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bid that offers the lowest interest rate, taking into account underwnting spread, interest rates and any discounts or premiums 6 11 Negotiated Sale of Bonds A method of sale for bonds, notes, or other financing vehicles in which the City selects in advance, on the basis of proposals received or by other means, one of more underwriters to work with it in structuring, marketing and finally offering an issue to investors The negotiated sale method is often used when the issue is a first time sale by a particular issuer(a new credit), a complex security structure, such as a variable rate transaction, an unusually large issue, or in a highly volatile or congested market 6 12 Private Placement A private placement is a variation of a negotiated sale in which the City, usually with the help of a financial advisor will attempt to place the entire new issue directly with an investor The investor will negotiate the specific terms and conditions of the financing before agreeing to purchase the issue Private placements are generally undertaken because the transaction is complex or umque, requiring direct negotiations with the investor, or because the issue is small and a direct offenng provides economies of scale. 6.13. Derivative Products. Because of their complexity, unless otherwise amended, Derivative Products such as Interest Rate Swaps, Inverse Floaters, and other hybrid securities are prohibited from the City of Pleasanton's Debt Management Policy 7. DEBT CAPACITY Article XVI, Section 18 of the California Constitution(the "debt limit")prohibits cities from entering into indebtedness or liability that in any year exceeds the income and revenue provided for such year unless the City first obtains two-thirds voter approval for the obligation Determining what the City's debt capacity is at any point in time is difficult It depends on a number of factors including market conditions, amount of undesignated fund balance in the General Fund, fluctuating cash balances, financial policies, management and staff experience, new or existing revenues available to support additional debt, and availability of financial consultants to assist in financial analysis In the development of this Debt Policy, the goal is to serve as a framework within which the City can evaluate each potential debt issuance This Debt Policy is not to be so restrictive that it interferes with the City's legitimate efforts to prudently provide public services and facilities 8. PERFORMANCE STANDARDS The City of Pleasanton strives to maintain `investment grade' standings in the municipal market Below is an Investment Grade Table of the three (3) major rating agencies Investor's Standard&Poor's Fitch Investors Service Inc Corporation Service,Inc Definition Aaa AAA AAA Highest rating assigned Very strong security Aa AA AA Very strong security Only slightly below best rating