Credit symfonie

CreditHigh Yield

22 May 2013

London: 16 High Holborn, London WC21V 6BX Prague: Evropska 136, 16000 Praha 6

T: +44 20 3287 2690 F: +44 20 8616 7499 T: +420 724 260 952 F: +420 222 951 429e-mail: [email protected]

This publication has been prepared by Symfonie Capital (Symfonie) for information purposes only. It is not an offer or solicitation for the purchase or sale of any financial instrument. Reasonable care has been taken to ensure that the information contained herein is not untrue or misleading, but no representation is made as to its accuracy or completeness. This document is confidential and proprietary to Symfonie. Transmission or publication of this document without the express prior consent of Symfonie is strictly prohibited. Symfonie Capital reserves all legal rights in connection with the publication of this document. © Symfonie Capital 2013.

Private and conditional. Unauthorised distribution strictly prohibited. ©2013 Symfonie Capital LLC 2

Ideal Investor Profile

• Investors seeking relatively stable returns over time but who may not have sufficient credit expertise

• Investors who understand the high yield market are looking for more diversification along with investment management expertise.

• High Net Worth Investors and Family Offices seeking a relatively high yield for savings and who are able to accept moderate level of risk.

• The product is ideal for investors who are willing to match the term of their investment to the underlying maturity of the portfolio, which is expected to remain about 3-5 years.


Fixed Income Services

• Portfolio advisory – we provide security selection and research.

• Tailored portfolio management – we design and manage the portfolio according to client specifications.

• Symfonie Credit Opportunity Fund, LP – a limited partnership recently established. The fund invests in a diversified portfolio of bonds and credit instruments.

• Symfonie Lending Fund, LP – a limited partnership focused on peer to peer loans. Investors can select a class of loans maturing in 2016 or 2018 and thus have a a natural, pre-determined termination point for their investment. Principal and interest can be paid quarterly.


Symfonie EM Credit – Consistent Outperformance

0.80

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Hedged WE XOVER

Hedged EEI

Hedged EMCI

USDLIBOR 1M

Symfonie

HEDGED WE HY

Source: Symfonie. Chart above reflects the performance of the credit strategy implemented within the MT Thaler New Europe Fund during the time Symfonie principal Michael Sonenshine was responsible for the Fund’s investments in credit instruments.


Symfonie Global High Yield – Successful Track Record

Symfonie Global HY

90105120135150165180195210225240

31-O

ct-08

31-D

ec-08

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-0930

-Apr-

0930

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931

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0931

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-0928

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131

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-1131

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1131

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ec-12

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= 1

00

ML WE HY SYMFONIE EU XOVER EMCI

Source: Symfonie. Chart above reflects the performance of the Ceska Sporitelna High Yield Fund during the time Symfonie principal Miichael Sonenshine was responsible as investment advisor to the Fund.


Investment Process – Research Driven

Bond SelectionAsset class selection Risk/return analysis

Credit fundamental modeling

MONITORINGOn-going review of bond performance and credit

fundamentals.

INVESTMENT EXECUTIONCIO approves bond purchase

Trade Executed

SIZING AND RISKDiversification of among bonds

Market AssessmentProprietary screening filtersMacro-economic research

Relative value comparisons


Investment Methodology - Bonds

• Credit Worthiness – with in-depth research we select issuers based on their ability and willingness to pay interest and principal.

• High yield – we focus on bonds with relatively high yields.

• Capital gain potential - we look for bonds whose credit quality is likely to improve over time.

• Relative Value – we look for bonds that represent good relative value we feel the market has not fully priced in.

• Special Situations – we look for bonds priced at deep discounts to par that offer substantial prospect of capital gain.

• Credit Deterioration – where we believe credit quality is likely to deteriorate we sell.

• Low return potential – where we believe a bond no longer offers adequate return we sell.

• Capital loss potential - when we decide there are significant downside risks we sell.

• Relative Value – when we decide a bond represents poor value relative to other opportunities we sell.

BUYS SELLS


Key Risks

• Deterioration of Credit Quality – During recessions default rates are likely to increase. We try to manage this risk by diversifying the portfolio among many countries, many credits varying the range of credit profiles in the portfolio and by moving to relatively safe, liquid fixed income assets.

• Interest Rate Risk – When base interest rates go up, bond prices fall. We manage this risk by investing in relatively short duration bonds and by investing in bonds whose improvements in credit quality are likely to be the dominant driver of price changes. High Yield bonds have an equity-like component of risk. Higher interest rates and higher inflation, providing they correspond with improving economies, are likely to result in improved earnings and improvements in credit quality. As market conditions improve the likelihood of trade sales and IPOs increases and this also has a positive impact on high yield bond pricing.


Symfonie Investment Team

Michael Sonenshine, CFA – Investment Principal

Mr. Sonenshine More than 20 years of experience in banking and investment management. He specialises in credit investments. His investment process is research driven with an emphasis on fundamental analysis. He founded Symfonie Capital in 2012.

2003-2012, MT Thaler, Prague/London: CEO/Partner, Head of Research. Investment funds focused on central and eastern Europe and pan-European credit markets

2000-2003 CSFB, London: European High Yield Debt Research

1998-2000 ING Bank, London: European High Yield Debt Research

1995-1998 ING Investment Management, Prague: CEO, Czech Republic

1994-1995 ING Bank, London: Analyst

1993-1994 Driehaus Capital, Prague: Analyst

1992-1993 Evrobank, Prague: Advisor

MBA William Simon School, University of Rochester

B.A., Tufts University



Jan Kofol, Workout Specialist

Mr. Kofol has more than 30 years of experience incorporate restructuring, workouts, risk management and corporate lending at major consulting firms, and at major investment and commercial banks.

Alvarez & Marshal Central EuropeSenior Director, Global operational and advisory firm specializing in assisting organizations to solve problems and unlock value for the stake holders

BBK, Ltd.Principal, leading business advisory firm assisting companies and/or their creditors in a wide range of areas, from improving enterprise value to managing distressed situations

CSFBDirector, Global head of Impaired Assets. Managed the global portfolio of problem loans of CSFBDeputy Head of Risk Management North America.Vice Chairman Credit Committee and Vice Chairman of the Leverage Finance Credit Committee.Head of Credit Suisse Corporate Lending, North America. Responsible for Corporate Banking team in the Northeast United States.Corporate Lending Officer, Credit Suisse North America

Manufacturers Hanover TrustInternational Lending Officer

MBA, New York University, BA, Presbyterian College.



Zvezda Dermendzieva, Ph.D. – Quantitative Credit ResearchMs. Dermendzieva is an award winning economist specialising in statistical data models. Using data files supplied by the P2P platforms Ms. Dermendziveva develops analytical models and filtering tools aimed at reducing the number of default loans in the portfolio. Ms. Dermendzieva’s professional experience includes econometric analysis of insurance data for one of Europe’s leading insurance companies, insurance risk modeling and pricing, economic research for the German Ministry of Finance and analysing longitudinal data at then National Graduate Institute for Policy Studies in Tokyo, Japan.

Professional Experience•Generali Insurance Group, Prague, Czech Republic – econometric data analysis, risk and price models•Osteuropa Institut, Regensburg, Germany – economic and finance research for the German Ministry of Finance•National Graduate Institute for Policy Studies, Tokyo, Japan – visiting professor, econometric analysis and financial modeling

Academic Experience•Ph.D., Economics, CERGE-EI, Prague, Czech Republic •M .A., Economics, University of the State of New York, CERGE-EI, Prague, Czech Republic•B.A., Economics, American University, Sofia, Bulgaria, Graduated Magma Cum Laude

Awards & Publications•Best CEE Ph.D. Thesis - UniCredit & Universities Foundation•Boston Consulting Group Strategy Cup – finalist•Citigroup Endowment – merit scholarship•CERGE-EI – merit scholarship•Philip Morris – merit scholarship•“Emigration from the South Caucusus – Who Goes Abroad and What are the Economic Implications “(Post-Communist Economics, 23(3))•“How Does Overconfidence Affect Individual Decision Making?” (Proceedings of the International Conference Experiments in Economic Sciences, Kyoto, Japan)


Symfonie Advisory Board

The Symfonie Advisory Board is a group of highly experienced financial professionals. Symfonie has regular meetings with the Advisory Board to discuss the Fund’s investments, strategy, research on P2P providers. Advisory Board members are independent of Symfonie and do not have legal or regulatory authority or status within Symfonie.

Willem NavesHolland

• More than 25 years of experience in investment and corporate banking• Twenty years experience in credit trading management positions in the ING Group - Amsterdam, London, Sao Paolo• Global co-Head of Fixed Income trading at ING• Head of EMEA Equity and Fixed Income sales and trading product• Banking advisory projects focusing on credit and risk management in Macedonia, Poland, El Salvador and Indonesia• Erasmus University degree in Law

Pavel KohoutCzech Republic• Fifteen years experience in economic analysis and investment management• Director of Strategy at Partners Advisors, a leading Czech financial advisory firm• Author of several books on economics• Member of Czech National Economics Advisory Board• Member, Expert Panel of Advisors to Czech Ministry of Finance


Symfonie Advisory Board

The Symfonie Advisory Board is a group of highly experienced financial professionals. Symfonie has regular meetings with the Advisory Board to discuss the Fund’s investments, strategy, research on P2P providers. Advisory Board members are independent of Symfonie and do not have legal or regulatory authority or status within Symfonie.

Maarten van den BeltUK• More than twenty five years of experience in investment and corporate banking• Credit risk management and loan officer positions at NMB Bank, the Netherlands• Corporate high yield bond management during the formative years of the European high yield market• Senior management positions in treasury and lending at ING Bank, Raiffeisen Bank and West LB• Developed and managed capital markets trading and consumer banking businesses in Tokyo, Moscow and London• Managing partner responsible for alternative asset manger with $400 mn AUM focused on investments in Russia• Non-Executive Directorships with TMM, a leading Ukrainian real estate developer and Pristav, one of Russia’s largest c cconsumer debt collection agencies• University of Utrecht, Social and Business law

Charles KleinChina• Twenty years experience in corporate finance and treasury management• Management positions in General Motors with responsibility for currency portfolios, asset acquisition and disposition and financial reporting systems• Resident in China, fluent in German and Russian• MBA, Wharton School of Management

A Few Things You Should Know About High Yield Bonds (but were afraid to ask)

London: 16 High Holborn, London, WC1V 6BX Prague: Klimentska 1216 / 46, 110 00 Praha 1

T: +44 20 8616 7311 F: +44 20 8616 7499 T: +420 222 191 008 F: +44 20 222 191 200

This publication has been prepared by Symfonie Capital (Symfonie) for information purposes only. It is not an offer or solicitation for the purchase or sale of any financial instrument. Reasonable care has been taken to ensure that the information contained herein is not untrue or misleading, but no representation is made as to its accuracy or completeness. The views and opinions expressed in this document are those of its author(s) and do not necessarily reflect those of Symfonie. No reliance should be placed on this document for the purposes of making an investment decision. Neither Symfonie, its officers, directors, nor the author(s) of this document accept liability for any loss arising from any investor arising from any decision to rely on this document. Symfonie, its affiliates and any of its or their officers may have financial interest in any transactions, securities or commodities referred to herein. Symfonie, or its affiliates, may perform services, for, or solicit business from, any company referred to herein. This document is confidential and proprietary to Symfonie. Transmission or publication of this document without the express prior consent of Symfonie is strictly prohibited. Symfonie Capital reserves all legal rights in connection with the publication of this document. © Symfonie Capital 2012.


High Yield Beats Equity in the Long Term

• Between 1995 and 2012 European High Yield returned 416% while European Equities returned 206%.

• Between 1986 and 2012 US High Yield returned 1120% while US Equities returned 716%.

Source: Bloomberg, CSFB, S&P 500, DowJones Stoxx 50

European High Yield vs. Equities

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US High Yield vs. Equities

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High Yield Offers Rewards

Source: Credit Suisse, Symfonie Capital, Data through 31 December 2009

High Yield and EM offer significant yield premium to BBB

Many BB and BBB EM corporates have much better credit metrics than high yield counterparts, but offer same or better yields

Good credit research brings rewards over

time.

Bond Spreads - Higher Rated

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Bond Spreads - Lower Rated

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High Yield is Less Volatile Than Equities

Source: Credit Suisse, Bloomberg, Symfonie Capital,, S&P 500

•Since 1986 the US Equity Market recorded monthly declines of more than 5% 33 times versus just 6 in the case of the US High Yield Market.

•Since 1995 the European Equity Market recorded monthly declines of more than 5% 32 times versus just 9 in the case of the European High Yield Market.

European High Yield Bonds - Monthly Returns

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European Equities - Monthly Returns

-25%-20%-15%-10%-5%0%5%

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High Yield Bonds Have Built-In Recovery Potential

Bonds are issued at face value (par). In down markets, they may trade below par. As their maturity nears bonds trend back toward par and as markets recover bonds trend back toward par. High Yield bonds may experience deeper declines, but High Yield Bonds compensate with higher long term returns. Bonds reward patient investors.

Source: Credit Suisse, Symfonie Capital

Bond Prices as % of Par

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2000 - 2012A Rated Bonds High Yield Bonds


In Recessions Stock Markets Get Hit Harder than Bond Markets

• From August 2000 to February 2003 the US Equity Market declined by 44.5% and the European Equity Market declined by 58.3%. In contrast, the US High Yield Market generated a 6.9% total return while the European High Yield Market was down 13%.

• Since 2008 High Yield has consistently provided higher annual returns than equities.

• High Yield Bonds have a built in-advantage because they earn interest. Over the medium term interest payments help provide a more stable return. In contrast, equity markets are prone to sharp and long lasting down cycles.Source: Credit Suisse, Bloomberg, Symfonie Capital, S&P 500. DowJones Stoxx 50

Rolling 12 Month Returns - High Yield vs. Equities

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Rolling 12 Month Returns - Euro High Yield vs. Equities

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In Recessions Stock Markets Get Hit Harder than Bond Markets

• Despite the global economic downturn since 2008 and the European sovereign debt crisis High Yield bonds have provided strong returns.

• Equities have yet to recover from the peak prior to the collapse of Lehman. High Yield bonds, in contrast, not only recovered, but have also continued to generate superior returns.

• High Yield bonds have two advantages over equities. First, performing High Yield bonds pay interest in good times and bad times. Second, they have a stated value with a stated maturity date.

Source: Credit Suisse, Bloomberg, Symfonie Capital, S&P 500. DowJones Stoxx 50

European High Yield vs. Equities

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US High Yield vs. Equities

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10001200

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Rise in default rates usually coincides with recession

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72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Periods of Recession

Historical and Estimated Default Rates in U.S. High Yield Market

2008 and 2009 are MT Thaler Estimates Sources: E. Altman (2008), National Bureau of Economic Research, MT Thaler


Recovery Rates Increase as Default Probabilities Decline and vice versa.

2007

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y = -2.3137x + 0.5029R2 = 0.5361

y = -0.1069Ln(x) + 0.0297R2 = 0.6287

y = 30.255x2 - 6.0594x + 0.5671R2 = 0.6151

y = 0.1457x-0.2801

R2 = 0.6531

20%

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0% 2% 4% 6% 8% 10% 12% 14%

Rec

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Recovery Rate/Default Rate AssociationDollar Weighted Average Recovery Rates to Dollar Weighted Average Default Rates

(1982-2007)


Disclaimer

• This document has been prepared by Symfonie Capital Investment Management LLC (“Symfonie Capital”) for persons reasonably believed by Symfonie Capital to be persons of the categories to whom Symfonie Capital are permitted to communicate financial promotions. This document does not constitute or form part of any offer or invitation to sell, or the solicitation of an offer to subscribe or purchase any investment. Symfonie Capital believes that the information it provides is accurate as at the date of publication, but no warranty of its accuracy or completeness is given and no liability in respect of errors or omissions is accepted by Symfonie Capital or any partner or employee of Symfonie Capital. Past performance is not necessarily a guide to future performance.

• This presentation is for illustration and discussion purposes only and is not intended to be, neither should it be construed or used as, financial, legal, tax or investment advice nor an offer to sell, nor a solicitation of any offer to buy, an interest in any of the funds managed by Symfonie Capital (the “Funds”). None of the Funds have shares registered under the U.S. Securities Act of 1933, as amended. None of the Funds will be registered under the U.S. Investment Company Act of 1940, as amended. Any offer or solicitation of an investment in any of the Funds may be made only by delivery of a respective fund’s Confidential Offering Memorandum to qualified prospective investors.

• This presentation is as of the date indicated, is not complete, and does not contain certain material information about the Funds, including important disclosures and risk factors associated with an investment in any of the Funds.

• Any indications of interest from prospective investors in response to this material involves no obligation or commitment of any kind. Subscriptions can be made only on the basis of a Confidential Offering Memorandum to qualified investors. The investment objectives and methods summarized in this document represent our current focus and intentions.

• There is no assurance that Symfonie Capital will achieve its objectives or that its investment process or risk management will be successful. Investors may lose money. No representation is made that any of the Funds will or are likely to achieve their respective objectives or that any investor will or is likely to achieve results comparable to any that may be shown or will make any profit at all or will be able to avoid incurring substantial losses. Past performance is no guarantee of future results.

• This presentation does not take into account the particular investment objectives or financial circumstances of any specific person who may receive it. Before making any investment, you should thoroughly review the particular fund’s Confidential Offering Memorandum with your financial and tax advisor to determine whether an investment in the fund is suitable for you in light of your financial situation.

• This presentation is subject to revision and updating. Certain information has been provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. This presentation is confidential, is intended only for the person to whom it has been delivered and under no circumstance may a copy be shown, copied, transmitted, or otherwise given to any person other than the authorized recipient. Symfonie Capital is solely responsible for the content herein.

Credit symfonie

Economy & Finance