1. 1 111 Dr. Edward Altman NYU Stern School of Business Are We Nearing the End of the Benign Credit Cycle & Is a Bubble Building In Credit? CIFR Seminar MacQuarie University Sydney, Australia November 19, 2015

2. Is It a Bubble? 2 Or, Just Opportunistic Debt Financing? Focus on Default Rates in Credit Markets Length of Benign Credit Cycles Coincidence with Recessions: U.S. & European Scenarios Comparative Health of High-Yield Firms (2007 vs. 2012/2014) High-Yield and CCC New Issuance LBO Statistics and Trends Liquidity Concerns (Markets & Dealers) Maturity Schedule of Leveraged Debt (Impact?) Large Increase in the Distress Ratio Possible Timing of the Bubble Burst

3. Straight Bonds Only Excluding Defaulted Issues From Par Value Outstanding, (US$ millions), 1971 – 2015 (10/15)) Historical H.Y. Bond Default Rates 3 Year Par Value Outstanding a ($) Par Value Defaults ($) Default Rates (%) 20141,496,81431,5892.110 20131,392,21214,5391.044 20121,212,36219,6471.621 20111,354,64917,9631.326 20101,221,56913,8091.130 20091,152,952123,87810.744 20081,091,00050,7634.653 20071,075,4005,4730.509 2006993,6007,5590.761 20051,073,00036,2093.375 2004933,10011,6571.249 2003825,00038,4514.661 2002757,00096,85512.795 2001649,00063,6099.801 2000597,20030,2955.073 1999567,40023,5324.147 1998465,5007,4641.603 1997335,4004,2001.252 1996271,0003,3361.231 1995240,0004,5511.896 1994235,0003,4181.454 1993206,9072,2871.105 1992163,0005,5453.402 1991183,60018,86210.273 1990181,00018,35410.140 1989189,2588,1104.285 1988148,1873,9442.662 a Weighted by par value of amount outstanding for each year. Year Par Value Outstanding* ($) Par Value Defaults ($) Default Rates (%) 1987129,5577,4865.778 198690.2433,1563.497 198558,0889921.708 198440,9393440.840 198327,4923011.095 198218,1095773.186 198117,115270.158 198014,9352241.500 197910,356200.193 19788,9461191.330 19778,1573814.671 19767,735300.388 19757,4712042.731 197410,8941231.129 19737,824490.626 19726,9281932.786 19716,602821.242 Standard Deviation (%) Arithmetic Average Default Rate (%) 1971 to 20143.1173.097 1978 to 20143.3403.273 1985 to 20143.8433.416 Weighted Average Default Rate (%)* 1971 to 20143.491 1978 to 20143.496 1985 to 20143.513 Median Annual Default Rate (%) 1971 to 20141.664 Source: Author’s compilation and Citigroup/Credit Suisse estimates 2015 (10/15)1,595,83935,4142.219

4. Quarterly Default Rate and Four-Quarter Moving Average 1989 – 2015 (3Q - Preliminary) Source: Author’s Compilations Default Rates on High-Yield Bonds 4

5. Filings for Chapter 11 5 Number of Filings and Pre-petition Liabilities of Filing Companies 1989 – 2015 (10/09) Note: Minimum $100 million in liabilities Source: NYU Salomon Center Bankruptcy Filings Database Mean 1989-2014: 74 filings Median 1989-2014: 54 filings

6. Energy/Mining Company Chapter 11 Filings* 6 January – October 09, 2015 CompanyLiabilities ($MM)DateSIC Allied Nevada Gold Corp.6643/10/2015 1040 Alpha Natural Resources, Inc.7,1008/3/2015 1221 American Eagle Energy Corp.2155/8/2015 1311 Black Elk Energy Offshore Operations, LLC4329/1/2015 1311 BPZ Resources, Inc.2753/9/2015 1311 Cal Dive International, Inc.4113/3/2015 1389 Dune Energy, Inc.1443/8/2015 1389 ERG Intermediate Holdings, LLC2504/30/2015 1311 Hercules Offshore, Inc.1,3078/13/2015 1381 Hovensa, LLC1,0009/15/2015 1382 Magnetation, Inc.7505/5/2015 1011 Milagro Oil & Gas, Inc.4687/15/2015 1311 Miller Energy Resources, Inc.33710/1/2015 1311 Molycorp., Inc.1,7866/25/2015 1081 Patriot Coal Corp.1,0005/12/2015 1221 Quicksilver Resources, Inc.2,3523/17/2015 1311 Sabine Oil & Gas Corp.2,9067/15/2015 1311 Samson Resources Corp.5,3699/16/2015 1311 Saratoga Resources, Inc.2196/18/2015 1382 Walter Energy, Inc.5,0057/15/2015 1221 Xinergy Ltd.2504/6/2015 1221 Number of Energy/Mining Companies21 Total Number of Filings (1/1 – 10/09)51 Percent Energy/Mining Companies41% Total Energy/Mining Company Liabilities ($MM)$32,242 *Liabilities of $100mm or more at time of filing. Source: NYU Salomon Center Bankruptcy Filings Database

7. Energy/Mining Company Bond Defaults 7 January – October 09, 2015 CompanyLiabilities ($MM)DateSIC Alpha Natural Resources, Inc.4434/1/151221 Alpha Natural Resources, Inc.2,2688/3/151221 American Eagle Energy Corp.1755/8/151311 American Energy-Woodford, LLC3406/22/151311 Black Elk Energy Offshore Operations, LLC1399/1/2015 1311 Cliffs Natural Resources6753/30/151000 Connacher Oil and Gas Ltd.5503/4/151311 Dune Energy, Inc.683/8/151389 Goodrich Petroleum Corp.15810/1/151311 Gran Colombia Gold Corp.791/10/151221 Halcon Resources Corp.2524/14/151311 Halcon Resources Corp.1,5669/10/151311 Hercules Offshore, Inc.1,2048/13/151381 Lightstream Resources Ltd.4647/2/151311 Magnetation, Inc.4255/5/151011 Midstates Petroleum Co., Inc.6285/21/151311 Molycorp, Inc.6506/25/151081 Patriot Coal Corp.2825/12/151221 Quicksilver Resources, Inc.1,1733/17/151311 RAAM Global Energy Co.2385/1/151311 Sabine Oil & Gas Corp.1,1507/15/151311 SandRidge Energy, Inc.495/19/151311 SandRidge Energy, Inc.5258/19/151311 SAExploration Holdings, Inc.108/26/151382 Samson Resources Corp.2,2509/16/151311 Saratoga Resources, Inc.1806/12/151382 Venoco, Inc.1924/10/151311 Walter Energy, Inc.2,1027/15/151221 Warren Resources, Inc.705/26/151311 Xinergy Corp.1954/6/151221 Total of Energy/Mining Company Defaults $18,497 Total Defaults (1/1 – 10/09) $35,011 Percent Energy/Mining Companies53% Default Rate5.54% Source: NYU Salomon Center Master Default Database

8. Note: 3Q15 is LTM Source: Credit Suisse Historical Annual European High-Yield Default Rates 8 33.91%

9. Historical Default Rates and Recession Periods in the U.S. 9 Periods of Recession: 11/73 - 3/75, 1/80 - 7/80, 7/81 - 11/82, 7/90 - 3/91, 4/01 – 12/01, 12/07 - 6/09 *All rates annual, except 3Q 2015 which is the LTM. Source: E. Altman (NYU Salomon Center) & National Bureau of Economic Research High-Yield Bond Market (1972 – 2015 (3Q - Preliminary))

10. June 01, 2007 – October 13, 2015 Sources: Citigroup Yieldbook Index Data and Bank of America Merrill Lynch. 10 YTM & Option-Adjusted Spreads Between High Yield Markets & U.S. Treasury Notes 12/16/08 (YTMS = 2,046bp, OAS = 2,144bp) 10/13/15 (YTMS = 603bp, OAS = 624bp) YTMS = 540bp, OAS = 545bp 6/12/07 (YTMS = 260bp, OAS = 249bp)

11. 11 Comparative Health of High-Yield Firms (2007 vs. 2012/2014)

12. 12 Z-Score Component Definitions and Weightings Variable DefinitionWeighting Factor X 1 Working Capital1.2 Total Assets X 2 Retained Earnings1.4 Total Assets X 3 EBIT3.3 Total Assets X 4 Market Value of Equity0.6 Book Value of Total Liabilities X 5 Sales1.0 Total Assets

13. 13 Z” Score Model for Manufacturers, Non-Manufacturer Industrials; Developed and Emerging Market Credits Z” = 6.56X 1 + 3.26X 2 + 6.72X 3 + 1.05X 4 +3.25 X 1 = Current Assets - Current Liabilities Total Assets X 2 = Retained Earnings Total Assets X 3 = Earnings Before Interest and Taxes Total Assets X 4 = Book Value of Equity Total Liabilities

14. 14 Median Z-Score by S&P Bond Rating for U.S. Manufacturing Firms: 1992 - 2013 Sources: Compustat Database, mainly S&P 500 firms, compilation by NYU Salomon Center, Stern School of Business. Rating2013 (No.) 2004-20101996-20011992-1995 AAA/AA4.13 (15) 4.186.20*4.80* A4.00 (64) 3.714.223.87 BBB3.01 (131) 3.263.742.75 BB2.69 (119) 2.482.812.25 B1.66 (80) 1.741.801.87 CCC/CC0.23 (3) 0.460.330.40 D0.01 (33) -0.04-0.200.05 *AAA Only.

15. Comparing Financial Strength of High-Yield Bond Issuers in 2007& 2012/2014 15 Year Average Z-Score/ (BRE)* Median Z-Score/ (BRE)* Average Z”-Score/ (BRE)* Median Z”-Score/ (BRE)* 20071.89 (B+)1.81 (B)4.58 (B+)4.61 (B+) 20121.66 (B)1.59 (B)4.60 (B+) 20142.03 (B+)1.80 (B)4.67 (B+)4.56 (B+) Difference in Means Test (2007 vs. 2012/2014) Model Average Difference (2012/2014) Standard Deviation (2007/2012/2014) t-test (2012/2014) Significance Level (2012/2014) Significant at.05? (2012/2014) Z-Score-0.23/+0.141.29 / 1.15/1.78-2.38/+1.300.88%/9.70%Yes /No Z”-Score+0.02/+0.092.50 / 2.07/2.65+0.13/+0.5644.68%/28.78%No/No *Bond Rating Equivalent Source: Authors’ calculations, data from Altman and Hotchkiss (2006) and S&P Capital IQ. Number of Firms Z-ScoreZ”-Score 2007277383 2012404488 2014558760

16. Debt/EBITDA & Net Debt/EBITDA: U.S. High-Yield (HY) and Investment Grade (IG), (Median Levels, 2004-2014*) 16 Sources: S&P Capital IQ and Ratings Direct and NYU Salomon Center calculations. *Bond Rating Equivalents (BRE) based on Aggregate S&P Statistics

17. Debt/Debt + Equity & Debt/MV Equity : U.S. High-Yield (HY) and Investment Grade (IG), (Median Levels, 2004-2014) 17 Sources: S&P Capital IQ and Ratings Direct and NYU Salomon Center calculations.

18. EBITDA/Interest Expense : U.S. High-Yield (HY) and Investment Grade (IG), (Median Levels, 2004-2014) 18 Sources: S&P Capital IQ and Ratings Direct and NYU Salomon Center calculations.

19. Distribution of Credit Ratios for U.S. High-Yield Bonds, (2007 vs. 2014) 19 Sources: S&P Capital IQ and Ratings Direct and NYU Salomon Center calculations. Debt/EBITDAEBITDA/Interest Expense 2014BRE2007BRE2014BRE2007BRE Decile 10%1.36xA+0.87xAA+1.03xCCC0.91xCCC 20%2.23xBBB1.75xA-1.93xB-1.59xCCC+ 30%2.90xBB+2.40xBBB2.55xB2.05xB- 40%3.56xBB3.07xBB3.36xB+2.57xB 50%4.43xB+3.84xBB-4.14xBB-3.24xB+ 60%5.05xB+4.70xB+5.23xBB4.21xBB- 70%5.94xB5.70xB6.64xBBB-6.06xBB+ 80%7.08xCCC+7.01xB-9.84xBBB+9.07xBBB 90%10.16xCCC-9.38xCCC-17.86xAA-19.35xAA

20. Source: Bank of America Merrill Lynch 2005 – 2015 (3Q) New Issuance: U.S. High-Yield Bond Market ($ millions) Ratings AnnualTotalBBBCCC(CCC % H.Y.)NR 200581,541.818,615.045,941.215,750.9(19.3%)1,234.7 2006131,915.937,761.267,377.325,319.2(19.2%)1,458.2 2007132,689.123,713.255,830.849,627.6(37.4%)3,517.5 200850,747.212,165.025,093.111,034.4(21.7%)2,454.6 2009127,419.354,273.562,277.410,248.4(8.0%)620.0 2010229,307.474,189.9116,854.735,046.8(15.3%)3,216.1 2011184,571.054,533.8105,640.421,375.0(11.6%)3,021.8 2012280,450.371,852.1153,611.148,690.2(17.4%)6,297.0 2013 (1Q)73,492.331,953.129,534.211,480.0(15.6%)525.0 (2Q)62,135.024,380.023,665.013,790.0(22.2%)300.0 (3Q)73,770.822,964.232,610.018,196.6(24.7%)0.0 (4Q)60,936.824,050.022,686.814,175.0(23.3%)25.0 2013 Totals270,334.8103,347.3108,495.957,641.6(21.3%)850.0 2014 (1Q)51,634.717,585.025,792.27,842.5(15.2%)415.0 (2Q)74,629.623,893.730,852.319,363.6(25.9%)520.0 (3Q)59,777.325,537.322,550.010,875.0(18.2%)815.0 (4Q)52,721.121,975.028,906.11,840.0(3.5%)0.0 2014 Totals238,762.788,991.0108,100.639,921.1(16.7%)1,750.0 2015 (1Q)76,059.523,184.244,785.38,090.0(10.6%)0.0 (2Q)74,048.021,219.040,656.812,052.1(16.3%)120.0 (3Q)31,740.014,770.012,675.04,295.0(13.5%)0.0 ytd Totals181,847.559,173.398,117.124,437.1(13.4%)120.0 20

21. New Issuance: European High-Yield Bond Market Face Values (US$) 21 RatingsCurrency AnnualTotalBBBCCC(CCC % HY)NRUSDEURGBP 200519,935.61,563.311,901.05,936.6(29.8%)534.82,861.015,080.31,668.3 200627,714.65,696.216,292.15,020.5(18.1%)705.97,657.819,935.7121.1 200718,796.75,935.311,378.5562.0(3.0%)920.94,785.512,120.91,890.3 20081,250.0 25,093.11,250.0 200941,510.318,489.416,697.44,771.3(11.5%)1,552.212,315.028,696.9498.3 201057,636.522,751.329,050.52,170.7(3.8%)3,663.912,775.043,147.71,403.3 201160,435.824,728.929,919.74,108.7(6.8%)1,678.616,720.033,758.08,842.4 201265,516.127,001.729,013.07,186.7(11.0%)2,314.628,198.032,270.42,929.3 2013 (1Q)27,954.56,783.815,008.45,160.61,001.710,050.012,380.74,837.4 (2Q)30,335.36,860.219,295.13,724.1455.99,913.014,149.96,074.0 (3Q)16,558.43,375.39,609.62,721.8851.75,310.08,644.02,604.4 (4Q)16,655.92,588.010,657.62,366.41,043.95,210.09,086.52,359.4 2013 Totals91,504.119,607.354,435.213,972.9(15.3%)3,353.230,483.044,125.615,875.3 2014 (1Q)27,169.212,565.711,685.21,230.0(4.5%)1,688.37,315.016,352.83,501.4 (2Q)65,671.413,730.145,808.34,111.1(6.2%)2,021.923,150.036,009.06,096.7 (3Q)15,980.53,586.310,593.21,241.3(7.8%)559.72,750.08,216.24,744.6 (4Q)10,646.93,893.74,288.8654.5(6.1%)1,810.06,305.04,341.9 2014 Totals119,468.033,775.872,375.47,236.9(5.1%)6,080.039,520.064,919.914,342.7 2015 (1Q)30,535.515,387.810,054.6938.7(3.1%)4,154.310,225.017,149.02,622.0 (2Q)25,838.711,282.611,633.72,334.6(9.0%)587.812,465.011,124.81,782.2 (3Q)12,605.52,068.110,125.9411.5(3.2%)5,850.05,170.11,585.4 ytd Totals68,979.828,738.631,814.23,684.8(5.3%)4,742.128,540.033,443.95,989.6 Source: BoAML 2005 – 2015 (3Q)

22. Sources: S&P Capital IQ LCD and NYU Salomon Center calculations. 1998 – 2014 High-Yield Bond Market Proportional Outstandings by Seniority 22

23. *Weighted by par value amount outstanding in each seniority category, for each year. Sources: S&P Capital IQ LCD and NYU Salomon Center calculations. Default Rates by Seniority: 1998-2014 23 Default Rate (%) YearAll Seniorities (%)Senior Secured (%)Senior Unsecured (%)Subordinated (%) 19981.603.151.671.02 19994.1515.602.615.62 20005.0718.822.477.41 20019.8043.439.295.77 200212.7950.6812.741.87 20034.6614.304.132.20 20041.254.440.780.16 20053.3713.462.200.49 20060.761.350.690.55 20070.512.100.270.63 20084.6512.143.874.61 200910.7412.1010.748.77 20101.132.290.791.48 20111.333.220.830.53 20121.623.111.171.51 20131.042.640.630.60 20142.115.511.370.74 Arithmetic Average Annual Default Rate (%)3.9212.263.312.59 Standard Deviation (%)3.6613.883.732.66 Weighted Average Annual Default Rate *(%)3.526.702.972.56 Median Annual Default Rate (%)2.115.511.671.48 Excluding Outlier Years of 2001 and 2002 Arithmetic Average Annual Default Rate (%)2.937.622.282.42 Standard Deviation (%)2.585.812.532.70 Weighted Average Annual Default Rate *(%)2.805.442.262.40 Median Annual Default Rate (%)1.624.441.371.02

24. Source: Bank of America Merrill Lynch 2005 – 2015 (3Q) U.S. & European High-Yield Bond Market: New Issuance ($ millions) 24

25. Source: Bank of America Merrill Lynch 2005 – 2015 (3Q) U.S. & European High-Yield Bond Market: CCC Rated New Issuance (%) 25 n/a

26. New Issues Rated B- or Below, Based on the Dollar Amount of Issuance (1993 – 2015 (3Q)) Source: S&P Capital IQ LCD 26

27. 27 All Rated Corporate Bonds* 1971-2014 Mortality Rates by Original Rating *Rated by S&P at Issuance Based on 2,847 issues Source: Standard & Poor's (New York) and Author's Compilation Years After Issuance

28. 28 *All High-yield Source: Standard & Poor’s LCD & Credit Suisse CCC New Bond Issuance by Purpose 2015 (3Q) U.S.Europe (2Q)* Refinancing40.62%51% M&A29.65% 37% LBO26.51% Recap/Dividends3.23% 12% Corporate Purpose0.00% Project Financing0.00% Total100%

29. 29 Maturity Profile of Leveraged Debt – As of 12/31/14 Source: S&P Capital IQ LCD

30. Distribution of Years to Default from Original Issuance Date: 1991 – 3Q 15 30 Source: NYU Salomon Center

31. 31 Source: S&P Capital IQ LCD Purchase Price Multiple excluding Fees for LBO Transactions Purchase Price Multiples N/A (# obs.) N/A

32. 32 Average Total Debt Leverage Ratio for LBO’s: Europe and US with EBITDA of €/$50M or More Source: S&P Capital IQ LCD

33. LBO Statistics & Ratios: 2007 vs. 2014 (update 3Q 15) 200720141Q-3Q15 M&A/LBO as a % of Total Issuance 62%47%56% Purchase Multiple 9.1-9.9x9.7-9.8x9.7-11.6x Debt to EBITDA @ Inception 6.2x5.8x5.7x EBITDA to Cash Interest 2.1x3.4x3.0x Equity Contribution 31%37%41% Source: Guggenheim Investments and S&P Capital IQ 33

34. Share of Large LBOs with Leverage More than 7x* 2004 – 3Q 2015 34 * Issuers with EBITDA >$50mm. Source: S&P Capital I.Q. N/A

35. Lenders Leave the Lite On 2003 – 2Q 2014 35