Leveraged Finance 2012 Outlook

LEVERAGED
FINANCE
2012 Review
2013 outlook
January 2013

01.03.13 www.bloombergbriefs.com Bloomberg Brief | Leveraged Finance 2

Contents 2012 IN REVIEW

high-yield bond in U.S. credit qual- actions. Issuance by MONTH Event
outlook ity, as measured by sector. Page 14-15.
Analysts and inves- CDS. Page 10. CVC Capital Partners agreed to buy Resource America’s leveraged-loan
tors make their fore- interactive investments unit in a move to expand in the U.S.
casts for this year. Total returns loan maturity JAN
Page 3. by sector calendar CDS prices indicate 91 percent chance of TXU default in the next three
The best and worst Sort upcoming loan years.
leveraged loan performing industries maturities by indus- JPMorgan raises its estimate for 2012 junk bond returns to 13.7 percent from
outlook and rating segments try sector. Page 16. 9.4 percent. BAML expects returns of 12.3 percent, Barclays holds with 5-7
Investor calls for this in 2012, compared percent, saying Greece is still grappling with fiscal challenges.
year’s loan and CLO with the previous U.S. Loan Price FEB
markets, including three years. Page 11. Trends 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.
detailed predictions Average margins, Li-
from the sell side. european high bor floors, discounts.
Apollo and a consortium buy El Paso’s E&P operation for $7.15 billion, the
Page 4. yield Page 17. largest LBO of 2012.
Triple C rated is- MAR
Biggest junk suance dominates EUROPEAN LOANS European high-yield companies tap the U.S. bond market at a record pace
bonds of 2012 2012 volume. Average margins, as investors funnel unprecedented amounts of cash into dollar-denominated
The largest transac- Page 12. discounts. Page junk-debt funds and the sovereign crisis restricts bank lending in the region.
tions of the year. 18-19. T Rowe Price closes two junk-bond funds amid a surge in demand for higher-
Page 6. u.s. leveraged yielding debt.
loans APR
Best/worst CDS Top 20 leveraged Lower-rated companies, including airline lessors, start issuing bonds to meet
The biggest improve- deals; biggest divi- heightened investor demand
ments and declines dend, cov-lite trans- 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.
MAY
3i Debt Management acquires about 2 billion euros of CLOs from Invesco as
Bloomberg Brief Leveraged Finance it seeks to expand in Europe and the U.S.
Bloomberg LP
731 Lexington Avenue, New York, NY 10022 Atlantic Broadband secures the year’s first dividend pre-cap financing.
212-318-2000
JUN
American Casino & Entertainment Properties postpones a $310 million bond
Newsletter Ted Merz due to market conditions. Engility pulls its $250 million senior notes offer,
Executive Editor tmerz@bloomberg.net WideOpenWest Finance delays a $1 billion bond to make covenant changes.
212-617-2309 Thomas H. Lee Partners’s credit unit acquires a $2.5 billion debt manager
Bloomberg News Robert Burgess from McDonnell Investment, joining private-equity firms expanding lever-
Managing Editor bburgess@bloomberg.net aged loan holdings.
JUL
212-617-2945
Alpha Natural Resources begins negotiations with debt-holders to gain relief
Leveraged Finance James Crombie on covenants as coal prices slump.
Newsletter Editor jcrombie8@bloomberg.net
GoldenTree Asset Management raises a CLO of about $590 million that
212-617-3590
allows for as much as a 40 percent investment in second-lien loans and
Reporter David Holley high-yield bonds.
dholley8@bloomberg.net AUG
212-617-1311 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.
Contributing Analysts
Lara Deke Agustina de Marotte U.S. high-yield bond market sees biggest ever monthly issuance volume.
Jesse Knapton Jamie Dranoff Reynolds is the single biggest deal, at $3.25 billion in size.
Afrim Zeka Lee Zeltser SEP
Ben Zimmerman Michael Kovacs U.S. state and county pension funds expand their search for yield beyond
junk bonds into the less liquid middle market loans.
Newsletter Nick Ferris
Covenant-lite leveraged loan issuance as a percent of the total market
Business Manager
nferris2@bloomberg.net surges to a record high, at 25 percent of outstanding loans, JPMorgan data
212-617-6975 show.
OCT
Advertising bbrief@bloomberg.net Caesars Entertainment, the casino operator saddled with $22.7 billion of debt,
212-617-6975 will need to restructure its borrowings, according to CreditSights.
Reprints & Lori Husted
Permissions lori.husted@theygsgroup.com The default rate on leveraged loans is forecast to rise as soon as 2013 as
717-505-9701 companies take on more bank debt, according to Morgan Joseph TriArtisan.
NOv
To subscribe via the Bloomberg terminal type BRIEF <GO> or on the web at Investors place record volume of bearish bets on junk bonds by shorting
www.bloombergbriefs.com State Street’s exchange-traded fund that owns the notes as the debt lost
value for the first month since May.
This newsletter and its contents may not be forwarded or redistributed without
the prior consent of Bloomberg. Please contact our reprints and permissions Daily corporate bond trading volume hits 0.29 percent of face value, the low-
group listed above for more information est by proportion of outstanding debt since 2005.
DEC
© 2013 Bloomberg LP. All rights reserved. Leveraged loan volume exceeded $315 billion, more than 2011 levels and the
most since $388.3 billion was issued in 2007.

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high-yield bond outlook
Loosening Standards, Falling Returns: Watch Out for Blowups in 2013
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.

What is the outlook for high-yield bond returns and issuance this year?
Gershon Distenfeld
AllianceBernstein
Senior 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 Fridson
FridsonVision
CEO
“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 Moini
Payden & Rygel
Portfolio 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 Anderson
Citi
Credit 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.”

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


leveraged loan outlook
Loans May Outperform, Investors Say; CLO Issuance Forecast to Rise Again
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.

What is the forecast for returns and issuance of loans and CLOs in 2013?
Erik Falk
KKR
Co-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 MacLean
Pimco
Portfolio 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 Stoeckle
Invesco
Portfolio 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.”

2013 Sell Side Analyst Predictions
bonds LOANS
Issuance Return Default Rate Spread ISSUANCE RETURN DEFAULT RATE SPREAD CLOS
BAML $275bn 7.20% 2.50% 475bp $350bn 6.30% 2.50% 490bp
Barclays $275-300bn 4-6% 3.50% $225-250bn 3.5%-5.5% 2.5%-3.5% $60-75bn
Citi $325-350bn 7% 2.50% 475bp
Credit Suisse $330bn 7% 1%-2% $230bn 5.50% 1%-4%
JPMorgan $275bn 7-8% 2.00% 560bp $300bn 5-6% 2.00% 475bp $65-70bn
Morgan Stanley $283bn 3.10% 3.60% 577bp $299bn 5.00% $60bn
RBS $315bn 9%
Deutsche Bank $290bn 7-8% 3-3.5% 450bp $300bn 7-8% 425bp
Wells Fargo $350bn 6-7% 3.25% 500bp
UBS $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
25.00 2500

Spread To Worst Yield to Worst

20.00 2000

Spread To Worst (bps)
Yield To Worst (%)

15.00 1500

10.00 1000

5.00 500

0.00 0
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
Source: Bloomberg

High-Yield Bond Volume Sets New Record $m Month-to-Month Issuance
60 100
350000 Total Volume # Deals Closed
$354bn 90
Total Issuance Volume USD Billions

300000 50
80

250000 70
40
60
200000
2012 2011 2010 30 50
150000 40
20
30
100000
20
10
50000
10

0 0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec J-10 A-10 J-10 O-10 J-11 A-11 J-11 O-11 F-12 M-12 A-12 N-12
Source: Bloomberg Source: Bloomberg

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U.S. Bonds
The 20 Biggest U.S. High-Yield Bond Deals of 2012
Announced Amount Issued
Issuer Underwriters Coupon Tenor Use of Proceeds
Date ($bn)
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

The 20 Biggest Triple C Rated Deals of 2012
Announced Amount Issued
Issuer Underwriters Coupon Tenor Use of Proceeds
Date ($m)
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

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U.S. Bonds
Triple C, Dividend, PIK Toggle Deals Make a Comeback

Triple C Issuance Spikes PIK Issuance at Highest Since 2007
$m
12000 11,251
2012 PIK Toggle
10000
All PIK
8000
7,103
2011
6000

4000
Caa1
2010 Caa2 2000
Caa3
0
$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 2007 2008 2009 2010 2011 2012
Source: Bloomberg millions Source: Bloomberg

Biggest Deals to Raise Proceeds for Dividend Payments
Date Issuer Amount Issued ($m) Underwriters Coupon Tenor
12/3/12 HCA HOLDINGS $1,000 BAML/BARC/CITI/CS/DB/JPM/MS/SUN/WFC 6.250% 8.31
2/2/12 LIMITED BRANDS $1,000 BAML/CITI/JPM 5.625% 10.17
10/10/12 TRANSDIGM $550 CITI/CS/MS/UBS 5.500% 8.12
10/4/12 PETCO HOLDINGS $550 BAML/CS/GS/JPM/MS/WFC 8.500% 5.09
10/16/12 IMS HEALTH $500 BAML/BARC/DB/GS/HSBC/JPM/WFC 6.000% 8.14
12/6/12 NEW ACADEMY FINANCE $500 BARC/CS/GS/JPM/KKR/MIZ/MS 8.000% 5.58
9/24/12 CDRT HOLDING $450 BAML/BARC/DB/MS 9.250% 5.07
10/23/12 TRANSUNION HOLDING $400 DB/GS 8.125% 5.70
5/24/12 GLOBAL BRASS AND COPPER $375 GS/MS 9.500% 7.10
12/13/12 IGLOO HOLDING $350 GS/BARC/CS/UBS 8.250% 5.00
10/9/12 JO-ANN STORES HLDS $325 BAML/BARC/CITI/JPM 9.750% 7.10
10/16/12 MIRROR PIK $275 BARC/JPM 9.000% 4.08
12/11/12 MICHAEL FOODS HOLDING $275 GS/BAML 8.500% 5.65
8/17/12 AMERICAN GILSONITE $260 BAML/KEYBCM 11.500% 5.08
10/18/12 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

Biggest PIK Deals
Amount Issued
Date Issuer Underwriters Coupon Tenor Use of Proceeds
($m)
10/12/12 ALPHABET HOLDING $550 BAML/BARCS/CS 7.750% 5.11 Repay/Refinance Debt
10/4/12 PETCO HOLDINGS $550 BAML/CS/GS/JPM/MS/WFC 8.500% 5.09 Dividend Payment - Shareholders
12/6/12 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 Financing
9/24/12 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 Financing
7/17/12 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 - Shareholders
10/24/12 BOE MERGER $335 BAML/DB/GS 9.500% 5.06 Repay/Refinance Debt
10/9/12 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 Debt
12/11/12 MICHAEL FOODS $275 GS/BAML 8.500% 5.65 Dividend Payment - Shareholders
2/29/12 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
Average Tenor Falls, Coupon Rises; Triple C Issuance Volume Jumps

%/Years Average Junk Bond Coupon Rises, Tenor Falls B1 Rated Bonds Dominate Issuance by Rating
8.5 60
Caa3 2012
8.3
2011
50 Caa2
8.1 2010
7.9 Caa1
40
7.7 B3

7.5 30 B2

7.3 B1
20
7.1 Ba3
6.9 Amount issued (Right Axis, $bn) 10 Ba2
6.7 Average Coupon (Left Axis)
Ba1
Average Tenor (Left Axis)
6.5 0
J-12 F-12 M-12 A-12 M-12 J-12 J-12 A-12 S-12 O-12 N-12 D-12 $0 $20,000 $40,000 $60,000 $80,000 $100,000
Source: Bloomberg Source: Bloomberg millions

Energy Sector Sees Biggest Year-on-Year Increase Energy Sector Issuance by Use of Proceeds
$70
Repay/Refinance
2012 $57,568 $60
GCP/CAPEX
Basic Materials M&A
Energy $50
Communications
Billions

Consumer, Cyclical $40
2011 $42,178 Consumer, Non-cyclical
Diversified $30
Energy
Financial $20
Industrial
2010 $37,380
Technology $10
Utilities
$0
$0 $100,000 $200,000 $300,000 $400,000 2010 2011 2012
Source: Bloomberg millions Source: Bloomberg LP

JPMorgan Tops 2012 U.S. Junk Bond Underwriter Ranking
underwriter 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 1.3 203
Source: Bloomberg LP. LEAG44 <GO>

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U.S. Bonds
Junk Bond Returns Exceed High Grade, Driven by Triple Cs; Fund Inflows Dwindle

Total Junk Beats High Grade, Government Bonds in 2012 Total Triple C Credit Performs Best Since 2009
Return % Return %
30 95
85
25 BBs
75
Bs
20 65
CCCs or Lower
55
15 High Yield Index
45

10 35
25
5 15
5
0
Euro High Yield Global High U.S. High Yield High Grade Govt Bonds MSCI World -5
Yield 2009 2010 2011 2012
Source: Bloomberg Source: Bloomberg LP

Total Return % Bond, Loan Returns Expected to Drop $m U.S. Bond Fund Flow Turns Negative at Year End
16 3000
2012 Actual
14
2013 Forecast
2000
12
10
1000
8
INFLOW
6 0
4 OUTFLOW

2 -1000

0
High-Yield Bonds Leveraged Loans -2000
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, -3000
Credit Suisse, Deutsche. 1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1 10/1 11/1 12/1
Source: Bloomberg LP Source: EPFR Global

CIT Group Leads Junk Bond Issuer Ranking by Proceeds in 2012
Issuer 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 - 4
Source: Bloomberg LP LEAG44<GO>

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U.S. Bonds — CDS Watch Bloomberg Data
Centex, Nextel Credit Best in 2012; JC Penney, RadioShack Underperform, CDS Show
Best Performers
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.

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

Worst Performers
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.

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

Source: Bloomberg LP WCDS <Go>

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

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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
Total Return, % [2,3]
BAML BAML
Sector YTW (%) OAS
Ticker Credit Rating 2012 [1] 2011 2010 2009

Gaming H0AG B3 7.77 712 15.86 3.67 20.60 59.11
Telecommunications H0TC B1 5.77 475 19.61 2.70 14.17 46.75
Entertainment H0ET B3 5.19 474 13.73 6.27 12.46 55.81
Utilities 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 87.19
Containers 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 57.81
Food/Beverage/Tobacco H0FO B1 5.41 466 13.96 5.45 13.48 39.86
Hotels H0AH BB2 3.57 266 11.70 7.22 12.44 42.08
Leisure H0LE B1 4.77 415 13.67 9.13 19.04 63.73
Restaurants H0RE B3 6.36 567 16.73 7.10 12.70 64.07
Building Materials H0BL B1 5.55 476 19.42 0.75 13.01 69.56
Broadcasting 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 46.31
Aerospace H0AE B1 5.95 522 11.43 4.32 14.02 35.85
Steel H0ST BB2 6.43 522 13.16 2.40 14.76 74.27
Consumer Products H0CO B2 5.98 510 13.06 4.06 13.05 59.09
Transportation H0SH B3 10.62 993 17.10 -5.99 19.58 70.69
Energy H0EN B1 5.75 481 11.50 8.51 12.95 51.14
Textiles/Apparel H0TE B1 4.62 385 13.83 6.39 14.46 66.60
Healthcare H0HL B2 5.61 474 14.44 7.16 11.65 42.22
Metals/Mining H0ME B1 6.93 613 6.82 3.70 15.75 52.37
Airlines H0AI B1 6.36 570 16.91 -2.37 21.03 70.52
Services H0SE B2 6.26 550 14.80 5.70 12.81 76.04
Automotive H0AU B1 5.77 500 16.50 7.05 17.82 63.85
Environmental H0EV B2 6.66 571 9.42 6.35 14.86 43.22
Super Retail H0SR B1 6.08 521 12.93 4.76 12.41 77.39
Paper H0PA BB3 5.90 484 16.52 -1.77 15.17 51.83
Media H0DM B2 6.43 541 11.90 5.83 13.90 65.41
Chemicals H0CH B1 6.19 520 15.54 4.11 17.33 62.82
Publishing H0PU B1 10.06 949 10.41 -6.02 15.37 80.39
Banks H0BA BB3 5.59 467 28.13 -4.10 21.16 73.15
Technology H0TY B2 7.29 640 15.89 5.43 15.37 87.11
Insurance 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 45.21
Bs H0A2 B2 5.85 503 14.77 4.65 13.99 47.64
CCCs H0A3 CCC2 10.52 973 19.58 -1.40 18.42 96.79
US 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

Average High-Yield Bond Coupon Rises Euro, Bn Issuance Volume by Credit Rating
9 50 14
CCC+
8 45
B
40 12
7 B-
Avergae Coupon, % (line)

35

Volume, Eur Bn, (bars)
6 10 B+
30
5 BB
25 8
BB-
4
20 BB
3 6
15 BB+
2 10 C
4
1 5 CC
2 CCC-
0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 CCC
0
2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012

Financial Issuance Volume Falls, Corporate Rises Luxembourg Dominates Junk Volume by Country
14
70
CORPORATE
FINANCIAL 12
60
10
50 2011 2012
Eur (Bln)

Eur (Bln)

8
40
6
30
4
20
2
10
-
0 United Luxembourg Germany Spain Portugal Italy France
2007 2008 2009 2010 2011 2012 Kingdom

Leveraged Finance
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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
Volume Accelerates, Fueled by Refinancing; Returns Pick Up

bn Institutional Issuance Tops 2011, Total Volume Lags Leveraged Loan Returns Rebounded in 2012
25%
$600
Pro-Rata 20%
$500
Institutional 15%

$400 10%

Total Return
5%
$300
0%
$200
-5%

$100 -10%

-15%
$0 1/11/11 4/11/11 7/11/11 10/11/11 1/11/12 4/11/12 7/11/12 10/11/12
2009 2010 2011 2012 JPM Leveraged Loan Index S&P 500 Equity Index JPM HY Domestic Bond Index
Source: Bloomberg Source: Bloomberg LSRC <GO>

Refinancing Deals Dominate Leveraged Loan Issuance Margin Per Turn of Leverage at Close
$180 700 First Lien Loans: Jan 2011 - Dec 2012
600
$160
Average 1L Spread at Close (bps)

600 Average Spread at Close Min bps per Turn
$140 Average bps per Turn Max bps per Turn
Issuance USD (Billions)

500 500
Spread in Basis Points

$120
$100 400
400
$80 300
$60 300
200
$40
100 200
$20
$0 0
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

100

0
NR CCC B BB Loans Used to Refi Debt Average Spread at Close (bps) BBB- BB BB+ BB- B+ B
Rating at Close
Source: Bloomberg LSRC <GO> Source: Bloomberg LSRC <GO>

SUBScriBe tO BlOOMBerg BrieFS
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. GET THE WORLD.
Or call Annie Gustavson at +1-212-617-0544. BRIEF BLOOMBERGBRIE

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


U.S. Loans
Ford Motor Leads Ranking of Biggest Leveraged Loans in 2012
Borrower Tranche Size ($bn) Tenor Current Margin Use of Proceeds Sector
Ford 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

Cequel Tops Ranking of Loan Issuance for Dividend Payment
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 -

Chesapeake Dominates Covenant-Lite Leveraged Loan Issuance
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

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Leveraged Finance 2012 Outlook

Leveraged Finance 2012 Outlook

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