Clo Primer

The Middle Market CLO Desktop Primer
David Preston, CFA

CDO and Commercial ABS Research
(704) 410-3080
david.preston@wellsfargo.com
Jason McNeilis, CFA

CDO and Commercial ABS Research
(704) 410-3077
jason.w.mcneilis@wellsfargo.com
July 24, 2014
Please see the disclosure appendix of this publication for

certification and disclosure information
Contents
CLO Overview
What is a C LO?
C LO Structure & Life C ycle
Balance Sheet vs. Arbitrage C LOs
Middle Market Lending: The Market
Middle Market Definitions
Market Size / Segments
Sponsored, Institutional Middle Market Loan Size
Middle Market Lending: The Loans
Spreads
Leverage
Default Data
Recovery Data
C ovenant Lite Loans in the Middle Market Space
Middle Market Lending: The Lenders
Investors Base
Lender Types
Middle Market Lenders: Banks
Middle Market Lenders: BDC s
Middle Market CLOs
Volume and Outstanding Balance
Spreads
Structure
C ollateral
Performance: Rating & Default History
Middle Market CLO Managers
Middle Market C LO Manager Overview
Servicer Risk
Top 10 Managers by Deal C ount
Manager C LO Summaries
4
6
14
17
19
25
27
29
31
35
37
40
43
45
46
53
58
61
64
68
72
76
80
82
CLO Overview
What is a CLO?
Securitization backed by a pool of corporate loans

Assets typically floating rate, first lien, senior secured, rated below IG
Profit from a funding gap
Funding gap = net asset yield liability yield - fees
Leveraged to enhance returns
Asset yield is used to pay down creditors in order of seniority
Equity gets residual
More seniority = lower yield/lower risk
Similar to a synthetic bank with a defined life and stricter covenants
Current U.S. market size is approximately $325 billion
For a complete introduction to CLOs, we recommend our CLO Primer.

4
What Is a CLO: Cash Flow CLO
Cash flow CLOs differ from other ABS, as they have an actively managed
portfolio.
Cash flow CLOs also feature reinvestment periods.

During the reinvestment period, the manager may buy and sell assets,
subject to asset quality covenants.
In balance sheet CLOs, the loan originator may replace assets during the
reinvestment period.
The reinvestment period is an IO period for the CLO.

Interest proceeds from the portfolio assets pay CLO note interest.
During reinvestment, principal proceeds (repayments or amortization)
from the portfolio assets are available for the CLO manager to reinvest
by purchasing new collateral assets.
What Is a CLO: Basic Structure

$
$
$
Class A Notes
[Aaa/AAA]
Asset Portfolio
P&I
proceeds
on an
ongoing
basis
CLO Issuer
(Offshore
Special
Purpose
Vehicle)
$
Class B Notes
[Aa2/AA]
$
Class C Notes
[A2/A]
Collateral
Purchase
$
Class D Notes
[Baa2/BBB]
Collateral
Manager
Source: Wells Fargo Securities, LLC
$
Equity
(NR)
Residual Cash Flow
First Loss
6
Wt
Avg.
Cost of
Funding
What Is a CLO: Structure
Interest Proceeds
Proceeds
Interest
Taxes,Fees,
Fees, Hedge
Hedge Payments
Taxes,
Payments
Class
A Current
Interest
Class
A Interest
ClassAA Coverage
Coverage Test
Class
Test
FAIL
FAIL
PASS
PASS
class B
B Interest
Class
Interest
When
Cured
class A
A Principal
Class
Principal
class B
Test
Class
BCoverage
Coverage
Test
FAIL
FAIL
PASS
PASS
Class A Principal
Subordinated Mgmt Fees
When
Cured
EQUITY
Class B Principal
What Is a CLO: Structure
Coverage tests act to protect senior note holders.

Par-based asset/liability tests: overcollateralization (OC).
Yield-based tests: interest coverage (IC).
If a test is failing, cash flows are diverted to senior notes until the test is in
compliance.
Test cures by paying down senior notes (reducing the par amount).
This deleverages the deal and cuts off cash flows to all classes below the
failed test.
Many OC tests contain par haircuts for problematic assets
For example: Excess CCC loans are haircut to their market value in
CLOs
For example: PIKing assets may be counted as defaults
What Is a CLO: CLO Life Cycle
$ Collateral Balance
Warehouse
Period:
Warehouse
120Bank provides
CLO Manager
financing to
acquire
assets.
100
Ramp-Up Period:
Proceeds from
CLO Issuance
used to purchase
additional assets.
Reinvestment Period: Collateral Manager permitted to

actively trade underlying assets. Principal cash flows
from underlying assets can be used by Collateral Manager
to purchase new assets.
Amortization Period:
Cash flows from assets are
used to pay down the
outstanding notes.
80
60
40
20
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41
Amortization
CLO Closing
Ramp-Up
Period
Date
End Date
What is a CLO: CLO Life Cycle
Ramping Up
The bank may provide a warehouse facility as financing for the CLO
manager prior to note issuance.

Closing
CLO issues notes and pays the warehouse provider as applicable.
CLOs are typically issued with an asset balance slightly less than the
principal balance of the liabilities and equity tranche. Essentially,
equity pays the deal fees.
Reinvestment
After the end of the ramp-up, the CLO manager monitors and trades
the portfolio to ensure the portfolio remains in compliance with
collateral-quality tests and reinvests principal proceeds back into the
portfolio.
10
What Is a CLO: CLO Life Cycle
Amortization Period
The manager does not replace prepaying assets; instead, the cash is
used to retire the notes sequentially.

Optional Redemptions
Types of calls to limit the life of a deal:
Optional Redemption - The equity holders have the opportunity to
redeem the notes following a two-thirds or majority vote.
Cleanup Call - The call sells assets should the pool par value fall
below a prescribed level.
Equity holders may wish to call the deal if the gap between the asset yield
and the total CLO debt cost shrinks this leads to decreased equity
distributions.
The equity holders can call the CLO sell the assets, pay off the notes
and keep the proceeds.
CLO 2.0 deals often allow tranche refinancing or re-pricing, which can
be less onerous than calling the CLO.
11
What Is a CLO: Reinvestment
During reinvestment, the CLO manager is limited in trading by a series of

portfolio quality covenants, dictating asset portfolio characteristics.
Typically, if a CLO is failing a quality test, the manager may not trade
except to improve the failing test, but no cash flows are diverted.
Common CLO Portfolio Tests
Wt. Avg. Spread Test
Wt. Average Life Test
Max. Rating Factor Test
Diversity Test
Min. Wt. Avg. Recovery Rate Test
Min. WAC Test
Moody's
Rating
Rating
Factor
Aaa
Aa1
Aa2
Aa3
A1
A2
A3
Baa1
Baa2
Baa3
1
10
20
40
70
120
180
260
360
610
Moody's
Rating
Rating
Factor
Ba1
940
Ba2
1,350
Ba3
1,766
B1
2,220
B2
2,720
B3
3,490
Caa1
4,770
Caa2
6,500
Caa3
8,070
Ca
10,000
C
10,000
Source: Moody's, Wells Fargo Securities, LLC
12
What Is a CLO: Reinvestment

Common CLO Portfolio Covenants
% Second Lien
% High Yield Bond
% Rated CCC+ or below
% Fixed Rate Securities
% Non US Issuer / Non USD
% Specific Countries
% Single Issuer / Obligor
% Top 3 Issuers
% PIK able Securities
% Delayed Funding Term Loans
% Synthetic Securities
% Current Pay Obligations
% CDO
% Zero Coupon Securities
% Current Pay Obligations
% Pay Freq. Less Than Qtrly
% Participations
% Debtor in Possession Loans
% Same Industry Category
% Revolving Credit Facilities
13
What Is a CLO: Two Types of CLOs
CLOs: assets are typically floating rate, senior secured, first-lien

leveraged loans.
May allow small allocations (buckets) for high-yield bonds,
second-lien loans and revolvers.
Two types of CLOs:
Typical Issuer
Purpose
Collateral Origination
Arbitrage CLO
Asset manager
Management fees
Funding gap
Issuer not involved
Balance Sheet CLO

Specialty finance company
Better financing
Term financing
Issuer involved
Asset manager purchases in

primary / secondary market
Primary Collateral Type Broadly syndicated loans
Issuer originates
Middle market loans
Collateral Management
Actively managed
Actively managed
Manager reinvests principal

proceeds during reinv. period
Manager reinvests principal proceeds

during reinv. period
Manager can trade the portfolio,

subject to portfolio tests
Manager can trade the portfolio,

subject to portfolio tests
Actual trading may be limited due to
the nature of middle market loans
14
What Is a CLO: Two Types of CLOs
Arbitrage CLOs are issued by asset managers as an efficient way to

raise AUM.
Assets (loans) are purchased in the primary and secondary markets.

Balance sheet CLOs are issued as financing vehicles.
Securitization technology often provides a more desirable (cheaper,
longer, better terms) source of term financing than alternatives.
The balance sheet CLO issuer typically originates the assets.

Balance sheet CLOs are similar in purpose and concept to most
consumer ABS sectors.
15
Middle Market Lending: The Market
Middle Market Loans: Definition

What is a Middle Market Loan?
Generally speaking, a loan to a small- or medium-sized firm.
Unfortunately, there is no uniform, standard definition of middle market. However, we
present the most common definitions.
1. Loan size: Typically, facility size < $150 million denotes a loan as a middle market
loan.
2. Issuer size: EBITDA < $50 million is often the cut-off for a middle market loan.
LCD uses this definition.
3. Combination: Thomson Reuters LPCs definition:

Borrower sales <$500 million, deal size < $500 million
17

What is a Middle Market Loan?
There are other ways to think about the difference between middle market loans and
broadly syndicated loans.
1. Lending Group: Middle market loans are often the product of single lenders, or
small lending clubs.
2. Secondary trading/pricing: Some CLO investors define middle market loans are
those without regular trading activity or price data.
3. Direct origination vs. buy-side:. Many middle loan originators are directly
involved in origination, while BSL loans are purchased in primary or secondary

markets.
18

Middle Market Loan Market Segments: Middle market lending is often broken down
into different segments, often by borrower or facility size.
1. General Borrower Size Market Segmentation:

Segment
Borrower EBITDA
Small Middle Market
$7.5 million to $25 million
Traditional Middle Market
$15 million to $35 million
Large Middle Market
$30 million to $75 million
2. Thomson Reuters LPC Definition:

Deal Size <$100 million
Large Middle Market
$100 million < Deal Size < $500 mmm
3. LCD Definition:
Deal Size <$200 million
Larger Middle Market
$200 million < Deal Size < $350 mmm

19
Middle Market Loans: The Market
Middle market new issue total volume is typically $180 billion per year; 2013 saw an
increase of approximately 13%.

Since the financial crisis, approximately 60% of new issue volume has been refinancing.
$250
$200
Total issuance includes Revolvers, 1st Liens, 2nd Liens, Delayed Draws, etc
Middle market:
Borrower sales of $500 million or less
Deal size $500 million or less
$183.1
$175
$180.1
$203.6
80%
$183.2
$182.2
$180.3
70%
$167.8
$150.0
$150
$B
90%
60%
$125
50%
$107.0
$101.5
$98.1
$100
$71.2
$75
40%
30%
$50
20%
$25
10%
Source: Thomson Reuters LPC
Refi.
New money
% New Money
20
1H14
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0%
2003
$0
% New Money
$225
100%
Middle Market Loan Total Issuance
Much of the middle-market lending is done by regional banks to

middle-market companies, which use revolvers for working capital or
capex.
LPC splits the middle market lending universe between sponsored and
non-sponsored.
Non-sponsored lending is larger but less relevant for CLO investors.

As LPC describes it, the non-sponsored deals can be thought of as
relationship lending by regional banks.
In contrast, sponsored lending is typically done by a mix of lenders,

including specialty finance companies.
Sponsored issuance accounts for approximately 40% of middle market

loan issuance.
21
LPC splits the middle market lending universe between sponsored and non-sponsored.
Non-sponsored lending is larger but less relevant for CLO investors.
$250
$225
100%
Middle Market Loan Issuance

Middle market:
90%
$203.6
$200
80%
$183.2
$183.1
70%
$167.8
$150.0
$150
$B
$180.3
60%
$125
50%
$107.0
$101.5
$100
$98.1
$71.2
$75
40%
30%
$50
20%
$25
10%
Non sponsored
Sp.
22
Sponsored Share (Rt Axis)
1H14
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0%
2003
$0
Sponsored SHare of New Issue
$175
$182.2
$180.1
CLO investors also traditionally focus on the institutional loan tranches.

LPC and LCD define pro rata loans as Term Loan A tranches and revolvers and
institutional loans as the Term Loan B tranche.
According to LCD, the Term Loan A typically has a progressive amortizing schedule and
is typically syndicated to banks, along with a revolving credit.
However, Term Loan As are now less common, as institutional tranches make up more
of funded loan issuance. Therefore, most of the pro rata issuance consists of revolvers.
Institutional loan issuance covers the Term Loan B, which are facilities for nonbank
investors.
It should be pointed out that banks purchase institutional tranches at times.
23
CLO investors traditionally focus on the institutional loan tranches.

$75
MM Institutional Loan Issaunce

Traditional MM Deal size <=$100M
Large MM - Deal size >$100M to $500M
100%
$71.9
$68.8
90%
For all: Borrower sales <$500M
$60
80%
$58.0
$55.5
70%
$44.9
Instituional MM Loan Issuance $ B
$45
60%
$33.9
$30
50%
$34.2
40%
$26.3
$22.3
$21.2
$15
20%
$10.8
$10.5
$7.2
30%
$6.5
10%
Large MM Inst.
Trad MM Inst.
Inst. Issuance as % of Total (Rt Axis)
24
1H14
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0%
2001
$0
Middle market CLO investors typically focus on sponsored, institutional loans.

Sponsored institutional volume was approximately $40 billion per year in 2005-2007,
and 2013. Volume was approximately $30 billion per year in 2011-2012.
$90
$80
100%
Middle Market Sponsored Institutional Loan Issuance
90%
Middle market:
80%
72.5
71.0
$70
69.6
67.6
70%
64.2
64.6
$B
$60
60%
52.7
51.7
$50
43.1
44.3
50%
45.8
$40
40%
37.9
34.0
30.3
$30
27.8
27.1
22.6
28.4
30%
22.5
$20
18.2
12.2
$10
3.4
20%
13.1
12.4 12.4
10%
7.9
5.2
4.0
Sp. Inst.
Total Sponsored
Inst. % of Total Sponsored (Rt Axis)
25
1H14
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0%
2001
$0
Inst. Share of Sponsored Issuance
$100
Middle Market Lending: The Loans
900
1Q10
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
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Middle Market Loan Primary Spread (ex OID)
Middle Market Loans: Spreads

Traditional MM: Deal Size <= $100 m; Large MM Deal size > 100M to $500m; for all Borrower sales < $500m
50
Source: LPC Thomson Reuters

Floor
Spread
27
900
850
850
800
800
750
750
700
700
650
650
600
600
550
550
500
500
450
450
400
400
350
350
300
300
250
250
200
200
150
150
100
100
50
Middle Market Loans: Spreads

Spread (does not include Floors or LIBOR)
700
650
Traditional MM: Deal Size <= $100 m;

Large MM Deal size > 100M to $500m; for all Borrower sales <
$500m
650
600
550
550
500
500
450
450
400
400
350
350
300
300
250
250
200
200
150
150
100
100
Source: LPC Thomson Reuters
Spread
28
2Q14
4Q13
1Q14
3Q13
2Q13
1Q13
3Q12
4Q12
2Q12
1Q12
3Q11
4Q11
2Q11
1Q11
4Q10
2Q10
3Q10
1Q10
4Q09
2008
1Q-3Q09
4Q07
3Q07
2Q07
1Q07
3Q06
4Q06
2Q06
1Q06
4Q05
2Q05
3Q05
1Q05
4Q04
3Q04
1Q04
2Q04
4Q03
3Q03
2Q03
4Q02
1Q03
3Q02
50
2Q02
50
1Q02
Middle Market Loan Primary Spread - BPs (ex OID)
600
700
Middle Market Loans: Leverage
MM LBO Debt / EBITDA
First-lien leverage on institutional MM LBOs has averaged 3.9x since 2011.

Total leverage on institutional MM LBOs peaked at 5.7x.
6.0
6.0
5.5
5.5
5.0
5.0
4.5
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
4.5
4.4
2.0
1.5
1.0
3.93.84.0
3.7
3.6
3.53.5
3.4
3.4
3.0
2.7 2.8
4.1 3.94.04.1 4.0 4.1

4.0
3.8 3.8
3.6
3.5 3.7
3.4 3.53.3
3.1
3.0
2.8
3.83.8
2.92.92.92.9
3.2
3.2
2.8
2.3
2.2
Source: LPC
1.5
1.0
0.5
0.5
-
1Q03
2Q03
3Q03
4Q03
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
0.0
2.0
1st Lien Debt to EBITDA
Junior Debt to EBITDA
29
Middle Market Loans: Leverage
Total leverage on institutional MM LBOs have been lower than BSL LBO total leverage.
MM LBO leverage is typically 1.0x 1.5x lower than BSL LBO leverage.
8.0
8.0
7.5
7.0
6.5
5.5
5.5
5.7
5.3
6.3
6.2
5.5
5.5
5.3
5.9
5.6
4.8
4.6
4.5
4.5
5.1
5.3
5.5
5.0
4.6
4.3
4.0
6.5
6.0
5.6
5.1
5.0
5.0
4.5
3.8
4.0
1.0
0.5
0.5
0.0
Source: LPC
MM (Inst. LBO)
BSL LBO
30
1H14
1.0
2013
1.5
2012
1.5
2011
2.0
2010
2.0
2009
2.5
2008
2.5
2007
3.0
2006
3.0
2005
3.5
2004
3.5
2003
Total LBO Debt / EBITDA
7.0
6.3
6.0
4.0
7.5
7.1
Middle Market Loans: Default and Recovery
There is limited market-wide default data for middle market loans, for several reasons.
The lack of a standardized definition of a middle market loan is part of the problem.
Middle market lending groups are typically smaller than those in the broadly syndicated
space.
Smaller lending groups can lead to lower default rates, if lenders are more involved with
the borrower.
Middle market lenders are typically less able to sell the loan if the issuers credit profile
decreases; therefore, they may be more likely to step in and work on a cure before a
default.
On the other hand, looser structures in broadly syndicated loans can lead to lower
default rates for broadly syndicated loans.
Middle market CLO managers tend to specialize in sectors or types of loans. Therefore,
we believe that individual manager performance statistics are more significant than
market-wide data.
31
We present middle market loan default data, with the understanding that the data may
not represent the entire middle market loan universe.
In addition, structural differences, such as covenant-lite broadly syndicated loans, may
have led to lower default rates for broadly syndicated loans in 2009-2012.
15.0%
15.0%
12.5%
12.5%
MM Avg: 2.4%
10.0%
Source: LCD
MM (#)
Lg Corp (#)
32
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
0.0%
Jan-08
0.0%
Jan-07
2.5%
Jan-06
2.5%
Jan-05
5.0%
Jan-04
5.0%
Jan-03
7.5%
Jan-02
7.5%
Jan-01
12m Default Rate (%)
Lg Corp Avg: 3.2%

10.0%
Middle Market Loans: Default History During 2009
Moodys compared the default rates on CLO collateral loans during the credit
crisis, broken down by BSL CLOs versus small and medium enterprise CLOs
(SME CLOs) for the period of December 2008 to December 2009.
Both CLO collateral pool default rates rise as WARF increases, which indicates
that the lower asset ratings (and higher WARF) are related to higher default
risk.
For most of the WARF stratifications, the SME CLO collateral posts lower
default rates.
Moodys believes, and we agree, that the lower default rates may be related to
the substitution provision in many SME/MM CLOs.
On the other hand, BSL loans may have avoided default due to covenant-lite
provisions, waivers, or other structural benefits.
33
Middle Market Loans: Default History During 2009
During 2009, SME CLO assets had lower default rates than assets in BSL CLOs, when
comparing CLOs with similar WARFs, for most WARF stratifications.
Over the next 12 months, BSL CLOs with WARFs below 2,800 had
an asset default rate of 8.4%
18%
12m Default Rate (CLO Collateral Assets)
100%
76% of BSL CLOs had WARFs below 2,800, as of Dec. 2008
90%
16%
80%
14%
70%
12%
60%
10%
Over the next 12 months, SME CLOs with WARFs below 2,800 had
an asset default rate of 7.6%.
8%
18% of SME CLOs had WARFs below 2,800, as of Dec. 2008
50%
40%
6%
30%
4%
20%
2%
10%
0%
0%
<2800
% of BSL CLOs
2800-3200
% of SME CLOs
3200-3800
CLO WARF
BSL CLO 12-Month Default %
Source: Moody's
34
>3800
SME CLO 12-Month Default %
% of CLO Universe with Applicable WARF
20%
There is a lack of time series recovery data for middle market loans.
We can reference two studies on middle market loan recoveries.
Churchill Financial and S&P CreditPro produced recovery rates for loans,
based on loan size, for the time period 1990-2010.
The study showed that smaller loans (<$200 million in size) had higher
nominal and discounted recovery rates, when compared to larger loans.
Nominal Rec.
Discounted Rec.
Recovery Rates, 1990-2010

Smaller Loans
Larger Loans
Loans < $200 mm
Loans > $200 mm
86.12%
81.04%
75.42%
70.06%
Nominal Rec.: Value at emergence as a pct of principal at time of default

Discounted Rec.: Nominal recovery, discounted back to period in which interest was last paid
Source: Churchill Financial, S&P CreditPro
35
There is a lack of time series recovery data for middle market loans.
We can reference two studies on middle market loan recoveries.
In 2014, LCD and S&P CreditPro updated the data with recovery figures for
2010-2013.
The data again showed the smaller loans had better recovery values than
larger loans.
Recovery Rates, 2010-2013

Smaller Loans
Larger Loans
Loans < $200 mm
Loans > $200 mm
Recovery Rate
81%
74%
Source: LCD, S&P CreditPro
36
Middle Market Loans: Covenant-Lite Loans
Middle market loans are much less likely to be covenant-lite.

Lenders are less able to sell loans, which may lead to a stronger focus on loan structure.
LCD reports that only five of 57 new traditional middle market deals (defined here by
LCD as deal size less than $200 million ) in H1 2014 was covenant-lite.
By volume, 21% of traditional middle-market volume in H1 2014 was covenant-lite.

While the smaller end of the middle market may be more resistant to more issuerfriendly structures, the large middle market sector is often more likely to mimic the
broadly syndicated market.
LCD also reported that, by volume, 41% of larger middle market deals (deals with a deal
size of $201 million-$350 million ) in H1 2014 were covenant-lite.
This is an increase from 2013s covenant-lite market share of 27%.

For comparison, approximately 60% of broadly syndicated loans issued in 2013 and
2014 were covenant-lite.
37
Middle Market Loans: Covenant Lite Loans

Middle market loans are much less likely to be covenant-lite.
In 2013, only 24% of middle market loans issued were covenant-lite.
Traditional middle market loans were less likely to be covenant-lite.
For comparison, in 2013, 57% of broadly syndicated loan issuance was covenant-lite.
100%
100%
Middle Market Cov-Lite Issuance
90%
90%
In 2013, only 13% of traditional middle market
loans issued were covenant-lite; in 2013, 57% of
broadly syndicated loan issuance was covenantlite.
80%
% of Inst. Issaucne that is C ov-Lite
80%
70%
70%
60%
60%
50%
50%
Traditional Middle market: $200 million or less

Large Middle Market: $201-$350 million
40%
40%
30%
30%
20%
20%
10%
10%
Trad. MM Cov-Lite % of Inst. Issuance
Lg. MM Cov-Lite % of Inst. Issuance
Source: LCD
BSL Cov-Lite % of Inst. Issuance
2014 data as of Q2 2014
38
2014
2013
2012
2011
2010
2009
2008
2007
0%
2006
0%
2005
Middle Market Lending: The Lenders
Middle Market Loans: Investor Base
LCD data show that institutional investors were the largest buyers of primary middle
market loans from 2004 to 2007.
In our opinion, as overall credit spreads tightened, institutional investors looked to the
middle market sector to add yield; the appetite of institutional investors dwarfed the
middle market world, leading to the large share of purchases.
We believe that the higher end of the middle market is a logical place for excess capital
from the broadly syndicated world.
However, in 2008 and 2009, finance companies were the largest primary investors in
middle market loans.
We believe that as the credit crisis deepened, institutional investors exited the middle
market sector for the more well-known pastures of broadly syndicated loans.
Meanwhile, those firms that specialize in middle market lending continue to lend, albeit
at wider spreads and lower multiples.
40
In 2010 and 2011, as credit assets recovered, institutional investors returned to middle
market lending.
As spreads tightened, and loans prepaid, institutional investors were faced with falling
spreads and declining asset balances, leading to increased middle market loan interest.
LCD data show that since 2003 institutional investors have consistently made up at least
two-thirds of the total loan market.
In the middle market sector, institutional investors buy during good times, but may exit
during times of stress.
This provides opportunities for the middle market specialists during downturns.
Of course, as in any lending business, this may cause problems during extended periods
of credit strength, as newer investors may push spreads tighter and standards looser.
Middle market investors may take comfort from middle market specialists lower market
shares during times of deteriorating lending standards.
41

Primary Market for Middle Market Leveraged Loans
100%
4%
13%
90%
Primary Market for MM Leveraged Loans
80%
3%
26%
22%
20%
26%
18%
29%
25%
Inst. Inv.
16%
70%
8%
9%
30%
49%
46%
12%
67%
60%
57%
58%
65%
68%
67%
74%
40%
50%
39%
35%
Fin. Co.
40%
21%
23%
21%
30%
17%
14%
11%
13%
13%
20%
14%
Banks
10%
0%
Source: LCD
62%
64%
65%
68%
76%
69%
35%
19%
20%
21%
14%
30%
32%
29%
28%
23%
17%
12%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
1H 14
Bank (Dom & For.)
Finance Co.
42
Institutional Investors
Securities Firm
Middle Market Loans: The Lenders

Sources of Capital in the Middle Market
Middle market companies have several sources of capital available.
Traditional Banks
Finance
Companies
CLOs
BDCs
Hedge Funds
Mezzanine
Funds
Pvt. Equity
Funds
Senior
Revolver
Senior Term
Loans
Unitranche
Loans*
Second
Lien
Subordinated
Debt
Preferred
Stock
Common
Stock
Security
Secured by 1st
lien. Top of the
capital stack
Secured by 1st
lien behind the
bank revolver
Secured by 1st
lien behind the
bank revolver
Unsecured
Unsecured
Coupon
Leverage
L+150-300
0-0.5x
L+300-700
0.5-3.5x
10-12%
0.5-4.0x
Secured/Unsecured;
Secured by 2nd
however, If secured
lien behind the
it is behind all senior
bank/senior debt.
(incl. 2nd lien)
12-14%
3.5x-5.0x
13-15%
4.0-6.0x
*This is a combination of senior/subordinated into one loan with a blended interest rate. It is often
referred to as a "one stop" debt solution
**The highlighted items are the asset classes that generally comprise BDC portfolios
***Leverage is denominated by leverage turns to TTM EBITDA
Source: Wells Fargo Equity Research, The BDC Almanac, Jan. 2014
43

Middle Market Lenders:
Banks
JP Morgan, BAML, Wells Fargo, PNC
Specialty Finance Companies

GE Capital, Madison Capital, NXT
BDCs
ARCC, GBDC, PSEC
Source: Wells Fargo Equity Research, The BDC Investors Almanac, Jan. 2014.
44
Thomson Reuters LPC data show the most active bookrunners in the Large Middle
Market and Traditional Middle Market Sectors.
2013 Middle Market Bookrunner League Tables
Large Middle Market
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Institution
Bank of America Merrill Lynch
Wells Fargo & Company
JP Morgan
GE Capital
PNC Bank
BMO Capital Markets
Credit Suisse
Jefferies Finance LLC
U.S. Bancorp
RBC Capital Markets
BNP Paribas SA
SunTrust Bank
Deutsche Bank
Barclays
Citi
RBS
KeyBank
Mitsubishi UFJ Financial Group
Fifth Third Bank
Morgan Stanley
Vol. ($
# Deals mm)
169
20,115
177
19,392
141
17,761
115
12,016
61
6,335
69
6,333
42
5,848
35
5,004
44
4,764
34
4,542
31
4,399
52
4,376
35
4,350
27
4,303
31
3,788
34
3,250
35
3,154
25
3,008
30
2,858
21
2,365
2013 Middle Market Bookrunner League Tables

Mkt
Share
(%)
13%
12%
11%
7%
4%
4%
4%
3%
3%
3%
3%
3%
3%
3%
2%
2%
2%
2%
2%
1%
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
45
Institution
JP Morgan
Wells Fargo & Company
Bank of America Merrill Lynch
PNC Bank
U.S. Bancorp
GE Capital
Madison Capital Funding LLC
BMO Capital Markets
RBS
Fifth Third Bank
SunTrust Bank
KeyBank
PrivateBancorp Inc
CIT Group Inc
Regions Bank
BNP Paribas SA
RBC Capital Markets
Mitsubishi UFJ Financial Group
Citi
NXT Capital LLC
# Deals
136
125
84
81
66
62
56
52
45
32
33
26
24
19
16
7
25
11
11
11
Vol. ($
mm)
5,659
4,491
4,487
3,118
2,876
2,624
2,276
1,892
1,737
1,385
1,330
1,277
900
732
630
543
501
480
434
380
Mkt
Share
(%)
13%
10%
10%
7%
7%
6%
5%
4%
4%
3%
3%
3%
2%
2%
1%
1%
1%
1%
1%
1%
BDCs are active lenders in the middle market space, and this expanding asset class
continues to grow as a provider of capital.
Publicy Traded BDC AUM as of 3/31/14

BDC
AUM ($ in mm)
Ares C apital C orp
$7,800
Prospect C apital C orp
$6,006
FS Investment C orp
$4,078
Apollo Investment C orp
$3,479
Fifth Street Finance C orp
$2,684
PennantPark Investment C orp
$1,257
Golub C apital BDC Inc
$1,254
TPG Specialty Lending Inc
$1,196
New Mountain Finance C orp
$1,180
BlackRock Kelso C apital C orp
$1,106
Solar C apital Ltd
$1,028
TIC C C apital C orp
$960
Medley C apital C orp
$959
Hercules Technology Growth C ap
$891
TC P C apital C orp
$816
THL C redit Inc
$739
Triangle C apital C orp
$690
Solar Senior C apital Ltd
$275
Horizon Technology Finance C or
$229
TriplePoint Venture Growth BDC
$144
$36,768
represents Wells Fargo BDC Equity Research C overage Universe
Source: C ompany Reports, Wells Fargo BDC Equity Research
Ticker
ARC C
PSEC
FSIC
AINV
FSC
PNNT
GBDC
TSLX
NMFC
BKC C
SLRC
TIC C
MC C
HTGC
TC PC
TC RD
TC AP
SUNS
HRZN
TPVG
46

Middle Market Lenders: The BDCs
In its simplest form, a Business Development Company or Registered Investment
Company (BDC/RIC) is a type of closed-end mutual fund designed as a way to lend

to private middle market businesses.
Congress created the BDC in 1980 through Section 54 of the Investment Company
Act.
This BDC/RIC would be a tax pass-through entity, would register and sell shares in
public offerings, and would trade on public exchanges.
The new entity would, in effect, be the first publicly traded mezzanine limited
partnership, with the BDC fund manager acting as the general partner (GP) and the
BDC shareholders taking on the role of limited partners (LP).
47

In order to become a BDC/RIC, Congress specified a few rules of the road under the
Small Business Incentive Act of 1980, and these are as follows:
Leverage: A BDC must not fall below an asset coverage ratio (total assets-to-total
debt) of 200%.
Stated differently, a BDCs total leverage (total debt-to-total equity) cannot exceed a
1:1 threshold.
This is more commonly referred to as the 1:1 leverage test for a BDC.
Income requirement: At least 90% of a BDCs gross annual income must be
derived from dividends, interest and realized capital gains from the investment
portfolio.
48

In order to become a BDC/RIC, Congress specified a few rules of the road under the
Small Business Incentive Act of 1980, and these are as follows:
Asset diversification. Congress required BDCs to remain adequately diversified to

help limit a BDC from taking unnecessary or concentrated risks.
Thus, to maintain RIC status, a BDC must have at least 70% of its investment portfolio
in qualifying assets.
Qualifying assets are defined as private debt or equity investment in private, or

thinly traded companies (i.e., below $250 million market cap).
In addition, a BDC must have more than 50% of its portfolio in investments that make
up less than 5% of a companys total assets and must limit its investment size to no
more than 25% of a companys total assets.
49

In order to become a BDC/RIC, Congress specified a few rules of the road under the Small
Business Incentive Act of 1980, and these are as follows:
Distribution requirement. To maintain RIC status, a BDC must distribute at least

90% of its gross annual income to shareholders.
It is possible to carry over amounts in excess of 90% of gross annual income; however, the
BDC is subject to a 4% excise tax on those spillover earnings.
To the extent that a BDC distributes at least 98% of its gross annual income, the BDC will
not be subject to an excise tax penalty on the remainder.
Managerial assistance: BDCs are required to offer managerial assistance to the smalland medium-sized businesses in which they invest.
Assistance is often provided through board observer rights and active board participation.
50
BDC Asset Growth
BDC AUM has increased substantially
Year End 2010
$50,000
since the financial crisis.
$ MM
Since year-end 2010, BDC loan balance

(cost value) has increased from $16.5
billion to $43.3 billion (as of Q1 2014).
Assets of publicly traded BDCs have
$50,000
$45,000
$45,000
$40,000
$40,000
$35,000
$35,000
$30,000
$30,000
$25,000
$25,000
$20,000
$20,000
$15,000
$15,000
$10,000
$10,000
Loans at Cost
1Q 2014
4Q 2013
3Q 2013
2Q 2013
1Q 2013
4Q 2012
3Q 2012
2Q 2012
1Q 2012
4Q 2011
3Q 2011
2Q 2011
1Q 2011
4Q 2010
3Q 2010
2Q 2010
1Q 2010
4Q 2009
3Q 2009
2Q 2009
1Q 2009
4Q 2008
3Q 2008
2Q 2008
1Q 2008
4Q 2007
3Q 2007
2Q 2007
1Q 2007
4Q 2006
3Q 2006
2Q 2006
1Q 2006
4Q 2005
3Q 2005
2Q 2005
1Q 2005
4Q 2004
3Q 2004
increased from $25.4 billion at year-end

2010 to $48.3 billion (Q1 2014).
2Q 2004
$0
$5,000
1Q 2004
$5,000
$0
Assets of Publicly Traded BDCs
Source: Company Reports, Wells Fargo Equity Research
Assets include loans plus cash, structured

BDC Capital Raised $ in MM
products and equity.
Since 2009, there have been 22 BDC
IPOs, with more than $2 billion raised.
The market has absorbed 92 follow-ons

by BDCs, with more than $8.9 billion
raised, since 2009.
50
4,500
45
4,000
40
3,500
35
3,000
30
2,500
25
2,000
20
1,500
15
1,000
10
500
0
2000
2001
2002
2003
2004
BDC IPOs ($ mm)

IPO (#)
Source: Company Reports, Wells Fargo Equity Research
51
2005
2006
2007
2008
2009
2010
2011
2012
2013
BDC Follow-Ons ($ mm)
BDC Rights Offerings ($ mm)
FO (#)
Rights Offerings (#)
2014
# Offerings
BDC Equity Capital Raises

5,000
Middle Market CLOs
Middle CLOs: Issuance

22.5
20.0
$20.3
as of 7/22/2014
17.5
15.0
12.5
$B
$11.8
$9.9
10.0
7.5
$10.6
$6.8
$5.4
5.0
$4.2
$3.8
$3.6
$2.2
2.5
$1.5
$0.6
0.0
1999
$1.5
$1.4
2010
2011
$3.9
$0.0
2000
2001
2002
2003
2004
2005
Source: Intex, S&P, Moody's, Wells Fargo Securities, LLC
53
2006
2007
2008
2009
2012
2013
2014
Middle CLOs: Issuance
Since 2011, MM CLO issuance has been 6%-9% of total U.S. CLO Issuance.
US CLO Issuance
100
89.2
90
80
100
90
80
77.7
75.7
as of 7/22/2014
70
70
66.5
60
60
51.9
$B
49.1
50
50
40
40
28.4
30
20.6
20.3
20
15.8
14.2
15.4
13.8
20
14.9
9.9
10
13.8
11.8
10.6
6.8
3.6
30
0.6
1999
2000
2.2
2001
3.8
2002
1.5
2003
Source: Intex, Wells Fargo Securities, LLC
2004
2005
2006
2007
BSL CLO
54
2008
MM CLO
0.5
2.9
-
2009
1.5
4.2
5.4
1.4
10
3.9
0
2010
2011
2012
2013
2014
50
Billions
50
45
40
35
35
30
30
25
25
20
20
15
15
10
10
Source: Intex, Wells Fargo Securities LLC
1.0 MM CLO
55
2.0 MM CLO
Q1 2014
Q1 2013
Q1 2012
Q1 2011
Q1 2010
Q1 2009
Q1 2008
Q1 2007
Q1 2006
Q1 2005
Q1 2004
Q1 2003
0
Q1 2002
Q1 2001
Q1 2000
US MM CLO Outstanding Balance ($ B)
40
45
1.0 = pre-crisis deals
2.0 = post - crisis deals
Billions
Middle CLOs: Market Size History
325
300
300
275
250
225
225
200
200
175
175
150
150
125
125
100
100
Source: Intex, Wells Fargo
1.0 BSL
1.0 MM
56
2.0 BSL
2.0 MM
Q3 2013
Q3 2012
Q3 2011
Q3 2010
Q3 2009
Q3 2008
Q3 2007
Q3 2006
Q3 2005
Q3 2004
Q3 2003
25
Q3 2002
25
Q3 2001
50
Q3 2000
50
Q3 1999
75
Q3 1998
75
Q3 1997
US CLO Outstanding Balance ($ B)
250
275
1.0 = pre-crisis deals

2.0 = post - crisis deals
Billions
325
Q3 1996
Billions
Middle CLOs: Market Size History Compared to BSL CLOs
Middle CLOs: Currently Outstanding MM CLO Universe

MML CLO: 63 Deals / $17B
2001
2002
2003
2004
2005
2006
2007
2010
2011
2012
2013
2014
Trustee
WARF
Curr Bal
($mm) % Cash
% Def.
% B3
#
% Caa1 - Deals
Fail IC
Ca
1
126
77.3%
22.7%
0.0%
0.0%
0
1
8,070
26
0.0%
59.7%
0.0%
40.3%
0
1
7,143
100
0.1%
78.9%
0.0%
11.2%
0
3
5,482
215
22.1%
36.5%
1.2%
22.5%
0
5
2,807
262
12.3%
13.2%
12.0%
6.6%
1
12
3,159
1,844
4.1%
6.0%
8.8%
4.3%
0
13
2,835
5,284
3.8%
1.9%
17.4%
3.9%
0
1
3,807
350
1.4%
2.1%
61.1%
18.9%
0
2
3,359
540
14.2%
1.2%
16.2%
11.4%
0
9
3,412
2,565
4.2%
1.1%
8.6%
8.0%
0
12
3,290
4,551
3.4%
0.2%
4.9%
5.5%
0
3
3,902
1,123
10.4%
0.0%
0.9%
7.5%
0
63
3,215
16,986
4.6%
1.9% 11.3%
6.0%
2
"WARF", "% Assets B3" and "% Caa1-Ca" calculations only include Moody's rated assets.
as of 7/18/2014
# Deals
Fail OC
0
0
0
0
1
0
0
0
0
0
0
0
1
# Deals
Fail Sr
OC
0
0
0
0
0
0
0
0
0
0
0
0
0
Due to data lags in Intex data, this data do not include all new issue deals.
Data on assets CCC rated assets may be low, as we only show the percentage of publicly
rated assets.
57
Middle CLOs: Spreads

1000
950
950
900
900
850
850
800
800
750
750
700
700
650
650
600
600
550
550
500
500
450
450
400
400
350
350
300
300
250
250
200
200
150
150
100
100
58
BBB
50
0
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
AA
Mar-13
Dec-12
Mar-12
Dec-11
Jun-12
AAA
Sep-12
Sep-11
Dec-10
Jun-11
Ratings refer to original rating, and spreads are generic. Actual spreads may differ based on structure, WAL,
collateral, and manager. Middle market CLO spreads have more variance from an average.
50
Mar-11
BPs
1000
Middle CLOs: AAA Spread Comparison
In general, since 2012, MM CLO AAAs have priced 25 bps 50 bps wider than BSL CLO
120
120
110
110
100
100
Source: Moody's, S&P, Wells Fargo Securities, LLC
Feb-13
BSL AAA
59
MM AAA
Apr-14
130
Mar-14
130
Feb-14
140
Jan-14
140
Dec-13
150
Nov-13
150
Oct-13
160
Sep-13
160
Aug-13
170
Jul-13
170
Jun-13
180
May-13
180
Apr-13
190
Mar-13
190
Jan-13
200
Dec-12
200
Nov-12
210
Oct-12
210
Sep-12
220
Aug-12
220
Jul-12
230
Jun-12
230
May-12
240
Apr-12
240
Mar-12
250
Feb-12
250
Jan-12
AAA Cpn Spread (bps)
AAA tranches.
Middle CLOs: Spread History

600
550
BPs
600
Ratings refer to original rating, and spreads are generic. Actual spreads may differ based on structure,
WAL, collateral, and manager. Middle market CLO spreads have more variance from an average.
550
500
500
450
450
400
400
350
350
300
300
250
250
200
200
150
150
100
100
AAA
AA
60
BBB
Oct-07
Jul-07
Apr-07
Jan-07
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Jul-05
Apr-05
Jan-05
Oct-04
Jul-04
Apr-04
Jul-03
Apr-03
Jan-03
Jan-04
50
Oct-03
50
Middle CLOs: Structure

2012 - 2014 Median Structure
BSL CLO
MM CLO
MM CLOs are less leveraged and
have more credit support than BSL

CLOs.
MM CLOs have less diverse
collateral pool, and typically feature

higher WARFs, which requires more
subordination.
AAA = 55.7%
AAA = 61.0%
The AAA tranche of the average MM

CLO is 56% of the structure,
compared to BSL CLO AAAs, which
are 61% of the structure.
AA = 8.1%
AA = 10.8%
A = 7.8%
A = 7.6%
BBB = 4.9%
BB - 5.0%
BBB = 4.9%
BB = 4.4%
Equity = 10.0%
Equity = 14.9%
Avg. Structure, by Vintage

Source: S&P, Moody's, C reditflux, Intex,
Wells Fargo Securities, LLC
61
MM CLOs are less leveraged and have

more credit support than BSL CLOs.
MM CLOs have less diverse collateral

pool, and typically feature higher
WARFs, which requires more
subordination.
AAA
AA
A
BBB
BB
EQ
2012-2014 CLO Median Structure

MM CLO
BSL CLO
55.7%
60.8%
8.1%
11.3%
7.8%
7.4%
4.9%
5.0%
5.0%
4.4%
14.9%
9.8%
MM CLO AAA tranches have more than

40% credit support, compared to 36%
credit support on BSL CLO AAAs.
Credit Support, based on Assets
AAA
AA
A
BBB
BB
MM CLO
41.3%
33.2%
25.4%
20.5%
15.5%
BSL CLO
36.2%
24.9%
17.5%
12.6%
8.2%
62
Middle CLOs: Asset Coverage
MM CLOs have OC cushions in line with BSL CLOs.

Current Min. OC Test Cushion, by Issue Date
30
25
25
20
20
15
15
10
10
CLO Min OC Cushion
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
As of 7/9/2014
MML Min OC Cushion
63
Jan-12
Jul-11
Jul-10
Jan-11
Issue Date
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
-5
Jul-06
-5
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Current Min OC Cushion
30
MM CLO collateral portfolios have lower average ratings and are less diverse.
Initial Portfolio
Covenant Limits
Overcollateralization
Cov
CCC
Lite
WARF WAS WAC WAL
17.5% 15.0% 3,340 4.8 7.0 7.5
MM CLO (2012-2014)
Mat.
5.1
WAS (ex
Floors)
5.2
WAS
5.9
BSL CLO (2012-2014)
6.0
3.9
4.6
7.5%
50.0% 2,720 3.8
7.0
BSL CLO (2014 Only)
6.1
3.8
4.4
7.5%
60.0% 2,706 3.8
7.0
Div
35
A/B Trigger
142.8%
A/B Cushion
9.1%
8.0
50
124.0%
10.2%
8.0
58
124.3%
10.6%
as of 7/22/2014
Source: S&P, Moody's, Wells Fargo Securities, LLC
MM CLO collateral assets have higher coupons, and are less likely to be covenant-lite.
64
Middle CLOs: Loan Spreads vs. MM CLO AAA Spreads
Middle market CLOs posted an initial WAS (ex-floors) that is 105 bps wider than BSL
CLOs, on average.
Based on a total debt cost of a MM CLO that is generally about 25 bps50 bps higher, we
see that middle market CLOs offer 50 bps75 bps of additional excess spread.
bps
900
900
MM Loan Spreads vs. MM CLO AAA Spreads
850
850
800
800
750
750
700
700
650
650
600
600
550
550
500
500
450
450
400
400
350
350
300
300
250
250
200
200
150
150
100
100
Middle Market CLO (AAA) Spread

Source: Wells Fargo Securities, LLC, Thomson Reuters, LLC
65
MM Inst. Loan Spread (ex OID)
Feb-14
Nov-13
Aug-13
May-13
Feb-13
Nov-12
Aug-12
May-12
Feb-12
Nov-11
Aug-11
May-11
Feb-11
Nov-10
50
Aug-10
May-10
50
Middle CLOs: Collateral Portfolio Yield
Collateral portfolios in MM CLOs tend to have average yields 150 bps 175 bps higher
than those of BSL CLOs.
This table shows current CLO collateral portfolio coupons, by vintage.
Vintage
2003
2004
2005
2006
2007
2008
2010
2011
2012
2013
2014
Total
MM CLO
Median WAC
Mean WAC
7.41
7.41
6.20
7.13
7.61
8.61
5.50
6.21
4.91
4.91
NA
NA
7.43
7.43
6.41
6.41
5.89
6.18
6.19
6.68
5.91
6.41
5.83
6.15
WAC in %
WAC = C alculated WAC per Intex
as of 7/11/2014
66
BSL CLO
Median WAC
Mean WAC
5.37
4.91
3.62
4.04
4.06
3.84
4.08
4.19
4.07
4.11
3.77
3.34
3.89
3.89
4.35
4.52
4.60
4.67
4.63
4.69
4.72
4.70
4.39
4.39
Middle CLOs: Collateral
We present WAC and WARF statistics on outstanding MM CLOs as proxy for

risk/reward.
8.0
Collateral Portfolio WAC and WARF, U.S. BSL CLOs Outstanding
7.5
7.0
6.5
MML Current WAC
6.0
Median WAC = 5.89
5.5
5.0
4.5
4.0
3.5
Median WARF = 3,286
3.0
2,000
2,200
2,400
2,600
2,800
3,000
3,200
MML CLO Trustee Reported WARF

67
as of July 9, 2014
3,400
3,600
3,800
Middle CLOs: Rating Performance: 2009 Downgrades
In 2009, Moodys downgraded fewer MM CLO tranches than BSL CLO tranches.
Dec. 08 Rating
Caa
Ca/C
WR
Aaa
Aa
56.7%
29.8%
5.3%
1.2%
0.6%
1.2%
0.0%
0.0%
5.3%
Aa
1.9%
40.2%
38.3%
8.4%
4.7%
0.9%
0.9%
0.0%
4.7%
0.0%
0.0%
21.7%
42.2%
30.1%
2.4%
0.0%
0.0%
3.6%
Baa
0.0%
0.0%
2.4%
7.3%
48.8%
32.9%
7.3%
1.2%
0.0%
Ba
0.0%
0.0%
0.0%
0.0%
1.9%
36.5%
48.1%
7.7%
5.8%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
50.0%
50.0%
0.0%
U.S. Cash CLOs (ex. SME CLOs)

Dec. 2009 Rating
Baa
Ba
Caa
B
0.6%
0.6%
0.2%
0.3%
26.2%
3.5%
0.2%
0.5%
34.1%
54.8%
4.7%
1.5%
42.8%
22.0%
2.1%
21.3%
0.0%
0.9%
14.6%
47.1%
0.0%
0.0%
0.0%
35.3%
0.0%
8.3%
16.7%
0.0%
0.0%
0.0%
0.0%
0.0%
Ca/C
0.0%
0.2%
1.1%
8.0%
36.1%
41.2%
58.3%
52.2%
WR
2.0%
1.2%
1.1%
3.7%
1.4%
23.5%
16.7%
47.8%
Aaa
Dec. 08 Rating
U.S. Cash SME CLOs

Dec. 2009 Rating
Baa
Ba
B
Aaa
Aa
A
Baa
Ba
B
Caa
Ca/C
Aaa
Aa
34.8% 48.0%
0.2% 16.3%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
A
13.6%
51.8%
2.7%
0.1%
0.0%
0.0%
0.0%
0.0%
Source: Moody's
68
Middle CLOs: Rating Performance: After the Crisis
After 2009, as the credit recovery began to take hold, CLOs in general, including middle
Rating
(as of 7/22/10)
market CLOs, began to see tranche upgrades.

CLO note rating transitions were already showing upgrades when Moodys again
changed its rating methodology in 2011.
Indeed, 26% of middle market CLO notes rated Ba in July 2010 had been upgraded one
year later
Aaa
Aa
A
Baa
Ba
B
Caa
Ca/C
Aaa
86.7%
13.8%
5.8%
2.0%
0.0%
0.0%
0.0%
0.0%
Aa
0.0%
79.3%
13.0%
5.9%
1.4%
0.0%
0.0%
0.0%
A
0.0%
0.0%
72.5%
5.9%
9.6%
0.0%
0.0%
0.0%
U.S. Cash SME CLOs

Rating % as of 7/22/11
Baa
Ba
B
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
76.5%
2.0%
0.0%
15.1%
65.8%
8.2%
8.3%
14.6%
72.9%
2.6%
5.1%
5.1%
0.0%
0.0%
0.0%
Source: Moody's
69
Caa
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
87.2%
0.0%
Ca/C
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
100.0%
WR
13.3%
6.9%
8.7%
7.8%
0.0%
4.2%
0.0%
0.0%
Middle CLOs: Default History
CLO tranche default rates are low: between 1994 and 2013, only 0.52% of rated tranches
have defaulted (including seven tranches currently rated CC).
Per S&P, only six of the 25 CLO tranches that already defaulted were from MM CLOs.
S&P states that three MM CLOs that had defaulted tranches were due to market value
provisions, which are rarely found in CLOs.
S&P Rated U.S. CLO Tranches, 1994-2013
Original rating
AAA
AA
A
BBB
BB
B
Total
Total tranches
1,992
1,005
1,119
1,069
841
115
6,141
Defaulted
tranches
0
0
5
3
14
3
25
Default rate
0.00%
0.00%
0.45%
0.28%
1.66%
2.61%
0.41%
Default Rate, inc. 7

tranches rated CC
0.00%
0.00%
0.45%
0.47%
2.26%
2.61%
0.52%
S&P also counts 7 tranches currently rated CC, which implies default is a "virtual certainty." These
tranches were all originally rated BBB or BB.
Source: S&P
For a complete look at CLO default rates, and a comparison between CLO tranche default rates and
corporate default rates, please see The CLO Salmagundi: CLOs vs. Corporates, Wells Fargo
Research, 3/14/14.
70
Middle Market CLO Managers
Middle CLO Managers: Overview
Balance-sheet MM CLOs are typically issued by nondepository SFCs

that issue loans to small- and middle-market businesses.
These middle-market businesses are typically too large to obtain

financing from small-business lenders and too small to obtain funding
from large commercial banks and the institutional loan markets.
SFCs hone in on this niche and offer a variety of loan products and
financing options that include (but are not limited to); first- and
second-lien term loans, mezzanine debt, revolvers and uni-tranche
loans.
SFCs earn income through loan structuring fees, interest on their loan
products, advisory fees, dividend distributions and servicing fees (fees

earned for collecting payments from the loan portfolio).
72
We believe that the manager is more important to MM CLO investors

than to BSL CLO investors, for several reasons.
First, MM CLO managers are typically involved in the origination of the

assets, while BSL CLO managers are essentially choosing from the same
universe of collateral assets in the primary and secondary markets.
Second, middle-market lenders, and by extension MM CLOs, tend to be

more specialized. Lenders may focus on certain types of financing, or on
specific industries, possibly leading to large differences in CLO
collateral stratifications and collateral limits.
Third, MM CLOs may have fewer assets in the collateral pool, making
each asset selection decision more important.
73
Finally, transfer of management of a CLO may be more difficult in MM

CLOs than in BSL CLOs, since the MM CLO manager is typically the
underwriter of the loans, or involved in the origination.
Therefore, the manager will likely be more involved in the company

throughout the life of the loan and should have a deeper understanding
of the company and management.
Consequently, a replacement manager could be at a significant

disadvantage assuming management of the portfolio, whereas BSL CLO
assets should largely be familiar to a new CLO manager.
A mitigant to this disadvantage is that banks have had success selling

portfolios, and more managers are familiar with the credits.
74
Investors in middle market CLOs need to understand and analyze the

performance of middle market loans.
After all, structural protections and collateral manager have a large effect on
CLO performance but, ultimately, the best structure can not overcome bad
assets.
We believe that investors should carefully examine the particular CLO

managers performance data. While past performance may not provide a look
into the future, we believe that an individual managers record is most
important.
In cases in which the CLO issuer is publicly traded, CLO investors may be able to
access company reports and equity research to get a better understanding of the
companys performance, style and management.
Investors should understand what type of assets are contributed to the CLO.
75
Middle CLO Managers: Servicer Risk
Investors in MM CLOs may wonder about servicer bankruptcy risk.

Although MM CLOs are structured to be bankruptcy remote, insolvency of the
SFC (or its affiliated transaction parties) can potentially change the risk profile
of a MM CLO.
In addition, notes senior in the capital structure may be affected differently than
notes that are subordinate in the capital structure.
Our general rule of bankruptcy is that investors should expect the unexpected.
Isolated cases in sectors such as future-flow transactions, whole business
securitizations and CMBS indicate that the risk of consolidation is not zero.
CLO investors, particularly in financing transactions, should not be complacent,
and may have to be especially vigilant in protecting themselves should the

servicer enter bankruptcy.
76
We recommend that investors check to see if either servicer default or

bankruptcy of the servicer/originator constitutes an event of default
under the indenture (typically section 5.01 of the indenture).
Bankruptcy is often defined as an insolvency event within the

transaction documents.
Typically, the backup servicer (if applicable) will assume the role of
servicing the underlying collateral, acting as the successor servicer.
Some transactions enable the servicer or majority holders to instruct the

backup servicer to sell servicing rights to an eligible third party.
In this case, the backup servicer will typically be responsible to

negotiate the sale and will direct net sales proceeds back to the SFC
(servicer) or its estate
77
The transfer of servicing may have a negative effect on the loan performance of
the underlying collateral.
Since there is a limited trading market for middle market loan collateral,
distressed loans are likely go through a workout with the servicer (rather than
be sold).
A successor servicer may be at a disadvantage when going through the loan

workout process, as it was not involved in the upfront due diligence,
underwriting and structuring of a middle market loan.
MM CLO investors should be aware that a servicing transfer could potentially

adversely affect the recovery values of defaulted collateral.
MM CLO investors should be aware that upon bankruptcy of the SFC (servicer),
there is a potential for a third-party to assume the role of servicer, without

consent of the noteholders (in some cases).
78
Middle CLO Managers: Servicer Risk: History
American Capital (ACAS) approached bankruptcy in Q2 2010, as
corporate debt covenant violations granted lenders the right to

accelerate maturity of $2.4 billion in unsecured debt, which would have
likely led to a default.
However, lenders eventually agreed to a debt exchange plan in June

2010 and avoided bankruptcy.
Moodys reported that while the backup servicers were in place then,
ultimately, ACAS remained as the servicer.
Moodys covered this case in a 2011 report that pointed out that
manager and servicer problems had little effect on CLOs during the
financial crisis (CLO Interest, April 2011).
79
We present the top 10 MM CLO managers, by count, according to Intex data.

We also present deal summaries on the CLOs for these CLO managers.
These deal summaries should help illustrate the difference in manager style,
and how some MM CLOs are actually blends of MM and BSL loans.
We also note that not all structures are the same; some CLOs may actually
be bilateral lending facilities structured with CLO technology.
Manager
Golub C apital Incorporated
Ivy Asset Management C orp.
NewStar
GSC Partners
Denali C apital LLC
Fortress Investment C orp
NXT C apital Investment Advisers
MC F C apital Management
C erberus
GSO/Blackstone Debt Funds Management
Deal #
8
7
6
6
5
4
3
3
3
3
Issued
mm)
3,415
2,689
2,584
2,512
2,537
2,223
1,023
938
1,597
1,392
($ Outstanding
($ mm)
3,137
1,531
2,064
529
1,118
2,070
1,023
938
916
575
Source: Intex, Wells Fargo Securities

As of 7/23/2014
Some managers may have more CLOs outstanding, but we only include those CLOs in Intex with
recent updates. For example, Fortress has more CLOs than listed, but they are not in Intex.
80
These deal summaries should help illustrate the difference in manager style,
and how some MM CLOs are actually blends of MM and BSL loans.
For example, Denali Capital CLOs have a smaller allocation to MM loans than
true originator MM CLOs, and therefore have higher diversity scores.
Platforms have different strategies, which makes comparing certain metrics in

some MM CLOs less worthwhile, due to the collateral differences.
For example, Cerberus deals are less levered, and have higher WARFs but
much higher asset WACs, than traditional MM issuers such as NewStar.
This is because the Cerberus platform is pursuing a different strategy than

more traditional MM lenders such as NewStar.
We also note that not all structures are the same; some CLOs may actually
be bilateral lending facilities structured with CLO technology.
81
Middle CLO Managers: Golub Capital
Factor
Orig Bal
($ mm)
Curr
Bal ($
mm)
Collat.
Bal ($
mm)
Issue
Date
Orig
WARF
Stated
WARF
Wt. Avg.
Liab.
Spread
(bps)
Asset
WAC
CLO Deal Name
Manager
GOLUB INTERNATIONAL LOAN I
73%
500.0
366.4
415.0
Mar-06
3,503
50
7.64
GOLUB C APITAL PARTNERS FUNDING 2007-1
64%
400.0
255.7
285.8
Mar-07
2,948
3,679
42
7.33
Asset
WAS
(bps)
614
GOLUB C APITAL BDC 2010-1
100%
350.0
350.0
358.1
Jul-10
3,232
3,663
178
7.49
700
GOLUB C APITAL PARTNERS C LO 12
100%
250.6
250.6
253.7
Jan-12
3,125
3,658
259
6.89
661
100%
502.5
502.5
502.1
Aug-13
3,686
3,515
193
6.95
661
100%
556.2
556.2
553.1
Nov-13
3,311
224
5.99
577
GOLUB C APITAL PARTNERS C LO 18(M)
100%
453.1
453.1
Mar-14
223
6.73
GOLUB C APITAL BDC C LO 2014
100%
Jun-14
3,500
205
6.88
Total
Data on recent deals may be missing as collateral fields are updated
As of 7/23/2014
402.6
402.6
3,415
3,137
2,368
SR OC Test
Min OC Test
Min Test
CLO Deal Name
Manager
Asset
Reinv. WAC
Issued End
%
GOLUB INTERNATIONAL LOAN I
Mar-06
Aug-13
7.64
24.0
125.9
24.0
125.9
18.7
131.2
28.0
37.0
GOLUB C APITAL PARTNERS FUNDING 2007-1 Golub C apital Incorporated
Mar-07
Mar-13
7.33
0.0
0.0
0.0
0.0
0.0
0.0
28.9
37.0
GOLUB C APITAL BDC 2010-1
Jul-10
Jul-15
7.49
6.0
158.0
6.0
158.0
3.5
160.5
37.0
34.0
Jan-12
Mar-15
6.89
11.4
144.8
6.2
133.5
6.2
133.5
34.0
30.0
Aug-13
Jul-16
6.95
9.6
144.8
5.6
130.1
5.6
130.1
44.0
43.0
Nov-13
Oct-17
5.99
10.8
142.8
5.8
121.4
5.8
121.4
48.0
46.0
GOLUB C APITAL PARTNERS C LO 18(M)
Mar-14
Apr-18
6.73
9.0
156.0
6.0
128.4
6.0
128.4
0.0
0.0
GOLUB C APITAL BDC C LO 2014
Jun-14
Apr-18
6.88
9.0
153.6
5.0
136.1
5.0
136.1
35.0
32.0
Note: Min Test is OC Test lowest in the C apital Structure, and includes Interest Diversion Tests
As of 7/23/2014
82
Cushion Trigger Cushion Trigger
Div.
Div.
Score
Cushion Trigger Score Trigger
Middle CLO Managers: Ivy Hill
Factor
Orig Bal
($ mm)
Curr
Bal ($
mm)
Collat.
Bal ($
mm)
Issue
Date
Orig
WARF
Stated
WARF
Wt. Avg.
Liab.
Spread
(bps)
Asset
WAC
Asset
WAS
(bps)
CLO Deal Name
Manager
EMPORIA PREFERRED FUNDING I
Ivy Asset Management C orp. 10%
426.0
42.4
8.3
Oct-05
2,900
3,490
6.70
C OLTS 2005-2 LTD
407.0
67.0
11.9
Jan-06
6.41
EMPORIA PREFERRED FUNDING II LTD
365.9
122.2
98.9
Jun-06
2,883
2,676
175
5.56
420
EMPORIA PREFERRED FUNDING III
414.8
289.0
269.4
Mar-07
3,012
2,958
73
5.36
399
IVY HILL MIDDLE MARKET C REDIT FUND III
315.0
315.0
316.6
Dec-11
3,043
3,254
306
5.82
559
IVY HILL MIDDLE MARKET C REDIT FUND IV
400.0
336.0
341.4
Jul-12
2,988
3,286
210
5.69
544
IVY HILL MIDDLE MARKET C REDIT FUND VII
359.8
359.8
Oct-13
3,264
3,237
241
5.72
2,689
1,531
Total
As of 7/23/2014
475
1,047
SR OC Test
Min OC Test
Min Test
CLO Deal Name
Manager
Asset
Reinv. WAC
Issued End
%
EMPORIA PREFERRED FUNDING I
Oct-05
Oct-11
6.70
0.0
0.0
0.0
0.0
0.0
0.0
1.0
C OLTS 2005-2 LTD
Jan-06
Feb-09
6.41
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
EMPORIA PREFERRED FUNDING II LTD
Jun-06
Jul-12
5.56
129.3
118.2
7.9
101.7
5.9
103.7
19.0
40.0
Div.
Div.
Score
40.0
EMPORIA PREFERRED FUNDING III
Mar-07
Apr-13
5.36
39.7
112.4
4.2
101.4
1.7
103.9
40.0
45.0
IVY HILL MIDDLE MARKET C REDIT FUND III
Dec-11 Mar-15
5.82
11.9
159.6
6.4
114.1
6.4
114.1
51.0
46.0
IVY HILL MIDDLE MARKET C REDIT FUND IV
Jul-12
Jul-15
5.69
8.3
125.8
8.3
125.8
8.3
125.8
55.0
50.0
IVY HILL MIDDLE MARKET C REDIT FUND VII
Oct-13
Oct-17
5.72
10.1
135.1
5.1
108.3
3.6
109.8
53.0
43.0
As of 7/23/2014
83
Middle CLO Managers: NewStar
CLO Deal Name
Manager Factor
Orig Bal
($ mm)
Curr
Bal ($
mm)
Collat.
Bal ($
mm)
Issue
Date
Orig
WARF
Stated
WARF
Wt. Avg.
Liab.
Spread
(bps)
Asset
WAC
Asset
WAS
(bps)
NEWSTAR C OMMERC IAL LOAN TRUST 2006-1
NewStar
37%
500.0
183.8
181.1
Jun-06
3,695
73
5.53
616
NewStar
72%
600.0
431.2
438.1
Jun-07
77
4.91
577
NEWSTAR C OMMERC IAL LOAN FUNDING 2012-2
NewStar
100%
325.9
325.9
325.9
Dec-12
3,044
3,221
312
5.72
543
NewStar
91%
400.0
365.0
368.7
Sep-13
3,286
247
5.64
539
NewStar
100%
348.4
348.4
Apr-14
3,000
272
5.71
NEWSTAR ARLINGTON SENIOR LOAN PROGRAM
NewStar
100%
409.4
409.4
Jun-14
2,950
256
5.95
Total
2,584
As of 7/23/2014
2,064
1,314
SR OC Test
Min OC Test
Min Test
CLO Deal Name
Asset
Reinv. WAC
Manager Issued End
%
NewStar
Jun-06
Jun-11
5.53
0.0
0.0
0.0
0.0
0.0
0.0
28.1
NewStar
Jun-07
May-13
4.91
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
NewStar
Dec-12
Jan-16
5.72
9.4
141.0
3.4
113.2
3.4
113.2
39.0
30.0
Div.
Div.
Score
32.0
NewStar
Sep-13 Sep-16
5.64
21.6
131.7
6.3
108.6
6.3
108.6
41.0
30.0
NewStar
Apr-14
Apr-18
5.71
9.0
139.5
3.0
110.6
3.0
110.6
33.0
30.0
NEWSTAR ARLINGTON SENIOR LOAN PROGRAM
NewStar
Jun-14
Jul-18
5.95
9.0
138.5
3.0
108.2
3.0
108.2
40.0
38.0
As of 7/23/2014
84
Middle CLO Managers: GSC Partners
Factor
Orig Bal
($ mm)
Curr
Bal ($
mm)
Collat.
Bal ($
mm)
Issue
Date
Orig
WARF
Stated
WARF
Wt. Avg.
Liab.
Spread
(bps)
Asset
WAC
Asset
WAS
(bps)
CLO Deal Name
Manager
GSC PARTNERS C DO FUND IV
GSC Partners 23%
440.0
100.0
26.2
Dec-03
2,741
7,143
7.41
700
GSC PARTNERS C DO FUND V
GSC Partners 14%
600.0
81.0
44.1
Dec-04
2,863
5,624
5.63
421
GSC PARTNERS C DO FUND VI
GSC Partners 10%
400.0
41.0
7.7
Oct-05
2,988
9.56
GSC C APITAL C ORP. LOAN FUNDING 2005-1
GSC Partners 8%
300.0
24.0
4.1
Jan-06
3,008
10,000
9.35
850
GSC PARTNERS C DO FUND VII
GSC Partners 29%
413.1
121.1
103.9
May-06
3,111
3,489
241
5.46
441
GSC GROUP C DO FUND VIII
GSC Partners 45%
359.4
161.8
150.7
Mar-07
2,531
3,001
71
5.27
497
Total
2,512
As of 7/23/2014
529
337
Asset
Reinv. WAC
Issued End
%
SR OC Test
Min OC Test
Div.
Div.
Score
CLO Deal Name
Manager
GSC PARTNERS C DO FUND IV
GSC Partners Dec-03
Jan-09
7.41
0.0
0.0
0.0
0.0
0.0
0.0
4.0
42.0
GSC PARTNERS C DO FUND V
GSC Partners Dec-04 May-10
5.63
0.0
0.0
0.0
0.0
0.0
0.0
4.0
60.0
GSC PARTNERS C DO FUND VI
GSC Partners Oct-05
Oct-11
9.56
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
GSC C APITAL C ORP. LOAN FUNDING 2005-1
GSC Partners Jan-06
Feb-12
9.35
0.0
0.0
0.0
0.0
0.0
0.0
1.0
45.0
GSC PARTNERS C DO FUND VII
GSC Partners May-06 May-12
5.46
1408.3
123.0
12.2
104.8
12.2
104.8
13.0
48.0
GSC GROUP C DO FUND VIII
GSC Partners Mar-07
5.27
28.8
113.2
5.7
101.2
4.7
102.2
30.0
52.0
Apr-14
Min Test
As of 7/23/2014
85
Middle CLO Managers: Denali Capital
Factor
Orig Bal
($ mm)
Curr
Bal ($
mm)
Collat.
Bal ($
mm)
Issue
Date
Orig
WARF
Stated
WARF
Wt. Avg.
Liab.
Spread
(bps)
Asset
WAC
Asset
WAS
(bps)
CLO Deal Name
Manager
DENALI C APITAL C LO IV
Denali C apital LLC 3%
400.0
13.8
3.0
Aug-04
2,424
3,403
9.60
448
DENALI C APITAL C LO V
410.0
73.1
56.6
Sep-05
2,525
2,660
167
4.80
356
DENALI C APITAL C LO VI
500.9
115.6
88.5
Mar-06
2,431
2,688
154
4.98
366
DENALI C APITAL C LO VII
812.9
812.9
787.6
May-07
2,453
2,674
42
4.56
356
413.3
103.0
87.4
Jul-07
3,130
2,997
255
5.05
381
SPRING ROAD C LO 2007-1 Denali C apital LLC 25%
Total
2,537
1,118
As of 7/23/2014
Asset
Reinv. WAC
Issued End
%
1,023
SR OC Test
Min OC Test
Div.
Div.
Score
CLO Deal Name
Manager
DENALI C APITAL C LO IV
Denali C apital LLC Aug-04 Sep-10
9.60
0.0
0.0
0.0
0.0
0.0
0.0
2.7
80.0
DENALI C APITAL C LO V
Denali C apital LLC Sep-05
Oct-11
4.80
899.3
108.1
90.0
104.9
89.0
105.9
22.2
65.0
DENALI C APITAL C LO VI
Denali C apital LLC Mar-06
Jul-12
4.98
153.4
114.0
6.8
102.8
6.8
102.8
29.8
80.0
DENALI C APITAL C LO VII
Denali C apital LLC May-07
SPRING ROAD C LO 2007-1 Denali C apital LLC Jul-07
Min Test
Jul-14
4.56
6.5
110.0
2.1
101.8
0.9
103.0
93.5
87.0
Jul-13
5.05
641.2
123.3
23.8
102.8
22.3
104.3
34.0
35.0
As of 7/23/2014
We do not include Denali Capital CLO X, issued in 2013, due to the high allocation to BSL loans.
86
Middle CLO Managers: Fortress Investment Corp.
Factor
Orig Bal
($ mm)
Curr
Bal ($
mm)
Collat.
Bal ($
mm)
Issue
Date
Orig
WARF
Stated
WARF
Wt. Avg.
Liab.
Spread
(bps)
Asset
WAC
Asset
WAS
(bps)
CLO Deal Name
Manager
FORTRESS C REDIT FUNDING III
82%
840.0
686.9
745.9
Aug-06
2,586
49
6.45
596
FORTRESS C REDIT FUNDING V
100%
408.8
408.8
406.1
Aug-12
2,806
3,182
281
6.40
622
171.8
Aug-12
2,779
3,070
281
6.10
605
Apr-14
3,750
267
7.71
FORTRESS C REDIT FUNDING VI
100%
173.9
173.9
FORTRESS C REDIT OPPORTUNITIES III C LO
100%
800.0
800.0
2,223
2,070
Total
As of 7/23/2014
1,324
SR OC Test
Min OC Test
Min Test
CLO Deal Name
Manager
Asset
Reinv. WAC
Issued End
%
FORTRESS C REDIT FUNDING III
Aug-06 Sep-13
6.45
26.4
126.8
18.9
120.5
6.9
132.5
28.7
28.0
FORTRESS C REDIT FUNDING V
Aug-12 Aug-15
6.40
12.3
139.0
5.7
109.5
4.7
110.5
33.0
28.0
Div.
Div.
Score
FORTRESS C REDIT FUNDING VI
Aug-12 Aug-15
6.10
11.6
139.0
5.2
109.5
4.2
110.5
32.0
28.0
FORTRESS C REDIT OPPORTUNITIES III C LO
Apr-14
7.71
17.0
153.6
5.0
119.7
3.7
121.0
40.0
35.0
Oct-17
As of 7/23/2014
Fortress has more CLOs than listed, but they are not in Intex.
87
Middle CLO Managers: NXT Capital
Orig Bal
($ mm)
Curr
Bal ($
mm)
Collat.
Bal ($
mm)
Issue
Date
Orig
WARF
Stated
WARF
Wt. Avg.
Liab.
Spread
(bps)
Asset
WAC
Asset
WAS
(bps)
CLO Deal Name
Manager
Factor
NXT C APITAL C LO 2012-1
100%
307.9
307.9
302.7
May-12
3,228
3,580
309
6.42
620
100%
357.9
357.9
352.2
Mar-13
3,724
3,491
236
6.24
603
100%
357.4
357.4
May-14
3,500
255
6.32
Total
1,023
As of 7/23/2014
1,023
655
SR OC Test
Min OC Test
Min Test
CLO Deal Name
Manager
Asset
Reinv. WAC
Issued End
%
May-12
Jul-15
6.42
10.1
144.6
4.6
112.1
3.1
113.6
31.0
25.0
Mar-13
Apr-16
6.24
11.0
142.8
5.2
109.4
3.7
110.9
39.0
34.0
May-14 Apr-18
6.32
10.0
150.7
4.5
111.0
3.0
112.5
35.0
32.0
As of 7/23/2014
88
Div.
Div.
Score
Middle CLO Managers: MCF (Madison Capital)
Orig Bal
($ mm)
Curr
Bal ($
mm)
Collat.
Bal ($
mm)
Issue
Date
Orig
WARF
Stated
WARF
Wt. Avg.
Liab.
Spread
(bps)
Asset
WAC
Asset
WAS
(bps)
CLO Deal Name
Manager
Factor
MC F C LO I
100%
327.7
327.7
327.0
Feb-13
3,268
3,471
247
6.18
600
MC F C LO II
100%
304.1
304.1
302.3
Mar-13
3,323
3,467
257
6.13
594
MC F C LO III
100%
305.9
305.9
301.8
Jan-14
233
6.15
581
938
938
Total
As of 7/23/2014
931
CLO Deal Name
Manager
Asset
Reinv. WAC
Issued End
%
SR OC Test
Min OC Test
Min Test
Div.
Div.
Score
MC F C LO I
Feb-13
Apr-16
6.18
10.9
141.2
5.2
108.4
4.2
109.4
39.0
35.0
MC F C LO II
Mar-13
Apr-16
6.13
11.1
142.7
5.4
107.4
4.4
108.4
39.0
32.0
MC F C LO III
Jan-14
Jan-17
6.15
10.9
141.3
5.2
109.6
4.2
110.6
0.0
0.0
As of 7/23/2014
89
Middle CLO Managers: Cerberus
CLO Deal Name
Manager Factor
A5 FUNDING 2012
C erberus 15%
Orig Bal
($ mm)
Curr
Bal ($
mm)
Collat.
Bal ($
mm)
Issue
Date
Orig
WARF
525.0
80.6
299.0
Apr-12
Stated
WARF
Wt. Avg.
Liab.
Spread
(bps)
4,048
544
9.14
935
Asset
WAC
Asset
WAS
(bps)
ABLEC O C APITAL
C erberus 61%
614.3
377.1
366.0
Sep-13
338
8.92
892
C ERBERUS ONSHORE II C LO
C erberus 100%
458.2
458.2
450.2
Jan-14
4,265
251
9.03
885
Total
1,597
916
As of 7/23/2014
CLO Deal Name
Asset
Reinv. WAC
Manager Issued End
%
A5 FUNDING 2012
C erberus Apr-12
May-13
1,115
SR OC Test
Min OC Test
9.14
401.3
167.7
194.1
Min Test
Div.
Div.
Score
157.5
194.1
157.5
20.0
22.0
ABLEC O C APITAL
C erberus Sep-13 Sep-13
8.92
132.5
159.1
38.6
130.8
38.6
130.8
0.0
0.0
C ERBERUS ONSHORE II C LO
C erberus Jan-14
9.03
12.0
180.3
6.0
147.6
6.0
147.6
28.0
22.0
May-15
As of 7/23/2014
90
Middle CLO Managers: GSO / Blackstone
CLO Deal Name
Manager
Factor
Orig Bal
($ mm)
Curr
Bal ($
mm)
Collat.
Bal ($
mm)
Issue
Date
Orig
WARF
Stated
WARF
Wt. Avg.
Liab.
Spread
(bps)
Asset
WAC
FRIEDBERGMILSTEIN PRIVATE C APITAL FUND I GSO/Blackstone 21%
584.0
119.9
6.9
Dec-04
2,814
6.31
MAPS C LO FUND I
GSO/Blackstone 14%
408.2
55.4
1.7
Dec-05
3,063
15.50
MAPS C LO FUND II
GSO/Blackstone 100%
400.0
400.0
384.4
Jun-07
2,762
2,374
Total
1,392
As of 7/23/2014
575
393
Asset
Reinv. WAC
Issued End
%
SR OC Test
Min OC Test
3.84
344
Min Test
Div.
Div.
Score
CLO Deal Name
Manager
FRIEDBERGMILSTEIN PRIVATE C APITAL FUND I
GSO/Blackstone Dec-04
6.31
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
MAPS C LO FUND I
GSO/Blackstone Dec-05 Dec-10 15.50
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
MAPS C LO FUND II
GSO/Blackstone Jun-07
8.8
120.2
3.0
103.2
1.4
104.8
61.0
55.0
Jan-11
Jul-14
60
Asset
WAS
(bps)
3.84
As of 7/23/2014
91
Disclosure Appendix
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This report was prepared by Wells Fargo Securities, LLC.
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92
Disclosure Appendix
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The Middle Market CLO Desktop Primer

David Preston, CFA

Jason McNeilis, CFA

July 24, 2014

Please see the disclosure appendix of this publication for

Securitization backed by a pool of corporate loans

For a complete introduction to CLOs, we recommend our CLO Primer.

What Is a CLO: Cash Flow CLO

Cash flow CLOs also feature reinvestment periods.

The reinvestment period is an IO period for the CLO.

What Is a CLO: Basic Structure

Source: Wells Fargo Securities, LLC

What Is a CLO: Structure

What Is a CLO: Structure

Coverage tests act to protect senior note holders.

What Is a CLO: CLO Life Cycle

Reinvestment Period: Collateral Manager permitted to

What is a CLO: CLO Life Cycle

manager prior to note issuance.

What Is a CLO: CLO Life Cycle

used to retire the notes sequentially.

What Is a CLO: Reinvestment

During reinvestment, the CLO manager is limited in trading by a series of

What Is a CLO: Reinvestment

What Is a CLO: Two Types of CLOs

CLOs: assets are typically floating rate, senior secured, first-lien

Balance Sheet CLO

Asset manager purchases in

Manager reinvests principal

Manager reinvests principal proceeds

Manager can trade the portfolio,

Manager can trade the portfolio,

Source: Wells Fargo Securities, LLC

What Is a CLO: Two Types of CLOs

Arbitrage CLOs are issued by asset managers as an efficient way to

Assets (loans) are purchased in the primary and secondary markets.

The balance sheet CLO issuer typically originates the assets.

Middle Market Lending: The Market

Middle Market Loans: Definition

3. Combination: Thomson Reuters LPCs definition:

Middle Market Loans: Definition

involved in origination, while BSL loans are purchased in primary or secondary

Middle Market Loans: Definition

1. General Borrower Size Market Segmentation:

Small Middle Market

$7.5 million to $25 million

Traditional Middle Market

$15 million to $35 million

Large Middle Market

$30 million to $75 million

2. Thomson Reuters LPC Definition:

Deal Size <$100 million

Large Middle Market

$100 million < Deal Size < $500 mmm

Deal Size <$200 million

Larger Middle Market

$200 million < Deal Size < $350 mmm

Middle Market Loans: The Market

increase of approximately 13%.

Source: Thomson Reuters LPC

Middle Market Loan Total Issuance

Middle Market Loans: The Market

Much of the middle-market lending is done by regional banks to

Non-sponsored lending is larger but less relevant for CLO investors.