Michigan Municipal Bond Authority
State Aid Note Loan Program - August 2008

Option 1: Set Aside Payments

1. School district repays the principal and interest on its note by making either 5 or 7 monthly set aside payments.
   • 5 set aside payments: January 2009 through May 2009
   • 7 set aside payments: January 2009 through July 2009
2. Set aside payments are pooled and invested on behalf of school districts in a competitively bid guaranteed investment contract (GIC). Investment earnings are credited toward repayment of each school district's note, lowering the overall cost of borrowing.
3. The program is structured so that the Authority's notes receive the highest short-term rating of SP-1+, ensuring a competitive interest rate for the borrowing.
4. Security Requirements:
   • A limited tax full faith and credit pledge
   • Agreement to authorize the intercept of state aid in the event of default
   • Pledge of certain state aid payments

Option 2: No Set Aside Payments

1. Monthly set aside payments are not required under this option; therefore, no investment earnings are realized.
2. School district repays the entire principal and interest due on its note on the loan maturity date. The State Treasurer automatically transfers the August 2009 state aid to the Authority to pay all or a portion of the note.
3. With the no set aside option, the additional security of a bank letter of credit (obtained by the Authority) is required. The program is structured so that the Authority's notes receive the highest short-term rating of SP-1+, ensuring a competitive interest rate for the borrowing.
4. Security Requirements
   • A limited tax full faith and credit pledge
   • Agreement to authorize the intercept of state aid in the event of default
   • Pledge of certain state aid payments
   • Investment grade letter of credit (obtained by the Authority)

Please note: Costs of issuance are shared on the same pro rata basis among set aside and no set aside borrowers. However, borrowers with no set aside payments incur the additional costs associated with the letter of credit and do not realize investment earnings on set aside payments.