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conversations with this attorney, on the east coast, he said that the IRS frowns upon us
<br />holding bond proceeds longer than three years. We were having trouble getting the
<br />projects out within three years. So I asked him to put this in writing, and he did, and it
<br />went through Bill Takaba, who was our finance director at the time. But anyway, this
<br />was a major reason why I looked for such a facility. The other reason was that the
<br />method that we were using was that as soon as we had a bond ordinance, we'd go out
<br />and issue long -term bonds for the amount of that authorization. So if the bond ordinance
<br />authorized SO million, we hire an underwriter and sell $SO million in bonds. And that
<br />way, the departments know that we actually have the cash on hand and they can go
<br />ahead and sign their contracts. The problem with this is that we get the $SO million, or
<br />whatever the amount is, and we put this in a bank, invest it, and usually the rate, the
<br />investment rate, is a lot lower than the bond rate. This is called negative arbitrage. So
<br />when we do this, and the longer we take to spend the money, the more negative arbitrage
<br />we have. So between the IRS not looking favorably on us spending the money taking
<br />too long to spend the money, and also the negative arbitrage, the solution for this was to
<br />find a short -term credit facility. So I began looking for such a facility, and there's all
<br />kinds of facilities out there. The facility at Bank of Hawai `i that we have with them is a
<br />private placement facility, so there is no prospectives or rating that is required. So this is
<br />one of the advantages of such a facility. So we're not in violation of any kind of
<br />securities regulation in that regard. The other types the most common facility is called
<br />a tax- exempt commercial paper program, but this involves getting a bank to issue a letter
<br />of credit, and what this does is that it ensures that when these commercial paper is rolled
<br />over, and the investor wants to sell them and he can't find a buyer, then that LOC bank
<br />will guarantee that they'll purchase it. So there's other types of facilities, there's like
<br />lines of credit, there's what they call a SIFMA index notes. So when I started to explore
<br />this, there were all these different types of facilities. So we went out and we hired an
<br />independent financial advisor, and as Ms. Crawford's letter notes, that she said there
<br />were six alternatives. Actually, there were more than that. But anyway, he compared
<br />everything and he determined that the Bank of Hawai `i facility was in the best interest of
<br />the County. So I feel that we did offer we did explore or research other alternatives.
<br />And as Mr. Cole mentioned, Bank of Hawai `i does have these other funds that they
<br />manage, and I have a chart here that illustrates that Bank of Hawai `i by far is the largest
<br />holder of County bonds, which means that they're the only financial institution in the
<br />state that is able to offer this particular program. So even if we went out to the other
<br />banks in the state or credit unions or whatever, other financial institutions, they have no
<br />way of accommodating us. So there's no—actually there's no basis of going out and
<br />trying to solicit these other banks. So this is a very customized facility. It took us 18
<br />months to put this thing together. And you have to realize that this time, during when
<br />we were trying to do this, we were right in the middle of a credit crisis. And we had this
<br />liquidity crisis where nobody was buying anything, even at whatever rate. And this whole
<br />deal almost fell apart, but we persisted at it, because the parties involved have this trust
<br />and respect for each other, and we had to try to accommodate SEC regulations, IRS
<br />regulations, banking regulations, our own needs and to try to craft a document to
<br />address all these needs was I mean the bond counsel went through half a dozen drafts
<br />trying to do this. So it was a long process. It wasn't like we're going to lunch and we're
<br />saying okay, let's do this. We did a long due diligence, and then just trying to put this
<br />thing together took a very longtime. So I think we I think we did something very
<br />beneficial for the County. It's a product that the Finance Department is very proud of.
<br />M
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