January 26, 2012
High Yield One-Pagers Credit Research
A reference book for high yield investors This reference guide contains single-page summaries for many of the companies in the high yield universe and serves as a companion to our Investment Grade One-Pager publication. In addition to credits covered by the Goldman Sachs credit research team, we also include summary pages for some uncovered companies that we view as benchmark high yield names.
We hope you find this book to be a useful tool. Please contact the sector analysts for additional information.
Contributing analysts
Erin Blum Jason Kim
Gregory Chwatko Raymond M. Leung
Kevin Coyne Amanda R. Lynam, CPA
Karen Eltrich Kristen McDuffy
Justine Fisher Joshua Pinkerton
Jason Gilbert Joseph Stivaletti
Brian Jacoby, CFA Scott Wipperman, CFA
Franklin Jarman
Global Investment Research (212) 902-1000 Investors should consider this report as only a single factor in Erin Blum making their investment decision. For Reg AC certification and (212) 855-7718 [email protected] Goldman, Sachs & Co. other important disclosures, see the Disclosure Appendix, or Gregory J. Chwatko go to www.gs.com/research/hedge.html. This research (212) 902-0673 [email protected] Goldman, Sachs & Co. discusses Rule 144a securities, which generally are available Kevin Coyne (212) 357-9918 [email protected] Goldman, Sachs & Co. only to Qualified Institutional Buyers.
The Goldman Sachs Group, Inc. Global Investment Research January 26, 2012 High Yield
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Goldman Sachs Credit Research 2 January 26, 2012 High Yield
Table of contents
Company Page Company Page Accellent (ACCINC) 5 Del Monte Foods (DLM) 55 Advanced Micro Systems, Inc (AMD) 6 Delta Air Lines Inc. (DAL) 56 AES Corporation (AES) 7 Denbury Resources (DNR) 57 Aircastle Ltd. (AYR) 8 Dillard's Inc. (DDS) 58 Alcatel-Lucent (ALU) 9 DineEquity, Inc. (DIN) 59 Alere Inc. (ALR) 10 DISH Network Corporation (DISH) 60 American Achievement (AMEACH) 11 Dole Foods (DOL) 61 American Axle (AXL) 12 DR Horton Inc. (DHI) 62 Amerigroup Corp. (AGP) 13 Dynegy Holdings inc. (DYN) 63 Ameristar Casinos Inc. (ASCA) 14 Edison Mission Energy (EIX) 64 Amkor Technology (AMKR) 15 El Paso Corp. (EP) 65 Apria Healthcare Group Inc. (AHG) 16 Elan Corporation (ELN) 66 Ashland Inc. (ASH) 17 Emergency Medical Services (EMS) 67 Avis Budget Group (CAR) 18 Endo Pharmaceuticals (ENDP) 68 AWAS Aviation Capital (AWAS) 19 Energy XXI (EXXI) 69 Ball Corporation (BLL) 20 Exopack Holding Corp. (EXOPAC) 70 Basic Energy Services (BAS) 21 Felcor Lodging Inc. (FCH) 71 Bausch + Lomb Inc. (BOL) 22 First Data Corp. (FDC) 72 Beazer Homes USA Inc. (BZH) 23 Ford Motor Company (F) 73 Berry Petroleum (BRY) 24 Forest Oil (FST) 74 Berry Plastics (BERRY) 25 Fortescue Metals Group Ltd (FMGAU) 75 Bombardier Inc. (BBDBCN) 26 Freescale Semiconductor, Inc. (FSL) 76 Bon-Ton Department Stores (BONT) 27 Frontier Communications (FTR) 77 Boyd Gaming Corp. (BYD) 28 Gannett Company Inc. (GCI) 78 Bristow Group (BRS) 29 Gaylord Entertainment Company (GET) 79 Brookstone (BRSTNE) 30 GenOn Energy Corp. (GEN) 80 Brunswick Corporation (BC) 31 Goodyear Tire (GT) 81 Burger King Holdings, Inc. (BK) 32 Graphic Packaging Corporation (GPK) 82 Burlington Coat Factory (BCFACT) 33 Great Canadian Gaming Corp. (GRTCAN) 83 Cablevision Systems Corporation (CVC) 34 Greektown Superholdings (GREEK) 84 Caesars Ent. Operating Company (HET) 35 Gymboree Corp. (GYMB) 85 Calpine Corp. (CPN) 36 Hanesbrands Inc. (HBI) 86 Cascades Inc. (CASCN) 37 HCA, Inc. (HCA) 87 Catalent Pharma Solutions (PTSAC) 38 Health Management Associates, Inc. (HMA) 88 Catalyst Paper Corporation (CTLCN) 39 HealthSouth (HLS) 89 CF Industries (CF) 40 Hornbeck Offshore Services (HOS) 90 Charter Communications Inc. (CCMM) 41 Host Hotels & Resorts Inc. (HST) 91 Chesapeake Energy (CHK) 42 Huntsman Corp. (HUN) 92 Chiquita Brands (CQB) 43 IASIS Healthcare (IAS) 93 Chrysler Group LLC (CHRYGR) 44 IMS Health (RX) 94 CityCenter Holdings (CCTRH) 45 Isle of Capri Casinos (ISLE) 95 Clearwire Communications LLC (CLWR) 46 iStar Financial (SFI) 96 CMS Energy Corporation (CMS) 47 J. Crew Group Inc. (JCG) 97 Community Health Systems (CYH) 48 J.C. Penney Co. Inc. (JCP) 98 Constellation Brands (STZ) 49 Jarden Corp. (JAH) 99 Convatec Healthcare (CONVAT) 50 JDA Software Group Inc. (JDAS) 100 Cooper Tire (CTBUS) 51 JetBlue Airways Corp. (JBLU) 101 Crown Holdings, Inc. (CCK) 52 KB Home (KBH) 102 DaVita, Inc (DVA) 53 Kindred Healthcare (KND) 103 Dean Foods (DF) 54 Koppers Inc. (KOP) 104
Goldman Sachs Credit Research 3 January 26, 2012 High Yield
Company Page Company Page L-3 Communications (LLL) 105 Rock-Tenn Company (RKT) 158 Las Vegas Sands Corp. (LVS) 108 Royal Caribbean Cruises Ltd. (RCL) 159 Leap Wireless International, Inc. (LEAP) 107 Ryland Group Inc., The (RYL) 160 Lennar Corp. (LEN) 108 Saks Inc (SKS) 161 Levi Strauss & Co. (LEVI) 109 Sally Holdings LLC (SBH) 162 Liberty Interactive Corp. (LINTA/QVC) 110 Sanmina-SCI Corp. (SANM) 163 Lifepoint Hospitals Inc. (LPNT) 111 Scientific Games International, Inc. (SGMS) 164 Limited Brands Inc. (LTD) 112 Seagate Technology (STX) 165 Liz Claiborne (LIZ) 113 Sealy Mattress Co. (ZZ) 166 Louisiana-Pacific Corp. (LPX) 114 Sirius XM Radio Inc. (SIRI) 167 Marina District & Finance Co., Inc. (BORGAT) 115 Sitel LLC (SITEL) 168 McClatchy Co., The (MNI) 116 Smithfield Foods (SFD) 169 McMoRan Exploration (MMR) 117 Solo Cup (SOLOC) 170 MDC Holdings Inc. (MDC) 118 Southwest Airlines Co. (LUV) 171 Mediacom Communications Corporation (MCCC) 119 Southwestern Energy (SWN) 172 MediMedia USA, Inc. (MEDIME) 120 Sprint Nextel Corporation (S) 173 Meritor (MTOR) 121 Standard Pacific Corp. (SPF) 174 MetroPCS Communications, Inc. (PCS) 122 Steel Dynamics (STLD) 175 MGM Resorts International (MGM) 123 Stone Energy Corp (SGY) 176 Michaels Stores (MIK) 124 Stream Global Services (SGS) 177 Millar Western Forest Products (MILLAR) 125 Sunoco Inc. (SUN) 178 Mohegan Tribal Gaming Authority (TRIBAL) 126 Surgical Care Affiliates LLC (SCAFF) 179 Momentive Performance (MOMENT) 127 Swift Energy Co. (SFY) 180 Momentive Specialty Chemicals (HXN) 128 Telesat Canada (TELSAT) 181 MTR Gaming Group, Inc. (MNTG) 129 Tenet Healthcare Corporation (THC) 182 Mylan Inc. (MYL) 130 Tenneco Inc. (TEN) 183 Neenah Paper (NP) 131 Tesoro Corp. (TSO) 184 Neiman Marcus Group, The (NMG) 132 Textron Inc. (TXT) 185 New York Times Co., The (NYT) 133 Toll Brothers Inc. (TOL) 186 Newfield Exploration (NFX) 134 TPC Group Inc. (TPCG) 187 Nova Chemicals (NCX) 135 TRW Automotive (TRW) 188 NRG Energy (NRG) 136 U.S. Steel (X) 189 NXP B.V. (NXPBV) 137 Unisys (UIS) 190 Olin Corporation (OLN) 138 United Continental Holdings, Inc. (UAL) 191 Omnicare Inc.(OCR) 139 United Surgical Partners Intl (USPI) 192 Owens-Illinois, Inc. (OI) 140 Universal Health Services (UHS) 193 Parker Drilling Company (PKD) 141 US Airways Group, Inc. (LCC) 194 Peabody Energy (BTU) 142 Valeant Pharmaceuticals (VRX) 195 Pilgrim's Pride Corp. (PPC) 143 Vanguard Health (VHS) 196 Pinnacle Entertainment (PNK) 144 Venoco Inc. (VQ) 197 Pioneer Natural Resources (PXD) 145 Viasystems, Inc. (VIAS) 198 Plains Exploration & Production (PXP) 146 Videotron Ltd (QBRCN) 199 Plastipak Holdings, Inc. (PLASPK) 147 Visant Corp. (VISANT) 200 PolyOne (POL) 148 VWR Funding (VWRINT) 201 PulteGroup Inc. (PHM) 149 W&T Offshore (WTI) 202 PVH Corp. (PVH) 150 Warner Chilcott (WCRX) 203 Quicksilver Resources (KWK) 151 Whiting Petroleum Corp. (WLL) 204 Quiksilver, Inc. (ZQK) 152 Windstream Corp. (WIN) 205 R.R. Donnelley & Sons Co. (RRD) 153 Wynn Las Vegas (WYNN) 206 RadioShack Corp. (RSH) 154 Yankee Candle Co., The (YCC) 207 Range Resources (RRC) 155 Reynolds Group Holdings Limited 156 Rite Aid Corp. (RAD) 157
Note that the source of all data in this report is Goldman Sachs, Goldman Sachs Credit Research, or company data.
Goldman Sachs Credit Research 4 January 26, 2012 High Yield
Accellent (ACCINC) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 IN-LINE (on secureds and subs) We rate both the Accellent secureds and subs In-Line. While the bonds are among the widest in our coverage, we see this as only fair value because: (1) leverage is also among the highest of the group and especially when considered against the low EV/EBITDA multiples of the public competitors; (2) LTM FCF remains weak; and (3) we see ACCINC’s business as riskier because the company is a contract manufacturer and therefore has less control over its order flow and pipeline. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $400 8.375 Sr. Sec. 1-Feb-17 B1/B+ $106.281 2/1/2013 $100.500 8.226% 790 $315 10.000 Sub. Nts 01-Nov-17 Caa2/CCC+ $107.500 11/1/2013 $81.500 14.887% 1,409
Company Description Investment Strengths: Accellent is a contract manufacturer in the medical device industry with a focus in cardiology, orthopedics and - Sales force and plant expansion. Following ACCINC's sales force endoscopy. Cardiology is the company’s strongest segment, with orthopedics its weakest segment in terms of realignment, we have seen an upward revision of new business wins. The performance and company expertise. The company has 14 manufacturing facilities in the United States and 3 in company is also staffing and equipping its Malaysian facility that will not only Europe, and it recently completed the addition of a facility in Malaysia. ACCINC expects shipping to begin early facilitate expansion into Asia, but also provide low-cost manufacturing. 2012 from this facility. - Resilient end-market demand. Device end-market growth, while slowed, has ACCINC does business with the major OEMs such as Boston Scientific, Johnson & Johnson, and Medtronic. MDT remained in the positive low-single-digit territory. and JNJ each accounted for more than 10% of sales in 2010. ACCINC also books pass-through sales of platinum at little or no margin (revenue is included in the cardiology segment). - Increased regulatory scrutiny. We think the increased cost of audits and pricing pressure from hospitals could lead OEMs to consolidate vendors in ACCINC has been proactive in managing its maturity profile with the $400 mn secured offering in January 2010 to favor of larger manufacturers such as ACCINC in order to reduce cost and refinance its 2012 term loans and a $315 mn sub offering in October 2010 to refinance its 2013 subordinate notes. time to production. Investment Risks: Key Dates/Catalysts: - High leverage. ACCINC is highly levered at mid 6x, a level that has not - Quarterly earnings. It will be important to see cost discipline at ACCINC to drive EBITDA growth. improved much since the time of its 2005 LBO. Public comps trade in the 6-8x - Commentary on industry inventory from OEMs and Accellent's competitors (GreatBatch and Symmetry). Recent range. comments from competitors suggest that the industry inventory picture is weakening. - Shipping from the Malaysia plant to begin in early 2012. - Strong and concentrated customer group. Risk of insourcing could reduce revenues for ACCINC, as was the case with BSX in 2006 (a revenue hit totaling $40 mn).
- Weak historical growth. ACCINC's top line has posted only a 0.9% CAGR since 2005.
Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E Revenue $479 $507 $541 $132 $133 $135 EBITDA 109108102282425
Interest Expense, net $57 $74 $68 $19 $17 $16 Cash Taxes 4 4 6122 CapEx 162633988 Free Cash Flow 39 9 (23) 6 2 (5)
Total Debt $687 $715 $715 $715 $715 $715 Cash & marketable securities 34 41 18 41 23 17 Net Debt 653 674 697 674 692 698 Agency Key Credit Statistics LTM Comps Leverage Coverage Ratings Total Debt/EBITDA 6.3x 6.6x 7.0x Accellent (ACCINC) sub 6.8x 1.5x Caa2/CCC+ Net Debt/EBITDA 6.0x 6.2x 6.8x Accellent (ACCINC) sec 3.7x 1.4x B1/B+ Catalent (PTSAC) 6.7x 1.8x Caa1/B EBITDA/Interest 1.9x 1.5x 1.5x 1.5x 1.4x 1.5x DJO Global (DJO) 6.4x 1.6x Caa1/CCC+ EBITDA margin 22.7% 21.4% 18.9% 21.2% 18.1% 18.7%
Capitalization Debt to Debt to LTM 2011E Description Amount EBITDA EBITDA Liquidity ABL Revolver 1/29/2015 $0 ABL Revolver Size $75 8.375% Snr Sec. Nts 2/1/2017 $400 Borrowing Base $49 Total Sr Sec debt 400 3.8x 3.7x Letters of Credit 11 Borrowings 0 10% Sub Nts 11/1/2017 $315 Revolver Availability 39 Total Sub debt 315 6.8x 7.0x Cash & marketable securities $23 Other $0 Total Liquidity $61 Total Debt $715 6.8x 7.0x Market Cap NA Enterprise Value NA
Maturities: 800 700 600 500 400 300 200 100 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 5 January 26, 2012 High Yield
Advanced Micro Devices, Inc. (AMD) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $500 8.125 Senior 15-Dec-17 Ba3/B+ 104.06 12/15/2013 107.88 5.7% 542
Investment Strengths: - Low capital intensity enhances cash flow profile: The Company Description Asset Lite plan completed in 2009 divested AMD’s AMD is a global manufacturer of complex semiconductors including microprocessors (MPUs) found in desktops, notebooks, foundry business to production partner Abu Dhabi. The and servers as well as graphics chipsets. The MPU market is essentially a duopoly, composed of two leading vendors: Intel deal significantly reduced AMD's capital intensity and Corp. and AMD. Intel is the dominant player and controls approximately 83% share, while AMD is a distant second at 10% raised just over $700 million of cash. share. In order to improve its product offering and competitive positioning, AMD acquired ATI Technologies, a supplier of - Solid liquidity position provides capital structure graphics processing chips, for $5.4 billion in 2006. In 2011, the company began to leverage its core MPU/GPU capabilities by improvement opportunities: AMD ended 2Q2011 with selling a new chip family named the Fusion, which combines the MPU and GPU on to a single die. Separately, the company over $1.8 billion of cash on hand, but needs significantly has benefited from its relationship with the state of Abu-Dhabi, which currently owns 15% of the AMD's equity and recently less to operate effectively. AMD has navigated through purchased AMD's foundry business as well. Abu-Dhabi-owned GlobalFoundries is currently AMD's most important foundry a challenging 2011 product launch year; in the event the partner. macroeconomic volatility that surfaced in 2H2011 subsides, we believe it may consider deploying excess Key Dates/Catalysts: cash to reduce gross leverage. - AMD's annual analyst day is scheduled for February 2 Investment Risks: - Tablet growth could consume future PC demand: We estimate the lost opportunity could reach $50-100 million in annual EBITDA over 2011/2012, which is still manageable in our view. - Weak competitive position: Intel dominates the MPU market, with approximately an 83% market share. Financial Profile FY08 FY09 FY10 LTM-3Q11 FY11E FY12E - New leadership: After its CEO resigned in 2010, AMD Revenue 5,792 5,403 6,494 6,526 6,602 6,993 was only able to hire a new CEO in August 2011. AMD's Products Group General Manager left the firm in EBITDA 582 492 963 880 866 848 September 2011, at which point the new CEO assumed the role of Interim General Manager of the Products Interest Expense (366) (438) (199) (176) (179) (148) Group, a large responsibility given his recent move to AMD. Cash Taxes (11) (11) (12) (12) (12) (12) - Manufacturing issues: AMD has experienced CapEx (622) (466) (148) (185) (212) (250) continuing manufacturing issues on new chip launches, Free Cash Flow (1,085) (1,046) (560) (203) 133 178 most recently related to lower-than-expected yield from its foundry partner, GlobalFoundries, which was partly responsible for the company's 3Q2011 miss relative to Total Debt 5,074 4,560 2,421 2,060 2,060 1,575 initial guidance. Cash 1,096 2,676 1,789 1,807 1,892 1,585 Net Debt 3,978 1,884 632 253 168 (10) Key Credit Statistics Total Debt/EBITDA 8.7 x 9.3 x 2.5 x 2.3 x 2.4 x 1.9 x Comps Leverage Coverage Sr. Unsec Net Debt/EBITDA 6.8 x 3.8 x 0.7 x 0.3 x 0.2 x 0.0 x Ratings ALU 3.2x 4.5x WR/B EBITDA/Interest 1.6 x 1.1 x 4.8 x 5.0 x 4.8 x 5.7 x AMKR 2.3x 6.6x Ba3/BB EBITDA margin 10.0% 9.1% 14.8% 13.5% 13.1% 12.1% FSL 5.8x 2.0x Caa1/CCC+ NXP 3.3x 3.7x Caa1/B FY11E Capitalization SANM 3.6x 3.6x B1/B Debt to Description Size EBITDA Liquidity 5.75% Sr. Conv. due 2012 485 2.3 x Revolver Size 0 8.125% Sr. Notes due 2017 500 2.3 x Borrow Base 0 6.00% Sr. Conv. due 2015 630 2.3 x - Amt Drawn 0 7.75% Sr. Notes due 2020 500 2.3 x - LC's 0 Other (55) 2.3 x Amt Unutilized 0 Total Debt - Product Co. 2,060 2.3 x Cash 1,807 Market Cap 4,781 Liquidity 1,807 Enterprise Value 5,034 5.7 x
Maturities:
700.0 600.0 500.0 400.0 300.0
200.0 100.0 0.0 2012 2013 2014 2015 2016 2017 2018 2019 2020
Goldman Sachs Credit Research 6 January 26, 2012 High Yield
AES Corporation (AES) Updated 1/25/2012 Raymond M. Leung 212-357-5764 Contact analyst or see latest research for updates to ratings, estimates, and other information. Abayomi A. Adigun 212-902-9355 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,000 7.375 Sr Unsec'd 1-Jul-21 Ba3/BB- MW+50 -- 108.750 6.14 414
Company Description Investment Strengths: AES is a global power holding company with subsidiaries and investments located in North America, Latin - Consistent and diverse subsidiary distributions, with America, Europe, Africa, and Asia (including the Middle East). Latin America was the largest contributor of 2010 distributions budgeted at $1.2-1.3 billion for 2011. subsidiary distributions at 37%. North America accounted for 26% of 2010 distributions, while Europe (17%) and Distributions have been above $1 billion annually over the Asia (8%) and other made up the balance. AES is engaged in both regulated electric utility and unregulated past three years, with the top 10 accounting for about 70%, generation. AES has generation interests in nearly 30 countries, with about 40GW of generation capacity and with between 75% and 80% from regulated or contracted distribution networks that serve over 11 million people. China Investment Corp. has a 15% equity stake in the assets. company. In November 2011, AES completed the acquisition of DPL Inc., which will be a wholly owned subsidiary - Fairly robust development pipeline of projects that could of AES and is expected to contribute $200-300 million in annual distributions. provide incremental up-streamed distributions beginning 2014/2015. Key Dates/Catalysts: - Diverse infrastructure investments, with North America - Late-February, AES is expected to report 4Q2011 earnings. AES expects 2011 subsidiary distributions to parent accounting for 26% of distributions in 2010. of $1.2-1.3 bn. For 2012, AES previously indicated $1.4-$1.5 bn of distributions. We expect an update on the - Management has been proactive in extending debt status of the company's $500 million share repurchase plan ($378 mn to date) and its targeted $100 mn cost maturities and reducing debt, resulting in a manageable debt savings. maturity profile and favorable leverage position. - 3Q2012, AES's plan to initiate an annual common dividend of $120 mn. - As of 9/30/2011, parent liquidity remains strong given the -We also expect management to provide a general business update including the closing of its acquisition of DPL, pre-funding of the DPL acquisition at $2.9 bn, which includes any pending asset sales and capital allocation plans given its aforementioned dividend plans. $2.1 bn of cash. - Potential rationalization of non-core assets and investment in new development projects. Investment Risks: - A challenging global economic outlook, with exposure to AES AES AES AES DPL DPL** emerging markets. - Regulatory and legal regimes in many of the countries in Financial Profile* FY10 FY11E FY12E LTM3Q11 FY2010 LTM3Q11 which AES operates are not fully developed, subjecting the Revenue* 1,022 NA NA NA 1,883 1,921 company to a relatively high degree of regulatory uncertainty. EBITDA* 804 NA NA NA 644 544 - Potential defaults at projects could affect distributions to the parent. Subsidiary Distributions 1,255 1,250 1,500 1,298 - - - Future development program might accelerate the need for Interest Expense - Parent (464) (417) (468) (363) (72) (156) capital funding and might push leverage higher. Cash Taxes 0 - - - (143) (105) - Lack of transparency owing to the complex capital structure. - AES plans to initiate a dividend in 2012, and continued Investment in Subs (Net) / Capex (519) (2,980) (400) (928) (153) (180) share repurchases highlight a shift to return capital to Free Cash Flow (274) (2,597) 232 NA 49 (72) shareholders that should prove to be negative for spreads. Total Debt - Parent 5,515 6,192 6,181 6,192 1,182 2,453 Cash - Parent level 677 285 326 2,089 124 68 Net Debt 4,838 5,907 5,855 4,103 1,058 2,385 Key Credit Statistics Total Debt/Sub Dist 4.4 5.0 4.1 4.8 - - Agency Net Debt/Sub Dist 3.9 4.7 3.9 3.2 - - Comps Leverage Coverage Ratings Total debt to EBITDA - - - - 1.8 4.5 AES Corp* 4.1x 3.6x Ba3/BB- EBITDA Interest coverage - - - - 8.9 3.5 Calpine Corp 6.7x 2.0x B1/BB- Sub Dist/Interest 2.7 3.0 3.2 3.6 NA NA Dynegy 10.2x 1.1x –/D EBITDA margin NA NA NA NA 34% 28% Edison Mission 8.5x 1.4x Caa1/B- *condensed financial information - includes parent revenues, equity in earnings, interest income GenOn 7.8x 1.1x B3/B ** Debt proforma for $1.25bn of notes of Dolphin Subsidiary II notes and $87.25 mm of annualized interest. CMS 4.7x 3.7x Ba1/BB+ Capitalization - Proforma for recent debt issuance NRG 4.7x 2.4x B1/BB- Debt to Description Size SubDist *AES reflects sub distributions to parent obligations; LTM4Q2011 AES Corp Secured Revolver - AES Corp Term Loan 1,050 Liquidity Total Secured and 2nd Lien Debt 1,050 0.7x Parent Level Liquidity AES Corp 8.875% due 2011 - Revolver Size (Sec'd) 800 AES Corp 8.375% due 2011 (₤)- Letters of Credit drawn (12) AES Corp 7.75% due 2014 500 Borrowings - AES Corp 7.75% due 2015 500 Revolver Availability 788 AES Corp 9.75% due 2016 535 AES Corp 8% due 2017 1,500 Parent cash 2,089 AES Corp 8% due 2020 625 Total Liquidity 2,877 AES Corp 7.375% due 2021 1,000 Other debt (34) Total Secured and Unsecured Debt 5,676 3.8x AES Corp Trust Preferred III 516 Total Recourse Debt 6,192 4.1x Non-Recourse Subsidiary Debt 14,686 Total Consolidated Debt 20,878
Minority Interest 3,926 Market Cap 10,063 EV ex minority interest and non-recourse debt 16,255 10.8x
Parent Maturities Maturities600 - Parent level only, including trust preferreds
500
400
300
200
100
- 2012 2013 2014 2015
Goldman Sachs Credit Research 7 January 26, 2012 High Yield
Aircastle Ltd. (AYR) Updated 1/24/2012 Joshua Pinkerton 212-357-9774 Contact analyst or see latest research for updates to ratings, estimates, and other information. Justine Fisher 212-357-6711 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $300 9.750 Sr. Notes 1-Aug-18 Ba3/BB+ 104.88 1-Aug-14 110.63 6.88% 657
Company Description Investment Strengths: - Strength in freighter market: Aircastle is a leader in Aircastle is a top-10 aircraft leasing company, with approximately 129 aircraft with a book value exceeding $3.7 the niche market for freighter aircraft. Its fleet is billion. Aircastle is one of the few public stand-alone leasing companies, and it is the only one with unsecured approximately 29% freighters. bonds. Fortress Investment Group founded Aircastle in 2004 and is now a significant minority owner of its equity. - Orderbook: Aircastle's orderbook of A330s is fully Aircastle has developed a niche as a leading lessor in the freighter aircraft market. Freight aircraft generally have financed and leased. The addition of these aircraft longer lives, allowing Aircastle to operate with a somewhat higher should provide predictable growth over the next year. average fleet age than its peers. - Manageable near-term maturities: Aircastle's near term maturities are primarily amortization payments on Key Dates/Catalysts: secured debt, which it should be able to meet with Aircastle is expected to report earnings on or around March 9. cash on hand and cash from operations. Investment Risks: - Relatively small size: Aircastle has a book value of $3.7 billion, about one-tenth the size of the market leaders.. - Securitizations: Aircastle has three low-cost securitizations that will go into "turbo mode" and redirect all cash flows to debt repayment beginning in (Thousands of dollars) 2011-2013. This could reduce cash flow to the Financial Profile FY10 2Q11 3Q11 4Q11E FY11E FY12E company or force Aircastle to refinance at a higher rate. Revenue 527,710 148,838 141,507 148,904 597,163 587,543 EBITDA 481,936 137,260 129,307 136,904 548,854 539,234
Interest Expense 178,262 55,893 48,872 52,231 202,615 204,627 Income Taxes 6,596 1,535 1,237 1,555 7,596 7,596 CapEx (609,672) (125,989) (233,331) (260,000) (766,360) (60,345) Free Cash Flow (228,606) (30,482) (148,425) (159,575) (421,318) 315,566
Total Debt 2,782,958 2,797,632 2,782,958 3,060,229 3,060,229 2,924,680 Comps Leverage Coverage Ratings Cash 239,957 184,017 239,957 275,043 275,043 411,705 Net Debt 2,543,001 2,613,615 2,543,001 2,785,186 2,785,186 2,512,975 AYR 5.6x 2.7x Ba3/BB+ Key Credit Statistics AWAS 6.4x 2.5x Ba3/BB EBITDA/Interest 2.7 x 2.5 x 2.6 x 2.6 x 2.7 x 2.6 x EBITDA margin 91.3% 92.2% 91.4% 91.9% 91.9% 91.8%
Capitalization Debt to Description Size EBITDAR Liquidity ACST 2006 396,000.0 Revolver Size 50,000 ACST 2007 917,000.0 Letters of Credit 0 Term Financing No. 1 607,000.0 Borrowings 0 ECA Term Financings 545,729.0 Revolver Availability 50,000 A330 PDP Facility 17,000.0 Unsecured notes 297,000.0 Total debt 2,782,958.0 5.1 x Market Cap 1,005,115.4 Enterprise Value 3,548,116.4 6.5 x Cash 239,957 Total Liquidity 289,957
Maturities:
1,000 900 800 700 600 500 400 300 200 100 0 2012 2013 2014 2015 Thereafter
Goldman Sachs Credit Research 8 January 26, 2012 High Yield
Alcatel-Lucent (ALUFP) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 OUTPERFORM / IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp €500 8.500 Senior 15-Jan-16 B2/B NC NC 91.62 11.5% 1,112 $1,360 6.450 Senior 15-Mar-29 WR/B NC NC 77.75 9.0% 709
Company Description Investment Strengths: Alcatel-Lucent is a manufacturer of telecommunications equipment and a provider of telecommunication services. It provides products and services that enable - Adequate liquidity totaling over €5.1 billion, including voice, data, and video communications. Areas of focus include fixed, mobile, and converged broadband networking and IP technology. The company categorizes €3.7 billion of cash on hand and €1.4 billion of revolver its business into three main segments: Networks (IP, Optics, Wireless and Wireline), Applications (Network Applications, Enterprise Applications), and Services. availability. The announced sale of the Genesys ALU's top 10 customers accounted for 43% of revenues in 2010, with AT&T and Verizon each accounting for 11%. The company competes with a broad number business could add about €1bn more. of competitors including Cisco, Ericsson, Huawei, ZTE, and Nokia Siemens Networks. - Improving free cash flow (but still negative): ALU is The company was formed through the merger of Alcatel S.A. and Lucent Technologies in 2006. guiding to flat full year 2011 free cash flow after €600- 800 million annual outflows in 2008-2010. We think Key Dates/Catalysts: ALU could fall short of this target but that FCF will still - Alcatel-Lucent is expected to report 4Q2011 earnings on February 10. improve significantly from previous years. - Well positioned for the 4G rollout: ALU has signed several major 4G network contracts (including AT&T and Verizon) which could represent approximately 30% of this new market opportunity. - Leading provider of IP-based network infrastructure solutions: Voice/data networks will continue to migrate toward an all-IP network infrastructure to manage accelerating traffic growth.
Financial Profile (EUR) FY08A 2009A 2010A LTM-3Q2011 2011E 2012E Investment Risks: - Pension: While its US pension plan is over-funded by Revenue €16,984 €15,157 €15,996 €16,302 €16,149 €16,026 €2.7 billion, the projected benefit obligation (PBO) YoY Change -4.5% -10.8% 5.5% -- 1.0% -0.8% ended 2010 at €21 billion. We expect the funded status to deteriorate to reflect lower interest rates and challenging asset returns in 2011. Adj. EBITDA 1,320 684 1,040 1,398 1,378 1,366 - Alcatel generates 10% of revenues from legacy Cash Interest (349) (244) (305) (312) (352) (376) wireline network products. Carriers are reducing Cash Taxes (123) (89) (117) (53) (80) (105) spending on wireline networks, as wireless applications continue to gain market share. Working Capital (131) 471 10 (459) (584) 81 - Legacy CDMA and GSM infrastructure solutions still Other (Pension/Restructuring (510) (827) (754) (617) (599) (490) account for a sizable portion of wireless revenues. Operating Cash Flow 207 (5) (126) (43) (236) 476 While AT&T and Verizon increased legacy network spending over the past 12 months to better manage CapEx (901) (691) (692) (637) (628) (721) smartphone traffic, we expect 2012 to bring more FCF (excl. Dividends) (694) (696) (818) (680) (865) (245) traditional headwinds. - Volatile free cash flow: Alcatel-Lucent typically generates negative free cash flow during the first three Total Debt 5,095 4,755 5,378 4,498 4,498 4,498 quarters of the year, reflecting seasonal working capital Cash 4,593 5,570 5,689 3,757 4,891 4,646 needs. Net Debt 502 (815) (311) 741 (393) (148)
Total Debt/EBITDA 3.9 x 7.0 x 5.2 x 3.2 x 3.3 x 3.3 x Net Debt/EBITDA 0.4 x -1.2 x -0.3 x 0.5 x -0.3 x -0.1 x
EBITDA/Interest 3.8 x 2.8 x 3.4 x 4.5 x 3.9 x 3.6 x EBITDA margin 7.8% 4.5% 6.5% 8.6% 8.5% 8.5%
LTM Capitalization (EUR) Revenues by Liquidity Description Size Multiple Region FY2010 Summary 3Q2011 EUR 1.4 bn Revolving Credit Facility due 2012/2013 0 2.8 x North America 36% Revolver Size 1,400 Alcatel-Lucent 6.375% notes due 2014* 462 2.8 x Europe 32% Borrow Base 1,400 Alcatel-Lucent 5.0% converts due 2015 1,000 2.8 x Asia Pacific 18% - Amt Drawn 0 Alcatel-Lucent 8.5% senior notes due 2016 500 2.8 x ROW 14% - Unavailable 0 Alcatel-Lucent FRNs due 2012-2016 150 2.8 x Amt Unutilized 1,400 Alcatel-Lucent USA 2.875% converts due 2023 72 2.8 x Cash 3,757 Alcatel-Lucent USA 2.875% converts due 2025 680 2.8 x Liquidity 5,157 Alcatel-Lucent USA 6.5% notes due 2028 200 2.8 x Alcatel-Lucent USA 6.45% notes due 2029 906 2.8 x Segment Pension Total senior debt outstanding 3,970 2.8 x Revenues FY2010 Funding YE2010 Alcatel-Lucent USA 7.75% sub. prefs due 2017 716 3.4 x Networks 62.1% Region US Euro Total debt outstanding (Face) 4,686 3.4 x - IP 10.0% FV of Assets 23,721 3,281 Equity component of converts (500) -- - Optics 16.5% PBO (21,008) (3,712) Other financial debt 312 -- - Wireless 26.8% Funded Status 2,713 (431) Reported Gross Debt 4,498 3.2 x - Wireline 9.0% Cash & Equivalents 3,757 -- Software/Svcs/Solutio 27.4% OPEB Net Debt 741 0.5 x Enterprise 7.3% Funding YE2010 Market cap 3,256 -- Other 3.2% Region US Euro Enterprise value 3,997 2.9 x FV of Assets 536 -- PBO (3,334) -- Funded Status (2,798) -- Maturities: ALU (USD) 5 Yr CDS Performance: 1,600 2,000
1,400
1,500 1,200 1,000
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Goldman Sachs Credit Research 9 January 26, 2012 High Yield
Alere Inc. (ALR) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 UNDERPERFORM on the seniors and the subs We rate both the ALR seniors and subs Underperform. We see the terms of the June 2011 credit agreement as signaling a deteriorating credit profile going forward, which we think is not reflected in current spreads. The term loan has no total leverage limit and a 4.5x secured limit. We also see weak near-term new product pipeline ($50 mn for 2011 and $150 mn for 2012 of revenue according to management). Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $250 7.875 Sr Nts 01-Feb-16 B2/B- $103.938 2/1/2013 $103.250 6.663% 634 $400 8.625 Sr Sub Nts 01-Oct-18 B3/B- $104.313 10/1/2014 $102.750 7.904% 711
Company Description Investment Strengths: - Strong LT market growth characteristics: Professional diagnostics Alere Inc. (ALR) develops near-patient diagnosis and monitoring tools, and operates a health management business. market growth rate is around 8%. ALR's products and services focus on cardiology, women's health, infectious disease, oncology, and drugs of abuse. ALR's business can be divided into three segments: professional diagnostics (67% of revenues), health management - Strong technology platform that is a barrier to entry: ALR has a (28%), consumer diagnostics (4%). Alere has grown its businesses by leveraging a strong intellectual property portfolio large installed base (e.g., 63% for Triage in ERs), which is important (by acquiring distribution networks to expand its geographic reach) and making product acquisitions. Formerly known for building physicians' confidence in ALR's products. as Inverness Medical Innovations, the company announced on July 15, 2010, that it had changed its name to Alere Inc. - Significant free cash flow: 5% LTM. In June 2011, ALR amended its bond indentures to allow $200 mn of share repurchase and paid up to a maximum of 2.625% consent fee. ALR also refinanced its credit agreement to finance the repurchase, increased the revolver by $100 mn. In July 2011, ALR announced it had approached Axis Shield (ASD) with a take-over offering. ASD initially rejected the offer. ALR eventually closed the ASD acquisition on November 1, 2011 for approximately $364 mn and used a $200 mn DD term loan as well as revolver borrowing to finance it. In December 2011, ALR issued a $250 mn Investment Risks: add-on to its term loan. The proceeds were used to fund the acquisition of a US-based pain management business and - Acquisitive in an "expensive" sector: Growth opportunities are in Arriva. buying specialized point-of-care companies that are typically privately owned. Key Dates/Catalysts: - Quarterly results: Organic growth has recently lagged expectations and the health management business has been - Ability to add debt: The June 2011 credit agreement offers the hurt in recent quarters by reduced employer spending on benefits. company substantial room to increase leverage. The company only - Uptake of new product launches CD4 and Heart Check. has a 4.5x secured leverage limit and no total leverage limit. - Uptake of a new drug to replace Warfarin (Boehringer Ingelheim's Dabigatran). ALR's blood test used to monitor Warfarin dosing contributes about 6% of sales. - Potential acquisitions, which could increase leverage.
Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E Revenue $1,986 $2,155 $2,346 $578 $586 $610 EBITDA 525 565 566 147 147 148
Interest paid $105 $120 $156 $30 $38 $46 Taxes paid 15 (30) 64 (29) 43 2 Capex 101 96 120 28 27 25 Free Cash Flow 187 179 171 18 37 43
Total Debt $2,147 $2,395 $3,337 $2,395 $3,064 $3,337 Cash 493 401 344 401 277 344 Net Debt 1,655 1,994 2,993 1,994 2,787 2,993 Key Credit Statistics Agency Total Debt/EBITDA 4.1x 4.2x 5.9x Comps Leverage Coverage Ratings Net Debt/EBITDA 3.2x 3.5x 5.3x Alere (ALR) Snr 3.8x NA B2/B- Alere (ALR) Sub 5.0x 3.4x B3/B- EBITDA/Interest 5.0x 4.7x 3.6x 4.9x 3.9x 3.2x Valeant Pharma (VRX) 4.3x 4.6x B1/BB- EBITDA margin 26.4% 26.2% 24.1% 25.5% 25.1% 24.2% Warner Chilcott (WCRX) 2.7x 5.8x B3/B+
Capitalization Debt to Debt to PF LTM 2011E Description Size EBITDA** EBITDA** Liquidity Revolving Credit Facility $25 Revolver Size 250 TLA due 6/15/2016 $625 Letters of Credit 4 TLB due 6/15/2017* $1,173 Borrowings 25 DD TL due 6/30/2016 (incremental A) $300 Revolver Availability 221 Total bank debt 2,122.7 3.4x 3.8x A/R facility 0 7.875% senior notes due Feb 2016 $245 Borrowings 0 Total sr bonds $245 3.8x 4.2x Availability 0
9% Subordinated Notes due May 2016 $391 Cash $277 8.625% subordinated notes due 2018 $400 Total Liquidity 497 Total sub bonds $791 5.0x 5.6x
Other $28 3% Sr Sub Convert Notes due 2016 (not gty) $150
Total Debt $3,337 5.3x 5.9x Market Cap 2,022 Enterprise Value $5,082 8.1x 9.0x *Includes a $250mn add-on that was put in post quarter end. **LTM is PF for recent acquisitions, 2011E is not. Maturities: 3500
3000 2500 2000
1500 1000 500 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 10 January 26, 2012 High Yield
American Achievement (AMEACH) Updated: 1/23/12 Kevin Coyne 212-357-9918 Celeste Everett 212-902-4751 Contact analyst or see latest research for updates to ratings, estimates, and other information. OUTPERFORM: On a relative basis, we think the AMEACH senior secured notes are cheap relative to Visant Corp. seniors owing to the low dollar price, additional security, tighter covenant package for one turn of additional leverage, and better ratings. Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-Spd (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp 365 10.875 Sr Sec Nts 15-Apr-16 B3/B 105.438 15-Oct-13 74.500 20.12 1,944 1,931
Company Description Investment Strengths: American Achievement Corporation (AMEACH) is a school affinity products company with - #1 provider of college class rings (55% market operations in three segments: Yearbooks (37% of FY2010 revenue), Class Rings (38% FY2010 share) and #2 in high school class rings (30% revenue), and Graduation (14% of FY2010 revenue) & Other Products. The Yearbooks segment market share of on-campus and retail). includes memory books, calendars, and automated yearbook design software; Class Rings - One of the largest yearbook providers (10% includes both high school and college markets; and Graduation & Other includes diplomas, letter market share). jackets, and a non-scholastic jewelry business selling commemorative, military, and other - Strong brand recognition post the consolidation customized jewelry. AMEACH was formed in 2000 as a holding company that combined the under Balfour, a brand that dates back to 1914. operations of Balfour (brand for all its on-campus product lines), and ArtCarved. A sale of the - Diversified distribution channels with retail company to competitor Herff Jones was announced in May 2008 but was ultimately terminated by presence in Wal-Mart, K-Mart, JC Penny, and mutual agreement in December of that year due to resistance from the FTC on anticompetitive Zales. grounds. - Developing innovative products to complement its product offerings and drive sales: personalized Key Dates/Catalysts: pages created via internet, Bal4.tv that uses - August 2011: Steve Parr assumed the position of President and CEO, while former CEO Alyce customized media through a secure video delivery Alston departed to pursue other opportunities. service and QR codes printed in yearbooks. - FY2012 guidance: EBITDA expected to be flat to slightly higher, and FCF expected to be $1-3 -Gross margins have improved 170 bp to 56.2% in mn. Ring segment revenue expected to be down (on % basis) "in the high single digits" year-over- FY2010 through rationalization of excess year. production capacity, investments in improved technology, and outsourcing. Fiscal year ended August 31 - Strong covenant package: RP basket subject to 2.0x fixed coverage ratio, with a carveout for a Financial Profile 3QFY11A 4QFY11A FY11A 1QFY12A 2QFY12E FY12E small general basket of $5 mn Revenue 144.2 45.8 284.2 42.9 47.2 271.6 - No near-term maturities. EBITDA 50.6 1.6 57.6 1.8 3.1 57.2 - Secured by substantially all the assets. Investment Risks: Interest Expense 10.9 10.9 38.8 11.0 10.2 41.7 - According to AMEACH, each 10% increase in Cash Taxes 11.5 (10.8) (9.3) (4.8) (4.7) (3.4) gold prices results in $2.5 mn of increase in cost of CapEx 2.5 2.1 9.4 2.1 2.5 9.6 goods sold. The company does not hedge gold and relies on passing along the costs through Free Cash Flow 25.8 (0.5) 18.6 (6.5) (5.0) 9.3 higher prices. - Operational weakness in FY2010 partially Total Debt 386.3 387.0 387.0 400.0 390.0 390.0 attributed to canceled sale to Herff Jones. - Minimal free cash flow. Cash 1.2 4.8 4.8 7.1 2.6 3.1 - Uncertain exit strategy: does not lend itself to an Key Credit Statistics IPO in our view due to small scale of the business; Total Debt/EBITDA 6.6x 6.7x 6.7x 6.9x 6.8x 6.8x anti-trust obstacles to a strategic acquisition (Herff Net Debt/EBITDA 6.6x 6.6x 6.6x 6.8x 6.8x 6.8x Jones).
EBITDA/Interest 4.7x 0.1x 1.5x 0.2x 0.3x 1.4x Comps Leverage Coverage Ratings AMEACH 6.9x 1.5x B3/B EBITDA margin 35.1% 3.5% 20.3% 4.2% 6.7% 21.1% VISANT 6.2x 2.8x Caa1/B- MGM (srs) 9.2x 1.7x B3/B- Capitalization Debt to Description 1QFY12A EBITDA Liquidity 1QFY12A Revolver due Oct 2015 ($55 mn) 35.0 Revolver Size (a) 54.8 Total Secured Debt 35.0 0.6x Letters of Credit 1.7 10.875% sr secured nts due Apr 16 365.0 Borrowings 35.0 Total Debt 400.0 6.9x Revolver Availability 18.1
A/R facility NA Borrowings NA A/R Availability NA Maturities:
500 Cash 7.1 400 Total Liquidity 25.1
300
200 (a) Bond indenture permits revolver 100 to increase to $75 mn. 0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 11 January 26, 2012 High Yield
American Axle (AXL) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $300 7.875% Sr. Nts 1-Mar-17 B2/B 103.94 3/1/2012 104.00 636.6% 626
Company Description Investment Strengths: American Axle & Manufacturing Holdings, Inc., designs, engineers, and manufactures driveline systems for light - Favorable production trends: D3 production has trucks and sport-utility vehicles. The company produces axles, propeller shafts, chassis components, and forged rebounded from the trough in 2009 and has remained at products. American Axle also manufactures various driveline components for light trucks and sport utility vehicles relatively stable levels in 2011 and early 2012. manufactured in North America. About 80% of the company's top line is derived from the light truck platform. - Improved margins: Driven by the company’s cost-cutting actions, AXL's 3Q2011 LTM EBITDA margin was 14.9%, Key Dates/Catalysts: versus a 6.6% margin in 2009. - American Axle will report 3Q2011 earnings on February 3 - Global expansion: AXL aims to expand globally and increase its presence primarily in Brazil and China. - Adequate near-term liquidity: AXL ended 3Q2011 with $114 million of cash on hand and $389 million of gross liquidity.
Investment Risks: - Rising oil and gas prices: AXL is at risk of a consumer shift away from light trucks and SUVs (i.e., GMT900) to smaller, more environmentally friendly cars. - High reliance on D3 truck production: AXL derives about 84% of its revenues from the D3. While AXL has been Financial Profile FY08 FY09 FY10 LTM-3Q11 FY11E FY12E focusing on diversifying revenues away from the D3 and Revenue 2,109.2 1,521.6 2,283.0 2,562.7 2,590.2 2,848.2 North America, we estimate that 80% of the top line will still come from North America in 2013. EBITDA 76.4 100.2 340.3 381.6 370.6 384.7
Cash interest (73.6) (80.0) (61.6) (73.3) (71.8) (80.3) Cash Taxes (13.1) (3.8) 43.1 2.6 1.5 1.5 W/C, Divs, Other (171.1) (78.7) (81.5) (329.5) (294.8) 8.3 CapEx (140.2) (141.5) (108.3) (149.8) (150.7) (185.0) Free Cash Flow (321.6) (203.8) 132.0 (168.4) (145.2) 129.1
Total Debt 1,139.9 1,071.4 1,010.0 1,050.6 1,170.0 1,127.5 Comps Leverage Coverage Ratings Cash 198.8 178.1 244.6 114.4 265.0 351.7 AXL 2.8x 4.8x B1/BB- Net Debt 941.1 893.3 765.4 936.2 905.0 775.8 CTBUS 1.3x 8.4x B1/BB- Key Credit Statistics GT 3.0x 6.5x Ba3/BB- Total Debt/EBITDA 14.9x 10.7x 3.0x 2.8x 3.2x 2.9x MTOR 3.0x 3.6x B2/B Net Debt/EBITDA 12.3x 8.9x 2.2x 2.5x 2.4x 2.0x TEN 2.2x 4.5x Ba3/BB TRW 0.9x 13.6x Ba2/BB+ EBITDA/Interest 1.3x 1.2x 4.0x 4.8x 4.5x 4.4x EBITDA margin 3.6% 6.6% 14.9% 14.9% 14.3% 13.5%
Capitalization - FY11E Debt to Liquidity - Description Size EBITDA LTM Revolving Credit Facility 0.0 1.1x Revolver Size 375.0 9.25% Sr. Secured Notes due 2017 378.8 1.1x - Amt Drawn 70.0 Foreign Credit Facilities 35.0 1.1x - LCs 30.0 Capital Lease Obligations 6.3 1.1x Amt Unutilized 275.0 5.25% Sr. Notes due 2014 249.9 3.2x Cash & equivalents 114.4 7.875% Sr. Notes due 2017 300.0 3.2x Liquidity 389.4 7.75% Sr. Notes due 2019* 200.0 3.2x Total Debt 1170.0 3.2x Less cash & equivalents 265.0 Net Debt 905.0 2.4x Market Cap 926.3 Enterprise Value 1831.3 4.9x * Bonds benefit from guarantees from domestic operating subsidiaries
Maturities (FY11E):
1,000 900 800 700 600 500 400 300 200 100 0 2012 2013 2014 2015 2016 After
Goldman Sachs Credit Research 12 January 26, 2012 High Yield
Amerigroup Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 OUTPERFORM
We rate AGP Outperform as we think it trades cheap relative to competitor Centene and we view both companies as credible acquisition candidates. We like AGP fundamentally because of (1) its robust industry growth opportunities, (2) its risk-reducing characteristics of managed Medicaid contracting, and (3) its conservative capitalization in terms of both leverage and statutory capital surplus. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $475 7.5 Sr 15-Nov-19 Ba3/BB+ $103.750 15-Nov-15 $105.625 6.322% 552
Company Description Amerigroup is the largest pure-play managed Medicaid company and has roughly 8% market share, ranking second behind Investment Strengths: UnitedHealthcare in terms of number of Medicaid members. The company was founded in 1994 and has been public since - Robust industry growth opportunities. We see three avenues 2001. AGP will serve over 2.7 million members in 14 states with the recent expansions in Texas and Louisiana and the for industry growth: (1) budget-crunched states are increasing acquisition in New York. In January 2012, AGP was also declared one of five winners of the Washington reprocurement and their use of managed care to reduce costs (MCOs reduces expansion, which would be another new state for AGP. Final details will be set in February 2012. costs by 3-15%), (2) the Medicare/ Medicaid dual eligibelivble population may be migrated to managed care, and (3) Medicaid programs that the company manages includes long-term care (LTC), aged, blind and disabled (ABD), temporary Medicaid enrollment is set to expand by 16 mn people in 2014 assistance for needy families (TANF), and FamilyCare. The company also has a small part in Managed Medicare (1% of due to the Affordable Care Act. total members). - Credible acquisition candidate. The large market growth In November 2011, AGP raised $400 mn in unsecured bonds in order to repay its $260 mn of convertible notes that are in opportunity makes managed Medicaid attractive for core the money and to fund cash to balance sheet. The company does not have a revolver but maintains sufficient parent cash managed care. We view managed Medicaid as requiring (also known as unregulated cash). In January 2012, AGP issued a $75 mn add-on to the 2019 notes; we believe part of the different core skills than commercial, and so greenfield entry proceeds will be used to fund statutory capital for the Washington win. may be challenging.
Key Dates/Catalysts: - Conservative capitalization. Leverage is low at 25% of - 4Q earnings and 2012 guidance expected February. capitalization. AGP's statutory capital levels are also 2.5x - Results of contract reprocurement through 2012. higher than the minimum regulatory requirements. - State rate updates for 2012. - Election results (November 2012) and potential Supreme Court decision on the constitutionality of the individual mandate Investment Risks: could determine the fate of the Affordable Care Act (ACA). We see plenty of growth opportunity outside of Medicaid - Underwriting risk. AGP assumes the risk of the cost of expansion but headline reaction could be negative if the law is deemed unconstitutional. medical care so EBITDA could be volatile during the underwriting cycle. In addition, AGP is entering a few new regions in 2012, which could be risky as AGP is less familiar Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E with the new population being managed. Premium Revenue 5,159 5,783 6,275 1,498 1,601 1,615 - Potential rate cuts or loss of contracts. States could cut rates Total Revenue 5,188 5,806 6,291 1,502 1,605 1,619 next year, but this is largely due to the low utilization EBITDA 252 488 363 139 90 64 experienced through 2010 and 1H2011. Rates must still be actuarially sound. There are a number of contracts up for rebid in 2012 but AGP is diversified by state and by county within Interest Expense $16 $16 $20 $4 $4 $8 the state. Cash Taxes 52 164 113 47 28 17 - Regulatory/legal risk. Strict Medicaid fraud laws could result CapEx 30 29 42 10 11 10 in monetary penalties. However, there are currently no cases Free Cash Flow 117 372 261 189 117 50 against the company and settlements tend to be small.
Total Debt $260 $260 $660 $260 $260 $660 Parent Cash 232 249 715 249 298 715 Net Debt 28 11 (55) 11 (38) (55)
Key Credit Statistics Agency Total Debt/EBITDA 1.0x 0.5x 1.8x Comps Leverage Coverage Ratings Net Debt/EBITDA 0.1x 0.0x (0.2x) AGP* 1.7x 14.6x Ba3/BB+ HNT 1.2x 11.7x Ba2/BB EBITDA/Interest 15.5x 30.5x 18.0x 34.7x 21.5x 8.4x CNC 1.0x 16.3x Ba3/BB+ EBITDA margin 4.9% 8.4% 5.8% 9.3% 5.6% 3.9% *AGP leverage is based on 3Q annualized EBITDA. Capitalization
Debt to Debt/3Q Debt/PF 3Q Debt to LTM annualized annualized 2011E Description Size EBITDA EBITDA EBITDA EBITDA Liquidity AGP has no revolver NA Revolver Size NA Total Sr Sec debt NA Letters of Credit NA Borrowings NA 7.5% senior notes due 11/15/2019* 475 Revolver Availability NA
Total Debt 475 1.1x 1.7x 1.3x 1.3x Balance sheet cash as of 3Q $812 Market Cap 3,210 Parent Cash as of 3Q* $298 Enterprise Value 2,873 *PF for the $75mn add-on in January 2012. *Unregulated cash
Maturities: 500 450 400 350 300 250 200 150 100 50
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 13 January 26, 2012 High Yield
Ameristar Casinos Inc. (ASCA) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst for updates and other information. Celeste Everett 212-902-4751 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $800 7.50 Sr Nts 15-Apr-21 B3/B+ 105.625 15-Apr-15 106.500 6.219 483 488 Priced at 99.125 (Non-standard call price and date; only 4 yrs but 75% of coupon)
Company Description Company Strengths: Ameristar Casinos Inc. (ASCA) owns and operates eight casinos in seven markets throughout the United States. - New credit facility includes full covenant package. ASCA properties are located in St. Louis, MO, Kansas City, MO, East Chicago, IN, Council Bluffs, IA, Black - Strong EBITDA margins. Hawk, CO, Vicksburg, MS, and Jackpot, NV. - High-quality properties compared with some of the HET and ISLE competitors in its footprint. Key Dates/Catalysts: - New facility in Colorado. - April 2011: Completed new $1.4 billion senior secured credit facility and new $800 million senior note offering. - No near-term maturities. Proceeds used for repayment of existing bank debt and bonds and the purchase of 26.15 million shares of ASCA stock from the estate of former owner Craig Neilsen for $17.50 per share. - May 2011: Estate of Craig Neilsen sold 4.6 million shares of common stock in a public offering, bringing its ownership percentage to 0.8% from 15%. Company Risks: - September 2011: Announces $75 million share repurchase program, expiring September 30, 2014. - Subject to new competition in certain markets (IL, - November 2011: Announced agreement to purchase land in Springfield, MA, with the intent to apply for the sole LA). casino license for western Massachusetts. Plans include a casino, hotel, and entertainment facilities. - Relatively low asset coverage. - No exposure to Las Vegas, which we expect to recover sooner than the Midwest region. - Pays $0.10 quarterly dividend. - Indiana property losing market share due to limited Financial Profile 3Q10A 4Q10A FY10A 1Q11A 2Q11A 3Q11A access for cars because a bridge is closed for repairs. - Proposed expansion of gaming in Illinois a negative Net Revenue 300 294 1,189 317 305 305 for its Indiana and St. Louis properties. EBITDA 81 78 323 96 94 90
Interest expense 28 25 121 25 27 27 Cash Taxes 3 1 (3) (2) 2 (2) CapEx & M&A 14 20 58 11 16 19 Free Cash Flow 36 32 147 63 49 46
Total Debt 1,665 1,530 1,530 1,485 1,999 1,946 Cash 87 71 71 89 84 92 Comps Leverage Coverage Ratings Net Debt 1,578 1,459 1,459 1,397 1,916 1,854 PNK 5.0x 2.8x Caa1/B Key Credit Statistics GCCN 2.8x 4.8x B2/BB- Total Debt/EBITDA 5.1x 4.7x 4.7x 4.4x 5.7x 5.4x BYD 7.4x 2.0x Caa1/CCC+ Net Debt/EBITDA 4.9x 4.5x 4.5x 4.2x 5.5x 5.2x MGM (sr) 9.2x 1.7x B3/B-
EBITDA/Interest 2.9x 3.1x 2.7x 3.8x 3.5x 3.3x EBITDA margin 27.1% 26.4% 27.2% 30.4% 30.9% 29.6%
Capitalization Debt to Description 3Q11 EBITDA Liquidity 3Q11 Enterprise Value Revolver due 2016 ($500mm) 249 Revolver Size 500 Shares O/S (mm) 32.63 Term loan A due 2016 (L+275) 200 Letters of Credit 4 Share price$ 19.70 Term loan B due 2018 (L+300, floor 1%) 697 Borrowings 249 Market cap 643 Total senior secured debt 1,146 3.2x Revolver available 247 Net debt 1,854 7.50% senior notes due 2021 800 Enterprise value (EV) 2,497 Other debt 1 Total debt 1,946 5.4x EV / LTM EBITDA 7.0x Restricted cash 6 Cash 92 Total Liquidity 345
Maturities: Credit facility maintenance covenants 2,500 Leverage Sr leverage Coverage 2,000 Current 7.00x 4.50x 2.00x 1Q2012 6.50x 4.00x 2.00x 1,500 1Q2013 6.00x 3.50x 2.00x 1,000 1Q2014 5.50x 3.50x 2.00x 1Q2015+ 5.25x 3.50x 2.00x 500
0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 14 January 26, 2012 High Yield
Amkor Technology, Inc. (AMKR) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $345 7.375 Senior 1-May-18 Ba3/BB- 103.69 5/1/2014 107.5 5.4% 506
Company Description Investment Strengths: Amkor Technology is one of the world's largest outsourced semiconductor packaging and test service providers. It is - Leading SATS provider: AMKR is one of the largest second in size based on revenues to Advanced Semiconductor Engineering (ASE). Both Amkor and ASE are almost semiconductor packagers in an industry where economies of double the size of the next-largest players, STATS ChipPAC and Siliconware Precision Industries, rounding out the scale matter four largest global semi packagers in the industry. AMKR provides services across a broad array of end markets for - Positive industry fundamentals: We expect long-term growth 225 clients, with its largest segments including communications (40% of sales), consumer (26% of sales), and to continue in the smartphone, consumer, and network computing (12% of sales). infrastructure markets despite near-term volatility associated with a pullback in demand and a moderate inventory Key Dates/Catalysts: correction. - AMKR is expected to report 4Q2011 earnings in late January/ early February. - Active capital structure actions: In 2010 AMKR issued $345 million of senior notes due 2018 and used the proceeds to redeem 2011 and 2013 maturities. It also called all of its outstanding 9.25% senior notes in 1Q11 to further extend its debt maturity schedule. Net leverage peaked at 6x in FY2005 but has declined to 2.3x as of 3Q11.
Investment Risks: - A volatile industry: A decline in consumer demand for semi products and/or a continued decrease in higher-margin communications revenues would weaken AMKR’s top-line and Financial Profile FY08 FY09 FY10 LTM-3Q11 FY11E FY12E EBITDA growth. - Cash deployment: In August, AMKR announced a $150mn Revenue 2,659 2,179 2,939 2,843 2,772 2,829 stock repurchase program . Separately, in September, AMKR EBITDA 611 538 697 572 514 520 announced an agreement to purchase Toshiba's Malaysian SATS operations for approximately $81mn (although the acquisition has since been delayed owing to the disruptions Interest Expense (116) (113) (99) (87) (81) (75) caused by the flooding in Thailand). While the company still Cash Taxes (24) (12) (6) (6) (6) (5) has a sufficient cash balance and revolver availability, further CapEx (386) (173) (446) (493) (426) (453) acquisitions may subject the company to some liquidity pressure should the macroeconomic environment deteriorate Free Cash Flow 220 88 97 57 (1) (56) materially. - Near-term operating volatility: AMKR results missed Total Debt 1,493 1,434 1,364 1,326 1,326 1,326 expectations in 4Q2010, 1Q2011, 2Q2011, and 3Q2011 reflecting seasonal weakness in gaming, inventory Cash 424 395 423 483 432 376 adjustments by some customers, higher raw material costs, Net Debt 1,069 1,039 942 843 894 950 volatility associated with the earthquake in Japan, and an Key Credit Statistics inventory correction further down the semiconductor supply chain. Total Debt/EBITDA 2.4 x 2.7 x 2.0 x 2.3 x 2.6 x 2.5 x Net Debt/EBITDA 1.8 x 1.9 x 1.4 x 1.5 x 1.7 x 1.8 x Comps Leverage Coverage Sr. Unsec EBITDA/Interest 5.3 x 4.8 x 7.0 x 6.6 x 6.4 x 6.9 x Ratings EBITDA margin 23.0% 24.7% 23.7% 20.1% 18.6% 18.4% FSL 5.8x 2.0x Caa1/CCC+ NXP 3.3x 3.7x Caa1/B Capitalization (PF Adjusted) SANM 3.6x 3.6x B1/B Debt to Liquidity Description Size EBITDA (LTM) Secured Revolver (L+150-225 bp) 0 0.6 x Revolver Size 100 Secured Term Loan due 2014 (L+1 150 0.6 x Borrow Base 100 Korean Term Loan 123 0.6 x - Amt Drawn 0 Shanghai working cap 15 0.6 x - LC's 0 Other secured debt 40 0.6 x Amt Unutilized 100 7.375% Senior Notes due 2018 345 1.9 x Cash 483 6.625% Senior Notes due 2021 400 1.9 x Liquidity 583 6.0% Sub Coverts due 2014 0 -- Total Debt 1,073 1.9 x Less cash 475 -- Net Debt 598 1.0 x Equity Market Cap 1,011 -- Enterprise Value 1,609 2.8 x * Assumes in-the-money 6.0% sub converts are treated as equity
Maturities:
800 700 600
500 400 300
200 100 0 2011 2012 2013 2014 2015 Thereafter
Goldman Sachs Credit Research 15 January 26, 2012 High Yield
Apria Healthcare (AHG) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 OUTPERFORM We rate AHG Outperform as the 3Q improvement in EBITDA and our outlook for further improvement makes a refinancing more likely given the high coupons on the bonds (callable as of November 2011). We think a refinancing requires a good 4Q and strong market conditions. While the A-1s are likely covered even under a distressed scenario, we prefer the A-2s due to the more attractive upside/downside. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $700 11.25 Sr Sec A-1 1-Nov-14 Ba2/BB+ $102.813 1-Nov-12 $104.500 8.417% 832 $318 12.375 Sr Sec A-2 1-Nov-14 B1/B+ $103.094 1-Nov-12 $98.500 13.019% 1279
Company Description Investment Strengths: Apria provides home respiratory and home infusion services and equipment rental. The company serves over 2 million - Business mix is focused away from Medicare: AHG has patients from 550 service locations. A focus on managed care payers (Medicare oxygen is less than 10% of revenue), the strategically elected to pursue managed care payers, rather large home infusion segment, and a greater level of centralization differentiate Apria from competitors. Home infusion than rely on Medicare business, which is subject to rate cuts. contributes 49% of revenue and 72% of EBITDA. Round 2 of competitive bidding is scheduled for 2012, with rates taking effect in July 2013, although the program has seen several delays previously. Approximately $144 million of AHG revenue is - Growth in home infusion (historically 10%) offsets reduced subject to Round 2. Medicare oxygen reimbursement. LTM segment EBITDA of $136 million suggests a valuation of close to $1 billion based AHG was purchased by Blackstone in October 2008. Blackstone contributed $673 million of equity for total consideration of on a 7x multiple. $1,713 million or 5.6x LTM EBITDA. In March 2011, AHG acquired the home health business of Praxair, which it expects to add $85-95 mn of revenues for 9M2011. - Reported cost reduction: AHG had realized $171.2 million of savings as of the end of 3Q2011 and anticipates $10.1 million In 1Q2011, AHG's EBITDA miss was largely due to higher-than-expected SG&A related to on-shoring expenses and sales of additional savings for 2011. force growth. In 3Q2011, AHG announced that hiring related to the on-shoring initiative has been completed. Per management, it takes roughly 6-9 months for new billing and collections teams to become proficient and for SG&A to tick down. Investment Risks: Key Dates/Catalysts: - FCF negative which means AHG will likely begin drawing on - Potential bond refinancing. Bonds are high coupon and callable November 2011. its $250 million revolver. Capex is high because of the short - Quarterly earnings results. (3Q11 continued the positive EBITDA momentum off of a bad 4Q2010. Stabilization of SG&A lifespan of equipment. costs and reduction in addbacks are key) - It is unclear how, if at all, a 2% across-the-board sequestration would be implemented on competitive bidding - Ongoing contract rationalization has resulted in declining reimbursement. revenue in respiratory. -Results of competitive bidding round 2 expected in the Fall of 2012. - Under competitive bidding, Medicare rates for oxygen Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E concentrators were cut by 33% on average in select markets. This gives an indication of what competitive bidding might look Revenue $2,095 $2,081 $2,293 $528 $585 $595 like in later rounds, which will have more financial impact on EBITDA (bf future cost savings) 377 299 264 48 75 71 AHG.
- Process of on-shoring AHG's billing and collection functions Interest Expense $129 $131 $132 $33 $33 $33 could be disruptive, and SG&A might remain elevated. Cash Taxes (8) (8) (21) (11) (7) 0 CapEx 151 117 149 32 38 35 Free Cash Flow 19 (32) (48) (42) 36 (26)
Total Debt $1,021 $1,019 $1,028 $1,019 $1,018 $1,028 Cash 158 109 42 109 58 42 Net Debt 863 910 986 910 960 986
Key Credit Statistics Agency Total Debt/EBITDA 2.7x 3.4x 3.9x Comps Leverage Coverage Ratings Net Debt/EBITDA 2.3x 3.0x 3.7x AHG Sr Sec A-2 4.2x 1.8x Ba2/BB+ HLS 3.2x 4.3x B2/B+ EBITDA/Interest 2.9x 2.3x 2.0x 1.4x 2.2x 2.2x THC Uns 3.9x 2.0x Caa1/CCC+ EBITDA margin 18.0% 14.4% 11.5% 9.0% 12.7% 11.9% CYH 4.8x 2.8x B3/B
Capitalization Debt to Debt to LTM 2011E Description Size EBITDA EBITDA Liquidity ABL revolver due 2016 $0 Revolver Size $250 Series A-1 11.25% notes due 2014* 700 2.9x 2.7x Letters of Credit 21 Series A-2 12.375% notes due 2014* 318 Borrowings 0 Total Sr Sec debt 1,018 4.2x 3.9x Revolver Availability 229
Other 1 Cash $58 Total Liquidity $287 Total Debt 1,018 4.2x 3.9x Market Cap NA Enterprise Value NA (*) A-1 notes have liquidation priority over A-2 notes.
Maturities: 1200
1000
800
600
400
200
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 16 January 26, 2012 High Yield
Ashland (ASH) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 IN-LINE
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp IL 650 9.125 Sr. Nts 1-Jun-17 Baa3/BB 104.6 1-Jun-13 111.50 3.64% 349
Company Description Investment Strengths: Ashland is a diversified chemical company consisting of three specialty chemical businesses (Aqualon, Water - Ashland's EBITDA is well balanced across its Technologies, and Performance Materials) and two commodity businesses (Consumer Markets and Ashland Distribution). business segments and diversified geographically. In November of 2008, Ashland acquired Hercules for $3.4 billion and was subsequently downgraded to high yield from - The Aqualon business is high margin and high investment grade. In November 2010, the company announced that it had signed an agreement to sell its Distribution growth. business to TPG Capital for $930 million, or a 10.2x multiple of FY2010 EBITDA. In May 2011, Ashland announced that it - Ashland has demonstrated a willingness to sell non- agreed to acquire ISP for 8.9x LTM EBITDA in a $3.2 billion all-cash transaction, which closed at the end of September core assets and use cash for debt reduction. 2011). Ashland financed roughly $2.9 billion of the purchase price with new bank debt. - Management plans to use free cash flow to repay debt following the ISP acquisition. Key Dates/Catalysts: 1QFY12 earning release Investment Risks: - Ashland could opt to make a leveraging acquisition or distribute additional cash to shareholders, weakening its current efforts to achieve investment grade ratings. - Performance from the Valvoline business could fall more sharply from recent cyclical peaks than we Financial Profile ($, mn)* FY:10 FY:11 FY:12E 1Q:11 4Q:11 1Q:12E expect. -ISP acquisition has resulted in a significant increase in Net Sales 5,741 6,502 8,232 1,433 1,846 1,980 leverage. EBITDA 529 429 1,257 165 (286) 281
Cash Interest (131) (109) (205) (27) (33) (51) Cash Taxes 31 54 (179) (27) 143 (39) Capital Expenditures (206) (201) (260) (22) (105) (65) Free Cash Flow 303 77 307 (85) 96 (38) Comps Leverage Coverage Ratings Total Debt 1,400 4,003 3,833 1,407 4,003 3,961 Ashland 3.5x 5.7x Ba1/BB Cash Equivalents 417 737 874 374 737 656 Koppers 2.2x 5.7x B1/B+ Key Credit Statistics Olin 1.9x 10.2x Ba1/BB PF Debt/EBITDA (3) 1.7x 3.5x 3.1x 1.9x 3.5x 3.5x PF Net Debt/EBITDA (3) 1.2x 2.8x 2.4x 1.4x 2.8x 2.9x
PF EBITDA/Interest Expense ( 6.2x 5.7x 6.1x 6.4x 5.7x 5.5x PF LTM EBITDA Margin (3) 14% 14% 15% 13% 14% 14%
Capitalization ($, mn) Debt to Description Size EBITDA Liquidity Revolver 1,500 Revolver Size 1,000 AR securitization ($200 mn) 1,400 Borrowings - New Term Loan 650 Letters of Credit 86 6.6% notes (legacy Hercules) - Revolver Availability 914 Total Secured Debt 3,550 3.1x 9.125% senior notes 21 MTN 12 A/R Securitization - 8.8% debentures 20 Borrowing base - Hercules Tianpu term notes 35 Borrowings - International revolver agreements 81 A/R Availability - Other 2 - Total Senior Debt 3,721 3.2x Cash 737 6.5% junior subordinated ($282 mn) 282 Liquidity 1,651 Total Debt 4,003 3.5x
Share Price 61.6 Market Capitalization 4,806 Enterprise Value 8,072 7.0x
Maturities:
180 160
140 120 100 80 60 40 20 0 FY2012 FY2013 FY2014 FY2015
Goldman Sachs Credit Research 17 January 26, 2012 High Yield
Avis Budget Group (CAR) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 UNDERPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $375 7.750% Sr. Nts 15-May-16 B2/B 103.88 2/27/2012 103.50 435.2% 431
Investment Strengths: - Dual brand names allow company to target two distinct Company Description markets: higher-end Avis customers and price-conscious Avis Budget Group (CAR) is a leading provider of vehicle rental services, including cars and trucks. The Budget customers. company has locations in more than 70 countries and employs over 30,000 people. The Avis brand operates - Broad distribution network: No. 1 in on-airport car rental, approximately 2,100 locations, with 60% of the revenues generated from commercial customers. Avis’s primary with 32% market share across both brands. competitor is the Hertz brand, which derives a significant portion of its revenues from corporate accounts. On the - Successful capital structure actions: In March 2010, leisure side, Budget has about 1,900 locations, with 72% of its revenue generated from leisure accounts. CAR extended the maturity of $1.275 billion of bank debt Together, Avis Budget controls 20% of the car rental market. On October 3, 2011, Avis Budget announced the by two years and issued $450 million of senior notes due completion of its acquisition of Avis Europe PLC for an equity purchase price of approximately $1.0 billion. 2018. More recently, CAR issued $600 million of 8.25% senior notes due 2019. Key Dates/Catalysts: - Fleet reductions could generate additional cash flow for - Avis is expected to report 4Q2011 earnings in late February. We will be focused on any commentary regarding Avis's corporate balance sheet. the integration of Avis Europe. - Global brand: recent acquisition of Avis Europe provides the company with a more geographically diversified revenue base and the opportunity to grow relationships with global customers.
Investment Risks: Financial Profile FY08 FY09 FY10 LTM-3Q11 FY11E FY12E - Exposure to Europe: After Avis Budget's acquisition of Revenue 5,984.0 5,132.8 5,184.9 5,496.1 5,560.1 6,963.3 Avis Europe, we estimate Europe will represent over 30% of the company’s pro forma revenues. We believe EBITDA 181.0 218.8 409.9 600.1 660.2 710.3 weaker-than-expected economic growth in that region could make it difficult for the company to achieve its Cash Interest (133.2) (135.3) (100.7) (175.1) (196.4) (249.0) targeted acquisition synergies - Vehicle residual values: Fleet depreciation has declined Cash Taxes (15.0) (20.0) (142.0) (142.0) (35.0) (50.0) over 25% from $1.7 billion in 2008 to $1.2 billion in 2011 CapEx (88.0) (39.0) (61.0) (52.0) (40.0) (50.0) thanks to higher residual values. Looking forward, we believe there is downside risk to the residual value growth Free Cash Flow (23.0) 166.8 301.9 192.1 142.4 114.6 opportunity, which is currently trending at record high levels. Total Debt 1,789.0 2,131.0 2,502.0 2,498.0 3,498.0 3,498.0 - Macro risk: With its heavy reliance on the on-airport car rental, Avis Budget's revenue is tied to enplanements Cash 258.0 482.0 911.0 1,002.0 1,091.4 506.9 volume, which is sensitive to a macroeconomic Net Debt 1,531.0 1,649.0 1,591.0 1,496.0 2,406.6 2,991.1 slowdown. Key Credit Statistics Total Debt/EBITDA 9.9x 9.7x 6.1x 4.2x 5.3x 4.9x Comps Leverage Coverage Ratings Net Debt/EBITDA 8.5x 7.5x 3.9x 2.5x 3.6x 4.2x HTZ 3.7x 2.9x B1/B+ CAR 4.2x 3.2x B1/B+ EBITDA/Interest 1.4x 1.4x 2.4x 3.2x 3.2x 2.8x EBITDA margin 3.0% 4.3% 7.9% 10.9% 11.9% 10.2%
Capitalization Debt to Liquidity - Description Size EBITDA LTM Revolver due 2011/2013 (L+400 bp) 0.0 0.4x Revolver Size 1200.0 Term loan due Apr 2014 (L+425 bp) 268.0 0.4x - Amt Drawn 0.0 Senior FRN's due May 2014 (L+250 bp) 250.0 4.2x - LCs Drawn 784.0 7.625% Senior Notes due May 2014 200.0 4.2x Amt Available 416.0 7.75% Senior Notes due May 2016 375.0 4.2x Cash on hand 1002.0 9.625% Senior Notes due March 2018 445.0 4.2x Net Liquidity 1418.0 8.25% Senior Notes due January 2019 602.0 4.2x 3.50% Convertible Notes due 2014 345.0 4.2x Other 13.0 4.2x Total Corporate Debt 2498.0 4.2x Less cash 1002.0 Net Corporate Debt 1496.0 2.5x Market Cap 1492.7 Enterprise Value 2988.7 5.0x
Corporate maturities: 1,200.0
1,000.0 800.0
600.0 400.0 200.0 0.0 2012 2013 2014 2015 2016 Thereafter
Goldman Sachs Credit Research 18 January 26, 2012 High Yield
AWAS Aviation Capital (AWAS) Updated 1/24/2012 Joshua Pinkerton 212-357-9774 Contact analyst or see latest research for updates to ratings, estimates, and other information. Justine Fisher 212-357-6711 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $542 7.000 Sr. Sec 15-Oct-16 Ba2/BBB- 103.5 18-Oct-13 #N/A N/A #VALUE! #N/A N/A
Company Description Investment Strengths: - New orders: The main focus of AWAS’s expansion is AWAS is a top 10 leasing company with 205 aircraft that have a book value of $5.5 billion and 113 orders. AWAS was on its large new order book. However, it has also founded in 1985, bought by Morgan Stanley in 2000, and sold to private equity firm Terra Firma in March 2006. In June participated in some secondary market transactions. 2007, AWAS acquired Pegasus Aviation, which owned 82 aircraft and had an order book of 37 aircraft. Today, AWAS is a privately held company owned primarily by Terra Firma and the Canada Pension Plan Investment Board (CPPIB), - Shareholder support: AWAS is a private company with its headquarters in Dublin, Ireland. with two primary shareholders. The shareholders have put a total of $2 billion into the company, including $83 Key Dates/Catalysts: million in 1Q2011 and $200 million in AWAS is expected to report earnings around February 28. 2Q2011. They have not taken interest or dividend payments out of the company. They have also indicated that they will continue to put additional equity capital into the company, primarily to help finance the delivery schedule.
Investment Risks: - New orders: The biggest projected cash use for AWAS is its large order book. The company has aircraft purchase commitments of $996 million in 2012, (thousands of dollars) $1.2 billion in 2013, and $948 million in 2014. Financial Profile FY10 2Q11 3Q11 4Q11E FY11E FY12E - Fully secured capital structure: AWAS does not have Revenue 733 193 197 199 765 815 unsecured debt outstanding and substantially all of its EBITDA 642 168 178 178 679 729 assets are unencumbered.
Interest Expense (258) (61) (97) (57) (268) (255) Income Taxes (19) (5) (3) (8) (23) (22) CapEx (468) (240) (193) (181) (751) (648) Free Cash Flow (35) (146) (50) (66) (268) (263)
Total Debt 3,721 3,826 3,932 4,354 4,354 4,801 Comps Leverage Coverage Ratings Cash 632 849 801 650 650 516 AYR 5.6x 2.7x Ba3/BB+ Net Debt 3,089 2,977 3,132 3,704 3,704 4,284 AWAS 6.4x 2.5x Ba3/BB Key Credit Statistics EBITDA/Interest 2.5 x 2.5 x 2.9 x EBITDA margin 87.6% 86.9% 90.5% 89.2% 88.8% 89.4%
Capitalization Debt to Description Size EBITDAR Liquidity 7.0% Sr. Sec. Notes due 2016 571.2 Revolver Size 0 L+575 Term loan due 2016 500.0 Letters of Credit 0 Recourse floating rate 313.6 Borrowings 0 Recourse fixed rated 287.1 Revolver Availability 0 Non‐recourse floating rate 730.0 Non‐recourse fixed rate 1,513.5
Total debt 3,932.5 5.8 x Public Market Cap 0.0 Enterprise Value 3,132.0 4.6 x Cash 801 Total Liquidity 801
Maturities:
1,400 1,200 1,000 800 600 400 200 0 2012 2013 2014 2015 Thereafter
Goldman Sachs Credit Research 19 January 26, 2012 High Yield
Ball Corporation (BLL) Updated 1/23/12 Joe Stivaletti (212) 902-3299 Contact analyst or see latest research for updates to ratings, estimates, and other information. James Kitchell (212) 902-9813 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $500 6.750 Sr Nts 15-Sep-20 Ba1/BB+ 103.375 15-Mar-15 110.250 4.240 382
Company Description Investment Strengths: Ball is one of the world’s largest suppliers of metal and plastic packaging to the beverage, food, and household - Efficient assets: Ball operates a global network of modern, products industries. The company’s primary products include aluminum and steel beverage containers, steel food efficient beverage can plants located in close proximity to containers, steel aerosol containers, plastic containers for foods and beverages, steel paint cans, and decorative steel the markets and customers it serves. tins. Ball also operates a small aerospace business, which produces spacecraft, instruments and sensors, radio - Experienced management: Ball is led by a strong frequency and microwave technologies, and a variety of other aerospace products. management team whose top 10 senior executives average over 20 years of experience in the packaging industry. - Broad geographic footprint: Ball manufactures its products in many regions of the world, including North America, Europe, South America, and Asia.
Investment Risks: - Irrational price competition could lead to lower profitability: Although can manufacturers have behaved rationally in recent years, irrational selling price competition remains a possibility. - Future M&A activity might lead to higher leverage: There is the potential for Ball to make a leveraging acquisition in the future, which could drive bond spreads wider. Financial Profile 12/31/2009 12/31/2010 9/26/2010 7/3/2011 10/2/2011 FY:09 FY:10 3Q:10 2Q:11 3Q:11 Net sales 6,710.4 7,630.0 2,035.0 2,309.7 2,258.3 EBITDA 883.5 1,019.1 288.6 331.1 306.4
Interest expense 117.2 149.4 36.2 45.2 43.0 Capital expenditures 157.9 250.2 62.0 118.5 110.3
Total debt 2,596.2 2,812.3 2,647.3 3,474.4 3,456.7 Cash 210.6 152.0 168.7 144.8 190.1 Net debt 2,385.6 2,660.3 2,478.6 3,329.6 3,266.6
Key Credit Statistics Comps Leverage Coverage Ratings Total debt/EBITDA 2.9x 2.8x 2.7x 3.0x 3.0x Plastipak 3.2x 3.2x B3/B Net debt/EBITDA 2.7x 2.6x 2.5x 2.9x 2.8x Owens-Illinois 3.1x 4.7x Ba3/BB Crown Holdings 2.9x 4.9x Ba3/BB EBITDA/interest 7.5x 6.8x 8.0x 7.3x 7.1x EBITDA margin 13.2% 13.4% 14.2% 14.3% 13.6%
Capitalization 10/2/2011 Debt to Description Size EBITDA Liquidity 10/2/2011 Short-term bank facilities 415.6 0.9x Revolver size 1,000.0 Revolving credit facilities 247.2 0.9x Letters of credit 22.8 Term loan facilities 413.4 0.9x Borrowings 247.2 7.125% senior notes 375.0 3.0x Revolver availability 730.0 6.625% senior notes 450.0 3.0x 7.375% senior notes 325.0 3.0x Cash 190.1 6.750% senior notes 500.0 3.0x Total Liquidity 920.1 5.750% senior notes 500.0 3.0x Other 230.5 3.0x Total debt 3,456.7 Market value of equity 6,143.0 Enterprise value 9,599.7
Maturities:
3,200 2,800 2,400
2,000 1,600 1,200
800 400 - 2012 2013 2014 2015+
Goldman Sachs Credit Research 20 January 26, 2012 High Yield
Basic Energy Services (BAS) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $475 7.750% Sr. 2/15/2019 B3/B $103.88 2/15/2015 $102.25 7.21% 644
Company Description Investment Strengths: BAS is the third-largest well-services company in the US, with an approximate 11% share. The company • Above-average exposure to stronger oil macro completed its IPO in December 2005. Business segments include well servicing, contract drilling, fluid services, • Low maintenance capex of approximately $25 mn and drilling and remedial services. Geographically, most of BAS's assets are located in West Texas (41% of workover fleet), the Mid-Continent (21%), and the Rockies (16%) regions. Investment Risks: • Significant capacity additions in pressure pumping To date, Basic has employed an acquisition growth strategy, and we expect the company to continue to expand and well servicing could delay pricing recovery into new service areas and regions through bolt-on transactions. Basic's corporate history stretches back to 1992, • Management has historically been acquisitive when Sierra Well Services, Inc. was founded as a subsidiary of Southwest Royalties. Sierra employed an acquisition growth strategy, but was unable to weather the downturn of 1997, which led to restructuring and a change in management. Subsequently, the company changed its name to Basic Energy Services in 2000, and Key Dates/Catalysts: altered its geographic and commodity exposure. Basic filed for an IPO in 2000, but pulled the transaction due to • Continued bolt-on acquisitions general market conditions. The company was then recapitalized with DLJ Merchant Banking Partners. In 2005, • Well servicing rig attrition Basic successfully completed an IPO at $20 per share. In April 2008, BAS entered into an agreement with Grey Wolf to combine in a merger of equals transaction. This merger was terminated in July 2008 after GW agreed to be acquired by Precision Drilling. Most recently, the company completed the acquisition of Maverick Companies in July 2011 for $180 mn.
Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $1,005 $527 $728 $1,234 $1,529 EBITDA (Adj for non-cash items) $240 $33 $116 $331 $431 Free Operating Cash Flow $112 $46 ($14) $5 $271 Capital Expenditures $87 $43 $64 $200 $200
Leverage Coverage Agency Comps ('11E) ('11E) Ratings Credit Ratios 2008A 2009A 2010A 2011E 2012E BAS 2.3x 12.8x B3/B Total Debt/EBITDA (LTM) 1.7x 15.3x 4.4x 2.3x 1.8x HOS 6.3x 2.4x Ba3/BB- EBITDA/Interest Expense (LTM) 10.7x 1.4x 6.1x 12.8x 22.4x PKD 2.0x 13.4x B1/B+ Debt to Capitalization % 45% 60% 62% 69% 53%
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $72 Revolver Size $165 Revolving Credit Facility $0 Letters of Credit $0 Long Term Debt Borrowings $0 Senior notes 2016 $225 Revolver Availability $165 Senior notes due 2019 $275 Cash $72 Other $63 Total Liquidity $237 Total Long Term Debt $563 Total Debt $563 2.7x Preferred Equity $0 Common Equity $340 Total Capitalization $903
Maturities: 500 450 400 350
300 250 200 150
Debt maturities ($ mn) 100 50 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 21 January 26, 2012 High Yield
Bausch + Lomb Inc. (BOL) Updated 01/25/12 Contact analyst or see latest research for updates to ratings, estimates, and other information. Erin Blum 212-855-7718 IN-LINE Cindy Guan 212-902-9758 Our rating is based on a volatile financial track record, offset by a well-known consumer brand and a fast-growing pharma business. On its 3Q11 conference call, the company reiterated that it would likely not refinance the bonds when callable in November, instead preferring to wait for an IPO in one or two years. Bond Summary Size Coupon Agency Next Call Bid YTM STM Snr (MM) (%) Priority Maturity Ratings Price Date Price (%) bp 5-yr CDS $650 9.875 Snr Uns 01-Nov-15 Caa1/B $102.469 01-Nov-12 $104.750 8.366% 826 325 / 355 We are using yield to maturity as the company has said it does not intend to call the bonds. Investment Strengths: Company Description - BOL operates as a hybrid consumer/healthcare company with a Bausch + Lomb develops, manufactures, and markets eye health products. BOL operates three segments: well-recognized brand and the high barriers to entry characteristic of vision care (e.g., contact lenses, contact lens solution, about 43% of revenue), pharmaceuticals (37%), and a healthcare company. surgical products (e.g., cataract and refractive; 20% of revenue). BOL was purchased by Warburg Pincus in October 2007. In March 2010, BOL announced that it had hired a new chairman and a new CEO, both of whom - Pharma sales growth has been robust, offsetting weakness in the had worked at Schering-Plough. vision segment.
In its 3Q2011 conference call, BOL reiterated its plan to not call the bonds at the first November call date, - Diversified product mix across the eye care business as well as preferring to wait for an IPO in one to two years. 2011 guidance is for top line growth to be in the "upper single geographically, with over 50% of revenue coming from outside the digits" with EBITDA growth at around10%. Guidance does not include any potential impact from Japan (which is US. less than 10% of revenue). 2H2011 should be helped by various new product launches (PureVision 2HD and a new surgery platform). Investment Risks: In September 2011, BOL entered into an agreement granting it the option to buy out its JV partner Technolas - EBITDA has been volatile (LTM results have ranged from down 2% Perfect Vision for up to EUR450 mn based on certain milestones and earnouts. BOL CDS was also added to to up 46% over the previous year). the new HY index S17 in September 2011. In December 2011, TPV's VICTUS platform received CE mark approval. In the same month, BOL acquired Laboratorio Pfortner, the controlling entity of Waicon, the largest - Contact lens and solutions markets are highly competitive with the Argentinean contact lens company, for an undisclosed sum. risk of recalls, price compression, and technology shifts.
Key Dates/Catalysts: - US contact lens sales have been negatively affected by the weak - Quarterly earnings announcements (new products for 2H2011). economy. - Additional commentary around potential IPO or plans for calling the notes. -Comments on intention for the TPV JV. - The potential buyout of its JV partner TPV and a more acquisitive strategy could cause leverage to creep higher.
Financial Profile 4Q11E 2011E Revenue $732 $2,843 EBITDA 146 572
Interest Expense, net $43 $170 Cash Taxes 12 91 CapEx 23 102 Free Cash Flow 29 164
Total Debt $2,715 $2,715 Agency Cash 192 187 Comps Leverage Coverage Ratings Net Debt 2,524 2,528 BOL Snr 5.0x 3.4x Caa1/B Key Credit Statistics BMET Sub 6.0x 2.0x Caa1/B- Total Debt/EBITDA 4.8x ALR Sub 3.8x NA B2/B- Net Debt/EBITDA 4.4x
EBITDA/Interest 3.4x 3.4x EBITDA margin 19.9% 20.1%
Capitalization Debt to LTM Description Amount EBITDA Revolver 10/25/2013 $65 Term Loan--US 4/26/2015 $1,439 Term Loan--Euro 4/26/2015 $548 Total Snr Sec debt $2,052 3.8x
Snr Uns Notes due 2015 $649 Old debt remaining $12 Total Snr Uns debt $661 5.0x
Total Sub debt $0
Other Debt $27 Total Debt 2,740 5.0x Market Cap NA Enterprise Value NA
Maturities: 3,000 3,000 2,500 2,500
2,000 2,000 1,500 1,500
1,000 1,000 500 500 0 0 20122012 2013 2013 2014 2014 2015+ 2015+
Goldman Sachs Credit Research 22 January 26, 2012 High Yield
Beazer Homes USA Inc. (BZH) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 OUTPERFORM We are Outperform rated on Beazer because we believe its bonds are highly attractive from a valuation standpoint. We expect the company's results in FY2012 to demonstrate improvement; moreover, with no near-term maturities and ample liquidity, we believe the company is well positioned to weather the final years of the housing downturn. In our view, the current spread gap between Beazer and KB Home is unwarranted given their relatively similar credit metrics and performance outlooks.
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp OP 250 12.0 Sr. Sec 15-Oct-17 B2/B 106.00 10/15/2012 108.5 7.86% 771 OP 250 9.125 Sr. Nts 15-May-19 Caa3/CCC 104.6 11/15/2014 77 14.29% 1,300
Company Description Investment Strengths: Beazer Homes, established in 1985, builds single family homes in 16 states. The company caters mostly to first-time - Primarily targets finished lots. home buyers, with this cohort accounting for 64% of its home closings in FY2010. Approximately three-quarters of the - Significantly improved capital structure, liquidity, and company’s homes are under 2,500 square feet, and its average home price in fiscal year 2010 was $221,700. Beazer is maturity schedule. moderate in size relative to other builders, with 4,513 homes closed in FY2010. The company has relatively balanced - Willingness to issue equity to reduce outstanding debt. regional exposures, with 39% of its closings in the West, 38% in the East, and 22% in the Southeast. Investment Risks: Key Dates/Catalysts: - Relatively weak operating margins versus peers. 1QFY12 earning release - High SG&A as a percentage of sales. - Company remains highly leveraged. - Difficult path to profitability at current sales pace and cost structure.
Financial Profile ($, mn)* FY:10 FY:11 FY:12E 1Q:11 4Q:11 1Q:12E Total Revenues 991 742 977 110 335 216 Total Adjusted EBITDA 1 (43) 25 (19) 9 (1)
Interest Expense (127) (131) (131) (32) (33) (33) Debt-to- Inventory- Cash Taxes 118 2 - 1 2 - Comps Cap to-Debt Ratings Capital Expenditures (11) (21) (10) (2) (8) (3) Beazer 86% 0.9x Caa3/CCC Free Cash Flow 46 (217) (121) (150) 94 (111) KB Home 81% 1.0x B2/B+ Standard Pacific 69% 1.1x B3/B Total Homebuilding Debt 1,227 1,507 1,507 1,322 1,507 1,507 Total Cash and Cash Equivalents 576 647 527 522 647 537 Key Credit Statistics Homebuilding Debt / Capitalization (3) 76% 86% 91% 79% 86% 87% Net Homebuilding Debt / Capitalization (3) 63% 82% 89% 71% 82% 84%
Inventories / Homebuilding Debt (2) (3) 0.9x 0.9x NA 0.9x 0.9x NA Homebuilding Gross Margin (1) 18% 17% 19% 17% 16% 18%
PF Capitalization ($, mn)
Description Size Liquidity Secured revolving credit facility - Cash-secured delayed draw term loan 247 Cash-secured facility 275 12% 2nd priority secured notes 250 Borrowings 247 Other secured notes payable 2 Availability 28 Model home financing obligations - Total Secured 500 Revolver 22 9.125% senior notes 250 Letters of credit (LoC) - 9.125% senior notes 300 Borrowings - TEU senior amortizing notes 10 Availability 22 6.5% senior notes - 6.875% senior notes 172 Cash 370 8.125% senior notes 173 Restricted Cash 277 Total Senior 1,405 Total Liquidity 669 Mandatory convertible subordinated notes 58 Junior subordinated notes (2) 50 Total Balance Sheet Debt 1,512 Maturities: Joint Venture Repayment Guarantees 18 Total Debt Outstanding 1,530 200 180 160 Share price 3.1 140 Market Capitalization 228 120 Enterprise Value 1,387 100 80 60 40 20 0 2011 2012 2013 2014 2015 2016
Goldman Sachs Credit Research 23 January 26, 2012 High Yield
Berry Petroleum (BRY) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $300 6.750% Sr. 11/1/2020 B2/BB- $103.38 11/1/2015 $107.28 5.40% 463
Company Description Investment Strengths: Berry Petroleum has transformed from a traditional California heavy oil producer to a more diversified E&P with • Heavy oil fundamentals remain strong both crude oil and natural gas interests. We expect the company to continue to use cash flow from its mature • Approximately 65% of 2011E production is oil, California assets to expand its East Texas, Rockies, and Mid-Continent natural gas platforms, and in the current making BRY one of the most oily producers in our environment the company is focused on increasing its California heavy oil production to increase this cash flow. coverage Management has been conservative over time; however, the pace of acquisitions and divestitures has recently • 57% of 2012 production protected through hedges increased. The company has indicated that it would be interested in additional diatomite assets if something became available at an attractive price. Investment Risks: • Increasing natural gas exposure BRY started in 1909 as a California heavy crude producer and has been publicly traded since 1987. In 2000, the • Almost half of production is high-cost CA heavy oil, California energy crisis led the company to rethink its strategy. Historically, Berry had been reliant on steam which heightens BRY’s exposure to negative reserve injection for heavy oil production. With the shortage in electricity needed to generate steam, the company was revision potential forced to shut in more than 10% of production. In response, the company adopted a new strategy to diversify • High PUD component (51% of reserves) requires beyond heavy oil. Berry has since built a growth platform in East Texas and the Rockies/Mid-Continent areas elevated ongoing development spending through a series of acquisitions. The most recent acquisition was in the Wolfberry for $180 mn. The immediate • Rising services costs pressuring results Berry family currently owns around 35% of the shares and has no special voting rights. • Increasingly difficult California regulations Key Dates/Catalysts: • Potential acquisitions, particularly in the Permian • Update on next-generation oil projects • California permitting Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $786 $568 $696 $902 $1,162 EBITDA (Adj for non-cash items) $402 $293 $375 $519 $715 Free Operating Cash Flow $12 $78 $37 ($40) $175 Capital Expenditures $398 $135 $331 $557 $641
Leverage Coverage Agency Credit Ratios 2008A 2009A 2010A 2011E 2012E Comps ('11E) ('11E) Ratings Total Debt/EBITDA (LTM) 2.9x 3.4x 3.0x 2.6x 1.9x BRY 2.6x 7.2x B2/BB- EBITDA/Interest Expense (LTM) 13.6x 5.9x 5.6x 7.2x 9.5x FST 2.8x 4.0x B1/B Debt to Capitalization % 58% 59% 52% 51% 47% Debt + Preferred per Proved Boe $4.70 $4.29 $4.11 $4.70 $4.41 Debt + Preferred per PDP Boe $8.58 $7.48 $8.34 $9.54 $8.94
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $0 Revolver Size $875 Revolving Credit Facility $503 Letters of Credit $24 Long Term Debt Borrowings $503 Senior notes due 2014 $352 Revolver Availability $349 Senior sub notes 2016 $200 Cash $0 Senior notes due 2020 $300 Total Liquidity $349 Total Long Term Debt $852 Total Debt $1,354 2.8x Preferred Equity $0 Common Equity $1,244 Total Capitalization $2,599
Maturities:500 450 400 350 300 250 200 150 100 Debt Maturities Debt Maturities ($ mn) 50 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 24 January 26, 2012 High Yield
Berry Plastics Corporation (BERRY) Updated 1/23/12 Joe Stivaletti (212) 902-3299 Contact analyst or see latest research for updates to ratings, estimates, and other information. James Kitchell (212) 902-9813 OUTPERFORM / IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) $370 8.250 Sr Sec Nts 15-Nov-15 B1/B 104.125 15-Nov-12 107.000 4.372 428 $800 9.750 Sr Sec Nts 15-Jan-21 Caa1/CCC 104.875 15-Jan-16 104.000 8.965 748 $168 10.250 Sr Sub Nts 1-Mar-16 Caa2/CCC 105.125 Current 97.000 11.176 1,050
Company Description Investment Strengths: Berry Plastics manufactures and markets plastic packaging products, plastic film products, specialty adhesives, and - Leading market positions: Berry has leading competitive coated products. The company's principal products include containers, drink cups, bottles, closures and overcaps, tubes positions in many product lines, including polypropylene and prescription containers, trash bags, stretch films, plastic sheeting, and tapes, which are sold into a diverse selection containers; drink cups; pharmaceutical bottles and vials; of attractive and stable end-markets, including food and beverage, healthcare, personal care, quick service and family closures; aerosol overcaps and plastic squeeze tubes; dining restaurants, custom and retail, agricultural, horticultural, institutional, industrial, construction, aerospace, and plastic trash bags, stretch film, and sheeting; and cloth and automotive. foil tape products and adhesives. - Diverse and stable customer base: Berry has over 13,000 customers, ranging from large corporations to small local businesses.
Investment Risks: - Rapid increases in resin prices: Although many of Berry's sales contracts allow for the pass-through of resin price increases, rapid increases in resin prices can have a material adverse impact on the company's profitability. - Leveraging acquisitions: Berry is growth oriented and might make additional leveraging acquisitions.
Financial Profile 10/2/2010 10/1/2011 10/2/2010 7/2/2011 10/1/2011 FY:10 FY:11 4Q:10 3Q:11 4Q:11 Net sales 4,257 4,561 1,154 1,187 1,229 EBITDA 541 656 153 177 188
Interest expense 282 237 77 78 76 Capital spending 223 160 52 32 34
Total debt 4,374 4,571 4,374 4,412 4,571 Cash 148 42 148 171 42 Comps Leverage Coverage Ratings Net debt 4,226 4,529 4,226 4,241 4,529 Ball 2.8x 6.6x Ba1/BB+ Crown 2.9x 4.9x Ba3/BB Key Credit Statistics Owens-Illinois 3.1x 4.7x Ba3/BB Total debt/EBITDA 7.9x 6.4x 7.9x 7.1x 6.4x Plastipak 3.2x 3.2x B3/B Net debt/EBITDA 7.6x 6.4x 7.6x 6.8x 6.4x Solo Cup 6.3x 1.5x B2/B Reynolds 6.8x 1.9x Caa1/B- EBITDA/interest 1.9x 2.8x 2.0x 2.3x 2.5x EBITDA margin 12.7% 14.4% 13.2% 14.9% 15.3%
Capitalization 10/1/2011 Debt to Description Size EBITDA Liquidity 10/1/2011 Revolver 195 3.5x Revolver size 650 1st lien term loan (2015) 1,146 3.5x Borrowings 195 1st lien FRNs (2015) 681 3.5x Letters of credit & other 38 1st lien 8.250% nts (2015) 370 3.5x Revolver availability 417 Capital leases and other 100 3.5x 2nd lien FRNs (2014) 210 5.6x Cash 42 2nd lien 9.500% nts (2018) 500 5.6x Total liquidity 459 2nd lien 9.750% nts (2021) 800 5.6x 10.250% sr sub nts (2016) 127 6.4x 11.000% sr sub nts (2016) 455 6.4x Unamortized discount (13) Total debt 4,571
Maturities:
3,000
2,000
1,000
- 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 25 January 26, 2012 High Yield
Bombardier Inc. (BBDBCN) Updated 1/26/12 Brian Jacoby, CFA 212-902-3258 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cody Sauer, CFA 212-855-8553 OUTPERFORM Bond Summary Size Coupon Agency Next Call Bid YTW T-sprd 5 Yr Ticker (MM) (%) Priority Maturity Ratings Next Call Date Price (%) bp CDS BBDBCN $850 7.750 Sr. Unsec. 15-Mar-20 Ba2/BB+ NC - $113.00 5.7 377 340 BBDBCN $250 7.450 Sr. Unsec. 1-May-34 Ba2/BB+ NC - $111.00 6.5 341 340
Company Description Bombardier is a leading manufacturer of transportation solutions, with $17.9 billion in FY2011 sales. It ranks as the world's largest rail transportation company and the Investment Strengths: third-largest civil aerospace company. Bombardier operates under two business segments: Bombardier Aerospace (BA), which represents 47% of fiscal ytd consolidated revenues, and Bombardier Transportation (BT), which represents 53% of total revenues. The company's aerospace segment designs and manufactures - Bombardier is the world's largest rail transportation company and the aviation products, and is a provider of related services for the business, commercial, amphibious, and specialized aircraft markets. Within its aerospace segment, third-largest civil aerospace company, which both have high barriers to business aircraft represents approximately 47% of sales. Bombardier sells business aircraft under the following brands: Learjet (light jets), Challenger (mid-size), and entry. Global family (large). In commercial aircraft, Bombardier manufacturers regional jets (CRJ family) and turbo props (Q-series). The company is also developing a new 110-149 seat commercial aircraft called the C-series, which is expected to enter service in late 2013 and currently has 138 firm orders. The company's transportation - High public support for rail infrastructure, and most of Bombardier's rail segment is a global leader in the rail industry and operates in four key market segments: rolling stock (rail vehicles), services, systems, and signaling. The transportation transportation revenues are derived from large rail operators in the public segment generates 65% of its revenues in the European market. From a total consolidated revenue perspective, Bombardier's geographic mix is as follows: 48% sector. Europe, 29% in North America, 18% Asia-Pacific, and 6% other regions. - Bombardier has significant backlog, which totaled $55.3 billion at Key Dates/Catalysts: 3QFY12, consisting of $33.0 billion at its Transportation segment and $22.3 1H2012: Potential for additional CSeries orders; update on development of new CSeries and Learjet 85 aircraft billion at its Aerospace segment. - Bombardier has a strong liquidity position, with $2.7 billion in cash at 3QFY12, and minimal near-term debt maturities. Fiscal YE Jan 31; ($ million, except where noted) Canadian GAAP Restated for IFRS - Management has a stated goal to regain investment grade ratings. Financials (FYE Jan 31; $mn) FY08 FY09 FY10 F3Q11 FY11 F3Q12 FY12E FY13E - Bombardier recorded a fiscal ytd book-to-bill of 1.3x in its business jet Transportation 7,793 9,756 10,009 2,168 9,098 2,318 9,803 9,700 operation, a leading indicator that demand is improving, particularly for its Aerospace 9,713 9,965 9,357 1,829 8,794 2,305 9,075 9,869 large business aircraft. Revenue 17,506 19,721 19,366 3,997 17,892 4,623 18,878 19,569 % YoY Chg 17.6% 12.7% -1.8% -13.1% -7.6% 15.7% 5.5% 3.7% Investment Risks:
- Potential development risks (e.g., delays) associated with CSeries EBITDA 1,422 1,984 1,596 343 1,615 394 1,605 1,733 commercial airliner and Learjet 85 business aircraft. EBITDA margin 8.1% 10.1% 8.2% 8.6% 9.0% 8.5% 8.5% 8.9% - Bombardier has a significant amount of exposure to aircraft residual value Interest Expense (383) (307) (223) (37) (227) (33) (155) (225) guarantees and credit guarantees. Pretax Income 447 1,291 915 189 997 243 1,079 1,148 Net income 325 1,026 707 145 775 194 854 898 - The fiscal challenges in Europe could delay some rail transportation contracts in this region or cause orders to slow.
Gross operating cash flow 920 1,726 1,208 237 1,193 321 949 1,338 - Bombardier faces significant competition from Boeing, Airbus, and Working Capital 1,460 (817) (656) (91) 485 (274) (341) 400 Embraer, all of which are investment grade rated with strong financial flexibility. Net Operating Cash Flow 2,380 909 552 146 1,678 47 608 1,738 Capital Expenditures (472) (621) (805) (254) (1,094) (393) (1,593) (1,700) Dividends (30) (147) (178) (49) (197) (50) (211) (235) Free Cash Flow 1,878 141 (431) (157) 387 (396) (1,196) (197) Asset sale/(acqs) 55 54 38 0 21 0 9 0 Equity increase/(decrease) (50) (47) (19) (4) (66) 0 (84) (50) Debt increase/(decrease) (1,076) (166) (7) 40 500 3 90 0 Other cash flow 147 (114) 321 70 (19) (125) 472 0 Net increase/(decrease) in cash 954 (132) (98) (51) 823 (518) (709) (247)
Transportation Backlog ($ billion) 30.9 24.7 27.1 32.7 33.5 33.0 Aerospace Backlog ($ billion) 22.7 23.5 16.7 16.2 19.2 22.3 Total Backlog ($ billion) 53.6 48.2 43.8 48.9 52.7 55.3
Total Consolidated Debt 4,393 3,952 4,162 4,824 4,645 5,069 5,069 5,069 Cash 3,602 3,470 3,372 2,725 4,195 2,708 3,486 3,239 Net Consolidated Debt 791 482 790 2,099 450 2,361 1,583 1,830
Manufacturing Debt 4,393 3,952 4,162 4,824 4,645 5,069 5,069 5,069
Key Credit Statistics Consolidated Debt/EBITDA 3.1x 2.0x 2.6x 3.3x 2.9x 2.9x 3.2x 2.9x Consolidated Net Debt/EBITDA 0.6x 0.2x 0.5x 1.4x 0.3x 1.4x 1.0x 1.1x Manufacturing Debt/EBITDA 3.1x 2.0x 2.6x 3.1x 2.9x 2.9x 3.2x 2.9x
Pension & Lease Adj Leverage: NPV of Operating Leases 482 402 545 581 581 0 581 581 Pension Deficit (@ Dec. 31) 1,180 1,543 1,514 1,630 1,630 1,630 1,630 1,630 Pension & Lease Adj Debt/EBITDA 3.8x 2.7x 3.4x 4.8x 4.4x 3.8x 4.0x 3.8x
Debt/Capital 58.0% 60.2% 52.5% 86.1% 75.3% 83.1% 80.7% 69.3% Oper cash flow/Debt 54.2% 23.0% 13.3% 14.2% 36.1% 20.5% 12.0% 34.3% LTM FCF/Debt 42.7% 3.6% -10.4% -11.9% 8.3% -10.8% -23.6% -3.9%
EBITDA/Interest expense 3.7x 6.5x 7.2x 9.3x 7.1x 11.9x 10.4x 7.7x EBITDA Margin 8.1% 10.1% 8.2% 8.6% 9.0% 8.5% 8.5% 8.9%
EBITDA Agency Capitalization 10/30/2011 10/30/2011 Comps Leverage Coverage Ratings Description Size EBITDA (x) Liquidity Textron Inc. 2.0x 8.0x Baa3/BBB- Revolvers 0 Revolver (matures June 2014) 750 L-3 Communications 2.3x 8.1x Baa3/BBB- 6.75% due 2012 151 Borrowings 0 Floating rate notes due 2013 0 Revolver Availability 750 6.3% due 2014 162 8% due 2014 0 Cash 2,708 7.25% due 2016 (€) 1,129 Total Liquidity 3,458 7.5% due 2018 650 7.75% due 2020 850 6.125% due 2021 (€) 1,042 Letter of credit facilities 7.35% due 2026 (C$) 149 Amount Maturity 7.45% due 2034 250 Committed Issued Available (fiscal year) Other Sr. Debt 686 BT facility 4,760 3,595 1,165 2016 Total debt 5,069 2.9x BA facility 600 241 359 2014 PSG facility 900 412 488 2012 Market Cap 7,937 4.6x Total 6,260 4,248 2,012 Enterprise Value 10,298 6.0x
Debt maturities, fiscal year basis:
250
200
150
($MN) 100
50
0 FY2012 FY2013 FY2014 FY2015
Goldman Sachs Credit Research 26 January 26, 2012 High Yield
Bon-Ton (BONT) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 212-357-7875 Contact analyst for updates and other information. NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $480 10.25 Sr Nts 15-Mar-14 Caa2/CCC+ $102.56 Current 59.75 40.10% 3958
Company Strengths: Company Description - One of the largest regional department store chains Bon-Ton was founded in 1898. After completing the acquisition of the Northern Department Store Group from in the US Saks Inc. (now being called Carsons internally) on March 6, 2006, it became one of the largest regional - Strong brand name recognition in its markets department store chains in the United States. The company operates 275 department stores and includes 11 - Closing underperforming stores furniture galleries located in 23 states (in the Northeast, Midwest, and upper Great Plains). Bon-Ton operates under the Bon-Ton, Bergner's, Boston Store, Carson Pirie Scott, Elder-Beerman, Herberger's, and Younkers nameplates. Company Risks: - Highly competitive marketplace (large overlaps with J.C. Penney and Kohl's) Key Dates/Catalysts: - Sales highly cyclical with the economy January and February same store sales number and any corresponding guidance updates. Fourth quarter - Reduced EBITDA guidance repeatedly post 3Q earnings results in mid-March - Negative same store sales momentum - Majority of sales are in the Midwest
Financial Profile FY08A FY09A FY10A LTM Comps Yield Leverage Coverage Ratings Revenue 3,225.4 3,034.9 3,046.5 2,976.0 Bon-Ton 40.10% 5.2x 2.1x Caa2/CCC+ EBITDA 158.9 218.1 249.8 204.5 Dillard's 6.56% 1.7x 8.2x B2/BB- NMG 7.66% 4.6x 3.5x Caa1/B- Interest Expense 97.8 98.8 112.3 95.3 Cash Taxes 0.0 0.0 1.4 (0.1) CapEx 89.1 33.0 58.6 71.7 Free Cash Flow (28.1) 86.3 77.6 37.6
Total Debt 1,157.6 1,029.3 930.5 1,054.8 Cash 19.7 18.9 16.3 12.8 Key Credit Statistics Total Debt/EBITDA 7.3x 4.7x 3.7x 5.2x Net Debt/EBITDA 7.2x 4.6x 3.7x 5.1x
EBITDA/Interest 1.6x 2.2x 2.2x 2.1x
EBITDA margin 4.93% 7.19% 8.20% 6.87%
As of 10/29/11 Debt to Description Size EBITDA Liquidity 3Q11A Revolver ($625 million, 2016) 122.5 Revolver Size 625.0 Second Lien Term Loan due 11/18/13 0.0 Borrowings 241.6 Mortgage Loan Facility 237.0 Revolver Availability 379.5 Mortgage Notes 8.0 Total Secured Debt 367.5 1.8x A/R facility NA 10.25% Sr Nts due 2014 510.0 Borrowings 0.0 Capital Leases 63.0 A/R Availability NA
Total Debt 940.5 4.6x Cash 12.8 Total Liquidity 392.3
Market Cap 71.3 Enterprise Value 1011.8 4.6x
Maturities: 800 700 600
500 400
300 200 100 0 2012 2013 2014+
Goldman Sachs Credit Research 27 January 26, 2012 High Yield
Boyd Gaming Corp. (BYD) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751 OUTPERFORM / IN-LINE: We believe the 6.3x-levered senior notes offer are attractive compared to the 9.0x-levered MGM senior notes. In BYD, investors pick 150 bps for a credit that should start to see the benefit of a Las Vegas Strip recovery in 2012 as the local economy improves, albeit at a slow rate. Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-spread 5-year (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp CDS $500 9.125 Senior 1-Dec-18 B3/B 104.56 1-Dec-14 98.750 9.37% 803 793 16.5+500 $241 7.125 Sr. Sub 1-Feb-16 Caa1/CCC+ 103.56 current 89.000 10.57% 1,001 973 16.5+500 7.125s call price steps down to 102.375 in February 2012. Company Description Investment Strengths: - Experienced management team. Boyd Gaming wholly owns 16 casinos in nine markets in six states. At December 31, 2010, the company - Deep knowledge of local markets and geographic owned 21,000 slot machines and 415 table games in 812,500 square feet of aggregate gaming space. The diversification. company is also 50%-owner of Atlantic City’s Borgata Hotel Casino and Spa. BYD's plan to build a $4.5 - Increasing geographic diversity by entering Biloxi, billion destination resort called “Echelon Place” on 65 acres on the Las Vegas Strip is currently on hold. MS gaming market. BYD also owns a Hawaiian travel agency that operates six weekly flights. The Boyd family owns - Mississippi has one of the lowest gaming tax rates approximately 37% of the equity, according to SEC filings. in the US.
Key Dates/Catalysts: - October 2011: Closed the acquisition of IP Casino Resort & Spa in Biloxi, MS, for $288 mn in cash. The Investment Risks: property generated $41 mn in LTM EBITDA through May 2011, and BYD expects to spend $44 mn within - Potential liquidity shortage if capital markets do the first year on capital improvements. Including the planned capex, The purchase price represents a not improve in 2012. transaction multiple of 8.1x, including an expected $5 mn of synergies during the first year. Echelon Place: Uncertainties remain regarding the - October 2011: Announced agreement with MGM and online poker service provider bwin.party (BPTY). If outcome for the property going forward. online poker is legalized in the US, MGM would acquire a 25% stake and BYD would acquire a 10% stake in - Sluggish US economy and high unemployment are a new company that would operate online poker using BPTY's technology and brands PartyPoker and limiting consumer discretionary spending. World Poker Tour. - Unemployment in Las Vegas at 12.5% in - November 2011: Issued $350 mn incremental term loan to repay non-extended revolver that matured in November. May 2012. - Availability under its stock repurchase program of - November 2011: Canceled agreement to sell its Dania Jai-Alai assets for $80 mn following the two month $92 million as of 3Q2011. closing date extension to the end of November. - BYD entered into a purchase option agreement and periodic fee agreement with LVE Energy Partners. BYD must pay LVE ~$11 mn annually Financial Profile FY10 1Q11 2Q11 3Q11 4Q11E FY11E related to prior energy commitments associated with Net revenue 2,299.2 564.9 574.4 590.2 611.2 2,340.7 Echelon Place development. Adj. EBITDA 439.8 111.5 118.4 122.0 117.3 469.3 - Table hold in Atlantic City has become more volatile since the installation of Pennsylvania table Interest Paid 129.1 49.9 78.5 92.6 56.6 220.1 games, placing pressure on earnings. Cash Taxes (9.7) 0.0 1.2 (0.0) 0.0 1.2 - Operations concentrated in Nevada. CapEx 87.5 20.9 10.0 24.6 17.0 72.5 - Under the senior note indenture, the restricted Free Cash Flow 232.9 40.7 28.7 4.9 43.7 175.5 payment capacity was $419 million as of 2Q2011.
Total Debt 3,218.8 3,187.5 3,179.8 3,165.7 3,328.4 3,328.4 Unrestricted Cash 145.6 173.8 175.8 187.1 102.1 102.1 Net Debt 3,073.1 3,013.6 3,004.0 2,978.6 3,226.3 3,226.3
Key Credit Statistics Total Debt/LTM EBITDA 7.3x 7.2x 7.1x 7.0x 7.1x 7.1x Comps Leverage Coverage Ratings Net Debt/EBITDA 7.0x 6.8x 6.7x 6.6x 6.9x 6.9x BYD 7.4x 2.0x Caa1/CCC+ GCCN 2.8x 4.8x B2/BB- EBITDA/Interest 2.5x 1.9x 1.8x 2.0x 2.1x 1.9x PNK 5.0x 2.8x Caa1/B EBITDA margin 19.1% 19.7% 20.6% 20.7% 19.2% 20.1% MNTG 7.1x 1.4x B3/B- Note: Results above include the consolidation of the Borgata joint venture.
Capitalization Liquidity Enterprise Value
Description 3Q11 Lvg Source 3Q11 Source Size Revolver due 2012 0.0 Revolver Size 960.0 Shares OS (mm) 86.3 Revolver due 12/17/2015 754.1 Letters of Credit 15.5 Stock Price $9.08 Term Loan due 12/17/2015 (incl. add-on 831.8 Borrowings 754.1 Market Cap 783.8 Total Borgata senior secured debt 783.7 Revolver Availability 190.4 Net Debt 3,141.3 Total senior secured debt 2,369.6 5.2x Minority interest 203.2 9.125% Senior Notes - 12/1/18 500.0 Cash 187.1 Enterprise Value (EV) 3,925.1 Total senior debt 2,869.6 6.3x Total Liquidity 377.5 6.750% Senior Sub Notes - 4/15/14 215.7 EV/ LTM EBITDA 8.7x 7.125% Senior Sub Notes - 2/1/16 240.8 Other 2.4 Credit Agreement Maintenance Covenants (amended December 2010) Total Debt 3,328.4 7.4x 4Q11 1Q12 2Q12 4Q12 2Q13 Secured leverage 4.50x 4.50x 4.25x 4.00x 3.75x Note: Leverage statistics calculated to include the consolidation Total leverage 7.75x 7.50x 7.50x 7.25x 7.00x of the Borgata JV. Interest coverage 2.00x 2.00x 2.00x 2.00x 2.00x
Operating segments Maturities: 4Q10 1Q11 2Q11 3Q11 2000 Revenue: Downtown Las Vegas 57.1 55.7 56.6 53.3 Locals Las Vegas 152.1 154.5 151.8 145.9 1500 Midwest & Gulf Coast 172.5 184.1 181.8 187.9 Borgata 168.8 169.1 182.8 202.0 1000 Property EBITDA: 500 Downtown Las Vegas 10.9 9.0 9.4 6.0 Locals Las Vegas 34.1 39.6 38.6 30.8 0 Midwest & Gulf Coast 30.4 41.2 42.3 44.5 2012 2013 2014 2015 2016+ Borgata 34.1 31.7 38.7 49.9
Goldman Sachs Credit Research 28 January 26, 2012 High Yield
Bristow Group (BRS) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 UNDERPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $350 7.500% Sr. 9/15/2017 Ba3/BB $103.75 9/15/2012 $104.25 6.16% 595
Company Description Investment Strengths: Bristow (formerly Offshore Logistics) is the largest provider of helicopter services to the oil and gas industry, with a • Global leader in a market that is undersupplied and fleet of 574 aircraft, including 378 in the consolidated fleet and 196 in unconsolidated affiliates. 83% of sales from has only two major global competitors outside North America. • Significant asset base supported by liquid aftermarket for helicopters Bristow Group's predecessor, Offshore Logistics, was formed in 1955 as a boat company and began providing • Strong geographic diversity, with 83% of revenue helicopter services in the early 1970s. Offshore Logistics acquired Bristow Helicopters, which had greater eastern non-US hemisphere exposure, in 1996. In 2002, Offshore Logistics increased its Nigeria exposure through an investment • Helicopter rates more resilient than pricing in many in Pan Africa. Bill Chiles assumed the CEO position in mid-2004, and the company adopted the name Bristow other oil services sectors (i.e., drilling rigs) Group in 2006. In late 2006, BRS also sold its aircraft engine overhaul business, Turbo Engines, Inc., for $12 mn. • Long-term contracts provide some measure of credit In March 2007, BRS sold its 50% interest in its Brazilian joint venture. In April 2007, BRS acquired Helicopter support Adventures, Inc., a flight training provider, for $20 mn and renamed it Bristow Academy, Inc. In October 2008, BRS sold 53 aircraft in the US GOM for $65 mn. Finally, BRS is part of an ongoing SEC and DOJ investigation Investment Risks: regarding competitive practices in the US GOM. • Aggressive capital expenditure program • Potential for additional acquisitions • Exposure to US Gulf shallow shelf activity; GOM is 17% sales • European operations, 39% of 2011E sales, have Financial Profile 2008A 2009A 2010A 2011E 2012E underperformed Revenue $1,119 $1,160 $1,205 $1,292 $1,205 EBITDA (Adj for non-cash items) $215 $246 $251 $251 $324 Key Dates/Catalysts: • Company has firm orders for 11 aircraft and has 67 Free Operating Cash Flow ($303) ($130) ($32) ($40) $2 incremental aircraft built into the five-year plan Capital Expenditures $437 $317 $179 $247 $300 • Potential bond issuer to fund growth plans • Outstanding investigations by the DOJ for potential payroll and other accounting violations • Management sees growth opportunities in Norway, Mexico and Brazil • Management has indicated an intention to shift toward leasing more of its fleet (over time the intent is to own 80-85% of the fleet versus 95% currently)
Credit Ratios 2008A 2009A 2010A 2011E 2012E Total Debt/EBITDA (LTM) 3.4x 2.8x 2.8x 3.0x 2.3x EBITDA/Interest Expense (LTM) 6.9x 6.3x 5.5x 7.8x 18.1x Debt to Capitalization % 38% 34% 33% 33% 32%
Capitalization Debt to Leverage Coverage Agency Description Size EBITDA Liquidity Comps ('11E) ('11E) Ratings Cash and equivalents $140 Revolver Size $175 BRS 3.0x 7.8x Ba3/BB Revolving Credit Facility $88 Letters of Credit $2 HOS 6.3x 2.4x Ba3/BB- Long Term Debt Borrowings $88 Senior notes 2013-17 $350 Revolver Availability $85 Term loan $200 Cash $140 Convertible sr. notes 2038 $101 Total Liquidity $226 Other $25 Total Long Term Debt $677 Total Debt $764 3.1x Preferred Equity $0 Common Equity $1,517 Total Capitalization $2,282
Maturities:
400
350
300
250
200
150 Debt maturities ($ mn) ($ maturities Debt 100
50
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Goldman Sachs Credit Research 29 January 26, 2012 High Yield
Brookstone (BRSTNE) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 212-357-7875 Contact analyst or see latest research for updates to ratings, estimates, and other information. OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $116 13 Sr Sec 15-Oct-14 NR/CCC+ $106.50 15-Oct-12 79.50 23.69% 2262
Company Description Investment Strengths: Brookstone is a product development and specialty retail company that operates over 300 Brookstone branded stores - Strong brand name nationwide and in Puerto Rico. The stores feature unique and innovative consumer products, and are typically located - At secured level (senior secured notes) in high-traffic regional malls and airports. - Backed by strategic investor (Brookstone is OSIM's gateway into the US)
Investment Risks: - Highly levered Key Dates/Catalysts: Late March – fourth quarter earnings release. - Significant seasonality (holiday season represents more than 100% of full-year EBITDA) - Minimal free cash flow generation - High exposure to malls, which are seeing weak traffic - Significant non-cancelable operating leases limit flexibility - Over 50% of assets are intangible - May have difficulty replacing skills of prior CEO
Financial Profile FY09A FY10A FY11E 4Q10A 4Q11E Revenue 430.3 468.2 505.8 249.4 262.0 EBITDA 20.8 19.3 23.1 52.2 47.1 Comps Yield Leverage Coverage Ratings Brookstone 23.69% 4.4x 1.8x NR/CCC+ Interest Expense 24.2 23.8 19.6 5.4 6.2 Rite-Aid 11.00% 6.9x 1.7x Ca/CCC Cash Taxes (12.4) (8.9) 0.6 0.1 0.1 J. Crew 8.70% 5.4x 3.2x Caa1/CCC+ CapEx 3.5 5.8 7.1 0.9 2.0 Free Cash Flow 5.5 (1.3) (4.2) 45.7 38.8
Total Debt 173.5 152.0 167.5 152.0 167.5 Cash 31.8 32.1 2.3 32.1 2.3 Key Credit Statistics Total Debt/EBITDA 8.3x 7.9x 7.2x Net Debt/EBITDA 6.8x 6.2x 7.1x
EBITDA/Interest 0.9x 0.8x 1.2x 9.6x 7.6x
EBITDA margin 4.84% 4.13% 4.58% 20.92% 17.98%
Capitalization 3Q11A
Debt to Estimated Description Size EBITDA Liquidity 3Q11A ABL ($125mm, due 4/14) 29.5 Revolver Size 125.0 Mortgage Notes 2.7 Borrowings 29.5 12% Senior Secured Notes due October 2012 9.9 13% Senior Secured Notes due 2014 125.6 Total Secured Debt 167.7 5.9x A/R facility NA Concession on 2010 Note Exchange, net 11.2 Borrowings 0 A/R Availability NA
Cash 1.2 Total Debt 178.9 6.3x Market Cap (Shareholders' Equity) n/a Enterprise Value (Total Book Cap) n/a
Maturities:
160
120
80
40
0 2012 2013 2014+
Goldman Sachs Credit Research 30 January 26, 2012 High Yield
Brunswick Corporation (BC) Updated 01/23/12 Kevin Coyne 212-357-9918 Contact analyst for updates and other information. Celeste Everett 212-902-4751 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-Spread 5-yr (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp CDS $350 11.25% Sr Sec 01-Nov-16 Ba2/B+ 105.625 01-Nov-13 116.250 4.594 439 409 285 $200 7.125% Sr Notes 01-Aug-27 B3/B MW T+15 89.000 8.519 645 614 285
Company Description Company Strengths: - Leading market shares in pleasure boats, marine engines, Brunswick Corporation is a leading global manufacturer and marketer of boats, marine engines, fitness equipment, and commercial fitness equipment, bowling products, and billiards tables bowling and billiards equipment, with approximately 45% of sales generated outside the United States. Total revenues - Recognized global brand names . reached $3.7 bn in the LTM ending 3Q2011. Boating includes the boat segment (manufactures and markets pleasure and - Strong liquidity and no near-term maturities. luxury boats) and the marine engine segment (recreational marine engines). Together, the two segments made up more - Company has been delevering through EBITDA growth and debt than 75% of Brunswick’s total sales in 2010. Fitness and Bowling & Billiards made up 16% and 9%, respectively, of sales repurchases. in 2010. Significant equityholders include Wellington (12%), Fidelity (10%), T. Rowe Price (8%), and Vanguard (5%). - Under terms of the EDC loan, up to 43% of the principal is forgiven if BC achieves certain employment target levels. Key Dates/Catalysts: - Management continues to rationalize product lines to reduce - 2011 Guidance: Adjusted EPS of $0.65-$0.75 per share (vs $0.60-$0.75 per share). expenses. - August 2011: Announced plans to build a 150,000 sq ft manufacturing facility in Brazil. The facility will have the capacity to build 400 Sea Ray and Bayliner boats annually and is expected to be completed to provide boats in advance of the 2012 summer boating season (3Q12). - October 2011: Year to date, BC has repurchased $44 million of the 11.75% senior notes due 2013, $41 million of the Company Risks: 11.25% senior secured notes of 2016, $10 million of the 7.375% senior notes due 2023, and $32 million of the 7.125% - Larger categories are seasonal businesses. senior notes due 2027 for total debt reduction of $127 million. - Large ticket price on a mostly discretionary purchase. - February 15, 2012: Brunswick Investor Day. - End consumer subject to changes in gas prices; high gas prices may make leisure boating less appealing. - Subject to rising commodity costs.
Financial Profile 3Q10 4Q10 2010 1Q11 2Q11 3Q11 Revenue 815 729 3,403 986 1,096 877 EBITDA 68 (25) 208 101 133 74
Interest Expense 23 24 94 23 21 19 Cash Taxes 5 5 2613180 CapEx 122657131926 Free Cash Flow 28 (80) 31 51 76 29
Total Debt 834 830 830 812 787 703 Agency Cash 677 636 636 501 606 479 LTM Comps Leverage Coverage Ratings Net Debt 158 194 194 311 181 225 BC 11.25s 1.3x 4.8x Ba2/B+ Key Credit Statistics BC 7.125s 2.5x 4.8x B3/B Total Debt/EBITDA 5.5x 4.0x 4.0x 3.2x 2.8x 2.5x ZZ 10.875s 3.9x 1.4x Ba3/BB- Net Debt/EBITDA 1.0x 0.9x 0.9x 1.2x 0.7x 0.8x ZZ 8.25s 6.3x 1.4x Caa1/CCC+
EBITDA/Interest 3.0x nm 2.2x 4.3x 6.3x 3.8x EBITDA margin 8% -3% 6% 10% 12% 8%
Capitalization Debt to LTM Description 3Q11 EBITDA Liquidity 3Q11 Enterprise value (EV) ABL facility due March 2016 - ABL Size 267 Shares O/S (mm) 89.1 EDC secured loan due 2021 50 Letters of Credit 24 Stock price$ 21.61 11.25% senior secured notes due 2016 (a) 307 Borrowings 0 Market cap 1,924.9 Total senior secured debt 357 1.3x Revolver Availability 243 Net debt 238.9 11.75% senior notes due 2013 74 Enterprise value (EV) 2,163.8 7.375% debentures due 2023 115 7.125% senior notes due 2027 168 EV/ LTM EBITDA 7.7x Other 4 Total gross debt 718 2.5x Cash 479
(a) 11.25s are secured by a first priority lien on BC's headquarters Total Liquidity $722 and the domestic retail bowling centers owned by BC and a second-lien on substantially all of the other assets securing the credit facility (other than certain subsidiary stock).
Maturities: $700
$600
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$400
$300
$200
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Goldman Sachs Credit Research 31 January 26, 2012 High Yield
Burger King (BKC) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 212-357-7875 Contact analyst or see latest research for updates to ratings, estimates, and other information. UNDERPERFOM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $796 9.875 Sr Nts 10/15/2018 B3/B-$ 104.94 13-Apr-00 109.25 7.51 643
Company Description Investment Strengths: Burger King is the fifth largest quick service restaurant (QSR) chain in the US and the No. 2 - Strong No. 2 market position in hamburger player in the hamburger sub segment. It operates through a network of over 12,300 restaurants QSR in 76 countries and territories worldwide. Roughly 60% of its restaurants are in the US and - Franchise-heavy model, with plans for more Canada. Eighty-nine percent of its locations are franchised and 11% company owned. Its refranchising trademark sandwich is the Whopper, and it has historically sought to differentiate itself on the - Exportable concept with demonstrated basis of customization ("Have it your way"), its flame-broiled sandwiches, and in recent years, its international growth King mascot. Investment Risks: - US/Canada sales trends have been weak - Restaurant base needs capital investment Key Dates/Catalysts: - Forecasted EBITDA growth heavily Late-March, fourth quarter earnings release dependent on cost cuts - Free cash flow to be strained by interest burden and franchisee incentives
Financial Profile FY09A FY10A FY11E 4Q10A 4Q11E Comps Yield Leverage Coverage Ratings Revenue 2,512.2 2,403.4 2,338.1 583.5 594.9 DineEquity 8.10% 5.7x 2.3x B3/CCC+ EBITDA 445.0 453.4 557.2 113.6 137.5 Carrols 8.50% 3.3x 4.0x B2/B Burger King 7.51% 5.0x 2.9x B3/B- Interest Expense 51.3 100.5 194.2 63.6 46.5 Cash Taxes 81.9 36.7 48.3 (26.2) 18.0 CapEx 184.8 133.1 64.0 32.6 22.0 Free Cash Flow 127.0 183.1 250.7 43.6 51.0
Total Debt 859.0 2,768.7 3,199.7 2,768.7 3,199.7 Cash 207.0 207.0 530.2 207.0 530.2 Key Credit Statistics Total Debt/EBITDA 1.9x 6.1x 5.7x Net Debt/EBITDA 1.9x 6.1x 5.0x
EBITDA/Interest 8.7x 4.5x 2.9x 4.5x 2.9x
EBITDA margin 17.72% 18.87% 23.83% 19.47% 23.12%
Capitalization LTM Liquidity 3Q11A Debt to Description Size EBITDA Revolver Size $150.0 Revolver ($150mm due 9/7/15) 0.0 Letters of Credit 28.5 Term Loan B (L+300, due 9/7/16) 1588.0 Borrowings 0.0 Term Loan B Euro (L+325, due 9/7/16 265.9 Revolver Availability $121.5 Total Secured Debt 1853.9 3.4x
Capital Leases/Other 138.3 A/R facility N/A 9.875% Senior Notes due 10/15/18 800.0 5.1x Borrowings N/A Holdco Discount Notes due 4/15/19 403.8 A/R Availability N/A Total Sub debt 1342.1 5.8x
Total Debt 3196.0 5.8x Cash 468.5 Market Cap N/A Total Liquidity $590.00 Enterprise Value N/A
Maturities and required debt payments 60
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Goldman Sachs Credit Research 32 January 26, 2012 High Yield
Burlington Coat Factory (BCFACT) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 212-357-7875 Contact analyst or see latest research for updates to ratings, estimates, and other information. OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $450 10.00% Sr Nts 2/15/2019 Caa1/ CCC $105.00 15-Feb-15 $95.00 11.04% 948
Company Description Investment Strengths: Burlington Coat Factory is a recognized retailer of high-quality, branded apparel at everyday low prices (EDLP). - Value positioning a positive in a weak economy The company operates more than 460 stores in 44 US states, primarily under the Burlington Coat Factory - Attractive yield for moderate leverage Warehouse name. - Improved selection of in-season merchandise - Strong management team
Key Dates/Catalysts: Investment Risks: 4Q same store sales and late-April fourth quarter earnings release. - Highly competitive marketplace (department stores, Wal-Mart, Target) - Historically underperforming same-store sales - Weather impacting inventory and sales more than expected
Financial Profile FY09A FY10A FY11E 4Q10A 4Q11E Comps Yield Leverage Coverage Ratings Revenue 3,553.8 3,701.1 3,859.0 1,197.6 1,215.4 Burlington 11.04% 4.3x 2.7x Caa1/ CCC EBITDA 306.7 338.1 340.7 188.9 178.7 Bon-Ton 43.43% 5.2x 1.9x Caa2/CCC+ J Crew 8.99% 5.4x 3.2x Caa1/CCC+ Interest Expense 84.4 99.3 128.0 21.0 30.0 Cash Taxes (29.8) 22.1 (8.0) 45.7 39.8 CapEx 130.0 132.1 146.2 28.9 30.0 Free Cash Flow 122.1 84.6 74.4 93.4 78.9
Total Debt 1,292.2 1,372.3 1,450.6 1,372.3 1,450.6 Cash 24.8 30.2 40.5 30.2 40.5 Key Credit Statistics Total Debt/EBITDA 4.2x 4.1x 4.3x Net Debt/EBITDA 4.1x 4.0x 4.1x
EBITDA/Interest 3.6x 3.4x 2.7x 9.0x 5.9x
EBITDA margin 8.63% 9.14% 8.83% 15.77% 14.70%
Capitalization Debt to Description Size EBITDA Liquidity 3Q11A ABL Revolver ($600, L+325, due 9/2/16) 158.1 Revolver Size 600.0 Term Loan B (L +475 (150 floor), due 2/23/1 978.7 Letters of Credit 40.5 Total Secured Debt 1136.8 3.2x Borrowings 0.0 Revolver Availability 559.9 10% Senior Notes due 2/15/19 450.0 4.6x Capital Leases 24.3 Total Sub debt 474.3 4.6x Cash 45.8 Total Liquidity 605.7 Total Debt 1611.0 4.6x Market Cap N/A Enterprise Value N/A
Maturities: 1,600 1,400 1,200 1,000 800
600 400 200
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Goldman Sachs Credit Research 33 January 26, 2012 High Yield
Cablevision Systems Corporation (CVC) Updated 1/20/12 Jason Kim 212-902-2233 Contact analyst or see latest research for updates to ratings, estimates, and other information. Satya Tagat 212-902-4427 OUTPERFORM / IN-LINE We rate the CVC Holdco bonds Outperform as we believe that the company's relatively weak performance through 3Q2011 drove bonds to depressed levels that were not consistent with CVC's strong asset value. We also believe the company is likely to be prudent with respect to its balance sheet relative to its past. We rate the CVC Opco bonds In-Line as we believe they are fairly valued at current levels. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Issuing Entity / Priority Maturity Ratings Price Date Price (%) bp $526 8.625 CSC Hold Sr Nts* 15-Feb-19 Ba3/BB NC NC 116.25 5.782 421 $500 8.000 CVC Sr Nts* 15-Apr-20 Ba3/BB NC NC 109.00 6.562 475 *CSC Hold = CSC Holdings, Inc. CVC = Cablevision Systems Corporation.
Company Description Investment Strengths: (1) Attractive demographics: CVC's cable systems are located in the Cablevision Systems Corporation (Cablevision) is a publicly traded holding company (Ticker: CVC). Cablevision NY-NJ-CT tri-state area, which has very attractive demographics. This operates its businesses through its CSC Holdings, Inc. (CSC Holdings) subsidiary. CSC Holdings is the fifth- has led to higher ARPU and deeper penetration of advanced services, largest cable operator in the US based on the number of basic video subscribers (3.0 million subs), serving in and as evidenced by CVC's industry-leading financial and operational around the NYC metropolitan area. In addition, through its wholly owned subsidiary Cablevision Lightpath, Inc., metrics. CSC Holdings provides telephone services and high-speed Internet access to the commercial/business market. CVC also owns Bresnan Broadband Holdings, LLC, which owns cable systems in Montana, Wyoming, Colorado, (2) Highly clustered systems: CVC's clustered cable systems allow the and Utah serving approximately 302k video subscribers. For financing purposes, Cablevision is structured as a company to operate its entire footprint with a single master head-end, Restricted Group (cable operations and Lightpath) and an Unrestricted Group (principally Bresnan). increasing cost efficiency and speeding up time-to-market for advanced services. Key Dates/Catalysts: February 28, 2012: 4Q2011 earnings. We will also look for an update on management's capital deployment plans (3) Potential consolidation candidate: (1) and (2) have meant that CVC and progress on filling the management vacancies. has long been viewed as a potential consolidation candidate by strategic competitors. The completion of the Rainbow spin-off leaves CVC as a pure-play cable operator and potentially a more attractive acquisition candidate.
Investment Risks: (1) Limited incremental growth in consumer cable business segment relative to peers: Owing to the already-high penetration rates of all of its products, unlike its less-penetrated peers, growth in CVC's consumer cable business segment is likely to be limited going forward.
Financial Profile* FY09A FY10A 2Q11A 3Q11A 4Q11E FY11E (2) Competition from Verizon: In light of CVC's attractive demographics, Basic Subscribers 3,063,000 3,008,000 2,980,000 2,962,000 2,946,775 2,946,775 its footprint has been one of the first to be targeted by Verizon as the Digital Subscribers 2,893,000 2,906,000 2,905,500 2,902,760 2,902,574 2,902,574 RBOC rolls out its FiOS product. Data Subscribers 2,568,000 2,656,000 2,681,000 2,692,000 2,701,211 2,701,211 (3) Dolan family: The Dolan family controls 70% of the total voting Phone (VoIP) Subscribers 2,052,000 2,121,000 2,787,000 2,817,000 2,830,869 2,830,869 power of CVC stock and has historically not been viewed as creditor- friendly.
Revenue $5,432 $5,713 $1,461 $1,445 $1,464 $5,923 (4) Management turnover: Tom Rutledge resigned as COO on EBITDA 2,228 2,365 586 547 579 2,443 December 15 and was subsequently named CEO at Charter Free Cash Flow 753 819 188 205 206 905 Communications. Mr. Rutledge has been regarded as one of the best executives in the sector, guiding CVC to industry-leading performance over his 10-year tenure at the firm. Total Debt 10,541 11,170 10,074 9,974 10,534 10,534 Cash 255 315 357 189 764 764 Net Debt 10,286 10,855 9,718 9,786 9,769 9,769 Key Credit Statistics Total Debt/EBITDA 4.4x 4.4x 4.0x 4.2x 4.2x 4.3x Total Debt/Basic Sub $3,219 $3,463 $3,128 $3,113 $3,319 $3,319
EBITDA Margin 41.0% 41.4% 40.1% 37.9% 39.5% 39.5% *Financials are for Restricted Group only. Capitalization* Description Debt to Agency (Restricted Group Only) Size EBITDA Restricted Group Liquidity Comps Leverage Coverage Ratings RC-1 ($180 mn Facility) $0 Revolver Size* $1,412 RC-2 ($1.23 bn Facility) - Letters of Credit (61) Charter - CCOH 4.3x 2.8x B1/BB- Term Loan A-2 413 Borrowings - DISH DBS Corporation 2.4x 6.9x Ba3/BB- Term Loan A-4 600 Revolver Availability 1352 Videotron 2.0x 6.7x Ba1/BB Term Loan B-1 322 Term Loan B-2 1,137 Cash** 669 Term Loan B-3 1,653 Total Liquidity $2,021 Total Sr Sec debt $4,125 1.9x * $180 mn RC-1 due Feb-2012 and extended $1.23 bn RC-2 Mar-2015. CSC Hold Sr Nts / Sr Debs 3,170 ** Estimate - Restricted Group cash is not separately disclosed. Guarantee of Newsday Debt 650 Other - Total CSC Hold Sr debt $7,944 3.6x CVC Corp Sr Nts 2,177 Total CVC Sr debt $10,121 4.6x
Net Debt $9,451 Market Cap NA Enterprise Value NA NA *Capitalization and cash are pro forma for the November 2011 refinancing and tender transactions Maturities: 12,000 10,121 10,000
8,000
6,000
4,000
2,000
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Goldman Sachs Credit Research 34 January 26, 2012 High Yield
Caesars Ent. Operating Company (HET) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751 OUTPERFORM / IN-LINE: We continue to prefer the first-lien notes due to the attractive yield vs. the secured gaming paper of MGM Mirage (MGM, IL) and Wynn Las Vegas (WYNN, IL). We also recommend the 10.75% notes due to the attractive yield, location in the maturity profile, and operating subsidiary guarantees. Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-spread 5-year (MM) (%)Priority Maturity Ratings Price Date Price (%) bp bp CDS $2,095 11.250 Sr. Sec (1st lien) notes 1-Jun-17 B3/B 105.62 1-Jun-13 108.00 8.44 812 775 42.5 + 500 $4,515 10.000 Sr. Sec (2nd lien) notes 15-Dec-18 - / CCC 105.000 15-Dec-13 76.00 15.85 1,446 1,445 42.5 + 500 $479 10.750 Sr Nts (Guar) 1-Feb-16 Ca/CCC 105.375 1-Feb-12 77.50 19.03 1,848 1,822 42.5 + 500
Company Description Investment Strengths: Caesars Entertainment (formerly known as Harrah's Entertainment ) operates 52 casinos primarily in the US and - Largest gaming operator, with geographic and end UK, most of which are under the Harrah's, Caesars, and Horseshoe brand names. The company operates land- market diversification (from wealthy clients to less based casinos, riverboat and dockside casinos, casinos on Indian reservations, and racinos. HET properties have affluent ones). over 40,000 hotel rooms and 3 million square feet of casino floor space. HET also operates the World Series of - Large inventory of undeveloped land on Las Vegas Poker tournament circuit. In January 2008, HET was acquired by TPG Capital and Apollo Management. The LBO Strip (125 acres @ $3 mn / acre = $375 mn) and was financed using $14 billion of new bank and bond debt, $6.5 billion of CMBS financing, and $6 billon of new Macau (175 acres). equity. HOC will own and/or operate 44 of the properties, while $5.4 billion of CMBS financing will be supported by - Large customer rewards program - 43 million; six other properties in Las Vegas, NV, Laughlin, NV, and Atlantic City, NJ. rewards cards member can be cross-marketed to play within the HET system of casinos; makes HET less Key Dates/Catalysts: reliant on group / convention travel. - Management believes that an increase in $5 in Las - March 2011: Announced new $450 mn term loan to partially fund the completion of the Octavius Tower at Caesars Las Vegas and to build a new retail and entertainment corridor between Flamingo and Imperial Palace on Vegas ADR would increase EBITDA by $33 mn, and the Strip. Termed "the Linq," it will include over 20 bars and restaurants and a 550 seat observation wheel. Linq is an increase in $5 of gaming revenue per person would expected to open in late 2013. increase EBITDA by $36 mn. In the regional markets, - May 2011: Completed amendment of its credit facility, which included extending $1.2 bn of maturities to 2018. it believes a $5 increase in ADR would result in $27 Among other things, HET received permission to repurchase bank debt below par. mn of incremental EBITDA and an increase of $5 - November 2011: Filed Form S-1 IPO registration statement with SEC. gaming revenue per trip could result in an additional - January 2012: 668-room Octavius Tower opens at Caesars Palace in Las Vegas. $137 mn of EBITDA. - Optionality in online gaming market with WSOP. - Approximately $350 mn of cash at other HET subsidiaries due to investments by Paulson & Co. and Caesars Ent. Operating Company (CEOC) sponsors. Financial Profile FY10A 1Q11A 2Q11A 3Q11A 4Q11E FY11E - Pursuing low capital expansion opportunities in Ohio Revenue 6,856 1,708 1,718 1,734 1,665 6,825 (Cleveland and Cincinnati). EBITDA 1,465 362 398 372 373 1,505 Investment Risks: - High leverage: 12.6x leverage provides low interest Interest Expense 1,723 184 635 395 398 1,612 coverage and low FCF. - Credit agreement covenants allow for increases in Cash Taxes paid (refund) (190) (7) 2 2 0 (2) senior secured debt ahead of the unsecured notes. CapEx 135 34 45 62 138 279 ($750 mn of lien capacity, of which $500 mn can be Free Cash Flow (203) 151 (284) (87) (163) (383) first lien). - OpCo / PropCo structure with CMBS financing limits FCF benefit to OpCo from PropCo properties. Total Debt 18,295 18,057 18,939 18,911 18,905 18,905 - Weak economy slowing discretionary spending. Cash 619 588 650 778 609 609 Net Debt 17,675 17,470 18,289 18,133 18,296 18,296 Comps Leverage Coverage Ratings Key Credit Statistics MGM (sr) 9.2x 1.7x B3/B- Total Debt/EBITDA 12.5x 12.5x 12.6x 12.8x 12.6x 12.6x PNK 5.0x 2.8x Caa1/B Net Debt/EBITDA 12.1x 12.1x 12.2x 12.2x 12.2x 12.2x BYD 7.4x 2.0x Caa1/CCC+
EBITDA/Interest 0.9x 2.0x 0.6x 0.9x 0.9x 0.9x Liquidity Caesars Ent. Operating Company EBITDA margin 21.4% 21.2% 23.2% 21.5% 22.4% 22.1% Source Size Revolver Size 1,207 Capitalization LTM EBITDA$ 1,482 LTM EBITDA$ 1,918 Letters of Credit & other 127 Caesars Ent. Oper. Co. Caesars Entertainment Borrowings - Description 3Q11A Lvg (a) 3Q11A Lvg (a) Revolver Availability 1,080 Revolver ($1.2 billion) due Jan 2014 0 0 Term loan B & other secured debt 8,410 13,442 (CMBS) Cash 778 11.125% sr secured (1st) due 2017 2,095 2,095 Total Liquidity 1,858 Total senior secured (1st lien) debt 10,505 7.1x 15,537 8.1x Note: Approx. $350 mn of cash must remain in the cage; 10% sr secured (2nd) due 2015 / 2018 4,768 4,768 cash balance excludes $409 mn of restricted cash. 12.75% sr secured (2nd) due 2018 750 10.8x 750 10.6x 10.75% sr nts (guaranteed) due 2016/18 490 11.1x 490 10.8x CEOC maintenance covenant calculation 5.625% senior notes due June 2015 792 792 Bank debt 7,209.1 5.75% senior notes due Oct 2017 539 539 Less cash 778.2 Other senior debt 1,067 (b) 849 Net bank debt 6,430.9 Total debt (gross) 18,911 12.8x 23,724 12.4x Covenant EBITDA 1,654.3 Total debt (including OID) 15,730 20,761 Covenant net leverage 3.89x (a) excludes yet-to-be-realized cost savings (b) includes $290 mn intercompany note. Caesars Entertainment (HET) Covenant threshold 4.75x Maturities: CEOC (3Q11) 2012 24 OpCo summary 4Q10A 1Q11A 2Q11A 3Q11A 2013 149 Caesars Property Caesars Ent. Net Revenue by Region: 2014 24 Company (PropCo) Operating Company Las Vegas 387.2 392.2 417.0 378.1 2015 6,286 $5.0B CMBS (CEOC or OpCo) Atlantic City 312.3 334.9 356.6 368.9 (includes customer 2016 2,128 Harrah's LV Louisiana / Mississippi 284.5 286.1 267.7 291.7 2017+ 10,301 Rio (Las Vegas) Iowa / Missouri 175.1 177.4 185.1 184.2 Flamingo LV All material operating Illinois / Indiana 278.2 277.1 268.8 260.0 Paris LV subs (excluding Other Nevada 61.8 69.2 72.3 102.8 Harrah's AC, Harrah's Harrah's Chester, Laughlin Planet Hollywood, Managed / Int'l. 156.1 171.2 150.2 147.6 Octavius) Total revenue 1,655 1,708 1,718 1,733
Goldman Sachs Credit Research 35 January 26, 2012 High Yield
Calpine Corp Updated 1/25/2012 Raymond M. Leung 212-357-5764 Contact analyst or see latest research for updates to ratings, estimates, and other information. Abayomi A. Adigun 212-902-9355 OUTPERFORM/IN-LINE We rate the 2017 notes Outperform due to the company's well-positioned and diverse portfolio, with expectations of gradual financial improvement.
Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,200 7.875 Sec'd 15-Jan-23 B1/BB- 103.94 15-Jan-17 103.01 7.367 537 $1,000 8.000 Sec'd 1-Jun-16 Ba3/BB 104.00 1-Jun-16 107.25 5.232 501
Company Description Investment Strengths: Calpine is a wholesale power generator that owns and operates natural-gas-fired and geothermal plants in the - CPN's generation assets are well-positioned given its West, Texas, Southeast, North, and parts of Canada. The company owns nearly 28GW of generating capacity. modern fleet with an average age of 11 years and favorable Although the portfolio is predominately gas-fired, the generation portfolio is geographically diverse: North (28%), heat rate position (approximately 7,400 Btu/kWh). Southeast (22%), West (24%), and Texas (26%). Calpine sells wholesale power, steam, capacity, renewable - The company's generation portfolio should benefit from its credits, and ancillary services. Calpine Construction Finance Co (CCFC) owns six gas-fired plants with 3.6GW of geographical diversity and is well-positioned given the capacity in Texas, Florida, Maine, Oregon, and California. CCFC is 100% owned by Calpine and sells its output increasing environmental regulations faced by coal-fired under a tolling arrangement to Calpine Energy Services, LP. generation. Key Dates/Catalysts: - Stability in near-term cash flow, as the company's energy - On Feb. 10, CPN is expected to report 4Q2011 earnings . Key areas of investors focus will center around an position in 2012 and 2013 is hedged at 63% and 39%, update on the overall business, the company's hedging profile, and outlook for power markets. respectively. Also, capacity revenues should contribute to - In terms of guidance, the company expects adjusted EBITDA of $1.7-1.75 bn and free cash flow guidance of near-term cash flow certainty. $475-$525 million for 2011. For 2012, CPN expects $1.55 to $1.75 billion in EBITDA and free cash flow of $375 to - Liquidity remains strong with $1.9 bn of availability that $575 million. Major maintenance is included in adjusted EBITDA which is budgeted at $235 million for 2011 and includes about $1.3 billion of cash. The company has no $185 million for 2012. major debt maturities through 2015 and expects FCF of - Status of the company's $300 million share buyback program. $475-$525 mn for 2011 and $375-$575 mn for 2012. - The company remains proactive in the rationalization of the generation portfolio, which includes divestitures and - Given the low heat rate of its fleet, the company should purchases. benefit from economic recovery that would expand heat - Update on new construction projects - Russell City and Los Esteros. Both projects are targeted for commercial rates. operation in 2013. Investment Risks: - May 2012, results of the 2015/2016 PJM capacity auction are expected. - Declining commodity prices and a challenging economy may pressure future margins given CPN's reliance on Financial Profile Calpine Calpine Calpine Calpine Calpine intermediate capacity. - Leverage remains high, but is expected to improve due to 2009 2010 2011E 2012E LTM3Q11 a simplified capital structure. Gross Margin 2,667 2,571 2,686 2,633 2,384 - Inability to execute plan of strong plant performance and EBITDA 1,542 1,508 1,542 1,464 1,564 implemented hedging strategy would lead to FCF generation shortcomings. EBITDAR 1,542 1,633 1,667 1,589 1,564 - Parent level bonds remain structurally subordinated to Interest Expense (829) (789) (749) (748) (791) subsidiary level debt and have an investment-grade-like Income Taxes (15) 68 2 (13) 151 covenant package. - CCFC is exposed to Calpine counterparty risk. The CapEx (179) (369) (600) (470) 151 majority of capacity is in a tolling agreement with Calpine Free Cash Flow 526 220 (55) 133 27 Energy Services.
Adjusted GAAP Debt 9,459 10,256 10,464 10,384 10,404 Cash 989 1,327 1,410 1,281 1,285 Net Adjusted GAAP Debt 8,470 8,929 9,054 9,103 9,119 Agency Key Credit Statistics Comps Leverage Coverage Ratings Total Debt/EBITDAR 6.1 6.3 6.3 6.5 6.7 AES Corp* 4.1x 3.6x Ba3/BB- Net Debt/EBITDAR 5.5 5.5 5.4 5.7 5.8 Calpine Corp 6.7x 2.0x B1/BB- EBITDA/Interest 1.9 1.9 2.1 2.0 2.0 Dynegy 10.2x 1.1x –/D Edison Mission 8.5x 1.4x Caa1/B- * Note our EBITDA does not adjust for maintenance expense that is budgeted at $235 million for 2011. GenOn 7.8x 1.1x B3/B CMS 4.7x 3.7x Ba1/BB+ Capitalization* NRG 4.7x 2.4x B1/BB- Debt to Description Size EBITDAR *AES reflects sub distributions to parent obligations; LTM4Q2011 Project subsidiary debt Project finance debt 1,658 As of September 30, 2011 CCFC 8% due 2016 970 Liquidity Notes payable and other borrowings/lease adj. - Revolver 1,000 Total CCFC debt and project debt 2,628 1.7x CDHI LOC Facility 200 Revolver - Total Capacity 1,200 First Lien Term Loan 1,650 Borrowings (revolver) - Senior secured 7.25% of 2017 1,200 LOC under (revolver) 369 Senior secured 8% of 2019 400 LOC under CDHI Facility 193 Senior secured 7.875% of 2020 1,092 Bank line Availability 638 Senior secured 7.5% of 2021 2,000 Cash 1,285 Senior secured 7.875% of 2023 1,200 Total Liquidity 1,923 Capital lease 234 Operating leases and other adjustments - Total debt and preferred 10,404 6.7x Net Total Debt 9,119 5.8x Minority Interest - Market Cap 7,220 Enterprise Value (using net total debt) 16,339 10.4x Enterprise Value (using total debt) 17,624 11.3x * Proforma for the $2 billion debt issuance. Maturities
250
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Goldman Sachs Credit Research 36 January 26, 2012 High Yield
Cascades Inc. Updated 1/23/2012 Joe Stivaletti 212-902-3299 Contact analyst or see latest research for updates to ratings, estimates, and other information. James Kitchell 212-902-9813 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $500 7.750 Sr Nts 15-Dec-17 Ba3/B+ 103.875 15-Dec-13 100.500 7.595 697
more than 100 production units located in NorthCom Americapany Descriand Europe.ption Investment Strengths: Cascades produces, converts and markets packaging and tissue products composed mainly of - Leading market positions in stable, consumer- recycled fibers. Cascades employs close to 11,000 people who work in more than 100 production units oriented end markets: A significant portion of located in North America and Europe. Cascades' packaging and tissue products is sold to consumer-oriented end-markets that tend to be relatively insensitive to economic cycles. - Strong focus on improving financial performance and reducing leverage: Cascades has a dedicated and experienced management team focused on improving/divesting underperforming assets and cutting costs.
Investment Risks: - Higher-than-expected input costs: Higher prices than we are expecting for key inputs such as recycled fiber and energy would have a negative impact on the company's performance. Financial Profile 12/31/2010 12/31/2011 9/30/2010 6/30/2011 9/30/2011 - Stronger-than-expected Canadian dollar: FY:10 FY:11E 3Q:10 2Q:11 3Q:11 Cascades' profitability is highly sensitive to changes in the value of the C$, and exchange rate trends that are less favorable than our Revenue 3,182 3,655 832 991 947 expectations would negatively affect the EBITDA 310 256 94 62 79 company's results. Interest expense 107 102 27 27 25 Capital expenditures NA 125 19 22 23
Total debt 1,403 1,476 1,477 1,306 1,371 Cash 6 11 15 18 11 Net debt 1,397 1,465 1,462 1,288 1,360
Key Credit Statistics Total debt/EBITDA 3.8x 5.1x 3.6x 4.2x 4.9x Agency Net debt/EBITDA 3.8x 5.0x 3.6x 4.2x 4.8x Comps Leverage Coverage Ratings EBITDA/interest 2.9x 2.5x 3.5x 2.3x 3.2x GP 2.1x 4.8x Baa3/A- EBITDA margin 9.7% 7.0% 11.3% 6.3% 8.3% GPK 3.8x 3.8x B2/BB- PKDY 4.5x 2.3x B3/B ABH 0.9x 8.0x B1/BB- Capitalization 9/30/2011 Debt to Description Size EBITDA Liquidity 9/30/2011 Bank loans and advances 111 Revolver size 750 Revolving credit facility 140 Letters of credit 10 7.75% sr nts due 2016 198 Borrowings 140 7.75% sr nts due 2017 513 Revolver availability 600 7.875% sr nts due 2020 256 Other recourse debt 56 Cash 11 Total recourse debt 1,274 4.5x Total liquidity 611 Non-recourse debt 115 Unamortized costs (18) Total debt 1,371 4.9x
Total debt 1,371 Market cap 437 Enterprise value 1,797
Maturities:
1200
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Goldman Sachs Credit Research 37 January 26, 2012 High Yield
Catalent Pharma Solutions (PTSAC) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst for updates and other information. Cindy Guan 212-902-9758 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $565 9.5 Sr. Uns. 15-Apr-15 Caa1/B $104.750 2/27/2012 $103.500 3.858% 382
Company Description Company Strengths: Catalent is a pharma outsource manufacturing and packaging company. Its business is primarily focused on Oral - Long-standing customer relationships with well-established Technologies, Sterile Technologies, and Packaging services. Oral Technology is the company's core business, and pharmaceutical and biotechnology companies, none of which account includes Softgels (e.g., Advil Liqui-Gels) and fast-dissolve tablets. Catalent owns the softgel/fast-dissolve technology for more than 7% of revenues. and collects a royalty on sales of products using it. Sterile Technologies includes blow-fill-seal plastic containers, which hold respiratory drugs and eye drops, and pre-filled syringes. Packaging is a commoditized/low-growth business and - Strong value proposition to customers because of technical includes printing drug inserts and packaging pills. expertise, breadth of services provided, and geographic reach.
Catalent was formed from the sale of Cardinal Health's Pharmaceutical, Technical and Services (PTS) unit to - Highly diversified business based on customers, geography, and Blackstone, which was completed in April 2007. Since then, the company has hired a new CEO and CFO. end-user markets.
In August 2011, the company announced that it has entered into an agreement to purchase Aptuit for $410mn. Aptuit will - No maintenance covenants and large $350 mn revolver. double PTSAC's clinical services business. PTS's credit agreement allows for a $300 mn incremental term loan though the company is subject to a 4x secured incurrence limit. PTSAC has stated that it is looking to amend and extend the credit facility subject to market conditions.
Key Dates/Catalysts: Company Risks: - Quarterly earnings (strength in the core oral technologies business has been offset by weakness in packaging and - Highly levered. sterile technologies) - Progress on plans to wind down UK softgel operations and plans to transfer production to other softgel facilities - Growth in sterile manufacturing business has been below the - Financing and closing of the Aptuit acquisition. company's expectations. - Potential amend and extend of the credit facility. - Recovery of insurance revenue due to the March fire in England. - History of volatile margins industry-wide.
Financial Profile 2009 2010A Dec 2Q10 Mar 3Q11 Jun 4Q11 Sep 1Q11 Revenue $1,640 $1,703 $413 $418 $449 $411 EBITDA 267 310 81 93 103 75
Interest Expense $182 $161 $41 $40 $44 $42 Cash Taxes 17 22 9 8 6 4 CapEx 84 79 16 21 38 25 Free Cash Flow (10) 155 0 54 15 (3)
Total Debt 2347 2270 2294 2335 2347 2344 Cash 64 164 141 201 205 187 Net Debt 2283 2106 2153 2134 2142 2156 Agency Key Credit Statistics LTM Comps Leverage Coverage Ratings Total Debt/EBITDA NA 7.3x LTM: 6.7x Catalent (PTSAC) snr 5.6x NA Caa1/B Net Debt/EBITDA NA 6.8x VWR Int'l (VWRINT) snr 5.6x 2.0x Caa1/B- IMS Health (RX) 4.2x 2.5x B3/B EBITDA/Interest 1.5x 1.9x 2.0x 2.3x 2.3x 1.8x Bausch & Lomb (BOL) 5.0x 3.4x Caa1/B EBITDA margin 16.3% 18.2% 19.6% 22.2% 22.9% 18.3% Biomet (BMET) sub 6.0x 2.0x Caa1/B-
Capitalization
Debt to LTM Description Size EBITDA Liquidity Revolving Credit Facility due April 2013 0 Revolver Size* $350 Extended Revolving Credit Facility* 0 Letters of Credit 15 Term Loan--Dollar 4/10/2014 1,015 Borrowings 0 Term Loan--Euro 4/10/2014 363 Revolver Availability 335 New Term Loan** 300 Total Sr Sec debt $1,678 4.1x A/R facility $0 Borrowings 0 9.5%/10.25 Sr Notes (PIK Toggle) due 2015 624 A/R Availability 0 Total Sr debt $624 5.6x Cash** $77 9.75% Sub Notes (Euro) due 2017 308 Total Liquidity $412 Total Sub debt $308 6.3x *$150mn due 2013 and $200mn extended to 2016. **Cash is PF for an assumed $110mn used to fund Aptuit in Other $33 addition to an assumed $300mn incremental term loan. Total Debt $2,644 6.4x Market Cap NA Enterprise Value NA * Ext revolver matures April 2016 with springing maturity 91 days before TL, senior notes and sub notes ** Assumed incremental term loan to fund Aptuit acquisition, subject to a 4x incurrence limit. Maturities (Includes the assumed incremental TL in 2014):
1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 38 January 26, 2012 High Yield
Catalyst Paper Corporation (CTLCN) Updated 1/23/12 Joe Stivaletti (212) 902-3299 Contact analyst or see latest research for updates to ratings, estimates, and other information. James Kitchell (212) 902-9813 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) US$390 11.000 Sr Sec Nts 15-Dec-16 Caa3/D 103.000 15-Dec-12 63.500 22.298 2,140 US$250 7.375 Sr Nts 01-Mar-14 C/C 101.229 Current 5.000 274.939 27,468
Company Description Investment Strengths: Catalyst Paper Corporation is a North American producer of newsprint and other mechanical printing papers. - Strong focus on efficiency and cost-saving: Catalyst Altogether, Catalyst operates four paper and pulp mills with a combined annual capacity of 1.9 million tonnes. management has maintained a strong focus on increasing efficiency and cutting costs. - Geographically diverse customer base: In 2010, 56% of revenue came from the US, 22% from Asia and Australasia, 9% from Latin America, 12% from Canada, and 1% from Europe and other areas.
Investment Risks: - Changes in the value of the C$: All but one of Catalyst's mills are in British Columbia, which gives the company significant exposure to changes in the value of the C$. - Declining demand: Catalyst has experienced declines in demand for many of its products in recent years.
Financial Profile 12/31/2009 12/31/2010 9/30/2010 6/30/2011 9/30/2011 FY:09 FY:10 3Q:10 2Q:11 3Q:11 Revenue 1,201.7 1,228.6 322.3 297.8 340.3 EBITDA 141.1 71.6 34.5 (3.9) 26.8
Interest expense 69.3 72.0 19.0 18.7 19.0 Capital expenditures 11.5 11.2 2.4 5.6 5.6
Total debt 775.6 774.7 798.3 729.3 808.6 Cash 83.1 95.4 82.3 30.2 17.8 Net debt 692.5 679.3 716.0 699.1 790.8
Key Credit Statistics Total debt/EBITDA 5.5x 10.8x 13.7x 9.7x 12.0x Net debt/EBITDA 4.9x 9.5x 12.3x 9.3x 11.7x
EBITDA/interest 2.0x 1.0x 1.8x -0.2x 1.4x EBITDA margin 11.7% 5.8% 10.7% -1.3% 7.9%
Capitalization 9/30/2011 Debt to Description Size EBITDA Liquidity 9/30/2011 Credit facilities 31.5 6.3x Revolver size 330.0 11.000% sr sec nts 391.8 6.3x Borrowing base 167.3 7.375% sr nts 262.0 10.2x Letters of credit 27.7 Non-recourse JV debt 123.3 12.0x Borrowings 31.5 Total debt 808.6 Minimum availability - Market capitalization 5.7 Revolver availability 108.1 Enterprise value 796.5 Cash 17.8 Total liquidity 125.9
Maturities:
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** Unless otherwise noted, all references to dollars are in Canadian dollars.
Goldman Sachs Credit Research 39 January 26, 2012 High Yield
CF Industries Inc. (CF) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 OUTPERFORM We are Outperform rated on CF's 6.875% senior unsecured notes and its 7.125% senior unsecured notes, as we believe the bonds present a potential crossover opportunity. In our view, CF is likely to be upgraded to investment grade over the near term (Fitch already rates bonds BBB-) owing to its favorable performance outlook and accelerated debt reduction. We believe CF's bonds offer incremental upside from current levels, as they still trade well wide of comparable investment grade companies.
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp OP 800 6.875 Sr. Nts 1-May-18 Ba1/BB+ MW 115.25 4.09% 316 OP 800 7.125 Sr. Nts 1-May-20 Ba1/BB+ MW 118.75 4.39% 294
Company Description Investment Strengths: CF Industries is the second-largest producer of nitrogen fertilizers globally (first in North America) and the world's third- - Leading market positions. largest public phosphate producer. On April 15, 2010, the company acquired Terra Industries through the short form - Cost-advantaged natural gas feedstocks (based on merger procedure under Maryland law. CF's acquisition of Terra valued the company at approximately 7.3x 2010E location in North America). EBITDA (excluding $135 million of synergies expected by the company, the $123 million Yara termination fee, debt - Extensive storage and distribution system. redemption premiums, and other items). - Strong management team.
Key Dates/Catalysts: Investment Risks: 4QFY11 earning release - Fertilizer industry is cyclical. Potential ratings upgrade by credit agencies - Margins are vulnerable to fluctuations in natural gas prices. - Minimal product differentiation. - Significant customer concentration.
Financial Profile ($, mn)* FY:09 FY:10 FY:11E Q4:10 Q3:11 Q4:11E Net Sales 4,190 4,374 6,075 1,238 1,404 1,696 Adjusted EBITDA 1,209 1,463 3,001 494 682 797
Cash Interest (25) (224) (116) (50) (30) (32) Comps Leverage Coverage Ratings Cash Taxes (291) (228) (841) (122) (194) (233) CF 0.6x 20.1x Ba1/BB+ Capital Expenditures (370) (293) (259) (70) (64) (90) Agrium 1.0x 16.8x Baa2/BBB Free Cash Flow (198) 1,016 1,864 470 783 254
Total Debt 607 1,959 1,613 1,959 1,618 1,613 Cash 1,198 798 977 798 1,426 977 Key Credit Statistics PF LTM Debt/EBITDA (3) 2.2x 1.3x 0.5x 1.3x 0.6x 0.5x PF LTM Net Debt/EBITDA 1.9x 1.1x 0.5x 1.1x 0.4x 0.5x
LTM EBITDA/Interest NA 6.5x 25.8x 6.5x 20.1x 25.8x LTM EBITDA margin 29% 33% 49% 33% 48% 49%
PF Capitalization ($, mn) Debt to Description Size EBITDA Liquidity Revolver - Revolver Size 500 Term Loan B-1 - Borrowings - Total Senior Secured Debt - 0.0x Letters of Credit 9 6.875% Senior Notes 800 Revolver Availability 491 7.125% Senior Notes 800 Legacy Terra Notes 13 Cash 1,426 Other Notes Payable 5 Total Liquidity 1,917 Total Debt 1,618 0.6x
Minority Interest 487 Share Price 172.9 Market Capitalization 12,086 Enterprise Value 12,764 4.7x
Maturities:
1800 1600 1400 1200 1000 800 600 400 200 0 2011 2012 2013 2014 2015+
Goldman Sachs Credit Research 40 January 26, 2012 High Yield
Charter Communications, Inc. Updated 1/20/12 Jason Kim 212-902-2233 Contact analyst or see latest research for updates to ratings, estimates, and other information. Satya Tagat 212-902-4427 IN-LINE We believe that the Charter bonds are one of the higher-quality names in the HY cable sector and current relative value appears fair compared to the likes of CVC Opco and DISH. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Issuing Entity / Priority Maturity Ratings Price Date Price (%) bp $700 8.125 CCOH Sr Nts 30-Apr-20 B1/BB- 104.063 30-Apr-15 110.13 5.81 526
Company Description Investment Strengths: (1) Positioned to generate above-peer revenue and EBITDA growth Charter Communications, Inc., is the fourth-largest cable operator in the United States with approximately 12 over the intermediate term given CHTR's relatively low product million homes passed. Through its hybrid fiber and coaxial cable network, Charter offers its customers analog penetration rates, particularly in data. and digital cable video programming, high-speed Internet access, advanced broadband cable services, and, in many of its markets, telephone service. As of September 30, 2011, Charter served approximately 4.4 million (2) Potential M&A candidate for higher quality strategic players. analog video customers, of which approximately 3.4 million were also digital video customers. Charter also served approximately 3.4 million high-speed Internet customers and provided telephone service to approximately (3) Relatively tight bond covenants: In terms of debt incurrence 1.8 million customers. tests, Charter's bonds have tighter covenants than most other US cable bonds. On December 19, 2011, Charter announced that Cablevision's former Chief Operating Officer, Tom Rutledge, would be named President and Chief Executive Officer. Mr. Rutledge, who is highly respected within the cable Investment Risks: industry and has long been viewed as a top operator, will assume his new positions on February 3, 2012. (1) Competition from DBS/telcos.
Key Dates/Catalysts: (2) Continued video margin pressure: Due to programming cost February 2012: Results of the most recent bond tender offers. increases – including retransmission fees – cable's video margins are expected to decline for the foreseeable future. February/March 2012: 4Q2011 earnings and 2012 guidance (the company typically only gives capex guidance).
Financial Profile FY09A FY10A 2Q11A 3Q11A 4Q11E FY11E Basic Subscribers 4,824,000 4,520,400 4,412,900 4,370,900 4,322,932 4,322,932 Digital Subscribers 3,218,100 3,363,200 3,386,700 3,400,900 3,419,439 3,419,439 Data Subscribers 3,062,300 3,246,100 3,352,500 3,424,100 3,488,606 3,488,606 Phone (VoIP) Subscribers 1,595,900 1,717,000 1,747,600 1,763,800 1,791,855 1,791,855
Revenue $6,755 $7,059 $1,791 $1,809 $1,834 $7,204 EBITDA 2,493 2,599 673 653 690 2,679 Free Cash Flow (550) 710 155 90 63 380 Agency Total Debt excl. Prefs $12,755 $11,549 $11,748 $11,710 $12,111 $12,111 Comps Leverage Coverage Ratings Cash 754 32 194 32 20 20 Net Debt 12,001 11,517 11,554 11,678 12,091 12,091 CSC Holdings 3.1x 3.2x Ba3/BB Key Credit Statistics CVC Corp. 4.0x 3.2x B1/B+ Total Debt/EBITDA 5.4x 4.7x 4.7x 4.8x 4.7x 4.8x VMED Finance PLC 3.5x 3.4x Ba2/BB- Total Debt/Basic Sub $2,800 $2,725 $2,837 $2,857 $2,982 $2,982 DISH DBS Corporation 2.4x 6.9x Ba3/BB-
EBITDA Margin 36.9% 36.8% 37.6% 36.1% 37.6% 37.2%
Capitalization * Debt / Description Size EBITDA Liquidity Bank Debt $3,667 1.4x Revolver Size $1,300 2nd Lien Debt 812 1.7x Letters of Credit (66) CCVIII Preferred * 776 Borrowings (165) CCOH 3rd Lien Debt 350 Revolver Availability $1,069 CCOH Unsecured Debt 6,250 4.5x CCH II Debt 1,480 5.1x Cash $32 Total Liquidity $1,101 Total Debt $12,792 4.9x Net Debt 12,760 4.9x Market Cap 5,791 Enterprise Value 18,551 7.1x * 70% owned by CCH I, a subsidiary of Charter, and 30% owned by CCI, the issuer of the common stock – it is eliminated in consolidation for total debt. ** Capitalization is pro forma for refinancing and tender transactions subsquent to 3Q2011A Maturities:
12,000 10,431 10,000
8,000
6,000
4,000
2,000 937 1,053 267 105 0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 41 January 26, 2012 High Yield
Chesapeake Energy (CHK) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $669 7.250% Sr. 12/15/2018 Ba3/BB+NC $106.70 6.04% 527
Company Description Investment Strengths: CHK is the largest independent producer of natural gas in the US. The company has been a leader in the shale • Size and diversity are above average for the rating play "land grab" over the last few years and has emerged with arguably the industry's strongest inventory of drilling category locations. We believe that after years of aggressive growth, CHK has moved into asset conversion mode, and • Leader in the Barnett, Haynesville, and Marcellus should grow more organically and at a more measured pace. shales • JVs substantially reduce expected future Chesapeake is a "boom, bust and boom again” story, founded in 1989 and taken public in 1993. Initially, CHK development costs achieved drilling success in the Austin Chalk of Texas. The company sought to extend its success into the • Strong liquidity Louisiana Chalk in the late 1990s. However, drilling results and capital costs proved challenging and a concurrent • Aggressive debt reduction plan collapse in natural gas prices left the company distressed. Needing a plan for survival, CHK redefined its strategy to allow for a more diversified asset base and focus on unconventional gas. Since then, the company has built a Investment Risks: strong presence throughout the Mid-Continent via more than $20 billion of acquisitions and is a player in every • High natural gas exposure natural gas shale play east of the Rockies. In 2005, CHK acquired Columbia Natural Resources, an Appalachian • High absolute leverage and free spending history; we Basin natural gas producer, for $2.2 billion. Chesapeake recently announced a shift in strategy: It has raised over believe rating agencies may be hesitant to upgrade $5 billion in preferred equity, and has reduced debt by $3.5 billion. The company plans to invest $1.5 billion in • Historically aggressive financial management liquids-rich plays. CHK indicated a goal of achieving investment grade status and also announced its intention to • Relatively unhedged in 2012 sell a portion of its Marcellus shale asset. In addition, the company plans to shift its focus toward oil, and expects oil to be 20-25% of its production by 2012. In January 2011, Chesapeake announced its 25/25 plan, which includes a 25% reduction in long-term debt and a 25% production growth rate. Since the announcement, the Key Dates/Catalysts: company has announced a JV in the Niobrara for $570 million and the sale of its Fayetteville assets for $4.75 • Announcements with respect to future VPP billion. On April 4, CHK announced a tender offer for $1 billion in senior notes and $1 billion in convertible notes. transactions and midstream financings CHK recently announced a plan to devote $1 billion over the next 10 years to ventures that enhance natural gas • Potential for additional shale play JVs demand. In November 2011, CHK announced a JV on its Utica properties with Total for $2.3 bn. In January 2012, • Results from the Utica Chesapeake announced plans to curtail up to 1 bcf/d of gas production due to weak natural gas prices. • Management is targeting debt redution to $9.5 bn by year-end 2012
Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $10,831 $8,373 $10,024 $12,443 $10,235 EBITDA (Adj for non-cash items) $5,633 $4,420 $4,959 $5,242 $5,063 Free Operating Cash Flow ($3,941) ($870) ($1,451) ($2,794) ($2,605) Capital Expenditures $9,177 $5,226 $6,568 $7,757 $7,300
Leverage Coverage Agency Comps ('11E) ('11E) Ratings Credit Ratios 2008A 2009A 2010A 2011E 2012E CHK 2.0x 33.6x Ba3/BB+ Total Debt/EBITDA (LTM) 2.5x 2.8x 2.5x 2.0x 2.2x PXD 1.9x 8.6x Ba1/BBB- EBITDA/Interest Expense (LTM) 17.9x 39.1x 141.7x 33.6x 11.4x NFX 1.8x 10.3x Ba2/BB+ Debt to Capitalization % 47% 50% 45% 37% 36% FST 2.8x 4.0x B1/B Debt + Preferred per Proved Boe $7.18 $5.27 $4.52 $5.04 $4.89 Debt + Preferred per PDP Boe $10.69 $9.02 $8.45 $7.43 $6.34
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $111 Revolver Size $4,400 Revolving Credit Facility $3,563 Letters of Credit $60 Long Term Debt Borrowings $3,563 Senior notes 2013-35 $8,226 Revolver Availability $777 Other $0 Cash $111 Total Long Term Debt $8,226 Total Liquidity $888 Total Debt $11,789 2.3x Preferred Equity $3,062 Common Equity $13,236 Total Capitalization $28,087
Maturities:2000 1800 1600 1400 1200 1000 800 600 400 200 Debt maturities ($ mn) 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 42 January 26, 2012 High Yield
Chiquita Brands (CQB) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 202-357-7875 Contact analyst or see latest research for updates to ratings, estimates, and other information. IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $106 7.5 Sr Nts 1-Nov-14 Caa1/B- $101.25 Current 100.00 7.48% 698
Company Description Investment Strengths: - Strong global brand Chiquita is a leading international marketer and distributor of high-quality fresh and value-added - Holds No. 1 or No. 2 position in the major food products under the brands Chiquita and Fresh Express and other related trademarks. The markets in which it competes (bananas, company is one of the largest banana producers in the world, and a major supplier of bananas in packaged salads) Europe and North America. Chiquita is the US market leader in value-added salads, with a retail - Ample liquidity with no near-term maturities market share of nearly 50%. Investment Risks: - High volatility in banana pricing Key Dates/Catalysts: - Significant exposure to fuel costs and Early March, quarterly earnings release currency - Potential for another health-related product recall - Continued weakness in salad segment
Financial Profile FY09 FY10 FY11E 4Q10A 4Q11E Comps Yield Leverage Coverage Ratings Revenue 3,477.0 3,226.7 3,190.0 773.0 773.0 Chiquita 7.48% 4.1x 2.8x Caa1/B- EBITDA 208.0 136.1 141.6 5.0 11.6 Dole Foods 4.95% 4.2x 2.7x B2/B+ Dean Foods 6.96% 5.2x 2.9x B2/B- Interest Expense 62.0 56.2 51.0 14.0 11.0 Cash Taxes 0.6 (2.0) (77.5) (4.0) (1.5) CapEx 68.3 70.1 75.2 37.0 25.0 Free Cash Flow 77.1 11.8 92.9 (42.0) (22.9)
Total Debt 656.0 634.0 574.4 634.0 574.4 Cash 121.4 156.0 184.9 156.0 184.9 Key Credit Statistics Total Debt/EBITDA 3.15 4.66 4.06 Net Debt/EBITDA 2.57 3.51 2.75
EBITDA/Interest 3.35x 2.42x 2.78x 0.36x 1.06x
EBITDA margin 5.98% 4.22% 4.44% 0.65% 1.51%
Capitalization 3Q11A Debt to Description Size EBITDA Liquidity 3Q11A Revolver ($150) L+250, due 2016 0.0 Revolver Size 150.0 Term Loan ($330mm, 2014) L+300 325.9 Letters of Credit 23.0 Total Secured Debt 325.9 2.4x Borrowings 0.0
Revolver Availability 127.0 7.50% Senior Notes Due 2014 156.4 4.25% Convertible Senior Notes Due 20 141.1 A/R facility NA Other loans and notes payable 1.0 Borrowings 0 Total Sub debt 298.5 A/R Availability NA
Cash 132.8 Total Debt 624.4 4.6x Total Liquidity 259.8 Market Cap 402.4 Enterprise Value 1036.4 7.6x
Maturities: 700 600 500
400 300 200
100 0 2012 2013 2014+
Goldman Sachs Credit Research 43 January 26, 2012 High Yield
Chrysler Group LLC (CHRYGR) Updated 1/26/12 Brian Jacoby, CFA 212-902-3258 Contact analyst for updates and other information. Cody Sauer, CFA 212-855-8553 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW T-sprd 5-year Company (MM) (%) Priority Maturity Ratings Next Call Date Price (%) bp CDS Chrysler Group $1,500 8.00 2nd lien 15-Jun-19 B2/B 104.000 15-Jun-15 $97.75 8.4 646 NA Chrysler Group $1,700 8.25 2nd lien 15-Jun-21 B2/B 104.125 15-Jun-16 $97.00 8.7 677 NA
Company Description Company Strengths: Chrysler Group LLC, headquartered in Auburn Hills, MI, is a North American-based automotive manufacturer selling vehicles in more than 120 countries worldwide. Chrysler is majority-owned by Fiat Spa, an Italy-based auto manufacturer. In 2011, Chrysler produced approximately 1.99 - Chrysler is currently renewing a significant portion of its million vehicles, up from 1.57 million in 2010. Approximately 74% of Chrysler's vehicle sales are in the US, 12% in Canada, 4% in Mexico, and the vehicle portfolio through 2014, with several new small, fuel remaining 10% in South America/Asia/Europe. In 2011, Chrysler's US market share increased to 10.6% versus 9.4% in 2010. Chrysler sells efficient vehicles planned which should benefit from vehicles under the brand names Chrysler, Jeep, Dodge and Ram, and also markets automotive parts and accessories under the Mopar brand. technology sharing with Fiat. Chrysler is responsible for manufacturing and selling the Fiat 500 in North America, and has the exclusive right to distribute the Fiat and Alfa Romeo brands in North America. In April 2009, Chrysler Group LLC was formed when it purchased the principal operating assets of the former - In addition to technology sharing, the alliance with Fiat Chrysler LLC (Old Carco), which filed for bankruptcy reorganization through a 363 transaction. The reorganization was funded primarily through the should allow Chrysler to gain greater access to the following transactions; a $7.1 billion US Treasury facility; a C$2.3 billion Export Development Canada (EDC) loan; a $400 million Mexican European and South America auto markets, areas where Development Bank facility; $4.7 billion UAW VEBA trust note; and a C$974 million Canadian Health Care Trust note. Following the completion of Chrysler currently has little exposure. the 363 transaction, Chrysler's shareholders consisted of the UAW Retiree Medical Benefits Trust (67.7% ownership), Fiat (20%), US Treasury (9.9%), and Canada CH Investment Corporation (2.5%). Fiat attained its original 20% stake by contributing intellectual property. In May 2011, - Over the past four years, Chrysler has significantly Chrysler repaid the US Treasury and the EDC credit facilities by issuing $3.2 billion in 2nd lien senior notes and a $3.0 billion first lien term loan. reduced its fixed costs by closing under-utilized plants and Fiat's ownership in Chrysler increased by 5% in January 2011 when Chrysler began commercial production of the FIRE engine (Technology Event) reducing headcount. and increased another 5% in April 2011 when Chrysler attained revenue expansion outside of North America (Distribution Event). In May 2011, Fiat exercised a call option purchasing 16% of Chrysler for $1.3 billion in cash and in July 2011 Fiat acquired the 1.5% owned by the Canadian - Chrysler and Fiat are lead by Sergio Marchionne, a CEO government and the 6% owned by the US Treasury. At year-end 2011, Fiat owned 53.5% of Chrysler and in January 2012, Fiat increased its stake with a strong reputation for improving profits and to 58.5% following the production of the new 40-mpg Dodge Dart sedan using Fiat architecture (Ecological Event). Chrysler has a strategic operational efficiencies. relationships with Ally auto finance (retail and wholesale funding), Santander Consumer USA (sub-prime), and US Bank, NA (leasing) for vehicle financing. Fiat does not guarantee Chrysler's debt, nor does Fiat have a formal support agreement with Chrysler.
Financial Profile* ($MN) FY08 FY09 3Q10 FY10 3Q11 LTM 3Q11 Company Risks: Revenue 48,477 28,792 11,018 41,946 13,067 50,615 - A significant economic slowdown in the US and Europe Modified EBITDA 250 (1,631) 937 3,455 1,119 4,459 could reduce demand for Chrysler and Fiat vehicles, and Interest Expense 1,080 1,085 308 1,276 301 1,346 reduce cash flow at both companies. Consolidated Net Income (16,844) (8,210) (84) (652) 212 (241) - Chrysler's balance sheet is more levered versus its US peers, Ford and General Motors. Depreciation & Amortization 4,808 3,124 698 3,051 660 3,010 Other operating cash flow 10,130 (749) (2,570) 256 (443) 96 - Chrysler's current vehicle sales mix is significantly Change in Working Capital (3,397) 1,040 300 1,540 (600) 640 exposed to light trucks and SUVS, which would likely see Net Operating Cash Flow (5,303) (4,795) (1,656) 4,195 (171) 3,505 lower demand in a higher fuel price environment. CapEx (2,765) (1,327) (500) (2,385) (723) (2,613) Dividends 0 0 0 0 0 0 - Chrysler does not have its own captive finance company, and is entirely reliant on banks for its retail and wholesale Free Cash Flow (FCF) (8,068) (6,122) (2,156) 1,810 (894) 892 vehicle financing. Assets Sold (Acquired) 0 0 0 0 0 0 Debt Increase (Decrease) 1,058 6,663 682 (1,417) (30) (1,993) Stock Increase (Decrease) 0 4,122 0 (109) 0 (109) Other Cash Flows (623) 1,130 212 1,201 203 2,404 Total Chg in Cash (7,633) 5,793 (1,262) 1,485 (721) 1,194
Cash 1,898 5,862 8,260 7,347 9,454 9,454 Total Debt 13,907 9,551 12,883 13,731 12,384 12,384 Net Debt (Net Cash) 12,009 3,689 4,623 6,384 2,930 2,930 Debt-to- EBITDA Key Credit Statistics Comps EBITDA Interest cov Agency Ratings LTM 1st Lien Secured Debt/EBITDA NA NA NA 2.4x 0.8x 0.8x Ford Motor Co. 1.3x 10.5x Ba2/BB+ LTM Total Debt/EBITDA 55.6x -5.9x NA 4.0x 2.8x 2.8x General Motors Co.† 0.6x 13.0x Ba1/BB+ LTM FCF/Total Debt -58.0% -64.1% NA 13.2% NA 7.2% Note: Ford and GM debt metrics exclude pension deficits EBITDA/Interest Expense 0.2x -1.5x 3.0x 2.7x 3.7x 3.3x †General Motors debt includes Series A preferred stock. EBITDA margin 0.5% -5.7% 8.5% 8.2% 8.6% 8.8%
Capitalization 9/30/2011 9/30/2011 Description Size EBITDA (x) Liquidity 1st Lien Term Loan L+475 due 2017 2,993 Revolvers 1,300 Mexican Development bank facility 375 Letters of Credit/Other 0 Other 1st lien sec debt 333 Borrowings 0 Total 1st lien sec debt 3,701 0.8x Revolver Availability 1,300 8.00% 2019 1,481 8.25% 2021 1,679 Cash 9,454 Total 2nd lien sec debt 3,160 1.5x Total Liquidity 10,754 VEBA Trust note (face value $4.7bn) 4,180 CAW Healthcare Trust 991 Other unsec debt 351 Total unsec debt 5,522 Total Automotive Debt 12,383 2.8x Pension & OPEB deficits - tax adjusted 4,295 Total adj automotive debt 16,678 3.5x Market Cap NA Enterprise Value NA
Debt Maturities ($mn):
750
500
($ MN) 250
0 2012 2013 2014 2015
Goldman Sachs Credit Research 44 January 26, 2012 High Yield
CityCenter Holdings, LLC (CCTRH) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst for updates and other information. Celeste Everett 212-902-4751 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $900 7.625 Sr Sec (1st lien) Notes 15-Jan-16 B1/B 103.810 15-Jan-14 104.750 5.85 506 523 $633 10.750 Sr Sec (2nd lien) PIK Toggle Nts 15-Jan-17 Caa2/CCC 105.375 15-Jan-14 107.00 9.07 828 PIK coupon = 11.5%; mandatory PIK until July 2012. Afterwards, issuer can decide to either pay coupon at 100% PIK interest, 100% cash or a 50/50 combination. Other terms include: 35% equity clawback, 420 day reg rights. Outlooks: Moody's - positive S&P - negative Company Description Company Strengths: CityCenter Holdings LLC is a 50/50 joint venture between MGM Resorts International , Inc. and Dubai World, which - Brand new property with original investment of $9 owns and operates CityCenter, a multi-use resort and casino on the Las Vegas Strip. The property sits on 67 acres of billion. land and includes - 616 of unsold condos could be sold to increase - Aria, a hotel/casino with 4,000 rooms, 1,991 slot machines, and 131 tables games; liquidity (after repayment of $125 mn of cost - Vdara, a condo/hotel tower with 1,495 units overruns to MGM). This excludes 854 condos put - Veer Towers, two room towers with 669 condominiums back into room inventory at Vdara and 485 units at - Mandarin Oriental: a condo/hotel tower with 392 hotel rooms and 225 condos. Vdara not in room inventory. The property also includes 322,000 sq ft of meeting space, 367,000 sq ft of retail space called Crystals. The - Expected support from MGM Resorts in the event construction cost was approximately $9 billion, excluding the value of the land. The Mandarin Oriental and Aria have liquidity is required. receive AAA Five Diamond Award status. - Strong convention bookings: 170k on books for 2011 (three times the pace from a year earlier). Recent events: - Las Vegas convention attendance improving: up - 3Q2011: voluntarily repaid $50 mn of bank debt. 2.3% YTD through November 2010. - October 2011: voluntarily repaid another $50 mn of bank debt. - Banks have shown a willingness to work with company during downturn in Las Vegas operations. - No near-term maturities provides runway to ramp Bond indenture summary: operations. Security interest: Includes stock of subsidiaries (which hold the gaming licenses) and the real property, - First liens have 18 months of coupons in escrow improvements, fixtures of CityCenter, the personal property of the issuer and the guarantors, the interest escrow while second liens PIK. account control agreement and IP security agreements. - First lien has better call protection than second Covenant highlights: lien. - Restricted payments: builder basket (50% of net income) at zero, $50 mn misc. basket. - Reduced headcount from 8,800 at 12/31/09 to - Debt incurrence: Fixed charge coverage ratio above 2.0x. Carve-outs: capital leases of $100 mn and misc. 5,300 at 12/31/10. incurrence of $100 mn. - Limitation on liens - Limitation on layered indebtedness - First $125 million of condo deal proceeds are required to repay MGM completion guarantee Company Risks: - If MGM sells Crystals mall, proceeds must to used to pay down credit facility. - No proven track record; uncertain what the EBITDA potential could be for CityCenter. - Highly leveraged Financial Profile 4Q10 2010 1Q11 2Q11 3Q11 - No cash on hand and no revolver; reliant on Revenue 258 1,332 271 281 260 partners for liquidity if FCF is not sufficient. Condo proceeds in revenue 35 526 19 18 15 - Perini litigation: trial to start in 4Q11. Unfavorable EBITDA 1669555746 outcome could be $250 mn or more. - No guarantee of debt from MGM or Dubai. Interest Expense 66.4 240.7 65.5 67.2 67.8 CapEx 62.5 453.7 15.1 25.0 6.3 Free Cash Flow (112.6) (625.7) (25.7) (35.1) (28.0)
Total Debt (includes related party debt) 2,747 2,747 2,517 2,553 2,541 Cash 78 78 108 183 210 Comps Leverage Coverage Ratings Net Debt 2,668 2,668 2,409 2,370 2,331 CCTRH 11.5x 0.7x Caa2/CCC Key Credit Statistics MGM (sr) 9.2x 1.7x B3/B- Total Debt/EBITDA nm nm nm nm nm HET 1st lien 7.1x 0.9x B3/B Net Debt/EBITDA nm nm nm nm nm WYNN 1.9x 6.6x Ba2 / BBB- BORGAT 5.2x 1.8x B2/BB- EBITDA/Interest 0.2x 0.3x 0.8x 0.8x 0.7x EBITDA margin 6.3% 5.2% 20.2% 20.3% 17.7%
Capitalization Liquidity Description 3Q11 Lvg Source 3Q11 Senior secured credit facility due 2015 450 7.625% secured (first lien) nts due 2016 900 Revolver due 2014 none Credit facility maintenance Total first lien debt 1,350 7.7x Letters of Credit & other covenant 10.75% sec (2nd lien) PIK toggle nts due 2017 649 Borrowings Fixed charge coverage ratio Total secured debt 1,999 11.5x Revolver Availability 3Q12 1.10x 3.42% Member notes (MGM/Dubai) due 2018 1,123 4Q12 1.15x Total debt (gross value) 3,122 17.9x Cash 210 1Q13 1.25x Total Liquidity 210 2Q13 1.25x 3Q13 & thereafter 1.50x Capital expenditures Maximum per year $50 mn (unused amount rolls to following yr.) Maturities:
2,000 Operating metrics 3Q11 4Q10 1Q11 2Q11 3Q11 Aria 1,500 # of rooms 4,004 4,004 4,004 4,004 4,004 ADR $175 $190 $201 $202 $200 1,000 Occupancy rate (%) 82% 80% 86% 90% 87% RevPAR $142 $152 $173 $181 $173
500 Vdara # of rooms (estimated) 910 910 1,050 1,229 1,329 0 ADR $141 $140 $159 $159 $157 2012 2013 2014 2015 2016 2017+ Occupancy rate (%) 70% 75% 83% 91% 84% RevPAR $99 $105 $132 $145 $131
Goldman Sachs Credit Research 45 January 26, 2012 High Yield
Clearwire Communications LLC (CLWR) Updated 1/20/12 Jason Kim 212-902-2233 Contact analyst or see latest research for updates to ratings, estimates, and other information. Satya Tagat 212-902-4427 IN-LINE CLWR's recent financing efforts, and agreements with Sprint, have ensured that CLWR would be sufficiently funded in the short term as it looks to deploy TDD-LTE in its markets with heaviest data traffic. However, the company still faces sigifnicant questions over the long-term viability of its capital structure and business model, and we think Sprint's much weakend credit profile essentially eliminates the previous optionality of being absorbed as Sprint's credit. Our In-Line ratings on the bonds reflect these challenges offset by the large coupon and CLWR's sufficient near-term liquidity Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $2,695 12.000 1st Lien 12/1/2015 B2/CCC+ NC NC 94.50 13.88 1265 $500 12.000 2nd Lien 12/1/2017 Ca2/CCC- NC NC 84.25 16.27 1490
Company Description Investment Strengths: (1) CLWR's vast spectrum holdings may make it strategically Clearwire Corporation is a provider of 4G wireless broadband services with a network reaching 133 million POPs. important to other carriers who may be spectrum constrained. The company had 9.5 million total subscribers as of 3Q2011. Of this 9.5 million, 1.3 million were retail subscribers who purchased service under Clearwire's CLEAR brand, and 8.2 million were wholesale subscribers, (2) Renewed collaberation and financing arrangements with Sprint which it derives primarily from its wholesale relationship with Sprint. As of September 30, 2011, Sprint held a 54% give CLWR additional time to augment and transform its business non-controlling economic interest in Clearwire Communications LLC and a 49.6% non-controlling voting interest in model to its "Switzerland of urban LTE capacity". Clearwire Corporation.
On December 1, 2011, Clearwire announced a series of agreements with Sprint that (1) modified their wholesale Investment Risks: pricing agreement such that CLWR will provide unlimited WiMAX service for fixed payments through 2013; (2) (1) The equity offering provides the company with much needed Sprint will conditionally pay CLWR up to $350mn over two years for LTE capacity; and (3) Sprint would contribute financing room to begin the transition of its business model. a proportionate amount of equity financing in a new CLWR equity offering. However, we continue to believe that CLWR will face an even higher funding deficit in 2013 and that Sprint and CLWR will need to make On December 13, 2011, Clearwire closed a Class A common stock offering that it had announced on December significant decisions regarding their ownership structure over the 5. After upsizing of the transaction by $50mn from the original $300mn plan offering, as well as the underwriters' next year. exercise of their over-allotment option, net proceeds were $384.1mn. Sprint contributed an additional $331.4mn to CLWR's equity offering through the purchase of Class B common stock in CLWR and a corresponding number of (2) CLWR's spectrum is difficult to value, and coverage through the Class B units in Clearwire Communications LLC. Total net proceeds following the two transactions were levels of debt varies significantly based on the $/MHz/POP $715.5mn, which Clearwire will use for general corporate purposes including TDD-LTE development. assumptions one uses. Key Dates/Catalysts: Update on relationship with Sprint and financing situation beyond 2012.
February 2012: 4Q2011 earnings.
Financial Profile FY09A FY10A 2Q11A 3Q11A 4Q11E FY11E Wholesale Subs ('000s) 46 3,246 6,360 8,219 8,919 8,919 Wholesale ARPU NM NM $6.18 $6.20 $6.18 $6.52 Wholesale Churn 0.6% 0.9% 1.3% 1.5% 1.7% 1.6% Retail Subs 642 1,099 1,288 1,322 1,302 1,303 Retail ARPU $39.65 $45.19 $47.59 $47.05 $48.26 $50.02 Agency Comps Leverage Coverage Ratings Revenue $274 $557 $294 $332 $360 $1,239 EBITDA (781) (1,091) (109) (46) (20) (369) LEAP Unsecured Nts 5.7x 2.1x B3/CCC+ Free Cash Flow (1,923) (3,825) (411) (125) (206) (1,263) Sprint 3.3x 4.0x B3/B+
Total Debt $2,772 $4,309 $4,302 $4,297 $4,297 $4,298 Cash & Liquid Investments 3,805 1,736 829 698 1,207 1,207 Net Debt (1,032) 2,573 3,956 3,956 3,956 3,956 Key Credit Statistics Total Debt/EBITDA NMNMNMNMNMNM Net Debt/EBITDA NMNMNMNMNMNM
EBITDA Margin (284.5%) (199.8%) (36.9%) (14.0%) (5.4%) (29.8%)
Capitalization* Debt / Description Size EBITDA Liquidity 12.000% 1st Lien Secured Nts $2,695 Revolver Size $0 12.000% 1st Lien Secured Rollover Nts 252 Letters of Credit - 1st Lien Debt $2,947 NM Borrowings - Revolver Availability $0 12.000% 2nd Lien Secured Nts 500 2nd Lien Debt $3,447 NM Cash* $1,413 Total Liquidity $1,413 Vendor Financing Notes 53 *Pro forma for the December 2011 equity raise of approximately $716mn. Capital Leases 67 8.250% Exchangeable Nts 729 Total Clearwire Debt $4,297 NM
Net Debt $2,883 Market Cap $2,134 Enterprise Value $5,017 NM *Capitalization pro forma for the December 2011 equity raise of approximately $716mn. Maturities:
4,000
2,947 3,000
2,000 1,349
1,000
0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 46 January 26, 2012 High Yield
CMS Energy Corporation (CMS) Updated 1/25/2012 Raymond M. Leung 212-357-5764 Contact analyst or see latest research for updates to ratings, estimates, and other information. Abayomi A. Adigun 212-902-9355 Our OUTPERFORM on CMS reflects the highly regulated cash flows and gradual financial improvement with an attractive value. We are IN-LINE rated on Consumers Energy. Bond Summary Size Coupon Agency Next Call Bid YTW STW Name (MM) (%) Priority Maturity Ratings Price Date Price (%) bp CMS $300 6.25 Sr Unsec'd 1-Feb-20 Ba1/BB+ MW+50 -- 106.56 5.24 333 Consumers $500 6.70 FMB 15-Sep-19 A3/BBB+ MW+50 -- 127.47 2.69 69
Company Description Investment Strengths: - CMS' primary asset is a solid investment grade utility, Consumers CMS is a utility holding company with two principal subsidiaries: Consumers Energy Co. and CMS Enterprises, Inc. Energy, that accounts for about 95% of cash flow. The utility's Consumers Energy is a regulated utility with electric and natural gas distribution operations serving 1.8 million electric and financial profile is strong with 3x debt-to-EBITDA. 1.7 million gas customers in Michigan's Lower Peninsula counties. The utility accounts for more than 95% of consolidated - Improving supportive Michigan regulatory treatment with cash flows. Through its subsidiaries and equity investments in the power generation business, Enterprises is engaged decoupled rate mechanisms and the ability to self-implement interim primarily in domestic operations, with plants fueled by natural gas and biomass. rate increases. Key Dates/Catalysts: - Management expects operating cash flow of $1.6 billion in 2011 - CMS will report 4Q2011 earnings on Feb. 23. We will look for an update on its business with an emphasis on capital spending. The company is budgeting capex at $6.6 billion for 2012 to 2016 period and 2012. - Liquidity remains strong at over $2.0 billion, with about $623 - Management is targeting EPS of $1.44 for 2011 which is consistent with its 5% to 7% annual earnings growth target. - Update on its pending electric and gas rate cases. The company on June 10, 2011 filed an electric base rate increase million in cash. Also, the company has 0.7 bn of net NOLs and credits in 2012. seeking a net $115 million rate increase with a 10.7% authorized ROE. The company's gas request is seeking a $49 million rate hike. Decisions are expected mid-to-late 2012. - Management has improved and stabilized the balance sheet - Potential for opportunistic refinancing. following an extensive asset rationalization program that led to divestment of non-core assets.
Investment Risks: - Capital spending remains high at $6.6 billion through 2016 that Financial Profile CMS CMS CMS Consumers Consumers includes significant environmental spending given the utility's reliance on coal generation. FY09 FY10 LTM 3Q11 FY10 LTM 3Q11 - Ongoing rate relief needs owing to its large spending program. Revenue 6,205 6,432 6,565 6,156 6,308 - The economic downturn could pose a greater challenge given CMS's exposure to the auto industry (5% of revenues). Michigan's EBITDA 1,293 1,551 1,518 1,490 1,529 unemployment rate remains high at 10.6%. - Parent debt levels are expected to remain flat at about $2 billion. - Debt maturities are significant in the near term, with about 25% of Adjusted Interest Expense 422 420 410 265 256 consolidated outstanding debt maturing in the next three years. Income Taxes 115 224 185 254 279 CapEx 818 821 834 815 825 Free Cash Flow (13) (182) (45) (239) (69) 6,103 6,746 7,138 4,529 4,348 Adjusted GAAP Debt Agency Cash 90 247 623 71 373 Comps Leverage Coverage Ratings Net Adjusted GAAP Debt 6,013 6,499 6,515 4,458 3,975 AES Corp* 4.1x 3.6x Ba3/BB- Key Credit Statistics Calpine Corp 6.7x 2.0x B1/BB- Total Debt/EBITDA 4.72 4.35 4.70 3.04 2.84 Dynegy 10.2x 1.1x –/D Net Debt/EBITDA 4.65 4.19 4.29 2.99 2.60 Edison Mission 8.5x 1.4x Caa1/B- EBITDA/Interest 3.06 3.69 3.70 5.62 5.97 GenOn 7.8x 1.1x B3/B EBITDA margin 21% 24% 23% 24% 24% CMS 4.7x 3.7x Ba1/BB+ NRG 4.7x 2.4x B1/BB-
Capitalization *AES reflects sub distributions to parent obligations; LTM4Q2011 Description Size Debt to EBITDA Liquidity Consumers Energy - FMBs 3875 CMS Revolver Size 550 Consumers Energy - Other 283 Consumers Revolver 650 Total Consumers Energy Debt 4,158 2.7x Consumers LOC 134 CMS Revolver ($550) - AR facility 250 CMS Senior Unsecured Notes 1925 Total bank lines 1,584 CMS Convertible Notes due 2023-2029 460 CMS LOC outstanding 3 Other 623 Consumers LOC outstanding 135 Adjustments (28) Borrowings - Total Parent and Consumers Energy Debt 7,138 4.7x Revolver Availability 1,446 Securitization and Non-recourse debt 182 Total debt 7,319 4.8x Cash 623 Total Liquidity 2,069
Market Cap 5,621 Enterprise Value 12,941 8.5x
Maturities:
800 700 600 500 400 300 200 100
0 2012 2013 2014 2015 2016
Source: SNL Energy, company documents and Goldman Sachs
Goldman Sachs Credit Research 47 January 26, 2012 High Yield
Community Health Systems (CYH) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 UNDERPERFORM We rate CYH Underperform as (1) leverage is highest of the group (excluding Iasis) and (2) we see the Medicare fraud investigation as a serious overhang, particularly the impact on operating results.
Size Coupon Agency Next Call* Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp CDS Level 5-Year $1,000 8 Snr. Uns. 15-Nov-19 B3/B $104.000 15-Nov-15 $102.500 7.457% 666 Snr 668 / 696 *Currently callable at $104.4375 Company Description Investment Strengths: Suburban/rural hospital operator with 132 hospitals; approximately half are rural and half are urban/suburban. - High-quality asset base: Largely rural/suburban facilities tend to be CYH purchased Triad, a mid-sized small urban hospital company, in July 2007. 65% of the combined company's less competitive for patients and physicians, require less capex hospitals are the sole hospital or one of two hospitals in the community served. CYH is centrally operated and its investment, and may have more-favorable rates. strategy is to extend that discipline to acquired facilities. CYH completed three acquisitions in 2010 (Marion Regional in South Carolina, Bluefield in West Virginia, and Forum Health in Ohio). Year to date 2011, CYH has - Excellent track record of margin improvement achieved at acquired acquired Mercy and Moses in Pennsylvania, divested two hospitals in Oklahoma to Ardent Health and acquired facilities: CYH was able to improve margins from low single-digits to Tomball in Houston. On its 2Q11 call, management stated that the Medicare fraud lawsuit has not been disruptive mid-teens in a matter of a few years. to its operations at the hospital level. However, on its 3Q11 call, CYH cited negative press around the lawsuit as one reason for its 7% s/s admissions decline.
In December 2010, CYH announced an unsolicited bid for THC at $6 a share for a combination of cash and stock, Investment Risks: which THC rejected. In April 2011, THC alleged that CYH had overbilled Medicare, with a potential liability in - Medicare and Medicaid reimbursement could be reduced. excess of $1 bn. CYH subsequently changed its bid to all cash and later also raised its bid to $7.25 a share. In May 2011, CYH withdrew its bid for THC. - CYH is under investigation by the DOJ and other government agencies related to allegations of filing false Medicare claims. CYH's recent acquisitions of Moses Taylor (closed January 2012) and MetroSouth (expected 1Q12) make a Historically, Medicare fraud investigations have taken years to revolver borrowing in 1Q12 likely. In January 2012, CYH announced its intent to amend and extend a portion of its resolve and settlements are determined partially based on a credit facility. company's ability to pay. In 3Q11, negative press surrounding the investigation appears to have impacted volumes to some degree. Key Dates/Catalysts: - Quarterly earnings announcements (commercial volumes have been weak industry-wide, although bad debt - Volumes have been weak across the industry and are expected to expense has been relatively stable). remain so for the near term. - Ongoing investigations by the DOJ and other government agencies related to alleged Medicare overbilling. - Potential acquisitions. - CYH's EBITDA growth has lagged its peer group, and leverage has - Potential refinancing of the bonds (callable July 15, 2011). remained high as a result. - Election results (November 2012) and potential Supreme Court decision on the constitutionality of the individual mandate could determine the fate of the Affordable Care Act (ACA). We view the ACA as a net positive for hospitals.
Financial Profile 2009 2010 2011E 4Q10A 3Q11A 4Q11E Revenue $12,087 $12,987 $13,823 $3,403 $3,436 $3,547 EBITDA 1,671 1,770 1,842 452 454 466
Interest Expense $649 $652 $652 $166 $159 $165 Cash Taxes 141 160 171 37 37 45 CapEx 577 667 743 286 181 210 Free Cash Flow 500 521 407 5 54 120
Total Debt $8,911 $8,872 $8,811 $8,872 $8,830 $8,811 Agency Cash 345 299 54 299 266 54 LTM Comps Leverage Coverage Ratings Net Debt 8,567 8,572 8,757 8,572 8,563 8,757 CYH 4.8x 2.8x B3/B Key Credit Statistics VANGUA 4.4x 2.7x B3/B- Total Debt/EBITDA 0.8x 0.8x 0.8x THC 3.9x 2.7x Caa1/CCC+ Net Debt/EBITDA 5.1x 4.8x 4.8x HMA 3.0x NA --/BB- HCA sr uns 4.2x NA B3/B- EBITDA/Interest 2.6x 2.7x 2.8x 2.7x 2.8x 2.8x EBITDA margin 13.8% 13.6% 13.3% 13.3% 13.2% 13.1%
Capitalization Debt to Debt to LTM 2011E Description Size EBITDA EBITDA Liquidity Revolver due 2013 $0 Revolver Size $750 Term Loan due 2014* $4,476 Letters of Credit 38 Extend Loan due Jan 2017 1,485 Borrowings 0 Total Sr Sec debt 5,961 3.3x 3.2x Revolver Availability 712
8.875% Snr Notes due 2015 $2,784 Cash $266 Total Sr bonds $2,784 4.8x 4.7x Total Liquidity $978
Other debt $84 Total Debt $8,830 4.8x 4.8x Market Cap 1,720 Enterprise Value $10,284 5.6x 5.6x *In January 2012, CYH announced its intent to extend a portion of the 2014 TL as well as other amendments including the option to replace its revolver. Maturities: (includes term loan amortization) 6,000
4,000
2,000
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 48 January 26, 2012 High Yield
Constellation Brands (STZ) Updated: 1/26/12 Karen Eltrich 212-902-6957 Contact analyst or see latest research for updates to ratings, estimates, and other information. Jordan Hughes 212-357-7875 UNDERPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $500 8.375 Sr Nts 15-Dec-14 Ba2/BB+ NC NC 112.75 3.68 302 $700 7.250 Sr Nts 1-Sep-16 Ba2/BB+ NC NC 110.25 4.74 367 $700 7.250 Sr Nts 15-May-17 Ba2/BB+ NC NC 110.75 4.92 368
Company Description Investment Strengths: Constellation Brands, Inc., is a leading international producer and marketer of beverage alcohol - Leading, diversified portfolio brands, with a broad portfolio across the wine, imported beer, and spirits categories. - Asset-rich company - Strong cash flow generation and deleveraging capability
Key Dates/Catalysts: Early April - fourth quarter earnings release Investment Risks: - Management has stated its openness to a large acquisition; no ambitions to become IG - Significant portion of earnings reported via joint venture format - Shift to premium products has made the company more vulnerable to slowdown in Financial Profile FY10 FY11 FY12E 4Q11A 4Q12E consumer spending Revenue 3,364.8 3,332.0 2,717.3 715.3 691.1 EBITDA 963.3 908.2 856.3 182.5 189.7
Interest Expense 260.5 195.3 178.6 47.4 45.5 Cash Taxes 160.0 (8.5) (18.5) (172.8) (130.0) CapEx 107.7 108.1 70.1 38.0 16.0 Free Cash Flow 435.1 613.3 626.1 269.9 258.2
Total Debt 3,835.5 3,236.3 2,869.6 3,236.3 2,869.6 Cash 43.5 9.2 53.6 9.2 53.6 Key Credit Statistics Total Debt/EBITDA 4.0x 3.6x 3.4x Comps Yield Leverage Coverage Ratings Net Debt/EBITDA 3.9x 3.6x 3.3x Dean Foods 6.96% 5.2x 2.9x B2/B- Constellation 4.74% 3.4x 4.8x Ba2/BB+ EBITDA/Interest 3.7x 4.7x 4.8x 3.9x 4.2x Del Monte 8.10% 6.4x 2.4x B3/CCC+
EBITDA margin 28.63% 27.26% 31.51% 25.51% 27.45%
Capitalization 3Q12 Debt to Description Size EBITDA Liquidity 3Q12A Revolver Size 650.0 Revolving Credit Facility ($650 due 06/15/1 247.0 Letters of Credit 12.2 Other notes payable to banks 105.3 Borrowings 247.0 Term Loan B (due 6/5/13) L+250 624.7 Term Loan B (due 6/15/15) L+275 201.9 Revolver Availability 390.8 Total Secured Debt 1178.9 1.4x 8.375% Sr Nts due 2014 500.0 A/R facility NA 7.25% Senior Notes due 09/01/16 694.5 Borrowings 0.0 7.25% Senior Notes due 05/15/17 700.0 A/R Availability NA Other Debt 31.2
Cash 55.8 Total Debt 3104.6 3.7x Total Liquidity 446.6 Market Cap (Shareholders' Equity) 4212.6 Enterprise Value (Total Book Cap) 7308.0 8.6x
Maturities & required debt payments 3,000
2,000
1,000
0 2012 2013 2014+
Goldman Sachs Credit Research 49 January 26, 2012 High Yield
Convatec (CONVAT) Updated 01/25/12 Contact analyst or see latest research for updates to ratings, estimates, and other information. Erin Blum 212-855-7718 OUTPERFORM Cindy Guan 212-902-9758 Our rating reflects (1) compelling relative value, (2) favorable industry characteristics, and (3) improving cash flow. The ostomy industry has several creditor-friendly characteristics, including few competitors, sales to an installed base, non-discretionary products, and slow technology shifts. Management reiterated that it should be "reasonably close to its" 2011 EBITDA guidance of being up yoy. Bond Summary Size Coupon Agency Next Call Bid YTW STW Snr (MM) (%) Priority Maturity Ratings Price Date Price (%) bp 5-yr CDS $745 10.5 Snr Uns15-Dec-18 Caa1/B $105.250 15-Dec-14 $97.500 11.023% 1,023 995 / 1071
Company Description Investment Strengths: Convatec manufactures and distributes medical products in four business segments: ostomy (37% of LTM - Convatec makes non-discretionary, one-time-use products. revenue), wound care (32%), continence and critical care (17%), and infusion (14%). Ostomy is a surgically created opening in the abdomen to allow the discharge of waste when a portion of the intestines has to be removed due to - Sales are to a large permanent installed base. Approximately 95% of cancer or other disease. CONVAT was spun out from Bristol-Myers Squibb on August 1, 2008, in an LBO by Nordic ostomy patients are permanent, using 60 pouches per month . Product Capital and Avista Capital at approximately 11x June 2008 LTM EBITDA. Subsequently, on September 2, 2008, loyalty is strong. Roughly 30% of patients switch in the first six months CONVAT acquired Nordic’s portfolio company Unomedical for $593.6 million and divested the Unomedical Wound but this falls to virtually 0% after the first year. Care and Ophthalmic businesses for $22.3 million as mandated by the European Commission. - FCF should improve due to a drop-off in one-time items and better In December 2010, Convatec refinanced its capital structure to remove the old LBO term loans and mezzanine NWC management. debt, and put in place new term loans, secured and unsecured notes. On its 3Q11 conference call, Convatec reiterated that it would be "reasonably close to its" EBITDA guidance of being up yoy over 2010. In August 2011, - End market is growing at 2-3%, driven by an aging population, the press reported that CONVAT made a bid for KCI but in October 2011, KCI announced that the second bidder increased use of stoma surgeries, increased penetration of advanced has withdrawn. wound care, critical and continence care and infusion sets; offset by about 1% pricing declines. CONVAT CDS was recently added to the new xover index in Europe. Investment Risks: Key Dates/Catalysts: - Leverage remains high at mid 6x. Public comparable Coloplast trades - Quarterly earnings announcements. (Company has guided that 2011 should be up yoy) at 12x. We expect a slow deleveraging path. - Announcements of acquisitions. Convatec has been buying small distributors in Latin America and other markets. - Pricing pressure in Europe could be greater than expected due to government austerity measures.
- Market share losses could continue if Convatec is not able to win new Financial Profile* 2009E 2010A 2011E 4Q10A 3Q11A 4Q11E nurse sponsoring initiatives in the UK or if the new product uptake is Revenue $1,527 $1,513 $1,579 $396 $411 $419 less than expected. EBITDA 440 428 433 119 126 122
Cash Interest Expense, net* $206 $165 $230 $28 $59 $54 Cash Taxes (33) 104 (3) 51 (54) 10 CapEx 75 42 32 7 7 11 Free Cash Flow (59) 35 74 30 86 (15)
Total Debt $2,749 $2,718 $2,708 $2,731 $2,710 $2,708 Agency Cash 103 69 56 69 80 56 Comps Leverage Coverage Ratings Net Debt 2,646 2,648 2,652 2,662 2,630 2,652 CONVAT snr 6.3x 2.1x Caa1/B Key Credit Statistics DJO sub 7.1x 1.6x Caa1/CCC+ Total Debt/EBITDA 6.2x 6.4x 6.3x ACCINC sub 6.8x 1.5x Caa2/CCC+ Net Debt/EBITDA 6.0x 6.2x 6.1x
EBITDA/Interest 2.1x 2.6x 1.9x 4.3x 2.1x 2.3x EBITDA margin 28.8% 28.3% 27.4% 30.0% 30.7% 29.0% *Cash interest does not include interest on the preferred equity which is accrued
Capitalization Debt to Debt to LTM 2011E Description Amount EBITDA EBITDA Liquidity Revolving Credit Facility 12/22/2015 $0 Revolver Size $250 TL B USD due 12/22/2016 $496 Letters of Credit 3 TL B EUR due 12/22/2016 $731 Borrowings 0 7.375% Snr Sec 12/15/2017 EUR $402 Revolver Availability 247 Total Snr Sec debt $1,629 3.8x 3.8x A/R facility $0 10.5% Snr unsec US 12/15/2018 $745 Borrowings 0 10.875% Snr unsec EURO 12/15/2018 $335 A/R Availability 0 Total Snr Uns debt $1,080 6.3x 6.3x Cash & marketable securiti $80 Other Debt $2 Total Liquidity $327 Total Debt 2,710 6.3x 6.3x Market Cap NA Enterprise Value NA
Maturities: 3,000 3,000 2,500 2,500 2,000 2,000 1,500 1,500 1,000 1,000 500 500 0 0 2012 2013 2014 2015+ 2012 2013 2014 2015+
Goldman Sachs Credit Research 50 January 26, 2012 High Yield
Cooper Tire (CTBUS) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $174 8.00% Sr. Nts 15-Dec-19 B2/BB- NC NC 107.00 683.3% 552
Company Description Investment Strengths: - Long debt maturity runway mitigates raw material risk: Cooper Tire & Rubber Company manufactures and markets replacement tires. The company focuses on the CTBUS's next major debt maturity comes in 2019 with manufacture and sale of passenger and light truck replacement tires. Cooper also manufactures radial medium the maturity of its 8% senior notes. truck tires and materials and equipment for the truck tire retread industry. It currently commands a small share of - Adequate liquidity: CTBUS ended 3Q2011 with more the US replacement tire market, and sells to a wide variety of aftermarket stores and tire dealers. Cooper offers a than $450 million of liquidity, consisting of $90 million of variety of branded tires (about 60% of volume) and a large percentage of private label product (about 40% of cash and cash equivalents and $375 million of company volume). credit lines. - Price raises partially offset raw material risk: Cooper Key Dates/Catalysts: Tire has announced a series of tire price increases in - Cooper Tire is expected to report 4Q2011 earnings in late February/ early March. response to escalating raw material costs.
Investment Risks: - Raw materials will remain a headwind: Management estimates that about 50% of the company’s COGS are derived from raw materials – particularly natural rubber and oil. Although natural rubber prices have declined from their early 2011 levels, they remain moderately elevated. Financial Profile FY08 FY09 FY10 LTM-3Q11 FY11E FY12E - Moderating North American replacement tire volumes: After a strong 2010 in which volumes increased about Revenue 2,881.8 2,779.0 3,361.0 3,801.3 3,802.9 3,823.6 7%, North America light vehicle replacement tire EBITDA 31.8 335.5 332.7 282.2 243.1 237.5 shipments were flat in 2011 and are expected to grow by a modest 2% in 2012. - 421 Tariff stepping down: The 30% tariff on Chinese Interest Expense (45.5) (48.0) (35.9) (37.0) (34.6) (33.9) tires declined to 25% in September 2011 and will decline Cash Taxes (8.0) (8.0) (8.0) (8.0) (8.0) (8.0) to 0% in September 2012. We believe Cooper Tire is at W/C and Other (170.3) 140.1 (139.9) (228.4) (104.3) (2.0) risk of losing market share if the tariff is not extended by the US government. CapEx (128.8) (79.3) (119.7) (166.0) (156.3) (170.0) Free Cash Flow (320.8) 340.3 29.2 (157.2) (60.1) 23.6
Total Debt 658.3 503.2 473.6 356.1 356.1 333.9 Comps Leverage Coverage Ratings Cash 247.7 427.0 413.4 90.6 244.1 267.7 AXL 2.8x 4.8x B1/BB- Net Debt 410.6 76.2 60.2 265.6 112.1 66.2 CTBUS 1.3x 8.4x B1/BB- Key Credit Statistics GT 3.0x 6.5x Ba3/BB- Total Debt/EBITDA 20.7x 1.5x 1.4x 1.3x 1.5x 1.4x MTOR 3.0x 3.6x B2/B Net Debt/EBITDA 12.9x 0.2x 0.2x 0.9x 0.5x 0.3x TEN 2.2x 4.5x Ba3/BB TRW 0.9x 13.6x Ba2/BB+ EBITDA/Interest 0.8x 8.0x 10.6x 8.4x 7.5x 7.0x EBITDA margin 1.1% 12.1% 9.9% 7.4% 6.4% 6.2%
Capitalization Debt to Description Size EBITDA Liquidity Revolver due 2016 0.0 0.0x Revolver Size 200.0 8.0% Sr Notes due 2019 173.6 1.3x - Amt Drawn 0.0 7.625% Sr Notes due 2027 116.9 1.3x - LCs Drawn 0.0 Other 65.7 1.3x Amt Unutilized 200.0 Total Debt 356.1 1.3x A/R Facility 175.0 Less cash (90.6) -- Cash 90.6 Net Debt 265.6 0.9x Liquidity 465.6 Market Cap 934.2 Enterprise Value 1199.8 4.9x Unsecured Asian Lines 231
Maturities:
350
300 250 200 150 100 50 0 2011 2012 2013 2014 2015 After
Goldman Sachs Credit Research 51 January 26, 2012 High Yield
Crown Holdings, Inc. (CCK) Updated 1/23/12 Joe Stivaletti (212) 902-3299 Contact analyst or see latest research for updates to ratings, estimates, and other information. James Kitchell (212) 902-9813 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) $700 6.250 Sr Nts 01-Feb-21 Ba3/BB 103.125 01-Feb-16 107.500 4.884 422
Company Description Investment Strengths: Crown manufactures metal packaging. The company's primary products include steel and aluminum cans for food, beverage, - Strong, stable customer base: Crown provides household, and other consumer products, and metal caps and closures. Crown is the largest global producer of metal food cans and packaging to many of the world's leading consumer aerosol cans in the world, the second-largest producer of metal vacuum closures, and one of the largest producers of metal beverage products companies, including Anheuser-Busch, Cadbury cans in the world. Schweppes, Coca-Cola, and Pepsi. - Exposure to international growth markets: Crown operates 135 plants in 41 countries and generated approximately 72% of sales from international operations in 2010. - Stable earnings and cash flow: Crown operates in a recession-resistant segment of the packaging industry, and enjoys relatively stable earnings and cash flow generation throughout the cycle.
Investment Risks: - Irrational price competition could lead to lower profitability: Although can manufacturers have behaved rationally in recent years, irrational selling price competition remains a possibility. Financial Profile 12/31/2009 12/31/2010 9/30/2010 6/30/2011 9/30/2011 - Future M&A activity may lead to higher leverage: Crown could make a leveraging acquisition in the near to FY:09 FY:10 3Q:10 2Q:11 3Q:11 intermediate term. Revenue 7,938 7,941 2,205 2,281 2,423 EBITDA 1,006 1,042 335 316 347
Interest expense 247 203 55 60 58 Capital expenditures 180 320 83 81 89
Total debt 2,798 3,048 3,229 3,876 3,757 Cash 459 463 415 546 479 Net debt 2,339 2,585 2,814 3,330 3,278 Key Credit Statistics Total debt/EBITDA 2.8x 2.9x 3.2x 3.5x 3.4x Comps Leverage Coverage Ratings Net debt/EBITDA 2.3x 2.5x 2.8x 3.0x 2.9x Berry Plastics 6.4x 2.1x Caa1/CCC Owens-Illinois 3.1x 4.7x Ba3/BB EBITDA/interest 4.1x 5.1x 6.1x 5.3x 6.0x Ball 2.8x 6.6x Ba1/BB+ EBITDA margin 12.7% 13.1% 15.2% 13.9% 14.3%
Capitalization 9/30/2011 Debt to Description Size EBITDA Liquidity 9/30/2011 Revolving credit facilities 472 1.2x Revolver size 1,200 Term loan facilities 567 1.2x Letters of credit 60 Bank loans and overdrafts 295 1.2x Borrowings 472 7.625% senior notes due 2017 400 2.8x Revolver availability 668 7.125% senior notes due 2018 670 2.8x 6.250% senior notes due 2021 700 2.8x Cash 479 7.375% debentures due 2026 350 3.4x Total liquidity 1,147 7.500% debentures due 2096 64 3.4x Other debt 239 3.4x Total debt 3,757 Market value of equity 5,252 Enterprise value 8,658
Maturities:
2,500
2,000
1,500
1,000
500
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 52 January 26, 2012 High Yield
DaVita, Inc. (DVA) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 UNDERPERFORM We remain Underperform on DVA due to (1) the risk that Medicare “re-coups” the RUGs IV overpayments, (2) the risk of more aggressive international investments, and (3) the potential ongoing shift to lower margin Medicare patients from managed care. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $775 6.375% Sr. Uns. 1-Nov-18 B2/B $104.781 11/1/2013 $105.000 5.172% 437 $775 6.625% Sr. Uns. 1-Nov-20 B2/B $104.969 11/1/2014 $105.500 5.495% 470
Company Description Investment Strengths: Second-largest operator of dialysis centers in the US (Fresenius is the largest). DVA serves 112,000 end-stage - Large market share in a growing market due to increased renal disease (ESRD) patients (approximately a 30% market share) in 43 states through 1,582 dialysis centers. incidence of diabetes, hypertension, and other causes of renal disease. Dialysis is needed at least three times per week for the Medicare covers people with ESRD regardless of age. Medicare reimbursement is low, so Medicare accounts duration of an ESRD patient's life. for 87% of treatments, but is only 50% of DVA's revenue and contributes negative EBIT. Currently, private insurance pays for the first 33 months of dialysis and then Medicare takes over. Medicare bundled payments - Largely insulated from bad debt expense because Medicare began January 2011. Under bundled payments, providers have an incentive to reduce drug usage because the covers dialysis patients regardless of age. Private insurance, if drugs no longer garner separate payments. Reimbursement of the Amgen drug EPO (an anemia drug available, pays for the first 33 months. Otherwise, Medicare covers commonly prescribed to dialysis patients) previously accounted for 20% of DVA's revenue. Centers are leased, the patient immediately. not owned. - Significant free cash flow at 18% of debt at LTM 3Q2011 (pro DVA acquired DSI for $690 mn on September 6 and was required by FTC to divest 30 facilities. forma for recent acquisitions and debt raise).
In November 2011, Amgen and Davita announced a new seven-year exclusive contract on Epogen. Investment Risks: Key Dates/Catalysts: - The company's payer mix has deteriorated due to an increasing - Quarterly reports – implementation of new EPO protocols and cost cutting are key. number of uninsured in the US. DVA says that most Medicare - PDUFA date for Affymax/Takeda's ESA that could compete with Epogen in March 2012. patients are unprofitable. - While dialysis has historically not faced significant Medicare cuts, the 2% sequestration and potential other cuts could be headwinds.
- Already at the low end of net leverage target range of 3x-3.5x which suggests company may increase leverage.
Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E Revenue $6,109 $6,447 $6,975 $1,649 $1,808 $1,850 EBITDA 1,169 1,231 1,410 315 386 391
Interest Expense $186 $182 $242 $54 $61 $62 Cash Taxes 278260315409491 CapEx 275 274 347 104 97 95 Free Cash Flow 392 566 881 16 398 104
Total Debt $3,630 $4,317 $4,491 $4,317 $4,508 $4,491 Cash 539 860 595 860 541 595 Net Debt 3,090 3,457 3,896 3,457 3,967 3,896 Agency Key Credit Statistics LTM Comps Leverage Coverage Ratings Total Debt/EBITDA 3.1x 3.5x 3.2x DVA 3.2x 5.7x B2/B Net Debt/EBITDA 2.6x 2.8x 2.8x CYH 4.8x 2.8x B3/B UHS uns 2.9x NA Baa3/BB+ EBITDA/Interest 6.3x 6.8x 5.8x 5.9x 6.3x 6.3x HLS 3.2x 4.3x B2/B+ EBITDA margin 19.1% 19.1% 20.2% 19.1% 21.4% 21.1% LPNT 1.6x NA Ba1/BB-
Capitalization Debt to Debt to LTM PF 2011E Description Size EBITDA* EBITDA Liquidity Revolver due 2015 $0 Revolver Size $350 Term Loan A of 2015 963 Letters of Credit 46 Term Loan A-2 of 2016 200 Borrowings 0 Term Loan B of 2016 1,737 Revolver Availability 304 Total Sr Sec debt $2,899 2.1x 2.1x Cash $541 6.375% Senior Notes due 2018 $775 Total Liquidity $845 6.625% Senior Notes due 2020 $775 Other debt $59 Total Sr bonds $1,609 3.2x 3.2x
Total Debt $4,508 3.2x 3.2x Market Cap 7,591 Enterprise Value $11,558 8.3x 8.2x *LTM PF EBITDA includes $63mn of EBITDA from DSI, closed Sept 6, 2011. Maturities: 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 53 January 26, 2012 High Yield
Dean Foods (DF) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 212-357-7875 Contact analyst or see latest research for updates to ratings, estimates, and other information. UNDERPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $500 7.00 Sr Nts 1-Jun-16 B2/B- NC NC 100.13 6.96 596
Company Description Investment Strengths: Dean Foods is the largest processor and distributor of milk and various other dairy products in - Leading position as only national dairy the United States. It has two divisions: (1) Fresh Dairy Direct-Morningstar, the largest US beverage company processor and distributor of milk, creamer, and cultured dairy products, selling its products under - Deep customer relationships across all a variety of local and regional brand names and under private labels; and (2) WhiteWave-Alpro, channels. which develops, manufactures, markets, and sells a variety of nationally branded soy, dairy, and - Low cyclicality for dairy demand dairy-related products, such as Silk soymilk, Horizon Organic dairy products, International Delight coffee creamers, and Land O'Lakes creamers and fluid dairy products. Investment Risks: Key Dates/Catalysts: - High debt leverage February Class 1 Mover prices and mid-February fourth quarter earnings release - Demanding amortization schedule - Continued dairy pricing pressure - Price sensitivity to organic - Further anti-trust settlements
Financial Profile FY09 FY10 FY11E 4Q10A 4Q11E Comps Yield Leverage Coverage Ratings Revenue 11,160.0 12,134.1 13,127.7 3,153.0 3,368.2 Dean Foods 6.96% 5.2x 2.9x B2/B- EBITDA 940.4 748.3 728.0 184.7 200.0 Constellation 4.74% 3.4x 4.8x Ba2/BB+ Del Monte 8.10% 6.4x 2.4x B3/CCC+ Interest Expense 246.4 248.3 255.1 70.6 63.5 Cash Taxes 152.1 73.5 (360.5) 14.4 27.5 CapEx 268.2 302.0 325.4 121.4 110.0 Free Cash Flow 273.7 124.5 507.9 (21.7) (1.0)
Total Debt 4,489.3 4,067.5 3,791.0 4,067.5 3,791.0 Cash 36.0 92.0 150.1 92.0 150.1 Key Credit Statistics Total Debt/EBITDA 4.77 5.44 5.21 Net Debt/EBITDA 4.74 5.31 5.00
EBITDA/Interest 3.8x 3.0x 2.9x 2.6x 3.2x
EBITDA margin 8.43% 6.17% 5.55% 5.86% 5.94%
Capitalization FY11E Debt to Amt EBITDA Liquidity 3Q11A Revolver ($225, L+125) due 4/2/12 0.0 Revolver Size 1,500.0 Revolver, L+325 ($1275) due 4/2/14 0.0 Letters of Credit 169.9 Tranche A Term , L+ 125 (due 4/2/12) 71.1 Borrowings 46.5 Tranche A Term L+325 (due 4/2/14) 588.7 Revolver Availability 1,283.6 Tranche B Term L+150 (due 4/2/14) 677.3 Tranche B Term L+325 (due 4/2/16) 1040.4 Total Secured Debt 2377.5 3.3x A/R facility 600.0 Borrowings 385.0 7.00% Notes due 2016 498.8 A/R Availability 215.0 6.90% Notes due 2017 128.7 Capital Lease Obligations 1.0 9.75% Senior Notes due 2017 400.0 Cash 107.7 Receivables-backed facility 385.0 Total Sub debt 1413.5 Total Liquidity 1,606.3
Total Debt 3791.0 5.2x Market Cap 2020.7 Enterprise Value 5703.9 7.6x
Maturities and required debt payments 3,500 3,000
2,500 2,000 1,500 1,000 500 0 2012 2013 2014+
Goldman Sachs Credit Research 54 January 26, 2012 High Yield
Del Monte Foods (DLM) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 202-357-7875 Contact analyst or see latest research for updates to ratings, estimates, and other information. OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,300 7.625 Sr Notes 15-Feb-19 B3/CCC+ $103.81 15-Feb-14 97.50 8.10 649
Company Description Investment Strengths: Del Monte Foods is one of the largest producers, distributors, and marketers of premium-quality, - Strong brands; DLM billion-dollar brand branded food and pet products for the US retail market. Its leading brands are Del Monte, - Holds No. 1 or No. 2 position in its major Contadina, S&W, and other brand names, and its pet food and pet snacks include the brands categories 9Lives, Kibbles 'n Bits, Pup-Peroni, Snausages, Pounce, Meow Mix, Alley Cat, Milk-Bone, and - Pet food and snacks, which now comprise other brand names. 60% of operating income, are growth categories - Significant free cash flow generation - Pet appeared to stabilize in 2Q Key Dates/Catalysts: Early March, third quarter earnings Investment Risks: - Relapse in pet if competitors behave irrationally - Inability to pass through pricing as expected - Potential for acquisitions
Financial Profile FY10A FY11A FY12E 3Q11A 3Q12E Comps Yield Leverage Coverage Ratings Revenue 3,739.8 3,666.1 3,792.0 969.4 1,022.7 Dean Foods 6.96% 5.2x 2.9x B2/B- EBITDA 620.8 661.6 584.3 191.4 165.6 Constellation 4.74% 3.4x 4.8x Ba2/BB+ Del Monte 8.10% 6.4x 2.4x B3/CCC+ Interest Expense 116.3 159.3 240.4 18.8 58.0 Cash Taxes 139.9 90.8 34.0 48.2 21.7 CapEx 104.9 82.5 77.2 13.1 22.0 Free Cash Flow 259.7 329.0 232.8 111.3 63.9
Total Debt 1,290.8 4,002.0 3,749.8 1,275.3 3,945.9 Cash 53.7 205.2 117.5 74.0 117.5 Key Credit Statistics Total Debt/EBITDA 2.1x 6.0x 6.4x Net Debt/EBITDA 2.0x 5.7x 6.2x
EBITDA/Interest 5.3x 4.2x 2.4x 10.2x 2.9x
EBITDA margin 16.60% 18.05% 15.41% 19.74% 16.19%
Capitalization FY2012E Debt to Description Amount EBITDA Liquidity 2Q12A Revolver ($750, due 3/8/16) 0.0 Revolver Size 750.0 Term Loan L+300, 150 libor floor (due 2445.0 Letters of Credit 38.2 Borrowings 0.0
Total Secured Debt 2445.0 4.2x Revolver Availability 651.8 7.625% Senior Sub Nts (due 2/15/19) 1300.0 Other 4.0 A/R facility NA Total Sub debt 3749.0 6.4x Borrowings 0 A/R Availability NA
Cash 117.5 Total Debt 3749.0 6.4x Total Liquidity 769.3 Market Cap (Shareholders' Equity) NA Enterprise Value (Total Book Cap) NA
Maturities & required payments:
4,500 4,000 3,500
3,000 2,500 2,000 1,500 1,000 500 0 2012 2013 2014+
Goldman Sachs Credit Research 55 January 26, 2012 High Yield
Delta Air Lines Inc. (DAL) Updated 1/24/2012 Justine Fisher 212-357-6711 Contact analyst or see latest research for updates to ratings, estimates, and other information. Joshua Pinkerton 212-357-9774
OUTPERFORM/UNDERPERFORM Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $120 8.954 EETC 10-Aug-14 Ba3/B NC NC 99.8 9.09% 888 $499 7.750 EETC 17-Dec-19 Baa2/A- NC NC 107.0 5.89% 512 $601 9.500 Sr. Secured 15-Sep-14 Ba2/BB- NC NC 106.5 5.26% 516
Company Description Investment Strengths: - Size: Delta is the world's second-largest airline. This Delta is the world's second-largest airline. It operates domestic and international routes through its mainline has allowed it to complete deals with partners that operations, along with the regional brand Delta Connection. It is a member of the Skyteam Alliance. Delta is would not be available to smaller competitors (for headquartered in Atlanta and has its main hubs in Atlanta, Cincinnati, Detroit, Memphis, Minneapolis/St. Paul, example the $2 billion credit card deal it signed with New York JFK, Salt Lake City, Amsterdam, and Tokyo Narita. It merged with Northwest in 2008. American Express). - Route structure: Delta acquired a strong route Key Dates/Catalysts: network in the Pacific when it bought Northwest. - Delta is expected to report earnings on January 25. - New JFK terminal should help Delta gain a stronger foothold in New York when it is complete.
Investment Risks: - Japan risk: Delta is the largest US carrier with service into Tokyo Narita airport, which has seen a decline in travelers following the earthquake and tsunami. - Capital expenditures: Delta recently placed an order for 100 Boeing 737-900ERs. The company says it intends to finance the aircraft with cash, though this could entail additional debt as well. We think replacing ageing DC-9s is positive. - Acquisition risk: Recent press reports have indicated Financial Profile FY10 2Q11 3Q11 4Q11E FY11E FY12E that Delta may make a bid for AMR. Revenue 31,755 9,153 9,816 8,133 34,849 34,375 EBITDAR 4,565 1,088 1,311 964 3,732 3,988
Interest Expense (1,004) (186) (229) (224) (907) (881) Income Taxes (15) 4 2 (15) 62 (65) CapEx (1,342) (313) (233) (350) (1,236) (1,200) Free Cash Flow 1,490 673 (331) 147 937 1,721
Total Debt 15,252 14,661 14,494 14,460 14,460 13,680 Comps Leverage Coverage Ratings Cash 4,019 4,254 3,670 3,783 3,783 4,592 UAL 2.6x 5.4x B2/B Net Debt 11,233 10,407 10,824 10,677 10,677 9,089 DAL 3.9x 4.1x B2/B Key Credit Statistics LUV 2.1x 9.9x Baa3/BBB- EBITDA/Interest 4.5 x 5.8 x 5.7 x 4.3 x 4.1 x 4.5 x JBLU 4.5x 4.6x B3/B- Leverage 3.3 x 3.9 x 3.4 x LCC 3.6x 3.9x Caa1/B- EBITDA margin 14.4% 11.9% 13.4% 11.9% 10.7% 11.6%
Capitalization Debt to Description Size EBITDAR Liquidity Secured debt payable through 2022 6,738.0 Revolver Size 1,800 6.718% due 1/2/23 (2002-1, G-1) 287.6 Letters of Credit 0 6.417% due 7/2/12 (2002-1, G-2) 370.3 Borrowings 0 6.821% due 8/10/22 (2007-1, A) 699.1 Revolver Availability 1,800 8.021% due 8/10/22 (2007-1, B) 190.3 8.954% due 8/10/14 (2007-1, C) 116.7 7.75% due 12/17/19 (2009-1, A) 531.7 Other 5,560.2 Total debt 14,494.0 3.9 x Market Cap 8,657.8 Cash 3,670 Enterprise Value 19,481.8 5.2 x Total Liquidity 5,470
Maturities:
6,000
5,000
4,000
3,000
2,000
1,000
0 2012 2013 2014 2015 Thereafter
Goldman Sachs Credit Research 56 January 26, 2012 High Yield
Denbury Resources (DNR) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $400 6.375% Sr. 8/15/2021 B1/BB- $103.19 8/15/2016 $108.00 5.02% 425
Company Description Investment Strengths: • Production and reserves are both around 80% oil DNR is one of the leaders in tertiary oil recovery using CO2 and has a dominant position in CO2 reserve ownership. • Tertiary recovery operations have little geologic risk The company owns the Jackson Dome CO2 source, the largest east of the Mississippi, and has a 750 mile • Identified roadmap of nine development phases with existing/planned pipeline network. In late 2009, Denbury announced the acquisition of Encore Acquisition (EAC), expected peak production of 65k bbl/d in 2016 from which established a new core EOR area in the Rockies for Denbury. The addition of the EAC assets more than around 24k bbl/d in 2009 doubled Denbury's Enhanced Oil Recovery (EOR) potential. EAC also brought substantial positions in the Bakken • Competitive advantage with ownership of Jackson and Haynesville shales. Dome, a naturally occurring CO2 reservoir; high barriers to entry Denbury's predecessor entity was incorporated in Canada in 1951. In 1992, that company acquired Denbury Management, Inc., in the US and subsequently divested all of its Canadian assets. Since 1992, the company has Investment Risks: been exclusively focused on the US, primarily in LA, MS, AL, and TX. In December 1997, DNR acquired the • Tertiary oil operations have inherently higher costs, Heidelberg field in MS from Chevron for $202 mn. In July 2004, the company sold its offshore assets for $200 mn. In which the company estimates at $15-$25 opex/bbl and September 2008, DNR exercised a call option to purchase the Hastings field from Venoco. In May 2009, the $7-$12/bbl total capital cost, including acquisition and company announced the sale of 60% of its Barnett Shale acreage to privately held Talon Oil and Gas for $270 mn, CO2; requires $35+ oil to be economic in most and in late 2009 DNR divested the remainder of its Barnett assets to Talon. In November 2009, DNR made a instances transformative acquisition with the $4.5 bn purchase of Encore Acquisition. Encore began as a private equity portfolio company in 1998 and went public in March 2001. The company's primary expertise was in applying secondary and Key Dates/Catalysts: tertiary production techniques to hydrocarbon recovery. DNR plans to leverage EAC's shale exposure and EOR • Additional non-core asset sales expertise going forward. Denbury also announced the acquisition of a 95% working interest in the Conroe Field in • Additional acquisitions Texas for $431 mn. The company recently sold $900 mn of non-core assets that it acquired in the EAC acquisition. In June 2011, Denbury announced plans to acquire the remaining 57.5% interest in Riley Ridge that it did not already own for $191 mn. In January 2012, Denbury sold $155 mn in non-core properties.
Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $1,297 $1,035 $1,771 $2,205 $2,652 EBITDA (Adj for non-cash items) $861 $551 $1,007 $1,391 $1,769 Free Operating Cash Flow ($280) ($479) ($117) ($346) ($439) Capital Expenditures $1,054 $1,010 $973 $1,350 $1,300
Credit Ratios 2008A 2009A 2010A 2011E 2012E Leverage Coverage Agency Total Debt/EBITDA (LTM) 1.0x 2.4x 2.4x 1.9x 1.7x Comps ('11E) ('11E) Ratings EBITDA/Interest Expense (LTM) 16.6x 9.2x 5.7x 7.9x 8.8x DNR 1.9x 7.9x B1/BB- Debt to Capitalization % 32% 40% 36% 34% 35% FST 2.8x 4.0x B1/B PXP 4.0x 7.0x B1/BB Capitalization WLL 1.2x 22.0x Ba3/BB+ Debt to Description Size EBITDA Liquidity Cash and equivalents $24 Revolver Size $1,600 Revolving Credit Facility $110 Letters of Credit $0 Long Term Debt Borrowings $110 Senior notes 2013-21 $2,295 Revolver Availability $1,490 Other $0 Cash $24 Total Long Term Debt $2,295 Total Liquidity $1,514 Total Debt $2,405 1.7x Preferred Equity $0 Common Equity $4,936 Total Capitalization $7,340
Maturities: 1200
1000
800
600
400
Debt maturities ($ mn) ($ maturities Debt 200
0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 57 January 26, 2012 High Yield
Dillard's Inc. (DDS) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 212-357-7875 Contact analyst for updates and other information. NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $162 7.13% Sr Nts 1-Aug-18 0 NC NC $106.70 5.88% 435
Company Description Company Strengths: Dillard's ranks among the nation's largest fashion apparel and home furnishings retailers, with annual revenues of - Significant real estate value approximately $6.2 billion. The company operates more than 300 Dillard's locations across 29 states, all under the - One of the largest regional department store groups nameplate Dillard's. - Improving sales trends Company Risks: - Unsecured notes have investment grade covenants Key Dates/Catalysts: (no change-of-control provision) mid-February, quarterly earnings release. Early February, January same stores sales. - Strong family involvement limits detailed information on operations - High economic sensitivity; recent comps deceleration
Financial Profile FY08A FY09A FY10A LTM Comps Yield Leverage Coverage Ratings Revenue 6,988.5 6,226.6 6,253.5 6,308.8 Bon-Ton 46.32% 5.2x 1.9x Caa2/CCC+ EBITDA 166.5 421.3 600.8 687.3 Dillard's 5.88% 1.7x 0.0x B2/BB- Express 5.98% 0.6x 0.0x B3/B+ Interest Expense 92.9 74.0 73.8 72.3 NMG 7.70% 5.5x 3.5x Caa1/B- Cash TAZes (132.2) 27.7 85.4 120.5 CapEx 189.5 78.4 75.6 118.6 Free Cash Flow 16.3 241.2 366.0 375.9
Total Debt 1,209.0 973.5 960.0 1,046.0 Cash 96.8 341.7 343.3 131.3 Key Credit Statistics Total Debt/EBITDA 7.3x 2.3x 1.6x 1.5x Net Debt/EBITDA 6.7x 1.5x 1.0x 1.3x
EBITDA/Interest 1.8x 5.7x 8.1x 9.5x
EBITDA margin 2.38% 6.77% 9.61% 10.89%
Capitalization Debt to Description Amt EBITDA Liquidity 3Q11A Revolving Credit Facility ($1000mm due 2012) 142.0 Revolver Size 1,000.0 Letters of Credit 55.8 Borrowings 142.0 Total Secured Debt 142.0 0.2x Revolver Availability 802.0
Senior Notes 692.1 A/R facility NA 7.5% Grnt'd Pfd Beneficial Int. in Sub Debs 200.0 Borrowings 0 Capital Lease 11.9 A/R Availability NA Total Sub debt 904.0 Cash 131.3 Total Debt 1046.0 1.5x Total Liquidity 933.3 Market Cap (Shareholders' Equity) 2347.3 Enterprise Value (Total Book Cap) 3051.7 7.2x
Maturities: 900 800 700 600
500 400 300 200 100 0 2012 2013 2014+
Goldman Sachs Credit Research 58 January 26, 2012 High Yield
DineEquity, Inc. (DIN) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 212-357-7875 Contact analyst or see latest research for updates to ratings, estimates, and other information. OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $785 9.50 Sr Nts 30-Oct-18 B3/CCC+ $104.75 30-Oct-14 107.50 7.59% 658
Company Description Investment Strengths: - Leading brands in family and casual dining DineEquity owns the leading US casual and family dining concepts in Applebee's and IHOP, respectively. Its restaurant base of primarily franchised restaurants generates system-wide sales segments - Stable historical operating performance at of approximately $7 billion. The Applebee's system includes more than 2,000 restaurants (approximately 25% company-owned), and the IHOP system includes more than 1,500 IHOP restaurants (substantially all franchised). - Applebee's turnaround under way - Strong cash flow generation from franchise- Key Dates/Catalysts: heavy model Early March, earnings release. Investment Risks: - Potential inability to refranchise remaining Applebee's restaurants at attractive prices - Highly competitive market - Franchise model limits growth upside
Financial Profile FY09A FY10A FY11E 3Q10A 3Q11E Comps Yield Leverage Coverage Ratings Revenue 1,414.0 1,333.1 1,069.7 299.8 236.7 DineEquity 7.59% 5.7x 2.3x B3/CCC+ EBITDA 352.8 352.0 313.6 78.1 64.5 Del Monte 8.34% 6.4x 2.4x B3/CCC+ Carrols 8.65% 3.3x 4.0x B2/B Interest Expense 186.5 171.5 135.1 40.1 33.7 Cash Taxes 5.2 (9.3) 26.8 (33.6) 5.1 CapEx 15.4 18.7 26.3 7.3 5.5 Free Cash Flow 145.8 171.1 125.3 64.4 20.1
Total Debt 2,124.6 2,038.9 1,787.9 2,038.9 1,787.9 Cash 82.3 102.3 53.8 102.3 53.8 Key Credit Statistics Total Debt/EBITDA 6.0x 5.8x 5.7x Net Debt/EBITDA 5.8x 5.5x 5.5x
EBITDA/Interest 1.9x 2.1x 2.3x 2.0x 1.9x
EBITDA margin 24.95% 26.41% 29.31% 26.06% 27.23%
Capitalization 2011E Debt to Description Size EBITDA Liquidity 3Q11A Revolver ($75mm due 10/31/15) 0.0 Revolver Size 75.0 Term Loan (L+300, 1.25 floor due 10/ 722.0 Letters of Credit 15.7 Total Secured Debt 722.0 2.3x Borrowings 0.0 Revolver Availability 59.3 9.5% Senior Notes due 10/30/18 785.2 Capital Leases 312.1 Total Sub debt 1097.3 Discount (31.4) Total Debt 1787.9 5.7x Cash 53.9 Market Cap 862.8 Total Liquidity 113.2 Enterprise Value 2596.8 8.3x
Maturities and required debt payments 2,000
1,500
1,000
500
0 2012 2013 2014+
Goldman Sachs Credit Research 59 January 26, 2012 High Yield
DISH Network Corporation (DISH) Updated 1/20/12 Jason Kim 212-902-2233 Contact analyst or see latest research for updates to ratings, estimates, and other information. Satya Tagat 212-902-4427 IN-LINE Our In-Line rating reflects the binary nature of the implications from DISH's decision with respect to its spectrum holdings and wireless strategy. On the one hand, DISH could be an attractive acquisition candidate to large telcos that would be interested in DISH's spectrum position if the company can get an FCC waiver. On the other hand, if DISH attempts to pursue a more aggressive wireless strategy that would require meaningful amount of capital, the bonds could be vulnerable given the trading levels, although this is somewhat offset by DISH's strong credit profile currently. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Issuing Entity / Priority Maturity Ratings Price Date Price (%) bp $1,400 7.875 DISH DBS Sr Nts 1-Sep-19 Ba3/BB- NC NC 114.75 5.47 380
Company Description Investment Strengths: DISH Network Corporation, a publicly traded holding company (Ticker: DISH), is a leading provider of satellite- (1) Solid credit fundamentals: DISH exhibits some of the strongest delivered digital television to customers across the United States. As of September 30, 2011, DISH Network had credit metrics in the US cable & satellite sector, with LTM gross approximately 14.0 million subscribers. leverage of 2.4x (1.4x net) and significant free cash flow generation.
Key Dates/Catalysts: (2) Strong liquidity. February 2012: 4Q2011 earnings. (3) Strategic optionality due to its spectrum holdings. The looming Update on plans for spectrum and other potential investments/acquisitions. spectrum shortage in the U.S. wireless space has led to speculation that DISH could be attractive to a higher quality company. FCC decision on whether or not to grant DISH a waiver to operate a terrestrial network without a satellite component in its 2Ghz spectrum band. Investment Risks: (1) Technological limitations: Unlike the cable companies, the business model of DBS providers is video-only.
(2) DISH has been very acquisitive recently, and the management team has not delineated a long-term capital allocation strategy to investors.
(3) The lack of clarity with respect to the company's wireless plans could serve as a credit overhang. A costly plan to enter the wireless market could be negative for the credit. Financial Profile FY09A FY10A 2Q11A 3Q11A 4Q11E FY11E Subscribers 14,100 14,133 14,056 13,945 13,930 13,930 Revenue $11,664 $12,641 $3,590 $3,603 $3,646 $14,062 Adj. EBITDA 2,688 3,150 979 854 783 3,488
Cash Flow From Ops $2,195 $2,140 $414 $733 $815 $2,806 CapEx (1,037) (1,216) (170) (191) (295) (889) Free Cash Flow $1,157 $924 $244 $542 $519 $1,917
Total Debt $6,497 $6,515 $8,501 $8,407 $7,490 $7,490 Cash 2,139 2,940 4,593 3,365 2,075 2,075 Agency Net Debt $4,357 $3,575 $3,909 $5,043 $5,415 $5,415 Comps Leverage Coverage Ratings Key Credit Statistics Total Debt/Adj. EBITDA 2.4x 2.1x 2.5x 2.4x 2.1x 2.1x CSC Holdings 3.1x 3.2x Ba3/BB Net Debt/Adj. EBITDA 1.6x 1.1x 1.1x 1.4x 1.6x 1.6x Videotron 2.0x 6.7x Ba1/BB Charter - CCOH 4.3x 2.8x B1/BB- Adj. EBITDA/Interest 7.5x 7.3x 7.5x 6.9x 6.6x 6.6x Adj. EBITDA Margin 23.0% 24.9% 27.3% 23.7% 21.5% 24.8%
Capitalization * Debt to Description Size EBITDA Liquidity Capital leases and other debt $343 Revolver Size $0 Total Capital Leases and Other Debt $343 0.1x Letters of Credit - DDBS 7.000% Sr Nts due 2013 500 Borrowings - DDBS 6.625% Sr Nts due 2014 1,000 Revolver Availability - DDBS 7.750% Sr Nts due 2015 750 DDBS 7.125% Sr Nts due 2016 1,500 Cash* $2,450 DDBS 7.875% Sr Nts due 2019 1,400 DDBS 6.750% Sr Nts due 2021 2,000 Total Liquidity $2,450 Total DDBS Debt $7,493 2.1x *Includes marketable investment securities and pro forma for the redemption of the $914mn of the Net Debt 5,043 1.4x 6.375% senior notes due 2011 on October 1, 2011. Market Cap 11,216 Enterprise Value 16,258 4.6x * Pro forma for the redemption of the 6.375% senior notes due 2011, which matured on October 1, 2011. Maturities:
6,000 5,243 5,000
4,000
3,000
2,000 1,000 750 1,000 500
0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 60 January 26, 2012 High Yield
Dole Foods Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 202-357-7875 Contact analyst or see latest research for updates to ratings, estimates, and other information. IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $315 8.00 Sr Sec Nts 1-Oct-16 B3/B- $104.00 10/1/2012 106.13 4.54 409
Company Description Investment Strengths: Founded in Hawaii in 1851, Dole is the world's largest producer and marketer of high-quality - Strong, diversified global brand fresh fruit and fresh vegetables. The company does business in more than 90 countries. Dole - Holds No. 1 or No. 2 position in the major also markets a growing line of packaged and frozen foods, and is a produce industry leader in markets in which it competes (bananas, nutrition education and research. pineapples, packaged salads, fruit cups) - Owns more than 20,000 acres in Oahu - Strong management team
Key Dates/Catalysts: Investment Risks: Mid-Late March; fourth quarter earnings release - Exposure to fluctuations in currency, commodity pricing, and fuel. - Has shown increased appetite for acquisitions
Financial Profile FY09A FY10A FY11E 4Q10A 4Q11E Comps Yield Leverage Coverage Ratings Revenue 6,778.6 6,892.6 7,251.5 1,556.6 1,563.6 Chiquita 7.48% 4.1x 2.8x Caa1/B- EBITDA 416.5 318.4 387.7 19.6 72.3 Dole 4.54% 4.2x 2.7x B2/B+ Dean Foods 7.00% 5.2x 2.9x B2/B- Interest Expense 206.0 164.0 145.9 36.6 34.2 Cash Taxes 21.7 13.4 20.2 (6.4) 1.4 CapEx 51.2 108.0 80.8 48.0 25.0 Free Cash Flow 137.6 33.1 140.8 (58.7) 11.6
Total Debt 1,598.3 1,603.6 1,613.0 1,603.6 1,613.0 Cash 120.0 170.1 230.8 170.1 230.8 Key Credit Statistics Total Debt/EBITDA 3.8x 5.0x 4.2x Net Debt/EBITDA 3.5x 4.5x 3.6x
EBITDA/Interest 2.0x 1.9x 2.7x 0.5x 2.1x
EBITDA margin 6.1% 4.6% 5.3% 1.3% 6.3%
Capitalization 2011E Debt to Description Size EBITDA Liquidity 3Q11A Revolver ($350mm Capacity due 2016 0.0 Revolver Size 350.0 Term Loans due 7/13/18 L+375 897.8 Letters of Credit 82.1 13 7/8% Sr Sec Notes due 3/15/14 174.9 Borrowings 0.0 8% Sr Sec Notes due 10/1/16 315.0 Total Secured Debt 1387.7 3.6x Revolver Availability 227.6
8.875 Sr Notes due 3/15/11 0.0 A/R facility NA 8.75% Debs due 7/15/13 155.0 Borrowings 0.0 Various Notes due 2003-2014 36.5 A/R Availability NA Capital Leases 57.2 Total Sub debt 248.7 4.2x Cash 190.6 Total Liquidity 418.2 Total Debt 1614.4 4.2x Market Cap 815.2 Enterprise Value 2259.5 5.8x
Maturities: 1,600 1,400 1,200
1,000 800 600
400 200 0 2012 2013 2014+
Goldman Sachs Credit Research 61 January 26, 2012 High Yield
DR Horton Inc. (DHI) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 OUTPERFORM We rate DR Horton's 6.5% senior unsecured notes of 2016 Outperform. At current spread levels, we think the Horton bonds offer room for outperformance versus similarly rated, comparably levered peers. Horton has been the most proactive among its peer group in terms of debt reduction; as a result, we believe that its credit metrics should continue to improve relative to peers, and that the current spread differential between the DHI 6.5s and their tighter-trading comparables will converge.
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp OP 409 6.5 Sr. Nts 15-Apr-16 Ba3/BB- MW 105 5.16% 451
Company Description Investment Strengths: DR Horton is one the largest homebuilders in the United States, with operations in 26 states and 71 markets. The - Largest homebuilder in the United States based on company is primarily focused on the entry level segment and favors a "spec strategy." LTM closings. - Broad geographic footprint. - Focus on entry level segment and spec strategy have Key Dates/Catalysts: enabled market share gains. 1QFY12 earning release - Lean cost structure, with one of the lowest Further debt reduction SG&A/sales ratios among its peer group. - Conservative management team, committed to debt reduction.
Investment Risks: - Spec strategy could result in inventory overhang issues, which might require pricing reductions and compress gross margins. -Share buybacks. Financial Profile ($, mn)* FY:10 FY:11 FY:12E 4Q:11 4Q:11 1Q:12E Total Revenues 4,400 3,637 4,123 1,098 1,098 930 Total Adjusted EBITDA 377 213 322 83 83 65
Cash Interest (173) (131) (88) (30) (30) (22) Debt-to- Inventory- Cash Taxes 423 63 - 4 4 - Comps Cap to-Debt Ratings Capital Expenditures (19) (16) (12) (4) (4) (3) DR Horton 38% 2.2x Ba1/BB+ Free Cash Flow 619 (107) 124 62 62 3 Toll 38% 2.1x Ba3/BB- Ryland 64% 0.9x B1/BB- Total Balance Sheet Debt 2,172 1,705 1,705 1,705 1,705 1,705 Total Cash and Cash Equivalents 1,661 1,079 1,200 1,079 1,079 1,079 Key Credit Statistics Homebuilding Debt / Capitalization 44% 38% 37% 38% 38% 38% Net Homebuilding Debt / Capitalization (3) 15% 18% 14% 18% 18% 17%
Inventories / Homebuilding Debt (2) 1.7x NA NA 2.2x 2.2x NA Homebuilding Gross Margin (1) 20% 19% 20% 18% 18% 19%
PF Capitalization ($, mn)
Description Size Liquidity Mortgage repurchase facility 117 Homebuilding Cash 716 Other secured 6 Marketable Securities 298 Total Secured 122 Financial Services Cash 17 6% senior notes - Restricted Cash 49 7.875% senior notes - Total Cash 1,079 5.375% senior notes - 6.875% senior notes 172 6.125% senior notes 145 2% convertible senior notes 418 5.625% senior notes 138 5.25% senior bonds 157 5.625% senior notes 170 6.5% senior notes 383 Total debt outstanding 1,705
Minority Interest 2.9 Share Price 14.1 Market Capitalization 4,467 Enterprise Value 5,095
Maturities:
800 700
600 500 400
300 200 100 0 2012 2013 2014 2015 2016
Goldman Sachs Credit Research 62 January 26, 2012 High Yield
Dynegy Holdings, LLC (DYN) Updated 1/25/2012 Raymond M. Leung 212-357-5764 Contact analyst for updates and other information. Abayomi A. Adigun 212-902-9355 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,100 7.75 Sr Unsec'd 1-Jun-19 --/D -- -- 58.500 17.382 1543
Company Description Dynegy Inc. (DYN) is engaged in the production and sale of electric energy with about 11.6GW of generation Company Strengths: capacity. DYN is the parent to Dynegy Holdings, LLC, which is an intermediate-holding company that indirectly - Generation portfolio diversity based on fuel, dispatch, and owns the company's 6.77GW of gas-fired generation held under Dynegy Power, LLC (GasCo) and Dynegy geographical location. Also the company's Baldwin coal Northeast Generation, which holds the company's 1.7GW of plants related to Danskammer and Roseton. The plant is largely scrubbed. company's 3.1GW coal-fired generation portfolio is held under Dynegy Midwest Generation LLC (CoalCo), which - Spending will decline over time owing to lower is an indirect subsidiary of DYN. On a consolidated basis, the company's generation portfolio operates in three environmental expenditures. Capex is budgeted at $227 regions: Midwest (42% of capacity), West (29%), and Northeast (29%). Baseload capacity accounts for 29% of million for 2012, but declines to $141.9 million for 2013. total production. In November 2011, Dynegy Holdings and four of its subsidiaries (Dynegy Northeast Generation, - New management team with extensive industry Hudson Power LLC, Dynegy Danskammar LLC and Dynegy Roseton, LLC filed a petition for Chapter 11 experience. bankruptcy protection. - Emphasis on cost cutting with targeted fixed cost reduction of $49 million in 2011 over 2010 and an Key Dates/Catalysts: additional $36 million expected in 2012. - In early March, DYN is expected to report 4Q2011 earnings. Key areas of focus will be further clarity on the - First lien agreement hedging may free cash collateral. company's Ch. 11 debt restructuring, the company's current environmental compliance plan and hedging strategy. In a January 23 8K filing, the company indicated consolidated EBITDA of $245.1 million for 2012 and $459.7 Company Risks: million for 2013 with net debt of about $2.2 billion. - Leverage remains high. - Ongoing developments related to the company's Chapter 11 bankruptcy filing. - Cash flow are exposed to volatile commodities market, which may pressure margins given the declining hedge profile and gas price environment. Hedges are 48%/20% in Financial Profile FY08 FY09 FY10 LTM3Q11 2012 and 14%/3% in 2013 for GasCo/CoalCo. - Future environmental requirements may entail additional Gross Margin 1,696 1,274 1,142 689 costs and spending. Remaining environmental capital EBITDA - ex MtM and items 792 776 510 351 spend is about $160 million through 1Q2013. Estimated total capital expenditures are approximately $960 million. EBITDAR - ex M2M 885 873 563 404 Interest Expense (447) (421) (367) (378) Cash Taxes (23) (2) (7) (7) CapEx (611) (612) (333) (248) Free Cash Flow (115) (252) (174) (286)
Lease Adjusted Debt 5,140 4,332 4,474 4,133 Agency Cash 694 471 291 881 Comps Leverage Coverage Ratings Net Debt 4,446 3,861 4,183 3,252 AES Corp* 4.1x 3.6x Ba3/BB- Key Credit Statistics Calpine Corp 6.7x 2.0x B1/BB- Lease Adj Debt/EBITDAR 5.8x 5.0x 8.0x 10.2x Dynegy 10.2x 1.1x –/D Net Lease Adj Debt/EBITDAR 5.0x 4.4x 7.4x 8.1x Edison Mission 8.5x 1.4x Caa1/B- GenOn 7.8x 1.1x B3/B EBITDAR/Interest 2.0x 2.1x 1.5x 1.1x CMS 4.7x 3.7x Ba1/BB+ EBITDAR/Gross Margin 52% 69% 49% 59% NRG 4.7x 2.4x B1/BB-
*AES reflects sub distributions to parent obligations; LTM4Q2011 Capitalization-As of September 30, 2011 Debt to Description Size EBITDAR Liquidity - As of Nov. 8, 2011 Roseton/Danskammer Pass-thru* 550 Revolver Size - Sithe - Synthetic LOC Size 660 Total Subsidiary/SLOB Debt 550 1.4x Total facilities 660 Dynegy Power (GasCo) 1,078 Letters of Credit (475) Dynegy Midwest Generation (CoalCo) 588 Borrowings (19) Other - Revolver Availability 166 Total Secured and Subsidiary debt 2,216 5.5x Cash Balances Dynegy Holdings debt Dynegy Inc. 80 DHI 8.75% due 2012 89 Dynegy Holdings 12 DHI 7.5% due 2015 771 Dynegy Gas HoldCo 170 DHI 7.5% due 2015 - Dynegy Coal HoldCo 190 DHI 8.375% due 2016 1,044 Dynegy Power (GasCo) 106 DHI 7.125% due 2018 172 Dynegy Midwest Generation (CoalCo) 210 DHI 7.75% due 2019 1,100 Collateral Posting Account & Other 135 DHI 7.625% due 2026 171 Total Liquidity 1,069 Other - Total Senior Debt 5,563 13.8x DHI Subordinated 8.316% due 2027 200 Total debt 5,763 14.3x Cash ex collateral posting 768 Net debt 4,995 12.4x
Market Cap 252 Enterprise Value (Net Debt) 5,247 13.0x *Off-balance sheet Maturities:
900 800 700
600 500 400 300 200 100 0 2012 2013 2014 2015
Goldman Sachs Credit Research 63 January 26, 2012 High Yield
Edison Mission Energy (EIX) Updated 1/25/2012 Raymond M. Leung 212-357-5764 Contact analyst or see latest research for updates to ratings, estimates, and other information. Abayomi A. Adigun 212-902-9355 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,200 7.00 Sr Unsec'd 15-May-17 Caa1/B- MW+50 -- 55.500 21.454 2066
Company Description Investment Strengths: Edison Mission Energy is an independent power production company that owns, operates, develops, and sells - Generation portfolio provides a degree of asset protection, energy and capacity. Edison Mission's ultimate parent is Edison International (EIX), which also owns Southern with about 921MW of unencumbered wind assets. Overall, California Edison Co., a regulated electric utility. Through a series of intermediate holding companies, Edison wind business is mostly contracted. Mission owns Midwest Generation, a portfolio of 5.2GW of generating plants in Illinois, and EME Homer City - Tax-credits and vendor/bank financings are expected to Generation, which owns a 1.88GW of generating capacity in Pennsylvania. Mission operates roughly 10.3GW of help fund its wind development program. Also, tax-sharing generation capacity, with coal accounting for about 7.1GW. The portfolio also includes 1.68GW of wind capacity, with parent, EIX, could provide a benefit. with another 185MW under construction. - Near-term liquidity is supported by the company's large Key Dates/Catalysts: cash balance of $1.3 billion. - On February 29, EIX expects to report 4Q2011 results. Along with a business and environmental spend update, - Coal assets are eligible for PJM capacity auction revenues. we will focus on future wind expenditures and environmental plans and hedging position. The company expects adjusted EBITDA of $529 million in 2011 at Edison Mission Group. Investment Risks: - June 2012, the company's credit facilities expire. Also the company has a 2013 bond maturity. - Leverage is expected to rise to over 10x on a lease- - Update on the environmental spending strategy to comply with the Illinois consent decree projected at $1.2 bn at adjusted debt to EBITDAR ratio owing to negative free cash Midwest Gen and Homer City's environmental spending of $500-$700 million. flow due to lower margins as a result of lower realized power - The three rating agencies have Edison Mission on review for downgrade or a negative outlook. prices and higher coal transportation costs. - Status of the construction of the 479MW Walnut Creek plant. - The lowest hedges amongst IPPs: Midwest Gen's energy - In May 2012, results of the PJM RPM 2015-2016 capacity auction are expected. output is 29% hedged for 2012. Homer City's hedged energy output is about 12% for 2012. - More-aggressive stance in dealing with bondholders. Financial Profile FY09 FY10 FY11E FY12E LTM3Q11 - Future environmental requirements will elevate spending to comply with the Illinois consent decree, with about $1.2 Revenue 2,317 2,368 2,224 2,248 2,239 billion for SO2 compliance. EBITDA 729 704 465 259 504 - Expiration of the company's rail contract may result in EBITDAR 906 880 641 435 680 higher transportation and fuel costs after 2011. - Refinancing requirements tied to the maturity of its 2012 Interest Expense (458) (385) (451) (411) (479) bank line and 2013 bond. Cash Taxes (344) (263) (349) (320) (306) - Lack of explicit support from parent. CapEx (562) (736) (690) (565) (744) Free Cash Flow 137 (119) (468) (450) (433) Agency Lease Adjusted Debt* 5,406 5,677 5,760 5,368 5,763 Comps Leverage Coverage Ratings Cash 796 1,075 1,417 1,101 1,235 AES Corp* 4.1x 3.6x Ba3/BB- Net Debt 4,610 4,602 4,343 4,267 4,528 Calpine Corp 6.7x 2.0x B1/BB- Key Credit Statistics Dynegy 10.2x 1.1x –/D Lease Adj Debt/EBITDAR 6.0x 6.5x 9.0x 12.3x 8.5x Edison Mission 8.5x 1.4x Caa1/B- Net Lease Adj Debt/EBITDAR 5.1x 5.2x 6.8x 9.8x 6.7x GenOn 7.8x 1.1x B3/B CMS 4.7x 3.7x Ba1/BB+ EBITDAR/Interest 2.0x 2.3x 1.4x 1.1x 1.4x NRG 4.7x 2.4x B1/BB- EBITDAR margin 39% 37% 29% 19% 30% *AES reflects sub distributions to parent obligations; LTM4Q2011
Capitalization Debt to Description Size EBITDAR Liquidity Midwest Generation WC facility ($500) - Midwest Gen WC facility 500 Midwest Generation pass-thru 460 EME secured revolver 564 Homer City Funding pass-thru 678 Total Revolvers 1,064 Project financing and other subsidiary debt 926 Outstanding - Total Project/Subsidiary Level Debt 2,063 3.0x LOC (68) EME secured revolver ($564) - Revolver Availability 996 EME 7.5% due 2013 500 Cash EME 7.75% due 2016 500 EME - Unrestricted 734 EME 7% due 5/15/17 1,200 MWG 333 EME 7.2% due 5/15/12019 800 Homer City 108 EME 7.5625% due 5/15/27 700 Other 60 Other debt - Total Cash 1,235 Total Edison Mission Debt 5,763 8.5x Total Available Liquidity 2,231 Cash 1,235 Total Net Debt 4,528 6.7x Market Cap NA Enterprise Value NA
Maturities (excluding sale-lease back debt):
700 600 500 400 300
200 100 0 2012 2013 2014
Goldman Sachs Credit Research 64 January 26, 2012 High Yield
El Paso Corp. (EP) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 902-2514 NOT RATED
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $477 7.250% Sr. 6/1/2018 Ba3/BB-NC $111.50 5.10% 394
Company Description Company Strengths: El Paso has transformed itself from a diversified production, processing, power, and pipeline conglomerate to a • Largest pipeline company in US, with significant pure play focused on E&P and pipeline activities. The company's pipeline network is a world-class asset, with growth opportunities significant capacity expansions available. The E&P business has attractive opportunities in the Haynesville and • Pipeline business is extremely stable and insulated Eagle Ford shales, as well as the Altamount oil program. from fluctuations in commodity prices
In 2003, El Paso had $22.5 bn of debt, debt/cap of 83%, and EBITDA/interest expense of 0.9x. The company's Company Risks: E&P business experienced significant reserve write-downs, particularly from EP's Gulf of Mexico properties. As a • Total debt is still more than $13 bn result of operational and liquidity challenges, EP significantly underperformed the peer group from 2003 to 2006. • Natural gas exposure Beginning in 2H2005 EP began selling non-core assets and raised $5.8 bn for debt reduction. Debt came down to just over $14 bn by the end of 2006. The company streamlined the business portfolio from five segments to two by Key Dates/Catalysts: 2007: pipelines and E&P. EP also restructured its E&P business, consolidating all E&P operations into El Paso • Further non-core asset sales, including dropdowns to Exploration and Production Company, increasing reserve life (RP ratio from six years in 2003 to almost 10 in 2006) the MLP and reducing its focus on higher-risk offshore prospects. EP acquired E&P company Medicine Bow Energy Corp. • Completion of acquisition by Kinder Morgan in August 2005 for $800 mn. In February 2007, EP sold its ANR pipeline to TransCanada for $4.14 bn. In August 2007, EP acquired Houston-based E&P People's Production for $875 mn in cash. People's had significant assets in Arkansas, Louisiana, and Texas – particularly South Texas. In December 2008, EP raised $200 mn through sales of non-core assets, including a stake in a Brazilian power plant. In 2010, the company began actively dropping assets down into its MLP, raising approximately $2.4 bn YTD. The company announced its first dropdown of 2011 in March with the sale of 22% of Southern Natural Gas Company to EPB for $587 mn. In May 2011, El Paso announced plans to separate the company, with plans to spin off the E&P business. In October 2011, Kinder Morgan agreed to acquire El Paso for $26.87/share. The transaction is pending.
Financial Profile 2007A 2008A 2009A 2010A Revenue $4,648 $5,153 $4,949 $4,637 EBITDA (Adj for non-cash items) $3,080 $3,425 $3,243 $3,263 Free Operating Cash Flow ($690) ($387) ($695) ($2,228) Capital Expenditures $2,495 $2,757 $2,810 $4,073
Credit Ratios 2007A 2008A 2009A 2010A Total Debt/EBITDA (LTM) 4.2x 2.3x 2.7x 4.6x EBITDA/Interest Expense (LTM) 3.1x 6.7x 3.0x 3.1x Debt to Capitalization % 71% 78% 81% 78%
Capitalization Debt to Leverage Coverage Agency Description Size EBITDA Liquidity Comps ('10) ('10) Ratings Cash and equivalents $390 Revolver Size $3,250 EP 4.6x 3.1x Ba3/BB- Revolving Credit Facility $1,250 Letters of Credit $600 WMB 2.8x 5.1x A3/A- Long Term Debt Borrowings $1,250 Senior notes, various $12,181 Revolver Availability $1,400 Total Long Term Debt $12,181 Cash $390 Total Debt $13,431 4.5x Total Liquidity $1,790 Preferred Equity $0 Common Equity $4,376 Total Capitalization $17,807
Maturities:
2500
2000
1500
1000
Debt maturitiesDebt ($ mn) 500
0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 65 January 26, 2012 High Yield
Elan Corporation (ELN) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 IN-LINE We continue to rate ELN In-Line. While proactive debt repurchase seems more likely than we previously thought, we believe this is fully reflected at current levels. The first call price is $108.75 in October 2012. Elan EBITDA is now completely derived from one drug and leverage remains moderately high at 3.6x on a 3Q2011 annualized basis.
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $625 8.75 Sr. Uns. 15-Oct-16 B2/B $108.750 10/15/2012 $109.375 5.402% 518
Company Description Investment Strengths: Elan is a neuro-science based biotech company focused on autoimmune diseases such as multiple sclerosis, and - Sizable equity market cap provides cushion to bonds. neurodegenerative diseases such as Alzheimer’s and Parkinson's. The franchise drug Tysabri was introduced to treat MS in November 2004. Three months later, ELN and Biogen (BIIB) pulled the drug due to three cases (two - Large cash balance. ELN also has a 25% stake in ALKS, a $1.6 bn fatal) of PML, a very rare brain infection. The FDA re-approved Tysabri in June 2006 and the drug was also company. ELN could monetize this over time and use the proceeds to further approved for commercial distribution in July 2006 in the EU. Elan owns a 25% stake in a leading Alzheimer's delever. disease drug candidate, bapineuzumab. Pfizer and Johnson & Johnson (JNJ) are the partners. - Differentiated science. Widely recognized superior efficacy of Tysabri in an In September 2010, two of ELN's directors resigned from the board after auditor McKenna Long & Aldridge cleared underserved multiple sclerosis patient population. ELN of any wrongdoing despite shareholder and director allegations.
In May 2011, ELN announced the sale of EDT (a contract manufacturer) to Alkermes for $500 mn in cash and $460 mn in shares. ELN closed the sale of EDT in mid September 2011. ELN has tendered at par for the 2016s and the 2013 FRNs, and at $103.239 for the 2013s. In 3Q11, ELN announced that post quarter end, it repurchased $200 mn face value of the 2016 notes in a private transaction. Investment Risks: - Very concentrated revenue base. Post the sale of EDT, ELN EBITDA is now Key Dates/Catalysts: completely derived from one drug. - Expected debt repayment. Monetization of Alkermes stock position over time could result in additional debt reduction. - Likely need to contribute funding to JAI's bapineuzumab in 1H2012. As of - Quarterly earnings - especially Tysabri adoption. 3Q11, JAI has roughly $126 mn of the original $500 mn JNJ funding - Market uptake of oral MS drugs Gilenia (Novartis) and updates on oral drug candidate BG-12 (Biogen). remaining and its current spend rate is $50 mn per quarter to fund its AIP - From JNJ and Pfizer: mid-2012 data on Phase III trials for Alzheimer's disease drug bapineuzumab. programs. - Tysabri adoption: The incidence of PML is rising as more patients remain on the drug beyond 24 months. This and Gilenia (oral MS drug) are major competitive concerns.
Financial Profile 2009A 2010A 2011E* 4Q10A 3Q11A 4Q11E Revenue $1,113 $1,170 $1,263 $309 $329 $288 EBITDA 96 166 227 46 60 44
Interest Expense, net $138 $118 $103 $29 $28 $14 Cash Taxes 46 2 4 (1) (5) 0 CapEx 394431101010 Free Cash Flow (125) 24 (20) 1 93 7
Total Debt $1,540 $1,285 $626 $1,285 $1,285 $626 Cash & marketable securities 844 422 343 422 1,009 343 Net Debt 696 863 283 863 276 283 Key Credit Statistics Agency Total Debt/EBITDA 16.0x 7.7x 2.8x LTM Comps Leverage Coverage Ratings Net Debt/EBITDA 7.2x 5.2x 1.2x Elan Pharma (ELN) 4.8x 2.4x B2/B Bausch & Lomb (BOL) 5.0x 3.4x Caa1/B EBITDA/Interest 0.7x 1.4x 2.2x 1.6x 2.1x 3.2x Catalent (PTSAC) snr 5.6x NA Caa1/B EBITDA margin 8.6% 14.2% 18.0% 14.9% 18.4% 15.3% *2011E estimate includes 3 historical quarters containing EDT revenue. Capitalization - Pro forma for the sale of EDT Debt to PF LTM Description Actual EBITDA** Liquidity Term Loans $0 Revolver Size $0 Total Sr Sec debt 0 0.0x Letters of Credit 0 Borrowings 0 8.875% Sr. Notes due 12/1/2013* 2 Revolver Availability 0 L+412.5 Sr. Notes due12/1/2013* 0 8.75% Sr Notes due 10/15/2016* 625 A/R facility $0 Total Sr debt 626 4.8x Borrowings 0 A/R Availability 0 Other $0 Total Debt $626 4.8x Cash & marketable securities* $350 Market Cap 8,251 Total Liquidity $350 Enterprise Value $8,527 64.9x * 3Q11 cash less proceeds for post quarter paydown of debt. * PF for debt pay down after 3Q11 quarter end. ** PF LTM EBITDA is actual LTM EBITDA less EDT EBITDA.
Maturities: 700 600 500
400 300 200 100 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 66 January 26, 2012 High Yield
Emergency Medical Services Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst for updates and other information. Cindy Guan 212-902-9758 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $950 8.125 Sr 1-Jun-19 Caa1/B- 106.094 6/1/2014 $101.500 7.772% 698
EMS is a provider of medical transportation services and facility-based physician services in the US, operating under Company Strengths: two brands: American Medical Response or AMR (48% of revenue) and EmCare (52%). - EMS's scale and geographic outreach provide a competitive advantage over smaller players. AMR AMR provides pre and post hospital transport for both emergency and non-emergency, ground and fixed-wing air. operates in 38 states and EmCare provides services in AMR has roughly a 7% market share of the total ambulance market. EmCare provides facility-based physician 40 states. services, including ER staffing, inpatient services, radiology, and anesthesiology. EmCare has roughly an 8% market share of the ER services market. - By law, most communities are required to provide ambulatory services. Approximately 86% of EMS's net In May 2011, Clayton, Dubilier & Rice acquired EMS for $3.2 bn. revenues are generated under exclusive contracts. Non-emergency services are under non-exclusive contracts. Key Dates/Catalysts: - Quarterly earnings announcements. (In 3Q2010, EMS walked away from 17contracts, which is higher than the company's historal average in the low teens; terminating more unprofitable contracts could depress earnings.) Company Risks: - Potential acquisitions as the ambulatory services market is fragmented. - EmCare's business model of targeting smaller - Potential extension of "Medicare Extenders" to keep ambulance rates from being cut. hospitals in tough markets could be risky even though - Reimbursement risk surrounding the Medicare "doc fix". EmCare may obtain subsidies or walk-away rights. EMS walked away from 17 contracts in 3Q2010, which was higher than the company's historical average in the low Financial Profile 2009A 2010A 4Q10A 1Q11A 2Q11A 3Q11A teens. Revenue $2,570 $2,859 $734 $761 $780 $788 - Weak hospital utilization could imply weak results for EBITDA 28131881847389 EMS unless ER utilization picks up.
Interest Expense $41 $23 $5 $5 $21 $44 - Highly levered at low 7x. Cash Taxes 698522231 4 CapEx 45491815616 Free Cash Flow 183 87 11 41 22 22 Agency Comps Leverage Coverage Ratings Total Debt $454 $421 $421 $411 $2,392 $2,373 EMS 7.3x 1.9x Caa1/B- Cash 333 287 287 335 187 134 IAS 6.0x 2.1x Caa1/CCC+ Net Debt 121 134 134 76 2,205 2,239 KND 4.6x 4.4x B3/B-
Key Credit Statistics Total Debt/EBITDA 1.6x 1.3x 5.2x Net Debt/EBITDA 0.4x 0.4x 1.6x
EBITDA/Interest 6.9x 13.9x 17.2x 17.5x 3.5x 2.0x EBITDA margin 11.0% 11.1% 11.1% 11.1% 9.3% 11.3%
Capitalization
Debt to LTM Description Size EBITDA Liquidity Revolver 5/25/2016 0 Revolver Size $350 Term Loan due 2018 1440 Letters of Credit 0 Total Sr Sec debt 1440 4.4x Borrowings 0 Revolver Availability 350 8.125% Senior notes 6/1/2019 950 Total Sr debt 950 7.3x Cash $134 Total Liquidity 484 Other 2 Total Debt $2,392 7.3x Market Cap NA Enterprise Value NA
Maturities:
3000
2500
2000
1500 1000
500
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 67 January 26, 2012 High Yield
Endo Pharmaceuticals (ENDP) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 UNDERPERFORM We rate ENDP Underperform. While the company has a stated leverage target of 2-2.5x by 2013, has repaid debt in 3Q, and expects further repayment in 4Q, we see this as already priced in to the bonds. Thus, we think risk is to the downside. We also think potential risk surrounding (1) the transition to new Opana ER and (2) unknown fate of Lidoderm as Watson’s 30-month stay expires June 2012, could cause the pace of delevering to slow or lead the company to pursue acquisitions to fill top line. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $500 7.000 Sr. 15-Jul-19 Ba3/BB- $103.500 15-Jul-15 $108.500 5.191% 440
Company Description Investment Strengths: Endo Pharmaceuticals is a specialty pharma and medical device company specializing in pain, urology, - Stated leverage target range of 2x-2.5x. ENDP has stated that its focus post endocrinology and oncology with a portfolio of branded drugs, generic drugs, medical devices, capital equipment the AMMD acquisition would be to delever. However, the pace of delevering and practice management services. Endo sells 175 products, with its largest product Lidoderm, a pain patch, will depend on management appetite for bolt-on acquisitions. contributing 28% of LTM PF sales. Lidoderm has patent protection until 2015 but two generic companies WPI and MYL have filed paragraph IV challenges. Consensus assumes generic entry some time in 2014-2015. WPI's 30- - Medical devices products are lower risk profile than pharma due to their month stay expires June 2012. shorter and less expensive development time frame and lack of a sharp patent cliff. Entry into medical devices segment also reduced revenue In December 2010, ENDP closed its acquisition of Qualitest, making it the fifth largest player in generics. It also exposure to Lidoderm. enhanced ENDP's pain franchise as 40% of Qualitest sales had been in pain. - Concentrated focus on pain and urology across its segments could present In June 2011, ENDP closed its acquisition of American Medical Systems (AMMD), which it financed with over $2.5 unique cross-selling opportunities. Management also sees urology as a billion of debt. AMMD added critical mass to ENDP's medical device and urology presence. favorable specialty due to the aging population and a shift toward more minimally invasive procedures. In December 2011, ENDP received approval for its new tamper resistant formulation of Opana ER. In January 2012, ENDP announced that there may be shortages of Opana and other opiod products due to the temporary Investment Risks: shutdown of Novartis' plant in Lincoln, Nebraska. Management expects full production levels of the new formulation - Revenue concentration is high with Lidoderm at 28% of LTM PF sales. by the end of 1Q or early 2Q2012. Consensus estimates imply generic entry some time between 2014-2015, but we see risk that a settlement could allow earlier competition. ENDP has Key Dates/Catalysts: settled with generic companies regarding challenges to Opana and Opana - Quarterly earnings. Management has guided to high single digit growth in devices which we think could prove too ER. optimistic. Transition to the new formulation of Opana ER will be important for the franchise. - Potential settlement on Lidoderm patent challenges from WPI and MYL that could allow generic entry prior to the - An unsuccessful transition to the new formulation of Opana ER could cause 2015 patent expiration. Trial is set for February 2012. WPI's 30-month stay expires June 2012. market share loss as it did with the Oxycontin transition (Oxycontin is made by Purdue).
- Small "conglomerate" strategy could be risky. The few companies that have both substantial pharma, medical device and other healthcare segments are large companies with substantial scale in R&D and marketing such as JNJ, ABT and AGN.
Financial Profile 2010A PF LTM* 2011E 4Q10A 3Q11A 4Q11E Revenue $1,716 $2,885 $2,732 $511 $759 $805 EBITDA 670 1,037 998 201 283 299
Interest Expense, net $47 $211 $137 $14 $53 $40 Cash Taxes 134 131 154 31 34 54 CapEx 20 47 54 9 15 16 Free Cash Flow 434 566 574 162 190 193
Total Debt $1,185 $3,735 $3,721 $1,185 $3,735 $3,721 Cash & marketable securities 466 420 641 466 420 641 Net Debt 718 3,315 3,080 718 3,315 3,080 Agency Key Credit Statistics LTM Comps Leverage Coverage Ratings Total Debt/EBITDA 1.8x 3.6x 3.7x Endo (ENDP) 3.6x 4.9x Ba3/BB- Net Debt/EBITDA 1.1x 3.2x 3.1x Warner Chilcott (WCRX) 2.7x 5.8x B3/B+ Valeant (VRX) 4.3x 4.6x B1/BB- EBITDA/Interest 14.4x 4.9x 7.3x 14.6x 5.4x 7.5x Mylan (MYL) 3.1x 4.6x B1/BB- EBITDA margin 39.0% 35.9% 36.5% 39.4% 37.3% 37.1% *PF LTM includes a full year impact of all acquisitions. 2011E does not. Capitalization Debt to Debt to LTM 2012E Description Amount EBITDA EBITDA Liquidity Revolver $0 Revolver Size $500 Term Loan A 4/14/2016 $1,486 Letters of Credit 0 Term Loan B 4/14/2018 $563 Borrowings 0 Total Sr Sec debt 2,049 2.0x 2.0x Revolver Availability 500
7% senior notes due 12/15/2020 400 Cash & marketable securities $420 7% senior notes due 7/15/2019 500 Total Liquidity $920 7.25% senior notes due 1/15/2022 $400 Total Sub debt 1,300 3.2x 3.4x
1.75% Sub Convertible notes 4/15/15 $380 Other $5 Total Debt $3,734 3.6x 3.7x Market Cap NA Enterprise Value NA
Maturities: 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 68 January 26, 2012 High Yield
Energy XXI (EXXI) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $750 9.250% Sr. 12/15/2017 Caa1/B $104.63 12/15/2014 $110.75 6.57% 627
Company Description Investment Strengths: EXXI is a Gulf of Mexico producer that has grown through debt-financed acquisitions and has significant • MitEnergy and XOM acquisitions greatly enhance exploration upside. The company's strategy is to acquire mature oilfields; management has indicated it is not scale interested in unconventional resource plays. • Multiple exploration catalysts and growth opportunities, with Davy Jones as the highlight EXXI was initially established in July 2005 as a special purpose acquisition vehicle in London. The company went public in October 2005, and has since made several significant US GOM acquisitions. In February 2006, the Investment Risks: company acquired Marlin Energy for $407 mn. In July 2006, it acquired Louisiana Gulf Coast producing • Singularly focused on the US Gulf of Mexico; low properties from Castex for $312 mn. In June 2007, the company acquired Pogo's GOM shelf properties for $417 asset diversification mn. In November 2009, Energy XXI announced it would acquire GOM shelf oil and gas properties from MitEnergy • Exposed to new regulations facing the Gulf following Upstream for $283 mn. These properties represent the remainder of the former Pogo properties. In November the Macondo spill 2010, the company announced the acquisition of six GOM properties from ExxonMobil for $1.01 bn. • Aggressive debt-financed acquisition history • Short operating history
Key Dates/Catalysts: • Flow tests from Davy Jones I and II • First production from Davy Jones, expected in 1Q2012 • Drilling at newly acquired Exxon Mobile (XOM) properties • Booking of reserves from Davy Jones • Additional acquisitions
Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $572 $417 $607 $1,099 $320 EBITDA (Adj for non-cash items) $376 $250 $346 $666 $214 Free Operating Cash Flow $18 ($20) $10 $259 $77 Capital Expenditures $353 $119 $226 $378 $113
Leverage Coverage Agency Comps ('11E) ('11E) Ratings Credit Ratios 2008A 2009A 2010A 2011E 2012E EXXI 1.7x 6.0x Caa1/B Total Debt/EBITDA (LTM) 2.8x 3.8x 4.2x 1.7x 1.6x MMR 2.0x 15.5x Caa1/B EBITDA/Interest Expense (LTM) 4.0x 2.9x 4.0x 6.0x 7.1x WTI 1.2x 15.8x Caa1/B Debt to Capitalization % 76% 67% 59% 45% 44%
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $18 Revolver Size $750 Revolving Credit Facility $750 Letters of Credit $232 Long Term Debt Borrowings $29 Senior notes 2017 $750 Revolver Availability $489 Senior notes 2019 $250 Cash $18 Total Long Term Debt $1,000 Total Liquidity $508 Total Debt $1,034 2.0x Preferred Equity $0 Common Equity $1,151 Total Capitalization $2,185
Maturities:
800 700 600 500 400 300 200
Debt maturities ($ mn) 100 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 69 January 26, 2012 High Yield
Exopack Holding Corp. (EXOPAC) Updated 1/23/12 Joe Stivaletti (212) 902-3299 Contact analyst or see latest research for updates to ratings, estimates, and other information. James Kitchell (212) 902-9813 OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) $235 10.000 Sr Nts 01-Jun-18 Caa1/CCC+ 107.500 01-Jun-14 102.500 9.389 836
Company Description Investment Strengths: Exopack produces flexible packaging products made from paper and plastic. The company operates manufacturing - Recession-resistant business model: A substantial portion of facilities in the US, UK, and Canada, and serves over 1,200 customers in a variety of industries including food, medical, Exopack's revenue comes from such products as charcoal and pet pet food, chemicals, beverages, personal care, and lawn & garden. food bags, which are resistant to cyclical downturns. - Long-term relationships with blue-chip customers: Exopack converts and prints products for many big, stable consumer and industrial products companies such as Procter & Gamble, Masterfoods, Cargill, Clorox, and Kellogg’s. - Proven ability to pass through cost increases: Exopack has demonstrated a consistent ability to pass along paper and plastic raw material cost increases in the form of higher selling prices.
Investment Risks: - Additional M&A activity: Exopack has an opportunistic acquisition strategy, and additional acquisitions could increase leverage.
Financial Profile 12/31/2009 12/31/2010 9/30/2010 6/30/2011 9/30/2011 FY:09 FY:10 3Q:10 2Q:11 3Q:11 Revenue 673.7 785.1 216.7 219.8 219.6 EBITDA 65.4 92.1 28.6 26.6 25.8
Interest expense 28.6 36.4 10.9 12.3 13.0 Capital expenditures 26.4 25.0 5.8 14.5 9.9
Total debt 288.6 389.3 402.6 596.4 599.9 Cash 0.6 2.5 1.5 2.5 1.3 Net debt 288.0 386.8 401.1 593.8 598.6
Agency Key Credit Statistics Comps Leverage Coverage Ratings Total debt/EBITDA 4.4x 3.7x 4.1x 5.4x 5.6x Berry Plastics 6.4x 2.1x Caa1/CCC Net debt/EBITDA 4.4x 3.7x 4.0x 5.4x 5.5x Crown Holdings 2.9x 4.9x Ba3/BB Owens-Illinois 3.1x 4.7x Ba3/BB EBITDA/interest 2.3x 2.5x 2.6x 2.2x 2.0x EBITDA margin 9.7% 11.7% 13.2% 12.1% 11.7%
Capitalization 9/30/2011 Debt to Description Size EBITDA Liquidity 9/30/2011 Revolving credit facility 2.5 3.3x Revolver size 75.0 Term loan 349.1 3.3x Borrowing base 75.0 Senior notes 235.0 5.6x Letters of credit 3.8 Capital lease obligation and other 13.2 5.6x Borrowings 2.5 Total debt 599.9 Revolver availability 68.7
Cash 1.3 Total liquidity 70.0
Maturities:
700
600
500
400
300
200
100
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 70 January 26, 2012 High Yield
Felcor Lodging Trust, Inc. (FCH) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751 UNDERPERFORM: While we still expect FCH to recover further in 2011 as the overall lodging environment improves, we believe the FCH 10% secured notes have limited upside at current levels. We believe the collateral package may shrink as four of its 14 properties are up for sale and FCH has the option to make a par offer to bondholders. Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-Spread 5-year (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp CDS $492 10.000 Sr Sec Nts 1-Oct-14 B2 / B- MW T+50 110.38 5.75 553 516 550
Company Description Investment Strengths: Felcor Lodging Trust is a real estate investment trust ("REIT") that concentrates on upscale and full-service hotels - Well-diversified portfolio of properties and well- throughout the US and Canada. Felcor, which is the nation's largest owner of all-suite hotels, owns 76 recognized brand names. consolidated hotels in 22 states. Felcor is the largest owner of Embassy Suites Hotels and Doubletree Guest - Ample asset coverage. Suites hotels. Other hotels are flagged under global brands such as Embassy Suites Hotels, Doubletree, Hilton, - Common dividends suspended in December 2008. Sheraton, Westin, and Holiday Inn. Significant equity holders include Vanguard Group (10%) and Apollo - Share repurchases prohibited when leverage exceeds Management (6%), according to Bloomberg. 4.85x. - CMBS and mortgage debt is non-recourse to FCH. Key Dates/Catalysts: - Leverage target of 4.0x-4.5x. - Revised 2011 guidance: Expect RevPAR increase of between 6%-7% (vs. 6%-7.5%), adjusted EBITDA of $207- 210 mn (vs. $207-213 mn), capex of $95 mn (vs. $85 mn), and interest expense of $141 mn. - 2Q2011: Sold three hotels for $54 million, out of the first group of 14 hotels brought to market in 4Q2010. Investment Risks: - 3Q2011: Sold three hotels for proceeds of $46 million. Subsequent to 3Q2011, sold one hotel in Dallas and one - Cyclical business that fluctuates with economic cycle hotel in Toronto. In the near future, management expects to begin marketing an additional 15 non-strategic hotels when business / leisure travel slows. for sale. - Subject to falling real estate values. Current state of real - October 2011: Amended a $178 million CMBS loan that was due to mature in November 2011. FCH extended the estate and credit markets increases risk in terms of FCH's maturity by two years in exchange for a L+220 interest rate and a $20 million principal repayment. ability to refinance upcoming maturities successfully. - The transformative nature of its portfolio repositioning may cause FCH to lose momentum during the ongoing recovery in the lodging sector. - Six out of 60 owned hotels are unencumbered as of 2Q2011.
Financial Profile 2010A 1Q11A 2Q11A 3Q11A 4Q11E 2011E Revenue 933 235 257 246 234 972 Adj EBITDA 188 44 64 52 48 208
Interest Expense 143 34 35 34 36 138 Cash Taxes 000000 CapEx 391523233495 Comps Leverage Coverage Ratings Free Cash Flow 6 (5) 6 (5) (22) (26) FCH 7.7x 1.5x B2 / B- HST 5.7x 3.9x Ba1/BB+ Total Debt (incl converts)* 1,601 1,517 1,649 1,587 1,567 1,567 HOT 3.3x 4.7x Ba1/BB+ Cash 201 91 231 117 88 88 GET 5.8x 2.7x Caa2/B Net Debt 1,401 1,426 1,418 1,470 1,479 1,479 RCL 5.3x 7.0x Ba2/BB Key Credit Statistics Total Debt/EBITDA 8.5x 7.8x 8.2x 7.7x 7.5x 7.5x Qtr Occupancy ADR RevPAR Net Debt/EBITDA 7.4x 7.4x 7.0x 7.2x 7.1x 7.1x 3Q11 75.9%$ 103.43 $99.04 2Q11 76.3%$ 129.68 $ 98.94 Adj. EBITDA/Interest 1.3x 1.3x 1.8x 1.5x 1.3x 1.5x 1Q11 69.6%$ 127.88 $ 88.97 Adj. EBITDA margin 20.2% 18.7% 24.9% 21.1% 20.6% 21.4% 4Q10 66.2%$ 120.47 $ 79.77 * excludes OID on 10% notes 3Q10* 74.7%$ 126.21 $ 94.31 2Q10* 74.9%$ 125.45 $ 93.97 1Q10 67.9%$ 123.02 $ 83.67 * 2Q/3Q typically seasonally stronger quarters. Capitalization Debt to Description 3Q11 EBITDA Liquidity 3Q11 Enterprise Value Term loan (none) - Line of credit 225 Shares o/s (mm) 124.6 Senior secured revolver (L+450) due Aug 2014 - Letters of Credit - Stock price$ 3.94 Total Mortgage Debt 570 Borrowings - Market cap 491 10% senior secured notes due Oct 2014 492 Revolver Availability 225 Net debt 1,470 6.75% senior secured notes due June 2019 525 Preferred equity 479 Total senior secured debt 1,587 7.7x Minority interest 28 Cash 117 Enterprise value (EV) 2,468 Total Liquidity 342 -0.5720346 EV / LTM EBITDA 12.0x
Maturities:
800
600
400
200
0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 71 January 26, 2012 High Yield
First Data Corp. (FDC) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $784 9.875 Senior 24-Sep-15 Caa1/B- 104.94 2/27/2012 98.25 10.5% 1,016 $748 10.550 Senior PIK 24-Sep-15 Caa1/B- 105.28 2/27/2012 98.50 10.4% 1,052 $2,500 11.250 Sr. Subs 31-Mar-16 Caa2/CCC+ 105.63 2/27/2012 87.88 15.3% 1,498
Company Description Investment Strengths: First Data Corporation is the largest third-party independent merchant acquiring company in the world. It - Transaction mix improving: Transaction volume provides electronic commerce and payment solutions for merchants, financial institutions, and card issuers. The growth in 3Q2011 was driven by a recovery in credit company is organized into three primary segments through which it reports revenues and earnings: Retail & card transactions, which carry higher margins for Alliance Services, Financial Services, and International. The Retail & Alliance Services segment consists of its merchant acquirers like FDC. While the trend has businesses that facilitate a merchant’s ability to accept credit, debit, stored-value and loyalty cards, and checks. moderated in 4Q2011, the most recent quarter's First Data’s Financial Services segment provides debit network access as well as credit and retail card growth in credit transactions still exceeds that reported processing services to a broad range of financial institutions. The International segment operates in four primary in 1Q2011 and 2Q2011. geographic regions and provides services similar to the other two segments for both merchant and financial - BAMS alliance accretion: FDC expects BAMS to customers. The company was purchased through an LBO by KKR in 2007. drive $125 million of incremental savings over the next few years as it further integrates the platform. Key Dates/Catalysts: - Extending a long runway: First Data has achieved - First Data is expected to report 4Q earnings in early February success in extending future debt maturities and - The debit interchange fee limitation, a provision of the Durbin Amendment, took effect on October 1, 2011. The currently has no funded debt maturing until Sep-2014. network exclusivity provision will take effect on April 1, 2012. We expect management to provide more We anticipate that the company will continue to focus commentary during earnings calls on industry participants' responses to these regulations. on ways to further improve its ability to grow into its - We remain focused on the potential for First Data to refinance its senior unsecured notes due 2015 as part of capital structure, including future A-to-E transactions another potential amend-to-extend offer to the lenders. and bond refinancings. - Leading market position: FDC continues to control close to a 50% share of US-based transaction Financial Profile FY08 FY09 FY10 LTM-3Q11 FY11E FY12E volumes within the merchant acquiring market. Adjusted Revenues 6,795 6,279 6,441 6,543 6,563 6,736 Investment Risks: Adjusted EBITDA 2,574 2,132 2,027 2,157 2,191 2,290 - Highly levered capital structure: FDC remained over 10x levered as of 3Q2011. We expect leverage to decline slowly over time, but FDC's debt service needs Cash Interest Expense (1,480) (1,416) (1,396) (1,555) (1,434) (1,832) provide marginal room for error. Cash Taxes 0 0 0000 - Competitive market environment: Competition is high CapEx (512) (379) (370) (384) (195) (235) in the merchant acquiring segment, and in the card account and network processing segment. Free Cash Flow (76) 0 385 382 562 (43) - Weak free cash flow profile: We expect free cash flow to be marginal over the next few years as FDC spends much of its $2 billion of EBITDA on cash Total Debt 22,573 22,610 22,709 22,803 22,770 22,870 interest ($1.8 billion) and capex ($440 million). Cash 406 737 510 402 686 643 Net Debt 22,166 21,873 22,200 22,401 22,084 22,227 Key Credit Statistics Total Debt/EBITDA (OpCo) 8.8 x 10.6 x 11.2 x 10.6 x 10.4 x 10.0 x Net Debt/EBITDA (OpCo) 8.6 x 10.3 x 11.0 x 10.4 x 10.1 x 9.7 x
EBITDA/Interest 1.3 x 1.2 x 1.1 x 1.2 x 1.2 x 1.2 x EBITDA margin 37.9% 33.9% 31.5% 33.0% 33.4% 34.0%
Capitalization LTM 3Q11 FY11E Liquidity (F11E) Debt to Debt to Description Size EBITDA Size EBITDA Revolver Size 1,518 Revolver due 9/24/13 (L+275) 11 5.9 x 0 5.8 x - Amt Drawn 11 Revolver due 9/24/16 (L+400) 22 5.9 x 0 5.8 x - LC's 45 Term Loan - B1 (L+275) due 9/24/14 2,483 5.9 x 2,483 5.8 x Amt Unutilized 1,462 Term Loan - Delayed Draw 37 5.9 x 37 5.8 x Cash 402 Term Loan - Euro (L+275) due 9/24/14 415 5.9 x 415 5.8 x Liquidity 1,865 Term Loan - B2 (L+275) due 9/24/14 2,227 5.9 x 2,227 5.8 x Foreign lines of credit* 267 Term Loan - B3 (L+275) due 9/24/14 1,417 5.9 x 1,417 5.8 x Term Loan - Ext (L+400) due 3/24/18 4,667 5.9 x 4,667 5.8 x 7.375% Secured Notes due 2019 750 5.9 x 750 5.8 x 8.875% Secured Notes due 2020 510 5.9 x 510 5.8 x Foreign bank lines 55 5.9 x 55 5.8 x Maturities: Capital Leases & Other 178 5.9 x 178 5.8 x $14,000.0 8.25% 2nd Lien Secured Notes due 2021 2,000 7.3 x 2,000 7.2 x $12,000.0 8.75%/10.0% 2nd Lien PIK Tog Nts due 2022 1,000 7.3 x 1,000 7.2 x $10,000.0 9.875% Senior Nts due 2015 784 9.4 x 784 9.3 x $8,000.0 10.55% Senior PIK Nts due 2015 748 9.4 x 748 9.3 x $6,000.0 12.625% Unsecured Notes due 2021 3,000 9.4 x 3,000 9.3 x $4,000.0 11.25% Sr Sub Nts due 2016 2,500 10.6 x 2,500 10.4 x $2,000.0 Total OpCo Debt 22,803 10.6 x 22,770 10.4 x $0.0 Less cash 402 -- 686 -- 2011 2013 2013 2014 2015 2016 After Net Debt 22,401 10.4 x 22,084 10.1 x
Goldman Sachs Credit Research 72 January 26, 2012 High Yield
Ford Motor Company (F) Updated 1/26/12 Brian Jacoby, CFA 212-902-3258 Ford Motor Credit Company (FMCC) Cody Sauer, CFA 212-855-8553 Contact analyst or see latest research for updates to ratings, estimates, and other information. OUTPERFORM/OUTPERFORM
Bond Summary Size Coupon Agency Bid YTW T-sprd 5-year Company (MM) (%) Priority Maturity Ratings Price (%) bp CDS Ford $361 6.500 Sr. Unsec 1-Aug-18 Ba2/BB+ $108.00 5.0 425 331 Ford $1,794 7.450 Sr. Unsec 16-Jul-31 Ba2/BB+ $122.00 5.6 246 331 FMCC $1,500 8.000 Sr. Unsec 15-Dec-16 Ba1/BB+ $117.50 4.0 322 265 FMCC $1,000 5.875 Sr. Unsec 2-Aug-21 Ba1/BB+ $108.50 4.8 276 265
Company Description Investment Strengths: Ford Motor Company is a global automotive manufacturer that operates in 200 markets, spanning six continents. The company is headquartered in Ford has significantly reduced its automotive debt and has a Dearborn, Michigan, and employed 166,000 workers at the end of 3Q2011. Based on our estimate, Ford sold approximately 5.7 million vehicles worldwide stated goal of returning to investment grade. in 2011, up from 5.3 million vehicles in 2010. In its largest market, North America, Ford sold approximately 2.5 million units in 2011 versus 2.4 million units in 2010. Approximately 58% of Ford's auto revenues were in North America, and it held a 16.8% US market share in 2011 compared to 16.7% in 2010. Ford has gained market share with its new small-car models Ford's remaining sales came from Europe (27% of total), South America (8%), and Asia/Pacific/Africa (7%). Over the past few years, the company has such as the Fiesta and Focus, and its new 2013 Fusion sedan trimmed its brands to just two: Ford and Lincoln. In 2010, Ford ended production of its Mercury-branded vehicles and sold its former Volvo car business to should generate further market share gains, in our view. China's Zhejiang Geely Holding Group for $1.8 billion. Ford holds a 3.5% stake in Mazda that was reduced from 11% in 4Q2010. In 2008, Ford divested its Jaguar and Land Rover operations to Tata Motors for approximately $2.3 billion. The company’s CEO is Alan Mulally, and its core North American auto FMCC is a key strategic asset for Ford, as it provides both business is run by Mark Fields. Ford's wholly owned captive finance subsidiary, Ford Motor Credit Company (FMCC), provides vehicle financing to both retail and wholesale customer financing, and continues to pay retail and wholesale customers. FMCC ended 3Q2011 with total assets of $97.5 billion, cash and securities of $12.4 billion, managed receivables of $81.8 dividends to Ford. billion, and managed leverage of 8.0x. Ford expects FMCC's managed receivables to be approximately $82-87 billion by YE2011. Ford does not guarantee FMCC's debt, but it does have a support agreement with FMCC that requires Ford to make capital contributions to the finance company if FMCC's managed Ford's current UAW contract provides the company with a leverage exceeds 11.5x for a calendar quarter. competitive cost structure and we expect Ford's auto business to remain firmly profitable in 2012. Key Dates/Catalysts: 2H2012 - potential upgrade to investment grade by Moody's and Fitch in the fall of 2012. Investment Risks: The economies in the US and Europe have been slowing, and further weakness could result in lower global vehicle sales.
Financial Profile* ($MN) FY08 FY09 FY10 LTM3Q11 FY11E FY12E FY13E Ford carries a greater debt load than some of its competitors. Revenue 129,166 103,868 119,280 125,787 129,079 131,657 139,542 Ford must further strengthen its competitive position in fuel- EBITDA 1,041 3,033 9,963 10,100 10,244 11,524 12,982 efficient cars, as it tries to become less reliant on the SUV and Interest Expense 1,938 1,477 1,807 966 815 724 675 full-size pickup truck segments. Consolidated Net Income (14,672) 2,717 6,561 6,788 7,910 6,079 7,203 FMCC's noninvestment grade ratings cause it to face higher funding costs versus some of its competitors (e.g., banks), and Depreciation & Amortization 5,803 3,743 3,876 3,680 3,606 4,000 4,025 its capital structure is heavily weighted towards secured Other oper cash flow incl pension 2,429 (7,286) (3,974) (2,447) (3,796) (1,750) (2,300) funding (ABS). FMCC's 2012 pretax profits will likely be lower Change in Working Capital (6,000) 3,700 (100) 500 475 (100) 350 year over year due to reduced gains on off-lease vehicles and Net Auto Operating Cash Flow (12,440) 2,874 6,363 8,521 8,195 8,229 9,278 higher provisioning. CapEx (6,620) (4,043) (4,066) (4,255) (4,621) (5,300) (5,500) Dividends 0 0 0 0 0 (760) (912) Free Cash Flow (FCF) (19,060) (1,169) 2,297 4,266 3,574 2,169 2,866 Assets Sold (Acquired) 3,143 8 1,318 135 135 0 0 Debt Increase (Decrease) (287) 9,496 (12,107) (12,191) (5,844) 775 (1,050) Stock Increase (Decrease) 756 2,450 1,339 109 0 0 0 Cash (to)/from FMCC & Ford Hldgs 9 1,000 2,700 4,100 3,000 0 0 Other Cash Flows (5,807) (245) 30 469 (365) (650) (600) Total Chg in Cash, Equivs & ST VEBA (21,246) 11,540 (4,423) (3,112) 500 2,294 1,216 *FMCC accounted for on an equity basis Cash & Equivs + Short-term VEBA 13,391 24,931 20,508 20,776 21,008 23,302 24,518 Total on-balance sheet Debt 1 25,846 33,610 19,077 12,654 13,154 13,929 12,879 Net Debt (Net Cash) 12,455 8,679 (1,431) (8,122) (7,854) (9,373) (11,639) Debt-to- EBITDA Key Credit Statistics Comps EBITDA Interest cov Agency Ratings LTM Secured Debt/EBITDA 6.6x 6.9x 0.9x 0.5x 0.6x 0.6x 0.4x Chrysler Group LLC3 2.8x 3.7x B2/B LTM Total Debt/EBITDA 24.8x 11.1x 1.9x 1.3x 1.3x 1.2x 1.0x General Motors Co.4 0.6x 13.0x Ba1/BB+ LTM FCF/Total Debt -73.7% -3.5% 12.0% 33.7% 27.2% 15.6% 22.3% 3 Pro forma for May 2011 bank/bond financing; 2nd lien bond ratings EBITDA/Interest Expense 0.5x 2.1x 5.5x 10.5x 12.6x 15.9x 19.2x 4 Excludes GM Finance debt; corporate family debt ratings EBITDA margin 0.8% 2.9% 8.4% 8.0% 7.9% 8.8% 9.3% Note: Chrysler and GM debt metrics exclude pension deficits 1 Includes NPV of New UAW Note A and New Note B in 2009 and in 1Q2010
Capitalization - Ford (auto) 9/30/2011 Ford (auto) 9/30/2011 Description Size EBITDA (x) Liquidity Revolver due Dec 2011 0 Revolvers 10,192 Revolver due Nov 2013 0 Letters of Credit/Other 0 Term Loan B1 due 2013 0 Borrowings 0 DOE Loans, EXIM & EIB 5,301 Revolver Availability 10,192 Total Sr Sec Debt 5,301 0.5x 6.500% 8/1/2018 361 Cash 20,776 7.450% 7/16/2031 1,794 Total Liquidity 30,968 Convertible Debt 700 Other Sr Unsec Debt 4,499 Total Sr Unsec Debt 7,353 1.3x Subordinated Convertible Debt 0 Total Automotive Debt 12,654 1.3x Pension deficit - tax adjusted 9,117 Total adj automotive debt 21,771 2.0x Market Cap 49,355 4.9x Enterprise Value 50,349 5.0x
Debt Maturities:
8,000 Ford Motor Co. Ford Motor Credit 7,000 6,000 5,000 4,000
($MN) 3,000
2,000 1,000 0 2012 2013 2014 2015
Goldman Sachs Credit Research 73 January 26, 2012 High Yield
Forest Oil (FST) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,000 7.250% Sr. 6/15/2019 B1/B $103.63 6/15/2012 $100.25 7.16% 639
Company Description Investment Strengths: Forest is in the latter stages of a portfolio restructuring to focus on unconventional gas. Following the spin-off of • Recent transactions have improved the quality of the Mariner (September 2005), Forest became smaller, longer-lived and more onshore focused. Then, in January portfolio and facilitated deleveraging 2007, FST announced the acquisition of The Houston Exploration Company for $1.5 bn, which added significant • Compelling growth opportunities in the Granite Wash South Texas assets. In December 2009, the company sold its Permian Basin properties to SandRidge Energy for and Haynesville $838 mn. F&D costs have improved recently and are roughly in the middle of the peer group. Following significant • Ample liquidity following recent transactions portfolio changes, we expect FST to focus on its Granite Wash and Haynesville Shale properties.
In the past four years FST has redefined itself with over $3 bn of asset purchases and the sale of Gulf of Mexico Investment Risks: and Alaska (August 2007), Canadian (July 2009; December 2009), and Permian Basin (December 2009) • Reinvestment risk after the Permian and Canadian properties. The risk profile has changed dramatically, as FST no longer faces the Gulf of Mexico decline curve. In divestitures September 2008, FST completed the acquisition of Greater Buffalo Wallow and East Texas assets from Cordillera • $1.1 bn special dividend to shareholders in March Texas LP for $873 mn. Concurrent with the acquisition, the company announced an agreement to sell a package 2006 suggests management’s “equity friendly” nature of Rockies assets, which closed in November 2008 for $200 mn. In December 2009, Forest sold its Permian basin • High natural gas exposure (72% of 2011E assets for $838 mn. In December 2010, Forest announced its plan to spin off its Canadian operations and carry production) out an IPO. The IPO was completed in June 2011. Forest is actively pursuing a JV partner in the Eagle Ford shale. Key Dates/Catalysts: • Bolt-on acquisitions or other uses of historically high cash balance • Granite Wash drilling results • Eagle Ford JV
Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $1,592 $1,167 $952 $834 $889 EBITDA (Adj for non-cash items) $1,244 $870 $689 $579 $642 Free Operating Cash Flow ($1,334) ($72) ($275) ($248) ($21) Capital Expenditures $2,404 $669 $808 $754 $575
Leverage Coverage Agency Comps ('11E) ('11E) Ratings Credit Ratios 2008A 2009A 2010A 2011E 2012E FST 2.8x 4.0x B1/B Total Debt/EBITDA (LTM) 2.2x 2.3x 2.7x 2.8x 3.0x CHK 2.0x 33.6x Ba3/BB+ EBITDA/Interest Expense (LTM) 9.9x 5.3x 4.6x 4.0x 4.9x NFX 1.8x 10.3x Ba2/BB+ Debt to Capitalization % 62% 65% 58% 57% 58% PXD 1.9x 8.6x Ba1/BBB- Debt + Preferred per Proved Boe $6.15 $5.72 $5.00 $3.91 $4.44 Debt + Preferred per PDP Boe $9.78 $9.13 $8.33 $6.52 $7.40
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $270 Revolver Size $1,600 Revolving Credit Facility $0 Letters of Credit $2 Long Term Debt Borrowings $0 Senior notes 2011-19 $1,872 Revolver Availability $1,598 Total Long Term Debt $1,872 Cash $270 Total Debt $1,872 2.9x Total Liquidity $1,868 Preferred Equity $0 Common Equity $1,175 Total Capitalization $3,047
Maturities:
1200
1000
800
600
400
200 Debt maturitiesDebt ($ mn) 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 74 January 26, 2012 High Yield
Fortescue Metals Group Ltd (FMGAU) Updated 1/20/12 Justine Fisher 212-357-6711 Contact analyst or see latest research for updates to ratings, estimates, and other information. Joshua Pinkerton 212-357-9774 OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $2,040 7.000% Sr Notes 1-Nov-15 B1/B 105.25 1-Nov-15 103.06 5.77 540
Company Description Investment Strengths: - Growth: Current plans call for it to expand production from 40 Fortescue is an Australian iron ore company. It mines ore exclusively in Australia, and the bulk of its exports go to million tons per year to 155 million tons. China. - Leverage: We foresee relatively low leverage of less than 2.0x for the next couple of years, even taking into account Key Dates/Catalysts: additional debt issuance to fund capex. - Current plans call for FMG to expand production from 40 million tons per year to 155 million tons. - Size: We project $3.5 billion of EBITDA in FY2012 and $3.5 billion of EBITDA in FY2013, making FMG one of the largest companies in our coverage space. Its market capitalization is almost A$15 billion.
Investment Risks: - Cost overruns: FMG's growth capex budget could be low, leading to cost overruns and possibly additional debt issuance. - Access to the capital markets: If costs are greater than we expect or prices do not meet our forecasts, FMG may need to issue additional debt to meet its capex needs. - Lower iron ore prices: This could reduce EBITDA and require additional capital raising (possibly another $750 million, Fiscal year end June 30 according to our estimates) to fund capex. Financial Profile FY10A 6/30/11A FY11A 12/31/11E FY12E FY13E Revenue 3,220 2,909 5,442 1,608 6,735 7,846 EBITDA 1,223 1,475 2,765 796 3,474 3,471
Interest Expense (394) (216) (430) (64) (317) (376) Taxes 2 (358) (313) (86) (304) (383) CapEx (584) (917) (1,428) (1,600) (5,700) (2,247) Free Cash Flow 1,049 951 1,351 (1,210) (3,033) 435
Agency Total Debt 2,976 4,662 4,662 6,063 5,965 5,761 Comps Leverage Coverage Ratings Cash 1,236 2,663 2,663 2,538 746 789 Peabody Energy 3.2x 11.4x BB+/Ba1 Net Debt 1,740 2,000 2,000 3,525 5,219 4,971 Steel Dynamics 2.7x 5.1x BB+/Ba2 Key Credit Statistics US Steel Corp. 4.3x 5.0x BB/B1 Total Debt/EBITDA 2.4X 3.2X 1.7X 7.6X 1.7X 1.7X FMG 7.6x 12.4x B1/B
EBITDA/Interest 3.1X 6.8X 6.4X 12.4X 11.0X 9.2X EBITDA margin 37.98% 50.70% 50.80% 49.50% 51.58% 44.25%
Capitalization Liquidity FY12E Debt Description Size to EBITDA Revolver Size 600.0 Preference Shares 153.9 Letters of Credit - 2015 7% unsecured notes 2,040.0 Borrowings - 2016 6.375% unsecured notes 600.0 Revolver Availability 600.0 2018 6.875% unsecured notes 900.0 Add'l carrying value for unsecured notes 24.6 A/R facility - Subordinated Loan Note (Leucadia) 943.9 Borrowings - Total Debt 4,662.4 1.3x A/R Availability - exclude all but $100m of Leucadia note (843.9) Total Debt ex-Leucadia NPV adjustment 3,818.5 1.1x Cash 2,662.7 Market Cap 14,977.0 Total Liquidity 3,262.7 Enterprise Value 16,976.7 4.9x
Maturities
5,000
4,000
3,000
2,000
1,000
0 2012 2013 Thereafter
Goldman Sachs Credit Research 75 January 26, 2012 High Yield
Freescale Semiconductor (FSL) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $663 10.125 Sr Sec 15-Mar-18 Ba3/B 105.06 3/15/2014 112.50 6.0% 582 $250 8.875 Senior 15-Dec-14 Caa1/CCC+ 102.22 2/27/2012 102.75 1.5% 142 $764 10.125 Snr Subord 15-Dec-16 Caa2/CCC+ 105.06 2/27/2012 106.50 -9.1% (911)
Company Description Investment Strengths: Freescale Semiconductor is a global semiconductor manufacturer with leading technology in embedded chips. - Leading automotive semiconductor supplier: FSL is a Based on revenues, it is among the 10 largest semiconductor companies in the world and in the top five in the leading semiconductor manufacturer, with 70% of its US. The company was spun out from Motorola in July 2004 and remained a public company until the LBO by a total sales generated by embedded chips. consortium of sponsors led by Blackstone late in 2006. Continental and Motorola are FSL's largest customers, - Aggressive restructuring actions: FSL has been contributing approximately 10% of revenues each. Freescale's primary business units include Microcontroller targeting to drive EBITDA margins toward 25%. Solutions (35% of sales), Cellular Products (10%, but being wound down), Networking & Multimedia (26%), and - Adequate near-term liquidity: FSL completed a debt Radio Frequency, Analog & Sensors (25%). exchange in 2009 that reduced cash interest costs and total debt outstanding, but still left leverage at a very Key Dates/Catalysts: high level. - Freescale is expected to report 4Q2011 earnings on January 26. - September 1, 2014: If net leverage is greater than 4.0x and more than $500 million of the senior unsecured Investment Risks: notes due 2014 remain outstanding, the extended term loan’s maturity (2016) accelerates to that date. - Free cash flow remains weak: Free cash flow was negative in 1Q2011, 2Q2011, and 3Q2011. We remain concerned about escalating costs, which we believe should consume much of FSL’s incremental cash flow, especially in light of recent macro headwinds - High leverage: Despite a 2011 LBO and successful debt exchanges, the FSL LBO pushed the limits in terms of the amount of leverage a semiconductor Financial Profile FY08 FY09 FY10 LTM-3Q11 FY11E FY12E company can bear and the balance sheet remains highly levered. Revenue 5,091 3,508 4,458 4,741 4,570 4,370 - Cellular wind-down remains a top-line headwind: EBITDA 919 304 956 1,130 1,080 1,030 Revenues at the cellular products business declined from a peak of $1.5 billion to less than $500 million LTM as of 3Q11. Interest Expense (710) (423) (483) (608) (544) (518) Cash Taxes 0 0 0000 CapEx (239) (85) (282) (210) (192) (175) Free Cash Flow 171 (9) 112 (94) 15 227
Total Debt 9,773 7,544 7,616 6,592 6,544 6,294 Cash 1,394 1,363 1,043 744 813 790 Comps Leverage Coverage Sr. Unsec Net Debt 8,379 6,181 6,573 5,848 5,731 5,504 Ratings Key Credit Statistics AMD 2.3x 5.0x Ba3/B+ Total Debt/EBITDA 10.6 x 24.8 x 8.0 x 5.8 x 6.1 x 6.1 x AMKR 2.3x 6.6x Ba3/BB Net Debt/EBITDA 9.1 x 20.3 x 6.9 x 5.2 x 5.3 x 5.3 x NXP 3.3x 3.7x Caa1/B
EBITDA/Interest 1.4 x 0.5 x 1.6 x 2.0 x 1.9 x 2.0 x EBITDA margin 18.1% 8.7% 21.4% 23.8% 23.6% 23.6%
Capitalization (FY11E) Debt to Description Size EBITDA Liquidity LTM Replacement Revolver due 2016 0 3.9 x Revolver Size 425 Extended Term Loan (L+425) due 2016 2,215 3.9 x Borrow Base 425 10.125% Senior Secured Notes due 2018 663 3.9 x - Amt Drawn 0 9.25% Senior Secured Notes due 2018 1,380 3.9 x - Letters of Credit 22 Capital Leases & Other 3 3.9 x - Unavailable 0 8.875% Senior Notes due 2014 250 5.4 x Amt Unutilized 403 Senior FRN Notes due 2014 (L+387.5) 57 5.4 x Cash 744 10.75% Senior Notes due 2020 473 5.4 x Liquidity 1,147 8.05% Senior Notes due 2020 739 5.4 x 10.125% Senior Sub Notes due 2016 764 6.1 x Total Debt 6,544 6.1 x Less cash 813 -- Net Debt 5,731 5.3 x Equity Market Cap 3,830 -- Enterprise Value 9,562 8.9 x Maturities:
3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 0.0 2012 2013 2014 2015 2016 Thereafter
Goldman Sachs Credit Research 76 January 26, 2012 High Yield
Frontier Communications Corporation (FTR) Updated 1/20/12 Jason Kim 212-902-2233 Contact analyst or see latest research for updates to ratings, estimates, and other information. Satya Tagat 212-902-4427 UNDERPERFORM Our Underperform ratings on the FTR bonds reflect our belief that top-line challenges will prove to be more persistent than the market expects. While we believe FTR will meet and ultimately beat its synergy targets, we think that revenue trend is a more important issue to focus on given the significant reverse operating leverage excluding synergies. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,100 8.500 Sr Nts 15-Apr-20 Ba2/BB NC NC 101.00 8.33 650 $945 9.000 Sr Nts 15-Aug-31 Ba2/BB NC NC 91.00 10.06 732
Company Description Investment Strengths: (1) Strong management team: FTR's team has a proven track Frontier Communications Corporation is the largest pure rural telecommunications carrier and the fifth-largest record of integrating acquisitions. Incumbent Local Exchange Carrier in the United States. Frontier’s services include voice, high-speed Internet, satellite video (through agreements with DISH), wireless Internet data access, data security solutions, bundled (2) Synergies: FTR expects to achieve $600 mn in run-rate offerings, specialized bundles for small businesses and home offices, and advanced business communications synergies by the end of 2012 from its VZ access lines acquisition. Access Solutions for medium and large businesses. Frontier operates in 27 states with over 15,000 employees. (3) No meaningful secured debt: FTR's capital structure currently Key Dates/Catalysts: consists of mostly unsecured debt. February 23, 2012: 4Q2011 earnings.
Access line trends in acquired VZ markets. Investment Risks: (1) Top-line pressure: Largely owing to continued heavy access line Update on systems conversion progress and outlook on the company's dividend. losses in the acquired VZ markets, FTR faces challenges in trying to stabilize its revenue trends.
(2) Event risk from system conversions: FTR successfully converted four markets soon after it acquired the VZ properties. Over the next year, it will convert the remaining nine states' systems to FTR's platform.
Financial Profile * FY09A FY10A 2Q11A 3Q11A 4Q11E FY11E (3) Regulatory changes: FTR derived 12% of its revenues from Residential Lines ('000s) 4,095 3,636 3,429 3,345 3,271 3,271 revenues tied to regulation (USF and ICC). Since status quo is probably the best-case scenario for FTR, we believe regulatory YoY % Change NA (11.2%) (11.1%) (10.5%) (10.0%) (10.0%) reforms would likely affect FTR's revenue and EBITDA negatively. HSD Customers ('000s) 1,695 1,697 1,715 1,729 1,739 1,739 YoY % Change 7.5% 0.1% 1.1% 2.2% 2.5% 2.5% Total Access Lines ('000s) 6,311 5,746 5,490 5,374 5,283 5,283 YoY % Change (10.1%) (9.0%) (8.6%) (8.5%) (8.0%) (8.0%)
Revenue $6,071 $5,652 $1,322 $1,291 $1,272 $5,232 EBITDA 2,968 2,645 634 609 599 2,469 FCF After Dividends 174 115 (60) (44) (32) (19) Agency Total Debt $4,884 $8,327 $8,249 $8,248 $8,350 $8,350 Comps Leverage Coverage Ratings Cash 359 251 233 206 275 275 Net Debt 4,525 8,076 8,016 8,042 8,074 8,074 WIN 3.5x 3.2x Ba3/B+ Key Credit Statistics Charter - CCOH 4.3x 2.8x B1/BB- Total Debt/EBITDA 4.2x 3.1x 3.2x 3.3x 3.4x 3.4x CVC Corp 4.0x 3.2x B1/B+ Net Debt/EBITDA 3.9x 3.0x 3.1x 3.2x 3.3x 3.3x Sprint 3.3x 4.0x B3/B+
EBITDA Margin 48.9% 46.8% 47.9% 47.2% 47.1% 47.2% * Operating metrics, revenue, and EBITDA figures are pro forma for the VZ access lines acquisition. Capitalization* Debt / Description Size EBITDA Liquidity Subsidiary Debt $60 Revolver Size $750 Total Subsidiary / Other Debt $60 Letters of Credit - Unsecured RC ($750mm Facility) - Borrowings - Unsecured TL 575 Revolver Availability $750 Sr Nts & Debentures 7,715 Total FTR Debt $8,350 3.4x Cash $206 Total Liquidity $956 Net Debt $8,144 3.3x Market Cap 6,080 Enterprise Value 14,224 5.7x *Pro forma for the October 2011 refinancing transaction Maturities:
7,000 6,099 6,000
5,000 4,000 3,000
2,000 659 859 1,000 639 95 0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 77 January 26, 2012 High Yield
Gannett Co. (GCI) Updated 1/23/2012 Scott Wipperman 212-357-9922 Contact analyst or see latest research for updates to ratings, estimates, and other information. Scott Marchakitus 212-902-9760 OUTPERFORM Our Outperform rating is driven by GCI's business diversity, free cash flow generation, and improved balance sheet. Bond Summary Size Coupon Agency Next Call Bid YTW STW 5-year (MM) (%) Priority Maturity Ratings Price Date Price (%) bp CDS $250 8.750 Sr Guar 15-Nov-14 Baa3/BB 111.50 4.324% 411 265/285 $250 9.375 Sr Guar 15-Nov-17 Baa3/BB 104.688 11/15/13 111.50 5.095% 488
Company Description Investment Strengths: Gannett is a leading news information provider, with publishing, broadcasting, and digital operations. GCI publishes 82 daily - Gannett has a strong portfolio of digital properties, newspapers and roughly 850 non-daily publications in the US. Its newspaper properties include USA Today, which is one of including a majority stake in Career Builder, the largest papers in the US, with average daily circulation of roughly 1.8 million. In addition, Gannett owns the second- ShopLocal, and Ripple6. largest publishing operation in the UK, Newsquest. Newsquest has 17 daily newspapers and over 200 non-daily - Strong business diversity with significant newspapers, magazines, and trade publications. Its Broadcasting segment operates 23 local television stations in the US, broadcasting operations (23 local TV stations). with a market reach of more than 20.8 million households. Finally, Gannett owns an array of digital properties including a - USA Today is one of the largest papers in the US, majority stake in Career Builder, ShopLocal, PointRoll, and Ripple6. with average daily circulation of roughly 1.8 million. - GCI generates significant free cash flow. Key Dates/Catalysts: - GCI is at the forefront in terms of experimenting with - 4Q2011 earnings on January 30, 2012. creative news distribution, including its shift of the - Company may look to term out revolver borrowings. Detroit Free Press to a hybrid print/digital model and its focus on improving Sunday circulation at its 30 largest papers. - Broadcasting segment should benefit from political advertising and Olympics in 2012. Financial Profile FY09 FY10A FY11E FY12E Investment Risks: Revenue 5,613 5,462 5,234 5,244 - Company could look to return more capital to Adjusted EBITDA 1,090 1,273 1,147 1,229 shareholders in 2012. Interest Expense (176) (173) (166) (138) - GCI has indicated it could be more acquisitive in the digital space. - Local advertising market is growing more Operating Cash Flow 913 773 757 713 competitive. CapEx (68) (69) (71) (90) - Longer-term secular concerns with print advertising and Local Broadcasting market. Dividends (119) (38) (47) (90) - Sizable pension deficit at year-end 2010 of roughly Free Cash Flow 726 666 639 533 $349 million (qualified plans). - Additional large-scale expense cuts will be difficult amid rising newsprint costs and tougher comps. Total Debt 3,062 2,352 1,778 1,478 - Double-dip recession or weaker economy could Cash 99 183 124 175 further weaken ad revenue. Net Debt 2,963 2,169 1,654 1,303
Gross Agency Key Credit Statistics Comps Leverage Coverage Ratings Total Debt/EBITDA 2.8x 1.8x 1.6x 1.2x NYT 2.2x 3.7x B1/B+ Net Debt/EBITDA 2.7x 1.7x 1.4x 1.1x MNI 4.7x 2.1x Caa1/B- EBITDA/Interest 6.2x 7.4x 6.9x 8.9x RRD 3.1x 4.7x Ba1/BB+ EBITDA margin 19.4% 23.3% 21.9% 23.4%
Capitalization Debt to Description Size EBITDA Liquidity Revolver Borrowings 395 Revolver Size 1,630 Matures September 30, 2014 Total Bank Debt 395 Letters of Credit - 8.75% due Nov 15, 2014 250 Borrowings 395 10.0% due June 1, 2015 67 Revolver Availability 1,235 6.375% due Sept 1, 2015 250 10.0% due April 1, 2016 193 9.375% due Nov 15, 2017 250 Cash 196 7.125% due Sept 18, 2018 250 Total Liquidity 1,431 Total Sub Guarantee Debt 1,655 1.8x Credit agreement maintenance 6.375% due April 1, 2012 307 covenants: Total Debt 1,962 1.8x Sr Leverage (as defined) 3.5x Market Cap 2,521 Enterprise Value 4,287
Maturities:
800 700 600 500 400 300
200 100 0
2012 2013 2014
Goldman Sachs Credit Research 78 January 26, 2012 High Yield
Gaylord Entertainment Company (GET) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751 IN-LINE: We believe the bonds are fairly valued as yield-to-call paper and given the expectation that lodging room rates are expected to continue to rebound in 2012 as group visitation rebounds.
Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-Spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $152 6.75 Sr Nts 15-Nov-14 Caa2/B 101.125 Current 100.375 6.24 614 575
Company Description Investment Strengths: Gaylord Entertainment Company (GET) is a lodging company that focuses on the large group meetings segment. - Strong brand name in meeting industry. GET's primary properties include Gaylord Opryland Resort & Convention Center in Nashville, Tennessee; the - Higher visibility due to longer booking lead times Gaylord Palms Resort & Convention Center near Orlando, Florida; the Gaylord Texan Resort & Convention Center generally associated with corporate clients. near Dallas, Texas; and Gaylord National Resort & Convention Center near Washington DC (opened April 2008). - All-in-one facilities allow for capturing of additional These four properties are among the largest in the industry. GET also owns and operates the Grand Ole Opry. dollars spent by guests (e.g., restaurant and spa According to Bloomberg, significant equityholders include TRT Holdings (22%), Columbia Wanger (15%), GAMCO business). (9%), and Dimensional Fund Advisors (6%). - GET repurchased $29 million of the 6.75% senior notes during 2010. Key Dates/Catalysts: - Revised 2011 guidance: Based on RevPAR increase of 3%-5% (vs. 5.5%-7.5%) and total RevPAR increase of 0.5%-2.5% (vs. 4%-6%), GET expects adjusted EBITDA (consolidated cash flow) of $164-168 million (vs. $170-177 million) for its Gaylord Palms, Texan, and National properties. Including results at Opryland and other, GET expects Investment Risks: total adjusted EBITDA of $215-225 million (vs. $215-230 million) including a RevPAR increase of 17%-19% and a - Relatively small portfolio of properties. total RevPAR increase of 15%-17% at Gaylord Opryland. - High concentration of large group meeting business. - 2012 guidance: Expects 2012 adjusted EBITDA of $228-243 million due to a RevPAR increase of 3%-6% and a - Term loan has uncommitted accordion feature that can total RevPAR increase of 2%-5%. increase size of term loan by $475 million, which would - August 2011: Refinanced existing credit facility with new $925 facility consisting of a $525 mn revolver and a $400 prime the bonds. mn term loan with initial pricing of L+225 bp. The credit facility includes a $475 mn accordion term loan. - Restricted payment capacity at the end of 2Q2011: - August 2011: Extended its shareholder rights plan by one year to August 12, 2012, following volatility in the market $380 million. and significant stock purchases by TRT Holdings. - Plans to build an $800 million hotel and entertainment - November 2011: S&P upgraded corporate credit rating to B+ from B and senior unsecured rating to B from B- complex on an 85-acre site near Denver International outlook is stable owing to improved credit metrics despite additional borrowing for its planned Denver project. Airport. GET expects to open the 1,500 room complex in - February 7, 2012: 4Q2011 earnings release. early 2016. Project risk includes uncertainty about groups' desire to hold meetings in Denver. - Washington D.C. property, Gaylord National, continues Financial Profile FY10A 1Q11A 2Q11A 3Q11A 4Q11E FY11E to feel pressure from reduced government and Revenue 772 221 237 225 265 947 government-related business. Adj EBITDA (CCF) 149 46 63 49 59 217
Interest Expense 81 21 21 18 23 83 Cash Taxes (65) (0) (8) 1 3 (4) CapEx 195 37 24 32 8 102 Free Cash Flow (62) (12) 26 (3) 26 36 Comps Leverage Coverage Ratings FCH 7.7x 1.5x B2 / B- Total Debt 1,159 1,162 1,165 1,071 1,071 1,071 HST 5.7x 3.9x Ba1/BB+ Cash 124 87 111 12 41 41 HOT 3.3x 4.7x Ba1/BB+ Net Debt 1,035 1,075 1,054 1,059 1,030 1,030 GET 5.8x 2.7x Caa2/B Key Credit Statistics RCL 5.3x 7.0x Ba2/BB Total Debt / Adj EBITDA 7.8x 7.7x 7.4x 5.8x 4.9x 4.9x Net Debt / Adj EBITDA 6.9x 7.1x 6.7x 5.7x 4.8x 4.8x Qtr Occupancy ADR RevPAR 3Q11 73.6%$ 158.15 $ 117.25 Adj. EBITDA / Interest 1.8x 2.2x 2.9x 2.7x 2.6x 2.6x 2Q11 73.2%$ 173.65 $ 126.68 Adj. EBITDA margin 19.3% 20.9% 26.5% 21.7% 22.3% 22.9% 1Q11 69.3%$ 162.76 $ 113.21 4Q10 69.5%$ 158.86 $ 110.51 3Q10 74.7%$ 154.91 $ 117.68 2Q10 72.2%$ 169.20 $ 123.03 Capitalization Debt to Description 3Q11A EBITDA Liquidity 3Q11A Enterprise Value Credit facility due 8/1/15 (L+225) 200 Line of credit 525 Shares o/s (mm) 48.4 Term loan due 8/1/15 400 Letters of credit 8 Stock price$ 28.75 Senior secured debt 600 3.2x Borrowings 200 Market cap 1,392 6.75% senior notes due 2014 152 Revolver availability 317 Net debt 1,059 3.75% convertible notes due 2014 360 Enterprise value (EV) 2,450 Nashville Predators promissory note - Capital lease obligations & other (41) EV / LTM EBITDA 13.2x Total debt (book value) 1,071 5.8x Cash 12 EV / 2011E EBITDA 11.3x Total liquidity 329 EV / 2012E EBITDA 10.6x
Excludes $475 million accordion.
Maturities: Property revenue 4Q10A 1Q11A 2Q11A 3Q11A 600 Gaylord Opryland$ 38 $ 60 $ 73 $ 72 Gaylord Palms 41 45 38 27 Gaylord Texan 56 50 46 48 400 Gaylord National 63 52 60 58 Other 16 12 20 21 Total revenue 213 221 237 225 200
0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 79 January 26, 2012 High Yield
GenOn Energy Corp. (GEN) Updated 1/25/2012 Raymond M. Leung 212-357-5764 Contact analyst or see latest research for updates to ratings, estimates, and other information. Abayomi A. Adigun 212-902-9355 OUTPERFORM/IN-LINE Our Outperform on the 2017 and 2018 reflect attractive relative value and the expectations of a strong liquidity profile and improving credit metrics owing to higher capacity prices in 2013.
Bond Summary Size Coupon Agency Next Call Bid YTW STW Issuer (MM) (%) Priority Maturity Ratings Price Date Price (%) bp GEN $725 7.875 Sr Unsec'd 15-Jun-17 B3/B MW+50 -- 90.75 10.15 935 GEN $675 9.500 Sr Unsec'd 15-Oct-18 B3/B MW+50 -- 93.00 11.00 1020 GEN $550 9.875 Sr Unsec'd 15-Oct-20 B3/B MW+50 -- 94.50 10.86 886 GEN-AG $450 8.500 Sr Unsec'd 1-Oct-21 B3/BB- MW+37.5 -- 90.50 10.06 805
Company Description Invest ment Strengths: GenOn Energy Inc. is engaged in the ownership, long-term leasing, and operation of power generation facilities in the - GenOn benefits from a large and diverse generation Mid-Atlantic, Northeast, California, Southeast, and Midwest, with approximately 24.2GW of capacity. On December 3, portfolio with the Mid-Atlantic fleet well positioned given the 2010, RRI Energy Inc and Mirant Corp completed their merger that formed GenOn Energy. Through GenOn Holdings, completion of its environmental spending requirements to GEN is the parent of GenOn Marsh Landing, GenOn Americas Generation LLC, and Reliant Energy Mid-Atlantic. In comply with the Maryland Healthy Air Act. turn, GenOn Americas Generation is the indirect parent of GenOn Mid-Atlantic, which is a unit of GenOn North America. - Hedging profile is expected to improve. Currently, GEN is About half of GenOn's fleet (by capacity) is located in PJM. Based on capacity, coal-fired generation accounted for 90% hedged for 2012 and 50% hedged for 2013 baseload. about 31% of the portfolio, but accounted for about 87% of output. - Capacity revenues will increase in 2013, which should translate into margin improvement and ensures EBITDA is Key Dates/Catalysts: hedged by more than 50% through 2014. - February 29, GEN is expected to report 4Q2011 earnings. Given the decline in gas prices, the comapny may make a - Strong liquidity profile, with $2.3 billion available liquidity, notable revision in its adjusted EBITDA of $607 million for 2011, $496 million for 2012, and $761 million for 2013. that includes $1.7 billion of cash. - We expect a general business update and an update on its merger cost-savings target of $155 million. We will focus - Management indicated that it plans to maintain liquidity and on the effects enviromental requirements will have on the company along with GEN's planned hedging strategy, as gas hedges consistent with a 5% probability event for five years and still have $200 million in working capital, without drawing prices continue to fall. on the revolver. - Status of the Marsh Landing gas-fired plant construction that is expected to be completed in mid-2013. - May 2012, results of the PJM capacity auction for the planning year of 2015/2016. Investment Risks: - Energy margins face pressure given the decline in gas prices. - Leverage is expected to increase to peak in 2012, but should begin declining in 2013 with higher capacity revenues. Financial Profile FY10 FY11E FY12E FY13E LTM3Q11 - Power plant fleet generation is predominantly coal fired; this Gross Margins 1,307 1,807 1,618 1,825 1,523 leaves GenOn highly vulnerable to climate regulations. EBITDA 503 603 449 634 518 - Multi-tiered capital structure results in structural subordination. EBITDAR - ex M2M 651 762 601 786 666 - Aging fleet with most of the plants over 40 years old that Lease Adjusted Interest Expense (376) (492) (479) (485) (624) relies on coal-fired generation. - Future environmental rules may require incremental Income taxes 2 18 86 35 (1) expenditures of $565 million to $700 million. CapEx (304) (571) (516) (290) (418) Free Cash Flow 46 (273) (351) 1 (141) Comps Leverage Coverage Agency Lease Adjusted Debt 7,305 5,291 5,519 5,455 5,207 Ratings Cash 3,947 1,536 1,507 1,543 1,746 AES Corp* 4.1x 3.6x Ba3/BB- Net Debt 3,358 3,755 4,011 3,913 3,461 Calpine Corp 6.7x 2.0x B1/BB- Key Credit Statistics Dynegy 10.2x 1.1x –/D Lease Adj Debt/EBITDAR 11.2x 6.9x 9.2x 6.9x 7.8x Edison Mission 8.5x 1.4x Caa1/B- Net Lease Adj Debt/EBITDAR 5.2x 4.9x 6.7x 5.0x 5.2x GenOn 7.8x 1.1x B3/B CMS 4.7x 3.7x Ba1/BB+ EBITDAR/Interest 1.7x 1.5x 1.3x 1.6x 1.1x NRG 4.7x 2.4x B1/BB- *AES reflects sub distributions to parent obligations; LTM4Q2011 Note: FY2010 and FY2009 reflects GenOn GAAP, which is largely Mirant's financials.
Capitalization Debt to Description Size EBITDAR Liquidity Mirant lease debt* 754 Revolver Size 788 Reliant lease debt* 387 Term Loan Size 695 Total Project-Level Debt 1,141 1.7x Total Revolver/Term Loan 1483 Mirant Americas Gen 8.5% due 2021 450 LOC/Borrowings 239 Mirant Americas Gen 9.125% due 2031 400 Outstanding Term Loan 686 Other and Operating Lease Adjustment* 65 Revolver Availability 558 Total Project and GenOn Americas Generation debt 2,056 3.1x Cash GenOn secured revolver - GenOn Cash* 1600 GenOn secured term loan 686 GenOn Mid-Atlantic 84 GenOn 7.625% of 2014 575 REMA 62 GenOn 7.875% of 2017 725 Cash for debt reduction (13) GenOn 9.5% of 2018 675 Total cash 1733 GenOn 9.875% of 2020 550 TOTAL LIQUIDITY 2291 GenOn 6.75% of 2036 PEDFA Notes - Other (60) Total Consoldiated Debt 5,207 7.8x
Consolidated debt net of cash 3,487 5.2x Market Cap 1,659 Enterprise Value net of cash 5,146 7.7x *Includes Marsh Landing
Maturities excluding lease maturiies 700 600
500 400
300 200 100 0 2012 2013 2014 2015
Goldman Sachs Credit Research 80 January 26, 2012 High Yield
Goodyear Tire (GT) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 UNDERPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $994 8.250% Sr. Nts 15-Aug-20 B1/B+ 104.13 8/15/2015 107.94 671.8% 596
Company Description Investment Strengths: - Price/mix effectively offsetting raw material costs: At the The Goodyear Tire & Rubber Company develops, manufactures, distributes, and sells tires for most applications. Detroit Auto show in January, Goodyear indicated that The company also manufactures and markets several lines of rubber and rubber-related chemicals, and provides although it expects raw material headwinds of $600 mn in automotive repair services. Goodyear also retreads truck, aircraft, and heavy equipment tires. The company 4Q11 and $500 mn in 1Q12 yoy, it believes improved provides its products and services worldwide. price mix will offset the continued raw material cost increases. Key Dates/Catalysts: - Natural rubber headwinds are mitigating: Although still - Goodyear Tire is expected to report 4Q2011 earnings in February. elevated, natural rubber prices have decreased in recent months.
Investment Risks: - Pension funded status: As asset values and interest rates have decreased in 2011 (increasing the present value of pension liabilities) , we expect that GT's funded status has deteriorated materially since the company last reported details on its pension plan. - Raw materials will remain a headwind: Management estimates that about 50% of the company’s COGS are derived from raw materials – particularly natural rubber Financial Profile FY08 FY09 FY10 LTM-3Q11 FY11E FY12E and oil. Although natural rubber prices have declined from Revenue 19,488.0 16,301.0 18,832.0 22,156.0 22,604.4 23,258.1 their early 2011 levels, they remain moderately elevated. EBITDA 1,523.3 916.0 1,395.0 2,045.0 2,117.7 2,116.1 - Moderating North American replacement tire volumes: After a strong 2010 in which volumes increased about 7%, North America light vehicle replacement tire Interest Expense (306.5) (302.9) (316.0) (316.0) (327.3) (345.4) shipments were flat in 2011 and are expected to grow by Cash Taxes (310.0) (310.0) (167.0) (175.3) (183.5) (250.0) a modest 2% in 2012. CapEx (1,049.0) (746.0) (944.0) (1,132.0) (1,106.0) (1,200.0) Free Cash Flow (1,849.0) 551.0 (20.0) (1,270.0) (817.7) (210.3)
Total Debt 4,979.0 4,520.0 4,745.0 6,083.0 6,083.0 6,083.0 Comps Leverage Coverage Ratings Cash 1,894.0 1,922.0 2,005.0 2,126.0 3,054.3 2,844.0 AXL 2.8x 4.8x B1/BB- Net Debt 3,085.0 2,598.0 2,740.0 3,957.0 3,028.7 3,239.0 CTBUS 1.3x 8.4x B1/BB- Key Credit Statistics GT 3.0x 6.5x Ba3/BB- Total Debt/EBITDA 3.3x 4.9x 3.4x 3.0x 2.9x 2.9x MTOR 3.0x 3.6x B2/B Net Debt/EBITDA 2.0x 2.8x 2.0x 1.9x 1.4x 1.5x TEN 2.2x 4.5x Ba3/BB TRW 0.9x 13.6x Ba2/BB+ EBITDA/Interest 4.8x 2.9x 4.4x 6.5x 6.5x 6.1x EBITDA margin 7.8% 5.6% 7.4% 9.2% 9.4% 9.1%
Capitalization - Pro forma (FY11E) Debt to Liquidity - Description Size EBITDA LTM First Lien Credit Facility due 2013 200.0 1.0x Revolver (1st lien) 1,500.0 EUR 400 mn Credit Facility due 2016 524.0 1.0x - Amt Drawn 200.0 Pan-European A/R Facility due 2015 537.0 1.0x - LCs Drawn 415.0 Chinese Credit Facilities due 2016 370.0 1.0x Amt Unutilized 885.0 Other credit facilities 538.0 1.0x Foreign credit facilities 1,702.0 2nd Lien Term Loan due 2014 1,200.0 1.6x Cash 2,126.0 6.75% Sr. Notes due 2019 336.0 2.9x Liquidity 4,713.0 10.5% Sr. Notes due 2016 630.0 2.9x 8.75% Sr. Notes due 2020 264.0 2.9x 8.25% Sr. Notes due 2020 994.0 2.9x 7.0% Sr. Notes due 2028 149.0 2.9x Other (Notes payable & overdrafts) 341.0 2.9x Total Debt 6,083.0 2.9x Less cash 3,054.3 -- Net Debt 3,028.7 1.4x Market Cap 3,293.9 Enterprise Value 6,322.6 4.5x
Maturities: 2,000
1,500
1,000
500
0 2012 2013 2014 2015 2016 2017 After
Goldman Sachs Credit Research 81 January 26, 2012 High Yield
Graphic Packaging Corporation (GPK) Updated 1/23/12 Joe Stivaletti (212) 902-3299 Contact analyst or see latest research for updates to ratings, estimates, and other information. James Kitchell (212) 902-9813 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) $425 9.500 Sr Nts 15-Jun-17 B2/BB- 104.750 15-Jun-13 109.500 5.615 545
Company Description Investment Strengths: Graphic Packaging Corporation manufactures paperboard and folding cartons used in beverage and consumer products - Competitive cost position and global presence: GPK packaging. The company also leases packaging machines to customers. GPK's primary products include folding maintains low-cost, high-quality converting plants and cartons, coated unbleached kraft and coated recycled paperboard, and multiwall bags. paperboard production facilities in North America, Central/South America, Europe, and Asia. - Strong focus on cutting costs and paying down debt: Management is focused on improving GPK's cost position and using free cash flow to pay down debt. - Strong, stable relationships with key customers: GPK benefits from long relationships with stable customers such as Anheuser-Busch, General Mills, Miller Brewing Company, Coors Brewing Company, and many Coca- Cola and Pepsi bottling companies.
Investment Risks: - Higher-than-expected input costs: Costs for raw materials such as fiber and energy may be higher than we are currently expecting, which could cause GPK to materially underperform our expectations. Financial Profile 12/31/2009 12/31/2010 9/30/2010 6/30/2011 9/30/2011 FY:09 FY:10 3Q:10 2Q:11 3Q:11 Revenue 4,095.8 4,095.0 1,042.8 1,080.7 1,073.3 EBITDA 556.4 573.9 151.3 150.1 152.0
Interest expense 196.8 174.5 44.0 36.6 34.8 Capital expenditures 129.9 122.8 34.2 34.0 37.6
Total debt 2,800.2 2,579.1 2,725.7 2,437.8 2,363.7 Cash 149.8 138.7 166.3 191.2 157.1 Net debt 2,650.4 2,440.4 2,559.4 2,246.6 2,206.6
Key Credit Statistics Total debt/EBITDA 5.0x 4.5x 4.8x 4.2x 4.1x Net debt/EBITDA 4.8x 4.3x 4.5x 3.9x 3.8x
EBITDA/interest 2.8x 3.3x 3.4x 4.1x 4.4x EBITDA margin 13.6% 14.0% 14.5% 13.9% 14.2%
Capitalization 9/30/2011 Debt to Description Size EBITDA Liquidity 9/30/2011 Revolving credit facilities - 2.9x Revolver size 400.0 Term loans 1,677.7 2.9x Letters of credit 32.2 9.5% senior notes 423.3 4.1x Borrowings - 7.875% senior notes 246.3 4.1x Revolver availability 367.8 Other debt 16.4 4.1x International availability 4.3 Total debt 2,363.7 Market capitalization 1,884.2 Cash 157.1 Enterprise value 4,105.7 Total liquidity 529.2
Maturities:
1,800 1,600 1,400 1,200
1,000 800 600 400 200 - 2012 2013 2014 2015+
Goldman Sachs Credit Research 82 January 26, 2012 High Yield
Great Canadian Gaming Corp. (GCCN) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751 IN-LINE: While GCCN management has historically acted extremely conservatively with its balance sheet, our concerns have risen for bondholders following (1) the significant recent management reshuffling and (2) a shift in capital allocation including the recent increase in its share buyback program.
Size Coupon Agency Next Call Bid YTW STW Z-spd (US$ MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) (bp) $170 7.250 Sr. Sub 15-Feb-15 B2/BB- 101.813 Current 101.000 6.24 614 574
Company Description Investment Strengths: Founded in 1982, Great Canadian Gaming (GRTCAN) is a leading multi-jurisdictional gaming and entertainment - Long-term contracts: Gross revenues split with operator in Canada, with a dominant market share in its key jurisdictions. GCCN has operations in British Columbia, provinces of 5-20 years. Ontario, Nova Scotia, and Washington state. The company's principal Canadian facilities consist of 10 casinos, three - Regulators manage industry growth, avoiding harmful standardbred racetracks (all of which offer slot machines), one thoroughbred racetrack, a hotel and conference center, competition. a bingo hall, and two community gaming centers. GCCN operates casinos that primarily cater to regional customers, - Provinces share in costs of growth, with offering multiple entertainment venues for different budgets. reimbursement of capex over time. - Though capex is reimbursed, GCD maintains Key Dates/Catalysts: ownership of assets. - September 2011: Founder, CEO, and Chairman Ross McLeod passed away at the age of 58. The board of directors - Political preference toward not increasing the number appointed President Rod Baker as interim CEO. of casinos. - September 2011: Increased share repurchase program to a total of 5,844,359 shares, or 10% of the public float. - River Rock continues to improve as renovations are - November 2011: Announced a C$60 million expansion project for its Boulevard Casino that will add a 181-room hotel completed and construction disruptions are over, as tower, meeting facilities, and food and beverage options. Construction is expected to begin in 1Q2012 and will be well as owing to the opening of the Canada Line transit complete in 4Q2013. system. - November 2011: Appointed three new directors to its board of directors, including Neil Baker, the second largest - No near-term maturities. equity holder of GCCN and the father of the current CEO, Rod Baker. Investment Risks: - 35% of revenues derived from the River Rock property during LTM period ending 3Q2011. - Boulevard Casino is losing market share due to disruption from highway construction, which is expected Based upon Canadian GAAP (C$, millions) to continue until 2013. Financial Profile FY10A 1Q11A 2Q11A 3Q11A 4Q11E FY11E - Stock repurchase program expires on January 26, Revenue 383.5 92.0 99.5 101.0 101.8 394.3 2012. Since January 27, 2011, it has repurchased 1,479,600 shares at a weighted average price of EBITDA 136.4 31.5 37.8 38.2 35.6 143.1 C$7.16, leaving capacity under the program to repurchase an additional 4,364,759 shares. Interest Expense 28.0 6.7 7.2 7.9 7.8 29.6 Cash Taxes 4.1 7.9 2.2 1.9 3.5 15.5 CapEx 26.1 5.8 17.6 10.9 12.0 46.3 Free Cash Flow 78.2 11.1 10.8 17.5 12.3 51.7
Total Debt (incl. derivatives) 396.5 390.9 394.5 402.5 402.0 402.0 Cash 105.5 115.3 119.3 116.7 118.2 118.2 Net Debt 291.0 275.6 275.2 285.8 283.8 283.8 Key Credit Statistics Total Debt/EBITDA 2.9x 2.9x 2.8x 2.8x 2.8x 2.8x Comps Leverage Coverage Ratings Net Debt/EBITDA 2.1x 2.0x 2.0x 2.0x 2.0x 2.0x PENN 2.8x 6.5x B1/BB ISLE 6.3x 2.4x Caa1/CCC+ EBITDA/Interest 4.9x 4.7x 5.3x 4.8x 4.6x 4.8x PNK 5.0x 2.8x Caa1/B EBITDA margin 35.6% 34.2% 38.0% 37.8% 35.0% 36.3% GCCN 2.8x 4.8x B2/BB-
Capitalization Liquidity Enterprise Value Debt to Description 3Q11A EBITDA Source 3Q11A Source Size Revolver - 7/21/16 - Revolver Size 350.0 Shares OS (mm) 82.1 Term Loan B - 2/14/14 169.0 Letters of Credit 32.3 Stock Price C$ 8.58 Total Sr Sec debt 169.0 1.2x Borrowings - Market Cap 704.5 7.25% Sub Notes - 2/15/15 176.2 Revolver Availability 317.7 Net Debt 285.8 Interest derivative liability 57.3 Enterprise Value 990.3 Other - CPLTD 2.0 Total debt 402.5 2.8x Cash 116.7 LTM EBITDA 142.5 Total Liquidity 432.4 EV/ EBITDA 6.9x EV/2012E EBITDA 6.7x
Maturities: Credit facility covenants 250 Comps Current Senior leverage 3.50x 200 Total leverage 5.00x 150 Interest coverage 2.25x
100
50
0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 83 January 26, 2012 High Yield
Greektown Superholdings, Inc. (GREEK) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst for updates and other information. Celeste Everett 212-902-4751 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $385 13.000 Sr Secured 01-Jul-15 NR/NR 106.500 01-Jan-13 106.500 10.35 1,005 978 Bonds have mandatory redemption at 103 if company generates excess free cash flow. Company Description Company Strengths: NOT COVERED - Located in a three casino market with no new Greektown Superholdings (GREEK) was formed to hold, directly and indirectly through Greektown Newco supply expected to open in downtown Detroit. Sub, Inc., which owns and operates Greektown Casino. Greektown Casino opened in November 2000 and is - new "super pit" provides better gaming atmosphere one of three casinos operating in downtown Detroit. The property includes a 100,000 square foot casino with while helping create operating efficiencies with 2,600 slot machines and 63 table games. The property also has an approximately 400-room hotel tower, 4,500 personnel and security. parking spaces, 10,000 square feet of meeting space, four restaurants, seven bars, and two entertainment - plans to build a new $30 mn parking garage to ease venues. For the 12 months ended 3Q11, 90% of its revenue was generated from its gaming activities and, of access to the property. Construction is subject to this, approximately 88% of its gaming revenue is generated from slots. regulatory approvals and financing. - Greater Detroit area continues to improve from an Key Dates/Catalysts: economic standpoint, albeit it is still a laggard - 3Q2011: GREEK expects fiscal 2011 capex to be $18 mn including investment in the new Asteria casino compared to the rest of the US. bar/lounge, which is expected to open by the end of 2011. - Tighter border controls make it more cumbersome - November 2011: For the two months ended November 2011, Greektown gaming revenue isup 3.3% yoy. for Detroit visitors to head to Windsor, Canada to visit - 1Q2012: management intends to build out a new parking garage for $30 mn. The company believes this the Caesars casino. project can be completed in 1Q2012, subject to regulatory approval and financing. - Secured gaming paper with minimal priority debt - 2012: capital expenditures are expected to be $18 million, excluding the potential investment in the parking ahead of the bonds. garage.
Company Risks: - The failure to resolve the Trappers Lease dispute by June 30, 2012, will result in a default under the credit facility unless otherwise waived. - Lower tier property among the three properties in the market. Financial Profile 3Q10A 4Q10A FY10A 1Q11A 2Q11A 3Q11A Revenue 83 78 330 84 82 80 Adjusted EBITDA202082192018 Comps Leverage Coverage Ratings GREEK 5.0x 1.2x NR/NR Interest Paid 0 0 14 25 0 25 BORGAT 5.2x 1.8x B2/BB- Cash Taxes 1 0 2 0 0 0 CCTRH 1st 7.7x 0.7x B1/B Capital Expenditures 4 5 15 2 3 5 Free Cash Flow 15 15 52 (8) 16 (12) Maintenance covenants
Total Debt 385 385 385 385 385 385 Fixed charge coverage 1.05x Cash 36 35 35 34 45 46 Net Debt 349 350 350 351 340 339 Required under the credit facility and by the Key Credit Statistics Michigan Gaming Control Board. Total Debt/EBITDA 4.2x 4.7x 4.7x 4.9x 4.9x 5.0x Net Debt/EBITDA 3.8x 4.2x 4.2x 4.5x 4.3x 4.4x
EBITDA/Interest 1.5x 1.6x 1.3x 1.5x 1.6x 1.2x EBITDA margin 24.2% 25.4% 25.0% 23.0% 23.8% 22.2%
Capitalization Liquidity Debt to Description EBITDA Source Revolving term loan due 12/30/13 - Revolver due 2013 30 Total first lien debt - 0.0x Letters of Credit & other 1 13% sr sec (2nd lien) nts due 2015 280.2 Borrowings - 13% sr sec (2nd lien) nts due 2015 104.8 Revolver Availability 29 Other (capital leases, etc.) 2.5 Total debt 387.5 5.1x Cash 46 Total Liquidity 75
Revolver availability subject to the resolution of the Maturities: Trappes Mortgage Release. See filings for more details. 450 400 350 300 250 200 150 100 50 0 2012 2013 2014 2015 2016 2017+
Goldman Sachs Credit Research 84 January 26, 2012 High Yield
Gymboree Corp. (GYMB) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 212-357-7875 Contact analyst for updates and other information. NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $400 9.125 Sr Notes 1-Dec-18 Caa1/CCC+ $104.56 12/1/2014 88.00 11.72% 723
Company Description Company Strengths: Gymboree is a designer and retailer of children's apparel, which it sells through its large store network and online. In - Historically strong EBITDA growth addition to its flagship Gymboree stores (over 600 locations), the company has two related concepts: Janie and Jack - Children's apparel is a relatively high-margin and (more upscale product offering, sold through more than 100 locations) and Crazy 8 (more affordable products, sold low-fashion-risk segment through over 80 stores). - Well-recognized brand and large footprint - Potential for growth ex-US
Company Risks: - Some cannibalization of flagship stores by Crazy 8 Key Dates/Catalysts: growth Late-April, fourth quarter earnings release - Very high inventory levels coming out of 1Q11 and 2Q11 - Exposure to cotton inflation - Intense competition from concepts with lower price points including CRI and PLCE
Financial Profile FY08A FY09A FY10A LTM Revenue 1,000.7 1,014.9 1,074.4 1,150.4 EBITDA 203.0 219.4 236.9 215.7 Comps Yield Leverage Coverage Ratings Gymboree 11.72% 5.9x 2.3x Caa1/CCC+ Interest Expense 0.0 0.0 17.6 85.6 J Crew 8.70% 5.4x 3.2x Caa1/CCC+ Cash Taxes 56.2 62.8 26.4 (28.5) Burlington 11.09% 4.3x 2.7x Caa1/ CCC CapEx 56.2 39.6 47.5 36.1 Free Cash Flow 90.7 117.0 145.3 122.5
Total Debt 0.0 0.0 1,216.0 1,251.9 Cash 140.5 257.7 32.1 45.7 Key Credit Statistics Total Debt/EBITDA 0.0x 0.0x 5.1x 5.8x Net Debt/EBITDA -0.7x -1.2x 5.0x 5.6x
EBITDA/Interest NA NA 13.4x 2.5x
EBITDA margin 20.29% 21.62% 22.05% 18.75%
Capitalization LTM
Debt to Estimated Description Size EBITDA Liquidity 3Q11A ABL ($225mm) L+275 40.0 Revolver Size 225.0 Term Loan (L+350, 1.5 floor) due 2017 811.9 Letters of Credit 65.1 Total Secured Debt 851.9 3.9x Borrowings 40.0 Revolver Availability 119.9
9.125% Senior Notes due 12/1/18 400.0 A/R facility NA Total Subordinated Debt 400.0 5.8x Borrowings 0 A/R Availability NA
Total Debt 1251.9 5.8x Cash 45.7 Market Cap (Shareholders' Equity) n/a Total Liquidity 165.6 Enterprise Value (Total Book Cap) n/a
Maturities: 1,400 1,200 1,000
800 600 400 200 0 2012 2013 2014+
Goldman Sachs Credit Research 85 January 26, 2012 High Yield
Hanesbrands Inc. (HBI) Updated 1/23/2012 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751 UNDERPERFORM: While we believe HBI is one of the best-operated global apparel companies, we think this benefit is more than priced into the bonds. The increased cost of cotton will continue to be a headwind for HBI, considering that 60% of its revenue is generated by cotton products. Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-Spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $1,000 6.375 Sr Notes 15-Dec-20 B1/BB- 103.190 15-Dec-15 103.500 5.750 442 430 Other provisions: 35% equity claw at 106.375 through 12/15/13. Company Description Investment Strengths: Hanesbrands, Inc. designs, manufactures, sources, and sells apparel items for men, women, and children. It - Stable innerwear business (45% of sales): high volume / frequently operates in four segments: Innerwear, Outerwear, Hosiery, International, and Direct to Consumer. Its product replenished apparel essentials; the average US consumer makes 3.5 trips to portfolio includes t-shirts, bras, panties, men's underwear, kids' underwear, socks, hosiery, casualwear, retailers to purchase men’s underwear and 4.5 trips to purchase women’s thermals, sleepwear, fleece, and activewear. The company offers products under the Hanes, Champion, underwear annually; US mass business is dominated by Hanes and Fruit of Playtex, Bali, Just My Size, barely there, L'eggs, and Wonderbra brand names. The company sells its the Loom products through multiple distribution channels, including mass market retailers, department stores, national - Strong FCF generation; margin enhancement opportunities with ongoing chain stores, specialty retailers, wholesale clubs, and sporting goods stores. According to Bloomberg, offshoring of manufacturing significant equity holders include Wellington Mgmt (9%) and Shapiro Capital Mgmt (5%). - Well-known brands: HBI's 2010 Form 10-K states, "According to NPD Group/Consumer Tracking Service, our brands held either the number one or Key Dates/Catalysts: number two U.S. market position by units sold in most product categories in - November 2010: Acquired GearCo, Inc. for $227 million in cash and assumed debt. which we compete, for the 12-month period ended December 31, 2010." - February 2011: Amended senior secured credit facility, extended maturity by two years to 2015, increased - Strong distribution network with established global retailers- HBI has at least flexibility under both the covenants and the use of excess free cash flow. a 10-year relationship with all of its top-10 customers (65% of FY2010 - March 2011: Amended A/R securitization facility. Size increased to $225k from $150k, and termination date revenues). extended one year to March 2012. - Product development is driving increased market share. Some recent - October 2011: Names Richard Moss as Chief Financial Officer. Moss served as treasurer since January innovations include Hanes Comfort Flex Underwear, Champion 360º Max 2006. Support sports bra and Wonderbra Secret Agent No Slip Fit bras. - Focus on supply chain and vertical integration has given HBI more foresight into escalating cotton prices.
Investment Risks: Financial Profile FY2010 1Q11 2Q11 3Q11 4Q11E 2011E - Vulnerability to cotton price fluctuation- over 60% of its revenue is driven by Revenue 4,327 1,036 1,225 1,230 1,225 4,717 cotton-related products. - Relatively low growth historically, with many commodity-like products (and Adj. EBITDA 491 123 170 175 135 603 some fashion-exposed segments); HBI story hinges on management's ability to improve cost structure and reinvest behind brands Interest Expense 150 41 39 38 38 157 - Operates in highly competitive categories, such as intimates and outerwear, Cash Taxes 231021231165with numerous strong branded competitors. - Customer concentration: Top 10 customers account for 65% of sales; could CapEx 106 25 22 21 24 93 be affected by inventory management, merchandising, and pricing strategies Free Cash Flow 211 47 88 93 62 289 - Sales channel is concentrated in US customers, with 88% of sales from US- based customers in 2010. - Structural risk: Non-guarantors of the notes generate 74% of revenue and Total Debt 2,131 2,268 2,240 2,181 2,215 2,215 hold 44% of assets as of 2Q2011. Cash 44 65 45 48 86 86 - Stock repurchase program: up to 10 million shares over next three years (to Net Debt 2,088 2,203 2,196 2,133 2,128 2,128 date, 2.8 mn repurchased for $75 million as of 2Q2011). Key Credit Statistics Total Debt/EBITDA 4.3x 4.5x 4.3x 3.9x 3.7x 3.7x Net Debt/EBITDA 4.3x 4.4x 4.2x 3.8x 3.5x 3.5x LTM Comps Leverage Coverage Ratings EBITDA/Interest 3.3x 3.0x 4.3x 4.6x 3.5x 3.8x JAH 7.5s 4.1x 4.2x B2/B EBITDA margin 11.3% 11.9% 13.9% 14.2% 11.0% 12.8% LEVI 7.625s 4.2x 3.7x B2/B+ SBH 10.5s 2.9x 4.5x B1/BB+ Capitalization
Description 3Q11 Lvg Liquidity 3Q11 Enterprise value Senior secured revolver due Dec 2015$ 15 Revolver Size$ 600 Shares O/S (mm) 97.2 A/R securitization facility due March 2012 175 Letters of Credit 13 Share price$ 24.68 Total Secured 190 0.3x Borrowings 15 Market cap 2,398 FRN (L+337) senior notes due Dec 2014 491 Revolver Availability 572 Net debt 2,167 8% senior notes due Dec 2016 500 Enterprise value (EV) 4,565 6.375% senior notes due Dec 2020 1,000 A/R facility 225 Other 34 Borrowings 175 EV / LTM EBITDA 8.0x Total debt 2,215 3.9x A/R Availability 50 EV / 2011E EBITDA 7.6x EV / 2012E EBITDA 8.1x Cash 48
Total Liquidity 670
Maturities: Operating statistics 4Q10 1Q11 2Q11 3Q11 1,200 Revenue: Innerwear 490 451 605 515 Outerwear 365 331 331 433 Hosiery 50 45 34 34 800 Direct to consumer 99 83 97 98 International 145 127 158 150 Total revenue 1,150 1,036 1,225 1,230 400 Segment EBITDA: Innerwear 51 69 102 89 Outerwear 27 31 42 62 0 Hosiery 14 17 10 9 2012 2013 2014 2015 2016 2017+ Direct to consumer 9 2 11 14 International 22 25 23 21 Total segment EBITDA 123 143 187 194
Goldman Sachs Credit Research 86 January 26, 2012 High Yield
HCA, Inc. (HCA) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 OUTPERFORM (1st liens and Holdco)/IN-LINE (unsecureds) We remain Outperform on the 1st liens as we think they should trade inside the UHS secureds. We are In-Line on the unsecureds in recognition of the relatively high leverage and middle-of-the- group spreads. We rate the HCA Holdco notes Outperform based on relative value. Fundamentally, we see HCA as the best-in-class hospital operator. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp CDS Levels 5-Year $3,000 6.50 First Lien 15-Feb-20 Ba3/BB T+50 MW $105.750 5.601% 421 Sr 485 / 505 $2,000 7.50 Snr. Uns. 15-Feb-22 B3/B- T+50 MW $106.750 6.570% 517 $1,525 7.75 Holdco 15-May-21 B3/B- 103.875 11/15/2015 $104.875 6.838% 604
Company Description Investment Strengths: HCA is the largest of the hospital companies, with 164 hospitals and 101 ambulatory surgery centers. Its facilities - Best-in-class of hospital companies with the largest portfolio, are located in urban and suburban markets, with Florida and Texas accounting for about 50% of beds. HCA stronger-than-average markets, and highest margins. started the for-profit hospital industry when it was founded by the Frist family in 1968 following the introduction of Medicare in 1965. The company spun out Triad and Lifepoint in 1999. An LBO was carried out by KKR, Bain, - Focus on core markets and higher profitability services along with and ML Capital Partners in November 2006. cost-cutting has raised margins.
In March 2011, HCA completed its initial public offering at $30 per share and received $2.5 bn of net proceeds, - Manageable debt maturity schedule since the company has which were used to reduce amounts outstanding under its revolving credit facilities. HCA also announced the proactively reduced its term loan balance. The pre-2013 unsecured redemption in full of the 9.125% 2nd liens of 2014 as well as clawing a portion of the 9.875% 2nd liens of bonds are carved out in credit agreement and likely to be refinanced 2017.The company later issued $3 bn of first liens and $2 bn of unsecureds to refinance the two 2016 2nd lien prior to maturity, in our view. tranches. In June 2011, HCA proposed the acquisition of interest in HCA-HealthONE for $1.45 bn. HCA issued another $500 mn of unsecureds to help finance this transaction, which closed October 2011. We estimate HealthONE will add roughly $250 mn of EBITDA as it was previously unconsolidated. In September 2011, HCA announced a $1.5 bn share repurchase from Bank of America, funded out of cash and credit facility. In Investment Risks: September 2011, HCA provided more details surrounding its 2Q2011 miss. HCA expects full year 2011 EBITDA - Medicare and Medicaid reimbursement could be reduced. to be 0-2% above 2010, post the deferred revenue recognition of certain HIT revenues. ‐ Volumes have been weak across the industry and are expected to Key Dates/Catalysts: remain so for the near term. - Quarterly earnings announcements (commercial volumes have been weak industry-wide, although bad debt expense has been relatively stable) - Weak Medicare case mix due to a shift from surgical to medical as a - Election results (November 2012) and potential Supreme Court decision on the constitutionality of the individual result of a decline in cardio surgeries could continue to pressure mandate could determine the fate of the Affordable Care Act (ACA). We view the ACA as a net positive for earnings. hospitals.
Financial Profile 2009 2010 2011E 4Q10A 3Q11A 4Q11E Revenue $30,052 $30,683 $32,646 $7,736 $8,050 $8,478 EBITDA 5,472 5,868 5,936 1,447 1,412 1,514
Interest Expense $1,987 $2,097 $2,052 $526 $519 $480 Cash Taxes 633 658 542 170 (23) 235 CapEx 1,317 1,325 1,570 465 394 400 Free Cash Flow 1,430 1,874 1,789 123 486 413
Total Debt $25,730 $28,318 $27,585 $28,318 $26,755 $27,585 Cash 312 411 350 411 359 350 Agency Net Debt 25,418 27,907 27,235 27,907 26,396 27,235 LTM Comps Leverage Coverage Ratings Key Credit Statistics HCA 1st Lien 2.8x NA Ba3/BB Total Debt/EBITDA 4.7x 4.8x 4.6x HCA Sr Uns 4.2x NA B3/B- Net Debt/EBITDA 4.6x 4.8x 4.6x HCA Holdco 4.5x 3.2x B3/B- THC 3.9x 2.7x Caa1/CCC+ EBITDA/Interest 2.8x 2.8x 2.9x 2.8x 2.7x 3.2x CYH 4.8x 2.8x B3/B EBITDA margin 18.2% 19.1% 18.2% 18.7% 17.5% 17.9% HMA Sec 3.0x NA --/BB-
PF Capitalization* Debt to Debt to LTM PF 2011E Description Size EBITDA EBITDA Liquidity Revolving Credit Facility due 2015* $460 Revolver Size $2,000 Term Loan A due 2012 $494 Letters of Credit 0 Extended TL A-1 due May 2016 $579 Borrowings 460 Term Loan B due 2013 $1,689 Revolver Availability 1,540 Euro Term Loan B due 2013 $419 ABL Facility due 9/30/2016* $1,730 A/R facility $2,500 Extended TL B-2 due March 2017 $2,000 Borrowings 1,730 Extended TL B-3 due May 2018 $2,373 A/R Availability 770 Other secured debt/mortgages $314 First lien bonds $7,150 Cash $359 Total 1st Lien sec debt $17,208 2.8x 2.9x Total Liquidity $2,669
9.875% 2nd lien Notes due 2017 $196 Total Secured bonds $196 2.8x 2.9x
Snr Uns. Bonds $8,326 Total Senior debt $8,326 4.2x 4.3x
7.75% Holdco notes due Nov 2021 $1,525 Total Holdco debt $1,525 4.5x 4.6x
Total Debt $27,255 4.5x 4.6x Market Cap 11,612 Enterprise Value $38,508 *PF for $500 million unsecured deal, and HealthOne acquisition. Maturities: 25,000
20,000
15,000
10,000
5,000
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 87 January 26, 2012 High Yield
Health Management Associates, Inc. (HMA) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 UNDERPERFORM (secured/unsecured)
We rate both the HMA secured and unsecured notes Underperform due to (1) HMA's relatively high total leverage of 4.2x, but yields at the low end of the peer group, (2) our concerns that a more active acquisition plan will cause leverage to creep higher, and (3) tail risk associated with a company-wide investigation related to physician relationships at the 22 JV-ed hospitals. Bond Summary Size Coupon Agency Next Call Bid YTW STW CDS Levels 5-Year (MM) (%) Priority Maturity Ratings Price Date Price (%) bp HMA Snr 531 / 568 $400 6.125 Snr 1st Lien 15-Apr-16 --/BB- T+20 MW $102.500 5.450% 512 HMA Sub 564 / 601 $875 7.375 Snr 15-Jan-20 B3/B- 103.688 15-Jan-16 $102.500 6.849% 605
Compan y Description Investment Strengths: Pure-play rural, mid-sized hospital operator with 58 facilities that are concentrated in the Southeast, particularly - Exclusively rural facilities require less capex investment Florida and Mississippi. HMA executed a levered recap in 1Q2007, increasing leverage by 3x, to pay a special and are less competitive than suburban or urban facilities. dividend. - Market share and physician recruitment initiatives could During a November 2011 business update call, HMA commented that "today [it] is a growth company." HMA drive top-line growth, and focus on supply cost-cutting could acquired Mercy Health Partners in Tennessee from Catholic Health Partners for $525 mn on September 30, 2011. drive EBITDA gains. The company put in place a $360mn term loan in order to fund the acquisition of Mercy. HMA CDS was added to the new HY CDX S17 index September 2011. In November 2011, HMA refinanced its existing credit facility and Knoxville TL and unwound an unfavorable swap with a new $725 mn of TL A, $1.4 bn of TLB, and $875 mn of Investment Risks: senior bonds. In January 2012, the local Florida press reported that a former employee has sued the company for - Medicare and Medicaid reimbursement could be reduced. wrongful termination after he allegedly reported Medicare overbilling practices at four HMA hospitals. In the same week, HMA also announced that its general counsel was retiring. The company states that the general counsel's - Volumes have been weak across the industry and are resignation and the lawsuit are unrelated. expected to remain so for the near term.
Key Dates/Catalysts: - Potential new bond issuance to fund acquisitions as - Quarterly earnings announcements (commercial volumes have been weak industry-wide, although bad debt management has commented that its pipeline remains expense has been relatively stable). robust. - Possibility of additional acquisitions in light of management comments concerning a strong pipeline. - Election results (November 2012) and potential Supreme Court decision on the constitutionality of the individual - Tail risk of various investigations at the company. mandate could determine the fate of the Affordable Care Act (ACA). We view the ACA as a net positive for hospitals.
Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E Revenue $4,664 $5,156 $5,816 $1,352 $1,400 $1,587 EBITDA 685 737 833 187 196 219
Interest Expense $218 $212 $215 $53 $50 $63 Cash Taxes 76 101 120 26 22 31 CapEx 200 209 263 62 70 60 Free Cash Flow 249 231 337 19 114 85
Total Debt $3,059 $3,034 $3,589 $3,034 $3,421 $3,589 Cash 106 102 78 102 88 78 Net Debt 2,953 2,932 3,511 2,932 3,333 3,511 Agency Key Credit Statistics Comps Leverage Coverage Ratings Total Debt/EBITDA 4.5x 4.1x 4.3x HMA 1st Lien 3.0x NA --/BB- Net Debt/EBITDA 4.3x 4.0x 4.2x LPNT 3.1x 5.2x Ba1/BB- CYH 4.8x 2.8x B3/B EBITDA/Interest 3.1x 3.5x 3.9x 3.5x 3.9x 3.5x HCA sr uns 4.2x NA B3/B- EBITDA margin 14.7% 14.3% 14.3% 13.8% 14.0% 13.8%
Capitalization
Debt to LTM PF Description Size EBITDA** Liquidity Revolving credit facility due 11/18/2016 0 Revolver $500 Term Loan A due 11/1/2016 725 Letters of Credit 49 Term Loan B due 11/1/2018 1,400 Borrowings 0 6.125% Sec Notes due 4/15/16* 400 Revolver Availability 451 Total Sr Sec debt $2,525 3.0x Cash $88 7.375% of 2020 unsecured notes 875 Total Liquidity $539 Total Senior debt $875 4.0x
3.75% Convert sub note due 5/1/2028 91 Total Sub debt $91 4.1x
Capital leases/Other $98 Total debt $3,589 4.2x
Market Cap 1,675 Enterprise Value $5,176 6.1x * Credit facility and 6.125% bonds of 2016 notes are pari passu. ** PF EBITDA includes approximately $53mn contribution from Mercy Health.
Maturities:
3,500 3,000 2,500 2,000 1,500 1,000 500 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 88 January 26, 2012 High Yield
HealthSouth (HLS) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 UNDERPERFORM We rate HLS Underperform on reimbursement risk as over 70% of its revenue is from traditional Medicare. While the Super Committee did not reach negotiated cuts, we believe the 2% sequester cut could be revisited by Congress. HLS bonds now trade only modestly wide to the core hospital group, but we still see the risk/reward tradeoff as unattractive. Bond Summary Size Coupon AgencyNext Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) CDS Levels 5-Year $290 8.125 Sr 15-Feb-20 B2/B+ $104.063 2/15/2015 $104.750 7.142% 634 106 0
Company Description Investment Strengths: HLS is a pure-play post-acute care company focused on Inpatient Rehabilitation Facilities (IRF) and outpatient - Solid and consistent operating performance with low single-digit rehab clinics. HLS is the largest provider of inpatient rehabilitation in the US. The company operates 97 IRFs and same-facility discharge growth and improving margins. 28 Outpatient satellites. Roughly 70% of its revenue is from traditional Medicare. HLS grew rapidly in the mid- 1990s through acquisitions. - Very strong free cash flow (13% of rent-adjusted debt on an LTM basis) and commitment to de-levering. In March 2011, HLS completed a $120 mn add-on deal split between the 2018s and 2022s, the proceeds of which are for the paydown of its revolver and 2016 bond maturity. In August 2011, HLS completed the sale of 5 of its LTACHs to LifeCare for $117.5 mn of proceeds, which the company used, together with its revolver capacity, to call its remaining 10.75% notes. Investment Risks: - Over 70% of revenues come from traditional Medicare. HLS's high Medicare exposure puts it more at risk for reimbursement cuts than other providers. Key Dates/Catalysts: - Quarterly earnings announcements where we see discharge growth and cost discipline as key. - Unclear long-term growth strategy as previous plan to expand into - Outcome of the Ernst & Young arbitration case. other post-acute modalities seems to have fallen by the wayside given the exit from the LTACH business.
Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E Revenue $1,918 $1,999 $2,063 $521 $498 $522 EBITDA 399 427 460 117 111 111 Rent 48 48 50 13 13 13
Interest Expense $126 $126 $118 $35 $26 $22 Cash Taxes (3) (737) 26 (736) 18 2 CapEx 73 105 105 21 26 43 Free Cash Flow 308 200 173 34 21 44
Total Debt $1,663 $1,511 $1,297 $1,511 $1,328 $1,297 Cash 81 48 52 48 48 52 Net Debt 1,582 1,463 1,245 1,463 1,280 1,245 Agency LTM Comps Leverage Coverage Ratings Key Credit Statistics HLS 3.2x 4.3x B2/B+ Total Debt+6*rent/EBITDAR 4.4x 3.8x 3.1x DVA 3.2x 5.7x B2/B Net Debt+6*rent/EBITDAR 4.2x 3.7x 3.0x VANGUA 4.3x 2.9x B3/B- CYH 4.8x 2.8x B3/B EBITDA/Interest 3.2x 3.4x 3.9x 3.4x 4.2x 5.1x HCA sr uns 4.2x NA B3/B- EBITDA margin 20.8% 21.4% 22.3% 22.4% 22.2% 21.3%
PF Capitalization Debt to Debt to LTM 2011E Description Size EBITDAR EBITDAR Liquidity Revolving credit facility $178 Revolver Size $500 Term Loan A of 2016 $99 Letters of Credit 46 Rent adjustment (6x) 297 Borrowings 178 Total Sr Sec debt 574 1.1x 1.1x Revolver Availability 276
10.75% Senior Notes 2016 0 Cash $48 8.125% Senior Notes due 2020 286 Total Liquidity $324 7.25% Senior Notes due 2018 337 7.75% Senior Notes due 2022 312 Total Sr debt $935 3.0x 3.0x
Capital Leases 79 Other Debt $37 Total Debt incl rent adjustment $1,625 3.2x 3.2x 6.5% preferred equity $387 Market Cap 1,899 Enterprise Value $3,864 7.7x 7.6x
Maturities
2,000
1,500
1,000
500
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 89 January 26, 2012 High Yield
Hornbeck Offshore Services (HOS) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $300 6.125% Sr. 12/1/2014 Ba3/BB- $101.02 2/27/2012 $100.50 5.49% 539
Company Description Investment Strengths: HOS has a two-segment strategy in the offshore transportation business: a US GOM-centric "new generation" • Good diversification, reflecting cyclical leverage in OSV business and a Tug and Tank Barge business providing logistics solutions to northeastern US and Puerto OSV segment and stability in tank barge business Rico. As a result of HOS's leverage to demand for deepwater drilling activity, we expect the company to be an • Youngest offshore fleet in the industry, with high above-average performer in the context of a challenging environment for oil services companies. However, we exposure to deepwater drilling and production believe OSV dayrates are likely to remain volatile in the near term, particularly in the shallow US Gulf. HOS • Growing international diversification currently has a fleet of 51 OSVs excluding newbuilds. • Amended covenants to provide additional cushion
Hornbeck was established in 1997 with a focus on servicing the deepwater segment of the offshore market. The Investment Risks: company also has a tug and tank barge business, which it considers to be complementary to its OSV business. • Slowness of drilling in the GOM, following the Hornbeck has added to its OSV and TTB fleets via newbuild expansion and acquisition. The company's moratorium, is a significant negative for the company's operations are primarily domestic and are focused in the Gulf of Mexico, with some smaller exposure to Mexico business and Trinidad. In August 2007, the company acquired 20 OSVs from Nabors Industries for $186 mn. In June 2008, • High leverage HOS announced that it had hired an advisor to review strategic alternatives for the TTB segment. The review is • OSV dayrates are highly leveraged to the oil services ongoing. Following the Macondo incident, Hornbeck continues look to supplement its GOM activity with cycle international operations. • Small size for the ratings category; ratings upgrade unlikely • TTB segment has been weak • Historically aggressive builder of new OSVs on spec; any incremental spec newbuild programs likely to be viewed negatively by rating agencies
Key Dates/Catalysts: Financial Profile 2008A 2009A 2010A 2011E 2012E • Increase in activity in the Gulf of Mexico Revenue $441 $396 $421 $371 $484 • Potential for additional non-energy industry applications for HOS’s next generation OSVs to offset EBITDA (Adj for non-cash items) $237 $194 $187 $121 $214 weakness in the US Gulf of Mexico Free Operating Cash Flow ($295) ($90) $69 $23 ($253) • Continued diversification away from the US Gulf by Capital Expenditures $494 $274 $62 $31 $449 moving OSVs internationally • Progress of recently announced newbuild program
Credit Ratios 2008A 2009A 2010A 2011E 2012E Total Debt/EBITDA (LTM) 2.8x 3.8x 4.1x 6.3x 3.6x EBITDA/Interest Expense (LTM) 37.4x 9.2x 3.4x 2.4x 9.6x Debt to Capitalization % 49% 48% 47% 41% 40%
Capitalization Debt to Leverage Coverage Agency Description Size EBITDA Liquidity Comps ('11E) ('11E) Ratings Cash and equivalents $132 Revolver Size $250 HOS 6.3x 2.4x Ba3/BB- Revolving Credit Facility $0 Letters of Credit $1 BAS 2.3x 12.8x B3/B Long Term Debt Borrowings $0 PKD 2.0x 13.4x B1/B+ Senior notes 2014-26 $767 Revolver Availability $249 Total Long Term Debt $767 Cash $132 Total Debt $767 6.6x Total Liquidity $381 Preferred Equity $0 Common Equity $829 Total Capitalization $1,597
Maturities:
350
300
250 200
150
100 Debt maturitiesDebt ($ mn) 50
0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 90 January 26, 2012 High Yield
Host Hotels & Resorts LP (HST) Updated 1/23/2012 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751 OUTPERFORM Our OP rating reflects HST’s low leverage and strong asset coverage. HST continues to balance its funding through the issuance of debt and equity. We continue to prefer HST to other crossover lodging and cruising credits. We believe HST can achieve investment grade ratings in the next 12-24 months. Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp 5-yr CDS $500 6.875 Sr. Notes 1-Nov-14 Ba1/BB+ 101.719 current 101.750 4.47% 440 398 255 $500 6.000 Sr. Notes 1-Nov-20 Ba1/BB+ 103.000 1-Nov-15 106.000 4.94% 412 369 255
Company Description Investment Strengths: Host Hotels & Resorts LP (LP), along with its operating partner Host Hotels & Resorts Inc. (HST), operates as a - Strong brand names. self-managed REIT of hotel properties. HST's lodging portfolio primarily consists of 121 owned properties, which - Generates solid free cash flow. had a total of approximately 57,203 rooms as of 3Q2011. The company is geographically diverse, with hotels in - Strong liquidity position and manageable leverage. most of the major metropolitan areas in 26 US states, Canada, Mexico, and Chile under the Marriott, Ritz-Carlton, - Solid asset coverage. Despite $1.1 billion of mortgage Sheraton, Hyatt, Fairmount, Hilton, Four Seasons, and Swissotel brands. Locations include central business debt as of 3Q2011, 107 of 123 properties remain districts of major cities, areas near airports, and resort/convention destinations that typically benefit from high unencumbered by liens. barriers to entry vis-à-vis competitors. HST owns 98% of LP. Significant HST equity holders include Vanguard - During 2010, issued 27 million shares of common (11%), APG Investments (5%), Morgan Stanley Investment Mgmt. (5%), according to Bloomberg. stock under its continuous equity offering program for net proceeds of $406 million. In April, entered into a Key Dates/Catalysts: new program that allows for up to $400 million of - 2011 guidance: Adjusted EBITDA of $1,015-1,025 mn and diluted EPS of -$0.03 to -$0.01 per share based on common stock. YTD 3Q2011 issued 16.7 million an increase in RevPAR of 6.25-6.75%. Maintenance capex expected to be $300-320 mn. common shares for net proceeds of $289 million. - May 2011: Announced intent to redeem $150 mn of the 3.25% convertible notes due 2025 at par. HST expects holders to convert into equity. - June 2011: Moody's placed Host's Ba1 rating on positive outlook. Investment Risks: - September 2011: Increased quarterly dividend to $0.04 from $0.03. - Paying quarterly dividend of $0.05 per common share. - December 2011: Terminated an agreement to acquire the 888-room Grand Hyatt Washington D.C. for $442 - 37% of business was driven by group travel during million, or approximately $498,000 per key. fiscal 2010. - December 2011: Increased quarterly dividend to $0.05 from $0.04. - Under bond indentures, HST may incur up to $400 - February 14, 2012: 4Q2011 earnings release. million of secured debt if interest coverage is at least 2.0x. - Permitted to release security in subsidiary stock if leverage is below 6.0x (not released to date). - Sizable restricted payment basket ($10.3 billion as of 2Q2011).
Financial Profile FY10A 1Q11A 2Q11A 3Q11A 4Q11E FY11E Revenue 4,437 903 1,296 1,142 1,615 4,956 Adj EBITDA 831 144 313 212 350 1,019
Cash interest 347 64 80 55 75 274 Cash Taxes 4 1 3 1 2 7 CapEx 309 94 146 95 195 530 Credit facility maintenance covenants Free Cash Flow 171 (15) 84 61 78 208 Covenants Leverage Coverage Fixed Chr 2011 7.25x 1.75x 1.15x Total Debt 5,477 5,538 5,888 5,488 5,456 5,456 2012 7.25x 1.75x 1.15x Cash 1,113 154 634 524 207 207 Net Debt 4,364 5,384 5,254 4,964 5,250 5,250 Key Credit Statistics Comps Leverage Coverage Ratings Total Debt/EBITDA 6.6x 6.5x 6.5x 5.7x 5.4x 5.4x HOT 3.3x 4.7x Ba1/BB+ Net Debt/EBITDA 5.3x 6.3x 5.8x 5.2x 5.1x 5.1x FCH 7.7x 1.5x B2 / B-
EBITDA/Interest 2.4x 2.3x 3.9x 3.9x 4.6x 3.7x EBITDA margin 18.7% 15.9% 24.2% 18.6% 21.7% 20.6%
Capitalization Debt to Description 3Q11A EBITDA Liquidity 3Q11A Enterprise value Revolver due Sep 2012 119 Revolver Size $600 Shares o/s (mm) 706.2 Term loan due Sep 2012 - Letters of Credit - Stock price$ 16.62 Mortgage Notes (various on 16 props.) 1,016 Borrowings 119 Market cap 11,738 Total Sr Sec (1st lien) debt 1,135 1.2x Revolver Availability 481 Minority interest 153 6.875% Senior Notes 1-Nov-14 498 Net Debt 4,964 6.375% Senior Notes 15-Mar-15 650 Enterprise value (EV) 16,855 6.75% Senior Notes 1-Jun-16 800 9% Senior Notes 15-May-17 390 5.875% Senior Notes 15-Jun-19 500 Cash $524 LTM Adj. EBITDA 961 6% Senior Notes 1-Nov-20 500 Total Liquidity 1,005 EV / Adj. EBITDA 17.5x 3.25% Sr Converts 15-Apr-24 175 2.625% Sr. Converts 15-Apr-27 413 EV / 2011E EBITDA 16.5x Other debt 427 Total Debt 5,488 5.7x
Maturities:
3,500 Occupancy ADR RevPAR 3,000 3Q11 76%$ 169 $ 128 2,500 2Q11 75%$ 184 $ 139 2,000 1Q11 66%$ 174 $ 116 1,500 4Q10 68%$ 180 $ 122 3Q10 74%$ 163 $ 120 1,000 500 0 2012 2013 2014 2015 2016 2017+
Goldman Sachs Credit Research 91 January 26, 2012 High Yield
Huntsman Corp. (HUN) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 IN-LINE
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp IL 600 5.500 Sr. Unsec 30-Jun-16 B1/NRMW 98.25 5.95% 524 IL 530 8.625 Sr. Sub. 15-Mar-21 B3/B 104.3 9/15/2015 109.50 6.70% 518
Company Description Investment Strengths: Huntsman is a leading producer of differentiated chemicals. Its largest business is Polyurethanes, and the company - Leading position in MDI, which is a high-growth also competes in Advanced Materials, Textile and Effects, Performance Products, and Pigments (titanium dioxide). business, particularly in Asia. At the end of 2007, Huntsman divested its polymer and base chemicals assets in North America to a subsidiary of - Huntsman is focused on restructuring the Textiles Koch Industries. Following court proceedings, the company terminated its agreement to merge with Hexion. In the and Effects business to improve margins. settlement, Huntsman received $1 billion from Apollo (Hexion's parent) and Apollo's affiliates. - The company has a large amount of cash on its balance sheet. Key Dates/Catalysts: 4Q2011 earnings release Investment Risks: Huntsman has substantial cash on its balance sheet and could look to make acquisitions; conversely, the company - Huntsman has significant cash on the balance sheet could use cash to reduce outstanding indebtedness and could look to make acquisitions.
Financial Profile ($, mn) FY:09 FY:10 FY:11E Q4:10 Q3:11 Q4:11E Revenues 7,665 9,250 11,284 2,412 2,976 2,695 Total EBITDA 534 850 1,260 217 345 285
Interest Expense (238) (229) (246) (61) (63) (59) Cash Taxes (155) (6) (118) 13 (49) (34) Capital Expenditures (189) (236) (347) (104) (93) (130) Free Cash Flow (48) 379 549 65 140 62
Total Debt 4,436 4,321 4,137 4,321 4,231 4,137 Cash Equivalents 1,745 966 436 966 453 436 Net Debt 2,941 3,355 3,701 3,355 3,778 3,701 Key Credit Statistics Comps Leverage Coverage Ratings Debt/EBITDA 8.5x 5.1x 3.3x 5.1x 3.5x 3.3x Huntsman 3.5x 4.8x B1/BB- Net Debt/EBITDA 5.1x 3.9x 2.9x 3.9x 3.2x 2.9x MSC 5.5x 2.5x B3/CCC+ MPM 6.8x 1.7x B3/B- EBITDA/Interest 2.2x 3.7x 5.1x 3.7x 4.8x 5.1x EBITDA margin 7% 9% 11% 9% 11% 11%
PF Capitalization ($, mm) Debt to Description Size EBITDA Liquidity Revolver - Term Loan B 652 Revolver 300 Term Loan B - Extended 650 Borrowings - Term Loan C 427 Letters of credit 25 A/R Facility (on balance sheet) 245 Revolver Availability 275 Total Huntsman International Senior Secured 1,974 1.7x Australia credit facilities 27 HPS (China) debt 167 US A/R facility 250 Senior Unsecured Notes 600 European A/R 310 Variable interest entities--AAC 306 Borrowing base 541 Other Debt 95 Amount Drawn 245 Total Huntsman International Senior Debt 3,169 2.7x Availability 296 Senior Subordinated Notes (€ 400 mn) - Senior Subordinated Notes (€ 135 mn) 88 Cash at Huntsman Corp 360 Senior Subordinated Notes - Liquidity 931 Senior Subordinated Notes 530 Senior Subordinated Notes 350 Total Huntsman International Debt 4,137 3.5x Minority Interest 134 Share Price 11.5 Market Capitalization 2,768 Enterprise Value 6,679 5.6x
Maturities:
1000 900
800 700 600 500 400 300 200 100 0 2011 2012 2013 2014 2015
Goldman Sachs Credit Research 92 January 26, 2012 High Yield
IASIS Healthcare (IAS) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 OUTPERFORM
We rate IAS Outperform. We view the high leverage and the headwind from the health plan as more than priced-in. Also, we see upside if IAS uses its $230 mn of holdco cash to complete an acquisition, which we estimate could reduce leverage by 0.5x to 5.6x. We believe most investors are assuming the holdco cash would go to sponsors and leverage would remain at 6.1x. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $850 8.375 Sr. 15-May-19 Caa1/CCC+ $106.281 5/15/2014 $94.750 9.381% 858
Company Description Investment Strengths: Small hospital operator with 17 facilities located in three high-growth markets (Salt Lake City, Phoenix, Tampa), plus - High market concentration in high-population growth markets and Texas and Louisiana. Markets are urban and suburban. Focused on building market concentration to facilitate markets likely to outperform in a recession (Salt Lake City). physician recruitment and negotiation with managed care payers. Around 20% of EBITDA comes from Medicaid health plan in Arizona. The company has been owned by TPG since 2004. - Historically strong track record of organic growth: Markets have experienced less of an increase in unemployment than the national On October 1, 2010, IASIS announced the completion of its acquisition of Brim Holdings, Inc, which consists of two average. hospitals (Wadley Regional Medical Center – 370 beds; Pikes Peak Regional Hospital – 15 beds) for a total cash-for- stock transaction valued at $95 mn. In May 2011, Iasis completed the acquisition of a 79.1% equity ownership interest in St. Joseph Medical Center (SJMC) in downtown Houston for a cash consideration of $157 mn. The company Investment Risks: recapitalized in the same quarter in order to raise funds for the SJMC acquisition and put $230 mn of cash at the holdco - Medicare and Medicaid reimbursement could be reduced. level, the proceeds of which could be used for an acquisition or a dividend to the sponsor. - Small number of facilities heightens operating risk, as a disruption Key Dates/Catalysts: at one will likely have a significant impact on financial results. - Quarterly earnings announcements (commercial volumes have been weak industry-wide, although bad debt expense has been relatively stable.) - Volumes have been weak across the industry and are expected to - Possible acquisition announcement using the $230 mn of holdco cash that was raised during the April refinancing. remain so for the near term. - Election results (November 2012) and potential Supreme Court decision on the constitutionality of the individual mandate could determine the fate of the Affordable Care Act (ACA). We view the ACA as a net positive for hospitals. - The health plan is likely to post declining revenue in the near term due to reduced enrollment. We have modeled FY2012 health plan revenue down 13% yoy.
Financial Profile FY2010A FY2011A FY2012E Dec 1QF11A Sep 4QF11A Dec 1QF12E Revenue $2,521 $2,787 $2,931 $673 $717 $739 EBITDA 287 299 307 70 72 77
Interest Expense $93 $110 $122 $23 $35 $31 Cash Taxes 45 27 10 9 3 3 CapEx 81 98 160 15 34 40 Free Cash Flow 176 39 37 (9) 7 9
Total Debt $1,442 $1,879 $1,869 $1,453 $1,879 $1,876 Cash 145 147 169 129 147 153 Net Debt 1,297 1,732 1,700 1,324 1,732 1,724 Agency Key Credit Statistics LTM Comps Leverage Coverage Ratings Total Debt/EBITDA 0.0x 0.0x 0.0x IAS 6.0x 2.1x Caa1/CCC+ Net Debt/EBITDA 4.5x 5.8x 5.5x VANGUA 4.3x 2.9x B3/B- CYH 4.8x2.8xB3/B EBITDA/Interest 3.1x 2.7x 2.5x 3.0x 2.1x 2.5x THC 3.9x 2.7x Caa1/CCC+ EBITDA margin 11.4% 10.7% 10.5% 10.3% 10.1% 10.4%
Pro forma Capitalization Debt to Debt to LTM PF FY12E Description Size EBITDA* EBITDA Liquidity Revolving Credit Facility due 5/3/2016 $0 Revolver Size $300 Term loan B due 5/3/2018 1,025 Letters of Credit 85 Total Sr Sec debt 1,025 3.3x 3.3x Borrowings 0 Revolver Availability 215 8.375% Sr notes due 5/5/19 $850 Total Sr debt 850 6.0x 6.1x Cash* $147 Total Liquidity $362 Other--Capital Lease Obligations $6 *Cash balance shown here is at Opco and does not include the $230mn Total Debt $1,881 6.0x 6.1x of cash at Holdco. Market Cap NA Enterprise Value NA *LTM EBITDA is PF for acquisition of St Joseph Medical Center
Maturities: 2,000
1,600
1,200
800
400
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 93 January 26, 2012 High Yield
IMS Health (RX) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst for updates and other information. Cindy Guan 212-902-9758 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,000 12.5 Snr 01-Mar-18 B3/B $110.000 01-Mar-14 $117.000 8.098% 777
Company Description Company Strengths: IMS Health (RX) purchases prescription data from pharmacists and drug distributors, repackages the data, and sells - Solid cash flow. LTM free cash flow was 6% of debt. it to pharmaceutical companies in over 100 countries. Pharmaceutical companies use the data to determine sales force compensation, and to plan drug launches and marketing spend. The data is necessary because the sales - Commanding market share. IMS has 50%+ market share. We force targets physicians; however, physicians are not the ultimate purchasers and it is otherwise very difficult to view this position as defensible due to the difficulty of a competitor measure salesforce effectiveness. Though it has competitors in specific drug categories and specific locations, IMS building a network of data suppliers. One of the three big drug is the only company providing this data on a global basis. More than 60% of revenue is generated outside of the US. distributors (ABC, MCK, CAH) could provide some market data, but the data would not be as comprehensive as IMS's. IMS was spun off from Nielsen Research (formerly Cognizant Corp.) in 1998 and was taken private by TPG, CPP Investment Board, and Leonard Green in February 2010 for $5.96 bn, or 9.9x LTM EBITDA. Sponsors contributed - High level of importance to customers, coupled with low cost $2.8 bn of equity. relative to SG&A budgets, results in high 20% margins. For example, top customer pays IMS about $140 mn out of an SG&A In March 2011, IMS amended its credit agreement and increased revolver size by $100 mn, to $375 mn of budget of what we would estimate to be $20 bn. availability, and extended the maturity by one year. In June 2011, the Supreme Court ruled in favor of IMS that a VT statute limiting the commercial use of doctor-level prescription data violates the First Amendment. IMS has noted - Pharma industry is a good customer group over long term –large, that it believes the existing laws in NH and ME are likely to be declared unconstitutional or repealed in light of this highly profitable industry. decision in the coming months. In October 2011, IMS closed the acquisition of SDI, which is expected to add roughly $65 mn of EBITDA. In January 2012, IMS announced that it has sold the SDI promotional and Medical Audit Company Risks: businesses to Inventiv Health as per FTC regulation; financial terms were not disclosed. The divested assets - Dislocation in the pharma industry in the near term. Customers represents less than $15 mn or approximately 10% of SDI's 2011 revenue. are cutting costs/merging in reaction to patent cliff, recession, and concerns about the impact of health reform. Key Dates/Catalysts: - Quarterly earnings results - Customer concentration (top 10 are 40% of revenue). - Integration of the SDI acquisition, which closed October 31, 2011. -144A for life.
Financial Profile 2009A 2010A 4Q10A 1Q11A 2Q11A 3Q11A Revenue $2,190 $2,222 $587 $558 $591 $589 EBITDA 594 612 175 151 173 191
Interest Expense $33 $241 $61 $65 $73 $73 Cash Taxes 105 (97) (2) (18) (26) 13 CapEx 11710432212222 Free Cash Flow 425 131 45 (24) 57 89
Total Debt 1245 2984 2949 3083 3077 3047 Cash 380 496 496 546 579 649 Net Debt 864 2488 2453 2537 2498 2398 Agency Key Credit Statistics Comps Leverage Coverage Ratings Total Debt/EBITDA 2.1x 4.9x LTM: 4.4x IMS Health (RX) 4.2x 2.5x B3/B Net Debt/EBITDA 1.5x 4.1x Multiplan (MLTPLN) 6.3x 1.9x Caa1/CCC+ Catalent (PTSAC) snr 5.6x NA Caa1/B EBITDA/Interest 18.0x 2.5x 2.9x 2.3x 2.4x 2.6x EBITDA margin 27.1% 27.6% 29.8% 27.0% 29.3% 32.4% 2009A was pre LBO.
Capitalization
Debt to LTM Description Size EBITDA Liquidity Revolver ($375mm) 2/26/2016* 58 Revolver Size $375 Term Loan (US$) 8/26/2017 1283 Letters of Credit 0 Term Loan (€) 8/26/2017 764 Borrowings 0 Total Sr Sec debt $2,105 2.8x Revolver Availability 375
12.5% notes due 3/1/2018 1000 A/R facility 0 Total Sr debt $1,000 4.2x Borrowings 0 A/R Availability 0
Total Debt $3,105 4.2x Cash* 309 Market Cap NA Total Liquidity $684 Enterprise Value NA *Per 3Q 10Q and conf call, company drew down $90mn after quarter end and expect to pay down $32mn by year-end. Maturities: *3Q11 cash less $340mn purchase of SDI after quarter end. 3500 3000 2500 2000 1500 1000 500 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 94 January 26, 2012 High Yield
Isle of Capri Casinos (ISLE) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst for updates and other information. Celeste Everett 212-902-4751 NOT COVERED Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-Spd (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) (bp) $300 7.75 Sr Nts 15-Mar-19 B3/B- 103.875 15-Mar-15 94.250 8.85 747 734 $357 7.00 Sr Sub Nts (a) 1-Mar-14 Caa1/CCC+ 101.167 Current 98.500 7.79 756 724 (a) Call price steps down to par on 3/1/2012. Company Description Company Strengths: Isle of Capri (ISLE) owns and operates 14 casinos and racetracks in the US, located in Mississippi, Louisiana, - Diversified asset mix, with no exposure to Las Vegas or Iowa, Missouri, Colorado, and Florida. As of April 2011, ISLE operated 14,947 slot machines and 375 table games Atlantic City. and managed 3,078 hotel rooms. As of April 2011, members of the Goldstein family, including Vice Chairman - Solid liquidity position. Robert Goldstein, collectively owned and controlled approximately 42.6% of the common stock. - Modest maintenance capex ($25 million per year). - Solid management team working on new brand Key Dates/Catalysts: strategy. - April 2011: Receives Category 3 gaming license in PA. The casino will be part of Nemacolin Woodlands Resorts - Florida legislature passed legislation lowering state in southwest PA, which includes 335 guestrooms and various resort amenities. ISLE expects to invest $50 mn to gaming tax to 35% from 50%. build a gaming facility, and to operate 600 slot machines and 28 table games as well as a restaurant and lounge. - Further portfolio diversification with the Cape Girardeau The project is pending an appeal by a third party challenging the granting of the license to ISLE. facility in Missouri. The $125 million facility is expected to - August 2011: Lowered fiscal 2012 capex budget to $90 million from $140-150 million. ISLE removed the planned open by the end of 2012. Nemacolin capex as a third party appeals the granting of the license to ISLE. - December 2011: Has begun rolling out an enhanced customer loyalty program at its Pompano property and expects to implement the program across its portfolio by the end of 2013. Company Risks: - December 2012: Expected opening of its Cape Girardeau facility in Missouri. - High leverage compared with its regional gaming operator peer group. - Low EBITDA margins compared with peer group. - Continued pressure on consumer spending. - Increasing competitive pressure from new gaming supply and increased promotional activities. - Florida property facing increasing competition from Native American casino, which has introduced table gaming. Fiscal year ended April 30th - Continues to be affected by a sluggish economy and high unemployment. Financial Profile 2QFY11 3QFY11 4QFY11 FY11 1QFY12 2QFY12 - Elevated fuel prices could reduce visitation and spend Revenue 247 232 274 1,005 246 247 per visit. EBITDA 45 40 65 197 41 43
Interest Expense 30 15 23 85 9 33 Cash Taxes 1 (6) 0 (6) (0) 0 CapEx 13 20 12 59 15 20 Free Cash Flow 1 10 30 60 17 (10) Comps Leverage Coverage Ratings Total Debt 1,260 1,252 1,193 1,193 1,178 1,185 ISLE 6.3x 2.4x Caa1/CCC+ Cash (incl restricted) 100 104 110 110 108 106 HET 12.8x 0.9x Ca/CCC Net Debt 1,160 1,148 1,082 1,082 1,070 1,079 MNTG 7.1x 1.4x B3/B- Key Credit Statistics PNK 5.0x 2.8x Caa1/B Total Debt/LTM EBITDA 7.0x 6.7x 6.1x 6.1x 6.2x 6.3x Net Debt/EBITDA 6.4x 6.1x 5.5x 5.5x 5.6x 5.7x
EBITDA/Interest 2.0x 2.2x 1.4x 1.4x 2.5x 2.4x EBITDA margin 18.2% 17.0% 23.9% 19.6% 16.5% 17.5%
Capitalization Liquidity Enterprise Value Debt to Description 2QFY12 EBITDA Source 2QFY12 Source Sr sec revolver due November 2013 (b) 28 Revolver Size 300 Shares O/S (mm) 39.0 Sr sec term loan due November 2013 (b) 498 Letters of Credit 24 Share price $4.99 Other - Borrowings 28 Market cap 195 Total senior secured debt 526 2.8x Revolver Availability 248 Net debt 1,092 7.75% senior notes due March 2019 298 Less: Limitations due Enterprise Value (EV) 1,286 Total senior debt 823 4.4x to covenant restrictions (103) 7% senior sub debt due March 2014 357 Net revolver Available 145 EV / LTM EBITDA 6.8x Other 4 Total debt 1,185 6.3x Restricted cash 12 Total debt #REF! (b) Revolver and term loan maturity dates extend to 2016 and 2017, Cash 93 respectively, if the 7% senior subs are refinanced prior to that date. Total Liquidity 251
Maturities: Revenue Summary 3QFY11 4QFY11 1QFY12 2QFY12 Mississippi 44 55 38 45 1,000.0 900.0 Louisiana 31 35 36 33 800.0 Missouri 43 52 47 47 700.0 Iowa 53 62 58 58 600.0 Colorado 26 30 31 32 500.0 400.0 Florida 35 42 35 33 300.0 Other 0 0 0 0 200.0 Total net revenue 232 274 246 247 100.0 - FY2012 FY2013 FY2014 FY2015 FY2016+
Goldman Sachs Credit Research 95 January 26, 2012 High Yield
iStar Financial (SFI) Updated 1/25/2012 Amanda Lynam (212) 902-9238 Contact analyst or see latest research for updates to ratings, estimates, and other information. UNDERPERFORM
Bond Summary Size Coupon Agency Yield UST Price 5 Yr CDS Ticker (MM) (%) Maturity Ratings (%) Spread ($) bid pts + 500bp SFI $448 5.95 15-Oct-13 Caa1/B+/B- 12.3 1,206 90.50 8.75/9.75
Company Description Investment Strengths: - As of September 30, 2011, SFI held $4.83 billion iStar Financial (SFI) is a fully-integrated finance and investment company focused on the commercial real estate industry. The company of unencumbered assets ($4.1 billion net of maintains significant concentrations in certain property types (apartments and land) and geographies (particularly in the western US). accumulated depreciation and loan loss reserves). - In March 2011, demonstrated an ability to SFI’s credit metrics, financial flexibility, and debt ratings deteriorated during the credit crisis, as non-performing loans and loan provisions successfully refinance near-term maturities, and increased materially. The company’s constrained financial flexibility has restricted SFI’s ability to carry out new investment activities. Since entered into a new $2.95 billion secured credit the beginning of the credit crisis, SFI has significantly curtailed asset originations, and has focused primarily on resolving problem assets facility. and generating liquidity to satisfy the company’s debt repayments. - SFI's REHI and OREO portfolios may generate value, to the extent that certain properties are sold In March 2011, SFI entered into a $2.95 billion senior secured credit facility and used the proceeds to repay $2.62 billion of outstanding at values near or above their current marks (assets borrowings under existing secured credit facilities. The borrowings under the March 2011 facility are collateralized by a first lien on a fixed were impaired before they were transferred into pool of assets, initally composed of $3.69 billion in assets (56% performing loans, 22% net lease assets, and 22% non-performing these portfolios). In October 2011, SFI said it loans/REOs). expects these assets to begin contributing income in 2014. Pro-forma for the sale of its interest in Oak Hill, SFI held $350 million of cash at the end of October 2011. Investment Risks: - Despite the March 2011 refinancing, SFI still has a challenging near-term maturity schedule, with $1.7 Financial Profile FY08 FY09 FY10 9M2010 9M2011 LTM 9/30 billion of debt maturities and term loan payments Revenue $1,354 $893 $575 $443 $338 $476 due in 2012. EBITDA (defined by SFI) $1,698 $704 $778 $672 $494 $600 - SFI's capital structure contains a large amount of secured debt (44% of debt is secured), which Provision for losses $1,029 $1,255 $331 $277 $30 $85 reduces the value that unsecured holders may be Charge offs ($270) ($814) ($935) ($671) ($135) ($399) able to extract in a hypothetical recovery scenario. Repayments/principal collections $1,823 $951 $1,520 $1,209 $1,069 $1,379 - SFI’s ability to increase debt levels is limited by a fixed charge coverage covenant (though it can incur Proceeds- sales of loans/NLAs/OREOs $1,141 $1,056 $2,523 $2,152 $229 $600 new debt for the purposes of refinancing existing 12/31/2008 12/31/2009 12/31/2010 9/30/2010 9/30/2011 debt). Total Debt* $12,486 $10,895 $7,345 $8,517 $5,995 - SFI is solely focused on the real estate market, so vulnerable to downturns in real estate cycles. Secured Debt $1,913 $5,594 $3,123 $4,127 $2,831 Unsecured Debt $10,512 $5,015 $4,043 $4,306 $3,207 Unencumbered Assets $12,597 $5,571 $5,060 $4,970 $4,087 Total Assets $15,297 $12,811 $9,175 $10,465 $7,754 Comps Agency Ratings Total Equity $2,447 $1,656 $1,695 $1,761 $1,605 SFI Caa1/B+/B- Total reserve for loan losses $977 $1,418 $815 $1,025 $710 As a % of total loans (before reserves) 7.8% 15.3% 15.1% 16.1% 17.9% Due to SFI's unique business model, we Key unsecured covenant statistics believe there are limited business comps UA/UD 1.3x 1.4x 1.4x 1.4x 1.5x available. Fixed Charge Cover Ratio 2.7x 2.4x 1.6x 1.9x not given Note: The fixed charge covenant ratio is calculated by SFI on a trailing twelve-month basis. The company has not disclosed thisratio since year-end 2010. * Total debt includes debt premiums/(discounts) and may not equal the sum of secured debt and unsecured debt line items shown above Capitalization Description ($mn) 9/30/2011 Key covenants Tranche A-1 facility $1,071 Secured credit facility Tranche A-2 facility $1,450 Colateral coverage of 1.25x of outstanding borrowings (maintenance) Line of credit $244 Unsecured debt securities Secured term loans $310 Unencumbered assets to unsecured indebtedness (UA/UD) must Unsecured notes $2,863 exceed 120% (maintenance) Preferreds $100 Fixed charge coverage ratio must exceed 1.5x (incurrence) Total debt $6,038
Market Cap (at 1/20/2012) $578 Cash (unrestricted) $217 Enterprise value $6,398
Remaining consolidated unsecured maturities (as of 9/30/2011):
$2,500
$2,000
$1,500
$1,000
$ in millions in $ $500
$0 2012 2013 2014 2015 Thereafter
Goldman Sachs Credit Research 96 January 26, 2012 High Yield
J. Crew Group Inc. (JCG) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 202-357-7875 Contact analyst or see latest research for updates to ratings, estimates, and other information. OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $400 8.125 Sr Nts 1-Mar-19 Caa1/CCC+ $104.06 1-Mar-14 97.00 8.70% 723
Company Description Investment Strengths: J. Crew is a specialty retailer of women's, men's, and children's apparel through a network of more than 300 retail - Strong brand name stores and through its direct (online and catalog) segment. In addition to the core J Crew concept, the company has - Track record of high-teens EBITDA growth under several related concepts, including crewcuts (children's), Factory, and Madewell, which is a recently launched brand current management for young women. - High online penetration (28% of revenues) Investment Risks: - Trading at a large premium to apparel retail peers considering leverage Key Dates/Catalysts: - Fashion missteps have hurt recent results Mid- to late March, fourth quarter earnings release - Traffic remains challenging - Macro shock could slow business
Financial Profile FY10A FY11A FY12E 4Q11A 4Q12E Revenue 1,578.0 1,722.2 1,844.4 471.5 517.5 EBITDA 275.8 283.7 295.3 43.9 62.5 Comps Yield Leverage Coverage Ratings J. Crew 8.70% 5.4x 3.2x Caa1/CCC+ Interest Expense 5.4 3.9 87.4 0.5 23.0 Burlington 11.09% 4.3x 2.7x Caa1/ CCC Cash Taxes 82.5 83.5 12.6 5.8 6.8 Gymboree 11.72% 5.9x 2.3x Caa1/CCC+ CapEx 44.7 52.4 95.0 21.3 23.0 Free Cash Flow 143.2 144.0 100.3 16.3 9.7
Total Debt 49.2 1,600.0 1,591.0 1,600.0 1,594.0 Cash 298.1 381.4 204.9 381.4 191.8 Key Credit Statistics Total Debt/EBITDA 0.2x 5.6x 5.4x 36.5x 25.5x Net Debt/EBITDA -0.9x 4.3x 4.7x 27.8x 22.4x
EBITDA/Interest 51.2x 72.5x 3.4x 83.1x 2.7x
EBITDA margin 17.48% 16.47% 16.01% 9.31% 12.08%
Capitalization 2012E
Debt to Estimated Description Size EBITDA Liquidity 3Q12A ABL ($250mm, L+250) due 2016 0.0 Revolver Size 250.0 Term Loan (L+350, 1.25% floor) due 2018 1194.0 Letters of Credit 7.7 Total Secured Debt 1194.0 4.0x Borrowings 0.0 Revolver Availability 242.3
Senior Notes due 2018 400.0 A/R facility NA Total Subordinated Debt 400.0 5.4x Borrowings 0 Total Debt 1594.0 5.4x A/R Availability NA
Market Cap (Shareholders' Equity) n/a Cash 142.7 Enterprise Value (Total Book Cap) n/a Total Liquidity 385.0
Maturities:
1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2012 2013 2014+
Goldman Sachs Credit Research 97 January 26, 2012 High Yield
J.C. Penney Company (JCP) Updated 1/25/2012 Gregory Chwatko 212-902-0673 Contact analyst or see latest research for updates to ratings, estimates, and other information. Annalee Bloomfield 212-902-8028 NOT RATED
Bond Summary Size Coupon Agency UST Z Spread 5 Yr Ticker (MM) (%) Maturity Ratings Price Spread (bp) CDS JCP $400 5.65 01-Jun-20 Ba1/BB+/BBB- $98 400 423 323/333 JCP $400 6.38 15-Oct-36 Ba1/BB+/BBB- $84 473 533 323/333
Company Description Company Strengths: J.C. Penney is one of America's largest retailers, operating throughout the United States and Puerto Rico. JCP has - JCP has maintained healthy liquidity ($1.6 billion in cash one of the largest apparel and home furnishing sites on the internet, jcp.com, and the nation's largest general and equivalents as of 3Q2011). merchandise catalog business. Across its integrated enterprise, J.C. Penney offers a wide array of national, private, - In addition, JCP extends its financial flexibility owing to its and exclusive brands that reflect the company's commitment to providing customers with style and quality at smart non-burdensome debt maturity schedule. prices. - JCP management's approach to the company's credit JCP is executing a strategic Long Range Plan that consists of four integrated strategies aimed at building a deeper, profile and capital structure has been conservative. more enduring relationship with customers, increasing the engagement and retention of associates, and delivering - JCP is one upgrade away from a return to IG rating industry-leading financial performance to shareholders. status at two of three agencies. - Ron Johnson, previously with Apple's retail operations, Key Dates/Catalysts: succeeding Mike Ullman as CEO may provide a catalyst Earnings releases, same-store sales announcements for operational improvements. Outisde investor positions Company Risks: - In order to maintain its position in the hyper-competitive department store sector, JCP must constantly make innovations in its private brands and introduce new brands Financial Profile 2009 2010 3Q11A and merchandise to suit emerging middle-market Revenue 17,556 17,759 3,906 consumer trends and interests. EBITDA 1,158 1,336 209 - Weak consumer spending levels may weigh on sales and margin improvements. Operating Income 663 825 81 - Pershing Square's and Vornado's stakes in the company Interest Expense (net) 260 231 57 could lead to deployment of cash for shareholder enhancement,or a public proxy battle, which could weaken the company's credit profile. For example, the company Operating Cash Flow 1,577 592 120 completed a $900 million share repurchase program in CapEx (600) (499) (178) 1H2011. Dividends (183) (189) (45) Free Cash Flow 794 (96) (103)
Adjusted Total Debt 3,392 3,099 3,099 Comps Leverage Coverage Agency Ratings Cash 3,011 2,622 1,551 Net Debt (Cash) 381 477 1,548 LTD 3.5x 8.3x Ba2/BB+/BB+ Key Credit Statistics M 2.4x 7.5x Baa3/BBB-/BBB- Total Debt/EBITDA 2.9x 2.3x 2.3x RSH 4.5x 7.2x Ba3/BB-/B+ Adjusted Debt/EBITDAR 4.0x 3.4x 3.3x Net Debt/EBITDA 0.3x 0.4x 1.2x EBITDA/Interest 4.5x 5.8x 3.7x EBITDA margin 6.6% 7.5% 5.4%
Capitalization Debt to Description Size EBITDA Liquidity Revolver Size 1,250 9.0% Notes, due 2012 230 Letters of Credit 157 6.875 MTN, series A, due 2015 200 Borrowings 0 7.65% Debentures, due 2016 200 Revolver Availability 1,093 7.95% Debentures, due 2017 285 5.75% Notes, due 2018 300 5.65% notes due 2020 400 Cash 1,085 7.125% Debentures, due 2023 255 Total Liquidity 2,178 6.9% notes due 2026 2 6.375% Notes, due 2036 400 7.4% Debentures, due 2037 326 7.625% Notes, due 2097 500 Capital lease obligations/Other 1 Total Debt 3,099 2.3x Market Cap 8,730 Enterprise Value 10,747
Maturities:
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 98 January 26, 2012 High Yield
Jarden Corporation (JAH) Updated 1/23/2012 Kevin Coyne 212-357-9918 Contact analyst for updates and other information. Celeste Everett 212-902-4751 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-Spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $300 8.000 Sr Nts 01-May-16 Ba3/BB- 104.000 01-May-13 109.250 3.522 334 304 $300 6.125 Sr Nts 15-Nov-22 Ba3/BB- 103.750 01-May-12 103.625 5.477 415 405 $650 7.500 Sr Sub 01-May-17 B2/B 103.060 15-Nov-15 106.500 6.034 529 497
Company Strengths: Company Description - Diverse, known brand portfolio with dominant/niche market Jarden is a diversified consumer products company operating in four segments: Branded Consumables (playing positions; Jarden owns over 100 active brands and has 12 domestic cards, home canning, baby care, home care, etc.), Consumer Solutions (small electric appliances: Sunbeam, brands that have been in use for more than a century. Oster, Holmes, etc.), Outdoor Solutions (Coleman, K2, Rawlings, Stearns, Shakespeare, Berkeley), and Process - Management is experienced and has proven ability to integrate Solutions. Jarden's trademarks include Crock-Pot, FoodSaver, Harmony, Holmes, Oster, Mr. Coffee, Sunbeam, acquisitions and realize cost-saving synergies. SEAL-a-Meal, and FoodSaver, among many others. Jarden also offers various consumer and medical plastic - Acquisitions have generally been low-multiple, non-auction products, including jar closures, contact lens packaging, plastic cutlery, refrigerator door liners, medical disposables, situations, and management has generally kept leverage in the 3-4x and rigid packaging, as well as zinc strip and fabricated zinc products, such as coinage blanks. Jarden Corporation range. sell its products through various retail formats, including club stores, drugstores, grocery retailers, mass merchants, - Company has global sales footprint, with approximately 40% of department stores, value retailers, home improvement stores, and craft stores. The company was founded in 1991 sales generated outside the US on a pro forma basis. and is headquartered in Rye, New York. According to Bloomberg, significant equityholders include TIAA CREF - Modest dividend policy ($8 mn / quarter). (9%), Horizon Asset Mgmt (6%) and JP Morgan Chase (5%). - At December 31, 2010, JAH had $1 billion of domestic tax NOLs. - Long-term goal to reach $5.00 in adjusted EPS by 2014. Key Dates/Catalysts: - June 2011: CEO stated that 2.5x is the ideal leverage for the company. - August 2011: Board of directors approved a new $500 million stock repurchase plan. Company Risks: - The company has a history of being very acquisitive. - Large restricted payments basket ($800 million). - Recent acquisitions have limited synergies with other business lines. - During 3Q2011, completed $150 mn stock repurchase program. - Pension plan: At year-end 2010, the pension and OPEB plans were underfunded by $135 million. During 2011, JAH expects to contribute $15 million of cash to its pension plans. - At 3Q2011, there were $1.4 billion of liabilities at non-guarantor Financial Profile 3Q10A 4Q10A FY10A 1Q11A 2Q11A 3Q11A subsidiaries. Revenue 1,602 1,684 6,023 1,483 1,674 1,785 EBITDA 214 204 720 125 206 239
Interest Expense 46 48 178 45 46 44 Cash Taxes 49 46 123 12 45 50 CapEx 31 42 138 27 24 28 Free Cash Flow 88 68 282 41 91 117 LTM Comps Leverage Coverage Ratings Total Debt (excl A/R facility) 2,956 3,241 3,241 3,195 3,198 3,180 JAH 7.5s 4.1x 4.2x B2/B Cash 456 695 695 406 495 446 HBI 6.375s 3.9x 4.6x B1/BB- Net Debt 2,500 2,545 2,545 2,789 2,703 2,733 ZQK 6.875s 3.7x 2.7x Caa1/CCC+ Key Credit Statistics LEVI 7.625s 4.2x 3.7x B2/B+ Total Debt/EBITDA 4.2x 4.5x 4.5x 4.3x 4.3x 4.1x Net Debt/EBITDA 3.6x 3.5x 3.5x 3.8x 3.6x 3.5x Maintenance Covenants Net Leverage Coverage EBITDA/Interest 4.2x 4.1x 4.1x 4.0x 4.1x 4.2x Current 4.00x 2.00x EBITDA margin 13.4% 12.1% 12.0% 8.4% 12.3% 13.4% 1Q2013 4.00x 2.25x 1Q2015 & thereafter 4.00x 2.50x Capitalization Debt to LTM Description 3Q11A EBITDA Liquidity 3Q11A Enterprise value (EV) Senior secured revolver due Mar 2016 0 Revolver (USD) due 2016 175 Shares O/S (mm) 90.8 Senior secured TL A due Mar 2016 509 Revolver (Other curr.) 75 Share price$ 34.76 Senior secured TL B due Jan 2017 500 Letters of Credit 41 Market cap 3,156 Securitization & other secured debt 337 Borrowings - Net debt 2,733 Total senior secured debt 1,347 1.7x Revolver Availability 209 Enterprise value 5,889 8% senior notes due May 2016 294 6.125% senior notes due Nov 2022 300 Total senior debt 1,941 2.5x A/R Facility 300 EV / LTM EBITDA 7.6x 7.5% senior sub notes due May 2017 657 Borrowings 300 7.5% senior sub notes due Jan 2020 475 A/R Availability - Other debt 107 Total Debt $3,180 4.1x Cash 446 Total Liquidity $655
(*) Total debt excludes securitization facility.
Maturities: 2000
1600
1200
800
400
0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 99 January 26, 2012 High Yield
JDA Software Group Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $273 8.0 Senior 15-Dec-14 B1/BB- 104.00 12/15/2012 107.88 3.3% 321
Company Description Investment Strengths: JDA Software Group is a leading provider of global supply-chain planning software, which includes end-to-end - Strong cash flow profile: JDAS generated cumulative solutions from raw materials to freight, assembly, distribution, warehouse, store, and consumer. JDA was free cash flow of $150 million over the past 2 years. founded in 1985. In 2000, it expanded into the manufacturing and wholesale-distribution markets through We believe it will remain strong in 2011 at over $150 strategic acquisitions. JDA’s enterprise software solutions are specifically designed to enable planning, million for the full year. optimization, and execution of supply chain processes for manufacturers, wholesale/distributors, and retailers, as - Conservative capital structure: JDAS’s conservative well as for government and aerospace defense contractors. capital structure consists of only one bond (the $275 million of 8% senior notes due 2014) and a $100 Key Dates/Catalysts: million revolver. We think net leverage could approach - JDAS is expected to report 4Q2011 earnings on January 31. The company preannounced 4Q2011 earnings on 0.0x by YE2011. January 12 to highlight a shortfall in license sales during the last 2 weeks of December. Management may use - Recurring revenue base: Approximately 45% of the the January 31 call to provide an update as to whether that trend has continued into 2012. combined company’s revenue is derived from - On March 22, 2011, JDAS announced that it had entered into an agreement for a $100 million senior secured maintenance contracts and subscription-based revolving credit facility at L+100 bp. The facility will mature in September 2014. licenses. Investment Risks: - Pullback in demand from retail customers: JDAS preannounced 4Q2011 earnings on January 12 to highlight a shortfall in license sales during the last 2 weeks of December which management attributed to a Financial Profile FY08 FY09 FY10 LTM-3Q11 FY11E FY12E reduction in retail customer budgets. At that time, management indicated that closing rates for new Revenue 646 554 617 666 677 725 licenses had not rebounded. We remain focused on EBITDA 132 117 116 156 194 191 whether this trend will continue. - Competitive marketplace: The supply chain management market is highly competitive. Oracle Cash Interest (12) (2) (22) (22) (25) (22) (22% share) and SAP (16% share) control the tier 1 Cash Taxes (7) (7) (15) (15) (14) (18) position while JDAS holds a No. 3 position with a 6% CapEx (10) (8) (17) (10) (15) (33) share. - History of acquisitions: Management has made 10 Free Cash Flow 152 116 48 149 168 117 acquisitions in the last 11 years, and its recently signed $100 million revolver could provide liquidity for Total Debt 65 272 273 273 273 273 another deal as the i2 integration unfolds. Cash 271 261 172 290 276 393 Net Debt (206) 11 101 (17) (3) (120) Key Credit Statistics Total Debt/EBITDA 0.5 x 2.1 x 1.7 x 1.9 x 1.4 x 1.4 x Net Debt/EBITDA -1.6 x 0.1 x 0.6 x -0.1 x 0.0 x -0.6 x Comps Leverage Coverage Sr. Unsec EBITDA/Interest 9.5 x N/A 7.1 x 7.1 x 9.0 x 9.6 x Ratings EBITDA margin 20.4% 21.2% 18.8% 23.4% 28.6% 26.3% SGS 3.0x 2.8x B1/B+
Capitalization Debt to Description Size EBITDA 8.0% Senior Notes due 2014 273 1.7 x Total Debt 273 1.7 x Liquidity Market Cap 1,267 Revolver Size 100 Enterprise Value 1,251 8.0 x Letters of Credit 0 Borrowings 0 Revolver Availability 100
Maturities: Cash 290 Total Liquidity 390 300 250 200 150 100 50 0 2012 2013 2014 Thereafter
Goldman Sachs Credit Research 100 January 26, 2012 High Yield
JetBlue Airways Corp. (JBLU) Updated 1/24/2012 Justine Fisher 212-357-6711 Contact analyst or see latest research for updates to ratings, estimates, and other information. Joshua Pinkerton 212-357-9774
IN-LINE Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $39 L+37.5 EETC 15-Dec-13 Ba3/BBB- NC NC 90.00 6.50% 593
Company Description Investment Strengths: - Brand: JetBlue has a strong brand and loyal customer JetBlue is a low-cost airline, serving primarily point-to-point routes. It maintains a fleet of A320 and Embraer 190 aircraft. base. It offers live inflight television on its flights through JetBlue is based out of New York's JFK Airport, with Boston, Fort Lauderdale, Orlando, Long Beach, and Washington wholly owned subsidiary LiveTV. Dulles as additional focus cities. The carrier is not a member of any international alliance, although Lufthansa is a - Fleet: JetBlue operates an exclusively A320 and significant equity holder in the company. JetBlue recently signed an interline cooperation agreement with AMR. Embraer E190 fleet. By limiting the number of plane types it flies, JetBlue reduces training costs and gains leverage with the manufacturers by buying in bulk. Key Dates/Catalysts: - Non-union workforce: None of JetBlue's employees are JetBlue is expected to report earnings on January 26. currently unionized. This gives the company more flexibility to adjust work rules and other policies. - Airline partnerships: While JetBlue is not a member of any of the international alliances, it has signed interline agreements and partnerships with a number of airlines, most notably Lufthansa (which owns a large equity stake) and AMR.
Investment Risks: - High labor costs: JetBlue employees are not unionized, and it has maintained a "no furlough" policy in the past to Financial Profile FY10 2Q11 3Q11 4Q11E FY11E FY12E retain employee loyalty. As a result when demand for air travel dropped, JetBlue was not able to reduce labor Revenue 3,779 1,151 1,209 1,254 4,680 4,680 costs as quickly as competitors did, and it saw its labor EBITDAR 679 180 189 190 674 674 costs per ASM increase. - Small size and largely domestic focused: JetBlue is concentrated in a few key markets (New York, Florida), Interest Expense (176) (43) (36) (37) (145) (145) which makes it more susceptible to fluctuations in Income Taxes (64) (18) (3) (3) (9) (9) regional demand. CapEx (249) (81) (133) (133) (530) (530) - Over-expansion: JetBlue is one of the few airlines with plans to significantly expand capacity this year. It could Free Cash Flow 210 12 (14) (14) (138) (138) have difficulty filling these new seats if the recovery is not as strong as it expects. Total Debt 3,033 3,083 3,247 3,030 3,030 3,147 Cash 963 1,173 1,239 1,144 1,144 1,123 Comps Leverage Coverage Ratings Net Debt 2,070 1,910 2,008 1,886 1,886 2,024 UAL 2.6x 5.4x B2/B Key Credit Statistics DAL 3.9x 4.1x B2/B EBITDA/Interest 3.9 x 4.2 x 5.3 x 5.2 x 4.6 x 4.6 x LUV 2.1x 9.9x Baa3/BBB- Leverage 4.5 x 4.5 x 4.7 x JBLU 4.5x 4.6x B3/B- EBITDA margin 18.0% 15.6% 15.7% 15.2% 14.4% 14.4% LCC 3.6x 3.9x Caa1/B-
Capitalization
Debt to Description Size EBITDAR Liquidity Capital Leases 131 Revolver Size 0 Floating rate equipment notes due through 2020 750 Letters of Credit 0 Class G-1 EETC, due 2016 222 Borrowings 0 Class G-2 EETC due 2014 and 2016 373 Revolver Availability 0 Class B-1 EETC due 2014 49 Fixed rate equipment notes due through 2025 1,157 Special Facility Bonds (JFK and Orlando) 83 Other 482 Total debt 3,247 4.8 x Market Cap 1,724 Cash 1,239 Enterprise Value 3,732 5.5 x Total Liquidity 1,239
Maturities:
1,800 1,600 1,400
1,200 1,000 800
600 400 200 0 2012 2013 2014 2015 Thereafter
Goldman Sachs Credit Research 101 January 26, 2012 High Yield
KB Home (KBH) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 UNDERPERFORM
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp U 300 7.25 Sr. Nts 15-Jun-18 B2/B+ NC 95 8.27% 710
Company Description Investment Strengths: KB Home is the fourth-largest homebuilder in the United States based on LTM closings and revenues. The company - Good geographic diversity. began operating in 1957 through various subsidiaries of Kaufman and Broad, Inc. In 1986, Kaufman and Broad - Primarily targets finished lots. transferred all of its homebuilding and mortgage banking operations to the company, which subsequently completed an IPO under the name Kaufman and Broad Home Corporation. The business was spun off from Kaufman and Broad, Inc., in Investment Risks: 1989, becoming an independent company operating predominantly in California and France. In 2001, the company - Build-to-order model could hinder sales pace. changed its name to KB Home. Over the next several years, KB significantly expanded its presence throughout the United - Margins have been relatively weak in recent periods States, and in 2007, it divested its French operations. Today the company operates in 10 states (CA, AZ, NV, CO, TX, FL, despite the company's build-to-order strategy. MD, NC, SC, VA) and 30 major markets. - SG&A as a percentage of sales remains very high. - Relatively weak liquidity position. Key Dates/Catalysts: 1QFY12 earning release Potential capital raise in FY2012
Financial Profile ($, mn)* FY:09 FY:10 FY:11E 4Q:10 3Q:11 4Q:11E Total Revenues 1,825 1,590 1,316 451 367 480 Total Adjusted EBITDA 70 118 44 61 27 27
Interest Expense (120) (122) (116) (30) (29) (28) Debt-to- Inventory- Cash Taxes 209 7 - 2 - - Comps Cap to-Debt Ratings Capital Expenditures (1) (0) (0) 0 0 (0) KB Home 81% 1.0x B2/B+ Free Cash Flow 363 (114) (204) 35 (45) 112 Beazer 86% 0.9x Caa3/CCC Standard Pacific 69% 1.1x B3/B Total Debt Outstanding 2,007 1,956 1,584 1,956 1,813 1,584 Total Cash and Cash Equivalents 1,292 1,024 480 1,024 593 480 Key Credit Statistics Homebuilding Debt / Capitalization 74% 76% 78% 76% 81% 78% Net Homebuilding Debt / Capitalization (3) 54% 62% 73% 62% 76% 73%
Inventories / Homebuilding Debt (2) 0.7x 0.9x NA 0.9x 1.0x 1.1x Homebuilding Gross Margin (1) 24% 24% 21% 25% 23% 21%
PF Capitalization ($, mn)
Description Size Liquidity Mortgages/land contracts/other loans 28 Homebuilding cash 477 Senior notes due 2014 250 Financial services cash 3 Senior notes due 2015 300 Restricted cash 113 Senior notes due 2015 450 Total Cash 593 Senior notes due 2017(1) 265 Senior notes due 2018 300 Total Balance Sheet Debt 1,593 Maturities: LTV maintenance requirements - Several guarantees 226 800 700 Total Debt Outstanding 1,820 600 500 400 Share price 9.3 300 Market Capitalization 719 200 Enterprise Value 1,945 100 0 2012 2013 2014 2015 2016
Goldman Sachs Credit Research 102 January 26, 2012 High Yield
Kindred Healthcare (KND) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 IN-LINE
We rate Kindred In-Line. While bonds trade at among the highest yield of our provider group, we remain concerned about reimbursement cuts such as (1) a revisiting of the sequester 2% Medicare cut; (2) for LTACs, the expiration of the moratorium; and (3) state Medicaid rate cuts. In addition, we see limited opportunity for de-levering given the 2012 SNF rate cuts. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $550 8.25 Sr 1-Jun-19 B3/B- 106.188 6/1/2014 $90.000 10.216% 942
Kindred is the largest operator of long-term acute care hospitals, LTACHs (45% of pro forma revenues), and the Investment Strengths: fourth-largest operator of skilled nursing facilities, SNFs (35%) pro forma for its acquisition of RehabCare (RHB). The - Stated leverage target. The company plans to delever company also has a contract rehabilitation services business (17% of pro forma revenues) as well as hospital to prior levels, so roughly half a turn from 4.7x to 4.4x. rehabilitation services, HRS (3%). Pro forma for the RHB acquisition, KND will have 123 hospitals (LTACHs and rehab hospitals), 226 skilled nursing facilities, and seven assisted living facilities in 46 states. - KND's cluster market strategy is enhanced by the RHB acquisition. These cluster markets present In June 2011, KND completed the acquisition of RHB for $1.7 bn. The company expects run-rate synergies of opportunities for KND hospitals, SNFs, and rehab approximately $40 mn, with about $25 mn of it being achieved in 2011. KND also recently acquired Vista Healthcare centers to reduce costs and offer better continuum of (five LTACHs) in November 2010 for $179 mn in cash, which was funded through the revolver. In 3Q11, KND acquired care. a home health provider, Professional Healthcare, for $51 mn, funded through the revolver. At a recent conference, the company described homecare as a "fourth segment [it is] incubating." Investment Risks: - Ability to manage through the 11.1% SNF Medicare Key Dates/Catalysts: cut and therapy changes. - Quarterly earnings, including any updated guidance on the expected impact of the July 29 SNF rule changes. - Patient and facility criteria for LTACHs and the potential end to the moratorium (legislation has been introduced in the - Growth prospects for the LTACHs may be unclear if Senate). the moratorium is not lifted and if patient and facility criteria are not defined.
- State Medicaid rates could be reduced more than Financial Profile 2010A PF LTM* 2011E** 4Q10A 3Q11A 4Q11E expectations (management expects 0 to +1%) Revenue $4,360 $6,049 $5,561 $1,135 $1,514 $1,562 EBITDA 225 459 377 69 104 108 EBITDAR 582 876 776 160 210 214
Interest Expense $7 $103 $78 $3 $26 $23 Cash Taxes 34 0 23 13 (2) 13 CapEx (177) (232) (215) (67) (81) (50) Agency Free Cash Flow 33 (7) (26) (8) (14) 21 Comps Leverage Coverage Ratings KND 4.6x 4.4x B3/B- Total Debt $366 $1,500 $1,479 $366 $1,500 $1,479 IAS 6.0x 2.1x Caa1/CCC+ Cash 17 34 34 17 34 34 EMS 7.3x 1.9x Caa1/B- Net Debt 348 1,466 1,445 348 1,466 1,445
Key Credit Statistics Total Debt/EBITDA 1.6x 3.3x 3.9x Net Debt/EBITDA 1.6x 3.2x 3.8x Total Rent adj Debt/EBITDAR 4.3x 4.6x 5.0x
EBITDA/Interest 31.7x 4.4x 4.8x 24.3x 4.0x 4.6x EBITDA margin 5.2% 7.6% 6.8% 6.1% 6.9% 6.9% * PF LTM includes the acquisition of RehabCare as well as a full year of other KND acquisitions but does not include expected synergies. **2011E is not pro forma Pro forma Capitalization
Debt to LTM PF Description Size EBITDAR Liquidity Asset backed revolver due 6/1/2016 $249 Revolver Size $650 Term Loan due 6/1/2018 $698 Letters of Credit $0 Rent adjustment (6x)* $2,502 Borrowings $249 Total Sr Sec debt $3,449 3.9x Revolver Availability 401
8.25% Senior notes 6/1/2019 $550 Cash $34 Total Sr debt $550 4.6x Total Liquidity 435
Other $3 Total Debt $4,002 4.6x Market Cap 634 Enterprise Value $4,602 5.3x
Maturities:
1600 1400 1200 1000 800 600 400 200 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 103 January 26, 2012 High Yield
Koppers (KOP) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 IN-LINE
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp IL 300 7.875 Sr. Nts 1-Dec-19 B1/B+ 103.9 1-Dec-14 105.75 6.67% 525
Company Description Investment Strengths: Koppers is a global integrated provider of carbon compounds and commercial wood treatment products and services. The - Koppers has leading market positions in several of its company's products are sold into a wide range of end markets, including the aluminum, railroad, specialty chemical, utility, key businesses, including its core North American rubber, concrete, and steel industries. Koppers is organized into two primary business segments: Carbon Materials & carbon pitch and railroad crosstie operations. Chemicals and Railroad & Utility Products. - Long-standing relationships with large, blue-chip customers. Key Dates/Catalysts: - Limited threat of substitutes for key products. 4Q2011 earning release Potential leveraging acquisition Investment Risks: - North American and Western European carbon pitch demand may continue to be weak given anemic aluminum production due to excess capacity. - Koppers is dependent on a single raw material, coal tar, which has recently been in short supply in some markets. - Significant customer concentration, with top 10 Financial Profile ($, mn)* FY:09 FY:10 FY:11E 4Q:10 3Q:11 4Q:11E accounting for 50% of total revenue. - Relatively weak EBITDA margins. Net Sales 1,124 1,246 1,496 308 401 343 EBITDA 120 127 154 24 47 35
Cash Interest (20) (25) (26) (6) (6) (7) Comps Leverage Coverage Ratings Cash Taxes 9 (24) (21) (3) (9) 2 Koppers 2.2x 5.7x B1/B+ Capital Expenditures (18) (30) (32) (16) (7) (12) Ashland 3.5x 5.7x Ba1/BB Free Cash Flow 67 53 36 19 9 23 Olin 1.9x 10.2x Ba1/BB
Total Debt 361 320 315 320 315 315 Cash Equivalents 58 35 82 35 59 82 Key Credit Statistics Debt/EBITDA 2.9x 2.5x 2.1x 2.5x 2.2x 2.1x Net Debt/EBITDA 2.4x 2.2x 1.5x 2.2x 1.8x 1.5x
EBITDA/Interest Expense 6.2x 5.1x 5.9x 5.1x 5.7x 5.9x LTM EBITDA Margin 11% 10% 10% 10% 10% 10%
PF Capitalization ($, mn) Debt to Description Size EBITDA Liquidity Revolving Credit Facility 15 Revolver Size 300 Capital leases and other secured debt - Borrowings 15 Senior Secured Debt 15 0.1x Letters of Credit 14 Senior Unsecured Notes 300 Revolver Availability 268 TKK guarantee - Total Debt 315 2.2x Other credit facilities 15
Minority Interest 12 Share Price 36.9 Cash 59 Market Capitalization 764 Liquidity 342 Enterprise Value 1,032 7.1x
Maturities: 350 300 300 250 250 200 200 150 150 100 100 50 50 0 0 20102012 2011 2012 2013 2013 2014 2014+
Goldman Sachs Credit Research 104 January 26, 2012 High Yield
L-3 Communications Holdings, Inc. (LLL) Updated 1/26/2012 Brian Jacoby, CFA 212-902-3258 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cody Sauer, CFA 212-855-8553 OUTPERFORM/IN-LINE Our Outperform on the 6.375% sub notes of 2015 reflects their attractive yield-to-call within the next year. Bond Summary Size Coupon Agency Next Call Bid YTW T-sprd 5 Yr Ticker (MM) (%) Priority Maturity Ratings Next Call Date Price (%) bp CDS1 LLL $1,000 6.375 Sr. Sub 15-Oct-15 Ba1/BB+ 101.063 15-Oct-12 102.50 1.3 129 185 LLL $800 4.750 Sr. Unsec 15-Jul-20 Baa3/BBB- NC - 100.38 4.7 270 185 1 5-year CDS is sub CDS
Company Description L-3 Communications (LLL) is a major US defense company, providing high technology products, systems, and subsystems. The company is a prime Investment Strengths: contractor in command, control, communications, intelligence, surveillance, and reconnaissance systems (C3ISR), government services, and aircraft modernization and maintenance. Electronic Systems (36% of 3Q11 LTM revenues) provides a broad range of products, including components, systems, - LLL is a leading defense company, with strong and subsystems such as Electro-Optic/Infrared and Power & Control Systems, and services to military and commercial customers in several niche FCF and a diverse program base. 3 markets. C ISR (23% of revenues) provides manned and unmanned surveillance, sensors, manpacks, and logistics support. Aircraft Modernization and 3 Maintenance (16% of revenues) provides modernization, upgrades, maintenance, and logistics support and services for various government aircraft and - Excellent business position in C ISR and electronics, which are well positioned in the US other platforms to the DoD and allied governments. In July 2011, LLL announced that it would spin off approximately 55% of the Government Services defense budget. business ($2bn in revenue and $193mn in EBITDA) in a tax free distribution. LLL expects the transaction to be completed in 1H2012 and the new company will be named Engility. The Government Services segment provides a broad range of engineering, technical, analytical, information technology, advisory, training, logistics and support services to the DoD, DoS, DoJ, US government intelligence agencies, and allied foreign - Solid liquidity position, with $538 million in governments. cash at 3Q11 and $1 billion in annual FCF. Key Dates/Catalysts: Investment Risks: 1H2012 – spin-off of Engility and additional clarity on US Department of Defense Budget - Management traditionally favors shareholder- Financial Profile ($mn) FY08 FY09 3Q10 FY10 3Q11 FY11E FY12E friendly uses of free cash flow versus debt reduction (e.g., buying back stock, making Total Revenue 14,901 15,615 3,835 15,680 3,787 15,390 13,581 acquisitions). EBITDA 1,765 1,874 499 1,981 464 1,873 1,639 - The US defense budget is facing significant Gross Operating Cash Flow 1,386 1,564 327 1,480 365 1,516 1,319 cutbacks in coming years. Working Capital 1 (157) 68 (19) 100 (80) 30 - Risk of new supply: LLL has issued senior Net Operating Cash Flow 1,387 1,407 395 1,461 465 1,436 1,349 debt to call its higher-coupon subordinated Capital Expenditures (218) (186) (34) (181) (51) (189) (200) debt, and could continue this trend to reduce Dividends (147) (165) (46) (184) (46) (192) (190) the remainder of its $500mn in subordinated Free Cash Flow 1,022 1,056 315 1,096 368 1,055 959 debt.
Total Debt (on bal sheet) 4,493 4,112 4,132 4,137 4,126 4,126 4,326 Cash 867 1,016 650 607 538 273 473 Net Debt 3,626 3,096 3,482 3,530 3,588 3,853 3,853
Key Credit Statistics Lease Adj Debt/EBITDA 2.66x 2.31x 2.42x 2.18x 2.28x 2.28x 2.68x Lease Adj Net Debt/EBITDA 2.21x 1.81x 2.09x 1.90x 2.01x 2.15x 2.42x Lease Adj Debt/Capital 46.8% 41.8% 43.0% 41.1% 41.2% 40.5% 39.5% LTM FCF/Debt 22.7% 25.7% 26.1% 26.5% 25.3% 25.6% 22.2% EBITDA/Interest expense 6.1x 6.7x 7.8x 7.4x 8.1x 7.9x 6.8x EBITDA Margin 11.8% 12.0% 13.0% 12.6% 12.3% 12.2% 12.1%
Capitalization 9/30/2011 9/30/2011 Comps Leverage EBITDA Coverage Agency Ratings Description Size EBITDA Liquidity Bombardier 2.9x 11.9x Ba2/BB+ Revolvers 0 Northrop Grumman1 1.0x 16.8x Baa2/BBB LLL 5.2% of 2019 1,000 Revolver (mat. Oct. 2012) 1,000 Lockheed Martin 1.5x 13.4x Baa1/A- LLL 4.75% of 2020 800 Letters of Credit (10) Raytheon 1.1x 20.4x A3/A- LLL 4.95% of 2021 650 Borrowings 0 1 NOC ratings for Hold Co. Other Sr. Debt 500 Revolver Availability 990 Total Sr debt 2,950 1.6x LLL 6.375% subs of 2015 500 Cash+Available Revolver 1,528 3% CODES of 2035 689 Unamortized discount (13) Total Sub debt 1,176 Total debt (on bal sheet) 4,126 2.2x NPV of oper. leases 574 Total adj. debt 4,700 2.3x
Market Cap 7,089 3.8x Enterprise Value 10,677 5.7x Enterprise Value (op. lease adj.) 11,251 5.8x
Maturities:
800 700 600 500 400
($, mn) ($, 300 200 100 0 2012* 2013 2014 2015**
*2012 debt maturity reflects $700mn in CODES 2015 debt that is puttable anytime after 2/1/2011 **2015 debt maturity reflects 6.375% subs of 2015 which are currently callable
Goldman Sachs Credit Research 105 January 26, 2012 High Yield
Las Vegas Sands Corp. (LVS) Updated 1/23/12 Kevin Coyne (212) 257-9918 Contact analyst for updates and other information. Celeste Everett (212) 902-4751 NOT COVERED Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $189 6.375 Sr Sec Nts 15-Feb-15 Ba2/BB 101.063 current 101.00 5.37 505 487
Company Description Company Strengths: Las Vegas Sands Corp. (LVS) is a hotel, gaming, and resort development company headquartered in Las Vegas. - Bonds are secured and rank pari passu with $3 bn credit LVS owns The Venetian Resort Hotel Casino, the Sands Expo and Convention Center, and Venetian Macao agreement, which has first-lien security interest in substantially all Limited, which is a developer of multiple casino hotel resort properties in The People’s Republic of China’s Special of Las Vegas Sands LLC and the guarantors' assets. Administrative Region of Macao. Macao properties include the Sands Macao and the Venetian Macao. In April - Strong support from majority owner: CEO Adelson is well known 2010, LVS opened Marina Bay Sands, a $6 billion casino resort in Singapore. The majority owner is Sheldon in the gaming industry and continues to support the company. Adelson, who controls 44% of the voting stock, according to Bloomberg. - Secured $1.75 bn in project finance for development of its resort on the Cotai Strip in Macau. Key Dates/Catalysts: - LVS expects recovery of group bookings throughout 2010. - May 2010: Management stated that every $10 of additional - 1Q2011: Told Las Vegas Review-Journal that LVS could invest $1-2 billion in Florida to build five Las Vegas-style casinos, including one in Miami. ADR translates to $20-25 mn of incremental EBITDA in Las Vegas. - September 2011: Macau subsidiary entered into a new US$3.7 billion credit facility. - November 15, 2011: LVS to redeem all of 10% cumulative preferred stock. LVS expects to save $76 million in - Strong operating performance from its Macau and Singapore annual dividend payments subsidiaries. - December 2011: CEO Adelson tells the Las Vegas Review-Journal that he is opposed to online poker. - According to the company, of the $2 billion of cash held by - December 2011: Plans to build $2 billion tourism complex in Vietnam unrestricted foreign subsidiaries, $1.15 billion is "available to be repatriated to the US with virtually no tax consequences due to the company's significant foreign taxes paid."
Company Risks: - Small bond issue size. - Las Vegas Strip recovery proceeding slowly. Management believes competitive pressure is keeping convention & group booking rates flat year over year. - Covenant concerns in 2010 as maintenance covenants step Financial Profile ($mm) 4Q10A FY10A 1Q11A 2Q11A 3Q11A down in both the US credit facility and the Macau credit facility; US Properties only (excludes Macao and Singapore) management expects to use equity cures and excess cash to remain in compliance. Net revenue$ 394 $ 1,505 $ 396 $ 430 $ 454 Adjusted EBITDA 100 369 87 114 120 Consolidated Las Vegas Sands (includes Macao and Singapore) Net revenue$ 2,015 $ 6,853 $ 2,112 $ 2,345 $ 2,409 Adjusted EBITDA 698 2,078 695 849 860 Interest paid, net of cap int. 32 237 81 68 54 Cash taxes paid (refund) 1 1 (6) 0 0 CapEx 374 2,024 333 388 367 Free Cash Flow 291 (185) 287 393 439 Comps Leverage Coverage Ratings MGM (senior) 9.2x 1.7x B3/B- Total Debt 10,141 10,141 10,103 10,059 9,739 WYNN (consolidated) 1.9x 6.6x Ba2 / BBB- Cash (unrestricted) 3,037 3,037 3,134 3,479 3,952 HET (sr unsecured) 12.8x 0.9x Ca/CCC Net Debt 7,104 7,104 6,969 6,580 5,788 Key Credit Statistics US credit agreement covenants (effective date) Total Debt / Adj EBITDA 4.9x 4.9x 4.1x 3.5x 3.1x 4Q11 1Q12 3Q12 4Q12+ Net Debt / Adj EBITDA 3.4x 3.4x 2.9x 2.3x 1.9x Leverage 6.00x 5.50x 5.00x 5.00x LVS can cure covenant breach with $50mn of cash per quarter Adj EBITDA / Interest 8.8x 8.8x 9.9x 11.3x 13.2x Adj EBITDA margin 34.6% 30.3% 32.9% 36.2% 35.7%
Debt to Description 3Q11A EBITDA Liquidity 3Q11A Enterprise Value (Consolidated) Corporate and US-related: Revolver due May 2012/2014 750 Shares O/S (mm) 732.7 Sr sec credit facility - Term B & Del Draw 2,856 Letters of Credit 25 Stock price$ 49.74 Sr sec credit facility - Revolver - Borrowings - Market cap 36,445 6.375% senior notes due Feb 2015 189 Revolver Availability (US) 725 Net debt 5,788 Airplane financings 76 Preferred stock 680 FF&E credit facility 25 Macau revolver 1,000 Minority interest 1,496 Total Corporate & US Debt 3,146 Singapore availability 79 Restricted cash 184 Total Macao-related corporate debt 2,915 Enterprise value (EV) 44,225 Total Singapore-related debt 3,678 Cash & S/T invest. 3,952 Total Consolidated Debt 9,739 3.1x Total Liquidity 5,756 EV / EBITDA 14.3x LTM EBITDA 3,102
Note: Leverage excludes benefit of equity cure, and capital contribution, etc. Maturities:
4,500 4,165 4,000 3,268 3,500 3,000 2,500 2,000 1,322 1,500 1,000 455 529 500 - 2012 2013 2014 2015 2016
Goldman Sachs Credit Research 106 January 26, 2012 High Yield
Leap Wireless International, Inc. (LEAP) Updated 1/20/12 Jason Kim 212-902-2233 Contact analyst or see latest research for updates to ratings, estimates, and other information. Satya Tagat 212-902-4427 OUTPERFORM/IN-LINE We rate the LEAP secured 2016s Outperform owing to their strong asset coverage through the bonds, including LEAP's spectrum ownership. We rate the LEAP unsecured 2020s In-Line given intense competition in the prepaid wireless market and the still-challenging macro environment. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,100 7.750 Sr Sec Nts 15-May-16 Ba2/B+ 105.813 15-May-12 106.00 5.72 335 $1,600 7.750 Sr Nts 15-Oct-20 B3/CCC+ 103.875 15-Oct-15 96.00 8.40 647
Company Description Investment Strengths: (1) Positioned to benefit from proliferation of lower priced Leap Wireless International, under its “Cricket” brand, offers wireless voice and data service in the US. Its smartphones as a low-cost, value-driven operator. offerings provide unlimited nationwide services for a flat rate without a contract or a credit check. As of September 30, 2011, LEAP offered its Cricket service in 47 states and the District of Columbia and had over 5.7 (2) Potential to participate in M&A as a possible candidate for higher million subscribers. The company’s network footprint in its operating markets covered approximately 95.3 million quality strategic players. POPs. (3) Solid liquidity: We expect LEAP to end 20111 with $655 mn of Key Dates/Catalysts: liquidity. The company also has no meaningful maturities until 2014. February 2012: 4Q2011 earnings. Investment Risks: Margin impact from MVNO agreement: LEAP's MVNO agreement with Sprint will become a bigger factor in (1) Fierce competition from national postpaid carriers as well as overall margins as LEAP adds more out-of-market subscribers. other prepaid brands like Boost (from Sprint) and Straight Talk (from America Movil's TracFone and Wal-Mart). A further deterioration in competitive dynamics would pressure LEAP's ARPU and subscriber metrics.
(2) Macro pressure: LEAP's subscriber base tends toward consumers with less discretionary income; therefore, weak economic conditions and high gas/food prices have a disproportionately large impact on their spending. Financial Profile FY09A FY10A 2Q11A 3Q11A 4Q11E FY11E Subscribers ('000s) 4,954 5,518 5,746 5,755 5,930 5,930 (3) Lack of spectrum depth: LEAP has an average of 20MHz of spectrum across its footprint, which is significantly less than that of ARPU $40.31 $37.76 $40.15 $41.25 $41.89 $40.86 its larger competitors. Churn 4.5% 4.7% 4.2% 3.8% 3.8% 3.7% CPGA $196 $199 $251 $238 $225 $224 CPU $18.27 $19.22 $21.83 $23.09 $23.30 $22.92
Revenue $2,410 $2,697 $761 $763 $820 $3,124 EBITDA 486 525 161 154 137 564 Free Cash Flow (415) (87) (64) 63 (136) (157) Agency Total Debt $2,768 $2,896 $3,280 $3,280 $3,272 $3,272 Comps Leverage Coverage Ratings Cash 564 419 724 800 655 655 Net Debt 2,204 2,476 2,556 2,480 2,617 2,617 MetroPCS 3.7x 5.0x B2/B Key Credit Statistics Sprint 3.3x 4.0x B3/B+ Total Debt/EBITDA 5.7x 5.5x 6.5x 6.1x 5.8x 5.8x Net Debt/EBITDA 4.5x 4.7x 5.1x 4.6x 4.6x 4.6x
EBITDA Margin 20.1% 19.5% 21.1% 20.2% 16.7% 18.1%
Capitalization Debt / Description Size EBITDA Liquidity 1st Lien Promissory Note due 2015 $30 Revolver Size $0 7.75% Sr Secured Nts due 2016 1,100 Letters of Credit - Total Secured Debt $1,130 2.1x Borrowings - 10.000% Sr Nts due 2015 300 Revolver Availability $0 7.750% Sr Nts due 2020 1,600 Total Opco Debt $3,030 5.7x Cash $800 4.5% Holdco Convertible Nts due 2014 250 Total Liquidity $800 Total LEAP Debt $3,280 6.1x
Net Debt $2,480 4.6x Market Cap 544 Enterprise Value 3,024 5.7x
Maturities:
3,000 2,709
2,500
2,000
1,500
1,000
500 255 300 99 0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 107 January 26, 2012 High Yield
Lennar Corp. (LEN) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 OUTPERFORM We rate the Lennar 6.95% senior unsecured notes of 2018 Outperform. In our view, Lennar bonds look cheap at current spread levels, as they trade wide to peers despite similar or even lower leverage. We believe that Lennar's performance will outpace that of most other builders over the next several quarters, leading to stronger credti metrics and even more favorable relative value comparisons.
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp OP 250 6.95 Sr. Nts 1-Jun-18 B3/B+ MW 102.00 6.56% 539
Company Description Investment Strengths: Lennar Corp. is the second-largest builder in the United States based on market cap and the third-largest builder based on - Broad geographic footprint. LTM closings. The company sells single-family attached and detached homes under the Lennar brand name. It primarily - Ample liquidity. targets first-time buyers, followed by move-up and active adult buyers. Lennar also operates a business that invests in - High margins due to product re-engineering and cost distressed real estate assets, Rialto Investments reductions. - Financially savvy management team - Rialto provides access to attractive distressed land Key Dates/Catalysts: deals. 1QFY12 earning release Possible reversal of the company's deferred tax valuation allowance. Investment Risks: - Rialto could cause company to divert capital away from core homebuilding operations. - Leverage remains relatively high.
Financial Profile ($, mn)* FY:09 FY:10 FY:11E 4Q:10 3Q:11 4Q:11E Total Revenues 3,119 3,074 3,095 860 820 953 Total Adjusted EBITDA 10 261 217 75 76 79
Interest Expense (172) (182) (201) (45) (51) (50) Debt-to- Inventory- Cash Taxes 314 26 9 4 2 - Comps Cap to-Debt Ratings Capital Expenditures 0 (5) (3) (4) (2) - Lennar 55% 1.2x B3/B+ Free Cash Flow 342 150 (208) 41 (145) 49 Ryland 64% 0.9x B1/BB-
Total Homebuilding Debt 2,956 3,242 3,464 3,242 3,227 3,464 Total Cash and Cash Equivalents 1,467 1,402 1,222 1,402 936 1,222 Key Credit Statistics Homebuilding Debt / Capitalization 55% 55% 56% 55% 55% 56% Net Homebuilding Debt / Capitalization (3) 38% 41% 45% 41% 46% 45%
Inventories / Homebuilding Debt (2) 1.2x 1.1x NA 1.1x 1.2x #VALUE! Homebuilding Gross Margin (1) 18% 24% 24% 24% 25% 24%
PF Capitalization ($, mn)
Description Size Liquidity 5.95% senior notes 113 Homebuilding Cash 800 5.95% senior notes 267 Financial Services Cash 57 5.5% senior notes 249 Rialto Cash 70 5.6% senior notes 501 Restricted Cash 9 6.5% senior notes 250 Total Liquidity 936 12.25% senior notes 394 6.95% senior notes 248 2% convertible senior notes 277 2.75% convertible senior notes 385 Maturities: Mortgage notes on land and other debt 445
Total Senior 3,128 600 Mortgage Warehouse Repurchase Facility 189 500 Total Balance Sheet Debt 3,317 Joint Venture Recourse Debt & Guarantees 99 400 Total Debt Outstanding 3,416 300
200 Minority Interest 610 Share Price 22.2 100 Market Capitalization 4,323 0 ENTERPRISE VALUE 7,413 2011 2012 2013 2014 2015
Goldman Sachs Credit Research 108 January 26, 2012 High Yield
Levi Strauss & Co. (LEVI) Updated 1/23/2012 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751 OUTPERFORM: We expect continued benefits from exposure to fast-growing countries in Asia and from new innovative products like the new line of Curve ID fitted jeans and the lower-cost Denizen brand. While we recognize that we may be a little early with this call due to near-term margin pressure, we think long-term investors may find this entry point attractive. Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-Spread 5-yr (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp CDS (pts) $524 7.625 Sr Notes 15-May-20 B2/B+ 103.813 15-May-15 104.500 6.732 547 543 3+500
Company Description Investment Strengths: Levi Strauss designs and markets jeans and jeans-related pants, casual and dress pants, tops, jackets, and related - Iconic, worldwide jeans brand. The company has been making blue accessories for men, women, and children under the Levi’s, Dockers, and Levi Strauss Signature brands in markets jeans for over 150 years in the US. around the world. Products are distributed primarily through chain retailers and department stores in the United - Jeans are viewed as more of a consumer staple, so they carry less States, and mainly through department stores, specialty retailers, and franchised stores abroad. Levi Strauss also fashion risk than other garments. distributes Levi’s, Dockers, and Levi Strauss Signature products through 498 company-operated retail stores in 31 - Diversified distribution, with roughly 43% of LTM sales generated countries, including the United States. Levi Strauss's common stock is majority owned by the Haas family, outside North America as of 2Q2011. Derives sales from over descendants of its founder, Levi Strauss. 55,000 retail locations in 110 countries. - Strong performance in emerging markets, particularly India and Key Dates/Catalysts: China. - 2011 Guidance: Expect gross margins in the "high 40's to low 50's." Expecting capex of $145 million. - New design concepts are improving consumer experience: "Curve - October 2011: Refinanced its asset-based revolving loan and increased capacity by $100 million to $850 million. ID" allows women to select jeans not just by cut, rise, waist size, and The new facility matures September 30, 2016, and carries interest of L+150-275 bp, depending on borrowing base length, but also by body shape, and its Denizen brand is a more availability. affordable jean for sale in low-cost geographies in Asia (and was introduced to the US this past July). - No near-term maturities and solid liquidity position.
Investment Risks: - Highly competitive marketplace, including private-label brands of leading retailers, designer brands, and large apparel companies such as VF and Polo. - Highly exposed to cotton prices. Management stated on its 2Q11 conference call that it expects "the higher cost of cotton [to] continue Financial Profile 2010 1Q11 2Q11 3Q11 4Q11E 2011E to negatively impact margins and working capital through the Revenue 4,411 1,121 1,093 1,204 1,341 4,758 remainder of 2011." LEVI may be able to pass on part of the costs through higher pricing. EBITDA 493 127 94 111 137 469 - Sizable pension ($332 mn) and post-retirement liabilities ($141 mn). Interest Expense 136 35 34 30 35 134 - Dividend frequency steadily increasing: made a $20 million dividend payment in 1Q11, its second $20 million dividend in the Cash Taxes 861910142366trailing-12-month period. CapEx 155 40 35 30 47 153 Free Cash Flow 116 33 15 37 32 117
Agency Total Debt 1,867 1,879 1,900 1,990 1,987 1,987 LTM Comps Leverage Coverage Ratings Cash 274 258 262 238 309 309 LEVI 8.875s 4.2x 3.7x B2/B+ Net Debt 1,593 1,621 1,638 1,752 1,678 1,678 HBI 6.375s 3.9x 4.6x B1/BB- Key Credit Statistics JAH 7.5s 4.1x 4.2x B2/B Total Debt/EBITDA 3.8x 3.9x 3.9x 4.2x 4.2x 4.2x ZQK 6.875s 3.7x 2.7x Caa1/CCC+ Net Debt/EBITDA 3.2x 3.3x 3.4x 3.7x 3.6x 3.6x
EBITDA/Interest 3.6x 3.7x 2.8x 3.7x 3.9x 3.5x EBITDA margin 11% 11% 9% 9% 10% 10% Note: Fiscal year ends the last Sunday in November.
Capitalization Debt to LTM Description 3Q11 EBITDA Liquidity 3Q11 ABL facility due Sep 2016 (L+150) 108 Revolver Size 850 Total Secured 108 0.2x Letters of Credit 84 Senior unsecured term loan due Apr 2014 324 Borrowings 108 8.875% senior notes due Nov 2016 350 Covenant limitations 321 4.25% senior notes due Nov 2016 (¥20 bn) 118 Revolver Availability 337 7.75% senior notes due May 2018 (€300 mn) 431 7.625% senior notes due 2020 525 Cash 238 Other, including capital leases 134 Total debt 1,990 4.2x Total liquidity 575
Operating statistics 4Q10 1Q11 2Q11 3Q11 Maturities: Revenue: Americas 772 592 599 718 2,000 Europe 300 312 281 275 Asia Pacific 218 217 213 211 1,500 Total revenue 1,290 1,121 1,093 1,204 Operating income: 1,000 Americas 139 75 83 111 Europe 31 71 38 31 500 Asia Pacific 23 37 25 26 - Corporate (74) (85) (81) (88) 2012 2013 2014 2015 2016+ Total operating income 119 99 65 81
Goldman Sachs Credit Research 109 January 26, 2012 High Yield
Liberty Interactive (LINTA/QVC) Updated 1/20/12 Jason Kim 212-902-2233 Contact analyst or see latest research for updates to ratings, estimates, and other information. Satya Tagat 212-902-4427 QVC 7.375s of 2020: OUTPERFORM; LIBERT 8.25s of 2030: In-Line. QVC: We believe the QVC 2020s offer value as crossover bonds as they trade wide to similarly rated retail names despite QVC's superior margins, a proven track track record of sales, and record of sales trends that have outperformed peers in good times and bad. Liberty Interactive LLC: We find the relationship between the QVC 2020s and the LIBERT 2030s fair at current levels. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Issuing Entity / Priority Maturity Ratings Price Date Price (%) bp $500 7.375 QVC Sr Sec Nts 10/15/2020 Ba2/BBB- 103.688 4/15/2015 109.42 5.21 463 $504 8.250 LI LLC Sr Debs * 2/1/2030 B3/BB NC NC 98.00 8.47 597 * LI LLC = Liberty Interactive LLC. Investment Strengths: Company Description (1) Strong operational fundamentals: QVC's efficient business Liberty Media is a holding company that is primarily engaged in the video and online commerce, media, model allows for superior margins compared with those of its retail communications, and entertainment industries in North America, Europe, and Asia. Following the split-off peers. In addition, QVC has proven to be more resilient during the transaction of the Liberty Starz and Liberty Capital tracking stock groups in September 2011, Liberty Media economic downturn in terms of its top-line trends. essentially reflects the Liberty Interactive (LINTA) tracking stock group. LINTA's main businesses are video and online commerce through its main operating unit QVC and various e-commerce businesses. LINTA also holds (2) Good liquidity/maturity profile: QVC has no debt maturities until several equity stakes in other companies. 2015, and Liberty's maturities are also very manageable.
Key Dates/Catalysts: Investment Risks: February 2012: 4Q2011 earnings. (1) Mature markets: QVC's existing markets are becoming increasingly mature, and incremental growth is tougher to achieve. The company is increasingly dependent on new markets for growth, which exposes it to execution risk.
(2) Financially aggressive management team: Liberty's chairman, John Malone, has a long history of using leverage to enhance equity returns.
(3) Acquisitions: We expect Liberty to remain active in acquiring e- commerce or other related businesses.
Financial Profile FY09A FY10A 2Q11A 3Q11A 4Q11E FY11E QVC Revenue $7,374 $7,813 $1,898 $1,886 $2,654 $8,273 QVC Adj. EBITDA $1,565 $1,671 $418 $373 $547 $1,701 QVC EBITDA Margin 21.2% 21.4% 22.0% 19.8% 20.6% 20.6%
LINTA Revenue $8,305 $8,938 $2,245 $2,133 $3,073 $9,610 Agency LINTA Adj. EBITDA $1,654 $1,752 $450 $377 $606 $1,811 Comps Leverage Coverage Ratings LINTA EBITDA Margin 19.9% 19.6% 20.0% 17.7% 19.7% 18.8% HSN Inc. 1.2x 7.0x Ba2/BB Key Credit Statistics Macy's 2.0x 7.5x Baa3/BBB- QVC Debt/QVC EBITDA 2.6x 1.7x 1.6x 1.5x 1.4x 1.4x JC Penney 2.3x 5.8x Ba1/BB+ LINTA Debt/LINTA EBITDA 3.8x 3.4x 3.9x 3.7x 3.7x 3.7x Limited Brands 2.1x 8.3x Ba2/BB+
Capitalization Debt to Description Size EBITDA Liquidity QVC Revolver ($2.0 bn Facility) 459 Revolver Size $2,000 QVC Sr Sec Nts 2,000 Letters of Credit - Total QVC Secured Debt 2,459 1.5x Borrowings (459) LI LLC Debt $4,067 Revolver Availability $1,541 Other Debt 85 Total Debt $6,611 3.7x Cash: Net Debt $5,715 Attributed to LINTA $896 Market Cap (LINTA) $8,797 Total LINTA Liquidity $2,437 Enterprise Value $14,512 8.2x Maturities:
$8,000
$5,843 $6,000
$4,000
$2,000
$0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 110 January 26, 2012 High Yield
LifePoint Hospitals (LPNT) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 IN-LINE We rate LPNT In-Line. We like its exclusively rural asset base, which (1) contributes to high EBITDA margins (15%-16%) as a result of stronger managed care pricing and greater outpatient businesses and (2) results in high FCF (13% of debt) due to more modest capex requirements. However, we now see these factors as priced in. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $400 6.625 Sr 1-Oct-20 Ba1/BB- 103.313 10/1/2015 $104.250 5.844% 505
Mid-sized hospital operator with 52 hospitals almost exclusively located in rural areas and concentrated in Tennessee, Investment Strengths: Kentucky, Alabama, Louisiana, and West Virginia. The LPNT hospitals are the sole provider in 46 of 52 markets. LPNT - Lowest leverage of the hospital peer group. LTM was spun out from HCA in 1999. LPNT has higher-than-average EBITDA margins owing to favorable pricing from leverage of 3.1x. managed care due to its low-competition markets. - Rural asset base provides less competition for doctors LPNT acquired the four-hospital Sumner Regional Health System in September 2010 for $145 million and Clark and patients, and contributes to higher margins. Regional in May 2010. Proceeds of the $400 million September 2010 bond issue were used to refinance the $250 million term loan and for general corporate purposes. Investment Risks: In 3Q11, LPNT announced three acquisitions with its Duke partner that together represents $180 mn of revenue. In - Medicare and Medicaid reimbursement could be January 2012, LPNT announced a new JV with Duke in Virginia. LPNT stated that its acquisition pipeline remains reduced. active, and it continues to work on a number of potential arrangements similar to the Duke/LPNT partnership. - Shareholder friendly: In September 2011, LPNT Key Dates/Catalysts: announced a $250 mn share repurchase program. - Quarterly earnings announcements (commercial volumes have been weak industry-wide, although bad debt expense has been relatively stable). - Acquisitive: LPNT has commented that it is still - Potential acquisitions or partnerships based on management comments. aggressively looking for acquisitions, but will be a - Election results (November 2012) and potential Supreme Court decision on the constitutionality of the individual disciplined buyer in locations where there is better mandate could determine the fate of the Affordable Care Act (ACA). We view the ACA as a net positive for hospitals. volume growth, a diversified employer base, and payer mix.
- Volumes have been weak across the industry and are Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E expected to remain so for the near term. Revenue $2,963 $3,262 $3,546 $853 $877 $903 EBITDA 467 497 534 123 127 130
Interest Expense $103 $108 $106 $31 $24 $25 Cash Taxes 80 82 101 17 23 25 CapEx 167 169 219 47 49 65 Free Cash Flow 17 37 (26) 0 11 (37) Agency Comps Leverage Coverage Ratings Total Debt $1,502 $1,652 $1,651 $1,652 $1,651 $1,651 LPNT 1.6x NA Ba1/BB- Cash 187 207 227 207 199 227 HMA 1st Lien 3.0x NA --/BB- Net Debt 1,315 1,444 1,424 1,444 1,452 1,423 UHS uns 3.2x 0.2x B1/B+ HCA 1st ln 2.8x NA Ba3/BB Key Credit Statistics HCA sr uns 4.2x NA B3/B- Total Debt/EBITDA 3.2x 3.3x 3.1x Net Debt/EBITDA 2.8x 2.9x 2.7x
EBITDA/Interest 4.5x 4.6x 5.0x 4.0x 5.2x 5.3x EBITDA margin 15.8% 15.2% 15.1% 14.5% 14.4% 14.4%
Capitalization Debt to Debt to LTM 2011E Description Size EBITDA EBITDA Liquidity Revolver 0 Revolver Size $350 Term Loan B due 2015 444 Letters of Credit 31 Total Sr Sec debt 444 0.8x 0.8x Borrowings 0 Revolver Availability 319 6.625% Sr Notes due 2020 400 Total Sr debt 400 1.6x 1.6x Cash $199 Total Liquidity 518 3.5% Conv Sub Notes due 2014 575 3.25% Conv Sub Notes due 2025 225 Total Sub debt 800 3.1x 3.1x
Capital Leases 7 Total Debt $1,651 3.1x 3.1x Market Cap 1,935 Enterprise Value $3,059 5.8x 5.7x
Maturities:
1200
1000 800
600 400
200 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 111 January 26, 2012 High Yield
Limited Brands, Inc. (LTD) Updated 1/25/2012 Gregory Chwatko 212-902-0673 Contact analyst or see latest research for updates to ratings, estimates, and other information. Annalee Bloomfield 212-902-8028 UNDERPERFORM
Bond Summary Size Coupon Agency UST Z Spread 5 Yr Ticker (MM) (%) Maturity Ratings Price Spread (bp) CDS LTD $1,000 6.63 01-Apr-21 Ba2/BB+/BB+ $109 344 357 185/195 LTD $300 7.60 15-Jul-37 Ba2/BB+/BB+ $100 450 513 185/195
Company Description Investment Strengths: Limited Brands is a specialty retailer of women’s intimate apparel and other apparel as well as beauty and personal care products - The company holds a leading market position in and accessories under various trade names. The company sells its merchandise through its retail stores in the United States and intimate apparel and personal care products. Canada, which are primarily mall based, and through its web sites and catalogues. Limited Brands conducts its business in two - Revenue benefits from geographic diversification primary segments: Victoria’s Secret and Bath & Body Works. - Improved same-store sales trends. - Next debt maturity is not until December 2012, in the amount of $58 million outstanding.
Key Dates/Catalysts: Earnings announcements Investment Risks: Share repurchases and special dividend announcements - Challenging consumer conditions and competition affect profitability. - Shareholder focus remains, as illustrated by the special dividends and share repurchases announced in March and November 2010. - Management has stated that returning to IG status is not a priority for the company. Financial Profile FY09 FY10 FY11E 4Q10A 4Q11E Revenue 8,632 9,613 10,358 3,456 3,509 EBITDA 1,219 1,642 1,748 807 887 Operating Income 862 1,283 1,384 714 787 Interest Expense (net) 237 208 247 48 64
Operating Cash Flow 1,193 1,284 1,209 1,203 1,116 CapEx (202) (274) (388) (77) (50) Dividends (193) (1,488) (528) (1,017) (37) Free Cash Flow 798 (478) 293 109 1,029
Adjusted Total Debt 2,723 2,507 3,536 2,507 3,536 Comps Leverage Coverage Agency Ratings Cash 1,804 1,130 1,787 1,130 1,787 Net Debt (Cash) 919 1,376 1,749 1,376 1,749 JCP 3.3x 5.8x Ba1/BB+/BBB- Key Credit Statistics M 2.4x 7.5x Baa3/BBB-/BBB- Total Debt/EBITDA 2.2x 1.5x 2.0x 1.5x 2.0x RSH 4.5x 7.2x Ba3/BB-/B+ Adjusted Debt/EBITDAR 3.9x 3.1x 3.3x 3.1x 3.3x Net Debt/EBITDA 0.8x 0.8x 1.0x 0.8x 1.0x EBITDA/Interest 5.1x 7.9x 7.1x 16.7x 13.9x EBITDA margin 14.1% 17.1% 16.9% 23.3% 25.3%
Capitalization Debt to Description Size EBITDA Liquidity Revolver Size 1,000 Term Loan due August 2012 0 Letters of credit 32 6.125% Notes due December 2012 58 Borrowings 0 5.25% Notes due November 2014 221 Revolver availability 968 6.9% Notes due July 2017 721 8.5% Senior unsecured Notes due June 2019 487 7% senior guaranteed notes due May 2020 400 Cash 498 6.625% senior guaranteed notes due April 2021 1,000 Total Liquidity 1,466 6.95% Debentures due March 2033 350 7.6% Note due July 2037 299 Credit facility due July 2016 0 Total Debt 3,536 2.1x Market Cap 12,242 Enterprise Value 15,281
Maturities:
$3,500
$3,000 $2,500
$2,000
$1,500 $1,000 $500 $0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 112 January 26, 2012 High Yield
Liz Claiborne (LIZ) Updated 01/23/12 Kevin Coyne 212-357-9918 Contact analyst for updates and other information. Celeste Everett 212-902-4751 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-Spread 5-yr (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp CDS $220 10.50% Sr Sec 15-Apr-19 B2/B- $105.250 15-Apr-14 108.000 8.556 825 794 405 € 222 5.000% Sr Notes 08-Jul-13 Caa1/CCC MW T+15 96.625 7.536 739 632 405
Company Description Company Strengths: - Well recognized global brand names. Liz Claiborne (LIZ) owns recognizable apparel brands such asWellington Juicy Couture, Mgmt. Lucky (10%), jeans, and kate spade. LIZ sells its - Management making decisions to streamline operations apparel and other branded merchandise through a combination of specialty stores, department stores, outlet stores. - Strong brand recognition and growth profile for kate spade. Approx. 34% of 2010 sales were in international markets. According to Bloomberg, significant equity holders include - Good geographic diversification (34% of 2010 sales were Whitebox Advisors (9%), Wellington Mgmt. (9%), Tremblant Capital (8%), Invesco (8%), BONY (8%), Tiger Consumer international). Mgmt (7%), Alyeska Investments (7%), Vanguard (6%), and Brigade Capital (5%). - Management focused on reducing debt. - Lucky Brand revenue rebounding in 2011. Key Dates/Catalysts: - October 12, 2011: Enters into agreement to sell its Liz Claiborne, Monet, and Kensie brands, and completed sale of Dana Buchman brand for total proceeds of$328 mn ($308 mn in cash). According to the company, sale proceeds represent approximately 8x 2011 forecasted EBITDA. Company Risks: - January 2012: Announced name change to Fifth & Pacific; new ticker will be FNP, effective May 2012. - Rising input costs (cotton). - January 2012: Provided SSS data for November and December. In light of some margin pressure in Juicy Couture, - Fashion trend risk as certain brands like Juicy Couture and Lucky 4Q2012 EBITDA expected to come in at low end of previously released range of $80-90 mn. LIZ lowered its 2012 Brand lose momentum in the marketplace. EBITDA guidance to $125-140 mn from $130-150 mn due to LIZ now expects net debt at the end of 4Q12 to be $265- - Significant leverage 270 mn (down from $270-290 mn), which based on the midpoint of 2012 EBITDA guidance equates to net leverage of 2.0x. In other news, LIZ CFO Andrew Warren resigned and is going to become CFO of Discovery Communications.
Financial Profile 3Q10 4Q10 2010 1Q11 2Q11 3Q11 Revenue 437 704 2,500 513 556 398 EBITDA 31 39 50 (13) 6 40
Interest Expense 11 13 59 13 17 16 Cash Taxes 1 2 8 (1) 4 3 CapEx 20297716394 Free Cash Flow (1) (5) (95) (40) (55) 17
Total Debt 737 578 578 714 769 748 Agency Cash 16 23 23 16 27 12 LTM Comps Leverage Coverage Ratings Net Debt 720 555 555 698 742 736 LIZ NM 2.5x Caa1/CCC Key Credit Statistics LEVI 4.2x 3.7x B2/B+ Total Debt/EBITDA 11.6x 14.6x 12.1x nm HBI 3.9x 4.6x B1/BB- Net Debt/EBITDA 11.1x 14.2x 11.7x nm ZQK 3.7x 2.7x Caa1/CCC+ JNY 3.8x 4.5x Ba3/B+ EBITDA/Interest 2.7x 3.0x 0.8x -1.0x 0.3x 2.5x EBITDA margin 7.2% 5.5% 2.0% -2.5% 1.1% 10.0% NM - Not meaningful Capitalization Debt to LTM Description 3Q11 (b) EBITDA Liquidity Enterprise value (EV) Senior secured revolver due August 2014 189 ABL Size 350 Shares O/S (mm) 94.6 Capital lease obligations 10 Letters of Credit 34 Stock price$ 9.59 Total first lien debt 199 Borrowings 189 Market cap 907.2 10.5% senior secured notes due April 2019 220 Less: borrowing base Net debt 780.6 Total senior secured debt 419 limitations 0 Enterprise value (EV) 1,687.8 5% Euro notes due July 2013 296 Revolver Availability 127 6% convertible sr nts due June 2014 (a) 77 Less: minimum required EV/ LTM EBITDA 23.6x Other - availability 45 Total debt 792 nm Net revolver available 82
Note: If Euro notes are not refinanced by July 2013, the credit facility maturity date is accelerated to July 2013. (a) If stock trades above $4.29 for 20 of a 30 day period, the converts Cash 12 can be converted and redeemed for stock and/or cash. During 2Q11 and 3Q11, the security met the test and is convertible. Total Liquidity $93 (b) Excludes impact of the sale of Liz Claiborne and other brands. LIZ is required to maintain $45 mn Maturities: of availability on its revolver $350 Monthly same store sales by brand (yoy % change) $300 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 $250 kate spade 65% 54% 114% 54% 81% 39% $200 Lucky Brand 10% 13% 24% 23% 16% 21% Juicy Couture -8% -11% -5% -13% -7% -5% $150
$100
$50
$0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 113 January 26, 2012 High Yield
Louisiana-Pacific Corporation (LPX) Updated 1/23/12 Joe Stivaletti (212) 902-3299 Contact analyst or see latest research for updates to ratings, estimates, and other information. James Kitchell (212) 902-9813 UNDERPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) $244 13.000 Sr Sec Nts 15-Mar-17 Ba3/BBB- 106.500 15-Mar-13 98.000 4.871 475
Company Description Louisiana-Pacific (LPX) manufactures building products and is the world's largest producer of oriented strand board (OSB). Investment Strengths: The company has approximately 3,800 employees and owns facilities in North and South America. Louisiana-Pacific's - Leading North American OSB producer: LPX is the largest North products are primarily used in the construction of new and manufactured homes, and for repair and remodeling work. American OSB producer. - Well positioned for recovery in new home construction: LPX operates relatively low-cost OSB facilities across North and South America, which puts the company in a good position to benefit from a recovery in new home construction.
Investment Risks: - EBITDA is likely to remain weak until the housing market recovers: LPX has generated weak EBITDA for many quarters, and profitability is unlikely to improve significantly until the housing market starts to recover.
Financial Profile 12/31/09 12/31/10 9/30/10 6/30/11 9/30/11 FY:09 FY:10 Q3:10 Q2:11 Q3:11 Revenue 1,055 1,384 323 362 351 EBITDA (54) 77 6 (2) 2
Interest expense 72 64 15 14 14 Capital expenditures 10 15 7 6 5
Total recourse debt 309 245 243 255 257 Total cash and investments 440 436 434 368 375 Net recourse cash / (debt) 131 191 191 114 118
Key Credit Statistics Total debt/EBITDA NM 3.2x 4.5x 20.2x 29.9x EBITDA/interest NM 1.2x 0.4x NM 0.1x Comps Leverage Coverage Ratings EBITDA margin NM 5.6% 1.9% NM 0.6% Georgia-Pac 2.1x 4.8x Baa3/A- NM = not meaningful
Capitalization 9/30/2011 Debt to Description Amount EBITDA 13.000% senior secured notes 188 21.9x Chilean term credit facility 40 29.9x Other debt 10 29.9x Recourse portion of limited recourse notes 19 29.9x Total recourse debt 257 Non-recourse debt 470 Total debt 727
Maturities:
300
250
200
150
100
50
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 114 January 26, 2012 High Yield
Marina District & Finance Company, Inc. (Borgata) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751 IN-LINE: We believe Borgata will be able to weather the recent competitive threat from Aqueduct Racetrack in Queens, NY. However, over the next six months, the BORGAT bonds will face the overhang of the new Revel Casino in Atlantic City. We think the next 6-12 months may create more attractive entry points for long-term investors.
Bond Summary Size Cpn Agency Next Call Bid YTW STW Z-spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $400 9.875 Sr Sec 15-Aug-18 B2/BB- 104.938 15-Aug-14 92.250 11.595 1,033 1,023
Company Description Investment Strengths: - Borgata is in our view the best property in Atlantic City as The Borgata Hotel Casino & Spa (Borgata, BORGAT) is an upscale destination resort with 2,000 guest rooms and a 161,000 square foot casino floor. The property sits on 46 acres and is located in Atlantic City, New it brought back the glamour and glitz of Las Vegas. It is the Jersey. Borgata was instituted as a 50/50 joint venture between Boyd Gaming Corporation (BYD) and MGM youngest property in Atlantic City at eight years old (most Resorts International (MGM). The property opened in 2003 with an initial investment of $1.1 billion and has properties were built in the late 1970s or early 1980s). since undergone two expansions that totaled $650 million of additional capital. Today, the property includes - Ability to attract more high-end customers, as evidenced 12 restaurants, two nightclubs, 11 boutique shops, a 54,000 square foot spa, meeting and event space with by ADR of $132 in 2010 versus $100 for the overall 88,000 square feet, and an entertainment venue with 2,400 seats. In March 2010, MGM transferred its Atlantic City market. For the trailing-12-months ending ownership interest into a divestiture trust to facilitate sale to a third party, and it has until March 2013 to sell August 31, 2011, its slot win/unit/day is 23% higher than the property before turning it over to the trustee to facilitate a sale in the following 12 months. the market average, and its table win/unit/day is 44% higher. Key Dates/Catalysts: - We expect the property to continue to generate positive - August 2011: Hurricane Irene caused all Atlantic City casinos to close for two days, reducing revenues by free cash flow through 2013 despite expected EBITDA approximately $10 mn and EBITDA by $6 mn, per BYD management. declines following the opening of Aqueduct in NY in 2011 - October 2011: Expected opening of Resorts World New York at Aqueduct Racetrack with 5,000 slots. and Revel in AC in 2012. - November 2011: Reduced its revolver capacity by one-half to $75 million and reduced its minimum LTM - Low maintenance capex requirements of $15 million per EBITDA maintenance covenant to $125 million from $150 million. year. Additional capex of $50 million is planned through - December 2011: Recorded 19% yoy growth in gaming revenue during the month. 1H2012 to renovate the 1,600 rooms in the original hotel - May 2012: Expected soft opening of Revel in Atlantic City with 150,000 square feet of gaming space. tower ahead of Revel's opening in May 2012. - Well-established property with a robust rewards database of 2.8 million customers. Financial Profile FY10A 1Q11A 2Q11A 3Q11A 4Q11E FY11E Net Revenue 738 169 183 202 177 731 Investment Risks: - Future additional supply in an already-weak market: Adjusted EBITDA 169 32 39 50 38 159 Revel expected to open by summer 2012 with 1,100 hotel rooms and 150,000 square feet of gaming space. Landry's Interest Expense 50 21 21 21 20 83 Inc. plans to invest $150 million in its recently re-branded Cash Taxes 4 (0) 0 0 0 0 Golden Nugget. Two additional boutique hotels have been authorized by New Jersey regulators (Hard Rock has CapEx 16 4 7 9 12 31 submitted plans for a $275 million facility, according to the Free Cash Flow 99 8 10 20 6 44 Associated Press.) - Pressure from neighboring states' gaming expansion: Total Debt 861 829 820 807 807 807 Resorts World New York is planning to open with 5,000 slots by the end of 2011; LVS opened a 300-room hotel Cash 42 24 21 32 39 39 tower at its Sands Bethlehem property in May 2011; two Net Debt 819 805 799 774 767 767 additional Category 3 facilities planned in PA. - Potential for future gaming expansion in neighboring Key Credit Statistics states: available license in PA from former group led by the Mashantucket Western Pequot Tribe. Total Debt/EBITDA 5.1x 5.1x 5.2x 5.2x 5.1x 5.1x - Limited room under the credit facility maintenance Net Debt/EBITDA 4.8x 4.9x 5.0x 5.0x 4.8x 4.8x covenant, although we believe lenders would be willing to amend the covenant under nominal terms in the event it is EBITDA/Interest 1.9x 2.5x 2.0x 1.8x 1.9x 1.9x violated. - Table hold has become more volatile since the addition EBITDA margin 22.9% 18.8% 21.2% 24.7% 21.7% 21.7% of Pennsylvania table games, placing pressure on earnings. - Elevated fuel prices could reduce visitation and spend per visit. Capitalization Liquidity - Non-standard redemption options that allow annual redemption for up to 10% of the principal amount outstanding at 103 for both the 9.5% and 9.875% senior Description 3Q11A Lvg Source 3Q11PF secureds. Sr secured revolver due Aug 2014 15 Total senior secured priority debt 15 0.1x Revolver due 2014 75 Comps Leverage Coverage Ratings 9.5% sr secured notes due Oct 2015 398 Letters of Credit & other - BORGAT 5.2x 1.8x B2/BB- 9.875% sr secured notes due Aug 2018 394 Borrowings 15 BYD sr 6.3x 2.0x B3/B Total debt 807 5.2x Revolver Availability 60 CCTRH 1st lien 7.7x 0.7x B1/B Other, including OID (23) HET 1st lien 7.1x 0.9x B3/B Total debt 784 5.1x Cash 32 Total Liquidity 92
Pro forma for the November 2011 Maturities: credit facility amendment. Credit facility maintenance covenants
500 Minimum LTM EBITDA $125 million
400
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100
0 2012 2013 2014 2015 2016 2017+
Goldman Sachs Credit Research 115 January 26, 2012 High Yield
McClatchy (MNI) Updated 1/23/2012 Scott Wipperman 212-357-9922 Contact analyst or see latest research for updates to ratings, estimates, and other information. Scott Marchakitus 212-902-9760 IN-LINE/UNDERPERFORM Our In-Line rating on the 11.5% of 2017 reflects our outlook for challenging fundamentals, which is partially offset by MNI's FCF generation, improved maturity profile, and opco gaurantees on the 11.5% of 2017. Our Underperform on the 5.75% of 2017 reflects fundamentals and valuation. Bond Summary Size Coupon Agency Next Call Bid YTW STW 5-year (MM) (%) Priority Maturity Ratings Price Date Price (%) bp CDS $336 5.750 Sr Unsec 1-Sep-17 Caa2/CCC 69.00 13.914% 1,314 $865 11.500 Sr Sec 15-Feb-17 B1/B+ 108.63 15-Feb-13 101.50 11.026% 1,027 28 / 30 pts
Company Description Strengths: McClatchy is the third-largest newspaper company by circulation in the US. The company operates 30 daily newspapers and 43 - McClatchy has aggressively reduced costs to help offset non-daily papers in 29 markets across the US. It had average daily paid circulation of approximately 2.1 million and Sunday revenue declines. circulation of 2.8 million in 2010. MNI's portfolio of digital assets includes its newspaper affiliated Web sites and ownership stakes - MNI has improved its maturity profile and is now focused in Career Builder (14.4%) and Classified Ventures, LLC (25.6%). The company substantially increased its operations in 2006 on buying back debt early. with the acquisition of Knight Ridder and its portfolio of daily newspapers. MNI's larger papers by circulation include The - Strong local presence, with largest daily paper by Sacramento Bee, The Kansas City Star, The Miami Herald, and The Fort Worth Star Telegram. circulation in its respective markets. - Only 6.0% of workforce is represented by unions, which Key Dates/Catalysts: gives MNI more flexibility in restructuring operations. - 4Q2011 results February 8, 2012. - Aggressive management team with history of taking steps - Company continues to buy back bonds on the open market. to improve is balance sheet. - Ownership stakes in various digital ventures, including a 25.6% stake in Classified Ventures and a 14.4% stake in Career Builder, offer additional value. - Digital ventures have paid dividends to McClatchy, which the company can utilize for debt reduction. Financial Profile FY08 FY10 FY11E FY12E Revenue 1,472 1,375 1,269 1,213 Risks: Adjusted EBITDA 370 382 348 329 - High exposure to California and Florida markets has hurt performance. Interest Expense (156) (177) (160) (150) - Secular pressure and increased competition in local ad markets. - Underfunded pension of $298 million could require Operating Cash Flow 382 225 115 113 significantly higher funding in the future years. CapEx (21) (16) (16) (15) - Local online ad market has grown more competitive in Dividends (52) 0 0 0 recent quarters. - Print ad revenue declines remain a significant concern. Free Cash Flow 309 209 99 98 - Expense cuts will likely be smaller and more challenging going forward. Total Debt 1,950 1,775 1,635 1,635 - Heavy debt load and higher leverage limit flexibility. - A double-dip recession or weaker-than-expected rebound Cash 5 18 98 185 in advertising would hurt results further. Net Debt 1,945 1,757 1,537 1,450
Key Credit Statistics Gross Agency Total Debt/EBITDA 5.3x 4.6x 4.7x 5.0x Comps Leverage Coverage Ratings Net Debt/EBITDA 5.3x 4.6x 4.4x 4.4x NYT 2.2x 3.8x B1/B+ EBITDA/Interest 2.4x 2.2x 2.2x 2.2x GCI 1.8x 6.4x Ba1/BB EBITDA margin 25.1% 27.8% 27.4% 27.1%
Capitalization Debt to Description Size EBITDA Liquidity Consenting RC due 7/1/2013 0 Consenting RC 125 Matures July 1, 2013 Total Bank Debt 0 Letters of Credit 47 11.50% due 2/15/2017 865 Borrowings 0 Total Sub Guaranteed Debt 865 2.4x Minimum liquidty covenant 50 4.625% due 11/1/2014 93 Revolver Availability 28 5.75% due 9/1/2017 337 7.15% due 11/1/2027 89 Cash 17 6.875% due 3/15/2029 276 Total Liquidity 45 Total Sr Unsecured Bonds 795 4.7x Credit agreement maintenance Other debt 0 covenants: Total Debt 1,660 4.7x Leverage (as defined) 6.5x Market Cap 217 Interest Cov (as defined) 1.5x Total Enterprise Value 1,860
Maturities: 120
100
80
60
40
20
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Goldman Sachs Credit Research 116 January 26, 2012 High Yield
McMoRan Exploration (MMR) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 UNDERPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $300 11.875% Sr. 11/15/2014 Caa1/B $105.94 2/27/2012 $106.25 6.95% 706
Company Description Investment Strengths: McMoRan is a US-Gulf-focused exploration-oriented E&P. The company's core competency is finding reserves in • Strong history of US GOM exploration deep structures. MMR is one of the purest "wildcatting" stories in HY energy. • Extensive US GOM infrastructure in place • Significant upside potential with Davy Jones Predecessor company McMoRan Oil & Gas was spun out by metals & mining giant Freeport-McMoRan in May discovery 1994. The company then merged with Freeport-McMoRan Sulfur in 1998 and renamed the combined entity McMoRan Exploration. In 2000, the company closed its sulfur mining operations at Main Pass, and in 2002 MMR Investment Risks: sold all of its sulfur transportation and terminalling assets. In August 2007, McMoRan acquired Newfield • High exposure to the Gulf of Mexico and exposure to Exploration's US GOM shelf assets for $1.1 bn plus assumption of $200 mn of asset retirement liabilities. The the inherent risks; limited diversity acquisition added 321 bcfe of proved reserves and 235 mmcfe/d of production. The NFX acreage expanded • Potential for increased regulation in the GOM McMoRan's acreage in the GOM from 0.3 million acres to 1.5 million acres. In September 2010, MMR announced following the Macondo oil spill it would acquire Plains Exploration's shallow water GOM assets for $818 mn. • Management typically does not hedge • Aggressive company, with little balance in terms of low-risk projects • Increased its GOM exposure with purchase of Plains Exploration (PXP) shallow water assets
Key Dates/Catalysts: • Flow tests of Davy Jones I and II; first production expected in 1H2012 • Reserve bookings at Davy Jones • Announcement with respect to other new ultradeep opportunities; MMR has identified 15 shelf prospects Financial Profile 2008A 2009A 2010A 2011E 2012E with large structures Revenue $1,072 $436 $430 $543 $478 EBITDA (Adj for non-cash items) $762 $199 $195 $275 $190 Free Operating Cash Flow $387 ($7) ($119) ($320) ($185) Capital Expenditures $236 $138 $217 $524 $300
Leverage Coverage Agency Credit Ratios 2008A 2009A 2010A 2011E 2012E Comps ('11E) ('11E) Ratings Total Debt/EBITDA (LTM) 0.5x 1.9x 2.9x 2.0x 2.6x MMR 2.0x 15.5x Caa1/B EBITDA/Interest Expense (LTM) 15.0x 4.6x 5.1x 15.5x 5.3x SGY 1.0x 33.5x Caa2/CCC+ Debt to Capitalization % 55% 59% 24% 25% 24% WTI 1.2x 15.8x Caa1/B
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $642 Revolver Size $150 Revolving Credit Facility $0 Letters of Credit $100 Long Term Debt Borrowings $0 Senior notes 2011-14 $562 Revolver Availability $50 Total Long Term Debt $562 Cash $642 Total Debt $562 2.1x Total Liquidity $692 Preferred Equity $0 Common Equity $1,689 Total Capitalization $2,251
Maturities:
350 300 250
200 150 100 50 Debt maturitiesDebt ($ mn) 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 117 January 26, 2012 High Yield
MDC Holdings Inc. (MDC) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 UNDERPERFORM
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp U 250 5.625 Sr. Nts 1-Feb-20 Ba3/BB- MW 94 6.60% 506
Company Description Investment Strengths: - Significant cash balance. MDC Holdings is one of the smaller publicly traded homebuilders in the United States, with an enterprise value of just - Clean balance sheet. under $1 billion, FY2010 closings of 3,245 homes, and FY2010 revenues of $959 million. In its core homebuilding - Conservative management team. operations, the company primarily purchases finished lots for the construction and sale of single-family detached homes under the brand Richmond American Homes. Investment Risks: - Gross margins have been relatively weak and SG&A expense has been elevated. Key Dates/Catalysts: - Company has been less adept versus other builders 4QFY11 earning release at managing speculative inventory. Potential share buybacks - Company is land-light, which could cause Potential large acquisition underperformance at the onset of a housing recovery.
Financial Profile ($, mn)* FY:09 FY:10 FY:11E 4Q:10 3Q:11 4Q:11E Total Revenues 898 959 862 260 211 266 Total Adjusted EBITDA (5) 3 (37) (3) (6) (5)
Cash Interest (58) (72) (63) (18) (15) (13) Debt-to- Inventory- Cash Taxes 153 149 26 4 3 - Comps Cap to-Debt Ratings Capital Expenditures (8) (8) (33) (0) (2) (1) MDC 53% 0.8x Ba1/BB+ Free Cash Flow 120 (334) (216) (100) (46) (8) Toll 38% 2.1x Ba3/BB- DR Horton 38% 2.2x B1/BB- Total Balance Sheet Debt 1,027 1,268 755 1,268 1,017 755 Total Cash and Cash Equivalents 1,562 1,541 833 1,541 1,103 833 Key Credit Statistics Homebuilding Debt / Capitalization 48% 56% 47% 56% 53% 47% Net Homebuilding Debt / Capitalization (3) NM NM NM NM NM NM
Inventories / Homebuilding Debt (2) 0.5x 0.6x NA 0.6x 0.8x NA Homebuilding Gross Margin (1) 22% 22% 18% 20% 19% 19%
PF Capitalization ($, mn)
Description Size Liquidity Mortgage repurchase facility 11 Cash and Cash Equivalents 305 Total Secured 11 Marketable Securities 535 7% Senior Notes due 2012 - Total Liquidity 840 5.5% Senior Notes due 2013 - 5.375% Medium-Term Notes due 2014 250 5.375% Medium-Term Notes due 2015 250 Maturities: 5.625% Senior Notes due 2020 250 Total Debt Outstanding 761 300 250 Shares Outstanding 47 200 Share Price 20.7 Market Capitalization 983 150 ENTERPRISE VALUE 904 100
50
0 2012 2013 2014 2015
Goldman Sachs Credit Research 118 January 26, 2012 High Yield
Mediacom Communications Corporation (MCCC) Updated 1/20/12 Jason Kim 212-902-2233 Contact analyst or see latest research for updates to ratings, estimates, and other information. Satya Tagat 212-902-4427 IN-LINE Our In-Line ratings on the MCCC bonds reflect the company's high leverage at just over 6x, balanced by reasonable liquidity and our expectation that management will continue to be proactive in addressing its debt maturities. MCCC should also see notable margin expansion from migrating its phone services in-house, which should aid EBITDA growth in the near term. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Issuing Entity / Priority Maturity Ratings Price Date Price (%) bp $350 9.125 MCCC LLC Sr Nts* 15-Aug-19 B3/B- 104.563 8/15/2014 108.00 7.28 620 $500 8.500 MCCC Broadband Sr Nts* 15-Oct-15 B3/B- 102.833 2/27/2012 103.00 5.87 531 *MCCC LLC = Mediacom LLC. MCCC Broadband = Mediacom Broadband LLC Investment Strengths: Company Description (1) Insulated from the telco threat in the near term: Telcos rolling out Mediacom Communications Corporation (MCCC) is the eighth-largest cable television company in the US based their video offerings typically target higher-density areas of the on customers served, focusing on serving smaller cities and towns in the US. As of September 30, 2011, MCCC country with more attractive demographics. Because MCCC focuses had approximately 1.1 million basic, 703,000 digital, 850,000 high-speed data, and 338,000 telephone customers on rural areas, it might not face telco competition in the near to between Mediacom LLC and Mediacom Broadband. In March 2011, MCCC's Chairman/CEO/Founder Rocco intermediate term. Commisso completed a go-private transaction at $8.75 per share. (2) Opportunity for margin expansion: MCCC has recently completed MCCC operates its business through two wholly owned subsidiaries: the process of bringing its phone product in-house, which helped - Mediacom LLC: As of September 30, 2011, served 488,000 basic, 300,000 digital, 383,000 high-speed data, reduce its cost of goods sold for the phone business substantially. and 159,000 telephone customers. This drove double-digit EBITDA growth at both issuing entities in - Mediacom Broadband LLC: As of September 30, 2011, served 612,000 basic, 403,000 digital, 467,000 high- 3Q2011. speed data, and 179,000 telephone customers. Investment Risks: In November 2011, Mediacom Broadband LLC entity completed an extension of $216mn of its $430mn revolver (1) High leverage: MCCC's leverage stands around 6.1x, making it that was set to mature in December 2012. The new RC matures on 12/30/2016, subject to springing maturies on the highest-levered cable credit in the US. the TLD (7/31/2014) and 8.5% senior notes due 2015 (4/15/2015). (2) Rural footprint: With a rural focus, MCCC's systems Key Dates/Catalysts: demographics are less attractive than those of other MSOs with more February/March 2012: 4Q2011 earnings release. urban exposure. This is evident in MCCC's below-industry-average ARPU and penetration rates of advanced services. Also, more of Potential capital markets activities: MCCC management team has historically been very savvy and proactive in MCCC's subscribers are prone to cherry-pick deeply discounted accessing the capital markets to clean out maturities. packages, only to cancel the subscription when the promotion period ends, leading to higher churn. Financial Profile FY09A FY10A 2Q11A 3Q11A 4Q11E FY11E (3) Lack of scale: As a smaller cable operator with less attractive Basic Subscribers 1,238,000 1,193,000 1,139,000 1,100,000 1,078,089 1,078,089 demographics, MCCC faces higher programming rates relative to Digital Subscribers 678,000 731,000 724,000 703,000 694,215 694,215 larger MSOs. It also has less negotiating leverage to deal with Data Subscribers 778,000 838,000 855,000 850,000 847,115 847,115 broadcasters in retransmission discussions. Phone (VoIP) Subscribers 287,000 332,000 335,000 338,000 340,760 340,760
Revenue $1,460 $1,499 $391 $391 $389 $1,552 EBITDA 540 546 149 148 150 585 Free Cash Flow 123 115 37 52 38 177
Total Debt $3,365 $3,384 3,635 3,600 3,568 3,568 Comps Leverage Coverage Ratings Cash 81 156 119 120 121 121 Net Debt $3,284 $3,228 $3,516 $3,480 $3,447 $3,447 Charter - CCOH 4.3x 2.8x B1/BB- Key Credit Statistics Cablevision Systems Corp 4.0x 3.2x B1/B+ Total Debt/EBITDA 6.2x 6.2x 6.1x 6.1x 6.0x 6.1x Total Debt/Basic Sub $2,718 $2,837 $3,191 $3,273 $3,310 $3,310
EBITDA Margin 37.0% 36.5% 38.1% 37.9% 38.5% 37.7%
Capitalization Debt to Description Size EBITDA * Liquidity – Mediacom LLC Liquidity – Mediacom Broadband Mediacom LLC: Revolver Size $225 Revolver Size $430 Revolver $93 Letters of Credit (9) Letters of Credit (3) Term Loans 1,160 4.8x / 4.5x Borrowings (93) Borrowings (143) Capital Leases - Revolver Availability $123 Revolver Availability $285 HY Debt 350 Total Mediacom LLC Debt $1,603 6.2x / 5.8x Cash $11 Cash $7 Total Liquidity $134 Total Liquidity $292 Mediacom Broadband: Revolver $143 Term Loans 1,355 4.5x Capital Leases - HY Debt 500 Total Broadband Debt $1,997 6.0x
Total Mediacom Debt $3,600 6.1x Market Cap NA Enterprise Value NA * Mediacom LLC's Debt/EBITDA is expressed: Excluding Investment Income / Including Investment Income. Investment Income is from the Preferred Investment in Mediacom Broadband. Maturities:
2,000 1,846 1,703
1,000
26 26 0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 119 January 26, 2012 High Yield
MediMedia USA, Inc. (MEDIME) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst for updates and other information. Cindy Guan 212-902-9758 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $150 11.375 Sr Sub Nts 15-Nov-14 Caa2/CCC+ $100.000 15-Nov-11 $85.000 18.462% 1,840
Company Description Company Strengths: MediMedia USA (MEDIME) provides content, printing, and marketing services to the healthcare and - Premier clients: Long-standing relationships with recognized pharmaceuticals industries. Patient Education (60% of revenues) publishes pamphlets, newsletters and online organizations: American Red Cross (17-year relationship), Harvard content to educate patients about drugs, diseases, health, and safety – paid for by hospitals, managed care Medical School (seven-year relationship). companies, employers, and medical societies. Pharma Group (40% of revenues) provides outsourced marketing services for pharmaceutical companies (Rx pads, detailing to managed care companies to get onto preferred- - Diversity of customers: about 40% of revenue from pharma, 17% drug formularies, and a proprietary database of drug inserts). MEDIME also operates a large FDA-approved drug from employers, 43% from health plans and physicians. sample distribution facility in New Jersey. Vestar Capital Partners acquired MEDIME in October 2006 for $265 mn of equity. Company Risks: - Stalled growth: Acquisitions have been small and organic growth is Medimedia sold a formulary business for $34.7 mn in March 2011 and its animal health business VetStreet for very low. $114 mn of net proceeds in August 2011. In October 2011, MediMedia amended its credit facility to provide a covenant waiver for 2Q and 3Q, reset financial covenants for the remainder of the facility term and extended the - Small size: Significant competition from better-capitalized term of the majority of the facility to August 14, 2014, among other modifications. The company also repaid $114 companies; competition is largely based on price. mn of credit facility with proceeds from its sale of the animal health business. - Large debt maturity in 2014 post the extension of the majority of its MediMedia has equity cure rights. Bonds have cross defaults. credit facility to 2014. Increased interest rates under the amendment will put further strain on cash flows. Key Dates/Catalysts: - Demand for drug samples could be further reduced, as pharmaceutical companies re-evaluate their marketing practices.
Financial Profile 2009A 2010A 4Q10A 1Q11A 2Q11A 3Q11A Revenue $292 $309 $81 $67 $68 $68 EBITDA 63 68 23 12 5 9
Interest paid $29$26$6$6$6$7 Taxes paid (7) (2) (3) 2 0 (30) Capex 22217815 Free Cash Flow (1) 2 1 (9) (21) (9)
Total Debt 373 371 371 388 388 387 Cash 0 4 44717124 Net Debt 373 367 367 341 370 263 Key Credit Statistics Total Debt/EBITDA 5.9x 5.4x LTM: 7.8x Agency Net Debt/EBITDA 5.9x 5.4x 5.3x Comps Leverage Coverage Ratings MediMedia (MEDIME) 5.5x 1.9x Caa2/CCC+ EBITDA/Interest 2.2x 2.7x 3.7x 1.9x 0.8x 1.4x Catalent (PTSAC) snr 5.6x NA Caa1/B EBITDA margin 21.6% 22.1% 28.2% 18.2% 7.6% 13.1% VWR (VWRINT) 5.6x 2.0x Caa1/B-
Capitalization Liquidity Debt to LTM Description Size EBITDA Revolver Size 50 Revolver due 2012, portion ext to 2014* $47 Letters of Credit 3 TL B due 2014* $76 Borrowings 47 Total bank debt $123 2.5x Revolver Availability 1
Total sr bonds $0 2.5x A/R facility 0 Borrowings 0 11.375% senior sub notes due 2014 $150 A/R Availability 0 Total sub debt $150 5.5x Cash* $9 Other debt $0 Total Liquidity 10 Total Debt $273 5.5x *3Q11 cash less $114mn for debt pay down post quarter end. Market Cap NA Enterprise Value NA LTM EBITDA is pro forma for the Animal Health sale. *Credit facility is pro forma for a $114mn pay down post quarter end, assuming this was on TL B. Per 10Q, MEDIME extended the term of the majority of the Facility to August 15, 2014. We are assuming all of TL B was extended as well as a portion of the revolver. Maturities: $300
$250
$200
$150
$100
$50
$0 2012 2013 2014 2015+
Goldman Sachs Credit Research 120 January 26, 2012 High Yield
Meritor (MTOR) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $250 8.125% Sr. Nts 15-Sep-15 B3/CCC+ NC NC 96.75 919.5% 890
Company Description Investment Strengths: Meritor, Inc., formerly ArvinMeritor, provides the global transportation industry with integrated systems, modules, - Late cycle commercial truck opportunity: Significant and components. The company serves commercial truck, trailer, and specialty original equipment manufacturers pent-up demand in North America should continue to help and related aftermarkets. Meritor also provides coil coating applications, including those for the transportation, MTOR's sales. appliance, construction, and furniture industries. - Leverage poised to improve: We expect MTOR's leverage to improve to 2.5x (net leverage of 2.1x) by the Key Dates/Catalysts: end of FY20121 (September 2012) - MTOR will report 1QFY12 earnings on February 2, 2012. - Improved liquidity: Liquidity remained strong at $757 million at the end of 4QFY11. In February 2010, MTOR extended the maturity of its credit facility to January 2014 from June 2011, while also issuing new senior notes ($250 million) and equity ($210 million). - Exit of light vehicle segment: MTOR completely exited its low-margin light vehicle segment in early 2011 and is now 100% levered to the commercial vehicle, military, and industrial markets.
Investment Risks: - Leverage is still high: MTOR ended 4QFY11 with gross leverage of 3.0x (2.4x net). - Revised guidance: Management’s credibility has come under pressure in recent months given that guidance for Financial Profile FY08 FY09 FY10 FY11 FY12E both 2QFY11 and 3QFY11 were revised prior to earnings Revenue 7,167.0 4,457.0 4,584.0 4,667.0 4,830.9 and its 10% EBITDA margin target for the end of 2012 now looks unlikely to be achieved EBITDA 364.0 103.0 258.0 342.0 373.4 - Defense segment remains weak: Management expects lower FMTV volumes in the near term, driven by Cash interest (38.8) (88.9) (96.3) (84.6) (83.4) production shifting to a new prime contractor. Cash Taxes (5.0) (20.0) (48.0) (44.3) (84.3) CapEx (172.0) (111.0) (56.0) (105.0) (105.0) Free Cash Flow (161.0) (123.0) 155.0 (7.0) 14.6 Comps Leverage Coverage Ratings Total Debt 1,303.0 1,177.0 1,029.0 1,034.0 950.0 AXL 2.8x 4.8x B1/BB- Cash 497.0 95.0 343.0 217.0 165.6 CTBUS 1.3x 8.4x B1/BB- Net Debt 806.0 1,082.0 686.0 817.0 784.4 GT 3.0x 6.5x Ba3/BB- Key Credit Statistics MTOR 3.0x 3.6x B2/B Total Debt/EBITDA 3.6x 11.4x 4.0x 3.0x 2.5x TEN 2.2x 4.5x Ba3/BB Net Debt/EBITDA 2.2x 10.5x 2.7x 2.4x 2.1x TRW 0.9x 13.6x Ba2/BB+
EBITDA/Interest 4.4x 1.2x 2.4x 3.6x 4.4x EBITDA margin 5.1% 2.3% 5.6% 7.3% 7.7%
Capitalization Debt to Liquidity - Description Size EBITDA LTM Secured Revolver due Jan-2014 0.0 0.0x Revolver Size 441.0 A/R Securization facility due 2013 0.0 0.0x - Amt Drawn 0.0 8.75% Notes due 2012 84.0 3.0x - LCs Drawn 26.0 8.125% Notes due 2015 250.0 3.0x Amt Unutilized 415.0 10.625% Notes due 2018 245.0 3.0x A/R Securitization Avail. 125.0 4.625% Convert Notes due 2026 300.0 3.0x Cash 217.0 4.0% Convert Notes due 2027 200.0 3.0x Liquidity 757.0 Unamortized Discounts/Other -45.0 3.0x Total Debt 1034.0 3.0x Less cash 217.0 Net Debt 817.0 2.4x Market Cap 645.3 Enterprise Value 1462.3 4.3x
Maturities: 800 700 600 500 400 300 200 100 0 2012 2013 2014 2015 Thereafter
Goldman Sachs Credit Research 121 January 26, 2012 High Yield
MetroPCS Communications, Inc. (PCS) Updated 1/20/12 Jason Kim 212-902-2233 Contact analyst or see latest research for updates to ratings, estimates, and other information. Satya Tagat 212-902-4427 IN-LINE Our In-Line rating reflects PCS's strong liquidity profile and modest leverage offset by significant competitive pressure in the prepaid wireless space and the company's need to acquire additional spectrum to address its capacity needs. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,000 6.625 Sr Nts 15-Nov-20 B2/B 103.313 15-Nov-15 99.75 6.66 514
Company Description Investment Strengths: (1) Strong liquidity, with over $2.1bn in cash. MetroPCS is the fifth-largest facilities-based wireless telecommunications provider in the United States on the basis of number of subscribers served. The company offers wireless broadband personal communication (2) Positioned to benefit from proliferation of lower priced services, or PCS, on a no long-term contract, flat rate, unlimited usage basis in major metropolitan areas in the smartphones as a low-cost, value-driven operator. United States. (3) Potential to participate in M&A as a possible acquisition MetroPCS launched service in 2002 and has consistently been among the fastest-growing wireless broadband candidate for higher quality strategic buyers. PCS providers in the United States as measured by growth in subscribers and revenues during that period. With Metro USA, MetroPCS customers can use their services in areas throughout the United States, covering a Investment Risks: population of over 280 million. As of September 30, 2011, MetroPCS had approximately 9.1 million subscribers. (1) Fierce competition from national postpaid carriers as well as other prepaid brands like Boost (from Sprint) and Straight Talk (from Key Dates/Catalysts: America Movil's TracFone and Wal-Mart). A further deterioration in February 23, 2012: 4Q2011 earnings. competitive dynamics would pressure PCS's ARPU and subscriber metrics. Potential spectrum acquisitions. (2) Macro pressure: PCS's subscriber base tends toward consumers with less discretionary income; therefore, weak economic conditions and high gas/food prices have a disproportionately large impact on their spending.
Financial Profile FY09A FY10A 2Q11A 3Q11A 4Q11E FY11E (3) Lack of spectrum depth: PCS has an average of 20MHz of Subscribers ('000s) 6,640 8,155 9,080 9,149 9,346 9,346 spectrum across its footprint, which is significantly less than that of its competitors. We expect PCS's management team to be ARPU $40.68 $39.79 $40.49 $40.80 $40.74 $41.55 aggressive in pursuing spectrum acquisitions. Churn 5.5% 3.6% 3.9% 4.5% 3.7% 3.9% CPGA $146 $157 $178 $194 $184 $177 CPU $17.23 $18.49 $18.94 $19.52 $19.80 $19.96
Revenue $3,481 $4,069 $1,209 $1,205 $1,256 $4,964 EBITDA 956 1,176 357 327 356 1,385 Free Cash Flow 68 204 79 24 2 56 Agency Total Debt $3,679 $3,786 $4,756 $4,753 $4,746 $4,746 Comps Leverage Coverage Ratings Cash 1,154 1,171 2,156 2,141 2,136 2,136 Net Debt 2,525 2,615 2,600 2,612 2,610 2,610 LEAP Secured Nts 2.1x 2.1x Ba2/B+ Key Credit Statistics LEAP Unsecured Nts 5.7x 2.1x B3/CCC+ Total Debt/EBITDA 3.8x 3.2x 3.7x 3.7x 3.6x 3.6x Sprint 3.3x 4.0x B3/B+ Net Debt/EBITDA 2.6x 2.2x 2.0x 2.0x 2.0x 2.0x
EBITDA Margin 27.5% 28.9% 29.5% 27.2% 28.4% 27.3%
Capitalization Debt / Description Size EBITDA Liquidity Revolver ($100mm Facility) $0 Revolver Size $100 Term Loan B-2 due 2016 987 Letters of Credit - Term Loan B-3 due 2018 1,491 Borrowings - Capital Leases 274 Revolver Availability $100 Total Secured Debt $2,753 2.1x 7.875% Sr Nts due 2018 1,000 Cash $2,141 6.625% Sr Nts due 2020 1,000 Total Liquidity $2,241 Total Debt $4,753 3.7x
Net Debt $2,612 2.0x Market Cap 3,153 Enterprise Value 5,765 4.5x
Maturities:
5,000 4,653
4,000
3,000
2,000
1,000 25 25 25 25 0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 122 January 26, 2012 High Yield
MGM Resorts International (MGM) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751 IN-LINE: We believe the MGM notes are adequately priced considering the high leverage profile and the bullish outlook for Las Vegas.
Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-spread 5-year (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp CDS $850 11.125 Sr Sec Nts 15-Nov-17 Ba2/B+ 105.563 15-May-13 113.500 4.47 431 396 - $743 7.625 Sr Nts 15-Jan-17 B3/B- T+50 bps MW 100.000 7.62 683 657 6.25+500 $150 7.625 Sr Sub Nts 15-Jul-13 Caa1/CCC NC NC 101.000 6.89 671 637 -
Company Description Investment Strengths: MGM Resorts International, Inc. (MGM) owns and operates 17 properties in Nevada, Mississippi, and Michigan, - Diverse offering of high-end and middle-market and it has investments in three other properties in Nevada and Illinois. The company has major developments casino properties on the Las Vegas Strip. under construction in Michigan and in Macau. MGM properties have over 50,000 hotel rooms, 2 million square - Global diversification: Exposure to high-growth feet of casino floor space, 1,985 table games, and 35,000 slot machines. Properties include Bellagio, MGM Macau market. Grand, Mandalay Bay, Monte Carlo, the Borgata of Atlantic City, and Beau Rivage. MGM and its partner, Dubai - Banks have shown a willingness to work with World, jointly own CityCenter, a Las Vegas Strip property with 5,000 rooms, which opened in December 2009. company during downturn in Las Vegas operations. According to Bloomberg, significant equity holders include Tracinda Corp. (23%), Paulson & Co. (8%), Janus - Management expects to benefit from operating Capital Mgmt (6%), and Dubai World (5%). leverage: 1% increase in occupancy results in incremental EBITDA of $40 million, a $5 increase in Key Dates/Catalysts: room rates results in additional EBITDA of $50 million, - 2Q2011: MGM to begin consolidating Macau subsidiary in consolidated financial statements. $5 additional customer spend results in $40 million of - June 2011: Started $70 mn renovation of Bellagio's 2,568 rooms in the main tower. Renovation completed in EBITDA. December 2011. - 2011: Through November , YTD convention - September 2011: Began room remodeling of MGM Grand Las Vegas. To be completed in 12 months. attendance up 4.4% yoy in Las Vegas. - October 2011: Announced agreement with BYD and on-line poker service provider bwin.party (BPTY). If online poker is legalized in the US, MGM would acquire a 25% stake and BYD would acquire a 10% stake in a new company that would operate online poker using BPTY's technology and brands PartyPoker and World Poker Investment Risks: Tour. - Leverage at US subsidiary remains high at 9.3x. - January 2012: Issued $850 mn of 8.625% notes due 2019 at par. Net proceeds to be used to repay debt. - Concentrated on Las Vegas Strip: 76% of 3Q2011 - January 2012: Signed a contract with Rolling Hills Estates Realty Trust to purchase a remote 150 acres of land wholly owned casino property EBITDA was generated in Brimfield, MA. MGM is looking to develop a casino/ resort on the lot, which is 65 miles west of Boston. by wholly owned Strip casinos. - Potential cannibalization of existing Las Vegas Strip The financial table below is presented on a GAAP basis and accounts for the MGM China entity as a consolidated properties as CityCenter increases occupancy and subsidiary as of June 3, 2011. Prior to June 3, MGM China was an unconsolidated investment. reaches maximum capacity of the gaming floor and Financial Profile FY10A 1Q11A 2Q11A 3Q11A 4Q11E FY11E convention space. Net Revenue 6,019 1,505 1,806 2,234 2,182 7,726 EBITDA 1,131 331 375 453 466 1,626
Interest Expense 1,114 270 267 273 262 1,071 Taxes paid (refund) (330) 2 (174) 1 (20) (191) CapEx 207 34 51 91 97 273 Free Cash Flow 140 25 232 88 128 473 Comps Leverage Coverage Ratings Total Debt 12,048 12,081 12,049 12,021 12,299 12,299 MGM (US; sr) 9.2x 1.7x B3/B- Cash 499 431 922 936 794 794 HET 12.8x 0.9x Ca/CCC Net Debt 11,549 11,650 11,128 11,085 11,505 11,505 WYNN 1.9x 6.6x Ba2 / BBB- Key Credit Statistics Total Debt/EBITDA 10.7x 10.0x 9.2x 8.4x 7.6x 7.6x Maintenance covenants Max. Net Debt/EBITDA 10.2x 9.6x 8.5x 7.7x 7.1x 7.1x Min. LTM EBITDA Capex 3Q11 1,150 500 EBITDA/Interest 1.0x 1.2x 1.4x 1.7x 1.8x 1.5x 4Q11 1,200 500 EBITDA margin 18.8% 22.0% 20.8% 20.3% 21.3% 21.0% 1Q12 / 2Q12 1,250 500 Note: Step-ups continue through 2013 Capitalization Liquidity Enterprise Value Debt to Description - US subsidiary only 3Q11A EBITDA Source 3Q11A Source Size 13% senior secured notes due 2013 750 Shares O/S (mm) 488.8 10.375% senior secured notes due 2014 650 Revolver due 2014 1,700 Stock Price $13.11 11.125% senior secured notes due 2017 850 Letters of Credit & other 59 Market cap 6,409 9% senior secured notes due 2020 845 Borrowings 450 Net Debt 11,099 Total sr secured debt (incl. liens) 4,145 3.2x Revolver Availability 1,191 Minority interest 0 Revolver due Feb 2014 450 Enterprise Value 17,508 Term loan due Feb 2014 1,717 6.75% senior notes due Sept 2012 535 LTM EBITDA 1,434 5.875% senior notes due Feb 2014 508 Cash 922 EV/ EBITDA 12.2x 4.25% convertible sr notes due Apr 2015 1,450 Total Liquidity 2,113 6.625% senior notes due July 2015 877 EV/ 2011E EBITDA 10.8x 7.5% senior notes due June 2016 733 EV/ 2012E EBITDA 8.8x 7.625% senior notes due Jan 2017 743 Note: Liquidity excludes $188 mn of 11.375% senior notes due March 2018 475 cash held in trust by state of NJ as Other senior notes 1,286 part of the sale of the Borgata Total senior debt 11,869 9.2x investment. Amount is currently 8.375% sr sub notes due Feb 2011 0 reported in "Prepaids exp. & other." Other 152 Total Debt 12,021 9.3x Operating statistics Note: Excludes $850 mn of 8.625% notes issued in January 2012. Las Vegas Strip Properties: 1Q11A 2Q11A 3Q11A Las Vegas Strip Properties: Maturities: Occupancy rate 87.0% 94.0% 95.0% Average daily rate $130 $126 $124 5,000 RevPAR $113 $118 $117 4,000 Revenue by Segment Las Vegas Strip $1,111 $1,207 $1,205 3,000 Other Nevada properties 34 37 35 2,000 MGM Grand Detroit 143 142 139 Mississippi 116 122 130 1,000 MGM China (51% owned) 0 193 623 0 Other 100 117 101 2012 2013 2014 2015 2015+ Total revenue 1,505 1,818 2,234
Goldman Sachs Credit Research 123 January 26, 2012 High Yield
Michaels Stores (MIK) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 212-357-7875 Contact analyst or see latest research for updates to ratings, estimates, and other information. IN-LINE/OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $800 7.75% Sr Nts 1-Nov-18 Caa1/CCC $103.88 1-Nov-14 104.00 6.75% 578 $400 11.38% Sr Sub Nts 1-Nov-16 Caa2/CCC $105.69 Current 105.75 8.27% 781
Company Description Investment Strengths: Michaels Stores is the largest arts-and-crafts specialty retailer in the US and Canada. The company - Historically positive industry dynamics operates more than 1,000 retail stores in 48 states under two formats: (1) Michaels Stores and (2) - Strong brand-name recognition Aaron Brothers. - Excellent store locations - Almost all mature stores are cash flow positive - Improving working capital management Key Dates/Catalysts: - Good chance of an IPO in 2012 Mid- to late March– Fourth quarter earnings release - Firing on all cylinders and recent momentum Investment Risks: - High debt leverage - Crafts space is highly competitive - Cyclicality in seasonal and picture frame sales
Financial Profile FY09A FY10A FY11E 4Q10A 4Q11E Comps Yield Leverage Coverage Ratings Revenue 3,888.0 4,031.0 4,183.7 1,331.0 1,377.7 Neiman 7.66% 4.6x 3.5x Caa1/B- EBITDA 548.0 622.0 688.1 241.0 249.1 JCG 8.70% 5.4x 3.2xCaa1/CCC+ Yankee 10.14% 4.5x 1.9x B3/CCC+ Interest Expense 258.7 311.8 247.2 77.1 59.2 Michaels 8.27% 4.3x 2.8x Caa2/CCC Cash Taxes 45.4 66.1 102.1 48.7 56.3 CapEx 43.0 81.0 109.0 20.0 25.0 Free Cash Flow 201.0 163.1 229.8 95.2 108.6 3QA Amounts Outstanding 10/29/11 Total Debt 3,803.0 3,668.0 3,271.5 3,668.0 3,271.5 Asset-Based Revolver ($900mm, due Apr 201 0.0 Cash 217.0 319.0 78.7 319.0 78.7 Secured Term loans 1,996.0 Key Credit Statistics 7.75% Senior Notes due Nov 2018 795.0 Total Debt/EBITDA 6.9x 5.9x 4.8x Net Debt/EBITDA 6.5x 5.4x 4.6x 11.375% Senior Sub Notes due Nov 2016 393.0 13% Sub. Discount Notes due Nov 2016 327.0 EBITDA/Interest 2.0x 2.0x 2.4x 3.1x 4.2x Other Debt 0.0 Total Debt 3,511.0 EBITDA margin 14.09% 15.43% 16.45% 18.11% 18.08%
Capitalization Forecasted 2012E Debt to Description Size EBITDA Liquidity 3Q11A Asset-Based Revolver ($900mm, due Apr 2014) L+3 0.0 Revolver Size 850.0 Secured Term loan B-1 due Oct. 2013 L+225 256.9 Letters of Credit 55.0 Secured Term loan B-2 due Jul, 2016 L+450 869.9 Borrowings 0.0 Secured Term loan B-3 due Jul. 2016 L+450 619.2 Total Secured Debt 1745.9 2.5x Revolver Availability 747.0 7.75% Senior Notes due Nov 2018 795.0 3.7x 11.375% Senior Sub Notes due Nov 2016 393.0 4.3x A/R facility NA 13% Subordinated Discount Notes due Nov 2016 337.6 Borrowings 0 Total Sub debt 1525.6 4.8x A/R Availability NA
Cash 111.0 Total Debt 3271.5 4.8x Total Liquidity 858.0 Market Cap N/A Enterprise Value N/A
Maturities: 3,000 2,500
2,000 1,500
1,000 500 0 2012 2013 2014+
Goldman Sachs Credit Research 124 January 26, 2012 High Yield
Millar Western Forest Products (MILLAR) Updated 1/23/12 Joe Stivaletti (212) 902-3299 Contact analyst or see latest research for updates to ratings, estimates, and other information. James Kitchell (212) 902-9813 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) $210 8.500 Sr Nts 1-Apr-21 B3/B- 104.250 1-Apr-16 74.000 13.522 1,160
Company Description Investment Strengths: Millar Western is a privately owned manufacturer of pulp and lumber headquartered in Edmonton, Alberta. - Competitive, low-cost production facilities - Strong, experienced management team
Investment Risks: - Prolonged weakness in lumber demand and prices - Strong Canadian dollar
Financial Profile 12/31/10 12/31/11 9/30/10 6/30/11 9/30/11 FY:10 FY:11E Q3:10 Q2:11 Q3:11 Revenue 295.4 273.7 83.4 71.8 71.8 EBITDA 41.5 26.1 12.5 13.2 5.9
Interest expense 16.2 16.9 4.2 4.2 4.2 Capital expenditures 22.2 44.0 6.1 13.3 12.3
Total debt 202.5 220.1 NA 212.7 230.2 Cash 45.1 24.2 NA 41.5 35.3 Net debt 157.4 195.9 NA 171.1 194.9
Key Credit Statistics Total debt/EBITDA 4.9x 8.4x NA 5.9x 7.8x Net debt/EBITDA 3.8x 7.5x NA 4.7x 6.6x
EBITDA/interest 2.6x 1.5x 3.0x 3.2x 1.4x EBITDA margin 14.0% 9.5% 14.9% 18.4% 8.2%
Capitalization 9/30/2011 Debt to Description Size EBITDA Liquidity 9/30/2011 Senior notes 220.1 Revolver size 50.0 Other 10.0 Letters of credit 3.4 Total debt 230.2 7.8x Borrowings - Revolver availability 46.6
Cash 35.3 Total liquidity 81.9
Maturities:
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0 2012 2013 2014 2015+ *Unless otherwise noted, all references to dollars are in Canadian dollars.
Goldman Sachs Credit Research 125 January 26, 2012 High Yield
Mohegan Tribal Gaming Authority (TRIBAL) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst for updates and other information. Celeste Everett 212-902-4751 NOT COVERED Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-Spd (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $250 6.125 Senior 15-Feb-13 Caa2/CC 101.531 current 83.50 26.39% 2,590 2,457 $225 7.125 Sr. Sub 15-Aug-14 Ca/CC 102.375 current 62.00 29.36% 2,913 2,878
Company Description Company Strengths: Mohegan Tribal Gaming Authority (TRIBAL) operates two properties: the Mohegan Sun in Uncasville, Conn., and - High-quality resort in Mohegan Sun. Pocono Downs in Plains Township, PA. TRIBAL owns the Connecticut Sun, a WNBA team, and the Mohegan Sun - Mohegan Sun Arena offers full-scale entertainment. Arena, part of the Mohegan Sun complex. It operates a golf course and country club in southeast Connecticut. In - TRIBAL has an option to purchase 152 acres of land August 2007, Mohegan Sun opened the Sunrise Square, an Asian-themed gaming area with an 8,500-sq-foot in western Massachusetts, which could be used to gaming space, a 5,000-sq-foot bus lobby, and a 4,000-sq-foot Asian food outlet. Current projects include a new build and operate a casino if gaming is approved in gaming area and hotel tower at Mohegan Sun and an expansion in Pocono Downs. MA. This could reduce impact to its Connecticut property if MA residents decide to allow casinos closer to home. Key Dates/Catalysts: - July 2010: Added 80 table games at PA casino. - November 2010: Announced it has engaged Blackstone Advisory Partners "to assist the Authority in its strategic - Reduced tribe distributions to $4.5 mm in 2QFY11 planning and analysis in connection with its business and financial goals, including operational improvements, from $11.2 mn in 2QFY10 contemplated hotel projects and the Authority’s bank and bond maturities." - Management contracts would be a capital-efficient - May 2011: Enters a joint venture with Concord Resort Hotel to develop a $600 mn resort in the Catskills region of avenue to increase EBITDA. NY state. The plans include a 258-room hotel, a 75,000 sq. ft casino with 2,100 VLTs, five restaurants, and a harness racetrack, which will include pari-mutuel racing. TRIBAL will manage the property and will have a small equity stake. Company Risks: - August 2011: Massachusetts lawmakers introduce gaming bill. Bill includes three all-inclusive gaming licenses for - Limited liquidity due in part to its covenants. three casinos in three separate parts of the state. Bill also includes a slots-only license to operate up to 1,250 slots - Sizable maturities in 2012. in any region of the state. - Geographic risk: Majority of revenue is generated by - December 2011: Receives going concern opinion from auditors. Lenders grant waiver to covenants in order to not its Mohegan Sun property in Connecticut. treat the going concern opinion as an event of default. As management works with advisors and lenders to finalize - Competitive threats are emerging, such as Aqueduct a refinancing plan, TRIBAL is "pleased with the progress made in recent weeks." in Queens, NY, which will be operated by Genting and is expected to install VLTs by February 2011. Fiscal year ended September 30th - Uncertainty in Massachusetts: State Senate voted to approve three casino licenses, and the House passed Financial Profile FY10 F1Q11 F2Q11 F3Q11 F4Q11 FY11 a gaming bill that would need to be reconciled before Revenue 1,422 336 348 361 373 1,418 gaming is ultimately approved. The governor vetoed EBITDA 283 68 80 83 91 322 the bill since it involved slots at too many racetracks. - Uncertainty regarding restructuring laws in Native American jurisdictions. Interest Expense 117 30 30 29 29 118 - Numerous casino operators with deep pockets Cash Taxes - - - - 1 2 competing for three Massachusetts gaming licenses. CapEx 48 16 7 17 12 52 Free Cash Flow 118 23 43 37 48 150
Total Debt 1,862 1,878 1,808 1,780 1,803 1,803 Cash 65 94 66 69 114 114 Comps Leverage Coverage Ratings Net Debt 1,797 1,784 1,742 1,711 1,689 1,689 TRIBAL 5.6x 2.7x Ca/CC Key Credit Statistics BYD 7.4x 2.0x Caa1/CCC+ Total Debt/LTM EBITDA 6.6x 6.5x 6.2x 5.8x 5.6x 5.6x PNK 5.0x 2.8x Caa1/B Net Debt/EBITDA 6.3x 6.2x 6.0x 5.6x 5.2x 5.2x MGM (sr) 9.2x 1.7x B3/B-
EBITDA/Interest 2.4x 2.3x 2.7x 2.8x 3.1x 2.7x EBITDA margin 19.9% 20.4% 22.9% 23.0% 24.2% 22.7%
Capitalization Liquidity Property Summary Debt to Mohegan Pocono Description F4Q11 EBITDA Source F4Q11 Sun Downs Revolver due March 2012 535 Revolver Size 675 11.5% sr sec notes (2nd lien) due 2017 200 Letters of Credit 4 % of Rev. 79% 21% Salishan Credit facility & other 20 Borrowings 535 Senior relinquishment liability 89 Revolver Availability 136 # of rooms 1,200 - Senior secured debt 845 2.6x Less: limitations due # of slots 6,360 2,390 6.125% senior notes Feb 2013 250 to covenant restrictions 3 # of tables 326 66 Total senior debt 1,095 3.4x Net Revolver Available 134 8% senior sub nts due April 2012 250 Square footage 7.125% senior sub nts due Aug 2014 225 Gaming 315,500 90,000 6.875% senior sub nts due Feb 2015 150 Cash 114 Meeting 100,000 - Junior relinquishment liability and other 89 Total Liquidity 248 Retail 130,000 - Total debt 1,809 5.6x
Maturities: Credit facility maintenance covenants 900.0 Total Senior Fixed 800.0 Period ending Leverage Leverage Charge 700.0 600.0 4Q11 6.25x 3.75x 1.10x 500.0 400.0 300.0 200.0 100.0 - 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 126 January 26, 2012 High Yield
Momentive Performance Materials (MOMENT) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 IN-LINE
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp IL 200 12.500 2nd lien 15-Jun-14 B2/CCC 106.3 15-Dec-11 106.00 8.77% 862 IL 635 9.000 S. 2nd lien 15-Jan-21 Caa1/CCC 104.5 15-Jan-16 84.50 11.85% 1026 IL 382 11.500 Sr. Sub 1-Dec-16 Caa2/CCC 105.8 1-Dec-11 78.50 18.37% 1762
Company Description Investment Strengths: Momentive Performance Materials (MPM), a specialty chemical company, is the world’s second-largest producer of - Attractive industry growth dynamics, with an estimated silicones and silicone derivatives, and is a leading producer of quartz derivatives. Momentive is the former GE Advanced CAGR of 5-6%. Materials business, and was acquired by Apollo in September 2006 for approximately $3.8 billion. In October 2010, - High-margin, true specialty business . Momentive and Hexion completed a merger under a new holding company, with each of their respective capital structures - Technical know-how creates significant barriers to remaining separate and in place. entry. - Diverse end-markets, geographical exposure, and Key Dates/Catalysts: customer base. 4Q2011 earnings release Potential combination of Momentive/Hexion opcos Investment Risks: Potential IPO of the combined company, which management has mentioned as a goal - Leverage is very high. - Limited free cash flow due to higher interest burden. - Rising raw material costs. -Continued inventory destocking Financial Profile ($, mn) FY:09 FY:10 FY:11E 4Q:10 3Q:11 4Q:11E Revenue 2,083 2,588 2,673 670 653 632 Adjusted EBITDA 262 488 421 108 95 83
Interest Expense (257) (250) (259) (66) (64) (66) Cash Taxes 4 (12) (18) (1) (8) (3) Capital Expenditures (77) (95) (106) (41) (26) (35) Free Cash Flow (40) 155 (2) 10 (27) (0)
Total Debt 3,087 3,006 3,018 3,006 3,021 3,018 Cash Equivalents 210 254 247 254 250 247 Net Debt 2,877 2,752 2,771 2,752 2,771 2,771 Key Credit Statistics Total Debt/EBITDA 11.8x 6.2x 7.2x 6.2x 6.8x 7.2x Comps Leverage Coverage Ratings Net Debt/EBITDA 11.0x 5.6x 6.6x 5.6x 6.2x 6.6x MPM 6.8x 1.7x B3/B- Huntsman 3.5x 4.8x B1/BB- EBITDA/Interest Expense 1.1x 2.0x 1.6x 2.0x 1.7x 1.6x EBITDA margin 13% 19% 16% 19% 16% 16%
PF Capitalization ($, mn) Debt to Description Size EBITDA Liquidity Revolver - Revolver size 300 New $300 mn revolver - Borrowings - Senior Secured Term Loan ($) 66 Letters of Credit 50 Senior Secured Term Loan (€) 116 Revolver Availability 250 Extended secured term loan ($) 403 Extended Secured Term Loan (€) 434 Synthetic LOC 34 Construction loan borrowings 38 Letters of Credit 33 Other short-term borrowings 21 LOC Availability 1 Total Senior Secured Debt 1,077 2.4x 2nd lien notes 200 Cash Equiv. 250 Total Secured Debt 1,277 Springing second lien notes ($) 1,161 Liquidity 500 Springing second lien notes (€150mn) 204 Total Senior Debt 2,642 5.9x Senior Subordinated Notes ($) 379 Total Debt 3,021 6.8x Maturities: PIK Seller Note ($400 million) 663 8.3x 1200
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Goldman Sachs Credit Research 127 January 26, 2012 High Yield
Momentive Specialty Chemicals (HXN) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 OUTPERFORM We rate the Momentive Specialty Chemicals (MSC) 8.875% 1.5 lien bonds of 2018 Outperform. At current valuations, we believe that these bonds offer compelling relative value given MSC's strong growth trajectory. In our view, the possible sale of MSC's formaldehyde and resins business offers a potential catalyst for spread tightening for the 1.5 liens, as we think the company would be likely to use proceeds to pay down bank debt or acquire a higher-margin specialty business.
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp OP 1,000 8.875 1.5 lien 1-Feb-18 B3/CCC+ 104.4 2/1/2014 99.25 9.04% 796 IL 440 9.000 2nd lien 15-Nov-20 Caa1/CCC+ 104.5 11/15/2015 90.50 10.69% 912
Company Description Investment Strengths: Momentive Specialty Chemicals is the world's largest producer of thermosetting resins, operating in four primary - Hexion has right-sized its cost base and will benefit segments: epoxy and phenolic resins, formaldehyde and forest product resins, coatings and inks, and performance significantly from an improvement in the automotive products. Epoxy and phenolic resins and formaldehyde and forest product resins represent over 80% of its total and construction end markets. EBITDA. The primary end markets for the company's products are industrial, construction, and consumer/durables, - Sufficient liquidity and covenant headroom. with no end market representing more than 20% of sales. Hexion, the predecessor to Momentive Specialty Chemicals, was created in May 2005 when Apollo Management L.P. combined three of the companies in its portfolio, Resolution Performance Products, Resolution Specialty Materials, and Borden Chemical. In October 2010, Hexion and Investment Risks: Momentive completed a merger under a new holding company, with each of their respective capital structures - Leverage remains high. remaining separate and in place. Hexion was renamed Momentive Specialty Chemicals, and Momentive's name was - Could experience margin compression due to changed to Momentive Performance Materials. increasing raw material costs. -Looser market conditions in base epoxy resins, Key Dates/Catalysts: resulting in less favorable results in this part of the 4Q2011 earnings release business. Potential sale of the formaldehyde business -Continued inventory destocking. Potential IPO of the combined company, which management has mentioned as a goal
Financial Profile ($, mn) FY:09 FY:10 FY:11E 4Q:10 3Q:11 4Q:11E Revenue 3,751 4,818 5,343 1,218 1,322 1,224 Adjusted EBITDA 374 601 661 140 162 136 Interest Expense (234) (277) (261) (71) (67) (65) Cash Taxes 19 (23) (8) 10 (6) (1) Capital Expenditures (131) (119) (130) (45) (38) (21) Free Cash Flow 28 182 262 34 51 49
Total Debt 3,610 3,738 3,530 3,738 3,636 3,530 Cash Equivalents 135 180 334 180 171 334 Net Debt 3,475 3,558 3,196 3,558 3,465 3,196 Key Credit Statistics LTM Debt/Adjusted EBITDA 9.7x 6.2x 5.3x 6.2x 5.5x 5.3x Comps Leverage Coverage Ratings Net Debt/Adjusted EBITDA 9.3x 5.9x 4.8x 5.9x 5.2x 4.8x MSC 5.5x 2.5x B3/CCC+ Huntsman 3.5x 4.8x B1/BB- Adjusted EBITDA/Interest 1.6x 2.2x 2.5x 2.2x 2.5x 2.5x MPM 6.8x 1.7x B3/B- LTM EBITDA Margin 10% 12% 12% 13% 12% 12%
PF Capitalization ($, mn) Debt to Description Size EBITDA Liquidity Existing Revolver ($225 mn) - Existing Secured Revolver Size 225 New $200 mn Revolver - Letters of credit ($50 mn) 25 Additional credit facilities - Borrowings 0 Term Loan 457 Revolver Availability 200 Extended Term Loan 930 A/R facility - Apollo (off balance sheet) - Apollo liquidity vehicles 200 Total 1st Lien Debt 1,387 2.1x Borrowings 0 Senior Secured 1.5 Lien Debt 1,000 Facility Availability 100 Total 1.5 Lien Debt 2,387 Senior Secured 2nd Lien Debt 574 Additional Facility Availability 156 Senior Secured 2nd Lien Debt 120 Untendered second lien notes - Total Senior Secured Second Lien Debt 3,081 4.6x Cash 171 Unsecured credit facility from Apollo 100 Total Liquidity 627 $4 million loan from Apollo 2 Australian Term/Working Cap facility 18 Sinking Fund Debenture 62 Maturities: Borden Debentures 74
Borden Debentures 189 500 Brazilian bank loans 68 450 Capital leases 12 400 Other debt 30 350 300 Total Debt at Hexion Specialty Chemicals In 3,636 5.5x 250 Termination facility at Hexion LLC 172 200 Total Debt through Hexion LLC Holdco 3,808 5.7x 150 100 50
0 2011 2012 2013 2014
Goldman Sachs Credit Research 128 January 26, 2012 High Yield
MTR Gaming Group, Inc. (MNTG) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst for updates and other information. Celeste Everett 212-902-4751 NOT COVERED
Size Coupon Agency Next Call Bid YTW STW Z-spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $565 11.500 Sr Sec (2nd lien) 1-Aug-19 B3/B- 106.00 1-Aug-15 91.00 13.52 1,152 1,185 (a) MNTG has the option to pay the coupon in either: a) cash at a rate of 11.5% per year, or b) 10.5% in cash and 1% PIK until August 2013.
Company Description Company Strengths: - Columbus market opportunity: one of two gaming MTR Gaming Group Inc. (MNTG) is a regional casino operator of mid-market casinos and horseracing tracks with facilities for 1.8 mn people. Attractive tax rate of 33% three principal properties: Mountaineer Casino, Racetrack and Resort in Chester, WV; Presque Isle Downs in Erie, PA; compared to PA and WV. and Scioto Downs racetrack in Columbus, OH. Top equity holders are Jeffrey Jacobs, former chairman of MTR's - Modest maintenance capex. board (14%), Brigade Capital (10%), Arbiter Partners (7%), Par Capital Mgmt (7%), according to Bloomberg. - New bond indenture includes an excess free cash flow sweep. Key Dates/Catalysts: - May 2011: Entered into lease mineral rights - March 2011: Pittsburgh-based Rivers Casino to add 19 table games, bringing total to 107. agreement with Chesapeake Energy. ($2 mn payment / - August 2011: MNTG completes $565 mn senior secured note offering; proceeds will be used to purchase a gaming year + 14% royalty on sales). license in Ohio and build out a gaming facility at Columbus-based Scioto Downs racetrack. - October 2012: Ohio public policy group files lawsuit to challenge the governor's and legislature's authority to put Company Risks: VLTs at the seven racetracks in Ohio. - With the Penn Proposal passing for four all-inclusive - 2012: MNTG intends to apply for a gaming license to operate VLTs at its Scioto Downs Racetrack in Columbus, casinos, MNTG's two properties in West Virginia and OH. MNTG expects to spend $50 mn on the license and $125 mn to build out 130,000 sq. ft of additional space, Pennsylvania will be negatively affected. PENN expects which will include a 70,000 sq. ft. gaming floor. MNTG expects to install up to 2,200 VLTs in 2012 upon resolution of to open its Columbus, Ohio, location at the end of 2012. the public policy lawsuit against Ohio lawmakers. The Cleveland casino will be owned by Cleveland Cavaliers owner Dan Gilbert and will be operated by Caesars. The Cleveland facility is expected to open in Financial Profile 3Q10A 4Q10A FY 10A 1Q11A 2Q11A 3Q11A the first half of 2012, and Columbus is expected to open Revenue 119.1 94.8 424.9 98.3 110.5 115.6 in 4Q2012. - Under the governor's recent amendments, PENN has EBITDA 24.0 17.2 78.8 16.2 23.1 23.4 announced its intention to move its Columbus-based Beulah Park racetrack to the Youngstown, OH, area, Interest Expense 13.7 13.4 54.1 13.4 13.4 16.3 which would be a negative for the Mountaineer casino. - Dependent on Mountaineer and Presque Isle Downs Cash Taxes (refund) 0.0 - 8.9 - - - for a majority of revenues. CapEx (incl. gaming license) 14.9 2.3 27.8 0.3 3.4 4.4 - MNTG expects to increase use of casino credit for Free Cash Flow (4.6) 1.5 (12.0) 2.5 6.3 2.7 qualified patrons to further enhance gaming revenue.
Total Debt 377.8 378.1 378.1 377.3 378.7 548.7 Comps Leverage Coverage Ratings Cash 41.4 53.8 53.8 45.8 59.5 64.7 MNTG 7.1x 1.4x B3/B- Net Debt 336.4 324.3 324.3 331.5 319.2 483.9 PNK 5.0x 2.8x Caa1/B Key Credit Statistics GCCN 2.8x 4.8x B2/BB- Total Debt/EBITDA 5.0x 4.8x 4.8x 4.8x 4.7x 6.9x BYD 7.4x 2.0x Caa1/CCC+ Net Debt/EBITDA 4.5x 4.1x 4.1x 4.2x 4.0x 6.0x ISLE 6.3x 2.4x Caa1/CCC+ PENN 2.8x 6.5x B1/BB EBITDA/Interest 1.8x 1.3x 1.5x 1.2x 1.7x 1.4x MGM (sr) 9.2x 1.7x B3/B- EBITDA margin 20.2% 18.2% 18.5% 16.5% 20.9% 20.3%
Capitalization Debt to Description 3Q11 EBITDA Liquidity 3Q11 Enterprise Value Senior secured revolver due Aug. 2016 - Revolver 20.0 Shares O/S (mm) 27.64 Total senior secured (1st lien) debt - Letters of Credit - Share price$ 2.38 11.5% Sr Sec (2nd lien) notes due 2019 (a) 565.0 7.1x Borrowings - Market cap 65.8 Other Revolver available 20.0 Net debt 500.3 Total debt 565.0 7.1x Enterprise value (EV) 566.1
Cash 64.7 EV / LTM EBITDA 7.1x Total Liquidity 84.7 LTM EBITDA 80.0 (a) MTR has the option to pay the coupon in either: a) cash at a rate of 11.5% per year, or b) 10.5% in cash and 1% PIK until August 2013. (Mkt Val Debt- cash) / 2008E EBITDA #REF!
Maturities: 600 Credit facility maintenance covenants Maximum Minimum Minimum 500 Total Interest LTM 400 Effective date Leverage Coverage EBITDA 300 4Q11 7.75x 1.25x$ 60 1Q12 7.75x 1.25x$ 80 200 2Q12 7.75x 1.30x$ 80 100 3Q12 7.50x 1.40x$ 80 0 1Q13 7.00x 1.40x$ 80 2012 2013 2014 2015 2016 2017+ 4Q13 6.50x 1.40x$ 80 Note: Capex limited to $25 mn per year.
Goldman Sachs Credit Research 129 January 26, 2012 High Yield
Mylan Inc. (MYL) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 OUTPERFORM
We rate MYL Outperform. We like MYL’s creditor-friendly generics business and robust pipeline. With leverage close to the company’s 3.0x target we no longer see significant delevering but continue to see the bonds as highest quality of our pharma names. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $550 7.625 Sr 15-Jul-17 B1/BB- $101.906 7/15/2015 $110.000 4.746% 442 $1,000 7.875 Sr 15-Jul-20 B1/BB- $103.938 7/15/2015 $111.000 5.395% 460
Company Description Investment Strengths: Mylan operates a global generic pharmaceutical business, as well as a small branded pharmaceutical business. The - Poised for growth: governments/payers seek to reduce costs and company operates in 140 countries – with strong market positions in several countries including US, France, Italy, and a number of branded drugs are going off-patent in 2012. Including Australia – and has a product portfolio consisting of over 900 products. MYL operates two segments: Generics (92% of Bioniche, MYL has 170 ANDAs pending FDA approval, which 2010 revenues) and Specialty (8%). MYL is the No. 3 player globally and has a No. 2 position in the US. represents over $98.4 bn in annual brand sales and will likely boost earnings throughout 2011. Formerly a domestic pharmaceutical company, the 2007 acquisition of Merck KgaA gave MYL a global presence with a diversified product portfolio. The acquisition of a controlling interest in Matrix Laboratories in 2006 – and the remaining - Highly diversified: MYL operates in 140 countries worldwide with a interest in 2009 – allowed MYL to manufacture and supply active pharmaceutical ingredients for products it portfolio consisting of over 900 products; MYL's top product is less manufactures, as well as for third-party clients. On its 3Q11 conference call, MYL stated that it would consider a $2-4 bn- than 5% of revenue. sized acquisition that temporarily brought leverage to 4x, but management does not see a need to do this and the immediate focus is driving organic growth. - Significant free cash flow generator: Free cash flow was over $450 mn in 2009 and 2010; MYL projects CFO of $800-900 and capex of Key Dates/Catalysts: $250-300 mn for the year 2011. - Quarterly earnings - Ongoing FDA approvals and subsequent product launches, particularly "first to file" submissions - Well-articulated long-term leverage target of 3.0x. MYL still - Potential for rating agency upgrade (though MYL commented on its 3Q earnings call that this is not a focus and the expects to pay down 2012 converts with cash. company sees being a cross-over rated company as the sweet spot). - Potential approval of Copaxone ANDA in early part of 2012 Investment Risks: Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E - Risk of a moderate-size acquisition: MYL could possibly make an acquisition to gain a presence in emerging European or Latin Revenue $5,093 $5,451 $6,150 $1,435 $1,576 $1,552 American markets or to add to its branded portfolio. EBITDA 1,237 1,388 1,657 363 434 411 - Uncertain visibility in longer-term industry growth: Beyond 2012, growth will depend on emerging markets and bio-similars. Interest Expense $318 $331 $331 $91 $86 $76 Cash Taxes (21) 10 170 (23) 35 53 CapEx 154 193 238 97 57 70 Free Cash Flow 451 739 540 98 226 282
Agency Total Debt 4,965 5,103 5,142 5,103 5,106 5,142 LTM Comps Leverage Coverage Ratings Cash 381 662 831 662 513 831 Mylan (MYL) 3.1x 4.6x B1/BB- Net Debt 4,584 4,441 4,311 4,441 4,593 4,311 Valeant (VRX) 4.3x 4.6x B1/BB- Key Credit Statistics Warner Chilcott (WCRX) 2.7x 5.8x B3/B+ Total Debt/EBITDA 4.0x 3.7x 3.1x Endo (ENDP) 3.6x 4.9x Ba3/BB- Net Debt/EBITDA 3.7x 3.2x 2.6x
EBITDA/Interest 3.9x 4.2x 5.0x 4.0x 5.1x 5.4x EBITDA margin 24.3% 25.5% 26.9% 25.3% 27.5% 26.5%
Capitalization Debt to Debt to LTM 2011E Description Size EBITDA EBITDA Liquidity Revolving Credit Facility 200 Revolver Size $1,250 US Term Loan A 11/14/2016 1,250 Letters of Credit 0 Total Sr Sec debt 1,450 0.9x 0.9x Borrowings 200 Revolver Availability 1,050 1.25% Sr Convertible Notes due Mar 2012 600 3.75% Sr Convert Notes due Sept 2015 575 Cash $513 7.625% Sr Notes due July 2017 550 Total Liquidity $1,563 7.875% Sr Notes due July 2020 1,000 6.00% Sr Notes due Nov 2018 800 Total Sr debt 3,525 3.1x 3.0x
Other 9 Short term borrowings (Matrix WC facility) 158
Total Debt 5,142 3.2x 3.1x Market Cap 8,983 Enterprise Value 13,612 8.5x 8.2x
Maturities:
5,000
4,000
3,000
2,000
1,000
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 130 January 26, 2012 High Yield
Neenah Paper (NP) Updated 1/23/12 Joe Stivaletti (212) 902-3299 Contact analyst for updates and other information. James Kitchell (212) 902-9813 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) $158 7.375 Sr Nts 15-Nov-14 B1/BB- 101.229 Current 100.000 7.354 727
Company Description Company Strengths: Neenah Paper manufactures premium and specialty paper products. Based in Alpharetta, Georgia, Neenah has paper - Strong market positions: Neenah maintains a leading manufacturing operations in the United States and Germany. position in most of its product categories.
Company Risks: - Lower-than-expected demand and selling prices: Currently weak economic conditions may result in lower-than-expected demand and selling prices for Neenah's paper products. - Possible future acquisitions: Following the sale of its timberlands, Neenah may look to make additional leveraging acquisitions.
Financial Profile 12/31/2009 12/31/2010 9/30/2010 6/30/2011 9/30/2011 FY:09 FY:10 3Q:10 2Q:11 3Q:11 Revenue 573.9 657.7 161.5 182.9 174.9 EBITDA 68.0 83.0 19.6 23.6 20.4
Interest expense 21.8 20.0 4.8 3.7 3.6 Capital expenditures 8.4 17.4 6.2 4.7 6.0
Total debt 319.2 244.9 246.4 206.2 190.5 Cash 5.6 48.3 38.7 9.3 10.8 Net debt 313.6 196.6 207.7 196.9 179.7
Key Credit Statistics Total debt/EBITDA 4.7x 3.0x 2.9x 2.4x 2.2x Net debt/EBITDA 4.6x 2.4x 2.4x 2.3x 2.1x EBITDA/interest 3.1x 4.2x 4.1x 6.4x 5.7x EBITDA margin 11.8% 12.6% 12.1% 12.9% 11.7% Comps Leverage Coverage Ratings Boise Inc. 1.7x 5.4x Ba3/BB
Capitalization 9/30/2011 Debt to Description Size EBITDA Liquidity 9/30/2011 Revolver 6.1 0.4x Revolver size 95.0 Neenah Germany revolver 17.1 0.4x Borrowing base 84.5 Project financing 9.3 0.4x Letters of credit 0.9 Senior notes due 2014 158.0 2.2x Borrowings 6.1 Total debt 190.5 Revolver availability 77.5 Market capitalization 353.4 Enterprise value 533.1 Cash 10.8 Total liquidity 88.3
Maturities:
180.0 160.0 140.0 120.0
100.0 80.0 60.0 40.0 20.0 - 2012 2013 2014 2015+
Goldman Sachs Credit Research 131 January 26, 2012 High Yield
The Neiman Marcus Group (NMG) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 212-357-7875 Contact analyst or see latest research for updates to ratings, estimates, and other information. IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $500 10.375 Sr Subs 15-Oct-15 Caa1/B- $103.46 Current $103.45 7.66 720
Company Description Investment Strengths: Neiman Marcus serves the unique needs of the luxury market, and has a goal of providing its customers with - Strong management team distinctive merchandise and superior service. The company operates 41 Neiman Marcus stores in the United - Luxury has been a leading subsegment within retail States and two Bergdorf Goodman stores in Manhattan. It also operates 28 Last Call clearance centers as well - Highly variable cost structure (pays little rent as Neiman Marcus Direct, its direct-to-consumer business that conducts both print catalog and online operations expense and sales force is 100% commission-based) under the Neiman Marcus, Horchow, and Bergdorf Goodman brand names. Investment Risks: - High leverage Key Dates/Catalysts: - Moderate free cash flow Early March– second quarter earnings release - Sales performance highly correlated to stock market
Financial Profile FY10A FY11A FY12E 2Q11A 2Q12E Comps Yield Leverage Coverage Ratings Revenue 3,692.8 4,002.3 4,309.8 1,171.6 1,239.7 Neiman 7.66% 4.6x 3.5x Caa1/B- EBITDA 447.0 524.7 578.1 136.4 147.9 Michaels 6.75% 4.3x 2.8x Caa2/CCC Yankee 10.14% 4.5x 1.9x B3/CCC+ Interest Expense 237.1 280.5 164.0 55.2 40.3 J. Crew 8.70% 5.4x 3.2x Caa1/CCC+ Cash Taxes (3.48) 17.64 103.57 12.89 28.50 CapEx 75.9 94.2 178.2 22.8 55.0 Free Cash Flow 137.4 132.4 132.3 45.4 24.1
Total Debt 2,879.7 2,681.7 2,681.7 2,789.8 2,681.7 Cash 421.0 321.6 486.9 530.7 453.2 Key Credit Statistics Total Debt/EBITDA 6.4x 5.1x 4.6x Net Debt/EBITDA 5.5x 4.5x 3.8x
EBITDA/Interest 1.9x 1.9x 3.5x 2.1x 2.2x
EBITDA margin 12.10% 13.11% 13.41% 11.64% 11.93%
Capitalization 2012E Debt to Description Size EBITDA Liquidity 1Q12A Revolver ($700mm, due Jan 15 2016) 0.0 Revolver Size 700.0 Sr Sec. Term Loan Facility (L+350 due May 2018) 2060.0 Letters of Credit 3.5 Sr Sec. Term Loan Facility (L+400 due April 2016) 0.0 Borrowings 0.0 Total Secured Debt 2060.0 3.6x Revolver Availability 626.5 9% Sr Nts due 2015 0.0 10 375% Subs due 2015 500.0 A/R facility NA 7.125% Senior Debentures due June 2028 121.7 Borrowings 0.0 A/R Availability NA Total Sub debt 621.7 4.6x Cash 289.6 Total Debt 2681.7 4.6x Total Liquidity 916.1 Market Cap N/A Enterprise Value N/A
Maturities: 3,000
2,500
2,000
1,500
1,000 500
0 2012 2013 2014+
Goldman Sachs Credit Research 132 January 26, 2012 High Yield
New York Times Co. (NYT) Updated 1/23/2012 Scott Wipperman 212-357-9922 Contact analyst or see latest research for updates to ratings, estimates, and other information. Scott Marchakitus 212-902-9760 IN-LINE Our In-Line reflects NYT's improved balance sheet, strong liquidity and premium content which is offset by spread valuation, its high cost structure and print ad revenue weakness. In addition, we believe the unexpected retirement of CEO Janet Robinson and sale of its Regional Media business create uncertainity. Bond Summary Size Coupon Agency Bid YTW STW 5-year (MM) (%) Priority Maturity Ratings Price (%) bp CDS $225 6.625 Sr Notes 15-Dec-16 B1/B+ 103.000 5.905% 513 245/265
Company Description Investment Strengths: The New York Times (NYT) is a media company whose primary operations include newspapers and Internet ‐ NYT owns a premier asset in the New York Times businesses. NYT classifies its business into two segments: the News Media Group and About Group. The paper. News Media Group consists of the New York Times Media Group, which includes The New York Times - NYTimes.com is one of the leading newspaper- paper, NYTimes.com, and the International Herald Tribune. The News Media Group also holds the New related Web sites. England Media Group, which primarily includes The Boston Globe and the Worcester Telegram and - Company is well positioned to monetize content Gazette. The About Group consists of the About.com Web site and other Internet businesses. The company across alternative platforms such as tablets and also owns a stake in New England Sports Ventures and interests in a newsprint mill and paper mill. A smartphones. significant portion of the company's revenue is derived from selling advertising in its newspapers and related - Recent digital subscription offerings could help Web sites. The company reports its advertising in three categories: National, Retail, and Classified. offset decline in print circulation revenue. - The company has cleaned up its debt maturity In January, the company sold its Regional Media Group to Halifax Media LLC for $143 million. The Regional schedule. Media Group consisted of 14 daily regional newspapers. - Healthy liquidity, with $206 million in cash pro forma for the repayment of its 14.053% notes. Key Dates/Catalysts: - 4Q2011 results on February , 2012 Investment Risks: - The company is currently searching for a new CEO following the retirement of CEO Janet Robinson. - Higher cost structure than industry peers. - Unexpected retirement of CEO Janet Robinson creates uncertainty. Financial Profile FY09A FY10A FY11E - Pension plan was underfunded by $442 million as Revenue 2,440 2,393 2,331 of 12/31/10 and could require increased funding. Adjusted EBITDA 328 377 357 - NYT is reliant on its "Times" franchise, creating some concentration risk for investors. Interest Expense 82 85 85 - More than 40% of NYT's workforce is unionized, which may constrain future restructuring efforts. - Print ad revenue declines have not abated. Operating Cash Flow 246 153 163 - About Group ad revenue performance has been CapEx 51 34 49 weak, which has weighed on overall digital ad Dividends 0 0 0 revenue. - Recent NYTimes.com pay-wall could cannibalize Free Cash Flow 194 120 114 digital ad revenue. - Double-dip recession or weaker economy could Total Debt 769 996 772 further weaken ad revenue. Cash 37 400 357 Net Debt 733 597 415 Agency Comps Leverage Coverage Ratings Key Credit Statistics Gannett 1.8x 6.4x Ba1/BB Total Debt/EBITDA 2.3x 2.6x 2.2x MNI 4.7x 2.1x Caa1/B Net Debt/EBITDA 2.2x 1.6x 1.2x RRD 3.1x 4.7x Ba1/BB+ EBITDA/Interest 4.0x 4.4x 4.2x EBITDA margin 13.4% 15.8% 15.3%
Capitalization Debt to Description Size EBITDA Liquidity
Credit Facility - June 2016 0 Revolver Size 125 Matures in June 9, 2016 4.610% MTN due 9/26/2012 75 Letters of Credit 62 5.00% notes due 3/15/2015 250 Borrowings 0 6.625% notes due 12/15/16 225 Revolver Availability 63 Total Bonds 550 Other debt 225 Cash 263 Total Debt 775 2.2x Total Liquidity 326 Market Cap 1,175 Credit agreement maintenance Enterprise Value 1,687 covenants (as defined): Springing Fixed Charge Covenant
Maturities:
750
500
250
0 2012 2013 2014 2015
Goldman Sachs Credit Research 133 January 26, 2012 High Yield
Newfield Exploration (NFX) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $700 6.875% Sr. Sub. 2/1/2020 Ba2/BB+ $103.44 2/1/2015 $107.25 5.30% 453
Company Description Investment Strengths: Newfield has successfully transformed itself from a US Gulf-only player in 1995 to a predominantly onshore US • Strong upside potential from Granite Wash, producer today. NFX's growth engine is its leading position in the Woodford Shale (OK), which is one of the most Marcellus, and Eagle Ford positions attractive shale plays in the US. Recent acquisitions and divestitures have increased the company's US Rockies • Strong hedge position, with 58% of 2012E volumes exposure. protected • Well balanced between oil and gas (60% gas) Newfield was founded in 1989 with an initial focus on the shallow waters of the Gulf of Mexico. Since the mid- 1990s, the company has moved toward a more diversified asset base, including domestic US assets in the Onshore Gulf Coast, Mid-Continent, Rocky Mountains, and Gulf of Mexico regions, and international assets in the Investment Risks: UK North Sea, Malaysia, and China. In 2007, the company raised $1.8 bn through the sale of non-core assets, • Company may require external capital or asset including the sale of N Sea assets for $486 mn (October 2007) and the divestiture of its shallow gulf properties to divestitures to fund growth in new plays MMR for $1.1 bn. In addition, in June 2007, NFX spent $578 mn to acquire Stone Energy's Rocky Mountain • Rich valuation and near-term deleveraging unlikely assets. Subsequently, NFX sold its North Sea properties to Centrica PLC for $286 mn in October 2007. In May • Recent struggles in the Granite Wash 2008, NFX announced a JV agreement with XOM to explore 87k gross acres in South Texas over three years. In November 2009, NFX announced a JV with Hess in the Marcellus shale for up to 140k gross acres. In July 2010, Key Dates/Catalysts: S&P raised Newfield's corporate family rating to investment grade. • Continued updates on capital spending plans • Eagle Ford, Uinta, and Granite Wash results
Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $1,944 $2,189 $2,327 $2,644 $3,023 EBITDA (Adj for non-cash items) $1,377 $1,715 $1,702 $1,666 $2,107 Free Operating Cash Flow ($1,456) $178 ($28) ($374) $72 Capital Expenditures $2,310 $1,400 $1,658 $1,936 $1,852 Leverage Coverage Agency Comps ('11E) ('11E) Ratings Credit Ratios 2008A 2009A 2010A 2011E 2012E NFX 1.8x 10.3x Ba2/BB+ Total Debt/EBITDA (LTM) 1.6x 1.2x 1.4x 1.8x 1.4x CHK 2.0x 33.6x Ba3/BB+ EBITDA/Interest Expense (LTM) 12.3x 13.6x 10.9x 10.3x 14.0x FST 2.8x 4.0x B1/B Debt to Capitalization % 40% 42% 41% 43% 39% PXD 1.9x 8.6x Ba1/BBB- Debt + Preferred per Proved Boe $4.50 $3.38 $3.72 $4.82 $4.82 Debt + Preferred per PDP Boe $7.27 $6.41 $6.39 $8.27 $8.27
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $31 Revolver Size $1,250 Revolving Credit Facility $66 Letters of Credit $0 Long Term Debt Borrowings $66 Senior sub notes 2014-20 $2,919 Revolver Availability $1,184 Total Long Term Debt $2,919 Cash $31 Total Debt $2,985 1.7x Total Liquidity $1,215 Preferred Equity $0 Common Equity $3,838 Total Capitalization $6,823
Maturities:
800 700 600 500 400 300 200 100 Debt maturities ($ mn) 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 134 January 26, 2012 High Yield
Nova Chemicals (NCX) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 IN-LINE
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp IL 350 8.375 Sr. Unsec 1-Nov-16 Ba2/BB- 104.2 11/1/2013 111.00 4.16% 388
Investment Strengths: Company Description - Nova's owner, IPIC, is a double-A rated entity that Nova Chemicals is a leading North American olefins/polyolefins producer that is wholly owned by IPIC, an Abu Dhabi has verbally pledged its support for Nova. Nova's investment vehicle. The company has two large olefins/polyolefins sites in Canada – a large ethane-based site in Joffre, bonds trade to reflect this implicit IPIC guarantee. Alberta, and a naphtha-based site in Corunna, Ontario. - Large, backward-integrated producer. - Joffre site has access to advantaged feedstocks, and Key Dates/Catalysts: therefore is the lowest-cost ethylene producer in North 4Q2011 earnings release America. Potential combination of Nova with Borealis, also owned by IPIC - IPIC has indicated it may look to combine Nova with Borealis, another of its portfolio companies, over the long term.
Investment Risks: Financial Profile ($, mn) FY:09 FY:10 FY:11E Q4:10 Q3:11 Q4:11E - Minimal business diversity. - Commodity chemical business is highly cyclical. Revenue 2,957 4,576 5,240 NA 1,448 1,101 - Decreased ethane availability at Joffre could pose EBITDA 342 881 1,155 NA 311 116 near-term headwinds until newly identified sources become operational.
Cash Interest (142) (161) (132) NA (23) (41) Cash Taxes 33 16 (125) NA (7) (1) Capital Expenditures (101) (131) (176) NA (42) (80) Free Cash Flow (75) 612 583 NA 369 93
Total Debt 2,065 1,810 1,813 NA 1,813 1,813 Cash 267 300 959 NA 874 959 Net Debt 1,798 1,510 854 NA 939 854
Key Credit Statistics Comps Leverage Coverage Ratings LTM Debt/EBITDA 6.3x 2.1x 1.6x NA 1.5x 1.6x Nova Chem 1.6x 8.7x WR/NR LTM Net Debt/EBITDA 5.5x 1.7x 0.7x NA 0.8x 0.7x Olin 1.9x 10.2x Ba1/BB PolyOne 1.9x 5.4x Ba3/B LTM EBITDA/Interest Expense 2.4x 5.5x 8.7x NA 8.9x 8.7x LTM EBITDA Margin 12% 19% 22% NA 23% 22%
PF Capitalization ($, mm) Debt to Description Size EBITDA Liquidity Credit Facility ($350mn) - Revolver 425 Cogen Debt (1) - Borrowing base 425 A/R Financing 184 Est. Amount Drawn - Total Senior Secured Debt 184 0.2x Letters of Credit 16 Unsecured revolver drawings - Revolver Availability 409 Senior Unsecured (C$ 250) - Senior Unsecured 400 Bilateral facilities - Senior Unsecured 400 Unsecured revolver - Senior Unsecured 100 Unsecured revolver 40 New Senior Unsecured Bonds 350 Unsecured revolver 100 New Senior Unsecured Bonds 350 Total Bilateral Facilities 140 Other Unsecured Debt 29 Borrowings - Transaction Costs and Other - Availability 140 Total Debt 1,813 1.6x Shareholder's equity 2,426 Cash 874 Total Capitalization 4,239 Total Liquidity 1,423
Maturities:
700 600 500
400 300 200 100 0 2012 2013 2016
Goldman Sachs Credit Research 135 January 26, 2012 High Yield
NRG Energy, Inc. (NRG) Updated 1/25/2012 Raymond M. Leung 212-357-5764 Contact analyst or see latest research for updates to ratings, estimates, and other information. Abayomi A. Adigun 212-902-9355 IN-LINE Core high yield power holding that exhibits complementary businesses (wholesale and retail) and a solid underlying financial and liquidity position. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,200 7.875 Sr Unsec'd 15-May-21 B1/BB- 103.94 15-May-16 94.250 8.790 680
Company Description Investment Strengths: NRG is a wholesale power generation company engaged in the ownership, development, construction, and operation of - Well-positioned generation portfolio, underpinned by electric generation facilities. Also, the company provides retail services to more than 1.8 million customers, largely company's low-cost baseload fleet (38% of capacity), composed of Mass customers. The company's generation portfolio of around 25GW is diverse on a geographical, fuel, which includes nuclear and coal generation assets. and dispatch basis. NRG's domestic portfolio regions include Texas (10.7GW), Northeast (6.9GW), South Central - Large retail service provider operations represent a (4.1GW), West (2.15GW), and Thermal (115MW). The company also has just over 1GW of international generation complementary hedge to the company's wholesale assets located in Australia and Europe. NRG recently completed the acquisition of Green Mountain Energy ($70-80 generation portfolio, which will provide a degree of cash million of 2011 EBITDA) for $350 million and 1.278GW related to the Cottonwood Generating Station for $525 million. flow stability. Key Dates/Catalysts: - Comprehensive hedging strategy for baseload output, - Mid-to-Late Febraury, NRG is expected to release 4Q earnings. The company expects 2011 EBITDA of $1.8-$1.85 bn with baseload hedge positions of 100% in 2012 and 35% with free cash flow of $800-$875 mn. For 2012, the company expects EBITDA of $1.825 bn to $2.0 bn. We will listen in 2013. closely for an update on the company's hedge position as gas and power prices continue to fall.. - Strong liquidity profile, with about $1.5 billion of - Environmental regulations are pending: Cross-State Air Pollution Rule (stay implemented late December), Once Thru available liquidity and no major debt maturities over the Cooling (316(b)), anticipated final rule July 2012. near-term. - In January 2012, NRG can call its 2017 notes, which have more restrictive covenants than recent notes. Thus, we - Favorable bond covenants package, which includes RP, would look for an update on the company's capital allocation plans. For 2011, NRG is targeting $430 mn in share COC, and limitation on liens in the 2017 notes. repurchases. - Update on expansion into renewable projects. Investment Risks: - Future capital allocation related to deployment of large cash balance. - Wholesale and retail operations are exposed to volatile - Status of the South Texas Project has been out of service since late November 2011. commodity markets and a high degree of competition which may pressure gross margins. - Guidance was recently reduced for 2011 owing to a Financial Profile FY08A FY09A FY10A FY11E LTM3Q11 mismatch in its hedging profile due to extreme weather in Texas. Gross Margin 4,244 4,766 3,874 3,571 3,606 - Focus on returning capital to shareholders would reduce EBITDA 2,257 2,672 2,412 1,796 2,066 the company's strong liqudity profile. EBITDAR - ex M2M 2,311 2,774 2,523 1,864 2,177 - Capital spending is manageable, but future environmental spending and renewable development Interest Expense (683) (705) (714) (784) (924) backlog could elevate capital outlays and associated Cash Taxes (46) (47) (20) (50) (20) funding needs. CapEx (899) (734) (706) (2,464) (2,061) - Financial results rely heavily on Texas, which is the company's primary geographical region. Free Cash Flow 282 1,742 982 (1,576) (872)
Lease Adjusted Debt 8,583 9,234 12,902 10,886 10,177 Cash 1,494 2,304 2,951 2,907 1,127 Net Debt 7,089 6,930 9,951 7,979 9,050 Agency Key Credit Statistics Comps Leverage Coverage Ratings Lease Adj Debt/EBITDAR 3.7 3.3 5.1 5.8 4.7 AES Corp* 4.1x 3.6x Ba3/BB- Net Lease Adj Debt/EBITDAR 3.1 2.5 3.9 4.3 4.2 Calpine Corp 6.7x 2.0x B1/BB- Dynegy 10.2x 1.1x –/D EBITDAR/Interest 3.4 3.9 3.5 2.4 2.4 Edison Mission 8.5x 1.4x Caa1/B- GenOn 7.8x 1.1x B3/B CMS 4.7x 3.7x Ba1/BB+ Capitalization NRG 4.7x 2.4x B1/BB- Debt to Description Size EBITDAR *AES reflects sub distributions to parent obligations; LTM4Q2011
2011 Senior Credit Facility ($2,300) - As of September 30, 2011 Term Loan Facility 2018 1,592 Liquidity Project and operating lease debt 1,616 Revolving credit facility 2,300 Total Secured & Non-recourse project debt 3,208 1.5x NRG Energy 7.25% due 2014 - Total facilities 2,300 NRG Energy 7.375% due 2016 - Facility borrowings (1,949) NRG Energy 7.375% due 2017 1,090 NRG Energy 7.625% due 2018 1,200 Revolver Availability 351 NRG Energy 7.625% due 2019 800 Cash 1,127 NRG Energy 8.5% due 2019 691 Total NRG Liquidity 1,478 NRG Energy 8.25% due 2020 1,100 NRG Energy 7.875% due 2021 1,200 Other - Total Debt 9,289 4.3x Operating lease adjustment 888 Lease Adjusted Debt 10,177 4.7x
Preferred Shares 248 Market Cap 3,985 Enterprise Value to EBITDA 14,410 7.0x
Maturities (includes project debt)
450 400 350 300 250 200 150 100 50 0 2011 2012 2013 2014 2015
Goldman Sachs Credit Research 136 January 26, 2012 High Yield
NXP B.V. (NXPBV) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $922 9.750 Snr Secured 1-Aug-18 B2/B+ 104.88 8/1/2014 113.00 5.9% 563
Company Description Investment Strengths: NXP is an integrated device manufacturer (IDM) of high-performance mixed signal and standard semiconductors - Aggressive debt reduction efforts: By the end of 2011, for the automotive, identification, wireless infrastructure, lighting, industrial, mobile, consumer, and computing NXP will have repaid $2.5 bn of debt since its 2006 LBO, markets. The company was formed from the divested assets of Philips Electronics' semiconductor manufacturing helped by $442 mn of IPO proceeds and $885 mn of solutions and is headquartered in the Netherlands. In August 2006, Phillips sold an 80.1% controlling stake to a proceeds from the sale of its Sound Solutions business. group of private equity investors led by KKR, Silver Lake Partners, and AlpInvest Partners. The purchase price - Leverage to a strong auto cycle: NXP's High- was €4.305 billion, or 7.5x LTM adjusted EBITDA. In 2010, NXP completed an initial public offering of 14% of the Performance Mixed-Signal (HPMS) segment is well equity, which raised gross proceeds of $476 million. leveraged to strong global auto production and improving content-per-vehicle opportunities. Key Dates/Catalysts: - Successful cost-cutting initiatives should drive further - NXP is expected to report 43Q2011 earnings on February 9, 2012. margin growth: NXP has reduced capex by $450mn - NXP closed the sale of its Sound Solutions business to Dover Corp. for $855 million in July 2011. since its 2006 IPO and expects further efficiencies. - NXP completed its IPO on August 5, 2010, and a 25 million share secondary offering on March 9, 2011 Investment Risks: - Leverage profile: While NXP has made progress in reducing financial leverage, it is still more levered than many of its peers – especially given the historical volatility of the operating cycle. - Inventory correction: Companies with high exposure to the computing and industrial end markets have been Financial Profile FY08 FY09 FY10 LTM-3QE FY11E FY12E affected by semiconductor industry inventory cycle corrections, which can result in sales and margin Revenue 5,443 3,843 4,657 4,341 4,275 4,210 volatility. EBITDA 486 336 1,105 1,167 1,084 1,081 - Working capital has consumed free cash flow: Changes in working capital have consumed cash over the past couple of years, driving a more volatile free cash flow Interest Expense (743) (381) (393) (313) (276) (208) profile. Cash Taxes (8) (8) (14) (28) (30) (40) CapEx (379) (96) (258) (273) (267) (289) Free Cash Flow (1,001) (841) 101 (29) 125 538
Total Debt 6,367 5,283 4,528 3,821 3,312 2,823 Cash 1,796 1,041 898 865 583 633 Comps Leverage Coverage Sr. Unsec Net Debt 4,571 4,242 3,630 2,956 2,729 2,190 Ratings Key Credit Statistics AMD 2.3x 5.0x Ba3/B+ Total Debt/EBITDA 13.1 x 15.7 x 4.1 x 3.3 x 3.1 x 2.6 x AMKR 2.3x 6.6x Ba3/BB Net Debt/EBITDA 9.4 x 12.6 x 3.3 x 2.5 x 2.5 x 2.0 x FSL 5.8x 2.0x Caa1/CCC+
EBITDA/Interest 0.8 x 0.5 x 0.6 x 3.7 x 3.9 x 5.2 x EBITDA margin 8.9% 8.7% 23.7% 26.9% 25.3% 25.7%
Capitalization (LTM) Debt to Description Size EBITDA Liquidity FY2011E E+275 Revolver due 2012/2015 0 0.2 x Revolver Size 701 10% Super Priority USD Notes due 2013 221 0.2 x Borrow Base 701 10% Super Priority EUR Notes due 2013 39 0.2 x - Amt Drawn 0 L+325 Term Loan due 2017 498 2.6 x - LC's 32 L+425 Term Loan due 2017 0 2.6 x Amt Unutilized 669 L+275 Sr. Sec. USD Notes due 2013 666 2.6 x Cash 583 E+275 Sr. Sec. EUR Notes due 2013 668 2.6 x Liquidity 1,252 L+550 Sr. Sec. USD Notes due 2016 0 2.6 x 9.75% Sr. Sec. USD Notes due 2018 922 2.6 x Maturities: 9.5% Sr. USD Notes due 2015 510 3.3 x 1,000.0 8.625% Sr. EUR Notes due 2015 275 3.3 x Other (incl unamor discount) 22 3.3 x Total Debt 3,821 3.3 x Less cash 865 -- 500.0 Net Debt 2,956 2.5 x Equity Market Cap 5,333 -- Enterprise Value 8,289 7.1 x
0.0 2012 2013 2014 2015 2016 2017 2018 After
Goldman Sachs Credit Research 137 January 26, 2012 High Yield
Olin Corporation (OLN) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 UNDERPERFORM
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp U 150 8.875 Sr. Unsec. 15-Aug-19 Ba1/B+ 104.4 15-Aug-14 107.00 7.32% 599
Company Description Strengths:Investment Strengths: Olin is a commodity chemical company that produces chlorine and caustic, primarily for the merchant market. The - Low leverage and conservative balance sheet. company also has a small ammunition business, which is called Winchester. Over the last several years, Olin - Ample liquidity. made one major acquisition and one major divestiture. In August 2007, the company acquired Pioneer Companies, - Strong market share in merchant chlor-alkali market. consisting of significant chlor-alkali assets, primarily located in Canada. In October 2007, Olin sold its Metals business to Global Brass and Copper Holdings for $400 million. Risks:Investment Risks: - Olin has expressed a willingness to be acquisitive in Key Dates/Catalysts: the downturn. 2Q20114Q2011 results - Olin has high-cost technology relative to some peers. Potential acquisition in the bleach space - Phase-out of mercury-based chloralkali plants in the US will require significant capex over the next several years. - ECU margins may weaken over the intermediate term due to new vinyls-based chlor-alkali capacity. - Loss of business due to Westlake's recent decision Financial Profile ($, mn) FY:09 FY:10 FY:11E 4Q:10 3Q:11 4Q:11E to build out additional chlor-alkali capacity. Revenue 1,532 1,586 1,946 385 550 431 EBITDA+distributions 202 197 313 59 99 68
Interest Expense (14) (25) (30) (6) (8) (8) Cash Taxes (40) 10 (33) (4) (8) (8) Capital Expenditures (138) (85) (253) (22) (65) (125) Free Cash Flow 11 97 (4) 27 18 (73) Comps Leverage Coverage Ratings Total Debt including SunBelt 447 539 538 539 590 538 Olin 1.9x 10.2x Ba1/BB Total cash 459 561 270 561 390 270 PolyOne 1.9x 5.4x Ba3/B Net Debt - - 269 - 200 269 Key Credit Statistics Total Debt/EBITDA 2.2x 2.7x 1.7x 2.7x 1.9x 1.7x Net Debt/EBITDA 0.0x 0.0x 0.9x 0.0x 0.7x 0.9x
LTM EBITDA/Interest 12.0x 7.0x 10.3x 7.0x 10.2x 10.3x LTM EBITDA Margin 11% 11% 16% 11% 15% 16%
PF Capitalization ($, mm) Debt to Description Size EBITDA Liquidity Senior unsecured revolving facility - Revolver 240 6.5% Senior unsecured notes 11 Revolver usage - 6.75% Senior unsecured notes 125 Letters of Credit 9 9.125% Senior unsecured notes 75 Revolver Availability 232 8.875% Senior unsecured notes 150 Industrial development bonds 11 LOC facility 35 Tennessee tax-exempt bonds 41 Usage 26 Mississippi tax-exempt bonds 42 Availability 9 AL recovery and go zone bonds 34 Other 15 Cash & equivalents 318 Total Debt 504 1.7x Restricted cash 72 SunBelt Debt 85 Liquidity 621 Total Debt including SunBelt 590 1.9x Share price 22.2 Market Capitalization 1,794 Enterprise Value 2,383 6.5x
Maturities:
160 140
120 100 80
60 40 20 0 2011 2012 2013 2014 2016
Goldman Sachs Credit Research 138 January 26, 2012 High Yield
Omnicare (OCR) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 NOT RATED
Bond Summary Size Coupon Agency Next Call Bid YTW STW CDS (MM) (%) Priority Maturity Ratings Price Date Price (%) bp Levels 5-Year $550 7.750% Snr. Sub. 2-Jun-20 Ba3/BB $103.875 6/1/2015 $109.750 5.576% 478 Sub 250 / 300
Company Description Company Strengths: OCR provides pharmacy services – primarily purchasing, repacking, and dispensing drugs – to nursing homes and - Strong FCF at 26% of debt as of LTM 3Q2011. In our view, cash assisted living facilities. Under Medicare Part D, prescription drug plans (PDPs) operated by the likes of UnitedHealth priorities are likely share repurchase ($79 mn left on the current and Humana contract with OCR to provide drugs to members of the plans. The PDPs pay OCR for drugs at authorized program of $300 mn) . contracted rates, commonly pegged to Medicaid rates. OCR buys drugs primarily from drug distributors at negotiated rates. OCR adds value to the supply chain by having pharmacists steer patients to the most cost-effective drugs - Benefit from the trend to generic drugs: The dispensing of generic (typically generics) and by being a volume purchaser, which earns rebates from manufacturers. drugs has higher margin than the dispensing of branded drugs, so OCR is positioned to benefit from the large number of generics to be John Figueroa from McKesson was named CEO in December 2010 following the departure of the previous CEO in introduced over the next several years. August 2010. In September, OCR acquired Continuing Care RX (32,000 beds). On September 3, 2010, Omnicare announced it would exchange its home infusion business for Walgreen's long-term care pharmacy business, adding approximately 7,000 serviced beds. In its 4Q2010 conference call, OCR characterized 2011 as a year of Company Risks: transformation due to continued investments in the business. - New management may be unable to fix the service quality problems that have been causing the company to lose beds, or operating In August 2011, OCR tender for Pharmerica (PMC) at $15 per share. PMC has urged shareholders to take no action. problems may extend beyond service quality. OCR's tender offer has been extended to January 27, 2012. - Reduced prescription volume and increased reimbursement pressure. Key Dates/Catalysts: - Quarterly earnings announcements - Former CEO Joel Gemunder is a permitted holder under the bond - January 27, 2012 - deadline for tender offer for PMC shares. indenture.
Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E Revenue $6,188 $6,146 $6,150 $1,558 $1,544 $1,521 EBITDA 688 594 608 147 157 156
Interest Expense $110 $126 $132 $34 $50 $26 Cash Taxes 97 12 109 (19) 23 29 CapEx 31 24 49 5 21 10 Free Cash Flow 453 345 493 93 147 84 Agency Total Debt $2,109 $2,216 $2,043 $2,216 $2,193 $2,043 LTM Comps Leverage Coverage Ratings Cash 276 494 584 494 680 584 OCR snr 2.6x 5.7x Ba2/BB Net Debt 1,833 1,722 1,459 1,722 1,513 1,459 HLS 4.0x 3.4x B2/B+ Key Credit Statistics ALR sub 5.0x 3.4x B3/B- Total Debt/EBITDA 3.1x 3.7x 3.4x Net Debt/EBITDA 2.7x 2.9x 2.4x
EBITDA/Interest 6.2x 4.7x 4.6x 4.4x 3.2x 5.9x EBITDA margin 11.1% 9.7% 9.9% 9.4% 10.2% 10.3%
Capitalization Debt to Debt to LTM 2011E Description Amount EBITDA EBITDA Liquidity Revolving Credit Facility due 5/18/2015 $0 Revolver Size $300 Term loan due Aug 2017 $450 Letters of Credit 20 Total Sr debt 450 0.8x 0.7x Borrowings 0 Revolver Availability 280 6.125% Sr. Sub. notes, due 2013* $0 6.875% Sr. Sub. notes, due 2015* 0 A/R facility $0 7.75% Sr Sub notes, due 2020 550 Borrowings 0 3.75% Convert Sr. Sub Nts due 12/15/2025 575 Total Sub debt with gty $1,125 2.6x 2.6x A/R Availability 0
3.25% convertible Sr. Notes, due 2035 453 Cash* $530 Capitalized lease and other debt obligations 15 Total Liquidity $810 *3Q11 cash less $150mn for repayments of 2013 and 2015 Total Debt $2,043 3.4x 3.4x notes post quarter end. Market Cap 3,813 Enterprise Value $5,327 8.9x 8.8x *PF for announced repayments post quarter end. Maturities:
2,500
2,000
1,500
1,000
500
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 139 January 26, 2012 High Yield
Owens-Illinois, Inc. (OI) Updated 1/23/12 Joe Stivaletti (212) 902-3299 Contact analyst or see latest research for updates to ratings, estimates, and other information. James Kitchell (212) 902-9813 UNDERPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) $600 7.375 Sr Nts 15-May-16 Ba3/BB NC NC 111.000 4.534 380 $250 7.800 Sr Debs 15-May-18 B1/BB- NC NC 109.500 5.967 467
Company Description Investment Strengths: Owens-Illinois is the largest manufacturer of glass containers in the world, with operations in North America, South America, - Low-cost global operations: OI's scale, diversity, and proprietary Asia Pacific, and Europe. equipment and technologies help keep the company's operations very cost-competitive throughout the world. - Long relationships with strong, stable customers: For many years OI has provided glass bottles to its top customers, which include leading consumer products companies. - Strong asset base: OI has invested significantly in recent years to improve productivity and reduce costs
Investment Risks: - Inability to maintain selling prices in the face of weaker demand: Prolonged volume weakness could pressure glass bottle manufacturers to reduce selling prices in order to preserve or gain market share. - Acquisitions: OI management has expressed interest in expanding its glass business, and acquisitions could result in increased leverage.
Financial Profile 12/31/2009 12/31/2010 9/30/2010 6/30/2011 9/30/2011 FY:09 FY:10 Q3:10 Q2:11 Q3:11 Net sales 6,652 6,633 1,689 1,959 1,862 EBITDA 1,209 1,266 355 322 349
Interest expense 212 230 54 67 62 Capital expenditures 407 500 154 80 51
Total debt 3,608 4,278 4,345 4,340 4,088 Cash 756 640 658 260 257 Net debt 2,852 3,638 3,687 4,080 3,831
Key Credit Statistics Comps Leverage Coverage Ratings Total debt/EBITDA 3.0x 3.3x 3.4x 3.4x 3.3x Ball 2.8x 6.6x Ba1/BB+ Net debt/EBITDA 2.4x 2.8x 2.9x 3.2x 3.1x Crown Holdings 2.9x 4.9x Ba3/BB Solo Cup 6.3x 1.5x B2/B EBITDA/interest 5.7x 5.5x 6.6x 4.8x 5.6x Plastipak 3.2x 3.2x B3/B EBITDA margin 18.2% 19.1% 21.0% 16.4% 18.7%
Capitalization 9/30/2011 Debt to Description Size EBITDA Liquidity 9/30/2011 Revolving credit facility 30 1.1x Revolver size 900 Term loans 1,069 1.1x Letters of credit 103 Short-term loans and other 295 1.1x Borrowings 30 Senior notes and debentures 2,694 3.3x Availability 767 Total debt 4,088 Market capitalization 3,778 Cash 257 Enterprise value 7,609 Total liquidity 1,024
Maturities:
4,500 4,000 3,500
3,000 2,500 2,000 1,500 1,000 500 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 140 January 26, 2012 High Yield
Parker Drilling Company (PKD) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 UNDERPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $300 9.125% Sr. 4/1/2018 B1/B+ $104.56 4/1/2014 $104.70 7.78% 748
Company Description Investment Strengths: PKD's primary business segments include US "brown water" barge drilling; international land and offshore barge • Good scale and geographic diversification for the drilling; and drilling-related rental tools. Parker's US barge fleet consists of 12 deep barge rigs, three intermediate ratings category; one of the best high yield energy barge rigs, and two shallow/workover barge rigs. The company's drilling-related rental tools business operates vehicles for international exposure under "Quail Tools" and is currently undergoing a geographic expansion. • Long-term trend toward growing demand for deep international drilling PKD's core competency is deep land drilling in international locations; the company has experience operating in • Solid and growing backlog of project management over 51 countries. Internationally, PKD markets 28 drilling rigs that operate throughout the CIS, Latin America, Asia services revenue Pacific, and Africa & Middle East. In addition, the company has two barge rigs in Mexico and the Caspian Sea, and also focuses on project management contracts for clients. In early 2012, Parker announced a delay in its 2 Alaska Investment Risks: rigs, due to necessary modifications. • Weak recent quarterly operating results • US barge drilling market remains weak • High leverage, although leverage position has improved materially from historical levels • International drilling continues to be weak
Key Dates/Catalysts: • Continued expansion of project management business Financial Profile 2008A 2009A 2010A 2011E 2012E • Expansion of Quail Tools into new shale plays and Revenue $830 $753 $659 $702 $860 internationally EBITDA (Adj for non-cash items) $274 $155 $162 $238 $284 Free Operating Cash Flow $23 ($49) ($96) $67 $65 Capital Expenditures $197 $160 $219 $184 $170
Leverage Coverage Agency Comps ('11E) ('11E) Ratings PKD 2.0x 13.4x B1/B+ Credit Ratios 2008A 2009A 2010A 2011E 2012E BAS 2.3x 12.8x B3/B Total Debt/EBITDA (LTM) 1.7x 2.7x 2.9x 2.0x 1.7x HOS 6.3x 2.4x Ba3/BB- EBITDA/Interest Expense (LTM) 11.2x 5.3x 6.1x 13.4x 111.2x Debt to Capitalization % 45% 42% 45% 43% 39%
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $103 Revolver Size $159 Revolving Credit Facility $0 Letters of Credit $6 Long Term Debt Borrowings $0 Term loans $67 Revolver Availability $153 Senior notes $420 Cash $103 Total Long Term Debt $487 Total Liquidity $256 Total Debt $487 2.2x Preferred Equity $0 Common Equity $633 Total Capitalization $1,120
Maturities:
Maturities: 350
300
250
200
150
100
Debt maturities ($ mn) ($ maturities Debt 50
0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 141 January 26, 2012 High Yield
Peabody Energy (BTU) Updated 1/20/12 Justine Fisher 212-357-6711 Contact analyst or see latest research for updates to ratings, estimates, and other information. Joshua Pinkerton 212-357-9774 UNDERPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,500 6.250% Sr Notes 15-Nov-21 BB+/Ba1 MW MW 104.63 5.55 422
Company Description Investment Strengths: - World leader in both sales and reserves. Peabody Energy is the largest public coal company in the world. Peabody's largest tonnage exposure is to the - Diversified geographic footprint, with operations in the US and Powder River Basin (PRB), but its largest EBITDA exposure is to Australia. This is especially true after the recent Australia. Macarthur Coal acquisition. Peabody has mines in the Powder River Basin, the Southwestern US, Illinois, and - Australia provides significant upside with global met and steam coal Australia. It owns 20 mines in the US and 10 in Australia. exposure.
Key Dates/Catalysts: Peabody's PRB operations could see lower prices if low natural gas prices continue to put pressure on the demand Investment Risks: for thermal coal. - Cost inflation is an issue for all coal companies. - Higher costs and production problems in the Australian operations have hurt results in the past, and might offset some of the benefits of strong export coal pricing. - Limited capacity at Australian coal export terminals could limit upside for the company's production. - Purchase of Macarthur Coal could indicate that Peabody plans to focus on expansion rather than on improving credit quality, and that it could pursue additional leveraging acquisitions. We think this forestalls an upgrade to Investment Grade in the near term.
Financial Profile FY10 2Q11 3Q11 4Q11 FY11E FY12E Revenue 6,860 2,008 2,036 2,229 8,018 9,490 EBITDA 1,815 605 504 659 2,184 2,533
Interest Expense (222) (49) (45) (47) (191) (434) Cash Taxes ------CapEx (633) (263) (310) (250) (938) (1,100) Free Cash Flow 2,064 395 575 533 1,724 1,815
Total Debt 2,750 2,512 2,502 6,956 6,956 6,504 Cash 1,295 1,252 1,402 916 916 1,086 Agency Net Debt 1,455 1,260 1,101 6,041 6,041 5,418 Comps Leverage Coverage Ratings Key Credit Statistics Peabody Energy 3.2x 11.4x BB+/Ba1 Total Debt/EBITDA 1.5x 3.2x 2.6x Steel Dynamics 2.7x 5.1x BB+/Ba2 Net Debt/EBITDA 0.8x 2.8x 2.1x US Steel Corp. 4.3x 5.0x BB/B1 FMG 7.6x 12.4x B1/B EBITDA/Interest 8.2x 12.3x 11.3x 14.2x 11.4x 5.8x EBITDA margin 26.46% 30.10% 24.78% 29.56% 27.24% 26.69%
Capitalization FY11E Debt Description Size to EBITDA Liquidity Term Loan 475.0 Revolver Size 1500.0 Revolver 0.0 Letters of Credit 0.0 Capital Leases 58.6 New Macarthur-related term loan 0.0 Borrowings 0.0 7.375% Senior Notes due 2016 650.0 7.875% Senior Notes due 2026 247.3 Revolver Availability 1500.0 6.5% Senior Notes due 2020 650.0 Other debt 46.8 A/R facility 0.0 6% Senior Notes due 2018 0.0 Borrowings 0.0 6.25% Senior Notes due 2021 0.0 4.75% Conv. Jr. Sub. Debentures due 2066 374.7 A/R Availability 0.0 Total Debt 2,502.4 1.1x Market Cap 9,713.6 Cash 1401.6 Enterprise Value 10,814.4 5.0x Total Liquidity 2901.6
Maturities:
2,500
2,000
1,500
1,000
500
0 2012 2013 2014 2015 Thereafter
Goldman Sachs Credit Research 142 January 26, 2012 High Yield
Pilgrim's Pride Corp. (PPC) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 212-357-7875 Contact analyst or see latest research for updates to ratings, estimates, and other information. IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $500 7.88 Sr Nts 15-Dec-18 Caa1/B- $103.94 15-Dec-14 95.25 8.81% 738
Company Description Investment Strengths: Pilgrim's Pride is the second-largest chicken producer in the US, representing approximately 17% - Leading market position of US chicken production, and the second-largest in Mexico. It is majority owned by a subsidiary - Chicken consumption continues to show of JBS S.A., the largest meat processing company in the world. Pilgrim's processes over 10 positive trends billion pounds of chicken annually through its 26 facilities, located primarily in the southeastern - Implicit backing of JBS USA US. Investment Risks: - Currently free cash flow negative - High corn prices Key Dates/Catalysts: - Weak chicken pricing Early to mid-February, quarterly earnings release
Financial Profile FY09* FY10 FY11E 4Q10A 4Q11E Comps Yield Leverage Coverage Ratings Revenue 7,088.1 6,881.6 7,789.4 1,811.3 2,083.0 Pilgrim's 8.81% NM NM Caa1/B- EBITDA 318.2 478.3 (160.4) 121.0 13.4 Smithfield 5.08% 1.9x 5.8x B2/BB- Dean Foods 7.00% 5.2x 2.9x B2/B- Interest Expense 157.5 103.7 110.0 24.5 27.4 Cash Taxes (21.6) (23.8) (26.9) (19.5) (20.5) CapEx 88.2 179.3 131.9 70.3 10.0 Free Cash Flow 94.0 219.1 (375.3) 45.7 (3.5)
Total Debt 41.1 1,339.3 1,452.5 1,339.3 1,452.5 Cash 220.0 106.1 25.3 106.1 25.3 Key Credit Statistics Total Debt/EBITDA .1x 2.8x -9.1x Net Debt/EBITDA -.6x 2.6x -8.9x
EBITDA/Interest 2.x 4.6x -1.5x 4.6x -1.4x
EBITDA margin 4.5% 6.9% -2.1% 6.7% 0.6% * FY09 ended September 2009, before calendar shift. Capitalization (2012E) Liquidity 3Q11A Debt to Description Size EBITDA Revolver Size 700.0 Exit Credit Facility w/ 2 term notes payable maturing 2012-14 578.5 Letters of Credit 40.1 Exit Credit Facility revolving note payable due 2012 ($700) 372.4 Borrowings 394.4 Total Secured Debt 950.9 NM Revolver Availability 243.9
7 7/8% Senior Notes due 2018 496.7 Other debt 4.9 Total Sub debt 501.6 NM
Total Debt 1,452.5 NM Cash 46.9 Market Cap 1,261.2 Total Liquidity 290.8 Enterprise Value 2666.7 NM
Maturities: 1,200 1,000
800 600 400 200 0 2012 2013 2014+
Goldman Sachs Credit Research 143 January 26, 2012 High Yield
Pinnacle Entertainment (PNK) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751
IN-LINE/UNDERPERFORM : We believe the senior notes offer better relative value in the PNK structure. We remain concerned about the increasing concentration of properties in Louisiana and the expectations for new competitors emerging near the company's existing properties in Indiana and Louisiana. Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $450 8.625 Senior 1-Aug-17 B1/BB 104.313 1-Aug-13 107.500 6.11 589 559 $350 8.75 Sr Sub Nts 15-May-20 Caa1/B 104.375 15-May-15 100.75 8.59 720 725
Company Description Investment Strengths: Pinnacle Entertainment (PNK) owns and operates seven casinos in the United States. The US casinos are - Attractive properties with relatively low average age. located in southeastern Indiana (Belterra Casino Resort); Lake Charles, New Orleans, and Bossier City, - Credit agreement includes a cash flow sweep that Louisiana (L’Auberge du Lac, Boomtown New Orleans, and Boomtown Bossier City); Reno, Nevada (Boomtown requires "excess cash flow" to repay debt. Reno); and St. Louis, Missouri (Lumiere Place / River City). In addition, PNK has one new property under - No near-term maturities. construction in Baton Rouge, LA. Significant equityholders include Columbia Wanger (10%), Jennison - Potential upside to River Downs acquisition with Ohio Associates (9%), Daruma Asset Mgmt (6%), and Vanguard (5%), according to Bloomberg. state government proposed legalization of the installation of slots at racetracks. Key Dates/Catalysts: - According to the Associated Press, the Kentucky governor - May 2011: PNK to make $95 mn cash investment in Vietnamese casino project in return for a 26% equity stake. is asking Congress for a constitutional amendment to PNK will develop and manage the second of five projects at the new "Ho Tram Strip." MGM is developing the first legalize casinos. project, which is expected to open in 1Q2013. PNK's site no. 2 will begin after MGM's phase 1 is open. - September 2011: Announces an $82 million expansion project for its River City Casino in St. Louis. The project Investment Risks: includes a 200-room hotel tower, a multi-purpose event center with 10,000 square feet, and a covered parking lot - Concentrated in Louisiana market (LTM ending 3Q2011: with 1,700 spaces. Construction is scheduled to begin in 1Q2012 and expected to be completed in 2H2013. Louisiana properties generated 51% of revenue and 57% of - November 2011: Boomtown Reno and adjoining land sold for up to $22 mn, subject to sale of the gaming property EBITDA). license. - Capacity growth in Louisiana: PNK has one project in the - 4Q2011: Capex to be $65 mn of which $45 mn is related to Baton Rouge. pipeline for LA – a $357 mn riverboat in Baton Rouge, which is expected to open in summer 2012. PNK has invested $109 mn to date in Baton Rouge as of 3Q2011. - Competition from new (and potential) jurisdictions, Financial Profile FY10A 1Q11A 2Q11A 3Q11A 4Q11E FY11E including significant proposed gaming expansion in Illinois Net Revenue 1,102.4 287.7 299.1 295.9 272.1 1,154.8 and Ohio. EBITDA 226.4 61.4 59.0 68.7 55.1 244.2 - International risk with the new Vietnam joint venture and potential for future funding into an unrestricted subsidiary. PNK has stated that as more equity is required, it will have Interest Expense 103.1 26.2 25.7 24.2 20.0 96.0 the opportunity but not the obligation to contribute. Cash Taxes (7.3) (0.4) 1.6 (4.1) 5.0 2.1 - Increased competition for the L'Auberge property in Lake Charles once Creative Casinos and its partner, MGM CapEx & M&A 182.5 38.3 40.8 127.9 60.9 267.8 Resorts, open a $400 mn resort / casino expected by the Free Cash Flow (51.9) (2.7) (9.0) (79.3) (30.8) (121.7) end of 2013.
Total Debt 1,176.7 1,177.0 1,187.3 1,199.7 1,249.8 1,249.8 Comps Leverage Coverage Ratings Cash 201.4 149.5 148.7 89.7 112.8 112.8 PNK 5.0x 2.8x Caa1/B Net Debt 975.3 1,027.6 1,038.7 1,110.0 1,137.0 1,137.0 GCCN 2.8x 4.8x B2/BB- Key Credit Statistics BYD 7.4x 2.0x Caa1/CCC+ Total Debt/EBITDA 5.2x 5.3x 5.2x 5.0x 5.1x 5.1x MGM (sr) 9.2x 1.7x B3/B- Net Debt/EBITDA 4.3x 4.6x 4.5x 4.7x 4.7x 4.7x Credit facility maintenance covenants EBITDA/Interest 2.2x 2.3x 2.3x 2.8x 2.8x 2.5x Leverage Sr sec lvg Coverage EBITDA margin 20.5% 21.4% 19.7% 23.2% 20.3% 21.1% 4Q2011 7.25x 2.75x 1.50x 1Q2012 7.50x 2.75x 1.65x 2Q2012 7.75x 2.75x 1.65x Capitalization Additional step-ups and step-downs through 2015. Debt to Description 3Q11A EBITDA Liquidity 3Q11A Enterprise Value Revolver due Aug 2016 (L+250) 32.0 Revolver Size 410.0 Shares O/S (mm) 62.13 Total senior secured debt 32.0 0.1x Letters of Credit 9.8 Share price$ 10.81 8.625% senior notes due Aug 2017 450.0 Borrowings 32.0 Market cap 671.7 Total senior debt 482.0 2.0x Revolver available 368.2 Net debt 1,116.4 7.50% senior sub notes due June 2015 375.0 Enterprise value (EV) 1,788.1 8.75% senior sub notes due May 2020 350.0 Other debt including OID (7.3) EV / LTM EBITDA 7.5x Total debt 1,199.7 5.0x Restricted cash 6.5 Cash 83.3 LTM EBITDA 239.5 Total Liquidity 457.9
Maturities: Segment results 900 Property 1Q11A 2Q11A 3Q11A 800 Boomtown New Orleans (LA) 36.9 33.4 32.1 700 600 Belterra (IL) 36.8 38.5 42.1 500 L' Auberge du Lac (LA) 88.8 96.1 98.2 400 Boomtown Bossier City (LA) 23.1 21.2 21.1 300 Boomtown Reno (NV) 7.6 9.7 0.0 200 Lumiere Place / River City (MO) 93.5 96.5 98.4 100 Total revenue 287.7 299.1 295.9 0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 144 January 26, 2012 High Yield
Pioneer Natural Resources (PXD) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $450 7.500% Sr. 1/15/2020 Ba1/BBB-NC $118.74 4.65% 332
Company Description Investment Strengths: Pioneer's most important fields/developments are the Spraberry oil field in West Texas and the Eagle Ford Shale. • De-risked asset base with focus on long-lived The company is one of the more controversial "crossover" names in the space. Investors have penalized Pioneer domestic assets with predictable geology for high organic F&D costs and an inability to effectively replace reserves. However, upside in Spraberry, Eagle • Approximately 68% of 2012E production hedged Ford, and other plays could reverse this trend. Closest peers are NFX and Noble (NBL). • Balanced oil/gas exposure • Eagle Ford Shale exposure In September 2004, Pioneer completed the acquisition of Evergreen Resources, which was focused on CBM development in the Raton Basin in S. Colorado, for $1.8 bn in cash and stock. PXD then purchased Occidental Investment Risks: Petroleum assets in 2005. During 2005 and 2006, Pioneer sold a number of assets in Canada, Argentina • Historically shareholder-friendly management, (Apache), and the US Gulf of Mexico (Marubeni) for net proceeds of just over $2 bn. During 2005, PXD also sold weighing on ratings almost 28 mmbbls of production forward for an average of $32/bbl through three Volumetric Production Payments • High organic finding and development costs with terms through 2013. In June 2010, Pioneer completed a JV in the Eagle Ford Shale with Reliance Industries • Streamlined portfolio could have more-limited growth for $1.15 bn. In February 2011, Pioneer completed the sale of its Tunisia subsidiary to OMV for $866 mn. prospects • High leverage, including substantial off-balance-sheet liabilities (VPPs that roll off through 2012)
Key Dates/Catalysts: • Activist shareholder Southeastern Asset Management has proposed a number of shareholder- friendly initiatives • Eagle Ford progress • Update on test wells of additional Permian zones Financial Profile 2008A 2009A 2010A 2011E 2012E • Additional non-core asset sales Revenue $2,271 $1,616 $1,934 $2,372 $3,090 • Additional vertical integration EBITDA (Adj for non-cash items) $1,067 $739 $1,093 $1,467 $1,931 Free Operating Cash Flow ($419) $80 $89 ($961) $677 Capital Expenditures $1,444 $463 $1,196 $2,365 $1,305
Credit Ratios 2008A 2009A 2010A 2011E 2012E Total Debt/EBITDA (LTM) 2.8x 3.7x 2.3x 1.9x 1.3x EBITDA/Interest Expense (LTM) 7.0x 4.3x 6.1x 8.6x 15.4x Debt to Capitalization % 45% 43% 39% 34% 30%
Capitalization Debt to Leverage Coverage Agency Description Size EBITDA Liquidity Comps ('11E) ('11E) Ratings Cash and equivalents $211 Revolver Size $1,250 PXD 1.9x 8.6x Ba1/BBB- Revolving Credit Facility $0 Letters of Credit $65 CHK 2.0x 33.6x Ba3/BB+ Long Term Debt Borrowings $0 FST 2.8x 4.0x B1/B Senior notes 2016-38 $2,571 Revolver Availability $1,185 NFX 1.8x 10.3x Ba2/BB+ Total Long Term Debt $2,571 Cash $211 Total Debt $2,571 1.8x Total Liquidity $1,395 Preferred Equity $0 Common Equity $5,197 Total Capitalization $7,768
Maturities: 600
500
400
300
200
Debt maturities ($ mn) ($ maturities Debt 100
0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 145 January 26, 2012 High Yield
Plains Exploration (PXP) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $400 7.625% Sr. 6/1/2018 B1/BB $103.81 6/1/2013 $107.60 4.49% 428
Company Description Investment Strengths: PXP has traditionally been a California heavy oil producer, but over the last several years it has diversified • Balanced portfolio of long-lived onshore, and throughout the US via three acquisitions for around $8 bn: most importantly a private company, Pogo, and a 20% unconventional shale stake in CHK's Haynesville acreage. The company's strategy has been to fund operations using cash flow from • Strong hedge position, with 70% of 2012E production CA to grow its exposure in unconventional plays. The company's core areas include California, Gulf of Mexico, protected Gulf Coast, Panhandle, Permian Basin, and Rockies. • Significant exploration upside • An experienced management team with an In 2002, PXP was spun out from Plains Resources (pipeline assets became Plains All-American MLP), with Jim established track record Flores as CEO. Assets included positions in CA, IL, and S. LA/US GOM. Historically, Plains has been acquisitive (in addition to the three recent acquisitions, PXP bought 3TEC for $400 mn in 2003; Nuevo for $964 mn in 2004; Investment Risks: and California assets for $117 mn in 2005). Other events over the last several years have included the unwinding • Acquisitive management of underwater hedges (>$1 bn), sales of properties to help fund hedge restructuring, and an unsuccessful attempt • High operating costs due to emphasis on mature oil to buy Stone Energy. PXP has been active in partnering with other companies and currently works with production MMR/EXXI on Blackbeard West, CHK in the Haynesville, and Shell in the deepwater GOM. To deleverage its • Challenging California operating environment balance sheet, PXP announced a divestiture of Piceance and Permian assets for $1.25 bn to Occidental Petroleum (OXY) in Sept 2008. In August 2009, PXP amended its Haynesville JV agreement with Chesapeake, agreeing to accelerate the payment of its remaining joint venture drilling carries in exchange for a 12% reduction Key Dates/Catalysts: in the total amount of drilling carry obligations to CHK. In September 2010, PXP announced the divestiture of its • Results from the Mowry shale shallow water GOM assets to McMoRan for $818 mn. In November 2010, the company acquired 60,000 net • Lucius updates acres in the Eagle Ford shale for $578 mn. In late 2010, PXP announced its intention to divest its deepwater GOM assets by 1Q2011. However, in May 2011, the company announced that it would put the deepwater assets into a self-financing, separate entity.
Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $2,418 $1,419 $1,519 $1,872 $2,261 EBITDA (Adj for non-cash items) $1,635 $841 $922 $1,211 $1,531 Free Operating Cash Flow $210 ($1,144) ($152) ($496) ($533) Capital Expenditures $1,161 $1,643 $1,065 $1,623 $1,612
Leverage Coverage Agency Comps ('11E) ('11E) Ratings Credit Ratios 2008A 2009A 2010A 2011E 2012E PXP 4.0x 7.0x B1/BB Total Debt/EBITDA (LTM) 1.7x 3.1x 3.6x 4.0x 3.1x FST 2.8x 4.0x B1/B EBITDA/Interest Expense (LTM) 14.2x 11.4x 8.6x 7.0x 6.3x DNR 1.9x 7.9x B1/BB- Debt to Capitalization % 54% 45% 50% 57% 54% WLL 1.2x 22.0x Ba3/BB+
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $11 Revolver Size $1,400 Revolving Credit Facility $455 Letters of Credit $1 Long Term Debt Borrowings $455 Senior notes 2012-21 $3,329 Revolver Availability $944 Total Long Term Debt $3,329 Cash $11 Total Debt $3,784 3.2x Total Liquidity $955 Preferred Equity $0 Common Equity $3,517 Total Capitalization $7,301
Maturities:
1200
1000
800
600
400
Debt maturities ($ mn) 200
0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 146 January 26, 2012 High Yield
Plastipak Holdings, Inc. (PLASPK) Updated 1/23/12 Joe Stivaletti (212) 902-3299 Contact analyst or see latest research for updates to ratings, estimates, and other information. James Kitchell (212) 902-9813 OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) $250 8.500 Sr Nts 15-Dec-15 B3/B 102.833 Current 102.500 7.054 683
Company Description Investment Strengths: - Long-term relationships with major consumer products Plastipak manufactures rigid blow-molded plastic containers, serving various end-market segments and many of the companies: Relationships with top 10 customers (including world's largest consumer products companies. In North America, the company is the exclusive supplier of plastic PepsiCo., P&G, and Dr. Pepper Snapple Group) average containers to Procter & Gamble for heavy-duty, liquid laundry detergents and is also a large supplier of plastic over 15 years. containers for salad dressings, barbeque sauces, and grated cheeses. Plastipak participates in four key product - Competitive manufacturing facilities and processes: 27 categories: carbonated and non-carbonated beverages, consumer cleaning, food and processed juices, and plants, mostly located near the filling sites of key customers industrial, automotive, and agricultural. The company serves over 450 customers and operates 27 plants in the US, and complemented by the company's Whiteline common Brazil, and Europe. carrier subsidiary, which serves a significant portion of Plastipak's transportation needs. - Good cost pass-through arrangements: Customer agreements typically permit pass-through of higher resin costs in the form of higher selling prices.
Investment Risks: - Heavy sales concentration with key customers: Top 10 customers accounted for approximately 63.7% of sales in 2010, with the company's largest customer, P&G, accounting for 18.7%. Financial Profile 10/31/2009 10/30/2010 7/31/2010 4/30/2011 7/30/2011 - Appetite for acquisitions: Plastipak is growth-oriented and may make additional leveraging acquisitions. FY:09 FY:10 3Q:10 2Q:11 3Q:11 Net sales 1,778.7 1,941.8 517.7 572.8 619.1 EBITDA 210.5 213.7 51.6 69.6 49.8
Interest expense 55.3 64.9 15.7 17.2 17.2 Capital expenditures 100.6 111.8 12.9 22.2 14.0
Total debt 710.0 731.6 747.0 756.2 742.2 Cash 61.5 30.5 15.8 10.7 22.1 Net debt 648.5 701.1 731.2 745.5 720.1
Key Credit Statistics Total debt/EBITDA 3.4x 3.4x 3.4x 3.4x 3.3x Comps Leverage Coverage Ratings Net debt/EBITDA 3.1x 3.3x 3.3x 3.3x 3.2x Berry Plastics 6.4x 2.1x Caa1/CCC Owens-Illinois 3.1x 4.7x Ba3/BB EBITDA/interest 3.8x 3.3x 3.3x 4.0x 2.9x Crown Holdings 2.9x 4.9x Ba3/BB EBITDA margin 11.8% 11.0% 10.0% 12.2% 8.0%
Capitalization 7/30/2011 Debt to Description Size EBITDA Liquidity 7/30/2011 Revolving credit facility 25.2 1.0x Revolver size 375.0 Real estate mortgage loans 100.3 1.0x Letters of credit 26.5 Notes payable to banks 16.9 1.0x Borrowings 25.2 Secured notes payable 60.2 1.0x Revolver availability 323.3 Capital leases 26.3 1.0x Other notes payable 37.7 3.3x 8.500% senior notes 250.0 3.3x 10.625% senior notes 225.6 3.3x Cash 22.1 Total debt 742.2 Total liquidity 345.4
Maturities:
800
700
600
500
400
300
200
100
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 147 January 26, 2012 High Yield
PolyOne (POL) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 IN-LINE
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp IL 360 7.375 Sr. Unsec. 15-Sep-20 Ba3/B+ 103.69 9/15/2015 106.5 6.17% 456
Company Description Investment Strengths: PolyOne is a leading producer of PVC compounds, specialty PVC resins, polymer formulations, and color - Leading market positions in Vinyl Compounds, additives. The company is also a distributor of thermoplastics and has a 50% stake in SunBelt, a chlor-alkali Polymer Coating Systems, and Color and Additives producer, which distributes cash to PolyOne on a quarterly basis. In 2007, the company divested its 24% stake in (No. 1 in each in North America). OxyVinyls LP, a PVC and chlor-alkali manufacturer, and in 2010 it sold its 50% interest in the SunBelt joint - Focused on moving toward more specialty and venture. In October 2011, PolyOne announced its plan to acquire ColorMatrix for $486 million, which would equate defensive end markets, such as healthcare. to an 11.1x multiple. The deal was funded with cash on hand, as well as $300 million of new debt. - Diversified by business, by geography, by end market, and by customer. - Consistent free cash flow generation. Key Dates/Catalysts: 4Q2011 earnings release Investment Risks: - PolyOne's end markets may recover more slowly than we expect. - The company may be unable to fully pass through increases in raw material costs to customers, resulting Financial Profile ($, mn) FY:09 FY:10 FY:11E Q4:10 Q3:11 Q4:11E in margin compression. - ColorMatrix acquisition resulted in a substantial Revenue 2,061 2,622 2,887 618 736 664 increase in leverage. EBITDA + Distributions 135 225 235 50 57 43
Cash Interest (34) (32) (36) (8) (8) (11) Cash Taxes 19 (18) (59) (5) (13) (6) Capital Expenditures (32) (40) (50) (21) (12) (18) Free Cash Flow 177 111 3 45 12 24
Total Debt w/ Sunbelt Guarantee 458 496 710 496 433 710 Agency Cash Equivalents 223 378 201 378 410 201 Comps Leverage Coverage Ratings Net Debt 236 118 509 118 23 509 PolyOne 1.9x 5.4x Ba3/B Key Credit Statistics Olin 1.9x 10.2x Ba1/BB PF Total Debt/EBITDA 4.7x 2.5x 2.6x 2.5x 1.9x 2.6x PF Net Debt/EBITDA 2.4x 0.6x 0.7x 0.6x 0.1x 0.7x
PF EBITDA / Interest 2.9x 6.2x 5.4x 6.4x 6.7x 5.4x PF LTM EBITDA Margin 7% 7% 9% 8% 8% 9%
PF Capitalization ($, mm) Liquidity Debt to Description Size EBITDA A/R facility Size 300 NEW A/R Facility - Eligible A/R amount 176 NEW Term Loan 300 A/R Facility Drawn - Senior Secured 50 Letters of Credit - Total Senior Secured Debt 350 1.3x A/R availability 176 Stub 2012s - Senior Unsecured 360 Other - Cash 177 Total Debt 710 2.7x Liquidity 353
Share Price 14.2 Market Capitalization 1,304 Enterprise Value 1,837.8 6.9x
Maturities:
60
50
40
30
20
10
0 2011 2012 2015
Goldman Sachs Credit Research 148 January 26, 2012 High Yield
PulteGroup Inc. (PHM) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 IN-LINE
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp IL 400 6.375 Sr. Nts 15-May-33 B1/BB- MW 72.50 9.38% 710
Company Description Investment Strengths: PulteGroup Inc. is the fourth-largest builder in the United States based on market cap and the second-largest builder - Strong business diversity. based on LTM closings. Through its various brands, including Pulte Homes, Del Webb, Centex, and DiVosta, the - Lean cost structure. company offers single-family detached homes, townhouses, condominiums, and duplexes at different price points. Pulte - Long lot position should enable the company to serves nearly all major customer segments − first-time, move-up, and active adult. The company is one of the most outperform in the future. geographically diversified homebuilders, with operations spanning 28 states and 60 markets. - Strong presence in active adult market positions the company for future growth.
Key Dates/Catalysts: Investment Risks: 4QFY11 earning release - Legacy land positions have dampened gross margins. - Near-term operating performance is likely to lag that of certain peers.
Financial Profile ($, mn)* FY:09 FY:10 FY:11E 4Q:10 3Q:11 4Q:11E Total Revenues 4,084 4,569 3,989 1,185 1,142 1,115 Total Adjusted EBITDA (61) 204 230 64 117 89
Interest Expense (237) (266) (224) (60) (56) (56) Debt-to- Inventory- Cash Taxes 360 945 56 57 2 50 Comps Cap to-Debt Ratings Capital Expenditures (39) (15) (19) (4) (4) (4) Pulte 63% 1.5x B1/BB- Free Cash Flow 702 739 (131) (212) 58 70 Lennar 55% 1.2x B3/B+
Total Debt Outstanding 4,319 3,393 3,337 3,393 3,337 3,337 Total Cash and Cash Equivalents 1,891 1,495 1,326 1,495 1,256 1,326 Key Credit Statistics Homebuilding Debt / Capitalization 57% 61% 63% 61% 63% 63% Net Homebuilding Debt / Capitalization (3) 44% 47% 52% 47% 53% 52%
Inventories / Homebuilding Debt (2) 1.2x 1.4x NA 1.4x 1.5x NA Homebuilding Gross Margin (1) 13% 17% 18% 17% 18% 19%
PF Capitalization ($, mn)
Description Size Liquidity 4.550% Sr. Unsecured Notes - Cash 1,143 7.875% Sr. Unsecured Notes - Restricted Cash 113 8.125% Sr. Unsecured Notes - Total Liquidity 1,256 7.875% Sr. Unsecured Notes - 7.500% Sr. Unsecured Notes - 5.450% Sr. Unsecured Notes 97 6.250% Sr. Unsecured Notes 63 Maturities: 5.125% Sr. Unsecured Notes 117 5.250% Sr. Unsecured Notes 336 700 5.700% Sr. Unsecured Notes 311 600 5.200% Sr. Unsecured Notes 245 500 5.250% Sr. Unsecured Notes 402 400 469 6.500% Sr. Unsecured Notes 300 7.625% Sr. Unsecured Notes 149 200 7.875% Sr. Unsecured Notes 299 6.375% Sr. Unsecured Notes 398 100 6.000% Sr. Unsecured Notes 299 0 2012 2013 2014 2015 7.375% Sr. Unsecured Notes 150 Total Balance Sheet Debt 3,335 Joint Venture Recourse Debt & Guarantees 1 Total Debt Outstanding 3,337
Share Price 7.5 Market Capitalization 2,867 Enterprise Value 4,948
Goldman Sachs Credit Research 149 January 26, 2012 High Yield
PVH Corp. (PVH) Updated 01/23/12 Kevin Coyne 212-357-9918 Contact analyst for updates and other information. Celeste Everett 212-902-4751 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-Spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $100 7.75% Sr Secured 15-Nov-23 Ba1/BBB NC NC 110.000 6.519 457 446 $600 7.375% Sr Notes 15-May-20 Ba3/BB+ $103.688 15-May-15 111.000 4.767 446 413
Company Description Company Strengths: Phillips-Van Heusen is one of the largest apparel companies in the world, with a wide variety of brands including Calvin Klein, - Calvin Klein and Tommy Hilfiger have strong global brand Van Heusen, Tommy Hilfiger, IZOD, ARROW, and Bass. The company also maintains a portfolio of licensed brands, awareness. Over the last seven years, CK sales have growth at a including Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, Sean John, JOE Joseph Abboud, MICHAEL CAGR of more than 13%. Since 2005, TH has grown at a CAGR of Michael Kors, Michael Kors Collection, CHAPS, DKNY, Elie Tahari, Nautica, Ted Baker, Ike Behar, Claiborne, J. Garcia, over 13%. Management expects both brands to grow sales at 8-10% Robert Graham, U.S. POLO ASSN., Jones New York, Axcess, and Timberland. PVH operates in three segments: Calvin in the long term. Klein (Calvin Klein Licensing, Calvin Klein Apparel, Calvin Klein dress furnishings), Tommy Hilfiger (Tommy Hilfiger North - Customer diversity improved following the Tommy Hilfiger America and Tommy Hilfiger International), and Heritage Brands (Heritage Brand Wholesale Dress Furnishings, Heritage acquisitions: top five customers decreased to 23% of FY2010 Brand Wholesale Sportswear, Heritage Brand Retail). Approximately 350 different manufacturers produced its apparel revenues versus 31% in FY2009 and 32% in FY2008. products in 500 factories in over 30 countries worldwide in FY2010, and it sells its products through over 16,000 doors in the - Leading market share in dress shirts, neckwear, and sportswear US through department, mass market, specialty, and independent stores. tops. -Focus on de-leveraging. PVH has paid down $538 million in the past Key Dates/Catalysts: 18 months and expects to repay another $165 million during - May 2010: Completed the $3 billion acquisition of Tommy Hilfiger. 4QFY11and $300 million in 2012. The company maintains a leverage - FY2011 guidance: Adjusted EPS of $5.28-$5.30 (vs $5.23-$5.25). 4QFY11 comp sales expected to be +15% in the Calvin target of 2.0-2.5x, which it expects to reach by year-end 2011 or into Klein business, +12% in the Tommy Hilfiger North America business, +12% in the Tommy Hilfiger International business, and 2012. +4% in the Heritage Brands business. - Strong management team. - FY2012 guidance: Adjusted EPS of $5.90-$6.00, including a $0.25 negative impact from a weaker euro, an increase in - Will look to grow its product categories and brands opportunistically. pension expense of $0.15, and a decrease in interest expense of $0.10. Earnings growth is expected entirely in 2HFY12 Management has stated it is not looking to fix brands, and would like a given input cost inflation and larger currency impacts through 1HFY12. business with global reach to leverage the platform it has built for CK and TH. Any transaction it pursues must be accretive within the first six months.
Financial Profile 3QFY10 4QFY10 FY10 1QFY11 2QFY11 3QFY11 Company Risks: Revenue 1,516 1,398 4,637 1,369 1,334 1,654 - Apparel industry is highly competitive. - Economically sensitive industry; sales could be hurt in a sluggish Adjusted EBITDA 249 161 658 200 183 259 economic environment. - Relies on business partners to preserve the value of the Calvin Klein Interest Expense 41 38 127 33 31 32 brand (such as The Warnaco Group and Coty). - Non-exclusive agreement with Li & Fung Trading Limited whereby Cash Taxes 56(18)23303553 PVH is required to use Li & Fung for at least 54% of its sourced CapEx 26 46 101 34 39 44 products. Free Cash Flow 125 95 408 103 77 130
Total Debt 2,524 2,369 2,369 2,267 2,155 2,104 Agency Cash 491 499 499 295 288 160 LTM Comps Leverage Coverage Ratings Net Debt 2,032 1,870 1,870 1,972 1,867 1,944 PVH 7.375s 2.6x 8.2x Ba3/BB+ Key Credit Statistics HBI 6.375s 3.9x 4.6x B1/BB- Total Debt/EBITDA 4.4x 3.6x 3.6x 3.0x 2.7x 2.6x ZQK 6.875s 3.7x 2.7x Caa1/CCC+ Net Debt/EBITDA 3.6x 2.8x 2.8x 2.6x 2.4x 2.4x
EBITDA/Interest 6.0x 4.2x 5.2x 6.1x 5.8x 8.2x EBITDA margin 16% 12% 14% 15% 14% 16% Note: Fiscal year ending on the Sunday closest to February 1.
Capitalization Enterprise value
Description 3QFY11 Lvg Liquidity 3QFY11 Source Senior secured revolver due 2016 0 Revolver Size 460 Shares O/S (mm) 67.61 Senior secured Term Loan A due 2016 742 Letters of Credit 102 Stock price$ 77.60 Senior secured Term Loan B due 2016 650 Borrowings 0 Market cap 5,246 7.75% Senior secured notes due 2023 100 Revolver Availability 358 Preferred stock 189 Total Secured 1,492 1.9x Net debt 1,944 7.375% senior notes due 2020 600 Enterprise value 7,379 Other 13 Cash 160 Total Unsecured 2,104 2.6x Total Liquidity 518 EV / LTM EBITDA 9.2x
Maturities: 2,500
2,000
1,500
1,000
500
0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 150 January 26, 2012 High Yield
Quicksilver Resources (KWK) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 OUTPERFORM/IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $298 9.125% Sr. 8/15/2019 B2/B $104.56 8/15/2014 $98.19 9.47% 870
Company Description Investment Strengths: Quicksilver Resources is focused on unconventional natural gas resources (82% of production, 76% of reserves) • Debt repayment remains a priority with assets in the Barnett Shale, Rocky Mountains, and Canada (Horseshoe Canyon CBM). The Barnett Shale, • Industry-leading all-in cost structure and long reserve where the company sees a 10-year inventory of drilling locations, is the clear growth engine, along with the Horn life; 10-year drilling inventory in the Barnett River. While the company has made acquisitions in the past, management is primarily focused on drill bit growth in • Extremely strong reserve replacement track record onshore, unconventional plays. KWK has historically not been afraid to be a first mover in new plays. • Strong leverage to the prolific Barnett Shale unconventional gas play Mercury Exploration, KWK's predecessor, was started in 1963 by Frank Darden. Quicksilver Resources was • Growth potential in emerging Horn River Basin founded in 1997 and became a public company through a merger with MSR Exploration in 1999. The original focus plays were located in OK, NM, and W TX. In 1991, KWK began operations in N. Michigan to develop Antrim Shale Investment Risks: gas. The company bolstered its MI presence through the 2000 acquisition of Terra Energy Ltd and other Michigan • High leverage levels assets from CMS Energy Corp, and the 2002 purchase of Enogex Exploration from OGE Energy for $32 mn. Then, • Significant capital spending requirements ne in September 2007, the company sold its MI assets to BreitBurn Energy Partners (where KWK retains 40% • Limited geographic diversity; 80%+ of reserves in the ownership) for $1.5 bn to focus on the Barnett Shale and Canada. In August 2008, KWK acquired Barnett Shale Barnett Shale acreage (13k acres; 350 bcfe reserves) from a variety of private parties for $1.3 bn in cash and stock. In July 2010, • High natural gas exposure KWK sold its interest in Quicksilver Gas Services for $1 bn. The Darden family continues to control around 3% of the company. In October 2010, an investor group, including the Darden family, sent a letter to the company Key Dates/Catalysts: requesting a review of strategic alternatives, including a possible take-private transaction. However, in March 2010 • Following the Darden family's decision not to take the the Darden Family announced it would not pursue a take-private transaction. In 4Q11Quicksilver secured a JV on company private, management indicated it might pursue its Horn River midstream assets and the company is currently pursuing JVs in several other plays to help fund its asset sales to help shore up the balance sheet cash flow gap. In November 2011, the company announced its intention to form an MLP with its Barnett assets. • Drilling results from Horn River (Canada) and Greater Green River Basin (Colorado) plays • Potential JVs • Progress in new oil plays (Exshaw, Southern Alberta, Financial Profile 2008A 2009A 2010A 2011E 2012E Sandwash Basin, Bone Springs) • IPO of Barnett MLP Revenue $801 $832 $930 $895 $821 EBITDA (Adj for non-cash items) $579 $567 $584 $422 $367 Free Operating Cash Flow ($830) ($82) ($297) ($422) $40 Capital Expenditures $1,287 $694 $695 $701 $375
Leverage Coverage Agency Credit Ratios 2008A 2009A 2010A 2011E 2012E Comps ('11E) ('11E) Ratings Total Debt/EBITDA (LTM) 4.5x 4.3x 3.2x 4.6x 4.6x KWK 4.6x 2.3x B2/B EBITDA/Interest Expense (LTM) 5.7x 2.9x 3.1x 2.3x 2.3x CHK 2.0x 33.6x Ba3/BB+ Debt to Capitalization % 70% 79% 64% 63% 58% FST 2.8x 4.0x B1/B Debt + Preferred per Proved Boe $7.10 $6.03 $3.91 $3.36 $2.73 PXD 1.9x 8.6x Ba1/BBB- Debt + Preferred per PDP Boe $11.30 $8.84 $5.78 $4.96 $4.04
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $7 Revolver Size $1,075 Revolving Credit Facility $254 Letters of Credit $77 Long Term Debt Borrowings $254 Senior sub notes and other $1,826 Revolver Availability $744 Total Long Term Debt $1,826 Cash $7 Total Debt $2,080 4.6x Total Liquidity $750 Preferred Equity $0 Common Equity $1,118 Total Capitalization $3,198
Maturities:
1000 900
800 700 600 500 400 300 200 Debt maturities ($ mn)($ maturities Debt 100 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 151 January 26, 2012 High Yield
Quiksilver, Inc. (ZQK) Updated 1/23/2012 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751 IN-LINE: Management is doing a nice job of growing the business and taking market share. However, we believe macro pressures will pick up in 2012, and execution risk is increasing with the 2012 launch of a cold weather apparel line in the US. We believe the bonds are reasonably priced versus its peers considering ZQK's niche focus on surfer and skate apparel. Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-spread (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) (bp) $400 6.875% Sr 15-Apr-15 Caa1/CCC+ $102.292 Current 94.500 8.877 857 826
Investment Strengths: Company Description - Niche player with a focus on the action sports of surfing, Quiksilver, Inc. (ZQK) designs, develops, and distributes apparel, footwear, and accessories in over 90 countries under its skateboarding, and snowboarding. three core brands: Quiksilver, Roxy, and DC. In FY2011, Quiksilver contributed 41% of revenues, Roxy generated 27%, - Controls and builds brand awareness through close relationships with and DC generated 28%. ZQK began operations in California in 1976 producing boardshorts for surfers under a license independent specialty active sport stores and chains and through top agreement with Quiksilver brand founders in Australia. ZQK went public in 1986, introduced its Roxy brand for teenage athlete sponsorship. girls in 1991, and acquired DC in 2004. ZQK's products are sold primarily in surf, skateboard, snowboard shops, and - Diversified with presence in European and Asia Pacific regions, specialty stores. ZQK's largest equity holders include Rhone Capital (19%), Triton (14%), Janus Capital Mgt (8%). which combined account for 53% of FY2011 revenue stream and 59% of gross profit. - Adequate liquidity and minimal near-term maturities. Completed a Key Dates/Catalysts: debt-for-equity exchange with Rhone Capital in August 2010 for $140 - FY2012 guidance: Expects yoy growth across its brands and regions, and despite continued margin pressure from (1) million of term loans due in 2014. elevated input costs through 2QFY12 and (2) higher cost purchases in Europe for FY2012 from a weaker euro, ZQK - Net leverage target of 2.0x, and aims to increase revenues to $2.5- expects yoy EBITDA growth. 3.0 billion over the next five years with at least $350 million of annual EBITDA, or an improvement in margins of 200-300 bp.
Investment Risks: -Largely discretionary apparel items at higher price points that may be vulnerable to a weak consumer. - Exposure to the European consumer: ZQK derived 39% of LTM revenues and 44% of gross profits from Europe as of 4QFY11. If the European consumer were to be pressured by potential austerity Financial Profile 2QFY11A 3QFY11A 4QFY11A FY11A 1QFY12E FY12E measures, we think sales could decline meaningfully. - Rising input costs: Reported a 160 bp yoy decline in gross margins Revenue 478 503 545 1,953 437 2,033 for both 3QFY11 and 4QFY11, largely reflecting a 250 bp and 100 bp EBITDA 62 53 57 200 21 206 yoy decline in margins in its Americas segment in 3QFY11 and 4QFY11, respectively. - High fashion risk: Its target casual youth lifestyle can switch tastes Interest Expense 15 16 14 74 15 61 relatively quickly, and recent relative public comps are signaling a Cash Taxes 12 3 4 21 (6) 41 return to classic trends over the surf/skate trends favored by ZQK. CapEx 161334811676 - Increased competition in industry from specialty store brands as well as mass retailers striking exclusive arrangements with other surf Free Cash Flow 19 22 5 25 (4) 27 brands (Ocean Pacific in Wal-Mart). Nike has begun targeting action sports customers with "Salvation Stores" that include Converse and Total Debt 733 747 748 748 746 745 Hurley. - The Asia/Pacific region has been underperforming due to Cash 139 126 110 110 234 121 recessionary pressures in Australia and a strong Australian dollar, Net Debt 594 621 638 638 512 623 reducing the number of tourists to the region. Key Credit Statistics Total Debt/EBITDA 3.6x 3.7x 3.7x 3.7x 3.9x 3.6x Net Debt/EBITDA 2.9x 3.1x 3.2x 3.2x 2.7x 3.0x LTM Comps Leverage Coverage Ratings ZQK 6.875s 3.7x 2.7x Caa1/CCC+ EBITDA/Interest 1.8x 1.8x 2.7x 2.7x 3.2x 3.4x HBI 6.375s 3.9x 4.6x B1/BB- EBITDA margin 13.0% 10.5% 10.5% 10.3% 4.9% 10.1% JAH 7.5s 4.1x 4.2x B2/B Note: Fiscal year ends October 31. LEVI 7.625s 4.2x 3.7x B2/B+
Capitalization
Description 4QFY11A Lvg Liquidity 4QFY11A Enterprise Value European ST credit arrangements 2 Total credit facilities 385 Shares o/s (mm) 165 Asia/Pacific AUD$30 mn ST lines of credit 18 Letters of Credit 73 Stock price $4.41 $150 mn Americas ABL facility due Aug 2014 21 Borrowings 42 Market cap 729 $20 mn Americas TL due Aug 2014 19 Credit facility availability 184 Net debt 638 Total senior secured debt 60 0.3x Minority interest 12 6.875% sr notes due April 2015 400 Enterprise value (EV) 1,379 8.875% sr notes due Dec 2017, €200 mn 283 Cash 110 Capital lease obligations & other 5 Total debt 748 3.7x Total Liquidity 293 EV/LTM EBITDA 6.9x EV/FY11E EBITDA 6.9x
Maturities: 450 400 350 300 250 200 150 100 50 0 2012 2013 2014 2015 2016 2017+
Goldman Sachs Credit Research 152 January 26, 2012 High Yield
R.R. Donnelley (RRD) Updated 1/20/2012 Scott Wipperman 212-357-9922 Contact analyst or see latest research for updates to ratings, estimates, and other information. Scott Marchakitus 212-902-9760 UNDERPERFORM Our Underperform reflects our view the challenging operating environment should continue to weigh on company fundamentals. In addition, we believe RRD will need to issue debt and / or draw on its revolver to supplement its liquidity position, both of which could be negative for spreads. Finally, our U reflects event risk tied to M&A and share buyback activities. Bond Summary Size Coupon Agency YTW UST Z Spread 5 Yr Ticker (MM) (%) Maturity Ratings Bid Price (%) Spread (bp) CDS RRD $400 7.625% 06/15/20 Ba1/BB+ 89.00 9.561 762 791 9 1/2 - 111/2
Company Description Investment Strengths: R.R. Donnelley is the world's largest provider of print (including digital) and related services, with operations in North - RRD is the largest commercial printer in North America, America, Europe, Latin America, and Asia. The company leverages its scale and diverse product offering to maintain which allows it to leverage its scale and pass along cost market share. In addition to commercial printing, RRD offers solutions in direct mail, financial printing, forms and savings to customers. labels, logistics, print management, online services, and content and database management. The company also has - RRD is operating from a position of financial strength an International segment, with printing operations in Asia, Europe, Latin America, and Canada. That segment relative to most peers. produces around 25% of revenue. RRD has over 60,000 customers and serves more than 90% of Fortune 500 - The company continues to generate $500 million to $600 companies, capturing 15% of their print spend. The company has historically grown through a series of acquisitions million of free cash flow before dividends despite the in recent years. RRD recently completed the acquisition of Bowne & Co. for $481 million in November 2010. Bowne difficult operating environment. is a provider of business services that helps companies manage shareholder, investor, and marketing - Organic growth opportunity to cross sell products to large communications. exisiting client base.
Key Dates/Catalysts: Investment Risks: - 4Q11 earnings on February 22, 2012, where we expect the company to provide full year guidance. - Share buyback program and new leverage target of 2.5x - RRD could look to tap bond market to term out revolver borrowings. to 3.0x demonstrates more-aggressive financial policy. - Moody's and S&P both have negative outlooks. - Close to 90% of its cash is overseas, which hampers liquidity and financial flexibility. - Negative outlooks by both Moody's and S&P could lead to further downgrades. Financial Profile FY08 FY09 FY10A FY11E FY12E - Underfunded pension will require increased funding. Revenue 11,582 9,857 10,019 10,611 10,579 - Commercial printing market is highly competitive, fragmented, and secularly challenged, and suffers from a Normalized EBITDA 1,785 1,306 1,253 1,265 1,294 supply/demand imbalance. Interest Expense (227) (235) (223) (246) (248) - Pricing for services is expected to continue to decline on an annual basis. - M&A strategy creates event risk. Operating Cash Flow 1,016 1,421 744 922 722 - Company does not have full access to its credit facility CapEx (323) (195) (225) (254) (225) because of leverage covenant restraint. Dividends (219) (214) (214) (204) (185) - The US Postal Service is under financial strain and may discontinue Saturday delivery or raise postage rates, which Free Cash Flow 474 1,013 304 464 312 could reduce demand for RRD's services.
Total Debt 4,127 3,322 3,530 3,689 3,930 Gross Agency Cash 324 499 519 436 489 Comps Leverage Coverage Ratings Net Debt 3,803 2,823 3,011 3,253 3,441 GCI 1.8x 6.4x Ba1/BB NYT 2.2x 3.7x B1/B+ Key Credit Statistics Total Debt/EBITDA 2.3x 2.5x 2.8x 2.9x 3.0x Net Debt/EBITDA 2.1x 2.2x 2.4x 2.6x 2.7x EBITDA/Interest 7.9x 5.6x 5.6x 5.2x 5.2x EBITDA margin 15.4% 13.2% 12.5% 11.9% 12.2%
Capitalization Debt to Description Size EBITDA Liquidity Credit Facility Borrowings 345 Revolver Size 1,750 Matures December 17, 2013 5.625% sr notes 1/15/12 159 Letter of Credit 37 4.95% sr notes 4/1/14 600 Covenant reduction 434 5.5% sr notes 5/15/15 400 Borrowings 345 8.60% sr notes 8/15/16 350 Revolver Availability 934 6.125% sr notes 1/15/17 525 Cash 368 7.25% sr notes due 5/15/18 600 Total Liquidity 1,302 11.25% sr notes 2/1/2019 172 7.625% sr notes 6/15/2020 400 Credit agreement maintenance 8.875% sr notes 4/15/21 81 covenants: 6.625% sr notes 4/15/29 200 Interest Cov (as defined) 3.0x 8.82% sr notes 4/15/31 69 Lev Cov (as defined) 4.0x Other 46 Total Debt 3,947 3.2x Market Cap 2,922 Enterprise Value 6,501
Maturities:
700 600 500 400 300 200
100 0 2012 2013 2014 2015
Goldman Sachs Credit Research 153 January 26, 2012 High Yield
RadioShack Corp. (RSH) Updated 1/25/2012 Gregory Chwatko 212-902-0673 Contact analyst for updates and other information. Annalee Bloomfield 212-902-8028 NOT COVERED
Credit Summary Size Coupon Agency UST Z Spread 5 Yr Ticker (MM) (%) Maturity Ratings Price Spread (bp) CDS RSH $325 6.75 15-May-19 Ba3/BB-/B+ $85 777 822 739/798
Company Description Company Strengths: RadioShack Corporation is engaged in the retail sale of consumer electronics goods and services through its - The company benefits from its convenient locations in RadioShack store chain and non-RadioShack-branded kiosk operations. The company's strategy is to provide cost- major shopping malls and strip centers as well as individual effective solutions to meet the routine electronics needs and distinct electronics wants of its customers. As of storefronts. December 31, 2010, RadioShack had 4,486 company-operated stores under the RadioShack brand located - The liquidity profile remains healthy, with only the 2013 throughout the United States as well as in Puerto Rico and the US Virgin Islands. There are approximately 211 convertible notes and 2019 notes outstanding. company-operated stores in Mexico. - Solid performance of its wireless service business.
Key Dates/Catalysts: Earnings announcements Company Risks: Limited amount of debt/high liquidity - The company's performance is tied to the macro Additional capital structure announcements environment and consumer spending trends. - Small store size limits product selection and variety. - Competition remains very aggressive, and the unfavorable pricing environment persists. - Event risk candidate owing to management's past interest in taking the company private. Financial Profile FY09 FY10 3Q11 Revenue 4,276 4,473 1,032 EBITDA 454 464 32 Operating Income 362 372 11 Interest Expense (net) 41 42 13
Operating Cash Flow 246 155 162 CapEx (81) (80) (21) Dividends (31) (27) 0 Free Cash Flow 134 49 140
Adjusted Total Debt 669 640 666 Comps Leverage Coverage Agency Ratings Cash 908 569 668 Net Debt (Cash) (239) 70 (1) JCP 3.3x 5.8x Ba1/BB+/BBB- Key Credit Statistics LTD 3.5x 8.3x Ba2/BB+/BB+ Total Debt/EBITDA 1.5x 1.4x 2.1x M 2.4x 7.5x Baa3/BBB-/BBB- Adjusted Debt/EBITDAR 4.0x 4.5x 4.5x Net Debt/EBITDA -0.5x 0.2x 0.0x EBITDA/Interest 11.1x 11.1x 2.6x EBITDA margin 10.6% 10.4% 3.1%
Capitalization Debt to Description Size EBITDA Liquidity Revolver Size 450 Short term debt 0 Letters of Credit 29 2.5% convertible notes due 2013 337 Borrowings 0 6.75% notes due in 2019 325 Revolver Availability 421 Total Debt 662 2.1x Cash 668 Total Liquidity 1,089 Market Cap 1,016 Enterprise Value 1,015
Maturities:
$400 $350 $300 $250 $200 $150 $100
$50 $0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 154 January 26, 2012 High Yield
Range Resources (RRC) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $250 7.250% Sr. Sub. 5/1/2018 Ba3/BB $103.63 5/1/2013 $107.24 4.10% 389
Company Description Investment Strengths: Forth Worth, TX, based Range Resources is – along with CHK, HK, and SWN – one of the four major shale gas • Industry-leading all-in cost structure and reserve E&Ps. The company is focused on two core areas: (1) the Marcellus shale in Pennsylvania and (2) the Nora CBM replacement in Appalachia. Management has refocused the company on gas resource plays by actively selling conventional • Top-tier acreage position in the Marcellus Shale properties to fund capital spending. With its key Marcellus Shale play still in early development, Range has a multi- • 40% of 2012E production hedged year backlog of potential development activity. • 24-year reserve life is near the high end of our coverage Range began in 1980 as Lomak Petroleum and was initially listed on the NASDAQ and transferred to the NYSE in • Much of RRC’s Marcellus gas has high liquids 1996. In 1998, the company was renamed Range Resources. Since then RRC has pursued a strategy of organic content growth coupled with acquisitions on a cost-efficient basis. Range has completed over $1.3 billion of acquisitions • RRC plans to use non-core asset sales to fund focused in the Southwestern and Appalachian regions of the US since 2004. Finding and development cost growth in Marcellus performance has been strong with a five-year average of $2.13/mcfe. The company has a drilling inventory of over 11,000 identified locations, or around 15 years based on its current pace of drilling. Range was added to the S&P Investment Risks: 500 Index in December 2007. In July 2009, RRC closed the sale of its West Texas Furhman Mascho properties for • Management has historically outspent cash flow $182 mn. In March 2010, Range closed the sale of its Ohio properties for $300 mn. In February 2011, Range • Production growth in the Appalachia region could be announced the sale of its Barnett shale properties to a private company for $900 mn. limited by the pace of infrastructure development • High natural gas exposure and tight valuation • High leverage per PDP boe
Key Dates/Catalysts: • Drilling results from the Upper Devonian, Utica, and Mississippian Financial Profile 2008A 2009A 2010A 2011E 2012E • Potential for fracking legislation Revenue $1,283 $1,018 $947 $1,085 $1,278 • Ethane agreements in the Marcellus EBITDA (Adj for non-cash items) $935 $646 $566 $710 $850 • Additional non-core asset sales Free Operating Cash Flow ($93) $17 ($319) ($856) ($296) Capital Expenditures $918 $574 $832 $1,476 $1,000
Leverage Coverage Agency Comps ('11E) ('11E) Ratings Credit Ratios 2008A 2009A 2010A 2011E 2012E RRC 3.0x 6.1x Ba3/BB Total Debt/EBITDA (LTM) 1.9x 2.6x 3.5x 3.0x 2.7x SWN 0.7x 26.4x Ba1/BBB- EBITDA/Interest Expense (LTM) 9.4x 5.5x 4.3x 6.1x 7.4x CHK 2.0x 33.6x Ba3/BB+ Debt to Capitalization % 42% 42% 47% 47% 48%
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $52 Revolver Size $1,500 Revolving Credit Facility $0 Letters of Credit $22 Long Term Debt Borrowings $0 Senior sub notes 2013-21 $1,788 Revolver Availability $1,478 Total Long Term Debt $1,788 Cash $52 Total Debt $1,788 2.5x Total Liquidity $1,530 Preferred Equity $0 Common Equity $2,324 Total Capitalization $4,111
Maturities:
600
500
400
300
200
Debt maturities ($ mn) 100
0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 155 January 26, 2012 High Yield
Reynolds Group Holdings Limited Updated 1/23/2012 Joe Stivaletti 212-902-3299 Contact analyst or see latest research for updates to ratings, estimates, and other information. James Kitchell 212-902-9813 OUTPERFORM / IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,500 7.125 Sr Sec Nts 15-Apr-19 Ba3/BB- 103.563 15-Oct-14 103.500 6.254 540 $1,500 9.000 Sr Nts 15-Apr-19 Caa1/B- 104.500 15-Oct-14 97.000 9.580 804
Company Description more than 100 production units located in North America and Europe. Investment Strengths: Reynolds Group Holdings Limited is a leading global manufacturer and supplier of consumer food and beverage - Recession-resistant business model: the global packaging and storage products. Reynolds Group Holdings Limited is based in Auckland, New Zealand. consumer, food, beverage, and foodservice packaging markets have historically experienced stability through Over the last 15 months, Reynolds completed three significant acquisitions: (1) Pactiv, in November 2010, for economic downturns as food and beverage products approximately $6.0 billion; (2) Dopaco, in May 2011, for approximately $400 million; and (3) Graham Packaging, in are typically less sensitive to changing economic September 2011, for approximately $5.0 billion. Pactiv manufactures a wide array of consumer and foodservice conditions than many other products. packaging products, including branded products like Hefty trash bags. Dopaco manufactures paper cups and folding - Strong market positions: Reynolds is one of the cartons for the quick-service restaurant and foodservice industries. Graham Packaging manufactures value-added world’s largest providers of consumer packaging rigid plastic containers for the food, beverage, and consumer products markets. These acquisitions, which were products, beverage packaging and foodservice completed for an average multiple of 8.7x LTM EBITDA, strengthened and diversified Reynolds’s product offerings, solutions with strong, competitive positions across its and are expected to deliver significant synergies. markets; most of the company's revenue is derived from number one or number two market positions.
Investment Risks: - Acquisition risk: management has shown a willingness to incur debt and increase leverage to make acquisitions. Financial Profile 12/31/2010 12/31/2011 12/31/2012 9/30/2010 6/30/2011 9/30/2011 - Integration risk: management could encounter FY:10 FY:11E FY:12E 3Q:10 2Q:11 3Q:11 problems in combining and operating the businesses it has acquired or in realizing synergies
Revenue 6,774 11,984 14,552 1,612 2,843 3,069 EBITDA 1,251 2,166 2,719 310 476 563 Interest expense 496 1,002 1,320 124 206 243 Capital expenditures 337 547 700 78 116 125
Total debt 12,143 17,605 17,355 6,119 12,840 18,079 Cash 652 538 500 451 584 1,037 Net debt 11,491 17,068 16,855 5,668 12,256 17,042
Key Credit Statistics Total debt/EBITDA 6.7x 6.8x 6.7x 5.3x 6.7x 7.2x Agency Net debt/EBITDA 6.3x 6.6x 6.2x 4.9x 6.4x 6.8x Comps Leverage Coverage Ratings EBITDA/interest 2.5x 2.2x 2.1x 2.5x 2.3x 2.3x Berry 6.4x 2.1x Caa1/CCC EBITDA margin 18.5% 18.1% 18.7% 19.2% 16.7% 18.4% Solo 6.3x 1.5x B2/B Exopack 5.5x 2.3x Caa1/CCC+ Plastipak 3.2x 3.2x B3/B Capitalization 9/30/2011 Pro Forma Debt to Pro Forma Description Size EBITDA Liquidity 9/30/2011 Senior secured term loans 4,650 Revolver size 228 Senior secured notes 5,734 Letters of credit 107 Other secured debt 53 Borrowings - Total secured debt 10,437 4.2x Revolver availability 121 Senior guaranteed notes 5,183 Other unsecured debt 1,988 Cash 555 Total debt 17,608 7.0x Total liquidity 676 Note: Pro forma for change of control put. Note: Pro forma for change of control put.
Maturities:
20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 156 January 26, 2012 High Yield
Rite Aid (RAD) Updated: 1/26/12 Karen Eltrich 212-902-6957 Contact analyst or see latest research for updates to ratings, estimates, and other information. Jordan Hughes 202-357-7875 OUTPERFORM/IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $500 7.500 Sr Sec Nts 1-Mar-17 Caa2/B- $103.75 1-Mar-12 $95.50 6.68 607 $500 8.625 Sr Nts 1-Mar-15 Caa3/CCC $102.16 1-Mar-12 $87.50 9.00 839 $300 7.700 Debs 15-Feb-27 Ca/CCC NC NC $63.00 11.08 890
Company Description Investment Strengths: - One of the largest drugstore chains, with a strong presence along the East and West coasts Rite Aid is one of the largest drugstore chains in the US, with more than 4,700 locations in 31 states and the - Recent improvement in sales trends, driven by wellness+ loyalty District of Columbia. In June 2007, Rite Aid acquired Jean Coutu USA, the holding company for the Brooks program and Eckerd drugstore chains. - Ample liquidity, with no near-term maturities - WAG/ESRX impasse to benefit RAD script business
Investment Risks: Key Dates/Catalysts: - Comps have lagged CVS and WAG Mid-April– fourth quarter earnings results - High debt leverage - Competition is significantly better capitalized; underinvestment in RAD storebase
Financial Profile FY10A FY11A FY12E 4Q11A 4Q12E Comps Yield Leverage Coverage Ratings Revenue 25,669.1 25,214.9 25,624.6 6,456.5 6,650.2 Rite Aid 9.00% 6.0x 1.7x Caa3/CCC EBITDA 924.9 858.9 901.8 215.4 233.2 Neiman 7.66% 4.6x 3.5x Caa1/B- Michaels 8.27% 4.3x 2.8x Caa2/CCC Interest Expense 515.8 547.6 522.0 132.5 130.5 Supervalu 6.89% 3.3x 3.7x B2/B Taxes 0.0 9.8 2.3 1.5 (10.0) CapEx 183.9 194.6 248.3 68.9 70.0 Free Cash Flow 225.3 106.8 129.1 12.5 42.6
Total Debt 6,370.9 6,219.9 6,181.7 6,219.9 6,181.7 Cash 103.6 91.1 143.1 91.1 143.1 Key Credit Statistics Total Debt/EBITDA 6.89 7.24 6.86 Net Debt/EBITDA 6.78 7.14 6.70
EBITDA/Interest 1.8x 1.6x 1.7x 1.6x 1.7x
EBITDA margin 3.60% 3.41% 3.52% 3.34% 3.51%
Capitalization 2012E Debt to Description Size EBITDA Liquidity 3Q12A Senior sec credit facility 61.0 Revolver Size $1,175.0 Tranche 2 Term loan due 6/4/14 L+175 1044.4 Letters of Credit $131.4 Tranche 5 Term Loan due 2/17/18 L+325 (125 floor) 331.8 Borrowings $191.0 8% Senior Secured Notes due 8/15/20 (1st lien) 650.0 9.75% Senior Secured Notes due 6/12/16 (1st lien) 404.9 10.375% Senior Secured Notes due 7/15/16 (2nd lien) 442.8 7.5% Senior Secured Notes due 3/1/17 (2nd lien) 500.0 Revolver Availability $849.6 10.25% Senior Secured Notes due 10/2019 (2nd lien) 268.3 Total Secured Debt 3703.2 4.1x
Other 5.4 A/R facility NA Total Secured Debt 3708.6 Borrowings NA A/R Availability NA Guaranteed Unsecured Debt 1663.5 Total Gtd Unsecured Debt 1663.5 6.0x Unsecured Notes 673.5 Cash $148.5 Other 0.0 Total Liquidity $998.1 Total Unsecured Debt 673.5 Lease Financing Obligations 136.1 Total Debt 6181.7 6.9x Market Cap (Shareholders' Equity) 1248.9 Enterprise Value (Total Book Cap) 7327.0 8.1x
Maturities: 7,000 6,000 5,000
4,000 3,000 2,000
1,000 0 2012 2013 2014+
Goldman Sachs Credit Research 157 January 26, 2012 High Yield
Rock-Tenn Company (RKT) Updated 1/25/12 Joe Stivaletti 212-902-3299 Contact analyst or see latest research for updates to ratings, estimates, and other information. James Kitchell 212-902-9813 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $300 9.250 Sr Nts 15-Mar-16 Ba2/BBB- 104.625 03/15/12 104.500 6.939 668
Company Description Investment Strengths: Rock-Tenn is a leading integrated manufacturer of corrugated and consumer packaging and recycling solutions. - Leading market positions: Rock-Tenn enjoys leading The company primarily manufactures containerboard, recycled paperboard, bleached paperboard, packaging market positions across many of its product products, and merchandising displays. Rock-Tenn operates locations in the United States, Canada, Mexico, categories. Chile, Argentina, Puerto Rico, and China. - Low-cost operations: Rock-Tenn's containerboard mill assets are clustered in the second quartile of the cost curve.
Investment Risks: - Leveraging acquisitions: Rock-Tenn has made several acquisitions in recent years and may seek additional acquisition opportunities in the future.
Financial Profile 9/30/2009 9/30/2010 12/31/2010 9/30/2011 12/31/2011 FY:09 FY:10 1Q:11 4Q:11 1Q:12 Net sales 2,812.3 3,001.4 761.1 2,463.5 2,267.7 EBITDA 524.3 494.5 131.6 344.3 300.0
Interest expense 96.7 75.5 16.7 33.2 32.7 Capital expenditures 75.9 106.2 28.5 91.9 81.6
Cash 11.8 15.9 10.0 82.8 82.1 Total debt 1,345.6 1,127.0 1,055.5 3,445.4 3,475.9 Net debt 1,333.8 1,111.1 1,045.5 3,362.6 3,393.8 Agency Comps Leverage Coverage Ratings Key Credit Statistics GP 2.1x 4.8x Baa3/A- Total debt/EBITDA 2.6x 2.3x 2.1x 2.7x 2.9x CASCN 4.8x 2.7x Ba3/B+ Net debt/EBITDA 2.5x 2.2x 2.0x 2.7x 2.8x UFS 0.4x 13.0x Baa3/BBB- BZ 1.7x 5.4x Ba3/BB EBITDA/interest 5.4x 6.5x 7.9x 10.4x 9.2x EBITDA margin 18.6% 16.5% 17.3% 14.0% 13.2%
Capitalization 12/31/2011 Debt to Description Size EBITDA Liquidity 12/31/2011 Revolver 309 Revolver size 1,475 Term loans 2,221 Letters of credit 91 A/R facility 542 Borrowings 309 5.625% sr sec nts 80 Revolver availability 1,075 Other secured debt 24 9.250% sr nts 300 Term loan A 227 Total debt 3,476 2.9x Cash 82 Market Cap 4,357 Total liquidity 1,384 Enterprise Value 7,751 Note: Revolver availability estimated.
Maturities:
3000
2500
2000
1500
1000
500
0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 158 January 26, 2012 High Yield
Royal Caribbean Cruises Ltd. (RCL) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751 UNDERPERFORM: Despite an improving outlook, we remain concerned about the planned capacity increase in the cruising sector; we favor lodging names because they offer stronger asset coverage and better industry fundamentals. Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-spread 5-year (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp CDS $550 7.000 Senior 15-Jun-13 Ba2/BB NC NC 105.250 3.06 289 257 485 $300 7.500 Senior 15-Oct-27 Ba2/BB NC NC 98.500 7.66 571 539 485
Company Description Investment Strengths: - Market leadership: No. 2 player in the cruise industry. Royal Caribbean Cruises Ltd. (RCL), the world's second-largest cruise company, operates 40 ships under five brands. RCL had Maintains roughly 32% of the North American market and roughly 92,300 berths that call on approximately 420 destinations as of 3Q2011. Its two main global brands, Royal Caribbean 24% of the global cruising market (Cruise Industry News). International and Celebrity Cruises, have historically focused on serving the North American market. However, over the years - Export credit agents of Europe (Finland, Germany) provide RCL has expanded its international passenger sourcing with the additions of Pullmantur in Spain and Latin America, CDF cheap financing terms to fund the delivery of new vessels. Croisieres de France, and TUI Cruises (50% JV, TUI AG) in Germany. Co-founder Arne Wilhelmsen and Cruise Associates own The unsecured term loans carry low interest rates and are 35% of the outstanding equity and maintain a shareholders' agreement that controls the board of directors' selection and other guaranteed by the ECA and effectively the sovereign policies. government of the shipyard. - RCL operates in underpenetrated markets and has Key Dates/Catalysts: exposure to significant upside in emerging markets. It - 2011 guidance: Due to losses taken on its WTI fuel option portfolio and a strengthening USD, lowered EPS guidance to $2.70- estimates that 12-17% of the North American market has 2.80 (vs. $2.85-2.95) based on an increase in net yields of approximately 4% on a reported basis (from 5%) and approximately cruised and that outside of NA the penetration drops to 3% a 3-4% increase (vs. +4%) in net cruise costs per available passenger cruise day. Anticipates a 7.5% increase in capacity. of the population in Europe and 2% of the population in Asia Expects capex of $1.1 billion in 2011, primarily due to new ship orders. and South America. - 4Q2011 guidance: Expects EPS of $0.09-$0.19 based on a net yield increase of 3-4% on a constant currency and reported - Hedges a portion of its fuel costs: 57% through the basis and an increase in cruise costs per available passenger cruise day of approximately 6% (an increase of 3-4% excluding remainder of 2011, 55% for 2012, 47% for 2013, and 30% fuel on a constant currency basis and approximately 4% on a reported basis). Anticipates a 7.3% increase in capacity. for 2014 as of 3Q2011. WTI Fuel options cover an additional - January 2012: Carnival Corp's Costa Concordia was grounded off the coast of Isola del Giglio, Italy with over 4,200 11% of estimated consumption for 2013. passengers and crew members. There were injuries and loss of life, which may cause some potential RCL customers to rethink their desire to book a cruise. Investment Risks: - The leisure and cruise industry is highly dependent on Financial Profile 2010A 1Q11A 2Q11A 3Q11A 4Q11E 2011E discretionary spending and consumer confidence. Net revenue 6,752.5 1,672.0 1,767.9 2,322.0 1,772.9 7,534.7 - Overcapacity in the cruising industry will weigh on pricing. RCL has two ship builds through 2014, Carnival (CCL) has Adj. EBITDA 1,446.3 322.8 340.2 684.9 291.6 1,639.6 10 ships in the pipeline through 1Q2016, and Norwegian Cruise Line (NCL) has two ships on order through 2014. Interest Expense 371.2 100.6 93.0 98.2 82.7 374.5 - Significant commitments to capital expenditures, mainly due to the size of the newbuild pipeline. Cash Taxes 0.0 0.0 0.0 0.0 0.0 0.0 - Geopolitical risk: The events in Northern Africa led to 63 CapEx 2,187.2 66.3 185.3 778.5 69.9 1,100.0 voyage modifications, and the Japan earthquake tsunami Free Cash Flow (1,112.0) 155.9 62.0 (191.8) 139.0 165.0 caused 21 voyage modifications (management believes further modifications are likely). - Increased exposure to Europe and a weakening consumer: Total Debt 9,150.1 8,779.3 8,604.9 8,775.7 8,527.0 8,527.0 Has increased deployments from Europe to 31% in 2011 versus 11% in 2005. Unrestricted Cash 419.9 470.3 551.5 451.5 324.5 324.5 - Significant maturities over the next few years. Net Debt 8,730.2 8,309.0 8,053.4 8,324.2 8,202.5 8,202.5
Key Credit Statistics Total Debt/LTM EBITDA 6.3x 5.8x 5.5x 5.4x 5.2x 5.2x Net Debt/EBITDA 6.0x 5.5x 5.2x 5.1x 5.0x 5.0x Comps Leverage Coverage Ratings RCL 5.3x 7.0x Ba2/BB EBITDA/Interest 3.9x 3.2x 3.7x 7.0x 3.5x 4.4x HST 5.7x 3.9x Ba1/BB+ EBITDA margin 21.4% 19.3% 19.2% 29.5% 16.4% 21.8% HOT 3.3x 4.7x Ba1/BB+ GET 5.8x 2.7x Caa2/B
Capitalization Liquidity Enterprise Value
Description 3Q11A Lvg Source 3Q11A Source Size Revolver due Nov 2014/July 2016 560.0 Revolver due Nov 2014 525.0 Shares OS (mm) 217 Other unsecured term loans 4,660.3 Revolver due July 2016 875.0 Stock Price $28.11 7% senior notes due June 2013 550.0 Letters of Credit 0.0 Market Cap 6,107.2 6.875% senior notes due Dec 2013 350.0 Borrowings 560.0 Net Debt 8,253.2 5.625% senior notes due Jan 2014 (EUR 1bn) 1,338.7 Revolver Availability 840.0 Enterprise Value (EV) 14,360.5 11.875% senior notes due July 2015 300.0 7.25% senior notes due June 2016 350.0 EV/ EBITDA 8.8x 7.25% senior notes due Mar 2018 150.0 Mkt val net debt/ EBITDA 7.5% senior notes due Oct 2027 300.0 Cash 451.5 Other (including derivative liability/asset) 145.7 Total Liquidity 1,291.5 Maintenance Covenants Total Debt 8,704.7 5.3x Net debt-to-capital 62.5% Fixed charge ratio 1.25x Minimum net worth$ 5.7 bn
Maturities: 3000 Operating metrics 4Q10A 1Q11A 2Q11A 3Q11A 2500 Available berth days 7,943.8 8,100.3 8,038.0 8,575.9 2000 YoY % change 8.3% 10.1% 6.6% 6.3% Occupancy 103.1% 104.3% 103.7% 107.9% 1500 Passenger cruise days 8,193.1 8,445.7 8,337.6 9,255.8 1000 YoY % change 10.8% 11.4% 6.7% 6.9% 500 Net yield per available berth$ 152.74 $ 159.25 $ 165.93 $ 202.28 YoY % change 3.2% 4.0% 3.8% 5.3% 0 2012 2013 2014 2015 2016+ Net cruise cost$ 116.79 $ 119.40 $ 123.60 $ 122.41 YoY % change 0.0% 0.2% 3.3% 4.8%
Goldman Sachs Credit Research 159 January 26, 2012 High Yield
The Ryland Group Inc. (RYL) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 IN-LINE
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp IL 300 6.625 Sr. Nts 1-May-20 B1/BB- MW 96.5 7.19% 563
Company Description Investment Strengths: Founded in 1967, Ryland is a leading homebuilder that primarily builds single family detached homes, in addition to - Broad geographic footprint. attached dwellings – including condominiums, townhomes, and some mid-rise buildings. The company markets its homes - Ample liquidity. to entry level, first and second-time move-up buyers, with prices typically ranging from $100,000 to more than $450,000. - Land acquisition is primarily focused on finished lots. Ryland is well diversified geographically throughout the United States, currently operating in 15 states and 20 markets across the country. Investment Risks: - Build-to-order strategy might hinder sales volumes. - Company has yet to achieve profitability on a GAAP Key Dates/Catalysts: (net income) basis. 4QFY11 earning release - Has been aggressively pursuing land deals given its Could potentially access capital markets to bolster liquidity relatively depleted inventories.
Financial Profile ($, mn)* FY:09 FY:10 FY:11E 4Q:10 3Q:11 4Q:11E Total Revenues 1,284 1,054 933 227 249 284 Total Adjusted EBITDA 21 58 42 16 12 16
Interest Expense (54) (60) (60) (15) (15) (15) Debt-to- Inventory- Cash Taxes 99 33 21 24 8 - Comps Cap to-Debt Ratings Capital Expenditures (2) (13) (11) (3) (3) (2) Ryland 64% 0.9x B1/BB- Free Cash Flow 288 (90) (178) (56) (38) (27) DR Horton 38% 2.2x Ba1/BB+
Total Homebuilding Debt 868 892 844 892 844 844 Total Cash and Cash Equivalents 815 739 534 739 562 534 Key Credit Statistics Homebuilding Debt / Capitalization 60% 61% 64% 61% 64% 64% Net Homebuilding Debt / Capitalization (3) 18% 29% 44% 29% 42% 44%
Inventories / Homebuilding Debt (2) 0.8x NA NA 0.8x 0.9x NA Homebuilding Gross Margin (1) 15% 18% 19% 14% 19% 20%
PF Capitalization ($, mn)
Description Size Liquidity Secured notes payable 5 Cash and Cash Equivalents 154 Total Secured 5 Restricted cash 68 6.875% senior notes 174 Marketable securities 339 5.375% senior notes 126 Total Liquidity 562 8.4% senior notes 230 6.625% senior notes due 2020 300 Total Balance Sheet Debt 836 Joint Venture Repayment Guarantees 12 Total Debt Outstanding 847
Minority Interest 35 Share Price 18.7 Market Capitalization 831 Enterprise Value 1,152
Maturities:
250
200
150
100
50
0 2012 2013 2014 2015 2017
Goldman Sachs Credit Research 160 January 26, 2012 High Yield
Saks Inc. (SKS) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 212-357-7875 Contact analyst for updates and other information. NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $207 2.00% Conv. Nts 15-Mar-24 B2/BB NA NA $102.38 -21.89% -2042
Company Description Company Strengths: Saks Inc. includes Saks Fifth Avenue luxury department stores (46 stores), Off 5th Saks Fifth Avenue - Strong brand-name recognition Outlet stores (57 stores ), and saks.com. Saks Fifth Avenue stores are principally freestanding stores - Significant owned real estate in exclusive shopping destinations or anchor stores in upscale regional malls. The stores typically offer - Luxury has recently been a leading retail subsegment a wide assortment of distinctive luxury fashion apparel, shoes, accessories, jewelry, cosmetics, and gifts. Company Risks: - Much lower margins than Neiman Marcus - Sales highly correlated to stock market
Key Dates/Catalysts: Mid- to late February: fourth quarter earnings release
Financial Profile FY08A FY09A FY10A LTM Comps Yield Leverage Coverage Ratings Revenue 3,052.8 2,625.7 2,785.7 2,954.8 Saks -21.89% 1.5x 5.5x B1/BB EBITDA 26.8 118.3 222.5 266.0 Bon-Ton 40.10% 5.2x 1.9x Caa2/CCC+ Dillard's 6.56% 1.7x 8.2x B2/BB- Interest Expense 39.5 49.5 56.7 52.5 Neiman Marcus 7.66% 4.6x 3.5x Caa1/B- Taxes (29.5) (40.1) (13.9) 40.6 CapEx 125.0 59.0 50.5 72.5 Free Cash Flow (108.2) 50.0 129.2 129.2
Total Debt 640.1 521.2 549.3 405.8 Cash 10.3 147.3 197.9 73.7 Key Credit Statistics Total Debt/EBITDA 23.9x 4.4x 2.5x 1.5x Net Debt/EBITDA 23.5x 3.2x 1.6x 1.2x
EBITDA/Interest 0.7x 2.4x 3.9x 5.1x
EBITDA margin 0.88% 4.51% 7.99% 9.00%
Capitalization 3Q11A/LTM Debt to Description Size EBITDA Liquidity 3Q11A Revolver due 2016 ($500mm, L+2.0-2.5) 0.0 Revolver Size 500.0 Letters of Credit 5.9 Borrowings 0.0 Total Secured Debt 0.0 0.0x Revolver Availability 494.1 Senior Notes 2.1 7.5% Convertible Notes due 2013 120.0 A/R facility NA 2% convert nts due 3/15/24 230.0 Borrowings 0.0 Capital lease obligations 53.7 A/R Availability NA Total Sub debt 405.8 Cash 73.7 Total Debt 405.8 1.5x Total Liquidity 567.8 Market Cap (Shareholders' Equity) 1571.6 Enterprise Value (Total Book Cap) 1830.1 6.9x
Maturities:
300
250
200
150
100
50
0 2012 2013 2014+
Goldman Sachs Credit Research 161 January 26, 2012 High Yield
Sally Holdings LLC (SBH) Updated 01/23/12 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751 OUTPERFORM: As our top pick for 2012, we prefer the SBH 6.875% senior notes to other companies in our Consumer & Apparel universe due to the company’s stable operations and defensive characteristics. We believe the SBH seniors offer exposure to a more defensive business with limited commodity exposure versus HBI and PVH. Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-Spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $750 6.875 Sr Nts 15-Nov-19 B1/BB+ 103.438 15-Nov-15 106.750 5.495 473 429
Company Description Investment Strengths: Sally Beauty Holdings (SBH) is the largest professional beauty supplies distributor in the United States with a - Stable and defensive operating profile: its beauty product presence in the United Kingdom, Belgium, Chile, Mexico, Puerto Rico, France, Germany, Canada, Ireland, and offerings have proven to be more resilient during periods of Spain. As of September 30, 2011, SBH operated a total of 4,128 stores, supplied products to more than 181 contraction. Same-store sales declined only 0.4% in FY2009. stores (its franchised stores), and had over 1,116 distributor sales consultants. SBH distributes a wide array of - Strong brand recognition: Both divisions are leaders in their beauty products through its two business units- Sally Beauty Supply and Beauty Systems Group (BSG). Sally respective categories. Beauty Supply targets both retail consumers and salon professionals and BSG, which operates stores under the - Strong management team. CosmoProf service mark, targets salons and salon professionals. Its largest equity holder, Clayton, Dubilier & - Private label products (SBH owns the trademark and Rice, owns 35% of the company, following a $575 mn capital contribution upon the spinoff from Alberto Culver in perhaps the actual formula) and controlled label products November 2006. (SBH has exclusive rights to a manufacturer's formula) offer Key Dates/Catalysts: much higher margins and contribute 44% to Sally Beauty - FY2012 guidance: Expects capex to be $65-70 million, with store base growth of 4-5% yoy. Supply sales. - October 2011: Completed an upsized secondary common stock offering of 18 mn shares held by funds - Its loyalty card program, the Beauty Club Card (BCC), is associated with Clayton, Dubilier & Rice. increasing store visits on average by one trip per year and - November 2011: Issued $750 mn of 6.875% notes due 2019 at par, proceeds used to retire existing bonds. resulting in 25-40% higher spend per visit. - May 2012: Interest rate swaps expire on the Term Loan B. Management has stated it would like to wait for the - Opportunity for global expansion - 18% of Sally Beauty swaps to expire prior to a refinance. revenues were generated outside the US as of 4QFY11. - Track record for repaying debt. No near-term maturities.
Financial Profile 2QFY11 3QFY11 4QFY11 FY11 1QFY12E FY12E Investment Risks: Revenue 802 837 837 3,269 855 3,517 - Restricted payment capacity increases dividend risk: as of 4QFY11, the RP basket had approximately $410 million of EBITDA 123 133 133 503 125 553 capacity, or three-quarters of a turn of leverage. Its financial sponsors may want to extract equity in the form of a dividend, Interest Expense 28 28 27 113 25 95 as it has been five years since the original investment and Cash Taxes 43 35 38 121 30 143 leverage is approaching 3.0x. CapEx 141417601770- Highly fragmented and competitive market. Specifically, drug stores and supermarkets are bolstering their offerings of Free Cash Flow 38 56 50 209 52 245 beauty products. - Manufacturer concentration/competition by manufacturers. In Total Debt 1,545 1,485 1,413 1,413 1,458 1,458 December 2006, L'Oreal shifted a significant amount of Cash 59 53 63 63 83 303 revenue out of BSG into its own regional distribution networks. Net debt 1,486 1,432 1,350 1,350 1,375 1,155 - Does not target investment grade ratings. Management stated on its 3QFY11 earnings call, if "you start to try to strive for investment grade type ratings, the law of diminishing Key Credit Statistics returns starts to kick in, in terms of pricing and maximizing our Total Debt/EBITDA 3.4x 3.1x 2.8x 2.8x 2.8x 2.6x capital structure in the market." Net Debt/EBITDA 3.3x 3.0x 2.7x 2.7x 2.7x 2.1x
EBITDA/Interest 4.4x 4.8x 4.8x 4.5x 5.0x 5.8x Comps Leverage Coverage Ratings EBITDA margin 15.3% 15.9% 15.8% 15.4% 14.6% 15.7% SBH 10.5s 2.9x 4.5x B1/BB+ Note: Fiscal year ends September 30. REV 9.75s 4.4x 2.8x B2/B
Capitalization
Description 4QFY11PF Lvg Liquidity 4QFY11A Enterprise value ABL facility due Nov 2015 (L+225) 0 Revolver Size 400 Shares o/s (mm) 185 Term Loan B due Nov 2013 (L+250) 697 Letters of Credit 34 Stock price $20.45 Total Secured Debt 697 1.4x Borrowings 0 Market cap 3,779 Revolver Availability 367 Net debt 1,395 6.875% Senior Notes due Nov 2019 750 Enterprise value (EV) 5,173 Other debt (including cap leases) 11 Cash 63 Total debt 1,458 2.9x Total Liquidity 430 EV/LTM EBITDA 10.3x Pro forma for the issuance of the 6.875% senior notes. EV/FY12E EBITDA 9.4x
Maturities:
800
600
400
200
0 FY2012 FY2013 FY2014 FY2014 FY2015+
Goldman Sachs Credit Research 162 January 26, 2012 High Yield
Sanmina-SCI Corp (SANM) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $400 8.125 Snr Subord 1-Mar-16 B3/B- 104.063 2/27/2012 104.25 -9.6% (969)
Company Description Investment Strengths: Sanmina-SCI (SANM) is a global electronics manufacturing service (EMS) provider for original equipment manufacturers - Adequate liquidity: SANM’s liquidity remains strong, (OEMs) in the multimedia, communications, enterprise computing and storage, industrial and semiconductor capital with over $600 million of cash on hand and no equipment, aerospace and defense, automotive, and medical industries. SANM offers a broad array of services to OEMs, drawings on its $235 million revolver. including product design and engineering, volume manufacturing, final system assembly and test, direct order fulfillment, - Niche EMS markets like medical and auto should and after-market product service and support. Over the past several years, SANM has focused the company away from provide attractive growth opportunities over the more commoditized high-volume PC solutions to capture higher-margin, lower-volume solutions in niche EMS markets medium to long term. like industrial/auto/medical. Headquartered in San Jose, CA, SANM recorded over $6.3 billion in revenues for 2010 and - Deleveraging profile: Sanmina has reduced debt by has 45,000 employees in 18 countries. approximately $300 million since the end of FY2007.
Key Dates/Catalysts: - SANM will report 2QFY12 earnings in April Investment Risks: - Highly leveraged capital structure: Although SANM has reduced debt over the past few years, it is the most levered EMS credit in our sector (3.4x gross leverage; 1.7x net leverage). - Lack of visibility: SANM has limited visibility into customer demand trends, which have been historically volatile and cyclical. - Free cash flow could be stretched in a recovery. Financial Profile FY09 FY10 FY11 1Q12 FY12E SANM burned $161 million of free cash in 2010 and $30 million in 1QFY11, as it reinvested in working Revenue 5,177 6,319 6,602 1,502 6,329 capital and capex to leverage improving markets. Cash EBITDA 198 322 362 73 329 flow improved in 2Q-4Q2011, during which the company generated $158mn in FCF. Interest Expense (117) (108) (91) (6) (79) Cash Taxes (30) (40) (12) (1) (7) CapEx (66) (81) (108) (28) (98) Free Cash Flow 142 (161) 128 (50) 148 Comps Leverage Coverage Sr. Unsec Total Debt 1,438 1,306 1,243 1,244 1,094 Ratings Cash 899 593 640 604 632 AMD 2.3x 5.0x Ba3/B+ Net Debt 539 713 602 639 462 AMKR 2.3x 6.6x Ba3/BB Key Credit Statistics FSL 5.8x 2.0x Caa1/CCC+ Total Debt/EBITDA 7.3 x 4.1 x 3.4 x 3.6 x 3.3 x Net Debt/EBITDA 2.7 x 2.2 x 1.7 x 1.9 x 1.4 x
EBITDA/Interest 1.7 x 3.0 x 3.7 x 3.6 x 4.2 x EBITDA margin 3.8% 5.1% 5.5% 4.8% 5.2%
PF Capitalization (FY11E) Debt to Description Size EBITDA Liquidity LTM ABL due 2013 (L+250 bp) 0 0.0 x Revolver Size 235 L+275 Senior Notes due 2014 257 2.1 x Borrow Base 166 7.00% Senior Notes due 2019 500 2.1 x - Amt Drawn 0 8.125% Sub Notes due 2016 400 3.4 x - LC's 25 Other (ST foreign credit facilities) 85 3.4 x Amt Unutilized 141 Total Debt 1,243 3.4 x ST borrowing facilities 85 Less cash 640 -- Utilization 60 Net Debt 602 1.7 x Availability 25 Equity Market Cap 887 -- Cash 640 Enterprise Value 1,489 4.1 x Liquidity 806
Maturities:
600.0
500.0
400.0
300.0
200.0
100.0
0.0 2012 2013 2014 2015 2016 2017 2018 2019 After
Goldman Sachs Credit Research 163 January 26, 2012 High Yield
Scientific Games International, Inc. (SGMS) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751 IN LINE We believe SGMS is one of the lower risk gaming credits owing to the stability of the instant lottery ticket business. We expect lottery sales to remain stable, whereas we expect regional gaming operators to continue to feel pressure from elevated unemployment.
Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $350 9.250 Senior 15-Jun-19 B1/BB- 104.625 15-Jun-14 109.250 6.79 657 626
Company Description Investment Strengths: - More state and national governments are adding or NOTScientific COVERED Games International, Inc. (SGMS), a subsidiary of Scientific Games Corp., is a leading supplier of increasing lotteries to make up for budget shortfalls. technology-based products, systems, and services to the gaming market worldwide. SGMS operates in three - Instant ticket sales have grown at a CAGR of 9.9% business segments: Printed Products, Lottery Systems, and Diversified Gaming. The Printed Products group is since 1999. a leading provider of instant lottery tickets to 43 of the 44 US states with lotteries and to approximately 50 - Market share leader in instant tickets (~80%). Maintains countries. The Lottery Systems group provides software, equipment, and data communication services to 11 capacity to print 45 billion instant tickets, and in 2010 it states that operate online lotteries such as Lotto and to five states that operate video lottery terminal systems. printed 37 billion. The Diversified Gaming group provides systems and services to public and private operators in wide area - Long-term contracts make revenues predictable. gaming markets. According to Bloomberg, significant equityholders include Ron Perelman (34%), Wells Capital - Barriers to entry owing to patents and printing presses. Management (8%), and Fine Capital Partners (7%). - Geographic diversification, with 47% of 2010 revenues generated outside the US. Key Dates/Catalysts: - Significant opportunities in new markets such as China; - August 2011: Amended credit agreement to extend maturity to June 2015 from June 2013. has installed two printing presses for local printing in - September 2011: Completed acquisition of Barcrest Group Limited, a supplier of gaming content and machines China. in Europe, for $51 million (£33 million). - January 2012: Multi-state Powerball game increases ticket price to $2 from $1 (Powerball contributed $20 mn Investment Risks: to SGMS revenues in 2010). - Business model is subject to changes in regulations in - January 2012: Wins Illinois Video Gaming Central Communication System Contract to service the potential any given jurisdiction. 60,000 VLTs at Illinois licensed bars, restaurants, and truck stops (or other venues that serve liquor). The - Sizable restricted payments basket – we estimate $289 contract has a term of six years and may be extended by up to an additional four years. million of capacity as governed by the 8.125% indenture. - Non-guarantor subs make up 100% of assets, 2% of consolidated total debt, and 51% of LTM EBITDA. - New $200 million share buyback program, which will expire December 31, 2011. During 2010, repurchased 2.6 million shares at a total cost of $26 million. No shares Financial Profile FY10A 1Q11A 2Q11A 3Q11A 4Q11E FY11E have been repurchased for the nine months ending Revenue 882 197 220 223 231 870 September 30, 2011. Adjusted EBITDA 293 63 75 68 62 269
Interest Expense 102 26 26 26 28 107 Cash Taxes (3) 5 5 1 1 12 CapEx (incl. software) 109 22 22 22 30 97 Free Cash Flow 86 10 21 18 4 53 Comps Leverage Coverage Ratings IGT 2.3x 6.0x Baa2/BBB Total Debt 1,397 1,393 1,391 1,392 1,390 1,390 HST 5.7x 3.9x Ba1/BB+ Cash 124 119 127 87 97 97 WYNN 1.9x 6.6x Ba2 / BBB- Net Debt 1,272 1,274 1,264 1,305 1,293 1,293 Key Credit Statistics Maintenance covenants Total Debt/EBITDA 4.8x 4.9x 5.0x 5.1x 5.2x 5.2x Current 1Q2014 1Q2015 Net Debt/EBITDA 4.3x 4.5x 4.6x 4.8x 4.8x 4.8x Leverage: Senior debt 2.75x 2.75x 2.75x EBITDA/Interest 2.9x 2.7x 2.6x 2.5x 2.5x 2.5x Total debt 5.75x 5.50x 5.25x EBITDA margin 33.2% 32.1% 34.1% 30.4% 27.1% 30.9% Int. coverage 2.25x 2.25x 2.25x
Capitalization Liquidity Enterprise Value Debt to Description 3Q11A EBITDA Source 3Q11A Source Size Senior secured revolver due 2015 0 Revolver due 2015 250 Shares O/S (mm) 92.1 Senior secured term loan due 2015 567 Letters of Credit & other 61 Stock Price$ 11.42 Total senior secured debt 567 2.1x Borrowings - Market cap 1,052 7.875% senior sub notes due 2016 200 Revolver Availability 189 Net Debt 1,305 8.125% senior sub notes due 2018 250 Enterprise Value 2,357 9.25% senior sub notes due 2019 345 Other debt 29 Cash 87 LTM EBITDA 271 Total debt 1,392 5.1x Total Liquidity 276 EV/ EBITDA 8.7x
Maturities: Operating segments 1,600 4Q10A 1Q11A 2Q11A 3Q11A Segment revenue: 1,400 Printed Products 124 116 133 130 1,200 Lottery Systems 63 56 57 60 1,000 Diversified Gaming 25 25 31 34 800 Total revenue 212 197 220 223 600
400 Adjusted Segment EBITDA: 200 Printed Products 35 38 47 44 0 Lottery Systems 23 22 21 20 2012 2013 2014 2015 2016+ Diversified Gaming 9 9 12 12 Other (2) (6) (6) (8) Adjusted EBITDA 65 63 75 68
Goldman Sachs Credit Research 164 January 26, 2012 High Yield
Seagate Technology (STX) Updated 1/25/2012 Gregory Chwatko 212-902-0673 Contact analyst or see latest research for updates to ratings, estimates, and other information. Annalee Bloomfield 212-902-8028 IN-LINE
Bond Summary Size Coupon Agency UST Z Spread 5 Yr Ticker (MM) (%) Maturity Ratings Price Spread (bp) CDS STX $600 6.88% 01-May-20 Ba1/BB+/BB+ $109 460 425 285/315
Company Description Investment Strengths: Seagate is a leading designer, manufacturer, and marketer of hard disk drives, which are the primary medium for storing - Seagate is an industry leader in the hard drive space. electronic information in systems ranging from desktop and notebook computers and consumer electronics devices to data - The company benefits from increased pricing power centers delivering information over corporate networks and the Internet. Seagate also sells its branded storage solutions following this fall's flooding in Thailand. under both the Seagate and Maxtor brands. In addition to manufacturing and selling disk drives, the company provides data - The company has a manageable liquidity position, storage services for small- to medium-sized businesses, including online backup, data protection, and recovery solutions. with a cash balance of $3 billion. - Leverage metrics have improved owing to stronger performance. Key Dates/Catalysts: - The recent consolidation between Western Digital Earnings announcement and Hitachi Global Storage Technologies improves the Potential capital structure announcements competitive landscape.
Investment Risks: - The hard drive industry has historically been (and is Financial Profile FY10A FY11A FY12E 2Q11A 2Q12E likely to remain) volatile and highly competitive as Revenue 11,395 10,971 13,948 2,719 3,150 participants often compete on pricing. EBITDA 2,663 1,580 3,170 403 757 - Weak demand environment hurts performance, leading to weaker credit metrics. Operating Income 1,883 826 2,353 $206 $577 - Event risk is still a concern following the company's Interest Expense (net) (180) (227) (246) ($46) ($66) new $2 billion share repurchase authorization and past private equity interest. Operating Cash Flow 1,932 1,264 2,561 507 681 CapEx (639) (843) (598) (202) (127) Dividends 0 (74) (303) 0 (75) Free Cash Flow 1,293 347 1,660 305 480
Total Debt 2,502 3,512 3,484 2,925 3,484 Comps Leverage Coverage Agency Ratings Cash 2,629 3,253 4,584 2,911 3,401 Net Debt (Cash) (127) 259 (1,100) 14 83 ALU 3.6x 2.8x B1/B/-- Key Credit Statistics Total Debt/EBITDA 0.9x 2.2x 1.1x 1.3x 1.8x Net Debt/EBITDA 0.0x 0.2x -0.3x 0.0x 0.0x EBITDA/Interest -14.8x -7.0x -12.9x -8.8x -11.4x EBITDA margin 23.4% 14.4% 22.7% 14.8% 24.0% Fiscal year ends in June
Capitalization Debt to Description Size EBITDA Liquidity Cash $2,988 10% Senior secured second-priority Notes due May 2014 415 Secured revolving credit $350 6.8% due October 2016 600 facility due 1/15 7.75% notes due December 2018 750 Total Liquidity $3,338 6.875% due May 2020 600 7% due November 2021 600 Other 1 Total Debt 2,966 1.9x
Market Cap 9,218 Enterprise Value 9,802
Maturities:
3,000
2,500
2,000
1,500
1,000
500
0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 165 January 26, 2012 High Yield
Sealy Mattress Company (ZZ) Updated 1/23/12 Kevin Coyne 212-357-9918 Contact analyst for updates and other information. Celeste Everett 212-902-4751 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-Spread (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $315 10.875 Sr Sec 15-Apr-16 Ba3/BB- 108.156 15-Apr-12 108.500 7.72% 762 724 $390 8.25 Sr Sub 15-Jun-14 Caa1/CCC+ 101.375 Current 95.250 10.56% 1,034 1,003
Company Description Company Strengths: Sealy Mattress Company, a wholly owned subsidiary of Sealy Corporation (ZZ), manufactures and markets mattresses and - Leading domestic market share at around 19%. mattress foundations. The company holds the #1 position in the US, with approximately 19% market share in 2010, - Broad product lineup from high-end Stearns & Foster to lower end according to the International Sleep Products Association and Furniture/Today. The company participates primarily in the Sealy and Bassett brands. For FY2011, ZZ earned 67% of its traditional innerspring segment but has also entered the specialty category in recent periods. The company’s well-known domestic revenues from the premium end of the market with retail brands include Sealy, Sealy Posturepedic, Stearns & Foster, and Bassett. ZZ owns and operates a total of 27 bedding price points of $750 and above. manufacturing and distribution centers globally. These include three manufacturing and distribution centers in Canada, and - Vertical integration for certain components lessens reliance on one each in Mexico, Argentina, Uruguay, and Puerto Rico. Its vertical integration for box spring and innerspring components outside suppliers. is a key point of differentiation versus its competitors. Sealy is approximately 46%-owned by KKR, following a 2004 LBO and - Diversified customer base. subsequent IPO in 2006. - Historically, the mattress industry is relatively stable, with high barriers to entry: Leading brands control two-thirds of industry Key Dates/Catalysts: - Replacement demographics/innovation drive demand; average - FY2012 guidance: Expect mid-single-digit raw material cost inflation, with higher inflation in 2HFY12. Plans to offset the American replaces his/her mattress every seven to ten years cost pressures through other efficiency gains and improved mix. - Reduced exposure to Europe: Following the sale of its European - May 2011: Redeemed $10 million of 10.875% notes. manufacturing operations in France and Italy in November 2010, - July 2012: Soft call conversion for senior secured convertible pay-in-kind notes due 2016 if (1) the stock price is greater 92% of FY2011 net revenues on a pro forma basis were earned in than $2.50 and (2) leverage excluding the converts is less than 3.4x. North America, with the US contributing 77% to total sales. ZZ - December 2011: Redeemed an additional $10 million of the 10.875% notes at 103. transitioned into a license arrangement with third parties following the European assets sale.
Company Risks: - Competitors (including specialty mattresses) have grabbed meaningful market share in recent years at high price points, resulting in increased price competition for traditional innerspring mattresses. - High-ticket and deferrable nature mean that sales/profits are Financial Profile FY10 1QFY11 2QFY11 3QFY11 4QFY11 FY11 sensitive to macro trends in the short term. Revenue 1,219 306 321 334 269 1,230 - Exposure to raw material inflation: ZZ’s primary input costs are EBITDA 178 30 33 48 15 126 derived from oil and steel, including polyurethane foam, polyester, polyethylene foam, and steel innerspring component parts. Over 50% of ZZ’s raw materials are made of foam and steel, and raw Interest Expense 86 22 22 22 22 88 materials as a percent of cost of goods sold is approximately 67%, Cash Taxes 20 (1) (1) 10 5 20 or two-thirds. - Larger retail customer bankruptcies have pressured sales. CapEx 17 6 7 4 5 22 Free Cash Flow 56 4 4 12 (17) (4)
Total Debt 795 792 787 786 792 792 LTM Comps Leverage Coverage Ratings Cash 109 102 79 86 108 108 ZZ 10.875s 3.9x 1.4x Ba3/BB- Net Debt 686 690 708 700 684 684 BC 11.25s 1.3x 4.8x Ba2/B+ Key Credit Statistics ZZ 8.25s 6.3x 1.4x Caa1/CCC+ Total Debt/EBITDA 4.5x 5.0x 5.2x 5.2x 6.3x 6.3x BC 7.125s 2.5x 4.8x B3/B Net Debt/EBITDA 3.9x 4.4x 4.7x 4.6x 5.4x 5.4x
EBITDA/Interest 2.1x 1.4x 1.5x 2.2x 0.7x 1.4x EBITDA margin 14.6% 9.8% 10.2% 14.5% 5.6% 10.3% Note: Fiscal year ends in November.
Capitalization Debt to Description 4QFY11 EBITDA Liquidity 4QFY11 Enterprise value $100 mn ABL facility (L+350) due 5/13/2013 0 Revolver Size 100 Shares o/s (mm) 101 10.875% Sr sec notes due 4/15/2016 305 LOCs, Borrowing base limits 31 Stock price $1.45 8% Sr sec converts (PIK) due 7/15/2016 185 Borrowings 0 Market cap 146 Total Sr Sec debt 490 3.9x Revolver Availability 69 Net debt 684 8.25% sr sub notes due 6/15/2014 269 Enterprise value (EV) 830 Other debt (capital leases, OID) 33 Cash 108 Total debt 792 6.3x Total Liquidity 177 EV/LTM EBITDA 6.6x
Maturities:
600
400
200
0 2012 2013 2014 2015 2016 2017+
Goldman Sachs Credit Research 166 January 26, 2012 High Yield
Sirius XM Radio Inc. (SIRI) Updated 1/20/12 Jason Kim 212-902-2233 Contact analyst for updates and other information. Satya Tagat 212-902-4427 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $800 8.750 SIRI Sr Nts 1-Apr-15 B3/BB- NC NC 111.25 4.87 418
Company Description Company Strengths: (1) Solid operational momentum. SIRIUS XM provides satellite radio service in the US, with over 21 million subscribers. The SIRIUS system consists of four in-orbit satellites, more than 125 terrestrial repeaters that receive and retransmit signals, (2) Almost all revenues come from monthly subscriber fees, with satellite uplink facilities, and studios. The XM system consists of four in-orbit satellites and more than 650 terrestrial repeaters. Subscribers can also receive certain music and other channels over the Internet. only 2% of sales from advertising. (3) Improving OEM penetration driving subscriber gains. Key Dates/Catalysts: February 2012: 4Q2011 earnings. Company Risks: (1) Competition from other media: Erosion of subscribers due to other forms of radio (Internet radio, terrestrial HD radio, etc.).
(2) High programming costs: Efforts to retain key contracts could lead to increasing programming costs.
(3) High leverage: at 4.4x LTM.
Financial Profile FY09A FY10A 1Q11A 2Q11A 3Q11A LTM Subscribers ('000s) 18,773 20,191 20,564 21,016 21,350 21,350
Revenue $2,527 $2,839 $728 $747 $765 $2,980 EBITDA $463 $626 $181 $185 $197 $708 Agency Cash Flow From Ops $434 $513 $18 $195 $115 $550 Comps Leverage Coverage Ratings CapEx (249) (312) (35) (40) (40) (170) Free Cash Flow $185 $201 ($17) $155 $75 $381 Charter - CCOH 4.3x 2.8x B1/BB- CVC Corp. 4.0x 3.2x B1/B+ Total Debt $3,219 $3,321 $3,189 $3,114 $3,113 $3,089 Cash 383 587 434 528 605 581 Net Debt $2,835 $2,735 $2,755 $2,585 $2,508 $2,508 Key Credit Statistics Total Debt/EBITDA 7.0x 5.3x 4.9x 4.6x 4.4x 4.4x Net Debt/EBITDA 6.1x 4.4x 4.2x 3.8x 3.5x 3.5x
EBITDA/Interest 1.4x 2.1x 2.2x 3.1x 3.2x 3.2x EBITDA Margin 18.3% 22.1% 24.9% 24.8% 25.8% 23.8%
Capitalization* Debt to Liquidity Description Size EBITDA Revolver Size $0 9.750% Sr Secured Nts 257 Letters of Credit - Capital Leases 3 Borrowings - Total Secured Debt $260 0.4x Revolver Availability $0
13.000% Sr Nts $779 Cash* $581 8.750% Sr Nts 800 Total Liquidity $581 7.625% Sr Nts 700 Total Senior Debt $2,539 3.6x 7.000% Exchg Sr Sub Nts 550 Total SIRI Debt $3,089 4.4x
Consolidated Debt $3,089 4.4x Net Debt 2,508 3.5x Market Cap 9,946 Enterprise Value $12,454 *Capitalization and cash are pro forma for the redemption of the 3.250% Convertible Notes, which matured on October 15, 2011. Maturities:
1,500
1,057 1,000 779 703 550 500
0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 167 January 26, 2012 High Yield
Sitel, LLC (SITEL) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $293 11.5 Senior 1-Apr-18 Caa2/B- 105.75 4/1/2014 75.00 18.4% 1,814
Company Description Investment Strengths: Sitel is a top 5 global provider of customer care outsourcing services, with service offerings encompassing - Industry leader poised to benefit from cyclical technical support, customer service, customer acquisition/retention and revenue generation. The majority of recovery: We expect call volume and outsourcing Sitel’s customer care services are inbound and delivered telephonically. Sitel offers a global and flexible needs to continue to improve in 2012 as highlighted by operating platform with services delivered in 36 languages through a network of over 100 customer contact SITEL's public comps, including Convergys, TeleTech, centers in 26 countries. Sitel reduces costs for clients by leveraging its economies of scale, providing access to a and Teleperformance. Sitel is a top 5 player and well skilled labor force, and leveraging strategically located facilities in cost-effective labor markets. Key end markets positioned to leverage growth. include Technology (15% of sales), Financial Services (13%), Telecom (12%), Media & Entertainment (12%), - Flexible cost structure: Approximately 70% of Sitel’s and Retail/Consumer (10%). The company is private and majority owned by Onex Corporation following its cost base is variable. Management has reduced merger with ClientLogic in 2007. headcount by 1,500 over the past three years. - Strong sponsor support: Sitel’s sponsor equity group Key Dates/Catalysts: is led by Onex and has invested approximately $251 - Sitel is expected to report 4Q2011 earnings in February. million since 1998. Investment Risks: - Weak free cash flow: We expect free cash flow to remain break-even in 2012, reflecting elevated capex needs as the company looks to grow into its capital structure. - Secured leverage covenant requires focus: Sitel Financial Profile FY08 FY09 FY10 LTM-3Q11 FY11E FY12E must comply with a secured debt leverage covenant, although the step-down provisions have been Revenue 1,747 1,558 1,368 1,396 1,432 1,492 amended to provide greater flexibility. EBITDA 133 138 115 128 132 145 - European revenue exposure: Sitel generates about 40% of revenues and 17% of EBITDA from Europe. Interest Expense (58) (60) (75) (64) (67) (60) Cash Taxes (10) (13) (12) (21) (11) (12) CapEx (43) (24) (34) (36) (45) (50) Free Cash Flow 3 36 1 (42) (37) 3
Total Debt 638 608 670 679 678 683 Cash 46 27 74 24 14 22 Comps Leverage Coverage Ratings Net Debt 592 581 597 656 664 661 SGS 3.0x 2.8x B1/B+ Key Credit Statistics Total Debt/EBITDA 4.8 x 4.4 x 5.8 x 5.3 x 5.1 x 4.7 x Net Debt/EBITDA 4.5 x 4.2 x 5.2 x 5.1 x 5.0 x 4.6 x
EBITDA/Interest 2.3 x 2.3 x 1.5 x 2.0 x 2.0 x 2.4 x EBITDA margin 7.6% 8.8% 8.4% 9.1% 9.2% 9.7%
LTM Capitalization Debt to Description Amt Out EBITDA Liquidity $85 mm Revolver due 2013 26 3.0 x Revolver 85 L + 550 bp Term Loan due 2014 209 3.0 x - Amt Drawn 26 L + 675 bp Ext Term Loan due 2017 145 3.0 x - LCs Drawn 1 Other (incl cap leases) 5 3.0 x Availability 58 11.5% Senior Notes due 2018 293 5.3 x Cash 24 Total Debt 679 5.3 x Liquidity 81 Less cash 24 -- Net Debt 656 5.1 x
Maturities: 350 300 250 200 150 100 50
0 2012 2013 2014 2015 2016 2017 2018 After
Goldman Sachs Credit Research 168 January 26, 2012 High Yield
Smithfield Foods (SFD) Updated: 1/26/12 Karen Eltrich 212-902-6957 Jordan Hughes 212-357-7875 Contact analyst or see latest research for updates to ratings, estimates, and other information. IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $500 7.75 Sr Nts 1-Jul-17 B3/B+ NC NC 112.50 5.08 395
Company Description Investment Strengths: Smithfield Foods is the largest pork producer and processor in the United States. - Largest pork producer and processor in the United States - Strong management team - Favorable export positioning Key Dates/Catalysts: - Significant asset value Early March– third quarter earnings release Investment Risks: - Volatile pork and corn prices - Highly capital-intensive - Shift in financial focus toward acquisitions
Financial Profile FY10A FY11A FY12E 3Q11A 3Q12E Comps Yield Leverage Coverage Ratings Revenue 11,202.6 12,202.7 13,087.6 3,186.2 3,377.4 Chiquita 7.48% 4.1x 2.8x Caa1/B- EBITDA 413.1 1,130.6 1,071.7 294.2 264.0 Smithfield 5.08% 1.9x 5.8x B2/BB- Dean Foods 7.00% 5.2x 2.9x B2/B- Interest Expense 266.4 245.4 186.1 60.3 47.2 Dole 4.54% 4.2x 2.7x B2/B+ Cash Taxes (113.2) 257.7 189.5 95.7 49.6 CapEx 182.7 176.8 297.9 43.8 80.0 Free Cash Flow 77.2 450.7 398.2 94.4 87.3
Total Debt 3,008.1 2,122.3 2,013.0 2,503.8 2,013.0 Cash 451.2 374.7 234.8 577.9 199.7 Key Credit Statistics Total Debt/EBITDA 7.3x 1.9x 1.9x Net Debt/EBITDA 6.2x 1.5x 1.7x
EBITDA/Interest 1.6x 4.6x 5.8x 3.8x 6.0x
EBITDA margin 3.69% 9.27% 8.19% 9.23% 7.82%
Capitalization 2012E Debt to Description Size EBITDA Liquidity 2Q12A US Credit Facility, expiring Jun 2016 ($1.2 bn), L+250-325 0.0 Revolver Size $925 Term loan, due August 2016 L+375 200.0 Letters of Credit 0 10% Senior Secured Notes due 7/15/14 610.0 Borrowings 0 Total Secured Debt 810.0 0.8x Revolver Availability 925
7.75% Senior Unsecured Notes due May 2013 160.0 A/R facility 275 4% Senior Convertible Notes due July 2013 352.7 Letters of Credit 116 7 3/4% Senior Unsecured Notes due July 2017 500.0 Borrowings 150 Various due May 2011 through May 2017 160.0 A/R Availability 9 Capital Leases 30.3 Total Unsecured debt 1203.0 1.9x
Total Debt 2013.0 1.9x Cash 136 Market Cap 3743.8 Total Liquidity $1,071 Enterprise Value 5620.4 5.2x
Maturities: 1,600 1,400 1,200 1,000 800 600 400 200 0 2012 2013 2014+
Goldman Sachs Credit Research 169 January 26, 2012 High Yield
Solo Cup Company (SOLOC) Updated 1/23/12 Joe Stivaletti (212) 902-3299 Contact analyst or see latest research for updates to ratings, estimates, and other information. James Kitchell (212) 902-9813 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $300 10.500 Sr Sec Nts 1-Nov-13 B2/B 105.250 Current 100.750 7.418 738 $325 8.500 Sr Sub Nts 15-Feb-14 Caa2/CCC 101.417 Current 91.000 13.668 1,342
Company Description Investment Strengths: Solo is one of the largest providers of single-use cups, lids, food containers, plates, bowls, and cutlery in North - Diverse product offering: Solo manufactures and supplies America. Solo’s primary customers are foodservice distributors and operators – such as Sysco, U.S. a broad portfolio of single-use products used to serve food Foodservice, Starbucks, and McDonald’s – and retailers of consumer products – such as Kroger, Target, Wal- and beverages, including cups, lids, food containers, plates, Mart, and Costco. Although the company is widely known for its iconic red plastic cold cups and other branded bowls, portion cups, cutlery, and straws. consumer product offerings, Solo is primarily a provider of food and beverage containers to the foodservice - Strong customer relationships: Solo maintains strong industry. Sales to this end-market represent approximately 80% of the company’s total net sales. direct relationships with prominent companies, including McDonald’s, Sysco, Starbucks, U.S. Foodservice, Wal- Mart, and Costco; Solo estimates that its top 10 customers have been with Solo for over 20 years on average. - Efficient manufacturing facilities: Solo has streamlined its manufacturing footprint in recent years, going from 32 facilities in 2004 to less than half that number today.
Investment Risks: - Persistent volume weakness: Solo has experienced volume pressure in recent quarters, which has hurt earnings. - Raw material price fluctuations: Inability to pass cost Financial Profile 12/27/2009 12/26/2010 9/26/2010 6/26/2011 9/25/2011 increases on to customers or a significant time lag in any FY:09 FY:10 3Q:10 2Q:11 3Q:11 selling price increases could reduce Solo's profitability. Net sales 1,502.6 1,582.9 409.6 435.9 416.3 EBITDA 143.8 112.9 27.9 26.4 19.9
Interest expense 63.1 70.6 18.3 17.7 17.9 Capital expenditures 71.8 42.2 6.3 6.8 7.1
Total debt 636.1 637.7 718.8 688.5 692.4 Cash 40.4 23.5 29.2 15.1 27.4 Net debt 595.7 614.3 689.6 673.4 664.9
Key Credit Statistics Comps Leverage Coverage Ratings Total debt/EBITDA 4.4x 5.6x 6.5x 6.0x 6.5x Plastipak 3.2x 3.2x B3/B Net debt/EBITDA 4.1x 5.4x 6.3x 5.9x 6.3x Owens-Illinois 3.1x 4.7x Ba3/BB Crown Holdings 2.9x 4.9x Ba3/BB EBITDA/interest 2.3x 1.6x 1.5x 1.5x 1.1x EBITDA margin 9.6% 7.1% 6.8% 6.0% 4.8%
Capitalization 9/25/2011 Debt to Description Size EBITDA Liquidity 9/25/2011 ABL revolver 63.2 3.5x ABL revolver size 200.0 Senior secured notes 296.6 3.5x Borrowing base 168.9 Other secured debt 7.6 3.5x Letters of credit 12.9 Senior subordinated notes 325.0 6.5x Borrowings 63.2 Total debt 692.4 ABL revolver availability 92.8
Cash 27.4 ABL revolver 92.8 Canadian revolver 9.4 Total liquidity 129.7 Maturities:
350 300 250 200 150
100 50 - 2012 2013 2014 2015+
Goldman Sachs Credit Research 170 January 26, 2012 High Yield
Southwest Airlines Co. (LUV) Updated 1/24/2012 Justine Fisher 212-357-6711 Contact analyst or see latest research for updates to ratings, estimates, and other information. Joshua Pinkerton 212-357-9774 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $300 5.125 Senior 1-Mar-17 Baa3/BBB- NC NC 107.55 3.49% 272 $373 6.150 EETC 1-Aug-22 A2/A- NC NC 107.00 4.91% 359
Company Description Investment Strengths: - Large amount of unencumbered assets: Southwest has Southwest Airlines (LUV) is the fourth-largest US airline by revenue, but it carries more domestic passengers several billion of unencumbered assets that it can secure than any other carrier. It flies a primarily Boeing 737 fleet and, until recently, did not offer assigned seats. LUV in the future if it requires additional liquidity. does not currently offer international flights, but is working on code share agreements with carriers in Canada and - Primarily 737 fleet reduces pilot training costs and the Mexico. It is not a member of any international airline alliance. Southwest does not operate a hub-and-spoke number of spare parts that are necessary to keep on system, but instead relies on point-to-point flights. Major focus airports are Chicago Midway, Las Vegas, Dallas hand. There is some risk to this strategy now that the Love, and Denver. purchase of AirTran and its 717 fleet is complete. - Southwest has recently been layering in fuel hedges for Key Dates/Catalysts: "catastrophic" price levels, which could aid costs if fuel - Southwest has closed its merger with AirTran and is currently integrating its operations and working toward a prices skyrocket. single operating certificate. - Strong history of cooperation between management and unions.
Investment Risks: - Over-expansion: Southwest's historical business model has relied on providing low-cost service, particularly to cheaper, secondary airports. LUV has recently announced expansion plans in New York, Boston, and Minneapolis. - Domestic only: Southwest has begun exploring options Financial Profile FY10 2Q11 3Q11 4Q11E FY11E FY12E to provide service to Mexico and Canada, including code shares and potentially direct flights. However, it does not Revenue 12,104 4,135 4,312 4,045 15,595 16,563 offer any longer-range international flights. Its all-737 fleet EBITDAR 1,796 520 545 367 1,747 2,071 would make trans-Atlantic or Pacific service difficult without a change in fleet composition. International flights provide end-market diversification and can often carry Interest Expense (149) (49) (46) (50) (177) (169) higher yields. Income Taxes (286) (114) 85 (2) (44) (38) - Integration risk with the AirTran acquisition. CapEx (493) (215) (276) (325) (873) (1,300) Free Cash Flow 1,068 (43) (332) 41 478 27
Total Debt 3,380 4,232 4,206 3,747 3,747 3,594 Comps Leverage Coverage Ratings Cash 3,538 4,374 3,656 3,133 3,133 2,986 UAL 2.6x 5.4x B2/B Net Debt (158) (142) 550 613 613 608 DAL 3.9x 4.1x B2/B Key Credit Statistics LUV 2.1x 9.9x Baa3/BBB- EBITDA/Interest 12.1 x 10.6 x 11.8 x 7.3 x 9.9 x 12.3 x JBLU 4.5x 4.6x B3/B- Leverage 1.9 x 2.1 x 1.7 x LCC 3.6x 3.9x Caa1/B- EBITDA margin 14.8% 12.6% 12.6% 9.1% 11.2% 12.5%
Capitalization Debt to Description Size EBITDA Liquidity 10.5% notes due 2011 403 Revolver Size 800 Term Loan Agreement due 2020 445 Letters of Credit 0 French Credit Agreement due 2012 14 Borrowings 0 French Credit Agreement due 2017 73 Revolver Availability 800 Various PTCs 420 Term Loan Agreement due 2019 391 Other Sr. Notes 970 Other 1,490 Total Debt 4,206 2.4 x Market Cap 7,326 Cash 3,656 Enterprise Value 7,876 4.5 x Total Liquidity 4,456
Maturities:
1800 1600 1400 1200 1000 800 600 400 200 0 2012-13 2014-15 Thereafter
Goldman Sachs Credit Research 171 January 26, 2012 High Yield
Southwestern Energy (SWN) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $600 7.500% Sr. 2/1/2018 Ba1/BBB-NC $117.00 4.26% 349
Company Description Investment Strengths: SWN is the clear leader in the developing Fayetteville Shale play. SWN was founded in 1929 as a local gas • Dominant position in the emerging Fayetteville Shale distribution company in Arkansas. In 1943, the company began an E&P program, and subsequently diversified into play other regions. After some legal issues, a new management team was assembled in 1998, which marked the • Midstream segment provides business diversity beginning of the "modern" SWN. In 2002, the company began accumulating acreage in the Overton field on the • Strong organic reserve replacement history Arkansas side of the Arkoma Basin, which grew into SWN's cornerstone Fayetteville Shale play. On April 3, 2008, • Top-tier F&D costs SWN announced it had sold 56k net acres in the Fayetteville to XTO Energy for $520 mn in cash. On July 1, 2008, SWN closed the sale of its utility business to SourceGas LLC for $320 mn. The company also announced the sale Investment Risks: of certain Permian Basin assets for $225 mn. In total, the company sold $1 bn of non-core assets in 2008. In June • Spending continues to outweigh cash flow generation 2010, the company sold $355 mn of East Texas assets to Exco. Southwestern was upgraded to investment grade • Limited geographic diversity by S&P in July 2010. The company is currently focused on diversifying in several new ventures, including the • 100% natural gas leverage Lower Smackover. Key Dates/Catalysts: • May need to access the debt markets to fund the FOCF deficit • Continued rollout of midstream infrastructure; potential for separation or MLP of midstream segment over time • Results from the Marcellus and other developing plays, such as the Lower Smackover/Brown Dense formation
Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $2,312 $2,160 $2,623 $2,984 $3,051 EBITDA (Adj for non-cash items) $1,301 $1,381 $1,624 $1,826 $1,922 Free Operating Cash Flow ($595) ($421) ($431) ($295) ($569) Capital Expenditures $1,756 $1,780 $2,073 $2,035 $2,300
Leverage Coverage Agency Comps ('11E) ('11E) Ratings Credit Ratios 2008A 2009A 2010A 2011E 2012E SWN 0.7x 26.4x Ba1/BBB- Total Debt/EBITDA (LTM) 0.6x 0.7x 0.7x 0.7x 0.9x RRC 3.0x 6.1x Ba3/BB EBITDA/Interest Expense (LTM) 20.7x 24.5x 27.9x 26.4x 23.0x CHK 2.0x 33.6x Ba3/BB+ Debt to Capitalization % 23% 30% 27% 25% 28%
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $13 Revolver Size $1,500 Revolving Credit Facility $600 Letters of Credit $0 Long Term Debt Borrowings $600 Senior notes 2017-18 $671 Revolver Availability $900 Total Long Term Debt $671 Cash $13 Total Debt $1,271 0.7x Total Liquidity $913 Preferred Equity $0 Common Equity $3,609 Total Capitalization $4,880
Maturities:
700 600 500 400
300 200 100
Debt maturities ($ mn) 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 172 January 26, 2012 High Yield
Sprint Nextel Corporation (S) Updated 1/20/12 Jason Kim 212-902-2233 Contact analyst or see latest research for updates to ratings, estimates, and other information. Satya Tagat 212-902-4427 OUTPERFORM/IN-LINE We favor the shorter-dated bonds within Sprint's capital structure (OP on the 5.95s of 2014), which reflects our preference to invest in the company's willingness and ability to access the capital markets to bolster its liquidity. We rate the 2019 and 2032 bonds In-Line as the company faces a challenging operational environment. Specifically, we expect the company to burn $3.4bn in 2012 and $1.8bn in 2013 as it seeks to execute its aggressive 4G rollout and network modernization plan while also absorbing margin dilution from the iPhone. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,157 5.950 Sr Nts 3/15/2014 Ba3/BB- 1/24/2012 100.744 99.25 6.33 584 $1,729 6.900 Sr Nts 5/1/2019 B1/BB- NC NC 83.75 10.11 844 $1,998 8.750 Sr Nts 3/15/2032 B1/BB- NC NC 82.50 10.91 811
Company Description Investment Strengths: (1) Strategic value: Sprint's position as the third largest wireless Sprint Nextel is the third-largest wireless operator in the United States, with about 53 million customers. The operator in the US gives the company strategic value as other company offers a range of wireless and wireline communications services to individuals, businesses, and communication providers look to enter the wireless market. governments. Sprint had nearly 33 million postpaid subscribers as of the end of 3Q2011, with roughly 28 million using the company's CDMA technology and 5 million using its iDEN platform. Sprint also served approximately (2) The company has reduced churn in recent quarters, and the 14 million prepaid customers. recent addition of the iPhone 4S to its device portfolio could help reduce churn even further. Sprint also offers 4G services through its mobile virtual network operator wholesale relationship with Clearwire Corporation and its subsidiary Clearwire Communications LLC. As of September 30, 2011, Sprint held a 54% non-controlling economic interest in Clearwire Communications LLC and a 49.6% non-controlling voting interest in Investment Risks: Clearwire Corporation. (1) Competition: The US wireless market is highly competitive and the top 2 players (Verizon and AT&T) have much greater scale and Key Dates/Catalysts: stronger balance sheets compared to Sprint. February 8, 2012: 4Q2011 earnings. (2) Cash flow is expected to be significantly negative in 2012 (and to Progress on Network Vision initiative a lesser extent in 2013) as the company faces elevated capex due to its Network Vision spending plans as well as dilution from iPhone Potential for capital markets activities. offerings.
(3) Sprint faces meaningful debt maturities every year from 2013 Financial Profile FY09A FY10A 2Q11A 3Q11A 4Q11E 2011E through 2019. Postpaid Subs ('000s) 33,967 33,112 32,897 32,853 33,103 33,103 Postpaid ARPU $54.75 $54.47 $56.66 $57.68 $58.45 $56.98 Postpaid Churn 2.1% 1.9% 1.8% 1.9% 1.9% 1.8% Prepaid Subs 10,688 12,277 13,797 14,282 14,932 14,932 Prepaid ARPU $24.28 $27.26 $27.54 $27.23 $27.47 $27.83
Revenue $32,260 $32,563 $8,311 $8,333 $8,706 $33,663 EBITDA 6,407 5,633 1,314 1,402 748 4,978 Free Cash Flow 3,288 2,880 316 (210) (233) 148 Agency Total Debt $21,001 $20,139 $18,488 $18,486 $20,236 $20,236 Comps Leverage Coverage Ratings Cash & ST Investments 3,924 5,473 4,271 4,001 5,062 5,062 Net Debt 17,077 14,666 14,217 14,485 15,174 15,174 LEAP Unsecured Nts 5.7x 2.1x B3/CCC+ Key Credit Statistics MetroPCS 3.7x 5.0x B2/B Total Debt/EBITDA 3.3x 3.6x 3.4x 3.3x 4.1x 4.1x Net Debt/EBITDA 2.7x 2.6x 2.6x 2.6x 3.0x 3.0x
EBITDA Margin 19.9% 17.3% 15.8% 16.8% 8.6% 14.8%
Capitalization* Debt / Description Size EBITDA Liquidity Senior Guaranteed Debt $500 0.1x Revolver Size $2,100 Junior Guaranteed Debt 3,000 0.6x Letters of Credit (1,100) Other Sprint Nextel Debt 4,500 Borrowings - Sprint Capital Debt 6,204 Revolver Availability $1,000 Nextel / iPCS Debt 5,261 Capital Lease Obligations, Other 771 Cash* 5,420 Total Sprint Debt $20,236 3.6x Total Liquidity $6,420
Net Debt $14,816 2.7x Market Cap $9,099 Enterprise Value 23,915 4.3x *Capitalization and cash are pro forma for various transactions subsequent to 3Q2011. Cash balance also reflects $331mn investment Sprint made in CLWR's equity offering in December, 2011.
Maturities:
16,000 14,475 14,000 12,000 10,000
8,000 6,000 4,000 2,637 1,773 1,351 2,000 0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 173 January 26, 2012 High Yield
Standard Pacific Corp. (SPF) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 IN-LINE
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp IL 575 8.375 Sr. Nts 15-May-18 B3/B MW 101.5 8.06% 693
Company Description Investment Strengths: Standard Pacific is a leading homebuilder, with operations in 27 markets across California, Florida, Texas, the Carolinas, - Large exposure to the California market, which has been Colorado, and Nevada. The company generally sells more upscale homes, with an average sales price in the mid- recovering more quickly versus other regions. $300,000 range; however, it participates in multiple market segments across the pricing spectrum, from the most basic - Best-in-class gross margins and lean cost structure. homes at $100,000 to mansions at over $7 million. MP CA Homes LLC, an affiliate of MatlinPatterson Global Advisors - Strong management team. LLC, holds 49% of the voting power of Standard Pacific's stock. MatlinPatterson initially invested in the company on June - Implied backing of MatlinPatterson. 27, 2008, as part of a more comprehensive equity recapitalization and organizational restructuring. Investment Risks: Key Dates/Catalysts: - Leverage remains somewhat high despite recent equity 4QFY11 earning release raises and debt reduction. - Speculative land acquisition strategy, focused largely on raw land. -Could draw on revolver to fund land purchases.
Financial Profile ($, mn)* FY:09 FY:10 FY:11E 4Q:10 3Q:11 4Q:11E Total Revenues 1,180 925 877 215 245 280 Total Adjusted EBITDA 124 118 94 26 29 35
Interest Expense (102) (109) (113) (35) (35) (35) Debt-to- Inventory- Cash Taxes (0) - (0) - (0) - Comps Cap to-Debt Ratings Capital Expenditures ------Standard Pacific 69% 1.1x B3/B Free Cash Flow 459 (105) (300) (68) (91) 25 Beazer 86% 0.9x Caa3/CCC KB Home 81% 1.0x B2/B+ Total Debt Outstanding 1,243 1,354 1,376 1,354 1,376 1,376 Total Cash and Cash Equivalents 611 760 487 760 463 487 Key Credit Statistics Homebuilding Debt / Capitalization 73% 68% 68% 68% 69% 68% Net Homebuilding Debt / Capitalization (3) 58% 49% 58% 49% 60% 58%
Inventories / Homebuilding Debt (2) 0.8x NA NA 0.9x 1.1x NA Homebuilding Gross Margin (1) 25% 29% 27% 30% 27% 27%
PF Capitalization ($, mn)
Description Size Liquidity Secured project debt / notes payable 4 Homebuilding Cash 420 6.5% Senior Notes - Financial Services Cash 11 6.875% Senior Notes - Restricted Cash 31 6.25% Senior Notes 5 Total Cash 463 7% Senior Notes 30 10.75% Senior Notes 280 Unsecured revolver 210 8.375% Senior Notes 575 Borrowing base 197 8.375% Senior Notes 400 Borrowings - Term Loan B - Total Availability 197 Total Senior 1,294 6% Senior Subordinated Notes - Total Liquidity 660 9.25% Senior Subordinated Notes 10 Total Homebuilding Balance Sheet 1,304 Mortgage Credit Facilities 53 Total Balance Sheet Debt 1,356 Maturities: Non-Recourse JV Debt 178 Recourse JV Indebtedness - 35 Total Debt Outstanding 1,356 30 25 Share price 4.1 20 Market Capitalization 1,399 15 Enterprise Value 2,293 10
5 0 2012 2013 2014 2015
Goldman Sachs Credit Research 174 January 26, 2012 High Yield
Steel Dynamics (STLD) Updated 1/20/12 Justine Fisher 212-357-6711 Contact analyst or see latest research for updates to ratings, estimates, and other information. Joshua Pinkerton 212-357-9774 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $350 7.625% Sr Notes 15-Mar-20 BB+/Ba2 103.81 15-Mar-15 110.81 4.98 468
Company Description Investment Strengths: - Low costs: STLD has lower fixed costs than its integrated peers. It can also more easily add or reduce production with Steel Dynamics, the nation's fifth-largest producer of steel, produces flat-rolled and long product steel at its five less expense than integrated producers. mini-mills. - Diversified mini-mill: STLD produces a variety of flat-rolled, products, structural, rail, and bar products. While non- Key Dates/Catalysts: residential construction has yet to recover (which would be We expect demand for steel will continue to be relatively tepid in 2012. necessary to see real traction in the long products businesses), this diversification is positive during times when flat-rolled pricing is under pressure. - Raw materials: Mini-mills should have an easier time passing through scrap surcharges to customers.
Investment Risks: - Scrap business margins: While ownership of raw materials assets could give STLD better insight into this market, margins in the scrap business have underwhelmed since the OmniSource acquisition in 2007. - Steel price gains could be hard to maintain as domestic demand remains relatively weak. - Steel Dynamics said it is considering options for a new flat- Financial Profile FY10 2Q11 3Q11 4Q11E FY11E FY12E rolled mill, which could add leverage. Revenue 6,301 2,080 2,043 1,879 8,018 8,370 EBITDA 602 269 182 148 885 913
Interest Expense (170) (45) (45) (42) (174) (159) Cash Taxes ------CapEx (133) (35) (38) (60) (152) (200) Free Cash Flow 299 189 100 46 558 553
Total Debt 2,387 2,379 2,380 2,380 2,380 2,254 Agency Cash 187 278 457 532 532 728 Comps Leverage Coverage Ratings Net Debt 2,200 2,102 1,924 1,848 1,848 1,526 Peabody Energy 3.2x 11.4x BB+/Ba1 Key Credit Statistics Steel Dynamics 2.7x 5.1x BB+/Ba2 Total Debt/EBITDA 4.0x 2.7x 2.5x US Steel Corp. 4.3x 5.0x BB/B1 Net Debt/EBITDA 3.7x 2.1x 1.7x FMG 7.6x 12.4x B1/B
EBITDA/Interest 3.5x 6.0x 4.1x 3.6x 5.1x 5.7x EBITDA margin 9.56% 12.93% 8.92% 7.87% 11.03% 10.90%
Capitalization FY11E Debt Description Size to EBITDA Liquidity Revolver Size 1100.0 Term Loan 0.0 Letters of Credit 49.0 Other 42.7 Borrowings 0.0 6.75% Senior Notes due 4/1/2015 500.0 Revolver Availability 1051.0 7.375% Senior Notes due 11/1/2012 700.0 7.75% Senior Notes due 4/15/2016 500.0 A/R facility 0.0 7.625% Senior notes due 3/15/2020 350.0 Borrowings 0.0 5.125% Senior Convertible Notes 287.5 A/R Availability 0.0 Total Debt 2,380.2 2.7x Market Cap 3,472.9 Cash 456.7 Enterprise Value 5,396.4 6.1x Total Liquidity 1507.7
Maturities:
1,000 900 800 700 600 500 400 300 200 100 0 2012-13 2014-15 Thereafter
Goldman Sachs Credit Research 175 January 26, 2012 High Yield
Stone Energy (SGY) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $200 6.750% Sr. Sub. 12/15/2014 Caa2/CCC+ $101.13 2/27/2012 $98.69 7.26% 696
Company Description Investment Strengths: Stone Energy transformed itself through the August 2008 acquisition of Bois D'Arc, which increased proved • Multi-year inventory of lower-risk exploitation projects reserves to 720 bcfe from 385 bcfe. The company is now the second-largest independent producer in the US on the Gulf Shelf GOM. Focuses of the company include western basin oil, eastern US (Appalachia) gas, and shallow/deep • Growing high-impact deepwater program offshore gas production. The company has a 50% gas/50% oil mix and an R/P ratio of around six years. • Marcellus Shale acreage offers additional upside optionality SGY was founded in 1952 by James Stone as Stone Oil in Cincinnati, Ohio. The company relocated to Louisiana in 1981 and went public in 1993, initially with properties in the Gulf Coast Basin. In 2004, Stone made acquisitions Investment Risks: in the deep shelf and deep water of the GOM and in the Rockies. In October 2005, the company announced a • Challenging regulatory environment in the GOM large reserve write-down (171 bcfe proved; 20.7% of year-end 2004), which prompted an SEC investigation; affects exploration activities Stone's share price declined over 23%. In April 2006, SGY entered into an agreement to be acquired by Plains • Reserve life of around six years is below E&P Exploration. However, in June 2006, the transaction was abandoned after Stone received a competing offer from average of about 14 Energy Partners, which the board deemed to be “superior.” This proposed transaction was terminated as well, • Weak recent track record of organic reserve after EPL received an acquisition proposal from Woodside Petroleum in October. In December 2006, Stone replacement announced a strategic plan to refocus its operations on the Gulf Coast and sell its Rockies properties. The Rockies assets were subsequently sold to Newfield Exploration in May 2007 for $575 mn. In September 2007, its Key Dates/Catalysts: board of directors authorized a $100 mn share repurchase program. In April 2008, SGY announced the • Potential for increased (and possibly costly) acquisition of Bois D’Arc Energy in a 62% cash and 38% stock transaction valued at $1.5 bn. The transaction regulation in GOM following Macondo oil spill closed in August 2008. In late 2011, Stone acquired BP's 75% interest in the Pompano field in the GOM for $204 • Horizontal well results in the Marcellus Shale mn. • Potential for bolt-on acquisitions
Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $803 $702 $651 $840 $775 EBITDA (Adj for non-cash items) $585 $470 $439 $600 $516 Free Operating Cash Flow $76 $188 $23 ($10) ($94) Capital Expenditures $447 $320 $402 $537 $600
Leverage Coverage Agency Comps ('11E) ('11E) Ratings Credit Ratios 2008A 2009A 2010A 2011E 2012E SGY 1.0x 33.5x Caa2/CCC+ Total Debt/EBITDA (LTM) 1.4x 1.6x 1.3x 1.0x 1.1x MMR 2.0x 15.5x Caa1/B EBITDA/Interest Expense (LTM) 44.2x 16.9x 36.0x 33.5x 11.3x WTI 1.2x 15.8x Caa1/B Debt to Capitalization % 58% 63% 57% 45% 41%
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $65 Revolver Size $400 Revolving Credit Facility $0 Letters of Credit $61 Long Term Debt Borrowings $0 Senior notes 2014-17 $575 Revolver Availability $339 Total Long Term Debt $575 Cash $65 Total Debt $575 1.0x Total Liquidity $404 Preferred Equity $0 Common Equity $664 Total Capitalization $1,239
Maturities: 400 350 300
250 200
150 100 Debt maturitiesDebt ($ mn) 50 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 176 January 26, 2012 High Yield
Stream Global Services Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $200 11.25 Sr Sec. 1-Oct-14 B1/B+ 105.62 10/1/2012 102.38 9.7% 955
Company Description Investment Strengths: Stream Global Services is a leading global service provider of customer relationship management (“CRM”) and - Improving results driven by call volume growth: other business process outsourcing (“BPO”) services to a wide range of customers. The company specializes in Revenues grew 10% in 1H2011 thanks to new client complex voice-centric transactions, such as sophisticated technical support, warranty support, customer service, wins and cross-selling growth with existing clients. and revenue generation services. Stream's leading customers include Dell Computer, Sirius/XM Satellite, and - eTelecare deal improves competitive position: The Hewlett Packard. On August 14, 2009, Stream announced that it had entered into a definitive agreement to recent purchase positions Stream as a top 10 player in merge with EGS Corp., the parent company of eTelecare. the industry. - Recurring revenue base: SGS generated consistent Key Dates/Catalysts: revenue growth through the 2008/2009 global - SGS is expected to report 4Q2011 earnings in February. slowdown, with sales results declining only 1% from the peak. - Low-cost footprint: Stream operates 49 service centers across North America, Latin America, Europe, the Philippines, India, the Middle East, and Africa, with limited geographic overlap.
Investment Risks: - Moderate customer diversity: A substantial portion of the company’s revenue is generated by a limited number of clients. Financial Profile FY08 FY09 FY10 LTM-3Q11 FY11E FY12E - Marginal free cash flow: We expect Stream to generate marginal FCF as it continues to invest in new Revenue 823 795 800 849 855 893 capacity growth over the next year. EBITDA 43 72 73 80 83 94 - Asset-light nature of business: The value of the company lies in its diverse, low-cost labor force. - Marginal enterprise coverage: SGS’s public Cash Interest (8) (32) (29) (29) (26) (31) comparables trade at approximately 5x 2011 Cash Taxes (13) (4) (10) (11) (10) (12) EV/EBITDA. CapEx (16) (23) (23) (37) (36) (40) Free Cash Flow 14 (30) (0) (7) 13 6
Total Debt 74 218 228 243 255 224 Cash 48 15 18 21 26 25 Comps Leverage Coverage Ratings Net Debt 26 203 209 221 229 199 SITEL 5.3x 2.0x Caa2/B- Key Credit Statistics Total Debt/EBITDA 1.7 x 3.0 x 3.1 x 3.0 x 3.1 x 2.4 x Net Debt/EBITDA 0.7 x 2.8 x 2.9 x 2.8 x 2.8 x 2.1 x
EBITDA/Interest 8.5 x 4.0 x 2.5 x 2.8 x 2.8 x 13.1 x EBITDA margin 5.2% 9.0% 9.1% 9.4% 9.7% 10.5%
Capitalization Debt to Description Size EBITDA Liquidity LTM ABL due Oct 2013 (L+375) 28 0.3 x Revolver Size 100 11.25% 2nd Lien Notes due Oct 2014 200 3.0 x - Amt Drawn 28 Other (incl unamortized discount) 15 3.0 x - LCs 6 Total Debt 243 3.0 x Amt Unutilized 67 Less cash 21 -- Covenant Limit (20) Net Debt 221 2.8 x Adjusted Availability 47 Cash 21 Maturities: Liquidity 68 250
200
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100
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0 2011 2012 2013 2014 After
Goldman Sachs Credit Research 177 January 26, 2012 High Yield
Sunoco Inc. (SUN) Updated 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 IN-LINE Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $400 5.750% Sr. 1/15/2017 Ba2/BB+NC $104.04 4.82% 405
Company Description Investment Strengths: Sunoco (SUN) is the largest independent refiner in the Northeast US. The company currently operates three • Relatively low maintenance capex of around $500 refineries with over 675k b/d of processing capacity. It also owns 32% of Sunoco Logistics Partners LP, five mn chemicals plants, and four coke plants producing about 20% of total US supply. Finally, the company markets • Strong liquidity refined products through a network of 4,700 retail outlets, of which about 500 are owned or operated. • Shifting focus to more profitable logistics business
Sunoco was founded in 1890 in PA as The Sun Oil Company and purchased its first refinery in 1894. In 1925, the company went public on the NYSE. After operating as an integrated oil company for almost a century, in 1988 Sun's Investment Risks: board decided to spin off the E&P segment to focus on refining and marketing. Following the shift in strategy, the • Reduced diversification following recent asset sales company made a number of refining acquisitions, including both Atlantic Petroleum's and Chevron's Philadelphia and pending coke separation refineries. In 1998, the company was renamed Sunoco, and in 1995, it company completed the divestiture of its • Uncertainty regarding business strategy going stake in Canadian oilsands subsidiary Suncor. After focusing its portfolio on refining for more than a decade, in forward 2001 the company expanded its chemicals production through the acquisition of Pittsburgh-based Aristech Chemical. Then, in 2003, the company acquired a polypropylene plant from Equistar and began construction of a $140 mn coke manufacturing facility in Haverhill, OH. Sunoco would later announce that it was permanently closing Key Dates/Catalysts: the Bayport, TX, polypropylene plant in January 2009. In 2004, Sunoco acquired El Paso's Eagle Point refinery in • Sale/shutdown of refining business NJ. Most recently, in April 2009, the company announced the sale of its Tulsa refinery to Holly Corp. for $65 mn. In • Ratings actions October 2009, the company idled its Eagle Point refinery indefinitely in response to weak market conditions. In June 2010, Sunoco announced plans to separate its Coke business. In December 2010, the company announced the sale of its Toledo refinery, indicating it plans to focus on the retail and logistics businesses. In summer 2011 SUN completed the spinoff of its SunCoke business. In late 2011, SUN announced its intention to sell or close its remaining refineries by summer 2012.
Financial Profile 2008 2009 2010 2011E 2012E Revenue $53,766 $31,497 $37,264 $44,226 $47,170 EBITDA $1,884 $1,310 $1,113 $616 $838 FOCF $306 $90 $295 $359 $1,794 CapEx $1,286 $899 $772 $634 $500
Key Credit Statistics Total Debt/EBITDA 1.1x 1.9x 2.2x 4.6x 5.2x EBITDA/Interest 17.0x 9.9x 6.8x 3.5x 3.7x Debt/Capitalization (%) 43% 49% 44% 81% 97%
Capitalization Debt to Leverage Coverage Agency Description Size EBITDA Liquidity Comps ('11E) ('11E) Ratings Cash and equivalents $1,656 Revolver Size $1,738 SUN 4.6x 3.5x Ba2/BB+ Revolving Credit Facility $0 Letters of Credit $115 VLO 1.2x 13.3x Baa2/BBB Long Term Debt Borrowings $0 TSO 0.8x 11.1x Ba1/BB+ Notes $3,524 Revolver Availability $1,623 Total Long Term Debt $3,524 Cash $1,656 Total Debt $3,524 4.4x Total Liquidity $3,279 Preferred Equity $0 Common Equity $1,302 Total Capitalization $4,826
Maturities:
450 400 350 300 250 200 150 100
Debt Maturities Maturities Debt ($ mn) 50 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 178 January 26, 2012 High Yield
Surgical Care Affiliates (SCAFF) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 IN-LINE We rate SCAFF In-Line owing to our belief that ASCs are well positioned for a post-reform healthcare delivery system because they are low-cost providers. These factors are offset by SCAFF’s small size, high leverage, and modest free cash flow. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $150 10.00% Sr Sub 15-Jul-17 Caa1/CCC+ $105.000 15-Jul-12 $96.000 10.991% 1,019
Company Description Investment Strengths: - Well-positioned industry owing to a trend toward outpatient SCAFF operates 123 ambulatory surgery centers (ASC) and four surgical hospitals located in 31 states. Key states settings. Outpatient procedures are on the rise as a result of are California, North Carolina, and Florida. ASCs present a powerful value proposition to payers (the cost of technological advances that allow less-invasive procedures and performing a surgery at ASCs is less than the cost of performing the same procedure at a general hospital), doctors also because shorter hospital stays lower costs. (better scheduling and equity ownership), and patients (ASCs provide a less intimidating setting than hospitals). Facilities are co-owned with doctors, with SCAFF owning 65% of a facility on average. The company’s ASCs are - Limited bad debt risk because ASCs are able to turn down multi-specialty, slanted toward gastro-intestinal and ophthalmology. 21% of revenue comes from Medicare. patients who are unable to pay. SCAFF was formed in June 2007 through TPG's acquisition of HealthSouth's surgery division. - Limited government reimbursement risk because Medicare contributes less than 20% of revenue. In July 2011, SCAFF completed the purchase of 49% of Indiana University Health (IUH) for $123 mn for nine ASCs. IUH continues to own the other 51%. To fund the acquisition, SCAFF raised $100 mn of additional Term Loan B, - Modest capex (low $20 million range maintenance capex), and $25 mn of incremental equity from existing shareholders, and $0.8 mn from balance sheet. SCAFF also amended development capex can be curtailed as necessary. its credit agreement to carve out the IUH investments from its restrictive investment basket.
Key Dates/Catalysts: - Quarterly earnings announcements Investment Risks: - Potential additional acquisitions or sale, reflecting our view that the industry is likely to consolidate. In 3Q11, - ASC procedures tend to be more elective/deferrable than in- SCAFF commented that its pipeline of potential JVs continues to grow. patient procedures, so volumes are likely to be at least somewhat negatively affected by the weak economy.
- Centers are not wholly owned and equity minority owners are paid Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E dividends prior to debt service. Consolidated facilities 125 123 144 123 144 144 - Very high leverage at 6.0x. Revenue $737 $740 $734 $184 $181 $188 EBITDA 98 104 116 26.6 29.6 31.3
Interest Expense $54 $53 $54 $13 $15 $14 Cash Taxes 14 16 20 (5) (5) (2) CapEx 33 29 29 7 7 7 Other 31 27 47 1 (18) 22 Free Cash Flow 27 32 59 13 (6) 35
Total Debt $678 $682 $784 $682 $784 $784 Agency Cash 34 31 82 31 48 82 LTM Comps Leverage Coverage Ratings Net Debt 644 652 701 652 736 701 SCAFF Sr 4.8x NA B3/B- Key Credit Statistics SCAFF Sub 6.0x 1.3x Caa1/CCC+ Total Debt/EBITDA 6.9x 6.6x 6.8x USPI Sr 5.2x 3.0x Caa1/CCC+ Net Debt/EBITDA 6.6x 6.3x 6.1x THC 3.9x 2.7x Caa1/CCC+ VHS 4.3x 2.9x B3/B- EBITDA/Interest 1.8x 2.0x 2.1x 2.1x 1.9x 2.3x EBITDA margin 13.2% 14.0% 15.8% 14.4% 16.3% 16.6%
Capitalization Liquidity Debt to Debt to LTM PF 2011E Description Size EBITDA* EBITDA* Revolver Size $132 Revolving Credit Facility due 6/30/2016 $0 Letters of Credit 0 Term Loans due 12/29/2014 121 Borrowings 0 Term Loans--extended 12/30/2017 219 Revolver Availability 132 Incremental TL B 6/30/2018 100 Total Sr Sec debt $440 3.5x 3.8x Cash $48 Total Liquidity $180 8.875% Sr PIK Toggle Notes due 2015 $165 Total Sr bonds $165 4.8x 5.2x
10% Sr Sub Notes due 2017 $150 Total Sub debt $150 6.0x 6.5x
Capital Leases and Other $28 Total Debt $784 6.2x 6.8x Market Cap NA Enterprise Value NA *LTM EBITDA is pro forma for IUH acquisition. 2011E is not. Maturities: 700 600
500 400
300
200 100
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 179 January 26, 2012 High Yield
Swift Energy (SFY) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $250 7.125% Sr. 6/1/2017 B3/B+ $103.56 6/1/2012 $101.84 6.50% 620
Company Description Investment Strengths: We view Swift as a "steady as she goes" story, with few near-term catalysts and little exposure to the popular • High oil exposure, at about 60% of production unconventional shale plays. The company has operations focused on three core regions: South Texas, South • Emerging Eagle Ford and AWP Olmos plays provide Louisiana, and Toledo Bend, which spans the TX/LA border. South Louisiana is the company's most important resource upside region, with Lake Washington, Cote Blanche Island, Bay de Chene, and others representing around 80% of • Conservative management team issued $115 mn of production. We believe Swift is the largest oil producer in LA. The company's asset mix is weighted equity in 2009 to reduce debt approximately 60% to crude oil for production and 47% for proved reserves. Investment Risks: Earl Swift founded the company in 1979 and initially focused on West Virginia. The company went public in 1981 • Virtually no production hedges and expanded to 12 states by 1985. From 1998 to 2004, the company acquired new acreage in the Austin Chalk, • Weak historical all-in reserve replacement and F&D New Zealand, and South Louisiana. In October 2007, SFY acquired 83k acres in South Texas from Escondido costs Resources for $250 mn. SFY then sold its New Zealand assets for $98 mn in two separate transactions in • Low diversification, with the majority of production 1H2008. In September 2008, the company acquired South Texas acreage from Crimson Energy Partners for $46 and cash flow generated in hurricane-prone regions mn. Swift operates 97% of its properties, giving it a high degree of control. In late 2009, the company entered into • Exposure to hurricane season with Louisiana assets a JV with Petrohawk Energy to help develop the company's properties in the Eagle Ford Shale. Key Dates/Catalysts: • Update on Eagle Ford and Olmos development
Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $827 $371 $438 $591 $746 EBITDA (Adj for non-cash items) $607 $216 $271 $384 $501 Free Operating Cash Flow ($40) $10 ($95) ($100) ($106) Capital Expenditures $628 $215 $354 $483 $600
Leverage Coverage Agency Comps ('11E) ('11E) Ratings Credit Ratios 2008A 2009A 2010A 2011E 2012E SFY 2.0x 10.9x B3/B+ Total Debt/EBITDA (LTM) 1.0x 2.2x 1.7x 2.0x 1.6x BRY 2.6x 7.2x B2/BB- EBITDA/Interest Expense (LTM) 19.5x 7.1x 8.1x 10.9x 13.1x Debt to Capitalization % 49% 41% 35% 44% 40%
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $16 Revolver Size $300 Revolving Credit Facility $0 Letters of Credit $0 Long Term Debt Borrowings $0 Senior notes 2017-20 $472 Revolver Availability $300 Total Long Term Debt $472 Cash $16 Total Debt $472 1.1x Total Liquidity $316 Preferred Equity $0 Common Equity $971 Total Capitalization $1,443
Maturities: 300
250
200
150
100
Debt maturities ($ mn) ($ maturities Debt 50
0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 180 January 26, 2012 High Yield
Telesat Canada (TELSAT) Updated 1/20/12 Jason Kim 212-902-2233 Contact analyst or see latest research for updates to ratings, estimates, and other information. Satya Tagat 212-902-2233 IN-LINE A dividend recap recap at Telesat no longer seems likely as management indicated that such a transaction would be inefficient from a tax perspective as well as potentially limiting with respect to other strategic alternatives the company may choose to pursue. The company has strong organic growth prospects in 2012 and 2013 due to new satellite launches, and we view its bonds as fairly valued at current levels as yield-to-call bonds. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $693 11.000 Sr Nts 01-Nov-15 Caa1/B- 105.500 01-May-12 106.88 5.07 322 $217 12.500 Sr Sub Nts 01-Nov-17 Caa1/B- 106.250 01-May-13 111.50 7.53 663
Company Description Investment Strengths: Telesat is the fourth-largest FSS provider in the world. Telesat currently has 13 owned and operated satellites, (1) Significant deleveraging: Over the past three years since its with two more under construction (Nimiq 6 and Anik G1). The company also manages the operations of 13 LBO, Telesat has delevered by almost 3 turns owing to strong additional satellites for third parties. Telesat offers services to more than 400 customers worldwide, including a EBITDA growth as new satellites were successfully launched. variety of blue-chip companies such as Bell TV, Star Choice, EchoStar, Disney, HBO, and Canadian Telesat also realized significant cost synergies from merging the Broadcasting Corporation. Loral Skynet businesses with Telesat's existing operations.
Key Dates/Catalysts: (2) Substantial revenue backlog: As of September 30, 2011, Telesat March 2012: 4Q2011 earnings. had C$5.6 billion of backlog, representing 6.9x LTM revenues. This provides excellent visibility into revenue trends. Update on the progress of the satellite launches.
Potential for bank debt refinancing in the absence of other strategic transactions. Investment Risks: (1) Satellite launch/anomaly risk: Historically, one in 10 launches has failed, and satellites are exposed to various technical anomalies while in orbit.
(2) Customer concentration.
(3) Intermediate-term competitive threats: For domestic (i.e., in Canada) growth opportunities, we believe Ciel could pose some Financial Profile (C$) FY09A FY10A 2Q11A 3Q11A 4Q11E FY11E threat for Telesat. In international markets, increasing supply in Revenue C$787 C$821 C$200 C$200 C$201 C$804 these regions could lead to pricing pressure. EBITDA 560 625 155 154 155 637 (4) Satellite capex cycle.
Cash Flow From Ops C$298 C$345 C$83 C$162 C$61 C$422 (5) FX risk. CapEx (264) (262) (163) (61) (70) (372) Free Cash Flow C$34 C$83 (C$81) C$102 (C$9) C$50
Total Debt excl. Prefs C$3,229 C$3,107 C$3,010 C$3,108 C$3,019 C$3,019 Cash 154 220 142 198 285 285 Net Debt C$3,075 C$2,887 C$2,867 C$2,910 C$2,734 C$2,734 Agency Key Credit Statistics Comps Leverage Coverage Ratings Total Debt/EBITDA 5.8x 5.0x 4.8x 5.0x 4.9x 4.9x Net Debt/EBITDA 5.5x 4.6x 4.5x 4.7x 4.4x 4.4x EH Holdings - SATS 5.8x 2.3x B3/B-
EBITDA/Interest 2.0x 2.4x 2.5x 2.5x 2.6x 2.6x EBITDA Margin 71.2% 76.1% 77.5% 77.0% 77.0% 77.2%
Capitalization Debt to Description Size EBITDA Liquidity Revolver (C$153mm Facility) C$0 Revolver Size C$153 Term Loan A (Canadian Facility) 120 Letters of Credit (0) Term Loan B (US Facility) 1,887 Borrowings - Delayed Draw Term Loan B (US Facility) 145 Revolver Availability C$153 Capital Lease Obligations - Total Telesat Canada Secured Debt C$2,152 3.4x Cash C$198 11.000% Sr Nts due 2015 728 Total Liquidity C$351 Total Telesat Canada Sr Debt C$2,880 4.6x 12.500% Sr Sub Nts due 2017 228 Total Telesat Canada Sr Sub Debt C$3,108 5.0x Telesat Holdings PIK Preferreds 141 Total Debt + Preferred C$3,249 5.2x Market Cap NA Enterprise Value NA
Maturities:
3,500 3,249 3,000 2,500 2,000 1,500 1,000
500 0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 181 January 26, 2012 High Yield
Tenet Healthcare Corp. (THC) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 OUTPERFORM (secureds)/IN-LINE (unsecureds) We rate the THC secureds Outperform. We like secured hospital paper due to our continuing concerns around reimbursement and the bonds trade slightly wide to the other secured bonds, despite much lower leverage. More broadly, we are generally constructive on THC due to improving leverage and free cash flow. We rate the unsecureds In-Line as we prefer the HCA holdcos for similar yield. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp CDS Levels 5-Year $900 6.25 Sr. Sec. 01-Nov-18 B1/BB- T+50 MW $103.500 5.619% 482 Snr 543 / 568 $600 8 Sr. Uns. 01-Aug-20 Caa1/CCC+ $104.000 8/1/2015 $103.000 7.410% 661
Company Description Investment Strengths: - Potential for continued margin improvement and improved Hospital operator focused on urban markets. THC operates 49 hospitals concentrated in Florida, Texas, and free cash flow as legal settlement payments have been California. In 2003, the DOJ initiated investigations of THC relating to Medicare fraud and physician kick-backs. completed. The company settled in 2006 for $725 million plus $175 million of foregone Medicare fees. - First large bond maturity is not until 2015. Through 2009 and 2010, THC refinanced over $3.5 billion of unsecured bonds with $2.4 billion of secured bonds, $600 million of 10-year unsecured bonds, and $334 million of preferred equity. In December 2010, CYH Investment Risks: announced an unsolicited bid for THC at $6 a share for a combination of cash and stock, which THC rejected. In - Medicare and Medicaid reimbursement could be reduced. April 2011, THC alleged that CYH overbilled Medicare with a potential liability in excess of $1 billion. CYH subsequently changed its bid to all cash and later also raised its bid to $7.25 a share. In May 2011, CYH - Ongoing negative trend in higher-margin commercial withdrew its bid for THC. volumes. THC's facilities are located in competitive urban markets. In November 2011, THC issued $900 mn of secured bonds in order to refinance its 2015 secured bond and 2011 senior notes. - Weak Medicare case mix due to a decline in cardio surgeries could continue to pressure earnings. Key Dates/Catalysts: - Quarterly earnings announcements - Under pressure from shareholders to create value/return - Acquisitions. THC has been acquisitive recently on the Outpatient side. cash because stock is trading well below the CYH bid price - Election results (November 2012) and potential Supreme Court decision on the constitutionality of the individual that was turned down. mandate could determine the fate of the Affordable Care Act (ACA). We view the ACA as aa net positive for hospitals.
Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E Revenue $9,031 $9,205 $9,630 $2,301 $2,342 $2,408 EBITDA 980 1,050 1,157 281 195 306
Interest Expense $445 $424 $422 $101 $100 $106 Cash Taxes (23) (977) 111 2 4 38 CapEx 456 476 398 196 100 100 Free Cash Flow (31) (4) 155 (21) 48 129
Total Debt $4,501 $4,261 $4,398 $4,261 $4,276 $4,398 Cash 690 405 232 405 185 232 Net Debt 3,811 3,856 4,166 3,856 4,091 4,166 Agency Key Credit Statistics LTM Comps Leverage Coverage Ratings Total Debt/EBITDA 4.6x 4.1x 3.8x THC Sec 2.2x NA B1/BB- Net Debt/EBITDA 3.9x 3.7x 3.6x THC Sr Uns 3.9x 2.7x Caa1/CCC+ CYH 4.8x 2.8x B3/B EBITDA/Interest 2.2x 2.5x 2.7x 2.8x 2.0x 2.9x HCA sr uns 4.2x NA B3/B- EBITDA margin 10.9% 11.4% 12.0% 12.2% 8.3% 12.7%
Pro Forma Capitalization Debt to Debt to LTM 2011E Description Size EBITDA EBITDA Liquidity Revolver $0 Revolver Size $800 Total Sec debt (Lien on assets) $0 0.0x 0.0x Letters of Credit 169 Borrowings 0 9% first lien due May 1, 2015 $1 Min avail requirement 100 10% first lien due May 1, 2018 714 Revolver Availability 531 8.875% first lien due July 1, 2019 925 6.25% first lien due 11/1/2018 900 Cash $185 Total Sec debt (Lien on stock) 2,540 2.2x 2.2x Total Liquidity $716
6.375% Sr. Notes due 12/1/11 $0 6.5% Sr. Notes due 6/1/12 57 7.375 Sr. Notes due 2/1/13 216 9.875% Sr. Notes due 7/1/14 60 9.25% Sr. Notes due 2/1/15 474 6.875% Sr. Notes due 11/15/31 430 8.0% Sr. Notes due 8/01/20 600 Total Sr debt 1,837 3.9x 3.8x
Total Sub debt 0
Notes Payable and Cap Leases $21
Total Debt $4,398 3.9x 3.8x 7% Pref Equity $345 Market Cap 2,374 Enterprise Value $6,932 6.1x 6.0x Note: First lien debt is limited to the greater of $2.6 bn or 3.0x; secured debt is limited to the greater of $3.2 bn or 4.0x. Maturities: 5,000
4,000
3,000
2,000
1,000
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 182 January 26, 2012 High Yield
Tenneco Inc. (TEN) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $250 8.125% Sr. Nts 15-Nov-15 B1/BB- 104.06 2/27/2012 105.80 -1481.3% (1,486)
Company Description Investment Strengths: - Global emissions regulation timeline: Approximately Tenneco Inc. designs, manufactures, and markets emission control and ride control products and systems for the 63% of Tenneco’s top line is derived from the company’s automotive original equipment market and the after-market. The company's products include shocks and struts, emission control business. The emission control business shock absorbers, mufflers, and performance exhaust products, as well as noise, vibration, and harshness control is set up to grow over the next three years thanks to components. stricter global emission regulations. - Commercial vehicle opportunity: Historically, Key Dates/Catalysts: commercial vehicles have represented a small portion of - Tenneco is expected to report 4Q2011 earnings on February 2. Tenneco’s revenues (7% in 2010). Management expects to grow the commercial vehicle & specialty business to 30-35% of OE revenue by 2015 with the launch of new programs and stricter emission regulations. - Successful capital markets actions: TEN completed an initiative to amend and extend $550 million of its revolving credit facility (now due May 2014). TEN also refinanced its 8.625% subordinated notes with proceeds from the 6.875% senior notes of 2020. - Strong exposure to the BRICs and Thai markets: TEN has a global manufacturing footprint with strong relationships in the BRIC+T countries. Financial Profile FY08 FY09 FY10 LTM-3Q11 FY11E FY12E Revenue 5,916.0 4,649.0 5,937.0 6,998.0 7,168.8 7,699.9 Investment Risks: - Significant exposure to the Europe: Tenneco derives EBITDA 381.0 353.0 514.0 583.0 608.4 610.5 43% of its revenue from Europe. Demand in the region may be adversely affected by the Eurozone's debt Interest Expense (113.0) (133.0) (149.0) (130.0) (108.4) (108.4) concerns and associated austerity measures. - Tenneco has one of the highest steel price exposures in Cash Taxes (62.0) 38.0 (53.0) (67.0) (83.0) (80.0) the automotive sector. CapEx (233.0) (120.0) (152.0) (184.0) (192.0) (231.0) Free Cash Flow (73.0) 121.0 92.0 37.0 81.5 151.1
Total Debt 1,451.0 1,220.0 1,223.0 1,304.0 1,304.0 1,304.0 Cash 126.0 167.0 233.0 163.0 343.5 494.6 Comps Leverage Coverage Ratings Net Debt 1,325.0 1,053.0 990.0 1,141.0 960.5 809.4 AXL 2.8x 4.8x B1/BB- Key Credit Statistics CTBUS 1.3x 8.4x B1/BB- Total Debt/EBITDA 3.8x 3.5x 2.4x 2.2x 2.1x 2.1x GT 3.0x 6.5x Ba3/BB- Net Debt/EBITDA 3.5x 3.0x 1.9x 2.0x 1.6x 1.3x MTOR 3.0x 3.6x B2/B TEN 2.2x 4.5x Ba3/BB EBITDA/Interest 3.4x 2.7x 3.4x 4.5x 5.6x 5.6x TRW 0.9x 13.6x Ba2/BB+ EBITDA margin 6.4% 7.6% 8.7% 8.3% 8.5% 7.9%
Capitalization Debt to Description Size EBITDA Liquidity Revolver due 2012/2014 97.0 0.6x Revolver/LC Size 752.0 Term Loan B due June 2016 148.0 0.6x - Amt Drawn 97.0 Other (foreign lines of credit) 84.0 0.6x - LCs Drawn 54.0 8.125% Senior Notes due 2015 250.0 2.2x Amt Available 601.0 7.75% Senior Notes due 2018 225.0 2.2x Cash on hand 163.0 6.875% Senior Notes due 2020 500.0 2.2x Net Liquidity 764.0 Total Debt 1304.0 2.2x Less cash 163.0 -- Net Debt 1141.0 2.0x Market Cap 1,908.4 -- Enterprise Value 2,448.4 4.2x
Maturities:
900 800 700 600 500 400 300 200 100 0 2012 2013 2014 2015 2016 2017 After
Goldman Sachs Credit Research 183 January 26, 2012 High Yield
Tesoro Corp. (TSO) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 UNDERPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $300 9.750% Sr. 6/1/2019 Ba1/BB+ $104.88 6/1/2014 $113.50 5.49% 519
Company Description Investment Strengths: Tesoro operates seven refineries concentrated in the Western US. With about 670k b/d capacity, TSO is the fourth • Ability to process a wide spectrum of crude gravities; largest independent refiner in the US (vs. leader Valero with 3.0 mn b/d capacity). Approximately 50% of TSO's heavy crude represents about one-third of crude capacity is equipped to process heavy crude. processed • Waterborne access at several refineries provides Tesoro was founded in 1968 by Bob Westfield as an E&P company and purchased Alaska assets in the 1970s. crude purchasing flexibility The company first entered into refining in 1998 through the purchase of the Anacortes (WA) refinery from Shell and • CARB fuel requirements in California limit product the Hawaii refinery from BHP. In 2000, management decided to focus entirely on R&M. They purchased Golden imports from other regions and have made PADD5 Eagle in 2002 when the stock was at $15. Timing proved unfortunate, however, as the 9/11 events and one of the more resilient over time warmest winters on record made 2002 one of the worst years for refining margins in history. TSO was a distressed credit and was forced to focus on debt reduction. Investment Risks: • Geographic concentration in PADD5, which remains In January 2007, TSO announced the acquisition of Shell's Wilmington refinery, which has a capacity of 100k b/d, weak for $1.63 bn. In September 2007, Tracinda Corp. announced a partial tender for 16% of TSO shares for $64. The • Pure-play refining and marketing company tender was later withdrawn. In December 2010, Tesoro announced it would contribute a portion of its logistics assets to an MLP and sell a minority interest in the MLP in an IPO. The $273 mn IPO was completed in April 2011. Key Dates/Catalysts: In 2012, Tesoro announced plans to divest its Hawaii operations. • Product demand trends in PADD5 • Sale of Hawaii refinery
Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $28,309 $16,872 $20,583 $30,204 $31,721 EBITDA (Adj for non-cash items) $1,026 $442 $561 $1,937 $1,405 Free Operating Cash Flow $213 ($19) $97 $1,139 $338 Capital Expenditures $650 $437 $297 $321 $670
Leverage Coverage Agency Comps ('11E) ('11E) Ratings Credit Ratios 2008A 2009A 2010A 2011E 2012E TSO 0.8x 11.1x Ba1/BB+ Total Debt/EBITDA (LTM) 1.6x 4.2x 3.6x 0.8x 1.1x SUN 4.6x 3.5x Ba2/BB+ EBITDA/Interest Expense (LTM) 8.6x 3.4x 3.6x 11.1x 10.3x Debt to Capitalization % 33% 37% 38% 29% 26%
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $1,135 Revolver Size $2,500 Revolving Credit Facility $70 Letters of Credit $916 Long Term Debt Borrowings $70 Senior notes 2012-19 $1,604 Revolver Availability $1,514 Total Long Term Debt $1,604 Cash $1,135 Total Debt $1,674 0.9x Total Liquidity $2,649 Preferred Equity $0 Common Equity $3,796 Total Capitalization $5,470
Maturities:
500 450 400 350 300 250 200 150 100 Debt maturities ($ mn) 50 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 184 January 26, 2012 High Yield
Textron Inc. (TXT) Updated 1/26/12 Brian Jacoby, CFA 212-902-3258 Textron Financial Corp. Cody Sauer, CFA 212-855-8553 Contact analyst or see latest research for updates to ratings, estimates, and other information. OUTPERFORM Bond Summary Size Coupon Agency Yield Price T-sprd Z-sprd 5 Yr Ticker (MM) (%) Maturity Ratings (%) ($) Spread (bp) CDS TXT $250 5.950 21-Sep-21 Baa3/BBB- 5.4 $104.03 350 354 235 TXT (TFC) $375 5.400 28-Apr-13 Baa3/BB+ 2.7 $103.30 250 219 61
Company Description Textron Inc. (TXT) is a diversified industrial company with a portfolio of leading brands. It operates through five business segments: Cessna (24% of consolidated Investment Strengths: revenue) is the world's largest manufacturer of general aviation aircraft (e.g., business jets and piston aircraft). TXT's Industrial segment (24% of revenue) manufactures Greenlee tools, E-Z-Go golf carts, Jacobsen lawnmowers, and Kautex blow-molded fuel systems for cars and light trucks (i.e., plastic fuel tanks). - TXT has a portfolio of businesses with leading brands, such as TXT's Bell segment (31% of revenue) is a leading supplier of helicopters and tilt rotor aircraft. Textron Systems (19% of revenue) is a primary supplier to the US Cessna, Bell, and E-Z-Go. Department of Defense, providing combat vehicles, marine craft, network-centric warfare equipment, and unmanned aerial vehicles. The last segment is Finance, which accounts for only 2% of revenues. TXT, through wholly-owned Textron Financial Corp. (TFC), provides financing for TXT customers through wholesale and - TXT has solid liquidity with $871 million in manufacturing cash other forms of lending. TFC had $3.5 billion in managed receivables at 3Q2011. TFC expects to further shrink this portfolio to approximately $2.5 billion within at 4Q11, and it should generate $499 million in FCF in 2012, in several years by winding down its non-captive business. TXT has a support agreement with TFC that requires TXT to (1) maintain TFC's fixed charge coverage at our view. 1.25x or higher; (2) own 100% of TFC; and (3) maintain TFC's equity at or above $200 million. In addition, as per TFC's credit agreement, it must maintain debt/equity at 9x or less. - If the wind-down of Textron Finance (TFC) continues to be successful, it could free up capital for TXT by 2013. Key Dates/Catalysts: 1Q2012 – Continued progress on winding down TFC's portfolio; update on business jet outlook. Investment Risks:
- TXT has been mentioned as a potential split-up candidate, Financial Profile ($mn) FY08 FY09 4Q10 FY10 4Q11 FY11 FY12E according to Bloomberg News; at this writing, the company has Textron Inc. (Finco on equity basis) not commented on this. Revenue 13,287 10,139 3,100 10,307 3,242 11,172 12,100 - Textron Finance (TFC) may need further financial support from EBITDA 1,690 928 297 1,019 377 1,228 1,350 TXT, as it could decide to liquidate some of its longer-tail golf course and resort portfolios. Gross Interest Expense (125) (144) (43) (152) (30) (154) (150) - Cessna still faces a weak business jet market, particularly for Other (non-cash pension) (318) (417) (278) (301) (227) (229) (143) light jets, a key market for the company. Working Capital (357) 292 328 42 152 (84) (85) - While TXT's defense programs are well supported and funded, Net Operating Cash Flow 1 890 659 304 608 272 761 972 such as the V-22 Osprey tilt-rotor aircraft, the company is Capital Expenditures (537) (238) (136) (270) (152) (423) (450) exposed to the declining US defense budget. Dividends (284) (21) (6) (22) (5) (22) (23) Free Cash Flow1 69 400 162 316 115 316 499 Capital contribution (to)/from TFC (483) 79 (5) 122 (30) (3) 0 FCF after capital transact. w/TFC (414) 479 157 438 85 313 499 Total Debt (excl TFC) 2,569 3,584 2,302 2,302 2,459 2,459 2,305 Cash (excl TFC) 531 1,748 898 898 871 871 1,141 Net Debt 2,038 1,836 1,404 1,404 1,588 1,588 1,164 Key Credit Statistics LTM Total Debt/EBITDA 1.52x 3.86x 2.26x 2.26x 2.00x 2.00x 1.71x LTM Net Debt/EBITDA 1.21x 1.98x 1.38x 1.38x 1.29x 1.29x 0.86x Debt/Capital 52.1% 55.9% 43.6% 43.6% 47.3% 47.3% 41.4% LTM FCF/Debt 2.7% 11.2% 13.7% 13.7% 12.9% 12.9% 21.6% EBITDA/Interest expense 13.5x 6.4x 6.9x 6.7x 12.6x 8.0x 9.0x EBITDA Margin 12.7% 9.2% 9.6% 9.9% 11.6% 11.0% 11.2% 1 Excludes capital contributions to TFC and dividends from TFC Textron Financial Corp. Revenue 723 360 24 207 12 Net Income (461) (205) (39) (230) NA Cash 16 144 33 33 14 Assets 9,344 7,324 4,570 4,570 3,213 Debt (excl interco debt) 7,388 5,488 3,435 3,435 1,974 Shareholders Equity 1,079 804 501 501 413 Fixed charge cov excl cap contrib2 -0.74x -0.89x -1.77x -1.89x NA Debt/Equity 6.8x 6.8x 6.9x 6.9x 4.8x 2 TXT Financial received $152mn, $383mn, $270mn, and $625mn in gross cash capital contributions from TXT in 9mos11, 2010, 2009, and 2008, respectively, to comply with support agreement. EBITDA Agency Capitalization - TXT Inc. 12/31/2011 12/31/2011 Comps Leverage Coverage Ratings Description Size EBITDA Liquidity Bombardier 2.9x 6.8x Ba2/BB+ Revolvers 0 TXT Inc. Ingersoll-Rand 2.2x 4.1x Baa1/BBB+ TXT Inc 4.5% 2013 Convertible 375 Revolver due 2015 1,000 TXT Inc. 5.95% 2021 250 Commercial Paper (11) Other Sr. Debt 1,834 Borrowings 0 Total Sr debt 2,459 2.0x Revolver Availability 989 Total Sub debt 0 Cash+Available Revolver 1,860 Total debt (excl TFC) 2,459 2.0x TXT Fin. Ex/Im facility 500 Net Debt (excl TFC) 1,588 1.3x Letters of Credit 0 Market Cap 6,951 5.7x Borrowings (426) Enterprise Value 8,539 7.0x Ex/Im Availability 74 TFC Cash+Ex/Im Availability 88
Maturities:
Textron Inc. Textron Financial 700 600 500 400
($, mn) ($, 300 200 100 0 2012 2013 2014 2015
Goldman Sachs Credit Research 185 January 26, 2012 High Yield
Toll Brothers Inc. (TOL) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 IN-LINE
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp IL 250 6.75 Sr. Nts 1-Nov-19 Ba1/BB+ MW 105.5 5.86% 438
Company Description Investment Strengths: Toll Brothers Inc. designs, builds, and markets single-family detached and attached homes, primarily focusing on the - Leading market share in luxury market. luxury market. The company is also involved in projects where it builds or converts apartment buildings into high-, mid-, - Strong brand recognition. and low-rise luxury homes. Toll Brothers targets move-up, empty-nester, active-adult, age-qualified, and second-home - Limited competition. buyers in 21 states throughout the United States. - Conservative leverage profile, high cash balance. - Strong management team. Key Dates/Catalysts: 1QFY12 earning release Investment Risks: - Strategy of buying raw land pushes profit to out- years. - Company could use revolving credit facility to fund land purchases.
Financial Profile ($, mn)* FY:10 FY:11 FY:12E 1Q:11 4Q:11 1Q:12E Total Revenues 1,495 1,476 1,680 334 428 366 Total Adjusted EBITDA 65 97 116 18 38 21
Cash Interest (115) (115) (112) (30) (28) (28) Debt-to- Inventory- Cash Taxes 149 155 - 8 0 - Comps Cap to-Debt Ratings Capital Expenditures (5) (10) (8) (4) (3) (2) Toll Brothers 38% 2.1x Ba1/BB+ Free Cash Flow (142) (79) (144) (111) (22) (136) DR Horton 38% 2.2x Ba3/BB-
Total Debt Outstanding 1,769 1,655 1,655 1,707 1,655 1,655 Total Cash and Cash Equivalents 1,298 1,160 744 1,153 1,160 752 Key Credit Statistics Homebuilding Debt / Capitalization 40% 38% 38% 40% 38% 38% Net Homebuilding Debt / Capitalization (3) 13% 14% 24% 17% 14% 25%
Inventories / Homebuilding Debt (2) NA 2.1x NA 2.0x 2.1x NA Homebuilding Gross Margin (1) 20% 23% 23% 23% 24% 23%
PF Capitalization ($, mn)
Description Size Liquidity Unsecured revolver - Unsecured revolver 885 Unsecured term loan(1) 98 Borrowings - Other loans payable 57 LOCs 100 Mortgage company warehouse loan 140 Revolver Availability 785 6.875% Senior Notes 142 5.95% Senior Notes 268 Cash 906 4.95% Senior Notes 300 Marketable Securities 234 5.15% Senior Notes 400 Total Liquidity 1,140 8.91% Senior Notes 250 6.75% Senior Notes 1,655 Total Senior Debt - Joint Venture Repayment Guarantees 1,655 Total Debt Outstanding 1,655
Minority Interest 6 Shares Outstanding 168 Share Price 23.0 Market Capitalization 3,864 Enterprise Value 4,386
Maturities:
350 300 250 200
150 100 50 0 2012 2013 2014 2015 2016
Goldman Sachs Credit Research 186 January 26, 2012 High Yield
TPC Group Inc. (TPCG) Updated 1/26/2012 Kristen McDuffy 212-357-6157 Contact analyst or see latest research for updates to ratings, estimates, and other information. Adam Goodwin 212-902-0459 OUTPERFORM We rate the TPCG 8.25% senior secured notes of 2017 Outperform, viewing the bonds as a solid core holding that also offer compelling relative value given the company's strong growth trajectory. In our view, TPCG's operating performance over the next several years should be exceptionally strong, leading the 8.25s to tighten from current trading levels. At the same time, we think downside risk is mitigated by the secured nature of the bonds and TPCG's inherent business stability due to index-based pricing mechanisms in its sales contracts.
Bond Summary GS Size Coupon Agency Next Call Bid YTW OAS Rating (MM) (%) Priority Maturity Ratings Price Date Price (%) bp OP 350 8.25 Sr. Sec. 1-Oct-17 B1/-- 106.19 10/1/2013 102.5 7.60% 673
Company Description Investment Strengths: TPC Group (TPCG) is a leading processor of crude C4 hydrocarbons, including butadiene, butene-1, raffinates, and - Leading market positions with limited competition. MTBE. The company also upgrades isobutylene and propylene into higher-value derivative such as polyisobutylene, - Long-term relationships with customers and diisobutylene, nonene, and tetramer. TPCG operates as a merchant processor and marketer of these products, serving as feedstock suppliers. - Well-positioned assets. an intermediary between its raw materials suppliers North American ethylene producers and a diverse base of − − - Margin stability and strong free cash flow generation. customers. It is organized around two business segments: C4 Processing and Performance Products, which accounted for 65% and 35%, respectively, of its LTM EBITDA. Investment Risks: - Limited diversification. Key Dates/Catalysts: - Relatively low margins. 4QFY11 earning release - Recent actions have been shareholder-friendly. Potential ratings upgrade by credit agencies - Relatively new management team.
Financial Profile ($, mn)* FY:09 FY:10 FY:11E Q4:10 Q3:11 Q4:11E Revenues 1,179 1,918 2,906 486 835 722 Adjusted EBITDA 54 104 117 18 44 (32)
Cash Interest (15) (19) (34) (8) (9) (9) Comps Leverage Coverage Ratings Cash Taxes 7 39 (12) 0 (6) 18 TPCG 2.1x 5.0x B1/-- Capital Expenditures (9) (23) (50) (11) (12) (18) Georgia Gulf 2.7x 3.9x B1/B+ Free Cash Flow 13 75 37 39 31 21
Total Debt Outstanding 274 350 350 350 350 350 Cash equivalents 0 86 104 86 82 104 Key Credit Statistics Total Debt/EBITDA 5.0x 3.3x 3.0x 3.3x 2.1x 3.0x Net Debt/EBITDA 5.0x 2.5x 2.1x 2.5x 1.6x 2.1x
EBITDA / Interest 3.7x 5.5x 3.5x 5.5x 5.0x 3.5x LTM EBITDA margin 5% 5% 4% 5% 6% 4%
PF Capitalization ($, mn) Debt to Description Size EBITDA Liquidity Revolving Credit Facility - Revolving Credit Facility 175 8.25% Senior Secured Notes 350 Borrowing Base 175 Total Debt 350 2.1x Borrowings - Availability 175 Share Price 30.0 Market Capitalization 480 Cash and Cash Equivalents 82 Enterprise Value 748 4.5x Total Liquidity 257
Maturities: 400 350 300 250 200 150 100 50 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 187 January 26, 2012 High Yield
TRW Automotive (TRW) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $334 7.00% Sr. Nts 15-Mar-14 Ba2/BB+ NC NC 107.38 336.7% 316 $467 7.25% Sr. Nts 15-Mar-17 Ba2/BB+ NC NC 108.13 541.1% 465
Investment Strengths: Company Description - Strong customer and product revenue diversity:No TRW is a leading manufacturer of active and passive safety-related automotive systems, modules, and single customer accounts for more than 20% of revenues; components. TRW believes it holds a top-three market position in foundation brakes (No. 1), anti-lock braking TRW is a leader in multiple products, including brakes, systems (No. 3), steering gears (No. 1), seat belts (No. 1), air bags (No. 2), and engine valves (No. 2). The steering gears, seat belts, air bags, and engine valves. company’s long-term strategy is to become the leading supplier of active and passive safety-related components in - Strong liquidity: TRW ended 3Q2011 with more than the automotive market. Active safety refers to automobile features that mainly allow the driver to avoid collisions. $1.8 billion of liquidity. Most notably, steering and braking components fall into this category. Passive safety refers to occupant restraints - Low leverage: TRW is one of the least levered high yield that reduce the likelihood of injury once a collision has occurred. Specifically, TRW’s passive safety systems include auto supplier credits in our coverage universe. The airbags, seatbelts, and crash sensors. company ended 3Q2011 with leverage of 0.9x (0.4x net).
Key Dates/Catalysts: Investment Risks: - TRW is expected to report 4Q2011 earnings on February 16, 2012. - Significant exposure to the Europe: TRW derives 51% of its revenue from Europe. Demand in the region may be adversely affected by the Eurozone's debt concerns and associated austerity measures. - Strategic acquisitions pose a risk: In our view, TRW could be poised to consider making a strategic acquisition given its scale and low leverage.
Financial Profile FY08 FY09 FY10 LTM-3Q11 FY11E FY12E Revenue 14,995.0 11,614.0 14,383.0 15,971.0 16,163.9 16,585.6 EBITDA 979.0 911.0 1,671.0 1,727.0 1,704.9 1,897.9
Interest Expense (191.0) (220.6) (142.3) (128.5) (112.1) (106.0) Cash Taxes (148.0) (61.0) (76.0) (76.0) (76.0) (76.0) CapEx (482.0) (201.0) (294.0) (354.0) (524.0) (540.0) Free Cash Flow 375.0 236.0 758.0 520.0 638.4 753.1
Total Debt 2,922.0 2,371.0 1,846.0 1,532.0 1,532.0 1,532.0 Comps Leverage Coverage Ratings Cash 766.0 788.0 1,078.0 890.0 1,320.4 2,073.5 AXL 2.8x 4.8x B1/BB- Net Debt 2,156.0 1,583.0 768.0 642.0 211.6 (541.5) CTBUS 1.3x 8.4x B1/BB- Key Credit Statistics GT 3.0x 6.5x Ba3/BB- Total Debt/EBITDA 3.0x 2.6x 1.1x 0.9x 0.9x 0.8x MTOR 3.0x 3.6x B2/B Net Debt/EBITDA 2.2x 1.7x 0.5x 0.4x 0.1x -0.3x TEN 2.2x 4.5x Ba3/BB TRW 0.9x 13.6x Ba2/BB+ EBITDA/Interest 5.4x 4.9x 10.3x 13.6x 14.0x 16.3x EBITDA margin 6.5% 7.8% 11.6% 10.8% 10.5% 11.4%
Capitalization - Pro forma Debt to Description Size EBITDA Liquidity Revolver due 2016 0.0 0.1x Revolver Size 1,020.0 Other 105.0 0.1x - Amt Drawn 0.0 7.0% Senior Notes due 2014 334.0 0.9x - LCs Drawn 28.0 6.375% Senior Euro Notes due 2014 233.0 0.9x Amt Unutilized 992.0 3.500% Exchangeable Sr Notes due 2015 174.0 0.9x Cash 890.0 7.25% Senior Notes due 2017 467.0 0.9x Net Liquidity 1,882.0 8.875% Senior Notes due 2017 219.0 0.9x Total Debt 1,532.0 0.9x Less cash 890.0 Net Debt 642.0 0.4x Market Cap 4,867.8 Enterprise Value 5,509.8 3.2x
Maturities:
800 700 600 500 400 300 200 100 0 2012 2013 2014 2015 2016 2017 After
Goldman Sachs Credit Research 188 January 26, 2012 High Yield
U.S. Steel (X) Updated 1/20/12 Justine Fisher 212-357-6711 Contact analyst or see latest research for updates to ratings, estimates, and other information. Joshua Pinkerton 212-357-9774 UNDERPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $600 7.375% Sr Notes 1-Apr-20 BB/B1 MW MW 101.61 7.11 579
Company Description Investment Strengths: - X owns iron ore assets, which gives it more price stability on U.S. Steel is one of the largest steel producers in the United States. Most of its annual production is flat-rolled its inputs in the US. tonnage made in the United States, but U.S. Steel also has a large flat-rolled operation in Europe, and produces - It has a high level of contractual business with OEMs. about 1 million tons of tubular products in the United States annually. - X has a large OCTG (tubular) business that allows it to benefit from high demand for shale oil- and gas-related demand. Key Dates/Catalysts: January 31: U.S. Steel scheduled to announce 4Q2011 earnings. Investment Risks: - Exposure to cyclical steel market. Steel prices could remain under pressure in the current global economic environment. - X has high fixed costs versus mini-mill peers, which can greatly reduce EBITDA in a low price environment. - European segment is vulnerable to this year's Euroland economic woes. - Not integrated in coking coal.
Financial Profile FY10 2Q11 3Q11 4Q11E FY11E FY12E Revenue 17,374 5,120 5,081 4,599 19,664 19,696 EBITDA 505 433 340 101 937 1,153
Interest Expense (274) (48) (38) (53) (189) (211) Cash Taxes (97) (65) (33) (12) (126) (85) CapEx (676) (221) (225) (230) (856) (850) Free Cash Flow (2,383) (200) (155) (210) (728) 20
Agency Total Debt 3,733 3,901 3,858 4,055 4,055 4,041 Comps Leverage Coverage Ratings Cash 578 393 270 250 250 228 Peabody Energy 3.2x 11.4x BB+/Ba1 Net Debt 3,155 3,508 3,588 3,805 3,805 3,813 Steel Dynamics 2.7x 5.1x BB+/Ba2 Key Credit Statistics US Steel Corp. 4.3x 5.0x BB/B1 Total Debt/EBITDA 7.4X 2.3X 2.8X 10.1X 4.3X 3.5X FMG 7.6x 12.4x B1/B
EBITDA/Interest 1.8X 9.0X 8.9X 1.9X 5.0X 5.5X EBITDA margin 2.91% 8.46% 6.69% 2.19% 4.76% 5.85%
Capitalization FY11E Debt Description Size to EBITDA Liquidity Industrial Development Bonds 458.0 Revolver Size 1,296.0 Fairfield Caster Lease 10.0 Letters of Credit - Other Capital Leases and obligations 80.0 Borrowings 230.5 Revolver drawings (US, USSK, and USSS) 142.0 Revolver Availability 1,065.5 Province note (Stelco-related) 114.0 5.65% Senior Notes due 2013 300.0 A/R facility 625.0 6.05% Senior Notes due 2017 450.0 Borrowings 75.0 7.00% Senior Notes due 2018 500.0 A/R Availability 550.0 6.65% Senior Notes due 2037 350.0 7.375% Senior Notes due 2020 600.0 Cash 270.0 4% Convertible Notes due 2014 863.0 Total Liquidity 1,885.5 Total Debt 3,858.0 4.1x Market Cap 4,230.7 Enterprise Value 7,818.7 8.3x
Maturities 3,500 3,000
2,500 2,000 1,500
1,000 500 0 2012-13 2014-15 Thereafter
Goldman Sachs Credit Research 189 January 26, 2012 High Yield
Unisys Corp. (UIS) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst for updates and other information. Karl Blunden 212-357-2769 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $216 12.750 Sr. Secured 15-Oct-14 Ba1/BB+ 106.38 10/15/2012 114.13 1.6% 148
Company Description Company Strengths: Unisys provides IT consulting and operations services to its global customer base. This includes systems integration - Proactive capital structure actions: UIS priced 2.6 and consulting, IT and process outsourcing, IT infrastructure development and maintenance, and security. Services- million shares of mandatory convertible preferred related revenues contributed approximately 88% of total revenues. The remaining 12% of revenues is driven by the stock in 1Q2011 for net proceeds of $250 million. In Technology segment, mainly enterprise server sales. Business with the US government represents a sizable portion of April, the company used the proceeds to purchase UIS's revenues at approximately 20%. $44 million of its senior secured notes due 2014 and $135 million of its senior secured notes due 2015. In Key Dates/Catalysts: October 2011, Unisys called for the redemption of the - Unisys will report 4Q2011 earnings on January 31, 2012. remaining $66 million of its 8% senior notes due 2012, with the redemption to take place in November. - Adequate cash balances support restructuring while also offsetting recent earnings weakness. - Competitive strength has been in government security programs, which are typically long-lived and provide steady growth.
Company Risks: - Technology segment (12% of revenues) has been volatile, offsetting some of UIS's recent restructuring benefits. Financial Profile 2009A 2010A 1Q2011A 2Q2011A 3Q2011A LTM-3Q2011 - Relatively small in size versus competitors. UIS competes against larger companies such as EDS, Revenue 4,598 4,060 911 937 1,020 3,913 IBM, and Accenture, which have better financial EBITDA 698 635 95 98 160 548 profiles.
Interest Expense (95) (102) (26) (13) (13) (77) Cash Taxes (42) (57) (33) 9 (33) (61) CapEx (144) (147) (32) (17) (15) (91) Free Cash Flow 194 132 (15) 7 65 202
Total Debt 912 824 619 447 445 445 Comps Leverage Coverage Ratings Cash 648 828 833 625 667 667 JDAS 1.9x 7.1x B1/BB- Net Debt 264 (4) (214) (178) (222) (222) SGS 3.0x 2.8x B1/B+ Key Credit Statistics Total Debt/EBITDA 1.3 x 1.3 x 1.0 x 0.9 x 0.8 x 0.8 x Net Debt/EBITDA 0.4 x 0.0 x -0.4 x -0.3 x -0.4 x -0.4 x
EBITDA/Interest 7.3 x 6.2 x 6.0 x 5.9 x 7.1 x 7.1 x EBITDA margin 15.2% 15.6% 10.4% 10.4% 15.7% 14.0%
Capitalization Debt to Description Size EBITDA Liquidity 12.75% Sr Sec Notes due 2014 216 0.4 x Revolver Size 0 14.25% Sr Sec Notes due 2015 26 0.4 x A/R securitization facility 150 Other (13) 0.4 x Cash 667 8.0% Sr Unsec Notes due 2012 66 0.8 x Total Liquidity 817 12.5% Sr Unsec Notes due 2016 150 0.8 x Total Debt 445 0.8 x Market Cap 886 Enterprise Value 664 1.2 x
Maturities:
250
200
150
100
50
0 2012 2013 2014 2015 After
Goldman Sachs Credit Research 190 January 26, 2012 High Yield
United Continental Holdings, Inc. (UAL) Updated 1/24/2012 Justine Fisher 212-357-6711 Contact analyst or see latest research for updates to ratings, estimates, and other information. Joshua Pinkerton 212-357-9774 OUTPERFORM/IN-LINE/UNDERPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $506 10.400 EETC 1-Nov-16 Baa2/BBB+ NC NC 113.75 4.74% 444 $87 12.000 EETC 15-Jan-16 Ba2/BB+ NC NC #N/A N/A #VALUE! #N/A N/A $378 6.636 EETC 2-Jul-22 Baa2/BB+ NC NC 102.75 6.13% 481 $219 7.875 EETC 2-Jul-18 Ba3/B NC NC 99.25 8.13% 783 $703 5.983 EETC 19-Apr-22 Baa1/A- NC NC 106.31 4.97% 365 $345 9.000 EETC 8-Jul-16 Baa2/BBB+ NC NC 113.25 5.14% 484
Company Description Investment Strengths: - Size: United is the wordl's largest airline and it has now received a single operating certifcate with United Continental is the world's largest airline, offering service to approximately 375 locations through its Continental, allowing it to further integrate its mainline United and regional United Express offerings. It is a member of the Star Alliance, the world's largest operations and achieve synergies. airline alliance. The company is focused on its main hub cities of Chicago, Denver, Los Angeles, San Francisco, - Asia routes: United (along with Delta) is the major US Washington Dulles, Newark, Houston, and Cleveland. Of the major network carriers, United (along with Delta) has carrier to Asia. Its operations in Los Angeles and San some of the largest exposure to the Pacific region. United and Continental announced their merger in 2010 and Francisco give it hubs close to Asia. It also enjoys fifth received a single operating certifcate at the end of 2011. freedom rights in Japan. - While December monthly PRASM was up by less than expected (up 4-5% yoy), PRASM trends have Key Dates/Catalysts: been decent for the airlines despite macroeconomic UAL is expected to report earnings on January 26. concerns.
Investment Risks: - High fuel prices are a continued risk for airlines. - Limited unencumbered collateral: United has limited unencumbered assets that it could use to raise additional secured debt. - Risk to routes/slots bond refinancing depending on the outcome of the AMR bankruptcy. UAL has $700 Financial Profile FY10 2Q11 3Q11 4Q11E FY11E FY12E million of routes/slots bonds maturing in 2013 and Revenue 34,013 9,702 10,171 8,773 36,848 36,935 another $800 million of routes/slots bonds maturing in EBITDAR 6,498 1,484 1,694 946 4,876 4,944 2015. Its $1.2 billion credit facility matures in 2012.
Interest Expense (993) (237) (211) (212) (904) (838) Income Taxes 5 (4) (7) 0 (13) (76) CapEx (779) (177) (211) (300) (931) (1,909) Free Cash Flow 2,421 576 174 (25) 1,487 739
Total Debt 15,133 13,598 13,157 12,771 12,771 12,718 Comps Leverage Coverage Ratings Cash 8,717 8,625 8,407 8,025 8,025 8,711 UAL 2.6x 5.4x B2/B Net Debt 6,416 4,973 4,750 4,746 4,746 4,007 DAL 3.9x 4.1x B2/B Key Credit Statistics LUV 2.1x 9.9x Baa3/BBB- EBITDA/Interest 6.5 x 6.3 x 8.0 x 4.5 x 5.4 x 5.9 x JBLU 4.5x 4.6x B3/B- Leverage 2.3 x 2.6 x 2.6 x LCC 3.6x 3.9x Caa1/B- EBITDA margin 19.1% 15.3% 16.7% 10.8% 13.2% 13.4%
Capitalization Debt to Description Size EBITDAR Liquidity Old CAL secured debt 4,384 Revolver Size 405 UAUA Fixed rate secureds 455 Letters of Credit 226 6.636% due 7/2/22 (2007-1, A) 378 Borrowings 0 7.336% due 7/2/19 (2007-1, B) 84 Revolver Availability 179 L + 225 due 7/2/14 (2007-1, C) 74 10.4% due 11/1/16 (2009-1, A) 599 9.75% due 1/15/17 (2009-2, A) 621 Other 6,562 Total debt 13,157.0 2.7 x Market Cap 7,176.2 Cash 8,407 Enterprise Value 11,926.2 2.4 x Total Liquidity 8,586
Maturities:
6,000 5,000
4,000 3,000 2,000 1,000 0 2012 2013 2014 2015 Thereafter
Goldman Sachs Credit Research 191 January 26, 2012 High Yield
United Surgical Partners Intl (USPI) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 OUTPERFORM We rate USPI Outperform, as we view USPI and ambulatory surgery centers as well positioned to benefit in a cost-conscious healthcare environment. In addition, with less than 20% of revenue from Medicare, reimbursement risk is lower than other providers. Over the longer term, we believe USPI is well positioned to be a consolidator of ambulatory surgery centers. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $240 8.875% Sr. Sub. 1-May-17 Caa1/CCC+ 104.438 5/1/2012 103.000 7.81% 748 $198 9.25% Sub. PIK Toggle 1-May-17 Caa1/CCC+ 104.625 5/1/2012 101.000 8.88% 855
Company Description Investment Strengths: USPI operates 186 multi-specialty ambulatory surgery centers (ASC) across the US, and five surgical hospitals in the - Well-positioned industry owing to trend toward outpatient settings. UK. Centers are owned in partnership with doctors and, in many cases, local hospital systems. ASCs present a Outpatient procedures are on the rise as a result of technological powerful value proposition to payers (procedures performed at ASCs cost less than the same procedures performed advances that allow less-invasive procedures and cost saving of at a general hospital), doctors (better scheduling and equity ownership), and patients (less intimidating setting than shorter hospital stays. hospital). USPI is differentiated from its competitors by its strong relationships with hospital systems – which translate into higher reimbursement rates from managed care – and facility concentration in select cities. - Partnerships with local hospital systems allow USPI to benefit from hospital rate setting, with managed care resulting in better rates. Key Dates/Catalysts: - Quarterly earnings announcements (An improving trend in ss case growth is key. Recent quarters have been - Good growth prospects. Industry is ripe for consolidation, with the around 2% compared with the 4% historical level.) top five chains controlling less than 15% of the market. - Potential acquisitions, reflecting our view that the industry is likely to consolidate.
Investment Risks: - Centers are not wholly owned and equity minority owners are paid dividends prior to debt service. The average USPI ownership is roughly 35%.
Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E - Rate pressure from managed care. Revenue $622 $598 $603 $154 $149 $155 EBITDA 201 203 201 55 48 52
Interest Expense $71 $70 $68 $17 $16 $18 Cash Taxes (0) 33 40 8 9 10 CapEx 32 40 31 11 15 9 Free Cash Flow 90 74 79 7 35 11
Agency Total Debt $1,146 $1,144 $1,131 $1,144 $1,116 $1,131 LTM Comps Leverage Coverage Ratings Cash 35 60 52 60 56 52 USPI 5.2x 3.0x Caa1/CCC+ Net Debt 1,111 1,084 1,079 1,084 1,061 1,079 SCAFF Sr 4.8x NA B3/B- Key Credit Statistics SCAFF Sub 6.0x 1.3x Caa1/CCC+ Total Debt/EBITDA 0.6x 0.5x 0.5x VANGUA 4.3x 2.9x B3/B- Net Debt/EBITDA 5.5x 5.3x 5.4x IAS 6.0x 2.1x Caa1/CCC+
EBITDA/Interest 2.8x 2.9x 3.0x 3.2x 3.0x 3.0x EBITDA margin 32.3% 33.9% 33.3% 35.9% 31.9% 33.8%
Capitalization
Debt to LTM Debt to 2011E Description Size EBITDA EBITDA Liquidity Revolver 4/19/2013* $16 Revolver Size $85 Term Loan--US due 4/19/2014 504 Letters of Credit 2 Term Loan--UK due 4/19/2014 51 Borrowings 16 Secured debt at Consolidated Subsidiaries 47 Revolver Availability 67 Total Sr Sec debt 619 3.0x 3.1x A/R facility $0 Total Sr bonds $0 3.0x 3.1x Borrowings 0 A/R Availability 0 8.875% Snr Sub Notes due 2017 $240 9.25% Snr Sub PIK Toggle Notes due 2017 $198 Cash $56 Total Sub debt 438 5.2x 5.3x Total Liquidity 123
Other $2 Total Debt 1,058 5.2x 5.3x Plus $150 mm incremental credit facility Market Cap NA available under certain conditions Enterprise Value NA *$16mn was borrowed on the revolver after quarter end. Maturities: 600
500
400
300
200 100
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 192 January 26, 2012 High Yield
Universal Health Services (UHS) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 UNDERPERFORM (secureds)/IN-LINE(unsecureds) We are In-Line on the seniors and we are Underperform on the secureds. The secureds trade tightest of the hospitals by a wide margin despite mid-3x leverage. We see the modest benefits of the behavioral business as offset by the company's very urban portfolio. Though behavioral health is well positioned relative to acute care owing to a favorable supply/demand mismatch of beds, its exposure to state Medicaid funding is a risk. Bond Summary Size Coupon Agency Next Call Bid YTW STW 5-Year (MM) (%) Priority Maturity Ratings Price Date Price (%) bp Uns $400 7.125 Sr Sec Notes 30-Jun-16 Baa3/BB+ T+30 MW $110.000 4.596% 427 195 / 205 $250 7.00 Sr Uns 1-Oct-18 B1/B+ 103.5 1-Oct-14 $104.000 6.002% 520
Company Description Investment Strengths: UHS is a mid-sized hospital operator with 25 acute care hospitals, 179 behavioral health centers, and 7 other - Opportunity for de-levering through synergies from the facilities (surgical hospitals, ambulatory surgery centers, and radiation oncology centers). The company’s footprint PSYS acquisition. is concentrated in the west and southwest regions of the country, with five acute care facilities in the Las Vegas, Nevada, area. - Behavioral health business improves margins and diversifies risk. EBITDA margin is higher in this segment In November 2010, UHS closed its acquisition of Psychiatric Solutions (PSYS) for $3.1 bn. Pro forma for the than in acute care (low 20%s compared with low teens acquisition, UHS's behavioral health segment (psychiatric hospitals and boarding schools) will contribute about % for acute care), and bad debt risk is much lower, as 58% of EBITDA, up from 40% before the acquisition. In November 2011, UHS signed a definitive agreement to most admissions are made only after pre-approval from acquire Knapp Medical Center, which has annual revenue of approximately $140 mn. The acquisition is expected the payer. However, behavioral health is more to close in 1Q12. dependent on state Medicaid dollars. Investment Risks: Key Dates/Catalysts: - Medicare and Medicaid reimbursement could be - Quarterly earnings announcements, including progress on planned synergies. reduced - Potential for additional large, debt-funded acquisitions, as management has suggested this possibility at recent investor events. - Integration risk: UHS plans to roll the acquired PSYS - Election results (November 2012) and potential Supreme Court decision on the constitutionality of the individual facilities into its existing regional management structure. mandate could determine the fate of the Affordable Care Act (ACA). We view the ACA as a net positive for hospitals. - Concentration in Las Vegas, which has experienced higher-than-average unemployment.
- Acute care volumes have been weak across the industry and are expected to remain so for the near Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E term. Revenue $5,202 $5,568 $7,545 $1,559 $1,849 $1,884 - Management maintains voting control (84%). EBITDA 702 761 1,190 223 271 283 Rent 70 77 94 22 23 24
Interest Expense $46 $78 $201 $41 $48 $46 Cash Taxes 170 152 251 38 52 58 CapEx 380 239 323 62 96 100 Free Cash Flow 137 243 379 35 106 54
Total Debt $1,052 $3,916 $3,642 $3,916 $3,688 $3,642 Cash 9 2947293947 Net Debt 1,042 3,886 3,595 3,886 3,649 3,595 Agency Comps Leverage Coverage Ratings Key Credit Statistics UHS sec 2.9x NA Baa3/BB+ Total Debt+8*rent/EBITDAR 2.1x 5.4x 3.4x UHS uns 3.2x 0.2x B1/B+ Net Debt+8*rent/EBITDAR 2.1x 5.4x 3.4x HMA 1st Lien 3.0x NA --/BB- HCA 1st ln 2.8x NA Ba3/BB EBITDAR/Interest+rent 6.7x 5.4x 4.4x 3.8x 4.1x 4.4x HCA sr uns 4.2x NA B3/B- EBITDA margin 13.5% 13.7% 15.8% 14.3% 14.6% 15.0%
Capitalization Debt to Debt to PF LTM 2011E Description Size EBITDA EBITDA Liquidity Revolving Credit Facility 11/15/2015* $250 Revolver Size $800 AR Revolver 10/25/2013 $240 Letters of Credit 64 Revenue bonds + mortgage payables $5 Borrowings 250 Term Loan A due 11/15/2015 $1,023 Revolver Availability $486 Term Loan B due 1115/2016 $1,459 Old PSYS debt $24 A/R facility $240 Total bank debt $3,002 2.6x 2.5x Borrowings 240 A/R Availability $0 6.75% Sr. Sec. Notes due 11/15/2011* 0 7.125% Sr. Sec. Notes due 6/30/2016 400 Cash $39 Total Secured debt 400 2.9x 2.9x Total Liquidity $525
7.000% Sr. Notes due 10/1/2018 250 Total Sr debt $250 3.2x 2.7x
Total Debt $3,652 3.2x 3.1x Market Cap 4,042 Enterprise Value $7,655 6.6x 6.4x
Rent-adjusted leverage 4,398 3.5x 3.4x *Assumes 2011 notes were repaid with revolver borrowings. LTM PF includes PSYS EBITDA. Maturities: 4,000
3,500 3,000 2,500 2,000 1,500 1,000 500 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 193 January 26, 2012 High Yield
US Airways Group, Inc. (LCC) Updated 1/24/2012 Joshua Pinkerton 212-357-9774 Contact analyst or see latest research for updates to ratings, estimates, and other information. Justine Fisher 212-357-6711 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $254 6.250 EETC 22-Apr-23 Ba2/BBB MW MW 95.75 7.07% 575 $73 8.500 EETC 22-Apr-17 B2/B+ MW MW 95.50 10.13% 982
Company Description Investment Strengths: - High proportion of leased aircraft. LCC has the US Airways is the fifth largest airline in the US and the smallest of the mainline carriers. It has hubs in Charlotte, highest proportion of leased aircraft of all the airlines Philadelphia and Phoenix and operates the US Airways Shuttle between La Guardia, Boston and Washington National. we cover. This should increase its flexibility to return It is a member of the Star Alliance. It is the only major US airline that does not currently hedge any of its fuel needs. It is older aircraft and reduce capacity if necessary. one of the larger Airbus customers in the US. - Solid express business. US Airways Express makes Key Dates/Catalysts: up about 17% of LCC's total ASMs. Express flights US Airways is expected to report earnings January 25. generally have a higher PRASM which helps LCC's overall PRASM numbers.
Investment Risks: - Consolidation. US Airways has been a persistent advocate for further consolidation in the US airline industry and has been linked to a possible bid for AMR in recent press reports.
- Weak hub markets. With hubs in Charlotte, Philadelphia and Phoenix, US Airways lacks a (thousands of dollars) presence in the largest cities and business markets in Financial Profile FY10 2Q11 3Q11 4Q11E FY11E FY12E the US. Revenue 11,908 3,503 3,436 3,108 13,008 13,089 - Unhedged. US Airways is the only major US carrier EBITDAR 1,699 405 411 250 1,254 1,335 that does not hedge fuel, which could expose it to large swings in costs if fuel prices rise.
Interest Expense (329) (79) (85) (85) (322) (362) - Limited international operations. US Airways flies to Income Taxes 0 0 (21) 3 (18) (4) Europe and Latin America but does not serve any CapEx (201) (66) (210) (188) (504) (778) destinations in the Pacific. Free Cash Flow 603 158 (314) (304) (155) (493)
Total Debt 4,400 4,342 4,471 4,512 4,512 4,787 Comps Leverage Coverage Ratings Cash 1,859 2,247 2,043 1,780 1,780 1,562 UAL 2.6x 5.4x B2/B Net Debt 2,541 2,095 2,428 2,732 2,732 3,225 DAL 3.9x 4.1x B2/B Key Credit Statistics LUV 2.1x 9.9x Baa3/BBB- EBITDA/Interest 5.2 x 5.1 x 4.8 x 2.9 x 3.9 x 3.7 x JBLU 4.5x 4.6x B3/B- Leverage 2.6 x 3.6 x 3.6 x LCC 3.6x 3.9x Caa1/B- EBITDA margin 14.3% 11.6% 12.0% 8.0% 9.6% 10.2%
Capitalization Debt to Description Size EBITDAR Liquidity Term loan, matures 2014 1,136.0 Revolver Size 0 Equipment notes payable 1,609.0 Letters of Credit 0 EETCs 1,245.0 Borrowings 0 Other secured debt 77.0 Revolver Availability 0 Prepaid Miles 200.0 Airbus Advance 165.0 Industrial development bonds 29.0 Other debt 10.0 Total debt 4,471.0 3.6 x Public Market Cap 1,265.0 Cash 2,043 Enterprise Value 3,693.0 2.9 x Total Liquidity 2,043
Maturities:
1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2012 2013 2014 2015 Thereafter
Goldman Sachs Credit Research 194 January 26, 2012 High Yield
Valeant Pharmaceuticals (VRXCN) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 OUTPERFORM We rate VRX Outperform as we think the bonds trade cheap enough to offset what we see as a small risk of VRX making a multi-billion, levering acquisition. Fundamentally, we like VRX’s (1) highly diversified revenue base with the largest product only 6% of sales, (2) minimal patent exposure, and (3) solid free cash flow. While the company has been acquisitive and shareholder friendly in the past 12 months, we find that leverage has actually not increased since the close of the BVF merger. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $500 6.75 Sr Nts 1-Oct-17 B1/BB- $103.375 10/1/2014 $101.500 6.371% 562 $700 7.00 Sr Nts 1-Oct-20 B1/BB- $103.500 10/1/2015 $101.000 6.808% 550
Company Description Investment Strengths: Valeant Pharmaceuticals (VRX) is a specialty pharmaceutical company that acquires, manufactures, and markets a - Diversified product offering and geographic mix. No one product is more broad range of pharmaceutical products, including branded products in the US, Canada, and Australia and "branded" than 10% of revenue. generics in Eastern Europe and Latin America. Branded generics are products that are bioequivalent to original products, but marketed under company brand names. The company's key products are Wellbutrin, Zovirax, Xenazine - Strong free cash flow generation: VRX generates strong FCF (17% (all acquired with BVF) and Benzaclin (acquired with Dermik). Key new epilepsy drug retigabine (brand names Potiga LTM), as it benefits from modest capex and low R&D. and Trobalt) was recently approved in Europe and in the US. - Favorable tax rate due to BVF's Barbados subsidiary. VRX expects to On September 28, 2010, specialty pharma company Biovail (BVF) and VRX merged. In November 2010, February reduce its cash tax rate to less than 10% from 36% for 2011. 2011, and March 2011, VRX issued a total of $3.15 bn of debt, the proceeds of which it used to repurchase shares, pay down all of term loan A, repay the 4% convertible notes, and fund two acquisitions, PharmaSwiss and the rights to Zovirax for US and Canada. Investment Risks: - Most of the company's top drugs are maturing and facing declining sales In March 2011, VRX announced a bid to acquire Cephalon (CEPH), which would have been all debt funded for a total profiles. of $6.7 bn. CEPH's board rejected the bid. CEPH was later acquired by TEVA for $81.50 per share. - Potential for share repurchases. Management is strongly focused on Between June 2011 and January 2012, VRX closed the licensing agreement for Elidel and Xerese for $76 mn, the EPS growth. roughly $500 mn acquisition of Sanitas, the $425 mn acquisition of Dermik, the $345mn acquisition of Ortho Dermatologics, the Zuacta distribution agreement, the $91mn acquisition of Afexa, and the A$625mn acquisition of - The "virtual R&D" business model requires VRX to be a continual iNova. The company has put in place a $2.225 bn term loan in order to finance all the acquisitions and has previously acquirer, which could mean repeat bond issuances. VRX's recent indicated that it intends to repay 50% of the roughly $1 bn it would raise to fund recently announced acquisitions within acquisitions have been focused on dermatology as well as European two years. In December 2011, VRX also made a hostile bid for ISTA for $6.50 a share and later increased it to $7.50 a branded generics. share for an acquisition price of roughly $370 mn. The offer expires January 31, 2012.
Key Dates/Catalysts: -Possible debt repayment in accordance with July comments that would repay about half of the new debt - Possible acquisition announcements ; acquisitions have been historically purely debt funded. - Potential share repurchase. - Potential sale of Potiga.
Financial Profile 2010A PF LTM* 2011E** 4Q10A 3Q11A 4Q11E Agency Revenue $1,210 $3,306 $2,443 $515 $601 $668 Comps Leverage Coverage Ratings EBITDA 482 1,585 1,236 247 307 342 Valeant Pharma (VRX) 4.3x 4.6x B1/BB- Warner Chilcott (WCRX) 2.7x 5.8x B3/B+ Interest paid $96 $346 $321 $52 $86 $85 Mylan (MYL) 3.1x 4.6x B1/BB- Taxes paid (0) 0 (39) (103) (29) 6 Endo (ENDP) 3.6x 4.9x Ba3/BB- Capex 0 38 52 0 10 8 Free Cash Flow 0 1,124 653 0 164 210 Total Debt $3,641 $6,714 $6,714 $3,641 $5,250 $6,714 Cash & marketable securities 394 258 323 394 258 323 Net Debt 3,246 6,456 6,391 3,246 4,992 6,391 Key Credit Statistics Total Debt/EBITDA 7.6x 4.2x 5.4x Net Debt/EBITDA 6.7x 4.1x 5.2x
EBITDA/Interest 5.0x 4.6x 3.8x 4.7x 3.6x 4.0x EBITDA margin 39.8% 47.9% 50.6% 48.0% 51.2% 51.2% * PF LTM includes a full year of all recently closed acquisitions but not future projected synergies. ** 2011 estimates is not pro forma for a full year of acquisitions. Capitalization pro forma for 4% convert redemption and new revolver.
PF for Debt to Debt to convert/ PF LTM PF 2011E Description revolver EBITDA* EBITDA* Liquidity Revolving Credit Facility 4/20/2016 $220 Revolver Size 275 Term Loan A 4/20/2016 $2,225 Letters of credit 0 Total sr sec debt $2,445 1.5x 1.5x Borrowings 220 Revolver Availability 55 6.750% Sr Notes due 2017 $500 7.000% Sr Notes due 2020** $690 Cash & marketable securities $258 5.375% BVF converts due 2014** $19 Total Liquidity $313 6.875% Sr Notes due 12/1/2018** $945 6.75% Sr Notes due 8/15/2021 $650 6.5% Sr Notes due 7/15/2016** $916 7.25% Sr Notes due 7/15/2022 $550 Total sr bonds $4,269 4.2x 4.2x
Other debt $68 Total Debt $6,782 4.3x 4.3x Market Cap 14,808 Enterprise Value $21,183 13.4x 13.3x * PF LTM EBITDA and PF 2011E is pro forma for a full year of all recently closed acquisitions but not future projected synergies. ** PF for additional repurchase of BVF converts and $100mn face value repurchase of HY bonds in 4Q11.
Maturities: 8000 7000 6000 5000 4000 3000 2000 1000 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 195 January 26, 2012 High Yield
Vanguard Health (VHS) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 UNDERPERFORM We rate Vanguard Underperform due to (1) the risk of Medicare cuts, as Vanguard's low margins magnify the effect of revenue cuts on EBITDA; (2) risk to growth in Detroit in a tough economy as well as capital commitments weighing down on FCF; and (3) our view that the Arizona Medicaid plan is likely to be a drag for now. Bond Summary Size Coupon AgencyNext Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) $950 8.00 Sr 01-Feb-18 B3/B- $104.000 01-Feb-14 $104.000 6.841% 651
Company Description Investment Strengths: - Market concentration improves the hospitals' negotiating position with Smaller hospital operator with 28 facilities concentrated in five markets: San Antonio, the greater Phoenix area, managed care payers. Chicago, Massachusetts, and Detroit. VANGUA is differentiated from its peers based on its high market concentrations. As a result of its market-concentration strategy, acquisitions have been "lumpy," consisting of several - Opportunity for growth due to recent large acquisitions. facilities in one area. The acquisition of Detroit Medical Center (eight facilities with a $417 million purchase price) was completed December 31, 2010, and the acquisitions of Arizona Heart Hospital (59 beds) and Avera Heart Hospital of South Dakota (55 beds) closed on October 4, 2010. In September 2011, VHS acquired a 51% interest in Valley Baptist, which is expected to generate $525 mn of revenues. Investment Risks: - Medicare and Medicaid reimbursement could be reduced In June 2011, VHS issued 25 mn shares in an initial public offering at $18 a share or approximately 6.5x EV/EBITDA. In July 2011, the underwriters exercised in full the over-allotment option and issued an additional 3.75 - Integration risk associated with Detroit Medical Center. The deal also mn shares at $18 per share. To date, the company has redeemed $628.8 mn and another $95.2 mn of the 10.375% includes a $850 million capex commitment and the assumption of a $228 discount notes, leaving 3% of the principal left. Proceeds of the discount holdco notes were for a dividend to the million pension liability. sponsors of $447 mn. Blackstone and Morgan Stanley Capital Partners are the sponsors. - Volumes have been weak across the industry and are expected to remain so for the near term. Key Dates/Catalysts: - Quarterly earnings announcements (commercial volumes have been weak industry-wide, although bad debt expense has been relatively stable). DMC performance will be key, as the Detroit market will now comprise more - The health plan is likely to post declining revenue in the near term due than a third of VHS revenues. to reduced enrollment. - Potential acquisition announcements. - Election results (November 2012) and potential Supreme Court decision on the constitutionality of the individual mandate could determine the fate of the Affordable Care Act (ACA). We view the ACA as a net positive for hospitals.
Financial Profile FY2011 PF LTM FY2012E Dec 10 2Q Sept 11 1Q Dec 11 2QE Revenue $4,896 $6,561 $6,555 $961 $1,570 $1,650 EBITDA 418 534 537 85 122 136
Interest Expense $171 $183 $172 $35 $46 $42 Cash Taxes 9 (2) 25 10 (14) 12 CapEx 207 263 383 35 63 80 Free Cash Flow 70 90 (68) (8) (151) 101
Total Debt $2,788 $2,346 $2,340 $1,968 $2,346 $2,344 Cash 937 155 232 58 155 253 Agency Net Debt 1,851 2,192 2,108 1,909 2,192 2,091 LTM Comps Leverage Coverage Ratings Key Credit Statistics VANGUA 4.3x 2.9x B3/B- Total Debt/EBITDA 6.7x 4.4x 4.4x THC uns 3.9x 2.7x Caa1/CCC+ Net Debt/EBITDA 4.4x 4.1x 3.9x IAS 6.0x 2.1x Caa1/CCC+
EBITDA/Interest 2.4x 2.9x 3.1x 2.4x 2.7x 3.2x EBITDA margin 8.5% 8.1% 8.2% 8.8% 7.8% 8.3%
Capitalization Debt to Debt to PF LTM FY12E Description Size EBITDA* EBITDA Liquidity Revolving Credit Facility 1/29/2015 $0 Revolver Size $260 Term Loans due 1/29/2016 805 Letters of Credit 34 Total Sr Sec debt 805 1.5x 1.5x Borrowings 0 Revolver Availability 226 8% Senior Notes due 2018 1,157 7.75% Senior Notes due 2/1/2019 350 Cash $155 Total Sr bonds $1,507 4.3x 4.3x Total Liquidity $380
10.375% Holdco notes due 2/1/2016 $15
Other Debt and Capital Leases $20
Total Debt $2,346 4.4x 4.4x Market Cap 870 Enterprise Value $3,061 5.7x 5.7x *LTM is pro forma for acquisitions.
Maturities:
2,800
2,400
2,000
1,600
1,200
800
400
0 2012 2013 2014 2015+
Goldman Sachs Credit Research 196 January 26, 2012 High Yield
Venoco Inc. (VQ) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $149 11.500% Sr. 10/1/2017 Caa1/B $105.75 10/1/2013 $103.00 10.66% 1036
Company Description Investment Strengths: Venoco is a California-focused E&P and probably the largest gas producer in the state. VQ produces from four • Largest natural gas producer in California primary regions: Sacramento Basin, offshore California, Southern CA onshore, and Texas. The company's • Significant growth opportunities in Sac Basin, W strategy has been to acquire and enhance under-invested properties. Following operational missteps in 2007, Montalvo, and S Ellwood fields however, we believe management has become more internally focused, making execution the near-term priority. • 83% of 2012E production hedged
Formerly a petroleum engineer at Unocal, CEO Tim Marquez co-founded Venoco in 1992. The company Investment Risks: acquired interests in its "workhorse" Willows and Grimes fields near Sacramento from Mobil in 1996. In 1998, VQ • Weak operating history as a public company acquired Sacramento Delta fields from Chevron. VQ purchased TexCal in 2006 for $456 mn in cash, which • Limited exposure to high visibility plays; high average created both Sacramento Basin and Hastings Field exposure. VQ also owns three platforms offshore Santa cost production Barbara (Gail, Holly, and Grace), which the company acquired in the late 1990s. The company went public in • Equity-friendly management appears to have higher- November 2005 and remains closely held by Marquez (60%). In March 2007, VQ acquired the Manvel (TX) and than-peer-average sustained leverage targets West Montalvo (coastal CA) fields for $106 mn. In April 2010, the company announced the sale of three assets in • High capex needs relative to cash flow Texas for $100 mn. On August 29, 2011 Venoco received a proposal from CEO Timothy Marquez to take the company private at $12.50/share ($770 mn). In January 2012, VQ announced it would go through with the offer Key Dates/Catalysts: by Marquez. • Monterey shale well results • Management expects to sell its Hastings Field interest for $250-400 mn • Take private transaction and subsequent strategy
Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $463 $342 $333 $339 $389 EBITDA (Adj for non-cash items) $261 $189 $188 $183 $242 Free Operating Cash Flow ($106) ($58) ($51) ($151) ($79) Capital Expenditures $319 $177 $212 $245 $256
Leverage Coverage Agency Comps ('11E) ('11E) Ratings Credit Ratios 2008A 2009A 2010A 2011E 2012E VQ 3.9x 3.0x Caa1/B Total Debt/EBITDA (LTM) 3.1x 3.7x 3.4x 3.9x 3.2x SGY 1.0x 33.5x Caa2/CCC+ EBITDA/Interest Expense (LTM) 4.6x 4.6x 4.6x 3.0x 3.6x MMR 2.0x 15.5x Caa1/B Debt to Capitalization % 120% 134% 115% 94% 85% WTI 1.2x 15.8x Caa1/B
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $0 Revolver Size $200 Revolving Credit Facility $38 Letters of Credit $4 Long Term Debt Borrowings $38 Senior notes 2017-2019 $644 Revolver Availability $158 Total Long Term Debt $644 Cash $0 Total Debt $682 3.7x Total Liquidity $158 Preferred Equity $0 Common Equity $40 Total Capitalization $722
Maturities:
600
500
400
300
200
Debt maturities ($ mn) 100
0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 197 January 26, 2012 High Yield
Viasystems, Inc. (VIASYS) Updated 1/26/2012 Franklin Jarman 212-902-7537 Contact analyst or see latest research for updates to ratings, estimates, and other information. Karl Blunden 212-357-2769 UNDERPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $214 12.0 Sec 15-Jan-15 B2/BB- 106 7/15/2012 108.13 6.8% 668
Company Description Investment Strengths: Viasystems, Inc., is a leading international provider of complex multi-layer PCBs and electro-mechanical - Low-cost manufacturing footprint enhances solutions (E-M Solutions). A printed circuit board (PCB) is a rigid or flexible substrate made of layers of copper competitive position: VIAS is one of the largest circuit patterns separated by insulating material. PCBs form the backbone of most electronic devices, and manufacturers of complex high quality PCBs in China, provide the surface on which electronic components and connections are mounted. Viasystems primarily with over 3 million square feet of low-cost competes against other Asian and US PCB manufacturers, including TTM, Ibiden, Kingboard, Compeq and Gold manufacturing capacity. Circuit Electronics. The company also competes with EMS providers like Jabil and Flextronics. The company - Merix merger has enhanced customer diversity and merged with Merix on February 16, 2010, to enhance Viasystems’ PCB capabilities and help further diversify its scale: The merger has helped VIAS expand its OEM customer base. Merix generated $254 million of revenues and $5 million of EBITDA in 2009. and CEM customer base from 125 at the end of 2009 to over 800 today, with product solutions spanning all Key Dates/Catalysts: relevant PCB market segments. - Viasystems is expected to report 4Q2011 earnings in February2012. Investment Risks: - Margin pressure: Higher copper and material costs, coupled with increased Chinese labor costs, have pressured margins. - Customer concentration: In 2010, sales to its 10 largest customers accounted for approximately 58% of the company’s net sales (down from 74% in 2009). - Maintenance covenant: VIAS must comply with a Financial Profile FY08 FY09 FY10 FY11E FY12E minimum fixed charge coverage ratio of 1.1x if excess availability under its ABL facility is less than $15 Revenue 713 496 929 1,055 1,157 million. EBITDA 92 66 142 137 156
Interest Expense (24) (36) (33) (31) (31) Cash Taxes (6) (6) (13) (15) (15) CapEx (49) (22) (57) (110) (110) Comps Leverage Coverage Ratings Free Cash Flow 5 102 18 (43) (33) AMKR 2.3x 6.6x Ba3/BB SANM 3.6x 3.6x B1/B Total Debt 221 331 225 226 226 Cash 83 109 104 60 27 Net Debt 138 222 122 166 199 Key Credit Statistics Total Debt/EBITDA 2.4 x 5.0 x 1.6 x 1.6 x 1.5 x Net Debt/EBITDA 1.5 x 3.4 x 0.9 x 1.2 x 1.3 x
EBITDA/Interest 3.9 x 1.8 x 4.3 x 4.4 x 5.0 x EBITDA margin 12.9% 13.3% 15.2% 13.0% 13.5%
Capitalization Debt to Description Size EBITDA Liquidity $75 mm ABL facility 0 0.1 x US ABL facility 75 Foreign credit facilities 10 0.1 x US ABL facility availability 40 Capital leases 1 0.1 x - Amt Drawn 0 12% 2nd lien notes due 2015 214 1.6 x - LCs Drawn 0 Other 1 1.6 x Amt Unutilized 39 Total Debt 226 1.6 x Foreign credit facilities 45 Less cash 71 -- - Amt Drawn 10 Net Debt 155 1.1 x Amt Unutilized 35 Cash 71 Liquidity 145 Maturities: 250
200
150
100
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0 2011 2012 2013 2014 Thereafter
Goldman Sachs Credit Research 198 January 26, 2012 High Yield
Videotron Ltd. (QBRCN) Updated 1/20/12 Jason Kim 212-902-2233 Contact analyst for updates and other information. Satya Tagat 212-902-4427 NOT COVERED
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $715 9.125 Sr Nts 15-Apr-18 Ba1/BB 104.563 15-Apr-13 110.75 3.68 335
Company Description Company Strengths: (1) Strong operational momentum: Videotron has posted impressive Videotron is the largest cable operator in the Province of Quebec and the third largest in Canada. In addition to growth rates in recent years, driven by triple-play bundles. The cable TV service, Videotron provides Internet, cable telephony, and mobile wireless telephony services in the recent launch of facility-based wireless service can add to its growth Province of Quebec. Videotron’s cable network covers roughly 90% of Quebec’s approximately 3.3 million and further reduce churn through product bundling. residential and commercial premises that are passed by cable. (2) Solid credit profile: Videotron has strong credit metrics, with low Videotron is a wholly owned subsidiary of Quebecor Media, which is one of Canada’s leading media companies, leverage (2.0x LTM), C$575 million of unused revolver, and no debt with activities in cable distribution, business, residential and mobile wireless telecommunications, newspaper maturities until 2014. publishing, television broadcasting, book, magazine, and video retailing, publishing and distribution, music recording, production and distribution, and new media services. Company Risks: (1) Wireless: Videotron is making an agressive push into the Key Dates/Catalysts: wireless space, which puts pressure on margins given the heavy March 2012: 4Q2011 earnings. upfront costs.
(2) Distributions to parent Quebecor Media: Videotron has distributed C$1.9 billion of cash to its parent, Quebecor Media, since 2004. Quebecor Media has been fairly acquisitive in the past, and it could use Videotron's strong balance sheet to help it fund future deals within the confines of the restricted payment capacity of the Videotron bonds. We estimate that Videotron currently has restricted payment capacity of about C$2.4 billion, and the basket grows by (C$, millions) approximately C$800 million per year. Financial Profile FY09A FY10A 1Q11A 2Q11A 3Q11A LTM (3) Large acquisitions. Basic Subscribers 1,777,025 1,811,600 1,808,600 1,800,700 1,844,200 1,844,200 Digital Subscribers 1,084,100 1,219,600 1,243,700 1,270,400 1,348,100 1,348,100 Data Subscribers 1,170,570 1,252,100 1,263,600 1,266,500 1,306,400 1,306,400 Phone (VoIP) Subscribers 1,014,038 1,114,300 1,129,800 1,141,600 1,179,400 1,179,400 Wireless Subscribers 82,813 136,100 164,700 210,600 258,100 258,100
Revenue C$2,001 C$2,209 C$578 C$601 C$612 C$2,377 EBITDA 973 1,036 251 274 275 1,060 Free Cash Flow 365 58 (7) 27 87 42 Agency Total Debt C$1,833 C$2,133 C$2,133 C$2,133 C$2,109 C$2,109 Comps Leverage Coverage Ratings Cash 150 96 65 37 89 89 Net Debt 1,683 2,037 2,068 2,096 2,021 2,021 CSC Holdings 3.1x 3.2x Ba3/BB Key Credit Statistics DISH DBS Corporation 2.4x 6.9x Ba3/BB- Total Debt/EBITDA 1.9x 2.1x 2.1x 2.0x 2.0x 2.0x Virgin Media Finance PLC 3.5x 3.4x Ba2/BB- Net Debt/EBITDA 1.7x 2.0x 2.0x 2.0x 1.9x 1.9x
EBITDA Margin 48.6% 46.9% 43.4% 45.6% 45.0% 44.6%
Capitalization * Debt to Description Size EBITDA Liquidity Revolver C$0 Revolver Size C$575 Total Sr Sec Debt C$0 Letters of Credit - 6.875% Sr Nts due 2014* 503 Borrowings - 6.375% Sr Nts due 2015* 206 Revolver Availability C$575 9.125% Sr Nts due 2018* 800 7.125% Sr Nts due 2020 300 Cash C$89 6.875% Sr Nts due 2021 300 Total Debt C$2,109 2.0x Total Liquidity C$664 Market Cap NA Enterprise Value NA * Includes the impact of foreign exchange swaps to convert USD debt into CAD. Maturities:
1,500 1,400
1,000
500
206
0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 199 January 26, 2012 High Yield
Visant Corp. (VISANT) Updated: 1/23/12 Kevin Coyne 212-357-9918 Celeste Everett 212-902-4751 Contact analyst or see latest research for updates to ratings, estimates, and other information. IN-LINE: We continue to believe that the school affinity sector is sustainable over the long term. We believe VISANT is a solid credit with a solid managem we prefer the more attractive yield, security interest, and tighter covenant package in the AMEACH senior secured notes. Bond Summary Size Coupon Agency Next Call Bid YTW STW Z-Spd (MM) (%) Priority Maturity Ratings Price Date Price (%) bp bp $750 10.00 Sr Notes 1-Oct-17 Caa1/B- $107.50 1-Oct-13 90.00 12.51 1,174 1,138
Company Description Investment Strengths: Visant Corp. is a specialty publishing and marketing company that operates in three segments: - Leading market positions across its product lines - Memory Book, Scholastic, and Marketing & Publishing Services. Memory Book includes Visant’s 35% market share in yearbooks, 30% share of class yearbook and memory book services, while Scholastic includes class rings, varsity and chenille rings, over 50% share of book component production, letters, caps and gowns, diplomas, and other graduate products. Through its Marketing & and 70% share in flat fragrance sampling. Publishing Services segment, Visant also provides fragrance and cosmetics samples and other - Marketing and Publishing Services stand to benefit direct marketing materials to corporations, and educational and trade book covers to publishers. from macro rebound owing to its long-standing, Visant was founded in 2004 following the completion of a transaction between KKR and DLJ leading customer relationships. Merchant Banking Partners where they merged the businesses of Jostens, Arcade, and Von - Strong operating leverage with $1 of incremental Hoffman. KKR and DLJ maintain a 45% ownership stake, with management and directors owning revenue flowing through 50% to EBITDA. the majority of the remaining portion. - Proactive management team. - Strong free cash flow generation: generated over Key Dates/Catalysts: $750 million in FCF from 2006 to 2011. - 3Q2011: announced lost yearbook contracts will result in revenue decline of 4% yoy in the - International growth opportunities: Current footprint Memory Book segment. Management expects to offset the lost revenue with expense reductions. in Canada and France and is looking to expand next - December 2011: Voluntarily repaid $60 million of term loans outstanding. in Brazil and China.
Investment Risks: Financial Profile FY10A 1Q11A 2Q11A 3Q11A 4Q11E FY11E - Elevated gold prices hurting class ring margins, although this is partially offset by entering into forward Revenue 1,240.9 250.7 493.2 227.7 245.9 1,217.5 contracts to hedge the price of gold. EBITDA 339.4 48.8 191.2 45.4 39.3 321.3 - Educational publishing exposed to muni budgets, could feel pressure from cutbacks in education Interest Expense 120.2 42.6 39.6 39.5 40.2 162.0 funding. - Further economic slowdown could cause customers Cash Taxes 27.5 (12.7) 49.7 (12.2) (11.6) 13.3 to trade down or delay the purchase of yearbooks CapEx 50.2 12.8 14.6 14.8 7.0 49.3 and other products. Free Cash Flow 141.4 6.0 87.2 3.2 3.7 96.7 - Shift toward internet away from direct marketing could impact its fragrance and cosmetic sampling businesses. Total Debt 2,012.4 1,985.5 1,982.7 2,031.6 1,919.6 1,919.6 - Lack of a clear exit strategy for current sponsors: an Cash 60.2 25.2 53.0 37.3 114.0 114.0 IPO may prove challenging due to no clear public Key Credit Statistics Total Debt/EBITDA 5.9x 5.9x 6.0x 6.2x 5.9x 6.0x Comps Leverage Coverage Ratings Net Debt/EBITDA 5.8x 5.8x 5.9x 6.0x 5.6x 5.6x VISANT 6.2x 2.8x Caa1/B- AMEACH 6.9x 1.5x B3/B EBITDA/Interest 2.8x 1.1x 4.8x 1.1x 1.0x 2.0x MGM (srs) 9.2x 1.7x B3/B- EBITDA margin 27.3% 19.5% 38.8% 19.9% 16.0% 26.4%
Capitalization Debt to Description 3Q11A EBITDA Liquidity 3Q11A Revolver due Dec 2015 ($175 mn) 52.0 Revolver Size 175.0 Term Loan due Dec 2016 (L+400, 125 1,216.4 Letters of Credit 12.3 Capital leases & equipment financings 13.2 Borrowings 52.0 Total Secured Debt 1,281.6 3.9x Revolver Availability 110.7 10% Senior notes due Oct 2017 750.0 Total debt 2,031.6 6.2x A/R facility NA Borrowings NA A/R Availability NA
Cash 37.3 Total liquidity 148.0 Maturities: 2,500
2,000
1,500
1,000
500
0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 200 January 26, 2012 High Yield
VWR Funding (VWRINT) Updated 01/25/12 Contact analyst or see latest research for updates to ratings, estimates, and other information. Erin Blum 212-855-7718 OUTPERFORM Cindy Guan 212-902-9758 We rate VWR Outperform due to (1) the low-risk profile of the business and (2) positive momentum on top-line growth. The bonds are currently callable at $105.125, but management comments suggest a refinancing is not imminent. Therefore, because of the high coupon, we see the bonds as attractive short-duration paper. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $713 10.25 Sr. PIK Tog 15-Jul-15 Caa1/B- $102.563 15-Jul-12 $103.750 7.352% 725
Company Description Investment Strengths: VWR is a global distributor of laboratory supplies and equipment (including chemicals, glassware, and protective clothing). - Diversified customer base and end markets: pharma and biotech The company also provides ancillary services such as calibration and inventory management, in many cases with a VWR (together 35%), universities (12% of revenue), chemicals, food, and employee on the customer site. The supply chain is highly fragmented, with many specialized suppliers and many consumer product companies. No customer accounts for more than customers. The average order size is less than $500. Major competitors are Thermo Fisher and Sigma Aldrich. VWR was 2.6% of revenue. purchased by CDR in April 2004 and by Madison Dearborn in June 2007. - Opportunities to enhance EBITDA growth – particularly growth in Year to date, VWR has made several acquisitions, including EBOS and Alfalab (a distributor in Poland) in 3Q2010; Amresco higher-margin private-label products, sourcing from India and China, and (a domestic distributor, $50 mn of sales) in 1Q2011; Trenka ($10 mn of sales) and BioExpress during 2Q2011; Anachemia outsourcing back office to low-cost countries. ($65 mn of sales) which closed in 3Q2011 and LabPartners, which is expected to close in 4Q2011. Management has commented that its acquisition pipeline is still robust despite the recent increased pace. Management expects to fund future - International exposure and diversity of VWR's customer base offset the acquisitions out of CFO, as it has done recently. In November 2011, VWR entered into a new $200 mn A/R securitization company's exposure to the US recession. facility ($165 mn is available, currently undrawn) in order to provide additional liquidity. - Largest customer group is relatively recession-resistant: Laboratory Key Dates/Catalysts: spending by the pharmaceutical industry – VWR’s largest customer - Quarterly earnings group – has historically increased even during a recession. - Possible refinancing
Investment Risks: - Economic recession could continue to affect customer spending and Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E hurt VWR's revenues.
Revenue $3,561 $3,639 $4,175 $979 $1,066 $1,076 - Low-margin, low-barriers-to-entry distribution business. EBITDA 329 353 401 100 105 106 - Highly levered.
Interest Expense $227 $205 $207 $47 $52 $55 - Sponsor equity is in the form of a preferred, with an 8% dividend yield Cash Taxes (26)282015118 that can be paid in cash at the discretion of the board (though it is limited CapEx 24423815913 by the credit agreement). Free Cash Flow145814943524
Total Debt 2,767 2,672 2,771 2,672 2,774 2,771 Cash 124 142 127 142 109 131 Net Debt 2,642 2,530 2,644 2,530 2,664 2,640 Key Credit Statistics Total Debt/EBITDA 8.4x 7.6x 6.9x Agency Net Debt/EBITDA 8.0x 7.2x 6.6x LTM Comps Leverage Coverage Ratings VWR (VWRINT) snr 5.6x 2.0x Caa1/B- EBITDA/Interest 1.4x 1.7x 1.9x 2.1x 2.0x 1.9x Catalent (PTSAC) snr 5.6x NA Caa1/B EBITDA margin 9.2% 9.7% 9.6% 10.2% 9.8% 9.8% IMS Health (RX) 4.2x 2.5x B3/B
Capitalization Debt Debt to LTM to 2011E Description Size EBITDA EBITDA Liquidity Revolving Credit Facility due 2013 119 Revolver Size $250 AR Facility 11/4/2014 ($200 size) 0 Letters of Credit 13 Term Loans--US due 2014 601 Borrowings 119 Term Loans--Euro due 2014 792 Revolver Availability 118 Total Sr Sec debt $1,513 3.8x 3.8x A/R facility* $200 10.25% Snr Uns PIK Toggles due 2015 713 Borrowings 0 Total Sr debt $713 5.6x 5.5x A/R Availability 200
10.75% Sub PIK Toggles due 2017--Dollar 359 Cash $109 10.75% Sub PIK Toggles due 2017--Euro 171 Total Liquidity $427 Total Sub debt $530 7.0x 6.9x *Only $165mn is available.
Capital Leases and Other $17
Total Debt $2,773 7.0x 6.9x 8% Pref Equity 1,400 Total Book Capitalization $4,173
Maturities: 1,600 1,400 1,200 1,000 800 600 400 200 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 201 January 26, 2012 High Yield
W&T Offshore (WTI) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $600 8.500% Sr. 6/15/2019 Caa1/B 6/15/2015 $0.000 $105.75 7.19% 642
Company Description Investment Strengths: W&T Offshore is focused on exploration and production activities in the US Gulf, particularly in the conventional • Track record of consistency in the Gulf of Mexico, shelf. The company acquired its first deepwater interest in 2000, and has continued to increase its deepwater with 78%/90% average exploration/development exposure over time. success rates • Commitment to funding capex with cash flow W&T Offshore was founded in 1983 with $12,000 by CEO Tracy Krohn. Krohn still owns over 50% of the shares. • Management has historically issued equity when The company has made six significant acquisitions since 1999. In August 2006, WTI purchased 362bcf of proven necessary to preserve balance sheet strength gas reserves from Anadarko/Kerr-McGee for approximately $1 bn. The Kerr-McGee transaction included • High insider ownership: CEO Tracy Krohn holds a interests in 100 fields on 242 offshore blocks, 88 of which are undeveloped. The majority of the acreage is in 51% stake water depths <1,000'. Following the addition of 1.1 mn acres from the acquisition, WTI became the third-largest shelf acreage holder in the US Gulf. Prior to the KMG transaction, WTI's largest acquisitions had been Investment Risks: divestitures from ConocoPhillips (2003; 95bcfe) and Burlington (2002; 120bcfe). In January 2008, WTI closed the • Exposure to GOM, which is facing increased acquisition of Apache's Ship Shoal lease blocks for $116 mn. In November 2010, W&T announced that it would regulation following the Macondo oil spill acquire interest in six offshore fields in the Gulf of Mexico from Shell for $450 mn. Subsequently, BP exercised its • Company has historically made cash-financed preferential rights to purchase on two of the four fields. As a result, WTI paid $193 mn for the other four fields. In acquisitions April 2011, W&T announced the acquisition of 21,500 net acres in the Permian Basin for $366 mn, marking the • Drillbit F&D costs have been very high company's first foray onshore. Key Dates/Catalysts: • Additional acquisitions, particularly onshore • Results from Permian activity
Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $1,185 $606 $696 $944 $1,001 EBITDA (Adj for non-cash items) $820 $314 $430 $600 $606 Free Operating Cash Flow $220 ($118) $285 $277 $222 Capital Expenditures $663 $274 $179 $275 $359
Leverage Coverage Agency Comps ('11E) ('11E) Ratings Credit Ratios 2008A 2009A 2010A 2011E 2012E WTI 1.2x 15.8x Caa1/B Total Debt/EBITDA (LTM) 0.8x 1.4x 1.0x 1.2x 1.1x SGY 1.0x 33.5x Caa2/CCC+ EBITDA/Interest Expense (LTM) 16.5x 6.7x 10.0x 15.8x 151.6x MMR 2.0x 15.5x Caa1/B Debt to Capitalization % 53% 56% 52% 54% 48%
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $8 Revolver Size $575 Revolving Credit Facility $94 Letters of Credit $1 Long Term Debt Borrowings $94 Senior notes 2019 $600 Revolver Availability $481 Total Long Term Debt $600 Cash $8 Total Debt $694 1.2x Total Liquidity $488 Preferred Equity $0 Common Equity $546 Total Capitalization $1,240
Maturities:
700
600
500 400
300
200
Debt maturitiesDebt ($ mn) 100
0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 202 January 26, 2012 High Yield
Warner Chilcott (WCRX) Updated 01/25/12 Erin Blum 212-855-7718 Contact analyst or see latest research for updates to ratings, estimates, and other information. Cindy Guan 212-902-9758 UNDERPERFORM We rate WCRX Underperform as we believe re-levering is likely. We believe the company may be reaching a peak in its credit cycle. We see growth in new products as unlikely to offset revenue declines in legacy products, making debt-funded acquisitions more likely. In addition, on its recent investor call, WCRX stated that it could raise up to another 2 turns of EBITDA, and if for an acquisition, up to “several billion” of debt. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $1,250 7.750% Sr 15-Sep-18 B3/B+ $103.875 9/15/2014 $105.000 6.479% 575
Company Description Investment Strengths: Warner Chilcott is a global specialty pharmaceutical that focuses on gastroenterology, women's healthcare, dermatology, - Solid PF FCF/debt at 30% as of 3Q2011. and urology in North America and Western Europe. WCRX's main drug is Actonel, which contributes 34% to the top line. Its second-largest drug, Asacol, is 25% of revenues. Actonel is a non-injectable drug for osteoporosis, while Asacol (400mg - WCRX focuses on products that target therapeutic areas with and 800mg) is used to treat ulcerative colitis. WCRX acquired the Prescription Drug Business of P&G in October 2009, established regulatory guidance. This results in less development acquiring Actonel and Asacol, and issued over $2.5 bn of term loans in order to fund the deal. and regulatory risk, and thus shorter timelines to market.
In August and September 2010, WCRX issued a total of $2.75 bn in term loans and bonds in order to fund a $2.14 bn - WCRX has exhibited good product life cycle management by special dividend, as well as to fund the purchase of the US rights to Enablex from Novartis for $400 mn. In mid-March extending patent life through next-generation versions of its existing 2011, WCRX refinanced $3 bn of its credit facility, reducing its interest payments and effectively paying down another $200 products (e.g., Asacol HD, Atelvia). mn of principal. In September 2011, WCRX received a PIV challenge from Zydus on Asacol HD. WCRX also recently obtained approval of dual scored Doryx 150mg and a motion from the District court of New Jersey for a preliminary Investment Risks: injunction (PI) against MYL from launching a generic. The court later vacated the PI. - Approximately 60% of WCRX's top line depends on two drugs (Actonel and Asacol), which are in competitive therapeutic Key Dates/Catalysts: categories. - Quarterly earnings. Focus will be on top-line growth of new products. - Potential debt-financed acquisitions or shareholder-friendly re-levering. At a recent conference, management stated that it - WCRX may be considered shareholder friendly, having paid a sees the ability to lever up 1-2x EBITDA (roughly $3 bn) and perhaps more if it is for an acquisition. debt-funded $2.14 billion special dividend. In a recent conference - Potential litigation outcomes related to patent challenges. call, WCRX also indicated that it would consider re-levering to return cash to shareholders if it deemed that the company was underutilizing its balance sheet.
Financial Profile 2009A 2010A 2011E 4Q10A 3Q11A 4Q11E Revenue $1,436 $2,826 $2,743 $694 $655 $661 EBITDA 704 1,383 1,410 359 352 322
Interest Expense $125 $284 $348 $108 $63 $65 Cash Taxes 45 136 116 45 43 23 CapEx 44 95 60 21 8 24 Free Cash Flow 458 852 957 312 243 210
Agency Total Debt 3,039 4,669 3,848 4,669 3,883 3,848 LTM Comps Leverage Coverage Ratings Cash 539 402 490 402 316 490 Warner Chilcott (WCRX) 2.7x 5.8x B3/B+ Net Debt 2,500 4,267 3,357 4,267 3,567 3,357 Valeant (VRX) 4.3x 4.6x B1/BB- Key Credit Statistics Mylan (MYL) 3.1x 4.6x B1/BB- Total Debt/EBITDA 4.3x 3.4x 2.7x Elan (ELN) 4.8x 2.4x B2/B Net Debt/EBITDA 3.6x 3.1x 2.4x Alere (ALR) sub 5.0x 3.4x B3/B- Endo (ENDP) 3.6x 4.9x Ba3/BB- EBITDA/Interest 5.6x 4.9x 4.1x 3.3x 5.6x 5.0x EBITDA margin 49.0% 49.0% 51.4% 51.6% 53.7% 48.8%
Capitalization Debt to Debt to LTM 2011E Description Size EBITDA* EBITDA Liquidity Revolver 0 Revolver Size $250 New TLA due 3/3/2016 1,188 Letters of Credit 2 New TLB due 3/3/2018 1,446 Borrowings 0 Total Sr Sec debt 2,633 1.8x 1.9x Revolver Availability 248
7.75% Sr Notes due 2018 1,250 Cash $316 Total Sr debt 1,250 2.7x 2.8x Total Liquidity $564
Other 0
Total Debt 3,883 2.7x 2.8x Market Cap 4,207 Enterprise Value 7,774 5.4x 5.5x
Maturities:
4500 4000 3500 3000 2500 2000 1500
1000 500 0 2012 2013 2014 2015+
Goldman Sachs Credit Research 203 January 26, 2012 High Yield
Whiting Petroleum (WLL) Updated: 1/26/12 Jason Gilbert (212) 902-3585 Contact analyst or see latest research for updates to ratings, estimates, and other information. Sarah Yanes (212) 357-5869 OUTPERFORM
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $350 6.500% Sr. 10/1/2018 Ba3/BB+ 10/1/2014 $0.000 $106.00 5.04% 427
Company Description Investment Strengths: Whiting Petroleum is an E&P based in Denver, with oil and gas properties in the Permian Basin, Rocky • Strong leverage to crude oil (around 80% of Mountains, Mid-Continent, Gulf Coast, and Michigan, with the focus on the Permian and Bakken. After making production) numerous acquisitions in 2005/2006, Whiting is focused on the development of its Bakken Shale, and CO2 floods • Long life production associated with CO2 oil fields; at Postle and North Ward Estes (TX/OK) fields. RP of 14 years • Bakken Oil Shale and Piceance gas provide Whiting Petroleum was founded in 1980 by Ken Whiting and Bert Ladd. In 1992, the company was acquired by production growth potential Alliant Energy, a utility, for $30 mn. In November 2003, Alliant decided to monetize its non-regulated operations • Good asset diversity for the rating through the 100% IPO of Whiting for $230 mn. Whiting has historically been acquisitive and focused on long- • 38% hedged on 2012E production lived, high PDP properties. In 2005/2006, Whiting closed five acquisitions for $924 million. During that time, WLL also recorded negative reserve revisions of 14 mmboe. Historically, Whiting has allocated 75% of capital spending toward development and 25% toward exploration. The company has maintained balance sheet Investment Risks: discipline, with a debt/cap target of 40% and widespread use of hedges to protect cash flows. In April 2008, the • CO2 projects require long lead time capital spending company completed the IPO of Whiting USA Trust I, a royalty trust in which WLL retains 16% unit ownership. In • F&D costs have been above peer group average May 2008, the company announced the acquisition of 11.5k net Uinta Basin acres (Flat Rock field) from Chicago • Management has historically been acquisitive Energy Associates for $365 mn in cash.
Key Dates/Catalysts: • Potential bolt-on acquisitions; Eagle Ford Shale may be of interest • Continued Bakken lateral well results; results of Three Forks wells • Updates on horizontal oil projects Financial Profile 2008A 2009A 2010A 2011E 2012E Revenue $1,213 $912 $1,458 $1,811 $2,078 EBITDA (Adj for non-cash items) $790 $568 $1,022 $1,294 $1,540 Free Operating Cash Flow ($129) $28 $258 ($532) $140 Capital Expenditures $892 $407 $739 $1,700 $1,224
Leverage Coverage Agency Comps ('11E) ('11E) Ratings Credit Ratios 2008A 2009A 2010A 2011E 2012E WLL 1.2x 22.0x Ba3/BB+ Total Debt/EBITDA (LTM) 1.6x 1.4x 0.8x 1.2x 1.0x FST 2.8x 4.0x B1/B EBITDA/Interest Expense (LTM) 12.2x 8.8x 17.3x 22.0x 26.5x PXP 4.0x 7.0x B1/BB Debt to Capitalization % 41% 26% 24% 33% 29% DNR 1.9x 7.9x B1/BB-
Capitalization Debt to Description Size EBITDA Liquidity Cash and equivalents $6 Revolver Size $1,100 Revolving Credit Facility $600 Letters of Credit $1 Long Term Debt Borrowings $600 Senior notes 2014-18 $600 Revolver Availability $499 Total Long Term Debt $600 Cash $6 Total Debt $1,200 0.9x Total Liquidity $505 Preferred Equity $0 Common Equity $2,964 Total Capitalization $4,164
Maturities:
500 450 400 350 300 250 200
150
Debt maturities ($ mn) ($ maturities Debt 100 50 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Goldman Sachs Credit Research 204 January 26, 2012 High Yield
Windstream Corporation (WIN) Updated 1/20/12 Jason Kim 212-902-2233 Contact analyst or see latest research for updates to ratings, estimates, and other information. Satya Tagat 212-902-4427 IN-LINE We believe WIN's current trading levels fairly reflect its industry-leading operational metrics and solid profile, offset by the relatively acquisitive nature of the management team's strategy. Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $700 7.750 Sr Nts 15-Oct-20 Ba3/B+ 103.875 15-Oct-15 107.25 6.40 567
Company Description Investment Strengths: (1) Industry-leading operating metrics: WIN exhibits some of the Windstream Corporation (Windstream) was formed from the spin-off of Alltel Corporation’s landline business and best access line loss rates, revenue trends, and EBITDA margins in the merger with VALOR Communications Group in 2006. Headquartered in Little Rock, Ark., Windstream has the RLEC/ILEC space. operations in 29 states and the District of Columbia. It has about $4 billion in annual revenues and provides services to approximately 3.2 million total access lines and 1.3 million high-speed data customers. (2) Attractive rural footprint: WIN has less than 20 access lines per square mile versus approximately130 for non-rural LEC. This The company’s product offerings include voice, high-speed data, and digital television services to residential means WIN faces less cable competition than most of its peers. customers located primarily in rural areas, IP-based voice and data services, MPLS networking, data center and managed hosting services, and communication systems to businesses and government agencies. Windstream (3) Strong management team: WIN's management team has a operates a local and long-haul fiber network spanning approximately 60,000 route miles. strong track record of carrying out innovative marketing plans and of integrating acquisitions successfully. On December 1, 2011, Windstream completed its $2.3bn acquisition of PAETEC Holding Corp. Windstream assumed approximately $1.4bn of net debt from PAETEC in the deal. Investment Risks: (1) Competitive pressure from cable and wireless substitution. Key Dates/Catalysts: February 22, 2012: 4Q2011 earnings. (2) Regulatory changes: WIN derived 14% of its revenues from revenues tied to regulation (USF and ICC). Since status quo is probably the best-case scenario for WIN, we believe regulatory reforms would likely affect WIN's revenue and EBITDA negatively.
Financial Profile * FY09A FY10A 2Q11A 3Q11A 4Q11E 2011E (3) Acquisitive management team and execution risk from Voice Access Lines ('000s) 3,182 3,046 2,986 2,948 2,912 2,912 integrating PAETEC. YoY % Change NA (4.3%) (4.3%) (4.5%) (4.4%) (4.4%) HSD Customers ('000s) 1,224 1,303 1,337 1,346 1,359 1,359 YoY % Change NA 6.5% 4.8% 4.3% 4.3% 4.3% Total Access Lines ('000s) 3,440 3,314 3,261 3,224 3,193 3,193 YoY % Change NA (3.7%) (3.6%) (3.9%) (3.6%) (3.6%)
Revenue $4,231 $4,139 $1,030 $1,023 $1,021 $4,098 EBITDA 2,069 2,064 513 508 517 2,050 FCF Post Dividends/Sh Rep. 264 215 76 28 135 164 Agency Total Debt $6,334 $7,363 $7,388 $7,357 $7,213 $7,213 Comps Leverage Coverage Ratings Cash 1,063 42 52 34 20 20 Net Debt 5,272 7,321 7,336 7,323 7,193 7,193 FTR 3.3x 3.7x Ba2/BB Key Credit Statistics Charter - CCOH 4.3x 2.8x B1/BB- Total Debt/EBITDA 3.7x 3.6x 3.6x 3.6x 3.5x 3.5x CVC Corp 4.0x 3.2x B1/B+ Net Debt/EBITDA 3.4x 3.5x 3.6x 3.6x 3.5x 3.5x
EBITDA Margin 48.9% 49.9% 49.8% 49.6% 50.6% 50.0% * Operating metrics, revenue and EBITDA figures shown are pro forma for the latest acquisitions as of the reported period. Capitalization * Debt / Description Size EBITDA Liquidity Subsidiary Debt $132 Revolver Size $1,250 Total Subsidiary / Other Debt $132 Letters of Credit (11) Secured RC ($1.25bn Facility)** 662 Borrowings (662) Secured Term Loan A-2 177 Revolver Availability $578 Secured Term Loan B 285 Secured Term Loan B-2 1,056 Cash $34 Total Secured Debt $2,312 1.1x Total Liquidity $612 Sr Nts $5,050 Total WIN Debt $7,362 3.6x
Net Debt $7,328 3.6x Market Cap $6,009 Enterprise Value 13,337 6.5x *Capitalization reflects Windstream's stand-alone based on LTM 3Q2011. *Pro forma for November 2011 refinancing. Maturities:
5,000 4,360 4,500 4,000 3,500 3,000 2,500 2,000 1,683 1,276 1,500 1,000 500 32 11 0 2012 2013 2014 2015 2016+
Goldman Sachs Credit Research 205 January 26, 2012 High Yield
Wynn Las Vegas (WYNN) Updated 1/23/12 Kevin Coyne 212- 357-9918 Contact analyst or see latest research for updates to ratings, estimates, and other information. Celeste Everett 212-902-4751
IN-LINE: We believe WYNN is one of the best global gaming operators, but we believe this is priced into the notes at current levels. We believe the bonds are fairly priced vs. MGM secured notes. We believe the first lien secured gaming paper of Caesars Ent. Operating Company (HET, OP) provides better risk/reward for investors. Bond Summary Size Coupon Agency Next Call Bid YTW STW Z Spread 5-year (MM) (%) Priority Maturity Ratings Price Date Price (%) (bp) (bp) CDS $1,320 7.750 Sr Sec 15-Aug-20 Ba2 / BBB- 103.875 15-Aug-15 112.500 4.88 458 418 395
Company Description Investment Strengths: Wynn Resorts is a luxury hotel and destination hotel operator. It owns and operates Wynn Las Vegas on the Las - Visionary industry leader, proven track record. Vegas Strip and Wynn Macau in the Macau Special Administrative Region of the People's Republic of China. - Successfully launched expansion plans to capture robust growth in Macau. Between the two locations, Wynn Resorts maintains 3,316 rooms and 222,000 square feet of gaming floor. The locations also feature 76,000 square feet of high-end retail space, including on-site Ferrari and Maserati - Solid asset coverage and security interest supported by dealerships. Significant equity holders include Universal Entertainment (20%), Waddell & Reed (15%), Steve excess land occupied by the golf course. - Macau IPO frees up additional capital at the holdco to Wynn (8%), Elaine Wynn (8%), and Marisco Capital (6%), according to Bloomberg. support the US business, which may be used for Key Dates/Catalysts: expansion efforts. - 3Q2010 conference call: Expects to spend $2.5 bn on a Cotai property, which is expected to open in 2015. The - Between 3Q10 and 1Q11, renovated all 2,700 rooms casino is expected to include 1,500 rooms, and a convention, retail, restaurants, and entertainment space. In and villas at Las Vegas property. September 2011, WYNN paid $193 mn to Macau government for rights to build on 52 acres. - Strong liquidity position. - November 2011: Declared special cash dividend of $5.00 per share, or $625 mn in total. - Manageable near-term maturities. - December 2011: WYNN in talks to partner with New England Patriots owner Robert Kraft in bidding on a Massachusetts gaming license and building a new casino near Gillette Stadium in Foxboro, MA. - January 2012: Former Director Kazuo Okada files lawsuit against the company seeking more access to the Investment Risks: books and records of the company. WYNN called the lawsuit "preposterous." - Competitive Las Vegas operating environment. CityCenter opened in 4Q2009; Cosmopolitan Casino opened in December 2010. Consolidated Results of Wynn Resorts (includes Macau): - History of paying special dividends. Financial Profile FY10A 1Q11A 2Q11A 3Q11A 4Q11E FY11E - Cash at parent company could be used to fund other projects outside of the bond restricted group. Potential Net revenues $4,185 $1,260 $1,367 $1,298 $1,314 $5,240 projects include expansion in Asia or new US EBITDA 1,163 405 447 381 355 1,588 jurisdictions such as Massachusetts, if gaming is legalized. - Macau government might limit expansion opportunities Interest Expense 223 58 58 57 51 225 in Cotai. Cash Taxes 1 - - - 5 5 CapEx 284 32 19 35 55 141 Free Cash Flow 655 314 370 289 244 1,217
Total Debt 3,268 3,167 3,146 3,104 3,103 3,103 Comps Leverage Coverage Ratings Cash (excl. restricted) 1,258 1,447 1,784 1,910 2,049 2,049 WYNN 1.9x 6.6x Ba2 / BBB- Net Debt 2,009 1,720 1,362 1,193 1,053 1,053 HST 5.7x 3.9x Ba1/BB+ Key Credit Statistics PENN 2.8x 6.5x B1/BB Total Debt/LTM EBITDA 2.8x 2.4x 2.1x 1.9x 2.0x 2.0x IGT 2.3x 6.0x Baa2/BBB Net Debt/EBITDA 1.7x 1.3x 1.0x 0.8x 0.7x 0.7x BORGAT 5.2x 1.8x B2/BB-
EBITDA/Interest 5.2x 7.0x 7.7x 6.6x 6.9x 7.0x EBITDA margin 27.8% 32.1% 32.7% 29.4% 27.0% 30.3%
Capitalization Liquidity Enterprise Value (Wynn Resorts) Debt to Description 3Q11A EBITDA Source 3Q11A Source Size Wynn Las Vegas LLC Wynn LV revolver 367 Shares OS (mm) 125.0 7.875% first mortgage notes due 2017 500 Letters of Credit 20 Stock Price$ 120.42 7.875% first mortgage notes due 2020 352 Borrowings - Market Cap 15,047 7.75% first mortgage notes due 2020 1,320 Revolver Availability 347 Net Debt 1,193 Wynn LV revolver due 2013 / 2015 - Minority interest 287 Wynn LV term loan due 2013 / 2015 371 Wynn LV cash 157 Enterprise Value 16,527 Note payable due April 2017 & other 48 Wynn LV liquidity 504 Total Wynn Las Vegas debt 2,591 Wynn Macau revolver 1,000 EV/ LTM EBITDA 10.3x Macau term loan due 2014 513 Borrowings - Macau revolver (US$1 billion) due 2012 - Revolver availability 1,000 Total Wynn Resorts Ltd. debt 3,104 1.9x Cash (non-Las Vegas) 1,753 Restricted cash - Total liquidity 3,258
Maturities (Consolidated): Wynn Las Vegas Segment Results $mm 4Q10A 1Q11A 2Q11A 3Q11A 2500 Revenue 325.1 395.0 391.0 347.3 EBITDA 68.3 132.1 132.7 85.1 2000 EBITDA margin 21.0% 33.4% 33.9% 24.5% Interest Expense 50.7 50.3 50.3 50.3 1500 Cash Taxes 1.0 1.0 2.0 2.0 CapEx 48.4 22.0 12.7 10.1 1000 Free Cash Flow (31.7) 58.8 67.6 22.7
500 Debt 2,621.5 2,621.5 2,601.4 2,597.4 Cash 52.5 87.2 138.5 157.0 0 2012 2013 2014 2015 2016 2017+ Leverage 9.7x 7.7x 6.3x 6.2x Net leverage 9.5x 7.4x 6.0x 5.8x
Goldman Sachs Credit Research 206 January 26, 2012 High Yield
The Yankee Candle Co. (YCC) Updated: 1/26/12 Karen Eltrich 212-902-6957 Contact analyst or see latest research for updates to ratings, estimates, and other information. Jordan Hughes 212-357-7875 IN-LINE
Bond Summary Size Coupon Agency Next Call Bid YTW STW (MM) (%) Priority Maturity Ratings Price Date Price (%) bp $325 8.50 Sr Notes 15-Feb-15 B2/B $102.13 15-Feb-12 102.25 6.23% 575 $200 9.75 Sr Sub 15-Feb-17 B3/CCC+ $104.88 15-Feb-12 98.50 10.14% 912
Company Description Investment Strengths: Yankee Candle designs, manufactures, and distributes premium scented candles and home fragrances under the Yankee - Well-known brand with a leading market share in Candle brand. It offers a wide range of products in over 400 fragrances, including jar candles, votives, pillars, electric home premium-scented candle industry fragrances, scented oils, reed diffusers, and room sprays. Its products are sold through company-owned retail stores (over - Consumable nature of products and loyal customer base 500 stores throughout the US) and through a diversified base of third-party retailers (over 19,000 stores, including more than enable recurring sales 2,500 international stores). Yankee operates two flagship stores: one in South Deerfield, MA, and the other in Williamsburg, - Diversified wholesale customer base, with no one retailer VA. Products are also sold directly to consumers through direct mail catalogs and the company's web sites. Yankee Candle accounting for more than 5% of sales became a private company through its acquisition by Madison Dearborn Partners in February 2007. Investment Risks: Key Dates/Catalysts: - Narrow product focus, with broad exposure to economic Early March– quarterly earnings release downturns given discretionary/home/gift-related products; mall/retail traffic trends and buying patterns/credit quality of wholesale accounts can influence results - Exposure to raw materials (fuel, wax) - Highly competitive home fragrance and giftware industries, with low barriers to entry; competing products sold by premium retailers, smaller premium competitors, mass-market competitors, and large consumer goods companies - Highly seasonal business, with majority of sales coming in Financial Profile FY09A FY10A FY11E 4Q10A 4Q11E the fourth quarter Revenue 688.0 750.3 792.2 291.6 323.1 EBITDA 179.5 194.0 188.6 108.4 112.8
Interest Expense 86.1 75.6 99.6 16.9 23.9 Cash Taxes 15.4 23.7 30.1 29.7 33.8 CapEx 15.9 17.4 24.7 3.8 5.0 Free Cash Flow 62.1 77.2 34.2 58.1 50.1
Total Debt 989.1 901.1 1,158.2 901.1 1,158.2 Comps Yield Leverage Coverage Ratings Cash 9.1 12.7 5.1 12.7 5.1 Michaels 8.27% 4.3x 2.8x Caa2/CCC Net Debt 980.0 888.4 1,153.1 888.4 1,153.1 Neiman 7.66% 4.6x 3.5x Caa1/B- Key Credit Statistics Yankee 10.14% 4.5x 1.9x B3/CCC+ Total Debt/EBITDA 5.5x 4.6x 6.1x Net Debt/EBITDA 5.5x 4.6x 6.1x
EBITDA/Interest 2.1x 2.6x 1.9x 6.4x 4.7x EBITDA margin 26.1% 25.9% 23.8% 37.2% 34.9%
Capitalization 2011E Debt to Liquidity Description Size EBITDA 3Q11A L+200 Revolver due 2013 0.0 Revolver Size 140.0 L+200 Term Loan due 2014 336.1 Letters of Credit 2.1 Total Sr Sec debt 336.1 1.8x Borrowings 117.0 Revolver Availability 20.8 8.5% Sr Notes due 2015 325.0 3.5x 9.75% Sr Sub due 2017 188.0 4.5x Total Sr debt 513.0 4.5x
10.25%/11% Holdco Sr Nts due 2/15/16 309.1 Total Holdco debt 309.1 6.1x Cash 4.3 Total Debt 1,158.2 6.1x Total Liquidity 25.1 Market Cap NA Enterprise Value NA
Maturities:
1,200 1,000
800 600 400 200 0 2012 2013 2014+
Goldman Sachs Credit Research 207 January 26, 2012 High Yield
Goldman Sachs Credit Research
Director of Credit Research Anne Brennan, CFA 1-212-902-9757
High Yield Research Investment Grade Research Airlines, Metals & Mining, Shipping Aerospace & Defense, Autos, Capital Goods, Diversified Industrials, Transportation(Rails) Justine Fisher 1-212-357-6711 Brian Jacoby, CFA 1-212-902-3258 Joshua Pinkerton 1-212-357-9774 Cody Sauer, CFA 1-212-855-8553
Autos Basic Industries, Building Materials Brian Jacoby, CFA 1-212-902-3258 Carly Mattson 1-212-902-6712 Cody Sauer, CFA 1-212-855-8553 Mike Adler 1-212-902-9761
Building Materials Energy Carly Mattson 1-212-902-6712 Jason Gilbert 1-212-902-3585 Mike Adler 1-212-902-9761 Sarah Yanes 1-212-357-5869
Cable, Satellite & Towers, Telecom Global Banks & Finance, Real Estate (REITs) Jason Kim 1-212-902-2233 Louise Pitt 1-212-902-3644 Satya Tagat 1-212-902-4427 Ron Perrotta 1-212-902-7885
Chemicals, Homebuilders Healthcare Kristen McDuffy 1-212-357-6157 Amanda Lynam, CPA 1-212-902-9238 Adam Goodwin 1-212-902-0459 Healthcare REITs Energy Erin Blum 1-212-855-7718 Jason Gilbert 1-212-902-3585 Cindy Guan 1-212-902-9758 Sarah Yanes 1-212-357-5869 Life and Non-Life (Re)Insurance, and Managed Care Food & Beverage, Retail, Restaurants Donna Halverstadt 1-212-902-3281 Karen Eltrich 1-212-902-6957 Amanda Lynam, CPA 1-212-902-9238 Jordan Hughes 1-212-357-7875 Retail, Consumer, Technology Gaming, Lodging & Leisure, Consumer & Apparel Gregory Chwatko 1-212-902-0673 Kevin Coyne 1-212-357-9918 Annalee Bloomfield 1-212-902-8028 Celeste Everett 1-212-902-4751 Telecom, Media & Cable Healthcare Scott Marchakitus, CFA 1-212-902-9760 Erin Blum 1-212-855-7718 Scott Wipperman, CFA 1-212-357-9922 Cindy Guan 1-212-902-9758 Utilities, Power & Project Finance Industrials Raymond M. Leung 1-212-357-5764 James Kitchell 1-212-902-9813 Abayomi A. Adigun, Ph.D. 1-212-902-9355
Paper & Forest Products, Packaging & Containers
Joseph Stivaletti 1-212-902-3299 James Kitchell 1-212-902-9813 Credit Strategy and Economics US Credit Strategy Charlie Himmelberg 1-917-343-3218 Technology, Rental Services, Auto Suppliers Lotfi Karoui 1-917-343-1548 Franklin Jarman 1-212-902-7537 Annie Chu 1-212-357-5522 Karl Blunden 1-212-357-2769
Utilities, Power & Project Finance US Economics Raymond M. Leung 1-212-357-5764 Jan Hatzius 1-212-902-0394 Abayomi A. Adigun, Ph.D. 1-212-902-9355 Andrew Tilton 1-212-357-2619
Administrator Production Maria Lipes 1-212-902-9759 Lisa Messemer 1-212-902-0097 William Tompkins 1-212-902-6415 E-mail: [email protected]
Goldman Sachs Credit Research 208 January 26, 2012 High Yield
Financial advisory disclosures
Goldman Sachs is acting as financial advisor to another party in an announced strategic transaction which may be material to Pharmerica Corporation.
Goldman Sachs is acting as financial advisor to another party in an announced strategic transaction which may be material to Alcatel Lucent.
Goldman Sachs Credit Research 209 January 26, 2012 High Yield
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Goldman Sachs Credit Research 210 January 26, 2012 High Yield
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Goldman Sachs Credit Research 211 January 26, 2012 High Yield
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Goldman Sachs Credit Research 212