Exploring a Sewer Sale

Introduction to PFM’s Asset Monetization Advisory Practice

February 22, 2022

Prepared by:
PFM Financial Advisors LLC

PFM Financial 213 Market Street 717.232.2723

Advisors LLC
Harrisburg, PA 17101 pfm.com

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 PFM Financial Advisors LLC Overview †
PFM’s #1
Rankings for 2020‡ Nation’s #1 ranked PFM's First Place Ranking
Overall Long Term
1998 - 2020

- Overall
Type
Independent Financial Par Amount # of

Advisor ‡
(millions) Transactions
- Negotiated
2020 75,941 922
- Tax-exempt
2019 78,407 1,003
- Taxable
2018 63,501 791
- Revenue
- General Obligation
• Leading financial advisor to state and 2017 84,137 923

- Bank Qualified local governments in the nation, and 2016 94,580 1,192
2015 81,916 1,040
- Refunding advised on over $75 billion of bond
- Variable Rate 2014 69,911 852
issuance in 2020. ‡ 2013 68,045 824
Sector 2012 79,032 957
- Primary/ Secondary Education 31 PFM locations across the U.S.* 2011 56,072 804
- Higher Education 2010 90,405 1,065
- Airports 2009 87,986 984
- Public Power 2008 69,791 841
- Utilities 2007 64,968 769
- Industrial Development 2006 52,832 783
- Tobacco Settlement 2005 50,546 961
2004 43,353 875
Region 2003 45,752 946
- Pennsylvania 2002 37,840 902
- Midwest 2001 34,630 876
- Southeast 2000 20,896 571
1999 12,070 409
*As of December 7, 2021 1998 13,947 423
† PFM Financial Advisors LLC and our former affiliate Public Financial Management, Inc.
‡Ranked by Ipreo for calendar year 2020, based on principal amount and number of Source: Ipreo
transactions.

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The PFM Asset Monetization Team
1) How PFM Got Started in the Business

• Each of PFM’s asset monetization team members started as (and still is) a certified Series 50
independent municipal financial advisor that assists clients with financing and refinancing debt
issuances.

• PFM has been the #1 ranked financial advisor for sewer and water transactions for over 20 years, and
about 10 years ago, one of our clients approached us about the idea of monetizing their utility system.

• PFM led a state-of-the-art process (which we still use today) that won the Bond Buyer Deal of the Year
Award and the client’s water and sewer systems were successfully monetized.

2) Why Go Through a Process?

• Typically, the sale of a utility system will be one of the most impactful, transformative transactions a
municipality will ever entertain and can sometimes be challenging for political leaders. Therefore, it’s
extremely important that the exploration is done the right way and there is a strong team in place.

3) Are Other Similar Municipalities Exploring the Same Thing?

• Yes. PFM has assisted over 35 Pennsylvania municipalities in exploring a sale, some of which decided
to sell and some that decided not to sell.

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How Can PFM Help?
1) Assessing the Situation

• Our first task will be to gather information from the Township about the system.

• What is the current status of operations and what are the goals of the Township?

• Based on these goals, what options are available?

2) Analyzing How a Sale May Affect the Township

• If the Township decides it would like to explore the sale of its system, PFM will make sure that
leaders understand the potential effects (both positive and negative) the sale could have on
customers and financials.

• In Phase 2, PFM can develop a financial model that analyzes keeping the system vs. selling the
system (explained in more detail on a later slide).

• If the Township decides to move forward with a sale, PFM has developed a market-tested
competitive sale process that has proven effective many times over and delivers:

• A satisfactory sale price through a competitive and transparent process

• Rate visibility

• Comfortability with the new service provider

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Important Issues to Consider When Exploring a Monetization
1) Rates – There can be protections built into any agreement for customers of the system.

• Arrangements can have a “rate freeze” period if desired

• PFM can compare the Township’s current rates to the rates of potential bidders

2) Employees – It is important that protections for current Township employees are a part of
any deal that gets made. (typically, all employees are offered employment with Buyer)

3) Public Outreach – PFM can assist the Township with explaining the sale process to its
constituents including presentations, public hearings, and information sessions.

4) Purchase Price – How could a large cash infusion affect the Township?

• Is there a breakeven between the purchase price and any potential rate increases?

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 PFM’s Typical Asset Monetization Process

Phase 1: • Determine range of value for the system

• Research private sector/municipal authority
1-3 Months Analysis & interest and capabilities
• Explore impacts of monetization on Township
Valuation customers and financials

Phase 2: •Analyze keeping the system vs. selling the system

•Develop & Release Request for Qualifications (“RFQ”)
•Pre-qualify bidding team and initiate due diligence

4-6 Months Due •Determine transaction structure

•Finalize preferred procurement process & legal documents
Diligence •Develop & Release Request for Bids (“RFB”)
•Evaluate proposals and select winner
Development •Initiate stakeholder outreach and education

• After winner selected, initiate closing process

Phase 3: • Further due diligence
1-15 Months Transaction • Proceed through regulatory process (if
required)
Execution • Close transaction

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Phase 1 – Analysis & Limited-Scope Valuation
1) Big Picture – Valuation is Phase 1 of a 3-step process (should the Township want to
proceed). Phase 1 Phase 2 Phase 3
Analysis & Due Diligence Transaction
Development Execution
Valuation

2) The goal of Phase 1 is to provide Township decision makers with the information they
need to make informed decision about whether to proceed with a sale.

3) PFM typically proposes a flat fee for Phase 1 to be paid at the conclusion of the
limited-scope valuation.

•If the Township wishes to proceed after that, PFM typically proposes a contingent
contract agreement whereby PFM only gets paid if the transaction closes.

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Phase 2 – Keep vs. Sell Analysis & Due Diligence Development
1) Keep System vs. Sell System Analysis – PFM’s Financial Modeling

• Our financial model will help answer the question, “What does the future of the utility system look like if
the Township keeps the system vs. if it sells the system?”

• What will the effect on rates be if the system is sold?

• How much will the Township have to raise rates in the future if the system is not sold?

• How would the large influx of cash from the sale help the Township?

2) Due Diligence Development

• PFM will guide the Township and other professionals in structuring the transaction, guiding bidders
through due diligence, and communicating with interested stakeholders.

• We will work closely with the Township solicitor as well as a special legal counsel if hired by the
Township in order to draft the asset purchase agreement, provide input on the bid process, and assist
with the PUC process and other closing requirements.

• Ultimately, PFM will develop a Request for Bids document that is released to pre-qualified bidders and
then help analyze the results of the bid.

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Phase 3 – Transaction Execution (if applicable)
1) Closing Process

• If a satisfactory bid is received, PFM will guide the deal team through the closing process
which will include:

• Constant communication with the purchaser (weekly meetings at a minimum).

• Engaging firms to perform the Engineering Assessment and Utility Valuation per Act 12
guidelines.

• Assist legal counsel with the process of getting approval from the PA PUC.

2) Use of Proceeds

• PFM always stresses with clients that the use of the sale proceeds is extremely important.

• Proceeds should not be used to fill one time budget holes, but instead should be used
for long-term assets and to provide the Township with future financial flexibility.

• PFM can assist the Township in developing a plan for the use of proceeds.

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 Act 12 Public Utility Commission Process
1) Act 12 allows the seller of utility assets to sell for the Fair Market Value instead of only the depreciated
original cost.

• May result in a higher purchase price for the assets.

• Long, exhaustive process with thousands of documents submitted to the PUC for review (and testimony given).

• PUC has six months from the date of acceptance of the acquisition filing to issue a final order either approving or
denying the sale.

2) Act 12 - Valuation Process

• At beginning of the PUC process, seller and buyer split the cost of an engineer to develop a list of system assets.

• Then the seller and the buyer each hire an independent utility valuation expert (UVE).

• Each UVE will provide a Fair Market Value appraisal for the system.

• The appraisals will then be averaged, and that value will be considered the Fair Market Value.

• The appraisals, the FMV, the purchase price and the Seller’s existing tariff (and rate stabilization plan, if applicable)
shall be included in Buyer’s application for PUC approval of the acquisition.

• Upon PUC final order approving the acquisition, the ratemaking rate base of Seller shall be the lessor of the purchase
price negotiated Buyer or the FMV (unless a settlement is reached).

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Tentative Timeline - For Discussion Purposes
Sample Timeframe Event
Feb 2022 Engage Financial Advisor (PFM) for Phase 1
Feb – March 2022 PFM gathers data and performs Phase 1 limited-
scope valuation
April 2022 PFM presents analysis & limited-scope valuation
results to Township
If Township decides to move forward after the Phase 1 limited-scope valuation:
April 2022 or later Release Request for Qualifications (“RFQ”)
May 2022 or later Receive RFQ responses
May 2022 or later Qualify bidders, sign Confidentiality Agreements
May – Aug 2022 or later Negotiate transaction documents & Meetings/Tours with
bidders
Sept 2022 or later Release Request for Bids (“RFB”)
Oct 2022 or later Receive RFB responses
Nov-Dec 2022 or later Board consideration of transaction with public meetings
TBD Financial Close – Varies based on type of purchaser

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Disclosure
ABOUT PFM

PFM is the marketing name for a group of affiliated companies providing a range of services. All services are provided through separate
agreements with each company. This material is for general information purposes only and is not intended to provide or give a specific
recommendation. Financial advisory services are provided by PFM Financial Advisors LLC which is a registered municipal advisor with the
Securities and Exchange Commission (SEC) and the Municipal Securities Rulemaking Board (MSRB) under the Dodd-Frank Act of 2010. Swap
advisory services are provided by PFM Swap Advisors LLC which is registered as a municipal advisor with both the MSRB and SEC, a commodity
trading advisor with the Commodity Futures Trading Commission, and a member of the National Futures Association. Consulting services are
provided through PFM Group Consulting LLC. PFM financial modeling platform for strategic forecasting is provided through PFM Solutions LLC.
For more information regarding PFM’s services or entities, please visit www.pfm.com.

The information and any analyses contained in this presentation are taken from, or based upon, information obtained from the recipient or from
publicly available sources, the completeness and accuracy of which has not been independently verified and cannot be assured by PFM. The
information and any analyses in these materials reflect prevailing conditions and PFM’s views as of this date, all of which are subject to change. To
the extent projections and financial analyses are set forth herein, they may be based on estimated financial performance prepared by or in
consultation with the recipient and are intended only to suggest reasonable ranges of results. Opinions, results, and data presented are not
indicative of future performance. Actual rates may vary based upon market conditions at the time of pricing. The printed presentation is incomplete
without reference to the oral presentation or other written materials that supplement it.

To the extent permitted by applicable law, no employee or officer of PFM’s financial advisory business, nor any of PFM’s affiliated companies,
accept any liability whatsoever for any direct or consequential loss arising from negligence or from any use of this presentation or its contents. Any
municipal financial product or financial strategy referenced may involve significant risks, including, but not limited to: market, interest rate, or credit
risk, and may not be suitable for all clients. The ultimate decision to proceed with any transaction rest solely with the client.

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 Thank You

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