The Credit Crunch and The Brave New World of Loans

Reuters Forum

13 November 2007

Panel discussion:• Meredith Coffey, Director of Analysis

Reuters LPC

• Ian Hazelton, Chief Executive, Babson Capital Europe Limited

• Tom Johannessen, Head of Secondary Sales & Trading, Dresdner Kleinwort

• Vijay Rajguru, PartnerGoldentree Asset Management

• David Slade, Head of Syndication Credit Suisse

Loans were stable, un-correlated with other credit asset classes… Until summer 2007

Pric

e (%

of p

ar)

Loan & bond bids (US and Europe)

Source: LSTA/LPC Mark-to-Market Pricing, RLPC European Mark-to-Market Pricing, Merrill Lynch

Bids on CDS and LCDS move together in Europe and the U.S

91

92

93

94

95

96

97

98

99

100

101

102

5/22/07 6/20/20077/19/07 8/16/07 9/14/07 10/12/07

LCDX 8CDX HY 8

U.S.: Bid levels (CDX HY, LCDX)

Bid

(% o

f par

)

Source: Reuters 3000 XTRA/CreditViews; Markit; LSTA/LPC MTM Pricing

93

94

95

96

97

98

99

100

101

102

103

104

105

11/6/06 1/4/07 3/1/07 4/30/07 6/27/07 8/22/07 10/18/07

XO-6LevXSr

Europe: Bid levels (iTraxx XO, LevX Sr)

Bid

(% o

f par

)

LCDS-cash loan relationship lagged in Europe and U.S.

93

94

95

96

97

98

99

100

101

102

 11/6/2006  2/5/2007  5/3/2007  7/31/2007 10/24/07

Euro loan bid

LevX Sr

Bid levels (LevX Sr,, European liquid loans)

Bid

(% o

f par

)

Source: Reuters 3000 XTRA/CreditViews; Markit; LSTA/LPC MTM Pricing; RLPC European MTM Pricing

92

93

94

95

96

97

98

99

100

101

5/22/07  6/20/2007 7/19/07 8/16/07 9/14/07 10/12/07

LCDX US loan bid

Bid levels (LCDX and U.S. liquid loans)

Bid

(% o

f par

)

U.S. price correlation across CDS HY, LCDX

LCDX moves in near unison with CDX HY

y = 0.8555x + 14.024R2 = 0.962

91

92

93

94

95

96

97

98

99

100

101

102

90 92 94 96 98 100 102

CDX HY bids (% of par)

LCD

X bi

ds (%

of p

ar)

Source: Reuters 3000 XTRA/CreditViews; Markit

European price correlation: LevX-iTraxx Crossover(6) (Before and after launch of LCDX)

LevX-iTraxx XO bid correlation Nov '06-May '07

y = 0.2024x + 80.297R2 = 0.6173

100.7

100.8

100.9

101

101.1

101.2

101.3

101.4

101.5

101.6

101 101.5 102 102.5 103 103.5 104 104.5 105

Itraxx XO bid (% of par)

LevX

bid

(% o

f par

)

LevX-iTraxx XO correlation May '07-Oct'07

y = 0.8851x + 8.4185R2 = 0.9025

90

92

94

96

98

100

102

94 96 98 100 102 104 106

iTraxx XO bid (% of par)

LevX

bid

(% o

f par

)

Source: Reuters 3000 XTRA/CreditViews; Markit

How correlated will the loan market be?

-40%

-20%

0%

20%

40%

60%

80%

100%

Oct'05 - Apr'06 Apr'06-Oct'06 Oct'06-Apr'07 Apr'07-Oct'07

Euro bond-loan US bond-loanUS-Euro bond US-Euro loan

Correlation jumps across asset classes

Loan correlation – will it stick?

Presentation title – Date 20069

Questions

Thank you for coming