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Home My WebLink About2014 02 27 Regular 602 Alternative Investments - Part II Winter Springs General Employees General Plan and Trust Middle Market Debt Review Dave West, CFA 1St Quarter 2014 \ THE BOGDAHN GROUP vii'W W.B O G D A H r G R O U P.CO M simplifying your investment and fiduciary decisions 1 Fixed Income&Middle Market Overview Page 1 2 Firm and Strategy Review Page 20 3 Crescent Direct Lending Page 23 4 LBC Credit Partners III Page 26 5 Providence Debt Fund III Page 29 i ) BOGDAHN N.--"" GROUP. Traditional Fixed Income Fundamentals Page 1 Low Yields From Traditional Sources • Rates are expected to remain at their low levels until the unemployment rate is below 6.5% (currently 7.3%), or CPI is above 2% (currently 1.5%), stated FOMC U.S.Treasury Yield Curve As of September 30, 2013 4.0% 3.5% 3.0% 2.5% be 2.0% 1.5% 1.0% 0.5% 0.0% 3 Months 6 Months 1 Year 2 Years 5 Years 10 Years 30 Years X6/30/2013 0.03% 0.09% 0.14% 0.36% 1.39% 2.49% 3.50% (9/30/2013 0.01% 0.03% 0.09% 0.32% 1.38% 2.61% 3.68% Source:Loomis Sayles Page 2 Corporate Bond Spreads • Corporate spreads did gap out in Q3 2013; however, are still below 15-year averages. Going forward, investors will potentially have to pay-up for less yield 15 Yr Current Current 9/30/2013 9/28/2012 15 Yr Low 15 Yr High Spread to Spread to Average Low High US Corp IG 141 156 69 607 163 73 (465) Aaa 73 56 42 412 85 31 (338) Aa 78 77 41 483 109 37 (404) A 116 129 58 588 148 58 (472) Baa i 184 AIL 204 I 92 732 1 '09 92 (548) US Corp HY 461 551 238 1833 582 223 (1372) Ba illIMME402 .. 151 1278 . 594 181 (946) B 446 519 228 1742 564 218 (1297) Caa d_E859 .. 378 2606 . 006 286 (1942) *Yield Spreads in Basis Points Source:Option adjusted spread (OAS)based on Credit Index by Barclays Capital through 9/30/2013.,Loomis Sayles Page 3 U.S. Bond Market New Issuance • Bond issuance highlights elevated activity, but is concentrated in large cap, well established companies. Small to mid size companies are unable to go to the high yield market as their typically issue size is less than $250 million U.S.Investment Grade Gross&Net New U.S.High Yield Gross&Net New Issuance2 Issuance1 1200 400 — ■Gross Issuance •Gross Issuance 350 1000 •Net Issuance 300 - 800 1111 250 600 11111 150 400 IIMIIIIIII 100 200n IiiIIIIIIJITI+ibObOM hOOO O O O O O O O O O O O O O O O O O O.-I .-I .-I.-I O O O O O O O O O O O O O O O O O O O O O O O a7 a7 O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O .-ieieieieieieieiNNNNNNNNNNNNNN .-1 .-I .-I .-I .-I .-I .-I NNN NNNN NNNN NNN Source(1):Annual Data,Excludes FDIC-guaranteed Debt.Source:Barclays,history through September 2013,Loomis Sayles Sources(2):Annual Data.Debt.Source:Barclays,history through September 2013,Loomis Sayles Page 4 Middle Market Debt Opportunity - U . S . Fundamentals Page 5 Case for Lower Middle Market Private Debt Technical Characteristics of lower middle market debt/lending in the following pages, spotlight the 3- to 5- year opportunity to originate senior loans to solid companies at attractive yields similar to mezzanine debt, while maintaining a higher and secured position in the capital structure. Recommended Strategy Focus and Structuring Characteristics • Companies with Annual Revenue of $75 million to $400 million & Annual EBITDA of$5 million to $50 million • Structured primarily as First Lien Term Loan and Uni-tranche Term Loan; Secondarily structured as 2nd Lien Term Loan and Mezzanine • Loan Duration - 2-to 5-years • Mix of Floating Rate and Fixed Rate • Covenant Heavy: Call Premiums, Max Net Leverage, Prohibition on Additional Debt, Minimum EBITDA, Capital Expenditures, etc. • Max of 2.5x - 4.0x EBITDA through Managers tranche of debt Page 6 A Company's Corporate Capital Structure • Being senior in the capital structure provides secured coverage in case of extreme value declines or default Lowest Instance of Bank Loans Incurring Capital Losses and Higher Senior Secured Creditor Priority Financing Senior Bank Debt Senior Subordinated Debt Mezzanine Convertible Subordinated Debt Financing Convertible Preferred Stock Highest Instance of Incurring Capital Losses and Lowest Creditor Priority Common Equity Sources:Handbook of Alternative Assets,Second Edition,By Mark Anson;and The Bogdahn Group Page 7 Large Target Market • The U.S. Middle Market would rank as the world's 3rd largest economy1 Top 10 GDPs2 $18 $16 15.7 $14 - $12 - 0 $10 - 8.3 $8 - 6.3 6.0 $6 - $4 - 3.4 2.6 2.4 2.4 2.0 2.0 �� • yam �fi �� "�� tip ' �� •��", ��ro �a4 C�� Syr may. 1 �a S �O ��u 1 Source:Deloitte,Mid Market Perspectives—2011 Report on America's Economic Engine. 2 Source:International Monetary Fund Historical Data(April 2012). Page 8 Abundance of Opportunity • Opportunity set of private vs. public companies #of Private US Companies-By Annual #of Public US Companies-By Annual Revenue($MM) Revenue($MM) 1,693;12% 1,583;12% 1,250;41% 10,376; 76% 1.290:42% 501;17% ■$100-$500 $500-$1,000 ■$1,000+ ■$100 4500 $500-$1,000 $1.000+ Sources:Thomson Reuters as of October 31,2011. Page 9 Demand for Debt - Lower Middle Market • $224 billion of middle market debt maturities need to be refinanced • $350 billion of available private equity capital which needs to be invested will require debt to partially finance investment activities Cumulative Maturities of Middle Market Loanst U.S.Private Equity Overhang2 $250 - $160 - - $400 $224 $140 - $350 Billion $202 Capital Overhang $200 - $120 - - $300 $158 0 $150 - $100 - $93 $129 $80 - 71 - $200 ."4 $64 $100 $89 C4 is $60 - $43 U $40 - - $100 $50 $41 $ $20 - $0 $0 2012 2013 2014 2015 2016 2017 2007 2008 2009 2010 2011 2012 Note(1):Middle Market defined as$500 million transaction size or less Note(2):Private equity dollars wised per annum,1H 2013 Report. Source:Thomson Reuters (left),Pitchbook Data,Inc. (right),Monroe Capital Page 10 Bank Tightening & Decline in Supply • The lack of available credit from U.S. banks continues due to the reduction in capacity, affinity for only lending to larger more established relationships, and new regulatory requirements • Historical lenders to middle market have less available funds to lend as time passes. The issuance volume of new CLOs is a fraction of what it was at is peak Cumulative Number of Bank Failures1 Outstanding Existing CLO Capital2 492 504 $250B 500 - 441 $200B 185 400 - 171 349 157 $150B 144 300 - 124 104 192 $100B 84 200 - GS 100 - $50B 51 38 52 I 1 1 2 G 17 20 24 24 24 27 0 — M = M M M M • $0B 0– ,ti0- ,0- ,0– n0 n0- „a a ,a a' �,�a L L L L L L L' L ti ti L ti ti i ti, L e Note: (1)Cumulative Bank failures from 2000 to May 2013. Note: (2)Active legacy arbitrage CLOs,dollar amounts in billions of USD;based on$295 billion outstanding estimate. Source: Federal Deposit Insurance Corporation(left),JP Morgan CDO Research(right),Monroe Capital Page 11 Attractive Pricing, Protection & Transparency Middle market remains attractive • Middle market spreads are 138 bps higher than U.S. large cap corporate spreads • Tighter financial covenants and detailed monthly reporting provides greater transparency and promotes early intervention to prevent credit deterioration • Private equity sponsors have greater ability to prevent business failure in smaller companies through additional equity investments or management changes Average Discount Spreads of S&P/LSTA Leveraged Loan Index 2600 2400 2200 2000 1800 `\ 1600 1400 1200 1000 800 600 400 V�Q G pts°�Y°` °` `Gp Y c °4i sp cP Gp°Y titi !•.° ti ,;"!•.'" !•.9' V Q c'\-P J ,,lcc s �JcV,:Q G tsb Jc<,,l••.`te> Middle Market U.S. Large Corporates Note(1):As of December 31,2012. Source:S&P/LSTA Leveraged Loan Index,Monroe Capital Page 12 Middle Market Has Lower Default & Higher Recovery Rates • Structurally, the middle market provides enhanced downside protection as middle market loans have lower historical default rates and higher recover rates Middle Market(MM)Loan Default Rates' Recovery Rates2 9% 100% 8% ° 90% M% 7.4/0 81 ■ 7% 6.5% 6.7% 6.5% 80% 71% 6% 70% 5% 60% 52% 50% 4% 3.2% 40% 35% 0 °° M M M M 30% 1% M M M M 20% 10% 0% 0% ��S �p� � :N•S��9 �0� Q�4 d' s v 'N z_5� S�� 5 '' S ' 6� 0'- nS� a s= c. lSeC� yn��C` � �ib c V a C&. ' J Ca' •0,' � b c)'''' ° C S` ':v tirs�eSew ,.,.,02,-'' Note: (1)Cumulative institutional loan default rates for public filings by deal size from 1995 to 2011. Note: (2)Reflects ultimate recovery rates for the period 1989 to 2009. Source:S&P LSTA,Monroe Capital Page 13 Conservative Capital Structures • Middle market debt has more conservative capital structures than large corporate loans due to lower leverage multiples and higher equity contributions Leverage Multiples:Middle Market Loans Equity Contribution:Middle Market Loans vs.U.S. Large Corporate Loans' vs.U.S. Large Corporate Loans' 6.8x 6.2x 50% 47 io 4640 4540 huh 5.2x 5.3x 40°40 40°40 41°40 41°40 4.9x 4040 3840 4.7x 4.5x 4.5x iiiI ] I 3040 - 2040 - 2.3x 1040 - 0.0x 0°40 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 ■Middle Market Loans ■U.S.Large Corporates •Middle Market Loans ■U.S.Large Corporates Note: (1)Leverage multiples are based on total debt in LBO acquisitions Source:S&P/LSTA LBO Review,Monroe Capital Page 14 Typical Middle Market Return Breakdown Return Breakdown Current Pay Interest 8%-10%+ r � Origination/Other Fees* 2%40/b l Warrants/Equity Upside 2%-5%+ PIK Interest 2°14% Total NET Unlevered Return 1O%+ Total NET Levered Return* 13%+ *Closing fees,amendment fees,prepayment fees,etc.where applicable**Effect of 1:1 leverage. Page 15 Middle Market Debt Opportunity - European Fundamentals Page 16 European Loan Opportunity European Maturity Schedule • €365 Billion is expected to need refinancing from 2013 through 2018 European Non-Investment Grade Debt €70 €60 €59 €57 €49 €50 - - - €39 €40 - €32 €30 €32 €30 ■ ■ ■ €20 €19 111. €19 €10 ■ ■ ■ €3 ■ ■ ■ CO 2013 2014 2015 2016 2017 2018 2019 or Later •High Yield •Bank Loans Note:Maturity schedule as of January 31,2012.Volumes are in€billions. Source:Credit Suisse,February 2012 Leveraged Finance Strategy Update. Page 17 Current Loan Dispositions • Massive asset liquidations still to come Estimated 2012 NPLs{€B) 15% - u1s €13 14% - MI 13% - ors Li., Lloyds T112% - F�1.G• t s ° HSBC—' Commerzbank Societe Generale €33.4 f25.5 c2 11% — B of I BB BBVA BAP F15.4 PBS E11.3 f20.6 Paribas F�8 6 032 10% 10%Target BBI Banca 9% _ Equity Ratio Fat Bankia F18.0 $°'° Banco Santander Banco Popolare €35.4 Credit Agricole Milano 7% - €11.2 • €3.2 MPS E15.9 6% - * Ongoing Sales Programs ❑ Sales Programs Starting • Not Currently Selling As of December 3,2012.Source:Deutsche Bank Report"European Strategy—An end to deleveraging in sight:better news for European Banks", Bank of America Merrill Lynch Equity Research on Deutsche Bank October 30,2012.Bank of Ireland and AIB 2012 June 30,2012 Interim Reports. Page 18 Firm & Strategy Review Page 19 Firm Overview NI Firm SEC Firm Middle Market Inception Offices Registered Employees Professional Primarily employee $13B ($6.5B of Boston, MA, Los owned, and minority mezzanine Angeles, CA, New owned by Allied World 7 (also have 20 lending & Crescent Capital York, NY, London, Assurance Company that focus on $315M of senior Group, LP 1991 Paris, France Holdings, AG Yes 100 mezzanine) lending) 75% owned by three Philadelphia, PA, employees and 25% LBC Credit Chicago, IL, and owned by strategic Management, LP 2005 New York, NY investors/partners Yes 30 19 $1B Providence Equity Providence, RI, Partners (Benefit New York, NY, 90% owned by four $29B ($4.5B in Street Partners, LLC London, New employees and 10% credit assets, of & Providence Equity Delhi, Hong Kong owned by two large which $942 is Capital Markets) 1989 and Beijing investors/clients Yes 229 19 lending assets) TILL C BOGDAHN Page 20 GROUP Proposed Strategy Overview Target Target Expected# Expected Fund ompany Compan of Commitment EBITDA Revenue Fund Level Fund Name Senior/Sub-debt Geographic Investments Per Investment Range Range Leverage Target Return Track Record Unlevered From 2005 to 2012,the Crescent Direct vehicle:7.5%to team invested$225M in Lending Fund Senior and Primarily US, 10%net; senior secured loans (two versions: second lien and no more Levered and generated a gross unlevered& secured,uni- than 20%non vehicle: 12%to unleveraged IRR of levered) tranche US(Canada) 30-40 $5-$25M $5-$25M $50-$250M None&1:1 13%net 9.8% 14%to 16%net LBC has invested$2.1 B Senior secured, IRR,with a across Fund I, Fund II, second lien,uni- target net and Fund III,achieving LBC Credit tranche,secured multiple of 1.3x a 13%net IRR since Partners III mezzanine 100% US 50-70 $10-$50M $5-$50M <$750M 1:1 to 1.5x inception Providence has invested Senior secured, $2.5B across a private second lien,uni- debt allocation from its tranche, Private Equity Fund, subordinated/ Primarily US, High teens to and two previous unsecured, and no more 20%+gross IRR, dedicated lending funds. Providence Debt convertible debt/ than 20%non and mid to high The net IRRs range Fund III preferred US 30-50 $10-$50M $20-$75M $50-$350M 1:1 teens net IRR from 13.5%to 14.5% ION THE BOGDAHN Page 21 GROUP. Proposed Vehicle Key Terms Investment Target Fund GP Minimum rofit Share and Period&Fund Fund Name Size Commitment Investment Amount Raised anagement Fees Hurdle Term The fee is based on invested capital- Unlevered Unlevered Unlevered vehicle: vehicle:$265M- vehicle: First close <$10M is 1.00%,$10- Unlevered Crescent Direct Crescent has was April 2013 and $15M is 0.95%,$15- vehicle: None; Lending Fund Unlevered invested$30.8M Final is 1Q2014; $25M is 0.90%, Levered vehicle: (two versions: vehicle:$300M; in six deals; Levered vehicle: >$25M is 0.85%; 10%over a 7% 2.5-yrs&5-yrs unlevered& Levered Levered vehicle: Not yet and Final is Levered vehicle: (100%GP Catch- from the Final levered) vehicle:$150M 1.0%,up to$3M $2M $50M circled 2Q2014 1.35% up) closing First close was Target is 2.5%of $565M,and has December 19, 1.50%on 20%over an 8% 3-yrs&8-yrs LBC Credit $650M,with a aggregate $5M invested$273M 2012 and the Final commitments,than (100%GP Catch- from the Final Partners Ill cap of$800M commitments (negotiable) in twelve deals will be in 1Q2014 invested up) closing 5%of aggregate commitments, Target is$1B, up to$50M $644M,and has First close was July 15%over a 7% 2-yrs&7-yrs Providence with a cap of (team money is $10M invested$21M in 24,2013 and Final 1.00%on capital (100%GP Catch- from the Final Debt Fund Ill $1.5B $25M) (negotiable) one deal will be in 1Q2014 base up) closing ps, THE BOGDAHN Page 22 `--J GROUP. Strategy Narrative Crescent Direct Lending As of September 30,2013 Firm Description took Crescent Capital Corp.(Crescent)was formed in 1991 and is headquartered in Los Angeles,CA. Headwinds: Crescent focuses on the below investment grade credit markets.Until 2010,Crescent was part of • Re-emergence of traditional lending community could reduce yields and push private lenders TCW,and in January 2011,Crescent spun-out and became an independent firm.Today the firm is deeper into the capital structure of private companies.This is not expected for 2-4 years. minority owned by Allied World Assurance Company and majority owned by employees.Crescent has over 60 investment professionals and manages approximately$13B of fixed income related Tailwinds: assets.In June 2012,Crescent brought in five principals from HighPoint Capital,which are today • Limited access to capital markets for middle market companies and retrenchment of traditional headquartered in Boston,MA,to launch Crescent Direct Lending to focus on senior lending to private lending community(banks and finance companies)as a result of the financial crisis and new companies.While at HighPoint(2005-2012),the team invested approximately$225M. regulations creates opportunities to finance solid private companies. • Large,underserved market for senior secured and mezzanine financing has yielded wider spreads Team Overview and higher upfront/commitment fees as number of market participants has declined. The Crescent Direct Lending Team includes five senior professionals and is led by John Bowman, • Driven by a large pool of un-invested private equity capital and anticipated M&A activity,the MD,Scott Carpenter,MD,and Mike Rogers,MD.The two other senior professionals include: pipeline of financing opportunities is expected to remain robust. Jonathan Cignetti,SVP,and Jake Garmey,SVP.All five senior professionals and an associate Themes 1 Portfolio Positioning: worked together at HighPoint.Prior to HlghPoint,Bowman,Carpenter,Cignetti,and Rogers worked • The Proposed Program has raised$315M and has invested$30.8M in six investments.Clients that together at FleetBoston Financial.The Fund(s)are governed by a six member IC.For the decided to invest in the Unlevered Fund will participate in these initial investments on a pro-rata Unleveraged and Leveraged vehicles,decisions require unanimous consent from Mark Attanasio basis.Since the Levered Fund has not technically closed yet,new investors will only participate in (Managing Partner and Co-Founder of Crescent Capital Corp.),Jean-Marc Chapus(Managing investments on a go forward basis.The first six investments have a blended yield of 7.8%. Partner and Co-Founder of Crescent Capital Corp.),Bowman,and Carpenter. Strategy Description — Points to Consider Crescent intends to originate most of its loans,either alone or in conjunction with other lenders to • The senior Crescent Direct Lending professionals have worked together at HighPoint,and Fleet lower middle market US companies.Crescent may join with other lenders to co-invest in its Bank,and have always focused on the US lower middle market loan origination space. transactions for various strategic,tactical or relationship purposes.Generally,Crescents'co-investors • A significant portion of the Proposed Programs loans will be senior secured and the strategy will share its credit-focused strategy.In the predecessor fund,approximately 2/3rds of loans were lead not rely on equity upside to achieve its returns. managed,with the remaining 1/3rd were done in conjunction with other lenders.Crescent anticipates • The term of the Proposed Fund is 5-years which is shorter than other closed-end lending funds. a similar split in the new program. • The broader firm is a significant player in non-investment grade debt,with$13B in assets under management,of which over$6.5B is invested in global mezzanine and special situations,and over Philosophy: $3.2 billion in global bank loans.In addition,the firm has European specialty lending capabilities. The Fund will focus on providing senior secured loans,structured as first lien,uni-tranche and second • The Proposed Program has raised$315M and has invested$30.8M in six investments.Clients that en loans based on the cash flow of prospective borrows,and to a lesser extent their enterprise decided to invest in the Unlevered Fund will participate in these initial investments on a pro-rata value.The Fund may also invest on a limited basis in other debt and equity securities of lower middle basis.Since the Levered Fund has not technically closed yet,new investors will only participate in market companies.Crescent's strategy does not rely on upside participation in warrants,equity,etc., nvestments on a go forward basis. and its returns are primarily based upon interest payments,and fees.Crescent generally targets • As Crescent Direct Lending continues to raise money and begins to invest,it will be important for senior debt/EBITDA ratios in the 2.5X-3.5X range,its loans are typically secured by all assets,and them to add additional professionals. LTV's will range from 30-60%. Recommendation Portfolio Construction: Both the Crescent Direct Lending Funds(Unlevered and Levered Funds)are recommended for any • Crescents universe includes US lower middle market companies with less than$25M of EBITDA. client who wants to invest in diversified senior focused lower middle market debt fund.The Funds are projected to pay a current dividend on a quarterly basis over their lives.The Unlevered Fund has • Target of 30-40 originated loans,with an average size between$5-$25M of equity. raised a nice pool of money and will most likely hold its final close prior to the Levered Fund.The • The Fund cannot invest more than 15%in the securities of one issuer. Unlevered Fund should be considered a high grade high yield fixed income alternative,while the • The Fund cannot invest more than 5%in publicly traded or 144A securities. Levered Fund is more a kin to a flexible high yield alternative. • The Fund cannot invest more than 20%in non-US investments(Canada). • The Fund cannot invest more than 15%in one investment. • For the Leveraged Fund the Fund cannot borrow more than 100%of total Capital Commitments. T'xa Page 23 BOGDAHN `' GROUP. Crescent Direct Lending Track Record as of September 2013 • While at HighPoint, the Crescent Direct Lending Team invested approx. $225 million in Lending -- Capital Capital Capital s Inception Close Gross Fund Name Fund Type Date Date Committed Invested !Distributed Net IRR IRR Direct $224.1 HPC Fund I (includes (unlevered) — Lending — Jan-05 Mar-13 $224.1M $18M $254.7M 8.5%(1) 9.8% Senior IRR Basis Secured undrawn revolver) (1) Pro Forma for the management fee structure of the Crescent Direct Lending Unlevered Fund. Page 24 Crescent Direct Lending - Portfolio Profile to Date Total Investments & Mandates to Date - October 2013 Deal At Close Credit Profile Deal Company Sponsor Business Date Security Amount Yield Revenue EBITDA Sr.Levg Tot Levg Funded: 1 Fibermark American Securities Packaging/covering products Dec 2012 First Lien $5.0 7.3% $168.0 $23.9 3.7x 3.7x 2 Ascensus JC Flowers Retirement plan services Dec 2012 Unitranche 5.0 8.7% 170.6 39.1 4.3x 4.3x 3 Aamp Audax Auto aftermarket accessories June 2013 First Lien 5.0 6.6% 54.9 9.9 3.2x 3.2x 4 GTT Telecom NA-Public Internet services provider Aug 2013 First Lien 5.0 6.8% 181.7 20.4 3.2x 4.4x 5 SCT Global Environ.Fund Auto aftermarket engine calibr. Sep 2013 Last-out First Lien 6.0 8.3% 18.8 5.1 2.0x 2.0x 6 4Refuel Kelso Mobile onsite refueling-Canada Sep 2013 Unitranche 4.8 9.0% 106.3 43.4 5.3x 5.3x I Blended Fundings to Date: $30.8 7.8% $113.6 $22.9 3.6x 3.7x1 MandateslProiected Closings(1): 7 SQAD Clarion Capital Media tracking business Oct 2013 First Lien TLB $7.8 6.5% $13.1 $7.2 3.7x 5.0x 8 Hubbardton Forge Bunker Hill Manufacturer or lighting fixtures Nov2013 First Lien 10.0 6.5% 33.2 6.8 3.3x 4.3x 9 Epic Healthcare Webster Capital Pediatric home health provider Nov2013 First Lien 6.5 6.8% 297.0 31.0 3.3x 4.3x 10 United Rotary Brush VVestshore Capital Street cleaning brushes&equipment Oct 2013 Second Lien 14.0 10.0% 33.8 4.1 4.0x 4.0x I Blended Mandates $38.3 7.8% $74.1 $10.0 3.6x 4.3x1 'Blended Closed&Mandates $69.1 7.8% $91.7 $15.7 3.6x 4.1x1 (1)LOI's awarded-expected close by the end of November CONFIDENTIAL-DO NOT DISTRIBUTE CRESCENT Page 25 Strategy Narrative LBC Credit Partners III As of September 30,2013 Firm Description took LBC Credit Management(LBC)was founded in 2005 by John Brignola,Managing Partner,Chris Headwinds: Calabrese,Partner,Nate Cohen,Partner,and Ira Lubert,Chairman and co-founder of Lubert-Adler • Re-emergence of traditional lending community could reduce yields and push private lenders Partners LP and other firms to focus on originating and managing loans to middle market US deeper into the capital structure of private companies.This is not expected for 2-4 years. companies.LBC has its headquarters in Philadelphia,PA.Since inception,the firm has originated over$2.1 B in approximately 115 transactions,and currently manages over$1.0B in assets.LBC has Tailwinds: 30 employees,of which 19 are considered investment professionals.The GP of the Proposed Fund is • Limited access to capital markets for middle market companies and retrenchment of traditional majority owned by three employee partners:Brignola(29.5%),Calabrese(24.6%),and Cohen lending community(banks and finance companies)as a result of the financial crisis and new (20.9%);and minority owned by five non-employees. regulations creates opportunities to finance solid private companies. • Conservative capital structures of newly-issued leverage loans are resulting in better LTV coverage Team Overview and overall risk profiles. LBC's team was initially built when Cohen,who was an operating partner at LLR,introduced Brignola, • Driven by a large pool of un-invested private equity capital and anticipated M&A activity,the who was at Citadel,to Lubert who had been looking to develop a debt offering.Calabrese worked pipeline of financing opportunities is expected to remain robust. with Brignola at Meridian Bank earlier in their careers and had maintained a relationship while at different organizations until Cohen was recruited to join in forming LBC.David Fraimow also worked Themes 1 Portfolio Positioning: at Meridian prior to joining LBC near its inception.Tod Trobacco joined shortly thereafter.The rest of • The Fund has raised$565M and has invested$273.1 M in twelve investments. the team previously worked at different banks and finance companies before joining LBC.The Fund • The projected YTM of the portfolio today is 10%. is governed by a seven member IC.Investment decisions require five affirmative votes for investment approval.These seven professionals are supported by twelve dedicated team members. Strategy Description = _ _ = Points to Consider ■ LBC's strategy is to originate senior and junior high yielding loans to middle market companies in the • The three employee partners have worked together for 8-years and the IC has been stable for 5- US across a diverse set of industries.On a select basis,LBC will participate in syndicated loans years. and/or co-invest in the equity of an underlying company.These corporate loans will primarily possess • The core investment team incorporates experience from Citadel,Congress Financial and First a senior lien on all or specific assets,or a junior lien on all assets of the borrower.The primary types Union Capital Markets(including Meridian),LLR Partners,CIT,GE Capital,and Moody's.In of these loans are cash flow,uni-tranche,bifurcated term,second lien and secured mezzanine.The addition,the firm has strong support from LLR Partners and affiliates of Independence Capital Fund also may invest in traditional revolving and unsecured mezzanine loans.Loan maturities will Partners. typically range from three-to seven-years. • The firm is a specialist in the US lower middle market loan origination space. • A significant portfolio of the Proposed Fund's loans will be secured and the portfolio will have wide Philosophy: industry diversification. LBC follows a value oriented approach and will invest throughout the capital structure and across a • The firm has originated over$2.1 B across approximately 115 transactions since inception,and broad range of industry sectors.LBC's exposure to equity/warrants is not expected to be significant currently manages over$1.0B in assets. as most of its return will come from repayment of interest and fees. • The Fund has raised$565M and has invested$273.1 M in twelve investments. Portfolio Construction: • We would prefer LBC not raise the Fund's stated cap of$800M;however,LBC has been able to • LBC's lending activities will focus on US lower middle market companies with between$5-$50M invest its last pool of capital(including leverage)of$1.3B,so$1.6B would not be much of a stretch. (target is$10-$20M)of EBITDA,and less than$750M of revenue. • LBC expects typical investments will range in size between$10-$50M,and will invest in 50-70 Recommendation investments. LBC Credit Partners III is recommended for any client who wants to invest in a diversified lower • No more than 15%in one issuer of portfolio securities. middle market debt fund.The Fund is projected to pay a current dividend on a quarterly basis over its • No more than 20%in publicly traded securities. life,and will have the limited potential for additional upside through equity participation. • No more than 10%in portfolio investments who's administrative headquarters are located outside the US or Canada. • The Fund leverage will not exceed 50%of the aggregate cost of Fund III's portfolio securities,less permanent and unrecoverable write-downs. • LBC will opportunistically co-invest in equity with a limitation of less than 10%of the debt. T'xs Page 26 C�) BOGDAHN GROUP. LBC Track Record as of June 30, 2013 • Since inception, LBC has raised $1.5 billion of total capital and has invested $2.1 billion (including leverage) through three funds. . . .. - Capital Fund Name Fund Type Inception Da Capital Raised Invested Realized Net IRR a. LBC Credit MM Lending July 2005 $300M $623.5M $563.2M 10.1% Partners I LBC Credit MM Lending August 2008 $642M $1,333.1M $556.9M 13.1% Partners II LBC Credit MM Lending December 2012 $565M $273.1M $0M 13.3% Partners III Page 27 LBC III Current Portfolio Report As of August 15, 2013 I At Close Loan# Investment Description Funded Amount Lien Floating Current Projected EBITDA Leverage (In$000s) Position Rate Y/N Coupon YTM (In$000s) 104 Designer and producer of consumer product labels 34,525 First Y 10.50% 11.85% 9,100 4.34x 105 Underwriter of extended automobile warranties 29,625 First Y 7.75% 8.78% 12,660 2.37x 106 Pain management physician practices 16,667 First Y 7.25% 8.97% 9,044 3.32x 107 Manufacturer of precision parts for automobiles 35,000 Second Y 10.00% 11.39% 18,942 3.10x 108 Supplier of woodworking and metalworking tools 34,000 First Y 8.00% 9.00% 10,943 3.63x 109 Provider of retail merchandising solutions 35,000 First Y 8.00% 9.14% 20,861 3.71x 110 Distributor of specialty chemicals 15,000 First Y 6.50% 7.39% 26,122 4.06x 111 Cleaning/sanitation products and services 12,500 Second N 13.00% 14.60% 9,100 3.35x 112 Manufacturer of specialty chemicals 14,500 First Y 8.75% 9.47% 20,023 3.82x 113 Investment advisory services 12,500 Second Y 9.25% 10.27% 33,296 5.26x 114 Manufacturer of colorants 18,750 First Y 6.50% 7.20% 31,490 3.97x 115 Director and search advertising publishers 15,000 First Y 10.00% 11.93% 28,645 0.87x 273,067 Average 8.79% 10.00% 19,186 3.48x Wt.Average 8.75% 9.95% 17,715 3.47x Notes: (1) LBC holds$2.0MM of equity in Loan#105 valued at cost. (2) Loan#111's Current Coupon includes 1.00%PIK. (3) Leverage represents total debt through Fund Ills position divided by trailing 12 months of EBITDA t2LBC Credit Partners LBC III Current Portfolio Report August 2013 19 Strategy Narrative Providence Debt Fund III As of September 30,2013 Firm Description took Providence Equity Partners(PEP)and affiliates was founded in 1989 and today is a leading Headwinds: alternative asset management firm with$29B of commitments across its private equity and credit • Re-emergence of traditional lending community could reduce yields and push private lenders platforms.In 2007,Providence allocated 10%(or$768M)of PEP VI to debt investment opportunities. deeper into the capital structure of private companies.This is not expected for 2-4 years. Subsequently,the firm raised a dedicated fund and in September 2008,hired Thomas Gahan,former CEO of Deutsche Bank Securities and Michael Paasche,former global head of leveraged finance at Tailwinds: DB.Today,the Providence Credit Team has 19 investment professionals and 35 total employees. • Limited access to capital markets for middle market companies and retrenchment of traditional The firm is 90%owned by four employees and 10%owned by two strategic LPs.The Providence lending community(banks and finance companies)as a result of the financial crisis and new Credit Team is based in New York and currently manages$942M in lending assets. regulations creates opportunities to finance solid private companies. • Large,underserved market for senior secured and mezzanine financing has yielded wider spreads Team Overview di= and higher upfront/commitment fees as number of market participants has declined. The dedicated credit team includes both Gahan and Passche;Richard Byrne,President of Benefit • Driven by a large pool of un-invested private equity capital and anticipated M&A activity,the Street;David Manlowe,SMD,COO,Head of Research;nine industry research analysts,two pipeline of financing opportunities is expected to remain robust. dedicated traders,four dedicated transaction/sourcing professionals.The five most senior professionals on the team(Gahan,Passche,Byrne,Manlowe,and Faulstich)previously held senior Themes 1• The Fund has Positioning: s raised$644M and has invested$21 M in one investment.The first investment is a positions at Deutsche Bank.The Fund is governed by a three member IC comprised of the two key loan to Feld Entertainment Inc.a producer of live,value-oriented family entertainment.The portfolio professionals from the credit platform and Salem,who's primary focus is on Providence's private includes Ringling Bros.and Barnum&Bailey,Feld Motor Sports,Disney On Ice and Disney Live. equity activities.Investment decisions require unanimous approval from the IC members. • Providence Fund II's recycle period ends in February 2014,after which Fund III will pick-up its investment pace. Strategy Description — = Points to Consider — • Providence will primarily focused on opportunistically supplying/originating senior and junior debt,and • Core management and investment team previously worked together at Deutsche Bank and more equity instruments with debt characteristics(e.g.,preferred equity)to US middle market companies recently at Providence. and secondarily to European companies with a typical duration of five-years.The Fund will prioritize • Tom Gahan,Michael Paasche,David Manlowe and Rich Byrne each have 20+years of credit non-sponsored strategic capital opportunities. market experience investing large credit portfolios across market cycles. • Support of Providence Equity Partners provides organizational stability,resources, Philosophy: relationships/networks for sourcing,and industry expertise. As mentioned above the Fund will prioritize non-sponsored strategic capital opportunities,which • Providence's interests are aligned with LPs through its significant GP commitment. require creative and flexible structuring.While the strategy is flexible in its positing in a company's • The credit platform oversees$4.5B in assets(of which$942M is lending assets). capital structure it is expected that approximately 50%of the portfolio will be invested in the senior • Providence's strategy is flexible and opportunistic across investment type and structuring,and will secured portion of the capital structure.Typically,Providence will focus on complex situations and will focus on non-sponsored opportunities primarily in the US but will have exposure to Europe. aim to achieve a solid return through income and fees,with the additional opportunity of upside • The Proposed Fund has raised$644M and has committed$21 M to one investment. enhancement(approximately 50%of the portfolio will have equity upside potential)through equity warrants and unique call protections. Portfolio Construction: • Providence's universe includes US and European middle market companies will have EBITDA Recommendation between$20-$75M,enterprise value between$500M-$2B,and revenues between$50-$350M. Providence Debt Fund III is recommended for any client who wants to invest in an opportunistic debt • Target 30-50 investments,with a deal size range between$10-$50M. fund.The Fund is projected to pay a current dividend on a quarterly basis over its life,and will have • No more than 20%can be invested in any single portfolio company. the potential for additional upside through its structured equity participation. • Primarily target North America(-80%)with some European investments(-20%). • Approximately 50%of investments will be secured. • Similar to Fund II,Providence expects the average loan-to-value across Fund I II's portfolio will be 50%. ION THE Page 29 r ) BOGDAHN `~� GROUP. Providence Credit Track Record as of August 31, 2013 • Providence had approximately $4.5 billion in credit assets under management (of which $942 million is lending assets) as of August 31, 2013. J Fund Capital Capital Capital Current Net Gross Name Fund Type Date Committed Invested Distributed AUM IRR IRR PVI Debt Opportunistic 3/26/08 $1.2B $768M $879M $773M 14.2% 17.1% Allocation Credit Fund I Opportunistic 5/8/08 $1.1B $1.0B $1.2B $1.0B 14.5% 18.7% Credit Fund II Opportunistic 9/14/10 $721M $721M $100M $846M 13.5% 17.2% Private Debt Long Short Long/Short Liquid Liquid 2/7/11 $313M NM NM $919M 9.6% 13.4% Strategy Credit Opportunistic SMA#1 Private Debt/ 2/7/11 $209M NM NM $257M 14.8% 17.5% Long-Short Liquid Credit Page 30 THE BOGDAHN GROUP. sintplifiiag your iuvestinent and fiduciary decisions Orlando 4901 Vineland Road, Suite 600 Orlando, Florida 32811 866.240.7932 Chicago Milwaukee Cleveland Dallas