Project Alpha A proposal for syndication of municipal bond default risk August 2009

Background $550 b stimulus package + cash strapped state and local government = muni bond issuance Existing financial guarantors disabled by CDO’s, RMBS and credit default swaps Opportunity for a clean balance sheet Rating agencies re-thinking their approach Opportunity for a more capital-efficient approach

Request for a Treasury-Funded Newco Two plans are circulating in Washington, asking Treasury to back new monolines – $25 billion to build MBIA 2 – $10 billion to back a captive / mutual controlled by the National League of Cities Sympathy for issuers, not support for Newco’s – Build America Bonds – Federal regulation discussed Need to address structural issues

Proposal: Put the “A” back in MBI Formed in 1972, the original strength of the financial guarantee companies came from syndicating risk among well established multiline insurance companies. The original target was small issuers not well-known to rating agencies, with premiums of half the yield savings. Pushed by the rating agencies, from 1987 – 1997 the companies moved from syndicates, to small balance sheets with parental support agreements, to large balance sheets in public, monoline financial guarantee companies. Feeding the capital base and raising the stock price drove expansion into ever riskier products, directly and through acquisition. The original success formula is available for use…..

How much capital would be required for a syndicate to have a “AA” rating? 5-11 participants, rated “AA” or higher Names shown are illustrative only MGA USAA Blackstone ADIA TRV ? ?

Risk Profile Insuring GO only, no Florida Premium rate = market, aiming for a long term return to 50% of savings Several liability for annual syndicate years A syndicate member falling below “AA” has their interest auctioned among existing, then to new MGA owned by the suppliers of capital Small team of professionals, active board of owner representatives

7 Contact Information The Project Alpha team is now in discussions with various industry participants, both developing a detailed product and profit model and confirming legal and rating agency treatment of the proposed organization. If you would like to receive updated information, please contact the following: