Motor City Meltdown American Enterprise Institute February 2014

John R. Mousseau, CFA Executive Vice President & Director of Fixed Income (800) 257-7013 ext. 307 [email protected] Twitter: @CumberlandADV

Florida Office New Jersey Office (800) 257-7013 One Sarasota Tower 614 E. Landis Avenue Internal Advisor Use Only SMRU 523868 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission. Sarasota, FL 34236 Outline

• Timeline of Events

• Market Reactions

• Going Forward

Florida Office New Jersey Office (800) 257-7013 One Sarasota Tower 614 E. Landis Avenue 2 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission. Sarasota, FL 34236 Timeline

• December 1993 – Moody’s rates GO bonds Ba1, or junk status, after downgrading from investment grade in July 1992.

• December 1999 – Under Mayor , Moody’s upgrades Detroit to investment-grade rating Baa1 after raising to Baa2 one year earlier.

• May 2005-2006 – Detroit issues $1.44 billion in COPS in two separate transactions to fund pension payments, increasing its outstanding indebtedness by 25%.

• September 2008 – Mayor Kwame Kilpatrick forced to leave office after pleading guilty to obstruction of justice

• December 2008 – $17.4 billion bailout of GM and Chrysler

• March 2011 – Census Bureau reports Detroit’s population has declined 713,777, or 25%, since 2000. This is the lowest level in 100 years.

Florida Office New Jersey Office (800) 257-7013 One Sarasota Tower 614 E. Landis Avenue 3 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission. Sarasota, FL 34236 Timeline (cont.)

• March 2013 – Detroit Governor Rick Snyder appoints Kevyn Orr, a bankruptcy attorney, to serve as Emergency Manager, to run the city.

• June 2013 – Orr presents preliminary restructuring plan to bondholders, treating all general obligation debt as unsecured with recovery values on some debt classes as low as 10%.

• July 2013 – Detroit files for bankruptcy with approval from Governor Rick Snyder.

• December 2013 – Judge Steven Rhodes approves the bankruptcy and will hear the case.

• January 2014 – Emergency Manager presents official plan of adjustment to all creditors, imposing steep losses on bondholders and subordinating claims of bondholders to pension beneficiaries.

Sources: Businessweek, Detroit News, theweek.com, , Reuters, and Moody’s Florida Office New Jersey Office (800) 257-7013 One Sarasota Tower 614 E. Landis Avenue 4 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission. Sarasota, FL 34236 Detroit Long Maturity (Downgraded Insurer): XLCA

Detroit Long Uninsured 5.25% Due 4/1/2023 MMA Yield 9-Year

14.0 Current Rating: Caa3/D 13.0

12.0

11.0

10.0

9.0

8.0

7.0 Yield 6.0

5.0

4.0

3.0

2.0

1.0

Source: Bloomberg Florida Office New Jersey Office (800) 257-7013 One Sarasota Tower 614 E. Landis Avenue 5 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission. Sarasota, FL 34236 Detroit Long Insured (Downgraded Insurer): AMBAC

Detroit Long Insured 5.00% Due 4/1/25 MMA Yield 11-Year 11.0

10.0

9.0

8.0

7.0

6.0 Yield

5.0

4.0

3.0

2.0

1.0

Source: Bloomberg Florida Office New Jersey Office (800) 257-7013 One Sarasota Tower 614 E. Landis Avenue 6 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission. Sarasota, FL 34236 Detroit Long Insured: Assured Guaranty

Detroit Long Insured 5.00% Due 4/1/2028 MMA Yield 14-Year

8.0

7.0

6.0

5.0 Yield

4.0

3.0

2.0

Source: Bloomberg Florida Office New Jersey Office (800) 257-7013 One Sarasota Tower 614 E. Landis Avenue 7 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission. Sarasota, FL 34236 Detroit Water Uninsured

Detroit Wtr Uninsured 5.00% Due 7/1/41 MMA Yield 27-Year

7.0

6.5 Detroit Water Ratings Current: B1/BB- November 28, 2012: Baa3/A+ 6.0

5.5

5.0 Yield

4.5

4.0

3.5

3.0

Source: Bloomberg Florida Office New Jersey Office (800) 257-7013 One Sarasota Tower 614 E. Landis Avenue 8 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission. Sarasota, FL 34236 Detroit Water Insured: AGM

MMA Yield 20-Year Detroit Wtr Insured 5.00% Due 7/1/34 7.0

6.0

5.0

4.0 Yield

3.0

2.0

1.0

Source: Bloomberg Florida Office New Jersey Office (800) 257-7013 One Sarasota Tower 614 E. Landis Avenue 9 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission. Sarasota, FL 34236 vs. Detroit

Detroit Boston Boston Median Detroit Median Population Population Family Income Family Income

1960 1,670,144 697,197 $ 5,620.00 $ 30,434.00

2010 701,475 620,223 $ 61,035.00 $ 31,615.00

Source: Census Bureau as of 2010, Current Population Survey Florida Office New Jersey Office (800) 257-7013 One Sarasota Tower 614 E. Landis Avenue Internal Advisor Use Only SMRU 523868 10 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission. Sarasota, FL 34236 Boston vs. Detroit Population

Boston Population Detroit Population 2,000,000

1,800,000

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

- 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Source: Census Bureau as of 2010, Current Population Survey Florida Office New Jersey Office (800) 257-7013 One Sarasota Tower 614 E. Landis Avenue Internal Advisor Use Only SMRU 523868 11 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission. Sarasota, FL 34236 Boston Real Estate: $2,132/Sq. Ft.

Property Information • $4,175,000

• 3 Bedrooms

• 3 Full Baths, 1 Half Bath

• Condo

• 1,958 Square Feet

• Boston, MA - Greater Boston

• Back Bay Neighborhood

• Suffolk County

• Fees are $2,135

Source: Weichert. Data is of November 2013. Florida Office New Jersey Office (800) 257-7013 One Sarasota Tower 614 E. Landis Avenue Internal Advisor Use Only SMRU 523868 12 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission. Sarasota, FL 34236 Detroit Real Estate: $4/Sq.Ft. (or less)

Property Details

• Price:$13,500

• Beds:4 Bed

• Baths:1 Full, 1 Half Bath

• House Size:1,818 Sq Ft

• Lot Size:5,227 Sq Ft Lot

• Year Built:1917

Source: Weichert. Data as of November 2013. Florida Office New Jersey Office (800) 257-7013 One Sarasota Tower 614 E. Landis Avenue Internal Advisor Use Only SMRU 523868 13 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission. Sarasota, FL 34236 Disclosure

All material presented is compiled from sources believed to be reliable. However, accuracy cannot be guaranteed. Past performance is no guarantee of future results. All investments involve risk including loss of principal. Fixed income investments are subject to interest rate and credit risk.

Florida Office New Jersey Office (800) 257-7013 One Sarasota Tower 614 E. Landis Avenue Internal Advisor Use Only SMRU 523868 14 2 N. Tamiami Trail, Suite 303 Vineland, NJ 08360 ©Copyright 2013 Cumberland Advisors®. Further distribution prohibited without prior permission. Sarasota, FL 34236