1. Middle Market Capital Edge
Q1 2013
SC Credit Advisors
Recapitalization Advisory For the Middle Market
A Stone Carlie Company
www.sccreditadvisors.com

2. Table of Contents
 Summary 3
Stats and Commentary
Cash Flow Lending 5
 Asset Based Lending 8
 Business Development Companies 9
 Private Equity 11
 Capital Options: Pricing, Leverage, Trends 13
 About SC Credit Advisors 15
 Terms of Use 16
 Contact 17
www.sccreditadvisors.com 2

3. Summary
• SC Credit Advisors, LLC is pleased to present the first quarterly Middle Market
Capital Edge, providing our observations and insights regarding the debt and equity
capital markets for private middle market companies.
• This edition of the Edge discusses:
– Statistics and commentary regarding senior cash flow and asset based loans
(pp 5-8)
– Financing alternatives offered by Business Development Companies (pp 9-10)
– Valuations and capitalization in Private Equity buyouts (pp 11-12)
– Pricing, leverage and trends for various capital options (pp 13-14)
(continued)
See Terms of Use on page 16
www.sccreditadvisors.com 3

4. Summary (continued)
• In this first quarter of 2013, despite the considerable uncertainty regarding the
economy and the capital markets, there is currently a favorable financing
environment for private middle market companies:
- Competition among traditional and non traditional lenders, coupled with a
modest economic recovery, has driven up leverage multiples, especially for
borrowers with attractive credit profiles
- Borrowing costs are at historically low levels
- Business Development Companies are providing flexible financing alternatives
where conventional lenders (such as commercial banks) are not an option
- Purchase multiples remain elevated as Private Equity firms seek to deploy
their available capital
See Terms of Use on page 16
www.sccreditadvisors.com 4

5. Cash Flow Loan Multiples Approach 2007 Highs
Total Debt to EBITDA Multiples
• The modest economic recovery, lender of Middle Market Loans
liquidity and competition all increase (Issuers with EBITDA of $50 Million or Less)
leverage multiples 6x
– Recovery has improved borrower
fundamentals 4.76
4.50
4.25 4.23 4.16
– Competition among banks and non bank 4x 3.66
senior lenders (Finance Companies, Business 3.41
Development Companies (BDCs), Unitranche
funds) has increased leverage multiples
• Leverage availability depends 2x
significantly on size and credit quality of
borrower:
– Borrowers with predictable revenues and
EBITDA, limited customer concentration and
experienced management teams garner 0x
higher leverage 2007 2008 2009 2010 2011 2012 4Q12
– Leverage is lower as EBITDA declines, with First Lien Debt/EBITDA Second Lien Debt/EBITDA
limited cash flow loan options for borrowers Other Sr Debt/EBITDA Sub Debt/EBITDA
with less than $10 million in EBITDA
Chart Source: S&P LCD
– Mezzanine (sub) debt is under pricing and
term pressure from aggressive senior lenders
www.sccreditadvisors.com 5

6. Corporate Cash Flow supports Higher Leverage
Debt / EBITDA vs. Cash Flow Coverage
5.00x 3.60x
• Cash flow coverage is very strong for
high leverage cash flow loans: 3.40x
EBITDA Capex / Cash Interest
4.50x
3.20x
– Cash Flow Coverage [(EBITDA – Capex ) /
Debt / EBITDA
Cash Interest] is stronger than pre 3.00x
recession 2007 levels, at 3.30x now vs. 4.00x
2.50x then 2.80x
3.50x 2.60x
– Lenders are aggressive, but want to
maintain essential underwriting parameters
2.40x
3.00x
– Availability of cash flow loans declines as
2.20x
cash flow coverage drops
2.50x 2.00x
2007 2008 2009 2010 2011 2012 4Q12
Debt/EBITDA [EBITDA - Capex]/Cash Interest
Chart Source: S&P LCD
www.sccreditadvisors.com 6

7. Lenders Act to Retain Borrowers
and Maintain Pricing
Percent of Institutional Term Loans with 35% Percent of Institutional Term Loans with
Prepayment Penalties 30% Pricing Grids
68.3% 71.3% 71.8%
75% 25% 23.2%
19.1%
20% 16.6%
50% 44.6%
15% 11.3%
20.5% 21.4% 10% 7.0%
25% 5.8% 5.7%
10.9% 5%
0% 0%
Source for both charts: S&P LCD
• Prepayment penalties appear in almost 3 of 4 deals as lenders move to retain
borrowers in a competitive environment
• Pricing grids, which typically lower interest costs as leverage decreases, diminish as
lenders move to preserve loan pricing in an already low rate environment
www.sccreditadvisors.com 7

8. Asset Based Loan (ABL) Volume Back
to Normal Levels
ABL Volume and Deal Count
35 120
ABL Volumes are off their 2011
Deal Count (Syndicated Credits)
• 30 100
highs, as the senior cash flow 25
Issuance ($)
80
market rebounds: 20
60
15
– Cash flow lending options were more 40
10
limited for the middle market in 2009- 5 20
2011
0 0
2007
2008
2009
2010
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
– ABL’s, however, are more important
to borrowers with limited cash flow Chart Source: Thompson Reuters
loan options
Average Pro Rata Spreads for
– Key factors driving the ABL market:
Asset-Based Deals
• Significant liquidity among L+500
lenders
L+400
• Limited demand due to
moderate economic growth L+300
• Relatively low volume in the L+200
M&A market, a traditional source
L+100
of new ABL deals
L+0
2007
2008
2009
2010
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
– ABL interest rates mimic the rate
declines in the overall credit markets
Chart Source: S&P LCD
www.sccreditadvisors.com 8

9. Business Development Companies (BDC’s) fill the
Gap in Middle Market Financing
Portfolio Breakdown by Investment Type
For a Sampling of BDC’s
Senior Subordinated/ Preferred, Common Structured
BDC
Debt Mezzanine Debt Equity, Warrants Products, Other
American Capital1 24% 31% 46% N/A
Ares Capital2 79% 7% 13% 1%
Apollo Investment Corp 40% 48% 12% 0%
Fifth Street Finance3 70% 26% 4% 0%
Hercules Technology Growth4 99% N/A Warrants w/ debt N/A
Main Street Capital 78% - 88% N/A N/A N/A
• Data is from publically disclosed information for each of the respective BDC’s. Data for American Capital, Ares Capital, Fifth Street Finance , Hercules Technology Growth, Main
Street is as of 9/30/12; Data for Apollo Investment Corp is as of 12/31/12.
• Notes:
1) American Capital includes Private Finance Assets only. Senior Debt includes revolving credit facilities and senior term debt
2) For Ares Capital, Senior Debt includes a co-investment facility with GE Capital in first lien loans to middle market companies
3) For Fifth Street Finance, second lien loans are included in the Subordinated/Mezzanine total
4) Hercules Technology Growth provides venture debt (senior debt with warrants) to high growth venture capital backed companies
• BDC’s are investment companies with a wide range of investments: Senior Secured
Loans, Second Lien Loans, Mezzanine Debt, Convertible Debt, Preferred and Common
Stock, and Structured Products
• Each BDC has its own investment criteria and targeted borrower profile
• When bank lenders pull back, BDC’s can step in as senior lenders; when bank lenders
are aggressive, BDC’s can supply junior capital
www.sccreditadvisors.com 9

10. Business Development Companies (BDC’s) fill the
Gap in Middle Market Financing (continued)
Invested Capital for a Representative Sample of BDC's at Year End
($s Millions)
$30,000 40%
Total Investments
$25,000 Annual Percent Change 31% 30%
20%
20%
$20,000
10%
$15,000 0% 13%
0%
$10,000
-19% -10%
$5,000 -20%
$18,289 $14,845 $14,789 $19,363 $21,974 $26,353
$0 -30%
2007 2008 2009 2010 2011 2012*
• Data is from publically disclosed information for a sample of BDC’s including: Ares Capital, American Capital, Apollo
Investment, BlackRock Kelso, Full Circle Capital, Golub Capital, GSV Capital, Hercules Technology Growth
Capital, Main Street Capital, Medley Capital, PennantPark Floating Rate Capital, PennantPark Investment Corp., Prospect
Capital, Solar Capital, TCP Capital, Triangle Capital. Note: Not all BDC’s have data available prior to 2011.
• After being hard hit by portfolio losses during the recession, BDC’s have seen significant
growth in loan and equity investments since 2009
• Invested capital for the BDC sample in the chart above increased by 20% in 2012 alone.
BDC’s are flush with cash and aggressively seeking investments
www.sccreditadvisors.com 10

11. Secondary Buyouts become more important with
M&A Deal Volume at Low Levels
Total Capital Invested and Number of Deals Closed Secondary Buyouts as % of All Buyouts
Middle Market LBOs 30%
900 3,084 3,500
25%
800 Capital Investest 3,000
700 # of Deals Closed 20%
2,286 2,500
600
15%
500 2,000
1,440 2,042
400 1,943 1,214 1,500 10%
300
1,000 5%
200
100 500 0%
$826 $359 $150 $337 $354 $190 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
0 0
2007 2008 2009 2010 2011 3Q12 2008 2009 2010 2011 2012
Source for both Charts: PitchBook
• The decreasing number of middle market M&A transactions has increased the
frequency of secondary buyouts (Private Equity group portfolio company selling to
other Private Equity groups)
• Meanwhile, surveys show the Private Equity industry is sitting on nearly $500 billion
in unused capital, a figure which has only declined slightly in the last three years –
there is capital to put to work
www.sccreditadvisors.com 11

12. Purchase multiples at 5 year highs, supported by an
abundance of Private Equity
Purchase Price Breakdown* Equity Contribution as
(For Issuers with EBITDA of $50 Million or less) a Percent of Total Capital*
10x 9.30 50%
8.28 8.40 8.59
9x 8.18 7.89
8x 40%
6.61
7x
6x
30%
5x
4x
3x 20%
2x
1x 10%
0x
2007 2008 2009 2010 2011 2012 4Q12
0%
Senior Debt/EBITDA Sub Debt/EBITDA Equity/EBITDA Others 2007 2008 2009 2010 2011 2012 4Q12
*Total Sources/adjusted Pro Forma Trailing EBITDA. Equity component *Includes only new equity
represents total equity (new + rollover)
Source for both charts: S&P LCD
• The economic recovery, return of leverage multiples, low cost of funding, scarcity of
middle market deals and substantial Private Equity capital is supporting historically
high purchase price multiples
• Equity contribution levels, while declining slightly from multi year highs, are above
pre recession levels, reflecting the competition for deals and more stringent debt
underwriting standards
www.sccreditadvisors.com 12

13. Capital Options for Companies with
Less than $10 Million of EBITDA
Pricing Leverage
Senior Cash • Varies • Up to 2.50x total senior leverage
Flow Loans • Available only for strongest borrowers • Available only for strongest borrowers
• Generally no restrictions on leverage
Asset Based • L + 250 and up -75%-95% of Accounts Receivable
• Loan amounts: -
Loans • LIBOR Floor: varies - 75%-95% of Accounts Receivable (<5% dilution)
- 50% to 70% of Inventory (blended for RM, WIP, FG)
• Varies widely depending on lender (institutional
Second Lien vs.high net worth)
vs. high net worth)
• Total Leverage of 3.0 - 4.0x
Loans • L + 1000 (or fixed rate) and higher
• Equity participation possible
Unitranche • 11% - 12% • Total Leverage of 3.0 - 4.0x
• 11% - 14% current interest
Subordinated /
• 2% - 4% PIK • Total Leverage of 3.0 - 4.0x
Mezzanine Debt • Equity warrants possible
Private Equity • N/A • 35-50% equity contribution
Source: SC Credit Advisors, LLC
Trends:
• Borrower size and credit quality greatly • Looser lender restrictions on dividend
influence terms payments / distributions
• More ABL alternatives than cash flow loan • Growing frequency of second lien loans from
options are available in this segment high net worth investors
• BDC’s move aggressively into this market • Senior loan pricing varies greatly according to
• Fewer loan covenants type of lender (Bank, Finance Company, BDC)
www.sccreditadvisors.com 13

14. Capital Options for Companies with
More than $10 Million of EBITDA
Pricing Leverage
• 3.0 - 4.0x (Senior leverage)
Senior Cash
• L + 400 and up • 4.5 - 5.0x (Total leverage)
Flow Loans • Strong borrowers with higher EBITDA - up to 6.0x
• Generally no restrictions on leverage
Asset Based -75%-95% of Accounts Receivable
• Loan amounts: -
• L + 150 and up
Loans - 75% - 95% of Accounts Receivable (<5% dilution)
- 50% - 70% of Inventory (blended for RM, WIP, FG)
Second Lien • L + 800 and up • Total Leverage of 3.5 - 5.0x
Loans
Unitranche • 10%+ • Total Leverage of 3.5 - 5.0x
• 10% - 12% current interest
Subordinated /
• Up to 2% PIK • Total Leverage of 3.5 - 5.0x
Mezzanine Debt • Equity warrants less prevalent
Private Equity • N/A • 35-50% equity contribution
Source: SC Credit Advisors, LLC
Trends:
• Borrower size and credit quality greatly • More EBITDA addbacks (e.g. for restructuring
influence terms costs) for covenant calculations
• Lighter loan covenants • ABL revolver plus cash flow term loans are a
• Equity cures for financial covenant defaults popular combination
• Flexibility on cash flow sweeps • BDC’s very active and aggressive across all
• Dividends / distributions allowed subject to loan segments
loan compliance • Unitranche lenders active, but under pricing
pressure
www.sccreditadvisors.com 14

15. About SC Credit Advisors
• SC Credit Advisors, LLC (SCCA) assists private middle market companies with
structuring and raising capital through securities registered individuals. We also
provide credit-related advisory services to companies, lenders, financial sponsors
and high-net-worth investors.
• We develop and implement creative and practical financing solutions for our clients,
allowing them to focus on running their businesses.
Typical Client Profile for Capital Raising
Ownership Private
Revenue $10 million to $300 million
Capital Needs $5 million to $50 million
Existing Capital Moderately to highly leveraged
Structure
Industries All industries, except development stage companies
www.sccreditadvisors.com 15

16. Terms of Use
• The information contained in this publication was developed from market data
compiled by SC Credit Advisors, LLC (SCCA). Any projections, estimates or
forward looking statements contained in this publication involve numerous and
important subjective assumptions and are subject to risks, contingencies and
uncertainties beyond SCCA’s control and may cause results to differ materially.
• In no way does this publication purport to provide investment advice and nothing
in this publication is intended to be a recommendation of a specific security or
company. Nothing in this publication constitutes an offer to buy or sell, or the
solicitation of an offer to buy or sell, a security.
• Neither SCCA nor Stillpoint Capital, LLC nor any of their respective officers,
directors, employees, affiliates, agents or representatives make any
representation or warranty as to the accuracy or completeness of any information
contained herein and no legal liability is assumed or is to be implied against any
of the aforementioned with respect thereto.
www.sccreditadvisors.com 16

17. Contact Information
Headquarters
101 South Hanley Road
Suite 800
St. Louis, MO 63105
GREG PORTO GREG TOBBEN
Office: 314.889.1197 Office: 314.889.1196
Mobile: 312.339.2857 Mobile: 314.458.8186
Email: gporto@sccreditadvisors.com Email: gtobben@sccreditadvisors.com
A Stone Carlie Company
Securities transactions conducted through StillPoint Capital, LLC Member FINRA/SIPC
www.sccreditadvisors.com 17