High Yield Bonds: Job Creation, Democratization of Capital and Investment Opportunities

1. High Yield Bonds: Job Creation, Democratization of Capital and Investment Opportunities Presented by: Patrick Mitchell Managing Director Post Advisory Group, LLC

3. History of High Yield • The American Dream is about equality and freedom • Our free market system is the envy of the world • Enables entrepreneurs to create new industries and build new companies • Access to capital makes an entrepreneur’s dreams become reality

4. Early High Yield Issuers • J.P. Morgan • Founder of J.P. Morgan and creator of U.S. Steel • Alexander Hamilton • Secretary of the Treasury

5. Jobs SavedJobs EnhancedJobs Created

6. The American Dream • Hovnanian Enterprises, Inc. • In 1959, An Iraqi family fled to the US and pooled their resources to launch a construction company • Their Concept: To build middle-income condos & townhouses using mass production technology • Strapped for growth capital in the early 1980s, the company was able to tap into the high yield market • After more than 40 years in business, Hovnanian has stayed close to its original concept: • Builds about 11,500 homes a year, with prices ranging from under $100,000 to about $1 million • Employs more than 3,000 people • Sales over $3 billion • Family still owns more than 90% of the business

7. Rebuilding • A company may decline for many reasons: • New technology makes existing products obsolete • Poor management decisions • Global competition • Changes in cost of raw materials • Overleveraged / wrong capital structure • When companies fall onto hard times, it is not that they are “worthless” they are only “worth less”…temporarily. • Rebuilding is a challenge for those that see value where others see ruin. • It takes determination, creativity and courage to rebuild an enterprise under difficult circumstances rather than walk away…

8. Rebuilding • Chrysler • Throughout the 1970s, the Chrysler Corporation was faltering • Troubles came from U.S. and Japanese competitors, high gas prices (1973 oil shock), and poor management decisions • Late 1970s, the U.S. Government deciding that Chrysler was too important to fail, initiated a multi-billion rescue plan • The company was able to raise capital by selling off assets, generating cash flow. Most notably, cash came through the only market still open to finance the company – the high yield market • A new management team was brought in under the leadership of Lee Iacocca and the rest is history… • Unlike countries like Japan – that are dependent upon the Government for bail out – high yield bonds have enhanced our free market enabling companies to succeed

9. Pioneers • Birth of the Cellular Industry • Wireless is one of the most promising technologies for the 21st Century • 1946, mobile telephony service was tested in St. Louis • 1970, AT&T had an improved service • By 1983, AT&T had done a study that concluded cellular as a business unit to be virtually worthless • 1982, the FCC offered licenses in 30 cities to build out the service • Dozens of companies filed for licenses…one made history…

10. Pioneers • McCaw Cellular Communications • 1969, after his father’s death, Craig McCaw took over the family-controlled cable company • 1979, McCaw focused on the cellular communications • 1982, McCaw won licenses in 30 U.S. markets from the FCC • In mid 1980s, McCaw raised a series of capital from the high yield marketplace • By the early 1990s, McCaw had become one of the industry’s largest companies • Ironically, by the late 1990s, in order to complete in cellular, AT&T purchased McCaw for more than $12 billion

11. Pioneers • The Building of Cable Television • Broadcasting has existed since Radio emerged during the 1920s followed by television in the 1930s • Early 1970s, pay television makes its debut • In 1972, Time, Inc. launched HBO • While cable was popular, its momentum slowed in the 1980s primarily due to economics • Marginal costs were low / profits were high, but initial installation was very expensive • The industry had an insatiable appetite for capital • At the same time, high yield bonds were coming of age. • It was the marriage of these two – high yield securities and the cable industry – that helped change the broadcasting industry forever.

12. Pioneers • Turner Broadcasting • 1963, Ted Turner takes over his father’s advertising business • 1970, Turner Broadcasting is launched with a bankrupt Atlanta UHF TV station • This fledging station would ultimately challenge the networks and cable TV (today it is the Superstation TBS) • 1980, CNN is launched as the first 24-hour television news network • The pundits coined it the “Chicken Noodle Network” • Today, it is the world’s source for breaking news • During the 1980s, Turner financed the growth of his business with high yield financing • In 1996, Time-Warner merged with Turner Broadcasting • At the time, it employed more than 3,000 people • Valued at more billions of dollars • Owned and operated: CNN, TBS, TNT, Cartoon Network, Turner Movie Classics, MGM film library

13. 1983-1989 High Yield Use of Proceeds Other Debt Refinancing General Corporate Uses 9% 33% 17% 41% Acquisitions

14. 1990-1999 High Yield Use of Proceeds General Corporate Uses Debt Refinancing Other 15% 48% 16% 21% Acquisitions

15. 2003 High Yield Use of Proceeds Other Debt Refinancing 9.5% 40.1% 40.1% 50.4% <1% General Corporate Uses Acquisitions

16. Democratization of Capital

17. Democratization of Capital • Definition: Expanding capital ownership, thereby aligning the interests of investors, workers, and the broader public. • How does it apply to High Yield? Between 1973 and 1988, Senator Russell Long sponsors a series of legislative measures to enable employees to “own” their jobs through capital rather than “rent” their jobs through wages.

18. Jobs…Jobs…Jobs

19. Few Companies are Investment Grade

20. Few People Work for Investment Grade Companies

21. Investing in High Yield

22. High Yield Bonds: Not Just “Junk” • What do you call 99% of all companies in America? • What do you call a loan to a company that created almost all of the new jobs? • What do you call one of the top performing investments?

23. Evolution of High Yield

24. Size of the High Yield Market

25. High Yield New Issuance In Billions

26. The Power of Compound Interest $100 invested over 30 years

27. Capital Structure Matters Senior Secured Debt Senior Debt Subordinated Debt Preferred Stock Common Stock

28. Risk is Not Just a Four Letter Word • Question: What do the following great companies have in Common? AT&T General Motors BellSouth IBM Ford Motors Microsoft General Electric Walt Disney Corp. • Answer: The stock price for each of these excellent and well-respected companies is now lower than the stock price on December 31, 1998. In fact if you held an equal weighted portfolio of these great companies your total rate of return over the past five years would have been a loss of over 10%.

29. You Already Own High Yield If you own the S&P 500 stocks, you already own over 100 high yield companies including the following: American Airlines JC Penney Boise Cascade Louisiana Pacific Briggs & Stratton Lucent Technologies Foot Locker Toys-R-Us Goodyear Tire & Rubber Winn-Dixie Hilton Hotels Xerox Corp. Many Institutions purchase S&P 500 Stocks because they are some of the best companies in the world. We agree!. The major difference is that in case of financial difficulties high yield bond holders will get paid 100% of their investment before the equity holder will get a dime.

30. Risk and Return 1979-2003 Return Equities High Yield Treasuries Risk

31. People Make the Difference Post Advisory Group Manager can Make the Difference!

32. Investment Opportunities

33. An Interdependent Marketplace • In a healthy society, free enterprise is the source of growth, prosperity and progress • Companies, regardless of industry – food service, technology, healthcare, consumer products, telecommunications – collectively represent our economy, and create value from which we all benefit • In perspective, it our free enterprise system and access to capital, not politics, which weaves the stronger fabric of American life