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1 Presentation to the University of Colorado
4/1/2017 8:53 AM Presentation to the University of Colorado Investment Banking March 30, 2011

2 Overview of the Presentation
4/1/2017 8:53 AM Overview of the Presentation Agenda Agenda Introduction to Valuation M&A Valuation Drivers of M&A and Role of an Investment Banker Valuation Methodologies and the “Football Field” IPO Valuation What Matters and is Most Important? In-depth IPO Valuation

3 Introduction to Valuation
4/1/2017 8:53 AM Introduction to Valuation

4 4/1/2017 8:53 AM Valuation Overview Introduction to Valuation Valuation is a Central Discipline in Investment Banking Nearly Every Activity in Investment Banking and Private Equity is Driven by Valuation Analyses Determining the value of the Company is generally the first step M&A ⇛ Determining the value in a transaction Equity Capital ⇛ Pricing the Initial Public Offering Leveraged Finance ⇛ Determining collateral value and/or financing capacity Securities design and pricing is an extension of the same fundamental concepts Valuation Requires the Interpretation of Information and Sound Judgment (Balance of “Science” & “Art”) Information provides a foundation of knowledge about the asset and the marketplace Interpretation of the information and correct judgment distinguishes the quality of the analysis At the Core, Valuation is About Finding the Equilibrium Between Risk and Reward Fair market value is typically defined as the price at which a willing buyer and a willing seller will transact around an asset / company when both have complete information and neither is under any compulsion to act Obviously, buyers and sellers may value assets differently based on a variety of factors, thereby creating a market 1

5 Valuation Overview (Cont’d)
4/1/2017 8:53 AM Valuation Overview (Cont’d) Introduction to Valuation Definition of Key Terms Firm Value (or “Enterprise Value”) The total value of an operating business regardless of its capital structure Equity Value (or “Market Value of Equity”, “Market Value” or “Market Cap”) The value of an operating business to its equity holders The value of an operating business after the satisfaction of its creditors and preferred claim holders Firm Value Net Debt Equity Value less equals Net Debt The sum of: Total indebtedness for borrowed money Preferred claims against the value of the business Less the sum of: Cash and cash equivalents Preferred Claims against the Value of the Business May include preferred stock, “out-of-the-money” convertible securities or minority interests 2

6 Valuation Overview (Cont’d)
4/1/2017 8:53 AM Valuation Overview (Cont’d) Introduction to Valuation Definition of Key Terms Typically involves a premium over the publicly traded equity value Ability to control the Board, management and strategy of the business Ability to integrate with other assets and capture synergies Ability to access all cash flows and create the optimal capital structure Commonly represented by publicly traded equity value Assumes adequate liquidity in the market Generally subject to existing Board, management and strategy Access to cash flow limited to dividends Typically involves a discount to the publicly traded equity value Discount reflects a lack of market history and therefore certain liquidity and valuation risk Also reflects an attempt to “entice” shareholders of similar companies to buy IPO (bargain price) Control Value @ M&A Fully Distributed Equity Value @ Trading IPO Value @ IPO 3

7 4/1/2017 8:53 AM M&A Valuation

8 Drivers of Mergers & Acquisitions
4/1/2017 8:53 AM Drivers of Mergers & Acquisitions M&A Valuation Why Deals Happen and Don’t Happen Why Deals Happen Why Deals Don’t Happen Compelling Strategic Rationale for a Transaction Diversification vs. Focus (Broaden or Narrow Business Mix) Manage Market Position and Scale (Commit to a Product / Market or Exit) Geographic Expansion vs. Retrenchment (Globalization / Cost of Entry) Vertical Integration vs. Outsourcing Defensive (What If Our Competitor / Pursuer Wins?) Compelling Financial Rationale for a Transaction Low Relative Cost or High Relative Opportunity Financing Markets (Ability to Leverage Equity Returns) Equity Market Perception / Reaction (Valuation Metrics / Business Model / Growth / Profitability) Financial Synergies (Different Value Available to Different Owners) Financial Stress (Company Selling Subsidiary to Raise Cash) Financial Sponsor Exit Other Reasons Management Ego Change in Management Insufficient Strategic or Financial Rationale Management / Board of Directors Resistance (Social Issues) Market / Shareholder Concerns (Dilution / Lack of Understanding / Credibility) Inadequate Financial Resources Available to the Buyers Anti-Trust Considerations Changes in Relative Valuation Accounting, Tax, Legal, and Environmental Issues Are Insurmountable Regulatory (Domestic or Abroad) 4

9 What are the Deal Mechanics and the Process?
4/1/2017 8:53 AM What are the Deal Mechanics and the Process? M&A Valuation Types of Deals and Structures Types of Deals and Processes Subsid./Private Company Transaction Structures Exclusive Sale Private Sale to a Single Buyer Limited Auction (Formal vs. Informal) Full Auction (Public vs. Private) Buy-Side Advisory Willing Target Pursuing a Sale Process Unsolicited Approach – Target Attitude Unknown (Formal vs. Informal) Friendly Negotiations “Bear Hug” – Target is Resistant (Disclosure Issues) Hostile Offer Equity Restructurings Spin-off – shares of subsidiary distributed tax-free to all parent shareholders on a pro-rata basis Split-off – shares of subsidiary distributed tax-free to self-selected parent shareholders Targeted Stock – distributed tax-free in either manner outlined above or IPO’d Leveraged Buyouts and Recapitalizations Asset Sale Transaction of specific assets and liabilities Required if operations are not held in a distinct subsidiary or set of subsidiaries Provides the buyer the ability to deduct transaction goodwill for tax purposes over 15 years Stock Sale Stock Sale with IRC Section 338(h)(10) election Stock sale treated like an asset sale for tax purposes 5

10 Role of an Investment Banker
4/1/2017 8:53 AM Role of an Investment Banker M&A Valuation A financial advisor performs a broad range of functions in the M&A process Drive the Process – From “cradle to grave” Valuation Advice – Provide comprehensive financial analysis to formulate (buyside) or evaluate (sellside) a bid Diligence – Assist client in the completion of a thorough and organized diligence process Marketing – Assist client in preparing diligence materials and public / investor communications Structuring – Structure transaction to meet the needs of the parties Market Intelligence – Provide industry knowledge, a perspective on any public market activity and the ability to assess the likelihood of other potential bidders of the target Bidding Strategy – Advise the client on the best way to ensure success Financing – Arrange financing alternatives (if necessary) Negotiations – Increase negotiating flexibility and leverage by acting as a go-between with the other side Opinion – Deliver fairness opinion (if appropriate) Market Reaction – Anticipate market reaction and marketability of securities 6

11 What is a Football Field?
4/1/2017 8:53 AM What is a Football Field? M&A Valuation A football field summarizes the various metrics and assumptions used to determine the valuation of a company or business segment Fairness Opinion Presents the range of “fair value” for a Board of Directors’ consideration in a sale context Provides guidance to justify a bid value in a buy-side Sell-Side Summarizes Barclays’ proposed positioning and target valuation range based on preliminary analysis Buy-Side Demonstrates Barclays’ knowledge of the asset, suggests how other buyers might approach valuation and provides bid range guidance Internal Reference For example – supports loan to value analysis when examining financing alternatives Barclays Capital Important to remember that the valuation metrics used will vary depending on both the industry and the assignment 7

12 Summary of Valuation Methodologies
4/1/2017 8:53 AM Summary of Valuation Methodologies M&A Valuation Multiple types of valuation analyses will be included in a valuation summary depending on industry, type of presentation, available information and numerous other factors Metric Considerations Trading Value Control Value Private Co. Metric Forward P/E, P/CF, EV/EBITDA, EV/Revenue most common – may show more than one metric LTM P/E, P/CF, EV/EBITDA, EV/Revenue most common – may show more than one metric. Operational metrics used too, particularly in commodity-oriented businesses Make sure to apply premium to unaffected price (i.e. pre-announcement or pre-leak) Alternatively, may apply premium to trading multiples Choose appropriate target range of IRR Solve for price based on fixed leverage and range of exit multiples Option to show with and/or without synergies Use for distinct business segments or individual assets with different value parameters Used as reference point 52-week most common; also 3-months, 6-months, period since significant event High/low research price targets; check length of time forward and ensure consistent (or discount back) Trading Multiples Comparable Transactions Premiums Paid Leveraged Buyout Discounted Cash Flow Sum-of-the-Parts Stock Price Trading Ranges Wall Street Research Price Targets 8

13 Source of the Assumptions / Data
4/1/2017 8:53 AM Source of the Assumptions / Data M&A Valuation An analysis is only as good as its inputs The Projections Consideration must be given to which projections to use – can present multiple cases or one case only Fairness opinion valuations may involve a base case and a downside and should be provided by or blessed by management Buy-side valuations may involve management case and revised due diligence case If preliminary valuation, consider adding due diligence contingencies for unknown factors that may impact value The Key Assumptions Trading Comps: must have back-up for all analysis and consistently apply methodology (e.g. IBES consensus, exclude finance subsidiaries, include / exclude underfunded pension liabilities, etc.) Transaction Comps: be sure to use publicly available data if creating a fairness opinion for a public company; and be thorough in your search – have rationale for exclusion of deals Exit multiples: justify LBO and DCF exit multiples through trading and transaction comps or cycle analysis WACC: perform a detailed WACC analysis to justify discount rates for DCF Leverage: discuss leverage assumptions with Lev Fin to make appropriate LBO valuation Premiums: clearly define the transaction size, time period and reference point of premiums used in analysis Share count: use exercisable or outstanding options where appropriate Change in Control Costs: review proxy materials to determine if change in control costs are relevant Always keep good back-up of all data sources and assumptions 9

14 Presenting the Football Field Analysis
4/1/2017 8:53 AM Presenting the Football Field Analysis M&A Valuation Presentation options and complexities allow for additional tailoring of the valuation summary to the needs of the analysis Valuation “Bar” Presentation Options Which value should be presented and is most relevant? Enterprise value, equity value, equity value/share (apply circular shares depending on metric) How should metrics be grouped? Trading value vs. control/acquisition value or other How should synergies be presented (if applicable)? With or without for different metrics How should additional scenarios be presented (if applicable)? Dotted lines, additional bars, etc. Should trading values also be shown with a premium? Comparability to control value Stock-for-stock football field complexities (exchange ratio): range type (high to low, same to same), typically similar assumptions for metrics (multiples, discount rates, etc.) Other Items for Inclusion What other analytics/metrics should be included on the page? Implied multiples; implied EV, equity value or equity value/share; other ratios; lines for averages, transaction price, current price, etc. What key assumptions should be presented for each metric? What needs to be footnoted? Formatting Nuances Rounded results vs. actual Horizontal vs. vertical 10

15 Determining Appropriate Valuation Ranges
4/1/2017 8:53 AM Determining Appropriate Valuation Ranges M&A Valuation Science, Art or Sanity? “Science” Market information; financial data Mechanics of valuation methodologies “Art” Valuation inputs and assumptions are based on industry knowledge, experience and common sense Senior bankers and industry coverage will opine on the appropriate ranges and assumptions Individual valuation ranges may seem reasonable, but do they make sense with respect to one another? i.e., Transaction multiples vs. trading multiples Are assumptions consistent between methodologies? i.e., DCF or LBO exit multiples vs. trading multiples or transaction multiples Is the valuation range too wide or too narrow? Go back and check the assumptions and calculations Are there any outliers in the comparable multiples? Are the earnings drivers correct? (i.e., LFCF & earnings for equity value multiples, EBITDA for enterprise value multiples) Have I used the right share count (exercisable vs. outstanding options)? Is implied perpetuity growth rate appropriate? What metric does the industry trade on? “Science” vs. “Art” Step Back and Look at the “Bigger Picture” Sanity Check 11

16 Illustrative Sellside Valuation Analysis
4/1/2017 8:53 AM Illustrative Sellside Valuation Analysis M&A Valuation Financial Projections Base EBITDA Expansion EBITDA 9.3% CAGR ___________________________ Note: 2011 PF EBITDA of $80.8 million defined as 2011E base cash EBITDA ($65.6 million) plus 2013 growth projects EBITDA of $15.2 million. Excludes re-contracting of remaining "below market” barrels. 12

17 Preliminary Valuation – the “Football Field”
4/1/2017 8:53 AM Preliminary Valuation – the “Football Field” M&A Valuation Preliminary Review of Valuation Parameters Enterprise Value ($MM): WACC: 8.0%-10.0% Terminal EBITDA Multiple: 10.0x Target 0% 2012 Accretion MLPs: 11.0x to 13.0x 2012 EBITDA MLPs: 10.0x to 12.0x 2013 EBITDA Exit Multiple: 10.0x IRRs: 10%-15% Exit Multiple: 10.0x IRRs: 17.5%-22.5% Initial EBITDA Multiple: 14x – 16x RR EBITDA Multiple Range: 8x – 10x 13

18 Preliminary Valuation Analysis
4/1/2017 8:53 AM Preliminary Valuation Analysis M&A Valuation Purchase Price Ratio Analysis PPR Analysis 14

19 Discounted Cash Flow Analysis
4/1/2017 8:53 AM Discounted Cash Flow Analysis M&A Valuation DCF Analysis 15

20 Discounted Cash Flow Analysis (Upside Case)
4/1/2017 8:53 AM Discounted Cash Flow Analysis (Upside Case) M&A Valuation The valuation below includes all of the potential expansion projects and is discounted at a 10% rate to account for the additional risk associated with un-contracted projects DCF Analysis 16

21 MLP Ability-to-Pay Analysis
4/1/2017 8:53 AM MLP Ability-to-Pay Analysis M&A Valuation MLPs will be willing to bid up to a 2012 breakeven accretion assuming they can receive accretion in 2013 once contracted growth projects are running Enterprise Value at 2012 Breakeven Accretion (1) 2013 Accretion Assuming 2012 Breakeven Purchase Price ___________________________ Assumes seller is responsible for retirement of HoldCo debt. 17

22 4/1/2017 8:53 AM Infrastructure Funds M&A Valuation Infrastructure funds will be an important part of the process We believe that infrastructure funds will be highly attracted to Company A Although these funds typically target businesses with longer-term contracts, the Company’s proven track record of rolling contracts and increasing rates, combined with the fact that there is a waiting list will be key selling points With a longer holding period and a lower return threshold (generally 10-15%), infrastructure funds would be able to pay significantly more than a private equity sponsor Infrastructure funds also differ from traditional private equity funds in that they target a “cash on cash” return as well and generally like to structure transactions to allow for distributions 10% of initial equity is generally the goal, but 5-6% is acceptable Further, infrastructure funds generally like to maintain investment grade ratings Accordingly, we have structured the financing to meet the requirements set forth above; we would expect a HoldCo bond to be preferred given its more liberal distribution capacity but can also offer a loan structure We believe that the infrastructure funds will be competitive or even beat the MLPs / strategics in the process 18

23 Indicative IRR Analysis
4/1/2017 8:53 AM Indicative IRR Analysis M&A Valuation Capitalization & Sources / Uses Private Equity Infrastructure Funds Pro Forma Capitalization at 6/30/2011 Pro Forma Capitalization at 6/30/2011 Sources & Uses Sources & Uses ___________________________ Note: 2011 PF EBITDA of $80.8 million defined as 2011E cash EBITDA ($65.6 million) plus 2013 growth projects EBITDA of $15.2 million. 19

24 Indicative IRR Analysis – Infrastructure Funds
4/1/2017 8:53 AM Indicative IRR Analysis – Infrastructure Funds M&A Valuation Assumptions Sensitivity to Cash Sweep on HoldCo Debt The returns analysis assumes a 5-year holding period We target an IRR of 10% to 15% which equates to an enterprise value of $1,050 million We made the following debt assumptions: Current OpCo Debt assumed to stay in place While there is additional debt capacity at the OpCo level, we assumed additional leverage would be placed at the HoldCo level for greater flexibility We have assumed a 7.5% interest rate on new debt financing at the HoldCo level Assumes 100% distribution We assumed a debt level that will still be appropriate for acquirer to take equity distributions Sensitivity to Exit Multiple Sensitivity to Financing Mix (1) ___________________________ Assumes a 10.0x EBITDA exit multiple. 20

25 Recent Storage Transactions
4/1/2017 8:53 AM Recent Storage Transactions M&A Valuation Comparable Transactions Valuation ___________________________ Per Wells Fargo research and Spectra press release. Initial EBITDA assumed to be run-rate at time of acquisition. Post-expansion EBITDA as of EBITDA backed into based on multiples provided by Wells Fargo research. Per Inergy investor presentation. Per PAA investor presentation. Initial EBITDA represents 2010E EBITDA. Adjusts for expansion project which is projected to cost ~$400 million and add $75 million of EBITDA. 21

26 Selected Comparable Midstream Transactions
M&A Valuation Historical Liquids Pipeline Transactions Buckeye Partners / First Reserve (BORCO) Plains All American / Pacific Energy Enterprise Products Partners acquires TEPPCO Partners Plains All American / Link Energy Inter Pipeline Fund / KMI Pembina / AEC Enbridge Income Fund / Enbridge Inc. Alberta / AEC BC Gas / EnCana Alberta / TransCanada Plains All American / Shell Pipeline 10.0x Median Magellan / Shell Oil Products Pacific Energy / Valero KN Energy / Kinder Morgan ONEOK / KMP KKR / Colonial Magellan / Osage Pipeline Energy Funds Mgmt. / Citgo (Colonial) TEPPCO / Duke Koch NGL / ONEOK Plains All American / Murphy MDP / Riverstone / Williams Pacific Energy / Rangeland Pipeline Buckeye / Shell Oil Products Magellan / Longhorn Koch / BP Colonial KMP / Transmontaigne Enbridge Energy / Shell Pipeline Kaneb / Tesoro Announcement Date 22

27 4/1/2017 8:53 AM IPO Valuation

28 Comparable Company Analysis Defined
4/1/2017 8:53 AM Comparable Company Analysis Defined IPO Valuation Comparable Company Analysis Explained The equity of fundamentally similar, or “comparable” companies tends to be valued on a relatively consistent basis by the public markets Broadly speaking, if Company A competes in the same industry as Company B, using a similar business model, the equity markets are likely to value the two businesses in a relatively consistent manner The Comparable Company Analysis seeks to identify a group or “universe” of public companies which are deemed fundamentally comparable to the target and compares the “market trading multiples” of these companies to determine a range of value for the target, expressed in valuation multiples By analyzing certain key ratios and operating data for each of the comparable companies it is possible to determine how the comparable companies valued relative to their profitability, growth prospects, etc. Public markets typically place premiums to companies which portrays growth and margin profiles better than those of industry average As Comparable Company Analysis is based on an analysis of currently publicly trading companies, valuations received by the comparable universe DO NOT typically reflect: Premium a buyer must pay for control of a company in an M&A transaction; or Discount the market may place on shares which are newly introduced in an IPO 23

29 Comparable Company Analysis Defined (Cont’d)
4/1/2017 8:53 AM Comparable Company Analysis Defined (Cont’d) IPO Valuation Most Widely Used Valuation Tool What is it? Use of Trading Multiples Fundamental valuation tool used for deriving company value Helps in benchmarking performance and valuations across companies within a sector Valuation tool based on how comparable companies are valued by the stock market as a multiple of profit, sales or other parameters Assumes that the stock market is relatively efficient in valuing comparable companies Importance Initial Public Offering Buy-side M&A Sell-Side M&A Add-on financings Share repurchases Leveraged Buy-out 24

30 Enterprise and Equity Value Multiples
4/1/2017 8:53 AM Enterprise and Equity Value Multiples IPO Valuation Equity Value Multiples Enterprise Value Multiples Takes into account capital structure in decision making Denominator after interest expense Main multiples are P/E ratio Equity Market Value / Net Income Price / Book ratio Price / CFPS Focus towards quality of operation Unlevered Capital Structure Denominator before interest expense Main multiples are EV / Sales EV / EBITDA EV / EBIT or EV / EBITA EV / Capital Employed EV / Subscribers (telecom, similar ratios based on operating figures in other industries) Summarize the Results Summary Statistics Mean, Median, High Low (The Median is the most meaningful statistic because it will naturally screen outliers) Outliers should be evaluated and possibly eliminated 1st Quartile (25th percentile) and 3rd Quartile (75th percentile) are sometimes used to define the multiple range for particularly large or wide-ranging results 25

31 Comparison of Multiples
4/1/2017 8:53 AM Comparison of Multiples IPO Valuation Choice of the Multiple Depends on Industry, Profitability, Accounting Regimes Multiple Advantage Disadvantage EV / Sales Meaningful for loss-making companies Very limited impact of accounting differences Does not take differences in profitability into account EV / EBITDA No distortions based on different depreciation policies Does not take differences in capital expenditures into account EV / EBIT Valuation based on quality of operation Possible distortions based on different accounting policies EV / Capital Employed Based on invested capital, which determines potential earnings power Distortions through accounting differences P/E Ratio Focuses on earnings to shareholders Accounting differences may distort true measures of earnings Price / CFPS “Cash is king” Price / Book Based on equity, which determines earnings power 26

32 Understanding Key Drivers of “Multiples”
4/1/2017 8:53 AM Understanding Key Drivers of “Multiples” IPO Valuation Why Do Comparable Companies Differ in Valuation? Industry and Sector Outlook Competitive Position Research Views Historical Performance  One of Key Indicators of Future Performance Revenue Growth Operating Margins Qualitative Factors  Impact Market’s Belief of the Company’s Future Performance Management Quality and Track Record Corporate and Operating Strategy Ownership Profile Cash Flow Net Income Regulatory Issues Environmental Issues Legal Issues Valuation ultimately assesses the present value of the potential future financial rewards Current trading valuations or “multiples” of a Company are a reflection of public market’s belief in the future financial rewards by owning the securities of the Company 27

33 What Else Matters in an IPO?
4/1/2017 8:53 AM What Else Matters in an IPO? IPO Valuation Many Factors are Evaluated at Time of IPO Peer Group: Clear peer group with sizeable number of companies Only need one; none allows Company / Banks to define the “valuation / story” Liquidity: % of float and ADTV vs. other comparable companies Need adequate IPO size to attract institutional investors Growth: What are organic and acquisitive growth prospects of the Company? How do those projects / returns compare vs. peers and how achievable / financeable are they? Stability vs. Volatility: Is Company’s business volatile, risky, stable, cyclical? Ability to dampen volatility or smooth out earnings? Capital structure and risk policies Stage of Company: What stage is the Company experiencing in its life cycle? Developing, nascent, growth, mature? Capital structure and cash flow generation / reinvestment Capital Structure: Credit ratings and leverage vs. peers and appropriate levels for Company / industry Market Conditions at time of IPO Management, Board composition and PE backing Banking relationships and research coverage Credit support and capital markets access in the future 28

34 Illustrative IPO Valuation
4/1/2017 8:53 AM Illustrative IPO Valuation IPO Valuation C-Corp vs. MLP C-Corp Scenario MLP Scenarios Pre funding capex Maximum claw-back Pre funding capex $1.58 Bn – $1.93 Bn 4.0x – 4.9x EBITDA $2.25 Bn – $2.57 Bn 5.7x – 6.5x EBITDA $1.88 Bn – $2.16 Bn 4.8x – 5.5x EBITDA $1.80 Bn – $2.20 Bn 4.6x – 5.6x EBITDA $2.57 Bn – $3.01 Bn 6.5x – 7.6x EBITDA $2.16 Bn – $2.56 Bn 5.5x – 6.5x EBITDA $600 Mm ~36% of Company (at mid-point) $500 Mm ~25% of Partnership (at mid-point) ~27% of Partnership (at mid-point) ~$50 Mm ~$200 Mm ~$400 Mm None ~$102 Mm ~$242 Mm ~$15 Mm ~$48 Mm ~$58 Mm ~$35 Mm Net Debt: ~$97 Mm Net Debt: ~$358 Mm Net Debt: ~$185 Mm Enterprise Value (At IPO) Enterprise Value (Fully Distributed) IPO Size (Base Deal) Distribution to Private Owners Growth Capex / Cash Use of Proceeds Debt Pay down Make Whole / Fees Leverage Post IPO 29

35 Positioning Company B vs. Its C-Corp Peers
4/1/2017 8:53 AM Positioning Company B vs. Its C-Corp Peers IPO Valuation Positioning “Company B” vs. Its C-Corp Peers Primary Comp Secondary Comps Company B Peer 1 Peer 2 Peer 3 Peer 4 30

36 Relative Benchmarking
4/1/2017 8:53 AM Relative Benchmarking IPO Valuation Enterprise Value ($ in millions) 2010A Reserves (million tons) Reserves / 2011E Prod. 38.6 yrs 27.8 yrs 25.8 yrs 10.0 yrs 29.8 yrs EBITDA CAGR: 2011E – 2013E 2010A EBITDA / ton ___________________________ Note: Peer group data as per company filing and Wall Street equity research. Market data as of 3/23/2011. Note: Company B data per Company’s projections. 31

37 Relative Benchmarking: Balance Sheet Strength
4/1/2017 8:53 AM Relative Benchmarking: Balance Sheet Strength IPO Valuation 2011E EBITDA 2011E Cash Flow from Operations Total Liquidity (1) Total Debt/Net Debt/LTM EBITDA Ba1 (Stable) BB+ (Stable) Ba2 (Watch) BB (Watch) Ba2 (Watch) BB (Watch) Ba3 (Stable) BB- (Stable) Ba3 (Stable) BB- (Stable) BB- (Watch) B1 (Stable) B1 (Pos) BB- (Pos) B2 (Stable) B+ (Watch) Caa1 (Stable) B+ (Stable) Caa2 (Stable) B- (Stable) BB- (Watch) B1 (Stable) B2 (Stable) B+ (Watch) BB- (Pos) B1 (Pos) Caa2 (Stable) B- (Stable) Ba3 (Stable) BB- (Stable) Ba3 (Stable) BB- (Stable) Ba2 (Watch) BB (Watch) Caa1 (Stable) B+ (Stable) Ba1 (Stable) BB+ (Stable) Ba2 (Watch) BB (Watch) Total Debt Median 2.2x Net Debt Median 1.9x ___________________________ Source: Company information and IBES Estimates. Note: All companies per 12/31/2010 filings. Total liquidity is calculated cash & cash equivalents as of latest balance sheet data plus remaining balance on companies’ revolving credit facility, including LOCs. 32

38 Current Trading Multiples
4/1/2017 8:53 AM Current Trading Multiples IPO Valuation EV / 2011E EBITDA EV / 2012E EBITDA EV / 2013E EBITDA Primary Comp Secondary Comps Others ___________________________ Note: IBES consensus estimates as of 3/23/2011. 33

39 Illustrative C-Corp IPO Valuation
4/1/2017 8:53 AM Illustrative C-Corp IPO Valuation IPO Valuation Pre funding capex scenario Illustrative C-Corp IPO Valuation ___________________________ Per company projections as of 9/30/2011. Some of the IPO proceeds are used for debt repayment. Adjusted for the interest decrease after debt pay down with the IPO proceeds of $101.9 million and an indicative tax rate of 28%. 34

40 Drivers of MLP Valuation
4/1/2017 8:53 AM Drivers of MLP Valuation IPO Valuation Distributable Cash Flow: Determining Appropriate Forward 12-Month Period We believe that for a 3Q 2011 IPO, the appropriate period for calculating Company B’s “ability to pay” is Q through Q3 2012 Our valuation is therefore based on an estimated EBITDA level of $382.8 million Capture of expected increases in production / pricing should be balanced with desired timing of monetization Maintenance and Replacement Capex Accruals Capex accrual methodology will need to be explained We can work with the management team throughout the process to arrive at the number that adequately supports the MLP while at the same time maximizing valuation, for the purposes of the valuation we’ve assumes $4.50/ton production in line with “MLP Peer 1” guidance Given the length of the reserve life, impact should be muted Coverage Investors will focus on three primary issues when analyzing the appropriate level of coverage Coverage levels for coal comparables Cushion to underpin any growth story Cushion to protect MQD in a protracted pricing downturn We believe that given Company B’s contract and growth profile (potential EBITDA CAGR of 41.6% from ), a level of coverage inside of MLP Peer 1’s is supportable. We are recommending an initial level of 1.40x versus Peer 1’s 2011 coverage of 1.63x and Peer 1’s 2012 coverage of 1.54x Fully Distributed Yield MLP Peer 1 is the most relevant comparable partnership given its scale, asset base, attractive contract profile and seasoned management team MLP Peer 2 has exposure to similar market fundamentals as Company B, however is a less relevant comparable given its smaller size and surface mining operations MLP Peer 3 is less comparable given its significant smaller size and met exposure, but might be still considered as a comp by some investors IPO Discount Given the size of the offering, we have assumed an IPO discount of 100 bps in structuring the Company B MLP IPO 35

41 Positioning Company B vs. Other Coal MLPs
4/1/2017 8:53 AM Positioning Company B vs. Other Coal MLPs IPO Valuation Positioning Company B vs. Other Coal MLPs Company B MLP Peer 1 MLP Peer 2 MLP Peer 3 Easier to execute accretive deals when not in “high splits” Company B stable and relative high contract profile will be very well received by investors as a sign of certainty of future cash flows Total Company B production position is sizeable Large reserves base with a long reserve life Lack of substantial met coal exposure will be additionally favored by MLP investors, as it implies less volatility of future cash flows Less mine diversity Primarily non-union workforce will be perceived positively Attractive growth story ___________________________ Source: Company guidance and Wall Street equity research. Company B Information as of November 30, 2010. Based on Wall Street equity research estimates of production and committed tons per year. 36

42 Peer Comparison – Yields & Distribution Coverage
4/1/2017 8:53 AM Peer Comparison – Yields & Distribution Coverage IPO Valuation Distribution Yield Comparison (1) 2011E Distribution Coverage and Yield Comparison (2) 2012E Distribution Coverage and Yield Comparison (2) 10.68% 9.15% 8.35% 8.95% 7.70% 7.70% 7.17% 7.55% Implied Coverage (2) 1.40x 1.63x 1.23x 1.24x 1.40x 1.54x 1.17x 1.29x Distribution Yield DCF Yield ___________________________ As of 3/23/2011. Coverage for the coal comps is calculated as DCF per LP unit divided by estimated distribution due to higher variability in cash flows associated with the coal operators. 37

43 Illustrative MLP IPO Valuation – Scenario 1
4/1/2017 8:53 AM Illustrative MLP IPO Valuation – Scenario 1 IPO Valuation Maximum claw-back scenario Preliminary IPO Valuation IPO Capitalization ___________________________ Estimates represent data at time of IPO based on numbers provided by management, as Q4 2011E EBITDA and 75% of the estimated EBITDA for 2012E. Maintenance capital expenditures based on $4.50/ton production for the next twelve months as of 9/30/2011 and will require further diligence by Barclays Capital. Estimated net debt at 9/30/2011, adjusted for the $242 million pay down from net IPO proceeds. Assumes 6.00% gross spread, 0.375% structuring fee and additional transaction fees of $2.0 million. Interest saved of $24.8 million. Interest expense reflects application of $500 million of IPO proceeds which will be used to pay down debt and as a distribution the Owners. Assumes that the 35% equity claw will occur at 110 to par. 38

44 Illustrative MLP IPO Valuation – Scenario 2
4/1/2017 8:53 AM Illustrative MLP IPO Valuation – Scenario 2 IPO Valuation Pre-funding capex scenario Preliminary IPO Valuation IPO Capitalization ___________________________ Estimates represent data at time of IPO based on numbers provided by management, as Q4 2011E EBITDA and 75% of the estimated EBITDA for 2012E. Maintenance capital expenditures based on $4.50/ton production for the next twelve months as of 9/30/2011 and will require further diligence by Barclays Capital. Estimated net debt at 9/30/2011, adjusted for the $14.7 million pay down from net IPO proceeds. Assumes 6.00% gross spread, 0.375% structuring fee and additional transaction fees of $2.0 million. Interest saved of $5.5 million. Assumes that the equity claw will occur at 110 to par. 39

45 4/1/2017 8:53 AM Disclaimer This document has been prepared by Barclays Capital, the investment banking division of Barclays Bank PLC ("Barclays"), for information purposes only. This document is an indicative summary of the terms and conditions of the securities/transaction described herein and may be amended, superseded or replaced by subsequent summaries. The final terms and conditions of the securities/transaction will be set out in full in the applicable offering document(s) or binding transaction document(s). This document shall not constitute an underwriting commitment, an offer of financing, an offer to sell, or the solicitation of an offer to buy any securities described herein, which shall be subject to Barclays’ internal approvals. No transaction or services related thereto is contemplated without Barclays‘ subsequent formal agreement. Barclays is not acting as a fiduciary. 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