PUBLIC FINANCE & ENVIRONMENTAL SUSTAINABILITY CONFERENCE September 17, 2015

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1 PUBLIC FINANCE & ENVIRONMENTAL SUSTAINABILITY CONFERENCE September 17, 2015 UNC School of Government Environmental Finance Center GOING GREEN PANEL

2 PUBLIC FINANCE & ENVIRONMENTAL SUSTAINABILITY CONFERENCE SIGNIFICANT MARKET INTEREST IN GREEN BOND SECTOR STRONG ANNUAL ISSUANCE GROWTH: $11 billion in ($100 million muni share) $37 billion in ($2.5 billion muni share) $22 billion YTD in ($2 billion muni share) Source: Bloomberg/World Bank *Through August, FIFTH AVENUE SOUTH, SUITE 210 NAPLES, FL (T) (F) WASMERSCHROEDER.COM 2

3 PUBLIC FINANCE & ENVIRONMENTAL SUSTAINABILITY CONFERENCE BRIEF HISTORY OF GREEN SECTOR AND ROLE IN MUNI BOND MARKET History: World Bank launched its first green bond issuance in 2008 Un`l 2013, green bonds were primarily a taxable product Official muni market green bond issuance picked up in 2014 Defini`on can be subjec`ve, although Green Bond Principals guidelines have gained trac`on Varia`ons of the green theme: NYCHDC recent bond issuance more aligned with posi`ve impact concept Panel will cover all perspec`ves: underwriter, issuer, investor 600 FIFTH AVENUE SOUTH, SUITE 210 NAPLES, FL (T) (F) WASMERSCHROEDER.COM 3

4 PUBLIC FINANCE & ENVIRONMENTAL SUSTAINABILITY CONFERENCE PANELISTS MODERATOR: Michael J. Schroeder, CFP, President & Chief Investment Officer Wasmer, Schroeder & Company SPEAKERS: Jillian C. Ziarko, Associate, Public Sector and Infrastructure Banking Goldman Sachs & Co. Ellen Duffy, Senior Vice President Debt Issuance & Finance New York City Housing Development Corpora`on Barbara VanScoy, Co- Founder & Chief Impact Investment Officer Community Capital Management 600 FIFTH AVENUE SOUTH, SUITE 210 NAPLES, FL (T) (F) WASMERSCHROEDER.COM 4

5 PUBLIC FINANCE & ENVIRONMENTAL SUSTAINABILITY CONFERENCE DISCLOSURES The material provided is for informa`onal purposes only and contains no investment advice or recommenda`ons to buy or sell any specific securi`es. The statements contained herein are based upon the opinions of Wasmer, Schroeder & Company, Inc. (WSC), the data available at the `me of the presenta`on which may be subject to change depending on current market condi`ons. This presenta`on does not purport to be a complete overview of the topic stated, nor is it intended to be a complete discussion or analysis of the topic or securi`es discussed. All opinions and views cons`tute our judgments as of the date of wri`ng and are subject to change at any `me without no`ce. WSC does not accept any liability for any loss or damage arising out of the use of all or any part of this presenta`on. This report should not be regarded by recipients as a subs`tute for the exercise of their own judgment and may contain numerous assump`ons. Different assump`ons could result in materially different outcomes. Please contact Wasmer, Schroeder & Company for more complete informa`on, including the implica`ons and appropriateness of the strategy or securi`es discussed herein for any par`cular porlolio or client. ABOUT THE FIRM Wasmer, Schroeder & Company is an independent and employee- owned investment advisor, specializing in fixed income separate account porlolio management for high net worth individuals, wealth management groups and ins`tu`ons, including founda`ons, endowments and re`rement plans, WSC has $5.32 billion in assets under management, as of 6/30/2015. The Firm works with clients and their advisors to provide taxable and tax exempt fixed income porlolio solu`ons to meet their needs. Firm s corporate headquarters are in Naples, Florida, where the tax exempt Porlolio Management team, Client Services, Opera`ons, IT, Accoun`ng, Compliance, Marke`ng and Administra`on reside; our taxable Porlolio Management team is located in Cleveland, Ohio; Client Rela`onship offices are located in Exton (Philadelphia area), Pennsylvania and Portland, Oregon. 600 FIFTH AVENUE SOUTH, SUITE 210 NAPLES, FL (T) (F) WASMERSCHROEDER.COM 5

6 Changing Market Perceptions of Utility Credits Moderator: Angela Kukoda, Senior Vice President FirstSouthwest v v v Ted Damutz, Senior Credit Officer Moody s Investors Services Chris Mier, Managing Director Loop Capital Markets Joel H. Levy, Director, Portfolio Manager, and Senior Research Analyst TIAA-CREF September 17 & 18, 2015 Chapel Hill, North Carolina Hosted by: UNC School of Government - Environmental Finance Center

7 Introduc`on: Changing Market Percep`ons of U`lity Credits Analysts from all segments of the industry are rethinking their approach to credit assessment of u`lity revenue bonds Does this hypothesis have any validity? Agree or Disagree? Na`onally Recognized Ra`ng Sta`s`cal Organiza`on Strategist Porlolio Manager In what ways are they safer? Riskier? What other factors complicate the discussion? Is new ra`ng agency ra`ng methodology reflec`ve of a significant change in approach? Shit in weigh`ng of tradi`onal credit characteris`cs New analy`c considera`ons Linkage to the parent credit? What does the market say about all of this? What are the investors looking for? How do green bonds fit into the equa`on? The hallo effect Addi`onal credit considera`ons 7

8 Does the Market Penalize U`lity Debt Rela`ve to the GO Debt of a Parent? Ra`ngs NYC GO NYC Muni Water Fin Aa2/AA/AA/NR Aa2/AA+/AA+/NR NYC GO spreads to MMD have average about 5 basis points wider than those of NYC Muni Water NYC GO spreads may have widened slightly, contrary to the increasing concerns about u`lity debt NYC Muni Water spreads have half the standard devia`on of NYC GOs.

9 When a Parent has Credit Issues, Related U`lity s Spreads Widen as Concerns Mount CHI UTGO SPD CHI WASTE WTR SPD CHI WATER SPD Mean Median Mode Std Dev Range Min Max Count Ra`ngs Chicago GO Ba1/BBB+/BBB+/A- Wastewater Baa3/A- /AA/AA- Water (2 nd Lien) Baa2/A- /AA/AA Like the New York case, the standard devia`on for Chicago GOs trades are double those of Chicago Waterworks and Wastewater bonds. Rising concerns about the GO bonds has raised concerns about overlapping governance and the strength of legal protec`ons in and out of Chapter 9 that have widened the spreads on the u`lity bonds.

10 Does the Secondary Market say anything about the Risk of U`lity Bonds in Light of Analysts Credit Concerns? Recent trades reveal that AA- rated u`li`es con`nue to trade at fairly `ght spreads to the AAA- rated MMD benchmark

11 New Credit Threats may be Impac`ng both Muni GO and Revenue Bonds GOs and revenue bonds are both being impacted by many of the same concerns- - treatment in bankruptcy, value of cons`tu`onal and statutory protec`ons, revenue vola`lity, and even consent decrees (they are not just for revenue bonds anymore!). Concerns about Muni credit, in general, may now be reflected in the rela`ve spread rela`onship between munis as an asset class and other credit sensi`ve markets, like corporate bonds. Muni Yield to Corporate Yield Ra`os have increased from about 50% to about 80% over the last 8 Years.

12 The Impact of New trends in Credit Risk may be Masked by Limited Issuance of U`lity Bonds Suppor`ng Tighter Spreads U`lity Issuance has fallen in nominal dollars and also in percentage terms of the total volume, even as total volume has declined, crea`ng a double- whammy on the availability of u`lity bonds and influencing pricing rela`ve to other sectors. This may offset some, or all, of any addi`onal risk premium applicable to u`lity bonds.

13 Investor Considera`ons Who is the Main Obligor? Project Use of Proceeds Ability to Segment Proceeds / Project What is the management oversight? Rela`ve Value Liquidity

14 Investor Considera`ons The Type of Project How Green is the project? Scarcity? Environmental Concerns Has there been an EPA consent decree?

15 Investor Considera`ons How will Investors view the project? Is the project part of a larger strategy? Does the investment meet the spirit of the mandate? How commixed is management to the project?