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150 Thomson Reuters LPC Middle Market Loans Conference

The Middle Market Evolution Continues:

A View from Above

April 27, 2016

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The Middle Market Evolution Continues: A View from Above

Moderator

Robyn E. Roof

Head of Loan Syndicate, Sales and Research

KeyBanc Capital Markets, Inc.

rroof@key.com

Panelists

Kevin F. Burke

Head of Loan Syndicate, Sales and Trading

Antares Capital

kevin.burke@antares.com

Walter Jackson

Head of Direct Lending Platform

Onex Credit

wjackson@onexcredit.com

Eric Lloyd

Head of Global Private Finance

Babson Capital Management

elloyd@babsoncapital.com

Devon M. Russell

Alexandra Vidmar

KeyBanc Capital Markets

216-689-3323 / avidmar@key.com

Contacts:

Robyn E. Roof

KeyBanc Capital Markets

212-476-7423 / rroof@key.com

Juan Gomez

KeyBanc Capital Markets

216-689-3234 / juan.gomez@key.com

James Hussney

KeyBanc Capital Markets

216-689-3559 / jhussney@key.com

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Agenda

I. Middle Market: The Commercial

II. Middle Market: The Evolution

III. Middle Market: The Future

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I. Middle Market: The Commercial

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Middle Market: The Commercial

Sources: National Center for the Middle Market, 4Q15 Report; CIA World Fact Book

5th Largest Global Economy

Compelling Opportunity for the Middle Market

$4.3T (~33%) in Private Sector GDP

Small Business

<$10MM

Annual Revenue

~ 6MM

Businesses

35%

Employment

Middle Market

$10MM - <$1B

Annual Revenue

200,000

Businesses

34%

Employment

Big Business

>$1B

Annual Revenue

~ 2,000

Businesses

31%

Employment

6

Middle Market: The Commercial

Sources: Association for Corporate Growth, Access to Capital – How Small & Mid-size Businesses are Funding their Futures

(National Center for The Middle Market & Milken Institute)

PE backed companies (1995-2013)

Banks remain the predominant source of outside capital for business of all sizes

Banks are disrupted by newer nonbank lenders and other source of capital

Banks and nonbank capital sources collaborate

134%

31%

84%

27%

PE-backed Business All Businesses PE-backed Business All Businesses

Comparative Sales Data Comparative Jobs Data

7

Size of Market

Favorable Pricing

Capital Structure Seniority

Lower Risk Profile

More Conservative

Structures

Less Volatility / Increased Liquidity

"Skin in the Game"

Lower Defaults / Higher

Recoveries

Shorter Duration

Diverse Investor Base

MIDDLE MARKET

INCLUDES 200,000

BUSINESSES IN ALL

INDUSTRY SEGMENTS

AND GEOGRAPHIES

Middle Market: The Commercial

Sources: Antares Capital, The National Center for the Middle Market – 2014 Annual Report

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II. Middle Market: The Evolution

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FinCo Insurance

Company

Private

Equity

Heller Financial

professionals leave to

start Antares (1996)

David L. Babson & Co.

traces back 75 years

Founded in 1984, and

went public in 1987

GE Antares acquires

Merrill Lynch Capital

(2008)

Babson acquires First

Union Institutional Debt

Management (2002)

Onex Credit was

acquired by Onex in

2007. Recently

expanding Direct

Lending Platform

Middle Market: The Evolution

Antares joins forces

with CPPIB (2015)

GE acquires Antares

(2005)

MassMutual acquires

Babson (1995)

ONCAP has raised 3

funds since 1999

Babson rebranded as

Babson Capital

Management (2004)

Onex Partners has

raised 4 large cap PE

funds

10

GE Capital Evolution

Private Equity Finance Unit

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Middle Market: The Evolution LTM

Banks CLOs BDCs Direct Lending Platforms

Note: Each category organized top down, from newest to oldest

Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites

12

Jan-16

Huntington Bancshares to strengthen Midwest franchise with

financially and strategically accretive merger with FirstMerit

Corporation

Nov-15 M&T Bank completes acquisition of Hudson City after 3-Year delay

Nov-15 L.A.'s 'bank to the stars,' City National Bank, now under Canadian

ownership – RBC

Oct-15 KeyCorp to acquire First Niagara Financial Group

Aug-15 CIT Completes acquisition of OneWest Bank

Apr-16 Japan's SMBC Nikko sets up investment banking team in New York

Mar-16 SunTrust plans to hire as many as 200 in mid-market M&A push

Oct-15 Regions adds mid-market I-Bank BlackArch, as financial services

drive M&A

Aug-15 TPG joins Thain’s CIT to form special-situations lending venture

Middle Market: The Evolution - Banks

Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites

13

Feb-16 Golub prices $478MM CLO – L+ 233

Feb-16 NewStar prices $348MM CLO – L+ 230

Dec-15 Maranon prices debut $355MM CLO – L+ 210

Oct-15 Cerberus prices CRR $413MM CLO – L+ 205

Sep-15 Fifth Street prices $417MM CRR-compliant CLO – L+ 192

Aug-15 NewStar prices $398MM risk-retention compliant CLO – L+ 200

Jul-15 Golub prices $558MM CLO – L+ 180

Jul-15 BMO Asset Management prices $308MM CLO – L+ 195

Jun-15 Carlyle GSM prices debut $399MM middle-market CLO – L+ 185

May-15 Fifth Street prices CRR-compliant $309MM CLO – L+ 180

Apr-15 NXT Capital prices $409MM CLO – L+ 185

Middle Market: The Evolution – CLOs

Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites

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Apr-16

Apr-15

Ares forms new middle market lending venture with Varagon

Ares Management fund acquires loan portfolio from First Capital

Apr-16 Tennenbaum Capital nets minority investment from CNO Financial

Mar-16

Nov-15

Aug-15

Monroe Capital launches specialty finance business for Fintech

Monroe Capital launches ABL unit; Moser, Price co-heads in Boston

Monroe Capital, Channel Partners launch JV for working capital loans

Jan-16 NewStar Business Credit launches unitranche loan initiative

Oct-15 Solar Capital adds Voya as partner on unitranche fund

Aug-15 BDCs Medley Capital, Sierra Income ink new financing for JVs

Jul-15 Capitala Finance, CION launch middle-market lending JV

Jun-15 Fifth Street Finance sells healthcare direct lender to rival MidCap

Middle Market: The Evolution – BDCs

Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites

15

Mar-16 Griffin-Benefit Street Partners-BDC says regulation, investment limit

behind new structure search

Feb-16 Full Circle evaluating company sale, blames challenging market

Feb-16

Nov-15

Prospect Capital stock drops 5% amid news of possible SEC probe

into valuations

Prospect Capital details portfolio, moving ahead with spin-off plan

Nov-15 American Capital unveils strategic review, including potential sale

Oct-15 BlackRock hires Zugay from Ares to head middle market investments

Jul-15 BDC Carey Credit Income Fund launches public capital raise

Jul-15 Audax files plans for non-traded middle market BDC

Middle Market: The Evolution – BDCs

Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites

16

TBA Apr-16 Young exits Och-Ziff to co-found new alternative asset manager

Apr-16 Goldman Sachs’ Walt Jackson to launch Onex direct lending platform

Feb-16 Stuart Aronson joins H.I.G. capital as head of U.S. direct lending

Feb-16 KKR's Lipschultz to Launch Private Debt Firm with Blackstone's

Ostrover

Jan-16 GSO, Rivington team up for middle market energy investments

Jan-16 Adams Street to pursue new middle market private credit strategy

Dec-15 Great Rock, Two Sigma launch middle market lending platform

Middle Market: The Evolution – Direct Lending Platforms

Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites

17

Nov-15 Canadian pension fund PSP launches U.S. private debt fund

Nov-15 DDJ Capital hires head of middle market loan origination

May-15 AllianceBernstein middle market direct lending platform nets $1.1B

Apr-15 B Riley Financial, KKR form middle market lending venture

Apr-15 TIAA-CREF launches new senior loan money management unit -

Churchill Asset Management

Apr-15 KKR steps up middle market direct lending with close of $1.34B fund

Middle Market: The Evolution – Direct Lending Platforms

Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites

18

Middle Market: The Evolution

New Credit Platform Formation

Addressable

Market

Capital

Base

Clients

Product

Human

Resources

• Banking regulation and BDC volatility

have created opportunity

• Barriers to entry are increasing

• Platform differentiation, product

breadth, and scale are increasingly

important

• Regulation

• Mark-to-Market / Other disclosures

• Conflict management

• Relative value

• Overhead investment amount and

pace

• Market timing

• Liquidity / Unlevered Yield

Relevance

• Scale, Stabile, Consistent,

Predictable, Flexible

• Advisory / Industry verticals

• Broad product / Service spectrum

• Appropriately skilled team

Independence / Diversity

• Sources of capital

• Financing opportunities

Market Dynamics Success Factors

Challenges

Sources: Devon Russell

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Middle Market: The Future

Bank’s share of middle-market sponsored private deal submissions dips in 4Q15

Sources: Thomson Reuters LPC

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Regional Banks Non-Banks

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Middle Market: The Future

Leveraged lending guidance: Impact on / of non-banks lenders

Sources: Thomson Reuters LPC

U.S. LBO Bookrunner League Tables (Volume in $Billions)

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