EFTA Document EFTA01385320

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 considering the HY Energy index was trading only -30 bps wide of the overall HY Index, comparable to the relative spread seen during 1H-14 ($100 oil). As it turns out, exactly a year later, the spread has widened to -50 bps. though on fundamentals the E&P sector is on much more solid footing vs. a year ago. For one, the modest bullish oil case is playing out as expected - maybe even 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 to a potential market rebalancing. Second, companies continue to make progress on the operational front with lower cost and increased productivity (discussed later). The parity versus the HY Index persisted through 01 17 (average spread of -22 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 week of May). The next correction, in June, was even sharper with the 2018 oil strip getting close to $45, resulting in the HY Energy-HY Index spread 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 HY Energy Index continues to be fairly wide of the early-year tights. In fact, current levels are actually comparable to early June, when WTI 2018 strip was more than $5/bbl lower than it is today. [ re Figu 3: Historical spread levels: HY and HY Energy vs VVT1 price ZOO 1 , SOO $70 woo Q woo 191//2014 4/111200 1206/1016 info7OIS 1LIMOlt 8.194017 —HY Den —Ym 2015®10 Sam band.* err flisertitg Finny LP Deutsche Bank Securities Inc. 160 Sao Figure I: WTI oil vs. HY Energy-HY Index spread 10.day overage Ohte ettdir4 2018 WTI HY Energy Sinai/ vs. IHCIOx HY Index GAS 1bps) 12/15/2017 56.15 409 51 12/21/2016 55.01 476 29 1/17/2017 5647 433 19 2/10/2017 55.58 409 5 3/3/2017 54.47 410 23 4 2017 51.13 438 29 6/2/2017 60.27 432 51 5/16/2017 49.08 429 45 San atentee Ater* LP, Dandw Art (Figure 2: 2017 HY Energy-HY Index ispreada - tightest and widest YID arite 2ota sun HY Energy Swead y*. 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 4; HY Energy-HY Index spread since Nov '16 23003 MIRO w003 12•0 'KO OD woo • Oo woo. 70 CO • 01:0 • /1/1/3111 Itl;:0•7 $12 ewe rw re , 142 12017 6/112017 7/11201) 0.1/2017 1154017 —WI tan.* WY epos -Wn70100oio Sane Datich• Irtrit loombvp F Owe* IP Page 45 CONFIDENTIAL - PURSUANT TO FED. R. CRI M. P. 6(e) CONFIDENTIAL DB-SDNY-0086604 SDNY_GM_00232788 EFTA01385320