What S

1
Swaps and Other Derivatives
NAST Treasury Management ConferenceDecember 5-7,
2004Doubletree Paradise ValleyScottsdale,
Arizona
Presented by
2
Todays Agenda

• Opening the Black Box of Swaps

• Hedging Debt Issuance with Swaps

• Swaptions and Embedded Options

• Credit Exposure Associated with Swaps

• Floating Rate Exposure with Swaps

• Ongoing Monitoring of Swaps

3

• Opening the Black
• Box of Swaps

4
Swap Market Pricing
Comparative Yield Curves
As of 11/29/04 and Includes 25 basis points for
liquidity and remarketing
5
Swap Market Pricing

• The LIBOR Swap Curve Is Derived By Adding A
  Swap Spread To The
• Treasury Yield Curve.

LIBOR Swap Rate
Maturity
Treasury Yield
Swap Spread
As of 11/30/04
6
Swap Market Pricing

• The BMA Swap Curve Reflects Current Long-Term
  Taxable Interest Rates and Credit Spreads and
  Future Expected Short-Term Taxable / Tax-Exempt
  Ratios.

(C)
(B)
LIBOR Swap Curve(A B)
(A)
BMA Swap Curve (A B) x C
Years to Maturity
On-the-Run Treasury Rate
LIBOR Indexed Swap Spreads
BMA/LIBOR Percentage
As of 11/30/04
7
Swap Market Pricing

• The BMA Swap curve is derived by multiplying a
  percentage to the LIBOR swap curve

As of November 30, 2004
As of January 3, 2002
BMA Percentage
BMAPercentage
Maturity
Maturity

• The BMA Percentage represents the markets
  expectation of the future BMA / 1-Month LIBOR
  ratio.

8
Swap Market Pricing
Mid Market Rate Execution Cost Credit
Reserve Profit All-In Swap Rate
9
Swap Market Pricing

• Indirect Factors which Influence Swap Pricing
• Supply of Bonds
• Demand for Bonds
• Hedging Activity (e.g. corporate issuance)
• Credit Perceptions (e.g. Long-Term capital
  situation)
• Mortgage Prepayments
• Etc.

10

• Hedging Debt Issuance
• with Swaps

11
New Market Environment Rising Interest Rates

• The Federal Reserve began tightening the Fed
  Funds Rate at the June 30th FOMC meeting in
  response to signals of a strengthening economy.
• Bear Stearns Economist is currently projecting
  sharp increases in rates
• Federal Funds target rate to 3.80 by the end of
  2005
• Ten-year Treasury rate to 5.80 by the end of 2005

Historical Interest Rates and Bear Stearns
Projection
Yield
Bear StearnsProjectedIncreases
10-Year Treasury



Fed Funds Target Rate
12
Rate Lock - General

• A rate lock is designed to hedge an Issuers
  interest cost for a future issue of bonds.
• The rate lock mechanics include locking in a rate
  prior to bond pricing and, at pricing, an
  exchange of payments which reflect the subsequent
  change in rates
• The Issuer receives a payment from the provider
  if the actual rate is higher than the locked rate
• The Issuer makes a payment to the provider if the
  actual rate is lower than the locked rate
• The amount of the payment is intended to equal
  the present value of the increase or decrease in
  interest rates vs. the locked rate

Rate Lock Mechanics
Potential Outcomes
One Time Payment(If index is
Index () Payment by Bear Stearns Payment by
Issuer

Issuer
Swap Counterparty / Dealer
YIELD ()
Locked Rate ()

One Time Payment(If index is locked rate)
ActualRates
PV ()
Locked Rate
PV ()
Proposed Bonds
Bond Pricing
Rate Lock Execution
TIME
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Rate Lock General

• Rate lock contracts are based on objective market
  indices rather than the Issuers actual assumed
  market-based bond rate.
• Rate lock agreements, therefore, do not guarantee
  the Issuers actual market yield on its bonds.
• The Issuers effective interest rate at bond
  closing is equal to the locked index rate plus or
  minus the issuers trading differential vs. the
  index.
• The Issuer maintains the risk that its bonds,
  when issued, will trade at a different spread to
  the hedged index (i.e., the Issuer has basis
  risk).

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Hedging Alternatives

• There are a number of alternatives that enable
  Issuers to hedge the interest cost associated
  with future issuance of debt.
• MMD Rate Lock
• BMA Forward Starting Swap
• LIBOR Forward Starting Swap

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Rate Lock Cost vs Basis Risk
Cost
Basis Risk
MMD Rate Lock Highest Lowest BMA Swap LIBOR
Swap Lowest Highest
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MMD Rate Lock

• In an MMD rate lock, the Issuer and the provider
  agree
• On a notional amount and average life which
  should approximate the hedged bonds
• On the duration of the rate lock
• On a locked MMD AAA rate based on current rates
  plus a forward premium and
• The amount of money per basis point which will be
  paid in the event that MMD AAA rates are
  different from the locked rates upon expiration
  of the agreement.
• MMD rate locks are Cash Settled

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BMA Swap Rate Lock

• In a BMA Swap rate lock, the Issuer and the
  provider agree
• On the notional amount and term of the swap which
  should approximate the hedged bonds
• On the duration of the rate lock and
• On a forward BMA swap rate based on the current
  market plus a forward premium.
• A termination payment is made at the expiration
  of the rate lock which reflects the then current
  market value of the underlying swap or the
  Issuer can enter into the BMA swap at the
  locked-in rate.

Receive Payment Issue Fixed Rate Bonds
Cash Settle
Rates Higher
Physical Settle
Enter into BMA Swap Rate Lock
Issue Floaters
Physical Settle
Rates Lower
Cash Settle
Make Payment Issue Fixed Rate Bonds
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67 of LIBOR Swap Rate Lock

• In a 67 of LIBOR Swap rate lock, the Issuer and
  the provider agree
• On the notional amount and term of the swap which
  should approximate the hedged bonds
• On the duration of the rate lock and
• On a forward 67 of LIBOR swap rate based on the
  current market plus a forward premium.
• A termination payment is made at the expiration
  of the rate lock which reflects the then current
  market value of the underlying swap or the
  Issuer can enter into the 67 of LIBOR swap at
  the locked-in rate.

Receive Payment Issue Fixed Rate Bonds
Cash Settle
Rates Higher
Physical Settle
Enter into LIBOR Swap Rate Lock
Issue Floaters
Physical Settle
Rates Lower
Cash Settle
Make Payment Issue Fixed Rate Bonds
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Basis Risk BMA Swap Hedge

• Municipal bonds are highly correlated to BMA
  swaps. A BMA hedge will outperform an MMD hedge
  if spreads narrow and under perform if spreads
  widen.

Spread Current 31.787
bps Min (4.636) bps Max
57.950 bps Average 30.211 bps
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Basis Risk LIBOR Swap Hedge

• Municipal bonds are correlated to LIBOR swaps. A
  LIBOR hedge will outperform an MMD hedge if
  spreads narrow and under perform if spreads
  widen.

Spread Current 91.543
bps Min 61.635 bps Max
132.033 bps Average 95.323 bps
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Summary of Decisions
Decide

• Decide Today
• Do Nothing
• Rate Lock
• MMD
• BMA Swap
• LIBOR Swap

at Expiration Cash Settle Physical Settle
Considerations Forward Premium Basis Risk
VS.
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Summary of Alternatives

• MMD rate locks remove the MMD volatility from the
  pricing of Tax-Exempt Bonds (i.e., both general
  interest rates and general municipal market
  interest rates)
• The Issuer retains the risk that its bonds could
  trade at wider spreads to the general tax-exempt
  bond market than they would today and
• The Issuer would pay additional yield premium as
  compared to the BMA and 67 of LIBOR Swap rate
  locks.
• BMA and 67 of LIBOR Swap rate locks provide a
  hedge to fixed rate bonds by locking in rates on
  the BMA swap and 67 of LIBOR swap curves
  respectively.
• The Issuer retains the risk that fixed rate
  tax-exempt bonds in general could trade at wider
  spreads to the BMA swap curve and
• The Issuer also retains the risk that its bonds
  could trade at wider or narrower spreads to the
  general tax exempt bond market than they would
  today.

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• Swaptions and
• Embedded Options

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Using Swaptions to Monetize Embedded Bond Options

• Most municipal bonds have a 10-year call
  provision
• The conventional way to monetize the value of an
  Issuers embedded bond call options is through a
  refunding, but refundings only capture a portion
  of the options value
• The theoretically most efficient way to monetize
  call value would be to detach the call from the
  bond and sell the detached option.
• Swaptions provide Issuers with a means of
  synthetically capturing the full value of the
  embedded bond option

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Swaption Basics

• A swaption is the current sale of a future right
  by Issuer to a swap counterparty to enter into an
  interest rate swap on the call date
• If the swap has value to counterparty,
  counterparty would exercise its right to enter
  into a swap
• If the swap has no value to counterparty,
  counterparty would allow the swap to expire
  unexercised
• The swaption premium paid by the Counterparty to
  the Issuer represents the intrinsic value of the
  swap (if exercised today) plus time value
• There are three types of swaptions
• European are exercisable only at the strike date
• Bermudan (or Multi-European) are exercisable on a
  certain date and at intervals thereafter (e.g.,
  semiannually) up to another specified date
• American are exercisable at any time up to and
  including the strike date
• If the counterparty does not exercise, Issuer
  retains up-front premium and call option on
  underlying bonds

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Mechanics of a Swaption
At Sale of Swaption
Swaption Premium
SWAP COUNTERPARTY / DEALER
ISSUER
Option to enter into a swap (Swaption)
At Exercise Date
A. Option is exercised and swap is executed
Issuer pays fixed rate and receives floating
rate. Issuer could issue floating rate bonds to
refund bonds and match swap obligation. Net debt
service post-refunding is essentially unchanged.
Floating TBMA or of Libor
ISSUER
SWAP COUNTERPARTY / DEALER
Fixed Swap Rate
Proceeds from floating rate bonds
Call and retire
Floating TBMA
FLOATING RATE BONDHOLDERS
FIXED RATE BONDHOLDERS
B. Option is not exercised under European
option, option terminates, Issuer keeps up-front
premium and retains call rights to the bonds
under Bermudan option, dealer holds additional
opportunities to exercise
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The Value of the Option is Composed of Time
Value and Intrinsic Value

• Time Value The value component associated with
  the opportunity for yields to move in a direction
  that makes the underlying security worth more
  than the exercise price
• Intrinsic Value The value component associated
  with the difference between the current forward
  yield and the strike rate. There is no intrinsic
  value for an option with a strike rate below the
  current forward yield.

Components of Option Value
Option value ()
Market forward rate
Option premium ()
Intrinsic value
Time value
Point of maximum time value
Strike yield ()
Higher rates
Lower rates
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Four Key Factors Primarily Determine the Value
of an Option

• The length of time for which the option is
  exercisable. This is one of the 2 components of
  time value

• The markets expectation regarding the future
  level of prices. This determines intrinsic value.

• The relationship of the fixed rate for the
  underlying swap to the corresponding on-market
  forward rate.

• The markets implied expectation regarding
  potential variability in yields. Greater
  volatility results in higher time value.

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Option Pricing Sensitivity
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Swaption Candidates Screen Example
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Swaption Considerations

• Advantages
• Captures time value
• Can be repurchased at lower cost in higher rate
  environment
• Enhanced savings compared to forward starting
  swaps
• May provide greater value than an advance
  refunding in a negative arbitrage environment
• Applicable to non-advance refundable bonds

• Disadvantages
• No ability for Issuer to receive unwind payment
  pre-exercise
• May necessitate future floating rate bond issue

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Swaptions with Embedded Options
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Credit Exposure Associated With Swaps
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Credit Exposure Associated with Swaps

• Swaps pose two-way credit risk due to the two-way
  nature of the payments
• Similar to a fixed income security, a swap has a
  market value that changes with movements in
  interest rates
• Because of their two-way nature, swaps can have a
  positive or a negative value to the Issuer
  depending on the features of the transaction and
  the levels of interest rates
• Two key features of swaps that serve to dampen
  credit risk are
• No principal component (notional amount not
  exchanged)
• Netting of fixed and floating payments

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How Dealers Evaluate Credit Exposure

• Dealers assess credit exposure over the life of a
  swap
• Credit exposure models employ statistical
  techniques to evaluate potential mark-to-market
  values over the life of the transaction and over
  varying potential interest rate environments
• The dealers credit reserve for a transaction
  reflects a combination of the mark-to-market
  profiles and the Issuers credit strength

36
How Issuers Evaluate Credit Exposure

• Issuers do not have access to credit departments
  and sophisticated exposure models
• Many Issuers take a simplistic approach that uses
  notional amount as a proxy for credit exposure
• Unfortunately, notional amount is not an accurate
  measure of credit exposure
• Other important factors include duration and the
  fixed swap rate
• Some Issuers have developed more refined
  approaches for evaluating exposure

37
How Issuers Evaluate Credit Exposure
Example of a More Sophisticated Issuer Approach
Towards Exposure
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Managing Credit Risk

• Credit Risk Risk of a default by your
  counterparty.
• Common mitigants include
• Dealing with highly rated counterparties (Aa/AA
  category or higher)
• Collateral provisions
• Termination upon downgrade

39
Floating Rate Exposurewith Swaps
40
Overview of Issuers Outstanding Debt
Net Interest Rate Exposure

• Assumes percentage of LIBOR and BMA
  swaps-to-fixed with underlying floating rate
  bonds as fixed rate exposure

Floating Rate (0)
Fixed Rate (100)
Summary of Bonds and Interest Rate Swaps
Total Par Amount Bonds Outstanding 600,000,000
41
Overview of Outstanding Debt Funding Risks
Committed Funding An investor cannot put a
bond back to the Issuer does not require ongoing
support of liquidity. Uncommitted Funding An
investor has the right to put a bond back to
the Issuer usually requires ongoing liquidity
support.
Debt Mix Committed vs. Uncommitted Funding
Overview
Funding Components
Total 250 million
Traditional Fixed Rate Bonds Fixed Rate Bonds
Swapped-to-Floating Auction Rate
Securities Swapped to Fixed Committed
Funding Uncommitted Funding Variable Rate
Demand Bonds VRDBs Swapped-to-Fixed
Total Current Debt Outstanding 600 million
(mm)
Total 350 million
42
Overview of Outstanding Debt Tax Risk
Tax Risk The risk that the value of tax
exemption diminishes in the future. This may
occur as a result of lower tax rates, a
restructuring of the federal tax system (i.e.
flat tax, value added tax), or other technical
market factors.
Debt Mix Tax Risk Overview
Tax Risk Alternatives
Total 275 million
(mm)
Total Current Debt Outstanding 600 million
Traditional Fixed Rate Bonds Floating Rate Bonds
w/ BMA Swap-to-Fixed NO Tax Risk Tax
Risk Basis Positions (i.e. of LIBOR
Swaps-to-Fixed and Basis Swaps) Tax-Exempt or
AMT VRDBs, ARS, or BMA Swaps-to-Floating
Total 500 million
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Synthetic Floating Rate Debt Overview

• The Issuer desires floating rate exposure so it
  enters into a 15 year fixed receiver swap to
  achieve variable rate exposure on 20 of its
  debt. With a fixed receiver swap, the Issuer
  will not have the burden of ongoing expenses
  associated with traditional VRDBs.
• The transaction can be implemented quickly using
  standardized documentation.
• The synthetic floating swap that will commence on
  the execution of the transaction and lock into
  the difference between the fixed receiver swap
  rate of 4.00 and the BMA index (currently
  1.55).
• Obtaining floating rate exposure utilizing the
  BMA swap market can be more efficient than
  traditional variable rate debt.
• The Issuer has the flexibility to terminate the
  swap at any time at market value (the swap
  Counterparty does not have this same right).
• The Issuer can combine traditional fixed receiver
  swaps with the use of optionality to reduce the
  floating rate it pays and thus lower the
  borrowing rate.

44
Synthetic Floating Rate Debt (Fixed Receiver Swap)
Synthetic floating rate debt is an alternative to
natural floating rate debt
Structure
BMA
SWAP COUNTERPARTY / DEALER
ISSUER
Fixed Rate of 4.00
FIXED RATE BONDS
Current BMA 1.55 120mm 15 Yr fixed
receiver swap as of 12/2/04
Applications
Mechanics

• Manage existing variable rate exposure
• Obtain funding at short end of the yield curve
• Achieve lower floating rate debt vs. natural
  floating rate

• The Issuer will receive fixed and pay floating
  against newly issued or existing fixed rate bonds
• Net cost of synthetic floating rate debt
  floating rate index (bond coupon fixed
  receiver swap rate)

45
Overview of Issuers Outstanding Debt After Swap
Execution
Net Interest Rate Exposure

• Assumes percentage of LIBOR and BMA
  swaps-to-fixed with underlying floating rate
  bonds as fixed rate exposure

Floating Rate (20)
Fixed Rate (80)
Summary of Bonds and Interest Rate Swaps After
Swap Execution
Total Par Amount Bonds Outstanding 600,000,000
46
Overview of Outstanding Debt After Swap
Execution Funding Risks
Debt Mix Committed vs. Uncommitted Funding
Overview
Funding Components
Total 250 million
Traditional Fixed Rate Bonds Fixed Rate Bonds
Swapped-to-Floating Auction Rate
Securities Swapped to Fixed Committed
Funding Uncommitted Funding Variable Rate
Demand Bonds VRDBs Swapped-to-Fixed
Total Current Debt Outstanding 600 million
(mm)
Total 350 million
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Overview of Outstanding Debt After Swap
Execution Tax Risk
Debt Mix Tax Risk Overview
Tax Risk Alternatives
Total 155 million
(mm)
Total Current Debt Outstanding 600 million
Traditional Fixed Rate Bonds Floating Rate Bonds
w/ BMA Swap-to-Fixed NO Tax Risk Tax
Risk Basis Positions (i.e. of LIBOR
Swaps-to-Fixed and Basis Swaps) Tax-Exempt or
AMT VRDBs, ARS, or BMA Swaps-to-Floating
Total 620 million
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Advantages and Disadvantages of Fixed Receiver
Swaps
Advantages of Fixed Receiver Swaps

• No exposure to increased LOC Costs, or
  availability, caused by tightening credit
  enhancement, market conditions or the Issuers
  credit deterioration.
• Achieve variable rate exposure and potentially
  provide a better match of assets to liabilities
• Flexibility to unwind and take market gains.
• Achieve variable rate exposure and lower overall
  cost on fixed rate bonds.

Risks of Fixed Receiver Swaps

• Short term rates could rise above the fixed
  receiver rate of 4.00 creating a negative spread
  (BMA has averaged 3.12 for the past 15 years
  which is much lower than the fixed receiver rate
  of 4.00)
• Tax risk with BMA index swaps.
• Credit exposure to swap counterparty.
• Potential cost if the swap is terminated early
  and swap rates have increased (cumulative savings
  from the swap may provide enough cash to offset
  any termination fees owed by the Issuer).

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Ongoing Monitoring of Swaps
50
GASB Technical Bulletin No. 2003-1

• The objectives and terms of derivative contracts,
  their risks and the fair value of the contracts
  are generally not specified in financial reports
  today, making it difficult to understand how
  governments have been accounting for derivatives.
• In an effort to improve disclosures associated
  with derivative contracts, the Governmental
  Accounting Standards Board (GASB) has issued
  Technical Bulletin No. 2003-1, Disclosure
  Requirements for Derivatives Not Reported at Fair
  Value on the Statement of Net Assets.
• Technical Bulletin No. 2003-1, which supersedes
  Technical Bulletin No. 94-1, specifies the
  accounting guidance that will provide more
  comprehensive reporting by state and local
  governments and gives an updated definition of a
  derivative.
• Under the new guidance, the public will be able
  to see what a government has done, why it was
  done, the fair value of the derivative and the
  risks assumed.
• This is designed to provide information to
  increase the financial statement users
  understanding of the significance and risks of
  derivatives to a governments financial position
  and would provide key information about the
  potential effects of derivatives on future cash
  flows.

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GASB Technical Bulletin No. 2003-1

• The disclosures required by TB 2003-1 are limited
  to derivatives not reported at fair value. Many
  derivatives are already reported at fair value.
  For example, defined benefit plans report all
  investments (including investment derivatives) at
  fair value.
• Therefore, governments that are party to a
  derivative that was not reported at fair value as
  of the date of the financial statements, should
  disclose the following information
• 1) Objective of the derivative Objective for
  entering into the derivative, the context
• needed to understand the
  objective, and the strategies for achieving the
  objective.
• 2) Significant Terms Notional Amount,
  underlying indexes, embedded
• options, effective and
  maturity dates, and amount of upfront cash paid
  or
• received.
• 3) Associated Debt For example, if a
  government issues variable rate
• debt and enters into a
  fixed payer swap, the derivatives net cash flow
  as
• well as the debt service
  requirements should be disclosed.
• 4) Risks Credit, interest rate, basis,
  termination, rollover, and market
• access.
• 5) Fair value If the fair value is not based
  on market prices, the method
• and assumptions used to
  estimate the fair value must be disclosed.
• This Technical Bulletin will be effective for
  periods ending after June 15, 2003. The Bulletin
  may be obtained through the GASB Order Department
  at 800-748-0659 or may be may be accessed from
  the website (http//www.gasb.org/gasb_tb2003-1.ht
  ml).

52
What SPs Debt Derivative Profile (DDP) scores
ARE

• A recognition that municipalities and 501(C)3s
  are using more sophisticated products and
  strategies formerly used only in the corporate
  market.
• An analytical enhancement to an Issuers rating
• A quantitative representation of credit analyses
  that SP has already been doing
• Scoring system of 1 (lowest risk) to 5 (highest
  risk) and there are 4 scoring components
• Issuer termination and collateral posting risk
  (e.g. how close issuers rating is to ISDA-based
  termination triggers)
• Counterparty termination credit risk credit
  strength of swap dealer
• Economic viability of swap portfolio cash flow
  risk measurements
• Quality of swap and debt management policies and
  procedures

53
What SPs Debt Derivative Profile (DDP) scores
ARE

• Investment grade credits are expected to receive
  1 or 2 (neutral credit factor) or 3 (moderate
  credit factor)
• A measure of termination risk of an Issuers
  derivatives portfolio
• Termination values will only be reviewed for
  scores of 3, 4, or 5
• Offsetting financial exposures will be netted
• Applied to interest rate derivatives only
• May be applied to investment derivatives in the
  future
• One score will be published per Issuer credit

54
Derivative Policies and Procedures Main
Components of a Comprehensive Policy

• Goals and Objectives

e.g. a better financial result than traditional
forms of borrowing or investment, greater
flexibility than traditional instruments, a risk
profile not otherwise achievable via traditional
instruments

• Authorizations and Approvals - establishes the
  chain-of-command for authorizing derivative
  transactions

• Identification and Evaluation of Risks -
  describes the various risks associated with
  derivative transactions, as well as the
  importance of analyzing these risks relative to
  the expected benefits from the transactions

e.g. cash flow volatility, mark-to-market
volatility, termination risk, legal risks,
counterparty risk, basis risk, tax risk, rollover
risk, and market-access risk

• Reporting Requirements - establishes a system and
  procedures for monitoring relevant risks on an
  ongoing basis

e.g. periodic mark-to-market reports, updates on
counterparty ratings, and updates on performance
of the derivative(s) to date, including any
offsetting bonds that are hedged by the
derivative(s)

• Permitted Financial Instruments - lists the
  specific types of derivatives that can be
  executed by the issuer

e.g. interest rate swaps, caps, floors, collars,
options, rate locks, etc.
55
Derivative Policies and Procedures Main
Components of a Comprehensive Policy

• Qualified Swap Counterparties list the
  requirements for eligible swap counterparties

• Often tied to credit ratings, capital, and
  experience in the swap market

• Credit Exposure Limits establish individual
  counterparty credit risk limits and/or aggregate
  limits

• Limits should be based on the mark-to-market
  exposure of the issuer to individual
  counterparties. Exposure limits can be scaled to
  take into account the then-current ratings of the
  counterparties

• Guidelines for Derivative Contracts - This
  section establishes a consistent set of legal and
  credit guidelines that are applied to all of the
  issuers derivative contracts

• Procurement Process - outlines the procedures for
  executing derivative transactions on a
  competitive or negotiated basis

• Reasonable differences may exist from one
  contract to the next, owing to the legal nature
  of the counterparty (e.g. bank, broker-dealer,
  special-purpose sub, etc.), but key provisions
  should be the same

56
Swap Portfolio Management Ongoing Monitoring

• Review payment accruals for each swap period
  (first time users of swaps)
• Provide mark-to-market on individual swap
  transactions
• Monthly
• Quarterly
• Semi-Annually
• Annually
• Provide mark-to-market exposure on swap portfolio
  with aggregate exposure to different
  counterparties
• Provide basis analysis since the execution date
  of the swap(s) to present and for the most recent
  period
• Provide termination analysis for swap
  transactions
• Monitor and update the Issuer on its hedging
  position, swap market conditions and resulting
  opportunities that are available

57
Example Termination Analysis Estimated Values not
Guaranteed
58
Example Basis Analysis Since Swap Inception As of
December 1, 2004
Average BMA 1.20 Average 70 of LIBOR
1.02 Average BMA as a of LIBOR 83
59
Example Basis Analysis For Last Quarter As of
December 1, 2004
Average BMA 1.59 Average 70 of LIBOR
1.34 Average BMA as a of LIBOR 83
60
Example Mark-to-Market Report As of November 30,
2004
61
Example Payment Accrual Report As of December 1,
2004
Example Payment Accrual Report as of 12/1/04