PRODUCTS EXPANDED DEBT CAPACITY Affordability Products Amsterdam Institute

PRODUCTS: EXPANDED DEBT CAPACITY (Affordability Products) Amsterdam Institute of Finance Joseph V. Rizzi November, 2012

Expanding Debt Capacity Rising purchase price multiples and ROE concerns drove acquirers to seek ways to expand their debt capacity. Some of the most common techniques are: Adjusted (Increased) EBITDA - Operating improvements - Normalization Asset Sales - Bridges to asset sales - Liquidity is key in case bridge cannot be taken out Innovative Securities - Defer interest - Push out amortization - Increase flexibility Amsterdam Institute of Finance November, 2012 2

Debt Options Term Amortization Covenant Call Seniority Secured Revolver 5– 7 Bullet FULL YES YES Term Loan A 5– 7 40% in first 5 years FULL YES YES Institutional Term Loans 7 -8 1% per annum / bullet FULL YES YES Covenant Lite 8 - 10 1% per annum / Bullet LIGHT PREMIUM YES Mezzanine 10 + Bullet LIGHT PREMIUM NO Depends High Yield 10 + Bullet LIGHT PREMIUM NO NO Holding Company PIK 10 + Bullet LIGHT PREMIUM NO NO Bridge Term Loans 1 -3 Bullet FULL YES YES Securitization 1 -5 Revolver with Borrowing Base FULL YES YES Second Lien 8 -9 Bullet FULL YES YES Bifurcated Lien (cross lien) 8 -10 1% P. A. /Bullet Yes Yes Partial Unsecured 1 -10 1% P. A. /Bullet Yes Yes No OPCO/PROPCO 10+ Bullet Yes Yes Amsterdam Institute of Finance November, 2012 The above table shows the features of different debt options available to issuers The availability of the different options is subject to market conditions 3

Total Transaction Structure for LBOs This chart represents the percentage of deals which have senior facilities only, vs. senior first lien and second lien, nd Lien and Mezz etc based upon transaction count. For example, during 2006, 28. 7% of all deals had Senior, 2 To access the data points underlying the chart, double-click on the chart. structure. Copyright© 2012 by Standard & Poor’s Financial Services LLC (S&P) a subsidiary of The Mc. Graw-Hill Amsterdam Institute of Finance November, 2012 4 Companies, Inc.

Innovative Securities Institutional Investors/Relative Value Considerations Innovative securities allow for the expansion of debt capacity by one or more of the following mechanisms: Reduce Annual Debt Service - Reducing cash interest expense - Lengthen duration (Reduce/Delay amortization) Increasing Flexibility - Covenants - Cash flow control - Bridging - Public Disclosure - Call Premium - Partial/fully Unsecured Tranching (sequential ordering of payment or priorities) - Holding Company instruments - Restricted Subsidiaries - Second lien/bifurcated collateral-crossing liens - Senior/Subordinated Cost – Second Lien vs Mez Amsterdam Institute of Finance November, 2012 5

Second Lien Loans ◦ Senior Secured, but with Junior or Second Lien ◦ Higher default ◦ Lower recovery Originally developed as Rescue Finance Competing with EURO Mezzanine Investors – hedge funds and CLO Formerly Attractive Pricing: Spread differential between Second Lien and First Lien 350 BP. Issues: - Inter-creditor - Standstill Agreement - Obligations - New Investors Behavior in a Workout - CLO Rating Impact Amsterdam Institute of Finance November, 2012 6

Covenant Lite Covenant Issues ◦ Creditor – preserve deal; recovery value ◦ Debtor - flexibility Covenant Lite – liquidity vs. structure ◦ Similar to Investment Grade ◦ One or No Financial Covenants Rating Agency impact on CLO Volume ◦ US – Returning ◦ Europe – Shut down 1 Q 08 difficult Amsterdam Institute of Finance November 2012 7

‘Op. Co Prop. Co’ Financing (1) By structuring the financing of a pool of assets with a credit quality stronger than the corporate credit as a whole, ‘Op. Co’ ‘Prop. Co’ financing can provide a cost effective source of (acquisition) financing. Example: ◦ Target company de-merged into ‘Prop. Co’, which owns the real estate assets, and ‘Op. Co’, the operating company. ◦ Banks finance ‘Prop. Co’ acquisition of properties at agreed Loan to Value ratio. ◦ ‘Prop. Co’ leases the real estate assets to ‘Op. Co’. ◦ ‘Prop. Co’ debt refinanced by traditional Property Lenders or via Commercial Mortgage Backed Securities (CMBS) market. ◦ ‘Op. Co’ required to service the acquisition debt not assumed by ‘Prop. Co’. Amsterdam Institute of Finance November, 2012 8

‘Op. Co Prop. Co’ Financing (2) Bid. Co Financing Approx. 100% Notes Approx. 100% Op. Co Prop. Co Rental Payments Amsterdam Institute of Finance November, 2012 9

Asset Securitization Requirements: ◦ Stable and resilient cash flows from business ◦ Control over cash flows through sale of assets or adequate legal structure ◦ Target investment grade rating to maximize access to investors and lower cost of capital Different leverage measurements Issues ◦ Favorable bankruptcy laws ◦ Inter-creditor issues ◦ Flexibility Closed: 2 H 07 to present Amsterdam Institute of Finance November, 2012 10

High Yield Bonds • Longer Term Bonds q 7 -10 years and longer q 4/5 NC • Public or Private q q Usually issued in private form with exchange rights Pricing would step up if bonds not public within short period (say 180 days of close) • Usually issued as subordinated debt but can also be senior unsecured • Markets q US - $1 T size q Euro - € 100 B size Amsterdam Institute of Finance November, 2012 11

Key High Yield Terms • Registration Rights • Issuer • Status • Degree of Subordination • Limitations on liens • Limitations on indebtedness • Restricted payments • Asset sales • Change in control Amsterdam Institute of Finance November, 2012 12

European High Yield Bond Security Analysis Volume Transaction Count Note: HY volume excludes PIK instruments & short-term bonds; reflects corporate bonds only In case of a global issue, the portion allocated to European HY investors is counted (if unknown, the entire global issue is counted) In the case of multi-tranche bonds issued within the same transaction, each tranche is counted separately. To access the data points underlying the chart, double-click on the chart. Amsterdam Institute of Finance Copyright© 2012 by Standard & Poor’s Financial Services LLC (S&P) a subsidiary 13 of The Mc. Graw-Hill Companies, Inc. November, 2012

European Mezzanine Terms Covenants * * Extensive (bank type) Maintenance basis (tested quarterly) Security * Second secured Call Provisions * Generally callable immediately (103, 102, 101) Maturity * Ten year Pricing * * LIBOR + 800 bps (400 cash, 400 PIK) Warrants for total return (15 -17%) Liquidity * Low Disclosure: * Limited Marketing * No research coverage, no roadshow Rating Requirements * None Amsterdam Institute of Finance November, 2012 14

Mezzanine: Monthly Volume To access the data points underlying the chart, double-click on the chart. Copyright© 2012 by Standard & Poor’s Financial Services LLC (S&P) a subsidiary of The Mc. Graw-Hill Companies, Inc. Amsterdam Institute of Finance November, 2012 15

Rolling 3 Month Average Spreads for Mezzanine There are not enough observations to generate meaningful data for some periods during 2009 – 2011. 3 -months rolling through 4 Q 08 and 6 -months rolling thereafter (due to a limited number of observations) Amsterdam Institute of Finance November, 2012 To access the data points underlying the chart, double-click on the chart. Copyright© 2012 by Standard & Poor’s Financial Services LLC (S&P) a subsidiary of The Mc. Graw-Hill Companies, Inc. 16

Bifurcated Collateral (Crossing Liens) Trend: Increasing segmentation of loans with reduced covenant or collateral ◦ ◦ Percentage 1 H 07 2006 Breakdown 11% 6. 4% 23% 7% of institutional loans with impaired covenants or collateral 47%, 2 H 07 -Nil 24% 2007 1 H 07 47% Second Lien Bifurcated Covenant Lite Unsecured Bifurcated/Crossing Liens – See HCA for an example ◦ ◦ Asset backed revolving credit backed by first lien or receivables and inventory Term loans back by lien on other non-current assets Property, plant and equipment Stock pledge Pricing premium – 100 bps compared to revolver Inter-creditor complications Amsterdam Institute of Finance November, 2012 17

PIK • Pay if you can toggle • Eats up equity • Characteristics Amsterdam Institute of Finance November, 2012 PIK SLL Spread 825/900 Toggle 900 -1000 Term 7. 5 -10 9. 5 Call 5 x. NC n/a Leverage 6. 5 x+ 6 x+ 500 n/a (Source: LCD) 18

Stapled Financing Staple financing term sheet to deal book Be prepared to fund Establishes ceiling Conflicts of interest Amsterdam Institute of Finance November, 2012 19

ACCORDING LOAN Incremental Loan Facilities • Option allowing increase in principal under existing terms subject to certain conditions • Existing lenders can participate or new lenders can be sought Dilution of Lender Interest • Uncommitted – access requires lenders willing to provide • Suffer dilution if you elect not to participate and facility approved Amsterdam Institute of Finance November, 2012 20

Bridge Loans Equity ◦ Bank provides equity Find other equity investors later or keep Reduce PE equity Lowers need for club or larger deals ◦ Rationale – pay to play ◦ Bonds Amsterdam Institute of Finance November, 2012 21

Changing Nature of Leveraged Finance Capital Structures Increasing layers of debt Directed at different investors Intercreditors conflicts 2006 – 1 H 07 • Common equity • Hybrid preferred (0. 5 x) 2004 + 2 H 07 - Present • Common equity • Unsecured/mezzanine (1 x) • Senior secured bank loan (4 x) - Amortizing T/LA – 40% - B/C tranches – 60% FDX – 5 x + PPX – 7. 5 + • PIK notes (0. 5 x) • Unsecured/mezzanine (1 x) • Carve-out collateral (1 x) - securitization - OPCO/PROPCO • Second lien loans (1 x) • Senior secured bank loan (4 x) - Amortizing T/LA – 20% - B/C tranches – 80% Amsterdam Institute of Finance November, 2012 FDX – 6 x + PPX – 8. 5 + 22

HCA: Structuring in Action HCA ◦ ◦ ◦ – 33 bln USD (corp rating B 2/B+) FDX – 6. 53 x (LTM) PPX – 7. 7 x Club – Bain, KKR, ML (5 bln) W/W – Bof. A, JPMC, Citi, ML Debt Package 1 st Lien Term - R/C 2. 000 bln 6 250 0 - ABL 2. 000 bln 6 175 0 - T/LA 2. 250 bln 6 250 50% - T/LB 9. 300 bln 7 250 7% - EUR T/L 1. 250 bln 7 250 7% 2 nd Lien Spread Amortization (3. 46 x) (cum. At maturity) (1. 33 x) - Cash 4. 200 bln 8 - PIK/T 1. 500 bln 8 9. 75% 10. 0 % 8% 8% Existing unsecured Equity ◦ ◦ 7. 470 bln 2009 4. 965 bln -- 7. 5 % -- --- EBITDA/I – 1. 9 x (2007 E) EBITDA – CAPEX/I – 1. 1 x (2007 E) Amsterdam Institute of Finance November, 2012 23

HCA Legal Structure Sponsors Management Healthtrust Holdings Equity Merge Acquisition Corp HCA, Inc Bank Loans Existing Notes Euro T/L European subs Sub A Unrestricted subs Amsterdam Institute of Finance November, 2012 Sub B Sub C Sub D Sub E Restricted subs (gurantors) 24

Disclosure This information has been prepared solely for informational purposes and is not intended to provide or should not be relied upon for accounting, legal, tax, or investment advice. The factual statements herein have been taken from sources believed to be reliable, but such statements are made without any representation as to accuracy or completeness. Opinions expressed are current opinions as of the date appearing in this material only. These materials are subject to change, completion, or amendment from time to time without notice and Cap. Gen Financial is not under any obligation to keep you advise of such changes. All views expressed in this presentation are those of the presenter, and not necessarily those of Cap. Gen Financial. Amsterdam Institute of Finance November, 2012 25