Morgan Stanley Credit Partners L.P. Weekly Market Update November 5, 2012

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1 L.P. Weekly Market Update November 5, 2012

2 High Yield: YTD Issuance: $308.8Bn, 26% above YTD 2011 Index Yield: 6.35% Leveraged Loans: YTD Issuance (1) :$392.5Bn, 18% above YTD 2011 Leveraged Finance Market Commentary HY bonds and leveraged loans returned -0.25% and -0.03%, respectively HY CDX is still trading a little tight at 506bp 8 issuers priced $3.4Bn of HY globally. YTD volume is $308.8Bn, 25.5% higher than YTD issuers priced $6.3Bn of Leveraged Loan. YTD loan volume is $392.5Bn, 18.2% higher than YTD 2011 HY fund flows: negative $619MM Loan fund flows: positive $78MM, well below the prior 6-week average of +435MM outflow last week which was shortened by Sandy Index Yield: 6.04%. LTM High Yield Index STW and YTW LTM Leveraged Loan Index STW and YTW Spread in bps Yield in % Spread in bps Yield in % ,050 1, Jun-09 Oct-09 Jan-10 May-10 Aug-10 Dec-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov bps 6.35% Jul-09 Dec-09 Apr-10 Sep-10 Feb-11 Jun-11 Nov-11 Feb-12 Jun-12 Oct % bps 4.0 STW YTW Spread to LIBOR Yield Morgan Stanley Bloomberg, LCD 1. Includes Priced and Announced Institutional and Pro-Rata Tranches 2

3 Market Commentary Sportsman Warehouse flexes up pricing on dividend recap loan Sportsman's Warehouse increased pricing on its $145 million dividend recap loan to LIB+600 with a 1.5 percent Libor floor and a 99 OID Previously, the six-year term loan was talked at LIB+525 with a 1.5 percent Libor floor and a 99 OID Call protection is now 102, 101 hard call, with excess cash flow and asset sales at par Previously, the loan was set with 101 repricing protection for one year Corporate family ratings are B2/B, while facility ratings are B3/B The loan includes covenants for maximum leverage and minimum interest coverage Sportsman's Warehouse is a retailer of hunting, fishing, camping and backpacking equipment SNL Financial loan breaks above OID SNL Financial s new $275 million term loan is trading after the facility broke for trading The covenant-lite loan was increased by $15 million, with the increase going to pay a larger dividend At the same time, pricing was decreased by 50bp to LIB+425 with a 1.25 percent Libor floor and a 99 OID. A $30 million revolving credit rounds out the dividend recapitalization loan The term loan runs for 6 years and the revolver will run for 5. The loan will benefit from 101 repricing protection SNL Financial entered into a $175 million covenant-lite loan and a $30 million revolver in August, The term loan was priced at LIB+700 with a 1.5 percent Libor floor Proceeds from the facility back SNL Financial's buyout by New Mountain Capital Renaissance Learning outlines price talk Renaissance Learning s $230 million TLB is talked at LIB+450 with a 1.25% Libor floor and a 99 OID A $20 million revolver fills out the rest of the financing Last year the company raised a $250 million credit backing its LBO by Permira Advisors Final pricing on the $175 million, six-year first-lien term loan was LIB+625 with a 1.5% Libor floor and a 96 OID. The $75 million, seven-year second-lien term loan firmed at LIB+1050 with a 1.5% Libor floor and a 96 OID Renaissance Learning provides technology-based school improvement and student assessment programs for K-12 schools 3

4 Market Commentary P2 Energy readies $355M loan P2 Energy Solutions Inc launched on Thursday a $355 million credit facility Proceeds are to refinance its existing debt and to pay a distribution to shareholders The facility is split between a $25 million revolving credit, a $220 million first-lien term loan and a $110 million second-lien term loan. Total leverage is 5.7 times P2, a portfolio company of Vista Equity Partners is an independent provider of software and data solutions exclusively serving the upstream oil and gas industry Fiscal year-end 9/30/12, the company generated revenue and adjusted EBITDA of $147.8 million and $57.5 million, respectively. Revenue and EBITDA are up 23 percent and 69 percent year-over-year, respectively Smith-Cooper nails down $84M acquisition facility Industrial maintenance provider Smith-Cooper Int. nailed down an $84 million senior secured credit facility Proceeds are to fund the company's acquisition by Blue Point Capital Partners In 2006, the company raised a $126.7 million buyout loan backing its LBO by ZS Funds LP. The facility comprised a $14 million revolver at LIB+300, an $86 million term loan A at LIB+375 and a $26.7 million term loan B at LIB+425. The facility was set to mature next year Smith-Cooper provides industrial maintenance, repair and operations products, serving a broad range of end markets including commercial and industrial, energy, chemical and petrochemical refining, and fire protection, among others. The company is based in Commerce, California Blue Point focuses on the lower middle market, investing in manufacturing, distribution and services businesses. The firm has offices in Charlotte, Cleveland, Seattle and Shanghai Raven Power Finance on deck with $150M loan Raven Power Finance launched Wednesday at a bank meeting a $150 million first-lien TLB Performance Health seals LBO financing Performance Health and Wellness has nailed down senior and mezzanine debt financing for its acquisition by Gridiron Capital Sequa Automotive sets talk on LBO Sequa Automotive Group outlined talk on its $215 million term loan B The loan is talked at LIB+500 with a 1.25 percent Libor floor. The loan is offered at an OID of 99 A $60 million revolving credit facility rounds out the $275 million syndicated deal Proceeds are to fund the automotive division's acquisition by the Jordan Company 4

5 Market Commentary Confie Seguros raising $347 million LBO loan; commits due Oct. 31 Confie Seguros Holding is in market with a $347 million buyout loan. Commitments are due October 31 The deal is split between a $75 million revolver, a $252 million first-lien term loan and a $110 million second-lien TL The first-lien TL is talked at LIB+525 with a 1.25 percent Libor floor. The loan is offered at an OID of The second-lien TL is talked at LIB+900, also with a 1.25 percent floor. The loan is offered at an OID of 98 Proceeds are to back the company's acquisition by ABRY from Genstar Ipreo pricing commitments were due Wednesday Commitments were due Wednesday on Ipreo s $170 million covenant-lite repricing loan The deal comprises a $150 million, six-year term loan talked at LIB+525 with a 1.25 percent Libor floor. A $20 million, six-year add-on term loan is talked in line with the $150 million tranche The repriced loan, including the TL and the add-on, are offered at 99. Both carry B1/BB- ratings Pricing on the company's existing term loan, which was raised last July, is LIB+650 with a 1.5 percent Libor floor. The loan was sold at 98 and has 101 soft call protection Ipreo is provides market intelligence, deal execution platforms, and investor communication tools to investment banks and corporations globally. Ipreo is a portfolio company of KKR Milk Specialties in market with refi loan Milk Specialties Global is talking its new term loan B at LIB+575, with a 1.25 percent Libor floor and a 99 OID The company is in market with a $315 million senior secured credit, consisting of a $35 million, five-year revolver, a $250 million, six-year term loan B, and a $30 million, six-year delayed draw term loan Proceeds will refinance existing debt and fund the company's capacity expansion plan In December 2011, Milk priced a $125 million first-lien term loan at LIB+700 with a 1.5 percent Libor floor and a 97 OID, and a $60 million second-lien term loan at LIB+1300 with a 1.5 percent Libor floor and a 96 OID. The second-lien loan is NC1, 102, 101 Homecare Homebase seals $75M senior credit facility Homecare Homebase LLC wrapped a $75 million senior secured credit facility. Proceeds will be used to refinance debt and fund a dividend payment to shareholders The five-year deal is split between a $5 million revolving credit and a $70 million term loan. The facility pays lenders a spread of LIB+400 Homecare Homebase is a Dallas-based provider of home health and hospice agency software solutions. Cressey & Co is the PE sponsor 5

6 Sponsored institutional issuance drops to $4.75Bn; Overall Middle Market institutional issuance declines to $7Bn in 3Q 3Q sponsored institutional issuance is down 36% from 2Q12 levels, but is up 4% yearover-year Overall 3Q MM institutional issuance is down 24% from 2Q12 levels, but is up 42% from 3Q11 Sponsored Institutional Issuance Institutional volume Issuance ($Bils) % of total sponsored % 70% 60% 50% 40% 30% 20% 10% % of sponsored Issuance ($Bils.) Middle Market Institutional Issuance 30.0 Large Trad % 0.0 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 : Thomson Reuters LPC : Thomson Reuters LPC Middle Market Second-Lien Issuance Middle market 2 nd lien issuance is down to $730MM in 3Q12 from $1.25B in 2Q Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 Issuance ($Bils.) 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 : Thomson Reuters LPC 6

7 Historical HY New Issuance Volume by Year $Bn High Yield Issuance Trade Date Issuer Sponsor Purpose Amount ($MM) Rating Yield 11/2/12 Ausdrill Not Sponsored Refinancing 300 BB/Ba % 11/2/12 Centene Corp Not Sponsored Corp Purpose 175 BB/Ba % 11/2/12 Chaparral Energy Inc CCMP Capital Advisors LLC Refinancing 150 B-/B % 11/2/12 Huntsman International LLC Not Sponsored Refinancing 400 BB-/B % 11/2/12 Northern Tier Energy LLC ACON Investments Recap/IPO 275 BB-/B % 11/2/12 Royal Caribbean Cruises Ltd Not Sponsored Refinancing 650 BB/Ba % 11/1/12 Checkers Drive-In Restaurants Inc Wellspring Capital Management LLC Recap/General Recap 160 B-/B % 11/1/12 PQ Corp Carlyle Group Recap/General Recap 600 B-/Caa % 11/1/12 Spectrum Brands Inc Harbinger Capital Partners Acquisition 570 B-/B % 11/1/12 Spectrum Brands Inc Harbinger Capital Partners Acquisition 520 B-/B % 10/31/12 TMX Finance Not Sponsored Recap/Dividend 100 NR/NR % 0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 YTD LCD Morgan Stanley, Thomson SDC Historical LL New Issuance Volume by Year 2012 Leveraged Loan Issuance $Bn '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 YTD Launch Date Issuer Sponsor Purpose Deal Size ($MM) Rating Spread 11/2/12 Chesapeake Energy Corp Not Sponsored Refinancing 2,000 BB-/Ba3 L /1/12 CHG Healthcare Services Inc Leonard Green LBO 450 B/B1 NA 11/1/12 CHG Healthcare Services Inc Leonard Green LBO 100 B/B1 NA 11/1/12 CHG Healthcare Services Inc Leonard Green LBO 215 CCC+/Caa1 NA 10/31/12 FleetPride Inc Texas Pacific Group LBO 200 NR/NR NA 10/31/12 FleetPride Inc Texas Pacific Group LBO 425 NR/NR NA 10/31/12 Tempur World Not Sponsored Acquisition 1,770 NR/NR L /29/12 Checkers Drive-In Restaurants Inc Wellspring Capital Management LLC Recap/General Recap 20 NR/NR NA 10/29/12 D R Horton Not Sponsored Corp Purpose 600 NR/NR NA LCD Morgan Stanley, S&P LCD 7

8 About Morgan Stanley Credit Partners Hank D Alessandro Managing Director Head of Morgan Stanley Credit Partners Henry.D'Alessandro@morganstanley.com Michael Scarangella Managing Director Sector coverage: Healthcare, General Services, Transportation Michael.Scarangella@morganstanley.com Steven Shekane Executive Director Sector coverage: Cable & Media, Financials, Gaming & Leisure, Industrials Steven.Shekane@morganstanley.com Ashwin Krishnan Executive Director Sector coverage: Technology, Energy, Automotive, Chemicals, Paper & Packaging, Metals & Mining, Telecom Ashwin.Krishnan@morganstanley.com William Gassman Executive Director Sector coverage: Consumer & Retail, Automotive, Defense, Utilities William.Gassman@morganstanley.com Key Facts Morgan Stanley Credit Partners is focused on executing privately negotiated corporate mezzanine debt investments Target investment size of $20 million to $65 million with the ability to partner with other investors to participate in larger transactions Seek to invest in a combination of subordinated debt and equity in the form of warrants or direct equity co-investment Typically focus on companies with EBITDA of over $15 million, predominantly in the U.S. and Western Europe. Investments include capital for leveraged buyouts, debt refinancings, recapitalizations and acquisitions For more information, please visit our website at: 8