Check out SPP online: http://sppcapital.com/

Market Update February 2016

SPP’s Middle Market Leverage Cash Flow Market At A Glance

Deal Component February ‘16 January ‘16 February ‘15

Cash Flow Senior Debt

(x EBITDA)

<$7.5MM EBITDA 1.50x-2.50x >$10.0MM EBITDA 2.50x-3.50x >$20.0MM EBITDA 3.00x-4.00x

<$7.5MM EBITDA 1.50x-2.50x >$10.0MM EBITDA 2.50x-3.50x >$20.0MM EBITDA 3.00x-4.00x

<$7.5MM EBITDA 1.50x-2.00x >$10.0MM EBITDA 2.00x-3.50x >$25.0MM EBITDA 3.00-4.25x

Total Debt Limit (x EBITDA)

<$7.5MM EBITDA 3.00x-4.00x >$10.0MM EBITDA 3.75x-4.50x >$20.0MM EBITDA 4.00x-5.50x

<$7.5MM EBITDA 3.00x-4.00x >$10.0MM EBITDA 3.75x-4.50x >$20.0MM EBITDA 4.00x-5.50x

<$7.5MM EBITDA 3.00x-4.00x >$10.0MM EBITDA 3.75x-4.50x >$25.0MM EBITDA 4.00x-5.00x

Senior Cash Flow Pricing

Bank: L+3.00%-4.00% Non-Bank: <$10.0MM EBITDA L+7.00%-8.00% Non-Bank: >$15.0MM EBITDA L+4.50%-6.50% (potential for a 1.00% floor)

Bank: L+3.00%-4.00% Non-Bank: L+4.50%-6.50% (potential for a 1.00% floor)

Bank: L+3.00%-4.00% Non-Bank: L+4.50%-6.00%

Second Lien Pricing (Avg)

<$7.5MM EBITDA L+9.00%-11.00% floating (1.00% floor) >$10.0MM EBITDA L+7.00%-9.00% floating (1.00% floor) >$20.0MM EBITDA L+5.50%-7.50% floating (1.00% floor)

<$7.5MM EBITDA L+9.00%-11.00% floating (1.00% floor) >$10.0MM EBITDA L+7.00%-9.00% floating (1.00% floor) >$20.0MM EBITDA L+5.50%-7.50% floating (1.00% floor)

<$7.5MM EBITDA L+8.00%-11.00% floating (1.00% floor) >$10.0MM EBITDA L+6.50%-8.50% floating (1.00% floor) >$25.0 MM EBITDA L+6.00%-7.50% floating (1.00% floor)

Subordinated Debt Pricing

<$7.5MM EBITDA 12.0%-14.0% >$10.0MM EBITDA 11.0%-13.0% >$20.0MM EBITDA 10.0%-12.0% Warrants limited to special situations; Second lien may buy down rate to ~9.0%. Equity co-invest readily available.

<$7.5MM EBITDA 12.0%-14.0% >$10.0MM EBITDA 11.0%-13.0% >$20.0MM EBITDA 10.0%-12.0% Warrants limited to special situations; Second lien may buy down rate to ~9.0%. Equity co-invest readily available.

<$7.5MM EBITDA 12.0%-14.0% >$10.0MM EBITDA 11.0%-13.0% >$25.0MM EBITDA 11.0%-12.0% Warrants limited to special situations; Second lien may buy down rate to ~9.0%.

Unitranche Pricing <$7.5MM EBITDA L+8.50%-11.00% (1.00% floor) >$10.0MM EBITDA L+7.00%-8.50% (1.00% floor) >$20.0MM EBITDA L+6.00%-7.50% (1.00%-1.50% floor) Potential for fixed rate with BDC or mezz lender. Most unitranche lenders allow a small ABL facility outside of the unitranche facility; larger ABL facilities are provided directly by unitranche lenders (internally arranged with ABL bank lender). Capex, acquisition lines, and equity co-investments readily available.

<$7.5MM EBITDA L+9.50%-11.00% (1.00% floor) >$10.0MM EBITDA L+7.00%-8.50% (1.00% floor) >$20.0MM EBITDA L+6.00%-7.50% (1.00% floor) Potential for fixed rate with BDC or mezz lender. Most unitranche lenders allow a small ABL facility outside of the unitranche facility; larger ABL facilities are provided directly by unitranche lenders (internally arranged with ABL bank lender). Capex, acquisition lines, and equity co-investments readily available.

<$7.5MM EBITDA L+8.00%-11.00% (1.00% floor) >$10.0MM EBITDA L+6.00%-8.00% (1.00% floor) >$25.0 MM EBITDA L+5.50%-7.50% (1.00% floor) Potential for fixed rate with BDC or mezz lender. Most Unitranche lenders allow a small ABL facility outside of the loan.

Libor Floors No Libor floor for club bank deals. Generally 1.00% floor for large, syndicated bank facilities, and non-bank senior deals. Recently seeing pressure by unitranche lenders to increase Libor floors to 1.50%.

No Libor floor for club bank deals. Generally 1.00% floor for large, syndicated bank facilities, non-bank senior deals, second lien, and floating-rate unitranche facilities.

No Libor floor for most bank deals; 1.00% for non-bank deals, second lien, and floating-rate unitranche.

Minimum Equity Contribution

Acquisitions need 25.0%-40.0% total equity (inclusive of rollover); minimum 10.0% new cash combined with rollover or seller notes. The market continues to be increasingly sensitive to “thin capitalization” and will seek greater equity cushion in cyclical sectors and challenged credit stories. Fortunately, there is significant (and growing) interest in structured equity products to supplement equity contributions from independent sponsors, management teams, etc.

Acquisitions need 25.0%-40.0% total equity (inclusive of rollover); minimum 10.0% new cash combined with rollover or seller notes. The market continues to be increasingly sensitive to “thin capitalization” and will seek greater equity cushion in cyclical sectors and challenged credit stories. Fortunately, there is significant (and growing) interest in structured equity products to supplement equity contributions from independent sponsors, management teams, etc.

25.0%-35.0% total equity (including rollover); minimum 10.0% new cash combined with rollover or seller notes. Focus continues to be more on aggregate credit metrics (Total Debt/EBITDA, etc.) than on the level of equity contribution. “Promote to Independent Sponsors” will differ but fall in the 5.0%-15.0% range with or without a minimum return to common.

Equity Co-Investment

Equity co-investment is actively sought for traditionally sponsored, independently sponsored, and unsponsored deals. Investors include BDCs, insurance companies, credit opportunity funds, SBICs, traditional mezz funds, and family offices. Variety of structures available from “debt-like” redeemable preferred to heads up common. Promotes of ~15.0% after return of 8.0% are becoming a baseline.

Equity co-investment is readily available for traditionally sponsored, independently sponsored, and unsponsored deals. Options include structured “debt-like” preferred as an adjunct to a sub or unitranche facility and heads-up equity (with or without a promote) from equity-only investors. Investors include BDCs, insurance companies, credit opportunity funds, SBICs, and traditional mezz funds

N/A

Recap Liquidity Recaps are under pressure in the current environment, especially where leverage exceeds 3.00x SD/4.00x TD (non-starter for most banks), or where the sponsor retains little or no “skin in the game.” Low leverage recaps or recaps with an acquisition or other accretive use of capital are still viable, but are subject to heightened scrutiny. Refinancing of sponsor-provided junior debt is readily available.

Recaps are becoming less palatable to lenders with Q4 recap activity among the lowest in years. High leverage recaps (above 3.00x/4.00x) are a non-starter for most banks and BDCs. Low leverage recaps with an acquisition or accretive use of capital are still viable, but are subject to heightened scrutiny. Refinancing of sponsor-provided junior debt are still getting done.

While recap liquidity remains quite robust, the cast of characters providing recap capital is becoming increasingly divided. Many commercial banks are beginning to back off recaps that: (i) are unsponsored; (ii) exceed the 3.0x SD/4.0x TD-to-EBITDA metric; or (iii) are with issuers less than $10.0 million EBITDA.

Story Receptivity Contrary to conventional wisdom, there appears to be an abundance of capital for storied credits in this tightening market. While some attribute the liquidity to investors’ hunger for yield or a general slowdown, the reality is that there are a number of new credit funds in the market with an eye toward storied or challenged credits. Rates tend to be in the ~10.0%-14.0% range.

January is traditionally a ripe market for storied paper, distressed assets, and cyclical issuers. Non-bank lenders and credit opportunity funds are among the most aggressive lenders while unitranche loans are the most common form of financing. Expect a higher cost of capital as the markets account for higher risk.

Market conditions remain on the quiet side, and accordingly, favorable conditions are still in place for refinancing challenged, storied issuers. New High Risk Borrower (“HRB”) guidance from Fed, OCC, and FDIC pushing banks into a less forgiving lending constituency. Luckily, unitranche and non-bank commercial lenders are picking up the slack.

Tone of the Market Credit conditions have tightened into 2016. Banks continue to adhere to tighter leverage in what many believe to be the start of a “down cycle,” and many BDCs are affected by diminished liquidity. Offsetting tighter leverage conditions is a dearth of new deal activity combined with an increase of some new highly liquid market entrants, primarily freshly minted credit op funds and insurance companies.

We kick off 2016 in a very different place than where we were a year ago. Base rates are higher, credit standards are stricter, and pricing for high-risk or leveraged profiles is at a premium. Yields for 144A and public high-risk bonds are approaching the 12.0% range. The potential for contagion (tighter leverage and higher pricing metrics) in the middle market is high.

The tone of the leveraged lending market is markedly different than Q4 of 2014. Internal credit compliance concerns over HRB exposure have commercial banks decidedly pulling back from the more aggressive lending opportunities Bank ambivalence is providing cover for non-bank and unitranche lenders to exact slightly higher rates (see Unitranche pricing above).

*Changes from last month are in red

“My mother told me 'Fore she passed away Said son when I'm gone Don't forget to pray 'Cause there'll be hard times Lord those hard times Who knows better than I? Well I soon found out Just what she meant When I had to pawn my clothes Just to pay the rent Talkin' 'bout hard times Lord those hard times Who knows better than I?” “Hard Times,” Eric Clapton Hard Times?

The Federal Reserve’s January 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices confirmed what most of us who toil in the middle market financing markets already know too well: (i) excess liquidity conditions that have defined the private capital markets for the last three years have deteriorated, and (ii) current macroeconomic conditions present headwinds that will likely have a chilling effect on leverage capacity in coming months. The Fed report noted,

“A majority of the domestic respondents that tightened either standards or terms on commercial and industrial (‘C&I’) loans over the past three months cited a less favorable or more uncertain economic outlook as well as a worsening of industry-specific problems affecting borrowers as important reasons, with some banks noting in their optional comments that energy-related industries, including oil and gas, were the concern. Significant net fractions of banks also attributed the tightening of loan terms to reduced tolerance for risk; decreased liquidity in the secondary market for these loans; and increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards.”

The findings of the Survey seem consistent with the “dovish” tone of the most recent Federal Open Market Committee’s (“FOMC”) statement after its January meeting. The January statement represented a pronounced retreat from the December statement, when the Fed increased the fed funds target range to between 0.25% and 0.50% (its first increase in nine years) and signaled a plan to raise rates by 1.0% in 2016. Among the highlights of the FOMC statement are:

o The removal of the phrase "the risks to the outlook for both economic activity and the labor market as balanced” and the addition that the Fed "is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook" suggest that the Chinese meltdown and other global economic events will likely influence Fed policy;

o That inflation is expected to remain “low in the near term” and the economy has “slowed”;

o That growth “slowed late last year” and downgraded its view on household spending and business investment growth to “moderate” from “strong” in December; and

o In what is likely the most significant modification, the January FOMC Statement omitted language that the Fed “expects rates to increase at a gradual pace.”

The statement, taken in its entirety, suggests that absent some dramatic changes in current economic conditions, the Fed has revised the expectation of four 0.25% rate increases in 2016. According to the CME Group’s most recent private economist data sets, the implied probability of no rate hikes in 2016 (71.4%) is now greater than the probability of the Fed increasing rates even once in 2016

Implied Probability of Rate Hikes in 2016

Source: CME, reprinted in Daily Shot

10 Year Treasury Minus 2 Year Constant Maturity Rate

Source: Daily Shot

Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans

Source: FRED

Quarterly Change in GDP

Source: FRED

71.4%

24.9%

3.5%0.2% 0.0%

0 1 2 3 4

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

1.2%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

8.2%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

0.9%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

(24.9%). The implied probability of four or more rate increases in 2016 (as enunciated by the Fed in December) is now 0.0%.

Below is a quick recap of the month’s headline economic reports:

Consumer Confidence/Retail Sales: With all the recent turbulence in the equity markets, consumer confidence appears to finally have been shaken. In mid-January, the University of Michigan’s report on consumer sentiment hit a high of 92.6 (attributed to the combination of low energy costs and improving labor markets); by the end of the month, however, the same report dropped to 92.0 (that’s also a drop of 6.2% from a year ago).The current conditions component dropped to 106.4 from 108.1. Adding some confusion to the mix, the Conference Board’s measure on Consumer Confidence demonstrated a contrary trend, registering a 98.1 for January, up from 96.5 a month earlier. Given the continued declines in manufacturing, and a slowdown in growth in the services sector, the potential for GDP growth is clearly focused on consumer and retail spending trends, and, as of late, the trends have not been particularly noteworthy. Retail sales for December fell by 0.1% M/M, and retail sales less auto and gas registered a 0.0% M/M in December (after a 0.4% gain in November 2015).

Inflation: The Fed’s preferred measure of inflation, the PCE deflator (aka. the “PCE Price Index”), dropped 0.1% in December after a flat reading in November. The PCE Core Price Index (excluding the more volatile food and energy components), rose 0.1% for the month. The year-on-year gains in the Core PCE Index is a little more encouraging, rising to 1.4% from 1.3% in the previous month, a far cry from the Fed’s stated goal of 2.0%. Inflation, though muted, is still moving in the right direction, the year-on-year PCE Price Index is up 0.6% (up from 0.4% a month earlier, and three times the reading for September, which was only 0.2% year-on-year). Inflation is likely not robust enough to justify continued rate increases in 2016.

GDP: The first estimate of Q4 2015 GDP came in at an anemic 0.7%, suggesting the economy lost some momentum by year-end. The comparatively weak quarter (Q3 GDP was 3.9% and Q2 GDP was 2.0%) was attributed to softer consumer spending, falling exports, and a smaller buildup in business inventories. All totaled, this results in an annual rate of GDP growth of 2.4% for 2015. To put this in perspective, since the end of WWII to 2005, annual GDP growth averaged 3.5%; since 2005, GDP growth has yet to hit 3.0%. 2015 GDP growth of 2.4% was identical to 2014, and may represent “the new normal” for post recession growth. It should be noted that this was only the first estimate of Q4 GDP, it will be revised twice more as new data comes in. Initial indications for GDP growth in 2016 are skewing in a decidedly more positive direction; the Atlanta Fed’s GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter is currently at 2.5% (up from 1.2% earlier in the month). The forecast for the real consumer spending growth subcomponent increased from 2.5% to 3.0% and the forecast for real gross private domestic investment growth increased from -0.4% to 2.1%.

Manufacturing and Services: The manufacturing data remains among the most disappointing of recent macroeconomic reports. The January ISM Manufacturing Index came in at 48.2 for January (unchanged from December’s initial reading, though it was revised downward to 48.0), representing the fourth consecutive “sub-50” (i.e. - contraction) reading in a row. According to Econoday, this represents “by far the worst run for this closely watched indicator since the Great Recession days of 2009.” Digging deeper, the employment subcomponent fell a steep 2.1 points to 45.9 (the third sub-50 reading) and the “backlog” subcomponent was 43.0. There is one bright spot in the report: the new orders subcomponent registered a 51.5, constituting the second “plus 50” reading in the last five months. While manufacturing is a closely watched indicator of economic strength, it is not the determinative gauge of prosperity that it used to be. In 1955, manufacturing constituted more that 30% of the economy; today, it is less than 16%. The ISM Non-Manufacturing Index also caused some alarm in January, dropping to 53.5 from a revised 55.8 in December. Though still in

University of Michigan Consumer Sentiment

Source: FRED

PCE and Core CPI

Source: FRED

CPI and Core CPI

Source: BLS

GDPNow Data Real GDP Forecast for Q4 2015

Source: Federal Reserve Bank of Atlanta

92.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

12

-Mo

nth

Pe

rce

nt

Ch

an

ge

PCE

Core PCE

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%1

2-M

on

th P

erce

nt

Ch

ange CPI

Core CPI

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Atlanta Fed GDPNow Forecast Blue Chip Consensus (Average)

expansion mode (i.e.-above 50), there was as a widespread slowing of activity. The employment subcomponent dropped 4.2 points to 52.1, and new orders dropped to 56.5 from December’s solid 58.9.

Employment: January non-farm payrolls recorded a gain of 151,000 for January, well below the consensus estimate of 200,000 and a stark reduction from the 292,000 initially reported in December (it was subsequently revised downward to 262,000). Though the headline number was weaker than anticipated, the January report did contain some positive trends as well. Specifically, the unemployment rate (the U3 Rate) dropped to 4.9% and average hourly wages were up 2.5% over the last year (which constituted the second best monthly gain since 2010). Additionally, the Civilian Participation Rate ticked up to 62.7% (from 62.6%). On the negative side, however, the broader U6 Unemployment Rate (which includes a larger group of jobless workers plus those part-time workers seeking full-time employment: the “Underemployment Rate”) remained unchanged at 9.9%. Taken in its entirety, the payroll report left as many questions unanswered as it answered and provides little insight concerning its impact on Fed monetary policy with respect to future rate hikes.

Housing: Consistent with consensus expectations, existing home sales bounced back sharply in December, jumping 14.7% to a 5.46 million annual rate and more than reversing the 10.5% dip in November, which was slowed due to a change in closing document regulations (dubbed “Know Before You Owe”) that pushed many closings into December. Lack of supply remains a major concern across the housing market, creating higher prices as the number of homes for sale fell to 1.79 million units from 2.04 million the previous month. Housing starts and new construction permits still managed to slip 2.5% and 3.9% respectively, but this is after 10.1% and 10.4% gains the previous month. Total sales for 2015 were 5.26 million, well up from 4.94 million on 2014. Overall, housing is showing signs of life but despite price appreciation, gains are being limited by lack of supply.

Market Update

Most middle market capital participants are bracing for what is anticipated to be a tightening of credit metrics later in the year. The January 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices asked participants two sets of questions: the first set asked banks about their outlook for lending practices and conditions over 2016, and the second set asked banks about their outlook for credit quality in 2016. The report summarized the responses from 73 domestic banks and 24 U.S. branches and agencies of foreign banks. Highlights from the survey included:

o “On balance, banks tightened their standards on commercial and industrial (“C&I”) loans.

o Demand for C&I loans had weakened somewhat. o Banks expected standards on C&I to continue to tighten over 2016. o A majority of the domestic respondents that tightened either standards or

terms on C&I loans over the past three months cited a less favorable or more uncertain economic outlook as well as a worsening of industry-specific problems affecting borrowers as important reasons, with some banks noting in their optional comments that energy-related industries, including oil and gas, were the concern.

o Significant net fractions of banks also attributed the tightening of loan terms to reduced tolerance for risk, decreased liquidity in the secondary market for these loans, and increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards.

o On balance, a significant fraction of domestic banks reported that they expect an increase in delinquency and charge-off rates for all categories of C&I loans included in the survey over this year.

o A majority of foreign respondents expect an increase in delinquency and charge-off rates for syndicated leveraged C&I loans to large and middle-market firms this year, and a significant net fraction expects such an increase for C&I loans to small firms.”

Business development companies (“BDCs”), the second major lender constituency to the middle market, are also experiencing something of a major

ISM Manufacturing and Non-Manufacturing Indices

Source: FRED

Unemployment Rate

Source: BLS

Labor Force Participation Rate

Source: BLS

Existing Home Sales

Source: FRED

0

10

20

30

40

50

60

70

Manufacturing

Non-Manufacturing

4.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

62.7%

61.0%

61.5%

62.0%

62.5%

63.0%

63.5%

64.0%

64.5%

65.0%

65.5%

5,460

0

1,000

2,000

3,000

4,000

5,000

6,000

Th

ou

san

ds

of U

nit

s

retrenchment from the middle markets but for an entirely different set of reasons. On average, public BDCs today are trading at about 78.0% of their net asset value. Since BDCs have to pay ~90.0% of their earnings out in dividends to their shareholders—absent access to the public equity markets for additional capital—many are effectively on the sidelines for new investment opportunities. It would be misleading to suggest that all BDCs are “out of the market;” to the contrary, at least six publicly traded BDCs are trading at a par or at a premium to their NAV and have continued access to capital. As a general proposition, however, there are less BDCs capable of bidding for new transactions and those that are still active in the market are aware their portfolios are subject to greater scrutiny and are accordingly taking a less aggressive stance respecting leveraged lending.

With commercial banks and BDCs taking a more restrained role in providing liquidity, conventional wisdom would suggest that pricing and terms overall will be adversely impacted, but, surprisingly, SPP has yet to expressly increase pricing or tighten leverage metrics in this month’s “Market-At -A- Glance.” In fact, we have even lowered our pricing indications on unitranche financing (<$7.5MM EBITDA: 8.50%-11.00%). The truth of the matter is that while most market participants expect liquidity conditions to tighten, the current lack of deal flow and abundance of capital providers has offset any short term liquidity concerns. Over the course of the last year, we have witnessed greater participation in the middle market by insurance companies, credit opportunity funds, and commercial finance companies, which has more than compensated for the pullback by commercial banks and BDCs. For those issuers ready and able to issue in the near future, market conditions remain exceedingly liquid.

SPP has decided to tighten pricing for senior cash flow deals for non-bank lenders in February:

o Bank: L+3.00%-4.00% o Non Bank: <$10MM, L+7.00%-8.00% o Non Bank: >$15MM, L+4.50%-6.50%

If an issuer qualifies for bank financing, lenders are relatively agnostic to the size of the borrower; whether its EBITDA is $6MM or $36MM, bank pricing will still average between L+3.00%-4.00%; but when you leave the commercial banking market, the level of EBITDA is a primary source of pricing discrimination—there are just not lenders willing to provide typical non-bank pricing to smaller (<$10MM EBITDA) issuers, and accordingly, pricing falls off a cliff, averaging rates, at best, around L+7.00% (and in most cases, L+8.00%).

SPP-Tracked Market Activity

January LTM 2016 deal count is down approximately 22.0% from January LTM 2015 and January 2016 deals and exits were the lowest they have been since June 2015. Still, total deal volume in the middle market has remained relatively stable over the past year, especially in the lower middle market, as deal flow remains robust, but the decline in capital invested over 2015 will likely continue in 2016. Multiples are accordingly normalizing.

Please feel free to call any of the professionals at SPP Capital to discuss a particular financing need, amendment, or restructuring situation, or just to get a little more color on the market. You don’t need an imminent or market-ready deal to call us. Our hope is that you use SPP as your go-to resource for any information, analysis, and review of potential transactions. Stefan Shaffer Managing Partner 212.455.4502 DISCLAIMER: The "SPP Leveraged Cash Flow Market At-A-Glance" and supporting commentary is derived by the anecdotal experience of SPP Capital Partners, LLC, its specific transactions, discussion with issuers, lenders and investors consistent with its standard operating practices. Any empirical data specifically derived by third parties, or intellectual property or opinions of third parties are expressly attributed when utilized. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. All data, facts, tables or analyses provided by Governmental or other regulatory bodies are deemed to be in the public domain and not otherwise expressly attributed herein. SPP Capital Partners, LLC is a member of FINRA and SIPC. This information represents the opinion of SPP Capital and is not intended to be a forecast of future events, a guarantee of future results or investment advice. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest.

To unsubscribe to this email, please click here. To request to be added to our distribution list, please click here

January Deal Count

Source: Pitchbook

January Exit Activity

Source: Pitchbook

January LTM Deal Count

Source: Pitchbook

January LTM Exit Activity

Source: Pitchbook

-

50

100

150

200

250

300

January 2014 January 2015 January 2016

Total Deals

<500M

<250M

-

20

40

60

80

100

120

January 2014 January 2015 January 2016

Total Exits

<500M

<250M

-

500

1,000

1,500

2,000

2,500

3,000

January LTM 2014

January LTM 2015

January LTM 2016

Total Deals

<500M

<250M

-

200

400

600

800

1,000

1,200

1,400

January LTM 2014

January LTM 2015

January LTM 2016

Total Exits

<500M

<250M

SUPPORTING DATA Historical Senior Debt Cash Flow (x EBITDA) Historical Total Debt Limit (x EBITDA)

Source: SPP’s “MIDDLE MARKET LEVERAGE CASH FLOW MARKET AT A GLANCE” Source: SPP’s “MIDDLE MARKET LEVERAGE CASH FLOW MARKET AT A GLANCE”

Historical Senior Cash Flow Pricing (Bank) Historical Senior Cash Flow Pricing (Non-Bank)

Source: SPP’s “MIDDLE MARKET LEVERAGE CASH FLOW MARKET AT A GLANCE” Source: SPP’s “MIDDLE MARKET LEVERAGE CASH FLOW MARKET AT A GLANCE”

Historical Second Lien Pricing Historical Subordinated Debt Pricing

Source: SPP’s “MIDDLE MARKET LEVERAGE CASH FLOW MARKET AT A GLANCE” Source: SPP’s “MIDDLE MARKET LEVERAGE CASH FLOW MARKET AT A GLANCE”

Historical Minimum Equity Contribution U.S. PE LMM Deal Flow by Quarter

Source: SPP’s “MIDDLE MARKET LEVERAGE CASH FLOW MARKET AT A GLANCE” Source: Pitchbook

0.00x

1.00x

2.00x

3.00x

4.00x

5.00x

6.00x

7.00x

< $7.5MM EBITDA > $10MM EBITDA > $20MM EBITDA

0.00x

1.00x

2.00x

3.00x

4.00x

5.00x

6.00x

7.00x

< $7.5MM EBITDA > $10MM EBITDA > $20MM EBITDA

0 bps

100 bps

200 bps

300 bps

400 bps

500 bps

600 bps

700 bps

Bank Lower Bound Bank Upper Bound

0 bps

100 bps

200 bps

300 bps

400 bps

500 bps

600 bps

700 bps

800 bps

900 bps

NB Lower Bound (<$10) NB Upper Bound (<$10)

NB Lower Bound (>$15) NB Upper Bound (>$15)

0%

3%

6%

9%

12%

15%

Lower Bound Upper Bound

LIBOR Floor Lower Bound LIBOR Floor Upper Bound

0%

3%

6%

9%

12%

15%

<$7.5MM EBITDA >$10MM EBITDA > $20MM EBITDA

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Lower Bound Upper Bound

$6.89

170

0

50

100

150

200

250

$-

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

Nu

mb

er

of

De

als

Clo

sed

Dea

l Val

ues

($

Bil

lio

ns)

Deal Value ($Billions) Number of Deals Closed