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Where Are We? A Market Assessment Presentation to Columbia Business Schools Program for Financial Studies November 2014 Trade Secret and Strictly Confidential | 0 This presentation has been prepared by Centerbridge Partners, L.P.

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Trade Secret and Strictly Confidential | 0

Where Are We? A Market Assessment

Presentation to Columbia Business School’s Program for Financial Studies November 2014

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This presentation has been prepared by Centerbridge Partners, L.P. (“Centerbridge”) in connection with Columbia

University’s Fourth Annual Program for Financial Studies Conference, for general informational purposes only, and contains a general overview on Centerbridge’s view of the current market environment. It should not be used or relied upon for any purpose.

In preparing the information presented, Centerbridge has relied without independent verification on certain

information prepared or provided by third parties or otherwise obtained from published sources, including, without limitation, certain economic, market and other information, and in certain cases such information has not been updated through the date hereof. Centerbridge is under no obligation to update the information presented herein.

This presentation does not constitute an offering of interests in any Centerbridge-sponsored fund.

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Today – How Historic

Global Yields are at Historically Low Levels

Absolute yields have only been this low after crises and wars

Source: Global Financial Data

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Today – How Historic

US Yields Have Only Been Lower after WWII

What is extraordinary about the movement in bond yields is the length of time for which they have been falling and, as a result, the huge returns that they have generated

0% 2% 4% 6% 8% 10% 12% 14% 16% Jan 1850 Feb 1853 Mar 1856 Apr 1859 May 1862 Jun 1865 Jul 1868 Aug 1871 Sep 1874 Oct 1877 Nov 1880 Dec 1883 Jan 1887 Feb 1890 Mar 1893 Apr 1896 May 1899 Jun 1902 Jul 1905 Aug 1908 Sep 1911 Oct 1914 Nov 1917 Dec 1920 Jan 1924 Feb 1927 Mar 1930 Apr 1933 May 1936 Jun 1939 Jul 1942 Aug 1945 Sep 1948 Oct 1951 Nov 1954 Dec 1957 Jan 1961 Feb 1964 Mar 1967 Apr 1970 May 1973 Jun 1976 Jul 1979 Aug 1982 Sep 1985 Oct 1988 Nov 1991 Dec 1994 Jan 1998 Feb 2001 Mar 2004 Apr 2007 May-10 Jun-13 US Long Bond Yields

Modern Private Equity

Source: Credit Suisse

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Today – How Historic

Bond Returns Have Outpaced Equities

Bond outperformance of last 15 years is rivaled only by Great Depression

0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 8.0x Dec 1849 Jan 1853 Feb 1856 Mar 1859 Apr 1862 May 1865 Jun 1868 Jul 1871 Aug 1874 Sep 1877 Oct 1880 Nov 1883 Dec 1886 Jan 1890 Feb 1893 Mar 1896 Apr 1899 May 1902 Jun 1905 Jul 1908 Aug 1911 Sep 1914 Oct 1917 Nov 1920 Dec 1923 Jan 1927 Feb 1930 Mar 1933 Apr 1936 May 1939 Jun 1942 Jul 1945 Aug 1948 Sep 1951 Oct 1954 Nov 1957 Dec 1960 Jan 1964 Feb 1967 Mar 1970 Apr 1973 May 1976 Jun 1979 Jul 1982 Aug 1985 Sep 1988 Oct 1991 Nov 1994 Dec 1997 Jan 2001 Feb 2004 Mar 2007 Apr 2010 May 2013

Ratio of Equity Return to Bond Returns

Only twice in recent memory have bonds out performed equities on total return! 3

Source: Credit Suisse

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Today – How Historic

The Role of Growth

Recovery around the corner?

trend…

Job market finally recovered?

Source: Bureau of Economic Analysis, Calculated Risk

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Today – How Historic

In Most Cycles, Equities and Rates are Positively Correlated

This relationship persisted through mid-2010...but then ended. Why?

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 SPX 10Yr

Source: Bloomberg

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$0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 500 600 700 800 900 1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800 1,900 2,000 Fed Balance Sheet ($tn) S&P 500 S&P FED BS

Twist QE3

Today – How Historic

The Role of the Fed…

QE1 QE2

Source: Bloomberg

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Today – How Historic

…And Its Impact on Rate Expectations

Rate expectations have plummeted, which has given investors confidence to reach for long duration yield and equities

500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000 500.0 600.0 700.0 800.0 900.0 1,000.0 1,100.0 1,200.0 1,300.0 1,400.0 1,500.0 1,600.0 1,700.0 1,800.0 1,900.0 2,000.0 S&P 5Y5Y FED BS

Twist QE3 5.5% 4.6% QE1 QE2

Source: Bloomberg

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Market Reaction

The Expectation of Low Long-Term Rates Has Created Demand for New Asset Classes that

nly Work in an Environment of Low Rates

Lower rates leading to new products

Source: Citibank

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Market Reaction

Frac Sand MLPs - HiCrush

Frac sand pricing is highly correlated with oil prices and end-market demand—bond-like?

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% $0 $10 $20 $30 $40 $50 $60 $70 $80 8/15/2012 9/15/2012 10/15/2012 11/15/2012 12/15/2012 1/15/2013 2/15/2013 3/15/2013 4/15/2013 5/15/2013 6/15/2013 7/15/2013 8/15/2013 9/15/2013 10/15/2013 11/15/2013 12/15/2013 1/15/2014 2/15/2014 3/15/2014 4/15/2014 5/15/2014 6/15/2014 7/15/2014 8/15/2014 9/15/2014 10/15/2014 Share Price Net Income Dividend Yield (R2)

40% equity price decline

Source: Bloomberg

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Market Reaction

High Income ETFs - PGP

PGP—dividend maintained through additional leverage and NAV premium goes up?

0% 5% 10% 15% 20% 25% 30% 35% $0 $5 $10 $15 $20 $25 $30 $35 5/27/2005 5/27/2006 5/27/2007 5/27/2008 5/27/2009 5/27/2010 5/27/2011 5/27/2012 5/27/2013 5/27/2014 Share Price NAV Dividend Yield

Source: Bloomberg

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Market Reaction

European High Yield Tighter than US Since Draghi “Put”

Since 2009, US GDP growth has outperformed Europe by 14%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Baml HY OAS European HY OAS

European tighter than US!

Source: Bank of America, Bloomberg

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Future

Markets Could be Right; Equities and Bonds are Tracking Global Growth and Inflation

Growth in the face of low inflation means low rates can coincide with significant valuations

65 70 75 80 85 90 95 100 105 110 115 120 125 130 135 140 145 150 155 160 1/1/2012 2/1/2012 3/1/2012 4/1/2012 5/1/2012 6/1/2012 7/1/2012 8/1/2012 9/1/2012 10/1/2012 11/1/2012 12/1/2012 1/1/2013 2/1/2013 3/1/2013 4/1/2013 5/1/2013 6/1/2013 7/1/2013 8/1/2013 9/1/2013 10/1/2013 11/1/2013 12/1/2013 1/1/2014 2/1/2014 3/1/2014 4/1/2014 5/1/2014 6/1/2014 7/1/2014 8/1/2014 9/1/2014 10/1/2014 Global IP SPX US CPI HY

Source: Bloomberg

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Future

But Also Worth Noting that Markets are Rarely Right about Future Rates…

What happens to MLPs if rates rise?

3.2%

1.000

2.000 3.000 4.000 5.000 6.000 7.000 8.000 9.000 5yr 5yr5yr - 5yrs Later Today

Source: Bloomberg

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Future

And When Markets Reset Expectations, It Happens Fast

In 1994, Greenspan raised rates much faster than anticipated by the market

360 380 400 420 440 460 480 500 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 6/30/1992 7/31/1992 8/31/1992 9/30/1992 10/31/1992 11/30/1992 12/31/1992 1/31/1993 2/28/1993 3/31/1993 4/30/1993 5/31/1993 6/30/1993 7/31/1993 8/31/1993 9/30/1993 10/31/1993 11/30/1993 12/31/1993 1/31/1994 2/28/1994 3/31/1994 4/30/1994 5/31/1994 6/30/1994 7/31/1994 8/31/1994 9/30/1994 10/31/1994 11/30/1994 12/31/1994 Fed Funds 5Y S&P

Source: Bloomberg

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Future

We Have Already Seen Violent Market Selloffs in this Cycle

Moves happen quickly, and HY underperforms

5.0% 5.2% 5.4% 5.6% 5.8% 6.0% 6.2% 6.4% 6.6% 6.8% 7.0% 0% 20% 40% 60% 80% 100% 120% 140% Rate Volatility (LHS) HY Yield

Source: Bloomberg

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Future

If Rates Did Change Quickly, Changes to Bond Market Could Exacerbate Price Moves

This time is different in one respect; low liquidity means the exit could be bumpy

Dealer Inventories not keeping up with market size ETF credit ownership ($tn)

Source: Deutsche Bank, EPFR

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Future

The Price of Liquidity

This isn’t theoretical; Puerto Rico provides an interesting example

50 60 70 80 90 100 110 3/8/2012 4/8/2012 5/8/2012 6/8/2012 7/8/2012 8/8/2012 9/8/2012 10/8/2012 11/8/2012 12/8/2012 1/8/2013 2/8/2013 3/8/2013 4/8/2013 5/8/2013 6/8/2013 7/8/2013 8/8/2013 9/8/2013 10/8/2013 11/8/2013 12/8/2013 1/8/2014 2/8/2014 3/8/2014 4/8/2014 5/8/2014 6/8/2014 7/8/2014 8/8/2014 9/8/2014 10/8/2014

Puerto Rico General Obligation Prices

Cross-over buyers emerge

Source: Bloomberg

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Future

And Once Rates Move, HY Credit Won’t Look as Good

How do you refinance if rates rise and you’re already at 4x interest coverage?

4.1 3.2 3.3 3.4 3.8 3.8 3.9 3.8 3.8 3.7 3.8 3.6 3.4 3.2 3.1 3.3 3.5 3.6 3.7 3.8 3.8 3.9 3.9 4.0 4.0 3.9 3.9 3.9 3.8 3.7 3.7 3.8 4.0 4.4 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 2006 2007 2008 2009 2010 2011 2012 2013 2014 YOY Change Interest Coverage 10 Yr

Source: Deutsche Bank

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