DRAFT Asset-Backed Securities (ABS) Adam Parkin, CFA Director A Confidential Presentation Asset-Backed Securities (ABS) Past, Present & Future March 24, 2016 Presented By Adam Parkin, CFA Director DRAFT

Prime Autos (Loan/Lease/Floorplan) Credit Cards Equipment Many ABS To Choose From Why ABS? ABS are Not: MBS, CMBS or CLOs Traditional/Common Newer/Less Frequent ("Esoteric") Prime Autos (Loan/Lease/Floorplan) Cell Tower Credit Cards Aircraft Equipment Whole Business Sub-Prime Auto Container/Railcar Fleet Lease Single-Family Rental Rental Car Solar Student Loan Market Place Lending Not All ABS are Created Equal

ABS are Many Things to Many People Why ABS? High Quality Investment Option Issuers Alternative Funding Complements other funding sources Access funding during market turmoil (e.g. autos) Cost of Funds "AAA-A" rating provides cheap financing relative to alternatives Match Funding Financing of otherwise illiquid assets E.g. auto loans, equipment leases Investors Credit Quality "AAA-A" rating Stable performance within traditional asset space Diversification Exposure to consumer credit and/or specific assets Senior interest in diversified pool of assets Yield Pick-up Enhanced returns relative to other fixed-income options Important Funding for Businesses that Finance Taxpayers

How ABS Works? Cash flow generating assets: - Credit card portfolio Why ABS? Cash flow generating assets: - Credit card portfolio - Auto loans/leases - Equipment loans “AAA” Rated Securities: Some non-"AAA" SPV Seller/ Servicer Investors $ $ Credit Enhancement Asset Liabilities Cash Flows Assets AAA Losses Types of Structures Pass-Through Pay-Through Payments are passed through to investors (monthly) Notes amortize e.g. Auto and equipment loans Payments are retained by Seller until required for repayment of notes Bullet maturity e.g. Credit Cards BBB Non Rated

ABS – A Timeline 1980's 1990's 2000's 2010's 1st ABS The Past † 1980's 1990's 2000's 2010's 1st ABS Shelf Registration CDO's Sub-Prime/Synthetics FINANCIAL CRISIS Increased Regulation Esoteric assets † Source: SIFMA, US ABS Issuance and Outstanding (http://www.sifma.org/research/statistics.aspx )

Moody's ABS Historical Ratings Changes (1997-2015) The Past Not All ABS Are Equal Consumer ABS Ratings Outperform Other ABS Asset Classes † Source: Moody's Investors Service: Ratings Changes in the US Asset-Backed Securities Market: 2015 Second Quarter Update; excludes Home Equity

Moody's Historical ABS Impairment Performance The Past Structuring is No Substitute for Collateral "There have been no impairments among Aaa- and Aa-rated U.S. auto loan ABS …impairment among US credit card ABS tranches that have carried a Aaa or Aa rating have been limited to one issuer (Heilig-Meyers) which filed for bankruptcy in 2000." – Moody's The Case for Consumer ABS – Tried, Tested & Proven † Source: Moody's Investors Service: Default & Loss Rates of Structured Finance Securities: 1993-2014 ‡ Source: Moody's Investors Service

~$200B in Issuance Annually ABS Where Are We Now? The Present ~$750B in ABS Outstanding ~$200B in Issuance Annually † Source: SIFMA, US ABS Issuance and Outstanding (http://www.sifma.org/research/statistics.aspx )

ABS Spread Performance The Present Spreads at 52 Week Highs and at Levels Not Seen Since '08 Swap Curve Benchmark a Contributor to ABS Spread Widening † Source: TD Securities (USA) LLC & Bloomberg

Company Risk - Volkswagen (VW) Case Study The Present Asset vs Corporate Risk In September 2015, the US Environmental Protection Agency issued a notice of violation that Volkswagen (VW) had installed diesel engine software to circumvent the emission standards of the Clean Air Act. In addition, Volkswagen faces a lawsuit filed by the US Department of justice seeking fines related to the deceptive practices. Volkswagen has reported that the emissions issue could affect 11 million vehicles worldwide and has embarked on remedial measures to rectify the situation. ABS Showed A High Degree Resiliency in the Case of Increased Company Specific Risk † Source: TD Securities (USA) LLC & Bloomberg

Liquidity, Liquidity, Liquidity!!! The Future #1 Concern of Issuers & Investors Introduction of TRACE Reporting Potential To Significantly Change the Market Landscape † Source: FINRA, (http://finra-markets.morningstar.com/BondCenter/TraceActivityReport.jsp )

Credit Risk – Credit Cards The Future Credit Card Metrics Remain Very Positive With Charge-Offs at Historic Lows Credit Card ABS Appears Well Situated to Weather a Downturn † Source: Moody's Investors Service: Global Structured Finance Collateral Performance Review

Credit Risk – Autos The Future Auto Performance Remains Stable and at Historical Lows Prime Auto ABS Appears Well Situated to Weather a Downturn † Source: Moody's Investors Service: US Prime Auto Loan ABS Credit Indices: January 2016

Other Areas of Consideration The Future Other Themes Asset Class Developments New Consumer Asset Class in '16 Cell phone equipment plans Verizon, AT&T & Sprint Expansion of foreign assets collateralized $US ABS Attractive funding levels Deep investor base Alternative funding source Regulation Will continue to evolve and impact the ABS market REG AB II TLAC BASEL III TRACE Creating significant barriers to entry for issuers

Questions? Thank You Name Contact Email Adam Parkin (212) 827.7119 adam.parkin@tdsecurities.com