Review of Current Market Conditions Analysis of Capital Markets Metrics Including Covenants, Pricing, and Leverage Review of Credit Quality Outlook for Second Quarter 2018

1. State of the Capital Markets:
Presentation to:
First Quarter 2018 Review and
Second Quarter 2018 Outlook

2. 2
Rising interest rates now center stage, squeezing borrowers, slowing
repricings, supporting investor returns, and initiating economic drag
Public equity swung dramatically, though little effect on private markets
New entrants into direct lending and ample dry powder heightens
competition and erodes structures
Deal supply from M&A off to slow start
Overall leveraged loan volume down from 4Q 2017; same with middle
market
Volatility introduces new uncertainty into markets
Capital Markets Review – First Quarter 2018

3. Institutional investor market share Source: Wells Fargo, S&P LCD Capital IQ
Capital Markets – Behind the Scenes
Banks’ share of loans down again; only 10% of overall market
Primary Investor Market: Banks vs Non-Banks
3
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
1Q
18
Banks & Sec. Firms Non-Banks (institutional investors and finance companies)

4. 4
Institutional investor market share Source: S&P LCD, Capital IQ
Capital Markets – Behind the Scenes
CLOs remain a significant share of the institutional market
CLO
64.9%
Finance Co.
0.8%
Hedge, Distressed &
High-Yield Funds
5.5%
Insurance Co.
6.0%
Loan Mutual Funds
22.8%
Institutional investor market share

5. Capital Markets – Behind the Scenes
New CLO vehicle formation off to a healthy start
CLO Volume
5
$0B
$5B
$10B
$15B
$20B
$25B
$30B
$35B
$40B
Sep-16
O
ct-16
N
ov-16
D
ec-16
Jan-17
Feb-17
M
ar-17
Apr-17
M
ay-17
Jun-17
Jul-17
Aug-17
Sep-17
O
ct-17
N
ov-17
D
ec-17
Jan-18
Feb-18
M
ar-18
US BSL Refi/Reset
Source: LevFin Insights and Fitch

6. 1Q was slowest fundraising quarter since 3Q 2015…
Capital Markets – Behind the Scenes
Source: PitchBook; data for United States
$17
$14
$22
$18
$35
$21
$18
$18
$32
$31
$23
$30
$39
$66
$28
$65
$53
$63
$31
$56
$60
$41
$36
$62
$62
$61
$45
$61
$62
$64
$63
$54
$37
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2010 2011 2012 2013 2014 2015 2016 2017 2018
Capital Raised ($B)
# of Funds Closed
6

7. …and slowest investing quarter since 3Q 2011
Capital Markets – Behind the Scenes
Source: PitchBook; data for United States
$86
$85
$100
$185
$167
$172
$211
$272
$116
$62
$98
$43
$42
$23
$25
$52
$58
$65
$72
$95
$86
$84
$74
$93
$78
$78
$78
$132
$79
$103
$103
$151
$123
$118
$145
$127
$124
$121
$171
$134
$139
$138
$187
$135
$132
$137
$175
$131
$77
0
200
400
600
800
1000
1200
1400
$0
$50
$100
$150
$200
$250
$300
1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Deal Value ($B) # of Deals Closed
7

8. 8
Source: S&P/LCD, Lipper
Funds have net cash in-flows for each of first three months of 2018
Capital Markets – Behind the Scenes
-1.19
0.51 0.39
-1.17
0.25
-2.89
-2.11
-0.75
-2.12
-4.66
-2.49-2.54
0.17
-0.50
0.38
-0.52
0.17
0.64
1.49 1.65
2.23
6.04
6.71
4.71 4.62
2.41
1.19
0.22
0.55
-0.76
-0.51
0.34
-3.70
-1.62
0.21
0.90
2.87
-$5B
-$3B
-$1B
$1B
$3B
$5B
$7B
Mar15
Apr15
May15
Jun15
Jul15
Aug15
Sep15
Oct15
Nov15
Dec15
Jan16
Feb16
Mar16
Apr16
May16
Jun16
Jul16
Aug16
Sep16
Oct16
Nov16
Dec16
Jan17
Feb17
Mar17
Apr17
May17
Jun17
Jul17
Aug17
Sep17
Oct17
Nov17
Dec17
Jan18
Feb18
Mar18

9. 9
New CLO formation continues strong trend from last year
Capital Markets – Behind the Scenes
Source: S&P/LCD
9.38
16.24
10.18
5.66
12.74
7.35
6.02
5.57
7.33
4.81
7.46
0.83
2.55
4.86
5.91
5.44
6.64
5.765.86
8.248.41
10.64
7.16
0.98
8.53
7.87
10.24
9.84
15.02
8.35
12.42
9.22
12.8312.89
8.69
6.34
15.03
10.71
$0B
$2B
$4B
$6B
$8B
$10B
$12B
$14B
$16B
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
CLO Volume

10. Capital Markets – Loan Volume
Middle market sponsored activity off to similar start as 2017
Annual Middle Market Sponsored Volume
10
Source: Thomson Reuters LPC
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Issuance(US$bn)
1Q 2Q
3Q 4Q

11. 11
Source: Thomson Reuters LPC
High purchase price multiples push leverage, equity contributions
Capital Markets Metrics – Leverage
3.0x
3.5x
4.0x
4.5x
5.0x
5.5x
6.0x
6.5x
7.0x
7.5x
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
YTD-18
LBODebttoEBITDA(x)
Institutional MM Large Corp.
20%
25%
30%
35%
40%
45%
50%
55%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
YTD-18
EquityContributions
Institutional MM Large Corp.

12. 12
Source: Thomson Reuters LPC
Large cap yields steady; cash coming back into mutual funds
Capital Markets Metrics – Pricing
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
SingleB-yields(3years)
Loanfundflows($B)
Loan fund flows Single- B loan yields

13. 13
Capital Markets Metrics – Pricing
Source: Thomson Reuters LPC
Middle market illiquidity premium at 112 bps
3%
4%
5%
6%
7%
8%
9%
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
All-in-yield(3-year)
Middle market and large corporate quarterly average yields
Large Corp
MM

14. 0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
4Q03
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
2008
1Q-3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
All-in-yield(3-year)
LIB/LIB Floor LIB Spread Spread due to OID
14
Source: Thomson Reuters LPC; all-in middle market institutional yields (3 year)
Middle market leveraged loan yields up for 3rd straight quarter
Capital Markets Metrics – Pricing

15. 15
Source: Thomson Reuters LPC
Quarterly cov-lite volume down sharply from 4Q
Capital Markets Metrics – Covenants
15
Middle market covenant-lite volume
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
Cov.Lite%ofissuance
Cov-liteissuance($Bils.)
MM Cov Lite Volume
% of MM Volume
% of MM Institutional Vol.

16. 16
Source: S&P LCD
Capital Markets Review – Credit Quality
Default rates stable with sector-specific problems well-defined
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Mar05
Jul05
Nov05
Mar06
Jul06
Nov06
Mar07
Jul07
Nov07
Mar08
Jul08
Nov08
Mar09
Jul09
Nov09
Mar10
Jul10
Nov10
Mar11
Jul11
Nov11
Mar12
Jul12
Nov12
Mar13
Jul13
Nov13
Mar14
Jul14
Nov14
Mar15
Jul15
Nov15
Mar16
Jul16
Nov16
Mar17
Jul17
Nov17
Mar18
Lagging 12-month leveraged loan default
rate by number
38.89%
16.67%
5.56%
5.56%
5.56%
5.56%
5.56%
5.56%
5.56%
5.56%
Oil & Gas
Retail
Forest Product
Real Estate
Healthcare
Services & Leasing
Television
Utilities
Aerospace & Defense
Radio
Composition of defaults

17. Capital Markets – Second Quarter 2018 Outlook
Higher Libor expected to create pressure for lower spreads
Investment banks report growing pipeline for M&A transactions, creating
improved leveraged lending supply
Middle market spreads sustained amid move to higher leverage
Continued capital in-flows further erode covenants, structures
Senior leverage of 3.5-4x; total of 5.5-6x for traditional middle market; 4.0-
4.5x senior/6-6.5x total for larger mid caps; >4.5x senior/6.5x total for BSL
Will rising interest rates be the downturn trigger?
17

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