EFTA00826527.pdf

From: "Barrett, Paul S" <I To: Brad Wechsler <1 [> CC: "Jeffrey Epstein Oeevacation(a;grnail.com)" <jeevacation@; gmail.cum>, Barrett Team >, "Nelson, Justin D" <I Subject: Western Digital Bonds Date: Wed, 01 Jun 2016 14:03:28 +0000 Brad I know Chris showed this to you last week. I think Leon should consider $1-2MM. The bonds are offered at 104 (ytm 9.58%). Currently the spread is around 824bps (BB+ rated) vs 401bps for the BB universe. I think we play it for +-200bps of tightening (so around 8% upside on a 4yr duration bond plus any carry). On March 30th, WDC issued $5.225bn of debt to finance their $17B acquisition of SanDisk. They issued $1.875B of a 7.375% senior secured bond maturing on 4/1/23, and $3.35B of a 10.5% senior unsecured bond maturing on 4/1/24. Thesis: Despite the secular decline in the traditional HDD market, you are being compensated. The combined company generates —$1.8258 in free cash flow with leverage of 2.9x. Management has stated that it is their intention to achieve investment grade status and reduce leverage to 1.5x over the next 3-5 years. They expect $1.1B of annual cost synergies by 2020 ($500mm of which they expect within 18 months of the deal closing — most likely this quarter). WDC stock is at $5.02. Trades at 8x earnings. 4.45% dividend yield. Pro Forma Financials: Pro Forma Revenues $18.98bn EBITDA 54.98bn EBITDA Margin 26% Leverage 2.9x Free Cash Flow S1.825bn Total Debt $14.4bn • *Source: Company Reports, Bloomberg, CreditSights Company Description: WDC is a leading developer, manufacturer and provider of data storage solutions. Their portfolio includes Hard Disk Drives (HDDs), Solid State Drives (SSDs), direct attached storage solutions, personal cloud network attached storage solutions, and public/private cloud data center storage solutions. They have more than a 40% market share in the HDD market. In October 2015, WDC announced that it would acquire SanDisk (SNDK), for - 5178. SanDisk is a leader in flash storage solutions, which allow digital information to be stored in a durable, compact form that retains data without power. WDC funded the transaction with cash on hand, newly issued stock (0.2387 shores of WDC for each share of SNDK), plus the new debt. Paul Paul Barrett I Managing Director I Global Investment Opportunities Group I M. Morgan Securities LLC I M. Morgan Private Bank I •. Morgan Chase Bank •. EFTA00826527 320 Park Avenue, 14th Floor, New York, NY 10022 I T: (212) 622-2770 I F: (212) 310-0108 NOT AN OFFICIAL CONFIRMATION: For informational purposes only. This report does not represent an official account of the holdings, balances, or transactions made in your account and is being provided at your request. Please refer to your monthly account statement for the official record of all of your account activities. For question, please call your J.P. Morgan representative. In discussion of options and other strategies, results and risks are based solely on hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or option-related products in general, as well as the products or strategies discussed herein are suitable to their needs. In actual transactions, the client's counterparty for OTC derivatives applications is JPMorgan Chase Bank, N.A., and affiliates. For a copy of the "Characteristics and Risks of Standardized Options" booklet, please contact your JPMorgan Advisor. This email is confidential and subject to Important disclaimers and conditions including on offers for the purchase or sale of securities, accuracy and completeness of information, viruses, confidentiality, legal privilege, and legal entity disclaimers, available at I tp://www.Ipmorgan.com/pages/disclosures/email. This email is confidential and subject to important disclaimers and conditions including on offers for the purchase or sale of securities, accuracy and completeness of information, viruses, confidentiality, legal privilege, and legal entity disclaimers, available at http://vww.ipmorgan.com/pages/disclosures/email This email is confidential and subject to important disclaimers and conditions including on offers for the purchase or sale of securities, accuracy and completeness of information, viruses, confidentiality, legal privilege, and legal entity disclaimers, available at http://wwwjpmorgan.corn/pages/disclosures/email EFTA00826528