junior debt analysis 2011 - 4q2014 final

KeyBanc Capital Markets’ Debt Capital Markets

The KeyBanc Capital Markets® Debt Capital Markets team represents one of the

strongest full-service debt-side investment banking, sales, trading and distribution

platforms in the nation. We use a blend of real world perspectives, backed by

robust capabilities and relationships, to help our clients use leverage to grow,

make acquisitions, and enhance operations.

For additional information regarding this newsletter, please

contact the individuals listed below:

Andrew Frawley216.689.4288

[email protected]

Meghan Curran212.476.7465

[email protected]

Junior Debt Market AnalysisQ4 2011 – Q4 2014

Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC, and KeyBank National

Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and

services are offered by KeyBank N.A.

This report was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete, and it should not be relied upon as such. This

report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider

the specific investment objectives, financial situation and particular needs of any individual person or entity.

Brooks Ostergard216.689.3234

[email protected]

Junior Debt Market Analysis 2

Executive Summary

Since 2011, KeyBanc Capital Markets has conducted a quarterly survey of mezzanine and junior debt participants to measure market conditions and transaction terms

� The junior debt capital markets (including mezzanine, subordinated, second lien structures, etc.) are not as well documented or organized as the senior debt markets or the equity or venture capital markets

– This challenge is even more pronounced in the lower end of the middle market; typically companies less than $50 million of EBITDA

� Our survey and resulting newsletter is an attempt to address the lack of market information noted above

� We have been conducting our survey for the last thirteen quarters and have aggregated the data for review and analysis

– In this study, we share with you the results of our survey from the past thirteen quarters and provide other anecdotal observations to bring you our state-of-the-market perspective

I. Executive Summary


Executive Summary (cont’d)

In a typical quarter since Q4 2011, junior capital providers who respond to our survey:

� Have $244 million available to invest

� A typical investment size of $23 million per transaction

� May or may not need to begin fundraising in the next twelve months, but expect that process to take 10.4 months

� Generally speaking, funds are getting larger and capital providers are looking to put larger amounts of capital in each transaction

� Invest across a wide range of industries, with an average of 41% having no industry specialization

Transaction Flow /

Closed Transactions

Transaction

StructureTerms and ConditionsFund Overview

� For completed transactions

– Senior debt to EBITDA multiple is 3.0x

– Total debt to EBITDA multiple is 4.2

� The typical capital structure includes

– 16.9% of junior debt

– 34.3% of equity

� Since Q4 2011:

– Cash pay rate is 11.7%

– PIK rate is 3.1%

– Total IRR is 15.2%

� In Q4 2014:

– Cash pay rate is 10.7%

– PIK rate is 2.8%

– Total IRR is 12.9%

I. Executive Summary

� Since Q4 2011:

– Look at 41.8 opportunities

– Submit 5.3 LOIs

– Close 1.8 transactions

– Of note, on average ~28% of funds do not close any transactions during a given quarter

� In Q4 2014:

– Reviewed 48.7 opportunities

– Submitted 5.3 LOIs

– Closed 2.5 transactions

– 19% did not close any transactions


KBCM Junior Debt Market Analysis� Debt providers continue to consider a broad range of industries and many continue to be industry generalists

– Approximately 40%-60% of our respondents do not have any industry focus

� There is general consistency over the last four quarters

Industries of Interest

Q1 ‘14 Q3 ‘14 Q4 ‘14Q2 ‘14

II. Fund Profiles

50%

38%

28%

25%

25%

25%

22%

19%

16%

13%

13%

9%

9%

9%

6%

0%

0%

59%

50%

42%

35%

39%

39%

27%

35%

27%

31%

19%

12%

23%

15%

23%

19%

0%

0%

39%

30%

35%

25%

25%

25%

15%

10%

10%

10%

15%

0%

10%

5%

10%

10%

0%

0%

60%

48%

43%

38%

38%

40%

36%

26%

36%

21%

19%

12%

29%

19%

21%

5%

2%

0%

52%

Industrial Manufacturing

Business Services

Consumer

Health Care

Transportation and Logistics

Information Services

Education

Energy and Utilities

Finance and Insurance

Professional, Scientific, and Technical Services

Hospitality

Technology

Basic Materials

Construction, Engineering and Infrastructure Services

Real Estate

Other

Waste Management

Do not have any industry specialization


KBCM Junior Debt Market Analysis

Capital for Deployment

Typical Investment Size

� Significant capital remains available as debt providers flush with cash continue to seek investment opportunities

� 79% of funds reported having more than $100 million of capital available

� Funds with more than $100 million to invest have become a larger part of the overall market

� Increased competition for opportunities / lack of companies seeking capital may be driving increased levels of capital available

� Debt providers seeking to place at least $25 million per investment have increased by over 360% since Q2 2012

– Larger funds seeking to deploy capital efficiently, i.e. in larger amounts

– In our experience (and supported by this data), there are essentially two primary junior debt markets

• One for companies with >$10 million of EBITDA

• One for companies with <$10 million of EBITDA

– For transactions > $50M, this is developing in to another definable and distinct market segment

II. Fund Profiles

15%8% 5% 4% 5% 7% 5%

32%

3%

25%

38%42%

33% 33% 35% 33%24%

41% 33%30%

11% 11% 4%

31% 34%50%

38% 37% 42%

43%32% 36% 48%

47% 42%39%

16% 16% 10%25%

23% 18%29% 24%

18%21%

21%16% 32%

3% 3% 9%

21%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

<$5M $5M - $10M $11M - $25M $26M - $50M >$50M

23%34%

24%16% 21% 22%

10% 3% 6% 10% 5% 7%

25% 7%

10% 20% 16% 15%

14% 30%15% 26% 10% 16% 15%

30% 40%

37%40% 42% 46%

43%39%

45% 40% 55%

26%

41%

15% 10%17% 12% 5% 2%

14%12% 18% 17%

15%

26%

19%

8% 9% 12% 12% 16% 15% 19% 15% 15% 17%10%

26%19%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

<$50M $50M - $99M $100M - $250M $251M - $500M >$500M



Commentary

� Given current capital availability and competition among providers, anticipated fundraising activity has increased modestly

� 44% of respondents do not anticipate fundraising in the next 12 months, with 52% anticipating fundraising in the next 12 months and ~4% undecided

� The majority of respondents believe it would take between 6 and 12 months to raise a new fund

– 29% believe fundraising would take more than a year

II. Fund Profiles

New Fund Raises in the Next Twelve Months

Time Needed to Raise a New Fund

49%42% 41% 41% 46% 46%

29% 25% 22%

41% 45%53% 52%

44%48% 51% 49% 36% 39%

48% 56% 56%

47% 40%

42% 44%

7% 10% 7% 10%18% 15%

24% 19% 22%12% 15%

5% 4%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

Yes No Undecided

37%

5%

24%20% 15% 19%

38%

14%7%

13%30% 29%

33%

43%

23%45% 58%

38%

50%

50%

43%71% 63%

60%

43%

17%

38% 41%20%

23%

29%50%

13%

43%

21% 25%10%

29%13% 14% 12% 15%

4%14%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

<6 months 6 - 12 months 13 - 18 months >18 months



Commentary Portfolio Investment Sources

� Sponsors continue to be an important avenue for opportunities

– They typically represent 40% to 50% of leads

– They represent 60%+ of closed transactions

III. Transaction Flow

Sponsored vs. Non-Sponsored Sources

26% 21% 27% 30% 24% 22% 26% 27% 26% 28%21% 23% 27%

43%45%

45% 41% 48% 49%54%

43% 45%48%

48% 44%46%

8% 7%9% 10% 9% 9%

8%

7% 11%11%

10%8%

8%

23% 26%19% 19% 19% 21%

12%23% 17% 13%

20% 26% 19%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

Investment Banks PE Sponsor Groups Other Mezzanine Funds Other

62% 63% 64% 62% 66% 61%72%

61% 64% 69% 66% 64% 66%

38% 37% 36% 38% 34% 39%28%

39% 36% 31% 34% 36% 34%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

Sponsored Non-Sponsored



Commentary

LOIs Submitted

Transactions Reviewed

� Transaction volume in the market is healthy

– More than 60% of respondents reviewed more than 50 transactions in the prior quarter

– 33% of respondents submitted 10 or more LOIs

– > 80% of market participants closed at least one transaction in Q4 2014


Transactions Closed

2% 4% 5% 2% 7% 4% 7% 7% 8% 2% 4%

15% 15% 10% 10% 9% 5%

15%18%

22% 31%

26%35%

10% 10% 13% 24% 11%18% 4%

37%33%

34% 23%

28%22%

43%

23%34%

21%26% 24%

26%

37% 33% 37% 40%24% 22%

38%

58%44%

55% 58% 59% 63%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

0 transactions 1 - 5 transactions 6 - 10 transactions

11 - 25 transactions 26 - 50 transactions >50 transactions

2% 8% 2% 2% 13% 11%

7%

6%

4%

60%

69%

57%71%

63% 65%

62% 50%

41%48%

37%47% 52%

29%

18%

26%

23% 15% 17%

29%25%

44%18% 37% 18%

15%

9% 4%14% 9% 10%

19% 16%

33%26%

35% 33%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

0 LOIs 1 - 5 LOIs 6 - 10 LOIs >10 LOIs

21% 24%37% 31%

50%

19%28% 25% 24% 21%

12%19%

38%

21%

27%

25%20%

28%

38% 22% 25%12%

11% 24%22%

19%

16%

20%

17%

20%

11%

24% 38%22%

27% 37% 35% 19%

12%

6%

12%

13%15%

4%

5%

6%

16%

9%

21% 18%

19%

5%4%

7%4%

6%14% 6%

9%

9%

5% 6%

7%

5%

53%

10% 4% 7% 4%0%

3%18%

5% 6%15%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

0 1 2 3 4 ≥5



Total Debt/

EBITDA Ratios<1.5x 1.5x – 1.9x 2.0x – 2.5x 2.6x – 3.0x 3.1x – 3.5x 3.6x – 4.0x 4.1x – 4.5x 4.6x – 5.0x >5.0x

Q4 ’12 - 6% - 7% 19% 20% 30% 17% 2%

Q1 ’13 - - 2% 2% 4% 22% 33% 26% 11%

Q2 ’13 - - - 10% 14% 24% 24% 24% 5%

Q3 ’13 3% - - 6% 16% 41% 25% 9% -

Q4 ’13 - - - - 9% 15% 27% 21% 27%

Q1 ’14 2% 2% 4% 9% 28% 32% 17% 7% -

Q2 ’14 - - - - 5% 16% 42% 26% 11%

Q3 ’14 - - - - 6% 12% 35% 35% 12%

Q4 ‘14 - - - - 15% 30% 15% 30% 11%

Total Debt/

EBITDA Ratios<1.5x 1.5x – 1.9x 2.0x – 2.5x 2.6x – 3.0x 3.1x – 3.5x 3.6x – 4.0x 4.1x – 4.5x 4.6x – 5.0x >5.0x

Q4 ’12 6% 7% 26% 22% 37% 2% - - -

Q1 ’13 - 2% 17% 22% 41% 15% 2% - -

Q2 ’13 - - 29% 29% 33% 5% 5% - -

Q3 ’13 - 13% 22% 22% 38% 6% - - -

Q4 ’13 - 3% 9% 13% 34% 38% 3% - -

Q1 ’14 7% 11% 28% 37% 18% - - - -

Q2 ’14 - - 11% 16% 42% 21% 11% - -

Q3 ’14 - - 12% 18% 35% 29% 6% - -

Q4 ’14 - 4% 12% 39% 19% 19% 8% - -

Senior Debt

Total Debt

� The majority of transactions are being completed at 2.6x – 3.5x senior leverage

� Over the past several quarters, most completed transactions had 4.1x – 5.0x total leverage



KBCM Junior Debt Market AnalysisIV. Transaction Specifics

Cash Payment Requirement

Total IRR Requirement

PIK Rate Requirement

� There has been substantial compression in the cash pay amount (typically the largest single component of IRR)

– In Q4 2011, almost 90% of transactions had a cash pay of ≥12%

– In Q4 2014, 100% of respondents had a cash pay of ≤12%

� Historically, the combination of cash pay plus PIK plus other elements of return was remarkably consistent from quarter-to-quarter and year-to-year

– Currently, > 70% PIK rates are 2%

� In the current quarter, the majority of respondents aim for a base-case total IRR requirement of ~13%

� The average expected IRR over the past thirteen quarters has been 15.2%

Commentary

Average IRR Expectation

3% 2% 3% 7% 2% 3% 5% 11% 11% 8%2%

12% 13% 19%22% 22% 23%12% 10% 16% 5% 29%

21% 25%28%

44% 44% 42%64% 55% 63% 62% 55%

64%43%

55% 41%38%

11% 11% 27%17%8% 13%

17% 15%17%

14% 3% 3%6% 6%7%

6% 5%

4% 6%7%

10% 3%3% 6% 6%2%

4% 2%2% 3%

9% 6%

5%

8% 3%

14%

6% 6%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

<10% 10% 11% 12% 13% 14% 15% >15%

5%6%

2% 2% 2% 5% 9% 10% 9%21% 12% 12%4%

8% 2% 9%5%

12% 13% 12%

21%

12% 19%7%

7% 6%7%

38%27%

35% 30%

16%

24%27%

20% 19%17% 27%

28%

20%

10%15%

13% 18%11% 29% 15%

34%18%

24% 17%20% 34%

19%18% 13% 15%

6%12%

10%20% 10% 17%

11% 10%10%

9% 9% 16%6% 4%

5% 16% 20% 19% 6% 5%10%

6% 6%4%

5%6% 6%9% 7% 6%

5%10% 5% 6% 10% 6%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

≤12% 13% 14% 15% 16% 17% 18% 19% 20% >20%

10% 5% 13% 11% 7% 10% 6% 3% 4%8%4% 2%

4% 15%9%

14% 21% 22% 18% 26% 24% 12%

50% 41% 66% 50%46% 59%

67% 67% 69%67%

63% 65% 73%31% 35%

17% 25%26% 16%

10% 6%3% 12% 8%10% 8% 7% 2%

2% 9% 3%5% 6%

2% 2% 3% 6% 3% 5% 6% 4%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

Rarely or Never Have PIK Rate ≤1% 2% 3% 4% 5% >5%

16.8% 16.5% 16.5% 16.7% 16.5% 16.8%

15.9%

14.7% 15.1% 14.5%

12.4% 12.4% 12.9%

12%

13%

14%

15%

16%

17%

18%

Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14



Percentage of Transactions with Warrants / Equity Upside

Warrant Positions as Percentage of Fully-Diluted Equity

IV. Transaction Specifics

� Over the past thirteen quarters, nearly all respondents indicated that their transactions have either warrants or equity upside

– Has remained fairly consistent across the past thirteen quarters

� The amount of warrants / equity upside as noted in survey responses is substantially higher than we have seen (anecdotally) in the market

� We have recently begun to distinguish “purchased equity” versus “not purchased equity” in our survey to help us refine our analysis going forward

� Approximately 44% of the respondents reported warrant positions that represented 5% or more of fully diluted equity

� Average of 4.8% of fully-diluted equity

� Not only is the incidence of equity upside more commonly noted in our survey results (as noted above), the amount of the position as a percent of fully diluted equity as reported is much higher than we typically see in the limited instances we observe it in the market

5% 5% 6% 4%12% 12% 10%19% 16% 13%

19% 25%16% 15% 5% 12% 19%

11% 14% 20% 6% 13%9%

10% 3% 19% 24%

5%

12%11%12%

12%13%

6%7% 16%

10% 16% 6%9%

21%

18% 12%

39%41% 30%

38%36% 40% 33% 34% 47% 30% 53%

47% 42%

26% 20%28% 31% 27% 22% 24% 22%

13%21%

11% 6% 12%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

Never ≤10% 11% - 25% 26% - 50% 51% - 99% 100%

7% 5% 6% 11% 2% 7% 7%7%19%

9%13%

18% 17% 6%15%

13% 13% 17%19% 22%

6%

20%

28%20%

23%13% 21% 24% 20% 20%

23% 29% 22% 13%32%

19%

13%3%

6% 8%10% 13% 13% 3%

10%6%

13%

4%

19%

20%23%

11% 11%

17% 13% 13% 20%19%

28% 25% 8%

18%35% 28%

47% 43%32% 33% 33% 30%

23% 22% 25%36%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

≤1% 2% 3% 4% 5% >5%



Percentage of Transactions with No-Call Periods

Percentage of Transactions with Prepayment Penalties

� The vast majority of transactions have some form of prepayment penalty

� Interestingly, a small but consistent percentage of respondents (3.6%) report having no prepayment penalty in place for transactions that occurred over the past thirteen quarters

IV. Transaction Specifics

� Most respondents reported having some form of call protection over the past twelve quarters

� On average, 37% of respondents indicated that they have no call protection in place (across past thirteen quarters), while 22% indicated they have it in all cases

� Clearly a highly negotiated point that differs from transaction to transaction 40% 37%

27% 32% 29%36% 33% 38% 41%

30%42% 47% 42%

11%4%

8%9%

7%9% 6%

9%

12%

6% 12%9%

8%5%

4% 9%

14%6%

9%9%

4%7%

6% 23%6% 7%

11%

5%

6%

6%

3%5%

12% 8%5%

18%17%

21% 20%

14%

38%

19%

19%30%

32%12% 15%

28% 27% 20%28% 27%

16%24% 25%

16% 15% 21% 24% 19%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

0% 1% - 10% 11% - 25% 26% - 50% 51% - 99% 100%

7% 6% 6% 6% 6% 2% 5% 3% 3%3%

6%5%9%

5% 2%

4%8% 6% 9%

7% 3%2%3%

2%5%8%

12% 11%22%

15%20%

16% 29%18%

25%30% 26% 35% 19%

69% 68% 68% 67%59% 66% 62%

76% 72%64% 68% 65%

73%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

Series1 Series2 Series3 Series4 Series5 Series6


KBCM Junior Debt Market AnalysisV. Second Lien

Commentary

Second Lien Providers are Active Market Participants

Willingness to Complete a Second Lien Deal

� The majority of respondents are willing to consider a second lien structure

– Of note, we see junior capital providers consistently ask for a second lien (even if a company has a limited asset base, etc.)

– We believe this is a logical request for capital providers to pursue, and typically not a logical request for the issuer to grant

� More respondents (~55%) would consider a unitranche structure in a transaction

– We have seen a willingness to do a unitranche structure as a competitive differentiator among capital providers

Willingness to Provide a Unitranche Structure

68% 69% 72% 75% 74% 73%81% 85% 91%

67%74% 77% 70%

32% 31% 28% 25% 26% 27%19% 15% 9%

33%26% 24% 30%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

Yes No

45%53% 51%

44% 39%

62% 62% 67% 63%79%

63% 65%56%

55%47% 49%

56% 61%

38% 38% 33% 38%21%

37% 35%44%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

Yes No

43% 39% 37% 40% 42%56%

67%58%

75% 70% 68%59% 63%

57% 61% 63% 60% 58%44%

33%42%

25% 30% 32%41% 37%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

Yes No



Biggest Challenge Facing Junior Debt Providers

VI. Conclusion

� Respondents have remained consistently and evenly split regarding market challenges facing the junior debt market over the past several quarters

� Given the current interest rate environment, increased competition from other debt providers in a volatile macroeconomic environment are major challenges, which may persist as more market participants try to put capital to work in the short-term

25% 23% 20% 19% 21% 22% 22% 24% 24% 24%10%

22% 22%

22% 21% 22% 23% 21% 23% 24% 23%

9%

24% 24%18% 28%

21% 21% 21%22% 23% 21% 23% 23%

10%

24% 22%26%21%

16% 18% 17%16% 15% 15% 14% 14%

19%

14% 16%19%

15% 15% 14% 12% 12% 11% 10% 10%

23%

11% 11%31%

9% 6% 6% 5% 5% 6% 6% 5% 5%

29%

5% 5%

0%

25%

50%

75%

100%

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

% o

f R

esp

on

den

ts

Debt Market Unitranche StructureCapital Provider Competition Company UncertaintyEconomy Other

junior debt analysis 2011 - 4q2014 final

Documents

junior debt capital

venture capital markets

senior debt markets

junior capital providers

debt market analysisq4

larger amounts of capital

junior debt participants

market conditions