TBL2: Maximizing TBL Investment Impact

TBLI Europe Conference – November 2012

TBL2: Triple Bottom Line Leveraged for Impact

• Whether a local coffee shop or a global bank, TBL businesses are critical to creating a more sustainable world

• We believe TBL principles can be prudently leveraged to catalyze huge positive impacts—we call this TBL2

• We seek to geometrically increase TBL impacts by unlocking the huge potential of local currency financing for emerging nations

• Over $5 Trillion USD is available for development finance in emerging nation local savings pools (pension funds and other financial institution investment funds); most is under-invested; little is being used to finance physical, economic or social infrastructure

• Unlocking this potential has important implications for the ability of developing nations to self-finance – particularly significant now when many developed nations are facing fiscal crises and foreign currency flows into emerging nations are at risk

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Virtuous Circle of Long-term Savings

• Pools of long-term savings – from pension funds, insurance companies, banks and mutual funds - can play a critical role in national development

• Pension fund assets in OECD countries alone amount to over US$19 Trillion1

• These assets are invested in a variety of instruments including: • Fixed Income: Govt. & Pvt. Sector Bonds

• Equities: Listed Equities, Private Placements

• Other: Real Estate, Cash

• Investments not only provide returns to savers, but also fund long-term development of roads, utilities, hospitals, schools, etc.

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Macroeconomic Stability

Savings

Investment

Returns • Social • Env’l • Economic

1 Source: OECD. (July 2011) ‘Pension Markets in Focus.’ No. 8

Evolution of the Virtuous Circle in Developing Countries

• Developing countries, helped by DFI partners, have catalyzed substantial local savings pools • Pension funds and other institutional

investors in developing countries now control US$5 Trillion in assets

• This is not restricted to larger countries • For example, Ghana’s pension fund has

US$1.6 BN in assets with growth at 20% p.a.

• But there’s often no good place to invest the assets productively • Egypt has over US$75 BN in pension assets

but $1BN in annual bond market issuance

• Regulators, with good reason, want safety

• So the bulk is invested in bank CDs and T-bills

• In practice, otherwise prudent investment regulations often result in high concentrations in low-yield assets with no development impact

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Macroeconomic Stability

Savings

Investment

Returns • Social • Env’l • Economic

Finding the Best Investments for These Assets

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Institutional Investors

Govt T-Bills

& Bonds

Private Sector Bonds

Local Blue Chips

Infra-structure

Equity Bank CD’s Real

Estate Foreign

Other

Low Yield

Dev. Impact

Risk Low

Low/Mod.

Mod.

Low

Low/Mod.

Mod.

Mod.

High

Low

Low

Low

None

High

Low/Mod.

Variable

High

Low

Low

Low

None

Inv. Asset Class

Available Savings

WANTED: AAA-Rated Projects: If development finance projects for infrastructure and public services could be structured to reduce risk and receive high credit ratings, these local assets could become a dramatically effective tool for development, while earning safe but higher returns for local savers

One TBL2 Solution: AMF

• AMF is a TBL corporation formed to provide AAA (national rating scale) guarantees for local currency bonds and bank loans funding essential physical, social and economic infrastructure in developing countries

• Physical: Roads, Airports, Housing, Ports, Renewables, Utilities

• Social: Health Care, Education

• Economic: MSMEs, Microfinance, Local Bank Financing, Commodity Exports

• AMF won first-prize honors in March 2010 at the Marketplace in Innovative Finance, sponsored by the World Bank, the Bill & Melinda Gates Foundation and Agence Française de Développement

• AMF is an extension of the experience of prior “monoline” guarantors in the emerging markets–while never a large proportion of their portfolios, emerging nations accounted for US$30 billion in exposure and were the industry’s most profitable line of business, with near-zero losses

• AMF expects that two private sector and six public sector investors will be joined by additional private sector parties to launch AMF by early 2013. We came to this conference in search of one or more of those investors!

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TBL2: Adding Leverage to Move the Needle

• AMF expects to earn investors a handsome 25% return on equity, creating a sustainable business and enabling an impressive developmental impact

• Each dollar of capital can catalyze 20 dollars in financing

• On an initial estimated capital base of US$350MM, AMF estimates that by 2017 it will catalyze more development financing than the 2009 giving of the Bill and Melinda Gates Foundation

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0

5

10

15

20

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022Pri

nci

pal

Insu

red

(U

S$ B

N)

Year

Annual Financing Catalyzed by AMF

The Gates Foundation’s Annual Giving in 20092

US$ 3 BN

2 Source: Foundation Center. (2011). ‘Foundation Growth and Giving Estimates: Current Outlook.’

How and Why AMF Works: An Example

• Assume a Kenyan university seeks $25MM to expand its medical school

• The university is locally rated AA; $25MM of new debt would make it A-, which the local bond market will not finance due to regulatory impediments

• If a 20-yr A- bond could be issued, the additional interest on a bond of such maturity would exceed interest on an equivalent AAA bond by some $12 MM

• AMF structures covenants and reserves with environmental and social goals in mind, then uses its local AAA rating to guarantee the $25MM bond issue

• Of the $12MM savings, AMF gets $7MM as its bond insurance fee; the university saves $5MM

• Kenyan pension funds buy the bonds

• The medical school is financed at a low fixed rate; AMF has a profitable transaction with a strong development impact; Kenya has 100% financed its development needs with local funds

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This example demonstrates the cost savings, debt market access and developmental benefits of financial guarantee insurance. Its basic

principles can be applied across all of AMF’s asset classes

Mitigating Risk and Maintaining Financial Strength

As with all enterprises, AMF’s business model is not risk-free. However, much of the risk has been mitigated, as shown below:

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• Credit will be pre-eminent in the culture of the Company

• Risk management will take precedence over revenue production

• Compensation will be aligned with long-term risks inherent in business

Corporate Culture

Underwriting

• AMF will always be the most senior creditor in the transactions it guarantees

• We will strictly adhere to essentiality as our core principle by guaranteeing infra-structure and services projects that provide a nation or region an essential benefit

• Our exposures will be rigorously diversified by geography, asset class, and issuer

• We will never engage in esoteric derivative structures

Loss Mitigation

• AMF will reserve 25% of its earnings, which is 3-7x the level of US monolines

• We will reinsure with our shareholders to manage risk exposure levels

Foreign Currency Risk Management

• 80-90% of AMF’s liabilities will be a mix of emerging market currencies

• AMF will diversify, diversify, diversify: A mixture of hard currency bonds on the asset side, a mixture of emerging market currency exposures (most of which will be notional rather than realized exposures) on the liability side

AMF’s Path to Launch

• AMF has achieved several critical milestones since its founding, including:

• Hiring a multinational/multilingual team of veteran credit professionals with average credit/emerging markets experience of 26/24 years, respectively;

• Securing indicative capital commitments from private and public investors, including two private sector companies and six DFIs, for ca. $275 million;

• Raising $400,000 from senior management and staff;

• Winning a grant from the Bill & Melinda Gates Foundation for $300,000; and

• Initiating a rating discussion with S&P and securing an “A+” global scale rating from Global Credit Ratings of Johannesburg, South Africa

• AMF is now working with the New York investment banking firm Keefe Bruyette and Woods to recruit an additional private sector investors, a process which we expect will be completed in the coming months

• Once investor recruitment is completed, AMF will apply for an indicative A+ rating from S&P. This is estimated to take 2 to 3 months

• AMF’s launch will occur shortly after receiving its rating in Q1 2013

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The Benefits on a TBL2 Investment

• An AMF investment will provide investors with returns on all three critical levels while moving the needle in development finance

• Economic: AMF projects an IRR of ~25%

• Environmental: AMF will adhere to strict environmental policies of the DFIs and directly induce investment in green technologies

• Social: AMF will catalyze financing for essential public infrastructure investment with strong social benefits

• Impact: AMF will have dramatic, substantial and global impact

• In addition, investors will join a unique public-private partnership with a window on the fastest-growing economies around the world

• The minimum investment is $5-10MM and of course much larger sizes are also welcome

• Interested in learning more? Please come see us at our booth

Thank you!

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Contact

David Stevens Founder and CEO Mobile: +1-917-496-9929 Email: david.stevens@amfguarantee.com Website: www.amfguarantee.com

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