1. Amsterdam Institute of Finance Joseph V. Rizzi October, 2014 PRODUCTS: EXPANDED DEBT CAPACITY (Affordability Products)

2. 22 Rising purchase price multiples and ROE concerns drove acquirers to seek ways to expand their debt capacity. Some of the most common techniques are:  Adjusted (Increased) EBITDA - Operating improvements - Normalization  Asset Sales - Bridges to asset sales - Liquidity is key in case bridge cannot be taken out  Innovative Securities - Defer interest - Push out amortization - Increase flexibility Amsterdam Institute of Finance October, 2014 2

3. TermAmortizationCovenantCallSenioritySecured Revolver5 – 7BulletFULLYES Term Loan A5 – 740% in first 5 yearsFULLYES Institutional Term Loans 7 - 81% per annum / bulletFULLYES Covenant Lite8 - 101% per annum / BulletLIGHTPREMIUMYES Mezzanine10 +BulletLIGHTPREMIUMNODepends High Yield10 +BulletLIGHTPREMIUMNO Holding Company PIK 10 +BulletLIGHTPREMIUMNO Bridge Term Loans1 - 3BulletFULLYES Securitization1 - 5Revolver with Borrowing Base FULLYES Second Lien8-9BulletFULLYES Bifurcated Lien (cross lien) 8-101% P.A./BulletYes Partial Unsecured1-101% P.A./BulletYes No OPCO/PROPCO10+BulletYes The above table shows the features of different debt options available to issuers The availability of the different options is subject to market conditions 3 Amsterdam Institute of Finance October, 2014

4. 100% = 30 (equity) + 70 (debt financing) Players LBO financing package Target company (2) Equity 30% LBO funds (1) Banks Hedge funds CLO Senior debt 60% Debt financing 70% Second lien loans 5% Subordinated debt 5% Debt financing 70% Leverage effect =debt/EBITDA =70/12 =5.8 (EBITDA 12%) Mezzanine funds Public Markets High Yield, PIK Amsterdam Institute of Finance October, 2014 4

5. Equity #1 Equity #2 European Holding Company United States Holding Company NEWCO United States Target Foreign Operating Subsidiary* Domestic Operating Subsidiary Domestic Operating Subsidiary Domestic Operating Subsidiary Collapsed After Closing Equity Preferred Stock High Yield/Sub Notes Due to the structural nature of Subordination in Europe, bank Debt would be placed at the Operating subsidiary level. Bank Deal with Upstream Guarantee * Tax limitations surrounding guarantees from foreign subs. Guarantee Amsterdam Institute of Finance October, 2014 5

6. 66  Innovative securities allow for the expansion of debt capacity by one or more of the following mechanisms:  Reduce Annual Debt Service - Reducing cash interest expense - Lengthen duration (Reduce/Delay amortization)  Increasing Flexibility - Covenants- Public Disclosure - Cash flow control- Call Premium - Bridging- Partial/fully Unsecured  Tranching (sequential ordering of payment or priorities) - Holding Company instruments - Restricted Subsidiaries - Second lien/bifurcated collateral-crossing liens - Senior/Subordinated  Cost – Second Lien vs Mez Amsterdam Institute of Finance October, 2014 6

7. Total FL2L Other 1H14540.50.5 20134.753.90.10.75 20124.83.60.10.9 20114.53.80.10.6 20104.53.5 __1 200943 __1 20085.13.60.51 200764.50.51 20065.54.20.31 20055.340.21 20044.53.5 __1 7 Amsterdam Institute of Finance October, 2014

8. 88  Senior Secured, but with Junior or Second Lien- Lower recovery  Competing with EURO Mezzanine ◦ Investors – hedge funds and CLO  Spread differential between Second Lien and First Lien currently around 325 BP  Volume:U.S. 1H14 $24B v YE06 $28.3B EUR 1H14 $1.1B YE07 $18.6B  Issues: - Inter-creditor - Standstill Agreement - Obligations - New Investors Behavior in a Workout - CLO Rating Impact Amsterdam Institute of Finance October, 2014 8

9. 99  Covenant Issues ◦ Creditor – preserve deal; recovery value ◦ Debtor – flexibility  Covenant Lite – liquidity vs. structure ◦ Similar to Investment Grade ◦ One or No Financial Covenants  Rating Agency impact on CLO  Volume ◦ US – Now dominant form >90% ◦ Europe – Majority of new issuance >50%  Almost no incremental yield over first lien loans with financial covenants Amsterdam Institute of Finance October, 2014 9

10. 10  Example:- ◦ Target company de-merged into ‘PropCo’, which owns the real estate assets, and ‘OpCo’, the operating company. ◦ Banks finance ‘PropCo’ acquisition of properties at agreed Loan to Value ratio. ◦ ‘PropCo’ leases the real estate assets to ‘OpCo’. ◦ ‘PropCo’ debt refinanced by traditional Property Lenders or via Commercial Mortgage Backed Securities (CMBS) market. ◦ ‘OpCo’ required to service the acquisition debt not assumed by ‘PropCo’.  REIT By structuring the financing of a pool of assets with a credit quality stronger than the corporate credit as a whole, ‘OpCo’ \ ‘PropCo’ financing can provide a cost effective source of (acquisition) financing. Amsterdam Institute of Finance October, 2014 10

11. ‘OpCo \ PropCo’ Financing (2) Financing Notes OpCo PropCo BidCo Rental Payments Approx. 100% Approx. 100% Amsterdam Institute of Finance October, 2014 11

12. 12 Requirements: ◦ Stable and resilient cash flows from business ◦ Control over cash flows through sale of assets or adequate legal structure ◦ Target investment grade rating to maximize access to investors and lower cost of capital Different leverage measurements Issues ◦ Favorable bankruptcy laws ◦ Inter-creditor issues ◦ Flexibility Availability: Difficult Post Crisis; primarily UK Amsterdam Institute of Finance October, 2014 12

13. 13 Longer Term Bonds  7-10 years and longer  4/5 NC Public or Private  Usually issued in private form with exchange rights  Pricing would step up if bonds not public within short period (say 180 days of close) Markets Issuance ($)Market Size 1H14 2013 1H14 U.S.$175B$325B $1.4T Euro$ 75B$100B $400B Amsterdam Institute of Finance October, 2014 13

14. 14 Key High Yield Terms Registration Rights Issuer Status Degree of Subordination Limitations on liens Limitations on indebtedness Restricted payments Asset sales Change in control Amsterdam Institute of Finance October, 2014 14

15. 15 Covenants*Extensive (bank type) *Maintenance basis (tested quarterly) Security*Second secured Call Provisions*Generally callable immediately (103,102,101) Maturity*Ten year Pricing*LIBOR + *Warrants for total return *TBD Liquidity*Low Disclosure:*Limited Marketing*No research coverage, no roadshow Rating Requirements*None Amsterdam Institute of Finance October, 2014 15

16. 16 PIK Pay if you can toggle Pay if you can toggle Ratings – NR or CCC Ratings – NR or CCC Eats up equity Eats up equity Holding Company Issuer Holding Company Issuer Characteristics Characteristics Spread825/900 Toggle900-1000 Term7.5-10 Call5xNC Leverage6.5x+ Amsterdam Institute of Finance October, 2014

17. 17  Staple financing term sheet to deal book  Be prepared to fund  Establishes ceiling  Conflicts of interest Stapled Financing Amsterdam Institute of Finance October, 2014

18. 18 ACCORDIAN LOAN Incremental Loan Facilities Option allowing increase in principal under existing terms subject to certain conditions Existing lenders can participate or new lenders can be sought Dilution of Lender Interest Uncommitted – access requires lenders willing to provide Suffer dilution if you elect not to participate and facility approved Amsterdam Institute of Finance October, 2014

19. Bridge Loans  Equity ◦ Bank provides equity  Find other equity investors later or keep  Reduce PE equity  Lowers need for club or larger deals ◦ Rationale – pay to play ◦ Bonds Amsterdam Institute of Finance October, 2014 19

20. 20  Increasing layers of debt  Directed at different investors  Intercreditors conflicts 2004 + 2H07 - 2011 Common equity Unsecured/mezzanine (1x) Senior secured bank loan (4x) - Amortizing T/LA – 40% - B/C tranches – 60% FDX – 5x + PPX – 7.5 + 2012 - Present Common equity Hybrid preferred (0.5x) PIK notes (0.5x) Unsecured/mezzanine (1x) Carve-out collateral (1x) - securitization - OPCO/PROPCO Second lien loans (1x) Senior secured bank loan (4x) - Amortizing T/LA – 20% - B/C tranches – 80% FDX – 6x + PPX – 8.5 + Amsterdam Institute of Finance October, 2014 20

21. 21  HCA – 33 bln USD (corp rating B2/B+) ◦ FDX – 6.53x (LTM) ◦ PPX – 7.7x ◦ Club – Bain, KKR, ML (5 bln) ◦ W/W – BofA, JPMC, Citi, ML ◦ Debt Package 1 st Lien (3.46x)TermSpread Amortization (cum. At maturity) - R/C 2.000 bln - ABL 2.000 bln - T/LA 2.250 bln - T/LB 9.300 bln - EUR T/L 1.250 bln 6667766677 250 175 250 0 50% 7% 2 nd Lien (1.33x) - Cash 4.200 bln - PIK/T 1.500 bln 8888 9.75% 10.0 % 8% Existing unsecured 7.470 bln2009 7.5 %-- Equity 4.965 bln-- ◦ EBITDA/I – 1.9x (2007E) ◦ EBITDA – CAPEX/I – 1.1x (2007E) Amsterdam Institute of Finance October, 2014 21

22. 22 HCA Legal Structure European subs Sub C Healthtrust Holdings Management Euro T/L Unrestricted subs Restricted subs (guarantors) Sub D Sub E Sub B Sub A Acquisition Corp HCA, Inc Equity Bank Loans Existing Notes Sponsors Merge Amsterdam Institute of Finance October, 2014 22