Stuart Davies
March 2015
Table of Contents

Sankaty Overview

Shifting Role of Banks in the Credit Markets

Sankaty’s Response as an Alternative Lender
©2015 Sankaty Advisors, LLC. Confidential and proprietary information. Do not duplicate.
2
Firm Overview
Sankaty Advisors’ Competitive Advantages
Culture
100% employee-owned
private partnership
Approximately $700M of
employee co-investments(1)
Committed to ethical investing
and transparency
Experience
Founded in 1998
30 Managing Directors with an average
of over 20 years experience
Team has invested through
multiple cycles
Scale
Rigorous, independent analysis on over
5,000 corporate issuers
231 employees,
108 investment professionals
Global platform with offices across
North America, Europe and Asia Pacific
Flexible
Capital
Invest globally up and down
the capital structure
Single integrated team investing in par
and distressed assets
Dedicated expertise in CLOs, RMBS,
NPLs and direct lending
Sankaty Investors by Type
Public Pension
15%
Endowment &
Foundation
9%
Sovereign
Wealth Fund
17%
Corporate
Pension
42%
Family Office &
High Net Worth
6% Insurance
Company
3%
Co-invest
4%
Other
Corporate
3%
Sankaty Investors by Geography
EMEA
28%
Asia Pacific
19%
Americas
52%
Employee data as of January 1, 2015. AUM and investors by type and geography data as of October 1, 2014. Data for Sankaty’s investors by type and geography is based on a percentage of AUM excluding CLOs.
EMEA = Europe, Middle East and Africa. Charts may not sum to 100% due to rounding.
(1) Sankaty and Bain Capital employee investments include General Partner, employee co-invest and other affiliate capital invested in Sankaty managed funds.
©2015 Sankaty Advisors, LLC. Confidential and proprietary information. Do not duplicate.
3
Table of Contents

Sankaty Overview

Shifting Role of Banks in the Credit Markets

Sankaty’s Response as an Alternative Lender
©2015 Sankaty Advisors, LLC. Confidential and proprietary information. Do not duplicate.
4
Shifting Role of Banks…
We are in the midst of a 10 year cycle of global banks
retrenching and right-sizing their balance sheets.
• Selling assets to boost capital ratios
• Reducing capital allocated to certain markets due to regulation
• Exiting non-strategic businesses
©2015 Sankaty Advisors, LLC. Confidential and proprietary information. Do not duplicate.
5
European Banks: Announced Non-Performing Loan Sales
Investments made
NPLs, €B
Currently underwriting transactions
European Stock:
€1.3T
Potential, though less core
UK
€27B Traded
Netherlands
€1B Traded
Ireland
Romania
€38B Traded
109
86
€1B Traded
56
11
3
Greece
Portugal
€1B Traded
€1B Traded
225
31
Spain
Cyprus
289
Italy
€21B Traded
€8B Traded
Traded Levels
Unknown
76
21
Source: ECB Statistical Warehouse, ECB Comprehensive Assessment, Deutsche Bank, PricewaterhouseCooper, Cushman and Wakefield, Deloitte and Sankaty calculations. NPL ratios correspond to AQR
assessed levels where available. NPL stocks shown correspond to levels reported by the ECB before AQR considerations (data as of 2013 year end). Traded levels correspond to full year 2014 estimates.
©2015 Sankaty Advisors, LLC. Confidential and proprietary information. Do not duplicate.
6
Banks no longer provide short term stability to the market
U.S. Market Size(1)
High Yield
U.S. Dealer Inventory(2)
Leveraged Loans
$1,200B
$250B
$1,000B
$200B
$800B
$150B
$600B
$100B
$400B
$50B
$200B
$0B
2000
2002
2004
2006
2008
2010
2012
2014
$0B
2001
2003
2005
2007
2005
2008
2014
Market Size:
$750B
$1,200B
$1,900B
Dealer Inventory Size:
$155B
$75B
$50B
5:1
16:1
38:1
Ratio:
2009
2011
(1) Data as of November 28, 2014. Source: Yield Book, LCD.
(2) Data as of November 4, 2014. Source: Bloomberg and Sankaty analysis.
©2015 Sankaty Advisors, LLC. Confidential and proprietary information. Do not duplicate.
7
2013
Lack of support has increased volatility in leveraged lending
Underperformance is punished more quickly and severely in today’s higher yielding debt market
than ever before.
120
120
100
100
80
80
120
100
60
40
German Retailer
8
Sep-14
Jan-15
Dec-14
Nov-14
Nov-14
Oct-14
Sep-14
Sep-14
Spanish Renewable
Data as of January 8, 2015. Source: Bloomberg.
©2015 Sankaty Advisors, LLC. Confidential and proprietary information. Do not duplicate.
Jul-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Nov-14
Sep-14
Jul-14
May-14
Mar-14
40
Jan-14
40
Nov-13
40
Sep-13
60
Jul-13
60
May-13
60
May-14
80
Mar-14
80
Jan-14
80
Nov-13
100
Sep-13
100
Jul-13
100
Price
120
Price
120
May-13
U.S. Manufacturer
120
UK Insurance Co.
Aug-14
Jun-14
U.S. E&P Company
Jul-14
20
Jul-14
Jul-14
Aug-14
Aug-14
Sep-14
Sep-14
Oct-14
Oct-14
Nov-14
Nov-14
Dec-14
Dec-14
Dec-14
U.S. Software Service Provider
Price
Price
Price
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
40
Jun-14
40
May-14
60
Apr-14
60
Mar-14
Price
80
Exiting Non-Strategic Businesses: Middle Market Lending
Regulatory restrictions on global and regional banks are limiting the ability of traditional lenders
to offer direct lending loans, presenting an opportunity for alternative forms of capital to invest
in the market. Rhetoric from the Federal Reserve has largely driven banks out of middle market
direct lending in 2014.
“The agencies have also
strengthened capital requirements
for the largest firms by approving
more robust risk-based and leverage
capital requirements.”
-
Primary Buyers of Leveraged Loans
Middle Market
US Banks
Finance Co.
Institutional Investors
100%
Janet Yellen
May 1st 2014
80%
Regulations
“A lot of work has been done to date
by the agencies to assess
compliance with the guidance, but
clearly much more work remains to
be done and stronger supervisory
action may be needed.”
-
Todd Vermilyea
Senior Associate Director for Banking
Supervision & Regulation at the Fed
60%
40%
20%
May 13th 2014
0%
2002
2007
2011
2013
2014
Data as of December 31, 2014. Source: S&P LCD Quarterly. US Banks includes securities firms. Excludes non-US banks.
©2015 Sankaty Advisors, LLC. Confidential and proprietary information. Do not duplicate.
9
Table of Contents

Sankaty Overview

Shifting Role of Banks in the Credit Markets

Sankaty’s Response as an Alternative Lender
©2015 Sankaty Advisors, LLC. Confidential and proprietary information. Do not duplicate.
10
Sankaty’s Response as an Alternative Lender
• Purchase Portfolios of Assets
• Build Global Direct Lending Platforms to Replace Banks
©2015 Sankaty Advisors, LLC. Confidential and proprietary information. Do not duplicate.
11
Over the Past Three Years, Sankaty has Completed Nine
Portfolio Transactions Totaling $5.1B
Performing Debt
Non-Performing/Distressed/Equity
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
CapitalSource
(2011)
Micros
(2012)
Murray
(2013)
Rock/
QHotels
(2014)
De Vere
Resorts
(2014)
Amazona
(2014)
EGEE
(2014)
J.P. Morgan
Middle Market
(2014)
J.P. Morgan
Asia Pacific
(2014)
Geography:
Pan-Europe
Pan-Europe
Australia/
New Zealand
United
Kingdom
United
Kingdom
Spain
Greece
Europe/US
Asia Pacific
Par Balance:
€107M
£445M
A$398M
£405M
£162M
€806M
€446M
$752M
$668M
# of Issuers/
assets:
10
26
8
21
6
NPL
NPL
20
15
Performance
(gross IRR):
13.0%
27.6%
38.1%
NM
NM
NM
NM
NM
NM
Data as of December 31, 2014. Gross performance is gross of fees and expenses, which have an effect of reducing returns in the aggregate and may be substantial. Past performance is not indicative of future
results. Actual results may vary.
©2015 Sankaty Advisors, LLC. Confidential and proprietary information. Do not duplicate.
12
Building Global Direct Lending Capabilities
Sankaty has seen increased deal flow in response to the supply/demand imbalance in the market.
Sankaty’s Direct Lending Investments
$400M
$350M
Senior Debt Investments
Junior Debt Investments
Equity Investments
$300M
Recent Investment Targeted Yields
Avg. Senior Debt Investments
Cash Coupon:
6.4%
Leverage:
4.7x
Total Return:
7.1%
Avg. Junior Debt Investments
$250M
Cash Coupon:
$200M
9.0%
Leverage:
5.0x
Total Return:
$150M
11.3%
$100M
$50M
$0M
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Data as of December 31, 2014. There can be no guarantee targeted results will be achieved. Actual results my vary. Past performance is not indicative of future results. Actual results may vary. See “Endnotes” for
important definitions, disclosures and information regarding returns, indices and performance calculation methodologies.
©2015 Sankaty Advisors, LLC. Confidential and proprietary information. Do not duplicate.
13
Building Global Direct Lending Capabilities
Australia
Key Sankaty Initiatives:
•
Opened an office in Melbourne with 5 people
•
Purchased Murray portfolio from Lloyd’s Bank
Asia
Key Sankaty Initiatives:
•
Opened an office in Hong Kong with 6 people
•
Purchased Asia Pacific portfolio from JP Morgan
•
Identified growing NPL/portfolio opportunities
•
Recognize growing need for regulatory reform in China/India to facilitate
onshore secured lending
©2015 Sankaty Advisors, LLC. Confidential and proprietary information. Do not duplicate.
14