22nd Annual Loan Market Roundtable Survey Results Ioana Barza Director of Analytics ioana.barza@thomsonreuters.com January 20, 2011

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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