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FINANCIAL ANALYSIS Equity Potential equity sources considered include the fundraising, anchor tenant, concessionaire, corporate sponsors and local and state agencies. The most typical terms of lease agreements at comparable arenas do not require a large percentage of development costs to be financed by the anchor tenant; however, in some cases, an equity contribution to the development costs is required. This contribution is intended more to discourage future considerations of relocating the team elsewhere than it is to actually defray development costs, and the' amount contributed is often earmarked for the purchase of team -related equipment, such as the scoreboard, fitting out the skyboxes, etc. This analysis does not assume any equity contribution from the anchor tenant. However, the analysis assumes that the debt service and operating costs for the proposed facility shall be covered by an `income pledge' against the facility revenues. It is likely that a naming sponsor will be identified for the facility. As mentioned previously, it is anticipated that revenues from a naming sponsor may exceed $500,000 annually. This figure is reflected in the enclosed analysis. Debt It is assumed that the City of Everett, which enjoys a strong credit rating would be able to employ 100% tax-exempt debt in the financing of the arena. It is also assumed that the City may incur this debt in the form of general obligation bonds. For the purposes of this study, debt terms have been defined as follows: Constr. Fin. Commercial Paper Term = 5 Years All -In Interest Rt. on Commercial Paper = 4.75-% Tax Exempt vs. Taxable Debt = 100% Term of Debt = 21 Years Interest Cost on Debt = 5.75% Tax Rebate Growth Rate = 4.0% Findings: Facility Operating Performance Based on the financial structure delineated above and the financial assumptions defined in the previous paragraphs of this section of the report, net operating income for the proposed new arena is projected to be $4,046,000 (prior to debt service payment). Net facility revenues after the payment of debt service are projected to be approximately $934,000 in year one of the cashflow. For the purposes of this analysis, net facility revenues represent the revenues realized after the payment of debt service and operating expenses, but prior to the payment of any negotiated lease obligation to anchor tenant(s). Conclusions The majority of the proposed arena's revenue is achieved through the anchor tenant's events. It should be noted that failure on the part of the ownership group to maintain a minor league professional hockey franchise would render the project financially infeasible under any economic conditions. However, assuming a franchise operates at the facility, we project that under the moderate (base case) scenario for attendance and events, sufficient cash flow will be generated to provide a comfortable coverage for both debt service and operating costs. Brailsford & Dunlavey/Ellerbe Becket Page 41