DCF LLC Funding Process NADCO 2014 Annual Meeting May 1, 2014 Colorado Springs, CO 1.

DCF LLC Funding Process

NADCO 2014 Annual MeetingMay 1, 2014

Colorado Springs, CO

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SBA 504 Capital Markets Team• Fiscal Agent — DCF LLC. Manage the funding process to obtain the best available debenture

rate for borrowers.

Frank Keane – Fiscal Agent, DCF LLC.

• Underwriters — BAML and Credit Suisse. Market, pool debentures, sell and trade DCPC, take capital risk, provide product research.

Leland Bunch III – Managing Director, Bank of America Merrill Lynch – SBA 504 underwriter.

Karen Cady – Director, Credit Suisse – SBA 504 underwriter

• Issuing Agent and Trustee — The Bank of New York Mellon. Hold debentures issued by CDCs, issue DCPCs as SBA's agent, distribute P&I to DCPC holders, report outstanding pool statistics.

Glenn McKeever – Vice President, Bank of New York Mellon – SBA 504 trustee.

• Central Servicing Agent — Wells Fargo Corporate Trust Services. Process loans, report new pool statistics to DCF LLC, collect loan payments, pay out proceeds..

Brian Gagnon – Program Group Leader, Wells Fargo CSA Team

Rupinder Suri– Servicing Manager, Wells Fargo CSA Team

• Legal Counsel — Bingham McCutchen LLP. Program and transaction legal advisors to Underwriters.

Jeff Johnson – Partner, Bingham McCutchen LLP - SBA 504 program bond counsel.

2014 DCFLLC No distribution without permission

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Small Business

Investors

SmallBusiness

CDCs/CSA

DCF LLC

Underwriters

BNYM

BAML/CS

Loans

Loans

Debentures Issued

Debentures and Guarantee Agreement provided by SBA sold under Debenture Purchase, Pooling and Exchange Agreement

Debentures and Guarantee Agreement transferred to Trustee under Trust Agreement

Participation Certificates (DCPCs) issued under Trust Agreement

DCPCs

From Borrowers to Investors: The Process


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4

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SBAP Funding Process with Deadlines for April 2014 Sale

• February 28 – March 13 – CDC submission of forms to Sacramento for No Adverse Change.

• February 28 – March 13 – Upon approval of No Adverse Change by Sacramento request file be placed in legal folder for District Counsel review.

• Thursday , March 27 –Cut -Off Date - Upon District Counsel approval, send documents to Wells Fargo for review and resolution of Loan Package errors.

• Monday, March 31 – Wells Fargo sent CDC Confirmation Emails to CDCs.

• Friday, April 4 – Wells provides Fiscal Agent with preliminary numbers for the sale, identifying the number of loans and total size.

• Monday, April 7 – Pulled Loan Deadline. CSA and CDC’s have resolved all loan documentation issues.

• Tuesday, April 8 – official Announcement Date for the sale.

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Problem Loans

Monthly AverageOctober 2013 –

March 201423%

(119)

77%

(399)

SAA Approval Date Incorrect (p.3)

SAA Amount(s) Incorrect/Missing (p.2)

Debenture Data Missing/Incorrect

SAA Amounts Incorrect/Missing (p.4)

ACH Form Data Missing/Incorrect

SAA Fees Incorrect (p.5)

SAA Wiring Instructions Incorrect/Missing (p.4)

SAA Dates Incorrect (p.3)

Any Other Error

W-9 Form Data Missing/Incorrect

0 20 40 60 80 100 120 140 160

26

29

32

36

42

44

100

102

104

142

Top 10 Problem Loan TypesOctober 2013 – March 2014

Problem Loans Total Funded Loans

October 2013 November 2013 December 2013 January 2014 February 2014 March 20140

100

200

300

400

500

600

564 527424

497

382

556

129 113 89 128 105 146

Problem Loans vs. Loans Funded, by MonthOctober 2013 – March 2014

• On average, 119 loans each month are submitted with missing/incorrect information

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Inquiry Tracking

District Office

Other

CDC

Borrower

0 200 400 600 800 1000 1200 1400 1600

8

101

1276

1522

Calls ReceivedAugust 2013 – March 2013

0%10%20%30%40%50%60%70%80%90%

100%

Resolution Rate Trending

Same day One-day

• Received more than 1,500 calls from borrowers – 250 more than from CDCs – which stretches staff resources

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• Total SBA 504/CDC issuance: $60.6 billion, with $27.6 billion outstanding.

• When the underwriters launch each SBA deal, that announcement is sent to each banks’ mortgage, agency, corporate and interest rate products sales teams across their network of global offices in US, Europe and Asia.

• Goal is to get as many customers interested at the "talk" level, and depending upon investor demand, attempt to tighten spread so that borrowers get the best possible interest rate available. The objective of every sale is to be strongly over-subscribed, balancing the interests of borrowers and investors.

• Research teams publish market primers to educate and broaden the investor base. Monthly default and prepayment statistics are provided to investors for security analysis.

Role of Underwriters


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• Underwriters: marketing, sale, pricing, hedging and swaps.

• New issues: 27 investors across 16 states purchased the new SBAP transactions year-to-date 2014 from BAML and Credit Suisse.

• Secondary market trades: BAML and CS traded $1.8 billion DCPC bonds in 2013 and $900 million in 2014 ytd.

Role of Underwriters


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• By the Announcement Date Bingham has prepared and circulated an updated draft of the Offering Circular, requested CUSIP, and drafted the transaction documents to be executed by Underwriters, SBA and Fiscal Agent.

• Prior to Pricing Date, Bingham receives signature pages from Underwriters and SBA, sign-off for tax and ERISA disclosure in the Offering Circular, E&Y’s sign off on Offering Circular and confirmation of deal size from Wells Fargo. Fiscal Agent and Funding Committee have conference call Wednesday April 9 to discuss terms of the sale.

• Wednesday, April 9 - Fiscal Agent and Funding Advisory Committee discuss status of sale. Wells Fargo delivers sale file to the Trustee.


SBAP Funding Process with DeadlinesFor April 2014 Sale

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• Thursday, April 10 – Pricing Date. 2014-20D DCPCs are priced on a 10:30 conference call with the Underwriters, who execute sales and swap transactions with investors. Fiscal Agent calls and e-mails U.S. Treasury and SBA for approval of the rate, e-mails rate to Bingham for completion of the Offering Circular and posting with FINRA, also e-mails rate to Ernst & Young to complete calculation of WAL’s. Fiscal Agent then sends e-mail with terms of the sale to the Trustee, the CSA, and Funding Advisory Committee, completes the Offering Circular markups and has telephone read through with Bingham. Bingham sends Fiscal Agent, SBA Secondary Markets Director and SBA in-house legal counsel the completed transaction documents to be executed and returned to them for the closing table. Offering Circular when completed is released to Underwriters to be used to market the transaction.

• Thursday, April 10 – The Trustee delivers sale file back to Wells Fargo updated to include Debenture prepayment premium and amortization schedules.


SBAP Funding Process w/DeadlinesFor April 2014 Sale

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• Friday, April 11 – Wells Fargo generates and loads amortization schedules and provides NADCO with Effective Rates. Wells Fargo delivers physical Debentures to the Trustee.

• Tuesday, April 15 - Pre-Closing Date. Bingham sends executed copies of transaction documents and opinions to the Trustee and confirms with Lead Underwriter and SBA closing table is complete. Bingham contacts Wells Fargo and Lead Underwriter to confirm wire amount and time of transmission of the wire.

SBAP Funding Process w/DeadlinesFor April 2014 Sale

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• Wednesday, April 16 – Funding Date. Bingham conducts a conference call with Fiscal Agent, Lead Underwriter, the Trustee, the CSA, and a Funding Advisory Committee representative to confirm proceeds of the sale. Lead Underwriter with the Trustee calls DTC to close the deal and release the DCPC /certificates (which are in electronic book-entry form) to the Underwriter’s account. Immediately after the closing the Underwriters distribute DCPC/certificates to the investors. Wells Fargo verifies and releases net debenture proceeds to interim lenders.

• Trustee delivers reports to Wells Fargo detailing amounts due for May 1st payment to investors for related previous issuances.

SBAP Funding Process with Deadlines forApril 2014 Sale

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• April 21-30 – Trustee mails copies of Debentures with amortization and prepayment premium schedules to CDCs.

• Wednesday, April 30 – Wells Fargo sends funds via wire transfer to Trustee for payment of semi-annual principal and interest to investors of related previous issuances.

• Thursday, May 1 – Trustee releases funds for above to investors through DTC. Trustee releases monthly reports (pool status etc.) to Fiscal Agent and investors.

• Post-Closing- Within 30 days of funding, Bingham prepares a CD with all closing documents for the working parties.

SBAP Funding Process with Deadlines forApril 2014 Sale

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0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

10yr UST Spread to UST

6.77

3.11

Source: NADCO, Credit Suisse

SBA 504 Coupons


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0m

100m

200m

300m

400m

500m

600m

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Deal Size

3mo moving avg

• Debt refi program expired in September 2012.• 504 deal sizes became smaller as the remaining loans

in the pipeline have since been processed.

Source: NADCO, Credit Suisse

504 refinancing program boosted SBA deal sizes


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SBA 504 Investors by Type


Source: Credit Suisse, BofAMLBased on 2013 and ytd 2014 SBAP deals

Money Manager,

41%

Bank, 30%

Insurance, 26%

Hedge Fund, 2%

Foreign, 1% Pension, 0.1%

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SBA 504 Investors by Geography


Source: Credit Suisse, BofAMLBased on 2013 and ytd 2014 SBAP deals

Northeast, 44%

South, 30%

Midwest, 17%

West, 7%Foreign, 2%

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Source: MBA, Credit Suisse

$345

$406

$508

$181

$82$119

$184

$244

$358

0

100

200

300

400

500

600

2005 2006 2007 2008 2009 2010 2011 2012 2013

$billion

Total originations in 2013 was $358 billion, exceeding 2005 volume.


CRE lending is rebounding

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Source: Credit Suisse, BofAML, Trepp

• Over four thousand small balance CMBS loans are scheduled to mature between 2015 – 2017.

• Opportunity for SBA lenders to meet the financing gap.• Many small balance loans that have yet to mature have high coupons relative to current market rates, representing additional

opportunities for SBA lenders.

CMBS Maturities: $ Balance CMBS Maturities: Number of Loans

Year < $2.5m $2.5 - $10m > $10m Year < $2.5m $2.5 - $10m > $10m2014 $0.8 bn $7.1 bn $22.6 bn 2014 609 1,615 931 2015 $1.9 bn $18.1 bn $60.0 bn 2015 1,340 3,921 2,159 2016 $2.3 bn $22.9 bn $95.2 bn 2016 1,560 4,676 2,866 2017 $2.2 bn $22.2 bn $97.5 bn 2017 1,464 4,439 2,882 2018 $0.3 bn $1.9 bn $11.5 bn 2018 334 462 367 2019 $0.2 bn $0.8 bn $5.1 bn 2019 199 227 135

2015-17 $6.4 bn $63.1 bn $252.7 bn 2015-17 4,364 13,036 7,907

Loan SizeLoan Size


Wall of maturity for small balance CMBS loans

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• Many pre-crisis small balance lenders no longer exist or are not participating in the market (e.g. Washington Mutual, LaSalle,

etc.).• Only 6% of loans in new CMBS deals are small balance loans

($2.5 million or less).• Prior to the recession, small balance loans represented 20% of

the conduit CMBS loans.

< $2.5m, 20%

$2.5-$10m, 46%

> $10m, 34%

Pre-crisis Conduit CMBSBy Loan Count

< $2.5m, 6%

$2.5-$10m, 49%

> $10m, 45%

Current Conduit CMBS By Loan Count


CMBS lenders focus less on small loans

Source: Credit Suisse, BofAML, Trepp22

• 10yr UST rates are likely to go up, not down, given the QE3 is ending.

• With rates expected to rise, the incentives for refi one’s own portfolio is not that compelling.


10-year Treasury Rate

Source: Credit Suisse, BofAML, Bloomberg

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

BofAML forecastCredit Suisse forecast

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Disclaimer

The information herein has been obtained from sources that we believe to be reliable,

but we do not guarantee its accuracy or completeness.

Development Company Finance LLC 2014.

All rights reserved.

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DCF LLC Funding Process NADCO 2014 Annual Meeting May 1, 2014 Colorado Springs, CO 1.

Documents

process loans

total sba

sba deal

pool debentures

credit suisse sba

dcf llc funding process

trust agreement dcpcs

exchange agreement debentures