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City of Lino Lakes, Minnesota <br />May 16, 2006 <br />9. Credit Rating Comments <br />10. Term Bonds <br />11. Federal Treasury Regulations Concerning Tax - <br />Exempt Obligations <br />(a) Bank Qualification <br />(b) Rebate Requirements <br />• <br />An application will be made to Moody's Investors Service <br />for a rating on the Bonds. The City's general obligation <br />debt is currently rated "Al". <br />We have included a provision on the Bonds that permits <br />the underwriters to combine multiple maturity years into a <br />term bond, subject to mandatory redemption on the <br />same maturity schedule provided in the Terms of <br />Proposal. The advantage to the underwriter is that it <br />provides large blocks of bonds, which are more attractive <br />to bond funds, and certain pension funds. This in turn is <br />a benefit to the City since selling larger blocks of bonds <br />reduces the risk to the underwriter, allowing them to <br />lower their costs and the interest coupons. Since the <br />Bonds are being offered on a competitive bid basis and <br />awarded on the lowest true interest cost, the City will <br />award the Bonds to the best bid regardless of whether <br />term bonds are chosen or not. <br />Under Federal Tax Law, financial institutions cannot <br />deduct from income for federal income tax purposes, <br />expense that is allocable to carrying and acquiring tax - <br />exempt bonds. There is an exemption to this for "bank <br />qualified" bonds, which can be so designated if the issuer <br />does not issue more than $10 million of tax - exempt <br />bonds in a calendar year. Issues that are bank qualified <br />generally receive slightly lower interest rates than issues <br />that are not bank qualified. Since the City expects to <br />issue less than $10 million of tax - exempt obligations in <br />2006, these Issues are designated as bank qualified. <br />All tax - exempt issues are subject to the federal arbitrage <br />and rebate requirements, which require all excess <br />earnings created by the financing to be rebated to the <br />U.S. Treasury. The requirements generally cover two <br />categories: bond proceeds and debt service funds. <br />There are exemptions from rebate that may apply in both <br />of these categories. <br />Bond proceeds, defined generally as both the original <br />principal of the issue and the investment earnings on the <br />principal may qualifiy for the 6 -month , 18 -month and <br />- 5 8 - <br />Page 3 <br />