ACI NA FINANCE SEMINAR CURRENT MUNICIPAL MARKET UPDATE

Transcription

1 ACI NA FINANCE SEMINAR CURRENT MUNICIPAL MARKET UPDATE OCTOBER 11, 2009

2 Current Municipal Market Overview Current Airport Market Overview Impact of ARRA on the Airport Finance Market Tab A Tab B Tab C TABLE OF CONTENTS

3 TAB A: CURRENT MUNICIPAL MARKET OVERVIEW

4 Shift in the Municipal Yield Curve The municipal yield curve has steepened dramatically The spread between the 1 year and 30 year MMD has widened to 350 basis points Primarily a factor of Federal Reserve policy and investor liquidity concerns Over the past 12 months, municipal interest rates have declined by between 138 and 198bps across the yield curve MMD yields increased slightly this week as a result of increased supply (October 2007 October 2009) AAA MMD Yield Curve CURRENT MUNICIPAL MARKET OVERVIEW 4

5 Historical 30 Year MMD Absolute municipal bond rates rose sharply in mid September 2008 as the credit crisis intensified significantly, effectively closing down the municipal market Due to a steady increase in investor demand and the end of the credit market freeze, municipal rates have declined appreciably throughout 2009 (January 2008 September 2009) 30 Year AAA MMD Yield Curve CURRENT MUNICIPAL MARKET OVERVIEW 5

6 Historical MMD Versus Treasuries As a result of the recent market recovery, municipal rates have declined relative to treasury bond yields Currently the 30 year MMD is approximately 95.56% of the 30 year Treasury The average since 2006 equals approximately 103% 10 year MMD is approximately 82.35% of the 10 year Treasury (January 2009 September 2009) 30 Year AAA MMD as a percentage of 30 Year Treasuries CURRENT MUNICIPAL MARKET OVERVIEW 6

7 Widening Credit Spreads As a result of the recent credit crisis, municipal credit spreads increased significantly The spreads for BBB and A MMD relative to AAA MMD increased significantly when the credit crisis began, but have declined throughout 2009 AA MMD spreads to AAA have remained stable throughout the credit crisis (January 2007 September 2009) GO Credit Spreads CURRENT MUNICIPAL MARKET OVERVIEW 7

8 Tax Exempt Rates Remain at Historical Lows Tax exempt rates are below the 18 year average Currently 30 year AAA MMD is at 3.88% versus the average of 5.34% since 1990 (January 1990 September 2009) 30 Year AAA MMD CURRENT MUNICIPAL MARKET OVERVIEW 8

9 Short Term Rates Remain Extremely Attractive In late 2008, the short term market experienced widespread remarketing failures Insured VRDBs and VRDBs supported by certain LOCs experienced dramatic pricing penalties Letter of credit backed VRDBs continue to trade favorably depending upon the LOC provider The cost and availability of LOCs in the current market has been a challenge for many issuers The recent credit crisis resulted in significant demand on the short end of the yield curve driving short term rates down to historical lows SIFMA is currently at.34% Historical Variable Interest Rates 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Jan 00 May 00 Sep 00 Jan 01 May 01 Sep 01 SIFMA SIFMA Average, 2000 Date (2.08%) Current SIFMA (0.34%) Jan 02 May 02 Sep 02 Jan 03 May 03 Sep 03 Jan 04 May 04 Sep 04 Jan 05 May 05 Sep 05 Jan 06 May 06 Sep 06 Jan 07 May 07 Sep 07 Jan 08 May 08 Sep 08 Jan 09 May 09 Sep 09 CURRENT MUNICIPAL MARKET OVERVIEW 9

10 Impact of Rates on Municipal Borrowing Levels Through September 30, 2009 negotiated volume has totaled $245 Billion This includes $35.52 billion of Build America Bond (BAB) financings executed since April 2009 Compared to the same time frame for 2008 and 2007, municipal issuance through the third quarter of 2009 is down by approximately 20.56% and 20.72% respectively (1 st Three Quarters 2007, 2008, & 2009) Negotiated Municipal Taxable and Tax Exempt Volume CURRENT MUNICIPAL MARKET OVERVIEW 10

11 Impact of Bond Insurer Turmoil on Municipal Borrowing Levels Through September 30, 2009 the notional amount of debt issued with bond insurance has totaled $32 billion Compared to the same time frame for 2008 and 2007, insured municipal issuance through the third quarter of 2009 is down by approximately 48.95% and 77.37% respectively (1 st Three Quarters 2007, 2008, & 2009) Negotiated Insured Municipal Taxable and Tax Exempt Volume CURRENT MUNICIPAL MARKET OVERVIEW 11

12 TAB B: CURRENT AIRPORT MARKET OVERVIEW

13 Impact of Rates on Airport Borrowing Levels Through September 30, 2009 negotiated airport volume has totaled $5.34 billion This includes $300 million BAB financings executed since April 2009 Compared to the same time frame for 2008 and 2007, airport issuance through the third quarter of 2009 is down by approximately 49.29% and 28.52% respectively (1 st Three Quarters 2007, 2008, & 2009) Negotiated Airport Volume CURRENT AIRPORT MARKET OVERVIEW 13

14 Impact of Bond Insurer Turmoil on Airport Borrowing Levels Through September 30, 2009 the notional amount of negotiated airport debt issued with bond insurance has totaled $1.9 billion Compared to the same time frame for 2008 and 2007, insured airport debt issuance through the third quarter of 2009 is down by approximately 67.17% and 65.29% respectively (1 st Three Quarters 2007, 2008, & 2009) Negotiated Insured Airport Volume CURRENT AIRPORT MARKET OVERVIEW 14

15 Recent Airport Pricing Spreads Obligor: Dallas/Fort Worth International Airport Clark County Description: Joint Revenue Refunding Bonds Airport System Subordinate Lien Revenue Bonds Series: Series 2009A Series 2009C Par Amount: $285,845,000 $168,495,000 Lead Manager: Siebert Brandford Shank Citi Sale Date 9/17/2009 9/17/2009 Spread to MMD Year Yield MMD Spread to MMD Year Yield MMD Year % 0.40% 0.46% % 0.70% 0.60% % 1.07% 0.70% % 1.39% 0.77% % 1.71% 0.82% % 1.96% 0.88% % 2.19% 0.93% % 2.44% 0.93% % 2.62% 0.93% % 2.78% 0.93% % 2.90% 0.93% % 3.02% 0.88% % 3.11% 0.87% % 3.11% 1.01% % 3.20% 0.82% % 3.20% 1.01% % 3.28% 0.80% % 3.28% 1.01% % 3.36% 1.01% % 3.44% 1.01% CURRENT AIRPORT MARKET OVERVIEW Insurer (Maturities): Uninsured Uninsured Call Date: par value ( maturities) par value Ratings: Underlying: A1/A+/AA Underlying: Aa3/A+/NR Insured: Aa3/AAA/NR 15

16 Recent Airport Pricing Spreads (Cont d) Obligor: Description: Series: Par Amount: Lead Manager: Sale Date Broward County Airport System Revenue Refunding Bonds Series 2009O $101,140,000 JP Morgan 8/18/2009 City of Cleveland, OH Airport System Revenue Bonds Series 2009C $159,875,000 Siebert Brandford Shank 8/11/2009 Spread to MMD Year Yield MMD Series 2009A $449,660,000 J.P Morgan 7/30/2009 Spread to MMD Year Yield MMD Spread to MMD Year Yield MMD Year % 0.40% 0.85% % 0.40% 0.85% % 0.71% 1.25% % 0.68% 1.25% % 1.02% 1.45% % 0.95% 1.35% % 1.34% 1.50% % 1.26% 1.40% % 1.73% 1.55% %/2.94% 1.69% 1.50%/1.25% % 2.00% 1.60% % 1.97% 1.30% % 2.03% 1.25% % 2.27% 1.67% % 2.26% 1.35% % 2.30% 1.25% % 2.54% 1.68% % 2.53% 1.35% % 2.56% 1.25% % 2.78% 1.69% % 2.78% 1.35% % 2.81% 1.25% % 2.97% 1.66% % 2.98% 1.35% % 3.01% 1.27% % 3.12% 1.68% % 3.15% 1.35% % 3.19% 1.28% % 3.31% 1.35% % 3.35% 1.30% % 3.44% 1.30% % 3.49% 1.30% % 3.55% 1.25% % 3.59% 1.30% % 3.61% 1.52% % 3.69% 1.31% % 3.79% 1.28% % 3.89% 1.26% % 3.95% 1.17% % 3.98% 1.24% % 4.07% 1.22% % 4.08% 1.40% % 4.16% 1.20% % 4.57% 1.05% % 4.69% 0.98% Insurer (Maturities): Uninsured Assured (2014 (4% coupon), ) Uninsured Call Date: par value par value par value Ratings: Underlying: A1/A+/A+ Underlying: A3/A /A Underlying: Aa3/AA /NR Insured: Aa2/AAA/AA City of Houston, TX Senior Lien Revenue and Refunding Bonds OVERVIEW OF AIRPORT REVENUE BOND MARKET 16

17 Recent Airport Pricing Spreads (Cont d) Obligor: Description: Series: Par Amount: Lead Manager: Sale Date County of Sacramento, CA County of Sacramento, CA County of Sacramento, CA Airport System Senior Revenue Bonds Airport System Senior Revenue Bonds Airport System Subordinate and PFC/Grant Revenue Bonds Series 2009A Series 2009B Series 2009C $31,115,000 $170,685,000 $112,860,000 J.P Morgan J.P Morgan J.P Morgan 7/17/2009 7/17/2009 7/17/2009 Spread to MMD Year Yield MMD Spread to MMD Year Yield MMD Spread to MMD Year Yield MMD Year % 0.95% 1.55% % 1.34% 1.58% % 1.78% 1.60% % 2.06% 1.62% % 2.33% 1.62% % 2.60% 1.62% % 2.80% 1.64% % 2.99% 1.64% % 3.16% 1.64% % 3.32% 1.64% % 3.46% 1.62% % 3.58% 1.60% % 3.68% 1.57% % 3.78% 1.56% % 3.88% 1.53% % 3.97% 1.51% % 4.06% 1.49% % 4.15% 1.48% % 4.53% 1.07% % 4.64% 1.29% %/5.90% 4.64% 1.56%/ % 4.64% 1.07% % 4.64% 1.62% Insurer (Maturities): Assured (2041) Assured (2034) Assured (2039) Call Date: par value par value par value Ratings: Underlying: A2/A+/NR Underlying: A2/A+/NR Underlying: A3/A/NR Insured: Aa2/AAA/AA Insured: Aa2/AAA/AA Insured: Aa2/AAA/AA OVERVIEW OF AIRPORT REVENUE BOND MARKET 17

18 Recent Airport Pricing Spreads (Cont d) Obligor: Description: Series: Par Amount: Lead Manager: Sale Date County of Sacramento, CA County of Orange, CA County of Orange, CA Airport System Subordinate and PFC/Grant Revenue Bonds Airport Revenue Bonds Airport Revenue Bonds Series 2009D Series 2009A Series 2009B $165,390,000 $67,305,000 $165,810,000 J.P Morgan Citigroup Citigroup 7/17/2009 7/1/2009 7/1/2009 Spread to MMD Year Yield MMD Spread to MMD Year Yield MMD Spread to MMD Year Yield MMD Year % 0.40% 0.70% % 0.40% 0.70% % 0.75% 1.80% % 0.94% 0.79% % 0.94% 0.79% % 0.95% 1.80% % 1.19% 0.95% % 1.19% 0.95% % 1.34% 1.84% % 1.63% 0.97% % 1.63% 0.97% % 1.78% 1.86% % 2.05% 0.97% % 2.05% 0.97% % 2.06% 1.89% % 2.32% 1.03% % 2.32% 1.03% % 2.33% 1.59% % 2.58% 1.08% % 2.58% 1.08% % 2.60% 1.59% % 2.84% 1.08% % 2.84% 1.08% % 2.80% 1.59% % 3.04% 1.08% % 3.04% 1.08% % 2.99% 1.59% % 3.21% 1.07% % 3.21% 1.07% % 3.16% 1.59% % 3.39% 1.07% % 3.39% 1.07% % 3.32% 1.57% % 3.52% 1.06% % 3.46% 1.55% % 3.58% 1.53% % 3.68% 1.51% % 3.83% 1.05% % 3.78% 1.49% % 3.91% 1.04% % 3.88% 1.76% % 3.97% 1.74% % 4.06% 1.72% % 4.17% 1.06% % 4.15% 1.70% % 4.44% 0.91% % 4.59% 0.96% % 4.56% 1.61% % 4.66% 0.84% % 4.66% 0.89% Insurer (Maturities): Assured ( ) Uninsured Uninsured Call Date: par value par value par value; par value (2034) Ratings: Underlying: A3/A/NR Aa3/AA /AA Aa3/AA /AA Insured: Aa2/AAA/AA OVERVIEW OF AIRPORT REVENUE BOND MARKET 18

19 Recent Airport Pricing Spreads (Cont d) Obligor: Description: Series: Par Amount: Lead Manager: Sale Date City of St. Louis, MO City of St. Louis, MO Miami Dade County Lambert St. Louis Intl. Airport Lambert St. Louis Intl. Airport Airport Aviation Revenue Bonds Airport Revenue Bonds Airport Revenue Bonds Series 2009 A 1 Series 2009 A 2 Series 2009A $107,240,000 $22,730,000 $388,400,000 Goldman Sachs Goldman Sachs Barclays 6/30/2009 6/30/2009 4/24/2009 Spread to MMD Year Yield MMD Spread to MMD Year Yield MMD Spread to MMD Year Yield MMD Year % 0.42% 2.23% % 0.94% 2.51% % 0.92% 1.58% % 1.23% 3.02% % 1.15% 1.57% % 1.67% 3.33% % 1.38% 1.62% % 2.07% 3.18% % 1.75% 1.61% % 2.02% 1.69% % 2.60% 2.95% % 2.22% 1.71% % 2.86% 2.84% % 2.44% 1.81% % 3.06% 2.79% % 2.66% 1.81% % 3.23% 2.77% % 2.87% 1.82% % 3.07% 1.83% % 3.22% 1.83% % 3.36% 1.79% % 3.50% 1.68% % 3.83% 2.47% % 3.64% 1.62% % 3.78% 1.57% % 3.90% 1.52% %/5.13% 4.00% 1.42%/1.13% % 4.08% 1.07% % 4.26% 2.19% % 4.16% 1.01% % 4.59% 2.11% % 4.41% 1.26% % 4.43% 1.30% Insurer (Maturities): Uninsured Uninsured Assured ( ) Call Date: par value par value par value Ratings: Baa1/A /BBB Baa1/A /BBB Underlying: A2/A /A Insured: Aa2/AAA/AAA OVERVIEW OF AIRPORT REVENUE BOND MARKET 19

20 Recent Airport Pricing Spreads (Cont d) Obligor: Description: Series: Par Amount: Lead Manager: Sale Date Miami Dade County Airport Aviation Revenue Bonds Metropolitan Washington Airport Authority Airport System Revenue Bonds Series 2009A Series 2009B $221,560,000 $236,825,000 Barclays Siebert Brandford Shank 4/24/2009 3/25/2009 Year Yield MMD Spread to MMD Year Yield MMD Spread to MMD Year % 0.50% 0.82% % 0.92% 1.58% % 1.07% 0.89% % 1.15% 1.57% % 1.33% 0.91% % 1.38% 1.62% % 1.75% 0.93% % 1.75% 1.61% % 2.15% 0.95% % 2.02% 1.69% % 2.38% 0.97% % 2.22% 1.71% % 2.60% 0.98% %/3.90% 2.44% 1.81%/1.46% %/3.61% 2.82% 0.99%/0.79% %/4.12% 2.66% 1.81%/1.46% %/3.80% 3.02% 0.98%/0.78% % 2.87% 1.47% %/3.99% 3.21% 0.98%/0.78% %/4.58% 3.07% 1.83%/1.51% %/4.18% 3.39% 0.99%/0.79% %/4.74% 3.22% 1.83%/1.52% %/4.35% 3.56% 0.99%/0.79% %/4.74% 3.36% 1.79%/1.38% %/4.50% 3.71% 0.97%/0.79% % 3.50% 1.38% %/4.70% 3.87% 0.95%/0.83% %/4.80% 4.03% 0.98%/0.77% % 3.78% 1.29% % 4.17% 0.86% % 3.90% 1.20% % 4.27% 0.73% % 4.00% 1.13% % 4.08% 1.07% % 4.16% 1.01% %/5.12% 4.55% 0.73%/0.57% % 4.41% 1.26% % 4.43% 0.95% %/5.43% 3.36% 1.30%/1.00% Insurer (Maturities): Assured ( ) Berkshire Hathaway ( , 2026 and 2029) Call Date: par value par value Ratings: Underlying: A2/A /A Underlying: A2/A /A Insured: Aa2/AAA/AAA Insured: Aa3/AA /AA OVERVIEW OF AIRPORT REVENUE BOND MARKET 20

21 Recent Airport Pricing Dynamics Airport spreads to MMD have varied depending upon the maturity Spreads on the short end of the yield curve may have benefitted from the ability to leverage retail investors as a result of the elimination of AMT (January 1, 2009 YTD) Average Spread to MMD by Maturity CURRENT AIRPORT MARKET OVERVIEW 21

22 TAB C: IMPACT OF ARRA ON THE AIRPORT FINANCE MARKET

23 Opportunities Available Under ARRA The American Recovery and Reinvestment Act of 2009 (ARRA) has provided airports with the following financing opportunities: Issuance of non AMT new money debt Allows for a current refunding of AMT bonds issued between 2004 and 2008 on a non AMT basis, assuming the existing bonds are currently callable in 2009 or 2010 Potential to issue non AMT tender bonds to current refund previously issued AMT debt Potential to issue BABs to fund governmental use projects IMPACT OF ARRA ON THE AIRPORT FINANCE MARKET 23

24 Issuance of Non AMT New Money Bonds In the current market, issuing traditional fixed rate bonds on anon AMT basis provides significant savings relative to an AMT issuance Summary of Theoretical Non AMT and AMT Borrowing Costs (A Rated Uninsured) Structure Average Life Non AMT Yield AMT Yield Differential 10 year Level Debt % 4.33% 0.76% 15 year Level Debt % 4.82% 0.77% 20 year Level Debt % 5.14% 0.76% 30 year Level Debt % 5.74% 0.93% As a result of ARRA, there has been a lack of recent AMT issuance Greater Orlando Aviation Authority ( GOAA ) issued a significant amount of AMT debt to refund pre 2004 debt that was not subject to ARRA AMT Spreads to MMD for GOAA (Aa3/A+/AA ) were between 215 and 286 bps IMPACT OF ARRA ON THE AIRPORT FINANCE MARKET 24

25 Current Refunding Opportunities Under ARRA Airports have executed current refunding transactions to refund previously issued AMT debt: Cleveland Airport System Current refunded Series 2008 AMT VRDOs with fixed rate non AMT debt Terminated SIFMA swaps as part of fixed rate refunding transaction Current refunded Series 2008 AMT VRDOs with non AMT VRDOs negotiated with LOC bank and swap providers to maintain existing credit enhancement and swaps to avoid costly swap termination payments Dallas Fort Worth International Airport Current refunded Series 2004 and 2006 AMT fixed rate bonds with fixed rate non AMT debt Outstanding 2004 and 2006 Bonds were issued with a short call provision on November 1, 2009 Philadelphia International Airport Current refunded Series 2005 AMT VRDOs with fixed rate non AMT bonds IMPACT OF ARRA ON THE AIRPORT FINANCE MARKET 25

26 Tender Refunding Opportunities Under ARRA As the new stimulus law provides for the ability to issue non AMT bonds between 2009 and 2010, airports may be able to generate refunding savings through the use of a tender program on certain fixed rate AMT bonds issued between 2004 and 2008 In the current market, outstanding AMT bonds are likely trading at a discount and as such investors may be willing to accept a tender offer for these bonds Under such a scenario, an airport could conduct a tender process to determine the price at which an investor would be willing to tender the bonds Based on this tender price, an airport would then issue non AMT current refunding bonds, the proceeds of which would be used to pay the tender price to the investor (the issuance of bonds to pay for a tender is viewed as a current refunding for tax purposes) The ability to generate savings is largely a function of: The difference between AMT and non AMT yields; and The tender price paid by an airport to the investor IMPACT OF ARRA ON THE AIRPORT FINANCE MARKET 26

27 Tender Refunding Opportunities Under ARRA (Cont d) Two airports, Lambert St. Louis International Airport and Sacramento International Airport, attempted tenders earlier this year: Both tenders were executed on a competitive basis, whereby: An outside party was hired to identify current bondholders that would be targeted in the tender process A tender notice was distributed to the investors informing them of the intent to tender and the dynamics and schedule for the tender process Investors were solicited to submit tender prices on a maturity by maturity basis on a set date The airports had the option to accept or decline any or all tender bids While investors did submit bids for both tenders, the tender prices offered were such that savings were not significant enough to warrant completion of the transaction IMPACT OF ARRA ON THE AIRPORT FINANCE MARKET 27

28 Build America Bonds Overview The American Recovery and Reinvestment Act of 2009 ( ARRA or the Stimulus Bill ) introduced a new category of taxable bonds for municipal issuers called Build America Bonds ( BABs ) Build America Bonds are defined as taxable governmental bonds with either a: 1. 35% of interest subsidy to the issuer to be received as direct payments from the federal government, as provided by a new IRS Code Section 54AA, or 2. 35% tax credit to investors on the interest earned and paid on each interest payment date Under the Build America Bonds provision, Qualified Bonds must conform to the definition of capital expenditures under Treas. Reg (b) and be sold before January 1, 2011 If an issuer elects to receive the 35% subsidy, then the transaction must also comply with tax exempt arbitrage rules ARRA provides that until a State provides otherwise, the interest on any Build America Bond shall be treated as exempt from federal income tax for purposes of the state income tax laws There are no bond maturity constraints other than those applicable to governmental tax exempt debt in general The bonds are subject to all arbitrage and private use restrictions applicable to comparable tax exempt bonds Failure of a Build America Bond to satisfy the underlying tax exempt bond rules will result in retroactive loss of the tax credit status, and be subject to return of all cash subsidy previously received IMPACT OF ARRA ON THE AIRPORT FINANCE MARKET 28

29 Indicative Pricing for Callable and Non Callable BABs versus Tax Exempts A Category Rated Airport BABs (Make Whole Call) vs. Tax Exempt (Non Callable) BABs (10yr Par Call) vs. Tax Exempt (10yr Par Call) IMPACT OF ARRA ON THE AIRPORT FINANCE MARKET 29

30 Build America Bond Financing Options $200 Million New Money Bonds Structured as a 30 Year Level Debt Tax Exempt: Non Callable Debt (1) Par Amount ($) 197,260,000 Maturity Structure Average Life (years) 18.7 All In TIC 4.85% Total Debt Service ($) 380,820,199 NPV of Debt Service ($) 195,193,102 NPV Debt Service Savings vs. Non Call Tax Exempt Debt ($) (2) NPV Debt Service Savings vs. Non Call Tax Exempt Debt (2) Tax Exempt: Callable Debt (10yr Par Call) (1) Par Amount ($) 197,935,000 Maturity Structure Average Life (years) 18.7 All In TIC 4.88% Total Debt Serivce ($) 382,130,553 NPV of Debt Service ($) 195,861,218 NPV Debt Service Savings vs. Non Call Tax Exempt Debt ($) (2) NPV Debt Service Savings vs. Non Call Tax Exempt Debt (2) (1) Assumes $5/bond underwriter's discount, $2/bond costs of issuance and no bond insurance. (2) Discounted to discount rate of 5%. NPV Savings as a percentage of proceeds. N/A N/A N/A N/A Build America Bonds: All BABs (Make Whole) (1) Par Amount ($) 202,720,000 Maturity Structure Average Life (years) 18.0 All In TIC 4.16% Total Net Debt Service ($) 351,591,166 NPV of Debt Service ($) 180,213,337 NPV Debt Service Savings vs. Non Call Tax Exempt Debt ($) (2) 14,979,765 NPV Debt Service Savings vs. Non Call Tax Exempt Debt (2) 7.490% Build America Bonds: All BABs (Par Call) (1) Par Amount ($) 202,025,000 Maturity Structure Average Life (years) 18.2 All In TIC 4.43% Total Net Debt Service ($) 363,118,764 NPV of Debt Service ($) 186,118,828 NPV Debt Service Savings vs. Callable Tax Exempt Debt ($) (2) 9,742,390 NPV Debt Service Savings vs. Callable Tax Exempt Debt (2) 4.871% IMPACT OF ARRA ON THE AIRPORT FINANCE MARKET 30

31 Overview of Primary Market Activity Since the adoption of ARRA, the municipal market has seen nearly $36 billion in BABs issuance To date, only one airport, Las Vegas McCarran International Airport (LAS) has issued BABs (September 16, 2009) LAS sold $300 million of BABs of September 16, 2009 The BABs had a final maturity of 2042 and included a 10 year par call and mandatory sinking fund redemptions from 2030 through 2042 The BABs priced at 262.5bps above the 30 year Treasury The taxable yield was 6.881% After accounting for the 35% tax subsidy, the tax exempt effective yield was 4.47%, which was approximately 36bps above the 30 year MMD on September 16, 2009 The market has welcomed this new product and secondary market performance has been strong and has created consistent pricing views for these transactions Initially, a taxable buyer oriented structure was key but traditional tax exempt structuring characteristics like the 10 year par call and mandatory sinking fund redemptions for term bonds (rather than bullet maturities) have recently emerged and have performed favorably The ability for airports to benefit from BABs is significantly reduced as BABs cannot be issued for private activity purposes IMPACT OF ARRA ON THE AIRPORT FINANCE MARKET 31

32 BABs Investor Profile The buyer pool for BABs has been firmly established and it is vast Primary market levels have been established with consistency Aftermarket levels have become more consistent and are showing significantly reduced volatility Call option pricing levels have become defined and accepted Wide investor appeal, but minimal direct foreign participation Significant money manager and mutual fund participation Blackrock PIMCO Dodge & Cox Fidelity Significant Insurance Company and Corporate Participation Allstate Principal Prudential AIG Crossover buyers most active on long, large noncallable maturities IMPACT OF ARRA ON THE AIRPORT FINANCE MARKET As muni/treasury ratios decline, equilibrium will continue to develop between these two markets as they become more comparable 32

33 IMPACT OF ARRA ON THE AIRPORT FINANCE MARKET BABs Market Data BAB pricing spreads have varied widely depending on the maturity 33