EFTA01385435

3 January 2018 HY Corporate Credit HY Multi Sector,Media, Cable & Satellite Two less pronounced themes to this point include margin risk and debt reduction. In light of intense competition amongst food retailers, we are watchful to see what pricing concessions, if any, could be asked of the group. Kroger indicated on its 3Q17 earnings call its gross margin benefited from becoming, "significantly more diligent on lowering (its) cost of goods and negotiations with (its) vendors." Notably, TreeHouse Foods (THS) reduced its full year guidance when it reported 3Q17 results, driven in part by retail bid pricing compression in several segments. Packaged foods companies, like PF, growing the category and delivering innovation should benefit on a relative basis in terms of pricing negotiations. On the debt reduction front, Alliance One International (A0l) continues to execute on its F2018 plan to deliver improved EBITDA, which could provide capacity to repurchase an additional $25 million of 9.875% 2025 2"1 Lien Notes at some point in the next six months. In light of this, we view a 12.25% YTW as adequate compensation for investors, as there are scarce opportunities to invest in potentially aggressive debt reduction stories. A cheerful start to the 2017 holiday season Holiday spending is expected to increase 3.6% to 4.04'0 YoY The National Retail Federation expects holiday spending in the November through December period to increase 3.6% to 4.0% compared to the same period in 2016. This would represent the largest YoY improvement in the last three years, and retailers are hopeful more conservative inventory positions will benefit margins during the period. [Figure 2: YoY holiday sales expected to accelerate 6.0% 5.2164.6% 5.0% 3&%3.8% 4.0% m a 0 20)611 2.6).91 13 2W31 2.0% ill 0.0% -2.0% -4.0% 1 -6.0% -4.6% Si ,.Z• ^, ix .45 0 A. ter ce. gt9\ fp\ 151\ ts- — % • s Figure 3: Nov. Advance Re te:1 Sates show improvement 20I' Hat. SA Artame Retell Soles font To OM Cleat November Decambee Department Slams led. 10.) $12,755 $12,541 $12.507 MORNS tiO 17% -t4% Other General Merchaniese Storm 741571 S43,762 T/T Change YR) 4.1% 2.0% 03% Seireareed Dollar Volume Department Steen 41% 44% 41% Olwout% Variety anclClub Stores SI% 27% SA% %emery Stores 16% 0.2% OS% Total Retail 11% 1.7% 3.6% Retail Economist GS (formerly ICSC) ZS% /2% OM LA Kalb** Department 12% 21% OAK 13% Reclboek Discount 4.9% 14% 1.1% 17% Mock* IVA Retell Gall% 43% Sane PenoMen. re o✓SUMS Felimmon San* Deursot• tart US Cionyeer al Comoro' AS Riboethemlemeaell, Micsoot Rosette MSC Black Friday/Thanksgiving retail sales tip 92% YoY; online spending up 17.4% The 2017 holiday shopping season got off to a strong start. First Data indicated retail spending, ex-grocery stores, restaurants, auto parts merchants and gas stations, rose 9.3% YoY for the two-day Black Friday/Thanksgiving period. Adobe reported online retail sales for Black Friday and Thanksgiving were $5.03 billion and $2.87 billion, respectively, up 17.4% YoY over the two day period. Cyber Monday was projected to generate in excess of $6.5 billion in online sales for a 16.8% YoY increase. Deutsche Bank Securities Inc. Page 161 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086720 CONFIDENTIAL SDNY_GM_00232904 EFTA01385435