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2 Finance Practice CFO Executive Board 25 March 2009 Bank Relationship Update

3 Half of the respondents have negotiated or renewed a credit facility in the last twelve months, or are doing so at the moment. Recent Credit Negotiations Have you renewed or renegotiated a credit line in the last 12 months? No 50% 44% 6% Have Negotiated/ Renewed Currently negotiating/ renewing n = 48 treasurers 2

4 Treasurers recommend starting early with credit negotiations. Credit Negotiation Timeline How far in advance do you recommend that your peers begin negotiating the terms of a new credit facility or renewal? months prior months prior 7% Less than 6 months prior 22% 20% 52% n = 46 treasurers 6-12 months prior 3

5 Many treasurers expect that bank credit availability will shrink, and plan on using medium/long-term debt and self funding to fill the gap. Future Funding Sources Given the increased price and decreased availability of bank credit, how will you replace that portion of your capital structure? We do not expect the credit facility to shrink 40% Medium / long-term corporate bonds 38% Self-funding 25% Term loan 13% Other* 13% Commercial paper 2% n = 47 treasurers. *Other: Tax exempt bonds, varying maturities, sale of customer receivables, extended credit from suppliers, capital lease, private debt placements, private equity, reduced capital expenditure. 4

6 Most reported covenant waivers cost less than 50 basis points. Cost of Covenant Amendments If you recently sought a covenant waiver / amendment, what were the approximate waiver / amendment fees? Not yet determined Have you sought a covenant waiver / amendment in the past 12 months? Yes 23% 100 bps 9% 9% 77% No 50 bps 9% n = % Less than 50 bps n = 11 treasurers YOUR COLLEAGUE SAYS We were in danger of breaching a financial covenant and thought it was in our best interest to negotiate an amendment. Banks are really sticking it to us though. Increasing our spreads and charging a 50 Basis Point amendment fee and putting further restrictions on us. The pendulum has swung way too far to the banks side. - Diversified Services Company with less than $5 billion in revenue 5

7 Treasurers report a mixed approach by banks to loan covenants, which is clearly driven by the financial context of individual loan negotiations. Covenant Requirements In your discussions with banks in the past six months, have you found any to be notably more or less stringent than others regarding the covenants they require? Banks with More Stringent Covenant Requirements Banks with Less Stringent Covenant Requirements Bank of America JPMorgan Wells Fargo Citi CIBC Danske Bank Deutsche Bank HSBC KeyBank Lloyds RBC RBS Bank of Hawaii BBVA Calyon Citi JPMorgan Mitsui Santander Wells Fargo n = 5 treasurers n = 12 treasurers YOUR COLLEAGUE SAYS All banks understand that covenants based on profitability are going to be under a lot of stress in this period - they are being very constructive about looking for meaningful and attainable alternatives. *Unspecified - Computer Manufacturing Company with more than $15 billion in revenue 6

8 Treasury is most likely to share covenant compliance processes with Accounting Covenant Compliance Ownership What department at your company is ultimately responsible for the ongoing monitoring and reporting of debt covenant compliance? (multiple responses accepted) Treasury 81% Accounting 30% Legal 7% Other* 7% n = 47 treasurers. *Other: Financial Planning & Analysis; Chief Financial Officer. 7

9 The majority of respondents have recently reevaluated the way they allocate wallet share to banks. Bank Wallet Share When did you last update your method for allocating wallet share to banks? More than two years ago 24% 35% In the last year One to two years ago 7% 35% We are examining it now n = 46 treasurers 8

10 Bank participation in a credit facility and relationship strength are the main determinants of wallet share allocation by treasurers. Wallet Share Criteria Which methods do you use to allocate wallet share to banks? Amount of credit provided by a banking partners in our standing facility 89% Relationship strength 85% Service quality provided by the banks 83% Pricing competitiveness 70% Financial counterparty s risk profile 51% Bank profitability model based on assumed RAROC target 17% Other* 9% n = 47 treasurers. *Other: Relative competitive advantage, strategic/customer relationships, depth/breadth of services offered, bank expertise. 9

11 Wells Fargo tops the list of banks that respondents said they believe are more willing to lend; while Citi tops the list of those banks perceived as less likely to offer credit at the moment. Bank Willingness to Lend Which of your corporate banking partners have noticeably changed their lending appetite? Banks with Perceived Higher Willingness to Lend Banks with Perceived Lower Willingness to Lend Wells Fargo 22% Citi 40% US Bancorp 17% JPMorgan 27% Nordea 17% Bank of America 17% Bank of America 11% HSBC 17% Northern Trust 11% RBC 17% JPMorgan 11% BNP Paribas 13% Bank of Tokyo 11% Union Bank 11% n = 18 treasurers n = 30 treasurers 10

12 Survey Respondent Demographics Industry Revenue Utilities Manufacturing Energy Health Products & Services Retail Diversified Services Metals & Mining Financial Services Food Materials & Construction Insurance Consumer Products Other 10% 10% 10% 10% 8% 8% 6% 6% 6% 6% 4% 4% 12% > $10 billion 17% < $2 billion 35% $5-10 billion 17% 31% $2-5 billion Geography Europe 23% 77% North America n =