Financial Markets Update March 2014

1. Financial Markets Update March 2014 RBC Capital Markets, LLC Paul M. Clancy, Director Higher Education Finance Group March 21, 2014

2. Section 1 Interest Rates Update - US Treasury Market - Municipal Market

3. Interest Rates Update US Treasury Market

4. U.S. Treasury Yield Curve Changes US Treasury Market Update The Treasury Yield curve has similarly increased, as economic data has generally improved February 2014 February 2013 Source: Bloomberg as of February 20, 2014

5. 5, 10 and 30 year UST Rates: 2007 to Present US Treasury Market Update US Treasury Yields reflect a gradual increase since lows in 2012 Source: Bloomberg as of February 20, 2014

6. Interest Rates Update Municipal Market

7. SIFMA vs. LIBOR Municipal Market Update The tax-exempt variable rate demand note market has seen increased demand and lower yields; bank letters of credit required. LOC charges ranging from 50 – 300 bps depending on borrower credit quality. LOC may be replaced with SBPA for top rated universities; SBPA charges ranging below 75 bps. Current SIFMA: 0.040% (4 bps) Current 1M LIBOR: 0.155% (15.5 bps) Average SIFMA: 0.546% (54.6 bps) Average 1M LIBOR: 0.645% (64.5 bps) Source: Bloomberg as of February 20, 2014

8. Municipal GO “AAA” MMD Yield Curve Changes Municipal Market Update The “AAA” MMD has increased relative to 2013 yields, due to a variety of technical factors, including the discussion of quantitative easing by the Federal Reserve and bond fund flows February 2014 February 2013 Year of Maturity Source: Muni DSS

9. % of Time in Each Range Since 1961 Bond Buyer 20 GO Index since January 1961 Municipal Market Update 53 Year Historical Perspective Today’s 4.44% level is lower than 76.20% of historical rates since January 1961 Source: Bloomberg as of February 20, 2014Weekly yields and indexes released by the Bond Buyer. Updated every Thursday at approximately 6:00pm EST. 20 Bond General Obligation Yield with 20 year maturity, rated AA2 by Moody's Arithmetic Average of 20 bonds' yield to maturity.

10. % of Time in Each Range Since 1979 Bond Buyer Revenue Index since September 1979 Municipal Market Update 35 Year Historical Perspective Today’s 5.27% level is lower than 72.22% of historical rates since September 1979 Source: Bloomberg as of February 20, 2014Weekly yields and indexes released by the Bond Buyer. Updated every Thursday at approximately 6:00pm EST. 25 Revenue Bond Yield with 30 year maturity, rated A1 by Moody's and A+ by S&P Arithmetic Average of 25 bonds' yield to maturity.

11. SIFMA vs. Revenue Bond Index Municipal Market Update While long-term interest rates have risen, floating rates remain extremely low 524 bps Currently, SIFMA is trading at 4 basis points – 524 basis points difference between long term debt Source: Bloomberg as of February 20, 2014

12. “AAA” MMD January 1, 2007 to Present Shift in “AAA” MMD Since Feb 2013 Feb 1, 2013 to Present 10 Year 20 Year 30 Year January 1, 2007 to Present 10 Year 20 Year 30 Year Maximum 3.040% 4.270% 4.510% Maximum 4.860% 5.740% 5.940% Minimum 1.660% 2.490% 2.790% Minimum 1.470% 2.100% 2.470% Average 2.381% 3.407% 3.730% Current 2.500% 3.520% 3.840% Shift in 30-year "AAA" MMD 2007 2008 2009 2010 2011 2012 2013 0.250% 0.790% -0.900% 0.520% -1.130% -0.740% +1.330% Municipal Market Update The recent decline of current “AAA” MMD reflects a decline in supply and recent bond fund inflows Source: TM3, Thomson Reuters 10, 20, and 30 year “AAA” MMD shown to represent different average lives of municipal transactions Rates as of February 21, 2014

13. Municipal Market Trends Update

14. Credit Spreads for Municipal Issuers Municipal Market Trends Update The diminished supply has resulted in tightening credit spreads between highly rated issuers and lower rated issuers Source: Bloomberg as of February 20, 2014

15. Muni Bonds: 2014 Issuance versus Redemptions Municipal Market Trends Update RBCCM’s forecast for 2014 reflects diminished municipal supply relative to previous years Source: US Municipal Notes dated December 2, 2013 Available at: https://research.rbccm.com/sellside/EmailDocViewer?encrypt=678430e4-7c36-4040-a81c-c1f32071e6f0&mime=pdf&co=rbcnew&id=Chris.Hamel@rbccm.com&source=mail

16. Municipal Weekly Issuance: 2013 to Present Municipal Market Trends Update Municipal issuance in 2014 has lagged the historical average Average: $6.1 billion Source: Thomson SDC

17. Proportion of Higher Education Issuance to Total Municipal Issuance by Par Amount Municipal Market Trends Update RBCCM anticipates 2014 issuance to decline by 12% relative to 2013 Source: US Municipal Notes dated December 2, 2013; Thomson SDC Available at: https://research.rbccm.com/sellside/EmailDocViewer?encrypt=678430e4-7c36-4040-a81c-c1f32071e6f0&mime=pdf&co=rbcnew&id=Chris.Hamel@rbccm.com&source=mail

18. Muni Bonds: 2014 Issuance versus Redemptions Municipal Market Trends Update Municipal bond funds reflect modest inflows, further increasing demand for the limited supply Source: Lipper Fund Flow Data

19. Higher Education Financing Trends

20. Higher Education Financing Trends Public Capital Markets

21. Public Capital Markets • Traditional Fixed Rate Bonds • Tax-Exempt Rates • Taxable Rates • Bond Insurance • Build America Mutual (NR / AA / NR) • Assured Guaranty Municipal (A3 / AA- / NR) • Municipal Assurance Corporation (NR / AA- / NR) • Variable Rate Demand Bonds • Bank Letter-of-Credit or Standby Bond Purchase Agreement • Self Liquidity • Commercial Paper Programs • Floating Rate Notes • Longer terms; fewer moving parts; less market risk

22. Higher Education Financing Trends Private Financial Arrangements

23. Public Capital Markets Becoming more popular as commercial banks and investment banks are utilizing their own balance sheets to provide “credit” to clients • Direct Purchases (Commercial Banks and Investment Banks) • Floating Rate Notes • Flexible Drawdown Bonds • Lines of Credit • Traditional Commercial Bank Loans • Construction Loans • Permanent Project Funding • Fixed Rate Loan, Long Term, Short Term • Derivative Arrangements • Interest Rate Swaps • Rate Caps • Rate Collars

24. Contact Information Paul M. Clancy Higher Education Finance Group (215) 832-1518 paul.clancy@rbccm.com

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