Oklahoma Independent Petroleum Association 2007 Capital and Technology Conference October 30, 2005
Market Backdrop Bulge bracket investment banks have been poor performers in 2007 STOCK PRICE PERFORMANCE YTD 20% 10% 0% (10%) (20%) (30%) (40%) Jan Feb Mar Apr May Jun Jul Aug Sep Oct (7.0%) (14.0%) (24.9%) (26.5%) (30.2%) (32.1%) MER LEH MS BSC C DB Firm Merrill Lynch Lehman Brothers Morgan Stanley Bear Stearns Citigroup Deutsche Bank Debt writedown ($bn) $8.4 $0.7 $2.4 $0.7 $3.5 $3.1 % of Market Cap 13.7% 2.4% 3.6% 5.4% 1.5% 4.6% Note: Market data as of 10/25/07. Source: Thomson Analytics, Wall Street Journal
Commercial Paper Market Update INDICATIVE 30 DAY RATES 6.0% 5.8% 5.6% 5.4% 5.2% 5.0% 4.8% 4.6% 4.4% May June July Aug Sep Oct A-1/P-1 A-2/P-2 ABCP Libor Source: Bloomberg, BAS Statistics
Commercial Paper Market Update The total market now stands at $1.90 trillion representing a 12.5% decline from the end of July COMMERCIAL PAPER ISSUE TYPE 2,400 26 Total Market Size ($bn) 2,000 1,600 1,200 800 400 27 179 29 37 117 29 153 158 94 13 1,152 102 1,076 923 894 848 680 186 150 176 178 182 149 452 520 560 631 595 622 0 2004 2005 2006 Jul-07 Sep-07 Oct-07 Domestic Financial Foreign Financial ABCP Domestic Non-Financial Foreign Non-Financial
Corporate Bond Market Update Corporate credit yields are recovering as corporate bond market continues to improve HISTORICAL BBB, BB AND B INDEX YIELDS (2001 2007 YTD) 16.0% 14.0 12.0 10.0 8.0 B Average 8.631% BB Average 7.237% 8.48% 7.70% 6.0 BBB Average: 5.779% 5.87% 4.0 01/04/01 09/09/01 05/16/02 01/19/03 09/25/03 05/31/04 02/03/05 10/10/05 06/15/06 02/19/07 10/26/07 B Index BB Index BBB Index
Systemic Re-Pricing of Risk Recent widening of spreads and flight to quality attributable to massive forward calendar, CDOs and subprime concern YIELD ON 10-YEAR U.S. TREASURIES BB AND B SPREADS 8.0% 1200 bps 7.0 1000 6.0 800 5.0 600 4.0 400 3.0 200 2.0 1/3/00 7/26/01 2/17/03 10-year UST Yield 9/9/04 4/3/06 Average 10-year UST Yield 10/26/07 0 1/3/00 7/26/01 2/17/03 9/9/04 4/3/06 10/26/07 BB Index Spreads B Index Spreads Source: BAS Broad Market Index, Bloomberg Financial Markets, Factset
Corporate Bond Market Update CDX8 INDEX (HIGH YIELD CDS INDEX) (a) 550 bps High: 527 bps 500 bps 450 bps 400 bps 350 bps Current: 345 300 bps 250 bps 200 bps 03/31/07 04/30/07 05/30/07 06/29/07 07/29/07 08/28/07 09/28/07 (a) The CDX8 Index (5 year) is the benchmark CDS index for the high yield market and is comprised of an equally weighted basket of the 100 most liquid high yield CDS contracts
Corporate Bond Market Update Inverted Yield Curve and LIBOR Market Dislocation Continues to Favor Fixed-Rate Financing 7.00% 6.00 (14) bps on 1/1/06 5.00 4.00 3.00 Inverted U.S. Treasury Y ield Curve 360 bps on 5/13/04 166 bps on 1/1/05 Inverted U.S. Treasury Y ield Curve 4 C ( 4 2.00 1.00 01/04/00 10/14/00 07/26/01 05/06/02 02/15/03 11/26/03 09/06/04 06/17/05 03/29/06 01/07/07 10/19/07 10-Year UST Yield 3-Month LIBOR
Current Market Conditions US INVESTMENT GRADE MARKET VOLUMES ($ in billions) 120 100 80 60 40 20 0 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Source: Credit Diamond (a) Through September 27.
Liquidity Crunch Dislocating LBO Market Bank market is again a bank market substantially less deep ($ in billions) LEVERAGED FINANCE FORWARD CALENDAR $250 ($ in billions) CDO ISSUANCE $350 $310 300 200 250 150 200 $160 100 150 $135 $107 100 50 50 $60 $50 $53 0 1/1/2006 7/20/2006 2/5/2007 8/24/2007 0 2001 2002 2003 2004 2005 2006 YTD Source: Federal Reserve, WSJ
LBO Financing Review The Market Continues to Process the Significant LBO Financing Backlog Completed or Partially Completed To-Be-Completed $35 Cancelled or Expected Cancellation Bank: $57.7 Bond: $39.2 Total: $96.9 Bank: $114.9 Bond: $55.4 Total: $170.3 30 25 Bank: $15.4 Bond: $20.3 Total: $35.7 18.8 20 15 9.3 32.4 10 21.1 21.7 20.8 5 0 4.6 3.8 16.5 11.0 1.1 2.6 4.3 1.0 1.3 1.1 3.1 2.9 1.2 12.7 4.1 2.5 2.9 2.5 14.5 3.7 10.2 10.0 5.5 2.0 3.0 6.1 13.0 5.1 6.6 2.1 3.0 4.0 Harman International HD Supply Sallie Mae Cablevision Bausch & Lomb Biomet GE Plastics Ceva Group PLC Ceridian Corp. Allison Transmission Service Master First Data Mylan Laboratories Flextronics TXU US Food service Clear Channel Alliance Boots Chrysler Automotive Avaya CDW Tata Steel Alliance Data Alltel Basell BCE Harrah's Intelsat Penn National Gaming Tribune Tishmann United Rentals Total Financing Completed To Be Completed ($ in billions) Bank $2.9 $0.0 $12.5 $4.8 $0.0 $0.0 $4.3 $0.0 $0.0 $3.1 $2.9 $14.0 $4.1 $2.5 $22.0 $2.0 $18.5 $10.2 $10.0 $3.8 $0.0 $3.0 $3.9 $14.0 $13.8 $21.1 $7.0 $0.0 $4.6 $0.0 $3.0 $0.0 Bond 1.7 3.8 4.0 6.2 1.1 2.6 0.0 1.0 1.3 1.1 1.2 8.0 2.9 2.5 11.3 1.7 2.6 0.0 0.0 1.7 2.0 0.0 2.2 7.7 7.0 11.3 6.0 5.1 2.0 2.1 0.0 4.0 Total $4.6 $3.8 $16.5 $11.0 $1.1 $2.6 $4.3 $1.0 $1.3 $4.2 $4.1 $22.0 $7.0 $5.0 $33.3 $3.7 $21.1 $10.2 $10.0 $5.5 $2.0 $3.0 $6.1 $21.7 $20.8 $32.4 $13.0 $5.1 $6.6 $2.1 $3.0 $4.0
Corporate Bond Market Update 2007 Year-to-Date Energy and Power High Yield Financings $11,000 10,000 9,000 8,000 Issuance (millions) 7,000 6,000 5,000 4,000 7,975 7,500 3,000 6,200 2,000 1,000 875 1,435 1,999 3,311 2,025 0 365 2,382 Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Syndicated Loan Market Overview CREDIT FOCUS TIGHTENS. AND GROWTH IN LOAN BALANCES NET % OF BANKS LOOSENING STANDARDS 45% 15% -15% -45% -75% Jul-98 Jul-01 Jul-04 Jul-07 Lenders Loosening Change in Borrower Demand LOANS FOR US COMMERCIAL BANKS ($ Bn) $1,300 $1,200 $1,100 $1,000 $900 $800 Jul-99 Jul-01 Jul-03 Jul-05 Jul-07
Current Market Conditions SYNDICATED LOAN SECONDARY MARKET BIDS (Avg. bid) 102 100 98 96 94 92 5/19/07 7/1/07 8/13/07 9/25/07 LCDX LCD Flow Names Sources: Thomson Financial; BAS; WSJ; Bloomberg; Standard & Poor s
Current Market Conditions VIX INDEX EQUITY MARKET VOLATILITY (bps) 32 30 28 26 24 22 20 18 16 14 12 1-Jun 1-Jul 1-Aug 1-Sep 1-Oct CBOE Volatility Index (VIX) Sources: FactSet; Thomson Financial; Credit Diamond; Federal Reserve
Current Market Conditions U.S. M&A VOLUME AND % LBO ($ in billions 100% $300 80% $254 240 60% 180 40% 42% 120 20% $53 60 0% Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 7% 0 M&A VOLUME % LBO Sources: FactSet; Thomson Financial; Credit Diamond; Federal Reserve
Conclusions Credit markets have been through a challenging time The effects of this summer s crisis may impact the markets for some time However, credit remains available for energy and industrial issuers who are not over levered Commercial Paper volume reduced but stabilized Banks are lending Institutional loan market less robust High Yield market volume returning Investment grade bond market wide open Equity market volatility declining Bank of America remains profitable and ready to do business