Credit Sensitivity is Growing

7/24/2019 Credit Sensitivity is Growing

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MOODYS.C

22 FEBRUARY 20

CONTACTSChristina PadgettSenior Vice [email protected]

Tom MarshellaManaging DirectorUS and Americas Corporate [email protected]

ALSO IN THIS ISSUEThree-Year Refunding Index Continues itsFree Fall

9

Heat Map: B3 Negative And LowerSector Weightings

10

Oil & Gas Sends List to Six-Year High,Fueling Forecast for More Defaults

12

For High-Yield, 2015 Wasa Year of Discontent

13

Default Rate to More than Double to 4.2%by January 2017

14

App A: B3 Negative & Lower Ratings List 16App B: Probability Of Default Ratings 17

App. C: Covenant Quality Scores: JanuaryHigh-Yield Bond Issues

20

App D: Median Credit Metrics for Issuersat Ba1 and Below

21

ALSO READ» High Yield Interest (European Edition)» High Yield Interest (Asian Edition)

CREDIT SENSITIVITY IS GROWINGWeaker pricing in the leveraged finance market reflects heightened credit sensitivity and is spreadinbeyond sectors directly under pressure from low energy prices. Exacerbating conditions is theslowdown in CLO formation and diminished loan and high yield bond mutual fund investment. NewLBO transactions are likely to remain marginal in part as strategic M&A continues to be morecompelling. The pace of refinancings should slow as pricing remains unattractive for borrowers. TheUS spec-grade default forecast continues to worsen, with an increase to 4.7% in January 2017 from3.1% at the end of this January.

FEATURE ARTICLESConsensus Warns of a Perilously Wide High-Yield SpreadElevated market volatility both reflects and amplifies risk aversion.

SGL Monitor: LSI Pushes Higher on the Back of Energy, MiningThe Liquidity-Stress Index (LSI) rose to 8.1% in mid-February from 7.9% in January as

the oil & gas LSI pushed into record territory.

Protection Improves in January Amid Tepid IssuanceThe Covenant Quality Index strengthened to 4.30 in January from 4.32 in December.

Maturity Wall Pushed to 2017, But Access Could be DisruptedLow-rated companies would be most exposed to a disruption.

LEVERAGED FINANCE SNAPSHOTEXHIBIT 1

Moody's Credit Cycle Gauge: Risks Are RisingLeveraged Finance Heat Map: red indicates index is trending negative

Source: Moody's Investors Service

* LSI: from 2002, CQI: f rom 2011, B3-Neg: from 2007, Refunding: from 2002. Data through Jan. 31

http://www.moodys.com/

mailto:[email protected]



http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_185856


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TRENDS IN LEVERAGED FINANCE

2 LEVERAGED FINANCE INTEREST 22 FEBRUARY 2

23 FEBRUARY 2023 FEBRUARY 2016

EXHIBIT 2

Liquidity-Stress Index Points to Rising Default Rate

The LSI takes the total number of companies rated SGL-4, our lowest liquidity rating on a scale of 1 to 4, and divides it by the total number of SGL-ratedcompanies. The more SGL-4 rated companies there are, the higher the index. The MCSI reflects the percentage of SGL-rated companies with the weakest

score for the covenant component of liquidity analysis. Source: Moody’s Investors Service.

EXHIBIT 3

B3 Negative and Lower List Hit Another Multi-Year High as of February 1

Chart scale begins at 90 companies; first 90 are B3/Caa1. Source: Moody’s Investors Service.

EXHIBIT 4

Refinancing Risk Continued to Rise in December

Source: Moody’s Investors Service. Index is a ratio of debt issuance to upcoming maturities. It increases as refinancing r isk falls. See commentary, page 8.

0%

5%

10%

15%

20%

25%

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Moody's Liquidity Stress Index Covenant Stress Index

1-year US spec-grade default rate AVG Long-term LSI

LSI Long-Term Avg: 6.7%

90110

130

150

170

190

210

230

250

270

290

F e b - 1 4

M a r - 1 4

A p r - 1 4

M a y - 1 4

J u n - 1 4

J u l - 1 4

A u g - 1 4

S e p - 1 4

O c t - 1 4

N o v - 1 4

D e c - 1 4

J a n - 1 5

F e b - 1 5

M a r - 1 5

A p r - 1 5

M a y - 1 5

J u n - 1 5

J u l - 1 5

A u g - 1 5

S e p - 1 5

O c t - 1 5

N o v - 1 5

D e c - 1 5

J a n - 1 6

F e b - 1 6

B3-PD/Caa1-PD Caa2 -P D/Caa3-PD Ca-PD/C-PD 3-M onth Moving Average

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

F e b

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J u n e

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D e c

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N o v

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J u l y

S e p

N o v

J a n

2010 2011 2012 2013 2014 2015 2016

1 - Year Moody’s Refunding Index: RI (1) 3 - Year Moody's Refunding Index: RI (3)

The spec-grade LSI rose to8.1% in mid-February from7.9% in January, as the oil& gas LSI jumped to 24.4%,

ushing into recorderritory. The LSI’s ongoinglimb since late 2014

moved the index above itsong-term average in

December and signals aising default rate in 2016hat could worsen as theear goes on. (Ex. 2)

The list hit another multi-ear high of 264, and is now

only 27 issuers away fromts credit-crisis peak. On a

monthly basis, thepeculative-grade grouprew by 6%, while on aearly basis, it surged bylmost 44% as of February. The majority of new

dditions came from oil &as, followed by metals &

mining, chemicalsnd coal. (Ex. 3)

The three-year refundingndex declined to 4.7x inanuary 2016 from 6.6x inanuary 2015. The three-ear index has dropped

59% from its peak of 11.5xn July 2007, during whichime refinancing conditions

were significantly moreavorable. (Ex. 4)

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.







EXHIBIT 5

Institutional Non-Financial Loan and Bond Issuance Has Been Constrained

Year-to-date data as of 5 Feb. 2016. Figures in US$ billions. Loan data reflects completed deals. Source: Dealogic, Moody's Investors Service Estimates.

EXHIBIT 6

Rating Breakdown of Leveraged Loans and Bond issuances

Year-to-date data as of 5 Feb. 2016. Figures in US$ billions. Loan data reflects completed deals. Source: Dealogic, Moody's Investors Service Estimates.

EXHIBIT 7

B2, B3 Dominates Total Speculative-Grade PopulationNorth American New Issuer Corporate Family Ratings

Source: Moody’s Investors Service. * Year-to-date data as of 1 February 201 6

$5

$11

$23

$6

0.0

5.0

10.0

15.0

20.0

25.0

YTD 2015 YTD 2016 YTD 2015 YTD 2016

Leveraged loans High-yield bonds

58.6% 54.7%

21.8%

46.4%

34.6% 42.2%

74.1%

53.6%

6.7% 3.0% 4.2% 0.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

YTD 2015 YTD 2016 YTD 2015 YTD 2016

Leveraged Loans High-Yield Bonds

Ba B Caa-Ca

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016YTD

Ba1% Ba2% Ba3% B1% B2% B3% Caa and below %

Thus far in 2016 issuancehas been light amid broad-based volatility, energy

ector distress andnhibitive pricing. Issuance

will remain constrained by flight to quality and alowdown in CLOormation, and ongoing

mutual fund outflows.nvestor caution may

obviate some regulatoryoncerns, though wenticipate an increasedocus on covenant quality.

Ex. 5 and 6)

New leveraged loan andhigh yield issuers havemostly remained on the

idelines so far in 2016.Downgrades and more

xuberant times have lefthe rating distribution ofhe sector relatively weak.

The potential fornvestment grade

downgrades (for example,hose facing commodityressure) may increase the

Ba population somewhatover time. (Ex. 7)



MARKET OUTLOOK


EXHIBIT 8

Spread to Benchmark Widens, Reflecting Disconnect Between Investor Protections, Risk PremiumsAverage Benchmark Spread Versus Moody’s Covenant Quality Index

Moody’s Covenant Quality Index (CQI) tracks the degree of overall investor protection in the covenant packages of high-yield bonds issued in the USand Canada on a three-month rolling average basis. Spread reflects difference between coupon and Treasury. See CQI commentary on page 8.

Source: Moody’s High-Yield Covenant Database

EXHIBIT 9

Three-Month North American Corporate Credit Rating Volatility

This graph shows the gross average number of notches a credit will change over a 3 month backward-looking horizon. Source: Moody’s Investors Service

EXHIBIT 10

Corporate Speculative Grade Downgrades Continue to Accelerate

Source: Americas CFG Actions

200.0

250.0

300.0

350.0

400.0

450.0

500.0

550.0

600.0

650.0

700.03.20

3.303.40

3.50

3.60

3.70

3.80

3.90

4.00

4.10

4.20

4.30

4.40

4.50

4.60

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

Covenant Quality Index* Bond Spread**

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0

10

20

30

40

50

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90

Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

Downgrades Upgrades

Our CQI continues toeflect weak-levelrotection thoughrotection improved in

anuary amid tepidssuance. HY-Lite bonds arebsent from the market andhe Covenant Quality Indexmproved slightly. Weredict a modest butustained improvement inovenant quality in 2016.Ex.8)

Despite an increase indowngrades and market

yrations, credit ratingvolatility is below the long-

erm average covering983 to YTD2015. (Ex. 9)

Downgrades have beenignificantly outpacing

upgrades over the last sixmonths. The commodity

ectors have experiencedector wide reviews for

downgrades as well. To

date, downgrades haveeen dominated by oil andas and commodity issuersut other sector are alsohowing weakness. (Ex.10)



MARKET OUTLOOK


Consensus Warns of a Perilously Wide High-Yield SpreadElevated market volatility both reflects and amplifies risk aversion. The widening of the high-yield bond

from its first-quarter 2015 average of 495 basis points (bp) to a February-to-date average of 847 bp

complements a downward revision of the consensus projection of 2016’s real GDP growth from Q1-2015’s2.9% to a recent 2.1%. Of special importance to earnings-sensitive securities such as high-yield bonds was

the downgrading of the consensus estimate of 2016’s growth of pretax operating profits from Q1-2015’s

4.1% to February 2016’s 1.5%.

Even after excluding the hard-hit energy sector, recent estimates for business sales warn of subpar

profitability that should restrain business outlays on capital goods and staff. For the 78% of the S&P 500’s

non-energy member companies that have reported for 2015’s final quarter, a meager 0.3% annual uptick by

revenues limited the group’s operating profits to a 1.0% gain. Also, after slowing to a six-year low of 0.9%

in Q4-2015, business sales excluding sales of energy products may rise by only 1.4% yearly for January 2016

The high-yield bond spread’s month-long average has been at least 800 bp for only 32, or 8.6%, of the 373

months since year-end 1984. Ultra-wide high-yield spreads have offered valuable insight regarding the USeconomy’s position in the business cycle. For example, a recession was either fast approaching or already

present whenever the high-yield spread’s month-long average first broke above 800 bp more than two

years after a business cycle bottom.

EXHIBIT 11

By Reducing Liquidity, Very Wide Spreads Help to Boost the High-Yield Default Rate

Source: Moody's Monthly Default Report, Moody's Capital Markets

Moreover, complacency is ill advised when viewing the high-yield spread in terms of a moving 12-month

average. Recessions were either present or less than a year away each time the high-yield bond spread’s

moving 12-month average topped 600 bp two years after the cycle bottomed. Thus, heightened sensitivityto risk is warranted in view of how the high-yield spread’s latest yearlong average was 573 bp and rising.

Though consensus projections for the high-yield bond spread are lacking, both the Philadelphia Federal

Reserve Bank’s Survey of Professional Forecasters and Blue Chip Financial Indicators supply consensus views

on Moody’s long-term Baa corporate bond yield. Given the latter’s very strong correlation of 0.93 since

September 1988 with the high-yield bond spread, a consensus forecast for the high-yield spread can be

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.59.5

10.5

11.5

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14.5

200

400

600

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1,000

1,200

1,400

1,600

1,800

2,000

Dec-93 Jul-95 Feb-97 Sep-98 Apr-00 Nov-01 Jun-03 Jan-05 Aug-06 Mar-08 Oct-09 May-11 Dec-12 Jul-14 Feb-16

US High-Yield Bond Spread: basis points (bp) ( L ) US High-Yield Default Rate: %, actual & projected ( R )

ohn LonskiMoody’s Analytics

ew York

Recessions were eitherresent or less than aear away each time the

high-yield bond spread’smoving 12-month

verage topped 600basis points two years

fter the cyclebottomed.



MARKET OUTLOOK


inferred from consensus outlooks for the Baa corporate bond yield and the relevant

benchmark Treasury yield.

As derived from the unweighted average of the latest available consensus forecasts, Moody’s long-term Baa

corporate bond yield spread is expected to average 250 bp over the next 12 months. A 250 bp spread forthe Baa corporate yield supplies an expected midpoint forecast of 781 bp for the high-yield bond spread

during the next 12 months, according to an ordinary least squares regression model.

Such a wide spread over a year-long span warns of both a well-above trend default rate and elevated

recession risks. As derived from the statistical relationship between the US’ high-yield default rate and the

high-yield bond spread’s yearlong average, a reading of 781 bp for the latter tends to be associated with a

default rate of 7.7%. Thus, if the high-yield spread averages 781 bp over the next year, the high-yield

default rate should rise considerably above the 3.1% of the year-ended January 2016.

However, to the degree the attainment of a 7.7% default rate by Q1-2017 is viewed as being unlikely,

February-to-date’s average high-yield spread of 847 bp implies that the composite speculative-grade bond

yield now substantially overcompensates for default risk. Still, the default rate’s now- rising trend may limitthe scope of any rally by high-yield debt.

EXHIBIT 12

Wider Bank Loan Spreads Point to Climb in High-Yield Loan Defaults

Source: Moody s Monthly Default Report, Moody s Capital Markets

175

375

575

775

975

1,175

1,375

1,575

1,775

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

Sep-96 Feb-99 Jul-01 Dec-03 May-06 Oct-08 Mar-11 Aug-13 Jan-16

US High-Yield Loan Default Rate: % ( L ) US High-Yield Loan Spread: bp ( R )



SPECULATIVE GRADE LIQUIDITY


SGL Monitor: LSI Pushes Higher on the Back of Energy,Mining

Originally published 17 February 2016

Moody’s Liquidity-Stress Index (LSI) for speculative-grade issuers rose to 8.1% in mid-February, up from

7.9% in January as the oil & gas LSI pushes into record territory. The index has been climbing since late 2014

and crossed above its long-term average in December. That points to a rising default rate in 2016 and

beyond. Moody’s projects the US speculative-grade default rate will rise to a six-year high of 4.7% in

January 2017, from 3.1% last month. That would put the default rate in range of surpassing its 4.7% long-

term average in early 2017.

The energy sector continues to be the main driver of liquidity strain and defaults. So far in February there

were 15 SGL downgrades versus just four upgrades. Eleven of those downgrades were for energy companies,

the ratings of which we are systematically reviewing in light of persistently low oil & gas prices. The Oil &

Gas LSI rose to 24.4% in mid-February, up from 21.4% last month, a level that if sustained will nearly matchthe previous 24.5% peak reached in March 2009.

The LSI excluding oil & gas remains below its 6.5% long-term average, but is starting to show cracks. While

the rise in the LSI over the last two years can be mainly traced to energy and commodities, liquidity stress

has crept slowly into other sectors, mostly where lower-rated companies have experienced operating and

cash-flow constraints or have maturities over the next 12-18 months that will be more difficult to resolve

given the sharp jump in borrowing costs. Though the index dropped to 3.9% in mid-February, from 4.5% in

January, the decline was largely due to defaults – an ominous sign that indicates liquidity strains are

spreading modestly beyond the oil & gas sector.

US speculative-grade companies still have liquidity support from decent maturity profiles, a lack of

widespread covenant pressures and a modest US economic expansion. However, soft developing-marketgrowth – including the slowdown in China that has had such a powerful effect on commodity prices – and

widening credit spreads that limit speculative-grade debt issuance, are stacking on liquidity and default-rate

pressure. Downward pressure on revenues and operating cash flow are the primary driver of liquidity

weakness at present, but we are also starting to see maturity and covenant issues come into play. If the

economic expansion begins to fail, it could pile on the pressure for companies already struggling

with liquidity issues.

While maturity profiles for many US spec-grade companies remain relatively healthy through 2016, our

refunding index shows that liquidity pressure from maturities in 2017 is beginning to come into play. In

2016, we estimate bank debt and bond maturities for the broad U.S. spec-grade universe to rise to $28

billion, climbing to about $80 bil lion in 2017 and $400 billion in 2020. When maturities increase and new

issuance declines, our proprietary refunding index falls – indicating declining maturity coverage. In January

2016, the longer-term three-year refunding index declined to 4.7x from 6.6x in January 2015, marking a

59% drop from its July 2007 peak. The last time the refunding index showed such a poor performance was

during the 2009 – 2010 period, when it bottomed out at 1.5x and showed an average performance of 4.9x

during those two years.

For the full report, please see: SGL Monitor: LSI Pushes Higher on the Back of Energy, Mining

ohn Puchallaew York

The energy sector

ontinues to be the maindriver of liquidity strainnd defaults. So far in

February there were 15SGL downgrades versusust four upgrades.




https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_187580







COVENANT QUALITY


North American Covenant Quality Index

Protection Improves in January Amid Tepid IssuanceOriginally published 9 February 2016

» Covenant Quality Index (CQI) improves slightly. The CQI strengthened to 4.30 in January from 4.32 inDecember, continuing to reflect weakest level covenant protection, and coming in 91 basis points weaker thaits record-best of 3.39 in April 2011. The index is a three-month rolling average CQ score weighted by eachmonth’s total number of bonds1. A lower score denotes stronger covenant quality on our scale from 1.0 to 5Only 38 bonds were issued during the three-month period, the lowest volumesince December 2011.

» Single-month covenant quality improves dramatically

January’s high-yield bonds had an average covequality score of 4.02, improving by more than half a point from December’s 4.53. This reflects the limitednumber of deals that cleared the market and the absence of HY-lite transactions.

» No Caa/Ca issuances clear the market in January

Historically, 20% of a month’s issuance volume consiof

Caa/Ca

-rated bonds. However, in January, and for the second consecutive month, no such bonds cleared

market, reflecting investors’ reluctance to accept riskier credits. The historical average CQ score for Caa/Carbonds is 3.62, so a lack of these bonds should move the CQI weaker. The CQI’s improvement in the face ofdiminished

Caa/Ca

issuance signifies that stronger covenants are being offered in the upper-echelons of thespeculative-grade market. Bonds rated single

B

– the sweet spot in the high-yield market – comprised 67% o January’s issuance. That’s up from 33% in December, and above the historical average of 49%. The covenanquality of the four single B bonds that cleared in January improved slightly, averaging a score of 4.21, stronge4.24 in December, but weaker than the historical average of 3.80.

Ba

-rated bonds accounted for the remain33% of the month’s issuance volume, lower than 67% in January, but in line with the historical average of 32The average score for December’s two Ba-rated bonds was 3.64, more than a full point stronger than theDecember average of 4.68 and significantly stronger than the 4.40 historical average.

» No HY-lite bonds issued in January

Of the six bonds issued in January, none feature l ite packages, the firsmonth since August 2011 with no such issuances. The historical average for HY-lite is 22% and in Decemberthree of the six bonds had lite terms . bonds receive the weakest possible CQ score of 5.0.

EXHIBIT 13

Monthly Average Covenant Quality (CQ) ScoresAll Bonds and Bonds Excluding High-Yield Lite

Source: Moody’s High-Yield Covenant Database

For the full report, please see: Protection Improves in January Amid Tepid Issuance

2.80

3.00

3.20

3.40

3.60

3.80

4.00

4.20

4.40

4.60

J a n - 1 1

F e b - 1 1

M a r - 1 1

A p r - 1 1

M a y - 1 1

J u n - 1 1

J u l - 1 1

A u g - 1 1

S e p - 1 1

O c t - 1 1

N o v - 1 1

D e c - 1 1

J a n - 1 2

F e b - 1 2

M a r - 1 2

A p r - 1 2

M a y - 1 2

J u n - 1 2

J u l - 1 2

A u g - 1 2

S e p - 1 2

O c t - 1 2

N o v - 1 2

D e c - 1 2

J a n - 1 3

F e b - 1 3

M a r - 1 3

A p r - 1 3

M a y - 1 3

J u n - 1 3

J u l - 1 3

A u g - 1 3

S e p - 1 3

O c t - 1 3

N o v - 1 3

D e c - 1 3

J a n - 1 4

F e b - 1 4

M a r - 1 4

A p r - 1 4

M a y - 1 4

J u n - 1 4

J u l - 1 4

A u g - 1 4

S e p - 1 4

O c t - 1 4

N o v - 1 4

D e c - 1 4

J a n - 1 5

F e b - 1 5

M a r - 1 5

A p r - 1 5

M a y - 1 5

J u n - 1 5

J u l - 1 5

A u g - 1 5

S e p - 1 5

O c t - 1 5

N o v - 1 5

D e c - 1 5

J a n - 1 6

←

W e a k e r

S t r o n g e r →

Avg. Score (incl. HY-Lite) Avg. Score (excl. HY-Lite)

van Friedmananny Gao

New York

anuary’s high-yieldbonds had an average

ovenant qualitycore of 4.02,mproving by morehan half a point from

December’s 4.53. Thiseflects the limited

number of deals thatleared the market

and the absence ofHY-lite transactions.










REFINANCING


Moody’s Refunding Indices

Three-year Refunding Index Continues its Free-fall

The three-year refunding index declined to 4.7x in January 2016 from 6.6x in January 2015. The three-year

index has dropped 59% from its peak of 11.5x in July 2007 during which time refinancing conditions were

significantly more favorable. The last time the refunding index showed such a poor performance was during

the 2009-2010 period, when the index bottomed out at 1.5x and showed an average performance of 4.9x

during those two years. The three-year index has been below its moving-average of 6.8x for over a year.

Moody’s one-year Refunding Index declined 29% year-over-year to 11.5x in January 2016, versus 16.2x in

January 2015. The one-year Refunding Index remained almost flat on a month-over-month basis, as in

December 2015 the index came in at 11.4x. This is the second month the index is below its historicalaverage of 12.4x, indicating refinancing conditions are tightening. Overall, the one-year refunding index is

down 47% from its peak of 21.8x in September 2013.

High-yield bond issuance for rated US speculative-grade issuers amounted to $192 bill ion for the trailing 12

months ended in January 2016 versus $197 billion in December 2015. One-year rated high-yield bond

maturities now stand at $16.6 billion, compared with $12 billion a year ago, with three-year maturities at

$122 billion versus $88 billion a year ago.

Our Refunding Index indicates conditions are weaker than the historical norm given the recent weakness in

high-yield bond issuance and step-up in maturities. Both the one-year and three-year indices are currently

trending below their historical norm, indicating the market’s ability to absorb upcoming

maturities is below average.

EXHIBIT 14

Refinancing Risk Continued to Rise in December

The index indicates the market’s ability to absorb spec-grade bonds maturing over the next 12-36 months given the current pace of issuance.

Source: Moody’s Investors Service

0.0x

5.0x

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15.0x

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25.0x

F e b

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J u l y

S e p t

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J u l y

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M a r

M a y

J u l y

S e p

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J a n

2010 2011 2012 2013 2014 2015 2016

1 - Year Moody’s Refunding Index: RI (1) 3 - Year Moody's Refunding Index: RI (3)

The refunding indices are ratios of debt issuance to upcoming maturities. They decline when spec-grade corporate maturities rise and new issuance falls, indicating that refinancing risk is on the rise.

iina SiilabergNew York

The three-year indexhas dropped 59% fromts peak of 11.5x in July

2007 during which timeefinancing conditions

were significantly moreavorable.



ENERGY IN FOCUS


Heat Map: B3 Negative And Lower Sector Weightings(%)EXHIBIT 15

B3 Negative And Lower Sector Weightings (%)

Current 1 month ago 1 year ago

SectorNumber of

Issuers 2/1/2016 1/1/2016 2/1/2015 monthly d

OIL & GAS 74 28.0% 25.4% 10.9% 2.

SERVICES 35 13.3% 13.7% 12.0% -0.

RETAIL 18 6.8% 6.9% 8.2% 0.

MANUFACTURING 14 5.3% 5.6% 7.6% -0.

CONSUMER PRODUCTS 13 4.9% 5.6% 5.4% -0.

TECHNOLOGY 13 4.9% 5.2% 4.3% -0.

MEDIA 12 4.5% 4.8% 6.5% -0.

METALS & MINING 11 4.2% 3.2% 3.8% 0.WHLSL DSTRBTN 11 4.2% 4.4% 3.8% -0.

DEFENSE 9 3.4% 3.6% 3.8% -0.

ENVIRONMENT 6 2.3% 2.4% 2.2% -0

GAMING: CASINOS 6 2.3% 2.4% 6.0% -0

TELECOMMUNICATIONS 6 2.3% 2.4% 3.3% -0

AIRCRAFT & AEROSPACE 5 1.9% 2.0% 1.6% -0

CHEMICALS 5 1.9% 1.2% 2.2% 0.

CONSTR & ENGINEERING SERV 5 1.9% 2.4% 3.3% -0.

ENERGY: OTHER 5 1.9% 1.6% 2.2% 0.

RESTAURANTS 4 1.5% 1.6% 4.3% -0

PACKAGING 3 1.1% 1.2% 1.1% -0

AUTOMOTIVE 2 0.8% 0.8% 1.6% 0.

HEALTHCARE 2 0.8% 0.8% 2.2% 0.

PHARMACEUTICALS 2 0.8% 0.8% 1.1% 0.

TRANSPORTATION 2 0.8% 0.8% 1.6% 0.

NATURAL PRODUCTS PROCESSOR 1 0.4% 0.4% 1.1% 0.

FOREST PRODUCTS 0 0.0% 0.4% 0.0% -0.

"Oil & Gas" includes E&P, Oilfield Services and Midstream/Transmission gas companies

"Energy: Other:" includes Coal and Electricity production companies

Note: In the "monthly delta" column darkening red indicates increases, while darkening green indicates decreases

ulia Chursinew York

Oil & gas reached yet

nother historical high,welling to 28% of the

group, up 2.6% on amonthly basis. That is

he highest increase outof all 25 sectors we

rack. Over the pastmonth the metals &mining and chemicals

ectors’ shares on theist have also grown by

90 and 70 basis pointsespectively, but thesendustries are nowherelose to the top of theist. Oil & gas is an

obvious outlier,epresenting almost

one-third of the total ofhis cohort.



RECENT RESEARCH


23 FEBRUARY 2023 FEBRUARY 2016

Refunding Risk and Needs 2013-2017: US Speculative-Grade Corporations

Maturity Wall Pushed to 2017, but Global Macro IssuesCould Disrupt Market AccessLow-rated companies would be most exposed to a disruptionOriginally published 5 February 2013

About $645 billion of speculative-grade, non-financial corporate debt is maturing over the next five years.

That amount is down from the $668 billion we cited in last year’s report covering 2012-2016 maturities and

from the $693 billion we noted in our 2011 report covering 2011-2015 maturities.

Companies continue to extend the maturity wall , so that the peak year for speculative-grade bank credit

facility and bond maturities has moved to 2017 from 2016. Almost 70% ($444 billion) of the five-year

maturities will come due in 2016 and 2017, with 40% ($258 billion) of the total five-year speculative-grade

bonds and credit facilities maturing in 2017 alone.

In contrast, we reported last year that 61% ($408 billion) of the five-year maturities was due in the final two

years and about 37% ($246 billion) of maturities was set to mature in the fifth year, 2016.

While near-term refinancing risks appear modest, the increase in refinancing needs over the ensuing three-

year period, 2015-2017, has heightened the intermediate risk. Companies will remain vulnerable to the

possibility of rising interest rates and widening spreads. The risk of wider spreads and/or higher rates would

result in higher financing costs and could reduce market access.

As in previous years, the telecommunication/technology/media sector has the highest percentage of

speculative-grade debt maturing over the next five years; it accounts for 27%, or $172 billon, of the five-yea

total. This proportion was similar to last year’s finding of 28% ($189 billion). The sector includes some of

the largest rated speculative-grade companies, such as Clear Channel Communications and ClearwireCommunication.

PULL-FORWARD EFFECT COULD INCREASE NEAR-TERM MATURITIES

Although 2013-2015 refinancing needs are relatively benign at $200 bill ion, the pull-forward effect, which

refers to companies refinancing several maturities contained in the same bank credit agreement when the

first debt comes due, could accelerate the maturity profile. Bank credit facilities’ maturities alone could

double to $243 billion from $111 billion over the next three years, and total debt maturities could rise to

$332 billion from $200 billion due to this pull-forward effect.

For the full report, please see: Maturity Wall Pushed to 2017, but Global Macro Issues Could Disrupt Market

Access

evin Cassidyiina Siilabergew York

lmost 70% ($444billion) of the five-yearmaturities will comedue in 2016 and 2017,with 40% ($258billion) of the totalive-year speculative-

grade bonds and creditacilities maturing in

2017 alone.




https://www.moodys.com/credit-ratings/Clear-Channel-Communications-Inc-Old-credit-rating-600016686







https://www.moodys.com/credit-ratings/Clear-Channel-Communications-Inc-Old-credit-rating-600016686




RECENT RESEARCH


Moody's B3 Negative and Lower Corporate Ratings List

Oil & Gas Sends List to Six-Year High, Fueling Forecast

for More DefaultsOriginall y published 26 January 2016

The number of companies on Moody's B3 Negative and Lower Corporate Ratings List reached a six-year

high of 248 as of January 1, 2016, up 36% from the previous year and 11% from the previous quarter. The

list includes all US non-financial companies with a probability of default rating (PDR) of B3 negative or

below. Companies are added to the list via downgrades or rating assignments at B3 negative or below. They

are removed from the list upon an upgrade to B3 stable or higher, or through a default or rating withdrawal.

Fueled mostly by downgrades in the increasingly challenged oil & gas sector, the list's steady growth in 2015

brought it within 42 companies of its credit-crisis peak of 291, reached in April 2009. Yet the list represents

just 16% of the overall North American highyield non-financial corporate population, compared to 21% at

the beginning of 2009.

Looking to 2016, the list and other Moody's proprietary indicators of speculative-grade credit suggest

deteriorating credit conditions for lower-rated companies. We forecast that the US speculative default rate

will rise to 4.4% in December 2016, up from 3.2% recordered at the end of 2015. While slightly higher than

2.8% we projected year ago, the default rate remains considerably more tame than its credit crisis peak of

14.7%, reached in the third quarter of 2009.

The list remained above its three-month moving average for most of 2015, easing a little at the beginning of

August but surging again in September, then remaining high. The list's growth is contained mostly to the oil

& gas sector; other sectors have yet to show a widespread commiserate distress.

Defaults remain main reason for leaving the list

Throughout 2015, defaults were the main reason for issuers dropping off the list. For companies that

remained on the list, ratings downgrades far exceeded upgrades.

Among the 109 companies that left the list last year, 49% filed for bankruptcy, completed a distressed

exchange or missed an interest payment, 18% had their ratings withdrawn and 33% had their ratings

upgraded or outlooks changed to stable or positive. Distressed exchanges comprised 55% of the total

number of defaults, and were mainly concentrated in the oil & gas sector. Between 1988 and 2007,

distressed exchanges accounted for only about 15% of defaults.

For the full report, please see: Moody's B3 Negative and Lower Corporate Ratings List; Oil & Gas Sends List to

Six-Year High, Fueling Forecast for More Defaults

ulia Chursinew York

The list hits a six-yearhigh, supporting thease for an increasing

default rate for 2016.













RECENT RESEARCH


For High-Yield, 2015 Was a Year of DiscontentOriginally published 11 February 2016

Spec-grade gauges flashing red for junk debt

Our various proprietary indicators of spec-grade credit stress have been showing strain on the back of the

energy bust. The Liquidity Stress Index rose as oil prices tumbled to its multi-year lows and the B3 Negative

and Lower List ticked up 36% year over year at the end of 2015, due mainly to downgrades in the energy

sector. The lower-rated cohort continued its rise at the beginning of 2016, hit another multi-year high of

264 as of February 1, and is now only 27 issuers away from its credit-crisis peak.

As our heat map with sector weightings shows, oil and gas remains the largest constituent of Moody’s B3

Negative and Lower List) Due to continuing energy woes, the oil and gas sector’s percentage of the total

reached yet another record of 28% as of February 1. That by far exceeds the sector’s historical average of

9.2%, and the 4.8% observed in the midst of the credit crisis. The ratings quality for US spec-grade

corporate borrowers has deteriorated since the Great Recession. From 2009 through the end of 2015, B3corporate family ratings (CFRs) climbed from 14% to 24% of the spec-grade universe, while overall B-rated

credits have increased from 57% to 66%. As high-yield investors became more risk averse, and pricing of

leveraged loans and high-yield debt increased precipitously, fewer issuers started out with B3 CFRs.

However, our rating distribution is still dominated by B2s and B3s, reflecting heightened activity over the

past several years and investors' appetite for high yield in the low interest rate environment.

Oil and gas distress not running out of gas

Lower oil and natural gas prices have directly affected cash flows and credit profiles for lower-rated E&P

companies, while indirectly affecting other energy companies such as drillers and oilfield service

providers.After oil prices plummeted from mid-2014 levels, high-yield oil and gas issuers (E&Ps in

particular), looking to shore up their weak balance sheets, piled on distressed exchanges. In the past, evenduring oil price bust cycles, these debt-restructuring transactions were hardly used by these companies.

Overall, distressed exchanges dominate

Last year’s distribution of defaults is skewed towards distressed exchanges, the phenomenon that emerged

during Great Recession default cycle and continues unabated, as we noted in November (Distressed

Exchanges Remain Frequent Thanks to Oil & Gas, PE Firms.) In 2015, DEs accounted for 48% of total US

non-financial defaults that we tracked, and for 44% of defaults in 2009-10, the heart of the recession

default cycle. Their use was far more limited in the past, accounting for, on average, 15% of defaults

between 1988 and 2007. Generally, the goal of a DE is to buy time to avoid or delay bankruptcy, until a

company's operating conditions, or the industry or macro environment, improve enough to make one

unnecessary. In the best case, they can help overleveraged firms reduce debt enough to stay solvent andavoid bankruptcy. But, they can also preserve value simply by pushing off a bankruptcy from the depths of a

default cycle to a more benign environment.

For the full report, please see: For High-Yield, 2015 Was a Year of Discontent

ulia Chursinew York

The percentage of

ompanies carrying B3orporate familyatings climbed to

24% of the total foreveraged finance athe end of last year,ompared with 14% athe beginning of 2009.











GLOBAL SPEC-GRADE CORPORATE DEFAULTS


Default Rate to More than Double to 4.2% by January 2017

Originally published 11 February 2016

The benign debt default environment that the global economy has enjoyed since 2009 is likely to come to

an end in about one year. Based on the default rate forecast model, Moody’s believes that the speculative-

grade default rate will slowly increase to 4.2% in one year from the current level of 3.4%. The default rate

has been inching up and has increased almost 75% from the 2% rate observed in January 2015. Ratings

actions, which are part of the inputs to the forecasting model are clearly on the downside, with significantly

more downgrades than upgrades in 2015 than in 2014.

Our forecast should not be very surprising given the current economic conditions, especially in certain

sectors like Oil and Gas and Metals and Mining. With commodity prices forecasted to stagnate at current

levels, many bond issuers in those industries are likely to face significant refinancing hurdles even in this low

interest rate environment. Metals and Mining and Oil and Gas, especially in the US, are expected to havesignificant higher default rates of 12.9% and 7.1% respectively,counting all rated issuers, compared to the

expected speculative-grade US default rate of 4.7%. Oil & Gas in Europe is no different from the trouble

perspective, followed by Hotel, Gaming, & Leisure.

It might be small consolation that we are forecasting the global speculative default rate simply to reach its

long- term average. The trend line is not very encouraging, with the speculative-grade rate going from less

than 2.0% in Jan 2015, to 3.5% in Jan 2016, and 4.2% in Jan 2017.

EXHIBIT 16

US Trailing 12-Month Issuer-Weighted Spec-Grade Default Rate Forecasts

Source: Moody’s Investors Service

For the full report, please see: Default Rate to More than Double to 4.2% by January 2017

0%

2%

4%

6%

8%

10%

12%

14%

16%

1 / 1 / 2 0 0 1

7 / 1 / 2 0 0 1

1 / 1 / 2 0 0 2

7 / 1 / 2 0 0 2

1 / 1 / 2 0 0 3

7 / 1 / 2 0 0 3

1 / 1 / 2 0 0 4

7 / 1 / 2 0 0 4

1 / 1 / 2 0 0 5

7 / 1 / 2 0 0 5

1 / 1 / 2 0 0 6

7 / 1 / 2 0 0 6

1 / 1 / 2 0 0 7

7 / 1 / 2 0 0 7

1 / 1 / 2 0 0 8

7 / 1 / 2 0 0 8

1 / 1 / 2 0 0 9

7 / 1 / 2 0 0 9

1 / 1 / 2 0 1 0

7 / 1 / 2 0 1 0

1 / 1 / 2 0 1 1

7 / 1 / 2 0 1 1

1 / 1 / 2 0 1 2

7 / 1 / 2 0 1 2

1 / 1 / 2 0 1 3

7 / 1 / 2 0 1 3

1 / 1 / 2 0 1 4

7 / 1 / 2 0 1 4

1 / 1 / 2 0 1 5

7 / 1 / 2 0 1 5

1 / 1 / 2 0 1 6

7 / 1 / 2 0 1 6

1 / 1 / 2 0 1 7

US_Actual US_Baseline_Forecast US_Pess imistic_Forecast US_Optimistic_Forecast

haron Ouew York

t might be smallonsolation that we areorecasting the globalpeculative default rateimply to reach its long-erm average. The trendine is not veryncouraging.










NORTH AMERICAN SPEC-GRADE DEFAULTS


EXHIBIT 17

YTD Moody's-Rated Bond/Loan/Deposit Defaults

Updated through January 31, 2016.

Company Default Type Default Date Bond Loan Total Debt Domain

Sheridan Investment Partners II, LP Distressed exchange 1/12/2016 $- $70.00 $70.00 UNITED STATES

RCS Capital Corporation Missed interest payment 1/5/2016 $120.00 $683.81 $803.81 UNITED STATES

Arch Coal, Inc. Prepackaged Chapter 11 1/11/2016 $3,225.00 $1,874.39 $5,099.39 UNITED STATES

Sheridan Investment Partners I, LLC Distressed exchange 1/12/2016 $- $130.00 $130.00 UNITED STATES

Verso Paper Holdings LLC Chapter 11 1/26/2016 $1,721.70 $736.25 $2,457.95 UNITED STATES

Total 5,066.70 3,494.45 8,561.15

The list initially only included CFG and FIG issuers which have rated bonds and/or loans within a year of default. Now it includes CFR only defaulters as well.

Ratings refer to estimated senior unsecured ratings.

Default amount in millions of USD.

Guaranteed debts are only added to the issuers but not to the guarantors in order to avoid double counting.

*China Fishery Group Limited only defaulted on guaranteed debts issued by other entities in this list and guaranteed by China Fishery Group.



APPENDIX A: B3 NEGATIVE & LOWER RATINGS LIST


The Moody's B3 Negative and Lower Corporate Ratings List includes all US non-financial corporate issuers

with a Probability of Default Rating of Caa1-PD or lower, a B3 PDR with a negative rating outlook or a B3-

PD with a rating under review for downgrade. For more information and analysis, please see our latest B3

Negative and Lower quarterly report. The following is a summary of January’s activity. The rating list is

published monthly on Moodys.com

Composition of the Current Ratings List

Number of Companies Prior List 24

Companies Added 2

Companies Removed

Current List 26

Additions Attributable To: 2

Downgrade

New Issue/Reinstatement

Outlook Lowered to Negative/ Placed on B3 RUR for Downgrade) for Downgrade)

Deletions Attributable To:

Upgrade

Default

Ratings Withdrawal

Outlook Raised to Stable or Higher ( or B3 RUR for Upgrade)

Rating Activity for Companies on Both the Current and Prior List

Rating Changes 1

Upgrade

Downgrade 1

Ratings Placed Under Review 2

Review For Upgrade

Review For Downgrade

Review Direction Uncertain

Outlook Changes

Outlook Raised To Positive

Outlook Raised To Stable

Outlook Lowered to Stable

Outlook Lowered To Negative

SGL Rating Changes* SGL Upgrade

SGL Downgrade

Number of companies on the list rated SGL-4 (lowest liquidity rating) 5

Percentage of all companies with SGL-4 ratings that are also on the B3 Negative and Lower List 76

* Moody's Speculative-Grade Liquidity (SGL) Ratings. SGL-4 is the lowest l iquidity rating on our four-point scale. Moody's Liquidity-Stress Indexindicates the percentage of SGL-4 ratings among all SGL-rated companies. See our SGL topic page f or more information.

http://www.moodys.com/researchandratings/research-type/industry-sector-research/b3-negative-and-lower-/003003009002/-/-/0/0/-/0/-/-/en/global/rr


http://www.moodys.com/newsandevents/topics/spec-grade-liquidity-ratings/-/00700A/-/-/-1/0/-/0/-/-/-/-/-/-/-/en/global/pdf/-/rra








APPENDIX B: PROBABILITY OF DEFAULT RATINGS


Companies Rated Caa2 and BelowThe following list, extracted from Moody’s B3 Negative and Lower Corporate Ratings List, shows all US non-financial companies with

Probability of Default Ratings (PDRs) of Caa2 or below as of 1 February 2016.

SGL Component Scores

Company

Probability ofDefaultRating

CorporateFamilyRating Outlook LGD Rating SGL Rating Cash Flow

LiquidityScore

CovenantScore

AlternativeScore

A.M. Castle & Co. Caa2-PD Caa2 NEG 56 - LGD4 SGL-3 3 3 2 4

Abaco Energy Technologies LLC Ca-PD Caa3 NEG 34 - LGD3 SGL-4 4 4 4 4

AM General, LLC Caa2-PD Caa2 NEG 37 - LGD3 N/A N/A N/A N/A N/A

American Energy - Permian Basin, LLC Caa3-PD Caa3 NEG 08 - LGD1 SGL-4 4 4 1 4

American Energy - Woodford, LLC Caa2-PD Caa2 STA 62 - LGD4 SGL-3 3 2 2 3

American Gilsonite Holding Company Caa2-PD Caa2 NEG 54 - LGD4 N/A N/A N/A N/A N/A

Ascent Resources - Marcellus LLC Caa2-PD Caa2 NEG 32 - LGD3 SGL-4 4 4 1 3

Aspect Software, Inc. Caa2-PD Caa2 NEG 28 - LGD2 N/A N/A N/A N/A N/A

Associated Materials, LLC Caa3-PD Caa3 STA 58 - LGD4 N/A N/A N/A N/A N/A

Aurora Diagnostics Holdings, LLC Caa2-PD Caa2 STA 79 - LGD5 SGL-3 N/A N/A N/A N/A

Autoparts Holdings Limited Caa2-PD Caa2 NEG 40 - LGD3 N/A N/A N/A N/A N/A

Claire's Stores, Inc. Caa2-PD Caa2 STA 32 - LGD3 SGL-4 4 3 2 4

Comstock Resources, Inc. Caa2-PD Caa2 NEG 27 - LGD2 SGL-3 3 3 2 3

Constellation Enterprises, LLC Caa3-PD Caa3 NEG 53 - LGD4 N/A N/A N/A N/A N/A

Corporate Risk Holdings, LLC. Caa3-PD Caa2 STA 01 - LGD1 N/A N/A N/A N/A N/A

Denver Parent Corporation Ca-PD Ca NEG 89 - LGD5 SGL-4 4 3 4 3

Dex Media, Inc. Ca-PD Ca NEG 94 - LGD6 SGL-4 N/A N/A N/A N/A

DynCorp International Inc. Caa3-PD Caa3 NEG 13 - LGD2 SGL-4 4 4 3 4

Eclipse Resources Corporation Caa2-PD Caa2 NEG 61 - LGD4 SGL-3 3 3 4 3

Energy XXI Gulf Coast, Inc. Caa3-PD Caa3 NEG 26 - LGD2 SGL-4 4 4 4 4

Euramax International, Inc. Caa2-PD Caa2 STA 44 - LGD3 N/A N/A N/A N/A N/A

EXCO Resources, Inc. Caa2-PD Caa2 STA 09 - LGD1 SGL-4 N/A N/A N/A N/A

Fairmount Santrol, Inc. Caa2-PD Caa1 NEG 32 - LGD3 SGL-4 4 4 4 4

Goodrich Petroleum Corporation Caa3-PD Caa3 NEG 76 - LGD5 SGL-4 N/A N/A N/A N/A

Halcon Resources Corporation Caa2-PD Caa2 STA 26 - LGD2 SGL-3 3 2 2 3

Horsehead Holding Corp. Ca-PD Ca NEG 42 - LGD3 SGL-4 N/A N/A N/A N/A

iHeartCommunications, Inc. Caa3-PD Caa2 STA 20 - LGD2 SGL-3 2 4 2 4

ION Geophysical Corporation Caa2-PD Caa2 NEG 62 - LGD4 SGL-4 4 3 4 4

Iracore International Holdings, Inc. Caa2-PD Caa2 NEG 58 - LGD4 SGL-4 4 4 3 4

IronGate Energy Services, LLC Ca-PD Ca NEG 67 - LGD4 SGL-4 4 4 4 3

Isola USA Corp. Caa2-PD Caa2 NEG 13 - LGD2 N/A N/A N/A N/A N/A

Key Energy Services, Inc. Caa2-PD Caa2 NEG 71 - LGD5 SGL-4 4 4 3 4

Kratos Defense & Security Solutions, Inc. Caa2-PD Caa2 STA 56 - LGD4 SGL-3 3 2 3 3










Company



LiquidityScore

CovenantScore

AlternativeScore

LBI Media, Inc. Caa2-PD Caa2 NEG 28 - LGD2 N/A N/A N/A N/A N/ALiberty Tire Recycling Holdco, LLC Caa2-PD Caa2 STA 32 - LGD3 N/A N/A N/A N/A N/A

Linn Energy, LLC Caa2-PD Caa1 NEG 53 - LGD4 SGL-3 2 3 2 3

Logan's Roadhouse Inc. Caa3-PD Caa3 NEG 50 - LGD4 SGL-4 4 4 2 4

Mashantucket (Western) Pequot Tribe, CT Ca-PD Ca NEG 15 - LGD2 N/A N/A N/A N/A N/A

MD America Energy, LLC Caa2-PD Caa2 POS 49 - LGD3 SGL-3 3 4 4 2

NGPL PipeCo. LLC Caa2-PD Caa2 NEG 49 - LGD3 SGL-4 4 4 4 4

Noranda Aluminum Acquisition Corporation Ca-PD Ca NEG 46 - LGD3 SGL-4 N/A N/A N/A N/A

Paragon Offshore plc Ca-PD Ca NEG 27 - LGD2 SGL-4 1 4 4 4

Peabody Energy Corporation Caa3-PD Caa3 NEG 16 - LGD2 SGL-3 N/A N/A N/A N/A

Penn Virginia Corporation Caa3-PD Caa3 NEG 62 - LGD4 SGL-4 4 4 4 4PetroQuest Energy, Inc Caa3-PD Caa3 NEG 93 - LGD6 SGL-4 N/A N/A N/A N/A

Preferred Proppants, LLC Caa2-PD Caa2 STA 32 - LGD3 N/A N/A N/A N/A N/A

Production Resource Group, Inc. Caa2-PD Caa2 NEG 77 - LGD5 N/A N/A N/A N/A N/A

ProPetro Services, Inc. Caa2-PD Caa2 NEG 47 - LGD3 SGL-4 N/A N/A N/A N/A

Proserv Global Inc. Caa3-PD Caa3 NEG 43 - LGD3 N/A N/A N/A N/A N/A

PTC Group Holdings Corp. Caa2-PD Caa2 NEG 62 - LGD4 N/A N/A N/A N/A N/A

Restaurant Holding Company, LLC Caa2-PD Caa2 STA 36 - LGD3 N/A N/A N/A N/A N/A

Rex Energy Corporation Caa3-PD Caa3 NEG 69 - LGD4 SGL-4 N/A N/A N/A N/A

RGIS Services, LLC Caa2-PD Caa1 NEG 34 - LGD3 N/A N/A N/A N/A N/A

SandRidge Energy, Inc. Caa2-PD Caa2 STA 19 - LGD2 SGL-2 1 2 2 3Sequa Corporation Caa2-PD Caa2 NEG 37 - LGD3 N/A N/A N/A N/A N/A

Seventy Seven Energy Inc. Caa3-PD Caa3 NEG 62 - LGD4 SGL-3 4 3 2 4

SFX Entertainment, Inc. Ca-PD Ca NEG 49 - LGD3 SGL-4 4 4 1 4

Sheridan Investment Partners I, LLC Caa3-PD Caa3 NEG 50 - LGD4 N/A N/A N/A N/A N/A

Sheridan Investment Partners II, LP Caa3-PD Caa3 NEG 50 - LGD4 N/A N/A N/A N/A N/A

Sheridan Production Partners I-A, LP Caa3-PD Caa3 NEG 50 - LGD4 N/A N/A N/A N/A N/A

Sheridan Production Partners II-A, LP Caa3-PD Caa3 NEG 50 - LGD4 N/A N/A N/A N/A N/A

Sheridan Production Partners II-M, LP Caa3-PD Caa3 NEG 50 - LGD4 N/A N/A N/A N/A N/A

Sheridan Production Partners I-M, LP Caa3-PD Caa3 NEG 50 - LGD4 N/A N/A N/A N/A N/A

Sidewinder Drilling Inc. Caa3-PD Caa3 NEG 66 - LGD4 SGL-4 4 3 3 4Sierra Hamilton LLC Caa3-PD Caa3 NEG 52 - LGD4 N/A N/A N/A N/A N/A

Smile Brands Group Inc. Caa2-PD Caa2 NEG 32 - LGD3 N/A N/A N/A N/A N/A

Southcross Holdings Borrower LP Ca-PD Caa3 NEG 38 - LGD3 SGL-4 4 4 4 4

Spanish Broadcasting System, Inc. Caa3-PD Caa2 NEG 33 - LGD3 SGL-4 4 4 1 4

Sports Authority Inc. (The) Caa3-PD Caa3 NEG 49 - LGD3 N/A N/A N/A N/A N/A

Sprint Industrial Holdings, LLC Caa2-PD Caa2 NEG 35 - LGD3 N/A N/A N/A N/A N/A






Company



LiquidityScore

CovenantScore

AlternativeScore

Stafford Logistics, Inc. Caa2-PD Caa1 STA 32 - LGD3 N/A N/A N/A N/A N/AStallion Oilfield Holdings, Inc. Caa2-PD Caa1 NEG 34 - LGD3 N/A N/A N/A N/A N/A

Things Remembered, Inc. Caa2-PD Caa1 NEG 24 - LGD2 N/A N/A N/A N/A N/A

Transworld Systems, Inc. Caa2-PD Caa2 NEG 54 - LGD4 N/A N/A N/A N/A N/A

UCI INTERNATIONAL, LLC Caa3-PD Caa3 STA 63 - LGD4 N/A N/A N/A N/A N/A

Valitas Health Services, Inc. Caa3-PD Caa3 NEG 32 - LGD3 N/A N/A N/A N/A N/A

Warren Resources, Inc. Ca-PD Ca NEG 83 - LGD5 SGL-4 4 4 4 4

Wilton Brands LLC Caa2-PD Caa1 STA 44 - LGD3 N/A N/A N/A N/A N/A

Wise Metals Intermediate Holdings LLC Caa2-PD Caa2 NEG 94 - LGD6 N/A N/A N/A N/A N/A



APPENDIX C


Covenant Quality Scores: January High-Yield Bond Issues

IssuerDescription ofNotes

Rating atissuance

RPScore

PIScore

DebtScore

LienScore

StructureScore

CoCScore

CQScore

BenchmaSprea

TreeHouse Foods, Inc.$775m 6.000%Senior Notes due2024

Ba3 3.65 3.10 4.50 3.50 1.50 2.30 3.43 412

GFL Environmental Inc.$300m 9.875%Senior Notes due2021

B3 5.00 2.80 3.75 3.00 1.40 5.00 3.71 839

Lamar Media Corp.$400m 5.750%Senior Notes due2026

Ba1 5.00 3.90 4.40 4.00 2.00 1.00 3.84 372

Microsemi Corporation$450m 9.125%Senior Notes due2023

B2 5.00 4.50 4.45 4.00 2.75 2.30 4.12 71

GCP Applied Technologies

Inc.

$525m 9.500%Senior Notes due2023

B1 5.00 4.60 4.80 3.50 3.50 4.30 4.39 769

Pinnacle Foods FinanceLLC

$350m 5.875%Senior Notes due2024

B2 5.00 5.00 4.90 4.75 2.50 4.55 4.63 390

Strong Weakest

1.0 1.8 2.6 3.4 4.2 5

Lower

3.2 to

3.4

Upper

3.4 to

3.6

Lower

4.0 to

4.2

Upper

1.8 to

2.0

Lower

2.4 to

2.6

Upper

2.6 to

2.8

CQ5Good Moderate Weak

CQ Scoring Key

← Stronger Weaker→CQ1 CQ2 CQ3 CQ4



APPENDIX D


Median Credit Metrics for Issuers at Ba1 and BelowEXHIBIT 17

Financial Flexibility – North America – Speculative Grade Issuers

Source: Moody’s Financial Metrics

EXHIBIT 18

Financial Flexibility – North America – Speculative Grade Issuers


EXHIBIT 19

Median Interest Coverage – North America – Speculative Grade Issuers


3.7x 3.7x4.0x

4.3x

4.1x 4.0x 4.1x

4.5x 4.6x4.9x 5.0x

10.5%

6.3%

7.4% 6.6%

28.7%

15.2%

5.5% 5.9%4.3% 1.9%

8.1%

0%

5%

10%

15%

20%

25%

30%

35%

0x

1x

2x

3x

4x

5x

6x

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 LTM Q3-15

P c t o f E B I T D A

C o v e r t e d

t o

F C F

D e b t / E B I T D A

L e v e r a g e

Debt / EBITDA Median Pct of EBITDA Converted to FCF

22% 20% 22%

27%

39%36%

31%28%

31%27% 27%

7% 6% 6% 6% 9% 9% 8% 7% 7% 6% 5%

3.7x 3.7x4.0x

4.3x 4.1x4.0x 4.1x

4.5x 4.6x4.9x 5.0x

0x

1x

2x

3x

4x

5x

6x

0%

10%

20%

30%

40%

50%

60%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 LTM Q3-15

D e b t / E B I T D A

C a s h / E B I T D A ; C a s h / D e b t

Cash / EBITDA Cash / Debt Debt / EBITDA

4.6x 4.3x 3.8x 3.2x 3.1x 3.3x 3.5x 3.7x 3.4x 3.5x 3.3x

2.1x 2.1x

1.6x 1.5x 1.7x

2.0x1.8x 1.7x 1.7x 1.7x 1.7x

3.7x 3.7x4.0x

4.3x4.1x 4.0x 4.1x

4.5x 4.6x4.9x 5.0x

0x

1x

2x

3x

4x

5x

6x

0x

1x

2x

3x

4x

5x

6x

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 LTM Q3-15

L e v e r a g e o f D e b t - t o - E

B I T D A

I n t e r e s t C o

v e r a g e

EBITDA / Interest Expense (EBITDA - CAPEX) / Interest Expense Debt / EBITDA



APPENDIX D




LEVERAGED FINANCE INTEREST EDITORIAL BOARD

Christina Padgett Senior Vice President

Tom MarshellaManaging Director - US and Americas Corporates

David Keisman Senior Vice President

John Puchalla Senior Vice President

Alexandra ParkerManaging Director - Corporate Finance

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