Loan Portfolio Transactions INSIGHTS FOR YOUR STRATEGY November - PowerPoint PPT Presentation

Loan Portfolio Transactions INSIGHTS 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 Need to Know IV. Structuring Portfolio Sales – Recent International Experiences and Perspectives V. Q&A VI. Closing Remarks 2

II. Perspectives on the Loan Market 3

II. Perspectives on the Loan Market Speakers • Ted Basta, SVP Market Data & Analysis, LSTA • Christopher Seyfarth, Partner, Transactional Advisory • Christopher Seyfarth, Partner, Transactional Advisory Services/Transaction Real Estate, Ernst & Young LLP • Saul Burian, Managing Director, Financial Restructuring Group, Houlihan Lokey 4

The Corporate Loan Market Secondary Trading & Liquidity Ted Basta, SVP Market Data & Analysis LSTA +1 212 880 3005 tbasta@lsta.org

While Lending Activity Fell in 3Q13, New Money Loans Outpaced Refinancing Activity Institutional Loan Lending Volume New money Refinancing $500 $250 $491 $400 $200 $342 $300 $150 Billions Billions $200 $100 $45 $100 $50 $52 $- $- 2011 2012 1Q-3Q13 1Q13 2Q13 3Q13 Source: Thomson Reuters LPC 6

It Has Taken Five Years For The S&P/LSTA Leveraged Loan Index to Return to Its Pre-Crisis Size ~Outstandings Has Hit a Record $645B – An Increase of $100B in 2013 S&P/LSTA Leveraged Loan Index: Par Amount Outstanding $650 $600 ions Billion $550 $500 $450 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 7

Retail Loan Funds Now Comprise One-Third of The Institutional Primary Lending Market Share of Non-Bank Institutional Lending 2011 2012 _ 1H13 3Q13 70% 60% 52% 50% 40% 33% 30% 20% 9% 10% 6% 0% Hedge, Dist. & HY Fin. & Insur. Cos Retail Loan Funds CLOs Funds Source: S&P Capital IQ LCD 8

Following a 30-Year Period of Declining Treasury Rates, The Street is Projecting a Considerable Move Higher 10YR Treas 3-MO LIBOR 16 14 12 10 10 ent Percent 8 6 4 2 0 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Source: Federal Reserve 9

While Loan Retail Funds Have Taken in $53B This Year, HY Bond Flows Have Run Negative at -$8B Loan Funds Net Assets Loan fund flows HY Bond Fund Net Assets $10 $350 $5 $300 $250 $- Billions $200 Billions $(5) $150 $(10) $100 $(15) $50 $(20) $- Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Jan-11 Jan-12 Jan-13 Source: Thomson Reuters LPC 10

2013 CLO Issuance ($59B) & Retail Fund Flows ($53B) Totaled $112B Through 3Q13 CLO Issuance Loan fund flows CLO Issuance Loan fund flows $60 $15 $50 $40 $10 Billions Billions $30 $5 $20 $10 $- $- Jan-… Feb-… Mar… Apr-… May… Jun-… Aug… Sep-… Jul-13 2011 2012 Jan-Sep 2013 Source: Thomson Reuters LPC 11

Loans Traded Higher Through Mid-May on Strong Technicals (The Supply & Demand Equation) Change In Visible Demand Change In Supply Delta $30B $20B $10B $0B -$10B -$20B Jan-13 Jan-13 Feb-13 Feb-13 Mar-13 Mar-13 Apr-13 Apr-13 May-13 May-13 Jun-13 Jun-13 Jul-13 Jul-13 Aug-13 Aug-13 Sep-13 Sep-13 Advancers Decliners 100% 75% 88% 50% 25% 27% 5% 0% 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 12

Both The Mean and Median Trade Price Has Remained Range-bound in 3Q13 at 98 and 100.125, Respectively Mean Trade Price (% of Par) MTM Mean Bid-Ask Spread (BPS) MTM Median Bid-Ask Spread (BPS) Median Trade Price (% of Par) 102 125 100 100.13 100 98 98 97.80 75 69 96 63 50 94 25 92 0 90 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Source: LSTA Trade Data Study 13

Annualized 2013 Trading Volume Represents a Record High of $521B While The Annual Turn-Over Ratio on The S&P/LSTA Leveraged Loan Index (LLI) Has Peaked at 70% LLI Loan Trade Volume Avg. Size of the LLI Annual Trade Volume Annualized LLI Turn-Over Ratio (%) $600 $600 100% $500 $500 80% 70% 66% 66% $400 63% $400 56% Billions 58% 60% 51% Billions $300 $300 40% $200 $200 $391 20% $100 $100 $- $- 0% 2008 2009 2010 2011 2012 3Q13 2008 2009 2010 2011 2012 2013 1Q- Ann. Source: LSTA Trade Data Study 14

3Q13 Trade Volumes Fell 19% to $121B as More Than 80% of Total Activity Occurred at Prices Above 98 Quarterly Trade Volume % of Trade Volume by Price Range >98 90 to 98 80 to 89.99 <80 TOTAL PAR DIS $175 100% $150 80% $125 $125 ions Billion 60% $100 $75 40% $50 20% $25 $- 0% 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 Source: LSTA Trade Data Study 15

Monthly Market Breadth and Depth Analysis Supports a Robust Secondary Trading Market • Monthly Market Breadth • Monthly Market Depth Trade Volumes <10 Trades >=20 Trades $60 1300 100% 80% $40 $40 1200 1200 % of Loans 60% Billions 55% 40% $20 1100 23% 20% $- 1000 0% Dec-… June… Aug-… Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-12 Feb-13 Apr-13 Source: LSTA Trade Data Study 16

An Update on the Non-Performing Loan Report Christopher Seyfarth, Partner Transactional Advisory Services/ Transaction Real Estate Ernst & Young LLP +1 415 894 8738 chris.seyfarth@ey.com 17

A Broader View of the Secondary Markets Saul Burian, Managing Director Financial Restructuring Group Houlihan Lokey +1 212 497 4245 sburian@HL.comil

Secondary Market Development Milestones U.S. and European regulatory U.S. and European regulatory Asian financial crisis, Asian financial crisis, Savings and loan Savings and loan reform, such as the Volker Rule, reform, such as the Volker Rule, including financial institution including financial institution crisis and RTC crisis and RTC prompts banks to re-assess illiquid prompts banks to re-assess illiquid bankruptcies and portfolio bankruptcies and portfolio portfolio sales portfolio sales asset holdings asset holdings sales sales Junk bond market crash Junk bond market crash TMT sector sell- TMT sector sell- European-led European-led U.S.-led financial U.S.-led financial and subsequent and subsequent off (“tech off (“tech sovereign debt sovereign debt crisis crisis portfolio sales portfolio sales bubble”) bubble”) crisis crisis 1985 1990 1995 2000 2005 2010 2015 Apollo forms and Apollo forms and Whitehall, MSREF Whitehall, MSREF Lone Star, Lone Star, Coller, Coller, Various funds Various funds Lone Star, Wells Lone Star, Wells purchases purchases and others and others Avenue, Colony Avenue, Colony Landmark, Landmark, purchase CMBS, purchase CMBS, Fargo and others Fargo and others Executive Life Executive Life purchase REO and purchase REO and and others and others Lexington and Lexington and RMBS, CDO and RMBS, CDO and purchase purchase Portfolio Portfolio loans from RTC loans from RTC purchase assets purchase assets others purchase others purchase other securities other securities performing loan and performing loan and and NPLs from and NPLs from large portfolios large portfolios NPL portfolios from NPL portfolios from Asian financial Asian financial of LP interests of LP interests Irish banks Irish banks institutions institutions 19

Secondary Market Framework Limited liquidity and low volumes characterize assets that are “traded” in the secondary market Exchanged Exchanged Traded Traded Derivative Derivative Large Cap Large Cap Large Large Equities Equities Cap Cap “F LOW ” Foreign Foreign Credits Credits Exchange Exchange Mid Cap Mid Cap Mid-Cap Mid-Cap High Credits Credits Equities Equities Syndicate Syndicate Small Cap Small Cap d Loans d Loans d Loans d Loans Distresse Distresse Distresse Distresse Equities Equities Equities Equities V OLUME d Credits d Credits “B Y A PPOINTMENT ”  Small Cap Credits  Small Cap Credits  Structured Finance  Structured Finance Securities Securities Emergin Emergin  LP Interests  LP Interests Low  Equity Co-Investments  Equity Co-Investments g g  Unregistered Shares  Unregistered Shares Market Market  Intellectual Property  Intellectual Property Equities Equities  Mining and Mineral Rights  Mining and Mineral Rights  Life Settlements  Life Settlements PIPES PIPES Non-Exchange-Traded Exchange-Traded L IQUIDITY 20

Commonly Traded Illiquid Assets Illiquid equity and credit markets represent the most mature secondary markets Leveraged LP Interests Direct Loans Equity Direct Co-Invest Co-Invest Asset-Backed Founders Credit Credit Loans Shares Mining & Mineral Rights Structured Finance Intellectual Securities Property Structured Settlements Real Estate Loans 21