Deutsche Bank

Deutsche Bank Global Markets , For Key Client Partners or US InstitillIonil Inve Opportunities in the US Municipal Market • January 2017 tA, Municipal Capital Markets Desk Contacts: Svetlana Segal, Director, Michael Kowal, Vice President, Structured Solutions Desk Contacts: Ron Vandenhandel, Director, Adrienne Coyle, Vice President, Deutsche Bank Securities Inc., a subsidiary of Deutsche Bank AG, conducts investment banking and securities activities in the United States. EFTA00606030 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Deutsche Bank Global Markets Muni Capital Markets: Group Overview a 2 EFTA00606031 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Deutsche Bank Municipal Capital Markets Group The Most Efficient and Focused Muni business in U.S. Municipals Client-Focused Efficient Adaptive Effective Substantial Capacity • Focus on providing customized client solutions and creating partnerships • Deep relationships help generate unique and programmatic opportunities • Significant amount of repeat business • Fourth largest Muni business on the street • 20 full-time employees vs. -150 street average • No low margin businesses • Not confined to any geographic area or credit sector • Adaptive team with structuring, legal, and credit expertise • Experience with non-traditional assets and structures • One fully-integrated platform, deeply integrated into DB's global footprint • Streamlined execution process • Most execution decisions taken at desk level • Business resources have steadily grown over 5 years • Significant capacity available for large transactions: Investor Financing, Direct Lending, Securities Trading Deutsche Bank 3 EFTA00606032 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Deutsche Bank Municipal Capital Markets Group One Integrated Platform 1 • a • a U' a w Borrowers Banks and Financial Investors Developers DB Internal Broker Dealers Advisors Teams 01,a t r im Municipal Capital Markets \• Cash Sales Banks and Tender Investor Investor International Broker Option Total Structured Clients Dealers Bond Return Financing Program Swaps 4 EFTA00606033 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Deutsche Bank Municipal Capital Markets Group Four Client Businesses Issuer Financing Tax-Exempt and Affordable Housing Investor Financing Cash and Derivatives Trading Direct financing to municipal and non-profit clients on a tax-exempt basis across a variety of products Wide variety of financing solutions within the tax- exempt and affordable housing market Financing and leverage for investors in tax-exempt assets across a variety of products Cash Trading in tax-exempt and taxable bonds; client derivatives and structured notes Direct Lending: - Synthetic floating rate via TRS - Fixed rate: trading book, buy/hold - Originate for investor partners • Package w/ financing Relationships: - Borrowers. financial advisors, developers, brokers, etc. Deutsche Bank Financing Municipal Bonds: - Multi-billion USD financing book • Total Return Swaps • Structured Financing • Tender Option Bond • Custom, bespoke solutions Relationships: - Asset managers, hedge funds, family offices, alternative investors, etc 5 EFTA00606034 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Deutsche Bank Global Markets Muni Capital Markets: Relative Value Overview a EFTA00606035 US Municipals Are an Appealing and Unique Asset Class Historical Outperformance in Rising Rate Environment Taxable vs. Tax-exempt Yields Higher Rates Cause Spread Wideningo) • Historically, as rates increase, the value of the tax-exemption to investors increases, bringing more buyers into the tax-exempt market This increased demand for tax-exempt bonds as rates rise tends to drive spreads between taxable and tax-exempt rates higher as rates increase This means that municipal bonds often outperform other taxable fixed income investments in a sell-off: • Regression on positive monthly change in 30y UST rates since 1995 shows that 30yr MMD historically tends to move at about 67.5% of 30yr UST yield movements Positive MoM Change in 30y UST vs. MMD(2) MoM change in 30y MMD 0.8% 0.6% 0.4% 0.2% 0.0% Regression: AMMD = 67.5% • RUST 0 1:1 movement O 0 Historical Regression 0 0.2% 0.4% 0.6% -0.2% O -0.4% O MoM change In 30y UST 30y UST - MMD Spread 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% 60* -1.5% 0 -2.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 0 * 30y UST Yields Historical Statistics using UST Sell-off Months(2) Months of UST Sell-off Used 108 Total Months 260 30v UST Average 0.184% Standard Deviation 0.124% 95% Highest 0.373% 5% Lowest 0.017% 30v MMD Average 0.109% Standard Deviation 0.144% 95% Highest 0.390% 5% Lowest -0.047% Deutsche Bank (I) MMD data from Tia3, UST data from Bloomberg; chart uses data from 1/3/1995 to 8/30/2016; past performance, simulated or actual, Is not a reliable indicator of future results (2) Date uses only positive month to month movements in 30y (1ST yields calculated on the first business day of each month from 1/3/1995 to 8/30/2016: does not include crisis data from 6/1/2008 to 6/1/2009 Confidential 7 EFTA00606036 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Attractive Characteristics of the US Muni Market USD-denominated Fixed Income Long Duration Historically Steep Yield Curve Low Correlation with Other Fl Outperform in Bear Rates Environment • $4 trillion notional outstanding • Diffuse (>50,000 issuers, 2mm CUSIPS) • High grade market (lower default and LGD than corporates) • Majority of the new issue volume is >10 yr • -70% of trading activity in bonds >10 yr(1) • Muni 5y30y avg. spread at 1.71% vs. UST 5y30y avg. spread at 1.18%(2) • Current 20yr AAA MMD ; 20yr UST at 106.1%(3) • Absolute yields are comparable to taxable alternatives • Low correlation with respect to US treasury, IG and HY corporate bonds so client can diversity their asset portfolios by holding a portion of munis • Potential for outperformance relative to other assets* • Low rates have caused spreads between TX and TE bonds to compress • Rising rates are expected to cause spread widening => muni outperformance • Historically, munis have outperformed in months of rate sell-offs' Deutsche Bank For illustrative purposes only. terms and conditions subject to change. AN transactions subject to final credit, legal fax. and other internal DB approvals. DB is not a financial accounting. or tax advisor to Investor and Investor should consider carefully with their advisors pilot to executing any transaction. (1) Electronic Municipal Market Access 20t5 trading data (2) Historical data from 1995: (3) Bloomberg data from 9.23,020,6: UST Yield using CMTUSD20 Index • Past performance. simulated or actual. is not a reliable indicator of future results 8 EFTA00606037 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Deutsche Bank Global Markets Muni Capital Markets: Leveraging Municipals Bonds a 9 EFTA00606038 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Term NB Financing Trade Structure and Cash Flows 1. Closing Mechanics - DB I Investor wire $$ to Trust - Trust purchases Bond - Trust Issues • A Cert to DB • B Cert to Investor 2. Ongoing Cashflows - Trust receives $6mm (tax-exempt 6%) - Trust pays DB $2.275 mm (tax-exempt 3.5%) - Trust pays Investor $3.725mm (tax-exempt 10.64%) MTM margin may be required 3. Transaction Unwind Events - A / B Certificates mature (1-5y) - Inv exercises Optional Unwind - Muni Bond defaults or becomes taxable - Muni Bond price falls by a predefined amount Termination Mechanics: i. Bond sold at market to Investor / DB Street ii. DB receives $65mm' iii. Investor receives residual $$ Deutsche Bank Tax-exempt Bond 6% on 100mm Notional $6mm Coupon 2 $ 3.725 Coupon 2 Investor Puts in $35 MM KCP Investor .4 B Certificate 35MM Notional @10.64% Trust buys 100mm Bond MTM posting (Recourse) Interest Rate Swap (not respired) DB Puts in $65MM $2.275mm Coupon r4 A Certificate 2 65MM Notional @ 3.5% Unwind Payoff Scenarios•• Bond Price at Unwind 120 100 80 60 DB receives 65• 65 65 65 Investor receives (pays) 55• 35 15 -5 • Adjusted for any gainshare (as required by tax counsel) • Scenarios provided are for illustrative purposes only and do not contain all potential outcomes. DB can provide additional information upon request Structure and terms of the transaction are provided for iNustrauve purposes only and are subject to change based on anal DB approvals 10 EFTA00606039 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Indicative A/B Returns for Selected Muni Bonds Recourse Financing under ISDA framework I Bond Information AB Tenor (y) 1 Class A Rate 3.50% Muni Moody's Maturity Call Bond yield• Bond Price A Notional Class B Indicative Return Alabama Gas District NR A3 9/1/2046 N/A 4.23% 112.929% 77.50% 6.75% Loma Linda Uni Med Center BB NR 12/1/2056 6/1/2026 4.71% 104.045% 75.00% 8.35% Klein School District AAA Aaa 8/1/2046 8/1/2026 3.71% 102.309% 80.00% 4.55% Chicago O'Hare Intl Arpt A NR 1/1/2047 1/1/2027 3.83% 109.600% 77.50% 4.98% Chicago Transit Auth A. NR 12/1/2046 12/1/2026 4.17% 106.651% 77.50% 6.49% Chicago GO BBB. NR 1/1/2038 1/1/2027 6.04% 99.524% 75.00% 13.66% - All returns assume that rates are unchanged - Class A Rate quoted as of 1/20/2017 and is calculated as a spread to LIBOR swaps Deutsche Bank Tilting based on data from 1/20.2017 All transactions subject to final credit. legal. fax. and other internal DB approvals. D8 is MN a financial. accounting. or lax advisor to Investor and Investor should consider carefully mil their advisors prio✓ to executing any transaction. 11 EFTA00606040 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Term NB Financing Overview of Risks and Considerations Muni Bond Price Risks Risk Ex • lanation Consideration Risk-Free Rates Broad. risk-free rates (LIBOR) such as LIBOR increase Muni Market Spreads Idiosyncratic Credit Spread Liquidity Spread Risk Optionallty / Callability Deutsche Bank Muni market spreads. measured as the difference between MMD and LIBOR. may increase Specific credit quality of the issuer deteriorates. increasing the single- name spread Specific bonds may contain nonstandard or complex features. leading to a wider single-name spread. especially in times of market stress Callable Muni Bonds are generally called when economically advantageous to the issuer. not the investor Possible to partially / fully hedge LIBOR to offset rate risk Investor must be comfortable that MMD cannot be directly hedged through interest rate swaps Muni Bonds have historically experienced a very low default rate: Investors can select names across ratings and sectors that fits specific risk / return appetite Investors must be comfortable with the inherent higher risks associated with less liquid bonds, as perceived by the general market that determines the price over time Investors must be comfortable that the duration of callable bonds can change quickly. depending on the markets view of the likelihood of being called. taking into account the costs of issuing refinancing bonds At Financing Structure Risks Risk Ex r lanation Consideration Bond Price Risk Tenor Mismatch Risk Trigger Price Risk Proceeds of bond sales are distributed first to DB then to client Financing tenor is shorter than underlying bond maturity DB has right to terminate transaction either if Muni Bond price drops below unwind trigger Early Trust may unwind early Termination Risk due to events outside of Investor's control Collateral Risk Taxability Risk Client may have the ability to post collateral to avoid an price-based unwind trigger. subject to DB credit approval The Trust collapses upon taxability of the Muni Bonds Investor should carefully evaluate Bond Price Risks mentioned here and only execute when comfortable with the risk / return tradeoff Upon Trust Termination, any market losses of underlying bond are first applied to B Certificate Investor should be aware that if either event occurs. DB will have the optional right to immediately collapse the Trust Investor must be comfortable with early unwind events. including but not limited to price decline past trigger. bond failure to pay. bankruptcy of bond obligor. and taxability Investor must maintain sufficient liquidity to post it Investor elects to remain in the trade without having to terminate / lock-in any losses Most Muni Bonds carry a tax- exempt opinion from bond counsel 12 Al transactions subject to final credit. legal. fax. and other internal DB approvals. DB is not a financial. accounting. or tax advisor to Investor and Investor should consider carefully with their advisors prior to executing any transaction Further intonation can be provided upon request. EFTA00606041 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Deutsche Bank Global Markets Muni Capital Markets: Short Term Tax Exempt Muni Opportunities 0 13 EFTA00606042 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Short Term Tax Exempt Investment Sample Portfolio Characteristics Deutsche Bank Portfolio Statistics Average Credit Quality AA-A Rating Maturity Market Price Average Coupon Average Overcollateralization 5 business days 100 par 0.90% 30% Key Characteristics •Senior TOB Certificate program was created to provide municipal mutual funds and banks with a financing vehicle in the form of a partnership, which also helps preserves the tax exemption for both counterparties •The basic structure was developed to meet the eligibility requirements of tax exempt money market funds •Senior Certificates have a 5 business day put to Deutsche Bank •Overcollateralization provides additional security— Sample Cusips Cusip Obligor State Rating Floater Rates • OC„ 88033L3D9 NYC Water NY Aa1/AA+/AA. 0.79% 137% 88033LV48 Community Health Network IN A2/AMR 0.87% 141% 88033L7Y9 MedStar Health MD AVA-/A 0.93% 142% 88033SY57 Lee Memorial Hospital FL A2/A/NR 0.91% 154% 88033LZ69 Regional Transportation District CO Aa3/A/AA- 0.86% 144% 'Rates as of l/18r2017 Min overcollateralization levels may vary on the deal by deal basis For illustrative purposes only. terms and conditions subject to change. All transactions subject to final crocit legal, tax. and other internal DB approvals. DB is not a financial. accounting. or tax advisor to Investor and Investor should consider carefully with their advisors prior to executing any transaction 14 EFTA00606043 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Sample Portfolio Examples of select TOB Senior Certificate Cusips Series Amount '000 Floater Cusip Name Bond Cusip Bond Ratings State Current Rate* Short Term Ratings OC' 1087 14765 25155DNF4 Public Housing Capital Fund Revenue 74442YAB2 NR/AA-/NR OT 1.23% AA-/A-2 137% XF1046 32490 88033MFB8 Metropolitan Pier & Exposition Authority 592248BH0 Baa3/BBBIBBB IL 1.05% A1/VMIG2 & 136% 1184 13330 25155D261 State of Illinois 452152525 Baa2/BBB/BBB+ IL 0.98% Al/VMIG2 &NR/NR 155% XF1017 30000 8803317E3 Catholic Health Initiatives 93978HMK8 A3/P-2/A-/NR WA 0.96% A1/VMIG2 &AA-/A-2 133% XG0093 9505 880335Q31 IL State Housing 452028BN5 NR/AA+/NR IL 0.96% AA+/A.2 133% XF1054 25655 88033M524 Vanderbilt University Medical Center 592041WH6 A3/NR/NR TN 0.89% Al/VMIG2 & 147% XF1056 8715 880335223 Orlando Health Obligated Group 68450LCH6 A2/A/A FL 0.86% Aa3/VMIG2 & 143% XF1047 8250 88033MFG7 Children's Hospital Obligated Group/DC 254764KC6 A1/NR/A+ DC 0.86% Aa2/VMIG2 & 148% 1182 8250 25155DY47 Dallas/Fort Worth International Airport 235036E71 A1/A+/A TX 0.84% Aa2/VMIG2 &NR/NR 144% XG0069 3750 88033SUG7 University of Dayton 67756A8B1 A2/A+/NR OH 0.84% AA-/A-2 147% XF1057 22235 8803352A1 New Jersey Turnpike Authority 6461393R4 A2/A+/A NJ 0.83% AA-/A-2 147% XF1033 9840 88033L4B2 San Francisco International Airport 79766DFC8 Al/A+/A+ CA 0.83% Aa2/VMIG2 & 146% XG0061 5250 88033SSX3 University of California 91412GRZ0 Aa2/AA/AA CA 0.82% & AA/F1 152% XF1000 9360 88033LR76 Baptist Health South Florida Inc 838810BY4 Aa3/AAINR FL 0.81% Aa3NMIG2 &AA-/A-2 127% XF1035 5760 88033L613 Buck Institute for Research on Aging 13080SET7 NR/AA/NR CA 0.81% AA/A-2 141% XF1037 5250 88033L6Q7 State of California 13063CPU8 Aa3/AA-/AA- CA 0.81% Aa1/VMIG2 & 153% Deutsche Bank Rates as of 1/19/2017 Min overcollateralization levels may vary on the deal by deaf basis For illustrative purposes only, terms and conditions subject to change. All transactions subject to final credit. legal. fax. and other internal DB approvals. DB is not a financial. accounting, or tax advisor to Investor and Investor should consider carefully with their advisors prior to executing any transaction 15 EFTA00606044 For Key Client Partners or US Institutional Investors. Not for Retail Distribution TOB Senior Certificates Overview of Risks and Considerations TOB Senior Certificate Risks Ex •lanation Risk Consideration Trigger Price Risk If the bond price decreases below required OC levels, the residual investor may de-lever or unwind the trust DB Credit Risk Tender Option Termination Events (TOTE) Risk' TOB Senior Certificate Rate Risk TOB Senior Certificates investors take collateralized credit exposure to the underlying muni bond backed by a put to Deutsche Bank TOTE events include Taxability/Bankruptcy/Cred it downgrade below investment grade/Failure to pay Investor receives floating rate that resets periodically based on the benchmark rate and remarketing spread set by the remarketing agent. The spread and the benchmark rate can reset lower/ higher based on the current market environment Investor should evaluate Bond Price Risks mentioned here and be aware that transaction can unwind early DB is currently rated Baa2/BBB+/A-; Investor has 5 business day put option and can exit the transaction in advance of a credit event Upon occurrence of any of these events, TOB Senior Certificate holders lose their right to tender and instead the bonds are sold . The proceeds are used to pay the TOB Senior Certificate Holders, if not sufficient, they receive the underlying bonds in kind Can be addressed by modifying the tenor of the TOB Senior Certificate Muni Bond Price Risks Risk Ex •lanation Consideration Interest Rate Broad. risk-free rates Risk increase Muni Market Spreads Idiosyncratic Credit Spread Liquidity Spread Risk Optionallty / Callability Muni market spreads. measured as the difference between MMD and LIBOR. may increase Specific credit quality of the issuer deteriorates, increasing the single- name spread Specific bonds may contain nonstandard or complex features, leading to a wider single-name spread, especially in times of market stress Callable Muni Bonds are generally called when economically advantageous to the issuer. not the investor Possible to partially / fully hedge to offset rate risk Investor must be comfortable that MMD cannot be directly hedged through interest rate swaps Muni Bonds have historically experienced a very low default rate: Investors can select names across ratings and sectors that fits specific risk / return appetite Investors must be comfortable with the inherent higher risks associated with less liquid bonds, as perceived by the general market that determines the price over time Investors must be comfortable that the duration of callable bonds can change quickly, depending on the markers view of the likelihood of being called, taking into account the costs of issuing refinancing bonds Deutsche Bank *For full list of Unwind events please refer to Master Terms of Trust Agreement and Series Documents, DB can be provide additional Information upon request All transactions subject to final credit. legal, tax, and other internal DB approvals. DB is not a financial, accounting, or tax advisor to Investor and Investor should consider carefully with their advisors prior to executing any transaction. Further information can be provided upon request. 16 EFTA00606045 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Deutsche Bank Global Markets Muni Capital Markets: Direct Lending a EFTA00606046 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Direct Lending Overview Financing and Syndication Partnership Overview of DB Direct Lending Program - DB has a robust direct lending book that provides sources of financing to municipal borrowers as an alternative to utilizing the public market - Our direct lending program provides customization and flexibility with regard to structure. amortization, tenor and speed of execution - Sectors where DB has been active in providing financing solutions include Non-Profit Heath Care. Affordable Housing. Colleges & University. Master Planned Real Estate Communities and Tax Equity (Solar & Wind) - Opportunities: the direct lending program provides investors with the ability to partner with DB via loan syndication or through the purchase of directly placed muni bonds Current Opportunity: Stonehaven Student Housing Deal Structure - 524 bed student housing facility adjacent to University of California Riverside Ground lease from UC Riverside to 501c3 operator • Leasehold interest in the facility • Permanent tax abatement • Building reverts to university at end of lease Key Credit Metrics - 96% occupancy - 70% LTV - 1.13x DSCR - Debt per unit=101k Deutsche Balt: Debt Overview 20mm Non Rated Tax Exempt Bond - 2032 Final Maturity - 4.305% Fixed Coupon (Federal and State Tax Exempt) No optional call feature - Fund. Debt Service Fund. Debt Service Reserve Fund - Turbo Feature: first 30% excess revenue curtails the bond - DB Re-Offers 11mm Custodial Receipt - Average Life: 4.77 years - Final Maturity: 7/1/2026 - Price: 103.45 - Yield: 3.50% 'Could also offer as a Senior Certificate with or without a DB liquidity facility EFTA00606047 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Direct Lending Overview of Risks and Considerations Direct Lending Risks Risk Ex .lanation Consideration Credit Default Risk Ongoing Disclosures / Documentation Rating Transfer Restrictions Liquidity Risk Tax Risk If credit quality of the specific borrower deteriorates, then the borrower may default on direct lending transaction Direct lending transactions usually carry a yield premium due to non- standard features (e.g. unrated. no official statement, old unt etc.) DErs direct lending book is not constructed for retail distribution. and are restricted on resale to Qualified Institutional Buyers The direct lending transactions that DB originates are tax-exempt and may be affected by changes in federal tax policy Deutsche Bank 3anking & Securities Investor should carefully evaluate covenants and underlying credit risk of the borrower Investor should be comfortable with the underlying documentation. disclosure requirements. and structure of the direct lending transaction Transfer restrictions and structure may reduce the liquidity of the bond, which may affect pricing upon resale A significant change in tax policy could affect the after- tax return and price of a tax- exempt bond Muni Bond Price Risks Risk Ex .lanation Consideration Interest Rate Broad. risk-free rates Risk increase Muni Market Spreads Idiosyncratic Credit Spread Liquidity Spread Risk Muni market spreads. measured as the difference between MMD and LIBOR. may increase Specific credit quality of the issuer deteriorates. increasing the single- name spread Specific bonds may contain nonstandard or complex features, leading to a wider single-name spread. especially in times of market stress Optionality 1 Callable Muni Bonds are Callability generally called when economically advantageous to the issuer. not the investor Possible to partially / fully hedge to offset rate risk Investor must be comfortable that MMD cannot be directly hedged through interest rate swaps Muni Bonds have historically experienced a very low default rate: Investors can select names across ratings and sectors that fits specific risk / return appetite Investors must be comfortable with the inherent higher risks associated with less liquid bonds. as perceived by the general market that determines the price over time Investors must be comfortable that the duration of callable bonds can change quickly. depending on the markers view of the likelihood of being called. taking into account the costs of issuing refinancing bonds 19 EFTA00606048 For Key Client Partners or US Institutional Investors. Not for Retail Distribution Disclaimer This document is intended for discussion purposes only and does not create any legally binding obligations on the part of Deutsche Bank AG and/or its affiliates (TB"). Without limitation, this document does not constitute an offer, an invitation to offer or a recommendation to enter into any transaction. When making an investment decision, you should rely solely on any specific final documentation relating to a transaction and not the summary contained herein. DB is not acting as your legal, financial, tax or accounting adviser or in any other fiduciary capacity with respect to any proposed transaction mentioned herein. This document does not constitute the provision of investment advice and is not intended to do so, but is only intended to be general information. 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