Infrastructure Finance

Ian Dixon, Managing Director, Ambac Assurance UK Ltd. (Moderator) Nicholas Hann, Managing Director, Macquarie North America Ltd. Hadley Peer Marshall, Vice President, Goldman Sachs & Co. Bart Oosterveld, Senior Vice President, Moodys Investors Service

Infrastructure Finance ASF, Las Vegas 2008

Wednesday February 6th

Main Purpose of this Session Infrastructure Finance

Short Presentations:
1 2 3 4 Ian Dixon (Moderator) Nicholas Hann Hadley Peer Marshall Bart Oosterveld Ambac Assurance UK Ltd Macquarie North America Ltd Goldman Sachs & Co Moodys Investors Service Overview of Infrastructure Sector Accessing Capital for Infrastructure Projects Post Credit Crunch Debt Raising for Infrastructure Changes in Credit Risk Approach for Infrastructure

Questions and Answers

Overview of Infrastructure Sector Ian Dixon Managing Director Head of European Infrastructure Finance Ambac Assurance UK Limited

Ambac in Infrastructure

2006 Infrastructure Journal Global Monoline of the Year 2007 Project Finance International Global Monoline of the Year 2007 Ambac closed
24 deals $7.7bn Variety of Sectors

2007 Infrastructure Deals Closed By Monolines

2007 was a strong year for Monolines in Europe

Monoline MBIA

Deal
A5 Dundee Schools Pinderfields and Pontefract Hospital North Staffordshire Hospital Peterborough Hospital Milau Viaduct Sanef Eurotunnel Northern Batch (Salford) Hospital Northern Batch (Tameside) Hospital Walsall Hospital Broomfield Hospital NI DBFO II Road

Country
Austria Scotland England England England France France France England England England England N. Ireland

Amount
775m 87m 340m 360m 393m 573m 1500m 2670m 118m 78m 125m 165m 240m

Ambac

FSA

FGIC

In Europe over the last 10 years, approximately $40bn of Wrapped Infrastructure Assets have been placed in the long term bond markets Wrapped Infrastructure represents circa 20% of the market share by value over this period and has been particularly important in large transactions

What is Infrastructure?

Has a very wide meaning:

Roads/Bridges/Tunnels/Street Lighting Rail Tracks/Rail Cars/Light Rail/Terminals Airports/Ports/Ferries Government Buildings Offices/Schools/Hospitals Universities/Social Housing Waste Management/Wind Farms Power Stations/Transmission Lines Utilities - Water/Gas/Electricity

Even:

Telecoms Pubs Stadia

What is Infrastructure Finance?

Wide mix/different credit risks

A Public Sector Unconditional Government Payment Stream

B PPP Government Availability Payment Stream

C Project Finance Toll/Market Revenue Stream

D Regulated Regulated Market Revenue Stream

[E Hybrid Highly leaveraged acquisitions]

Require different funding tools and structures

Global Infrastructure Size of the Market

Review by Booz Allen Hamilton (and others), Infrastructure investment to be undertaken, over the next 25 years, Only Basic new infrastructure Water, Power, Road/Rail and Air/Sea Ports, Required investment is $41 trillion 50% in Water,

US and Canada account for $6.5 trillion South America is $7.4 trillion Europe $9.1 trillion

These Numbers are interesting but largely irrelevant and inaccurate, Growing need in certain markets (e.g. US) for greater brownfield investment to address degraded assets, This proves - the level of infrastructure needed will continue, Public Sector budgets will not be able afford huge capital outlay required for greenfield, Development of PPP activities will spread around the globe.

The Infrastructure Challenge

Percentages of total projected cumulative infrastructure investment needed during the next 25 years to modernise obsolescent systems and meet expanding demand broken down by region (rows) and sector (columns) Total projected cumulative infrastructure spending 2005-2030: $41 trillion

Middle East $0.9T Africa $1.1T US/Canada $6.5T

6% 16% 1% 1%

2%

4% 12%

4%

9% 1%

17% 13% South America/Latin America $7.4T 22% 16% 4%

12% Europe $9.1T 20% 40% 27%

Asia/Oceania $15.8T 40% 47% 32% 27%

Water $22.6T

Power $9.0T

Road and Rail $7.8T

Air/sea-ports $1.6T

Source: Booz Allen Hamilton, Global Infrastructure Partners, World Energy Outlook, Organisation for Economic Co-operation and Development (OECD), Boeing, Drewry Shipping Consultants, US Department of Transportation

Key Factors of Infrastructure Market

Infrastructure is highly politicised Significant Capital Investment required Geographically well spread Essential Basic Assets Assist Local/National Economies New Investment is Recession Proof Long Term assets well suited to long term (pension fund) debt

The Credit Crunch Will it affect Infrastructure Senior Debt?

Pre Crunch Excess liquidity in the Commercial Banking market CDO/SIV buyers High debt multiples Covenant Lite and Low pricing Non Investment Grade Loan Facilities Post Crunch Significantly less liquidity Many CDOs/SIV closed out Likely to be lower debt multiples Protections through Covenants higher debt pricing Investment Grade debt more desirable Dust will settle in infrastructure sector before many others Social/economic benefits of infrastructure re investment are clear Need for long-term debt funding will endure

Infrastructure Finance
Ian Dixon, Managing Director, Ambac Assurance UK Ltd. (Moderator) Nicholas Hann, Managing Director, Macquarie North America Ltd. Hadley Peer Marshall, Vice President, Goldman Sachs & Co. Bart Oosterveld, Senior Vice President, Moodys Investors Service

Infrastructure Finance Panel American Securitization Forum 2008

Nicholas Hann Macquarie Group

Macquarie Group

Flight to Quality
Primary issuance demand for core infrastructure remains very strong Investors continue to place premium value on infrastructure asset given tangibility and strong cash flows of the asset Secondary market performance of toll roads also illustrates the sectors strength, with Indiana Toll Road trading at 99, compared to the 96 price levels of leveraged loans recently released to market Investment is U.S. highways, roads and bridges is severely under-funded, creating a dire need for private concessions to maintain and modernize transportation infrastructure
Secondary Market Snapshot ITR vs Corporates 100

99

96
95 New Issuance
STRICTLY CONFIDENTIAL

ITR

Investor Concerns

Still significant volatility in pricing market has not yet set a clear level Nervous underwriters mean that bank underwriting groups are getting bigger Strong willingness of participants to step up into an underwriting club Committed bid periods are shortening Used to be 180 days.now? Lack of full underwriting in capital markets to support a bid situation Too much market flex makes bids very conservative Monoline capacity very uncertain Will traditional municipal bond investors buy BBB/- project structures? Will rating agencies become more conservative? Leverage is decreasing, especially level of accretion, but mainly for marginal deals Core infrastructure never relied upon covenant lite Equity hurdle rates are going up: but still lots of capacity in the market Quasi infrastructure deals facing a lot more scrutiny

STRICTLY CONFIDENTIAL

Infrastructure Finance
Ian Dixon, Managing Director, Ambac Assurance UK Ltd. (Moderator) Nicholas Hann, Managing Director, Macquarie North America Ltd. Hadley Peer Marshall, Vice President, Goldman Sachs & Co. Bart Oosterveld, Senior Vice President, Moodys Investors Service

Infrastructure Finance Panel American Securitization Forum 2008

Hadley Peer Marshall Goldman, Sachs & Co.

Infrastructure Landscape

A number of large debt and equity financing opportunities split between municipalities and corporate issuers exist

Debt

Equity

Investor sentiment and flight toward defensive cash flows and assets making infrastructure financings relatively strong

Sponsor-related activity has been steadily increasing over the last two years, resulting in a massive pot of un-deployed private equity capital

Bank balance sheets nearing capacity, further compelling the need for capital markets takeouts

Increasingly competitive landscape, though large consortia developing for marquee transactions

Assets
Municipal and State-related P3 financings expected to become increasingly palatable as at least 13 States are facing deficits in 2008 (at least 11 more states in 2009) Definition of infrastructure continues to expand to include more and more quasiinfrastructure

19

Growing P3 Potential
States Continue to Look Toward Private Capital
California Illinois Indiana

Limited P3 legislation approved Potential Lottery Concession BART Airport Connector bids being
solicited

Concession sale of Chicago Skyway for $1.83

bn

Concession sale of Indiana Toll Road

for $3.8 bn

$563 million Chicago Downtown Public

Parking

Lottery process currently on hold

SR 125

Preliminary privatization application filed for

Chicago Midway International Airport

Pennsylvania

PA Turnpike Concession
process underway

Virginia

Capital Beltway HOT

Texas Lanes closed

SH-121; received competing bids from Cintra

and NTTA; accepting bid from NTTA Trans Texas Corridor Project: potentially six remaining concessions for greenfield projects IH-635-LBJ Freeway North Tarrant Express

$611 million Pocahontas

Parkway concession

I-95/395 HOT Lanes Short list released for

Highway 460
States with P3 activity or legislation Other

20

Infrastructure Financing Market Update

Investors are more attracted to defensive, long-term, stable cash flow nature of infrastructure Relative to the broader credit markets, infrastructure finance continues to be a relatively robust, viable and flexible market
In 2007, over $232 billion was issued in the bank and capital markets for infrastructure related projects world-wide, supporting over 1,762
transactions

The bank market has been the market of choice for financing infrastructure assets In general, banks are faced with an increase in cost of funding, more conservative credit committee standards, and full balance sheets
as take out financings have been rare

Bank market participants have been adjusting their appetite and risk profiles to more normalized levels in light of recent funding/credit
problems

Lender friendly terms and conditions have reappeared during this recent market turbulence Market flex, unseen in the infrastructure bank market over the past several 24 months, has returned Leverage has also been reduced as pricing has widened approx 25-50 bps (depending on asset and structure) Other deal terms / covenants have become less aggressive as banks focus on pushing deals through syndication

The pull back in the bank market has opened the door for more capital markets financings
The investment grade market has remained relatively robust and open in contrast to many other markets 2007 was a record issuance year with over $978bn of financing Bank market financings may no longer be as attractive Transactions are getting bigger in size and require market capacity which may exceed that of the bank market Sponsors increasingly trending to matching assets long-term cash flows to long-term financings to capture full value

Though financings are now structured tighter and spreads have widened; all-in cost of funding remains at attractive levels
given the drop in benchmark treasury rates

1 Source: Infrastructure Journal Online; Infrastructure to include oil and gas, power, telecom, transport, etc. 2 Source: GS Estimates.

21

Economic Considerations:
Rates In Perspective

Treasury Yields since 2005

5.50%

Treasury Yield (%)

5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 3yr 5yr 10yr 30yr

Swap Rates since 2005

6.00% 5.50%

Swap Rates (%)

5.00% 4.50% 4.00% 3.50% 3.00% Jan-05 3yr 5yr 10yr 30yr

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08
22

Source: GS Internal, as of January 31, 2008

Bond Insurer Market Update

Rating Agency and Company Actions Summary Announced through January 31, 2008
Company MBIA Net Par Outstanding
$673

AAA 5yr CDS

435

Equity Market Cap.

$1,944

Rating Agency Actions to Date S&P AAA on Credit Watch

Negative (Jan 31)

Moodys Aaa on Review for

Possible Downgrade (Jan 17)

Fitch AAA ratings affirmed; removed

from Ratings Watch Negative (Jan 16)

Additional Market Color / Capital Raisings $1.0bn capital raise from Warburg Pincus (Dec 10) $1.0bn AA surplus notes (Jan 9) Potentially considering additional capital raise after
$2.3bn 4Q07 loss

Ambac

$556

430

1,182

AAA on Credit Watch

Negative (Jan 18)

Aaa on Review for

Possible Downgrade (Jan 16)

Downgraded from AAA to AA on

Ratings Watch Negative (Jan 18)

Gave up plans to raise $1bn of capital (Jan 18) $5.4bn pre-tax mark-to-market loss for quarter
ended Dec 31, 2007

67% common share dividend cut FSA

$414 185 NA

AAA with Stable Outlook

(Jan 17)

Aaa with Stable Outlook

(Dec 14)

AAA ratings affirmed following

review of subprime exposures (Jan 24)

None to date Relatively favorable market sentiment due to

ownership by Dexia

FGIC

$315

1,100

NA

Downgraded to AA on
Credit Watch Developing (Jan 31)

Aaa on Review for

Possible Downgrade (Dec 14)

Downgraded to AA from AAA

(Jan 30)

Potentially seeking to raise additional capital Parent Blackstone may write down part of
investment

Radian

$113

841

734

AA with Stable Outlook (Jan

17)

Aa3 with Stable Outlook

(Dec 14)

2 notch downgrade to A+ with

Ratings Watch Evolving (Sept 5)

None to date

CIFG

$91

NA

NA

AAA with Negative Outlook

(Jan 17)

Aaa with Negative Outlook

(Dec 14)

AAA with Stable Outlook (Nov 22)

Parents CNCE and BFBP injected $1.5bn of capital

Assured Guaranty

$83

250

1,881

AAA with Stable Outlook

(Jan 17)

Aaa with Stable Outlook

(Dec 14)

AAA with Stable Outlook (Dec 12)

$300mm common equity follow-on offering (priced

Dec 17) to support reinsurance transaction with Ambac

ACA

$674

NA

26

Downgraded to CCC from

A and placed on Credit Watch Developing (Dec 19)

Not rated

Not rated

Currently working to develop a permanent solution

to stabilize its capital position

XL Capital Assurance (SCA)

$41

870

206

AAA on Credit Watch

Negative (Jan 31)

Aaa on Review for

Possible Downgrade (Dec 14)

Downgraded to A from AAA on

Ratings Watch Negative (Jan 24)

None to date

1 $ billions; As of September 30, 2007. 2 Source: Goldman Sachs estimates; as of January 30, 2008. 3 Source: Bloomberg; $ millions, as of January 31, 2008, market close. 4 Includes Corporate and Asset-backed obligations under Structured Credit exposures.

23

Monoline Insurers

Before the credit crunch, monoline insurers seemed to be making headway in wrapping newer types of transactions (e.g.,
bank debt, Canadian infrastructure) and were anticipating an increase in wrapped infrastructure capital markets transactions

Given the declining level of confidence in the monoline industry, investors seem increasingly weary of wrapped transactions
at this moment, and are waiting for the situation to play out Monoline 5-yr CDS Spreads1
1600

MBIA
1400 1200 1000 (bps)
Mean Since 1-Jun-07 Max Since 1-Jun-07 Min Since 1-Jun-07 Current Spread 177.1 700.0 23.0 435.0

Ambac
198.7 700.0 14.0 430.0

FGIC
340.9 1490.0 14.0 1100.0

FSA
66.8 250.0 13.0 185.0

Assured
135.4 325.0 20.0 250.0

SCA
321.0 1500.0 15.2 870.0

1100 870
800 600

435
400 200 0 Jun-07 MBIA
1 Source: Goldman Sachs; as of January 30, 2008.

430 250 185

Jul-07 Aug-07 Ambac Sep-07 FGIC Oct-07 FSA Nov-07 Dec-07 Assured Guaranty Jan-08 SCA

24

Disclaimer

This material has been prepared by personnel in the Investment Banking Division of one or more affiliates of The Goldman Sachs Group, Inc. ("Goldman
Sachs") and is not the product of the Global Investment Research Department. It is not a research report and is not intended as such. The information contained herein has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy. The materials should not be relied upon for the maintenance of your books and records or for any tax, accounting, legal or other purposes. This information may not be forwarded or provided by you to any other person

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Copyright 2008, The Goldman Sachs Group, Inc. All rights reserved

25

Infrastructure Finance
Ian Dixon, Managing Director, Ambac Assurance UK Ltd. (Moderator) Nicholas Hann, Managing Director, Macquarie North America Ltd. Hadley Peer Marshall, Vice President, Goldman Sachs & Co. Bart Oosterveld, Senior Vice President, Moodys Investors Service

Infrastructure Finance Analysis in an Uncertain Market

Presentation to the American Securitization Forum, February, 2008 Bart Oosterveld, SVP and Chief Credit Officer Global Project Finance

Agenda

1. 2. 3. 4. 4. 5.

Moodys Global Project Finance team Volume, Rating Distribution Key Credit Factors Outlook for 2008 Methodologies and Other Initiatives for 2008 Contacts

Moodys Global Infrastructure and Project Finance Team

1. 2. 3. 4. 5. 6. Moodys Global Project Finance team Volume, Rating Distribution Key Credit Factors Outlook for 2008 Methodologies and Other Initiatives for 2008 Contacts

Established December, 2006, under Group Managing Director Tom Keller Cross-disciplinary group, staffed by analysts from across Moodys, recognizes the value of bringing the analysis of projects together with a single group of methodologies and approaches New PPP/PFI/P3 methodologies published by group in December, 2007

Project Finance Volume Grew through 2007

Published Project Finance Ratings

35

Debt Volume ($ Billions)

30 25 20 15 10 5 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Global Project Finance Rating Distribution

Rating Distribution: Project Finance Underlying Ratings 35% 30% 25% 20% 15% 10% 5% 0%
B aa 1 B aa 2 B aa 3 B a2 B a3 B a1 B 1 B B 2 3, be lo w A a2 A a3 A 1 A 2 A 3

Rating Distribution
1. 2. 3. 4. 5. 6. Moodys Global Project Finance team Volume, Rating Distribution Key Credit Factors Outlook for 2008 Methodologies and Other Initiatives for 2008 Contacts

Comments on Rating Distribution

Overall distribution for project finance reflects market practice of structuring to low investment grade ratings; Significant exceptions: higher ratings for e.g. airports/toll roads with moderate leverage and track record of traffic growth;

highly-rated and contractually committed off-takers in power projects, PPP also a factor in higher ratings;

power project distribution reflects market for more leveraged Ba3/B1 rated projects.

Key Credit Factors

1. 2. 3. 4. 5. 6. Moodys Global Project Finance team Volume, Rating Distribution Key Credit Factors Outlook for 2008 Methodologies and Other Initiatives for 2008 Contacts

Key Credit Factors

Construction Single Asset Price/Demand/Volume Risk Regulation Contracts Operating/Technology Risk Financial Metrics Covenants/Reserves

Outlook for 2008

1. 2. 3. 4. 5. 6. Moodys Global Project Finance team Volume, Rating Distribution Key Credit Factors Outlook for 2008 Methodologies and Other Initiatives for 2008 Contacts

Observations on Project Finance Credit

Overwhelming majority of project finance outlooks are stable Structures generally designed to withstand range of macro-economic scenarios Pressures due to credit position of monolines Pressure for thinly-structured, demanddependent, transactions

Outlook for 2008

1. 2. 3. 4. 5. 6. Moodys Global Project Finance team Volume, Rating Distribution Key Credit Factors Outlook for 2008 Methodologies and Other Initiatives for 2008 Contacts

Project Finance Transactions in Current Market

Pressure to loosen credit protections (debt service reserve, restrictive covenants) has diminished Pressure on the monolines clouds outlook for 2008 volume Market remains open for properly structured transactions Expect fewer hybrid financings or financings that stretch the meaning of the word infrastructure

2008: Implementation of New P3 Methodologies

1. 2. 3. 4. 5. 6. Moodys Global Project Finance team Volume, Rating Distribution Key Credit Factors Outlook for 2008 Methodologies and Other Initiatives for 2008 Contacts

In December, we published the final rating methodologies for the analysis of construction and operating period risk in PPP transactions Simultaneously with the release of the methodologies, we placed 17 credits under review (14 up, 3 down) Review process to be concluded in March

2008: Methodologies
1. 2. 3. 4. 5. 6. Moodys Global Project Finance team Volume, Rating Distribution Key Credit Factors Outlook for 2008 Methodologies and Other Initiatives for 2008 Contacts

Global methodologies for the major areas of project and infrastructure finance are either in place or under development Working groups composed of analysts from all relevant jurisdictions Given rate of innovation, constant monitoring of performance/shelf life of methodologies is warranted Airport and Power Project methodologies anticipated to be published soon General project finance methodology anticipated for Q2

Project Finance Contacts

Americas: Chee Mee Hu cheemee.hu@moodys.com Asia: Terry Fanous terry.fanous@moodys.com EMEA: Andrew Davison andrew.davison@moodys.com Group Managing Director: Tom Keller thomas.keller@moodys.com Chief Credit Officer: Bart Oosterveld bart.oosterveld@moodys.com

Infrastructure Finance
Ian Dixon, Managing Director, Ambac Assurance UK Ltd. (Moderator) Nicholas Hann, Managing Director, Macquarie North America Ltd. Hadley Peer Marshall, Vice President, Goldman Sachs & Co. Bart Oosterveld, Senior Vice President, Moodys Investors Service