Tax Exempt Financing-The “New Normal”or another cycle?

MASS Development Conference

October 29,, 2010

Presented by:

Daniel F. Shimkus, Jr.

Senior Vice President & Director

Healthcare, Education, Govt. Lending & Not-for-Profit Division

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The Build Up…

Jun 2007: Bear Stearns Mortgage Hedge Fund Collapses

Aug 2007: Fed Lends $2 Billion to Banks to Ease Credit Woes

Sep 2007: Fed Cuts Rates by 50 Basis Points

Oct 2007: Merrill Reports Loss on $8.4 Billion Write Down

Nov 2007: Morgan Stanley Takes $3.7 Billion Hit

Dec 2007: Ambac and MBIA Outlook Lowered by S&P

Jan 2008: Citi Writes Down $18 Billion; Merrill Gets Infusion

Feb 2008: UBS Confirms $18.4 Billion Sub Prime Loss

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…More Fuel on the Fire…

April 2008: Deutsche Bank to Write Down $4 Billion

May 2008: UBS Falls After Saying More Mortgage Losses Possible

Jun 2008: Lehman Posts $2.8 Billion Loss

Jun 2008: U.S. Treasury Says Write Downs May Total $1.3 Trillion

Jul 2008: IndyMac Seized by U.S. Regulators

Jul 2008: Merrill Has $5.7 Billion of Write Downs

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Significant Writedowns for Financial Institutions

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Insurer Ratings at a Glance

Consequence – over 40% decrease in insured public issuances today vs October 2008.

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Bank Ratings Have Deteriorated

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Variable rates have returned to low levels

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Mixed News….

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Credit Spreads Have Widened Significantly…

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Thus, the Creation of L/C Bubble

Massachusetts Marketplace – Profile

Time Period – Next 18 months

Magnitude – 52 different L/C’s, totalling over $1.2 Billion to mature

*excludes liquidity facilities

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Remedy

Start renewal and/or new issuance process early

Consider different options̶G Fixed rate on your own credit(in public markets)̶G Direct Purchase Tax-exempt Bond with a financial institution(either variable

rate, fixed rate or a cap)̶G Use of a composite pool program through MassDevelopment̶G L/C – if adverse to variable rates – consider swaps(including shorter tenors) or

caps.̶G BAB’s(Build America Bonds) – possibility in 2011???

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Expectations from Banks

Higher cost of L/C

Shorter L/C tenors

Requirement for “other business”

Consider diversifying banking relationships

Basel III – future impact on cost of debt???