EFTA01378351

INTERNAL USE ONLY DO NOT DISTRIBUTE IN PART OR IN WHOLE Structured Finance > Investment Grade Collateralized Loan Obligations (CLOs): Senior Classes Updated: Oct 1, 2015 Trade Idea: Purchase 'AAA'-rated senior classes off of recently issued CLO transactions to take advantage of the floating-rate nature and currently wide credit spreads. Note these are private placements issued under Rule 144a. Investment Rationale: Credit enhancement: The senior tranche of post-crisis CLOs have credit enhancement of —35%, vs. hi-20s% for pre-crisis CLOs. This provides significant protection from a deterioration in credit of the underlying leveraged loans, which saw 12- month default and loss rates of —11% and <6%, respectively, during the credit crisis. Technical factors: Historically large money-center banks have been a large buyer of the senior classes of CLOs. Recent regulatory changes, including the Volcker Rule, have made banks less active purchasers lately and this, along with heavy issuance, has led spreads to remain wide. However, the second half of the year has brought a slowdown in issuance, due to risk retention and collateral sourcing issues, potentially leading to a favorable supply technical. In addition, the floating rate nature sees increased demand when rates are selling off, as they did during the taper tantrum, but less when rates are rallying. Secondary market appears to have felt more weakness than new issue, therefore, more attractive opportunities are likely to be found there. Relative value: Spreads have widened over the last couple of months due predominantly from increased market volatility stemming from broader economic concerns. This assets class offers the opportunity to get long credit spreads without taking on interest rate risk, which should be attractive in an economy that is growing and on the verge of a Fed tightening cycle. Recommendation(s): View Trade Deal 8 Tranche Info Collateral Ratings Cusip Average TIM% he Discount $ Current Ability to Horizon Manager Life / Par Margin Pi Ice Yield' Source Spread Similar Duration Buy 8-12 Months DRSLF 201541A A Prudential AAA/Aaa (FileteMoody's) 26244KAA4 5.4/6.04 $520.76 mm +150 Par 218% Large pipeline ' Using Iho forward curve, as or 9/28115 64 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0075520 SDNY_GM_00221704 EFTA01378351