Raising Debt In IsraelWellspring Capital

From Thought to Execution

September 2014

The Opportunity - Raising Debt In Israel

High liquidity of the local investors and a strong preference for bonds

Solid demand in large scales for unsecured rated bonds and a shortage of local issuers

Rated unsecured corporate bonds are traded in a relatively low spread from government bonds

Israeli market is accessible for relatively small companies enabling issuing bonds in an amount of ~ US$40 million and more

Strong macro economics

High perception for real estate in the US

Advantages of Issuing Bonds In Israel

• The local debt market interest rates are attractive for the relevant peer group, comparedto the private alternative in the US, enabling raising subordinated debt in low interestrates.

• Bond’s terms and structure in Israel are similar to a Mezzanine loan with lower interestrate.

• The issuing proceeds can be used for refinance other expensive debt or for newinvestments (e.g. buying out existing partners or investing in new assets) under the deedof trust terms and conditions.

• The Israeli market is considered as accommodating, especially with regards to the debtmaturity and with relation to unsecured debt.

• The issuance of the first bond series in Israel creates a platform which enables companiesto issue new debt or enlarge the current series in the framework of a few days.

• The bonds will be issued under a Limited Liability Company, a legal entity which has norecourse to shareholders in any default events.

Recommended Criteria For Issuing Bonds

Issuer Size Equity of over US$50m – depending on the company’s operations

Operation Strong preference for real estate companies with income producing assets in prime locations

Locations The Israeli market has a high perception for real estate in the US

Relevant Ratio’s for the Rating Process

• Debt to (1) NOI; (2) FFO; or (3) EBITDA• EBITDA to Interest expenses• Debt to (Debt + Equity)

Issuance US$50m and more

Rating From BBB+ rating – the higher the rating the lower the interest rate

Interest Rate Based on the company’s assets portfolio and the assumed rating

Listing in Israel

Average debt raising process should take ~12-16 weeks in accordance with the following milestones:

• Approaching one of the local rating companies for rating the issued bonds• Prepare an IFRS based financial reports• Legal structure preparation • Writing and filing an Israeli prospectus• Conducting a comprehensive road show to local investors • Issuing marketing documents to local investors• Conducting negotiations with institutional investors regarding legal documents and

debt terms• Conducting a preliminary tender offer for institutional investors• Conducting a public tender

The Legal Structure Preparation

• In order to issue bonds in Israel, the following legal preperationshould be executed:

• Incorporation of a B.V.I. Limited Liability Company owned by Individual/individuals* –New Co. (B.V.I.)

• Cherry Picking of the new assets which will be transferred to the new company

• After the completion of the bond offering and in the same time, the Individual/individuals* will transfer his/their direct or indirect beneficial ownership interests in the real estate in New York to New Co. (B.V.I.)

Regulation Applying To Foreign Bonds Issuers

See below some of the provisions of law applicable to foreign entities issuing bonds in Israel:

• Appointment of (1) external directors; (2) an audit committee; (3) anindependent director; and (4) an internal auditor.

• Reporting: (1) publishing quarterly and annual IFRS based financial statements;(2) immediate reports regarding main events in the company's ongoing activity;etc.

• Bonds issued by the Company shall be issued in accordance with a deed of trustsigned with a trustee. The deed of trust will include provisions regarding financialratios e.g. coverage ratios, leverage restrictions, commitment to maintain a ratingand other causes for immediate repayment etc. The trustee serves as the bondholders' representative.

• The Issuing company should have a registered office or a representative office inIsrael, a local law firm and a local accountant firm.

An Overview Of The Israeli MarketWellspring Capital

From Thought to Execution

September 2014

Strong Macro Economics

High Liquidity of the Local Institutional Investors

• Institutional investors manage over US$405bn (~NIS1,420bn) as of 2014 and are expected to reach US$571bn (~NIS2,000bn) by 2020 ( ~57% of the total assets portfolio).

• Average monthly capital accumulation of US$3.2bn vs. new debt issuance of only US$830m creating an annual gap of ~US$38 bn -creating a need for new investments

Relatively low Government bonds Yield• Low government bond yields –over the last few years, the spread between Israel government bond yields

and 10 year US bonds dropped dramatically from 3.29% to only 1.04%

• Local corporate bonds trade at a relatively low spreads over similar duration government bonds

Source: TASE

The Local Bonds Market• Israel has a very efficient bonds market with high trading volumes

• Corporate bonds are traded in relatively low spreads over equivalent duration of government bonds

• Ranking arbitrage opportunity -taking advantage of the rating gaps between Israel and the company’slocal country rating, i.e the rating gap between Israel and the US is five notches, meaning that a BBBcompany in the US will be rated as AAA in the local rating.

• Solid demands for long duration and unsecured bonds.

• The local market’s high liquidity crates an opportunity for companies to issue unsecured bonds. Over70% of the traded bonds were issued without any collaterals.

Size Advantages• Size advantages –a relatively small company in a foreign market (especially the North American markets) could be

considered a large company in Israel.

• Over 40% of Tel Aviv 100 index companies have a market cap of below US$0.5bn.

• The average market cap of companies traded in the Real Estate 15 index (which is composed by Israel’s leading real estate companies) is ~ US$1bn.

Samples Of Real Estate Related Bonds

Wellspring Capital

Yaniv Bresler

MBA, LLB (ISR), over 14 years of experience in Corporate Finance, fund raising, M&A, IPO's, RTO's in public and private companies from variant sectors in Israel, North America and Africa.

• Contacts:

972-54-3332304

ybresler@wellspringcapital.co.il

Yaniv Lubinski

MBA, CPA (ISR), over 14 years of experience in international financial management, investments and fund raising. Talent for creative thinking and a multidisciplinary approach in solving challenged situations.

• Contacts:

972-54-3332301

ylubin@wellspringcapital.co.il

Founded by Yaniv Bresler and Yaniv Lubinski. Both partners bring to the table vast experience in the Israeli capital market and innovative thinking to solve your fund raising needs.