EFTA01378319.pdf

INTERNAL USE ONLY DO NOT DISTRIBUTE IN PART OR IN WHOLE Corporate Credit > U.S. Investment Grade Synchrony (SYF) Updated: Jun 30, 2015 Trade Idea: Buy SYF 3.0 2019 bonds. Spreads are attractive compared to the IG universe Investment Rationale: ► Synchrony (SYF) is the consumer finance company of GE Capital. Following its IPO GECC still owns 84.9% for its stock. GE expects to completely divest its stock holdings by late 2015. ► The retail credit card business accounts for 68% of the company's revenues in 2013. Payment solutions, which provides financing for major consumer purchases, accounted for 16%. Care credit, which provides financing for elective health care procedures, incl. vet expenses, also accounted for 16%. ► Bonds are relatively attractive as rating agencies are big fans of credit card companies due to their perceived lack of product and funding diversification. ► We like the product, which is underwritten taking the risks related to unsecured loans into account. As a result, the business is highly profitable which a high margin for error. ► We like the fairly high amount of term debt as it provided stable funding. Unlike the rating agencies, we dislike a high proportion of deposit funding which leads to structural subordination. ► Asset quality is currently very strong and loans have just started to expand. We therefore expects results to stay strong for the foreseeable future. That said, the customers are a bit lower in the credit spectrum than peers', so, if the household credit quality turns, SYF might be impacted more. But this is still 102 years away. Recommendation(s): Trade Ratings Issue Spread Cash View Horizon Ticker CPN Maturity CCY Size Yield Price S&P hbodys Entryy Target Loss Outperform 6-12 SYF 30 08/15/2019 BBB na USO $1 lb 28 147 120 170 100 7 US87165 months n BA899 Deutsche Asset & Wealth Management 20 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0075488 CONFIDENTIAL SDNY_GM_00221672 EFTA01378319