Role of Municipal Trustee

CDFA Bond Seminar

Washington, D.C.

August 2-3, 2007

Role of TrusteeSection I.Section I.

2

3

Introduction to the Trustee§Last one invited to the

Financing Party

§The Last one to leave

§Hired, Paid, Directed and possibly fired by Borrower

§But works for someone else!

4

Types of Trust Appointments

§Trustee represents Bondholders

§Registrar maintains Record of Registered Holders

§Paying Agent disburses periodic Interest and Principal

§Tender Agent processes Variable Rate Puts

§Escrow Agent holds securities to pay old Bonds

§Auction Agent performs interest rate reset calculations

§Depositary Agent for Tender Offers

§Dissemination Agent distributes information to NRMSIR’s

5

Role of the Corporate Trustee§Protecting the Bondholders’ rights

§Holding cash deposits or other assets under Governing Documents

§Collecting and investing debt service payments

§Ensuring compliance with governing documents- Continuing disclosure

- Financial statements

- Rebate calculations

- Financed Ratios, etc

6

The Trustee’s role differs across rate structures

§ Fixed Rate Securities- The rate is established at the time of the original issuance

- After Capitalized Interest Period is over, the Trustee receives monthly depositsinto the Bond Fund (1/6th of Interest) and (1/12th of Principal) of the annual amount due

- For each debt service payment the Trustee calculates and confirms Debt Service amount.

- Payment amount for each CUSIP does not change unless there is a partial call or redemption.

7

Variable Rate Demand Bonds

§Remarketing agent is responsible for ensuring Trustee receives rates that may be set daily, weekly, monthly, or semi-annually

§Trustee required to calculate blended rate (daily, weekly, or monthly reset) calculate amount required and confirm Debt Service with borrower

§Conforms to computation and Holiday rules

§Trustee draws on the Letter of Credit for Payment of Interest and/or Principal and pays holders

§The Borrower reimburses the Trustee or will make payment to LOC Bank directly in accordance with the Reimbursement Agreement

8

Auction Rate Securities

§ Broker Dealer receives bids from existing holders or potential holders

§Auction Agent receives bids from Broker Dealer or Dealers

§Auction Agent calculates the bids to determine clearing rate (rate at which all bonds are sold)

§ Trustee is informed of rate established and pays servicing fees for Broker Dealer and/or Auction Agent

§ Trustee makes payment on the established date (weekly, 28 days, 35 days, etc.)

§ Issuer establishes a depositary account with the trustee to hold and invest funds for future payments. It is necessitated because of the frequent debt service payments.

9

Auction Mechanics - Example

100 Bonds Multi-Broker Index = 7 day CP Issue Rating AAA

$100,000 / Bond Weekly Reset Insured Issuer Rating AA

Step 1: Set Parameters

Issue Summary

Ref Rate Multiplier Band125% = 2.50% Maximum

7 Day CP2.00%

70% = 1.40% Minimum

Confirmation of BiddingRights & Auction Parameters toBroker / Dealers

Note: Certain programs have no minimum rate

10

Auction Mechanics - ExampleStep 2: Bid Submission

Step 3: CalculateAvailable Units

Total Units 100

Hold Orders 50

Available 50

Step 4: Do Sufficient Clearing Bids Exist?

Demand70

Supply50> = Successful Auction

Broker Units Existing Potential

B1 50 Hold

B2 20 Sell 25@ 2.10%

B3 20 Bid @ 2.00% 15@ 2.20%

B4 10 Bid @ 2.25%

100

11

Auction Mechanics - ExampleBid Submissions

Beginning Net Ending

Broker Balance Change Balance

B1 50 0 50

B2 20 5 25

B3 20 5 25

B4 10 -10 0

100 100

Step 5: Determine Winning Rate

Available Bids Rate Type Result

50 20 2.00% Existing Filled

30 25 2.10% Potential Filled

5 15 2.20% Potential Partial

-10 10 2.25% Existing Reject

70

Clearing Bid

Step 6: Allocation of Units

Broker Units Existing Potential

B1 50 Hold

B2 20 Sell 25@ 2.10%

B3 20 Bid @ 2.00% 15@ 2.20%

B4 10 Bid @ 2.25%

100

Note: The Clearing Bid rate becomes the reset rate for

the entire issue for thecurrent interest rate period

Section II.Section II.

12

The Issuance Process

13

Pre-Closing: Document Review

§Under the USA Patriot Act, trustee must complete Customer Identification and Know Your Customer processes for any new client relationship. Trustee must obtain information including name, address, tax identification number, financials, articles of incorporation, etc.

§A Relationship Manager will be assigned to manage the transaction from inception to closing

§Trustee and its counsel will review drafts of governing and ancillary documentation with working group

§All documents should be finalized during the pre-closing process, and the trustee will execute the documents with approval of its counsel

14

Pre-Closing: Document Review (continued)

The most common documentation requirements:§ Indenture§ Prospectus/Offering Memorandum§ Certified Board Resolution §Authentication Order §Officers’ Certificate§Opinion of Counsel § Cross Receipt § Reliance Letter§ Incumbency Certificate of Issuer§ Blue Sky Memo§DTC Letter of Representation (LOR) §DTC Blanket Letter of Representation (BLOR)*§Global or Physical Notes**

*A fee of $300.00 will be assessed when certain corporate book-entry only issues do not use the BLOR.

**Global Note forms are used for book-entry issues and represent the entire principal amount of the securities.Note: A separate global note must be prepared for each type of restricted security (i.e., Rule 144A, RegS, Institutional Accredited Investor).Each restricted security must have its own CUSIP number, and it is limited to a maximum of $500 million per note for DTC global notes.

15

PPCUSIP Numbers

PPPPPPGlobal Notes/Bonds

PPPDTC Letter of Representation

PPDTC Eligibility Form

PPPIncumbency Certificate

PReliance Letter

PPPPCross Receipt

PPPOpinion of Counsel

PPOfficers' Certificate

PPPPAuthentication Order

PPPPRegistration Rights Agreement

PPPPPPProspectus/Offering Memo

PPPPPPIndenture

DTCTrustee's CounselTrustee

Underwriter's CounselUnderwriter

Issuer's CounselIssuer

Pre-Closing: Document Review (continued)

Checklist of Responsibility:

16

Pre-Closing: DTC EligibilityThe Depository Trust Company (“DTC”) Eligibility:§ Today, the majority of debt securities are issued via book-entry form. In the

United States, most book-entry securities are settled through DTC which was formed to better facilitate the clearing, settlement, and custody of issued securities following the “paper crunch” of the late 1960s

§ Book-entry securities are registered in the name of DTC or its nominee (e.g., “Cede & Co.”), and they must bear DTC legend (in addition to any other global legend called for by the terms of the indenture) and any restriction legend (private placement) called for by the indenture. These securities shall be deposited with DTC or its custodian (the Trustee as agent for DTC)

§ Security holders who own book-entry securities maintain their holdings through a DTC participant (e.g., bank, broker, or financial institution that is a member of the DTC)

§ Prior to closing a new debt issue, the general counsel’s office and the underwriting group at DTC must both approve the terms of every book-entry debt security

17

Pre-Closing: DTC Eligibility (continued)

§Underwriter/placement agent or its counsel (or the issuer or its counsel) is responsible for obtaining the relevant CUSIP numbers from the CUSIP Service Bureau of Standard & Poors; and for preparing and submitting an “Eligibility Questionnaire” to DTC’s underwriting group, specifying certain terms of the issue

§DTC Underwriting and General Counsel’s Office require the following documentation before approving a new issue:- The Prospectus/Offering Memorandum

- A draft of the DTC Letter of Representation (“LOR”) or DTC Blanket Letter of Representation (BLOR)

§Once underwriting group has approved the transaction, it contacts the Trustee to confirm the terms of debt issuance immediately after the deal prices; and in any event, prior to the closing date. It also informs the General Counsel’s Office that the issue’s CUSIP number has been made DTC-eligible. The DTC letter of representations may be delivered for signature at that time, by pre-arranged appointment with DTC

18

Pre-Closing: DTC Letter of Representation§ An agreement between DTC and the Issuer, in which the issuer and trustee agree to abide by

DTC’s operational requirements

§ Blanket Letter of Representation (“BLOR”): In the past, an individual LOR was required for each new issuance. In 2002, the BLOR was made available to corporate and municipal issuers. A BLOR is a letter of representation that covers all book-entry eligible issues an issuer brings to market

§ A rider must be completed and submitted by the issuer to DTC’s General Counsel Office for any terms not contemplated by the BLOR

§ Unlike the LOR, the BLOR does not require the trustee’s signature and is only executed by the issuer and DTC’s General Counsel Office. It is imperative that issuer’s counsel arrange an appointment with DTC’s General Counsel Office in order to execute the BLOR, at least one day prior to closing

FYI: The eligibility questionnaire and letter of representation may be obtained from the DTC website at www.dtc.org. Key link - Forms for Making Securities DTC Eligible.

19

Closing§ During the closing process, all of the legal obligations are finalized to facilitate the issuance of

new debt securities

§ The closing documents are executed once all parties approve all governing and ancillary documents (e.g., certificates, legal opinions, etc)

§ In a secured deal, a cross-receipt identifying the collateral/assets pledged to the account must be confirmed and verified, if applicable

§ The new debt securities must be delivered to the underwriters upon receiptby the Trustee of payment equal to the agreed upon purchase price(the “closing proceeds”) and once the bonds are officially declared as closed

§ The flow of funds, as prepared by the underwriter are applied to the respective accounts upon closing which usually consist of the following:

- Project Fund

- Cost of Issuance Account

- Capitalized Interest Account

- Debt Service Reserve

Section III.Section III.

20

General Information

21

Top 10 Most Asked Questions10. What is FAST (Fast Automated Securities Transfer)?

Transfer Agent holds Securities for DTC

9. Who is my Contact? Get all information for Primary and Secondary Contacts at Trustee Bank

8. What is Book-Entry Only? The Depository Trust Company is the Sole Holder. No Physical Securities issued.

7. What are Auction Rate Securities? Rates are set through a Dutch Auction- daily, weekly, monthly, flex

6. What should we invest in? Consider “Permitted Investments”, Investment time constraints (many must be initiated by 11am), determination should be made by pre-Closing, Trustee requires written instructions

22

Most Asked questions (continued)

5. , 4., 3., 2., And

1. How do I get my Money?

ANSWER: Complete a requisition in the manner indicated in the Trust Indenture Appendix§Reimburse yourself for Eligible Expended Proceeds

§Payment for Cost of Issuance to Maximum Allowed

§Continue submitting Requisitions as needed and allow sufficient time for processing by Trustee

23

DTC Acronyms and DefinitionsAPUT – Automated Put Options Program: Used by the Transfer Agent (who can be serving as a Tender/Put Exchange Agent) to view PUT instructions entered by the DTC participants.

ATOP – Automated Tender Option Program: Used by the Transfer Agent (serving as Tender/Exchange Agent)to view instructions entered into PTOP by the DTC participants regarding surrender of securities for tender/exchange offers.

BEO – Book Entry Only: A non-certificated issue that can be held in a FAST or NON-FAST position. DTC maintains the inventory representing a NON-FAST issue in their vaults. The Transfer Agent holds the FAST inventory in their vault as custodian for DTC.

BLOR – Blanket Letter of Representation: A letter of representation that covers all book-entry eligible issues that an Issuer brings to market. It became available for corporate issuers in 2002.

Contra CUSIP: The CUSIP used to indicate a participant’s tendered position. Represents instructions submitted by participants to surrender securities for tender or exchange offers.

DWAC – Deposit/Withdraw at Custodian: A method for a participant to originate instructions to the transfer agent to increase or decrease the participant’s account by the specified unites, shares or obligations. The Transfer Agent, dependent upon receipt of the appropriate documentation, shall approve or cancel the instruction no laterthan 6:30p.m.

FAST – Fast Automated Securities Transfer: An arrangement between DTC and transfer agents to eliminate the movement of securities certificates. The transfer agent executes a Balance Certificate Agreement with DTC agreeing to maintain DTC eligible inventory in the form of jumbo certificates registered in the name of Cede & Co as DTC’s nominee. DTC and the Fast Agents must reconcile the outstanding principle amount for FAST eligible securities on a daily basis.

24

DTC Acronyms and Definitions (continued)FRAC – Fast Reject and Confirmation: Used by the Fast Agent (as Trustee) on closing date of a new issue or secondary market offering to confirm an electronic shipment control list, evidencing the issuance of these securities.

LENS – Legal Notice System: A library of notices published by the third parties, public or private agents and agencies, reporting of non-settlement information about DTC eligible securities. Available on PTS or Web, LEN’s reporting includes the following types of information: corporate status, legal notice, notices to securities holders regarding bankruptcy, default, litigation, class action and LOC substitutions, tax information, domestic, foreign and global securities and transfer agent information.

MMI – Money Market Instruments: Debt securities issued in book-entry form such as banker’s acceptances, certificates of deposit, commercial paper and medium term notes.

Participant: A bank broker or other financial institution that is a member of The Depository Trust Company.

PIMS – Pre-issuance Messaging Service: A fully automated service with the issuance and settlement of money market instruments.

PTOP – Participant Tenders Over PTS: DTC Participants enter instructions for tenders and consent offers using this command. The Exchange Agent accesses ATOP to view the participant instructions.

PTS – Participant Terminal System: Electronic system that provides DTC participants with information about various reorganization activities and allows them to input instructions.

25

DTC Acronyms and Definitions (continued)RMC – Risk Management Controls (RMC): The controls, primarily net debit cap and collateral, that are used to provide protection to all DTC participants against the inability of one or more participants to settle their net settlement obligations.

SCL – Shipment Control List: A transmittal letter used to notify the transfer agent of an increase or decrease in the principal amount outstanding for a DTC eligible security. Used for corporate actions, including exchange and tender offers.

SPL – Security Position Listing: A service provided to issuers and their trustees, or authorized third party agents, listing the DTC participants holding a specified security and their contact information.

RIPS – Reorg Inquiry for Participants: A broadcast system that lists the details of a reorg/corporate action offering.

VOI – Voluntary Offering Instructions: A control number acknowledging the participants election pertaining to a Reorg transaction or Corporate Action.

WUN Underwriting: A web based application for the submission of questionnaires and offering materials by the underwriters to DTC in electronic format.

WUN-MMI: A web based application for the submission of eligibility questionnaires and offering documents by the Issuing and Paying Agent for MMI securities.