Presentation to the Petrochemical Feedstock Association of the Americas On the State of the Credit Markets

1. Presentation to the Petrochemical Feedstock Association of the AmericasOn the State of the Credit Markets November 12, 2009 Richard R.S. Smith Managing Director Co-Head of Loan & High Yield Markets RBS Global Banking and Markets (203) 897 2393 Richard.S.Smith@rbs.com

2. Agenda • Executive Summary: Macro-Economic Overview • High Grade Bank Market Update • High Grade Bond Market Update • Leveraged Bank Market Update • High Yield Bond Market Update • Q & A

3. Executive Summary: Macro-Economic Overview

4. RBS Market Update and AnalysisEconomic Indicators - Fundamentals Continue to Thaw • Fundamentals in the economy continue to improve featuring improving manufacturing data and signs of life in the housing market; despite moderating monthly job losses, overall unemployment still weighs heavily on general economic recovery • Almost any barometer of market sentiment has undergone a sharp and unprecedented correction since touching March 9th extremes. The Dow has eclipsed 10,000, crude is flirting with $80/barrel, 10-year rates are considerably higher and borrowing costs are at record lows • After pricing out the “apocalypse” scenarios of late 2008, are these current valuations really representative of a recessionary economy or have we come “too-far, too-fast” as investors sought overly-depressed values following a panic driven sell-off • Speculation now revolves around the viability and sustainability of the current recovery. Do these numbers represent real progress towards a return to growth or has a stimulus-fueled “sugar high” distracted the market from painful de-leveraging still to come? Return to growth in late 2009? Equity rally out of steam? Source: Bloomberg Source: Bloomberg

5. The Past to Revisit Us in 2011 and 2012 - Bank Facility and Bond Maturity Profile Value of all bank facilities maturing from Jan. 2009 through Dec. 2014 totals $3.1 trillionFacilities mature as follows: 2009 – $349BN (11.4%) 2010 – $406BN (13.2%) 2011 – $654BN (21.3%) 2012 – $811BN (26.4%) 2013 – $484BN (15.7%) 2014 – $368BN (12.0%) Value of all bonds maturing from Jan. 2009 through Dec. 2014 totals $1.3 trillion Bonds mature as follows: 2009 – $156BN (11.8%) 2010 – $149BN (11.3%) 2011 – $242BN (18.3%) 2012 – $234BN (17.7%) 2013 – $324BN (24.5%) 2014 – $218BN (16.5%) $3.1 trillion of maturing facilities $3.1 trillion of maturing facilities 2009 2010 2011 2012 2013 2014 $1.3 trillion of maturing bonds 2009 2010 2011 2012 2013 2014 Source: Bloomberg, Standard & Poor’s, Moodys, RBS Estimates

6. High Grade Bank Market Update

7. The High Grade Market Massive government intervention has calmed the markets to some extent and banks are gradually finding liquidity to finance their balance sheets, albeit at a price • Current Bank Market Dynamics • The last 2-3 months have seen a distinct improvement in the overall loan market. Banks have increasingly become willing to commit to facilities for key relationships and some facilities have even been oversubscribed and seen an upsizing at closing • Cautiousness with regard to capital will however continue to be a key feature of banks when considering committing to a transaction • Capital allocation decisions are made by weighing the returns against the strength of the overall relationship • Total bank-market volume has picked up in 3Q2009 but was still down a full 40% vs the same period in 2008 • Last year's bank failures/mergers (BoA/Merrill, Barclays/Lehman, PNC/NatCity, RBS/ABN) have led to an estimated 20-30% of total bank-capacity having been eliminated • Most facilities year-to-date have been refinancings with a select number of (large) acquisition facilities • Bond-for-loans and "amend-and-extend" have been two other main themes • 364day tenors continue to dominate transactions for A rated companies with 3-year tenors having made a "come-back" for BBB rated borrowers • In 3Q2009, 364day facilities comprised 57% of the market, which is down from 68% in 2Q2009 and 75% in 4Q2008 • 3-year tenors have expanded to 28% of the total market in 3Q2009 after dropping to 2% in 1Q2009 • 5-year tenors have not been seen for syndicated facilities for Investment Grade facilities so far • Covenants have generally been firmed up to some extent (for example several transactions which previously had one financial covenant now have two), however the nature/number/levels are very company/sector specific

8. Investment Grade Pricing Trend • Pricing (Drawn and Undrawn) increased significantly across the ratings-spectrum for the first 6 months of the year; during 3Q2009 there has been a stabilization and on a case-by-case basis even a decrease • Drawn margins are usually the same for a 364day or 3-year tenors, however the difference in undrawn fees has widened out for the different maturities • CDS based pricing for A rated companies, and/or for back-up facilities which are not expected to be drawn, are most common. For BBB rated borrowers, and/or facilities where some utilization is expected, fixed-margin grids have re-entered the market • Upfront-fees are very transaction specific, however a certain decrease during the last couple of months has been seen • Upfront fees are usually tiered nowadays • There is a distinct difference in fees for a 364day tenor and 3-years • Fees for refinancings have been lower than new-money transactions • Likewise, fees for facilities where there has been a bond-issue done close to the bank-transaction, have seen lower levels than otherwise would have been expected • Pricing for acquisition facilities is following a different structure, e.g. with step-ups in margin over time, duration-fees, arrangement/upfront fees paid at initial commitment and the remainder at funding Not enough data for full A and AA representation Not enough data for full A and AA representation

9. High Grade Bank Market Outlook • Market Outlook for the Remainder of the Year and Early 2010 • Although still not completely healthy, and barring any unforeseen events, we would expect the trend of improving loan market capacity to continue • 364-day tenors will remain attractive, especially to large higher rated borrowers, however 3-year tenors will continue to increase its share of the market • At some point in time 5-year tenors could be expected to make a re-entry, but at least at the outset most likely for select A rated companies only • The significant jump in Basel II capital requirements for 5-year tenor deals (vs 3-year deals) for BBB rated borrowers will slow the migration • While pricing will remain elevated compared to historic levels, we expect to see competitive pressure gradually tighten grids and upfront fees over time • As noted, we have recently already seen Investment Grade Undrawn Fees tighten from market highs • Tiered upfront fees for larger facilities will remain • The level of Upfront fees will continue to be highly borrower specific • CDS based pricing for true CP back-up facilities, will in all likelihood still be a common mechanism, but with an increasing number of deals done with a traditional ratings-grid • A majority of transactions will continue to be refinancings with a sprinkling of acquisition facilities • The concept of "amend-and-extend" will be seen for BBB- and cross-over companies, but will probably decrease in importance overall • Term out of financing in the bank-market if the capital market is an alternative, will continue to be adversely looked upon by banks • Letter of Credit facilities, or l/c sub-tranches, will still be difficult to structure for larger syndicated facilities in view of bank fronting risk issues • Even though already the case, Relationship Banks will increasingly form the base for any bank-facility • Timing-wise companies will look at opportunities to refinance a bit earlier than they might prefer, albeit subject to market developments • With the major refinancing "towers" in 2H2011 and 2012, as well as taking into account potential ratings-aspects of "going current," we think several companies will consider refinancing in 1H2010 (for 2011 maturities) and 2H2010 (for 2012 maturities), even if it means that favorable existing pricing will have to be given up • For the remainder of 2009, activity is expected to slow down the closer to the end of the year we are, albeit the end-of-year sensitivities do not seem as severe as the market previously had expected

10. High Grade Bond Market Update

11. Capital Markets Macro Backdrop Positive 3Q Earnings Volatility is holding well below the 30 point level and is at the lowest level since Lehman’s collapse The S&P is up 60% from its March intraday low of 666 The majority of 3Q earnings results exceeded expectations Rates have reversed despite the increase in equities (as investors continue to demonstrate demand for the safety of government debt) Credit Spreads (IG Index) are right around their lowest levels since 2008 Investment grade new issue volume is substantially outpacing that of 2008 Source: Bloomberg using Best EPS

12. Very Strong Executions Investment Grade Corporate Issuance New issue premiums have declined significantly in 2009, with average premiums currently below 10 bps Improvement in liquidity and investor demand has resulted in 2009 YTD issuance already surpassing 2008 totals We have seen some of the strongest demand on record (i.e. orderbook oversubscription) over the course of the past several months Source: RBS IG New Issue Spread Levels Source: RBS

13. Where do we go from here? • Treasuries • Treasuries have sold off 1%-2% from the all-time lows of late 2008, however, still remain meaningfully lower than the historical average • While rates have stayed in a 50bp holding pattern since May, we are forecasting a sharp sell-off in Q4/Q1, with rates steadily going higher through 2011 • Spreads • Over the past 2 months, the Investment Grade Credit market has rallied significantly (150-200bps+) • Supported by positive market technicals, spreads may have been driven too tight (based on the fundamental backdrop), and we’ve seen periods of risk unwinding, albeit short-lived • While we expect there is only marginal room for further tightening, the cash inflows into Corporate bonds and heavy reliance on the asset class, should keep spreads within a narrow band in the near term. • Supply • Amidst the extended rally in UST Rates and spreads, there has been an abundance of Corporate supply in 2009 (+$420bn, ex-FIG), which slowed in recent weeks given earnings season • However, as we come out of issuer blackout, real-money accounts should continue to demonstrate insatiable demand for investment grade Corporate paper, and we expect healthy issuance volumes through the rest of the year (~$50bn-$75bn) • If rates sell off, as forecasted, the November/December window will be a focus for issuers looking to minimize reoffer yields and prefund 2010/2011 maturities • New Issue Premium • The corporate new issue premium has returned to pre-Lehman levels despite some hiccups in the first half • High-quality issuance currently require as little as zero premium, while lower-rated credits have paid 25-30bps(+) • Investors • The notable real-money accounts have remained the most active in high-quality new issues • The pool of BBB-buyers is very similar and continues to buy in large size, especially given higher yields

14. Leveraged Bank Market Update

15. Leveraged Loan Market Update • After a devastating 2nd half of 2008, the loan market has rallied substantially through YTD 2009 • Waves of “forced selling” seen in late 2008 have abated • BWIC activity has totalled $5.1 billion this year vs $11.0 billion during the same period last year • BWIC activity for 2008 totalled $12.4 billion • Loan flow names are 89.3 on Nov. 5th after reaching a 15-month high of 92.0 on Sep. 17th • The LBO backlog has been largely eliminated through selling, restructuring and deals being terminated • The New Issue Calendar continues to be dominated by asset backed financings, DIPs and refinancings • Many banks, except for regionals, continue to suffer from capital constraints, and remain selectively active • Refinancings are typically smaller, with shorter tenors and higher spreads • Several large A-rated acquisition financings have absorbed a great deal of investor demand at spreads of L+275-300

16. Leveraged Loan Market Update (cont’d) • Non-existent in 1Q09, the institutional loan market has grown increasingly more active as we seen several transactions hit the market recently • Within the couple weeks, we have seen the launch of leveraged M&A loans (Warner Chilcott, Reynolds Packaging) and two large LBO loans (Skype, GenTek), the upsizing of a 2nd-ln loan (Realogy), as well as multiple add-on TLBs (Harrah’s, Delta, Laureate Education) • Institutional demand has increased as windfalls from repayments, mainly due to bond-for-loan exchanges, and massive inflows from retail funds have put cash back in the hands of institutional investors • Cash flows to/from loan mutual funds have posted $2.4 billion in net inflows over a 33-week rally, with $109 million coming in last week • YTD loan mutual funds have posted $2.9 billion in net inflows vs $4.2 billion in net outflows for the same period in 2008 • The credit-based bifurcation between loan spreads has narrowed dramatically as lower rated credits been bid up substantially. Spreads by ratings as of Nov. 5th are as follows: • Ba3/BB- – Bid 95.36 / YTM is 4.29% • B1/B+ – Bid is 94.24 / YTM is 4.66% • B2/B – Bid is 92.96 / YTM is 5.35%

17. High Yield Bond Market Update

18. High Yield Market Conditions • The high yield market has continued to rally through the late summer and fall, buoyed by strong equity markets, improving economic data and strong third quarter earnings: • Secondary markets have rallied approximately 12 points since July 15 and 6 points since the labor day holiday • Yields have dropped in all rating categories: • The new issue market continues to be extremely robust: • $121 billion has been raised by high yield issuers in 271 transactions so far this year • $19 billion was raised in September, the best September on record, followed by $15.1 billion in October • $2.9 billion has been raised so far in November • As the bank market has shrunk, borrowers have increasingly turned to the bond market as a source of liquidity • 79% of YTD issuance has been refinancings and bank debt redemptions • 52% of YTD issuance has come from BB rated issuers • 10% of YTD issuance has come from split CCC+ split rated issuers

19. High Yield Market Conditions – Outlook for November / December 2009 We believe that the new issue market is likely to remain attractive into December, but that investors may “shut down early” for the holiday break because of this year’s strong returns • The pace of defaults is slowing and default forecasts are being lowered • From December 2008 to April 2009 high yield defaults averaged $11.5 billion monthly; from May – September 2009 the average dropped to $4.5 billion monthly • Some strategists have cut default forecasts to as low as 4% for 2010; current index spreads would indicate a 12-month future default rate of 6% • Economic data are improving • Existing home sales were better than expected; GDP rose 3.5% for the third quarter vs. street consensus of 3.1%; Case Shiller home price index was better than expected • 75% – 80% of companies reporting earnings through late October beat street expectations • Investors continue to have cash to put to work • $18 billion of cash has flowed into weekly reporting mutual funds during 2009; the past 10 weeks have see consecutive inflows totaling $3.0 billion • Issuers are still confronting large 2011 – 2012 maturity towers • Many frequent issuers / large companies have completed their financing needs for the year • The calendar has shifted to smaller issues from less frequent issuers • As the calendar has shifted to less frequent issuers, the “road show” has returned; during the first half of 2009 66% of the calendar was “drive by” issuance; during third quarter 2009 this dropped to 56% • However, returns to the high yield sector have been strong; as the year comes to an end investor appetite may wane as portfolio managers seek to protect gains for the year

20. Secondary Market Returns • The High Yield market has outperformed many other sectors during 2009, including both equities and investment grade bonds

21. New Issue Market Conditions

22. Key High Yield Market Indices Historical Context 1652 754

23. Key High Yield Market Indices Recent Market Performance

24. Q & A

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