leveraged brief finance 03.24 - amazon s3...statement by fitch ratings. the retirement system should...

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BRIEF 03.24.14www.bloombergbriefs.com

Leveraged Finance News, aNaLysis aNd CommeNtary

by DaviD HolleyHill International may refinance a 7.5 percent second-lien loan with a term loan or its

inaugural bond offering this year, said company President David Richter.The construction and project management consulting firm aims to cut interest expense

that was $23 million in 2013 by reducing rates on its revolver and second-lien loans, Richter said. Houlihan Lokey is advising.

New Jersey-based Hill recorded $1.6 million of net income in 2013 after two years of net losses that were in part due to high interest expense, as well as halted payments from contracts in libya, Richter said. ebitda of $43.2 million last year was the company’s highest level ever.

“We’re looking at all the options. What would be most likely would be some kind of institutional long-term term debt or the high-yield bond market,” Richter said in a March 19 telephone interview. “Some-thing could certainly happen this year.”

Hill’s $75 million of 7.5 percent, fixed-rate second-lien debt is due in october 2016. it was issued at a discount that makes the aggregate

amount of the loan $100 million, Richter said. The revolver had $39 million outstanding, along with $17.2 million in letters of credit, as of Dec. 31.

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Source: Bloomberg LP LEAG44 <GO> Jan. 1-March 21 2014, full quarter in all prior years

BLoomBeRg BaRometeR dan covello, bloomberg data analyst

U.S. high-yield bond issuance was $61 billion through March 21, putting the market on track for its slowest start since the first quarter of 2009, bloomberg data show. The average underwriting fee was 1.351 percent, down from 1.5 percent in Q1 2013 and up from 1.306 percent at end of 2013.

WEEK AHEAD

teLx Mar. 24: bank meeting for $110m 1l RC; $475m 1l Tl; $185m 2l Tl

Rexam HeaLtHcaRe Mar. 25: bank meeting for $380m 1l Cov-lite Tl, $175m 2l Tl

PeLIcan PRoDucts Mar. 25: bank meeting for $365m 6y 1l Cov-lite Tl, $160m 7y 2l Cov-lite Tl

sIgnoDe InDustRIaL Mar. 26: bank meeting $1.35b Tlb

sungaRD avaILaBILIty Mar. 26: Pricing $400m-$450m 8NC5

jones eneRgy Mar. 28: Pricing $300m 8NC3 sr. notes

InsIDe

san DIego RetIRement system grosvenor capital’s jon Levin discusses a new allocation. Page 2

HaLcon ResouRces CFo mark mize says the company will draw on a revolver this year. Page 3

seconD-LIen Loans The issuance boom belies risk. Page 5

james RIveR coaL Missed coupon payment raises restructuring fears. Page 6

cLo sPReaD comPRessIon Brean’s Peter tchir on the potential for Clos to rally. Page 8

Quote oF tHe WeeK

The market’s very rich, valua-tions are lackluster and there’s very little margin for error. We’ve lightened up, taken profits. Yields and cash prices on the asset class haven’t any-where much to go now.

— Steve Logan, head of high-yield at SWIP, which manages about $242 billion

“

u.s. High-yield Issuance Lowest since Q1 2009, Fees Rise

David Richter

”

Hill Eyes Bond, Loan to Refinance Second Lien

03.24.14 www.bloombergbriefs.com Bloomberg Brief | Leveraged Finance

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Continued from page 1 Market News

“it’s our top priority to bring our debt down,” said Richter, who is set to take over as Ceo from his father irvin in 2015.

Hill seeks a new bank group for its revolver, and may be able to save “a couple hundred basis points” from what it pays today, he said. The current revolver pays a base rate of up to 5.5 percent depending on leverage.

asked why Hill is changing the banks, Richter said: “lender fatigue on their part and borrower fatigue on our part. i think we’re looking for a fresh start.”

Richter said the company will borrow as much as it can. “What i’ve been told by many experts is that the most you can borrow is four times

ebitda,” he said. “ Pulling the trigger today or pulling the trigger a year from now might make a big difference with our ebitda climbing so quickly.”

ebitda is seen at $50.3 million in 2014, according to analyst estimates compiled by bloomberg.

Hill is currently not rated by s&P or moody’s, though Richter said a rating would helpful in a debt offering. The company is not interested in selling a convertible, he said.

San Diego Retirement commits to Distressed fundThe san Diego city employees’ Retirement system is committing up to $120 million,

or about 2 percent of its capital, to a credit fund run by grosvenor capital management that includes european and distressed fixed-income investments.

The $5.3 billion pension fund’s investment committee approved the allocation to Grosvenor March 13. Grosvenor will invest with an “opportunistic” credit strategy favor-ing higher-yielding credits over more traditional leveraged loans or bonds while avoiding equity risk, as investors seek better returns, said managing director jon Levin.

investors can meet returns goals with “either an opportunistic credit trade, maybe a liquidation claim, or maybe it is a distressed security,” levin said in a March 17 telephone interview. “Something that is more one-off or a niche-type investment because there is not a lot happening currently in your plain-vanilla corporate debt world.”

levin declined to comment on the San Diego allocation. The capital will be called as needed during an 18-month investment period, according to christina Di Leva, commu-nications manager at the San Diego pension fund.

The investment firm manages $10 billion in credit, including $2.5 billion in separate accounts, said levin, who worked at KKR before moving to Grosvenor in 2011. The fund is also focused on mortgage and structured-credit investments, particularly in europe, according to a proposal for the retirement system.

The system is between 68.5 percent and 70.4 percent funded, according to a March 14 statement by Fitch Ratings.

The retirement system should be taking advantage of areas with excess demand for credit and no or few natural suppliers of that type of credit, the pension fund said its in-vestment advisor, Hewitt ennisKnupp, wrote in a recommendation. The holdings of the

DEAL WATcH ■ advent, Bain capital and Danish

pension fund atP agreed to buy Nordic card-payment company nets Holding for a cash consideration of 17 billion kroner ($3.1 billion). The lbo is backed by debt arranged by Danske, Deutsche Bank, jPmor-gan, mizuho, nordea, nykredit and uBs. Total leverage will be about 5.5 times and equity from advent, aTP and bain will account for about 50 percent of the deal value, said james Brocklebank, managing partner of advent.

■ Heidelbergcement reported a higher-than-estimated debt load as the world’s third-largest maker of ce-ment increased investment and paid a fine for cartel infringements dating back to the 1990s. Net debt increased to 7.5 billion euros at Dec. 31 from 7.05 billion euros a year earlier, the company said last week. The average estimate of 18 analysts in a bloom-berg survey was for debt of 7.2 billion euros. HeidelbergCement is seeking to regain the investment-grade credit rating that it lost in 2008 following the purchase of british cement maker Hanson for $18 billion. HeidelbergCe-ment debt is graded ba1.

■ Philip Falcone’s Lightsquared will probably be able to raise $1 bil-lion in loans to finance its exit from bankruptcy, Credit Suisse said in a letter made public March 21.

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Continued from page 2Market News

separate account Grosvenor would provide are mostly self-liquidating, though they could be sold in advantageous market conditions, Hewitt wrote.

The portfolio is expected to be invested predominately across the U.S. and europe, with modest exposure to asia, Hewitt wrote. The fund would have a six year life and Grosve-nor would earn a 75 basis point management fee on invested capital, Hewitt wrote.

— David Holley

Halcon to Draw on Revolver in Second Half of 2014Halcon Resources expects to borrow on a revolving line of credit in the second half of

2014 to fund operations, said Chief Financial officer mark mize.The oil and gas driller has enough capital for the next “quarter or so’’ because it’s selling

$450 million of assets, Mize said. it will borrow on a $700 million line of credit and use operating cash flow after the second quarter rather than raising fresh capital.

Halcon may leave an outstanding balance on the line of credit, though the debt may be repaid with cash flow or proceeds from other non-core assets, Mize said. it reported $493.9 million of cash from operations in 2013, up from $84.4 million the year before.

“We’re going to have operating cash flow coming in and increasing as we go through the year with our drilling program that we’ll use to fund the operation of the company,’’ Mize said in a March 17 telephone interview.

in December, Houston-based Halcon sold a $400 million add-on to its existing $750 million 9.75 percent notes due July 2020 to pay down the revolver.

if the add-on had been larger than a “small tack-on for us,” the company would have marketed it in europe, deeper in Canada or asia. instead, it marketed the offering in half of a day in the U.S. because it knew investors liked the 9.75 percent bonds. its $750 mil-lion issuance was one of its largest books with about 90 investors, and the 2020 maturity was a “sweet spot” in the market, Mize said.

“There were some bondholders calling in to see if there was a possibility of those if ad-ditional notes would be issued in the future,” after Halcon sold the $750 million, Mize said. He said the company would consider adding to the $400 million of 9.25 percent notes due 2022 in the next two years.

— David Holley

aK steel extends LoanaK steel is persuading bankers to

lengthen its loans as the U.S. auto boom rescues the debt from the brink of distress. The steelmaker, which tapped its credit line last year as cash dwindled, said March 17 that it ex-tended the maturity on its $1.1 billion revolver by three years.

Since peaking in September, aK Steel’s borrowing costs in the bond market have fallen the most among rivals as yields on $1.2 billion of notes plunged 2.83 percentage points to 7.25 percent. Six months after slump-ing steel prices, cash shortages and pension liabilities caused bondhold-ers to question creditworthiness, aK Steel is regaining the confidence of lenders. The biggest year for U.S. car sales since 2007 has analysts pre-dicting its first net income in six years.

“Demand is picking up particularly in the auto sector,” said evan mann, an analyst with bond-research firm gimme credit. “bondholders are seeing once they get past this year, free-cash flows start to get better as pension expense diminishes and capital expenditure requirements go down.” The company has “a very manageable debt profile and solid liquidity,” said Mike Wallner, a spokes-man for aK Steel.

The steel producer will report a first quarter net loss of 44 cents to 49 cents. That forecast missed the average of 16 analysts’ estimates compiled by bloomberg, which called for a 5-cent profit.

The new credit facility comes due in March 2019 and was arranged by BamL, jPmorgan and Wells Fargo. it replaces a line that would have ex-pired in april 2016 and is secured by inventory and accounts receivable.

“a lot of people were looking at them as a distressed company but they are thinking about it differently now,” said Wen Li, an analyst at creditsights. “They have a decent amount of li-quidity to get by without having to tap the capital market this year.”

– Sridhar Natarajan, Sonja Elmquist

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HY Energy Triple C Rated Halcon 8.875% of 2021 YTW

Source: BAML, Bloomberg LP HKUS Corp <GO>

most-Liquid Halcon trades tight to Ratings, Wide to Industry Peers


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VERBATim

■ actuant: “We completed the divestiture of the electrical segment in December and recognized the resultant gain. The gain in related sale cost as well as electri-cal segment results for the stub period are included in the $19 million in income in discontinued operations. There were ap-proximately $243 million of net proceeds from the divestiture in the second quarter, which were used to fund share buybacks and reduce net debt.”

— Andrew Lampereur, CFO, on a second-quarter 2014 earnings call March 19

■ Frontier communications: “The markets are in good shape and we think that there’s plenty of appetite for our paper right now. We would have to get past our first quarter and get the financials in from the acquired properties first quarter num-bers, put together pro formas and prepare the offering memorandum. We think about it as being something like mid-year. it’s a balancing act between securing the cash and taking advantage of the markets, and trying not to have too much negative carry. So we’ll take a look at it probably in the May, June timeframe, and if we think that makes sense, perhaps then, if not, we can always push it out and do it a little later in the year. even though no final decisions have been made on exactly what debt we’re going to be issuing, for the most part, we’d like to keep it a straightforward structure.”

— Robert Starr, CFO, at a Goldman Sachs TMT Leveraged Finance Conference March 19

■ amkor: “our leverage goal is a couple of things. one is to keep that ebitda below three times. Right now, we’re at 2.5 and that’s down from 2.7 last year, and then that’s total debt to ebitda. We want to keep that in the downward direction regardless, so the three times is really a cap. and the other goals are to keep the balance sheet strong; to keep excellent liquidity, right now, we’ve got over $1 bil-

■ constellium: “our net debt has improved to approximately 132 million [euros], which is a significant reduction versus 181 million euros at the end of Q3 2013. This also reflects the seasonal-ity of our cash generation as discussed earlier. We ended 2013 with a net debt to adjusted ebitda ratio of 0.5 times. We have no near-term debt maturities and very importantly an average debt life of five years.”

— Didier Fontaine, CFO, on a fourth-quarter 2013 earnings call March 20

■ Burlington stores: “We expect 2014 capital expenditures of approximately $190 million net of $40 of landlord allow-ances, which includes a shift in spend of approximately $10 million from fiscal 2013 to fiscal 2014 driven by the timing of expenditures related to our new office building. We expect to continue to utilize our free cash flow to pay down debt. Depreciation and amortization expense is expected to be approximately $145 mil-lion. So we gave notice that we intend to pay $58 million of the 9 percent Holdco Notes on april 4 and that’s the only plan debt paydowns we have, but as free cash flow becomes available, we’ll look at pay-ing additional debt payments down above our required amortization payments, probably most likely would be term loan prepayment. The senior opCo notes aren’t callable until February of 2015, so as we get closer to that date, we will look opportunistically at any opportunity to refinance that.”

— Todd Weyhrich, CFO and Robert L. LaPenta, chief accounting officer, on a fourth-quarter

2013 earnings call March 20

■ sensata: “We’re comfortable taking on additional leverage to finance [an] acquisition. i think our general view is that acquisitions, levered acquisitions provide the greatest return to our shareholders followed by share buyback activity. So i think that that’s going to be one the large drivers of the business going forward. We also have the goal to where we strive in the longer term to ultimately achieve an investment grade credit rating.”

— Christopher Campbell, director of treasury, at a Goldman Sachs TMT Leveraged

Finance conference March 19

lion in liquidity between cash and some of our credit facilities; and to have greater and greater capital discipline in terms of what we spend on Capex; and to be free cash flow positive, consistently free cash flow positive. We do like some blend of bonds and foreign debt, it helps us main-tain some flexibility, it also helps us man-age our cost of borrowing because a lot of that foreign debt tends to be cheaper than the bonds that we’re issuing here in the U.S. So for the 2018s that are becom-

ing callable in a couple of months, we’ll take a look at the market, if there is an NPv-positive transaction, we’ll consider it. We don’t feel like we’re in a particular rush or have any confirmed timeframe in mind. it really depends on what the op-portunities are and what makes sense.”

— Greg Johnson, senior director of investor relations, at a Goldman Sachs TMT

Leveraged Finance Conference March 19

■ aaR: “We’re going to have some cash going out on the balance of the Sabena deal. So i think as we ramp in some of these new contracts, there will be some cash going out. as i look out into next year assuming purely from the standpoint of our existing customer, our existing busi-ness space, i would expect our free cash to exceed our after-tax income. We should be generating some pretty good cash flows next year.”

— David Storch, CFO, on a third-quarter 2014 earnings call March 20

‘‘‘‘A lot of

that foreign debt tends to be cheaper

than the bonds that we’re issuing here in the U.S.— Amkor senior director of investor

relations Greg Johnson

What high-yield issuers and investors are say-ing at conferences and on investor calls about the high-yield debt markets.

Comments have been edited and condensed.


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■ investors are Pouring Money into loan Funds

■ Second-lien loan Sales are at Post-Crisis High

■ investors are Demanding less Return From Second-lien loans

■ Second-lien loan Risk Has Risen

by JaMeS CRoMbie aND laRa DeKeinvestors have put more money into

loan funds each week for over 90 weeks. The last time money flowed out of mutual funds and exchange-traded funds special-izing in loans was in June of 2012.

Sales of second lien loans have grown to $4.2 billion for the first two months of this year.

Second-Lien Loan Boom Belies Risk

Click here to view the rest of the illustrated story online

http://briefs.blpprofessional.com/viz/SecondLien-Loan-Boom-Belies-Risk-/index.html/

e-mail questions or comments on bloomberg Story in Graphs to Deirdre Fretz at [email protected]

SToRy in GRApHS

Drahi plans Europe’s Largest covenant-Light Loan for SfR-numericable mergerbillionaire Patrick Drahi plans to raise

the largest covenant-light leveraged loan in europe as part of a 14.75 billion euro financing backing his bid to acquire France’s second-biggest phone company.

a 5.5 billion-euro term loan b won’t include standard lender protections, said two people with knowledge of the mat-ter. The term portion along with about 5.5 billion euros of high-yield bonds and a 750 million-euro credit line will back the pur-chase of France-based sFR from vivendi.

a booming market for high-yield corporate debt is allowing Drahi to borrow at flex-ible terms as he proposes to merge SFR with his numericable. The French wireless market has become one of europe’s most

competitive since a price war triggered by iliad’s introduction of mobile-phone packages in 2012, some as cheap as 2 euros a month.

The deal will add to $5.4 billion of covenant-light loans raised by borrowers in europe this year, after a record $24.5 billion was signed in 2013, according to data compiled by bloomberg.

The transaction will exceed $4.1 billion of covenant-light loans Ineos group Holdings raised last month, according to bloomberg data.

The financing also comprise 3 billion euros of junior debt to Numericable parent altice, the people said.

altice began exclusive talks with vivendi on March 14 after it offered 11.75 billion

euros in cash and a 32 percent stake in the combined business valued at 20 billion euros. both Drahi and bidder Bouygues boosted their offers last week for SFR.

arrangers of the debt financing may start syndicating the loans and bonds for the combined company next month after it obtains credit ratings, the people said.

Deutsche Bank, goldman sachs and jPmorgan are coordinating the debt financing, said the people. Barclays, BnP Paribas, credit agricole, credit suisse, Ing groep and morgan stanley are also arranging the deal.

Charles Fleming, a Paris-based spokes-man for altice at Havas, declined to com-ment on the financing.

EuRopE LoAn focuS PaTRiCia KUo

http://briefs.blpprofessional.com/viz/SecondLien-Loan-Boom-Belies-Risk-/index.html


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US HY Coal US Distressed

CCC Rated James River 7.875% of 2019

Source: BAML, Bloomberg LP

james River ytW spikes as Distressed average Widens slightly

Default Siren Sounds on James River coupon miss; Restructuring Expectedjames River coal’s decision to skip

a $208,000 interest payment last week shows just how hard the coal-mining industry is being hit by america’s natural-gas boom and a slowdown in China.

The company, with almost a half-billion dollars in obligations, missed the coupon on $13.3 million of convertible notes due March 2018, giving James River until april 14, when a grace period expires, before it defaults. The delay comes after the coal producer underwent a debt swap to push out maturities that moody’s considered a limited default.

less than three years after completing its biggest acquisition to capitalize on de-mand for steelmaking coal, James River is considering raising cash through debt, equity and asset sales to stave off credi-tors who have seen their bonds tumble to as little as 5 cents. The company, which hasn’t reported an annual profit since 2010, idled three mining complexes last year as hydraulic fracturing made natural gas a cheaper alternative and China, the world’s largest user of steelmaking coal, is forecast to grow at its slowest pace in 24 years.

There’s no good solution for bondholders and there’s no “good solution for James River either,” said Will Frohnhoefer, a special-situations analyst at BtIg. “They’ve reached pretty much the end of their rope.”

elizabeth Cook, a spokeswoman for James River, didn’t respond to an e-mail seeking comment.

James River’s 3.125 percent convertible notes, which had an interest payment due on March 17, were quoted at 11.8 cents on the dollar Feb. 21, down from 33 cents in May, according to Trace.

James River also delayed its annual earnings report, citing time require-ments for a strategic review process. The company also said its auditors indicated, based on current circumstances, that they would deliver an opinion with a go-ing concern qualification.

“if they’re not paying, that means they’re going into restructuring talks,” said adam cohen, founder of covenant Review. “you say, ‘We’re not paying you,’ and that makes everybody show up and talk.”

The company is estimated to have lost $61.4 million last year, adding to declines of $138.9 million in 2012, its biggest loss in at least 10 years, and $39.1 million in 2011, according to data compiled by bloomberg.

in 2011, James River spent $475 million in an all-cash transaction to buy Interna-tional Resource Partners to add capac-ity to produce metallurgical coal, used by steelmakers. The price of that commodity has dropped 66 percent since the begin-ning of 2011 to $123.05 on March 10, bloomberg data show.

China’s economy will expand 7.45 per-cent this year, according to economists surveyed by bloomberg, which would be the slowest pace since 1990. The country is the world’s biggest steelmaker, consum-ing 604.5 million metric tons of metallurgi-cal coal in 2013, about 60 percent of global use, according to data compiled by bloom-berg from the World steel association.

The miner has $473 million of outstand-ing bonds that come due over the next five years, with a weighted-average, fixed-rate coupon of 8.19 percent, bloomberg data show. it reduced its debt load by $143 million last year through the use of debt exchanges.

Moody’s lowered its rating on James River in May to Caa2 from Caa1, stating that it “is likely to continue burning cash absent additional cost reductions” or an improvement in the coal market, accord-ing to a report from the ratings company. Moody’s cited the debt exchange as a limited default.

James River’s mines are located in the central appalachian and illinois basin regions. in 2012, it produced 9.5 million tons of coal split between thermal coal sold to power generators and 56 percent to industrial customers including steel-makers, the company said in a March 8, 2013, filing. The company previously filed for bankruptcy protection in 2003 and completed its reorganization in May 2004.

James River said last month it hired Per-ella Weinberg Partners as a restructuring adviser, Deutsche Bank as its mergers and acquisitions adviser and Davis Polk & Wardwell as legal adviser to evaluate restructuring options.

“if i’m a bondholder, i’d rather be in a situation where i have more legal advan-tage than not,” Frohnhoefer said. “outside of a restructuring, i have not a whole lot of legal say.”

DiSTRESSED cREDiT SaRiKa GaNGaR aND SoNJa elMQUiST


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iTraxx Crossover (Left Axis)

CDX High Yield (Right Axis)

Source: Bloomberg LP

europe cDs Index jumped after expansion to add Issuers

Europe Sees Record Swap Expansion as High-yield issuance Swellseurope’s junk-bond market, once

considered a small outpost in the fixed-income world, is gaining relevance as growth exceeds that of the U.S. and bank-ers race to offer investors another way to bet on credit quality.

a benchmark index of CDS on the re-gion’s high-yield bonds was expanded last week to cover the most borrowers since it started trading in 2004. Non-financial companies in europe have raised 14.5 bil-lion euros of junk debt this year, following an all-time high of 76 billion euros in 2013.

“There’s a dearth of physical credit,” said mitch Reznick, london-based co-head of credit at Hermes Fund managers, which oversees about $40 billion. “any develop-ment that increases the ability to express an investment view is a good thing, and that’s what this does.”

The markit iTraxx europe Crossover index includes credit swaps linked to 60 borrowers and started trading Mar. 20 in london, up from 50 companies previously tracked. Five companies were removed from the previous version of the bench-mark and 15 were added. The new mea-sure cost 322 basis points and compares with 252 basis points for the previous series at the close Mar. 19.

galp energia and Rexel are among those being included because they’ve sold more than 500 million euros of bonds in the past year, according to Markit.

Markit said last month it was expanding europe’s riskiest measure “in response to the continued growth in high-yield bond issuance.” Non-financial companies in the region raised 23 percent of their cash in the capital markets in 2013, up from 20 percent in 2012, according to Moody’s.

“by bringing in new names, you make it more closely aligned to what investors have in their portfolios,” said abel elizal-de, a credit strategist at citi in london. “The challenge now is to try to get these names liquid. The good thing is that we’ve already seen investor interest in trading.”

it’s the first time the gauge has been increased since 2009 after it was briefly reduced to cover 45 borrowers to reflect lower trading volumes during the crisis.

europe’s high-yield market is being fu-eled by investor confidence in the region’s

economic recovery as investors return to markets they shunned during the debt crisis. The region’s rebound has allowed Greece’s Piraeus Bank to sell bonds.

yields on junk corporate bonds dropped to a record low of 4.4 percent last week.

bond financing is increasing as banks shrink balance sheets and curb lending to meet new regulations in the wake of the crisis. europe’s leveraged loan market contracted 13 percent to 283 billion euros in the past two years, according to morgan stanley. in the same period, BamL’s european junk index expanded 53 percent to 227 billion euros.

The almost 250 billion euros of debt now in the bond index is up from 76 billion euros in mid-2007. That compares with $1.3 trillion on the U.S. measure, which rose from $680 billion in the same period, and almost $2 trillion globally, baMl bond indexes show.

“The U.S. high-yield market is much bigger than the european market, so you have to scale for that,” elizalde said. “but everyone felt that Crossover should include more high-yield names.”

The change is being made as the latest series of indexes measuring the cost

of protecting corporate debt around the world start trading.

“There’s been growth in the high-yield market and now more CDS are trading as investors hedge those bonds,” said saul Doctor, a strategist at jPmorgan in london. “investors will now have another instrument by which they can hedge those names, trade them, find relative value and that should give liquidity to the name.”

Trade volumes on the Crossover index soared in the past year while trading in the credit derivatives market as a whole declined, according to DTCC data.

Contracts on the benchmark insure $26 billion of debt, up 53 percent in the past 12 months, while notional volumes on the equivalent U.S. gauge rose 5 percent to cover $27 billion. a gross $21 trillion of protection is now outstanding across all credit products, down 12 percent from $24 trillion a year ago, DTCC data show.

“The reference is the CDX High yield index, which has 100 names, and the goal is to bring Crossover closer to that,” elizalde said. “CDX High yield is a big index, it’s very diversified and more rep-resentative of the U.S. high-yield market. Crossover is moving in that direction.”

EuRopEAn BonD mARKET abiGail MoSeS


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8

Q&A

While it may be hard to predict which single college basketball team will win the NCaa tournament, it might be even harder to pick 16 leveraged loans that will default in the next 10 years, according to Peter tchir, head of macro income strategy at Brean capital. Tchir, who sold tF market advisors to brean this month, penned a blog post relating March Madness to the Clo market: pick any 64 leveraged loans and try to find 16 that will default. Tchir spoke to bloomberg brief’s David Holley.

Q: What was the concept of your post?a: We think the aaa of Clos is very cheap. The stuff is coming with 30 percent subordination and libor plus 150. if you compare that with some other classes, you’re getting this huge spread pick up. We’ve been banging our heads against the wall today trying to get people to fol-low it. everyone talks about, ‘What if you get defaults?’ This seemed like a very good time to take up on this tournament or bracket thing and say, ‘Hey, go through these and see how many will default.’

Q: you say there won’t be many.a: i think people will find it difficult to find 16 companies that will default, or make it to the Sweet 16 of that pool. Why not have people look and see how bad these loans are? When they go through and find out the loans aren’t that bad, it’ll hopefully create a talking point and just a different way of looking at this. We’ve had some interesting follow on conversations with clients since then.

Q: so of any 64 companies in the in-dex, you don’t expect 16 to default?a: That would be a 25 percent default rate, which wouldn’t even be sufficient to blow up the aaa tranches of Clos. We just kind of thought the numbers work very well. it’s a different way to get people to focus on this. The credit risk of these aaa Clos is probably being mispriced. it’s a weird market where it’s almost harder to place the aaa tranches as it is to place the equity tranche of the Clo.

Q: How do you mean they’re cheap?a: if you had a $500 million Clo, there

Brean’s Tchir: picking 16 Loan Defaults Harder Than picking Sweet 16

Grew up: Waterloo, Ontario Live now: New Canaan, CT

if you could live in any city: Barcelona

favorite band: The Clash favorite film: Rocky

Recommended reading: George Orwell (I’m feeling dystopian lately)

if you could have another career, it would be: Placekicker

favorite restaurant in the city you live: Elm

favorite restaurant elsewhere: A dive in Madrid where you eat the shrimp

while standing, sipping sweet red wine, and throw the tails on the floor

would be as much as $150 million of the capital structure – 30 percent – would be subordinated to you. The Clo would have to have that level of actual losses before you get hit. That means, really as-suming even a 50 percent recovery rate, you would need a 60 percent default rate before you were hit. even the 25 percent default rate – 16 loans – that we play with in this scenario, when you look through the loans, most people in the loan market feel very comfortable with this. it seems very unlikely you will have the sort of loss rate that will hit the senior tranche.

Q: What examples can you give?a: you could invest in leveraged loans outright like blKN, which is yielding 4.4 outright. There you would be taking the actual loss of all those loans, or any loan in there. Here you would have to have 30 percent actual losses, so a 60 percent default rate, before you were actually hit. looking at FloT, which invests mostly in financial floating rate bonds – so GeCC, JPMorgan, 3-5 year bonds – they’re investment grade companies. Those struggled just as much, if not more than some of the leveraged loans during the crisis. That pays 40 basis points. i would argue that the aaa tranche of the Clo has less risk than some of those financial names, and yet you’re getting triple to quadruple the interest for holding it.

Q: you could just buy treasuries.a: but then you’d have to go into pretty high duration. So this is the nice part: they’re floating rate, so if libor starts go-

ing up, you’ll get that increase in your coupon.

Q: you think there’s value remaining?a: This has all the seals of an asset class that is currently underinvested. Too few people understand it or have the institu-tional knowledge to claim they understand it. That will pick up quickly. These used to be issued at libor plus 40. This is an asset class you might see significant spread tightening in. We don’t see this just as carry. if you’re an early adopter of this, and we’re right about it and others start adopting, you should see a pretty significant ratcheting in of spreads, and you could get down to libor plus 80 or 90, from the 150 it is today.

Q: Why are they mispriced?a: Part of the problem is a lot of institu-tions no longer have structured credit capacity. We’re just at the stage where the early adopters are doing well. People are saying i need spread, i should be moving down the credit curve or out the maturity spectrum, both of which scare them. or i should be thinking more about structured products. as we get closer to the Fed having to hike rates, the libor element becomes more attractive.

Q: How did you select issuers?a: We went through by rating and just high-lighted some of the names. Heinz and Dell are in there. Heinz is a Warren buffett thing, and he’s never going to have a company that defaults. Dell got into the bidding war. a lot of people forget that the leveraged loan market is lending to people you know of.


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9

LoAnS

u.S. institutional Loan pipeline: commitments Due for SunGard, fairmount minerals

BoRRoWER SponSoR AmounT (m)

TEnoR (yRS)

mARGin (L+) RAnK pRicE L

fLooRcALL

pRoTEcT uop LEADS commiT DATE

SunGard Bain,Blk,GS,KKR, Prov,SL,TPG 1025 5.0 450 99.50 100 101 SC 6-Mo GCP JPM 24-MarFairmount Min. Amer. Sec 324 3.0 400 1L 100.00 NO NO Refi BARC/KEY/PNC/WF 24-MarFairmount Min. Amer. Sec 924 5.0 400 1L 100.00 100 101 SC 6-Mo Refi BARC/KEY/PNC/WF 24-MarMedpace Cinven 530 7.0 400 1L 99.00 100 101 SC 6-Mo LBO, Refi JEFF/BARC/CS/UBS/WF 24-MarPQ Carlyle 1223 3.0 300 1L 100.00 100 101 SC 6-Mo Refi CS 24-MarGYP AEA 390 7.0 350 1L 99.50 100 101 SC 6-Mo LBO CS 25-MarGYP AEA 160 8.0 700 2L 99.00 100 102/101 LBO CS 25-MarAtkore CDR 420 7.0 400 1L 99.00 100 - Acq DB/UBS/CS/JP/RBS/WF 25-MarAtkore CDR 250 7.5 725 2L 99.00 100 - Acq DB/UBS/CS/JP/RBS/WF 25-MarKindred - 1000 7.0 300 1L 99.50-99.75 100 101 SC 6-Mo Refi JPM 25-MarPlanet Fitness TSG 390 7.0 375-400 1L 99.00 100 101 SC 6-Mo Refi,Div,Acq JPM 25-MarCRC Health Bain 475 7.0 375-400 1L 99.50 100 101 SC 6-Mo Refi C/CS 25-MarCRC Health Bain 300 7.5 725 2L 99.00 100 102,101,100 Refi CS/C 25-MarCapital Safety KKR 700 7.0 325 1L 99.75 100 - Repay, Div UBS/MS/GS/Miz/KKR 26-MarCapital Safety KKR 135 8.0 625 2L 99.50 100 1 Repay, Div UBS/MS/GS/Miz/KKR 26-MarU.S. Renal Leonard Green 225 5.0 325 1L 99.50 100 101 SC 6-Mo Div BARC/RBC/GS/STRH 26-MarU.S. Renal Care Leonard Green 25 6.0 750 2L 100.00 100 NC1, 102, 101 Div BARC/RBC/GS/STRH 26-MarWideOpenWest Avista 424 3.0 275-300 1L 100.00 - 101 SC 6-Mo Refi JPM 27-MarWideOpenWest Avista 1549 5.0 300-325 1L 100.00 75 101 SC 6-Mo Refi JPM 27-MarLearfield PEP 280 5.5 1L - - 101 SC 6-Mo Refi DB 27-MarCaelus Energy - 300 7.0 725 2L 98.00 125 - Acq CS 28-MarLineage Log. - 600 7.0 350 1L 99.50 100 101 SC 6-Mo Acq CS 28-MarCooper Stan. - 725 7.0 350 1L 99.50 100 101 SC 6-Mo Refi bonds DB/BML/BARC/JP/UBS 28-MarCPI Intl Veritas 310 7.0 350 1L 99.50 100 - Div Recap UBS/MCS 28-MarFlexera Teachers 345 6.0 375 1L 99.50 100 101 SC 6-Mo Refi, Div JEFF 28-MarFlexera Teachers 125 7.0 725 2L 99.00 100 102/101 Refi, Div JEFF 28-MarFederal-Mogul - 500 4.0 300-325 1L 99.75 100 101 SC 6-Mo Refi CITI 1-Apr

Source: Bloomberg LP LSRC <GO>

cLo market: morgan Stanley priced AAA cLo for Sound point capital at L+157bp

pLAcEmEnT AGEnT coLLATERAL mAnAGER SizE AAA TRAncHE AAA coupon noTES

Wells Fargo GSO $408m $246m TBD Deal name Pinnacle Park CLO, stated maturity 12 years

BAML CVC $519m $294m L+150bp $20m AAA fixed portion priced at 3.46%

StormHarbor Feingold O'Keefe $414m $255m L+153bp $45m AA tranche priced at L+225bp

MS Sound Point $628m $390m L+157bp Priced at par

MS Sankaty $728m $427m L+152bp Priced at par

JPMorgan Greywolf $641m $385m L+154bp Increased from $513m/$308m. Legal final maturity: 12 years

Wells Fargo Octagon $567m $347m L+152bp Priced at par. Increased from $412m. Legal final 12Y

Natixis BNP $401m $234m L+145bp A2 tranche for $51m, rated AA, priced at 195bp

Guggenheim, Jeff Tall Tree $409m $232m L+150bp Final Maturity: 12Y

Citi TICP $479m $284m L+150bp DM L+160bp, stated maturity April 2026

Goldman Sachs Angelo, Gordon $622m $376m L+160bp DM L+160bp, stated maturity: 11 years

BAML Och-Ziff $621m $375m L+155bp Guidance was L+150bp area

BAML Brigade $417m $242m L+150bp A2A tranche for $45m rated AA has coupon of L+ 215bp

Citi Ares $514m $325m L+152bp Stated Maturity: April 17, 2026

Credit Suisse ING Alt $327m $227m L+120bp Refinancing, priced at par, final maturity: March 14, 2022Source: Bloomberg LP All new issue U.S. CLOs since March 6


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10

u.S. LEVERAGED LoAn inDEx RETuRnS By SEcToR blooMbeRG DaTa

The JPMorgan leveraged loan index ended at an all-time high value of 142.85 after returning 6 basis points for the week ended March 20. year-to-date, the index has returned 93 basis points. Second lien loans continued to outperform, returning 24 basis points. The utility sector, the most volatile industry group for

much of the year due to troubles at energy Future Holdings, was once again the top performer, returning 31 basis points. Metals and mining was the worst performing industry group on the week, losing 8 basis points.

— Spencer Cutter, Bloomberg Data Analyst

jPmorgan Leveraged Institutional Loan Index-sector Returns and characteristics March 20, 2014

SEcToR Jp moRGAnTicKER STW (Bp) yTW (%)

ToTAL RETuRn, % [1,2]

1 WEEK 1m 3m yTD automotive JlliaUTo 344.46 4.81 0.11 0.35 0.74 0.71broadcast JllibRDC 434.26 6.17 -0.01 0.13 2.14 1.86Cable/Satellit JlliCble 298.43 4.92 0.07 -0.08 0.99 0.76Chemicals JlliCHeM 356.00 5.16 -0.01 0.16 1.09 0.98Consumer Prod. JlliPRoD 391.01 5.64 0.08 0.27 1.38 1.19Diverse Media JlliDvMD 530.65 6.79 0.14 0.46 1.56 1.36energy JllieNeR 455.99 6.22 0.09 0.24 1.45 1.39Financial JlliFiNl 409.05 5.81 0.11 0.23 1.14 0.99Food & bev JlliFDbv 317.28 5.01 0.21 0.33 0.81 0.73Gaming/leisure JlliGaMe 413.97 6.02 0.00 0.17 0.46 0.21Healthcare JlliHlTH 364.49 5.27 0.04 0.15 0.83 0.72Housing JlliHoUS 361.50 5.54 0.01 0.24 1.15 0.93industrials JlliiNDU 373.02 5.45 0.05 0.17 1.22 1.00Metals/Mining JlliMeTl 416.51 5.81 -0.08 0.12 0.93 0.89Paper & Pack JlliPaPR 371.88 5.47 0.10 0.07 0.84 0.84Retail JlliReTl 394.52 5.66 0.08 0.29 1.12 0.94Services JlliSeRv 429.61 5.97 -0.03 0.08 0.89 0.77Technology JlliTeCH 386.38 5.59 0.01 0.29 1.07 0.91Telecom JlliTlCM 346.86 5.38 -0.03 0.08 0.92 0.72Transportation JlliTRaN 389.97 5.36 -0.03 0.33 1.05 0.92Utility JlliUTil 770.82 9.36 0.31 1.02 2.52 1.66

1l leveraged loans Jllilli 409.84 5.8 0.06 0.24 1.11 0.932l leveraged loans J2lilli 840.96 10.28 0.24 0.82 2.31 2.19

loan only JllilNoy 433.45 6.09 0.04 0.22 1.18 1.03loan & bond JllilNbD 393.59 5.61 0.06 0.25 1.06 0.85libor Floor JllilFlR 387.51 5.65 0.04 0.20 1.00 0.86No libor Floor JlliNlFl 571.59 6.95 0.15 0.51 1.83 1.39Cov-lite JlliCovl 361.01 5.47 0.03 0.23 0.88 0.75Not Cov-lite JlliNCvl 458.68 6.14 0.08 0.24 1.31 1.08Domestic JlliUS 411.73 5.82 0.06 0.25 1.11 0.92international JlliiNTl 390.42 5.70 0.05 0.12 1.05 0.93

bb Jllibb 296.06 4.72 0.05 0.13 0.56 0.46Split bb JlliSbb 375.94 5.44 0.03 0.19 0.99 0.85b Jllib 433.96 6.06 0.04 0.23 1.23 1.06Split b JlliSbCC 1,153.58 12.83 0.44 1.50 4.38 3.10Not rated JlliNR 687.60 8.33 0.23 0.62 2.04 1.88US leveRaGeD loaN iNDeX Jllilli 409.84 5.80 0.06 0.24 1.11 0.93

Source: JPMorgan Leveraged Loan Indices

Notes: 1)Monthly and yTD performance data represents periods up to the current date. 2)Green / red color coding represents performance ranking of the top/bottom three sectors in the period. JLLI INDEX <GO>


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11

EuRopEAn LoAnS lUKe Reeve, blooMbeRG DaTa aNalyST

numericable Jumbo Joins Western Europe Leveraged Loan pipeline

BoRRoWER SponSoR AmounT (m) TEnoR (yRS)

mARGin (L+) RAnK L

fLooR uop LEADS commiT DATE

Ceva Sante Anim. Euromezz, IK, NiXen, Sagard EUR 50 6 350 1L - Acq/LBO/Refi GS, NAT, NOM 3/21/2014

Ceva Sante Anim. Euromezz, IK, NiXen, Sagard EUR 100 6 350 1L 100 Acq/LBO/Refi/Capex GS, NAT, NOM 3/21/2014

Callcredit Inform. GTCR , Golder Rauner GBP177.5 7 475 1L - Acq/LBO/2nd Buy GE, HSBC, LLO 3/25/2014

Callcredit Inform. GTCR , Golder Rauner GBP 15 6 425 1L - Acq/LBO/2nd Buy GE, HSBC, LLO 3/25/2014

Callcredit Inform. GTCR , Golder Rauner GBP 25 6 425 1L - Acq/LBO/2nd Buy GE, HSBC, LLO 3/25/2014

Diaverum Bridgepoint EUR - - 375 - - Acq/LBO/Refi COMM, CA, GE, JPM, RBS 3/26/2014

Diaverum Bridgepoint EUR - - 425 - - Acq/LBO/Refi COMM, CA, GE, JPM, RBS 3/26/2014

Vinci Park Ardian, Predica EUR 460 3 - 1L - Acq/LBO BBVA,SAN,BNP,CA,HSH,RBS,SM -


Vinci Park Ardian, Predica EUR 275 5 - 1L - Acq/LBO/Capex BBVA,SAN,BNP,CA,HSH,RBS,SM -


Numericable-SFR Altice* EUR 750 - - 1L - Acq/Merger DB, GS, JPM -

Numericable-SFR Altice* EUR 2,500 6 - 1L - Acq/Merger DB, GS, JPM -

Numericable-SFR Altice* USD 4,131 6 - 1L - Acq/Merger DB, GS, JPM -

Source: Bloomberg LP LSRC <GO>

Western Europe Leveraged Loans Signed mar. 12 - 19

BoRRoWER SponSoR AmounT (m) TEnoR (yRS) mARGin

(L+ RAnK uop LEADS SiGnED

Kaufman & Broad PAI EUR 50 5 - 1L Refi CA 3/19/2014



Oberthur Tech. Advent USD 280 6 350 1L Acq/LBO/Refi BARC, GS, HSBC, JPM, LLO, SG 3/12/2014

Oberthur Tech. Advent EUR 260 6 375 1L Acq/LBO/Refi BARC, GS, HSBC, JPM, LLO, SG 3/12/2014

CEVA Apollo USD 740 7 550 1L Refi CS 3/19/2014

CEVA Apollo USD 250 5 - 1L Refi CS 3/19/2014

CEVA Apollo USD 275 7 - 1L Refi CS 3/19/2014

CEVA Apollo EUR 50 7 550 1L Refi CS 3/19/2014

Source: Bloomberg LP

MONITOR LIQUIDITY FOR MULTIPLE BONDS FIW <

GO

>


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12

Ticker Coupon Maturity Last Price

5-Day Change Yield 5-Day

Volume

52W Range Avg 30D Price

Last PricePDVSA 8.5 11/02/17 83.300 2.300 14.621 136000PDVSA 5.25 04/12/17 74.150 2.190 16.363 26000ARMAUT 9.25 11/01/18 104.250 1.875 7.415 40000PDVSA 9 11/17/21 73.500 1.790 14.920 21000MOMENT 10 10/15/20 107.000 1.500 8.127 11000LNGFOR 6.75 01/29/23 89.000 1.375 8.545 6000CCMO 14 02/01/21 100.125 1.250 14.029 40000WLT 8.5 04/15/21 65.250 1.250 17.183 35000SGMS 6.25 09/01/20 106.250 1.250 4.671 2000PDVSA 6 11/15/26 55.250 1.100 13.458 61000URI 7.625 04/15/22 113.057 1.057 4.205 4000MTH 7 04/01/22 110.500 1.000 5.370 3000FTR 7.625 04/15/24 105.250 1.000 6.892 11000RSHB 6 06/03/21 96.000 1.000 7.718 6000LNGFOR 6.875 10/18/19 98.000 1.000 7.318 8000TMUS 6.5 01/15/24 104.750 1.000 5.732 18000BACR 8.25 12/29/49 106.000 1.000 6.754 23000PDVSA 5.5 04/12/37 51.900 0.900 11.476 12000FDC 11.75 08/15/21 105.500 0.875 10.342 20000EQIX 5.375 04/01/23 102.375 0.875 4.970 4000

Ticker Coupon Maturity Last Price

5-Day Change Yield 5-Day

Volume

52W Range Avg 30D Price

Last PriceSIBUR 3.914 01/31/18 88.000 -5.700 7.567 24000WLT 9.875 12/15/20 64.750 -5.250 19.490 32000MOMENT 11.5 12/01/16 29.750 -4.750 76.570 49000CZR 10.75 02/01/16 83.000 -1.812 22.452 8000ACI 7.25 06/15/21 76.000 -1.750 12.366 21000NIHD 10 08/15/16 41.875 -1.625 57.711 18000BTU 6 11/15/18 105.250 -0.875 4.724 19000IACI 4.875 11/30/18 104.250 -0.750 3.764 5000HXN 9 11/15/20 100.500 -0.750 8.861 22000MOMENT 9 01/15/21 82.500 -0.750 12.938 53000MRFGBZ 9.5 05/04/20 99.500 -0.510 9.606 4000HNDLIN 8.75 12/15/20 112.000 -0.500 3.941 3000CCTCN 4.75 03/15/21 101.250 -0.500 4.538 9000BTU 6.25 11/15/21 100.250 -0.500 6.207 23000BTU 6.5 09/15/20 103.500 -0.500 5.842 2000ADT 3.5 07/15/22 88.750 -0.500 5.184 14000VRSN 4.625 05/01/23 96.500 -0.500 5.110 13000AES 8 10/15/17 118.550 -0.450 2.509 9000WLL 5.75 03/15/21 107.500 -0.375 4.447 4000IEP 4.875 03/15/19 101.540 -0.335 4.475 6000

BonDS

PDvsa Led Last Week’s Price gainers sibur, Walter Bonds Were Biggest Price Losers

Source: Bloomberg LP TACT<GO> Source: Bloomberg LP TACT<GO>

Strategic Solutions for Loan Operations and Settlement

April, 8 2014The Roosevelt Hotel - NYC

www.LSTA.org(212) 880-3000

http://www.lsta.org


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13

coST of cREDiT — BonD mARKET

The tables below show a sampling of benchmark high-yield bonds, grouped by industry, with price changes.*

The black range bar indicates variation over the last month between the highest and lowest yield to worst. The purple diamond shows the monthly average. The orange dot shows the yield at 4 p.m. on March 21.

TECHNOLOGY HEALTHCARE

ADV MICRO 7.750 08/01/20 B2|B 102.500 0.812 6.595 TENET 8.000 08/01/20 B3|CCC+ 109.688 -0.187 3.363FIRST DATA 12.625 01/15/21 Caa1|B- 119.188 0.313 7.898 LIFEPOINT 6.625 02/01/18 Ba1|BB- 109.000 0.437 2.836FREESCALE 5.000 04/15/18 B1|B 101.875 0.250 4.585 HOLOGIC 6.250 08/01/20 B2|BB 106.375 0.000 4.067NXP FUNDING 5.750 08/01/18 B1|BB- 105.375 0.187 4.511 VALEANT 6.875 12/01/18 B1|B 106.313 -0.125 2.218AVAYA INC 10.500 12/15/18 Caa1|CCC+ 92.875 -1.375 12.041 BIOMET 6.500 10/01/20 B3|B- 107.563 0.313 4.261SUNGARD 7.625 11/15/20 Caa1|B 109.563 -0.250 3.780 CHS 7.125 07/15/20 B3|B- 109.188 0.500 4.344

HCA 7.500 02/15/22 B3|B- 114.313 0.250 5.267POWER/UTILITIES

FINANCIAL

AES CORP 8.000 06/01/20 Ba3|BB- 117.688 0.188 4.660CALPINE CORP. 7.500 02/15/21 B1|BB- 109.688 -0.312 3.470 ALLY FIN. 8.300 02/12/15 B1|BB 105.875 -0.250 1.533ENERGY FUTURE 10.000 12/01/20 B3|CCC+ 104.750 -0.688 8.800 ALLY FIN. 8.000 11/01/31 B1|BB 123.500 -0.563 5.863GENON ENERGY 9.875 10/15/20 B2|B 101.875 -0.375 8.840 CIT GROUP 5.500 02/15/19 Ba3|BB- 108.000 -0.188 3.696NRG ENERGY 8.250 09/01/20 B1|BB- 109.625 -0.375 3.829 CIT GROUP 4.750 02/15/15 Ba3|BB- 103.000 -0.125 1.175AES CORP. 7.375 07/01/21 Ba3|BB- 114.188 0.188 5.027 NATL MONEY MART 10.375 12/15/16 B2|B 102.500 -0.563 8.044

SPRINGLEAF FIN 5.400 12/01/15 B3|CCC+ 105.188 0.125 2.726ENERGY CIT GROUP 4.250 08/15/17 Ba3|BB- 104.938 0.063 2.697

BASIC MATERIALS

BASIC ENERGY 7.750 02/15/19 B2|B+ 107.250 -0.125 3.543CHESAPEAKE 6.125 02/15/21 Ba3|BB- 109.625 0.000 4.913KINDER MRGN 6.000 01/15/18 Ba2|BB 109.313 -0.437 3.369 AK STEEL 7.625 05/15/20 Caa1|B- 98.875 0.125 7.923LINN ENERGY 7.750 02/01/21 B1|B+ 107.938 0.313 5.588 HUNTSMAN 8.625 03/15/21 B2|B+ 112.188 -0.062 2.938KODIAK OIL 8.125 12/01/19 B3|B 110.938 -0.187 3.605 CELANESE 6.625 10/15/18 Ba2|BB+ 106.125 0.187 1.342TARGA RES. 6.875 02/01/21 Ba3|BB 107.813 -0.312 4.674 CHEMTURA CORP 5.750 04/15/18 B1|BB- 104.188 0.438 4.883TESORO CORP. 9.750 06/01/19 Ba2|BB+ 106.500 -0.313 3.389 HEXION US/NOVA 8.875 02/01/18 B3|CCC+ 104.313 0.063 6.753

NOVELIS 8.750 12/15/20 B2|B 112.313 0.000 3.941COMMUNICATIONS

CONSUMER CYCLICAL

CEQUEL COM 6.375 09/15/20 B3|B- 104.438 -0.187 5.165CLR CHNNL COM 9.000 03/01/21 Caa1|CCC+ 104.188 -0.375 7.878 CONTINENTAL 6.750 09/15/15 Ba2|BB- 102.563 -0.062 1.257CLR CHNNL WW 7.625 11/15/22 B3|B 107.563 0.063 5.577 GOODYEAR 8.250 08/15/20 B1|B+ 111.750 0.125 2.041CABLEVISION 8.625 10/15/20 B1|B 118.813 0.000 2.653 HOVNANIAN 7.250 10/15/20 Ba3|B- 108.688 -0.062 4.790FRONTIER 8.250 04/15/17 Ba2|BB- 116.563 0.125 2.452 LIMITED BRND 6.900 07/15/17 Ba2|BB- 114.563 0.000 1.951INTELSAT JACK. 7.250 10/15/20 B3|B+ 108.688 0.250 3.610 JC PENNEY 5.650 06/01/20 Caa2|CCC- 83.250 0.500 9.267INTELSAT LUX. 6.750 06/01/18 Caa2|B- 106.250 -0.313 4.086 MICHAELS 7.750 11/01/18 B3|B 107.063 -0.062 2.155SIRIUS XM 5.750 04/01/15 B1|BB 103.438 0.000 5.008 NAVISTAR 8.250 11/01/21 B3|CCC- 103.188 0.188 7.353SPRINT 6.900 05/01/19 B1|BB- 109.750 0.125 4.671 RITE AID 9.250 03/15/20 Caa1|CCC+ 114.063 -0.125 3.879UNIVISION 8.500 05/15/21 Caa2|CCC+ 110.625 0.000 4.164 ROYAL CARIBBEAN 7.250 03/15/20 Ba1|BB 116.875 1.125 3.097

INDUSTRIAL CONSUMER NONCYCLICAL

BOMBARDIER 7.750 03/15/20 Ba3|BB- 111.813 1.000 5.441 CONSTELLATION 7.250 05/15/17 Ba1|BB+ 115.813 0.250 2.050CASE NEW HOLL. 7.875 12/01/17 Ba1|BB+ 117.250 0.125 2.931 DEAN FOODS 7.000 06/01/16 B2|B 110.375 0.125 2.119NORTEK INC 8.500 04/15/21 Caa1|B 111.813 0.125 4.446 B&G FOODS 4.625 05/01/21 B1|BB- 99.125 0.000 4.618DANA HOLDING 6.500 02/15/19 B2|BB+ 106.813 0.125 1.864 SPECTRUM 6.750 06/15/18 B3|B 108.688 0.125 2.828GRAPHIC PACK. 4.750 04/15/21 Ba3|BB+ 100.000 -0.125 4.908 SUPERVALU 8.000 05/01/16 Caa1|B- 110.188 0.000 3.040PLY GEM IND. 6.500 02/15/18 Caa2|CCC+ 100.813 -1.000 6.329 DEL MONTE 7.625 02/15/19 Caa1|CCC+ 104.500 -0.125 0.925FLORIDA EAST RR 8.125 02/01/17 B3|B- 104.750 0.187 -0.310

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14

EuRo-DEnominATED JunK BonD ToTAL RETuRnS By SEcToR blooMbeRG DaTa

jPmorgan euro High yield Index-sector Returns and characteristics March 20, 2014

SEcToR Jp moRGAnTicKER STW (Bp) yTW (%)

ToTAL RETuRn, % [1,2]

1 WEEK 1m 3m yTD automotive CeURaUTo 298.67 3.42 -0.32 1.67 3.74 3.58broadcast CeURbRDC 448.00 4.68 0.18 3.96 4.11 3.88Cable/Satellite CeURCble 427.00 4.61 0.21 1.38 4.35 3.66Chemicals CeURCHeM 384.00 4.33 -0.05 0.98 2.79 2.59Consumer Prod. CeURPRoD 626.00 6.61 0.32 1.96 2.71 2.51Diverse Media CeURDvMD 715.00 7.60 0.35 4.08 9.24 12.21energy CeUReNeR 367.00 3.93 0.02 0.62 1.89 1.62Financial CeURFiNl 306.00 3.65 0.06 1.04 4.40 3.39Food & bev CeURFDbv 410.85 4.47 0.10 0.83 1.93 1.63Gaming/leisure CeURGaMe 557.00 5.96 -0.58 3.03 1.97 1.67Healthcare CeURHlTH 388.00 4.47 0.23 0.99 2.10 1.96Housing CeURHoUS 250.00 2.90 0.22 1.13 2.35 2.20industrials CeURiNDU 345.88 4.02 -0.28 1.06 2.85 2.67Metals/Mining CeURMeTl 379.00 4.30 0.02 0.92 -0.08 -0.50Paper & Pack CeURPaPR 426.05 4.73 0.27 1.21 3.78 3.30Retail CeURReTl 547.00 5.86 0.06 1.04 0.72 0.46Services CeURSeRv 447.00 4.81 0.15 1.00 2.75 2.49Technology CeURTeCH 343.28 3.80 -0.01 1.40 4.33 3.50Telecom CeURTlCM 339.56 3.90 0.08 0.97 5.09 3.63Transportation CeURTRaN 524.00 5.62 0.29 1.30 3.74 3.41Utility CeURUTil 308.00 3.60 0.06 1.60 4.39 4.13

Senior Secured CeURSNSC 472.00 5.06 0.16 1.36 3.05 2.49Senior CeURSeNR 319.00 3.69 -0.06 1.18 3.20 2.77Senior Sub CeURSNSb 387.00 4.60 0.05 1.52 4.93 4.59Junior Sub CeURJRSb 381.00 4.03 0.30 0.91 5.07 3.86

Developed CeURDM 364.00 4.10 0.03 1.25 3.37 2.87emerging CeUReM 581.00 6.25 0.01 1.36 3.10 2.84

bb CeURbb 248.00 3.01 -0.04 0.87 2.69 2.37b CeURb 443.00 4.80 0.12 1.25 3.39 2.75CCC CeURCCC 868.00 9.06 0.31 1.81 4.67 4.04euro High yield ceuRHyI 375.00 4.22 0.03 1.26 3.35 2.87

Source: JPMorgan Bond IndicesNotes:1)Monthly and yTD performance data is as of last fully completed monthly period.2)Green / red color coding represents performance ranking of the top/bottom three sectors in the period.

The JPMorgan euro High yield index gained 0.03 percent on a total return basis last week. The yield to worst fell 19 basis points to 4.22 percent. Diverse media was the top performing sector, with a 0.35 percent rise, while automotive did worst, losing 0.32

percent. Junior subordinated debt outperformed other ranks with a return of 0.30 percent. Triple Cs was the best performing ratings sector for a third straight week, with a gain of 0.31 percent.

— Aselya Kerimkulova, Benedict Metuh, Bloomberg Data Analysts

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