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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
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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
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The Build Up…
Jun 2007: Bear Stearns Mortgage Hedge Fund Collapses
Aug 2007: Fed Lends $2 Billion to Banks to Ease Credit Woes
Sep 2007: Fed Cuts Rates by 50 Basis Points
Oct 2007: Merrill Reports Loss on $8.4 Billion Write Down
Nov 2007: Morgan Stanley Takes $3.7 Billion Hit
Dec 2007: Ambac and MBIA Outlook Lowered by S&P
Jan 2008: Citi Writes Down $18 Billion; Merrill Gets Infusion
Feb 2008: UBS Confirms $18.4 Billion Sub Prime Loss
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…More Fuel on the Fire…
April 2008: Deutsche Bank to Write Down $4 Billion
May 2008: UBS Falls After Saying More Mortgage Losses Possible
Jun 2008: Lehman Posts $2.8 Billion Loss
Jun 2008: U.S. Treasury Says Write Downs May Total $1.3 Trillion
Jul 2008: IndyMac Seized by U.S. Regulators
Jul 2008: Merrill Has $5.7 Billion of Write Downs
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Significant Writedowns for Financial Institutions
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Insurer Ratings at a Glance
Consequence – over 40% decrease in insured public issuances today vs October 2008.
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Bank Ratings Have Deteriorated
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Variable rates have returned to low levels
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Mixed News….
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Credit Spreads Have Widened Significantly…
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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
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Remedy
Start renewal and/or new issuance process early
Consider different options̶G Fixed rate on your own credit(in public markets)̶G Direct Purchase Tax-exempt Bond with a financial institution(either variable
rate, fixed rate or a cap)̶G Use of a composite pool program through MassDevelopment̶G L/C – if adverse to variable rates – consider swaps(including shorter tenors) or
caps.̶G BAB’s(Build America Bonds) – possibility in 2011???
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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???