Joseph V. Rizzi Amsterdam Institute of Finance May, 2008 Sponsor Based Leveraged Acquisition Market Overview (A Tale of Two Markets)

Agenda Agenda 1. Volume 2. Issuers 3. Private Equity 4. CLO 5. Banks 6. Rating Agencies 2 Amsterdam Institute of Finance May 2008

Volume 3 Amsterdam Institute of Finance May 2008

4 FIRST QUARTER LBO LOAN VOLUME Source: S&P

Amsterdam Institute of Finance May To access the data points underlying the chart, double-click on the chart. Copyright © 2008, Standard & Poor’s, a division of the McGraw-Hill Companies, Inc.

Amsterdam Institute of Finance May Cancelled U.S. Private Equity Deals FIRMVALUEANNOUNCEDWITHDRAWNSPONSOR HARMAN$ 8.2B4/25/079/21/07KKR AXCIOM$ 2.9B5/16/0710/01/07Silver Lake Affiliated Computer$ 8.2B3/20/0710/01/07Cerbeus SLM$25.5B4/16/0712/13/07JC Flowers United Rentals$ 4.0B7/23/0712/24/07Cerbeus PPH$ 1.7B8/15/071/01/08Blackstone NIBC$ 4.4B8/15/071/30/08JC Flowers Reddy Ice$ 1.1B7/02/071/31/08GSO Capital 3 Com$ 2.2B9/28/073/20/08Bain Alliconce Data$ 6.4B5/17/074/18/08Blackstone Source: Fortune

Issuers 7 Amsterdam Institute of Finance May 2008

Transaction Types  Sponsor to Sponsor  Club Transactions  Dividend Recapitalizations  Public to Private  Spin offs  Private Company Sales  Middle Market 8 Amsterdam Institute of Finance May 2008

Leveraged Buyouts: Type Diversification Trends Based on Loan VolumeBased on Deal Count 9 Amsterdam Institute of Finance May 2008 Copyright © 2008 Standard & Poor's, a division of The McGraw-Hill Companies, Inc. P2P Corporate S25 Other Corporate S2S Other P2P

Private Equity 10 Amsterdam Institute of Finance May 2008

LBO Sponsor Diversification: 1Q08 11 Amsterdam Institute of Finance May Most Active Sponsors Single vs. Multiple Sponsors The analysis reflects sponsors related to buyouts (initial and secondary) only. Most Active Sponsors reflects activity based upon all sponsors named on a transaction. Share is based upon transaction count. To access the data points underlying the chart, double-click on the chart. Copyright © 2008, Standard & Poor’s, a division of the McGraw-Hill Companies, Inc. Europe Senior LBO: 1Q08

Fund manager Carried interest partner General Partner LP A LP B LP C US Investors US Exempt Investors Non-US Investors FUND Investment Hold Co. Operating Entity Bank Bridge finance Syndicate participants Leverage finance syndicate participants Nominee High Yield Investors Mezzanine Investors FLL SLL CLO Hedge funds 12 Amsterdam Institute of Finance May 2008

NowIn 5 yrs EBITDA of Acquired Firm (c) Sale 8 x EBITDA1,0001,500 Financing Plan: Total Capital Raised1,000 Fees Net Sale Proceeds on Exit1,450 Original Debt 800 Less: Debt pay down over 5 years 260 Debt at end of 5 years Return of Original Equity -200 Net gain to be allocated % to mgmt options 71(a) 20% to general partner % to limited partners 497 (b) Total 710 Amsterdam Institute of Finance May (a)Share to CEO2% pointsor $14.2 x 1 = $14.2 Share to next 4 senior officers1% pointsor $ 7.1x 4 = $28.4 Share to next 8 key players1/2% pointsor $ 3.6x 8 = $28.4 Total Management share $71.0 (b) Equals a 28.4% compound annual rate of return on investment. (c) Assumes $12 taken out of cost structure immediately and 6.5% growth/year in EBITDA thereafter. Source: Casewriter – The Role of Private Equity Firms in Mergers & Acquisitions Transaction Harvard Business School case Rev 10/16/06 - $ millions -

Terra Firma Bridgepoint Permira Doughty Hanson Amsterdam Institute of Finance May Breakdown of own accounts Portfolio Companies: Turnover Details of profits/earnings Employee numbers Management named Advent International and Montagu Private Equity did not provide any of the above Source: Private Equity News

Amsterdam Institute of Finance May Top 10 funds currently raising Industry benchmark medium IRR (%) Vintage Years % 7% 9% 12% 17% 28% 22% 30% 22% 12%

Private Equity IPOs and financial aggressiveness Credit Correction CLO Shutdown Frozen syndications Writedowns Returns – Concentrated in larger more established firms Compare to Index: Just Leveraged equity? Investors – endowments vs. banks Capacity Large unused capacity Record fund raising continues Private Equity Observations 16 Amsterdam Institute of Finance May 2008

Increased Debt (lower taxes) Bargain Purchase Operating Improvements Improved Governance Bondholder Value transfer Private Equity Value Added 17 Amsterdam Institute of Finance May 2008

Investors 18 Amsterdam Institute of Finance May 2008

Banks (Relationship Driven) Typically invest in the pro-rata portion of bank facilities (Revolver and Term Loan A) Seek first priority claim on assets Preference for price stability over liquidity Institutional Investors (Yield Driven) Primarily looking for high coupon/yield. Embedded option and subordination translate to higher coupons Cross over investors (relative value between bank loans and high yield bonds) Hedge Funds (unknown impact) Different Investor Bases – Loan Market 19 Amsterdam Institute of Finance May 2008

20 To access the data points underlying the chart, double-click on the chart. Copyright © 2008, Standard & Poor’s, a division of the McGraw-Hill Companies, Inc. Institutional Investors’ Share of the Primary Market

Source: S&P EUR US/Europe: 1Q08 Total Return US Index and Europe’s Euro Denominated Index are single currency indexes and contain only USD and EUR denominated facilities respectively. Their total returns consist of Interest Income Return plus Market Value Return. Europe’s Multi Currency Index contains facilities denominated in EUR, GBP and USD. The Index calculates returns based upon non-Euro facilities converted into Euros at conversion rates at the time of calculation. As a result, the total return for the Multi Currency Index consists of Interest Income, Market Value and Currency segments. 21 Amsterdam Institute of Finance May 2008

Institutional Loan Investor Groups 22 Amsterdam Institute of Finance May 2008 To access the data points underlying the chart, double-click on the chart. Copyright © 2008, Standard & Poor’s, a division of the McGraw-Hill Companies, Inc.

23 Spread per Unit of Leverage (SPL) 23 Amsterdam Institute of Finance May 2008 Based upon weighted average institutional spread versus average pro forma total debt leverage ratios. US leverage reflects ratios for Large Corporate Transaction (minimum EBITDA of $50M). To access the data points underlying the chart, double-click on the chart. Copyright © 2008, Standard & Poor’s, a division of the McGraw-Hill Companies, Inc. `

Amsterdam Institute of Finance May Jan 97-Jun 07Jan 97-Feb S&P/LSTA Index M&L HIGH YIELD (H0A0) 10YR TREAS (GA10) S&P 500 (SPX) ML HIGRADE CORP (COCO) Source: S&P

Banks 25 Amsterdam Institute of Finance May 2008

Deal Value No. of ($bn) Deals JP Morgan Bank of America Citigroup Credit Suisse Deutsche Bank Goldman Sachs Lehman Brothers Merrill Lynch RBS Wachovia *Global syndicated since Jan 2007 to date. Amsterdam Institute of Finance May Source: Dealogic; Standard & Poor’s LCD Deutsche Bank96 Citigroup97 Goldman Sachs95 Credit Suisse94 Merrill Lynch97 JP Morgan95 Morgan Stanley91 Lehmann.a. RBS95 Barclays98 UBS96 Credit Agricole94 HSBC98 BNP Paribas92 Societe Generale96 ** Including both funded and unfunded commitments. Exposures and writedowns are net of hedges. Figures as of Dec except Goldman, Lehman and Morgan Stanley which are Nov 2007

Merrill Lynch3,567 1, ,105 5,780 Amsterdam Institute of Finance May ABSLeveragedResidential Commercial CMBSEstimated CompanyCDOsLoansMortgages Real EstateTotal Citigroup1,108 2,6202, ND16,810 Bank of America 2, , ,596 9,902 JP Morgan 120 1,4722, ,959 7,605 Wachovia , ,451 4,382 Source: Company reports, CreditSights *CDO related losses does not include FG or other subprime. DCO exposure estimated for GS & LEH. 1Q08 CDO mark est. at lower of Etrade case & Mark implied by change in ABX. ND: Not disclosed. NA: Not Available

Fixing the Broken Deal – Price and Structural Flex Increase spread Original issue discount Eliminate PIK Reduce debt Add a subordinate tranche More equity Add covenants Reduce Price Seller Paper MAC 28 Amsterdam Institute of Finance May 2008

New Buyers of Discounted Bank Loans (adding insult to injury) Issuers: of par PE forms: Citi 90% Apollo TPG Blackstone 29 Amsterdam Institute of Finance May 2008

30 CLO

CLO Enhancement levels Equity - minimize equity Maximize AAA Rating agencies less multiple asset default / recovery history Example History indicates5% default probability with 0% recovery Multiples AAA630 AA525 A420 BBB315 BB210 B15 E0 31 Amsterdam Institute of Finance May 2008

32 To access the data points underlying the chart, double-click on the chart. Copyright © 2008, Standard & Poor’s, a division of the McGraw-Hill Companies, Inc.

How much demand is there absent CLOs? We know that € 34 bn of loan supply was issued to investors other than CLOs last year, non-traditional investors have been adding exposure, and cash has been accumulating. What if the calendar doesn’t clear? Absent deals committed to in the 1H’07, there really hasn’t been any supply. Banks may find room to fund solid credits looking forward, but shareholder-friendly deals seem unlikely (€ 140 bn last year). Bottom Line: The leveraged finance market is shrinking, but that does not mean broad market pricing is “rich” per se. Amsterdam Institute of Finance May Supply Demand “New” Investors ‘08 Paydowns: ??? ‘08 Coupons: € 14.9 bn ‘08 Maturities: € 28.7 bn € Forward Volume* € 58 bn Source: UBS, Bloomberg, S&P Note: As of April 17, 2008 *This figures comes from S&P. Includes both pro-rata and institutional loans. We estimate € 63bn in high-yield supply backlog. Coupon based on avg coupons on € 130 bn of loans (S&P ELLI) and € 74 bn of bonds (ML Eur HY index) over the remainder of the year. Maturities based on debt distribution schedules for all bonds and loans in Bloomberg less the amount of USD-denominated bonds and loans in Bloomberg. Assumed € /$1.5 for maturity conversion.

Amsterdam Institute of Finance May New YearVolume Market size are estimates *CLO new issuance as of 12/31/07 Source: Credit Suisse, Moody’s, S&P, Fitch

Amsterdam Institute of Finance May

2008 mantra – Survive and Advance  Draining leverage  Steep declines in volume  CLO – Small Numbers  Fund raising – institutional money: Little or no leverage  Old pitch: high leverage/low beta  New pitch: low leverage/high alpha  Smaller, more conservative deals – High equity contributions  Default rates trend higher  Higher volatility continues Areas of opportunity :  Asset based lending  Clubbish, off the run deals  Rescue finance  Middle market Amsterdam Institute of Finance May

Amsterdam Institute of Finance May Disclosure This information has been prepared solely for informational purposes and is not intended to provide or should not be relied upon for accounting, legal, tax, or investment advice. The factual statements herein have been taken from sources believed to be reliable, but such statements are made without any representation as to accuracy or completeness. Opinions expressed are current opinions as of the date appearing in this material only. These materials are subject to change, completion, or amendment from time to time without notice and CapGen Financial is not under any obligation to keep you advise of such changes. All views expressed in this presentation are those of the presenter, and not necessarily those of CapGen Financial.