PRIVATE & CONFIDENTIAL Driven by your success. For client and institutional use only, not for public dissemination Canaccord Genuity hosted a panel discussion exploring the impact of COVID-19 on credit markets and sponsor-related transactions and expectations going into 2H20 Guest Speakers John Schnabel Mark Solovy Brandon Graffeo Managing Partner & Co- Managing Director Head of Sponsor & Portfolio Manager Co-Head, Technology Finance Group Leveraged Finance Canaccord Genuity Moderators Isaiah Knouff Amy LaBan, CFA Managing Director, Managing Director, US Financial Sponsor Coverage US Financial Sponsor Coverage [email protected] [email protected] For webcast replays visit: https://www.webcaster4.com/Webcast/Page/2332/35118 Page 1 Driven by your success. John S. Schnabel, managing partner and co-portfolio manager, joined Falcon at its inception. John was previously a partner at Canterbury Capital Partners. Prior affiliations include Generation Partners and General Motors Investment Management Corporation. He has served on the board of directors of numerous companies, including current portfolio companies Encore Repair Services, Laney Directional Drilling, and Rapid Advance. John received a John Schnabel B.S. in Chemistry from Adelphi University, an M.B.A. with emphasis in Operations Research from Hofstra University, and an advanced studies certificate from New York University's Stern School of Business Administration. Mark Solovy joined Monroe Capital in 2013 to start and lead the firm’s national technology and software investment vertical. He is responsible for originating, underwriting, executing, and monitoring direct lending, opportunistic private credit, and structured equity investments in software, tech-enabled business services, and technology companies for Monroe. Mark is also the primary investment professional responsible for Monroe’s co- sponsorship and PIPE investment activities with a series of financial technology-focused SPACs, Thunder Bridge Mark Solovy Acquisition, Ltd. and Thunder Bridge Acquisition II, Ltd. Prior to joining Monroe, Mark was a managing director with Hercules Capital, where he was responsible for venture debt investments in technology companies. Mark earned a JD Degree from the University of Pennsylvania and a BS in Business Administration summa cum laude from Washington University in St. Louis, where he was a teaching assistant for Federal Reserve System Governor, Laurence Meyers. Brandon Graffeo leads SVB’s Sponsor & Leveraged Finance practice for Technology Banking where his team executes transactions in support of private equity and corporate clients. Brandon has spent his entire career in investment banking and leveraged finance advising clients on complex corporate finance transactions, including senior and high yield debt financings, public and private placement equity offerings, and mergers and acquisitions. Prior to joining SVB in 2016, his experience covered both middle market and large cap transactions while working at GE Capital, SunTrust Robinson Humphrey, Citigroup Global Markets, and Wachovia Securities. Brandon holds a Brandon Graffeo Bachelor of Science degree in Finance from Auburn University Page 2 Driven by your success. Q: Are we in a different place now from your point of view than we were at the end of Q1? If we look back to the end of March, we were figuring out what the new shelter-in-place / work-from-home reality meant for our families, our businesses, and our clients. We were deep into portfolio management triage. And we were engaged with our clients to ensure real-time dialogue, as we worked through this market shock together. If we fast forward to where we sit today, a lot of things feel much different. The Fed has pumped a ton of money into the economy in an attempt to stabilize it. Public markets have made a significant rebound, primarily led by a flight to quality in the tech and healthcare sectors . We have real-time evidence of which business models have been Brandon Graffeo most impacted and most resilient, which has given us a better sense of where we sit from a portfolio management perspective. While it's still early innings in what's going on in the market today, we remain cautiously optimistic for where we play in the tech and healthcare market and feel we are well positioned to support our clients. In the first quarter, everything did come to a halt. We were talking about what can we do for liquidity? And so, after going through all that, you then try to come out of March and you started to see some evolution into April and to May. We found that brand new buyouts were largely being put on hold. Most businesses that were doing fine got through the triage part of things, and we then quickly flipped over into where were our strengths and where were our weaknesses. How do we take advantage of that? I think folks focused inward as opposed to outward. That's started to change now. What we're starting to see is some businesses steady – almost every business that we've John Schnabel looked at has been affected by the COVID-19 environment and so it's really a question of is it down 80 percent or is it down 20 percent? We've been looking more and more at transactions where you have to kind of figure out what are the goal posts of risk that you're willing to take. At the beginning of all this, there was just so much rapid uncertainty in the markets. Everyone was taken off-guard by COVID and, because of that, there were some very interesting opportunities in the market from the credit standpoint, ones that had some very interesting values attached, but people were just very uncertain. I think now the difference is people have a little more certainty and they're feeling a little more comfortable with the equity markets, with the credit markets, and with the government putting capital into both of those, and so some of those Mark Solovy more interesting opportunities have disappeared. The result in Q2 is private credit firms are now back to being more focused on their core business, which is supporting private equity firms, growth equity firms, and venture capital firms on new opportunities, because there's not a lot of very opportunistic deals out there. Page 3 Driven by your success. Q: What kind of opportunities are you looking at right now that you find most attractive and actionable in terms of industry and business models? What are some key metrics that have become critical for you in your decision-making? Our analysis right now is really looking at businesses that seem to have weathered the storm and have put a plan in place, as opposed to just waiting for another day. We're generalists, so we are looking at all types of transactions right now. Even though consumer behavior has changed, I think it's very important to drill down to see what management has done and how they're dealing with this environment. Where we have the most difficulty is where John Schnabel we can't really figure out if this business will come back in three months, six months, or is it just the “strategy of hope,” and that has been very, very difficult . The tech sector, as we've seen in Nasdaq and the markets, has in some ways been positively impacted, and in some ways been neutrally impacted in terms of equity valuations in the tech companies, so we continue spend a lot of time focused on those deals. We like recurring revenue businesses, we like the visibility, and we're really focused on how to assess the impacts of COVID. We look at deals that are not necessarily impacted by COVID directly, and we're seeing a lot of our tech companies hold up. FinTech has been another big sector for us, as Mark Solovy people have moved to more electronic payments and away from cash. We have an absolute focus on the innovation economy, both in tech and healthcare. If you look at our market as a bullseye, the middle of our target is highly recurring software businesses. As you move out into the circles of the bullseye, that would represent more product, service-oriented and facilities-based companies where we continue to be more conservative, but believe there are deals to do there as well. Brandon Graffeo Page 4 Driven by your success. Q: Have you closed any transactions since the outbreak of COVID? How did you handle these situations from a diligence perspective? Has pricing increased? Has leverage decreased? We have closed a number of transactions since the outbreak of COVID, some of which have been deals that we had signed up pre-COVID. The second set of deals that we've closed have been supportive financings for our portfolio companies. We have also signed up some new deals that have started post-COVID that have been very interesting and haven't been impacted by COVID. When the outbreak started, pricing went up significantly, but now has gone down significantly from there. It's still higher than it was pre-COVID. In terms of leverage, that's gone down as well. Part of that is driven by the credit market, and part is also driven by the equity sponsors. I think a lot Mark Solovy of the deals we've been financing have been more growth-oriented, and our sponsors are looking for lower leverage anyway, as they want more flexibility in their deals. In terms of diligence, even pre-COVID, we were doing a lot of video conferences. While the preference is always to meet our companies in person, we have had to get used to the possibility of just doing deals electronically with the video conferencing. We've supported our portfolio companies as they've had acquisition opportunities and have added a number of new clients during this period.