Innovative Financing in Higher Education Lee Meddin Deputy Treasurer & Global Head of Structured Finance International Forum on Investment in Private Higher Education – January 2004

Structured Finance 2 International Finance Corporation Founded in 1956 to meet the needs of the private sector Part of the World Bank Group with a shared Board and President, but separate developmental mandate, staff, capital base and operating/financial policies Largest multilateral source of debt and equity financing for private enterprise in developing countries Consistent AAA / Aaa credit ratings Products and services offered include loans, equity, quasi-equity, risk management products (including swaps, options, and local currency loans), structured products (including partial guarantees and securitizations), and advisory services

Structured Finance 3 IFC’s Structured Finance Group Created in 2000 Objectives: Provide clients with long-term local currency financing Enable clients to access new investors Act as a catalyst to mobilize additional financing for clients Promote development of domestic capital markets Provide the minimum amount of credit enhancement necessary in order to facilitate a successful transaction Products Include: Local currency and cross-border securitization Local currency and cross-border partial credit guarantees Risk sharing and liquidity facilities Credit Derivatives Local Currency Partial Guarantee Cross Border Partial Guarantee Local Currency Securitization Cross Border Securitization FX Earnings Asset Size Infrastructure & most Large Corporates Large Exporters & some Large Corporates Mortgages, SME and Consumer Loans SME Exporters P R O D U C T M A T R I X

Structured Finance 4 Private Capital Flows to Emerging Markets Source: Institute of International Finance, January 2003 (billions of U.S. dollars)

Structured Finance 5 Financial Assets in Selected Countries Source: Financial Market Trends, No. 80, September 2001, OECD; Goldman Sachs 2000 Portfolio Strategy Latin America (US$ millions)

Structured Finance 6 Domestic Securitization

Structured Finance 7 Domestic Securitization Mortgages and SMEs “Residential mortgage loans as a percentage of the consolidated assets of the financial system grow from next to nothing to 25% at moderate levels of economic development and up to 40% in industrial countries.” Source: “Housing: Enabling Markets to Work”, IBRD “SMEs (small and medium-sized enterprises) make up over 95% of enterprises and account for 60-70% of total employment in most countries.” Source: “SMEs: Job Creation and Growth”, OECD

Structured Finance 8 Domestic Securitization US Bond Markets and MBS-ABS Source: The Bond Market Association, 2003: Q1 MBS accounts for 23% and ABS for 8% of the US bond market. The combined MBS-ABS segment represents the largest component (31%) of the $20.6 trillion US bond market. $1.8T $3.3T $2.4T $4.9T $1.6T $2.5T $4.1T

Structured Finance 9 Domestic Securitization Benefits For Client: Reduce capital required to hold financial assets. Increase capacity to originate new assets and servicing fees. Improve key balance sheet ratios, risk management, operational efficiency. Use cost-effective, alternative funding mechanism, which often remains available under stress. For IFC: Access to assets that are difficult to originate, have a large developmental impact, and are often not provided in sufficient quantity by other lenders. For Investors: High-quality long-term assets. More efficient allocation of risk across the financial sector.

Structured Finance 10 Domestic Securitization Example School or University Institutional Investors Student Loans or Future Tuition Receipts Cash + First Loss Position of Securitization Senior Notes Securitization Vehicle Mezzanine Risk IFC

Structured Finance 11 Local Currency Partial Credit Guarantees

Structured Finance 12 Local Currency Partial Credit Guarantees Basics The guarantee can be used for either a loan or bond. Allows borrower to access new investors for long-term local currency financing. Allows IFC to provide credit in local currency and mobilize additional financing for the client. Promotes development of domestic bond market. The guarantee is structured to reduce probability of default and increase recovery given default. IFC’s objective is to offer the minimum amount of guarantee necessary in order to facilitate a successful transaction.

Structured Finance 13 Local Currency Partial Credit Guarantees Typical Structure Outstanding Principal Baht Years Guarantee amount of 40 baht to year 5 Guarantee declines proportionately with bond years Debt Service 8 Year Amortizing Bond with 10% Coupon and 40% Guarantee

Structured Finance 14 Local Currency Loans and Hedges

Structured Finance 15 Local Currency Loans and Hedges Basics Available only in countries in which cross-currency swap markets exist. IFC intermediates the swap on behalf of the client. With a local currency denominated loan, client makes all interest and principal repayments in the local currency. With a local currency hedge, the client can swap either new or existing hard currency loans from any lender into local currency obligations.

Structured Finance 16 Local Currency Loans and Hedges Available Currencies ASIAEUROPEOTHER Indian RupeeHungarian ForintChilean Peso Indonesian RupiahPolish ZlotyMexican Peso Korean WonSlovak KorunaSouth African Rand Philippine PesoCzech Koruna Thai Baht

Structured Finance 17 IFC’S Track Record in Local Currency Structured Transactions (Partial Guarantees and Securitizations) 20 transactions in the last few years (excludes cross-border deals) 9 different currencies Chile, Colombia, India, Korea, Mexico, Saudi Arabia, South Africa, Russia, and Thailand Local Currency Loans and Hedges 60 transactions in the last few years 9 different currencies Czech Republic, India, Indonesia, Korea, Mexico, Philippines, Russia, South Africa, and Thailand Bond Issuance 29 different currencies AUD, CAD, CHF, COP, CZK, DEM, ECU, EEK, EUR, FMK, GBP, GRD, HKD, IRS, ITL, JPY, LUF, NLG, NZD, PHP, PLN, PTA, PTE, RUR, SEK, SGD, SKK, USD, ZAR

Structured Finance 18 Track Record Completed 26 transactions in 12 different countries Mobilized a total of US$1,952mn (US$842mn during FY03) with IFC’s credit exposure of only US$403mn Russian Standard Bank (B) (two transactions) KoMoCo (A) (two transactions) Sogeko (C) Bharti Mobile (B) Ballarpur Industries (B) NIIT-Citibank (A) Saudi Orix Leasing (B) SAHL (A) Kiwane (A) Garanti Leasing (C) (A) Local currency securitization (B) Local currency partial guarantee (C) Cross-border securitization (D) Cross-border partial guarantee Municipality of Tlalnepantla (B) Banco BBA (D) UBB (D) Triple A (B) Banco Davivienda (B) Titulizadora Colombiana (A) (four transactions) Diego Portales (A) Exportadores II (A) TelecomAsia(B) Emerging Asia CBO(C)