DPS 2011 Certificates of Participation

Transaction Overview

February 14, 2011

1
Table of Contents

I. Transaction Context

II. Proposed 2011 Refinancing: Issues and Options

III. Development of the 2011 Plan of Finance

Appendix A: Comparison of Risk Profiles
Appendix B: Transaction Participants
Appendix C: Annual Lease Payment Profile

Appendix D: Current Municipal Market Environment

Appendix E: Glossary

2
I. Transaction Context

3
DPS Pension Funding Overview

 DPS‘ defined benefit pension obligation constitutes the largest ongoing liability of the District, and is critical to attracting and
retaining teachers
— On an annual basis, DPS funded the Denver Public Schools Retirement System (―DPSRS‖), including the normal
contribution assumed each year, plus an amount necessary to fund the Unfunded Actuarial Accrued Liability (―UAAL‖) at
an interest rate of 8.50% based upon the assumed investment return of the plan.
— Annual gains and losses in the invested DPSRS assets impact this annual funding cost over time, and either increase or
decrease the funding requirement
 Since 1997, Certificates of Participation (―COPs‖ or ―Certificates‖) have been issued for pension funding purposes to manage
and reduce the DPSRS‘ funding cost
— Issuance of COPs for pension funding has enabled DPS to reduce its annual UAAL funding cost by reducing the interest
cost applicable to UAAL funding to below the 8.50% actuarial hurdle rate
— The COPS have been issued as both fixed rate and synthetic fixed rate obligations
— Synthetic fixed rate obligations have been utilized to achieve lower funding costs than the long-term fixed rate taxable
markets, which can be relatively illiquid for municipal issuers

— 2008 COPs issued to fully fund the then-UAAL of DSPRS

 The COPs have been issued through the Denver School Facilities Leasing Corporation (―the Leasing Corp‖) using a lease
structure, as follows:
— DPS assets (buildings) were transferred to and leased back from the Leasing Corp
— Pursuant to the lease, DPS pays rent to the Leasing Corp through annual appropriations
— The Leasing Corp passes along the annual appropriations to the Trustee to pay periodic interest and principal costs on
the COPs

4
Issuance of the 2008 COPs

 In April 2008, $750mm of COPs were issued to provide a number of anticipated benefits to DPS:
— Fully fund the then-current UAAL, enabling a merger with PERA and improving DPS‘ ability to retain and attract staff
— Reduce annual pension expenses by replacing the then-unfunded liability which was accruing at an actuarially required
8.50% interest rate with the COPs interest cost, which was anticipated at the time to be approximately 6.00%
— Provide cashflow relief by refunding and restructuring some of the outstanding 1997, 2005A and 2005B COPs

 The 2008 COPs were structured as taxable synthetic-fixed rate obligations

— Synthetic fixed rate obligations are created by coupling variable rate demand obligations (―VRDOs‖) with interest rate
swaps
— The interest rate on the taxable VRDOs is reset weekly and generally sets around the LIBOR index
— This variable rate is swapped to a fixed rate through an interest rate swap to create a ―synthetic‖ fixed rate
— DPS pays its three swap counterparties a fixed rate of 4.859% and receives 100% of LIBOR

 Assured Guaranty Municipal (―AGM‖) insures the principal and interest payments on the Certificates

 Dexia provides liquidity on the VRDOs through a standby facility that expires in April 2011

2008 COP Structure

4.859% Fixed
Rate
Existing Swap
Counterparties

LIBOR

Variable Rate:
~ LIBOR
+/- Trading Spread
+ Support Costs

Dexia and AG
2008A & B
Liquidity/Credit
PCOPs
Support

5
Economics of the 2008 COPs

 The turmoil in the world capital markets significantly affected the performance of the 2008 COPs
— At the time of the 2008 transaction, the synthetically fixed structure had an expected interest cost of
approximately 6.00%, including ongoing fees

— The underwriters of the 2008 Certificates estimated that a ―traditional‖ fixed rate transaction would have carried
an interest rate of approximately 7.25% at the time

 Subsequent to entering into the 2008 transaction in April 2008:

— Ongoing cost of Dexia liquidity facility increased from 37.5bp to 67.5bp when AGM (FSA at the time) was
downgraded by Moody‘s to Aa3 from AAA
— Interest cost on VRDOs increased above its anticipated trading levels beginning with the market collapse in
September 2008 through June 2009

 To date, interest expense as a result of the 2008 transaction has been approximately $30mn below the cost
relative to paying interest on the UAAL to the pension plan
Performance of 2008 Synthetic Fixed COPs Since Inception

12.0 Estimated Cost of Swap Rate Liquidity and Bank Interest

Issuing Fixed Rate Remarketing Fees Variable Basis
10.0 COPs in April 2008
Pension Plan Interest Cost on UAAL
8.0
6.0
4.0
2.0
-

Source: Denver Public Schools

6
Economics of the 2008 COPs
(Continued)

Breakdown of Average Annual Costs (%)

FY 07-08 FY 08-09 FY 09-10 FY 10-11 Total to Date
Swap Payments 4.859% 4.859% 4.859% 4.859% 4.859%
Liquidity Fee/ Bank Interest 1.618% .0729% 0.709% 1.055%
Remarketing Fee .0980% 0.096% 0.097% 0.091%
VRDO spread above LIBOR 0.410% 1.965% 0.416% 0.156% 0.948%
Total Actual Cost (%) 5.272% 8.540% 6.101% 5.821% 6.953%

Breakdown of Average Annual Costs ($)

FY 07-08 FY 08-09 FY 09-10 FY 10-11 Total to Date
Swap Payments $5,263,917 $36,341,721 $36,442,500 $18,221,250 $96,268,938
Liquidity Fee/ Bank Interest 12,667,802 5,470,059 1,358,960 19,496,821
Remarketing Fee 734,736 720,000 136,960 1,590,855
VRDO spread above LIBOR 516,757 14,737,082 3,121,958 585,628 18,961,425
Total Actual Cost ($) 5,780,674 64,480,082 45,754,518 20,301,947 136,318,038
Cost at 7.25% Fixed Rate 9,062,500 54,375,000 54,375,000 27,187,500 145,000,000
UAAL and COPs Costs if 08
COPs had not been issued 10,509,654 63,258,621 64,342,892 47,620,097 170,282,614
Note Fiscal Years Begin 7/1; FY07-08 and FY10-11 are partial years;
Source: Denver Public Schools

7
II. Proposed 2011 Refinancing: Issues and Options

8
The Liquidity Facility on the 2008 COPs is Expiring

 The Dexia liquidity facility expires in April 2011 and Dexia has stated it will not renew its facility
— DPS must find alternative bank support to maintain the VRDO structure or convert obligations to a fixed rate
— VRDO/synthetic fixed rate funding structure remains an attractive funding option relative to fixed rate cost

 Changes in the market since September 2008 have decreased availability of credit support, and increased costs
— This has affected DPS‘ ability to replace the full amount of its original $750mm Dexia facility; it does not appear
that $750mm of liquidity is currently available at a reasonable cost or acceptable terms

 Key considerations in structuring the 2011 transaction plan of financing:

— Availability of credit support to replace Dexia and retain lower-cost VRDO structure
— Decision of DPS to continue to accept ongoing transaction risks of VRDO/synthetic fixed rate structure
compared to higher annual lease payment costs of fixed rate alternative

 The pending plan for the 2011 restructuring contemplates the utilization of both VRDO/synthetic fixed-rate
obligations and the conversion of a portion of the 2008 COP obligations to a fixed-rate
— Maximum amount of VRDOs/synthetic fixed rate will be limited by amount of LOC availability
— The portions of the swaps associated with the 2008 COPs to be converted to a fixed-rate will need to be
terminated
— The current mark-to-market on the swaps (―MTM‖) would be paid by the District to those swap providers to
terminate the swaps

9
Variable Rate Demand Obligation Economics and Risks

 Economics of synthetic fixed rate VRDOs are based on numerous factors

— LOC fees (which can increase based on certain conditions, including a downgrade of DPS or AGM)
— Remarketing fees (paid to dealers to remarket the Certificates on a weekly basis)
— Difference between floating rate received on swap and floating rate paid on VRDOs (―basis trading variations‖)
 Future costs can increase when the LOCs expire (expected expiration of 2011 LOCs is in 3 years)
— No guaranty of being able to obtain renewals or replacement LOCs
— Failure to renew or obtain replacement LOCs would result in DPS having to convert COPs to a fixed rate and
pay associated swap termination costs under then-current market conditions
 Costs can also increase during the three-year LOC period for numerous reasons, including but not limited to:
— Changes in the perception of either DPS‘ or LOC banks‘ credit could impact VRDO trading levels
— Change in market acceptance of COP structure or overall market disruption could impact VRDO trading levels
— Downgrade of DPS credit could result in higher LOC fees
— Failed remarketing could trigger a requirement to fix out COPs or result in Bank Bonds at a high interest rate
— Downgrade of AGM below Aa3/AA- could result in higher LOC fees and/or requirement to cash-fund a DSRF
— Increased capital reserve requirements for banks triggered by Basel III could result in higher LOC fees
1
Original Projections Current 2008 COPs Projected 2011 VRDOs
DPS Pays on Swap 4.859% 4.859% 4.859%
DPS Receives on Swap 1m LIBOR 1m LIBOR 1m LIBOR
DPS Pays on VRDOs 1m LIBOR +~0.20% 1m LIBOR +~0.20% 1m LIBOR +~0.20%
Wtd. Avg Remarketing Fees 0.100% 0.100% 0.125%
Ongoing Liquidity Fees 0.375% 0.675% 1.250%
Total Rate ~-6.00% ~5.85% ~6.45%
1
Indicative only. Does not include amortized costs of any upfront fees, including 10bp fee to LOC banks or takedowns, counsel fees, or other costs of issuance. Assumes LOCs at 125bp
through maturity, 20bp trading spread between VRDOs and swap receipt,12.5bp ongoing remarketing fees; Actual amounts and rates could vary materially.

10
Role and Management of Interest Rate Swaps

 ―Fixed Payor‖ Swaps are integral element of creating synthetic fixed rate obligations
— Savings derive from illiquidity of market for long-term, fixed rate municipal obligations and from ―exchanging‖ DPS for
bank credit risk for 3 years at a time, compared to selling DPS credit risk to investors for 30 years
— Funding in VRDO market and swapping to fixed provides lower cost access to funds, but requires DPS to accept and
manage transaction risks

 Swaps act as natural hedge against movements in Treasury yield curve, reducing the interest rate risk of fixed rate
conversion
— If interest rates rise significantly, swap dealers would owe MTM payment to DPS, reducing effective fixed rate cost
— If interest rates fall significantly, DPS would owe MTM payment to swap dealers, increasing effective fixed rate cost
— Therefore, the effect of the swap hedge is to limit ability of DPS to benefit from low interest rates at time of
conversion to fixed rate, and limit DPS exposure to high interest rates at time of a conversion to fixed rate
— The swap does not hedge or limit the impact of changes in municipal credit spreads (i.e. the cost to sell DPS
appropriation risk to investors for the full term or maturity of COPs)

 Swaps do entail a number of risks:

— Swap counterparty credit or default event risk
— Mark-to-market termination risk
— Management of swap risks can be facilitated through adoption of swap policy as part of overall debt and lease
obligation management policies

11
Fixed Rate Economics and Risk

 The cost of a fixed rate restructuring depends on the cost to terminate swaps and the cost to issue fixed rate COPs

 ―Mark-to-Market‖ termination cost is source of ―headline risk‖ related to swap transactions

— MTM reflects market value of swap on a daily basis: If market swap yields drop below fixed pay swap rate, MTM is
positive (owed by DPS to counterparty), If market swap yields rise above fixed pay swap rate, MTM is negative (owed by
counterparty to DPS)
— MTM is based on prevailing 20year LIBOR swap rates (the average life of DPS‘ swaps), not 1 month LIBOR

 The cost of issuing fixed rate Certificates is based on 10yr and 30yr Treasury benchmark rates plus credit spreads
— As Treasury rates rises, the benchmark cost of issuing fixed rises; as Treasury rates fall, the benchmark cost of fixed falls
— As credit spread rises, the cost to issue rises, and as credit spreads fall, the cost to issue fixed also falls

 DPS‘ interest rate swaps serve as a hedge against movements in Treasury rates
— Swap and Treasury rates tend to move together and the impact of an increase in the termination payment (due to a
decline in rates) is generally offset by a reduction in the benchmark cost of issuing fixed rate obligations

 Given the moving relationships between swaps rates, Treasury rates and credit spreads, there may be times in the future
which are more economically advantageous to the District to convert the obligations to fixed rate compared to today

Fixed Rate Conversion Impact on Fixed Rate Conversion Impact on Fixed Rate Conversion
Pricing Components Costs if Benchmark Rises Costs if Benchmark Falls
20 Year LIBOR Swap Rates Down Up
10 Year and 30 Year UST Rates Up Down
DPS Taxable Lease Appropriation Credit Spreads Up Down
1
Net Impact Largely Driven by Credit Spreads Largely Driven by Credit Spreads

1
The impact of a 1 basis point change in 20yr swap rates is more than the impact of a 1 basis point change in US Treasury rates due to the swap MTM being
discounted at swap yields, which are lower than the fixed COP rate; Net impact depends on magnitude of movements of all three components

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The All-in Economics of a Fixed Rate Conversion Depend
on Prevailing Rates and Credit Spreads
Assumes 100% Fixed with Full Cash-Funded Reserve Fund ($Mn)

The table to the right depicts Change in Long-Term Taxable Rates

the sensitivity of the fixed rate -100 bps -50 bps 0 bps +50 bps +100 bps
conversion to movements in Par Amount 1,034.7 966.5 904.7 847.6 795.7

+100 bps
rates and credit spreads Swap Termination 172.7 111.8 56.5 5.5 -40.8
Total Interest Cost (TIC) 9.82% 9.71% 9.59% 9.46% 9.32%
TIC w/out Swap
 Long-term US Treasury rates 7.82% 8.34% 8.85% 9.36% 9.87%

are generally hedged by DPS‘

Par Amount 1,034.7 966.5 904.7 847.6 795.7

Change in Taxable Municipal Credit Spreads

existing interest rate swaps

+50 bps
Swap Termination 172.7 111.8 56.5 5.5 -40.8
— As can be seen across the Total Interest Cost (TIC) 9.24% 9.15% 9.06% 8.95% 8.83%
rows, the TIC does not move TIC w/out Swap 7.32% 7.83% 8.34% 8.85% 9.36%
significantly based on
interest rate moves alone Par Amount 1,034.7 966.5 904.7 847.6 795.7
— That‘s because increases
+0 bps
Swap Termination 172.7 111.8 56.5 5.5 -40.8
(and declines) in US Total Interest Cost (TIC) 8.66% 8.60% 8.52% 8.43% 8.34%
Treasury rates (which serve TIC w/out Swap 6.81% 7.32% 7.83% 8.34% 8.86%
as a benchmark for the fixed
rate COP pricing) are largely Par Amount 1,031.0 966.5 904.7 847.6 795.7
offset by declines (and rises)
-50 bps

Swap Termination 172.7 111.8 56.5 5.5 -40.8

in the swap MTM or Total Interest Cost (TIC) 8.09% 8.04% 7.99% 7.92% 7.85%
termination cost TIC w/out Swap 6.30% 6.81% 7.32% 7.83% 8.35%

 Consequently, credit spreads Par Amount 1,026.9 963.9 904.7 847.6 795.7
have a much larger impact on
-100 bps

Swap Termination 172.7 111.8 56.5 5.5 -40.8

the cost of a fixed rate
Total Interest Cost (TIC) 7.52% 7.49% 7.46% 7.41% 7.35%
conversion
TIC w/out Swap 5.79% 6.30% 6.81% 7.32% 7.84%

Note: Based on Market Conditions as of February 7, 2011

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Estimated Historical Fixed Rate Economics

Changes in Credit Spreads Largely Drive the TIC of Converting the 2008 COPs to a Fixed Rate,
as Treasury Rates are Generally Hedged by the Interest Rate Swaps
Estimated Historical Fixed Rate Economics
11.00% 250
Estimated Credit Spreads Estimated TIC
10.00%
Current Fixed
30y UST Estimated Swap MTM Rate TIC: 8.50%
9.00%
200
Estimated Credit Spreads and TIC (%)

8.00%

Swap MTM ($ Millions)

7.00%
150
6.00%

5.00%
100
4.00%

3.00%

50
2.00% Current Swap
MTM: $56.5mn
1.00%

0.00% 0

Note; Estimates only,, particularly credit spread estimates prior to September 2009

14
Historical Treasury Rates, Swap Rates and Credit Spreads
Fixed rate financing costs are driven by the net movements between Swap and Treasury rates (bottom left)
and credit spreads (bottom right)
US Treasuries 20yr LIBOR Swap Rates

5.50 5.50

5.00 5.00

4.50 4.50

4.00 4.00

3.50 3.50

3.00 3.00 20y Swaps (%)

UST 10 (%) 2.50
2.50
UST 30 (%)
2.00 2.00

Swap Rates – UST Rates Municipal Credit Spreads

150
400
Improved MCDX (Municipal Investment Grade 10yr CDS)
100 economics for 350
DPS (Swap rates 300
50 above UST rates)
250
0 200
150
-50
100
-100 50
20y Swaps - UST30 (bps)
-150 0

15
III. Development of the 2011 Plan of Finance

16
Plan of Finance Objective: Reduce Risks and Manage Costs

 The proposed plan of finance seeks to reduce risk to DPS while managing overall costs to minimize budget impact

1. Use available LOC capacity to refinance portion of the 2008 COPs with VRDOs:
— Provides lowest annual cost, while retaining current risks
2. Fix out the balance of the 2008 COPs and terminate associated swaps
— Eliminates risks on those COPs, but at a higher cost

VRDOs: Series 2011A Fixed Rate: Series 2011B

 Refund estimated $370-500 million of the 2008
COPs with 2011A Variable Rate Certificates
 Replace Dexia facility with LOCs from three banks
— Diversify bank-related risks
— Lower costs with 125bps LOC fee compared to
higher costs in fixed rate market
 Retain AGM insurance policies for reserve fund,
swap and COPs
 Do not need to fund a Certificate Reserve Fund
unless AGM is downgraded further
 Retain swap, bank, credit and other risks on this
portion of financing
 Fix out balance of the 2008 COPs
 On this portion, eliminate risks, including:
— COP market event risk
— Bank renewal of the facility upon expiration
— Bank credit deterioration
— Swap counterparty and termination risk
— Basis trading risk on COPs vs. swaps
— Market disruption/access risk
— AGM downgrade risk
— DPS credit deterioration
 Swap termination costs increase transaction size,
or renegotiate swaps to fund termination over time
 Certificate Reserve Fund, if required, will increase
transaction size

17
Summary of Comparative Costs and Risks
$000’s
Rates as of February 7, 2011

2011A: 2011B: Combined Series

$375mm - $500mm $456 -$306mm 2011A & 2011B
VRDOs Fixed Rate Transaction

Par Amount $375,000 - $500,000 $455,610 - $305,605 $830,610 - $805,605

1
Projected All-in TIC 6.43% - 6.43% 8.54% - 8.55% 7.56% - 7.20%
2
Certificate Reserve Fund N/A $42.561 - $30,561 $42,561 - $30,561
Swap Termination Payment N/A $28,270 - $18,847 $28,270 - $18,847
3
Avg. Annual Lease Payments FY2012-FY2017 $23,845 - $31,793 $34,798 - $23,309 $58,643 - $55,102
2
Avg. Annual Lease Payments After FY2017 $33,148 - $44,197 $44,926 - $29,961 $78,073 - $74,157
2
Max Annual Lease Payments $35,532 - $47,381 $48,590 - $31,679 $84,122 - $79,060
Post Refinancing Remaining Risks:
COP Market Risk

Bank Renewal Risk

Bank Credit Risk

Swap Counterparty Risk

Basis Risk

Market Disruption/Access
4
Assured Guaranty Downgrade Risk

DPS Credit Risk

Remaining Swap MTM after Refinancing $28,270-$37,693 $0 $28,270-$37,693

Remaining Swap MTM Sensitivity after Refinancing $515,000 - $687,000/bp $0 $515,000 - $687,000/bp

1
Assumes all on-going VRDO costs (125bp LOC fees, 12.5bp remarketing fees, 10-20bp trading spread, 4.859% swap rate) remain in place and no puts to banks; any change can materially impact costs
2
Assumes cash-funded Certificate Reserve Fund at inception for fixed rate COPs at the lesser of MADS, 10% of par, and 125% of average annual lease payments; make-whole call.
3
For fixed rate bonds, includes earnings on reserve fund at the 2-year UST rate
4
Assured Guaranty downgrade would trigger requirement for a cash-funded reserve fund on VRDO and could also trigger a mandatory tender and remarketing of Certificates

18
Additional Considerations

Fixed Rate COPs and Synthetically Fixed Rate VRDOs may include a “Make-Whole” Call (or its equivalent)
 Fixed Rate COPS
— Taxable fixed rate investors charge a substantial premium for par call options
— Fixed rate taxable COPs would carry lower costs with a make-whole call rather than a par call
— A make-whole call would allow the COPs to be called at market – i.e. by making investors ―whole‖ based on prevailing
interest rates
— The make-whole call price consists of the minimum of:
The present value of expected future cash flows discounted at prevailing US Treasuries plus a pre-determined spread,
The par amount of outstanding COPs
— The net impact of a make-whole call is that the fixed rate COPs cannot be called for economic savings

 VRDOs with Interest Rate Swap

— The VRDOs can be called at any time at par
— However, terminating the associated swaps entails making (or receiving) a termination payment based on prevailing
market rates (as reflected by the mark-to-market value of the swap)
— This is effectively equivalent to the ‗make-whole‘ call contemplated on fixed rate COPs, but in a swap termination the
District could receive a payment if rates have increased enough, while fixed rate COPS cannot be called for less than par

Increase in Lease Pool to Accommodate GO Bond Proceed Expenditures

 The proposed 2011 financing will include additional buildings in the leased pool as GO bond proceeds have been expended
on nearly all District buildings, including those in the existing 2008 leases
— In the case of an event of default, COP investors will be required to transfer to the District moneys received from a re-
letting of the buildings (up to the amount of expended GO bond proceeds outstanding) before they recoup any losses
— Willingness of fixed rate investors to support such a structure is untested in the market

19
Overview of Proposed Transaction Process and Timeline

Step 1: Procurement of professional services (Nov – Jan) Step 5: Mail Offering Documents (Mid-March)
 Conducted by DPS with assistance of financial advisor  Offering documents are provided to investors
 Includes procurement and negotiation of bank letters of  Documents are posted online through an electronic
credit distribution

Step 2: Preparation of Documents (Feb – March) Step 6: Marketing (Late March)

 Led by various counsels, with input from all parties  Typically 1 to 2 weeks, led by the underwriters
 DPS, Financial Advisor and Underwriters continue to  Will include an investor presentation by the District
evaluate various structures and refine the plan of finance posted online for investors
 Ongoing dialogue with Finance and Audit Committee
Step 3: Initiate Dialogue with Rating Agencies (Early March) Step 7: Pricing (Late March/Early April)
 This will include near final financing documents  Underwriters take orders from investors
 Meetings or calls typically follow in 1 to 2 weeks  Pricing negotiated for the purchase of COPs by the
 Ratings typically follow 2 to 3 weeks after meetings Underwriters
 Ongoing dialogue with Finance and Audit Committee  Fixed rate pricing in 1 day or 2 days; VRDOs in 1 day
Step 4: Board Approval of Transaction (Mid-March) Step 8: Closing (Early – Mid-April)
 Board reviews financing plan, terms, economics and  Documents are finalized with results of sale
potential risks  Funds wired to trustee to refinance existing COPs, new
 Board approval includes documents and parameters COPs sold to underwriters
approval  Post transaction review by Finance and Audit
Committee
Step 9: Transaction Review (Mid-April)
Review results of transaction with Board

20
Appendix A: Comparison of Risk Profiles

21
Comparison of Risk Profiles

Exists in 2008 Exists in Synthetic Exists in

Synthetically Fixed Variable Rate Fixed Rate
Description Fixed POCPs? 2011A COPs? 2011B COPs?
Committed Funding through Maturity No No Yes
 Funding committed through maturity (2037)

Bank Renewal Risk Yes Yes No

 Ability to renew or replace LOCs at expiration Mitigated in part by having
 Pricing for renewal or replacement three banks
 Basel III impacts on bank capacity

Bank Credit Risk Yes Yes No

 Perceived credit-worthiness of LOC banks Mitigated in part by having
could impact VRDO trading levels three banks, creating
 Downgrade of bank ratings may result in puts diversity in credit exposure

DPS Credit Risk Yes Yes No

 Perceived credit-worthiness of DPS could
impact VRDO trading levels
 Downgrade of DPS ratings would result in
increased LOC fees

22
Comparison of Risk Profiles
(Continued)

Exists in 2008 Exists in Synthetic Exists in

Synthetically Fixed Variable Rate Fixed Rate
Description Fixed POCPs? 2011A COPs? 2011B COPs?
Market Disruption Risk Yes Yes No
 Disruption of VRDO market or DPS VRDOs Existing terms differ
specifically for any reason at any time could based on Dexia
result in COPs tendered to banks standby purchase
 Unreimbursed draws on banks accrue interest agreement
at high rates
 90-day window to fix out COPs begins after 30
days of failed remarketings

COP Sector/Legislative Risk Yes Yes No

 Perceived viability of COP structure could
impact VRDO trading levels/ market access to
fix out in future

Swap Basis Risk Yes Yes No

 Floating rate received on swap (1m LIBOR,
driven by inter-bank lending rates) could be less
than floating rate paid on VRDOs (market-
based, driven by numerous factors)

Assured Guaranty Downgrade Risk Yes Yes Partial

 Downgrade of AGM ratings by both rating AGM downgrade Mitigated in part by LOCs; If surety policy is retained,
agencies could result in higher LOC fees and triggers mandatory however, downgrade would downgrade of AGM could
mandatory tender put and inability for result in higher LOC fees or trigger requirement to
 Downgrade of AGM ratings would trigger money market funds requirement to fund DSRF cash-fund DSRF
requirement to cash fund a DSRF to purchase VRDOs

23
Comparison of Risk Profiles
(Continued)

Exists in 2008 Exists in Synthetic Exists in

Synthetically Fixed Variable Rate Fixed Rate
Description Fixed POCPs? 2011A COPs? 2011B COPs?
Swap Termination Risk Yes Yes No
 Swap could be terminated at a time when a
large MTM is owed by the District
 Termination events include combined
downgrade of Assured Guaranty and event of
default by DPS (non-appropriation)
 Bankruptcy of swap counterparties could also
result in termination and payment owed by DPS
depending on prevailing rates

Release or Substitution of Leased Property Pre-authorized Pre-authorized release Pre-authorized release

release schedule with schedule with minimum schedule with minimum
 Ability to release or substitute leased property
minimum principal principal amortization principal amortization
securing Certificate holders
amortization requirements requirements
requirements
Substitution of properties Substitution of properties
Substitution of subject to certification of Net subject to certification of
properties subject to Value, useful life, Net Value, useful life,
insurer approval essentiality, title insurance essentiality, title insurance
and other conditions and other conditions
including bank approval

Call Option VRDOs callable any VRDOs callable any time at COPs callable at a make-
time at par; Swap par; Swap callable at market whole price (i.e. DPS pays
Ability to call structure prior to maturity
callable at market (pay/receive MTM) minimum of par and a
(pay/receive MTM) spread to prevailing UST)

24
Appendix B: Transaction Participants

25
Transaction Participants

Issuer  Leases school buildings to the District pursuant to a lease in return for annual rent
Denver School Facilities Leasing  Raises proceeds from investors through the issuance of Certificates of Participation
Corp (―COPs‖) and passes on annual rent payments from the District to those investors

 School District No. 1, in the City and County of Denver and State of Colorado
Lessee
 Sells school buildings to the Leasing Corp in exchange for proceeds; leases
Denver Public Schools buildings back from the Leasing Corp and pays annual rent

 Prepares principal transaction documents (lease and indenture)

Bond Counsel
 Provides opinion that the COPs are legal, valid and binding
Kutak Rock  Reviews entirety of transaction and documents for completeness

Financial Advisors  Provides advice to the District on all financing matters

Fiscal Strategies Group
 Financial reform requires SEC registration and fiduciary duty to issuer
Magus

 Purchase COPs from the issuer in an arms-length relationship

Underwriters  Market and sell COPs to investors
Goldman Sachs & Co  Provide structuring and other market-related color regarding the transaction
JP Morgan
 Not a financial advisor nor fiduciary to the District
Royal Bank of Canada
 JP Morgan and RBC are underwriters, LOC providers and swap counterparties

 Assists DPS and its advisors in the preparation of offering document(s) summarizing
all material information about the borrower as well as terms and conditions of COPS
Underwriters’ Counsel
 Provides opinion to underwriters‘
Hogan & Lovells
 Prepares and negotiates purchase contract between issuer and underwriters
 Assists in due diligence review of accuracy and completeness of information
disclosed

26
Transaction Participants
(Continued)

Letter of Credit Banks

 Provide liquidity and credit support to COPs issued as Variable Rate Demand
JP Morgan Chase Obligations (―VRDOs‖)
Royal Bank of Canada
 Relevant documents include the Letter of Credit and Reimbursement Agreements
Wells Fargo

Bank Counsel
 Prepares Letter of Credit and Reimbursement Agreements
Chapman & Cutler

Insurer  Provides transaction insurance policy on COPS and swaps

Assured Guaranty Municipal  Provides surety policy in lieu of cash-funded Certificate e Reserve Fund

Swap Counterparties
JP Morgan  Provide interest rate swaps on VRDOs to hedge interest rate risk
RBC & Bank of America

Rating Agencies  Conduct credit analysis and assign ratings to the financing
Moody’s and Standard & Poor’s  Typically at least two ratings are necessary for marketing a transaction

Trustee
 Follows instructions under the documents on behalf of COP holders
Wells Fargo Bank, NA

27
Appendix C: Annual Lease Payment Profile

28
DPS Expected Annual Lease Payment Projections
Based on $400mn VRDOs and Balance Fixed Rate COPs
As of February 7, 2011

Expected Combined Lease Payments

90

80

70

60
$ Millions

50

40

30

20

10

0
2011

2012

2017

2018

2019

2025

2026

2027

2032

2033

2034
2013

2014

2015

2016

2020

2021

2022

2023

2024

2028

2029

2030

2031

2035

2036

2037

2038
2011 Pro Forma VRDB COP Payments 2011 Pro Forma Fixed Rate COP Payments Unrefunded 1997A COP Payments

Note: Annual lease payments based on a fiscal year basis, assuming April 2011 issuance; Fixed and Variable rate assumptions same as those footnoted on pg 18

29
DPS Expected Lease Payment Projections
Based on $400mn VRDOs and Balance Fixed Rate COPs
As of February 7, 2011

2011 Pro Forma VRDB Lease 2011 Pro Forma Fixed Rate Total 2011 Pro Forma Unrefunded 1997A COPs
Fiscal Year Payments Lease Payments Lease Payments Lease Payments
2011 1,019,356 5,416,692 6,436,048 $3,381,699
2012 25,445,471 32,500,153 57,945,624 4,503,836
2013 25,429,052 32,500,153 57,929,205 5,685,677
2014 25,429,052 32,500,153 57,929,205 6,910,000
2015 25,429,052 32,500,153 57,929,205 8,210,000
2016 25,445,471 32,500,153 57,945,624 9,545,000
2017 25,429,052 32,500,153 57,929,205 10,950,000
2018 29,915,104 36,763,057 66,678,160 3,980,000
2019 32,859,388 39,249,303 72,108,691
2020 33,197,041 39,561,878 72,758,918
2021 33,503,576 39,869,338 73,372,914
2022 33,817,258 40,177,549 73,994,807
2023 34,134,005 40,486,859 74,620,864
2024 34,448,757 40,806,930 75,255,687
2025 34,741,591 41,117,422 75,859,013
2026 35,039,129 41,427,994 76,467,123
2027 35,333,283 41,737,618 77,070,901
2028 35,625,543 42,052,331 77,677,875
2029 35,897,570 42,353,711 78,251,281
2030 36,172,175 42,663,030 78,835,205
2031 36,427,934 42,977,552 79,405,487
2032 36,691,783 43,274,541 79,966,325
2033 36,919,564 43,584,868 80,504,432
2034 37,157,681 43,873,409 81,031,090
2035 37,376,249 44,169,045 81,545,294
2036 37,576,370 44,473,070 82,049,441
2037 37,771,653 44,756,380 82,528,033
2038 37,908,188 45,198,384 83,106,572
Note: Lease payments based on a fiscal year basis, Assumes market conditions as of 2/7/11; fully funded reserve fund for fixed rate COPs;
Assumes $400mn VRDOs and balance fixed rate COPs

30
Appendix D: Current Municipal Market Environment

31
 In 4Q10, Municipal Supply Collided with Rising Rates, Bond
Fund Outflows and the Looming BAB Expiration

Significant Supply During Q4 2010… …Collided with Rising Rates Post QE2
$120 5.30% 30yr MMD 30yr UST
Jan. 3
$100 5.00%
While supply 4.68%
$80
reached its peak
$Mn

4.70%

Yield (%)
in 2010 Q4, bond $60
fund outflows $40 4.40%
neared 2008 Q4 $20
levels, pushing 4.10%
30yr MMD up by $0
Jan. 3
96 bp in a single 3.80%
4.40%
quarter
Quarter 1 Quarter 2 Quarter 3 Quarter 4 3.50%
Fixed Variable BABs 2-Nov 16-Nov 30-Nov 14-Dec 28-Dec

The Resulting Bond Fund Losses Triggered Swift …Comparable to the Fund Outflows Seen During
and Severe Asset Outflows… the Credit Crisis.
Fund Flows ($mm) NAV 20.0 $17.3
6,000 104.0%
15.0
4,000
$11.2 $10.3
3,012 3,363 $9.0
2,616 2,860 2,584
2,076 102.0% 10.0 $6.4 $8.0 $7.6
2,000 837 1,154
$5.4 $6.0
1,100
467 $3.1 $3.2
5.0 $2.4
$0.6
0 100.0%
0.0
(2,000)
98.0%
(5.0) $(1.9)
(4,000)

(10.0) $(9.4)
(6,000) (5,333) (5,177) 96.0%
$(9.8)
(15.0)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2007 2008 2009 2010

32
The Early Part of 2011 has Further Challenged the Municipal
Market

Municipal Rates Have Underperformed Treasuries Municipal Ratios (MMD as a % of Treasuries)

(MMD Rates Increased More than Treasuries) Have Recently Climbed Over 100%

160 +140 120%

140 +127 110%
120 100%
100 +87
+75 90%
80
80%
60
40 70%
20 60%
0 50%
10yr MMD 10yr UST 30yr MMD 30yr UST 10yr Ratios 30yr Ratios
Increase in Rates Since Beginning of Q4 2010 (bps) 2/1/2010 9/1/2010 1/14/2011 2/11/2011
September 1 2010 - January 14 2011

Municipal Bond Funds Have Continued to Lose Assets

Outflows:
1,000 $24.8 bn

0
Assets ($mm)

(1,000)

(2,000)

(3,000)

(4,000)
11/10/10

11/17/10

11/24/10

01/12/11

01/19/11

01/26/11
10/06/10

10/13/10

10/20/10

10/27/10

11/03/10

12/01/10

12/08/10

12/15/10

12/22/10

12/29/10

01/05/11

02/02/11
33
Negative headlines have also played a role in the weak tone
of the municipal market
Muni investors in default mode; Fears
about safety of state, local bonds rise
after TV prediction
December 29, 2010: Investors are panicky
about losing their money in municipal bonds and
have been calling their financial advisers for
assurances since a recent "60 Minutes" TV
show predicted massive bond defaults by local
governments over the next 12 months.
Mourn the Muni Market
December 13, 2010: ―People are just waking up
to the idea that there might be some risk in the
municipal bond market,‖ Mr. Bienstock said.
―People are realizing that there are really issues
at the state and local levels that are not being
addressed.‖
Private investors head for hills as
default fears mount
January 3, 2011: A fierce debate has erupted
over the standing of US municipal bonds, the
once sleepy corner of the credit markets
where states and local governments raise
money for roads, bridges, schools and other
projects.
Upset over muni bond forecast;
Whitney's dire prediction on '60 Minutes'
brings no shortage of criticism.
December 24, 2010: Star banking analyst
Meredith Whitney has been saying for months
that the next phase of the housing meltdown
would be a local-government financial crisis.
This week she put a number on it, asserting that
"hundreds of billions of dollars" of municipal
bond debt would end up in default.
Local Revenues Climb as Economy
Recovers
December 30, 2010: State and local tax
revenues continue to recover as the economy
improves, but remain below pre-recession
peaks and are likely to face continued
pressure in 2011.
Safer Than Connecticut Signals Debt
Rally May Be `Overdone'
January 3, 2011: Traders have more
confidence in Brazil honoring its debts than the
wealthiest U.S. states including Connecticut
and New Jersey…
Chowchilla, Calif., Stops Paying Off
Debt
January 6, 2011: Rocked by the recession,
the rural California city of Chowchilla has
stopped making payments on the bonds it
used to finance its city hall.
Battle is joined in cities
January 4, 2011: Questions about whether
countries can go bust are still a pressing
theme at the start of the year, but as a
variation, there is now the drama about
whether American cities will go bust.
Dire States
January 2011: Deep in debt, most governors
will have to either raise taxes or cut spending—
exactly what not to do when recovering from a
recession.
34
Fixed Rate Municipal Taxable Issuance is Further
Challenged Due to its Small Presence in the Market
Modest Supply Contributes to Illiquidity of Taxable Fixed Rate (Non-BAB) Transactions

 With the expiration of Build America Bond program, taxable municipal issuance has fallen precipitously in 2011

Historical Municipal Issuance ($bn)

$500 30.00%

$450 25.6%

$28.4 25.00%
$400 $25.2
$27.9 $23.5 $64.1 $117.3
$350 $40.1
$18.9 $23.7
$20.0 20.00%

$300 $33.9
15.9%
$14.4
$250 15.00%

$200 $395.8
$11.4 $381.2
$354.2 $363.0
$336.3 $338.5 $332.1 $322.8 10.00%
$150 8.0%
$269.5 $279.4
5.8%
$100 5.1%
$182.7 4.1% 4.5% 4.5%
3.9% 5.00%
3.2%
2.5%
$50 1.8%
$1.2
$0 $14.7 0.00%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011YTD
Municipal Tax-Exempt Municipal Taxable BABs Muni Taxable & BABs as a % of IG, Muni Taxable & BAB Issuance

Source: Thomson Reuters; Note Municipal tax-exempt issuance includes Alternative Minimum Tax

35
2011 Taxable Municipal Issuance
Less than Half of the Municipal Taxable Fixed Rate Transactions 2011 YTD Have Had
Maturities Beyond 15 Years, and Most have been Smaller than $100mn in Size

Less than Half of the Taxable Municipal Issuance Less than 5% of Taxable Municipal Issuance So Far
So Far This Year has Extended Beyond 15 Years This Year has Been Greater than $100mn

Number of issues
> $100mm
4
Maturity (4%)
> 15 yrs
$617.392
Maturity 40%
< 15 yrs Number of issues
$923.592 < $100mm
60% 87
(96%)

Market Context

 Since the expiration of Build America Bonds, very few taxable municipal transactions have come to market
 The lack of volume in terms of both size and number of transactions creates a relatively illiquid market for long-
term taxable municipal fixed rate securities
 Given that relative illiquidity, the predominant buyer base for fixed rate COPs will likely be municipal bond funds
rather than corporate investors
 In that context, recent outflows in municipal bond funds are an important metric regarding the tone of the market
and has resulted in recent widening of credit spreads

Source: Thomson Reuters; AMG

36
Appendix E: Glossary

37
Glossary of Key Terms

 Basis Point: 1/100 of 1 percent of yield. For example, if a yield increases from 8.25% to 8.26%, the difference is referred to
as a one basis point increase. Often a basis point is referred to as ―bp.‖

 Certificates of Participation (“COPs”): COPs are a credit instrument evidencing a pro rata share in a specific pledged
revenue stream, usually lease payments by the issuer that are subject to annual appropriation. The certificate generally
entitles the holder to receive a share, or participation, in the lease payments from a particular project. The lease payments are
passed through the lessor to the certificate holders. The lessor typically assigns the lease and lease payments to a trustee,
which then distributes the lease payments to the certificate holders

 Insurance: A guarantee by an insurer of the payment of the principal of and interest on municipal obligations as they become
due should the borrower fail to make required payments. The issuer of the policy typically is provided extensive rights to
control remedies in the event of a default..

 Interest Rate Swap: A contract entered into by an obligor with a swap provider to exchange periodic interest
payments. Typically, one party agrees to make payments to the other based upon a fixed rate of interest in exchange for
payments based upon a variable rate. Interest rate swap contracts typically are used as hedge against interest rate risk or to
provide fixed debt service to an borrower dependent on a specified revenue stream for payment of such debt.

 Letter of Credit: A commitment, usually made by a commercial bank, to honor demands for payment of a debt upon
compliance with conditions and/or the occurrence of certain events specified under the terms of the commitment. In
municipal financings, bank letters of credit are sometimes used as additional sources of security for VRDOs, with the bank
issuing the letter of credit committing to pay principal of and interest on the securities in the event that the issuer is unable to
do so. A letter of credit may also be used to provide liquidity for VRDOs and other types of securities.

 Liquidity: The relative ability of a security to be readily convertible into cash without substantial transaction costs or reduction
of value. A municipal security‘s liquidity is a function of its structure (coupon, maturity, credit enhancement, etc.) and
marketability, including factors such as size and investor base.

38
Glossary of Key Terms
(Continued)

 Standby Bond Purchase Agreement (“Liquidity Facility” or “SBPA”): An agreement with a third party, typically a bank, in
which the third party agrees to purchase variable rate demand obligations that have been tendered for purchase in the event
that they cannot be remarketed. Unlike a letter of credit, a standby bond purchase agreement does not guarantee the
payment of principal and interest by the borrower and is not an unconditional obligation to purchase the tender option bonds

 Synthetic Fixed Rate: Term used to describe the coupling of variable rate obligations with an interest rate swap. For
example, an issuer may issue variable rate debt and simultaneously enter into an interest rate swap contract. The swap
contract may provide that the issuer will pay to the swap counter-party a fixed rate of interest in exchange for the counter-
party making variable payments equal to the amount payable on the variable rate debt

 True Interest Cost (“TIC”): A method of computing the interest expense to the borrower; defined as the rate, compounded
semi-annually, necessary to discount the amounts payable on the respective principal and interest payment dates to the
purchase price received for the new issue of obligations.

 Unfunded Actuarial Accrued Liability (“UAAL”): Pensions are typically funded through a combination of worker
contributions, employer contributions, and market returns. Pension funds, depending upon the composition of their
investment portfolios, are subject to the same market/economic conditions as other retirement vehicles. In addition, people
are living longer yet workers are retiring at relatively earlier ages with higher salaries. Absent modifications to benefits or
increases in investment returns, required contributions need to be increased to meet the plan commitments. When assets
and returns projected by the pension fund actuary are insufficient to fund future needs, an Unfunded Actuarial Accrued
Liability (―UAAL‖) is created. Generally, pension plan owners are then required to increase future contributions to fully-fund
the pension, eventually reducing the UAAL to zero

 Variable Rate Demand Obligations (“VRDOs”): Floating rate obligations that have a nominal long-term maturity but have a
coupon rate that is reset periodically (e.g., daily or weekly). The investor has the option to put the security back to the trustee
or tender agent at any time with specified (e.g., seven days‘) notice. The put price (demanded by the investor) is par plus
accrued interest

39