THE COMMERCIAL PAPER COOPERATIVE

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THE COMMERCIAL PAPER COOPERATIVE
WALL STREET
WITHOUT WALLS
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WHAT IS COMMERCIAL PAPER?

• Commercial Paper short-term borrowing used by
  corporations to finance a wide variety of high
  and low risk, long and short term assets.
• Why is CP an attractive form of borrowing?
• lower cost than bank loans
• provides long term financing at short-term
• rates
• no SEC registration requirements

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COMMERCIAL PAPER VOLUME
Outstanding Commercial Paper versus CI Loans

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YIELD COMPARISON 1990 - 2005
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PURPOSE OF THE CP CO-OP

• Help CDFIs expand borrowing options lower
  funding costs by
• providing access to the lower rates, lower
  expenses and greater flexibility of the CP market
  
• CDFIs cannot borrow in this market due to
• the size of borrowing need is too small
• rating agencies lack understanding of assets,
  CDFI structure and operations
• CP Coop would provide access by
• aggregating CDFI demand for borrowing
• credit enhancing the risk

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STRUCTURE OF THE CP CO-OP
ABCP Investors Institutional Investors
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CONDUIT REQUIREMENTS
To assure investor repayment - Conduit will
require the Co-op initially to -- Provide a
100 liquidity facility from banks to guarantee
timely payment of principal and interest --
Provide 100 bank credit enhancement The credit
enhancement percentage can be reduced by one of
more factors -- Consolidated bank data on CDFI
asset and loan performance -- Additions to Co-op
Capital -- Additions to CDFI over-collateralizatio
n -- Additions in rated and/or ratable assets
being funded -- Performance of the CDFIs in this
market-based structure over the next several
years.
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CREDIT RISK IN THE CP CO-OP

• The CP Co-op assumes the role of the warehouse
  lender in order to access the commercial paper
  market
• CDFI participants provide the Co-op with
• Pledge of rated and unrated loans
• Over-Collateral percentages as needed to cover
  risk
• Servicing capacity, financial condition and
  performance
• Co-op provides the Banks with
• Minimum 10 equity (first loss) plus earnings
  capacity going forward
• Pledge of secured notes issued by CDFIs
• Community Development Portfolio with improved
  risk diversification
• Capacity to monitor and manage security interest
• Capacity to monitor risk of the CDFI and manage
  stop issuance triggers

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THE BANK POSITION

• Lead Bank arranges a syndicate of banks for the
  liquidity and credit facilities.
• -- Only banks that already lend to the
  participating CDFIs or against their assets may
  participate.
• -- Banks have CDFI asset and loan performance
  history
• -- CDFI Credit risk has already been assessed
  and the decision made
• Banks lose the direct security interest in the
  CDFI assets, but gain a first loss position, a
  security interest in the notes issued by the
  Co-op, a diversified portfolio, and lower cost of
  monitoring and managing risk.
• Credit enhancement can be structured to reduce
  risk based capital allocation
• -- Bank internal ratings are converging with
  agency ratings
• CRA

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CDFI ASSETS TO BE FINANCED

• CDFI assets to be financed with CP
• New assets previously funded with bank
  warehouse lines of credit
• Readily marketable loans the CDFI might sell or
  securitize within the year
• Other short term funding needs backed by
  appropriate security

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MOVING TO THE FRONT OF THE BUS

• Under this structure, Investors will not look to
  the underlying CDFI assets nor will Rating
  Agencies need to evaluate them.
• However, over time our performance will allow one
  or more events to occur
• Lower credit enhancement percentage and cost
• A wider range of higher risk CDFI assets to be
  funded
• Longer positions being funded
• Development of data sets of sufficient size and
  quality to establish solid conclusions
• Ratability of the CDFI participants
• Its as close as we can get to being rated
  without the Brain Damage.