Turnaround Industry Trends the Good, the Bad, the Ugly

TURNAROUND INDUSTRY Wednesday, April 4, 2012 TRENDS Time: 3:45 p.m. – 4:45 p.m. THE GOOD, THE BAD, THE UGLY PANELIST

 William K Snyder CRG Partners LLC

 Chuck Moore Conway MacKenzie, Inc.

 Keith Cooper FTI Consulting

 John Dischner AlixPartners LLP

 Kevin Carmody McKinsey & Company

2 JOHN DISCHNER KEY MARKET METRICS IN 2011, THE AVERAGE SIZE OF TOP 20 BANKRUPTCIES GOT LARGER, BUT WAS STILL MUCH BELOW SIZE OF 2009

Top 20 Chapter 11 Bankruptcies By Year 2011 2010 2009 Liabilities at Liabilities at Liabilities at # Company Filing Date Filing # Company Filing Date Filing # Company Filing Date Filing ($'s in millions) ($'s in millions) ($'s in millions) 1 AMR Corp. 11/29/11 $ 29,552 1 Truvo USA LLC 07/01/10 $ 3,574 1 General Motors Corp. 06/01/09 $ 172,810 2 Dynegy Holdings LLC 11/07/11 6,181 2 Metro-Goldwyn-Mayer Studios Inc. 11/03/10 3,451 2 Chrysler LLC 04/30/09 55,200 3 NewPage Corp. 09/07/11 4,200 3 Great Atlantic & Pacific Tea Co. 12/12/10 2,531 3 General Growth Properties Inc. 04/16/09 27,294 4 Opti Canada Inc. 07/13/11 3,011 4 Innkeepers USA Trust 07/19/10 1,519 4 Charter Communications Inc. 03/27/09 24,186 5 MSR Resort Golf Course LLC 02/01/11 1,900 5 Vertis, Inc. (2010) 11/17/10 1,467 5 Lyondell Chemical Co. 01/06/09 19,337 6 General Maritime Corp. 11/17/11 1,413 6 Blockbuster Inc. 09/23/10 1,465 6 R.H. Donnelley Corp. 05/28/09 12,374 7 Borders Group Inc. 02/16/11 1,293 7 Saint Vincent Hospital 04/14/10 1,092 7 Idearc Inc. 03/31/09 9,515 8 Appleseed's Intermediate Holdings LLC 01/19/11 1,082 8 Almatis BV 04/30/10 1,038 8 AbitibiBowater Inc. 04/16/09 8,783 9 Jefferson County, Ala. 11/09/11 1,000 9 TerreStar Networks Inc. 10/19/10 1,000 9 Extended Stay Inc. 06/15/09 7,674 10 Red Star Trucking Inc. 08/15/11 1,000 10 Boston Generating LLC 08/18/10 1,000 10 Station Casinos Inc. 07/28/09 6,483 11 Vitro SAB de CV 04/14/11 1,000 11 Penton Business Media Holdings Inc. 02/10/10 1,000 11 Smurfit-Stone Container Corp. 01/26/09 5,582 12 Lee Enterprises Inc. 12/12/11 995 12 nCoat Inc. 08/16/10 914 12 Visteon Corp. 05/28/09 5,324 13 Graceway Pharmaceuticals LLC 09/29/11 859 13 Mesa Air Group Inc. 01/05/10 869 13 Lear Corp. 07/07/09 4,540 14 Solon SE LLC 12/13/11 774 14 Xerium Technologies Inc. 03/30/10 813 14 Spectrum Brands Inc. 02/03/09 4,446 15 Solyndra LLC 09/06/11 749 15 Natural Products Group LLC 01/27/10 804 15 Aleris International Inc. 02/12/09 3,980 16 Angiotech Pharmaceuticals Inc. 01/30/11 682 16 Oriental Trading Co. 08/25/10 757 16 Reader's Digest Association Inc. 08/24/09 3,400 17 William Lyon Homes 12/19/11 610 17 American Media Inc. 11/17/10 668 17 FairPoint Communications Inc. 10/26/09 3,234 18 Superquinn Ltd. 07/18/11 567 18 Centaur LLC 03/06/10 681 18 Nortel Networks Inc. 01/14/09 3,200 19 Nebraska Book Co. 06/27/11 564 19 Atrium Corp. 01/20/10 665 19 Erickson Retirement Communities LLC 10/19/09 3,000 20 Indianapolis Downs LLC 04/07/11 546 20 Neff Corp. 05/16/10 609 20 Premier International Holdings Inc. 06/13/09 2,907 Total $ 57,979 Total $ 25,917 Total $ 383,269

Source: TheDeal.com as of Jan. 6, 2010. Average $ 2,899 Average $ 1,296 Average $ 19,163 Excludes Financial Companies

4 WHEN COMPANIES DO FILE, THERE IS A LONG-TERM TREND TOWARD PRE-NEGOTIATED BANKRUPTCIES AND SHORTER CASE LENGTHS

Average Length of Chapter 11 Filings

1,500

1,300

1,100 Prenegotiated or Prepackaged (As a Percentage of Total Corporate Chapter Cases) 900 60% 700

500 50%

300

40% AverageDurration in Days 100

1980 1985 1990 1995 2000 2005 of Cases 11 Chapter 30% Year of Filing Source: LoPucki Database as of Sept 6, 2011

20% Percentage

10% 2008 2009 2010 2011 Year of Filing Source: LoPucki Database as of Sept 6, 2011

5 AT THE SAME TIME THE FED HAS EASED MONETARY POLICY, THE HIGH YIELD MARKET HAS SEEN A RESURGENCE—LEADING TO LOWER DEFAULT RATES

High Yield Issuances ($ in Billions)

$500

$400

$300

$200

$100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Advantage Data.com as of December 15, 2011

6 KEITH COOPER CREDIT MARKET EFFECTS FTI CONSULTING RESTRUCTURING MARKET OUTLOOK AND CAPITAL MARKETS UPDATE

March 2012

8 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE

OVERVIEW

Restructuring Market Outlook and Credit Markets Update  Corporate debt default rates have steadily declined since early 2010 but may have bottomed in late 2011. U.S. corporate default rates have ticked up from just under 2.0% in 4Q11 to 2.4% currently—still well below its long-term average of 4.5%. . Corporate default rates typically lag the economic cycle. . Moody’s recently said the default rate is “probably at the bottom of the default cycle right now.” (January 2012)  The number of monthly corporate debt defaults has picked up notably in recent months.  Corporate credit market conditions deteriorated sharply in mid-2011in reaction to sovereign debt concerns and slowing global growth but corporate credit flows have improved dramatically so far in 2012 compared to 2H11.  Global corporate credit markets remain vulnerable to events that impact European sovereign debt and its financial institutions. The corporate default outlook is worse for Europe than the U.S. at the moment.  The corporate debt “maturity wall” is no longer a material concern for 2012, as most risky borrowers have already refinanced such debt.  However, the distressed debt ratio has moved sharply higher since mid-2011 and remains elevated despite improving credit market flows—implying higher corporate defaults in the year ahead.  The three major rating agencies all project a moderate increase in corporate default activity in 2012—and a below average year for corporate defaults.  Our default expectation, which relies on the distressed debt ratio, looks for a higher up tick in default activity than the rating agencies are—more in-line with an average year for defaults.

9 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE

OVERVIEW (CONTINUED)

 2011 was a slow year for corporate default activity by historical standards, both domestically and globally. . Corporate debt default activity in 2011 was down by approximately 35% compared to 2010 . Credit markets were very receptive to risky corporate borrowers through 1H11, especially institutional lenders, prior to the second episode of a potential Greek debt default. . Debt refinancing and Amend & Extend deals completed in 2010 and early 2011 pushed out debt maturities for many risky borrowers into 2013 and beyond. . Covenant lite features of many loans issued during the credit boom gave at-risk borrowers needed breathing room and operating flexibility during the downturn and into the early recovery.  Volatility in global financial markets in the second-half of 2011 did not have a severe impact on corporate default activity, though defaults have picked up since September.  Several recent defaults were previous distressed debt exchanges (DDE) that ultimately couldn’t avoid a formal business failure. History tells us that a high percentage of DDE will fail within a few years of completing the exchange.  Corporate credit market conditions have undoubtedly improved in 2012 compared to six months earlier but remain more restrictive than a year ago. . Despite the recent improvement, credit markets continue to cautiously ration access to capital and the cost of credit for high risk corporate borrowers.

10 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE GLOBAL CORPORATE DEBT DEFAULTS FELL AGAIN IN 2011

All things considered, it has been a remarkable recovery for the global corporate sector from the depths of the 2008 financial crisis and ensuing recession S&P Rated Global Corporate Defaults (# of Defaulting Issuers) 300 265 Source: S&P 250 229225

200

136 150 120 126 108 93 100 81 70 57 56 53 43 39 39 50 34 32 35 19 19 26 21 20 23 2924

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

11 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE CORPORATE DEFAULTS WERE TRENDING LOWER UNTIL 4Q11 BUT ARE MOVING UP

 There were only 53 rated issuer defaults in 2011 (39 were U.S. based) compared to 81 rated defaults in 2010 (57 were U.S. based), according to S&P.  Default activity began to pick up notably in the last quarter of 2011, with 8 defaults recorded in each month compared to 3.5 average monthly corporate debt defaults for the preceding year.  There have been 23 corporate defaults (14 U.S. based) in 2012 through mid-March compared to only 5 through the same period a year ago

S&P Rated Monthly Corporate Debt Defaults 3-Month Moving Avg. of S&P Rated Defaults 45 40 Source: S&P Source: S&P 40 35 35 Global U.S. only 30 Global U.S. only 30 25 25 20 20 15 15

10 10

# of # defaulting issuers # of # defaulting issuers 5 5

0 0

Jan '08Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec '09Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec '10Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec '11Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec '12Jan Feb

Mar Apr May Jun Jul Aug Sep Oct Nov Dec '09Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec '10Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec '11Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec '12Jan Feb

12 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE U.S. CORPORATE DEBT DEFAULT RATES REMAIN LOW BUT HAVE BEGUN TO TICK UP

 The U.S. corporate high-yield debt default rate (which is calculated as a rolling twelve month figure) was just under 2.0% at year-end—less than one-half its long term historical average—but has moved up to 2.4% by the end of February—a fairly big movement in only two months’ time.  S&P is projecting a U.S. speculative-grade corporate default rate of 3.3% by the end 2012 in its baseline forecast while its pessimistic scenario calls for a 5.3% default rate.  The recent pace of corporate debt defaults puts us on a pace to exceed S&P’s baseline default forecast

Source: S&P U.S. Speculative-Grade Default Rate

100 12 90 Note: Shaded areas represent recession 80 10 70 60 8 50

6 % in 40 30 4 20 2 10 0 0

Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

13 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE THE DISTRESSED DEBT RATIO HAS INCREASED SHARPLY SINCE MID-2011

 The distressed debt ratio is defined as the percentage of all speculative-grade corporate debt that S&P considers distressed at each month end1. It is a market-determined metric that anticipates future defaults.  At the peak of the credit crisis in late 2008, more than 8 of 10 spec-grade corporate bonds were considered distressed by S&P before ebbing considerably starting in mid-2009 as credit market conditions improved.  S&P’s distressed debt ratio1 has nearly tripled to 14% since last May—close to its long-term average.  $80 billion of U.S. spec-grade debt is currently considered distressed compared to only $20 billion in May.

U.S. Distressed Debt Ratios U.S. Distressed Debt

Spec-Grade Bond Distress Ratio Debt amount (left scale) Total distressed issuers (right scale) S&P / LSTA Leveraged Loan Distress Ratio 90 $400 600 Source: Standard & Poor's Source: S&P 550 80 $350 500 70 $300 450 400 60 $250 350 50 $200 300 40 250 $150

30 200 Issuers of #

(inpercent) In billions of $ of billions In 20 $100 150 100 $50 10 50 0 $0 0

Jan-00 Jun-00 Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12

May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12

1 S&P defines distressed debt as a bond with a yield spread over Treasuries in excess of 1000 bps or a performing loan trading at less than 80 cents on the dollar. The distress ratio is the number of distressed issues relative to all high-yield issues SOURCE: Source 14 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE NEW CORPORATE DEBT ISSUANCE FELL SHARPLY IN 2H11 BUT HAS RESUMED

High-Yield Corporate Debt Issuance Nearly Came to a Halt in 3Q11 But Has Soared So Far in 2012  Spec-grade corporate debt issuance slowed sharply this past summer after setting an all-time high in 1H11.  A “risk-on” mentality has again gripped fixed income investors so far in 2012 and money flows into HY bond and loan funds have been very strong.  February 2012 was the second best month on record for HY bonds, with some $37 billion of new issuance

Monthly U.S. Spec-Grade Corporate Debt Issuance $90

$80 HY Bond Issuance Institutional Loans $70 $60 Source: Reuters LPC $50 $40

in billions in $30 $20 $10 $0

Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12

15 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE HIGH-YIELD BOND ISSUANCE HAS COME ROARING BACK TO LIFE IN 2012

Following its summer swoon in 2011, high-yield bond issuance is now on track to have its best quarter ever U.S. High-Yield Corporate Bond Issuance

SOURCE: Reuters LPC 16 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE RISING COST OF CREDIT FOR SPECULATIVE-GRADE CORPORATE BORROWERS

High-Yield Corporate Bond Spreads Widened Considerably in 2H11 But Have Narrowed of Late  The average spread differential between investment grade and high-yield corporate bonds widened from 300 basis points (bps) last April to 600 bps by early autumn but have recently narrowed to 425 bps.  Despite the recent narrowing of spreads, single-B and CCC rated yield spreads are 200-400 basis points higher compared to a year ago

Source: S&P U.S. Corporate Bond Spread Differential Source: S&P U.S. Corporate Bond Spreads by Rating (Investment-Grade vs. Spec-Grade, in bps) (Speculative-Grade, in basis points) 1200 3500 1100 3000 BB B CCC 1000 900 2500 800 700 2000 600 500 1500 400 1000 300 200 500 100 0

Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 0

Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12

17 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE ACCESS TO CREDIT REMAINS CHALLENGING FOR LOW RATED CORPORATE ISSUERS

 As credit market conditions normalized following the recession, “deep junk” (B- or worse) issuers were eventually able to tap corporate credit markets again. Nearly 40% of new high-yield issuance through September 2011 was rated B-minus or worse—approaching the range of the pre-recession credit cycle.  In recent months the percentage of new deep junk bond issuance has fallen sharply despite the fierce rally in high-yield bond markets—evidence that fixed income investors remain circumspect about very weak issues despite their renewed risk appetite

Low Rated U.S. Spec-Grade Bond Issuance

Ratio of B- & below to total spec-grade issuance by issue count Ratio of B- & below to total spec-grade issuance by par amount Long-Term Average 70 Source: S&P 60

(in%) 30

Mar-95 Sep-95 Mar-96 Sep-96 Mar-97 Sep-97 Mar-98 Sep-98 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11

18 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE REFINANCING DOMINATES LEVERAGED LENDING ACTIVITY

In contrast to pre-recession corporate lending that overwhelmingly consisted of “new money” loans to speculative-grade borrowers, a solid majority of leveraged lending since 2010 has been for refinancing purposes, as lenders remain hesitant to increase their net exposure to high risk corporate borrowers

Source: Reuters LPC U.S. Leveraged Lending

$250 Refinancing New Money $200

$150

$100 inbillions

$50

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11

19 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE THE CORPORATE DEBT MATURITY WALL HAS BEEN CONTAINED FOR NOW

Recent research from Fitch Ratings indicates that more than $300 billion of U.S. speculative- grade corporate debt originally scheduled to mature between 2012-2014 has now been pushed out to 2015-2017

Source: Fitch Ratings U.S. HY Bond & Leveraged Loan Maturity Schedule $600 12/31/2009 12/31/2010 9/30/2011 $500

$491 $492

$459

$424

$418

$400 $402

$362

$347

$336

$323

$314

$300 $300

$282

$256 inbillions $200 $213

$187

$154

$100 $100

$0 2012 2013 2014 2015 2016 2017

20 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE THE CORPORATE DEBT MATURITY WALL HAS BEEN CONTAINED FOR NOW (CONTINUED)

 The vast majority of these refinanced corporate debt obligations are bank loans, which have either been pushed out via Amend & Extend (A&E) agreements or taken out via HY bond issuances.  Nearly 85% of the $1 trillion of speculative-grade U.S. corporate debt coming due through 2014 are leveraged loans

Source: Fitch Ratings U.S. Leveraged Loans U.S. High Yield Bond Maturity Schedule

Maturity Schedule Source: Fitch Ratings 12/31/2009 12/31/2010 9/30/2011 $450 $160

12/31/2009 12/31/2010 9/30/2011 $148 $148

$142 $400 $398 $140

$382

$133

$365

$129

$360

$126 $126

$125

$351 $352 $350 $120 $123

$305

$300 $294

$100 $98

$266 $250 $94 $239 $80

$77

$200 $72

$194

$172

inbillions inbillions

$60 $58

$150 $51

$134

$130

$40 $42 $42

$100 $34

$80

$29 $39 $20 $50 $2 $0 $0 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017

21 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE THE CORPORATE DEBT MATURITY WALL HAS BEEN CONTAINED FOR NOW (CONTINUED)

 Two financial maneuvers have allowed speculative-grade borrowers to push out the debt maturity wall: amendments & extensions (A&E) of existing loan agreements and bond-for-loan takeouts.  These transactions embody the proverbial “kicking the can” mentality of the corporate sector.  Lenders have demonstrated they are not anxious to be overly confrontational with struggling borrowers in this precarious business environment.  Spec-grade borrowers who are able to access the high-yield bond market can replace 5 or 6 year term loans with 10-year money that also comes with fewer restrictions—albeit at a higher cost.  The resurgence of the high-yield bond market in 2012 has reignited the popularity of bond-for-loan pay downs. A&E’s have also come back following two quarters of near dormancy

Source: Reuters LPC Bond-For-Loan Paydowns Leveraged Loan Amend & Extend Volume $14.0 $35 Source: Reuters LPC $12.0 $30 $10.0 $25 $8.0 $20 $6.0

in billions in $15

$4.0 inbillions $10 $2.0 $5 $0.0

Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 $0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 YTD12

22 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE MATURING TERM LOANS TO PE SPONSORS ARE ESPECIALLY WORRISOME

 Nearly 700 large terms loans (>$100mm) representing more than $300 billion of leveraged loans that are scheduled to mature through 2014 were made to U.S. based PE sponsors.  Over 85% of these loans to sponsors were originated prior to 2008 during the height of the LBO boom.  Pricing margins on these loans averaged 335 basis points over LIBOR.  More than 40% of these loans are currently rated single-B or worse.  For aggressive deals done before the credit crisis and recession, PE sponsors will be challenged to make the new math work as these loans approach maturity.  Most of these scheduled loan maturities occur in 2013-2014. Levels for 2012 appear to be manageable.  How much farther will “the can be kicked”? Term Loan Maturities to PE Sponsors Term Loan Maturities to PE Sponsors

Total Term Loan Maturities Originated Prior to 2008 Total Term Loan Maturities Originated Prior to 2008 $160,000 300 $151,652 Source: Reuters LPC $140,000 264

258

Source: Reuters LPC $134,503 250 $120,000 235

203 $108,445 200 $100,000 $103,695

163 $80,000 150 153

136

$60,000 $58,358 in millions in 100 $40,000 $44,448 $40,741 $12,607

50 Numner of Term Loans of Numner $20,000 27 $0 0 2012 2013 2014 2015 2012 2013 2014 2015

23 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE U.S. CORPORATE CREDIT QUALITY HAS WEAKENED CONSIDERABLY OVER THE YEARS

 S&P calls it the “March To Junk” : the development of leverage finance markets, a growing appetite for credit risk by institutional investors and the widespread acceptance of LBOs as a feature of modern capitalism have resulted in a deteriorating credit profile for the U.S. corporate sector over the last 30 years.  64% of rated U.S. corporate issuers (exc. the financial sector) are now spec-grade compared to 33% in 1991 U.S. Speculative-Grade Share Of Ratings By Sector

(shown below in percent) 1981 1986 1991 1996 2001 2006 2011

U.S corporates (total) 24 35 28 34 39 50 53 All financials 13 19 15 6 8 13 16 Financial institutions 10 18 21 9 13 16 21 Insurance 23 19 7 3 5 11 12 All nonfinancials 25 39 33 44 49 62 64 Auto/capital goods/aero/metals 34 46 45 57 68 74 69 Consumer & service 30 49 41 55 55 70 70 Energy/natural resources 34 42 32 46 46 62 65 Forestry, homebuilders 26 46 42 57 66 71 74

Health care/chemicals 24 46 36 47 59 71 74 High technology/office equipment 48 59 68 46 61 75 73 Media and entertainment 43 73 66 73 74 83 88 Real estate 42 19 13 17 17 29 33 Telecommunications 3 4 3 44 63 73 84 Transportation 28 19 29 31 43 58 67 Utility 4 9 4 9 9 18 10

Sources: Standard & Poor's Global Fixed Income Research

SOURCE: Standard & Poor’s Global Fixed Income Research 24 RESTRUCTURING MARKET OUTLOOK AND CREDIT MARKETS UPDATE U.S. CORPORATE CREDIT QUALITY HAS WEAKENED CONSIDERABLY OVER THE YEARS

 Moreover, about 43% of all rated U.S. corporate bond issuers (excluding financials) are currently rated B or worse. So not only has the proportion of spec-grade issuers increased but they have become “junkier” too U.S. Issuer Ratings Distribution By Sector (Issuer Count) CCC and % Spec- AAA AA A BBB BB B lower Grade All financials 2 119 305 199 50 55 9 15.4% Financial institutions 1 45 98 102 26 37 4 21.4% Insurance 1 74 207 97 24 18 5 11.0%

All nonfinancials 4 29 252 540 451 896 91 63.5% Auto/capital goods/aero/metals 0 2 31 57 79 112 9 69.0% Consumer and service 0 5 35 66 62 166 15 69.6% Energy/natural resources 1 5 29 54 56 93 14 64.7% Forestry, homebuilders 0 0 4 19 19 43 4 74.2% Health care/chemicals 1 9 19 42 49 149 5 74.1% High technology/office equipment 2 2 17 27 44 85 2 73.2% Media and entertainment 0 1 5 24 59 141 30 88.5% Real estate 0 0 13 56 24 16 1 37.3% Telecommunications 0 0 11 3 19 54 3 84.4% Transportation 0 2 3 23 17 31 8 66.7% Utility 0 3 85 169 23 6 0 10.1%

Total: All nonfinancials 4 29 252 540 451 896 91 Pct. of Total 0.2% 1.3% 11.1% 23.9% 19.9% 39.6% 4.0% 63.5%

Grand Total 6 148 557 739 501 951 100 Pct. of Grand Total 0.2% 4.9% 18.6% 24.6% 16.7% 31.7% 3.3% 51.7%

Data as of Sept. 30, 2011. Includes parent and subsidiary-level issuers. Sources: Standard & Poor's

Note: Data as of Sept. 30, 2011. Includes parent and subsidiary-level issuers SOURCE: Standard & Poor’s 25 CHUCK MOORE MIDDLE MARKET TRENDS TMA MEMBERSHIP TRENDS BY TYPE OF FIRM

Total Number of Members 2007 2008 2009 2010 2011 Large Firms Accounting Firms Large Firms 234 255 300 318 309 Nat Indep / Middle Market Accounting Firms 180 192 240 252 282 350 Nat Indep / Middle Market 195 225 255 285 255 Sample Total(1) 609 672 795 855 846 YOY % Growth / Decline 300 Large Firms 9.0% 17.6% 6.0% -2.8% Accounting Firms 6.7% 25.0% 5.0% 11.9%

250 Nat Indep / Middle Market 15.4% 13.3% 11.8% -10.5% Sample Total(1) 10.3% 18.3% 7.5% -1.1% . Figures for North American membership only . Large Firms = Alix Partners, Alvarez & Marsal and FTI Consulting 200 . Accounting Firms = BDO, Deloitte, Ernst & Young, Grant Thornton, KPMG and PricewaterhouseCoopers . National Independent/Middle Market = Aurora Management, Barrier Advisors, Bridge Associates, Capstone Advisory, Conway MacKenzie, Conway DelGenio, CRG 150 Group, Focus Management, Getzler Heinrich, Keystone, Kibel Green, Loughlin 2007 2008 2009 2010 2011 Meghji, Morris Anderson, Richter Consulting and Zolfo Cooper

1 Total North American membership was 7,483, 7,873, 8,022, 7,572 and 7,391 as of 12/31/2007- 2011, respectively

27 REDUCTION IN SIZE OF SPECIAL ASSET GROUPS

. Banks have been consolidating their workout groups across the country and reducing the overall number of people assigned to handle special assets

. The rationale for such reductions, include: . Significant amount of real estate workouts have been completed . Fewer stressed/distressed credits currently in portfolios and an expectation of fewer transfers to special assets over the near term . Shorter workout periods and fewer bankruptcy filings . Regulatory leniency on ratings, etc. leading to more patience on the part of lenders as they wait for an opportunity to get re-financed out of the situation

28 TYPE OF WORK MIDDLE MARKET FIRMS ARE EXPERIENCING

. Fewer bankruptcies

. Fewer CRO engagements

. Increased viability assessments . Kick the tires and offer recommendations . Provide comfort to lenders and establish “road signs” for when things turn bad . Most assessments are fixed price and squeeze margins

. Expanding into alternative work streams

. Banks have worked through a majority of their real estate issues and are now dealing with smaller C&I loans

29 MIGRATION FROM TURNAROUNDS TO TRANSACTIONS

. For those companies that get truly distressed, they have run out of time and exhausted most options by the time a restructuring advisor is hired . Instead of trying to fix companies, turnaround professionals are increasingly coming on the scene to facilitate or manage a distressed company through a sale or liquidation transaction . Real turnaround opportunities occur in a much smaller percentage of engagements (<20%) than they have traditionally

. Transactions are attractive for lenders because they can occur rather quickly, require minimal administrative costs and, generally, provide greater certainty as to outcome

30 EXTRA SLIDE WITH INTERESTING INFORMATION

. Given the large stack of maturities between 2015-2017, particularly for middle market borrowers who have not been able to refinance, there will be significant restructuring activity as these companies are forcibly deleveraged . Compounding matters is the fact that by 2016-2017 all of the vast majority of CLOs will be outside their reinvestment window, which has been a major driver of the current amend and extend cycle. Moreover, many of these CLOs will be approaching their own legal final maturities and therefore will not be able to extend even if they wanted to. New CLO activity is running at a fraction of its historical highs seen in 2007 at $150bn annually. For 2012, CLO issuance is expected to be about $12bn. Not nearly enough to replace the lost supply

SOURCE: Distressed Debt Investing 31 KEVIN CARMODY NEW PLAYERS IN THE FIELD THE COMPETITIVE LANDSCAPE HAS CHANGED IN THE RESTRUCTURING COMMUNITY AS A NUMBER OF FIRMS HAVE ENTERED OR RE-ENTERED THE MARKET … EACH WITH THEIR OWN STRATEGY AND VALUE PROPOSITION

33 HOW DO THESE NEW ENTRANTS DIFFER AND WHAT WILL DETERMINE IF THEY WILL SUCCESSFULLY GAIN MARKET SHARE IN AN ALREADY COMPETITIVE RESTRUCTURING COMMUNITY?

. The new entrants are concentrated into three distinct categories: . Accounting firms with global scale and technical expertise that can be applied to financial advisory assignments . Management consulting firms that combine deep industry, global and functional expertise on restructuring advisory and interim management assignments . Investment banks with strong industry expertise that specialize in valuation, restructuring advisory and balance sheet recapitalizations

34 AS THE ACCOUNTING FIRMS CONTINUE TO BUILD SCALE IN THEIR U.S. RESTRUCTURING PRACTICES, HOW WILL THEY COMPETE AGAINST THE INCUMBENTS?

. How have the accounting firms overcome conflict issues and other obstacles that prompted them to exit the U.S. restructuring market a decade ago? . What types of services do the accounting firms offer (advisory, crisis management, bankruptcy administration)? . Do these services differ substantially by firm? . How are these firms building their restructuring bench (internal vs. external hires)? . What are the early results?

35 HAS THE ENTRY OF TRADITIONAL MANAGEMENT CONSULTANTS INTO THE RESTRUCTURING COMMUNITY SHIFTED THE BALANCE OF POWER ON DEBTOR ENGAGEMENTS?

. What types of services do these firms offer (i.e., restructuring advisory, crisis management, operational, etc.) . What is the value proposition that differentiates the management consulting firms from the incumbents? . Does the value proposition resonate in the C-Level suite? . Does branding make a difference? . How does this impact when consultants are retained? . What are the early results and keys to future success?

36 WHAT IMPACT WILL A NEW BREED OF BOUTIQUE INVESTMENT BANKS HAVE ON RESTRUCTURING TRANSACTIONS AND CAPITAL MARKETS ACTIVITY?

. How are these new investment banks different? . What are the competitive challenges and hurdles that these banks will encounter? . Which market segments are hot? . Who is leading the charge? . Do these faces look familiar? . What are the other success factors?

37 APPENDIX

38 ALIXPARTNERS’

RESTRUCTURING January EXPERTS 2012 2012 OUTLOOK SURVEY

www.alixpartners.com DISCLAIMER – IMPORTANT INFORMATION REGARDING THIS REPORT

. This report was prepared by AlixPartners LLP (“AlixPartners”) for general information and distribution on a strictly non-reliance basis. No one in possession of this report may rely on any portion of this report. The recipients of the report accept that they will make their own investigation, analysis and decision relating to any possible transactions and/or matter related to such and will not use or rely upon this report to form the basis of any such decisions. To the extent that it is lawfully able to do so, no liability or responsibility whatsoever is accepted by AlixPartners for any loss howsoever arising from any use of, or in connection with, the Report. . This report may be based, in whole or in part, on projections or forecasts of future events. A forecast, by its nature, is speculative and includes estimates and assumptions which may prove to be wrong. Actual results may, and frequently do, differ from those projected or forecast. Those differences may be material. Items which could impact actual results include, but are not limited to, unforeseen micro or macro economic developments and/or business or industry events. . The information in this report reflects conditions and our views as of this date, all of which are subject to change. We undertake no obligation to update or provide any revisions to the report to reflect events, circumstances or changes that occur after the date the report was prepared. In preparing this report, AlixPartners has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise provided to us. AlixPartners has not audited or verified the data reviewed in connection with the preparation of this report. . Neither this report nor any of its contents may be copied, reproduced, disseminated, quoted or referred to in any presentation, agreement or document with attribution to AlixPartners, at any time or in any manner other than for the internal use of the recipient, without the express, prior written consent of AlixPartners.

 Executive Summary

 Survey Overview

 Key Findings

. 56% expect to see a higher number of corporate bankruptcies in 2012 than 2011 . 42% expect to see more large-cap filings . Sectors most likely to face distress are: Retail, Restaurants and Commercial Real Estate, followed by Media, Financial Services and Healthcare . 58% expect to see a higher number of distressed-investing opportunities . 91% expect an equal or higher number of pre-packaged and pre-arranged bankruptcies with assets or liabilities of $100 million or more . 34% expect to see a municipal bankruptcy comparable to 2011’s Jefferson County, Ala. . 60% expect to see President Obama re-elected, of which a clear majority (68%) feel this would have no impact on bankruptcy and restructuring activity in 2012 . But 61% say that a Republican win would be better for the “restructuring of America,” with a significant 9% saying a third party would be

 Executive Summary

 Survey Overview

 Key Findings

. Date: January 17-24, 2012

. Population: 126 high-level, North American-based corporate-restructuring professionals (attorneys, investment bankers, distressed-debt experts, hedge-fund managers, etc.

. Survey Focus: . The evolving state of the restructuring industry . What to watch for in the year ahead (distressed industries, distressed-debt investing, etc.) . The impact of government policies on both restructuring and corporate well-being

 Executive Summary

 Survey Overview

 Key Findings

Do you expect to see more corporate bankruptcies in the U.S. in 2012 than there were in 2011? Percent

Yes No Expect to see about the same number as last year

Do you expect to see more large-cap bankruptcies (>$1 billion in assets) in 2012 than in 2011? Percent

Yes No

47 © AlixPartners, LLP, 2012 RETAIL, RESTAURANTS AND COMMERCIAL REAL ESTATE SEEN AS MOST LIKELY TO FACE DISTRESS; MEDIA, FIN. SVCS. AND HEALTHCARE ALSO CITED OFTEN

Which sectors are most likely to face distress in 2012? (choose up to three) Percent

Retail 49 Restaurants 41 Commercial real estate 35 Financial institutions 24 Media 23 Healthcare 20 Energy and resources 18 Consumer goods 18 Municipal 18 Transportation and logistics 16 Aerospace and defense 15 Technology 2 Automotive 0

Will privately owned companies in the U.S. see a higher or lower default rate than public companies in 2012? Percent 59

Higher Lower About equal

Expectations Regarding the Number of Distressed Investing Opportunities in 2012 Percent

More distressed Less distressed About the same level investing opportunities investing opportunities of distressed investing opportunities

50 © AlixPartners, LLP, 2012 91% EXPECT AN EQUAL OR HIGHER NUMBER OF PRE- PACKAGED/ PRE-ARRANGED BANKRUPTCIES WITH ASSETS OR LIABILITIES OF $100M OR MORE

According to AlixPartners research, in 2011 43% of U.S. corporate bankruptcies in the U.S. with assets or liabilities of $100 million or more were pre-packaged or pre-arranged. In 2012, the number of pre-packaged or pre-arranged bankruptcies for companies of that size will be: Percent 54

9 5 1

Significantly higher Somehat higher About the same Somewhat lower Significantly lower than in 2011 than in 2011 as in 2011 than in 2011 than in 2011

In 2011, Alabama's Jefferson County was the largest municipal bankruptcy in U.S. history. Will there be a municipal default larger than that in the U.S. in 2012? Percent

Yes No

Which party will win the 2012 U.S. presidential election? Percent

Democrats Republicans Third party

53 © AlixPartners, LLP, 2012 … OF WHICH A CLEAR MAJORITY (68%) FEEL WILL HAVE NO IMPACT ON BANKRUPTCY AND RESTRUCTURING ACTIVITY IN 2012

Based upon your answer to the previous question, will this: Percent

20 13

Generate more bankruptcy Generate less bankruptcy Have no impact on bank- and restructuring activity and restructuring activity ruptcy and restructuring in 2013 in 2013 activity in 2013

54 © AlixPartners, LLP, 2012 HOWEVER, 61% SAY THAT A REPUBLICAN PRESIDENT WOULD BE BEST FOR THE “RESTRUCTURING OF AMERICA”; 9% SAY A THIRD PARTY WOULD

Which party's presidential win would be best for the restructuring of America? Percent

Democrats Republicans Third party

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