U. S.

Tobacco Settlement-Backed Bonds: A Primer

Structured Credit in the Municipal Market

Updated January 2011

Executive Summary
Over the past 12 years, 21 states and territories have sold via securitization all or part of the payment
stream owed to them by the major cigarette manufacturers under the Master Settlement Agreement (MSA)
y What is the MSA?: Signed November 23, 1998, the MSA settled all
outstanding litigation brought by the states against big tobacco seeking
to recover healthcare costs related to smoking. The companies agreed
to make scheduled payments, curtail certain marketing practices, and
fund various anti-smoking initiatives.
y Who are the parties?: 46 states (ex. FL, MS, MN, and TX) plus DC,
PR, VI, AS, CNMI, and GU. Original Participating Manufacturers
(OPMs) Phillip Morris (now Altria), RAI, LO, and Brown & Williamson
(now part of RAI). 40+ subsequent signatories (SPMs)
y How much is owed?: $9 billion in total baseline annual OPM
payments adjusted annually for a variety of factors. Annual SPM
payments are derived from OPM payments.

y Who are the issuers?: States typically execute a true sale

transaction with a newly created, legislatively authorized conduit entity.
Entities are bankruptcy-remote from issuing government and prohibited
from filing for bankruptcy. Not state debt, no state guarantee.
y What is the states role? The state covenants to enforce the MSA
and associated legislation, and to enter an irrevocable order to the
MSA administrator to make payments directly to the bond trustee.
y How are the bonds structured?: Early deals were structured as
traditional revenue bonds, some with a residual trapping structure.
Majority of issuance is full turbo all excess cash flow is used to
redeem bonds. Leverage through subordinate zero coupon bonds.

y What is the term?: Adjusted payments under the MSA are to be made
each April 15 into perpetuity so long as a payment obligation exists.

y What are the primary credit risks?: MSA payments are adjusted
downward to reflect decreases in domestic shipments influenced by
regulation, tax increases, smoking bans, etc. Outcome of certain
payment disputes. Constitutional and anti-trust challenges to the MSA.

Total Unenhanced Tobacco Settlement-Backed Issuance

Trading History Benchmark Long Maturity Term Bonds

($ billions)
12%

17.1

CA 47s

OH 47s

VA 47s

MI 48s

NJ 41s

11%
10%
9%

7.4
4.6
1.1

1.4

8%

4.7
3.0

4.2

7%

0.9

1.5

6%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

5%
Jan-08

Source: Citi, various bond prospectuses, includes deals that have been refunded

Source: J.J. Kenny Drake

M ay-08

Sep-08

Jan-09

M ay-09

Sep-09

Jan-10

M ay-10

Sep-10

The MSA: Base Amounts and Order of Adjustment

The MSA includes a schedule of perpetual base payments due to the states

Base Amounts Owed by OPMs under Sec. IX (b) and (c)

Application of Adjustments and Offsets under Sec. IX (j)

First:
y Apply the Inflation Adjustment
y Formula for calculating Inflation Adjustment found in Exhibit C
y 3% CPI floor
Second:
y Apply the Volume Adjustment to the result of the first step
y Formula for calculating Volume Adjustment found in Exhibit E
Third:

Year
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018 and out
2018 and out

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

Initial
2,400,000,000
2,472,000,000
2,546,160,000
2,622,544,800
2,701,221,144
-

Strategic
Contribution

Annual
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

4,500,000,000
5,000,000,000
6,500,000,000
6,500,000,000
8,000,000,000
8,000,000,000
8,000,000,000
8,000,000,000
8,139,000,000
8,139,000,000
8,139,000,000
8,139,000,000
8,139,000,000
8,139,000,000
8,139,000,000
8,139,000,000
8,139,000,000
8,139,000,000
9,000,000,000
9,000,000,000

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

861,000,000
861,000,000
861,000,000
861,000,000
861,000,000
861,000,000
861,000,000
861,000,000
861,000,000
861,000,000
-

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

Total
2,400,000,000
6,972,000,000
7,546,160,000
9,122,544,800
9,201,221,144
8,000,000,000
8,000,000,000
8,000,000,000
8,000,000,000
9,000,000,000
9,000,000,000
9,000,000,000
9,000,000,000
9,000,000,000
9,000,000,000
9,000,000,000
9,000,000,000
9,000,000,000
9,000,000,000
9,000,000,000
9,000,000,000

y
y
y
y

Apply the Previously Settled States (PSS) Reduction to the

result of the second step
PSS Reduction is 12.2373756% between 2007 and 2017
PSS Reduction is 11.0666667% for 2018 and out
Does not apply to Strategic Contribution payments

Fourth:
y
y

Apply the Non-Settling States Reduction to the result of the third

step
There are no Non-Settling States the Reduction equals zero

Fifth:
y
y

The result of the fourth step is apportioned amongst the states

based on Allocable Share, as defined in Exhibits A and U
This amount forms each states Allocated Payment

Sixth:
y

Apply the Non-Participating Manufacturer (NPM) Adjustment to

each states Allocated Payment as applicable under Sec. IX (d)

The MSA: Offsets, Adjustments, and SPM Payments

Adjustments and offsets can significantly increase or decrease the Base Amounts

Inflation Adjustment (Exhibit C)

y Based on Consumer Price

Index for All Urban
Consumers as published
by BLS
y Cumulative adjustment
increased each year to
reflect the greater of
3.000% or the actual
change in CPI-U for the
year preceding the current
payment date

Volume Adjustment (Exhibit E)

Payment
Year

CPI-U
Index

Change in MAX(Actual,
CPI-U
Floor)

Inflation
Adjustment

1998

163.900

1999

168.300

2000

174.000

2.685%

3.000%

3.00000%

2001

176.700

3.387%

3.387%

6.48841%

2002

180.900

1.552%

3.000%

9.68306%

2003

184.300

2.377%

3.000%

12.97355%

2004

190.300

1.879%

3.000%

16.36276%

2005

196.800

3.256%

3.256%

20.15102%

2006

201.800

3.416%

3.416%

24.25497%

2007

210.036

2.541%

3.000%

27.98262%

2008

210.228

4.081%

4.081%

33.20594%

2009

215.949

0.091%

3.000%

37.20212%

2010

218.439

2.721%

3.000%

41.31818%

y Manufacturer obligations decrease, all else equal, as their domestic

shipments decline over time. Calculation is based on volume not
revenue, and does not include any international shipments.
y Calculation compares shipments in the preceding year to Base Volume,
which is 475,656,000,000 cigarettes. If current year volume is higher,
the adjustment is zero. If current year volume is lower, the adjustment
is equal to the ratio of Actual Volume to Base Volume multiplied by .98.
As a result, the Volume Adjustment can never be greater than 98%.
y The Volume Adjustment can potentially be partially reduced if the total
OPM operating income attributable to domestic cigarette sales is
greater than $7.195 billion adjusted for inflation under Exhibit C. At
current levels of profitability, it is unlikely that this offset will come into
play anytime in the near future.

NPM Adjustment

SPM Payments

y NPM Adjustment was conceived to prevent non-signatories to the MSA

from having a significant price advantage in the market place.

y Under Sec. IX (i), each SPM makes payments based on its market
share as a percentage of total OPM market share. SPMs who joined
the MSA less than 60 days after execution (grandfathered SPMs) only
make payments based on current market share above MAX(1998
market share, 1.25x 1997 market share).

y If Participating Manufacturers (OPMs plus SPMs, PMs) lose market

share versus pre-MSA levels, their payment obligations can be reduced
accordingly based on a punitive market share loss multiplier.
y As a condition to signing the MSA, each state enacted a Qualifying
Statute (wording taken from the Model Statute attached as Exhibit T to
the MSA) that requires any manufacturer selling cigarettes in a given
state to either join the MSA or make certain escrow payments that
approximate an MSA obligation. Maintaining a Qualifying Statute and
diligently enforcing it exempts a state from an NPM Adjustment.
y NPM Adjustments for diligent enforcers are reallocated across nonenforcers, resulting in large potential decreases in MSA cash flow.
4

y Percentage is applied to OPM Base Amount AFTER the Volume

Adjustment but BEFORE the Inflation Adjustment. The PSS Reduction
does not apply.
y

NPM Adjustment also applies.

Types of Bond Structures

The majority of issuance utilized a full turbo structure similar to other types of consumer ABS

Traditional Revenue Bond/Residual Trap

Full Turbo

y States MSA cash flows support fixed-rate serial maturities, as well as

longer term bonds with mandatory sinking fund installments.

y Combination of fixed serial maturities, turbo term bonds, and fully

subordinated zero-coupon capital appreciation bonds (CABs).

y In traditional revenue bond structures, residual cash flows after debt

service flow back to the state on an annual basis. In its subordinate
position, the state takes the first-loss risk associated with decreased
MSA payments due to higher shipment declines or other adjustments.

y Only fixed debt service is interest, serial maturities, and any

outstanding term principal at final stated maturity no mandatory
sinking fund installments. All excess cash is used to redeem the turbo
term bonds in order of maturity. Hence, turbo term bonds have a final
stated maturity that is much longer than the weighted-average life
(WAL) to which they originally priced.

y In trapping structures, the states residual can be trapped as credit

enhancement if 1) any OPM is downgraded below investment grade, 2)
OPM domestic shipments falling below a specified fixed amount, or 3)
NPM market share exceeds certain levels.

y Original WALs were based on underwriters assumptions about key

MSA variables, as well as shipment projections from a consultant.

y Bonds priced to final stated maturity and are rated/evaluated based on

traditional debt service coverage metrics.

y CABs are fully subordinated and receive no cash until all senior
maturities are repaid. Some deals have up to four sub classes.

Common Structural Features

Issuance by Type of Structure

($ billions)

y Sale/pledge varies as to percentage of states MSA payments. In

cases where less than 100% is pledged, trust/authority has no recourse
to unsold portion.

29.4

y Operating expenses are paid at the top of the waterfall.

y Lien on MSA payments is perpetual until all bonds have been repaid
no timing risk associated with reversion of cash flow ownership.
y All cash flows are applied pro rata after an event of default (EOD).

2.2
0.4

y Debt service reserve fund available to bridge cash flow shortfalls.

Reserve requirement does not decrease over the life of the deal, and
the reserve may be replenished ahead of turbo redemptions in some
circumstances. Mandatory clean-up call.
5

Trad. Revenue

Residual Trap

Source: Citi, does not include deals that have already been refunded

Full Turbo

Primary Credit Risks

MSA cash flows and bond WALs can be negatively impacted by a variety of factors

Domestic Shipment Trends

Regulation/Litigation

y MSA payment obligations are reduced to the extent domestic OPM

shipments decline. Bonds were typically structured to withstand ~4%
annual shipment declines.

y The 2009 Family Smoking Prevention and Tobacco Control Act gave
the FDA oversight of tobacco regulation for the first time. The FDA will
adopt more graphic warning labels for cigarette packs beginning in mid2011.

y On a mark-to-market basis, bonds have suffered WAL extension due to

declines exceeding original structuring assumptions. On a credit basis,
declines above a breakeven level will not provide enough cash flow to
ensure repayment of principal by maturity.
y Shipments are generally influenced by consumption, and hence by
state and Federal {FET) tax increases, state and local smoking bans,
increasing awareness of health risks, etc.

y The FDAs Tobacco Products Scientific Advisory Committee spent

2010 reviewing the health impact of menthol as a cigarette additive,
and is expected to issue a report and recommendations to the FDA in
March 2011. Menthol is the fastest growing part of the cigarette market
and a ban or increased regulation could negatively impact shipments.

y Shipments declined 9.3% in 2009, the largest ever decrease, due in

large part to the April 2009 160% increase in the FET.

y The MSA and the Qualifying Statutes have been repeatedly challenged
in court on Constitutional and anti-trust grounds. The MSA has been
upheld by almost every Federal Circuit in the country, though there is
an ongoing challenge in the Grand River case in the Second Circuit.

Ongoing NPM Dispute

Domestic Cigarette Shipments

(billions of MSA equivalents)

y Due to continuing market share losses the PMs believe they are
entitled to a series of NPM Adjustments beginning in sales year 2003.

y Bonds may suffer substantial loss of cash flow if a given state is found
to have not diligently enforced. Bonds have also suffered, and
continue to suffer, WAL extension due to NPM-related withholdings.
6

305.0

324.9

358.3

372.6

391.2

390.3

404.4

417.9

429.4

435.9

404.1

y An arbitration panel has been setup to determine a framework for

defining diligent enforcement and evaluating state performance for the
2003 sales year only.

441.7

y The states argue that they have diligently enforced their Qualifying
Statutes and therefore are not subject to the adjustment.

604.0

y Approx. $6 billion of payments otherwise due to the states have been

withheld or are being disputed.

1982 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: NAAG, calculated at .03 oz/cigarette for RYO
Est.

Cash Flow Analysis

Bonds require complicated proprietary cash flow modeling there are no common analytics

Citi models the MSA and flows the estimated payments

through each deals capital structure

What differentiates one bond from another?

Vintage
y Generally speaking older deals are stronger credits than newer
deals (IL being the exception)
y More conservaitve borrowing
y More years or deleveraging prior to decline acceleration
Leverage
y Leverage is difficult to quantify due to perpetual nature of MSA
cash flows and myriad annual adjustments
y Compare bonds based on breakeven level of shipment decline a
bond can withstand before defaulting, holding all other
assumptions constant in the modeling
Capital Structure
y
y
y

Relative borrowing costs

Post-default cash flow application
Expected WAL

Investment Rates
y
y
y

Deals derive additional cash flow from earnings on MSA deposits

and reserve funds
Some deals still have long-term GICs or repurchase agreements
in place at rates significantly higher than prevailing rates
Deals that had LEH as a counterparty generally now have funds
invested at money market rates

Legal Considerations
y
y
y

Exposure to Grand River

Relative diligent enforcement risk
Clarity of remedies vis--vis the state for covenant performance

Performance and Sensitivity

Yield to stated maturity under various shipment decline scenarios using Citi base case assumptions
Buckeye 5.125%s of 2024
Buckeye 5.125%s of 2024
118217AP3

-3.00%

-3.50%

-4.00%

-4.50%

-5.00%

Severe Stress

-3.00%

Shipment Decline
-4.00%
-4.50%

-3.50%

-3.00%

-3.50%

-4.00%

Current Balance (thru June 2010)

843,209,370

843,209,370

843,209,370

Indicative Price
Realized Yield to Stated Maturity

78%

78%

78%

78%

78%

78%

8.81%

8.61%

8.14%

6.85%

5.54%

1.54%

Rea;ozed Yield to 2050

8.81%

8.61%

8.35%

7.76%

7.11%

5.66%

Interest

-5.00%

Severe Stress

Principal

WAL

9.38

10.05

NO

Default?
1-Feb-11
1-Jun-11

14,390,422

14,390,422

14,390,422

14,390,422

14,390,422

5,931,222

5,931,222

5,931,222

5,931,222

5,931,222

5,931,222

11.62

NO

(657,703,309)
14,390,422

-4.50%

-5.00%

Severe Stress

843,209,370

843,209,370

843,209,370

Cash Flow

20,321,644

N/A

YES

(657,703,309)
20,321,644

YES

(657,703,309)
20,321,644

(657,703,309)
20,321,644

N/A
YES
(657,703,309)
20,321,644

N/A
YES
(657,703,309)
20,321,644

1-Jun-12

42,907,925

42,907,925

42,907,925

42,907,925

42,907,925

42,907,925

27,534,899

26,164,555

24,794,210

23,423,866

22,053,521

6,091,019

70,442,824

69,072,480

67,702,135

66,331,791

64,961,446

48,998,945

1-Jun-13

41,484,785

41,555,611

41,626,437

41,697,264

41,768,090

42,593,111

33,575,726

30,960,826

28,359,076

25,770,475

23,195,024

11,411,051

75,060,511

72,516,437

69,985,513

67,467,739

64,963,114

54,004,162

58,144,400

54,342,043

50,578,892

46,854,745

44,807,527

42,003,331

1-Jun-14

39,749,425

39,955,402

40,160,700

40,365,318

40,569,256

42,003,331

18,394,975

14,386,641

10,418,193

6,489,427

4,238,271

1-Jun-15

38,798,681

39,211,829

39,622,236

40,029,912

40,350,201

42,003,331

39,278,564

33,433,522

27,675,019

22,310,446

18,185,648

78,077,245

72,645,351

67,297,255

62,340,358

58,535,849

1-Jun-16

36,768,570

37,483,819

38,191,854

38,876,797

39,410,277

42,003,331

34,326,354

26,845,790

19,511,247

14,074,267

7,184,675

71,094,924

64,329,609

57,703,101

52,951,065

46,594,952

42,003,331

1-Jun-17

34,994,414

36,096,295

37,183,416

38,149,369

39,038,937

42,003,331

31,343,670

22,037,873

14,744,393

5,984,790

66,338,085

58,134,169

51,927,808

44,134,159

39,038,937

42,003,331

113,022,499

102,975,480

1-Jun-18

33,374,418

34,957,269

36,421,352

37,840,046

39,038,937

42,003,331

79,648,081

68,018,211

58,654,534

47,788,816

34,881,072

95,075,887

85,628,862

42,003,331

73,920,009

42,003,331

1-Jun-19

29,257,810

31,441,750

33,389,795

35,370,083

37,236,110

42,003,331

72,194,637

60,664,709

47,871,385

35,434,602

23,488,146

101,452,447

92,106,459

81,261,179

70,804,685

60,724,256

42,003,331

1-Jun-20

25,526,433

28,306,297

30,915,564

33,538,647

36,022,126

42,003,331

75,985,855

62,556,767

47,853,786

33,631,135

20,023,732

101,512,288

90,863,064

78,769,350

67,169,781

56,045,858

42,003,331

1-Jun-21

21,599,107

25,073,053

28,442,243

31,800,423

34,987,200

42,003,331

79,982,126

64,567,456

47,878,938

31,812,075

16,501,468

101,581,233

89,640,509

76,321,182

63,612,497

51,488,669

42,003,331

1-Jun-22

17,465,234

21,735,887

25,967,622

30,156,217

34,134,323

42,003,331

86,269,412

66,703,153

47,949,018

29,975,884

12,916,379

103,734,646

88,439,040

73,916,640

60,132,101

47,050,702

42,003,331

1-Jun-23

13,006,403

18,288,337

23,489,379

28,606,915

42,003,331

90,877,843

68,970,602

48,066,353

28,121,001

9,263,318

103,884,245

87,258,939

71,555,732

56,727,915

42,730,058

42,003,331

1-Jun-24

8,309,385

14,723,594

21,005,072

27,153,482

32,987,966

42,003,331

160,769,886

284,871,923

367,039,147

345,051,550

324,342,675

159,462,012

169,079,271

299,595,517

388,044,219

372,205,032

357,330,641

201,465,344

1-Jun-25

2,034,668

9,319,506

16,224,328

31,170,650

702,515

1,813,287

1,038,715

2,737,183

11,132,793

17,263,043

31,170,650

1-Jun-26

1,998,358

9,225,787

16,170,642

30,090,576

717,890

1,753,690

748,423

2,716,249

10,979,476

16,919,065

30,090,576

1-Jun-27

1,961,254

9,135,147

16,131,959

29,577,483

734,711

1,694,412

450,616

2,695,966

10,829,559

16,582,576

29,577,483

1-Jun-28

1,923,281

9,047,572

16,108,669

29,081,728

753,066

1,635,444

144,704

2,676,346

10,683,015

16,253,373

29,081,728

1-Jun-29

1,884,359

8,963,044

15,953,474

28,603,009

773,046

1,576,774

2,657,404

10,539,818

15,953,474

1-Jun-30

1,844,404

8,881,548

15,681,299

28,141,030

794,751

1,518,396

2,639,155

10,399,944

15,681,299

28,141,030

1-Jun-31

1,803,327

8,803,070

15,418,404

27,695,507

818,286

1,460,302

2,621,613

10,263,371

15,418,404

27,695,507

1-Jun-32

1,761,034

8,727,594

15,164,633

27,266,162

843,761

1,402,484

2,604,795

10,130,078

15,164,633

27,266,162

1-Jun-33

1,717,424

8,655,107

14,919,836

26,852,728

871,294

1,344,937

2,588,719

10,000,044

14,919,836

26,852,728

1-Jun-34

1,672,391

8,585,594

14,683,867

26,454,946

901,012

1,287,658

2,573,403

9,873,252

14,683,867

1-Jun-35

1,625,823

8,519,041

14,456,586

26,072,565

933,046

1,230,643

2,558,869

9,749,685

14,456,586

26,072,565

1-Jun-36

1,577,598

8,455,436

14,237,859

25,705,343

967,539

1,173,892

2,545,137

9,629,327

14,237,859

25,705,343

1-Jun-37

1,527,591

8,394,763

14,027,553

25,353,047

1,004,639

1,117,403

2,532,230

9,512,166

14,027,553

25,353,047

1-Jun-38

1,475,666

8,337,010

13,825,542

25,015,453

1,044,507

1,061,179

2,520,173

9,398,189

13,825,542

25,015,453

1-Jun-39

1,421,681

8,282,163

13,631,705

24,692,342

1,087,310

1,005,222

2,508,991

9,287,385

13,631,705

24,692,342

1-Jun-40

1,365,483

8,230,208

13,445,926

24,383,507

1,133,229

949,538

2,498,712

9,179,746

13,445,926

1-Jun-41

1,306,912

8,181,132

13,268,090

24,088,747

1,182,452

894,133

2,489,364

9,075,265

13,268,090

24,088,747

1-Jun-42

1,245,797

8,134,918

13,098,092

23,807,871

1,235,182

839,018

2,480,980

8,973,936

13,098,092

23,807,871

1-Jun-43

1,181,957

8,091,554

12,935,827

23,540,693

1,291,633

784,202

2,473,591

8,875,756

12,935,827

23,540,693

1-Jun-44

1,115,199

8,051,022

12,781,196

23,287,038

1,352,033

729,700

2,467,232

8,780,722

12,781,196

23,287,038

1-Jun-45

1,045,319

8,013,308

12,634,105

23,046,736

1,416,621

675,527

2,461,941

8,688,835

12,634,105

1-Jun-46

972,101

7,978,393

12,494,464

22,819,628

1,485,655

621,702

2,457,756

8,600,096

12,494,464

22,819,628

1-Jun-47

895,315

7,946,260

12,362,186

22,605,559

1,559,404

568,248

2,454,720

8,514,508

12,362,186

22,605,559

1-Jun-48

814,718

7,916,891

12,237,191

22,404,387

1,638,158

515,187

2,452,875

8,432,078

12,237,191

22,404,387

1-Jun-49

730,049

7,890,263

12,119,402

22,215,973

1,722,221

462,549

2,452,270

8,352,812

12,119,402

22,215,973

1-Jun-50

641,037

7,866,356

12,008,745

22,040,187

1,811,917

410,365

2,452,954

8,276,721

12,008,745

1-Jun-51

547,388

7,845,147

11,905,153

21,876,908

1,907,591

358,669

2,454,978

8,203,816

11,905,153

21,876,908

1-Jun-52

448,794

7,826,609

11,808,560

21,726,021

2,009,605

307,501

2,458,399

8,134,110

11,808,560

21,726,021

1-Jun-53

344,928

7,810,716

11,718,908

21,587,419

2,118,348

256,904

2,463,276

8,067,620

11,718,908

21,587,419

1-Jun-54

235,441

7,797,438

11,636,140

21,461,004

2,234,230

206,925

2,469,670

8,004,363

11,636,140

21,461,004

1-Jun-55

119,965

7,786,743

11,560,205

21,346,683

2,321,075

157,618

2,441,040

7,944,360

11,560,205

1-Jun-56

7,778,596

11,491,056

21,244,374

109,039

7,887,635

11,491,056

21,244,374

1-Jun-57

7,772,961

11,428,650

21,154,000

61,252

7,834,213

11,428,650

21,154,000

14,326

1-Jun-58

7,769,795

33,466,740

11,372,948

21,075,492

7,784,121

11,372,948

28,603,009

26,454,946

24,383,507

23,046,736

22,040,187

21,346,683

21,075,492

1-Jun-59

7,741,669

11,323,917

21,008,789

7,741,669

11,323,917

21,008,789

1-Jun-60

7,704,540

11,281,525

20,953,839

7,704,540

11,281,525

20,953,839

Source: Citi proprietary model

Citis Base Case Assumptions
y
84%/10%/6% OPM/SPM/NPM market share
y
Long-term 2% reinvestment rate
y
States recovery 60% of NPM withholdings, no withholdings after 2014

Severe Stress
y
y
y

5% shipment decline
0% NPM recovery
7% perpetual NPM withholding

Risk/Reward on a Hold to Maturity Basis

y
At current levels, only need to realize ~4.75% annual decline rate to experience no
principal loss
y
Attractive tax-exempt yields even under default scenarios and scenarios without full
principal repayment
y
Current pricing leaves significant cushion pricing implies deterioration in
fundamentals inconsistent with historical experience or most expert projections

Performance and Sensitivity

New Jersey 4.75%s of 2034
New Jersey 4.75%s of 2034
888808DE9

-3.00%

-3.50%

-4.00%

-4.50%

-5.00%

Severe Stress

-3.00%

Shipment Decline
-4.00%
-4.50%

-3.50%

-3.00%

-3.50%

-4.00%

Current Balance (thru June 2010)

672,945,000

672,945,000

672,945,000

Indicative Price
Realized Yield to Stated Maturity

60%

60%

60%

60%

60%

60%

9.35%

9.10%

8.52%

6.48%

6.39%

6.01%

Realized Yield to 2050

9.35%

9.10%

8.90%

8.31%

7.92%

7.43%

Interest

-5.00%

Severe Stress

Principal

WAL

19.19

Default?

21.31

NO
1-Feb-11

-5.00%

Severe Stress

672,945,000

672,945,000

23.92

NO

33.41

YES

N/A

YES

YES

N/A
YES

(403,767,000)

(403,767,000)

(403,767,000)

(403,767,000)

(403,767,000)

(403,767,000)

1-Jun-11

10,654,856

10,654,856

10,654,856

10,654,856

10,654,856

10,654,856

10,654,856

10,654,856

10,654,856

10,654,856

10,654,856

10,654,856

1-Jun-12

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

1-Jun-13

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

1-Jun-14

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

1-Jun-15

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

1-Jun-16

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

1-Jun-17

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

1-Jun-18

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

1-Jun-19

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

1-Jun-20

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

1-Jun-21

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

1-Jun-22

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

1-Jun-23

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

1-Jun-24

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

4,875,221

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

1-Jun-25

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,733,315

4,411,939

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

36,145,253

1-Jun-26

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,523,747

3,954,941

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

35,478,688

1-Jun-27

31,964,888

31,964,888

31,964,888

31,964,888

31,964,888

31,335,888

76,679,023

11,352,640

3,493,823

108,643,911

31,964,888

31,964,888

31,964,888

43,317,527

34,829,711

1-Jun-28

28,322,634

31,964,888

31,964,888

31,964,888

31,425,637

31,169,931

121,461,439

681,575

11,108,555

3,028,102

149,784,073

32,646,462

31,964,888

31,964,888

42,534,192

34,198,033

1-Jun-29

22,553,216

31,932,513

31,964,888

31,964,888

30,897,981

31,026,096

127,356,889

100,523,904

10,882,842

2,557,284

149,910,104

132,456,416

31,964,888

31,964,888

41,780,822

1-Jun-30

16,503,763

27,157,627

31,964,887

31,964,888

30,381,046

30,904,625

133,541,610

104,530,280

80,777,918

19,700,421

10,667,597

2,080,863

150,045,373

131,687,907

112,742,805

51,665,308

41,048,643

32,985,489

1-Jun-31

10,160,537

22,192,439

28,127,936

31,029,118

29,874,335

30,805,784

140,029,104

108,744,006

83,109,763

19,978,315

10,463,018

1,598,314

150,189,641

130,936,445

111,237,700

51,007,432

40,337,353

32,404,098

1-Jun-32

3,509,154

17,027,099

24,180,223

30,080,148

29,377,342

30,729,864

73,876,935

113,174,009

85,610,633

20,292,919

10,269,323

1,109,096

77,386,089

130,201,108

109,790,855

50,373,067

39,646,665

31,838,960

1-Jun-33

11,651,333

20,113,718

29,116,234

28,889,549

30,677,182

117,830,796

88,260,655

20,639,349

10,086,757

612,652

129,482,129

108,374,372

49,755,583

38,976,305

31,289,835

1-Jun-34

6,054,370

15,921,336

28,135,865

28,410,428

30,648,081

127,460,431

194,209,412

21,019,058

9,915,581

108,407

133,514,801

210,130,749

49,154,923

38,326,009

1-Jun-35

6,696,389

27,137,460

27,939,438

30,248,962

9,723,211

21,433,581

9,756,085

16,419,601

48,571,040

37,695,523

30,248,962

1-Jun-36

6,234,537

26,119,364

27,476,024

29,759,757

10,071,485

21,884,534

9,608,584

16,306,022

48,003,899

37,084,608

29,759,757

1-Jun-37

5,756,141

25,079,849

27,019,616

29,287,800

10,442,446

22,373,619

9,473,416

16,198,588

47,453,468

36,493,032

29,287,800

1-Jun-38

5,260,125

24,017,102

26,569,629

28,833,358

10,834,942

22,902,628

9,350,948

16,095,068

46,919,730

35,920,577

28,833,358

1-Jun-39

4,745,465

22,929,227

26,125,459

28,396,165

11,250,055

23,473,445

9,241,575

15,995,520

46,402,673

35,367,034

28,396,165

1-Jun-40

4,211,088

21,814,239

25,686,484

27,975,966

11,688,922

24,088,060

9,145,724

15,900,010

45,902,299

34,832,208

1-Jun-41

3,655,864

20,670,056

25,252,062

27,572,512

12,152,739

24,748,560

9,063,850

15,808,603

45,418,615

34,315,912

27,572,512

1-Jun-42

3,078,609

19,494,499

24,821,529

27,185,566

12,642,763

25,457,145

8,996,443

15,721,372

44,951,644

33,817,972

27,185,566

1-Jun-43

2,478,078

18,285,285

24,394,198

26,814,898

13,160,313

26,216,129

8,944,027

15,638,390

44,501,413

33,338,225

26,814,898

1-Jun-44

1,852,963

17,040,019

23,969,357

26,460,290

13,706,775

27,027,946

8,907,162

15,559,738

44,067,965

32,876,519

26,460,290

1-Jun-45

1,201,891

15,756,191

23,546,266

26,121,530

14,283,608

27,895,158

8,886,445

15,485,499

43,651,349

32,432,712

1-Jun-46

523,420

14,431,171

23,124,160

25,798,419

11,019,359

28,820,457

8,882,514

11,542,779

43,251,628

32,006,674

25,798,419

1-Jun-47

13,062,200

22,702,241

25,490,762

29,806,675

8,896,045

42,868,875

31,598,286

25,490,762

1-Jun-48

11,646,383

22,279,679

25,198,379

30,856,794

8,927,764

42,503,177

31,207,443

25,198,379

10,180,685

1-Jun-49

21,855,610

24,921,093

31,973,945

8,978,436

42,154,630

30,834,046

31,964,888

31,964,888

36,840,108

33,583,381

30,756,489

27,975,966

26,121,530

24,921,093

1-Jun-50

8,661,922

21,429,134

24,658,741

33,161,420

9,048,877

41,823,342

30,478,011

24,658,741

1-Jun-51

7,086,755

20,999,313

24,411,164

34,422,682

9,139,952

41,509,437

30,139,265

24,411,164

1-Jun-52

5,451,678

20,565,165

24,178,217

35,761,372

9,252,581

41,213,049

29,817,746

24,178,217

1-Jun-53

3,753,012

20,125,667

23,959,760

37,181,313

9,387,737

40,934,326

29,513,404

23,959,760

1-Jun-54

1,986,900

19,679,750

23,755,662

38,686,529

9,546,451

40,673,429

29,226,201

23,755,662

1-Jun-55

149,290

19,226,293

23,565,803

3,142,946

9,729,816

3,292,236

28,956,110

23,565,803

1-Jun-56

18,764,127

23,390,070

9,938,989

28,703,116

23,390,070

1-Jun-57

18,292,025

23,228,360

10,175,193

28,467,218

23,228,360

1-Jun-58

17,808,703

23,080,577

10,439,722

28,248,426

23,080,577

1-Jun-59

17,312,817

22,946,634

10,733,944

28,046,761

22,946,634

1-Jun-60

16,802,954

22,826,455

11,059,305

27,862,259

22,826,455

Source: Citi proprietary model

-4.50%
672,945,000

Cash Flow

Performance and Sensitivity

Golden 5.75%s of 2047
Golden 5.75%s of 2047
38122NPA4

-3.00%

-3.50%

-4.00%

-4.50%

-5.00%

Severe Stress

-3.00%

Shipment Decline
-4.00%
-4.50%

-3.50%

-3.00%

-3.50%

-4.00%

Current Balance (thru June 2010)

1,250,000,000

1,250,000,000

1,250,000,000

Indicative Price
Realized Yield to Stated Maturity

66%

66%

66%

66%

66%

66%

9.22%

9.05%

8.73%

8.61%

8.18%

7.84%

Realized Yield to 2050

9.22%

9.05%

8.87%

8.71%

8.28%

7.94%

Interest

-5.00%

Severe Sress

Principal

WAL

28.66

Default?

33.24

NO
1-Feb-11

-5.00%

Severe Stress

1,250,000,000

1,250,000,000

N/A

YES

N/A

YES

YES

N/A
YES

N/A
YES

(825,000,000)

(825,000,000)

(825,000,000)

(825,000,000)

(825,000,000)

(825,000,000)

1-Jun-11

23,955,938

23,955,938

23,955,938

23,955,938

23,955,938

23,955,938

23,955,938

23,955,938

23,955,938

23,955,938

23,955,938

23,955,938

1-Jun-12

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-13

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-14

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-15

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-16

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-17

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-18

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-19

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-20

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-21

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-22

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-23

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-24

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-25

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-26

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-27

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

1-Jun-28

71,875,000

71,875,000

71,875,000

71,875,000

71,875,000

68,885,998

66,132,495

6,668,887

71,875,000

71,875,000

71,875,000

138,007,495

78,543,887

68,885,998

1-Jun-29

71,875,000

71,875,000

71,875,000

68,219,880

71,506,413

65,987,682

18,067,913

5,670,457

71,875,000

71,875,000

71,875,000

86,287,792

77,176,870

1-Jun-30

71,875,000

71,875,000

71,875,000

67,221,273

71,193,009

64,832,202

16,940,876

4,679,166

71,875,000

71,875,000

71,875,000

84,162,149

75,872,175

64,832,202

1-Jun-31

71,875,000

71,875,000

71,875,000

66,284,956

70,934,393

63,757,398

16,782,265

3,672,162

71,875,000

71,875,000

71,875,000

83,067,222

74,606,554

63,757,398

1-Jun-32

71,875,000

71,875,000

71,875,000

65,357,406

70,731,434

62,721,237

16,661,200

2,648,080

71,875,000

71,875,000

71,875,000

82,018,607

73,379,514

62,721,237

1-Jun-33

71,875,000

71,875,000

71,875,000

64,436,547

70,585,075

61,722,220

16,559,881

1,605,512

71,875,000

71,875,000

71,875,000

80,996,429

72,190,587

61,722,220

1-Jun-34

71,875,000

71,875,000

71,875,000

63,521,288

70,496,339

60,759,720

96,386,051

37,758,011

16,478,823

542,990

168,261,051

71,875,000

109,633,011

80,000,112

71,039,329

1-Jun-35

66,547,776

71,875,000

69,788,128

62,610,510

69,909,194

59,833,145

109,407,495

38,938,268

16,418,967

175,955,271

71,875,000

108,726,396

79,029,477

69,909,194

59,833,145

1-Jun-36

60,500,862

71,875,000

67,636,023

61,703,039

68,799,036

58,941,928

115,633,539

40,234,982

16,381,324

176,134,400

71,875,000

107,871,005

78,084,363

68,799,036

58,941,928

1-Jun-37

54,109,836

71,875,000

65,412,250

60,797,649

67,727,244

58,085,517

122,212,681

30,559,229

41,623,090

16,366,968

176,322,517

102,434,229

107,035,339

77,164,617

67,727,244

58,085,517

1-Jun-38

47,355,183

70,186,002

63,111,756

59,893,052

66,696,016

57,263,381

129,164,739

85,593,141

43,107,677

16,377,042

176,519,923

155,779,143

106,219,433

76,270,095

66,696,016

57,263,381

1-Jun-39

40,216,293

65,455,299

60,729,209

58,987,899

65,704,765

56,475,007

136,510,548

89,844,441

44,694,122

16,412,760

176,726,841

155,299,739

105,423,332

75,400,659

65,704,765

56,475,007

1-Jun-40

32,671,402

60,489,627

58,258,981

58,080,771

64,752,914

55,719,904

144,272,112

94,345,689

46,388,114

16,475,416

176,943,514

154,835,316

104,647,094

74,556,187

64,752,914

1-Jun-41

24,697,532

55,275,174

55,695,126

57,170,181

63,839,903

54,997,597

152,472,641

99,111,495

48,195,651

16,566,381

177,170,173

154,386,669

103,890,776

73,736,561

63,839,903

54,997,597

1-Jun-42

16,270,422

49,797,316

53,031,369

56,254,562

62,965,200

54,307,632

161,136,642

104,156,742

50,123,076

16,687,112

177,407,064

153,954,058

103,154,445

72,941,674

62,965,200

54,307,632

1-Jun-43

7,364,456

44,040,609

50,261,084

55,332,272

62,128,289

53,649,571

133,245,914

109,497,134

52,177,081

16,839,154

140,610,369

153,537,743

102,438,165

72,171,425

62,128,289

53,649,571

1-Jun-44

37,988,740

47,377,274

54,401,577

61,328,681

53,022,996

115,149,259

54,364,740

17,024,149

153,137,998

101,742,015

71,425,727

61,328,681

53,022,996

1-Jun-45

31,624,480

44,372,554

53,460,658

60,565,903

52,427,507

121,130,621

56,693,518

17,243,838

152,755,101

101,066,072

70,704,496

60,565,903

1-Jun-46

24,929,633

41,239,123

52,507,597

59,839,508

51,862,722

127,459,702

59,171,300

17,500,065

152,389,335

100,410,423

70,007,662

59,839,508

51,862,722

1-Jun-47

17,884,979

37,968,745

51,540,375

59,149,066

51,328,277

303,434,780

61,806,409

17,794,785

321,319,759

99,775,154

69,335,160

59,149,066

51,328,277

1-Jun-48

1,114,243

34,552,727

50,556,863

58,494,174

50,823,827

20,160,128

64,607,639

18,130,075

21,274,372

99,160,365

68,686,938

58,494,174

50,823,827

1-Jun-49

30,981,885

49,554,820

57,874,443

50,349,042

67,584,268

18,508,128

98,566,153

68,062,949

57,874,443

50,349,042

1-Jun-50

27,246,526

48,531,883

57,289,510

49,903,613

70,746,097

18,931,273

97,992,623

67,463,156

57,289,510

1-Jun-51

23,336,413

47,485,558

56,739,029

49,487,246

74,103,469

19,401,973

97,439,882

66,887,530

56,739,029

49,487,246

1-Jun-52

19,240,740

46,413,217

56,222,678

49,099,668

77,667,307

19,922,836

96,908,047

66,336,053

56,222,678

49,099,668

1-Jun-53

14,948,095

45,312,089

55,740,154

48,740,619

81,449,140

20,496,625

96,397,235

65,808,714

55,740,154

48,740,619

1-Jun-54

10,446,429

44,179,248

55,291,175

48,409,859

85,461,139

21,126,262

95,907,568

65,305,509

55,291,175

48,409,859

1-Jun-55

5,723,021

43,011,606

54,875,479

48,107,168

89,716,153

21,814,840

95,439,175

64,826,446

54,875,479

48,107,168

1-Jun-56

764,441

41,805,908

54,492,827

47,832,340

13,831,110

22,565,632

14,595,550

64,371,540

54,492,827

1-Jun-57

40,558,713

54,142,996

47,585,187

23,382,101

63,940,814

54,142,996

47,585,187

1-Jun-58

39,266,392

53,825,788

47,365,539

24,267,905

63,534,297

53,825,788

47,365,539

1-Jun-59

37,925,114

53,541,024

47,173,244

25,226,918

63,152,032

53,541,024

47,173,244

1-Jun-60

36,530,831

53,288,546

47,008,168

26,263,234

62,794,065

53,288,546

47,008,168

Source: Citi proprietary model

10

-4.50%
1,250,000,000

Cash Flow

71,875,000

71,875,000

71,875,000

65,987,682

60,759,720

55,719,904

52,427,507

49,903,613

47,832,340

Liquidity
Trading volume in the tobacco settlement-backed bond market averages over $500 million a month

Citi is the industry leader in a robust secondary market

Month
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Totals
2008
2009
2010
Avg.

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

NON-SERIAL, UNENHANCED TOBACCO TRADES >= $1 MILLION (NO CABS)

MSRB Vol.
MSRB Trades
Citi Vol.
Citi Trades
Citi % Vol.
118,825,000
32
$
38,700,000
8
32.6%
406,005,000
102
$
114,400,000
34
28.2%
486,695,000
119
$
120,040,000
35
24.7%
288,510,000
81
$
129,740,000
34
45.0%
399,595,000
91
$
110,105,000
21
27.6%
447,930,000
127
$
136,835,000
39
30.5%
188,225,000
80
$
68,780,000
24
36.5%
128,754,000
63
$
49,125,000
22
38.2%
1,278,405,000
306
$
446,950,000
116
35.0%
1,075,035,000
302
$
399,580,000
87
37.2%
342,510,000
105
$
147,035,000
31
42.9%
309,985,000
104
$
68,230,000
22
22.0%
576,500,000
193
$
350,615,000
99
60.8%
1,030,480,000
314
$
391,625,000
107
38.0%
445,385,000
142
$
200,295,000
52
45.0%
287,995,000
71
$
199,000,000
21
69.1%
478,455,000
126
$
110,460,000
25
23.1%
383,095,000
127
$
171,035,000
34
44.6%
328,855,000
95
$
108,015,000
30
32.8%
717,795,000
236
$
446,145,000
101
62.2%
1,008,545,000
242
$
766,800,000
120
76.0%
480,185,000
118
$
214,730,000
46
44.7%
691,850,006
191
$
436,220,000
106
63.1%
448,422,000
133
$
217,835,000
55
48.6%
1,140,885,000
285
$
617,080,000
100
54.1%
211
$
458,580,000
768,055,000
91
59.7%
1,262,460,041
326
$
769,790,000
146
61.0%
920,580,000
244
$
421,065,000
89
45.7%
16,440,016,047
4,566
$ 7,708,810,000
1,695
46.9%
1,699,630,000
425
$
512,985,000
132
30.2%
6,589,659,000
1,933
$ 2,568,530,000
645
39.0%
8,150,727,047
2,208
$ 4,627,295,000
918
56.8%
587,143,430
163
$
275,314,643
61

Source: MSRB and Citi databases

11

Citi % Trades
25.0%
33.3%
29.4%
42.0%
23.1%
30.7%
30.0%
34.9%
37.9%
28.8%
29.5%
21.2%
51.3%
34.1%
36.6%
29.6%
19.8%
26.8%
31.6%
42.8%
49.6%
39.0%
55.5%
41.4%
35.1%
43.1%
44.8%
36.5%
37.1%
31.1%
33.4%
41.6%

Liquidity is not uniform across the market

Active Secondary Market
y Over the period between the two most recent deals, average
monthly volume (trades in term maturities over $1 million only)
was over $500 million
y Avg. of over 160 total institutional market trades per month
y Secondary market volume has increased consistently over the
past few years
Turbo Term Bonds are Most Liquid
y Largest amount of issuance
y Short serial maturities are considered relatively safe and rarely
come out of accounts large amount held by retail
y Subordinated CABs are highly illiquid due to their relatively low
breakeven declines and potential risk of zero cash flow
Liquidity Deepest in a Subset of Benchmark Names
y OH represents almost 20% of total unenhanced outstanding
y Other benchmark names include NJ, MI, CA Goldens, VA, and
WV

Disclaimer

Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written
agreements. This presentation is not a commitment to lend, syndicate a financing, underwrite or purchase securities, or commit capital nor does it
obligate us to enter into such a commitment, nor are we acting as a fiduciary to you. By accepting this presentation, subject to applicable law or
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12