3. 2 WHO WE ARE

4. 3 BOARD OF DIRECTORS

5. 4 RELATIONSHIP MANAGEMENT WITH FINANCIAL INSTITUTIONS CREDIT RATING WHAT WE DO CREDIT GUARANTEE GUARANTEE PROGRAM MANAGEMENT COLLABORATION WITH NATIONALGOVERNMENT

6. 5 GUARANTEE SYSTEM Financial Institutions Pays loans / bond amortization Calls on guarantee if LGU defaults LGUs/WDs AAADue Diligence / Credit Rating Provides loans Underwrites bond issues Guarantees FIs against LGU default Pays FIs in case of default according to original schedule

7. 6 WHAT WE’VE DONE BorrowerAmount (PhP) Project Urdaneta City25 MMSlaughterhouse Province of Aklan40 MMJetty Port and Terminal Building Puerto Princesa City320 MMSocialized Housing Caloocan City 185 MM 225 MM 210 MM Public Market Commercial Complex with Toll Parking General Hospital Tagaytay City220 MMConvention Center with Lodging Facility Iloilo City130 MMHousing Municipality of Daraga75 MMPublic Market

8. 7 WHAT WE’VE DONE BorrowerAmount (PhP) Project Municipality of Bayambang42 MMPublic Market Province of Leyte205 MMAcademic Center Municipality of San Juan390 MM Gymnasium, Commercial Area and Toll Parking Municipality of Carmona150 MMHousing Pasay City500 MM Public Market and Commercial Center Municipality of Imus47 MMSlaughterhouse Metro Iloilo Water District46 MMWater System Rehabilitation Municipality of Baliwag50 MMIntegrated Solid Waste Management

9. 8 WHAT WE DO CREDIT GUARANTEE

10. 9 LEGAL BASIS FOR BOND ISSUANCE Section 295 of Republic Act 7160, the Local Government Code of 1991, states that local government units (LGUs) shall have the power to create indebtedness and enter into credit and other financial transactions. A. Power to Create Indebtedness LGUs are authorized to source funds to finance identified development projects. Section 296. (a) “It shall be the basic policy that any local government unit may create indebtedness, and avail of credit facilities to finance local infrastructure and other socio-economic development projects in accordance with the approved local development plan and public investment program.”

11. 10 LEGAL BASIS FOR BOND ISSUANCE LGUs are authorized to secure loans, credits and other forms of indebtedness from banks and lending institution for the establishment, development or expansion of identified projects. Section 297 (a). “A local government unit may contract loans, credits, and other forms of indebtedness with any government or domestic private bank and other lending institutions to finance the construction, installation, improvement, expansion, operation or maintenance of public facilities, infrastructure facilities, housing projects, the acquisition of real property and the implementation of other capital investment projects, subject to such terms and conditions as maybe agreed upon by the local government unit and the lender.”

12. 11 LEGAL BASIS FOR BOND ISSUANCE B. Bonds and Other Long-Term Liabilities LGUs are authorized to issue bonds and other long-term securities as an alternative financing source to fund income-generating projects. Section 299. “Subject to the rules and regulations of the Central Bank and the Securities and Exchange Commission, provinces, cities and municipalities are hereby authorized to issue bonds, debentures, securities, collateral, notes and other obligations to finance self-liquidating, income-producing development or livelihood projects pursuant to the priorities established in the approved local development plan or the public investment program.”

13. 12 LEGAL BASIS FOR BOND ISSUANCE C. Debt Service LGU budgets must be capable to support debt service repayments and other requirements incurred from the contract of loans and other forms of indebtedness Section 303. “Local government units shall appropriate in their respective annual budgets such amounts as are sufficient to pay the loans and other indebtedness incurred or redeem or retire bonds, debentures, securities, notes and other obligations issued under this title: Provided, that failure to provide the appropriations herein shall render their annual budgets inoperative.”

14. 13 LGC IMPLEMENTING RULES AND REGULATIONS Article 401 “… LGUs shall appropriate in their respective annual budgets such amounts as are sufficient to pay the loans and other indebtedness incurred or redeem or retire bonds…” “…failure to provide the appropriations herein required shall render their annual budgets inoperative.” “Any LGU… may authorize the National Government to deduct or withhold a portion of its IRA share for the payment of its contractual obligation.” “…the resolution of the sanggunian shall clearly state the name of the creditor, the nature of the indebtedness, the amount to be withheld, and a period of time that such withholding of IRA shares shall be made.” LEGAL BASIS FOR BOND ISSUANCE

15. 14 Revenue-generating Part of the development plan Approved by the Sanggunian LGU Project Financial Advisor Prepares the project feasibility Secure Sanggunian Ordinance Authorizing the Issuance of Bond to Finance the Project Secure Pertinent legal requirement to issue the bonds (e.g., BSP Opinion, BLGF Approval, etc.) Identify members of the Bond Issuance Team Secure Sanggunian Ordinance Authorizing the Mayor to Engage the Services of the Bond Issuance Team Local Chief Executive Sanggunian Ordinance Approving the Final Municipal Bond Terms Sanggunian Ordinance Appropriating Funds Thereof to Support the Project Investors/Bondholders 4 Liquidity...? 4 Profitability 4 Safety 4 Public obligations or liabilities 4 Debt-servicing capacity 4 Project’s income generation LGU/Issuer/Borrower PRIMER ON MUNICIPAL BONDS PROCESS BITBIT  Fixed Income Exchange - will provide the secondary market trading  Managing Underwriter - will design the features of the bond covering the structure, issue size, interest rate and payment schedule, maturity date, etc.  LGUGC/Guarantor - will guarantee the bond subject to the issuer’s & issue’s creditworthiness  Trustee - will act as the custodian of the funds; manage the project’s sinking fund; and as registry, paying and transfer agent  Counsel - will review the legal aspects of the bond, special concern is Sec. 303 of 1991 LGC  Financial Advisor - will have to establish the feasibility of the project (I.e. present positive cashflow projections)

16. 15 BOND ISSUANCE PROCESS BOND ISSUANCE PROCESS TIMETABLE Timetable in Months1st2nd3rd4th5th6th 1. Project Development, Feasibility Study Preparation, and Hiring of a Financial Advisor, BLGF and DAR/DENR Certification The bond issuance process shall not include this period but will commence after the completion of this activity. 2. Sanggunian Ordinance Approving the Project 3. Selection and Appointment of a Bond Issuance team 4. Designing the Features of the Municipal Bond 5. Securing the Guarantee for the Municipal Bonds 6. Sanggunian Ordinance Approving Final Bond Terms 7. Sanggunian Panlalawigan’s Validation of the Ordinance of the Municipal Bond Issuance by a Component City or Municipality 8. Bangko Sentral ng Pilipinas (BSP) Favorable Opinion 9. Preparation of the OS, Primer and Bond Docs. 10. Municipal Bond Offering and Issuance 11. Debt Servicing and Payment of the Principal This period shall cover the date of issue up to the maturity date.

17. 16 BOND FLOTATION Pricing is market-driven Promotes constituents’ participation in local development and allows them to earn in the process Allows LGUs to access Capital Market IRA used only as second way out Enhances the project management capability of LGUs due to responsibility to investors Stricter credit evaluation and project monitoring standards Encourages transparency and development of a proactive rating system LOAN VS BONDS DIRECT LOAN Pricing is based on the FI’s transfer pool rate Earning opportunity limited to the lending institution Dependence on IRA deposits as direct collateral which oftentimes acts as disincentives to FI’s looking seriously at project feasibility Limited to FI’s internal credit review process

18. 17 INTEREST RATES DIFFERENTIAL 1/ as of March 8, 2007 2/ Ave. lending rates of DBP and Land Bank as of March 8, 2007

19. 18 LGU DEBT PORTFOLIO

20. 19 THE LGUGC ADVANTAGE Trust Fund Project Construction Fund Project Revenue Fund Debt Proceeds Project Development Project Operating Expenses Fees & Other Expenses Project Revenue Sinking Fund Debt Servicing LGU IRA Deposit (Trustee) Guarantor (LGUGC)

21. 20 THE LGUGC ADVANTAGE TRUSTEE UNDERWRITER TRUSTOR (LGU) LGUGC heads the Project Monitoring Board

22. 21 CREDIT RATING WHAT WE DO CREDIT GUARANTEE

23. 22 CREDIT RATING LGUGC’s internal LGU credit rating system aims to promote LGUs as viable borrowers for private financial institutions and issuers of debt instruments, to facilitate their access to capital markets through a structured information base on their overall creditworthiness Factors considered: Political Risks Economic Risks Operating and Management Risks Financial Risks

24. 23 Tendency for Efficient Debt Repayment Development Capacity and Socio-Economic Endowment Operating Performance Financial Condition Management LGU CREDIT SCREENING AND RATING Short-term Indicators Long- term Indicators CREDIT RATING CREDIT SCREENING

25. 24 CREDIT RATINGS Aaa - highest credit standing Aa - high credit standing A - good credit standing Ba - average credit standing B - below-average credit standing C - poor credit standing

26. 25 RATED LGUs LGURating 1. Urdaneta CityBa 2. Aklan ProvinceBa 3. Puerto Princesa CityBa 4. Tagaytay CityA 5. Caloocan CityBa 6. Alfonso ListaBa 7. TaguigA 8. Iloilo CityBa 9. Orani, BataanBa 10. Baguio CityA LGURating 11. Daraga, AlbayBa 12. Bayambang, PangasinanBa 13. Taytay, RizalA 14. Antipolo CityBa 15. San Vicente, PalawanB 16. Lucena City, CagayanA 17. Leyte ProvinceBa 18. Masbate CityBa 19. San Juan, MMAa 20. Surigao CityBa

27. 26 LGURating 21. Tabaco CityA 22. Binangonan, RizalBa 23. Carmona, CaviteA 24. Imus, CaviteA 25. Pasay CityBa 26. Kawit, CaviteBa 27. Butuan City, AgusanBa 28. Palayan City, Nueva EcijaB 29. Calbayog City, SamarB 30. Calasiao, PangasinanBa LGURating 31. Mariveles, BataanA 32. Santiago City, IsabelaBa 33. Iriga City, Camarines SurBa 34. Zamboanga del NorteA 35. Aliaga, Nueva EcijaB 36. San Fernando CityBa 37. Baliwag, BulacanA 38. Iloilo ProvinceA RATED LGUs

28. 27 CREDIT RATING WHAT WE DO CREDIT GUARANTEE COLLABORATION WITH NATIONALGOVERNMENT & DONOR AGENCIES

29. 28 COLLABORATION WITH NGAs 1. Bangko Sentral ng Pilipinas BSP Circular No. 190 Series of 1999 - Allowing LGU debt instruments as eligible alternative for agri-agra (PD 717) compliance BSP Circular No. 310 Series of 2001 - Reducing risk weight of LGU bonds guaranteed by LGUGC and against IRA assignment from 100% to 50% BSP Circular No. 462 Series of 2004 – Allowing private banks to act as trustee for bond flotation of LGUs 2. Insurance Commission Declaring LGUGC-enhanced bonds eligible reserves for insurance companies 3. MOAs with DILG & DOF-BLGF Info exchange and advocacy

30. 29 WHAT WE DO CREDIT GUARANTEE RELATIONSHIP MANAGEMENT WITH FINANCIAL INSTITUTIONS CREDIT RATING COLLABORATION WITH NATIONALGOVERNMENT & DONOR AGENCIES

31. 30 ACCREDITED FINANCIAL ADVISORS AYN Resource Management Group Censeo Financial Solutions, Inc. FinAcc, Inc. Investment and Capital Corporation of the Philippines Multinational Investment Bancorporation Preferred Ventures Corp. The Structured Financial Group, Inc. Transaction Advisory Services, Inc. RELATIONSHIP MANAGEMENT

32. 31 RELATIONSHIP MANAGEMENT PARTNER FINANCIAL INSTITUTIONS Allied Bank Banco de Oro Bank of Commerce Equitable PCI First Metro Investment Corporation Investments and Capital Corporations of the Phils. Maybank Multinational Investment Bancorporation Philippine Veterans Bank PNB RCBC Capital Security Bank UCPB Savings Bank Unicapital

33. 32 WHAT WE DO CREDIT GUARANTEE RELATIONSHIP MANAGEMENT WITH FINANCIAL INSTITUTIONS CREDIT RATING COLLABORATION WITH NATIONALGOVERNMENT & DONOR AGENCIES GUARANTEE PROGRAM MANAGEMENT

34. 33 PROGRAM MANAGEMENT I.Electric Cooperative System Loss Reduction Project – Partial Credit Guarantee Program (EC-PCG) II. Capacity Building to Remove Barriers to Renewable Energy Development – Loan Guarantee Fund (CBRED-LGF) III. Rural Power Project for Photovoltaic Systems – Loan Guarantee Fund (CBRED-LGF)

35. Thank Thank you! you! AILEEN B. CASTRO Head, Relationship Management Department Email: abcastro@lgugc.bayandsl.ph Tel: (02) 751-8764 to 68 Fax: (02) 888-4217 Website: www.lgugc.com