Pegasus FINAL

PEGASUS Capital IncPegasus Distressed Debt Fund

April 2015

Nancy DesrosiersAzmat FarooqKevin LiMark MoskvitineClaire MuDennis Solomon

- 10165138- 10164219- 10141380- 10164722- 10162087- 10164696

Disclaimer

This presentation is neither an offer to sell nor a solicitation of an offer to purchase any security and may not be relied upon for investment purposes. The summary description and information included herein and any other related materials provided to you are intended only for information purposes. Prospective investors should rely solely on a confidential private placement memorandum in making a decision to invest. These materials are confidential and solely for the information of the person to whom it has been delivered and may not be reproduced without consent.

Agenda

Fund Overview

Fund StructureStrategy

Risk ManagementAppendices

Fund Overview

Fund Overview Fund Structure Strategy Risk Management AppendicesFund Overview

Fund Profile

• Fund size: $150M• Target Sharpe: 1.5• Target Return: 12-

20%• Based in Toronto, ON• Distressed Debt

Fund• Oil/Gas industry

focus

• Management fee of 2% of AUM

• Incentive fee of 20%

• Investor redemption: two-year lockup period

• Target investors: HNWI, Seeders, Managed Accounts, Fund of Funds

• Up to 80% of personal assets in the fund

Fee Structure Investor Profile

Principals


• Earned a Bachelor degree in Finance and Economics from University of Toronto

• CFA Candidate

• Strong compliance and analytical experience within a major bank.

• Earned Bachelor in Accounting and Finance from Carleton University

• CFA Candidate

• Past experience with BMO Global Asset management in Mutual Fund and equity research

Azmat FarooqAnalyst

Kevin LiChief Investment Officer

• CFA, CPA, Master of Management and Professional Accounting (Rotman)

• extensive operating and capital budgeting, P&L management, sales and margin forecast with a multi-national company

• Over 10 years performance auditing experience

Claire MuPresident

Principals


• Earned a Bachelor’s degree in Finance and Economics from Carleton University

• CFA Candidate

• Worked as an Analyst dealing with Fixed Income investments within Insurance industry.

Mark MoskvitineChief Marketing Officer

• Earned a Bachelor’s degree in Policy and Financial Management York University

• CFA Candidate

• Significant research experience and analytical expertise. Avid athlete.

Dennis SolomonAnalyst

• Earned a Bachelor’s degree in Business Administration from Université du Québec à Montréal

• Chartered Investment Manager

• Has significant experience in alternative investment and risk management.

Nancy DesrosiersChief Risk Officer

Fund Structure

Fund Overview Fund Structure Strategy Risk Management Appendices

Fund Structure

PEGASUS

Capital Inc

Administration

CITCO Fund Services

Investors

Prime Broker

BMO Capital Markets

Investment Manager

Auditor

KPMGLegal

STIKEMAN ELLIOTT

Fund Strategy


Strategy

Distressed Debt

• Study current events that drive down the value of a company’s securities

• Identify cluster of companies impacted by the events

• Screen suitable issuers and securities to implement trades

• Market inefficiency and above average risk adjusted returns

• legal/regulatory constraints

• Lack of analyst coverage

• Lack of knowledge, skill, interest and time to conduct the necessary analysis

Opportunity

Fund Strategy


Strategy

Current Events

• Low oil price

• Junior oil and gas exploration and production companies affected

• Otherwise strong candidates underpriced by the panic

• Combination of top-down and bottom-up analysis

• In-depth review of issuer operations, creditors and financials

• Focus on Liquid space of distressed debt

• Legal considerations (legal service provider)

Proprietary Approach

Investment Thesis

• Impressive breadth of opportunity

• Cash flows of small-medium upstream oil plays is increasingly constrained

• Unable to meet debt obligations, which affects their liquidity and solvency debt can be bought at discount

• M&A activity peaks during a limited window as oil prices tend to recoverFund Overview Fund Structure Strategy Risk Management

AppendicesStrategy

Typical Trade

Goodrich Petroleum Corp

• Current Rating

• Investment• Leverage• Borrowing• Loan Cost• Interest• Holding

Period• Bond Price• Coupon• Maturity

$20,000,0002.0$40,000,0002%800,0002 years$53.638.875%2019

BB

BB+

BBB-

Yield

Price

Profit

Return

Sharpe

6.90%

4.45%

3.08%

B- 111.84

129.25

140.54

$1.8M

$14.8M

$23.2M

9%

74%

116%

1.25

12.74

20.20


Strategy

Portfolio

Total Portfolio

$80m

BB

BB+

BBB-

Total Profit

Total Return

Sharpe

$8.0m

$59m

$112m

9.96%

74%

140%

1.41

12.68

24.46


Strategy

Risk Management


Risk Management

Marginal, cost efficient risk management• Risk budget of maximum 25% of fund profits• We perform due diligence and monitor crude oil

hedging strategies already in place within the companies (Mercatus Advisors-Energy hedging and trading)

We mitigate Operational Risk• Counterparty due diligence and internal

controls

Hedging Costs


Risk Management

We calculate the crude oil put option contracts value based on the number of barrels sold, assuming a strike price of $35 and an option price of $160 (as advised by our energy risk experts at Mercatus)

Our hedging costs represent $2M or 2.5% of the capital invested in the fund (including Mercatus fee and trade execution). This is an optimal cost considering the hedging strategies already in place within the companies.

Mitigating Operational Risks


Risk Management

Counterparty due diligence• Ongoing monitoring process with our Prime

Broker, Administrator, Auditor and other stakeholders

Internal control• Segregation of duties (Front, middle, back office)• Business continuity plan with fully operational

recovery site and data backups• Annual background check on employees

Operating Costs

MANAGEMENT FEE $1.6m (2% of $80m)

PAYROLL 50% RENT 4% LEGAL 13% TRADING 25%

ADMIN 2%

AUDIT 2%

OFFICE & IT 4%

Investor Q & APEGASUS Capital Inc

Key Fund Details

Term Sheet

Fee Structure:Redemption:

Min. Investment:Investment Objective:

Lockup:Maximum Leverage:Reporting:Principals’

Investment:

2 / 20Annually$250,000Absolute Return2 year2.5xQuarterly/Event80% of personal assets

Auditor:Legal:

Prime Broker:Fund Admin:

KPMGStikeman ElliotBMO Capital MarketsCITCO Fund Services

Sharpe Ratio:

Return Type:

Target Return:

1.5Absolute12-20%

Key Partners

Target Performance Metrics

Appendix B – Losing Trade


SandRidge Energy Inc

• Current Rating

• Investment• Leverage• Borrowing• Loan Cost• Interest• Holding

Period• Bond Price• Coupon• Maturity

$20,000,0002.0$40,000,0002%800,0002 years$65.507.5%2023

BB

BB+

BBB-

Yield

Price

Profit

Return

7.46%

6.06%

4.62%

B 100.37

114.49

132.07

-$20.3M

-$11.7M

-$0.9M

-101%

-58%

-4.7%

Appendices

Appendix C - Hedging

Risk management-Example of EXXI internal hedging strategy


Appendices

Appendix D – Sharpe Matrix


BB

BBB-

2.0%

2.5%

3.0%

3.5%

1.41

12.68

24.46

Appendices

1.32

12.59

24.37

1.23

12.50

24.28

1.14

12.41

24.19

BB+

Risk-Free Rate

Cre

dit

Rati

ng

Documents

Pegasus FINAL