November, 2007 An Introduction to the Senior Loan Asset Class

Symphony Asset Management - Confidential - 2 What is a Senior Loan?  Senior Loans are debt obligations issued by public and private companies with a need for capital.  Companies typically issue Senior Loans in the form of a term loan with a maturity of 5 to 7 years.  The proceeds generated from Senior Loan issuance are often used for acquisitions, recapitalizations, restructurings, and leveraged buyouts.  Senior loans are not securities and are not DTC eligible. Senior Loans are also known as Leveraged Loans, Syndicated Loans, or Senior Secured Loans

Symphony Asset Management - Confidential - 3 Key Characteristics of Senior Loans  Senior Claim on Assets or Stock: Senior Loans generally occupy the highest priority claim for principal and interest payments. In the event of default, Senior Loans are typically repaid first.  Secured by Stock and Assets: Further enhancing the likelihood of higher recoveries in the event of default, Senior Loans benefit from being secured by specific collateral.  Floating Rate Coupon: The majority of Senior Loans bear interest based on a floating rate index such as LIBOR, the Prime Rate or other such “base rate.”

Symphony Asset Management - Confidential - 4 Historical Spread (LIBOR) on Senior Loans * Assumes discount from par is amortized evenly over a three-year life. * Excludes all loans trading at 70 cents on the dollar or less. B Loans All BB/B Loans BB Loans Source: Standard and Poor’s LCD and S&P/LSTA (Loan Syndication and Trading Association) Leveraged Loan Index

Symphony Asset Management - Confidential - 5 Attractiveness of Senior Loans  Senior loan portfolios exhibit high risk-adjusted return characteristics.  Historically low price volatility.  Low or negative correlation with other asset classes.  High risk-adjusted returns (Sharpe Ratio).  High recovery rates compared to other fixed income assets.  Senior position and shortest maturity in a leveraged company’s capital structure.  Collateral protection through a lien on the assets of the borrower.  Restrictive financial covenants improve lender’s control and security.  Increased secondary market liquidity  Increasing number of non-bank investors with an emphasis on total return.  Improved secondary trading and assignment efficiency.  Increased number of rated issues.

Symphony Asset Management - Confidential - 6 Low Correlation to Other Asset Classes

Symphony Asset Management - Confidential - 7 Senior Loan Returns vs. Other Asset Classes Risk & Return Comparison between Various Assets: 1/ /2006 Overview of Senior Secured Bank Loans Source: Russell/Mellon Analytical Systems Indices Sources: CS Leveraged Loan Index, Lehman Brothers High Yield Index, Lehman Aggregate Bond Index, Standard & Poor’s 500 Index, Russell 2000® Index, MSCI EAFE Index, 3-Month LIBOR Index. 1. Calculated as the Standard Deviation (monthly observations).

Symphony Asset Management - Confidential - 8 Historically Low Default Rates  From 1983 – 2005, the average annual default rates for Ba3 and B1 credits were 2.1% and 3.2%, respectively.

Symphony Asset Management - Confidential - 9 Historically High Recovery Rates

Symphony Asset Management - Confidential - 10 Institutional Senior (Leveraged) Loan Market  As Figure 1 shows, the institutional-tranche leveraged loan market has increased dramatically in recent years, mostly as a result of LBO financing and more non-bank buyers actively participating in the market.  Along with growth in the size of the asset class, the investor base has also grown dramatically. Today investors in senior loans include not just banks but mutual funds, hedge funds, and other institutional buyers.