The Debt Forum Presentations

WELCOME
THE DEBT FORUM

CLOs & DIRECT LENDING FUNDS
OPENING ADDRESS:
Fabrice Susini Global Head of Securitisation BNP Paribas Corporate Investment Banking
The Debt Forum

CLOs & Direct Lending Funds
Primary CLO Market Overview
Global CLO Issuance USD bn 250 200 150 100 50 0
Balance Sheet Arbitrage
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012 2013 YTD
CLO market is recovering
Zooming on 2013
US CLO Cumulative Issuance Volume, 2013 vs. 2012
USD m 70,000 60,000 50,000 40,000 30,000 20,000 10,000
Cumulative Volume 2012
50% increase in the US Steady issuance in the US
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
European CLO 2.0 Cumulative Issuance vs. US CLO Cumulative Issuance, 2013 USD m 70,000
60,000 50,000 40,000 European Cumulative Volume
US Cumulative Volume
US vs. European CLO issuance:
30,000
20,000 10,000 Mar Apr May Jun Jul Aug Sep Oct
x10 Why?
Among various explanations, one key factor

Articles 404-410 of the Capital Requirements Regulation (CRR) (EU Risk Retention Rules) to mention a few:
So far, risk retention rules were spelled out in Article 122a

of the Capital Requirements Directive (CRD)
On 27 June 2013, CRR was formally adopted, which

replaces the CRD starting from 1 January 2014
In May 2013, the European Banking Authority published its

consultation paper on the Regulatory Technical Standards (RTS) in respect of the new CRR retention rules:
There remains great uncertainty with regard to the

content and impact of the final version of the RTS
The CRR will effectively remove the flexibility around

the definition of sponsor, meaning that the CLO manager as a credit institution or an investment firm has to raise and retain the 5% risk retention requirement, rather than relying on a third party to act as retainer
In addition, the CLO managers will be subject to the

Markets in Financial Instruments Directive ("MiFID") (which would thus exclude non-EU managers and managers subject to the Alternative Investment Fund Managers Directive)
Final version of the RTS is not expected before the

end of the year, with a further review by the Commission thereafter. CRR will therefore be in application before the final rules are known
an uninterrupted deluge of regulations for banks, insurance, funds

6
European vs. US CLO Issuance
Arbitrage CLO Issuance
EUR bn 120 100 80 60 40 20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD * Europe US
mostly in the US but even in Europe we are seeing green shoots of recovery
European CLOs 2.0 A rebirth?

The European CLO market has re-opened, stronger than forecasted at the beginning of the year: 14 deals have closed as of beginning of November, representing a total issuance volume of around EUR 4.9bn, with 3 additional transactions priced (EUR 1.2bn) and further CLOs are being prepared; The AAA pricing range has been 125-155 bps so far, with most of the deals settling around a sweet spot of 135bps, although there is recent upward pressure on AAA spreads Loan supply remains a concern in Europe, but loan issuance has picked up in 2013. Managers ability to successfully ramp-up an appropriate portfolio seen as crucial by investors Factoring structural developments in CLOs 2.0: Lower leverage (~ 5-7x) and higher AAA subordination (~ 40%) than pre-crisis CLOs Shorter non-call and reinvestment periods: typically 2yr non-call, 3-4yr reinvestment Limits on lowly-rated countries, addressing concerns on peripherals More flexibility in including senior secured bonds, reflecting the current state of the HY market (e.g. Pramerica, Carlyle CLOs) CCC buckets of 7.5% Already the return of multi-currency features? Three deals already are including GBP tranches Lower manager cost structure: e.g. 15 bps senior, 35 bps subordinated, 10% excess incentive fee on top of target IRR of 12% Regulatory hurdles overcome: Two retention approaches used so far in CLOs 2.0: retention of first loss piece or of a vertical slice, with the market moving more and more towards the vertical retention as the standard approach Out of the 14 CLOs that have closed this year, more than half would be compliant with the proposed new retention rule, with the remaining minority choosing not to comply or working under assumptions of the previous guidelines
Challenges remain
1/ Debt Fund vs CLO: complementarity or competition
Debt Fund A simple and transparent design? A complementary tool to the lending landscape? CLO An over-engineered answer? A tool for lending on an industrial scale?
2/ Regulation and communication

Growth contribution and value creation?
3/ Standardisation and transparency across Europe

And how could we contribute?
Disclaimer
BNP Paribas London Branch is the issuer of this document. It does not, nor is it intended to, constitute an offer to acquire, or solicit an offer to acquire any securities. Although the information in this document has been obtained from sources that BNP Paribas believes to be reliable, BNP Paribas does not represent or warrant its accuracy and such information may be incomplete or condensed. Any person who receives this document agrees that the merits or suitability of any transaction or securities to such persons particular situation will be independently determined by such person, including consideration of the legal, tax, accounting, regulatory, financial and other related aspects thereof. In particular, BNP Paribas owes no duty to any person who receives this document (except as required by law or regulation) to exercise any judgement on such persons behalf as to the merits or suitability of any such transaction or securities. All estimates and opinions included in this document constitute the judgement of BNP Paribas as of the date of the document and may be subject to change without notice. BNP Paribas will not be responsible for the consequences of reliance upon any opinion or statement contained herein or for any omission. This document is confidential and is being submitted to selected recipients only. It may not be reproduced (in whole or in part) or delivered to any other person without the prior written permission of BNP Paribas. These securities have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States or to a U.S. person absent registration or an applicable exemption from the United States registration requirements. BNP Paribas Securities Corp is a US registered broker dealer. By accepting this document you agree to be bound by the foregoing limitations. This material is directed at (a) professional customers and eligible counterparties as defined by the Markets in Financial Investments Directive, and (b) where relevant, persons who have professional experience in matters relating to investments falling within Article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, and at other persons to whom it may lawfully be communicated. Any investment or investment activity to which it relates is available only to and will be engaged in only with such persons. It is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. The BNP Paribas Group does not accept responsibility for any loss arising from any action taken by anyone using this material. BNP Paribas (2013). All rights reserved. BNP Paribas London Branch (registered office 10 Harewood Avenue, London NW1 6AA; tel: [44 20] 7595 2000; fax: [44 20] 7595 2555) is authorised by the Autorit de Contrle Prudentiel and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request. BNP Paribas London Branch is registered in England and Wales under no. FC13447.
10
How do debt funds and CLOs co-exist in todays market?

Chairperson: James Williams, Managing Editor, Global Fund Media Ltd Dagmar Kent Kershaw, Head of Credit Fund Management, Intermediate Capital Group Neil Basu, CEO & Founder, Pearl Diver Capital Martin Sharkey, Senior Associate, Banking & Finance, Capital Markets at Clifford Chance Rob Reynolds, Managing Director, Debt Management, 3i Group
A case study: How to construct a debt fund

Chairperson: Stuart Draper, BNP Paribas Securities Services Ross Youngs, Head of Sales, BNP Paribas Securities Services Channel Islands & Isle of Man Tim West, Partner, Herbert Smith Freehills Ravi Anand, Head of Corporate Finance, Dexion Capital plc Jonathan Bowers, CVC Credit Partners
What risks do regulations pose to Europes CLO market?

Chairperson: Antoine Chausson, Senior Structurer, BNP Paribas Asset Securitisation Group, Banking Solutions & Regulatory Colin Atkins, Head of European Structured Credit Advisory Team, Carlyle Group Steve Baker, CFA, Apollo Global Management LLC James Waddington, Partner, Dechert Georges Duponcheele, Fixed Income, BNP Paribas
How should one rate debt funds from a risk management perspective?
Alastair Sewell Director, Fund and Asset Manager Ratings Group Fitch Ratings
Rating Debt Funds

Presentation to: The Debt Forum
Alastair Sewell, Director Fund & Asset Manager Ratings November 2013
Agenda
Why? What? How? Related Research
Agenda
Reallocation in Bank Funding

...Fuels Shift to Capital Markets for Corps, CRE and Infra
Risk Exposure (EAD): Modest Reduction, Major Reallocation
(Change in EAD since End-2010 (EURbn) 600 400 200 0 -200 -400 -600
EMEA Corporate New Issuance

Bond issuance (LHS) Loans Bonds as % of total new debt (RHS) (%) (EURbn) 1,400,000 60 1,200,000 1,000,000 50
40
30 20
800,000
600,000 400,000
Sov
Resi Mtge
C'party
Corp
FI
Retail (Ex Mtge)
Securitization
Total
200,000 0
10
0
Source: Fitch Ratings; bank Pillar 3 disclosures (sample of 16 European G-SIBs).
Source: Dealogic, Fitch
www.fitchratings.com
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 3Q12 3Q13
Long-term Investors
EUR8tn of pension and insurance investment capacity seeking returns; Ready to capture an illiquidity premium; Keen on: Floating rate exposure; Secured creditor status; Long term assets; and,
Limited mark-to-market volatility.
Agenda
Fund Legal Structures

Closed ended; Structured as corporate entity, regulated closed end fund, QIF or SIF; Levered or unlevered; Generally club deals with one or several ramp-ups.
Fund Operational Structure

Liabilities
Equity Fund Debt Asset Pool
Assets
Rating Debt & PS Issued by Non-US CEFs
Corp
Infra
RE
Global Bond Fund Rating Criteria

Source: Fitch
Rating Definitions
Issuer Default Ratings opine on an entitys relative vulnerability to default on financial obligations. Fund Credit Ratings an opinion as to the overall credit profile and vulnerability to losses as a result of defaults within a fixed-income portfolio.
Agenda
Rating and Review Process

Document Review
Fund structural features Legal & regulatory considerations Review of asset selection process Analysis of portfolio construction principles Detailed review of organisation and procedures Analysis of portfolio holdings and structure Rating committee validation and decision Communication to manager Press release to media & investors Publication of rating report Periodic portfolio and fund manager monitoring Full annual rating review
Manager Contact
Dialogue maintained with manager throughout rating process
Manager Assessment Approx. eight weeks
Portfolio Analysis
Investor Contact
Fitch website Analysts interact with investors Rating announcement via press release
Rating Issuance
Surveillance
Assessing the Fund Manager

Manager Capabilities Manager Roles
Staffing
Asset Selection Manager Assessment
Resources
Processes Operational Controls
Monitoring
Asset Substitution Workout
Asset Manager Rating Criteria (April 2013)

Source: Fitch
Portfolio Rating Considerations: Average Credit Quality

A portfolios Weighted Average Rating Factor (WARF) serves as the primary driver of the Fund Credit Rating WARF based on Credit Opinions or Ratings on portfolio assets
WARF = Sum [Rating Factor X Market Value OR Fair Value]

Guideline WARF Ranges
WARF-implied Rating AAA AA A BBB BB B CCC & Below
Source: Fitch
Fitch Rating Factors

Expected WARF Range 0 to 0.4 0.4 to 1.1 1.1 to 3.1 3.1 to 11.0 11.0 to 25.0 25.0 to 47.0 Over 47 (Rating Factor) 100 80 60
40
20
0
AAA AA
Source: Fitch
A BBB BB
B CCC CC
Portfolio Rating Considerations: Stress Testing
Tail Risk & Concentration

Largest issuers
Recoveries
Adjustments for recovery rates that deviate from standards Fund tail periods providing additional time to realise recoveries
Largest WARF contributor

Assets on RON / RWN Sector
Geography
To capture portfolio tail risks
Rating Considerations: Fund Life Cycle

Fund Life Cycle
BBB BB B CCC WARF (RHS)
(% of Portfolio) 60%
50%
(WARF) 50
40 30 20
40%
30% 20% 10% 0% 1 2 3 4 5 6 7 8 9 10 BB
10 0
Source: Fitch
Need for detailed investment guidelines if the rating is assigned before the end of the ramp-up period
Debt Rating Considerations: Cash Flow Analysis

Analysis similar to cash flow CLO; Use of PCM model coupled with cash flow analysis; Additional consideration is the risk of early redemption.
Rating Debt & Preferred Securities Issued by Non-US Closed-end Funds (March 2013)
Debt Rating Considerations: Applicable Criteria
Assets Corporate loans (mid to large companies) Corporate loans (small to mid-sized companies) Commercial real estate loans
Analytical Approach & Fitch Group Portfolio Credit Model (PCM) using default probability and recovery assumptions on individual assets Fitch Group = Structured Credit PCM using average default rates as a starting point assuming granular portfolios Fitch Group = Structured Credit CMBS type assessment Fitch Group = CMBS
Applicable Rating Criteria Global Rating Criteria for Corporate CDOs, 8 August 2013
Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME-CLOs), 28 March 2013 EMEA CMBS Rating Criteria, 3 April 2013 Rating Criteria for Infrastructure and Project Finance, 11 July 2012
Infrastructure Loans Individual asset specific Fitch Group = Global Infrastructure

Source: Fitch
Summary
Banks Closed-end Fund
LT Investors
Debt Ratings
Portfolio Ratings
Portfolio Analysis
Agenda
Related Research
Basel III Shifting the Credit Landscape (November 2013) Corporate Funding Disintermediation Dashboard Q313 (October 2013) European Asset Management (October 2013) U.S. CLO Asset Manager Handbook (October 2013) European Leveraged Loan Chart Book (September 2013) EMEA Corporate Bonds: Rating and Issuance Trends (August 2013) Global Bond Fund Rating Criteria (August 2013) Rating Debt and Preferred Securities Issued by Non-US Closed-End Funds (March 2013)
People in pursuit of answers
Disclaimer
Fitch Ratings credit ratings rely on factual information received from issuers and other sources. Fitch Ratings cannot ensure that all such information will be accurate and complete. Further, ratings are inherently forward-looking, embody assumptions and predictions that by their nature cannot be verified as facts, and can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed. The information in this presentation is provided as is without any representation or warranty. A Fitch Ratings credit rating is an opinion as to the creditworthiness of a security and does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. A Fitch Ratings report is not a substitute for information provided to investors by the issuer and its agents in connection with a sale of securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch Ratings. The agency does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS AND THE TERMS OF USE OF SUCH RATINGS AT WWW.FITCHRATINGS.COM.
New York
One State Street Plaza New York, NY 10004
London
30 North Colonnade Canary Wharf London E14 5GN
KKR perspectives on European direct lending

Marc Ciancimino Managing Director & Global Head of Mezzanine KKR Asset Management
KKR Perspectives on Direct Lending

Marc Ciancimino KKR Asset Management
Debt Forum November 2013
What is direct lending?

Generally perceived as mid-market senior or unitranche financing which is either priced or levered higher than conventional bank debt. In reality it covers a much broader range of situations. KKR definition:
Non-syndicated, illiquid credit facilities negotiated directly between issuer and lenders where pricing, structure, terms and covenants are highly tailored to satisfy issuer and lenders rather than solve for a broad syndication / capital markets process. Can be anywhere in the capital structure.
40
Why do issuers consider direct lending?

Many reasons: Need for greater flexibility than normal deal
Smaller size which doesnt suit capital markets distribution

Specific structural problems to solve Lack of conventional bank lending availability e.g. because of jurisdiction
More leverage than normal situations

Storied credit e.g. previous restructuring or out of favour sector
41
Case Study: Hilding Anders

Company summary Leading manufacturer of beds and mattresses Headquartered in Sweden but global footprint Revenues and EBITDA of 857m and 124m Owned by Arle who acquired from Investcorp in 2006
Reasons for needing direct lending
Not an attractive time to exit given scope for earnings growth

Short term covenant pressure Leverage too high for conventional capital markets execution Needed to put the company back on a long term footing with significant new capital and medium term horizon
42
Case Study: Hilding Anders continued

The outcome 350m PIK facility provided to the company by KKR Net cash pay leverage reduced from 8.1x to 4.9x Comprehensive amend and extend achieved KKR joins the board in partnership with Arle
Challenges
High total leverage

Large quantum of debt required Need for bilateral negotiation given very bespoke structure and governance Hard to predict high yield market Requirement for amend and extend on remaining senior debt
43
Case Study: URSA

Company summary Leading European manufacturer of insulation building materials (Glass Wool and XPS)
Headquartered in Madrid but European footprint with limited exposure to Spanish construction
Revenues and EBITDA of 445m and 55m URSA is 100% owned by Uralita S.A. Uralita is 80% owned by Nefinsa
Reasons for needing direct lending

44
Following the downturn from2008, construction markets across Western Europe have been significantly impacted URSAs corporate parent Uralita, has been materially affected by incremental decline in Spanish construction After recent earnings declines, Uralita struggled to meet its debt obligations Current lenders were unwilling to provide additional liquidity in light of their own capital constraints Existing lenders were unwilling to extend their debt maturities in light of new Spanish regulations on provisioning
Case Study: URSA continued

The outcome 320m 7 year financing underwritten by KKR with PF leverage at closing of ~6.5x Proceeds from financings used for subpar repayment of existing lenders both banks and note holders URSA now well capitalised to develop pan-European insulation business Capstone helping on the operational turnaround
Challenges Required interim financing pre-closing (KKR provided receivables facility) Some lenders were obstructive and KKR engineered solution through a quasidiscounted exchange offer Large quantum of debt required High total leverage Need for bilateral negotiation given very bespoke structure
45
General themes and lessons

Many high quality businesses have inappropriate capital structures To be a real solution you need to be able to speak for large quantities would have been too difficult to put together a club in either case Deals take time to put together and require significant resources In depth diligence necessary to see beyond the headlines
Long term approach required

Governance structure important Partnership with other stakeholders essential
46
The institutionalisation of Europes direct lending space Opportunities and risks

Chairperson: David Bell, Managing Director, BNY Mellon Dhruv Sharma, Director, Asset Selection, Strategic Asset Partners Pascal Meysson, Direct Lending & Mezzanine, Alcentra Christophe Vuilliez, Managing Director, Private Debt, Ardian (AXA Private Equity) Lucette Yvernault, Euro Credit Fund Manager, Schroders
What are the key considerations for managers when structuring direct lending vehicles?
Aron Joy Managing Associate Simmons & Simmons
What are the key considerations for managers when structuring direct lending vehicles?
Aron Joy
13 November 2013
Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
Aspects to be covered:
Fund vehicle: partnership or corporate? Tax considerations: investors, the Fund and investments Regulation and shadow banking AIFMD and marketing FATCA
Other developments/considerations, e.g. BEPS and FTT
50/ 19209030v1
Fund vehicle: partnership or corporate?

Corporate structure
Advantages:
Investors
Simplicity Cost and timing benefit
Relatively straightforward listing
Fund
Manager/Adviser
Disadvantages:
Holdco Structure
Does not easily accommodate carry treatment Does not fit drawdown and related mechanisms as easily May be less familiar to some investors Query suitability for both US taxable and US tax exempt investors
51/ 19209030v1

Partnership structure
Manager/Adviser
GPCo
Fund
52/ 19209030v1

Partnership structure
Advantages:
A common structure for closed-ended funds Offers greater flexibility as to drawdown and related mechanisms Allows principals to receive carry rather than performance fee Feeder structure accommodates US taxable and tax exempt investors
Disadvantages: Greater complexity and therefore cost/time to execution
Investors may seek to negotiate partnership terms more readily

Does not offer an easy route to listing May cause Bank Holding Company Act/US and UK regulatory issues for manager/adviser given ownership and control of GPCo But: familiarity is an important factor And: tax considerations also a driver (see below)
53/ 19209030v1
Structuring: tax considerations

Need to take into account tax considerations at three levels: 1. tax position of investors 2. tax position of the Fund itself 3. tax position of investments by the Fund
54/ 19209030v1
Tax position of investors

No additional tax liabilities that would not be suffered by investors were they to invest directly in underlying Cannot anticipate the tax profile of a particular investor But consider the following general points:
a) Are investors subject to tax and is their tax liability greater than for a direct investment? b) Do the investors qualify for any tax regime, e.g. pension funds, insurance companies or collective investment schemes?
c) Anti-avoidance rules in the investors home jurisdictions?

d) Level of tax reporting to allow investors to comply with their obligations? e) Can distributions and redemption proceeds be paid to investors without WHT or other taxes? f) Transfer or registration taxes on dealing by investors in their interests in the Fund?
g) Tax filing and/or payment obligations in the jurisdiction of the Fund or its investments?
55/ 19209030v1
Tax position of the Fund itself

Two basic models can be used: structuring the Fund as a tax transparent entity structuring the Fund as an effectively tax exempt entity
Management of the Funds investments
56/ 19209030v1
Tax position of investments by the Fund

Analysis on a case by case basis required but the principal considerations are: Withholding taxes? Double tax treaty protection and conduit/anti tax haven rules? Will the Fund or investors be directly assessable to tax in the jurisdiction of investment? Do the Fund or investors have tax filing obligations in the jurisdiction of investment? Is particular information on investors needed e.g. for FATCA (see below) Transfer or registration taxes in respect of investments?
57/ 19209030v1
Investment vehicles
Primarily to mitigate WHT on interest Luxembourg, Ireland and the Netherlands are the usual suspects Could use a UK company Choice of vehicle Funding of vehicle
Conduit issues
Treaty relief application (and UK treaty passport scheme) Residence and permanent establishment risk (and IME)
58/ 19209030v1
Carry structuring?
Need to preserve capital treatment of returns May therefore need additional vehicles and features, e.g. to avoid the UK offshore fund rules Need to use a tax transparent Fund entity BUT direct lending activity may mean carry is a more difficult starting position
59/ 19209030v1
Management or advisory structure?

Tax: trading through a permanent establishment? Two main solutions: 1. use an advisory structure
2. investment manager exemption

There may be similar issues in other jurisdictions Regulatory: Is there a desire to structure out of AIFMD?
Need to meet the letterbox test
VAT
60/ 19209030v1
Regulation and shadow banking

Desire to avoid regulation (at entity level) in the overall structure UK: provision of loans to UK borrowers not a regulated activity (provided credit is not extended to individuals) Luxembourg: securitisation companies cannot ordinarily originate But EU spotlight on shadow banking Seasoning structures
61/ 19209030v1
AIFMD
Very broadly, AIFMD newly regulates: managing of alternative investment funds (AIFs) by alternative investment fund managers (AIFMs) marketing of AIFs in the EU by AIFMs (or persons acting on their behalf)
AIFMD regulates AIFMs (as manager) but does not directly regulate AIFs
62/ 19209030v1
AIFMD
AIFMD does not distinguish between Fund type Structuring out of AIFMD for managing purposes managing an AIF does not include delegates of an AIF. NB the letterbox test
Investment vehicles Broader restructuring of managers group?
63/ 19209030v1
Marketing
Marketing outside the EU it is likely that marketing and licensing requirements will apply and must be considered on a case by case basis Marketing within the EU broadly speaking, marketing can only be done on the basis of: reverse solicitation (unlikely) transitional arrangements under each Member States national placement rules
Navigator
64/ 19209030v1
FATCA
Really about information exchange to identify payments to US taxpayers FATCA withholding tax is the stick used to incentivise / enforce information exchange Intergovernmental agreements (IGAs) mean FATCA may not be a material issue Use an investment vehicle in a model 1 IGA jurisdiction
65/ 19209030v1
Other developments/considerations
Base erosion and profit shifting (BEPS) FTT Real estate?
66/ 19209030v1
Resources: AIFMD microsite on elexica
67/ 19209030v1
Resources: FATCA microsite on elexica
68/ 19209030v1
Contact details
Aron Joy Simmons & Simmons Managing Associate, Tax, London +44 20 7825 3928 aron.joy@simmons-simmons.com
69/ 19209030v1
How should direct lending fit into investors long-term portfolio allocation?
Chairperson: James Williams, Managing Editor, Global Fund Media Ltd Mick Vasilache, Senior Portfolio Manager, Chenavari Capital Andrew McCullagh, Co-Head of Origination, Hayfin Capital Management Michael Dennis, Managing Director, Co-Head European Private Debt, Ares Management Ltd Fred Nada, Head of Research Credit Alternatives, BlueBay Asset Management
Closing Address:
Oern Greif Head of Debt Business Development BNP Paribas Securities Services
THANK YOU

The Debt Forum Presentations

Uploaded by

Copyright:

Available Formats

The Debt Forum Presentations

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

The Debt Forum Presentations

Uploaded by

Copyright:

Available Formats

WELCOME

THE DEBT FORUM

The Debt Forum

Primary CLO Market Overview

Global CLO Issuance USD bn 250 200 150 100 50 0

Balance Sheet Arbitrage

2012 2013 YTD

CLO market is recovering

USD m 70,000 60,000 50,000 40,000 30,000 20,000 10,000

Cumulative Volume 2012

50% increase in the US Steady issuance in the US

US vs. European CLO issuance:

Among various explanations, one key factor

So far, risk retention rules were spelled out in Article 122a

On 27 June 2013, CRR was formally adopted, which

In May 2013, the European Banking Authority published its

There remains great uncertainty with regard to the

The CRR will effectively remove the flexibility around

In addition, the CLO managers will be subject to the

Final version of the RTS is not expected before the

an uninterrupted deluge of regulations for banks, insurance, funds

European vs. US CLO Issuance

Arbitrage CLO Issuance

European CLOs 2.0 A rebirth?

2/ Regulation and communication

3/ Standardisation and transparency across Europe

How do debt funds and CLOs co-exist in todays market?

A case study: How to construct a debt fund

What risks do regulations pose to Europes CLO market?

Rating Debt Funds

Reallocation in Bank Funding

EMEA Corporate New Issuance

Retail (Ex Mtge)

Source: Fitch Ratings; bank Pillar 3 disclosures (sample of 16 European G-SIBs).

Source: Dealogic, Fitch

Limited mark-to-market volatility.

Fund Legal Structures

Fund Operational Structure

Rating Debt & PS Issued by Non-US CEFs

Global Bond Fund Rating Criteria

Rating and Review Process

Manager Assessment Approx. eight weeks

Assessing the Fund Manager

Asset Selection Manager Assessment

Asset Manager Rating Criteria (April 2013)

Portfolio Rating Considerations: Average Credit Quality

WARF = Sum [Rating Factor X Market Value OR Fair Value]

Fitch Rating Factors

Portfolio Rating Considerations: Stress Testing

Tail Risk & Concentration

Largest WARF contributor

To capture portfolio tail risks

Rating Considerations: Fund Life Cycle

Debt Rating Considerations: Cash Flow Analysis

Debt Rating Considerations: Applicable Criteria

Infrastructure Loans Individual asset specific Fitch Group = Global Infrastructure

Banks Closed-end Fund

People in pursuit of answers

KKR perspectives on European direct lending