High Yield in France: the Next Wave

High Yield in France: The Next Wave

Wednesday, 6 December, 2006 Latham & Watkins 53, quai d'Orsay 75007 Paris

Latham & Watkins operates as a limited liability partnership worldwide with an affiliate in the United Kingdom and Italy, where the practice is conducted through an affiliated multinational partnership ©Copyright 2005 Latham & Watkins. All Rights Reserved. Gaining the Edge: Why Do Entrepreneurial French Companies Choose High Yield?

Pierre Casado, SAUR Tanneguy de Carné, Société Générale Tim Hall, Calyon Gerhard Noack, Europcar International Arnaud Tresca, BNP Paribas Bryant Edwards, Latham & Watkins (moderator)

• Non-investment grade: corporate bonds rated (or implied) Ba1/BB+ or below

• No amortization: mostly 7 or 10 year “bullet” maturities

• High yield: to compensate for the higher risk, they carry a higher interest rate

• Often subordinated to senior bank debt: contractually, structurally, second lien

3 Typical Payment Terms of High Yield Bonds

• Interest Rate: Usually fixed • Change of Control: Issuer coupon, but many FRNs must offer to purchase bonds • Bullet Maturity: No mandatory at 101% plus accrued interest redemption prior to maturity upon a Change of Control • Non-Call: Generally 7-year • Asset Sales: Issuer must offer maturity with a 4-year no-call to purchase bonds at 100% period or 10 year maturity with plus accrued interest with the a 5-year no call period proceeds of certain asset • Equity Claw: Issuer may sales that are not used to redeem up to 35% of bonds retire debt or reinvest in the with the proceeds of certain business equity offerings

4 LBO HY issuance has overtaken Corporate issuance in Europe

100%

90%

80% 49 70% 61 59 60% LBO 50% Corporate 40%

30% 51 20% 39 41 10%

0% 2004 2005 2006 Source: Société Générale

5 Corporate HY Lags the US HY Market, Where Corporate Market Share Approaches 80%

100% 90% 21% 80% 70% LBO 60% Corporate 50% 40% 79% 30% 20% 10% 0% 2006 Source: Lehman Brothers

6 The Good News—2006 Has Already Set A Record for European HY Issuance

European High Yield Issuance

€ 35.0

€ 30.0

€ 25.0

€ 20.0

€ 15.0 € in bn

€ 10.0 € 5.0 € 0.0 ' W <

Source: Société Générale 7 . . . But European HY Issuance is Still a Fraction of US HY Issuance

High Yield Bond Issuances by US and European Companies

$160.0 $140.0 $120.0 $100.0 $80.0 $60.0 ($ in bn) $40.0 $20.0 $0.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: Société Générale

Europe US 2006 YtD

8 French HY issuance 1997 – YtD 2006 Corporate vs LBO split 5 €4.6bn

4 17% LBO Corporate €3.0bn €3.0bn 3 19% €2.2bn 39%

2 83% 13%

€ in bn 81% 87% 61% €0.5bn 1 €0.3bn €0.4bn €0.2bn €0.2bn €0.1bn

0 1997 1998 1999 2000 2001 2002 2003 2004 2005 YtD Source: Société Générale 2006 9 French HY issuance 1997 – YtD 2006 % of Total EU* issuance volume

40 33%

30 17% % 20 8% 8% 10% 10% 2% 2% 2% 10 1%

0 East 1997 1998 1999 2000 2001 2002 2003 2004 2005 YtD 2006

Source: Société Générale *Western EU issuers and selected Central European HY style issuers and PIKs

10 French Corporate HY issuance 1997 – YtD 2006 % of Total EU* Corporate issues

% French Corp tranches vs Total EU* Corp tranches French Corp tranches / Total EU* Corporate tranches

34% 40 10 / 29

30 19% 19% 15% 9% 6 / 31 7 / 36 2 / 13 4 / 43 % 20 9% 5% 3 / 34 2% 2% 3% 1 / 19 1 / 55 1 / 64 1 / 37 10

0 East 1997 1998 1999 2000 2001 2002 2003 2004 2005 YtD 2006

Source: Société Générale *Western EU issuers and selected Central European HY style issuers and PIKs

11 Bombardier Strikes the European High Yield Market for €1.6 Billion of Euro-Denominated Bonds (Nov 2006)

• Canadian-based manufacturer of aircraft and rail transportation equipment

• €800 million of Senior Floating Rate Notes priced at EURIBOR plus 325 basis points

• €800 million of Senior Fixed Rate Notes priced with a 7 ¼% Coupon

12 Rhodia Issued €1.1 Billion of FRNs in Oct 2006

• €1.1 Billion of Senior Floating Rate Notes • Priced at EURIBOR + 275 basis points • Call Protection: NC1; 102% in 2nd Year; 101% in 3rd Year; Par Thereafter

13 SNF Floerger Refinanced Senior Credit Facility with 7 Year High Yield Notes (July 2006)

• SNF Floerger, a French chemicals manufacturer, issued €140 million of 7 year senior notes, in order to refinance senior credit facility with long- term bond debt

• Senior Notes priced at 8.25%

14 Europcar priced €550m HYB to support the LBO of the company by Eurazeo (May 2006)

• Europcar priced €550m HYB in May 2006 split between: • €300m QE+350bps sr. sub. sec. notes 7 years non- callable for 1 year rated B1/B+ • €250m 8.125% sr. sub. notes 8 years non-callable for 4 years rated B2/B

• Proceeds of the notes were used to fund the LBO of the company by Eurazeo (alongside €2.6bn Senior Asset Financing Loan and €250m Senior RCF)

15 Saur raised €265m in April 2005 to finalize the funding of its LBO

• As part of its acquisition, Saur issued €265m of 8 3/8% 10YNC4 Senior Notes, subordinated to €465m of senior secured funded bank debt • Senior Notes allow distribution of a portion of designated sale proceeds to shareholders • Incurrence covenants give flexibility to management to grow the business

16 Remy Cointreau Sets Record for Lowest Fixed Rate Coupon (Jan 2005)

• Remy Cointreau issued €200 million of 5.20% Senior Notes due 2012 in January 2005 - a record for the lowest fixed rate high yield bond issued in Europe at the time

• Proceeds were used to repay a portion of a syndicated senior credit facility and for general corporate purposes

• Bond was French-law governed and had light restrictive covenants

17 Vivendi Raised over €2 Billion in the HY Market During its 2003 Corporate Crisis

• $935 million of 9.25% Senior Subordinated Notes due 2010 in April 2003 • €325 million of 9.50% Senior Notes due 2010 in April 2003 • $975 million 6.25% Senior Notes due 2008 in July 2003 • €500 million of 6.25% Senior Notes due 2008 in July 2003

18 Trends Favour High Yield for Corporate Financings

• Medium-term money form diversified investor base • 10 year, non-call 5 • 7 year, non-call 4 • Multiple use of proceeds • Growth • Acquisition • Corporate restructuring • Refinancing • Modest covenants • Incurrence-based covenants • Comfortable with subordination to banks • No economic or voting dilution to ownership

19 Compared to Bank Debt, High Yield Debt is Long-Term Maintenance-Free Capital

Bank Debt High Yield Bonds Restrictive Covenants Maintenance: Default occurs if Incurrence: Default only if financial ratios deteriorate company undertakes a prohibited transaction

Maturity 3 to 5 Years: Company must 7 to 10 years: Company can always plan ahead for focus on running the business refinancing

Maintenance High: Company must provide Low: Covenants designed to frequent reports and seek formal allow Company to grow and waivers for material transactions make acquisitions and operate without waivers

20 Basic High Yield Covenants

• Limitation on indebtedness • Transactions with affiliates • Limitation on “restricted • Sale and leaseback transactions payments” • Consents • Limitation on liens • Reports • Limitation on layering of debt • Dividend restriction in subsidiaries • Merger, consolidation and sale of assets

21 Emerging Issues in the French High Yield Market

Blaise Ganguin, Standard & Poor's Tim Hall, Calyon Adam Harnetty, Société Générale Laurent Kenigswald, Barep Asset Management Alain Krief, BNP Paribas Asset Management John Watson, Latham & Watkins (moderator)

Latham & Watkins operates as a limited liability partnership worldwide with an affiliate in the United Kingdom and Italy, where the practice is conducted through an affiliated multinational partnership ©Copyright 2005 Latham & Watkins. All Rights Reserved. European High Yield and European Mezzanine Markets Are Converging

HY Bonds Unwarranted Mezzanine Traditional Mezzanine

8%-11% 12%-15% 14%-17%

Non-Call Callable Callable

Structural Contractual Contractual Subordination Subordination Subordination

Warrants “Crossover” Space

Investors Investors Investors Insurance Companies Banks Dedicated HY Funds Pension Funds Mezzanine Funds Insurance Companies CDO’s Pension Funds Banks CDO’s Mezzanine Funds Banks

23 Increasingly, a Single European Leveraged Capital Market

• Senior secured leveraged loans (floating) • B, C institutional tranches • Second-lien leveraged loans (floating) • US hedge fund import • Second-lien notes (fixed) • Second-lien mezzanine (floating) • Warranted (club style) • Warrant-less • Payment-in-Kind “PIK” notes • Sponsor dividends

24 Emergence of European Funds With Ability to Buy 2nd Lien, Mezz and PIK

100% 0.0% 80.0% 1.4% 14.4% 25.5% 37.6% 80% 42.6% 68.3% 56.9% 60.0% 0.0% 32.1% 60% 49.3% 32.4% 5.4% 10.5% 40.0% 37.6% 40% 10.3% 62.4% 50.7% 20.0% 20% 42.6% 31.7%

0% 0.0% 2003 2004 2005 1H06

Sr Only Sr + 2nd Lien Sr + Mezz Sr + 2nd Lien + Mezz % of subordinated debt in loan structure

25 Hedge Funds Have Grown Dramatically - They Now Manage $1.1 Trillion in Assets

1,200

1,000 Total Assets Managed By All Hedge Funds 800

600

$ in Billions in $ 400

200

0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: Hedge Fund Research Industry Report 26 Globally, Leveraged Loans Have Skyrocketed Compared to HY

Global Leveraged Loans vs. High Yield

$450 $400 $350 $300 $250 $200 $150 $100 $50 New in $ IssueBillions US $0 1991 1993 1995 1997 1999 2001 2003 2005

High Yie ld Leveraged Loans Source: LCD, Société Générale

27 The Same Has Happened in Europe

European Leveraged Loans vs. High Yield

€ 140 € 120 € 100 € 80 € 60 Billions € 40

New Issue Euros in € 20 € 0 1998 1999 2000 2001 2002 2003 2004 2005 YtD 2006 High Yie ld Leveraged Loans Source: LCD, Société Générale

28 Institutional Lending in European LBOs Not Yet At US Levels

Bank Loan Structure in LBOs

31 23 20 3 23 Europe

4 63 0 10 23 US

0% 20% 40% 60% 80% 100%

TL-A TL-B TL-C 2nd Lien Revolver

29 The European Second Lien Market

30 European Leveraged 2nd Lien Market – Overview

• European 2nd lien tranches have developed from being ‘stretched senior’ tools used in recapitalisations to being a regular feature of new LBOs

• 2nd Lien deals with no subordinated debt beneath still proving ‘sticky’ to syndicate and represent only 15% of total Q206 volumes

European LBOs Bank Loan Structure 60%

45%

30%

15%

0% 1998 1999 2000 2001 2002 2003 2004 2005 1H06

RC TLa TLb TLc 2nd Lien

Source: Société Générale and S&P LCD

31 European Second Lien Issuance and Pricing

Source: Merrill Lynch 32 Different Flavors of European Second Lien Debt

• First Loss– Most aggressive pricing; sold to bank/loan fund investors; may be tranche D in senior loan facility (+475 bps)

• Traditional Second Lien – Sandwiched between first lien senior and high yield; relatively small percentage of the capital structure (+550 bps)

• Replacement Mezzanine – Used where it is the only debt between senior and the equity; a variation of traditional European mezz (+650 bps)

33 Second Lien in Europe – Cheap Mezzanine?

• European Second Lien shares many characteristics with European Mezzanine: • Second ranking security • Same borrower entity as the first lien debt (unlike European HY) • Sometimes – but not always – contractual subordination to first lien debt • Payment blockages and enforcement standstills • Full or partial turnover provisions

34 The European PIK Market

35 European PIK Issuance

5 4.48

3.321 Eircom Panrico 3 Invitel Brake Bros Impress Metal Lucite Cablecom Pedalgreen TIM Hellas Wind Riverdeep 2 KDG

€ eq in billions in eq € Preem Polypipe Eutelsat Vendex Nycomed Almatis Ardagh Glass Codere ASPropulsion TIM Hellas Eco-Bat 1 Heckler & Koch 0.575 Cognis

Almatis KDG VNU - 2004 2005 2006 YTD Source: Société Générale 36 Holdco Notes are Structurally Subordinated With No Credit Support

Holdco Note Issuer Holdco Notes Are Not Guaranteed and Are Not Secured

HY Issuer

Bank Borrower

Operating Company Operating Company Operating Company

Operating Company Operating Company Operating Company Operating Company Operating Company Operating Company

37 “Cross-Over” Bonds in Europe

38 Pernod Ricard Issued €850 Million in “Cross- Over” Bonds

• On Monday, Pernod Ricard issued: • €550 million of 4.275% Notes at Issue Price of 99.526% • €300 million of FRNs (with a Margin of .50% over EURIBOR) at Issue Price of 99.876% • Rated BB+ by Standard & Poor's and Baa3 by Moody's • Investment-grade covenants • French law bond documentation

39 Cross-Over Bonds vs. High Yield Bonds

Cross-Over Bonds High Yield Bonds

• Corporate bond issuers typically • Non-investment grade, corporate with high name recognition and bonds rated Ba1/BB+ or below actual or implied ratings of Ba3/BB– or above • Usually subordinated to senior bank debt: contractually, • Usually rank pari passu with bank structurally, second lien debt • Limitations on optional redemption • Normally not callable • Non-call period (7yr/NC4 or 10yr/NC5) • Covenant–lite: Covenants are • Equity claw (35% or 40%) “high-yield minus” or “Eurobond • Make whole plus” • Tax call • Full high yield incurrence covenant package

40 Selected Cross-Over Bond Transactions

2006

2005

2004

2003

2002

41 High Yield in France – The Next Wave

Basel II, securitizations and recovery ratings

Blaise Ganguin, Chief Credit Officer, Europe

December 6th 2006

Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Copyright (c) 2006 Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved. LBO credit: Institutional investors overtake banks

100%

75% European banks

50%

Institutional Investors

25%

0% 1999 2000 2001 2002 2003 2004 2005 LTM 30/6/06

European Banks Non-European Banks Institutional Investors Securities Firms

Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 46. Institutionals : Hedge Funds are coming!

Prime Rate Rate Hedge Funds Funds 22.3% 4.9%

Mezzanine Funds 0.4%

Insurance 0.9% Finance Co. 2.2% CDO Managers 69.4%

All numbers as of Q3 2006 - Excludes U.S. Dollar Tranches Syndicated in the US

Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 44. Basel II: No Longer One-Size-Fits-All

16%

14% Standardized AIRB K 12% Basel I

10%

Capital Requirements (%) 4%

0% Speculative Grade SMEs Large Corporates

Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 45.

Recoveries are Part of Credit Risk

Discounted Recovery Acquired Emerged Liquidated Overall (1988-2004) Bank debt 85.6 77.2 69.6 77.1

Senior secured notes 72.6 63.3 54.3 63.3

Senior unsecured notes 61.9 44.6 17.5 42.7

Senior subordinated notes 42.6 32.3 12.2 31.2

Subordinated notes 21.0 35.8 7.7 30.1

Source: Standard & Poor’s U.S. LossStats™

Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 47. Recovery Ratings: a Separate Scale

Proposed “Enhanced Notching”/Recovery Scale Recovery Recovery Expectation Expected Notching from ICR: Rating Recovery Speculative Grade 1+ Highest expectation, Full recovery 100% +3 of principal 1 Strong expectation, Full recovery of 100% +2 principal 2 Substantial recovery of principal 80-100% +1 3 Meaningful recovery of principal 50-80% 0 4 Average recovery of principal 30-50% 0 5 Modest recovery of principal 15-30% -1

6 Negligible recovery of principal 0-15% -2

Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 48. Recovery Ratings are pointing in the right direction…

100% / RR: 1+ or 1 / 2 or 3 notches

50% - 80% / RR: 3 / 0 notch

30%-50% / RR: 4 / 0 notch

15%-30% / RR: 5 / - 1 notch Damovo Issuer Rating following 0%-30% / RR: 6 / - 2 notches default: D Recovery Rating: 4

Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 49. The Big Leveraged Buyouts: How Do Private Equity Firms Evaluate the High Yield Alternative

Youssef Khlat, BNP Paribas Gérald Lucaussy, Tisbury Capital Management Gerhard Noack, Europcar International Philippe Renauld, Eurazeo Paul Smith, Société Générale Thomas Forschbach, Latham & Watkins (moderator)

Latham & Watkins operates as a limited liability partnership worldwide with an affiliate in the United Kingdom and Italy, where the practice is conducted through an affiliated multinational partnership ©Copyright 2005 Latham & Watkins. All Rights Reserved. European and US Private Equity Firms Continue to Raise Money at a Record Pace

Ŷ Private equity fundraising in 2006 is on track to surpass the full year 2005 total Ŷ A number of US and European private equity firms have raised or are in the process of closing new “mega-funds” (Permira, Providence, KKR, Blackstone, Carlyle, TPG, etc)

Funds Raised by European Private Equity (in € billions)

€ 80.0 € 70.0 € 60.0 € 50.0 € 40.0 € 30.0

€ 20.0 € 10.0 € 0.0 2000 2001 2002 2003 2004 2005 1-3Q 2006

source: European Private Equity Association

51 2005 Saw Primary European LBO Volume More Than Double the Previous Year, And 2006 is also Extremely Strong

Total European LBO Volume: 1999-3Q 2006 (in € billions)

€ 120.0

€ 100.0

€ 80.0

€ 60.0

€ 40.0

€ 20.0

€ 0.0 1999 2000 2001 2002 2003 2004 2005 1-3Q 2006

NB: Reflects total sources of funding of initial or secondary buyout from private equity firms (excludes recaps, refinancings, etc)

Source: LCD Comps, BNP Paribas

52 For the first time in 2005 and again in 2006, European Buyouts exceed US buyouts

European Buyouts versus US Buyouts in 2005 and 3Q 2006 (by aggregate deal size in US$)

US Europe

1-3Q 2006

2005

$0 $20 $40 $60 $80 $100 $120 $140 $160 US Dollars in Billions

Source: Thomson Research, LCD Comps, BNP Paribas

53 High Yield LBO Issuance has Increased Dramatically In the US and in Europe

LBO High Yield Issuance in the US and in Europe 2003 – YTD 2006 (in US$ billions)

Europe US

$35.0

$30.0

$25.0

$20.0

$15.0

$10.0

$5.0

$0.0 2003 2004 2005 YTD 2006

Source: BNP Paribas

54 Overall, markets witnessed strong growth in High Yield and Mezzanine issuance in 2006

European High Yield & Mezzanine Issuance 2003 – 3Q 2006 (in US$ billions)

High Yield € 30.00 Mezzanine

€ 25.00

€ 20.00

€ 15.00

€ 10.00

€ 5.00

€ 0.00 2003 2004 2005 1-3Q 2006

Source: LCD Comps, BNP Paribas

55 But Mezzanine Issuance is Growing Faster than High Yield Issuance in Europe

European High Yield and Mezzanine Issuance 2000-3Q 2006 (in number of deals)

Mezzanine 120 High Yield

100

0 2000 2001 2002 2003 2004 2005 1-3Q 2006

Source: LCD Comps, Bloomberg

56 Average Pricing For European Mezzanine Transactions

• The average spread reached peak of Euribor+ 1,030 bps in 2004, then declined to Euribor + 964 bps in 2005 • After a very low level at +902bps in August, the average spread has widened to Euribor + 937 bps by October

Rolling 3-Month Average Spreads of European Mezzanine (in bps)

E+1,100

E+800

PIK Spread Total Spread

E+500

E+200 Mar- Jul-00 Nov- Mar- Jul-01 Nov- Mar- Jul-02 Nov- Mar- Jul-03 Nov- Mar- Jul-04 Nov- Mar- Jul-05 Nov- Mar- Jul-06 00 00 01 01 02 02 03 03 04 04 05 05 06 Source: LCD Comps

57 European High Yield Continues to Be a Cheaper Option than Mezzanine

Average Spreads by Rating (in bps)

900

800

700

600

500

400

300

200

100

0 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06

B-rated BB-rated CCC-rated

Source: BNP Paribas

58 Why Do Some Sponsors Favor Mezzanine over HY for European Buyouts?

• Inflexible call protection (5 year non-call) • Length of process • Ongoing disclosure obligations • Amendment flexibility • More mezzanine sources

59 The Average “Hold” for European Private Equity Investments Has Dropped Dramatically

Average Investment Period For Sponsors Exiting European Investments Through Secondary Buyouts (in years)

5.0 4.5 4.0 3.5 3.0 2.5 4.1 2.0 3.5 1.5 2.6 1.0 0.5 0.0 2004 2005 2006

Source: LCD News, 27 April 2006

60 Call Protection Issue Has Driven Increase in FRNs

The Growth in Floating Rate European High Yield Bonds (1996- YtD 2006)

50.0%

40.0%

30.0%

20.0%

10.0%

0.0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Floating Rate Fixe d Rate Source: Merrill Lynch

61 The Leveraged Buyout of Europcar

• On March 15, 2006 Eurazeo agreed to purchase Europcar from Volkswagen AG

• The Acquisition has a total value of approximately €3.1 billion, consisting of: • purchase price for the equity of €1.3 billion; and • Europcar’s consolidated debt of €1.8 billion

62 Financing the Buyout of Europcar

• The financing of the buyout of Europcar consisted of: • a €2.6 billion Senior Asset Financing Loan, which increases to €2.9 billion 18 months after the closing; • a €250 million Senior Revolving Credit Facility; • €550 million of HY Notes; and • a €813 million Equity Contribution by the sponsors

63 The Europcar Leveraged Finance Structure

64 The Future of High Yield in France: A Roundtable Discussion

Pierre Casado, SAUR Tanneguy de Carné, Société Générale Alain Dib, BNP Paribas Tim Hall, Calyon Philippe Renauld, Eurazeo James Ward, Axa Investment Managers Etienne Gentil, Latham & Watkins (moderator)

Latham & Watkins operates as a limited liability partnership worldwide with an affiliate in the United Kingdom and Italy, where the practice is conducted through an affiliated multinational partnership ©Copyright 2005 Latham & Watkins. All Rights Reserved. High Yield Bonds Were Introduced into the European HY Market in 1994: Crashed in 2001-02 and Rebounded in 2003-04

New Issue High Yield Bonds by European Issuers: 1993-2006 YtD

$40 $35 $30 $25 $20 $15

US $ in Billions $10 $5 $0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 YtD

USD Non-USD Source: Société Générale

66 US High Yield Bonds Have Generated Positive Returns Since 2003

Annual Total Return: 1997-2006 • In 2003, an index of US Yield ML US HY Index bonds returned 28.1% 28.1% • To date in 2006, US High 30.0% Yield Bonds have returned a 25.0% 10.6% 20.0%

15.0% 13.3% 10.9% 10.6% 10.0% 3.0% 4.5% 5.0% 2.5% 2.7% 0.0%

-5.0% -5.1% -1.9% -10.0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

67 European High Yield Bonds Are In 4th Year of Positive Returns

Annual Total Return: 1998-2006 • In 2003, an index of European ML European HY Index High Yield bonds returned an astonishing 30.2% 35.0% 30.2% • To date in 2006, European High 30.0% Yield Bonds have returned a 25.0% respectable 10.3% 20.0% 15.6% 13.1% 15.0% 10.3% 10.0% 5.9% 5.0% 1.2% 0.0% -5.0% -11.7% -6.4% -10.0% -10.4% -15.0% 1998 1999 2000 2001 2002 2003 2004 2005 2006

68 The European High Yield Investor Base Has Become Increasingly Pan-European

Aberdeen Alliance Benelux Germany Hedge Funds (UK) AXA UK ABN Amro Asset Allianz/PIMCO Alpstar Barclays ABP Deka Amaranth Bluebay ING IM DWS Artesian CS AM NIB Capital HSH Nordbank Avenue ECM Robeco Lazard AM Blue Mountain F&C Shell Pension Union Invest Cairn Fidelity WestLB AM Caxton Gartmore Cheyne GSAM Citadel Henderson Cognis Capital Invesco Switzerland CQS Insight Cyrus Bank Julius Baer Investec Davidson Kempner Pictet & Cie Legal & General DB Principal RMF M&G Deephaven UBS Merrill Lynch Inv Mgmt DE Shaw Metlife Dillan Reid France Morley Elgin Italy Morgan Stanley ADI Elliot New Star AGF Generali Fore Oaktree Aviva Gestielle GLG Pall Mall AXA Gruppo Monte Paschi Goldentree Perpetual Barep Intesa HBK Pimco BNPP AM Mediolanum Ilex Putnam BGAM Pioneer Marathon Scottish Widows CA AM RAS Millenium Standard Bank Dexia AM San Paolo MKM Longboat Standard Life Equigest Symphonia Moore Capital Threadneedle Fortis Inv Oakhill HR Gestion Polygon HSBC RAB Capital Natexis Sandell Rothschild Silverpoint SG AM UBS Principal

69 The European HY Market Has Matured Into a Large and Diversified Market

• Large diversified market HY ML index Market weight by industry with multiple sectors 30/11/2006

• LBO Transportation Technology Telecom 2% 4% • Cable & Telecom 9% Auto 27% • Fallen Angels Steel 2% • Straight corporate Service 5% • Diversified investor base Retail • Institutional investors 4% Paper/Packaging • Retail funds 4% Chemicals • 10% Investment-grade Other Mining 3% 1% managers Consumer 4% Financial Media Manufacturing Energy • Hedge-funds 2% 10% 4% 1% Leisure/LodgingHomebuilding Healthcare 3% 1% 3%

Source: Société Générale

70 The European HY Market’s Share of the Global HY Market is increasing since 2001

European HY Issuance as Percentage of Global High Yield Issuance: 1997-2006 YtD

22% 25.00% 19% 17% 20.00% 14% 15% 15.00% 8% 9% 10.00% 4% 6% 6% 5.00% 0.00% . 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (YTD)

Source: Société Générale

71 Will HY Lose Out to Mezzanine In European Leveraged Finance?

• Inflexible call protection (5 year non-call) • Length of process • Ongoing disclosure obligations • Familiarity of senior banks • Amendment flexibility • More mezzanine sources

72 How Will EU Integration Affect the Debt Capital Markets?

• Over time, increased EU anti- trust power will erode protective barriers to competition, forcing European companies to: • Focus on costs • Focus on profitability • Focus on access to lowest cost capital • IFRS for all listed companies • Effect of Basel II

73 What next in France ? (i)

Holdco paper issuance? • In EU HY: rise in Holdco paper issuance since 2002 • In France: only 1 Holdco paper issue in France (€300m Eutelsat PIK loan in 2005)

5 4.5

4 3.3 3 € bn in 2 1.6

1 0.5 0.3 0 2002 2003 2004 2005 2006 YtD

Holdco Paper issuance in EU Source: Société Générale

74 What next in France ? (ii)

Jumbo LBO related HYB? • In Europe: more and more €1bn+ LBO related HY deals • In France: largest LBO related HYB is still Rexel (€600m) done in March 2005: When are we going to see the first €1bn+ HY LBO French deal?

6 6 5 4 3 2 2 2 1 1 1 0 2002 2003 2004 2005 2006 YtD # €1bn+ LBO related HY deals in EU

Source: Société Générale

75 What next in France ? (iii)

Aggressive FRN structures (short NC period) • In Europe: rise in FRN paper issuance (excl PIK FRN) • In France: already more than half of YTD 2006 issuance is under FRN format with Rhodia (€1.1bn), Belvedere (€375m) and Europcar (€300m). This trend should accelerate 11 10.2 10 9 8 7 6 5 3.6 4 3 2.0 2 1 0.1 0.0 0 2002 2003 2004 2005 2006 YtD Source: Société Générale FRN paper issuance in EU (excl PIK)

76 High Yield in France: The Next Wave

Wednesday, 6 December, 2006 Latham & Watkins 53, quai d'Orsay 75007 Paris