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3- Tax-Exempt Financing: The "New Normal" or Another Cycle?- Daniel Shimkus

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Daniel Shimkus of TD Bank gives an overview of the current climate and cycles in the world of tax-exempt financing. Part of Current Topics in Tax-Exempt Finance 10/29/2010

Daniel Shimkus of TD Bank gives an overview of the current climate and cycles in the world of tax-exempt financing. Part of Current Topics in Tax-Exempt Finance 10/29/2010

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    3- Tax-Exempt Financing: The "New Normal" or Another Cycle?- Daniel Shimkus 3- Tax-Exempt Financing: The "New Normal" or Another Cycle?- Daniel Shimkus Presentation Transcript

    • 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
    • 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
    • …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
    • Significant Writedowns for Financial Institutions
    • Insurer Ratings at a Glance
      • Consequence – over 40% decrease in insured public issuances today vs October 2008.
    • Bank Ratings Have Deteriorated
    • Variable rates have returned to low levels
    • Mixed News….
    • Credit Spreads Have Widened Significantly…
    • 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
    • Remedy
      • Start renewal and/or new issuance process early
      • Consider different options
        • Fixed rate on your own credit(in public markets)
        • Direct Purchase Tax-exempt Bond with a financial institution(either variable rate, fixed rate or a cap)
        • Use of a composite pool program through MassDevelopment
        • L/C – if adverse to variable rates – consider swaps(including shorter tenors) or caps.
        • BAB’s(Build America Bonds) – possibility in 2011???
    • 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???