EFTA01378357

Municipal Credit > Investment Grade State of Michigan Updated: Oct 31, 2015 Trade Idea: o Buy state of Michigan general obligation bonds. Investment Rationale: a Security: The bonds are general obligations to which the State of Michigan pledges its full faith and credit. o The state's economy is improving. Since FY11, the State has seen 4 years of consecutive job growth, with FY14 showing growth of 2.23%. Unemployment has also recovered to be in line with the national average, atter being elevated during the recession. a The state has a historically conservative approach to fiscal management. For example, for FY15, the state identified a $456mm shortfall, due largely to unanticipated certificated business credits. In January, the Governor enacted cuts to eliminate the shortfall, and used the new spending levels as a basis for the FY16 budget. a The state's rainy day fund (RDF) was drawn down during the recession, but the state has begun rebuilding this balance. As of FY14 the RDF increased to $386 million or 1.3% of general fund revenues, an increase from only $2.2 million in FY11. This includes a slight drawdown to fund the Detroit Bankruptcy Settlement (—$195mm). Additionally, the State is budgeting for the RDF to grow to $611mm by FY16. Debt levels are low, with a debt per capita of $758 (34," nationally per the 2014 Moody's State Debt Median Report) and debt as a percentage of personal income of 2.1% (331d nationally per the 2014 Moody's State Debt Median Report). a The state is less vulnerable to pension pressures when compared to other states, as only 32% of active state employees participate in a defined benefit pension plan. The remaining employees participate in a defined contribution plan per a 1997 reform measure. Recommendation(s): View Trade Horizon Credit Moody'srS&P Internal Cusip Maturity Par Amount of Last Trade to Next Expected /Fitch Ratings Rating Selected AAA Curve Issuance Maturity Buy 12 Months State of Michigan Aa1/AA-/AA A+/Positive 6$48128R3 12/1/2020 $1 8.1 million eso None planned at this time Deutsche Asset & Wealth Management 70 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0075526 SDNY_GM_00221710 EFTA01378357