moodys presentation 2005

2005 Esoteric Asset-Backed Securities Investor Briefing

Sofitel Hotel, New YorkSofitel Hotel, New York

June 23, 2005

2Speakers

Taimur Jamil: Wireless Towers

Julia Tung: Life Insurance

McGinnis Caldwell: Tobacco Settlements

Christophe Razaire: Tobacco Litigation Update

Stephen Macy: Legal Issues

Olga Filipenko: Intellectual Property

Parla Ozgediz: Aircraft

Michael McDermitt: Small Business Loans

Kent Becker: Equipment Leases

Wireless Towers

Presented by:

Taimur JamilAsset Finance Group

Presented by:

Taimur JamilAsset Finance Group

June 23, 2005

4Wireless Towers (I)

What are wireless towers?

Tall metallic structures

Pivotal for wireless communications

Who owns them?

Infrastructure developed by Wireless Service Providers

Decision to dispose off non-critical assets

Aggregation of tower portfolios by new entrants

Crown Castle, American Tower, SpectraSite, SBA

and Global Signal

5Wireless Towers (II)

What is being securitized?

Revenues from underlying leases between wireless tower companies and wireless service providers

Proprietary networks (Dispatch services, government networks, TV/Radio broadcasters)

Why securitization?

Lower cost of funds

Favorable interest rate environment

Retire high yield debt, recapitalize balance sheet

Portfolio acquisition financing

6Transactions to Date

3 transactions to date raising a total of $2.61 billion in tranched investment and non-investment grade debt

Global Signal

Global Signal Trust I, Series 2004-I ($418 mil)

Global Signal Trust II, Series 2004-II ($290 mil)

Crown Castle

Crown Castle Towers LLC, Series 2005-1 ($1.9 bil)

7A Tower that is Aesthetically Appealing

8Wireless Technology

What constitutes wireless technology?

Telephony

Land Mobile Radio / Specialized Mobile Radio

Paging

Other Data Services

Broadcasting

Telephony is the most dominant and prevalent revenue source

All other revenue sources considered declining

9Wireless Technology

What is driving the need for wireless services?

Infrastructure easy to deploy

Increased usage and prevalence of cellular phones

Trend towards mobile computing resulting in

Greater demand for bandwidth

Seamless integration with Wi-Fi networks

Compatibility among different standards such as GSM and CDMA

10

Wireless Technology

What are the associated technology risks?

Satellite communications

Currently exists such as Motorolas Iridium service

which has a constellation of 77 LEO satellites

Wide spread market acceptance not forthcoming

due to high usage costs and bulky equipment

Usage limited to niche specialties to remote

communication such as news reporting

Potential health concerns

Wireless service a commoditized necessity

11

Single Tower Cash Flow Mechanics

Initial investment of $200,000 - $300,000 by owner

On-going expenses minimal

With 2 tenants cash flows are Ebitda positiveBasic One Tower Model

Number of Tenants on Tower 1 2 3

Revenue (~ $1,600 per month) 19,200 38,400 57,600Direct Operatign Cost 13,000 13,260 13,525Tower Gross Profit 6,200 25,140 44,075

Gross Profit Margin 32.3% 65.5% 76.5%

SG&A 7,300 7,300 7,300

EBITDA (1,100) 17,840 36,775EBITDA Margin -5.7% 46.5% 63.8%

Maintenance Capex (4,000) (4,000) (4,000)

Free Cash Flow (5,100) 13,840 32,775Free Cash Flow Margin -26.6% 36.0% 56.9%

12

How does Moodys Evaluate the Cash Flows?

Ascertain the sustainable level of cash flow over the life of the debt

Evaluate firms operating performance

Comparable public company and market data

Determine the net present value of the future flows

And an appropriate advance rate based on LTV and Debt Service Coverage Ratio

Like other asset back transactions liability structure also modeled

13


Revenue

Correlated to the number of tenants per tower

Industry average is 2.5 tenants

This is a function of the location of the towers,

population density and management strategy

Evaluate underlying tenant leases

Duration of leases

Composition of tenants

Built-in rent escalators (2% to 5% per annum)

14


Revenue

Tenant attrition

Minimal since service providers optimize their

networks for a particular geographic area

Barriers to entry are high, since it is difficult to

build new structures due to zoning restrictions

Associated moving costs (~$30,000 to $50,000) far

outweigh rent escalator increments

Tenant concentration

Majority of revenue derived from few tenants

15


Revenue

Impact of mergers

Each service provider operates on a specific

frequency spectrum

Equipment is not dual use and cannot be

consolidated

Merger benefits realized through consolidation of

other support functions (marketing, etc)

Wireless tower revenues not impacted; Demand for

more bandwidth will fuel request for space

16


Expenses

Direct operating expenses

Industry Ebitda margins range from 40% to 75%

Correlated to managements expertise and size of

the company

Maintenance capital expenditures

Per tower capital expenditure estimated at $3000

to $5000 per tower per annum

Evaluated on a case by case basis

Lower estimates used for the rated transactions

17


Expenses

Management fee

For the rated transaction a management fee equal

to 10% of revenue was used

Must be sufficient enough to retain another

manager if the existing manager needs to be

replaced

18


Refinancing and the Anticipated Refinancing Date

Our assumption is that refinancing does not occur

Assets continue to operate on an as-is basis with additional interest penalties

Rating addresses whether bonds will be repaid by legal final maturity

Discount rates

Range of 10% to 13% - reflects our view on the riskiness of the cash flows

19


Advance rate

LTV for different rated tranches

Liability structure must hold under all valuation

stresses

Ratings LTV Range

Aaa 35% - 46%Aa2 43% - 53%A2 51% - 60%

Baa2 59% - 65%Baa3 62% - 67%Ba1 66% - 70%Ba2 72% - 75%

Ba3 and Below > 76%

20

Structural and Legal Provisions

Bells and whistles just like any structured transaction

Environmental reviews on all sites

No pending litigation

Clear record from the FAA and FCC pertaining to non-compliant activities

For the rated transactions 70% of revenue derived from sites where an estoppels had been obtained

Appropriate reserves

21

Structural Flexibility in Rated Transactions

Site acquisition account

Property release provisions

Property substitution

Issuance of additional notes

22

Conclusion: Not Just by the Numbers

Analysis driven by quantitative and qualitative factors such as:

Market trends

Asset and sponsorship qualities

Loan structural characteristics

Life Insurance

Presented by:

Julia TungAsset Finance Group

Presented by:

Julia TungAsset Finance Group

June 23, 2005

24

Life Insurance Products

Four Types of Securitizations:

Life or Senior Settlements

Life Insurance/Life Annuity

Corporate or Bank Owned Life Insurance Commissions (COLI/BOLI)

Life Insurance Premium Finance

25

Life Settlements

26

What is a Life Settlement?

Individual generally over age 65 sells life insurance policy at a discount of face amount

Insured has shortened life expectancy (LE) compared to general population (e.g. LE of 2-12 years)

Insured typically does not have a single impairment

Face amount range of $250,000 to $10 million

Funding for purchase provided through warehouse facility or institutional funding

27

Issuance in the ABS Market

Several warehouse facilities outstanding not rated by Moodys

One term transaction rated by Moodys

Legacy Benefits 2004-1 (2/25/04)

Class A ($61.5 million) rated A1

Class B ($8.5 million) rated Baa2

28

What are the Primary Risks in a Life Settlement Deal?

Legal/Regulatory

Life Settlement Company/Servicer

Credit of insurance companies and other entities

Timing of cash flows

Mortality analysis

Pool analysis

Analysis of policies

Structure

29

Risks in a Life Settlement Deal:Life Settlement Company/Servicer

What is the companys background?

What is the companys origination policy?

Is the servicer a viable entity? Is there a viable back-up servicer?

Does the servicer/back-up have the appropriate licenses to originate and service?

30

Risks in a Life Settlement Deal:Credit of Insurance Companies and Other Entities

Rating of insurance policy providers

Concentration of insurance policy providers

Rating of any other related entities, e.g. annuity provider, supplemental insurance provider, etc.

31

Risks in a Life Settlement Deal:Timing of Cash flows (Part 1)

Mortality Analysis

Base mortality table for male/female and smoker/non-smoker (e.g. 2001 VBT table)

Adjustment to mortality supplied by medical underwriter

Verification of mortality expectations from a third party

32


Pool Analysis

Number of lives in the pool

Relative size of policies

Diversification of ailments

Geographic diversification (regulatory concern)

33


Analysis of policies

Type of insurance policy

universal/variable/whole/term

Premium schedule

Cash reserves

Past the period of contestability

34


Structure

How will premium/interest payments be covered given the uncertain timing of the death benefits?

Possible solutions: reserve account, annuities, policy to cover life extension risk, etc.

Will a sufficient number of policies have paid out by the legal final?

35


Monte Carlo Simulation

Stress the mortality rates

Magnitude of stress may depend on

Number of lives in the pool

Life expectancy of insured

Confidence in medical underwriting

Size of policy

If premiums are not fixed, stress the increase in premium payments

36

Life Insurance/ Life Annuity

37

What is a Life Insurance/Life Annuity Transaction?

New life insurance policy is purchased on a healthy senior over the age of 70

Securitization proceeds are used to purchase fixed annuities to cover interest and premium payments and additional coverage

Residual goes to insureds designation (typically charity or family member)

38

Cash Flows of a Life Insurance/Life Annuity Deal:

Proceeds from Investors

Fund Reserve AccountPurchase Supplemental Policies

Purchase Annuity

Annuity Payments

Bond Interest, Life Insurance Premiums & Trustee Expenses

39

What are the Economics Behind the Deal?

Annuity payments and premiums/bond interest are perfectly matched no mortality analysis

Insurers/reinsurers and annuity companies have very different views of mortality of healthy seniors

Arbitrage will narrow as more data appears

40

Life Insurance/Life Annuity Deals Involving Charities

Moodys has rated six transactions to date from one issuer

Issuance has stopped because of proposed legislation

crack down on abuses in certain life insurance contracts involving tax-exempt organizations

25% excise tax on death benefits (Bush administrations proposed FY 2006 budget)

100% excise tax on acquisition costs of any interest in an applicable insurance contract (Grassley-Baucus Bill)

41

Other Life Insurance/Life Annuity Proposals

Moodys has reviewed several proposals in which life policies are purchased by individuals in exchange for a cash payment or a small portion of the death benefit

So far no deal has closed because of legal concerns

wet ink policies

Insurable interest

Fraud and contestability

Tobacco Settlements

Presented by:

McGinnis CaldwellAsset Finance Group

Presented by:

McGinnis CaldwellAsset Finance Group

June 23, 2005

43

Introduction

Revenue under Master Settlement Agreement (MSA)

Tobacco Legal Fees

Revenue Associated with Tobacco Quotas

44

MSA Revenue Asset Characteristics

The MSA was entered into in November 1998 by 46 states, DC, Puerto Rico, U.S. territories and four major US Tobacco Companies

MSA ended litigation between the states and the Tobacco Companies for smoking related injuries in exchange for payments to be made to the states in perpetuity

45

MSA Revenue Deals Rated by Moodys

Since 1999

42 transactions rated, includes

15 state deals

23 city and county deals

4 US territory deals and Washington DC

Ratings: Currently Baa1 to Ba1 on senior tranches (mostly Baa3), all on review with direction uncertain

Subordinate tranches rated mostly Ba2

46

Tobacco Legal Fee Asset Characteristics

Outside counsel for a specific state must agree to have fees set by negotiation with the tobacco companies, subject to an aggregate $1.25 billion cap or by an arbitration panel

Arbitrated fees are subject to national cap of $125 million per quarter and $500 million per annum

Each of tobacco companies is severally obligated for a portion of quarterly payments corresponding to market share, adjusted annually

47

Tobacco Legal Fee Asset Characteristics

Future tobacco class action lawyers may elect to have their fees determined by arbitration and included under the quarterly and annual caps above

This inclusion would result in the extension of securitized legal fees. This is an opt-in extension risk

48

Legal Fee Revenue Deals Rated by Moodys

Since 2001, state counsel for following states have securitized

California, Florida, Hawaii, Illinois, Massachusetts, Mississippi, Ohio and Texas

Ratings: Currently Aa3 to Baa2 on senior tranches; Baa3 on subordinate

49

Tobacco Quota Revenue Asset Characteristics

The Fair and Equitable Tobacco Reform Act of 2004 (the Buyout Legislation) eliminates the current federal tobacco price support and quota programs

Secretary of Agriculture, through Commodity Credit Corporation, enters into a contract with each tobacco quota holder in exchange for the termination of tobacco marketing quotas and price supports

$10 billion paid over 10 years

50

Tobacco Quota Revenue Concerns

Full faith and credit?

Release of prior liens?

Assignability?

51

Tobacco Quota Deals Rated by Moodys

None

52

MSA Revenue Stream Features

Aggregate Base MSA Payments

Year

Initial Payments

(January 10)

Annual Payments (April 15)

Strategic Contribution

(April 15)

Total PaymentsBefore

Adjustments

1998 $2,400,000,000 $0 $2,400,000,0001999 2000 2,472,000,000 4,500,000,000 6,972,000,0002001 2,546,160,000 5,000,000,000 7,546,160,0002002 2,622,544,800 6,500,000,000 9,122,544,8002003 2,701,221,144 6,500,000,000 9,201,221,1442004 8,000,000,000 8,000,000,000

2007 8,000,000,000 8,000,000,0002008 8,139,000,000 861,000,000 9,000,000,000

2017 8,139,000,000 861,000,000 9,000,000,0002018 9,000,000,000 9,000,000,000

$9 Billion Annual Payments Continued in Perpetuity

53


These Base Payments are subject to adjustments. The three primary adjustments are described below:

Inflation Adjustment - The Base Payments are to be increased each year by the greater of 3% or the actual Consumer Price Index

Volume Adjustment - The Base Payments are to be increased or decreased according to the amount of cigarette shipments relative to the amount of shipments in 1997 (475.7 billion cigarettes)

54


Previously Settled States Reduction - The Base Payments are reduced by the set percentages below:

2000-2007 12.45%

2008-2017 12.24%

2018 and after 11.07%

55


MSA Payments

0

5

10

15

20

25

30

35

2003 2008 2013 2018 2023 2028 2033 2038 2043

$

B

i

l

l

i

o

n

s

Base PaymentsAfter InflationAfter Inflation and Consumption (1)After Inflation, Consumption (1) and Previously Settled States

56


Two adjustments contributing to potentially significant downward pressure on base payments

Volume adjustments: long term cigarette consumption trends

Size of non-participating manufacturer (NPM) market and necessity of NPM adjustment

57

MSA Revenue Stream: Volume Adjustment

-3.13%4651998

-6.45%4351999

-1.15%4302000

-1.16%4252001

-2.35%4152002

-3.61%4002003

-1.75%~3932004

Percentage Change

Consumption (Billions)

Year

58

MSA Revenue Stream: NPM Adjustment

Loss of market share (Currently, Original Manufacturers ~85%, Subsequent Manufacturers ~7%, NPMs ~8%)

Independent consultant makes a significant factor determination

Model Statute is not being diligently enforced

59

NPM Adjustment: Diligent Enforcement

Enforcement of escrow statutes

Repeal of the allocable share release loophole

Equity assessments

Monitoring NPMs via annual certifications

60

Freedom Holdings, Inc. v. Eliot Spitzer

Challenges the MSA, Model Statute and NYs Escrow Statute

Claims that MSA violates the Sherman Antitrust Act as an output cartel that protects OPMs by penalizing SPMs for exceeding original market shares and penalizing NPMs through Escrow Statutes

61


Lawsuit dismissed May 15, 2002 based on theory of governmental immunity

Second Circuit Court of Appeals reversed trial court decision in January 2004

District Court denied a preliminary injunction against enforcement of Escrow Statute in September 2004 but grants preliminary injunction against the repeal of allocable share. Plaintiffs appeal

In June 2005, appellate court affirms denial of preliminary injunction

62


Appellate court did not really give guidance on the law, which would have provided grounds for motion for summary judgment

Discovery proceedings continue in the District Court. No trial date set

63

Positive News on Tobacco Company Litigation

DOJ

Manhattan Supreme Court decision on the diligent enforcement issue

Freedom Holdings and denial of appeal of preliminary injunction

64

Conclusion: Legal Opinions Important

Bankruptcy remoteness

Executory contract and approval of debtors decision to assume MSA

Enforceability of MSA and Model Statute

Tobacco Litigation Update

Presented by:

Christophe RazaireCorporate Finance Group

Presented by:

Christophe RazaireCorporate Finance Group

June 23, 2005

66

Our View

3 threats remain: Price / Miles

DOJ

Engle

Star Scientific could be added to list depending on upcoming ruling

If these threats are eliminated, litigation risk could reach lowest level in a decade

Resolution on 3 cases not likely before early 2006

67

3 Threats

Case In what way is it a risk for MSA bonds? In what way is it a risk for corporate bonds?

DOJ Could lead to court-driven volume reductions At worst, not before 2009. No risk of bankrupting bonding because federal court.

Could lead to court-driven volume reductions At worst, not before 2009. Bonding could eliminate upstreaming of dividends to obligors.

PRICE / MILES Full judgment bankrupting for PMUSA if under the form of

cash payment. At worst, no payment before 2006. Reduced, bearable judgment would have less effect on risk. RJR and B & W in Madison County. Still no bond cap in Illinois.

Full judgment bankrupting if under the form of cash payment. At worst, no payment before 2006. Reduced bearable judgment would have less effect on risk. Altria could survive PMUSA bankruptcy.

ENGLE Odds of verdict affirmation very low. Bonding protects PMUSA and Lorillard thru US Supreme Court, not RJR and B & W.

Odds of verdict affirmation very low. Bonding protects PMUSA and Lorillard thru US Supreme Court, not RJR and B & W.

68

Why Litigation Clouds Could Lift

Bond caps

State Farm

Class Action Fairness Act

69

Why Litigation Clouds Could Lift

ASSUMING RESOLUTION OF CRITICAL CASES, OUR REVIEW OF 10K AND 10Q DISCLOSURES SHOWS

In state courts, no largescale case scheduled for trial in a state without a bond cap

In federal courts, no largescale case scheduled for trial

70

Cases with Some Bonding Risk and/or Risk of High Payments

Case Jurisdiction Potential bonding requirement CommentsDOJ Federal

(District of Columbia)

Up to 100% of judgment Disgorgement denied by DC Court of Appeals. Further successful appeal of the issue unlikely. However, bonding remains possible

Romero New Mexico More than 100% of judgment Price fixing case. Class has been certified. NM Court of Appeals affirmed certification in February 2005. Defendants seeking review of class certification by NM Supreme Court.

Schwab Federal (2nd Circuit)

More than 100% of judgment "Lights" nationwide class action. Hearing on certification in August 2005. Trial unlikely to start at scheduled date of November 2005.

Aspinall Massachusetts Bonding not required, but can be imposed by court at its discretion

(although this is rare)

Class certification has been affirmed by Mass. Supreme Court.PMUSA

Company named as defendant

Altria PMUSA

RJR Tobacco Co. Lorillard, B & W

PMUSA RJR Tobacco Co. Lorillard, B & W

PMUSA RJR Tobacco Co. Lorillard, B & W

71

Cases with Some Bonding Risk and/or Risk of High Payments

Case JurisdictionPotential bonding

requirement CommentsTurner Illinois Up to 100% of judgment On hold, awaiting review of Price / Miles by

Illinois Supreme Court.

Howard Illinois Up to 100% of judgment On hold, awaiting review of Price / Miles by Illinois Supreme Court.

Star Scientific

Federal Up to 100% of judgment Patent infringement case. Awaiting ruling on issue of inequitable conduct.

Vending Machine

Federal (Tennessee)

Up to 100% of judgment Claim: Violation of Robinson - Patman Act. Trial scheduled for July 2005. Number of plaintiffs limited to 10. We believe worst-case damages would be low, but we could change our view with further analysis.

RJR Tobacco Co.

B & W


PMUSA

RJR Tobacco Co.

72

Cases with Risk of High Payments Only, No Bonding Risk

Case Jurisdiction


Amount of Judgment or no verdict yet

If no verdict yet, potential bonding requirement Comments

Engle Florida PMUSA RJR Tobacco

Lorillard B & W

PMUSA = $74 billion RJR = $36.3 billion

Lorillard = $16.3 billion B & W = $17.6 billion

Bonding in place Expecting FL Supreme Court review. Bonding covers

PMUSA and Lorillard thru US Supreme Court.

Price / Miles Illinois PMUSA $10.1 billion Bonding in place Expecting IL Supreme Court review. Bonding covers thru

US Supreme Court.City of St. Louis Missouri Altria

PMUSA RJR Tobacco

Lorillard B & W BAT

No verdict yet $50 million for MSA signatories and affiliates

Healthcare cost recovery case brought by hospitals. Trial scheduled to start in

January 2006.

Curtis Minnesota PMUSA No verdict yet $150 million "Lights" Claim. Will go to trial unless successful motion for summary

judgment or settlement.

Marrone Ohio PMUSA No verdict yet $50 million "Lights" Claim. Will go to trial unless successful motion for summary

judgment or settlement.

73

Cases with Risk of High Payments Only, No Bonding Risk

Case Jurisdiction


Amount of Judgment or no verdict yet

If no verdict yet, potential bonding

requirement CommentsCollora Missouri RJR Tobacco,

RJR Tobacco Holdings

No verdict yet $50 million for MSA signatories and affiliates

"Lights" Claim. Will go to trial unless successful motion for summary

judgment or settlement.Smith Kansas PMUSA

RJR Tobacco Lorillard B & W

No verdict yet $25 million (MSA signatories)

Price-fixing claim. Class certification not appealable.

British Columbia British Columbia Provincial court

(federally appointed)

PMUSA Philip Morris Intl RJR Tobacco RJR Tobacco

Holdings

No verdict yet It appears that no bonding would be required.

Healthcare cost recovery case brought by hospitals.

Awaiting review of receivability of claim by

Canadian Supreme Court.

Legal Issues

Presented by:

Stephen MacyAsset Finance Group

Presented by:

Stephen MacyAsset Finance Group

June 23, 2005

75

Legal Risk Analysis: Two Directions

Traditional bankruptcy remoteness concerns

Deal-specific legal issues

76

Traditional Bankruptcy Remoteness

Basic concern: securities-issuing entity remains legally unaffected by bankruptcy of other deal participants

Deal sponsor is greatest worry

Often the (ultimate) parent of the issuer

Other affiliates

Sister companies or subsidiaries

Servicer replacement issues

77

Legal Theories

Recharacterization of sale as financing

Substantive consolidation of issuer with bankrupt affiliate

Voidable preference

Fraudulent conveyance

78

Heightened concern because:

Facts may be closer to problem cases

Especially where assets are not financial assets that convert to cash by their terms

Uniqueness of deals means adverse legal decision does not necessarily affect any sizeable industry

Easier to restrict decision to its facts

Judges less leery of upsetting established markets

79

Deal-specific Issues

Not a natural kind

Particular legal issues unique to particular asset types

No useful general conclusions

Must look at specific examples

80

Example: Life Insurance

Questions re insurable interest

Solicitation by brokers

Attitude of state insurance commissioner

Credit enhancement for potential problems

State registration requirements

State Life Settlement laws

81

Example: Tobacco Lawyers Fees

MSA issues discussed already

Separability of Fee Agreements from MSA

Compliance with professional guidelines

Challenges to size of fee awards

82

Example: Intellectual Property

Core assets issues

Assuring patent, trademark and copyright protection

Federal filings, opinions, etc.

83

Example: Aircraft

Foreign jurisdictions

Maintenance of security interests

Ability to repossess aircraft under defaulted leases

May need first to foreclose on stock of aircraft-

owning company, then to begin repossession effort

Titling and tax issues

May require additional structuring

Intellectual Property

Presented by:

Olga FilipenkoAsset Finance Group

Presented by:

Olga FilipenkoAsset Finance Group

June 23, 2005

85

Intellectual Property

Film Receivables

Trademark Licensing

Franchise Fees

Patent Licensing Royalties

Music Royalties

What has been securitized to date?

86

Film Receivables

87

Assets Include

The entire output of a studio

The tangible film materials as well as rights to

Release, distribute and exhibit

Receive gross receipts from agreements the studio already has with distributors

Enter into new distribution agreements

88

Different Distribution Windows

provide for different streams of cashflows

Applicable for domestic and international

Theatricals

Home Video

Pay TV

Free TV

89

Types of Transactions

Advancing against Ultimates

Films included after domestic release

$1B DreamWorks (2002) and $950M Vivendi Universal (2003)

Slate Financing

Future in the can films of a studio

$900M Village Roadshow (2003) and $300M Melrose Investors (2004)

90

Types of Transactions: Advancing against Ultimates

Advancing against Ultimates of each movie after theatrical release

Reduced exposure to the film performance risk

Credit Protection

Over-collateralization depending on advance rate

True sale from studio (expenses from reserve account)

Amortization triggers tied to accuracy of ultimate projections, asset and expense coverage

91

Types of Transactions: Slate Financing

Portfolio of future films of a studio

Films production costs and limited portion of studio overhead are financed

Exposure to film performance risk

Credit Protection

Subordination of distribution expenses

Diversity by the portfolio of films and minimum number of films to be included

Triggers tied to asset and debt service coverage as well as financial condition of the studio

92

Outlook for Film Receivables

Future transactions

Slate financing with distribution costs on the top of the waterfall

Partnership type agreements

Include films from multiple studios in one deal

At least three transactions in 2005

93

Trademark Licensing

94

Assets Include

The trademark

Royalties generated from the sale of licensed branded products

Could include sales through

3rd Party License Wholesale Retail

95

$53M BCBG Max Azria Deal Rated in 2004

Collateral

All current and future trademarks

Royalties generated by the licensing of those trademarks to 3rd parties and parent company

Credit Protection

Over-collateralization and reserve

Triggers capturing excess cash when royalty streams fall below certain levels

IPIFS Guarantee Corp. arranged LOC for the benefit of one class of the notes

96

Credit Issues Considered in BCBG Analysis

The history and longevity of the trademark

Competition and the trademark positioning

Projected cash flows from wholesale and retail sales

The current licenses in place including credit quality of the 3rd party licensees, minimum payments, and potential renewals

The manager/servicer of the trademark

Reliance of the trademark on a single person for artistic direction

Potential market for the trademark in distressed situations

97

Past Activity: Trademark Licensing

Other apparel trademark transactions rated:

$75M Guess?, rated Baa2 in 2003

$20M Candies, rated Baa3 in 2002

$23M Bill Blass, rated Baa3 in 1999

98

Franchise Fees

99

What are the Assets?

Intellectual property of the concept

Franchise fees paid by franchisee for the right to use name and concept

Additional revenues might include upfront amounts paid when new stores are opened

If franchisor provides certain specific materials to franchisees, then the profits on these materials might also be included

100

Key Points to Consider in Analysis

Strength of the concept

Industry overview

Reason for securitization

Historical data on the performance

Role and strength of franchisor/servicer

Need for back-up servicer

Legal concerns (core assets, true sale, non-consolidation, fraudulent conveyance)

101

Recent Activity

Rated several concepts

Athletes Foot, footwear industry, rated Baa3 in 2003

$290M Arbys transaction, fast food restaurant industry, rated Aaa in 2000

In 2005, downgraded Athletes Foot Asset-Backed Notes to Ba2 following parent companys bankruptcy filing

Closing of company-owned stores

True sale not challenged in bankruptcy

102

Patent Licensing Royalties

103

Only Drug Royalty Patent Transactions Rated To Date

Assets include

Rights to receive royalties and contingent pay rights for a pool of pharmaceutical products

Moodys has historically looked at other patents, factors to consider are

Risk of obsolescence

Diverse uses of patents

A pool of patents as compared to only one patent

104

Drug Royalty Transactions Rated

$225M Royalty Pharma transaction rated Aaa in 2003

MBIA guarantee

Upsized twice

to allow for acquisition of additional patents

due to better than expected performance

$229M Paul Royalty transaction rated Aaa in 2004

Ambac guarantee

105

Points Considered in Rating Paul Royalty Transaction

Performance of the drugs in the pool

Diversity in product application and uses of the collateral

Credit quality of licensees responsible for paying the royalties

Risk of the drug recall by FDA

Servicer

Aircraft

Presented by:

Parla OzgedizAsset Finance Group

Presented by:

Parla OzgedizAsset Finance Group

June 23, 2005

107

Three Major Segments of Aircraft ABS

Revenue StreamAircraft Type

LoansCorporate Jets

Operating LeasesCommercial Jets

Finance LeasesRegional Jets

108

Regional Jet Lease-Backed Securitizations

RJs: small capacity jets, usually under a 100 seats

Cashflow Stream: Finance leases

Series of rental payments over the useful life of the aircraft

Lessee is entitled to acquire the title of the aircraft

Lessee is responsible for maintenance, taxes and insurance of the aircraft

109


70EmbraerERJ170/175

50-70EmbraerERJ135/140/145

90BombardierCRJ900

70BombardierCRJ700

44-50BombardierCRJ100/200/440

SeatsManufacturerType

NEW GENERATION

50SaabSaab 2000

25/78Fokker AircraftF28/70/100

32-70Fairchild Aerospace328 Jet/728 Jet/ 428 Jet

85-100BaE SystemsAvro-RJ 70/85/100

60-100McDonnell DouglasDC 9-10/30

SeatsManufacturerType

OLD GENERATION

110


Emerging Asset Class with some initial challenges:

Relatively younger and immature market compared to commercial aircraft

Not statistically significant data

Affiliation of regional airlines with major airlines-good and bad

Highly concentrated in North America

Finance lease structure- not a liquid operating lessee base

111


Rating Approach

Three different perspectives: Portfolio, Lessee, Servicer

Portfolio:

Asset Type: mainly 50-70 seat new generation

Age

Current Market Values and Base Values

112


Rating Approach

Lessee:

Credit Quality- low single B

Correlation of default probabilities within the

regional operators in the portfolio

Geographical/Jurisdictional Concentration

113


Rating Approach

Servicer: Usually the manufacturer itself

Review of servicers total owned and managed

portfolio

Marketability Reach: Lessee Connections

Historical Repossession/Remarketing experience,

Strategy on Repossessions

Sale Values

114


Quantitative Analysis

Monte Carlo Simulation

Simulated Variables:

Lease payments upon default of the lessee

Lease Rate Factor: Lease Rate/ Value of the aircraft

Default of the lessees, correlations incorporated

Aircraft Value curve

115


Historical Issuance

Three private, synthetic transactions

Insurance protection

Outlook

Possibly one or two transactions this year

116

Commercial Aircraft Lease-Backed Securitizations

2004 Market Review

No new pooled aircraft securitization

More Downgrades

2005 Outlook

Slow pick-up in the securitizations through acquisitions of servicers

Repack proposals

117

Corporate Aircraft Financing

Corporate Jets:

Loans to high net-worth individuals to finance acquisition of corporate jets

Corporate Jets vs. Commercial Jets

Productivity vs generating revenue

Maintenance and useful life

Major Players: Banks and Finance Companies such as GE, AFG, CIT, Textron, GMAC

118


Historical Activity:

Textron Transactions (1997, 2000, 2001)

GE Transactions (2003, 2004)

119


Quantitative Analysis

Shift from Static Pool Analysis to Monte Carlo Simulation

The variables include:

Depreciated appraised value of the aircraft

Obligor defaults and prepayments

Economic recessions

Repossession costs, repossession timing

and finally upon default the sale value of the

corporate aircraft

120


Outlook

Currently Quiet, big players may return

Small Business Loans

Presented by:

Michael McDermittAsset Finance Group

Presented by:

Michael McDermittAsset Finance Group

June 23, 2005

122

Issuance History

Slow Growth in 1990s

Consolidation Phase in Early 2000s

Return To Growth Mid-2000s

Average Deal Sizes Also Larger

123

Annual New Issue Volume

$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,000

$3,500,000,000

$4,000,000,000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

YTD

124

Annual Volume By # Deals & # Issuers

0

2

4

6

8

10

12

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005YTD

# New Issues # Issuers # Repeat Issuers

125

Credit Performance History

Credit Performance By Downgrade Activity Excellent

TMS Business Loan Trust 1997-1

FNBNE (1998)/ FIB (1999 & 2000)

Total of $365 Million Across 7 Deals

Defaults: FIB Sub/Mezz Classes, < $8MM UPB

126

Major Participants Then & Now

1990s

The Money Store

2000s

Lehman Small Business Finance (fmr. div. CNL)

GECC Small Business & Middle Market divs.

BLX (subsid. Allied Capital)

BayView Financial

127

Types Of Loans

Unguaranteed Portion of SBA 7(a) Loans

Cannot be mixed in pool with other types

Companion Loans to SBA 7(a) & 504

Conventional Loans

Conventional & Companion loans may be mixed in same pool

128

Typical Collateral & Underwriting

1st Lien on Commercial RE Usually Main Collateral

May Be Supported By Liens on Ancillary Real Estate or Equipment

Personal Guarantees Are Common

Underwriting DSCR: Business, Real Estate, or Combined Business/ Personal

FICO Sometimes Obtained As Supporting Factor

129

Wide Variety of Borrowing Terms

Fixed or Floating Interest Rate

Fully Amortizing or Balloon

Owner Occupied or 3rd Party Tenanted

Special Purpose or General Purpose Property

130

Issuer Differentiation

Historic: Small Business Oriented

Focus on Owner Occupied Properties

Often Special Purpose e.g. Restaurants/ Hotels

Personal Guarantees Required

Added: Commercial Real Estate Oriented

3rd Party Tenanted Properties Common, More General Purpose (Office, Apartment, Strip Malls)

Personal Guarantees May Not Be Required

131

Typical ABS Deal Structure

Pro Rata Structure most common

Credit Tranched Aaa to A/Baa

$150MM to $750MM

Excess Spread Available for Enhancement

132

Rating Issues

Product & Property Mix

Obligor Diversification

At Issue/ At Tail

Gross Defaults

Recoveries

Balloon Maturities

133

Rating Approach Quantitative Methodology

Choose Model To Fit Issuer/Pool Characteristics

Key Pool Metrics Vs. Prior Deals and Other Issuers

Key Drivers Application

Discrete asset model Default frequency by obligor or obligor group Pool Concentrations/ Balloons collateral types & recoveries by type Limited Historical Default Data

Cash flow model Default frequency & recovery rate Granular Pool

Good Historic Default Data Multiclass model Expected loss & variability thereof Granular Pool

Good Historic Default Data Consistent Recovery Rate

Equipment Leases

Presented by:

Kent BeckerAsset Finance Group

Presented by:

Kent BeckerAsset Finance Group

June 23, 2005

135

Issuance Down in 2004

Year Public (Bil) 144A Market (Bil)

2005 YTD $3.6 ---

2004 $5.1 $2.1

2003 $6.8 $3.1

2002 $5.3 $1.5

2001 $6.9 $2.5

136

Recent Reduction in Issuance Due to:

Exit of smaller leasing companies

Acquisitions by larger companies less reliant on securitization

137

Public Issuers in 2004

Caterpillar

CIT

CNH

GE

John Deere

138

Public Issuers in 2005

John Deere-$741 million

CAT-$854 million

GE-$636

CNH-$1.38 billion

139

144 Issuers in 2004

CIT

CNH

Frontier

GE

GreatAmerica

Marlin

140

Equipment Types Unchanged

Ag & Construction equipment

Office equipment: computers, copiers, faxes

Manufacturing equipment

Average balance: $25,000-$250,000 for ag & construction; $5,000-$50,000 for office equipment

141

Structures

Pro-rata principal pay deals dominate, but more sequential pay deals coming to market

Emergency principal structure shuts off interest to subordinate classes if subs are undercollateralized

142

Credit Performance Improves Recently

Stronger liquidity of obligors due to stronger economy

Telecom, manufacturers, high tech stronger sectors

Tighter controls implemented by servicers in collections and workout functions

Improved recoveries on repos due to stronger demand for used equipment

Upgrades in ag & construction sector (CNH, Deere, CAT)

143

Industry Plagued by Blowups

DVI

ICON

Prime

T&W

144

Backup Servicing Important

Backup maps servicing systems

Recalculates servicing reports

Servicing transfer triggers based on deal performance, financial covenants, or servicers other existing debt facilities

145

Outlook

Modest increase in issuance as equipment needs grow due to improving economy

144A market should grow as small leasing companies enter the market

Credit performance should remain stable in 2005

146

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2005 Esoteric Asset-Backed Securities Investor BriefingWireless TowersWireless Towers (I)Wireless Towers (II)Transactions to DateA Tower that is Aesthetically AppealingWireless TechnologyWireless TechnologyWireless TechnologySingle Tower Cash Flow MechanicsHow does Moodys Evaluate the Cash Flows?How does Moodys Evaluate the Cash Flows?How does Moodys Evaluate the Cash Flows?How does Moodys Evaluate the Cash Flows?How does Moodys Evaluate the Cash Flows?How does Moodys Evaluate the Cash Flows?How does Moodys Evaluate the Cash Flows?How does Moodys Evaluate the Cash Flows?Structural and Legal ProvisionsStructural Flexibility in Rated TransactionsConclusion: Not Just by the NumbersLife InsuranceLife Insurance ProductsLife SettlementsWhat is a Life Settlement?Issuance in the ABS MarketWhat are the Primary Risks in a Life Settlement Deal?Risks in a Life Settlement Deal:Life Settlement Company/ServicerRisks in a Life Settlement Deal:Credit of Insurance Companies and Other EntitiesRisks in a Life Settlement Deal:Timing of Cash flows (Part 1)Risks in a Life Settlement Deal:Timing of Cash flows (Part 2)Risks in a Life Settlement Deal:Timing of Cash flows (Part 3)Risks in a Life Settlement Deal:Timing of Cash flows (Part 4)Risks in a Life Settlement Deal:Timing of Cash flows (Part 5)Life Insurance/ Life AnnuityWhat is a Life Insurance/Life Annuity Transaction?Cash Flows of a Life Insurance/Life Annuity Deal:What are the Economics Behind the Deal?Life Insurance/Life Annuity Deals Involving CharitiesOther Life Insurance/Life Annuity ProposalsTobacco SettlementsIntroductionMSA Revenue Asset CharacteristicsMSA Revenue Deals Rated by MoodysTobacco Legal Fee Asset CharacteristicsTobacco Legal Fee Asset CharacteristicsLegal Fee Revenue Deals Rated by MoodysTobacco Quota Revenue Asset CharacteristicsTobacco Quota Revenue ConcernsTobacco Quota Deals Rated by MoodysMSA Revenue Stream FeaturesMSA Revenue Stream FeaturesMSA Revenue Stream FeaturesMSA Revenue Stream FeaturesMSA Revenue Stream FeaturesMSA Revenue Stream: Volume AdjustmentMSA Revenue Stream: NPM AdjustmentNPM Adjustment: Diligent EnforcementFreedom Holdings, Inc. v. Eliot SpitzerFreedom Holdings, Inc. v. Eliot SpitzerFreedom Holdings, Inc. v. Eliot SpitzerPositive News on Tobacco Company LitigationConclusion: Legal Opinions ImportantTobacco Litigation UpdateOur ViewWhy Litigation Clouds Could LiftWhy Litigation Clouds Could LiftCases with Some Bonding Risk and/or Risk of High PaymentsCases with Some Bonding Risk and/or Risk of High PaymentsCases with Risk of High Payments Only, No Bonding RiskCases with Risk of High Payments Only, No Bonding RiskLegal IssuesLegal Risk Analysis: Two DirectionsTraditional Bankruptcy RemotenessLegal TheoriesHeightened concern because:Deal-specific IssuesExample: Life InsuranceExample: Tobacco Lawyers FeesExample: Intellectual PropertyExample: AircraftIntellectual PropertyIntellectual PropertyFilm ReceivablesAssets IncludeDifferent Distribution WindowsTypes of TransactionsTypes of Transactions: Advancing against UltimatesTypes of Transactions: Slate FinancingOutlook for Film ReceivablesTrademark LicensingAssets Include$53M BCBG Max Azria Deal Rated in 2004Credit Issues Considered in BCBG AnalysisPast Activity: Trademark LicensingFranchise FeesWhat are the Assets?Key Points to Consider in AnalysisRecent ActivityPatent Licensing RoyaltiesOnly Drug Royalty Patent Transactions Rated To DateDrug Royalty Transactions RatedPoints Considered in Rating Paul Royalty TransactionAircraftThree Major Segments of Aircraft ABSRegional Jet Lease-Backed SecuritizationsRegional Jet Lease-Backed SecuritizationsRegional Jet Lease-Backed SecuritizationsRegional Jet Lease-Backed SecuritizationsRegional Jet Lease-Backed SecuritizationsRegional Jet Lease-Backed SecuritizationsRegional Jet Lease-Backed SecuritizationsRegional Jet Lease-Backed SecuritizationsCommercial Aircraft Lease-Backed SecuritizationsCorporate Aircraft FinancingCorporate Aircraft FinancingCorporate Aircraft FinancingCorporate Aircraft FinancingSmall Business LoansIssuance HistoryAnnual New Issue VolumeAnnual Volume By # Deals & # IssuersCredit Performance HistoryMajor Participants Then & NowTypes Of LoansTypical Collateral & UnderwritingWide Variety of Borrowing TermsIssuer DifferentiationTypical ABS Deal StructureRating IssuesRating Approach Quantitative MethodologyEquipment LeasesIssuance Down in 2004Recent Reduction in Issuance Due to:Public Issuers in 2004Public Issuers in 2005144 Issuers in 2004Equipment Types UnchangedStructuresCredit Performance Improves RecentlyIndustry Plagued by BlowupsBackup Servicing ImportantOutlook

moodys presentation 2005

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