Introduction to the Bank Debt Portfolio Group Presentation to January 13, 2006

2 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt Agenda I.Introduction II.Introduction to the Bank Loan Market III.The GS Bank Loan Franchise IV.Q&A

I. Introduction

4 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt What is the Bank Debt Portfolio Group (BDPG)? A joint venture between…

II. Introduction to the Bank Loan Market

6 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt Bank Loan Market Overview Goldman Sachs (GS) is a major participant in the bank loan market Goldman Sachs (GS) is a major participant in the bank loan market GS originates both investment grade and non-investment grade bank debt GS originates both investment grade and non-investment grade bank debt The non-investment grade market for bank debt is called the Leveraged Loan Market The non-investment grade market for bank debt is called the Leveraged Loan Market GS originates leveraged loans for leveraged buy-out (LBO) and merger transactions, as well as for corporate borrowers GS originates leveraged loans for leveraged buy-out (LBO) and merger transactions, as well as for corporate borrowers Leveraged loans are typically senior secured obligations of the borrower Leveraged loans are typically senior secured obligations of the borrower GS syndicates leveraged loans to institutional investors such as loan funds (prime rate funds and CLOs) and hedge funds GS syndicates leveraged loans to institutional investors such as loan funds (prime rate funds and CLOs) and hedge funds GS actively trades bank debt in the secondary market GS actively trades bank debt in the secondary market Par loans are loans that trade at or around 100 cents on the dollar; stressed and distressed loans trade at discounts to par (i.e., 70%) Par loans are loans that trade at or around 100 cents on the dollar; stressed and distressed loans trade at discounts to par (i.e., 70%)

7 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt U.S. Syndicated Loan Market Source: Source: LPC Source: LPC and Bloomberg

8 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt Leveraged Bank Loan Market Larger than U.S. Equity Market $534bn Leveraged Loan Market Source: GS Debt and Equity Capital Markets, Loan Pricing Corporation and Bloomberg (1) U.S. new equity issuance $145bn U.S. Equity New Issue Market 1 $684bn Investment Grade Loan Market

9 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt (1) 2 nd lien loans have a second priority interest in pledged collateral; high yield bonds are usually unsecured and/or subordinated. Structural Considerations Liabilities % % Sr. Secured Loans (1 st Lien) 2 nd Lien/ High Yield (1) Equity Current Assets Current Assets Cash Cash Accounts Receivable Accounts Receivable Inventory Inventory Property Property Plant Plant Equipment Equipment Intangibles Intangibles Subsidiary Stock Subsidiary Stock Assets Loans are the most senior debt in the typical leveraged capital structure % of Total Capitalization Pledged to:

10 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt U.S. Leveraged Loan Investors Domestic Banks 32.8% Asian Banks 14.1% Canadian Banks 4.7% Insurance Cos. 6.2% European Banks 19.1% Loan & Hybrid Funds 16.4% Finance Cos. 3.4% Leasing Cos. 1.7% Securities Firms 1.4% Thrifts 0.3% Banks24% Non-Banks76% Banks24% Non-Banks76% Source: S&P Leveraged Lending Review Domestic Banks 14.4% Insurance Cos. 4.6% European Banks 6.5% CLOs & Prime, Hedge & High-Yield Funds 62.0% Finance Cos. 9.2% Canadian Banks 1.6% Asian Banks 1.1% Securities Firms 0.6% Banks71% Non-Banks29% Banks71% Non-Banks29%

11 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt The Power of Leverage Simple Mortgage Example Debt $75 Equity $25 Debt $25 Equity $75 Use little equity and borrow funds (leverage) to buy asset Pay down debt over time All excess returns accrue to the equity Today 5 years later $100 IRR = 25%

12 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt Turbo-Charge the Returns Value Added by the Equity Owners Align the Interests of Owners and Managers + Improve the Asset = Bigger House Debt $50 Equity $150 $200 Today 5 years later Debt $75 Equity $25 $100 IRR = 43%

III. The GS Bank Loan Franchise

14 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt The GS Bank Loan Franchise Bank Debt Portfolio Group Sales and Trading Leveraged Finance Capital Markets Advise clients on strategic and financing alternatives Advise clients on strategic and financing alternatives Originate financing transactions Originate financing transactions Structure transactions (with Capital Markets) Structure transactions (with Capital Markets) Negotiate and execute transactions (with BDPG) Negotiate and execute transactions (with BDPG) Monitor market trends and comparable new issues Monitor market trends and comparable new issues Determine likely price for loans Determine likely price for loans Identify potential investors Identify potential investors Market deal Market deal Execution/Closing Execution/Closing Market primary new issue to investors Market primary new issue to investors Ongoing sales and marketing for secondary market Ongoing sales and marketing for secondary market Proprietary trading Proprietary trading Borrower, Sponsor and Investor Relations Borrower, Sponsor and Investor Relations Manage credit exposure and track operating performance Manage credit exposure and track operating performance Manage workouts Manage workouts Update sales and trading desk on company events Update sales and trading desk on company events Assist in negotiation and execution of loans Assist in negotiation and execution of loans Execute amendments, waivers, additional financings Execute amendments, waivers, additional financings Origination Marketing / SyndicationTrading Primary Market Secondary Market Senior Bank Debt Operations Risk Mgmt/Client Service

15 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt BDPG Functionality Bank Debt Portfolio Group (BDPG)

16 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt BDPGs Principal Constituents BDPG Investors Legal Counsel Other Advisors Credit Legal Operations Other IBD Leveraged Finance Bank Debt Cap. Mkts. Bank Debt Sales & Trading Borrowers Sponsors

17 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt BDPG Analyst Responsibilities Monitor portfolio credits Monitor portfolio credits Prepare in-depth analyses on companies in the portfolio Prepare in-depth analyses on companies in the portfolio Review company performance and quarterly covenant compliance Review company performance and quarterly covenant compliance Confer with management/sponsor Confer with management/sponsor Post internal and external clients on borrower performance/developments Post internal and external clients on borrower performance/developments Post bank loan sales & trading desk on developments with portfolio credits via and morning sales meetings Post bank loan sales & trading desk on developments with portfolio credits via and morning sales meetings Coordinate and dialogue with bank loan investors about company performance and amendment requests Coordinate and dialogue with bank loan investors about company performance and amendment requests Write periodic credit updates for discussions with capital markets/sales & trading, credit and leveraged finance Write periodic credit updates for discussions with capital markets/sales & trading, credit and leveraged finance Organize and participate in meetings and calls with bank loan investors Organize and participate in meetings and calls with bank loan investors Support other client service initiatives with portfolio companies, including ratings advisory, refinancing, and other matters Support other client service initiatives with portfolio companies, including ratings advisory, refinancing, and other matters

18 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt BDPG Analyst Responsibilities, cont.d Help to structure and execute amendments/waivers (including refinancings and add-on financings) for portfolio credits Help to structure and execute amendments/waivers (including refinancings and add-on financings) for portfolio credits Coordinate with external constituents (borrowers, sponsors and investors) and internal parties (capital markets, sales & trading and credit) in connection with structuring and executing amendments and refinancings Coordinate with external constituents (borrowers, sponsors and investors) and internal parties (capital markets, sales & trading and credit) in connection with structuring and executing amendments and refinancings Participate and assist with new loan origination and execution Participate and assist with new loan origination and execution Coordinate with counsel on preparation of documentation Coordinate with counsel on preparation of documentation

19 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt Bank Loan Execution Group The Bank Loan Execution Group (BLE) was initially established to help support, streamline and improve Goldmans loan negotiation and marketing process The Bank Loan Execution Group (BLE) was initially established to help support, streamline and improve Goldmans loan negotiation and marketing process BLE has two elements: BLE has two elements: Bank Loan Negotiation Team: Works with borrowers, investors and co- arrangers to draft and negotiate commitment papers, credit agreements and associated items Bank Loan Negotiation Team: Works with borrowers, investors and co- arrangers to draft and negotiate commitment papers, credit agreements and associated items Bank Loan Transaction Team: Works with clients, advisors and sponsors to build rating agency presentations, bank offering circulars, investor slides and internal sales memos Bank Loan Transaction Team: Works with clients, advisors and sponsors to build rating agency presentations, bank offering circulars, investor slides and internal sales memos BLEs mission has been expanded to coordinate bank loan execution efforts throughout the financing process: BLEs mission has been expanded to coordinate bank loan execution efforts throughout the financing process: Build and communicate investment rationale to the market Build and communicate investment rationale to the market Responsible for the marketing materials for new financings Responsible for the marketing materials for new financings Serve as a common point of contact for issuers and investors Serve as a common point of contact for issuers and investors Coordinate the efforts of capital markets, leveraged finance, credit and legal Coordinate the efforts of capital markets, leveraged finance, credit and legal

20 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt BDPG: A Unique Opportunity Great learning opportunity Great learning opportunity Exposure to leveraged loans, LBOs, and primary and secondary sales and trading Exposure to leveraged loans, LBOs, and primary and secondary sales and trading Opportunity to work directly with a variety of clients Opportunity to work directly with a variety of clients External clients: financial sponsors, hedge funds, loan funds, well-recognized companies External clients: financial sponsors, hedge funds, loan funds, well-recognized companies Internal clients: industry investment banking teams, leveraged finance, sales and trading, capital markets, credit risk management & advisory, PIA / merchant banking Internal clients: industry investment banking teams, leveraged finance, sales and trading, capital markets, credit risk management & advisory, PIA / merchant banking Small team Small team Flat organizational structure: work directly with senior people Flat organizational structure: work directly with senior people Exposure to numerous industries Exposure to numerous industries Broad range of experiences Broad range of experiences Build fundamental credit and analytical skills Build fundamental credit and analytical skills Coordinate disclosure between management teams, sponsors and investors Coordinate disclosure between management teams, sponsors and investors Model different capital structures for a company Model different capital structures for a company Develop a view on what drives a company or an industry Develop a view on what drives a company or an industry Blend of portfolio management and transactional experiences Blend of portfolio management and transactional experiences Execute new financing transactions Execute new financing transactions

21 loanportnew\! BDPG Presentations\Recruiting Presentations\Summer Analyst Presentation at Penn\Jan Penn Analyst Recruiting Presentation v6.ppt BDPG Sample Portfolio Companies Coleto Creek

IV. Q&A