2 Unique History of the Guggenheims The Guggenheim family created one of the great fortunes of the late 19 th and early 20 th centuries Through the beginning of the 1900s, the family’s fortune was concentrated in mining and minerals (copper, silver, lead, zinc, diamonds and gold, in particular). By the early 1910s, the Guggenheims controlled about 80 percent of the world’s copper, lead and silver businesses The Guggenheim family financed and supported scientific research (in rocketry and aviation, in particular, by backing Lindberg and Goddard), philanthropy (for example, the Solomon R. Guggenheim Foundation), and the arts (creating institutions such as the Frank Lloyd Wright-designed Guggenheim Museum in New York and the Frank Gehry-designed museum in Bilbao) The family achieved success by using the modern “Human Capital” approach to tackling challenges––namely, employing the very best talent in any endeavor that it pursued and allowing talented people freedom to pursue new opportunities
3 Unique History of the Guggenheims Harry Guggenheim adhered to the formula by enlisting the services of the most preeminent horse trainers of the time to successfully achieve his goal of winning the Kentucky Derby with a horse named Dark Star. Daniel Guggenheim embraced a vision of going where no man had gone before and, on the recommendation of Charles Lindberg, bankrolled Robert Goddard’s obscure research on rockets. Goddard's work eventually led to the development of modern rocketry. Meyer Guggenheim paid $5,000 for a one-third interest in two Colorado lead and silver mines. By the end of World War I, the family business controlled more than 80% of the world’s supply of silver, copper and lead. The Solomon R. Guggenheim Foundation together with the Basque government engaged the talented Frank Gehry and challenged him to design a new Guggenheim Museum that would be so innovative and spectacular that it would transform the city of Bilbao, Spain from a struggling city into a vibrant cultural destination. When Solomon Guggenheim sought a permanent new home to display his vast personal collection of non- objective art, he engaged the respected architect Frank Lloyd Wright to design a unique contemporary art museum. The partnering of these two visionaries resulted in one of the most famous and recognizable structures in the world, itself a work of non-objective art. Meyer Guggenheim’s sons reorganized into Guggenheim Brothers.
4 Guggenheim Partners was created to further the history of innovation that has defined the family for the past century In 1999, Guggenheim Brothers joined with the Liberty Hampshire Company, LLC and Links Securities, LLC to create Guggenheim Partners: –Employs approximately 450 dedicated professionals with backgrounds in capital markets, portfolio and risk management, and investment advisory and family office services –Manages assets for a group of individuals, family offices, endowments, foundations, insurance companies, pension plans and other institutions –Currently manages over $100 billion of assets –Maintains offices in New York, Chicago, Houston, Los Angeles, St. Louis, Miami, London, Geneva, and Madrid Guggenheim Partners serves our clients in three primary business lines: –Investment Management –Wealth Management –Capital Markets Guggenheim Partners
6 Investment Strategy Guggenheim’s direct lending business has grown out of our desire to “create” proprietary investments Consequently, we operate our investing activities as a principal, holding lead positions in Guggenheim originated loans We are focused on arranging loans to middle market companies: –Guggenheim has underwritten debt financings over $225 MM in size, but target hold levels of $25 - $80 MM –Since January 2002, Guggenheim and its affiliates have led approximately $2 BN in aggregate direct loans Our investing philosophy is based on three core principles: 1) Assess industry dynamics (competitive landscape, trends, valuation, etc.) 2) Derive enterprise value for a specific company 3) Determine “appropriate” capital structure Our approach has been beneficial for middle market borrowers and our investors. We invest the time to understand the borrower’s financing needs and provide appropriate, long-term solutions.
7 Energy Investment Strategy Guggenheim has been actively investing in Energy since 2001 Early successes include: –Mission ResourcesDebt for Equity Swap –Abraxas PetroleumGlobal Recapitalization –Petroleum Development Startup capital for CBM development In September 2005, we opened the Houston office: –Desired a local industry presence and industry expertise –Currently have 7 people dedicated to the Houston office Since opening the doors, we have committed more than $430 MM of debt capital and $4.5 MM of equity in eight transactions, including: –Two underwritten debt transactions to be syndicated –Two drilling rig contractors –One mezzanine deal in the offshore Gulf of Mexico Market Outlook for 2006: Deal flow is robust and capital of all types is plentiful
8 Energy Investing Strategy Guggenheim is interested in opportunities in all segments of the domestic energy industry, especially in the upstream, midstream, and service sectors Guggenheim can provide traditional senior debt, subordinated and mezzanine debt for public or private companies. Minimum return hurdle approximates LIBOR + 4% –While we prefer to lead financings, we are open to participating with other institutions as well – Minimum transaction size of interest is $10 MM (or potential to grow to that level), and our comfortable hold level is $80 MM or less –Guggenheim seeks underwriting opportunities up to $250 MM, and is proficient at arranging and managing large syndications We also seek opportunities to selectively invest equity, especially in situations which complement a debt financing Engineering support for upstream transactions is provided by consultants. Hedging capability is currently outsourced, but transparent to the client
9 Energy Investment Strategy Why prospective clients and financial institutions should consider Guggenheim as their financial partner: We are more flexible than most other financial institutions–very private and managed by a small management team without stifling regulatory oversight Our credit and investment approval process is very efficient Clients deal directly with Managing Directors or Partners, who are the final decision makers and can commit the firm Our support staff in New York is very efficient and can close quickly once terms are agreed upon We are excellent financial partners–responsive, straight forward, and imaginative problem solvers Guggenheim has a very capable team–we have significant industry knowledge and connections in Houston and financial structuring expertise in New York We have extensive relationships and familiarity with both the commercial bank and institutional syndication markets With a healthy risk appetite, we have the willingness and experience to structure appropriate solutions for the more challenging capital requirements
10 Situation: Mission was highly-leveraged with pending debt maturities of approximately $175 MM. The Company’s new management team had been successful in an operational turnaround and had positioned the Company for growth, but remained saddled with too much debt. Solution:Guggenheim facilitated debt for equity swaps to reduce leverage. In addition, Guggenheim structured a comprehensive refinancing including senior and second lien loans and a high yield note offering. Mission extended its debt maturities and for the first time in years, the management team had capital available for acquisitions and development. Summary Timeline February 25, 2004: Guggenheim converts $30 MM of existing debt to equity March 16, 2004:$130 MM Senior Note offering announced (Caa2/CCC) April 1, 2004:$130 MM Senior Note offering priced at 9.875% April 8, 2004:$50 MM Credit Facility; $25 MM Second Lien Loan; and $130 MM Senior Note transaction close and fund March 2005Guggenheim commits $225 MM underwriting to support an acquisition bid by Mission that was ultimately unsuccessful Mission Resources
11 Situation: Abraxas had numerous covenants, one limiting capital expenditures to $10 MM per year, which restricted drilling activity. This covenant severely restricted the Company’s ability to grow into its existing capital structure. Solution:Guggenheim leads a global refinancing by separating and distinctly financing the U.S. and Canadian operations of Abraxas. This financing repositioned the Company to monetize Grey Wolf, its Canadian subsidiary, in the Canadian capital markets, and removed the drilling restrictions that have hampered production growth. Summary Timeline June 2004: Abraxas hires Guggenheim to act as agent seeking consent from bondholders to relax the covenant restricting capital expenditures. Consent ultimately proves too costly for the Company and was only a short-term solution October 7, 2004: Abraxas announced $125 MM Senior Secured Floating Rate Note offering, in conjunction with a $25 MM Bridge loan, $15 MM Revolver; and a $35 MM Canadian Term Loan to its subsidiary Grey Wolf Exploration Inc. October 21, 2004: Senior Secured Floating Rate Notes Price at LIBOR+7.50% October 28, 2004: $15 MM Revolver, $25 MM Bridge Loan, $125 MM Senior Secured Floating Rate Notes; and the $35 MM Grey Wolf Term Loan financings close and fund Abraxas Petroleum
12 Quest Resources Situation: Covenants in Quest’s existing credit facility restricted the capital expenditures. In anticipation of an equity offering, Quest’s financing syndicate could not deliver a refinancing within the time constraints. Solution:Guggenheim rapidly underwrote a $200 MM Senior Secured Credit Facility. Along with approximately $200 MM in new equity capital, Quest’s existing indebtedness and preferred stock was refinanced. Quest now has over $100 MM available to fund future development. Summary Timeline 10/31/05: Guggenheim is engaged by Quest to provide a $200 MM Senior Secured Credit Facility, with drop dead closing date of November 14 th. Guggenheim commences documentation immediately 11/7/05: Guggenheim tours Quest’s operations, resolves the significant negative mark-to- market hedge issue, and negotiates the loan documentation 11/14/05: Transaction closes on time
13 Situation: DHS is a Denver-based drilling contractor owned by two publicly-held independents. DHS required $35 MM in senior debt to acquire additional rigs and equipment, refinance bank and shareholder loans, and provide working capital. Solution: Guggenheim mobilizes rapidly to provide a $35 MM Senior Secured Credit Facility. Summary Timeline Week of 9/5/05:Guggenheim is contacted regarding the potential transaction Week of 9/12/05:Guggenheim and DHS agree to indicative terms and commence due diligence Week of 9/19/05:Guggenheim diligence team meets with DHS senior management to discuss operations, structure, financing needs, etc. Guggenheim and DHS commence documentation Week of 9/26/05: Documentation finalized. Transaction closes on September 30 th Week of 1/2/06:Guggenheim increases term loan by $10 MM to finance the acquisition of a trucking company, a new rig, and additional equipment DHS Drilling
14 Situation: Principals with a successful track record raised approximately $7.5 MM of equity to finance “Private” Partnership, the principals’ fourth fund to acquire non- operated oil and gas interests. Partnership sought a flexible financing partner to provide leverage on the equity commitment. Solution: Guggenheim underwrote a $50 MM Senior Secured Credit Facility. Summary Timeline September 2005:Guggenheim is approached by the principals of the Partnership Week of 9/18/05:Guggenheim meets with principals to discuss the Partnership’s investment strategy and financing needs Week of 10/2/05:Guggenheim and Partnership reach agreement on terms December 21, 2005:Transaction closes concurrently with the Partnership’s first acquisition, with an initial advance of approximately $16.3 MM January 2006:Guggenheim arranging commodity hedging program. Evaluate second acquisition for the Partnership and commit an additional $9 MM “Private” Partnership
15 IPAA Oil and Gas Investment Symposium Private Capital Conference January 19, 2006 Tim Murray Managing Director GUGGENHEIM PARTNERS 1301 McKinney, Suite 3105 Houston, TX (713) main (713) fax