City and County of HonoluluWastewater System Revenue BondsInvestor Presentation

July 19, 2012

Timothy Houghton, Executive Assistant, City and County of Honolulu, Department of Environmental Services

1

Wastewater System Overview

The Department serves nine wastewater basins on the island of Oahu

Service Area: Nearly 600 sq. miles

Population Served: Approximately 640,000 (73% of the City and County)*

Customer Accounts: Approximately 144,400 (95% of which are residential)

Major Facilities:

9 wastewater treatment plants (combined FY 2012 average flow of 100 MGD)

70 pump stations

Approximately 2,100 miles of collection lines

N

S

EW

Each of the Department’s 10 treatment facilities has adequate capacity to meet projected flows

____________________Source: City and County of Honolulu, Department of Environmental Services. As of June 30, 2011.* As of 2010 census.

2

Treatment Plants

Each of the Department’s treatment plants currently has adequate capacity to meet projected near-term flows

Region Basin WWTP(2)Design

Capacity(3) (mgd)2012 Actual

Flow (mgd)(4)Projected 2020

Flow (mgd)Discharge Location

Metro · East Mamala Bay · Sand Island 82.00 58.33 92.60 · Ocean

Leeward · West Mamala Bay · Honouliuli 38.00 25.22 32.80 · Ocean/Reuse

· Waianae · Waianae 5.20 3.33 3.50 · Ocean

· Central Oahu · Wahiawa 2.50 1.64 1.89 · Reservoir

· North Oahu (West) · Pa’alaa Kai 0.14 0.08 0.14 · Injection Wells

Windward · Kailua/Kaneohe/Kahuluu · Kailua Regional 15.25 10.29 13.40 · Ocean

· Waimanalo · Waimanalo 1.10 0.54 0.62 · Injection Wells

· North Oahu (East) · Laie(5) 0.90 0.44 0.63 · Reuse

· North Oahu (East) · Kahuku 0.40 0.18 0.15 · Injection Wells

· Kuliouou(2) · Hawaii Kai N/A 0.51 0.38 · N/A

Wastewater Flow By Treatment Facility (MGD)(1)

____________________Source: City and County of Honolulu, Department of Environmental Services. (1) Average day annual flow (ADAF) in million gallons per day (MGD).(2) The Kuliouou WWPS does not provide treatment, but pumps wastewater from a Department Collection System to a private treatment plant (Hawaii Kai WWTP).

Inclusion here is to show total volume of wastewater handled by the Department. (3) ADAF estimated based on 105% of design capacity for average dry weather flow.(4) Actual average daily flow during 2012 may have exceeded ADAF Design Capacity or Projected Flow due to weather conditions.(5) The City and County assumed operational responsibility for the Laie Water Reclamation Facility on November 1, 2006.

137.0136.6136.0134.5133.9133.0132.1131.7130.2128.8

7.47.57.57.77.77.87.47.47.3

6.9

100.0

105.0

110.0

115.0

120.0

125.0

130.0

135.0

140.0

145.0

150.0

Thou

sand

s

Residential Non-Residential

Fiscal Year

135.7137.5 139.1 139.5 140.9 141.6 142.2 143.5 144.1 144.4

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

3

Historical Customer Base

The Department’s customer base is predominately residential and stable

Historical Accounts by Customer Type FY 2003 to 2012

Growth in Equivalent Single-Family Dwelling Units is projected at 0.5% per annum through 2035, and it is not a significant driver of projected revenues or capital needs

____________________Source: City and County of Honolulu, Department of Environmental Services.

4

Diversity of Customer Base

The Department’s customer base is diverse, with the ten largest users accounting for only 5.6% of Sewer Service Charge revenues

Ten Largest Wastewater Customers*(FY 2012 Sewer Service Charge Revenue)

Sewer Service Charge Revenue By Customer Type

The Department’s largest customers have been relatively stable over time

Customer Amount % of TotalUniversity of Hawaii $5,270,471 1.29%State of Hawaii, Airport Maintenance 5,153,869 1.26%State of Hawaii, Hawaii Public Hsg. Auth. 3,602,710 0.88%Hilton Hotels Corporation 3,422,775 0.84%United Laundry Services 1,365,029 0.33%Sheraton Waikiki Hotel 1,314,420 0.32%Hyatt Regency Waikiki 845,078 0.21%State of Hawaii, Halawa Correctional Ctr. 657,880 0.16%Halekulani Hotel 654,209 0.16%State of Hawaii, Central Service Division 646,783 0.16%Total $22,933,225 5.61%

____________________Source: City and County of Honolulu, Department of Environmental Services. * Government users are highlighted in bold.

Other0.7%

Government/Military

5.3%Hotel/Resort5.6%

Commercial/ Industrial

18.0%

Residential70.5%

5.6% 6.2% 6.3%7.3% 7.5% 8.2% 8.8%

9.8% 10.1%

12.2% 12.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Honolulu, HI

Columbus, OH

State of Hawaii

Cincinnati, OH

Phoenix, AZ

United States

San Diego, CA

Chicago, IL

Baltimore, MD

Las Vegas, NV

Sacramento, CA

0%2%4%6%8%

10%12%

Honolulu State of Hawaii United States

Jan-02 Dec-02 Nov-03 Oct-04 Sep-05 Aug-06 Jul-07 Jun-08 May-09 Apr-10 Mar-11 Feb-12

5

Honolulu’s Employment Base

Honolulu’s employment base compares favorably to the U.S. and other large metro areas

Historical Unemployment Rates CY 2002 to 2012 YTD

Honolulu’s relatively low unemployment ensures greater stability in the rate payer base

Current Unemployment Rates As of May 2012*

____________________Source: Bureau of Labor Statistics, U.S. Department of Labor. * Reflects preliminary values for May 2012.

6

Real Estate Market ComparisonMedian Single Family Home Prices

Oahu’s housing market is stable, especially when compared to the neighbor islands or mainland urban markets

____________________Source: Honolulu Board of Realtors, Realtors Association of Maui, National Association of Realtors, Kauai Board of Realtors/Hawaii Information Service.

Calendar Year

Qua

rter

ly, $

Tho

usan

ds (l

og s

cale

)

0.48%

0.36%0.35%

0.30%

0.24%0.23%0.21%

0.15%

0.11%

0.04%0.03%0.01%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

Honolulu, HI

State of Hawaii

Baltimore, MD (1)

Portland, OR (2)

United States

Cincinnati, OH (3)

San Diego, CA

Columbus, OH (4)

Chicago, IL

Phoenix, AZ

Las Vegas, NV

Sacramento, CA

7

Stability of Honolulu’s Housing Base

Honolulu’s foreclosure rates are lower than many comparable large metropolitan areas

Foreclosure Comparison (Per Total Homes)As of June 2012

Honolulu has a strong culture of financial responsibility____________________Source: www.realtytrac.com.(1) Reflects Baltimore County.(2) Reflects Multnomah County. (3) Reflects Hamilton County.(4) Reflects Franklin County.

8

Honolulu (Oahu) Visitor Industry

Average Daily Room Rates Hotel Occupancy Percentage

Commentary Visitor Arrivals

Visitor arrivals on Oahu have increased for three consecutive years

Waikiki hotels are on track to achieve near record levels for occupancy, daily room rates and revenue per available room in 2012

____________________Source: Smith Travel Research, Honolulu Star-Advertiser.(1) Reflects annualized amounts based on values through May 2012. (2) Reflects values through May 2012.

2.4 2.6 2.8 2.9 3.0 2.6 2.4 2.6 2.6 2.6

1.7 1.9 1.9 1.8 1.71.6 1.6 1.7 1.8 2.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Mill

ions

Domestic Visitors International Vistors

Calendar Year

4.14.5 4.7 4.7 4.7

4.2 4.04.3 4.4 4.6

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (1)

73%80%

86% 83%77% 75% 73% 76% 80% 85%

0%

20%

40%

60%

80%

100%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (2)

$116 $123$139

$157$169 $170

$150 $143$161

$174

$-

$50

$100

$150

$200

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (2)

Calendar Year Calendar Year

60.05%26.04%

3.19%5.01% 5.72%

Future Revenue Bonds Net RevenuesFacility Charges Subordinate Obligations2012 Revenue Bonds

3.30%3.71%

34.10%

58.89%

9

Funding Sources for Long-Term CIP

The Department projects a mix of funding sources to meet CIP requirements*

FY 2018-2020 AppropriationsFY 2013-2017 Appropriations

The Department obtained $142 million in low-cost State Revolving Fund (“SRF”) loans over the past three fiscal years (including $30.9 million in FY 2011), has a commitment for an additional $67 million

in FY 2012, and anticipates $10 million per year thereafter____________________Source: City and County of Honolulu, Department of Environmental Services.* Preliminary, subject to change.

Total: $1,713,965,795 Total: $908,971,038

10

2010 Consent Decree

The First Amended Consent Decree provides the framework for implementation of the Department’s long-term CIP

Defines collection system and treatment plant improvements through 2035

Certainty, long-term stability and protection against future regulatory requirements

Provides timing of future capital and O&M expenditures

A set schedule for implementation of required improvements

Maximizes investments in already completed designs for collection system projects

Allows adequate time to complete value engineering assessments and to benefit potentially from advances in future treatment technologies

Priorities for implementation of critical collection system improvements over the first 10-years, followed by treatment plant upgrades over a long-term horizon

Protects against third-party actions

Simplifies and streamlines the coordination and implementation of future projects

Consolidation of all other outstanding Consent Orders and regulatory compliance actions

The Wastewater CIP becomes largely "non-discretionary“

Political impetus for future required rate increasesA legal basis for the required improvements

Benefits to CityConsent Decree Results

10.0%10.0%10.0%10.0%10.0%

25.0% 5.0%8.0%8.0%

15.0%

8.0%5.0%4.0%4.0%4.0%4.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Adopted in June 2005 Adopted in June 2007 Adopted in July 2011

Fiscal Year2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

11

Historical Sewer Service Charges

The City has demonstrated its strong commitment to the Wastewater System by repeatedly passing and implementing multi-year rate increases

Adopted Sewer Service Charge Increases

The City has adjusted rates as needed to meet funding requirements for its 20-year Capital Improvement Program – including those projects mandated in its 2010 Consent Decree with the United States EPA

____________________Source: City and County of Honolulu, Department of Environmental Services.

FY 2006 to 2017

$-

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

$350.0

$400.0

Mill

ions

Sewer Service Charges Interest Earnings Wastewater System Facility Charges*

Fiscal Year

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$118.5 $117.7 $116.5 $119.7

$155.2$179.4

$243.0$258.9

$307.1

$348.0

12

Predictability of Rates and Revenues

The monthly Base Charge comprises approximately 70% of Sewer Service Charge revenues

System Revenues by Major Component

____________________Source: City and County of Honolulu, Department of Environmental Services. * Wastewater System Facility Charges are not included in Revenues when calculating debt service coverage on Senior and Subordinate Obligations.

FY 2002 to 2011

13

Comparative Utility Rates

Honolulu’s water & wastewater rates compare favorably to other metropolitan utilities

____________________Source: Respective utility websites.* Monthly bill figures are current for calendar year 2012 or FYE 2013. Comparison of residential water & wastewater bills is based on minimum meter size and

average billable flows of 10,000 gallons per month or 13 hundred cubic feet (HCF).

$77.71$70.85$73.51$69.24$58.99$69.56

$37.01$43.32$45.32$31.80

$192.31

$142.77$113.13

$109.22

$75.55$63.43

$94.90$83.87$72.05$75.56

$-

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

Monthly Water Bill Monthly Wastewater Bill

$107.36$117.37

$127.19 $131.91 $132.99 $134.54

$178.46$186.65

$213.62

$270.02

Detroit, MI

New York City, NY

Austin, TX Honolulu, HI

San Diego, CA

Boston, MA

Portland, OR

San Francisco, CA

Seattle, WA

Atlanta, GA

Average Monthly Residential Bill*

0.80%0.79%0.83%0.90%0.97%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

Fiscal Year

Average: 0.84%

2008 2009 2010 2011 2012

14

System Delinquency Rates

The Wastewater System’s delinquency rates consistently have been low

Delinquencies as a Percentage of Total Revenues* FY 2008 to 2012

Should bills not be paid, the authority exists, and has been exercised, to terminate City water service for nonpayment

____________________Source: City and County of Honolulu, Department of Environmental Services.* Includes accounts that are greater than 60 days past due.

0.00x

2.00x

4.00x

6.00x

Coverage Ratio Policy Target (1.60x) Legal Requirement (1.20x)

2009 2010 2011 2012 2013 2014 2015 2016

0.00x

1.00x

2.00x

3.00x

4.00x

Coverage Ratio Policy Target (1.25x) Legal Requirement (1.10x)

2009 2010 2011 2012 2013 2014 2015 2016Fiscal Year

15

Debt Service Coverage

Historical and projected Debt Service Coverage Ratios are robustSenior Lien Coverage Ratio

Senior & Junior Lien Coverage Ratio

Current = 1.97x

System Facility Charges (connection fees) are not pledged and are not included in coverage calculations

Current = 3.02x

____________________Source: City and County of Honolulu, Wastewater System Revenue Bonds, Senior Series 2011A Official Statement (page 23).Note: Projected revenues include BABs/RZEDBs subsidies.

Historical Projected

Historical Projected

$241.1$260.9

$140.9

$41.5

$34.5$26.1

$26.3

$28.7

$69.1$60.1

$51.7

$46.8

$114.9$100.6

$93.8

$86.7

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

$350.0

$400.0

$450.0

$500.0

Mill

ions

Fiscal Year

Unrestricted Reserve (1) Operating Reserve (2) Bond Payment Account (3) Common and Series DSRFs (4)

$203.7

$312.7

$447.7 $459.6

2009 2010 2011 2012 (Budgeted)

16

System Reserves

Strong financial margins have allowed the Department to build liquidity

The Department has increased the use of net income for capital projects going forward____________________Source: City and County of Honolulu, Department of Environmental Services. (1) Equal to ending cash balance less operating and bond reserves. Includes federal BABs/RZEDBs subsidy in the rate stabilization fund.(2) Equal to 3 months of current year operating expenses (as required by policy).(3) Equal to 50 percent of following fiscal year’s debt service obligation (due July 1).(4) The amount shown represents cash deposits in the common and series debt service reserve funds.

$-

$50

$100

$150

$200

$250

$300

$350

$400

Mill

ions

O&M Debt Service (1) Revenues (2)

Fiscal Year

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

17

Conservative Financial Management

Conservative financial management has produced predictable and strong financial results

100% conventional fixed rate bonds

All DSRFs are cash funded

No derivatives exposure

Pro-active use of low-cost SRF funding (subordinate to revenue bonds)

Build America Bonds subsidy collected in the fiscal year prior to expenditure

Budgeting PracticesDebt Management

____________________Source: City and County of Honolulu, Department of Environmental Services. (1) Includes Revenue Bonds, SRF Loans and Reimbursable G.O. Bonds.(2) Excludes Wastewater System Facility Charge revenues.

18

Outstanding System Debt

Wastewater System Debt Service Profile

____________________Source: City and County of Honolulu, Department of Environmental Services. Note: Debt service shown is gross of BABs subsidy. SRF Loans as of September 2011. Reimbursable City G.O. bonds are outstanding in the amount of $1,275,799.

Fiscal Year

$-

$20

$40

$60

$80

$100

$120

$140

$160

Mill

ions

SRF Loans ($150,000,000)

Junior Lien Debt Service ($422,684,910)Senior Lien Debt Service ($1,170,430,000)

2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041

19

Department’s Website

For additional information about the Wastewater System…

http://www.envhonolulu.org/

20

Contact Information

Issuer

Mr. Frank LauterburManaging Director

Bank of America Merrill LynchTel: 213-345-9575

E-Mail: frank.lauterbur@baml.com

Investment Banking

Mr. Tim HoughtonExecutive Assistant

City and County of Honolulu(Department of Environmental Services)

Tel: 808-768-3475E-Mail: thoughton@honolulu.gov

Department

Ms. Edlyn TaniguchiChief of Treasury

City and County of Honolulu(Department of Budget & Fiscal Services)

Tel: 808-768-3993E-Mail: etaniguchi@honolulu.gov

City and County

Senior Manager