Municipal Market Update

1. Municipal Market Update December 4, 2008

2. Discussion Topics • Recent events in the capital markets • Impact on national and local municipal markets • Historical interest rates • Continued challenges with • Bond insurers • Commercial banks • Investment banks • Summary • Contact information

3. Timeline of Capital Markets Developments • US economy is healthy; interest rates are low and consumers feel confident • This helped push up real-estate values • With values escalating, lenders felt more confident about making mortgages to customers whose poor credit histories had prevented them from buying homes in the past • Defaults in the mortgage market began to spill over into the asset-backed security and CDO markets and seeped into every area of the financial markets • There is great concern about the exposure of major investment banks, and several banks were downgraded • The rating agencies are concerned about the exposure of bond insurance companies, and a full review is initiated • Home ownership reaches a record high of 69% in 2004 • Sub-prime loans expanded to 20 percent of the mortgage market in 2006, from 9 percent a decade earlier 2000 2006 2007 2008 • The mortgage market began seeing an increase in defaults and delinquency to a level that exceeded modeled expectations • Property values stopped increasing or started to decrease • Adjustable Rate Mortgages (ARM) began to reset higher • Uncertainty and volatile markets continue as investors seek liquidity and safe credit structure • Volatility expected to continue • Recession expected to last until 2010 • Skyrocketing housing prices lured real-estate speculators • This created even more demand and drove the cycle further Note: This timeline is highly simplified for discussion purposes Sources: Ponder Investment Company research and NPR.org news articles

4. A Historic Quarter for Wall Street

5. A Historic Quarter for Wall Street (continued)

6. Impact on the Municipal Market • The immediate impact on the municipal market was high interest rates and a halt to new bond issues coming to market • Flight to quality generally meant investment in U.S. Treasuries which has pushed benchmark treasury yields to 50-year lows with the 2-yr at 1.00% and the 10-yr at 2.93% as of 11/28/08 • Massive out-flows from municipal money market funds resulted in significantly higher rates • SIFMA Index (1) resets • Few new variable-rate demand bonds were issued • Many commercial banks have been unwilling to provide LOC support for new issues during this volatile time • Investment banks have been reluctant to take on additional remarketing business when it was so difficult to successfully remarket debt currently outstanding • Daily Variable Rate Demand Bonds (“VRDBs”) have significantly out-performed weekly bonds • No new fixed-rate bond issues came to market for several weeks • The Securities Industry Financial Market Association Index is a 7-day index comprised of tax-exempt variable rate demand bonds (“VRDBs). The Index represents a cross section of national VRDB issues. The rate resets on every Wednesday afternoon and becomes effective on Thursday.

7. Short-term Variable Rates • Although the relationship between SIFMA and 67% 1M LIBOR has held over the long-term, the current credit turmoil has caused a spike in short-term tax-exempt VRDO yields in late September. • The SIFMA index as of 11/19/08 was 1.12%, implying a short term ratio of SIFMA to 1M LIBOR of 79%. • The disruption in the tax-exempt market is attributable to several factors: • Seasonal tax implications (September 15 tax payments and September 30 quarter end) • Money Market Fund Assets down substantially in late September • Flight to quality given credit and economic environment • Failed remarketings that result in higher rates • Widening demand gap between troubled and well-regarded Letter of Credit banks • Over the past month the market has responded positively • MMFs have begun to experience net inflows • Strong investor demand for new “untainted” VRDO issues • Significant concerns remain regarding concentration of exposure to relatively few bank names and uncertainty surrounding practical impact of central bank guarantees On September 24th, SIFMA reset at 7.96% • Based on market conditions as of November 21, 2008 and subject to change. SIFMA = 1.12% and 1M LIBOR = 1.39% • Fixed spread quoted based on a Act/360 day count basis.

8. Impact on the Municipal Market • Tax-exempt market has begun to recover • MMFs beginning to see net inflows; strong demand for short-term paper easing variable rate borrowing costs • Merrill Lynch brought a fixed-rate healthcare deal to market on October 23, the first in over six weeks • Providence Health and Services (Aa2/AA) • Yield of 6.70% in 2038 which reflects a credit spread of 1.33% versus 0.50% one year ago • In October and November strong AA and A rated credits begin coming to market, including Trinity (St. Alphonsus) and St. Luke’s • Credit spreads remain in the +1.50% to 1.80% for strong credits • The first BBB+ transaction went to market in October • Loma Linda, CA, with credit spread of 2.89% • Forward looking supply is still substantial • Transactions that can access retail distribution are benefiting with lower interest rates • Conditions still very volatile from day to day

9. Recent Trend in Long-term Fixed Rates • Graph shows the relationship between indices over the past 18 months • Rate history provided from April 2007 through November 21, 2008 • Approximate “A” rated Healthcare traditional fixed rates. Rates are estimates and do not necessarily reflect actual traded levels. • Swap rates are quoted at mid-market and do not include any ongoing costs

10. Trinity Pricing Summary • Highlights of the market included • Strong retail demand in Idaho • One of first 5 Healthcare transactions to come to market in six weeks due to credit crunch • Significant institutional investor participation • The limited supply of Idaho municipal bonds was a plus with institutional investors • Idaho benefit of 12 to 30 basis points

11. Challenges for Healthcare Providers Accessing Capital Markets • Investment Banking Firms • 3 top underwriters exited the municipal business • Bear Stearns • UBS • Lehman • Others, including Citigroup, under pressure and reluctant to commit capital • Reduced headcount through mandatory reductions in force • Significant decrease in available capital • Product offerings have changed dramatically, and differ by firm • Increased return on capital requirements, putting further pressure on fees • Monoline Bond Insurance Companies • No consensus on long-term stability of any insurer • Little perceived value of bond insurance • Higher premiums and more restrictive covenants • Requests for consent difficult and costly to secure • Credit Enhancement Providers (primarily commercial banks) • Letters and lines of credit significantly more costly • Covenants more restrictive • Trading levels increased due to market capacity constraints • Provision of credit tied to additional fee business • Regional banks gaining business

12. Bond Insurer Ratings November 24, 2008

13. Current Underwriting Experience • Variable Rate Debt • For direct pay letters of credit deals, rates have returned to one to two percent and lower in some instances • For standby letters of credit, insured transactions, and issues with other credit concerns, variable rates are as high as 7% • Fixed Rate Debt • Access to market remains very volatile even for highly rated issuers and has become more difficult in the last two weeks • Longer underwriting periods for negotiated transactions and shorter notices for competitive transactions are becoming more common • Underwriters are less willing to commit capital by taking down bonds without increased underwriting spreads • Difficult to find buyers throughout the entire maturity structure • Mitigation Measures • Be flexible with timing and structure • Smaller issues are better because of strong but limited retail demand

14. Idaho Tax-Exempt Market • Idaho Market for fixed rate, tax-exempt debt has performed relatively well: • Low supply of bonds; likely to continue • Retail demand is strong • Conditions are still very volatile; similar transactions receive wildly varying reception only days apart • What could change on a local basis • If rates fall significantly, retail is less likely to be a major factor. Six percent appears to be threshold level • If rates decline, issuance could rise as slated refundings reach market • Issuance is likely to remain relatively low because decrease in housing development will mean fewer school bonds

15. Summary • The relationship between SIFMA and 1-month LIBOR has normalized, at least for now • Current VRDB programs should trade at or near SIFMA with the following qualifications • VRDBs with “tainted” credit support may continue to trade off significantly • Involvement of bond insurers • Credit quality of the supporting bank • Expertise of the remarketing agent • Daily VRDBs may continue to out-perform weekly VRDBs in the near term (months?) • Daily liquidity more valuable to investors than weekly liquidity • Many remarketing agents will not agree to take on the risks of daily remarketing • New bond issues are limited by access and cost of credit enhancement • Self-liquidity is a good option for strong (AA) borrowers

16. Summary, continued • The fixed-rate market appears to be opening up, particularly for highly rated credits, but there remains significant supply of new bonds with limited investor demand • The Bond Buyer’s 30-day visible supply as of December 2, 2008 was $21.3 billion, highest since October 2002 and 55% higher than the 12-month average • In recent years, institutional demand has been driven by tender option bond programs (“TOBs”) and leveraged buyers who have been under pressure from dislocated muni/Treasury ratios and margin calls • Many investors set up TOBs when the 30-year muni/Treasury ratio was 90% while recent levels were 134%, resulting in losses • Major broker-dealers have been imposing margin calls on customer TOBs • As VRDBs are put back to dealers, some are losing financing and therefore being forced to liquidate assets • High short-term rates may cause TOB programs to unwind if the short-term funding cost exceeds the coupon on the bonds • Retail investors have become much more important than in the past, but institutional buyers are still a major requirement for successful sale of a large issue • Covenant and security packages are more restrictive now than in the past

17. Summary, continued • Developments that could improve the municipal debt market include the following • Fear needs to subside and confidence needs to be restored • Continued retail buyer interest is important for sale of fixed-rate bonds and to support municipal money market funds • New issue volume and/or secondary market portfolio unwinding needs to ease and be absorbed • Crossover buyers need to return to the market, lured by relative upside and cheapness of municipals • Broker-dealers need to re-commit capital to improve liquidity in the marketplace • Financial products have generally performed as expected • With the possible exception of auction bonds, where investors significantly under-priced the value of liquidity • Market uncertainty increases cost, security requirements and investor scrutiny • “Flight to quality” behavior by investors tends to disproportionately affect the tax-exempt market

18. Contact Information • Michael Lewis, Vice President Public Finance • Office phone: 208-344-8587 • Mobile phone: 206-330-7656 • Email: mlewis@snwsc.com • Michael Tym, Vice President • Office phone: 219-531-2369 • Mobile phone: 312-961-0274 • Email: mtym@ponderco.com