2008 Year In Review February 25, 2009 Roger L. Anderson Executive - PowerPoint PPT Presentation

2008 Year In Review February 25, 2009 Roger L. Anderson Executive Director

NJEFA Issuance Overview By Par Amount By Number of Issues (in Million $)

Financial Crisis Timeline • Lehman files for bankruptcy • First African-American • Bank of America agrees to President elected • JP Morgan and Fed buy Merrill Lynch bail out Bear Stearns • Goldman and Morgan • US places Fannie Mae and Stanley convert to bank Freddie Mac into conservatorship • Bond Insurer holding companies downgrades begin • US Government • Wells Fargo agrees to buy Wachovia takes over IndyMac Oct 08 Dec 08 Jan 08 Mar 08 May 08 July 08 Sep 08 Feb 08 April 08 Jun 08 Aug 08 • Reserve Fund Nov 08 “breaks the buck” • Fed forces AIG • Dawn of US • $700 Billion into liquidation recession • UBS exits municipal federal rescue securities business • Washington Mutual is taken plan approved over by JPMorgan Chase • Auction-Rate securities • Commonfund ST Fund market collapses closed by Wachovia Source: Public Financial Management, Inc.

Total Market Disruption 14,000 2,500 12,000 2,000 10,000 1,500 8,000 6,000 1,000 4,000 500 2,000 0 0 8 8 8 8 8 8 8 8 8 8 8 8 0 0 0 0 0 0 0 0 0 0 0 0 - - - - - - - - - - - - t v n b r r y n l g p c u c a p o a e a u u e e O J M A N J F M J A S D DOW JONES NASDAQ 100 S&P 500 (left scale) (right scale) Source: Bloomberg Finance, L.P.

Total Market Disruption 1,100 160 1,000 140 900 120 800 700 100 600 80 500 60 400 300 40 200 20 100 0 0 8 8 8 8 8 8 8 8 8 8 8 8 0 0 0 0 0 0 0 0 0 0 0 0 - - - - - - - - - - - - y n l g v n b r r p t u c a c p o a u u e a e e J O M A M N J A J F S D GOLD OIL (left scale) (right scale) Source: Bloomberg Finance, L.P.

30-Day Trailing Volatility 0.1600 0.1400 0.1200 0.1000 0.0800 0.0600 0.0400 0.0200 0.0000 3/15/06 5/15/06 7/15/06 9/15/06 11/15/06 1/15/07 3/15/07 5/15/07 7/15/07 9/15/07 11/15/07 1/15/08 3/15/08 5/15/08 7/15/08 9/15/08 11/15/08 1/15/09 GOLD WTI CRUDE Source: Bloomberg Finance, L.P.

Total Market Disruption 9 8 7 6 5 4 3 2 1 0 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Treasury 10-year MMD 10-year SIFMA LIBOR 1M Source: Bloomberg Finance, L.P.

Jan-04 0 1 2 3 4 5 6 7 8 9 Apr-04 Jul-04 Oct-04 Jan-05 Integration Leads to Apr-05 Jul-05 Vulnerability SIFMA Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 (20-year avg life) Libor Swap Rate Apr-07 Jul-07 Oct-07 Jan-08 Source: Bloomberg Finance, L.P. Apr-08 Jul-08 Oct-08

National Municipal Bond Volume 2000-2008 Approximate New Money Par Amount Source: Thomson Financial

Higher Education New Financing & Refunding Transactions 25,000 2007 2008 Par Amount (millions) 20,000 15,000 2008 10,000 2007 5,000 0 New Money Refunding Source: Acacia Financial Group, Inc.

2008 Transactions Public Institutions • New Jersey City University, $74,620,000 (2 transactions) • Rowan University, $35,205,000 • The College of New Jersey, $287,790,000 • The Richard Stockton College of New Jersey, $136,910,000 • The William Paterson University of New Jersey, $88,670,000 Private Institutions • Drew University, $22,765,000 (2 transactions) • College of Saint Elizabeth, $24,090,000 • Institute for Advanced Study, $11,255,000 • Institute for Defense Analyses, $15,015,000 • Princeton University, $458,805,000 (2 transactions) • Saint Peter’s College, $8,728,462 (2 transactions) • Seton Hall University, $74,100,000 (2 transactions)

NJEFA New Financing & Refunding Transactions 900 2008 800 700 In Million ($) 600 2007 2007 2008 500 400 300 200 100 0 New Money Refunding

The William Paterson University of New Jersey Science Hall Source: The William Paterson University of New Jersey

Source: Drew University Drew University

Saint Peter’s College Source: Saint Peter’s College

The Richard Stockton College of New Jersey Campus Center Source: The Richard Stockton College of New Jersey

Princeton University Sherrerd Hall Source: Princeton University

Princeton University Creative and Performing Arts Source: Princeton University

Princeton University Firestone Library Source: Princeton University

NJEFA Financings by Decade vs. Last 9 years 9,000 $7,836,607,418 8,000 7,000 In Million ($) 6,000 5,000 4,000 $2,505,433,659 3,000 2,000 $425,931,000 $884,117,000 1,000 0 1970s* 1980s 1990s 2000s** Variable Rate Issued * Includes par amount financed in 1969 ** Includes par amount financed through 2008

ARS/VRDB Transactions 14 series of ARS 9 clients 3 series of insured VRDBs Total > $800 million

Process • Fall 2007 - monitored ARS and VRDB markets; provided updates to affected clients • Began search for alternatives once it looked like bond insurers would be downgraded • February 4th and 29th - issued RFPs for letters of credit to more than 50 banks and other institutions • Received proposals from 7 banks - enough to cover almost all exposure • February 27th – adopted global restructuring resolution authorizing staff to restructure affected transactions as approved by affected institutions • Reached out to new insurers

Results to Date Of the 9 institutions: Closed • 4 selected fixed-rate refundings • 1 wrapped existing VRDBs with a LOC • 1 did a letter of credit refunding • 1 combination put bond and fixed rate bonds refunding Pending • 1 fixed-rate refunding • 1 combination fixed-rate and letter of credit bonds refunding

Long-Term Interest Rate Comparison 30-Year Treasury vs. 30-Year “AAA” MMD Since January 1, 2008 Source: Phoenix Advisors, LLC

Annual Bond Issuance 160,000,000 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 0 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 2007 2008 Source: The Bond Buyer website; Thomson Reuters

Endowment and Gift Performance * Moody’s rated institutions Source: Moody’s Investors Service

Tuition Increases Compared to Changes in State Appropriations 15% 10% 5% 0% 1983 1988 1993 1998 2003 2008 -5% % Change State Approps % Change Tuition and Fees * Moody’s rated institutions Sources: Moody’s Investors Service; Center for the Study of Education Policy, Illinois State University; The College Board

New Jersey Higher Education Spending • FY 2009 – 3.5% cut • FY 2008 - $2.04 billion - operating expenses • FY 2006 - $858 million - research and development Source: The Chronicle of Higher Education

State Support is Declining Adjusted for CPI $350,000 (in Thousands $) $300,000 $250,000 $249,911,0 0 0 $224,932,0 0 0 $200,000 $150,000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Direct State Adjusted Appropriations Inflation-Adjusted Appropriations Source: New Jersey Association of State Colleges and Universities; Governor’s Budget Recommendations; US Department of Labor’s CPI Detailed Report

The Price of College is Going Up Sources: Jobs for the Future; U.S. Bureau of Labor Statistics; The College Board; Data were analyzed by the National Center for Higher Education Management Systems and the Delta Project on Postsecondary Costs for Making Opportunity Affordable, an initiative supported by Lumina Foundation for Education

Shifting the Burden of Investment Source: New Jersey Association of State Colleges and Universities calculations; NJ Commission on Higher Education

Moody’s US Higher Education Outlook - 2009 Critical Risk Factors • Increased pressure on tuition and financial aid • Impact of investment losses on operations and philanthropy • Illiquidity of balance sheets • Volatility of debt markets and debt structures Source: Moody’s Investors Service

The Broader Economy “As in prior periods of economic weakness, most colleges and universities enjoy relatively inelastic student market demand and have thus far sustained good pricing ability.” MOODY’S INVESTORS SERVICE U.S. Higher Education Outlook: Six-Month Update July 2008

College Participation U.S. population of 18-24 year olds 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 7 0 3 6 9 2 5 8 1 4 7 0 3 6 9 6 7 7 7 7 8 8 8 9 9 0 0 0 9 9 9 9 9 9 9 9 9 9 9 0 0 0 1 1 1 1 1 1 1 1 1 1 1 2 2 2 Percent Enrolled in College Source: U.S. Census Bureau, 2006

Steady Demand for College Actual and Projected NJ High School Graduates Sources: NJ Association of State Colleges and Universities; National Center for Education Statistics, December 2007

NJ Enrollment: Degrees Conferred 2000-2007 Total Degrees/ Total Enrollments Certificates 335,930 52,579 2000 346,277 53,205 2001 2002 361,757 55,866 2003 372,696 58,277 2004 379,447 61,428 2005 379,686 64,007 2006 385,612 65,105 2007 398,169 66,364 62,239 13,785 Cumulative Increase (18.53%) (26.22%) Source: New Jersey Commission on Higher Education

Earnings Premium Relative to Price of Education Sources: The College Board; U.S. Census Bureau, 2006