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Market Update and Debt Portfolio Review Sacramento Transportation Authority April 9, 2009

Market Update and Debt Portfolio Review Sacramento Transportation Authority April 9, 2009. Presented by: Public Financial Management Inc. 50 California Street, Suite 2300 San Francisco, CA 94111 (415) 982-5544. General Market Update.

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Market Update and Debt Portfolio Review Sacramento Transportation Authority April 9, 2009

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  1. Market Update and Debt Portfolio ReviewSacramento Transportation AuthorityApril 9, 2009 Presented by: Public Financial Management Inc. 50 California Street, Suite 2300San Francisco, CA 94111(415) 982-5544

  2. General Market Update • The financial sector continues to report losses and the economy continues to shed jobs. • National unemployment is 8.5%. • State unemployment is 10.5%. • Consumer and retail activity has slowed significantly during the 14 month recession. • Sales tax revenues are down throughout California. • The Federal Reserve has reduced the target Federal Funds Rate to zero, as well as announcing that it will begin to take additional measures to promote liquidity. • President Obama signed the American Recovery and Reinvestment Act into law, a $787 billion economic stimulus package designed to combat the recession and promote economic recovery.

  3. General Market Timeline Sept. 14, 2008: Bank of America purchases Merrill Lynch Sept. 16, 2008: Federal government purchases AIG Oct. 14, 2008: Government injects equity into major banks May 30, 2008: JPMorgan purchases Bear Stearns Jan. 16, 2009: Bank of America receives additional government funds Dec. 16, 2008: Federal Reserve cuts target rate to virtually 0% June 6, 2008: UBS closes municipal department Nov. 24, 2008: Federal government provides additional support to Citigroup Sept. 22, 2008: Barclays purchases Lehman’s US business Sept. 7, 2008: Fannie Mae and Freddie Mac enter conservatorship Feb. 17, 2009: Stimulus bill is signed into law by President Obama Sept. 16, 2008: Lehman files for bankruptcy Jan. 18, 2009: Citigroup announces future break-up of company

  4. New Reality in the Municipal Bond Market • Nearly all bond insurers have been downgraded over the last year. • The value of credit enhancement is negligible for fixed rate bonds. • The scarcity of reliable credit enhancement providers and the requirement for liquidity for variable rate demand bonds has driven costs up for issuers. • The market has become strongly bifurcated between low and high rated credits. • AA and better rated credits receive strong investor interest and price competitively • A and lower rated credits have difficulty coming to market and must offer higher yields to attract investors. • Early 2009 has seen a rally in the municipal market as more investors are examining municipal bonds as an alternative to Treasuries.

  5. Market Impact on Interest Rates • Interest Rates have been volatile over the last 12 months. • Rates have decreased since September and December 2008.

  6. Authority’s Existing Debt • The Authority’s three fixed rate notes: • Series 2006 A • Series 2006 B • Series 2007 A • Authority’s Current Ratings: • Short term ratings: MIG-1 (by Moody’s) and SP-1+ (by S&P). • Preliminary long term ratings: AA from S&P (on Aug. 30, 2007) and Aa3 from Moody’s (on Aug. 23, 2007).

  7. 2009 Forward Starting Swap Structure • On October 18, 2006, the Authority executed three floating-to-fixed interest rate swaps, consisting of three $106,100,000 swap agreements, totaling $318,300,000. • Average synthetic fixed rate: 3.952%. • Effective: October 1, 2009. • Final Maturity: October 1, 2038. • The purpose was to lock in existing rates and hedge future interest rate increases. Forward Swap Goldman Sachs Bank USA Sacramento Transportation Authority 67% LIBOR VRDBs Bondholders 3.736% Variable Rate Forward Swap Bank of America, N.A. 67% LIBOR Liquidity Provider 3.736% Forward Swap Bear Stearns Financial Products (JPMorgan) SIFMA Fees 4.3825%

  8. 2006 Swap Considerations • Swap Counterparties: • Bank of America, N.A. (Aa2, A+, A+) • Bear Stearns Financial Projects, Inc. (Aaa, AAA, N/A) • Goldman Sachs Capital Markets, LP (Aa3, A, A+) • The cost of liquidity associated with VRDBs has increased from an estimated 20 basis points to 120 basis points. • In order to terminate the swap, the Authority would be required to pay the following termination fees (values as of April 6, 2009): • Bear Stearns was bought by JP Morgan in May, 2008.

  9. Market Impact on the Swap • The Authority’s swaps would have performed acceptably (if in effect) since 2006 when compared to the general market index. • Average spread to SIFMA of 0.2561%.

  10. Conclusion and Next Steps • The Authority’s swap structure continues to serve as an effective hedge with an average synthetic fixed rate of 3.95%. • Current market opportunity exists to reduce the synthetic fixed rate to 3.61% and reduce annual debt service by approximately $1 million. • The Authority has several options for issuing bonds in September 2009: • Variable rate bonds with liquidity • SIFMA index bonds without liquidity • Short-term (one-year) fixed rate note without liquidity • Authority’s financing team will finalize strategy in early July with a presentation to the Board

  11. Proposed Next Steps 2009 Transaction

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