Credit Markets Bubble Analysis

Credit Markets: Is It a Bubble? Dr. Edward Altman NYU Stern School of Business Keynote Speech 2015 International Conference FEBS Nantes, France June 11, 2015 1 1 1 1

Is It a Bubble? Or, Just Oportunistic Debt Financing? Focus on Default Rates in Credit Markets Length of Benign Credit Cycles Coincidence with Recessions: U.S. & European Scenarios Comparative Health of High-Yield Firms (2007 vs. 2012/2014) High-Yield and CCC New Issuance LBO Statistics and Trends Liquidity Concerns (Markets & Dealers) Potential Downgrades Far Exceed Upgrades (S&P) as of Beginning of 2015 Large Increase in the Distress Ratio Possible Timing of the Bubble Burst 2

Historical H.Y. Bond Default Rates Straight Bonds Only Excluding Defaulted Issues From Par Value Outstanding, (US$ millions), 1971 2015 (5/29)) Par Value Par Value Defaults ($) Default Rates (%) 5.778 3.497 1.708 0.840 1.095 3.186 0.158 1.500 0.193 1.330 4.671 0.388 2.731 1.129 0.626 2.786 1.242 Standard Deviation (%) Par Value Par Value Defaults ($) Default Rates Year 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 1973 1972 1971 Outstanding* ($) Year Outstandinga ($) (%) 129,557 90.243 58,088 40,939 27,492 18,109 17,115 14,935 10,356 8,946 8,157 7,735 7,471 10,894 7,824 6,928 6,602 7,486 3,156 992 344 301 577 2015 (5/29) 1,540,308 20,593 1.337 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1,496,814 1,392,212 1,212,362 1,354,649 1,221,569 1,152,952 1,091,000 1,075,400 993,600 1,073,000 933,100 825,000 757,000 649,000 597,200 567,400 465,500 335,400 271,000 240,000 235,000 206,907 163,000 183,600 181,000 189,258 148,187 31,589 14,539 19,647 17,963 13,809 123,878 50,763 5,473 7,559 36,209 11,657 38,451 96,855 63,609 30,295 23,532 7,464 4,200 3,336 4,551 3,418 2,287 5,545 18,862 18,354 8,110 3,944 2.110 1.044 1.621 1.326 1.130 10.744 4.653 0.509 0.761 3.375 1.249 4.661 12.795 9.801 5.073 4.147 1.603 1.252 1.231 1.896 1.454 1.105 3.402 10.273 10.140 4.285 2.662 27 224 20 119 381 30 204 123 49 193 82 Arithmetic Average Default Rate (%) 1971 to 2014 1978 to 2014 1985 to 2014 3.117 3.340 3.843 3.097 3.273 3.416 Weighted Average Default Rate (%)* 1971 to 2014 3.491 1978 to 2014 1985 to 2014 3.496 3.513 Median Annual Default Rate (%) 1971 to 2014 1.664 3 a Weighted by par value of amount outstanding for each year. Source: Author s compilation and Citigroup/Credit Suisse estimates

Default Rates on High-Yield Bonds Quarterly Default Rate and Four-Quarter Moving Average 1989 2015 (5/29) 6.0% 16.0% 14.0% 5.0% 12.0% 4.0% 4 - Quarter Moving Average 10.0% Quarterly Default Rate 3.0% 8.0% 6.0% 2.0% 4.0% 1.0% 2.0% 0.0% 0.0% Quarterly Moving Source: Author s Compilations 4

Historical Annual European High-Yield Default Rates 20% 33.91% 18% 17.28% 16% 14% 12.43% Default Rate 12% 10% 8% 6.56% 6% 4% 3.20% 2.35%2.60% 1.97% 1.60% 2% 1.20% 1.06% 0.97%0.70%1.02%0.93% 0.97%0.53%1.00% 0% 1Q15 1998 2003 2008 2009 2014 1999 2000 2001 2002 2004 2005 2006 2007 2010 2011 2012 2013 Note: 1Q15 is LTM Source: Credit Suisse 5

Historical Default Rates and Recession Periods in the U.S. High-Yield Bond Market (1972 2015 (1Q)) 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 72 74 76 84 86 94 96 98 06 08 78 80 82 88 90 92 00 02 04 10 12 14 Periods of Recession: 11/73 - 3/75, 1/80 - 7/80, 7/81 - 11/82, 7/90 - 3/91, 4/01 12/01, 12/07 - 6/09 *All rates annual, except 1Q 2015 which is the LTM. 6 Source: E. Altman (NYU Salomon Center) & National Bureau of Economic Research

Filings for Chapter 11 Number of Filings and Pre-petition Liabilities of Filing Companies 1989 2015 (5/29) Pre-Petition Liabilities, in $ billions (left axis) Median Liabilities Number of Filings (right axis) Median No. of Filings. $800 280 $700 240 $600 2014 (5/29) 200 $ Billion 27 filings and liabilities of $69.1 billion $500 160 $400 120 2015 (5/29) $300 26 filings and liabilities of $33.8 billion 80 $200 40 $100 $0 0 2015 (5/29) 1990 1991 1992 1993 1994 1995 2003 2004 2005 2006 2007 2008 1989 1996 1997 1998 1999 2000 2001 2002 2009 2010 2011 2012 2013 2014 Mean 1989-2014: 74 filings Median 1989-2014: 54 filings Note: Minimum $100 million in liabilities Source: NYU Salomon Center Bankruptcy Filings Database 7

YTM & Option-Adjusted Spreads Between High Yield Markets & U.S. Treasury Notes June 01, 2007 May 29, 2015 Yield Spread (YTMS) OAS Average YTMS (1981-2014) Average OAS (1981-2014) 12/16/08 (YTMS = 2,046bp, OAS = 2,144bp) 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 5/29/15 (YTMS = 455bp, OAS = 458bp) YTMS = 538bp, OAS = 543bp 600 400 6/12/07 (YTMS = 260bp, OAS = 249bp) 200 7/27/2007 9/21/2007 8/26/2008 7/30/2009 9/24/2009 8/30/2010 9/26/2011 8/29/2012 9/27/2013 1/15/2008 3/11/2008 2/12/2009 1/18/2010 3/15/2010 5/10/2010 2/14/2011 4/11/2011 1/18/2012 3/14/2012 2/15/2013 4/12/2013 1/21/2014 3/18/2014 5/13/2014 2/19/2015 4/16/2015 6/1/2007 7/1/2008 6/4/2009 7/5/2010 6/6/2011 8/1/2011 7/4/2012 8/2/2013 7/8/2014 9/2/2014 5/6/2008 4/9/2009 5/9/2012 6/7/2013 10/21/2008 10/25/2010 10/24/2012 11/22/2013 10/28/2014 11/16/2007 12/16/2008 11/19/2009 12/20/2010 11/21/2011 12/19/2012 12/23/2014 Sources: Citigroup Yieldbook Index Data and Bank of America Merrill Lynch. 8

Comparative Health of High-Yield Firms (2007 vs. 2012/2014) 9

Z-Score Component Definitions and Weightings Variable Definition Weighting Factor X1 Working Capital 1.2 Total Assets X2 Retained Earnings 1.4 Total Assets X3 EBIT 3.3 Total Assets X4 Market Value of Equity 0.6 Book Value of Total Liabilities X5 Sales 1.0 Total Assets 10

Z Score Model for Manufacturers, Non-Manufacturer Industrials; Developed and Emerging Market Credits Z = 6.56X1 + 3.26X2 + 6.72X3 + 1.05X4 +3.25 X1 = Current Assets - Current Liabilities Total Assets X2 = Retained Earnings Total Assets X3 = Earnings Before Interest and Taxes Total Assets X4 = Book Value of Equity Total Liabilities 11

Average Z-Score by S&P Bond Rating Rating Average Z-Score Standard Deviation AAA 6.2 2.1 AA 4.7 2.4 A 3.7 2.3 BBB 2.8 1.5 BB 2.4 1.9 B 1.8 1.9 CCC 0.3 1.2 D -0.2 2.5 Source: E. Altman and E. Hotchkiss (2006), Corporate Financial Distress and Bankruptcy, John Wiley & Sons, pp.247/248. 12

Comparing Financial Strength of High-Yield Bond Issuers in 2007& 2012/2014 Number of Firms Z-Score Z -Score 2007 277 383 2012 404 488 2014 558 760 Average Z-Score/ (BRE)* Median Z-Score/ (BRE)* Average Z -Score/ (BRE)* Median Z -Score/ (BRE)* Year 2007 1.89 (B) 1.81 (B) 4.58 (B+) 4.61 (B+) 2012 1.66 (B) 1.59 (B) 4.60 (B+) 4.60 (B+) 2014 2.03 (B+) 1.80 (B) 4.67 (B+) 4.56 (B+) Difference in Means Test (2007 vs. 2012/2014) Average Difference (2012/2014) Significance Level (2012/2014) Significant at .05? (2012/2014) Standard Deviation (2007/2012/2014) t-test Model (2012/2014) Z-Score -0.23/+0.14 1.29 / 1.15/1.78 -2.38/+1.30 0.88%/9.70% Yes /No Z -Score +0.02/+0.09 2.50 / 2.07/2.65 +0.13/+0.56 44.68%/28.78% No/No *Bond Rating Equivalent Source: Authors calculations, data from Altman and Hotchkiss (2006) and S&P Capital IQ. 13

Debt/EBITDA & Net Debt/EBITDA: U.S. High-Yield (HY) and Investment Grade (IG), (Median Levels, 2004-2014*) Debt/EBITDA HY Debt/EBITDA IG Net Debt/EBITDA HY Net Debt/EBITDA IG 5.00 4.00 BB- (796 obs.) B+ (781 obs.) 4.50 3.50 BB+ (1,126 obs.) BB- (1,086 obs.) 4.00 3.00 3.50 2.50 3.00 BBB (876 obs.) 2.50 2.00 BBB- (872 obs.) BBB (837 obs.) BBB+ (860 obs.) 2.00 1.50 1.50 1.00 1.00 0.50 0.50 0.00 0.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *Bond Rating Equivalents (BRE) based on Aggregate S&P Statistics Sources: S&P Capital IQ and Ratings Direct and NYU Salomon Center calculations. 14

Debt/Debt + Equity & Debt/MV Equity : U.S. High-Yield (HY) and Investment Grade (IG), (Median Levels, 2004-2014) Debt/Debt + Equity HY Debt/Debt + Equity IG Debt/MV Equity HY Debt/MV Equity IG 0.70 1.20 BB- (875 obs.) BB 0.60 (1,280 obs.) 1.00 0.50 0.80 BBB- (1,001 obs.) BBB (978 obs.) 0.40 (711 obs.) 0.60 0.30 (878 obs.) 0.40 0.20 (747 obs.) (705 obs.) 0.20 0.10 0.00 0.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sources: S&P Capital IQ and Ratings Direct and NYU Salomon Center calculations. 15

EBITDA/Interest Expense : U.S. High-Yield (HY) and Investment Grade (IG),(Median Levels, 2004-2014) EBITDA/Int. Expense HY EBITDA/Int. Expense IG 10.00 9.00 BBB (863 obs.) 8.00 7.00 BBB- (841 obs.) 6.00 5.00 4.00 BB- (821 obs.) 3.00 B+ (1,196 obs.) 2.00 1.00 0.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sources: S&P Capital IQ and Ratings Direct and NYU Salomon Center calculations. 16

Distribution of Credit Ratios for U.S. High-Yield Bonds (2007 vs. 2014) Debt/EBITDA EBITDA/Interest Expense 2014 BRE 2007 BRE 2014 BRE 2007 BRE 10% 1.36x A+ 0.87x AA+ 1.03x CCC 0.91x CCC 20% 2.23x BBB 1.75x A- 1.93x B- 1.59x CCC+ 30% 2.90x BB+ 2.40x BBB 2.55x B 2.05x B- 40% 3.56x BB 3.07x BB 3.36x B+ 2.57x B Decile 50% 4.43x B+ 3.84x BB- 4.14x BB- 3.24x B+ 60% 5.05x B+ 4.70x B+ 5.23x BB 4.21x BB- 70% 5.94x B 5.70x B 6.64x BBB- 6.06x BB+ 80% 7.08x CCC+ 7.01x B- 9.84x BBB+ 9.07x BBB 90% 10.16x CCC- 9.38x CCC- 17.86x AA- 19.35x AA Sources: S&P Capital IQ and Ratings Direct and NYU Salomon Center calculations. 17

New Issuance: U.S. High-Yield Bond Market ($ millions) 2005 2015 (4/30) Ratings Annual Total BB B CCC (CCC % H.Y.) NR 2005 83,373.6 19,415.0 47,132.5 16,235.9 (19.5%) 590.2 2006 126,130.1 36,761.2 64,943.8 22,966.8 (18.2%) 1,458.2 2007 131,008.9 23,713.2 54,490.1 49,288.1 (37.6%) 3,517.5 2008 44,243.3 12,393.0 22,151.9 7,243.8 (16.4%) 2,454.6 2009 133,078.3 40,757.8 81,587.1 10,113.4 (7.6%) 620.0 2010 227,505.5 54,859.0 133,389.7 36,086.8 (15.9%) 3,170.0 2011 189,319.2 54,175.0 96,559.4 35,023.0 (18.5%) 3,521.8 2012 280,450.3 71,852.1 153,611.1 48,690.2 (17.4%) 6,297.0 2013 (1Q) 73,492.3 31,953.1 29,534.2 11,480.0 (15.6%) 525.0 (2Q) 62,135.0 24,380.0 23,665.0 13,790.0 (22.2%) 300.0 (3Q) 73,770.8 22,964.2 32,610.0 18,196.6 (24.7%) 0.0 (4Q) 60,936.8 24,050.0 22,686.8 14,175.0 (23.3%) 25.0 2013 Totals 270,334.8 103,347.3 108,495.9 57,641.6 (21.3%) 850.0 2014 (1Q) 51,634.7 17,585.0 25,792.2 7,842.5 (15.2%) 415.0 (2Q) 74,629.6 23,893.7 30,852.3 19,363.6 (25.9%) 520.0 (3Q) 59,777.3 25,537.3 22,550.0 10,875.0 (18.2%) 815.0 (4Q) 52,721.1 21,975.0 28,906.1 1,840.0 (3.5%) 0.0 2014 Totals 238,762.7 88,991.0 108,100.6 39,921.1 (16.7%) 1,750.0 Source: Bank of America Merrill Lynch 2015 (1Q) 74,234.5 21,809.2 44,335.3 8,090.0 (10.9%) 0.0 18 (4/01-4/30) 21,262.1 2,750.0 15,565.0 2,947.1 (13.9%) 0.0

New Issuance: European High-Yield Bond Market Face Values (US$) 2005 2015 (4/30) Ratings Annual Total BB B CCC (CCC % HY) NR USD EUR GBP 2005 20,900.2 1,463.3 13,296.0 4,961.6 (23.7%) 1,179.3 5,023.7 13,882.2 1,668.3 2006 31,736.0 5,696.2 18,136.1 7,197.8 (22.7%) 705.9 11,592.8 19,919.9 223.3 2007 19,176.2 6,097.8 10,806.0 1,351.5 (7.0%) 920.9 5,835.5 10,172.2 3,168.5 2008 7,306.9 1,250.0 2,266.3. 3,790.6 (51.9%) 7,306.9 2009 37,300.3 12,856.3 18,120.5 4,771.3 (12.8%) 1,552.2 11,180.0 25,622.0 498.3 2010 58,903.9 19,314.3 33,338.3 2,945.7 (5.0%) 3,305.6 13,945.0 43,245.2 1,403.3 2011 57,151.0 22,842.1 28,385.2 4,745.2 (8.3%) 1,178.6 15,670.0 31,523.1 8,842.4 2012 65,516.1 27,001.7 29,013.0 7,186.7 (11.0%) 2,314.6 28,198.0 32,270.4 2,929.3 2013 (1Q) 27,954.5 6,783.8 15,008.4 5,160.6 1,001.7 10,050.0 12,380.7 4,837.4 (2Q) 30,335.3 6,860.2 19,295.1 3,724.1 455.9 9,913.0 14,149.9 6,074.0 (3Q) 16,558.4 3,375.3 9,609.6 2,721.8 851.7 5,310.0 8,644.0 2,604.4 (4Q) 16,655.9 2,588.0 10,657.6 2,366.4 1,043.9 5,210.0 9,086.5 2,359.4 2013 Totals 91,504.1 19,607.3 54,435.2 13,972.9 (15.3%) 3,353.2 30,483.0 44,125.6 15,875.3 2014 (1Q) 27,169.2 12,565.7 11,685.2 1,230.0 (4.5%) 1,688.3 7,315.0 16,352.8 3,501.4 (2Q) 65,671.4 13,730.1 45,808.3 4,111.1 (6.2%) 2,021.9 23,150.0 36,009.0 6,096.7 (3Q) 15,980.5 3,586.3 10,593.2 1,241.3 (7.8%) 559.7 2,750.0 8,216.2 4,744.6 (4Q) 10,646.9 3,893.7 4,288.8 654.5 (6.1%) 1,810.0 6,305.0 4,341.9 2014 Totals 119,468.0 33,775.8 72,375.4 7,236.9 (5.1%) 6,080.0 39,520.0 64,919.9 14,342.7 2015 (1Q) 27,875.2 12,727.6 10,054.6 938.7 (3.4%) 4,154.3 9,625.0 15,088.7 2,622.0 Source: BoAML 19 297.2 (4/01-4/30) 10,799.0 3,784.9 5,802.2 624.1 (5.8%) 587.8 4,300.0 5,735.1

U.S. & European High-Yield Bond Market: New Issuance ($ millions) 2005 2015 (1Q) 300,000 280,450.3 270,334.8 250,000 238,762.7 229,307.4 New Issuance ($ millions) 200,000 184,571.0 150,000 131,915.9 132,689.1 127,419.3 119,468.0 100,000 91,504.1 81,541.8 74,234.5 65,516.1 60,435.8 57,636.5 50,747.2 50,000 41,510.3 27,875.2 27,714.6 19,935.6 18,796.7 1,250.0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1Q15 U.S. Europe Source: Bank of America Merrill Lynch 20

U.S. & European High-Yield Bond Market: CCC Rated New Issuance (%) 2005 2015 (1Q) 40% 37.4% New Issuance Rated CCC (%) 29.8% 30% 25.9% 21.7% 21.3% 19.3% 19.2% 20% 18.2% 18.1% 17.4% 16.7%15.2% 15.3% 15.3% 11.6% 11.5% 11.0% 10.9% 10% 8.0% 7.8% 6.8% 6.2% 6.1% 5.1% 4.5% 3.8% 3.5% 3.4% 3.0% n/a 0% 3Q14 2007 2012 2005 2006 2008 2009 2010 2011 2013 2014 1Q14 2Q14 4Q14 1Q15 U.S. Europe Source: Bank of America Merrill Lynch 21

New Issues Rated B- or Below, Based on the Dollar Amount of Issuance (1993 2015 (1Q)) 70.00% 60.00% 51.25% 50.00% 40.75% 39.06% 40.00% 33.57% 32.97% 33.00% 31.95% 31.56% 30.41% 29.55% 29.22% 29.19% 29.62% 30.00% 27.27% 27.04% 26.73% 26.13% 23.35% 21.48% 21.38% 21.23% 19.40% 18.16% 20.00% 14.02% 14.16% 13.73% 12.13% 10.00% 0.00% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 3Q14 1Q15 1Q 14 2Q 14 4Q 14 Source: S&P Capital IQ LCD 22

Mortality Rates by Original Rating All Rated Corporate Bonds* 1971-2014 Years After Issuance 1 2 3 4 5 6 7 8 9 10 AAA Marginal Cumulative 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01% 0.01% 0.02% 0.03% 0.01% 0.04% 0.00% 0.04% 0.00% 0.04% 0.00% 0.04% AA Marginal Cumulative 0.00% 0.00% 0.00% 0.00% 0.22% 0.22% 0.08% 0.30% 0.02% 0.32% 0.01% 0.33% 0.01% 0.34% 0.01% 0.35% 0.02% 0.37% 0.01% 0.38% A Marginal Cumulative 0.01% 0.01% 0.03% 0.04% 0.13% 0.17% 0.14% 0.31% 0.11% 0.42% 0.07% 0.49% 0.02% 0.51% 0.26% 0.77% 0.08% 0.85% 0.05% 0.90% BBB Marginal Cumulative 0.34% 0.34% 2.38% 2.71% 1.28% 3.96% 1.01% 4.93% 0.51% 5.41% 0.23% 5.63% 0.27% 5.88% 0.15% 6.03% 0.15% 6.17% 0.35% 6.50% BB Marginal Cumulative 0.95% 0.95% 2.03% 2.96% 3.90% 6.75% 1.97% 8.58% 2.35% 10.73% 1.53% 12.10% 1.47% 13.39% 1.13% 14.37% 1.45% 15.61% 3.15% 18.27% B Marginal Cumulative 2.86% 2.86% 7.74% 10.38% 7.86% 17.42% 7.81% 23.87% 5.71% 28.22% 4.46% 31.42% 3.56% 33.86% 2.09% 35.24% 1.77% 36.39% 0.76% 36.87% CCC Marginal Cumulative 8.15% 8.15% 12.44% 19.58% 17.92% 33.99% 16.35% 44.78% 4.68% 47.37% 11.53% 53.43% 5.45% 55.97% 4.86% 58.11% 0.69% 58.40% 4.30% 60.19% *Rated by S&P at Issuance Based on 2,847 issues Source: Standard & Poor's (New York) and Author's Compilation 23

CCC New Bond Issuance by Purpose 2015 (1Q) U.S. Europe Refinancing 42.66% 47% M&A 41.25% 40% LBO 15.26% Recap/Dividends 0.83% Corporate Purpose 0.00% 13% Project Financing 0.00% Total 100% 100% *Loans Only Source: Standard & Poor s LCD & Credit Suisse 24

Maturity Profile of Leveraged Debt As of 12/31/14 250 228 228 200 200 184 171 155 156 $ (Billions) 150 106 98 100 84 72 59 58 50 35 22 19 18 13 1 0 0 0 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Bonds Institutional Loans Source: S&P Capital IQ LCD 25

Purchase Price Multiples Purchase Price Multiple excluding Fees for LBO Transactions 14x 11.8 12x 9.9 10x 9.4 9.2 9.1 9.0 9.1 8.9 8.8 8.8 8.7 8.8 8.7 8.5 8.4 8.3 8.1 8.2 8.1 7.8 8.0 8x 7.5 7.4 7.4 7.3 7.0 6.9 6.7 6.7 6.8 6.7 6.3 6.2 6x 5.2 4x 2x N/A 0x (# obs.) 1998 (90) 1999 (133) 2000 (116) 2001 (51) 2002 (40) 2003 (66) 2004 (127) 2005 (134) 2006 (178) 2007 (207) 2008 (69) 2009 (23) 2010 (78) 2011 (87) 2012 (97) 2013 (95) 2014 (139) 1Q15 (31) Public-to-Private All Other Source: S&P Capital IQ LCD 26

Average Total Debt Leverage Ratio for LBOs: Europe and US with EBITDA of /$50M or More 7.0x 6.6 6.2 5.8 5.8 6.0x 5.7 5.6 5.5 5.5 5.4 5.4 5.3 5.3 5.3 5.2 4.9 4.9 4.9 4.8 5.0x 4.8 4.7 4.7 4.6 4.5 4.5 4.5 4.4 4.1 4.0 4.0x 3.0x 2.0x 1.0x 0.0x 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1Q15 Europe US Source: S&P Capital IQ LCD 27

LBO Statistics & Ratios: 2007 vs. 2014 Direction of Change 2007 2014 M&A/LBO as a % of Total Issuance 62% 41% Purchase Multiple 9.1-9.9x 9.2-9.4x Debt to EBITDA @ Inception 6.2x 5.8x EBITDA to Cash Interest 2.1x 3.5x Equity Contribution 31% 37% Source: Guggenheim Investments and S&P Capital IQ 28

Share of Large LBOs with Leverage More than 7x 2004 2Q 2014 29

Lenders Leave the Lite On 2003 2Q 2014 30