CLO Newsletter May 21, 2013

CLO NEWSLETTER Trends

Europe CLO Deals to Drive Leveraged Loan Revival, JPMorgan Says May 20, 2013; Source: Businessweek.com; By : Patricia Kuo

The surge in issuance of European collateralized loan obligations will help revive sales of leveraged loans in the region, according to JPMorgan Chase & Co. More than 1.3 billion euros ($1.7 billion) of European CLOs have priced this year and increased demand for yield is drawing more investors to the loan market, JPMorgan analysts including Daniel Lamy and Rishad Ahluwalia wrote in the report. Increased demand should encourage further loan origination.

For more: Click here Fitch launches CLO indenture checklist reports May 17, 2013; Source: Creditflux.com; Fitch Ratings has begun to publish reports comparing the language in CLOs with the market standard. This week it produced the first of these CLO indenture abstracts, with a study of the indenture in Sankaty’s Race Point VIII. The report is intended to provide a quick guide to which elements of the structure confirm to the norm and an explanation of the likely impact of any unusual features.

For more: Click here Loan-fund assets grow 6% in April as records continue to fall May 17, 2013; Source: LeveragedLoan.com; By : Steve Miller Assets under management of loan mutual funds grew by 6% in April, or $6.7 billion, to a record $116.8 billion, according to data from Lipper FMI, CEFConnect.com, and Yahoo! Finance.

It was the fourth straight month of muscular inflows for the asset classes.

Indeed, between January and April, loan fund AUM grew by $26 billion, or 28.6%, from $96.5 billion at year-end.

For more: Click here EBITDA growth slows anew in 1Q as macro picture stabilizes May 17, 2013; Source: LeveragedLoan.com; By : Steve Miller Cash-flow growth among leveraged loan issuers ratcheted lower again in the first quarter. On average, S&P/LSTA Index issuers that file publicly with the SEC posted a 6.8% year-over-year increase in EBITDA during the first three months of 2013, down from 8.3% in the fourth quarter, according to data from S&P Capital IQ. The steady erosion in EBITDA growth since corporate profits bounced back after the great recession of late 2008/early 2009 are hardly unique to loan issuers, of course.

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Compelling case for CLO calls May 16, 2013; Source: Structuredcreditinvestor.com Equity investors in callable 2010 and 2011 CLOs should call them now and take advantage of the low current funding costs in the new issue market, suggest CLO strategists at Morgan Stanley. Many holders of legacy deals would also benefit from exercising call options, although continuing to hold 2006 and 2007 vintage CLOs could offer greater value.

Twenty transactions have been called this year and a further 42 were called in 2012. Of those 62 deals, five are early CLO 2.0 transactions from 2010 and 2011.

For more: Click here Chart: BB/B leveraged loan bids continue to climb May 16, 2013; Source: LeveragedLoan.com Secondary bids on double-B and single-B rated loans topped par early this year, and have been rising ever since. One big reason: the continued flood of institutional investor cash into loan mutual funds (there have been 47 consecutive weeks of inflows), which totals $18.9 billion so far in 2013.

For more: Click here Shift seen in Euro loan maturities May 15, 2013; Source: Structuredcreditinvestor.com S&P's updated study of collateral pools backing European cashflow CLOs finds that the peak in leveraged loan maturities has shifted out to 2016 and 2017, from 2014 and 2015 in its previous study two years ago. One likely reason for this outward shift in loan maturities is that much existing CLO documentation allows collateral managers to continue reinvesting in certain circumstances, even after the reinvestment period has ended. Despite the transaction entering its amortisation period, CLO managers may therefore continue to recycle some principal proceeds by investing in assets with longer maturities in order to keep the CLO invested.

For more: Click here After torrid start in 2013, CLO issuance eases; YTD volume: $32.1B May 15, 2013; Source: LeveragedLoan.com; By : Steve Miller After a record-setting first quarter, CLO issuance has downshifted noticeably.

Indeed, during the four weeks ended May 15, CLO volume averaged $897 million per week, less than half the $1.9 billion weekly issuance seen in January and February. Year-to-date CLO issuance now totals $32.1 billion.

For more: Click here CLO Investors Should Heed Loan Maturity Extension Risk, S&P Says May 14, 2013; Source: Businessweek.com; By : Patricia Kuo Investors in European collateralized loan obligations should be wary of risks from deals extending the maturity of the buyout debt underlying the securities, according to Standard & Poor’s.

Some of the so-called amend-and-extend transactions leave leveraged loans due to repay after the maturity of the CLO notes, which may mean investors in the notes aren’t repaid on time, S&P analysts led by London-based Emanuele Tamburrano wrote in a report today.

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Broad-Based appeal: BB loan, bond spreads near generational lows May 13, 2013; Source: LeveragedLoan.com; By: Steve Miller In a credit market where yields are famously low and conditions are hot across the board, the BB segment may be the most sought after of all.

In addition to regular-way leveraged loan and high-yield accounts, BB paper is in the wheelhouse of both investment-grade managers looking to fill crossover baskets with relatively wide-margin product and banks seeking to generate hefty risk-adjusted returns on capital. For this reason, BB yields are pushing generational lows, according to data from LCD and Bank of America Merrill Lynch’s high-yield research group.

For more: Click here Helped by high yield, leveraged finance volume totals $27B May 10, 2013; Source: LeveragedLoan.com U.S. leveraged finance volume for the week ended May 9 totaled $27 billion, the most since the third week of March, according to LCD, a unit of S&P Capital IQ. Leveraged finance volume comprises leveraged loan activity plus high yield bond issuance.

The rebound was largely due to the high yield bond market, which this week priced a hefty $11.3 billion in deals (through today), the most since March and roughly twice the amount seen in each of the last three weeks.

For more: Click here May 2013 US Leveraged Loan Market Analysis May 10, 2013; Source: LeveragedLoan.com; By: Steve Miller An excess of demand marked the April market, with no signs of the supply/demand equation changing. Retail and institutional investors continue to embrace the asset class. CLO issuance has downshifted, however. Looking ahead, participants expect loans’ positive bias to persist.

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S&P European Leveraged Loan Index (ELLI) returns 1.16% in April, 3.7% YTD May 10, 2013; Source: LeveragedLoan.com The secondary market continued on its upward trajectory in April, as the S&P European Leveraged Loan Index (ELLI) returned 1.16% in the month through May 2, its strongest performance since January and the second-highest return in the last 12 months (excluding currency).

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It’s a demand world: Loan market technicals favor issuers in April May 10, 2013; Source: LeveragedLoan.com In April, demand for loans again outpaced supply, adding further fuel to the market’s technical fire, which has led to plunging yields on new-issue loans (among other things).

All told, visible capital – including estimated retail inflows and CLO formation – exceeded net new supply during the month by $7.8 billion: $10.4 billion to $2.6 billion. That padded the year-to-date surplus to a super-sized $37.8 billion ($51.7 billion to $13.9 billion), or a stillformidable $28.3 billion including Heinz’s allocated but yet-to-be-funded $9.5 billion institutional LBO loan.

For more: Click here Investors stay luke warm on move from CLO 1.0 to CLO 2.0 May 09, 2013; Source: Creditflux.com Over 500 CLO professionals were packed into London’s Landmark Hotel for Creditflux’s CLO symposium this week and one of their first tasks was to offer their opinion on the progression from CLO 1.0 to 2.0.

Results suggested that a large number of industry professionals remain sceptical of the benefits of newer CLO structures. When quizzed on whether CLO 2.0 is a great improvement on CLO 1.0, almost a third of delegates disagreed with the notion (see below for full results).

A quarter of the audience disagreed slightly with the statement but another 5% took a more hardened stance and disagreed strongly.

For more: Click here 3i Group Said to Join Ares Management in European CLO Deal Surge May 08, 2013; Source: Businessweek.com 3i Group Plc (III) and Ares Management LLC are planning to join the surge in issuance of European collateralized loan obligations, according to people with knowledge of the matter.

3i Debt Management, the credit unit of the London-based private-equity company, is raising a CLO of about 300 million euros ($395 million), said three people with knowledge of the matter, who asked not to be identified because the deals are private. Ares is also seeking a CLO of about 300 million euros, three people familiar with that transaction said.

For more: Click here Amid flood of investor cash, leveraged loan yields hit lowest point in decade May 08, 2013; Source: LeveragedLoan.com As the U.S. leveraged loan market continues to see a steady stream of investor cash inflow, yields on new-issue leveraged loans have reach their lowest point since before the 2008 market meltdown. Indeed, yields (to maturity) on double-B rated new issues neared 3% at the end of April while single-B loans were yielding roughly 5%.

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CLO equity investors drop their IRR expectations, conference hears May 07, 2013; Source: Creditflux.com CLO equity investors have reduced their expectations for future returns in the past year, boosting prospects for new issuance.

Audience members at today’s Creditflux CLO Symposium voted on the internal rate of return that an investor in a new US CLO can expect and the majority (54%) voted that IRRs fall in the 10-15% bracket. But a large 41% of the contingent present at today's gathering said that projected returns lie in the 5-10% range.

For more: Click here High-yield funds increasing exposure to leveraged loans May 7, 2013; Source: LeveragedLoan.com High-yield funds increased their exposure to leveraged loans during the back half of 2012, based on a review of 20 large open-end and closed-end loan funds by LCD. The funds under review grew loans to, on average, 8.3% of assets under management during the reporting period ended Dec. 31, 2012, or Feb. 28, 2013, from 7.5% six months earlier. All told, the share of loans is up two percentage points over the past two years.

For more: Click here With LBOs scarce, private equity firms turn to dividend/recap deals May 6, 2013; Source: LeveragedLoan.com It’s no secret that dividend recaps are again a major theme in leveraged finance this year. Private equity firms, as usual, are the main source of dividend deals. PE-backed issuers have tapped the leveraged loan and highyield bond markets for $19.7 billion of dividend financing in 2013 (as of April 26), including $16.9 billion of loans and $2.8 billion of bonds.

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Expanding Structured Finance Footprint, Markit Adds CLO Tranche Pricing May 02, 2013; Source: Waterstechnology.com; By : Timothy Bourgaize Murray Market data provider Markit will now offer evaluated prices for 5,000 investment-grade collateralized loan obligation (CLO) tranches, rated BBB or better, covering around two-thirds of the overall market.

Nathan Kirk, Markit's director and head of US securitized products, says the move backs growing client demand—new issuances in the CLO market are estimated to top $75 billion this year, a tremendous leap from years previous—and builds on other securitized products the provider prices, including residential and commercial mortgage-backed securities (MBSs) and asset-backed securities (ABSs) that package credit card or student loan debt.

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Cov-relief, A-to-E activity remain slow in hot April loan market May 02, 2013; Source: LeveragedLoan.com; By : Steve Miller Amendment activity was lackluster again in April. With liquidity running hot in the institutional market, amend-to-extend activity was limited to pro rata loans. Covenant-relief activity, meanwhile, remained slow. In all, four issuers loosened tests on $2.8 billion of leveraged loans, versus $5.8 billion in March.

For more: Click here CLO Issuance Slides To $4B In April After Booming March May 02, 2013; Source: LeveragedLoan.com After a busy month of March, CLO issuance in the U.S. slowed noticeably in April, to just $4 billion via nine deals. The April CLO activity brings year-todate volume in the sector to $30.1 billion.

While that’s a healthy $7.5 billion monthly average, the pace of collateralized loan obligation vehicles has dropped off. In March there was nearly $11 billion in issuance via 22 deals.

For more: Click here Leveraged loans return 0.6% in April as rally persists; YTD return is 2.72% May 01, 2013; Source: LeveragedLoan.com; By : Steve Miller The loan market’s 2013 rally persisted in April. Fueled by another month of muscular technical conditions and positive investor sentiment, the S&P/LSTA Index returned 0.6%, versus 0.82% in March. The larger names that constitute the S&P/LSTA Loan 100 lagged slightly in April, with a 0.56% return, after marginally outperforming in March, at 0.84%.

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Leveraged loan default rate eases in April after hitting recent high May 01, 2013; Source: LeveragedLoan.com; By : Steve Miller After pushing to its highest level since November 2010 in March, the loan default rate receded in April.

Indeed, the S&P/LSTA Index suffered just one default during the month, when Synagro Technologies filed for Chapter 11. As a result, the loan default rate retreated to 1.91% by principal amount, from 2.21% in March, when three directory issuers defaulted on $4 billion of loans.

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Goldentree Returns To Europe With €252.5M CLO May 16, 2013; Source: Finalternatives.com

Investing

Hedge fund Goldentree Asset Management is selling its first European collateralized loan obligation in six years.

The New York firm is seeking about €252.5 million (US$325 million) and has already sold the majority of the issuance. Only €68.5 million in top-rated notes remain Bloomberg News reports.

The CLO includes about €113 million in triple-A-rated notes, as well as fixed-rate bonds denominated in both euros and pounds sterling. The deal, arranged by Morgan Stanley, has a 12-year final maturity.

For more: Click here SCI Start the Week - 20 May May 13, 2013; Source: Structuredcreditinvestor.com; A look at the major activity in structured finance over the past seven days Pipeline A broad range of transactions remained in the pipeline at the end of last week. These deals comprise four ABS, four RMBS and two CMBS. The ABS currently in the pipeline consists of: €800m Bavarian Sky German Auto Loans 1; US$238m CarFinance Auto Receivables Trust 2013-1; US$599.7m Edsouth Indenture No.4 Series 2013-1; and €300m Volta Electricity Receivables Securitisation. The RMBS include Firstmac Series 1E-2013 and £420.6m Kenrick No.2, as well as two servicer advance deals - HLSS Servicer Advance Receivables Trust series 2013-T2 and 2013-T3 (each sized at US$425m). Finally, a pair of CMBS continues to be marketed - US$510m JPMCC 2013-JWRZ and US$1.47bn WFRBS 2013-C14.

For more: Click here Prudential Fixed Income to manage EUR300 million CLO May 13, 2013; Source: Marketwatch.com; Prudential Fixed Income has been appointed collateral manager for the Dryden XXVII Euro CLO 2013 BV, which closed today, the company announced. Prudential Fixed Income is the principal fixed income business of Prudential Financial, Inc. which is headquartered in the US. The collateralized loan obligation, arranged by Barclays Bank plc, is only the second European CLO to come to market since the global financial crisis and is the sixth to be issued under Prudential's Dryden brand in the last 17 months. Dryden XXVII is being managed by Prudential Fixed Income's leveraged finance time in London, which operates in the UK as Pramerica Fixed Income.

For more: Click here Wasserstein launches fund to invest in leveraged loans, HY bonds May 09, 2013; Source: LeveragedLoan.com; By: Kerry Kantin Wasserstein & Co. last month launched its first credit-oriented hedge fund as part of its effort to build out a broad assetmanagement platform, according to sources.

The fund, Wasserstein Debt Opportunities, will invest primarily in leveraged loans and high-yield bonds issued by companies with annual EBITDA of up to $300 million. The fund is seeking to create differentiated high-yield exposure by focusing on non-large-cap credits with less transparency and pricing efficiency, sources added.

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Omers Private equity lines up financing for Civica buyout May 08, 2013; Source: LeveragedLoan.com; By: David Cox/Sarah Husband Omers Private Equity has agreed to buy Civica, the British provider of computer software to the public sector, from 3i for £390 million. The agreement comes after a keenly fought auction that saw the Canadian buyer win out against final rival bids from Cinven and Vista.

To support the bid Omers has mandated Bank of Ireland, Credit Agricole CIB, GE Capital, and ING to arrange an all senior loan financing, market sources said. Nomura, Weil and Wyvern Partners advised Omers.

For more: Click here 2007 US CLO hits EoD on its redemption date May 07, 2013; Source: Creditflux.com When equity investors in Integral Funding, a 2007 CLO, pushed the call button on the deal they probably envisaged the procedure to be straightforward and above all, uneventful. That was not to be as the CLO last month became the first to suffer an event of default for a failed optional redemption.

Moody’s analyses the transaction in the latest edition of its CLO Interest. It states that the CLO failed to pay back class D note holders in full on the redemption date, which the issuer has blamed on delays in the settlement of collateral sales.

For more: Click here 1 month after IPO SeaWorld readies $1.4B leveraged loan May 6, 2013; Source: LeveragedLoan.com Bank of America Merrill Lynch, Goldman Sachs, J.P. Morgan, Barclays, Citi, Wells Fargo, and Macquarie are coming to market with a $1.405 billion B term loan for SeaWorld Parks & Entertainment, sources said.

For more: Click here Markit Launches CLO Pricing Service May 02, 2013; Source: Markit Markit, a leading, global financial information services company, today announced the launch of a new service for the pricing of collateralised loan obligation (CLO) tranches.

Markit’s new service covers more than 5,000 investment grade tranches of US and European CLOs and was launched in response to demand from customers for a high quality, independent data source for CLO pricing For more: Click here Ancestry.com preps refinancing of leveraged loan backing 2012 LBO May 02, 2013; Source: LeveragedLoan.com; By: Kerry Kantin Morgan Stanley has scheduled a lender call for 10:00 a.m. EDT tomorrow, May 3, to launch a repricing and refinancing Ancestry.com’s 2012-vintage LBO loan, according to sources.

The issuer is seeking to carve out a $200 million, five-year amortizing B-2 term loan from the $670 million B covenant-lite term loan maturing in December 2018, while also seeking to reprice the balance of the loan outstanding following a $30 million paydown using cash from the balance sheet, sources said.

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Ratings

Moody's assigns a rating to one class of notes issued by Palmer Square CLO 2013-1, Ltd. May 17, 2013; Source: Moody’s Moody's Investors Service announced that it has assigned the following rating to notes issued by Palmer Square CLO 2013-1, Ltd. (the "Issuer" or "Palmer Square CLO"): U.S. $212,800,000 Class A-1 Senior Secured Floating Rate Notes due 2025 (the "Class A-1 Notes"), Assigned Aaa (sf) RATINGS RATIONALE Moody's rating of the Class A-1 Notes addresses the expected loss posed to note holders. The rating reflects the risks due to defaults on the underlying portfolio of loans, the transaction's legal structure, and the characteristics of the underlying assets.

For more: Click here Moody's assigns a rating to one class of notes issued by OHA Credit Partners VIII, Ltd. May 15, 2013; Source: Moody’s New York, May 15, 2013 -- Moody's Investors Service announced that it has assigned the following rating to notes issued by OHA Credit Partners VIII, Ltd. (the "Issuer" or "OHA VIII"): U.S. $244,000,000 Class A Senior Secured Floating Rate Notes due 2025 (the "Class A Notes"), Definitive Rating Assigned Aaa (sf) RATINGS RATIONALE Moody's rating of the Class A Notes addresses the expected losses posed to noteholders. The rating reflects the risks due to defaults on the underlying portfolio of loans, the transaction's legal structure, and the characteristics of the underlying assets.

For more: Click here Moody's assigns a provisional rating to one class of notes to be issued by Octagon Investment Partners XVI, Ltd. May 15, 2013; Source: Moody’s Moody's Investors Service announced that it has assigned the following provisional rating to notes to be issued by Octagon Investment Partners XVI, Ltd. (the "Issuer" or "Octagon XVI"): U.S. $298,500,000 Class A Senior Secured Floating Rate Notes due July 2025 (the "Class A Notes"), Assigned (P)Aaa (sf) Moody's issues provisional ratings in advance of the final sale of financial instruments, but these ratings only represent Moody's preliminary credit opinions. Upon a conclusive review of a transaction and associated documentation, Moody's will endeavor to assign definitive ratings. A definitive rating (if any) may differ from a provisional rating.

For more: Click here Moody's assigns rating to the senior class of notes issued by ALME Loan Funding 2013-1, Ltd. May 15, 2013; Source: Moody’s Moody's Investors Service announced that it has assigned the following rating to notes issued by ALME Loan Funding 2013-1, Ltd.: Issuer: Alme Loan Funding 2013-1 Limited EUR195,000,000 Class A-1 Senior Secured Floating Rate Notes due 2025, Definitive Rating Assigned Aaa (sf) Additional classes of notes which are not rated by Moody's will also be issued as part of the transaction.

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Moody's upgrades the ratings of $457.8 million of notes issued by Bridgeport CLO Ltd. May 15, 2013; Source: Moody’s Moody's Investors Service announced today that it has upgraded the ratings of the following notes issued by Bridgeport CLO Ltd.: U.S.$387,500,000 Class A-1 Senior Floating Rate Notes Due July 21, 2020 (current outstanding balance of $372,534,590), Upgraded to Aaa (sf); previously on August 5, 2011 Confirmed at Aa1 (sf) U.S.$24,000,000 Class A-2 Senior Floating Rate Notes Due July 21, 2020, Upgraded to Aa1 (sf); previously on August 5, 2011 Upgraded to Aa3 (sf) For more: Click here Moody's assigns rating to the senior class of notes issued by ALME Loan Funding 2013-1, Ltd. May 15, 2013; Source: Moody’s Moody's Investors Service announced that it has assigned the following rating to notes issued by ALME Loan Funding 2013-1, Ltd.: Issuer: Alme Loan Funding 2013-1 Limited EUR195,000,000 Class A-1 Senior Secured Floating Rate Notes due 2025, Definitive Rating Assigned Aaa (sf) For more: Click here Moody's upgrades EUR 85M CLO notes of Strawinsky I P.L.C. May 08, 2013; Source: Moody’s EUR43M Class A2 Senior Secured Floating Rate Notes due 2024, Upgraded to Aa2 (sf); previously on Nov 7, 2011 Upgraded to Baa3 (sf) EUR23M Class B Senior Secured Floating Rate Notes due 2024, Upgraded to Baa2 (sf); previously on Nov 7, 2011 Upgraded to B3 (sf) For more: Click here RPT-Fitch: May SME CLO compare May 01, 2013; Source: Reuters & Fitch (The following statement was released by the rating agency) Fitch Ratings has published the May edition of its SME CLO Compare. The report is updated on a monthly basis.

Fitch assigned final ratings on 5 April to IM Cajamar Empresas 5 F.T.A., a Spanish securitisation of a static pool of secured and unsecured loans to small- and medium-sized enterprises (SMEs) and self-employed individuals (SEIs), originated by Cajamar Caja Rural and Caja Rural del Mediterraneo, Ruralcaja.

For more: Click here Rating Action: Moody's assigns ratings to two classes of notes issued by Mountain View CLO 2013-1 Ltd. May 01, 2013; Source: Moody’s Moody's Investors Service announced that it has assigned the following ratings to notes issued by Mountain View CLO 2013-1 Ltd. (the "Issuer" or "Mountain View CLO"): U.S. $4,000,000 Class X Senior Term Notes due 2024 (the "Class X Notes"), Definitive Rating Assigned Aaa (sf) For more: Click here

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Cantor Fitzgerald Expands CLO and Structured Credit Team May 16, 2013; Source: Hereisthecity.com; By : Rhian Hughes

People

Cantor Fitzgerald has announced four key hires in CLO, CDO and Structured Credit in New York and London.

Florian Bita joins the team in New York, and Jason Eppleston, Martin Deville and Damian Horton join Cantor Fitzgerald Europe in London, strengthening Cantor's global presence in the CLO arranging business.

For more: Click here Europe: Bradkin joins CVC Credit Partners May 10, 2013; Source: LeveragedLoan.com; CVC Credit Partners has hired Brandon Bradkin as a partner, the company confirmed in a press statement.

Bradkin previously spent six years at Park Square Capital, where he was a partner and member of the investment committee. Prior to that, he was a managing director at Dresdner Anschutz Mezzanine fund.

For more: Click here Shedel promoted within BNP Paribas leveraged finance origination business May 08, 2013; Source: LeveragedLoan.com BNP Paribas has appointed Paul Shedel as head of leveraged finance origination for the Benelux, Nordic, and CEE regions. In his new role, Shedel will report to Geert Lippens, global head of BNPP’s leveraged finance business.

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Chris Graham Vice President

Head of Client Engagements Office: +1 (212) 679-8610 Mobile: +1 (585) 503-4048

Sandeep Baid Director

Business Development – Research Office +44 (0) 207-138-0945 Mobile +44 (0) 7500-936-043

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