the annual manual u.s. leveraged finance primerec740db6-ea70...lbo leverage in decline since release...
TRANSCRIPT
JUNE 2016
The Annual ManualU.S. Leveraged Finance Primer
The Annual Manual (U.S. Leveraged Finance Primer) June 6, 2016
Executive Summary
This is the fifth edition of our U.S. leveraged finance primer. It reflects Fitch Ratings’ coordinated effort across several U.S. rating groups, including Corporates, Financial Institutions, Structured Credit, and Fund and Asset Managers.
The Annual Manual seeks to quantify and summarize the major factors driving risk and opportunity for the various players in the space, including corporate bond and loan investors, CLO investors, corporate debt issuers, private equity sponsors and regulators.
This piece emphasizes the continuous evolution of the market. New players are entering and transaction characteristics are changing as the landscape adapts to the needs of different capital providers and regulatory requirements. For context, we provide a historical perspective on structures, volume and performance for different instruments and segments of the market.
If you have suggestions for further content enhancements, please do not hesitate to contact us.
Mike Simonton, CFA Michael Paladino, CFAHead of U.S. Corporate Ratings Head of U.S. Leveraged Finance+1 312 368-3138 + 1 212 [email protected] [email protected]
The Annual Manual (U.S. Leveraged Finance Primer) June 6, 2016
Key Contacts
U.S. Leveraged Finance
Mike Simonton, CFA Michael Paladino, CFAHead of U.S. Corporate Ratings Head of U.S. Leveraged Finance+1 312 368-3138 + 1 212 [email protected] [email protected]
Sharon Bonelli Eric Rosenthal Ronald NirenbergSenior Director Senior Director Director+1 212 908-0581 + 1 212 908-0286 + 1 212 [email protected] [email protected] [email protected]
Hugo Sancen Caitlin BlalockAssociate Director Associate Director+1 312 368-2096 + 1 312 [email protected] [email protected]
U.S. Structured Credit
Kevin Kendra Derek Miller Alina Pak, CFAManaging Director Managing Director Senior Director+1 212 908-0760 + 1 312 368-2076 + 1 312 [email protected] [email protected] [email protected]
Financial Institutions
Joo-Yung Lee Nathan Flanders Meghan Neenan, CFAManaging Director Managing Director Senior Director+1 212 908-0560 + 1 212 908-0827 + 1 212 [email protected] [email protected] [email protected]
Fund and Asset Manager Ratings
Alastair Sewell Russ ThomasSenior Director Director +44 20 3530-1147 + 1 312 [email protected] [email protected]
Business and Relationship Management
Jill Zelter Winnie Fong, CFA Managing Director Senior Director +1 212 908-0774 + 1 212 [email protected] [email protected]
The Annual Manual (U.S. Leveraged Finance Primer) June 6, 2016
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The Annual Manual U.S. Leveraged Finance Primer
The CyclesMixed Signals The Cycles Increased Volatility Elusive Equilibrium Looking Ahead 2
Leveraged Finance Market Statistical Comparison 3
4
Leveraged LoansLeveraged Loan Basics [Credit 101] What Is the U.S. Leveraged Loan Market? 4
Defining the Markets 4 Defining the Loan Markets 4Market History 5
Leveraged Loan Market History 5Loan Retail Funds — Assets Under Management Increased Significantly Since Credit Crisis 5Annual CLO Issuance Reached Record High in 2014 5Institutional Leveraged Loan Market Profile — 2015 6
[Credit 101] What Are the Key Characteristics of Leveraged Loans? 6Seniority 6
Leveraged Capital Structure — Seniority 6Security 7Pricing 7
Loan Pricing Components 7Covenants 7
Common Loan Covenants 7 Callability 8[Credit 101] What Are the Different Types of Leveraged Loans? 8
Pro Rata Tranches 8 Pro Rata Leveraged Loan Issuance 8Institutional Tranches 8 Institutional Leveraged Loan Issuance 9Credit Facility Summary 9
9
101010
Facility Types Comparison
Regulatory Environment What Regulations Will Have the Most Impact on the Leveraged Loan Market?
Regulatory Overview What Is Leveraged Lending Guidance? 10
Background 10Impact 11 LBO Leverage in Decline Since Release of Leveraged Loan Guidance 11Focus on Exploration and Production (E&P) Companies 12
OCC Ratio Metrics and Thresholds 12
Continued on next page.
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Leveraged Loans (Continued) Regulatory Environment (Continued) What Is Risk Retention?
Background Impact What Is the Volcker Rule? 13
Background 13Impact 13
What Is Chapter 11 Reform? 13Background 13Impact 13
1414141414141515
1616161617171718
Direct Lending [Credit 101] What Is Direct Lending?
Direct Lending as an Alternative to Traditional Bank Lending How Has Direct Lending Gained Traction?
Tightening Regulatory Environment Record Fundraising Why Does Direct Lending Continue to Grow?
Middle-Market Yield Premium Averages 115 bps Private Equity and LBO Market [Credit 101] What Is the U.S. Private Equity (PE) Market?
Private Equity Market Characteristics of Private Equity Investments
How Does Fitch Ratings Analyze Private Equity Companies? Fitch’s Private Equity Firm Credit Rating Considerations
[Credit 101] What Is an LBO? Common LBO Structure
What Is the Trend in the LBO Market? 18U.S. Private Equity Market History 18Annual LBO Loan Issuance 18Primary Factors Impacting LBO Volume 19
[Credit 101] What Are BDCs? 20What Does the Regulatory Environment Look Like for BDCs? 20How Have BDCs Performed Lately? 20
Operating Performance 20 Yields Versus Stock Performance 20Shifting Capital Structures 21 Second Lien Loans/Debt Portfolio (Fair Value) 21Energy and Metals/Mining Performance 21
21
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Varying Degrees of Energy Exposure
Covenant-Lite Loans [Credit 101] What Is a Covenant-Lite Loan? What Is the Size of the Covenant-Lite Market? 22
Covenant-Lite Composes 57% of Outstanding Volume in 22222323
242424
the Institutional Leveraged Loan Market How Did Covenant-Lite Become the New Market Standard? What Considerations Does Fitch Give to Covenant-Lite Issuers? Are Recovery Prospects Different for Covenant-Lite Loans?
Second Lien Loans [Credit 101] What Is Second Lien Debt? [Credit 101] Why Issue Second Lien Debt? What Is the Current Appetite for Second Lien Loans? 24
Loan Volume Soft 24U.S. Second Lien Institutional Term Loan Volumes 25
Continued on next page.
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Leveraged Loans (Continued)Defaults[Credit 101] What Happens in an Event of Default?
Default Types Default Remedies [Credit 101] What Options Are Available to Issuers Under U.S. Bankruptcy Law? 26
Bankruptcy Types 26United States Flow Chart 27
Claim Types 27 U.S. Bankruptcy Code — Pre- and Post-Petition Claims 27
What Are the Historical Default Rates for Leveraged Loans? 28 2007–2015 28
U.S. Institutional Leveraged Loan Default Rate 28 U.S. Institutional Leveraged Loan Default Volume 28Industry Defaults 28
U.S. Institutional Leveraged Loan Default Rate — Default Source 2007–2015 28Default Rates by Industry — 2007–2015 Average 29Top 10 Defaulting Sectors (2007–2015) by Volume and Number of Issuers 29
What Is the Current Default Environment for Leveraged Loans? 30Overall Defaults 30 Institutional Leveraged Loan Default Profile — 2009 Versus Now 30Energy, Metals/Mining Defaults 30 Energy and Metals/Mining Exposure Limited in Loans 30Sector Fundamentals 30Maturities 31
31
32
Leveraged Loan Maturity Schedule
Recovery[Credit 101] What Is Recovery? 32
Debtor-in-Possession 32U.S. Bankruptcy Code — Priority Rules 32
Absolute Priority 33Enterprise Valuation 33Creditor Negotiations 33
[Credit 101] What Is DIP Financing? 34 DIP Loan Summary 34
[Credit 101] How Does Fitch Estimate Recovery? 34Recovery Ratings 34
Fundamental Drivers of Recovery Ratings (RR) 35 Recovery Ratings (RR) Scale 35Bankruptcy Case Studies 36
Published Bankruptcy Case Study Reports 36Midpoint EV/EBITDA Multiple for Companies Reorganized as Going Concern 36Majority of Bankrupt Companies Reorganized as Going Concern 37
Bankruptcy Case Study — Station Casinos, Inc. et al 38Station Casinos, Inc., et al. 38–40
Recovery Rating Backtesting 40 Forecast Delta Default +30-Day Issue Price Implied RR Versus Fitch RR Estimate 40
How Do Leveraged Loans Perform in Fitch’s Recovery Analyses? 40Overall Distributions 40 Recovery Rating Distribution — First Lien Debt 2015 41Capital Structure Influences 41 First Lien Loans and Bonds RR Distribution by First Lien Leverage Ratio 41
What Are the Historical Post-Default Prices for Leveraged Loans? 42 First Lien Institutional Leveraged Loan 30-Day Post-Default Prices 42
What Are the Historical Emergence Prices for Leveraged Loans? 42First Lien Institutional Leveraged Loan Emergence Prices 42
Continued on next page.
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Leveraged Loans (Continued)CLOs[Credit 101] What Is a CLO? 43
CLO Life Stages 43CLO Types 43 CLO Types and Characteristics (Post Credit Crisis) 43
[Credit 101] What Are the Mechanics of an Arbitrage CLO? 44Arbitrage CLO Transaction 44Arbitrage CLO Interest/Principal Waterfall 45
[Credit 101] Who Are CLO Market Participants? 46CLO Managers 46
Top 25 CLO Managers by Assets Under Management 46Investors 46 CLO Investor Base 46CLO Holdings 47 Top 50 Holdings in U.S. CLO Portfolios 47
How Does Fitch Ratings Analyze CLOs? 48 CLO Rating Criteria 48
What Is the Level of Recent CLO Issuance? 48Annual CLO Issuance 48Defaulted Obligors and CLO Exposure 49
How Has the Commodity Cycle Downturn Affected CLOs? 49Default Exposure 49 Distressed and Defaulted Issuers Exposure 49Restructuring Dents Metrics 49
50Examples of Recovery Rates Used in OC Calculations
Leveraged Loan Data Issuance 51
Leveraged Loan Issuance 51Institutional Leveraged Loan Issuance 51Pro Rata Leveraged Loan Issuance 51Covenant-Lite Loan Issuance 52Second Lien Loan Issuance 52ABL Issuance 52Middle-Market Loan Issuance 53Middle-Market Institutional Loan Issuance 53DIP Loan Issuance 53Sponsored Versus Nonsponsored Covenant-Lite 54Sponsored Versus Nonsponsored Middle-Market Loan Issuance 54Covenant Versus Covenant-Lite Second Lien Issuance 54Canadian Syndicated Loan Issuance 55Latin American Loan Issuance 55Latin American Loan Issuance by Country 55Largest Leveraged Loan Deals — 2015 56Largest Covenant-Lite Deals — 2015 56Largest Second Lien Deals — 2015 57Largest ABL Deals — 2015 57Largest Middle-Market Deals — 2015 58Largest DIP Loan Deals — 2015 58
Issuance by Industry 59Leveraged Loan Issuance by Industry — 2015 59Covenant-Lite Loan Issuance by Industry — 2015 59Second Lien Loan Issuance by Industry — 2015 59ABL Issuance by Industry — 2015 60DIP Loan Issuance by Industry 60Latin American Loan Issuance by Industry — 2015 60Canadian Loan Issuance by Industry 61
Continued on next page.
The Annual Manual (U.S. Leveraged Finance Primer) June 6, 2016
Leveraged Loans (Continued)Issuance by Purpose 62
Leveraged Loan Use of Proceeds 62Leveraged Loan Use of Proceeds — General Corporate Purposes 62Leveraged Loan Use of Proceeds — Refinancing 62Leveraged Loan Use of Proceeds — M&A/LBO 63Leveraged Loan Use of Proceeds — Dividends 63Second Lien Issuance by Purpose 63ABL Use of Proceeds 64Middle-Market Loan Use of Proceeds 64Latin American Loan Use of Proceeds 64
Pricing 65Institutional Loan Pricing by Rating 65Institutional Loan Yield Components 65Pro Rata Loan Pricing by Rating 65Covenant-Lite Loan Pricing 66Second Lien Loan Pricing — First Lien Versus Second 66ABL Pricing 66Middle-Market Loan Pricing (Revolver/Term Loan) 67Middle-Market Loan Yield Components 67DIP Loan Pricing 67
Maturities 68Leveraged Loan Maturity Schedule 68Institutional Leveraged Loan Maturity Schedule by Industry 68ABL Maturity Schedule 69Middle-Market Loan Maturity Schedule 69Average DIP Loan Tenor 69
Secondary Bids 70Leveraged Loan Secondary Bids 70Covenant-Lite Loan Secondary Bids 70Second Lien Loan Secondary Bids 70Middle-Market Loan Secondary Bids 71Loan Trading Volumes 71
Retail Funds 72Loan Retail Funds — Assets Under Management 72Loan Retail Fund Flows 72Monthly Loan Retail Fund Flows — 2015 72Top 10 Largest Outflows/Inflows — 2015 73Top 10 Largest Outflows/Inflows — All Time 73
Default Rates 74U.S. Institutional Leveraged Loan Default Rate 74U.S. Institutional Leveraged Loan Default Rate: BSL 74U.S. Institutional Leveraged Loan Cumulative Default Rates by Vintage 74Default Rates by Industry — 2007–2015 Average 75Institutional Leveraged Loan Industry Default Rates 752015 U.S. Institutional Leveraged Loan Defaults 76
Post-Default Prices 77Institutional Leveraged Loan 30-Day Post-Default Prices 77Institutional Leveraged Loan 30-Day Post-Default Prices by Industry 7730-Day Post-Default Prices and Distribution 78–80
Emergence Prices 81Institutional Leveraged Loan Emergence Prices 81
Emergence Prices and Distribution 82–84Private Equity and Leveraged Buyout 85
Private Equity Investments and Exits 85Private Equity Investments by Industry 85Median Transaction Multiples 85
Continued on next page.
The Annual Manual (U.S. Leveraged Finance Primer) June 6, 2016
Leveraged Loans (Continued)Private Equity and Leveraged Buyout (Continued)
All Private Equity — Median Net IRRs by Vintage Year 86Private Equity Dry Powder by Fund Type 86Largest Private Equity Sponsors 87Common Private Equity Fund Investors 87Select Private Equity Transactions by Firm 87Annual LBO Loan Issuance 89Largest LBOs — 2015 89Private Equity Purchase Price Multiples 90Equity Contribution Percentage 90Largest LBO Deals of All Time 91Largest LBO Deals Post Credit Crisis 92Median Holding Period 93Exits by Deal Type 93Median Corporate Acquisition Valuation/EBITDA Exit 93Select Exits — 2015 94Private Equity-Based IPO Volume 94Select Private Equity-Backed IPOs 95Middle-Market Private Equity Activity 96Middle-Market Private Equity Deal Count by Industry 96Share of Middle-Market Private Equity Activity 97Middle-Market Exit by Type 97Annual Fundraising Volumes 98U.S. Private Equity Energy Fundraising 98Average Fund Closing Time 98Annual Canadian Private Equity Deal Flow 99Deal Flow by Canadian Province 99Percent of Canadian Private Equity Investment by Industry 99Private Equity Exit Activity 100Private Equity Exits by Type 100Private Equity Fundraising 100
Collateralized Loan Obligations 101Monthly CLO Issuance — 2015 101CLO Size Distribution 101Primary CLO AAA Spreads — 2015 101Secondary CLO Liability Spreads 102Top CLO Holdings by Industry — 2015 102Covenant-Lite Loans in CLOs 102U.S. CLO Loan Maturities 103Post-2002 CLO Minimum OC Cushion 103Percentage of CLOs Failing OC Test 103Annual Middle-Market CLO Issuance 104Middle-Market Secondary CLO Spreads 104CLO Transactions — 2015 105–108Precrisis Versus Post-Crisis Arbitrage CLO Terms 109Arbitrage CLO Structural Protections 109Middle Market Versus Broadly Syndicated CLO Comparison 110Middle-Market CLO Deals — 2015 110
111
High-Yield BondsHigh-Yield Bond Basics [Credit 101] What Is the U.S. High-Yield Bond Market? 111
Defining the Markets 111High-Yield Bond Types 111High-Yield Bond Characteristics 111
Continued on next page.
The Annual Manual (U.S. Leveraged Finance Primer) June 6, 2016
High-Yield Bonds (Continued)High-Yield Bond Basics (Continued)
High-Yield Bond Versus Leveraged Loan Comparison 112Market History 112
112113
113113
Key Events in the High-Yield Bond MarketEvolution of the High-Yield Investor Base
Second Lien Bonds [Credit 101] What Are Second Lien Bonds? What Is the Current Appetite for Second Lien Bonds? 113
U.S. Second Lien Bond Issuance Volume 113Evolution of Second Lien Bond Volume by Industry 114
114114114114115115
115115115115115116
PIK Bonds [Credit 101] What Are PIK Bonds? Defining the PIK Market Why Do Issuers Choose PIK Bonds?
Deferred Payment (PIK) Bond Issuance How Is PIK Accounting Different?
Defaults [Credit 101] What Happens in an Event of Default? [Credit 101] What Options Are Available to Issuers Under U.S. Bankruptcy Law? What Are the Historical Default Rates for High-Yield Bonds? 2000–2015 Industry Defaults What Is the Current Default Environment for High-Yield Bonds? 116
Overall Defaults 116Energy, Metals/Mining Defaults 116
What Is a Distressed Debt Exchange? 116117
118118118118118118
Distressed Debt Exchanges with Subsequent Default Events: 2008–2016
Recovery [Credit 101] What Is Recovery? [Credit 101] How Does Fitch Estimate Recovery? How Do High-Yield Bonds Perform in Fitch’s Recovery Analyses? Recovery Rating Distribution — Senior Unsecured Debt 2015What Are the Historical Post-Default Prices for High-Yield Bonds?
High-Yield Bond DataOption-Adjusted Spread Comparison — Investment-Grade Versus High-Yield 119Option-Adjusted Spreads by Rating 119Option-Adjusted Spreads by Industry (Top/Bottom Six) — 2015 119Monthly High-Yield Bond Issuance — 2015 120Cumulative High-Yield Bond Returns — 2015 1202015 Risk-Adjusted Returns 120Annual High-Yield Bond Returns by Rating Category 121Top 10 Largest Outflows/Inflows — 2015 121Top 10 Largest Outflows/Inflows of All Time 121Average Par Value of Defaults Per Issuer 122Top 10 Largest High-Yield Defaults 2000–2015 122Recovery Rates by Seniority 123–1242015 U.S. High-Yield Bond Defaults 125–126
127–128
AppendixSector Outlooks
Continued on next page.
The Annual Manual (U.S. Leveraged Finance Primer) June 6, 2016
Appendix (Continued)Historical Rating Actions 128
2015 Upgrades (IDR) 1282015 Downgrades (IDR) 1292015 Speculative-Grade Upgrades/Downgrades by Industry 129Historical Speculative-Grade Upgrades/Downgrades 130Historical Rising Stars and Fallen Angels 130
130Bankruptcy Case Studies Revolving Credit Utilization in Bankruptcy 130
Facility Utilization at Bankruptcy 130Cash Flow Revolving Facility Utilization 131
ABL Revolving Facility Utilization 131Pre-Default Utilization Uptrend 131
Average Utilization Rate Trend 131Revolver Recovery Rates 132
PIK Debt Recoveries in Bankruptcies 132–133Companies Featured in Bankruptcy Case Study Reports 134–137
137137
Criteria Summaries Criteria Overview
Corporate Rating Methodology 138Corporate Rating Methodology 138
Rating Definition Summary 139Parent and Subsidiary Rating Linkage 139
LCF Decision Matrix 140LCF Flow Chart 141Rating Subsidiary Debt without Stand-Alone Financial Information or a Parent Guarantee 142
Recovery Rating Methodology 143Recovery Analysis Methodology 143Recovery Ratings (RR) Scale 143B+ and Below IDR/Debt Instrument Mapping 144Typical BB Rating Category Recovery Rating Assignment and Notching 144Enterprise Value — Fitch-Employed Multiple for Recovery Analysis 144
ABL Recovery Analysis 145 ABL Recovery Analysis Methodology 145
Pension Recovery Analysis 146Fitch’s Recovery Considerations — U.S. Defined Benefit Pension Plans 146U.S. Pensions — Illustrative Application of Recovery Methodology 147
Research Portfolio 148Sector Handbooks 148Recent U.S. Leveraged Finance Research 148–149Additional Research by Sector 149–154
155–164Rating Coverage by Sector
U.S. Leveraged Finance Contact List 165–166
1The Annual Manual (U.S. Leveraged Finance Primer) — The Cycles June 6, 2016
The Cycles
Mixed SignalsHistorically, the Business, Credit and Commodity Cycles have rarely been synchronized. Despite this, they have often been logically sequenced and have signaled a similar message to observers.
Currently the three cycles are sending mixed signals:
● The Business Cycle has not gained the type of momentum that would be expected this deep into the economic recovery. The very low-growth environment curbed managements’ typically enthusiastic growth expectations and curtailed the increases in costs and capex characteristic of economic upturns.
● The Commodity Cycle clearly signaled it is at a trough over the past year. High-yield defaults in the commodity space reached 15% as of May 2016. Over the past few years, changes in the overall market default rate have been almost entirely driven by the commodity sector and very large defaults on legacy transactions from the prior upswing (Energy Future Holdings Corp. and Caesars Entertainment Operating Co.). The high-yield default rate, excluding commodities, is only 1%, which is consistent with nonrecessionary periods.
● Credit Cycle deterioration tends to follow periods of unsustainable economic growth, and exuberant management and market expectations. In the current environment, we believe the Credit Cycle is advanced relative to the Business Cycle. The search for yield has driven an abundance of capital toward low-rated entities. While new-deal leverage and the overall volume of new deals has been muted by leveraged lending guidelines, transactions have been aggressively structured with loose terms characteristic of late-cycle lending behavior.
The Cycles
LBO/M&A Activity
Leveraged Loan Issuance
CLO Issuance
Second Lien Issuance
Covenant Lite Issuance
PIK Issuance IPOs
High-Yield Bond Issuance
Tender Activity
Secured Bond Issuance
Bond Spreads Widen
Interest Rates Lowered
Defaults
Distressed Debt Exchanges
Convertible Bond Issuance
Expansion Recession Recovery
BusinessCycle
CreditCycle
Commodity Cycle
PIK – Payment-in-kind.Source: Fitch Ratings.
The Cycles
2The Annual Manual (U.S. Leveraged Finance Primer) — The Cycles June 6, 2016
The Cycles
Increased VolatilityThe greed and fear dynamic of investing has historically been pronounced in leveraged finance. The volatility associated with this dynamic is exacerbated by low interest rate policy and by regulatory restrictions on banks’ market-making activities in risky assets.
For these reasons, we anticipate sharp security price corrections that, at times, will far outstrip changes in underlying corporate credit fundamentals.
Looking Ahead
We do not expect new deal characteristics to return to the leverage or transaction size levels of 2006/2007. It is likely we enter a downturn without seeing those types of large, highly leveraged deals. It is also likely we enter a recession without the business environment ever returning to full steam.
Idiosyncratic risk will continue to be the focus of sophisticated analysts in the leveraged finance market. While Retail, Publishing and some subsectors of Healthcare are expected to endure business model risks, we do not expect any broad sectors to experience widespread defaults like we have seen in the Energy sector over the past year. Instead, we anticipate traditional bottoms-up, company-specific analysis will identify the pockets of weaknesses in the market.
As the commodity risks shake out and capital begins flowing again in the leveraged finance space, we anticipate discretionary risks to build again with private equity and management teams gaining confidence, and taking advantage of historically low, albeit slowly rising, interest rates. Fitch Ratings will continue to evaluate the overall use proceeds mix (refinancing, LBO, M&A) for new issuance; any elevated new transaction levels; and the structure, leverage and size of those transactions.
In particular, we will be taking a hard look at liquidity and how companies are preparing their balance sheets for the heavy refinancing the market requires in 2019 and 2020. It is very possible we could enter a downturn at a point when significant debt is coming due in the market.
If 2016–2017 turn out to be downturn years, we expect the downturn to be mild. There is very little bond and loan debt coming due and companies have solid interest coverage cushion to brace them from unexpected EBITDA declines. With limited financing demands and the capacity to avoid missed payments, we believe it would be a relatively shallow recession.
Elusive Equilibrium
• Widening credit spreads.• Bond/loan markets shut down.• Risks not at company discretion.• CLO arbitrage vanishes.• Companies conserve cash.• Downgrades and voluntary and
nonvoluntary bankruptcies for companies with near-term refinancing concerns.
• Supply of investor capital matches refinancing and prudent growth.
• Capital needs of leveraged companies are met.
• Low interest rates, tight spreads. • Investors chasing yield. • Discretionary risk seeking actions
by companies. • Debt proceeds in market exceed
refinancing needs. • Significant LBO and consolidation activity. • Heavy CLO activity. • Downgrades from leveraging transactions.
MarketOverheated
MarketEquilibrium
MarketDislocation
Source: Fitch Ratings.
3The Annual Manual (U.S. Leveraged Finance Primer) — The Cycles June 6, 2016
The Cycles
Leveraged Finance Market Statistical Comparison2007 2015 Comment
Market Rates (%)10-Year Treasury Rate 4.1 2.3 Peak: 6.6% (2000), Trough: 1.6% (2012)LIBOR (90 Days) 4.70 0.61 Peak: 7.10% (2000), Trough: 0.25% (2013)Federal Funds Rate 4.25 0.50 Peak: 6.50% (2000), Trough: 0.00%–0.25% (2010–2013)
Transaction Multiples (x)Average Market Multiple (BB+ and Below) 9.4 9.5 Peak: 9.8 (2014), Trough: 6.3 (2008)Average Enterprise Value Transaction Multiple (All Rating Categories) 11.7 11.4 Peak: 12.2 (2014), Trough: 8.8 (2009)
Rating ActionsNo. of IDR Upgrades 66 30 —No. of IDR Downgrades 40 27 —Upgrades-to-Downgrades Ratio (x) 1.7 1.1 —Fallen Angels: Rising Stars 4:7 9:5 —
High-Yield Bond Market StatisticsHigh-Yield Bond Issuance ($ Bil.) 144 251 Peak: 307 (2012), Trough: 52 (2008)Number of High-Yield Bond Issues 313 371 Peak: 664 (2004), Trough: 106 (2008)PIK Toggle Issuance ($ Bil.) 16.3 1.4 Peak: 16 (2007), Trough: 0 (2004)Use of Proceeds: Refinance (%) 33 43 —Use of Proceeds: GCP/Capex (%) 17 18 —Use of Proceeds: M&A/LBO (%) 49 38 —BofAML BB Rated OAS (bps) 459 424 Peak: 1,468 (December 2008), Trough: 171 (May 2007)BofAML B Rated OAS (bps) 571 715 Peak: 2,084 (November 2008), Trough: 236 (May 2007)BofAML BB Rated Yield-to-Worst (%) 8.3 6.1 Peak: 16.4 (December 2009), Trough: 4.0 (April 2013)BofAML B Rated Yield-to-Worst (%) 9.4 9 Peak: 23.1 (November 2008), Trough: 4.8 (June 2014)BofAML US HY Index Return (%) 2.2 (4.6) High: 57.5 (2009), Low: (26.4) (2008)LTM High-Yield Default Rate (Based on Par Amount, %) 0.5 3.4 Peak: 16.4 (November 2009), Trough: 0.4 (March 2007)Defaulted Issuers 15 74 Peak: 151 (2009), Trough: 15 (2007)
Leveraged Loan Market StatisticsLeveraged Loan Issuance ($ Bil.) 688 783.37 Peak: 1,135 (2013), Trough: 218 (2001)Number of Leveraged Loan Deals 1,718 1821 Peak: 2,548 (2013), Trough: 906 (2009)Institutional Loan Issuance ($ Bil.) 426 289 Peak: 625 (2013), Trough: 32 (2001)LBO Issuance ($ Bil.) 210 73 Peak: 210 (2007), Trough: 8 (2009)Covenant-Lite Issuance ($ Bil.) 108 228 Peak: 381 (2013), Trough: 1 (2009)Dividend Recap Issuance ($ Bil.) 21 20 Peak: 50 (2013), Trough: 1 (2001)Second Lien Issuance ($ Bil.) 40 14 Peak: 40 (2007), Trough: 2 (2009)Use of Proceeds: Refinance/Reprice (%) 32 50 —Use of Proceeds: Other (%) 47 20 —Use of Proceeds: M&A/LBO (%) 22 30 —BB Rated Institutional Spreads 251 334 Peak: 760 bps (2008), Trough: 179 bps (2006)B Rated Institutional Spreads 304 448 Peak: 1,076 bps (2008), Trough: 253 bps (2006) Overall Secondary Market Bid 93.2 95.2 Peak: 99.1 (December 2013), Trough: 60.2 (December 2008)SMi 100 Average Bid 94.9 96.6 Peak: 101 (February 2007), Trough: 62.8 (December 2008)LTM Loan Default Rate (Based on Par Amount, %) 0.2 1.7 Peak: 10.5 (2009), Trough: 0.2 (2007)Number of Defaults 3 27 Peak: 93 (2009), Trough: 3 (2007)
Structured Credit Market StatisticsCLO Issuance ($ Bil.) 92 93 Peak: 124 (2014), Trough: 0 (2009)Number of CLOs Issued N.A. 190 —Average Deal Size ($ Mil.) 500 527 —Average AAA Spreads (bps) 25 169 —Average AA Spreads (bps) 50 257 —Average A Spreads (bps) 120 360 —Average BBB Spreads (bps) 275 548 —Average BB Spreads (bps) 525 919 —
IDR – Issuer Default Rating. PIK – Payment-in-kind. GCP – General corporate purposes. OAS – Option-adjusted spread. Source: Fitch U.S. High-Yield Default Index, Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Advantage Data, BofA Merrill Lynch, Citi CLO Research, Bloomberg.
The Annual Manual (U.S. Leveraged Finance Primer) June 6, 2016
Leveraged Loans
Leveraged Loan Basics 4[Credit 101] What Is the U.S. Leveraged Loan Market? 4[Credit 101] What Are the Key Characteristics of Leveraged Loans? 6[Credit 101] What Are the Different Types of Leveraged Loans? 8
Regulatory Environment 10What Regulations Will Have the Most Impact on the Leveraged Loan Market? 10What Is Leveraged Lending Guidance? 10What Is Risk Retention? 12What Is the Volcker Rule? 13What Is Chapter 11 Reform? 13
Direct Lending 14[Credit 101] What Is Direct Lending? 14How Has Direct Lending Gained Traction? 14Why Does Direct Lending Continue to Grow? 15
Private Equity and LBO Market 16[Credit 101] What Is the U.S. Private Equity (PE) Market? 16How Does Fitch Ratings Analyze Private Equity Companies? 17[Credit 101] What Is an LBO? 17What Is the Trend in the LBO Market? 18[Credit 101] What Are BDCs? 20What Does the Regulatory Environment Look Like for BDCs? 20How Have BDCs Performed Lately? 20
Covenant-Lite Loans 22[Credit 101] What Is a Covenant-Lite Loan? 22What Is the Size of the Covenant-Lite Market? 22How Did Covenant-Lite Become the New Market Standard? 22What Considerations Does Fitch Give to Covenant-Lite Issuers? 23Are Recovery Prospects Different for Covenant-Lite Loans? 23
Second Lien Loans 24[Credit 101] What Is Second Lien Debt? 24[Credit 101] Why Issue Second Lien Debt? 24What Is the Current Appetite for Second Lien Loans? 24
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The Annual Manual (U.S. Leveraged Finance Primer) June 6, 2016
Leveraged Loans
Defaults 26[Credit 101] What Happens in an Event of Default? 26[Credit 101] What Options Are Available to Issuers Under U.S. Bankruptcy Law? 26What Are the Historical Default Rates for Leveraged Loans? 28What Is the Current Default Environment for Leveraged Loans? 30
Recovery 32[Credit 101] What Is Recovery? 32[Credit 101] What Is DIP Financing? 34[Credit 101] How Does Fitch Estimate Recovery? 34How Do Leveraged Loans Perform in Fitch’s Recovery Analyses? 40What Are the Historical Post-Default Prices for Leveraged Loans? 42What Are the Historical Emergence Prices for Leveraged Loans? 42
CLOs 43[Credit 101] What Is a CLO? 43[Credit 101] What Are the Mechanics of an Arbitrage CLO? 44[Credit 101] Who Are CLO Market Participants? 46How Does Fitch Ratings Analyze CLOs? 48What Is the Level of Recent CLO Issuance? 48How Has the Commodity Cycle Downturn Affected CLOs? 49
Leveraged Loan Data 51Issuance 51Issuance by Industry 59Issuance by Purpose 62Pricing 65Maturities 68Secondary Bids 70Retail Funds 72Default Rates 74Post-Default Prices 77Emergence Prices 81Private Equity and Leveraged Buyout 85Collateralized Loan Obligations 101
4The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
Leveraged Loan Basics
[Credit 101] What Is the U.S. Leveraged Loan Market?
Defining the MarketsThe leveraged loan market generally consists of loans made to companies with Issuer Default Ratings (IDR) of ‘BB+’ or lower. These loans are typically secured by a company’s assets with pricing greater than LIBOR plus 200 bps. While this is the broadest definition of leveraged loans, a number of unique market segments exist in which leveraged loans share specific structures and characteristics.
Broadly syndicated loans represent the largest segment of the leveraged loan market. These are loans made to large corporations and syndicated by banks to investors. There is also a growing private market for leveraged loans, known as direct lending, where companies can access financing from nonbank institutions. A market for leveraged loans to smaller companies, known as the middle market, also exists.
The broadly syndicated leveraged loan market can be split into two distinct categories: pro rata loans and institutional loans. Banks invest in pro rata loans, and institutional investors, such as CLO managers and mutual funds, invest in institutional loans. Institutional loans in particular experienced record growth in the years following the financial crisis.
Defining the Loan MarketsLeveraged Loans
Investment Grade
Broadly Syndicated/ Large Corporate
Middle Market
Direct Lending
Sales Size $9 Bil. + $500 Mil.–$7 Bil. < $500 Mil. Varies Widely
EBITDA Size $2 Bil.–$45 Bil. $300 Mil.–$2 Bil. < $100 Mil. Varies Widely
Ratings > BBB– < BB+ < BB+, Unrated < B+, Unrated
Average Deal Size > $1 Bil. $500 Mil. $75 Mil. Varies Widely
Structure RCFs TLs
RCFs TLs
RCFs TLs Unitranche
TLs Unitranche
Security Unsecured Secured Secured Secured
Average Tenor 1–5 years 3–7 years 3–6 years 3–7 years
Secondary Liquidity Yes Yes Limited None
Syndication Method Broad Broad Broad Club
Club No Syndication
Lenders Banks Banks Banks Specialty Finance
Specialty Finance
Main Investors Retails Funds Insurance Companies Pension Funds
Banks Retail Funds CLOs
Specialty Finance CLOs Private Equity
Specialty Finance Private Equity
RCF – Revolving credit facility. TL – Term loan. Note: Figures based on Fitch estimates. Source: Fitch Ratings.
5The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
Market History
Several factors have contributed to the record growth in the U.S. institutional leveraged loan market in recent years. Investor demand in particular has played a major role. As interest rates reached historic lows in the years following the financial crisis, the search for yield attracted new investors into the high-yield bond and leveraged loan markets. CLOs and retail funds were among the most active buyers of leveraged loans.
The U.S. institutional leveraged loan market totaled over $945 billion in amount outstanding and comprised nearly 1,500 issuers at the end of 2015.
0
50
100
150
200
Loan Retail Funds — Assets Under Management Increased Significantly Since Credit Crisis($ Bil.)
Note: Assets under management include both exchange-traded funds (ETFs) and managed funds. Source: Thomson Reuters LPC, Lipper FMI.
$174 Bil.
$24 Bil.
0
20
40
60
80
100
120
140
Annual CLO Issuance Reached Record High in 2014
($ Bil.)
Source: Thomson Reuters LPC.
0
100
200
300
400
500
600
700
800
900
1,000
2007 2008 2009 2010 2011 2012 2013 2014 2015
Leveraged Loan Market History
($ Bil., Institutional Leveraged Loan Market Size)
KKR – Kohlberg Kravis Roberts. TXU – TXU Corporation. Note: Gray section represents a recessionary period as defined by the National Bureau of Economic Research. Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Fitch Ratings.
Credit Crisis
Dodd-Frank Bill Proposed
KKR Purchases TXU, Largest LBO in U.S. History
Lehman Brothers Files for Bankruptcy
Secondary Loan Prices Plunge to 60
Institutional Loan Issuance Hits Record
High of $639 Bil.
CLO Issuance HitsAll-Time High of $124 Bil.
Oil Falls Below $40/Barrel; Default Count Highest
Since 2012
6The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
[Credit 101] What Are the Key Characteristics of Leveraged Loans?
SeniorityLeveraged loans typically sit at the top of the capital structure. In the event of a default, borrowers are likely contractually obligated to make payments on the leveraged loans before they make payments to other creditors, including most bondholders.
Institutional Leveraged Loan Market Profile — 2015(Institutional Leveraged Loan Industry Composition)
AverageAmount Issue % of Industry
Outstanding No. Size First SecondIndustry ($ Bil.) Issuers ($ Mil.) Lien Lien Sponsored Cov-LiteAutomotive 24.5 30 500.0 94 6 58 40Banking & Finance 46.5 79 366.5 92 8 70 62Broadcasting & Media 34.4 52 477.7 96 4 43 56Building & Materials 13.9 27 315.3 91 9 70 72Cable 19.0 19 595.1 99 1 23 15Chemicals 34.1 66 374.6 94 6 54 52Computers & Electronics 116.6 144 496.3 94 6 64 70Consumer Products 13.7 27 361.1 95 5 67 56Energy 43.4 79 425.8 79 21 43 47Food, Beverage & Tobacco 14.1 37 271.8 89 11 56 31Gaming, Lodging & Restaurants 32.3 45 598.1 98 2 46 56Healthcare & Pharmaceutical 105.2 153 445.9 94 6 58 47Industrial & Manufacturing 34.1 73 338.1 89 11 74 67Insurance 15.6 23 355.7 86 14 93 75Leisure & Entertainment 28.6 43 493.8 93 7 45 54Metals & Mining 17.7 31 321.1 94 6 39 68Paper & Containers 12.1 23 347.1 97 3 59 58Real Estate 7.6 9 507.7 96 4 25 56Retail 62.4 70 605.4 92 8 62 84Services & Miscellaneous 132.7 255 331.6 89 11 78 62Supermarkets & Drug Stores 12.6 16 546.9 89 11 68 85Telecommunications 44.3 53 492.2 91 9 48 32Textiles & Furniture 11.4 29 317.1 93 7 68 50Transportation 43.3 70 441.5 96 4 58 54Utilities, Power & Gas 24.9 44 461.6 96 4 47 30Total 945.2 1,497 421.2 92 8 60 57
BSL ‒ Broadly syndicated loans. LMM ‒ Large middle market. Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Bloomberg.
Senior Secured Credit Facility:• Asset-Based Revolver
• Revolver and/or Term Loan
Leveraged Capital Structure — Seniority
Source: Fitch Ratings.
Seni
ority
Second-Lien Loan or Secured Bond
Senior Unsecured Bonds
Senior Subordinated Bonds
Subordinated Junior Bonds
Equity
Hybrid Equity/Convertible Bonds
7The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
SecurityLeveraged loans are typically secured by the company’s physical assets — property, plant and equipment — and other assets, such as accounts receivable and inventory. Most leveraged loans have a first lien priority against these assets in the event of a default. However, some loans can have a second lien priority against assets, but this is a small universe of loans and represents less than 10% of the institutional leveraged market.
PricingLeveraged loan pricing is typically floating rate and is a function of the reference rate and the spread. Other important loan pricing components include the LIBOR floor and the original issue discount.
CovenantsCovenants represent a set of restrictions that detail what the borrower can and cannot do during the life of the loan. There are three main types of covenants:
● Affirmative covenants state what a borrower must do to be in compliance during the life of the loan (e.g. provide financial statements and maintain insurance).
● Negative covenants limit what the borrower can do during the life of the loan (e.g. limits on additional incurrence of debt or limits on dividend amounts).
● Financial (maintenance) covenants require the borrower to maintain certain financial performance measures during the life of the loan, which these are typically measured on a quarterly basis (e.g. leverage ratio tests and coverage ratio tests).
Loan Pricing ComponentsComponent/Fee DetailReference Rate Overall pricing on a loan is based on a spread over a reference rate. The reference rate is
typically reset daily and is based on the bank’s prime lending rate. Common reference rates include LIBOR or prime.
Spread The rate added to the reference rate to determine the overall rate on the loan. The spread is based on the credit quality of the borrower and can change based on changes in the borrower’s performance. For example, the lower the credit quality of a borrower, the higher the probability of default. Due to this higher probability, investors will demand higher spreads to compensate for the higher probability of default.
LIBOR Floor A LIBOR floor sets a minimum reference rate (i.e. LIBOR) on which the loan pricing is based. If the market LIBOR rate falls below the LIBOR floor rate, pricing will be based upon the LIBOR floor rate rather than the current market LIBOR rate.
Original Issue Discount (OID)
A discount to par (100). The OID is offered in the primary market during the syndication process to enhance investors’ yield on the loan.
Commitment Fee Paid to lenders on the undrawn portion of the revolving credit facility. Also called a ticking fee.Usage Fee Paid to lenders on the drawn portion of the revolving credit facility if utilization falls below a certain
minimum threshold.Facility Fee Fee paid on the entire commitment amount, regardless of usage.Administrative Fee
Fee paid to the administrative agent for administrative tasks performed in conjunction with the loan, such as distribution of payments, etc.
Source: Fitch Ratings.
Common Loan CovenantsNegative Covenants Affirmative Covenants Financial Covenants• Incur Debt • Payment of Taxes • Maximum Senior Debt-to-EBITDA Ratio• Grant Liens or Pledge Assets • Maintain Insurance • Maximum Total Debt-to-EBITDA Ratio• Sell or Dispose of Assets • Access to Information • Minimum EBITDA-to-Total Interest Ratio• Make Investments and Loans • Books and Records • Mimimum Fixed-Charge Coverage Ratio• Make Acquisitions • Maintian Condition of Assets • Maximum Capex Limit• Merge or Consolidate with any Other Entity • Additional Collateral • Minimum Tangible Net Worth Ratio• Make Dividends or DistributionsSource: Fitch Ratings.
8The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
CallabilityLeveraged loans are generally callable at par at any time by the borrower. Soft call provisions have emerged in recent years, most notably in loans lower in the capital structure. Loans with soft call provisions are generally callable at 103%, 102% and 101% of par for the first three years, respectively. Soft call provisions protect investors in the event a company wishes to refinance existing loans with new loans.
[Credit 101] What Are the Different Types of Leveraged Loans?
Pro Rata TranchesPro rata tranches refer to the types of leveraged loans invested in by banks and other financing companies.
● A revolving credit facility is similar to a credit card, a revolving credit facility (revolver) allows a company to draw down debt, repay and then draw back down. The drawn amount is due at maturity. The facility may contain borrowing base restrictions or sublimits. The revolver can be multicurrency and allow for multiple borrowers.
● A term loan A is an installment loan that is typically fully drawn at close, and pays both interest and principal based on a predetermined amortization schedule. The remaining balance is due at maturity. The required amortization percentage typically increases over time.
Institutional TranchesInstitutional tranches refer to the types of leveraged loans invested in by institutional investors such as CLO managers and pension funds.
● A term loan B is similar to a term loan A in mechanics, but with minimal amortization through the life of the loan (1% per annum), with the balance due at maturity. The facility may contain a delayed-draw component or a separate delayed-draw term loan. Delayed-draw term loans are not drawn at close, and are used to fund an event only if the company meets certain conditions.
● A second lien credit facility is similar to a term loan B in structure and mechanics, except for priority, security and pricing. The priority is second to first lien facilities, the security is generally a second lien on the first assets and the pricing is wider by 200 bps–400 bps.
0
100
200
300
400
500
600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Pro Rata Leveraged Loan Issuance($ Bil.)
Source: Thomson Reuters LPC.
Statistics:High: $510 Bil. (2013)Low: $165 Bil. (2002)Avg.: $286 Bil.
9The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
Credit Facility Summary
0
100
200
300
400
500
600
700
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Institutional Leveraged Loan Issuance($ Bil.)
Source: Thomson Reuters LPC.
Statistics:High: $639 Bil. (2013)Low: $32 Bil. (2001)Avg.: $243 Bil.
Facility Types Comparison
DescriptionRevolving Credit Facility Term Loan A Term Loan B
Second Lien Credit Facility
Security Senior secured — generally a first lien on all assets and pledge of stock.
Senior secured — generally a first lien on all assets and pledge of stock.
Senior secured — generally a first lien on all assets and pledge of stock.
Senior, second to first lien facilities, secured — generally a second lien on the first lien assets and a first lien on other certain assets.
Structurea
Average Facility Size $100 Mil.–$300 Mil. $100 Mil.–$750 Mil. $250 Mil.–$2,000 Mil. $100 Mil.–$300 Mil.Funded/Unfunded, Unfunded, Partially Funded or Fully Funded Funded Funded Funded FundedTenor Approximately
3–5 yearsApproximately five years
Approximately 5–7 years
Approximately 5–7 years
Repayments Amortizing Amortizing (gradual) Limited (bullet payment structure)
Limited (bullet payment structure)
Pricinga
Spread/Margin Floating Floating Floating FloatingAverage Spread/Margin (bps) 315 315 440 800Commitment Fee (bps) 25–50 — — —
MarketsMarket Private Private Private PrivateInvestors Retail Banks Retail Banks Institutional
InvestorsInstitutional Investors
aFitch estimates as of Dec. 31, 2015. Source: Fitch Ratings.
10The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
Regulatory Environment
What Regulations Will Have the Most Impact on the Leveraged Loan Market?
What Is Leveraged Lending Guidance?
BackgroundThe Interagency Guidance on Leveraged Lending was issued by the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (board) and the Federal Deposit Insurance Corporation (FDIC) in 2013 to curb high-risk lending among financial institutions (banks).
The Shared National Credit (SNC) review, conducted by the OCC, the board and the FDIC, assesses risk in the largest and most complex credits. The agencies conduct a credit assessment program to rate credits based on credit quality.
The rating criteria under the SNC review can be broken down into three key pillars.
Clearly Defining Leveraged LendingWhile acknowledging there is no exact, industrywide definition of leveraged lending, the agencies stress that each bank must have a clear, measurable definition of leveraged lending so the guidance can be applied uniformly across all business units of each bank.
Risk ManagementThe agencies outline risk management requirements, some of which include conducting proper due diligence and stress tests, evaluating risk-adjusted returns, testing covenant compliance and generating analytical risk assessment reports, all on a regular, periodic basis to improve transparency and deter excessive risk taking.
Internal OversightThe agencies tie the first two pillars together by requiring the establishment of internal oversight to manage enforcement of related policies, compliance with regulators and resolution to conflicts of interest, which can arise from having exposure to both borrowers’ credit and equity, among other things.
Regulatory Overview
Regulation EffectImpact on Loan Market
Leveraged Lending Guidance Could cause banks to pull back from leveraged loan underwriting, leaving nonbank originators to come in to replace bank underwriters. Nonbank originators are presumably not subject to the guidance, as they are not regulated by the banking agencies.
High
Risk Retention (Dodd-Frank Act) Could cause CLO and loan markets to shrink and cost of financing to rise for speculative-grade borrowers, as requirement to retain 5% of fair value of CLO will likely crimp CLO origination.
High
Volcker Rule Many legacy CLOs will no longer be permissible investments by banks and must mature, be restructured or be disposed of by July 21, 2017.
Moderate
Chapter 11 Reform Could adversely alter recovery prospects of first lien debt claimholders, leading to a likely increase in cost of financing for speculative-grade borrowers.
Low
Source: LSTA, Fitch Ratings.
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Leveraged Loans
The agencies added some flexibility by leaving banks to set their own quantitative boundaries (i.e. risk-adjusted return), barring two key exceptions:
● Total debt/EBITDA should not exceed 6.0x in most industries.
● Each borrower should be able to amortize any senior secured debt during the life of the security or pay down at least 50% of the total principal over a 5- to 7-year period.
However, the agencies qualify these statements with the caveat that the guidance is a holistic approach and a breach of either threshold may not necessarily result in a violation of the guidance as long as the borrower or the debt has other redeeming qualities, such as protective covenants or transparent strategic commitment to debt reduction.
ImpactLeveraged lending guidance has created challenging market conditions for some issuers at the lower end of the rating spectrum and has played a significant role in restraining new LBO issuance.
High purchase price multiples and leverage constraints have reduced LBO deal flow. Prices for companies remain at historically elevated levels. Fitch estimates the overall median transaction multiple through November 2015 YTD was 11.4x, above the historical 10-year median of 10.9x. It is now harder for private equity sponsors to make the economics of LBOs attractive given leverage restrictions in the market. As a result, debt-to-EBITDA levels for LBOs have been on the decline since the guidance was introduced in 2013.
The guidance has also created challenges for lower rated, highly leveraged issuers trying to access the market for other purposes, such as refinancing. Fitch identified 23 deals in 2015 that were pulled from the primary during syndication as issuers reacted negatively to investors demanding higher pricing and larger issue discounts.
While leveraged lending guidance may have a harnessing effect on leverage, as seen with the decline of LBO leverage, some of the most aggressive structures are now moving outside the bank market and being financed in the direct lending market instead.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
(x)
Note: Left axis represents total debt/EBITDA.Source: Thomson Reuters LPC.
LBO Leverage in Decline Since Release of Leveraged Loan Guidance(Quarterly LBO Leverage for Broadly Syndicated Deals)
5.74x
12The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
Focus on Exploration and Production (E&P) CompaniesThe OCC released the Oil and Gas E&P Lending booklet in March 2016. The booklet outlines qualitative and quantitative guidelines to be followed in addition to the guidance to manage leveraged lending in the E&P sector. The qualitative guidelines are similar to those shown in the guidance, mostly emphasizing risk management and internal oversight. However, there are many quantitative hurdles to overcome that are specific to E&P names.
Fitch’s analysis suggests numerous U.S. high-yield Oil & Gas E&P companies may be assigned loan risk ratings of Substandard, Doubtful or Loss (collectively Classified) based on leverage ratio analysis and other factors included in regulatory assessment guidance.
Ramifications of Classified loan ratings could include further cuts to reserve-based revolver (RBL) borrowing bases, higher funding costs and reduced access to new loans at a time when bond market access is very limited for high-yield E&P companies. Nonbank lenders or specialized production financing may take up some RBL lending slack, but at a price.
For more information on the E&P lending guidance please see the special report E&P Lending Guidance Signals More Pain Ahead (OCC Lending Guidance Amplifies Challenges for Leveraged E&P Borrowers).
What Is Risk Retention?
BackgroundThe risk retention rules, under the Dodd-Frank Financial Reform and Consumer Protection Act (Dodd-Frank), generally require securitizers of asset-backed securities to retain 5% of the fair value of the CLO. The risk retention rules were motivated by the performance of some subprime residential mortgage-backed securities (RMBS) and collateralized debt obligations of RMBS, for which Dodd-Frank sought to use risk retention to align the incentives of securitizers with those of their investors.
ImpactThe impact of requiring securitizers to retain 5% of the credit risk of the underlying assets will crimp CLO origination. Most CLO managers are thinly capitalized and do not have the balance sheet or spare funds to purchase a significant percentage of the CLO notes. This could cause the CLO and loan markets to shrink and the cost of financings to increase for speculative-grade borrowers if CLO managers do not gain access to capital for retention. More than 50% of CLOs issued during the latter half of 2015 had at least a 5% component of the CLO liabilities held by the CLO manager or an affiliate. The final risk retention rule will apply to new CLOs beginning in December 2016, two years after the final rule.
OCC Ratio Metrics and ThresholdsRatio Pass
Special Mention
Substandard or Worse
Funded Debt/EBITDAX (x) < 3.5 3.5–4.0 > 4.0Funded Debt/(Funded Debt + Equity Capital) (%) < 50 50–60 > 60Total Committed Debt as a Percentage of Total Unrisked and Undiscounted Proved Reserves (%) < 65 65–75 > 75EBITDAX – Earnings before interest, taxes, depreciation and amortization, plus depletion and exploration expenses. Source: Office of the Comptroller of Currency Oil and Gas Exploration and Production Handbook.
13The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
What Is the Volcker Rule?
BackgroundThe Volcker Rule was passed in July 2010 as part of Dodd-Frank, and was finalized in December 2013. It was designed to prohibit:
● Most proprietary trading by banks.
● The ownership by banks of hedge funds and private equity funds.
● Certain transactions between banks and covered funds they sponsor.
ImpactThe final rule exempted loans from the proprietary trading restrictions imposed on banks for most other assets and set out a clear path for CLOs’ complete exemption from the Volcker Rule. However, to qualify for the exemption from the Volcker Rule, CLOs would not be able to hold any securities other than short-term cash equivalents. The conformance period was extended to July 2017, but this extension does not resolve the issue for banks. Nearly all 2.0 CLOs will still be outstanding under the rule.
What Is Chapter 11 Reform?
BackgroundChapter 11 bankruptcy code generally provides for reorganization of corporations or partnerships. Chapter 11 Reform arises from a need to address the more complex and higher leveraged capital structures of today’s companies.
ImpactInitial recommendations in the ABI’s Commission to Study the Reform of Chapter 11’s final report published in December 2014 could adversely alter recovery prospects of first lien debt claimholders.
One principle that would reduce first lien recovery prospects, if adopted, proposes allocating a redemption option value to the creditor class that receives no recovery and is immediately junior in seniority to a class of claims that does receive a distribution. This is being mandated as long as there is at least one class that would not receive any recovery. The proposal is being made to compensate for reorganizations or asset sales that often occur at cyclical trough points, and business or economic improvement is anticipated within a reasonable amount of time.
The reform suggestion would have a profound impact if passed by Congress. The ABI Commission did not recommend any changes to the way enterprise valuations are done for bankruptcy plans. A fundamental enterprise valuation would be completed using existing methodologies.
14The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
Direct Lending
[Credit 101] What Is Direct Lending?Direct lending is a strategy where nonbank entities bypass the traditional functions performed by a bank and lend their capital directly to companies. Direct lenders typically charge higher interest rates than bank lenders; the higher yield accounting for an illiquidity premium due to lack of a tradeable market for the loan.
Companies that issue private debt can be anywhere in the range of $5 million to $100 million in EBITDA.
How Has Direct Lending Gained Traction?
Tightening Regulatory EnvironmentThe prominence of direct lending has increased in light of new regulations placed on banks. Three major regulations have been introduced in recent years that have impaired banks’ ability and willingness to lend capital:
● Basel III.
● The Dodd Frank Act.
● Interagency Guidance on Leveraged Lending.
The combination of these regulations have constricted banks’ lending activity by requiring banks to maintain specific capital ratios and avoid lending to highly leveraged entities. These regulations have created a supply gap in the credit markets, and in turn, created opportunities for unregulated institutions to lend in the banks’ stead.
Record Fundraising
On the demand side, the premium offered on private debt has further fueled the interest in direct-lending platforms as investors navigate the current low-yield environment. North America-focused private debt funds, most with a focus on direct lending, have raised $103 billion in 2015 alone.
Direct Lending as an Alternative to Traditional Bank Lending(Speed and Flexibility in deploying committed capital furthers appeal of Direct Lending)
aThose providing capital to issuers (e.g. general partners, such as private equity firms, hedge funds, banks, etc.). bThose providing capital through the banks (i.e. lending participants). cThe Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation.Source: Fitch Ratings.
Direct Capital Providersb
Direct Lending Traditional Lending
SEC/State-level Regulators
Issuer
Regulatory Adherance
Regulation DBlue Sky
Regulation
$ Capital1. Issuer info 2. $ Interest 3. $ Principal
Payments
Capital Providersa
SEC/State-level Regulators
Issuer
Regulatory Adherance
Interagency Guidance on Leveraged Lending
$ Capital 1. Issuer info 2. $ Fees3. $ Interest 4. $ Principal Payments
Banks
1. Issuer info 2. $ Returns
$ Capital
RegulatoryAgenciesc
Regulatory Adherance
Regulation DBlue Sky Regulation
Indirect Capital Providersa
$ Returns $ Capital
15The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
Direct lending funds have expanded the scope of their lending opportunities as their size and presence has increased significantly over the years. A form of financing that was once only tapped by smaller, sponsor-backed companies has now evolved into a market that can meet the financing needs of much larger companies. For example, some of the largest alternative lending deals completed in 2015 included Data Device Corporation’s $515 million refinancing deal and American Seafoods Group’s $800 million recapitalization deal.
The scale at which direct lenders are now able to underwrite debt makes them a much more competitive option to borrowers in a time when traditional banks are shrinking balance sheets and curbing lending.
Why Does Direct Lending Continue to Grow?Companies targeted by direct lenders tend to be smaller, and usually have nonrated loans and limited access to the public markets. However, the range of companies issuing private debt has broadened in recent years as bank regulation has shrunk the availability of traditional forms of financing for many borrowers. Direct lenders have often been prepared to fund riskier deals and on more flexible terms than banks will accept. As such, these companies are willing to pay the higher yields that make direct lending attractive to investors. In addition, borrowers can benefit from the greater speed, flexibility and execution certainty provided by direct-lending platforms in volatile markets.
0
50
100
150
200
250
(bps)
Source: Thomson Reuters LPC
Middle-Market Yield Premium Averages 115 bps(Middle-Market Term Loan Yield Premium over Broadly Syndicated Term Loans)
16The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
Private Equity and LBO Market
[Credit 101] What Is the U.S. Private Equity (PE) Market?The U.S. PE market is driven by private capital provided by investors and funds that is invested into private companies or used to buy out publicly traded companies. Institutional investors are one of the primary investors of PE because they can commit large sums of money for long holding periods.
PE firms seek to capitalize on the performance of the investment (company) as a method of return. Most PE firms earn the majority of their return through exiting the investment by either selling to another PE owner or taking the company public through an IPO.
PE investments span the spectrum of companies needing equity capital to fund various stages of development.
Characteristics of Private Equity InvestmentsCharacteristic Early-Stage New Ventures Late-Stage New Ventures
Middle-Market Private Firms
Public and Private Firms in Financial Distress Public Buyouts Other Public Firms
Size Revenues between $15 Mil. and $50 Mil.
Revenues between $15 Mil. and $50 Mil.
Established, with stable cash flows between $25 Mil. and $500 Mil.
Any size. Any size. Any size.
Financial Attributes
High growth potential. High growth potential. Growth prospects vary widely.
May be overleveraged or have operating problems.
Underperforming.High levels of FCF.
Depends on reasons for seeking private equity.
Reasons for Seeking Private Equity
To start operations. To extend plant and operations.To cash out early-state investors.
To finance a required change in ownership to capital structure.To expand by acquiring or purchasing a new plant.
To effect a turnaround. To finance a change in management or in management incentives.
To ensure confidentially.To issue a small offering.For convenience.Because industry is temporarily out of favor with public equity markets.
Major Source(s) of Private Equity
Angels.Early-stage venture partnerships.
Later-stage venture partnerships.
Later-stage venture partnerships. Nonventure partnerships.
Turnaround partnerships. LBO and mezzanine debt partnerships.
Nonventure partnerships.
Extent of Access to Other Financial Markets
For more mature firms with collateral, limited access to bank loans.
Access to bank loans to finance working capital.
Access to bank loans.For more mature, larger firms, access to the private placement market.
Very limited access. Generally, access to public and private markets.
Generally, access to public and private markets.
Source: Fitch Ratings, Stephen D. Prowse for Federal Reserve Bank of Dallas.
Private Equity Market
Source: Stephen D. Prowse for Federal Reserve Bank of Dallas.
Investors
Dollars
Corporate Pension Funds
Public Pension Funds
Foundations
Banking Holding Companies
Wealthy Families and Individuals
Insurance Companies
Investment Banks
Nonfinancial Corporations
Other Investors
Intermediaries Issuers
Dollars
Limited Partnership
Interest
Equity Claim on Intermediary
Dollars, Monitoring, Consulting
Private Equity
Private Equity Securities
Dollars
Limited Partnerships• Managed by Independent Partnership• Managed by Affiliates of Financial
Institutions
Other Intermediaries• Small Business Investment
Companies (SBICs)• Publicly Traded Investment
Companies
New Ventures• Early Stage• Late Stage
Middle-Market Private Companies• Expansion
- Capex- Acquisitions
• Change of Capital Structure- Financial Restructuring- Financial Distress
• Change in Ownership- Retirement of Owner- Corporate Spinoff
Public Companies• Management of LBO• Financial Distress• Special Situations
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How Does Fitch Ratings Analyze Private Equity Companies?
[Credit 101] What Is an LBO?An LBO is the process of a PE firm taking a public company private by buying out owners and funding the transaction with large amounts of debt. Many PE firms choose to finance LBO acquisitions primarily with debt as a way to substantially increase their returns. If a PE firm’s ROA is greater than the cost of the debt financing, the PE firm’s ROE is higher than if it only used equity to finance the deal.
Fitch’s Private Equity Firm Credit Rating ConsiderationsComponent CommentLegal StructureKey FactorsFirm Structure General partner interests should be subordinated to that of limited partners and
debtholders.Fund Document TermsKey Man Events Viewed negatively if allow for liquidation of fund versus end of investment period.
Less risk if tied to group of individuals.Fee Base Management fees based on committed or invested capital are more predictable.
Lock-Ups Inability to redeem capital allows for stable fee stream.Fee and Hurdle Rates The need for fee discounts or higher than peer hurdle rates would be viewed
negatively.Ancillary Fees A share of monitoring and transaction fees provides a revenue boost.Fund RaisingFund Maturities Presence of follow-on funds allows for laddering of fund maturities and more fee
stability.Limited Partners Loyal investor base can ease fund raising.
Limited partner diversity by type and geography viewed positively.
Quality of Underlying FundsKey FactorsIndustry Review industry concentrations and understand potential cyclicality of investments.Overall Fund Strategy Broad mandate versus sector fund.Geographic Distribution Consider outsized exposure to underperforming economies.Product Concentration Diversity of fund mandates can reduce performance correlations.Cash Consider sufficiency of fund cash for follow-on investments, as necessary.Liquid Investments Liquidity of holdings should improve as fund nears maturity.Fund Performance Analyze fund returns versus internal benchmarks and hurdle rates.
Strong track record supports raise of follow-on funds and generation of stable fees.
LeverageKey Leverage RatiosFund Leverage Not typical in private equity vehicles and viewed negatively, given illiquidity of holdings.Debt/Fee-Related Earnings Leverage measured based on fee-related cash flows.FEBITDA/Interest Expense Debt service measured based on fee-related cash flows.Incentive Income Ability to generate incentive income not factored into operating cash flow but provides
cushion for debt service.Balance Sheet Investments/Debt Balance sheet co-investments in funds are illiquid but can be viewed as collateral for
outstanding debt.Funding Flexibility Unsecured funding profile viewed favorably.
Liquidity and Risk ManagementKey Liquidity FactorsContingent Liquidity Should be sufficient to fund operations, debt maturities, clawbacks and co-
investments. Consider willingness/ability to provide liquidity to funds, if necessary.Clawback Risk Firm should reserve for employee portion of potential clawbacks if accrued incentive
compensation paid.Redemption Risk If redemption allowed, fund investments should be sufficiently liquid.Risk ManagementFund Valuation Valuation of investments needs to incorporate market data, and back-testing should
occur.Involvement of independent valuation firms viewed positively.
Alignment of Interests General partners and employees should co-invest in fund vehicles.Conflicts of Interest Policies should be in place to manage potential investment conflicts between funds.FEBITDA – Fee-related earnings before interest, taxes, depreciation and amortization. Source: Fitch Ratings.
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What Is the Trend in the LBO Market?
Annual LBO issuance has slowed greatly since 2007, seeing only $73 billion of issuance in 2015 from the 2007 high of $207 billion. The slowdown in the number and size of LBO deals being done is largely attributable to several factors. Leveraged lending guidelines for banks are restricted from lending to companies with leverage greater than 6.0x, making it increasingly difficult for PE firms to finance deals with large amounts of debt and increasing
Common LBO StructureSource of Funds Average Multiple (x)a
3.0–4.0
2.0–3.0
2.0–4.0
% of Capital Structure
30–50
10–30
30–40
Average Coupon (%)
3.0–5.5
5–9+
20–30b
Average Maturity (Years)
4–6
7–10
5c
Total 9.0x
Bank Debt/Senior Debt(Secured)
Equity
High-Yield/Subordinated Debt(Unsecured)
0
200
400
600
800
1,000
1,200
U.S. Private Equity Market History(No. of Closed
Note: Gray sections represent a recessionary period as defined by the National Bureau of Economic Research. Source: Pitchbook Data, Inc., Fitch Ratings.
First deal more than $1 Bil. for the decade:
Lubrizol Advanced Materials ($1.4 Bil.).
First deal more than $5 Bil. of the decade:
Toys ‘R’ Us acquired for $7.5 Bil.
First fund more than $10 Bil.: Apollo Investment Fund VI.
First fund more than $15 Bil.:
TPG Partners V.
Equity Office purchased for $34 Bil.
Credit Crisis
Energy Future Holdings purchased for $45 Bil.
Largest private equity-backed IPO: HCA, Inc.
($4.4 Bil.).
Largest post-crisis LBO: Samson Investment
($7 Bil).
Holding periods hit record high.
LBO issuance hits record $210 Bil.
0
50
100
150
200
250
2000 2002 2004 2006 2008 2010 2012 2014
Annual LBO Loan Issuance($ Bil.)
Source: Thomson Reuters LPC.
Statistics:High: $207 Bil. (2007)Low: $7 Bil. (2009)Avg.: $62 Bil.
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the need for a higher equity contribution. The low-growth landscape is also driving a more competitive acquisition environment, from strategic buyers and other PE firms alike, which has made securing quality assets difficult.
Primary Factors Impacting LBO Volume
aCost of debt is a weighted average calculation using ‘B’ high-yield bond pricing and institutional leverage loan yields. Weighting represents a 6x total deal leverage target with 4x leveraged loan leverage and 2x high-yield bond leverage. Source: Pitchbook Data, Inc., Thomson Reuters LPC, Blooomberg Finance L.P., U.S. Bureau of Economic Analysis (BEA), Fitch Ratings.
Impact on LBO Volume Metrics: 2007–2015
Equity Contribution
> PE equity contribution increasing due to combination of higher valuation multiples, leverage constraints and fewer "Club Deals" 32%
42%
6.5x
5.1x
Debt Leverage
> Use of debt leverage constrained by 2013 leveraged lending guidelines set at 6.0x
4.5%
3.5%
Growth
> Low growth environment
83.0%81.6%
Cost Containment Opportunities
> Very little low hanging fruit> IG maintaining disciplined
cost structures
Market Hurdle Rates
> Disciplined management teams> Not dropping regardless of the low interest rate environment
Structure of Debt
> Loose structures seen in peak cycle> Significant carveouts, "free and clear" incremental debt> Given late 2015 disruption, underwriting cycle slowed
8.5%
6.0%
Cost of Debta
> Lower cost of debt supporting higher deal returns
10.2x9.1x
Valuation Multiples
> Lack of quality assets driving median deal multiples to decline in 2015
> Strategic buyer competition still present
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[Credit 101] What Are BDCs?Business development companies (BDCs) are companies that provide financing for small companies in the early stages of development. BDCs are a category of closed-end investment funds and can be publicly traded. Companies that elect to be designated as BDCs are subject to regulatory constraints under the Investment Company Act of 1940. BDCs are typically considered a regulated investment company for tax purposes under Subchapter M of the Internal Revenue Code, which requires the annual distribution of 90% of investment company taxable income to shareholders to avoid corporate taxes.
What Does the Regulatory Environment Look Like for BDCs?Under the Investment Company Act of 1940, BDCs must have an asset coverage ratio if at least 200%, which is equivalent to a maximum debt-to-equity ratio of 1:1. Failure to maintain asset coverage prohibits the BDC from incurring additional debt or paying dividends.
Discussions are currently being held among market participants, legislators and regulators regarding potential changes in BDC legislation. The most notable of these potential changes would be a decline in asset coverage requirements to 150% from 200%, effectively allowing BDCs to increase leverage to 2.0x from 1.0x.
Another potential change includes an expansion of the eligible portfolio company definition. BDCs must currently have at least 70% of their assets in qualifying assets. Nonqualifying assets generally include non-U.S. securities, public companies with market capitalizations above $250 million, CLOs and investments in finance companies. The expansion of the definition would preserve the allowance for nonqualifying assets and allow for up to 20% of assets to be invested in financial companies — including brokers, banks, insurers and niche lenders — allowing 50% of assets to be invested in what are currently nonqualifying assets.
How Have BDCs Performed Lately?
Operating PerformanceFitch placed five of its 10 rated BDCs on Negative Outlook or Watch in March 2016, reflecting the competitive underwriting conditions, mounting earnings pressure, underperforming energy investments, unsustainable asset quality metrics, increased activist pressure and limited access to growth capital.
0
500
1,000
1,500
2,000
2,500
5.0
5.5
6.0
6.5
7.0
7.5
8.0
(%)
Yields Versus Stock Performance
Middle-Market Yield (LHS) WFBDC Index (RHS)
Sources: Thomson Reuters LPC, www.marketwatch.com.
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While underwriting yields have widened in recent months, producing a more attractive origination environment, many BDCs are capital constrained, as leverage has been pushed beyond targeted ranges, given portfolio valuation declines and increased share repurchase activity. The sector was trading at a 9% average discount to NAV, as of March 28, 2016, thus precluding most from accessing the equity market for growth capital without significantly diluting existing shareholders.
Shifting Capital StructuresWhile BDCs generally continue to focus on senior secured positions, many have increased exposure to second lien loans in recent quarters to boost portfolio returns. Second lien loans averaged 28.2% of BDC debt portfolios at year-end 2015, up from 26.2% at year-end 2013. Ares Capital Corporation (Ares) is at the top end of the peer group, with 46.5% of its debt portfolio invested in second lien loans, compared with 26.3% two years prior. The potential impact on portfolio risk is clear, as Ares’ underlying portfolio company net leverage increased to 5.3x at fourth-quarter 2015 from 4.6x at fourth-quarter 2013.
Energy and Metals/Mining PerformanceOil and gas exposure was manageable at Dec. 31, 2015, at about 5.3% of aggregate portfolio company investments for Fitch’s rated universe. BDCs are generally well positioned to withstand an energy-specific stress scenario, although incremental non-accruals and valuation hits are expected in 2016, which could pressure dividend coverage.
4.6 4.6 4.6 4.7
4.8
5.1 5.15.2 5.3
4.2
4.4
4.6
4.8
5.0
5.2
5.4
20
22
24
26
28
30
32
34
36
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15
Second Lien Loans/Debt Portfolio (Fair Value)Total Average (LHS)Rated Average (LHS)ARCC - WA Portfolio Net Leverage (RHS)
Source: Company filings.
(%)($ Mil.)
12.9
9.99.0 9.0
3.2 3.0 2.91.7 1.6
0.00
2
4
6
8
10
12
14
0
200
400
600
800
1,000
1,200
AINV PNNT BKCC FSIC TSLX CCT ARCC FSC ACAS SLRC
Varying Degrees of Energy Exposure (Fair Value of Portfolio at Dec. 31, 2015)
Oil & Gas Other Energy Oil & Gas (% of Portfolio)
Sources: Company filings, Fitch Ratings.
(%)($ Mil.)
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Covenant-Lite Loans
[Credit 101] What Is a Covenant-Lite Loan?Covenant-lite generally refers to a loan with no financial maintenance covenants. Instead, covenant-lite loans only have high-yield bond-like incurrence covenants.
Other definitions of covenant-lite include “covenant-loose” and “springing covenant-lite.” A covenant-loose loan is a loan with one or more maintenance covenants, but the covenant breach level is set so loosely it would permit deviations of up to 50% from the issuer’s projections versus a normal covenant cushion of approximately 15%–20%. A springing covenant-lite loan is a loan that contains a maintenance covenant on the revolver but no maintenance covenants on the term loan. The covenant applies or springs into effect on the term loan once the revolver is drawn or when drawings exceed a certain threshold.
What Is the Size of the Covenant-Lite Market?Covenant-lite loans have become the majority of the institutional leveraged loan market, making up 56% of the $940 billion asset class as of March 2016. Nearly 57% of the current institutional covenant-lite loans outstanding have been issued in the past 24 months.
How Did Covenant-Lite Become the New Market Standard?The rise in covenant-lite loan issuance since fourth-quarter 2012 reflects the market’s long-term structural evolution as the buyer base has evolved from banks to institutional investors. The shift was driven by record low interest rates, an improved economy, a mostly benign default rate environment, stable corporate credit profiles, meaningful inflows and record CLO issuance.
For lenders, maintenance covenants provide an early warning mechanism and a means to intervene in a deteriorating credit situation, thus possibly preserving value for lenders. In most cases, a technical violation of a maintenance covenant rebalances the risk and return, thereby allowing a group of lenders to negotiate a higher spread and extract a fee from the issuer, constrained by the struggling company’s ability to pay the fee. Covenants also preserve certain rights that allow lenders to initiate changes they may want or to call the loan in the most extreme cases.
For issuers, covenants are often a time-consuming and expensive hurdle. Most broadly syndicated loans can frequently have dozens of different lenders in one single loan, making
0102030405060708090
100
Pre-2012 2012 2013 2014 2015 Overall Market
(%) Cov-Lite Covenants
Note: Cov-Lite percentages shown. Outstanding institutional leveraged loan market profile at end of December.Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Bloomberg.
Covenant-Lite Composes 57% of Outstanding Volume in the Institutional Leveraged Loan Market
Issuance Year
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any type of amendment process cumbersome and time consuming. Conversely, a covenant-lite loan affords the issuer greater financial flexibility and allows the business managers to focus on running the business rather than managing around a financial covenant.
The transformation of the broadly syndicated loan market to a more covenant-lite market has been supported by the growth of secondary loan trading through the standardization of transactions, documents and practices. These changes have helped accelerate the convergence of terms between the leveraged loan and high-yield bond markets.
What Considerations Does Fitch Give to Covenant-Lite Issuers?Fitch does not treat covenant-lite and covenanted loans differently in its distressed enterprise valuation or recovery rating analyses. Our assumptions for a reorganization multiple, sustainable post-default EBITDA and liquidation values do not change based on the presence or absence of financial maintenance covenants.
However, we do believe covenant-lite loans are generally reserved for issuers of higher credit quality, but quantifying this view remains a challenge given a large percentage of the market is privately sponsored. Fitch has computed and segmented the historical performance of covenanted and covenant-lite issuers, and we are cautious not to over-interpret the data.
Fitch emphasizes that credit analysis involves thorough evaluation of a range of factors. For example, credit metrics alone do not provide a holistic view of a company’s credit quality. Leverage and coverage metrics remain relative measures and must be considered in context with other factors, such as business risk. Similarly, covenant-lite status alone does not equate to riskier lending practices.
In a market where covenant-lite status has become the norm, Fitch notes that, in certain cases, fully covenanted issuers may actually represent the riskier borrowers. In this environment, the presence of a financial maintenance covenant may be a red flag compensating for some other source of weakness in the credit profile.
Are Recovery Prospects Different for Covenant-Lite Loans?Due to the fact that covenant-lite is a relatively new phenomenon, the analysis suffers from small sample sizes. The averages, medians and ranges taken from these small, heterogeneous data sets can be misleading, as the circumstances around each company’s bankruptcy are unique and their credit stories often involve issues unrelated to covenant status. The exact driver of bankruptcy is typically a mix of factors, and it is challenging to pinpoint the exact cause to be used for analysis in a dataset. However, most participants in the U.S. agree that an inability to refinance is the primary contributor to defaults.
We do not perceive the presence or absence of financial maintenance covenants to be a key driver of recovery values because refinancing risk can arise for companies that are still within their covenant parameters, covenants are often waived, and companies and their bankers can set wide covenant thresholds at the outset.
Fitch does not currently adjust recovery assumptions based on the presence or absence of financial maintenance covenants for several reasons. Issuers of broadly syndicated loans in the U.S. that encounter distress almost always restructure and emerge from bankruptcy with less debt. Restructuring maximizes distressed enterprise value in these circumstances. Conversely, liquidations tend to destroy enterprise value, as the whole is typically worth more than the sum of the parts. In those jurisdictions and products where liquidation is more prevalent, Fitch may already be using a lower reorganization multiple assumption that is appropriate for that market or product.
For more information on covenant-lite issuance, defaults, and recovery, please see our Reference Data section.
24The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
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Second Lien Loans
[Credit 101] What Is Second Lien Debt?Second lien debt generally places debtholders second in line for recovery in the case of bankruptcy or default.
There is no consistent market definition of what constitutes a second lien facility and nomenclature can be misleading. Sometimes the second lien is in a position that is not actually the second most-senior position and sometimes the debt that does have the second most-senior position is not called the second lien.
Some issuers can have a first lien asset-based lending (ABL) facility (priority to working capital assets) and several other first lien facilities ahead of second lien debt. Along the same lines, term loans with a second lien on working capital and a first lien on real estate, equipment and intangible assets are sometimes referred to as second-lien debt, particularly among retailers and in the middle market, even though the term loan lenders have a first lien on hard assets and intangibles.
[Credit 101] Why Issue Second Lien Debt?Second lien issuers tend to be highly leveraged with low ‘B’ or ‘CCC’ category IDR credit profiles. Investors are attracted to second lien for the spread premium relative to first lien debt while still maintaining collateral. Second lien loan premiums over first lien facilities average 3.54% for 2003–2015.
Funding of opportunistic debt exchanges and distressed debt exchanges (DDEs) of unsecured debt for second lien debt is one of the more common uses of second lien debt. Companies can often push out the near-year maturities of unsecured debt by offering to swap the maturing unsecured note for new second lien debt. Unsecured holders that agree to accept the exchange offer avoid becoming subordinated to the new second lien debt that will be slotted above them.
Certain companies can also tap second lien debt markets to monetize parent company equity value in subsidiaries. If a leveraged parent company has a subsidiary with a strong credit profile, the parent company can tap this equity value through the issuance of debt secured by a first or second lien on the capital stock of the subsidiary. Parent debt secured by subsidiary equity is often a less tax-punitive way of monetizing equity value than a subsidiary sale or IPO.
What Is the Current Appetite for Second Lien Loans?Choppy markets, leveraged lending guidance that restrained highly leveraged buyouts and recapitalizations, and fewer refinancing opportunities weighed on second lien loan issuance in 2015, and are unlikely to abate in 2016.
Loan Volume SoftFitch expects 2016 second lien term loan volume to remain relatively muted. There was a steep decline in issuance volumes last year, with a drop to $16.8 billion in 2015 from $38.7 billion in 2014. The covenant-lite share of total volume held relatively steady year over year, accounting for 60% of 2015 issuance, compared with 59% in 2014.
Numerous headwinds continue to weigh on the lowest quality tiers of the leveraged term loan new issue market, which accounts for most second lien facilities. These include volatile markets, below-par bids and bank regulatory constraints on new highly leveraged transactions. The Fed’s January 2016 survey of bank lenders showed that commercial lending standards tightened in the fourth quarter of 2015, although nonbank lenders continue to be active in the
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highly leveraged space. In addition, deteriorating and volatile equity markets are reducing market enterprise valuations that in turn, weigh down recovery prospects, particularly for junior lenders. Second lien loan energy volumes have dried up in the face of a lower-for-longer oil price environment.
Fitch anticipates most proceeds of second lien loans will continue to be used for leveraged or secondary buyouts and sponsor dividend payments. The financing for the buyout of ADT Corp. by certain Apollo Funds announced in February 2016 includes a $3.14 billion second lien tranche that is structured as a bond rather than a note. The buyout includes a relatively large equity investment from the sponsors. In addition, some new issues may result from bankruptcy exits for companies that emerge from Chapter 11.
Sectoral issuance volumes were fragmented in 2015, with Services & Miscellaneous leading at 16% and Real Estate trailing at 0.1%. Similarly, no single industry is expected to dominate the second lien term loan market in 2016. This contrasts with the second lien bond market, in which the stressed Energy and Metals & Mining sectors accounted for 53% and 13% of the total 2015 issuance, respectively. Fitch believes commodity-sensitive sectors will continue to account for a material share of new bond issuances, especially via up-tier exchanges.
Loan volumes exclude unitranche structures in which a first lien lender carves out a second-out loan based on a first-out/second-out agreement between the two lenders. The borrower maintains only a single credit agreement with the first lien lender. These second-out facilities create, for practical purposes, a second-lien position, but activity in this market is opaque.
For more info on the second lien loan market, please see Second-Lien Debt (Energy and Exchanges Driving Second-Lien Bond Issuance).
6.7
19.9 19.9 26.3
39.2
7.5 2.0 6.8 8.6
17.9
37.7 38.7
2.4
6.4
4.7
3.2
16.8
0
10
20
30
40
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
($ Bil.)
U.S. Second Lien Institutional Term Loan Volumes
1Q15 2Q15 3Q15 4Q15
Source: Thomson Reuters LPC, Fitch Ratings.
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Defaults[Credit 101] What Happens in an Event of Default?Default TypesA default represents a failure to fulfill an obligation set forth by a credit agreement, bond indenture or other legal contract. There are two main types of defaults for corporate debt issuers:
● A debt service default, otherwise known as a payment default, is a type of default occurs when a borrower has failed to make a scheduled principal or interest payment.
● A technical default occurs when a borrower violates a covenant outlined in the debt contract.
Default RemediesA default does not automatically force an issuer into a bankruptcy filing. While bankruptcy is an option, in many instances, a default is accompanied by a grace period that affords an issuer anywhere from three to 60 days — depending on the type of default and covenant structure — to remedy the situation before the debtholder can force the issuer into bankruptcy. Alternatives to bankruptcy can include a debt restructuring or an amendment to the debt contract.
Debt restructuring is more prevalent for high-yield bond issuers. Instead, leveraged loan lenders are sometimes willing to agree to an amendment granting additional fees, wider pricing or tighter covenants.
[Credit 101] What Options Are Available to Issuers Under U.S. Bankruptcy Law?
Bankruptcy TypesAs a distressed company approaches default and previous attempts at restructuring existing debt and other forms of out-of-court workouts have failed, bankruptcy filing emerges as an option. U.S. corporates can seek bankruptcy protection under Chapter 7 or Chapter 11 of the U.S. Bankruptcy Code.
● Chapter 7 applies when the company is seeking a winding up or dissolution of its business. As soon as a Chapter 7 petition is filed, the legal title of the estate is automatically transferred to a Chapter 7 trustee appointed on day one of the filing.
● In contrast, under a Chapter 11 filing, the company continues to make decisions on behalf of the estate as a debtor-in-possession (DIP). Chapter 11 bankruptcies can end up being confirmed either via a plan of reorganization or a plan of liquidation if the latter maximizes recoveries for all creditors.
A significant majority of U.S. bankruptcies result in the reorganization and emergence of an issuer as a going concern (GC) — either as an independent GC that has shed some or all of its pre-petition debt, or as a new entity created to buy the assets and the business of a debtor under a bankruptcy sale. Although Chapter 7 liquidations are filed by issuers from time to time, Fitch’s U.S. corporate case study database of 150 companies indicates petitioning for Chapter 7 liquidation is rare outside the Retail sector.
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United States Flow Chart
Source: Fitch Ratings.
Financial Crisis/Liquidity Event
Out-of-court restructuring, including a distressed debt exchange Chapter 11 Bankruptcy filing Chapter 7 Bankruptcy filing —
Asset liquidation done by a trustee
Sufficient leverage reduction to become nondistressed
Insufficient debt reductions —More serious restructuring efforts needed
Emergence as a restructured independent going concern
Sale of all assets under Section 363 to a third party as a going concern
Going out of business liquidation under Chapter 11 (debtor controls process)
Debtor files a liquidating plan or converts to a Chapter 7 liquidation
Claim TypesA summary overview of the different types of claims that generally arise during a bankruptcy process is schematically presented in the chart below.
U.S. Bankruptcy Code — Pre- and Post-Petition Claims
aRefers to secured funding provided to the company as debtor-in-possession (DIP) by lenders subject to court approval. This debt may be secured by unencumbered assets or by a junior lien on already encumbered assets under section 364(c). If the company is still unable to obtain credit, only then will the court permit "DIP Financings" that are secured by a senior ("Priming") or equal ("pari passu") lien on already encumbered assets under section 364(d). Such DIP financings that supercede existing liens require that existing/pre-petition secured creditor be adequately protected. bRefers to post-filing unsecured funding (trade payables) provided to the company by vendors and is entitled to treatment as an administrative expense (§ 364[a] and § 364[b]). If the company is unable to obtain funding based on administrative claim status, the court may approve it as a super-priority unsecured claim with priority over other adminstrative expense claims (§ 364[c]). BK – Bankruptcy. OPEB – Other post-employment benefits.Source: Fitch Ratings.
UnpaidTaxes
Unpaid Wages and Benefits(180-day pre-BK)
Pre-BKSecured
Pre-BK UnsecuredDebt
Pre-BKSubordinated
Defined Benefit Plans, Vested
OPEB
Environment Obligations
Secured Fundinga
Unsecured Creditb(Trade Payables)
Professional Fees Normal OperatingExpenses
Prepetition Period(Prebankruptcy)
Post-Petition Period(During Bankruptcy)Petition Date
EmergenceDateExpense:
Liability:
ContingentLiability:
If Reject/Terminate Contract
Prepetition (Liability)
Post-Petition (Liability)
Prepetition (Cont. Liab.)
Prepetition (Expense)
Post-Petition (Expense)
Payable for Goods Received up to 20 days Pre-BK
Additional Claims
Executory Contracts,
Leases
Priming or Pari-Passu Liens
(DIP Financing)
New or Junior Liens
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What Are the Historical Default Rates for Leveraged Loans?
2007–2015The U.S. institutional leveraged loan default rate has averaged 2.8% for the nine-year period from 2007 to 2015. Leveraged loan defaults have remained low in the years since the financial crisis, and the annual default rate has ended below the nine-year average of 2.8% in five of the six years since 2009. The annual leveraged loan default rate only rose above 2.8% in 2014, when Energy Future Holdings Corp. (EFH) filed for bankruptcy and added over $19 billion to the default volume. As expected, the majority of the leveraged loan default activity is concentrated in 2008–2009. The default environment peaked in 2009, when the institutional leveraged loan default rate reached 10.5%.
Industry DefaultsWhile Utilities, Power & Gas and Chemicals represent a large portion of the total defaulted volume, the majority of the defaulted volume for these industries came from the single bankruptcy filings of EFH in April 2014 ($19 billion) and Lyondell Chemical Co. in January 2009 ($16 billion), respectively (more color on EFH and Lyondell?).
Companies in the Broadcasting & Media; Gaming, Lodging & Restaurants; Energy; and Building & Materials industries represented the largest number of defaults from 2007 to 2015. These industries represented companies in secular decline and companies most exposed to the effects of the recession in the years following the financial crisis.
0
2
4
6
8
10
12
U.S. Institutional Leveraged Loan Default Rate($ Bil.)
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Bloomberg.
Statistics:High: 10.5% (2009)Low: 0.2% (2007)Avg.: 2.8%
0102030405060708090100
0
10
20
30
40
50
60
70
80(Count)($ Bil.)
Volume Number of Issues
U.S. Institutional Leveraged Loan Default Volume
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Bloomberg.
Missed Payment
17%
U.S. Institutional Leveraged Loan Default Rate — Default Source 2007–2015
Source: Fitch U.S. Leveraged Loan Default Index.
Distressed Exchange
4%
Bankruptcy79%
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Leveraged Loans
Most of the defaults in our nine-year default history come from companies in cyclical sectors that experienced severe downturns in their cash flows during the 2008–2009 financial crisis and subsequent recession. In many cases, an overleveraged capital structure, likely issued in the credit boom of 2006–2007 to fund a buyout or acquisition, compounded the challenges caused by a weak operating environment. Many of these companies were then unable to reach consensus with creditors on amend-and-extend transactions or below-par debt exchanges due to deteriorated EBITDAs and the credit crunch that followed the financial crisis.
In other cases, such as for companies in the Broadcasting & Media industry, more permanent secular declines in businesses — including yellow pages, newspapers, commercial printers and some technology companies — led to bankruptcy filings. Other defaults were made by highly leveraged companies that were confronted by individual liquidity or business challenges that could not be overcome out of court. Drivers included flawed business models, production problems, accounting issues, higher raw material costs, lack of funding market access and steep declines in demand for key products due to cyclical downturns or competition.
Top 10 Defaulting Sectors (2007–2015) by Volume and Number of IssuersSector
Amount ($ Bil.) Sector
No. of Issuers
Broadcasting & Media 33.2 Broadcasting & Media 38Utilities, Power & Gas 23.4 Gaming, Lodging & Restaurants 26Chemicals 17.2 Energy 22Gaming, Lodging & Restaurants 14.8 Building & Materials 21Banking & Finance 12.0 Services & Miscellaneous 19Energy 8.2 Retail 18Cable 7.8 Automotive 15Services & Miscellaneous 6.8 Transportation 13Building & Materials 6.6 Healthcare & Pharmaceutical 12Retail 6.4 Paper & Containers 12Source: Fitch U.S. Leveraged Loan Default Index.
0 2 4 6 8 10
Total MarketInsurance
Computers & ElectronicsFood, Beverage & Tobacco
Supermarkets & Drug StoresIndustrial/Manufacturing
Healthcare & PharmaceuticalServices & Miscellaneous
TelecommunicationsTextiles & FurnitureConsumer Products
TransportationRetail
EnergyMetals & Mining
AutomotiveLeisure & Entertainment
Paper & ContainersCable
Banking & FinanceGaming, Lodging & Restaurants
Building & MaterialsBroadcasting & Media
Real EstateChemicals
Utilities, Power & Gas
Default Rates by Industry — 2007–2015 Average
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Bloomberg.
(%)
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What Is the Current Default Environment for Leveraged Loans?
Overall DefaultsThe current default rate environment remains generally benign for leveraged loans. The institutional leveraged loan default rate ended February 2016 at 1.6%, significantly below the 2009 high of 10.5% and still below the 2007–2015 average of 2.8%. We believe leveraged credit fundamentals will remain largely unchanged from what is currently reflected in our ratings and default expectations. While leveraged loan defaults are forecast to rise, pockets of risk remain mostly isolated to the Energy and Metals/Mining sectors.
Energy, Metals/Mining DefaultsFalling commodity prices have taken a toll on the Energy and Metals/Mining sectors. The Energy institutional leveraged loan default rate was 12% and the Metals/Mining default rate was 26% as of February 2016. However, the overall institutional leveraged loan market remains relatively incubated from commodity-related pressures compared with the high-yield bond market. Energy and Metals/Mining compose only 7% of the institutional leveraged loan market, while the high-yield bond market composes nearly a quarter of these sectors.
Sector FundamentalsDespite commodity prices hovering near recent historical lows, industry fundamentals are broadly stable across the corporate universe, with 26 of 34 sectors assigned a Stable Outlook in Fitch’s 2016 U.S. Corporate Outlook. Four of the six negative sector outlooks are in commodities-related areas (Oil & Gas, Midstream Services, Oilfield Services and Mining). Other sectors on negative outlook include Alcoholic Beverages and Pharmaceuticals. However, these sectors are largely composed of investment-grade issuers and do not pose a systemic risk to the leveraged loan market.
Institutional Leveraged Loan Market
Energy and Metals/Mining
7%
Rest of Institutional Leveraged Loan Market
93%
Energy and Metals/Mining Exposure Limited in Loans (Institutional Leveraged Loan Market Size Versus High-Yield Bond Market Size)
Source: Fitch U.S. Leveraged Loan Default Index.
High-Yield Bond Market
Energy and Metals/Mining
24%
Rest of High-Yield Bond Market
76%
Institutional Leveraged Loan Default Profile — 2009 Versus Now2009 02/01/16
Overall Default Rate (%) 10.5 1.6
Overall Default Volume ($ Bil.) 77.5 14.9
Size of Market ($ Bil.) 750 940
Source: Fitch U.S. Leveraged Loan Default Index.
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MaturitiesThe bulk of institutional leveraged loan maturities have been successfully pushed back to 2020 and beyond. As a result, we do not view the refinancing cliff as a significant macro-leveraged finance market concern in the near to midterm. At a micro level, refinancing could be a significant credit issue for specific companies when access to debt capital tightens, as we saw in the late stages of 2015 and first two months of 2016.
0
50
100
150
200
250
300
2016 2017 2018 2019 2020 2021 2022 andBeyond
($ Bil.)
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Bloomberg.
Leveraged Loan Maturity Schedule
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Recovery
[Credit 101] What Is Recovery?When it comes to corporate credit analysis, recovery refers to the amount of value a creditor can expect to recover from an investment in an event of default. Value can be in the form of cash, new debt or stock in an entity that emerges from bankruptcy.
Debtor-in-PossessionThe U.S. Chapter 11 framework is DIP. This essentially means the debtor’s management can stay in place and operate its business in an ordinary manner while it seeks protection from creditors and takes steps to reorganize under the supervision of specialized bankruptcy courts.
These protections include the application of an automatic stay immediately upon filing, which restricts creditors from beginning or continuing actions to collect on most claims, and allows access to new funding, typically in the form of super-senior DIP financing. Chapter 11 therefore
U.S. Bankruptcy Code — Priority Rules
aThe fact that a DIP lender holds a post-petition super-priority or secured claim under section 364(c) or 365(d) does not automatically entitle it to be deemed a administrative expense for purposes of section 1129(a)(9), which stipulates that administrative expense claims be paid in full in cash by the effective date for the plan to be confirmed. Therefore, the chart assumes that the court provides relief in the order, approving the DIP financing for the administrative expense priority even for secured DIP financings. bIf a prepetition secured creditor’s collateral is not adequately protected following a priming/pari DIP etc., then the difference is to be treated as a super-priority unsecured claim under section 507(b). This is not the same as a deficiency claim. cAs per priorities laid out in section 507 of the code. Since priority claims are nonetheless unsecured in nature, under the absolute priority rule that applies strictly under a Chapter 7 liquidation, unsecured priority claims rank lower than secured claims. However, for Chapter 11 scenarios, administrative expense/priority claims must be satisfied in full in cash by the effective date for the plan to be confirmed as per section 1129(a)(9) of the Bankruptcy code. The plan refers to either a plan of reorganization or a Chapter 11 liquidating plan. dAdministrative expenses refer to the actual, necessary costs and expenses of preserving the estate, which are allowed under Code Section 507(a)(2) and specified in 503(b). The code requires that all administrative claims be paid on the effective date of the plan, unless a particular claimant agrees to a different treatment. Holders of super-priority administrative expenses under § 507(b) are paid before other administrative expenses. eSecured claims that are undercollateralized result in deficiency claims §506 (representing that portion of the claim for which there is insufficient collateral). Deficiency claims are treated pari passu with unsecured claims. fIf defined benefit pension plans are terminated during bankruptcy, the resulting unfunded pension liability claim is treated as a unsecured claim but is structurally senior relative to the general unsecured creditor claims. gIf a Chapter 11 is converted to a Chapter 7, the administrative expenses of a Chapter 7 (including trustee fees) take priority over the Chapter 11 administrative expenses. DIP – Debtor-in-possession.Source: Fitch Ratings.
1. DIP Claimsa
► Priming DIP liens §364(d)► Pari-passu DIP liens §364(d); new DIP liens § 364(c)(2)► Super-priority unsecured DIP §364(c)(1)
2. Super-Priority Claims ► Inadequate protection §507(b) claim of prepetition secured creditorb
3. Priority Claimsc
► Administrative expensesd
— Wages and salaries and taxes (post-petition) §503(b)(1)— Professional fees for attorneys and accountants (post-petition) §503(b)(4)— Goods shipped to company within 20 days of filing (prepetition) §503(b)(9) — Unsecured DIP funding §364(a) and §364(b)► Unpaid wages for 180-day period prior to filing, up to $10,000 per employee (cap)► Unpaid employee benefit plan contributions (180-day period) up to cap balance left ► Prepetition taxes
4. Secured Claims: ► Existing prepetition liens §506(a), 552(b)
5. Unsecured Claims: ► Prepetition unsecured and trade debt ► Deficiency claimse
► Executory contract rejection damages ► Defined benefit plan termination claimsf
6. Subordinated Claims
7. Equity
Issuer Bankruptcy (BK)
Absolute Priority Rule:
1. DIP Facility Claims
2. Secured Claims (Pre-BK)
3. Priority Claimsc,g
4. Priority Tax Claims
5. Unsecured Claims
6. Subordinated Claims
7. Equity
Chapter 11 Chapter 7
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gives a company breathing room to operate its business with the same management — or a chief restructuring officer to be appointed if management has departed or been released by the ownership — while it negotiates a restructuring that satisfies the desire to remain a GC and generate the highest possible recoveries for all stakeholders via rehabilitation.
Chapter 11 allows a debtor to propose a plan of reorganization — and sometimes liquidation — before it can emerge from bankruptcy. The plan is voted on by creditors and is subject to court approval. If the plan proposed by the debtor is rejected and/or the debtor’s exclusive time period for proposing a plan has lapsed, creditors and/or other interested parties may propose an alternative or competing plan. In the event of competing plans, creditors will again be entitled to vote on the competing plans, with the court approving the plan if it is considered to be fair and equitable, and representative of the best and highest recovery for creditors.
Absolute PriorityUnder Chapter 11 bankruptcy code, the absolute priority rule establishes the order in which creditors get paid. Relative seniority is key for recovery performance, as debtholders get paid before equityholders, and secured debtholders get paid before unsecured debtholders. The one exception is unsecured administrative claims, which must be paid in full before secured claims for a Chapter 11 plan of reorganization (or plan of liquidation) to be confirmed. The graphic below outlines the priority schedule for different types of claims.
Enterprise ValuationThe fundamental estimates of reorganization enterprise value (EV) are critical to the bankruptcy reorganization process. The fundamental EV, or negotiated settlement value, determines the amount of value, if any, to be distributed to each class of creditors. Fundamental EV estimates are typically completed by third-party advisors on both a going-concern reorganization basis and a liquidation-alternative basis for the disclosure statements used in the bankruptcy plans. The most common going-concern valuation methods applied by third-party financial advisors are discounted cash flow approaches, comparable company peer analyses and precedent transaction analyses.
Valuations are more often based on higher EBITDA projections for the company post emergence than historical EBITDA levels prior to the bankruptcy filing. Higher cash flows post emergence can be due to expectations of cyclical recoveries or cash flow benefits from shedding legacy liabilities — including union liabilities, lawsuits, rejection of unprofitable leases or achieving other improvements in cost structure — during the reorganization process.
However, lower EBITDA after emergence can also be projected by companies that expect to remain mired in deep cyclical downturns or face the secular decline of their products or services, even after reorganization. Lower EBITDA forecasts can also be a function of shrinking the company during the bankruptcy process through asset sales or company split-ups.
Courts deal with valuation on a case-by-case basis, and it is often a negotiated value determined through a settlement among the various classes of claimants.
Creditor NegotiationsSenior and junior creditors often have opposing views on valuation. Impaired senior creditors — whose claims are not fully repaid in cash or through reinstatement (including principal and interest), and who wish to get most of a reorganizing company’s new equity instead — have an incentive to support a lower EV. This enables the senior creditors to prevent junior creditors or old common shareholders from getting any or a greater share of the new equity. Conversely, junior creditors and old common shareholders have a motive to value the reorganizing company at a higher EV to assume a controlling or material ownership interest in the newly reorganized company.
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DIP Loan SummaryCharacteristic DescriptionDescription Financing arranged by a company while under the Chapter 11 bankruptcy process.Purpose Provides a bankrupt company with funds necessary to operate its business while it is developing and
implementing its plan of reorganization.Priority Super priority, above other pre-petition creditors on the liability waterfall.Security Unencumbered assets and/or a priming lien on encumbered assets by providing adequate protection
of the interest of the existing lender holding a lien on such assets.Size $1 Mil. plus.Facility Types Revolvers and term loans.Funding Status Can be drawn and undrawn.Tenor 12–24 months.Arrangers Commercial banks and specialized finance companies.Investors Prepetition lenders.
Nontraditional DIP lenders including institutional lenders, CLOs/CDOs and hedge funds.Liquidity Limited to none.CDO – Collateralized debt obligations. DIP – Debtor in possession. Source: Fitch Ratings.
Even within the same class or seniority, creditors can have different motivations regarding valuation and case resolution. For example, a distressed investor that purchased an unsecured debt issue at a deep discount and wants to make a quick profit may not act like a regular trade creditor that wants to retain the customer for future business.
Because Chapter 11 entitles junior investors to insist on an appraisal of the debtor, the outcome of which is uncertain and can rapidly change, impaired senior lenders often agree to make distributions to junior creditors to lock in a “yes” vote on acceptance of a plan of reorganization. Fitch refers to these types of negotiated payments as concession payments. Concession payments highlight the complexity of the bankruptcy valuation negotiation process, where disparate creditor motivations may result in deviations from the rule of absolute priority.
[Credit 101] What Is DIP Financing?A DIP facility is a form of financing arranged by a company while under the Chapter 11 bankruptcy process. DIP financing provides a bankrupt company with the funds necessary to operate its business while it is developing and implementing its plan of reorganization. DIP financing has super priority and is expected to recover before other pre-petition creditors on the liability waterfall.
In some cases, pre-petition lenders can convert all or a portion of their pre-petition claims into a DIP facility. This is referred to as a roll-up DIP. This gives the debtor new liquidity during bankruptcy and enables the pre-petition creditor to elevate its pre-petition claim to administrative priority status.
For more information on DIP financing, please refer to our Leveraged Loan Reference Data section.
[Credit 101] How Does Fitch Estimate Recovery?
Recovery RatingsFor issuers with IDRs at ‘B+’ and below, Fitch performs a bespoke recovery analysis. Fitch completes a company valuation in a distressed scenario under both a GC and liquidation approach. GC means emergence from bankruptcy and continuing to stay in business, and liquidation approach means ceasing all operations, such as a retailer going out of business and having an inventory liquidation sale. The higher of the two resulting values is then allocated to creditors according to their relative seniority. This is consistent with the best interest test applied in Chapter 11 plans.
About 80% of the time, Fitch’s valuation is higher under the GC method, which is about the same share of GC outcomes for large company cases Fitch has analyzed in its bankruptcy case study enterprise valuation and creditor recovery report series.
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Fitch also makes assumptions that a portion of the total value will be allocated to administrative expenses and claims, such as lawyer and consultant fees and DIP loan claims — this is usually 10% of value.
Fitch also makes an assumption that a certain percentage — usually 5% — of the remaining value will be allocated from a more senior creditor to a more junior creditor. This is a result of consensual settlements assumed to happen during the bankruptcy process to incent the junior creditors to vote to accept the proposed plan of reorganization and allow the company to emerge from bankruptcy more quickly.
A schematic of the process is shown above. Each debt issue in the capital structure is assigned an RR based on its expected recovery rate range — distributions as a percentage of the claim amount. Fitch’s six-category RR scale is shown in the table below.
Recovery Ratings (RR) ScaleRR Description Recovery (%) Issue Notching from the IDR
RR1 Outstanding 91–100 +3 (Usually Secured Debt Only)
RR2 Superior 71–90 +2 (Unsecured Usually Capped)
RR3 Good 51–70 +1
RR4 Average 31–50 +0
RR5 Below Average 11–30 (1)
RR6 Poor 0–10 (2)–(3)
IDR – Issuer Default Rating. Source: Fitch Ratings.
Fundamental Drivers of Recovery Ratings (RR)
Source: Fitch Ratings.
1. Enterprise or Liquidation Valuation
Assumed Going Concern EBITDA
xReorganization Multiple
=Enterprise Valuation (EV)
Going-Concern Approach
Book Value of Assetsx
Advance Rate%=
Liquidation Value (LV)
Liquidation Approach
Higher of LV and EV
2. Distribution to Various Claimants
Priority/Administrative Claims
Sr. Unsecured Claims
Sr. Subordinated
Old Equity
Sr. Secured Claims
Administrative Expense
Assumption (%)
Concessions Assumption
Outputs:
RR Secured
RR Unsecured
RR Subordinated
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For more information on Fitch’s Recovery Rating Methodology, including revolver assumptions and multiples used for valuation, please refer to the Criteria Summaries in the appendix.
Bankruptcy Case StudiesFitch has gathered real world data on over 150 bankruptcy cases and analyzed their outcomes to create a useful feedback loop that we incorporate into our recovery analyses. We have published a series of bankruptcy case study reports since 2012 and will continue to expand on this effort.
The median corporate reorganization multiple was 5.98x for 155 companies across sectors, for which bankruptcy exit multiples could be estimated. The distribution of multiples are illustrated in the chart below, which provides further support to the 6.0x median multiple employed in Fitch’s recovery methodology.
Published Bankruptcy Case Study ReportsTitle Date
Industrial and Manufacturing Bankruptcy Enterprise Value and Creditor Recoveries (Fitch Case Studies — Edition IX) 01/28/16
Healthcare, Food, Beverage and Consumer Bankruptcy Enterprise Value and Creditor Recoveries (Fitch Case Studies — Edition VIII) 08/12/15
Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor Recoveries (Fitch Case Studies — Edition VII) 04/27/15
Automotive Sector Bankruptcy Enterprise (Fitch Case Studies — Edition VI) Value and Creditor Recoveries 12/12/14
Telecom, Media and Technology Bankruptcy (Fitch Case Studies — Edition V of a Recurring Series) Enterprise Values and Creditor Recoveries 08/09/14
U.S. Gaming, Lodging and Restaurant Bankruptcy Enterprise Valuation and Creditor Recoveries 09/04/13
U.S. Retail Case Studies in Bankruptcy Enterprise Values and Creditor Recoveries 04/16/13
Case Studies in Bankruptcy Enterprise Values and Creditor Recoveries — Volume 2 02/14/13
Case Studies in Bankruptcy Enterprise Values and Creditor Recoveries 06/07/12
Source: Fitch Ratings.
0
10
20
30
40
50
60
70
<= 3.0x 3.1x–5.0x 5.1x–7.0x 7.1x–9.0x 9.1x–11.0x > 11.0x
(Count)
EV – Enterprise value.Source: Fitch bankruptcy database, company filings.
Midpoint EV/EBITDA Multiple for Companies Reorganized as Going Concern
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The bankruptcy case studies also indicated most companies are reorganized as GCs because this produces a higher value than would be realized in liquidation. Ownership often changes hands in bankruptcy court, but most businesses continue to produce revenues and cash flows under the new owners in reorganization.
The Retail sector is an exception, with full chain liquidations a frequent outcome due to noncompetitive business models or undifferentiated lines. It is consequently appropriate to estimate a company’s value on both a GC and liquidation basis, and use the higher value to estimate recoveries for the different creditor classes, which is consistent with the best interest test in the bankruptcy code.
Going Concern
80%
Liquidation20%
Source: Fitch Ratings, company filings.
Majority of Bankrupt Companies Reorganized as Going Concern(Bankruptcy Resolution for 187 Case Studies as of Jan. 28, 2016)
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Bankruptcy Case Study — Station Casinos, Inc. et al.Below we present an excerpt from one of our bankruptcy case study reports.
Issuer ProfileFitch Industry Classification Leisure and EntertainmentSubsector CasinosPrepetition Ticker Symbol Not publicly tradedPetition Date Assets 5,832 Emergence Parent Company Name/Ticker Station Casinos LLC/Privately Held
Bankruptcy SummaryDid All Entities in the Group File?a NoPlan Proposed by DebtorCourt District NevadaSubstantive Consolidation NoPetition Date 7/28/09Confirmation or Conversion Date 8/27/10Effective Date 6/17/11Duration (Months) 13Filing — Type Chapter 11 (Prepackaged)Section 363 Asset Sale by Debtor Yes — Sale of Substantially All Assets
(as Going Concern)Voluntary or Involuntary Filing VoluntaryPostconfirmation Liquidating Trust Not AvailableResolution Emerged/Reorganized (Private)
Station Casinos, Inc., et al. ($ Mil., Except Where Noted)Key Drivers of Bankruptcy FilingKey Driver Deep Cyclical TroughKey Driver Untenable Capital Structure
Financial Profile12-Month Period Amount
Prepetition EBITDAb 2008 406Post-Emergence EBITDA Forecast No Projections Disclosed
Enterprise Value (EV) RangeLow 1,771High 1,771Midpoint EV 1,771Equity Value Range (Including Cash On Hand)Low N.A.High N.A.Midpoint EV/Post-Emergence EBITDA Estimate (x) N.A.
Petition Date Versus Emergence Date Petition
Datec Emergence
Dated Total Debt 6,483 2,435Consolidated Leverage (x) 16.0 N.A.Debt Shed in Bankruptcy 4,048Debt Shed in Bankruptcy (%) 62
Events Leading Up to Bankruptcy (or Contributing Factors)Station Casinos (SCI) became significantly leveraged as a result of a going private transaction completed in November 2007 (the Merger). The Merger added $3,650 million of secured bank debt to the balance sheet. Shortly after SCI went private, there was a sharp downturn in the economy and consumer spending. Due to weak economic conditions, including the credit crisis and a decrease in consumer confidence levels, the company experienced a significant reduction in revenues. The greater Las Vegas area, where SCI’s casinos are located, was especially hard hit from rising unemployment, reduced travel and a severe housing crisis. The value of the company’s property assets declined as a result of the weak local economy and depressed real estate market. Operating results declined and additional credit to restructure and refinance debt was not available. This led to the bankruptcy filing in July 2009.
Enterprise Valuation Estimate SummarySale of the OpCo Assets, Foreclosure of PropCo AssetsSCI and its OpCo subsidiaries sold most of their assets through an auction process (sales excluded the PropCo assets that were foreclosed on by its lenders) in August 2010.The stalking-horse bid from Fertitta Group and the mortgage lenders valued the OpCo assets at $772 million and left the casinos in the hands of the founding Fertitta family.There were no other bidders aside from the stalking-horse bid, which resulted in $0 recoveries for OpCo unsecured creditors.The value of the PropCo assets was not disclosed, but if the new $1,600 million PropCo exit debt is valued at par and the new equity is worth $171.2 million based on the sale of 50% of the new equity to the Fertitta Group for $85.6 million by the foreclosing lenders that became the new owners, then PropCo had an estimated EV of $1,771.2 million.The total Station Casinos EV, including the OpCo and PropCo estimated values, is $2,543.2 million. Excluded from the EV and the bankruptcy were the Green Valley Ranch and Aliante Station casinos, which filed a separate bankruptcy petition.Station Casinos had three major financing entities: OpCo, a financing vehicle that owns most of the casinos, joint ventures, licenses, vacant land, and intellectual property; PropCo, owner of four major hotel casinos: Red Rock, Sunset, Palace and Boulder; and Landco, owned two parcels of vacant land in the Las Vegas metropolitan area.
Liquidation Value AlternativeThe liquidation analysis dated July 30, 2010, estimated a range of liquidation value for PropCo/Mezzco of $1,180 million–$1,304 million.aGreen Valley Ranch and Aliante Casinos filed a separate bankruptcy petition. bSource: 2008 10-K and. cSource: Bankruptcy petition dated July 24, 2009. dEmergence debt excludes any revolver borrowings. eStation Casinos, Inc. had three major financing entities: OpCo, a financing vehicle that owns most of the casinos, joint ventures, licenses, vacant land and intellectual property; PropCo, owner of four major hotel casinos: Red Rock, Sunset, Palace and Boulder; and Land co, owned two parcels of vacant land in the Las Vegas metropolitan area. DIP – Debtor in possession. N.A. – Not available. Continued on next page. Source: Company disclosure statement for the first amended joint plan of reorganization dated July 28, 2010.
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Estimated Recoveries for Select ClaimsForm of Distribution
Claim Seniority Claim Type
Allowed Claims
Projected Recovery
(%)Equivalent RR Category Cash
Secured Notes
Unsecured Notes
Subordinated Notes
New Equity
Options/ Warrants
DIP $185 Million Vista DIP Facility 173 0.0 RR6 — — — — — — DIP Past Enterprises DIP Facility 154 0.0 RR6 — — — — — — Secured SCI OpCo Bank Facility 884 88.0 RR2 317 455 — — — — Secured PropCo CMBS Mortgage Loans 1,801 N.D. RR1 86 1,600 — — 86 — Secured PropCo CMBS Mezzco Loans
(Loans I–IV) 676 0.0 RR6 — — — — — — Secured Land Loan 242 43.0 RR4 — 105 — — — — Unsecured SCI 6% and 7.75%
Senior Unsecured Notes 850 0.0 RR6 — — — — — — Unsecured PropCo General Unsecured Swap
Claim 144 0.55 RR6 8 — — — — — Subordinated SCI Senior Subordinated Notes 1,558 0.0 RR6 — — — — — — Intercompany Intercompany Claims 0 0.0 RR6 — — — — — — Equity Equity Claims 0 0.0 — — — — — —
Estimated Claims 6,482 Recoveries 411 2,160 0 0 86 0 New Borrowings at Emergence 275 Debt of Nonfiling Affiliates on Emergence Date 0
Claim Seniority
Claim Type Description
DIP $185 Million Vista DIP Facility • The DIP was unsecured, subordinated and had administrative priority (except holders would receive $0 distributions if OpCo prepetition lenders were not paid in full). SCI OpCo Lenders were not paid in full.
• The lender was a nondebtor affiliate of SCI. • The DIP terms required an affiliate SCI, Vista Holdings, to maintain cash and equivalents of at least $100 million.• Repayment of the DIP was subordinate to SCI’s OpCo prepetition bank facility lender claims. • The DIP facility claims held by Vista and Past Enterprises (amounts not disclosed) received no distributions
under the plan and were extinguished. There was $172.9 million outstanding under the DIP as of May 31, 2010. DIP Past Enterprises DIP Facility • The Past Enterprises loan was unsecured and had administrative priority (except claims would receive
$0 distributions if OpCo prepetition lenders were not paid in full). • Repayment was subordinate to full repayment of the SCI prepetition OpCo credit agreement claims. The Past
Enterprises facility lender was an affiliate of SCI. • The DIP facility claims of Vista and Past Enterprises received no distribution and were extinguished.• There was $154 million borrowed under the facility and $84 million cash held at the Past Enterprises affiliate as
of May 31, 2010.Secured SCI OpCo Bank Facility • There were petition date borrowings and interest of approximately $884 million under the $900 million revolver
and term loan facility, including $10 million letters of credit. • Secured by a first-priority interest in properties owned by certain subsidiary guarantors. • The OpCo lenders supported a $772 million stalking-horse bid for the OpCo assets by Fertitta Gaming,
Colony Capital and the PropCo lenders.Secured PropCo CMBS Mortgage Loans • The $1,801 million claim represents outstanding principal amount and was assumed on the effective date.
• Secured by four casino properties: Palace Station Hotel & Casino, Boulder Station Hotel & Casino, Sunset Station Hotel & Casino, Red Rock Casino Resort Spa and certain related assets.
• The mortgage lenders took ownership of the PropCo assets and sold 50% of the equity to a newly formed entity owned by the Fertitta family for $85.6 million.
Secured PropCo CMBS Mezzco Loans (Loans I–IV)
• The $676 million claim represents the collective principal amount of the four PropCo CMBS Mezzco loans. • The various loans to the Mezzco borrowers were secured by a pledge of equity interests of the owners.
Secured Land Loan • Holders of the loan received rights to purchase 60% of Landco’s equity for nominal value in addition to the $105 million new note.
Unsecured SCI 6% and 7.75% Senior Unsecured Notes • Consisted of $450 million 6% due 2014 and $400 million 7.75% notes due 2016.
Unsecured PropCo General Unsecured Swap Claim
• PropCo general unsecured swap claim received $7.9 million cash from the mortgage lenders in a concession payment.
Subordinated SCI Senior Subordinated Notes • Consisted of $450 million 6.5% notes due 2014, $700 million 6.875% notes due 2016, and $300 million 6.625% notes due 2018.
• Received no recovery under the plan.Intercompany Intercompany Claims • Intercompany claims were extinguished with no recovery. PropCo intercompany claims were $8.8 million, and
there were also various Mezzco intercompany claims of approximately $5.9 million each.Equity Equity Claims • Received no recovery.RR – Recovery Rating. DIP – Debtor in possession. N.D. – Not disclosed. Continued on next page.Source: Company disclosure statement for first amended joint plan of reorganization dated July 28, 2010, unless otherwise noted.
Station Casinos, Inc., et al. ($ Mil., Except Where Noted) (Continued)
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Recovery Rating BacktestingFitch’s RRs provide an unbiased and somewhat conservative estimate of recoveries. In a recent back test, our RRs were within one RR category of the implied RR — based on 30-day post-default security trading prices — for 81% of the138 Fitch-rated debt issues that defaulted from January 2008 to July 2015.
How Do Leveraged Loans Perform in Fitch’s Recovery Analyses?
Overall DistributionsFitch assigns RRs based on ultimate recovery expectations. In the recurring Road to Recovery Ratings report series, Fitch deconstructs its recovery analyses and explores the effects of different capital structures and leverage on RRs for the first lien debt instruments of 206 U.S. speculative-grade issuers.
Additional InformationCash on Filing Date Not disclosed. Cash and equivalents were $315.4 million and restricted cash was $90 million on June 30, 2009
(source: 10-Q filing for period ended June 30, 2009). Prepetition Bank Facility Commitments OpCo: $900 million prepetition credit facility consisting of a $650 million revolver and $250 million term loan due August 2012.
PropCo had $1,800 million of CMBS debt.Prepetition Bank Facility Borrowings on Filing Date The OpCo facility had $884 million of borrowings.Was the DIP a New Money Facility or Roll Up of a Prepetition Facility?
The $185 million DIP was a new money facility that was lent to SCI by Vista Holdings, a nondebtor affiliate of SCI. Another affiliate, Past Enterprises, provided a postpetition new money revolving credit facility.
Disclosure or Estimate of Total Administrative and Priority Claims for Entire Period of Bankruptcy Proceeding?
Not disclosed. Per disclosure in Station Casinos, Inc. 2010 10K and Station Casinos LLC second-quarter 2011 10Q, Fitch estimates professional fees associated with the restructuring at $159 million.
If Yes, Admin. + Priority as % of Enterprise Value? Not available. The professional fees portion was 6.3%.Executory Contracts Not disclosed. A compromise settlement was reached on master lease payments for certain hotels to reduce the rent.Deficiency Claims Yes. Unsecured portion of opco credit agreement claims were treated as general unsecured claims.Contingent Claims No material contingencies noted.Intercompany Claims Intercompany claims were extinguished with no recovery under the plan.Pension Claims/Motions The company terminated the supplemental executive retirement plan and the supplemental management retirement plan in
the bankruptcy. The claim was not disclosed. The benefit obligation was approximately $26 million.Postpetition Interest? YesIf Yes, Recipient Class Not applicableConcession Payments YesRecipient Propco General unsecured swap claimDIP – Debtor in possession. Source: Company disclosure statement for first amended joint plan of reorganization dated July 28, 2010, unless otherwise noted.
Station Casinos, Inc., et al. ($ Mil., Except Where Noted) (Continued)
0
20
40
60
80
100
120
Zero Error One Notch Two Notches Three Notches Four Notches or More
Fitch RR < Price-Implied RR Fitch RR > Price-Implied RR Cumulative
(%, Sample Issues)
Forecast Delta Default +30-Day Issue Price Implied RR Versus Fitch RR Estimate(All Seniorities)
RR – Recovery Rating. Note: U.S. corporate public Issuer Default Ratings of B+ and lower only.Source: Fitch Ratings.
41The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
The RRs on first lien secured debt issues are concentrated at the ‘RR1’ end of the recovery scale, corresponding to a 91%–100% ultimate recovery rate expectation. While the sample is not exclusive to leveraged loans, the vast majority of our sample is composed of first lien secured leveraged loans.
Capital Structure InfluencesIn Fitch studies, first lien RR expectations decreased as the proportion of first lien debt to total debt increased, although there were strong recoveries for most first lien issues regardless of leverage through the first lien.
First lien debt issue recoveries are somewhat more insulated from decreases in EV due to the protection of having a more senior position in the distribution waterfall. Exceptions include cases when all debt in the capital structure is equally secured with a first lien, there is more than one type of first lien issue (each with a different collateral package) or the issuer is grossly overleveraged, so recoveries are sensitive to declines in EV.
0
20
40
60
80
RR1 RR2 RR3 RR4 RR5 RR6
(% of Issues)
Recovery Rating Distribution — First Lien Debt 2015
RR – Recovery Rating. Note: U.S. corporate public Issuer Default Ratings and Credit Opinions of 'B+' and lower only.Source: Fitch Ratings.
0
20
40
60
80
100
< 3 ≥ 3–< 5 ≥ 5–< 7 ≥ 7
(%)RR1 RR2 RR3 RR4 RR5 RR6
First Lien Loans and Bonds RR Distribution by First Lien Leverage Ratio
RR – Recovery Rating.Source: Company reports for public ratings and Credit Opinions, Fitch Ratings.
42The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
What Are the Historical Post-Default Prices for Leveraged Loans?The topic of recovery has substantial nuance, and there are multiple ways to measure recovery on defaulted corporate debt. Each approach has pros and cons, but in the end, all are linked and reflect some assessment of firm value. The 30-day post-default price is a widely available and often used proxy for recovery rates.
What Are the Historical Emergence Prices for Leveraged Loans?Another widely available and often used proxy for recovery rates is the emergence price. We define emergence as the time shortly after a plan of reorganization has been confirmed by a bankruptcy court — and approved by requisite creditors — but before pre-petition debt is canceled and replaced with new debt and equity. Fitch research has shown that in times of market stress, post-default loan prices can be less predictive of ultimate recovery, making emergence prices another useful reference point.
0
5
10
15
20
25
30
35
First Lien Institutional Leveraged Loan 30-Day Post-Default Prices(2007–2015 Historical Distribution)
(%)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 61.7%, Median 66.1%
0
5
10
15
20
25
30
35
First Lien Institutional Leveraged Loan Emergence Prices(2007–2015 Historical Distribution)
(%)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 72.6%, Median 75.3%
43The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
CLOs
[Credit 101] What Is a CLO?A CLO is a form of securitization where a collection of assets, known as collateral, are pooled together and then sold to investors in various tranches. CLO collateral is primarily composed of broadly syndicated and middle-market leveraged loans. Some CLOs may also include corporate bonds, other CLOs, structured finance securities and equity as collateral.
CLO TypesThere are two main types of CLOs:
● Arbitrage CLOs are created in an attempt to capture the excess spread between higher yielding assets and lower yielding liabilities. Because the equity tranche receives all residual cash flows, all excess interest earned by the collateral is paid to the equity tranche holders.
● Balance sheet CLOs are used by issuers as a financing vehicle to obtain additional capital, which is secured by the assets on its balance sheet. Typically the issuer retains the equity in the transaction and the special purpose vehicle is consolidated onto the balance sheet.
CLO Life Stages
Source: Fitch Ratings.
Structuring
Draft Documents
Equity Marketing
Debt Marketing
Pricing
Warehouse Assets
Closing and Funding
Ramp-Up Period
Noncall Period
Reinvestment Period
2–3 Weeks
1–4 Weeks
1–4 Weeks
< 1 Week
1–6 Months
3–5 Weeks
3–6 Months
2–3 Years
4–5 Years
7–9 Weeks
CLO Types and Characteristics (Post Credit Crisis)Arbitrage CLO Balance Sheet CLO
Market Share Approximately 95% Market Share 5%
Portfolio Selector Portfolio manager Portfolio Selector • Banks
• Specialty finance companiesDebt Issuer Bankruptcy-remote SPV Debt Issuer Bankruptcy-remote SPV
Purpose • Structured exposure to leveraged loan market
• Management fees
Purpose • Reduction of regulatory capital
• Reduces credit risk
• Cheaper financingCollateral Type Primarily broadly syndicated
leveraged loansCollateral Type Middle-market or broadly syndicated
leveraged loansCollateral Security Primarily senior secured loans Collateral Security Primarily senior secured loans
Collateral Origination/Sourcing
• Loans purchased into SPV from primary and secondary market
• Issuer not involved in asset origination
Collateral Origination/Sourcing
• Loans on balance sheet are transferred into SPV
• Issuer involved in asset origination
SPV – Special-purpose vehicle. OC – Overcollateralization. IC – Interest coverage. Continued o next page. Source: Fitch Ratings.
44The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
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[Credit 101] What Are the Mechanics of an Arbitrage CLO?An arbitrage CLOs is created in an attempt to capture the excess spread between higher yielding assets (i.e. a portfolio of leveraged loans) and lower yielding liabilities (i.e. multiple tranches with various ratings).
CLO Types and Characteristics (Post Credit Crisis) (Continued)Arbitrage CLO Balance Sheet CLO
Issuer Capital Structure Primarily floating-rate notes with varying levels of priority and a (typically) unrated equity tranche
Issuer Capital Structure Primarily floating-rate notes with varying levels of priority and a (typically) unrated equity tranche.
Forms of Credit Enhancement • Generally 33%–38% subordination below senior class
• OC of rated notes
• Spread arbitrage
• OC and IC tests that, if failing, divert proceeds to redeem senior notes
Forms of Credit Enhancement • Generally, 35%–50% subordination below senior class
• OC of rated notes
• Spread arbitrage
• OC and IC tests that, if failing, divert proceeds to redeem senior notes
Average Life of Liabilities 5–10 years for senior notes, 7–10 years for subordinated notes and equity
Average Life of Liabilities 5–10 years for senior notes, 7–10 years for subordinated notes and equity
Portfolio Management Style • Usually managed; Three- to four-year reinvestment periods
• Reinvestment subject to satisfaction or maintenance/improvement of portfolio covenants
Portfolio Management Style • Static or managed. If managed, one- to three-year reinvestment period
• Reinvestment subject to satisfaction or maintenance/improvement of portfolio covenants
Use of Leverage Yes, 7x–12x (debt/equity) Use of Leverage Yes, 1x–5x (debt/equity)
SPV – Special-purpose vehicle. OC – Overcollateralization. IC – Interest coverage. Source: Fitch Ratings.
Arbitrage CLO Transaction
aAsset manager typically contributes a portion of equity. P&I – Principal and interest. C/e – Credit enhancement (based on subordination). NR – Not rated.Source: Fitch Ratings.
Administrative Agents
Collateral AdministratorTrustee
Portfolio of Leveraged Loans
Class A (AAAsf)
Class B (AAsf)
Class C (Asf)
Class D (BBBsf)
Class E (BBsf)
Arranger
Issuance Proceeds
P&I from Loans P&I from Loans
Issuance Proceeds
Typical c/e (%)
34–40
24–28
16–22
11–16
7–11
0
Assets Liabilities (Typical Rating)
Special-Purpose Vehicle
Asset Managera Equity (NR)
45The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
Cash flows received from the underlying CLO collateral must follow a defined sequence of use known as a waterfall. Below we present a typical arbitrage CLO waterfall for interest and principal payments.
Arbitrage CLO Interest/Principal Waterfall
aTransaction waterfalls can and do vary from deal to deal. These waterfalls are displayed for indicative purposes only. bCertain coverage tests may only be applicable in the principal waterfall during the reinvestment period or may not be included in the principal waterfall at all. cNonsenior coverage tests will usually include provisions for the payment of unpaid mezzanine/subordinate tranche interest amounts, in addition to payment of principal. Note: Coverage tests — overcollateralization (OC) and interest coverage (IC) tests.Source: Fitch Ratings.
Arbitrage CLO Interest Waterfalla
If any senior coverage tests are failing, pay principal on the senior notes until the applicable test is cured or until the class is paid in full.
If any Class C coverage tests are failing, pay principal sequentially beginning with the senior notes, until the applicable test is cured or until the classes are paid in full.
If any Class D coverage tests are failing, pay principal sequentially beginning with the senior notes, until the applicable test is cured or until the classes are paid in full.
If any Class E coverage tests are failing, pay principal sequentially beginning with the senior notes, until the applicable test is cured or until the classes are paid in full.This test is only applicable during the reinvestment period and is usually calculated in the same fashion as the junior-most OC test, with a higher test threshold. If failing, some percentage (e.g. 60%) of the remaining interest proceeds at this point of the waterfall can be used to reinvest in additional collateral or redeem the notes.
Arbitrage CLO Principal Waterfallb
Trustee and Other Agent Fees
Hedge Payments (If Applicable)
Senior Management Fee (0.15%–0.20%)
Class A Interest
Senior Coverage Tests
Class B Interest
Class C Interest
Class C Coverage Tests
Class C Deferred Interest
Class D Interest
Class D Coverage Tests
Class D Deferred Interest
Class E Interest
Class E Coverage Tests
Class E Deferred Interest
Interest Diversion Test
Subordinated Management Fee (0.25%–0.40%)
Equity Holders (Until Target IRR Reached)
15%–20% of Remaining Proceeds to Collateral Manager, 80%–85% to Equity
Unpaid Senior Fees
Unpaid Class A Interest
Unpaid Class B Interest
Senior Coverage Testsb
Class C Coverage Testsb,c
Class D Coverage Testsb,c
Class E Coverage Testsb,c
Reinvestment (During Reinvestment Period)
Sequential Redemption of Notes
Unpaid Subordinate Management Fee
Other Unpaid Fees
Equity Holders (Until Target IRR Reached)
15%–20% of Remaining Proceeds to Collateral Manager, 80%–85% to Equity
Senior Fees
46The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
[Credit 101] Who Are CLO Market Participants?
CLO ManagersWith the increased demand and issuance of CLOs in recent years, new entrants to the market took advantage of favorable conditions and entered a space historically dominated by large institutional firms. As expected, the profile of newer entrants in terms of size is quite different than the frontier CLO 2.0 issuers of 2010 and 2011. Average firm assets under management of later entrants are significantly less than early issuers.
InvestorsThe CLO investor base expanded over the past several years as the asset class became more attractive in a world of unappealing unlevered credit yields in other products. The ‘AAA’ investor base, in particular, continues to broaden and now includes regional U.S. banks to go along with the U.S. investment banks, Asian banks, insurance companies and pension funds. Prior to 2012, it was common for an anchor investor to take down the entire ‘AAA’ tranche. The broadening of the investor base has allowed the senior most tranches to be divided among several investors.
Top 25 CLO Managers By Assets Under Management
Rank ManagerUSD Bil. No.
EUR Bil. No.
Total (USD Bil.) No.
1 GSO Capital Partners 12.25 24 7.20 24 20.07 482 Carlyle Group 13.41 30 5.69 16 19.60 463 Credit Suisse Asset Management 14.47 23 1.77 6 16.40 294 Ares Management 13.48 30 1.92 7 15.57 375 CIFC Asset Management 12.91 29 0.00 0 12.91 296 Apollo Global Management 11.63 20 0.79 2 12.49 227 Alcentra 5.11 14 6.02 18 11.65 328 Prudential Investment
Management (Pramerica) 8.91 19 2.32 6 11.43 259 3i Debt Management 5.40 12 5.13 17 10.98 2910 Highland Capital Management 10.87 26 0.00 0 10.87 2611 CVC Credit Partners 8.46 21 2.14 5 10.78 2612 KKR Financial Advisors 5.82 9 4.46 15 10.67 2413 Octagon Credit Investors 9.45 17 0.00 0 9.45 1714 MJX Asset Management 9.12 17 0.00 0 9.12 1715 Oak Hill Advisors 7.36 14 1.55 4 8.91 1816 Voya Alternative
Asset Management8.78 20 0.00 0 8.78 20
17 Babson Capital Management 6.17 14 2.22 6 8.59 2018 Golub Capital 8.19 19 0.00 0 8.19 1919 Sankaty Advisors 7.14 15 0.73 2 7.93 1720 Fortress Investment Group 7.75 13 0.00 0 7.75 1321 Columbia Management 7.51 14 0.00 0 7.51 1422 Och Ziff 7.50 13 0.00 0 7.50 1323 BlueMountain
Capital Management 7.30 17 0.00 0 7.30 1724 Invesco 6.39 15 0.31 2 6.72 1725 Halcyon Loan Management 5.30 12 1.17 5 6.57 17
Source: Creditflux.
CLO Investor BaseAAA Notes Mezzanine Notes Equity• Insurance Companies • Hedge Funds • Private Equity• Foreign Banks (European and Asian) • Asset Managers • CLOs (Vintage CLO 1.0)• Pension Funds • Insurance Companies • Credit Opportunity Funds• U.S. Regional Banks • CLOs (Vintage CLO 1.0) • CLO Managers• U.S. Investment Banks
Source: Fitch Ratings.
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CLO HoldingsCLO holdings are well diversified across industries, with the greatest concentration in Technology, Healthcare and Retail. Below is a table of companies with the most debt held by CLOs.
Top 50 Holdings in U.S. CLO PortfoliosRank Company Name Industrya Principal ($ Bil.)
1 Valeant Pharmaceuticals International, Inc. Healthcare & Pharmaceutical 3.742 First Data Corp Class A Computers & Electronics 3.263 Asurion Corp. Insurance 3.014 Avago Technologies Ltd. Computers & Electronics 2.795 Community Health Systems, Inc. Healthcare & Pharmaceutical 2.536 Albertson's Inc. Supermarkets & Drug Stores 2.467 Numericable SAS Cable 2.278 Calpine Corporation Utilities, Power & Gas 2.099 Chrysler Corporation Automotive 1.9910 Charter Communications, Inc. Class A Cable 1.9711 Fortescue Metals Group Ltd. Metals & Mining 1.7912 Scientific Games Corporation Class A Leisure & Entertainment 1.7913 Cablevision Systems Corporation Class A Cable 1.7814 Univision Communications Inc. Class A Broadcasting & Media 1.7715 TransDigm Group Incorporated Transportation 1.6516 Dell Computer Corp. Ltd. Computers & Electronics 1.6517 INEOS Group Holdings Ltd. Chemical 1.6418 Royalty Pharma Healthcare & Pharmaceutical 1.6219 TXU Corporation Utilities 1.5920 Berry Plastics Corp. Paper & Containers 1.5521 HCA Holdings, Inc. Healthcare & Pharmaceutical 1.4822 PetSmart, Inc. Retail 1.4723 Formula One Group Services & Miscellaneous 1.4524 American Airlines Group, Inc. Transportation 1.4425 Sabre Holdings Corporation Services & Miscellaneous 1.3626 Mediacom Broadband Corp. Cable 1.3427 Aramark Corporation Gaming, Lodging & Restaurants 1.3328 Level 3 Communications, Inc. Telecommunication 1.3329 Infor Global Solutions, Inc. Computers & Electronics 1.2630 Avaya Inc. Telecommunication 1.2331 Federal-Mogul Holdings Corp. Automotive 1.2332 NXP BV Computers & Electronics 1.2333 Hertz Entertainment Services Corp. Banking & Finance 1.2234 Dollar Tree, Inc. Retail 1.2135 WME IMG Holdings LLC Services & Miscellaneous 1.236 BMC Software, Inc. Computers & Electronics 1.1837 Advantage Sales & Marketing of Louisiana, Inc. Services & Miscellaneous 1.1838 Travelport Holdings, Inc. Services & Miscellaneous 1.1839 Tribune Publishing Co. Broadcasting & Media 1.1640 West Corporation Services & Miscellaneous 1.1241 Communications Sales & Leasing Inc. Real Estate 1.1142 US Airways Group, Inc. Transportation 1.0943 WideOpenWest Finance LLC Cable 1.0944 MacDermid, Incorporated Chemical 1.0945 Pharmaceutical Product Development, LLC Services & Miscellaneous 1.0846 Clarke American Corp. Consumer Products 1.0647 Carestream Health, Inc. Healthcare & Pharmaceutical 1.0648 Endo Pharmaceuticals, Inc. Healthcare & Pharmaceutical 1.0549 Cequel Communications Holdings I LLC Telecommunication 1.0450 Energy Transfer Equity, L.P. Energy 1.03aFitch defined. Source: Thomson Reuters LPC.
48The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
Leveraged Loans
How Does Fitch Ratings Analyze CLOs?
What Is the Level of Recent CLO Issuance?Total CLO issuance for 2015 reached $98.6 billion from 177 CLOs, which represents nearly a 20% decline from the 2014 totals of $126.6 billion from 216 deals. New issue-stated spreads on senior notes averaged 153 bps over LIBOR during the fourth quarter, slightly above the yearly average of 150 bps for 2015.
Eighteen U.S. CLOs issued $7.4 billion in the first quarter of 2016, down significantly from fourth-quarter 2015 issuance of $18.5 billion via 38 CLOs. New issue-stated spreads on senior notes averaged 170 bps over LIBOR during the quarter, wide of the fourth-quarter 2015 average of 153 bps. The month of March claimed the highest volume of issuance as 12 deals priced totaling $4.85 billion.
CLO Rating CriteriaRating Consideration ApplicationAsset Quality Asset quality is based on the corporate Issuer Default Rating (IDR) and term to maturity.
Asset quality is a primary driver of the default probability of the underlying corporate assets.Asset Security Asset security is determined by the seniority of the corporate obligation and the jurisdiction of
the issuer. Asset security is a primary driver of recovery rate assumptions.Portfolio Composition
Portfolio composition analysis focuses on industry, obligor and geographic concentrations within the underlying pool of assets. Portfolio composition is a determining factor of the level of portfolio correlation, which is a driver of default probability.
Portfolio Management
Ongoing portfolio management and trading may result in an evolving portfolio credit profile, extension risk and other portfolio changes not represented by the closing portfolio. The investment guidelines and permitted management terms are analyzed to evaluate the potential risk factors of a managed portfolio.
Performance and Surveillance
Migration beyond established benchmarks may suggest performance not contemplated by the credit enhancement (CE) afforded to the rated notes. The extent and magnitude of changes to portfolio quality and composition are the primary drivers of future rating movement.
Portfolio Default and Recovery Analysis
Cash flow analysis is used to determine whether a class of notes pays according to its terms under a series of defined scenarios for a given stress level. Different scenarios are evaluated assuming variations in default and recovery timing.
Structural Features The transaction structure is analyzed for features such as: priority of payments, overcollateralization (OC) and interest coverage (IC) tests, fee structure, excess spread and portfolio covenants. These features are then are incorporated into Fitch’s cash flow model.
Source: Fitch Ratings.
0
20
40
60
80
100
120
140
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Annual CLO Issuance
($ Bil.)
Source: Thomas Reuters LPC.
Statistics:High: $123.6 Bil. (2014)Low: $0.5 Bil. (2009)Avg.: $48.2 Bil.
49The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loans June 6, 2016
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How Has the Commodity Cycle Downturn Affected CLOs?
Default ExposureThe number of CLOs with exposure to defaults increased to 159 ($787 million) at first-quarter 2016 from 97 ($392 million) at fourth-quarter 2015. About $586 million of the $787 million total defaulted notional amount comes from issuers in the Energy (Oil & Gas) and Metals/Mining sectors.
Approximately 70% of the 233 deals in Fitch’s U.S. CLO Index had exposure to at least one defaulted issuer, with 16%, or 37 CLOs, exposed to at least three defaulted issuers. Across all 159 exposed CLOs, maximum exposure was seven defaulted issuers, with an average of two. Average exposure was 0.95%.
The largest default exposures were Murray Energy Corporation at $197 million in 52 CLOs, Southcross Holdings LP at $97 million in 60 CLOs, RCS Capital Corporation at $83 million in 31 CLOs, Essar Steel Algoma Inc. at $77 million in 26 CLOs, Aspect Software Group Holdings Ltd. at $71 million in 21 CLOs, Noranda Aluminum Holding Corporation at $67 million in 20 CLOs and Paragon Offshore plc at $64 million in 34 CLOs.
Restructuring Dents MetricsIn several recent chapter 11 restructuring proposals, lenders of first lien loans are being offered equity in the reorganized company. Equity may increasingly be seen in restructurings in the near term due to the distress in commodity sectors and noncommodity issuers with high pre-petition leverage, struggling business models and declining enterprise valuations.
0.00.10.20.30.40.50.60.7
1Q15 2Q15 3Q15 4Q15 1Q16
(%) Distressed Issuers Defaulted Issuers
Distressed and Defaulted Issuers Exposure
Note: Distressed includes nondefaulted issuers rated lower than ‘CCC’. Source: Fitch Rarings.
0
20
40
60
80
100
120
140
160
180
1Q15 2Q15 3Q15 4Q15 1Q16
Exposed CLOs Defaulted Issuers
Defaulted Obligors and CLO Exposure
(No.)
Source: Fitch Ratings.
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Receiving equity dents key CLO metrics, as it receives no credit in the calculation of a CLO’s aggregate principal balance or overcollateralization ratios until the manager monetizes the equity position. How the equity portion of a recovery distribution will be accounted for is becoming more important to noteholders, as additional defaults are expected this year.
For more information on equity treatment in CLOs please see the special report, Equity in US Leveraged Loan Restructuring Dents US CLO Metrics.
Examples of Recovery Rates Used in OC Calculations
Issuer
OC Recovery Rate (%) Recovery Rate Basis
Market Pricea
No. of CLOs
Notional Value
($ Mil.)
Alpha Natural Resources 32 Market Value 32 11 23Arch Coal. 30 Market Value 30 14 31Aspect Software Group. 50/60 Moody's or S&P 99 21 71Caesars Entertainment 30/50 Moody's or S&P 84 4 6Essar Steel Algoma 18 Market Value 18 16 77Foresight Energyb 60 Moody's 75 16 36Murray Energy Corporation 41 Market Valuec 41 52 197Noranda Aluminum 24 Market Valuec 24 20 67Paragon Offshore 21 Market Value 21 34 64RCS Capital First Lien 45 Moody's 55–58 31 78RCS Capital Second Lien 10 Market Value 10 6 5Samson Second Lien 2 Market Value 2 14 21Southcross LPb 15 Market Valuec 15 60 97The Sports Authority Inc. 14 Market Value 14 4 9Verso Paper Holdings LLC (NewPage) 24 Market Valuec 24 15 20
aMarket values across CLOs can vary slightly due to different reporting dates and sources for market data. The information provided here is based on the most recent trustee reports available at the time of the analysis. bSome CLOs reported Foresight Energy, LLC as a default and applied haircut in the OC calculations. Fitch does not consider this issuer to be currently in default and as such did not include it in the defaulted exposure notional of $790 million. cFebruary report was the most recent report available for a number of CLOs. In those reports, several of the recent defaults were within their first 30 days. Some CLO documentation allow for a rating agency’s recovery rate to apply for the OC calculation within the first 30 days, even if it is higher than the market value rate. OC – Overcollateralization. Source: Trustee reports, Fitch Ratings.
51The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Leveraged Loan DataIssuance
0
200
400
600
800
1,000
1,200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Leveraged Loan Issuance ($ Bil.)
Source: Thomson Reuters LPC.
Statistics:High: $1,135 Bil. (2013)Low: $218 Bil. (2001)Avg.: $525 Bil.
0
100
200
300
400
500
600
700
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Institutional Leveraged Loan Issuance($ Bil.)
Source: Thomson Reuters LPC.
Statistics:High: $639 Bil. (2013)Low: $32 Bil. (2001)Avg.: $243 Bil.
0
100
200
300
400
500
600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Pro Rata Leveraged Loan Issuance($ Bil.)
Source: Thomson Reuters LPC.
Statistics:High: $510 Bil. (2013)Low: $165 Bil. (2002)Avg.: $286 Bil.
52The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
0
50
100
150
200
250
300
350
400
450
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Covenant-Lite Loan Issuance($ Bil.)
Source: Thomson Reuters LPC.
Statistics:High: $381 Bil. (2013)Low: $1 Bil. (2009)Avg: $111 Bil.
0
5
10
15
20
25
30
35
40
45
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Second Lien Loan Issuance($ Bil.)
Source: Thomson Reuters LPC.
Statistics:High: $40 Bil. (2007)Low: $2 Bil. (2009)Avg.: $19 Bil.
0
20
40
60
80
100
120
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
ABL Issuance($ Bil.)
ABL – Asset-based loan.Source: Thomson Reuters LPC.
Statistics:High: $101 Bil. (2011)Low: $42 Bil. (2008)Avg.: $71 Bil.
53The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
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0
50
100
150
200
250
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Large Middle Market Traditional Middle Market
Middle-Market Loan Issuance
($ Bil.)
Note: Large Middle Market defined as deal sizes of $100 Mil.–$500 Mil. Traditional Middle Market defined as deal sizes less than $100 Mil. Source: Thomson Reuters LPC.
0
10
20
30
40
50
60
70
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Middle-Market Institutional Loan Issuance($ Bil.)
Source: Thomson Reuters LPC.
Statistics:High: $72 Bil. (2006)Low: $6 Bil. (2009)Avg.: $33 Bil.
0
2
4
6
8
10
12
14
16
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
DIP Loan Issuance($ Bil.)
DIP – Debtor in possession.Source: Thomson Reuters LPC.
Statistics:High: $14.2 Bil. (2009)Low: $1.3 Bil. (2007)Avg.: $6.3 Bil.
54The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
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0
20
40
60
80
100
2011 2012 2013 2014 2015
Sponsored Nonsponsored
Sponsored Versus Nonsponsored Covenant-Lite
(%)
Source: Thomson Reuters LPC, Fitch Ratings.
0
50
100
150
200
250
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Sponsored Nonsponsored
Sponsored Versus Nonsponsored Middle-Market Loan Issuance
($ Bil.)
Source: Thomson Reuters LPC.
0
10
20
30
40
50
60
70
80
90
100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(%)
Covenant Versus Covenant-Lite Second Lien IssuanceCovenant Covenant-Lite
Source: Fitch Ratings, Thomson Reuters LPC.
55The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
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0
100
200
300
400
500
600
0
50
100
150
200
250
300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Issuance Deal Count
Canadian Syndicated Loan Issuance
($ Bil.)
Source: Thomson Reuters LPC, Bloomberg.
(No.)
0
10
20
30
40
50
60
70
80
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Latin American Loan Issuance($ Bil.)
Source: Thomson Reuters LPC.
Statistics:High: $69 Bil. (2006)Low: $7 Bil. (2009)Avg.: $29 Bil.
0
10
20
30
40
50
60
70
80
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Argentina Brazil Chile Colombia Mexico Peru Venezuela
Latin American Loan Issuance by Country
($ Bil.)
Source: Thomson Reuters LPC.
56The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Largest Leveraged Loan Deals — 2015
Borrower NameDate of Transaction
Total Deal Amount
($ Mil.)
Term Loan B Amount
($ Mil.)
Term Loan B Pricing
(bps)
LIBOR Floor
(%)Term Loan B
OIDYield
(%) PurposeDollar Tree Stores 03/09/15 6,200 3,950 350 0.75 100.00 3.57 M&ACablevision Systems Corp. 09/28/15 5,800 3,800 400 1.00 98.50 5.17 M&APetsmart Inc. 03/11/15 5,050 4,300 400 1.00 100.00 4.93 M&AValeant Pharmaceuticals International 04/01/15 5,150 2,350 325 0.75 99.50 6.64 M&AAlbertson’s Inc. 01/30/15 4,559 4,559 450 1.00 98.50 5.94 M&ACommunity Health Systems 05/18/15 4,540 2,940 300 1.00 100.00 5.65 RefinancingCoty Inc. 10/27/15 4,485 500 300 0.75 99.50 3.97 M&ADell International LLC 06/04/15 4,362 4,362 325 0.75 99.75 4.14 GCPCSRA Inc. 11/27/15 3,500 750 300 0.75 99.50 3.82 M&ANXP BV 12/17/15 3,300 2,700 300 0.75 99.25 3.79 RefinancingCommscope Inc. 06/29/15 3,250 1,250 300 0.75 99.75 4.18 M&ASS&C Technologies Inc. 07/08/15 2,630 1,820 325 0.75 99.50 4.26 M&ABELK Inc. 12/10/15 3,000 1,500 475 1.00 89.00 11.39 M&APharmaceutical Product Development 08/18/15 2,875 2,575 325 1.00 99.50 4.90 Div. RecapPeabody Energy Corp. 02/05/15 2,838 1,188 325 1.00 — 44.27 GCPOID – Original issue discount. GCP – General corporate purposes. Note: Excludes bridge loan. Source: Thomson Reuters LPC, Fitch Ratings.
Largest Covenant-Lite Deals — 2015
Borrower NameDate of Transaction
Total Deal Amount
($ Mil.)
Term Loan B Amount ($ Mil.)
Term Loan B Pricing
(bps)LIBOR
Floor (%)Term Loan
B OID Yield (%) PurposeCablevision Systems Corp. 09/28/15 10,600 3,800 400 1.00 98.50 5.17 M&ADollar Tree Stores 03/09/15 9,000 7,900 350 0.75 100.00 3.57 GCPPetsmart Inc. 03/11/15 6,950 4,300 400 1.00 100.00 4.93 GCPAlbertson’s Inc. 01/30/15 4,559 4,559 450 1.00 98.50 5.94 M&ACommunity Health Systems 05/18/15 4,540 4,540 300 1.00 100.00 5.65 GCPCoty Inc. 10/27/15 4,485 1,235 300 0.75 99.50 3.97 M&ADell International LLC 06/04/15 4,362 4,362 325 0.75 99.75 4.14 GCPNXP BV 12/07/15 3,300 2,700 300 0.75 99.25 3.79 M&ACommscope Inc. 06/29/15 3,250 1,250 300 0.75 99.75 4.18 M&ASS&C Technologies Inc. 07/08/15 3,130 2,230 325 0.75 99.50 4.26 M&ABELK Inc. 12/10/15 3,000 1,500 475 1.00 89.00 11.39 M&APharmaceutical Product Development 08/18/15 2,875 2,575 325 1.00 99.50 4.90 Div. RecapXPO Logistics Inc. 10/30/15 2,600 1,600 450 1.00 98.00 5.74 M&A
Chemours Co. 05/12/15 2,500 1,500 300 0.75 99.50 7.04 M&AAcademy Sports & Outdoors 07/02/15 2,475 1,825 400 1.00 99.50 7.57 GCPOID – Original issue discount. GCP – General corporate purposes. Source: Thomson Reuters LPC, Fitch Ratings.
57The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Largest ABL Deals — 2015
Borrower NameDate of Transaction
Total Deal Amount ($ Mil.)
Specific ABL Facility
ABL Amount ($ Mil.)
ABL Pricing (bps)
Commitment Fee (bps) Purpose
Albertson’s Inc. 12/21/15 4,000 Revolver 4,000 150 40.0 GCPRite Aid Corp. 01/03/15 3,700 Revolver 3,700 200 37.5 GCPAlbertson’s Inc. 01/30/15 3,000 Revolver 3,000 175 37.5 GCPAshtead Group Plc 07/27/15 2,600 Revolver 2,600 175 25.0 GCPUnited Rentals 03/31/15 2,497 Revolver 2,300 150 25.0 GCPSears Holdings Corp. 07/21/15 1,971 Revolver 1,971 375 50.0 GCPUnited States Steel 07/27/15 1,500 Revolver 1,500 150 37.5 GCPInterpool Inc. 12/10/15 1,250 Revolver 1,250 200 25.0 GCPUS Foodservice 10/20/15 1,300 Revolver 1,025 150 25.0 GCPAmerican Tire Distributors Inc. 04/21/15 1,110 Revolver 1,110 150 20.0 GCPUSA Compression Partners LP 01/12/15 1,110 Revolver 1,110 200 — GCPSothebys Inc. 06/15/15 1,285 Revolver 1,035 200 — GCPUS Foodservice 06/19/15 1,100 Revolver 1,025 175 37.5 GCPXPO Logistics Inc. 10/30/15 2,600 Revolver 1,000 175 — M&AUnivar Inc. 06/30/15 1,400 Revolver 1,000 150 37.5 GCPABL – Asset-based lending. GCP – General corporate purposes. Source: Thomson Reuters LPC, Fitch Ratings.
Largest Second Lien Deals — 2015
Borrower NameDate of Transaction
Total Deal Amount
($ Mil.)
Second Lien TL Amount ($ Mil.)
Second Lien TL Pricing
(bps)LIBOR
Floor (%)Second Lien
TL OID Yield (%) PurposeGoodyear Tire & Rubber Co. 06/15/15 1,000 1,000 300 0.75 — 3.82 GCPBELK Inc. 12/10/15 3,000 600 — — — — LBOMauser AG 06/24/15 504 402 775 1.00 — 15.52 GCPDeltek Systems Inc. 06/25/15 1260 390 850 1.00 99.0 11.49 Div. RecapLions Gate Entertainment Inc. 03/17/15 375 375 — — — 9.50 GCPFULLBEAUTY Brands Inc. 10/14/15 1265 345 900 1.00 87.0 15.35 LBOTransFirst Holdings Inc. 06/09/15 1,150 320 800 — — 8.60 GCPIPC Systems Inc. 02/06/15 925 305 950 1.00 92.0 21.30 LBOHostess Brands 08/03/15 1,325 300 750 1.00 99.5 10.13 Div. RecapW&T Offshore 05/11/15 300 300 — — 99.0 — GCPVine Oil & Gas LP 03/31/15 850 284 900 1.00 90.0 — M&AArena Energy LLC 07/24/15 280 280 700 — — — GCPUS Renal Care Inc. 11/17/15 2,165 265 800 1.00 98.0 9.75 M&AProtection One Alarm Monitoring Inc. 07/01/15 1,450 260 875 1.00 98.5 — LBOTL – Term loan. OID – Original issue discount. GCP – General corporate purposes. Source: Thomson Reuters LPC, Fitch Ratings.
58The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Largest DIP Loan Deals — 2015
Borrower Name Date of TransactionDIP Facility
Amount ($ Mil.) Industry
Alpha Natural Resources LLC 08/06/15 692 Mining
LightSquared Inc. 02/25/15 211 Telecom
Standard Register 03/02/15 125 Media
Cal Dive International Inc. 03/03/15 120 Oil & Gas
Taylor Wharton International LLC 10/02/15 60 Manufacturing
DIP – Debtor in possession. Source: Thomson Reuters LPC, Fitch Ratings.
Largest Middle-Market Deals — 2015
Borrower NameDate of Transaction
Total Deal Amount
($ Mil.)
Term Loan B Amount
($ Mil.)
Term Loan B Pricing
(bps)
LIBOR Floor
(%)Term Loan B
OIDYield
(%) Purpose
Walgreens Infusion Services 04/07/15 495 415 500 — — — LBO
Cowlitz Tribal Gaming 12/04/15 483 343 1050 1 93.00 14.20 GCP
CHI Overhead Doors Inc. 07/29/15 475 320 375 1 99.75 5.45 SBO
Spencer Gifts LLC 06/26/15 470 225 425 1 — 6.54 GCP
HelpSystems 10/08/15 465 300 525 1 98.00 — SBO
Plaskolite 11/03/15 458 313 475 1 99.00 6.03 LBO
Bioplan 05/13/15 453 283 475 1 85.00 12.42 M&A
Chemstralia Pty Ltd. 02/26/15 453 402 625 — — 7.45 GCP
AgroFresh Inc. 07/31/15 450 425 475 1 99.50 — M&A
Research Now Group Inc. 03/20/15 440 265 450 1 99.50 6.61 SBO
Osmose Holdings Inc. 08/21/15 440 285 375 1 99.50 6.13 SBO
At Home Holding III Inc. 06/05/15 430 300 400 1 99.00 6.76 Refinance
Charter NEX Films Inc. 01/30/15 430 270 425 1 99.00 5.75 SBO
OID – Original issue discount. GCP – General corporate purposes. SBO – Shareholder buyout. Source: Thomson Reuters LPC, Fitch Ratings.
59The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Issuance by Industry
0
2
4
6
8
10
12
Leveraged Loan Issuance by Industry — 2015(% of Total Loan Issuance)
Source: Thomson Reuters LPC.
02468
1012141618
Covenant-Lite Loan Issuance by Industry — 2015(% of Covenant-Lite Loan Issuance)
Source: Thomson Reuters LPC, Fitch Ratings.
0
2
4
6
8
10
12
14
Second Lien Loan Issuance by Industry — 2015
(% of Total Second Lien Issuance)
Source: Thomson Reuters LPC, Fitch Ratings.
60The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
DIP Loan Issuance by Industry
DIP – Debtor in possession. Source: Thomson Reuters LPC.
010203040506070
2014
(%)
010203040506070
2015
(%)
0
5
10
15
20
25
30
2009
(%)
0
5
10
15
20
25
30
35
ABL Issuance by Industry — 2015(% of Total Loan Issuance)
ABL – Asset-based loan.Source: Thomson Reuters LPC.
0
5
10
15
20
25
30
35
Latin American Loan Issuance by Industry — 2015(%)
Source: Thomson Reuters LPC.
61The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Canadian Loan Issuance by Industry
Source: Thomson Reuters LPC.
0
5
10
15
20
25
30
35
40
2013
(%)
0
5
10
15
20
25
30
35
40
45
2014
(%)
0
10
20
30
40
50
60
2015
(%)
62The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Issuance by PurposeLeveraged Loan Use of Proceeds
GCP – General corporate purposes. Note: May not add due to rounding. Source: Thomson Reuters LPC.
GCP44%
2007
M&A 22%
Refinancing32%
Dividend3%
GCP23%
2014
M&A 17%
Refinancing57%
Dividend2%
GCP18%
2015
M&A 30%
Refinancing50%
Dividend2%
0
5
10
15
20
25
30
35
40
45
50
0
50
100
150
200
250
300
350
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(%)($ Bil.) GCP Issuance % of Total Leveraged Loan Issuance
GCP – General corporate purposes.Source: Thomson Reuters LPC.
Leveraged Loan Use of Proceeds — General Corporate Purposes
0
10
20
30
40
50
60
70
0
100
200
300
400
500
600
700
800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Refinancing Issuance % of Total Leveraged Loan Issuance
Leveraged Loan Use of Proceeds — Refinancing
($ Bil.)
Source: Thomson Reuters LPC.
(%)
63The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
0
5
10
15
20
25
30
35
0
50
100
150
200
250
300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
M&A Issuance % of Total Leveraged Loan Issuance
Leveraged Loan Use of Proceeds — M&A/LBO
($ Bil.)
Source: Thomson Reuters LPC.
(%)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
0
10
20
30
40
50
60
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Dividend Issuance % of Total Leveraged Loan Issuance
Leveraged Loan Use of Proceeds — Dividends
($ Bil.)
Source: Thomson Reuters LPC.
(%)
Second Lien Issuance by Purpose
GCP – General corporate purposes. SBO – Shareholder buyout. Note: May not add due to rounding. Source: Thomson Reuters LPC.
LBO43%
2007
Takeover4%
Acquisition19%
GCP25%
Dividend Recap.
9%
Debt Repay.2%
Debt Repay.
4%
2014
Corp.Purposes
34%
M&A18%
LBO16%
Dividend Recap.
7%
SBO22%
Debt Repay.
1%
2015
Corp.Purposes
26%
M&A16%
LBO20%
Dividend Recap.
11%
SBO24%
64The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
0
20
40
60
80
100
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GCP Amend and Extends DIP/Exit Fin. M&A Other
ABL Use of Proceeds
(%)
ABL – Asset-based loan. GCP – General corporate purposes. DIP – Debtor in possession.Source: Thomson Reuters LPC.
0
50
100
150
200
250
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Corporate Purposes Debt Repayment M&A Working Capital Other
Middle-Market Loan Use of Proceeds
($ Bil.)
Source: Thomson Reuters LPC.
Latin American Loan Use of Proceeds
Source: Thomson Reuters LPC.
Project Finance
11%
Other7%
2013
Corporate Purposes
72%
AcquisitionLine10%
Project Finance
13%
Other9%
Working Capital14%
2014
Corporate Purposes
59%
AcquisitionLine5%
Project Finance
16%
Other5%
Working Capital
1%
2015
Corporate Purposes
77%
AcquisitionLine1%
65The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Pricing
0
200
400
600
800
1,000
1,200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
BB B
Institutional Loan Pricing by Rating
(bps)
Source: Thomson Reuters LPC.
Statistics:High (BB): 760 bps (2008)Low (BB): 179 bps (2006)Avg. (BB): 338 bpsHigh (B): 1,076 bps (2008)Low (B): 253 bps (2006)Avg. (B): 471 bps
0
2
4
6
8
10
12
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
LIBOR/LIBOR Floor LIBOR Spread OID
Institutional Loan Yield Components
(%)
OID – Original issue discount. Source: Thomson Reuters LPC.
0
100
200
300
400
500
600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
BB B
Pro Rata Loan Pricing by Rating
(bps)
Note: No pro rata ‘B’ data points from 2008 to 2009 available. Source: Thomson Reuters LPC.
Statistics:High (BB): 394 bps (2009)Low (BB): 141 bps (2007)Avg. (BB): 272 bpsHigh (B): 484 bps (2012)Low (B): 200 bps (2007)Avg. (B): 353 bps
66The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
300
350
400
450
500
550
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Covenant-Lite Loan Pricing(bps)
Source: Thomson Reuters LPC, Fitch Ratings.
Statistics:High: 500 bps (2012)Low: 335 bps (2007)Avg: 439 bps
0
200
400
600
800
1,000
1,200
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
First Lien Drawn Second Lien Drawn
Second Lien Loan Pricing — First Lien Versus Second
(bps)
aNo data points to record from first-quarter 2008 to fourth-quarter 2010. bNo data points to record from fourth-quarter 2007 to fourth-quarter 2010. Source: Thomson Reuters LPC.
a b
Statistics (Second Lien):High: 1,022 bps (2011)Low: 577 bps (2007)Avg.: 756 bps
150
200
250
300
350
400
450
1Q05 4Q05 3Q06 2Q07 1Q08 4Q08 3Q09 2Q10 1Q11 4Q11 3Q12 2Q13 1Q14 4Q14 3Q15
ABL Pricing(bps)
ABL – Asset-based loan. Source: Thomson Reuters LPC.
Statistics:High: 432 bps (1Q09)Low: 162 bps (2Q07)Avg: 236 bps
67The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
0
100
200
300
400
500
600
700
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Average Revolver Spreads Average First Lien Spreads
Middle-Market Loan Pricing (Revolver/Term Loan)
(bps)
Note: Data not avaliable for average first lien spreads prior to 2002.Source: Thomson Reuters LPC.
Statistics (Avg. First Lien Spreads):High: 650 bps (2009)Low: 307 bps (2006)Avg.: 450 bps
0
2
4
6
8
10
12
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
LIBOR/LIBOR Floor Spread OID
Middle-Market Loan Yield Components
(%)
OID – Original issue discount. Source: Thomson Reuters LPC.
0
100
200
300
400
500
600
700
800
900
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
DIP Loan Pricing(bps)
DIP – Debtor in possession. Source: Thomson Reuters LPC, Fitch Ratings.
Statistics:High: LIBOR 831 (2015)Low: LIBOR 400 (2004)Avg.: LIBOR 579
68The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Maturities
0
50
100
150
200
250
300
2016 2017 2018 2019 2020 2021 2022 andBeyond
($ Bil.)
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Bloomberg.
Leveraged Loan Maturity Schedule
Institutional Leveraged Loan Maturity Schedule by Industry($ Bil.)
Industry 2016 2017 2018 2019 2020 20212022 and
BeyondAutomotive 1.6 3.2 3.1 3.5 2.5 8.5 2.0Banking & Finance 0.4 0.7 3.7 4.2 15.2 15.1 6.2Broadcasting & Media 1.9 0.5 1.3 8.3 16.3 4.1 1.9Building & Materials 0.0 0.3 0.8 0.2 5.0 2.5 4.7Cable 0.1 0.7 0.2 3.3 2.5 3.3 8.9Chemicals 0.1 2.5 2.3 4.6 9.0 6.6 8.7Computers & Electronics 1.6 2.8 12.6 11.7 29.4 19.8 37.5Consumer Products 0.0 1.3 1.2 3.2 2.0 3.6 1.9Energy 0.5 0.2 6.2 4.2 11.4 16.5 3.3Food, Beverage & Tobacco 0.4 1.5 0.5 1.8 3.7 3.0 3.1Gaming, Lodging & Restaurants 0.0 0.3 2.9 5.4 7.9 14.9 0.7Healthcare & Pharmaceutical 1.7 5.7 12.4 17.1 10.3 34.9 22.0Industrial & Manufacturing 0.5 1.9 0.8 3.9 7.1 13.7 5.8Insurance 0.8 0.3 0.5 4.0 2.9 1.9 5.3Leisure & Entertainment 0.3 0.0 1.7 2.5 11.0 6.8 6.3Metals & Mining 0.2 2.2 2.4 2.9 5.8 1.1 2.7Paper & Containers 0.2 0.0 0.0 0.8 4.8 2.4 3.9Real Estate 0.0 0.0 0.7 0.4 1.9 1.7 3.1Retail 0.2 2.1 4.9 7.7 13.2 15.0 18.4Services & Miscellaneous 2.0 3.7 13.6 19.6 19.5 46.0 26.3Supermarkets & Drug Stores 0.1 0.0 0.6 2.9 1.8 2.1 5.1Telecommunications 0.1 0.1 0.9 9.3 16.8 9.3 7.7Textiles & Furniture 0.2 0.4 0.3 2.1 3.0 2.3 2.1Transportation 1.3 1.3 3.2 7.5 11.5 11.8 6.7Utilities, Power & Gas 0.0 0.6 4.1 2.9 7.7 4.1 5.6Total 14.2 32.3 80.9 133.9 222.0 250.8 199.8
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Bloomberg.
69The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
0
10
20
30
40
50
60
70
80
90
2016 2017 2018 2019 2020
ABL Maturity Schedule($ Bil.)
ABL – Asset-based loan.Source: Thomson Reuters LPC.
0
10
20
30
40
50
60
2016 2017 2018 2019 2020 2021 2022
Middle-Market Loan Maturity Schedule($ Bil.)
Note: Includes both sponsor and nonsponsor maturities. Source: Thomson Reuters LPC.
0 2 4 6 8 10 12 14 16 18
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Average DIP Loan Tenor
(Months)DIP – Debtor in possession. Source: Thomson Reuters LPC.
70The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Secondary Bids
50
60
70
80
90
100
110
Overall Market Average Bid SMi 100
Leveraged Loan Secondary Bids
(% of Par)
Source: Thomson Reuters SMi.
Statistics:High (Overall): 99.34 (July 2014)Low (Overall): 60.19 (December 2008)Avg. (Overall): 93.60High (SMi 100): 100.78 (March 2006)Low (SMi 100): 62.78 (December 2008)Avg. (SMi 100): 95.30
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
50
60
70
80
90
100
110
Covenant-Lite Avg. Overall Bid SMi 100
Covenant-Lite Loan Secondary Bids
(% of Par)
Source: Thomson Reuters LPC.
Statistics (Cov-Lite):High: 101.0 (February 2007)Low: 57.7 (December 2008)Avg: 92.42
2007 2008 2009 2010 2011 2012 2013 2014 2015
20
30
40
50
60
70
80
90
100
110
Second Lien TL Average Market Bid SMi 100
Second Lien Loan Secondary Bids
(% of Par)
TL – Term loan. Source: Thomson Reuters SMi.
Statistics (Second Lien):High: 99.3 (March 2007)Low: 36.3 (March 2009)Avg.: 83.4
2007 2008 2009 2010 2011 2012 2013 2014 2015
71The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
50
60
70
80
90
100
110
Middle Market (MM) SMi100 Overall Bid
Middle-Market Loan Secondary Bids
(% of Par)
Source: Thomson Reuters LPC.
Statistics (MM):High: 99.7 (June 2007)Low: 71.0 (March 2009)Avg.: 92.6
2007 2008 2009 2010 2011 2012 2013 2014 2015
0
100
200
300
400
500
600
700
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Loan Trading Volumes($ Bil.)
Source: LSTA, 2000–2005 trading volumes sourced from Thomson Reuters LPC.
Statistics:High: $628 Bil. (2014)Low: $102 Bil. (2000)Avg.: $347 Bil.
72The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Retail Funds
0
20
40
60
80
100
120
140
160
180
200
2007 2008 2009 2010 2011 2012 2013 2014 2015
Loan Retail Funds — Assets Under Management($ Bil.)
Note: Assets under management include both exchange-traded funds (ETFs) and managed funds. Source: Thomson Reuters LPC, Lipper FMI.
$174 Bil.
$24 Bil.
(30)
(20)
(10)
0
10
20
30
40
50
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Loan Retail Fund Flows
($ Bil.)
Note: Assets under management include both exchange-traded funds (ETFs) and managed funds. Source: Lipper FMI.
Statistics:High: $52 Bil. (2013)Low: ($24) Bil. (2014)Avg.: $5 Bil.
(7.0)
(6.0)
(5.0)
(4.0)
(3.0)
(2.0)
(1.0)
0.0
1.0
Monthly Loan Retail Fund Flows — 2015
($ Bil.)
Source: Lipper FMI.
Statistics:High: $0.5 Bil. (May)Low: ($5.9) Bil. (December)Avg: ($1.8) Bil.
73The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Top 10 Largest Outflows/Inflows — 2015Outflows Inflows
Rank Week Ending Total ($ Mil.) Week Ending Total ($ Mil.)
1 12/16/15 (3,811) 10/21/15 3,343
2 12/09/15 (3,460) 02/11/15 2,935
3 07/01/15 (2,980) 01/28/15 2,800
4 06/17/15 (2,890) 02/04/15 2,670
5 05/06/15 (2,745) 11/04/15 2,048
6 06/10/15 (2,560) 10/28/15 2,035
7 09/30/15 (2,152) 02/18/15 1,642
8 03/11/15 (1,956) 10/14/15 1,476
9 11/11/15 (1,800) 04/08/15 1,350
10 07/29/15 (1,722) 07/15/15 1,230
Source: Lipper FMI.
Top 10 Largest Outflows/Inflows — All TimeOutflows Inflows
Rank Week Ending Total ($ Mil.) Week Ending Total ($ Mil.)
1 12/16/15 (3,811) 10/21/15 3,343
2 12/09/15 (3,460) 02/11/15 2,935
3 07/01/15 (2,980) 01/28/15 2,800
4 06/17/15 (2,890) 02/04/15 2,670
5 05/06/15 (2,745) 11/04/15 2,048
6 06/10/15 (2,560) 10/28/15 2,035
7 09/30/15 (2,152) 08/07/13 1,872
8 08/17/11 (2,120) 07/24/13 1,851
9 03/11/15 (1,956) 08/21/13 1,802
10 11/11/15 (1,800) 07/17/13 1,709
Source: Lipper FMI.
74The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Default Rates
0
2
4
6
8
10
12
2007 2008 2009 2010 2011 2012 2013 2014 2015
U.S. Institutional Leveraged Loan Default Rate
($ Bil.)
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Bloomberg.
Statistics:High: 10.5% (2009)Low: 0.2% (2007)Avg.: 2.8%
0
2
4
6
8
10
12
14
2007 2008 2009 2010 2011 2012 2013 2014 2015
BSL LMM
U.S. Institutional Leveraged Loan Default Rate: BSL
(%)
BSL ‒ Broadly syndicated loans. LMM ‒ Large middle market. Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Bloomberg.
0
5
10
15
20
25
30
35
2007 2008 2009 2010 2011 2012 2013 2014
U.S. Institutional Leveraged Loan Cumulative Default Rates by Vintage (%)
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Bloomberg.
75The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
0 1 2 3 4 5 6 7 8 9
Total MarketInsurance
Computers & ElectronicsFood, Beverage & Tobacco
Supermarkets & Drug StoresIndustrial/Manufacturing
Healthcare & PharmaceuticalServices & Miscellaneous
TelecommunicationsTextiles & FurnitureConsumer Products
TransportationRetail
EnergyMetals & Mining
AutomotiveLeisure & Entertainment
Paper & ContainersCable
Banking & FinanceGaming, Lodging & Restaurants
Building & MaterialsBroadcasting & Media
Real EstateChemicals
Utilities, Power & Gas
Default Rates by Industry — 2007–2015 Average
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Bloomberg.
(%)
Institutional Leveraged Loan Industry Default Rates(%) 2007 2008 2009 2010 2011 2012 2013 2014 2015
2007–2015
Automotive — 2.7 19.3 — — — — — — 2.9Banking & Finance — — 33.4 2.1 0.4 5.8 — — — 4.5Broadcasting & Media — 8.8 19.5 6.0 0.4 1.0 17.6 1.1 0.5 7.1Building & Materials — 13.8 31.2 4.2 — 3.0 1.9 — — 6.9Cable — — 28.1 — — 2.3 — — — 4.2Chemicals — 3.7 44.2 — — — — — — 7.5Computers & Electronics — — 1.9 0.2 — — — 0.2 0.1 0.2Consumer Products — 0.9 8.1 3.2 0.5 1.6 — — 3.5 2.0Energy — 1.7 2.6 — — 2.1 1.1 — 9.8 2.2Food, Beverage & Tobacco — 1.2 0.8 — — 0.3 — — — 0.2Gaming, Lodging & Restaurants — 13.4 2.5 3.9 0.6 4.1 2.5 2.1 13.0 5.0Healthcare & Pharmaceutical 0.2 0.3 1.0 1.7 — 0.4 0.1 0.3 2.3 0.8Industrial/Manufacturing — — 4.0 1.9 — — — — — 0.6Insurance — — — — — — — — — —Leisure & Entertainment 1.3 — 32.8 — 1.5 2.6 — 0.8 — 4.1Metals & Mining 1.1 — 4.1 — — — — 2.3 12.9 2.4Paper & Containers 1.3 1.9 11.8 2.9 12.9 — — — — 4.1Real Estate — 19.8 21.1 0.9 — — — — — 7.2Retail 3.1 — 4.8 5.8 2.9 4.2 0.6 0.2 0.5 2.1Services & Miscellaneous — 1.2 0.6 1.0 — 2.5 1.2 1.9 0.6 1.0Supermarkets & Drug Stores — — 4.2 — — — — — — 0.3Telecommunications — 2.0 5.2 — 0.5 2.5 — 1.9 — 1.3Textiles & Furniture — 3.7 8.1 — 2.5 — — — — 1.8Transportation — 4.6 1.2 — 0.1 9.8 1.0 3.3 — 2.0Utilities, Power & Gas — — — 5.7 0.2 1.5 — 50.9 — 7.8Total Index 0.2 2.9 10.5 1.9 0.6 1.8 1.6 3.2 1.7 2.8
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Bloomberg.
76The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
2015 U.S. Institutional Leveraged Loan DefaultsMonth Issuer
Par Value ($ Mil.)
Default Date
Default Source Industry
January 2015 Caesars Entertainment Operating Co. 5,358.8 01/15/15 Chapter 11 Filing Gaming, Lodging & RestaurantsSubtotal 5,358.8
February 2015 RadioShack Corp. 250.0 02/05/15 Chapter 11 Filing RetailAltegrity Inc. 275.0 02/08/15 Chapter 11 Filing Services & MiscellaneousSubtotal 525.0
March 2015 Cal Dive International Inc. 80.0 03/03/15 Chapter 11 Filing EnergyStandard Register 214.4 03/12/15 Chapter 11 Filing Consumer ProductsQuicksilver Resources Inc. 625.0 03/17/15 Chapter 11 Filing EnergySubtotal 919.4
April 2015 EveryWare Global Inc. 248.6 04/07/15 Chapter 11 Filing Consumer ProductsSubtotal 248.6
May 2015 Patriot Coal Corp. 250.0 05/12/15 Chapter 11 Filing Metals & MiningSabine Oil and Gas Corp. 700.0 05/21/15 Missed Payment EnergySubtotal 950.0
June 2015 Boomerang Tube LLC 214.0 06/09/15 Chapter 11 Filing Metals & MiningEdmentum Inc. 140.0 06/10/15 Distressed Exchange Computers & ElectronicsSubtotal 354.0
July 2015 Walter Energy Inc. 978.2 07/15/15 Chapter 11 Filing Metals & MiningCore Entertainment Inc. 160.0 07/15/15 Missed Payment Broadcasting & MediaSubtotal 1,138.2
August 2015 Alpha Natural Resources Inc. 610.9 08/03/15 Chapter 11 Filing Metals & MiningAmerican Seafoods Group LLC 281.5 08/20/15 Distressed Exchange Services & MiscellaneousWilton Holdings Inc. 283.4 08/24/15 Distressed Exchange Services & MiscellaneousNYDJ Apparel LLC 50.0 08/25/15 Distressed Exchange RetailUnivita Health Inc. 200.0 08/28/15 Chapter 7 Filing Healthcare & PharmaceuticalsSubtotal 1,425.8
September 2015 Samson Resources Co. 1,000.0 09/16/15 Chapter 11 Filing EnergySubtotal 1,000.0
October 2015 Miller Energy Resources Inc. 175.0 10/01/15 Chapter 11 Filing EnergyElo Touch Solutions Inc. 15.0 10/09/15 Distressed Exchange Computers & ElectronicsMMM Holdings Inc. 352.0 10/30/15 Missed Payment Healthcare & PharmaceuticalsSubtotal 542.0
November 2015 Essar Steel Algoma Inc. 375.0 11/09/15 Chapter 15 Filing Metals & MiningMillennium Health LLC 1,775.0 11/10/15 Chapter 11 Filing Healthcare & PharmaceuticalsSubtotal 2,150.0
December 2015 Vantage Drilling Co. 664.8 12/03/15 Chapter 11 Filing EnergyEnergy & Exploration Partners Inc. 765.3 12/07/15 Chapter 11 Filing EnergyMagnum Hunter Resources Corp. 336.6 12/15/15 Chapter 11 Filing EnergySubtotal 1,766.7
Source: Fitch U.S. Leveraged Loan Default Index.
77The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Post-Default Prices
Institutional Leveraged Loan 30-Day Post-Default Pricesa
First Lien(%) Bond and Loan-OnlyDefault Year First Lien Second Lien BSL LMM Cov-Lite Loan Issuers Issuers2007 88.8 41.3 88.8 — — 88.8 —2008 49.4 18.5 48.0 58.6 37.6 45.3 56.42009 54.9 31.9 56.1 39.7 42.0 63.0 42.12010 77.9 12.1 84.7 64.9 — 82.7 76.52011 60.5 13.5 68.9 54.5 — 97.5 49.22012 65.5 26.5 67.3 60.0 59.0 68.9 64.52013 69.4 40.0 68.8 93.6 54.1 71.5 66.72014 78.4 53.3 78.5 77.6 — 78.3 80.12015 49.9 49.6 52.3 39.0 32.9 53.3 44.32007–2015 61.7 34.0 62.5 55.2 44.0 65.6 55.4
Observations ($ Bil.)2007 0.8 0.4 0.8 — — 0.8 —2008 16.7 1.5 14.4 2.3 0.9 10.5 6.22009 48.1 2.3 44.7 3.4 4.1 29.4 18.62010 7.3 1.8 4.8 2.5 — 1.6 5.72011 1.0 0.4 0.4 0.6 — 0.2 0.72012 9.3 0.9 6.9 2.3 2.9 2.1 7.22013 9.1 0.2 8.9 0.2 1.7 5.2 4.02014 24.0 2.3 22.6 1.4 — 21.7 2.32015 9.8 2.2 8.0 1.8 4.3 6.2 3.62007–2015 126.1 11.8 111.7 14.5 13.8 77.7 48.4aPar weighted and based on market prices post default. The date above is specific to defaulted loans with price data. BSL – Broadly syndicated loans. LMM – Large middle market. Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
Institutional Leveraged Loan 30-Day Post-Default Prices by Industrya
First LienBond and Loan-Only
(%) First Lien Second Lien BSL LMM Cov-Lite Loan Issuers Issuers ($ Bil.)2014Telecommunications 100.0 — 100.3 99.0 — 100.3 99.0 0.7Metals & Mining 99.9 — — 99.9 — 99.9 — 0.3Retail 93.8 — — 93.8 — — 93.8 0.1Computers & Electronics 92.8 — — 92.8 — 92.8 — 0.1Transportation 90.0 — 90.0 — — — 90.0 1.1Healthcare & Pharmaceutical 89.5 — — 89.5 — — 89.5 0.3Broadcasting & Media 82.0 5.0 82.0 — — — 82.0 0.3Utilities, Power & Gas 79.1 60.7 79.1 — — 79.1 — 19.2Services & Miscellaneous 53.8 — 53.8 — — 53.8 — 1.5Gaming, Lodging & Restaurants 40.3 30.0 — 40.3 — — 40.3 0.4
2015Retail — 99.5 — — — — — —Gaming, Lodging & Restaurants 90.5 — 90.5 — — 90.5 — 1.7Services & Miscellaneous 96.8 — 97.5 95.3 — 96.4 97.5 0.8Healthcare & Pharmaceutical 44.9 — 44.9 — 41.7 — 44.9 2.1Metals & Mining 44.2 — 47.1 35.0 53.9 43.2 54.5 2.4Consumer Products 38.0 — — 38.0 — — 38.0 0.2Energy 16.0 48.2 14.5 19.8 13.2 13.2 22.0 2.4Computers & Electronics — 30.8 — — — — — —Broadcasting & Media — 5.0 — — — — — —aPar weighted and based on market prices post default. BSL ‒ Broadly syndicated loans. LMM ‒ Large middle market. Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC, Bloomberg.
78The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
30-Day Post-Default Prices — First Lien ($126.1 Bil.)(% of Par)Default Year
Weighted Avg.
Straight Avg. Median Tranches
2007 88.8 92.9 92.9 22008 49.4 59.0 65.8 322009 54.9 52.5 48.1 682010 77.9 71.8 75.3 232011 60.5 62.3 53.8 62012 65.5 66.2 68.5 242013 69.4 72.1 73.9 152014 78.4 78.9 82.0 152015 49.9 50.6 43.2 162007–2015 61.7 61.4 66.1 201
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
0
5
10
15
20
25
Distribution
(% Tranches)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 61.7%, Median 66.1%
30-Day Post-Default Prices — Second Lien ($11.8 Bil.)(% of Par)Default Year
Weighted Avg.
Straight Avg. Median Tranches
2007 41.3 41.6 41.6 22008 18.5 16.5 15.0 112009 31.9 24.2 11.3 182010 12.1 12.3 10.8 82011 13.5 29.6 24.8 42012 26.5 21.1 8.6 62013 40.0 40.0 40.0 12014 53.3 39.3 43.4 42015 49.6 52.1 54.8 72007–2015 34.0 26.3 15.0 61
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
05
1015202530354045
Distribution
(% Tranches)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 34.0%, Median 15.0%
30-Day Post-Default Prices — First Lien BSL ($111.7 Bil.)(% of Par)Default Year
Weighted Avg.
Straight Avg. Median Tranches
2007 88.8 92.9 92.9 22008 48.0 55.9 57.0 192009 56.1 55.8 56.2 472010 84.7 83.5 83.2 112011 68.9 80.1 80.1 22012 67.3 68.1 68.5 142013 68.8 68.8 71.0 132014 78.5 74.3 79.0 92015 52.3 55.8 49.3 102007–2015 62.5 63.2 67.0 127
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
02468
101214161820
Distribution
(% Tranches)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 62.5%, Median 67.0%
79The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
30-Day Post-Default Prices — First Lien LMM ($14.5 Bil.)(% of Par)Default Year
Weighted Avg.
Straight Avg. Median Tranches
2007 — — — 02008 58.6 63.4 67.0 132009 39.7 45.3 40.0 212010 64.9 61.0 69.9 122011 54.5 53.3 43.9 42012 60.0 63.6 66.6 102013 93.6 93.6 93.6 22014 77.6 85.9 93.3 62015 39.0 41.8 30.9 62007–2015 55.2 58.3 55.3 74
LMM – Large middle market. Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
0
5
10
15
20
25
30
Distribution
(% Tranches)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 55.2%, Median 55.3%
30-Day Post-Default Prices — First Lien Loans and Bonds ($77.7 Bil.)(% of Par)Default Year
Weighted Avg.
Straight Avg. Median Tranches
2007 88.8 92.9 92.9 22008 45.3 63.8 70.0 112009 63.0 61.7 66.1 332010 82.7 78.6 93.0 52011 97.5 97.5 97.5 22012 68.9 81.4 94.0 52013 71.5 78.2 84.3 42014 78.3 76.6 79.0 92015 53.3 49.4 42.4 102007–2015 65.6 66.9 73.4 81
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
0
5
10
15
20
25
30
35
Distribution
(% Tranches)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 65.6%, Median 73.4%
30-Day Post-Default Prices — First Lien Loans Only ($48.4 Bil.)(% of Par)Default Year
Weighted Avg.
Straight Avg. Median Tranches
2007 — — — 02008 56.4 56.5 65.0 212009 42.1 43.8 40.0 352010 76.5 69.8 74.6 182011 49.2 44.6 43.9 42012 64.5 62.2 66.7 192013 66.7 69.9 71.0 112014 80.1 82.4 89.8 62015 44.3 52.5 48.1 62007–2015 55.4 57.6 57.5 120
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
02468
1012141618
Distribution
(% Tranches)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 55.4%, Median 57.5%
80The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
30-Day Post-Default Prices — First Lien Covenant Lite ($13.8 Bil.)(% of Par)Default Year
Weighted Avg.
Straight Avg. Median Tranches
2007 — — — 02008 37.6 37.6 37.6 12009 42.0 33.5 34.2 82010 — — — 02011 — — — 02012 59.0 60.4 57.8 52013 54.1 58.8 39.1 52014 — — — 02015 32.9 33.0 30.7 62007–2015 44.0 44.0 39.1 25
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
0
5
10
15
20
25
30
35
40
Distribution
(% Tranches)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 44.0%, Median 39.1%
81The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Emergence Prices
Institutional Leveraged Loan Emergence Pricesa
First Lien(%) Bond and Loan-OnlyDefault Year First Lien Second Lien BSL LMM Cov-Lite Loan Issuers Issuers2007 74.7 20.6 74.7 — — 74.7 —2008 58.6 2.3 59.6 48.2 80.3 70.5 23.32009 78.9 29.2 80.7 55.7 85.7 89.3 55.72010 76.2 6.5 86.5 58.0 — 60.9 81.72011 67.0 55.0 — 67.0 — 78.0 55.02012 57.1 — 58.8 43.5 53.9 54.2 63.92013 77.1 — 76.8 99.5 51.0 87.0 59.02014 70.2 60.8 76.5 47.3 — 90.5 58.72015 46.9 — 41.3 68.5 41.5 69.3 41.12007–2015 72.6 30.2 74.3 55.8 65.3 82.9 53.1
Observations ($ Bil.)2007 0.8 0.4 0.8 — — 0.8 —2008 13.5 1.0 12.4 1.1 0.9 10.1 3.42009 38.8 1.2 36.1 2.8 3.2 26.9 11.92010 3.0 1.1 1.9 1.1 — 0.8 2.22011 0.3 0.0 — 0.3 — 0.2 0.12012 2.1 — 1.9 0.2 1.3 1.5 0.62013 8.0 — 7.9 0.1 1.5 5.2 2.82014 2.7 1.9 2.1 0.6 — 1.0 1.72015 2.5 — 2.0 0.5 1.8 0.5 2.02007–2015 71.8 5.5 65.1 6.7 8.7 46.9 24.9aPar weighted and based on market prices at emergence. The data above is specific to issuers that have emerged from bankruptcy with loan-price data BSL – Broadly syndicated loans. LMM – Large middle market. Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
82The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Emergence Prices — First Lien ($71.8 Bil.)(% of Par)Default Year
Weighted Avg.
Straight Avg. Median Tranches
2007 74.7 83.2 83.2 22008 58.6 50.0 51.9 192009 78.9 74.1 89.3 492010 76.2 73.2 84.0 92011 67.0 66.5 66.5 22012 57.1 57.4 54.9 42013 77.1 66.5 70.0 92014 70.2 74.8 79.0 52015 46.9 53.9 40.8 42007–2015 72.6 67.5 75.3 103
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
0
5
10
15
20
25
30
35
Distribution
(% Tranches)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 72.6%, Median 75.3%
Emergence Prices — Second Lien ($5.5 Bil.)(% of Par)Default Year
Weighted Avg.
Straight Avg. Median Tranches
2007 20.6 20.6 20.6 22008 2.3 2.5 2.0 62009 29.2 15.1 5.3 102010 6.5 6.2 0.8 42011 55.0 55.0 55.0 12012 — — — 02013 — — — 02014 60.8 61.2 61.2 22015 — — — 02007–2015 30.2 16.4 4.5 25
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
0
10
20
30
40
50
60
70
Distribution
(% Tranches)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 30.2%, Median 4.5%
Emergence Prices — First Lien BSL ($65.1 Bil.)(% of Par)Default Year
Weighted Avg.
Straight Avg. Median Tranches
2007 74.7 83.2 83.2 22008 59.6 44.6 44.6 132009 80.7 78.8 91.2 342010 86.5 88.6 91.2 42011 — — — 02012 58.8 62.1 56.0 32013 76.8 62.4 59.3 82014 76.5 81.0 79.0 32015 41.3 40.8 40.8 22007–2015 74.3 69.4 79.0 69
BSL – Broadly syndicated loan. Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
0
5
10
15
20
25
30
35
40
Distribution
(% Tranches)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 74.3%, Median 79.0%
83The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Emergence Prices — First Lien LMM ($6.7 Bil.)(% of Par)Default Year
Weighted Avg.
Straight Avg. Median Tranches
2007 — — — 02008 48.2 61.7 57.8 62009 55.7 63.6 66.0 152010 58.0 60.8 61.5 52011 67.0 66.5 66.5 22012 43.5 43.5 43.5 12013 99.5 99.5 99.5 12014 47.3 65.5 65.5 22015 68.5 67.0 67.0 22007–2015 55.8 63.8 64.5 34
LMM – Large middle market. Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
0
5
10
15
20
25
30
35
Distribution
(% Tranches)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 55.8%, Median 64.5%
Emergence Prices — First Lien Loans and Bonds ($46.9 Bil.)(% of Par)Default Year
Weighted Avg.
Straight Avg. Median Tranches
2007 74.7 83.2 83.2 22008 70.5 67.8 75.0 102009 89.3 87.8 94.3 282010 60.9 54.3 54.3 22011 78.0 78.0 78.0 12012 54.2 54.9 54.9 22013 87.0 84.3 94.5 42014 90.5 89.3 89.3 22015 69.3 68.0 68.0 22007–2015 82.9 80.2 92.0 53
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
0
10
20
30
40
50
60
Distribution
(% Tranches)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 82.9%, Median 92.0%
Emergence Prices — First Lien Loans Only ($24.9 Bil.)(% of Par)Default Year
Weighted Avg.
Straight Avg. Median Tranches
2007 — — — 02008 23.3 30.1 25.8 92009 55.7 55.9 46.0 212010 81.7 78.5 84.0 72011 55.0 55.0 55.0 12012 63.9 59.9 59.9 22013 59.0 52.3 39.1 52014 58.7 65.2 64.5 32015 41.1 39.8 39.8 22007–2015 53.1 54.1 49.0 50
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
0
5
10
15
20
25
Distribution
(% Tranches)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 53.1%, Median 49.0%
84The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Emergence Prices — First Lien Covenant Lite ($8.7 Bil.)(% of Par)Default Year
Weighted Avg.
Straight Avg. Median Tranches
2007 — — — 02008 80.3 80.3 80.3 12009 85.7 79.5 94.8 72010 — — — 02011 — — — 02012 53.9 53.9 53.9 12013 51.0 53.0 39.1 42014 — — — 02015 41.5 41.5 41.5 12007–2015 65.3 67.4 73.2 14
Source: Fitch U.S. Leveraged Loan Default Index, Thomson Reuters LPC.
05
10152025303540
Distribution
(% Tranches)
Source: Fitch U.S. Leveraged Loan Default Index.
Average 65.3%, Median 73.2%
85The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
No. of Closed Deals No. of Exits
Private Equity Investments and Exits
(No.)
Source: Pitchbook Data, Inc.
0
20
40
60
80
100
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Business Services (B2B) Consumer Products and Services (B2C)Energy Financial ServicesHealthcare and Pharma Information Technology (IT)Materials and Resources
Private Equity Investments by Industry
(%)
Source: Pitchbook Data, Inc.
0
2
4
6
8
10
12
14
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Median Transaction Multiples(x)
Source: Pitchbook Data, Inc.
Statistics:High: 11.1x (2014)Low: 7.3x (2009)Avg.: 9.5x
Private Equity and Leveraged Buyout
86The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
0
2
4
6
8
10
12
14
16
18
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
All Private Equity — Median Net IRRs by Vintage Year(%)
Source: Preqin.
Statistics:High: 14.3% (2009)Low: 6.9% (2005)Avg.: 10.8%
Private Equity Dry Powder by Fund Type($ Bil., Years Ended Dec. 31)
Year Buyout Distressed Real Estate
2003 185.3 20.5 39.0
2004 176.6 18.2 55.1
2005 257.9 20.2 98.1
2006 378.6 36.0 132.6
2007 438.2 60.1 166.9
2008 481.5 55.0 171.4
2009 480.8 54.5 180.5
2010 422.9 67.1 154.3
2011 387.9 71.0 166.9
2012 352.8 63.5 156.6
2013 399.0 74.0 186.1
2014 447.4 80.7 197.1
2015a 480.6 84.2 243.7aData as of Sept. 30, 2015. Source: Preqin.
87The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Select Private Equity Transactions by FirmAcquisition Year
Target Total Purchase Price ($ Mil.)
Purchase Price Multiple (x) Status
Kohlberg Kravis RobertsEnergy Future Holdings Corp. 2007 43,218 7.9 BankruptHCA Inc. 2006 32,193 8.3 ExitedRJR Nabisco Inc. 1988 30,062 N.A. ExitedFirst Data Corp. 2007 27,497 14.6 CurrentAlliance Boots Holdings Ltd. 2007 23,351 30.8 ExitedBiomet Inc. 2006 11,427 16.2 ExitedNielsen Co. BV 2006 10,643 15.9 CurrentSunGard Data Systems Inc. 2005 10,592 10.1 CurrentCapmark Financial Group Inc. 2005 8,800 N.A. CurrentToys ‘R’ Us Inc. 2005 7,544 11.4 CurrentDollar General Corp. 2007 7,321 16.3 ExitedSamson Investment Co. 2011 7,200 N.A. CurrentUS Foodservice 2007 7,100 25.7 ExitedDel Monte Foods Co. 2010 5,099 8.3 CurrentIntelsat Corp. 2004 4,681 7.87 Exited
The Blackstone GroupEquity Office Properties Trust 2006 34,102 18.3 CurrentHilton Worldwide Inc. 2007 26,235 15.3 ExitedFreescale Semiconductor Inc. 2006 16,222 11.2 ExitingBiomet Inc. 2006 11,427 16.2 ExitedNielsen Co. BV 2006 10,643 15.9 CurrentSunGard Data Systems Inc. 2005 10,592 10.1 CurrentMichaels Stores Inc. 2006 5,523 11.7 ExitedGates Global Inc. 2014 5,400 9.6 CurrentTRW Automotive Holdings Corp. 2002 4,700 N.A. ExitedTravelport Ltd. 2006 4,300 N.A. ExitedNALCO 2003 4,235 N.A. ExitedExtended Stay America Inc. 2010 3,925 17.5 ExitedThe Weather Channel LLC 2008 3,500 N.A. CurrentCatalent Pharma Solutions, Inc. 2007 3,320 N.A. ExitedSeaWorld Parks & Entertainment 2009 2,300 N.A. Exited
TPG CapitalEnergy Future Holdings Corp. 2007 43,218 7.9 BankruptCaesars Entertainment (f/k/a Harrah’s Entertainment Inc.) 2006 27,160 11.6 BankruptAlltel Corp. 2007 27,149 10.8 ExitedFreescale Semiconductor Inc. 2006 16,222 11.2 ExitingUnivision Communications Inc. 2006 12,606 19.5 CurrentBiomet Inc. 2006 11,427 16.2 ExitedSunGard Data Systems Inc. 2005 10,592 10.1 CurrentAvaya Inc. 2007 7,044 10.8 CurrentN.A. – Not available. Continued on next page Source: Bloomberg, Fitch Ratings.
Largest Private Equity Sponsors• ABRY Partners • Apollo Global Management • Audax Group • HarbourVest Partners• Kelso & Co. • Berkshire Partners • Genstar Capital • Warbug Pincus• The Blackstone Group • AEA Investors • Cornerstone Holdings • Housatonic Partners• Summit Partners • The Carlyle Group • Vista Equity Partners
Source: Pitchbook Data, Inc.
Common Private Equity Fund Investors• Funds of Funds • Pension • Insurance • Foreign Investor• ETFs • Endowments/Foundations • Investment Banks • Wealthy Founder/Individual
ETFs – Exchange-traded funds. Source: Fitch Ratings.
88The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
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Select Private Equity Transactions by Firm (Continued)Acquisition Year
Target Total Purchase Price ($ Mil.)
Purchase Price Multiple (x) Status
TPG Capital (Cont.)Washington Mutual Inc. 2008 7,040 N.A. ExitedIMS Health Inc. 2009 5,057 9.4 ExitedThe Neiman Marcus Group Inc. 2005 5,044 9.6 ExitedSabre Holdings Corp. 2006 4,998 12.1 CurrentLife Time Fitness, Inc. 2015 4,000 10.2 CurrentJ Crew Group Inc. 2010 2,637 8.4 ExitedPar Pharmaceutical Companies, Inc. 2012 1,934 9.0 Current
The Carlyle GroupKinder Morgan Kansas Inc. 2006 27,450 27.4 ExitedFreescale Semiconductor Inc. 2006 16,222 11.2 ExitingNielsen Co. BV 2006 10,643 15.9 CurrentHD Supply Inc. 2007 8,500 N.A. ExitedHCR Manor Care Inc. 2007 5,936 13.2 CurrentThe Hertz Corporation 2005 5,600 N.A. ExitedAllison Transmission Inc. 2007 5,575 N.A. ExitedAcosta Sales & Marketing 2014 4,750 13.0 CurrentDuPont Performance Coatings 2013 4,900 N.A. CurrentIntelsat Corp. 2004 4,681 7.9 ExitedOrtho-Clinical Diagnostics Inc. 2014 4,150 N.A. CurrentNBTY Inc. 2010 3,812 8.1 CurrentCommScope Inc. 2010 3,788 7.8 CurrentHamilton Sundstrand Industrial 2012 3,460 N.A. CurrentPharmaceutical Product Development Inc. 2011 3,449 11.3 Current
Bain CapitalHCA Inc. 2006 32,193 8.3 ExitediHeart Media Inc. (f/k/a Clear Channel Communications Inc.) 2008 25,455 N.A. CurrentSunGard Data Systems Inc. 2005 10,592 10.1 CurrentNXP BV 2006 9,473 N.A. ExitedHD Supply Inc. 2007 8,500 N.A. ExitedToys ‘R’ Us Inc. 2005 7,544 11.4 CurrentBMC Software 2013 6,900 8.2 CurrentMichaels Stores Inc. 2006 5,523 11.7 ExitedThe Weather Channel LLC 2008 3,500 N.A. CurrentBloomin’ Brands, Inc. (f/k/a OSI Restaurant Partners LLC) 2006 3,259 9.8 ExitedNets Holding A/S 2014 3,140 12.4 CurrentWarner Chilcott PLC 2004 2,927 N.A. ExitedWorldPay Ltd. 2010 2,710 N.A. CurrentWarner Music Group Corp. 2003 2,600 N.A. ExitedDunkin’ Brands Inc. 2005 2,425 N.A. Exited
GS Capital PartnersEnergy Future Holdings Corp. 2007 43,218 7.9 BankruptKinder Morgan Kansas Inc. 2006 27,450 27.4 ExitedAlltel Corp. 2007 27,149 10.8 ExitedBiomet Inc. 2006 11,427 16.2 ExitedSunGard Data Systems Inc. 2005 10,592 10.1 CurrentCapmark Financial Group Inc. 2005 8,800 N.A. CurrentARAMARK Corp. 2006 7,999 8.6 ExitedHawker Beechcraft Corp. 2006 3,300 N.A. CurrentEducation Management Corp. 2006 3,124 N.A. CurrentTransUnion Corp. 2012 3,000 8.9 CurrentAdesa Inc. 2006 2,676 9.7 ExitedCCS Corp. 2007 2,556 9.6 ExitedAlliance Atlantis Communications Inc. 2007 2,145 4.4 ExitedHealthMarkets Inc. 2005 1,713 N.A. CurrentMichael Foods Inc. 2010 1,700 N.A. ExitedN.A. – Not available. Source: Bloomberg, Fitch Ratings.
89The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
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0
50
100
150
200
250
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Annual LBO Loan Issuance
($ Bil.)
Source: Thomson Reuters LPC.
Statistics:High: $207 Bil. (2007)Low: $7 Bil. (2009)Avg.: $62 Bil.
Largest LBOs — 2015
Borrower Name Private Equity SponsorDate of
TransactionPurchase
Price ($ Mil.)
Total Debt Amount
($ Mil.)Term Loan B Pricing (bps)
LIBOR Floor
(%)Term Loan
B OIDYield
(%)Petsmart Inc. BC Partners Inc., CDPQ, StepStone 03/11/15 8,700 6,950 325 1 100.00 4.44 Informatica Corp. Canada Pension Plan Investment Board,
Permira Advisors Ltd.08/06/15 5,300 1,855 350 1 99.75 5.28
SIG Combibloc Group AG Onex Corp. 03/03/15 4,120 1,225 325 1 100.00 4.44 Life Time Fitness, Inc. Leonard Green & Partners, TPG Capital 06/05/15 4,000 1,500 325 1 99.50 4.69 Riverbed Technology Inc. Ontario Teachers Pension Plan, Thoma
Cressey Bravo04/24/15 3,600 1,725 500 1 99.50 5.99
Belk Inc. Sycamore Partners 12/10/15 3,000 3,000 475 1 89.00 10.43 TI Automotive Ltd. Bain Capital 06/25/15 2,400 1,090 350 1 99.50 4.86 Standard Aero Veritas Capital 07/07/15 2,100 1,075 425 1 99.50 N.A.Protection One Alarm Monitoring Inc.
Apollo Global Management 07/01/15 1,500 1,450 400 1 99.50 N.A.
Cirque du Soleil CDPQ, Forsun International Ltd., TPG Capital
07/08/15 1,500 905 400 1 99.75 6.84
Hanson Building Products Lone Star Funds 03/13/15 1,400 1,045 550 1 99.00 7.15 USAGM Holdco LLC Warburg Pincus LLC 07/28/15 N.A. 1,280 375 1 99.00 6.03 Gulf Oil ArcLight Capital Partners LLC 07/23/15 N.A. 1,125 425 1 99.50 7.89 Knowledge Universe Education LLC
Partners Group AG 08/13/15 N.A. 925 500 1 98.50 6.46
Penn Product Terminals LLC ArcLight Capital Partners LLC 04/01/15 N.A. 750 375 1 99.50 8.16OID – Original issue discount. CDPQ – Caisse Deport et Placement du Quebec. N.A. – Not available. Source: Thomson Reuters LPC.
90The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
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0
2
4
6
8
10
12
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Debt/EBITDA Equity/EBITDA
Private Equity Purchase Price Multiples
(x)
Source: Pitchbook Data, Inc.
0
10
20
30
40
50
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Equity Contribution Percentage(%)
Source: Thomson Reuters LPC.
Statistics:High: 50.1% (2009)Low: 31.2% (2004)Avg.: 38.8%
91The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
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Largest LBO Deals of All Time
Announcement Date Target Company Private Equity Sponsor
Purchase Price
($ Mil.)
EBITDA Multiple
(x) Industry
02/26/07 Energy Future Holdings Corp. KKR/TPG/GSCP 45,000 7.9 Utilities
11/20/06 Equity Office Properties Trust BX 34,102 18.3 REIT
07/24/06 HCA Inc. Bain/KKR/ML 33,700 8.3 Healthcare & Pharma
10/02/06 Harrah’s Entertainment, Inc. Apollo/TPG 31,200 11.6 Gaming, Lodging & Leisure
10/19/88 RJR Nabisco Inc. KKR 30,062 N.A. Food, Beverage & Tobacco
04/02/07 First Data Corp. KKR 29,700 14.6 Technology
05/21/07 Alltel Corp. GSCP/TPG 27,500 10.8 Telecommunications
07/03/07 Hilton Worldwide Inc. BX 26,000 15.3 Gaming, Lodging & Leisure
11/16/06 Clear Channel Communications Inc. Bain/THO 25,455 N.A. Media & Entertainment
09/27/13 Dell Inc. Michael Dell/Silver Lake Management LLC 24,900 6.9 Technology
03/09/07 Alliance Boots Holdings Ltd. KKR 23,351 30.8 Healthcare & Pharma
06/07/13 H.J. Heinz Company 3G Capital/Bershire Hathaway Inc. 23,200 11.4 Food, Beverage & Tobacco
12/20/07 Tribune Co. Sam Zell 13,400 11.1 Media & Entertainment
05/29/06 Kinder Morgan Kansas Inc. AIG/Carlyle/GSCP/Riverstone 21,600 27.4 Utilities
05/29/07 Archstone-Smith Trust Lehman/Tishman Speyer Properties LP 19,957 27.6 REIT
09/15/06 Freescale Semiconductor Inc. Firestone Holdings LLC 17,600 11.2 Technology
01/23/06 Albertsons LLC Cerberus 16,119 6.6 Retailing
06/27/06 Univision Communications Inc. MDP/Providence/Saban/TPG/THO 12,606 19.5 Media & Entertainment
12/18/06 Biomet Inc. BX/GSCP/KKR/TPG 11,427 16.2 Healthcare & Pharma
03/08/06 Nielsen Co BV AlpInvest/BX/Carlyle/KKR/THO/HF 10,643 15.9 Media & Entertainment
03/28/05 SunGard Data Systems Inc. Bain/BX/GS/KKR/Providence/Silver Lake/TPG 11,700 9.8 Technology
08/03/05 Capmark Financial Group Inc. Five Mile/GSCP/KKR 8,800 N.A. Diversified Services
12/15/14 Petsmart BC Partners 8,700 9.1 Retailing
06/19/07 HD Supply Inc. Bain/Carlyle/CDR 8,500 N.A. Home Building & Building Materials
05/01/06 ARAMARK Corp. GSCP/JPM/THO/Warburg Pincus 8,300 8.6 Food, Beverage & Tobacco
08/11/15 Veritas Software Carlyle 8,000 9.67 Technology
03/17/05 Toys ‘R’ Us Inc. Bain/KKR/Vornado 7,544 11.4 Retailing
03/12/07 Dollar General Corp. KKR 7,321 16.3 Retailing
11/23/11 Samson Investment Co. Crestview/ITOCHU/KKR 7,200 N.A. Energy
KKR – Kohlberg Kravis Roberts. TPG – TPG Capital. GSCP – Goldman Sachs Capital Partners. BX – Blackstone Group LP. Bain – Bain Capital LLC. ML – Merrill Lynch. Apollo – Apollo Global Management. THO – Thomas H. Lee. AIG – American International Group. Carlyle – The Carlyle Group LP. Riverstone – Riverstone Holdings LLC. Lehman – Lehman Brothers. Cerberus – Cerberus Capital Management. MDP – Madison Dearborn Partners LLC. Providence – Providence Equity Partners Inc. Saban – Saban Capital Group. AlpInvest – AlpInvest Partners BV. HF – Hellman & Freidman LLC. GS – Goldman Sachs. Five Mile – Five Mile Capital Partners LLC. CDR – Clayton, Dubilier, & Rice. JPM – JPMorgan. Vornado – Vornado Realty Trust. Crestview – Crestview Partners LP. ITOCHU – ITOCHU Corp. N.A. – Not available. Source: Bloomberg, Fitch Ratings.
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Largest LBO Deals Post-Credit CrisisAnnouncement Date Target Company Private Equity Sponsor
Purchase Price ($ Mil.)
EBITDA Multiple (x) Industry
09/27/13 Dell Inc. Michael Dell/Silver Lake 24,900 6.9 Technology06/07/13 H.J. Heinz Company 3G/Berkshire Hathaway Inc. 23,200 11.4 Food, Beverage & Tobacco12/15/14 Petsmart Inc. BC Partners 8,700 9.1 Retailing11/23/11 Samson Investment Co. Crestview/ITOCHU/KKR 7,200 N.A. Energy07/13/11 Kinetic Concepts Inc. Apax/Canada Pension /Public Sector Pension 5,727 8.9 Healthcare & Pharma04/04/14 Gates Global Inc. BX 5,400 9.6 Industrials11/25/10 Del Monte Foods Co. KKR/Vestar/Centerview Partners 5,300 8.8 Food, Beverage & Tobacco12/10/15 Informatica Corp. Canada Pension Plan Investment Board,
Permira Advisors Ltd.5,300 19.9 Technology
09/26/14 Acosta Inc. Carlyle 4,750 13.0 Business Services02/17/14 Multiplan Inc. Partners Group/Starr Investments 4,400 N.A. Business Services12/05/14 Tibco Software Vista Equity Partners 4,300 18.2 Business Services06/16/14 Advantage Sales & Marketing Leonard Green & Partners/CVC Capital Partners 4,200 N.A. Business Services01/16/14 Ortho-Clinical Diagnostics Inc. Carlyle 4,150 N.A. Healthcare & Pharma03/03/15 SIG Combibloc Group AG Onex Corp. 4,120 8.6 Paper & Packaging09/02/10 Burger King Holdings Inc. 3G/TPG/GSCP/Bain 4,000 9.0 Food, Beverage & Tobacco06/05/15 Life Time Fitness, Inc. Leonard Green & PartnersTPG Capital 4,000 10.6 Gaming, Lodging & Leisure07/27/10 Extended Stay America Inc. BX/Centerbridge/Paulson & Co Inc. 3,925 17.5 Gaming, Lodging & Leisure07/15/10 NBTY Inc. Carlyle 3,812 8.1 Retailing10/25/10 CommScope Inc. Carlyle 3,788 7.8 Technology04/24/15 Riverbed Technology Inc. Ontario Teachers Pension Plan/Thomas Cressey Bravo 3,600 22.2 Technology12/05/12 Hamilton Sundstrand Industrial BC Partners Inc. 3,460 N.A. Industrials10/03/11 Pharmaceutical Product
Development Inc.Carlyle/HF 3,449 11.3 Healthcare & Pharma
10/03/12 Getty Images Inc. Carlyle 3,300 N.A. Media & Entertainment02/06/14 Signode Industrial Group US Inc. Carlyle 3,200 8.5 Industrials03/24/14 Nets Holding A/S Advent International/ATP/Bain Capital 3,140 12.4 Business Services07/09/10 Multiplan Inc. BC Partners Holdings Ltd./Silver Lake 3,100 N.A. Business Services08/04/11 Emdeon Inc. BX 3,013 12.0 Business Services02/17/12 TransUnion Corp. Advent International Corp./GSCP 3,000 8.9 Diversified Services12/10/15 Belk Inc. Sycamore Partners 3,000 13.2 Retailing09/19/12 AOT Bedding Super Holding LLC Advent Private Capital 3,000 8.9 Consumer ProductsSilver Lake – Silver Lake Management LLC. 3G – 3G Capital Inc. Crestview – Crestview Partners LP. ITOCHU – ITOCHU Corp. KKR – Kohlberg Kravis Roberts. Apax – Apax Partners LLP. Canada Pension – Canada Pension Plan Investment Board. Public Sector Pension – The Public Sector Pension Investment Board. BX – Blackstone Group LP. Vestar– Vestar Capital Partners. Carlyle – The Carlyle Group LP. TPG – TPG Capital. GSCP – Goldman Sachs Capital Partners. Bain – Bain Capital LLC. Centerbridge – Centerbridge Capital Partners LLC. HF – Hellman & Freidman LLC. ATP – The ATP Group. N.A. – Not available. Source: Bloomberg, Fitch Ratings.
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0
2
4
6
8
10
12
14
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Median Corporate Acquisition Valuation/EBITDA Exit (x)
Source: Pitchbook Data, Inc.
Statistics:High: 13.0x (2006)Low: 7.0x (2009)Avg.: 8.9x
0
10
20
30
40
50
60
70
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Acquisition Exit Secondary Buyout IPO
Exits by Deal Type
(%)
Source: Pitchbook Data, Inc.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Median Holding Period(Years)
Source: Pitchbook Data, Inc.
Statistics:High: 6.1 years (2014)Low: 3.0 years (2008)Avg.: 4.4 years
94The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
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Select Exits — 2015
Company Seller(s) Exit Type Deal Size
($ Mil.) Freescale Semiconductor BX, Carlyle, Permira, TPG Merger 16,700Suddenlink Communications BC Partners, CCP Investment Board Trade Sale 9,100SunGard Data Systems Inc. Bain, BX, GSMBD, KKR, Providence,
Silver Lake, TPGTrade Sale 9,100
Par Pharmaceutical Companies, Inc. TPG Trade Sale 8,100Big Heart Pet Brands Centerview Capital, KKR,
Vestar Capital PartnersTrade Sale 6,000
Interactive Data Corporation Silver Lake, Warburg Pincus Trade Sale 5,200PETCO Freeman Spogli & Co,
Leonard Green & Partners, TPGSale to GP 4,600
Cardioxyl Pharmaceuticals NEA, OrbiMed, Aurora Funds, Osage University Partners
Trade Sale 2,070
BX – Blackstone Group LP. Carlyle – The Carlyle Group LP. Permira – Permira Advisors Ltd. TPG – TPG Capital. CPP Investment Board – Canada Pension Plan Investment Board. Bain – Bain Capital LLC. GSMBD – Goldman Sachs Merchant Banking Division. KKR – Kohlberg Kravis Roberts. Providence – Providence Equity Partners LLC. Silver Lake – Silver Lake Management LLC. NEA – New Enterprise Associates. Source: Pitchbook Data, Inc., Preqin.
0
50
100
150
200
250
300
0
10
20
30
40
50
60
70
80
90
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Proceeds Raised No. of Deals
Private Equity-Based IPO Volume
($ Bil.)
Source: Renaissance Capital, Greenwich, CT (www.renaissancecapital.com).
(No.)
95The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
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Select Private Equity-Backed IPOs
Company Name Date of IPO Sponsor
Gross IPO Proceeds
($ Mil.) Industry
HCA Inc. 03/01/11 Bain/KKR 3,800 Healthcare & Pharma
Kinder Morgan, Inc. 02/10/11 GSCP/Highstar/Carlyle/Riverstone 2,900 Utilities
Plains GP 10/16/13 First Reserve Corporation 2,816 Energy
First Data Corp. 10/15/15 KKR 2,560 Financial Services
Ally Financial 04/10/14 Cerberus Capital, Oaktree Capital, Sun Capital 2,375 Financial Services
Hilton Worldwide Inc. 12/11/13 BX 2,340 Hotels
Twitter 11/07/13 Rizvi Traverse Management 1,820 Technology
Santander Consumer USA 01/23/14 Centerbridge Partners, KKR, Warburg Pincus 1,800 Financial Services
Nielsen Holdings Inc. 01/01/11 BX/Carlyle/KKR/THO 1,800 Media & Entertainment
Antero Resources Corp. 10/10/13 Trilantic Capital Partners/Warburg Pincus/Yorktown Partners 1,572 Energy
Huntsman Corp. 02/21/05 MatlinPatterson 1,450 Chemicals
Hertz Global Holdings Inc. 11/05/06 CDR/Carlyle/ML 1,320 Finance
IMS Health 04/04/14 TPG/Canada Pension/Leonard Green & Partners 1,300 Technology
Samsonite International S.A. 06/01/11 CVC/Royal Bank of Scotland 1,250 Consumer Products
Realogy Holdings Corp. 10/01/12 Apollo 1,242 Consumer Products
Warner Chilcott PLC 09/21/06 Bain/DLJ Merchant Banking/JPM/THO 1,059 Healthcare & Pharma
COTY Inc. 06/13/13 Berkshire Partners/Rhone Capital 1,000 Retailing
Envision Healthcare Corporation 08/13/13 CDR 966 Healthcare & Pharma
HD Supply Inc. 07/02/13 Bain/CDR/Carlyle 957 Business Services
Quintiles Transnational Holdings 05/08/13 Bain/TPG 947 Healthcare & Pharma
Rice Energy 01/24/14 Natural Gas Partners 924 Energy
Freescale Semiconductor Inc. 05/01/11 BX/TPG/Carlyle/Permira Advisers LLP 783 Technology
Univar Inc. 06/18/15 CVC/Clayton Dubilier & Rice 770 Chemicals
ARAMARK Holdings Corp. 12/12/13 CCMP Capital/GSCP/THO/TPG 725 Business Services
Dollar General Corp. 11/12/09 KKR 716 Retailing
Allison Transmission Holdings Inc. 03/01/12 Carlyle/Onex Corp. 690 Automotive
Transunion 06/25/15 Advent International Corp./GSCP 665 Business Services
La Quinta 04/09/14 BX 650 Hotels
PetroLogistics LP 05/01/12 Lindsay Goldberg LLC 595 Energy
SandRidge Mississippian Trust II 04/01/12 SandRidge Energy, Inc. 590 Energy
Vantiv Inc. 03/01/12 Advent International Corp. 575 Technology
Sensata Technologies Holdings B.V. 03/03/10 Bain 569 Industrials
Rexnord Inc. 03/01/12 Apollo 490 Automotive
Bain – Bain Capital LLC. KKR – Kohlberg Kravis Roberts. GSCP – Goldman Sachs Capital Partners. Highstar – Highstar Capital. Carlyle – The Carlyle Group LP. Riverstone – Riverstone Holdings LLC. BX – Blackstone Group LP. THO – Thomas H. Lee. CDR – Clayton Dublier & Rice Inc. ML – Merrill Lynch. TPG – TPG Capital. Canada Pension – Canada Pension Plan Investment Board. CVC – CVC Capital Partners Group. Apollo – Apollo Global Management. JPM – JPMorgan. Source: Fitch Ratings, Renaissance Capital, Greenwich, CT (www.renaissancecapital.com).
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0
500
1,000
1,500
2,000
2,500
0
50
100
150
200
250
300
350
400
450
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Capital Invested No. of Deals
Middle-Market Private Equity Activity
($ Bil.)
Source: Pitchbook Data, Inc.
(No.)
Middle-Market Private Equity Deal Count by Industry
B2B – Business to business. B2C – Business to consumer. Note: Numbers may not add due to rounding. Source: Pitchbook Data, Inc.
B2B37%
B2C19%
Energy6%
Financial Services
8%
2011
Information Technology
12%
Healthcare13%
Materials and Resources
5%
B2B30%
B2C22%Energy
8%
Financial Services
10%
2015
Information Technology
14%
Healthcare11%
Materials and Resources
5%
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Share of Middle-Market Private Equity Activity
Note: Numbers may not add due to rounding. Source: Pitchbook Data, Inc.
2011
Lower Middle Market
($25 Mil.–$100 Mil.)38%
Core Middle Market
($100 Mil.–$500 Mil.)48%
Upper Middle Market
($500 Mil.–$1 Bil.)14%
2015
Lower Middle Market
($25 Mil.–$100 Mil.)34%
Core Middle Market
($100 Mil.–$500 Mil.)50%
Upper Middle Market
($500 Mil.–$1 Bil.)17%
0
100
200
300
400
500
600
700
800
900
1,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Corp. Acquisition IPO Secondary Buyout
Middle-Market Exit by Type
(No.)
aData as of June 30, 2015.Source: Pitchbook Data, Inc.
a
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0
50
100
150
200
250
300
350
400
0
50
100
150
200
250
300
350
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Capital Raised Funds Closed
Annual Fundraising Volumes
($ Bil.)
Source: Pitchbook Data, Inc.
(No.)
0
5
10
15
20
25
30
35
40
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
U.S. Private Equity Energy Fundraising
($ Bil.)
Source: Pitchbook Data, Inc.
8
10
12
14
16
18
20
22
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Buyout Funds All Private Equity Funds
Average Fund Closing Time
(Months)
Source: Pitchbook Data, Inc.
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0
10
20
30
40
50
60
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(CAD Bil.)
Annual Canadian Private Equity Deal Flow
aData as of of Sept. 30, 2015.Source: Pitchbook Data, Inc.
a
Deal Flow by Canadian Province
aData as of Sept. 30, 2015. Note: Numbers may not add due to rounding. Source: Pitchbook Data, Inc.
Ontario34%
Alberta28%
Quebec15%
Nova Scotia
3% Prince Edward Island
1%
2008
BritishColumbia
13%
Saskatchewan3%
New Brunswick
3%
Manitoba2%
Ontario38%
Alberta19%
Quebec17%
2010
BritishColumbia
19%
Saskatchewan2% Nova
Scotia2%
Manitoba1%
New Brunswick
2%
Ontario42%
Quebec17%
2015a
BritishColumbia
15%
Saskatchewan1%
New Brunswick
3%
Manitoba1%
Alberta19%
NovaScotia
1%
0
20
40
60
80
100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(%)
Percent of Canadian Private Equity Investment by IndustryMaterials & Resources IT Healthcare Financial Services Energy B2C B2B
aData as of Sept. 30, 2015. B2B – Business to business. B2C – Business to consumer. Source: Pitchbook Data, Inc.
a
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0
10
20
30
40
50
60
70
80
0
5
10
15
20
25
30
35
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(No.)(CAD Bil.)
Private Equity Exit ActivityExit Capital No. of Exits
aData as of Sept. 30, 2015.Source: Pitchbook Data, Inc.
a
0
20
40
60
80
100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(%)
Private Equity Exits by TypeAcquisition IPO Buyout
aData as of Sept. 30, 2015.Source: Pitchbook Data, Inc.
a
0
5
10
15
20
25
0
2
4
6
8
10
12
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(No.)(CAD Bil.)
Private Equity FundraisingCapital Raised No. of Funds Closed
aData as of Sept. 30, 2015.Source: Pitchbook Data, Inc.
a
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0
5
10
15
20
25
30
0
2
4
6
8
10
12
14
16
Issuance Count
Monthly CLO Issuance — 2015
($ Bil.)
Source: Thomson Reuters LPC.
(No. of CLOs)
0
5
10
15
20
25
30
35
2013 2014 2015
CLO Size Distribution
(%)
Source: Thomson Reuters LPC.
($ Mil.)
120
125
130
135
140
145
150
155
160
01/15 02/15 03/15 04/15 05/15 06/15 07/15 08/15 09/15 10/15 11/15 12/15
Primary CLO AAA Spreads — 2015(bps)
Source: Thomson Reuters LPC.
Statistics:High: 158 bps (January) Low: 145 bps (June)Avg: 151 bps
Collateralized Loan Obligations
102The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
0
200
400
600
800
1,000
1,200
1,400
2011 2012 2013 2014 2015
AAA AA A BBB BB
Secondary CLO Liability Spreads
(bps)
Source: Citi Investment research and analysis.
0
2
4
6
8
10
12
Top CLO Holdings by Industry — 2015(%)
Source: Thomson Reuters LPC.
0
10
20
30
40
50
60
70
≤ 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Covenant-Lite Loans in CLOs(% of Loans)
Source: Thomson Reuters LPC.
Statistics:High: 66% (2014)Low: 0% (2009)Avg.: 45%
103The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
0
5
10
15
20
25
30
2016 2017 2018 2019 2020 2021 Thereafter
U.S. CLO Loan Maturities(% of Total)
Source: Thomson Reuters LPC.
(200)
(100)
0
100
200
300
400
500
600
2009 2010 2011 2012 2013 2014 2015
Post-2002 CLO Minimum OC Cushion(bps)
OC – Overcollateralization.Source: Intex, Wells Fargo Securities, LLC.
0
10
20
30
40
50
60
70
80
Minimum OC Minimum OC/Interest Diversion
Percentage of CLOs Failing OC Test
(%)
OC – Overcollateralization.Source: Intex, Wells Fargo Securities, LLC.
104The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
0
5
10
15
20
25
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Annual Middle-Market CLO Issuance($ Bil.)
Source: Thomson Reuters LPC.
Statistics:High: $22.1 Bil. (2006)Low: $0.0 Bil. (2009)Avg.: $6.9 Bil.
0
100
200
300
400
500
600
700
800
900
1,000
2010 2011 2012 2013 2014 2015
AAA AA A BBB
Middle-Market Secondary CLO Spreads
(bps)
Source: Wells Fargo Securities, LLC.
105The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
CLO Transactions — 2015
Deal Name
Deal Size Amount
($ Mil.) Collateral Manager StructurerPricing
DateAAA
CE (%)
AAA Spread
(bps)Noncall (Years)
Reinvestment (Years)
Max. WAL
Apidos CLO XX 509.3 CVC Credit Partners Credit Suisse 01/15/15 36.00 155 1.8 4.0 8.0
Galaxy XIX CLO 509.9 PineBridge Investments Citigroup 01/15/15 37.40 155 2.0 4.0 8.0
ALM XII 786.0 Apollo Credit Mgmt Morgan Stanley 01/23/15 36.01 155 2.1 4.1 8.0
Dorchester Park CLO 509.4 GSO/Blackstone Debt Funds Mgmt Deutsche Bank 01/28/15 37.50 140 1.8 4.0 8.0
Jamestown CLO VI 759.8 3i Debt Mgmt Citigroup 01/28/15 36.00 160 2.0 4.0 8.0
Dryden 37 Senior Loan Fund 509.1 Prudential Investment Mgmt JPMorgan 01/29/15 36.00 150 2.0 4.0 8.0
NZCG Funding 846.1 Guggenheim Investment Mgmt Citigroup 01/30/15 39.17 177 2.0 4.0 8.0
Ares XXXIII 613.0 Ares Mgmt Goldman Sachs 02/03/15 37.80 150 1.5 4.0 8.0
Clear Creek CLO 307.0 40/86 Advisors Goldman Sachs 02/03/15 32.00 145 2.1 4.1 8.1
Carlyle GMS CLO 2015-1 669.5 Carlyle Investment Mgmt Morgan Stanley 02/05/15 36.00 153 2.1 4.1 8.0
MidOcean Credit CLO IV 411.0 MidOcean Credit Fund Mgmt Credit Suisse 02/05/15 37.13 155 2.0 4.0 8.0
Vibrant CLO III 412.0 DFG Investment Advisers BNP Paribas 02/05/15 37.75 163 1.5 4.0 8.0
Golub Capital Partners CLO 22(B) 504.7 GC Investment Mgmt JPMorgan 02/06/15 36.00 148 2.2 4.0 8.0
Magnetite XII 608.8 BlackRock Financial Mgmt Wells Fargo 02/06/15 35.60 150 1.6 4.0 8.0
Flatiron CLO 2015-1 415.0 NYL Investors Morgan Stanley 02/13/15 36.25 140 2.1 4.1 8.3
OZLM XI 512.0 Och Ziff Loan Mgmt Bank of America 02/13/15 36.60 155 1.8 3.9 8.0
Race Point IX 506.8 Sankaty Advisors Citigroup 02/13/15 35.38 151 2.0 4.0 8.0
LCM XVIII 609.6 LCM Asset Mgmt Deutsche Bank 02/16/15 38.38 151 2.1 4.1 8.5
Oaktree EIF II Series B1 498.9 Oaktree Capital Mgmt Wells Fargo 02/19/15 38.50 155 1.9 3.7 8.0
BlueMountain CLO 2015-1 506.7 BlueMountain Citigroup 02/20/15 38.00 155 2.0 4.0 8.0
CIFC Funding 2015-I 614.2 CIFC Asset Mgmt BNP Paribas 02/20/15 35.00 152 1.5 4.1 8.0
Madison Park XVI 615.0 Credit Suisse Asset Mgmt Bank of America 02/24/15 38.79 150 1.5 4.0 8.0
Betony CLO 618.0 Invesco Senior Secured Mmgt Morgan Stanley 02/25/15 36.00 151 1.5 4.1 8.0
Denali CLO XI 413.7 Crestline Denali Capital Natixis 02/25/15 36.63 157 2.0 4.0 8.0
Benefit Street Partners CLO VI 508.9 Benefit Street Partners Deutsche Bank 02/26/15 36.80 163 — 4.0 8.0
Battalion CLO VIII 504.9 Brigade Capital Mgmt Citigroup 02/27/15 35.72 153 2.0 4.0 8.0
GoldenTree Loan Opportunities XI 551.1 GoldenTree Asset Mgmt GreensLedge 02/27/15 36.98 150 1.5 4.0 8.0
ACIS CLO 2015-6 578.4 Acis Capital Mgmt Jefferies 03/03/15 38.48 159 1.5 4.0 8.0
Steele Creek CLO 2015-1 361.0 Steele Creek BNP Paribas 03/03/15 36.50 160 1.5 4.0 8.0
Voya CLO 2015-1 612.5 Voya Alternative Asset Mgmt Credit Suisse 03/03/15 35.00 148 1.5 4.0 8.0
Sound Point VIII 625.0 Sound Point Capital Morgan Stanley 03/05/15 35.00 153 2.1 4.1 8.0
Treman Park CLO 616.8 GSO/Blackstone Debt Funds Mgmt Goldman Sachs 03/05/15 35.00 150 1.5 4.0 8.0
OHA Loan Funding 2015-1 656.0 Oak Hill Advisors JPMorgan 03/06/15 36.00 150 1.7 4.0 8.0
ECP 2015-7 512.4 Silvermine Capital Mgmt Citigroup 03/10/15 35.78 155 2.0 4.0 8.0
Anchorage CLO 6 569.6 Anchorage Capital JPMorgan 03/11/15 38.50 154 2.0 4.0 8.0
Cent CLO 23 513.5 Columbia Mgmt Investment Advisors Bank of America 03/13/15 38.00 149 1.5 4.0 8.0
Venture XX CLO 616.3 MJX Asset Mgmt JPMorgan 03/13/15 36.98 149 2.0 4.0 8.0
Canyon Capital CLO 2015-1 412.1 Canyon Capital Advisors Goldman Sachs 03/17/15 35.00 155 2.0 4.0 8.0
Halcyon Loan Advisors Funding 2015-1 518.0 Halcyon Asset Mgmt Morgan Stanley 03/17/15 38.00 145 2.0 4.0 8.0
Highbridge Loan Management 6-2015 519.8 Highbridge Principal Strategies Morgan Stanley 03/17/15 36.00 145 2.0 4.0 8.0
Greywolf CLO V 658.8 Greywolf Capital Mgmt Citigroup 03/18/15 35.15 160 2.0 4.0 8.0
WhiteHorse X 512.5 H.I.G. WhiteHorse Bank of America 03/19/15 37.00 143 2.0 4.0 8.0
JFIN Revolver CLO 2015 440.0 Apex Credit Partners (Jefferies) Jefferies 03/20/15 43.25 150 1.0 0.0 6.0
Shackleton 2015-VII 508.0 Alcentra NY Credit Suisse 03/24/15 36.00 154 1.5 4.0 8.0
Arrowpoint CLO 2015-4 408.1 Arrowpoint Asset Mgmt Deutsche Bank 03/25/15 36.94 155 4.0 4.0 8.0
Crown Point CLO III 416.0 Valcour Capital Mgmt Natixis 03/25/15 37.35 165 2.5 4.5 8.0
CE – Credit enhancement. WAL – Weighted-average life. N.A. – Not available. Continued on next page. Source: Fitch Ratings, public domain.
106The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
CLO Transactions — 2015 (Continued)
Deal Name
Deal Size Amount
($ Mil.) Collateral Manager StructurerPricing
DateAAA
CE (%)
AAA Spread
(bps)Noncall (Years)
Reinvestment (Years)
Max. WAL
Dryden 38 Senior Loan Fund 515.2 Prudential Investment Mgmt Morgan Stanley 03/25/15 38.00 143 3.2 5.2 9.0
JFIN CLO 2015 512.6 Apex Credit Partners (Jefferies) BNP Paribas 03/25/15 39.20 148 2.0 4.0 8.0
Kitty Hawk CLO 2015-1 558.9 Guggenheim Investment Mgmt Mitsubishi UFJ 03/26/15 39.82 151 2.0 4.0 8.0
Apollo Credit Funding IV 477.0 Apollo Credit Mgmt Mizuho Securities 03/27/15 36.01 147 1.5 4.0 8.0
Catamaran CLO 2015-1 463.8 Trimaran Advisors Barclays 03/27/15 36.13 155 2.0 4.0 8.0
NZCG Funding 2 856.8 Guggenheim Investment Mgmt Citigroup 03/27/15 37.50 155 2.0 4.0 8.0
Babson CLO 2015-I 512.3 Babson Capital Mgmt JPMorgan 04/01/15 36.00 143 2.0 4.0 8.0
Carlyle GMS CLO 2015-2 610.3 Carlyle Investment Mgmt Citigroup 04/01/15 36.00 147 2.0 4.0 8.0
Zais CLO 3 409.0 ZAIS Leveraged Loan Mgr Credit Suisse 04/08/15 36.00 160 N.A. 4.0 8.2
JFIN Revolver CLO 2015-II 170.0 Apex Credit Partners Jefferies 04/09/15 44.00 115 2.0 0.0 5.0
Palmer Square CLO 2015-1 435.8 Palmer Square JPMorgan 04/09/15 37.93 150 2.0 4.0 8.0
AMMC CLO 16 510.8 American Money Mgmt Jefferies 04/10/15 36.40 150 1.9 3.9 8.0
KKR CLO 11 564.5 KKR Financial Advisors JPMorgan 04/10/15 36.00 152 2.0 4.0 8.0
Octagon Investment Partners 24 758.6 Octagon Credit Investors Citigroup 04/14/15 35.42 147 1.5 4.0 8.0
ACAS CLO 2015-1 552.5 American Capital Asset Mgmt Deutsche Bank 04/15/15 35.75 149 2.0 4.0 8.0
Jackson Mill CLO 559.5 Shenkman Capital Mgmt Credit Suisse 04/16/15 36.00 154 1.5 4.0 8.0
OCP CLO 2015-8 708.5 Onex Credit Partners Bank of America 04/17/15 37.00 153 2.0 4.0 8.0
Stewart Park CLO 660.8 GSO/Blackstone Debt Funds Mgmt Wells Fargo 04/17/15 39.50 143 2.0 4.7 8.0
KVK CLO 2015-1 612.0 KVK Credit Strategies Goldman Sachs 04/22/15 35.50 158 N.A. 4.0 8.0
TICP CLO IV 515.3 TICP CLO Mgmt Morgan Stanley 04/22/15 36.00 150 1.5 4.2 8.0
CIFC Funding 2015-II 513.4 CIFC Asset Mgmt Barclays 04/24/15 35.00 145 1.4 4.0 8.0
OZLM XII 565.7 Och Ziff Loan Mgmt JPMorgan 04/24/15 36.50 145 3.0 5.0 9.0
Madison Park XVII 813.6 Credit Suisse Asset Mgmt Wells Fargo 04/28/15 36.33 145 1.7 4.2 8.0
Allegro CLO III 414.0 AXA Investment Managers Morgan Stanley 04/30/15 39.00 152 2.2 4.2 8.2
Cutwater 2015-I 462.1 Cutwater Investor Services RBC 05/01/15 35.11 161 1.5 4.0 8.0
Monroe Capital CLO 2015-1 412.0 Monroe Capital Mgmt BNP Paribas 05/01/15 37.00 143 2.0 4.0 8.0
Avery Point VI 516.5 Sankaty Advisors Morgan Stanley 05/06/15 39.50 145 3.2 5.2 9.0
Trinitas CLO III 409.4 Triumph Capital Nomura 05/07/15 37.13 160 2.1 4.1 8.0
Garrison Funding 2015-1 413.7 Garrison Investment Group JPMorgan 05/08/15 38.00 145 2.0 4.0 8.0
Apidos CLO XXI 512.9 CVC Credit Partners JPMorgan 05/13/15 37.00 143 3.1 5.1 9.0
Mountain View IX 565.5 Seix Investment Advisors Citigroup 05/13/15 35.20 146 2.1 4.1 8.0
Golub Capital Partners CLO 23(B) 458.3 GC Investment Mgmt Wells Fargo 05/18/15 36.00 149 2.0 4.0 8.0
BlueMountain CLO 2015-2 408.6 BlueMountain JPMorgan 05/20/15 37.73 145 3.0 5.0 9.0
Galaxy XX CLO 555.5 PineBridge Investments Goldman Sachs 05/20/15 36.00 145 2.0 4.0 8.0
Magnetite XIV 535.5 BlackRock Financial Mgmt Deutsche Bank 05/20/15 38.00 139 2.1 5.1 9.0
GoldenTree Loan Opportunities X 720.3 GoldenTree Asset Mgmt Morgan Stanley 06/02/15 40.00 142 3.1 5.1 9.1
ALM VI 514.0 Apollo Credit Mgmt Credit Suisse 06/03/15 35.70 143 2.1 4.1 8.0
Halcyon Loan Advisors Funding 2015-2 512.5 Halcyon Asset Mgmt Wells Fargo 06/03/15 36.70 139 2.1 4.1 8.0
Z Capital Credit Partners CLO 2015-1 400.8 Z Capital Credit Partners Jefferies 06/03/15 36.64 133 3.0 5.0 8.0
OCP CLO 2015-9 756.8 Onex Credit Partners Citigroup 06/04/15 37.33 150 2.1 4.0 8.0
Venture XXI CLO 616.3 MJX Asset Mgmt Credit Suisse 06/04/15 37.67 149 2.0 4.0 8.0
THL Credit Wind River 2015-1 616.3 THL Credit Credit Suisse 06/10/15 36.00 150 2.0 4.0 8.0
Cathedral Lake II 410.6 Carlson Capital Jefferies 06/11/15 35.75 159 2.0 4.0 8.0
ICG US CLO 2015-1 410.8 ICG Debt Advisors Credit Suisse 06/11/15 35.50 150 2.0 4.0 8.0
Parallel 2015-1 415.0 DoubleLine Capital Morgan Stanley 06/12/15 36.00 145 2.3 4.3 8.5
Octagon Investment Partners XXIII 609.0 Octagon Credit Investors Wells Fargo 06/15/15 35.40 142 1.3 4.0 8.0
Fortress Credit Investments Iv 408.0 Fortress Investment Group Merrill Lynch 06/16/15 45.00 125 2.0 0.0 8.0
Marathon CLO VIII 461.4 Marathon Asset Mgmt JPMorgan 06/16/15 37.00 149 2.0 5.0 9.0
CE – Credit enhancement. WAL – Weighted-average life. N.A. – Not available. Continued on next page. Source: Fitch Ratings, public domain.
107The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
CLO Transactions — 2015 (Continued)
Deal Name
Deal Size Amount
($ Mil.) Collateral Manager StructurerPricing
DateAAA
CE (%)
AAA Spread
(bps)Noncall (Years)
Reinvestment (Years)
Max. WAL
Neuberger Berman CLO XIX 410.2 Neuberger Berman BNP Paribas 06/16/15 36.50 142 2.0 4.0 8.0
Sound Point CLO IX 515.5 Sound Point Capital Bank of America 06/18/15 35.00 152 2.0 4.0 9.0
Palmer Square CLO 2015-2 408.2 Palmer Square Citigroup 06/22/15 36.80 150 N.A. N.A. N.A.CIFC Funding 2015-III 516.2 CIFC Asset Mgmt BNP Paribas 06/23/15 35.00 142 2.3 4.3 8.0 Voya 2015-2 569.0 Voya Investment Mgmt Morgan Stanley 06/23/15 39.00 140 2.0 5.0 9.0 Jefferson Mill CLO 412.5 Shenkman Capital Mgmt Bank of America 06/26/15 36.00 150 3.0 5.0 9.0 Benefit Street Partners CLO VII 512.6 Benefit Street Partners JPMorgan 06/30/15 37.18 153 2.0 4.0 8.0 Carlyle GMS CLO 2015-3 589.6 Carlyle Investment Mgmt JPMorgan 06/30/15 37.00 140 3.0 5.0 9.0 Hildene CLO IV 358.3 Hildene Leveraged Credit Citigroup 06/30/15 36.00 150 2.0 4.0 8.0 Jamestown CLO VII 510.5 3i Debt Mgmt Credit Suisse 06/30/15 35.50 155 2.0 4.0 8.0 LCM XIX 617.5 LCM Asset Mgmt Morgan Stanley 06/30/15 39.50 147 2.0 5.0 9.0 OZLM XIII 511.6 Och Ziff Loan Management Citigroup 06/30/15 36.02 145 3.0 5.0 9.0 Symphony CLO XVI 410.8 Symphony Asset Mgmt Bank of America 07/01/15 36.00 142 3.0 5.0 9.5 Dryden 40 Senior Loan Fund 611.9 Prudential Investment Mgmt Wells Fargo 07/02/15 36.83 140 2.0 5.0 9.0 Battalion CLO IX 509.2 Brigade Capital Mgmt RBC 07/09/15 35.50 155 2.0 5.0 9.0 KKR 12 412.0 KKR Financial Advisors BNP Paribas 07/10/15 36.00 141 1.9 3.9 8.0 ALM XVI 1,111.9 Apollo Credit Mgmt JPMorgan 07/15/15 35.00 146 2.0 4.0 8.0 Cumberland Park CLO
617.5 GSO/Blackstone Debt Funds Mgmt Credit Suisse 07/20/15 39.67 141 2.0 5.0 8.0
Babson CLO 2015-II 512.0 Babson Capital Mgmt Bank of America 07/23/15 35.00 140 1.9 3.9 8.0 Halcyon Loan Advisors Funding 2015-3 510.3 Halcyon Asset Mgmt Citigroup 07/23/15 35.52 155 2.1 4.1 8.0 Ares XXXIV 813.6 Ares Mgmt Barclays 07/29/15 38.13 141 2.0 4.0 8.0 ACAS CLO 2015-2 510.0 American Capital Asset Mgmt Wells Fargo 07/31/15 35.00 150 2.2 4.2 8.0 Mountain View X 415.6 Seix Investment Advisors LLC Morgan Stanley 07/31/15 37.50 150 2.0 4.0 8.1 Loomis Sayles II 413.8 Loomis Sayles JPMorgan 08/03/15 36.50 153 2.0 4.0 8.0 Oaktree CLO 2015-1 511.8 Oaktree Capital Mgmt Bank of America 08/03/15 38.00 155 2.1 4.1 8.0 Cent CLO 24
709.8 Columbia Mgmt Investment Advisors Goldman Sachs 08/07/15 38.30 147 3.1 5.1 8.0
Madison Park XVIII 775.0 Credit Suisse Asset Mgmt Morgan Stanley 08/11/15 39.50 147 2.1 4.1 8.0 Anchorage CLO 7 517.5 Anchorage Capital BNP Paribas 08/14/15 41.75 157 2.0 4.0 8.0 CIFC Funding 2015-IV 512.8 CIFC Asset Mgmt Citigroup 08/14/15 35.56 144 3.1 5.1 9.0 Shackleton 2015-VIII 442.7 Alcentra NY JPMorgan 08/18/15 36.94 151 2.1 4.1 8.0 Recette CLO 513.5 Invesco Senior Secured Mmgt Bank of America 08/19/15 35.00 143 2.1 4.1 8.0 BlueMountain CLO 2015-3 457.2 BlueMountain Credit Suisse 08/20/15 36.29 148 2.1 4.1 8.0 Wellfleet CLO 2015-1 360.0 Wellfleet Credit Partners Morgan Stanley 08/26/15 36.00 165 2.1 4.1 8.0 Voya 2015-3 809.6 Voya Alternative Asset Mgmt Citigroup 08/28/15 35.20 145 2.0 5.0 9.0 York CLO-2 511.8 York Managed Holdings Credit Suisse 09/01/15 36.00 160 2.1 4.1 8.0 Apidos CLO XXII 513.5 CVC Credit Partners Bank of America 09/16/15 36.00 150 3.0 5.0 9.0 Ares XXXV 406.4 Ares Mgmt Deutsche Bank 09/16/15 32.25 132 2.0 2.0 7.3 Dryden 41 Senior Loan Fund 512.2 Prudential Citigroup 09/17/15 35.85 150 2.0 4.0 8.0 THL Credit Wind River 2015-2 448.1 THL Credit Deutsche Bank 09/23/15 36.15 155 2.0 4.0 8.0 JFIN CLO 2015-II 409.5 Apex Credit Partners Jefferies 09/25/15 38.13 155 2.0 4.0 8.0 Fortress Credit BSL III 425.4 Fortress Investment Group Mitsubishi UFJ 09/29/15 35.13 151 2.0 4.0 8.0 Ares XXXVII 707.0 Ares Mgmt Goldman Sachs 09/30/15 38.10 146 2.0 4.0 8.0 Octagon Investment Partners 25 820.0 Octagon Credit Investors Morgan Stanley 09/30/15 38.00 146 2.0 5.0 8.0 Eaton Vance 2015-1 408.2 Eaton Vance Mgmt Wells Fargo 10/06/15 38.50 146 3.0 5.0 8.0 OCP CLO 2015-10 508.0 Onex Credit Partners Bank of America 10/06/15 37.00 158 2.0 4.0 8.0
CE – Credit enhancement. WAL – Weighted-average life. N.A. – Not available. Continued on next page. Source: Fitch Ratings, public domain.
108The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
CLO Transactions — 2015 (Continued)
Deal Name
Deal Size Amount
($ Mil.) Collateral Manager StructurerPricing
DateAAA CE
(%)
AAA Spread
(bps)Noncall (Years)
Reinvestment (Years)
Max. WAL
Atrium XII 819.3 Credit Suisse Asset Mgmt Credit Suisse 10/08/15 38.00 146 2.0 5.0 8.0 ICG US CLO 2015-2 411.0 ICG Advisors Morgan Stanley 10/14/15 36.00 152 2.2 4.2 8.0 LCM XX 509.0 LCM Asset Mgmt Bank of America 10/15/15 37.00 150 3.0 5.0 9.0 Golub Capital Partners CLO 26(B) 407.7 GC Investment Mgmt JPMorgan 10/16/15 36.00 165 2.0 4.0 8.0 Magnetite XV 620.3 BlackRock Financial Mgmt GreensLedge 10/20/15 35.81 148 2.2 4.2 8.0 Cathedral Lake III 404.4 Carlson Capital Jefferies 10/23/15 35.75 137 1.1 1.6 6.5 OHA Credit Partners XI 407.7 Oak Hill Advisors Wells Fargo 10/23/15 36.50 150 2.9 4.9 9.0 Benefit Street Partners CLO VIII 485.8 Benefit Street Partners Citigroup 10/29/15 37.94 145 2.0 4.0 8.0 CIFC Funding 2015-V 510.5 CIFC Asset Mgmt Credit Suisse 10/30/15 36.00 155 2.4 4.4 8.5 Cole Park CLO 435.8 GSO/Blackstone Debt Funds Mgmt Deutsche Bank 10/30/15 36.47 150 1.9 4.9 9.0 Highbridge Loan Management 7-2015 453.5 Highbridge Principal Strategies BNP Paribas 10/30/15 45.44 148 2.0 5.0 8.0 Neuberger Berman CLO XX 511.3 Neuberger Berman Morgan Stanley 10/30/15 36.50 154 2.0 4.2 8.0 Galaxy XXI CLO 411.2 PineBridge Investments Barclays 11/05/15 35.25 158 2.1 4.1 8.0 Carlyle GMS CLO 2015-4 509.1 Carlyle Investment Mgmt Citigroup 11/10/15 35.68 153 2.9 4.9 9.0 AMMC CLO 17 357.3 American Money Mgmt Mitsubishi UFJ 11/13/15 35.50 157 2.0 4.0 8.0 Avery Point VII 408.5 Sankaty Advisors JPMorgan 11/17/15 37.00 150 2.0 5.0 9.0 Ares XXXVIII 408.0 Ares Mgmt Bank of America 11/19/15 38.13 148 2.1 4.1 8.0 5180-2 CLO 994.7 Guggenheim Investment Mgmt Citigroup 11/20/15 39.15 170 1.9 4.0 8.0 Jamestown CLO VIII 504.3 3i Debt Mgmt Mizuho Securities 11/20/15 36.01 152 2.1 4.1 8.1 KKR CLO 13 412.0 KKR Financial Advisors Morgan Stanley 11/23/15 36.00 152 2.1 4.1 8.0 Bean Creek CLO 305.5 40/86 Advisors JPMorgan 11/30/15 34.50 162 2.1 4.1 9.0 Madison Park XIX 609.8 Credit Suisse Asset Mgmt Citigroup 12/02/15 35.50 152 2.0 5.1 9.0 Apidos CLO XXIII 499.9 CVC Credit Partners Citigroup 12/03/15 38.00 149 2.1 4.7 8.0 Magnetite XVI 506.5 BlackRock Financial Mgmt Credit Suisse 12/03/15 36.00 150 2.0 4.0 8.0 AIMCO CLO 2015-A 501.0 Allstate Investment Mgmt Goldman Sachs 12/04/15 35.00 155 2.0 4.0 8.0 OZLM XIV 507.4 Och Ziff Loan Mgmt Deutsche Bank 12/07/15 36.25 155 2.1 5.1 9.0 OHA Credit Partners XII 606.0 Oak Hill Advisors Goldman Sachs 12/08/15 35.90 149 2.0 4.8 8.0 Sound Point CLO X 460.3 Sound Point Capital Morgan Stanley 12/08/15 35.00 165 2.1 4.1 8.1 BlueMountain CLO 2015-4 505.8 BlueMountain Bank of America 12/10/15 38.00 150 2.0 4.0 8.0 Carlyle GMS CLO 2015-5 406.9 Carlyle Investment Mgmt Citigroup 12/11/15 35.68 155 3.1 5.1 9.0 SCOF-2 505.0 Symphony Asset Mgmt BNP Paribas 12/14/15 36.50 165 2.3 4.3 8.0 Oaktree EIF I Series A1 432.0 Oaktree Capital Mgmt Mitsubishi UFJ 12/15/15 38.42 162 2.0 3.0 7.0 Webster Park CLO 506.7 GSO/Blackstone Debt Funds Mgmt Citigroup 12/15/15 39.84 150 2.0 4.8 8.0 Palmer Square CLO 2016-1 200.2 Palmer Square JPMorgan 12/17/15 32.50 130 1.0 0.0 8.0 ALM XVII 604.8 Apollo Credit Mgmt Wells Fargo 12/22/15 35.50 156 2.5 4.5 8.5 Venture XXII CLO 400.5 MJX Asset Mgmt Jefferies 12/22/15 40.75 150 2.0 4.0 8.0
CE – Credit enhancement. WAL – Weighted-average life. N.A. – Not available. Source: Fitch Ratings, public domain.
109The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Precrisis Versus Post-Crisis Arbitrage CLO TermsPrecrisis (2006–2007) Post-Crisis (2011–2015)
Economics
Typical Deal Size ($ Mil.) 500 350–550
Average Asset Price (% of Par) 100 95–100
Weighted Average Spread Covenant (bps) 200–250 350–450
CLO AAA Spread (bps) 25–35 140–160
Leverage (Debt/Equity) (x) 10–12 8–12
Key Terms (Years)
Reinvestment Period 5–7 3–4
Final Legal Maturity 10–14 10–13
Noncall Period 3–4 1.5–2.0
Typical Key Portfolio Parameters
% of First Lien Senior Secured Loans Minimum 85–90 Minimum 90
% of Second Lien Loans Maximum 5–10 Maximum 5–10
% of Fixed-Rate Assets Maximum 5–10 Maximum 10
% of Assets Rated CCC+ or Below Maximum 5.0–7.5 Maximum 7.5
% of Structured Finance Securities Maximum 5 0
Source: Fitch Ratings.
Arbitrage CLO Structural ProtectionsCoverage Tests PurposeOvercollateralization (OC) Tests
The OC tests protect noteholders in the event of credit quality deterioration and/or par value erosion in the portfolio. OC refers to the excess of the par amount of collateral available to secure one or more note classes over the par amount of those note classes. If the deal fails an OC test, cash flows are diverted from equity or more junior classes of notes to pay down the liabilities in order of seniority until the senior notes are paid in full, or until the test is back in compliance.
Interest Coverage (IC) Tests The IC tests protect noteholders in the event of a reduction in the cash flows produced by the portfolio collateral. The IC test is the ratio of the interest income received (or anticipated) on the assets between payment dates to interest payments due on the liabilities. If the deal fails an IC test, cash flows are diverted from equity or more junior classes of notes to pay down the liabilities in order of seniority until the senior notes are paid in full, or until the test is back in compliance.
Collateral Quality Tests
Weighted-Average Life (WAL)
The weighted average time until all the loans in the portfolio mature. Designed to prevent the total risk horizon of the portfolio from exceeding a covenanted level. The WAL is necessary in determining base default rates since default rates increase over time.
Weighted-Average Spread (WAS)
The WAS over LIBOR of the loan portfolio. This test ensures a minimum level of cash flow from the underlying portfolio that should be sufficient to pay interest on the liabilities, which are typically paid a spread over LIBOR.
Weighted-Average Recovery Rate
The weighted average recovery rate of the loan portfolio. This test measures what the expected recoveries may be upon default of the entire portfolio.
Weighted-Average Rating Factor (WARF)
The WARF is a measure of the average credit rating of the portfolio. It is an indicator of the portfolio's average credit risk.
Typical Investment Criteria (Minimum/Maximum Allowances)a
% First Lien/Sr. Secured % Synthetic Securities % Bonds % Zero-Coupon Securities
% Rated CCC+ or Below % Fixed-Rate Securities % Debtor in Possession Loans % Same Industry Category
% Non U.S. Issuer/Non-USD % Structured Finance % Revolving Credit Facilities % Covenant-Lite Loans
% Single Issuer/Obligor % Long-Dated Assets % Delayed-Draw Term Loans
% PIK-able Securities % Second Lien/Unsecured % Current Pay ObligationsaNot an exhaustive list. PIK – Payment in kind. Source: Fitch Ratings.
110The Annual Manual (U.S. Leveraged Finance Primer) — Leveraged Loan Data June 6, 2016
Leveraged Loan Data
Middle Market Versus Broadly Syndicated CLO ComparisonMiddle Market Broadly Syndicated
Issuance ($ Bil.) 5.6 93.1
Structure
AAA CE (%) 44.6 36.8
AAA Spread (bps) 192 150
Noncall (Years) 2 2
Reinvestment (Years) 4.0 4.1
Max Weighted Average Life 8.0 8.1
Initial Target WARF 3,400 2,725
Secondary CLO Spreads (bps)
AAA 205 169
AA 310 251
A 415 352
BBB 600 523
CE – Credit enhancement. WARF – Weighted-average rating factor. Note: Data as of Dec. 31, 2015. Source: Fitch Ratings.
Middle-Market CLO Deals — 2015
Deal NameDeal Size
($ Mil.) Collateral Manager StructurerAAA
CE (%)
AAA Spread
(bps)Noncall (Years)
Reinvestment (Years)
Fifth Street SLF I 309.5 Fifth Street Mgmt Wells Fargo 42.5 200 2.0 4.0
NewStar Commercial Loan Funding 2015-1 496.1 NewStar Financial Wells Fargo 42.3 180 2.1 4.1
Fortress Credit Opportunities VI 350.0 Fortress Investment Group Natixis 52.0 190 2.0 4.0
Golub Capital Partners CLO 24(M) 707.7 GC Investment Mgmt Wells Fargo 46.8 180 2.0 4.0
NXT Capital CLO 2015-1 408.6 NXT Capital Wells Fargo 45.1 185 2.0 4.0
FS Senior Funding 309.0 Fifth Street Mgmt Natixis 41.7 180 2.0 4.0
Carlyle GMS Finance MM CLO 2015-1 398.9 Carlyle Investment Mgmt Citigroup 43.3 185 2.1 4.1
Ivy Hill Middle Market Credit Fund X 384.7 Ivy Hill Asset Mgmt Citigroup 44.7 175 2.0 4.0
Golub Capital Partners CLO 25(M) 558.3 GC Investment Mgmt Wells Fargo 45.5 180 2.0 4.0
Fifth Street SLF II 416.6 Fifth Street Mgmt Natixis 44.0 189 2.0 4.0
NewStar Commercial Loan Funding 2015-2 397.8 NewStar Financial Wells Fargo 43.0 200 2.0 4.0
Golub Capital Partners CLO 28(M) 543.8 GC Investment Mgmt Wells Fargo 26.4 238 2.0 4.0
Maranon Loan Funding 2015-1 354.8 Maranon Capital LP Citigroup 44.8 210 2.0 4.0
CE – Credit enhancement. Source: Fitch Ratings, public domain.
The Annual Manual (U.S. Leveraged Finance Primer) June 6, 2016
High-Yield Bonds
High-Yield Bond Basics 111[Credit 101] What Is the U.S. High-Yield Bond Market? 111
Second Lien Bonds 113[Credit 101] What Are Second Lien Bonds? 113What Is the Current Appetite for Second Lien Bonds? 113
PIK Bonds 114[Credit 101] What Are PIK Bonds? 114Why Do Issuers Choose PIK Bonds? 114How Is PIK Accounting Different? 115
Defaults 115[Credit 101] What Happens in an Event of Default? 115[Credit 101] What Options Are Available to Issuers Under U.S. Bankruptcy Law? 115What Are the Historical Default Rates for High-Yield Bonds? 115What Is the Current Default Environment for High-Yield Bonds? 116What Is a Distressed Debt Exchange? 116
Recovery 118[Credit 101] What Is Recovery? 118[Credit 101] How Does Fitch Estimate Recovery? 118How Do High-Yield Bonds Perform in Fitch’s Recovery Analyses? 118What Are the Historical Post-Default Prices for High-Yield Bonds? 118
High-Yield Bond Data 119
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High-Yield Bond Basics
[Credit 101] What Is the U.S. High-Yield Bond Market?
Defining the MarketsThe high-yield bond market generally consists of companies with Issuer Default Ratings (IDRs) of ‘BB+’ or lower. High-yield bonds can be secured or unsecured, and typically rank lower in terms of priority than loans. Bonds are issued to corporations and syndicated by banks to investors. Bonds are originated in several different forms, with cash pay and zero coupon being the most common types.
The characteristics of high-yield bonds are often dictated by the issuing company’s credit profile. High-yield companies typically have weaker operating profiles or higher leverage, resulting in a weaker cash flow profile. Due to these inherent risks coupled with a lower priority in the capital structure, investors typically demand higher yields than those demanded for loans.
High-Yield Bond TypesType DescriptionCash Pay Pays a fixed-coupon rate of interest, usually paid in cash, until maturity or an earlier stated
redemption date.Step Coupon Offers one interest (coupon) rate in the early years of the bond’s life, followed by a second,
higher interest rate at a specified date (the step-up date).Payment in Kind (PIK) Allows the issuer the option of paying the bondholder interest in cash now or the option to
accumulate interest and add it to the principal balance of the bond. At maturity, the issuer must pay both the principal and accumulated interest amounts to the holder of the bond.
Zero Coupon Sold at a deep discount from its face value and pays no current interest to the bondholders. Instead the interest is compounded and paid with the principal at maturity.
Convertible May be converted into shares of another security or cash under stated terms. The security is often the issuing company’s common stock.
Source: Fitch Ratings.
High-Yield Bond CharacteristicsType DescriptionCoupon The interest rate stated on a bond when issued. There are generally three types of coupon
structures: • Cash Pay: The coupon is paid in cash, typically semiannually, and can be fixed or floating. • Floating Rate: Floating-rate notes (FRNs) typically pay quarterly interest that varies according
to the movement of the underlying benchmark (i.e. three-, six- or nine-month T-bill rate or LIBOR).
• Payment-in-Kind (PIK): Allows the issuer the option of paying the bondholder interest in cash now or the option to accumulate interest and add it to the principal balance of the bond.
Maturity The date on which the principal amount of a bond becomes due, is repaid to the investor and interest payments stop.
Call Protection A protective provision for investors that prohibits the issuer from repaying the security in full for a stated number of years. Call protection exists to protect bondholders from the risk that interest rates will fall before the call date. Investors’ yields can be negatively affected when a bond is called prior to maturity.
Call Premiums The premium paid by the issuer over par for the right to redeem the bond before the bond’s maturity date.
Structure A high-yield bond can be unsecured or secured on a first or second lien basis. Further, it can be senior, senior subordinated, subordinated or junior subordinated in rank.
Make-Whole A lump-sum payment to the holder of the bond that is equal to the net present value of coupons they would have received had the bond not been called.
Put Provisions Allows a bondholder to sell a bond back to the issuer at a price, generally par, on certain stipulated dates prior to maturity. Helps mitigate the risk of increasing interest during the stated put period.
Equity Clawbacks A clawback provision in a bond gives the issuer an option to redeem a preset fraction of the bond within a preset period at a predetermined price, as long as the funds used for the debt redemption come from an equity offering.
Warrants A provision that allows the holder of the bond the option to buy a defined number of warrants to purchase equity in the company at a later date.
Source: Fitch Ratings.
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Market History
Several factors have contributed to record growth in the U.S. high-yield bond market in recent years. Investor demand in particular has played a major role. As interest rates reached historic lows in the years following the financial crisis, the search for yield attracted new investors into the high-yield bond and leveraged loan markets. Insurance companies, mutual funds and pension funds were among the most active investors of high-yield bonds.
The U.S. high-yield bond universe surpassed $1.5 trillion during first-quarter 2016, a 90% gain since the first quarter of 2009. Energy and Metals/Mining compose 24% of the current outstanding amount. The lowest rated ‘CCC’ segment accounts for nearly 19% of the high-yield bond market.
High-Yield Bond Versus Leveraged Loan ComparisonCharacteristics High-Yield Bonds Leveraged LoansPriority Senior or Subordinated SeniorSecurity Unsecured/Secured SecuredRating ≤ BB+ ≤ BB+Average Deal Size (Average Range) Approximately $500 Mil.
($100 Mil.–$2.5 Bil.)Approximately $400 Mil. ($100 Mil.–$5.0 Bil.)
Coupon Fixed FloatingAverage Yield Approximately 5%–7% Approximately 3%–6%Call Protection Yes Some soft callsCovenants Yes — Incurrence Yes — MaintenanceTenor Approximately 10+ years Approximately 3–6 yearsAmortization No YesSecondary Liquidity Yes SomeInvestors Investors Retail Banks/Investors2015 Default Rate (%) 3.4 1.72015 Recovery Rate (%) 31.3 50.0
Source: Fitch Ratings.
0
200
400
600
800
1,000
1,200
1,400
1,600
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Key Events in the High-Yield Bond Market
($ Bil., Market Size)
1990s: Overfunded Bonds and Equity
Clawbacks First Appear
High-Yield Bond Market
Size = $521 Bil.
Dot-Com Bubble
Telecom Defaults
LBO Boom
High-Yield Default Rate Peaks At 16.4%
Secured Issuance Spikes
Credit Crisis
High-Yield Bond Market Exceeds $1 Tril.
Fed Lowers Fed Funds Rate
Annual Issuance Hits New Record = $307 Bil.
Note: Grey sections represent a recessionary period as defined by the National Bureau of Economic Research.Source: Fitch U.S. High Yield Default Index, Bloomberg.
Fed Begins Taper
Fed Completes Taper
Fed Begins Raising Interest Rates
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Second Lien Bonds
[Credit 101] What Are Second Lien Bonds?Second lien bonds are secured bonds that constitute a bifurcated deal structure in which the first lien bondholders stand before second lien bondholders for payments on asset claims. Due to their lower position in the capital structure, second lien bonds are perceived to be riskier, and are consequently more expensive and have higher yields for investors than first lien bonds.
Please refer to the Leveraged Loan section for further explanation of second lien debt.
What Is the Current Appetite for Second Lien Bonds?U.S. second lien bond issuance rose to a record $22.3 billion in 2015, surpassing the 2010 high of $21.1 billion.
The record second lien 2015 issuance was driven by the struggling energy sector, which accounted for 53% of the total annual volume, and 14 of 31 new senior bond issuances.
Evolution of the High-Yield Investor Base
CBO – Collateralized bond obligation. Source: JP Morgan.
Mutual Funds13%
Pension Funds19%
CBOs21%
Other18%
2000
Investment-Grade Funds
7%
Insurance Companies
22%
Mutual Funds14%
Pension Funds20%
Foreign8%
Other21%
2006
Investment-Grade Funds12% Insurance
Companies25%
Mututal Funds28%
Pension Funds27%
2015
Investment-Grade Funds
6%
Insurance Companies
29%
Hedge Funds and Other
6%
Equity and Income Funds
4%
0
5
10
15
20
25
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
($Bil.)
U.S. Second Lien Bond Issuance Volume
Source: Bloomberg, Fitch Ratings.
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Ten of the 31 new bond issues were bond exchanges, primarily for stressed issuers in the Energy, Gaming and Metals/Mining sectors. Seven of these 10 were exchanges of unsecured debt for second lien debt, which often led to reduced debt burdens or maturity extensions in exchange for collateral and increases in seniority.
PIK Bonds
[Credit 101] What Are PIK Bonds?Payment-in-kind (PIK) is a relatively expensive source of debt funding that allows issuers to pay interest in the form of additional securities rather than in cash. Paying in kind can be optional — known as a toggle option — mandatory, or a combination of the two. Contingent cash-pay requirements were frequently included in recent PIK transactions. This means the issuer must make payments in cash when financial thresholds are met. When not met, the issuer may or must pay in kind, depending on the deal-specific terms. Thresholds vary from restricted payment basket availability under the company’s bank facility to maximum leverage or minimum liquidity levels. Maximum limits on the total number of payments that could be made in kind were relatively common in recent PIK issue indentures.
Defining the PIK MarketPIK volumes tend to fluctuate with the credit cycle and have recently constituted a much smaller share of total high-yield issuance, as the overall U.S. market has propelled to $1.5 trillion. In 2014, $7.5 billion worth of PIK debt was issued, the fourth-largest annual U.S. PIK issuance. However, it represented less than 3% of total U.S. high-yield issuance. PIK issuance all but disappeared in 2015, with total issuance of $1.9 billion representing only 0.1% of U.S. high-yield issuance. This is in sharp contrast to 2007 ($16 billion) and 2008 ($14 billion) PIK volumes that represented 11% and 27%, respectively, of total U.S. high-yield issuance.
Why Do Issuers Choose PIK Bonds?PIK options allow flexibility for the issuer in the event of cash flows temporarily deteriorating and liquidity becoming a concern. PIK debt has recently been used primarily to fund dividend recapitalizations of LBO targets or as a restructuring tool for distressed issuers. Periods of elevated PIK issuance tend to be driven by dividend deals.
2010
Computers & Electronics
25%
Gaming, Lodging &
Restaurants15%
Energy14%
Telecommunication12%
Chemical10%
Transportation9%
Other15%
Evolution of Second Lien Bond Volume by Industry
Source: Bloomberg, Fitch Ratings.
2015
Energy53%
Metals & Mining13%
Gaming, Lodging &
Restaurants6%
Computers & Electronics
10%
Healthcare & Pharmaceutical
5%
Other7%
Paper & Containers
5%
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High-Yield Bonds
How Is PIK Accounting Different? Flexibility exists under U.S. GAAP regarding the cash flow statement treatment of the final accrued interest payment made on a PIK issue’s maturity or call date. This cash outflow can be classified as operating or financing.
If a company adopts the former treatment, the final bond payment would be bifurcated into an accrued PIK interest portion and an original principal portion on the cash flow statement. Payment of accrued interest would be classified as an operating cash outflow (based on Accounting Codification Standard 230-10-45-17), and the original principal payment amount would be classified as a financing cash flow. If a company adopts the latter treatment, the entirety of the cash payment at maturity would be classified as a financing cash flow, resulting in higher operating cash flow.
Defaults
[Credit 101] What Happens in an Event of Default?Please refer to the Leveraged Loan section for Fitch Ratings’ explanation of what happens in an event of default.
[Credit 101] What Options Are Available to Issuers Under U.S. Bankruptcy Law?Please refer to the Leveraged Loan section for Fitch’s explanation of options available to issuers under U.S. bankruptcy law.
What Are the Historical Default Rates for High-Yield Bonds?
2000–2015The U.S. high-yield bond default rate has averaged 4.3% over the past 16 years. More significantly, the recessionary average over that time finished at 12.5%, while the nonrecessionary average was a benign 2.3%. The 2009 recession involved several industries, leading to a 13.7% rate and a record yearly amount of $119 billion of default volume. The past six years produced reasonably low default activity, with a 2% average. The rate inched up over the last two years, reaching 2.4% and 3.4%, respectively.
0
5
10
15
20
25
30
0
2
4
6
8
10
12
14
16
18
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
PIK Issuance % of Total Issuance
Deferred Payment (PIK) Bond Issuance
($ Bil.) (%)
PIK – Payment-in-kind.Source: Fitch U.S. High Yield Default Index, Bloomberg.
Statistics:High: $16 Bil. (2007)Low: $0 Bil. (2000)Avg.: $4.3 Bil.
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Industry DefaultsThe 2001–2002 recession involved one sector, Telecommunications, which produced the bulk of the default volume. The default rate climbed to a peak 16.4% in 2002. Unlike 2001–2002, there were six sectors in 2009 whose default rate topped 20%. Automotives led the way and produced the highest ever sector mark at over 44%. Adverse credit markets led to financing difficulties for car buyers and liquidity problems for manufacturers. As a result, substantial reductions in vehicle sales led to cutbacks in original equipment manufacturers’ production and reduced parts demand from suppliers. At the same time, legacy labor and benefit costs were burdensome and prices of raw materials, including steel, were on the rise. These challenges caused widespread auto defaults.
Energy and Metals/Mining accounted for 52% of the total defaults in 2015, while Caesars Entertainment Operating Co. was the year’s largest high-yield bond bankruptcy at $12.4 billion. Energy and Metals/Mining, especially the exploration and production (E&P) and coal subsectors, continue to struggle and will lead to an increased overall default rate for the third consecutive year.
What Is the Current Default Environment for High-Yield Bonds?
Overall DefaultsFitch projects a 6% U.S. high-yield bond default rate for 2016 due to ongoing challenges in the Energy and Metals/Mining space. Fitch forecasts a total of just under $90 billion, which would be the third highest on record behind the $110 billion and $119 billion tallied in 2002 and 2009, respectively. Fitch anticipates a benign 1.5%‒2.0% default rate for non-Energy and Metals/Mining companies.
Energy, Metals/Mining DefaultsThe Energy and Metals/Mining sectors are likely to garner $70 billion in defaults this year. Fitch forecasts the Energy sector’s TTM default rate will surpass 20% during 2016. Energy default volume totals $26 billion through mid-May, versus $17.5 billion for all of 2015. Fitch anticipates more than $25 billion of additional outstanding energy bond debt will default this year. The April 2016 Energy TTM default rate was at 10.7% and is expected to surpass 14% in May 2016. The majority of Energy defaults are in the E&P subsector. Fitch projects the 2016 E&P default rate at 30%‒35%.
Fitch expects the Metals/Mining sector default rate to finish 2016 at 20%. The Coal subsector is forecast to reach an astounding 60% at the end of the year, with the April 2016 TTM rate at nearly 75%.
What Is a Distressed Debt Exchange?Fitch categorizes defaults under three methods: a bankruptcy filing, a missed interest payment in which the issuer does not cure its payment within the 30-day grace period, or a distressed debt exchange (DDE). A DDE occurs when bond investors are offered securities with structural or economic terms that are diminished in comparison with those of existing bonds.
DDE’s accounted for 19% of the defaulted amount in 2015, but 38% on an issuer count basis. The 28 DDEs equals the number tallied over the prior three years combined, but less than the 45 registered in 2009. Energy and Metals/Mining composed $6.9 billion of the $9.1 billion in DDEs during 2015. Through April 2016, there have been $3.2 billion in DDEs, with the Energy and Metals/Mining sectors tallying 87% of the total.
The table below details those issuers from 2008 through April 2016 that have experience a subsequent default following an initial DDE. This translates to 43% of the sample and
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demonstrates that an initial DDE is often not enough to prevent another DDE or an eventual missed interest payment/filing.
Distressed Debt Exchanges with Subsequent Default Events: 2008–2016Issuer Industry Original Debt Exchange Multiple Debt Exchange Missed Payment BankruptcyFrench Lick Resorts & Casino Gaming, Lodging & Restaurants April 2008 April 2009 — —Primus Telecomm Group Telecommunications May 2008 — — March 2009Residential Capital LLC Banking & Finance June 2008 Dec. 2008 May 2012 May 2012Six Flags Inc. Leisure & Entertainment June 2008 — — June 2009Metaldyne Corp. Automotive Nov. 2008 — — May 2009Finlay Fine Jewelry Corp. Retail Nov. 2008 — July 2009 —Neff Corp. Banking & Finance Dec. 2008 — — May 2010Harrahs Operating Co Inc. Gaming, Lodging & Restaurants Dec. 2008 April 2009 — Jan. 2015American Achievement Group Holding Services & Miscellaneous March 2009 Aug. 2009 — —Energy XXI Energy March 2009 — — April 2016Nxp Bv/Nxp Funding LLC Computers & Electronics March 2009 July 2009 — —Wolverine Tube Inc. Metals & Mining April 2009 — — Oct. 2010Hawker Beechcraft Acquisition Co. Transportation June 2009 — May 2012 May 2012Affinity Group Inc. Services & Miscellaneous June 2009 — Sept. 2009 —William Lyon Homes Inc. Building & Materials June 2009 Oct. 2009 Oct. 2011 —Momentive Performance Chemicals June 2009 — — April 2014Advanta Capital Trust I Banking & Finance June 2009 — — Nov. 2009Fairpoint Communications Telecommunications July 2009 — — Oct. 2009NewPage Corp. Paper & Containers Oct. 2009 — — Sept. 2011Catalyst Paper Paper & Containers March 2010 — Jan. 2012 —Reddy Ice Services & Miscellaneous March 2010 — — April 2012Titan Petrochemicals Energy July 2010 — March 2012 —Brookstone Company Inc. Retail Oct. 2010 — Feb. 2014 —GMX Resources Inc. Energy Dec. 2011 — — April 2013Dune Energy Energy Dec. 2011 — — March 2015Dex One Corp. Broadcasting & Media April 2012 — — March 2013Verso Paper Holdings Paper & Containers May 2012 July-14, Jan-15 Jan. 2016 Jan. 2016Chukchansi Economic Development Gaming, Lodging & Restaurants June 2012 — April 2013 —Energy Future Holdings Utilities, Power & Gas Dec. 2012 Jan. 2015 April 2014 April 2014Travelport LLC Leisure & Entertainment April 2013 March 2014 — —American Media Inc. Broadcasting & Media Oct. 2013 Sept. 2014, March 2016 — —Winsway Coking Coal Holdings Metals & Mining Oct. 2013 — May 2015 April 2016Affinion Group Holdings Broadcasting & Media Dec. 2013 June 2014, Nov. 2015 — —Altegrity Inc. Services & Miscellaneous June 2014 — Jan. 2015 Feb. 2015Walter Energy Metals & Mining Aug. 2014 — June 2015 July 2015Hidili Industry International Metals & Mining Oct. 2014 — Nov. 2015 —Alpha Natural Resources Inc. Metals & Mining April 2015 — — Aug. 2015Venoco Inc. Energy April 2015 — — March 2016Halcon Resources Corp. Energy April 2015 Sept. 2015, Dec. 2015 — —SandRidge Energy Inc. Energy May 2016 Aug. 2015, Oct. 2015 — —Midstates Petroleum Inc. Energy May 2015 — — April 2016Warren Resources Inc. Energy May 2015 Oct. 2015 March 2016 —American Energy - Woodford Energy June 2015 April 2016 — —Tonon Bioenergia SA Food, Beverage & Tobacco July 2015 — — Dec. 2015Goodrich Petroleum Inc. Energy Oct. 2015 — — April 2016Logan's Roadhouse Gaming, Lodging & Restaurants Oct. 2015 — May 2016 —Exco Resources Inc. Energy Oct. 2015 Nov. 2015 — —Comstock Resources Inc. Energy Feb. 2016 April 2016, May 2016 — —Community Choice Financial Banking & Finance Feb. 2016 April 2016 — —Rex Energy Inc. Energy March 2016 April 2016 — —
Source: Fitch U.S. High Yield Default Index.
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Recovery
[Credit 101] What Is Recovery?Please refer to the Leveraged Loan section for Fitch’s explanation of recovery.
[Credit 101] How Does Fitch Estimate Recovery?Please refer to the Leveraged Loan section for Fitch’s approach to estimate recovery.
How Do High-Yield Bonds Perform in Fitch’s Recovery Analyses?Most unsecured recovery ratings (RRs) trend in the average (RR4) to poor (RR6) ranges due to their lack of seniority in the capital structure.
What Are the Historical Post-Default Prices for High-Yield Bonds?Fitch uses the 30-day post default price to determine recovery rates. Taking bid levels one month following a default is common practice in the high-yield market and is seen as a good proxy for the emergence price.
The recovery rates varied noticeably over the past 16 years, reaching highs of 66.4% of par in 2007 and lows of 22.5% in 2002. The historical recovery rate average is 37.9%. A high default environment usually leads to low recovery rates.
The recovery rate finished at 31.3% in 2015, as Energy and Metals/Mining defaults dragged down the overall average. The Energy recovery rate stood at 22.9% while Metals/Mining was at 17.3%, with these two troublesome sectors combining for 62% of the issue sample. TTM recovery rates through April 2016 are challenging the low mark of 2002. As the Energy and Metals/Mining defaults continue throughout 2016, recovery rates are unlikely recovery to improve.
0
10
20
30
40
50
RR1 RR2 RR3 RR4 RR5 RR6
(% of Issues)
Recovery Rating Distribution — Senior Unsecured Debt 2015
RR – Recovery Rating. Note: U.S. Corporates public Issuer Default Ratings and Credit Opinions of ‘B+’ and lower only.Source: Fitch Ratings.
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0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
BofAML US High Yield Index BofAML US Corporate Index
Option-Adjusted Spread Comparison — Investment-Grade Versus High-Yield
(bps)
Source: BofA Merrill Lynch Global Research, used with permission.
May 2007: 152 bps
November 2008: 1,347 bps
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
BofAML BB US HY IndexBofAML B US HY IndexBofAML CCC US HY Index
Option-Adjusted Spreads by Rating
(bps)
Source: BofA Merrill Lynch Global Research, used with permission.
0
200
400
600
800
1,000
1,200
(bps)
OAS – Option-adjusted spread. Source: BofA Merrill Lynch Global Research, used with permission.
2015 Avg. OAS: 560 bps
Option-Adjusted Spreads by Industry (Top/Bottom Six) — 2015(BofAML US High Yield Index)
High-Yield Bond Data
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0
5
10
15
20
25
30
35
40
45
Monthly High-Yield Bond Issuance — 2015($ Bil.)
Source: Fitch U.S. High Yield Default Index, Bloomberg.
Statistics:High: $41 Bil. (March)Low: $6 Bil. (December)Avg.: $21 Bil.
2.552.49
(2.53)
(4.64)(6.0)(5.0)(4.0)(3.0)(2.0)(1.0)0.01.02.03.04.05.0
Cumulative High-Yield Bond Returns — 2015(BofAML US High Yield Index)(%)
Source: BofA Merrill Lynch Global Research, used with permission.
(2.0) (1.5) (1.0) (0.5) 0.0 0.5 1.0 1.5 2.0
Gold
HY CCC
HY B
HY BB
10 Year
S&P 500
MBS
IG Bonds
Leveraged Loans
2015 Risk-Adjusted Returns
IG – Investment-grade. MBS – Mortgage-backed securities. HY – High-yield. Source: JPMorgan.
(Sharpe Ratio)
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(40)
(20)
0
20
40
60
80
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
BB B CCC
Annual High-Yield Bond Returns by Rating Category(BofAML US High Yield Index)
(%)
Source: BofA Merrill Lynch Global Research, used with permission.
Top 10 Largest Outflows/Inflows — 2015Outflows Inflows
Rank Week of Total ($ Mil.) Rank Week of Total ($ Mil.)
1 12/16/15 (3,811) 1 10/21/15 3,343
2 12/09/15 (3,460) 2 02/11/15 2,935
3 07/01/15 (2,980) 3 01/28/15 2,765
4 06/17/15 (2,890) 4 02/04/15 2,670
5 05/06/15 (2,745) 5 11/04/15 2,048
6 06/10/15 (2,560) 6 10/28/15 2,035
7 09/30/15 (2,152) 7 02/18/15 1,642
8 03/11/15 (1,956) 8 10/14/15 1,476
9 11/11/15 (1,800) 9 04/08/15 1,350
10 07/29/15 (1,700) 10 07/15/15 1,230
Source: Lipper FMI.
Top 10 Largest Outflows/Inflows of All TimeOutflows Inflows
Rank Week of Total ($ Mil.) Rank Week of Total ($ Mil.)
1 08/06/14 (7,068) 1 10/26/11 4,248
2 06/05/13 (4,600) 2 10/21/15 3,343
3 12/16/15 (3,811) 3 07/24/13 3,200
4 12/09/15 (3,460) 4 08/27/03 3,259
5 06/22/11 (3,432) 5 09/25/13 3,100
6 08/10/11 (3,415) 6 02/11/15 2,935
7 06/12/13 (3,283) 7 01/28/15 2,765
8 06/26/13 (3,086) 8 07/17/13 2,700
9 12/17/14 (3,080) 9 02/04/15 2,670
10 07/01/15 (2,980) 10 11/05/14 2,441
Source: Lipper FMI.
122The Annual Manual (U.S. Leveraged Finance Primer) — High-Yield Bond Data June 6, 2016
High-Yield Bond Data
0
100
200
300
400
500
600
700
800
900
1,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Average Par Value of Defaults Per Issuer
($ Mil.)
Source: Fitch U.S. High Yield Default Index.
Statistics:High: $857 Mil. (2014)Low: $233 Mil. (2007)Avg.: $523 Mil.
Top 10 Largest High-Yield Defaults 2000–2015
Issuer
Amount Outstanding at Default ($ Bil.)
Default Date Default Source Industry
WorldCom Inc. 26.3 07/22/02 Chapter 11 Filing Telecommunications
CIT Group Inc. 20.3 11/01/09 Chapter 11 Filing Banking & Finance
Energy Future Holdings 16.6 04/29/14 Chapter 11 Filing Utilities, Power & Gas
GMAC LLC 14.6 12/31/08 Distressed Exchange Banking and Finance
Caesars Entertainment Operating Co. 12.4 01/15/15 Chapter 11 Filing Gaming, Lodging & Restaurants
Charter Holding Co. LLC 12.6 03/27/09 Chapter 11 Filing Cable
General Motors Corp. 10.4 06/01/09 Chapter 11 Filing Automotive
Calpine Corp. 10.0 12/21/05 Chapter 11 Filing Utilities, Power & Gas
Residential Capital LLC 8.1 06/04/08 Distressed Exchange Banking & Finance
Residential Capital LLC 6.6 12/31/08 Distressed Exchange Banking & Finance
Source: Fitch U.S. High Yield Default Index.
123The Annual Manual (U.S. Leveraged Finance Primer) — High-Yield Bond Data June 6, 2016
High-Yield Bond Data
Recovery Rates by Seniority
(%)Weighted Avg. Recovery Rate
Straight Avg. Recovery Rate
Median Recovery Ratea
Number of Issues with Price Data
2000Senior Secured 50.5 53.9 47.5 19Senior Unsecured 18.4 22.5 13.3 74Senior Subordinated 27.1 23.6 20.0 64Total Defaulted Issues 24.9 28.0 20.0 157
2001Senior Secured 60.3 35.8 22.4 34Senior Unsecured 27.8 20.2 12.8 234Senior Subordinated 16.7 20.3 16.6 71Total Defaulted Issues 29.8 21.8 15.8 339
2002Senior Secured 44.9 46.6 41.3 22Senior Unsecured 21.2 28.9 20.5 267Senior Subordinated 24.3 25.7 19.5 30Total Defaulted Issues 22.5 30.8 21.9 319
2003Senior Secured 69.8 56.2 63.2 13Senior Unsecured 47.0 42.8 39.7 104Senior Subordinated 29.4 30.9 26.6 32Total Defaulted Issues 44.4 40.5 36.6 149
2004Senior Secured 89.2 72.2 73.7 8Senior Unsecured 52.8 50.6 47.6 32Senior Subordinated 55.1 50.2 54.2 9Total Defaulted Issues 62.1 54.4 51.6 49
2005Senior Secured 89.1 87.0 84.5 27Senior Unsecured 41.2 54.1 57.8 42Senior Subordinated 12.4 29.9 19.3 6Total Defaulted Issues 57.6 58.7 61.3 75
2006Senior Secured 93.4 95.5 96.9 5Senior Unsecured 67.5 51.1 60.0 18Senior Subordinated 35.7 42.9 26.0 9Total Defaulted Issues 64.3 55.1 60.0 32
2007Senior Secured 81.8 82.9 93.9 5Senior Unsecured 63.4 63.4 74.6 10Senior Subordinated 56.7 50.1 44.4 8Total Defaulted Issues 66.4 64.3 69.1 23
2008Senior Secured 32.3 38.8 29.5 27Senior Unsecured 54.4 31.0 25.1 70Senior Subordinated 23.8 19.1 7.3 25Total Defaulted Issues 45.8 29.7 19.6 122
2009Senior Secured 36.8 37.2 25.4 38Senior Unsecured 36.0 33.5 31.0 258Senior Subordinated 19.2 24.9 14.9 48Total Defaulted Issues 34.1 31.9 24.9 344aSimilar seniorities per issuer collapsed into one observation. Note: Recoveries 30 days post default. Continued on next page. Source: Fitch U.S. High Yield Default Index, Advantage Data.
124The Annual Manual (U.S. Leveraged Finance Primer) — High-Yield Bond Data June 6, 2016
High-Yield Bond Data
Recovery Rates by Seniority (Continued)
(%)Weighted Avg. Recovery Rate
Straight Avg. Recovery Rate
Median Recovery Ratea
Number of Issues with Price Data
2010Senior Secured 64.3 60.0 55.3 15Senior Unsecured 69.3 63.5 81.6 10Senior Subordinated 28.3 26.8 16.9 11Total Defaulted Issues 56.7 51.2 50.0 36
2011Senior Secured 68.4 73.4 74.7 19Senior Unsecured 50.0 32.7 22.0 32Senior Subordinated 29.4 30.7 23.1 4Total Defaulted Issues 59.4 47.8 47.9 55
2012Senior Secured 64.7 59.1 62.0 16Senior Unsecured 42.8 37.6 36.2 33Senior Subordinated 38.3 33.4 26.6 9Total Defaulted Issues 50.2 44.8 38.9 58
2013Senior Secured 65.7 67.8 71.1 26Senior Unsecured 30.0 40.1 27.1 25Senior Subordinated 67.0 49.5 45.6 3Total Defaulted Issues 47.7 56.2 54.4 54
2014Senior Secured 85.1 66.3 59.8 27Senior Unsecured 40.3 53.5 56.7 27Senior Subordinated 57.3 71.7 77.6 4Total Defaulted Issues 64.2 61.5 60.2 58
2015Senior Secured 39.0 37.3 31.4 39Senior Unsecured 24.1 33.4 27.9 79Senior Subordinated 32.8 43.3 38.6 7Total Defaulted Issues 31.3 35.7 29.4 125
2000–2015Senior Secured 57.8 53.4 23.6 340Senior Unsecured 33.7 33.5 25.3 1,315Senior Subordinated 25.8 27.5 19.8 340Total Defaulted Issues 37.9 36.3 26.9 1,995aSimilar seniorities per issuer collapsed into one observation. Note: Recoveries 30 days post default. Source: Fitch U.S. High Yield Default Index, Advantage Data.
125The Annual Manual (U.S. Leveraged Finance Primer) — High-Yield Bond Data June 6, 2016
High-Yield Bond Data
2015 U.S. High-Yield Bond DefaultsMonth Issuer Par Value ($ Mil.) Default Date Default Source IndustryJanuary 2015 Verso Paper Holding LLC/Inc. 160.5 01/07/15 Distressed Exchange Paper & Containers
Caesars Entertainment Operating Co. 12,350.9 01/15/15 Chapter 11 Filing Gaming, Lodging & RestaurantsAltegrity Inc. 1,397.5 01/31/15 Missed Payment Services & MiscellaneousSubtotal 13,908.9
February 2015 OAS Financial Ltd. 900.0 02/01/15 Missed Payment Building & MaterialsSaratoga Resources Inc. 125.2 02/02/15 Missed Payment EnergyRadioShack Corp. 325.0 02/05/15 Chapter 11 Filing RetailVirgolino de Oliveira Finance S/A 735.0 02/13/15 Missed Payment Food, Beverage & TobaccoSubtotal 2,085.2
March 2015 Chassix Inc. 375.0 03/04/15 Missed Payment AutomotiveLiberty Tire Recycling Holdco LLC 222.7 03/05/15 Distressed Exchange Industrial/ManufacturingDune Energy Inc. 67.8 03/08/15 Chapter 11 Filing EnergyDoral Financial Corp. 170.0 03/11/15 Chapter 11 Filing Banking & FinanceChassix Holdings 155.7 03/12/15 Chapter 11 Filing AutomotiveQuicksilver Resources Inc. 1,173.0 03/17/15 Chapter 11 Filing EnergySubtotal 2,164.2
April 2015 Alpha Natural Resources Inc. 443.0 04/01/15 Distressed Exchange Metals & MiningAmerican Eagle Energy Corp. 175.0 04/02/15 Missed Payment EnergyVenoco Inc. 191.8 04/02/15 Distressed Exchange EnergyXinergy Corp. 195.0 04/06/15 Chapter 11 Filing Metals & MiningKaisa Group Holdings 800.0 04/19/15 Missed Payment Real EstateHalcon Resources Corp. 252.2 04/30/15 Distressed Exchange EnergySubtotal 2,057.0
May 2015 RAAM Global Energy Co. 238.0 05/01/15 Missed Payment EnergyMagnetation LLC 425.0 05/05/15 Chapter 11 Filing Metals & MiningWinsway Enterprises Holdings Ltd. 309.3 05/08/15 Missed Payment Metals & MiningConnacher Oil & Gas Ltd. 550.0 05/08/15 Distressed Exchange EnergyPatriot Coal Corp. 281.9 05/12/15 Chapter 11 Filing Metals & MiningSandRidge Energy Inc. 50.0 05/20/15 Distressed Exchange EnergyMidstates Petroleum Co. 627.9 05/21/15 Distressed Exchange EnergyLupatech Finance 47.9 05/25/15 Chapter 11 Filing Metals & MiningWarren Resources Inc. 69.6 05/26/15 Distressed Exchange EnergySubtotal 2,599.5
June 2015 Cimento Tupi S.A. 185.0 06/11/15 Missed Payment Building & MaterialsColt Defense LLC 250.0 06/14/15 Chapter 11 Filing Services & MiscellaneousTunica-Biloxi Gaming Authority 150.0 06/15/15 Missed Payment Gaming, Lodging & RestaurantsCeagro Agricola Ltd. 100.0 06/16/15 Missed Payment Services & MiscellaneousSaratoga Resources Inc. 54.6 06/18/15 Chapter 11 Filing EnergyAmerican Energy - Woodford LLC 339.7 06/22/15 Distressed Exchange EnergyMolycorp Inc. 650.0 06/25/15 Chapter 11 Filing Metals & MiningSubtotal 1,729.3
July 2015 Lightstream Resources Ltd. 463.5 07/02/15 Distressed Exchange EnergyWalter Energy Inc. 2,101.8 07/15/15 Chapter 11 Filing Metals & MiningSabine Oil & Gas Corp. 1,150.0 07/15/15 Chapter 11 Filing EnergyTonon Bioenergia S.A. 289.2 07/16/15 Distressed Exchange Food, Beverage & TobaccoSubtotal 4,004.5
August 2015 Alpha Natural Resources Inc. 2,268.0 08/03/15 Chapter 11 Filing Metals & MiningBlack Elk Energy Offshore Operations LLC 138.7 08/11/15 Chapter 7 Filing EnergyHercules Offshore Inc. 1,200.0 08/15/15 Chapter 11 Filing EnergySandRidge Energy Inc. 525.0 08/19/15 Distressed Exchange EnergyAmerican Seafoods Group LLC 275.0 08/20/15 Distressed Exchange Services & MiscellaneousASG Consolidated LLC 258.4 08/20/15 Distressed Exchange Services & MiscellaneousSAExploration Holdings Inc. 10.0 08/27/15 Distressed Exchange EnergySubtotal 4,675.1
September 2015 Quiksilver Inc. 505.0 09/09/15 Chapter 11 Filing Textiles & FurnitureHalcon Resources Corp. 1,566.3 09/10/15 Distressed Exchange EnergySamson Investment Co. 2,250.0 09/16/15 Chapter 11 Filing EnergyShale-Inland Holdings 28.6 09/29/15 Distressed Exchange Metals & MiningSubtotal 4,349.9
Continued on next page. Source: Fitch U.S. High Yield Default Index.
126The Annual Manual (U.S. Leveraged Finance Primer) — High-Yield Bond Data June 6, 2016
High-Yield Bond Data
2015 U.S. High-Yield Bond Defaults (Continued)Month Issuer Par Value ($ Mil.) Default Date Default Source IndustryOctober 2015 Goodrich Petroleum Corp. 158.2 10/01/15 Distressed Exchange Energy
American Apparel Inc. 214.5 10/05/15 Chapter 11 Filing Textiles & FurnitureLogan's Roadhouse Inc. 211.1 10/14/15 Distressed Exchange Gaming, Lodging & RestaurantsSandRidge Energy Inc. 400.0 10/15/15 Distressed Exchange EnergyWarren Resources Inc. 63.1 10/22/15 Distressed Exchange EnergySchahin II Finance Co. (SPV) Ltd. 651.5 10/25/15 Missed Payment EnergyExco Resources Inc. 577.0 10/26/15 Distressed Exchange EnergyDex Media Inc. 270.1 10/30/15 Missed Payment Broadcasting & MediaSubtotal 2,545.5
November 2015 Exco Resources Inc. 251.4 11/04/15 Distressed Exchange EnergyHidili Industry International 182.8 11/04/15 Missed Payment Metals & MiningEssar Steel Algoma Inc. 375.0 11/09/15 Chapter 15 Filing Metals & Mining1839688 Alberta ULC 279.6 11/09/15 Chapter 15 Filing Metals & MiningAffinion Group Holdings 247.4 11/09/15 Distressed Exchange Broadcasting & MediaAffinion Investments LLC 337.3 11/09/15 Distressed Exchange Broadcasting & MediaFar East Energy Bermuda Ltd. 84.7 11/10/15 Chapter 7 Filing EnergyChina Shanshui Cement Group Ltd. 28.9 11/12/15 Missed Payment Building & MaterialsSubtotal 1,787.0
December 2015 Offshore Group Investment Ltd. 1,814.4 12/03/15 Chapter 11 Filing EnergyGetty Images Inc. 234.4 12/10/15 Distressed Exchange Broadcasting & MediaMagnum Hunter Resources Corp. 600.0 12/15/15 Chapter 11 Filing EnergyNew Gulf Resources LLC 517.0 12/17/15 Chapter 11 Filing EnergyHalcon Resources Corp. 289.5 12/21/15 Distressed Exchange EnergyAutomotores Gildemeister S.A. 700.0 12/24/15 Missed Payment AutomotiveEmpresas ICA S.A.B. de C.V. 1,350.0 12/29/15 Missed Payment Building & MaterialsSwift Energy Co. 875.0 12/31/15 Chapter 11 Filing EnergySubtotal 6,380.4
Source: Fitch U.S. High Yield Default Index.
The Annual Manual (U.S. Leveraged Finance Primer) June 6, 2016
Appendix
Sector Outlooks 127
Historical Rating Actions 128
Bankruptcy Case Studies 130Revolving Credit Utilization in Bankruptcy 130
Criteria Summaries 137Corporate Rating Methodology 138Parent and Subsidiary Rating Linkage 139Rating Recovery Methodology 143ABL Recovery Analysis 145Pension Recovery Analysis 146
Research Portfolio 148
Rating Coverage 155
U.S. Leveraged Finance Contact List 165
127The Annual Manual (U.S. Leveraged Finance Primer) — Appendix June 6, 2016
Appendix
Sector OutlooksRating Outlook Sector Outlook
Corporate Sector 2015 2016 2015 2016 HighlightsGlobal Aerospace & Defense Stable Stable Stable Stable Substantial backlog and rising commercial aircraft production. Positive defense
spending trends are indicated. Cash deployment is a concern. End markets display some weakening, such as business jets.
U.S. Agribusiness Stable Stable Stable Stable Plentiful crop harvests maintaining large global stockpiles. Slowing emerging market growth. M&A increases along with solid cash flow generation.
North American Airlines Positive Positive Positive Positive Growing demand for air travel. Low fuel prices. Improving credit metrics.EMEA and U.S. Alcoholic Beverages Stable Negative Stable Stable In developed world, market share shifts from changes in consumption. Reported
performance influenced by currency volatility. Geographic diversification and cost savings help protect profits.
U.S. Auto Manufacturers & Suppliers Positive Stable Stable Stable Ongoing global demand growth. Strong industry liquidity. Relatively low break-even levels.
U.S. Building & Home Products and Services
Stable Stable Stable Stable Cyclical improvement in U.S. construction activity. Modestly better FCF generation. Prospects for debt reduction.
North American Chemicals Stable Stable Stable Stable Solid domestic growth. Trade headwinds. Activist shareholders.U.S. and EMEA Consumer Products Stable Stable Stable Stable Organic top-line growth is stable. Cost savings and a benign commodity
environment will protect margins. Strategic M&A is intended to improve business profiles.
Crude Oil & Refined Products Pipelines Stable Stable Stable Stable The sector is largely supported by long-term fee-based contracts. Lack of direct commodity exposure benefits the sector, some volume risk exists. Economical shale plays will increase production, even in low crude price environment, boosting demand for certain pipelines.
Diversified Manufacturing & Capital Goods
Stable Stable Stable Negative Capital goods cycles deteriorating. Shareholder-friendly cash deployment. Negative currency offsets slow growth.
U.S. Equity REITs Stable Stable Positive Positive Good property-level fundamentals. Limited expected deleveraging. Capital allocation decisions key.
U.S. Gaming Stable Stable Stable Stable Secular headwinds. REIT transactions. Suppliers' high leverage.U.S. Healthcare Negative Stable Stable Stable Good demand tailwinds, but secular challenges to profitability. The value debate
influences business development decisions. Presidential election cycle headline risk to equity prices and may influence capital deployment.
Global Hotels Stable Stable Stable Stable Positive global travel trends. Global RevPAR growth of 3%–5%. Elevated event risk; new competition.
U.S. Housing & Homebuilders Stable Stable Stable Stable The up-cycle, although so far less robust than normal, should meet or exceed expectations in 2016. Expect Fed to be cautious in raising rates. Home price inflation continues to cool. Affordability above norm, credit standards to ease.
U.S. Leisure Stable Stable Stable Stable Increasing competition for travel distribution channels. China focuses on cruise lines. Shift to more profitable gaming distribution channels.
U.S. Media & Entertainment Stable Stable Stable Stable Operating environment more conducive to growth. Evolution of media consumption spurs further disruption. Shareholder returns exceed FCF generation.
U.S. Midstream Services Stable Negative Negative Negative Price weakness leads to volume declines. Credit impacts should be limited, but counterparty risk increasing. Sensitivity to price will vary by issuer.
Global Mining Stable Negative Stable Negative Slowdown in Chinese growth and demand for commodities to continue. Investor sentiment to remain negative for at least six months. Prices to remain volatile with a negative bias.
U.S. Natural Gas Pipelines Stable Stable Stable Stable Contractual support provides stability. Marcellus/Utica capacity increasing. Gas demand growing, exports increasing.
U.S. Non-Alcoholic Beverages Stable Stable Stable Stable Low global carbonated soft drink volume growth and currency headwinds. Robust brands, geographic and product diversity key for long-term stability. M&A and shareholder distributions have removed rating headroom. Health and wellness, regulatory headwinds.
U.S. Oil & Gas Stable Negative Negative Negative Additional delays in supply response to sharp industry capex cuts. Another leg down in Chinese/emerging-market demand. Potential step-up in oil exports by Libya or Iran post sanctions.
Oilfield Services N.A. Negative N.A. Negative Lower-for-longer oil and gas prices. Reduced E&P capital spending. Rationalization of services supply in certain segments.
U.S. and EMEA Packaged Food Stable Stable Stable Stable Low revenue growth. Cash flow generation at lower levels to fund restructurings. Improving margins and leverage with commodities and cost cutting. M&A likely to improve business profiles.
Global Pharmaceuticals Negative Negative Stable Stable Industry outlook supported by strong science base and innovation. Growth supported by positive demographics and increasing healthcare access. Focus on value principles shapes demand and leads to the evolution of business models.
North American Refining N.A. Stable N.A. Stable Good profitability, financial flexibility. Structural cost advantages. Modest legislative risks.
U.S. Restaurants Stable Stable Stable Stable Slightly better comparable store sales anticipated due to price/mix, but promotional activity likely to remain elevated. Shift toward franchising, particularly within the quick-service segment. Increased share buybacks with some debt financed.
N.A. – Not available. E&P – Exploration and production. Continued on next page. Source: Fitch Ratings.
128The Annual Manual (U.S. Leveraged Finance Primer) — Appendix June 6, 2016
Appendix
Historical Rating Actions
Sector Outlooks (Continued)Rating Outlook Sector Outlook
Corporate Sector 2015 2016 2015 2016 HighlightsU.S. Retailing Stable Stable Stable Stable U.S. retail sales to grow 3%–4%. Company/subsector performance varies
widely given secular pressures, including spending shift to alternative formats and toward services. Overall sector operating and credit metrics/liquidity stable, but event risk around M&A and financial strategy.
U.S. Technology Stable Stable Stable Negative Rapid cloud adoption driving negative top-line growth for legacy technology companies. Top-line pressures intensifying acquisition activity, shareholder returns and restructuring. Cash location will drive increased borrowing and weaken credit profiles.
U.S. Telecom & Cable Stable Negative Stable Stable Enduring competitive operating environment. Outlook expected to return to stable on transaction closings. Data service demand underpins stable operating profile.
U.S. Timeshare Stable Stable Stable Stable Volumes drive midsingle-digit sales growth. Benefiting from some arguably unsustainable trends. Consolidation to continue, but at a slower pace.
Global Tobacco Stable Negative Stable Stable Pricing power, cost rationalization support high margins. Consolidation eroded leverage headroom; improvement expected. Majority of cash flows directed to shareholder returns. Regulation, litigation risks are manageable.
U.S. Utilities, Power & Gas Stable Stable Stable Stable Electricity sales show modest growth. Natural gas prices to remain weak. Regulatory environments to remain supportive.
N.A. – Not available. E&P – Exploration and production. Source: Fitch Ratings.
2015 Upgrades (IDR)Company From To Date SectorM/I Homes, Inc. B B+ 03/04/15 Homebuilding/Building MaterialsGoodyear Tire & Rubber Company (The) B+ BB– 03/02/15 Auto & RelatedAMC Entertainment Inc. B B+ 02/27/15 MediaAir Canada B B+ 02/23/15 TransportationJetBlue Airways Corp. B B+ 02/19/15 TransportationMasco Corporation BB BB+ 02/18/15 Homebuilding/Building MaterialsH.J. Heinz Holding Corp. BB– BBB– 06/25/15 Food, Beverage & TobaccoGeneral Motors Company BB+ BBB– 06/18/15 Auto & RelatedNOVA Chemicals Corporation BB+ BBB– 06/11/15 ChemicalsApartment Investment and Management Company (AIMCO) BB+ BBB– 06/05/15 Real EstateRegency Energy Partners BB BBB– 05/01/15 Energy (Oil & Gas)United Continental Holdings, Inc. B B+ 04/07/15 TransportationCrown Castle International Corp. BB BBB– 07/01/15 TelecommunicationsMarina District Finance Company, Inc. B– B 07/21/15 Gaming, Lodging & LeisureAllison Transmission, Inc. BB– BB 08/07/15 Auto & RelatedBest Buy Co., Inc. BB BBB– 08/27/15 RetailJ. C. Penney Company, Inc. CCC B– 08/27/15 RetailLevel 3 Communications, Inc. B+ BB– 08/28/15 TelecommunicationsHCA Holdings Inc. BB– BB 09/01/15 HealthcareDelta Air Lines BB BB+ 09/14/15 TransportationUnited Airlines, Inc. B+ BB– 09/18/15 TransportationCalAtlantic Group, Inc. B+ BB– 09/29/15 Homebuilding/Building MaterialsSanmina Corporation BB BB+ 09/30/15 TechnologyAvago Technologies Finance Pte. Ltd. BB+ BBB– 11/03/15 TechnologyLevi Strauss & Co. BB– BB 11/05/15 RetailFreescale Semiconductor, Inc. B+ BBB– 12/04/15 TechnologyAmerican Airlines Group, Inc. B+ BB– 12/07/15 TransportationMeritor, Inc. B B+ 12/09/15 Auto & RelatedCorner Investment PropCo, LLC (The Cromwell) CCC B– 12/15/15 Gaming, Lodging & Leisure
IDR – Issuer Default Rating. Source: Fitch Ratings.
129The Annual Manual (U.S. Leveraged Finance Primer) — Appendix June 6, 2016
Appendix
2015 Downgrades (IDR)Company From To Date SectorPeabody Energy (Formerly P&L Coal Holding Corp.) BB– B 03/02/15 Energy (Oil & Gas)Vogue International LLC BB– B+ 02/19/15 ConsumerBombardier Inc. BB– B+ 02/18/15 Aerospace & DefenseRadioShack Corporation C D 02/06/15 RetailCaesars Entertainment Operating Company, Inc. C D 01/15/15 Gaming, Lodging & LeisureCITGO Petroleum Corp. BB– B 01/09/15 Energy (Oil & Gas)NGPL PipeCo LLC B– CCC 05/15/15 Energy (Oil & Gas)First Quantum Minerals Ltd. BB BB– 05/08/15 Natural ResourcesAvon Products, Inc. BB BB– 05/04/15 ConsumerArch Coal, Inc. CCC C 07/06/15 Natural ResourcesPeabody Energy (Formerly P&L Coal Holding Corp.) B CCC 07/27/15 Energy (Oil & Gas)Energy XXI Gulf Coast, Inc. B CCC 07/29/15 Energy (Oil & Gas)Energy XXI LTD B– CCC+ 07/29/15 Energy (Oil & Gas)Harsco Corporation BBB– BB+ 07/29/15 Diversified ManufacturingBombardier Inc. B+ B 08/13/15 Aerospace & DefenseDCP Midstream, LLC BBB– BB+ 09/09/15 Energy (Oil & Gas)Transocean, Inc. BBB– BB+ 10/08/15 Energy (Oil & Gas)Teck Resources Ltd. BBB– BB+ 10/13/15 Natural ResourcesAvon Products, Inc. BB– B+ 11/05/15 ConsumerChesapeake Energy Corp. BB BB– 11/06/15 Energy (Oil & Gas)Seacor Holdings, Inc. BB– B+ 11/11/15 Energy (Oil & Gas)Mack-Cali Realty Corporation BBB– BB+ 11/16/15 Real EstateSeacor Holdings, Inc. B+ B 12/03/15 Energy (Oil & Gas)United States Steel Corporation BB– B+ 12/07/15 Natural ResourcesHovnanian Enterprises, Inc. B– CCC 12/09/15 Homebuilding/Building MaterialsChesapeake Energy Corp. BB– B 12/16/15 Energy (Oil & Gas)NGL Energy Partners LP BB B+ 12/23/15 Energy (Oil & Gas)
IDR – Issuer Default Rating. Source: Fitch Ratings.
15
10
5
0
5
10
Upgrades Downgrades
2015 Speculative-Grade Upgrades/Downgrades by Industry
(No. of IDR Changes)
IDR – Issuer Default Rating. Source: Fitch Ratings.
130The Annual Manual (U.S. Leveraged Finance Primer) — Appendix June 6, 2016
Appendix
Bankruptcy Case Studies
Revolving Credit Utilization in BankruptcyFitch Ratings analyzed utilization rates of revolvers at the time of bankruptcy filing in a Sept. 22, 2014 report, Revolving Credit Facility Performance in Bankruptcy (U.S. Corporate Revolver Utilization and Recovery Rates). The study was performed to verify Fitch’s typical drawdown assumptions in bespoke recovery analyses for issuers rated ‘B+’ and lower.
Facility Utilization at BankruptcyFitch observed that utilization rates for cash flow (CF) revolvers exceeded asset-based lending (ABL) facilities, which is consistent with our analytical practice in the amount estimated for the recovery waterfall. The median CF facility utilization rate was 94% for the 64 CF revolvers in the sample. The rate supports Fitch’s analytical approach of assuming full draws of CF facilities in recovery analysis.
The median and average utilization rates for ABLs were 64% and 65%, respectively, for the 30 ABL facilities in the study sample. There was less utilization for the 15 retail ABLs compared with
51 6638 39 49 38 35 29 28 29
35 40
125
178
32 29 34 22 18 27
200
150
100
50
0
50
100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Upgrades Downgrades
Historical Speculative-Grade Upgrades/Downgrades
(No. of IDR Changes)
IDR – Issuer Default Rating. Source: Fitch Ratings.
(10)
(8)
(6)
(4)
(2)
0
2
4
6
8
10
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Rising Stars Fallen Angels
Historical Rising Stars and Fallen Angels
(No. of Rating Actions)
Source: Fitch Ratings.
131The Annual Manual (U.S. Leveraged Finance Primer) — Appendix June 6, 2016
Appendix
the 15 from other sectors. The ABLs may have had structural features that limited borrowings, including springing restrictions if fixed-charge coverage ratios fall below 1.0x, reserve requirements or cash dominion. Fitch’s Recovery Rating analyses usually include assumptions of retail sector ABL drawdown rates of approximately 70%, and 50%–100% in other sectors. There was more variability in ABL utilization compared with CF revolvers, as illustrated in the distribution charts below.
Pre-Default Utilization UptrendUtilization rates spiked in the years prior to bankruptcy for the 31 largest revolvers in Fitch’s analysis. Average revolver utilization increased to 77% on the bankruptcy date from 63% one year prior to default, and from 33% three years prior to default.
0
10
20
30
40
50
(Facility Count)
Source: Fitch Ratings, company disclosure statements.
Cash Flow Revolving Facility Utilization
0
2
4
6
8
10
(Facility Count)
ABL – Asset-backed lending.Source: Fitch Ratings, company disclosure statements.
ABL Revolving Facility Utilization
0
20
40
60
80
100
BK Less Three Years BK Less Two Years BK Less One Year BK
(%)
Average Utilization Rate Trend
All Cash Flow ABL
ABL – Asset-backed lending. BK – Bankruptcy date.Source: Fitch Ratings, company 10-Ks and disclosure statements.
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Appendix
Revolver Recovery RatesThe report also focused on recovery rates for revolving facilities. Fitch gathered recovery data from the plan disclosure statements filed with bankruptcy courts. Revolver debt had excellent recovery rates, with ultimate recoveries averaging 90% for the 92 facilities that had borrowings outstanding on the bankruptcy petition dates. ABL lender recoveries were superior to those of CF facility providers. Recoveries averaged 97% and 87% on ABL and CF revolvers, respectively. Among ABL claims, 90% (27 out of 30) received full recovery, including the 15 retail sector facilities structured as ABLs. Fifty-six percent of distributions made to revolver claimholders were paid in the form of cash, while others were combinations of cash, new debt or new equity.
PIK Debt Recoveries in Bankruptcies
CompanyBankruptcy Date
Emergence Date PIK Debt Issue
PIK Holder Claim ($ Mil.)
PIK Debt Recovery Rate (%)
Form of PIK Debt Recovery Comment
Trump Holding and Funding (Parent of Trump Hotel and Casino Resorts, Inc.)
11/21/04 05/20/05 17.625% Second Priority Notes
50 95 $47.7 Mil. of new notes plus accrued interest on $54 Mil.
The second priority PIK notes were junior in priority to approximately $1.75 Bil. of first mortgage notes.
American Banknote, Inc.
01/19/05 04/15/05 10.375% Senior Unsecured Notes
96 95 New common stock There was only a modest amount of debt ahead of the PIK notes in priority. The equity distributed to the PIK holders was valued at $114 Mil. in the disclosure statement $108 Mil. allocated to PIK claims).
Pliant Corp. (First Bankruptcy)
01/03/06 07/19/06 11.625% Senior Secured Notes
254 100 The notes were reinstated in the first reorganization plan
In Pliant's first bankruptcy filing the secured debt was reinstated and the more junior claims received distributions in the form of new notes and new common equity.
Bally Total Fitness Holdings Corp.
12/03/08 09/03/09 14.000% Subordinated Notes
231 0.0–1.5 3% share of new common stock and warrants shared with 15.625% subordinated noteholders
PIK claims were deeply subordinated to more senior debt including $50 Mil. revolver and $242 Mil. term loan claims, $260 Mil. senior note claims, $75 Mil.–$245 Mil. of general unsecured claims. Secured term loan lenders received 94% of the new common stock.
Pliant Corp. (Second Bankruptcy)
02/11/09 12/03/09 11.625% Senior Secured Notes
393 50 100% of the new common stock
In Pliant's second filing, the $145 Mil. credit facility claims were reinstated, the secured PIK notes were exchanged for equity and $275 Mil. of unsecured claims received 0.5% recovery.
Finlay Enterprises, Inc.
08/05/09 08/02/10 Second Lien Notes
23 100 Cash ABL revolver and second lien claims were paid in full and third lien claims received 45% of par in cash recoveries from proceeds from going out of business liquidation sale.
Finlay Enterprises, Inc.
08/05/09 08/02/10 Third Lien Notes and Vendor Financing
194 45 Cash ABL revolver and second lien claims were paid in full and third lien claims received 45% cash recoveries from proceeds from going out of business liquidation sale.
Atrium Companies, Inc.
01/20/10 04/28/10 15.000% Senior Subordinated Notes
220 2.5–3.9 Depends on plan alternative that was completed (new value or alternative acquisition). Would be in form of new common stock, cash or other consideration
PIK claims were junior in priority to $383 Mil. of secured debt and $48 Mil. of 11% priority unsecured notes.
aRecovery rate not available due to valuation estimates not provided in disclosure statement. PIK – Payment in kind. ABL – Asset-based loan. PGBC – Pension Benefits Guaranty Corporation. DIP – Bebtor in posession. N.A. – Not applicable. Continued on next page.Source: Fitch Ratings, Company reports, Bloomberg.
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PIK Debt Recoveries in Bankruptcies (Continued)
CompanyBankruptcy Date
Emergence Date PIK Debt Issue
PIK Holder Claim ($ Mil.)
PIK Debt Recovery Rate (%)
Form of PIK Debt Recovery Comment
Black Gaming LLC 03/01/10 08/04/10 12.750% Senior Subordinated Notes
66 0 Five-year warrants to buy 5% of common stock contingent upon reaching minimum enterprise value threshold of $140 Mil.
PIK claims junior in priority to $15 Mil. first lien revolver borrowings and $125 Mil. second lien notes.
Wolverine Tube, Inc. 11/01/10 06/10/11 15.000% Senior Secured Notes
131 77 $30 Mil. of new first lien notes less the distributable cash and 95% of the new common stock ($71 Mil.)
The main claims against the debtor were the PIK notes and PGBC claims. Common stock assumed to have total value of $75 Mil. based on financial projections exhibit to disclosure statement dated April 15, 2011.
American Media Operations, Inc.
11/17/10 12/22/10 9.000% Guaranteed Notes
25 100 New second lien notes or PIK notes or preferred stock
PIK claims senior in priority to $356 Mil. of subordinated notes.
Vertis Holdings, Inc. 11/18/10 12/20/10 13.500% Senior Unsecured Notes
258 5 3.75% share of the new common stock
Junior in priority to $90 Mil. first lien revolver and $437 Mil. first lien term loan claims, $492 Mil. second lien notes (3 series).
Sbarro, Inc. 04/04/11 11/28/11 Second Lien Term Loan
34 0 N.A. The first lien holders received new debt and 100% of the new common stock.
Indianapolis Downs, LLC
04/07/11 04/11/13 15.500% Third Lien Notes
78 16 Cash PIK claims junior to $98 Mil. of first lien facility claims (rolled into DIP) and $375 Mil. of second lien note claims. Recovery increased by $25 Mil. upon occurrence of specified scenario.
Dex One Corp. (Second Bankruptcy)
03/17/13 04/30/13 12.000% Senior Subordinated Notes
220 100 Notes were reinstated in a prepackaged filing
The bankruptcy filing enabled Dex One, and its merger partner, SuperMedia, to complete their merger and to extend their respective debt credit facility maturities to 2016 from 2014 while keeping their prepetition capital structures intact and preserving equity interests. The merger closed on their plan of reorganization effective dates.
Revel AC Inc. 03/25/13 05/21/13 12.000% Second Lien Notes
388 18 Share of contingent payment rights to any payments from the State of New Jersey's Economic Redevelopment Grant (ERG) proceeds
Junior in priority to $923 Mil. term loan claims and $208 Mil. of revolver and term loan claims. Recovery rate assumes maximum $70 Mil. of ERG payments.
GMX Resources Inc.a 04/01/13 02/04/14 Senior Secured Notes
338 — 100% of new common stock
The PIK notes were senior in priority to $102 Mil. unsecured debt.
Cengage Learning Holdco
07/02/13 04/01/14 13.750% Senior Unsecured Holdco Notes
68 0.4 N.A. The holdco notes were structurally subordinated and also subordinated to secured debt at the operating and holding companies. First lien debt claims, including interest and related swap claims were approximately $4.6 Bil.
aRecovery rate not available due to valuation estimates not provided in disclosure statement. PIK – Payment in kind. ABL – Asset-based loan. PGBC – Pension Benefits Guaranty Corporation. DIP – Bebtor in posession. N.A. – Not applicable. Source: Fitch Ratings, Company reports, Bloomberg.
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Companies Featured in Bankruptcy Case Study ReportsName IndustryAllied Holdings, Inc. AutomobilesChrysler LLC (Old CarCo LLC) AutomobilesCollins & Aikman Corporation AutomobilesCooper-Standard Holdings Inc. AutomobilesDana Corporation, et al AutomobilesDelphi Corporation AutomobilesDura Automotive Systems, Inc. AutomobilesFisker Automotive Holdings, Inc. AutomobilesGeneral Motors Corp. (Motors Liquidation Corp.) AutomobilesHayes Lemmerz International, Inc. AutomobilesHolley Performance Products Inc. AutomobilesJ.L. French Automotive Castings, Inc. AutomobilesKey Plastics LLC AutomobilesLear Corp. AutomobilesMark IV Industries, Inc. AutomobilesNoble International, Ltd. AutomobilesPlastech Engineered Products, Inc. AutomobilesRemy International, Inc. AutomobilesTower Automotive, Inc. AutomobilesVisteon Corporation et al AutomobilesAffiliated Media, Inc. Broadcasting & MediaAmerican Media Operations, Inc. et al Broadcasting & MediaCengage Learning Inc. Broadcasting & MediaCitadel Broadcasting Corp. Broadcasting & MediaDex One Corp. Broadcasting & MediaFreedom Communications Holdings, Inc. Broadcasting & MediaGateHouse Media, Inc. Broadcasting & MediaHaights Cross Communications, Inc. Broadcasting & MediaHoughton Mifflin Harcourt Publishing Company Broadcasting & MediaIdearc, Inc., et al Broadcasting & MediaION Media Networks, Inc., et al Broadcasting & MediaJournal Register Company Broadcasting & MediaLee Enterprises, Inc. Broadcasting & MediaLocal Insight Media Holdings, Inc. Broadcasting & MediaLodgeNet Interactive Corporation Broadcasting & MediaMorris Publishing Group, LLC Broadcasting & MediaMuzak Holdings LLC Broadcasting & MediaNebraska Book Company Broadcasting & MediaPenton Business Media Holdings, Inc. Broadcasting & MediaQuebecor World (USA), Inc., et al Broadcasting & MediaR.H. Donnelly Corp. Broadcasting & MediaRDA Holding Co. (Readers Digest) Broadcasting & MediaRegent Communications, Inc. Broadcasting & MediaRHI Entertainment, Inc. Broadcasting & MediaStar Tribune Company (The) Broadcasting & MediaSuperMedia Inc. Broadcasting & MediaThe Reader’s Digest Association, Inc., et al Broadcasting & MediaTribune Company Broadcasting & MediaTruvo USA LLC, et al Broadcasting & MediaVertis Holdings, Inc. Broadcasting & MediaYoung Broadcasting, Inc. Broadcasting & MediaMasonite Corporation, et al Building & MaterialsWilliam Lyons Homes, et al Building & MaterialsChemtura Corporation, Chemtura Canada Co. ChemicalsLyondell Chemical Company, et al ChemicalsTronox Incorporated, et al ChemicalsBearingPoint, Inc. Computers & ElectronicsConexant Systems, Inc. Computers & ElectronicsEastman Kodak Company Computers & ElectronicsMagnaChip Semiconductor LLC, MagnaChip Finance Co. Computers & ElectronicsSpansion Inc. et al Computers & ElectronicsAventine Renewable Energy Holdings Inc. EnergyBaseline Oil and Gas Corp. Energy
Continued on next page. Source: Fitch Ratings.
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Companies Featured in Bankruptcy Case Study Reports (Cont.)Name IndustryCrusader Energy Group EnergyDelta Petroleum Corporation EnergyEnergy Partners, Ltd. EnergyGeokinetics, Inc. EnergyGlobal Geophysical Services, Inc. EnergyGMX Resources, Inc. EnergyPacific Energy Resources Ltd. EnergySeahawk Drilling, Inc. EnergySemCrude L.P., et al. (SemGroup) EnergyStallion Oilfield Services Ltd. EnergyTeton Energy Corp. EnergyTuscany International Holdings (USA) Ltd. EnergyTXCO Resources Inc. EnergyAgFeed Industries, Inc. Food, Beverage & ConsumerAurora Foods, Inc. Food, Beverage & ConsumerEuroFresh, Inc. Food, Beverage & ConsumerHome Products International, Inc. Food, Beverage & ConsumerHostess Brands, Inc. Food, Beverage & ConsumerInterstate Bakeries Corp. Food, Beverage & ConsumerLe-Nature’s, Inc. Food, Beverage & ConsumerMerisant Worldwide, Inc. Food, Beverage & ConsumerNew World Pasta Company Food, Beverage & ConsumerPierre Foods, Inc. Food, Beverage & ConsumerPilgrim’s Pride Corporation Food, Beverage & ConsumerReddy Ice Holdings, Inc. Food, Beverage & ConsumerSpectrum Brands, Inc. Food, Beverage & ConsumerWornick Company, The Food, Beverage & ConsumerAmelia Island Company Gaming, Lodging & RestaurantsBlack Gaming LLC Gaming, Lodging & RestaurantsBuffets Restaurants Holdings, Inc. Gaming, Lodging & RestaurantsCircus & Eldorado Joint Venture Gaming, Lodging & RestaurantsExtended Stay, Inc. Gaming, Lodging & RestaurantsFriendly’s Ice Cream Corp. Gaming, Lodging & RestaurantsGreektown Holdings, LLC, et al Gaming, Lodging & RestaurantsHerbst Gaming, Inc. Gaming, Lodging & RestaurantsIndianapolis Downs, LLC Gaming, Lodging & RestaurantsLouisiana Riverboat Gaming Partnership (Legends Gaming 2008) Gaming, Lodging & RestaurantsMagna Entertainment Corp. Gaming, Lodging & RestaurantsMajestic Star Casino LLC, (The) Gaming, Lodging & RestaurantsPerkins & Marie Callender's Inc. Gaming, Lodging & RestaurantsPremier Entertainment Biloxi LLC (d/b/a Hardrock Hotel & Casino Biloxi) Gaming, Lodging & RestaurantsRevel AC Inc. Gaming, Lodging & RestaurantsSbarro, Inc. Gaming, Lodging & RestaurantsStation Casinos, Inc., et al Gaming, Lodging & RestaurantsTropicana Entertainment, LLC (aka OpCo Debtors) Gaming, Lodging & RestaurantsTrump Entertainment Resorts, Inc. Gaming, Lodging & RestaurantsUltimate Escapes, Inc. Gaming, Lodging & RestaurantsUno Restaurant Holdings Corp. Gaming, Lodging & RestaurantsaaiPharma, Inc. Healthcare & PharmaceuticalsAble Laboratories, Inc. Healthcare & PharmaceuticalsCurative Health Services, Inc. Healthcare & PharmaceuticalsDendreon Corp. Healthcare & PharmaceuticalsInsight Health Services Holdings Corp. Healthcare & PharmaceuticalsK-V Pharmaceutical Company Healthcare & PharmaceuticalsLeiner Health Products, Inc. Healthcare & PharmaceuticalsMagellan Health Services, Inc. Healthcare & PharmaceuticalsMModal Holdings, Inc. Healthcare & PharmaceuticalsOCA, Inc. Healthcare & PharmaceuticalsOnCure Medical Corp. Healthcare & PharmaceuticalsOscient Pharmaceuticals Corp. Healthcare & PharmaceuticalsPhysiotherapy Holdings, Inc. Healthcare & PharmaceuticalsRotech Healthcare, Inc. Healthcare & PharmaceuticalsRural/Metro Corp. Healthcare & Pharmaceuticals
Continued on next page. Source: Fitch Ratings.
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Companies Featured in Bankruptcy Case Study Reports (Cont.)Name IndustrySpheris, Inc. Healthcare & PharmaceuticalsAmerican LaFrance, LLC Industrial/ManufacturingAMTROL Holdings, Inc. Industrial/ManufacturingAtrium Companies, Inc. Industrial/ManufacturingChassix Inc. Industrial/ManufacturingColt Defense LLC Industrial/ManufacturingEaglePicher Holdings Inc. Industrial/ManufacturingEnergy Conversion Devices, Inc. Industrial/ManufacturingExide Technologies Industrial/ManufacturingFedders Corporation Industrial/ManufacturingGlobal Power Equipment Group Inc. Industrial/ManufacturingInternational Aluminum Corp. Industrial/ManufacturingMomentive Performance Materials Inc. Industrial/ManufacturingMotor Coach Industries International Industrial/ManufacturingNational RV Holdings, Inc. Industrial/ManufacturingNeenah Enterprises, Inc. Industrial/ManufacturingO’Sullivan Industries, Inc. Industrial/ManufacturingPanolam Industries International, Inc. Industrial/ManufacturingPropex Inc. Industrial/ManufacturingSimmons Company Industrial/ManufacturingSolyndra LLC Industrial/ManufacturingTrue Temper Sports, Inc. Industrial/ManufacturingWellman Inc. Industrial/ManufacturingWolverine Tube, Inc. Industrial/ManufacturingBally Total Fitness Holdings Corp. Leisure & EntertainmentMGM Holdings Inc. (Metro-Goldwyn-Mayer Inc.) Leisure & EntertainmentSix Flags, Inc. Leisure & EntertainmentSource Interlink Companies, Inc. Leisure & EntertainmentAleris International, Inc. Metals & MiningASARCO LLC Metals & MiningBarzel Industries Inc. Metals & MiningPatriot Coal Corp. Metals & MiningReddy Ice Holdings, Inc. MiscellaneousTrico Marine Services, Inc. et al MiscellaneousAbitibiBowater, Inc. Paper & Forest ProductsSmurfit-Stone Container Enterprises, Inc. et al Paper & Forest ProductsThe Newark Group, Inc. Paper & Forest ProductsBorders Group Inc. RetailBSCV, Inc. (formerly Boscov’s Inc.) et al RetailCircuit City Stores, Inc., et al RetailEddie Bauer Holdings, Inc. RetailFinlay Enterprises, Inc., et al RetailGoody's, LLC, et al RetailGottschalks, Inc. RetailHarry & David Holdings, Inc. RetailHub Holdings Corp., et al (f/k/a Anchor Blue Retailing Group, Inc.) RetailLinens ’N Things, Inc., Linens Holdings Co., et al RetailLoehmann’s Holdings Inc. et al RetailMovie Gallery Inc., et al RetailSyms Corp., Filene's Basement, LLC, Syms Clothing, Inc., Syms Advertising Inc. RetailThe Bombay Company, Inc. et al RetailValue City Holdings, Inc., et al RetailBI- LO, LLC, et al Supermarkets & Drug StoresGreat Atlantic and Pacific Tea Company, Inc., (The) Supermarkets & Drug StoresPenn Traffic Company Supermarkets & Drug StoresWinn-Dixie Stores, Inc., et al Supermarkets & Drug StoresBroadview Networks Holdings, Inc. TelecommunicationsCharter Communications, Inc., et al TelecommunicationsFairPoint Communications, Inc. TelecommunicationsFiberTower Corporation TelecommunicationsHawaiian Telcom Communications, Inc. TelecommunicationsPrimus Telecommunications Group, Inc. TelecommunicationsOneida Ltd. Textiles & Furniture
Continued on next page. Source: Fitch Ratings.
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Criteria Summaries
Companies Featured in Bankruptcy Case Study Reports (Cont.)Name IndustryATA Holdings, Inc. (ATA Airlines) TransportationDelta Air Lines, Inc. et al TransportationFrontier Airlines Holdings, Inc. TransportationGeneral Maritime Corp. TransportationMesa Air Group, Inc., et al TransportationNorthwest Airlines Corp., et al TransportationUAL Corporation TransportationCalpine Corp., et al UtilitiesDynegy Holdings, LLC UtilitiesEdison Mission Energy UtilitiesEntergy New Orleans, Inc. UtilitiesMirant Corp., et al Utilities
Source: Fitch Ratings.
Criteria OverviewNameMaster Rating CriteriaCorporate Rating Methodology (Including Short-Term Ratings and Parent and Subsidiary Linkage)
Other General Criteria Relevant for CorporatesParent and Subsidiary Rating LinkageShort-Term Ratings Criteria for Non-Financial CorporatesRating Non-Financial Corporates Above the Country CeilingRating Investment Holding Companies
Criteria on Priority, Security and Recovery RatingsRecovery Ratings and Notching Criteria for Non-Financial Corporate IssuersRecovery Ratings and Notching Criteria for Equity REITsRecovery Ratings and Notching Criteria for UtilitiesCountry-Specific Treatment of Recovery RatingsTreatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit AnalysisRating Aircraft Enhanced Equipment Trust Certificates
Relevant Special Reports and Worked ExamplesTo help interpret our criteria, these special reports provide examples of how our criteria are applied in typical, practical situations.Financial Ratios and AdjustmentsCash-Flow Measures in Corporate AnalysisDebt Factoring; Analytical Adjustments for Corporate Issuers and Their Recovery RatingsOperating LeasesAdjusting for Fair Value of Debt and Related Derivatives in Corporate AnalysisTreatment of Cash in Corporate Analysis
Leveraged FinanceAssigning Corporate Ratings to Issuers in RestructuringDifferentiating Credits Rated ‘B+’ and BelowTreatment of Junior Corporate Debt in Europe (European HoldCo PIK and Shareholder Loans)
Other TopicsUsing Commodity Prices in Corporate ProjectionsTreatment of Intra-Group Loans in Corporate Analysis
Related Resources: Other Cross-Sector Rating Criteria Relevant to CorporatesDistressed Debt ExchangeCriteria for Evaluating Third-Party Partial Credit GuaranteesEvaluating Corporate GovernanceNational Scale Ratings Criteria
Source: Fitch Ratings.
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Corporate Rating MethodologyFitch’s corporate ratings make use of both qualitative and quantitative analyses to assess the business and financial risks of fixed-income issuers and of their individual debt issues. An Issuer Default Rating (IDR) is an assessment of the issuer’s relative vulnerability to default on financial obligations, and is intended to be comparable across industry groups and countries.
A fundamental part of Fitch’s approach is based on a comparative analysis, through which Fitch reviews the strength of an issuer’s business and financial risk profile relative to others in its industry and/or rating category peer group.
Corporate Rating MethodologyKey Rating Factors DescriptionIndustry Risk Fitch determines an issuer’s ratings within the context of each issuer’s industry
fundamentals. Industries that are in decline, highly competitive, capital intensive, cyclical or volatile are inherently riskier than stable industries with few competitors, high barriers to entry, national dominance and predictable demand levels.
Operating Environment Fitch explores the possible risks and opportunities in an issuer’s echnological changes. The agency considers the effects of geographical diversification and trends in the industry expansion or consolidation equired to maintain a competitive position. Industry overcapacity is a key issue, because it creates pricing pressure and, thus, can erode profitability. Also important are the stage of an industry’s life cycle and the growth or maturity of product segments, which determine the need for expansion and additional capital spending.
Company Profile Several factors indicate an issuer’s ability to withstand competitive pressures, including its position in key markets, level of product dominance and ability to influence price. Maintaining a high level of operating performance often depends on product diversity, geographical spread of sales, diversification of major customers and suppliers, and the comparative cost position.
Management Strategy and Corporate Governance
Fitch’s consideration of management strategy focuses on operating strategy, risk tolerance, financial policies and corporate governance. Corporate goals are evaluated, centering upon future strategy and past track record. Key factors considered are the mix of debt and equity in funding growth, the issuer’s ability to support higher levels of debt, and the funding requirement of new assets. The historical mode of financing acquisitions and internal expansion provides insight into management’s risk tolerance. Fitch considers management’s track record of its ability to create a healthy business mix, maintain operating efficiency and strengthen its market position. Financial performance over time provides a useful measure of management’s ability to execute its operational and financial strategies.
Ownership, Support and Group Factors
Fitch considers the relationship between parents and their subsidiaries in assigning IDRs and debt issue ratings. In most cases, separate issuers of debt within a corporate group are typically assigned separate (though potentially identical) IDRs. Issues in determining linkage include legal jurisdiction, corporate structures, company by-laws, loan documentation, the degree of integration between the entities and the strategic importance of a subsidiary.
Financial Profile Cash Flow and Earnings:Profits and cash flow affect the maintenance of operating facilities, internal growth and expansion, access to capital and the ability to withstand downturns in the business environment. Fitch’s analysis focuses on the stability of earnings and continuing cash flows from the issuer’s major business lines. Sustainable operating cash flow supports the issuer’s ability to service debt and finance its operations and capital expansion without the reliance on external funding. Capital Structure:Fitch analyzes capital structure to determine an issuer’s level of dependence on external financing. Several factors are considered to assess the credit implications of an issuer’s financial leverage, including the nature of its business environment and the principal funds from operations. Because industries differ significantly in their need for capital and their capacity to support high debt levels, the financial leverage in an issuer’s capital structure is considered relative to industry norms.
IDR – Issuer Default Rating. Source: Fitch Ratings.
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Parent and Subsidiary Rating LinkageUnderstanding the multifaceted relationship between a parent company and its subsidiaries is crucial for determining each company’s respective probabilities of default.
Fitch employs the parent and subsidiary rating linkage methodology when assigning IDRs to nonfinancial companies that are tied together by a parent/subsidiary relationship. The methodology takes into account several considerations when assessing the legal, operational and strategic ties that can link the IDRs of two or more issuers. The steps taken by Fitch to determine the linking of IDRs collectively form the Linkage Considerations Framework (LCF). The LCF steps, including respective criteria, are summarized in the LCF Decision Matrix and LCF Flow on the next page.
Rating Definition SummaryAAA: Highest Credit Quality ‘AAA’ ratings denote the lowest expectation of default risk. They are
assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality ‘AA’ ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A: High Credit Quality ‘A’ ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
BBB: Good Credit Quality ‘BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.
BB: Speculative ‘BB’ ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time. However, business or financial flexibility exists that supports the servicing of financial commitments.
B: Highly Speculative ‘B’ ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met. However, capacity for continued payment is vulnerable to deterioration in the business and economic environment.
CCC: Substantial Credit Risk Default is a real possibility.CC: Very High Levels of Credit Risk Default of some kind appears probable.C: Exceptionally High Levels of Credit Risk Default is imminent or inevitable, or the issuer is in standstill. Conditions
that are indicative of a ‘C’ category rating for an issuer include: a) the issuer has entered into a grace or cure period following nonpayment of a material financial obligation; b) the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; or c) Fitch Ratings otherwise believes a condition of ‘RD’ or ‘D’ to be imminent or inevitable, including through the formal announcement of a distressed debt exchange.
RD – Restricted default. Source: Fitch Ratings.
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LCF Decision MatrixQuestion Conclusion Criteria
1. Does a parent/sub relationship exist?
Yes/Uncertain
• Parent has majority ownership of sub
• Parent has influential control over sub
• Existence of sub is strategically important to parent
No
• Parent/investor holds passive equity stake in sub
• No control over strategic decisions of sub
• Existence of sub not particularly important to parent
2. Are sector-specific criteria available?
Yes • Refer to sector-specific criteria
No • Continue current analysis
3. Which entity has the stronger stand-alone credit profile?
Parent • Relative risk of default is higher for sub
Subsidiary • Relative risk of default is higher for parent
Equal • Relative risk of default is equal for parent and sub
4. Are legal, operational, and strategic ties strong?
Yes
Legal
• Guarantees of debt obligations exist between entities
• Cross-default provisions in place
Operational
• Parent has control of sub’s board
• All external funding is channeled through parent
• Sub operations integral to the core business of the parent
Strategic
• Parent risks its own survival to keep sub operational
• High degree of demonstrated tangible support from parent to sub
No
Legal
• Covenants with dividend restrictions exist
• Policies exist to mitigate related-party transactions
• Breached covenants can easily be waived (i.e. private bank financing)
• Different legal jurisdictions impede enforceability
Operational
• Low level of senior management overlap
• Separate financing exists between parent and sub
Strategic
• Parent sells sub or lets sub fail if economically appropriate
• Absence of tangible support from parent to subIDR – Issuer Default Rating. LCF – Linkage considerations framework. Source: Fitch Ratings.
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In a case when a subsidiary has issued long-term public bonds but does not issue stand-alone financial statements or benefit from a downstream parent guarantee, the considerations in the flow on the next page should be made. The below guidelines are not meant as an alternative to the parent-subsidiary linkage methodology used in the main criteria, nor are these guidelines meant for new debt issuances.
LCF Flow Chart
Does Parent/Sub Relationship Exist?
1
2
3
4 4
IDRs are Based on Stand-Alone Profiles
Refer to Sector-Specific Criteria Published by Fitch
Yes/Uncertain
No
NoYes
Which Entity has the Stronger Credit Profile?
Does Sector-Specific Criteria Exist?
Are Legal and Operational Ties Strong?
Are Legal, Operational and Strategic Ties Strong?
Same ParentSubsidiary
NoYesNoYes
Path B: Legal, Operational and Strategic Ties• Guarantees (Downstream)• Intra-Group Restrictions• Cross-Defaults• Different Jurisdictions• Operational Integration• Strategic Importance of Subsidiary• Tangible Support• Other/Intangibles
Path A: Legal and Operational Ties• Guarantees (Upstream)• Dividend Restrictions• Cross-Defaults• Different Jurisdictions• Management Control and Commonality• Centralized Treasury• Other/Intangibles
LCF – Linkage considerations framework. IDR – Issuer Default Rating. N.A. – Not applicable.Source: Fitch Ratings.
Same
N.A.
Consolidated
Same
Both
N.A.
Both Both
Can be the Same or Different
Parent Can be Notched Down or Sub Notched Up
Can be the Same or Different
Sub Can be Notched Down
Stand-Alone
Different
“Up Notching” Possible in Limited Situations
Conclusion:
Same or Different IDRs
Stand-Alone or Consolidated Credit Metric/Profile
Notching
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Rating Subsidiary Debt without Stand-Alone Financial Information or a Parent Guarantee
• Need for future bond market access• Material subsidiary cross-default language• Reputation Risk• Overall parent credit strength (a ‘BB’ parent may get less leeway than
an ‘A’ category)• Stated public intentions of management (if any)• Materiality of existing subsidiary debt compared to previous negative actions
(if applicable)
Source: Fitch Ratings.
Committee should weigh the following factors to determine if debt of a subsidiary can be rated:
Future Flexibility/Evolving Business Strategy Do not rate subsidiary debt
Yes Do not rate subsidiary debt
Yes Was past actions related to relatively minor subs and/or debt amounts? No
Yes Do not rate subsidiary debt
No NoWill operations be materially integrated?
Yes
What is parent rational for not guaranteeing?
Costs/Administrative/Unknown
Is Parent rated ‘B’ category or lower?
No
Has management weakened debt holders before?
No/Unknown
Will operations be materially integrated?
Yes
Subsidiary’s debt can be rated
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Recovery Rating MethodologyFor issuers with IDRs at ‘B+’ and below, Fitch performs a recovery analysis for each class of obligations of the issuer. This analysis consists of three steps: estimating the distressed enterprise value (EV), estimating creditor claims and distribution of value.
The overall risk for a particular debt issuance is made up of two components: the relative probability of default for the issuer — reflected in its IDR — and the likely recovery for each class of debt given default. Therefore, the rating for an issuer’s debt instruments, whether secured, senior unsecured or subordinated, is notched from the issuer’s IDR.
Recovery Analysis Methodology Step 1: Estimating Distressed Enterprise Value (EV)Going Concern (GC) Approach Cash Flow Multiple: Fitch’s most often used recovery analysis, using a
distressed cash flow (typically EBITDA) and multiple based on actual or expected market and/or distressed multiples. A. Post-Default Cash Flow B. Multiple Selection and Application
Traded Asset Value: Acceptable for industry sectors with valuation approaches for assets that are actively traded on exchanges or frequently bought or sold.
Present Value of Cash Flow:
Acceptable when future cash flows can be estimated with adequate precision. Ex: U.S. Utility and Native American gaming sectors.
Liquidation Value (LV) Approach Involves discounting the book value of balance sheet assets and summing the results.
Step 2: Estimating Credit ClaimsFitch estimates existing claims through:• Claims that are typically taken on as a company’s fortunes
deteriorate.
• Claims that are necessary to the reorganization process and:
• Claims that have priority in the relevant bankruptcy code.
• Fitch’s analysis includes the following:
Revolving Claims:• Priority Administrative Claims
• Lease Rejection Claims
• Concession Assumption
• Pension and Other Post-Employment Benefit (OPEB) Obligations
• Other Non-Debt and Contingent Claims
Step 3: Distribution of ValueAfter the going concern of liquidation valuation processes are complete, the resulting distressed EV is allocated to creditors according to jurisdicitonal practice for distributing value among claimants according to the seniority of their claims (the waterfall approach).IDR – Issuer Default Rating. Source: Fitch Ratings.
Recovery Ratings (RR) Scale
Recovery Rating Description Recovery (%)Issue Notching
for B IDRIssue Notching
for BB IDR
RR1 Outstanding 91–100 +3 (secured debt only) +1 to +2
RR2 Superior 71–90 +2 (capped at RR2 for unsecured debt)
0 to +1
RR3 Good 51–70 1 0
RR4 Average 31–50 0 0
RR5 Below Average 11–30 –1 –1
RR6 Poor 0–10 –2 to –3 –1 to –2
IDR – Issuer Default Rating. Source: Fitch Ratings.
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In some regions and cases, Fitch may assign RRs to debt instruments of issuers with ‘BB’ rating category IDRs. RRs in these situations are not computed via bespoke analysis.
B+ and Below IDR/Debt Instrument MappingIDR B+ B B– CCC CC C RD DRR1 BB+ BB BB– B CCC+ CCC CCC CCCRR2 BB BB– B+ B– CCC CCC– CCC– CCC–RR3 BB– B+ B CCC+ CCC– CC CC CCRR4 B+ B B– CCC CC C C CRR5 B B– CCC+ CCC– C C C CRR6 B–/CCC+ CCC+/CCC CCC/CCC– CC/C C C C CIDR – Issuer Default Rating. Source: Fitch Ratings.
Typical BB Rating Category Recovery Rating Assignment and Notching
First Lien SecuredSecond Lien Secured and
Senior Unsecured Subordinated
IDR RR NotchingInstrument Rating RR Notching
Instrument Rating RR Notching
Instrument Rating
BB+ RR1 +1 BBB– RR4 0 BB+ RR5 –1 BBBB RR1 +1 or +2 BB+/BBB– RR4 0 BB RR5 –1 BB–BB– RR1 +2 BB+ RR4 0 BB– RR5 –1 B+IDR – Issuer Default Rating. Source: Fitch Ratings.
Enterprise Value — Fitch-Employed Multiple for Recovery AnalysisFitch-
EmployedMultiple for
(LTM EBITDA Multiplesa, 10-Year Historical RecoveryAs of Sept. 30, 2015) Public Marketb Transaction/Takeoutc AnalysisSector Low High Median Current Low High Median Current Averaged
Automotive 4.74 7.67 5.76 5.33 4.49 14.86 8.70 7.72 5.7Broadcasting & Media 6.40 12.01 8.77 8.75 7.35 13.51 10.20 9.34 6.0Building & Materials 6.43 21.93 11.08 12.24 2.25 16.45 10.37 9.78 6.4Chemical 5.04 10.94 8.54 9.08 4.90 17.40 10.55 8.10 5.5Computers & Electronics 7.09 12.22 10.38 11.25 11.31 20.80 16.65 16.70 6.3Consumer Products 6.21 12.47 9.48 11.64 7.70 12.30 10.10 10.70 6.0Energy 4.08 10.63 8.72 8.97 6.05 11.30 8.51 8.64 4.7e
Food, Beverage & Tobacco 8.42 15.47 10.76 15.47 7.94 15.67 11.96 15.67 6.7Gaming, Lodging, Leisure & Restaurants 7.76 11.88 10.80 11.22 6.40 12.90 9.86 9.86 6.9Healthcare & Pharmaceutical 7.26 11.52 9.52 10.66 9.70 18.05 15.76 17.85 6.8Industrial/Manufacturing 4.57 9.81 8.07 8.01 7.48 20.53 11.00 20.53 5.7Metals & Mining 5.13 13.65 10.12 7.67 7.26 19.90 11.69 8.48 5.6Paper & Containers 6.11 8.96 7.85 7.82 4.40 10.86 8.60 10.45 5.3Retail 4.95 11.20 8.22 10.65 6.89 17.50 9.70 17.50 5.3Services & Miscellaneous 7.45 12.83 9.49 10.33 7.21 17.53 10.75 17.53 5.8Telecommunication & Cable 6.39 10.29 8.78 10.15 7.90 12.24 9.60 12.24 5.7Transportation 5.47 10.95 8.44 9.11 4.54 12.20 9.41 9.41 5.3Utilities 7.82 11.63 9.48 9.59 3.41 15.96 8.68 9.60 —All Sectors 6.31 9.78 9.39 9.46 8.80 12.20 10.89 11.44 6.0aLTM EBITDA refers to LTM of EBITDA. Multiples represent Fitch estimates. bMarket multiples are assessed specifically for speculative-grade, publicly traded U.S. companies. Current values are based on market capitalization as of Nov. 17, 2015. cTransaction multiples cover merger and acquisition transactions across the rating spectrum. dRepresents the mean distressed multiple assumed by Fitch for purposes of its recovery analysis based on Fitch’s explicitly rated and Credit Opinion portfolio of U.S. leveraged issuers. The range of multiples assumed by Fitch within each sector is determined by subsector classifications and issuer-specific idiosyncratic factors. Because the Fitch-employed multiple is applied to a distressed EBITDA value, it generates a lower enterprise value than would otherwise have been obtained in a nondistressed scenario. For companies where the recovery value is maximized under a liquidation scenario, the implied multiple has been imput based on liquidation value and distressed EBITDA. eRefers to an implied EBITDA multiple derived from Fitch’s assumed distressed valuation metric of an average of $12.50/boe (enterprise value per barrel of oil equivalent) used in recovery analysis, subject to adjustment. Source: FactSet, Bloomberg, Fitch Ratings.
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In recovery analyses, Fitch generally chooses a multiple below M&A precedent transactions and market trading multiples, particularly during periods of robust valuations. This is because recovery analyses incorporate adverse circumstances and uncertainty surrounding the market conditions at the time of a hypothetical reorganization. Similarly, when markets are so depressed or disrupted they are essentially illiquid, Fitch recovery multiples may be higher than observed market multiples, if any are available.
ABL Recovery AnalysisThe presence of an ABL materially affects the residual EV available for other creditors in the capital structure.
In the case of well-structured ABL facilities with credit-protective features — such as availability limited by a borrowing base formula, springing or full-cash dominion or frequent monitoring/reporting of collateral — Fitch assumes ABL debt will recover ahead of other first lien debt under the recovery waterfall. Where a cash dominion feature is in place, Fitch will assume an additional source of recovery (cash component). In instances where the ABL is secured by specific (and not all) assets, Fitch will first deduct the value of assets pledged for such facilities (collateral component) from the overall valuation so the remaining creditors’ recoveries are assessed more realistically.
Fitch acknowledges not all ABL facilities are created equal, and the strength of each structure will need to be evaluated separately.
ABL Recovery Analysis MethodologyStep 1: Estimating Distressed Enterprise Value (EV)Going Concern (GC) Approach
Step 1 remains largely unaffected by the presence of an ABL when estimating EV under the going concern approach. The sample of comparable transaction or market multiples used to form an input assumption includes industry peers with ABL-inclusive capital structures.
Liquidation Value (LV) Approach
Fitch Advance Rates Liquidation approach involves discounting book value of balance sheet assets and summing results. In absence of detailed valuation reports, analytical guidance is generally drawn from the history of ABLs in the sector or historical liquidation experience.
Reliance on Third-Party Valuations
Analytical consideration given to third-party appraiser valuation reports. Fitch advance rates should not be confused with advanced rates used in ABLs. Analyst discretion determines appropriate discount to be applied to book values based on additional considerations such as: credit risk of obligors, asset portfolio concentration risk and potential deterioration of collateral.
Administrative Expense Fitch deducts administrative expense claims up to 10% of EV to arrive at adjusted EV.
Step 2: Estimating ABL ClaimsThe following considerations of sizing ABL claims remain unchanged regardless of whether EV is maximized under a going concern or liquidation scenario.• Revolving Claims
– In the case of CF-based revolving claims, Fitch assumes unused portions of committed lines are fully drawn to extent permitted. Greater judgement exercised for ABL revolvers that can only be drawn up to borrowing base availability. Fitch also considers borrowing base availability may or may not have significant seasonal fluctuations.
• Alternative Sources – Additional factors to assess strategic value of ABL considered for capital structures with an ABL and a CF-based revolving facility.
Step 3: Distribution of Value to ABLFitch identifies two sources of recovery for an ABL — a collateral component and a cash component regardless of whether EV is maximized under a going concern or liquidation scenario.• ABL Recovery — Collateral Component
– Waterfall: ABL is entitled to priority over other first lien cash flow-based debt to extent of the value of specific collateral securing ABL. Fitch first allocates portion attributable to liquidation value of specific assets securing the ABL; and the EV for the other first lien debt is net of the amount allocated to the ABL collateral component.
– First-Out/Last-Out Tranches: Different payment prioirities among various tranches of an ABL are reflected accordingly in the distribution waterfall.
• ABL Recovery — Cash Component – Cash on balance sheet generally assumed to dissipate during or before bankruptcy. In the case of ABLs, value of cash included in estimating recoveries for ABL facilities that have sprining or full cash dominion feature.
ABL – Asset-based lending. CF – Cash flow. Source: Fitch Ratings.
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For more information on Fitch’s methodologies in the recovery analysis of ABL facilities please see Evaluating U.S. Asset-Based Lending Facilities (Recovery Outcomes and Analysis for ABL-Inclusive Capital Structures).
Pension Recovery AnalysisTerminated underfunded pension liabilities can meaningfully impair recoveries of other credit classes in a bankruptcy scenario in the following ways.
First, the unpaid minimum funding contributions and premiums are treated as administrative claims so they will recover even before secured debt. Second, the amount owed to the Pension Benefits Guaranty Corporation (PBGC) can be calculated in various ways and results in drastically different amounts. Other general unsecured claims can be materially affected as a result. Third, the controlled group liability doctrine entitles the PBGC to assert claims on each and every member within the controlled group. The doctrine can effectively put the PBGC ahead of other unsecured claims.
Even if the unfunded pension plan is not terminated in bankruptcy, the periodic minimum funding contribution payments are entitled to administrative expense treatment during the pendency of the bankruptcy.
Fitch’s Recovery Considerations — U.S. Defined Benefit Pension PlansGoing Concern Scenario Fitch assumes an underfunded pension plan remains with a reorganized entity. Therefore,
a pension liability will not show up in the waterfall of claims, but rather remain as an ongoing expense for the new entity.
Liquidation Scenario Fitch’s analysis only includes the Pension Benefits Guaranty Corporation (PBGC) as an unsecured creditor in liquidation scenarios, or for those companies whose future annual pension commitments severely impair cash flow expectations.Claim Priority: Upon plan termination, the PBGC assumes the pension plan and files
a matured claim as an unsecured creditor. The PBGC claim will be entitled to recover as if it held an unsecured upstream guarantee form each controlled group member.
Claim Size: The size of the PBGC claim for unfunded pension liability will typically be estimated on a GAAP basis for purposes of Fitch’s recovery methodology. However, if the claim amount calculated by the PBGC is substantially different, Fitch will analyze the difference and decide the final amount case by case.
Other Issues: Fitch’s analysts may also factor in U.K. pension regulator powers if there are materially underfunded U.K. pension plans in the group. For companies with material foreign assets, Fitch’s analysts may assume that the PBGC may attach a lien on such assets.
Source: Fitch Ratings.
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For more information on Fitch’s methodologies in the recovery of pensions please see Pension Liabilities in Bankruptcy.
U.S. Pensions — Illustrative Application of Recovery Methodology
aPension Benefits Guaranty Corporation (PBGC) files a contingent claim for the full unfunded benefit liability (UBL) amount of $100 in each and every controlled group entity's bankruptcy case. If the pension plan is not terminated, the claim does not arise. bSubsidiary B is not a controlled group entity since it is below the 80% ownership threshold. cResidual equity value upstreamed to U.S. parent from 75% owned non-CGE = 75% of $80 = $60. RR – Recovery Rating. CGE – Controlled group entity. N.A. – Not applicable.Source: Fitch Ratings.
Example 1 — Going Concern Approach (Pension Plan Continues)
U.S. Parent — Plan SponsorPension Contingenta Claim ($100) = N.A.
Unsecured Debt ($100) = $60 Recovery (RR3)
$0 $60c
100% 75%b
Example 2 — Liquidation Approach (Pension Plan Terminates)
U.S. Parent — Plan SponsorPBGC Unsecured Claima ($100) = $30b Recovery
Unsecured Debt ($100) = $30 Recovery (RR5)
$0 $60c
100% 75%e
aPension Benefits Guaranty Corporation (PBGC) files a contingent claim for the full unfunded benefit liability (UBL) amount of $100 in each and every controlled group entity's case. bPBGC will share pro rata with other unsecured creditors at the parent sponsor’s level. Note that PBGC’s aggregate recovery (from the sponsor and all controlled group members) cannot exceed 100% of its claim. cResidual equity value upstreamed to U.S. parent from 75% owned non-CGE = 75% of $80 = $60. dNot only does PBGC recover as an unsecured creditor in the parent sponsor’s bankruptcy but also recovers separately from each member of the controlled group as an unsecured creditor, up to an aggregate recovery of 100% of its claim. eSubsidary B is not a controlled group entity because it is below the 80% ownership threshold. RR – Recovery Rating. CGE – Controlled group entity. Source: Fitch Ratings.
Subsidiary A — CGE[Net Assets = $100]
Pension Contingenta Claim ($100) = N.A.Unsecured Debt ($100) = $100 Recovery (RR1)
Subsidiary B — Non CGE[Net Assets = $130]
Unsecured Debt ($50) = $50 Recovery (RR1)
Subsidiary A — CGE[Net Assets = $100]
PBGC Unsecured Claima ($100) = $50d RecoveryUnsecured Debt ($100) = $50 Recovery (RR4)
Subsidiary B — Non CGE[Net Assets = $130]
Unsecured Debt ($50) = $50 Recovery (RR1)
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Research Portfolio
Sector Handbooksa
Date Title05/04/16 The Checkup: High-Yield Healthcare Handbook
(Comprehensive Analysis of High-Yield U.S. Healthcare Companies)04/12/16 All In: Global Gaming Handbook (Second Edition)01/25/16 High-Yield Retail Checkout (Comprehensive Analysis of Major High-Yield Retailers)01/15/16 U.S. Diversified Industrials and Capital Goods Handbook11/24/15 North American Chemicals Handbook (A Detailed Review of Companies in the Chemicals Sector)11/04/15 Automotive Handbook (Second-Half 2015)10/13/15 Media and Entertainment Handbook (Fitch’s Comprehensive Credit Profile Analysis of Issuers, Volume 2)09/22/15 Credit Encyclo-Media: Fitch’s Comprehensive Analysis of the (Volume VIII, 2015–2016)07/30/15 U.S. Grocery Retailing (Supermarkets Play Defense; Grocery Market Share Shifting to Discount
and Specialty Formats)07/20/15 Fitch 50 (Capital Structure Diagrams & Debt Document Summaries for Fifty of the Largest U.S.
Leveraged Credits) — Amended07/01/15 Fitch’s Telecom & Cable Company Handbook (A Detailed Review of Companies in the U.S. and Canada
Telecom and Cable Sector) — Amended06/29/15 Oil & Gas Handbook (North American Exploration and Production Handbook)06/29/15 U.S. High-Yield Consumer Handbook (Comprehensive Analysis of High-Yield Food, Beverage, Tobacco,
Restaurant and Consumer Products Companies)aComprehensive analysis of business profiles and capital structures for largest issuers. Source: Fitch Ratings.
Recent U.S. Leveraged Finance ResearchDate Title Type01/28/16 Industrial and Manufacturing Bankruptcy Enterprise Value and Creditor Recoveries
(Fitch Case Studies — Edition IX)Bankruptcy Case Study
08/12/15 Healthcare, Food, Beverage and Consumer Bankruptcy Enterprise Value and Creditor Recoveries (Fitch Case Studies — Edition VIII)
Bankruptcy Case Study
04/29/15 Bankruptcy Case Study Price Results: Bond Pricing Analysis for $0.55 Screen Bankruptcy Case Study04/27/15 Energy, Power and Commodities Bankruptcy Enterprise Value and Creditor
Recoveries (Fitch Case Studies — Edition VII)Bankruptcy Case Study
09/24/15 U.S. Leveraged Finance: Road to Recovery Ratings (Cross-Sector Analysis of Recovery Assumptions and Results)
Cross-Sector Recovery Analysis
02/25/16 Second-Lien Debt (Energy and Exchanges Driving Second-Lien Bond Issuance) Structural Analysis11/17/15 Intercreditor Arrangements
(Tug-of-War Between First-Lien and Second-Lien Lenders)Structural Analysis
08/24/15 Evaluating U.S. Asset-Based Lending Facilities (Recovery Outcomes and Analysis for ABL-Inclusive Capital Structures)
Structural Analysis
12/16/15 U.S. Leveraged Finance Multiple EV-aluator (pdf version) EV Multiple Analysis12/14/15 U.S. Leveraged Finance Multiple EV-aluator EV Multiple Analysis04/14/16 Fitch U.S. High Yield Default Insight (U.S. HY TTM Default Rate Approaches 4%; April
E&P Default Rate to Pass 20%)HY Default Insight
03/17/16 Fitch U.S. High Yield Default Insight (U.S. HY Default Rate Forecast Raised to 6%; Energy to 20%)
HY Default Insight
02/19/16 Fitch U.S. High Yield Default Insight (February Double-Digit Issuer Defaults Most Since 2009)
HY Default Insight
01/26/16 Fitch U.S. High Yield Default Insight (2015 U.S. High Yield Market Default Rate 3.4%; Arch Headlines January Defaults)
HY Default Insight
12/14/15 Fitch U.S. High Yield Default Insight (2016 U.S. High Yield Default Rate Forecast at 4.5%; Energy at 11%)
HY Default Insight
11/13/15 Fitch U.S. High Yield Default Insight (Energy Default Rate Heads to 6%; Arch Filing Would Push Metals/Mining Over 14%)
HY Default Insight
10/14/15 Fitch U.S. High Yield Default Insight (2015 Default Outlook Boosted to 3.5%) HY Default Insight09/21/15 Fitch U.S. High Yield Default Insight (Energy TTM Default Rate Approaches 5%;
Highest Level Since 1999)HY Default Insight
08/13/15 Fitch U.S. High Yield Default Insight (August Defaults Likely to Drive TTM Default Rate to 3%)
HY Default Insight
07/16/15 Fitch U.S. High Yield Default Insight (2015 Default Outlook Increased to 2.5%–3.0%) HY Default Insight06/12/15 Fitch U.S. High Yield Default Insight (DDEs Hit HY Market; Volume Surpasses 2012’s
Record Pace)HY Default Insight
05/21/15 Fitch U.S. High Yield Default Insight (Yankee Bond Default Rate Exceeds U.S./Canada; 1Q15 Financial Results)
HY Default Insight
Continued on next page. Source: Fitch Ratings.
149The Annual Manual (U.S. Leveraged Finance Primer) — Appendix June 6, 2016
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Recent U.S. Leveraged Finance Research (Continued)Date Title Type04/21/15 Fitch U.S. High Yield Default Insight (HY Energy Coupons Rise; DDEs Prevalent) HY Default Insight04/27/16 Fitch U.S. Leveraged Loan Default Insight (April Trailing 12-Month Institutional
Leveraged Loan Default Rate Reaches 1.8%)LL Default Insight
03/29/16 Fitch U.S. Leveraged Loan Default Insight (Energy, Metals/Mining Defaults Continue; Secondary Bid Levels Strengthen)
LL Default Insight
02/26/16 Fitch U.S. Leveraged Loan Default Insight (Energy, Metals/Mining February Default Rates Reach New Heights)
LL Default Insight
01/29/16 Fitch U.S. Leveraged Loan Default Insight (2015 U.S. Institutional Leveraged Loan Default Rate 1.7%; Defaults Heat Up in January)
LL Default Insight
12/17/15 Fitch U.S. Leveraged Loan Default Insight (2016 U.S. Leveraged Loan Default Rate Forecast at 2.5%; Energy Defaults Climb)
LL Default Insight
11/24/15 Fitch U.S. Leveraged Loan Default Insight ($2 Billion in Loan Defaults for November; Weak Second-Lien Bids for Energy)
LL Default Insight
10/26/15 Fitch U.S. Leveraged Loan Default Insight (Energy Default Rate Surpasses 5%; Overall Rate Tracking to 1.5%‒2% Forecast)
LL Default Insight
09/30/15 Fitch U.S. Leveraged Loan Default Insight (Default Rate Rise Commences with Samson)
LL Default Insight
08/28/15 Fitch U.S. Leveraged Loan Default Insight (Commodity Prices Lift Metals/Mining, Energy Default Rates; Other Sectors Resilient)
LL Default Insight
07/28/15 Fitch U.S. Leveraged Loan Default Insight (TTM Loan Default Rate 1.4%, Tracking Toward 1.5%–2%)
LL Default Insight
05/28/15 Fitch U.S. Leveraged Loan Default Insight (Loan Default Rate Falls to 1.4%; 2015 Issuance Remains Light)
LL Default Insight
04/29/15 Fitch U.S. Leveraged Loan Default Insight (Energy Defaults Return While Broader Market Metrics Improve)
LL Default Insight
01/26/16 U.S. Leveraged Market Quarterly (Fourth-Quarter 2015) Market Quarterly10/22/15 U.S. Leveraged Market Quarterly (Third-Quarter 2015) Market Quarterly07/23/15 U.S. Leveraged Market Quarterly — Second-Quarter 2015 Market Quarterly04/23/15 U.S. Leveraged Market Quarterly Market Quarterly04/18/16 Fitch U.S. Corporates LF Data Comparator–Fourth Quarter 2015 Stats Quarterly12/10/15 Fitch U.S. Corporates Leveraged Finance Data Comparator — Third-Quarter 2015 Stats Quarterly09/17/15 Fitch U.S. Corporates Leveraged Finance Data Comparator — Second-Quarter 2015 Stats Quarterly07/17/15 Fitch U.S. Corporates Leveraged Finance Data Comparator — First-Quarter 2015 Stats Quarterly
Source: Fitch Ratings.
Additional Research by SectorDate Title Sector 11/16/15 U.S. Corporate Bond Market Monitor (Downgrade Impact Greatest in Six
Years; Record Issuance Through October)Macro Credit Research
08/06/15 U.S. Corporate Bond Market Monitor (Upgrades Outpace Downgrades in Second Quarter; Record Volume through July)
Macro Credit Research
05/13/15 U.S. Corporate Bond Market Monitor (Record New Issuance; Downgrades Surpass Upgrades)
Macro Credit Research
04/28/16 Corporate Upgrade/Downgrade Dashboard 1Q16 Macro Credit Research01/26/16 Corporate Upgrade/Downgrade Dashboard 4Q15 Macro Credit Research10/14/15 Corporate Upgrade/Downgrade Dashboard 3Q15 Macro Credit Research07/14/15 Corporate Upgrade/Downgrade Dashboard 2Q15 Macro Credit Research04/29/15 Corporate Upgrade/Downgrade Dashboard 1Q15 Macro Credit Research01/19/16 Fitch Fundamentals Index — U.S. (4Q15) Macro Credit Research10/16/15 Fitch Fundamentals Index — 3Q15 Macro Credit Research07/15/15 Fitch Fundamentals Index — 2Q15 Macro Credit Research04/15/15 Fitch Fundamentals Index — U.S. Macro Credit Research04/07/16 U.S. Senior Fixed-Income Investor Survey 1Q16 Macro Credit Research12/02/15 U.S. Senior Fixed-Income Investor Survey November 2015 Macro Credit Research05/19/15 U.S. Senior Fixed-Income Investor Survey April 2015 Macro Credit Research02/10/16 2016 Outlook: U.S. Corporates (Fundamental Stability amid Market Volatility) Macro Credit Research01/28/16 The Credit Outlook Macro Credit Research01/15/16 Outlook Overview Tool 2016 Macro Credit Research07/20/15 The Credit Outlook Macro Credit Research04/18/16 Fitch U.S. Corporates IG Data Comparator — Fourth-Quarter 2015 Macro Credit ResearchContinued on next page. Source: Fitch Ratings.
150The Annual Manual (U.S. Leveraged Finance Primer) — Appendix June 6, 2016
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Additional Research by Sector (Continued)Date Title Sector 12/10/15 Fitch U.S. Corporates Investment Grade Data Comparator —
Third-Quarter 2015Macro Credit Research
09/17/15 U.S. Corporates Investment-Grade Data Comparator — Second-Quarter 2015
Macro Credit Research
03/23/16 The Causes of Non-Financial Corporate Upgrades and Downgrades Macro Credit Research12/17/15 US Rate Rises Expose Some Leveraged Corporates,
Investment-Grade More StableMacro Credit Research
12/14/15 China Slowdown Scenario (Testing Credit Connections) Macro Credit Research11/06/15 Activist Activities: Fall 2015 (Nonfinancial U.S. Corporate Campaign
Case Studies and Profiles of Notable Activists)Macro Credit Research
09/30/15 Fitch Ratings Global Cross-Asset Default Update Macro Credit Research04/29/15 The Causes of Non-Financial Corporate Upgrades and Downgrades Macro Credit Research01/11/16 The Strong USD: Implications for Europe and the U.S. (Background
Analysis of the Impact on the Broader Economy and Nonfinancial Corporates)
Macro Credit Research
05/06/16 Global Corporate Finance 2015 Transition and Default Study Macro Credit Research03/30/16 Transition and Default Excel Data — 2015 Macro Credit Research06/26/15 Fitch Ratings Global Short-Term Rating 2014 Transition and
Default StudyMacro Credit Research
06/26/15 Fitch Ratings Global Short-Term Rating 2014 Transition and Default Study — Excel Data
Macro Credit Research
06/17/15 Metals & Mining Chartbook Chemicals & Natural Resources03/08/16 North American Met Coal Dashboard Chemicals & Natural Resources11/17/15 North American Potash Dashboard Chemicals & Natural Resources11/11/15 North American Phosphate Fertilizer Dashboard Chemicals & Natural Resources11/04/15 North American Nitrogen Fertilizer Dashboard Chemicals & Natural Resources09/25/15 North American Olefins Dashboard Chemicals & Natural Resources08/27/15 North American Methanol Dashboard Chemicals & Natural Resources06/10/15 North America Paints and Coatings Dashboard Chemicals & Natural Resources05/06/15 U.S. Aluminum Dashboard Chemicals & Natural Resources05/06/15 North American Gold Dashboard Chemicals & Natural Resources11/24/15 North American Chemicals Handbook (A Detailed Review of
Companies in the Chemicals Sector)Chemicals & Natural Resources
10/06/15 High-Yield Specialty Chemicals Review (Analyzing Key Metrics, Trends and Outliers)
Chemicals & Natural Resources
12/07/15 2016 Outlook: North American Chemicals (Managing the Macro) Chemicals & Natural Resources12/07/15 2016 Outlook: North American Pulp, Paper and Forest Products Chemicals & Natural Resources12/03/15 2016 Outlook: Global Mining Chemicals & Natural Resources10/05/15 Mining - What to Watch Chemicals & Natural Resources10/26/15 Global Fertilisers Industry and Peer Study Chemicals & Natural Resources01/18/16 Updating Fitch’s Mid-Cycle Commodity Price Assumptions Chemicals & Natural Resources10/02/15 Updating Fitch’s Commodity Price Assumptions Chemicals & Natural Resources03/07/16 Arch Coal, Inc. Recovery Tools Chemicals & Natural Resources03/04/16 Peabody Energy Recovery Tools Chemicals & Natural Resources05/07/15 U.S. Natural Resources Recovery Models (First-Quarter 2015) Chemicals & Natural Resources12/16/15 London Energy Seminar Energy (Oil & Gas)05/04/16 U.S. Driller Dashboard Energy (Oil & Gas)04/13/16 U.S. Refining Dashboard (April 2016) Energy (Oil & Gas)12/17/15 U.S. Onshore Drillers Dashboard Energy (Oil & Gas)11/11/15 U.S. Natural Gas Dashboard (Fall 2015) Energy (Oil & Gas)07/21/15 U.S. Refining Dashboard 2H15 Energy (Oil & Gas)06/25/15 U.S. Onshore Drillers Dashboard Energy (Oil & Gas)05/22/15 U.S. Natural Gas Dashboard (Spring 2015) Energy (Oil & Gas)06/29/15 Oil & Gas Handbook (North American Exploration and
Production Handbook)Energy (Oil & Gas)
01/13/16 High-Yield E&P Asset Coverage (Capital Structures, Cost Positions in Focus)
Energy (Oil & Gas)
09/28/15 High-Yield E&P Hedge and Netback Profiles Update (Limited $60 Hedges Added in Q2; Full-Cycle Netbacks Suggest Underinvestment at $50)
Energy (Oil & Gas)
04/20/15 High-Yield E&P Stress Test (Examining Exposure to the Downturn) Energy (Oil & Gas)Continued on next page. Source: Fitch Ratings.
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Additional Research by Sector (Continued)Date Title Sector 05/02/16 Full-Cycle Costs Drop for North American E&Ps (Faster Reset in North
America, but Future Givebacks Likely)Energy (Oil & Gas)
04/12/16 E&P Lending Guidance Signals More Pain Ahead (OCC Lending Guidance Amplifies Challenges for Leveraged E&P Borrowers)
Energy (Oil & Gas)
12/18/15 Revisiting U.S. Reserve Borrowing Bases One Year On (Cuts Moderate Despite Increased Headwinds)
Energy (Oil & Gas)
12/15/15 E&P Capex Trends and Oilfield Services Prospects (What E&P and Oilfield Services Corporates Are Saying in Q3)
Energy (Oil & Gas)
05/18/15 Statistical Review of U.S. Independent E&Ps (Price-Induced Pain Deferred Until 2015)
Energy (Oil & Gas)
01/26/16 2016 Outlook: U.S. Oil & Gas (Rating Outlook Shifts to Negative) Energy (Oil & Gas)12/01/15 2016 Outlook: Crude Oil and Refined Products Pipelines (Positioned for
Stability Despite Ongoing Commodity Price Weakness) Energy (Oil & Gas)11/23/15 2016 Outlook: U.S. Oil & Gas (Risk of Lower for Longer
Weighs on Sector) Energy (Oil & Gas)11/23/15 2016 Outlook: North American Refining (With Ample Global Supply,
Focus on Product Demand, Exports) Energy (Oil & Gas)11/23/15 2016 Outlook: Oilfield Services (Continued E&P Capital Cutbacks
Pressure Sector) Energy (Oil & Gas)01/20/16 Oil & Gas Price Assumptions Lowered (Resilient Production, El Niño
Push Recovery Out) Energy (Oil & Gas)11/09/15 Oil and Gas Price Assumptions November 2015 Energy (Oil & Gas)08/06/15 U.S. Lower 48 New Normal Rig Run-Rate (Rig-Linked 2H Production
Decline Forecast; Productivity Gains Drive New Normal) Energy (Oil & Gas)07/16/15 High-Yield Offshore Driller Recovery Prospect Pressures (Backlog Burn
Rate, Declining Revenue, Limited Liquidity and High Leverage) Energy (Oil & Gas)06/08/15 Revising Our Oil and Gas Price Assumptions (Wider Brent-WTI Spread
and Lower Natural Gas Price) Energy (Oil & Gas)05/07/15 U.S. LNG: Dimming Prospects? (Low Oil Prices, Supply/Demand Profile,
Asian LNG Pricing Introduce Outlook Uncertainty) Energy (Oil & Gas)05/01/15 Midstream Energy Counters Price Uncertainty (Closed-End Funds Shift
Holdings after Market Declines) Energy (Oil & Gas)02/24/16 Using Commodity Prices in Corporate Projections Energy (Oil & Gas)02/05/16 Hotel Lenders Tightening the Screws (Key Takeaways from the
ALIS Conference) Gaming, Lodging & Leisure12/15/15 Black Hawk Colorado Casino Tour Takeaways Gaming, Lodging & Leisure10/07/15 2015 Global Gaming Expo Takeaways (Highlights of Key Gaming Issues
and Fitch’s Las Vegas Property Tours) Gaming, Lodging & Leisure07/29/15 New England Casino Tour Takeaways Gaming, Lodging & Leisure06/17/15 Hotel Loan Underwriting Bending, Unbroken
(Post-Conference Lending-Related Takeaways) Gaming, Lodging & Leisure05/29/15 GLL Asia Trip Takeaways (Affirming All Three U.S.-Based Macau
Operators Factoring in Macau Weakness) Gaming, Lodging & Leisure04/26/16 Las Vegas Strip Gaming Dashboard Gaming, Lodging & Leisure04/26/16 Macau Gaming Dashboard Gaming, Lodging & Leisure04/26/16 U.S. Gaming Supplier Dashboard Gaming, Lodging & Leisure04/20/16 U.S. Regional Casino Gaming Dashboard (First-Half 2016) Gaming, Lodging & Leisure01/05/16 U.S. Gaming Supplier Dashboard (Third-Quarter 2015) Gaming, Lodging & Leisure11/17/15 U.S. Online Travel Agencies Dashboard (Second-Half 2015) Gaming, Lodging & Leisure10/09/15 U.S. Regional Casino Gaming Dashboard (First-Half 2015) Gaming, Lodging & Leisure10/09/15 Las Vegas Strip Gaming Dashboard Gaming, Lodging & Leisure10/09/15 Macau Gaming Dashboard Gaming, Lodging & Leisure02/29/16 U.S. Gaming Regulatory Monitor (A State-by-State Guide to Existing and
Proposed Gaming Regulations) Gaming, Lodging & Leisure05/29/15 Eye in the Sky Series: Japan (Gaming Jurisdiction Surveillance Monitor) Gaming, Lodging & Leisure05/29/15 Eye in the Sky Series: Macau (Gaming Jurisdiction Surveillance Monitor) Gaming, Lodging & Leisure05/29/15 Eye in the Sky Series: South Korea
(Gaming Jurisdiction Surveillance Monitor) Gaming, Lodging & Leisure04/06/15 Eye in the Sky Series: New Jersey
(Gaming Jurisdiction Surveillance Monitor) Gaming, Lodging & Leisure04/06/15 Eye in the Sky Series: Pennsylvania
(Gaming Jurisdiction Surveillance Monitor) Gaming, Lodging & LeisureContinued on next page. Source: Fitch Ratings.
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Additional Research by Sector (Continued)Date Title Sector 04/06/15 Eye in the Sky Series: Massachusetts
(Gaming Jurisdiction Surveillance Monitor)Gaming, Lodging & Leisure
04/06/15 Eye in the Sky Series: New York (Gaming Jurisdiction Surveillance Monitor)
Gaming, Lodging & Leisure
12/17/15 An Arduous Path to Deleveraging for Gaming Suppliers (A Credit Investor’s Guide to High-Yield Gaming Suppliers)
Gaming, Lodging & Leisure
10/07/15 Regional Gaming in the U.S.: An In-Depth Discussion Gaming, Lodging & Leisure01/22/16 Gaming, Lodging & Leisure Global eNewsletter Gaming, Lodging & Leisure11/23/15 Gaming, Lodging & Leisure Global eNewsletter Gaming, Lodging & Leisure09/24/15 Gaming, Lodging & Leisure Global eNewsletter Gaming, Lodging & Leisure07/20/15 Gaming, Lodging and Leisure Global eNewsletter Gaming, Lodging & Leisure04/12/16 All In: Global Gaming Handbook (Second Edition) Gaming, Lodging & Leisure09/23/15 All In: Global Gaming Handbook Gaming, Lodging & Leisure01/14/16 U.S. Leveraged Finance Spotlight Series: Caesars Entertainment Corp. Gaming, Lodging & Leisure01/14/16 U.S. Leveraged Finance Spotlight Series: Scientific Games Corporation Gaming, Lodging & Leisure01/07/16 U.S. Lodging Cycle Concierge Gaming, Lodging & Leisure09/15/15 U.S. Lodging Cycle Concierge Gaming, Lodging & Leisure06/01/15 U.S. Lodging Cycle Concierge Gaming, Lodging & Leisure12/11/15 2016 Outlook: U.S. Timeshare (Solid Fundamentals, Helped By Some
Potentially Unsustainable Trends)Gaming, Lodging & Leisure
12/10/15 2016 Outlook: Global Hotels (Still Constructive on Cycle, But Cognizant of Overstaying)
Gaming, Lodging & Leisure
12/07/15 2016 Outlook: Macau Gaming (Mass Market Provides Support but Cannibalization from New Supply Could Be Painful)
Gaming, Lodging & Leisure
12/07/15 2016 Outlook: U.S. Gaming (Outlook Stable, but REIT Transactions and Secular Challenges Pose Concerns)
Gaming, Lodging & Leisure
12/04/15 2016 Outlook: U.S. Leisure (Competition Remains Intense for Share of Consumers’ Wallet)
Gaming, Lodging & Leisure
05/13/15 Outlook Still Bright; Credit Risk Selectively Increasing (What U.S. Lodging Companies Are Saying)
Gaming, Lodging & Leisure
04/06/16 U.S. Gaming Recovery Tools (Fourth-Quarter 2015) Gaming, Lodging & Leisure01/05/16 U.S. Gaming Recovery Tools (Third-Quarter 2015) Gaming, Lodging & Leisure09/10/15 U.S. Gaming Recovery Tools (Second-Quarter 2015) Gaming, Lodging & Leisure06/09/15 U.S. Gaming Recovery Tools (First-Quarter 2015) Gaming, Lodging & Leisure04/27/15 U.S. Gaming Recovery Tools (Fourth-Quarter 2014) Gaming, Lodging & Leisure09/22/15 What Investors Want to Know: U.S. Lodging (Growth to Slow, but Remain
Solid; Event Risk Rising)Gaming, Lodging & Leisure
03/03/16 Group Therapy: Fixating on a Late Cycle Demand Indicator (What U.S. Lodging Companies Are Saying)
Gaming, Lodging & Leisure
11/10/15 Softer Transient Lodging Demand Subdues Confidence (What U.S. Lodging Companies Are Saying)
Gaming, Lodging & Leisure
08/06/15 Airbnb Not a Competitive Threat to Hotels — Yet (What U.S. Lodging Companies Are Saying)
Gaming, Lodging & Leisure
05/04/16 U.S. Healthcare Corporates Dashboard (Fourth-Quarter 2015) Healthcare & Pharmaceuticals Group
01/15/16 U.S. Healthcare Corporates Dashboard (Third-Quarter 2015) Healthcare & Pharmaceuticals Group
12/15/15 For-Profit Hospital Insights (Fitch’s Annual Review of Bad Debt Accounting Policies and Practices)
Healthcare & Pharmaceuticals Group
05/04/16 The Checkup: High-Yield Healthcare Handbook (Comprehensive Analysis of High-Yield U.S. Healthcare Companies)
Healthcare & Pharmaceuticals Group
04/30/15 High-Yield Healthcare Checkup: Comprehensive Analysis of High-Yield U.S. Healthcare Companies
Healthcare & Pharmaceuticals Group
04/20/16 Hospitals’ Credit Diagnosis (Noteworthy Items in Patient Volume Trends) Healthcare & Pharmaceuticals Group
01/05/16 Hospitals’ Credit Diagnosis (Affordable Care Act (ACA) Growing Pains) Healthcare & Pharmaceuticals Group
08/31/15 Hospitals’ Credit Diagnosis (Tapering ACA Benefit Belies Decent Operating Fundamentals)
Healthcare & Pharmaceuticals Group
07/07/15 Hospitals’ Credit Diagnosis (Favorable Subsidy Ruling Means the ACA Is Here to Stay)
Healthcare & Pharmaceuticals Group
04/14/15 Hospitals’ Credit Diagnosis (Operating Performance Strength to Persist in Early 2015)
Healthcare & Pharmaceuticals Group
Continued on next page. Source: Fitch Ratings.
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Additional Research by Sector (Continued)Date Title Sector 02/23/16 Navigating the U.S. Pharmaceutical Channel
(Innovative Pharmaceutical Manufacturers)Healthcare & Pharmaceuticals Group
12/03/15 2016 Outlook: U.S. Healthcare (Angling for Position in a Value-Based World)
Healthcare & Pharmaceuticals Group
02/03/16 Global Pharmaceutical R&D Pipeline (2015 - Strong Year for Approvals) Healthcare & Pharmaceuticals Group
12/04/15 Global Pharmaceutical R&D Pipeline (Insights on Approvals) Healthcare & Pharmaceuticals Group
08/19/15 Global Pharmaceutical R&D Pipeline (Data on Cancer Treatments in Focus)
Healthcare & Pharmaceuticals Group
05/13/15 Global Pharmaceutical R&D Pipeline (Cardiovascular and Hepatitis C) Healthcare & Pharmaceuticals Group
03/30/16 U.S. Healthcare Recovery Tool (Fourth Quarter 2015) Healthcare & Pharmaceuticals Group
12/15/15 U.S. Healthcare Recovery Tool (Third Quarter 2015) Healthcare & Pharmaceuticals Group
09/29/15 U.S. Healthcare Recovery Tool (Second-Quarter 2015) Healthcare & Pharmaceuticals Group
09/14/15 Hospital Consolidation to Continue; REITs to Fund Healthcare & Pharmaceuticals Group
08/25/15 U.S. Biosimilars Making Progress (Competitive Landscape Remains Uncertain)
Healthcare & Pharmaceuticals Group
08/13/15 Fitch Wire+: Generic Pharma Ratings Face Pressure From M&A Surge Healthcare & Pharmaceuticals Group
04/02/15 Fitch Wire+: Global Pharma M&A Risks Healthcare & Pharmaceuticals Group
12/17/15 What Investors Want to Know: Global Pharma Healthcare & Pharmaceuticals Group
01/29/16 U.S. Building Materials Dashboard Homebuilding & Construction
01/29/16 U.S. Building Products Sector Dashboard Homebuilding & Construction
12/30/15 U.S. Homebuilders Dashboard Homebuilding & Construction
10/06/15 Measuring Wheel (The U.S. Nonresidential Construction Industry — 2015–2016)
Homebuilding & Construction
01/07/16 Under One Roof: U.S. Housing in 2016 Homebuilding & Construction
12/09/15 2016 Outlook: U.S. Housing and Homebuilders (Expect Recovery to Continue)
Homebuilding & Construction
11/17/15 Building Materials Peer Comparison Homebuilding & Construction
04/28/16 U.S. Homebuilding, Building, and Home Products and Services Recovery Tools (First-Quarter 2016)
Homebuilding & Construction
02/02/16 U.S. Homebuilding, Building, and Home Products and Services Recovery Tools
Homebuilding & Construction
12/09/15 Hovnanian Enterprises, Inc. Recovery Tool Homebuilding & Construction
11/12/15 U.S. Homebuilding, Building, and Home Products and Services Recovery Tools — Amended
Homebuilding & Construction
10/22/15 U.S. Homebuilding, Building, and Home Products and Services Recovery Tools (Second-Quarter 2015)
Homebuilding & Construction
04/13/15 U.S. Homebuilding, Building, and Home Products and Services Recovery Tools
Homebuilding & Construction
02/04/16 U.S. Homebuilding/Construction: The Chalk Line (Winter 2015/2016) Homebuilding & Construction
10/29/15 U.S. Homebuilding/Construction: The Chalk Line (Fall 2015) Homebuilding & Construction
07/21/15 U.S. Homebuilding/Construction: The Chalk Line Homebuilding & Construction
04/22/15 U.S. Homebuilding/Construction: The Chalk Line (Spring 2015) Homebuilding & Construction
01/11/16 The Tale of the “Measuring” Tape (U.S. Home Improvement Industry) Homebuilding & Construction
Continued on next page. Source: Fitch Ratings.
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Additional Research by Sector (Continued)Date Title Sector 03/01/16 U.S. Building Materials Volume and Pricing Trends (Fourth-Quarter 2015) Homebuilding & Construction12/01/15 U.S. Building Materials Volume and Pricing Trends (Third-Quarter 2015) Homebuilding & Construction09/01/15 U.S. Building Materials Volume and Pricing Trends — Second Quarter 2015 Homebuilding & Construction06/26/15 U.S. Building Materials Volume and Pricing Trends (First-Quarter 2015) Homebuilding & Construction01/26/16 U.S. Diversified Industrials/Capital Goods Dashboard Industrials & Transportation09/15/15 U.S. Auto Dashboard (Second-Half 2015) Industrials & Transportation08/20/15 Diversified Industrials/Cap Goods Dashboard Industrials & Transportation12/01/15 Garda World Security Corporation — Ratings Navigator Industrials & Transportation01/15/16 U.S. Diversified Industrials and Capital Goods Handbook Industrials & Transportation11/04/15 Automotive Handbook (Second-Half 2015) Industrials & Transportation08/21/15 Global Aviation — Coverage Book 2015 Industrials & Transportation12/10/15 2016 Outlook: Diversified Industrials & Capital Goods
(Deteriorating Business Cycle)Industrials & Transportation
12/10/15 2016 Outlook: Global Aerospace and Defense (Defense Upturn Could Join Commercial Strength)
Industrials & Transportation
12/09/15 2016 Outlook: U.S. Auto Manufacturers and Suppliers (Slower Near-Term Sales Growth, Long-Term Disruption Risks)
Industrials & Transportation
12/08/15 2016 Outlook: North American Airlines Industrials & Transportation12/03/15 2016 Outlook: Global Automotive Manufacturers Industrials & Transportation11/27/15 2016 Outlook: European Automotive Manufacturers Industrials & Transportation11/25/15 Trends in U.S. Autos: The Credit Perspective Industrials & Transportation09/29/15 Volkswagen Crisis Likely to Affect Entire Auto Sector Industrials & Transportation04/04/16 European-Based Brewers Results Dashboard 2015 Retail & Consumer Group10/08/15 Agribusiness Dashboard (October 2015) Retail & Consumer Group08/25/15 European-Based Brewers Results Dashboard 1H15 Retail & Consumer Group01/25/16 High-Yield Retail Checkout
(Comprehensive Analysis of Major High-Yield Retailers)Retail & Consumer Group
07/30/15 U.S. Grocery Retailing (Supermarkets Play Defense; Grocery Market Share Shifting to Discount and Specialty Formats)
Retail & Consumer Group
06/29/15 U.S. High-Yield Consumer Handbook (Comprehensive Analysis of High-Yield Food, Beverage, Tobacco, Restaurant and Consumer Products Companies)
Retail & Consumer Group
12/11/15 2016 Outlook: EMEA and US Alcoholic Beverages Retail & Consumer Group12/11/15 2016 Outlook: U.S. Restaurants (Strong Operating Backdrop; Mixed Credit
Trends as Loyalty Rests With Shareholders)Retail & Consumer Group
12/11/15 2016 Outlook: Latin American Beverage Sector (Weak Regional Environment Drives Lackluster Results)
Retail & Consumer Group
12/11/15 2016 Outlook: U.S. Non-Alcoholic Beverages Retail & Consumer Group12/04/15 2016 Outlook: Global Tobacco (A Tale of Two Regions) Retail & Consumer Group12/02/15 2016 Outlook: U.S. Agribusiness
(Ample Global Supplies Limiting Pricing Volatility)Retail & Consumer Group
11/23/15 2016 Outlook: U.S. Retailing (Organic Growth Narrows) Retail & Consumer Group09/28/15 Global Tobacco Peer Study Retail & Consumer Group01/29/16 U.S. Retail Recovery Tool (Third-Quarter 2015) Retail & Consumer Group07/02/15 U.S. Retailing Recovery Tool (First-Quarter 2015) Retail & Consumer Group04/09/15 P&G Beauty Division Divestment —
Block Sale to Investment-Grade Peer UnlikelyRetail & Consumer Group
10/13/15 Media and Entertainment Handbook (Fitch’s Comprehensive Credit Profile Analysis of Issuers, Volume 2)
Technology, Media & Telecom
09/22/15 Credit Encyclo-Media: Fitch’s Comprehensive Analysis of the (Volume VIII, 2015–2016)
Technology, Media & Telecom
07/01/15 Fitch’s Telecom & Cable Company Handbook (A Detailed Review of Companies in the U.S. and Canada Telecom and Cable Sector) — Amended
Technology, Media & Telecom
04/01/16 U.S. Leveraged Finance Spotlight Series — Sprint Corporation Technology, Media & Telecom07/01/15 An Exclusive Preview (Fitch’s 2015 U.S. Movie Exhibitor Industry Report) Technology, Media & Telecom12/11/15 2016 Outlook: U.S. Technology (Cloud Raining on Legacy Tech) Technology, Media & Telecom12/11/15 2016 Outlook: North American Telecommunications and Cable Technology, Media & Telecom06/30/15 U.S. Telecommunications and Cable Recovery Tools (First-Quarter 2015) Technology, Media & Telecom06/23/15 U.S. Media and Entertainment Recovery Tool (First-Quarter 2015) Technology, Media & Telecom04/13/15 U.S. Telecommunications and Cable Recovery Tools (Fourth-Quarter 2014) Technology, Media & Telecom04/10/15 Media and Entertainment Recovery Tool — Fourth-Quarter 2014 Technology, Media & TelecomSource: Fitch Ratings.
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Rating Coverage by SectorIssuer Name/Obligor Name Sector RatingBE Aerospace Aerospace & Defense NPRBombardier Inc. Aerospace & Defense BDigitalGlobe Inc. Aerospace & Defense NPRDucommun Inc. Aerospace & Defense NPRHuntington Ingalls Industries, Inc. Aerospace & Defense BB+LMI Aerospace Inc. Aerospace & Defense NPROrbital ATK, Inc. Aerospace & Defense BB+TransDigm Group Aerospace & Defense BTransDigm Inc. Aerospace & Defense BSpirit Aerosystems Holdings Inc. Aerospace & Defense NPRSRA International Aerospace & Defense NPRTriumph Group, Inc. Aerospace & Defense NPRWesco Aircraft Hardware Corp. Aerospace & Defense NPRAllison Transmission Holdings, Inc. Auto & Related BBAllison Transmission, Inc. Auto & Related BBAmerican Axle & Manufacturing Holdings, Inc. Auto & Related BB–American Axle & Manufacturing, Inc. Auto & Related BB–Goodyear Tire & Rubber Company (The) Auto & Related BBMeritor, Inc. Auto & Related B+Tenneco, Inc. Auto & Related BB+Affinia Group Inc. Auto & Related NPRChrysler Group LLC Auto & Related NPRDana Holdings Corp. Auto & Related NPRFederal Mogul Corp. Auto & Related NPRMetaldyne Performance Group Auto & Related NPRRemy International Inc. Auto & Related NPRTower International Inc. Auto & Related NPRAECOM Technology Building Materials & Construction NPRAecon Group Inc. Building Materials & Construction NPRHD Supply Building Materials & Construction NPRHeadwaters Inc. Building Materials & Construction NPRMcDermott International Inc. Building Materials & Construction NPRNCI Building Systems Building Materials & Construction NPRSNC-Lavalin Building Materials & Construction NPRSummit Materials LLC Building Materials & Construction NPRTerex Corp. Building Materials & Construction NPRADT Corporation Building Materials & Construction BBMasco Corporation Building Materials & Construction BB+Trinidad Cement Limited Building Materials & Construction B–USG Corporation Building Materials & Construction B+Vulcan Materials Company Building Materials & Construction BB+Affinion Group Inc. Business Services NPRARC Document Solutions Inc. Business Services NPRBright Horizons Family Solutions Inc. Business Services NPRDealerTrack Inc. Business Services NPREducation Management LLC Business Services NPREPIQ Systems Inc. Business Services NPRFleetCor Technologies Inc. Business Services NPRInteractive Data Corp. Business Services NPRIron Mountain Inc. Business Services NPRKAR Auction Services Inc. Business Services NPRManitowoc Co. Inc. Business Services NPRNord Anglia Education Plc Business Services NPROn Assignment Inc. Business Services NPRRealogy Corp. Business Services NPRRent-A-Center Business Services NPRScience Applications International Corp. Business Services NPRService Corp. Business Services NPRNPR – Not publicly rated. Note: Ratings as of May 6, 2016. Continued on next page. Source: Fitch Ratings.
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Rating Coverage by Sector (Continued)Issuer Name/Obligor Name Sector RatingServiceMaster Business Services NPRStoneMor Partners LP Business Services NPRTransunion Business Services NPRWESCO International Inc. Business Services NPRAshland Inc. Chemicals NPRAxiall Chemicals NPRCelanese Chemicals NPRChemours Chemicals NPRChemtura Corp. (fka Crompton Corp.) Chemicals NPRHi-Crush Partners Chemicals NPRHuntsman Corp. Chemicals NPRKronos International Inc. (Valhi, Inc.Unit) Chemicals BB–Kronos Worldwide, Inc. Chemicals BB–Minerals Technologies Chemicals NPRMomentive Performance Materials Chemicals NPRNexeo Solutions LLC Chemicals NPROCI Beaumont LLC Chemicals NPROMNOVA Solutions Inc. Chemicals NPRPlatform Specialty Chemicals Chemicals NPRPolymer Group Inc. Chemicals NPRTronox Limited Chemicals NPRViskase Cos Inc. Chemicals NPRW.R. Grace Chemicals NPRACCO Brands Corporation Consumer Products BBAvon Products, Inc. Consumer Products B+Spectrum Brands Canada, Inc. Consumer Products BB–Spectrum Brands, Inc. Consumer Products BB–Bauer Performance Sports Ltd. (fka Bauer Hockey Corp.) Consumer Products NPRCoty Inc. Consumer Products NPRJarden Corporation Consumer Products NPRLibbey Glass Inc. Consumer Products NPRMattress Firm Holding Corp. Consumer Products NPRRevlon Consumer Products Consumer Products NPRTempur Sealy International Consumer Products NPRVisant Corporation (Jostens) Consumer Products NPRWeight Watchers International Consumer Products NPRAtlas Energy LP Energy (Oil & Gas) NPRBreitburn Energy Partners Energy (Oil & Gas) NPRC&J Energy Energy (Oil & Gas) NPRCallon Petroleum Co. Energy (Oil & Gas) NPRChesapeake Energy Corp. Energy (Oil & Gas) B–CITGO Holding, Inc. Energy (Oil & Gas) B–CITGO Petroleum Corp. Energy (Oil & Gas) BConcho Resources, Inc. Energy (Oil & Gas) NPRContinental Resources Energy (Oil & Gas) NPRCrestwood Midstream Partners, LP Energy (Oil & Gas) NPRDCP Midstream, LLC Energy (Oil & Gas) BB+Denbury Resources Inc. Energy (Oil & Gas) NPRDiamond Offshore Drilling Energy (Oil & Gas) NPREnCana Energy (Oil & Gas) NPREnergy Transfer Equity, L.P. Energy (Oil & Gas) BBEnergy XXI Gulf Coast, Inc. Energy (Oil & Gas) CEnergy XXI LTD Energy (Oil & Gas) CEP Energy LLC Energy (Oil & Gas) NPREXCO Resources Energy (Oil & Gas) NPRGlobalSantaFe Inc. Energy (Oil & Gas) BBGreen Plains Inc. Energy (Oil & Gas) NPRIFM (US) Colonial Pipeline 2 LLC Energy (Oil & Gas) BB+NPR – Not publicly rated. Note: Ratings as of May 6, 2016. Continued on next page. Source: Fitch Ratings.
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Rating Coverage by Sector (Continued)Issuer Name/Obligor Name Sector RatingJones Energy Holdings, LLC Energy (Oil & Gas) BKosmos Energy Ltd. Energy (Oil & Gas) BLinn Energy LLC Energy (Oil & Gas) NPRMagnum Hunter Resources Corp. Energy (Oil & Gas) NPRMEG Energy Corporation Energy (Oil & Gas) NPRMurphy Oil Corporation Energy (Oil & Gas) BB+Newfield Exploration Company Energy (Oil & Gas) BB+NGL Energy Partners LP Energy (Oil & Gas) B+NuStar Logistics, L.P. Energy (Oil & Gas) BBOcean Rig Energy (Oil & Gas) NPRPacific Drilling SA Energy (Oil & Gas) NPRPhillips 66 Energy (Oil & Gas) NPRQEP Resources Energy (Oil & Gas) NPRQuicksilver Resources Inc. Energy (Oil & Gas) NPRRange Resources Corporation Energy (Oil & Gas) NPRSabine Oil Energy (Oil & Gas) NPRSandRidge Energy, Inc. Energy (Oil & Gas) NPRSeacor Holdings, Inc. Energy (Oil & Gas) BSeadrill Ltd. Energy (Oil & Gas) NPRSeventy Seven Operating LLC Energy (Oil & Gas) NPRSouthwestern Energy Company Energy (Oil & Gas) B+Sunoco LP Energy (Oil & Gas) BBTarga Resources Partners, L.P. Energy (Oil & Gas) NPRTesoro Corporation Energy (Oil & Gas) NPRTransocean, Inc. Energy (Oil & Gas) BBUnit Corporation Energy (Oil & Gas) B+Vantage Drilling Energy (Oil & Gas) NPRWeatherford International Ltd. (Bermuda) Energy (Oil & Gas) BBWeatherford International, LLC Energy (Oil & Gas) BBWestern Refining Co. LP Energy (Oil & Gas) NPRWilliams Companies, Inc. (The) Energy (Oil & Gas) BB+Arcos Dorados Holdings Inc. Food, Beverage & Tobacco BB+Ball Corporation Food, Beverage & Tobacco BB+CIH International S.a.r.l. Food, Beverage & Tobacco BB+Constellation Brands, Inc. Food, Beverage & Tobacco BB+Dean Foods Company Food, Beverage & Tobacco BB–Dean Holding Company Food, Beverage & Tobacco BB–JBS USA Lux S.A. Food, Beverage & Tobacco BB+Alliance One Food, Beverage & Tobacco NPRARAMARK Inc. Food, Beverage & Tobacco NPRBloomin Brands (OSI) Food, Beverage & Tobacco NPRBoulder Brands (fka Smart Balance) Food, Beverage & Tobacco NPRDarling Ingredients Food, Beverage & Tobacco NPRDenny's Food, Beverage & Tobacco NPRKeurig Green Mountain Food, Beverage & Tobacco NPRNPC International, Inc. Food, Beverage & Tobacco NPRPinnacle Foods Finance LLC Food, Beverage & Tobacco NPRPost Holdings Food, Beverage & Tobacco NPRPrestige Brands Food, Beverage & Tobacco NPRRestaurant Brands International Food, Beverage & Tobacco NPRWendy's International Inc. Food, Beverage & Tobacco NPR888 Holdings Gaming, Lodging & Leisure NPRAffinity Gaming LLC Gaming, Lodging & Leisure NPRAgua Caliente Band of Cahuilla Indians Gaming, Lodging & Leisure BBAmaya Holdings Gaming, Lodging & Leisure NPRAmerican Casino & Entertainment Properties LLC Gaming, Lodging & Leisure NPRBoyd Gaming Corporation Gaming, Lodging & Leisure BCaesars Entertainment Corporation Gaming, Lodging & Leisure CCNPR – Not publicly rated. Note: Ratings as of May 6, 2016. Continued on next page. Source: Fitch Ratings.
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Rating Coverage by Sector (Continued)Issuer Name/Obligor Name Sector RatingCaesars Entertainment Resort Properties, LLC Gaming, Lodging & Leisure B–Caesars Growth Properties Holdings, LLC Gaming, Lodging & Leisure B–Carnival Corp. Gaming, Lodging & Leisure NPRClubCorp Gaming, Lodging & Leisure NPRCorner Investment PropCo, LLC Gaming, Lodging & Leisure B–Diamond Resorts Gaming, Lodging & Leisure NPREldorado Resorts Inc. Gaming, Lodging & Leisure NPRExtended Stay America Inc. Gaming, Lodging & Leisure NPRFelCor Lodging Trust Gaming, Lodging & Leisure NPRGeorgia Worldwide Gaming, Lodging & Leisure NPRHersha Hospitality Gaming, Lodging & Leisure NPRHilton Worldwide, Inc. Gaming, Lodging & Leisure NPRHospitality Properties Trust Gaming, Lodging & Leisure NPRHyatt Hotels Corp. Gaming, Lodging & Leisure NPRIntrawest Corp. Gaming, Lodging & Leisure NPRIsle of Capri Casinos Gaming, Lodging & Leisure NPRLa Quinta Holdings Inc. Gaming, Lodging & Leisure NPRMarina District Finance Company, Inc. Gaming, Lodging & Leisure BMarriott Vacations Worldwide Corporation Gaming, Lodging & Leisure NPRMGM Resorts International Gaming, Lodging & Leisure B+Mohegan Tribal Gaming Authority Gaming, Lodging & Leisure NPROrbitz Worldwide, Inc. Gaming, Lodging & Leisure NPRPeninsula Gaming, LLC Gaming, Lodging & Leisure BPenn National Gaming Inc. Gaming, Lodging & Leisure NPRPinnacle Entertainment, Inc. Gaming, Lodging & Leisure B+Priceline Gaming, Lodging & Leisure NPRQuechan Indian Tribe Gaming, Lodging & Leisure B–Regal Entertainment Group Gaming, Lodging & Leisure B+Royal Caribbean Cruises Ltd. Gaming, Lodging & Leisure NPRSabre Inc. Gaming, Lodging & Leisure NPRScientific Games Corp. Gaming, Lodging & Leisure NPRSix Flags Theme Parks Premier Parks Gaming, Lodging & Leisure NPRStation Casinos Gaming, Lodging & Leisure NPRTravelport Gaming, Lodging & Leisure NPRTropicana Entertainment Gaming, Lodging & Leisure NPRWynn America, LLC Gaming, Lodging & Leisure BBWynn Las Vegas LLC Gaming, Lodging & Leisure BBWynn Macau, Limited Gaming, Lodging & Leisure BBWynn Resorts, Limited Gaming, Lodging & Leisure BBCHS/Community Health Systems, Inc. Healthcare B+Community Health Systems, Inc. Healthcare B+HCA Holdings, Inc. Healthcare BBHCA Inc. Healthcare BBLifePoint Health, Inc. Healthcare BBTenet Healthcare Corp. Healthcare BUniversal Health Services, Inc. Healthcare BB+21st Century Oncology Healthcare NPRAlere Medical Healthcare NPRAlkermes, Inc. Healthcare NPRAlliance Healthcare Healthcare NPRAmsurg Healthcare NPRBiomet Healthcare NPRBioScrip Inc Healthcare NPRCatalent Pharma Solutions Inc. Healthcare NPRCatamaran Corp. Healthcare NPRConcordia Healthcare Healthcare NPRDaVita Inc. Healthcare NPRDJO Finance LLC Healthcare NPRNPR – Not publicly rated. Note: Ratings as of May 6, 2016. Continued on next page. Source: Fitch Ratings.
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Rating Coverage by Sector (Continued)Issuer Name/Obligor Name Sector RatingEmdeon Inc. Healthcare NPREndo Pharmaceutical Healthcare NPREnvision Healthcare Corporation Healthcare NPRGrifols/Talcris Healthcare NPRHalyard Health Inc. Healthcare NPRHealthSouth Corp. Healthcare NPRHill-Rom Holdings Inc. Healthcare NPRHologic Inc. Healthcare NPRHorizon Pharma Healthcare NPRIASIS Health Healthcare NPRImmucor Inc. Healthcare NPRIMS Health Inc. Healthcare NPRIndivior Healthcare NPRJazz Pharmaceuticals Plc Healthcare NPRKindred Healthcare Healthcare NPRKinetic Concepts Healthcare NPRLantheus Medical Imaging Inc. Healthcare NPRMallinckrodt Plc Healthcare NPRMedAssets Healthcare NPRMerge Healthcare NPRMylan Pharmaceuticals Inc. Healthcare NPROmnicare Inc. Healthcare NPRPar Pharmaceutical Companies, Inc. Healthcare NPRQuintiles Transnational Healthcare NPRRadNet Inc. Healthcare NPRSelect Medical Holdings Corp. Healthcare NPRSurgical Care Affiliates Healthcare NPRTeam Health Inc. Healthcare NPRTruven Health Analytics (Ex-Wolverine Healthcare) Healthcare NPRUnited Surgical Partners International Inc. Healthcare NPRValeant Pharmaceuticals Healthcare NPRVWR Funding Inc. Healthcare NPRAllegion US Holding Company Inc. Homebuilding NPRArmstrong World Industries Inc. Homebuilding NPRContinental Building Products Homebuilding NPRInterline Brands Homebuilding NPRMonitronics International Inc. Homebuilding NPRNortek, Inc. Homebuilding NPRPly Gem Industries Homebuilding NPRWilliam Lyon Homes Homebuilding NPRBeazer Homes USA, Inc. Homebuilding B–CalAtlantic Group, Inc. Homebuilding BB–D. R. Horton, Inc. Homebuilding BB+Hovnanian Enterprises, Inc. Homebuilding CCCKB Home (formerly Kaufman and Broad Home Corp.) Homebuilding B+Lennar Corporation Homebuilding BB+M/I Homes, Inc. Homebuilding B+Meritage Homes Corporation Homebuilding BB–Navistar International Corporation Industrial & Manufacturing CCCNavistar, Inc. Industrial & Manufacturing CCCBelden Inc. Industrial & Manufacturing NPRChicago Bridge & Iron Company N.V. Industrial & Manufacturing NPRCNH Industrial Industrial & Manufacturing NPRColfax Corp. Industrial & Manufacturing NPRGenerac Power Systems Inc. Industrial & Manufacturing NPRGranite Construction, Inc. Industrial & Manufacturing NPRHarsco Corporation Industrial & Manufacturing BBOshkosh Corporation Industrial & Manufacturing NPRNPR – Not publicly rated. Note: Ratings as of May 6, 2016. Continued on next page. Source: Fitch Ratings.
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Rating Coverage by Sector (Continued)Issuer Name/Obligor Name Sector RatingPaccar Industrial & Manufacturing NPRPGT Inc. Industrial & Manufacturing NPRSPX Corporation Industrial & Manufacturing BB+Wireco Worldgroup Inc. Industrial & Manufacturing NPRArgan Inc. Industrial & Manufacturing NPRRexnord Industrial & Manufacturing NPRWabash National Corp. Industrial & Manufacturing NPRActivision Blizzard Inc. Media & Entertainment NPRAMC Entertainment Inc. Media & Entertainment B+AMC Networks Media & Entertainment NPRCedar Fair LP Media & Entertainment NPRCengage Learning Media & Entertainment NPRCenveo Corporation Media & Entertainment NPRCinemark Media & Entertainment NPRClear Channel Worldwide Holdings Inc. Media & Entertainment BCommscope Inc. Media & Entertainment NPRCumulus Media Inc. Media & Entertainment NPRDreamWorks Animation SKG, Inc. Media & Entertainment B+Dreamworks Entertainment Media & Entertainment NPRE.W. Scripps Media & Entertainment NPREMMIS Communications Media & Entertainment NPREntercom Communications Media & Entertainment NPRFirst Data Corp. Media & Entertainment BGannett Co. Inc. Media & Entertainment NPRGray Television Media & Entertainment NPRHemisphere Media Holdings Media & Entertainment NPRHMH Publishers LLC Media & Entertainment B+Houghton Mifflin Harcourt Publishers, Inc. Media & Entertainment B+Houghton Mifflin Harcourt Publishing Company Media & Entertainment B+iHeartCommunications, Inc. Media & Entertainment CCCLamar Media Media & Entertainment NPRLions Gate Entertainment Corp. Media & Entertainment NPRLive Nation Worldwide Inc. Media & Entertainment NPRMastercard Incorporated Media & Entertainment NPRMcGraw-Hill Global Education Finance, Inc. Media & Entertainment B+McGraw-Hill Global Education Holding, LLC Media & Entertainment B+McGraw-Hill School Education Holdings, LLC Media & Entertainment BMedia General, Inc. Media & Entertainment NPRMHGE Parent Finance, Inc. Media & Entertainment B+MHGE Parent, LLC Media & Entertainment B+National Cinemedia Inc. Media & Entertainment NPRNexstar Broadcasting Media & Entertainment NPRNielsen Media & Entertainment NPROUTFRONT Media Media & Entertainment NPRQuad/Graphics Inc. Media & Entertainment NPRR.R. Donnelley & Sons Media & Entertainment NPRRadio One Inc. Media & Entertainment NPRRegal Cinemas Corporation Media & Entertainment B+Salem Communications Corp. Media & Entertainment NPRSeaWorld Parks & Entertainment Inc. Media & Entertainment NPRSinclair Broadcast Group Media & Entertainment NPRSirius XM Radio Inc. Media & Entertainment NPRTime Inc. Media & Entertainment NPRTownsquare Media Media & Entertainment NPRTribune Co. Media & Entertainment NPRUnivision Communications, Inc. Media & Entertainment BWarner Music Group (WMG) Media & Entertainment NPRAmeriGas Finance Corp. Natural Gas & Propane BBNPR – Not publicly rated. Note: Ratings as of May 6, 2016. Continued on next page. Source: Fitch Ratings.
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Rating Coverage by Sector (Continued)Issuer Name/Obligor Name Sector RatingAmeriGas Partners, L.P. Natural Gas & Propane BBAK Steel Natural Resources NPRAlpha Natural Resources Natural Resources NPRAppvion (ex-Appleton Papers Inc.) Natural Resources NPRCONSOL Energy Inc. Natural Resources NPRNoranda Aluminum Natural Resources NPRNovelis Inc. Natural Resources NPRSteel Dynamics Inc. Natural Resources NPRWalter Energy Natural Resources NPRWestmoreland Coal Co. Natural Resources NPRXerium Natural Resources NPRAlcoa Inc. Natural Resources BB+Arch Coal, Inc. Natural Resources DFirst Quantum Minerals Ltd. Natural Resources BPeabody Energy (Formerly P&L Coal Holding Corp.) Natural Resources CTeck Resources Ltd. Natural Resources B+United States Steel Corporation (U.S. Steel Corp.) Natural Resources B+Uranium One Inc. Natural Resources BB–Berry Plastics Packaging & Containers NPRBWAY Corporation Packaging & Containers NPRCrown Holdings Packaging & Containers NPROwens-Illinois Packaging & Containers NPRReynolds Group Holdings Inc. Packaging & Containers NPRRock-Tenn Co. Packaging & Containers NPRSealed Air Corp. Packaging & Containers NPRCaparra Hills, LLC Property/Real Estate B+Corrections Corporation of America Property/Real Estate BB+Forest City Enterprises, Inc. Property/Real Estate BB–Forest City Realty Trust, Inc. Property/Real Estate BB–Mack-Cali Realty Corporation Property/Real Estate BB+Mack-Cali Realty, L.P. Property/Real Estate BB+Sabra Health Care Limited Partnership Property/Real Estate BB+Sabra Health Care REIT, Inc. Property/Real Estate BB+American Capital Mortgage Investment Corp. Property/Real Estate NPRBimini Capital Management Inc. Property/Real Estate NPR99 Cents Only Stores Retailing NPRBon-Ton Stores Retailing NPRBurlington Coat Factory Retailing NPRCabela’s Retailing NPRClaire’s Stores Retailing NPRDollar Tree, Inc. Retailing NPREmpire Company Limited Retailing NPRGNC Holdings Retailing NPRGymboree Corp. Retailing NPRHanesbrands Inc. Retailing NPRJ. Crew Group, Inc. Retailing NPRKate Spade & Co. Retailing NPRLands’ End Retailing NPRMen's Wearhouse Retailing NPRMichaels Stores Inc. Retailing NPRNBTY, Inc. Retailing NPRNeiman Marcus Retailing NPRParty City Holdings Retailing NPRPep Boys (Manny Moe & Jack) Retailing NPRPier 1 Imports Retailing NPRPVH Corp. Retailing NPRRoundy’s Retailing NPRSally Beauty Holdings Inc. Retailing NPRNPR – Not publicly rated. Note: Ratings as of May 6, 2016. Continued on next page. Source: Fitch Ratings.
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Rating Coverage by Sector (Continued)Issuer Name/Obligor Name Sector RatingSmart and Final Stores Inc. Retailing NPRSprouts Farmers Market Retailing NPRThe Pantry Retailing NPRVince Holdings Corp. Retailing NPRJ. C. Penney Company, Inc. Retailing BJ.C. Penney Corporation, Inc. Retailing BKmart Corp. Retailing CCKmart Holding Corp. Retailing CCL Brands, Inc. Retailing BB+Levi Strauss & Co. Retailing BBLiberty Interactive LLC Retailing BBQVC, Inc. Retailing BBRite Aid Corporation Retailing BSears Holdings Corporation Retailing CCSears Roebuck Acceptance Corp. Retailing CCSears, Roebuck and Co. Retailing CCSuperValu Inc. Retailing BToys ‘R’ Us — Delaware, Inc. Retailing CCCToys ‘R’ Us Property Co. I, LLC. Retailing CCCToys ‘R’ Us Property Co. II, LLC Retailing CCCToys ‘R’ Us, Inc. Retailing CCCAeroflex Incorporated Technology NPRAlliance Data Systems Corp. Technology NPRAmkor Technology Inc. Technology NPRAncestry.com Technology NPRAnixter Inc. Technology BB+Anixter International Inc. Technology BB+API Technologies Inc. Technology NPRAspect Software Group Holdings Technology NPRAvaya, Inc. Technology NPRAVG Technologies Technology NPRBooz Allen & Hamilton Inc. Technology NPRCDW Corporation Technology NPRDell Inc. Technology BBDell International LLC Technology BBEndurance International Group Holdings Technology NPREntegris Inc. Technology NPREpicor Software Corporation Technology NPREquinix, Inc. Technology BBEVERTEC Inc. Technology NPRGenpact International Inc. Technology NPRInfor Global Solutions Technology NPRInformatica Technology NPRInternap Network Services Corp. Technology NPRLattice Semiconductor Technology NPRMicro Focus Technology NPRMicrosemi Technology NPRMoneyGram International Technology NPRNXP B.V. Technology NPROmnivision Technologies Technology NPRRovi Corp. Technology NPRSensata Technologies Holdings N.V. Technology NPRSITEL Worldwide Corp. Technology NPRSS&C Technologies Inc. Technology NPRSunEdison Semiconductor Ltd Technology NPRSunGard Data Systems, Inc. Technology NPRVerifone Systems Inc. Technology NPRVerint Systems Inc. Technology NPRNPR – Not publicly rated. Note: Ratings as of May 6, 2016. Continued on next page. Source: Fitch Ratings.
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Rating Coverage by Sector (Continued)Issuer Name/Obligor Name Sector RatingVisa Inc. Technology NPRWestern Digital Technology NPRWestern Digital Corp. Technology BB+Zebra Technologies Corp. Technology NPRAlaska Communications Systems Telecom & Cable NPRArris Group Inc. Telecom & Cable NPRCequel Communications LLC Telecom & Cable NPRCincinnati Bell Telecom & Cable NPRConsolidated Communications Telecom & Cable NPRGeneral Communication Inc. Telecom & Cable NPRHawaiian Telcom Holdco Inc. Telecom & Cable NPRIntelsat Jackson Telecom & Cable NPRLiberty Cablevision of Puerto Rico LLC Telecom & Cable NPRMitel Networks Corp. Telecom & Cable NPRnTelos Inc. Telecom & Cable NPRNuance Communications Inc. Telecom & Cable NPROpen Text Corp. Telecom & Cable NPRSBA Communications Telecom & Cable NPRSyniverse Technologies, Inc. Telecom & Cable NPRTelesat Canada Telecom & Cable NPRT-Mobile Telecom & Cable NPRWest Corp. Telecom & Cable NPRWide Open West Finance, LLC Telecom & Cable NPRZayo Group Telecom & Cable NPRCablevision Systems Corporation Telecom & Cable BB–CCO Holdings, LLC Telecom & Cable BB–CenturyLink, Inc. Telecom & Cable BB+Charter Communications Operating, LLC Telecom & Cable BB–Clearwire Communications LLC Telecom & Cable B+Cogeco Cable Inc. Telecom & Cable BB+Comcel Trust Telecom & Cable BB+Communications Sales & Leasing, Inc. Telecom & Cable BB–CSC Holdings, LLC (Cablevision-U.S.) Telecom & Cable BB–CSL Capital, LLC Telecom & Cable BB–Digicel Group Limited Telecom & Cable BDigicel International Finance Limited (DIFL) Telecom & Cable BDigicel Limited Telecom & Cable BDISH DBS Corporation Telecom & Cable BB–DISH Network Corp. Telecom & Cable BB–Embarq Corporation Telecom & Cable BB+Embarq Florida, Inc. Telecom & Cable BB+Frontier Communications Corporation Telecom & Cable BBFrontier North Telecom & Cable BBFrontier West Virginia Telecom & Cable BBLevel 3 Communications, Inc. Telecom & Cable BB–Level 3 Financing, Inc. Telecom & Cable BB–Qwest Communications International Inc. Telecom & Cable BB+Qwest Corporation Telecom & Cable BB+Qwest Services Corporation Telecom & Cable BB+Sprint Communications, Inc. Telecom & Cable B+Sprint Corporation Telecom & Cable B+Telephone and Data Systems, Inc. Telecom & Cable BB+United States Cellular Corp. Telecom & Cable BB+Windstream Holdings of the Midwest, Inc. Telecom & Cable BB–Windstream Services, LLC Telecom & Cable BB–ADS Waste Holdings Transportation NPRAir Canada Transportation B+American Airlines Group, Inc. Transportation BB–NPR – Not publicly rated. Note: Ratings as of May 6, 2016. Continued on next page. Source: Fitch Ratings.
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Rating Coverage by Sector (Continued)Issuer Name/Obligor Name Sector RatingAmerican Airlines, Inc. Transportation BB–Atlantic Aviation FBO Inc. Transportation NPRDelta Air Lines Transportation BB+Garda World Security Corporation Transportation B+Grupo TACA Holdings Limited Transportation BHawaiian Airlines Transportation BHawaiian Holdings, Inc. Transportation BJetBlue Airways Corporation Transportation BB–Navios Maritime Holdings Transportation NPRQuality Distribution Inc. Transportation NPRRand Logistics Inc. Transportation NPRSpirit Airlines, Inc. Transportation BB+Swift Transportation Co. Transportation NPRUnion Pacific Transportation NPRUnited Airlines, Inc. Transportation BB–United Continental Holdings, Inc. Transportation BB–XPO Logistics, Inc. Transportation NPRYRC Worldwide Inc. Transportation NPRCalpine Construction Finance Company, L.P. Utilities, Power & Gas B+Calpine Corporation Utilities, Power & Gas B+Canadian Solar Inc. Utilities, Power & Gas BBContourGlobal L.P. Utilities, Power & Gas B+Dayton Power & Light Company Utilities, Power & Gas BB+DPL Inc. Utilities, Power & Gas B+FirstEnergy Corp. Utilities, Power & Gas BB+IPALCO Enterprises, Inc. Utilities, Power & Gas BB+Mountaineer Gas Company Utilities, Power & Gas BB+The AES Corporation Utilities, Power & Gas BB–Ameresco Utilities, Power & Gas NPRAtlantic Power Corp. Utilities, Power & Gas NPRBrookfield Renewable Energy Partners L.P. Utilities, Power & Gas NPRCLECO Corporation Utilities, Power & Gas NPRDynegy Inc. Utilities, Power & Gas NPRIdaho Power Utilities, Power & Gas NPRITC Holdings Corp. Utilities, Power & Gas NPRNRG Energy Inc. Utilities, Power & Gas NPRPuget Energy Inc. Utilities, Power & Gas NPRTerraForm Power Utilities, Power & Gas NPRViridian Group Investments Limited Utilities, Power & Gas B+NPR – Not publicly rated. Note: Ratings as of May 6, 2016. Source: Fitch Ratings.
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U.S. Leveraged Finance Contact ListFitch Analyst Title Market Sector Coverage Phone EmailRichard Hunter Global Head of Corporates Corporate Finance +1 44 203 530-1102 [email protected] Simonton U.S. Regional Group Head Corporate Finance +1 312 368-3138 [email protected] Weaver U.S. Deputy
Regional Group Head Corporate Finance +1 312 368-3156 [email protected] Hatton Global Group Credit Officer Corporate Finance +1 44 203 530-1061 [email protected] Larrondo Group Credit Officer U.S.
and Canada Corporate Finance +1 212 908-9189 [email protected]
Leveraged Finance GroupMichael Paladino Managing Director/Team Head Gaming, Lodging & Leisure/
Homebuilding/REITs/Leveraged Finance +1 212 908-9113 [email protected] Sharon Bonelli Senior Director Leveraged Finance +1 212 908-0581 [email protected] Eric Rosenthal Senior Director Leveraged Finance +1 212 908-0286 [email protected] Nirenberg Director Gaming, Lodging & Leisure/
Homebuilding/REITs/Leveraged Finance +1 212 612-7747 [email protected] Sancen Associate Director Leveraged Finance +1 312 368-2096 [email protected]
Real Estate & Leisure GroupMichael Paladino Managing Director/Team Head Gaming, Lodging & Leisure/
Homebuilding/REITs/Leveraged Finance +1 212 908-9113 [email protected] Alex Bumazhny Senior Director Gaming, Lodging & Leisure +1 212 908-9179 [email protected] Stephen Boyd Senior Director Gaming, Lodging & Leisure/REITs +1 212 908-9153 [email protected] Mansfield Associate Director Gaming, Lodging & Leisure +1 212 908-0899 [email protected]
Steven Marks Managing Director/Sector Head REITs +1 212 908-9161 [email protected] Boyd Senior Director REITs/Gaming, Lodging & Leisure +1 212 908-9153 [email protected] Costa Director REITs +1 212 908-0524 [email protected] Kornblau Associate Director REITs +1 646 582-4946 [email protected]
Bob Curran Managing Director/Sector Head Homebuilding/Building & Home Products & Services +1 212 908-0515 [email protected] Robert Rulla Director Homebuilding/Building & Home Products & Services +1 312 606-2311 [email protected] Monica Delarosa Associate Director Homebuilding/Building & Home Products & Services +1 212 908-0525 [email protected]
Retail & Consumer GroupMonica Aggarwal Managing Director/Team Head Retail/Consumer Products/
Food, Beverage Restaurants & Agri Business +1 212 908-0282 [email protected] Carla Norfleet Taylor Senior Director Restaurants/Grocery +1 312 368-3195 [email protected] Bill Densmore Senior Director Beverage/Agri Business/ P&P/Telecom & Cable +1 312 368-3125 [email protected] Silverman Senior Director Retail/Consumer Products +1 212 908-0840 [email protected]
Healthcare & Pharma GroupMegan Neuburger Managing Director/Team Head Healthcare, Pharma & Tobacco +1 212 908-0501 [email protected] Kirby Director Healthcare/Pharmaceticals +1 312 368-3147 [email protected] Jacob Bostwick Director Healthcare +1 312 368-3169 [email protected] Gregory Dickerson Director Healthcare/Tobacco +1 212 908-0220 [email protected] Blalock Associate Director Healthcare/Tobacco +1 312 368-3154 [email protected]
Industrials & Transportation GroupCraig Fraser Managing Director/Team Head Autos/A&D/Diversified Manufacturing/
Transportation/EETCs +1 212 908-0310 [email protected] Stephen Brown Senior Director Autos/Transportation +1 312 368-3139 [email protected] Eric Ause Senior Director A&D/Diversified Manufacturing +1 312 606-2302 [email protected] Jason Pompeii Senior Director Technology/Diversified Manufacturing +1 312 368-3210 [email protected] Zahn Senior Director Diversified Manufacturing +1 312 606-2336 [email protected] David Petu Director A&D/Diversified Manufacturing/EETCs +1 212 908-0280 [email protected] Joseph Rohlena Director Airlines/Transportation/EETCs +1 312 368-3112 [email protected] Akin Adekoya Director Autos/A&D/Diversified Manufacturing/Transportation +1 212 908-0312 [email protected] Varone Associate Director A&D/Diversified Manufacturing/EETCs +1 212 908-0349 [email protected] on next page. Source: Fitch Ratings.
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U.S. Leveraged Finance Contact List (Continued)Fitch Analyst Title Market Sector Coverage Phone EmailUtilities & Natural Resources GroupShalini Mahajan Managing Director/Team Head Utilities, Power & Gas/
Energy (Oil & Gas)/MLPs/Bsc Mtrls/ Ntrl Rscrs +1 212 908-0351 [email protected] Hornick Senior Director Utilities, Power & Gas +1 212 908-0523 [email protected] Smyth Senior Director Utilities, Power & Gas +1 212 908-0531 [email protected] Philippe Beard Director Utilities, Power & Gas +1 212 908-0242 [email protected] Julie Jiang Director Utilities, Power & Gas +1 212 908-0708 [email protected] Tremblay Director Utilities, Power & Gas +1 312 368-3203 [email protected] Beicke Director Utilities, Power & Gas +1 212 908-0618 [email protected] Neama Associate Director Utilities, Power & Gas +1 212 908-0561 [email protected]
Mark Sadeghian Senior Director/Sector Head Energy (Oil & Gas)/Basic Material/ Natural Resources +1 312 368-2090 [email protected]
Monica Bonar Senior Director Basic Materials/Natural Resources +1 212 908-0579 [email protected] Okogun Senior Director Energy (Oil & Gas)/Basic Materials +1 212 908-0384 [email protected] Kritikos Director Energy (Oil & Gas) +1 312 368-3150 [email protected] Fodell Associate Director Basic Materials/Energy (Oil & Gas) +1 312 368-3117 [email protected] Brad Bell Associate Director Basic Materials/Energy (Oil & Gas) +1 312 368-3149 [email protected] Cameli Associate Director Basic Materials/Natural Resources +1 312 368-3160 [email protected] Cordes Associate Director Energy (Oil & Gas)/Gas, Midstream & MLPs +1 312 368-3120 [email protected]
Peter Molica Senior Director/Sector Head Gas, Midstream & MLPs +1 212 908-0288 [email protected] Kathleen Connelly Director Gas, Midstream & MLPs +1 212 908-0290 [email protected] Colin Cordes Associate Director Energy (Oil & Gas)/Gas, Midstream & MLPs +1 312 368-3120 [email protected]
Technology, Media & TelecomDave Peterson Senior Director/Team Head Technology/Telecom & Cable/Media & Entertainment +1 312 368-3177 [email protected] Jason Pompeii Senior Director Technology/Diversified Manufacturing +1 312 368-3210 [email protected] Culver Senior Director Telecom & Cable +1 312 368-3216 [email protected] Bill Densmore Senior Director Beverage/Telecom & Cable +1 312 368-3125 [email protected] Kranefuss Senior Director Media & Entertainment +1 212 908-0791 [email protected] Hankin Director Technology/Telecom & Cable/Media & Entertainment +1 646 582-4985 [email protected] McKay Associate Director Telecom & Cable +1 312 368-3148 [email protected] Shanker Associate Director Media & Entertainment +1 212 908-0649 [email protected] Schroeder Associate Director Technology/Telecom & Cable/Media & Entertainment +1 312 368-2056 [email protected] DeMaria Associate Director Technology +1 312 368-2071 [email protected]: Fitch Ratings.
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