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Leveraged Finance Default Review
1Q13 High Yield and Leveraged Loan Default Review
High Yield: The U.S. high yield default rate decreased 37 bp to 1.35% for the
12-month period ended March 2013 from 1.72% at the end of the prior quarter.
Leveraged Loans: The U.S. institutional leveraged loan default rate decreased
1 bp to 1.87% for the 12-month period ended March 2013 from 1.88% at the
end of the prior quarter. (Note: the prior quarter’s default rate was restated from
1.73% because additional information became available from public sources.)
Exhibit 1: US High Yield Bond vs. Leveraged Loan Default Rates: 1986 – LTM March 2013
0.5%1.3%
0.5%0.9%
2.5%
5.3%
6.8%
8.1%
3.8%
1.0%1.6%
0.4%0.2%
2.9%
9.6%
2.6%
0.7%
1.9% 1.9%
2.9%
4.8%
1.6%
3.8%
7.9%
8.8%
3.3%
1.8%
0.9%
2.3%
1.4% 0.9% 1.4%
4.1%4.5%
9.2%
15.5%
4.3%
1.3%
2.6%
0.7%0.5%
5.5%
9.4%
1.6% 1.8% 1.7%1.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Defa
ult
Rate
Institutional Leveraged Loans High Yield BondsDefaults defined as missed coupon, missed principal, filed chapter 11, distressed exchange, or cross-defaults. Source: Credit Suisse
Western European High Yield: The Western European high yield default rate
decreased 70 bp to 0.27% for the 12 months ending March 2013 from 0.97% at
the end of the prior quarter.
Western European Leveraged Loans: The Western European institutional
leveraged loan default rate decreased 243 bp to 4.26% for the 12 months
ending March 2013 from 6.69% at the end of the prior quarter. (Note: the prior
quarter’s default rate was restated from 5.23% because additional information
became available from public sources.)
Table of Contents
U.S. High Yield Default Review ............................................................................ 2
U.S. Institutional Leveraged Loan Default Review ............................................. 36
European High Yield Default Review ................................................................. 57
European Institutional Leveraged Loan Default Review .................................... 66
Visit our website at: http://research-and-analytics.csfb.com/R2Action.do
04 April 2013
Fixed Income Research
http://www.credit-suisse.com/researchandanalytics
Research Analysts
Jonathan Blau
Managing Director
212 538 3533
Daniel Sweeney
Director
+1 212 538 8213
Karen Friedlander
Associate
+1 212 325 8459
04 April 2013
Leveraged Finance Default Review 2
High Yield Default Rate Methodology
We define default to be a violation of covenants that results in principal impairment. Therefore a missed
coupon payment or a distressed exchange are considered to be defaults, but a change in net worth
requirements or other such covenants are not. An issue enters default upon the expiration of the grace
period following a missed coupon payment (usually 30 days), upon the filing of Chapter 11 bankruptcy, or
on the date of a distressed exchange. The issue emerges from default upon payment of interest or
principal due the bondholder, or restructuring and subsequent emergence from Chapter 11 protection.
Defaulted issues remain in the Credit Suisse High Yield and Leveraged Loan indices until they are taken
out of the market (however, note that there are sub-indices that exclude defaults).
The default rate is calculated by summing the par amount of high yield debt that has gone into default over
a 12-month period, and dividing this numerator by the average size of the high yield market over the same
period of time. We define this market size as the average of the beginning and ending total high yield
market sizes for the time period. Similar calculations can be done for any period of time.
The principal loss rate is calculated by taking the difference between the issue’s default price and issue
price and dividing this result by the issue price, yielding the principal loss rate – a figure that represents the
percentage of capital that is lost at the time of default, assuming that the issue has been owned since
issuance. By multiplying this percentage by the total amount of debt outstanding at the time of default we
are able to determine the total principal loss due to default.
The recovery rate is the difference between 100% and the principal loss rate (difference between the
issue’s default price and issue price divided by the issue price), and represents the amount of an investor’s
original investment that survives the average default event.
The default loss takes into account that over the course of the default and emergence from default
process, the equivalent of about one-half of an annual coupon payment is lost. Default loss is therefore
defined as the sum of principal loss and the coupon loss, and the default loss rate is defined as the total
high yield bond market default loss divided by the same average market size denominator that goes into
the default rate equation.
Loan Default Rate Methodology
Because of the private nature of the leveraged loan asset class, the universe studied in our analysis is
limited to information on institutional leveraged loan tranches that could be sourced in the public domain
with an initial issuance size greater than $25 million. The majority of these institutional loans had public
debt or equity. As institutional tranches of the leveraged loan market are generally the actively traded
portions, consistent pricing and greater information are more readily available. Therefore, only institutional
loans are considered in this study, both in terms of defaults and market size.
A loan is considered to be in default if it has either missed a coupon or principal payment (including a
cross-default provision with other debt) or filed for Chapter 11 under the bankruptcy code. The default rate
is calculated by summing the amount of institutional leveraged loans that have gone into default over a 12-
month period, and dividing this by the average size of the institutional loan market over the same period of
time. The defaulted amount is determined based on the initial amount of institutional debt issued. If there
have been significant paydowns since issuance, we adjust the initial issuance size if public information is
available. We define the institutional loan market size as the average of the beginning and ending total
institutional leveraged loan market sizes for the time period, as both new issuance and retirement of loans
can significantly affect market size. Similar calculations can be done for any time period.
The recovery rate is calculated from the issue’s default price and issuance price. This represents the
amount of an investor’s original investment that survives the average default event.
The default loss rate is defined as the total institutional leveraged loan market default rate multiplied by
the difference between 100% and the recovery rate.
Although post-petition interest can occur in the defaulted loan market, significantly affecting returns, issuers
can be prohibited from making payment to their creditors during the restructuring process. After the
restructuring process, loans that have emerged may have certain term changes, and thus can be
considered new issues.
04 April 2013
Leveraged Finance Default Review 3
1Q13 U.S. High Yield Defaults The U.S. high yield default rate decreased 37 bp to 1.35% for the 12-month period ended
March 2013 from 1.72% at the end of the prior quarter. The average recovery rate
(defined as price at the time of default) dropped 51 bp to 54.90% for the 12-month period
ended March 2013 from 55.41% at the end of the prior quarter.
There were five high yield companies that defaulted in 1Q for a total of $1,435 million face
value. This makes the quarterly default rate 0.12%, which is an annualized rate of 0.47%.
The five companies that defaulted each had one bond outstanding, so there was no
meaningful concentration in any one industry.
As has been the case since 2011, the recovery rate is well above the long-term average of
42.8% because 42% of LTM defaults were secured bonds. The elevated percentage of
secured defaults is due in part to the growth of secured bonds in the high yield market,
though this explains only about half the growth of secured defaults.
Exhibit 2: Secured Bonds as a Percentage of All High Yield Defaults and as a Percentage of the Credit Suisse High Yield Index
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
LTM
Mar
13
Secu
red
Bo
nd
s %
of
Hig
h Y
ield
Secured Bonds as a % of all HY Defaults
Secured Bonds Par Weight in CS HY Index 42.23%
24.32%
Source: Credit Suisse
Our default rate projection for high yield bonds in 2013 remains unchanged at 1%-2%. Our
bottom-up forecast comes to 1.4%, and we weight the risk to the upside. For 2014 we are
projecting an increase to 2.1%.
Exhibit 3: Historical and Projected High Yield Default Rates
2.9%
4.8%
1.6%
3.8%
7.9%8.8%
3.3%
1.8%0.9%
2.3%1.4%
0.9%1.4%
4.1%4.5%
9.2%
15.5%
4.3%
1.3%
2.6%
0.7%0.5%
5.5%
9.4%
1.6%1.8%
1.7%1.3%1.4%
2.1%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Default Rate
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 4
Exhibit 4: Historical and Projected Default Rates: Credit Suisse and Moody’s
Default Rate Summary Actual
2012
Credit Suisse US High Yield Default Rate 1.72% 1-2% 2-3%
Credit Suisse US Leveraged Loan Default Rate 1.88% 1-4% 3-6%
Credit Suisse Western European HY Default Rate 0.97% 1-2% 1-3%
Credit Suisse Western European LL Default Rate 6.69% 2-4% 2-6%
Projected 2013 Projected 2014
Source: Credit Suisse
Exhibit 5: Annual High Yield Default Rates: 1980 – LTM March 2013
1.56%
0.09%
2.22%
1.08%1.01%
3.45%2.89%
4.78%
1.59%
3.78%
7.88%8.80%
3.34%
1.83%0.86%
2.33%1.37%
0.90%1.38%
4.08%4.54%
9.20%
15.45%
4.32%
1.26%
2.64%
0.73%0.49%
5.46%
9.37%
1.56%1.82%1.72%
1.35%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Defa
ult
Rat
e
Cumulative Default Rate
1989 - 1992: 23.80%
Cumulative Default Rate
1999 - 2003: 37.59%
Source: Credit Suisse
Exhibit 6: Annual High Yield Recovery Rates: 1986 – LTM March 2013
40.05%
53.71%
35.93%38.55%
31.08%
41.49%
48.47%
44.51%44.90%
42.44%46.64%
53.71%
37.69%
31.27%
26.47%27.99%
29.96%
44.30%
52.94%50.54%
66.20%
59.64%
34.83%
27.36%
58.37%54.07%
55.41%54.90%
0%
10%
20%
30%
40%
50%
60%
70%
Recove
ry R
ate
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 5
Exhibit 7: High Yield Default and Recovery Rates: 1986 – LTM March 2013
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
19961997
1998
19992000
2001
2002
2003
2004
2005
20062007
2008
2009
20102011 2012
LTM Mar 13
R² = 0.57
0%
2%
4%
6%
8%
10%
12%
14%
16%
20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70%
HY
Def
ault
Rat
e
HY Recovery Rate
Source: Credit Suisse
Exhibit 8: Average Price of Stressed U.S. High Yield Bonds vs. Recovery Rates of High Yield Defaults: 1990 – March 2013
12/31/199024.83%
1/31/199482.94%
10/31/200227.71%
5/31/200794.62%
1/31/199444.41%
2/28/200929.90%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan
-90
Jan-9
1
Jan
-92
Jan
-93
Jan
-94
Jan
-95
Jan
-96
Jan-9
7
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Lower Tier Average Price Recovery RateLower Tier: Rated CCC, CC, C, and Default
3/31/13 93.07%
3/31/13 54.90%
Source: Credit Suisse
Exhibit 9: High Yield Default Rate vs. GDP Growth: 1980 – March 2013
1.6%
0.1%
2.2%1.1%
1.0%
3.5%
2.9%
4.8%
1.6%
3.8%
7.9%8.8%
3.3%
1.8%
0.9%
2.3%1.4%
0.9%1.4%
4.1%4.5%
9.2%
15.5%
4.3%
1.3%
2.6%
0.7%0.5%
5.5%
9.4%
1.6%
1.8% 1.7%1.3%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
-8.0%
-4.0%
0.0%
4.0%
8.0%
12.0%
16.0%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
LTM
Mar
13
GD
P G
row
th (Y
oY
)
Def
ault
Rat
e
Default Rate GDP Growth*GDP Growth as of
4Q12
Source: Credit Suisse
There were three high yield companies that defaulted in March for a total of $940 million
face value.
04 April 2013
Leveraged Finance Default Review 6
Exhibit 10: Monthly High Yield Defaults: Dec 1980 – March 2013 Jul 200227,499 Mar 2009
25,794
0
5,000
10,000
15,000
20,000
25,000
30,000
De
c-8
0
De
c-8
2
De
c-8
4
De
c-8
6
De
c-8
8
De
c-9
0
Dec-9
2
De
c-9
4
De
c-9
6
De
c-9
8
De
c-0
0
De
c-0
2
De
c-0
4
De
c-0
6
De
c-0
8
De
c-1
0
De
c-1
2
Hig
h Y
ield
Bo
nd D
efa
ults (
$M
illio
ns)
Mar-13 940
Source: Credit Suisse
The quarterly annualized default rate was 0.47% in 1Q13, the tenth lowest quarterly rate
since 1986.
Exhibit 11: Quarterly High Yield Default Rates, Annualized: 1Q80 – 1Q13
18.79%
17.42%
16.08%
0.47%0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
Qu
arte
rly
Def
ault
Rat
e (A
nn
ual
ized
)
Average (1980-1991): 3.2%
Average (1992-4Q12): 3.5%
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 7
Exhibit 12: High Yield Default Rate vs. Spread to Worst: 1986 – March 2013
1079 bp12/31/90
1080 bp10/31/02
200 bp
400 bp
600 bp
800 bp
1000 bp
1200 bp
1400 bp
1600 bp
1800 bp
STW
& D
efa
ult
Rate
Spread to Worst HY Default Rate (7-Months Later)
3/31/13 508 bp
3/31/13 1.35%
Source: Credit Suisse
High yield spreads are strongly correlated with the level of default loss seven months later.
Historically, the difference between spread and forward default loss has averaged 290 bp.
However, this difference has averaged 535 bp since January 2009.
Exhibit 13: High Yield Default Loss Rate vs. Spread to Worst: 1986 – March 2013
12/31/19901079 bp
10/31/20021080 bp
200 bp
400 bp
600 bp
800 bp
1000 bp
1200 bp
1400 bp
1600 bp
1800 bp
ST
W &
De
fau
lt L
os
s R
ate
Spread to Worst HY Default Loss Rate (7-Months Later)
Correlation = .82
Average Difference: 1986-2008: 290 bp Average Difference: 2009-2012: 535 bp
0.67%
3/31/13 508 bp
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 8
There are $197.1 billion of high yield bonds maturing by the end of 2016. $16.0 billion of
these are currently priced below 90.
Exhibit 14: High Yield Bonds Maturing by Year (Par Amount): as of March 2013
8 7 3 11 6 6 61531
62 73
126
157152
196
120
15
32
7080
129
168158
202
126
0
50
100
150
200
250
2013 2014 2015 2016 2017 2018 2019 2020 2021
$B
illio
ns
High Yield Bonds Price < 90 Maturing by Year (As of 3/28/13)
High Yield Bonds Price >= 90 Maturing by Year (As of 3/28/13)
Source: Credit Suisse
Exhibit 15: Growth of the U.S. Distressed Debt Markets (by Price Break): 1986 – March 2013
1 1 317
3117 8 1
9 6 7 1131
53
134
169
226
89
3037
10 19
324
79
49 4127
211 2 211 22
33 2911 12 6 5 19
689
126
63 67 4239
0
100
200
300
400
500
600
700
Ma
rke
t S
ize
-P
ar
Am
ou
nt
($B
illi
on
s) Distressed HY Bonds (Priced <60)
Distressed Institutional Loans (Priced <80)
Source: Credit Suisse
Exhibit 16: Returns of Distressed Debt* and Equity 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1Q13
Credit Suisse Leveraged Equity Index:
Distressed Sector 31.66% 51.81% 20.42% 5.23% -6.44% -62.86% 3.11% 23.83% 275.59%
Credit Suisse High Yield Index: Distressed
Sector* 40.48% 60.23% 10.85% 6.12% 5.20% -10.13% -4.92% -1.61% 4.12%
Credit Suisse Leveraged Loan Index:
Distressed Sector* 13.67% 26.65% 2.91% 6.87% 4.23% -6.84% 9.86% 20.13% 2.58%
*Rated CC, C or default Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 9
Exhibit 17: Percentage of the High Yield Market with Current Yield > 16%: Sep 1986 – March 2013
10/31/199047.34%
11/30/200025.37%
11/28/200835.31%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Sep
-86
Sep
-87
Sep
-88
Sep
-89
Sep
-90
Sep
-91
Sep
-92
Sep
-93
Sep
-94
Sep
-95
Sep
-96
Sep
-97
Sep-9
8
Sep
-99
Sep
-00
Sep
-01
Sep
-02
Sep
-03
Sep
-04
Sep
-05
Sep
-06
Sep
-07
Sep
-08
Sep
-09
Sep
-10
Sep
-11
Sep
-12C
S H
igh
Yie
ld Ind
ex: C
urr
ent
Yie
ld >
16%
Current Yield > 16%
3/28/13 0.75%
Source: Credit Suisse
Exhibit 18: Number of Issues in the Credit Suisse High Yield Index: Distressed Sector* 1986 – March 2013
0
50
100
150
200
250
300
350
*Bonds rated CC, C or default
Average 1994 - 1999: 38.6
Average 2005 - 2007: 92.7
36
Source: Credit Suisse
Exhibit 19: CS HY Index: Distressed Sector* as a Percentage of the U.S. HY Bond Market
13.01%
10.78%
9.59%
6.98%
14.14%
19.28%
10.74%
1.46%1.96%
3.04%2.49%
2.24%2.57%
6.24%
10.51%
18.55%
21.71%
16.24%
8.81%
7.40%
5.18%
3.31%
10.55%
11.15%
5.21%
3.56%2.64%
2.40%
0%
5%
10%
15%
20%
25%
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Mar13
% o
f M
ark
et
Dis
tre
ss
ed
Average 1986-1992: 12.07%
Average 1993-1998: 2.29%
Average 2000-2006: 11.83%
Source: Credit Suisse; Distressed includes bonds rated CC, C and default
04 April 2013
Leveraged Finance Default Review 10
Exhibit 20: Annual Default Loss, Principal Loss, and Recovery Rates
Year
Defaulted Amount
($Billion)
Avg Default Loss
Rate
Avg Principal Loss
Rate
Avg Recovery
Rate Default Rate
1977 0.034 0.14% 62.75% 37.25% 0.21%
1978 0.013 0.05% 40.00% 60.00% 0.12%
1979 0.027 0.10% 69.00% 31.00% 0.14%
1980 0.232 1.33% 80.56% 19.44% 1.56%
1981 0.027 0.08% 88.00% 12.00% 0.09%
1982 0.736 1.50% 62.66% 37.34% 2.22%
1983 0.403 0.58% 48.43% 51.57% 1.08%
1984 0.478 0.50% 43.72% 56.28% 1.01%
1985 2.292 2.15% 56.19% 43.81% 3.45%
1986 3.006 1.90% 59.95% 40.05% 2.89%
1987 7.285 2.47% 46.29% 53.71% 4.78%
1988 3.005 1.11% 64.07% 35.93% 1.59%
1989 8.313 2.56% 61.45% 38.55% 3.78%
1990 17.914 5.91% 68.92% 31.08% 7.88%
1991 18.614 5.66% 58.51% 41.49% 8.80%
1992 6.858 1.91% 51.53% 48.47% 3.34%
1993 4.097 1.13% 55.49% 44.51% 1.83%
1994 2.236 0.52% 55.10% 44.90% 0.86%
1995 6.800 1.48% 57.56% 42.44% 2.33%
1996 4.526 0.80% 53.36% 46.64% 1.37%
1997 3.653 0.47% 46.29% 53.71% 0.90%
1998 7.061 0.92% 62.31% 37.69% 1.38%
1999 24.947 3.01% 68.73% 31.27% 4.08%
2000 29.969 3.55% 73.53% 26.47% 4.54%
2001 64.609 7.04% 72.01% 27.99% 9.20%
2002 122.861 11.51% 70.04% 29.96% 15.45%
2003 37.434 2.60% 55.70% 44.30% 4.32%
2004 10.871 0.65% 47.06% 52.94% 1.26%
2005 22.758 1.43% 49.46% 50.54% 2.64%
2006 6.426 0.28% 33.80% 66.20% 0.73%
2007 4.339 0.22% 40.36% 59.64% 0.49%
2008 49.588 3.78% 65.17% 34.83% 5.46%
2009 90.901 7.22% 72.64% 27.36% 9.37%
2010 16.267 0.73% 41.63% 58.37% 1.56%
2011 19.614 0.92% 45.93% 54.07% 1.82%
2012 19.771 0.85% 44.59% 55.41% 1.72%
LTM Mar 13 15.945 0.67% 45.10% 54.90% 1.35%
Average 17.133 2.10% 57.24% 42.76% 3.12% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 11
Exhibit 21: Quarterly 12-Month Rolling Default Rate
Year Quarter
12-mth
Rolling
Amount MktSize
MktSize
Midpoint
12-mth
Rolling
Default Rate Year Quarter
12-mth
Rolling
Amount MktSize
MktSize
Midpoint
12-mth
Rolling
Default Rate
1980 1Q 28.3 1996 4Q 4.5 356.2 330.3 1.37%
1980 2Q 28.8 1997 1Q 5.2 376.1 345.3 1.50%
1980 3Q 29.3 1997 2Q 5.1 402.2 365.3 1.40%
1980 4Q 0.2 29.8 29.0 0.80% 1997 3Q 5.3 428.3 385.3 1.38%
1981 1Q 0.1 30.3 29.3 0.39% 1997 4Q 3.7 454.3 405.2 0.90%
1981 2Q 0.1 30.8 29.8 0.38% 1998 1Q 3.8 516.3 446.2 0.86%
1981 3Q 0.0 31.3 30.3 0.00% 1998 2Q 5.1 546.5 474.4 1.07%
1981 4Q 0.0 31.8 30.8 0.09% 1998 3Q 5.8 560.0 494.1 1.17%
1982 1Q 0.1 32.4 31.3 0.28% 1998 4Q 7.1 571.0 512.7 1.38%
1982 2Q 0.5 33.1 31.9 1.62% 1999 1Q 10.7 595.9 556.1 1.93%
1982 3Q 0.5 33.9 32.6 1.63% 1999 2Q 17.1 621.7 584.1 2.93%
1982 4Q 0.7 34.6 33.2 2.22% 1999 3Q 21.2 643.2 601.6 3.52%
1983 1Q 0.7 35.7 34.1 1.98% 1999 4Q 24.9 651.7 611.4 4.08%
1983 2Q 0.3 37.2 35.2 0.81% 2000 1Q 24.7 668.2 632.1 3.91%
1983 3Q 0.6 38.8 36.3 1.70% 2000 2Q 26.3 668.9 645.3 4.08%
1983 4Q 0.4 40.3 37.4 1.08% 2000 3Q 25.6 673.5 658.4 3.88%
1984 1Q 0.5 43.0 39.3 1.17% 2000 4Q 30.0 667.9 659.8 4.54%
1984 2Q 0.5 46.8 42.0 1.14% 2001 1Q 39.1 703.6 685.9 5.70%
1984 3Q 0.3 50.7 44.7 0.58% 2001 2Q 51.5 731.2 700.1 7.35%
1984 4Q 0.5 54.6 47.4 1.01% 2001 3Q 61.5 730.2 701.8 8.76%
1985 1Q 0.6 59.6 51.3 1.07% 2001 4Q 64.6 737.3 702.6 9.20%
1985 2Q 1.1 65.8 56.3 2.00% 2002 1Q 78.5 732.8 718.2 10.93%
1985 3Q 1.9 72.1 61.4 3.14% 2002 2Q 90.1 807.6 769.4 11.71%
1985 4Q 2.3 78.3 66.4 3.45% 2002 3Q 108.3 825.8 778.0 13.92%
1986 1Q 2.4 88.2 73.9 3.27% 2002 4Q 122.9 852.8 795.0 15.45%
1986 2Q 2.2 102.0 83.9 2.57% 2003 1Q 102.8 857.2 795.0 12.93%
1986 3Q 3.4 115.7 93.9 3.66% 2003 2Q 83.4 876.3 841.9 9.91%
1986 4Q 3.0 129.4 103.8 2.89% 2003 3Q 62.3 872.8 849.3 7.33%
1987 1Q 3.1 141.9 115.0 2.73% 2003 4Q 37.4 881.3 867.0 4.32%
1987 2Q 7.3 153.1 127.5 5.74% 2004 1Q 32.6 879.6 868.4 3.75%
1987 3Q 5.6 164.3 140.0 4.01% 2004 2Q 20.4 843.7 860.0 2.37%
1987 4Q 7.3 175.6 152.5 4.78% 2004 3Q 10.0 849.9 861.4 1.16%
1988 1Q 7.4 184.3 163.1 4.53% 2004 4Q 10.9 847.8 864.6 1.26%
1988 2Q 4.4 190.5 171.8 2.54% 2005 1Q 8.7 851.9 865.8 1.00%
1988 3Q 4.5 196.7 180.5 2.48% 2005 2Q 8.1 938.0 890.9 0.91%
1988 4Q 3.0 202.9 189.2 1.59% 2005 3Q 18.6 904.5 877.2 2.12%
1989 1Q 3.4 210.5 197.4 1.74% 2005 4Q 22.8 878.0 862.9 2.64%
1989 2Q 3.4 219.4 205.0 1.65% 2006 1Q 24.3 854.2 853.1 2.85%
1989 3Q 6.3 228.4 212.5 2.94% 2006 2Q 23.1 856.5 897.3 2.58%
1989 4Q 8.3 237.3 220.1 3.78% 2006 3Q 11.9 855.8 880.1 1.35%
1990 1Q 11.9 238.3 224.4 5.31% 2006 4Q 6.4 875.9 877.0 0.73%
1990 2Q 15.4 231.3 225.4 6.85% 2007 1Q 3.7 873.2 863.7 0.43%
1990 3Q 13.8 224.3 226.3 6.11% 2007 2Q 6.4 866.4 861.4 0.74%
1990 4Q 17.9 217.2 227.3 7.88% 2007 3Q 5.8 863.6 859.7 0.67%
1991 1Q 23.5 212.6 225.5 10.42% 2007 4Q 4.3 888.0 881.9 0.49%
1991 2Q 21.8 210.4 220.9 9.88% 2008 1Q 7.9 870.7 872.0 0.91%
1991 3Q 22.7 208.2 216.2 10.51% 2008 2Q 12.2 902.0 884.2 1.38%
1991 4Q 18.6 206.0 211.6 8.80% 2008 3Q 23.2 925.1 894.4 2.59%
1992 1Q 12.2 204.9 208.8 5.86% 2008 4Q 49.6 928.0 908.0 5.46%
1992 2Q 10.3 204.9 207.7 4.96% 2009 1Q 83.1 933.1 901.9 9.22%
1992 3Q 8.5 204.9 206.6 4.12% 2009 2Q 110.1 980.0 941.0 11.70%
1992 4Q 6.9 204.9 205.5 3.34% 2009 3Q 104.9 1003.2 964.1 10.88%
1993 1Q 4.1 210.2 207.5 1.96% 2009 4Q 90.9 1011.8 969.9 9.37%
1993 2Q 4.8 220.7 212.8 2.25% 2010 1Q 54.9 1026.1 979.6 5.60%
1993 3Q 3.9 231.2 218.1 1.80% 2010 2Q 22.0 1029.0 1004.5 2.19%
1993 4Q 4.1 241.7 223.3 1.83% 2010 3Q 20.4 1061.3 1032.2 1.98%
1994 1Q 4.1 251.4 230.8 1.76% 2010 4Q 16.3 1068.4 1040.1 1.56%
1994 2Q 2.0 260.3 240.5 0.83% 2011 1Q 18.4 1089.1 1057.6 1.74%
1994 3Q 2.4 269.3 250.2 0.95% 2011 2Q 18.7 1115.2 1072.1 1.74%
1994 4Q 2.2 278.2 259.9 0.86% 2011 3Q 19.7 1091.1 1076.2 1.83%
1995 1Q 3.6 285.7 268.6 1.35% 2011 4Q 19.6 1088.6 1078.5 1.82%
1995 2Q 4.9 292.0 276.2 1.78% 2012 1Q 21.4 1110.9 1100.0 1.94%
1995 3Q 5.5 298.2 283.7 1.93% 2012 2Q 24.2 1112.0 1113.6 2.17%
1995 4Q 6.8 304.5 291.3 2.33% 2012 3Q 21.6 1177.9 1134.5 1.90%
1996 1Q 5.6 314.6 300.1 1.87% 2012 4Q 19.8 1211.6 1150.1 1.72%
1996 2Q 4.8 328.4 310.2 1.55% 2013 1Q 15.9 1256.0 1183.4 1.35%
1996 3Q 4.7 342.3 320.3 1.47% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 12
Exhibit 22: Credit Suisse Quarterly Default Rates, Annualized
Year Q1 Q2 Q3 Q4
1980 1.68% 0.00% 1.56% 0.00%
1981 0.00% 0.00% 0.00% 0.34%
1982 0.76% 5.24% 0.16% 2.73%
1983 0.00% 0.42% 3.65% 0.18%
1984 0.55% 0.70% 1.04% 1.79%
1985 4.29% 4.04% 5.76% 0.64%
1986 1.24% 1.55% 8.58% 0.55%
1987 1.17% 12.31% 1.29% 4.33%
1988 1.11% 3.23% 1.28% 0.75%
1989 1.80% 2.70% 6.26% 4.17%
1990 7.62% 8.43% 3.33% 11.80%
1991 18.79% 6.24% 5.28% 4.65%
1992 7.25% 2.65% 2.02% 1.48%
1993 1.81% 3.85% 0.29% 1.56%
1994 1.46% 0.00% 0.83% 1.15%
1995 3.23% 1.82% 1.50% 2.85%
1996 1.42% 0.64% 1.18% 2.20%
1997 1.93% 0.56% 1.03% 0.56%
1998 1.01% 1.77% 1.16% 1.09%
1999 3.83% 5.30% 3.78% 3.29%
2000 3.25% 5.77% 3.00% 5.64%
2001 8.47% 12.08% 8.34% 7.02%
2002 15.56% 17.35% 16.38% 12.99%
2003 3.20% 6.10% 6.01% 1.18%
2004 1.62% 0.88% 1.00% 1.62%
2005 0.65% 0.60% 5.41% 3.41%
2006 1.36% 0.06% 0.56% 1.00%
2007 0.12% 1.27% 0.18% 0.34%
2008 1.76% 3.18% 5.04% 11.72%
2009 16.08% 14.22% 2.54% 5.24%
2010 0.54% 0.46% 1.79% 3.40%
2011 1.30% 0.54% 2.04% 3.30%
2012 1.91% 1.55% 1.05% 2.41%
2013 0.47%
Average 3.45% 3.80% 3.13% 3.19%
Quarterly High Yield Bond Default Rate, Annualized
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 13
Exhibit 23: Distribution of High Yield Default Recovery Rates: 1986 – March 2013
0
50
100
150
200
250
300
350
400
450
10% 20% 30% 40% 50% 60% 70% 80% 90% >90%
Fre
qu
en
cy
High Yield Bond Recovery Rate Bins
Source: Credit Suisse
Exhibit 24: Distribution of High Yield Default Recovery Rates: LTM March 2013
0
1
2
3
4
5
6
7
8
9
10
10% 20% 30% 40% 50% 60% 70% 80% 90% >90%
Fre
qu
en
cy
High Yield Bond Recovery Rate Bins
Source: Credit Suisse
Exhibit 25: Distribution of High Yield Default Recovery Rates: 1Q13
0
1
2
3
10% 20% 30% 40% 50% 60% 70% 80% 90% >90%
Fre
qu
en
cy
High Yield Bond Recovery Rate Bins
Source: Credit Suisse
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Industry
Exhibit 26: Default Rates Over Time by Industry: 1986 – March 2013
Aero
space
Chem
icals
Consum
er
Dura
ble
s
Consum
er
Non-D
ura
ble
s
Energ
y
Fin
ancia
l
Food a
nd D
rug
Food/T
obacco
Fore
st P
rod/C
onta
iners
Gam
ing/L
eis
ure
Health
care
Housin
g
Info
rmatio
n T
echnolo
gy
Manufa
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ring
Media
/Tele
com
Meta
ls/M
inera
ls
Reta
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Serv
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Tra
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atio
n
Util
ity
Overa
ll
1986 0.45% 0.00% 0.00% 0.00% 4.70% 0.00% 0.00% 0.36% 0.00% 0.16% 0.00% 0.00% 0.00% 20.02% 0.00% 32.55% 0.66% 0.00% 0.00% 0.00% 2.89%
1987 0.00% 0.00% 0.00% 0.24% 28.19% 0.30% 0.00% 0.00% 0.00% 0.00% 28.19% 1.82% 2.05% 0.25% 1.45% 0.00% 0.00% 4.03% 0.69% 21.15% 4.78%
1988 1.06% 3.80% 0.00% 0.23% 0.48% 8.37% 0.28% 0.17% 0.00% 1.37% 3.42% 0.89% 0.00% 0.14% 2.14% 2.11% 5.59% 0.53% 0.32% 0.00% 1.59%
1989 6.76% 0.00% 0.00% 0.15% 0.00% 39.37% 5.44% 0.00% 0.00% 10.30% 0.87% 8.23% 1.02% 1.62% 3.40% 0.00% 1.13% 0.00% 1.29% 0.00% 3.78%
1990 19.71% 3.39% 35.49% 3.68% 0.75% 9.98% 1.33% 0.24% 0.64% 23.56% 0.37% 4.19% 16.73% 7.44% 2.53% 20.57% 33.44% 15.32% 2.39% 0.00% 7.88%
1991 17.47% 0.00% 9.93% 12.92% 19.13% 23.51% 0.96% 0.31% 5.31% 15.95% 14.74% 2.05% 18.79% 12.91% 3.72% 13.48% 19.79% 14.14% 1.75% 3.19% 8.80%
1992 0.00% 0.00% 0.00% 1.24% 2.19% 0.49% 2.83% 1.68% 0.00% 7.36% 4.96% 0.55% 7.21% 2.59% 2.93% 2.03% 14.66% 7.21% 0.00% 11.17% 3.34%
1993 0.00% 0.00% 0.00% 0.00% 4.30% 2.03% 0.43% 2.58% 0.43% 0.32% 0.72% 0.00% 18.19% 8.91% 0.62% 3.83% 0.41% 9.19% 0.00% 0.00% 1.83%
1994 5.75% 0.00% 0.00% 0.00% 0.49% 1.26% 2.10% 0.00% 1.12% 1.27% 0.00% 0.00% 1.70% 0.02% 0.66% 0.00% 2.25% 1.76% 0.00% 0.00% 0.86%
1995 0.00% 1.08% 0.00% 2.71% 0.44% 5.63% 12.89% 2.77% 0.00% 3.73% 0.80% 4.23% 4.22% 0.00% 0.85% 0.00% 7.67% 0.00% 0.78% 0.00% 2.33%
1996 0.00% 0.00% 0.00% 1.63% 0.49% 0.00% 0.45% 4.14% 1.47% 1.47% 0.00% 0.00% 0.00% 1.59% 1.63% 0.00% 1.01% 3.17% 2.77% 3.99% 1.37%
1997 0.00% 0.00% 0.00% 1.19% 0.00% 1.85% 1.34% 8.27% 0.00% 0.00% 0.00% 0.00% 0.00% 1.26% 0.62% 0.00% 3.63% 0.00% 1.72% 1.16% 0.90%
1998 0.00% 1.98% 0.00% 4.79% 0.49% 4.85% 7.55% 0.47% 0.51% 1.14% 0.57% 0.00% 0.00% 0.00% 1.40% 1.05% 0.00% 0.00% 0.79% 0.00% 1.38%
1999 0.00% 1.33% 24.91% 5.13% 11.04% 1.59% 13.15% 3.36% 0.59% 1.96% 10.43% 0.48% 2.45% 4.41% 2.17% 7.01% 7.26% 8.51% 4.43% 1.17% 4.08%
2000 0.83% 2.03% 2.12% 6.81% 0.60% 5.57% 11.77% 11.90% 3.76% 3.88% 4.23% 12.79% 10.01% 3.32% 2.65% 5.99% 6.64% 4.81% 10.90% 1.23% 4.54%
2001 5.58% 7.89% 8.08% 7.29% 0.00% 14.12% 2.59% 10.62% 12.16% 1.46% 1.97% 2.38% 14.09% 7.17% 11.25% 9.49% 2.18% 3.48% 11.68% 30.20% 9.20%
2002 21.87% 3.92% 0.00% 3.15% 2.66% 13.10% 1.85% 4.34% 4.51% 0.39% 0.32% 3.52% 3.20% 3.38% 37.49% 12.52% 11.32% 4.13% 2.99% 13.61% 15.45%
2003 3.58% 3.26% 0.00% 4.42% 3.40% 0.97% 10.72% 2.18% 1.02% 0.43% 10.54% 0.80% 5.50% 2.77% 5.28% 5.00% 2.40% 2.99% 3.19% 7.97% 4.32%
2004 9.93% 0.29% 0.00% 1.58% 0.48% 0.00% 0.00% 2.05% 1.20% 3.41% 0.00% 0.00% 0.00% 1.61% 1.57% 0.53% 0.68% 1.52% 1.41% 0.00% 1.26%
2005 19.23% 0.00% 8.73% 0.13% 0.00% 3.30% 1.92% 0.00% 1.14% 0.00% 0.71% 0.00% 0.00% 2.62% 3.95% 1.14% 0.71% 0.00% 5.21% 5.54% 2.64%
2006 0.00% 0.00% 3.62% 1.07% 0.00% 0.19% 0.00% 0.51% 2.00% 0.35% 0.00% 0.67% 0.00% 0.44% 0.72% 0.00% 0.00% 0.74% 3.81% 0.00% 0.73%
2007 0.00% 0.00% 5.53% 0.65% 0.00% 3.29% 0.23% 0.46% 0.56% 1.27% 0.35% 0.00% 0.00% 0.00% 0.32% 0.00% 1.38% 0.00% 0.91% 0.00% 0.49%
2008 0.00% 0.00% 0.00% 1.61% 0.99% 54.19% 0.00% 4.26% 5.29% 10.63% 0.00% 7.48% 0.00% 0.63% 2.40% 0.00% 0.62% 0.45% 1.97% 0.00% 5.46%
2009 0.00% 16.32% 13.23% 5.98% 1.68% 13.37% 0.00% 1.16% 18.81% 19.92% 0.00% 4.46% 12.95% 1.36% 16.33% 4.69% 5.12% 0.00% 26.34% 0.55% 9.37%
2010 0.00% 0.00% 0.00% 0.00% 0.74% 1.10% 2.02% 0.00% 0.62% 0.00% 0.50% 1.05% 0.00% 1.27% 1.15% 1.23% 1.48% 11.68% 0.00% 6.05% 1.56%
2011 6.46% 0.00% 0.00% 0.00% 2.51% 1.01% 0.00% 1.52% 5.84% 0.73% 0.18% 7.11% 0.00% 0.00% 0.41% 0.00% 1.41% 0.44% 1.13% 7.77% 1.82%
2012 2.62% 0.61% 0.00% 4.16% 1.95% 4.62% 0.00% 1.11% 1.79% 1.66% 0.37% 0.00% 0.00% 0.00% 0.44% 0.41% 0.84% 0.37% 0.99% 11.21% 1.72%
LTM Mar 13 1.98% 0.00% 0.00% 0.00% 1.07% 4.95% 0.00% 1.02% 0.34% 0.68% 0.38% 0.00% 0.00% 0.00% 0.54% 0.40% 0.00% 0.57% 0.95% 11.02% 1.35%
Average: 4.40% 1.64% 3.99% 2.53% 3.17% 7.82% 2.85% 2.34% 2.47% 4.05% 3.02% 2.24% 4.22% 3.06% 3.88% 4.43% 4.72% 3.39% 3.16% 4.89% 3.78% Source: Credit Suisse
04
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Exhibit 27: Default Loss Rates Over Time by Industry: 1986 – March 2013
Aero
space
Chem
icals
Consum
er
Dura
ble
s
Consum
er
Non-D
ura
ble
s
Energ
y
Fin
ancia
l
Food a
nd D
rug
Food/T
obacco
Fore
st P
rod/C
onta
iners
Gam
ing/L
eis
ure
Health
care
Housin
g
Info
rmatio
n T
echnolo
gy
Manufa
ctu
ring
Media
/Tele
com
Meta
ls/M
inera
ls
Reta
il
Serv
ice
Tra
nsport
atio
n
Util
ity
Overa
ll
1986 0.33% 0.00% 0.00% 0.00% 3.21% 0.00% 0.00% 0.11% 0.00% 0.00% 0.00% 0.00% 0.00% 10.82% 0.00% 21.04% 0.00% 0.00% 0.00% 0.00% 1.90%
1987 0.00% 0.00% 0.00% 0.17% 10.94% 0.21% 0.00% 0.00% 0.00% 0.00% 22.07% 0.00% 0.43% 0.00% 1.16% 0.00% 0.00% 3.83% 0.41% 9.44% 2.47%
1988 0.83% 2.66% 0.00% 0.20% 0.29% 6.88% 0.19% 0.07% 0.00% 0.32% 2.49% 0.77% 0.00% 0.00% 1.56% 1.21% 2.99% 0.42% 0.22% 0.00% 1.11%
1989 0.95% 0.00% 0.00% 0.10% 0.00% 30.38% 3.53% 0.00% 0.00% 3.62% 0.86% 6.31% 0.00% 1.45% 1.88% 0.00% 0.82% 0.00% 1.14% 0.00% 2.56%
1990 15.05% 1.61% 28.55% 2.31% 0.00% 7.80% 1.02% 0.22% 0.33% 19.57% 0.28% 3.93% 13.98% 5.46% 1.23% 14.06% 24.91% 11.83% 1.62% 0.00% 5.91%
1991 13.81% 0.00% 8.95% 10.52% 5.05% 19.01% 0.74% 0.20% 3.80% 9.54% 12.08% 1.06% 10.98% 7.12% 2.86% 7.82% 13.57% 11.38% 1.18% 1.70% 5.66%
1992 0.00% 0.00% 0.00% 0.80% 0.90% 0.25% 1.78% 0.40% 0.00% 4.03% 3.13% 0.40% 5.08% 1.37% 1.55% 1.34% 11.13% 4.16% 0.00% 4.62% 1.91%
1993 0.00% 0.00% 0.00% 0.00% 0.06% 1.41% 0.29% 1.59% 0.34% 0.21% 0.52% 0.00% 13.16% 4.50% 0.39% 2.98% 0.40% 5.99% 0.00% 0.00% 1.13%
1994 3.27% 0.00% 0.00% 0.00% 0.43% 0.00% 1.62% 0.00% 0.55% 0.68% 0.00% 0.00% 1.14% 0.01% 0.36% 0.00% 1.13% 1.16% 0.00% 0.00% 0.52%
1995 0.00% 0.38% 0.00% 1.92% 0.16% 2.83% 8.51% 1.13% 0.00% 2.44% 0.56% 2.80% 1.73% 0.00% 0.64% 0.00% 5.83% 0.00% 0.69% 0.00% 1.48%
1996 0.00% 0.00% 0.00% 1.34% 0.35% 0.00% 0.27% 2.40% 1.14% 0.64% 0.00% 0.00% 0.00% 1.05% 0.94% 0.00% 0.74% 1.15% 0.96% 1.90% 0.80%
1997 0.00% 0.00% 0.00% 0.73% 0.00% 1.14% 0.21% 3.35% 0.00% 0.00% 0.00% 0.00% 0.00% 0.76% 0.61% 0.00% 2.05% 0.00% 1.23% 1.23% 0.47%
1998 0.00% 1.10% 0.00% 3.12% 0.34% 3.44% 5.21% 0.13% 0.39% 0.38% 0.29% 0.00% 0.00% 0.00% 1.01% 0.89% 0.00% 0.00% 0.66% 0.00% 0.92%
1999 0.00% 0.98% 19.46% 4.10% 7.06% 1.35% 9.36% 2.42% 0.31% 1.52% 9.59% 0.46% 2.12% 2.79% 1.54% 5.61% 5.52% 4.74% 3.44% 0.94% 3.01%
2000 0.45% 1.67% 1.60% 5.86% 0.25% 4.29% 7.70% 8.09% 2.77% 2.74% 3.69% 9.88% 8.56% 3.10% 2.01% 5.30% 5.95% 3.74% 8.63% 0.67% 3.55%
2001 4.09% 6.03% 6.52% 6.19% 0.00% 3.43% 1.86% 8.08% 10.63% 1.24% 1.49% 1.32% 5.84% 6.25% 10.10% 8.51% 1.93% 3.32% 10.59% 17.21% 7.04%
2002 14.24% 3.14% 0.00% 2.92% 1.28% 11.39% 1.02% 2.77% 1.61% 0.18% 0.19% 2.42% 2.68% 2.76% 29.58% 8.95% 6.14% 3.91% 2.04% 9.10% 11.51%
2003 3.03% 2.23% 0.00% 3.42% 1.54% 0.81% 9.34% 1.27% 0.67% 0.21% 6.12% 0.47% 3.66% 2.01% 3.38% 3.21% 1.63% 1.91% 2.07% 2.15% 2.60%
2004 5.84% 0.23% 0.00% 1.07% 0.26% 0.00% 0.00% 1.53% 0.56% 0.42% 0.00% 0.00% 0.00% 0.66% 0.72% 0.20% 0.00% 0.00% 0.69% 0.00% 0.65%
2005 16.08% 0.00% 5.78% 0.02% 0.00% 0.64% 0.91% 0.00% 0.53% 0.00% 0.38% 0.00% 0.00% 1.33% 0.88% 0.32% 0.62% 0.00% 2.82% 3.14% 1.43%
2006 0.00% 0.00% 3.10% 0.61% 0.00% 0.14% 0.00% 0.47% 1.05% 0.01% 0.00% 0.09% 0.00% 0.11% 0.15% 0.00% 0.00% 0.63% 1.53% 0.00% 0.28%
2007 0.00% 0.00% 4.84% 0.12% 0.00% 2.43% 0.04% 0.13% 0.28% 0.20% 0.26% 0.00% 0.00% 0.00% 0.13% 0.00% 1.07% 0.00% 0.43% 0.00% 0.22%
2008 0.00% 0.00% 0.00% 1.12% 0.52% 30.44% 0.00% 3.12% 3.66% 7.60% 0.00% 6.03% 0.00% 0.60% 1.87% 0.00% 0.58% 0.42% 1.89% 0.00% 3.78%
2009 0.00% 13.31% 11.68% 4.96% 1.08% 7.05% 0.00% 1.15% 15.84% 16.26% 0.00% 2.74% 9.84% 0.77% 13.40% 4.34% 3.84% 0.00% 22.50% 0.22% 7.22%
2010 0.00% 0.00% 0.00% 0.00% 0.12% 0.72% 0.49% 0.00% 0.10% 0.00% 0.32% 0.76% 0.00% 0.70% 0.53% 0.57% 0.87% 3.62% 0.00% 2.59% 0.73%
2011 3.91% 0.00% 0.00% 0.00% 0.64% 0.75% 0.00% 0.98% 4.10% 0.32% 0.08% 3.51% 0.00% 0.00% 0.19% 0.00% 1.11% 0.25% 0.78% 3.31% 0.92%
2012 2.03% 0.32% 0.00% 1.47% 1.42% 1.98% 0.00% 0.57% 0.94% 0.43% 0.26% 0.00% 0.00% 0.00% 0.26% 0.28% 0.70% 0.23% 0.70% 3.22% 0.85%
LTM Mar 13 1.88% 0.00% 0.00% 0.00% 0.69% 1.72% 0.00% 0.53% 0.13% 0.67% 0.26% 0.00% 0.00% 0.00% 0.32% 0.27% 0.00% 0.02% 0.67% 3.17% 0.67%
Average: 3.06% 1.20% 3.23% 1.90% 1.31% 5.02% 1.93% 1.45% 1.78% 2.62% 2.32% 1.53% 2.83% 1.92% 2.83% 3.10% 3.34% 2.24% 2.39% 2.31% 2.55% Source: Credit Suisse
04
Ap
ril 20
13
Le
ve
rage
d F
ina
nce D
efa
ult R
evie
w
1
6
Exhibit 28: Recovery Rates Over Time by Industry: 1986 – March 2013
Aero
space
Chem
icals
Consum
er
Dura
ble
s
Consum
er
Non-D
ura
ble
s
Energ
y
Fin
ancia
l
Food a
nd D
rug
Food/T
obacco
Fore
st P
rod/C
onta
iners
Gam
ing/L
eis
ure
Health
care
Housin
g
Info
rmatio
n T
echnolo
gy
Manufa
ctu
ring
Media
/Tele
com
Meta
ls/M
inera
ls
Reta
il
Serv
ice
Tra
nsport
atio
n
Util
ity
Overa
ll
1986 29.44% 37.96% 76.19% 15.79% 52.22% 40.06% 12.00% 40.05%
1987 37.22% 66.50% 29.80% 28.70% 84.63% 25.74% 10.50% 44.31% 60.54% 53.71%
1988 28.12% 36.25% 17.50% 44.95% 23.19% 41.67% 66.00% 84.25% 32.75% 20.69% 32.80% 47.30% 52.86% 25.63% 36.89% 35.93%
1989 93.48% 36.49% 28.95% 40.08% 70.98% 6.75% 30.21% 16.50% 51.99% 33.13% 18.00% 38.55%
1990 29.87% 58.08% 25.94% 43.57% 26.76% 30.73% 14.57% 55.50% 23.45% 30.05% 12.91% 22.23% 33.42% 56.55% 37.92% 31.41% 29.46% 39.09% 31.08%
1991 27.97% 16.96% 26.14% 78.32% 24.54% 29.17% 41.79% 35.47% 42.09% 24.89% 54.59% 47.87% 50.80% 28.96% 46.84% 37.56% 25.22% 38.89% 55.42% 41.49%
1992 40.75% 64.83% 54.00% 43.71% 82.97% 52.44% 44.04% 34.85% 36.40% 53.98% 52.22% 41.04% 29.97% 48.50% 63.14% 48.47%
1993 105.00% 36.72% 40.69% 45.25% 23.00% 41.00% 34.00% 33.72% 55.90% 42.71% 28.85% 10.00% 41.08% 44.51%
1994 48.38% 17.75% 28.28% 56.09% 52.44% 38.90% 51.91% 50.31% 56.28% 40.00% 44.90%
1995 69.00% 35.50% 70.62% 55.23% 39.35% 65.05% 40.94% 36.00% 39.90% 66.59% 29.70% 29.30% 17.00% 42.44%
1996 20.67% 35.00% 45.00% 47.75% 27.50% 62.92% 39.72% 45.96% 31.76% 70.00% 69.83% 57.47% 46.64%
1997 45.00% 43.78% 90.63% 65.00% 46.33% 8.66% 48.88% 34.17% 0.00% 53.71%
1998 50.00% 40.27% 35.00% 34.21% 36.63% 77.66% 30.00% 72.50% 55.00% 31.08% 20.25% 22.84% 37.69%
1999 32.19% 23.50% 24.71% 41.24% 19.35% 34.03% 33.17% 53.50% 28.57% 12.70% 10.00% 16.74% 41.60% 34.69% 25.92% 29.05% 48.55% 27.96% 24.00% 31.27%
2000 50.00% 22.55% 30.00% 18.93% 63.29% 27.70% 39.11% 36.18% 30.75% 34.14% 17.10% 27.06% 18.40% 11.90% 28.52% 16.93% 14.81% 27.51% 25.27% 51.87% 26.47%
2001 32.14% 27.87% 24.50% 19.93% 79.41% 33.50% 29.14% 18.33% 19.16% 28.29% 49.56% 62.28% 16.78% 15.06% 15.71% 17.00% 8.29% 14.03% 46.64% 27.99%
2002 39.37% 24.72% 11.62% 57.74% 17.48% 49.54% 41.92% 69.46% 60.00% 44.50% 35.49% 21.11% 22.87% 25.19% 33.97% 50.29% 10.61% 37.27% 37.27% 29.96%
2003 20.35% 36.24% 26.93% 58.63% 21.44% 18.05% 47.30% 41.38% 58.71% 46.07% 46.49% 36.27% 32.66% 39.71% 40.83% 35.20% 41.28% 40.60% 77.21% 44.30%
2004 45.50% 25.00% 38.07% 50.41% 30.79% 58.88% 94.11% 64.76% 58.03% 67.79% 56.48% 52.94%
2005 20.92% 39.81% 90.25% 85.08% 57.00% 58.49% 51.37% 54.52% 81.41% 75.91% 19.50% 50.36% 47.75% 50.54%
2006 19.25% 47.83% 32.20% 12.00% 53.52% 102.98% 91.14% 79.00% 83.76% 20.36% 64.02% 66.20%
2007 17.54% 83.32% 29.79% 85.20% 74.00% 54.22% 89.13% 30.50% 64.50% 27.33% 58.05% 59.64%
2008 35.63% 52.58% 47.34% 31.66% 35.16% 32.82% 23.65% 10.00% 25.86% 11.00% 10.00% 8.60% 34.83%
2009 22.87% 13.67% 22.04% 41.60% 50.73% 6.06% 20.25% 22.33% 43.69% 28.54% 49.21% 22.97% 11.85% 27.16% 18.61% 65.47% 27.36%
2010 88.43% 38.83% 81.63% 87.66% 41.75% 32.75% 51.00% 59.42% 58.50% 47.15% 74.04% 62.66% 58.37%
2011 44.11% 78.80% 30.36% 41.96% 35.23% 61.42% 59.97% 54.93% 58.31% 23.25% 47.50% 36.42% 61.47% 54.07%
2012 27.74% 52.23% 69.30% 31.32% 61.94% 54.50% 52.98% 78.16% 35.34% 45.42% 36.77% 22.16% 42.21% 33.71% 75.18% 55.41%
LTM Mar 13 9.75% 41.12% 69.75% 54.50% 69.00% 7.18% 35.34% 44.93% 36.77% ###### 33.71% 75.18% 54.90%
Average: 36.48% 38.08% 23.46% 37.80% 55.29% 40.36% 45.47% 46.76% 46.02% 51.98% 34.76% 37.99% 39.51% 41.75% 42.39% 37.96% 30.31% 37.93% 35.92% 53.83% 44.05% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 17
Exhibit 29: LTM March 2013 Defaults by Industry Summary Number of Average Average Average Defaulted Default Default Overall
Defaulted Years to Coupon Recovery Loss of Amount Default Loss of Loss of Default
Issues Industry Default Payment Rate Principal ($ millions) Rate Principal Coupon Loss Rate
3 Aerospace 5.1 9.04% 9.75% 90.25% 631 1.98% 1.79% 0.09% 1.88%
0 Chemicals 0 0.00% 0.00% 0.00% 0.00%
0 Consumer Durables 0 0.00% 0.00% 0.00% 0.00%
0 Consumer Non-Durables 0 0.00% 0.00% 0.00% 0.00%
2 Energy 2.7 10.81% 41.12% 58.88% 1,800 1.07% 0.63% 0.06% 0.69%
7 Financial 4.9 9.14% 69.75% 30.25% 3,781 4.95% 1.50% 0.23% 1.72%
0 Food And Drug 0 0.00% 0.00% 0.00% 0.00%
2 Food/Tobacco 2.1 12.25% 54.50% 45.50% 437 1.02% 0.46% 0.06% 0.53%
1 Forest Prod/Containers 5.8 11.38% 69.00% 31.00% 158 0.34% 0.11% 0.02% 0.13%
1 Gaming/Leisure 2.1 12.00% 7.18% 92.82% 366 0.68% 0.63% 0.04% 0.67%
2 Healthcare 4.3 10.63% 35.34% 64.66% 344 0.38% 0.24% 0.02% 0.26%
0 Housing 0 0.00% 0.00% 0.00% 0.00%
0 Information Technology 0 0.00% 0.00% 0.00% 0.00%
0 Manufacturing 0 0.00% 0.00% 0.00% 0.00%
5 Media/Telecom 5.0 10.68% 44.93% 55.07% 1,018 0.54% 0.30% 0.03% 0.32%
1 Metals/Minerals 2.2 8.25% 36.77% 63.23% 250 0.40% 0.25% 0.02% 0.27%
0 Retail 0 0.00% 0.00% 0.00% 0.00%
1 Service 6.8 8.75% 100.00% 0.00% 361 0.57% 0.00% 0.02% 0.02%
3 Transportation 10.1 8.13% 33.71% 66.29% 510 0.95% 0.63% 0.04% 0.67%
13 Utility 8.0 7.94% 75.18% 24.82% 6,290 11.02% 2.73% 0.44% 3.17%
41 Overall 5.9 9.26% 54.90% 45.10% 15,945 1.35% 0.61% 0.06% 0.67% Source: Credit Suisse
Exhibit 30: Recovery Rates by Industry: LTM March 2013
100.0%
75.2%69.7% 69.0%
54.5%
44.9%41.1%
36.8% 35.3% 33.7%
9.8%7.2%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Rec
ove
ry R
ate
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 18
Exhibit 31: Principal Loss Rates and Recovery Rates by Industry: 1986 – LTM March 2013
Average Average Average
Default Principal Recovery Default
Industry Rate Loss Rate Rate Loss Rate
Aerospace 4.40% 63.52% 36.48% 3.06%
Chemical 1.64% 61.92% 38.08% 1.20%
Consumer Durables 3.99% 76.54% 23.46% 3.23%
Consumer Non-Durables 2.53% 62.20% 37.80% 1.90%
Energy 3.17% 44.71% 55.29% 1.31%
Financial 7.82% 59.64% 40.36% 5.02%
Food and Drug 2.85% 54.53% 45.47% 1.93%
Food/Tobacco 2.34% 53.24% 46.76% 1.45%
Forest Prod/Containers 2.47% 53.98% 46.02% 1.78%
Gaming/Leisure 4.05% 48.02% 51.98% 2.62%
Healthcare 3.02% 65.24% 34.76% 2.32%
Housing 2.24% 62.01% 37.99% 1.53%
Information Technology 4.22% 60.49% 39.51% 2.83%
Manufacturing 3.06% 58.25% 41.75% 1.92%
Media/Telecom 3.88% 57.61% 42.39% 2.83%
Metals/Minerals 4.43% 62.04% 37.96% 3.10%
Retail 4.72% 69.69% 30.31% 3.34%
Service 3.39% 62.07% 37.93% 2.24%
Transportation 3.16% 64.08% 35.92% 2.39%
Utility 4.89% 46.17% 53.83% 2.31%
Unweighted Average 3.61% 59.30% 40.70% 2.42% Source: Credit Suisse
Exhibit 32: Defaulted Debt by Industry, Weighted by Par Amount
LTM March 2013 1980 –March 2013
Utility40%
Financial24%
Energy11%
Media/Telecom6%
Aerospace4%
Transportation3%
Food/Tobacco3%
Gaming/Leisure2%
Service2% Healthcare
2%
Metals/Minerals2%
Forest Prod/Containers1.0%
Aerospace3.3%
Chemical1.5%
Consumer Durables0.6%
Consumer Non-Durables2.5%
Energy4.3%
Financial11.2%
Food and Drug1.7%
Food/Tobacco2.4%
Forest Prod/Containers4.3%
Gaming/Leisure4.6%
Healthcare2.1%
Housing2.6%
Information Technology2.9%
Manufacturing1.9%
Media/Telecom31.5%
Metals/Minerals2.9%
Retail3.7%
Service2.5%
Transportation6.0%
Utility7.4%
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 19
Exhibit 33: Average Years to Default by Industry: LTM March 2013
2.1 2.1 2.22.7
4.34.9 5.0 5.1
5.8
6.8
8.0
10.1
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Ye
ars
Source: Credit Suisse
Exhibit 34: Average Years to Default by Industry: 1980 – March 2013
3.1
3.8 3.94.1 4.2 4.2 4.2 4.3 4.5
4.75.0 5.0
5.2 5.2 5.35.6 5.7
6.06.4
6.7
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Ye
ars
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 20
Ratings
Exhibit 35: Defaulted Debt by Original Issue Rating, Weighted by Par Amount
LTM March 2013 1980 – March 2013
A and above3%
BBB (incl. Split BBB)16%
BB (incl. Split BB)21%
B 18%
CCC (incl. Split B)38%
Not Rated / Distressed4%
A and above12.0%
BBB (incl. Split BBB)15.7%
BB (incl. Split BB)11.4%
B 39.9%
CCC (incl. Split B)13.3%
Not Rated / Distressed7.6%
Source: Credit Suisse
Exhibit 36: LTM March 2013 Defaults by Original-Issue Rating Summary
Number of Average Average Average Defaulted Default Default Overall
Defaulted Years to Coupon Recovery Loss of Amount Default Loss of Loss of Default
Issues Rating Default Payment Rate Principal ($ millions) Rate Principal Coupon Loss Rate
2 A and above 10.0 6.97% 95.08% 4.92% 540 0.01% 0.00% 0.00% 0.00%
9 BBB (incl. Split BBB) 9.8 7.79% 75.85% 24.15% 2,566 0.09% 0.02% 0.00% 0.02%
6 BB (incl. Split BB) 5.2 8.33% 42.25% 57.75% 3,346 0.88% 0.51% 0.04% 0.54%
9 B 4.7 9.40% 49.97% 50.03% 2,793 0.65% 0.32% 0.03% 0.35%
12 CCC (incl. Split B) 4.1 10.52% 55.82% 44.18% 6,077 2.96% 1.31% 0.16% 1.46%
3 Not Rated / Distressed 4.3 11.67% 22.62% 77.38% 622 2.00% 1.55% 0.12% 1.67%
41 Overall 5.9 9.26% 54.90% 45.10% 15,945 1.35% 0.61% 0.06% 0.67% Source: Credit Suisse
Exhibit 37: Share of Annual Defaults (Par Value): BB & Above vs. B & Below Securities: 1982 – March 2013
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Sha
re o
f A
nnua
l Def
aults
BB & Above
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 21
Exhibit 38: Default and Default Loss Rates by Original-Issue Rating: 1980 – LTM March 2013
Default Rates by Rating Default Loss Rates by Rating
Year BBB BB B CCC Not Rated Year BBB BB B CCC Not Rated B vs. BB
1980 0.00% 0.85% 2.30% 0.00% 0.00% 1980 0.00% 0.66% 1.97% 0.00% 0.00% 1.31%
1981 0.00% 0.00% 0.00% 0.00% 2.01% 1981 0.00% 0.00% 0.00% 0.00% 2.26% 0.00%
1982 0.37% 0.90% 2.90% 0.00% 0.00% 1982 0.20% 0.55% 1.95% 0.00% 0.00% 1.40%
1983 0.58% 5.40% 3.52% 0.00% 0.00% 1983 0.25% 2.61% 1.87% 0.00% 0.00% -0.74%
1984 0.08% 0.55% 2.20% 0.00% 0.00% 1984 0.03% 0.24% 1.04% 0.00% 0.00% 0.80%
1985 0.70% 4.73% 2.80% 1.76% 2.92% 1985 0.36% 2.72% 1.76% 1.31% 2.16% -0.95%
1986 0.00% 1.48% 2.00% 32.61% 1.40% 1986 0.00% 0.89% 1.32% 25.41% 1.09% 0.43%
1987 0.43% 0.98% 3.50% 28.02% 0.17% 1987 0.19% 0.47% 1.84% 17.33% 0.11% 1.37%
1988 0.00% 1.08% 1.20% 26.78% 7.30% 1988 0.00% 0.67% 0.82% 21.73% 5.93% 0.15%
1989 0.36% 2.63% 5.50% 4.77% 0.57% 1989 0.19% 1.60% 3.68% 3.78% 0.45% 2.08%
1990 1.06% 5.03% 7.60% 53.40% 3.31% 1990 0.65% 3.41% 5.67% 47.12% 2.92% 2.26%
1991 0.60% 5.53% 10.50% 67.26% 15.51% 1991 0.31% 3.20% 6.69% 50.67% 11.69% 3.49%
1992 1.28% 5.16% 8.65% 59.35% 6.01% 1992 0.61% 2.73% 5.02% 40.52% 4.10% 2.29%
1993 0.00% 1.84% 2.40% 0.87% 1.24% 1993 0.00% 1.04% 1.49% 0.64% 0.91% 0.45%
1994 0.00% 1.16% 1.50% 0.84% 0.88% 1994 0.00% 0.65% 0.92% 0.61% 0.64% 0.28%
1995 0.00% 0.34% 1.87% 2.91% 3.70% 1995 0.00% 0.20% 1.20% 2.21% 2.81% 1.01%
1996 0.00% 1.28% 1.68% 1.49% 29.73% 1996 0.00% 0.67% 0.97% 1.02% 20.36% 0.30%
1997 0.27% 0.70% 1.40% 2.48% 1.04% 1997 0.11% 0.33% 0.72% 1.51% 0.63% 0.39%
1998 0.14% 0.51% 1.56% 2.84% 1.54% 1998 0.10% 0.36% 1.03% 1.75% 1.14% 0.66%
1999 0.30% 2.90% 4.90% 3.36% 3.89% 1999 0.21% 1.82% 3.71% 2.73% 3.28% 1.88%
2000 0.70% 1.89% 4.04% 5.01% 15.83% 2000 0.55% 1.48% 3.16% 3.62% 12.74% 1.68%
2001 1.96% 3.24% 7.89% 16.83% 19.12% 2001 1.04% 2.67% 6.74% 14.81% 16.34% 4.07%
2002 4.36% 8.03% 12.66% 11.06% 24.25% 2002 3.23% 6.09% 9.40% 8.64% 19.77% 3.31%
2003 1.82% 1.94% 3.87% 8.99% 6.82% 2003 0.76% 1.08% 2.80% 5.85% 4.52% 1.72%
2004 0.10% 0.83% 1.50% 1.90% 2.15% 2004 0.07% 0.46% 0.71% 1.10% 1.27% 0.25%
2005 0.64% 2.45% 3.36% 0.90% 0.54% 2005 0.34% 1.68% 1.44% 0.53% 0.46% -0.24%
2006 0.05% 0.23% 1.07% 0.52% 0.11% 2006 0.02% 0.06% 0.43% 0.25% 0.05% 0.36%
2007 0.00% 0.03% 0.69% 0.24% 12.78% 2007 0.00% 0.02% 0.27% 0.13% 5.30% 0.25%
2008 0.51% 1.89% 2.66% 3.05% 12.93% 2008 0.35% 1.02% 2.14% 1.93% 11.27% 1.12%
2009 0.67% 2.46% 9.95% 13.29% 8.68% 2009 0.55% 1.76% 8.20% 10.26% 6.44% 6.44%
2010 0.02% 0.29% 1.78% 2.61% 6.84% 2010 0.00% 0.09% 0.66% 1.85% 2.73% 0.57%
2011 0.08% 0.66% 1.99% 3.83% 2.05% 2011 0.05% 0.37% 0.87% 1.70% 0.77% 0.50%
2012 0.10% 1.89% 0.76% 3.11% 0.86% 2012 0.04% 0.98% 0.43% 1.47% 0.65% -0.55%
LTM Mar 13 0.09% 0.88% 0.65% 2.96% 2.00% LTM Mar 13 0.02% 0.54% 0.35% 1.46% 1.67% -0.19%
Average 0.51% 2.05% 3.55% 10.68% 5.77% Average 0.30% 1.27% 2.39% 8.00% 4.25% 1.12% Source: Credit Suisse
Exhibit 39: Default Rates by Original-Issue Rating: 1980 – March 2013
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
198
0
198
1
198
2
198
3
198
4
198
5
198
6
198
7
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
LT
M M
ar
13
B
BB
BBB
(1) Default rates represent the percentage defaulted in the year shown, of all bonds with the given issuance rating at the time of default
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 22
Exhibit 40: Recovery Rates by Original-Issue Rating: 1998 – March 2013
Year BBB BB B CCC Not Rated B vs. BB
1998 33.50% 34.50% 39.75% 39.39% 30.99% 5.25%
1999 33.24% 41.58% 29.65% 24.84% 20.25% -11.93%
2000 24.60% 26.42% 26.91% 31.84% 22.94% 0.49%
2001 50.43% 22.69% 19.79% 15.92% 19.56% -2.89%
2002 30.00% 28.72% 30.54% 26.17% 22.47% 1.82%
2003 62.29% 49.57% 32.43% 38.40% 38.56% -17.14%
2004 27.00% 49.39% 57.00% 48.45% 45.05% 7.62%
2005 50.07% 35.76% 62.16% 46.96% 18.25% 26.41%
2006 58.91% 77.29% 64.99% 56.96% 65.50% -12.31%
2007 33.24% 38.19% 66.46% 46.73% 63.50% 28.27%
2008 35.44% 49.80% 24.43% 41.64% 17.88% -25.37%
2009 21.49% 32.23% 22.38% 27.92% 30.87% -9.85%
2010 102.54% 73.08% 67.56% 34.97% 65.79% -5.52%
2011 45.60% 48.10% 61.01% 61.14% 66.44% 12.91%
2012 69.18% 52.49% 48.81% 58.05% 30.34% -3.68%
LTM Mar 13 75.85% 42.25% 49.97% 55.82% 22.62% 7.71%
Average 47.09% 43.88% 43.99% 40.95% 36.31% 0.11% Source: Credit Suisse
Exhibit 41: Recovery Rates by Original-Issue Rating: LTM March 2013
95.1%
75.8%
42.3%
50.0%
55.8%
22.6%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
A and above BBB (incl. Split BBB) BB (incl. Split BB) B CCC (incl. Split B) Not Rated / Distressed
Rec
ove
ry R
ate
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 23
Seniority
Exhibit 42: Defaulted Debt by Seniority, Weighted by Par Amount
LTM March 2013 1980 – March 2013
Senior Secured42%
Senior Unsecured42%
Senior Subordinate14%
Junior Subordinate2%
Senior Secured12.6%
Senior Unsecured57.0%
Senior Subordinated19.8%
Jr Sub & Discount Nts10.6%
Source: Credit Suisse
Exhibit 43: LTM March 2013 Defaults by Seniority Summary
Number of Average Average Average Defaulted Default Default Overall
Defaulted Years to Coupon Recovery Loss of Amount Default Loss of Loss of Default
Issues Seniority Default Payment Rate Principal ($ millions) Rate Principal Coupon Loss Rate
13 Senior Secured 5.1 10.74% 64.53% 35.47% 6,733 2.30% 0.82% 0.12% 0.94%
17 Senior Unsecured 6.3 8.10% 46.11% 53.89% 6,767 0.83% 0.45% 0.03% 0.48%
9 Senior Subordinate 6.4 8.84% 58.75% 41.25% 2,201 3.08% 1.27% 0.14% 1.40%
2 Junior Subordinate 6.2 11.50% 36.50% 63.50% 243 3.42% 2.17% 0.20% 2.37%
41 Overall 5.9 9.26% 54.90% 45.10% 15,945 1.35% 0.61% 0.06% 0.67% Source: Credit Suisse
Exhibit 44: Default Rates by Seniority: 1980 – March 2013
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
Sr Sec Sr Unsec Sr Sub Jr Sub
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 24
Exhibit 45: Default and Default Loss Rates by Seniority: 1980 – March 2013
Default Rates by Seniority Default Loss Rates by Seniority
Year Sr Sec Sr Unsec Sr Sub Jr Sub (1) Year Sr Sec Sr Unsec Sr Sub Jr Sub (1)
1980 0.00% 0.47% 2.62% 0.00% 1980 0.00% 0.38% 0.00% 0.00%
1981 0.00% 0.04% 0.34% 0.00% 1981 0.00% 0.03% 0.00% 0.00%
1982 0.00% 2.64% 2.19% 0.00% 1982 0.00% 1.69% 0.00% 0.00%
1983 1.21% 0.97% 1.92% 0.00% 1983 0.42% 0.34% 0.00% 0.00%
1984 1.36% 0.43% 3.02% 0.00% 1984 0.43% 0.23% 1.20% 0.00%
1985 0.00% 0.41% 15.84% 1.00% 1985 0.00% 0.25% 10.71% 0.61%
1986 1.45% 12.29% 6.42% 0.00% 1986 0.89% 7.51% 4.43% 0.00%
1987 5.91% 18.28% 2.26% 0.00% 1987 2.63% 7.72% 1.22% 0.00%
1988 0.98% 1.08% 2.58% 0.00% 1988 0.23% 0.78% 1.75% 0.00%
1989 6.58% 3.53% 4.61% 7.50% 1989 2.10% 2.37% 3.59% 5.14%
1990 4.65% 4.94% 7.78% 8.71% 1990 3.44% 3.59% 5.82% 7.02%
1991 8.98% 7.46% 12.02% 13.10% 1991 5.56% 3.95% 8.52% 9.84%
1992 3.31% 0.89% 3.80% 4.58% 1992 1.47% 0.58% 2.25% 3.11%
1993 0.52% 1.52% 2.14% 3.16% 1993 0.36% 0.87% 1.50% 1.95%
1994 1.38% 0.47% 0.54% 1.32% 1994 0.79% 0.23% 0.38% 0.92%
1995 2.03% 2.00% 2.65% 2.52% 1995 1.23% 1.25% 1.67% 0.00%
1996 2.58% 0.61% 1.35% 2.07% 1996 1.32% 0.34% 0.95% 0.97%
1997 0.67% 0.81% 1.18% 1.19% 1997 0.24% 0.34% 0.78% 0.52%
1998 2.51% 1.60% 0.40% 1.97% 1998 1.27% 1.09% 0.32% 1.43%
1999 7.02% 4.22% 3.66% 2.97% 1999 5.36% 2.87% 2.98% 2.34%
2000 4.42% 3.90% 4.99% 5.61% 2000 2.62% 3.11% 3.93% 4.79%
2001 14.30% 11.19% 4.92% 8.18% 2001 7.48% 8.61% 4.13% 6.80%
2002 9.88% 20.28% 3.08% 26.50% 2002 5.39% 15.35% 2.45% 20.41%
2003 6.07% 4.17% 2.51% 9.54% 2003 2.23% 2.49% 1.96% 6.08%
2004 4.82% 0.78% 0.56% 2.89% 2004 2.19% 0.44% 0.35% 1.17%
2005 1.89% 3.02% 0.93% 8.71% 2005 0.79% 1.79% 0.53% 1.97%
2006 1.26% 0.63% 0.75% 0.94% 2006 0.09% 0.23% 0.48% 0.25%
2007 0.71% 0.46% 0.55% 0.15% 2007 0.23% 0.21% 0.30% 0.03%
2008 4.85% 5.13% 7.28% 2.87% 2008 2.42% 3.23% 6.24% 2.78%
2009 7.86% 9.43% 8.27% 32.67% 2009 6.26% 6.88% 6.93% 30.24%
2010 0.94% 1.78% 1.28% 1.86% 2010 0.30% 0.79% 0.68% 1.97%
2011 3.67% 1.22% 1.40% 4.97% 2011 1.39% 0.66% 0.89% 4.73%
2012 2.88% 1.13% 3.72% 0.43% 2012 0.99% 0.75% 1.52% 0.33%
LTM Mar 13 2.30% 0.83% 3.08% 3.42% LTM Mar 13 0.94% 0.48% 1.40% 2.37%
Average 3.44% 3.78% 3.55% 4.67% Average 1.80% 2.40% 2.35% 3.46%(1) Includes Jr Sub, Zeros and Discount Nts Source: Credit Suisse
Exhibit 46: Recovery Rates by Seniority: 1980 – March 2013
49.0%
36.6%
32.7%
28.4%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Senior Secured Senior Unsecured Senior Subordinated Jr Sub & Discount Nts
Re
co
ve
ry R
ate
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 25
Exhibit 47: Recovery Rates by Seniority: 1980 – March 2013
Year Sr Sec Sr Unsec Sr Sub Jr Sub (1) Overall
1980 24.93% 11.20% 19.44%
1981 12.00% 12.00%
1982 40.41% 32.75% 37.34%
1983 71.00% 71.17% 35.93% 51.57%
1984 73.07% 52.09% 66.75% 46.85% 56.28%
1985 44.15% 39.23% 45.10% 43.81%
1986 43.33% 44.26% 37.71% 38.10% 40.05%
1987 59.42% 63.24% 52.80% 31.81% 53.71%
1988 84.25% 33.33% 37.98% 34.25% 35.93%
1989 75.20% 38.52% 28.60% 37.74% 38.55%
1990 32.11% 32.95% 31.77% 25.69% 31.08%
1991 45.13% 52.13% 35.73% 31.09% 41.49%
1992 60.52% 40.52% 47.77% 38.00% 48.47%
1993 35.25% 48.81% 36.23% 44.42% 44.51%
1994 47.82% 56.90% 35.61% 37.51% 44.90%
1995 45.31% 42.75% 42.94% 42.44%
1996 54.80% 49.08% 33.97% 58.72% 46.64%
1997 70.00% 63.75% 39.87% 62.17% 53.71%
1998 55.27% 37.43% 25.43% 27.14% 37.69%
1999 29.46% 37.35% 23.92% 21.26% 31.27%
2000 46.43% 24.84% 26.33% 16.46% 26.47%
2001 52.61% 28.02% 21.15% 18.02% 27.99%
2002 50.60% 29.15% 25.84% 24.26% 29.96%
2003 68.45% 45.26% 27.42% 36.27% 44.30%
2004 59.00% 49.02% 44.00% 59.38% 52.94%
2005 63.67% 45.18% 48.56% 79.53% 50.54%
2006 98.85% 67.46% 41.55% 78.38% 66.20%
2007 72.91% 58.75% 49.24% 80.64% 59.64%
2008 55.40% 40.92% 18.85% 3.16% 34.83%
2009 25.46% 31.22% 20.63% 12.77% 27.36%
2010 74.04% 60.58% 51.26% 1.50% 58.37%
2011 67.10% 50.71% 41.80% 7.50% 54.07%
2012 70.87% 38.00% 63.35% 30.00% 55.41%
LTM Mar 13 64.53% 46.11% 58.75% 36.50% 54.90%
Average 58.39% 44.15% 38.50% 35.75% 42.76%(1) Includes Jr Sub, Zeros and Discount Nts
Recovery Rates by Seniority
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 26
Reason for Default
Distressed exchanges comprised 20% of all defaults in the last 12 months compared to
the average of 17% since 1999. There were two issuers with high yield debt that
performed a distressed exchange in 1Q13, with an average recovery rate of 96.6%.
Exhibit 48: Defaulted Debt by Reason for Default, Weighted by Par Amount
LTM March 2013 1999 – March 2013
Filed Bankruptcy68.6%
Distressed Exchange19.6%
Missed Coupon Pymt11.9%
Filed Bankruptcy58.0%
Missed Coupon Pymt22.1%
Distressed Exchange16.9%
Cross Default1.4%
Missed Principal Pymt1.4%
Ch. 7 / Liquidation0.1%
Source: Credit Suisse
Exhibit 49: High Yield Default Rates with and without Distressed Exchanges: 1999 – LTM March 2013
4.08%4.54%
9.20%
15.45%
4.32%
1.26%
2.64%
0.73% 0.49%
5.46%
9.37%
1.56%1.82% 1.72%
1.35%
3.88%4.51%
8.90%
14.01%
3.76%
1.10%
1.85%
0.64% 0.46%
2.44%
8.18%
0.49%
1.41% 1.43%1.08%
0%
2%
4%
6%
8%
10%
12%
14%
16%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LTM
Mar 13
Defa
ult
Rate
HY Default Rate HY Default Rate Excluding Distressed Exchanges
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 27
Exhibit 50: Distressed Exchanges as a Percentage of All High Yield Defaults: 1999 – LTM March 2013
68.76%
0%
10%
20%
30%
40%
50%
60%
70%
80%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LTMMar 13
% o
f H
igh
Yie
ld D
efa
ult
s
Distressed Exchanges as a % of HY Defaults
19.59%
Source: Credit Suisse
Exhibit 51: LTM March 2013 Defaults by Reason for Default Summary
Number of Average Average Average Defaulted
Defaulted Years to Coupon Recovery Loss of Amount
Issues Reason Default Payment Rate Principal ($ millions)
22 Filed Bankruptcy 5.3 9.46% 52.64% 47.36% 10,931
8 Missed Coupon Pymt 6.9 9.44% 44.81% 55.19% 1,890
0 Missed Principal Pymt 0
11 Distressed Exchange 6.5 8.76% 66.15% 33.85% 3,124
0 Cross Default 0
0 Ch. 7 / Liquidation 0
41 Overall 5.9 9.26% 54.90% 45.10% 15,945 Source: Credit Suisse
Exhibit 52: Recovery Rates by Reason for Default: 1999 – March 2013
Year Filed Bankruptcy Missed cpn pymt Missed prin pymt Distressed Exchange Cross Default Ch. 7 / Liquidation
1999 33.35% 28.03% 35.56%
2000 20.91% 31.36% 7.25% 65.26% 45.00%
2001 31.43% 20.83% 56.59% 29.64% 69.33%
2002 30.06% 24.01% 30.90% 54.31% 21.78%
2003 47.22% 32.25% 83.53% 58.33% 42.80% 50.00%
2004 51.20% 49.57% 76.22%
2005 40.94% 56.73% 55.46% 81.41%
2006 64.68% 30.79% 82.85% 12.00%
2007 44.13% 67.24% 80.71%
2008 26.87% 30.11% 46.39%
2009 25.25% 16.95% 31.48% 45.10% 17.15%
2010 40.17% 49.96% 86.94%
2011 52.05% 50.46% 62.85% 59.93%
2012 53.50% 46.92% 73.28% 65.54%
LTM Mar 13 52.64% 44.81% 66.15%
Average 40.96% 38.67% 50.17% 62.29% 37.77% 35.67%
Recovery Rates by Reason for Default
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 28
Exhibit 53: Default Percentage by Reason for Default: 1999 – March 2013
Year Filed Bankruptcy Missed cpn pymt Missed prin pymt Distressed Exchange Cross Default Ch. 7 / Liquidation
1999 56.79% 38.41% 0.00% 4.80% 0.00% 0.00%
2000 57.26% 40.10% 1.58% 0.70% 0.00% 0.36%
2001 66.64% 27.27% 2.51% 3.31% 0.26% 0.00%
2002 63.41% 25.40% 0.58% 9.50% 1.10% 0.00%
2003 47.40% 28.24% 3.66% 13.03% 7.02% 0.64%
2004 53.53% 34.08% 0.00% 12.39% 0.00% 0.00%
2005 60.64% 5.14% 4.30% 29.91% 0.00% 0.00%
2006 79.56% 5.79% 0.00% 12.31% 0.00% 2.33%
2007 57.41% 35.71% 0.00% 6.88% 0.00% 0.00%
2008 37.69% 6.90% 0.12% 55.29% 0.00% 0.00%
2009 64.67% 17.13% 2.01% 12.73% 3.47% 0.00%
2010 17.89% 13.35% 0.00% 68.76% 0.00% 0.00%
2011 57.36% 19.28% 1.02% 22.34% 0.00% 0.00%
2012 68.60% 13.83% 0.72% 16.84% 0.00% 0.00%
LTM Mar 13 68.56% 11.85% 0.00% 19.59% 0.00% 0.00%
Average 57.16% 21.50% 1.10% 19.23% 0.79% 0.22%
% of Defaults by Reason for Default
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 29
Security Type
Exhibit 54: Defaulted Debt by Security Type, Weighted by Par Amount
LTM March 2013 1980 – March 2013
Cash100.0%
Cash91.9%
Deferred8.1%
Source: Credit Suisse
Exhibit 55: Cash Versus Deferred Default Rates: 1980 – March 2013 Deferred Deferred
Year Cash Deferred vs. Cash Year Cash Deferred vs. Cash
1980 0.80% 0.00% NA 1997 0.99% 0.43% -0.57%
1981 0.09% 0.00% NA 1998 1.25% 2.03% NA
1982 2.22% 0.00% NA 1999 4.25% 3.22% -1.03%
1983 1.08% 0.00% NA 2000 4.34% 5.49% 1.15%
1984 1.02% 0.00% NA 2001 9.23% 8.94% -0.28%
1985 3.42% 5.26% 1.84% 2002 14.16% 32.91% 18.75%
1986 2.91% 0.00% NA 2003 3.74% 19.10% 15.36%
1987 5.18% 0.97% -4.21% 2004 1.10% 5.00% 3.90%
1988 1.93% 0.11% -1.82% 2005 2.54% 5.57% 3.03%
1989 4.94% 0.32% -4.63% 2006 0.75% 0.09% -0.66%
1990 10.81% 0.57% -10.24% 2007 0.50% 0.30% -0.19%
1991 10.97% 1.80% -9.17% 2008 5.49% 3.58% -1.91%
1992 3.76% 0.71% -3.04% 2009 9.36% 10.21% 0.85%
1993 2.04% 0.23% -1.81% 2010 1.57% 0.86% -0.71%
1994 0.98% 0.26% -0.71% 2011 1.79% 7.86% 6.07%
1995 2.51% 1.49% -1.02% 2012 1.73% 0.00% -1.73%
1996 1.37% 1.38% 0.01% LTM Mar 13 1.35% 0.00% -1.35%
Average 3.53% 3.49% 0.22% Source: Credit Suisse
Exhibit 56: Cash Versus Deferred Default Rates: 1980 – March 2013
0%
5%
10%
15%
20%
25%
30%
35%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
LTM
Mar
13
Defa
ult
Rate
Cash
Deferred
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 30
Issue Size
Exhibit 57: Defaulted Debt by Size, Weighted by Par Amount
LTM March 2013 1980 – March 2013
$300 MM and Over72%
$101 MM to $299 MM26%
$0 MM to $100 MM2%
$0 MM to $100 MM6.1%
$101 MM to $299 MM39.3%
$300 MM and Over54.6%
Source: Credit Suisse
Exhibit 58: Issue Size Default Summary: LTM March 2013
Number of Average Average Average Defaulted Default Default Overall
Defaulted Years to Coupon Recovery Loss of Amount Default Loss of Loss of Default
Issues Size Default Payment Rate Principal ($ millions) Rate Principal Coupon Loss Rate
4 $0 MM to $100 MM 9.6 9.78% 51.12% 48.88% 269 7.54% 3.68% 0.37% 4.05%
20 $101 MM to $299 MM 5.0 9.59% 48.67% 51.33% 4,165 2.70% 1.38% 0.13% 1.51%
17 $300 MM and Over 6.2 8.76% 63.01% 36.99% 11,511 1.12% 0.42% 0.05% 0.46%
41 Overall 5.9 9.26% 54.90% 45.10% 15,945 1.35% 0.61% 0.06% 0.67% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 31
Exhibit 59: Default Rates by Size: 1980 – March 2013
Default Rates by Size of Issue Recovery Rates by Size of Issue
Year $0 MM to $100 MM $101 MM to $299 MM $300 MM and Over
1980 3.88% 1.05% 0.00%
1981 0.75% 0.00% 0.00%
1982 12.91% 2.14% 0.00%
1983 6.90% 0.81% 0.00%
1984 6.80% 0.64% 0.00%
1985 16.61% 2.62% 1.16%
1986 9.46% 3.53% 0.00%
1987 9.63% 6.63% 2.83%
1988 12.25% 1.43% 0.36%
1989 16.46% 6.43% 0.96%
1990 23.21% 10.19% 4.96%
1991 30.05% 12.91% 3.23%
1992 11.04% 2.92% 2.40%
1993 4.40% 2.13% 0.61%
1994 2.24% 0.88% 0.33%
1995 2.75% 2.40% 2.12%
1996 1.27% 2.14% 0.41%
1997 0.98% 1.20% 0.48%
1998 0.51% 1.97% 0.87%
1999 2.48% 6.16% 2.13%
2000 3.31% 6.43% 2.90%
2001 5.42% 11.86% 7.51%
2002 3.31% 12.29% 18.89%
2003 3.62% 5.50% 3.68%
2004 2.79% 2.68% 0.43%
2005 1.59% 2.79% 2.60%
2006 4.65% 1.28% 0.40%
2007 2.74% 1.03% 0.27%
2008 12.51% 4.94% 5.53%
2009 34.81% 8.95% 9.28%
2010 5.90% 1.57% 1.53%
2011 16.65% 3.39% 1.43%
2012 8.61% 4.00% 1.33%
LTM Mar 13 7.54% 2.70% 1.12%
Average 8.47% 4.05% 2.35% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 32
Exhibit 60: Recovery Rates by Size: 1980 – March 2013
Recovery Rates by Size of Issue
Year $0 MM to $100 MM $101 MM to $299 MM $300 MM and Over
1980 19.44%
1981 12.00%
1982 36.13% 45.20%
1983 51.57%
1984 56.76% 50.50%
1985 42.93% 52.01% 32.00%
1986 40.35% 38.62%
1987 47.07% 63.07% 77.85%
1988 35.09% 38.79% 53.00%
1989 34.91% 47.91% 22.58%
1990 30.17% 35.52% 18.11%
1991 44.63% 37.28% 30.62%
1992 46.82% 53.21% 44.71%
1993 37.10% 66.86% 43.17%
1994 38.56% 54.41% 38.57%
1995 44.63% 41.51% 39.09%
1996 41.70% 49.97% 31.05%
1997 63.18% 47.11% 44.75%
1998 43.14% 37.84% 26.94%
1999 34.36% 32.35% 15.43%
2000 31.77% 24.70% 29.91%
2001 21.65% 29.53% 26.10%
2002 36.36% 32.88% 23.88%
2003 44.48% 41.93% 49.76%
2004 58.23% 50.89% 61.67%
2005 55.31% 45.32% 59.20%
2006 74.81% 62.77% 58.67%
2007 59.32% 64.52% 28.56%
2008 26.06% 29.53% 42.47%
2009 35.26% 22.44% 29.15%
2010 55.68% 42.07% 75.50%
2011 39.75% 52.42% 72.43%
2012 51.12% 54.02% 58.21%
LTM Mar 13 51.12% 48.67% 63.01%
Average 42.40% 44.96% 42.73% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 33
Fallen Angel Impact on High Yield Default Rates
Exhibit 61: Original-Issue Investment Grade Defaults as a % of High Yield Defaults: 1982 – March 2013
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
10.79%
Source: Credit Suisse
Exhibit 62: Default Rate and Default Rate Excl. Original Issue Investment-Grade, 1988 – March 2013
1.59%
3.78%
7.88%8.80%
3.34%
1.83%
0.86%
2.33% 1.37%
0.90%
1.38%
4.08%4.54%
9.20%
15.45%
4.32%
1.26%
2.64%
0.73% 0.49%
5.46%
9.37%
1.56% 1.82% 1.72% 1.35%1.37%
3.34%
7.44%7.61%
3.12%
1.91%
0.90%
2.40%
1.16% 1.03% 1.25%
3.99%4.17%
7.61%
11.77%
3.87%
1.30%2.56%
0.74% 0.60%
2.66%
8.13%
1.73% 1.81%
1.65%1.28%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
De
fau
lt R
ate
Credit Suisse Default Rate
Credit Suisse Default Rate (w/o Investment Grade Defaults)
Source: Credit Suisse
04
Ap
ril 20
13
Le
ve
rage
d F
ina
nce D
efa
ult R
evie
w
3
4
Exhibit 63: LTM March 2013 High Yield Defaults
Dat
e o
f D
efau
lt
Issu
er
Co
up
on
Mat
uri
ty
Bo
nd
Typ
e
Ind
ust
ry
Ori
gin
al R
atin
g
Def
ault
ed A
mo
un
t ($
MM
)
Off
er P
rice
Pri
ce a
t D
efau
lt
Co
up
on
Lo
ss (
$MM
)
Pri
nci
pal
Lo
ss (
$MM
)
Rec
ove
ry R
ate
5/14/2012 Residential Capital 8.875 6/30/2015 Sr Nts FINANCIAL BBB 112.227 99.385
5/14/2012 Residential Capital 8.500 4/17/2013 Sr Nts FINANCIAL BBB 473.416 99.712
5/14/2012 Residential Capital 8.500 6/1/2012 Sr Nts FINANCIAL BBB 79.879 99.636
5/14/2012 Residential Capital 9.625 5/15/2015 Jr Sec 3rd Lien Nts FINANCIAL CCC/Split CCC 2120.452 65.000 96.250 102 -1,019 148.08%
5/21/2012 Houghton Mifflin Harcourt Publishers 10.500 6/1/2019 Sr Sec Nts MEDIA/TELECOM CCC/Split CCC 300.000 100.000 60.000 16 120 60.00%
7/9/2012 Patriot Coal 8.250 4/30/2018 Sr Nts METALS/MINERALS B 250.000 99.279 36.500 10 158 36.77%
8/4/2012 K-V Pharmaceutical 12.000 3/15/2015 Sr Sec Nts HEALTHCARE Not Rated 225.000 97.000 29.750 14 156 30.67%
8/17/2012 ATP Oil & Gas 11.875 5/1/2015 Sr Sec 2nd Lien Nts ENERGY Split B 1500.000 99.531 31.625 89 1,023 31.77%
8/22/2012 Broadview Networks Holdings 11.375 9/1/2012 Sr Sec Nts MEDIA/TELECOM B 300.000 100.000 66.000 17 102 66.00%
9/11/2012 Marsico Holdings 10.625 1/15/2020 Sr Nts FINANCIAL CCC/Split CCC 600.000 62.500 10.000 32 504 16.00%
9/15/2012 LifeCare Holdings 9.250 8/15/2013 Sr Sub Nts HEALTHCARE CCC/Split CCC 119.299 100.000 40.000 6 72 40.00%
11/1/2012 Homer City Funding 8.137 10/1/2019 Sr Sec Nts UTILITY BBB 174.000 100.000 107.500 7 -13 107.50%
11/1/2012 Homer City Funding 8.734 10/1/2026 Sr Sec Nts UTILITY BBB 465.976 100.000 109.500 20 -44 109.50%
11/14/2012 Overseas Shipholding Group 8.750 12/1/2013 Debs TRANSPORTATION Split BBB 63.603 99.678 31.250 3 44 31.35%
11/14/2012 Overseas Shipholding Group 7.500 2/15/2024 Sr Nts TRANSPORTATION BB 146.000 100.000 33.000 5 98 33.00%
11/14/2012 Overseas Shipholding Group 8.125 3/30/2018 Sr Nts TRANSPORTATION BB 300.000 98.563 36.250 12 190 36.78%
12/5/2012 Energy Future Holdings 10.875 11/1/2017 Sr Nts UTILITY Split B 94.263 100.000 92.000 5 8 92.00%
12/5/2012 Energy Future Holdings 11.250 11/1/2017 Sr PIK Election Nts UTILITY Split B 313.000 97.815 93.000 18 15 95.08%
12/5/2012 TXU 5.550 11/15/2014 Nts UTILITY Split BBB 234.000 99.798 87.000 6 30 87.18%
12/5/2012 TXU 6.500 11/15/2024 Nts UTILITY Split BBB 510.250 99.572 61.500 17 195 61.76%
12/5/2012 TXU 6.550 11/15/2034 Nts UTILITY Split BBB 453.000 99.496 57.500 15 191 57.79%
12/17/2012 Edison Mission Energy 7.500 6/15/2013 Sr Nts UTILITY B 500.000 100.000 53.750 19 231 53.75%
12/17/2012 Edison Mission Energy 7.750 6/15/2016 Sr Nts UTILITY B 500.000 100.000 53.750 19 231 53.75%
12/17/2012 Edison Mission Energy 7.000 5/15/2017 Sr Nts UTILITY Split BB 1200.000 100.000 54.000 42 552 54.00%
12/17/2012 Edison Mission Energy 7.200 5/15/2019 Sr Nts UTILITY Split BB 800.000 100.000 54.000 29 368 54.00%
12/17/2012 Edison Mission Energy 7.625 5/15/2027 Sr Nts UTILITY Split BB 700.000 100.000 54.000 27 322 54.00%
12/17/2012 Midwest Generation 8.560 1/2/2016 P-T Certs UTILITY Split A 345.170 100.000 97.000 15 10 97.00%
12/28/2012 LBI Media 8.500 8/1/2017 Sr Sub Nts MEDIA/TELECOM Split B 174.600 98.350 25.250 7 130 25.67%
12/28/2012 LBI Media Holdings 11.000 10/15/2013 Sr Disc Nts MEDIA/TELECOM Not Rated 30.900 58.456 30.000 2 22 30.00% Source: Credit Suisse
04
Ap
ril 20
13
Le
ve
rage
d F
ina
nce D
efa
ult R
evie
w
3
5
Exhibit 64: LTM March 2013 High Yield Defaults D
ate
of
Def
ault
Issu
er
Co
up
on
Mat
uri
ty
Bo
nd
Typ
e
Ind
ust
ry
Ori
gin
al R
atin
g
Def
ault
ed A
mo
un
t ($
MM
)
Off
er P
rice
Pri
ce a
t D
efau
lt
Co
up
on
Lo
ss (
$MM
)
Pri
nci
pal
Lo
ss (
$MM
)
Rec
ove
ry R
ate
1/4/2013 Radian Group 5.375 6/15/2015 Sr Nts FINANCIAL A 195.176 99.822 93.000 5 13 93.17%
1/15/2013 Geokinetics Holdings USA 9.750 12/15/2014 Sr Sec Nts ENERGY B 300.000 98.093 49.500 15 149 50.46%
3/1/2013 Education Management 8.750 6/1/2014 Sr Nts SERVICE Split B 361.293 100.000 100.000 16 0 100.00%
3/18/2013 Dex One 12.000 1/29/2017 Sr PIK Election Nts MEDIA/TELECOM CCC/Split CCC 212.500 100.000 43.000 13 121 43.00%
3/25/2013 Revel AC 12.000 3/15/2018 Sr Sec 2nd Lien PIK Election NtsGAMING/LEISURE Not Rated 365.738 97.500 7.000 22 339 7.18% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 36
1Q13 U.S. Institutional Leveraged Loan Defaults The U.S. institutional leveraged loan default rate decreased 1 bp to 1.87% for the 12-
month period ended March 2013 from 1.88% at the end of the prior quarter. (Note: the
prior quarter’s default rate was restated from 1.73% because additional information
became available from public sources.) Defaults in the 12-month period ended March
2013 were concentrated in media/telecom, gaming/leisure, and financials.
There were three issuers with leveraged loan debt that defaulted in the first quarter, with a
total face value of $4,825 million. This makes the quarterly leveraged loan default rate
0.7%, which is an annualized rate of 3.0%. Defaults in 1Q13 were concentrated
exclusively in media/telecom and gaming/leisure.
The average recovery rate (defined as price at the time of default) rose 712 bp to 59.97%
for the 12-month period ended March 2013 from 52.85% in 2012. This rise was caused by
the very high 61.5% second lien recovery rate, which was actually higher than the first lien
rate at 59.60%. This is the first time since 2004 that second lien recoveries were higher
than first lien recoveries. Both time periods had relatively small sample sizes, with just 21
facilities defaulting over the LTM period (and four of those facilities second liens).
Exhibit 65: Leveraged Loan Recovery Rates by Seniority
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
Re
co
ve
ry R
ate Second
Lien
Overall
First Lien
59.60%
61.53%59.97%
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 37
Exhibit 66: Historical and Projected Default Rates: Credit Suisse and Moody’s
Default Rate Summary Actual
2012
Credit Suisse US High Yield Default Rate 1.72% 1-2% 2-3%
Credit Suisse US Leveraged Loan Default Rate 1.88% 1-4% 3-6%
Credit Suisse Western European HY Default Rate 0.97% 1-2% 1-3%
Credit Suisse Western European LL Default Rate 6.69% 2-4% 2-6%
Projected 2013 Projected 2014
Source: Credit Suisse, Moody's
Exhibit 67: Leveraged Loan Default Rate: 1992 – LTM March 2013
0.45%
1.32%
0.55%0.85%
2.50%
5.29%
6.84%
8.10%
3.82%
1.01%1.55%
0.37%0.23%
2.91%
9.57%
2.61%
0.66%
1.88% 1.87%
0%
2%
4%
6%
8%
10%
12%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LTM
Mar
'13
Lo
an
De
fau
lt R
ate
Defaulted loans defined as missed coupon, filed chapter 11, distressed exchange, or cross-defaults.
Source: Credit Suisse
Exhibit 68: Dollar amount of Defaulted Institutional Loans, Default and Recovery Rate Defaulted Amount
($mm)
Market Size
($mm)
Market Size Midpoint
($mm)
Annual Default
Rate
Average Recovery
Rate
Average Default Loss
Rate
1995 104 23,038 23,038 0.45% 94.00% 0.03%
1996 375 33,748 28,393 1.32% 56.92% 0.57%
1997 238 52,642 43,195 0.55% 78.00% 0.12%
1998 599 88,004 70,323 0.85% 73.58% 0.23%
1999 2,678 126,088 107,046 2.50% 51.17% 1.22%
2000 7,160 144,803 135,445 5.29% 56.75% 2.29%
2001 9,773 141,040 142,921 6.84% 57.09% 2.93%
2002 11,412 140,695 140,867 8.10% 62.59% 3.03%
2003 6,285 188,229 164,462 3.82% 66.97% 1.26%
2004 2,506 307,222 247,725 1.01% 83.41% 0.17%
2005 5,550 407,742 357,482 1.55% 86.09% 0.22%
2006 1,886 617,292 512,517 0.37% 66.08% 0.12%
2007 1,699 840,571 728,931 0.23% 88.63% 0.03%
2008 24,652 855,918 848,245 2.91% 53.65% 1.35%
2009 78,194 778,860 817,389 9.57% 43.18% 5.44%
2010 18,575 642,299 710,579 2.61% 50.54% 1.29%
2011 4,138 612,166 627,232 0.66% 55.44% 0.29%
2012 11,669 631,546 621,856 1.88% 52.85% 0.88%
LTM Mar '13 11,773 652,695 629,544 1.87% 59.97% 0.75% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 38
Exhibit 69: Annual Leveraged Loan Recovery Rates: 1995 – LTM March 2013
94.0%
56.9%
78.0%73.6%
51.2%56.8% 57.1%
62.6%67.0%
83.4%86.1%
66.1%
88.6%
53.6%
43.2%50.5%
55.4%52.8%
60.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LTM
Mar
'13
Lo
an R
eco
very
Rate
Defaulted loans defined as missed coupon, filed chapter 11, distressed exchange, or cross-defaults.
Source: Credit Suisse
Second liens accounted for 19% of defaults by count (5% by face value) over the last 12
months. During this time period, first lien recovery rates averaged 59.6%, while second
lien recoveries averaged 61.5%. This is the first time since 2004 that second lien
recoveries were higher than first lien recoveries. Both time periods had relatively small
sample sizes, with just 21 facilities defaulting over the LTM period (and four of those
facilities’ second liens). This has raised the overall recovery rate to 60.0%, from 52.8%
last quarter, which is more in line with the long-run average of 65%.
Exhibit 70: First Lien Leveraged Loan Recovery Rates: 1995 – LTM March 2013
94.0%
56.9%
78.0%73.6%
51.2%56.8% 57.1%
62.7% 66.0%
82.3%
90.3%83.6%
94.5%
59.8%
50.8%
70.9%68.4%
59.2% 59.6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LTM
Mar
'13
Fir
st
Lie
n L
oan
Re
co
ve
ry R
ate
Defaulted loans defined as missed coupon, filed chapter 11, distressed exchange, or cross-defaults.
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 39
Exhibit 71: Leveraged Loan Default and Recovery Rates: 1995 – LTM March 2013
1995
1996
19971998
1999
2000
2001
2002
2003
2004
2005
2006 2007
2008
2009
2010
2011
2012LTM Mar '13
R² = 0.43
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
40% 50% 60% 70% 80% 90% 100%
Levera
ged
Lo
an D
efa
ult
Rate
Leveraged Loan Recovery Rate
Source: Credit Suisse
Exhibit 72: Average Price of U.S. Stressed Loans vs. Recovery Rates of Loan Defaults: 1995 – March 2013
3/31/200345.51% 2/28/2009
45.63%
0%
20%
40%
60%
80%
100%
120%
Loans: Current Yield > 7% Average Price Recovery Rate
3/28/13 91.68%
3/28/13 59.97%
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 40
There were three loan issuers that defaulted in March for a total of $4,825 million face
value. This was the highest monthly total since March 2010.
Exhibit 73: Monthly Institutional Leveraged Loan Defaults: 1995 – March 2013
6/30/20022,215
3/31/200914,341
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Jan-9
5
Jan-9
6
Jan-9
7
Jan-9
8
Jan-9
9
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Mo
nth
ly L
oan D
efa
ult
s (
Par
Am
ou
nt
$M
illio
ns)
Defaulted loans defined as missed coupon, filed chapter 11, distressed exchange, or cross-defaults.
3/31/13 $4,825
Source: Credit Suisse
The quarterly annualized default rate increased to 3.0% in the first quarter from 2.1% in
the fourth quarter.
Exhibit 74: Quarterly Leveraged Loan Default Rates, Annualized: 1Q95 – 1Q13
15.29%
13.97%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
De
fau
lt R
ate
2.96%
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 41
Exhibit 75: Quarterly Leveraged Loan Default Rates, Annualized: 1Q95 – 1Q13
Year Q1 Q2 Q3 Q4
1995 1.04% 0.76% 0.00% 0.00%
1996 2.96% 0.77% 1.67% 0.00%
1997 1.43% 0.00% 0.83% 0.00%
1998 1.98% 0.00% 1.14% 0.32%
1999 0.78% 0.00% 5.10% 3.17%
2000 7.13% 7.03% 2.45% 4.40%
2001 5.18% 8.94% 2.69% 10.66%
2002 7.55% 15.29% 2.22% 7.36%
2003 5.98% 5.90% 4.30% 0.95%
2004 0.45% 1.56% 1.39% 0.59%
2005 0.63% 1.16% 2.37% 1.77%
2006 0.83% 0.27% 0.12% 0.29%
2007 0.10% 0.00% 0.10% 0.62%
2008 3.00% 2.35% 1.38% 4.97%
2009 13.97% 11.10% 4.60% 8.71%
2010 5.92% 1.16% 2.30% 1.32%
2011 0.53% 0.87% 0.80% 0.44%
2012 3.11% 1.08% 1.30% 2.07%
2013 2.96%
Average 3.48% 3.24% 1.93% 2.65%
Quarterly Leveraged Loan Default Rate, Annualized
Source: Credit Suisse
Exhibit 76: Leveraged Loan Default Rates vs. 3-Year Loan Discount Margin
10/31/2002632 bp
12/31/20081842 bp
10/31/20029.47%
0%
4%
8%
12%
16%
20%
0 bp
400 bp
800 bp
1200 bp
1600 bp
2000 bp
3-Yr Discount Margin TTM Loan Default Rate
1.87%
499 bp
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 42
Exhibit 77: Leveraged Loan Default Loss Rate vs. 3-Year Loan Discount Margin
10/31/2002632 bp
12/31/20081842 bp
0 bp
400 bp
800 bp
1200 bp
1600 bp
2000 bp
3-Yr Discount Margin Loan Default Loss Rate (9-Months Later)
Correlation = .85
Average Difference: 1996-2008: 264 bp
Average Difference: 2009-Jun 2012: 606 bp
3/31/2013 499 bp
75 bp
Source: Credit Suisse
There are $69.8 billion of leveraged loans maturing by the end of 2015. $19.1 billion of
these have a price below 90.
Exhibit 78: Institutional Leveraged Loans Maturing by Year
114
4 10 181
03
2226
87
171
153125
63
5
3530
97
189
154
125
63
0
20
40
60
80
100
120
140
160
180
200
2013 2014 2015 2016 2017 2018 2019 2020
$ B
illio
ns
Leveraged Loans Price < 90 Maturing by Year (As of 3/28/13)
Leveraged Loans Price >= 90 Maturing by Year (As of 3/28/13)
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 43
Exhibit 79: Lower Tier Par Weight of the CS Leveraged Loan Index
5/31/200217.61%
8/31/20072.24%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Pa
r W
eig
ht
CS
LL
In
de
x
CCC+ and Lower
Lower Tier: CCC/Split CCC, CC, C and Default
3/28/13 7.98%
Source: Credit Suisse
Exhibit 80: Distribution of Leveraged Loan Recovery Rates, 1995 – March 2013
0
10
20
30
40
50
60
70
80
90
10% 20% 30% 40% 50% 60% 70% 80% 90% > 90%
Fre
qu
en
cy
Leveraged Loan Recovery Rate Bins
Source: Credit Suisse
Exhibit 81: Distribution of Leveraged Loan Recovery Rates, April 2012 – March 2013
0
1
2
3
4
5
6
10% 20% 30% 40% 50% 60% 70% 80% 90% > 90%
Fre
qu
en
cy
Leveraged Loan Recovery Rate Bins
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 44
Exhibit 82: High Yield Bonds vs. Leveraged Loans: Loss, Recovery and Default Rates
Avg Principal
Loss Rate Default Rate Avg Recovery Rate Avg Recovery Rate
Year Bonds Loans Bonds Loans Bonds Loans First Lien Loans Second Lien Loans
1995 57.56% 6.00% 2.33% 0.45% 42.44% 94.00% 94.00%
1996 53.36% 43.08% 1.37% 1.32% 46.64% 56.92% 56.92%
1997 46.29% 22.00% 0.90% 0.55% 53.71% 78.00% 78.00%
1998 62.31% 26.42% 1.38% 0.85% 37.69% 73.58% 73.58%
1999 68.73% 48.83% 4.08% 2.50% 31.27% 51.17% 51.17%
2000 73.53% 43.25% 4.54% 5.29% 26.47% 56.75% 56.75%
2001 72.01% 42.91% 9.20% 6.84% 27.99% 57.09% 57.09%
2002 70.04% 37.41% 15.45% 8.10% 29.96% 62.59% 62.67% 59.56%
2003 55.70% 33.03% 4.32% 3.82% 44.30% 66.97% 65.96% 100.25%
2004 47.37% 16.59% 1.26% 1.01% 52.94% 83.41% 82.30% 97.87%
2005 49.46% 13.91% 2.64% 1.55% 50.54% 86.09% 90.31% 74.27%
2006 33.80% 33.92% 0.73% 0.37% 66.20% 66.08% 83.64% 49.41%
2007 40.36% 11.37% 0.49% 0.23% 59.64% 88.63% 94.52% 72.91%
2008 65.17% 46.35% 5.46% 2.91% 34.83% 53.65% 59.78% 40.07%
2009 72.64% 56.82% 9.37% 9.57% 27.36% 43.18% 50.75% 20.07%
2010 41.63% 49.46% 1.56% 2.61% 58.37% 50.54% 70.95% 17.16%
2011 45.93% 44.56% 1.82% 0.66% 54.07% 55.44% 68.41% 23.38%
2012 44.59% 47.15% 1.72% 1.88% 55.41% 52.85% 59.24% 32.89%
LTM Mar '13 45.10% 40.03% 1.35% 1.87% 54.90% 59.97% 59.60% 61.53%
Average 55.03% 34.90% 3.68% 2.76% 44.99% 65.10% 69.24% 54.11%
** In both 2003 and 2004 there was just one second lien loan that defaulted for which we had recovery rate information. Source: Credit Suisse
Exhibit 83: High Yield Bond vs. Leveraged Loan Default Rates: 1992 – LTM March 2013
0.45%
1.32%0.55%
0.85%
2.50%
5.29%
6.84%
8.10%
3.82%
1.01%1.55%
0.37% 0.23%
2.91%
9.57%
2.61%
0.66%
1.88%1.87%2.33%
1.37%
0.90%1.38%
4.08%4.54%
9.20%
15.45%
4.32%
1.26%
2.64%
0.73% 0.49%
5.46%
9.37%
1.56%1.82%
1.72%1.35%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LTM
Mar
'13
Defa
ult R
ate
Institutional Loans High Yield Bonds
Defaulted loans defined as missed coupon, filed chapter 11, distressed exchange, or cross-defaults.*Institutional includes TL-b, TL-c, TL-d, delayed-draw and other tranches generally held by institutional investors
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 45
Exhibit 84: Institutional Leveraged Loan vs. High Yield Bond Recovery Rates
94%
57%
78%74%
51%
57% 57%
63%
67%
83%86%
66%
89%
54%
43%
51%
55%53%
60%
42%47%
54%
38%
31%
26% 28% 30%
44%
53%51%
66%
60%
35%
27%
58%
54% 55% 55%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LTM
Mar
'13
Ave
rag
e R
eco
ve
ry R
ate
s
Loan Recovery Rate Bond Recovery Rate*Institutional loans includes TL-b, TL-c, TL-d, delayed-draw and other
tranches generally held by institutional investors
Source: Credit Suisse
Exhibit 85: First Lien Leveraged Loan vs. High Yield Bond Recovery Rates
94%
57%
78%74%
51%57% 57%
63%66%
82%
90%
84%
95%
60%
51%
71%68%
59% 60%
42%47%
54%
38%
31%26% 28% 30%
44%
53%51%
66%
60%
35%
27%
58%54% 55% 55%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LTM
Mar
'13
Ave
rag
e R
eco
ve
ry R
ate
s
First Lien Loans Bonds
*Institutional includes TL-b, TL-c, TL-d, delayed-draw and
other tranches generally held by institutional investors
Source: Credit Suisse
Exhibit 86: Institutional Leveraged Loan vs. High Yield Bond Default Loss Rates
0.03%0.57%
0.12% 0.23%
1.22%
2.29%2.93% 3.03%
1.26%
0.17% 0.22% 0.12% 0.03%
1.35%
5.44%
1.29%
0.29%
0.88% 0.75%1.48% 0.80%0.47%0.92%
3.01%
3.55%
7.04%
11.51%
2.60%
0.65%1.43%
0.28%0.22%
3.78%
7.22%
0.73%0.92% 0.85% 0.67%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LTM
Mar
'13
Ave
rag
e D
efa
ult
Lo
ss R
ate
s
Loan Default Loss Rate Bond Default Loss Rate*Institutional loans includes TL-b, TL-c, TL-d, delayed-draw and
other tranches generally held by institutional investors
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 46
Industry
Exhibit 87: Leveraged Loan Defaults by Industry, Par Weight Distribution
LTM March 2013 1995 – March 2013
Media/Telecom51.8%
Gaming/Leisure16.8%
Financial10.2%
Aerospace7.5%
Consumer Non-Durables
4.8%
Service3.3%
Retail2.4%
Energy1.7%
Manufacturing1.6%
Aerospace
2.1% Chemicals
5.0%
Consumer Durables
0.7%Consumer Non-
Durables
4.7%
Energy
2.5%Financial
4.3%
Food and Drug
0.9%
Food/Tobacco
2.5%
Forest
Prod/Containers
1.9%
Gaming/Leisure
7.0%
Healthcare
3.4%
Housing
5.3%
Information Technology
1.4%Manufacturing
2.9%
Media/Telecom
33.8%
Metals/Minerals
1.2%
Retail
2.3%
Service
3.2%
Transportation
12.1%
Utility
2.7%
Source: Credit Suisse
Exhibit 88: Leveraged Loan Default Rate vs. 8-Month Price Volatility by Industry: March 2013
Aerospace
Consumer Non-Durables
Energy
Financial
Gaming/Leisure
Manufacturing
Media/Telecom
Retail
Service0.5%
1.5%
2.5%
3.5%
4.5%
5.5%
6.5%
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6
De
fau
lt R
ate
8-Month Price Volatility
Source: Credit Suisse
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Exhibit 89: Annual Leveraged Loan Default Rates by Industry
Aero
space
Chem
icals
Consum
er
Dura
ble
s
Consum
er
Non-D
ura
ble
s
Energ
y
Fin
ancia
l
Food a
nd D
rug
Food/T
obacco
Fore
st P
rod/C
onta
iners
Gam
ing/L
eis
ure
Health
care
Housin
g
Info
rmatio
n T
echnolo
gy
Manufa
ctu
ring
Media
/Tele
com
Meta
ls/M
inera
ls
Reta
il
Serv
ice
Tra
nsport
atio
n
Util
ity
Overa
ll
1995 0.00% 0.00% 0.00% 2.61% 0.00% 0.00% 0.00% 0.00% 29.77% 0.00% 0.00% 0.00% 0.00% 0.00% 0.45%
1996 0.00% 0.00% 48.41% 0.00% 3.58% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 2.18% 0.00% 4.45% 0.00% 0.00% 1.32%
1997 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.55% 0.00% 2.76% 0.00% 0.00% 0.55%
1998 0.00% 0.00% 0.00% 0.00% 8.18% 0.00% 0.00% 0.00% 0.69% 0.00% 0.00% 0.00% 0.00% 11.19% 0.00% 0.00% 0.00% 0.85%
1999 0.00% 0.00% 0.00% 3.18% 0.00% 0.00% 4.54% 0.00% 0.00% 8.39% 0.00% 0.00% 0.00% 3.10% 0.00% 0.00% 0.47% 2.93% 0.00% 2.50%
2000 5.36% 0.90% 0.00% 7.67% 0.00% 0.00% 13.66% 0.00% 1.24% 6.76% 11.19% 4.47% 9.95% 4.07% 1.82% 13.60% 3.62% 9.90% 5.52% 0.00% 5.29%
2001 1.82% 4.77% 13.22% 23.55% 0.00% 0.00% 0.00% 3.03% 0.30% 8.14% 5.08% 1.31% 17.92% 8.19% 6.91% 1.68% 5.95% 6.97% 9.09% 0.00% 6.84%
2002 0.00% 3.37% 0.00% 13.60% 0.00% 46.29% 0.00% 1.93% 0.00% 1.30% 2.85% 7.72% 6.61% 11.05% 12.75% 8.27% 0.00% 5.37% 5.79% 39.75% 8.10%
2003 3.62% 0.00% 0.00% 2.79% 0.00% 0.00% 15.03% 4.48% 0.00% 0.00% 4.33% 6.55% 15.01% 7.91% 2.71% 0.00% 7.71% 5.89% 5.58% 4.66% 3.82%
2004 2.58% 0.78% 0.00% 1.20% 0.00% 0.00% 0.00% 2.67% 0.38% 0.00% 0.00% 1.34% 0.00% 0.00% 1.33% 3.50% 0.00% 2.39% 1.90% 0.00% 1.01%
2005 9.01% 0.00% 0.00% 0.26% 0.00% 14.41% 0.00% 1.43% 0.00% 0.00% 0.00% 0.00% 0.00% 1.82% 0.00% 0.00% 0.00% 0.00% 9.61% 4.18% 1.55%
2006 0.00% 0.00% 9.51% 0.38% 0.00% 0.00% 0.00% 2.24% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.15% 0.00% 0.00% 0.00% 2.12% 0.00% 0.37%
2007 0.00% 0.00% 0.00% 0.00% 0.30% 0.00% 0.00% 0.00% 0.87% 0.78% 0.00% 0.00% 0.00% 0.00% 0.02% 0.00% 3.12% 0.00% 0.72% 0.00% 0.23%
2008 0.00% 1.31% 6.57% 2.48% 4.29% 0.00% 0.00% 2.04% 0.00% 14.57% 0.00% 10.67% 0.00% 3.06% 4.84% 0.00% 1.49% 0.16% 4.01% 0.00% 2.91%
2009 1.39% 19.56% 15.43% 9.75% 9.98% 27.43% 4.05% 0.53% 10.65% 6.02% 0.84% 21.03% 0.00% 4.63% 16.00% 16.49% 1.00% 0.92% 26.67% 0.00% 9.57%
2010 0.00% 1.47% 0.00% 7.97% 0.00% 2.30% 2.25% 0.05% 1.76% 6.11% 0.90% 1.95% 0.71% 4.04% 4.81% 0.00% 5.09% 1.19% 0.00% 4.62% 2.61%
2011 0.00% 0.00% 0.00% 5.92% 0.00% 0.00% 0.00% 1.12% 1.32% 1.79% 0.69% 0.00% 0.00% 0.61% 0.38% 0.00% 3.89% 0.00% 0.00% 0.00% 0.66%
2012 11.15% 0.00% 0.00% 3.95% 1.17% 5.60% 0.00% 3.10% 0.00% 3.29% 0.00% 4.64% 0.00% 0.92% 2.09% 0.00% 1.05% 1.39% 1.24% 1.30% 1.88%
LTM Mar 13 4.49% 0.00% 0.00% 3.80% 1.04% 5.46% 0.00% 0.00% 0.00% 5.96% 0.00% 0.00% 0.00% 0.89% 5.17% 0.00% 1.02% 0.53% 0.00% 0.00% 1.87%
Average: 2.07% 1.89% 2.63% 4.55% 3.83% 7.25% 2.41% 1.62% 0.87% 3.04% 1.84% 3.14% 4.21% 2.48% 3.46% 2.88% 2.17% 1.85% 4.18% 3.63% 2.76% Source: Credit Suisse
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Exhibit 90: Annual Leveraged Loan Recovery Rates by Industry
Aero
space
Chem
icals
Consum
er
Dura
ble
s
Consum
er
Non-D
ura
ble
s
Energ
y
Fin
ancia
l
Food a
nd D
rug
Food/T
obacco
Fore
st P
rod/C
onta
iners
Gam
ing/L
eis
ure
Health
care
Housin
g
Info
rmatio
n T
echnolo
gy
Manufa
ctu
ring
Media
/Tele
com
Meta
ls/M
inera
ls
Reta
il
Serv
ice
Tra
nsport
atio
n
Util
ity
Overa
ll
1995 94.00% 94.00%
1996 98.75% 36.00% 56.92%
1997 78.00% 78.00%
1998 86.49% 26.33% 95.00% 73.58%
1999 81.00% 43.90% 30.00% 49.00% 51.17%
2000 76.00% 83.00% 50.88% 75.65% 89.00% 63.89% 48.72% 22.00% 45.75% 72.00% 70.00% 33.17% 44.94% 62.13% 56.75%
2001 72.50% 38.50% 72.33% 64.49% 54.67% 76.56% 63.40% 11.40% 69.25% 41.84% 47.50% 84.57% 57.09%
2002 93.85% 74.57% 73.00% 93.37% 99.75% 79.00% 73.44% 60.75% 41.07% 52.36% 20.75% 70.33% 62.59%
2003 64.38% 82.13% 101.46% 49.17% 25.12% 40.00% 69.56% 71.20% 6.00% 61.17% 78.50% 100.25% 66.97%
2004 97.87% 91.00% 39.63% 93.67% 79.25% 82.53% 83.19% 83.41%
2005 100.46% 65.00% 94.13% 41.75% 80.25% 94.80% 94.08% 86.09%
2006 73.87% 60.75% 50.83% 70.06% 66.08%
2007 80.00% 99.00% 98.37% 98.50% 86.63% 81.69% 88.63%
2008 60.00% 7.00% 53.92% 52.33% 78.31% 56.20% 56.46% 53.50% 41.79% 59.19% 49.50% 56.44% 53.65%
2009 63.62% 48.36% 57.56% 52.09% 43.52% 62.00% 77.00% 39.06% 41.67% 32.38% 32.06% 31.59% 48.51% 15.67% 70.00% 36.27% 40.03% 43.18%
2010 56.67% 39.41% 34.12% 89.00% 48.73% 33.57% 22.20% 41.50% 70.02% 68.91% 28.12% 53.97% 59.21% 50.54%
2011 50.63% 72.62% 74.47% 42.00% 56.25% 89.63% 50.67% 46.12% 55.44%
2012 77.46% 83.38% 53.78% 28.75% 49.12% 69.60% 81.81% 25.50% 40.62% 78.00% 30.40% 18.29% 29.62% 52.85%
LTM Mar 13 78.09% 83.38% 53.78% 28.75% 69.60% 25.50% 50.99% 78.00% 46.60% 59.97%
Average: 78.80% 67.34% 52.69% 59.84% 56.68% 53.46% 84.56% 74.38% 78.11% 66.64% 48.08% 49.04% 39.88% 57.08% 57.46% 47.94% 56.51% 43.46% 65.75% 70.79% 65.10% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 49
By Rating
Exhibit 91: Leveraged Loan Defaults by Rating, Par Weight Distribution
LTM March 2013 1995 –March 2013
Split BB14%
B/Split B52%
CCC/Split CCC1%
NR33%
BB
18%
Split BB
18%
B/Split B
40%
CCC/Split CCC
5%
NR
19%
Source: Credit Suisse
Exhibit 92: Annual Leveraged Loan Default Rates by Original Rating
BB Split BB B/Split B CCC/Split CCC Not Rated Overall
1995 0.00% 0.00% 0.00% 0.61% 0.45%
1996 0.00% 0.00% 2.42% 1.30% 1.32%
1997 0.00% 0.00% 1.62% 0.53% 0.55%
1998 0.00% 0.46% 4.01% 0.36% 0.85%
1999 1.78% 4.89% 4.57% 0.64% 2.50%
2000 5.63% 5.56% 7.16% 0.00% 3.25% 5.29%
2001 1.11% 7.65% 13.01% 58.37% 7.89% 6.84%
2002 4.48% 11.39% 12.25% 0.00% 12.90% 8.10%
2003 2.03% 0.94% 8.87% 0.00% 5.93% 3.82%
2004 0.24% 1.03% 1.84% 22.51% 0.61% 1.01%
2005 0.00% 4.15% 1.74% 0.00% 0.81% 1.55%
2006 0.19% 0.09% 0.44% 8.42% 0.61% 0.37%
2007 0.00% 0.00% 0.27% 4.87% 0.45% 0.23%
2008 3.92% 2.31% 1.94% 7.05% 3.51% 2.91%
2009 6.55% 9.58% 14.13% 23.27% 5.26% 9.57%
2010 0.76% 0.73% 5.05% 5.47% 3.65% 2.61%
2011 0.35% 0.00% 0.67% 0.00% 2.01% 0.66%
2012 0.92% 2.27% 2.15% 4.07% 2.64% 1.88%
LTM Mar 13 0.00% 1.41% 2.59% 0.61% 5.42% 1.87%
Average: 1.47% 2.76% 4.46% 9.62% 3.07% 2.76% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 50
Exhibit 93: Leveraged Loan Recovery Rates by Original Rating
BB Split BB B/Split B CCC/Split CCC Not Rated Overall
1995 94.00% 94.00%
1996 56.92% 56.92%
1997 78.00% 78.00%
1998 26.33% 89.32% 73.58%
1999 62.54% 36.11% 51.00% 51.17%
2000 48.22% 59.21% 63.68% 52.27% 56.75%
2001 86.64% 49.73% 64.72% 24.11% 27.91% 57.09%
2002 63.85% 73.98% 60.75% 53.60% 62.59%
2003 80.13% 42.00% 63.95% 69.47% 66.97%
2004 95.00% 92.58% 92.15% 60.19% 59.44% 83.41%
2005 93.81% 93.82% 42.83% 86.09%
2006 40.50% 99.25% 71.18% 59.74% 57.58% 66.08%
2007 95.64% 90.17% 83.19% 88.63%
2008 56.15% 43.32% 57.17% 50.47% 52.87% 53.65%
2009 52.77% 55.04% 41.29% 31.80% 35.53% 43.18%
2010 69.49% 46.95% 53.88% 7.26% 50.31% 50.54%
2011 67.63% 66.72% 49.12% 55.44%
2012 65.87% 60.60% 57.21% 28.53% 50.16% 52.85%
LTM Mar 13 68.75% 64.32% 29.88% 54.29% 59.97%
Average: 65.73% 60.55% 68.52% 42.46% 55.59% 65.10% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 51
By Loan Priority
Exhibit 94: Leveraged Loan Defaults by Loan Priority, Par Weight Distribution
LTM March 2013 2002 –March 2013
First Lien
95%
Second Lien
5%
First Lien
88%
Second Lien
11%
Unsecured
1%
Source: Credit Suisse
Exhibit 95: Annual Leveraged Loan Default Rates by Loan Priority
First Lien Second Lien Unsecured Overall
1995 0.45% 0.45%
1996 1.32% 1.32%
1997 0.55% 0.55%
1998 0.85% 0.85%
1999 2.50% 2.50%
2000 5.31% 5.29%
2001 6.91% 6.84%
2002 7.80% 81.83% 8.10%
2003 3.63% 13.97% 3.82%
2004 1.01% 1.26% 1.01%
2005 1.29% 5.73% 1.55%
2006 0.25% 1.78% 0.37%
2007 0.19% 0.74% 0.23%
2008 2.76% 4.93% 3.57% 2.91%
2009 9.50% 8.17% 25.19% 9.57%
2010 1.90% 14.88% 0.00% 2.61%
2011 0.56% 2.22% 2.08% 0.66%
2012 1.79% 4.16% 0.00% 1.88%
LTM Mar 13 1.89% 2.03% 0.00% 1.87%
Average: 2.66% 11.81% 5.14% 2.76% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 52
Exhibit 96: Leveraged Loan Recovery Rates by Loan Priority
First Lien Second Lien Unsecured Overall
1995 94.00% 94.00%
1996 56.92% 56.92%
1997 78.00% 78.00%
1998 73.58% 73.58%
1999 51.17% 51.17%
2000 56.75% 56.75%
2001 57.09% 57.09%
2002 62.67% 59.56% 62.59%
2003 65.96% 100.25% * 66.97%
2004 82.30% 97.87% * 83.41%
2005 90.31% 74.27% 86.09%
2006 83.64% 49.41% 66.08%
2007 94.52% 72.91% 88.63%
2008 59.78% 40.07% 20.00% 53.65%
2009 50.75% 20.07% 19.87% 43.18%
2010 70.95% 17.16% 50.54%
2011 68.41% 23.38% 55.44%
2012 59.24% 32.89% 52.85%
LTM Mar 13 59.60% 61.53% 59.97%
Wtd Average: 61.70% 32.45% 21.25% 55.71% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 53
By Size of Facility
Exhibit 97: Leveraged Loan Defaults by Size of Facility, Par Weight Distribution
LTM March 2013 2002 – March 2013
$500MM and Over
74%
$300MM to $500MM
3%
Below $300MM
23%
$500MM and Over
49%
$300MM to $500MM
17%
Below $300MM
34%
Source: Credit Suisse
Exhibit 98: Annual Leveraged Loan Default Rates by Size of Facility
$500MM and Over $300MM to $500MM Below $300MM Overall
1995 0.00% 0.00% 1.22% 0.45%
1996 0.00% 0.00% 2.41% 1.32%
1997 0.00% 0.00% 0.89% 0.55%
1998 0.00% 0.00% 1.57% 0.85%
1999 2.27% 0.00% 3.62% 2.50%
2000 4.13% 1.43% 7.84% 5.29%
2001 5.57% 6.39% 8.12% 6.84%
2002 5.67% 5.99% 11.98% 8.10%
2003 0.85% 3.51% 6.93% 3.82%
2004 0.00% 0.66% 2.42% 1.01%
2005 1.40% 1.55% 1.80% 1.55%
2006 0.00% 0.00% 1.48% 0.37%
2007 0.13% 0.00% 0.69% 0.23%
2008 1.90% 4.21% 5.34% 2.91%
2009 9.56% 11.98% 8.05% 9.57%
2010 1.66% 3.80% 4.90% 2.61%
2011 0.19% 1.29% 1.66% 0.66%
2012 1.41% 1.99% 3.36% 1.88%
LTM Mar 13 2.10% 0.34% 2.35% 1.87%
Average: 1.94% 2.27% 4.03% 2.76% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 54
Exhibit 99: Leveraged Loan Recovery Rates by Size of Facility
$500MM and Over $300MM to $500MM Below $300MM Overall
1995 94.00% 94.00%
1996 56.92% 56.92%
1997 78.00% 78.00%
1998 73.58% 73.58%
1999 30.00% 53.81% 51.17%
2000 43.42% 40.40% 58.57% 56.75%
2001 27.86% 31.69% 66.47% 57.09%
2002 53.88% 74.69% 61.94% 62.59%
2003 20.00% 75.01% 67.48% 66.97%
2004 97.50% 82.33% 83.41%
2005 91.75% 97.05% 82.26% 86.09%
2006 66.08% 66.08%
2007 91.27% 88.36% 88.63%
2008 59.62% 49.14% 54.07% 53.65%
2009 60.68% 46.67% 35.76% 43.18%
2010 58.07% 57.88% 47.47% 50.54%
2011 93.62% 51.25% 53.47% 55.44%
2012 60.13% 55.27% 50.31% 52.85%
LTM Mar 13 58.19% 77.13% 59.50% 59.97%
Average: 57.58% 62.81% 64.76% 65.10% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 55
By Covenant Package
Covenant-lite loans had higher recoveries than loans with maintenance covenants over
the last 12 months. This quarter nearly all of the cov-lite defaults were first lien – there
was only one second lien cov-lite default. This raised the cov-lite recovery rate.
Exhibit 100: Annual Leveraged Loan Default Rates by Covenant Package
Cov-Lite Full Covenants Overall
1995 0.45% 0.45%
1996 1.32% 1.32%
1997 0.55% 0.55%
1998 0.85% 0.85%
1999 2.50% 2.50%
2000 5.29% 5.29%
2001 6.84% 6.84%
2002 8.10% 8.10%
2003 0.00% 3.83% 3.82%
2004 0.00% 1.01% 1.01%
2005 0.00% 1.56% 1.55%
2006 0.00% 0.39% 0.37%
2007 0.00% 0.27% 0.23%
2008 0.61% 3.40% 2.91%
2009 5.48% 10.35% 9.57%
2010 1.70% 2.78% 2.61%
2011 0.00% 0.79% 0.66%
2012 2.33% 1.75% 1.88%
LTM Mar 13 0.55% 2.32% 1.87%
Average: 1.19% 2.62% 2.76% Source: Credit Suisse
Exhibit 101: Leveraged Loan Recovery Rates by Covenant Package
Cov-Lite Full Covenants Overall
1995 94.00%
1996 56.92%
1997 78.00%
1998 73.58%
1999 51.17%
2000 56.75% 56.75%
2001 57.09% 57.09%
2002 62.59% 62.59%
2003 66.97% 66.97%
2004 83.41% 83.41%
2005 86.09% 86.09%
2006 66.08% 66.08%
2007 88.63% 88.63%
2008 34.80% 54.44% 53.65%
2009 38.16% 43.74% 43.18%
2010 23.35% 54.28% 50.54%
2011 55.44% 55.44%
2012 43.79% 56.25% 52.85%
LTM Mar 13 67.58% 58.70% 59.97%
Average: 41.54% 62.63% 65.10% Source: Credit Suisse
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Exhibit 102: Institutional Leveraged Loan Defaults: 12 Months Ending March 2013
Default Date Effective Date Issuer Facility Seniority Coupon Spread Default Amt Maturity Industry Original Rating Cov-Lite
4/16/2012 1/5/2007 Wastequip TLb FIRST LIEN 250 246.0 2/5/2013 SERVICE Split BB No
5/8/2012 9/6/2007 Barneys New York TLb FIRST LIEN 500 280.0 9/5/2014 RETAIL B No
6/21/2012 12/17/2009 ATI Enterprises TLb FIRST LIEN 600 140.0 12/17/2014 SERVICE B No
6/21/2012 7/17/2007 Klockner Pentaplast TLd SECOND LIEN 400 188.0 12/2/2016 MANUFACTURING NR No
6/25/2012 4/11/2011 Cinram International TLb FIRST LIEN 800 239.0 12/31/2013 MEDIA/TELECOM NR No
6/29/2012 5/24/2007 Culligan International TLb FIRST LIEN 225 563.0 10/31/2012 CONSUMER NON-DURABLES B Yes
7/31/2012 12/20/2010 Aventine Renew able Energy Holdings TLb FIRST LIEN 850 200.0 12/21/2015 ENERGY Split B No
7/31/2012 8/31/2009 Legends Gaming TLb FIRST LIEN 675 181.0 8/31/2014 GAMING/LEISURE B No
8/29/2012 7/28/2008 Contec Holdings TLb FIRST LIEN 475 185.0 7/28/2014 MEDIA/TELECOM NR No
9/11/2012 12/14/2007 Marsico Capital Management TLb FIRST LIEN 300 1200.0 12/5/2014 FINANCIAL Split BB No
9/28/2012 9/26/2007 Southern Air TLb FIRST LIEN 375 250.0 10/15/2013 AEROSPACE NR No
10/25/2012 5/17/2007 AMF Bow ling Worldw ide TLb FIRST LIEN 250 245.0 6/5/2013 GAMING/LEISURE Split BB Yes
10/25/2012 5/17/2007 AMF Bow ling Worldw ide TLc SECOND LIEN 625 80.0 11/15/2013 GAMING/LEISURE CCC/Split CCC Yes
10/25/2012 11/30/2009 Yell Group TLb FIRST LIEN 375 1496.0 7/31/2014 MEDIA/TELECOM B No
11/29/2012 12/22/2005 IAP Worldw ide Services TLb FIRST LIEN 300 330.0 12/30/2012 AEROSPACE B No
12/22/2012 10/13/2006 Merrill TLc SECOND LIEN 600 200.0 11/1/2013 MEDIA/TELECOM B No
12/31/2012 7/1/2011 Evergreen International Aviation TLb FIRST LIEN 1000 190.0 7/1/2015 AEROSPACE NR No
12/31/2012 6/30/2011 Evergreen International Aviation TLd SECOND LIEN 1200 110.0 7/1/2015 AEROSPACE NR No
12/31/2012 4/10/2007 LodgeNet Entertainment TLb FIRST LIEN 200 625.0 4/10/2014 GAMING/LEISURE B No
3/18/2013 1/29/2010 Dex One TLb FIRST LIEN 625 1225.0 10/24/2014 MEDIA/TELECOM B No
3/18/2013 1/4/2010 SuperMedia TLb FIRST LIEN 800 2750.0 1/4/2016 MEDIA/TELECOM NR No
3/25/2013 2/14/2011 Revel Entertainment TLb FIRST LIEN 750 850.0 2/16/2018 GAMING/LEISURE B No Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 57
1Q13 European High Yield Defaults The Western European high yield default rate decreased 70 bps to 0.27% for the 12
months ending March 2013 from 0.97% at the end of the prior quarter. The average
recovery rate was 46.63%, below the 54.86% level for 2012. Three bonds in the
European high yield market defaulted during the first quarter.
Exhibit 103: US High Yield versus European High Yield Default Rates
European High Yield
Default Rate
US High Yield
Default Rate
1998 2.35% 1.38%
1999 2.60% 4.08%
2000 1.20% 4.54%
2001 17.28% 9.20%
2002 33.91% 15.45%
2003 12.43% 4.32%
2004 1.97% 1.26%
2005 0.97% 2.64%
2006 0.53% 0.73%
2007 1.00% 0.49%
2008 1.60% 5.46%
2009 6.56% 9.37%
2010 1.06% 1.56%
2011 3.20% 1.82%
2012 0.97% 1.72%
LTM Mar 13 0.27% 1.35% Source: Credit Suisse
Exhibit 104: Annual Western European High Yield Default Rates: 1998 – LTM March 2013
2.35% 2.60%
1.20%
17.28%
12.43%
1.97%0.97%
0.53%1.00%
1.60%
6.56%
1.06%
3.20%
0.97%0.27%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LTMMar 13
Defa
ult R
ate
European High Yield Default Rate
33.91%
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 58
Exhibit 105: Annual Western European High Yield Default Summary: 1998 – LTM March 2013
Year
Defaulted Amount
(€Billion)
Avg Default Loss
Rate
Avg Principal Loss
Rate
Avg Recovery
Rate Default Rate
1998 0.477 2.00% 81.92% 18.08% 2.35%
1999 0.939 1.88% 66.28% 33.72% 2.60%
2000 0.638 1.02% 80.00% 20.00% 1.20%
2001 11.288 16.29% 89.74% 10.26% 17.28%
2002 26.886 27.44% 76.02% 23.98% 33.91%
2003 10.757 8.00% 60.80% 39.20% 12.43%
2004 1.628 0.57% 25.13% 74.87% 1.97%
2005 0.780 0.51% 47.65% 52.35% 0.97%
2006 0.418 0.33% 57.14% 42.86% 0.53%
2007 0.785 0.58% 52.67% 47.33% 1.00%
2008 1.266 1.26% 74.86% 25.14% 1.60%
2009 6.219 5.25% 75.67% 24.33% 6.56%
2010 1.398 0.82% 72.55% 27.45% 1.06%
2011 5.567 2.37% 68.64% 31.36% 3.20%
2012 2.306 0.48% 45.14% 54.86% 0.97%
LTM Mar 13 0.738 0.15% 53.37% 46.63% 0.27%
Average 4.506 4.31% 64.22% 35.78% 5.49% Source: Credit Suisse
Exhibit 106: Annual Western European High Yield Default Rates: 1998 – LTM March 2013
2.35% 2.60%
1.20%
17.28%
12.43%
1.97%0.97%
0.53%1.00%
1.60%
6.56%
1.06%
3.20%
0.97%0.27%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LTMMar 13
Defa
ult R
ate
European High Yield Default Rate
33.91%
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 59
Exhibit 107: Size of the Western European Distressed Debt Markets (by Price Break): 1997 – March 2013
0 1 315
42 43
16 91
1 1
41
11 13 113 40 0 1 6
176 2 1 0 2
191
64
37
57
3225
0
50
100
150
200
250
Ma
rke
t S
ize
-P
ar
Am
ou
nt
(€B
illi
on
s)
Distressed WE HY Bonds (Priced <60)
Distressed WE Institutional Loans (Priced<80)
Source: Credit Suisse
Exhibit 108: Western European High Yield Default Loss Rate vs. Spread to Worst: 1998 – March 2013
1250 bp
1799 bp
0 bp
500 bp
1000 bp
1500 bp
2000 bp
2500 bp
3000 bp
Oct-
98
Oct-
99
Oct-
00
Oct-
01
Oct-
02
Oct-
03
Oct-
04
Oct-
05
Oct-
06
Oct-
07
Oct-
08
Oct-
09
Oct-
10
Oct-
11
Oct-
12
ST
W &
De
fau
lt L
oss R
ate
Western European STW WE HY Default Loss Rate (8-Months Later)
Correlation = .63
Average Difference: 2003-2008: 331 bp Average Difference: 2009 -2013: 566 bp
15 bp
3/28/13 521 bp
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 60
Industry
Exhibit 109: Default Rates Over Time by Industry: 1998 – March 2013 A
ero
spac
e
Ch
emic
al
Co
nsu
mer
Du
rab
les
Co
nsu
mer
No
n-D
ura
ble
s
En
erg
y
Fin
anci
al
Fo
od
an
d D
rug
Fo
od
/To
bac
co
Fo
rest
Pro
d/C
on
tain
ers
Gam
ing
/Lei
sure
Hea
lth
care
Ho
usi
ng
Info
rmat
ion
Tec
hn
olo
gy
Man
ufa
ctu
rin
g
Med
ia/T
elec
om
Met
als/
Min
eral
s
Ret
ail
Ser
vice
Tra
nsp
ort
atio
n
Uti
lity
Ove
rall
1998 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.3% 0.0% 0.0% 0.0% 0.0% 0.0% 2.3%
1999 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.3% 0.0% 0.0% 0.0% 13.3% 2.6%
2000 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 36.1% 0.0% 7.0% 0.0% 0.0% 0.0% 0.0% 8.5% 0.0% 1.2%
2001 82.2% 4.2% 55.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 7.3% 0.0% 21.7% 0.0% 0.0% 0.0% 3.3% 66.5% 17.3%
2002 0.0% 0.0% 0.0% 24.3% 0.0% 0.0% 0.0% 0.0% 0.0% 13.2% 0.0% 0.0% 0.0% 3.7% 70.7% 0.0% 0.0% 0.0% 4.4% 28.5% 33.9%
2003 7.6% 4.0% 0.0% 0.0% 35.1% 0.0% 0.0% 80.5% 0.0% 0.0% 0.0% 0.0% 34.6% 0.0% 10.6% 0.0% 0.0% 0.0% 9.0% 4.8% 12.4%
2004 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.3% 0.0% 0.0% 0.0% 0.0% 16.2% 2.0%
2005 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 9.5% 7.3% 1.0%
2006 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.9% 0.0% 0.0% 0.0% 0.0% 0.0% 6.2% 0.0% 0.5%
2007 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.2% 0.0% 0.0% 18.6% 0.0% 10.2% 0.0% 1.0%
2008 0.0% 0.0% 0.0% 0.0% 146.8% 0.0% 0.0% 2.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.3% 0.0% 1.6%
2009 0.0% 11.6% 40.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.2% 15.7% 0.0% 1.0% 0.0% 0.0% 0.0% 26.3% 0.0% 6.6%
2010 0.0% 0.0% 0.0% 0.0% 0.0% 4.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.6% 3.6% 0.0% 0.0% 0.0% 0.0% 0.0% 1.1%
2011 0.0% 0.0% 0.0% 0.0% 0.0% 20.0% 0.0% 0.0% 0.0% 4.3% 0.0% 0.0% 0.0% 4.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.2%
2012 0.0% 0.0% 0.0% 0.0% 18.9% 0.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.0% 0.0% 0.0% 0.0% 0.4% 0.0% 1.0%
LTM Mar 13 0.0% 0.0% 0.0% 0.0% 0.0% 1.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.0% 0.0% 0.0% 0.4% 0.0% 0.3%
Average 6.0% 1.2% 5.0% 4.0% 3.4% 12.3% 0.0% 5.0% 0.1% 0.8% 0.3% 2.6% 4.0% 1.2% 7.5% 0.0% 1.2% 0.0% 5.9% 8.2% 5.5% Source: Credit Suisse
Note: Financial industry default and default loss rates exceed 100% in 2008 because
these rates use the average of the par size of the financial sector on 12/31/2007 and
12/31/2008 in the denominator (see “Methodology” in the chapter High Yield Default
Review, earlier). The par size of the financial sector on 12/31/2007 was 0. GMAC and
Residential Capital were downgraded into the high yield universe in early 2008, comprising
the only bonds in the financial sector, and it was a portion of these bonds which defaulted
due to distressed exchanges. The denominator was half the face value of the
downgraded debt (averaging 0 with the face value). The numerator was the face value of
the distressed exchanges, which turned out to be larger than the denominator, resulting in
a rate greater than 100%.
Exhibit 110: Default Loss Rates Over Time by Industry: 1998 – March 2013
Aer
osp
ace
Ch
emic
al
Co
nsu
mer
Du
rab
les
Co
nsu
mer
No
n-D
ura
ble
s
En
erg
y
Fin
anci
al
Fo
od
an
d D
rug
Fo
od
/To
bac
co
Fo
rest
Pro
d/C
on
tain
ers
Gam
ing
/Lei
sure
Hea
lth
care
Ho
usi
ng
Info
rmat
ion
Tec
hn
olo
gy
Man
ufa
ctu
rin
g
Med
ia/T
elec
om
Met
als/
Min
eral
s
Ret
ail
Ser
vice
Tra
nsp
ort
atio
n
Uti
lity
Ove
rall
1998 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.8% 0.0% 0.0% 0.0% 0.0% 0.0% 2.0%
1999 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.0% 0.0% 0.0% 0.0% 8.3% 1.9%
2000 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6.7% 0.0% 0.0% 0.0% 0.0% 6.4% 0.0% 1.0%
2001 72.4% 3.4% 41.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 21.0% 0.0% 0.0% 0.0% 3.4% 59.1% 16.3%
2002 0.0% 0.0% 0.0% 17.0% 0.0% 0.0% 0.0% 0.0% 0.0% 9.4% 0.0% 0.0% 0.0% 3.4% 59.1% 0.0% 0.0% 0.0% 3.8% 9.4% 27.4%
2003 6.2% 3.3% 0.0% 0.0% 14.1% 0.0% 0.0% 66.9% 0.0% 0.0% 0.0% 0.0% 28.1% 0.0% 5.9% 0.0% 0.0% 0.0% 4.0% 2.8% 8.0%
2004 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.4% 0.0% 0.0% 0.0% 0.0% 4.6% 0.6%
2005 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4.9% 3.9% 0.5%
2006 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.6% 0.0% 0.0% 0.0% 0.0% 0.0% 3.9% 0.0% 0.3%
2007 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13.9% 0.0% 5.0% 0.0% 0.6%
2008 0.0% 0.0% 0.0% 0.0% 102.5% 0.0% 0.0% 2.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.2% 0.0% 1.3%
2009 0.0% 10.5% 29.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.2% 12.6% 0.0% 0.7% 0.0% 0.0% 0.0% 20.5% 0.0% 5.3%
2010 0.0% 0.0% 0.0% 0.0% 0.0% 2.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.8%
2011 0.0% 0.0% 0.0% 0.0% 0.0% 15.3% 0.0% 0.0% 0.0% 1.9% 0.0% 0.0% 0.0% 3.7% 0.0% 0.0% 0.0% 0.0% 0.0% 2.4%
2012 0.0% 0.0% 0.0% 0.0% 13.7% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.8% 0.0% 0.0% 0.0% 0.1% 0.0% 0.5%
LTM Mar 13 0.0% 0.0% 0.0% 0.0% 0.0% 0.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.2%
Average 5.2% 1.1% 3.8% 2.9% 1.7% 8.6% 0.0% 4.2% 0.1% 0.6% 0.1% 0.3% 2.8% 0.7% 6.3% 0.0% 0.9% 0.0% 4.0% 5.3% 4.3% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 61
Exhibit 111: LTM March 2013 Defaults by Industry Summary Table
Number of Average Average Average Defaulted Default Default Overall
Defaulted Years to Coupon Recovery Loss of Amount Default Loss of Loss of Default
Issues Industry Default Payment Rate Principal (€ millions) Rate Principal Coupon Loss Rate
0 Aerospace 0 0.00% 0.00% 0.00% 0.00%
0 Chemicals 0 0.00% 0.00% 0.00% 0.00%
0 Consumer Durables 0 0.00%
0 Consumer Non-Durables 0 0.00% 0.00% 0.00% 0.00%
0 Energy 0 0.00% 0.00% 0.00% 0.00%
6 Financial 4.3 7.82% 37.60% 62.40% 576 1.17% 0.73% 0.05% 0.77%
0 Food And Drug
0 Food/Tobacco 0 0.00% 0.00% 0.00% 0.00%
0 Forest Prod/Containers 0 0.00% 0.00% 0.00% 0.00%
0 Gaming/Leisure 0 0.00% 0.00% 0.00% 0.00%
0 Healthcare 0 0.00% 0.00% 0.00% 0.00%
0 Housing 0 0.00% 0.00% 0.00% 0.00%
0 Information Technology 0 0.00% 0.00% 0.00% 0.00%
0 Manufacturing 0 0.00% 0.00% 0.00% 0.00%
1 Media/Telecom 0.4 10.50% 65 0.15% 0.00% 0.01% 0.01%
0 Metals/Minerals 0 0.00% 0.00% 0.00% 0.00%
0 Retail 0 0.00% 0.00% 0.00% 0.00%
0 Service 0 0.00% 0.00% 0.00% 0.00%
1 Transportation 3.0 9.13% 82.78% 17.22% 97 0.36% 0.06% 0.02% 0.08%
0 Utility 0 0.00% 0.00% 0.00% 0.00%
8 Overall 3.7 8.32% 46.63% 53.37% 738 0.27% 0.14% 0.01% 0.15% Source: Credit Suisse
Exhibit 112: Recovery Rates by Industry: LTM March 2013
82.8%
37.6%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Transportation Financial
Re
co
ve
ry R
ate
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 62
Exhibit 113: Principal Loss Rates and Recovery Rates by Industry: 1998 – March 2013
Average Average Average
Default Principal Recovery Default
Industry Rate Loss Rate Rate Loss Rate
Aerospace 5.99% 81.31% 18.69% 6.55%
Chemicals 1.24% 79.08% 20.92% 1.32%
Consumer Durables 5.02% 70.94% 29.06% 5.97%
Consumer Non-Durables 4.02% 66.40% 33.60% 3.54%
Energy 3.37% 36.65% 63.35% 1.09%
Financial 12.34% 64.27% 35.73% 9.39%
Food and Drug 0.00% 0.00%
Food/Tobacco 5.03% 80.63% 19.37% 5.15%
Forest Prod/Containers 0.14% 87.00% 13.00% 0.16%
Gaming/Leisure 0.82% 64.75% 35.25% 0.72%
Healthcare 0.27% 0.00%
Housing 2.58% 95.50% 4.50% 0.40%
Information Technology 3.97% 69.92% 30.08% 3.41%
Manufacturing 1.23% 87.50% 12.50% 0.84%
Media/Telecom 7.54% 68.01% 31.99% 7.07%
Metals/Minerals 0.00% 0.00%
Retail 1.16% 70.00% 30.00% 1.07%
Service 0.00% 0.00%
Transportation 5.93% 61.22% 38.78% 4.88%
Utility 8.22% 48.13% 51.87% 6.64%
Unweighted Average 3.44% 70.71% 29.29% 2.91% Source: Credit Suisse
Exhibit 114: Defaulted Debt by Industry, Weighted by Par Amount
LTM March 2013 1980 –March 2013
Financial78%
Transportation13%
Media/Telecom9%
Media/Telecom57.1%
Transportation8.4%
Financial8.1%
Utility6.3%
Information Technology4.9%
Food/Tobacco3.5%
Energy3.5%
Chemicals2.3%
Aerospace2.1%
Consumer Non-Durables1.2%
Housing0.6% Manufacturing
0.6%
Healthcare0.5%
Forest Prod/Containers0.3%
Consumer Durables0.2%
Retail0.2%
Gaming/Leisure0.1%
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 63
Original Issue Rating
Exhibit 115: LTM March 2013 Defaults by Original Issue Rating Summary Table Number of Average Average Average Defaulted Default Default Overall
Defaulted Years to Coupon Recovery Loss of Amount Default Loss of Loss of Default
Issues Rating Default Payment Rate Principal (€ millions) Rate Principal Coupon Loss Rate
0 A and above 0 0 0.00% 0.00% 0.00%
3 BBB (incl. Split BBB) 5.6 8.46% 50.33% 49.67% 225 0.03% 0.02% 0.00% 0.02%
1 BB (incl. Split BB) 2.1 6.87% 82.00% 18.00% 13 0.01% 0.00% 0.00% 0.00%
1 B 3.0 9.13% 82.78% 17.22% 97 0.12% 0.02% 0.01% 0.03%
0 CCC (incl. Split B) 0 0.00% 0.00% 0.00% 0.00%
1 Not Rated / Distressed 0.4 10.50% 65 0.83% 0.00% 0.04% 0.04%
6 Overall 3.8 8.65% 71.70% 28.30% 401 0.15% 0.04% 0.01% 0.05% Source: Credit Suisse
Exhibit 116: Recovery Rates by Original Issue Rating: LTM March 2013
82.8% 82.0%
50.3%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
B BB (incl. Split BB) BBB (incl. Split BBB)
Rec
ove
ry R
ate
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 64
Exhibit 117: Defaulted Debt by Industry, Weighted by Par Amount
LTM March 2013 1980 –March 2013
BBB (incl. Split BBB)57%
B 24%
Not Rated / Distressed
16%
BB (incl. Split BB)3%
A and above10.3%
BBB (incl. Split BBB)18.9%
BB (incl. Split BB)9.8%
B 47.1%
CCC (incl. Split B)9.3%
Not Rated / Distressed
4.6%
Source: Credit Suisse
04
Ap
ril 20
13
Le
ve
rage
d F
ina
nce D
efa
ult R
evie
w
6
5
Exhibit 118: LTM March 2013 Western European High Yield Defaults D
ate
of
Def
ault
Issu
er
Co
up
on
Mat
uri
ty
Bo
nd
Typ
e
Ind
ust
ry
Ori
gin
al R
atin
g
Cu
rren
cy
Def
ault
ed A
mo
un
t (€
MM
)
Off
er P
rice
Pri
ce a
t D
efau
lt
Pri
nci
pal
Lo
ss R
ate
Rec
ove
ry R
ate
5/14/2012 Residential Capital 7.125 5/17/2012 Sr Nts FINANCIAL BBB EUR 98.6 99.49
5/14/2012 Residential Capital 8.375 5/17/2013 Sr Nts FINANCIAL BBB GBP 46.2 99.34 50.000 49.67% 50.33%
5/14/2012 Residential Capital 9.875 7/1/2014 Sr Nts FINANCIAL BBB GBP 80.7 99.66
8/1/2012 Nobina Europe 9.125 8/1/2012 Sr Sec Nts TRANSPORTATION B EUR 97.2 99.66 82.500 17.22% 82.78%
12/12/2012 BPE Financiaciones 6.873 10/22/2020 Sr Sub Nts FINANCIAL Split BB EUR 13.1 100.00 82.000 18.00% 82.00%
2/7/2013 SEAT Pagine Gialle 10.500 1/31/2017 Sr Sec Nts MEDIA/TELECOM Not Rated EUR 65.0 70.00
2/20/2013 SNS REAAL 8.450 8/20/2018 Sr Sub Nts FINANCIAL Investment Grade USD 75.3 100.00 9.000 91.00% 9.00%
2/20/2013 SNS Bank 6.250 10/26/2020 Sr Sub Nts FINANCIAL Investment Grade EUR 262.3 99.43 9.000 90.95% 9.05% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 66
1Q13 European Institutional Leveraged Loan Defaults The Western European institutional leveraged loan default rate decreased 243 bp to
4.26% for the 12 months ending March 2013 from 6.69% at the end of the prior quarter.
(Note: the prior quarter’s default rate was restated from 5.23% because additional
information became available from public sources.) The average recovery rate (defined as
price at the time of default) fell 115 bp to 42.43% for the 12 months ending March 2013,
from 43.58% at the end of the fourth quarter.
Exhibit 119: European Leveraged Loan versus US Leveraged Loan Default Rates
West. Euro.
Leveraged Loan
Default Rate
US Leveraged
Loan Default
Rate
2000 1.43% 5.29%
2001 16.05% 6.84%
2002 47.00% 8.10%
2003 1.07% 3.82%
2004 2.32% 1.01%
2005 0.83% 1.55%
2006 1.81% 0.37%
2007 0.09% 0.23%
2008 2.15% 2.91%
2009 6.79% 9.57%
2010 4.57% 2.61%
2011 0.95% 0.66%
2012 6.69% 1.88%
LTM Mar 13 4.26% 1.87%
Average 6.86% 3.34% Source: Credit Suisse
Exhibit 120: Annual Western European Leveraged Loan Default Rates: 2000 – LTM March 2013
1.43%
16.05%
1.07%2.32%
0.83%1.81%
0.09%
2.15%
6.79%
4.57%
0.95%
6.69%
4.26%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LTMMar 13
West
ern
Euro
pe L
oan D
efa
ult
Rate
Defaulted loans defined as missed coupon, filed for bankruptcy, entered administration, distressed exchange, or cross-defaults.*Institutional includes TL-b, TL-c, TL-d, delayed-draw and other tranches generally held by institutional investors
47.00%
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 67
Exhibit 121: Annual Western European Leveraged Loan Default Rates: 2000 – LTM March 2013
Defaulted Amount
(€mm)
Market Size
(€mm)
Market Size Midpoint
(€mm)
Annual Default
Rate
Average Recovery
Rate
Average Default
Loss Rate
1999 7,198€
2000 133€ 11,430€ 9,314€ 1.43% 72.00% 0.40%
2001 2,206€ 16,058€ 13,744€ 16.05% 78.25% 3.49%
2002 8,822€ 21,478€ 18,768€ 47.00% 70.57% 13.84%
2003 255€ 26,400€ 23,939€ 1.07% 70.00% 0.32%
2004 759€ 39,020€ 32,710€ 2.32% 84.25% 0.37%
2005 495€ 80,600€ 59,810€ 0.83% 60.62% 0.33%
2006 1,986€ 138,303€ 109,452€ 1.81% 64.54% 0.64%
2007 155€ 206,978€ 172,641€ 0.09% 98.62% 0.00%
2008 4,621€ 223,197€ 215,088€ 2.15% 31.20% 1.48%
2009 14,820€ 213,343€ 218,270€ 6.79% 32.36% 4.59%
2010 9,197€ 188,859€ 201,101€ 4.57% 62.93% 1.70%
2011 1,703€ 168,320€ 178,589€ 0.95% 36.62% 0.60%
2012 10,549€ 147,235€ 157,778€ 6.69% 42.58% 3.84%
LTM Mar 13 6,708€ 144,812€ 157,493€ 4.26% 42.43% 2.45% Source: Credit Suisse
Exhibit 122: Distribution of Western Euro Lev Loan Default Recovery Rates, 2000 – March 2013
0
5
10
15
20
25
30
35
40
45
50
10% 20% 30% 40% 50% 60% 70% 80% 90% > 90%
Fre
qu
en
cy
Leveraged Loan Recovery Rate Bins
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 68
Exhibit 123: Distribution of Western Euro Lev Loan Default Recovery Rates, LTM March 2013
0
1
2
3
4
5
6
7
10% 20% 30% 40% 50% 60% 70% 80% 90% > 90%
Fre
qu
en
cy
Leveraged Loan Recovery Rate Bins
Source: Credit Suisse
Exhibit 124: Western European Leveraged Loan Default Loss Rate vs. 3-Year Discount Margin
4.59%
1973 bp
0 bp
200 bp
400 bp
600 bp
800 bp
1000 bp
1200 bp
1400 bp
1600 bp
1800 bp
2000 bp
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
3-Y
ear D
isco
unt M
arg
in
Defa
ult
Lo
ss R
ate
Loan Default Loss Rate (8 Months Later) West. Euro. Loan Discount Margin (3 years)
Correlation: 0.90
2.45%
Average Difference 2004 - 2008: 364 bpAverage Difference 2009 - 2012: 634 bp
3/31/13 588 bp
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 69
Exhibit 125: Quarterly Western European Leveraged Loan Default Rates, Annualized: 4Q01 – 1Q13
3.0%
4.6%
0.0%0.0%
0.0%0.0%
6.1%
0.0%
3.1%
0.7%0.0%
2.5%
0.0%0.0%
0.4%
5.8%
0.6%0.4%0.0%0.0%0.0%
0.8%0.0%
6.2%
1.5%
7.9%
4.8%
8.3%
5.9%
2.2%
9.3%
3.8%3.4%
0.0%
2.1%
0.1%
1.7%
11.4%
2.9%
5.0%
6.8%
2.7%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Qu
art
erl
y A
nnu
alized
Defa
ult
Rate
Quarterly Annualized Default Rate
Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 70
Industry
Exhibit 126: Western European Leveraged Loan Defaults by Industry, Par Weight Distribution
LTM March 2013 2000 –March 2013
Media/Telecom69%
Manufacturing15%
Gaming/Leisure5%
Service4%
Healthcare4%
Consumer Non-Durables
3%
Aerospace1% Chemicals
5%
Consumer Durables3%
Consumer Non-Durables
1%
Food/Tobacco1%
Forest Prod/Containers3%
Gaming/Leisure7%
Healthcare1%
Housing14%
Manufacturing4%
Media/Telecom37%
Metals/Minerals1%
Retail1%
Service3%
Transportation13%
Utility3%
Source: Credit Suisse
04
Ap
ril 20
13
Le
ve
rage
d F
ina
nce D
efa
ult R
evie
w
7
1
Exhibit 127: Annual Western European Leveraged Loan Default Rates by Industry
Aero
space
Chem
icals
Consum
er
Dura
ble
s
Consum
er
Non-D
ura
ble
s
Energ
y
Fin
ancia
l
Food a
nd D
rug
Food/T
obacco
Fore
st P
rod/C
onta
iners
Gam
ing/L
eis
ure
Health
care
Housin
g
Info
rmatio
n T
echnolo
gy
Manufa
ctu
ring
Media
/Tele
com
Meta
ls/M
inera
ls
Reta
il
Serv
ice
Tra
nsport
atio
n
Util
ity
Overa
ll
2000 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 52.32% 0.00% 0.00% 0.00% 0.00% 1.43%
2001 51.42% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 2.88% 0.00% 99.86% 0.00% 100.00% 16.05%
2002 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 78.43% 0.00% 0.00% 0.00% 15.06% 47.00%
2003 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 58.15% 0.00% 0.00% 1.07%
2004 26.44% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 60.86% 0.00% 2.32%
2005 0.00% 0.00% 10.67% 0.00% 0.00% 0.00% 0.00% 0.00% 2.33% 0.00% 0.00% 6.46% 0.00% 0.00% 0.00% 0.00% 2.06% 0.00% 0.00% 0.00% 0.83%
2006 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.58% 0.00% 0.00% 0.00% 42.36% 0.00% 1.81%
2007 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 3.05% 0.00% 0.09%
2008 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 4.95% 0.00% 30.02% 0.00% 0.00% 0.30% 0.00% 0.00% 0.00% 22.66% 0.00% 2.15%
2009 4.81% 7.73% 60.55% 9.64% 0.00% 0.00% 0.00% 0.00% 9.02% 0.00% 0.00% 51.17% 0.00% 1.69% 2.11% 46.98% 1.40% 2.36% 105.46% 0.00% 6.79%
2010 0.00% 11.28% 3.61% 0.00% 0.00% 0.00% 0.00% 3.23% 16.87% 67.13% 1.43% 0.00% 0.00% 3.40% 3.58% 0.00% 2.67% 1.78% 5.51% 0.00% 4.57%
2011 0.00% 0.00% 35.22% 21.05% 0.00% 0.00% 4.93% 1.97% 0.00% 5.58% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.95%
2012 0.00% 1.89% 0.00% 15.18% 0.00% 0.00% 0.00% 0.00% 0.00% 14.67% 0.00% 0.00% 0.00% 8.90% 18.42% 1.40% 0.88% 0.70% 78.48% 6.69%
LTM Mar 13 0.00% 0.00% 0.00% 14.40% 0.00% 0.00% 0.00% 0.00% 0.00% 6.39% 2.20% 0.00% 0.00% 8.91% 11.25% 0.00% 1.68% 0.00% 0.00% 4.26%
Average: 2.60% 5.17% 7.86% 5.02% 0.00% 0.00% 0.41% 0.37% 2.02% 7.05% 0.26% 6.26% 0.00% 5.37% 8.40% 7.83% 0.54% 11.77% 17.19% 14.89% 6.86% Source: Credit Suisse
04
Ap
ril 20
13
Le
ve
rage
d F
ina
nce D
efa
ult R
evie
w
7
2
Exhibit 128: Annual Western European Leveraged Loan Recovery Rates by Industry
Aero
space
Chem
icals
Consum
er
Dura
ble
s
Consum
er
Non-D
ura
ble
s
Energ
y
Fin
ancia
l
Food a
nd D
rug
Food/T
obacco
Fore
st P
rod/C
onta
iners
Gam
ing/L
eis
ure
Health
care
Housin
g
Info
rmatio
n T
echnolo
gy
Manufa
ctu
ring
Media
/Tele
com
Meta
ls/M
inera
ls
Reta
il
Serv
ice
Tra
nsport
atio
n
Util
ity
Overa
ll
2000 72.00% 72.00%
2001 57.00% 99.50% 78.25%
2002 70.57% 70.57%
2003 70.00% 70.00%
2004 97.87% 70.63% 84.25%
2005 50.00% 96.50% 18.00% 78.00% 60.62%
2006 51.56% 90.50% 64.54%
2007 98.62% 98.62%
2008 35.00% 30.28% 32.50% 29.31% 31.20%
2009 35.00% 22.91% 25.57% 49.50% 49.67% 33.68% 29.81% 38.10% 21.00% 36.80% 31.22% 32.36%
2010 64.14% 39.02% 58.13% 59.73% 77.65% 61.13% 86.07% 44.12% 50.00% 65.19% 24.00% 62.93%
2011 39.03% 70.50% 15.63% 5.93% 34.25% 36.62%
2012 20.00% 70.85% 49.12% 37.16% 31.31% 33.58% 35.00% 34.00% 42.58%
LTM Mar 13 20.00% 75.00% 83.16% 49.12% 33.12% 29.36% 42.43%
Average: 66.44% 48.02% 38.41% 40.00% 68.63% 58.55% 27.32% 57.23% 43.88% 21.00% 53.10% 46.99% 54.18% 66.75% 60.50% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 73
By Loan Priority
Exhibit 129: Western European Leveraged Loan Defaults by Loan Priority, Par Weight Distribution
LTM March 2013 2000 –March 2013
First Lien74%
Second Lien14%
Unsecured12%
First Lien
90%
Second Lien
8%
Unsecured
2%
Source: Credit Suisse
Exhibit 130: Annual Western European Leveraged Loan Default Rates by Loan Priority
First Lien Second Lien Unsecured Overall
2000 1.43% 1.43%
2001 16.05% 16.05%
2002 47.10% 47.00%
2003 1.08% 0.00% 1.07%
2004 2.00% 24.33% 2.32%
2005 0.87% 0.00% 0.83%
2006 1.97% 0.00% 1.81%
2007 0.00% 0.98% 0.09%
2008 2.24% 0.58% 73.63% 2.15%
2009 6.64% 7.80% 17.53% 6.79%
2010 4.67% 3.97% 4.57%
2011 1.02% 0.39% 0.95%
2012 6.03% 14.84% 6.69%
LTM Mar 13 3.98% 8.25% 4.26%
Average: 6.79% 5.56% 45.58% 6.86% Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 74
Exhibit 131: Western European Leveraged Loan Recovery Rates by Loan Priority
First Lien Second Lien Unsecured Overall
2000 72.00% 72.00%
2001 78.25% 78.25%
2002 70.57% 70.57%
2003 70.00% 70.00%
2004 70.63% 97.87% * 84.25%
2005 60.62% 60.62%
2006 64.54% 64.54%
2007 98.62% * 98.62%
2008 37.96% 8.66% 31.20%
2009 37.09% 8.84% 25.25% 32.36%
2010 67.08% 42.18% 62.93%
2011 29.99% 102.86% * 36.62%
2012 50.21% 22.56% 42.58%
LTM Mar 13 50.04% 23.40% 42.43%
Wtd Average: 48.44% 26.33% 25.25% 44.54%
* In 2004, 2007, and 2011 there w as just one 2nd lien that defaulted for
w hich w e had recovery rate information Source: Credit Suisse
04 April 2013
Leveraged Finance Default Review 75
By Country
Exhibit 132: Western European Leveraged Loan Defaults by Loan Priority, Par Weight Distribution
LTM March 2013 2000 –March 2013
United Kingdom49.2%
France21.8%
Germany15.5%
Italy8.9%
United States2.6%
Netherlands2.0%
United Kingdom34.3%
Germany15.3%Netherlands
8.9%
Spain8.5%
France6.5%
Ireland6.4%
Italy4.7%
Switzerland4.5%
United States3.0%
Finland2.9%
Sweden2.6%
Hungary1.0%
Bermuda0.5%
Greece0.5%
Belgium0.3%
Canada0.1%
Norway0.1%
Source: Credit Suisse
Exhibit 133: LTM March 2013 Western European Leveraged Loan Defaults Default Date Effective Date Issuer Facility Seniority Coupon Spread Default Amt Maturity Industry Original Rating Cov-Lite
6/21/2012 7/17/2007 Klockner Pentaplast TLd SECOND LIEN 400 188 12/2/2016 MANUFACTURING NR No
6/21/2012 7/17/2007 Klockner Pentaplast TLb FIRST LIEN 250 700 12/29/2015 MANUFACTURING NR Yes
6/21/2012 7/17/2007 Klockner Pentaplast TLd SECOND LIEN 400 188 12/2/2016 MANUFACTURING NR No
6/29/2012 5/24/2007 Culligan International TLd SECOND LIEN 475 175 5/24/2013 CONSUMER NON-DURABLES CCC/Split CCC No
8/16/2012 10/17/2006 Travelodge Hotels TLb FIRST LIEN 250 124 10/13/2014 GAMING/LEISURE NR No
8/16/2012 10/17/2006 Travelodge Hotels TLc FIRST LIEN 300 124 10/13/2015 GAMING/LEISURE NR No
8/16/2012 10/17/2006 Travelodge Hotels TLd SECOND LIEN 450 30 4/13/2016 GAMING/LEISURE NR No
9/10/2012 2/21/2007 PagesJaunes Groupe TLd SECOND LIEN 425 371 8/20/2016 MEDIA/TELECOM NR No
9/10/2012 2/21/2007 PagesJaunes Groupe TLb FIRST LIEN 225 389 2/20/2015 MEDIA/TELECOM NR No
9/10/2012 2/21/2007 PagesJaunes Groupe TLc FIRST LIEN 275 389 2/19/2016 MEDIA/TELECOM NR No
9/10/2012 3/29/2011 PagesJaunes Groupe TLb FIRST LIEN 275 316 10/12/2015 MEDIA/TELECOM NR No
9/18/2012 5/17/2006 Eurotax Glass TLd SECOND LIEN 525 23 5/17/2016 SERVICE NR No
9/18/2012 6/13/2006 Eurotax Glass TLc FIRST LIEN 300 78 5/29/2015 SERVICE NR No
9/18/2012 10/11/2010 Eurotax Glass TLb FIRST LIEN 450 47 6/22/2015 SERVICE NR No
10/25/2012 11/30/2009 Yell Group TLb FIRST LIEN 375 1496 7/31/2014 MEDIA/TELECOM B No
10/25/2012 11/30/2009 Yell Group TLb FIRST LIEN 375 467 7/31/2014 MEDIA/TELECOM B No
11/15/2012 9/17/2009 Incisive Media TLb FIRST LIEN 260 45 9/17/2013 MEDIA/TELECOM NR No
12/10/2012 12/10/2010 European Directories TL FIRST LIEN 250 830 12/10/2015 MEDIA/TELECOM NR No
1/2/2013 2/17/2010 Marken TLb FIRST LIEN 500 200 12/30/2016 HEALTHCARE NR No
1/23/2013 8/16/2010 Catalpa TLb FIRST LIEN 500 135 8/16/2017 SERVICE NR No
2/6/2013 9/6/2012 SEAT Pagine Gialle TLb FIRST LIEN 540 596 12/31/2016 MEDIA/TELECOM NR No Source: Credit Suisse
Disclosure Appendix
Analyst Certification The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
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Emerging Markets Bond Recommendation Definitions Buy: Indicates a recommended buy on our expectation that the issue will deliver a return higher than the risk-free rate. Sell: Indicates a recommended sell on our expectation that the issue will deliver a return lower than the risk-free rate.
Corporate Bond Fundamental Recommendation Definitions Buy: Indicates a recommended buy on our expectation that the issue will be a top performer in its sector. Outperform: Indicates an above-average total return performer within its sector. Bonds in this category have stable or improving credit profiles and are undervalued, or they may be weaker credits that, we believe, are cheap relative to the sector and are expected to outperform on a total-return basis. These bonds may possess price risk in a volatile environment. Market Perform: Indicates a bond that is expected to return average performance in its sector. Underperform: Indicates a below-average total-return performer within its sector. Bonds in this category have weak or worsening credit trends, or they may be stable credits that, we believe, are overvalued or rich relative to the sector. Sell: Indicates a recommended sell on the expectation that the issue will be among the poor performers in its sector. Restricted: In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated: Credit Suisse Global Credit Research or Global Leveraged Finance Research covers the issuer but currently does not offer an investment view on the subject issue. Not Covered: Neither Credit Suisse Global Credit Research nor Global Leveraged Finance Research covers the issuer or offers an investment view on the issuer or any securities related to it. Any communication from Research on securities or companies that Credit Suisse does not cover is factual or a reasonable, non-material deduction based on an analysis of publicly available information.
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Credit Suisse’s Distribution of Global Credit Research Recommendations* (and Banking Clients)
Global Recommendation Distribution**
Buy 6% (of which 86% are banking clients)
Outperform 26% (of which 70% are banking clients)
Market Perform 51% (of which 68% are banking clients)
Underperform 16% (of which 74% are banking clients)
Sell <1% (of which 100% are banking clients)
*Data are as at the end of the previous calendar quarter. **Percentages do not include securities on the firm’s Restricted List and might not total 100% as a result of rounding.
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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.
Jonathan Blau Managing Director (212) 538-3533
Daniel Sweeney Director (212) 538-8213
Karen Friedlander Associate (212) 325-8459
Global Leveraged Finance StrategyJonathan Blau - Head of Global Leveraged Finance Strategy