Testimony Before the ABI Chapter 11 Reform Commission Field Hearing 17 th Annual LSTA Conference New York October 17, 2012 Ted Basta SVP, Analysis and Data The Loan Syndications and Trading Association (LSTA)

The Size and Importance of the Leveraged Loan and High Yield Bond Markets

Leveraged Loans and High Yield Bonds Represent More than 6% of U.S. Fixed Income Assets High Yield Bonds 3% Leveraged Loans 3% High Grade Bonds 18% Mortgage-Related 23% Asset Backed 5% Total Size of Fixed Income Market $38 Trillion 3

In 2001 the Wall Street Journal Began Covering the Leveraged Loan Market - Today the Leveraged Loan Market Provides Funding to Almost 1,500 Individual Companies Source: Wall Street Journal 4

There is More Than $1.5 Trillion in Total Leveraged Debt Outstanding (HY Bonds & Institutional Loans) - With an Estimated $2.7 Trillion Traded Annually by Year-End 2012 Leveraged Debt Outstanding Leveraged Debt Secondary Trading Volume 5 Source: S&P Capital IQ LCDSource: Thomson Reuters & LSTA Trade Data Study

Since 2010, The Leveraged Loan and High Yield Bond Markets Have Provided Corporate Borrowers With $1.7 Trillion in Funding 6 Source: S&P Capital IQ LCD

Senior Secured Loans sit Atop the Capital Structure and Offer Corporate America a Private and Cheaper Source of Funding Payment Seniority High Low Senior Secured Loans High Yield Bonds Convertible Securities Preferred Stock Common Stock Primary Market Yields for B-Rated Unsecured Bonds and Institutional Loans 7 Source: S&P Capital IQ LCD

The Last Three Default Cycles (1,000 Corporate Defaults) Illustrate the Significance of Capital Structure Historical US Spec. Grade Default Rate Average Recoveries in Three Default Cycles Source: Moody’s Investor Services  Leveraged loans are typically the most senior debt in a company’s capital structure and often have first-lien claim to the company’s assets in the event of bankruptcy. 8

The Distribution of Recoveries Over the Past Two Years Across Both Markets Illustrates the Importance of Senior Security 9 Source: Fitch Ratings

As the Leveraged Loan and HY Unsecured Bond Markets Seized up in 2009, the Secured Bond Market Became a Major Source of Funding 10 Source: S&P Capital IQ LCD

The Leveraged Loan Market Liquidity and the Lender Base 11

Over the Past 12 Years, The Primary Source of Leveraged Lending has Been the Institutional Lender Base 12 Source: S&P Capital IQ LCD

Secondary Trading Liquidity Levels Remained Mostly Constant Before, During and After the US Recession 13 Source: S&P Capital IQ LCDSource: S&P/LSTA LLI & LSTA Trade Data Study

The Secondary Leveraged Loan Market Allows Managers to Actively Trade in Order to Shift Around Risk Allocation 14 Source: LSTA Trade Data Study Source: S&P/LSTA LLI & LSTA/TR LPC MTM

As Market Conditions Change so Does the Lender Base for Leveraged Loans Share of Non-Bank Leveraged Primary Lending Source: S&P Capital IQ LCD 15

Hedge, Dis. & HY Funds are Critical in the Effective and Efficient Transfer of Risk 16 Source: S&P Capital IQ LCD & LSTA/TR LPC MTM Pricing

Case Studies on Liquidity and Performance in Bankruptcy 17

Idearc (Orig. Deal Size = $6.5B) & Masonite (Orig. Deal Size = $1.5B) Filed For Bankruptcy in March Post Bankruptcy, Trade Volumes Subsided as Bid Levels, which Reflect Enterprise Value, Increased & Bid-Ask Spreads Tightened 18 Source: LSTA Trade Data Study & LSTA/TR LPC MTM

Chrysler Corp. (Orig. Deal Size = $9.5B) & General Growth Prop. (Orig. Deal Size = $2B) Filed For Bankruptcy in April Post Bankruptcy, Trade Volumes Subsided as Bid Levels, which Reflect Enterprise Value, Increased & Bid-Ask Spreads Tightened 19 Source: LSTA Trade Data Study & LSTA/TR LPC MTM

Delphi Automotive Corporation Filed for Bankruptcy October, 2005 ~Hedge Funds Recapitalize the Company to Allow it to Re-Organize Despite Heavy Volatility 20 Source: LSTA/TR LPC MTM Hedge Funds Recap Company Filed for Bankruptcy 10/05 Completed its Post-Re-Org IPO on 11/11 at $22

Debtor-In-Possession (DIP) Financing Liquidity and Performance 21

The LSTA Has Tracked 56 Companies That Have Accessed the DIP Market Since 2006, Providing Them With the Liquidity Needed to Operate and Restructure While in Bankruptcy ~ Only 2 Companies Liquidated 22 Borrower Name AES CorpDelta AirlinesNewPage Corp Aleris International IncEagle-Picher Industries IncNorthwest Air American Safety RazorEastman KodakOneida ATP Oil & Gas CorpFederal-MogulOriental Trading Atrium CompaniesGeneral Growth PropertiesPhiladelphia Media Holdings Bicent Power LLCGreat Atlantic & Pacific Tea CoQuebecor Media BlockBusterGreektown CasinoReaders Digest Association Buffets IncHawker BeechcraftRemy International Inc Calpine CorpHayes Lemmerz InternationalResidential Capital Corp CCS MedicalHoughton MifflinSbarro Inc Champion Home BuildersInsight Pharmaceuticals Inc.Smurfit-Stone Container Chemtura CorpInterstate Bakeries CorpSolutia Inc CinramIon MediaTower Automotive Coach AmericaLake Las Vegas ResortTribune Co Cooper StandardLear CorpTronox Inc Crescent ResourcesLyondell ChemicalTrue Temper Sports Dana CorpMedical Staffing NetworkWhite Birch Paper Ltd Deb ShopsNebraska BookWinstar Communications Delphi Automotive SystemsNewark GroupXerium (BTR Paper)

23 DIP Lending is Critical to the Preservation and Subsequent Appreciation of Enterprise Value Source: LSTA Trade Data Study & LSTA/TR LPC MTM