2011 Outlook： U.S. Leveraged Finance Sector Profiles

Corporates www.fitchratings.com February 9, 2011 U.S. Leveraged Finance Outlook Report 2011 Outlook: U.S. Leveraged Finance Sector Profiles Rating Outlook Improving Credit Fundamentals: Fitch Ratings anticipates credit profile improvements broadly across corporate sectors and rating categories. Fitch expects that modest top line growth and continued cost containment should support moderate margin expansion in 2011. Expanding EBITDA and steady debt levels should continue to drive leverage down even as more FCF is likely to be dedicated toward shareholder friendly actions. Liquidity is expected to remain healthy as most companies addressed their near term maturities in recent years. Low High-Yield Bond Default Rate: As a result, Fitch expects more upgrades than downgrades in 2011. The HY default rate is expected to remain well below historical averages, in the 1.5%2.0% range for the year. Fitch recognizes the concentration of several very large ‘CCC’ rated issuers has the potential to influence the default rate in 2011. Favorable Market Supply/Demand Dynamics: The benign credit environment and low interest rates continue to support significant issuance activity. While more bond and loan issuance will likely be used for dividend deals and acquisitions, much of the issuance will predominantly be recycled into refinancing activity as issuers attempt to redistribute their maturities beyond the concentrated refinancing cliff. Continued Refinancing to Address the Maturity Wall in 20132016: Bond for loan takeouts, amend and extend activity, and some IPO activity will continue to diminish the maturity wall. Fitch believes that absent severe adverse economic conditions (or a peak interest rate environment), the market is likely to find a clearing price and associated terms at which much of the demand for credit can be satisfied. In general, Fitch continues to believe the vast majority of the refinancing cliff will ultimately be resolved through ordinary market sources. Bankruptcies are more likely to result from company-specific factors than wide-scale lack of access to refinancing capital. What Could Change the Outlook Improved liquidity and operating profiles indicate that even in the event of a double-dip recession in the U.S., or other market dislocations, wholesale downgrades across sectors are likely to be limited. Global market dislocations, and the risks of domestic regulatory and legislative actions could change the outlook. Fitch expects that corporate downgrades will occur primarily from self-inflicted shareholder-friendly actions or at the initiation of action taken by external activist/acquirers. Although the pendulum will continue to swing away from debt holders to shareholders in 2011, dividends and share repurchases to date have been largely sourced from excess cash flow rather than from re-leveraging. Rating Outlook PPOOSSIITTIIVVEE Analysts U.S. Leveraged Finance Mark Oline +1 312 368-2073 mark.oline@fitchratings.com Mike Simonton, CFA +1 312 368-3138 mike.simonton@fitchratings.com Darin Schmalz +1 312 606-2324 darin.schmalz@fitchratings.com Credit Market Research Mariarosa Verde +1 212 908-0791 mariarosa.verde@fitchratings.com Related Research Applicable Criteria  Corporate Rating Methodology, Aug. 16, 2010 Other Research  U.S. Leveraged Finance Market Quarterly  Fourth-Quarter 2010, Jan. 19, 2011  Fitch: U.S. HY 2011 Default Rate Projected at 1.5%2%, Jan. 18, 2011  2011 Outlook: U.S. Corporate Credit, Jan. 4, 2011  U.S. Leveraged Finance Stats Quarterly  Third-Quarter 2010, Dec. 17, 2010  U.S. Leveraged Finance Multiple EV-aluator, Dec. 17, 2010  Liquidity and Covenant Analysis for Large U.S. Leveraged Issuers, Dec. 16, 2010  Bridging the Refinancing Cliff, Volume II, Oct. 18, 2010 Other Outlooks  www.fitchratings.com/outlooks Corporates 2 2011 Outlook: U.S. Leveraged Finance Sector Profiles February 9, 2011 Key Issues Improving Corporate Credit Trends Corporate credit trends in 2011 should remain on the same trajectory as in 2010, with modest economic growth, improving operating profiles and good liquidity offsetting a number of still-weak macroeconomic factors. Forecasted 2011 U.S. economic growth of 3.2% should support continued top-line and margin growth. Margin expansion will be more limited than the gains seen in 2010 due to higher raw material costs, cost-creep from the draconian cost cuts taken at the depth of the credit crisis, and a moderation of the inventory-restocking gains achieved in early 2010. Cash and liquidit