1. 22nd Annual Loan Market Roundtable Survey Results
Ioana Barza
Director of Analytics
January 20, 2011

2. At $259 Billion, 2010 HY Bond issuance blows out 2009’s $146
At $259 Billion, 2010 HY Bond issuance blows out 2009’s $146.5 billion record
U.S. HY bond issuance
$88 billion in bond issuance used to pay down loans in 2010
Source: Thomson Reuters 2 2

3. HY Bonds outpace loans for 2nd year in a row
HY bond vs. institutional loan issuance
*senior, secured, floating rate, inst. term loans
Source: Thomson Reuters, Thomson Reuters LPC 3 3

4. Survey: Supply expected to ramp up
Supply: 2010 Institutional Issuance Forecast
Supply: 2011 Institutional Issuance Forecast
What will drive issuance in 1H11? What is the sweet spot for new money deals?
Source: Thomson Reuters LPC, Quarterly Survey

5. Sponsors expected to drive leveraged lending
Buyout & mezzanine fundraising
Leveraged lending
Source: Reuters Buyouts, Thomson Reuters LPC 5 5

6. Institutional Pipeline ($Bils.)
Institutional pipeline spikes to 2-year high near year-end
Institutional pipeline
With the growth of the leveraged pipeline, are buysiders poised to cherry pick deals?
YES
Buysiders are already cherry picking
“BB” names are flying off the shelf
Dividend deals are getting pushback
Cherry picking is evident on smaller deals
Yields are still high historically and allocations are still healthy NO
Not yet, volume and fund flows are in equilibrium
Volume is still not that significant
Buyside still has too much cash to be picky
Loan market outstandings are still shrinking, so huge demand still from investors/lenders
Not right now, but maybe in 2012 when bulk of CLOs start to go static
Institutional Pipeline ($Bils.)
Source: Thomson Reuters LPC, Quarterly Survey 6 6

7. Leverage multiples are being pushed up while equity contributions are coming down for LBOs
Large corporate LBO equity contributions*
Large corporate LBO leverage levels*
*Excludes middle market (MM defined as deal and revenue size of $500M and less)
Source: Thomson Reuters LPC 7 7

8. Equity contributions are expected to keep shrinking
As leverage multiples rise, what are acceptable equity contribution levels?
Sponsored refinancing cliff
Source: Thomson Reuters LPC, Quarterly Survey 8 8

9. Current market players planning to lend more in 2011
2010 leveraged budget forecast
2011 leveraged budget forecast
What initiatives are being undertaken to access new sources of capital?
Source: Thomson Reuters LPC, Quarterly Survey

10. Loan bids continue upward climb
SMi100 & ML HY bond index
Cov-lites and second lien loan bids
Average Bid (% of par)
Average Bid (% of par)
Source: Merrill Lynch; LSTA/LPC MTM Pricing

11. Primary yields contract in 4Q10 on the back of strong loan demand
Par-plus share of SMi100
Breakout of yield components
Source: LSTA/LPC MTM Pricing; Thomson Reuters LPC

12. What minimum yield will be necessary for deals to clear in 2011?
What yield will be required for high quality institutional loans to clear market in 2011?
Historical yields for B-rated term loans
Source: Thomson Reuters LPC, Quarterly Survey 12 12

13. What will happen to investment grade pricing
What will happen to investment grade pricing? Will M&A pick up in 2011 for I-grade issuers?
Survey: How will 2011 undrawn pricing change relative to 4Q10?
Survey: What kind of pick up do you expect for M&A financings in 1Q11?
Source: Thomson Reuters LPC 1Q11 Quarterly Survey

14. I-grade volume grows 68% year over year
U.S. IG volume by rating
364-day, 3-yr, 4-yr, & 5-yr RC market share
Share of IG market (%)
Source: Thomson Reuters LPC

15. How will I-grade lending change in 2011
How will I-grade lending change in 2011? Is your 2011 budget larger or smaller than 2010?
Will 2011 I-grade loan volume increase or decrease relative to 2010?
Is your 2011 budget larger or smaller for I-grade lending?
Decrease
Increase
Decrease
Increase
Source: Thomson Reuters LPC 1Q11 Quarterly Survey 15 15

16. Survey: What is the biggest issue/change facing the loan market today?
Issues facing the loan market
Being able to win deals among intense competition
Winning mandates without cannibalizing the portfolio from a structural standpoint
Maintaining discipline with regards to pricing
Basel III and regulatory uncertainties
Securitization market and will it ever come back to a meaningful level
Expiration of CLO reinvestment periods
Evolution of the buyer base, CLO creation
Lack of developed secondary trading markets
Settlement and clearing
Supply/demand imbalance
European sovereign debt crisis
A shut down of the high yield bond market
Source: Thomson Reuters LPC 1Q11 Quarterly Survey 16 16

17. Are you concerned about a possible European debt crisis affecting the loan market? Regulatory issues?
Are loan market players concerned?
Why?
For those who said YES:
Meaningful global events will impact all markets
Crisis could impact the speediness of a recovery
Investor sentiment is affected
Libor could be affected if European banks run into trouble
Basel III will have huge impact on banks’ costs in the intermediate to long term
Financial regulations could affect market liquidity
For those who said NO:
Loan market remains insulated
Market paused when Greece issues hit in May but quickly returned
Largest impact is an increase in spreads which is a positive for investors
Regulatory bodies will do the right thing to keep the capital markets functioning
Source: Thomson Reuters LPC 1Q11 Quarterly Survey

18. Foreign banks active in U.S. lending markets
Market share by institution type
Looking at participant volume – non-US. Banks –
Roughly 75% are non-U.S. banks with European and Asian banks taking up the larger shares.
With such a diverse group of players focused on this space – the demand/supply mis-match may only get worse.
And yet, despite spreads coming and a very competitive landscape – one mechanism that has shown its staying power is Market Based Pricing.
>>>>>>>
And with various constituencies in various stages of Basel adoption and facing rising cost of funds – how does all this impact returns? Return hurdles?
Looking at the same sample of deals, 24% of bookrunner volume via commitment amount is from non-U.S. banks with a significant portion from European banks.
But we see a growing presence of banks from Asia-Pacific makes up about one-fifth of the participant volume from the same sample.
Source: Thomson Reuters LPC

19. Will loans continue to regain market share?
HY bond vs. institutional loan market share
Source: Thomson Reuters, Thomson Reuters LPC 19 19

20. Source: Thomson Reuters LPC
Dividend recaps re-emerge and hit an all time quarterly record; covenant-lite deals pick up steam
Dividend recap volume
Covenant-lite volume
Source: Thomson Reuters LPC