent.
The Bonds maturing July 1, 20, are subject to special mandatory redemption, in part,
and by lot each July 1, beginning July 1, 200, from Remaining Revenue (as defined in the
Indenture) deposited to the Special Redemption Account established by and as provided in the
Indenture at a redemption price equal to the principal amount thereof to be redeemed, plus a
premium (expressed as a percentage of the principal amount of Bonds to be redeemed)
together with accrued interest thereon to the date fixed for redemption as fellows:
Exhibit A-3
Redemption Dates Redemption Price
Each July 1, Prior to July 1, 2014 103.0°%
July 1, 2014 102.0%
July 1, 2015 101.0%
July 1, 2016 and each July 1 thereafter 100.0%
In addition, the Bonds are also subject to special mandatory redemption, in whole, on
any date, as a result of actions taken by the Federation Aviation Administration to reduce the
City's authority to collect passenger facility charges under the Special Agreement (as defined in
the Indenture), from proceeds of refunding obligations or from any available funds of the Airport,
at a redemption price equal to the principal amount thereof together with accrued interest
thereon to the date fixed for redemption, without premium.
The Trustee shall undertake said special mandatory redemption when and as directed in
writing by the City.
The Bonds may be transferred without charge upon the register required to be kept by
the Trustee, by the person in whose name it is registered, in person or by his duly authorized
attorney, upon surrender of this Bond for cancellation, accompanied by delivery of a written
instrument of transfer, duly executed in a form approved by the Trustee. Whenever any Bond is
surrendered for transfer, the City shall execute and the Trustee shall authenticate and deliver a
new Bond or Bonds of the same tenor and maturity and for a like aggregate principal amount.
This Bond may be exchanged without charge at the corporate trust office of the Trustee in Los
Angeles, California for Bonds of authorized denominations having the same aggregate principal
amount, tenor and maturity. The Trustee need not transfer registration or exchange any Bond
within 15 days prior to the date of selection of Bonds for redemption or any portion thereof
selected for redemption. The Trustee may require the holder of any Bond requesting transfer of
registration or exchange to pay any tax or other governmental charge required to be paid with
respect to such transfer of registration or exchange.
The rights and obligations of the City, the Trustee, and the holders of the Bonds may be
modified or amended from time to time in the manner, to the extent and upon the terms
provided in the Indenture, provided that no such modification or amendment shall extend the
fixed maturity of this Bond, or reduce the amount of principal hereof, or extend the time of
payment, or reduce the amount of any mandatory sinking account payment provided for the
payment of this Bond, or reduce the rate of interest hereon, or extend the time of payment of
interest hereon, or reduce any premium payable upon the redemption hereof, without the
consent of the owner hereof, or reduce the percentage of Bonds the consent of the holders of
which is required to effect any such modification or amendment, or permit the creation of any
lien on the Subordinate Revenues and other assets or funds pledged under the Indenture prior
to or on a parity with the lien created by the Indenture except as provided in the Indenture, or
deprive the holders of the Bonds of the lien created by the Indenture on such other revenues
and other assets, without the consent of the holders of all of the Bonds then outstanding as
provided in the Indenture.
This Bond shall not be entitled to any benefit under the Indenture, or become valid or
obligatory for any purpose, until the certificate of authentication and registration hereon
endorsed shall have been executed and dated by the Trustee.
It is hereby certified and recited that any and all acts, conditions and things required to
exist, to have happened and to have been performed precedent to and in the issuance of this
Exhibit A-1
Bond do exist, have happened, and have been performed in due time, form and manner as
required by the Constitution and laws of the State of California and that this Bond, together with
all other indebtedness of the City does not exceed any limit prescribed by the Constitution and
laws of the State of California and is not in excess of the amount of Bonds permitted to be
issued under the Indenture.
Unless this Bond is presented by an authorized representative of The Depository Trust
Company, a New York corporation ("DTC"), to the Trustee for registration of transfer, exchange,
or payment, and any certificate issued is registered in the name of Cede & Co. or in such other
name as is requested by the authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL inasmuch as the Registered Owner hereof, Cede & Co., has
an interest herein.
Exhibit A-5
IN WITNESS WHEREOF, the City of Palm Springs has caused this Bond to be signed
by the Mayor and the City Clerk, and sealed with the corporate seal of said City as of the
Original Issue Date specified above.
CITY OF PALM SPRINGS
By:
Ron Oden, Mayor
COUNTERSIGNED:
By:
James Thompson, City Clerk
Exhibit A-6
26039.11 JH ACH 6rf 04102/08
1998 BONDS ESCROW DEPOSIT AND TRUST AGREEMENT
by and among the
CITY OF PALM SPRINGS FINANCING AUTHORITY,
THE CITY OF PALM SPRINGS
and
THE BANK OF NEW YORK TRUST COMPANY N.A.,
as Escrow Bank
Dated as of May 1, 2008
Relating to
$8,260,000
City of Palm Springs Financing Authority
Airport Revenue Bonds, Series 1998
(Palm Springs Regional Airport)
600 �I
TABLE OF CONTENTS
Page
Section 1. Federal Securities.... ....... ..... ...... ... ... ... .. ... ... ...........................................3
Section 2. Appointment of Escrow Bank.......................................................................................4
Section 3. Establishment of 1998 Bonds Escrow Fund................................................................4
Section4. Deposit of Funds .. ..... ...............................................................................................4
Section 5. Application of Deposit.......... ..... ..... ..... ... .... .. ... ... .................................... ....5
Section 6- Instructions as to Application of Deposit, Call and Redemption of 1998 Authority
Bonds............................................................................................................................5
Section 7. Application of Certain Terms of 1998 Bonds Indenture...............................................7
Section 8- Substitution of Federal Securities................................................................................7
Section 9. Compensation to Escrow Bank................................................................ ... .... ... ... 7
Section 10. Liabilities and Obligations of Escrow Bank .................................................................8
Section 12 Discharge of 1998 Bonds and Satisfaction of Prior Installment Sale Agreement- ----10
Section12 Amendment................................................................................................................11
Section 13. Partial Invalidity..........................................................................................................11
Section 14, Execution in Counterparts............................... ..... ......... .........................................I I
Section 15. Governing Law.................................................................................................. ..... ..12
EXHIBIT SCHEDULE OF FEDERAL SECURITIES
EXHIBIT B SCHEDULE OF 2008 BONDS DEBT SERVICE
1998 BONDS ESCROW DEPOSIT AND TRUST AGREEMENT
This 1998 BONDS ESCROW DEPOSIT AND TRUST AGREEMENT is dated as of the
1st day of May, 2008 (this "Agreement"), by and among the CITY OF PALM SPRINGS
FINANCING AUTHORITY, a Joint Powers Authority, organized and existing under the laws of
the State of California (the "Authority"), the CITY OF PALM SPRINGS, a municipal corporation
duly organized and existing under the laws of the State of California (the "City") and THE BANK
OF NEW YORK TRUST COMPANY N.A., a national banking association organized and existing
under the laws of the United States of America, as escrow holder hereunder (the "Escrow
Bank") and as successor trustee with respect to the hereinafter described 1998 Bonds
(hereinafter referred to in such capacity as the 1998 Bonds Trustee"):
WITNES8ETH'
WHEREAS, the City and the Redevelopment Agency of the City of Palm Springs (the
"Agency") heretofore entered into a Joint Exercise of Powers Agreement establishing the City of
Palm Springs Financing Authority (the "Authority") for the purpose of, among other things, of
providing financing and refinancing for public capital improvements of public entities, including
the City and the Agency;
WHEREAS, the City pursuant to Amendment No. 1 to First Amended and Restated
Installment Sale Agreement, dated as of April 1, 1998 (the "Prior Installment Sale Agreement"),
between the City and the Authority purchased certain airport facilities (the "Facilities") from the
Authority;
WHEREAS, the City desires to refinance its installment payment obligations under the
Prior Installment Sale Agreement,
WHEREAS, for the purpose of providing funds for the payment for the Facilities in full
pursuant to the Prior Installment Sale Agreement, the City has determined to issue its City of
Palm Springs 2008 Airport Passenger Facility Charge Subordinate Revenue Refunding Bonds
(Palm Springs International Airport) in the aggregate principal amount of$ (the
"2008 Bonds"),
WHEREAS, the Authority will use the proceeds of the City's prepayments of its
installment payments under the Prior Installment Sale Agreement to refund and defease its
outstanding City of Palm Springs Financing Authority Airport Revenue Bonds, Series 1998
(Palm Springs Regional Airport) (the "1998 Bonds') issued pursuant to a Master Indenture of
Trust, dated as of August 1, 1992, by and between the Authority and First Interstate Bank of
California, as trustee, as amended and supplemented, including as amended and
supplemented by a Second Supplemental Trust Indenture, dated as of April 1, 1998, by and
between the Authority and BNY Western Trust Company, as successor trustee (as amended
and supplemented, the `1998 Bands Indenture").
WHEREAS, the Prior Installment Sale Agreement contains provisions permitting
payment of installment payments in full and the 1998 Bonds Indenture contains provisions
permitting the payment in full of the 1998 Bonds and the discharge of the 1998 Bonds Indenture
with respect to the 1998 Bonds upon the deposit with the Escrow Bank, as the 1998 Bonds
Trustee, of Federal Securities and cash sufficient to pay when due the principal, interest and
any early redemption premiums due and to become due on the 1998 Bonds on the redemption
date thereof, and the City and the Authority wish to make such a deposit with the Escrow Bank
and to enter into this Agreement for the purpose of providing the terms and conditions for the
deposit and application of amounts so deposited, and
WHEREAS, the Escrow Bank has full powers to act with respect to the irrevocable
escrow and trust created herein and to perform the duties and obligations to be undertaken
pursuant to this Agreement. and
WHEREAS, upon the making the deposit described above with the Escrow Bank, the
City and the Authority desire to evidence the discharge of the 1998 Bonds Indenture and
satisfaction of the Prior Installment Sale Agreement;
NOW, THEREFORE, in consideration of the above premises and of the mutual promises
and covenants herein contained and for other valuable consideration, the parties hereto do
hereby agree as follows:
Section 1. Federal Securities. Federal Securities (as defined in Section 5 hereof)
means the United States Treasury Securities deposited in the 1998 Bonds Escrow Fund
pursuant to the provisions of this Agreement, which the City and the Authority confirm to be
direct obligations of the United States of America within the meaning of Section 9.03(b) of the
1998 Bonds Indenture.
Section 2. Appointment of Escrow Bank. The City and the Authority hereby appoint the
Escrow Bank, as escrow holder for all purposes of this Agreement and in accordance with the
terms and provisions of this Agreement, and the Escrow Bank hereby accepts such
appointment.
Section 3. Establishment of 1998 Bonds Escrow Fund. The Escrow Bank agrees to
establish and maintain a special trust account designated the "1998 Bonds Escrow Fund,"
which shall be held by the Escrow Bank, as a segregated fund separate and distinct from all
other funds and accounts held by the Escrow Bank, in trust as security for the payment of the
principal of and redemption premium and interest on the 1998 Bonds.
Section 4. Deposit of Funds. Concurrently with the issuance and delivery of the 2008
Bonds, the City and the Authority shall cause to be transferred from the proceeds of the 2008
Bonds to the Escrow Bank for deposit into the 1998 Bonds Escrow Fund in immediately
available funds the amount of$ 1 In addition, the Authority and the City
hereby direct the Escrow Bank, as the 1998 Bonds Trustee, to transfer concurrently with the
issuance and delivery of the 2008 Bonds and deposit in the 1998 Bonds Escrow Fund in
immediately available funds from the Reserve Account established by the 1998 Bonds
Indenture the amount of for a total deposit into the 1998 Bonds Escrow
Fund of the amount of$
The City and the Authority hereby represent and warrant that the total amount of
$ of immediately available funds deposited in the 1998 Bonds Escrow
Fund represents a prepayment of the full amount payable by the City with respect to the Prior
Installment Sale Agreement,
Section 5. Application of Deposit. Of the total amount of $
deposited in the 1998 Bonds Escrow Fund pursuant to Section 4 hereof, $
shall be invested by the Escrow Bank in the federal securities described in Exhibit A, attached
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. aa® 9 /1
hereto and hereby made a part hereof (the "Federal Securities'), and $ shall be held as
cash. The City and the Authority hereby direct the Escrow Bank to acquire the Federal
Securities for deposit in the 1998 Bonds Escrow Fund.
After the Escrow Bank shall have paid or have made provision for payment of all
principal of and interest and redemption premiums on the 1998 Bonds as provided in Section 6
hereof, the Escrow Bank shall promptly transfer to the trustee for the 2008 Bonds any surplus
amounts remaining in the 1998 Bonds Escrow Fund to be used solely to pay debt service on the
2008 Bonds.
Section 6. Instructions as to Application of Deposit, Call and Redemption of 199.8
Authority Bonds. The total amount of Federal Securities and cash held in the 1998 Bonds
Escrow Fund pursuant to Section 5 hereof shall be deemed to be and shall constitute
prepayments permitted to be made by the City pursuant to the Prior Installment Sale Agreement
to pay all principal, interest and redemption premium in order to pay In full the 1998 Bonds and
discharge the 1998 Bonds Indenture with respect to the 1998 Bonds pursuant to Article IX
thereof. In accordance with Section Article IX of the 1998 Bonds Indenture, the City and the
Authority hereby irrevocably direct and instruct the Escrow Bank to apply the maturing principal
amount of the Federal Securities to pay all of the principal of and interest on the 1998 Bonds as
the same shall become due and payable on July 1, 2008, and to pay all principal, interest and
redemption premium due and payable upon call and redemption of the 1998 Bonds prior to
maturity on July 1, 2008, the date of early redemption of the 1998 Bonds, all as more
particularly set forth in Exhibit B, attached hereto and hereby made a part hereof. For such
purpose of call and redemption prior to maturity, the City and the Authority hereby instruct the
Escrow Bank, as the 1998 Bonds Trustee, and the Escrow Bank, as the 1998 Bonds Trustee,
hereby agrees to give notice of redemption of the 1998 Bonds, such notice of redemption to be
given timely for redemption of the 1998 Bonds on July 1, 2008, in accordance with the further
applicable provisions of the 1998 Bonds Indenture-
, certified public accountants and an "independent certified public
accountant' within the meaning of Section 9.03 of the 1998 Bonds Indenture has confirmed, in
its report to the 1998 Bonds Trustee, the Authority and the underwriters of the 2008 Bonds,
dated May_, 2008, that the deposit in the 1998 Bonds Escrow Fund of such Federal
Securities, together with interest to accrue thereon, will be fully sufficient to pay all of the
principal of and interest on the 1998 Bonds as the same shall become due and payable on July
1, 2008, and to redeem and pay the principal of and interest and redemption premium on all
1998 Bonds in full on July 1, 2008, the date of early redemption of the 1998 Bonds.
Section 7. Application of Certain Terms of 1998 Bonds Indenture. All of the terms of the
1998 Bonds Indenture relating to the call and redemption of the 1998 Bonds prior to maturity
and to the making of payments of principal, interest and early redemption premiums on the 1998
Bonds, as applicable, are incorporated in this Agreement as if set forth in full herein. The
provisions of the 1998 Bonds Indenture relating to the resignation and removal of the 1998
Bonds Trustee are also incorporated in this Agreement as if set forth in full herein and shall be
the procedure to be followed with respect to any resignation or removal of the Escrow Bank
hereunder.
Section S. No Substitution of Federal Securities. No substitution of the Federal
Securities initially deposited in the 1998 Bonds Escrow Fund pursuant to Section 5 is permitted.
Section 9. Compensation to Escrow Bank. The City shall pay or cause the Authority to
pay the Escrow Bank full compensation for its duties under this Agreement, including out-of-
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pocket costs such as publication costs, redemption costs and expenses, legal fees and
expenses, which fees and expenses shall include the allocated costs and disbursements of in-
house counsel (to the extent such counsel's services are not redundant of services provided by
external counsel to Escrow Bank) and other costs and expenses relating hereto and, in addition,
fees, costs and expenses relating to the purchase of any Federal Securities after the date
hereof, pursuant to separate agreement between the City, the Authority and the Escrow Bank.
Such compensation shall not affect the right of Escrow Bank, as Trustee for the 1998 Bonds, to
compensation for its duties (including but not limited to, exchanges and transfers of 1998
Bonds), under the 1998 Bonds Indenture. Under no circumstances shall amounts deposited in
the 1998 Bands Escrow Fund be deemed to be available for said purposes prior to the payment
in full of all of the principal of, interest and early redemption premiums on the 1998 Bonds in
accordance with Section 6 hereof.
Section 10. Liabilities and Obligations of Escrow Bank. The Escrow Bank shall have no
obligation to make any payment or disbursement of any type or incur any financial liability in the
performance of its duties under this Agreement unless the City or the Authority shall have
deposited sufficient funds with the Escrow Bank. The Escrow Bank may rely and shall be
protected in acting upon the written instructions of the City or the Authority or its agents relating
to any matter or action as Escrow Bank under this Agreement. The Escrow Bank shall not be
required to act upon any oral instructions but may request that such instruction be given in
writing.
The City and the Authority covenant to indemnify and hold harmless the Escrow Bank
against any loss, liability or expense, including legal fees and expenses, which fees and
expenses shall include the allocated costs and disbursements of in-house counsel (to the extent
such counsel's services are not redundant of services provided by external counsel to Escrow
Bank) in connection with the performance of any of its duties hereunder, except the Escrow
Bank shall not be indemnified against any loss, liability or expense resulting from its negligence
or willful misconduct. In no event shall the Escrow Bank be liable for any special indirect or
consequential damages. Such indemnification shall survive the termination and discharge of
this Agreement or the removal or resignation of the Escrow Bank.
The Escrow Bank shall incur no liability for losses arising from any investment made
pursuant to this Agreement.
No provision of this Agreement shall require the Escrow Bank to expend or risk its own
funds or otherwise incur any financial liability in the performance or exercise of any of its duties
hereunder, or in the exercise of its rights or powers.
The Escrow Bank undertakes only such duties as are expressly and specifically set forth
in this Agreement and no implied duties or obligations shall be read into this Agreement against
the Escrow Bank. The Escrow Bank shall not be responsible for any of the recitals or
representations made herein other than that the Escrow Bank is qualified to accept and
administer the trusts created hereunder. The Escrow Bank shall not be liable for the accuracy
of any calculations provided as to the sufficiency of the moneys deposited with it to pay the
principal of, interest and early redemption premiums on the 1998 Bonds. The Escrow Bank
shall not have any liability hereunder except to the extent of its own negligence or willful
misconduct. The Escrow Bank may consult with counsel of its own choice and the opinion of
such counsel shall be full and complete authorization to take or suffer in good faith any action in
accordance with such opinion of counsel-
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Except as otherwise provided in this Agreement, whenever in the administration of this
Agreement the Escrow Bank shall deem it necessary or desirable that a matter be proved or
established prior to taking or suffering any action hereunder, such matter(unless other evidence
in respect thereof be herein specifically prescribed) may, in the absence of negligence or willful
misconduct on the part of the Escrow Bank, be deemed to be conclusively proved and
established by a certificate of any authorized representative of the City or the Authority, and
such certificate shall, in the absence of negligence or willful misconduct on the part of the
Escrow Bank, be full warrant to the Escrow Bank for any action taken or suffered by it under the
provisions of this Agreement upon the faith thereof. The Escrow Bank may conclusively rely, as
to the truth and accuracy of the statements and correctness of the opinions and the calculations
provided, and shall be protected and indemnified, in acting or refraining from acting, upon any
written notice, instruction, request, certificate, document or opinion furnished to the Escrow
Bank signed or presented by the proper party, and it need not investigate any fact or matter
stated in such notice, instruction, request, certificate or opinion.
Section 11. Discharge of 1998 Bonds and Satisfaction of Prior Installment Sale
Agreement. Upon making the deposit as provided in Section A hereof, the 1998 Bonds
Indenture and the lien and all rights and interests of the Authority and of the 1998 Bonds
granted thereby with respect to the 1998 Bonds, shall be discharged. In addition, upon making
such deposit, the Prior Installment Sale Agreement and all rights and interests of the Authority
and all obligations of the City with respect to the Facilities as provided therein, shall be satisfied.
The City, the Authority and the 1998 Bonds Trustee agree to execute and deliver, at the
expense of the City or the Authority, such instruments of release and discharge as may be
necessary or convenient (including instruments of reconveyance), and forthwith the estate, right,
title and interest of the 1998 Bonds Trustee in the trust estate created by the 1998 Bonds
Indenture shall cease and terminate with respect to the 1998 Bonds.
Section 12. Amendment. This Agreement may be amended by the parties hereto if
such amendment shall be for the purpose of curing or correcting any ambiguous or defective
provision hereof, but only, in either case, if there first shall have been filed with the Escrow Bank
a written opinion of bond counsel stating that such amendment will not cause interest on the
1998 Bonds or the 2008 Bonds to become includable in gross income for federal tax purposes.
Section 13. Partial Invalidity. If any Section, paragraph, sentence, clause or phrase of
this Agreement shall for any reason be held illegal, invalid or unenforceable, such holding shall
not affect the validity of the remaining portions of this Agreement. The City, the Authority and
the Escrow Bank hereby declare that they would have entered into this Agreement and each
and every other Section, paragraph, sentence, clause or phrase hereof would have been
authorized irrespective of the fact that any one or more Sections, paragraphs, sentences,
clauses, or phrases of this Agreement may be held illegal, invalid or unenforceable.
Section 14. Execution in Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute but one and the
same instrument.
Section 15, Governing Law. This Escrow Agreement shall be governed by and
construed in accordance with the laws of the State of California.
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IN WITNESS WHEREOF, the Authority, the City and the Escrow Bank have each
caused this Agreement to be executed by their duly authorized officers all as of the date first
above written.
CITY OF PALM SPRINGS
By:
City Manager
CITY OF PALM SPRINGS FINANCING
AUTHORITY
By:
Executive Director
THE BANK OF NEW YORK TRUST
COMPANY N,A., as Escrow Bank
By
Authorized Officer
EXHIBIT A
SCHEDULE OF FEDERAL SECURITIES
Maturity Principal Interest Accrued Purchase
Type Date Amount Rate Price Cost Interest Price
[fo Come)
Al ��Q� �
EXHIBIT B
SCHEDULE OF 1998 BONDS DEBT SERVICE
Debt Service
Date Principal Interest Premium Payments
[To Come]
CONTINUING DISCLOSURE CERTIFICATE
This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the
City of Palm Springs (the "Issuer") in connection with the issuance of its $7,000,000* 2008 Airport
Passenger Facility Charge Subordinate Refunding Revenue Bonds, (Palm Springs International Airport)
(the"Bonds")- The Bonds are being issued pursuant to an Indenture of Trust dated as of April 1, 2006, as
supplemented by a First Supplement to Trust Indenture dated as of May 1, 2008 (the "Indenture")
between the Issuer and The Bank of New York Trust Company,N.A. (the"Trustee")- The City covenants
and agrccs as follows:
SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed
and delivered by the City for the benefit of the Bond Owners and in order to assist the Participating
Underwriters in complying with S.E.C. Rule 15c2-12(b)(5).
SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to
any capitalized term issued in this Disclosure Certificate unless otherwise defined in this Section, the
following capitalized terms shall have the following meanings:
Annual Repurt" shall mean any Annual Report provided by the City pursuant to, and as
described in, Sections 3 and 4 of this Disclosure Certificate.
"Dissemination Agent" shall mean the Trustee, or any successor Dissemination Agent designated
in writing by the City and which has filed with the City a written acceptance of such designation.
"Listed Events"shall mean any of the events listed in Section 5(a)of this Disclosure Certificate.
"National Repository" shall mean any Nationally Recognized Municipal Securities Information
Repository for purposes of the Rule. Information on the National Repositories as of a particular date is
available on the Internet at www.sec.gov/consumer/nrmsir.litm.
"Official Statement" shall mean the final Official Statement dated relating to the
Bonds.
"Participating Underivriler"shall mean any of the original underwriters of the Bonds required to
comply with the Rule in connection with offering the Bonds.
"Repository"shall mean each National Repository and each Stare Repository.
"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission
under the SecuritiesExchange Act of 1934,as the same may be amended from time to time.
"State Repository"shall mean any public or private repository or entity designated by the State of
California as a state repository for the purpose of the Rule and recognized as such by the Securities and
Exchange Commission.As of the date of this Disclosure Certificate,there is no State Repository.
*Preliminary,subject to change.
1
SECTION 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than March 31 of
each year, commencing March 31, 2009, provide to each Repository an Annual Report which is
consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than fifteen
(13)days prior to said date,the City shall provide the Annual Report to the Dissemination Agent.
The Annual Report may be submitted as a single document or as separate documents comprising
a package, and may cross-reference other in Formation as provided in Section 4 of this Disclosure
Certificate; provided that the audited financial statements of the City may be submitted separately
from the balance of the Annual Report.
(b) If the City is unable to provide to the Repositories an Annual Report by the date
required in subsection (a), the City shall send a notice to each Repository or to the Municipal
Securities Rulemaking Board in substantially the form attached as Exhibit A.
(c) The Dissemination Agent shall: (i) determine each year prior to the date for
providing the Annual Report the name and address of each National Repository and each State
Repository, if any; and (ii) file a report with the City certifying that the Annual Report has been
provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the
Repositories to which it was provided.
SECTION 4. Content of Annual Reports. The Annual Report of the City shall contain or cross-
reference the following:
(a) Audited Financial Statements of the City prepared in accordance with generally
accepted accounting principles as promulgated to apply to governmental entities from time to
time by the Governmental Accounting Standards Board. If such audited financial statements are
not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the
Annual Report shall contain unaudited financial statements in a format similar to the financial
statements contained in the final Official Statement, and the audited financial statements shall be
filed in the same manner as the Annual Report when they become available.
(b) Unless otherwise provided in the audited financial statements filed on or prior to
the annual filing deadline for the Annual Reports provided for in Section 3 above, financial
information and operating data with respect to the City for the preceding fiscal year, substantially
similar to that provided in the following corresponding tables in the Official Statement:
Table No. I — Historical Enplanements; Table No. 3 - Airline Market Share by Airline;
Table No. 4—Historical PFC Revenues; Table No. 5 -Airport Enterprise Fund Statement of Net
Assets; Table No. 6 -Airport Enterprise Fund Statement of Revenues, Expenses and Changes in
Fund Net Assets; and Table No. 9— PFC Revenues and Bond Redemption. In addition, the City
shall provide information on any special mandatory redemption of the Bonds from the Remaining
Revenues.
Any or all of the items listed above may be included by specific reference to other
documents, including official statements of debt issues of the City or related public entities,
which have been submitted to each of the Repositories or the Securities and Exchange
Commission. If the document included by reference is a final official statement, it must be
available from the Municipal Securities Rulemaking Board. The City shall clearly identify each
such other document so included by reference-
2
SECTION 5. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be
given, notice of the occurrence of any of the following events with respecr to the Bonds, if
material:
(1) Principal and interest payment delinquencies.
(2) Non-payment related defaults.
(3) Unscheduled draws on debt service reserves reflecting financial difficulties-
(4) Unscheduled draws on credit enhancements reflecting financial difficulties.
(5) Substitution of credit or liquidity providers,or their failure to perform-
(6) Adverse tax opinions or events affecting the tax-exempt status of the security.
(7) Modifications to rights of security holders-
(8) Contingent or unscheduled bond calls.
(9) Defeasanees.
(10) Release, substitution,or sale of property securing repayment of the securities.
(11) Rating changes.
(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the
City shall as soon as possible determine if such event would be material under applicable Federal
securities law-
(c) If the City determines that knowledge of the occurrence of a Listed Event would
be material under applicable Federal securities law, the City shall promptly file a notice of such
occurrence with the Municipal Securities Rulemaking Board and each State Repository.
Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9)
need not be given under this subsection any earlier than the notice(if any)of the underlying event
is given to holders of affected Bonds pursuant to the Indenture.
SECTION 6. Termination of Reporting Obligation. The City's obligations under this Disclosure
Certificate shall terminate upon the legal defeasanee, prior redemption or payment in full of all of the
Bonds. if such termination occurs prior to the final maturity of the Bonds, the City shall give notice of
such termination in the same manner as for a Listed Event under Section 5(c).
SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a
Dissemination Agent to assist it in carrying out their obligations under this Disclosure Certificate, and
may discharge any such Dissemination Agent, with or without appointing a successor Dissemination
Agent. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the
Dissemination Agent. The Dissemination Agent may resign by providing thirty days' written notice to the
City and the Trustee. Upon receiving notice of such resignation, the City shall promptly appoint a
successor Dissemination Agent by an instrument in writing. Any resignation or removal of the
Dissemination Agent shall become effective upon acceptance of appointment by the successor
Dissemination Agent.
If no appointment of a successor Dissemination Agent shall be made pursuant to the foregoing
provisions of this Section within forty-five (45) days after the Dissemination Agent shall have given to
the Issuer written notice or after a vacancy in the office of the Dissemination Agent shall have occurred
by reason of its inability to act, the Dissemination Agcnt or any beneficial owner may apply to any court
of competent jurisdiction to appoint a successor Dissemination Agent. Said court may thereupon, after
such notice, if any,as such court may deem proper,appoint a successor Dissemination Agent.
If, by reason of the judgment of any court, or reasonable agency, the Dissemination Agent is
rendered unable to perform its duties hereunder, all such duties and all of the rights and powers of the
Dissemination Agent hereunder shall be assumed by and vest in the City in trust for the benefit of the
beneficial owners. The City covenants for the direct benefit of the beneficial owners that its Treasurer in
such case shall be vested with all of the rights and powers of the Dissemination Agent hereunder, and
shall assume all of the responsibilities and perform all of the duties of the Dissemination Agent hereunder,
in trust for the benefit of the beneficial owners of the Bonds. In such event,the Treasurer may designate a
successor Dissemination Agent qualified to act as Dissemination Agent hereunder.
SECTION S. Amendmentt WaiverWaiver. Notwithstanding any other provision of this Disclosure
Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure
Certificacc may be waived, provided that the following conditions are satisfied (provided however, no
amendmenr increasing or affecting the obligations or duties of the Dissemination Agent shall be made
without the consent of the Dissemination Agent):
(a) if the amendment or waiver relates to the provisions of Sections 3(a),4 or 5(a), it
may only be made in connection with a change in circumstances that arises from a change in legal
requirements, change in law, or change in the identity, nature, or status of an obligated person
with respect to the Bonds,or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the
opinion of nationally recognized bond counsel, have complied with the requirements of the Rule
at the time of the primary offering of the Bonds, after taking into account any amendments or
interpretations of the Rule,as well as any change in circumstances; and
(c) the proposed amendment or waiver either(i) is approved by holders of the Bonds
in the manner provided in the Indenture for amendments to the Indenture with the consent of
holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair
the interests of the holders or bencfcial owners of the Bonds.
If the annual financial information or operating data to be provided in the Annual Report is
amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto
containing the amended operating data or financial information shall explain, in narrative form, the
reasons for the amendment and the impact of the change in the type of operating data or financial
information being provided.
If an amendment is made to the undertaking spccilying the accounting principles to be followed
in preparing financial statements, the annual financial informalion for the year in which the change is
made shall present a comparison between the financial statements or information prepared on the basis of
the new accounting principles and those prepared on the basis of the former accounting principles. The
comparison shall include a qualitative discussion of the differences in the accounting principles and the
impact of the change in the accounting principles on the presenration of the financial information, in order
to provide information to investors to enable them to evaluate the ability of the City to meet its
obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the
change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed
Event under Section 5(c).
4 VQ
SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to
prevent the City from disseminating any other information, using the means of dissemination set forth in
this Disclosure Certificate or any other means of communication, or including any other information in
any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this
Disclosure Certificate. if the City chooses to include any information in any Annual Report or notice of
occurrence of a Listed Event in addition to that which is specifically required by this Disclosure
Certificate, the City shall have no obligation under this Disclosure Certificate to update such information
or include it in any future Annual Report or notice of occurrence of a Listed EVenl.
SECTION 10. Default. In the event of a failure of the City to comply with any provision of this
Disclosure Certificate, any Participating Underwriter or any holder or beneficial owner of the Bonds may
take such actions as may be necessary and appropriate, including seeking mandate or specific
performance by court order, to cause the City to comply with its obligations under this Disclosure
Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the
Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City or
the Trustee or the Dissemination Agent to comply with this Disclosure Certificate shall be an action to
compel performance.
SECTION 11. Duties Immunities and Liabilities of Dissemination A enL The Dissemination
Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City
agrees to indemnify and save the Dissemination Agent (if other than the City), its officers, directors,
employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of
or in the exercise or performance of its powers and duties hereunder, including the costs and expenses
(including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the
Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid
compensation by the City for its services provided hereunder in accordance with its schedule of fees as
amended from time to time and all expenses, legal fees and advances made or incurred by the
Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the
Trustee shall have no duty or obligation to review any information provided to it hereunder and shall not
be deemed to be acting in any fiduciary capacity for the City, the Bond Owners, or any other patty. The
obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent
and payment of the Bonds.
SECTION 12. Counterpart. This Disclosure Certificate may be executed in counterparts, each of
which shall constitute an original signature page thereof.
SECTION 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the
City, the Dissemination Agent, any Participating Underwriter and holders and beneficial owners from
time to time of the Bonds,and shall create no rights in any other person or entity.
Date: 2008
CITY Of PALM SPRINGS
By:
5 ODOM
EXHIBITA
NOTICE OF FAILURE TO FILE ANNUAL.REPORT
Name of issuer: City orpalm Springs
Name or Bond Issue: 2008 Airport Passenger Facility Charge Subordinate Refunding Revenue Bonds
(Palm Springs International Airport)
Date of Issuance; 2008
NOTICE IS HEREBY GIVEN that the City of Palm Springs, California(the"City") has not provided an
Annual Report with respect to the above-named Bonds as required by that certain Indenture or Trust,
dated as or April 1, 2006, as supplemented by a First Supplement to Trust Indenture dated as of May 1,
2008, between the City and The Bank of New York'I'rust Company, N.A.,as trustee. The City anticipates
that the Annual Report will be filed by
Datod:
CITY OF PALM SPRINGS
By
CC: Trustee
6
CITY OF PALM SPRINGS
2008 AIRPORT PASSENGER FACILITY CHARGE
SUBORDINATE REFUNDING REVENUE BONDS
(Palm Springs International Airport)
between
STONE & YOUNGBERG LLC
and
THE CITY OF PALM SPRINGS
PURCHASE AGREEMENT
Dated April_, 2008
This PURCHASE AGREEMENT (the "Purchase Agreement"), dated April ,
2008, is between Stone&Youngberg LLC (the "Underwriter") and the City of Palm Springs(the
"City"), for the sale and delivery of $ aggregate principal amount of 2008 Airport
Passenger Facility Charge Subordinate Refunding Revenue Bonds (Palm Springs International
Airport) (the"Bonds").
WHEREAS, the City is issuing the Bonds to refund the City of Palm Springs
Financing Authority (the "Authority") Airport Revenue Bonds, Series 1998 (the "Refunded
Bonds"), which were issued by the Authority to finance certain improvements to the Palm
Springs International Airport(the "Airport"), owned and operated by the City; and
WHEREAS, pursuant to the Escrow Deposit and Trust Agreement dated as of
April _, 2008 (the "Escrow Deposit Agreement"), by and between the Authority, the City and
The Bank of New York Trust Company, N.A. (the "Trustee"), the City will establish an escrow
fund to provide for the payment or redemption of all of the Refunded Bonds on July 1, 2008; and
WHEREAS, the Bonds will be issued pursuant to the Trust Indenture dated as of
April 2008 (the"Indenture"), by and between the City and the Trustee; and
WHEREAS, the City will direct the Trustee to execute and deliver the Bonds to
the Underwriter for offering to the public;
NOW, THEREFORE, in consideration of the premises, the parties hereto do
hereby agree as follows:
Section 1. Obligation To Purchase.
Upon the terms and conditions and in reliance upon the representations,
warranties and Agreements herein set forth, the Underwriter hereby agrees to purchase from the
City, and the City hereby agrees to sell to the Underwriter, all (but not less than all) of the Bonds,
dated the date of their delivery in the aggregate principal amount of$ _, bearing interest
(payable commencing January 1, 2009, and semiannually thereafter on January 1 and July I in
each year) at the rates of interest, and maturing on the dates, and in the amounts, as set forth in
Exhibit A attached hereto and incorporated herein by this reference. The Bonds shall be as
described in, and shall be executed and delivered pursuant to, the Indenture. The Underwriter
shall not be under any obligation under this Purchase Agreement to purchase less than all of the
aggregate principal amount of the Bonds. The Underwriter agrees to make a public offering of
the Bonds at the initial prices as set forth in Exhibit A, which may be changed from time to time
by the Underwriter after the initial public offering-
The City is obligated under the Indenture to pay principal of, premium, if any, and
interest on the Bonds but only from the passenger facility charge revenues ("Revenues") derived
from operation of the Airport and payment of the Bonds is secured by such pledge of Revenues
on a parity basis with the City's outstanding 2006 Airport Passenger Facility Charge Subordinate
Refunding Revenue Bonds (Palm Springs Intemational Airport) (the "2006 PFC Bonds");
provided however, that the pledge of the Revenues made to secure the Bonds and the 2006 PFC
Bonds is subordinate to the pledge of Revenues made to pay the Authority's Airport Passenger
Facility Charge Revenue Bonds, Series 1998 (the "1998 PFC Bonds"). The obligation of the
00000 8
City to pay principal of, premium, if any, and interest on the Bonds does not constitute an
obligation of the City for which the City is obligated to levy or pledge any form of taxation or for
which the City has levied or pledged any form of taxation. The obligation to pay principal of,
premium, if any, and interest on the Bonds does not constitute a debt of the City, the State of
California or any of its political subdivisions, and does not constitute an indebtedness within the
meaning of any constitutional or statutory debt limitation or restriction_
Section 2. Purchase Price.
The purchase price of the Bonds shall be (which represents the
aggregate principal amount of the Bonds originally sold and delivered less Underwriter's
discount of$ L9% of the principal amount) [and less an original issue discount of
$ I
Section 3. Official Statement; Offering of the Bonds.
The Preliminary Official Statement, dated April _, 2008, relating to the Bonds,
together with the cover page and all appendices thereto, is herein called the "Preliminary Official
Statement." The City considers and hereby deems the Preliminary Official Statement to be"near
final" within the meaning of Securities and Exchange Commission Rule 15c2-12; hereby agrees
to cooperate with the Underwriter in completing the Preliminary Official Statement as a final
Official Statement and will deliver the Official Statement in final form to the Underwriter within
seven (7) business days of the City's acceptance hereof, but in no event less than three (3)
business days prior to the Closing Date (as defined herein). The City and hereby authorises the
Underwriter to use and distribute the Preliminary Official Statement and the Official Statement
in connection with the transactions contemplated by this Purchase Agreement, in connection
with the offer and sale of the Bonds by the Underwriter. The term "Official Statement" shall
mean the Preliminary Official Statement, as modified with the prior approval of the City, the
Underwriter, Jones Hall, A Professional Law Corporation (the "Bond Counsel"), and 1-lunton &
Williams LLP (the "Disclosure Counsel") for use by the Underwriter incident to the sale of the
Bonds. The City shall deliver or cause to be delivered to the Underwriter promptly (but in no
event later than seven business days or less than three (3) business days prior to the Closing
Date) after the City's acceptance hereof copies of the Official Statement with only such changes
as shall have been approved by Bond Counsel, signed on behalf of the City by the [City
Manager].
The Underwriter agrees to make a bona fide offering of the Bonds at the prices set
forth in the Official Statement and to offer the Bonds only pursuant to the Official Statement and
in compliance with all applicable rules of the Securities and Exchange Commission and the
Municipal Securities Rulemaking Board. The Underwriter shall provide to Bond Counsel
information reasonably requested in connection with the offering and sale of the Bonds and
appropriate for determining the yield on the Bonds under applicable tax regulations.
Section 4. Closing.
(a) At 8:00 a.m., California time, on May _, 2008, or at such other time or
date as shall be agreed upon by the Underwriter and the City (such time and date being herein
referred to as the "Closing Date"), the City will deliver or cause to be delivered the Bonds to the
Underwriter in accordance with the requirements in paragraph (b) below. The Underwriter will
accept such delivery and pay the purchase price thereof in immediately available funds (by
check, wire transfer or such other manner of payment as the underwriter and the Trustee shall
reasonably agree upon) to the order of the Trustee. Notwithstanding the foregoing and any other
references in this Bond Purchase Agreement to delivery of Bonds, or similar statements, the
Bonds will be registered with Cede & Co. as nominee or The Depository Trust Company
("DTC") under the DTC system and the DTC procedures will be followed and take precedence
over any conflicting procedures or provisions.
(b) The Bonds shall be delivered in definitive form, having CUSIP numbers
assigned to them printed thereon, and shall be in fully registered form registered in the name of
Cede & Co., as nominee of the Depository Trust Company, New York, New York, with one
Certificate for each maturity of Bonds set forth in Appendix A hereto in the aggregate principal
amount of such maturity. The Bonds shall be made available to the Underwriter, or its designee,
not later than two business days before the Closing Date for purposes of inspection and
packaging_ Pending the preparation of definitive Bonds, at the request of the Underwriter, the
City shall deliver, or cause to be delivered, Bonds in temporary form, in lieu of definitive Bonds
and subject to the same limitations and conditions, exchangeable for definitive Bonds when
ready for delivery. The temporary Bonds may be printed, lithographed, photocopied or
typewritten, shall be of such authorized denominations as may be determined by the City, and
shall be in registered form. The temporary Bonds may be in the form of a single Certificate for
each maturity payable on the date, in the amount and at the rate of interest established for the
Bonds maturing on such date. Every temporary Certificate shall be executed by the Trustee upon
the conditions and in substantially the same manner as the definitive Bonds. If temporary Bonds
are executed and delivered hereunder, definitive Bonds will be furnished as soon as practicable,
and thereupon the temporary Bonds may be surrendered, for cancellation, in exchange therefor at
the location designated by the Trustee for such purpose, and the Trustee shall execute and deliver
in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds
of the same maturity or maturities. Until so exchanged, the temporary Bonds shall be entitled to
the same benefits as definitive Bonds executed and delivered hereunder.
Section 5. Representations,Warranties and Agreements of the City.
The City hereby represents and warrants to and agrees with the Underwriter that:
(a) The City is a municipal corporation, duly organized and validly existing
under the laws of the State of California and has, and at the Closing Date will have, all necessary
power and authority to enter into and perform its duties under the Escrow Deposit Agreement,
the Indenture and this Purchase Agreement (collectively, the "Financing Documents"), and when
executed and delivered by the respective parties thereto and assuming due authorization,
execution and delivery by all parties other than the City, the Financing Documents will constitute
legally valid and binding obligations of the City, enforceable in accordance with their respective
terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or limiting creditors, rights
generally.
(b) The City has, and at the Closing Date will have, full legal right, power and
authority (i) to execute and deliver, and to perform its obligations under, the Financing
Documents, and to carry out all transactions contemplated hereby and thereby; (ii)to enter into
the other authorizing documents in connection with the issuance of the Bonds and the refunding
of the Refunded Bonds; and (iii)to carry out, give effect to and consummate the transactions
contemplated by the Financing Documents and the Official Statement.
(c) The City will at the Closing Date be in compliance, in all respects, with
the Financing Documents.
(d) The City Council has duly and validly authorized and approved the
delivery and use of the Preliminary Official Statement and the execution, delivery and use of the
Official Statement, the execution and delivery of the Bonds, the Financing Documents, and any
other applicable agreements and the performance by the City of its obligations contained therein,
and the taking of any and all action as may be necessary to carry out, give effect to and
consummate the transactions contemplated by each of said documents. At the Closing Date, the
Financing Documents and any other applicable agreements (assuming due authorization,
execution and delivery by the other parties thereto, where necessary) will constitute and/or create
valid, legal and binding obligations of the City, enforceable in accordance with their respective
terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting
the enforcement of creditors' rights in general and to the application of equitable principles if
equitable remedies are sought.
(e) Except as disclosed in the Preliminary Official Statement, the City is not
in breach of or in default under any applicable law or administrative rule or regulation of the
State of California or the United States of America, or of any department, division, agency or
instrumentality of either thereof, or under any applicable court or administrative decree or order,
or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument
to which the City is a party or is otherwise subject or bound, a consequence of which could be to
materially and adversely affect the performance of the City under the Financing Documents or
any other applicable agreements.
(f) All approvals, consents, authorizations, elections and orders of or filing or
registrations with any govemmental authority, board, agency or commission having jurisdiction
that would constitute a condition precedent to, or the absence of which would materially
adversely affect, the performance by the City of its obligations under the Financing Documents,
the Bonds or any other applicable agreements, have been obtained and are in full force and
effect, except that no representation is made with respect to compliance with any "blue sky" or
similar state statutes-
(g) The Bonds, the Financing Documents, and other applicable agreements
conform as to form and tenor in all material respects to the descriptions thereof contained in the
Preliminary Official Statement, and will conform as to form and tenor to the descriptions thereof
that will be contained in the Official Statement as of the Closing Date. When delivered to and
paid for by the Underwriter on the Closing Date as provided herein, the Bonds will be validly
issued and outstanding and entitled to all the benefits of the Indenture.
4 � ��� ,r
(h) The information contained in the Official Statement, as such infornation
relates to the Bonds, the City and to the Airport is, as of the date hereof, and will be as of the
Closing Date and as of the date of any supplement or amendment thereto pursuant to paragraph
(i) below, (excluding therefrom the description of the book-entry system included in the Official
Statement) true, correct and complete in all material respects and does not, as of the date hereof,
and will not, as of the Closing Date or as of the date of any supplement or amendment thereto
pursuant to paragraph (i) below, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(i) If between the date of this Purchase Agreement and the Closing Date an
event occurs, of which the City has knowledge, that might or would cause the information
relating to Airport, the City, or the City's functions, duties and responsibilities contained in the
Official Statement, as then supplemented or amended, to contain an untrue statement of a
material fact or to omit to state a material fact required to be stated therein or necessary to make
such information therein, in light of the circumstances under which it was presented, not
misleading, the City shall notify the Underwriter, and if in the reasonable opinion of the
Underwriter such event requires the preparation and publication of a supplement or amendment
to the Official Statement, the City shall amend or supplement the Official Statement in a form
and in a manner reasonably approved by the Underwriter, and all expenses thereby incurred will
be paid by the City.
0) For a period of ninety (90) calendar days from the Closing Date or until
the date which is twenty-five (25) calendar days following the end of the underwriting period for
the Bonds, if any event shall occur of which the City is aware, as a result of which it may be
necessary to supplement the Official Statement in order to make the statements contained in the
Official Statement, in light of the circumstances existing at such time, not misleading, the City
shall forthwith notify the Underwriter of any such event of which it has knowledge and shall
cooperate fully in furnishing any information available to it for any supplement to the Official
Statement necessary, in the Underwriter's reasonable opinion, so that the statements therein as so
supplemented will not be misleading in light of the circumstances existing at such time. The
term "end of the underwriting period" means the later of such time as (i)the City delivers the
Bonds to the Underwriter or (ii) the Underwriter does not retain directly or as a member or an
underwriting syndicate, an unsold balance of the Bonds for sale to the public. Unless the
Underwriter gives notice to the contrary, the "end of the underwriting period" shall be deemed
the date of the Closing (or such other date as specified by notice by the Underwriter). Any
notice delivered pursuant to this paragraph shall be written notice, delivered to the City, and shall
specify a date, other than the date of the Closing (or other date specified by notice delivered
pursuant to this paragraph), to be deemed the "end of the underwriting period."
(k) The City shall furnish such information, execute such instruments and take
such other action in cooperation with the Underwriter as the Underwriter may reasonably request
in order for the Underwriter to qualify the Bonds for offer and sale under the "blue sky" or other
securities laws and regulations of such states and other jurisdictions of the United States as the
Underwriter may designate; provided, however, the City shall not be required to register as a
dealer or a broker of securities or consent to the jurisdiction of any state of the United States,
other than the State of California.
5 000052
(1) The City will take no action and will cause no action to be taken that
would cause the interest with respect to the Bonds to be includable in gross income for any
federal income tax purposes, except for purposes of the alternative minimum tax-
(m) The City has not been, is not currently and as a result of the issuance, sale
and delivery of the Bonds will nor be in violation of any debt limitation, appropriation limitation
or any other provision of the Cali fornia Constitution.
(n) Between the date hereof and the Closing Date, without the prior written
consent of the Underwriter, the City on behalf of the Airport will not have issued any bonds,
notes or other obligations for borrowed money except for such borrowings as may be described
in or contemplated by the Official Statement.
(o) Any certificate signed by any official of the City authorized to do so shall
be deemed a representation and warranty by the City to the Underwriter as to the statements
made therein.
(p) The City has not been notified of any listing or proposed listing by the
Internal Revenue Service to the effect that the City is an issuer whose arbitrage certifications
may not be relied upon. The City has not received any inquiries or notices from the Internal
Revenue Service in any way challenging the tax exempt status of the Refunded Bonds or any
other tax exempt bonds issued by or on behalf of the City.
(q) The City shall apply the proceeds of the Bonds, including the investment
thereof, in accordance with the Tndenture and as described in the Official Statement.
Section 6. Conditions to the Obligations of the Underwriter.
The obligations of the Underwriter to accept delivery of and pay for the Bonds on
the Closing Dale shall be subject, at the option of the Underwriter, to the accuracy in all material
respects of the representations and warranties on the part of the City, on behalf of itself and the
Airport, contained herein, as of the date hereof and as of the Closing Date, to the accuracy in all
material respects of the statements of the officers and other officials of the City, on behalf of the
City and the Airport, and other persons and entities made in any Bonds or other documents
furnished pursuant to the provisions hereof, to the performance by the City of its obligations to
be performed hereunder at or prior to the Closing Date and to the following additional
conditions:
(a) At the Closing Date, the Bonds and the Financing Documents shall be in
full force and effect, and shall not have been amended, modified or supplemented, except as may
have been agreed to in writing by the Underwriter, and there shall have been taken in connection
therewith, with the issuance of the Bonds and with the transactions contemplated thereby and by
this Purchase Agreement, all such actions as, in the opinion of Bond Counsel, shall be necessary
and appropriate to consummate the transactions contemplated thereby-
(b) At the Closing Date, the Official Statement shall not have been amended,
modified or supplemented, except as may have been agreed to in writing by the Underwriter.
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000fl
(c) Between the date hereof and the Closing Date, the market price or
marketability of the Bonds at the initial offering prices set forth in the Official Statement shall
not have been materially adversely affected, in the reasonable judgment of the Underwriter
(evidenced by a written notice to the City terminating the obligation of the Underwriter to accept
delivery of and pay for the Bonds), by reason of any of the following:
(1) Legislation enacted (or resolution passed) by the Congress of the
United States of America or recommended to the Congress by the President of the United States,
the Department of the Treasury, the Internal Revenue Service, or favorably reported for passage
to either House of Congress by any committee of such House to which such legislation had been
referred for consideration, or a decision rendered by a court established under Article III of the
Constitution of the United States of America or by the Tax Court of the United States of
America, or an order, ruling, regulation (final, temporary or proposed), press release or other
form of notice issued or made by or on behalf of the Treasury Department or the Internal
Revenue Service of the United States of America, with the purpose or effect, directly or
indirectly, of causing interest on the Bonds to be included in gross income for purposes of
federal income taxation.
(2) Legislation enacted (or resolution passed) by the Congress of the
United States of America, or an order, decree or injunction issued by any court of competent
jurisdiction, or an order, ruling, regulation (final, temporary or proposed) , press release or other
form of notice issued or made by or on behalf of the Securities and Exchange Commission, or
any other governmental agency having jurisdiction of the subject matter, to the effect that
obligations of the general character of the Bonds, including any or all underlying arrangements,
are not exempt from registration under, or other registration requirements of, the Securities Act
of 1933, as amended, or that the Indenture is not exempt from qualification under, or other
requirements of, the Trust Indenture Act of 1939, as amended, or that the issuance, offering or
sale of obligations of the general character of the Bonds, or of the Bonds, including any or all
underwriting arrangements, as contemplated hereby or by the Official Statement or otherwise, is
or would be in violation of the federal securities laws as amended and then in effect.
(3) Any amendment to the federal or California Constitution or action
by any federal or California court, legislative body, regulatory body or other authority having
jurisdiction of the subject matter materially adversely affecting the tax status of the City, its
securities (or interest thereon), or the ability of the City to issue the Bonds as contemplated by
the Indenture and the Official Statement.
(4) Any event occurring, or information becoming known that, in the
reasonable judgment of the Underwriter, makes untrue in any material respect any statement or
information contained in the Official Statement or results in the Official Statement containing
any untrue statement of a material fact or omitting to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made, not misleading.
(5) The declaration of war or engagement in major military hostilities
by the United States or the occurrence of any other national emergency or calamity relating to
the effective operation of the government of or the financial community in the United States,
that, in the reasonable judgment of the Underwriter, would have a material and adverse effect on
_7.
090954
the market price or marketability, at the initial offering prices set forth in the Official Statement,
of the Bonds.
(6) The declaration of a general banking moratorium by federal, New
York or California authorities, or the general suspension of trading on any national securities
exchange-
(7) The imposition by the New York Stock Exchange or other national
securities exchange, or any governmental authority, of any material restrictions not now in force
with respect to the Bonds or obligations of the general character of the Bonds or securities
generally, or the material increase of any such restrictions now in force, including those relating
to the extension of credit by, or the charge to the net capital requirements of, underwriters.
(8) Any adverse event occurs with respect to the affairs of the City
that, in the reasonable judgment of the Underwriter, would have a material and adverse effect on
the market price or marketability, at the initial offering prices set forth in the Official Statement,
of the Bonds.
(d) On or prior to the Closing Date, the Underwriter shall have received
counterpart originals or certified copies of the following documents, in each case satisfactory in
form and substance to the Underwriter and, unless otherwise noted, dated the Closing Date:
(1) One copy of each of the Financing Documents duly executed and
delivered by the City, with such amendments, qualifications or supplements as may have been
agreed to in writing by the Underwriter.
(2) An approving opinion of Bond Counsel, Jones Hall, A Professional
Law Corporation, addressed to the City, in form and substance reasonably satisfactory to the
Underwriter and its counsel, to the effect that (i) the Bonds will be, upon their sale and delivery,
legal, valid and binding obligations of the City secured by the subordinate pledge of Revenues;
and (ii) interesi on the Bonds is excluded from -gross income for federal income tax purposes, is a
specific preference item for purposes of the federal individual or corporate alternative minimum
taxes and is exempt from State of California personal income taxes; together with a letter of
Bond Counsel, dated the Closing Date and addressed to the Underwriter, to the effect that such
opinion addressed to the City may be relied upon by the Underwriter to the same extent as if
such opinion were addressed to it.
(3) A supplemental opinion of Bond Counsel, addressed to the City,
the Financial Advisor(as defined herein) and the Underwriter, in form and substance satisfactory
to the Underwriter and its counsel, to the effect that:
(i) this Purchase Agreement has been duly authorized,
executed and delivered by the City, and, assuming due authorization, execution
and delivery of this Purchase Agreement by the Underwriter, constitutes a legal,
valid and binding Agreement of the City enforceable in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other laws
affecting the enforcement of creditors' rights in general and to the application of
equitable principles ifequitable remedies are sought;
-8-
(ii) as of the Closing Date, the information contained in the
Official Statement under the captions "INTRODUCTION," "THE BONDS,"
"THE FINANCING PLAN," "SOURCES OF PAYMENT FOR THE BONDS,"
and "LEGAL MATTERS - Tax Matters," and in APPENDIX B - SUMMARY
OF THE LEGAL DOCUMENTS insofar as such statements purport to summarize
certain provisions of the Bonds and the security therefor, the Indenture, or the
written opinions of Bond Counsel are accurate in all material respects; and
(iii) the Bonds are exempt from registration pursuant to the
Securities Act of 1933, as amended and the Indenture is exempt from
qualification pursuant to the Trust Indenture Act of 1939, as amended.
(4) A defeasance opinion of Jones Hall, A Professional Law
Corporation, addressed to the Trustee, with respect to the Refunded Bonds, in form and
substance satisfactory to the Trustee.
(5) An opinion of Disclosure Counsel, Hunton & Williams LLP,
addressed to the City in the form of Exhibit B hereto, together with an appropriate reliance lever
addressed to the Underwriter and the Financial Advisor-
(6) An opinion of Woodruff, Spradlin & Smart, P.C., City Attorney,
addressed to the City and the Underwriter and reasonably acceptable in form and substance to
the Underwriter and Bond Counsel to the effect that:
(i) the Resolution authorizing the Financing Documents has
been duly adopted by the City, is in full force and effect, and has not been
rescinded or modified in any manner;
(ii) the Financing Documents have been duly authorized,
executed and delivered by the City and constitute legal, valid and binding
obligations of the City enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy, reorganization, insolvency,
moratorium or other laws affecting the enforcement of creditors' rights generally;
(iii) to the best of their knowledge after reasonable investigation
and due inquiry, the execution and delivery of the Financing Documents by the
City and compliance by the City with the provisions thereof will not conflict with
the City's duties under, or constitute a breach or default under, said documents or
any law, administrative regulation, court decree, resolution, charter, by-laws or
other agreement to which the City is subject or by which it is bound;
(iv) the City is duly created and legally exists under California
law;
(v) to the best of their knowledge after reasonable investigation
and due inquiry, there is no action, suit, proceeding or investigation at law or in
equity before or by any court or governmental authority or body pending or
threatened against the City to restrain or enjoin the collection of the payments to
9 - 69,3056
be made pursuant to the Indenture, or in any way contesting or affecting the
validity of the Financing Documents or the subordinate pledge of Revenues or
contesting the powers of the City to enter into or perform its obligations under any
of the foregoing; and
(vi) the information under the captions "INTRODUCTION -
The City" and "- The Airport," and "THE AIRPORT" in the Official Statement is
true and correct in all respects; provided, that no opinion need be expressed with
respect to any statistical or financial information found in the Official Statement.
(7) A certificate of SH&E, Inc. consenting to the use in the Official
Statement of its (A) Market Study and PFC Revenue Forecasts, dated March 30, 2006, and (B)
Market Analysis Update dated March 31, 2008 (collectively, the "Consultant's Report").
(8) A verification report of Grant Thornton LLL, independent certified
public accountants, as to sufficiency of the escrow fund established under the Escrow Deposit
Agreement to provide for payment of the Refunded Bonds, the yield on investments in the
escrow fund and the yield on the Refunded Bonds and on the Bonds satisfactory in form to the
Trustee, the Underwriter and Bond Counsel.
(9) A Certificate, signed by the authorized officer of the City, ratifying
the use and distribution by the Underwriter of the Official Statement in connection with the
offering and sale of the Bonds; and certifying that:
(i) the representations and warranties of the City contained
herein and in the Indenture are true and correct in all material respects on and as
of the Closing Date with the same effect as if made on the Closing Date;
(ii) no event has occurred since the date of the Official
Statement materially affecting the City that should be disclosed in the Official
Statement;
(iii) the City has complied with all the Financing Documents
and has satisfied all the conditions on its part to be performed or satisfied under
this Purchase Agreement, the Indenture or any other agreement at and prior to the
Closing;
(iv) no litigation is pending or, to the best of such officer's
knowledge, threatened (either in State or Federal courts), except as disclosed in
the Official Statement (A)to restrain or enjoin the execution, sale or delivery of
any of the Bonds on the refunding of the Refunding Bonds; (B) in any way
contesting or affecting the authority for the execution, sale or delivery of the
Bonds, the Indenture, or this Purchase Agreement or the subordinate pledge of
Revenues;or(C) in any way contesting the existence or the powers of the City;
(v) the information contained in the Official Statement
(excluding therefrom the description of the book-entry system included in the
Official Statement, but including the information regarding the Airport, the
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collection of passenger facility charge revenues and agreements with the Federal
Aviation Administration) is true and correct and does not contain any untrue
statement of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading in any material respect.
(10) Certificate of the Director of Finance and Treasurer of the City,
being in form and substance acceptable to Bond Counsel and Disclosure Counsel, substantially
to the effect that:
(i) as to the financial information and statistical data included
therein, including operating results of the Airport and the collection of passenger
facility charge revenues, the material contained in the Official Statement relating
to the City and the Airport does not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading;
(ii) since June 30, 2007 there has been no material adverse
change in the financial condition of the City or the Airport [except as disclosed in
the Official Statementl; and
(iii) the information in the Official Statement under the captions
"THE AIRPORT," "SOURCES OF PAYMENT FOR THE BONDS," and
"APPENDIX D - CITY AUDITED FINANCIAL STATEMENTS" is true and
correct.
(11) Certificate of the Executive Director of the Airport [and the Chief
Financial Officer of the Airport, dated the date of closing, in form and substance acceptable to
Bond Counsel and Disclosure Counsel, substantially to the effect that:
(i) the information in the Official Statement regarding the
Airport, its operations and its financial condition do not contain any untrue
statement of a material fact or omit to slate any material fact required to be stated
therein or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and
(ii) the information provided by the Airport to the Airport
Consultant in connection with the preparation of the Consultant's Report was
accurate and complete in all material respects and that they have no reason to
believe that the forecasts contained in the Consultant's Report do not represent
accurate and fair forecasts of the most likely results for operations at the Airport
for the period covered by such forecasts, and the assumptions on which such
forecasts are based are reasonable and appropriate.
(12) Certified copies of the general resolution of the Trustee under the
Indenture, authorizing the execution and delivery of the Indenture and certain other documents
by certain officers of the Trustee,which resolution authorizes the authentication of the Bonds.
(13) The Certificate of the Trustee, dated the Closing Date, to the effect
that:
(i) the Trustee is duly organized and existing as a national
banking association under the laws of the United States of America, having the
full power and authority to perform its duties under the Indenture;
(ii) the Trustee is duly authorized to accept the trusts created by
the indenture, to authenticate the Bonds pursuant to the terms of the )ndenture,
and to perform its obligations pursuant to the Escrow Deposit Agreement;
(iii) no consent, approval, authorization or other action by any
govemmental or regulatory authority having jurisdiction over the Trustee that has
not been obtained is or will be required for the authentication of the Bonds or the
consummation by the Trustee of the other transactions contemplated to be
performed by the Trustee pursuant to the Escrow Deposit Agreement or in
connection with the authentication of the Bonds and the acceptance and
performance of the trusts created by the Indenture;
(iv) the acceptance of the trusts created under the fndenture and
compliance with the terms of the Indenture and the Escrow Deposit Agreement
will not conflict with, or result in a violation or breach of, or constitute a default
under, any loan agreement, indenture, bonds, note, resolution or any other
agreement or instrument to which the Trustee is a party or by which it is bound, to
the best knowledge of the Trustee, or any law or any rule, regulation, order or
decree of any court or governmental authority or body having jurisdiction over the
Trustee or any of its activities or properties, or (except with respect to the lien of
the Indenture) result in the creation or imposition of any lien, charge or other
security interest or encumbrance of any nature whatsoever upon any of the
property or assets of the Trustee; and
(v) there is no action, suit, proceeding, inquiry or investigation,
at law or in equity, before or by any court or governmental agency, public board
or body pending or, to the best knowledge of the Trustee, threatened against or
affecting the existence of the Trustee or seeking to prohibit, restrain or enjoin the
execution, sale and delivery of the Bonds or the collection of the Revenues,
subject to the prior lien, to pay the principal of, and interest on, the Bonds, or the
pledge thereof, or in any way contesting or affecting the validity or enforceability
Of the Bonds, the Indenture or the Escrow Deposit Agreement or contesting the
powers of the Trustee or its authority to enter into and perform its obligations
under any of the foregoing, wherein an unfavorable decision, ruling or finding
would adversely affect the transactions contemplated in connection with the
execution and delivery of the Bonds, or that in any way, would adversely affect
the validity of the Bonds, the Indenture, the Escrow Deposit Agreement or any
agreement or instrument to which the Trustee is a party and that is used or
contemplated for use in the consummation of the transactions contemplated in
connection with the execution, sale and delivery of the Bonds.
-12-
00a959
(14) An opinion, satisfactory in form and substance to the Underwriter
and Bond Counsel, of counsel to the Trustee, addressed to the Underwriter and the City, to the
effect that:
(i) the Trustee is a duly organized and validly existing national
banking association in good standing under the laws of the United States and has
full power and authority to undertake the trust of the Indenture;
(ii) the Trustee has duly authorized, executed and delivered the
Indenture and by all proper corporate action has authorized acceptance of the trust
of the Indenture;
(iii) assuming the corporate power and legal authority of, and
the due authorization, execution and delivery by the City of the Indenture and the
Escrow Deposit Agreement, the Indenture and the Escrow Deposit Agreement
constitute a valid and binding obligation of the Trustee, enforceable against the
Trustee in accordance with their terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws or
equitable principles relating to or limiting creditors' rights generally;
(iv) the Bonds have been validly authorized, executed and
delivered by the Trustee to the Underwriter pursuant to direction from the City
and are entitled to the benefits of the Indenture;
(v) exclusive of federal or state securities laws' requirements,
no authorization, approval, consent or other order of any governmental authority
or, to such counsel's knowledge, any other person or corporation is required for
the valid authorization, execution and delivery of the Indenture and the Trustee
Documents by the Trustee or the execution and delivery of the Bonds;
(vi) no action, suit, proceeding, inquiry or investigation, at law
or in equity, before or by any court, regulatory authority, public board or body, is
pending or threatened in any way affecting the existence of the Trustee or the
titles of its directors or officers to their respective offices, or seeking to restrain or
enjoin the execution, sale or delivery of the Bonds, the application of the proceeds
thereof in accordance with the Indenture, or in any way contesting or affecting the
validity or enforceability of the Bonds; and
(vii) the execution and delivery of the Escrow Deposit
Agreement, the Indenture and the Bonds will not conflict with or constitute a
breach of or default under the Trustee's duties under such documents, or any law,
administrative regulation, court decree, resolution, charter, bylaws or other
agreement to which the Trustee is subject or by which it is bound.
(15) A nonarbitrage certificate of the City in form and substance
acceptable to Bond Counsel and the Underwriter.
(16) A copy of the Official Statement executed by the Director of
Finance and Treasurer of the City.
(17) A certificate of Harrell & Company Advisors, LLC, Financial
Advisor to the City (the "Financial Advisor"), relating to the preparation of the Official
Statement.
(18) A copy of the audited financial statements of the City for the fiscal
year ending June 30, 2007, certified by an independent accounting firm, [together with a letter,
dated as of the Closing Date, from an authorized officer of said accounting Finn consenting to the
inclusion in the Official Statement of its report accompanying the audited financial statements of
the City for the fiscal year ending June 30, 2007.]
(19) Such additional legal opinions, Bonds, instruments and other
documents as the Underwriter may reasonably request to evidence the truth and accuracy, as of
the date hereof and as of the Closing Date, of the statements and infornmation contained in the
Official Statement, of the City's representations and warranties contained herein and the due
performance or satisfaction by the City at or prior to the Closing of all Agreements then to be
performed and all conditions then to be satisfied by the City in connection with the transactions
contemplated hereby and by the Indenture and the Official Statement.
If the City shall be unable to satisfy the conditions to the Underwriter's
obligations contained in this Purchase Agreement or if the Underwriter's obligations shall be
terminated for any reason permitted herein, this Purchase Agreement may be terminated by the
Underwriter at, or at any time prior to, the Closing Date by written notice to the City, and neither
the Underwriter nor the City shall have any further obligation hereunder_
Section 7. Expenses.
(a) The Underwriter shall be under no obligation to pay, and the City shall
pay or cause to be paid out of the proceeds of the Bonds, all expenses incident to the
performance of the City's obligations hereunder, including but not limited to: the cost of
printing, engraving and delivering the Bonds to the Underwriter; the cost of preparation, printing
(and/or reproduction), distribution and delivery of the Indenture, and the cost of printing (and/or
reproduction), distribution and delivery of the Preliminary Official Statement and the Official
Statement and all other Agreements and documents contemplated hereby (and drafts of any
thereof) in such reasonable quantities as requested by the Underwriter; the cost of appraisals; and
the fees and disbursements of the Trustee, Bond Counsel, Disclosure Counsel, the City Attorney
and any accountants, financial advisors or other engineers or experts or consultants the City has
retained in connection with the Bonds, including the Airport Consultant.
(b) Whether or not the Bonds are delivered to the Underwriter as set forth
herein, provided that the City shall not have defaulted in the performance of its obligations under
this Purchase Agreement, the City shall be under no obligation to pay, and the Underwriter shall
pay all expenses incurred by the Underwriter in connection with its public offering and
distribution of the Bonds (except those specifically enumerated in paragraph (a) of this section),
including the fees and disbursements of its counsel and any advertising expenses.
Section S. Notices.
Any notices, requests, directions, instruments or other communications required
or permitted to be given hereunder shall be in writing and shall be given when delivered, against
a receipt, or mailed certified or registered, postage prepaid, to the City and the Underwriter at
their respective address below:
if to the City: City of Palm Springs
3200 E.Tahquitz Canyon Way
Palm Springs, CA 92262
Attention: City Manager
If to the Underwriter: Stone& Youngberg LLC
515 South F gueroa; Suite 1060
Los Angeles, CA 90071
Attention: Sara Oberlies
provided, however, that all such notices, requests or other communications may be made by
telephone and promptly confirmed by writing. The City and the Underwriter may, by notice
given as aforesaid, specify a different address for any such notices, requests or other
communications.
Section 9. Parties in Interest.
This Purchase Agreement is made solely for the benefit of the City and the
Underwriter and no other person shall acquire or have any right or have any right hereunder or
by virtue hereof.
Section 10. Survival of Representations and Warranties.
The representations and warranties of the City set forth in or made pursuant to this
Purchase Agreement shall not be deemed to have been discharged satisfied or otherwise rendered
void by reason of the Closing or termination of this Purchase Agreement and regardless of any
investigations made by or on behalf of the Underwriter (or statements as to the results of such
investigations) concerning such representations and statements of the City and regardless of
delivery of and payment for the Bonds.
Section 11. Effective.
This Purchase Agreement shall become effective and binding upon the respective
parties hereto upon their execution hereof.
Section 12. Applicable Law; Nonassianability.
This Purchase Agreement shall be governed by the laws of the State of California.
This Purchase Agreement shall not be assigned by the City or the Underwriter.
-15
Section 13. Execution of Counterparts.
This Purchase Agreement may be executed in several counterparts, each of which
shall be regarded as an original and all of which constitute one and the same.
Section 14. No Prior Agreements.
This Purchase Agreement supersedes and replaces all prior negotiations,
Agreements and understandings between the parties hereto in relation to the sale of Bonds for the
City and represents the entire Agreement of the parties as to the subject matter herein.
Section 15. Partial Unenforceabilitv.
Any provision of this Purchase Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Purchase Agreement or
affecting the validity or enforceability of such provision in any other jurisdiction.
Section 16. Capitalized Terms.
'1'erms with initial capital letters not otherwise defined herein shall have the
meanings assigned to them in the Indenture.
-16- ���
Dated: ,2008 STONE & YOUNGBERG,LLC
By:
Title: Managing Director
Dated: , 2008 CITY OF PALM SPRINGS
By:
Title: Director of Finance and Treasurer
EXIIIBIT A
TERMS OF THE BONDS
Maturity Principal Interest
(July 1) Amount Rate Yield
2009 $ % %
2010
2011
2012
2013
$ �%Term Bonds due July 1, 20 priced at_%to yield %
$ %Term Bonds due July 1, 20_priced at %to yield`%
$ %Tenn Bonds due July 1, 2027 priced at %to yield-%
Special Mandatory Redemption. Bonds maturing July 1, 20_ are subject to special
mandatory redemption, in part by lot each July 1, beginning July 1, 2008, from certain excess
Remaining Revenues (as defined in the Official Statement), at a redemption price equal to the
principal amount thereof to be redeemed, plus a premium (expressed as a percentage of the
principal amount of Bonds to be redeemed) together with accrued interest thereon to the date
fixed for redemption as follows:
Redemption Periods Redem tin Prices
Each July I prior to July 1, 20_ 103.0%
July 1, 20 102.0
July 1, 20 101.0
July 1, 20 and each July I thereafter 100.0
The Bonds are also subject to special redemption, in whole, on any date as a result of
actions taken by the Federal Aviation Administration to reduce the City's authority to collect
passenger facility charges under the Special Agreement, as described in the Official Statement,
from proceeds of refunding obligations or from any available funds of the Airport at a
redemption price equal to the principal amount thereof together with accrued interest thereon to
the date fixed for redemption.
Optional Redemption. Bonds maturing on or after July 1, 20 , may be redeemed by
the City, in whole or in part at any time on or after July 1, 20_, at a redemption price equal to
the principal amount thereof to be redeemed, plus a premium (expressed as a percentage of the
principal amount of Bonds to be redeemed) together with accrued interest thereon to the date
fixed for redemption as follows:
A-1
Redemption Periods Redemption Prices
July 1, 20_through June '30, 20 102.0%
July 1, 20_through June 30, 20 101.0
July 1, 20_and thereafter 100.0
Mandatory Redemption. Bonds maturing on July 1, 20_, are required to be redeemed
prior to maturity in part at a price of 100% of the principal amount thereof plus interest accrued
to the redemption date, on July 1 in years and amounts as follows:
Year Amount Year Amount
20 $ 20 $
20_ 20_(final maturity)
Bonds maturing on July 1, 20, arc required to be redeemed prior to maturity in part at a
price of 100% of the principal amount thereof plus interest accrued to the redemption date, on
July i in years and amounts as follows:
Year Amount Year Amount
20_ $ 20_ $
20_ 20_
20 20
20_ 20_(final maturity)
Bonds maturing on July 1, 2027, are required to be redeemed prior to maturity in part at a
price of 100% of the principal amount thereof plus interest accrued to the redemption date, on
July 1 in years and amounts as follows:
Year Amount Year Amount
20 $ 20 $
20 20
20 20
20_ 20_(final maturity)
A-2
EXHIBIT B
FORM OF DISCLOSURE COUNSEL OPINION
, 2008
City of Palm Springs
Palm Springs, California
S City of Palm Springs 2008 Airport Passenger Facility Charge
Subordinate Refunding Revenue Bonds(Palm Springs International Airport)
Ladies and Gentlemen:
We have been retained as special disclosure counsel to the City of Palm Springs (the
"City") in connection with preparation of the Official Statement dated , 2008 (the
"Official Statement"), for the issuance by the City of its $ 2008 Airport Passenger
Facility Charge Subordinate Refunding Revenue Bonds (Palm Springs International Airport) (the
"Bonds").
In such capacity we have reviewed certain information contained in the Official
Statement relating to the Palm Springs International Airport (the "Airport") with representatives
of the City's Department of Transportation (the "Department"), including ; the
Financial Advisor for the City, Harrell & Company Advisors, LLC; representatives of Stone &
Youngberg LLC, underwriter for the Bonds; representatives of,lones Hall, A Professional Law
Corporation, Bond Counsel; representation of Woodruff, Spradlin & Smart, P.C., City Attorney;
and representatives of SH&E Inc., airport consultant for the offering of the Bonds. Our review
of records did not include review of any records of the City other than certain records maintained
by the Department relating to the Airport. We do not serve as Bond Counsel to the City, and no
opinion or advice is given with respect to (1) the validity of the Bonds, (2) the tax treatment of
interest thereon or (3) those sections in the Official Statement describing the Bonds, the
documents relating to their issuance and security and matters relating to their validity and tax-
exemption. Further, no opinion or advice is given with respect to (a) any financial statements or
financial or statistical data included in the Official Statement, including the Appendices or
(b) Appendices C and D. We note that much of the information in the Official Statement has
been provided by the City, and we are not making any representation of any kind to the City as to
the factual accuracy of such information_
On the basis of the foregoing and subject to the limitations stated, we advise you as
follows:
We have not verified and are not passing upon or assuming responsibility for, the
accuracy or completeness of the statements contained in the Official Statement. Based, however,
on the information made available to us in the course of our assistance in the preparation of the
Official Statement as special disclosure counsel, nothing has come to our attention that would
B-1 . 0000,S7
cause us to believe the Official Statement, at its date or on the date hereof, contained any untrue
statements of a material fact or failed to state a fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Very truly yours,
A-2 MOSS
53930.000004 HW US 255690970
Ilk1I I \S OI \1'RIL 11,2008
,= NEW ISSIIF.-ROOK-rN•fRV ONI,\' NO RATING
e, m ($uc'CpNCLIJDIN[i INFORMATION-No Racing on the Bonds"herein)
U
7
5 V J
- /n the npmron of./ones /!a/(, A professional Law Corporation, San !-rnncisco California Boar! Counsel, based on exrsrung srururer,
c U regulations, rulings and court decisions and asminting among other marlere conhphance wah certain covenants, interest on the Bonds is
u m (1) ercludah/e front grass income for federal income tax purposes except during anP period wherein a Bund is held by a ".cuhsramral
<, user' of rite facilities jbionc ed by the 1998 GAR Bondi (as defined he, nr a 'relaled pal wn 'as those leans are used in Section
o ` = 147(a) of the Internal Revenue Code of 1986, as amended and(2) is exempt front Slate of C'alijorrria persunal income ¢ores. In the
w _ opinion oJ'Bond Connscl, uucrecf is a spenfie prufcrence item fur pmpu.%ee of the federal individual or corporate alternative mrnlmum
raxec Bond Coanrel expresms no opinion regarding other federal or State tax consequences relating to the ownership nr dhspa lion or
aU or the accrual or receipt of tFre interest ar the Bonds. Sec 'cc(:A[hf.47TFxs-Tax Muuece"hrrrnn
L RIVERSIDE.COUNTY STATE.OFCALIFORNIA
G $7,000,000x
r ;oF pal M SA9'z CITY OF PALM SPRINGS
G 2008 AIRPORT PASSENGER FACILITY CHARGE
O O G V N
SUBORDINATE REFUNDING REVENUE BONDS
o o c4'tFORN\P (PALM SPRINGS INTERNATIONAL AIRPORT)
I 4+ v
e. O CL
Dated: Dalc of Dcliicry Due: Jul) I as Shown on the Inside Fnml("over-
The cover page contains certain information for quick reference only. It is not a summary of the Issue. Potential investors must
[ read the entire Official Statement to obtain information essential to the making_ of an informed investment decf5ion- Sec
c o
"CERTAIN ISONUIiOLULRs' RISKS' herein for a discussion of certain risk factory that should be considered in evaluating the
•J iriveytment quality of the Bonds.
C
a � Interest on the Bonds is payable on January 1-2009.mid semiannually thereafter on July I and,Itmuury I of each year(cash an Interest
Payment Date) until maturity or earlier special, sinking account or optional redemption (sec "I'tiC BONDS - General ['revisions' mid
co a "THE BONDS-Redemption;Acccicmtion:Defcasa icc"herein).
The Bonds arc being issued to refund in their entirety to the City of Palm Springs Financing Aulhority,Airport Revenue Bonds. 1998
Series(rile"1998 GAR Bonds•'),issued to linali:e certain impmvemcnty to the Palm Springs Intcmational Airport(the"Airport').
r. r�
Jo a The BondS are eccurcd sold} from Passenger Facility Charges paid to die Alrporc, as described herein, on a basis Subordinate to the
G c City's obligation to pay from Passenger Facility Charges insuillment payments wilh respect to the outstanding 1998 PFC Bonds.and on a
_ parity with the Cily's obligation Io pay from Passenger Facility Charges Installment payments with respect to the outstanding 2006 PFC
Bonds,as defined hcr'ein(see"SOURCL•S Off PAYMLN-1 FOR I-HE BONDS"and•'CERTAIN BONDI-IOLDERS'RISKS"Henan).
� G C
G
k It is anticipated that the Bonds,in boat:-entry form,will be available ]or delivery through the facilities of the Depository Trust Company
u in New York, New York on or about Muy 149 2008, Sec `APPENDW F - OTC AND TI-IC BOOK-EN IRY ONLY SYSTEM"herein The
Bands arc being offered when.as and if issued,subject io the approval as to their legality by.[ones Hall,A Profcssionul Law Corporation,
u San I-rmicisco,Calilbmia,Bond Counsel,as du5uribed herein. Certain legal mutters will be passed on for die City by Hunton K Wtlimns
LI,I?Richmond,Virginia.Disclosure Counsel,and by Woodruff,Spradhn K Smart-RC..Ormhge,Cali1"omi,4 City Attorney.
ICE v' y The date of this Official Statement is 2608
C •
tM
= C = STONE & YOUNGBERG
— O
� � u
y •J -� *Preliminary,subject to change.
000069
$7,000,000*
CITY OF PALM SPRINGS
2008 AIRPORT PASSENGER FACILITY CHARGE SUBORDINATE
REFUNDING REVENUE BONDS
(PALM SPRINGS INTERNATIONAL AIRPORT)
MATURITY SCHEDULE
$ Serial Bonds
(Base CUSJP&-p 696653)
Maturity Date Principal Interest Reoffering CUSTP0,11
July I Amount Rate Yield Number
2009
2010
2011
2012
2013
$ ,'Ye Term Bond due July 1, Yield�'%CUS1P@t
$ %Term Bond due July 1,Yield_%CUSIPA,•
S %Term Bond clue July 1,2027 Yield %CUSIP&-l•
Preliminary,subject to change.
CUSIPQJ A registered trademark of the American Bankers Association. Copyright 0 1999-2008 Standard &
Poor's, a Division of The McGraw-Hill Companies, Inc. CIJSIPO data herein is provided by Standard & Poor's
CUSIP® Service Bureau. This data in not intended to creme a database and does not serve in any way as a
substitute for the CUSIPGU Service Bureau. CUSIP9 numbers arc provided for convenience of reference only.
Neither theAuthority nor the Underwriter takes any responsibility 1'or the accuracy of such numbers.
.000070
GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT
Use of Official Statement. This Official Statement is for use in the offer and sale of the Bonds referred to
herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official
Statement is not to be construed as a contract with the purchasers of the Bonds.
Estimates and Forecasts. When used in this Official Statement (including the Appendices) or in any
continuing disclosure by the City, any press release or in any Oral statement made with the approval of an
authorized officer Of the City or any other entity described or referenced herein, the words or phrases
"will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "forecast,"
,expect," "intend" and similar expressions identify "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those contemplated in such forward-
looking statements. Any forecast is subject l0 Such uncertainties- Inevitably, some assumptions used to
develop the forecasts will not be realized and unanticipated events and circumstances may occur.
Therefore, there are likely to be differences between forecasts and actual results, and those differences
may be material.
Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the City to give
any information or to make any representations in connection with the offer or sale of the Bonds other
than those contained herein and if given or made, such other information or representation must not be
relied upon as having been authorized by the City,the Financial Advisor or the Underwriter. This Official
Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any
sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an
offer,solicitation or sale.
Involvement of Underwriter. The Underwriter has submitted the following sentence for inclusion in this
Official Statement The Underwriter has reviewed the information in this Official Statement in
accordance with, and as a pail of, its responsibilities to investors under the federal securities laws as
applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the
accuracy or complotcness of such information.
Information Subject to Change. The information and expressions Of Opinions herein are subject to
change without notice and neither delivery of this Official Statement nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no change in the affairs of the City,
the Airport or any other entity described or referenced herein since the date hereof. All summaries of the
documents referred to in this Official Statement are made subject to the provisions of such documents,
and do not purport to be complete statements ofany or all Of such provisions-
Stabilization of Prices. In connection with this offering, the Underwriter may overallol or effect
transactions which stabilise or maintain the market price of the Bonds at a level above that which might
otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.
The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public
offering prices set forth on the inside front cover page hereof and said public offering prices may be
changed from time to time by the Underwriter.
THE BONDS HAVE NOT BEEN RFGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, IN RELIANCE UPON AN EXEMPTION FROM TIIE REGISTRATION
REQUIREMENTS CONTAINED IN SUCH ACT. THE INDENTURE HAS NOT BEEN QUALIFIED
UNDER THE TRUST INDENTURE ACT OF 1939, IN RFLIANCI. UPON AN EXCEPTION FROM
THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT
BEEN REGISTERED OR QUALIFIED UNDER TIIE SECURITIES LAWS OF ANY STATE.
000671
CITY OF PALM SPRINGS
PALM SPRINGS,CALIFORNIA
CITY COUNCIL MEMBERS
Steve Pougnet,Mayor
Ginny Foat, Mayor Prn-Tcm
Rick Hutcheson, Conner!Member
Christopher Mills, Council Member
Lee Weigel, Council Member
CITY STAFF
David H. Ready, Ph.D., Esq., Crry Manager
Thomas Nolan, A.A.E.,Airporl Eaeculive Director
Troy L. Butzlaff,Assistant City Manager—Administrative Services
Thomas Wilson,Assistant City Manager—Develapment Services
Geoffrey Kiehl,Direcmr of Finance and Treasurer
,lames Thompson, Crry Clerk
PROFESSIONAL SERVICES
Bond Counsel
Jones Hall,
A Professional Law Corporation
San Francisco, California
Disclosure Counsel
Hunton& Williams LLP
Richmond, Virginia
Financial Advisor
Harrell &Company Advisors, LLC
Orange, California
Airport Consultant
SH&E, Inc.
Cambridge,Massachusetts
Underwriter
Stone&Youngberg LLC
Los Angeles, California
Trustee and Escrow Bank
The Bank of New York Trust Company,N.A.
Los Angclos, Califomia
Verification Agent
Grant Thornton LLP
Minneapolis, Minnesota
000072
TABLE OF CONTENTS
INTRODUCTION......................................................I General Factors Affecting the Airline Industry..........2
The City............. ... ..... ............ . . ... ... .. ... ... .......I Special Factors Affecting the Airport 36
The Airpor< I The Airline Use Agreements....................................36
Security and Sources of Repayment..........................I Reduced Authority to Impose the Passenger
. .2 Facility Charge...........................-----....................36
Legal Matters.............. ............................... ... . ........2 Required RcGnancing 38
Professional Services 2 Farly Redemption Risk;Limitation on Receipt of
011ering of the Bonds......... ...........................-- ..3 PFC Revenues.......................................................38
Information Concerning this Official Statement........3 Airport Consultant's Report 39
THE BONDS................ Loss of Tar Exemption............................................40
General Provisions...................................--..............4
Secondary Market....................................................40
Redemption;Acceleration;Delcasance.....................5 LEGAL MATTERS..................................................41
Scheduled Debt Service on the Bonds... ..... . ..... .....8 Enforceability ofRemcdics 41
Aggregate PFC Debt Service.................... ........ .......9 Approval of Legal Proceedings................................41
THE FINANCING PLAN........................................10
Tax Matters..............................................................41 Plan of finance.......................... ..... ............ ..........10 Absence of Litigation •--•---............---......43
Estimated Uses of Funds -----10 CONCLUDING INFORMATION..........................43
The Refunding Program...........................................11 No Rating on the Bonds...........................................43
SOURCES OF PAYMENT FOR THE BONDS.....11 Underwriting 43
General.....................................................................11 The Financial Advisor..............................................43..
Subordinate Pledge of PFC Revenues.................... I Fxperis.....................................................................43
Verifications of Mathematical Computations...........44
The PFC Program....................................................12 Continuing Disclosure 44
Reserve Fund...........................................................13
Additional Information....-.........--.......--...--.......44
THEAIRPOR'1..........................................................14 References................................................................44
The Airport Commission .......14 Execution... . .. ..... . ................................................45
Management 14 APPENDIXA—THF CITY OF PALM S13RINGS
Air Service Area......................................................14 INFORMATION STATEMENT
The Facilities....................................I..... ................15
Capital improvement Plan.. . ... . ........ ... . ..... .. ....16 APPENDIX B—SUMMARY OFTHE LEGAL
Historical Passenger Activity......... .....17 DOCUMENTS
Airline Market Share. 19 APPENDIX C—AIRPORT CONSULTANT'S
Passenger Facility Charges......................................20 REPORT
Historical Operating Results........ ... ........ ... . ........21
Management's Discussion of financial Results.......24 APPENDIX D-CITY AUDITED FINANCIAL
Outstanding Debi.....................................................25 STNFEMENTS
Additional Bonds.....................................................15 APPENDIXE--FORMOFCONTINUING
Cumulative Cap.......................................................26 DISCLOSURE CERTIFICATE
Projected Activity and Debt Service Coverage........28
CERTAIN BONDHOI,DFRS'RISKS_......._.-
ISKS............... "31 APPENDIX F—DTCAND THE BOOK-ENTRY
Limitations'of PFC Revenues; Subordinate Status ONLY SYSTEM
Collection of PFC Revenues...................................31 APPENDIX G—FORM OF BOND COUNSEL
Airport Security.......................................................31 OPINION
The Airlines-------------------..............................32
fl�00^e3
OFFICIAL STATEMENT
$7,000,000*
CITY OF PALM SPRINGS
2008 AIRPORT PASSENGER FACILITY CHARGE SUBORDINATE
REFUNDING REVENUE BONDS
(PALM SPRINGS INTERNATIONAL AIRPORT)
This Official Statement, which includes the cover page and appendices (the "Official Statement'), is
provided to furnish certain information concerning the City of Palm Springs 2008 Airport Passenger
Facility Charge Subordinate Refunding Revenue Bonds (Palm Springs International Airport) (the
"Bonds"), in the aggregate principal amount of$7,000,000*.
INTRODUCTION
This Introduction contains only a brief description of the Bonds and related malterr and does not purport
to be complete The Introduction is subject in all respects to more complete information in the entire
Official Statement, and the offering of the Bonds in potential investors is trade only by means of the entire
Official Statement and the documents summarizcd herein. Potential investors must read the entire
Official Statement to obtain information essential to the making of an informed investment decision (see
"CERTAIN BONDHOLDERS'AISKS"herein)
The City
The City of Palm Springs (the "City") was incorporated as a general law city on April 20, 1938. It
became a charter city on July 12, 1994. The City of Palm Springs encompasses 962 square miles in
Central Riverside County. The City is located 108 miles east of downtown Los Angeles and 120 miles
west of the Arizona border. Neighboring communities include Palm Desert, Rancho Mirage, Desert Hot
Springs and Cathedral City (see "APPENDIX A - THE CII'Y OF PALM SPRINGS INFORMATION
STATEMENT"herein).
The Airport
The Palm Springs International Airport (the "Airport") is comprised of the main terminal, parking lots,
aircraft parking apron and public airfield system. Originally opened in 1967, the Airport, terminal and
taxiways were expanded in 1992 and 1999. The existing facilities now provide 17 gates, with second
level boarding for I gates by way of jet boarding bridges, and runways now extend to 10,000 feet. A
now regional terminal was opened in 2007. See"THE AIRPORT"herein.
Security and Sources of Repayment
The Bonds. The Bonds are secured under an Indenture of Trust dated as of April 1, 2006, (the
"Indenture"), by and between the City and The Bank of New York Trust Company, N.A., Los Angeles,
California, as trustee (the "Trustee"), as supplemented by a First Supplement to Trust Indenture dated as
of May 1, 2008 by and between the City and the Trustee (the "First Supplement") (see "APPENDIX 8 —
SIJMMARY OF THE LEGAL DOCUMEN'I'S-THE INDENTURE"herein).
Preliminary,subject to change.
1 000074
The Bonds are special obligations of the City, payable from and secured by a charge and lien on
Passenger Facility Charges ("PFC Revenues") paid to the Airport, as described herein, on a basis
subordinate to the payments of PFC Revenues due under an installment sale agreement entered into as of
April 1, 1998 between the City of Palm Springs Financing Authority (the "Authority") and the City (the
"Senior Agreement") and on a parity with the payments of PFC Revenues payable with respect to the
City's 2006 Airport Passenger Facility Charge Subordinate Refunding Revenue Bonds (the "2006 PFC
Bonds').. Amounts payable under the Senior Agreement arc pledged to payment of the Authority's
Airport Passenger Facility Charge Revenue Bonds, Series 1998 (the "1998 PFC Bonds"), the current
outstanding principal amount of which is S10,395,000 (see `SOURCES OF PAYMENT FOR THE BONDS,"
"CERTAIN BONDHOLDERS' RISKS," and "'fl-16 AIRPOR"I" herein). The 2006 PFC Bonds are currently
outstanding in the principal amount of$11,805,000. PFC Revenues will be available to pay the 2006 PFC
Bonds and the Bonds on a pro-rata basis only to the extent such PFC Revenues exceed the amounts
payable on the 1998 PFC Bonds, and no other revenues of the City or the Airport are pledged to the
payment of the Bonds. The General Fund of the City is not liable for the Bonds, and the net operating
revenues of the Airport, which are pledged to other obligations, are not pledged to the payment of the
Bonds. See "CERTAIN BONDHOLDERS' RISKS — Required Refinancing." The pledge granted by the
Indenmre does not create a legal or equitable pledge, charge, lien or encumbrance upon any of the City's
property,or upon its income,receipts or revenue, except the PFC Revenues of the Airport.
The Bonds are limited obligations of the City. The Bonds do not constitute an obligation i'or which
the City is obligated to levy or pledge any form of taxation or for which the City has pledged any
form of taxation. The Bonds do not constitute a debt or liability of the State of California or of any
political subdivision thereof within the meaning of any constitutional or statutory debt limitation or
restriction.
Purpose
The Bonds are being issued (1) to refund the 1998 GAR Bonds, (2) to find a Reserve Fund, hereinafter
described, for the Bonds and (3) to pay the expenses incurred in connection with the issuance of the
Bonds (see "THE FINANCING PLAN - Estimated Uses of Funds' herein). The principal purpose of the
issuance is to eliminate an existing rate covenant and release curtain reserves to be used for capital
expenditures. See"THE FINANCING PLAN—Plan of Finance--
Legal Matters
All legal proceedings in connection with the issuance of the Bonds are subject to the approving opinion of
Jones Hall,A Professional Law Corporation, San Francisco, California, Bond Counsel. Such opinion,and
certain tax consequences incident to the ownership of the Bonds, including certain exceptions to the tax
treatment of interest, are described more fully under the heading "LEGAL MATTERS" herein. Certain
legal matters will be passed on for the City by Woodruff, Spradlin & Smart, P.C., Orange, California, as
City Attorney,and by Hunton & Williams LLP, Richmond, Virginia, as Disclosure Counsel.
Professional Services
The Bank of New York Trust Company, N.A., Los Angeles, California, serves as trustee (the "Trustee")
under the Indenture. The Trustee acts on behalf of the Bondholders for the purpose of receiving all
moneys required to be paid to the Trustee, to allocate, use and apply the same, to hold, receive and
disburse the revenues and other funds held under the Indenture, and otherwise to hold all the offices and
perform all the functions and duties provided in the Indenture to be held and performed by the Trustee:.
2 DDDD'35
Harrell &Company Advisers, LLC, Orange, California, (the"Financial Advisor"),has advised the City as
to the financial structure and certain other financial matters relating to the Bonds. Certain fees payable to
Bond Counsel, Disclosure Counsel and the Financial Advisor are contingent upon the sale and delivery of
the Bonds.
The Airport Consultant's Report, dated March 31, 2008 and attached hereto as "APPENDIX C," has been
Prepared by SH&E, Inc., Cambridge, Massachusetts (the "Airport Consultant"). Fees paid to the Airport
Consultant are not contingent upon the sale and delivery of the Bonds.
The City's financial statements for the fiscal year ended June 30, 2007, attached hereto as "APPENDIX
D," have been audited by Moreland & Associates, Inc., Certified Public Accountants, Newport Beach,
California. The City's audited financial statements are public documents and are included within this
Official Statement without the prior approval of the audiror. Accordingly, the auditor has not performed
any post-audit review of the financial condition or operation of the City.
Offering of the Bonds
Authority for Issuance. The Bonds are to be issued and secured pursuant to the Indenture as authorized
by a resolution of the City adopted on , 2009, The Bonds are also issued in accordance with the
laws of the State of California(rhe"Srate"), including Section 53570 et seq. of the California Government
Code.
Offering and Delivery of the Bonds. The Bonds are offered, when, as and if issued, subject to the
approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California,
Bond Counsel. It is anticipated that the Bonds will be available, in book-entry form for delivery through
the facilities of DTC in New York,New York on or about May 14,2008,
Information Concerning this Official Statement
This Official Statement speaks only as of its date. The information set forth herein has been obtained by
the City with the assistance of the Financial Advisor front sources which are believed to be reliable and
such information is believed to be accurate and complete, but such information is not guarameed as to
accuracy or completeness, nor has it been independently verified and is not to be construed as a
representation by the Financial Advisor, Disclosure Counsel, Bond Counsel or the Underwriter.
Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion,
whether or not expressly so described herein, are intended as such and are not to be construed as
representations of fact.
Preliminary Official Statement Deemed Final. The information set forth herein is in a form deemed
Final, as of its date, by the City for the purpose of Rule 15c2-12 under the Securities Exchange Act of
1934, as amended(except for the omission of certain information permitted to be omitted under the Rule).
The information herein is subject to revision, amendment and completion in a Final Official Statement.
The information and expressions of opinion herein are subject to change without notice and the delivery
of this Official Statement shall not, under any Circumstances, create any implication rhat there has been no
change in the information or opinions set forth herein or in the aflairs of the City or the Airport since the
date hereof.
,000076
Availability of Legal Documents. The summaries and references contained herein with respect to the
Indenture, the Bonds and other statutes or documents do not purport to be comprehensive or definitive
and are qualified by reference to each such document or statute, and references to the Bonds are qualified
in their entirety by reference to the form thereof included in the Indenture. Copies of the documents
described herein are available for inspection during the period of initial offering of the Bonds at the
offices of the Financial Advisor, Harrell & Company Advisors, LLC, 333 City Boulevard West, Suite
1430, Orange, California 92868, telephone (714) 939-1464. Copies ofthese documents may be obtained
after delivery of the Bonds at the corporate trust office of the Trustee, The Bank of New York Trust
Company, N.A., Los Angeles, California, or from the City at 3200 E. Tahquitz Canyon Way, Palm
Springs, California 92262,telephone(760) 323-8229,
THE BONDS
General Provisions
Payment of the Bonds. Interest on the Bonds is payable on January 1, 2009, and semiannually thereafter
on July 1 and January 1 of each year(each an "Imerest Payment Date") at the rates per annum set forth on
the inside front cover page hereof. Interest on the Bonds will be computed on the basis of a year
consisting of 360 days and twelve 30-day months.
Each Bond shall bear interest front the Interest Payment Date next preceding the authentication thereof,
unless(a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in
which event it shall bear interest from such Interest Payment Date; or(b) it is authenticated on or before
December 15, 2008, in which event it shall bear interest from its date of delivery; provided, however, that
if, as of the date of authentication of any Bond, interest thereon is in default, such Bond shall bear interest
from the Interest Payment Date to which interest has previously been paid or made available for payment
thereon.
Book-Entry Only System. The Depository Trust Company ("DTC"), New York, New York, will act as
securities depository for the Bonds. The Bonds will be issued as fully registered securities registered in
the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an
authorized representative of DTC. Interest on and principal of the Bonds will be payable when due by
wire of the Trustee to DTC, which will in turn remit such interest and principal to DTC Participants (as
defined herein), which will in turn remit such interest and principal to Beneficial Owners (as defined
herein) of the Bonds (see "APPENDIX F — DTC AND I HE BOOR-ENTRY ONLY SYSTEM" herein). As
long as DTC is the registered owner of the Bonds and DTC's book-entry method is used for the Bonds,
the Trustee will send any notices to bond owners only to DTC. The information in Appendix F has been
provided by DTC, and neither the City, the Financial Advisor, the Underwriter nor Disclosure Counsel
assumes any responsibilily for the accuracy or completeness of such information.
Discontinuance of Book-Entry-Only System. DTC may dkeontinuc providing its services as securities
depository with respect to the Bonds at any time by giving reasonable notice to the City or the Trustee.
Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are
required to be printed and delivered as described in the Indenture. The City may decide to discontinue
use of the system of boot.-entry transfers through DTC (or a successor securities depository). In that
event, the Bonds will be printed and delivered as described in the Indenture. In addition, the following
provisions shall apply: interest with respect to the Bonds will be payable by check of the Trustee mailed
by first class mail on the applicable Interest Payment Date to the Owners thereof provided that in the case
of an Owner of$1,000,000 or greater in principal amount of Outstanding Bonds, such payment may, at
such Owner's option, be made by wire transfer in immediately available funds to an account in the United
States of America in accordance with written instructions provided prior to the applicable Record Date to
the Trustee by such Owner. The Owners of the Bonds shown on the Registration Books on the Record
Date for the Interest Payment Date will be deemed to be the Owners of the Bonds on said Interest
4 QQQOdi
Payment Date for the purpose of the paying of interest. Principal of the Bands will be payable upon
presentation and surrender thereof, at the Trust Office of the Trustee in Los Angeles, California.
Transfer or Exchange of Bonds. Any Bond may, in accordance with its terms, be transferred, upon the
Bond Registration Books, or exchanged, by the: person in whose name it is registered, in person or by his
duly authorized attorney, upon surrender of such Bond for cancellation, endorsed or accompanied by
delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. Every
Bond so surrendered to the Trustee shall be canceled by it and destroyed. Whenever any Bond shall be
surrendered for transfer or exchange, the City shall execute and the 'Trustee shall thereupon authenticate
and deliver to the transferee a new Bond or Bonds of like maturity and aggregate principal amount of
authorized denominations. The Trustee shall require the Owner requesting such transfer or exchange to
pay any tax or other charge required to be paid with respect to such transfer or exchange. No Bond, the
notice of redemption of which has been mailed pursuant to the Indenture, shall be subject to transfer or
exchange. No transfer or exchange shall be required during the period established by the Trustee for the
selection of Bonds for redemption.
Redemption; Acceleration; Deteasance
Special Mandatory Redemption. The Bonds maturing July I, 2027 are subject to special mandatory
redemption, in part by lot each July 1, beginning July 1, 2009, from certain excess PVC Revenues defined
herein as "Remaining Revenues" (see "CERTAIN BONDHOLDERS' RISKS — Early Redemption Risk;
Limitation on Receipt of PFC Revenues" herein), pro-rata with the 2006 PFC Bonds, at a redemption
price equal to the principal amount thereof to be redeemed, plus a premium (expressed as a percentage of
the principal amount of Bonds to be redeemed)together with accrued interest thereon to the date fixed for
redemption as follows:
Redemption Dates Redemption Prices
Each July 1 prior to July 1,2014 103.0%
July 1,2014 102.0%
July 1,2015 101.0%
July 1,2016 and each January 1 thereafter 100.0%
If Parity Obligations are issued, such Parity Obligations, the 2006 PFC Bonds and the Bonds shall be
redeemed pro-rata from Remaining Revenues. See"THEAIRPORT—Additional Bonds."
The Bonds are also subject to special redemption, in whole, on any date as a result of actions taken by the
Federal Aviation Administration ("FAA") to reduce the City's authority to collect passenger facility
charges under the Special Agreement, as described herein, from proceeds of refunding obligations or from
any available funds of the Airport ("Refunding Bonds") at a redemption price equal to the principal
amount thereof together with accrued interest thereon to the date fixed for redemption. See "CERTAIN
BONDHOLDERS' RISKS — Reduced Authority to Impose the Passenger Facility Charge" and "CERTAIN
BONDHOLDERS'RISKS—Required Refinancing"'herein.
5 oaooa$
Optional Redemption. The Bonds maturing on or after July 1, 2015 are subject to redemption prior to
maturity on any date on or after July I, 2014, in whole or in part, in a manner determined by the City,
from prepayments made at the option of the City pursuant to the Indenture at a redemption price equal to
the principal amount thereof to be redeemed, plus a premium, (expressed as a perccntaae of the principal
amount of Bonds to be redeemed)together with accrued interest thereon to the date fixed for redemption
as follows:
Redemption Periods Redemption Prices
July 1,2014 through June 30,2013 102.0%
July 1,2015 through June 30,2016 101.0"%
July 1,2016 and thereafter 100.0"%
Mandatory Sinking Fund Redemption. The Bonds maturing July I, and July I, 2027 (the"Term
Bonds") are also subject to mandatory redemption, in part by lot, on July 1, in each year commencing
July I, with respect to the Term Bonds maturing July 1, and commencing July 1, with
respect to the Term Bonds maturing July 1, 2027 from mandatory sinking fiord payments at a redemption
price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest
thereon to the date fixed for redemption in the aggregate respective principal amounts in the respective
years as set forth in the following schedules; provided, however, that if some but not all of the Term
Bonds have been redeemed pursuant to the optional redemption or special mandatory redemption
provisions described above, the total amount of sinking fund payments to be made subsequent to such
redemption will be reduced in an amount equal to the principal amount of the Term Bonds so redeemed,
by reducing each such future sinking fund payment in integral multiples of$5,000 in a manner designated
by the City in the case of an optional redemption,or in inverse order in the case of a special redemption.
SCHEDULE OF MANDATORY SINKING FUND REDEMPTIONS
TERM BONDS MATURING JULY 1,
July I Principal
Year Amount
2017
2018
2019
2020 (maturity)
SCHEDULE OF MANDATORY SINKING FUND REDEMPTIONS
TERM BONDS MATURING JULY 1,
July I Principal
Year Amount
2021
2022
2023
2024
2025
2026
2027(maturity)
6 000079
Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of
less than all of the Bonds or any given portion thereof,and unless otherwise specified in the Indenture,the
Trustee shall select the Bonds to be redeemed from all Bonds or such given portion thereof not previously
called for redemption, in inverse order of maturity or, at the written election of the City,accompanied by a
Certificate of the City filed with thc'frustee showing the sufficiency of PFC Revenues to pay annual Debt
Service on the Bonds and any Parity Obligations to remain outstanding following such redemption, on a
basis among maturities as determined by the City, and by lot in any manner which the Trustcc in its sole
discretion shall deem appropriate and fair. The Trustee shall promptly notify the City in writing of the
Bonds or portions thereof so selected for redemption.
Notice of Redemption. Unless waived by any Owner of Bonds to be redeemed, notice of any such
redemption shall be given by the Trustee on behalf of the City by mailing a copy of a redemption notice
by first class mail, postage prepaid, at least 30 days and not more than 60 days prior to the date fixed for
redemption to the Owner of the Bond or Bonds to he redeemed at the address shown on the Bond
Registration Books, to the Securities Depositaries and one or more information services. Notice of
redemption having been given as aforesaid, the Bonds or portions of Bonds so to be redeemed shall, on
the redemption date, become due and payable at the Redemption Price therein specified, and from and
after such date(unless the City shall default in the payment of the redemption price), interest with respect
to such Bonds or portions of Bonds shall cease to accrue and be payable. Upon surrender of such Bonds
for redemption in accordance with said notice, such Bonds shall be paid by the Trustee at the Redemption
Price. Installments of interest due on or prior to the redemption date shall be payable as therein provided
for payment of interest. Upon surrender for any partial redemption of any Bond, there shall be prepared
for the Owner a new Band or Bonds of the same maturity in the amount of the unredeemed principal. All
Bonds which have been redeemed shall be canceled and destroyed by the Trustee and shall not be
reissued.
Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for
payment of the Redemption Price of, together with interest accrued to the redemption date on, the Bonds
(or portions thereof) so called for redemption being held by the Trustee, on the redemption date
designated in such notice,the Bonds (or portions thercoo so called for redemption shall become due and
payable at the Redemption Price specified in such notice plus interest accrued thereon to the redemption
date, interest on the Bonds so called for redemption shall cease to accrue,said Bonds (or portions thereof)
shall cease to be entitled to any benefit or security under the Indenture, and the Owners of said Bonds
shall have no rights in respect thereof except to rcceive payment of said Redemption Price and accrued
interest. The Indenture contains no provisions requiring any publication of notice of redemption, and
Bondholders must maintain a current address on file with the Trustee to receive any notices of
redemption.
Partial Redemption. Upon surrender of any Bond redeemed in pan only, the City shall execute and the
Trustee shall authenticate and deliver to the Owner thereof, at the expense of the City, a new Bond or
Bonds of authorized denominations, and of the same maturity, equal in aggregate principal amount to the
unredeemed portion of the Bond surrendered.
Acceleration Upon Default. All principal and interest may become immediately due and payable
without premium, in certain circumstances, upon an Pvent of Default under the Indenture as more fully
described in "APPENDIX B — SUMMARY OF THE LEGAL DOCUMENTS -•THE INDENTURE— Events of
Default and Remedies"
Defeasance. The Bonds or any part thereof may be defeased prior to maturity by depositin.a with the
Trustee, an escrow agent or other fiduciary, in trust, at or before maturity, money or securities in the
necessary amount(as provided below)to pay or redeem such Bonds outstanding.
7
000080
To accomplish defeasance the City shall cause to be delivered (i) a report of an independent firm of
nationally recognized certified public accountants ("Accountant') verifying the sufficiency of the escrow
established to pay such Bands in full on the maturity or redemption date, (`Verification"), (ii) an Escrow
Deposit Agreement,and (iii)an opinion of nationally recognized bond counsel to the effect that the Bands
are no longer "Outstanding" under the Indenture; each Verification and defeasance opinion shall be
acceptable in form and substance,and addressed,to the City and the Trustee.
If the Bonds are defeased, then, notwithstanding that any such Bonds shall not have been surrendered for
payments, all obligations of the City with respect to such Outstanding Bonds shall cease and terminate,
except only the obligation of the Trustee to pay or cause to be paid from funds deposited to the Owners of
the Bonds not so surrendered and paid all sums due with respect (hereto.
Scheduled Debt Service on the Bonds
The following is the scheduled Annual Debt Service on the Bonds without regard to any special
redemptions that may occur.
Annual
Bond Year Ending Principal Interest Debt Serviec
July 1,2009
July 1,2010
July 1,2011
July 1,2012
July I,2013
July 1, 2014
July J,2015
July 1,2016
July 1, 2017
July 1,2018
July 1,2019
July 1,2020
July 1,2021
July 1,2022
July 1,2023
July 1,2024
July 1,2025
July 1, 2026
July 1, 2027
Total
Aggregate PFC Debt Service
The following table summarizes the annual aggregate Installment Payments with respect to the 1998 PFC
Bonds and debt service on the 2006 PFC Bonds and the Bonds, on a fiscal year basis, without regard to
any future optional or special redemptions that may occur, other than as described below. The table
below excludes all other indebtedness payable from revenues of the Airport.
Fiscal Year 1998 PFC Bonds 2006 PFC Bonds 2008 PFC Bonds Total
Ending Installment Debi Service Debt Service Annual
June 30 Payments Payments(') Pavments Payments
2008 $ 854,362.50 $ 934,367,50
2009 555,442.50 934,417.50
2010 $55,192.50 930,09750
2011 854,19250 930,702.30
2012 857,442.50 932,202.50
2013 839,337.50 932,312.50
2014 835,118.76 930,992.30
2015 860,131.26 933,202.50
2016 858,862.50 933,860.00
2017 856,568.76 932,940.00
2018 858,250.00 930,417.50
2019 858,650.00 931,532,50
2020 862,137,50 931,012,50
2021 864,050.00 933,857.50
2022 864,387.50 929,170.00
2023 863,150.00 932,817,50
2024 863,775,00 929,245,00
2025 $67,475.00 933,730.00
2026 868,975.00 930,717.50
2027 868,275.00 930,485.00
2028 870.375.00 432.755.00
Total $18,076,151.28 $19,073,835.00
u On July 1, 2008, $500,000 of 2006 PFC Bonds maturing .luly 1, 2028 will be redeemed from Remaining
Revenues received by the City as of June 30, 2007. The payments shown in the chart above reflect the special
redemption.
9 000082
TIIE FINANCING PLAN
Plan of Finance
As discussed more fully in 'SOURCES OF PAYMENT FOR I HE BONDS," the issuance of the Bonds is
being undertaken to permit the City 10 operate the Airport without constraints imposed by a Master Trust
Indenture described below. Primarily as a result of 9/11 and resultant increase in costs for security and
other overhead related to the operation of the Airport, the Airport did not generate sufficient "Net
Revenues" in three of the last five Fiscal Years to meet the rate covenant under the Master Trust Indenture
(the"Rate Covenant")pursuant to which the 1998 GAR Bonds were issued. The Rate Covenant excludes
PFC Revenues from the calculation, even though they may be used, and have been used, to pay debt
service on the 1998 GAR Bonds and the Authority's then outstanding Airport Revenue Bands, Series
1992 (the "1992 GAR Bonds") which were refunded in 2006 with the proceeds of the 2006 PFC Bonds.
Net Revenues, together with PFC Revenues, have been sufficient in each fiscal year to permit the City to
make all required payments on the previously outstanding 1992 GAR Bonds and the 1998 GAR Bonds as
well as on the 1998 PFC Bonds and the 2006 PFC Bonds. By refunding the 1998 GAR Bonds, the City
will eliminate the Rate Covenant and will release approximately $1.4 million in reserves required for the
1998 GAR Bonds,to be used for capital improvements. See"THE AIRPORT- Management's Discussion
of Financial Results."
Estimated Uses of Funds
The Trustee will receive the proceeds from the sale of the Bonds and other amounts and will apply them
as follows:
Sources of Funds
Principal Amount of Bonds
Funds held by trustee for the 1998 GAR Bonds
Airport Funds
Total Sources
Uses of Funds
Defeasance of 1998 GAR Bonds
Reserve Fund(q
Underwriter's Discount
Original Issue Discount
Costs of Issuance 12t
Total Uses
of An amount equal to the Reserve Requirement for the Bonds (see-SOURCES Of PAYMliNI FOR ITIE BONDS -
Reserve Fund"herein).
zl Expenses include fees of Bond Counsel, DiSCIOSure Cuunsel, the Financial Advisor, the Trustee, costs of
printing the Official Statement, and other costs of issuance of the Bonds. Costs of Issuance,together with the
underwriter's discount, in excess of 2%of the issue price of the Bonds will be funded with Airport funds on
hand.
10 000083
The Refunding Program
On the Delivery Date, the City will irrevocably deposit a portion of the proceeds of the Bonds with the
Trustee as escrow bank(the"Escrow Bank"), pursuant to an Escrow Deposit Agreement, dated as of May
1, 2008 (the "Escrow Agreement") between the Authority, the City and the Escrow Bank. The deposit,
together with interest eamings thereon, will be in an amount sufficient to pay interest with respect to the
1998 GAR Bonds on July 1, 2008, and to pay the redemption price with respect to all remaining 1998
GAR Bonds pursuant to an optional redemption thereof on July 1, 2008, as verified by Grant Thornton
L,LP, Certified Public Accountants.
Bond Counsel will deliver an opinion at closing to the effect that, relying on the verification of Grant
Thomson LLP as to the sufficiency of the amounts deposited wider the Escrow Agreement, the lien
securing the 1998 GAR Bonds will be discharged, terminated and of no further force and effect upon the
deposit with the Escrow Bank of the amounts required pursuant to the Escrow Agreement. See
"CONCLUDING INFORMATION—Verifications of Mathematical Computations."
SOURCES OF PAYMENT FOR THE BONDS
General
Pursuant to the Indenture, the Bonds are payable from and secured by PFC Revenues held under the
Indenture, amounts on deposit in the Reserve Fund and investment eamings thereon, all as set forth in the
Indenture and in the manner described herein.
The Bonds are not secured by, and the Owncrs of Bonds have no security interest in or mortgage on the
property of the Airport, or of the City, and the Bonds are not secured by a pledge of revenues other than
the subordinate pledge of PFC Revenues. Default by the City will not result in loss of any property of the
City. Should the City default, the Trustee (1) may declare all unpaid principal, together with accrued
interest at the rate or rates specified on the respective outstanding Bonds from the immediately preceding
Interest Payment Date on which payment was made, to be immediately due and payable, whereupon the
same shall become due and payable, and (2) take whatever action at law or in equity that may appear
necessary or desirable to accelerate the principal of the Outstanding Bonds, or enforce performance and
observance of any obligation, agreement or covenant of the City under the Indenture. See "CERTAIN
BONDHOLDERS'RISKS."
Subordinate Pledge of PFC Revenues
The pledge of PFC Revenues to repay the Bonds and the 2006 PFC Bonds is subordinate to the pledge of
PFC Revenues to pay the 1998 PFC Bonds. Thus, PFC Revenues will be available to pay debt service on
the Bonds only to the extent such PFC Revenues exceed the amount then payable as debt service on the
1998 PFC Bonds. In addition, each year, any PFC Revenues received in excess of a predetermined
cumulative amount ("Annual Cumulative Cap") of PFC Revenues will be used first to redeem the 1998
PFC Bonds in advance of their stated maturity. The amount in excess of the Annual Cumulative Cap is
determined on an annual basis and is not pledged to the Bonds and the 2006 PFC Bonds so long as any
1998 PFC Bonds remain outstanding. Once the Annual Cumulative Cap is reached, the annual amount of
PFC Revenues that will be available to pay the regularly scheduled debt service on the 1998 PFC Bonds,
the 2006 PFC Bonds and the Bonds will be limited to $2,650,000 annually through and including Fiscal
Year ending June 30,2022,and S1,450,000 annually thereafter or until the 1998 PFC Bonds are redeemed
in full. Based on the Airport Consultant's projected enplanernents, the first year that the Annual
Cumulative Cap will be reached is 2009. Only after all the 1998 PFC Bonds have been paid or redeemed
will any PFC Revenues in excess of the annual amounts described above be available either (a) to pay
regularly scheduled principal and interest on the Bonds and the 2006 PFC Bonds, or (b) to redeem the
Bonds maturing July 1,2027 and the 2006 PFC Bonds maturing July 1, 2028, pro-rata, in advance of their
11
scheduled maturity. However, if there are PFC Revenues remaining under the annual limit after paying
regularly scheduled debt service on the Bonds, the 1998 PFC Bonds and the 2006 PFC Bonds (the
"Remaining Revenues"), such Remaining Revenues will be used to redeem the Bonds maturing July I,
2027 and the 2006 PFC Bonds maturing July I, 2028, pro-rata. See"I'I IE AIRPORT - Projected Activity
and Debt Service Coverage"herein.
Special Redemption; Reduction in Authority to Collect PFC Revenues. The FAA has the power to
terminate the City's ability to collect PFC Revenues. Pursuant to a written agreement between the City
and the FAA, entered into prior to the issuance of the 1998 PFC Bonds, the FAA has agreed to certain
notice and dispute resolution procedures designed to reduce the possibility that the City's ability to collect
PFC Revenues may be terminated (the "Special Agreement"). Pursuant to the Special Agreement, the
FAA has agreed that if dispute resolution provisions set forth in the Special Agreement do not
satisfactorily address FAA concerns over the City's collection of PFC Revenues, the FAA will permit a
special redemption of the 1998 PFC Bonds and will allow the airlines to pay PFC Revenues to the Trustee
sufficient to provide for payment of the 1998 PFC Bonds. No such arrangement to collect PFC Revenues
sufficient to provide for redemption and payment is in effect, with respect to the Bonds or the 2006 PFC
Bonds. In the event that the dispute resolution procedures set forth in the Special Agreement do not
satisfy the FAA and the FAA terminates the City's authority to collect PFC Revenues sufficient to pay
debt service on the Bonds, Bondholders must rely on the ability of the City to pay or to refinance the
Bonds using general airport revenues. See "CERTAIN BONDHOLDERS' RISKS - Required Financing"
and "Reduced Authority to Impose the Passenger Facility Charge" herein. In the event that the FAA
becomes aware of a violation of the conditions of the Use Approval, defined herein, and the Special
Agreement is no longer in effect, the normal dispute resolution procedures of the FAA would apply. The
FAA estimates that such dispute resolution procedures will take at least one or more years to complete
prior to any termination of the Airport's authority to collect PFCs. The City would have such time either
to take corrective action or to redeem the Bonds with other revenues, if available, before the Special
Agreement provisions to commence redemption of the 1998 PFC Bonds would take effect.
In addition,there can be no assurance, that PFC Revenues collected in any given year will be adequate to
pay debt service on the 1998 PFC Bonds, the 2006 PFC Bonds and the Bonds. While under certain
circumstances,the City may use other available funds to pay debt service on the Bonds, it is not obligated
to do so, and no other funds are pledged to such payment. See "CERTAIN BONDHOLDERS' RISKS -
Required Refinancing." A decline in the use of the Airport could have an adverse effect on the ability of
the City to collect PFC Revenues in an amount sufTicient to provide for payment of the 1998 PFC Bonds,
the 2006 PFC Bonds and the Bonds. See"CERTAIN BONDHOLDERS'RISKS-"
The PFC Program
The authority of airports to impose passenger facility charges ("PFC")was granted by the Aviation Safety
and Expansion Act of 1990 (the"1990 Act"). The 1990 Act, as amended, permits imposition of a PFC of
S1, $2, S3 or S4.50 on each qualifying enplaning passenger. An airport must apply to the FAA for the
authority to impose a PFC and for the authority to use the PFC moneys collected for specific FAA-
approved projects. PFCs collected by a small hub airport (like Palm Springs) are not used to offset or
replace federal entitlement grant moneys which would otherwise have been received by the airport under
the Airport Improvement Program,
The City received permission to collect a $3 PFC beginning October, 1992, and to use PFC funds
collected to finance the projects described in the Airport's approved PFC applications. The City was
granted permission to increase the PFC to S4.50 beginning January 1, 2002, The total PFC authofization
for the Airport is currently $88.4 million, of which $27.8 million had been collected as of Rune 30, 2007,
leaving $60.6 million in remaining authorization. After issuance of the Bonds, the total PFC
authorization will be reduced to equal the total principal, interest and redemption premiums (il'any), on
the Bonds, the 1998 PPC Bonds and the 2006 PFC Bonds (approximately S78 million) plus
approximately S600,000 for administration.
12
0000185
Certain passengers, including passengers using frequent flyer programs to obtain tickets,are not subject to
collection of a PFC by air carriers. A PFC is collected from a passenger on a one-way trip only for the
first two airports on the air travel itinerary where PFCs are collected. The public agencies may request
exemption from collection of a class of air carriers if the number of passengers enplaned by the carrier in
the class constitute no more than 1% of the total enplaned passengers annually at the airport at which the
PFC is imposed(see"THE AIRPORT"herein for more information on the PFC Revenues and the financial
Condition of the Airport).
The PFCs are collected from each eligible enplaning passenger by the airlines operating at the Airport.
The airlines are authorized to withhold as a collection fee eight cents per enplaning passcngur from whom
a PFC is collected. The Regulations require the airlines to remit PFC collections after withholding
collection fees, including investment return earned, to the City no later than the last day of the calendar
month following the collection. FAA regulations require airlines to account for PFC collections
separately and maintain such funds as trust funds for the beneficial interest of the City. Airlines must
disclose PFC collections as trust funds in financial statements.
Further,the authorization to collect PFCs is subject to cancellation if the Airport does not comply with the
terms of the FAA's PFC approval, including the violation of the Noise Act relating to airport noise and
access restrictions, using PFC collections for projects not approved in the PFC application, or other
violations of the 1990 Act or the PFC Regulations (see "CERTAIN BONDOWNERS, RISKS — Reduced
Authority to Impose the Passenger Facility Charge"herein).
Limit on PFC Pledge. Currently, the Airport collects a 54.50 PFC per eligible passenger. However,
H.R. 2881 was passed by the full House of Representatives in September 2007. The House Legislation,
among other things, raises the PPC cap to $7,00 per enplaned passenger from the current 54.50 per
enplaned passenger. The Senate version of the FAA reauthorization, S. 1300, has no PFC cap increases,
maintaining the current 54.50 per passenger cap. If the City raises its per-passenger PFC to $7.00,
without a corresponding increase in the total PFC limitation required to pay the 1998 PFC Bonds, the
2006 PFC Bonds and the Bonds (that is, a raise in the per-passenger PFC without the authorization to
spend the funds on additional PFC-eligible projects), the additional PFC Revenue generated would be
required to be used to redeem all series of bonds secured by the PFC Revenue. However, if the per-
passenger PFC is raised to $7.00 for the purpose of funding additional PFC-related capital projects, and
the total limit on PFC revenue is raised to include such funding, only the first$4.50 of PFC Revenue will
be included in the calculation of the Annual Cumulative Cap and the Remaining Revenue for the purpose
of redeeming the 1998 Bonds,the 2006 Bonds and the Bonds.
Reserve Fund
Proceeds of the Bonds will be used to fund the Reserve Fund in the amount of the Reserve Requirement,
which is 5650,000*, the maximum annual debt service payable on the Bonds. In the event that the City
fails to deposit with the Trustee the full amount required by the Indenture to pay principal and interest due
on the Bonds, the Trustee will withdraw from the Reserve Fund, the difference between the amount
required to be on deposit and the amount available on such date.
The Reserve Fund will secure only the Bonds. Amounts in excess of the Reserve Requirement will be
transferred to the Bond Fund to be applied as a credit against the next succeeding debt service payment.
If the balance in the Reserve Fund is less than the Reserve Requirement, the notice of which deficiency
shall have been given by the Trustee to the City, or if the balance in the bond Reserve Fund established
for the 2006 PFC Bonds is less than the bond resurve ruquircmenl established for the 2006 PFC Bonds,
the notice of which deficiency shall have been given to the City, the deficiency shall be restored by
Preliminary,subject to change.
13 000086
transfers from the first PFC Revenues which become available to the Trustee after satisfaction of the 1998
PFC Bonds, for deposit in the Reserve Fund and for deposit in the bond reserve account established for
the 2006 PFC Bonds- See"THE AIRPORT—Additional Bonds."
THE AIRPORT
The Airport Commission
In 1961, the City Council created the Palm Springs International Airport Commission. Members are
appointed by the Mayor and act as an advisory board to the City Council. The seventeen-member board
(the "Board") is comprised of representatives from each city in the Coachella Valley, one representative
from Riverside County and eight representatives from the City of Palm Springs. The Board represents
professional and business leaders in the Coachella Valley area who serve on a voluntary basis and devote
their time, energy and expertise to the prudent management and development of the City's Airport
facilities.
Management
Thomas Nolan, A.A.E., the Airport's Executive Director(the"Director'), is the chief executive officer of
the Airport. The Director reports to the City Manager and is assisted by an Assistant Director of Aviation
with a staff of 54.5 full-time equivalent employees who are responsible for the administration, operation
and maintenance of the Airport's facilities.
Air Service Area
Service Area. The Airport is primarily an origination and destination airport and principally serves nine
cities in the Coachella Valley - Palm Springs, Cathedral City, Coachella, Desert Hot Springs, Indian
Wells, Indio, La Quinta, Palm Desert and Rancho Mirage-as well as several unincorporated communities
in Riverside County. The Airport's secondary service area includes the communities of Banning,
Beaumont, San Jacinto, Hemet,Twenty-Nine Palms and Yucca Valley,
Other Airports. Other airports in the service area arc general aviation facilities that include Twentynine
Palms Airport, Thermal Airport, San Bernardino International Airport and Bemtuda Dunes Airport. The
nearest airport with regularly scheduled commercial service is Ontario International Airport.
Ontario International Airport is a mediwtt-hub, full-service airport with commercial jet service to major
U.S. cities and through service to many international destinations. It is located approximately 35 miles
east of downtown Los Angeles and 75 miles west of Palm Springs. Its largest carrier is Southwest
Airlines, which provides approximately 50% of enplanements, followed by Alaska Airlines, Delta
Airlines and United Airlines. Twentynine Palms Airport is a general aviation airport with a maximum
gross takeoff weight of 12,500 pounds or less. Jaeldo Cochran Airport in Thermal is also a general
aviation airport, primarily serving business jets and transport-type aircraft. San Bernardino International
Airport, formerly Norton Air Force Base, currently has no commercial air carrier service, although it has
completed a variety of landside and terminal improvements to attract scheduled airline service. Bermuda
Dunes Airport is a gcnural aviation airport with a 3,000 foot long asphalt runway.
Population, Housing And Employment. The Souther California Association of Governments
("SCAG") latest projections of population, households and employment for regions throughout the state
of California forecasts that by 2030, the population in the service area of the Coachella Valley will
increase to 700,000, or 84%, compared to the population of 396,000 in 2005. This population increase
minors the increase projected for Riverside County as a whole and is higher than the growth rate
projected for San Bernardino County, which is expected to grow by 40% during that same period.
Number of households and employment figures show similar growth rates in the Coachella Valley,
14
000087
The Facilities
The existing facilities of the Airport include the following:
Termina1Building. The passenger terminal buildings consists of 200,000 square feet, containing all the
related activities essential to enplaning and deplaning passengers at the Airport. The primary terminal
building was opened in 1967 and has had several upgrades, including the expansion ofthe facility in 1999
with the installation of a second level boarding area, eight additional boarding bridges and an expanded
ticket wing. Located in this facility are six rental car agencies, nine airline ticketing and operation areas,
waiting areas, several concessions, security, leased office space on the mezzanine level, and the Airport
administrative offices.
An 8-gate regional terminal was completed in 2007 and is primarily configured to accommodate regional
jets. This terminal was built with federal grants.
Automobile Parking. Public parking for 903 vehicles is provided in front of the passenger terminal
building. There are 125 rental car ready spaces and 234 employee parking spaces. In addition, the
terminal building provides approximately 750 feet of curb length, with space for approximately 16 private
and 20 service vehicles at the enplaning curb and space fOr approximately 10 private and 12
transportation vehicles at the deplaning curb.
Aircraft Parking Apron. The terminal aircraft parking apron is located adjacent to and east of the
terminal building. There are eight air carrier aircraft parking positions on the terminal apron which are
served by nine air carver pate positions and eight regional aircraft parking positions. An additional apron
was constructed adjacent to the new regional terminal sufficiently sized to accommodate anticipated
demand.
Publie Airfield System The existing runway system consists of a single commercial runway (13R-31 L,
oriented northwest-southwest) 10,000 feet long and 150 feet wide; and, a parallel general aviation
runway, (13L-31R),4,952 feet long and 75 feet wide. Paved blast pads extend 200 feet from both ends of
each runway. The Airport extended the main runway from 8,500 feet to 10,000 feet in 1998 to permit the
operation of commercial aircraft with till loads during high temperatures in the summer months.
The existing taxiway system at the Airport consists of parallel, connecting, access and exit taxiways.
Currently, there are two primary taxiways serving the main runway (31R-31L): Taxiway C and Taxiway
W. Both taxiways are 8,500 feet in length and 75 feet wide. ']'here are also 10 connecting, access, and
exit taxiways. The primary taxiway for general aviation runway liL-31 R is Taxiway F. This taxiway is
located northwest of the runway and is 4,952 feet in length and 50 feet wide.
General Aviation Facilities. Two full-service fixed base operators ("FBOs") are located on the Airport,
each of which provides general aviation services for the airlines and other general aviation and cargo
aircraft using the Airport. Signature Flight Support, one of the world's largest flight support operation
and distribution networks for business and commercial aviation services, leases 26.76 acres of land
comprised of office space, conventional hangar space and aircraft ramp space on the west side of the
airfield. On the cast side of the airfield,Atlantic Aviation leases 33.51 acres of land comprised of office
space, conventional hangar space and aircraft ramp space. During seasonal periods approximately 88
general aviation aircraft are stored in hangar and tie down space. FBO fuel storage capacity is 140,000
gallons of Jct-A fuel and 30,000 gallons of 100LL Avgas, stored in above-ground tanks. There are 93
single, multi-engine andjet aircraft parking positions.
Support Facilities An Aircraft Rescue and Firefighting facility is located directly west of the air traffic
control tower. Federal Aviation Regulation 139.49 requires that every airport have available during air
carrier operations adequate fire fighting and rescue equipment and trained personnel. The Airport meets
the requirements for certification as an Index"C"airport.
13
Capital Improvement Plan
The number of passengers who can be accommodated on an annual basis at the Airport is constrained by
the size of certain existing terminal facilities. While the Airport has undertaken a number of capital
projects to increase its flight capacity, expansion of the ticketing wing and baggage claim must occur in
order for the Airport to reach the enplanement levels projected in "APPENDIX C — AIRPORT
CONSULTANT'S REPORT." With its current configuration of terminal facilities, the Airport can
accommodate approximately 900,000 enplanements annually, or about 90,000 enplanements over the
2007 level. At the highest level, the Airport Consultant has projected approximately 1,650,000 in annual
enplanements.
Consistent with the Airport's Master Plan prepared in 2003 and the Airport's recent Targeted
Development Plan, in order to accommodate the Airport's potential for enplanements, the additional
facilities must be constructed, which may include-
• 39,000 square foot expansion of terminal building/ticketing wing;
30,000 square foot remote baggage screening facility; and
• 35,000 square foot customs facility with expanded baggage claim area.
The cost of the expanded terminal building/ticketing wing is estimated at $11.5 million, the remote
baggage screening facility is estimated to cost $10.1 million and the customs facility with expanded
baggage claim area is estimated to cost $24.5 million, for a total of$46.1 million. Between 2007 and
2011 the Airport anticipates it will receive a total of $175 million in Airport Improvement Program
entitlements that could be expended for such projects, and will need other funding sources of $28.6
million to complete the facilities. Approximately $23 million would come for general airport revenue to
provide the Airport's required local matching funds and the remaining S26.3 million is anticipated to be
allocated to the Airport from federal(non-PAA)grants. I'hure is no assurance that the entitlement funding
will continue at its current level or that the grants needed to complete the facilities will be awarded to the
Airport at the level anticipated. If that were the case, the Airport would need to find other funding-
sources to complete the improvements.
16
.. a000�s
Historical Passenger Activity
Classified as a small hub by the Federal Aviation Administration, the Airport is primarily an origination
and destination airport. As shown in Table No. 1, prior to September 11, 2001, passenger enplanements
increased at an average annual rate of 3.4% since 1990, from 457,000 in 1990 to 642,000 in 2000, with
the largest growth occurring between 1995 and 1996, when the annual growth was over 18%. Between
2000 and 2002, enplanements decreased by 87,000 or 14%. Since 2003, enplanements are near or above
their pre-September 11, 2001 levels. In comparison, passenger enplanements at the Airport increased at
an average of 1.2% between 2000 and 2004, while U.S. domestic airports have decreased at an annual
average rate of 0.5%and U.S. small hub airports have increased at an average annual growth rate of 0.7%
over the same period. For the 2005-2007 period, passenger enplanements at the Airport increased an
average 6.3%,compared with the national growth average for domestic traffic of 1.5%.
TABLE NO. 1
PALM SPRINGS INTERNATIONALAIRPOI1T
HISTORICAL ENPLANEMENTS
Calendar Enplaned %
Year Passen¢ers Change
1990 457,012
1991 426,867 (6.6%)
1992 440,548 3.2%
1993 426,415 (3.2%)
1994 486,644 14.1%
1995 471,662 (3.1%)
1996 559,618 18.6%
1997 587,085 4.9%
1998 629,473 7.2%
1999 634,660 0.8%
2000 642,458 12%
2001 589,450 (8.3%)
2002 556,028 (5.8%)
2003 626,409 12.7%
2004 687,161 9.7%
2005 713,479 3.8%
2006 765,109 7.2"%
2007 805,546 5.2%
Source: Palm Springs International Airport.
Major airline carriers have historically represented approximately 60%of enplanements. See Table No. 3
for additional information on carriers and market share.
17
A monthly comparison between calendar years 2003 and 2007 shows enplanements increasing at 9.7% in
2004,3.8% in 2005, 7.2% in 2006 and 5 2% in 2007.
TABLE NO.2
PALM SPRINGS INTERNATIONAL AIRPORT
ENPLANEMENTS,2003 THROUGH 2007
2003 2004 2005 2006 2007
January 64,664 68,736 71,100 78,891 84,749
February 71274 80,849 83,792 84,693 91,204
March 89,464 96,084 103,017 103,702 115,392
April 74,800 80,319 82,766 91,907 96,244
May 47,001 53,719 53,825 60,028 62,765
June 32,270 33,727 37,434 39,313 41,159
July 26,855 30,150 30,537 35,566 36,120
August 26,551 29,383 29,938 32,867 36,039
September 31,087 33,331 37,484 39,989 37,324
October 44,032 52,469 50,723 56,200 54,978
November 59,121 65,568 68,849 71,018 77,783
December 59 290 62,826 65,014 70.935 71.989
626,409 687,161 713,479 765,109 805,546
Source: Palm Springs International Airport.
January 2008 enplanements were 83,086 and February 2008 enplanements were 94,299. For a further
discussion of projected enplanements for 2008 and future years, sec "APPENDIX C - AIRPORT
CONSULTANT'S REPORT:'
As shown in Table No. 2, passenger activity at the Airporl is highly seasonal. During the six-month
period November through April (the peak season), passenger activity usually represents approximately
67% of total annual passenger enplanements. March, the peak month, in a typical year, has over three
times the passenger activity as July or August. However, since 1990, passenger enplanements in the off-
peak months, May through December, have risen at nearly twice the rate as enplanement growth during
the peak season. This is primarily due to increased tourism and convention center activity as a result of
discounted hotel and golf rates during the off-season months.
i8
000091
Airline Market Share
The Airport is served by over a dozen airlines, shown in the following table.
Table No.3 shows passenger enplanemelns by airline between 2004 and 2007 on a calendar year basis.
TABLE NO.3
PALM SPRINGS INTERNATIONAL AIRPORT
0/6 AIRLINE MARKET SHARE BY AIRLINE
2004-2007
2004 2005 2006 2007
Air Carrier
Air Canada 0.0% 0.0°/ 0.1% 0.8%
Alaska 28.0 27.1 26.1 24,0
American 20.1 20.5 19.7 19.9
ASA 0.0 0.0 0.4 02
Continental Express Jet 3.5 3.6 3.6 2.0
Delta 3.4 3.2 2.0 1.6
Northwest 4.6 4,0 3.3 3.0
United/United Shuttle 0.9 13 1.0 23
WestJet 0.0 1.7 3.7 5.0
Total Air Carriers 60.5 61.4 59.9 58.8
Regional
AllegiantAir 0.0 0.1 03 0.9
American Eagle 6.0 13 0.0 0.0
Harmony 0.0 0.5 0.8 0,4
Horizon 2.1 2.8 2.8 4.7
Miami Air 0.0 0.0 0.0 0.1
MN Airlines(Sun Country) 0.5 0.5 1.0 1.3
SkyWest/Di,Conn 4A 6.5 42 4,9
United Express 18.0 17.5 20.6 193
US Airways(Mesa) 8.5 9.4 10.4 9,6
Total Regional 395 38.6 40.1 41,2
All Airlines 100.0% 100.0% 100.0% 100.0%
Source: Palm Springs International Airport.
19
000022
Passenger Facility Charges
Table No.4 shows passenger enplaneartents on a fiscal year basis,with corresponding PFC Revenues.
TABLE NO.4
PALM SPRINGS INTERNATIONAL AIRPORT
HISTORICAL PFC REVENUES
Fiscal Years Ending.Iune 30
Fiscal Enplaned °/. PFC PFC
Year Passengers Eligible(I' Revenues
1993 427,170 69.7% S 870,509
1994 474,859 92.9 1,287,524
1995 469,662 83.8 1,149,224
1996 543,951 91.2 1,448,382
1997 560,747 932 1,527,494
1998 613,079 86.5 1,554,740
1999 625,322 86.3 1,600,034
2000 654,777 88.1 1,651,957
2001 629,453 88.7 1,631,503
2002 534,038 82.3 1,704,368«'
2003 592,300 81.4 2,131,451
2004 660,370 88.2 2,574,521
2005 705,661 86.1 2,684,312
2006 740,079 89.7 2,906,554
2007 798,088 87.8 3,068,865
n) Certain passengers are not required to pay PFCs. See "SOURUS 01" PAYMENT FOR THE BONUS—The PFC
Program."
t'' The per passenger PFC Charge increased on.January 1,2002 from$3.00 to 5450.
Source: Palm Springs International Airport.
20
0009S3
Historical Operating Results
The following Table Nos. 5 and 6 summarize net assets and operating revenues, operating expenses and
net revenues of the Airport for the five Fiscal Years 2002/03 through 2006/07, prepared by the City on the
basis of its audited financial statements. The audited financial statements of the City, including the results
of the Airport 2nierprise, for the Fiscal Year ended June 30, 2007 are attached hereto as "APPENDIX D"
and should be read in their entirety. Except for the PVC Revenues pledged on a subordinate basis, no
other revenues or assets of the City or the Airport are pledged to payment of the Bonds.
TABLE NO.5
CITY OF PALM SPRINGS
AIRPORT ENTERPRISE FUND STATEMENT OF NET ASSETS
As of June 30
2003 2004 2005 2006 2007
Assets
Curran assets
Cash and Illvesme11ts 4 4,738,539 5 9,472,417 $ 9,G37,307 $ 9,422.515 $ 12,023,515
Receivables
Accounts 577.545 758,871 896,660 826,461 1,377,439
Accrued interest 26,379 32,138 74,456 93,514 123.512
sue From oilier govcnimcllts __ 137n,508 447,008 425.757 277 614
I otal current ms'ets 6712971 107104;a _I_1-134175 10,610,104 13,524,466
Noncurrent assets
Resumed assets
Cash and invcsnncnrs wgll fiscal agents 4010389 4,010,19 4,043.319 3 330237 1906060
Net propenN,plant and equipment 81 626 975 97 196 n39 J6 751 488 86972,865 97.731,737
ether acactss
l lnamortimd dcbnssuancc cost 781,95 744,191 706,531 431 305 411 2R0
Total other met, 781 850 7,14 191 706 i31 431 305 ��I 1 2R0
I oral noncurrent assets 85 637 364 91 396 233 90 794 fr07 90,303,102 101,137,797
ToSal assets L93132185 $107,850.858 $10?535,513 $101344511 $11.5073 W,
(Continued on next page)
21
(Continued from previous page)
2003 2004 200S 2006 2007
Liabilities and NCI ASSctS
1.labihues
cumcIll linhil Rlcs
Accounts payable 4 1,058,195 S 529,505 S 481,065 S 495,521 S 691,377
Accrued wages payable 80,510 111,436 121,149 138,101 146,760
Accrued interest payable 90S,916 898,916 866,556 584,418 792,104
Compensated absences - - 414,527 251,800 311.019
Bonds payable-current portion RO(Lnon R�„j1�0 8R5000 77n,09,f --795(Ion
Total current liabilities 2,847,521 2,369,757 1,768,197 2,239.940 2.7336,260
Lang-term liablllcles
Compensated nb5ences payable 542.534 521.02E 306,135 296,406 31 1 020
Advance from other funds 14R,485 - -
Bonds payable-long-term potion 31 739 793 30 916 902 10 049 RID 29 343 602 27 931 052
Trnl long-term liabilities 32,430.812 31,437,930 30,354,945 26.640,008 28,242.072
Total IIabllInes $15179 333 S 33 907 597 S 33 19.3 242 S 30 R79 Raft 5 10979 332
Net aa5cta
Invested in capital assets,net of related debt 53,879,421 60,383,622 60,567,528 61,620,805 68,505,685
Reserved for debt service - - - - 3,525236
Unrestricted 3,974,431 8,659,649 8,844,743 8,843,858 12,064 290
Total nct assets S 57,853.852 S 59,043271 S 69,412271 5 70464,663 S-8d-095?ll
Ton]liabilities and net assets 593.132_I%5 SI(7.N50.%58 SID2535.513 $IDI.344.511 $115(173.543
Source: City of Palm Springs Financial Statements.
22 000035
TABLE NO.6
CITY OF PALM SPRINGS
AIRPORT ENTERPRISE FUND STATEMWO-OF REVENUES,EXPENSES AND
CHANGES IN FUND NET ASSETS
For the year ended June 30
2003 2004 2005 2006 2007
Operating revenues.
Chargc for sclvl=
Rcmals S 8,120,224 $ 9.822.401 S 8,730,453 S 9,171,047 t l l,311,123
Landing fees 1,500,010 1 535,792 1,571,063 1,580,163 1,744,493
Concessions 46M99 502015 339961 498,180 589,547
Passenger facility charge 2,131,451 2,574,521 2,694,312 2,906,554 3,068,865
Miscellaneous 566354 _56y11019 811,974 61I i12 I394.399
Total operating revenues -,1,77R 638638 14.003,818 14 337 713 14 757 256 _18,098,427
Opel aung e%penses
Personnel services 4 5I9.351 5,609,568 6,125,806 6,077,441 6,276.516
Material and Supplies 175,299 180,457 138,012 190,651 19(1.759
Hear,light and power 901,003 1,051299 1,269,80, 1,443,564 1 721 980
Other charges and services 3,249,333 2929936 208,940 2,862,067 3,707 OfiO
AdmiNS[ratloll 719,371 778,158 835,317 893,900 963,378
Dcpreeiatioll 5,631,451 6049637, 6843�36 7,139.709 7264 R20
Total operating e%penses laaQ4799 16.501,050 IR 090111 IR 60fi 732 _20,020,5i3
Operating lass (2,316.160 124972021 LLZL1491j (3,849,476) f1,922,0R11
NOnoperatmg revenues(expenses)
Investment income 345,705 235,872 389,427 401,302 685,905
Interest expense 0 S92'329) (1,852,300) (1,814,910) (1,547,(,59) (1,611.025)
Gain(loss)on sale of assets - 5,843,000 - - -
Total llonopeiaungievemieS(cspenses) (1,546,924) 4216572. �J 3 (1,146.337) (925,1201
Income(loss)before contributions and transfers (3,862,984) 1,729,370 (5,167,794) (4,995,813) (2,847,206)
'1'ranslers in - 191913
- -
Capital contributions
Capital grants 6,696,737 9,152,771 5,536,794 6,049,205 -
Assets 9anlrlbuled from other funds 123 L(l - - 16 477 754
Change in net assets 2.833,753 11 789,419 369 000 1,052'392 13,630,548
Net asscLs at hcginnmg of year 55,020,099 57 933 R52 69043171 fi9412,271 70,464,6G3
Net assets at end ofyeal SSZ.SSz8.52 $69-043-271 $69.412,271. �7_064-G-U F.8_L09�2ll
Source: City of Palm Springs financial Statements.
23
000026
Management's Discussion of Financial Results
Fiscal Year 2003. Enplanements in 2003 increased by 10.9%, to approximately 592,000. During the
same period, operating revenue increased 8%, while operating expenses increased 10%. The largest
increase was in personnel costs, reflecting a significant increase in funding costs relating to the City's
retirement system. The ratio of net operating revenues, excluding PFC Revenues, to debt service on the
GAR Bonds dropped to .81 times, but the total of combined net operating income and PFC Revenues was
$3.5 million,sufficient to pay all the Airport's debt service obligations(S2,608,461).
Fiscal Year 2004. Enplanements in 2004 increased by 11.5%, to approximately 660,000. Operating
revenue increased 7%, while operating expenses again increased by 10%. The largest increase again was
in personnel costs, reflecting another 87% increase in funding costs relating to the City's retirement
system. Operating expenses were 90% of operating revenue for the fiscal year. Security screening
checkpoint enhancements required additional capital expenditures of S12 million. The Airport sold some
of the surplus property that it owned and had been leasing. The net proceeds of the land sale were
$5,843,000, but the sale of the land resulted in a reduction in lease revenue (included in operating-
revenue)of approximately S400,000 annually. Due to the one-time inclusion of the land sale in operating
revenue,the ratio of net operating revenues, excluding PFC Revenues,to debt service on the GAR Bonds
was well in excess of 1.00 times. The total combined net operating income and PFC Revenues, excluding
the land sale,were S1785 million, sufficient to pay all the Airport's debt service obligations (S2,612,231).
In order to remedy the continuing non-compliance problem with the GAR Bonds Rate Covenant, the
Airport determined to refund the 1992 GAR Bonds with bonds secured solely by PFCs- The Airport
applied to the FAA for approval in the fall of 2004, and FAA approval was received in August 2005.
Fiscal Year 2005. Enplanements in 2005 increased by 6.9%,to approximately 706,000- During the same
period, operating revenue increased 2% and operating expenses increased by 8%. Net operating income
was $639,000, excluding S2,684,000 in PFC Revenues. As a result, operating expenses as a percent of
operating revenue rose to 96%. While landing fees, terminal rents and concession income increased an
average of 50/a, as discussed above, the Airport lost $400,000 in annual lease income as a result of the
above-described sale of property. The Airport implemented a new loading bridge foe in 2004/05 to
partially offset the lost lease income. This provided$185,000 in additional operating income. The largest
increases in operating expenses resulted from a 47% increase in Airport security-related overhead, and
further increases in City retirement funding costs.
The ratio of net operating income, excluding PFC Revenues, to GAR Bonds debt service fell to .38 limes.
Combined net operating income and PFC Revenues, however, was S33 million, sufficient to pay all tile
Airport's debt service obligations of$2.6 million. (As a result of the refunding of the 1992 GAR Bonds
in 2006 described below,the City was able to comply with the Rate Covenant in subsequent years)-
Fiscal Year 2006. Lnplanemcnts in Fiscal Year 2006 increased by 4.9%, to approximately 740,000.
During the same period, operating revenue increased 1.7% and operating expenses increased by 2%. Not
operating income was S383,000, excluding interest income and $2,906,000 in PFC Revenues, which was
the lowest level for net operating income since 1993. As a result, operating expenses as a percent of
operating revenue rose to 97%.
The City refunded the 1992 GAR Bonds, and, subsequently, only the 1998 GAR Bonds were subject to
the Rate Covenant. The ratio of net operating income (excluding PFC Revenues, but including
subordinate obligations and operating fund interest income permitted by the GAR Bonds indenture), to
1998 GAR Bonds debt service was 1.67 times. PFC Revenues alone were sufficient to pay all the
Airport's debt service obligarions of$2.6 million.
24
0000S7
Fiscal Year 2007. Cnplanements in fiscal Year 2007 increased by 7.8%, to approximately 798,000.
During the same period, operating revenue increased 21.8% and operating expenses increased by 11%.
The largest increase in operating revenues related to increase rental car revenues. The largest increases in
operating expenses resulted from a _% increase in . Net operating income was
$1,700,000,excluding interest income, $3,089,000 in PFC Revenues and$596,000 of CFC Revenues. As
a result, operating expenses as a percent of operating revenue fell to 88%.
The ratio Of net operating income (excluding PFC Revenues and CPC Revenues, but including
subordinate obligations and operating fund interest income permitted by the GAR Bonds indenture), to
1998 OAR Bonds debt service was 3.5 times. PFC Revenues alone were sufficient to pay all the Airport's
debt service obligations of$2.4 million. As of June 30, 2007, there were approximately $515,000 of
Remaining Revenues to apply to the July I, 2008 special redemption of 2006 PFC Bonds.
Fiscal Year 2008. Year to date, through February 29, 2008, enplanements have increased 1.8% over the
same eight months ending February 28, 2007. Three months during this same period experienced
declines in enplanements compared to the prior year(September 2007, October 2007 and January 2008).
The Airport Consultant estimates that for the Fiscal Year 2008, enplanements will increase 1.6°/a overall-
The Airport's revenues were budgeted to increase 7% in Fiscal Year 2008, and expenditures were
budgeted t0 increase 11°/n. The ratio of net Operating income (excluding PFC Revenues and CFC
Revenues, but including subordinate obligations and operating fund interest income permitted by the
GAR Bonds indenture)to 1998 GAR Bonds debt service was budgeted to be 1.5 times.
Outstanding Debt
The 1998 PFC Bonds, secured by a first lien on the PFC Revenues, will remain outstanding in the
principal amount of S10,395,000 and the 2006 PFC Bonds, secured by a parity lien on PFC Revenues
with the Bonds, will remain outstanding in the principal amount of SI 1,305,000 after a S500,000 special
redemption on July 1, 2008 font Remaining Revenues attributable to PFC receipts through June 30,
2007. The Airport has also entered into a pledge agreement to make an annual contribution of$115,000
to the City's Assessment District No. 155, through September 2, 2009, payable from net revenues of the
Airport.
Additional Bonds
The City may issue or incur additional indebtedness or other obligations of the City (including leases and
installment sale agreements) and secured by a pledge of and lien on PFC Revenues equally and ratably
with the 2006 PFC Bonds and the Bonds ("Parity Obligations") for the purpose of refinancing the 1998
PPC Bonds,the 2006 PFC Bonds or the Bonds, in the event that the following conditions are met:
0) The City is not in default under The terms of the Indenture.
00 PFC Revenues, as shown by the books of the City for the latest Fiscal Year or any more recent
twelve (12) month period selected by the City ending not more than 60 days prior to the adoption
of the resolution pursuant to which instrument such Parity Obligations are issued or incurred, as
shown by the books of the City, shall have amounted to at least 1.25 times Maximum Aggregate
Annual Debt Service of the 1998 PFC Bonds, the 2006 PFC Bonds, the Bonds and the Parity
Obligations immediately subsequent to the incurring of such additional obligations.
(iii) A reserve account shall be funded or a Qualified Bond Reserve Account Credit Instrument shall
be established for such Parity Obligations, with cash or Permitted Investment,%, which is at least
equal to the least of the maximum annual payments to be made with respect to such Parity
Obligations or 125% of the average annual payments to be made with respect to such Parity
Obligations or 10%ofthe principal amount of such Parity Obligations.
25
MOSS
(iv) The total remaining amount of PFCs available for collection is at least equal to 100%of total debt
service on the 1998 PFC Bonds, the 2006 PFC Bonds, the Bonds and all Parity Obligations,
including the Parity Obligations being issued.
(v) The Parity Obligations shall be redeemed pro-rata with the Bonds and the 2006 PFC Bonds from
Remaining Revenues.
The City cannot issue or incur additional indebtedness or other obligations secured by a pledge of or lien
on PFC Revenues senior to the Bonds and the 2006 PFC Bonds.
Cumulative Cap
Pursuant to the installment sale agreement relating to the 1998 PFC Bonds, any PFC Revenues received
annually in excess of a predetermined cumulative amount ("Cumulative Cap") of PFC Revenues will be
used first to redeem the 1998 PFC Bonds in advance of their stated maturity. The amount in excess of thu
Cumulative Cap is determined on an annual basis. Only after all the 1998 PFC Bonds have been paid or
redeemed will any PFC Revenues in excess of the Annual Cumulative Cap be available on an annual
basis either(a)to pay regularly scheduled principal and interest on the Bonds or(b)to redeem the Bonds
and 2006 PFC Bonds or in certain cases, Parity Obligations, in advance of their scheduled maturity.
However, if there are PFC Revenues remaining under the Annual Cumulative Cap limit after paying
regularly scheduled debt service on the Bonds, the 1998 PFC Bonds and the 2006 PFC Bonds (the
"Remaining Revenues"), such Remaining Revenues will be used to redeem the Bonds and the 2006 PFC
Bonds maturing July 1, 2028, pro-rats, or in certain cases, Parity Obligations. As of June 30, 2007, the
City had received a total of S27,791,437 of PFC Revenues. Table No. 7 below shows the calculation of
the Cumulative Cap and Remaining Revenues assuming no growth in enplanements or PFC Revenues
above the 2008 estimated level. Table No. 9 below shows the calculation of the Cumulative Cap and
Remaining Revenues based on the growth in unplancments and PFC Revenues as forecasted by the
Airport Consultant. If the 1998 PFC Bonds are refunded prior to maturity, the Annual Cumulative Cap
calculation will be eliminated and, correspondingly, Remaining Revenues could increase and early
redemption of Bonds and 2006 PFC Bonds could occur earlier or in a greater amount that projected
herein.
26
ODOQS9
TABLE NO-7
PALM SPRINGS INTERNATIONAL AIRPORT
PROJECTED PFC REVENUES USING 2008 ESTIMATED ENPLANEMENTS
Fiscal Years Ending June 30
Annual PFC
Annual Revenue Available Cumulative
Fiscal Enplaned PFC Cumulative PFC Cumulative Linder Remaining
Year Pamenecrz fU Rcvcnu"s 22 Revenues Can Cumulative Cap Revenues
2009 810,749 S3,071,685 S30.863,122 531.300,000 $3,071.685
2009 810,749 3,071.685 33,93,006 33,950.000 3,071,685 $ 636,685
2010 810,749 3,071,685 37.006,491 36,600,000 2,650,000 851,685
2011 810,749 3,071,685 40.078.176 39.250.000 2.650,000 1,089,042
2012 810,749 3,071.685 43,149,861 41,900.000 2.650,000 1,349,591
2013 810,749 3,071,685 46,221,545 44,550,000 2,650.000 1,633,3N
2014 810,749 3,071,685 49,293,230 47,200,000 2,650,000 1,940,269
2015 810,749 3,071,685 52,364,915 49,950,000 2,650,000 2.270.396
2016 810,749 1071,685 55,436,600 52,500,000 2,650,000 2,623,717
2017 810,749 3.071.685 59,508,284 55,150,000 2,650,000 3.000.230
2018 810,749 3,071,685 61.579.969 57,800,000 2,650,000 3,399,935
2019 810.749 3,071,685 64.651.654 60.450,000 2,650,000 3.822.834
2020 810.749 3,071,685 67,723,339 63,100.000 2,650,000 4,268,925
2021 810,749 3,071.685 70,795,023 65,750.000 2,650,000 4,738,208
2022'3i 810,749 3.071.685 73,866,708 68-400,000 3,071,695 6,234.893
2023 810,749 3.071,685 76.938,393 69,850,000 3,071,685 7,731.578
2024 810.749 3,071,685 80.010.078 71,300,000 3,071,685 9.228,262
2025 810.749 3,071,685 83.081.762 72,750.000 3,071,685 10,724,947
2026 810.749 3,071,685 86,153,447 74,200.000 3,071,685 12.221.632
2027 810,749 2,261,553 88,415,000 75.650,000 2,261,553 12,908,185
2028 810,749 - - 77,100,000 -
Estimated 2008 enplanements.
i'I Assumes 86.5%of passengers pay PFCs,based on a 10 year average.
i31 Assumes that all 1998 PFC Bonds will be redeemed by July 1, 2021 based on amounts received in excess of
Cumulative Cap. However, if not all 1998 PFC Bonds are redeemed prior to 2022, the annual PFC Revenue
available under the Cumulative Cap will only be 51,450,000 until the 1998 PFC Bonds are fully redeemed,
27
. . 000109
Projected Activity and Debt Service Coverage
Attached as "APPCNDIX C" is "Palm Sprints International Airport Market Study and Traffic Forecasts,"
dated March 30, 2006 and"Palm Springs International Airport Market Analysis Update;' dated March 31,
2008 (collectively, the "Airport Consultant's Report") and prepared by SH&E, Inc., Cambridge,
Massachusetts, (the "Airport Consultant"). The City is including the Airport Consultant's Report in
reliance on the expertise of the Airport Consultant.
The Airport Consultant's Report contains forward-looking statements based on a number of assumptions.
The assumptions used reflect the best information currently available to the City and reliance on the
knowledge and experience of the Airport Consultant. The assumptions underlying the Airport
Consultant's Report, however, may not be realized, and the actual results of the operations of the Airport
may vary substantially from those forecast in the Airport Consultant's Report. Reference is made to
"CERTAIN BONDHOLDERS' RISKS" for a discussion of certain regulatory, economic and other factors
that may adversely affect the achievement of the operations of the Airport as forecasted. In the opinion of
management of the Airport, the factors that may have a material adverse effect on operations at the
Airport include(1) a general national economic decline, reducing cxpendilures for discretionary air travel
for vacations and conventions, (2) the departure from operations at the Airport by one or more airlines
currently accounting for a significant percentage of passengers,(3)the bankruptcy of one or more airlines
serving the Airport, (4) high fuel costs, (5) additional terrorist attacks or similar events and (6) further
increases in the costs and inconveniences created by required security measures.
The Airport Consultant's Report should be read in its entirety, and all references to and excerpts from the
Airport Consultant's Report should be analyzed in light of the foregoing statements.
The information in the following tables is taken from the Airport Consultant's Report. The Airport
Consultant has projected enplanement levels using a"Most Likely Case'scenario,a"Low Case'scenario
and a"High Case"scenario.
The Airport Consultant's Most Likely Case scenario projects that enplanements will grow at 1.6%
annually in 2008, 4.1% in 2009, and 42% in 2010, with growth rates Of approximately 3.4% annually
thereafter. Table No. 8 shows Most Likely Case projected passenger enplanements on a fiscal year basis.
The percent of passengers required to pay PFCs is projected to be at least 86.5% (based on the average of
the last 10 years) and PFC charges produce a net S438,after the SO.12 deduction for administrative fees.
28
UO��®T
TABLE NO.8
PALM SPRINGS INTERNATIONAL AIRPORT
PROJECTED EN PLAN EMENTS—MOST LIKELY CASE SCENARIO
Fiscal Years Ending June 30
Fiscal Year Projected Percent
End June 30 Enolanements Increase
2008 S 810,749 1.6%
2009 844,028 4.1%
2010 879,077 A 2%
2011 907,976 3.3%
2012 939,033 3.4%
2013 971,326 3,4%
2014 1,002,480 32%
2015 1,036,800 3.4%
2016 1,076,200 3.8°/
2017 1,116,000 3.7%
2018 1,157,300 3.7%
2019 1,200,100 3.7%
2020 1,244,500 3.7%
2021 1,289,300 3.6%
2022 1,335,700 3.6%
2023 1,383,800 3,6%
2024 1,433,600 3,6%
2025 1,485,200 3,6%
2026 1,537,200 3.5%
2027 1,591,000 3.5%
2028 1,646,700 3,5%
l�l See`"rHE A.I&ORl —Capital Improvement Plan"for a discussion of facilities needed to serve certain passenger
levels,
Source: Airport Consultant's Report,
As shown in Table No. 9 below, the Airport is not expected to exceed the Annual Cumulative Cap until
2009, after which annual PFC Revenues available to pay regularly scheduled debt service on the Bonds
and the 2006 PFC Bonds will be limited to the amounts under the Annual Cumulative Cap. Annual PFC
Revenues received above the Annual Cumulative Cap will be used for the early redemption of the 1998
PFC Bonds, unless or until the 1998 PFC Bonds are refunded.
Receipt of projected PFC RCVBAUC5 in the amounts and at the times projected by the Airport Consultant
depends on the realization of certain assumptions relating to an,traffic demand at the Airport. The City
believes the assumptions upon which the projections are based are reasonable; however, some
assumptions may not materialize and unanticipated events and circumstances may occur(see "CERTAIN
BONDHOLDERS'RISKS")- To the extent that the assumptions are not actually realized, the City's ability
to timely pay principal of and interest on the Bonds may be adversely affected.
29
000162
TABLE NO.9
PALM SPRINGS INTERNATIONAL AIRPORT
PRO.IECTFI) PFC REVENUES AND BOND REDEMPTION
MOST LIKELY CASE SCENARIO
4vailable Amnunts
Annual Cumulative Itnder 1998 PFC 7006 PFC 2008 PFC above 1998 PFC 2006/2008
Fiscal PFC PFC Cumulative Cumulative Bonds Debt Bond.Debt Bonds Debt Cumulative Bonds Remaining PFC Bonds
Ycar R_nnlanements Revenues Revenues Can C.-M Service service"' service 17� Redeemed Revenues Redeemed
2008 810,749 53,071.685 $30,863,122 $31,300,000 $
2009 844,029 3.197,769 34,060,891 33,950,000 110.891 S 105,000
2010 879,077 3,330.559 37,391,450 36,600,000 680,559 660,000
2011 907,976 3.440.049 40,831,498 39,250,000 790,049 765.000
2012 939,033 3,557,714 44,389,213 41,900,000 907,714 880,000
2013 971,326 3,680.063 48,069,275 44,550,000 1,030,063 1,000.000
2014 1,002,480 3,798.096 51.867.371 47,200,000 1.149,096 1,110,000
2015 1,036,800 3,928,124 55.795.496 49,850,000 1,279,124 1,240,000
2016 1,076,200 4,077,399 59.872,895 52,500,000 1,427,399 1,385,000
2017 1,116,000 4,228.189 64.101.084 01 _ _
2018 1,157,300 4,384,663 68,485.746 is
2019 1200,100 4,546.819 73,032.565 m
2020 1,244,500 4,715,037 77,747,602 "1
2021 1,289,300 4,884,771 82,632.373 '4' _
2022 1,335.700 5.060,567 87,692,940 i4i
2023 1383.800 722.060 88,415,000 (4) _ -
ni As projected,after redemption in advance of scheduled maturity from amounts in excess of the Cumulative Cap.
(21 As projected, after redemption in advance of scheduled marunry from Remaining Revenues, on a pro-rata basis. (See "Early Redemption Risk; Limitation
on Receipt of PFC Revenues."
Used to redeem 1998 PFC Bonds.
c4) As projected,the 1999 PFC Bonds would be redeemed in full in 2017,and the Cumulative Cap limitation would no longer be applicable.
Source: Airport Consultant and Financial Advisor.
C
O
h�
CJ
30
CERTAIN BONDHOLDERS' RISKS
The purchase of the Bands involver inve r[nzent risk, ff a risk factor materialises to a sufficient degree, it
could delay or prevent payment of principal of and/or interest on the Bonds. Such risk factors include,
but are not limited to, the following mauers and should he considered, along with other lt?lbrinarion in
this Official Statement, by potential investors.
Limitations of PFC Revenues; Subordinate Status
The Bonds are special obligations of the City payable from PFC Revenues of the Airport on a parity with
the 2006 PFC Bonds. No other revenues of the Airport or the City are pledged to such payment.
Furthermore, the pledge of PFC Revenues to the Bonds is subordinate to a prior pledge to pay the
outstanding 1998 PFC Bonds. Thus, PFC Revenues will be available to pay the Bonds and the 2006 PFC
Bonds only to the extent not needed to pay debt service on the 1998 PFC Bonds. Furthermore, PFC
Revenues may be used both to pay other indebtedness and to redeem the 1998 PFC Bonds. See below
"Required Refinancing" and "Carly Redemption Risk; Limitation on Receipt of PFC Revenues." In the
event of a shortfall in PFC Revenues, the General Fund of the City is not liable for payment of the Bonds
and the City is not obligated to appropriate funds for the payment of the Bonds. Neither the full faith and
credit nor the taxing power of the City is pledged to the payment of the Bonds. No representation or
assurance can be given that PFC Revenues will be generated in amounts sufficient to pay the Bonds when
due.
Collection of PFC Revenues
As described below in "Reduced Authority to Impose the Passenger Facility Charge" and "Carly
Redemption Risk; Limitation on Receipt of PFC Revenues,"the City's ability to collect PFC Revenues is
limited and may be subject to reduction, leading to a special redemption of the Bonds or default on the
Bonds(if the refunding bonds can't be issued).
Airport Security
In the aftennath of September 11, 2001, the FAA mandated stringent new safety and security
requirements, which have been implemented by the City and the airlines serving the Airport. In addition,
Congress passed the Aviation and Transportation Security Act (the "ATSA"), which imposed additional
safety and security measures. Security functions at the Airport related to passenger and baggage
screening have been assumed by the Transportation Security Administration ('TSA"), a part of the U.S.
Department of Homeland Security, established by the ATSA. The City is still responsible for the overall
security of the Airport, which is overseen by the TSA. ATSA mandated numerous additional, unfunded
security requirements. Among other things, the ATSA required that(i)as of January 18,2002, all checked
baggage be screened and that by December 31, 2002 explosive detection screening be conducted on all
checked baggage; (ii) all individuals, goods, property, vehicles and other equipment entering secured
areas of the airports be screened; (iii) security screeners be federal employees, United States citizens and
satisfy other specified requirements; and (iv) that vehicles be parked at least 300 feet from airport
terminals.
The Airport has installed InVision CTX 5500 explosive detection baggage screening machines to provide
for 100%checked baggage screening as mandated by the Aviation Act. To date, a total of three explosive
detection baggage screening machines have been installed at the Airport. TSA paid the cost of acquisition
and installation of the three machines, approximately $3 million. Necessary infrastructure improvements
to the Airport at a cost of$1 million were paid for by the City with no FAA or TSA reimbursement.
31
000104
In addition to the aforementioned security requirements resulting from the ATSA and subsequent
legislation, the TSA has issued additional unfunded mandates by way of TSA security directives. These
include: (i) transmittal to the TSA of personal information on all employees holding an airport-issued
identification badge for the performance of Security Threat Assessment ("STA") and retrieval of STA
results prior to issuing badges and other forms of identification, (H) performance of inspections of all
vendors and vendors products entering the sterile areas of the airport and (iii) reduction of the number of
airport employees authorized to escort visitors in the secured areas. Thus far,the Airport has been able to
meet these requirements without Significant Financial or Operational impact. However, the Airport experts
additional unfunded security directives that may have a greater financial effect. These include controlling
access at the passenger screening exit lanes, which is currently a function of the TSA, and employee
screening. The Airport cannot determine the costs that will be imposed by these mandates.
The Airlines
The Airport's ability to generate PFC Revenues will be affected by the ability of the air carriers to meet
their respective obligations under the Airport Use Agreements, see below "The Airline Use Agreements--
Certain airlines (or their respective parent corporations) are subject to the information reporting
requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, certain
information, including financial information, concerning such domestic airlines or their parent
corporations, is disclosed in certain reports and statement filed with the Securities Exchange Commission
(the"SEC"). Such reports and statements can be inspected at the public reference facilities maintained by
the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; Room 1242 Everett McKinley
Dirksen Building, 219 South Dearborn Street, Chicago, Illinois 60604; and Room 1029, Jacob K. Javits
Federal Building, 26 Federal Plaza, New York, New York 10278; and at the office of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005. Copies of such material can be obtained
from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed areas. In addition, the principal domestic airlines serving the Airport file periodic reports of
financial and operating statistics with the United States Department of Transportation. Such reports can
be inspected at the following location: Office of Aviation Information Management, Data Requirements
and Public Reports Division, Research and Special Programs Administration, Department of
Transportation, Room 4201, 400 Seventh Street, S.W., Washington, D.C. 20590, and copies of such
reports can be obtained from the Department of Transportation at prescribed rates.
Neither the City, the Financial Advisor, the Disclosure Counsel nor the Underwriter makes any
representations as to the accuracy or adequacy of any such information with respect to any airlines. No
airline serving the Airport is obligated to provide any payment of the Bonds. The obligations of the
airlines using the Airport to make certain payments to the City are governed by the Airline Use
Agreements. All Airline Use Agreements will terminate on June 30,2014, unless otherwise extended,and
provide certain limits on the obligation of the airlines to make payments for use of the Airport. See below
"The Airline Use Agreements."
General Factors Affecting the Airline Industry
There can be no assurance that the Airport will maintain in the future airline service volumes comparable
to past years. The financial results of the air transportation industry has encountered substantial volatility
since deregulation in 1978- The financial strength and stability of airlines serving the Airport arc a key
determinant of future airline traffic. The number of enplanements is the most significant factor in
determining PFC Revenues. Future traffic at the Airport is sensitive to a variety of factors, including(1)
economic conditions, (2) the growth in the population and economy of the air trade area, (3) national and
international economic conditions, (4) airline economics and air fares, (5) the availability and price of
aviation fuel, (6) interest rates, (7) airline service and route networks, (8) the capacity of the air traffic
control system, (9) the capacity of the airportlairways system, (10) the regulatory environment, (1I) acts
of terrorism and accidents involving commercial aircraft, (12) future increases in the costs and
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inconveniences created by new security measures required by regulatory authority, and (13) the
bankruptcy of one or more airlines serving the Airport. In addition to the impacts of September 11, 2001
causing slow or negative traffic growth in many areas, increased competition among air carriers,
consolidation and mergers among airlines, airline bankruptcies, increased fuel, labor, equipment and other
costs, and increases in the requirements for and the cost of debt capital have combined recently to
adversely affect the airlines.
Federal Legislation. In 2003, Congress passed the four-year, S60 billion Federal Aviation Administration
reauthorization legislation, VISION-100 Century of Aviation Reauthorization Act (Public Law 108-176)
(the "Vision 100 Act"). The legislation included record funding authorization for the Airport
Improvement Program ("AIP")through Fiscal Year 2007, increasing annual funding from $3.4 billion to
$3.7 billion by Fiscal Year 2007 and maintaining the budget protections that make it difficult for Congress
to appropriate less than full funding for the AIP. The AIP provides federal grants to airports for airport
development and planning, including planning and construction of runways, taxiways, or other airport
facilities, and is a major source of airport capital development funding. The Vision-100 Act did not alter
the PFC cap,keeping it at$4.50 per enplaned passenger.
Proposed FAA Legislation. Following Congress's rejection of the Bush Administration's FAA
reauthorization proposal entitled "Next Generation Air Transportation Financing Reform Act of 2007"
("NextGen Act"), both the House and Senate FAA reauthorization vehicles were introduced by May of
2007. H.R. 2881 was passed by the full House of Representatives in September 2007. The House
legislation raises the PFC cap to $7.00 per enplaned passenger from the current $4.50 per enplaned
passenger. it also authorizes funding for AIP at$3.8 billion in the first year of the four year authorization
and raises this level by 5100 million each subsequent year. Unlike the Administration's proposal of a
hybrid financing system that included cosrbased user fees for turbine-powered aircraft,the House version
includes no new user fees. For General Aviation ("GA"), the bill increases the GA jet fuel tax from 21.8
cents to 30.7 cents per Gallon and increases the GA aas tax from 19.3 cents to 24.1 cents per gallon. The
Administration's proposal included a GA fuel tax increase to 70 cents per gallon. The 1-louse bill also
contains labor language concerning arbitrage rights for Air Traffic Controllers, which has raised a
Presidential veto threat.
The Senate version of the FAA reauthorization, S. 1300, has no PFC cap increases, maintaining the
current 54.50 per passenger cap. It has the same AIP funding authorization provisions as the House
version,but increases the GAjet fuel tax to 49 cents per gallon and keeps the GA gas tax at 193 cents per
Mallon. The Senate bill phases out the 43 cents per gallon commercial jet fuel tax. S. 1300 has been
reported out of the Commerce Committee but as of early 2008 has not been scheduled for floor time.
With the expiration of the current authorization on September 30, 2007, Congress had passed a short-term
extension of FAA's contract authority enablinM it to distribute formula and entitlement grants from the
AIP. The extension expired in late 2007 and was not extended when Congress adjourned in December,
2007. As of February, 2008, Congress has yet to extend FAA's contract authority or approve
reauthorization legislation. Congress did pass an omnibus spending bill for FY 2008 that included
funding for FAA operations and administration, as well as $3,515 billion for the AIP. Without contract
authority provisions, airports nationwide are unable to access the At?funds. Palm Springs has applied for
approximately $13 million in entitlement and discretionary AIP grants.
National Economic Condition. Historically, airline passenger traffic nationwide and at the Airport has
fluctuated with the state of the United States economy and real disposable income levels. Thus, a
downturn in the economy and/or a decline in real disposable income will usually result in a decline in
airline passenger traffic.
Airline Economics and Air Fame . Air fares have an important effect on airline passenger traffic demand,
particularly on price-sensitive "discretionary" travel. Air fares are influenced by airline competition and
33
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operating economics, which arc, in turn, influenced by fuel, labor and other operating costs; debt burdens;
passenger demand; yield management and capacity; market presence;and service levels.
Competition among the airlines Since the deregulation has led to downward pressures on labor and other
operating costs, fare discounting in certain markets and more sophisticated techniques of matching
passenger demand to available aircraft seat capacity, resulting in generally lower air fares and
corresponding increases in passenger volumes in certain areas. In markets where there is elTectivc
competition among airlines, air fare competition tends to stimulate airline traffic demand, but leads to
substantial volatility in the air transportation industry.
Since the mid-1980's, and again after September 11, 2001, a series of airline mergers, takeovers and
bankruptcies have consolidated the airline industry. As a result of this consolidation, competition in
certain markets has decreased. To the extent that such decreased competition leads to higher fares, airline
traffic demand tends to be reduced, particularly with those flying for discretionary purposes. While
airlines will, in general, attempt to increase fares to improve profitability, fare competition is likely to
continue in those markets where there is effective competition among airlines whether through direct
service or through alternative hub-cities. Bankruptcy of any airline serving the Airport may adversely
affect the Airport's ability to collect fees or to enforce its provisions of the Airline Use Agreements.
Effect of Bankrup[ciea on PFC Collecliona. Pursuant to the Aviation Safety and Capacity Expansion Act
of 1990 (Public Law 101-508) and the Aviation Investment and Reform Act for the 21" Century (Public
Law 106-181) (collectively, the "PFC Enabling Acts"), PFCs colleted by the airlines constitute a trust
Fund held for the benef cial interest of the "eligible agency" (the airport) imposing the PFC, except for
any handling fee or retention of interest collected on unremitted proceeds. In addition, federal regulations
require airlines to account for PFC collections separately and to disclose the existence and amount of
fiords regarded as trust fiords for financial statement reporting requirements. The airlines, however, are
permitted to commingle PFC collections with other revenues and also are entitled to retain interest earned
on PFC collections until such PFC collections are remitted to the airports. If an airline is in liquidation or
bankruptcy proceedings, however, it is prohibited from commingling PFC collections with other
revenues. The airlines are statutorily prohibited from granting a security interest in PFC collections to a
third party.
The Vision 100 Century of Aviation Reauthorization Act required an airline that files for bankruptcy
protection, or that has an involuntary bankruptcy proceeding commenced against it, to segregate PFC
revenue in a separate account for the benefit of the eligible agencies entitled to such revenue. Prior to the
amendment of the PFC Enabling Acts that mandated PFCs collected by the airlines to constitute a trust
fund and prior to the passage of the Vision 100 Act, at least one bankruptcy court had indicated that PFC
revenues held by an airline in bankruptcy would not be treated as a trust fund and would instead be
subject to the general claims of such air carrier's unsecured creditors. In connection with another
bankruptcy proceeding after the PFC Enabling Acts and prior to the passage of the Vision 100 Act, a
different bankruptcy court entered a stipulated order establishing that PFCs be set aside in a trust fund for
the benefit of various airports. On February 1, 2006, the FAA issued a Notice of Proposed Rulemaking
that would aniend 14 C.F.R. Part 158 to incorporate the Vision 100 Act changes into the regulations, and
on May 23, 2007, the proposed rulemaking for Section 158,49 of Part 158 became final to provide for the
trust fund status of PFCs as well as to provide that at lest once every day, the airline must sweep its
revenue accounts to transfer PF Revenues into the PFC account. While the Vision 100 Act and the final
regulation should provide some protection for creditors in connection with PFC Revenues collected by an
airline in bankruptcy, no assurances can be given as to the approach bankruptcy courts will follow in the
future.
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Fuel Costs. According to the ATA, fuel is the second largest cost component of airline operations,
exceeded only by labor costs, and continues 10 be an important and uncertain factor of an air carrier's
operating economics. There has been no shortage of aviation fuel since the "fuel crisis" of 1974, but
increases in fuel prices have caused increases in airline operating costs. In recent years, some U.S.
airlines have attempted to pass the higher fuel costs to consumers by increasing the fuel surcharge or
increasing the price of airfares. Some of these attempts have been unsuccessful as many airlines,
particularly the LCCs refused to match the increase. Significant and prolonged increases in the cost of
aviation fuel would have an adverse impact on air transportation industry profitability and hamper the
recovery plans and cost-cutting efforts of certain airlines.
Low Cost Carriers and Low-Fares for Legacy Carriers. The airline industry has gone through a
transition prompted by the proliferation of low-cost carriers ("LCCs") across the country. Published
estimates indicate that LCCs accounted for about 25% of all domestic enplaned passengers flown in the
United States during 2006 and, as a result, pose a competitive threat to the legacy airlines (i.e., large
network, major carriers such as American, United, Delta, Continental and Northwest Airlines) whose unit
costs are significantly higher. Because the LCCs can transport passengers profitably at much lower fares,
the legacy carriers must match those pries or cede passengers to the LCCs. Consequently, the legacy
airlines are seeking to reduce significantly their cost base, bring their capacity more in line with traveler
demand, and find ways to male their operations more efficient. This process had involved some
experimentation by the major airlines into the LCC concept (c.g., United Airlines with Ted Airline), as
well a significant fare reduction and elimination of fare restrictions, and is resulting in major restructuring
of the airline industry that has generally produced lower airfares.
Airline Service and Route Networks. Under the Airline Deregulation Act of 1978, economic regulation of
domestic airline service was phased out between 1978 and 1985. Subject to the availability of airport
facilities, airlines are free to enter or leave air traffic markets at will. Consequently, it is uncertain which
airline will serve particular origin-destination markets.
Air Traffic Control System Capacity. In recent years increased demands by airlines on the air traffic
control system have sometimes resulted in aircraft delays and restrictions on the number of aircraft
movements, including "flow control" on movement in certain air routes between airports and "slot"
restrictions on landings and takeoffs at certain busy airports. Those restrictions affect airline schedules
and passenger enplanements throughout the national airport system. Further demands on the existing air
traffic control system could cause additional delays and restrictions and tend to constrain airline traffic
growth.
Regulatory Environment. The FAA has jurisdiction over flying operations generally, including personnel,
aircraftt, ground facilities and other technical matters, as well as certain environmental matters. Aircraft
noise remains a significant federal and local issue which will require substantial capital investments by
the air transportation industry to meet applicable standards. The Airport Noise and Capacity Act of 1990
set forth guidelines to prohibit the operations of Stage 2 airplanes with a maximum weight in excess of
75,000 pounds to or from any airport in the 48 contiguous Unilcd States and the District of Columbia
after December 31, 1991. The Department of Homeland Security has broad power to promulgate security
regulations that may impose substantial costs on the Airport or the airlines serving the Airport. Such
regulations may in turn discourage air travel relative to other forms of travel.
Acts of Terrorism. Future acts of terrorism or accidents involving commercial aircraft, as well as terror
alerts broadcast by the U.S- Department of Homeland Security, could adversely affect airline passenger
traffic.
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Special Factors Affecting the Airport
PFC Revenues of the Airport are highly dependent upon passengers who are tourists or who are attending
meetings and conventions. The volume of such passengers is sensitive to economic developments, and a
significant downturn in the national economy could significantly reduce such discretionary air travel.
Because of the limitations on the ability of commercial aircraft to take off in high temperatures on the
runways at the Airport at their current length, the operations of the Airport may sometimes be restricted
during summer months. This problem was substantially reduced by the Airport's Runway Extension
Project in 1998.
The Airline Use Agreements
The Airport has entered into a standard form Airline Use Agreement(the "Airline Use Agreement") with
all of the airlines providing substantial service to the Airport. Nun-signatory airlines are non-scheduled
carriers consisting primarily of charter aircraft. The Airline Use Agreements provide for monthly
payments to the Airport of Pecs, calculated annually, based on both landing weight and passenger volume,
designed to cover all operating and substantial capital costs of the Airport. The fees charged to the
airlines ("Obligated Airlines") include amounts for operating expenses and reserves, special capital
project funds and other reserves. While the Airline Use Agreements require approval of the Obligated
Airlines for certain types of capital projects, they do not require approval for other capital projects,
including emergency projects and those funded (by at least 51%) with federal Airport Improvement
Program("AIP")grants.
The Airline Use Agreements permit recalculation of fees in certain circumstances to reflect unanticipated
changes in operations, including revenue shortfalls. Management of the Airport currently believes that
the Airline Use Agreements will not impose any substantial limitations on operations at the Airport in the
immediate future and will permit operations as forecasted by the City. All the Airline Use Agreements,
however,expire on June 30,2014, and any airline may terminate its Airline Use Agreement with 364 days
notice. While the Airport expects to re-negotiate the Airline Use Agreements when they expire,there can
be no assurance that the Airport will be able to continue to pass through and collect costs from the airlines
under the terms substantially similar to those under the current Airline Use Agreements. In recent years
the Airport has chosen not to raise airline fees to the full extent permitted by the Airline Usc Agreements.
See"THE FINANCING PLAN--Plan of Finanoe."
Reduced Authority to Impose the Passenger Facility Charge
When the City was granted authority to impose the PFC under an Imposition and Use Approval (the"Use
Approval"), the FAA had the authority to terminate the City's ability to impose the PFC as well as
eligibility for AIP funds if the FAA determined (i)the City was in violation of certain provisions of Pub.
L. No. 101-508, Title IX, Subtitle D of the Airport Noise and Capacity Act of 1990 relating to noise and
access restrictions, (ii) the PFC was excessive, (iii) that the FAA cannot determine that PFC collections
were being used for approved projects in accordance with the Imposition and Use Approval or with the
Federal Act and Regulations, (iv) implementations of the PFC Project or alternative projects did not
commence within the time period specified in the Federal Act and Regulations or, (v) the City was
otherwise in violation of the Federal Act, the Regulations or the Use Approval. If any approval in
connection with the City's authority to use the PFC Revenues for a specific project was withdrawn or
terminated, the FAA could terminate the City's authority to use the PFC Revenues for that project. The
City has not violated any of the conditions of the Use Approval since it was granted in 1992.
On March 31, 1998, the FAA approved a Supplemental Record of Decision (the "1998 Special
Agreement") that provides, as part of the informal resolution procedures contained in the Federal Act
concerning suspected violations of the Federal Act and the termination of the authority to impose a PFC,
that the FAA will notify the City,the Trustee and the bond insurer of the 1998 PFC Bonds (the "Affected
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000169
Parties") of all suspected violations of the Federal Act and will specify actions necessary to correct the
suspected violations. The City will have 90 days to respond in writing to the FAA and the Affected
Parties. Concurrently,the FAA will instnict the Airlines to remit PFC Revenues directly to the Trustee for
the 1998 PFC Bonds for deposit in the Bond Service Fund for the 1998 PFC Bonds, as a credit to
Installment Payments, and will instruct the Trustee to continue to make debt service payments on the
1998 PFC Bonds using the PFC Revenues remitted directly by the Airlines. All other payments from PFC
Revenues are to be made by the Trustee only at the direction of the FAA. The FAA has agreed not to
issue any instructions that will delay or suspend debt service payments on the Bonds, the 2006 PFC
Bonds and the 1998 PFC Bonds or other debt associated with the PFC approved project during this
informal resolution process. Further, if the City's response does not satisfactorily address the suspected
violations including its proposed actions to correct the suspected violations, the FAA will notify the City
and the Affected Parties that the matter is still unresolved and provide another 90 day response period,
and will describe why the City's response is unsatisfactory and again identify the corrective actions
needed to resolve the suspected violations. The FAA will also notify the City and the Affected Parties
that, lacking a satisfactory response to the notice, the FAA will withhold AIP entitlement grants. If the
City's response to the second notification does not satisfactorily address the suspected violations
including its proposed actions to correct the suspected violations, the FAA will notify the City and the
Affected Parities of its intent to withhold current and future AIP entitlement grants in an amount equal to
the PFC Revenues collected by the City on an annual basis, pending resolution of the violations. Should
any of the suspected violations not be resolved over the course of this informal resolution procedure, the
FAA will be able to commence termination of the City's authority to collect PFCs, subject to the
provisions of the 1998 Special Agreement described below. Pursuant to the Regulations, the formal
termination proceedings are authorized only if the FAA determines that efforts to achieve an informal
resolution are not successful. The process is initiated upon filing a notice of proposed termination which
states the basis for termination and the date for filing comments or objections. The notice is followed by
a 60-day period during which time the FAA may submit further comments and take corrective action. If
corrective action is not Laken in the notice, the FAA shall hold a public hearing at least 30 days after
notifying the City. The FAA shall conduct a hearing and the City will be allowed 10 days after receiving
the notice of the FAA's decision to advise the FAA in writing that it will complete any corrective action
prescribed in the Administrator's decision within 30 days, or provide the FAA with a list of Collecting
Carriers.
The 1998 Special Agreement provides that, in the event that a suspected violation that has not been
satisfactorily addressed in the informal resolution process or in any formal termination procedure, the
FAA will not terminate the City's authority to impose a PFC. The FAA will instead reduce the total
amount of the City's remaining authority to impose and use PFC Revenues to the amount necessary to
pay debt service on any outstanding 1998 PFC Bonds to the earliest date on which the City can redeem
such 1998 PFC Bonds, including the redemption premium (if any) on such date. At such time, the FAA
will direct all PFC Revenues to be deposited in the Redemption Fund for the 1998 PFC Bonds, as a
prepayment of Installment Payments related to the 1998 PFC Bonds, and used to redeem the 1998 PFC
Bonds. There is no corresponding agreement with the FAA with respect to the Bonds and the provisions
of the 1998 Special Agreement will terminate if the 1998 PFC Bonds are paid in full. If the informal
resolution procedure is nor effective, the City's authority to collect PFC Revenues sufficient to pay the
Bonds will be terminated. if this occurs, Bondholders must rely on the City to pay annual debt service or
to refinance the Bonds using general airport revenues(see"Required Refinancing" below).
If the City violates the provisions of the Airport Noise and Capacity Act of 1990, there are significant
procedural safeguards to ensure that the City's authority to impose a PFC would not be summarily
terminated. Most significantly, the City can under any circumstances prevent termination of the PFC
authority by suspending the effectiveness of any noise or access restriction in question, until the legal
sufficiency of the restriction, and its impact on the City's authority to impose a PFC, has been determined.
37
If the FAA determines that revenue derived from a PFC is excessive or is not being used in accordance
with the Pederal Act, the FAA may offset such amounts as may be necessary to ensure compliance with
the Federal Act against federal grants payable to the City under the Airport and Airway Improvement Act
of 1982.
Required Refinancing
If the authorization to collect PFC Revenues is terminated with respect to the Bonds and the 2006 PFC
Bonds as described under "Reduced Authority to Impose Passenger Facility Charge" above, the City's
ability to pay any remaining principal of the Bonds and the 2006 PFC Bonds would be primarily
dependent on the City's ability to either pay debt service from general revenues of the Airport or to issue
and sell refunding obligations secured by general revenues of the Airport. While the City believes that it
could raise rates and charges, including landing fees, of the Airport in sufficient amounts to produce
adequate net revenues of the Airport to enable the City to issue refunding bonds in an amount sufficient to
pay all the principal of the Bonds, a variety of factors could adversely affect its ability to do so, and any
such refunding would likely require a sub+tantial increase in rates and charges. Net revenues of the
Airport could be reduced for any of the reasons described above under the heading "General Factors
Affecting the Airline Industry." In addition, since September 11, 2001, the Airport has been reluctant to
raise rates and charges to meet the Rate Covenant prescribed for the 1998 GAR Bonds and the 1992 GAR
Bonds, and as described herein, which required rates and charges to produce net revenue sufficient to pay
debt service on the GAR Bonds, excluding PFC Revenues. This reluctance was due primarily to the fact
that the PFC Revenues were nearly sufficient to pay 100% of debt service on all outstanding bonds
without any use of net revenues, and an increase in rates and charges to generate extra net revenue with a
result of possibly causing airlines to leave the market was determined to be detrimental to overall airport
operations after September 11, 2001. The Rate Covenant was not met for fiscal year 2002/03 or fiscal
year 2004/05. For the current 2007/08 fiscal year, the City projects that the Airport will generate net
revenues of S725,000 with which to pay debt service on 1998 GAR Bonds of S558,000. The combined
debt service on the 2006 PFC Bonds and the Bonds will be approximately $1,600,000. Currently, the
Airport uses PFC Revenues to pay all of the debt service on the 1998 PFC Bonds, the 2006 PFC Bonds
and the 1998 GAR Bonds.
As an alternative to refunding the Bonds, the City may choose to annually pay debt service on the Bonds
from general airport revenue, if available.
Early Redemption Risk; Limitation on Receipt of PFC Revenues
The City's PFC Use Approval limits the cumulative amount of PFC Revenues that the Airport can collect
to $88.4 million (the "PFC Limit") of which S27.8 million had been collected through June 30, 2007.
Upon the issuance of the Bonds, the PFC Limit will be reduced to an amount equal to the total principal,
interest and redemption premium (if any) on the Bonds, the 1998 PFC Bonds and the 2006 PFC Bonds,
plus certain administration costs. This total is expected to be approximately S78 million. Based on the
Airport Consultant's projections, the City currently anticipates that the PFC Limit will be reached in or
prior to Fiscal Year 2022/2023, but the City cannot provide any assurance when this will occur. The
Indenture provides, among other things, that the City will cause to be prepared and filed with the'I rustec
annually, on or before November 15 of each year, commencing November 15, 2008, a Report prepared by
an Independent Financial Consultant demonstrating the availability of sufficient PFC Revenues to pay
debt service on all Outstanding Bonds,the 2006 PFC Bonds, and 1998 PFC Bonds.
The Report shall set forth:
(a) the actual amount of cumulative PFC Revenues received to date as of June 30 in the immediately
preceding Fiscal Year, beginning June 30, 2008,
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(b) the amount of cumulative PFC Revenues which had been projected to have been received to date
as of June 3o in such immediately preceding Fiscal Year beginning June 30, 2008 (the
"Cumulative Cap"),
(c) the amount for such Fiscal Year by which (a) exceeds (b), which represents the amount of PFC
Revenues to be applied to the redemption of the 1998 PFC Bonds,
(d) the amount for such Fiscal Year available under the Cumulative Cap available for debt service on
the 1998 PFC Bonds,the 2006 PFC Bonds,the Bonds,and Parity Obligations, if any,and
(c) the debt service on the 1998 PFC Bonds, the 2006 PFC Bonds, the Bonds Parity Obligations, if
any_
The difference between(d)and(e) is referred to herein as the"Remaining Revenues."
To the extent that there are any Remaining Revenues, the Report shall set forth the principal amount of
the Bonds and the 2006 PFC Bonds maturing on July 1, 2028 (to the nearest integral multiple of$5,000),
pro-rats, that must be redeemed in order that sufficient remaining PFC Revenues will be available to
timely pay future Annual Debt Service on all Outstanding Bonds,the 2006 PFC Bonds,and the 1998 PFC
Bonds, and Parity Obligations, if any (the "Redemption Amount"). The City shall notify the Trustee of
the Redemption Amount and the City should pay to the Trustee and the Trustee shall deposit any
Redemption Amount in the Special Redemption Account to be applied on each July 1 to the special
mandatory redemption of the Bonds maturing July 1, 2027 and the 2006 PFC Bonds maturing on July 1,
2028. See "APPENDIX B — SUMMARY OF THE LEGAL DOCUMENTS - THE INDENTURE — Certain
Covenants - Covenants of the City Relating to the Use Approval and Collection of PFC Revenues" and
"THE BONDS—Redemption;Acceleration; Defeasance" herein.
The City anticipates that there will be Remaining Revenues in each fiscal year. Accordingly, owners of
the Bonds should expect that a portion of these Bonds will be called by lot for special redemption on each
July 1, commencing July 1, 2009. However, the City can provide no assurance as to the amount of
principal, if any, of the Bonds that may be called on any particular July 1 special redemption date of any
year.
Airport Consultant's Report
Attached as "APPENDIX C" is "Palm Springs International Airport Market Study and Traffic Forecasts,"
dated March 30,2006 and"Palm Springs International Airport Market Analysis Update,"dated March 31,
2008 (the "Airport Consultant's Report") and prepared by SH&E, Inc., (the "Airport Consultant")- The
City is including the Airport Consultant's Report in reliance on the expertise of the Airport Consultant.
The Airport Consultant's Report comains forward-looking statements based on a number of assumptions.
The assumptions used to reflect the best information currently available to the City and reliance on the
knowledge and experience of the Airport Consultant. The assumptions underlying the Airport
Consultant's Report, however, may not be realized, and the actual results of the operations of the Airport
may vary substantially from those forecast in the Airport Consultant's Report. Reference is made to
"CERTAIN BONDHOLDERS' RISKS" for a discussion of certain regulatory, economic and other factors
that may adversely affect the achievement of the operations of the Airport as forecast_ In the opinion of
management of the Airport, the factors that would most likely have a material adverse effect on
operations at the Airport include (1) a general national economic decline, reducing expenditures for
discretionary air travel for vacations and conventions, and (2) the departure from operations at the Airport
by one or more airlines currently accounting for a significant percentage of passengers.
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The Airport Consultant's Report should be read in its entirety, and all references to and exccrpis from the
Airport Consultant's Report should be analyzed in light of the foregoing statements.
Loss of Tax Exemption
As discussed under the caption "LEGAL MATTERS - Tax Matters" herein, interest on the Bonds could
become includable in gross income for purposes of federal income taxation retroactively to the date the
Bonds were issued as a result of future acts or omissions of the City in violation of its covenants
contained in the Indenture. Should such an event of taxability occur,the Bonds are not subject to special
redemption or any increase in interest rate and will remain outstanding until maturity or until redeemed
under one ofthe redemption provisions contained in the Indenture.
Secondary Maricet
There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market
exists, that such Bonds can be sold for any particular price. Occasionally, because of general market
conditions or because of adverse history or economic prospects connected with a particular issue,
secondary marketing practices in connection with a particular issue are suspended or terminated.
Additionally, prices of issues for which a market is being made will depend upon then prevailing
circumstances. Such prices could be substantially different from the original purchase price.
40
0001.13
LEGAL MATTERS
Enforceability of Remedies
The remedies available to the Trustee and the Owners of the Bonds upon an event of default under the
Indenture, or any other document described herein are in many respects dependent upon regulatory and
judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions,
the remedies provided for under such documents may not be readily available or may be limited. The
various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified to the
extent that the enforceability of certain legal rights related to the Indenture is subject to limitations
imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors
generally and by equitable remedies and proceedings generally.
Approval of Legal Proceedings
Jones Hall, A Professional Law Corporation, San Francisco, California, as Bond Counsel, will render an
opinion which states that the Bonds are valid and binding obligations of the City and are enforceable in
accordancc with their terms. The legal opinion of Bond Counsel will be subject to the effect of
bankruptcy, insolvency, moratorium and other similar laws affecting creditors' rights and to the exercise
ofjudicial discretion in accordance with general principles of equity.
'I"he City has no knowledge of any fact or other information which would indicate that the Indenture is not
so enforceable against the City except to the extent such enforcement is limited by principles of equity
and by state and federal laws relating to bankruptcy, reorganization, moratorium or creditors' rights
generally.
Certain legal matters will be passed on for the City by Woodruff, Spradlin & Smart, P.C., as City
Attorney. In addition, certain legal matters will be passed on for the City by Hunton & Williams LLP,
Richmond, Virginia, as Disclosure Counsel. Fees payable to Bond Counsel and Disclosure Counsel are
contingent upon the sale and delivery of the Bonds.
Tax Matters
Upon execution and delivery of the Bonds, Jones Hall, A Professional Law Corporation, San Francisco,
California, Bond Counsel will opine that based on existing statutes, regulations, rulings and court
decisions, interest on the Bonds is excludable from gross income for federal income tax purposes except
during any period wherein a Bond is held by a "substantial user" of the facilities financed by the 1998
GAR Bonds or a"related person"as those terms are used in Section 147(a) of the Internal Revenue Code
of 1986, as amended(the"Code"), and is exempt from State of California personal income taxes. A copy
of the proposed opinion of Bond Counsel is set forth in"APPENDIX G" hereto.
The Code imposes various restrictions, conditions and requirements relating to the excludability from
gross income for federal income tax purposes of interest on obligations such as the Bonds. The City has
covenanted to comply with certain restrictions designed to assure that interest on the Bonds will not be
includable in federal gross income. Failure to comply with these covenants may result in interest on the
Bonds being includable in federal gross income, possibly from the date of issuance of the Bonds. The
opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to
determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or nor
occurring) after the date of issuance of the Bonds may affect the value of, or the tax status of interest on
the Bonds. Further, no assurance can be given thar pending or future legislation or amendments to the
Code, will not adversely affect the value of, or the tax status of interest on, the Bonds. Prospective
owners are urged to consult their own tax advisors with respect to proposals to restructure the federal
income tax.
41 hh
000UA
Bond Counsel is further of the opinion that interest on the Bonds is a specific preference item for
purposes of the federal individual or corporate alternative minimum taxes.
Prospective purchasers of the Bonds should be aware that(i) with respect to insurance companies subject
to the tax imposed by Section 831 of the Code, Section 832(b)(5)(B)(i) reduces the deduction for loss
reserves by 15 percent of the sum of certain items, including interest with respect to the Bonds, (ii)
interest with respect to the Bonds earned by certain foreign corporations doing business in the United
States could be subject to a branch prolils tax imposed by Section 884 of the Code, (iii) passive
investment income, including interest with respect to the Bonds, may be subject io federal income
taxation under Section 1375 of the Code for subchapter S corporations having subchapter C earnings and
profits at the close of the taxable year and gross receipts more than 25% of which constitute passive
investment income, and (iv) Section 86 of the Code requires recipients of certain Social Security and
certain Railroad Retirement benefits to take into account, in determining gross income, receipts or
accruals of interest on the Bonds_
Bond Counsel is further of the opinion that the difference between the principal amount of the Bonds
maturing on and (the "Discount Bonds") and the initial offering price to
the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of
underwriters or wholesalers) at which price a substantial amount of such Discount Bonds was sold
(excluding amounts stated to be interest and payable ai least annually over the term of such Discount
Bonds) constiitnes original issue discount which is excludable from gross income for federal income tax
purposes to the same extent as interest on the Bonds. Further, such original issue discount accrues
actuarially on a constant interest rate basis over the terns of each Discount Bond and the basis of such
Discount Bond acquired at such initial offering price by an initial purchaser of each Discount Bond will
be increased by the amount of such accrued discount.
The Code contains certain provisions relating to the accrual of original issue discount or premium in the
case of purchasers of the Discount Bonds who purchase such Discount Bonds after the initial offering of a
substantial amount thereof. Owners who do not purchase such Discount Bonds in the initial offering at
the initial offering prices should consult their own iax advisors with respect io the tax consequences of
ownership of such Discount Bonds. All holders of the Discount Bonds should consult their own tax
advisors with respect to the allowance of a deduction for any loss on a sale or other dispositions to the
extent that calculation of such loss is based on accrued original issue discount.
Certain agreements, requirements and procedures contained or referred to in the Indenture and other
relevant documents may be changed and certain actions may be taken or omitted under the circumstances
and subject to the terms and conditions set forth in those documents, upon the advice or with the
approving opinion of nationally recognized bond counsel. Bond Counsel expresses no opinion as to any
Bond or the interest payable with respect thereto i f any change occurs or action is taken or omitted upon
the advice or approval of counsel other than Bond Counsel.
Although Bond Counsel has rendered an opinion that interest on the Bonds is excludable from federal
gross income, and is exempt from Stale of Cali fomia personal income taxes, the ownership Or disposition
of the Bonds, and the accrual or receipt of interest on the Bonds may otherwise affect an Owner's siaie or
federal tax liability. The nature and extent Of these other tax consequences will depend upon each
Owner's particular tax status and the Owner's other items of income or deduction. Bond Counsel
expresses no opinion regarding any such other tax consequences.
42
Absence of Litigation
The City will furnish a certificate dated as of the date of delivery of the Bonds stating that there is not
now known to be pending or threatened any litigation restraining or enjoining the execution or delivery of
the Indenture or the sale or delivery of the Bonds or in any manner questioning the proceedings and
authority under which the Indenture is to be executed or delivered or the Bonds are to be delivered or
affecting the validity thereof:
CONCLUDING INFORMATION
No Rating on the Bonds
The City has not made, and does not contemplate making, any application for a rating on the Bonds. No
such rating should be assumed based upon any other City rating that may be obtained. Prospective
purchasers of the Bonds are required to make independent determinations as to the credit quality of the
Bonds and their appropriateness as an investment. Should a Bondholder elect to sell a Bond prior to
maturity, no representations or acsuranecs can be made that a market will have been established or
maintained for the purchase and sale of the Bonds. The Underwriter assumes no obligation to establish or
maintain a market for the purchase and sale of the Bands and is not obligated to repurchase any of the
Bonds at the request of the holder thereof.
Underwriting
The Bonds were sold to Stone &Youngberg I,LC, who is offering the Bonds at the prices set forth on the
inside front cover page hereof. The initial offering prices may he changed from time to time and
concessions from the offering prices may be allowed to dealers, banks and others. The Underwriter has
purchased the Bonds at a price equal to$ ,which amount represents the principal amount of the
Bonds, less an original issue discount of$ and less an Underwriter's discount of S (or
_% of the principal amount of the Bonds). The Underwriter will pay certain of its expenses relating to
the offering.
The Financial Advisor
The material contained in this Official Starement was prepared by the City with the assistance of the
Financial Advisor who advised the City as to the financial structure and certain other financial matters
relating to the Bonds. The information set forth herein has been obtained from sources, which are
believed to be reliable, but such information is not guaranteed by the Financial Advisor as to accuracy or
completeness, nor has it been independently verified. Fees paid to the Financial Advisor are contingent
upon the sale and delivery of the Bonds.
Experts
The Airport Consultant's Report prepared by SH&E, Inc., Cambridge,Massachusetts, has been included
in this Official Statement in reliance on its expertise in the matters covered therein.
40
Verifications of Mathematical Computations
Grant Thornton LLP, Minneapolis, Minnesota will verify from the information provided to them the
mathematical accuracy as of the date of the closing on the Bonds or(l)the computations contained in the
provided schedules to determine that the anticipated receipts from the securities and cash deposits listed
in the schedules prepared by the Financial Advisor, to be held in escrow, will be sufficient ro pay, when
due,the principal and interest requirements of the 1998 GAR Bonds, and (2)the computations of yield on
both the securities and the Bonds contained in the provided schedules used by Bond Counsel in its
determination that the interest on the Bonds is exempt from tax. Grant Thornton LLP will express no
opinion on the assumptions provided to them, nor as to the exemption from taxation of the interest on the
Bonds.
Continuing Disclosure
The City will covenant to provide annually certain financial information and operating data relating to the
City by not later than nine months after the end of the City's fiscal year, each year commencing March 31,
2009 and to provide the audited General Purpose Financial Statements of the City for the fiscal year
ending June 30, 2008 and for each subsequent fiscal year when they are available (together, the "Annual
Reporl"), and to provide notices of the occurrence of certain other enumerated events if deemed by the
City to be material. The Annual Report will be tiled by the Trustee on behalf of the City with each
Nationally Recognized Municipal Securities Information Repository certified by the Securities and
Exchange Commission (the"Repositories") and a State repository, if any, and may also be obtained from
the Trustee. The notices of material events will be timely filed by the City with the Municipal Securities
Rulemaking Board and the State repository, if any. The specific nature of the information to be contained
in the Annual Report or the notices of material events and certain other terms of the continuing disclosure
obligation are set forth in"APPENDIX E-FORM OF CONTINUING DISCLOSURE CERTIFICATE':'
The City has never failed to comply in all material aspects with its previous continuing disclosure
undertakings.
Additional Information
The summaries and references contained herein with respect to the Indenture, the Bonds, statutes and
other documents, do not purport to be comprehensive or definitive and are qualified by reference to each
such document or statute and references to the Bonds are qualified in their entirety by reference to the
form hereof included in the Indenture. Copies of the Indenture are available for inspection during the
period of initial offering on the Bonds at the offices of the Financial Advisor or the Underwriter. Copies
of these documents may be obtained after delivery of the Bonds from the City through the Director of
Finance and Treasurer, 3200 G.Tahquitz Canyon Way, Palm Springs, California 92262.
References
Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated,
are intended as such and not as representations of fact. This Official Statement is not to be construed as a
contract or agreement between the City and the purchasers or Owners of any of the Bonds.
44
OOO117
Execution
The execution of this Official Statement by the City Manager of the City has been duly authorized by the
City of Palm Springs.
CITY OF PALM SPRINGS
By:
City Manager
45 000118
APPENDIX A
THE CITY OF PALM SPRINGS INFORMATION STATEMENT
General Information
The City of Palm Springs encompasses 96.2 square miles in Central Riverside County, including
approximately 13.3 square miles annexed in 1994. The City is located 108 miles east of downtown Los
Angeles and 120 miles west of the Arizona border. Neighboring communities include Palm Desert,
Rancho Mirage, Desert Hot Springs and Cathedral City.
A major Southern California resort destination, Palm Springs attracts both local vacationers, distant
"snowbirds" and permanent retirees. Palm Springs is very much an event-oriented city. The Palm
Springs International Film Festival is an annual event. With premieres, parties, conferences and
celebrations,this festival epitomizes the Palm Springs lifestyle.
Palm Springs area is well known for its championship golf courses. The Bob Hope Chrysler Classic, the
Kraft Nabisco Championship and the Frank Sinatra Celebrity Invitational Golf Tournament are three well-
publicized celebrity events. With over 80 golf courses in the Palm Springs area, the Professional Golf
Association (PGA)holds toumamentb in the area several limes throughout its annual tour.
There are over 160 hotels and inns within the Palm Springs area offering 6,500 rooms. Accommodating
vacationers and visitors plays a major role in the City's economy, providing a significant amount of
transient occupancy tax and sales tax. The IIard Rock Cafe and Mondrian Hotels have each announced
plans to build new hotels near the City's Convention Center.
Government Organization
The City of Palm Springs was incorporated as a general law city on April 20, 1938, and, operates under
the council/manager form of govcmmenl. it became a charter city on July 12, 1994, The City is
governed by a live-member council consisting of four members and a Mayor, each elected at large for
four-year alternating terms. Positions of City Manager and City Arorney are filled by appointments of
the Council. The City of Palm Springs currently employs approximately 485 staff members including
sworn officers and fire personnel. The members of the City Council, the expiration dates of their terns
and key administrative personnel are set forth below.
CITY COUNCIL
Council Member Term Expires
Stephen Pougnet,Mayor November 2011
Cinny Feat,Mgvur Pro-Tens November 2009
Rick Hutcheson tcheson November 2011
Christopher Mills November 2009
Lee Weigel November 2011
A-1
.0001019
CHIEF ADMINISTRATIVE PERSONNEL
David H. Ready, Ph.D., Esq., City Manager
Thomas Nolan, A.A.E.,Airport Executive Director
Troy L- Butdaff,Assislan[ City Manager -Administrotrne Services
Thomas Wilson,Asaittanl City Manager-Development Services
Geoffrey Kiehl,Director of Finance and Tiemuirer
Dave Barakian, Director of Public Works/City Engineer
John S. Raymond,Director of Community&Economic Development
James Thompson,City Clerk
Governmental Services
Public Safely and Welfare
The City of Palm Springs Police Department consists of 95 sworn police officers and 61.5 non-sworn
personnel providing patrol, traffic, animal control and investigations. There are five fire stations located
in and operated by the City, staffed by 55 fire personnel. The City also provides parking control in the
downtown business district.
Public Sendcer
Water is supplied to Palm Springs by the Desert Water Agency. Sewer service is provided by the City.
Although the City operates two cogeneration racilitics which provide electricity to certain municipally
owned facilities, Southern California Edison provides electricity to the citizens of the City of Palm
Springs. The City awns and operates the Palm Springs International Airport, with 6 major airlines and 8
commuter airlines servicing over IA million passengers in 2006.
Community Services
Other services provided by the City include building permit and inspection, planning and zoning,
landscape and public infrastructure maintenance, street cleaning, traffic signal maintenance, municipal
code compliance and rent control.
Parks and Recreation
The City operates the Library Center, a 33,000 square foot facility with over 150,000 volumes available,
as well as extensive computer links. The Village Green, located in the heart of downtown Palm Springs,
includes the Historical Society Museum, the Cornelia White historical site and Ruddy's General Store
Museum. The Palm Springs Department of Parks and Recreation provides citizens with a variety of park
and recreational services on a year round basis. Facilities include two community centers, seven parks,
totaling 142 developed acres,an Olympic size community pool, twelve tennis courts, the 18-hole Tahquitz
Creek - Legends golf course and the 18-hole Tahquitz Creek - Resort golf course, a 30,000 square Feet
skate park and five playgrounds, as well as biking and hiking trails. In addition, the City also owns
Frances Stevens Park, which is home to Palm Canyon 'Theatre, a regional Actors Equity theatre, and an
art/festival center.
A2 000120
Community Facilities and Services
The Coachella Valley has two large school districts and five smaller districts. The City of Patin Springs is
served by the Palm Springs Unified School District, with 14 elementary schools, 3 comprehensive high
schools, 2 continuation high schools, 1 independent study program, 7 State preschools, 10 Head Start
programs, J daycare programs, and an extensive adult education program serving the City. In addition,
higher education within the Coachella Valley includes the College of the Desert, a local accredited junior
college, located 10 miles southeast of Palm Springs, in the City of Palm Desert. Also, in the nearby City
of Palm Desert, a satellite campus of California State University, San Bernardino (CSUSB) offers
curriculum towards a B.A. in various disciplines as well as Bachelor of vocational education;special B.A.
in paralegal administration, and 6 masters degree programs, including education and public
administration. Teaching credentials are also available. In addition, CSUSB is currently working with
local government agencies to select a site for a permanent independent campus in the Coachella Valley.
A variety of health services from dentists, physicians and surgeons, chiropractors, and optometrists are
available to serve Palm Springs and its adjacent communities. Also available are clinics, medical and
dental groups. The Desert Pe.-ional Medical Center is located in Palm Springs and contains a total bed
capacity of 350 beds.
Serving Palm Springs are one main library, twelve theaters and such attractions as the Palm Springs
Desert Museum, the Palm Springs Historical Museum, the Living Desert Reserve, Moorten's Botanical
Gardens, and the Palm Springs Aerial Tramway. Rising 5,516 feet to a mountain station, the Aerial
Tramway is the longest double funicular tramway in the world. Once at the top, hiking, camping, cross-
country skiing and picnicking are available.
Transportation
Interstate 10 runs adjacent to Patin Spring's northern City limits. This route provides access to the
Southern California freeway system to the west, as well as Arizona to the east. Rail freight service is
available from Southern Pacific Transportation. Bus services are provided by Continental Trailways,
Greyhound Bus Lines and Sunlinc System, both local and distant. Palm Springs International Airport,
expanded in 1999, is the only commercial airport in Riverside County and is served by many major
airlines.
A-3
00012-'
Population
The following table provides a comparison of population growth for the City of Palm Springs,
surrounding cities and Riverside County between 2003 and 2007.
TABLE NO.A-I
CHANGE IN POPULATION
CITY OF PALM SPRINGS,StJRROIJNDING CITIES AND RIVERSIDE COUNTY
2003—2007
PALM SPRINGS SURROUNDING CITIES RIVERSIDE COUNTY
Percentage Percentage Percentage
Year Population Change Population Change Population Change
2003 44,542 124,895 1,725,890
2004 44,981 1.0°% 128,686 3.0% 1,805,519 4.6%
2005 45,935 2.1°% 136,392 6.0% 1,885,627 4.4%
2006 46,754 1.8% 140,260 2.8% 1,966,607 4.3%
2007 46,858 0 1)% 142,355 1.5% 2,031,625 33%
°%Change Between
2003 -2007 5.2% 14 0% 17.7%
Surrounding cities include Cathedral City, Desert Hot Springs,Palm Desert and Rancho Mirage.
Source: State of California, Department of Finance, "F,-4 Population Evfh totes for Cities, Counties and the .State,
2001-2007, with 2000 Benchmark "
A-4
000iz2
Employment and Industry
The City of Palm Springs is located in the Riverside-San Bernardino-Ontario Metropolitan Statistical
Area(MSA). As of January 2008, six major job categories constituted 77.0% of the work force. They are
government (18.2%), service producing (18,0%), professional and business services (11.3%), leisure and
hospitality (10.3%), educational and health services (10.1%), and manufacturing (9.1a/a). The January
2008 unemployment rale in the Riverside-San Bernardino-Ontario MSA was 6.7%_ The State of
California January 2008 unemployment rate(unadjusted)was 6.3%.
TABLE NO.A-2
RIVERSIDE-SAN BERNARDINO-ONTARIO MSA
WAGE AND SALARY WORKERS BY INDUSTRY m
(in thousands)
Industry 2004 2005 2006 2007 2008
Government 211.7 220.0 221.0 224.7 231.5
Other Services 38.6 40.3 41.2 41.7 42.0
Leisure and Hospitality 114.1 119.2 125.3 131.7 130.7
Educational and Health Services 116.6 118.1 120.5 123.4 128.1
Professional and Business Services 119.5 125A 138.2 142.3 143.3
Financial Activities 44.4 47.6 51,2 51.4 48.4
Information 13,9 14.3 14,6 15.7 14.8
Transportation,Warehousing and Utilities 51,9 582 62.1 64,9 67.0
Service Producing
Retail Trade 147.9 162.7 169.4 177.4 173.4
Wholesale Trade 42.9 47.9 51.6 553 55.9
Manufacturing
Nondurable Goods 34.1 34.5 35.5 36.2 35.4
Durable Goods 83.6 85.0 86.8 84.4 80.0
Goods Producing
Construction 102.4 109.9 126.7 1122 103.5
Natural Resources and Mining 12 13 1 A 1.4 1.4
Total Nonfarm 1,122.8 1,184.4 1,246.5 1,262.7 1,2554
Farm 18.8 19.2 17.4 16.6 163
Total(all industries) T.141.6 1,207.6 LM3.9 1.279.3 1?71.7
u) Annually,as of January.
Source: State of California Employment Development Department, Labor Market Information Division, "bmdusay
F,ntployinew& Lphor Force-by hoarh March 1007 Benchmark "
A-3 0001 3
The major employers operating within the City and their respective number of employees as of June 30,
2007 are as follows:
TABUU NO.A-3
CITY OF PALM SPRINGS
LARGEST EMPLOYERS
Name of Employer Number of Employees Product/Service
Palm Springs Unified School District 1,998 Public School System
Desert Regional Medical Center 1,500 Medical Facility
Agua Caliente Gaming Casino 700 Casino
City of Palm Springs 471 Municipal Government
Desert Sun 400 Newspaper
Walmart 315 Retail Store
Viasys Health Care 250 Health Care
Lowe's 200 Home Improvement Store
Hilton Hotel 170 Lod.-in.-
Wyndham Hotel 150 Lodging
Source! City of Palm Springs.
Per Capita Income
Per capita income information for the City of Palm Springs, Riverside County,the State of California and
the United States are summarized in the following table.
TABLE NO.A-4
PER CAPITA INCOME
CITY OF PALM SPRINGS,RIVERSIDE COUNTY,
STATE OF CALIFORNIAAND UNITED STA'11S
2003-2007
Year Palm Springs Riverside County State of California United States
2003 Not Available $24,814 S33,469 531,466
2004 Not Available 25,3.37 35,313 33,072
2005 NoiAvailable 26,342 37,183 34,685
2006 $26,448 27,449 39,358 36,629
2007 35,973 27,810 Not Available Nut Available
Source: State of California Department of Finance; State of California Employment Development Department.
A-6 000124
Commercial Activity
Taxable Transactions by type of business for the City of Palm Springs for 2002 through 2006 are
summarized in Table No.A-5.
TABLE NO.A-5
CITY OF PALM SPRINGS
TAXABLE TRANSACTIONS BY TYPE OF BUSINESS
ill thousands)
2002-2006
2002 2003 2004 2005 2006
Retail Stores
Apparel Stores $ 17,079 $ 18,096 $ 18,161 $ 17,962 $ 16,186
General Merchandise Stares 41,199 4 2,83 5 45,862 67,021 112,667
Food Stores 43,548 42,865 43,232 46,233 46,065
Eating/Drinking Places 116,811 123,509 136,190 146,492 155,876
Home Furnishings and
Appliances 12,191 12,042 15,855 17,611 13,784
Building Materials and
farm lmplemems 70,215 90,842 111,453 119,899 109,986
Auto Dealers/Suppliers 65,871 69,344 76,614 78,579 #
Service Stations 50,631 65,622 73,822 85,154 99,885
Other Retail Stores 66,284 65,883 71.707 73.856 141,315#
Total Retail Stores 483,829 531,038 592,896 652,807 695,764
All Other Outlets 133.431 144,449 154.495 169.928 180,955
'Dotal All Outlets S7473915
# Sales omitted because their publication would result in the disclosure of confidential information. These are
included with"Other Retail Stores"when possible.
Source: State Board of Equalization,"Taxable Sales in CaUfornia."
A-7
000125
TABLE NO.A-6
CITY OF PALM SPRINGS
TOTAL TAXABLE TRANSACTIONS
(in thousands)
2002-2006
Total Taxable
Retail Sales Retail Sales Transactions Issued Sales
Year (5000's) %Change Permits (5000's) %Change Permits
2002 5483,829 1,101 $617,260 2,155
2003 531,038 9.8% 1,123 675,487 9.40/. 2,232
2004 592,896 11.7% 1,173 747,391 10.6% 2,237
2005 652,807 10.1% 1,192 822,735 10.1% 2,202
2006 695,764 6.6% 1,122 876,619 6.6% 2,055
Source: State Board of Equalization,"Taxable Sales in California "
The following table summarizes the change in taxable transactions for the City of Palm Springs and
surrounding cities.
TABLE NO.A-7
CITY OF PALM SPRINGS AND SURROUNDING CITIES
CHANGE IN TOTAL TAXABLE TRANSACTIONS
(in thousands)
2002-2006
%Change
City 2002 2003 2004 2005 2006 2002-2006
PALM SPRINGS S 617,260 $ 675,487 $ 747,391 S 822,735 S 876,619 42.0%
Cathedral City 761,564 814,737 887,982 928,118 898,801 18.0%
Palm Desert 1,209,385 1,296,730 1,433 296 1,529,342 1,393,699 31.8%
Source: State Board of Equalization,"Taxable Salta in C'nli/or-nia "
A-8
Building Activity
The following table summarizes building activity valuations for the City of Palm Springs for the five
fiscal years 2003 through 2007.
TABLE NO,A-8
CITY OF PALM SPRINGS
BUILDING ACTIVITY AND VALUATION
(in thousands)
2003—2007
2003 2004 2005 2006 2007
Total Residential $ 52,623 5221,429 $184,930 $150,788 $ 66,601
Total Commercial $ 1201 S 34.832 5 44,377 5 51692 $ 61,366
Total Valuation $ 73,824 $256,261 $229,307 $204,480 $127,967
Source: City of Palm Springs.
A-9
000127
APPENDIX B
SUMMARY OF THE LEGAL DOCUMENTS
000�2 �
APPENDIX C
AIRPORT CONSULTANT'S REPORT
c-1
000129
SH&E International Air Transport Consultancy
141
Y
1 �quif. .00
�.:" a-�" - .��� ��rl.•io�: j
PALM SPRINGS INTERNATIONAL AIRPORT
MARKET ANALYSIS UPDATE
Prepared for:
The City of Palm Springs
Prepared by:
SH&E, Inc.
March 31, 2008
000130
SH&E
TABLE OF CONTENTS
IIntroduction.................................. ..... . .........................................................1
1.1 Purpose of Report....................................... ................ .............................................................. 1
2 Palm Springs Market Update ............................................................................................2
2.1 Palm Springs Airport Service Area.............................................................................................2
22 Air Scrvicc Trcnds at PSP--------------------------...----------------------------------------------------------------5
3 Assessment of Industry Issues and Potential Impact on Air Service at PSP ............16
3.1 Airline Consolidation--------------------------------------------------------------------------------------------------------- 16
3.2 Fuel........................................................................................................................................... 19
3.3 Weakening U.S. Economy ..................................................... 19
3.4 Assessment of SH&) 's March 2006 Forecasts of PSP Traffic ................................................20
SH&E RFP Response Palm Springs International Airport Market Analysis Update, March 31,2008 Page i
'00018 -1.
SH&E
1 INTRODUCTION
In March 2006, the City of Palm Springs retained Simal, Helliesen & Eichner, Inc. ("SH&H") to perform
a market study, to prepare forecasts of airline passengers and related Passenger Facility Charges ('`PFC")
revenues, and to study the feasibility of repayment of expected airport bonds for Palm Springs
International Airport(referred to as the"Airport"or"PSP").
This study (the"2006 Study") analyzed the market or"airport service area"that is served by the Airport,
including historic and projected future demographic, economic data, particularly related to tourism, and
transportation factors that are likely to influence air traffic and service development at PSP. The 2006
Study concluded with a long-term forecast (the "2006 FOrecaSC) of airline passenger enplanentents and
revenues at the Airport, which was then used to assess the financial feasibility of payment of the 2006
PFC Bonds and the 1998 PFC Bonds(collectively,the"PFC Bonds.")
In April 2006, the City of Palm Springs issued its 2006 Airport Passenger Facility Charge Subordinate
Refunding Revenue Bonds, referred to herein as "2006 PFC Bonds" or the "Bonds." The principal
amount of the Bonds was S12,115,000, and their payment Secured by a pledge of PFC revenues paid to
the Airport from Passenger Facility Charges("PFCs") imposed on enplaning passengers.
1,1 PURPOSE OF REPORT
At the present time, the City of Palm Springs plans to refund the Airport's outstanding General Airport
Revenue Bonds ("1998 GARBS"), outstanding in an amount of$6.93 million. in preparation for this
transaction,the City of Palm Springs has retained SH&E to perform an updated analysis of Palm Springs'
air transportation market by examining the demographic, economic and air service trends at PSP since
2005, This report will identity the changes in these variables, and provide commentary on the likelihood
that these changes will materially affect the overall Findings of the 2006 Study, including the 2006
Forecast.
The report will also address three important issues facing the airline industry today! airline consolidation,
fuel cost and the weakening U-S. economy. These topics will be examined within the context of their
expected impact on the Palm Springs air service market, specifically the effects on the quantity and
quality of airline service, passenger traffic and average air fares offered frown PSP.
Palm Springs Intemational Airport Market Analysis Update, March 81,2008 Page 1
.0001J2
SH&E
2 PALM SPRINGS MARKET UPDATE
2.1 PALM SPRINGS AIRPORT SERVICE AREA
Demographic Trends
Population
Over the past two years, the population of the PSP service area has continued to track closely to the
historic growth rates experienced in the region. This represents a positive trend that underscores the
growing economic diversity in the region, which continues to attract more permanent residents.
Palm Springs International Airport's service area is comprised of two separate service arcac. The primary
service area principally serves the nine cities in the Coachella Valley: Palm Springs, Cathedral City,
Coachella, Desert I-lot Springs, Indian Wells, Indio, La Quinta, Patin Desert and Rancho Mirage, as well
as several unincorporated communities in the vicinity. The secondary service area includes those
additional communities within approximately 30 to 50 miles of the Airport but which are located closer to
PSP than any other air carrier airport.Together the primary and secondary service areas represent the total
PSP airport service area.
PSP's primary service area has a current population of 429,319 permanent year-round residents, which
accounts for roughly two thirds of the total PSP airport service area population. Over the past two years,
population growth within the PSP primary service area has kept pace with its historic growth trends- From
2005-07, the resident population grew by an average of 42% per year. For the prior 5 year period, 2000-
05,the primary service area grew by 4_3% per year. The positive trend in population growth over the past
two years can in part be attributed to the cities of Coachella and Desert Hot Springs, which reported
double-digit growth in population since 2005.
Exhibit 2.1.1 Population Growth: Palm Springs Market Area, 1985-2007
Average Annual Growth
Population as of January Ist 20 Years 10Years 5 Years 2Years
PSP Primary Service Area 165,708 276,430 $18,123 $95,714 429,319 44% 3.7% 4.5% 4.2%
PSP Secondary Service Area 85 125 137200 149 166166 188891 208446 4.1% 3 2% 4 8% 5 0%
Total PSP Airport Market Area 250,333 413,530 467,259 584,605 $37,765 4,$% 3.5'/. 4.6% 4.4%
Southern California 14.893,000 18,034,100 19.330.536 21,132,705 21,586,151 1.8% 1.6'% 1.8% 1.1%
State of California 26,113.000 31,418,000 35.373.036 36,61o,356 37,662,518 1.7% 1.6% 1.7% 1-2%
Total U.S.(000) 238,466 266,557 2a2,402 296,814 $01,621 1.1% 1.1% 1-0% 0.8%
Source.Slate of California Department of Finance Demographic database US 9tatisucal Abstrao 20OG Domogmphic PrOFles of She Coachella Valley,2007/2008 @dilieq
Wheelers Publishing
Palm Springs International Airport Market Analysis Update, March 31,2008 Page 2
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Similar to the PSP primary service area,the total PSP service area has experienced population growth that
has been consistent with, or even slightly better than, historic growth rates. The total PSP service area has
a current population of 637,765 permanent residents. For the 20-year period, 1985-2005, population in
PSP's service area grew by 4.30/a per year, nearly identical to the 4.4% growth experienced over the last
two years, 2005-07.
The population for the PSP service area also continues to grow at a much faster rate than its regional and
national counterparts, a trend observed in the 2006 Study. From 2005 to 2007, the population growth rate
in PSP's airport service area was 4.4% per year versus 1.1% for Southern California, 12% for California
and 0.8%for the United States. This growth rate k more than 4 times faster than both the national average
and California's population growth rate.
Income
As alluded to in the 2006 Study, average incomes vary considerably within the region and reflect the
diversity of the population, particularly in terns of age. In general, the areas with the highest median
incomes tend to be those with the highest average age, indicating the popularity of the region for
relatively wealthy retirees. The region also has a large younger-aged population, who wort:
predominantly in the local area service-related industries. Overall, average income levels in the Palm
Springs market have increased over the past two years. In 2007, the median family income for the
communities within the Patin Springs market area was $38,987. This represents an average annual
increase of 3.3% per year since 2005. The trend in household income for the PSP market area tracks
closely to the overall inflation rates for the U.S. economy over the same time period. The annual rate of
change in U-S. Consumer Price Index for the two year period 2005-07 was 3.0% versus the 3.3% annual
income growth of the PSP service area.
Palm Springs/Coachella Valley Travel &Tourism Industry Trends
Market Overview
The Coachella Valley is a major resort area that attracts an estimated 3.5 million visitors annually. The
Palm Springs area continues to be regarded as a world class leisure destination, known for its resort
hotels, golf courses and a wide range of cultural and recreational activities. Palm Springs has 115 golf
courses, 600 tennis facilities, 40,000 pools and more than 620 restaurants. The Coachella Valley
continues to be a major vacation and "second home" area. In 2005, the seasonal population' totaled
132,000 residents. Today,seasonal residents total 145,000, representing a strong two year average annual
growth rate of 6.2%. The Palm Springs area is also becoming increasingly popular as a convention and
business meeting location. The area hosts many high profile events, such as golf tournaments, festivals,
movie functions,and other events that draw large numbers of visitors.
Over the past two years several indicators point to continued growth in the tourism and hospitality
industry in Palm Springs. From 2007-2010 it is estimated that more than $1 billion will be invested in
' Seasonal population refers to persons that residc in the Coachella Valley;run only during die winter season,generally
December through March.
Palm Springs International Airport Market Analysis Update, March 31 2008 Page 3
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improving and developing the tourism infrastructure of the Palm Springs service area. Specific projects
include new hotels, existing hotel renovations,golf courses, restaurants and other amenities.
Hotel& Resort Development
The hotel and resort industry is a primary engine for visitor growth to the region and is at the core of the
tourism infrastructure of Palm Springs. The Coachella Valley has some 255 hotels with total room
capacity of approximately 16,200. The largest concentration of hotels is in Palm Springs, which has over
6,500 rooms and accounts for 43%of the total hotel room capacity in the Coachella Valley. Over the past
several years, hotel revenues have continued to increase. In 2006, revenue from hotel room sales rooms
reached nearly S414 million, an increase of 14% from the 7004 levels reported in SH&E's prior market
study.
Nearly 6,000 hotel rooms are being planned for development in the Palm Springs service area over the
next several years.' This total includes 3,900 new or remodeled hotels rooms approved or proposed for
development in Palm Springs, as well as an additional 2,000 rooms planned for development for the rest
of the Coachella Valley. The following highlights notable hotel and resort development projects that are
newly completed, currently tinder construction or proposed for the Palm Springs market area.
Projects Completed
sJ Desert Riviera Garden Resort- remodeled Palm Springs resort,opened in January 2007
❑ Holiday Inn-200 room hotel opened in Palm Springs in February 2008
Embassy Suites La Quinta-new 146 all-suite hotel with 120 condominiums
❑ Hyatt Grand Champions Resort& Spa- now villa development
Projects Underway
❑ Ri1z-Carlton- new resort, spa and residences in Rancho Mirage
❑ Agua Caliente Hotel-344 room hotel and spa to open in Spring 2008 in Rancho Mirage
3 Marriot's Shadow Ridge-999 timeshare units and 18-hole golf course
q Desert Willow Golf Resort(Starwood)-300 timeshare units
Planned or Proposed Projects
❑ Fairmont Hotels& Resorts- $200 million luxury hotel project in Palm Desert which includes
300 rooms, 125 residences,dining outlets, spa facilities and event space
❑ The Mondrian-400 room boutique style hotel and condo development in Palm Springs
❑ The Hard Rock Hotel &Casino-500 rooms in Palm Springs
❑ Spa Resort Hotel- 400 room hotel in Palm Springs
❑ Ace Hotel - 193 room hotel remodeling in Palm Springs
M Extended Stay- 121 room remodeling in Palm Springs
❑ Candlcwood Suites Hotel - 88 room hotel in Palm Desert
'The information in this section is mainly from an anicle in the Dcscn Sun.Pcbmary 3,2008
Palm Springs International Airport Market Analysis Update. March 31, 2008 Page 4
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2.2 AIR SERVICE TRENDS AT PSP
Passenger Traffic
Over the past two years, PSP traffic has increased at a faster rate than was observed in previous years"
PSP's two year traffic growth rate from 2005-07 was 6.3%, compared with 1.7% annual growth for the
prior 5 year period, 2000-07. The 6.3% annual growth rate also exceeds SH&E's previous forecast of
4.5% per year for 2005-07. In fact, PSP has eclipsed a new record high for annual passengers in each
subsequent year beginning in 2004. For the latest calendar year, enplanements reached a new all-time
high of 805,546 passengers. During 2007, ten of twelve months recorded historic highs for traffic for the
given month.
The Palm Sprinas air travel market is highly seasonal, with the six month winter season (November to
April) accounting for approximately two-thirds of the Airport's annual passengers- Over the past two
years, traffic seasonality has experienced little change. In 2007, for example, traffic in the peak period
accounted for 67%of annual passenger volume, identical to the percentages observed in 2005.
Exhibit 2.1 PSP Enplanements, 1985-2007
900,000 -
e00 a00- 8a.,,ses
700000 - 687,098
656,24
600 000 - -
31,12
500 am
I
400 000 ------.
300 000
1
24000- "90.959 03h
1995-99 7 S%
00.0 7%14�0 Ma
7
1986 1936 1967 1989 1965 1550 1991 1092 1593 1994 1995 1996 r1997 1998 1999 2000 2001 2002 2003 2004 2006 20OG 2007
Source Palm Spnngselerna6Gnol Arpad
Air passenger traffic levels at PSP have continued to grow significantly faster than both the total U.S.
domestic market and also the U.S. small hub average, a trend also observed in SH&E's 2006 market
Study. Since 2005, PSP enplanements have increased by 6.3% per year versus 1.5% for the entire U.S.
and 0.1% for all small hub airports. For 2-year period, this is an average annual growth rate that is
approximately 4.8 percentage points above the national average for total U.S. domestic enplanements.
Palm Springs International Airport Market Analysis Update, March 31, 2008 Pager5
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Exhibit 2.2 PSP Enplanement Growth vs.the U.S. Domestic Industry and Small Hub Airports
7%
6%
i
4%
3%
29h - 1.7'/.
0A
2000-2005 2005-2007
®Palm Springs OSmall Hubs ■U.S. Domestic
Source.Palm Springs International Airpod FAA Terminal Area Forecasts
Airline Service
Review of Service Changes Since 200512006
Since 2005,there have been a number of important changes in the scheduled airline services offered from
PSP. Two new carriers, Air Canada and Allegiant Air, have entered the market offering new nonstop
service from PSP. Several new destinations have also been added, including service to San Jose,
California, Bellingham, Washington and
Edmonton, Canada. In addition, many Exhibit 2.3 PSP Changes in Scheduled Service,
existing markets with nonstop service have 2006 versus 2008
experienced capacity growth as a result of Prior Current Absolute Pement
increases in frequency, the use of larger SH&E Report $H&E Report Change Change
aircraft, or both. Likewise, several markets Peak Period Feb'06 Feb'08
Daily Departures 50 50 0 0.2%
have also experienced reductions in service, Daily$eats 3,998 4,186 188 4.7%
or in some instances, service has been Avg A/C sae 8o 84 4 4.5%
discontinued altogether. A more detailed ON-Peak Period Au005 Au0.07
discussion of the services changes by carrier Daily Departures 27 29 3 102%
Daily Seats 1.505 1.579 74 4 9%
and route can be found in the subsequent Avg Air 9¢e 56 54 -3 -4 8%
sections.
Source Of oal Airline Guide The off-peak period i-Ows the August 2005 and August
Overall, in comparing current schedules to tom schedule months
2006 levels, there has been has been little
change in the amount of scheduled air service offered from PSP. For the peak period, February 2008,
Palm Springs International Airport Market Analysis Update March 31 2008 Page 6
0001 1, 7
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departures have remained unchanged, while total seat capacity increased by 4.7%, or 188 daily seats.This
change was driven primarily by an increase in the average airerafl size, moving from 80 scats to 84 seats.
Comparing the off-peak schedule month, again, reveals modest change in service patterns. Total seat
capacity also increased by 4.9%. This growth, however, was driven by a 10.2% increase in departures,an
increase equivalent to 3 daily flights.
In summary, the total net change in service levels, measured in terms of departures and seats, has been
relatively modest over the past two years. The main difference, a 5% increase in seat capacity, reflects a
positive trend, as carriers have elected to use larger aircrafi to provide service at PSP.
Profile of Current Airline Service
PSP is currently served by 11 mainline,jet air carriers, five of which provide some or all of its services
through code-share regional airlines.' PSP services remain highly seasonal. Based on February 2008
schedules, which reflect the peak season services, scheduled airlines provide an average of 50 daily
departures to 18 destinations. Based on August 2007 schedules, which reflect the off-peak season,
airlines provide 29 daily non-stop flights to 9 destinations. Exhibit 2.4 shows the current winter and most
recent summer season service patterns.
Exhibit 2.4 PSP Daily Scheduled Service: February 2003 and August 2007
Peak Season:February 2008 Off-Peak Season:Auoust 2007
I PI
o nl
I
:I
eels
Seq a m
Ch Napo
ono uClly -
Fnncl,n u� (9 fy 011L
r'c�M1.rnnnr Yn �~ onora
P YI =aka
^t� \ FYI r r ,Lnf�.• ry
noel
_ 0 59ei.
r,�nn PSP_ Est„.
7^ w
SP
A urea fir. S omlw
n.worm'
I rn
Note Daily frequencies are weekly scheduled fhghis divided by 7 and rounded to whale number.
Source DAG Schedules
'Code-share regional airlines operate flights with regional jcl5 and/or turboprop aircraft on behalf of mainline airlinut. These
nights are marketed as services of lie mainline carrier's network. His eurlcnt code-share regionals operating at PSP are:
Horizon Air(for Alaska);Skywcst Unitcd Express(For Unitcd):Skywcst Dclta Connection(for Ddla);ExpressJut(for
Continental)and Mesa Airlines(for US Airways/Avierica West).
Palm Springs International Airport Market Analysis Update, March 31, 2008 Page 7
0001do
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Changes in Service from 2005 by Carrier
In examining changes in scheduled service from 2005, the overall trend appears to be that PSP has
experienced normal competitive changes in the mix of flying and the service patterns operated by
scheduled airlines at the airport. PSP has added several new entrant carriers to the market, has acquired
several new destinations and in some instances has added competition to existing routes. For example,
United Airlines has experienced substantial growth at PSP and has increased its total seat capacity by
33% since 2005, adding new service to San Francisco and adding frequencies to its Denver and Los
Angeles routes.
PSP has also experienced service reductions or service discontinuations in several key markets, including
Atlanta, Los Angeles, Chicago and Houston. Importantly, these service reductions have been largely off-
set by increased service by other competitors in the same markets, or through additional services to
alternative carrier hubs. For example, United Airlines has increased its frequencies from PSP to Los
Angeles, following American Airlines' discontinuation of LAX service in March of 2005- Sun Country
Airlines has increased frequencies on its Minneapolis service, where it competes directly with Northwest
Airlines. WestJet Airlines has doubled its service to Vancouver in the wake of Harmony Airlines'
departure from the market.
Overall, while most carriers have made changes to their service patterns, these changes reflect normal
competitive adjustments by carriers operating in today's environment. Scheduled service levels at PSP
remain highly competitive, and the overall trend does not indicate a weakening in the air services offered
at PSP.
The following section summarizes the key changes in service by carrier since 2005,
Alaska Airlines: Alaska Airlines remains PSP's largest carrier in terms of scat capacity. The carrier has
increased its seat capacity at PSP by 7.0%since 2005.Alaska and its regional partner Horizon Air serve 5
markets from PSP: San Francisco, Sacramento and Seattle on a year round basis and 2 additional markets
in the winter, Portland and San Jose. Key changes in service since 2005 include: (1)the addition of off-
peak service to Seattle, which is now served on a year-round basis; (2) the addition of new peak-season
service to San lose; and (3) the discontinuation of seasonal service to Vancouver, a route that has
subsequently been picked up by WestJet Airlines.
United Airlines: United has steadily increased its capacity at PSP over the past two years. The mix of
aircraft on each route, however, has remained constant since 2005. United serves 5 markets with mainline
and United 2xpress regional services. Denver is served by a combination of jet and regional jet aircraft.
Las Vegas and Los Angeles are served with 30-seat turboprop aircraft and San Francisco is served with a
50-seat regional jet. Chicago is served with narrow-body jet aircraft. The most significant changes in
service include: new service to San Francisco, which is now served 3 times per day with a regional jet
increases in the number of of£-peak and shoulder season flights to Denver and Los Angeles; and reduced
seasonal service to Chicago. United's peak season service to Chicago, which previously was 7 weekly
frequencies, has been reduced to less than daily service.
Palm Springs International Airport Market Analysis update, March 31, 2008 Page 8
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American Airlines: American operates an average of 5 daily non-stop flights in the winter season from
its system hubs of Dallas/Ft. Worth and Chicago O'Hare. In the summer, service is reduced to 2 daily
flights, both from DFW. American bad also previously served Los Angeles on a year-round basis with its
American Eagle turboprop service,but this service was discontinued in March 2005.
US Airways/America West: US Airways provides service to Palm Springs through its regional airline
partner, Mesa Airlines. Mesa provides 5 nonstop flights to Phoenix on a year-round basis with regional
jets and turboprop aircraft, and one daily turboprop flight to Las Vegas. The primary change in service
over the past two years include: Las Vegas is now a year-round market(in the past, Las Vegas was served
only in the winter season) and an increase in Phoenix service from 4 to 5 daily flights.
Exhibit 2.5 PSP Change In Seat Capacity by Carrier, February 2008 versus February 2006
rce
Weekly Seats ercent Pe nt Shares
Rank Carrier rr. 2008 Change 2006 2008=
1 Alaska 8,218 8,790 7 0% 29 4% 30 0%
2 United 5.810 6,282 81% 20.8% 21,4/,
3 American 5,547 4,896 -11.7% 19.8% 16.7%
4 WestJet Airlines 1 268 2 312 82.3% 4 5% 7 9%
5 US Airways 2.204 2,311 4 9% 7 9% 7.9%
6 Delta 2,090 1,150 -45.0% 7.5% 3.9%
7 Northwest 1,012 868 -14.2% 36% 3.0%
8 Sun Country 340 850 150 0% 1 2% 2.9%
9 Continental 804 742 -7.7% 2 9% 2.5%
10 Air Canada 0 651 100.0% 0.0% 2.2%
11 Allegiant Air 300 450 100.0% 11°/ 1.5%
Total 27,987 291302 4.7% 100.0% 100.0%
Note.Schedule data is for February of the represenlahve year Regional code-share some,is included in the mamhne carrier dow
Source Gffcid Airline Guide
Delta Airlines: Delta has decreased its capacity offered from PSP by nearly half. Currently, Delta
provides 3 to 4 year-round regional jet flights to Palm Springs from its Salt Lake City hub. All flights are
operated by its regional partner, Sky West Airlines. The major service changes include: discontinuation of
peak-season service to Atlanta.in March 2007 and a reduction of flights to Salt Lake City during off-peak
months (from 4 to 3 flights per day).
Northwest Airlines: Northwest continues to provide one daily mainline jet service liom Minneapolis in
the winter season. No service is provided in the summer season.
Continental Airlines: Continental currently provides I daily regional jet flight during the winter season
to Houston through its regional partner, ExpressJet. In May 2007, Continental discontinued its former off-
peak service to Houston and reduced its service from 2 to I daily flight during the peak winter season.
Palm Springs International Airport Market Analysis Update, March 31,2008 Page 9
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WestJet: WesUcl provides 17 weekly non-stop flights to three markets, Vancouver, Calgary and
Edmonton, only during the peak season. Calgary and Vancouver have 7 weekly flights each and
Edmonton is served 3 times per week. WesUcl began scheduled seasonal service to Vancouver in the
2004/05 winter season and added service to Edmonton in November 2006. In addition, the carrier has
steadily increased its Calgary and Vancouver services from just 3-4 flights per week to 7 per week.
Sun Country: Sum Country provides nonstop service to Minneapolis in the winter season. Sun Country
has served Palm Springs for the past few years and has increased frequencies on this route from 2 flights
per week to up to 5 flights per week daring the peak season.
Air Canada: Air Canada began serving the PSP market in December 2006, providing 7 weekly nonstop
flights to Calgary during the peak winter season.
Allegiant Air: Allegiant began new nonstop service to Bellingham, Washington, in February 2007 and
currently operates the route with 2 to 3 weekly frequencies during the peak season. Allegiant began
service to Palm Springs in December 2005 with 2 weekly jet flights to Las Vegas. The Las Vegas service
was discontinued during the winter 2007 season.
FIarmony Airlines: Harmony discontinued serving the PSP market in April 2007, due to financial
difficulties. The carrier has since ceased operating all of its scheduled services and is undergoing
reorganization. In the past, Harmony provided 4 weekly winter season flights to Vancouver.
Summary of Changes in Service by Market
New Nonstop Services from PSP
ll Air Canada:peak-season service to Calgary(7 flights per week)
7 Alaska/Horizon Air:peak-season service to San Jose(7 flights per week)
❑ Allegiant Air: peak-season service to Bellingham(2 flights per week)
❑ United Airlines:year-round service to San Francisco(-14 flights per week)
0 WestJet Airlines: peak-season service to Edmonton (3 flights per week)
Service Discontimied from PSP
El Continental Airlines/Express.let off-peak service to Houston(7 flights per week)
EJ Delta Air Lines: peak-season service to Atlanta(7 flights per week)
�] Harmony Airlines: peak-season service to Vancouver(2 flights per week)
:3 United Airlines: reduced its peak-season service to Chicago O'Hare
Carrier Market Shares
The overall distribution of traffic and carrier market shares at PSP have held relatively constant since
2003, despite changes in the scheduled services provided by the carriers serving the PSP market. Three
carriers,Alaska Airlines, United Airlines and American Airlines, remain PSP's largest airlines in terms of
traffic. In 2005, these carriers combined accounted for 70.5% of passenger traffic. Today, these carriers
Palm Springs International Airport Market Analysis Update, March 31 2008 Page 10q
00014-
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combined represent 70.2%of all passenger enplanements,nearly identical to 2005 levels. Alaska Airlines
remains PSP's top carrier in terms of passengers carried, and currently captures 29% of the market, down
just 1 percentage point from 2005 levels. American Airlines lost nearly 2 percentage points in market
share, moving from 22% to 20%, as the carrier discontinued its 5 daily turboprop flights to Los Angeles.
Among the top three carriers, United was the only carrier to increase its traffic share, gaining nearly 3
percentage points, as it increased its services to Los Angeles and initiated new nonstop service to San
Francisco-
Notable traffic change among the "all-other" carrier group include Delta Air Lines, which lost 3
percentage points in market share, and moved from 9.7% to a 6.7% share of the PSP market. Over the
past two years, Delta has discontinued service to Atlanta and reduced its seat capacity to Salt Lake City.
Northwest and Continental also experienced decrcascs in traffic as these carriers reduced capacity to
Minneapolis and Houston, respectively. The most substantial positive change among the all-other carrier
group was with the new entrant carriers, WestJet Airlines,Air Canada and Allegiant Air. Sun Country has
also experienced positive growth, nearly tripling its traffic over 2 years, as it increased frequencies on its
one nonstop route from Palm Springs to Minneapolis.
Exhibit 2.6 PSI' Enplanements by Carrier, 2005-2007
Change
2007 FSP Enplanements 0/6 Change Market Sham In Sham
Tap 3 Carriers
1 Alaska 213 970 231 520 8.2% 30 00% 28 7% -1 2%
2 United 133177 173,836 30.5% 18 7% 21,6% Z97-
3 American 155.534.534 180,446 3 25/ 21 8/ 19Y9% -12%
Subtotal 502,681 565,802 12 6% 70.5% 70 2% -0.2%
Ali Other Carriers
4 US Airways 67,187 77,003 14 6% 2A 9 5% 0.1%
5 oelta 69,327 54,121 -2190A 9.7% 67% -30°/
6 vvestJet 12,274 39 950 225.5% 1,7% 5 0% 3 2%
7 Northwest 211 24,476 -15 3% 4.0% 3 9% -1 00%
8 Continental 25,605 15,990 -376% 3.6% 20% -16%
9 Sun Country 3322 10,437 214.2% 0.5% 1.3% 08%
10 Allegiant Air 559 7,413 -- 0.1% 0.9% 0 8%
11 Air Canada 0 6,288 •• 0.0% 0.8% 0.8%
12 Harmony 3,632 3477 -4.3% 0.5% 0.4% -0.1%
PSP Total 713,479 805,546 12.9% 100 0% 100.0%
Note Harmony Airlines discontinued servico to PSP in April 2007
Source Palm Springs International Airport
Palm Springs International Airport Market Analysis Update, March 31, 2008 Page 11
000142,
orl
O&D Traffic, Load Factors and Average Fares
O&D Passenger Traffic and Top Markets
Palm Springs continues to experience strong growth in O&D passenger traffic, outpacing the growth rates
reported for the PSP market in recent historic periods. For the 12 months ended September 30, 2007,
Palm Springs generated a total of 1.35 million domestic origin & destination (O&D)passengers. Over the
past two years, domestic O&D traffic has increased by 4.1% per year, an improved growth rate compared
to the 2.4% rate for the prior 5 year period, 2000-2005. Overall,the continued upward trajectory of PSP's
O&D traffic levels is consistent with the positive traffic growth of the domestic U.S. airline industry and
the overall industry recovery which began in 2003.
Over the past two years, trends in O&D passenger traffic by market' do not substantially deviate from the
trends that were observed in 2005. For example, Palm Springs' top 10 O&D markets account for 54% of
its latest reported 0&D passengers, identical to their 54% share in 2005. San Francisco and Seattle still
remain PSP's two largest O&D markets, each with just over 160,000 annual passengers. In the most
recent calendar year, however, San Francisco overtook Seattle to become Palm Springs' largest 0&D
market.
Rounding out the lop 5 0&D markets are Chicago, Portland,New York, all three of which were ranked in
identical order in 2003. The remaining five markets in the top 10 are Minneapolis, Deliver, Dallas/Ft.
Worth Sacramento and Washington. Both Sacramento and Washington are new entrants to the top 10 and
replace Los Angeles and Salt Lake City, both of which experienced service reductions from PSP over the
past two years.
Traffic Seasonality
Traffic levels at Palm Springs remains highly seasonal, with peak-season traffic levels averaging 2-3
times the traffic levels during off-peak months. The peak season November-April accounted for 66.7%of
annual traffic in 2007. By comparison, in 2005, the peak season accounted for 66.5% of annual traffic,
nearly the same as current levels. Therefore, trends in Palm Springs' traffic seasonality have remained
stable over the past two year period.
Traffic by Routing
For the YE P Quarter 2007, 45% of Palm Springs total domestic O&D passengers traveled on direct
single plane flights, and 55%traveled via connecting services. In 2003,the local versus connecting traffic
ratio was 46% and 54%, illustrating little change in the routings of O&D passengers traveling to Palm
Springs. Of the 550/c of passengers making connections, the three largest connecting points were
Dallas/Ft. Worth, Los Angeles and Phoenix. PSP passengers connecting via these markets collectively
"M"0&D"market is defined as tie point of origin and tihe point of final destination for a passenger's trip,regardless orthe
number of inturmudiaLe stops or connections made during the Lrip, For example,a New York-Palm Springy 0&D passengers
include passengers that originate in New York and tenninate in Palm Springs(ot vice versa),and these trips may involve flight
Connections in into medidtl 9irPWly
Palm Springs International Airport Market Analysis Update, March 31, 2008 Page 12
000143
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accounted for 26% of the PSP market. In 2003, these same hub cities were the top connecting markets,
and combined accounted for 28%of PSP O&D traffic.
Load Factors
The positive growth in traffic over the past two years has also translated into higher load factors at PSP.
In each of the last two years, total load factors have improved relative to CY 2005 levels. In 2006,
average load factors at Palm Springs reached 76-ft in 2007, load factors were 75-4%_
PSP's load factors in its nonstop services to major carrier hubs were higher than the total airport average.
For the twelve months ending October 2007, PSP's services on its major connecting hub markets reported
an average load factor of 82-8%_ These load factors track just above the national average. For the same
time period, the average load factor on domestic U.S. carrier services (including mainline and regional
carriers) was 80.3%, or 2.5 percentage points below PSP's 82.8% average, for its hub routes served with
jet aircraft.
Exhibit 2.7 PSP Average Load Factors: Selected Major Connecting Hub Routes, YE October 2007
1 Depts On-Board Available Load
Carrier Market Code Performed Pssirs Seats Factor
AA Dallas/Fort Worth DFW 1,716 198639 235504 84.4%
AA Chicago ORD 1,016 111 633 139 071 80.3%
DL Atlanta ATL 211 26,111 31,650 92.5%
CO Houston IAH 702 30,931 35,100 98.1%
NW Minneapolis MSP 425 47748 58,268 81.90/.
UA Denver DEN 2,428 122 304 145,596 84 0%
UA Chicago ORD 128 13,575 15,756 862%
UA San Francisco SFO 1,426 58 073 74 615 77.8%
Selected Hub Routes 8,052 609,214 735,561 82.8%
Total Above-P5P 27,776 1,494.870 1,980.723 75.5%
Note:2007 is twelve months ending October 2007
Source U$pOT T•1 oo pi
Palm Springs International Airport Market Analysis Update, March 31 2008 Page 13
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Average Fares
Palm Springs' overall average domestic one-way fare increased from S156 in CY 2005 to $171 for the 12
months ended September 2007. This is a 9.6% increase over the two year period, or an increase of$13 in
the average ticket price.
The increase in Palm Springs' fares over the past two years is slightly IT than the 7.1% increase in
the average U.S. domestic fares, but slightly less than the 10.2% domestic yield increase (which excludes
Southwest). Importantly, the inereaso in Palm Springs average fares is nearly the same as the change in
fares at Ontario and Los Angeles,which were 93°/a and 10.3%, respectively for the two year period.
Exhibit 2.8 Comparison of PSPs' Average Fare Change with Selected Benchmark Indicators,
2005-2007
12 0%
10.20/0
7.1%
40% -
2 0%
i
Palm Springs U.S.Mainline U.S.Domestic Los Angeles Ontario
Average Fare Carrier Yield Average Fare Average Fare Average Fare
Notes
Palm Springs average faro CY 2005 CY 2006 and 12 months ended Sept 2007 from Ose Survey
Mainline domestic yield(excluding Southwest)ss repoded in Airline Monitor February 2008
Itinerary Fares are round-trip or one-way fares for which no return is purchased
source:US DOT OLD Survey,Bureau of 1 rsPspnStion Slaa^•dG(BTS)
In most domestic city pair markets, PSP's fares are higher than the average fares in corresponding
markets at Ontario and LAX. However, in three of PSP's top four O&D markets, the average fare is less
than Ontario. These markets are San Francisco (434), Seattle (-S6) and Portland (-S3). In most of the
top longer haul markets, such as Chicago, New York, Dallas/R.Worlh and Washington, PSP average
fares arc $30 to $60 higher than Ontario average fares in the same market. However, based on the top 27
PSP O&D markets, the average fare differential is approximately S18 as related to both Ontario and LAX
fares. This differential in fares has not changed signi ficantly over the past two years.
Palm Springs International Airport Market Analysis Update March 31 2008 Page 14
0aa145
SH&E
Exhibit 2.9 Comparison of PSP Fares to ONT and LAX in PSP's Top 30 O&D Markets,YE 3Q 2007
Average: Absolute•
Rank Market PSP ONT LAX
NT LAX
1 San Francisco $100 S134 $91 ($34) $9
2 Seattle $129 S135 S134 ($6) (S5)
3 Chicago $186 $154 S175 $33 $11
4 Portland $132 $135 $131 (S3) $1
5 New York/Newark S229 S189 S280 S40 (S51)
6 Minneapolis $175 $225 5167 (S50) 58
7 Denver $167 $126 $133 $41 $35
8 Dallas/Fort Worth $211 $169 $163 $42 $43
9 Sacramento S103 $74 $76 $29 $27
10 Washington $254 S181 $237 $73 $17
11 Boston $215 $178 $228 $37 ($13)
12 Philadelphia $194 $177 $183 $17 $11
13 Las Vegas
14 Houston $205 $177 $166 $28 $40
15 Kansas City $163 $165 $131 ($3) $32
16 Atlanta $238 $237 $191 $0 $47
17 St Louis $190 $172 $172 $17 $18
18 Detroit S232 $172 $183 $60 $49
19 Spokane S145 $139 $129 S5 $16
20 Baltimore $212 $161 S173 $51 $39
21 Salt Lake City $180 $117 $104 S63 $77
22 Indianapolis S166 $184 S146 (S18) $20
23 Orlando $222 $171 $188 $51 $34 _
24 Phoenix
25 Bellingham $113 $173 $159 ($60) ($46)
26 Pittsburgh $178 $166 $182 $13 (83)
27 Omaha $161 $160 $133 ($18) $28
28 Los Angeles
29 Cleveland $194 $138 S198 86 ($4)
30 Fort Lauderdale $214 $153 $163 $61 $51
Average 37 Markets $182 $164 $164 $18 $18
%PSP Higher Avg Fare 10.8% 110%
Note LAX,LAS and PHX not Inciuded in fare comparison LAX is not a market for ONT or LAX PSP-LAS and PSP-PHX are served entirely by
regional earners for which available fare data is less reliable Both LAS and PHX are served by SouthweGi from LAX and ONT.
Soorce US DOT O&0 S�Ney vio 0alabv.e Prod Lc[E
Palm Springs International Airport Market Analysis Update, March 31, 2008 Page 15
oo0"H6
SH&E
3 ASSESSMENT OF INDUSTRY ISSUES AND POTENTIAL IMPACT
ON AIR SERVICE AT PSP
As discussed in prior sections of this report, PSP's air passenger enplanements have increased by 12.9%
over the past two years, as compared to SH&E's projected growth of 93% over the same period in the
2006 Forecast. PSP has not only outperformed the projected traffic forecast for the 2005-2007 period, but
has also significantly exceeded actual domestic enplanements growth of the total U.S. and traffic growth
at Ontario, LAX and other Southern California airports. Also, while PSP's average fares have increased
during the past two years, the percentage increase has been in line with overall domestic fare increases
and the change in fates at Ontario and LAX.
Exhibit 3.1 Comparison of PSP Enplaned Passenger Growth, 2005-2007
140% -
120%- ^
10.0%-
60%
40% _ .. 3.0% ._ ._ . . .
20%-.. .. ..._. .. ... . — ------------------ --
0.6%
I
00%
U.1Y
-2 0%
Palm O-5-Domestic LAX ONT LA Area
Springs
Source Palm Springs International Airport FAA March 2008 Forecast Southern California Association of Governments
However, at the present time(1 st Quarter 2008)there are several national and industry issues that need to
be assessed with regard to their potential impact on air service and traffic at PSP, and in relation to the
March 2006 traffic forecasts. These issues include:
Potential industry consolidation due to airline mergers
7A The trends in fuel costs and related impacts on air fares and traffic growth
Recent weakening of the U.S. economy
3.1 AIRL.INE•CONSOLIDATI01J
Over the past IS months, there has been considerable public discussion and speculation regarding
potential mergers among major U.S. airlines. Several major airline CEO's have stated publicly that
consolidation within the airline industry is necessary to reduce excess capacity and improve the financial
Palm Springs International Airport Market Analysis Update. March 31, 2008 Page 16
000147
SH&E
condition of the industry in order to attract capital and investment that is needed for a healthy airline
industry. In late 2006, US Airways proposed a merger with Delta Airlines. This merger was strongly
opposed by Delta and the proposal was withdrawn. Within the Low Cost Carrier("LCC')sector,AirTran
Airways proposed to acquire Midwest Airlines in 2007, but that proposal was also strongly rejected by
Midwest Airlines.
As of March 2008, potential mergers under consideration include Delta-Northwest, United-Continental
and several other combinations. In SI-I&E's opinion, consolidations that may take place within the airline
industry are not likely to have a significant impact on air service and trafbc development at PSP.
PSP currently has reasonably competitive services in many of its top 30 markets; (see Exhibit 3.2 on the
following page.) But, most of this competition is in markets served by connections over various hubs.
Nearly all of the PSP's nonstop service routes are served by only one carrier, with the notable exception
of PSP-San Francisco, which is served by both United and Alaska Airlines. With the possible exceptions
of a United-Alaska merger, or United-Delta merger, there does not appear to be either point-to-point or
hub routes that would likely lose service due to airline consolidation. For United-Alaska, PSP-Bay Area
service (SFO and SJC) might be reduced, and for United-Delta the combined Denver/Salt Lake City hub
services would likely be reduced.
Alaska Airlines, American and United Airlines are the three major carriers at PSP and account for
approximately 70% of PSP's current enplanements (Alaska 29%, United 22% and American 20%).
Consolidations involving these three carriers would most likely have the most significant impact on PSP.
However, its is highly unlikely that United and American, which provide the broadest amount of
competitive services in PSP markets,would never be permitted to merge.
If Alaska Airlines were acquired by either American or United, this would substantially increase
American's or United's share of PSP traffic to approximately 50% of the total market. However, with
respect to a consolidation with American, there would be no significant change in the effective
competition in any of PSP's top 30 O&D markets. American and Alaska serve different O&D markets at
PSP. With respect to a consolidation with United, competition in only two of the PSP's top 30 markets
would be impacted — San Francisco and Sacramento. San Francisco is PSP's largest O&D market. As
both carriers provided nonstop PSP-SFO service, service in this market would likely be impacted.
Mergers involving Delta (except with United), US Airways, Northwest and Continental would not likely
have a significant impact on service and competition at PSP. These four carriers combined account for
25%of PSP's total enplanements. With regard to the possible Delta-Northwest merger,there are no PSP
markets among the top 30 where Delta and Northwest compete. The same is true for United and
Continental. Also, the nonstop hub routes operated by these carriers at PSP serve largely different
geographic market areas.
To summarize, while consolidation among domestic carriers may result in some short term reductions in
competition at Palm Springs, they are not likely to have a significant effect on overall air service and
traffic development.
Palm Springs International Airport Market Analysis Update, March 31 2008 Page 17
0a OIL�8
SH&E
Exhibit 3.2 Competitive Profile of Palm Springs'Top 30 O&D Markets
Nonstop Carriers with 10%or
.: . Psgrs Percent of Service Oreater Share of
Market YE 3Q'07 PSP Total Carriers Market.. . •
One Carrier Markets
Seattle/Taconla 163 840 12.2% AS AS
Portland 79 050 5 9% AS AS
Denver 36250 27% UA UA
Dallas/Fort Worth 32 860 2 4% AA AA
Salt Lake City 11,850 09% DL ❑L
Phoenix 11,010 080/0 Us Us
Los Angeles RIM D 7% UA UA
Subtotal 344,150 255°/
Two Carrier Markets
San Franclsco 164,330 12 2% AS UA AS,UA
Chicago 84,460 6.3% AA UA AA,UA
Sacramento 31,670 2.3% AS AS,UA
Houston 17,230 1 3% CO CC,US
St,Louis 14,480 1 1% --- AA,US
Spokane 12,830 1 0% AS AS,DL
Bellingham 10760 0.8% G4 G4,AS
Subtotal 335760 24.9%
Three Carrier Markets
New York 56,200 42% •-- AA,U&DL
Minneapolis 53,210 39% NW,SY NY,SY,US
Washington 23,480 1 7% --- U&AA,US
Philadelphia 21,160 1.6% -- AA,UA,US
Kansas City 15,05D 1.2% — AA UA,US
Atlanta 15,600 1.2% — DL US,AA
Detroit 13,070 1 0% — AA,NW,US
Baltimore 11,930 0.9% --- AA,UA US
Indianapolis 11220 0 8% -- AA,US,NW
Subtotal 221,930 16 5%
Four Carrier Markets
Boston 22,170 1.6% --- AA,UA,DL
Las Vegas 19,690 1 5% UA,US UA,US,G4
Orlando 11,090 0 8% --• AA,UA,DL,US
Pittsburgh 9,890 0 7% --- AA,US,UA,DL
Omaha 9,670 0 7% -•• UA,US,AA,DL
Cleveland 9,140 07% --• AA,CO,Us,CO
Fart Lauderdale 8 830 D 7% --- AA,Us,DL,CO
Subtotal 90,450 6.7%
Subotal Top 30 992 320 73.6%
Total PSP 1 348 220 100.0%
Note An effective Competitor is defined a;a carrier wdp 10%or greater market share
Source US DOT O&D Survey via Dmabase Products Inc CAG February 2008
Palm Springs International Airport Market Analysis Update, March 31, 20138 Page 1S
000149
SH&E
3.2 FUEL
Fuel costs have increased dramatically for the airline industry over the past five years and exert enormous
pressure on airline profitability and air fares. The price of crude oil more than doubled from
approximately $31 per barrel in 2003 to an average S66 for the year 2006. Through the middle of 2007,
oil prices declined by about 8%, then rose sharply during the 41h quarter 2007, and continued to rise
through mid-March 2008 (the date of this report). As of March 12"', erode oil prices were S105 per
barrel, or 75%above the March 2007 price of$60 per barrel. Based on the oil futures prices, tic price of
oil is projected to remain at this level through 2008 and then decline to approximately $100 per barrel in
2009 and thereafter.
Based on these oil price trends, the average cost of airline fuel is projected to increase by approximately
45% in CY 2008, as compared to CY 2007. With fuel costs representing over 30% of the total costs of
domestic airline operations, the industry would need approximately a 15% increase in average fares to
fully offset the higher cost of fuel.
However,airlines have not been able to simply pass along the higher costs of fuel in their passenger fares.
They have in the past absorbed much of the increased costs through cost reductions in other areas of
operations, including reductions in service and capacity,and in the form of reduced profits.
Therefore, if oil price levels remain at $100 per barrel for the foreseeable future, it is probable that
average domestic tares will increase by 10% or more in 2008. This would be several percentage points
higher than the 8% to 9% increase in domestic fares in 2006 and would adversely affect traffic growth
nationally and at PSP.
3.3 WEAKENING U.S. ECONOMY
As of March 2008, there are considerable indications that the U.S. economy may be heading into a
recession during this year. The growth in U.S. Real GDP during the 41h quarter 2007 dropped to 0.6%,
from 4.9% in the prior 3rd quarter. Real GDP growth for the calendar year 2007 was 2.2%, as compared
to 2.9% in 2006. Although airline bookings remained relatively strong during the first quarter 2008,there
are reports of reduced bookings for the 2nd and 3rd quarters.
1n short,the prospects for growth in domestic air travel during 2008 will be challenging. The FAA, in its
recently released forecast of for domestic air travel, predicts only a 1% growth in enplanentents for the
fiscal year(ending September 30)2008.
Palm Springs International Airport Market Analysis Update, March 31 2008 Page 18
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SH&E
3.4 ASSESSMENT OF SH&E'S MARCH 2O06 FORECASTS OF PSP TRAFFIC
The 2006 Forecast projected PSP's enplanements to grow at the rate of 4.4% for the 2005-2010 period,
and then at annual rates of approximately 3.6%per year for the remaining 18 years Of the forecast period
(to 2028)- Notwithstanding the likelihood that there may be a negative variance in the traffic growth
expected at PSP in 2008 as compared to the March 2006 report, SI-I&E does not consider it to be material
to the overall, long term projection of PSP enplanements in that report.
As previously noted, PSP's actual enplanements growth for 2005-2007 exceeded the March 2006
projected growth for the same two years, by a total of 3.6 percentage points. Assuming that PSP traffic
grows by only 1% in 2008, which is the FAA predicted growth rate for FY 2008,then PSP's 2008 traffic
would be right on track with the 2006 Forecast-
It is important to note that PSP's enplanement growth rate has substantially exceeded the national average
during the past two years, as well as the growth rate of other Southern California airports. For the 2005-
2007 period, PSP annual traffic growth rate was 4.8 percentage points above the national average for
domestic traffic (6-3% versus 1.5%) and has exceeded the national average growth rate for the 2000-2007
period by 23 percentage points.
The 2006 Forecast of PSP enplanements was derived by first forecasting domestic U.S. enplanements and
then adding a growth differential of 0.6 percentage points through 2010, 0.5 points, through 2015 and
decreasing gradually to 0.2 percentage point differential toward the end of the forecast period.
The FAA's recent forecast of domestic enplanements projects a 1.0% growth rate in 2008, but then 3-3%
and 3.6% in 2009 and 2010, and approximately 2.9% each year through 2015. If it is assumed that PSP
would have a positive 0.5 to 0.6 annual percentage point differential relative to the national growth rate,
then these growth rates continue to match the 2006 Forecast, both in individual years, and for the entire
period- For example, the FAA national domestic enplanements growth rate for 2008-2013 is 3.0%.
Adding the 0.6 percentage point differential would imply a 3.6% growth rate for PSP traffic. The 2006
Forecast predicted a 3.7%growth rate for the 2008-2015 period.
Therefore, based on the consideration of the actual growth of PSP traffic in 2006 and 2007, and
assessment of market conditions as of March 2008, SH&B considers the 2006 Forecast to continue to be
valid.
Palm Springs International Airport Market Analysis Update, March 31, 2008 Pa a 20
D001 ..
SH&E
Exhibit 3.3 Comparison of PSP Enplaned Passenger Growth
FAA Forecast(March 2008) Adjusted PSP Enplanement Forecast SH&E Ra"o
US Domestic Growth Est. PSP Adjusted Adjusted Mar.2006 Adj.Forec
Year Enplanements Over 0
�Mjllons) Year vs US Growth Growth Forecast Forecast Forecaso
(1) (2) (3) (4) (5) (6) (7) (8)
2007 6894 798 088 771 337 1 03
2008 696.2 1.0% 0.6% 1.6% 810,749 806,047 1.01
2009 720.6 3.5% 0.6% 4.1% 844,028 840,707 1,00
2010 7462 3 6% 0 6% 4 2% 879.077 874.335 1.01
2011 7670 2 8% 0 5% 3 3% 907,976 907,560 1,00
2012 7804 20% 0.5% 3 4% 939,033 940,232 1.00
2013 8126 29% 0.5% 340/. 971,326 973,140 1.00
2014 8346 2.7% 0.5% 32% 1,002,480 1,007,200 1.00
2015 859.0 2.9% 0.5% 3.4% 1,036,800 1,041,445 1.00
2008-16
AAGR 3,0% 36% 37%
Notes to Columns
Col(1) 2007 is actual for U.S and Adjusted PSP enplancments
Col(2)and(3) From FAA Aerospace Forews s,FY 2006�2025 March 2008 To71e 5
Col(4) Based on SHOE March 2006 forecast assumption(see p C-67 of March 2006 report)
0ol(5) Col(3)plus(:ol(4)
Col(6):FY 2007 PSP enplanements increase by growth rate in Cal(5)
Col(7).From SHBE March 2006 report Exhibit 4 9
Col(a).Col(6)divided by Col(7)
Palm Springs International Airport Market Analysis Update, March 31, 2008 Page 21
000152
APPENDIX D
CITY AUDITED FINANCIAL STATEMENTS
D_,
000153
APPENDIX E
FORM OF CONTINUING DISCLOSURE CERTIFICATE
This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the
City of Palm Springs (the "Issuer") in connection with the issuance of its $7,000,000* 2008 Airport
Passenger Facility Charge Subordinate Refunding Revenue Bonds, (Palm Springs international Airport)
(the-Bonds")- The Bonds are being issued pursuant to an Indenture of Trust dated as of April 1, 2006,as
supplemented by a First Supplement to Trust Indenture dated as of' May 1, 2008 (the "Indenture')
between the Issuer and The Bank of New York Trust Company, N.A. (the"Trustee"), The City covenants
and agrees as follows:
SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed
and delivered by the City for the benelwt of the Bond Owners and in order to assist the Participating
Underwriters in complying with S.E.C. Rule 15e2-12(b)(5).
SECTION 2. Definitions. In addition to the delinitions set forth in the Indenture, which apply to
any capitalized term issued in this Disclosure Certificate unless otherwise defined in this Section, the
following capitalized terms shall have the following meanings:
"Annual Report" shall mean any Annual Report provided by the City pursuant to, and as
described in, Sections 3 and 4 of this Disclosure Certificate.
"Dissemination Agent" shall mean the Trustee, or any successor Dissemination Agent designated
in writing by the City and which has filed with the City a written acceptance of such designation.
"Listed Events"shall mean any of the events listed in Section 5(a)of this Disclosure Certificate.
"National Repository shall meats any Nationally Recognized Municipal Securities Information
Repository for purposes of the Rule. Information on the National Repositories as of a particular date is
available on the Internet at www.sec.gov/consumer/nnnsir.htni.
"Official Statement- shall mean the final Official Statement dated relating to the
Bonds.
"Participating Underwriter"shall mean any of the original underwriters of the Bonds required to
comply with the Rule in connection with offering the Bonds.
"Repository"shall mean each National Repository and each State Repository.
"Rude" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934,as the same may be amended from time to time.
"State Repository"shall mean any public or private repository or entity designated by the State of
California as a state repository for the purpose of the Rule and recognized as such by the Securities and
Exchange Commission.As of the date of this Disclosure Certificate,there is no State Repository.
*Preliminary,subject to change.
E-1
QQ0154
SECTION 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than March 31 of
each year, commencing March 31, 2009, provide to each Repository an Annual Report which is
consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than fifteen
(15) days prior to said date,the City shall provide the Annual Report to the Dissemination Agent.
The Annual Report may be submitted as a single document or as separate documents comprising
a package, and may cross-reference other information as provided in Section 4 of this Disclosure
Certificate, provided that the audited financial statements of the City may be submitted separately
from the balance of the Annual Report-
(b) if the City is unable to provide to the Repositories an Annual Report by the date
required in subsection (a), the City shall send a notice to each Repository or to the Municipal
Securities Rulemaking Board in substantially the form attached as Exhibit A.
(c) The Dissemination Agent shall: (i) determine each year prior to the date for
providing the Annual Report the name and address of each National Repository and each State
Repository, if any; and (ii) file a report with the City certifying that the Annual Report has been
provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the
Repositories to which it was provided.
SECTION 4. Content of Annual Reports, The Annual Report of the City shall contain or cross-
reference the following:
(a) Audited Financial Statements of the City prepared in accordance with generally
accepted accounting principles as promulgated to apply to governmental entities from time to
time by the Govemmental Accounting Standards Board. If such audited financial statements are
not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the
Annual Report shall contain unaudited financial statements in a format similar to the financial
statements contained in the final Official Statement, and the audited financial statements shall be
filed in the same manner as the Annual Report when they become available.
(b) Unless otherwise provided in the audited financial statements filed on or prior to
the annual filing deadline for the Annual Reports provided for in Section 3 above, financial
information and operating data with respect to the City for the preceding fiscal year, substantially
similar to that provided in the following corresponding tables in the Official Statement:
Table No. I — Historical Enplanements; Table No. 3 - Airline Market Share by Airline;
Table No. 4 — Historical PFC Revenues; Table No. 5 -Airport Enterprise Fund Statement of Net
Assets; Table No. 6 - Airport Enterprise Fund Statement of Revenues, Expenses and Changes in
Fund Net Assets; and Table No. 9 — PFC Revenues and Bond Redemption. In addition, the City
shall provide information on any special mandatory redemption of the Bonds from the Remaining
Revenues.
Any or all of the items listed above may be included by specific reference to other
documents, including official statements of debt issues of the City or related public entities,
which have been submitted to each of the Repositories or the Securities and Exchange
Commission. If the document included by reference is a final official statement, it must be
available from the Municipal Securities Rulemaking Board. The City shall clearly identify each
such other document so included by reference.
E-2
000155
SECTION 5. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be
given, notice of the occurrence of any of the following events with respect to the Bonds, if
material:
(1) Principal and interest payment delinquencies.
(2) Non-payment related defaults.
(3) Unscheduled draws on debt service reserves reflecting financial difficulties.
(4) Unscheduled draws on credit enhancements reflecting financial difficulties.
(5) Substitution of credit or liquidity providers, or their failure to perform.
(6) Adverse tax opinions or events affecting the tax-exempt status of the security-
(7) Modifications to rights of security holders.
(8) Contingent or unscheduled bond calls-
(9) Defeasances.
(10) Release, substitution,or sale of property securing repayment of the securities.
(11) Rating changes-
(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the
City shall as soon as possible determine if such event would be material under applicable Federal
securities law.
(c) If the City determines that knowledge of the occurrence of a Listed Event would
be material under applicable Federal securities law, the City shall promptly file a notice of such
occurrence with the Municipal Securities Rulcmaking Board and each State Repository.
Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9)
need not be given tinder this subsection any earlier than the notice(if any)of the underlying event
is given to holders of affected Bonds pursuant to the Indenture.
SECTION 6. Termination of Reporting Obligation. The City's obligations under this Disclosure
Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the
Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of
such termination in the same manner as for a Listed Event under Section 5(c).
SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a
Dissemination Agent to assist it in carrying out their obligations under this Disclosure Certificate, and
may discharge any such Dissemination Agent, with or without appointing a successor Dissemination
Agent_ If at any time there is not any other designated Dissemination Agent, the Trustee shall be the
Dissemination Agent. The Dissemination Agent may resign by providing thirty days'written notice to the
City and the Trustee. Upon receiving notice of such resignation, the City shall promptly appoint a
successor Dissemination Agent by an instrument in writing. Any resignation or removal of the
Dissemination Agent shall become ofTective upon acceptance of appointment by the successor
Dissemination Agent.
If no appointment of a successor Dissemination Agent shall be made pursuant to the foregoing
provisions of this Section within forty-five (45) days after the Dissemination Agent shall have given to
the Issuer written notice or after a vacancy in the oflice of the Dissemination Agent shall have occurred
by reason of its inability to act, the Dissemination Agent or any beneficial owner may apply to any court
E-3
of competent jurisdiction to appoint a successor Dissemination Agent. Said court may thereupon, after
such notice, if any,as such court may deem proper, appoint a successor Dissemination Agent.
If, by reason of the judgment of any court, or reasonable agency, the Dissemination Agent is
rendered unable to perform its duties hereunder, all such duties and all of the rights and powers of the
Dissemination Agent hereunder shall be assumed by and vest in the City in trust for the benefit of the
beneficial owners. The City covenants for the direct benefit of the beneficial owners that its Treasurer in
such case shall be vested with all of the rights and powers of the Dissemination Agent hereunder, and
shall assume all of the responsibilities and perform all of the duties of the Dissemination Agent hereunder,
in trust for the benefit of the beneficial owners of the Bonds. In such event,the Treasurer may designate a
successor Dissemination Agent qualified to act as Dissemination Agent hereunder.
SECTION S. Amendment; Waiver. Notwithstanding any other provision of this Disclosure
Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure
Certificate may be waived, provided that the following conditions are satisfied (provided however, no
amendment increasing or affecting the obligations or duties of the Dissemination Agent shall be made
without the consent of the Dissemination Agent):
(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it
may only be made in connection with a change in circumstances that arises from a change in legal
requirements, change in law, or change in the identity, nature, or status of an obligated person
with respect to the Bonds,or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the
opinion of nationally recognized bond counsel, have complied with the requirements of the Rule
at the time of the primary offering of the Bonds, after taking into account any amendments or
interpretations of the Rule, as well as any change in circumstances;and
(c) the proposed amendment or waiver either(i) is approved by holders of the Bonds
in the manner provided in the Indenture for amendments to the Indenture with the consent of
holders, or (n) does not, in the opinion of nationally recognized bond counsel, materially impair
the interests of the holders or beneficial owners of the Bonds.
If the annual financial information or operating data to be provided in the Annual Report is
amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto
containing the amended operating data or financial information shall explain, in narrative form, the
reasons for the amendment and the impact of the change in the type of operating data or financial
information being provided.
If an amendment is made to the undertaking specifying the accounting principles to be followed
in preparing financial statements, the annual financial information for the year in which the change is
made shall present a comparison berween the financial statements or information prepared on the basis of
the new accounting principles and those prepared on the basis of the former accounting principles. The
comparison shall include a qualitative discussion of the differences in the accounting principles and the
impact of the change in the accounting principles on the presentation of the financial information, in order
to provide information to investors to enable them to evaluate the ability of the City to meet its
obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the
change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed
Event under Section 5(c).
F:4
` 01J57
SECTION 9, Additional Information. Nothing in this Disclosure Certificate shall be deemed to
prevent the City from disseminating any other information, using the means of dissemination set forth in
this Disclosure Certificate or any other means of communication, or including any other information in
any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this
Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of
occurrence of a Listed Event in addition to that which is specifically required by this Disclosure
Certificate, the City shall have no obligation under this Disclosure Certificate to update such information
or include it in any future Annual Report or notice of occurrence of a Listed Event.
SECTION 10. Default. In the event of a failure of the City to comply with any provision of this
Disclosure Certificate, any Participating Underwriter or any holder or beneficial owner of the Bonds may
take such actions as may be necessary and appropriate, including seeking mandate or specific
performance by court order, to cause the City to comply with its obligations under this Disclosure
Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the
Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City or
the Trustee or the Dissemination Agent to comply with this Disclosure Certificate shall be an action to
compel performance.
SECTION 11. Duties. Immunities and Liabilities of Dissemination Agent. The Dissemination
Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City
agrees to indemnify and save the Dissemination Agent (if other than the City), its officers, directors,
employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of
or in the exercise or performance of its powers and duties hereunder, including the costs and expenses
(including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the
Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid
compensation by the City for its services provided hereunder in accordance with its schedule of fees as
amended from time to time and all expenses, legal fees and advances made or incurred by the
Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the
Trustee shall have no duty or obligation to review any information provided to it hereunder and shall not
be deemed to be acting in any fiduciary capacity for the City, the Bond Owners, or any other party. The
obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent
and payment of the Bonds.
SECTION 12. Counterpart. This Disclosure Certificate may be executed in counterparts, each of
which shall constitute an original signature page thereof.
SECTION 11 Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the
City, the Dissemination Agent, any Participating Underwriter and holders and beneficial owners from
time to time of the Bonds, and shall create no rights in any other person or entity.
Date: ,2008
CITY OH PALM SPRINGS
By:
F-5 t� C
•Q�QlC�
EXFIIBIT A
NOTICE OF FAILURE.TO PILE ANNUAL REPOIZT
Name of Issuer: City of Palm Springs
Name of Bond Issue: 2008 Airport Passenger Facility Charge Subordinate Relunding Revenue Bonds
(Palm Springs International Airport)
Date of Issuance: ' 2008
NOTICE IS HEREBY GIVEN that the City of Palm Springs, California(the"City") has not provided an
Annual Report with respect to the above-named Bonds as required by that certain Indenture of Trust,
dated as of April 1, 2006, as supplemented by a First Supplement to Trust Indenture dated as of May 1,
2008, between the City and The Bank of New York Trust Company,N.A., as trustee. The City anticipates
that the Annual Report will be filed by
Dated:
CITY OF PALM SPRINGS
By
cc: Trustee
E-6
1000159
APPENDIX F
DTC AND THE BOOK-ENTRY ONLY SYSTEM
The following description of the Depository Trust Company ("DTC'), the procedures and record
keeping with respcet to beneficial ownership interests in the Bands, payinent of principal, interest and
other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of
beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC
Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no
representations can be made concerrhirig these matters and neither the DTC Participants nor the
Beneficial Owners should rely an the foregoing information with respect to such matters, but should
instead c'ohfirm the same with DTC nr the DTC Participants, as the case may be.
Neither the issuer of the Bonds (doe 'issuer-) nor the trustee, fiscal agent or paving agent
appointed with respect to the Bonds (the "Agent') take any responsibility for the irifornnatinrn contained in
this Appendix.
No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute
to the Beneficial Owners (a)payments of interest, principal or premium, if any, with respect to the Bonds,
(b) certificates representing ownership interest in or other confirmation or ownership interest in the
Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered
owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC
Indirect Participants will act in the manner deecrihed in this Appendix The current "Rules" applicable
to DTC are on file with the &curiticv and Exchange Co mission and the current "Procedures" of DTC
to be followed in dealing with DTC Participants are on file with DTC.
i. The Depository Trust Company("DTC"),New York,NY,will act as securities deposirory
for the securities (the "Securities"), The Securities will be issued as fully-registered securities registered
in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an
authorized representative of DTC. One fully-registered Security certificate will be issued I'or each issue
of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC.
If, however, the aggregate principal amount of any issue exceeds S500 million, one certificate will be
issued with respect to each $500 million of principal amount, and an additional certificate will be issued
with respect ro any remaining principal amount of such issue.
2. DTC, the world's largest securities depository, is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a"clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset
servicing for over .3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt
issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct
Participants")deposit with DTC. DTC also facilitates the posrtrade settlement among Direct Participants
of sales and other securities transactions in deposited securities, through electronic computerized book-
entry transfers and pledges between Direct Participants' accounts. 'this eliminates the need for physical
movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers
and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a
wholly-awned subsidiary of The Depository Trust & Clearing Corporation (DTCC). DTCC is the
holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing
Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated
subsidiaries. Access to the DTC system is also available ro others such as both U.S. and non-U.S_
securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or
maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect
F-I
-ODOI60
Participants")- DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its
Participants are on file with the Securities and Exchange Commission. More information about DTC can
be found at www.dtcc.com and wwwAtc.org. The information contained on this bzlcrnel 511E iS nnl
incorporated herein by reference.
3. Purchases of Securities under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of
each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and
Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their
purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of
the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the
Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting
on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their
ownership interests in Securities,except in the event that use of the book-entry system for the Securities is
discontinued.
4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with
DTC are re.gistercd in the name of DTC's partnership nominee, Cede & Co., or such other name as may
be requested by an authorized representative of DTC. The deposit of Securities with DTC and their
registration in the name of Cede&Co. or such other DTC nominee do not effect any change in beneficial
ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records
reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which
may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible
for keeping account of their holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct Participants, by
Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take
certain steps to augment the transmission to them of notices of significant events with respect to the
Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents.
For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the
Securities for their benefit has agreed Io obtain and transmit notices to Beneficial Owners. in the
alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request
that copies of notices be provided directly to them.
G. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue
are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct
Participant in such issue to be redeemed.
7. Neither DTC nor Cede & Co. (nor any other OTC nominee) will consent or vote with
respect to Securities unless authorized by a Direct Participant in accordance with DTC's MMI
Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after
the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts Securities are credited on the record date(identified in a listing attached to
the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the Securities will be
made to Cede& Co., or such other nominee as may be requested by an authorized representative of DTC.
DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding
detail 'information from Issuer or Agent, on payable date in accordance with their respective holdings
shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for the accounts of customers in
r-z
19001aj
bearer form or registered in "street name," and will be the responsibility of such Participant and not of
DTC,Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect firm time
to time. Payment of redemption proceeds, distributions, and dividend payments to Cede &; Co. (or such
other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer
or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and indirect
Participants.
9. DTC may discontinue providing its services as depository with respect to the Securities at
any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a
successor depository is not obtained, Security certificates are required to be printed and delivered.
10. Issuer may decide to discontinue use of the system of book-entry-only transfers through
DTC (or a successor securities depository). In that event, Security certificates will be printed and
delivered to DTC.
I I. The information in this section concerning DTC and DTC's book-entry system has been
obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the
accuracy thereof.
F-3
APPENDIX G
FORM OF POND COUNSEL OPINION
G-' .00 OIL 63
STONE &
YOU N G BERG 515 South f5gueioa Street,Suite 1300 Los Angeles,California 90071 (213)413-5000
MEMORANDUM
Date: April 7,2008
To: David Ready, City Manager,City of Palm Springs
From: Sara Oberlies,Stone&Youngberg
Scott 501lers,Stone&Youngberg
Parker Colvin,Stone&Youngberg
Re: Palm Springs International Airport
2008 Airport Passenger Facility Charge Subordinate Refunding Revenue Bonds
Non-Rated Interest Rate Movement
cc: Suzanne Harrell,Harrell&Company Advisors-LLC
As you are aware, the Palm Springs Intctnauonal Airport is considering selling 2008 Airport Passenger
Facility Charge Subordinate Re ending Revenue Bonds (the "2008 PFC Bonds") to refinance its
outstanding 1998 General Airport Revenue Bonds,which are callable in July 2008. Because the 2008 PFC
Bonds have a pledge of PFC Revenues subordinate to the outstanding passenger Facility Charge Revenue
Bonds,Series 1998,the 2008 PFC Bonds would not qualify for an investment grade rating. Instead,like the
2006 Airport Passenger Facility Charge Subordinate Refunding Revenue Bonds, the 2008 PFC Bonds
would be sold without an mvestinemt grade rating Over the last twenty years, there has been a wide
investor marker for non-fared municipal securities, largely driven by the preponderance of land-secured
credits such as Mello-Roos and assessment district bonds, Due to market and economic factors, in
particular the "can't lose" attitude towards real estate investments, as little as nine months- ago, the interest
race spread between the strongest land-secured credits—as measured by the ration of the appraised/market
value to die debt being sold— and "AAA" high-grade credits was approxnnately 50 basis points (0.50%).
For example, at that time, "AAA"-rated bonds were yielding app=imately 4,75% and strong non-rated
bonds were yielding 525%. Weaker non-rated credits —lower value-to-hen rauos— were experiencing a
spread to `.AAA" dcbL only slightly greater than this While those of us who had operated in this arena
during the 1980s and 1990s considered these levels- an historic low by,issuers and investors alike had grown
accustomed it, As depicted to the chart below, the spread since "Pfe-August" (which is about the time
Stone&Youngberg began speaking with the Airport's financial advi or about the proposed refinancing) has
widened considerably,and even widened since in February when the proposed refinancing was presented to
the Airport Commission and"Now"for Cahfomia non-rated land-secured bonds
CALIFOPNIANON-RATEDBONDS
Value to Spad to "AAA"
Lien Pre-Aug.2007 ® Now
>25:1 50bp 125bp 125-150bp
6:1 to 101 60bp 150-175bp 150-200bp
3 1 to 4:1 751) 175.200b 200-250b
000164
David Ready,City of Palm Springs
April 7,2008
Page 2 of')
So what has happened? Beginning in trid Sugmt, in lust a few week period of time, interest rates for the
strongest non-rated credits in California moved from about 5.25% to 5,75%. Rates took a breather in
Scptcmbet/October,and then shot up again from 5,75%to over 625%u. They stabilized in the first month
or so of calendar year 2008,but then were further eased when in the middle half of February,the municipal
market experienced fifteen straight days of municipal market dcgmdation lead to investment grade interest
rates that were 85 basis points higher than they had been three weeks earlier. While nonrated rates did not
suffer an 85 basis point movement, they did suffer further widening of credit spreads that has lead to
generally higher levels. Today, Stone & Youngberg is able to sell the very best credits at interest rates
around 6.25% and weaker, 4!1 credits at of over 7% While the proposed 2008 PVC Bonds do not carry
with them a value-to-Gin Alce land-secuted bonds, we believe they would be priced at interest rates
vety similar to mid value-to-lien land-secured credits.
While the dramatic incicas'es in rates slid nor occur until August, the issues in the land-secured market had
begun in the beginning of 2007 as the residential real estate market showed signs of weakening. Because of
this weakening, some large buyers of land-seclrcd bonds started increasing their underwriting standards.
Some were even backing out of the market altogether. In August, the situation intensified with the first
wave of the credit crisis stemmvag from losses in the subprime mortgages and assets backed by subprime
mortgages. It became more profound in November when it became apparent That the depreciation in
financial assets was bigger and will last longer and effect more sectors than expected. Investors became
more conservative investing in safer, more liquid assets basal on finrdamewal credit concerns. Essentially,
fears of an economic recession, negative home sales reports from all residential markets and from all
homebuddcrs and continued fallout from exposure to subprime mortgage holdings was leading to a general
rc-pricing of risk and liquidity.
Finally,the rates at which the proposed 2008 PFC Bonds can be sold are influenced by the fact that interest
on such bonds is subject to the Alternative Minimum Tax C AMT' With more individuals being subject
to AMT,AMT is becoming a larger consideration in the retail marketing of such bonds. Unformnatcly, the
AMT penalty has also widened since August,and even since February. In February, comparable Alvfl'bond
issues were showing a penalty of 50 basis points on the short end of the yield curve and 25 basis points on
the long end. T his has grown to 75 basis points on the short end and 35 basis points on Tic long end.
Conclusion. While the municipal market has settled down in March through early April, Stone &
Youngberg does not behevc there will be wides-prcad improvements in non-rated interest rates over The next
nine to twelve months. Nan-rated rates are nor likely to improve until both the general liquidity in the
financial markets is restored and die real estate market shows sustained signs of improvement. While
opinions on when these might occur vary widely,most real estate professionals do not believe we have hit
the nadir of the mortgage default crisis,
On a positivc note,Stone&Youngberg was extremely pleased with the mrcrcst we received from investors
two years ago when we sold the 2006 PFC Bond. The 2006 PFC Term Bonds maturing in 2020 and 2028
were both 10-times over subscribed, allowing us to decrease rates- in the final pricing. Such strong response
was due in large part by these being a relatively unique credit among non-rated credits. Stone&Youngberg
hopes to stimulate a similar strong response from institutional investors by structuring the bonds with
intermediate term bonds of at least$1 million and by implementing,heavy marketing to the same invesuirs
who bought the 2006 PFC Bonds. As it stands today,we believe we will be able to sell the proposed 2008
PFC Bonds within the requisite debt service coverage constraints.
ooO�CJ ai