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RECAPPING RECORD-BREAKING ACTIVITY IN THE GLOBAL LOAN MARKET Ioana Barza
Director of Analytics
OVERVIEW
Global
– New money stalls amid record-breaking volumes
– Will global M&A gain traction in 4Q13?
U.S. Investment Grade
– Can you hear me now? Life after Verizon…
– Regulatory pressures: Is the relationship model changing?
– Will IG term loans make a comeback?
U.S. Leveraged Finance
– The big bang: Unprecedented demand outpaces supply, creating new norms
– Wipeout! Surfing 2013’s repricing waves
– Seeking substance: Longing for M&A’s big comeback
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
2
RECAPPING RECORD-BREAKING ACTIVITY IN THE GLOBAL LOAN MARKET
OV
ER
VIE
W
2013 GLOBAL LOAN ISSUANCE REACHES $2.5T
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
4,500.0
199
7
199
8
199
9
200
0
200
1
2002
2003
200
4
200
5
200
6
200
7
200
8
200
9
2010
2011
2012
2013
Issu
an
ce ($
Bil
s.)
Americas EMEA Asia-Pacific (ex. Japan) Japan
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
3
GLOBAL LENDING
GLO
BA
L
REFINANCINGS DOMINATE LENDING ACROSS AMERICAS & EMEA
20%
30%
40%
50%
60%
70%
80%
90%
1Q0
5 2
Q0
5 3Q
05
4Q
05
1Q0
6
2Q
06
3Q
06
4
Q0
6
1Q0
7 2
Q0
7 3Q
07
4Q
07
1Q0
8
2Q
08
3Q
08
4
Q0
8
1Q0
9
2Q
09
3Q
09
4
Q0
9
1Q10
2
Q10
3Q
10
4Q
10
1Q11
2
Q11
3Q
11
4Q
11
1Q12
2
Q12
3Q
12
4Q
12
1Q13
2
Q13
3Q
13
Re
fi m
ark
et
sha
re
EMEA Asia-PAcific (excl. Japan) Americas
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
4
REFINANCINGS’ SHARE OF REGIONAL LENDING
GLO
BA
L
2013 REFINANCINGS REACH $1.6T, SURPASSING 1-3Q12 BY 20%
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
1Q0
5 2
Q0
5 3Q
05
4Q
05
1Q0
6
2Q
06
3Q
06
4
Q0
6
1Q0
7 2
Q0
7 3Q
07
4Q
07
1Q0
8
2Q
08
3Q
08
4
Q0
8
1Q0
9
2Q
09
3Q
09
4
Q0
9
1Q10
2
Q10
3Q
10
4Q
10
1Q11
2
Q11
3Q
11
4Q
11
1Q12
2
Q12
3Q
12
4Q
12
1Q13
2
Q13
3Q
13 T
D
Issu
an
ce ($
Bil
s.)
New Money Refinancings
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
5
GLOBAL LOAN ISSUANCE BREAKOUT
GLO
BA
L
2013 GLOBAL M&A LOAN ISSUANCE REACHES $310B
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1,600.0
199
9
200
0
200
1
2002
2003
200
4
200
5
200
6
200
7
200
8
200
9
2010
2011
2012
2013
Issu
an
ce ($
Bil
s.)
Americas EMEA Asia-Pacific (excl. Japan) Japan (beg. '06)
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
6
GLOBAL M&A LENDING
GLO
BA
L
INVESTMENT GRADE: WAITING IS THE HARDEST PART
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
7
CAN YOU HEAR ME NOW? VERIZON’S FINANCING BRINGS $63B TO M&A FINANCINGS PIPELINE
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
8
U.S. IG BIGGEST BONDS U.S. IG BIGGEST BRIDGE LOANS
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
Ver
izo
n C
om
mu
nic
atio
ns
(Sep
t '1
3)
Pfi
zer
Inc
(Mar
'09
)
AT
&T
Inc
(Mar
'11)
Sch
erin
g-P
lou
gh
(Oct
'07)
Tran
soce
an In
c (S
ept
'07)
Un
ited
Tec
hn
olo
gie
s C
orp
(No
v '1
1)
Ver
izo
n W
irel
ess
(Dec
'08
)
Exp
ress
Scr
ipts
Inc
(Au
g '1
1)
Do
w C
hem
ical
Co
(Mar
'09
)
SB
C C
om
mu
nic
atio
ns
(Oct
'04
)
($
Bil
s.)
INV
ES
TM
EN
T G
RA
DE
0.0
10.0
20.0
30.0
40.0
50.0
Ver
izo
n C
om
mu
nic
atio
ns
(Sep
'13)
Ap
ple
(Ap
r '1
3)
Ro
che
Ho
ldin
gs
(Feb
'09
)
Deu
tsch
e Te
leko
m In
tl (J
un
'00
)
Pfi
zer
(Mar
'09
)
Wo
rld
Co
m (M
ay '0
1)
GE
CC
(Mar
'02
)
Pet
rob
ras
Glo
bal
Fin
ance
(May
'13)
Bri
tish
Tel
eco
m (D
ec '0
0)
Un
ited
Tec
hn
olo
gie
s (M
ay '1
2)
Kra
ft F
oo
ds
(Feb
'10
)
($
Bil
s.)
2013 U.S. IG VOLUME REACHES $384B, LARGELY DRIVEN BY REFINANCINGS
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
9
U.S. IG LOAN ISSUANCE U.S. IG M&A LOAN ISSUANCE
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
199
0
199
1 19
92
19
93
199
4
199
5 19
96
19
97
199
8
199
9
200
0
200
1 20
02
2003
20
04
20
05
200
6
200
7 20
08
20
09
20
10
2011
20
12
2013
U.S
. IG
issu
an
ce ($
Bil
s.)
AAA AA A BBB Verizon Pipeline
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
1Q0
8
2Q
08
3Q
08
4
Q0
8
1Q0
9
2Q
09
3Q
09
4
Q0
9
1Q10
2
Q10
3Q
10
4Q
10
1Q11
2
Q11
3Q
11
4Q
11
1Q12
2
Q12
3Q
12
4Q
12
4Q
12
1Q13
2
Q13
3Q
13
U.S
. IG
M&
A is
sua
nce
($
Bil
s.)
Issuance Pipeline
INV
ES
TM
EN
T G
RA
DE
IS THE VERIZON FINANCING A SIGN OF THINGS TO COME?
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
10
2H13 IG LOAN ORIGINATION: EXPECTED TO BE FLAT IF M&A DOESN’T PICK UP
QTRLY SURVEY: WHAT KIND OF PICK –UP DO BANKS EXPECT FOR M&A FINANCINGS?
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
(> 3
0%
)
(20
-30
%)
(10
- 20
%)
(0-1
0%
)
0-1
0%
10-2
0%
20-3
0%
> 3
0%
% o
f re
spo
nd
en
ts
% change in lending
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
3Q11
4Q
11
1Q12
2Q
12
3Q12
4Q
12
1Q13
2Q
13
3Q13
% o
f re
spo
nd
en
ts
LPC survey date
Gradual pick-up Major pick-up No pick-up
INV
ES
TM
EN
T G
RA
DE
Down Up
WITH LIMITED IG DEAL FLOW, BANKS’ PORTFOLIOS ARE SHRINKING
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
11
EXPECTED ANNUAL PERCENTAGE CHANGE IN BANKS’ IG LOAN PORTFOLIOS
0%
10%
20%
30%
40%
50%
60%
(<20%) (10-20%) (0-10%) 0-10% 10-20% >20%
% o
f re
spo
nd
en
ts
% change in size of banks’ IG loan portfolios
2012 Survey
2013 Survey
Smaller Bigger
INV
ES
TM
EN
T G
RA
DE
• 2008 – IGR portfolios were shrinking as
banks struggled with capital constraints,
managed out of unprofitable
relationships, let deals drop off if they
didn't have a meaningful role
• 2009 – 50% expected IGR portfolios to
grow as banks expanded market share
and yields were attractive
• 2010 – 70% say IGR portfolios will grow
from low baseline
• 2011 – Majority of banks hope to grow
portfolios despite lower yields
• 2012 – Portfolios flat to down
• 2013 – Portfolios flat to up on M&A hopes
MEANWHILE, LONGER TENORS EXPECTED TO CONTINUE TO DOMINATE IG MARKET
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
200
8
200
9
2010
2011
2012
2013
200
8
200
9
2010
2011
2012
2013
2010
2011
2012
2013
200
8
200
9
2010
2011
2012
2013
IG r
evo
lve
r is
sua
nce
($B
ils.
) AAA AA A BBB
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
12
REVOLVER VOLUME BY TENOR AND RATING
INV
ES
TM
EN
T G
RA
DE
364 day
3 year
4 year
5 year
IG PRICING HAS STABILIZED OVER THE PAST YEAR
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
13
QUARTERLY BBB DRAWN SPREADS QUARTERLY BBB UNDRAWN SPREADS
0
10
20
30
40
50
60
70
1H9
1
1Q9
4
3Q9
5
1Q9
7
3Q9
8
1Q0
0
3Q0
1
1Q03
3Q0
4
1Q0
6
3Q0
7
1Q0
9
3Q10
1Q12
3Q13
bp
s
INV
ES
TM
EN
T G
RA
DE
0
50
100
150
200
250
300
350
1H9
1
1Q9
4
3Q9
5
1Q9
7
3Q9
8
1Q0
0
3Q0
1
1Q03
3Q0
4
1Q0
6
3Q0
7
1Q0
9
3Q10
1Q12
3Q13
bp
s
SURVEY: MAJORITY OF RESPONDENTS BELIEVE SPREADS WILL BE FLAT IN 2H13
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
14
CHANGE IN SPREADS FOR HIGHER-RATED ISSUERS
CHANGE IN SPREADS FOR BBB-RATED ISSUERS
0%
10%
20%
30%
40%
50%
60%
70%
(<30
%)
(20
-30
%)
(10
-20
%)
(0-1
0%
)
0-1
0%
10-2
0%
20
-30
%
+>
30%
% o
f re
spo
nd
en
ts
% change in pricing
2H11 Survey 2H13 Survey
Down Up
INV
ES
TM
EN
T G
RA
DE
0%
10%
20%
30%
40%
50%
60%
70%
80%
(<30
%)
(20
-30
%)
(10
-20
%)
(0-1
0%
)
0-1
0%
10-2
0%
20
-30
%
+>
30%
% o
f re
spo
nd
en
ts
% change in pricing
2H11 Survey 2H13 Survey
Down Up
IS THE RELATIONSHIP LENDING MODEL CHANGING?
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
15
FOR A CLIENT WITH A STRONG RELATIONSHIP FOR A CLIENT WITH A WEAKER RELATIONSHIP
INV
ES
TM
EN
T G
RA
DE
0%
10%
20%
30%
40%
50%
60%
a TL (funded) an RC (unfunded)
Neither
% o
f re
spo
nd
en
ts
In LPC’s Quarterly Survey, banks were asked: What is your lending preference based on the strength of your relationship with an issuer?
Regardless of relationship, banks are evenly split on funding preferences: an unfunded revolver or funded term loan
For a client with a weak relationship – 20% of banks would not lend at all
0%
10%
20%
30%
40%
50%
a TL (funded) an RC (unfunded)
Neither %
of
resp
on
de
nts
AND, WILL TERM LOAN ISSUANCE PICK UP?
0
10
20
30
40
50
60
70
1H0
8
2H
08
1H0
9
2H
09
1H10
2H
10
1H11
2H
11
1H12
2H
12
1H13
2H
13
Issu
an
ce ($
Bil
s.)
Term Loans Bridge Loans
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
16
U.S. IG BRIDGE LOAN & TERM LOAN ISSUANCE (INCL. IN MARKET)
INV
ES
TM
EN
T G
RA
DE
WHERE DOES DEAL FLOW COME FROM? BULK OF U.S. IG LOANS WILL MATURE IN 2016-17
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
17
VOLUME OF U.S. IG LOANS COMING DUE
The majority of lenders surveyed by Thomson Reuters LPC report that the challenge…or…opportunity of building an M&A financing pipeline is the biggest issue facing the IG market in 2H13
INV
ES
TM
EN
T G
RA
DE
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
1Q13
2Q
13
3Q13
4Q
13
1Q14
2Q
14
3Q14
4Q
14
1Q15
2Q
15
3Q15
4Q
15
1Q16
2Q
16
3Q16
4Q
16
1Q17
2Q
17
3Q17
4Q
17
1Q18
2Q
18
$ B
ils.
As of 3/31/13 As of 6/30/13 As of 12/31/12
IS THE WAIT OVER?
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
500.0
1987
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
2002
2003
200
4
200
5
200
6
200
7
200
8
200
9
2010
2011
2012
YT
D
Issu
an
ce ($
Bil
s.)
Non-Lev. Lev. LBOs Verizon Pipeline
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
18
U.S. M&A LOAN ISSUANCE
U.S
. M&
A
LEVERAGED FINANCE: RIDING THE REPRICING WAVES!
2013 LEVERAGED FINANCE NEARS 2012’S FY $991B RECORD, BUT…
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
2002
2003
200
4
200
5
200
6
200
7
200
8
200
9
2010
2011
2012
2013
Issu
an
ce ($
Bil
s.)
HY Bonds Leveraged loans Lev. Loans Refi Lev. Loans New Money
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
20
LEVERAGED LOAN AND HIGH YIELD BOND ISSUANCE
LEV
ER
AG
ED
…WHAT IS REALLY GOING ON?
20%
30%
40%
50%
60%
70%
80%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Sh
are
of
leve
rag
ed
loa
n is
sua
nce
Refinancings New Money
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
21
LEVERAGED LOAN ISSUANCE
LEV
ER
AG
ED
IN OTHER WORDS…
0.0
100.0
200.0
300.0
400.0
500.0
600.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Issu
an
ce ($
Bil
s.)
Refinancings M&A
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
22
LEVERAGED LOAN ISSUANCE
LEV
ER
AG
ED
SURGING LOAN DEMAND COUPLED WITH A LACK OF NEW ISSUE PAVED THE WAY FOR…
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
23
MONTHLY LOAN ISSUANCE
LEV
ER
AG
ED
0.0
20.0
40.0
60.0
80.0
100.0
120.0
Jan
'10
M
ar '1
0
May
'10
Ju
l '10
S
ep '1
0
No
v '1
0
Jan
'11
Mar
'11
May
'11
Jul '
11
Sep
'11
No
v '1
1 Ja
n '1
2
Mar
'12
M
ay '1
2
Jul '
12
Sep
'12
N
ov
'12
Ja
n '1
3 M
ar '1
3 M
ay '1
3 Ju
l '13
S
ept
'13
($
Bil
s.)
Dividend Recap
M&A
New money (other)
Refinancings
CUMULATIVE CLO & LOAN FUND FLOWS (BEG. JAN 2011 )
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
Jan
'11
Mar
'11
May
'11
Jul '
11
Sep
'11
No
v '1
1 Ja
n '1
2
Mar
'12
M
ay '1
2
Jul '
12
Sep
'12
N
ov
'12
Ja
n '1
3 M
ar '1
3 M
ay '1
3 Ju
l '13
S
ept
'13
($
Bil
s.)
CLO issuance
Loan fund flows
… A REFI/REPRICINGS WAVE!
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
24
CUMULATIVE LOAN ISSUANCE BEG. 2011
LEV
ER
AG
ED
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
Jan
'11
Mar
'11
May
'11
Jul '
11
Sep
'11
No
v '1
1 Ja
n '1
2
Mar
'12
M
ay '1
2
Jul '
12
Sep
'12
N
ov
'12
Ja
n '1
3 M
ar '1
3 M
ay '1
3 Ju
l '13
S
ept
'13
Issu
an
ce ($
Bil
s.)
Dividend Recap
M&A
New money (other)
Refinancings
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
Jan Feb Mar Apr May Jun Jul Aug Sep
Re
pri
cin
gs
($B
ils.
)
2007 2013
REPRICINGS ONLY (CUM. BEG. JAN. 2010)
DISSECTING DEMAND: RETAIL FUNDS
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
25
CUMULATIVE SINCE JAN. 2006 CUMULATIVE SINCE JAN. 2011
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Cu
mu
lati
ve f
low
s ($
Bil
s.)
Cumulative HY Bonds
Cumulative Loans
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-11
Ja
n-1
2
Mar
-12
M
ay-1
2
Jul-
12
Sep
-12
N
ov-
12
Jan
-13
Mar
-13
May
-13
Jul-
13
Sep
-13
Cu
mu
lati
ve f
low
s ($
Bil
s.)
Cumulative HY Bonds
Cumulative Loans
LEV
ER
AG
ED
65 WEEKS OF POSITIVE FLOWS INTO LOAN RETAIL FUNDS
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
26
SINCE 2005 2011/12/13 COMPARISON
-2,500.0
-2,000.0
-1,500.0
-1,000.0
-500.0
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
We
ek
ly f
low
s ($
Mil
s.)
2011 2012 2013
-2,500.0
-2,000.0
-1,500.0
-1,000.0
-500.0
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
1/5/
200
5
1/5/
200
6
1/5/
200
7
1/5/
200
8
1/5/
200
9
1/5/
2010
1/5/
2011
1/5/
2012
1/5/
2013
We
ek
ly f
low
s ($
Mil
s.)
LEV
ER
AG
ED
LOAN AND HIGH YIELD BOND FUND FLOWS DIVERGE
-2500
-2000
-1500
-1000
-500
0
500
1000
1500
2000
2500
-6,000
-5,000
-4,000
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
11/2
5/20
08
1/
25/2
00
9
3/25
/20
09
5/
25/2
00
9
7/25
/20
09
9
/25/
200
9
11/2
5/20
09
1/
25/2
010
3/
25/2
010
5/
25/2
010
7/
25/2
010
9
/25/
2010
11
/25/
2010
1/
25/2
011
3/
25/2
011
5/
25/2
011
7/
25/2
011
9
/25/
2011
11
/25/
2011
1/
25/2
012
3/
25/2
012
5/
25/2
012
7/
25/2
012
9
/25/
2012
11
/25/
2012
1/
25/2
013
3/
25/2
013
5/
25/2
013
7/
25/2
013
Lo
an
fu
nd
flo
ws
($M
ils.
)
HY
bo
nd
fu
nd
flo
ws
($M
ils.
)
HY Fund Flows Loan Fund Flows
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
27
WEEKLY HIGH YIELD BOND & LOAN FUND FLOWS
LEV
ER
AG
ED
NOT SURPRISING, LOAN FUNDS AUM REACH RECORD
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
Jan
20
07
Ap
r 20
07
Jul 2
00
7
Oct
20
07
Jan
20
08
Ap
r 20
08
Jul 2
00
8
Oct
20
08
Jan
20
09
Ap
r 20
09
Jul 2
00
9
Oct
20
09
Jan
20
10
Ap
r 20
10
Jul 2
010
Oct
20
10
Jan
20
11
Ap
r 20
11
Jul 2
011
Oct
20
11
Jan
20
12
Ap
r-12
Jul-
12
Oct
-12
Jan
-13
Ap
r-13
Jul-
13
Lo
an
mu
tua
l fu
nd
& E
TF
AU
M
($B
ils.
)
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
28
U.S. LOAN MUTUAL FUND & ETF ASSETS UNDER MANAGEMENT*
Thanks to continued inflows, loan mutual funds & ETFs had roughly $136 billion in net assets at the end of August, and when taking into account the leverage employed by closed-end funds, total assets are estimated to be approximately $143 billion.
LEV
ER
AG
ED
*Based on the most recent data available
LOAN FUNDS DON’T DOMINATE DEMAND BUT THEY DO DOMINATE SENTIMENT
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
29
SHARE OF INDEX OUTSTANDINGS*
LEV
ER
AG
ED
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-11
Ja
n-1
2
Mar
-12
M
ay-1
2
Jul-
12
Sep
-12
N
ov-
12
Jan
-13
Mar
-13
May
-13
Jul-
13
Sep
-13
Sin
gle
-B y
ield
s to
3 y
ea
rs
Mo
nth
ly lo
an
fu
nd
flo
ws
($
Bil
s.)
Loan fund flows Single- B loan yield
SINGLE-B PRIMARY LOAN YIELDS VS. LOAN FUND FLOWS
36% Other
21% Loan
Funds
43% CLOs*
*Based on: - a universe of 734 U.S. CLOs - S&P/LSTA Leveraged Loan Index outstandings - the most recent data available
2013’S $56B IN CLO ISSUANCE IS ON PAR WITH FY’12 BUT HAS SLOWED DOWN IN 2H13
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
30
MONTHLY CLO ISSUANCE ANNUAL CLO ISSUANCE
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Jan
Feb
Mar
Ap
r
May
Jun
Jul
Au
g
Sep
Oct
No
v
Dec
Issu
an
ce ($
Bil
s.)
2011 2012 2013
LEV
ER
AG
ED
0.0
20.0
40.0
60.0
80.0
100.0
120.0
199
6
199
7 19
98
19
99
20
00
20
01
2002
20
03
200
4
200
5 20
06
20
07
200
8
200
9
2010
20
11
2012
20
13
Issu
an
ce ($
Bil
s.)
U.S. CLO OUTSTANDINGS ARE FLAT DESPITE RISE IN CLO ISSUANCE
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
31
CLO OUTSTANDINGS ARE $285 BILLION CUM. CLOS REACHING END OF REINV.
150.0
170.0
190.0
210.0
230.0
250.0
270.0
290.0
310.0
Jul-
12
Au
g-1
2
Sep
-12
O
ct-1
2
No
v-12
D
ec-1
2
Jan
-13
Feb
-13
Mar
-13
Ap
r-13
M
ay-1
3 Ju
n-1
3 Ju
l-13
A
ug
-13
CLO
Ag
gre
ga
te P
rin
cip
al B
ala
nce
($B
ils.
) LE
VE
RA
GE
D
Based on a universe of 734 U.S. CLOs
0.0
50.0
100.0
150.0
200.0
250.0
300.0
<=
2011
2012
2013
2014
2015
2016
2017
Cu
mu
lati
ve C
LOs
EO
R (
$B
ils.
)
EOR
AAA SPREADS FOLLOW WIDENING LOAN SPREADS
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
32
AAA SPREADS VS. SINGLE B LOAN YIELDS CLO ISSUANCE VS. LOAN YIELDS
4%
5%
6%
7%
8%
9%
100
110
120
130
140
150
160
Jan
-12
F
eb-1
2
Mar
-12
A
pr-
12
May
-12
Ju
n-1
2
Jul-
12
Au
g-1
2
Sep
-12
O
ct-1
2
No
v-12
D
ec-1
2
Jan
-13
Feb
-13
Mar
-13
Ap
r-13
M
ay-1
3 Ju
n-1
3 Ju
l-13
A
ug
-13
Sep
-13
Sin
gle
-B lo
an
yie
ld t
o 3
yrs
.
AA
A S
pre
ad
(bp
s)
Avg. AAA CLO Spreads (excl. MM)
Single-B loan yields
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Jan
-11
Mar
-11
May
-11
Jul-
11
Sep
-11
No
v-11
Ja
n-1
2
Mar
-12
M
ay-1
2
Jul-
12
Sep
-12
N
ov-
12
Jan
-13
Mar
-13
May
-13
Jul-
13
Sep
-13
Sin
gle
-B y
ield
s to
3 y
ea
rs
Mo
nth
ly C
LO is
sua
nce
($B
ils.
)
CLO issuance
Single- B loan yields
LEV
ER
AG
ED
POST-CRISIS FIRST: SPREADS DROP BELOW 400BPS; TIGHTENING REFLECTED IN CLOS’ LOAN HOLDINGS
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
33
U.S. INSTITUTIONAL TERM LOAN SPREADS CLO HOLDINGS: CONTRACTUAL LOAN SPREADS
0
100
200
300
400
500
600
700
1Q9
7 1Q
98
1Q
99
1Q
00
1Q
01
1Q02
1Q
03
1Q0
4
1Q0
5 1Q
06
1Q
07
200
8
2Q
10
2Q
11
2Q
12
2Q
13
Co
ntr
act
ua
l sp
rea
d (b
ps)
LE
VE
RA
GE
D
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
<20
0
200
to
<25
0
250
to
<30
0
300
to
<35
0
350
to
<4
00
40
0 t
o <
450
450
to
<50
0
500
to
<55
0
550
to
<6
00
60
0 t
o <
650
650
to
<70
0
>=
700
Sh
are
of
loa
ns
he
ld b
y U
.S. C
LOs
Spread (bps)
Dec-12
Aug-13
LIBOR FLOORS PREVAIL BUT SIT BELOW 1%
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
34
CLO HOLDINGS: % OF LOANS WITH LIBOR FLOORS MARKET: % OF LOANS WITH LIBOR FLOORS
0%
10%
20%
30%
40%
50%
60%
70%
80%
<=
200
4
200
5
200
6
200
7
200
8
200
9/1
0
2011
2012
2013
Sh
are
of
loa
ns
wit
h L
ibo
r fl
oo
rs
CLO vintage
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
Sh
are
of
loa
ns
wit
h L
ibo
r fl
oo
rs
No floor 0.75% & 1% 1.25% 1.50% 1.75% >= 2%
LEV
ER
AG
ED
0.75% floor
1.25% floor
1.75% floor
1.5% floor
TABLES TURNED IN MAY/JUNE – YIELDS BACKED UP WHILE UPWARD FLEX DOMINATED
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
35
INST. TLS SINGLE-B LOAN YIELDS FLEX ACTIVITY
LEV
ER
AG
ED
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
-60
-40
-20
0
20
40
60
Jan
-12
F
eb-1
2
Mar
-12
A
pr-
12
May
-12
Ju
n-1
2
Jul-
12
Au
g-1
2
Sep
-12
O
ct-1
2
No
v-12
D
ec-1
2
Jan
-13
Feb
-13
Mar
-13
Ap
r-13
M
ay-1
3 Ju
n-1
3 Ju
l-13
A
ug
-13
Sep
-13
Avg
. yie
ld a
dju
stm
en
t
# o
f fl
ex
es
# of flexes up/down
Avg. yield adjustment up/down
3%
4%
5%
6%
7%
8%
9%
10%
Jan
-10
M
ar-1
0
May
-10
Ju
l-10
S
ep-1
0
No
v-10
Ja
n-1
1 M
ar-1
1 M
ay-1
1 Ju
l-11
S
ep-1
1 N
ov-
11
Jan
-12
M
ar-1
2
May
-12
Ju
l-12
S
ep-1
2
No
v-12
Ja
n-1
3 M
ar-1
3 M
ay-1
3 Ju
l-13
S
ep-1
3
Yie
ld (3
-ye
ar
term
)
MARKET-WIDE: PAR-PLUS SHARE DROPPED IN MAY/JUNE, CREATING BUYING OPPORTUNITIES
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Jan
-10
F
eb-1
0
Mar
-10
A
pr-
10
May
-10
Ju
n-1
0
Jul-
10
Au
g-1
0
Sep
-10
O
ct-1
0
Oct
-10
N
ov-
10
Dec
-10
Ja
n-1
1 F
eb-1
1 M
ar-1
1 A
pr-
11
May
-11
Jun
-11
Jul-
11
Au
g-1
1 S
ep-1
1 O
ct-1
1 N
ov-
11
Dec
-11
Jan
-12
F
eb-1
2
Mar
-12
A
pr-
12
May
-12
Ju
n-1
2
Jul-
12
Au
g-1
2
Sep
-12
O
ct-1
2
No
v-12
D
ec-1
2
Jan
-13
Feb
-13
Mar
-13
Ap
r-13
M
ay-1
3 Ju
n-1
3 Ju
l-13
A
ug
-13
Sh
are
of
loa
n b
ids
=>
pa
r
SMi 100 Multi-quote TLs 101+
2010 2011 2012 2013
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
36
DAILY PAR-PLUS SHARE IN U.S. SECONDARY MARKET
LEV
ER
AG
ED
CLO HOLDINGS: PAR-PLUS SHARE STAYS BELOW 10%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
<9
0
90
to
<9
1
91
to <
92
92
to
<9
3
93
to <
94
94
to
<9
5
95
to <
96
96
to
<9
7
97
to <
98
98
to
<9
9
99
to
<10
0
>=
100
Sh
are
of C
LOs
Weighted avg. bid
Dec. 2012
End of May Peak
End of Aug.
Late May
Year-end
Aug. 30th
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
37
U.S. CLO WEIGHTED AVERAGE BID DISTRIBUTION
LEV
ER
AG
ED
SECONDARY PRICE VOLATILITY SPIKES, YTD LOAN RETURNS OUTPACE HY, IG BONDS
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
38
DAILY PRICE VOLATILITY 2013 YTD RETURNS
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
1/2
/20
13
2/2
/20
13
3/2
/20
13
4/2
/20
13
5/2
/20
13
6/2
/20
13
7/2
/20
13
8/2
/20
13
9/2
/20
13
We
ek
ly r
etu
rns
(%)
S&P/LSTA Index ML HY Master II Index ML Corp. Master
LEV
ER
AG
ED
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
12-A
pr-
07
10-A
ug
-07
8-D
ec-0
7 6
-Ap
r-0
8
4-A
ug
-08
2
-Dec
-08
1-
Ap
r-0
9
30-J
ul-
09
27
-No
v-0
9
27-M
ar-1
0
25-J
ul-
10
22-N
ov-
10
22-M
ar-1
1 20
-Ju
l-11
17
-No
v-11
16
-Mar
-12
14
-Ju
l-12
11
-No
v-12
11
-Mar
-13
9-J
ul-
13
Sta
nd
ard
de
via
tio
n o
f d
ail
y c
ha
ng
e in
pri
ce
(ba
sed
on
20
da
y m
ovi
ng
avg
.)
Leveraged Loans
HY Bonds
IS THE WAIT OVER? M&A DEALS MAKE UP 65% OF THE PIPELINE
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
3/22
/20
12
4/2
2/2
012
5/22
/20
12
6/2
2/2
012
7/22
/20
12
8/2
2/2
012
9/2
2/2
012
10/2
2/2
012
11/2
2/2
012
12/2
2/2
012
1/22
/20
13
2/2
2/2
013
3/22
/20
13
4/2
2/2
013
5/22
/20
13
6/2
2/2
013
7/22
/20
13
8/2
2/2
013
Sh
are
of
we
ek
ly p
ipe
lin
e
RFI Repricings M&A
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
39
INSTITUTIONAL LOAN PIPELINE BY PURPOSE
LEV
ER
AG
ED
DIVIDEND RECAPS REACH $21B RECORD IN 2Q13
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
40
DIVIDEND RECAP VOLUME – 2Q13 RECORD SECOND LIEN VOLUME – 2Q13 RECORD
0.0
5.0
10.0
15.0
20.0
25.0
1Q0
4
3Q0
4
1Q0
5 3Q
05
1Q0
6
3Q0
6
1Q0
7 3Q
07
1Q0
8
3Q0
8
1Q0
9
3Q0
9
1Q10
3Q
10
1Q11
3Q
11
1Q12
3Q
12
1Q13
3Q
13
Vo
lum
e ($
Bil
s.)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
2Q
02
4Q
02
2Q
03
4Q
03
2Q
04
4
Q0
4
2Q
05
4Q
05
2Q
06
4
Q0
6
2Q
07
4Q
07
2Q
08
4
Q0
8
2Q
09
4
Q0
9
2Q
10
4Q
10
2Q
11
4Q
11
2Q
12
4Q
12
2Q
13
Vo
lum
e ($
Bil
s.)
LEV
ER
AG
ED
NEWER VINTAGE CLO HOLDINGS: 40% OF LOANS HELD ARE COV-LITE
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
41
CUM. COV-LITE VOLUME 2007 VS. 2013 CLO HOLDINGS: COV-LITE LOANS’ SHARE
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
Jan
Feb
Mar
Ap
r
May
Jun
Jul
Au
g
Sep
t
Vo
lum
e ($
Bil
s.)
2007 2013
LEV
ER
AG
ED
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
<=
200
4
200
5
200
6
200
7
200
8
200
9/1
0
2011
2012
2013
Sh
are
of
cov-
lite
loa
ns
CLO Vintage
LARGE CORP. LBOS SEE LOWER EQUITY CONTRIBUTIONS, HIGHER LEVERAGE LEVELS
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
42
2013 LBO PURCHASE PRICE MULTIPLES LBO LEVERAGE LEVELS CLIMB (EXCL. MM)
25%
30%
35%
40%
45%
50%
55%
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
2003
200
4
200
5
200
6
200
7
200
8
200
9
2010
2011
2012
2013
Eq
uit
y C
on
trib
uti
on
LB
O D
eb
t to
EB
ITD
A (
x:1
)
Debt to EBITDA
Equity Contribution
LEV
ER
AG
ED
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
8.0x
9.0x
10.0x
Private MM 1H13 Institutional MM YTD
Large Corp. YTD
Tra
nsa
ctio
n M
ult
iple
1st lien Debt/EBITDA Total Debt/EBITDA Equity Check
NOT LIKE ’07
September 19, 2013 Thomson Reuters LPC’s 19th Annual Loan & CLO Conference
43
WEEKLY INSTITUTIONAL PIPELINE ANNUAL ISSUANCE COMPARISON TO 2007 PEAK
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
Jan
-07
No
v-0
7
Sep
-08
Jul-
09
May
-10
Mar
-11
Jan
-12
No
v-12
Sep
-13
Inst
itu
tio
na
l pip
eli
ne
($
Bil
s.)
LE
VE
RA
GE
D
-150%
-100%
-50%
0%
50%
100%
150%
2008 2009 2010 2011 2012 2013
% c
ha
ng
e v
s.20
07
pe
ak
Refinancings
New Money
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