0 CIFA Conference Presentation November 10, 2003 State of Connecticut SRF Programs

9/4/2015 9:23 PM State of Connecticut SRF Programs 1 State of Connecticut SRF Programs CIFA Conference Presentation Presentation Participants Sharon Dixon Peay, Financial Administrator, Clean Water Fund and Drinking Water Fund George Butcher, Managing Director, Goldman, Sachs & Co., Senior Manager Mary Jo Kelly, Partner, Nixon Peabody, Bond Counsel Mitchell Rappaport, Partner, Nixon Peabody, Bond Counsel Susan Weil, Executive Vice President, Lamont Financial Services, Financial Advisor William Hogan, Engineer for WPCS, Development of Environmental Protection

9/4/2015 9:23 PM State of Connecticut SRF Programs 2 Introduction: Connecticut SRF Programs The State’s Revolving Funds consist of (i) the Clean Water Fund, created in 1987 and jointly managed with the State Department of Environmental Protection and (ii) the Drinking Water Fund, created in 1996 and jointly managed with the State Department of Health. Since its inception, the SRF program has received strong support from the State. The State’s Revolving Funds make loans to borrowers to provide capital for various State and federally mandated water pollution control and drinking water projects. Loans are funded primarily from bond proceeds. Significant administrative and legislative support is evidenced by ongoing bond authorization at or above original commitment levels. Total legislative authorizations are: $741.0 million in general obligation bonds. $1,238.4 million in revenue bonds through FY Prior to its June financing, the State has issued $745 million in senior revenue bonds and $127 million in subordinate revenue bonds.

9/4/2015 9:23 PM State of Connecticut SRF Programs 3 Introduction: Connecticut SRF Programs (continued) State match of federal capitalization grants far exceeds the 20% requirement. State funding of interest subsidy fund, which comprises $55.6 million to date, supports subsidized loan rates to municipalities. For clean water projects a loan rate of 2%. For drinking water projects a loan rate equal to 50% of interest rate paid on the State’s most recent general obligation bond issue. Federal regulations limit the uses of program equity to making loans or guarantees, purchasing insurance, refinancing prior debt or covering administrative expenses associated with qualified projects. Program equity cannot be used to make grants and must be maintained by the Fund in perpetuity.

9/4/2015 9:23 PM State of Connecticut SRF Programs 4 The Fund had bonds outstanding under two bond resolutions. Prior to June, $444.4 million Senior Bonds were outstanding under its Senior Bond Resolution adopted December 7, $122.5 million Subordinate Refunding Bonds were outstanding under its Subordinate Bond Resolution adopted February 23, Senior Bonds are secured by Loans, a 50% DSRF, and an Interest Subsidy Fund. Loans are payable monthly and bear interest at below market interest rates. DSRF is invested in collateralized AAA GICs and state GO bonds. Interest Subsidy Fund is funded with state GO bonds. Subordinate Bonds are secured by certain Funds released from the Senior Bond Resolution not needed to pay Senior Bonds. Surplus of Senior Resolution Revenues over Senior Bond debt service –Senior Resolution Revenues released to subordinate bonds include repayments of pledged loans, DSRF earnings and Interest Subsidy Fund revenues. –Interest Subsidy Fund is sized so Senior Resolution Revenues at least equal the sum of Senior Bond and Subordinate Bond debt service. State GO bond principal released from the DSRF.

9/4/2015 9:23 PM State of Connecticut SRF Programs 5 The new credit was implemented by redeeming $273 million of Senior Bonds and issuing $118 million of new money with General Revenue Bonds. Prior Debt Senior Bonds$444.4 Mn78.4% Subordinate Bonds122.5 Mn21.6% Total$566.9 Mn100.0% After Restructuring General Revenue Bonds Refunding Bonds (a) $237.2 Mn New Money Bonds118.0 Mn $355.2 Mn Prior Resolution Bonds Senior Bonds (b) $177.0 Mn Subordinate Bonds (c) Mn $299.5 Mn Total$654.8 Mn (a) Refunding bonds include $121 million of Auction Rate Securities. (b) Reflects cash defeasance of $51.5 million Senior Bonds. (c) Cannot be advance refunded. 54% of the Fund’s outstanding bonds are General Revenue Bonds.

9/4/2015 9:23 PM State of Connecticut SRF Programs 6 New General Revenue Bond Resolution Authorized uses of all program assets are limited by federal and state law. Resolution provides maximum programmatic flexibility. Unencumbered assets can be used (i) to make additional loans or to secure debt issued to make such loans, (ii) to provide new types of assistance such as loan guarantees or (iii) pay debt service on any obligations of the fund, including Senior Bonds and Subordinate Bonds. Resolution provides for financing projects for clean water program and drinking water program. New program purposes may be added to Resolution if new program is cross-collateralized with existing programs.

9/4/2015 9:23 PM State of Connecticut SRF Programs 7 The State is contractually obligated to use any Available Monies in the Revolving Fund to pay General Revenue Bond debt service. Available Monies in the Revolving Fund will include: Monies in any pledged fund under the Resolution – Support Fund and Debt Service Fund Payments on unencumbered loans Earnings on unencumbered investments Principal of unencumbered investments Funds released from the pledge of other resolutions from time to time

9/4/2015 9:23 PM State of Connecticut SRF Programs 8 Tax Considerations Tax Law – Arbitrage rebate or yield restriction applies to equity that is; (1) pledged to bonds unless there is no assurance that the equity will be available to pay debt service, or (2) that is reasonably expected to be used to pay debt service. Problem – Under old structure, earnings on the equity reasonably expected to be used to pay debt service. As a result, the investment of the equity was limited to the related bond yield, costing the State money. Solution – Minimize the portion of the equity subject to arbitrage rules by dividing the equity into a “sinking fund” dedicated to payment of debt service and a “general fund” that could be used to pay debt service but not expected to be so used and for which there is no assurance that it will be available to pay debt service. Result – Because only the sinking fund is subject to the arbitrage rules, the State is able to increase its investment earnings on its equity, even though both the corpus and the earnings on the corpus in the sinking fund would be spent to pay debt service. Further Refinement – Because the sinking fund is yield restricted, the impact of this can be limited by including in the sinking fund investments that are already yield restricted.

9/4/2015 9:23 PM State of Connecticut SRF Programs 9 Program Credit Overview The following map of the State indicates the location of the Borrowers that are participating in the SRF Program: Current loans, and additional commitments expected through June 30, 2004 total $934 million. Loans are outstanding to 77 borrowers. Only two borrowers’ total loans and undrawn loan commitments exceed 10% of the Fund’s outstanding loans and undrawn loan commitments: Waterbury 13.5%, Stamford 10.6% Strong loan administration in place for over 10 years. Aggressive collection of any delinquencies. No monthly loan payment has been delinquent over 45 days.

9/4/2015 9:23 PM State of Connecticut SRF Programs 10 The current pool of loans was large enough and sufficiently diverse to ensure a pool of highly rated borrowers for each resolution. An additional 43 borrowers have one loan outstanding with an aggregate total of $90.0 million. None of such individual loans exceed $11.1 million. Pool Quality Loans Outstanding Rating 25.8%Aaa 61.6%A and Aa 8.3%Baa 4.3%Unrated Borrowers with Multiple Loans BorrowerAmount Number of Loans BorrowerAmount Number of Loans MDC46,312,27914 Middletown11,260,93714 New Haven23,320,26412 Waterbury93,612,9179 Bridgeport38,188,3338 West Haven19,737,6598 Fairfield33,077,2605 New London7,867,9175 Greenwich27,371,6414 Norwalk38,286,1104 Norwich6,332,3104 Ridgefield6,118,8344 Sharon2,410,9624 Stamford23,789,2374 Branford20,589,5753 Bristol4,064,7573 Cheshire7,576,9913 Danbury27,123,6243 Hebron5,955,8813 Litchfield3,122,3943 Naugatuck1,637,3943 Seymour7,797,3833 Stonington3,107,0513 Stratford3,009,3363 Vernon20,578,1453 Bethel5,189,7102 Burlington1,611,6742 East Hampton939,5492 Meriden1,692,7282 New Britain 24,277,1532 Newtown15,794,9482 Portland5,828,7892 Suffield1,316,6882 Thomaston9,076,6932 Each resolution will have loans from 40 to 50 different borrowers.

9/4/2015 9:23 PM State of Connecticut SRF Programs 11 Post-Restructuring Program Assets and Liabilities (a) AssetsLoans (b) $386.6$339.0 Long-Term Investments Reserve State Match Interest Subsidy Funds Federal Cap Grants Short-Term Investments Total Assets$572.9$626.7 LiabilitiesSenior Bonds$177.0$0.0 Subordinate Bonds General Revenue Bonds Total Liabilities $299.5$339.0 Senior/Subordinate (a) General Resolution (a) (a) Preliminary, subject to change. (b)Loan assets consist of general obligation bonds, water and wastewater revenue bonds, as well as current and expected loan commitments.

9/4/2015 9:23 PM State of Connecticut SRF Programs 12 State of Connecticut SRF Ratings Senior SubordinateSeniorSubordinateGBR Moody’sAaaAa1AaaAaaAaa S&PAAAAA+ AAA AA+ AAA FitchAAAAAAAAA AAA AAA Pre-RestructuringPost-Restructuring

9/4/2015 9:23 PM State of Connecticut SRF Programs 13 Connecticut Clean Water Fund issued $355 million General Revenue Bonds consisting of: $118 million Series A Bonds to fund new loans Fixed rate bonds Maturing 2005 to 2025 $237 million Refunding Bonds $116 million Series B Bonds –Fixed rate bonds –Maturing 2003 to 2015 $121 million Series C Refunding Bonds –Auction Rate Securities:$55 million reset daily $66 million reset every 28 days –Maturing 2016 to 2022 –Interest rate synthetically fixed using an interest rate swap

9/4/2015 9:23 PM State of Connecticut SRF Programs 14 On June 17, 2003, interest rates were at a 20-year low. $355,245,000 State of Connecticut State Revolving Fund General Revenue Bonds Historical Interest Rates June 1983 to Present As of: 6/17/ % As of: 6/17/ % 10-Year Treasury7.24%13.98%3.10% 10-Year MMD5.62%9.50%2.85% BMA3.92%8.71%0.70% Average MaximumMinimum As of: 6/17/ %

9/4/2015 9:23 PM State of Connecticut SRF Programs 15 The Bonds were priced aggressively versus MMD (as of 6/17/2003). $233,860,000 State of Connecticut State Revolving Fund General Revenue Bonds, Series A and B AAA MMD Connecticut SRF Marketing Considerations: General Revenue Bonds rated Aaa/AAA/AAA Investor call to introduce new credit New credit approach is simpler and easier for investors to understand Assets versus liabilities Investor questions The Bonds were priced 3 basis points below MMD (a) on average (a) Based on a weighted average.

9/4/2015 9:23 PM State of Connecticut SRF Programs 16 The ARS have been priced below BMA. $121,375,000 State of Connecticut State Revolving Fund General Revenue (Auction Rate Securities) Series C $55,000,000Daily0.89%0.83%(6) 66,375,00028-Day0.89%0.81%(8) Initial Auction Period PARS Average Spread to BMA (bp) BMA Average Amount Performance for Period 7/11/2003 to 11/3/2003 BMA versus Connecticut ARS Performance 28-Day Daily BMA Marketing Considerations: Diversifies CWF investor base Goldman Sachs markets ARS to retail buyers Reduces supply of fixed rate bonds

9/4/2015 9:23 PM State of Connecticut SRF Programs 17 The ARS were synthetically fixed with an interest rate swap. Variable Rate Bonds (ARS) Fixed Rate 3.18% (b) 67% of LIBOR Assumed at BMA (a)Enhanced LIBOR Swap assumed to price equal to 67% LIBOR. Also assumes BMA = 67% of LIBOR. (b)Rate including enhancement, after 10/1/2013 rate changes to 3.03%. Calculation of Synthetic Fixed Rate (a) Pay: Swap Rate3.18% (b) ARS Remarketing Fees0.26% Takedown (annualized)0.05% Floating Rate on BondsBMA Receive: Floating Rate on Swap67% of LIBOR (a) All-In Refunding Rate:3.49%

9/4/2015 9:23 PM State of Connecticut SRF Programs 18 Relative Costs of Borrowing: Fixed Rate Bonds vs. Synthetic Fixed Using LIBOR Swaps (a) Connecticut SRF Yields Enhanced LIBOR Swap Curve (a) Pricing as of 6/17/2003.

9/4/2015 9:23 PM State of Connecticut SRF Programs 19 Based on historical averages, 67% of LIBOR is a good long-term hedge ratio for tax-exempt variable rate debt. 10 Years67.3% 5 Years70.7% 3 Years75.7% 2003 YTD83.0% Averages 67.0% BMA/1-Month LIBOR 67% LIBOR

9/4/2015 9:23 PM State of Connecticut SRF Programs 20 Enhanced LIBOR swap receipts are higher when LIBOR rates are low. 1-Month LIBOR 1.00% % % of LIBOR Received 1-Month LIBOR % of LIBOR Received Additional Benefit Enhanced LIBOR Swap Receipts 68% of LIBOR

9/4/2015 9:23 PM State of Connecticut SRF Programs 21 Connecticut Enhanced LIBOR versus the Average Connecticut Auction Rate Security Weighted Average PARS Rate Enhanced LIBOR The spread of Enhanced LIBOR has averaged 26 bp above BMA.

9/4/2015 9:23 PM State of Connecticut SRF Programs 22 To date, the all-in synthetically fixed rate on the ARS utilizing an Enhanced LIBOR interest rate swap, has been 30 bp lower than anticipated. Variable Rate Bonds (ARS) Fixed Rate 3.18% Enhanced LIBOR Rate 1.12% 0.82% (Actual ARS Rate) (a)Indicative pricing on 20-year 67% LIBOR swap ratio as of 6/17/2003. Calculation of Synthetic Fixed Rate (a) Pay: Swap Rate3.18% ARS Remarketing Fees0.26% Takedown (annualized)0.05% Floating Rate on Bonds0.82% Receive: Floating Rate on Swap1.12% All-In Refunding Rate:3.19% From July 10 to November 3 the additional savings achieved were $110,000.

9/4/2015 9:23 PM State of Connecticut SRF Programs 23 State’s Perspective State Committed to Environment Innovative Municipalities Maximize ability to respond to municipalities and create programs consistent with goals PROS Pitfalls with unraveling of old indenture Increased exposure to changes in State management Adverse Changes in State and Federal Laws CONS

9/4/2015 9:23 PM State of Connecticut SRF Programs 24 The State Benefits from The New Program Enhance earnings Consider broader range of program initiatives Maximize State resources Innovative Solutions for Municipalities Management Efficiencies