FEDERAL HOME LOAN BANK OF CHICAGO Standby Letters of Credit and Project Finance Wisconsin Health and Education Facil

1. FEDERAL HOME LOAN BANK OF CHICAGOStandby Letters of Credit and Project FinanceWisconsin Health and Education Facilities Authority Eldridge Edgecombe Suzanne Thackston Community Investment Group March 23, 2009

2. 262863 2 Agenda Federal Home Loan Bank System Types of Letters of Credit (LOC) FHLBank LOC-Eligibility & Requirements FHLBank LOC-Other Regulatory Requirements Impact-Benefits of FHLBank Letters of Credit

3. 262863 3 FHLBank System System created in 1932 by the Federal Home Loan Bank Act to stimulate mortgage financing and provide liquidity to credit markets affected by the Great Depression Expanded public policy mission in 1989 to include affordable housing and community lending 12 independent government-sponsored entities Member-owned cooperative (Banks, thrifts, credit unions, and insurance companies) More than 8,000 member financial institutions

4. 262863 4 Federal Home Loan Bank of Chicago District comprised of Illinois and Wisconsin Approximately 815 members Approximately 270 Wisconsin members

5. 262863 5 FHLBank System Mission Summary Serves as a reliable source of liquidity for its membership Provides cost-effective funding to members for use in housing, community, and economic development Provides regional affordable housing programs, which creates housing opportunities for low- and moderate-income families

6. 262863 6 FHLBank System Products Advances (loans) to members Secondary mortgage market programs Affordable housing and community lending Letters of Credit

7. 262863 7 Assist members in facilitating residential housing finance Assist members in facilitating community lending Asset/liability management Liquidity and other funding needs

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9. 262863 9 Residential Housing Guarantee of payment and credit enhancement for tax-exempt or taxable bond financings Owner-occupied or multifamily rental housing projects CICA-qualified or non-CICA-qualified projects

10. 262863 10 Community Lending Guarantee of payment and credit enhancement for bond financings of CICA-qualified economic development projects FHLBC supports taxable bond financings Housing and Economic Recovery Act of 2008 revised tax code to add FHLBank guarantee of tax-exempt bond financings for “original issuances” (Sunsets 2010)

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13. 262863 13 Geography Individuals Activities

14. 262863 14 Project located in… Neighborhood with a median income at or below Targeted Income Level Targeted Income Test 115% or less of median income for the area (Rural) OR 100% of median income for the area (Urban)

15. 262863 15 Project located in… Rural Champion Community, or urban Empowerment Zone, or urban Enterprise Community (as designated by either USDA or HUD) Indian area Brownfield area Area where a military base is closing Designated community under the Community Adjustment and Investment Program Federally-declared disaster area

16. 262863 16 Annual salaries for at least 51% of the permanent full- and part-time jobs created by the project (other than construction jobs) are at or below Targeted Income Level; or At least 51% of families who otherwise benefit from the project (other than through salaries) have incomes at or below the Targeted Income level

17. 262863 17 Qualified small businesses Small business means a “small business concern,” as that term is defined by section 3(a) of the Small Business Act (15 U.S.C. 632(a)) and implemented by the Small Business Administration under 13 CFR part 121, or any successor provisions.

18. 262863 18 Asset Liability Management & Liquidity Collateralization of Public Unit Deposits (PUD) Acts as a guarantee of payment Used when public entity (i.e., state, local, school authorities) deposits exceed FDIC insurance coverage limit Performance Guarantees Credit wrap of member’s guarantee of payment if member’s customer fails to fulfill its contract within the stated period of time Typically used for construction projects

19. 262863 19 Standby Letters of Credit Recognized financing instruments issued by banks on behalf of customer Provides assurance of customer’s ability to perform under the terms of a contract with a third party Guarantee of payment under specific circumstances Strengthens creditworthiness of customer Guarantee of performance Collateralization of public unit deposits Serve as a secondary payment mechanism

20. 262863 20 Direct Pay Letters of Credit FHLBank acts as “fronting bank” and issues direct pay letter of credit on behalf of Issuer to Trustee for the benefit of the bondholders FHLBank LOC is primary payment mechanism: Principal and interest payments Non-performance Other transactional charges FHLBank reimbursed by member and member from Issuer

21. 262863 21 Impact of FHLBank Letter of Credit Alternative to Bond Insurance Responds to market demand for liquidity Smaller Deals $3 - $20MM bond offerings Rural Projects Too small No underwriter interest Larger deals with member consortium

22. 262863 22 Benefits of FHLBank Letter of Credit Allows members to leverage the credit rating of the FHLBank Reduces financing and transaction costs Provides liquidity by serving as an alternative form of collateral for public unit deposits Helps members manage asset/liability positions Offers flexible terms and affordable fees Supports small or large scale affordable housing and economic development initiatives Collateralized in the same manner as an advance and requires no additional capital stock purchase

23. 262863 23 Federal Home Loan Bank of Chicago Contacts Eldridge Edgecombe 312-565-5705 eedgecombe@fhlbc.com Suzanne Thackston 312-565-6922 sthackston@fhlbc.com Barbara Watkins, Legal Counsel 312-565-565-1747 bwatkins@fhlbc.com