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  • Loan PortfolioTransactionsINSIGHTS FOR YOUR STRATEGY

    November 2013

  • Agenda

    I. Welcome and Program Overview

    II. Perspectives on the Loan Market

    III. Regulatory, Accounting and Tax Issues: What Investors Needto Know

    IV. Structuring Portfolio Sales Recent InternationalExperiences and Perspectives

    V. Q&A

    VI. Closing Remarks

    2

  • II. Perspectives on the LoanMarket

    3

  • II. Perspectives on the Loan Market

    Speakers

    Ted Basta, SVP Market Data & Analysis, LSTA

    Christopher Seyfarth, Partner, Transactional Advisory Christopher Seyfarth, Partner, Transactional AdvisoryServices/Transaction Real Estate, Ernst & Young LLP

    Saul Burian, Managing Director, Financial RestructuringGroup, Houlihan Lokey

    4

  • The Corporate Loan Market

    Secondary Trading & Liquidity

    Ted Basta, SVP Market Data & Analysis

    LSTA+1 212 880 3005tbasta@lsta.org

  • While Lending Activity Fell in 3Q13,New Money Loans Outpaced Refinancing Activity

    $200

    $250

    New money Refinancing

    $491

    $400

    $500

    Institutional Loan Lending Volume

    Source: Thomson Reuters LPC

    $52

    $45

    $-

    $50

    $100

    $150

    1Q13 2Q13 3Q13

    Bil

    lio

    ns

    $342

    $-

    $100

    $200

    $300

    2011 2012 1Q-3Q13

    Bil

    lio

    ns

    6

  • It Has Taken Five Years For The S&P/LSTALeveraged Loan Index to Return to Its Pre-Crisis Size~Outstandings Has Hit a Record $645B An Increase of $100B in 2013

    $600

    $650

    Bil

    lio

    ns

    S&P/LSTA Leveraged Loan Index: Par Amount Outstanding

    $450

    $500

    $550

    Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13

    Bil

    lio

    ns

    7

  • Retail Loan Funds Now Comprise One-Thirdof The Institutional Primary Lending Market

    Share of Non-Bank Institutional Lending

    52%

    50%

    60%

    70%

    2011 2012 _ 1H13 3Q13

    9%6%

    33%

    0%

    10%

    20%

    30%

    40%

    Hedge, Dist. & HYFunds

    Fin. & Insur. Cos Retail Loan Funds CLOs

    Source: S&P Capital IQ LCD 8

  • Following a 30-Year Period of Declining Treasury Rates,The Street is Projecting a Considerable Move Higher

    10

    12

    14

    16

    Pe

    rc

    en

    t

    10YR Treas 3-MO LIBOR

    0

    2

    4

    6

    8

    10

    Ja

    n-8

    0

    Ja

    n-8

    2

    Ja

    n-8

    4

    Ja

    n-8

    6

    Ja

    n-8

    8

    Ja

    n-9

    0

    Ja

    n-9

    2

    Ja

    n-9

    4

    Ja

    n-9

    6

    Ja

    n-9

    8

    Ja

    n-0

    0

    Ja

    n-0

    2

    Ja

    n-0

    4

    Ja

    n-0

    6

    Ja

    n-0

    8

    Ja

    n-1

    0

    Ja

    n-1

    2

    Pe

    rc

    en

    t

    Source: Federal Reserve 9

  • While Loan Retail Funds Have Taken in $53B This Year,HY Bond Flows Have Run Negative at -$8B

    $250

    $300

    $350

    Loan Funds Net Assets

    HY Bond Fund Net Assets

    $-

    $5

    $10Loan fund flows

    $-

    $50

    $100

    $150

    $200

    Jan-11 Jan-12 Jan-13

    Bil

    lio

    ns

    Source: Thomson Reuters LPC

    $(20)

    $(15)

    $(10)

    $(5)

    Ja

    n-1

    3

    Feb

    -13

    Ma

    r-13

    Ap

    r-13

    Ma

    y-13

    Ju

    n-1

    3

    Ju

    l-13

    Au

    g-1

    3

    Sep

    -13

    Bil

    lio

    ns

    10

  • 2013 CLO Issuance ($59B) & Retail Fund Flows($53B) Totaled $112B Through 3Q13

    $40

    $50

    $60CLO Issuance Loan fund flows

    $10

    $15CLO Issuance Loan fund flows

    Source: Thomson Reuters LPC

    $-

    $10

    $20

    $30

    2011 2012 Jan-Sep2013

    Bil

    lio

    ns

    $-

    $5

    Ja

    n-

    Feb

    -

    Ma

    r

    Ap

    r-

    Ma

    y

    Ju

    n-

    Ju

    l-13

    Au

    g

    Sep

    -

    Bil

    lio

    ns

    11

  • Loans Traded Higher Through Mid-May on StrongTechnicals (The Supply & Demand Equation)

    -$20B

    -$10B

    $0B

    $10B

    $20B

    $30B

    Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13

    Change In Visible Demand Change In Supply Delta

    Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13

    Source: S&P /LSTA LLI & LSTA Trade Data Study

    27% 5%

    88%

    0%

    25%

    50%

    75%

    100%

    Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13

    Advancers Decliners

    12

  • Both The Mean and Median Trade Price Has RemainedRange-bound in 3Q13 at 98 and 100.125, Respectively

    100.13

    98

    100

    102

    Mean Trade Price (% of Par)

    Median Trade Price (% of Par)

    100

    125

    MTM Mean Bid-Ask Spread (BPS)

    MTM Median Bid-Ask Spread (BPS)

    97.80

    90

    92

    94

    96

    98

    Oct

    -11

    Dec

    -11

    Feb

    -12

    Ap

    r-12

    Jun

    -12

    Aug

    -12

    Oct

    -12

    Dec

    -12

    Feb

    -13

    Ap

    r-13

    Jun

    -13

    Aug

    -13

    69

    63

    0

    25

    50

    75

    Oct

    -11

    Dec

    -11

    Feb

    -12

    Ap

    r-12

    Jun

    -12

    Aug

    -12

    Oct

    -12

    Dec

    -12

    Feb

    -13

    Ap

    r-13

    Jun

    -13

    Aug

    -13

    Source: LSTA Trade Data Study 13

  • Annualized 2013 Trading Volume Represents a Record Highof $521B While The Annual Turn-Over Ratio on The S&P/LSTALeveraged Loan Index (LLI) Has Peaked at 70%

    $500

    $600

    Annual Trade Volume Annualized

    66%

    70%80%

    100%

    $500

    $600

    LLI Loan Trade VolumeAvg. Size of the LLILLI Turn-Over Ratio (%)

    $391

    $-

    $100

    $200

    $300

    $400

    20

    08

    20

    09

    20

    10

    20

    11

    20

    12

    1Q-

    3Q

    13

    Bil

    lio

    ns

    66%

    56%

    51%

    63%58%

    0%

    20%

    40%

    60%

    $-

    $100

    $200

    $300

    $400

    2008 2009 2010 2011 2012 2013Ann.

    Bil

    lio

    ns

    Source: LSTA Trade Data Study 14

  • 3Q13 Trade Volumes Fell 19% to $121B as More Than80% of Total Activity Occurred at Prices Above 98

    Quarterly Trade Volume

    $125

    $150

    $175

    Bil

    lio

    ns

    TOTAL PAR DIS

    % of Trade Volume by Price Range

    80%

    100%

    >98 90 to 98 80 to 89.99

  • Monthly Market Breadth and Depth AnalysisSupports a Robust Secondary Trading Market

    1200

    1300

    $40

    $60

    Trade Volumes

    80%

    100%

    =20 Trades

    Monthly Market Breadth Monthly Market Depth

    1000

    1100

    1200

    $-

    $20

    $40

    Oct

    -12

    Dec

    -12

    Feb

    -13

    Ap

    r-13

    Ju

    n-1

    3

    Au

    g-1

    3

    Bil

    lio

    ns

    55%

    23%

    0%

    20%

    40%

    60%

    Oct

    -12

    Dec

    -

    Feb

    -13

    Ap

    r-13

    Ju

    ne

    Au

    g-

    %o

    fL

    oa

    ns

    Source: LSTA Trade Data Study 16

  • An Update on theNon-Performing Loan Report

    Christopher Seyfarth, PartnerTransactional Advisory Services/Transaction Real EstateErnst & Young LLP+1 415 894 8738

    chris.seyfarth@ey.com

    17

  • A Broader View of theSecondary Markets

    Saul Burian, Managing Director

    Financial Restructuring Group

    Houlihan Lokey+1 212 497 4245

    sburian@HL.comil

  • Secondary Market Development Milestones

    Junk bond market crashand subsequentportfolio sales

    Junk bond market crashand subsequentportfolio sales

    TMT sector sell-off (techbubble)

    TMT sector sell-off (techbubble)

    European-ledsovereign debt

    crisis

    European-ledsovereign debt

    crisis

    Savings and loancrisis and RTCportfolio sales

    Savings and loancrisis and RTCportfolio sales

    Asian financial crisis,including financial institution

    bankruptcies and portfoliosales

    Asian financial crisis,including financial institution

    bankruptcies and portfoliosales

    U.S.-led financialcrisis

    U.S.-led financialcrisis

    U.S. and European regulatoryreform, such as the Volker Rule,

    prompts banks to re-assess illiquidasset holdings

    U.S. and European regulatoryreform, such as the Volker Rule,

    prompts banks to re-assess illiquidasset holdings

    19

    Apollo forms andpurchases

    Executive LifePortfolio

    Apollo forms andpurchases

    Executive LifePortfolio

    Whitehall, MSREFand others

    purchase REO andloans from RTC

    Whitehall, MSREFand others

    purchase REO andloans from RTC

    Lone Star,Avenue, Colony

    and otherspurchase assetsand NPLs fromAsian financial

    institutions

    Lone Star,Avenue, Colony

    and otherspurchase assetsand NPLs fromAsian financial

    institutions

    Coller,Landmark,

    Lexington andothers purchaselarge portfoliosof LP interests

    Coller,Landmark,

    Lexington andothers purchaselarge portfoliosof LP interests

    Various fundspurchase CMBS,RMBS, CDO andother securities

    Various fundspurchase CMBS,RMBS, CDO andother securities

    Lone Star, WellsFargo and others

    purchaseperforming loan andNPL portfolios from

    Irish b