Direct Lending Primer City of Fresno Retirement · PDF fileSource: PitchBook PE Breakdown 2014...

TCW Direct Lending Alternative Products Division

CONFIDENTIAL

Direct Lending Primer – City of Fresno Retirement Systems One-on-One Presentation

September 2014

FOR INFORMATIONAL PURPOSES ONLY Securities are not being offered by means of this preliminary material. No investment decision should be made until the prospective investor has read the Offering Memorandum and related documents of the TCW Direct Lending Fund VI (the “DL Fund”). Interests in the DL Fund will be distributed by TCW Funds Distributors, a U.S. registered broker-dealer. THIS MUST BE READ IN CONJUNCTION WITH IMPORTANT DISCLOSURES AT THE END OF THIS PRESENTATION.

pattiel

Text Box

Agenda Item: 2:00 pm Joint Meeting of the Retirement Boards Meeting Date: 9/23/2014


CONFIDENTIAL

Table of Contents

1

I. Opportunity

II. Appendix

I. Overview

II. Results

III. People

IV. Process

V. Structure

VI. Disclosures


CONFIDENTIAL

I. Opportunity

2


CONFIDENTIAL

Middle Market Defined1

3

• The U.S. Middle Market, defined as companies with annual revenues between $10 million and $1 billion, is equivalent in size to the world’s 5th largest economy at $4.3 trillion

– There are an estimated 195,000 companies that make up this group

– They generate approximately one third of private sector GDP and employ roughly 44.5 million people

‒ Added two million jobs 2007-2010

‒ 70% have been in business 20+ years

‒ 82% survived the 2008 recession

1. Source: National Center for the Middle Market, Q4’13 Middle Market Indicator.

A recent study conducted by the National Center for the Middle Market found that 55% of respondents felt they do not have sufficient access to capital

U.S. Middle Market is equivalent to the world’s 5th largest economy1

United States $15.6T

China $12.6T

India $4.8T

Japan $4.7T

U.S. Middle Market $4.3T

Germany $3.3T


CONFIDENTIAL

1. Source: National Center for the Middle Market, Q4’13 Middle Market Indicator. 2. Source: Raymond James equity research report, June 13, 2013; for illustrative purposes only.

Middle Market Lending Opportunity

4

• Small Business

‒ Serviced by local and regional lenders

‒ Typically one primary bank relationship

‒ Capital markets inaccessible

• Middle Market

‒ Established businesses

‒ Typically out grown single bank relationships

‒ Limited access to capital markets due to

• Size of company

• Size and liquidity of issuance

‒ TCW focuses on direct origination in this segment

• Large Corporate

‒ Companies large enough to approach public markets (Investment Grade / High Yield / Broadly Syndicated / Equity Markets )

‒ TCW opportunistically targets companies in this segment that have limited access to capital markets or require certainty of close during periods of volatility

Leve

l of

Co

mp

etit

ion

Company Size

Middle Market Large Corporate Small Business

Lender Competition by Market Segment2

TCW Opportunity

Market Segment Characteristics1

FOCUS

Number of

Annual Revenue Businesses

Small Business < $10M 6,000,000

Middle Market $10M - < $1B 195,000

Large Corporate > $1B 2,000


CONFIDENTIAL

5

Breakdown of the Middle Market

Target Market

Lower Middle Market Upper Middle Market

Revenue range1: $10 – 50 million $50 million - $1 billion

% of total middle market revenue1:

34% 66%

Number of businesses1: 156,000 39,000

Ownership: • Entrepreneurs • Families • Financial sponsors

• Entrepreneurs • Families • Financial sponsors • Limited public ownership

Typical characteristics: • Start-up businesses • Single product / service • Local focus • Limited customer / supplier base • Limited management / employee depth • Less sophisticated systems

• Established business • Multiple products / services • Broad geographic focus • Meaningful customer / supplier base • Increased management / employee talent • More sophisticated systems

Available sources of capital: • Personal equity • Friends and family • Local bank • Private equity

– Angel investors – Venture capital

• Private equity • Personal equity • Friends and family • Regional banks • Alternative capital • Limited capital markets access

1. Source: The Market that Moves America White Paper, GE Capital, Ohio State, 2011.


CONFIDENTIAL

Market Update

• 2013 saw record issuance in broadly syndicated loan, High Yields and Middle Market markets

– Existing issuers took advantage of a favorable rate environment in 2013 to refinance existing facilities at lower rates and / or payout dividends.

– Broadly Syndicated new money volume down (20%) in 2013 from 2007

– Middle Market new money volume down (32%) in 2013 from 2007 and flat since 2008

6

Middle Market Loan Volume1

Broadly Syndicated Leveraged Finance Volume1

1. Source: Thomson Reuters LPC 2Q 2014 Loan Market Review.

New Money Loan Volume1

5889 94 78 76

36 4485

112 102130

68 53

49

7889 102 108

66

27

65

70 78

74

34 45

$107

$168$183 $180 $183

$101

$71

$150

$182 $180

$204

$102 $98

$0

$50

$100

$150

$200

$250

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1H'13 1H'14

Vo

lum

e ($

B)

Refinancing Middle Market New money

129 135 95 146 136 63 147259 220

327 332174 181

207 272244 200 217

101159

197 356380

757

481322

121209 257

412 472

19380

179

209

284

378

179

201$458

$615 $596

$758$825

$357 $386

$635

$785

$991

$1,468

$834

$704

$0

$250

$500

$750

$1,000

$1,250

$1,500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1H'13 1H'14

Vo

lum

e ($

B)

Lev. Loans New Money Lev. Loans Refi HY Bonds

$49 $78 $89 $102 $108$66 $27 $65 $70 $78 $74 $34 $45

$121

$209

$257

$412

$472

$193

$80

$179$209

$284

$378

$179$201

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1H'13 1H'14

Vo

lum

e ($

B)

Middle Market New money Lev. Loans New Money


CONFIDENTIAL

Middle Market Capital Supply

• Banks’ focus on the middle market began to decline significantly in 2002

– Market share fell to less than 1% YTD 2014, from 50% in 20021

• The number of financial institutions has continued to decline

• During the 2007 / 2008 financial crisis, capital markets froze and a tremendous amount of capital left the middle market

• The capital markets are typically inaccessible to middle market companies due to their size

7

1. Source: S&P LCD HY Weekly, January 16, 2013. 2. Company public filings. 3. Federal Reserve; 4. S&P LCD Leverage Lending Review – Q2 ‘14.

Number of U.S. Commercial Banks and Market Share3,4

BB/BB- and B+/B Leveraged Loans Distribution by Deal Size – 20134

Selection of Middle Market Lender’s C&I Portfolio, Pre/Post Crisis

($ millions)

Commercial & Industr ial Loans 2 0 0 8 2 0 12 $ Chg % Chg

GE Capital2 105,410 72,517 (32,893) (31.2%)

CIT2 21,692 7,510 (14,182) (65.4%)

Bank of America2 221,800 212,000 (9,800) (4.4%)

Capital One2 30,000 19,890 (10,110) (33.7%)

Fifth Third2 51,292 46,901 (4,391) (8.6%)

Wells / Wachovia2 229,099 177,500 (51,599) (22.5%)

Total s ince 2 0 0 8 6 5 9 ,2 9 3 5 3 6 ,3 18 (12 2 ,9 7 5 ) (18 .7 %)1%

6%

21%

29%

43%

1%

10%

31% 28% 30%

0%

10%

20%

30%

40%

50%

< $100M $100-249M $250-499M $500-999M $1B or More

Dis

trib

uti

on

by

Dea

l Siz

e

BB/BB- B+/B

0%

10%

20%

30%

40%

50%

60%

0

2,000

4,000

6,000

8,000

10,000

1998 2000 2002 2004 2006 2008 2010 2012 2014

Mar

ket

Sh

are

Inst

itu

tio

ns

Number of Institutions Market Share of Primary Middle Market Loans


CONFIDENTIAL

Middle Market Capital Supply – Bank Issues

Changing regulations and political uncertainty have made the middle market leveraged loan business less attractive to banks.

8

Consequences for Banks

• Regulatory and political uncertainty

• Increased capital ratios and liquidity

• Reduced leverage

• Increased costs

• Decreased ROE

• Lower growth

• Restrictions on types of activities

• Increased regulatory reporting and audits and enforcement

• More stringent underwriting criteria

Regulatory Changes

• Basel III

• Dodd Frank / Volker Rule

• Leveraged Lending Guidelines/ Shared National Credits Program

• Annual and mid-year stress tests

• FDIC assessment fees


CONFIDENTIAL

Middle Market Capital Supply

• Collateralized Loan Obligations (“CLO”)

– Of $80 billion of new CLO issuance in 2013, only $4 billion is focused on the middle market

– Middle Market CLOs have fallen from a high of $22 billion in 2006 to $4 billion in 2013

– Uncertainty related to regulatory issues

• Business Development Company (“BDC”)2

– Since 2000 there has been $35 billion of capital raised by BDCs

• Approximately $20 billion since 2007

• Currently around 70 active public and private BDCs

• Median market capitalization of public BDCs is approximately $300 million

9

1. Source: Thomson Reuters 2Q‘14 Leveraged Loan Review and 3Q ‘14 MM Outlook Survey. 2. Wells Fargo equity research, The BDC Almanac -- Episode III, January 22, 2014.

Total CLO Issuance vs. Middle Market CLO Issuance1

BDC Cumulative Capital Raised2

$0

$5

$10

$15

$20

$25

$30

$35

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Cap

ital

Rai

sed

($

B)

$0

$20 $24

$39

$61

$96$105

$21

$0 $4$13

$56

$81

$58

$3 $4$10 $11 $15

$22$15

$2 $0 $1 $1 $5 $4 $4

$0

$20

$40

$60

$80

$100

$120

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 E

Issu

ance

($

B)

Total CLOs MM CLO


CONFIDENTIAL

$-

$100

$200

$300

$400

$500

$600

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Un

real

ized

Val

ue

($B

)

Middle Market Capital Demand

10

• During and following the Financial Crisis, middle market M&A activity declined

• Between 2010 and 2013, private equity firms raised approximately $400 billion of commitments for middle market funds1

• Vintage funds from 2005-2008 have a significant number of portfolio companies that have yet to be monetized

Middle Market LBO Loan Volume and Deal Count 2

1. Source: PitchBook PE Breakdown 2014 Annual Report. 2. Source: LCD MM Quarterly Q2’14 3. Source: Preqin 2014 Global Private Equity Report.

Private Equity Unrealized Value by Vintage Year3

$-

$50

$100

$150

$200

$250

$300

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Dry

Po

wd

er (

$B

)

Private Equity Dry Powder by Vintage Year3

0

50

100

150

200

250

$0

$5

$10

$15

$20

$25

$30

$35

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1H'14

Dea

l Co

un

t

MM

LB

O I

ssu

ance

($

B)

MM LBO Volume MM LBO Deal Count


CONFIDENTIAL

$67 $65

$113 $120 $123

$34

$0

$20

$40

$60

$80

$100

$120

$140

2014 2015 2016 2017 2018 2019

Mat

urin

g V

olu

me

($B

)

Middle Market Capital Demand

11

• During and following the Financial Crisis, demand for new capital to fund capital spending declined

– Companies have delivered profit growth by focusing internally on cutting costs and efficiency gains

• Given the tepid M&A markets, and attractive rate environment, sponsors have elected to return capital to LPs through dividend recapitalization. However, this trend has slowed in 2014.

• Refinancings will continue with $245 billion of middle market loans coming due in the next three years

1. Source: Bureau of Economic Analysis website. 2. Source: Thomson Reuters 2Q ‘14 LPC MM Survey.

Normalized Capital Spending Trend Following Recession 1

70

80

90

100

110

120

130

140

150

160

T T+2 T+4 T+6 T+8 T+10 T+12 T+14 T+16 T+18 T+20 T+22

Ind

ex V

alu

e (T

=10

0)

Average of Last 9 Cycles

Current Cycle

Number of Quarters

T= Beginning of the Recession (100)

37% Gap

Middle Market Estimated Annual Maturity Volume 2

Dividend Recapitalization Volume2

$-

$2

$4

$6

$8

$10

$12

$14

$16

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1H'14

Div

den

d R

ecap

s ($

B)


CONFIDENTIAL

Middle Market Capital Supply and Demand

12

Dem

and

fo

r C

apit

al

Supply of Capital

Higher Rate of

DL Deployment

Lower Rate of

DL Deployment

• M&A activity • Capital spending

• Refinancing • Recapitalization

• Non-Conventional Bank Debt

• Bank Capital


CONFIDENTIAL

II. Appendix

13


CONFIDENTIAL

I. Overview

14


CONFIDENTIAL

TCW Direct Lending (“DL”) Overview | As of June 30, 2014

15

• Established in December 2000 as a part of Regiment Capital Management, LLC

• Acquired by TCW in December 2012

• Five funds raised to date

• Approximately $3.9 billion in total committed capital

• Institutional client base

• 10 Investment professionals

• Offices in Boston, New York and Chicago

Direct Lending Client Mix

Endowments 26.6%

Healthcare Institutions

20.4%

Family Office 16.5%

Insurance Co.

7.7%

Corporate Pensions

10.1%

Public Pension 16.0%

Other1 2.7%

Source: TCW 1. Other includes GP; GP commitment represents 1.4% of common capital. 2. DL I - Regiment Capital II, L.P. 3. DL II - Regiment Capital III, L.P. 4. DL III - Regiment Capital Special Situations Fund III, L.P. 5. DL IV - Regiment Capital Special Situations Fund IV, L.P. 6. DL V - Regiment Capital Special Situations Fund V, L.P., together with DL I-IV referred to as “DL Funds”.

Committed Capital by Fund ($ in millions)

$181 $275

$643

$767

$1,260

$310

$423

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

DL I DL II DL III DL IV DL V

Preferred LP Interest Common LP Interest

$1,077

$1,683


CONFIDENTIAL

TCW Direct Lending Investment Strategy

16

• Alternative provider of bank debt

– Middle Market

• EBITDA greater than $15 million

• Facility size of $250 million or less

– Corporate Special Situations

• Direct origination model

• Typical company / transaction characteristics

– Primarily North America based

– Strong, sustainable cash flows

– Attractive loan-to-value

– Fund hold size typically $25 - $200 million

• Preservation of capital / risk adjusted returns

– Position in the capital structure

– Custom tailored documentation, including covenants

– Target return profile of 8-12%


CONFIDENTIAL

Transaction Metric Direct Lending Targeted Ranges and Historical Average Results1

EBITDA:

Leverage:

Loan-to-Value:

Floating Rate:

Current Yield:

Closing Fees:

Consistent and Disciplined Execution

17

3.1x 4.5x 2.0x

45%

50% 30%

10.47%

12.0% 8.0%

2.16%

3.0% 1.0%

$60.1 MM

$100MM $15MM

99.6%

0% 100%

Source: TCW 1. Historical average results are derived from characteristics at the time of investment for all loans held by DL Funds.

Past performance is no guarantee of future results. As with any investment, investments DL VI intends to make have the potential to lose money. Portfolio characteristics are subject to change at any time.


CONFIDENTIAL

($ in millions)

Fund: DL I DL II DL III DL IV DL V

Fund Size: $181 $275 $643 $1,077 $1,683

Investment Period: Dec '00 - Dec'02 Oct '02 - Oct '04 Oct '04 - Oct '07 Dec '07 - Dec -10 May '11 - May '14

$131 $151

Paid In Total Value

$229 $263

Paid In Total Value

$676 $678

$118

$795

Paid In Total Value

$993

$1,107

Paid In Total Value

$1,861

$1,202

$773

$1,976

Paid In Total Value

Source: TCW 1. The “Realized Net Common IRR” is the cumulative internal rate of return of the Common LP interests from the inception of the Fund through the date of the final liquidation distribution of the Fund and is net of management fees and other expenses,

and performance allocations. The Realized Net Common IRR was calculated based on the actual dates of the limited partners’ cash inflows and outflows. 2. TVPI is the ratio of Total Value (cumulative distributions (excluding the return of unused capital) plus, in the case of active funds, the current NAV) attributable to Common LPs to total Capital Paid-In (excluding capital contributed but returned as

unused) by Common LPs. 3. Excludes one investment in which the original debt has been fully repaid and the fund earned its targeted rate of return, however residual minority equity stake remains outstanding. 4. The Net Terminal IRR is hypothetical and does not reflect actual performance of the fund, and is based on assumptions set forth herein. The "Net Terminal IRR" is the cumulative internal rate of return of the Common LP from the inception of the Fund

through June 30, 2014 (“Measurement Date”) and is net of management fees and other expenses, and performance allocations. The Net Terminal IRR is calculated based on the actual dates of the Common LPs’ cash inflows and outflows through the Measurement Date and assumes a hypothetical cash outflow to the Fund’s Common LPs equal to their capital account balance or NAV at the Measurement Date. The NAV is calculated quarterly, and may or may not accurately reflect the price the Fund would receive or would be willing to accept in a sale of the asset to a third party. The NAV of each asset may fluctuate in various market conditions. In addition, the Fund typically earns and collects closing fees when a loan is funded, which are capitalized and amortized over the stated maturity of each loan (e.g., five years). The NAV calculation assumes the Fund never collects the portion of the fees that are not fully amortized at the Measurement Date. The Net Terminal IRR is unaudited, and based on accounting methodology, and is not representative of the Fund’s expected returns.

*Accounting methodology, not representative of the Fund’s expected returns. 18

Direct Lending Fund Performance

Final Realization 12/04 9 Portfolio Companies

10.00% Realized Net Common IRR1

1.16x Net TVPI2



1.15x Net TVPI2

Active 100% return of principal as of 4/13

22 Portfolio Companies 3 Outstanding3

6.02%* Net Terminal IRR4

1.18x Net TVPI2



1.16x Net TVPI2

Active 28 Portfolio Companies

16 Outstanding 7.34%* Net Terminal IRR4

1.06x Net TVPI2

• 13 year track record over five funds

• 93 portfolio companies, 74 realizations to date

• Fund I – IV have returned 100% of principal invested plus fees

• Funds I, II & IV fully paid back with Realized Common IRRs of 10.00%, 11.85%, 11.16%, respectively

• Funds III & V remain active

Past performance is no guarantee of future results. As with any investment, investments DL VI intends to make have the potential to lose money.


CONFIDENTIAL

0%

4%

55%

34%

7%

9.4%

12.9%

16.9%

24.3%

0%

5%

10%

15%

20%

25%

30%

0%

10%

20%

30%

40%

50%

60%

< 5% 5% - 10% 10% - 15% 15% - 20% > 20%

Wei

gh

ted

Ave

rag

e P

ort

folio

Co

mp

any

Inve

stm

ent

IRR

% o

f T

ota

l Do

llars

In

vest

ed

% of Total Dollars Invested Weighted Average Portfolio Company Investment IRR²

Delivering Consistent Results

Source: TCW 1. “Investment IRR” reflects the gross realized IRRs on DL Funds’ portfolio investments and does not reflect the payment of management fees, performance allocations and other expenses of any DL Fund. See the Appendix for

information about the investments in DL Funds. 2. Represents the dollar weighted average of transactions that fall within each respective range and does not reflect the payment of management fees, performance allocations and other expenses of any DL Fund.

Portfolio Company Investment IRR1

# of Portfolio Companies 0 3 41 25 5

Total Investment ($MM) $0 $63 $1,851 $812 $145

Summary of Fully Realized Investments Since Inception

19 Past performance is no guarantee of future results. As with any investment, investments DL VI intends to make have the potential to lose money.


CONFIDENTIAL

Low Volatility

Source: TCW 1. “Investment IRR” reflects the gross realized IRRs on DL Funds’ portfolio investments and does not reflect the payment of management fees, performance allocations and other expenses of any DL Fund. See the Appendix for

information about the investments in DL Funds. 2. Represents the arithmetic average of the Investment IRR for DL Fund’s realized transactions. Duration of each realized transaction varies. Calculation excludes two transactions with a 45.3% and 58.3% Investment IRR, which were

unusually large due to short duration and high up-front fees. 3. Standard Deviation is a quantitative measure of volatility that measures the spread of the difference of returns from their average; excludes two transactions with a 45.3% and 58.3% Investment IRR. 4. Represents the rolling-twelve month rate of return for the S&P 500 Index, which includes a representative sample of 500 large-cap companies in various industries within the U.S. economy. The S&P 500 index is used here as a proxy

for the total equity market. 5. Represents the rolling-twelve month rate of return for the Bank of America Merrill Lynch US High Yield Master II Index (H0A0) which is an unmanaged index that tracks the performance of US dollar denominated, below investment

grade corporate debt publicly issued in the US domestic market. Qualifying securities must have a below investment grade rating (based on an average of Moody’s, S&P and Fitch) and an investment grade rated country of risk (based on an average of Moody’s, S&P and Fitch foreign currency long term sovereign debt ratings). In addition, qualifying securities must have at least one year remaining term to final maturity, a fixed coupon schedule and a minimum amount outstanding of $100 million. Original issue zero coupon bonds, "global" securities (debt issued simultaneously in the Eurobond and US domestic bond markets), 144A securities, corporate pay-in-kind securities and toggle notes qualify for inclusion in the Index. Perpetual and fixed-to-floating rate corporate securities also qualify provided they are callable within the fixed rate period and are at least one year from the start of the floating rate period. Defaulted and warrant bearing securities are excluded from the Index. The inception date of the index is August 31, 1986.

6. Represents the rolling-twelve month rate of return for the S&P/LSTA Leveraged Loan Index, which is a daily total return index that uses LSTA/LPC Mark-to-Market Pricing to calculate market value changes. On a real-time basis, the index tracks the current outstanding balance and spread over LIBOR for fully funded term loans. The facilities included in this index represent a broad cross section of leveraged loans syndicated in the United States, including dollar-denominated loans to overseas issuers. The index represents approximately 90-95% of the institutional loan universe.

Note: Indices are shown for comparison purposes only, are not subject to management fees, do not utilize leverage, and are not available for direct investment.

20

(45%)

(35%)

(25%)

(15%)

(5%)

5%

15%

25%

35%

45%

55%

65%

Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14

Rat

e o

f R

etu

rn

+/- 1 Stdev of Investment IRRs S&P 500

Investment IRRs BoA High Yield Index

Average of Investment IRRs LSTA Leveraged Loan Index


CONFIDENTIAL

Fixed Income New Issue Comparison

21

1. Weighted average senior debt / EBITDA of loans originated by the Direct Lending team in the respective year. 2. Weighted average coupon of loans made by the Direct Lending team in the respective year. Upfront fees included, amortized over a 3 year period. 3. Source: Q2’14 LCD MM Quarterly. Weighted average senior debt / EBITDA of loans made in the respective year. 4. Source: Q2’14 LCD MM Quarterly. Weighted average new issue yield of loans made in the respective year. Upfront fees included, amortized over a 3 year period. 5. Source: Credit Suisse Leveraged Finance New Issue Review, June 22. 2014.

5

6

3

2 4

1

2%

4%

6%

8%

10%

12%

14%

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

8.0x

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Q2'14

Yie

ld

Deb

t /

EB

ITD

A

TCW DL Debt / EBITDA Loan Market Debt / EBITDA HY Market Debt / EBITDA

TCW DL Yield Loan Market Yield HY Market Yield

2001 - 2014 Averages

New Issue Yield Debt/EBITDA

TCW DL 11.37% 3.10x

Loan Market 6.10% 3.69x

High Yield 8.58% 4.86x


CONFIDENTIAL

TCW Direct Lending Approach

• People provide the critical link between process and structure

• Process seeks to preserve capital, minimize risk and achieve attractive returns

• Structure of the fund drives people and process, aligning manager and investor interests

22

Structure

People

Process

DL


CONFIDENTIAL

TCW Direct Lending

23

Opportunity People Process Structure Results


CONFIDENTIAL

II. Results

24


CONFIDENTIAL

Risk Adjusted Return

TCW Direct Lending Strategy Objective: Lower Risk / Higher Return Than Market

Ret

urn

H

igh

Lo

w

Risk Low High

Market Transaction

Targeted TCW Direct Lending Transaction

Targeted TCW Direct Lending Transaction

X

25 Past performance is no guarantee of future results. As with any investment, investments DL VI intends to make have the potential to lose money.


CONFIDENTIAL

0%

5%

10%

15%

20%

25%

0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x

Inve

stm

ent

IRR

Leverage Through Regiment Position

2001 2002

Penn Holdings Basic Energy

Widely Syndicated Market Average Yields and Leverage

Doe Run (58.3%)

AT Plastics

Avado

AM General

Clean Harbors

Nations Rent

Ormet (45.4%)

Delivering Attractive Risk-Adjusted Returns Direct Lending Fund I

26

“Investment IRR” reflects the gross realized IRRs on DL Funds’ portfolio investments and does not reflect the payment of management fees, performance allocations and other expenses of any DL Fund. See the Appendix for information about the investments in DL Funds. See the Appendix for information about all of the investments in the Fund, as well as its net IRR. Widely-Syndicated Market Average Yields are shown for comparison purposes only, are not subject to management fees and are not available for direct investment. Source for Widely-Syndicated Market Average Yields and Leverage: Standard & Poor’s, and S&P/LSTA Lev Loan Index.

60%



CONFIDENTIAL

0%

5%

10%

15%

20%

25%

0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x

Inve

stm

ent

IRR


2002 2003 2004

Vitality


Continental AFA

Texas Petrochem WW Holdings

Xcel Pharma

Delco Remy

Columbus McKinnon

AM General

Envirosource RePipe

UNICCO

Jackson Products

PRG

WorldStrides

Nord

Delivering Attractive Risk-Adjusted Returns Direct Lending Fund II

27




CONFIDENTIAL

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x

Inve

stm

ent

IRR


2004 2005 2006 2007


Holley Envirocare

UNICCO

CUSA

Ontelaunee Magnequench

PRG Winner

Appriss

Elgin TARC Shred-it

Pope & Talbot

WorldStrides

TXCO

ADS

Tyde Hickory

Pro Petro

Delivering Attractive Risk-Adjusted Returns Direct Lending Fund III

28




CONFIDENTIAL

Delivering Attractive Risk-Adjusted Returns

Direct Lending Fund IV

29

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x

Inve

stm

ent

IRR

Leverage Through DL IV Position

2008 2009 2010

Widely Syndicated Market Average

Haights Cross

Holley

Bumble Bee

Portola

Vertis

Tecomet

HHI Airvana

Attends

Rogue Wave

Touch Tunes

ValueVision

Vivint

Emerald Handy & Harman

Consona

Purple

Hostway

Vision-Ease




CONFIDENTIAL

Delivering Attractive Risk-Adjusted Returns Direct Lending Fund V

30



0%

5%

10%

15%

20%

25%

0.00x 1.00x 2.00x 3.00x 4.00x 5.00x 6.00x 7.00x

Inve

stm

ent

IRR

Leverage Through TCW Position

2011 2012

Airvana

Tyde

Pre Paid Legal

IES

Rouge Wave

Attends

Dawn EveryWare

Federal Signal


Cydcor

MSC

Tensar


CONFIDENTIAL

Fixed Income New Issue Comparison

31

1. Weighted average senior debt / EBITDA of loans originated by the Direct Lending team in the respective year. 2. Weighted average coupon of loans made by the Direct Lending team in the respective year. Upfront fees included, amortized over a 3 year period. 3. Source: Q2’14 LCD MM Quarterly. Weighted average senior debt / EBITDA of loans made in the respective year. 4. Source: Q2’14 LCD MM Quarterly. Weighted average new issue yield of loans made in the respective year. Upfront fees included, amortized over a 3 year period. 5. Source: Credit Suisse Leveraged Finance New Issue Review, June 22. 2014.

5

6

3

2 4

1

2%

4%

6%

8%

10%

12%

14%

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

8.0x

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Q2'14

Yie

ld

Deb

t /

EB

ITD

A

TCW DL Debt / EBITDA Loan Market Debt / EBITDA HY Market Debt / EBITDA

TCW DL Yield Loan Market Yield HY Market Yield

2001 - 2014 Averages

New Issue Yield Debt/EBITDA

TCW DL 11.37% 3.10x

Loan Market 6.10% 3.69x

High Yield 8.58% 4.86x


CONFIDENTIAL

Regiment Capital II, L.P. (DL I) Investment Statistics

32

1. Represents the Fund’s funded commitment at transaction closing. 2. Realized IRR does not reflect the payment of management fees, performance allocations and other expenses. 3. Net IRR reflects the deduction of management fees, performance allocations, and other expenses.

Deal # Investment Type of Loan Date

Orig inal

Term

Loan

Duration

Total

Invested 1

Total

Realized

Amount

Unrealized Mu

ltip

le

Mark

Realized

IRR 2

1 Pen Holdings Sr Secured TL & Revolver 6/15/2001 2.0 years 2.8 years 10,000,000$ 11,876,422$ - 1.19x - 11.19%2 Basic Energy Sr Secured TL 9/7/2001 3.0 years 1.3 years 22,500,000 25,844,285 - 1.15x - 11.59%3 AT Plastics Sr Secured TL 1/9/2002 5.0 years 1.6 years 27,000,000 33,066,192 - 1.22x - 16.19%4 Ormet Corp Sr Secured TL 2/21/2002 3.0 years 0.2 years 5,000,000 5,348,115 - 1.07x - 45.38%5 Avado Sr Secured TL & Revolver 3/25/2002 3.0 years 1.0 years 10,000,000 11,164,528 - 1.12x - 13.60%6 AM General Sr Secured TL 5/22/2002 3.0 years 1.1 years 10,000,000 11,109,002 - 1.11x - 15.85%7 Nations Rent Sr Secured TL 7/10/2002 2.5 years 2.5 years 29,875,027 40,209,938 - 1.35x - 17.44%8 Clean Harbors Sr Secured TL 9/18/2002 3.0 years 1.5 years 10,000,000 11,756,434 - 1.18x - 10.59%9 Doe Run Sr Secured TL 10/25/2002 3.0 years 0.4 years 7,517,500 8,901,642 - 1.18x - 58.28%

SSF I Tota ls 131,892,527$ 159,276,557$ -$

SSF I Net Mult. 1.16x SSF I Net IRR3 10.00%

Return on Investment Gross IRRGeneral Information



CONFIDENTIAL

Regiment Capital III, L.P. (DL II) Investment Statistics

33

1. Represents the Fund’s funded commitment at transaction closing. 2. Realized IRR does not reflect the payment of management fees, performance allocations and other expenses. 3. Net IRR reflects the deduction of management fees, performance allocations, and other expenses.


Orig inal

Term

Loan

Duration

Total

Invested 1

Total

Realized

Amount

Unrealized Mu

ltip

le

Mark

Realized

IRR 2

10 Texas Petrochemicals Sr Secured TL 11/26/2002 3.0 years 1.2 years 26,675,000$ 31,442,305$ - 1.18x - 18.63%11 Columbus McKinnon Ltd Sr Secured TL 11/27/2002 4.5 years 0.8 years 35,000,000 38,262,248 - 1.09x - 20.19%12 AM General Sr Secured TL 1/17/2003 3.0 years 0.8 years 14,000,000 15,567,771 - 1.11x - 15.34%13 Xcel Pharmaceuticals Sr Secured TL 3/31/2003 5.0 years 1.9 years 19,800,000 24,112,541 - 1.22x - 13.43%14 WW Holdings Sr Secured TL 5/6/2003 3.0 years 1.1 years 15,000,000 17,703,417 - 1.18x - 19.48%15 Delco Remy Sr Secured TL 10/6/2003 2.5 years 0.6 years 10,000,000 10,876,222 - 1.09x - 17.07%16 Continental AFA Sr Secured TL 11/13/2003 4.8 years 1.7 years 14,000,000 18,921,624 - 1.35x - 23.14%17 Envirosource Sr Secured TL 12/29/2003 4.0 years 0.8 years 15,000,000 16,671,246 - 1.11x - 16.26%18 Jackson Products Sr Secured TL 2/12/2004 3.0 years 1.3 years 20,500,000 22,763,787 - 1.11x - 15.94%19 rePipe Inc Sr Secured TL 2/12/2004 4.0 years 3.4 years 35,000,000 45,874,067 - 1.31x - 17.81%20 PRG Sr Secured TL 7/16/2004 5.3 years 1.4 years 10,000,000 12,410,244 - 1.24x - 17.54%21 Vitality Sr Secured TL 9/24/2004 6.0 years 1.8 years 10,000,000 12,053,007 - 1.21x - 12.26%22 WorldStrides Sr Secured TL 9/24/2004 6.0 years 1.3 years 6,750,000 7,597,670 - 1.13x - 12.03%23 Nord Resources Sr Secured TL 10/19/2004 1.0 years 1.0 years 2,750,000 3,162,500 - 1.15x - 16.84%24 UNICCO Sr Secured TL & Revolver 11/15/2004 2.8 years 0.5 years 35,200,000 38,983,474 - 1.11x - 18.33%

SSF I I Tota ls 269,675,000$ 316,402,123$ -$

SSF II Net Mult. 1.15x SSF II Net IRR3 11.85%




CONFIDENTIAL

Regiment Capital Special Situations III, L.P. (DL III) Investment Statistics

34

1. Represents the Fund’s funded commitment at transaction closing as well as any add-on investments made during the investment period. 2. Represents payment of principal, interest and fees to date as of June 30, 2014. 3. Represents remaining principal outstanding plus accrued paid in kind interest to date as of June 30, 2014. 4. Mark represents the Fund’s valuation of its outstanding portfolio investments as of June 30, 2014. 5. Realized IRR does not reflect the payment of management fees, performance allocations and other expenses. NOTE: Pro Petro debt investment has been fully repaid and all principal has been returned, however the Fund retains a 9% minority equity stake.


General Information Return on Investment Gross IRR


Orig inal

Term

Loan

Duration

Total

Invested 1

Total

Realized 2

Amount

Unrealized 3

Mu

ltip

le

Mark 4

Realized

IRR 5

25 CUSA Sr Secured TL 12/31/2004 6.0 years 1.4 years 15,000,000$ 17,558,423$ -$ 1.17x - 13.90%26 Envirocare Sr Secured TL 5/4/2005 6.0 years 1.2 years 65,000,000 72,237,071 - 1.11x - 13.26%27 UNICCO Sr Secured TL & Revolver 6/23/2005 5.0 years 1.1 years 35,000,000 38,983,474 - 1.11x - 12.35%28 Magnequench Sr Secured TL 9/7/2005 4.0 years 1.9 years 12,000,000 13,346,866 - 1.11x - 8.76%29 Ontelaunee Power Operating Co. Sr Secured TL 12/13/2005 2.0 years 0.4 years 35,000,000 36,302,875 - 1.04x - 9.83%30 WorldStrides Sr Secured Note 12/15/2005 7.0 years 4.3 years 12,000,000 18,119,205 - 1.51x - 12.48%31 ADS Logistics Sr Secured TL 12/21/2005 2.0 years 5.6 years 16,771,220 23,854,350 - 1.42x - 12.04%32 Texas American Sr Secured TL 1/11/2006 5.0 years 1.5 years 30,000,000 35,141,116 - 1.17x - 12.28%33 PRG Sr Secured TL 1/25/2006 4.3 years 0.9 years 10,000,000 11,430,486 - 1.14x - 16.76%34 Holley Performance Sr Secured TL & Revolver 2/3/2006 3.5 years 2.2 years 12,980,324 16,122,274 - 1.24x - 13.90%35 Winner Sr Secured TL 4/3/2006 4.0 years 1.2 years 50,000,000 59,446,945 - 1.19x - 17.53%36 Pope & Talbot Sr Secured TL 7/12/2006 6.0 years 2.9 years 16,159,345 18,419,762 - 1.14x - 8.83%37 Shred-it Sr Secured TL 8/21/2006 5.0 years 2.8 years 39,443,404 50,449,639 - 1.28x - 12.03%38 ProPetro Sr Secured TL 2/15/2007 5.0 years 6.2 years 91,200,000 134,333,301 - 1.47x - 10.63%39 Tyde Group Sr Secured TL & Revolver 5/16/2007 5.0 years 4.1 years 29,770,418 38,223,968 - 1.28x - 12.31%40 Elgin Sr Secured TL 6/15/2007 5.0 years 1.0 years 40,000,000 42,931,638 - 1.07x - 12.93%41 Hickory Farms Sr Secured TL 10/15/2007 5.0 years 3.6 years 13,000,000 18,628,044 - 1.43x - 12.59%42 Appriss Sr Secured TL 10/19/2007 6.0 years 2.5 years 12,476,563 15,376,353 - 1.23x - 10.13%43 Foothills Sr Secured TL 12/13/2007 9.0 years 50,000,000 6,654,323 50,000,000 - 85.00% -44 BTT Sr Secured TL 12/20/2007 7.0 years 40,000,000 38,312,160 34,318,040 - 92.00% -45 Battalion Resources Sr Secured TL 12/27/2007 5.0 years 54,843,183 4,079,081 54,843,183 - 50.00% -46 TXCO Sr Secured TL 1/15/2008 4.0 years 1.1 years 35,880,313 42,856,359 - 1.19x - 10.07%

SSF I I I Tota ls 716,524,769$ 752,807,714$ 139,161,223$


CONFIDENTIAL

Regiment Capital Special Situations IV, L.P. (DL IV) Investment Statistics

35

1. Represents the Fund’s funded commitment at transaction closing. 2. Realized IRR does not reflect the payment of management fees, performance allocations and other expenses. 3. Net IRR reflects the deduction of management fees, performance allocations, and other expenses. 4. SSFIV Net IRR of 11.16% pertains to the Common LP interests.


Orig inal

Term

Loan

Duration Total Invested 1 Total Realized

Amount

Unrealized Mu

ltip

le

Mark

Realized

IRR 2

47 Vision-Ease Sr Secured TL 2/29/2008 6.0 years 4.7 years 38,000,000$ 49,506,783$ -$ 1.30x - 10.08%48 Holley Performance Sr Secured TL 3/31/2008 5.0 years 1.6 years 22,000,000 24,550,583 - 1.12x - 11.66%49 Haights Cross Sr Secured TL 8/15/2008 4.8 years 1.0 years 50,000,000 58,538,314 - 1.17x - 18.06%50 Tecomet Sr Secured TL & Revolver 9/26/2008 5.0 years 2.2 years 25,000,000 31,817,989 - 1.27x - 13.49%51 Vertis Sr Secured TL 10/17/2008 3.8 years 2.2 years 50,000,000 64,269,385 - 1.29x - 18.76%52 Bumble Bee Sr Secured TL 11/18/2008 5.0 years 1.1 years 90,250,000 103,321,994 - 1.14x - 14.81%53 Portola Sr Secured TL 11/25/2008 5.0 years 0.8 years 16,500,000 18,522,155 - 1.12x - 15.90%54 Vivint, Inc. Sr Secured TL 10/2/2009 2.8 years 2.3 years 87,500,000 111,158,598 - 1.27x - 15.57%55 Hostway Sr Secured TL & Revolver 3/23/2010 5.0 years 2.8 years 27,500,000 41,337,563 - 1.50x - 13.82%56 Attends Sr Secured TL 3/30/2010 5.0 years 1.2 years 78,000,000 89,109,035 - 1.14x - 13.46%57 TouchTunes Sr Secured TL 3/30/2010 4.8 years 1.9 years 72,500,000 84,001,777 - 1.16x - 14.58%58 HHI Group Holdings Sr Secured TL 3/30/2010 5.0 years 1.0 years 87,450,000 98,792,441 - 1.13x - 15.54%59 Consona Sr Secured TL 5/28/2010 4.0 years 1.5 years 80,000,000 92,617,294 - 1.16x - 13.62%60 Rogue Wave Sr Secured TL 6/25/2010 4.0 years 1.1 years 33,000,000 38,669,846 - 1.17x - 16.91%61 Airvana Network Solutions Sr Secured TL 8/30/2010 4.0 years 0.6 years 47,000,000 50,178,197 - 1.07x - 16.07%62 Emerald Sr Secured TL 9/1/2010 3.2 years 1.7 years 58,905,281 68,880,485 - 1.17x - 13.30%63 Handy & Harman Sr Secured TL 10/15/2010 2.7 years 1.6 years 25,000,000 28,375,660 - 1.14x - 12.50%64 ValueVision Media Sr Secured TL 11/17/2010 5.0 years 1.0 years 12,500,000 14,587,847 - 1.17x - 17.22%65 Purple Communications Sr Secured TL 12/3/2010 4.0 years 2.1 years 60,000,000 72,648,226 - 1.21x - 13.08%

SSF IV Tota ls 961,105,281$ 1,140,884,172$ -$

SSF IV Net Mult. 1.16x SSF IV Net IRR3,4 11.16%




CONFIDENTIAL

Regiment Capital Special Situations V, L.P. (DL V) Investment Statistics

36

1. Represents the Fund’s funded commitment at transaction closing as well as any add-on investments made during the investment period. 2. Represents payment of principal, interest and fees to date as of July 1, 2014. 3. Represents remaining principal outstanding plus accrued paid in kind interest to date as of July 1, 2014. 4. Mark represents the Fund’s valuation of its outstanding portfolio investments as of July 1, 2014. 5. Realized IRR does not reflect the payment of management fees, performance allocations and other expenses.


General Information Return on Investment Gross IRR


Orig inal

Term

Loan

Duration Total Invested 1 Total Realized 2

Amount

Unrealized 3

Mu

ltip

le

Mark 4

Realized

IRR 5

66 Airvana Network Solutions Sr Secured TL 5/16/2011 4.0 years 0.7 years 46,712,109$ 49,890,306$ -$ 1.07x - 15.97%67 Attends Sr Secured TL 6/2/2011 5.0 years 0.2 years 77,998,934 89,107,969 - 1.14x - 21.70%

68(a) Tyde Group Sr Secured TL & Revolver 6/22/2011 3.8 years 1.3 years 25,280,837 31,918,481 - 1.28x - 12.57%68(b) Tyde Group Sr Secured TL 2/29/2012 4.8 years 0.6 years - 69(a) Pre-Paid Legal Services Sr Secured TL 7/1/2011 5.5 years 2.0 years 175,000,000 199,528,366 - 1.14x - 13.14%69(b) Pre-Paid Legal Services II Sr Secured TL 11/30/2012 0.6 years 0.6 years -

70 Paperworks Sr Secured TL 7/21/2011 5.0 years 40,000,000 25,027,550 27,707,358 - 98.00% -71 Rogue Wave Sr Secured TL 8/9/2011 5.0 years 0.6 years 35,000,000 36,727,250 - 1.05x - 12.77%

72(a) International Equipment Solutions Sr Secured TL 9/28/2011 5.0 years 1.9 years 127,000,000 176,051,214 - 1.09x - 12.51%72(b) International Equipment Solutions II Sr Secured TL 6/1/2012 1.2 years 1.2 years - 72(c) International Equipment Solutions III Sr Secured TL 7/24/2012 1.1 years 1.1 years -

73 OnCore Sr Secured TL 10/3/2011 5.0 years 45,000,000 23,406,519 37,032,891 - 98.00% -74 Federal Signal Sr Secured TL 2/22/2012 5.0 years 1.1 years 59,283,333 68,799,925 - 1.16x - 17.74%75 Everyware Sr Secured TL 3/23/2012 5.5 years 1.2 years 61,000,000 69,541,129 - 1.14x - 13.26%

76(a) Trinity Services Sr Secured TL & Revolver 3/29/2012 5.0 years 25,516,250 7,020,012 23,998,027 - 100.00% -76(b) Trinity Services Sr Secured TL 6/20/2012 4.8 years - 76(c) Trinity Services Sr Secured TL 3/13/2014 3.0 years -

77 Tensar Sr Secured TL & Revolver 4/27/2012 2.0 years 52,000,000 62,664,884 - 1.19x - 12.77%78 Dawn Food Products Sr Secured TL 6/29/2012 5.0 years 1.6 years 115,000,000 127,562,338 - 1.11x - 13.86%79 Heartland Automotive Holdings Sr Secured TL & Revolver 8/28/2012 5.0 years 39,444,444 13,671,261 35,159,722 - 95.00% -

80(a) Cydcor Sr Secured TL 9/17/2012 4.0 years 116,307,792 124,832,937 - 1.10x - 14.60%80(b) Cydcor II Sr Secured TL 6/12/2013 4.0 years -

81 MSC Software Sr Secured TL 11/30/2012 5.0 years 1.5 years 37,500,000 43,595,434 - 1.16x - 11.70%82(a) OTG Management Sr Secured TL 2/14/2013 5.0 years 34,688,889 5,015,818 34,060,000 - 100.00% -82(b) OTG Management Sr Secured TL 1/17/2014 3.9 years - 83(a) YP Holdings Sr Secured TL 6/7/2013 5.0 years 119,359,657 60,362,851 82,619,492 - 100.00% -83(b) YP Holdings Sr Secured TL 2/13/2014 5.0 years -

84 Friendly's Sr Secured TL 6/12/2013 5.0 years 17,727,273 5,096,309 18,490,954 - 100.00% -85 Zotec Partners Sr Secured TL 9/11/2013 5.0 years 50,000,000 5,944,250 48,000,000 - 100.00% -86 Demilec Sr Secured TL & RCs A&B 9/30/2013 5.0 years 23,355,140 2,126,111 23,469,790 - 100.00% -87 The Sheridan Group Sr Secured TL 10/15/2013 5.0 years 44,000,000 5,716,101 42,593,200 - 100.00% -88 LifeVantage Corporation Sr Secured TL 10/28/2013 5.0 years 47,000,000 30,760,255 18,495,000 - 100.00% -89 Orchard Brands Sr Secured TL 12/20/2013 5.0 years 130,000,000 68,862,002 67,681,469 - 100.00% -90 Serena Software Sr Secured TL 4/21/2014 6.0 years 50,000,000 1,583,314 50,000,000 - 100.00% -91 U.S. Well Service Sr Secured TL 5/2/2014 5.0 years 109,509,298 32,101,617 80,963,778 - 100.00% -92 Robertshaw Sr Secured TL & Revolver 6/17/2014 5.0 years 55,588,235 843,750 55,588,235 - 100.00% -93 Harvest Hill Beverage Company Sr Secured TL 7/1/2014 5.0 years 73,246,250 - 75,000,000 - 100.00% -

SSF V Tota ls 1,832,518,441$ 1,367,757,954$ 720,859,916$


CONFIDENTIAL

III. People

37


CONFIDENTIAL

TCW Direct Lending Team • Seasoned investment professionals

• Diverse backgrounds and training

– Extensive capital markets experience

– Wide range of industry expertise

– Broad array of professional relationships

• Overlapping work history

• No turnover

Joined Investment Experience Background Employment History/Overlap Education

Richard Miller 2001 23 years High Yield Research, Leveraged Finance, M&A

Chemical/Chase Bank, Bank Boston, UBS, Regiment, TCW

Syracuse University, University of Rochester

Suzanne Grosso 2004 18 years High Yield Research, Private Equity Chemical/Chase Bank, Bank Boston, Bear Stearns Merchant Banking, Regiment, TCW

Cornell University, University of Pennsylvania

Matthew Whitcomb 2005 18 years Leveraged Finance, Private Equity Banker Trust, Bank Boston, UBS, Accion Investments, Regiment, TCW

Middlebury College

James Bold 2005 33 years M&A, Corporate Finance Chemical/Chase Bank/JPMorgan, Baxter Bold & Co., Regiment, TCW

Bucknell University

Kyle O’Neill 2005 14 years M&A, Corporate Finance Chase Bank/JPMorgan, Baxter Bold & Co., Regiment, TCW

Michigan State University

Karen Simeone1

2010

15 years

Distressed Investing, High Yield Research, Leveraged Finance

Stairway Capital, HVB, Chase Bank/JPMorgan, Regiment, TCW

Georgetown University, London School of Economics

James Synborski 2010 8 years Direct Lending NewStar Financial, Regiment, TCW Babson College

Mark Gertzof

2013

24 years

Asset Based Lending, Leveraged Finance, Corporate Finance

Bank Boston, Merrill Lynch, Monroe Credit Advisors, TCW

Babson College

David Dobies 2014 25 years Leveraged Finance, Corporate Finance Morgan Stanley, Bank of Nova Scotia, Fleet Boston, NewStar Financial, TCW

Villanova University, University of Rochester

Alison Weiss 2014 16 years High Yield Research, High Yield & Distressed Sales, Distressed Investing

Bank Boston, UBS, Harbinger Capital Partners, The Seaport Group, MAST Capital, TCW

Colgate University

Michael Coster 2014 14 years M&A, Corporate Finance Ernst & Young, Libra Securities, Houlihan Lokey, TCW

University of Missouri-Columbia 38

Structure Process

People

DL

1. Karen Simeone worked as a consultant starting in 2010 and joined the Direct Lending Group full time in 2012


CONFIDENTIAL

TCW Direct Lending Team

What We Are

What We Are Not

CIO

Underwriting Portfolio

Management Work Out Origination

Business Development

Diligence &

Documentation

Monitoring Restructuring (If Needed)

• Two or three investment professionals responsible for all elements of a transaction

• Life of investment approach from sourcing to realization

Deal Sourcing

Rigorous Due Diligence

& Analysis

Highly Negotiated & Structured

Docs

Active Monitoring

J. Bold

J. Synborski

K. O’Neill

M. Whitcomb

R. Miller

S. Grosso K. Simeone

39

M. Gertzof D. Dobies

Portfolio

Structure Process

People

DL

A. Weiss M. Coster


CONFIDENTIAL

Investment Team

40

Richard Miller Group Managing Director

Mr. Miller joined TCW in 2013 with the acquisition of the Special Situations Funds Group from Regiment Capital Advisors, LP. He is in charge of the firm’s Direct Lending effort. Under Mr. Miller’s leadership, the Direct Lending team has raised over $3.9 billion of capital since its inception. Mr. Miller has over 23 years of experience in the capital markets and previously was ranked on the Institutional Investor “All American High Yield Research Team” for six consecutive years, focusing primarily on the Metals and Mining sector. Prior to his involvement in high yield research, he was at Chase Manhattan Bank in the Mergers & Acquisitions Group. He then moved on to become a Managing Director with the High Yield Group. Subsequently, he became the Head of High Yield Research at BankBoston Securities and in 1999, Mr. Miller joined UBS as a Managing Director and Head of the Global High Yield Research Group. Mr. Miller received his BS from Syracuse University and his MBA from the Simon Business School at the University of Rochester. James Bold Managing Director

Mr. Bold joined the TCW Direct Lending group as a Managing Director in 2013 with the acquisition of the Special Situations Funds Group from Regiment Capital Advisors, LP. He joined the Direct Lending team in 2005 and is involved in the origination, due diligence review, structuring, execution, and monitoring of investments. Previously, he was a Partner in an energy-focused investment banking firm, Baxter Bold & Company, which he founded in 2002. Prior to that, he was a Managing Director and Head of Global Energy Mergers and Acquisitions for JPMorgan. He began his career in 1980 at Chemical Bank where he specialized in the energy, power, and natural resources industries. Mr. Bold received a BS in Business Administration from Bucknell University. Suzanne Grosso Managing Director

Ms. Grosso joined the TCW Direct Lending group as a Managing Director in 2013 with the acquisition of the Special Situations Funds Group from Regiment Capital Advisors, LP. She joined the group in 2004 and is involved in the origination, due diligence review, structuring, execution, and monitoring of investments. She has worked in the public and private financial markets since 1994. Previously, Ms. Grosso worked on private equity transactions in Bear Stearns’ Merchant Banking group and was a high yield Research Analyst at Chase Manhattan Bank. Ms. Grosso received a BA from Cornell University and an MBA from the Wharton School of the University of Pennsylvania.

David Dobies Managing Director

Mr. Dobies joined the TCW Direct Lending group as a Managing Director in 2014 and is involved in the origination, due diligence review, structuring, execution, and monitoring of investments. Prior to joining TCW, and starting in 2004, Mr. Dobies was a Founding Partner, member of the management committee, and Co-Head of Middle Market Leveraged Finance at NewStar Financial, Inc. From 1995 to 2004, Mr. Dobies served in various capacities of increasing responsibility at FleetBoston Financial Corporation and its predecessor institutions, where he was responsible for managing the Media, Entertainment, and Sports Finance syndication businesses. He began his career in 1987 as a Financial Analyst at Morgan Stanley & Co. Incorporated. Mr. Dobies received a BSBA in Finance from Villanova University and an MBA from the Simon Business School at the University of Rochester. Mark Gertzof Managing Director

Mr. Gertzof joined the TCW Direct Lending group as a Managing Director in 2013 and is involved in the origination, due diligence review, structuring, execution, and monitoring of investments. Prior to joining TCW, he was the Managing Partner of a middle market investment banking and credit advisory firm, Monroe Credit Advisors, which he co-founded in 2009. Prior to that, he was a Managing Director and Team Leader for Merrill Lynch Capital’s Corporate Finance leverage lending group where he spent six years. Mr. Gertzof started his career at Bank of Boston in 1989 and spent 13 years at BankBoston/Fleet Capital in various positions primarily focused on asset-based lending. Mr. Gertzof holds a BS with high distinction in Finance and Investments from Babson College. Matthew Whitcomb Managing Director

Mr. Whitcomb joined the TCW Direct Lending group as a Managing Director in 2013 with the acquisition of the Special Situations Funds Group from Regiment Capital Advisors, LP. He joined the group in 2005 and is involved in the origination, due diligence review, structuring, execution, and monitoring of investments. Previously, Mr. Whitcomb worked in leveraged finance and has been involved in the structuring and execution of high yield bond and leveraged loan transactions since 1994, when he began his career with Bankers Trust. Mr. Whitcomb graduated with honors from Middlebury College in 1994, where he double majored in Spanish and International Economics and Politics.


CONFIDENTIAL

Investment Team (cont’d)

41

Kyle O'Neill Senior Vice President

Mr. O’Neill joined the TCW Direct Lending group as a Senior Vice President in 2013 with the acquisition of the Special Situations Funds Group from Regiment Capital Advisors, LP. He joined the Direct Lending team in 2005, and is involved in the origination, due diligence review, structuring, execution, and monitoring of investments. Previously, Mr. O’Neill held various positions in the investment banking firms of JPMorgan and Baxter Bold & Company. During this time he worked on mergers, acquisitions, and capital markets transactions for companies engaged in the energy, power, and natural resources industries. Mr. O’Neill received a BA from Michigan State University’s Eli Broad College of Business. Michael Coster Senior Vice President

Mr. Coster joined the TCW Direct Lending group as a Senior Vice President in 2014 and is involved in the origination, due diligence review, structuring, and execution of new investments, and the ongoing management of portfolio companies. Prior to joining TCW, he was a Director in Houlihan Lokey’s Technology, Media, Telecom, and Gaming Group, where he spent five years leading debt private placement and M&A transactions for the international investment bank. Prior to that, Mr. Coster was a Managing Director in the investment banking division of Libra Securities and its predecessor firm, U.S. Bancorp Libra. Mr. Coster has also spent over six years as a finance executive for two large private companies in the manufacturing and telecommunications industries and he began his career in public accounting working as a CPA for Ernst & Young LLP. Mr. Coster is a graduate of the University of Missouri-Columbia where he received a BS in Accounting.

Karen Simeone Senior Vice President

Ms. Simeone joined the TCW Direct Lending group as a Senior Vice President in 2013 with the acquisition of the Special Situations Funds Group from Regiment Capital Advisors, LP. She joined the Direct Lending team in 2012 after having been a consultant to the team and is involved in the origination, due diligence review, structuring, execution, and monitoring of investments. She has worked in leveraged finance since 1998 and has experience with loans, high yield bonds, and distressed assets. Previously, Ms. Simeone helped to launch Stairway Capital, and she worked in the special assets group of HypoVereinsbank. She began her career at JPMorgan in leveraged finance and high yield research. Ms. Simeone received a BS in Foreign Service with a concentration in International Economics from Georgetown University cum laude and completed the General Course at the London School of Economics. Alison Weiss Senior Vice President

Ms. Weiss joined the TCW Direct Lending group as a Senior Vice President in 2014 and is involved in the origination, due diligence review, structuring, and execution of new investments, as well as the ongoing management of portfolio companies. Prior to joining TCW, Ms. Weiss worked in idea generation/investment research roles at MAST Capital Management and Harbinger Capital Partners where she focused primarily on High Yield and Distressed Credit opportunities. Ms. Weiss began her career in High Yield Research at BancBoston where she focused on the Metals and Mining and Forest Products sectors before moving on to hold various positions at UBS Investment Bank in High Yield Research and High Yield and Distressed Sales. Ms. Weiss received her Bachelor of Arts degree from Colgate University. James Synborski Vice President

Mr. Synborski joined the TCW Direct Lending group as a Vice President in 2013 with the acquisition of the Special Situations Funds Group from Regiment Capital Advisors, LP. He joined the Direct Lending team in 2010, and is involved in the origination, due diligence review, structuring, execution, and monitoring of investments. Previously, he worked at NewStar Financial, a Boston-based commercial lender that focuses on the middle market. He has been involved in structuring, underwriting, and monitoring middle market senior secured loan transactions since 2005. Mr. Synborski received a BS in Finance from Babson College.


CONFIDENTIAL

IV. Process

42


CONFIDENTIAL

TCW Direct Lending Investment Process

43

Proactively Exert Influence at each stage

Sourced Opportunities

Initial Screening


Proposal

Documentation

Active Monitoring

Realization

Process

Structure

Structure

People

Process DL


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44

• Discussions with deal source

– Company overview

– Deal size and business

– Structure / price / leverage expectations

• Introduce to investment team during weekly strategy meeting

• Discuss pros and cons

• Identify critical diligence items

• Direct origination through investment team’s relationships

– Management Teams

– Referrals

– Repeat Borrowers

– Commercial & Investment Bankers

– Professional Community

– Private Equity Funds

– Lending Partners

Sourced Opportunities

Initial Screening

Process

Structure

Structure

People

Process DL


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45

• Submit due diligence requirements

• Perform internal analysis

• Utilize third party professionals

– Expenses typically borne by the borrower

• Discuss findings of diligence review at weekly strategy meeting


Process

Structure

Structure

People

Process DL

Financial Forecast Review

Site Visits

Mgmt. Background

Checks

Quality of Earnings

Competitor Analysis

Appraisal & Valuation

Industry Consultants

Third Party Legal

Borrower


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46

• Work with third party legal

• Focus on top of the capital structure

• Highly negotiated

• Custom tailored documentation and covenants

• Intercreditor protections

• Reporting requirements

• Identify appropriate terms and conditions

– Pricing

– Fees

– Covenants

– Structural provisions

Proposal

Documentation

Process

Structure

Structure

People

Process DL


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47

• Identify multiple exit strategies during diligence and continuously monitor and evaluate

– Refinancing

– Sale of the company

– Sale of assets

– Merger

– Secondary market sale

– Restructuring

• Typically through refinancing or sale of the company

• Use all resources available to recoup investment

• Ongoing due diligence

• Detailed reporting packages

– Weekly flash reports

– Monthly financials

– Projections

– Operational reports

• Frequent communication with management

• Interaction with other stakeholders

Active Monitoring

Realization

Process

Structure

Structure

People

Process DL


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V. Structure

48


CONFIDENTIAL

Direct Lending Fund VI Structure ‒ Objectives

• Maintain investment approach

– Generate attractive risk-adjusted returns

– Align investor / manager interests

– Committed capital

– Focus on last dollar of risk exposure

• Enhance investors risk-adjusted returns

– Reduce cost of leverage

– Maximize cash management efficiencies

• Respond to investor requests

– Tax treatment

– Evergreen alternative

– Flexibility / optionality

49

Process

People

Structure DL


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Direct Lending Fund VI Fund Structure1

Select Common Capital Terms

• Three year investment period

• 8% hurdle rate before management 20% performance fee / catch up

• 1.5% management fee on committed common capital during investment period

• After investment period has expired, 0.75% management fee on total fund capital outstanding during unwind period2

• Quarterly distributions of excess capital after debt service and management fees2

1. This structure is currently being considered by the Direct Lending team. The terms of this structure are not final and are subject to change. You should not rely on this information when making investment decisions.

2. Fee will vary in connection with scenario described as ‘Investor Optionality (Non-Liquidating)’ on page 29. 50

• DL VI will elect to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940

• Private BDC structure seeks to achieve DL VI objectives

– Utilize leverage to potentially generate more attractive returns for investors

– Obtain capital from tax-exempt investors, including pensions and university endowments

– Historically has allowed for investment by offshore investors without adverse tax consequences

– Improve cash management efficiencies

• Maintains key attributes of existing Direct Lending Funds

– Committed capital / capital call structure

– Disciplined underwriting based on principal preservation

– Targeted investment yield to maturity of 8% - 12%

– Quarterly cash distributions and capital repayments

Credit Facility Common Investors

DL VI

TCW DL Group (External Manager)

Investment Investment Investment

Process

People

Structure DL


CONFIDENTIAL

Investment

1. This structure is currently being considered by the Direct Lending team. The terms of this structure are not final and are subject to change. You should not rely on this information when making investment decisions. 2. The option to liquidate or stay invested in the BDC will be dependent on DL VI obtaining approval from the SEC. There is no guarantee that will be granted by the SEC. In the event that approval is not granted, DL VI will un-wind

its assets in a similar manner to prior funds. 3. Three year wind-down period with two, one year extensions at the option of the Fund’s Board of Directors and annual extensions subject to Common shareholder vote thereafter.

Investor Optionality1

51

DL VI (Common & Bank)

Investment Investment


DL VI (Common and Bank)

Investment Investment


New Investment

New Investment

New Investment

Investment Period Post Investment Period

• Prior to the end of the investment period DL VI will provide investors with the option of:

– Continuing a liquidating structure similar to Fund I - V2

– Participating in a permanent, non-liquidating investment structure1


(Non-Liquidating)


(Liquidating)

BDC

(Common and Bank)

Investment


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VI. Disclosures

52


CONFIDENTIAL

Important Disclosures

53

The information presented in these materials is provided solely as reference material with respect to the DL Fund. It does not constitute an offer to sell or a solicitation of an offer to buy any interests the DL Fund. Any such offering will occur only in accordance with the terms and conditions set forth in the confidential offering memorandum (“Offering Memorandum”) of the DL Fund. Prospective investors are strongly urged to review the Offering Memorandum for more complete information (including the risk considerations described in the “Risk Factors” section of the Offering Memorandum). All information provided in these materials: (1) is qualified by reference to the DL Fund’s Offering Memorandum, (2) may only be relied upon as of the date hereof, (3) is subject to modification, change, or supplement without prior notice to you and (4) does not constitute any investment advice or recommendation. The processes described herein are illustrative and subject to change. Portfolio characteristics and holdings are subject to change at any time. No person has been authorized to give any information or to make any representation, warranty, statement or assurance not contained in the Offering Memorandum, and if given or made should not be relied upon. Investment in the DL Fund is only suitable for sophisticated investors who fully understand and are willing to assume the risks involved. The information in these materials is confidential property of the DL Fund and is intended only for recipients authorized by the DL Fund’s representatives. This information may not be provided to any other person without the prior written consent of the DL Fund’s representatives. CERTAIN RISK FACTORS With respect to investing in the DL Fund, you should be aware that: • Interests in the DL Fund are speculative securities that involve a high degree of risk, including the risk that an investor can lose some or all of its investment. • The DL Fund will not be a balanced investment program for purposes of an investor's portfolio diversification needs. • The nature of the loans and other obligations in which the DL Fund is expected to invest will involve a high degree of financial risk. • The DL Fund is expected to use leverage. The use of leverage increases both risk of loss and the interest and other expense to the DL Fund. • There will be no public or other market for the DL Fund’s interests and none is expected to develop. There will be substantial restrictions on the transferability of interests. An

investor's ability to receive distributions of their investment is limited by the terms of the DL Fund's governing documents, and proceeds may not be paid immediately. Thus, investors may be required to bear the financial risk of investment for an extended period of time.

• An investment in the DL Fund involves complex federal, state and local income tax considerations that will differ for each investor. • Various potential and actual conflicts of interest may arise from the overall investment activities of TCW, its investment professionals and its affiliates for their own accounts and

the accounts of others. • The DL Fund will compete with other funds (including accounts and funds managed by TCW and its affiliates) and investors for the same or similar lending or investment

opportunities. • The success of the DL Fund’s loans and investments is dependent upon the ability of its individual portfolio managers to develop and implement investment strategies that achieve

the DL Fund’s investment objectives. The DL Fund could be adversely affected if the individual portfolio managers cease to be involved in the management of the DL Fund. • Any assumptions, assessments, intended targets and the like (“forward-looking statements”) regarding future events are based upon the expectations or beliefs of the DL Fund’s

investment manager, which are subject to change due to a variety of factors, including fluctuating market and economic conditions, and involve an inherent risk of uncertainty. Future results could be materially different from those contemplated by the forward-looking statements. No assurance can be given that the forward-looking statements are now or will prove to be accurate or complete. The DL Fund and TCW have no obligation to revise or update the forward-looking statements.

POTENTIAL INVESTORS SHOULD READ THE ENTIRE OFFERING MEMORANDUM, AND CONSULT WITH THEIR OWN LEGAL AND FINANCIAL ADVISERS BEFORE DECIDING TO INVEST IN THE DL FUND. THE FOREGOING RISK FACTORS DO NOT PURPORT TO BE A COMPLETE EXPLANATION OF THE RISKS INVOLVED IN PURCHASING INTERESTS IN THE DL FUND.

Direct Lending Primer City of Fresno Retirement · PDF fileSource: PitchBook PE Breakdown 2014...

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Transcript of Direct Lending Primer City of Fresno Retirement · PDF fileSource: PitchBook PE Breakdown 2014...