Value of Credit Enhancement – An Investment Banking and Issuer Perspective

1. Value of Credit Enhancement – An Investment Banking and Issuer Perspective

2. Impact to the Municipal Market – Fixed and Variable The near collapse of the Bond Insurance industry resulted in fundamental changes to the overall Municipal Market Fixed Market • The Fixed Rate Market has shifted its focus to the underlying credit quality of municipal issuers • Issuer focused on maximizing this underlying credit quality and potential • Investment Bankers place major emphasis on what’s going on “under the hood” of municipal issuers’ credit • Importance of underlying credit reflect the result of this focus in the market • Long term credit spreads are near 10-year highs • Interest rate premiums for lower quality credits is significant

3. Impact to the Municipal Market – Fixed and Variable The near collapse of the Bond Insurance industry resulted in fundamental changes to the overall Municipal Market VRDB/Structured Finance Market • Lesser rated credits (“A1” or less) not money fund eligible • Availability of and cost of liquidity is constrained and expensive • Restructuring of synthetic fixed rate debt is expensive due to the cost of credit enhancement, liquidity, and onerous termination payments in the current market environment • Some issuers reset rates adversely affected as a result of some credit enhancers being over exposed to money funds • VRDBs which are supported by less than desirable liquidity bank providers experiencing wider spreads to SIFMA • Result: The short-term market has gone from a highly liquid, low cost of capital market to one that is virtually come to a standstill for new issuance • Potential significant help to the VRDB market would be some form of Federally-supported Liquidity Guarantee

4. Current Value Of Existing Bond Insurers Bond Insurers at a glance Source: The Bond Buyer, April 21, 2009.

5. Current Value Of Existing Bond Insurers Bond Insurers at a glance • The Market has identified only the top 3 rated insurers as having value-added benefit: • Assured Guaranty (“AG”) • Berkshire Hathaway Assurance Corporation (“BHAC”) • Financial Security Assurance (“FSA”) • Room for additional entrants • We are currently seeing value to having insurance on credits that are rated “Aa3/AA-” or lower • Determining whether or not to use bond insurance is not an exact science • Use of Bond Insurance: • Greater benefit from retail investors vs. lesser benefit from institutional investors • Specialty state vs. non-specialty state • In-state bond funds vs. insured bias • Smaller sized transactions ($50 million or less) • Large deals with flexibility to insure a portion and offer to different buyer segments • Value quantified by use of cost/benefit analysis

6. Municipal Bond Insurance Going Forward Overview of the requirements and goals for future municipal bond insurance industry • There is a definite need for such a product • Providers need to continue their efforts to re-establish their credibility with the issuer, dealers and investor community • Important to be a monoline insurance model