2

WHO WE AREWHO WE AREWHO WE AREWHO WE ARE

3

BOARD OF DIRECTORSBOARD OF DIRECTORSBOARD OF DIRECTORSBOARD OF DIRECTORS

DBP Reynaldo G. David Armando O. Samia Edgardo F. Garcia Rolando S.C. Geronimo

BPI Aurelio R. Montinola III MBTC Antonio S. Abacan, Jr. PVB Ricardo A. Balbido, Jr. ADB Stephen Edwards

C. Genalin C. Uy

4

RELATIONSHIP MANAGEMENT WITH FINANCIAL INSTITUTIONS

CREDIT RATING

WHAT WE DOWHAT WE DOWHAT WE DOWHAT WE DO

CREDIT GUARANTEE

GUARANTEE PROGRAM

MANAGEMENT

COLLABORATION WITH NATIONALGOVERNMENT

5

GUARANTEE SYSTEMGUARANTEE SYSTEM

Financial Institutions

• Pays loans / bond amortization

• Calls on guarantee if LGU defaults

LGUs/WDs

AAADue Diligence / Credit Rating

• Provides loans• Underwrites bond issues

• Guarantees FIs against LGU default• Pays FIs in case of default according to original schedule

6

WHAT WE’VE DONEWHAT WE’VE DONEWHAT WE’VE DONEWHAT WE’VE DONE

Borrower Amount (PhP)

Project

Urdaneta City 25 MM Slaughterhouse

Province of Aklan 40 MM Jetty Port and Terminal Building

Puerto Princesa City 320 MM Socialized Housing

Caloocan City 185 MM

225 MM

210 MM

Public Market

Commercial Complex with Toll Parking

General Hospital

Tagaytay City 220 MM Convention Center with Lodging Facility

Iloilo City 130 MM Housing

Municipality of Daraga 75 MM Public Market

7

WHAT WE’VE DONEWHAT WE’VE DONEWHAT WE’VE DONEWHAT WE’VE DONE

Borrower Amount (PhP)

Project

Municipality of Bayambang 42 MM Public Market

Province of Leyte 205 MM Academic Center

Municipality of San Juan 390 MM Gymnasium, Commercial Area and

Toll Parking

Municipality of Carmona 150 MM Housing

Pasay City 500 MM Public Market and Commercial

Center

Municipality of Imus 47 MM Slaughterhouse

Metro Iloilo Water District 46 MM Water System Rehabilitation

Municipality of Baliwag 50 MM Integrated Solid Waste Management

8

WHAT WE DOWHAT WE DOWHAT WE DOWHAT WE DO

CREDIT GUARANTEE

9

LEGAL BASIS FOR BOND ISSUANCE LEGAL BASIS FOR BOND ISSUANCE

Section 295 of Republic Act 7160, the Local Government Code of 1991, states that local government units (LGUs) shall have the power to create indebtedness and enter into credit and other financial transactions.

A. Power to Create IndebtednessLGUs are authorized to source funds to finance identified development projects.

Section 296. (a) “It shall be the basic policy that any local government unit may create indebtedness, and avail of credit facilities to finance local infrastructure and other socio-economic development projects in accordance with the approved local development plan and public investment program.”

10

LEGAL BASIS FOR BOND ISSUANCE LEGAL BASIS FOR BOND ISSUANCE

LGUs are authorized to secure loans, credits and other forms of indebtedness from banks and lending institution for the establishment, development or expansion of identified projects.

Section 297 (a). “A local government unit may contract loans, credits, and other forms of indebtedness with any government or domestic private bank and other lending institutions to finance the construction, installation, improvement, expansion, operation or maintenance of public facilities, infrastructure facilities, housing projects, the acquisition of real property and the implementation of other capital investment projects, subject to such terms and conditions as maybe agreed upon by the local government unit and the lender.”

11

LEGAL BASIS FOR BOND ISSUANCE LEGAL BASIS FOR BOND ISSUANCE

B. Bonds and Other Long-Term LiabilitiesLGUs are authorized to issue bonds and other long-term securities as an alternative financing source to fund income-generating projects.

Section 299. “Subject to the rules and regulations of the Central Bank and the Securities and Exchange Commission, provinces, cities and municipalities are hereby authorized to issue bonds, debentures, securities, collateral, notes and other obligations to finance self-liquidating, income-producing development or livelihood projects pursuant to the priorities established in the approved local development plan or the public investment program.”

12

LEGAL BASIS FOR BOND ISSUANCE LEGAL BASIS FOR BOND ISSUANCE

C. Debt ServiceLGU budgets must be capable to support debt service repayments and other requirements incurred from the contract of loans and other forms of indebtedness

Section 303. “Local government units shall appropriate in their respective annual budgets such amounts as are sufficient to pay the loans and other indebtedness incurred or redeem or retire bonds, debentures, securities, notes and other obligations issued under this title: Provided, that failure to provide the appropriations herein shall render their annual budgets inoperative.”

13

LGC IMPLEMENTING RULES AND REGULATIONS

Article 401

“… LGUs shall appropriate in their respective annual budgets such amounts as are sufficient to pay the loans and other indebtedness incurred or redeem or retire bonds…”

“…failure to provide the appropriations herein required shall render their annual budgets inoperative.”

“Any LGU… may authorize the National Government to deduct or withhold a portion of its IRA share for the payment of its contractual obligation.” “…the resolution of the sanggunian shall clearly state the name of the creditor, the nature of the indebtedness, the amount to be withheld, and a period of time that such withholding of IRA shares shall be made.”

LEGAL BASIS FOR BOND ISSUANCE LEGAL BASIS FOR BOND ISSUANCE

14

• Revenue-generating• Part of the development plan• Approved by the Sanggunian

LGU Project

Financial Advisor

• Prepares the project feasibility• Secure Sanggunian Ordinance Authorizing the

Issuance of Bond to Finance the Project• Secure Pertinent legal requirement to issue the

bonds (e.g., BSP Opinion, BLGF Approval, etc.)

• Identify members of the Bond Issuance Team• Secure Sanggunian Ordinance Authorizing the

Mayor to Engage the Services of the Bond Issuance Team

Local Chief Executive

• Sanggunian Ordinance Approving the Final Municipal Bond Terms

• Sanggunian Ordinance Appropriating Funds Thereof to Support the Project

Investors/Bondholders

Liquidity...?

Profitability

Safety

Public obligations or liabilities

Debt-servicing capacity

Project’s income generation

LGU/Issuer/Borrower

PRIMER ON MUNICIPAL BONDS PROCESSPRIMER ON MUNICIPAL BONDS PROCESSPRIMER ON MUNICIPAL BONDS PROCESSPRIMER ON MUNICIPAL BONDS PROCESS

B

I

T

Fixed Income Exchange - will provide the secondary market trading

Managing Underwriter - will design the features of the bond covering the structure, issue size, interest rate and payment schedule, maturity date, etc.

LGUGC/Guarantor - will guarantee the bond subject to the issuer’s & issue’s creditworthiness

Trustee - will act as the custodian of the funds; manage the project’s sinking fund; and as registry, paying and transfer agent

Counsel - will review the legal aspects of the bond, special concern is Sec. 303 of 1991 LGC

Financial Advisor - will have to establish the feasibility of the project (I.e. present positive cashflow projections)

15

BOND ISSUANCE PROCESS BOND ISSUANCE PROCESS TIMETABLEBOND ISSUANCE PROCESS BOND ISSUANCE PROCESS TIMETABLE

Timetable in Months 1st 2nd 3rd 4th 5th 6th

1. Project Development, Feasibility Study Preparation, and Hiring of a Financial Advisor, BLGF and DAR/DENR Certification

The bond issuance process shall not include this period but will commence after the

completion of this activity.

2. Sanggunian Ordinance Approving the Project

3. Selection and Appointment of a Bond Issuance team

4. Designing the Features of the Municipal Bond

5. Securing the Guarantee for the Municipal Bonds

6. Sanggunian Ordinance Approving Final Bond Terms

7. Sanggunian Panlalawigan’s Validation of the Ordinance of the Municipal Bond Issuance by a Component City or Municipality

8. Bangko Sentral ng Pilipinas (BSP) Favorable Opinion

9. Preparation of the OS, Primer and Bond Docs.

10. Municipal Bond Offering and Issuance

11. Debt Servicing and Payment of the PrincipalThis period shall cover the date of issue up

to the maturity date.

16

BOND FLOTATION

• Pricing is market-driven

• Promotes constituents’ participation in local development and allows them to earn in the process

• Allows LGUs to access Capital Market

• IRA used only as second way out

• Enhances the project management capability of LGUs due to responsibility to investors

• Stricter credit evaluation and project monitoring standards

• Encourages transparency and development of a proactive rating system

LOAN VS BONDS LOAN VS BONDS LOAN VS BONDS LOAN VS BONDS

DIRECT LOAN

• Pricing is based on the FI’s transfer pool rate

• Earning opportunity limited to the lending institution

• Dependence on IRA deposits as direct collateral which oftentimes acts as disincentives to FI’s looking seriously at project feasibility

• Limited to FI’s internal credit review process

17

INTEREST RATES DIFFERENTIALINTEREST RATES DIFFERENTIAL

LOANS BONDS

Reference Rate (6-Month MART1)1 4.5768%

Lending Rate (Actual)2 7.9350%Add On Rate 3.00%Trustee Fee 0.50%Guarantee Fee 1.18%

Total Annual Fees 7.9350% 9.2568%Commitment Fee 0.50%Handling Fee 0.75%Underwriting Fee 1.00%

Total Up-front Fees 1.25% 1.00%Total Annual Fees 7.9350% 9.2568%Total Up-front Fees (over 7 years) 0.18% 0.14%

TOTAL FEES (Blended) 8.11% 9.40%1/as of March 8, 20072/Ave. lending rates of DBP and Land Bank as of March 8, 2007

18

As of September 30, 2006

% Availment Amount %A. Loans

Land Bank of the Philippines P 47,873,150,000.00 66.35% 40,014,450,000.00 66.53%Philippine Veterans Bank 941,071,829.42 1.30% 741,452,385.83 1.23%Municipal Development Fund Office 4,661,419,347.76 6.46% 4,661,419,347.76 7.75%Philippine National Bank 6,597,485,000.00 9.14% 5,817,086,000.00 9.67%Development Bank of the Philippines 9,073,318,755.04 12.58% 6,900,544,771.76 11.47%

P 69,146,444,932.22 58,134,952,505.35

Amount DisbursedB. Bonds*

Philippine Veterans Bank P 190,000,000.00 0.26% 110,457,120.69 0.18%LGU Guarantee Corporation 2,814,000,000.00 3.90% 1,903,250,000.00 3.16%

P 3,004,000,000.00 2,013,707,120.69

Total P 72,150,444,932.22 100.00% 60,148,659,626.04 100.00%

Source: BLGF*Covers only LGU Bonds guaranteed by mentioned institutions

Approved Amount

Bond Amount

LGU DEBT PORTFOLIOLGU DEBT PORTFOLIO

19

THE LGUGC ADVANTAGETHE LGUGC ADVANTAGETHE LGUGC ADVANTAGETHE LGUGC ADVANTAGE

Trust FundTrust FundProject

Construction Fund

Project

Revenue

Fund

Debt Proceeds

Project Develop

ment

Project Operati

ng Expens

es

Fees & Other

Expenses

Project

Revenue

Sinking Fund

Sinking Fund

Debt Servici

ng

LGU

IRA Deposit (Truste

e)Guaran

tor (LGUGC

)

20

THE LGUGC ADVANTAGETHE LGUGC ADVANTAGETHE LGUGC ADVANTAGETHE LGUGC ADVANTAGE

TRUSTEE

UNDERWRITERTRUSTOR (LGU)LGUGC heads the

Project Monitoring Board

21

CREDIT RATING

WHAT WE DOWHAT WE DOWHAT WE DOWHAT WE DO

CREDIT GUARANTEE

22

CREDIT RATINGCREDIT RATINGCREDIT RATINGCREDIT RATING

LGUGC’s internal LGU credit rating system aims to promote LGUs as viable borrowers for private financial institutions and issuers of debt instruments, to facilitate their access to capital markets through a structured information base on their overall creditworthiness

Factors considered:• Political Risks• Economic Risks• Operating and Management Risks• Financial Risks

23

Tendency for Efficient Debt Repayment

Development Capacity and Socio-Economic Endowment

Operating Performance

Financial Condition

Management

LGU CREDIT SCREENING AND RATINGLGU CREDIT SCREENING AND RATINGLGU CREDIT SCREENING AND RATINGLGU CREDIT SCREENING AND RATING

Short-term Indicators

Long-termIndicators

CREDITRATING

CREDITSCREENING

24

CREDIT RATINGSCREDIT RATINGSCREDIT RATINGSCREDIT RATINGS

Aaa - highest credit standing

Aa - high credit standing

A - good credit standing

Ba - average credit standing

B - below-average credit standing

C - poor credit standing

25

RATED LGUs RATED LGUs RATED LGUs RATED LGUs

LGU Rating

1. Urdaneta City Ba

2. Aklan Province Ba

3. Puerto Princesa City Ba

4. Tagaytay City A

5. Caloocan City Ba

6. Alfonso Lista Ba

7. Taguig A

8. Iloilo City Ba

9. Orani, Bataan Ba

10. Baguio City A

LGU Rating

11. Daraga, Albay Ba

12. Bayambang, Pangasinan Ba

13. Taytay, Rizal A

14. Antipolo City Ba

15. San Vicente, Palawan B

16. Lucena City, Cagayan A

17. Leyte Province Ba

18. Masbate City Ba

19. San Juan, MM Aa

20. Surigao City Ba

26

LGU Rating

21. Tabaco City A

22. Binangonan, Rizal Ba

23. Carmona, Cavite A

24. Imus, Cavite A

25. Pasay City Ba

26. Kawit, Cavite Ba

27. Butuan City, Agusan Ba

28. Palayan City, Nueva Ecija B

29. Calbayog City, Samar B

30. Calasiao, Pangasinan Ba

LGU Rating

31. Mariveles, Bataan A

32. Santiago City, Isabela Ba

33. Iriga City, Camarines Sur Ba

34. Zamboanga del Norte A

35. Aliaga, Nueva Ecija B

36. San Fernando City Ba

37. Baliwag, Bulacan A

38. Iloilo Province A

RATED LGUs RATED LGUs RATED LGUs RATED LGUs

27

CREDIT RATING

WHAT WE DOWHAT WE DOWHAT WE DOWHAT WE DO

CREDIT GUARANTEE

COLLABORATION WITH NATIONALGOVERNMENT

& DONOR AGENCIES

28

COLLABORATION WITH NGAsCOLLABORATION WITH NGAs

1. Bangko Sentral ng Pilipinas

• BSP Circular No. 190 Series of 1999 - Allowing LGU debt instruments as eligible alternative for agri-agra (PD 717) compliance

• BSP Circular No. 310 Series of 2001 - Reducing risk weight of LGU bonds guaranteed by LGUGC and against IRA assignment from 100% to 50%

• BSP Circular No. 462 Series of 2004 – Allowing private banks to act as trustee for bond flotation of LGUs

2. Insurance Commission

• Declaring LGUGC-enhanced bonds eligible reserves for insurance companies

3. MOAs with DILG & DOF-BLGF

• Info exchange and advocacy

29

WHAT WE DOWHAT WE DOWHAT WE DOWHAT WE DO

CREDIT GUARANTEE

RELATIONSHIP MANAGEMENT WITH FINANCIAL INSTITUTIONS

CREDIT RATING

COLLABORATION WITH NATIONALGOVERNMENT

& DONOR AGENCIES

30

ACCREDITED FINANCIAL ADVISORS

• AYN Resource Management Group

• Censeo Financial Solutions, Inc.

• FinAcc, Inc.

• Investment and Capital Corporation of the Philippines

• Multinational Investment Bancorporation

• Preferred Ventures Corp.

• The Structured Financial Group, Inc.

• Transaction Advisory Services, Inc.

RELATIONSHIP MANAGEMENTRELATIONSHIP MANAGEMENTRELATIONSHIP MANAGEMENTRELATIONSHIP MANAGEMENT

31

RELATIONSHIP MANAGEMENTRELATIONSHIP MANAGEMENTRELATIONSHIP MANAGEMENTRELATIONSHIP MANAGEMENT

PARTNER FINANCIAL INSTITUTIONS

• Allied Bank

• Banco de Oro

• Bank of Commerce

• Equitable PCI

• First Metro Investment Corporation

• Investments and Capital Corporations of the Phils.

• Maybank

• Multinational Investment Bancorporation

• Philippine Veterans Bank

• PNB

• RCBC Capital

• Security Bank

• UCPB Savings Bank

• Unicapital

32

WHAT WE DOWHAT WE DOWHAT WE DOWHAT WE DO

CREDIT GUARANTEE

RELATIONSHIP MANAGEMENT WITH FINANCIAL INSTITUTIONS

CREDIT RATING

COLLABORATION WITH NATIONALGOVERNMENT

& DONOR AGENCIES

GUARANTEE PROGRAM

MANAGEMENT

33

PROGRAM MANAGEMENTPROGRAM MANAGEMENTPROGRAM MANAGEMENTPROGRAM MANAGEMENT

I. Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG)

II. Capacity Building to Remove Barriers to Renewable Energy Development – Loan Guarantee Fund (CBRED-LGF)

III. Rural Power Project for Photovoltaic Systems – Loan Guarantee Fund (CBRED-LGF)

ThankThankyo

u!you!

AILEEN B. CASTROHead, Relationship Management DepartmentEmail: abcastro@lgugc.bayandsl.ph

Tel: (02) 751-8764 to 68Fax: (02) 888-4217Website: www.lgugc.com