jpm default recovery

Download JPM Default Recovery

If you can't read please download the document

Upload: marmaud2754

Post on 24-Apr-2015

132 views

Category:

Documents


2 download

TRANSCRIPT

Global High Yield and Leveraged Loan ResearchJune 30, 2011

Default Monitor

High Yield and Leveraged Loan ResearchThere were two defaults in June totaling $627mn in high-yield bonds and institutional bank loans. This follows no defaults in May and only one default in both March and April. Since the default rate peaked in November 2009, an average of three companies and $1.3bn in bonds and institutional loans has defaulted per month. This trend of low defaults is even more evident over the last six months, when a monthly average of just two companies and $417mn defaulted. Year to date, ten companies have defaulted (5 bond-only issuers, 4 loan-only borrowers, and 1 company with bonds and loans outstanding), affecting $2.5bn (high-yield bonds total $1.6bn and institutional loans total $925mn). By comparison, 22 companies and $7.7bn defaulted during the first half last year. This months defaults included two retail companies, Nebraska Book and Deb Shops. Nebraska Book, which sells books in college and university bookstores, reached an agreement to restructure its debt load as part of a Chapter 11 filing. The default affected $452mn in high-yield bonds. Deb Shops, which sells junior and plus-size womens apparel, also filed Chapter 11, affecting a $110mn first-lien term loan and a $65mn second-lien term loan. The par-weighted high-yield default rate increased slightly to 0.81% from 0.79%, the highest level since October. That said, the default rate has remained relatively unchanged since October, hovering between 0.75% and 0.81% for the last eight months. More importantly, the default rate is down from 2.92% a year ago and remains well below the 25-year average of 4.27%. The issuer weighted default rate for bonds remained unchanged at 2.25%. For loans, the par-weighted default rate decreased marginally to 1.01% from 1.02%, its 19th decline in the last 20 months and the lowest level since February 2008. The default rate is down from 4.93% a year ago and remains well below the longterm average of 3.85%. The issuer-weighted loan default rate declined to 1.51%.High-yield bond and loan default rates remain low16.0% Par-weighted default rate 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08Jun-11 0.81%

Peter D. AcciavattiAC Tony Linares

(1-212) 270-9633 [email protected] (1-212) 270-3285 [email protected]

Nelson Jantzen, CFA Alisa Meyers

(1-212) 270-1169 [email protected] (1-212) 834-9151 [email protected]

Rahul Sharma

J.P. Morgan India Private Limited [email protected] J.P. Morgan Securities LLC.

Bonds Loans

Nov-09 14.18% Nov-09 10.98% Jun-11 1.01%

Dec-09

Source: J.P. Morgan

See page 18 for analyst certification and important disclosures.

JPMorgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Dec-10

www.morganmarkets.com

Peter D. Acciavatti (1-212) 270-9633 [email protected] Tony Linares (1-212) 270-3285 [email protected]

High Yield and Leveraged Loan Research Default Monitor June 30, 2011

Nelson Jantzen (1-212) 270-1169 [email protected] Alisa Meyers (1-212) 834-9151 [email protected]

Low default activity continued in June18 16 Number of defaults 14 12 10 8 6 4 2 Apr-09 Aug-09 0 Dec-08 Feb-09 Jun-09 Oct-0915 16 17 17 Loan-only defaults Bond-and-loan defaults Bond-only defaults 11 10 9 9 Average number of defaults Last 6 months = 1.7 6-months ending Jun-10 = 3.7 6-months ending Jun-09 = 13.5

10

7

6

8 5 3 5 4 4 4 5 3 3 3

3

2

2

2

2

1

1

0

2

Apr-10

Aug-10

Dec-09

Dec-10

Feb-10

Feb-11

Apr-11

Jun-10

Source: J.P. Morgan

Going forward, strong liquidity conditions over the past several years have clearly left few default candidates on the horizon. We expect the high-yield bond and loan default rates to remain below their 4.3% and 3.9% long-term averages in each of the next 3 years. Specifically, for high-yield bonds we forecast the default rate to be 1.0% in 2011, 1.5% in 2012, and 2.0% in 2013. For loans, we forecast 1.5% in 2011 and 2.0% in both 2012 and 2013.High-yield bond and loan default rates to remain low for the next 3 years14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 1998 1999 2000 2001 2002 2003 2004 20055.0% 4.1% 4.2% 1.7% 1.5%

High-yield bond default rate Loan default rate9.1%

12.8%

Par-weighted default rates

8.0% 6.3% 6.0% 3.3%

Long-term average default rate High-yield bonds: 4.3% Leveraged loans: 4.0%

10.3%

6.6%

2.3%

2.8%3.0% 0.9%

3.9% 2.3% 0.5% 0.2% 0.4% 1.8% 1.5% 1.5% 1.0% 2.0% 2% 2%

1.1% 1.0%

0.8%

2011E

2012E

Source: J.P. Morgan

The average high-yield bond price (excluding defaults) decreased to $101.59 from $103.33 month-over-month, while the median bond price also decreased, falling to $102.59 from $104.00. Amidst a volatile market, the size of the distressed bond market increased for the second straight month in May. Bonds that trade at or below 50% of par now total $4.9bn, up from $3.9bn last month and the highest total in the last eight months. However, this total still only accounts for a mere 0.48% of the total US high-yield bond market. Bonds trading at or below 70% of par increased to $17.6bn, or 1.7% of the market, from $12.6bn last month (1.2%). Another proxy for distressed debt, bonds with spreads greater than 1000bp, increased to $58.9bn, or 5.8% of the market, from $46.4 billion or 4.5% at the end of May. Meanwhile, for loans, the average bid price, according to S&P LCDs US Performing Loan Index decreased to $95.80 from $96.55 at the end of May. From a distressed perspective, 5.80% of the institutional loan market traded below $80 as of June 29, down from 6.03% at the end of May. Meanwhile, 1.34% of the institutional loan market traded below $60, up from 1.04% month over month.2

2013E

2006

2007

2008

2009

2010

Jun-11

Oct-10

Peter D. Acciavatti (1-212) 270-9633 [email protected] Tony Linares (1-212) 270-3285 [email protected]

High Yield and Leveraged Loan Research Default Monitor June 30, 2011

Nelson Jantzen (1-212) 270-1169 [email protected] Alisa Meyers (1-212) 834-9151 [email protected]

Distressed bonds remains negligible250.0 Distressed bonds ($bn) 200.0 150.0 100.0 50.0 0.0 Jan-94 Jan-95 Jan-96 Jan-97 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 Oct-02 $84.7 bn Nov-08 $233.1 bn

29-Jun-11 $4.9bn

Source: J.P. Morgan

Recovery rates for bonds are below historical averages thus far in 2011, while those for loans are slightly above historical averages. For all bonds, the average recovery is 33.4%, compared with 40.9% last year and the long-term average of 41.4%. Senior secured bonds recovered 49.4%, while senior unsecured bonds recovered 22.7%, compared with Moodys Investors Services long-term average of 50.8% and 36.7%, respectively. For first-lien loans, average recoveries are 70.1%, compared with 71.2% last year and Moodys long-term average of 65.8%. Credit trends remained positive in June, as the number of upgrades outpaced the number of downgrades for a 22nd consecutive month. In total, 31 companies were upgraded totaling $20.7bn, compared with 19 downgrades totaling $11.1bn. While the trend remained positive, this months volume of upgrades was the lowest since September of last year. Year to date, 229 upgrades total $301.9bn, and 142 downgrades total $132.2bn, which equates to an upgrade-to-downgrade ratio by issuer of 1.61:1 and by volume of 2.28:1. Meanwhile, there were four rising stars totaling $3.5bn and one fallen angel totaling $1.3bn in June. Year to date, 18 rising stars total $17.6bn and six fallen angels total $16.7bn.Upgrades have outnumbered downgrades for 22 consecutive monthsNumber of upgrades and downgrades 120 100 80 60 40 20 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 Jan-09 Feb-09 Mar-09 Apr-09 May-11 Jun-11 0Upgrades Downgrades

2009: 212 upgrades and 481 downgrades 2010: 387 upgrades and 258 downgrades YTD: 229 upgrades and 142 downgrades

Note: Upgrades and downgrades are based on the number of issuers affected. Source: J.P. Morgan

Jan-11

3

Peter D. Acciavatti (1-212) 270-9633 [email protected] Tony Linares (1-212) 270-3285 [email protected]

High Yield and Leveraged Loan Research Default Monitor June 30, 2011

Nelson Jantzen (1-212) 270-1169 [email protected] Alisa Meyers (1-212) 834-9151 [email protected]

High-yield bond defaultsLTM default rate18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

based on par amountDefault rate Nov-09 16.32%(incl. dist.exch.)

LTM default rate14.0% 12.0% 10.0% Default rate 8.0% 6.0% 4.0% 2.0% 0.0%

based on number of issuersMar-02 12.24%

Par-weighted default rate

Default rate including distressed exchanges

Jan-02 10.24%

Nov-09 10.98% Jun-11 0.81%

Jun-11 2.25%

Jan-94

Jan-95

Jan-96

Jan-97

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-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-0911

Source: J.P. Morgan

Source: J.P. Morgan

Default volume94.6 100 90 80 70 56.0 55.6 60 50 28.3 40 22.0 24.9 22.9 22.922.0 30 19.4 15.1 20 8.6 7.3 10.3 8.2 8.0 7.2 7.9 4.7 3.4 4.85.2 3.6 5.0 3.2 2.5 10 1.6 0.30.11.10.61.0 0

Number of defaults160 140 120 100 80 60 40 20 08 10 23 17 18 28 23 27 33 86 49 51 62 31 20 16 37 26 47 18 138 116 87 61 29 21 18 70 42 21 6

($bn)

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Sources: J.P. Morgan; Moodys Investors Service

Sources: J.P. Morgan; Moodys Investors Service

Recent default activityApril 2011 May 2011 June 2011 Monthly average 3-year 5-year 10-year 25-year

Volume ($ mn) 322.0 0.0 452.0

Number 1 0 1

LTM default rates by dollar by issuer 0.80% 0.79% 0.81% 2.38% 2.25% 2.25%

Default rate vs high-yield spreads16.0% 14.0% 12.0% Default rate 10.0% 8.0% 6.0% 4.0% 2.0% Dec-86 Dec-88 Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 0.0%High-yield default rate High-yield spreads High-yield spreads 580bp High-yield defaults 0.81%

22-year average= 593bp 25-year average= 4.3%

2008

2000 1750 1500 1250 1000 750 500 250 0 Spread to worst

Sources: J.P. Morgan; Moodys Investors Service

3,235.5 2,181.8 2,281.4 1,573.1

3 3 4 4

4.33% 3.01% 3.80% 4.27%

5.09% 3.78% 4.99% 5.27%

Note: Default rate is par-weighted. Sources: J.P. Morgan; Moodys Investors Service

4

2010

Jan-10

Jan-11

Peter D. Acciavatti (1-212) 270-9633 [email protected] Tony Linares (1-212) 270-3285 [email protected]

High Yield and Leveraged Loan Research Default Monitor June 30, 2011

Nelson Jantzen (1-212) 270-1169 [email protected] Alisa Meyers (1-212) 834-9151 [email protected]

High-yield bond defaultsMay high-yield defaultsDate 27-Jun-11 Issuer Nebraska Book

(contd)Industry Retail Avg. rating 12 mo. prior B2 Rating at last issuance B1

Source: J.P. Morgan Note: Includes only US dollar-denominated debt from domestic high-yield issuers.

Debt ($ mn) 452.0

Default rates by industryAutomotive Broadcasting Cable and Satellite Chemicals Consumer Products Diversified Media Energy Financial Food and Beverages Gaming Lodging Leisure Healthcare Housing Industrials Metals and Mining Paper and Packaging Retail Services Technology Telecommunications Transportation Utility HY Default Rate

Source: J.P. Morgan Note: Ten-year average is as of December 31, 2010.

0.91% 0.79% 0.00% 1.32% 0.85% 19.96% 1.40% 3.60% 3.97% 7.87% 0.00% 10.19% 0.63% 0.00% 1.39% 2.98% 0.00% 0.00% 1.04% 2.51% 0.00% 2.25%

2008

36.69% 9.85% 25.02% 7.44% 7.48% 71.32% 1.43% 33.28% 1.94% 10.23% 0.00% 6.68% 1.30% 4.04% 19.08% 0.53% 2.17% 10.13% 1.67% 2.64% 0.00% 10.27%

2009

0.00% 0.00% 2.27% 0.00% 0.00% 8.36% 0.00% 1.49% 0.43% 0.81% 1.32% 0.73% 0.24% 0.61% 0.00% 2.72% 0.46% 0.00% 0.00% 0.00% 0.00% 0.80%

2010

0.00% 0.00% 2.29% 0.00% 0.00% 6.87% 0.00% 1.45% 1.93% 0.77% 1.03% 0.00% 0.23% 0.00% 0.44% 3.70% 0.85% 0.00% 0.00% 0.00% 0.00% 0.81%

LTM

10-yr Avg. 7.71% 1.63% 6.84% 1.99% 3.25% 10.61% 0.83% 9.78% 2.43% 2.58% 1.26% 2.48% 2.01% 3.89% 3.02% 2.68% 1.27% 2.35% 7.91% 6.26% 3.01% 3.89%

Default rate: by rating 12 months prior to defaultBB B CCC or below HY Default Rate 0.00% 3.35% 6.47% 2.25% 2008 2.11% 12.72% 28.17% 10.27% 2009 0.00% 0.59% 2.48% 0.80% 2010

Source: J.P. Morgan Note: Ten-year average is as of December 31, 2010.

0.00% 0.63% 2.70% 0.81%

LTM 10-yr Avg. 1.26% 4.18% 9.49% 3.89%

Default rate: by rating at issuanceBB B CCC or below HY Default rate 0.80% 3.73% 2.94% 2.25% 2008

Source: J.P. Morgan Note: Ten-year average is as of December 31, 2010.

4.03% 12.90% 16.67% 10.27%

2009

0.00% 1.32% 0.40% 0.80%

2010

0.00% 1.21% 0.42% 0.81%

LTM 10-yr Avg.

2.34% 4.56% 7.44% 3.89%

Average number of years to default2006 2004 2007 2003 2000 2005 2008 2002 2010 1996 2009 1997 1998 2001 1999 0.00 1.00 2.00 4.56 5.12 6.18

Fallen angel volume and default ratesNumber of companies Volume ($ bn) Fallen angels 476 919.2

Fallen angel defaults 41 118.9

Cumulative default rate 8.61% 12.94%

Avg. annual default rate 0.52% 0.78%

2.73

3.22 3.16 3.04

4.14 3.92 3.85 3.74 3.71 3.69 3.69 3.50

16-year average = 3.8 years

Source: J.P. Morgan Note: Based on fallen angel and default data from January 1995.

Source: J.P. Morgan Note: The average number of years to default is the number of years since a defaulted issuer last issued new debt in the primary market.

3.00 4.00 Seasoning period (years)

5.00

6.00

7.00

5

Peter D. Acciavatti (1-212) 270-9633 [email protected] Tony Linares (1-212) 270-3285 [email protected]

High Yield and Leveraged Loan Research Default Monitor June 30, 2011

Nelson Jantzen (1-212) 270-1169 [email protected] Alisa Meyers (1-212) 834-9151 [email protected]

Leveraged loan defaultsLTM default rate16.0% 14.0% 12.0%

based on par amountDefault rate(including dist.exch.)

LTM default rateNov-09 14.61%

based on number of issuers9.0% Issuer-weighted default rate 7.5% 6.0% 4.5% 3.0% 1.5% Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 0.0%Jun-11 1.51% Dec-00 8.23%

Default rate including distressed exchanges Jun-00 7.50%

Nov-09 14.18%

Default rate

10.0%

8.0% 6.0% 4.0% 2.0% Dec-98 0.0%

Jun-11 1.01%

Dec-08

Dec-0931

Dec-99

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Sources: J.P. Morgan; S&P LCD

Dec-10

Sources: J.P. Morgan; S&P LCD

Default volume100 90 80 70 60 50 40 30 20 10 090.1

Number of defaults100 90 80 70 60 50 40 30 20 10 093

60 33 9

($bn)

29.7 3.2 7.1 8.1 7.9 3.0 5.9 11.9

26

23

0.6

1.5

1.2

1.2

0.9

4

12

6

11

5

3

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

YTD

Sources: J.P. Morgan; S&P LCD

Sources: J.P. Morgan; S&P LCD

Recent default activityApril 2011 May 2011 June 2011 Annual average 3-year 5-year 7-year Historical

Volume ($ mn) 0.0 0.0 175.0

Number 0 0 1

LTM default rates by dollar by issuer 1.05% 1.02% 1.01% 1.71% 1.60% 1.51%

Default rate vs leveraged loan spreads2400bp 2000bp Spread over Libor 1600bp 1200bp 800bp 400bp Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 0bpLoan spread Def. rate by volume

16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Default rate by volume

Sources: J.P. Morgan; S&P LCD

40,456.1 26,831.7 20,192.6 13,182.2

54 39 30 24

5.73% 3.81% 3.23% 3.85%

4.47% 3.26% 2.73% 3.41%

Note: Default rate is volume-weighted and spreads are based on an estimated three-year average life spread on the S&P/LSTA Performing Loans Index. Sources: J.P. Morgan; S&P LCD

6

YTD

Dec-105

Peter D. Acciavatti (1-212) 270-9633 [email protected] Tony Linares (1-212) 270-3285 [email protected]

High Yield and Leveraged Loan Research Default Monitor June 30, 2011

Nelson Jantzen (1-212) 270-1169 [email protected] Alisa Meyers (1-212) 834-9151 [email protected]

Recovery ratesSenior unsecured bond issuer-weighted recovery rates7060 49 51 64 45 45 49 37 37 37 54 48 40 38 24 22 30 63

First-lien leveraged loan issuer-weighted recovery rates100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0Average = 65.6% 72 68 61 68 53 75 86 88 74 57 69 65 73 59

Average (Moody's) = 36.6%

Recovery (cents on the dollar)

Recovery (cents on the dollar)

60 50 40 30 20 10 036

53

56 42

52

55 55

53 34 43 37 23

79

84 84 69 58 62

71 70

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

High-yield bond default and issuer-weighted recovery rates1982 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 2009 Adj. 2010 2011 Average Def. rate 3.4% 1.6% 2.1% 3.8% 3.5% 6.9% 2.8% 7.2% 10.9% 11.5% 4.4% 2.3% 1.4% 2.8% 1.6% 1.4% 1.7% 4.0% 4.9% 8.6% 7.5% 3.1% 1.1% 2.7% 0.9% 0.4% 2.2% 10.3% 0.8% 0.8% 4.3% All bonds 35.3 44.5 45.5 43.6 47.4 51.3 38.8 32.3 25.5 35.5 45.9 43.1 45.6 43.3 41.5 48.8 38.3 33.8 25.3 21.8 29.7 40.4 58.5 56.0 55.0 54.7 27.60 21.89 35.47 40.95 33.35 41.35 Recovery rates Snr. sec. Snr. unsec. 72.5 35.8 40.0 52.7 na 49.4 83.6 60.2 59.2 51.1 71.0 63.8 55.4 45.2 46.5 45.1 33.8 37.0 48.4 36.7 62.1 49.2 na 37.1 69.3 53.7 62.0 47.6 47.6 62.8 75.5 56.1 46.8 39.5 36.0 38.0 38.7 24.2 35.0 21.5 49.0 29.5 66.3 41.9 73.3 52.1 71.9 54.9 74.6 55.0 80.5 53.2 28.27 33.70 30.07 22.92 41.07 42.98 51.85 36.51 49.38 22.67 50.8 36.7

Note: Recoveries in 2009 were 22.9 based on prices 30-days post default and were 43.0 based on year-end prices. Sources: Moodys Investors Service; J.P. Morgan

Note: Recoveries in 2009 were 49.7 based on prices 30-days post default and were 62.5 based on year-end prices. Sources: Moodys Investors Service; J.P. Morgan

Snr. Sub. 48.1 43.5 67.9 29.6 46.8 46.5 33.4 34.6 25.6 41.8 49.4 51.9 29.6 34.3 43.8 44.7 45.0 26.9 20.8 19.8 21.4 37.2 42.3 26.1 41.4 54.5 18.32 20.88 26.12 22.17 na 30.7

Sub. 30.0 41.1 44.3 39.7 41.4 46.9 33.8 26.4 19.1 24.4 38.0 44.1 38.0 41.5 22.6 33.1 18.2 35.6 31.9 15.9 24.5 12.3 94.0 51.3 56.1 na 10.25 5.38 4.75 na na 31.3

Notes: Recovery rates are issuer-weighted and based on price 30 days after default date. 2009 Adj. recoveries are based on year-end prices. Sources: Moodys Investors Service; J.P. Morgan

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Leveraged loan default and recovery rates1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2009 Adj. 2010 2011 Average Def. rate 1.5% 4.2% 6.6% 6.3% 6.0% 2.3% 1.0% 3.0% 0.5% 0.2% 3.9% 12.8%

1.8% 1.0% 4.0%

First-Lien Second-Lien 72.0 67.9 60.6 53.4 67.6 75.4 85.5 78.8 56.7 73.5 68.8 64.9 58.8 73.4 87.7 83.8 83.6 68.6 58.09 32.78 49.74 26.98 62.47 31.83 71.18 13.33 70.07 na 65.8 29.1

Notes: Recovery rates are issuer-weighted and based on price 30 days after default date. 2009 Adj. recoveries are based on ye prices. Sources: Moodys Investors Service; J.P. Morgan; S&P LCD; Markit

2011 Sr. Sec. Term All loans 70.07 Loan-only issuers 56.00 Loan & bond issuers 98.21

Leveraged loan issuer-weighted recovery ratesSecond-lien na na na

7

Peter D. Acciavatti (1-212) 270-9633 [email protected] Tony Linares (1-212) 270-3285 [email protected]

High Yield and Leveraged Loan Research Default Monitor June 30, 2011

Nelson Jantzen (1-212) 270-1169 [email protected] Alisa Meyers (1-212) 834-9151 [email protected]

Distressed debt (high-yield bonds)Distressed debt250.0

Distressed debtPercent of the high-yield market 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Default rate 0.0%29-Jun-11 0.48%

Par amount ($ bn)

200.0 150.0 100.0 50.0 0.029-Jun-11 $4.9 bn

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Source: J.P. Morgan Note: Distressed debt is defined as bonds trading at or below 50% of par or accreted value.

Jan-10

Jan-11

Source: J.P. Morgan Note: Distressed debt is defined as bonds trading at or below 50% of par or accreted value.

Distressed debt by industryas of June 29, 2011 50% of par and below ($ bn) % of total 0.00 0.09 0.30 1.75 0.09 0.19 1.01 0.34 0.11 0.06 0.94 4.87 0.0% 0.0% 0.0% 0.0% 1.8% 6.2% 36.0% 1.8% 3.9% 0.0% 0.0% 0.0% 0.0% 0.0% 20.7% 6.9% 2.2% 0.0% 0.0% 1.2% 19.4% 70% of par and below ($ bn) % of total 0.00 0.73 0.09 0.67 2.05 1.74 0.19 0.97 0.82 1.26 0.76 0.84 0.33 0.06 7.14 17.63 0.0% 4.1% 0.0% 0.0% 0.5% 3.8% 11.6% 9.9% 1.1% 5.5% 0.0% 4.7% 0.0% 0.0% 7.1% 4.3% 4.8% 1.8% 0.0% 0.3% 40.5%

Distressed debt vs default rate35.0% Percent of distressed debt 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% Jan-94 Jan-95 Jan-96 Jan-97 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 0.0% Distressed debt Default rate

Automotive Broadcasting Cable and Satellite Chemicals Consumer Products Diversified Media Energy Financial Food and Beverages Gaming Lodging Leisure Healthcare Housing Industrials Metals and Mining Paper and Packaging Retail Services Technology Telecommunications Transportation Utility TotalSource: J.P. Morgan

Source: J.P. Morgan Note: Distressed debt is defined as bonds trading at or below 50% of par or accreted value.

Distressed debt

Distressed debt by ratingas of June 29, 2011 ($bn) 0.5 47.6 316.5 364.6 Upper-tier % 0.0% 0.0% 0.1% 13.1% 86.8% ($bn) 0.3 0.6 102.9 338.2 442.1 Middle-tier % 0.0% 0.1% 0.1% 23.3% 76.5% ($bn) 0.5 4.1 11.7 102.7 93.5 212.4 Lower-tier % 0.2% 1.9% 5.5% 48.4% 44.0%

Par Percent of par ($ bn)