EFTA01385287.pdf

3 January 2018 HY Corporate Credit HY Multi Sector.Media. Cable & Satellite 2017 Year in Review: Recap of HY Performance and Capital Markets Activity Below, we have included select High Yield indices produced by our U.S. credit strategist team, which are available on Bloomberg for reference. To remind readers, our Real Estate sub-sector index includes not only building product OEMs and distributors but also homebuilders as well. The fate of these participants in the value chain are highly correlated, in our view, so their inclusion in our index does not dilute from the overall message, in our view. As shown in Figure 21, the overall DB HY Index was +7.0% (as of 12/19/17), with the rating buckets as follows: BB-rated (+7.3%), single-B (+5.8%) and CCC-rated (+9.5%). Real Estate sub-sector outperforms HY (again) on spread basis Beginning in 2017, the OAS differential between the DB HY Index and the DB Ficitire 20: S&P 500 v. O5 HY Real Estate index was about (72)bp - negative values show the sub-sector is trading inside of the comprehensive index. The differential remained at this SW 500 v U S. Ham Canstructiol ETF. $50 level - narrowing slightly in 2Q17 - before widening further to roughly about t (100bp) at 12/19/17. As shown in Figure 24 - 26, readers can see the differential by rating bucket. BB-rated names in Real Estate underperformed 140 with the year beginning at (50)bp and narrowing to about (34)bp. The opposite sa was true for both B-rated and CCC-rated issuers. B-rated names in the Real Estate index began the year at (38)bp, and are now at about (108)bp. CCC- m tl rated names outperformed markedly with the OAS differential positive at rA +124bp in the beginning of the year but not trading at a negative (237)bp. We 5%t do want to caveat that this appears driven by the bonds of K. Hovnanian (HOV) s*o which saw its unsecureds start the year at around 80 cents on the dollar and are now trading at yield to call levels at around 106.5. HOV was also successful in refinancing its 7.25% first lien and 9.125% second lien notes in ;wwwetzsvz9 late-July. Overall, the sector's performance appears a logical reaction to what Sane Deumbe Sent was a year of growth more-or-less in-line with our estimates as published in our 2017 Outlook. It is also worth noting that while the S&P 500 was up about 18% YTD the ;Shares U.S. Home Construction ETF (ITB), which includes constituencies such as D.R. Horton, Lennart Lowe's, and Home Depot, was up 58% no. Figure; 2 I • 08 High 'Y'ield Index Total Returns (ar., of 12:19:17) Index Levels DB HY DB (BB) HY DB (3) HY DB (CCC) HY 12/31/2016 348 347 298 476 12/1W2017 373 372 315 521 Return 7.1% 7.3% 5.8% 9.6% SVCS OILINCIUirk ant Obornarg Capital Markets Have Robust 2017 Using publicly available data and illustrations compiled by our Leveraged Debt Capital Markets Building Products/Homebu&ler team we have included summary information encompassing the capital markets activity in Leveraged Finance for 2017. Looking at building products, at the time of this writing, 2017 brought the market about 45 deals (6 less than 2016) but representing about $25.2bn of notional, an increase of 16% y/y from $21.8bn in 2016. Of this figure however, 66% represented re-pricings (vs. 14% of 2016's total), followed by Acquisition at 16% (versus 34% in 2016) and 13% Refinancing Page 12 Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086571 CONFIDENTIAL SDNY_GM_00232755 EFTA01385287