Вы находитесь на странице: 1из 9

Cross-Product Research 35

January 25, 2008

Credit Strategy
Monolines: A Potential CDS Settlement Disaster?
With the exception of ACA, monolines are rallying on news of a potential private
Glen Taksler sector solution. Nonetheless, should a Credit Event occur in a monoline (for example,
(212) 933 2559 ACA), we see huge potential problems for settling CDS contracts. Even a Credit Event
for a relatively small monoline, such as ACA, could have significant implications,
The CDS market has because protection holders on larger monolines may demand a higher premium, to
never settled a Credit compensate for lessons learnt.
Event on a monoline
insurer. At an intuitive level, the CDS market has never seen a monoline Credit Event before.
Each time an important new issue arises in CDS, the market learns that it should have
written the contracts governing CDS contracts somewhat differently. For example,
following the Conseco Restructuring in 2000, protection Buyers delivered long bonds
Each time an important whose value was significantly below par. This eventually resulted in the CDS market
new issue arises in CDS, implementing Modified Restructuring, which limits the maturity date of bonds that may
2
the market learns that it be delivered following a Restructuring. Similarly, following the Railtrack Bankruptcy
should have written the in 2000, there was a debate as to whether convertible bonds were deliverable into CDS
contracts governing CDS contracts. This eventually resulted in changes to the ISDA Credit Derivatives
contracts somewhat Definitions, which explicitly state circumstances under which convertible bonds are
differently. 3
deliverable .
Monoline CDS contracts are governed by the usual 2003 ISDA Credit Derivatives
The protection Buyer may Definitions, plus a 2005 Monoline Supplement. This supplement allows the protection
deliver debt which is Buyer to deliver debt which is wrapped (guaranteed) by the monoline insurer, such as a
wrapped by the monoline, municipal bond or super senior CDO tranche. These Deliverable Obligations are in
in addition to bonds and addition to the direct debt of a Reference Entity—i.e., bond or loan—which is
loans. deliverable under standard CDS contract language.
Should an investor want to deliver a CDO tranche—for example, a super senior—that
Should an investor want tranche must be guaranteed directly by the monoline, so that the insured instrument
to deliver a CDO tranche, (i.e., the tranche) is Borrowed Money. Quoting from the ISDA 2005 Monoline
Supplement (emphasis added):
“Qualifying Policy” means a financial guaranty insurance policy or similar
financial guarantee pursuant to which a Reference Entity irrevocably guarantees

2
In Europe, the CDS market now uses Modified-Modified Restructuring. For details, please see our Credit Default Swap Primer:
Third Edition, February 28, 2007.
3
Convertible ranks pari passu or better in seniority to the reference obligation.

Situation Room 5
Cross-Product Research 35
January 25, 2008

or insures all Instrument Payments … of an instrument that constitutes


Borrowed Money … for which another party … is the obligor ...”

Typically, monolines Typically, monolines issued a financial guarantee (wrap) on CDS on super senior
issued a financial tranches, not the underlying super senior tranche. This was done for two main reasons.
guarantee on CDS on First, dealers were not in the business of marking and trading financial guarantees,
CDO tranches, not the whereas they are accustomed to trading CDS. More importantly, CDS is typically
underlying tranche. marked-to-market daily, whereas our understanding is that financial guarantees need
not be re-marked unless they become impaired—that is, unless the tranche suffers a
loss of principal. Since dealers owned the underlying CDO tranche and wanted to be
able to offset potential (now actual) mark-to-market losses, CDS was more attractive
than a direct financial guarantee.
Figure 2 shows a sample structure which would allow for effective insurance from a
monoline, but would not be deliverable into CDS contracts. In this structure, a bank
owns a CDO tranche. The bank buys protection from a special purpose vehicle (SPV).
In exchange, the bank receives CDS protection from the SPV. At the same time, a
premium is paid to the monoline, in exchange for a financial guarantee on the CDS.
The bank is thus protected against lost of principal and interest payments.
MBIA provides this description of the process:
LaCrosse Financial Products, LLC (LaCrosse) was created in December 1999 to act
as a counterparty for structured derivative products, primarily pooled credit default
swaps. While MBIA does not have a direct ownership interest in LaCrosse, it is
consolidated in the financial statements of the Company on the basis that substantially
all risks and rewards are borne by MBIA. MBIA's guarantees of synthetic CDOs are
typically executed through LaCrosse, which enters into a credit default swap with the
counterparty. MBIA Insurance Corp., through a financial guarantee policy, then
4
guarantees the obligations of LaCrosse under the credit default swap.
However, because the wrap is not on the CDO tranche itself, the CDO tranche would
not be deliverable into CDS contracts referencing the monoline insurer.

Figure 2. Example of CDO Tranche Which Would Not Be Deliverable into Monoline CDS
Monoline Financial Guarantee Is on CDS Written by the SPV on the Tranche, Not on the Tranche Itself

Bank, which CDS Premium


owns CDO SPV
tranche
CDS Protection
Financial Financial
Guarantee Guarantee
Premium on CDS

Monoline
insurer

Source: Banc of America Securities LLC.

4
Source: Company website.

Situation Room 6
Cross-Product Research 35
January 25, 2008

Do Not Assume Cash Settlement for Monolines


Standard CDS language Since several companies filed for bankruptcy in 2005 including prominently Delphi
specifies physical (October '05), investors have come to expect cash settlement of CDS contracts. Under
settlement, and we think standard CDS language, which still specifies physical settlement, the burden is on the
it would be difficult protection Buyer to find a Deliverable Obligation (bond or loan for non-monolines)
(though not necessarily into the CDS contract. That is, according to standard confirms, the protection Buyer
impossible) to cash (generally) is only entitled to receive the notional value of protection (e.g., $10 million)
settle a monoline. if he delivers a bond or loan to the Seller. Accordingly, as CDS notional grew to exceed
5
cash bond notional, short squeezes developed post-Credit Event.
Currently, cash settlement is only an expectation, not a requirement. If a monoline were
to suffer a Credit Event, we think it would be very difficult to cash settle. The reason is
that CDS settlement protocols (commonly called “cash settlement”) are actually an
auction, the mechanics of which resemble a Treasury auction. Roughly speaking,
approximately 15 dealers submit a market on, say, $10 million bonds, with a 2-point
bid-offer spread. Dealers may be required to trade bonds at their submitted levels,
6
which provides incentive for the submission of reasonable quotes.

Before the beginning of Before the beginning of the auction, a list of Deliverable Obligations is established, and
the auction, a list of any of those obligations may be delivered/received if a dealer is required to trade. For
Deliverable Obligations is example, in the Delphi auction, the 6.55% June 2006, 6.50% May 2009, 6.50% August
established. That is far 2013, and 7 .125% May 2009 all were Deliverable Obligations. Similar to CDS, dealers
more straightforward for participating in the auction quote markets assuming they will exchange the cheapest-to-
non-monolines, where deliver.
only bonds and loans are
deliverable. Deliverable Obligation Challenges
To assemble a list of Deliverable Obligations for a monoline:
1. The dealer community would have to agree that the each proposed Deliverable
Obligation is indeed deliverable into CDS contracts. This is possible but time-
consuming.
2. Each dealer then would have to value each Deliverable Obligation to
determine the cheapest-to-deliver obligation. This would be a time-consuming
and difficult process, which could exceed the 30 calendar days within which
parties normally settle credit default swaps.

Recovery Rate Risk


Moreover, if even a small Moreover, suppose that the bulk of Deliverable Obligations have a price of $70 to $80,
portion of Deliverable but a few Deliverable Obligations have a price of $10 to $20. To clarify, these figures
Obligations have a very are just an example, not a recovery value estimate. Then, the CDS settlement auction
low recovery rate, the would likely result in a cash settlement price in the $10 to $20 range, because each
auction could result in a dealer would recognize that he may receive the lowest-price Deliverable Obligation. As
very low cash settlement such, a CDS settlement protocol would have a substantial risk of realizing in a very low
price. recovery rate, in our view.

5
Even under cash settlement, parties are able to request to physical settlement, should they desire to do so, and are granted such
requests to the extent that another party is willing to take the opposite position. For details, please see our Credit Default Swap
Primer: Third Edition, February 28, 2007.
6
This is only an approximate, and incomplete, description of the CDS (“cash”) settlement process. For further details, please see
our Credit Default Swap Primer: Third Edition, February 28, 2007.

Situation Room 7
Cross-Product Research 35
January 25, 2008

Outlook
To be clear, we think that To be clear, we think that CDS (“cash”) settlement protocols are generally a good, and
CDS (“cash”) settlement necessary, part of the CDS market. We would prefer to see a protocol following a
protocols are generally a potential monoline Credit Event, but express concern that the methodology may need
good, and necessary, to be changed substantially for monolines to be successful and to avoid forcing all
part of the CDS market. parties into physical settlement.

Situation Room 8
Cross-Product Research 35
January 25, 2008

Important Information Concerning Economists


Individuals identified as economists do not function as research analysts under U.S. law and reports prepared by them are not research reports under
applicable U.S. rules and regulations. Macroeconomic analysis IS considered investment research for purposes of distribution in the U.K. under the rules of
the Financial Services Authority. This report should be read in conjunction with the Bank of America NA (London) general policy statement on the handling of
research conflicts, available on request. Issued and approved by Bank of America NA, London branch, authorised and regulated by the Financial Services
Authority. However, investors should note the footnotes throughout the text regarding contributions by trading desk strategists, discussed in more detail below.

Important Information Concerning U.S. and U.K. Trading Strategists


Trading desk material is NOT a research report under U.S. law and is NOT a product of a fixed income research department of Banc of America Securities LLC,
Bank of America, N.A. or any of their affiliates (collectively, “BofA”). Analysis and materials prepared by a trading desk are intended for Qualified Institutional
Buyers under Rule 144A of the Securities Act of 1933 or equivalent sophisticated investors and market professionals only. Such analyses and materials are
being provided to you without regard to your particular circumstances, and any decision to purchase or sell a security is made by you independently without
reliance on us.
Any analysis or material that is produced by a trading desk has been prepared by a member of the trading desk who supports underwriting, sales and trading
activities.
Trading desk material is provided for information purposes only and is not an offer or a solicitation for the purchase or sale of any financial instrument. Any
decision to purchase or subscribe for securities in any offering must be based solely on existing public information on such security or the information in the
prospectus or other offering document issued in connection with such offering, and not on this document.
Although information has been obtained from and is based on sources believed to be reliable, we do not guarantee its accuracy, and it may be incomplete or
condensed. All opinions, projections and estimates constitute the judgment of the person providing the information as of the date communicated by such
person and are subject to change without notice. Prices also are subject to change without notice.
With the exception of disclosure information regarding BofA, materials prepared by its trading desk analysts are based on publicly available information. Facts
and ideas in trading desk materials have not been reviewed by and may not reflect information known to professionals in other business areas of BofA,
including investment banking personnel.
Neither BofA nor any officer or employee of BofA accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any
use of this report or its contents.
To our U.K. clients: trading desk material has been produced by and for the primary benefit of a BofA trading desk. As such, we do not hold out any such
investment research (as defined by U.K. law) as being impartial in relation to the activities of this trading desk.

Important Conflicts Disclosures Relating to Trading Strategists


Investors should be aware that BofA engages or may engage in the following activities, which present conflicts of interest:
♦ The person distributing trading desk material may have previously provided any ideas and strategies discussed in it to BofA’s traders, who may already
have acted on them.
♦ BofA does and seeks to do business with the companies referred to in trading desk materials. BofA and its officers, directors, partners and employees,
including persons involved in the preparation or issuance of this report (subject to company policy), may from time to time maintain a long or short
position in, or purchase or sell a position in, hold or act as market-makers or advisors, brokers or commercial and/or investment bankers in relation to
the products discussed in trading desk materials or in securities (or related securities, financial products, options, warrants, rights or derivatives), of
companies mentioned in trading desk materials or be represented on the board of such companies. For securities or products recommended by a
member of a trading desk in which BofA is not a market maker, BofA usually provides bids and offers and may act as principal in connection with
transactions involving such securities or products. BofA may engage in these transactions in a manner that is inconsistent with or contrary to any
recommendations made in trading desk material.
♦ Members of a trading desk are compensated based on, among other things, the profitability of BofA’s underwriting, sales and trading activity in
securities or products of the relevant asset class, its fixed income department and its overall profitability.
♦ The person who prepares trading desk material and his or her household members are not permitted to own the securities, products or financial
instruments mentioned.
♦ BofA, through different trading desks or its fixed income research department, may have issued, and may in the future issue, other reports that are
inconsistent with, and reach different conclusions from the information presented. Those reports reflect the different assumptions, views and analytical
methods of the persons who prepared them and BofA is under no obligation to bring them to the attention of recipients of this communication.

16 Situation Room
Cross-Product Research 35
January 25, 2008

REG AC — ANALYST AND FIRM CERTIFICATION


The research analyst whose name appears on the front page of this research report certifies that: (1) all of the views expressed in this research report
accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of the research analyst’s compensation
was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research report. To the
extent that any of the views expressed in this report have been produced as a result of the application of the Credit OAS quantitative proprietary model,
Banc of America Securities LLC (BAS) and its affiliates certify that (1) the views expressed in this report accurately reflect the Credit OAS quantitative
model as to the securities and companies mentioned in the report and (2) no part of the firm’s compensation from any company mentioned in this report
was, is or will be, directly or indirectly, related to the views or results produced by the Credit OAS quantitative model. For a description of the Credit
OAS proprietary credit evaluation model, including the data input into the model, please see Introduction to Lighthouse: Credit Option Adjusted Spread,
Portfolio Analytics and Data Analysis, dated November 24, 2006.

IMPORTANT RESEARCH CONFLICT OF INTEREST DISCLOSURES


The analyst and associates responsible for preparing this research report receive compensation that is based upon various factors. These include (i) the overall
profitability of BAS and its affiliates, (ii) the profitability of the fixed income department of BAS and its affiliates and (iii) the profitability of BAS and its
affiliates from the fixed income security asset class covered by the analyst or associate. A portion of the profitability of BAS and its affiliates, their fixed income
department and each security asset class is generated by investment banking business. Research analysts and associates do not receive compensation based upon
revenues generated from any specific investment banking transaction.
BAS and affiliate policy prohibits research personnel from disclosing a rating, recommendation or investment thesis for review by an issuer prior to the
publication of a research report containing such rating, recommendation or investment thesis. Materials prepared by BAS and affiliate research personnel are
based on public information.
BAS and/or its affiliates have lead- or co-managed an offering of securities for this company in the previous 12 months: Allied Waste Industries, Inc.,
ArvinMeritor, Inc., Constellation Brands, Inc., El Paso Corporation, General Motors Corporation, Lyondell Chemical Co., Nordea North America, Inc, Smurfit-
Stone Container Corporation, TRW Automotive Holdings Corp., Univision Communications Inc.
A member, affiliate, officer or employee of Banc of America Securities LLC is a director or officer of this company: Health Management Associates, Inc.
BAS and its affiliates prohibit analysts, their associates and members of their households from maintaining a financial interest in the securities or options of any
company that the analyst covers except in limited circumstances as permitted by BAS and affiliate policy. Any such direct securities ownership by the analyst(s)
preparing this report is disclosed above. The absence of any such disclosure means that the analyst(s) preparing this report does(do) not have any such direct
securities ownership in his or her covered companies mentioned in this report. Such persons may own diversified mutual funds.
BAS and/or its affiliates beneficially own 1% or more of a class of common equity securities of this company: ArvinMeritor, Inc., Constellation Brands, Inc., Dean
Foods Co., El Paso Corporation, Ford Motor Company, Freeport McMoran Copper & Gold Inc, General Motors Corporation, Health Management Associates, Inc.,
Mediacom Communications Corp., NRG Energy, Inc., Reliant Energy, Inc., Smurfit-Stone Container Corporation, Supervalu Inc., TRW Automotive Holdings
Corp., United Rentals, Inc., Windstream Corp.
This company, its subsidiaries and/or its affiliates are (is) or have (has) been a client of BAS in the previous 12 months. During this period, BAS has performed
investment banking services for this company, its subsidiaries and/or its affiliates and has received compensation for those services: Advanced Micro Devices, Inc.,
Affiliated Computer Services, Inc., ArvinMeritor, Inc., Constellation Brands, Inc., Dean Foods Co., Domtar Corporation, El Paso Corporation, Ford Motor
Company, Freescale Semiconductor Inc., General Motors Corporation, Goodyear Tire & Rubber Company, Health Management Associates, Inc., Lear
Corporation, Lyondell Chemical Co., NRG Energy, Inc., Reliant Energy, Inc., Smurfit-Stone Container Corporation, Supervalu Inc., United Rentals, Inc., Visteon
Corporation
BAS and/or its affiliates expect(s) to receive, or intend(s) to seek, compensation during the next three months for investment banking services from this company,
its subsidiaries and/or its affiliates: Advanced Micro Devices, Inc., Affiliated Computer Services, Inc., ArvinMeritor, Inc., Constellation Brands, Inc., Dean Foods
Co., Domtar Corporation, El Paso Corporation, Ford Motor Company, Freescale Semiconductor Inc., General Motors Corporation, Goodyear Tire & Rubber
Company, Health Management Associates, Inc., Lear Corporation, Lyondell Chemical Co., Mediacom Communications Corp., Reliant Energy, Inc., Smurfit-Stone
Container Corporation, Supervalu Inc., TRW Automotive Holdings Corp., United Rentals, Inc., Visteon Corporation
This company, its subsidiaries and/or its affiliates are (is) or have (has) been a client of BAS in the previous 12 months. During this period, BAS has performed
non-investment banking securities-related services for this company, its subsidiaries and/or its affiliates and has received compensation for those services: Ford
Motor Company, Freescale Semiconductor Inc., General Motors Corporation, Supervalu Inc.
This company, its subsidiaries and/or its affiliates are (is) or have (has) been a client of BAS in the previous 12 months. During this period, BAS has performed
non-securities services for this company, its subsidiaries and/or its affiliates and has received compensation for those services: Advanced Micro Devices, Inc.,
Affiliated Computer Services, Inc., ArvinMeritor, Inc., Constellation Brands, Inc., Dean Foods Co., Domtar Corporation, El Paso Corporation, Ford Motor
Company, Freescale Semiconductor Inc., General Motors Corporation, Goodyear Tire & Rubber Company, Health Management Associates, Inc., Lear
Corporation, Lyondell Chemical Co., Mediacom Communications Corp., Reliant Energy, Inc., Smurfit-Stone Container Corporation, Supervalu Inc., TRW
Automotive Holdings Corp., United Rentals, Inc., Visteon Corporation
BAS is acting as financial advisor and providing Bridge and ABL financing to Bain Capital and Vornado Realty Trust in the announced acquisition of Toys R Us
Inc: Toys 'R' Us, Inc.
BAS's parent company, Bank of America Corporation (BAC), has entered into a five-year strategic financing agreement with General Motor Acceptance Corp.
(GMAC), an affiliate of General Motors Corp. (GM). This arrangement involves committed purchases by BAC of GMAC retail automotive contracts: General
Motors Corporation
Banc of America Securities LLC is acting as financial advisor to Cerberus Capital Management, L.P. in connection with the announcement of a signed definitive
merger agreement to acquire United Rentals Inc. Bank of America will also provide acquisition financing to Cerberus Capital Management, L.P: United Rentals,
Inc.
Banc of America Securities LLC and its affiliates are part of a group of financial institutions that have committed to provide financing to investors who have agreed
to purchase interests in Intelsat Ltd. The financing is to be used to fund the acquisition, repay certain indebtedness of Intelsat Ltd. and pay certain transaction fees
and expenses: INTELSAT Ltd.
BAS is affiliated with an NYSE specialist organization that specializes in one or more securities issued by the companies listed below. This affiliated NYSE
specialist organization makes a market in, and may maintain a long or short position in or be on the opposite side of orders executed on the Floor of the NYSE in

17 Situation Room
Cross-Product Research 35
January 25, 2008

connection with one or more of the securities issued by these companies: General Motors Corporation, Lear Corporation, Reliant Energy, Inc.
BAS currently makes a market in the equity securities of this company: Mediacom Communications Corp., Smurfit-Stone Container Corporation
BAS and its affiliates are regular issuers of traded financial instruments linked to securities that are mentioned in this report.

BANC OF AMERICA SECURITIES RATINGS DISCLOSURES


BAS High Grade and High Yield Research employ a Buy/Neutral/Sell rating system, and these recommendations carry a time horizon of six months.
Buy: Spreads and / or total returns are likely to outperform sector averages over the next six months; the company has improving credit fundamentals and/or it is
trading at a notable spread concession relative to bonds of comparable risk within the sector.
Neutral: Spreads and / or total returns are likely to perform equal to or near sector averages over the next six months; the company generally has solid credit
fundamentals and/or it is trading in line relative to bonds of comparable risk within the sector.
Sell: Spreads and / or total returns are likely to underperform sector averages over the next six months; the company may have weakening credit fundamentals
and/or it is trading at a notable spread premium relative to bonds of comparable risk within the sector.
High Grade and High Yield Research use the following rating system with respect to Credit Default Swaps (CDS). Buy: We recommend that investors buy
protection in CDS, therefore going short credit risk; Neutral: We are neutral on CDS and expect performance in line with sector performance; Sell: We
recommend that investors sell protection in CDS, therefore going long credit risk.
High Grade Research also employs a formal structure to define sector performance, using Overweight/Market Weight/Underweight. The sector recommendation
time horizon is determined by the expected performance over the next six months, but sector recommendation changes may occur at any time based upon sector
analysis and relative value.
Overweight: The sector is expected to outperform excess spread returns of High Grade corporate indices, namely the BAS Broad Market Index (BAS BMI), over
the next six months.
Market Weight: The sector is expected to perform in line with excess spread returns of High Grade corporate indices, namely the BAS BMI, over the next six
months.
Underweight: The sector is expected to underperform excess spread returns of High Grade corporate indices, namely the BAS BMI, over the next six months.
Rating Distribution*
Coverage Investment
Universe Recommendations Pct. Banking Clients Recommendations Pct.**
Buy 263 35 Buy 107 41
Hold 360 49 Hold 163 45
Sell 118 16 Sell 65 55
* For the purposes of this Rating Distribution, “Hold” is equivalent to our “Neutral” rating.
** Percentage of recommendations in each rating group that are investment banking clients.
As of 01/01/2008.
Further information on any security or financial instrument mentioned herein is available upon request.

18 Situation Room
Cross-Product Research 35
January 25, 2008

Disclaimers
This document is being provided to you based on the fact that you are a Qualified Institutional Buyer under Rule 144A of the Securities Act of 1933 or equivalent
sophisticated institutional investor or professional in the fixed income market. Recipients who are not institutional investors or market professionals should seek the advice
of their independent financial advisor before considering information in this report in connection with any investment decision or for a necessary explanation of its contents.
This report has been prepared as part of independent research activity or quantitative analytics and not in connection with any proposed offering of securities or as agent of
the issuer of any securities. This report has been published independently of any issuer of securities mentioned herein. None of BAS, its affiliates or their analysts
(collectively, BofA) have any authority whatsoever to make any representation or warranty on behalf of the issuer(s). This report is provided for information purposes only
and is not an offer or a solicitation for the purchase or sale of any financial instrument. Any decision to purchase or subscribe for securities in any offering must be based
solely on existing public information on such security or the information in the prospectus or other offering document issued in connection with such offering, and not on
this report.
BofA may have issued, and may in the future issue, a trading call regarding a security that is the subject of this report. Trading calls are short term trading opportunities
based on market events or catalysts, while ratings reflect investment recommendations based on 6-month period relative to the relevant coverage universe. Because trading
calls and ratings reflect different assumptions and analytical methods, trading calls may differ directionally from the rating on a security. In addition, BofA may have issued,
and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the
different assumptions, views and analytical methods of the persons who prepared them and BofA is under no obligation to ensure that such other reports are brought to the
attention of any recipient of this report.
Securities recommended, offered or sold by BofA are not insured by the Federal Deposit Insurance Corporation, are not deposits or other obligations of any insured
depository institution (including Bank of America, N.A.) and are subject to investment risks, including the possible loss of the principal amount invested.
The information contained in this report (with the exception of the information set forth under the captions “Regulation AC Certification” and “Important Disclosures”) has
been obtained from and is based on sources believed to be reliable, but we do not guarantee its accuracy or completeness and it should not be relied upon as such. All
opinions, projections and estimates constitute the judgment of the author as of the date of the report and are subject to change without notice. Prices also are subject to
change without notice. BofA is under no obligation to update this report and BofA’s ability to publish research on the subject company(ies) in the future is subject to
applicable quiet periods. You should therefore assume that BofA will not update any fact, circumstance or opinion contained in this report.
Investing in non-U.S. securities may entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to, the reporting requirements of the
U.S. Securities and Exchange Commission. There may be limited information available on foreign securities. In general, foreign companies are not subject to uniform audit
and reporting standards, practices and requirements comparable to those of U.S. companies. In addition, exchange rate movements may have an adverse effect on the value
of an investment in a foreign stock and its corresponding dividend payment for U.S. investors. Investors who have received this report from BAS or an affiliate may be
prohibited in certain states or other jurisdictions from purchasing securities mentioned in this report from BAS or its affiliate(s).
Investments in general, and derivatives (that is, options, futures, warrants, and contracts for differences) in particular, involve numerous risks, including, among others,
market risk, counterparty default risk and liquidity risk. Derivatives are not suitable investments for all investors, and an investor may lose all principal invested and, in some
cases, may incur unlimited losses. It may be difficult to sell an investment and to obtain reliable information about its value or the risks to which it is exposed. Past
performance of securities, loans or other financial instruments is not indicative of future performance.
This report is not prepared as or intended to be investment advice and is issued without regard to the specific investment objectives, financial situation or particular needs of
any specific recipient. In the event that the recipient received this report pursuant to a contract between the recipient and BAS for the provision of research services for a
separate fee, and in connection therewith BAS may be deemed to be acting as an investment adviser, such status relates, if at all, solely to the person with whom BAS has
contracted directly and does not extend beyond the delivery of this report (unless otherwise agreed specifically in writing by BAS). BAS is and continues to act solely as a
broker-dealer in connection with the execution of any transactions, including transactions in any securities mentioned in this report. Neither BofA nor any officer or
employee of BofA accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its contents.
BofA does not provide tax advice. Accordingly, any statements contained herein as to tax matters were neither written nor intended by the sender or BofA to be used and
cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer. If any person uses or refers to any such tax statement in
promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, then the statement expressed above is being delivered
to support the promotion or marketing of the transaction or matter addressed and the recipient should seek advice based on its particular circumstances from an independent
tax advisor.
Notwithstanding anything herein to the contrary, any party hereto (and any of its employees, representatives and other agents) may disclose to any and all persons, without
limitation of any kind the tax treatment or tax structure of this transaction.
Materials prepared by BAS and BASL research personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may
not reflect information known to, professionals in other business areas of BAS, BASL and their affiliates, including investment banking personnel. BAS and BASL research
personnel’s knowledge of legal proceedings in which BAS, BASL and their affiliates may be plaintiffs, defendants, co-defendants or co-plaintiffs with or involving
companies mentioned in this report is based on public information. Facts and views presented in this material that relate to any such proceedings have not been reviewed by,
discussed with, and may not reflect information known to, professionals in other business areas of BAS, BASL and their affiliates in connection with the legal proceedings
or matters relevant to such proceedings.
To European and Asian Customers: This report is distributed in Europe by Banc of America Securities Limited and in Asia by Banc of America Securities Asia Limited.
To U.S. Customers: BAS has accepted responsibility for the distribution of this report in the United States to BAS clients, but not to the clients of its affiliate, Banc of
America Investment Services, Inc. (BAI). Transactions by U.S. persons (other than BAI and its clients) in any security discussed herein must be carried out through BAS.
BAS provides research to its affiliate, BAI. BAI is a registered broker-dealer, member FINRA and SIPC, and is a nonbank subsidiary of Bank of America N.A.
To U.K. Customers: This document has been approved for distribution in the United Kingdom by Banc of America Securities Limited, which is authorized and regulated by
the Financial Services Authority for the conduct of investment business in the United Kingdom. Prices, values or income ascribed to investments in this report may fall
against your interests. The investments may not be suitable for you, and if in any doubt, you should seek advice from an investment advisor. Changes in rates of exchange
may have an adverse effect on the value, price or income from an investment. Levels and basis for taxation may change. The protection provided by the U.K. regulatory
regime, including the Financial Services Compensation Scheme, do not apply in general to business coordinated by BAS or its affiliates from an office outside of the United
Kingdom.
These disclosures should be read in conjunction with the Banc of America Securities Limited general policy statement on the handling of research conflicts—available upon
request.
To German Customers: In Germany, this report should be read as though BAS has acted as a member of a consortium that has underwritten the most recent offering of
securities during the past five years for companies covered in this report and holds 1% or more of the share capital of such companies.
To Canadian Customers: The contents of this report are intended solely for the use of, and only may be issued or passed on to, persons to whom BAS is entitled to distribute
this report under applicable Canadian securities laws. In the province of Ontario, any person wishing to effect a transaction should do so with BAS, which is registered as an
International Dealer. With few exceptions, BAS only may effect transactions in Ontario with designated institutions in foreign securities as such terms are defined in the
Securities Act (Ontario).
To Hong Kong Customers: Any Hong Kong person wishing to effect a transaction in any securities discussed in this report should contact Banc of America Securities Asia
Limited.
To Customers in Other Countries: This report, and the securities discussed herein, may not be eligible for distribution or sale in all countries or to certain categories of
investors. In general, this report may be distributed only to professional and institutional investors.
This report may not be reproduced or distributed by any person for any purpose without the prior written consent of BAS. Please cite source when quoting. All rights are
reserved. © 2008 Bank of America Corporation

19 Situation Room
Banc of America Securities — Debt Research Directory
Paula Dominick, Global Head of Debt and Equity Research (212) 847 5322
Credit Strategy Research High Grade Research High Yield Research
Jeffrey A. Rosenberg, CFA (212) 933 2927 Dennis P. Coleman, CFA (212) 847 6224 Larry Bland (212) 847 6502
Head of Credit Strategy Research Head of High Grade Research Head of High Yield Research
Michael Contopoulos (212) 933 3372 Energy, Pipelines, Master Limited Partnerships Healthcare, Deathcare
Lighthouse Portfolio Strategy & Analytics Michael J. Barry (212) 933 2547 Andrew Brausa (212) 847 6481
Ivy Li, CFA +852 2847 6346 Insurance Building Materials, Homebuilding
Asian Credit Strategy, BASAL Andrew Bressler, CFA (202) 442 7454 Ana Goshko (212) 847 5936
Hans Mikkelsen (212) 847 6468 Washington Healthcare Telecommunications, Towers
High Grade Kevin Christiano (212) 933.2485 Bo Hunt (212) 847 5435
Clemens Mueller (212) 933 2577 Media, Telecommunications Chemicals
High Yield Todd Duvick, CFA (704) 388 5053 Lionel Jolivot (212) 583 8399
Olivera Radakovic (212) 933 2496 Food & Beverage, Supermarkets, Consumer Aerospace & Defense, Industrials, Services
Lighthouse Data Analysis & Indices Gerardo Fuentes (212) 847 6208 Douglas Karson (212) 933 2405
Glen Taksler (212) 933 2559 Technology Autos
Derivatives Strategy John Guarnera (704) 683 4878 James Kayler, CFA (212) 847 5223
Domestic Banks, Finance Companies Gaming, Lodging & Leisure, Restaurants
Douglas Karson (212) 933 2405 Kelly J. Krenger (212) 847 6410
Aerospace/Defense, Manufacturing, Autos Energy
Marisa B. Moss (212) 583 8493 William M. Reuter (212) 933 3363
Transportation Consumer, Retail
David K. Peterson, CFA (704) 386 9419 Peter D. Quinn, CFA (212) 583 8284
Healthcare Electric Utilities & Power
Peter D. Quinn, CFA (212) 583 8284 Eric Toubin, CFA (212) 847 6498
Electric Utilities & Power Technology, Food & Beverage
Beth Slade (212) 933 2469 Stephen Weiss (212) 933 2298
Building Materials Cable/Satellites, Broadcasting/Publishing, Theaters
Justin Starnes (704) 386 5466
Healthcare REITs

The persons listed on this directory have the All research analysts are employed by Banc of
title “research analyst”. Unless otherwise America Securities LLC (BAS) except as noted
noted, any other contributors named on the above.
front cover of this report but not indicated
above have the title “research associate”.

BAS (United States) BASL (United Kingdom) BASAL (Hong Kong)


Banc of America Securities LLC Banc of America Securities Limited Banc of America Securities Asia Limited
th nd
9 West 57 Street 5 Canada Square 42 Floor, Two International Finance Centre
New York, New York 10019 London E14 5AQ, United Kingdom 8 Finance Street, Central Hong Kong
Tel. Contact: 888-583-8900 Tel. Contact: +44 (20) 7174 4000 Tel. Contact: +852 2847 5222

214 North Tryon Street Manage Your Research Subscriptions Online


Charlotte, North Carolina 28255 Did you know that you can control your Banc of America Securities research subscriptions
Tel. Contact: 800-432-1000
online? Simply login at http://www.bofa.com/login and select My Alerts from your Toolbox.
If you don’t have a User ID, please contact your Banc of America Securities salesperson. If you
forgot your User ID or password, please call our Help Desk at 1.877.543.2632 or email
usa.ecommercesupport@bankofamerica.com