Two Sets of Ratings Agency Books: Taxpayers Pay For Bond Insurance They Do Not Need

February 12, 2008

Pershing Square Capital Management, L.P.

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The analyses provided may include certain statements, assumptions, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies. Such statements, assumptions, estimates, and projections reflect various assumptions by Pershing concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, assumptions, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. Pershing disclaims any obligation to update this presentation.

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Municipal Bonds Perform Better Than Corporate Bonds

According to historical default rates, Municipal Bonds rated as low as Baa have performed better than Aaa-rated Corporate Bonds. Yet, Moody’s continues to rate Municipal Bonds lower than Corporates, forcing those investors that are required to own AAA-rated securities (or issuers targeting them) to purchase bond insurance

Historical 10-Year Cumulative Default Rates

Corporate vs.Rating at Initiation Corporate Municipal MunicipalAaa 0.52% 0.00% NAAa 0.52% 0.06% 8.5 xA 1.29% 0.03% 39.8 xBaa 4.64% 0.13% 34.4 xBa 19.12% 2.65% 7.2 xB 43.34% 11.86% 3.7 xCaa-C 69.18% 16.58% 4.2 xInvt-Grade 2.09% 0.07% 32.1 xSpeculative-Grade 31.37% 4.29% 7.3 xAll Rated 9.70% 0.10% 94.0 x

Source: Moody’s, The U.S. Municipal Bond Rating Scale March, 2007

Municipal Bonds Deserve Higher Ratings

According to Moody’s, many Municipal Bond issues would be rated AAA and would not need bond insurance if they were rated on the same standard as Corporate Bonds

Municipal Scale Rating 1 2 3 4 5 6

Aaa Aaa Aaa Aaa Aaa Aaa Aaa

Aa1 Aaa Aaa Aaa Aaa Aaa Aa1

Aa2 Aaa Aaa Aaa Aa1 Aa1 Aa1

Aa3 Aaa Aaa Aa1 Aa1 Aa1 Aa1

A1 Aaa Aa1 Aa1 Aa1 Aa2 Aa2

A2 Aa1 Aa1 Aa1 Aa2 Aa3 Aa3

A3 Aa1 Aa1 Aa2 Aa3 A1 A1

Baa1 Aa1 Aa2 Aa3 A1 A1 A2

Baa2 Aa2 Aa3 Aa3 A1 A2 A3

Baa3 Aa2 Aa3 A1 A2 A3 Baa1

Ba1 Aa3 A1 A2 A3 Baa1 Baa2

Ba2 Aa3 A2 A3 Baa1 Baa2 Baa3

Ba3 A1 A3 Baa1 Baa2 Baa3 Ba1

B1 A2 Baa1 Baa2 Baa3 Ba1 Ba2

B2 A3 Baa2 Baa3 Ba1 Ba2 Ba3

B3 Baa1 Baa3 Ba1 Ba2 B1 B2

Caa1 Baa2 Baa3 Ba1 B1 B3 B3

Caa2 Baa3 Ba1 Ba2 B2 Caa1 Caa1

Caa3 Baa3 Ba2 B1 Caa1 Caa2 Caa31 State GO2 Local GO; Water/ Sewer; State Revolving Fund; State Lease Obligation and Special Tax3 Local Lease Obligation and Special Tax; Electric and Gas Enterprise (Transmission only); Mass Transit; Higher Education-Public;

Airport General Revenue; Toll Roads and Bridges (established); Housing-Affiliated/Actively Managed4 Electric and Gas Enterprise (Generation and Joint Power Authorities); Solid Waste and Resource Recovery; Parking Enterprise; Lottery Bonds;

Special Assessment and Tax Increment (established); Government-Affiliated Projects5 Higher Education-Private; Hospitals (not-for-profit); Other Not-for-profit; Military Housing6 Special Assessment and Tax Increment (start-up); Long-term Care (not-for-profit); Charter Schools; Housing-Unaffiliated/Passively Managed Toll Roads

and Bridges (start-up); Airport and Port Special Facility; Hotel and Convention Center; Stadiums and other Projects

Source: Moody’s, The U.S. Municipal Bond Rating Scale

March, 2007

Municipal Bonds Deserve Higher Ratings

Moody’s will give a lower rating on the tax-exempt bonds (municipal scale) than it will to taxable bonds (corporate scale) despite being sold by the identical municipal issuer

Many investors are only permitted to buy Triple-A rated bonds

Because tax-exempt municipal bonds are priced on the more stringent municipal scale, an issuer must purchase insurance to achieve the higher taxable municipal bond rating

Some institutional investors may be aware of this distinction, but it is doubtful that retail investors are

According to reports, retail investors purchase roughly two-thirds of all municipal bonds

Bond Insurance might not be necessary if retail investors understood the true underlying ratings of municipal bonds

Taxpayers Have Paid for Bond Insurance They Don’t Need

We estimate that states and municipalities have paid over $30B for Bond Insurance in the past that they did not need. This year alone they will pay upwards of an additional $2.3B

$ billions

Taxpayer "Savings" through MBIA (1) 15.0$ MBIA Market Share of Public Finance Insurance ~25%Total "Savings" provided by Bond Insurance Industry 60.0$ Typical Insurance Fee as % of Savings (2) 50%Total Fees Paid For Unnecessary Bond Insurance 30.0$

(1) MBIA Company Presentation, 11/27/07 "MBIA has saved Taxpayers over $15 billion"(2) Assumes that Bond Insurance Fee equals one-third of spread improvement provided by insurance(3) Assumes that Insured rating could have been achieved if rated on Corporate / Taxable Muni Scale