State of the U.S. Loan Market 2Q17

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1 July 19, 2017 The data reflected in this report were drawn from New York-governed credit agreements of dollar-denominated firstlien (and split collateral) Term B loans that were originated during the LTM period from 3Q16 through 2Q17, either in draft or, to the extent available, final form. We have segmented the data into three groups: (1) sponsor deals with a TLB facility balance of at least $300mm, (2) non-sponsor deals with a TLB facility balance of at least $300mm, and (3) sponsor deals with a TLB facility balance of less than $300mm. In the report we label these segments as Sponsors, Non-Sponsors, and Middle Market, respectively. The number of agreements included in each segment were as follows: The significant findings were as follows: 3Q16 4Q16 1Q17 2Q17 LTM Sponsors ($300mm+) Non-Sponsors ($300mm+) Middle Market (< $300mm) Sponsors have increasingly incorporated the permissive terms of large leveraged loans into their middle market loans. In some cases, the trend lines for the two groups are indistinguishable (see, for example, the length and terms of call protection). In other cases, the middle market is catching up to the larger leveraged loans, and some of the sharpest spikes in the incidence of borrower-friendly provisions appeared in these smaller-balance sponsor loans. These include: 2017 Xtract Research 1

2 the growth in the percentage of loans that do not cap add-backs to EBITDA for cost savings; the increased use of EBITDA as the gauge for the size of the incremental facility, the grower baskets, and the starter amount in the builder basket; the rise in springing financial covenants at the expense of maintenance financial covenants; and the mushrooming of the number of loans that permit a Restricted Payment when a leverage ratio is met. Although the first quarter saw some successful pushback against sponsors by lenders in the larger loans, most of these gains were given up again in the second quarter. For example, the first quarter saw a tightening of the percentage cap on EBITDA add-backs, but these caps were significantly relaxed in the second quarter. The first quarter also witnessed a surprising rise in the number of loans with a maintenance financial covenant, but the second quarter saw a return to the familiar decline in maintenance financial covenants. Across all loan groups, the grower basket in the incremental facility increased toward an amount equal to 100% of EBITDA. There was a lot of activity in the MFN arena. In addition to the accepted yield differential widening to 75bps in several instances, the appearance of various exemptions from the MFN protection accelerated in the second quarter. These exemptions ranged from incremental debt that matured more than 2 years after initial term loans to incremental debt that was incurred under the freebie basket to incremental debt in a specified amount. NOTE: We have obtained the information provided in this report from our Deal Data platform. More detailed tables for each data point are available on request. If you are interested in subscribing to Deal Data, please contact us at sales@xtractresearch.com Xtract Research 2

3 Table of Contents Call.. 4 Call Periods Primary Purpose Requirements.. 9 EBITDA Add-Backs Cash Netting Freebie Amounts Evergreen Freebies (Debt Reclassification).. 33 Type of Covenant Springing Covenant Usage Trigger.. 42 Grower Baskets Ratio Debt Builder Baskets Leverage-Based Restricted Payments 2017 Xtract Research 3

4 2017 Xtract Research 4

5 Call Periods % of Agreements with 6-Month versus 12-Month Call, LTM * * Agreements with a call period greater than 12 months included in data set but not pictured above Xtract Research 5

6 Call Periods % of Agreements with 6-Month Call 2017 Xtract Research 6

7 Primary Purpose Requirements % of Agreements that contain Primary Purpose Requirement, LTM * * Call is triggered only if the primary purpose of the refinancing is yield reduction Xtract Research 7

8 Primary Purpose Requirements % of Agreements that contain Primary Purpose Requirement * * Call is triggered only if the primary purpose of the refinancing is yield reduction Xtract Research 8

9 2017 Xtract Research 9

10 EBITDA Add-Backs % of Agreements with Uncapped Add-Backs for Cost Savings & Synergies, LTM 2017 Xtract Research 10

11 EBITDA Add-Backs % of Agreements with Uncapped Add-Backs for Cost Savings & Synergies 2017 Xtract Research 11

12 EBITDA Add-Backs %EBITDA Cap on Add-Backs for Cost Savings & Synergies, LTM 2017 Xtract Research 12

13 EBITDA Add-Backs %EBITDA Cap on Add-Backs for Cost Savings & Synergies 2017 Xtract Research 13

14 EBITDA Add-Backs %EBITDA Cap on Add-Backs for Cost Savings & Synergies 2017 Xtract Research 14

15 EBITDA Add-Backs %EBITDA Cap on Add-Backs for Cost Savings & Synergies 2017 Xtract Research 15

16 EBITDA Add-Backs % of Add-Back Provisions that Have a Time Limit on Realization of Cost Savings, LTM 2017 Xtract Research 16

17 EBITDA Add-Backs % of Add-Back Provisions that Have a Time Limit on Realization of Cost Savings 2017 Xtract Research 17

18 EBITDA Add-Backs Months within which Realization must Occur or be Expected to Occur, LTM 2017 Xtract Research 18

19 EBITDA Add-Backs Months within which Realization must Occur or be Expected to Occur 2017 Xtract Research 19

20 EBITDA Add-Backs Months within which Realization must Occur or be Expected to Occur 2017 Xtract Research 20

21 EBITDA Add-Backs Months within which Realization must Occur or be Expected to Occur 2017 Xtract Research 21

22 Cash Netting % of Agreements with Uncapped Cash Netting, LTM 2017 Xtract Research 22

23 Cash Netting % of Agreements with Uncapped Cash Netting 2017 Xtract Research 23

24 2017 Xtract Research 24

25 Freebie Amounts % of Freebies with a Fixed Dollar Cap vs. a Greater of $X and %EBITDA Grower Formulation, LTM 2017 Xtract Research 25

26 Freebie Amounts % of Freebies with Grower Formulation 2017 Xtract Research 26

27 Freebie Amounts %EBITDA Cap on Grower Prong of Freebie Amount, LTM * Non-Sponsor group only contained four deals with a %EBITDA cap, and the Middle Market contained ten deals Xtract Research 27

28 Freebie Amounts %EBITDA Cap on Grower Prong of Freebie Amount 2017 Xtract Research 28

29 Freebie Amounts %EBITDA Cap on Grower Prong of Freebie Amount 2017 Xtract Research 29

30 Freebie Amounts %EBITDA Cap on Grower Prong of Freebie Amount 2017 Xtract Research 30

31 Evergreen Freebies % of Provisions that Permit Freebie Usage to be Reclassified to Ratio Prong, LTM 2017 Xtract Research 31

32 Evergreen Freebies % of Provisions that Permit Freebie Usage to be Reclassified to Ratio Prong 2017 Xtract Research 32

33 2017 Xtract Research 33

34 Type of Covenant LTM Period * Springing includes financial covenants that do not require any Revolver usage but that exist for benefit of Revolver lenders only (and, in certain cases, also for Term A lenders) Xtract Research 34

35 Type of Covenant * Springing includes financial covenants that do not require any Revolver usage but that exist for benefit of Revolver lenders only (and, in certain cases, also for Term A lenders) Xtract Research 35

36 Type of Covenant * Springing includes financial covenants that do not require any Revolver usage but that exist for benefit of Revolver lenders only (and, in certain cases, also for Term A lenders) Xtract Research 36

37 Type of Covenant * Springing includes financial covenants that do not require any Revolver usage but that exist for benefit of Revolver lenders only (and, in certain cases, also for Term A lenders) Xtract Research 37

38 Springing Covenant Usage Trigger Revolver Usage Trigger at which Covenant Springs, LTM 2017 Xtract Research 38

39 Springing Covenant Usage Trigger Revolver Usage Trigger at which Covenant Springs 2017 Xtract Research 39

40 Springing Covenant Usage Trigger Revolver Usage Trigger at which Covenant Springs 2017 Xtract Research 40

41 Springing Covenant Usage Trigger Revolver Usage Trigger at which Covenant Springs 2017 Xtract Research 41

42 2017 Xtract Research 42

43 Grower Baskets % of Covenant Packages that contain Baskets with a %Assets or %EBITDA Grower Formulation, LTM 2017 Xtract Research 43

44 Grower Baskets % of Covenant Packages that contain Baskets with a %Assets or %EBITDA Grower Formulation 2017 Xtract Research 44

45 Grower Baskets % of Covenant Packages that contain Baskets with a %Assets or %EBITDA Grower Formulation 2017 Xtract Research 45

46 Grower Baskets % of Covenant Packages that contain Baskets with a %Assets or %EBITDA Grower Formulation 2017 Xtract Research 46

47 Ratio Debt % of Agreements that Permit Ratio Debt under a Leverage or Fixed Charge Coverage Ratio Basket, LTM 2017 Xtract Research 47

48 Ratio Debt % of Agreements that Permit Ratio Debt under a Leverage or Fixed Charge Coverage Ratio Basket 2017 Xtract Research 48

49 Builder Basket Basis Basis on which Builder Basket (Available/Cumulative Amount) Builds, LTM 2017 Xtract Research 49

50 Builder Basket Basis Basis on which Builder Basket (Available/Cumulative Amount) Builds 2017 Xtract Research 50

51 Builder Basket Basis Basis on which Builder Basket (Available/Cumulative Amount) Builds 2017 Xtract Research 51

52 Builder Basket Basis Basis on which Builder Basket (Available/Cumulative Amount) Builds 2017 Xtract Research 52

53 Builder Basket Starter Amount % of Builder Baskets that contains a Seeded/Starter Amount with a Grower Formulation instead of a Fixed Dollar Amount, LTM 2017 Xtract Research 53

54 Builder Basket Starter Amount % of Builder Baskets that contains a Seeded/Starter Amount with a Grower Formulation instead of a Fixed Dollar Amount 2017 Xtract Research 54

55 Leverage-Based Restricted Payments % of RP that Contain the Carveout, LTM 2017 Xtract Research 55

56 Leverage-Based Restricted Payments % of RP that Contain the Carveout 2017 Xtract Research 56

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