EFTA01385320.pdf

3 January 2018 HY Corporate Credit HY Multi Sector,Media, Cable & Satellite HY Energy index at more realistic levels as 2016 OPEC deal exuberance fades In our 2017 Outlook report, we took a cautious stance on the sector Figure I: WTI oil vs. HY Energy-HY considering the HY Energy index was trading only -30 bps wide of the overall Index spread HY Index, comparable to the relative spread seen during 1H-14 ($100 oil). As it 10.day overage turns out, exactly a year later, the spread has widened to -50 bps. though on Ohte 2018 WTI HY Energy Sinai/ vs. fundamentals the E&P sector is on much more solid footing vs. a year ago. For ettdir4 IHCIOx HY Index one, the modest bullish oil case is playing out as expected - maybe even GAS 1bps) slightly better (2018 WTI strip is $56.19 currently vs. $54.46 a year back). The oil market has dodged the major downside and we now stand one year closer 12/15/2017 56.15 409 51 to a potential market rebalancing. Second, companies continue to make 12/21/2016 55.01 476 29 progress on the operational front with lower cost and increased productivity 1/17/2017 5647 433 19 (discussed later). 2/10/2017 55.58 409 5 3/3/2017 54.47 410 23 The parity versus the HY Index persisted through 01 17 (average spread of -22 4 2017 51.13 438 29 bps), actually trading flat at one point. The market started turning more cautious around May as the 2018 WTI strip fell well below $50 ($47.57 the first 6/2/2017 60.27 432 51 week of May). The next correction, in June, was even sharper with the 2018 5/16/2017 49.08 429 45 oil strip getting close to $45, resulting in the HY Energy-HY Index spread San atentee Ater* LP, Dandw Art touching the 2017 high of 140 bps (June 21st). With the reminder that downside risks to the oil markets had not gone away, sector valuation has turned more level-headed - even as oil has stayed above $55 (2018 strip), the (Figure 2: 2017 HY Energy-HY Index HY Energy Index continues to be fairly wide of the early-year tights. In fact, ispreada - tightest and widest YID current levels are actually comparable to early June, when WTI 2018 strip was arite 2ota sun HY Energy Swead y*. more than $5/bbl lower than it is today. I(Idex HY Index OAS (bra) 12/15/2017 56.19 410 50 12/1512016 54.46 471 30 HY Energy 56.13 404 101 • lightest YID 12/1/2017) HY Energy 45.1 531 140 - widest YID 16/21/2017) *wee a7a.de'O am W. Warthe are [Figure 3: Historical spread levels: HY and HY Energy vs !Figure 4; HY Energy-HY Index spread since Nov '16 VVT1 price ZOO 1 , SOO 23003 MIRO $70 w003 160 woo Sao 12•0 $12 'KO OD ewe Q woo woo • rw Oo woo. re 70 CO • , 142 191//2014 4/111200 1206/1016 info7OIS 1LIMOlt 8.194017 01:0 • /1/1/3111 Itl;:0•7 12017 6/112017 7/11201) 0.1/2017 1154017 —HY Den —Ym 2015®10 —WI tan.* WY epos -Wn70100oio Sam band.* err flisertitg Finny LP Sane Datich• Irtrit loombvp FOwe*IP Deutsche Bank Securities Inc. Page 45 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086604 CONFIDENTIAL SDNY_GM_00232788 EFTA01385320