South Carolina Government Finance Officers

Presentation to

2010 Fall Conference

October 18, 2010

BABs & RZEDBs Market Dynamics and TrendsProgram Update

Program Summary, Proposed Legislation and Outlook

Offer municipal issuers access to taxable buyer base and reduced costs, particularly at long maturities

Over $129bn issued to date, comprising about 27% of total municipal issuance during the same period

The current legislation expires at the end of 2010

The extension of the programs is still unclear

In June, Congress failed to pass a Jobs Bill which would have extended the BAB programs through December 31, 2012 at reduced subsidy of 32% and 30% in 2011 and 2012, respectively

The prospects of the ARRA programs are currently unclear

Issuers have to decide to issue BABs and RZEDBs before the expiration and grapple with unknowns including a likely lower rebate level if an extension does pass

2010 issuance is expected to remain strong around $100 billion, with likely surge of volume near the year end when the current legislation expires

Steady monthly volume

Increased knowledge and acceptance of municipal credits by traditional taxable investors

Continued demand for long duration BABs & RZEDBs from pensions and insurance firms to offset liabilities

Overview of BABs Issuance to Date (1)

Call Features – 30% with Par Calls

Size – Majority under $250 Million

Volume – Over $129Bn Since Inception

Maturities – 63% over 22 Years

BABs & RZEDBs Market Dynamics and Trends

____________________(1) Source: Bloomberg and Thomson Reuters. Data as of 9/13/2010.

Bil

lio

ns

Nu

mb

er o

f D

eals

05,000

10,00015,00020,00025,00030,00035,00040,000

Apr 09

May 09Ju

n 09Ju

l 09

Aug 09Sep

09Oct

09

Nov 09

Dec 09Ja

n 10

Feb 10Mar

10Apr

10

May 10Ju

n 10Ju

l 10

Aug 10

Sep-10

*

$Mil

lio

ns

0.0%

5.0%10.0%

15.0%

20.0%

25.0%30.0%

35.0%

BABs Fixed rate Tax-exempt % BABs

$0

$2

$4

$6

$8

$10

$12

$14

Apr-0

9

May

-09

Jun-

09

Jul-0

9

Aug-0

9

Sep-0

9

Oct-09

Nov-09

Dec-09

Jan-

10

Feb-1

0

Mar

-10

Apr-1

0

May

-10

Jun-

10

Jul-1

0

Aug-1

0

Sep-1

0*

Bil

lio

ns Make-Whole Call Par Call

23.2

7.8

19.3

25.5

21.7

15.7

19.1

1493273134

223

1303

0

200

400

600

800

1000

1200

1400

0.0

5.0

10.0

15.0

20.0

25.0

30.0

<50 50-100 100-250 250-500 500-750 750-1000

1000+

Overview of Issuance to Date (1)

Ratings – 68% with AA or HigherSectors – Broadly Diversified

BABs & RZEDBs Market Dynamics and Trends

____________________(1) Source: Thomson Reuters. Data as of 8/6/2010.(2) Based on a large, highly rated, GO BAB issue.

Typical Investor Distribution (2) ~ 50% Are Traditional Municipal Bond Buyers:

Mutual Fund (i.e. Bond Fund)

Investment Advisory (with tax-exempt market research capacity)

Property Casualty Insurance Company

Retail

~ 50% Are Non-Traditional Municipal Bond Buyers

Life Insurance Company

Investment Advisory

Foreign Banks

Pensions

Hedge Funds

Corporation

* - Hedge Funds, Governmental, Pensions

OthersHigher Education

Toll & Turnpike

Power

Water & Sewer

Leases Tax Revenues

GO State

GO Local

24%

21%

11%8%

8%

7%

7%

6%8%

RetailCorporate

Other*

Bank

Mutual Fund

Insurance

Investment Advisory

27%

27%

28%

7%

7%3%

BBB

A

AA

AAA

12%

56%

30%

2%

BABs Market Dynamics and TrendsTop BABs Holders (1)

Account NameAmount of BAB Owned ($000)

1 Pacific Investment Management Co LLC (PIMCO) $4,159,7662 Metropolitan Life Insurance Co (Investments) (MetLife) $1,908,2053 MFC Global Investment Management (US) LLC $1,798,4844 Delaware Investments $1,492,3305 AIG Asset Management (US) LLC $1,424,3506 Loews Corp $1,126,6407 USAA Investment Management Co $1,059,4908 Allstate Investment Management Co $1,019,3309 Prudential Investment Management-Fixed Income (PIM Fixed Income) $993,672

10 GE Asset Management Inc $935,98411 United American Insurance Co $804,29012 Country Trust Bank $801,72513 Wellington Management Co LLP $794,11314 BlackRock Financial Management Inc (Fixed-Income) $686,25115 Nationwide Insurance Co (Office of Investments) $679,83516 Franklin Templeton Investments $528,97217 Guggenheim Investment Management LLC $522,29718 Aviva Investors North America Inc $498,80819 Nuveen Asset Management Inc $489,40120 EquiTrust Investment Management Services Inc $460,63821 Penn Mutual Life Insurance Co $456,82022 General Re-New England Asset Management Inc $437,98123 American Family Life Assurance Co (AFLAC) $424,31524 40/86 Advisors Inc $423,25025 Liberty Mutual Insurance Co $413,73526 Advantus Capital Management Inc $413,22827 Protective Life Corp $411,55528 Columbia Management Investment Advisers LLC $397,98229 AllianceBernstein LP $390,20830 Stancorp Investment Advisers Inc $356,986____________________

(1) Source: eMAXX as of 6/30/10

Muni-Style 10-Year Par Call vs. Corporate Style Make-Whole Call

10-Year Par Call Make-Whole Call

Description Issuer’s right to redeem bonds at par in 10 yrs

Issuer’s right to redeem bonds at the greater of

par value or make-whole value discounted at a

predetermined fixed spread to treasuries

% of Total Par Amount ~ 34%; Have achieved greater but limited

acceptance in the taxable market ~ 66%; Preferred by taxable investors

Average Cost to Issuer 40-50 bps, or 22-32.5 bps net of subsidy 0 bp

Reasons to Use

- Refunding flexibility and potential savings

- Option cost is subsidized at 35%

- Required by law or debt policy

- No impact on pricing

- Access market with a large deal size

- A view of rising interest rates

Alternatives

- Use a longer par call (i.e. 20-yr) with a

longer maturity bond (i.e. 40-yr)

- Reduce option cost by about 25 bps

- Capture refunding opportunities when rolling

down the curve from 40-yr to 20-yr

BABs & RZEDBs Market Dynamics and Trends

75.00%

95.00%

115.00%

135.00%

155.00%

175.00%

195.00%

215.00%

9/22/00 9/22/02 9/22/04 9/22/06 9/22/08 9/22/10

MMD/UST 10Y Ratio MMD/UST 30Y Ratio

Municipal Spreads and Ratios

____________________(1) Source: Bank of America Merrill Lynch.

BAB Spreads Are Grinding Tighter in the Past Weeks (1)

Muni Credit Spreads to AAA (1) Ratios Are Above Averages

Market Update

050

100150200250300350400

Apr

-09

May

-09

Jun-

09

Jul-0

9

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Max Min Average

10Y Ratio 30Y Ratio

Current 91.2% 98.9%Average 87.7% 97.6%

0

2040

60

80

100120

Dec-09 Feb-10 Mar-10 May-10 Jun-10 Jul-10 Sep-10

AA

& A

spre

ad (b

p)

100120140160180200220240

BBB spre

ad (b

p)

Municipals Revenue AA Municipals Revenue A

Municipals General Obligation A Municipals Revenue BBB

Syndicate Dynamics – Typical Timeline and Process

Tax-Exempt vs. Taxable Syndicate

- 1 Week

Mailing of POS Rating Reports

Investor Presentations Posted

-2 to 3 Days

Mailing of POS Rating Reports

-1 Day 0

Retail Order Period

+1 Day-1 to 2 Days

Tax-Exempt Syndicate

Taxable Syndicate (including BABs & RZEDBs)

Preliminary & Final Pricing

Formal Award

Formal Guidance Launch Pricing Set Coupons/Formal

Award

Whisper Talk Preliminary Guidance

Investor Presentations Posted

Addressing Dual Marketing Plans

Investor Conference Call (If Needed)

Patriots Energy Group, Gas System Revenue Bonds, Series 2010 A&B

Yield Model for Selecting Uninsured Tax-Exempt (A2)Versus Uninsured RZEDBs (A2) Maturities

Market as of July 8, 2010

Tax-Exempt Rates Recovery Zone Economic Development Bond RatesUninsured Non-Call 10-year Par Call 10-YR Call

Maturity AAA PEG Total Total Total Treasury 10-Year Par Call TE YTM vs. If 10-Year(Year) MMD Spreads Yield YTC YTM Maturity Yield Spread Yield Yield * 55% RZEDBs Par Call:

12 0.47% 0.95% 1.42% 1.42% 1.42% 2-year 0.62% 2.65% 3.27% 1.80% 0.38% TE3 0.78% 1.00% 1.78% 1.78% 1.78% 3-year 0.99% 2.75% 3.74% 2.06% 0.28% TE4 1.08% 1.05% 2.13% 2.13% 2.13% 5-year 1.80% 2.70% 4.50% 2.47% 0.34% TE5 1.45% 1.10% 2.55% 2.55% 2.55% 5-year 1.80% 2.90% 4.70% 2.58% 0.03% TE6 1.82% 1.15% 2.97% 2.97% 2.97% 7-year 2.47% 2.75% 5.22% 2.87% -0.10% RZB7 2.09% 1.15% 3.24% 3.24% 3.24% 7-year 2.47% 2.95% 5.42% 2.98% -0.26% RZB8 2.29% 1.15% 3.44% 3.44% 3.44% 10-year 3.02% 2.65% 5.67% 3.12% -0.32% RZB9 2.49% 1.15% 3.64% 3.64% 3.64% 0.43% TE10 2.67% 1.20% 3.87% 3.87% 3.97% 0.10% TE11 2.82% 1.20% 4.02% 4.02% 4.09% -0.02% RZB12 2.95% 1.20% 4.15% 4.15% 4.26% -0.19% RZB13 3.07% 1.20% 4.27% 4.27% 4.40% -0.33% RZB14 3.19% 1.20% 4.39% 4.39% 4.53% -0.46% RZB15 3.30% 1.20% 4.50% 4.50% 4.63% -0.56% RZB16 3.40% -0.87% RZB17 3.49% -0.87% RZB18 3.56% -0.87% RZB19 3.63% -0.87% RZB20 3.70% 1.20% 4.90% 4.90% 4.94% 30-year 4.00% 3.40% 7.40% 4.07% -0.87% RZB21 3.77% -1.02% RZB22 3.83% -1.02% RZB23 3.88% -1.02% RZB24 3.91% -1.02% RZB25 3.94% 1.20% 5.14% 5.14% 5.14% -1.02% RZB26 3.95% -1.07% RZB27 3.96% -1.07% RZB28 3.97% -1.07% RZB29 3.98% -1.07% RZB30 3.99% 1.20% 5.19% 5.19% 5.19% 30-year 4.00% 3.50% 7.50% 4.13% -1.07% RZB

* Decision analysis based on TE YTM, however YTC is also a relevant consideration.Notes: "TE" = Tax-Exempt; "NC" = Non-Callable; "YTC" = Yield to Call; "YTM" = Yield to Maturity; "RZB" = Recovery Zone Economic Development Bond