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Tax Exempt Financing-
The “New Normal”
or another cycle?
MASS Development Conference
October 29,,
2010
Presented by:
Danie...
2
2
The Build Up…
Jun 2007: Bear Stearns Mortgage Hedge Fund
Collapses
Aug 2007: Fed Lends$2 Billion to Banksto EaseCredi...
3
3
…More Fuel on the Fire…
April 2008: DeutscheBank to WriteDown $4 Billion
May 2008: UBSFallsAfter Saying MoreMortgageLo...
4
4
Significant Writedowns for Financial Institutions
5
Insurer Ratings at a Glance
 Consequence – over 40% decrease in insured public issuances today
vs October 2008.
6
Bank Ratings Have Deteriorated
7
7
Variable rates have returned to low levels
8
8
Mixed News .…
9
9
Credit Spreads Have Widened
Significantly…
10
Thus, the Creation of L/C Bubble
 Massachusetts Marketplace – Profile
 Time Period – Next 18 months
 Magnitude – 52 ...
11
Remedy
 Start renewal and/or new issuance process early
 Consider different options
̶ Fixed rate on your own credit(i...
12
Expectations from Banks
 Higher cost of L/C
 Shorter L/C tenors
 Requirement for “other business”
 Consider diversi...
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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

Published in: Economy & Finance, Business
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3- Tax-Exempt Financing: The "New Normal" or Another Cycle?- Daniel Shimkus

  1. 1. 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
  2. 2. 2 2 The Build Up… Jun 2007: Bear Stearns Mortgage Hedge Fund Collapses Aug 2007: Fed Lends$2 Billion to Banksto EaseCredit Woes Sep 2007: Fed CutsRatesby 50 BasisPoints Oct 2007: Merrill ReportsLosson $8.4 Billion WriteDown Nov 2007: Morgan Stanley Takes$3.7 Billion Hit Dec 2007: Ambac and MBIA Outlook Lowered by S&P Jan 2008: Citi WritesDown $18 Billion; Merrill GetsInfusion Feb 2008: UBSConfirms$18.4 Billion Sub PrimeLoss
  3. 3. 3 3 …More Fuel on the Fire… April 2008: DeutscheBank to WriteDown $4 Billion May 2008: UBSFallsAfter Saying MoreMortgageLossesPossible Jun 2008: Lehman Posts$2.8 Billion Loss Jun 2008: U.S. Treasury SaysWriteDownsMay Total $1.3 Trillion Jul 2008: IndyMac Seized by U.S. Regulators Jul 2008: Merrill Has$5.7 Billion of WriteDowns
  4. 4. 4 4 Significant Writedowns for Financial Institutions
  5. 5. 5 Insurer Ratings at a Glance  Consequence – over 40% decrease in insured public issuances today vs October 2008.
  6. 6. 6 Bank Ratings Have Deteriorated
  7. 7. 7 7 Variable rates have returned to low levels
  8. 8. 8 8 Mixed News .…
  9. 9. 9 9 Credit Spreads Have Widened Significantly…
  10. 10. 10 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
  11. 11. 11 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???
  12. 12. 12 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???

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