investment banking - louisiana voice · pdf fileinvestment banking i important disclosures...

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Presentation to the State of Louisiana

Goldman, Sachs & Co.

March 2015

- - - - -INVESTMENT BANKING I

DIV ISION

Goldman Sachs does not provide accounting, tax, or legal advice. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you (and each of your employees, representatives , and other agents) may disclose to any and all persons the US federal income and state tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind.

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-------------------INVESTMENT BANKING I

Important Disclosures Regarding Goldman Sachs as o1v1s1oN

a Potential Underwriter for the State of Louisiana

Goldman Sachs Is Not Acting as a Municipal Advisor

Goldman, Sachs & Co. ("Goldman Sachs") is providing the information contained in this document in reliance on the exemption from the definition of municipal advisor in Section 15Ba1-1 (d)(3)(vi) of the Securities Exchange Act of 1934, as amended (the "Act"). The information contained herein is for discussion purposes only in anticipation of serving as underwriter to the State of Louisiana (the "Issuer") . The primary role of Goldman Sachs, as an underwriter, is to purchase securities, for resale to investors, in an arm's-length commercial transaction between the Issuer and Goldman Sachs and Goldman Sachs will act is its own interest and has financial and other interests that differ from those of the Issuer. Goldman Sachs is not acting as a municipal advisor, financial advisor or fiduciary to the Issuer or any other person or entity and does not owe a fiduciary duty to the Issuer or any other person or entity with respect to the information contained herein. Prior to taking any actions contemplated herein, the Issuer should consult with its own financial and/or municipal, legal, accounting, tax and other advisors, as applicable, to the extent it deems appropriate. If the Issuer would like a municipal advisor in this transaction that has legal fiduciary duties to the Issuer, then the Issuer is free to engage a municipal advisor to serve in that capacity. This material is not a commitment by the Issuer or Goldman Sachs to undertake any transaction contemplated herein.

1 I

- - -- - - - - - -- - - - -Additional Important Disclaimers Regarding Our Investment Banking Services and Distribution Princioles Investment Banking Division Communication

- - -INVESTMENT BANKING I

. DIVISIO N

This communication, and any accompanying information, has been prepared by the Investment Banking Division of Goldman Sachs for your information only and is not a product of the research departments of Goldman Sachs. All materials, including proposed terms and conditions, are indicative and for discussion purposes only. Finalized terms and conditions are subject to further discussion and negotiation . Any opinions expressed are our present opinions only and Goldman Sachs is under no obligation to update those opinions. All information, including any price indications provided is supplied in good faith based on information which we believe, but do not guarantee, to be accurate or complete; we are not responsible for errors or omissions contained therein. Certain transactions, including those involving derivatives, give rise to substantial risk and are not suitable for all investors. Goldman Sachs does not provide accounting , tax or legal advice; however, you should be aware that any proposed indicative transaction could have accounting , tax, legal or other implications that should be discussed with your advisors and lor counsel. Certain provided information may be based on Goldman Sachs' own good faith understanding of the application of certain accounting rules as they apply to qualifying hedges and non-hedging derivatives. Goldman Sachs makes no representation as to whether its understanding of certain accounting rules is correct and, by providing such information, is not providing you with any accounting advice, including, without limitation, any advice regarding the appropriateness of hedge accounting for a particular derivative transaction or the potential income statement impact of such derivative transaction or the analyzed portfolio of transactions. In addition , we mutually agree that, subject to applicable law, you may disclose any and all aspects of any potential transaction or structure described herein that are necessary to support any U.S. federal income tax benefits, without Goldman Sachs imposing any limitation of any kind . We are under no obligation to extend, renew or otherwise restructure any proposed indicative transaction. All information provided was supplied in good faith based on information which we believe, but do not guarantee, to be accurate or complete; however, we are not responsible for errors or omissions that may occur. Further information regarding this material may be obtained upon request.

General Statement of Distribution Principles

Goldman Sachs is committed to managing securities offerings such that our clients are treated fairly and to conducting our business with integrity and according to proper standards. Our policy is that the pricing of book-built securities offerings and allocations to investors should be transparent to the issuer or seller(s), consistent with our responsibilities to our investing clients. We will endeavor to make available to the issuer or seller(s) relevant information to make its own, independent decision with respect to the price, structure, timing and other terms of the offering . The investors to whom we allocate securities may also be clients of Goldman Sachs or have other relationships with the firm . To the extent that actual or potential conflicts arise between the interests of such investors and those of the issuer or seller(s) , we will endeavor in good faith to manage such conflicts fairly. We will not make allocations as an inducement for the payment of excessive compensation in respect of unrelated services, in consideration of the past or future award of corporate finance business, or expressly or implicitly conditional upon the receipt of other orders for investments or the purchase of other services. Where we underwrite an offering or otherwise guarantee a price in connection with an offering , we will take into account our prudential responsibilities to manage our risk properly when determining allocations and their manner and timing . As part of the bookbuilding process , Goldman Sachs will engage in an ongoing dialogue with both the issuer or seller(s) and investors to determine the appropriate final price of the offering . This dialogue typically involves various discussions with , and communications to, Goldman Sachs' clients regarding the status of the bookbuilding, including overall demand and price sensitivity of that demand. If you have any questions regarding aspects of the bookbuilding or allocation process, please do not hesitate to contact our Syndicate Desk.

21

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-------------------Table of Contents

I. Potential Lottery Bond Issue

II. Pension Buyout Considerations

Ill. BlueCross BlueShield of Louisiana Considerations

IV. Tobacco Financing

V. Refunding Update

INVESTMENT BANKING I DIVISION

31

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Executive Summary INVESTMENT BANKING I · DIVISION

• Goldman Sachs previously proposed that the State consider a lottery bond issue to address budget challenges for FY1 0, FY11 and FY12

• Our proposals included ways the State can potentially enhance the performance of the lottery to meet debt service requirements and maintain robust transfers to the Minimum Foundation Program ("MFP")

• Based on Lottery revenue growth of at least 1.50% annually, the State could raise approximately $428 million and preserve a minimum contribution to the MFP of $160.2 million (FY13 level)

- Debt service would be structured to escalate so that anticipated growth will meet the payments

- Net revenues in excess of debt service and FY13 MFP payments can be used to either repay debt faster, or make additional MFP contributions

• The State can assume a conservative level of continued growth to pay debt service

- The lottery has grown by a compounded annual growth rate of 3.5% annually since 2000

- Issuing bonds against a lower growth rate helps mitigate risk of a slow-down in growth

- For early years when growth will likely be insufficient to pay debt service, structural tools such as capitalized interest or funding for lottery operation expenses can be used

• Strong legal covenants and a conservative debt structure can achieve favorable ratings and investor acceptance

- Rating agency views on lottery bond issues vary widely and each agency has a different focus and criteria

- The State's debt service should be secured by a first lien on all net revenues (before all MFP deposits) which would result in high coverage (5.0x+)

Potential Lottery Bond Issue 51

-------------------Addressing Budgetary Relief Needs INVESTMENT BANKING I

DIVISION

• The constitution dedicates lottery revenues to the Minimum Foundation Program

• The State would have to dedicate proceeds to education

• There are several ways the State may be able to use proceeds of a bond issue to address budgetary pressure, subject to legal review

- Proceeds could be used to pay for capital that would otherwise be funded from other State funds

- Funds could be used to refund GO debt that funded education projects

• Any funds that are used to pay operating expenses of the State may be subject to working capital rules, which generally requires excess funds be used to repay debt in the future unless a deficit persists

- The State and its legal team may not want to use a working capital borrowing for a variety of reasons, such as constitutional restrictions on deficit borrowing and technical issues related to tracking funds


- - - - - - - - - - - .. -Overview of Louisiana Lottery Corporation ($ in millions)

- - - - -INVESTMENT BANKING I

DIVISION

Historical Gross Lottery Revenues FY2013 Uses of Funds1

$600

$500

$400

$300

$200

$100

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$0 ·----------------------NM~~m~romo~NM~~m~romo ~ NM mmmmmmmmoooooooooo~~ ~ ~ mmmmmmmmoooooooooooooo

NNNNNNNNNNNNNN

Source: Louisiana Lottery 2013 CAFR; Fiscal Year Historical Lottery Sales (louisianalottery.com) 1 Note: Statutes require at least 35% gross revenues go to MFP.


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Lottery Bond Program Strategy INVESTMENT BANKING I DIVISION

• We recommend that the State dedicate all net lottery revenues (MFP transfers) to pay debt service on a priority basis to achieve favorable credit ratings

• We presume the State would like to preserve the current level of funding to the greatest extent possible

- $160.2 million of funds were transferred to the MFP in FY13

• The State can assume some level of continued growth to pay debt service

- A minimum of approximately 1.5% growth would be needed to raise approximately $428 million and maintain current MFP funding at $160.2 million, assuming a 30-year bond issue and 5.0x coverage

- The lottery has grown by a compound annual growth rate of 3.5% annually since 2000

- The State will be at risk that growth does not materialize

- Growth will likely be insufficient to pay interest in early years

- Using capitalized interest or funding lottery operation expenses for a few years can address this potential shortfall

• We presume the issue would not fall under the State's debt cap , but we recognize this must be evaluated

- "Net state tax supported debt" means (i) general obligation bonds secured by the full faith and credit of the state, (ii) debt secured by capital leases of immovable property payable by the state or annual appropriations of the state, (iii) debt secured by statewide tax revenues or statewide special assessment,. (iv) any funds advanced by a political subdivision in accordance with R.S. 47:820.2 (TIMED), and (v) bonds secured by self-supported revenues which in the first instance may not be sufficient to pay debt service and will then draw on the full faith and credit of the state

Potential Lottery Bond Issue al

----------~-----~--Potential Louisiana Lottery Bond Legal Structure INvEsTMENT BANKING 1

DIVISION

Potential Lottery Bond Issue

Potential Flow of Funds

Residual to the MFP and other Recipients

Potential Covenants

• Additional Bonds Test (ABT): net revenues must exceed 3x maximum annual debt service (MADS)

• Fully Funded Debt Service Reserve Fund (DSRF)

• Non-impairment Clause

The payout ratio of the Lottery can only be changed if

1. Net revenues are expected to increase as a result of the change

2. Coverage exceeds 2x MADS

• Future competing/similar state gaming enterprises would provide security for the Lottery bonds first

91

-------------------Louisiana Lottery Securitization Analysis

Structure Overview

• Structure maintains a minimum $160.2 million annual transfer to the MFP

• Assumes 1.5% annual growth in lottery receipts


• A portion of the first 5 years of operating expenses of the Lottery Corporation funded from bond proceeds to achieve sufficient revenues to pay debt service in those years

- Amounts to 37% of projected operating expenses over that time

• Structure provides exactly 5x minimum coverage (FY13 net revenues/MADS)

Assumptions Security Ratings

Maturity Structure

Lottery Revenue Growth Rate Proceeds Generated ABT

MADS Coverage from FY13 Revenue Transfer to State

Ali-in TIC Average Life Maximum Annual Debt Service


Net Lottery Revenues Aa3/AA+/AA-

30-year level debt service, no principal amortization for 5 years

1.5% annually $465 million 3.0x

Results 5.0x

3.79% 21 years $29.6 million

Par Amount

Net Premium

Total Sources

Project Fund

Capitalized Interest Fund

Issuance Costs

Total Uses

Sources & Uses

$398,030,000

69,653,495

$467,683,495

$428,426,665

36,466,123

2,791 ,157

$467,683,495

10 1

~- 1- - ----- -- - ------Louisiana Lottery Securitization Analysis Summary of Projected Future Lottery Revenue Distribution


$40

$35

$30

$25

$20

$15

$10

$5

Excess funded by capitalized interest or bond funding of operating expenses

I I

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- Bond Principal - Bond Interest - Net Lottery Revenues > $160.7 million, 1.5% annual growth

Note: Assumes same percentages of gross lottery revenues go annually toward prize payouts and operating expenses as in FY2013 (-50% Prizes, -15% Operating Expenses).

Potential Lottery Bond Issue 11 1

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-------------~-----If Revenues Grow Slower than Expected Less INvEsTMENT BANKING I

' DIVISION

Revenues Will Be Available for the MFP from the Lottery

Revenues Available for MFP Transfers After Debt Service

Year 3% Growth 2% Growth 1.5% Growth 0% Growth

2016 $167,752,869 $162,703,053 $160,214,975 $152,896,615 2017 170,492,006 163,590,482 160,214,975 150,383,615 2018 173,351 ,012 164,508 ,224 160,214,975 147,832,920 2019 176,334,049 165,457,074 160,214,975 145,243,965 2020 179,445,411 166,437,846 160,214,975 142,616,175 2021 182,584 ,037 167,345,878 160,109,482 139,843,475 2022 185,986,203 168,413,726 160' 130' 196 137,156,975 2023 189,666,529 169,652,161 160,287,019 134,565 ,975 2024 193,637,495 171 ,069,684 160,587,560 132,077,475 2025 198,811,495 173,574,577 161 ,939,185 130,598,225 2026 205,660,842 177,634,904 164,809,024 130,594,725 2027 212,722,525 181 ,783,257 167,728,714 130,597,975 2028 219,993,711 186,012,262 170,689,899 130,598,975 2029 227,4 77 ,252 190,320,077 173,689,738 130,594,225 2030 235,191 ,442 194,720,144 176,740,645 130,595,475 2031 243,139,270 199,210,437 179,839,547 130,598,975 2032 251 ,319,178 203,784,216 182,978,630 130,596,225 2033 259,750,316 208,455,275 186,170,591 130,599 ,225 2034 268,426,548 21 3,211 ,945 189,402,636 130,594,475 2035 277,372,710 218,073,344 192,692,733 130,599,225 2036 286,578,114 223,022,876 196,023,111 130,594,975 2037 296,068,307 228,079,984 199,412,007 130,599,225 2038 305,838,329 233,233,398 202,846,924 130,598,725 2039 315,899,216 238,487,641 206,331 ,121 130,595,975 2040 326,267,262 243,852,274 209,872,873 130,598,475 2041 336,943,775 249,321 ,650 213,465,214 130,598,475 2042 347,940,834 254,900,663 217,111 ,689 130,598,725 2043 359,265,796 260,589 ,251 220,810,858 130,596,975 2044 370,931 ,560 266,392,646 224,566,541 130,596,225 2045 382,946,319 272,311 ,124 228,377,571 130,594,475

Potential Lottery Bond Issue 12 1

-------------~-----Summary of Lottery Bond Issuers

Underlying Ratings at Issue

Last Issue

Total Outstanding Par

Final Maturity

Security

DSRF Requirement

Additional Bonds Test


State of Florida

A1/AAA/A+

3/20/2014

$2 ,615,292,000

2025

1st lien on net lottery revenues

MADS

3.00x MADS

West Virginia Economic Development Authority

A1/AAA/A+ (1st & 2nd liens)

5/20/2014

$297,085,000 (all liens)

2040

Net lottery revenues (3 liens)

MADS

2.00x MADS (all liens)

• . . \

State of Arizona

A1/AA-/NR

6/15/2010

$425,420,000

2029 I I I I

I

1st lien on net lottery revenues

None

2.00x MADS


II .

State of Oregon

Aa2/AAA/NR

1/18/2015

$1 ,602,820,025

2030

1st lien on net lottery revenues, State moral obligation to replenish

DSRF

MADS

4.00x MADS

13 1

-------------~-~-~-

Summary of Lottery Bond Issuers Flow of Funds

~ Florida


West Virginia

Maximum 15% Paid as Operating Expenses

State Lottery Fund

Community & Technical College Higher Education Commission Debt Service

• . I

Arizona

Gross Lottery Revenues

Minimum of 50% Paid as Prizes


-M Oregon

Allocation to Bond Fund for Debt Service

Allocation to Other Funds

14 1

- - - - - - - - - - .. Summary of Lottery Bond Issuers Summary of Rating Agency Commentary

State of Florida

West Virginia Economic Development Authority

• History of stable pledged • Prioritization of debt revenues with minor service payments from fluctuation during lottery revenues

recession • Robust debt service • Strong growth of 7.8% in

FY2013

• Active bonds test for 3.0x MADS

• Active management of state lottery program

• Narrow source of pledged revenues after prizes and operating costs

• Highly sensitive to broader economic

coverage

• Strong management of WV lottery enterprise

• Integral role of lottery revenues in state operations

• Lack of constitutional protection of pledged revenue stream

• Long amortization (30 years) given nature of revenue

- - -

It . \

State of Arizona

• Non-impairment covenant

• State's diverse population and growth over past decade

• Historically stable performance

• Satisfactory ABT (2x)

• Lack of debt service reserve fund

• Additional competition

• Lack of constitutional protection or dedication of

condition • Lottery revenues derived revenues

• Lack of cash-funded debt from discretionary • Lottery revenues service reserve on some spending , sensitive to susceptible to series economic factors economic volatility

Source: Latest Rating Agency Reports (Moody's, Fitch, S&P)


- ... - -INVESTMENT BANKING I

DIVISION

--State of Oregon

• State constitution provides 1st lien for debt service

• Statutory moral obligation pledge to replenish debt service underscores legislature's support for lottery bond program

• Significant role of lottery revenues in state operations maintain incentive

• Volatility due to consumer driven pledged revenue source

• Expansion of Washington lottery could increase competition

• Lottery sales dependent on game diversity and steady introduction of new games

15 1

-


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------- -- - -- ---- - --Louisiana State Employees' Retirement System ("LASERS") Overview

Actuarial Assumptions

Actuarial Cost Method Projected Unit Credit

Amortization Method Level Dollar


Remaining Amortization Period Weighted average of 19 years

Asset Valuation Method 5-year smoothing

Actuarial Rate of Return 1 8.00%

Projected Salary Increases 4.3%- 14%

Cost of Living Adjustment Liability for pay adjustments already granted is included in the retiree reserve

Schedule of Funding Progress ($000s)

6/30/2013

Actuarial Value of Assets

Market Value of Assets

Actuarial Accrued Liability

Unfunded AAL

Funded Ratio

Annual Covered Payroll

UAAL % of Covered Payroll

Investment Performance

1 Numbers reflect 2013 reports, prior to 71112014 drop to 7. 75%. Includes inflation at 3% Sources: 2013 Louisiana CAFR and Actuarial Report

Pension Buyout Considerations

$9,936,501

$10,327,598

$16,182,195

$6,441 ,317

60.2%

$1 ,951 ,988

330.0%

11 .8%

6/30/2012

$9,026,416

$9,515,774

$16,157,898

$7,131,482

55.9%

$2 ,341 ,703

304.5%

-0.1%

6/30/2011

$8 ,763,101

$9,703,497

$15,221 ,055

$6,457,954

57.6%

$2,408,840

268 .1%

23.2%

17 1

-------------------Louisiana's Obligation to LASERS is an Important Liability


• LASERS' $6.4 billion unfunded liability is Louisiana 's single largest liability at over 2x outstanding GO debt

• To the best of our knowledge, this obligation is also the State's highest cost liability at an 8% accrual rate (going to 7.75% which will increase the size of the liability)

• 'Debt Service' payments required to defease this liability over 30 years are over $600 million annually through 2029, consuming almost 10% of the State General Fund Expenditures

- Louisiana is projected to pay $14.1 billion in total over 30 years to extinguish the current UAL of $6.4 billion

• The State's normal cost is approximately $130 million, which will create total payments to LASERS from the State of over $750 million in the coming years

• State law requires approximately 30% of the liability be amortized by 2029, creating further pressure on the State's budget

iii c

~ ~ ~

900

800

700

600

500

400

300

200

100

0

Projected Payments to LASERS, Frozen Benefits, No Growth

~ ~ ~ ~ ~ ~ ~ ~ ~ w ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ & ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

• Normal Cost ($127mm from FYB 2013) • Other UAL Payments ($4.6bn PV as of 6/30/201 3) • 2029 UAL Amortization ($1.9bn PV as of 6/30/2013)

Pension Buyout Considerations 18 1

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"'

- - - - - - - - - - - - - - - - -Rating Agencies Have Begun to Focus on Pension Obligations as an Important Aspect of State Debt


• In April 2013, Moody's released revised criteria for evaluating pension obligations for states and local governments

Moody's makes 4 adjustments to pension obligations as part of its credit review Multiple-employer cost-sharing plans liabilities allocated to specific government employees will be based on proportionate shares of contributions

Accrued AAL's will be adjusted based on high-grade taxable bond index discount rate at date of valuation

Asset smoothing will be replaced by market or fair value Resulting adjusted net pension liability will be amortized over 20 years using level dollar method

Pensions account for 10% of a state's overall rating scorecard

• In November 2013, a second report provided commentary on the challenges of overlap between state and local government pension funding liabilities

• In July 2013, S&P released results of its 2013 50-state pension survey, highlighting the following key points:

US state pension funded levels have stabilized but improvement will take many more years

GASB changes (Statements 67 and 68) will introduce more volatility but should lead to better comparability and disclosure

Continued liability management will important to achieving sustainability

States' funding policy decisions and discipline will be critical

• DebUpension liability profile is one of 5 major rating factors

- Key areas of review include funding of the ARC, pension reform , and discount rate

• In July 2013, Fitch released a pensions update, noting several adjustments to pension obligations in its review Use of 7% investment return for calculating AAL's

- For cost-sharing plans, the state is allocated its portion of the system-wide liability

- The sum of a state's net tax-supported debt and adjusted pension liability will be used as a comparative measure

• Management and prior practices are key factors Reforms to actuarial rate assumptions

ARC funding practices

Demographic pressure

Source: Rating agency pension criteria reports


-

-------------------The State Could Reduce its Pension Obligation with an Optional Lump Sum Buyout


• Plan would offer a lump sum buyout to certain classes of pension plan participants on an optional basis

- This is a common corporate approach to reduce risk , achieve savings and other goals

- It would be typical to offer an annuity as an alternative to a lump sum to participating members, and including this alternative has a resulted in higher take-up rates

• The lump sum payments would reflect the vested present value of benefits associated with that member

- These benefits are calculated based on future defined benefit payments discounted at the actuarial rate of return (8.0% for LASERS as of 2013 data) to the buyout date

- Buyout offer could be more or less than present value in order to either encourage increased take-up (more than present value) or savings per participating member (less than present value)

• We believe the State can fund the unfunded portion of the lump sum payment (approximately 40% of the liability today) with tax-exempt bonds

• The funded portion of the lump sum payment can be funded with taxable bonds or plan assets

- Any portion of the payout funded with plan assets will not provide actuarial savings, but can reduce the risk of having to hit 8% compounded annual returns to breakeven to the projections

- Any portion of the payout funded with taxable bonds will provide savings (or costs) equal to the return on the funds left in the plan less the cost of the taxable bond issue

• In general , the State's fixed savings (from the unfunded portion of participating members) are approximately equal to what the UAL payments would have been for the members that elect to participate in the buyout, less the debt service on the bonds used to fund that portion of the buyout

- Many factors regarding the buyout plan design , take-up rates, and other factors can affect the results

- Additional savings (or costs) will accrue on the amount funded with bonds that has existing plan assets backing the liability


-------------------Economics of a Debt Funded Employee Buyout Overview


Assumptions

• We assumed a 25% vested employee participation rate translating to 20% of actuarial liability

- This is just a sample result, actual results will likely vary materially

• This results in a $3.2 billion buyout

• We assume a transaction at FYB 2015 using the actuarial projections for that date

• We assume the buyout is funded with a mix of $1.9 billion taxable bonds and $1 .3 billion tax-exempt bonds

• The Bonds are assumed to carry an appropriation backing from the State

• Savings are structured between 2015 and 2029, when the State's ARC costs are elevated


Comparison of Current ARC to Buyout

Plan Assets $1.9 bn

(Earning 8%)

Plan Unfunded Liabilities $1 .3 bn

(Accruing at 8%)

Taxable Bond Proceeds $1 .9 bn

Tax-Exempt Bond Proceeds $1.3 bn

Bondholders State pays 4.19% average bond interest rate to Bondholders

Currently State is responsible for ARC

State replaces ARC with cost of debt used to fund buyout

21 1

-------------------Economics of a Debt Funded Employee Buyout Unfunded Portion


Sample Economics

ARC at 8.00% $58mm - $128mm

Annual Debt Service at Tax-Exempt Rates (3.67%) $58mm - $78mm

Average Annual Savings (2015-2028) $50mm

Total Savings $700mm

Savings as % of $1.3bn UAL Removed 55.6%

PV Savings (State Cost of Capital (3.67%) PV Rate) $540mm

Comparison of ARC vs. Annual Debt Service

$140mm

$120mm

$100mm

$80mm

$60mm

$40mm

$20mm

-Bond OS

- ARC Removed

$ - +-~--~~--~~--~~--~~--~~~~--~~--~~--~~--~~--~~--~~~

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Note: PV to 61112015


-----------------,--Economics of a Debt Funded Employee Buyout Funded Portion


Sample Economics@ 8%

ARC at 8.00% $88mm- $193mm

Annual Debt Service at Taxable Rates (4.52%) $88mm- $150mm


Total Savings $610mm

Savings as% of $1 .9bn UAL Removed 32.3%


Savings/(Losses) Will Vary with Rates

$700

$600

$500

VI $400 c ~ $300 ~

$200 $270

$100 $0

$0 I 8% 6% 4.52%

($100) ($79)

($200)

Note: PV to 61112015


-------------------Economics of a Debt Funded Employee Buyout Combined Funded & Unfunded Portions


Sample Economics

ARC at 8.00% $146mm- $321mm

Annual Debt Service at Taxable and Tax-Exempt Rates (4.19%) $146mm - $224mm


Total Savings $1 .31bn

Savings as% of Total $3.2bn Buyout 42.0%


Comparison of ARC vs. Annual Debt Service

$350mm

$300mm

$250mm

$200mm

$150mm

$100mm

$50mm

-BondDS

- ARC Removed

$ - +-~--~~--~~--~~--~~--~~--~--~~--~~--~~--~~--~~--~~~

~ ~ 0 ~ ~ ~ ~ w ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ # ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

For the funded portion, savings assume LASERS earns 8%

Note: P V to 61112015

Pension Buyout Considerations 24 j

-------------------Buyout Funding Cash Flows

Current Pension Example (60% Funded Ratio)

Pension Fund $15.7 bn Liability

Plan Assets

$9.45 bn 8.0% Projected Interest Earnings

Plan UAL

$6.30 bn 8.0%

Calculated State Cost

Pension Participants



After $3.15 Billion Buyout


Plan Assets


Plan UAL

$3.15 bn 8.0%


Remaining Pension Participants

25 1

-------------------Alternatively the Buyout Could be Funded by a Combination of Debt and Plan Assets


Current Pension Example (60% Funded Ratio)


Plan Assets


Plan UAL

$6.30 bn 8.0%


Pension Participants

After $3.15 Billion Buyout


Plan Assets

$7.56 bn

Plan UAL

$5.04 bn

Plan Assets

$1.89 bn

8.0% Projected Interest Earnings

8.0% Calculated State Cost

Remaining Pension Participants

$1.26 billion UAL is replaced by $1.26 billion bond proceeds, with a cost of debt of 3.67% compared to UAL cost of 8.0%


- - - - - - - 1- - - - - - - - - - - -Debt for the Buyout Can be Issued in Various Ways


Debt Issued by State

Debt Issued by Pension Fund

Combination of Funding from Debt and Plan

Assets


Considerations for Debt Issuance

Benefits • More straightforward credit structure

• Potential for better ratings or tighter pricing

• Greater separation from Net State Tax Supported Debt

• Provides ability to track related debt separate from State's general fund

• Possibly not considered Net State Tax Supported Debt

Considerations • Legislation required

- Legislation would need to carve out debt for Net State Tax Supported Debt

• Legislation required

Legislation would need to carve out debt for Net State Tax Supported Debt

• Legislation likely required

• Possibly prohibited by Constitution

Options for Funding a Buyout

Benefits • Lesser amount of debt to repay

• All debt possibly tax-exempt if for unfunded portion

• Potential to increase funded ratio of plan

Since debt would fund the full buy-out, assets currently associated with vested benefits would be reallocated to remaining plan obligations

Considerations

• Reduction in assets

- Funded rates remain the same

• Debt for funded portion would be taxable

For that portion , savings would accrue to the Pension Fund if its investment returns exceed the cost of the taxable debt issued

27 1

-------------------The Opportunity to Fund a Portion of the Buyout with Tax-Exempt Bonds Drives Substantial Economic Gain From This Strategy


• The lump sum payment could be funded from a combination of plan assets (for the funded portion) and tax-exempt bonds (for the unfunded portion)

• We believe tax-exempt debt could be used to fund the buy-out representing the unfunded portion of the plan

• The Tax Code allows Tax-Exempt bonds to be issued to permanently relieve an exempt issuer from a future liability

- The issuer cannot benefit from the investment of bond proceeds

- Payments should be made to a separate trust to handle payments made to terminated plan participants

- The State may not have any control of the separate trust created for terminated plan participants

- There should be a complete termination of the State's liability to participating member

- There can be no recourse to the State once the trust is established

- Proceeds should be used to pay for retiree benefits that have vested

- Should any surplus funds exist, they cannot be transferred to the State


-------------------Issues that the State Should Examine Prior to Commencing an Offer

INVESTMENT BANKING I DIVIS ION

• An independent actuary should be engaged to help plan for the offering period

- The actuary can analyze data and implement issues related to the offering period

• The State should look to an actuary to estimate the success of the offering based on the plan 's specific data

• The actuary should examine certain of the plan 's assumptions, such as its mortality rate , and help the State understand the implications of those assumptions

• The State should examine the liquidity in the plan and develop a funding strategy appropriate for the plan 's investment portfolio

• The State should have a clear and articulate strategy for issuing the debt funded portion of the buyout


----------------- ,--The Mechanics of the Offering Will be Critical to its Success


• Prior to commencing the process, the State should engage an administrator to examine the data related to vested plan participants

• The State should expect that the entire process will take between 3-4 months once the decision to proceed has occurred

Typical Approach

• Plan participants should receive a notice letting them know that a limited offering period is coming in the next few months

• Subsequent to their initial notification , a brochure with information about the offer will be sent to the plan participants with complete information

• Subsequent to the mailing of a more general brochure the plan participant will receive a specific information package related to his particular offer

• The State will create a window of between 30-60 days for plan participants to respond to the offer

- Too much or too little of a window will affect the take-up rate

• Settlement to plan participants will occur within one month after the expiration of the take-up window

Pension Buyout Considerations 3o 1

_____ , _____________ _ Issues Affecting the Take-up Rate INVESTMENT BANKING I

DIVISION

• The buyout can be targeted solely to plan participants who are vested but no longer working for the State, as complexities may arise for existing plan participants

- However, the State could offer plan participants the opportunity to retire and take the lump sum payment

• Certain classes of plan participants are more likely to take an optional buyout than other classes

- Younger vested plan participants who no longer work for the State but are fully vested

- Older plan participants who have accrued maximum benefit but are too young to receive annual payments

- Plan participants who have a spouse that works

• Mechanics of the offering period will affect the take-up rate

- The window should represent a unique opportunity

- The data related to plan participants has to be scrubbed and accurate

- The communication with the plan participant has to be thorough ahead of the window and during the window

- Studies suggest that constant and regular communication has a significant impact on take-up results

- Call centers help plan participants make informed decisions

• Adverse selection has not proven to be an important issue affecting plan participant or take-up

- Adverse selection is more of an issue if a buyout is offered to a retiree group


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-------------------Considerations Regarding a Privatization of BlueCross BlueShield of Louisiana

INVESTMENT BANKING I DIV ISION

Situation Overview

• BCBSLA is a nonprofit mutual company, licensed by the State of Louisiana

- #1 in LA, 1.14 million members, $2.6 billion premiums

• Since BCBS plans were permitted to privatize in 1994, over 15 have been converted to publically traded companies

• As a mutual , the company is technically owned by members

• There is precedent for the sponsoring government and other stakeholders to receive ownership rights in the demutualization process

• Some of the growth and success of the BCBS companies was due to their special status with respect to taxes and government treatment

• The value of managed care businesses are at all-time highs, and we would expect significant interest in BCBSLA from the private sector

BlueCross BlueShield of Louisiana Considerations

Execution Process

• Develop demutualization and privatization plan

• Determine ownership structure and beneficiaries of sale proceeds

• Analyze sale alternatives, including IPO and direct sale

• Make sure all stakeholders are on board

• Execute desired program

33 1

-------------------Precedent Transactions INVESTMENT BANKING I

DIVISION

• Successful conversions include:

Colorado

Connecticut

Indiana

Kentucky

Maine

Missouri

Nevada

New Hampshire

Ohio

Parts of Virginia

Wisconsin

California

Georgia

New York

Puerto Rico

• Many of the privatizations are now part of Anthem/Wellpoint

Anthem started as the BCBS mutual in Indiana and has since acquired at least 13 BCBS companies

In 2004, Anthem merged with WeiiPoint, which was a conversion of Blue Cross of California that was converted into a for-profit entity in 1996

• Several proposed conversions were unsuccessful for a variety of reasons

New Jersey- regulators unconvinced by claims that additional capital was needed; strong provider opposition due to Horizon's high market share and low reimbursement rates

North Carolina - regulators demanded 100% of stock be placed in a foundation ; BCBS regulations permitted a maximum of 5% ownership stake by foundations

Kansas - concern that conversion would result in large price increases due to high market share (in non-HMO market)

CareFirst (Delaware, DC, Maryland)- public outrage about intended executive bonuses

Premera (Alaska, Washington)- concerns about acquisition by out-of-state insurer and disagreements about how to put stock into a foundation

BlueCross BlueShield of Louisiana Considerations 34 1


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- -

State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware D.C. Florida Georgia Hawaii Idaho Illinois Indiana

Iowa Kansas Kentuck~ Louisiana Maine Maryland Mass. Michigan Minnesota MississiEEi Missouri Montana Nebraska

- - - - - - - - -Tobacco Bond Market Update Tobacco Securitizations by State

% ofMSA Signed MSA Issued Issuance Stream MSA? Allocation Bonds Proceeds Securitized State

y 1.62% N $108,560,000 100% Nevada y 0.34% y $528,527,860 80% N. HamEshire y 1.47% N New Jerse~ y 0.83% y $86,850,160 $5mm annuall~ New Mexico y 12.7% y $18,057,060,493 100% New York y 1.37% N North Carolina y 1.86% N North Dakota y 0.40% N Ohio y 0.61 % y $760 444 037 100% Oklahoma N 0.00% N Oregon y 2.45% N Penns~lvania y 0.60% N Rhode Island y 0.36% N South Carolina y 4.65% y $1 503,460,000 100% South Dakota y 2.04% N Tennessee

100% (only 78% Texas pledged to Utah

y 0.87% y $1 ,504,843,237 bondholders) Vermont y 0.83% N Virginia y 1.76% N y 2.26% y $973 620 000 60% Washington y 0.77% N West Virginia y 2.26% N Wisconsin y 4.04% N Wyoming y 4.35% y $1 ,088,515,161 24% American N 0.00% y $756 955 000 Samoa N 0.00% N N. Marina y 2.27% N Island y 0.42% N Guam y 0.59% N US Virgin lsi.

Puerto Rico

- - - -

Signed MSA Issued MSA? Allocation Bonds

y 0.61 % N y 0.67% N y 3.87% y y 0.60% N y 12.76% y y 2.33% N y 0.37% N y 5.04% y y 1.04% N y 1.15% N y 5.75% N y 0.72% y y 1.18% y y 0.35% y y 2.44% N

N 0.00% N y 0.44% N y 0.41 % N y 2.04% y

y 2.05% y y 0.89% y y 2.07% y y 0.25% N

y 0.02% N

y 0.01% N y 0.02% y y 0.02% y y 1.12% y


DIVISION

% ofMSA Issuance Stream Proceeds Securitized

$8,112,490,322 76% (1 00%*)

$9 215 901 ,374 100%

$5,727 943 408 100%

$846 735 738 100% $1 010 260 000 100% $1 010 260 000 100%

$1 ,613,560,392 50% 29.2% (floored at

$486,890,000 $30mm $911 ,141 ,504

$1 473 235,000 100%

$62 657 077 100% $27,935,009 100%

$1 ,447,965,375 100%

*New Jersey entered into a Bond Enhancement Memorandum in March 2014 in which the State pledged the remaining -24% of MSA re venues to Series 2007-1B and Series 2007-1C bonds.

Sources: Illinois Railsplitter Official Statement (CUSIP 75076PAT), Bloomberg. Data as of March 24, 2014.

Tobacco Financing 36 j

-

- - - - - - - - - -Tobacco Bond Market Update

- - - - - - - -INVESTMENT BANKING I

DIVISION

Market Snapshot and Sample Tobacco Securitizations

Secondary Market Performance (Past Year)

8.2

t-28Feb2014-

8

7.8

7.6

7.4

7.2

7

6.8

6.6

6.4 '2014 .---

- 2Mar2015-i

2015

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Buckeyes 5.875-47 Goldens 5.125-47 Jerseys 5-41

Secondary Market Performance (Past Four Years)

9.5

t-2Mar2011-

9

8.5

8

7.5

7

6.5

6

5.5 '2011 2012 2013

Jul Jan Jul Jan Jul Buckeyes 5.875-47 Goldens 5.125-47 Jerseys 5-41

Past performance is not indicative of future results.

2014 --,--Jan

- 2Mar2015-i

201 -,-Jul Jan

Buckeye Tobacco Settlement Financing Corporation

CUSIP Rating Cou~on Maturity

118217AN8 83/8-/8- 5.375% 6/1/2024

118217AP3 83/8-/8- 5.125% 6/1/2024

118217AQ1 83/8-/8 5.875% 6/1/2030

118217AR9 83/8-/8 5.750% 6/1/2034

118217AS7 83/8-/88+ 6.000% 6/1/2042

118217AT5 83/8-/8 6.500% 6/1/2047

118217AU2 83/8-/8 5.875% 6/1/2047

118217AW8 NR/NR/8- 0.000% 6/1/2047

Golden State Tobacco Settlement Financing Corporation

CUSIP Rating Cou~on Maturity

38122NNY4 83/8/8 4.500% 6/1/2027

38122NNZ1 83/8-/8 5.000% 6/1/2033

38122NPCO 83/8-/8 5.300% 6/1/2037

38122NPA4 83/8-/8 5.750% 6/1/2047

38122NP82 83/8-/8 5.125% 6/1/2047

38122NP08 NR/CCC+/NR 0.000% 6/1/2047

New Jersey Tobacco Settlement Financing Corporation

CUSIP Rating Cou~on Maturit

888808085 81/8/NR 4.500% 6/1/2023

8888080C3 81/8-/NR 4.625% 6/1/2026

888808001 82/8-/NR 5.000% 6/1/2029

8888080E9 82/8-/NR 4.750% 6/1/2034

8888080F6 82/8-/NR 5.000% 6/1/2041

8888080G4 NR/CCC+/NR 0.000% 6/1/2041

Sources: Bloomberg, JJ Kenney, GS Securities Division data and calculations. All levels are indicative. Data as of 2 March 2015

Tobacco Financing 37 1

-

- - -- - - -- ---Tobacco Bond Market Update The NPM Adjustment Settlement

---

The NPM Adjustment

----INVESTMENT BANKING I

DIVISION

• The 1998 MSA agreement provided that manufacturers may reduce their annual settlement payments based on market share lost to companies that did not sign the settlement.

• The NPM is based on NPMs market share increases (measured by sales of cigarettes domestically) and serves to reduce PM payments under the MSA in the event PMs lose market share to NPMs as a result of the MSA.

• It is a mechanism for PMs to avoid a pricing disadvantage with respect to NPMs.

• The NPM Adjustment is applied in subsequent years to the Annual Payment and Strategic Contribution Payment and is calculated as: 3 *(Market share percentage lost- 2.0%)

The NPM Adjustment Settlement

• On December 18, 2012 Altria , Reynolds and Lorillard filed 1 0-Qs detailing a proposed agreement regarding disputed MSA adjustments.

• The NPM Adjustment Settlement with the major tobacco companies was signed initially by 17 states as well as Washington , D.C. and Puerto Rico. These states constituted the critical mass requ ired for the agreement to take effect. Oklahoma, Connecticut and South Carol ina signed later.

• The NPM adjustment settlement addresses claims for the years 2003 to 2012 and, after a two-year adjustment period, introduce a new method for calculating the MSA adjustment.

• The NPM adjustment settlement calculates how companies could receive credits over the next five years for future payments. For the April 2013 MSA payment to settling states: Reynolds used $202MM in credits ; Altria used $483MM; and Lorillard used $143MM in credits ..

Source: Issuer Official Statements; NAAG; 10-Q and 8-K filings of A/tria, Reynolds and Loril/ard, WSJ "Tobacco Firms to Recoup More than $1 .58 in Credits" 18 December 2012; Reuters "Update 1- U.S. cigarette markers lose disputes with 9 states in tobacco deal," NJ Series 2007-18 and 1C Bond Enhancement Memorandum, http://www.marketwatch.com/story/kentucky-becomes-twenty-third-msa-state-to-settle-npm-adj ustment-disputes-2014-06-12, GS Securities Division data and calculations as of 28 March 2014


-

- - - - - -- -- --Tobacco Bond Market Update The NPM Adjustment Settlement (Continued)

- --

Impact on Tobacco Bonds Issued by Settling States

-- .. --INVESTMENT BANKING I

DIVISION

• More than 20 states, including Alabama, Arizona, Arkansas, California, Connecticut, Georgia, Kansas, Kentucky, Louisiana, Michigan, Nebraska, Nevada, New Hampshire, New Jersey, North Carolina, Oklahoma, South Carolina, Tennessee, Virginia , West Virginia and Wyoming as well as Wash ington, D.C. and Puerto Rico, participated in the NPM Adjustment Settlement.

• Settling states saw an increase in their April 2013 MSA payment as a result of the release from the Disputed Payments Account fund.

• There may be an increase in future payments due to the new NPM methodology that should significantly limit future NPM adjustments due to better reporting and enforcement.

• Note that most issues have only secured payments related to years after the issuance.

Impact on Tobacco Bonds Issued by Non-Settling States

• There is no direct impact as the states will continue to use the existing NPM methodology; however, these states will likely benefit from the improved enforcement by the settling states.

• The NPM adjustment is state-specific. If a state both enacts and diligently enforces the MSA's Model Statute or a Qualifying Statute, the state is exempt from the NPM Adjustment.

• Each state is independently arbitrated for each year independently. The arbitration panel is currently hearing challenges related to the 2003 sales year.

• NPM adjustment arbitration processes currently underway (a significant amount of disputed payments is being withheld from the States in escrow) will continue for non-settling states.

• Some NPM adjustment arbitration results for 2003 hearings were announced in September 2013. New York, Iowa, Ohio, Washington, Colorado, Illinois, Oregon , North Dakota and Maine won their cases. Indiana, (Kentucky), Maryland, Missouri, New Mexico, Pennsylvania lost their cases.

Source: Issuer Official Statements; NAAG; 10-Q and 8-K filings of A/tria, Reynolds and Lorillard, WSJ "Tobacco Firms to Recoup More than $1.58 in Credits" 18 December 2012; Reuters "Update 1- U.S. cigarette markers lose disputes with 9 states in tobacco deal," NJ Series 2007-1 8 and 1 C Bond Enhancement Memorandum, http://www.marketwatch.com/story/kentucky-becomes-twenty-third-msa-state-to-settle-npm-adjustment-disputes-2014-06-12, GS Securities Division data and calculations as of 28 March 2014


-------------------Goldman Sachs Tobacco Market Presence INVESTMENT BANKING I

DIVISION

• Goldman Sachs is one of the largest participants in the secondary market for tobacco bonds

- We estimate that Goldman Sachs is the #1 or #2 market maker of tobacco bonds

- Our secondary market trading is approximately 15% of the market

- This includes over $10bn of tobacco bond trades since 2010 with over 120 counterparties in over 3,000 separate trades

• Our tobacco bond team includes three traders, a credit strategist, and a marketing team who work with buyers in the space on a daily basis

• We maintain a significant inventory of tobacco bonds and provide daily quotes on all major tobacco issues outstanding

• The buyer base for tobacco bonds is limited to certain institutional buyers

- These buyers include certain municipal bond funds and hedge funds

- Goldman Sachs maintains an active relationship with all of these buyers and has worked to expand the buyer base over time

Issuer Guam New Jersey Guam Northern Tob. (AK) Railsplitter (IL) Buckeye (OH) Golden State (CA) District of Columbia Golden State (CA) Michigan Buckeye (OH)

Goldman Sachs' Market Share of Trading Volume Since 2010 for Select Tobacco Settlement Bonds (Secondary market transactions with institutional cul)tomers -Excludes broker-dealer street trades)

Total Volume Coupon Maturity CUSIP ($mm) GS Volume ($mm) 5.625% 6/1/2047 40064LAB8 $8.3 $7.9 5.000 6/1/2015 888808CWO 15.6 12.0 5.250 6/1/2032 40064LAAO 10.3 5.9 5.000 6/1/2032 66585VAV7 151.4 65.0 5.500 6/1/2023 75076PAS4 224.2 86.6 5.750 6/1/2034 118217AR9 810.5 307.1 5.000 6/1/2033 38122NNZ1 1,269.0 423.5 0.000 6/15/2046 254842BB2 5,875.2 1,685.3 5.750 6/1/2047 38122NPA4 2,148.8 529.6 6.000 6/1/2034 594751AF6 61 .9 14.4 5.875 6/1/2047 118217AU2 2,754.5 605.6

Source: 2013 MSRB data & Goldman Sachs calculations

Tobacco Financing

GS Market Share 95% 77 57 43 39 38 33 29 25 23 22

4o I

-------------------Tax Considerations INVESTMENT BANKING I

DIVISION

• In general , tax-exempt bond proceeds used to fund an operating expense of the issuer fall under "Working Capital" IRS

rules

- Working Capital bonds require that the borrower's unrestricted funds do not exceed 5% of its budget

- If unrestricted funds exceed 5% of the borrower's budget, the excess funds must be spent (typically to repay the

Working Capital bond issue) or invested in tax-exempt bonds

• Using bond proceeds (not earnings) to directly pay for TOPS scholarships may be considered Working Capital under

IRS rules

- Tax-exempt bonds can be used to make a grant to an unaffiliated party in which the issuer receives nothing in return

Tobacco Financing

- While the scholarships are a grant to the student, the use is restricted to certain institutions

- Some of those institutions are controlled by the State, such as LSU , which may result in the conclusion that the

expenses paid are those of the State

41 1

-------------------Estimated Results in Today's Market INVESTMENT BANKING I

DIVISION

Key Assumptions Summary of Results

• Sale Date: 1/1/2016

• Final Maturity: 2051 (35 Years)

• Coverage Target: 1.70x

• DSRF Earnings: 0%

• Corporation Expenses: $0

• Rating Target: A/888

70,000

60,000 ~ 50,000

• Tax-Exempt

- Proceeds: $604.1 million

- TIC: 4.315%

• Taxable

- Proceeds: $547.8 million

- TIC: 5.004%

40% Securitization Structure (Tax-Exempt)1

-Principal - Interest - Revenues

40,000

30,000

20,000

10,000 llllllllllllllllllllllllllllll

0 ,_-

··--~~~~~ww~~~~~~~~y~~@~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

1 Pledged TSRs from Tobacco Settlement Asset-Backed Refunding Bonds Series 2013A OS


- - - - - - - - - -Cash Flow Schedule

Tax-Exem~t

Year 40% Pledged TSRs Principal Interest Debt Service

2017 58,247,499 $ 4,700,000 $ 29,559,750 $ 34,259,750

2018 58,315,998 4,975,000 29,324,750 34,299,750 2019 61 ,442 ,837 7,065 ,000 29,076,000 36 ,141 ,000

2020 61 '131 ,201 7,235 ,000 28,722,750 35 ,957,750

2021 60,867 ,542 7,440,000 28,361 ,000 35 ,801 ,000 2022 60,688 ,715 7,705,000 27,989,000 35 ,694,000 2023 60,560 ,577 8,015 ,000 27,603,750 35 ,618,750 2024 60,519,005 8,395 ,000 27,203,000 35 ,598,000

2025 60,554 ,479 8,835,000 26,783,250 35,618,250 2026 60,672 ,487 9,345 ,000 26,341 ,500 35 ,686,500

2027 60,855 ,477 9,920,000 25,874,250 35,794 ,250

2028 61 ,083 ,030 10,550,000 25,378,250 35,928,250

2029 61 ,337,883 11 ,230,000 24,850,750 36,080 ,750 2030 61 ,597,919 11 ,940,000 24,289,250 36,229,250

2031 61 ,853,231 12,690,000 23,692,250 36,382,250

2032 62 ,108,594 13,475,000 23,057,750 36,532,750 2033 62 ,369 ,203 14,300,000 22 ,384,000 36,684 ,000 2034 62,634 ,761 15,170,000 21 ,669,000 36,839 ,000 2035 62,862 ,741 16,065 ,000 20,910,500 36 ,975,500

2036 63 ,082,825 17,000,000 20,107,250 37 ,107,250 2037 63 ,082 ,825 17,850,000 19,257,250 37 ,107,250 2038 63,082 ,825 18,740,000 18,364 ,750 37,104,750

2039 63,082 ,825 19,675,000 17,427,750 37,102,750

2040 63,082,825 20 ,660 ,000 16,444,000 37,104,000 2041 63,082,825 21 ,695,000 15,411 ,000 37 ,106,000

2042 63,082,825 22,780,000 14,326,250 37 ,106,250 2043 63,082 ,825 23,920,000 13,187,250 37,107,250 2044 63,082 ,825 25 ,115,000 11 ,991 ,250 37,106,250 2045 63,082,825 26,370,000 10,735,500 37 ,105,500 2046 63,082 ,825 27,690,000 9,417 ,000 37 ,107,000 2047 63,082 ,825 29 ,075,000 8,032 ,500 37,107,500 2048 63,082,825 30,525 ,000 6,578,750 37,103,750 2049 63,082,825 32,055,000 5,052,500 37 ,107,500 2050 63,082 ,825 33,655,000 3,449,750 37 ,104,750

2051 63,082 ,825 35,340,000 1,767,000 37 ,107,000 Total $ 2,169,028,382 $ 591 ,195,000 $ 684,620,500 $ 1 ,275,815,500

Tobacco Financing

- - - - -

Taxable

Coverage Principal Interest

1.70 X $ 5,750 ,000 $ 28,509,589 1.70 5,940,000 28 ,362 ,389 1.70 7,930,000 28 ,210,325 1.70 7,950,000 28 ,007 ,317 1.70 8,060,000 27,743 ,377 1.70 8,220,000 27,475 ,785 1.70 8,480,000 27,140,409

1.70 8,800,000 26,794,425 1.70 9,180,000 26,435 ,385 1.70 9,625,000 26,060 ,841

1.70 10,125,000 25,668,141 1.70 10,735 ,000 25,191 ,254 1.70 11 ,395 ,000 24 ,685,635 1.70 12,080 ,000 24 ,148,931 1.70 12,800 ,000 23 ,579,963 1.70 13,555 ,000 22 ,977,083 170 14,345 ,000 22 ,338,642 1.70 15,180,000 21 ,662,993 1.70 16,030,000 20,948 ,015 1.70 16,910,000 20 ,193,002

1.70 17,710 ,000 19,396 ,541 1.70 18,605 ,000 18,501 ,300 1.70 19,545 ,000 17,560,817 1.70 20,530,000 16,572,818 1.70 21 ,570,000 15,535 ,026 1.70 22,660,000 14,444 ,663 1.70 23,805 ,000 13,299 ,200

1.70 25 ,010 ,000 12,095,857 1.70 26,275,000 10,831 ,601 1.70 27,600 ,000 9,503 ,400 1.70 28 ,995 ,000 8,108,220 1.70 30,465,000 6,642,523 1.70 32,000,000 5,102,517 1.70 33,620,000 3,484 ,917 1.70 35,320 ,000 1,785 ,426

$ 596,800,000 $ 678,998,322


DIVISION

Debt Service Coverage

$ 34,259,589 1.70 X

34,302,389 1.70 36,140,325 1.70 35,957,317 170 35 ,803,377 1.70 35,695,785 1.70 35,620 ,409 1.70 35 ,594 ,425 1.70 35 ,615,385 1.70 35 ,685 ,841 1.70 35,793,141 1.70 35,926,254 1.70 36,080,635 1.70 36,228,931 1.70 36,379,963 1.70 36,532,083 1.70 36,683,642 1.70 36,842,993 1.70 36 ,978 ,015 170 37,103 ,002 1.70 37 ,106,541 1.70 37,106,300 1.70 37,105,817 1.70 37,102,818 1.70 37 ,105,026 170 37 ,104,663 1.70 37 ,104,200 1.70 37,105,857 1.70 37,106,601 1.70 37 ,103,400 1.70 37 ,103,220 1.70 37,107,523 1.70 37,102,517 1.70 37,104,917 1.70 37,105,426 1.70

$ 1,275,798,322

43 1

-


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---- ---- -----GO Refunding Considerations

- ------INVESTMENT BANKING I

DIVISION

• 2009A, 2011A, 2012A and 2013A present $157.8 million in candidates with potential positive PV savings today

• The tables below present two additional analyses with the respective assumptions: (1) Scenario 1: All candidates with positive PV savings are refunded in 2016 (2) Scenario 2: Current rates decrease by 25 basis points

Base Case: Refunding Executed in 2015($000s) Series Total Par Refunded Par Refunding Par Refunding Savings Savings Percent

2009A $29,010 $ 29,010 $ 27,273 $60 0.21 % 2011A 82,905 64,435 63,682 612 0.95 2012A 205,285 63,180 62,443 516 0.82 2013A 129,810 1 '125 1 '135 2 0.15

Total $ 447,010 $ 157,750 $ 154,533 $ 1,190 0.75%

Scenario 1: Refunding Executed in 2016($000s) Series Total Par Refunded Par Refunding Par Refunding Savings Sav ings Percent

2009A $ 29,010 $ 29,010 $26,630 $ 1,019 3.51 % 2011A 82,905 82,905 78,983 2,930 3.53 2012A 205,285 107,985 105,466 2,445 2.26 2013A 129,810 1,225 1,200 41 3.32 2013C 42,145 42,145 41 ,714 321 0.76 Total $ 489,155 $ 263,270 $ 253,994 $ 6,756 2.57%

Scenario 2: Refunding Executed in 2015, Rates Decrease by 25 bps ($000s)

Series Total Par Refunded Par Refunding Par Refunding Savings Savings Percent

2009A $29,010 $29,010 $26,728 $790 2.72 % 2011A 82,905 82,905 79,263 2,528 3.05 2012A 205,285 107,985 105,515 2,409 2.23 2013A 129,810 1,225 1,206 33 2.67 2013C 42,145 27,480 27,104 308 1.12 Total $489,155 $ 248,605 $ 239,816 $ 6,068 2.44%

Rates as of February 2 7, 2015

Refunding Update 45 j

-------------------GO Refunding in 2016 Considerations INVESTMENT BANKING I

DIVISION

• Assuming all $263.3 million of candidates with positive savings in 2016 are refunded , the resulting PV savings represent 2.57% of refunded par

Current Call PV Neg. Gross PV Neg Series Maturity Par ($000) Coupon Date Savings Arb. Savings Savings (%) Arb (%)

2011A 9/1/2028 $20,415 5.0% 9/1/2020 $904 $ 1 '136 $ 2,040 4.43% 55.67%

2009A 5/1/2028 14,150 4.125% 5/1/2019 548 646 1,194 3.87% 54.10%

2011A 9/1/2029 21,460 5.0% 9/1/2020 819 1,260 2,079 3.82% 60.59%

2013A 5/15/2026 1,025 5.0% 5/15/2023 39 30 69 3.77% 43.72%

2012A 8/1/2025 21 ,565 5.0% 8/1/2022 796 675 1,471 3.69% 45.87%

2011A 9/1/2030 22,560 5.0% 9/1/2020 742 1,384 2,126 3.29% 65.09%

2009A 5/1/2029 14,860 4.250% 5/1/2019 471 734 1,205 3.17% 60.93%

2012A 8/1/2024 21 ,050 5.0% 8/1/2022 535 482 1,017 2.54% 47 .38%

2012A 8/1/2026 22,115 5.0% 8/1/2022 561 876 1,437 2.53% 60.98%

2011A 9/1/2026 18,470 4.125% 9/1/2020 464 799 1,263 2.51 % 63.25%

2013C 7/15/2025 14,040 5.0% 7/15/2023 217 410 627 1.54% 65.43%

2012A 8/1/2023 20,565 5.0% 8/1/2022 270 257 526 1.31% 48.73%

2012A 8/1/2027 22,690 5.0% 8/1/2022 283 1,100 1,384 1.25% 79.52%

2013A 5/15/2025 100 4.0% 5/15/2023 1 2 3 1.16% 62.33%

2013A 5/15/2024 100 4.0% 5/15/2023 1 1 2 0.88% 47.04%

2013C 7/15/2024 13,440 5.0% 7/15/2023 52 263 315 0.39% 83.50%

2013C 7/15/2026 14,665 5.0% 7/15/2023 52 569 621 0.36% 91 .58%

Total $ 263,270 $ 6,756 $ 10,624 $ 17,380 2.57% 61 .13%

Rates as of February 27, 2015

Refunding Update 46 1

-------------------TIMED Refunding Considerations INVESTMENT BANKING I

DIVISION

• Series 201 OB presents $56.1 million in candidates with potential positive PV savings today

• We highlight that while these candidates show potential PV savings, there is also significant negative arbitrage associated with these candidates

Current Call PV Savings Neg. PV Maturity Par ($000) Coupon Date ($000) Arb. ($000) Savings(%)

5/1/2027 $ 8,245 5.0% 5/1/2020 $ 357 $434

5/1/2028 8,660 5.0% 5/1/2020 234 526

5/1/2029 9,090 5.0% 5/1/2020 179 584

5/1/2030 9,545 5.0% 5/1/2020 128 642

5/1/2031 10,025 5.0% 5/1/2020 81 699

5/1/2032 10,525 5.0% 5/1/2020 40 755

Total $ 56,090 $ 1,020 $ 3,639

• We also ran two additional analyses with the respective assumptions:

___:_ Scenario 1: All candidates with positive PV savings are refunded in 2016

- Scenario 2: Current rates decrease by 25 basis points

4.33%

2.70%

1.97%

1.34%

0.81 %

0.38%

1.82%

• Results of potential savings in the 2010 B refunding are presented below, highlighting an opportunity to refund $177.9 million in candidates with aggregate PV savings of $4.1 million in a 2016 refunding:

Refunded Par Refunding Par PV Savings Scenario Series Par ($000) ($000) ($000) ($000) PV Savings(%)

Base Case 20108 $ 316,420 $ 56,090 $ 56,274 $ 1,020 1.82% Scenario 1 20108 316,655 177,945 177,634 4,128 2.32% Scenario 2 20108 316,420 161 ,620 161 ,599 3,428 2.12%



-------------------TIMED Refunding in 2016 Considerations INVESTMENT BANKING I

DIVISION

• Assuming all candidates with positive savings are refunded , the resulting PV savings represent 2.3% of refunded par

Current Call PV Neg. Gross PV Neg Maturity Par ($000) Coupon Date Savings Arb. Savings Savings (%) Arb (%)

5/1/2027 $ 8,245 5.0% 5/1/2020 $ 659 $ 378 $ 1,038 8.00% 36.45%

5/1/2028 8,660 5.0% 5/1/2020 582 443 1,026 6.72% 43.22%

5/1/2029 9,090 5.0% 5/1/2020 465 525 990 5.12% 53.00%

5/1/2030 9,545 5.0% 5/1/2020 422 578 1,000 4.42% 57.81%

5/1/2031 10,025 5.0% 5/1/2020 382 631 1,013 3.81% 62.28%

5/1/2032 10,525 5.0% 5/1/2020 348 684 1,031 3.30% 66.30%

5/1/2033 11 ,050 5.0% 5/1/2020 319 736 1,055 2.89% 69.74%

5/1/2034 11 ,605 5.0% 5/1/2020 287 791 1,078 2.47% 73.41%

5/1/2035 12,185 5.0% 5/1/2020 249 850 1,100 2.05% 77.32%

5/1/2036 12,795 5.0% 5/1/2020 207 913 1 '121 1.62% 81 .50%

5/1/2037 13,430 5.0% 5/1/2020 41 1,018 1,058 0.30% 96.15%

5/1/2038 14,105 5.0% 5/1/2020 41 1,069 1 '11 0 0.29% 96.30%

5/1/2039 14,810 5.0% 5/1/2020 41 1 '122 1 '164 0.28% 96.45%

5/1/2040 15,550 5.0% 5/1/2020 42 1,178 1,220 0.27% 96.59%

5/1/2041 16,325 5.0% 5/1/2020 42 1,237 1,279 0.26% 96.72%

Total $ 177,945 $ 4,128 $ 12,153 $ 16,282 2.32% 74.65%



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