© 2015 Winston & Strawn LLP

Winston & Strawn Loan and CLO Market Update

June 10, 2015

© 2015 Winston & Strawn LLP

Today’s Speakers

2

Jai S. Khanna Corporate Partner Chicago +1 (312) 558-6357 jkhanna@winston.com

Kevin M. Ryan Corporate Partner Chicago +1 (312) 558-7482 kryan@winston.com

Felton E. Parrish Corporate Partner Charlotte +1 (704) 350-7820 fparrish@winston.com

Timothy J. Dable Corporate Partner Chicago +1 (312) 558-6369 tdable@winston.com

James A. Snyder Corporate Partner Chicago +1 (312) 558-5271 jsnyder@winston.com

Michael T. Mullins Corporate Partner Chicago +1 (312) 558-7568 mmullins@winston.com

© 2015 Winston & Strawn LLP

Agenda

3

State of the CLO Market

Cash Flow Loan Update

Asset Based Loan Update

LSTA Update

Bankruptcy Update

© 2015 Winston & Strawn LLP

State of the CLO Market

© 2015 Winston & Strawn LLP

CLO Market Update

• Recent History

• Current Market Trends and Outlook

• Obstacles: Past and Present • Volcker Rule

• Risk Retention

• Loan Supply / Pricing Arbitrage

5

© 2015 Winston & Strawn LLP

CLO Market Update

• European Risk Retention • What are managers doing now? • “Hold periods” for retention holders/originator

• US Risk Retention

• What are managers doing now? • Refinancings • Majority Owned Affiliate • Leverage • Voting rights • Making deals work for both US and EU risk retention

6

© 2015 Winston & Strawn LLP

Loan Market Update

© 2015 Winston & Strawn LLP

Cash Flow

8

© 2015 Winston & Strawn LLP

Overview

• Thin deal flow • Reasons?

• Impact

• Leveraged lending guidance • Large cap space

• Mid-market space

9

© 2015 Winston & Strawn LLP

Impact on Documentation

• Increased borrower sway over process generally

• Further loosening of deal terms

• Continued evolution of "sponsor technology"

10

© 2015 Winston & Strawn LLP

Players in the Market

• Existing names expanding, including into new markets and considering new industries

• Lots of new names and platforms in the MM space • Questions surrounding pending transactions

11

© 2015 Winston & Strawn LLP

Alternative Structures and Approaches

• Interest in seeking to gain any toehold to increase market share • First Out / Last Out and Unitranche

• First Lien / Second Lien

12

© 2015 Winston & Strawn LLP

Asset Based

© 2015 Winston & Strawn LLP

General Overview

• Similar issues surrounding deal flow as in Cash Flow space

• More frequent use of precedent documents or provisions

• Sponsor desire to match existing terms of portfolio

14

© 2015 Winston & Strawn LLP

ABL Deal Specific Terms

• Reserves – creeping past general permitted discretion

• Financial Covenant/Equity Cure – increased frequency of cure rights

• Cash Dominion Spring – extension of trigger event

• Payment Conditions – creation of sub categories and combinations within standard requirements

15

© 2015 Winston & Strawn LLP

Alternate Approaches to Enhanced Availability

• Eligible equipment or fixed asset components

• Stretch portion on eligible accounts and/or eligible inventory

• Eligible accounts of foreign subsidiaries

16

© 2015 Winston & Strawn LLP

LSTA Update

© 2015 Winston & Strawn LLP

LSTA Update

• Model Credit Agreement Provisions

• Disqualified Lender Lists • LSTA approach generally followed in marketplace

• But with case-by-case negotiated deviations

• DQ list only provided to Agent not lenders

• Assignments to DQed lenders null and void

• Expansion of borrower ability to update list

• LSTA Market Advisory– deviations upset delicate balance

18

© 2015 Winston & Strawn LLP

Bankruptcy Update

© 2015 Winston & Strawn LLP

Bankruptcy Update

• In re MPM Silicones, LLC – the worst of all worlds: • Claim for make-whole payment denied; • Plan confirmed that provided for below market interest rate to

secured lenders; and, • Claims against second lienholders for breach of intercreditor

agreement dismissed.

• Unitranche Issues: • In RadioShack bankruptcy, court interpreted and enforced

Agreement Among Lenders (AAL). • There was no express ruling as to enforceability of AAL in

bankruptcy, but decision does provide some comfort.

20

© 2015 Winston & Strawn LLP

Questions?

21

© 2015 Winston & Strawn LLP

Speakers

22

Jai S. Khanna Corporate Partner Chicago +1 (312) 558-6357 jkhanna@winston.com

Kevin M. Ryan Corporate Partner Chicago +1 (312) 558-7482 kryan@winston.com

Felton E. Parrish Corporate Partner Charlotte +1 (704) 350-7820 fparrish@winston.com

Timothy J. Dable Corporate Partner Chicago +1 (312) 558-6369 tdable@winston.com

James A. Snyder Corporate Partner Chicago +1 (312) 558-5271 jsnyder@winston.com

Michael T. Mullins Corporate Partner Chicago +1 (312) 558-7568 mmullins@winston.com

© 2015 Winston & Strawn LLP

Thank You