leveraged finance 2012 outlook

LEVERAGED FINANCE

2012 Review2013 outlook

January 2013

high-yield bond outlookAnalysts and inves-tors make their fore-casts for this year. Page 3.

leveraged loan outlookInvestor calls for this year’s loan and CLO markets, including detailed predictions from the sell side. Page 4.

biggest junk bonds of 2012The largest transac-tions of the year. Page 6.

best/worst CdsThe biggest improve-ments and declines

in U.S. credit qual-ity, as measured by CDS. Page 10.

total returns by seCtor The best and worst performing industries and rating segments in 2012, compared with the previous three years. Page 11.

european high yieldTriple C rated is-suance dominates 2012 volume. Page 12.

u.s. leveraged loansTop 20 leveraged deals; biggest divi-dend, cov-lite trans-

actions. Issuance by sector. Page 14-15.

interaCtive loan maturity CalendarSort upcoming loan maturities by indus-try sector. Page 16.

u.s. loan priCe trendsAverage margins, Li-bor floors, discounts. Page 17.

european loans Average margins, discounts. Page 18-19.

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Contributing analystsLara Deke Agustina de Marotte

Jesse Knapton Jamie DranoffAfrim Zeka Lee Zeltser

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CoNtENts 2012 IN REVIEW

MoNtH EVENt

JAN

CvC Capital Partners agreed to buy Resource America’s leveraged-loan investments unit in a move to expand in the u.S.

CDS prices indicate 91 percent chance of tXu default in the next three years.

FEB

JPMorgan raises its estimate for 2012 junk bond returns to 13.7 percent from 9.4 percent. BAMl expects returns of 12.3 percent, Barclays holds with 5-7 percent, saying Greece is still grappling with fiscal challenges.

Avoca Capital Holdings, a credit manager overseeing 6 billion euros, can-celed a plan to list a senior loan fund on the london Stock exchange.

MAR

Apollo and a consortium buy el Paso’s e&P operation for $7.15 billion, the largest lBo of 2012.

european high-yield companies tap the u.S. bond market at a record pace as investors funnel unprecedented amounts of cash into dollar-denominated junk-debt funds and the sovereign crisis restricts bank lending in the region.

APR

t Rowe Price closes two junk-bond funds amid a surge in demand for higher-yielding debt.

lower-rated companies, including airline lessors, start issuing bonds to meet heightened investor demand

MAY

Moody’s raises Ford to Baa3 from Ba2, following Fitch’s upgrade from junk status in April. Ford regains control of its logo and other assets pledged as collateral to obtain a $23.4 billion loan to keep the business going in 2006.

3i Debt Management acquires about 2 billion euros of Clos from invesco as it seeks to expand in europe and the u.S.

JUN

Atlantic Broadband secures the year’s first dividend pre-cap financing.

American Casino & entertainment Properties postpones a $310 million bond due to market conditions. engility pulls its $250 million senior notes offer, wideopenwest Finance delays a $1 billion bond to make covenant changes.

JUL

thomas H. lee Partners’s credit unit acquires a $2.5 billion debt manager from McDonnell investment, joining private-equity firms expanding lever-aged loan holdings.

Alpha Natural Resources begins negotiations with debt-holders to gain relief on covenants as coal prices slump.

AUG

Goldentree Asset Management raises a Clo of about $590 million that allows for as much as a 40 percent investment in second-lien loans and high-yield bonds.

High-yield bond funds in the u.S. attracted $597 million from european inves-tors in the week to Aug. 22, the most since February.

sEP

u.S. high-yield bond market sees biggest ever monthly issuance volume. Reynolds is the single biggest deal, at $3.25 billion in size.

u.S. state and county pension funds expand their search for yield beyond junk bonds into the less liquid middle market loans.

oCt

Covenant-lite leveraged loan issuance as a percent of the total market surges to a record high, at 25 percent of outstanding loans, JPMorgan data show.

Caesars entertainment, the casino operator saddled with $22.7 billion of debt, will need to restructure its borrowings, according to CreditSights.

NoV

the default rate on leveraged loans is forecast to rise as soon as 2013 as companies take on more bank debt, according to Morgan Joseph triArtisan.

investors place record volume of bearish bets on junk bonds by shorting State Street’s exchange-traded fund that owns the notes as the debt lost value for the first month since May.

DEC

Daily corporate bond trading volume hits 0.29 percent of face value, the low-est by proportion of outstanding debt since 2005.

leveraged loan volume exceeded $315 billion, more than 2011 levels and the most since $388.3 billion was issued in 2007.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

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HIGH-YIELD BoND oUtLook

what is the outlook for high-yield bond returns and issuance this year?

Loosening standards, Falling Returns: Watch out for Blowups in 2013

gershon distenfeldalliancebernsteinsenior vice president

“The quality of the issuance is starting to deteriorate and this has the potential to accelerate in 2013. I don’t think that many investors are paying enough attention to covenants and other deal structure characteristics such as call protection. When you have a market that’s starving for paper, investors tend to loosen their standards, especially in a market where it seems as though every deal is five times oversubscribed. This is not the type of environment where you want to stretch for extra return because you’re not compensated for the inherent risk. We’re underweight triple Cs and staying that way. We don’t see a lot of value there.

There is still a decent amount of debt that is becoming callable for the first time in 2013, so we will still see some volume but it will likely be off from the torrid pace of the past few years.”

marty fridsonfridsonvisionCeo“The consensus forecast is return close to the coupon level, which in practice has rarely happened. The histori-cal record indicates that there has been a 91 percent probability that the return will be outside the range of the coupon, plus or minus 200 basis points. It looks very unlikely to be on the upside.

I think we’re looking at a sub-average year, possibly going into negative territory, with the Treasury outlook be-ing a factor. High yield has tended to return worse than Treasuries when it’s as over-valued as it is. We’ve been through five months that the spread has been tighter than fair value, and it seems unlikely that we go through another 12 months.”

sabur moinipayden & rygelportfolio manager

“I don’t see yields going much lower. With the yield close to 6 percent, high yield isn’t probably going to do a lot better than that. It’s tough to say we’re bullish on high yield right now because it’s had such a good run over the last three or four years. [2013] will be more of a credit picker’s market. [This] year is going to be a market where there are a few blowups. Right now, you’re not getting paid to go into CCCs or CCs. I’d rather own a single B at 6 percent than a CCC at 7.5 percent. BBs are pretty tight. CCCs you can get more yield, but again there is a lot more default risk and volatility.

I think you can still have a good year, it’s just not going to be a 13, 14, 15 percent type year. To say this market will generate a flat return next year, it seems a little implausible. Could it be below 7 percent? Sure.”

michael henry andersonCitiCredit strategist

“You basically have had this big rally in middle-of-the-road assets, whether it’s investment grade, double Bs, single Bs. Yields are just so low that those assets are going to get hit pretty hard if we get volatility or a move in one direction. As long as the Fed is successful in keeping rates low and growth is moderate, those assets will do OK but volatility is a big risk. One source we might get some net supply from is fallen angels. There are some large fallen angels out there that investors might find in their benchmarks next year.

There’s a lot of interest in the loan market, given the fact that yields on high yield are at all-time lows. At some point loans are going to outperform. We just don’t think it’s going to happen in 2013. With 80 percent of the loans above 99, you’re not going to get that multi-point pop in a whole lot of loans.”

After last year’s record junk bond issuance volume and robust returns in both the U.S. and Europe, investors and strategists are cautious about the 2013 outlook for high yield. Lower-rated credit is most at risk and the asset class may be poised for its first loss since 2008.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


LEVERAGED LoAN oUtLook

what is the forecast for returns and issuance of loans and Clos in 2013?

Loans May outperform, Investors say; CLo Issuance Forecast to Rise Again

erik falkkkrCo-head of leveraged finance

“If five-year Treasuries back up 100 basis points, then loans have a very good chance of outperforming bonds. The Fed doesn’t have to move short-term rates for the market to believe longer-term inflation will come out.

The space whch I believe will have a decent amount of activity is the middle market. A lot of those companies have not gone through the extension process of their current debt. The difference is that you put it in the tens of billions, not the hundreds of billions.”

beth macleanpimcoportfolio manager

“If absolute spreads get too tight I think you’ll start seeing waning investor interest. Definitely the CLO arb gets really difficult if spreads get much tighter than we’ve seen in the last couple weeks. I hope it puts a floor on how much we can see in terms of refinancing and spread tightening. On a relative basis we still think loans are going to be a pretty attractive option for people looking for yield in 2013.

I think it’s a matter of the PE guys finding the right opportunity and right now there just doesn’t seem to be a tremendous amount of M&A backlog in the pipeline unfortunately. But I think the market would embrace that.”

greg stoeckleinvescoportfolio manager

“2013 marks a year where a large component of the pre-crisis CLOs hit the end of their reinvestment periods. While you have new capacity being created through new CLOs, you’re going to have capacity taken out of the market as the legacy CLOs begin to go dormant. I think that’s a very interesting dynamic that will help shape the market in 2013.

The CLOs running off, shrinking in size will create capacity for new CLOs, but I think it also creates balance in the supply-demand dynamic of the market as well. I think $50 billion is eminently doable for next year.”

Leveraged loans may provide better returns next year than high-yield bonds, according to investors. The middle market is expected to see issuance activity, while CLO issuance is forecast to grow after a revival in 2012.

2013 sell side Analyst PredictionsBoNDs LoANs

IssUANCE REtURN DEFAULt RAtE sPREAD IssUANCE REtURN DEFAULt RAtE sPREAD CLosBAMl $275bn 7.20% 2.50% 475bp $350bn 6.30% 2.50% 490bpBarclays $275-300bn 4-6% 3.50% $225-250bn 3.5%-5.5% 2.5%-3.5% $60-75bnCiti $325-350bn 7% 2.50% 475bpCredit Suisse $330bn 7% 1%-2% $230bn 5.50% 1%-4%JPMorgan $275bn 7-8% 2.00% 560bp $300bn 5-6% 2.00% 475bp $65-70bnMorgan Stanley $283bn 3.10% 3.60% 577bp $299bn 5.00% $60bnRBS $315bn 9%Deutsche Bank $290bn 7-8% 3-3.5% 450bp $300bn 7-8% 425bpwells Fargo $350bn 6-7% 3.25% 500bpuBS $300bn 7.50% 1.5-3% 500bp

2012 $350bn 15.6% 3.2% 550bp $300bn 10.5% 1.30%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


U.s. BoNDs

Yield to Worst Hits All-time Low; Bond Issuance Volume at Historic High

0

500

1000

1500

2000

2500

0.00

5.00

10.00

15.00

20.00

25.00

1/3/97 3/13/98 5/28/99 7/28/00 9/28/01 11/29/02 1/30/04 4/15/05 6/16/06 8/17/07 10/17/08 12/18/09 3/4/11 5/11/12

Spread To Worst Yield to Worst

Yiel

d To

Wor

st (%

)

Spre

ad T

o W

orst

(bps

)

Source: Bloomberg

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 0

50000

100000

150000

200000

250000

300000

350000

High-Yield Bond Volume Sets New Record

2012 2011 2010

Source: Bloomberg

$354bn

$m

0

10

20

30

40

50

60

70

80

90

100

0

10

20

30

40

50

60

J-10 A-10 J-10 O-10 J-11 A-11 J-11 O-11 F-12 M-12 A-12 N-12

Tota

l Iss

uanc

e V

olum

e U

SD B

illio

ns

Month-to-Month Issuance

Total Volume # Deals Closed

Source: Bloomberg

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U.s. BoNDs

ANNoUNCED DAtE IssUER AMoUNt IssUED

($BN) UNDERWRItERs CoUPoN tENoR UsE oF PRoCEEDs

9/14/12 ReYNolDS GRouP $3.250 CS 5.750% 8.16 Repay/Refinance Debt

11/8/12 SPRiNt NeXtel CoRP $2.280 BAMl/BARC/Citi/DB/GS/JPM 6.000% 10.15 Repay/Refinance Debt

11/27/12 RoYAl Bk SCotlND GRP PlC $2.250 Citi/MS/RBS 6.125% 10.18 lower tier-2 Capital

2/3/12 SAMSoN iNveStMeNt CoMPANY $2.250 BAMl/BARCS/BMo/Citi/CS/JeF/JPM/MiZuHo/RBC/wFC 9.750% 8.14 Bridge-loan Payment

4/10/12 eP eNeRGY/eP FiNANCe iNC $2.000 BMo/Citi/CS/DB/JPM/NoMuRA/RBC/uBS 9.375% 8.14 Acquisition Financing

3/26/12 lYoNDellBASell iND Nv $2.000 BAMl/BARCS/Citi/CS/DB/HSBC/iNG/JPM/MS/wFC 5.000% 7.12 Repay/Refinance Debt

10/19/12 CleAR CHANNel CoMMS $1.999 Citi/GS/MS 9.000% 7.24 Repay/Refinance Debt

11/6/12 CleAR CHANNel woRlDwiDe $1.989 Citi/CS/DB/GS/MS/wFC 6.500% 10.13 interCompany loan

2/29/12 CleAR CHANNel woRlDwiDe $1.925 Citi/CS/DB/GS/MS/RBS/wFC 7.625% 8.12 interCompany loan

2/28/12 liNN eNeRGY llC/FiN CoRP $1.800 BARC/CA/Citi/CS/RBC/RBS/wFC 6.250% 7.78 Acquisition Financing

9/20/12 vPi eSCRow CoRP $1.750 GS/JPM/RBC 6.375% 8.15 Acquisition Financing

7/31/12 Cit GRouP iNC $1.750 BAMl/DB/GS/JPM 4.250% 5.11 Repay/Refinance Debt

2/2/12 Cit GRouP iNC $1.750 BAMl/BARC/GS/JPM 5.500% 7.13 Repay/Refinance Debt

10/3/12 CRowN CAStle iNtl CoRP $1.650 BAMl/BARC/CA/Citi/DB/JPM/MS/MuFG/RBC/RBS/SuN/tD 5.250% 10.40 Project Finance

8/8/12 CHS/CoMMuNitY HeAltH SYS $1.600 BAMl/CAC/Citi/CS/GS/JPM/MS/RBC/SuN/wFC 5.125% 6.08 loan Payment

10/23/12 PlAiNS eXPloRAtioN $1.500 BARC/BMo/Citi/JPM/wFC 6.500% 8.17 Acquisition Financing

10/23/12 PlAiNS eXPloRAtioN $1.500 BARC/BMo/Citi/JPM/wFC 6.875% 10.46 Acquisition Financing

10/22/12 Citi $1.500 Citi variable N/A General Corporate

10/4/12 CeMeX FiNANCe llC $1.500 BARC/CA/HSBC/iNG/JPM/RBS 9.375% 10.14 Repay/Refinance Debt

5/15/12 iNMet MiNiNG CoRP $1.500 BAMl/Citi/CS/JPM/MS/RBC 8.750% 8.15 General Corporate

Source:Bloomberg LP

ANNoUNCED DAtE IssUER AMoUNt IssUED

($M) UNDERWRItERs CoUPoN tENoR UsE oF PRoCEEDs

10/19/12 CleAR CHANNel CoMMuNiCAtioNS $1,999 Citi/GS/MS 9.000% 7.24 Repay/Refinance Debt

2/9/12 ReYNolDS GRouP $1,250 CS 9.875% 7.61 Repay/Refinance Debt

10/11/12 MoMeNtive PeRFoRMANCe $1,100 BAMl/BMo/Citi/CS/DB/GS/JPM/MS/uBS 8.875% 8.09 Repay/Refinance Debt

10/9/12 HD SuPPlY $1,000 BAMl/BARC/CS/DB/GS/JPM/uBS/wFC 11.500% 7.86 Repay/Refinance Debt

1/25/12 PetRoBAkkeN eNeRGY $900 BAMl/CS/RBC 8.625% 8.12 Repay/Refinance Debt

1/10/12 level 3 FiNANCiNG $900 BAMl/Citi 8.625% 8.63 Repay/Refinance Debt

8/1/12 level 3 FiNANCiNG $775 BAMl/Citi/CS/DB/JPM/MS 7.000% 7.93 Repay/Refinance Debt

10/23/12 HAlCoN ReSouRCeS $750 BARCS/GS/JPM/wFC 8.875% 8.64 Acquisition Financing

6/29/12 HAlCoN ReSouRCeS $750 BARC/BMo/GS/JPM/RBC/wFC 9.750% 8.11 Merger Financing

9/7/12 HuB iNteRNAtioNAl $740 BAMl/MS/RBC 8.125% 6.16 Repay/Refinance Debt

7/12/12 wiDeoPeNweSt FiN $725 CS/MS/MuFG/RBC/SuN 10.250% 7.09 Acquisition Financing

4/3/12 CeNGAGe leARNiNG ACQuiSitioNS $725 DB/JPM/MS/RBC/uBS 11.500% 8.13 Repay/Refinance Debt

10/26/12 lAuReAte eDuCAtioN $700 BARC/Citi/JPM 9.250% 7.21 Repay/Refinance Debt

7/19/12 PARtY CitY HolDiNGS $700 BAMl/BARC/DB/GS/MS 8.875% 8.13 Acquisition Financing

4/5/12 HD SuPPlY $675 BAMl/BARC/CS/DB/GS/JPM/uBS/wFC 11.000% 8.13 Repay/Refinance Debt

9/19/12 SeRtA SiMMoNS HolDiNGS $650 BARC/DB/GS/MS/uBS 8.125% 8.12 lBo Funding

5/18/12 MolYCoRP $650 CS/MS 10.000% 8.14 Acquisition Financing

9/12/12 NuveeN iNveStMeNtS $645 BAMl/DB/MS/RBC/uBS/wFC 9.500% 8.19 Capital

9/19/12 iNtelSAt JACkSoN $640 BAMl/BARC/CS/DB/GS/JPM/MS 6.625% 10.35 Repay/Refinance Debt

1/3/12 StAtioN CASiNoS $625 DB/JPM 3.660% 6.55 Repay/Refinance Debt

Source: Bloomberg LP

the 20 biggest u.s. high-yield bond deals of 2012

the 20 biggest triple C rated deals of 2012

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


U.s. BoNDs

triple C, Dividend, PIk toggle Deals Make a Comeback

biggest deals to raise proceeds for dividend payments

biggest pik deals

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000

2010

2011

2012

Triple C Issuance Spikes

Caa1

Caa2

Caa3

Source: Bloomberg millions

11,251

7,103

0

2000

4000

6000

8000

10000

12000

2007 2008 2009 2010 2011 2012

PIK Issuance at Highest Since 2007

PIK Toggle

All PIK

Source: Bloomberg

$m

DAtE IssUER AMoUNt IssUED ($M) UNDERWRItERs CoUPoN tENoR12/3/12 HCA HolDiNGS $1,000 BAMl/BARC/Citi/CS/DB/JPM/MS/SuN/wFC 6.250% 8.312/2/12 liMiteD BRANDS $1,000 BAMl/Citi/JPM 5.625% 10.17

10/10/12 tRANSDiGM $550 Citi/CS/MS/uBS 5.500% 8.1210/4/12 PetCo HolDiNGS $550 BAMl/CS/GS/JPM/MS/wFC 8.500% 5.0910/16/12 iMS HeAltH $500 BAMl/BARC/DB/GS/HSBC/JPM/wFC 6.000% 8.1412/6/12 New ACADeMY FiNANCe $500 BARC/CS/GS/JPM/kkR/MiZ/MS 8.000% 5.589/24/12 CDRt HolDiNG $450 BAMl/BARC/DB/MS 9.250% 5.0710/23/12 tRANSuNioN HolDiNG $400 DB/GS 8.125% 5.705/24/12 GloBAl BRASS AND CoPPeR $375 GS/MS 9.500% 7.1012/13/12 iGloo HolDiNG $350 GS/BARC/CS/uBS 8.250% 5.0010/9/12 Jo-ANN StoReS HlDS $325 BAMl/BARC/Citi/JPM 9.750% 7.1010/16/12 MiRRoR Pik $275 BARC/JPM 9.000% 4.0812/11/12 MiCHAel FooDS HolDiNG $275 GS/BAMl 8.500% 5.658/17/12 AMeRiCAN GilSoNite $260 BAMl/keYBCM 11.500% 5.0810/18/12 eNeRGY FutuRe $253 Citi/CS/GS/JPM/MS 6.875% 5.08

8/9/12 eNeRGY FutuRe $250 Citi/CS/GS/JPM/MS 6.875% 5.08


DAtE IssUER AMoUNt IssUED ($M) UNDERWRItERs CoUPoN tENoR UsE oF PRoCEEDs

10/12/12 AlPHABet HolDiNG $550 BAMl/BARCS/CS 7.750% 5.11 Repay/Refinance Debt10/4/12 PetCo HolDiNGS $550 BAMl/CS/GS/JPM/MS/wFC 8.500% 5.09 Dividend Payment - Shareholders12/6/12 New ACADeMY FiNANCe $500 BARC/CS/GS/JPM/kkR/MiZ/MS 8.000% 5.58 Dividend Payment - Shareholders

10/10/12 JAGuAR HolDiNG $525 CS/DB/GS/JPM/uBS 9.375% 5.07 Acquisition Financing9/24/12 CDRt HolDiNG $450 BAMl/BARC/DB/MS 9.250% 5.07 Dividend Payment - Shareholders

10/23/12 tRANSuNioN HolDiNG $400 DB/GS 8.125% 5.70 Acquisition Financing7/17/12 iNteRliNe BRANDS $365 BAMl/GS 10.000% 6.37 Pension Funding

12/13/12 iGloo HolDiNG $350 GS/BARC/CS/uBS 8.250% 5.00 Dividend Payment - Shareholders10/24/12 Boe MeRGeR $335 BAMl/DB/GS 9.500% 5.06 Repay/Refinance Debt10/9/12 Jo-ANN StoReS $325 BAMl/BARC/Citi/JPM 9.750% 7.10 Repay/Refinance Debt

10/16/12 MiRRoR Pik $275 BARC/JPM 9.000% 4.08 Repay/Refinance Debt12/11/12 MiCHAel FooDS $275 GS/BAMl 8.500% 5.65 Dividend Payment - Shareholders2/29/12 New eNteRPRiSe $265 BAMl 13.000% 6.09 loan Payment

12/12/12 tAMiNCo ACQuiSitioN $250 C/CS 9.125% 5.08 Dividend Payment - Shareholders


1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


U.s. BoNDs

$37,380

$42,178

$57,568

$0 $100,000 $200,000 $300,000 $400,000

2010

2011

2012

Energy Sector Sees Biggest Year-on-Year Increase

Basic Materials

Communications

Consumer, Cyclical

Consumer, Non-cyclical

Diversified

Energy

Financial

Industrial

Technology

Utilities


Energy

$0

$10

$20

$30

$40

$50

$60

$70

2010 2011 2012

Billi

ons

Energy Sector Issuance by Use of Proceeds

Repay/Refinance

GCP/CAPEX

M&A


0

10

20

30

40

50

60

6.5

6.7

6.9

7.1

7.3

7.5

7.7

7.9

8.1

8.3

8.5

J-12 F-12 M-12 A-12 M-12 J-12 J-12 A-12 S-12 O-12 N-12 D-12

Average Junk Bond Coupon Rises, Tenor Falls

Amount issued (Right Axis, $bn)

Average Coupon (Left Axis)

Average Tenor (Left Axis)

%/Years

Source: Bloomberg

$0 $20,000 $40,000 $60,000 $80,000 $100,000

Ba1

Ba2

Ba3

B1

B2

B3

Caa1

Caa2

Caa3

B1 Rated Bonds Dominate Issuance by Rating

2012

2011

2010


jpmorgan tops 2012 u.s. junk bond underwriter rankingUNDERWRItER RANk MARkEt sHARE AMoUNt ($BN) WEIGHtED AV. FEEs (%) DEAL CoUNt

JPMorgan 1 11.5 40.3 1.5 326

BAMl 2 11 38.8 1.5 324

Credit Suisse 3 9.1 31.9 1.4 231

Deutsche Bank 4 8.8 31.0 1.3 236

Citi 5 8.8 31.0 1.3 245

Goldman Sachs 6 8.1 28.4 1.3 203Source: Bloomberg LP. leag44 <go>

Average tenor Falls, Coupon Rises; triple C Issuance Volume Jumps

MANAGE YOUR EQUITY PORTFOLIOS AND RISKWITH THE LATEST DESKTOP APPLICATION

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


U.s. BoNDs

0

2

4

6

8

10

12

14

16

High-Yield Bonds Leveraged Loans

Bond, Loan Returns Expected to Drop

2012 Actual

2013 Forecast

Average bond return forecast from Morgan Stanley, Citi, JPM, BAML, RBS, Credit Suisse, Deutsche, Wells Fargo, UBS. Loan forecasts from Morgan Stanley, Citi, JPM, BAML, Credit Suisse, Deutsche.


Total Return %

0

5

10

15

20

25

30

Euro High Yield Global High Yield

U.S. High Yield High Grade Govt Bonds MSCI World

Junk Beats High Grade, Government Bonds in 2012 Total Return %

Source: Bloomberg

-3000

-2000

-1000

0

1000

2000

3000

1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1 10/1 11/1 12/1

U.S. Bond Fund Flow Turns Negative at Year End

INFLOW

OUTFLOW

Source: EPFR Global

$m

-5

5

15

25

35

45

55

65

75

85

95

2009 2010 2011 2012

Triple C Credit Performs Best Since 2009

BBs

Bs

CCCs or Lower

High Yield Index

Total Return %


Cit group leads junk bond issuer ranking by proceeds in 2012IssUER RANk MARkEt sHARE(%) AMoUNt ($BN) WEIGHtED AV. FEEs (%) DEAL CoUNt

Cit Group 1 2.8 9.8 0.942 7

Clear Channel 2 2 6.9 - 5

Sprint Nextel 3 1.7 6.1 1.5 5

HCA Holdings 5 1.4 4.9 1.125 4

Reynolds 6 1.3 4.5 - 2

DiSH Network 7 1.3 4.4 - 4Source: Bloomberg LP leag44<go>

Junk Bond Returns Exceed High Grade, Driven by triple Cs; Fund Inflows Dwindle

WHERE ARE US INTEREST RATES HEADING?

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


U.s. BoNDs — CDs WAtCH BloomBerg Data

Centex, Nextel Credit Best in 2012; JC Penney, Radioshack Underperform, CDs show

The chart shows the largest percentage movers for the Jan. 1-Dec. 13 2012 period in single name five-year CDS for U.S.- based issuers rated BB+ through C by Fitch and priced by CMA Datavision. CDS prices are bid-ask midpoint of CMA end-of-day New York trading levels. When applicable, they are converted from points upfront.

— Lee Zeltser, Jeff Schiller, Bloomberg Data Analysts

worst performers

best performers

Source: Bloomberg LP WCDS <Go>

-80.00% -70.00% -60.00% -50.00% -40.00%

Centex Corp.

Nextel Comm. Inc.

Energy Future Holdings Corp.

Sprint Nextel Corp.

Ally Financial Inc.

Dole Food Co. Inc.

L-3 Comm Corp. (Sub.)

PulteGroup Inc.

Neiman Marcus Group Inc.

Beazer Homes USA Inc.

International Lease Finance Corp.

GenOn Energy Inc.

Standard Pacific Corp.

Community Health Systems Inc.

DDR Corp.

KB Home

USG Corp.

Avis Budget Group Inc.

Host Hotels & Resorts LP

Avis Budget Car Rental LLC/Finance Inc.

-50.00% 0.00% 50.00% 100.00% 150.00% 200.00% 250.00%

JC Penney Co. Inc. RadioShack Corp. Best Buy Co. Inc. Edison Mission Energy Albertsons Inc. Advanced Micro Devices Texas Competitive Elec. Hldgs Co. LLC Navistar Int'l. Corp. Windstream Corp. Chesapeake Energy Corp. Peabody Energy Corp. SUPERVALU Inc. Ltd Brands Inc. Toys R Us Inc. Health Net Inc. Rite Aid Corp. Goodyear Tire & Rubber Co. DPL Inc AES Corp. American Axle & Mnfg. Inc.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


U.s. BoNDs — totAL REtURNs BY sECtoR BloomBerg Data

Banks were the best performing sector in Bank of America Merrill Lynch’s U.S. high-yield index[1], with a 28 percent gain. This was fol-lowed by the insurance and real estate segments, with total returns of 25 percent and 24 percent, respectively. The worst returns were seen in environmental, metals/mining and food & drug retail junk bonds. Triple C rated bonds beat the index, with a 19.6 percent gain, while the other rating categories underperformed. The market overall had its best year since 2009, with a 15.35 percent return.

— Lee Zeltser, Jamie Dranoff, Bloomberg Data Analysts

bank of ameriCa merrill lynCh us high yield master ii index-seCtor returns DECEMBER 13, 2012

sECtoR BAMLtICkER

BAMLCREDIt RAtING YtW (%) oAs

totAL REtURN, % [2,3]

2012 [1] 2011 2010 2009

Gaming H0AG B3 7.77 712 15.86 3.67 20.60 59.11telecommunications H0tC B1 5.77 475 19.61 2.70 14.17 46.75entertainment H0et B3 5.19 474 13.73 6.27 12.46 55.81utilities H0el B1 8.47 761 11.46 6.89 4.20 28.16

Railroad H0RA CCC1 7.56 673 14.51 6.11 13.85 31.52

Real estate H0HB B1 4.70 397 23.86 -0.34 19.85 87.19Containers H0Ct B2 5.56 472 15.07 6.27 11.50 35.48

Financials H0Fi B1 5.09 441 17.12 3.31 26.35 118.85

Food & Drug Retail H0FR B3 7.20 631 7.40 14.53 6.23 57.81Food/Beverage/tobacco H0Fo B1 5.41 466 13.96 5.45 13.48 39.86Hotels H0AH BB2 3.57 266 11.70 7.22 12.44 42.08leisure H0le B1 4.77 415 13.67 9.13 19.04 63.73Restaurants H0Re B3 6.36 567 16.73 7.10 12.70 64.07Building Materials H0Bl B1 5.55 476 19.42 0.75 13.01 69.56Broadcasting H0BR B3 7.89 706 18.97 1.80 23.73 197.60

Cable tv H0Cv B1 4.64 376 11.41 10.09 11.36 30.72

Capital Goods H0CA B1 4.91 427 12.85 6.06 16.23 46.31Aerospace H0Ae B1 5.95 522 11.43 4.32 14.02 35.85Steel H0St BB2 6.43 522 13.16 2.40 14.76 74.27Consumer Products H0Co B2 5.98 510 13.06 4.06 13.05 59.09transportation H0SH B3 10.62 993 17.10 -5.99 19.58 70.69energy H0eN B1 5.75 481 11.50 8.51 12.95 51.14textiles/Apparel H0te B1 4.62 385 13.83 6.39 14.46 66.60Healthcare H0Hl B2 5.61 474 14.44 7.16 11.65 42.22Metals/Mining H0Me B1 6.93 613 6.82 3.70 15.75 52.37Airlines H0Ai B1 6.36 570 16.91 -2.37 21.03 70.52Services H0Se B2 6.26 550 14.80 5.70 12.81 76.04Automotive H0Au B1 5.77 500 16.50 7.05 17.82 63.85environmental H0ev B2 6.66 571 9.42 6.35 14.86 43.22Super Retail H0SR B1 6.08 521 12.93 4.76 12.41 77.39Paper H0PA BB3 5.90 484 16.52 -1.77 15.17 51.83Media H0DM B2 6.43 541 11.90 5.83 13.90 65.41Chemicals H0CH B1 6.19 520 15.54 4.11 17.33 62.82Publishing H0Pu B1 10.06 949 10.41 -6.02 15.37 80.39Banks H0BA BB3 5.59 467 28.13 -4.10 21.16 73.15technology H0tY B2 7.29 640 15.89 5.43 15.37 87.11insurance H0iN BB3 7.84 675 25.38 1.12 40.91 121.60

BBs H0A1 BB2 4.63 369 14.33 6.12 14.93 45.21Bs H0A2 B2 5.85 503 14.77 4.65 13.99 47.64CCCs H0A3 CCC2 10.52 973 19.58 -1.40 18.42 96.79uS High Yield Master ii H0A0 B1 6.13 527 15.35 4.38 15.19 57.51

source: Bank Of America Merrill Lynch Bond Indices

Notes:1) Year to Dec. 13.2) Monthly and YTD performance data is as of last fully completed monthly period. 3) Green/red color coding represents performance ranking of the top/bottom 3 sectors in the period.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


WEstERN EURoPEAN JUNk BoNDs

Average Coupon trends Higher; Volume Revives, Driven by CCC Rated Issuance

0

10

20

30

40

50

60

70

2007 2008 2009 2010 2011 2012

Eur

(Bln

)

Financial Issuance Volume Falls, Corporate Rises

CORPORATE

FINANCIAL

Source: Bloomberg

-

2

4

6

8

10

12

14

United Kingdom

Luxembourg Germany Spain Portugal Italy France

Eur

(Bln

)

Luxembourg Dominates Junk Volume by Country

2011 2012

Source: Bloomberg

0

5

10

15

20

25

30

35

40

45

50

0

1

2

3

4

5

6

7

8

9

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2007 2008 2009 2010 2011 2012

Vol

ume,

Eur

Bn,

(bar

s)

Ave

rgae

Cou

pon,

% (l

ine)

Average High-Yield Bond Coupon Rises

Source: Bloomberg

0

2

4

6

8

10

12

14

2007 2008 2009 2010 2011 2012

Issuance Volume by Credit Rating

CCC+

B

B-

B+

BB

BB-

BB

BB+

C

CC

CCC-

CCC

Source: Bloomberg

Euro, Bn

Proprietary Data. Deep Analysis. Expert Insight.Bloomberg BRIEF Leveraged Finance is a new, groundbreaking publication for the leveraged loan and junk bond market, published by Bloomberg, the premier source of data and analytics in the financial world.

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U.s. LoANs

Volume Accelerates, Fueled by Refinancing; Returns Pick Up

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1/11/11 4/11/11 7/11/11 10/11/11 1/11/12 4/11/12 7/11/12 10/11/12

Tota

l Ret

urn

Leveraged Loan Returns Rebounded in 2012

JPM Leveraged Loan Index S&P 500 Equity Index JPM HY Domestic Bond Index

Source: Bloomberg LSRC <GO>

$0

$100

$200

$300

$400

$500

$600

2009 2010 2011 2012

Institutional Issuance Tops 2011, Total Volume Lags

Pro-Rata

Institutional

Source: Bloomberg

bn

0

100

200

300

400

500

600

700

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

Q1-

07

Q2-

07

Q3-

07

Q4-

07

Q1-

08

Q2-

08

Q3-

08

Q4-

08

Q1-

09

Q2-

09

Q3-

09

Q4-

09

Q1-

10

Q2-

10

Q3-

10

Q4-

10

Q1-

11

Q2-

11

Q3-

11

Q4-

11

Q1-

12

Q2-

12

Q3-

12

Q4-

12

Ave

rage

1L

Spre

ad a

t Clo

se (b

ps)

Issu

ance

USD

(Bill

ions

)

Refinancing Deals Dominate Leveraged Loan Issuance

NR CCC B BB Loans Used to Refi Debt Average Spread at Close (bps)


0

100

200

300

400

500

600

BBB- BB BB+ BB- B+ B

Spre

ad in

Bas

is P

oint

s

Rating at Close

Margin Per Turn of Leverage at Close First Lien Loans: Jan 2011 - Dec 2012

Average Spread at Close Min bps per Turn

Average bps per Turn Max bps per Turn


Market leading intelligence Bloomberg Briefs publishes 18 newsletters to help you stay ahead of the markets. Individual and group subscriptions available. Visit www.bloombergbriefs.com to subscribe or take a trial. Or call Annie Gustavson at +1-212-617-0544.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


U.s. LoANs

BoRRoWER tRANCHE sIzE ($BN) tENoR CURRENt MARGIN UsE oF PRoCEEDs sECtoRFord Motor 9.0 3.71 225 Refinance Debt Consumer Discretionary

Clear Channel Comms 7.7 3.26 365 Refinance Debt Communications

kinder Morgan 6.8 1.29 300 Acquisition energy

Sealed Air 6.4 3.88 250 working Capital Materials

ARAMARk 5.2 4.41 337.5 Refinance Debt Consumer Staples

kinder Morgan 5.0 3.29 350 Acquisition energy

Sabine Pass liquefaction 3.6 7.00 350 Development/Construction energy

Chesapeake energy 3.0 5.56 700 Refinance Debt energy

Plains exploration 3.0 5.00 300 Acquisition energy

infor/lawson Software 2.8 5.52 400 Refinance Debt technology

infor/lawson Software 2.8 6.00 500 Merger technology

international lease Finance Corp 2.3 3.00 325 Refinance Debt Financials

Reynolds Group Holdings 2.2 6.00 375 Refinance Debt Consumer Staples

Cequel Communications 2.2 7.00 300 Dividend Payment Communications

First Data Corp 2.2 5.03 500 Refinance Debt technology

Fidelity National information Services 2.1 5.00 200 Refinance Debt technology

eP energy 2.0 5.00 175 lBo energy

HCA 2.0 4.07 150 Refinance Debt Health Care

energy transfer equity 2.0 5.01 300 Acquisition energy

ineos uS Finance 2.0 6.00 525 Refinance Debt Materials


BoRRoWER tRANCHE sIzE ($M) tENoR MARGIN LIBoR FLooR sPoNsoR

Cequel Communications 2,200 7.00 300 100 Goldman Sachs/Quadrangle/oaktree

BJ's wholesale Club 1,300 7.00 450 125 CvC/leonard Green

Booz Allen Hamilton 1,250 7.00 350 100 Carlyle

kronos 1,210 7.00 425 125 Hellman & Friedman/JMi equity

Attachmate 1,100 5.51 575 150 Francisco Partners/Golden Gate/thoma Bravo

lone Star intermediate Super Holdings 1,000 7.50 950 150 Madison Dearborn/Providence equity/welsh Carson

west Corp 970 5.88 450 125 Quadrangle/thomas H lee

AdvancePierre Foods 925 4.75 450 125 oaktree Capital

endurance international Group 800 7.00 500 125 GS Capital/warburg Pincus

Harbor Freight tools uSA 750 5.50 425 125 -


BoRRoWER tRANCHE sIzE ($BN) tENoR CURRENt MARGIN UsE oF PRoCEEDs sECtoR


ineos uS Finance 2.00 6.00 525 Refinance Debt Materials


Bausch & lomb 1.94 7.00 425 Refinance Debt Health Care

Getty images 1.90 7.00 325 lBo Communications

ADS waste Holdings 1.80 7.00 400 Acquisition industrials

SuPeRvAlu 1.65 5.00 200 Refinance Debt Consumer Staples

Arch Coal 1.40 6.00 450 Refinance Debt energy

BJ's wholesale Club 1.30 7.00 450 Refinance Debt Consumer Staples

uS Foods 1.24 4.82 425 Refinance Debt Consumer Staples


Ford Motor Leads Ranking of Biggest Leveraged Loans in 2012

Chesapeake Dominates Covenant-Lite Leveraged Loan Issuance

Cequel tops Ranking of Loan Issuance for Dividend Payment

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


U.s. LoANs

Institutional, Cov-Lite Volume Jump; Consumer Discretionary Leads by sector

Communications 11%

Consumer Discretionary

22%

Consumer Staples 7% Energy

11% Financials

12%

Health Care 10%

Industrials 9%

Materials 6%

Technology 11%

Utilities 1%

2012 Issuance by Sector

Source: Bloomberg

$0 BIL

$5 BIL

$10 BIL

$15 BIL

$20 BIL

$25 BIL

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010 2011 2012

Cov Lite Term Loan Issuance by S&P Ratings

CCC BBB BB B

Source: Bloomberg

0

100

200

300

400

500

600

700

800

$0 BIL

$20 BIL

$40 BIL

$60 BIL

$80 BIL

$100 BIL

$120 BIL

$140 BIL

$160 BIL

$180 BIL

$200 BIL

Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4

2009 2010 2011 2012

Quarterly Leveraged Volume and Deal Count

Total Issuance

# of Tranches

Source: Bloomberg

$0 BIL

$20 BIL

$40 BIL

$60 BIL

$80 BIL

$100 BIL

$120 BIL

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010 2011 2012

Pro Rata vs Institutional Issuance

Institutional Pro-Rata

Source: Bloomberg

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U.s. LoANs click on tabs to view sector maturity walls

Interactive 2013-2014 Institutional Loan Maturity schedule

Maturity Wall Pushed Out due to Recent Refinancings

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Loan

Issu

ance

in U

SD (B

illio

ns)

Maturity Wall Pushed Out due to Recent Refinancings

2009 Maturity Wall 2012 Maturity Wall 2012 2015 2014 2013 2016 2017 2018 2019


1

The maturity wall for U.S. leveraged loans has been pushed out to a peak in the first quarter of 2017 after recent refi-nancings, Bloomberg data show. In 2009, more than $95 billion was scheduled to come due in the fourth quarter of 2013.

This year’s wall has been reduced significantly as no more than $6 billion is scheduled to come due in any one quar-ter. The next peak is in the third quarter of 2014, when $24 billion in loans are due, Bloomberg data show.

— Afrim Zeka, Bloomberg Data Analyst

limited maturities in 2013

WHO GETS PAID BEFORE YOU DO?

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


U.s. LoANs — PRICE tRENDs

Unsecured Margin, Libor Floor Falls; Percentage With Libor Floor Jumps

0

200

400

600

800

1000

1200

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2010 2011 2012

Average Margin by Rank

1st Lien 2nd Lien Unsecured

Source: Bloomberg

0%

10%

20%

30%

40%

50%

60%

70%


2009 2010 2011 2012

Percentage of Term Loans with LIBOR Floor

Source: Bloomberg

0

50

100

150

200

250

300

350


2009 2010 2011 2012

Average LIBOR Floor for Term Loans

Source: Bloomberg

96.5

97

97.5

98

98.5

99

99.5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2010 2011 2012

Average Original Issue Discount for Term Loans

Source: Bloomberg

Proprietary Data. Deep Analysis. Expert Insight.Bloomberg BRIEF Structured Notes is a new, groundbreaking publication created for structured note issuers, institutional investors and regulators, published by Bloomberg, the premier source of data and analytics in the financial world.

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EURoPEAN LoANs

Average Margin trends Higher; Maturity Wall Pushed out

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250

300

350

400

450

500

550

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2007 2008 2009 2010 2011 2012

0

10

20

30

40

50

60

70

80

Ave

rage

Mar

gin

EUR

(Bln

)

Quarterly Issuance Volume, Average Margin

Source: Bloomberg

-

10

20

30

40

50

60

70

2012 2013 2014 2015 2016 2017

Eur

(Bln

)

Leveraged Loan Maturity Wall, 2012 Vs 2011

2011 2012

Source: Bloomberg

0

100000

200000

300000

400000

500000

600000

700000

2007 2008 2009 2010 2011 2012

Europe Announced LBO Volume Drops Versus U.S.

Asia Pac (Dev) N America W Europe


$m

0

100

200

300

400

500

600

700

800

900

0

50000

100000

150000

200000

250000

300000

350000

400000

2007 2008 2009 2010 2011 2012

Num

ber o

f Dea

ls (l

ine)

USD

M (b

ar)

Announced European LBOs Fall 17% in 2012

Source: Bloomberg

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


EURoPEAN LEVERAGED LoANs

schaeffler tops ranking of largest deals signed in 2012IssUER DEAL sIzE (M) CURRENCY MAtURItY MARGIN

Schaeffler 8,000 euR 01/27/15 euribor+425

intelsat Jackson Holdings 3,218 uSD 04/02/18 libor+325

eircom Holdings 2,345 euR 09/29/17 euribor+300

Delta 2 Sarl 2,260 uSD 04/27/19 libor+475

elior SCA 1,581 euR 06/30/17 euribor+450

Abengoa 1,566 euR 07/01/16 euribor+375

eurasian Natural Resources 2,000 uSD 02/01/17 libor+630

Silver ii Borrower Sarl 1,975 uSD 12/05/19 libor+375

vivarte 1,509 euR 03/31/18 euribor+650

Cableuropa SAu 1,400 euR 12/24/18 euribor+450

Grifolsinc 1,700 uSD 06/01/17 libor+350

telco SPA 1,050 euR 11/27/13 euribor+300

Sensata technologies 1,336 uSD 05/12/18 libor+275

eDP- energias de Portugal 1,000 euR 08/20/17 euribor+480

Misys 1,197 uSD 12/12/18 libor+600

Autobar Group 900 euR 10/31/19 euribor+500

iglo Foods Midco 811 euR 10/31/17 euribor+475

eDP - energiasde Portugal 800 euR 10/22/15 euribor+350

kabel Deutschland vertriebund Service 782 euR 03/31/17 euribor+325

Smurfit kappa Acquisitions 701 euR 03/31/17 euribor+388

Source:Bloomberg LP

admorabilia leads european loan maturity schedule for 2013

BoRRoWER tYPE MAtURItYoUtstANDING

CuRReNCY AMouNt

Admorabilia teRM 08/11/2013 euR 1,250

telco teRM 11/27/2013 euR 875

inmobiliaria Colonial teRM 09/14/2013 euR 800

kwik-Fit Holdings teRM 08/31/2013 euR 375

kwik-Fit Holdings teRM 08/31/2013 GBP 265

enterprise inns teRM 12/15/2013 GBP 264

Hapag-lloyd teRM 09/25/2013 uSD 412

Mecom Group teRM 10/25/2013 euR 295

Sky Deutschland D-DteRM 12/31/2013 euR 275

FCi international teRM 11/02/2013 euR 182

Air tanker Finance teRM 07/27/2013 GBP 182

travelex teRM 10/31/2013 GBP 140

Red Bee Media teRM 08/31/2013 GBP 125

iccrea Bancaimpresa teRM 12/23/2013 euR 150

enterprise inns Rev 12/15/2013 GBP 99

Powerfuel Mining teRM 07/16/2013 GBP 85

etablissements Maurel et Prom Rev 12/31/2013 uSD 130

Sponda teRM 02/15/2013 euR 100

Aegean Marine Petroleum Rev 01/30/2013 uSD 123

Smurfit kappa Acquisitions teRM 12/31/2013 euR 95

Source:Bloomberg LP

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19


leveraged finance 2012 outlook

Economy & Finance