JP Morgan Default Monitor June 2013

High Yield and Leveraged Loan Research
July 1, 2013
Default Monitor
High Yield and Leveraged Loan Research
Default activity was somewhat modest in June, as two companies defaulted, affecting $804mn in high-yield bonds and institutional loans. This followed a downwardly revised three defaults totaling $592mn in high-yield bonds in May; the downward revision the result of Milagro Oil & Gas making their missed May interest payment within their 30-day grace period. Default activity during the quarter was very light, as nine companies defaulted totaling $2.5bn in bonds and loans, the lightest quarterly volume since $949mn defaulted in 2Q11. By comparison, $6.8bn defaulted in both 1Q13 and 4Q12. Year to date, 19 companies have defaulted for $9.3bn ($4.4bn bonds and $4.9bn loans), compared with 19 defaults and $11.7bn ($6.4bn bonds and $5.3bn loans) during the first half last year and 18 defaults and $10.9bn ($7.7bn bonds and $3.2bn loans) during the second half of 2012. The breakdown of this months defaults includes one bond-only issuer and one loan-only borrower, both companies filing Chapter 11 during the month. The largest issuer was Exide Technologies, a worldwide producer and recycler of stored energy products and services in the transportation and industrial markets (lead batteries), which filed Chapter 11 on June 10 affecting $675mn in high-yield bonds, the largest bond-only default YTD. Also filing for bankruptcy this month was hardware operator Orchard Supply Hardware, whose default affected $129mn in institutional loans. The par-weighted high-yield default rate increased to 1.09% from a downwardly revised 1.02% in May, the lowest level for the default rate since August 2011. The issuer weighted high-yield default rate increased to an 8-monthhigh 2.50% from 2.31% last month. For loans, the par-weighted default rate decreased to 1.33% from 1.41% in May. The issuer-weighted loan default rate is now 1.72%, down from 1.91% last month. The leveraged credit default rate,
Default volume in the second quarter was a two-year low
90.0 80.0 70.0 Defaults ($bn) 60.0 50.0 40.0 30.0 20.0 10.0 0.0 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13
9.2 9.2 7.6 0.1 1.8 1.9 0.7 23.2 15.2 5.8 1.9 5.2 6.9 6.5 1.6 1.0 11.8 5.3 6.4 4.1 6.8 6.8 2.5 37.9 76.6
Leveraged loans High-yield bonds
Peter D. AcciavattiAC
(1-212) 270-9633 peter.acciavatti@jpmorgan.com
Tony Linares
(1-212) 270-3285 tony.linares@jpmorgan.com
Nelson Jantzen, CFA

(1-212) 270-1169 nelson.r.jantzen@jpmorgan.com
Rahul Sharma
J.P. Morgan India Private Limited rahul.z.sharma@jpmorgan.com J.P. Morgan Securities LLC.
55.0
Default volume: 1Q and 2Q 2012 = $11.7bn 3Q and 4Q 2012 = $10.9bn 1Q and 2Q 2013 = $9.3bn
Source: J.P. Morgan
See page 18 for analyst certification and important disclosures.

JPMorgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
www.jpmorganmarkets.com
Peter D. Acciavatti (1-212) 270-9633 peter.acciavatti@jpmorgan.com Tony Linares (1-212) 270-3285 tony.linares@jpmorgan.com Nelson Jantzen (1-212) 270-1169 nelson.r.jantzen@jpmorgan.com
High Yield and Leveraged Loan Research Default Monitor July 1, 2013
which combines bonds and loans, increased marginally to 1.17% from 1.16% last month. As a reminder, we expect high-yield bond and loan default rates to remain below 2% in both 2013 and 2014, well below their 4.0% and 3.5% long-term averages.
Leveraged credit default rate remains low
14% Par-weighted default rate (%) 12% 10% 8% 6% 4% 2% 0% Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
13-year average: 3.8%
Nov-09 12.1%
Jun-13 1.17%
Source: J.P. Morgan
The par weighted average price for US high-yield bonds decreased to $101.86 from $105.24 month-over-month, similarly the median bond price for high-yield bonds fell to $103.50 from $106.25. Meanwhile, the volume of distressed bonds slightly increased after decreasing seven consecutive months. Specifically, bonds that trade at or below 50% of par now total $8.4bn, accounting for 0.74% of the total US high-yield bond market, and up from $8.1bn and 0.71% last month. Of this $8.4bn, Texas Competitive Electric ($6.4bn) and Cengage Learning ($1.2bn) account for 91% of the distressed universe. Meanwhile, bonds trading at or below 70% of par increased to $18.7bn from $16.7bn and now account for 1.64% of the market. For loans, the par weighted average price according to our J.P. Morgan Leveraged Loan Index decreased $0.88 to $97.66, while the median loan price decreased $0.75 to $99.75. Excluding Texas Competitive Electrics two loans in the index, the par weighted average price was $98.71. From a distressed perspective, 5.66% of the institutional loan market traded below $80 as of June 28, down from 5.70% at the end of May. Here again, Texas Competitive ($19.2bn) and Cengage ($3.4bn) are the two largest distressed companies, accounting for 61% of the distressed loan universe. Meanwhile, 0.92% of the institutional loan market traded below $60, down from 1.10%.
Despite weakness, distressed high-yield bond debt remains extremely low

250.0 Nov-08 $233.1 bn Distressed bonds ($bn) 200.0 150.0 Oct-02 $84.7 bn 100.0 50.0 0.0 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 28-Jun-13 $8.4bn
Source: J.P. Morgan Note: Distrssed debt includes bonds trading at or below 50% of par.
Recovery rates during the years first few months are in line, to slightly higher, with historical averages for both high-yield bonds and loans. For high-yield bonds, recoveries of 54.08% are well above the 25-year annual average of 40.2%, the result of more senior secured defaults than anything else, as the recovery rate by seniority is in line with long-term averages. More specifically, senior secured bonds have recovered 59%, which is in line with their long term average recovery of 54.5%, while senior unsecured bonds have recovered 41%, versus the long-term average of 42%. For senior subordinated bonds, recoveries are 46% versus the long-term average of 33.2%. Meanwhile for loans, 1st-lien recoveries of 67.4% are in line with their 15year annual average of 68.0%, while second-lien recoveries of 60.0% are well above their 19.5% average. In June, the number and volume of downgrades outpaced upgrades. Specifically, 41 companies totaling $35.8bn received downgrades and 22 companies totaling $26.4bn received upgrades, which translates to an upgrade-to-downgrade ratio by issuer of 0.54:1 and by dollar volume of 0.74:1. The rolling twelve month ratio by issuer fell slightly to 0.93:1, the lowest level since February 2010, while the ratio by volume fell to 0.87:1, the lowest level since January 2010. Year-to-date, 192 issuers have been upgraded totaling $199bn, compared with 191 issuers and $200bn of downgrades. By comparison, there were 206 upgrades totaling $251bn and 185 downgrades totaling $152mn over the first half last year. Meanwhile, there were four rising stars totaling $6.8bn, following last months three rising stars totaling $2.8bn, and there were four fallen angels totaling $6.7bn, following one fallen angel totaling $7.3bn last month. Year-to-date, there have been 18 rising stars and 7 fallen angels totaling $29.9bn and $17.1bn, respectively.
6 des and downgrades
High-yield bond defaults

LTM default rate
based on par amount
18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
Default rate Default rate including distressed exchanges Jan-02 10.24% Nov-09 16.32%
(incl. dist.exch.)
LTM default rate

based on number of issuers
14.0% 12.0% 10.0% Default rate 8.0% 6.0% 4.0% 2.0%
Jun-13 2.50% Jun-13 1.09% Mar-02 12.24%
Par-weighted default rate
Nov-09 10.98%
Jan-94 Jan-95 Jan-96
Jan-97 Jan-98 Jan-99 Jan-00 Jan-01
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Jan-13
0.0% Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
750 500 250 0 Dec-86 Dec-88 Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
Source: J.P. Morgan
Source: J.P. Morgan
Default volume
94.6 100 90 80 70 56.0 55.6 60 50 40 28.3 24.9 22.9 22.922.0 22.0 30 19.4 18.5 15.1 14.1 20 8.6 7.9 8.2 8.0 7.3 7.2 5.2 4.7 4.8 3.2 3.4 4.4 10 0
Number of defaults
160 140 120 100 80 60 49 51 40 20 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD
Sources: J.P. Morgan; Moodys Investors Service
31 20 16 37 18 26 62 47 29 21 18 86 116 87 61 42 11 21 21 20 14 70 138
($bn)
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD
Recent default activity

Volume ($ mn) April 2013 May 2013 June 2013 Monthly average 3-year 5-year 10-year 25-year 795.3 592.0 675.0 Number 3 4 1 LTM default rates by dollar by issuer 1.03% 1.02% 1.09% 2.21% 2.41% 2.50%
Default rate vs high-yield spreads

16% 14% 12% Default rate 10% 8% 6% 4% 2% 0% 25-year average= 588bp 25-year average= 4.0%
High-yield default rate High-yield spreads
2000 1750 1500 1250 1000 Spread to worst
High-yield spreads 561bp High-yield defaults 1.09%
1,220.1 2,530.8 1,762.4 1,637.6
2 3 2 4
1.50% 3.22% 2.47% 3.97%
2.30% 3.99% 3.43% 5.06%
Note: Default rate is par-weighted. Sources: J.P. Morgan; Moodys Investors Service
Jan-13
High-yield bond defaults

June high-yield bond defaults
Date 10-Jun-13 Issuer Exide Technologies
(contd)
Avg. rating 12 mo. prior B2 Rating at last issuance B2
Debt ($ mn) 675.0
Industry Automotive
Source: J.P. Morgan Note: Includes only US dollar-denominated debt from domestic high-yield issuers.
Default rates by industry

2010 Automotive Broadcasting Cable and Satellite Chemicals Consumer Products Diversified Media Energy Financial Food and Beverages Gaming Lodging Leisure Healthcare Housing Industrials Metals and Mining Paper and Packaging Retail Services Technology Telecommunications Transportation Utility HY Default Rate 0.00% 0.00% 2.27% 0.00% 0.00% 8.36% 0.00% 1.49% 0.43% 0.81% 1.32% 0.73% 0.24% 0.61% 0.00% 2.72% 0.46% 0.00% 0.00% 0.00% 0.00% 0.80% 2011 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.94% 0.45% 2.14% 0.35% 0.00% 0.78% 0.00% 0.00% 8.80% 0.96% 0.48% 0.00% 0.00% 24.55% 10.00% 1.73% 2012 0.00% 0.00% 0.88% 0.00% 3.80% 1.21% 0.87% 2.95% 1.18% 0.24% 0.36% 0.00% 1.40% 0.52% 0.00% 0.68% 0.00% 0.00% 0.76% 3.01% 11.97% 1.26% LTM 1.56% 0.00% 0.00% 0.54% 0.00% 3.07% 1.35% 0.22% 0.00% 1.06% 1.38% 0.00% 0.00% 0.51% 0.00% 0.00% 0.00% 0.29% 0.81% 2.88% 12.63% 1.09% 18-yr Avg. 4.86% 0.90% 4.59% 1.28% 3.61% 7.03% 1.53% 7.36% 3.91% 2.37% 1.76% 2.20% 1.84% 3.09% 2.53% 3.96% 1.97% 2.19% 4.96% 6.39% 3.25% 3.26%
Default rate: by rating 12 months prior to default

2010 BB B CCC/Split CCC HY Default rate 0.00% 0.39% 1.54% 0.80% 2011 0.13% 1.87% 4.22% 1.73% 2012 0.05% 0.60% 4.84% 1.26% LTM 18-yr Avg. 0.00% 0.49% 6.21% 1.09% 0.93% 2.70% 6.06% 3.26%
Source: J.P. Morgan Note: Eighteen-year average is as of December 31, 2012.
Default rate: by rating at issuance

2010 BB B CCC/Split CCC HY Default rate 0.00% 0.86% 0.40% 0.80% 2011 0.16% 3.74% 0.10% 1.73% 2012 0.22% 1.33% 2.66% 1.26% LTM 18-yr Avg. 0.18% 1.40% 1.08% 1.09% 1.29% 3.08% 6.30% 3.26%
Average number of years to default

2006 2004 2007 2011 2012 2003 2000 2005 2008 2002 2010 2009 1998 2001 1999 0.00 1.00 2.00 6.18 5.12 4.56 4.56 4.36 4.14 3.92 3.85 3.74 3.71 3.69 3.50 3.16 3.04 2.73 3.00 4.00 Seasoning period (years) 5.00 6.00 7.00
22-year average = 3.9 years
Fallen angel volume and default rates

Fallen angels Number of companies Volume ($ bn) 503 984.6 Fallen angel defaults 43 119.8 Cumulative default rate 8.55% 12.16% Avg. annual default rate 0.46% 0.66%
Source: J.P. Morgan Note: Based on fallen angel and default data from January 1995.
Source: J.P. Morgan Note: The average number of years to default is the number of years since a defaulted issuer last issued new debt in the primary market.
Leveraged loan defaults

LTM default rate
based on par amount
16.0% 14.0% 12.0% Default rate 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
Jun-13 1.33% Jun-00 7.50% Default rate Default rate including distressed exchanges Nov-09 14.61%
(including dist.exch.)
LTM default rate

based on number of issuers
9.0% Issuer-weighted default rate 7.5% 6.0% 4.5% 3.0% 1.5% 0.0% Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
22 12 6 11 5 10 3 7 Jun-13 1.72% Dec-00 8.23%
Nov-09 14.18%
Sources: J.P. Morgan; S&P LCD
Default volume
100 90 80 70 60 50 40 30 20 10 0
90.1
Number of defaults
100 90 80 70 60 50 40 30 20 10 0
93
60
($bn)
29.7 7.1 8.1 7.9 11.9 1.2 1.2 2.4
33 26 4 9 23
31
0.6
3.2
3.0
1.5
5.9
8.4
4.9
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
YTD
Recent default activity

Volume ($ mn) April 2013 May 2013 June 2013 Monthly average 3-year 5-year 7-year 15-year 346.1 0.0 129.0 Number 1 0 1 LTM default rates by dollar by issuer 1.70% 1.41% 1.33% 2.02% 1.91% 1.72%
Default rate vs leveraged loan spreads

2400bp 2000bp Spread 1600bp 1200bp 800bp 400bp 0bp Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
Loan spread Def. rate by volume
581.9 2,270.8 1,442.5 974.9
1 3 2 2
1.46% 4.01% 3.09% 3.54%
1.88% 3.47% 2.76% 3.18%
Notes: Default rate is par-weighted. Spreads from 2007 through current are based on our J.P. Morgan Leveraged Loan Indexs spread to 3-year takeout and from 1998 through 2006 are based on an estimated 3-year average life spread on the S&P/LSTA Performing Loans Index. Sources: J.P. Morgan; Markit; S&P LCD
YTD Default rate by volume
Dec-12
Recovery rates
Bond issuer-weighted recovery rates
70 Recovery (cents on the dollar) 60 50 40 35 30 20 10 0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
45 46 44 47 51 46 39 32 26 36 43 46 43 42 25-year average = 40.23% 59 49 38 40 34 30 25 22 27 36 41
First-lien leveraged loan issuer-weighted recovery rates

100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0
15-year average = 68.0% 86 72 75 68 61 53 68 57 79 74 69 73 65 59
49
Recovery (cents on the dollar)
56 55 55
88
53 54
84 84 69 58 61 71 67 55 67
Note: Recoveries in 2009 were 22.4 based on prices 30-days post default and were 35.7 based on year-end prices. Sources: Moodys Investors Service; J.P. Morgan
Note: Recoveries in 2009 were 48.3 based on prices 30-days post default and were 61.4 based on year-end prices. Sources: Moodys Investors Service; J.P. Morgan; Markit
High-yield bond default and issuer-weighted recovery rates

Def. rate 3.4% 1.6% 2.1% 3.8% 3.5% 6.9% 2.8% 7.2% 10.9% 11.5% 4.4% 2.3% 1.4% 2.8% 1.6% 1.5% 1.7% 4.1% 5.0% 9.1% 8.0% 3.3% 1.1% 2.8% 0.9% 0.4% 2.3% 10.3% 0.8% 1.7% 1.3% 1.1% All bonds 35.3 44.5 45.5 43.6 47.4 51.3 38.8 32.3 25.5 35.5 45.9 43.1 45.6 43.3 41.5 48.8 38.3 33.8 25.3 21.8 29.7 40.4 58.5 56.0 55.0 54.7 26.85 22.41 35.68 40.95 48.56 53.23 54.08 40.23 Recovery rates Snr. sec. Snr. unsec. 72.5 35.8 40.0 52.7 na 49.4 83.6 60.2 59.2 51.1 71.0 63.8 55.4 45.2 46.5 45.1 33.8 37.0 48.4 36.7 62.1 49.2 na 37.1 69.3 53.7 62.0 47.6 47.6 62.8 75.5 56.1 46.8 39.5 36.0 38.0 38.7 24.2 35.0 21.5 49.0 29.5 66.3 41.9 73.3 52.1 71.9 54.9 74.6 55.0 80.5 53.3 28.27 33.70 30.07 23.39 42.86 42.98 51.85 36.51 63.72 36.22 60.45 38.53 58.96 41.00 54.46 41.95 Snr. Sub. 48.1 43.5 67.9 29.6 46.8 46.5 33.4 34.6 25.6 41.8 49.4 51.9 29.6 34.3 43.8 44.7 45.0 26.9 20.8 19.8 21.4 37.2 42.3 26.1 41.4 54.5 18.32 22.75 26.12 22.17 31.17 10.50 46.00 33.18 Sub. 30.0 41.1 44.3 39.7 41.4 46.9 33.8 26.4 19.1 24.4 38.0 44.1 38.0 41.5 22.6 33.1 18.2 35.6 31.9 15.9 24.5 12.3 94.0 51.3 56.1 na 10.25 5.38 4.75 na 7.00 na na 31.06
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2009 Adj. 2010 2011 2012 2013TD
25-year ann. avg.4.0%
Notes: Recovery rates are issuer-weighted and based on price 30 days after default date. 2009 Adj. recoveries are based on year-end prices. Sources: Moodys Investors Service; J.P. Morgan
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Leveraged loan default and recovery rates

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2009 Adj. 2010 2011 2012 2013TD 15-year ann. avg. Def. rate 1.5% 4.2% 6.6% 6.3% 6.0% 2.3% 1.0% 3.0% 0.5% 0.2% 3.7% 12.8% 1.8% 0.4% 1.4% 1.3% 3.5% First-Lien Second-Lien 67.9 60.6 53.4 67.6 75.4 85.5 78.8 56.7 73.5 68.8 64.9 58.8 73.4 87.7 83.8 83.6 68.6 58.09 32.78 48.33 31.90 61.36 36.44 71.18 13.33 66.97 1.31 55.29 18.33 67.41 60.00 67.98 19.53
Notes: Recovery rates are issuer-weighted and based on price 30 days after default date. 2009 Adj. recoveries are based on year-end prices. Sources: Moodys Investors Service; J.P. Morgan; S&P LCD; Markit
Leveraged loan issuer-weighted recovery rates

2013 Sr. Sec. Term All loans 67.41 Loan-only issuers 71.17 Loan & bond issuers 59.89 Second-lien 60.00 60.00 na
7
Sources: Moodys Investors Service; J.P. Morgan; S&P LCD; Markit
Distressed debt (high-yield bonds)

Distressed debt
250.0 Percent of the high-yield market Par amount ($ bn) 200.0 150.0 100.0 50.0 0.0 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12
28-Jun-13 $8.4bn
Distressed debt
35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12
28-Jun-13 0.74%
Source: J.P. Morgan Note: Distressed debt is defined as bonds trading at or below 50% of par or accreted value.
Distressed debt by industry

as of June 28, 2013 50% of par and below ($ bn) % of total Automotive Broadcasting Cable and Satellite Chemicals Consumer Products Diversified Media Energy Financial Food and Beverages Gaming Lodging Leisure Healthcare Housing Industrials Metals and Mining Paper and Packaging Retail Services Technology Telecommunications Transportation Utility Total
Source: J.P. Morgan
Distressed debt vs default rate

70% of par and below ($ bn) % of total 0.17 1.84 0.55 4.86 0.56 0.52 0.64 0.81 0.26 0.53 0.30 0.29 7.43 18.74 0.0% 0.9% 0.0% 0.0% 0.0% 9.8% 2.9% 0.0% 0.0% 25.9% 3.0% 0.0% 2.8% 3.4% 4.3% 1.4% 2.8% 1.6% 0.0% 1.5% 39.6%
Percent of distressed debt 35.0% 30.0% 25.0% 20.0% 6.0% 15.0% 10.0% 5.0% Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 0.0% 4.0% 2.0% 0.0%
Distressed debt Default rate
12.0% 10.0% 8.0% Default rate
0.05 1.24 0.27 0.40 6.44 8.41
0.0% 0.6% 0.0% 0.0% 0.0% 14.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.2% 4.7% 0.0% 0.0% 0.0% 0.0% 0.0% 76.6%
Distressed debt
as of June 28, 2013 Par Percent of par ($ bn) <= 25% 6.1 25% < par <= 50% 2.3 50% < par <= 70% 10.3 70% < par <= 100% 311.3 > 100% 812.2 Total 1,142.2 No. issuers 1 2 13 268 743 1,027 Avg. Change in vol. price 1 mo. 6 mo. 12 mo. 7.0 0.0 3.9 0.0 34.2 0.3 -6.2 -5.0 63.6 1.8 -1.7 -7.0 94.1 161.7 175.4 82.7 106.0 -174.1 -119.1 64.2 101.75 -10.4 52.3 134.9
0.5% 0.2% 0.9% 27.3% 71.1%
Distressed debt by rating

as of June 28, 2013 Upper-tier Percent of Par <= 25% 25% < par <= 50% 50% < par <= 70% 70% < par <= 100% > 100% Total ($bn) 105.2 305.6 410.7 % 0.0% 0.0% 0.0% 25.6% 74.4% Middle-tier ($bn) 121.6 365.2 486.8 % 0.0% 0.0% 0.0% 25.0% 75.0% Lower-tier ($bn) 6.1 2.3 10.3 84.6 134.6 237.9 % 2.6% 1.0% 4.3% 35.5% 56.6%
Source: J.P. Morgan Notes: Includes only US dollar-denominated high-yield securities, and excludes defaulted debt. Median market price = 103.50, down from 106.25 as of May 31, 2013.
Source: J.P. Morgan Note: Upper-tier includes bonds rated Split-BBB and BB; Middle-tier includes bonds rated Split-BB and B; and Lower-tier includes bonds rated Split-B, CCC, D, and NR. 8
Distressed debt (bank loans)

Distressed debt
90.0% Percent of institutional loan market 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 0.0%
28-Jun-13 5.66% Nov-08 81.00%
Distressed debt vs default rate

90.0% Percent of distressed loans 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 0.0%
Distress Ratio Default rate
16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Default rate
80.0%
Sources: S&P LCD; J.P. Morgan; Markit Notes: Distressed debt is defined as bonds trading below $80. Data from May 2009 to present is based on all priced institutional term loans in our database, while the distressed ratio prior to that is the S&P LSTA Index Distress Ratio.
Sources: S&P LCD; J.P. Morgan; Markit Notes: Distressed debt is defined as bonds trading below $80. Data from May 2009 to present is based on all priced institutional term loans in our database, while the distressed ratio prior to that is the S&P LSTA Index Distress Ratio.
Distressed debt by industry

as of June 28, 2013 Trading below $60 ($ bn) Automotive Broadcasting Cable and Satellite Chemicals Consumer Products Diversified Media Energy Financial Food and Beverages Gaming Lodging Leisure Healthcare Housing Industrials Metals and Mining Paper and Packaging Retail Services Technology Telecommunications Transportation Utility Total 1.88 1.35 0.08 0.31 0.21 0.15 0.05 1.59 0.34 5.96 % of total 0.0% 0.0% 0.0% 0.0% 0.0% 31.5% 22.7% 0.0% 1.3% 5.1% 3.5% 0.0% 2.5% 0.9% 0.0% 0.0% 26.6% 0.0% 0.0% 0.0% 5.7% Trading below $80 ($ bn) 7.43 2.37 0.10 0.13 0.31 0.42 0.27 0.05 0.13 2.53 0.19 2.39 20.49 36.79 % of total 0.0% 0.0% 0.0% 0.0% 0.0% 20.2% 6.4% 0.3% 0.4% 0.8% 1.1% 0.0% 0.7% 0.1% 0.0% 0.4% 6.9% 0.5% 0.0% 6.5% 55.7%
Distressed debt
as of June 28, 2013 Price $ < 60 60 <= $ < 70 70 <= $ < 80 80 <= $ < 90 90 <= $ < 100 $ >= 100 Total Par ($ bn) 6.0 17.9 13.0 10.1 399.3 204.0 650.3 No. issuers 19 7 13 22 508 424 993 Avg. Change in vol. price 1 mo. 6 mo. 12 mo. 33.7 -1.1 -1.3 -22.8 65.4 15.9 -0.4 9.7 75.4 -14.7 -0.6 -2.4 85.5 -1.7 -17.9 -19.2 98.7 268.8 226.3 -22.0 100.6 -260.2 -151.1 139.2 97.1 7.0 55.0 82.5
0.9% 2.7% 2.0% 1.6% 61.4% 31.4%
Sources: J.P. Morgan; Markit Notes: Includes only US dollar-denominated, domestic institutional term loans, and excludes defaulted debt. Median market price = 99.75.
Distressed debt for second-lien loans

as of June 28, 2013 Price $ < 60 60 <= $ < 70 70 <= $ < 80 80 <= $ < 90 90 <= $ < 100 $ >= 100 Total Par ($ bn) 0.6 1.2 0.7 0.5 13.3 18.8 34.9 No. issuers 2 2 2 27 95 128 Avg. Change in vol. price 1 mo. 6 mo. 12 mo. 26.7 0.0 0.0 0.1 63.7 0.1 0.1 -0.9 74.1 0.0 -0.6 -0.3 83.1 -0.2 -0.1 -2.9 98.0 9.0 1.7 0.4 101.1 -4.7 5.0 12.2 96.3 4.2 6.1 8.7
1.7% 3.3% 1.9% 1.4% 38.0% 53.7%
Sources: J.P. Morgan; Markit Note: Includes only US dollar-denominated, domestic institutional term loans, and excludes defaulted debt.
Sources: J.P. Morgan; Markit Notes: Includes only US dollar-denominated, domestic second-lien loans, and excludes defaulted debt. Median market price = 100.00.
Credit trends
Upgrade-to-downgrade ratio
Issuer
Upgrade-to-downgrade ratio
Par amount
1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
28-Jun-13 0.93
Dec-11
Dec-12
2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
LTM upgrade-to-downgrade ratio
LTM upgrade-to-downgrade ratio
28-Jun-13 0.87
Dec-11
Source: J.P. Morgan
Source: J.P. Morgan
Upgrades and downgrades

Issuer
700 600 500 400 300 200 100 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD
Upgrades and downgrades

Par amount
600.0
Upgrades Downgrades
586 597 446 439
Upgrades
507 446 391 352 334 245 268 227 222 197 167 119 267 148 419 408 366 352 297 243 242 216 199200
547 496 376 392
500.0
470 481 387
Downgrades
425
400.0 ($ bn) 300.0 200.0
330 280 301 287 259 237 230 223 214 194 147 135 139 114 95 93 72
238 212
358 322 326 258 285 192191
80 100.0 4039 4625 69
109 127 98 95 97
73
0.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
52 38 33 35 28 13 27 30 17
Source: J.P. Morgan
Source: J.P. Morgan
Fallen angels and rising stars

Issuer
70 60 50 40 37
31 49 44 39 27 1818 13 6 13 29 2323 43 36 26 22 30 25 27 24 2527 22 15 30 20 13 12 14 28 18 7 63
Fallen angels and rising stars

Par amount
150.0
58 142
Rising stars Fallen angels
150
Rising stars Fallen angels
125.0 ($ bn) 100.0 75.0 50.0
113
66 51 40 24 3 25 24 14 11 10 29 16 13 37 38 31 3030 19 56 27
30 20 10 0 1995 1996 1997 1998

20 17
25.0 16 1512 16
6
0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD YTD
Source: J.P. Morgan
Source: J.P. Morgan
10
YTD
Dec-12
High-yield new-issue trends

New issue volume vs defaulted debt
rolling twelve months
90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0
Ltm lower rated new-issue volume Ltm defaulted debt
Lower rated new-issue volume vs defaulted debt

100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0
Lower rated new issuance Defaulted debt
Leads to increased defaults
94.6
120.0 100.0 80.0 60.0 40.0 20.0 0.0 Ltm defaulted debt ($ bn)
Ltm new issuance ($ bn)
63.7
Increased lower rated new issuance
($ bn)
56.0 55.6
53.6
54.4 43.2 36.8 19.4 19.4 13.7 18.5 7.9 14.1 4.4
31.0 17.7 22.0
28.3
8.0 7.6 7.6 7.2 7.9 5.9 4.8 5.2 3.4 2.3
32.6 31.1 24.9 22.9 18.5 15.3 8.6 7.3
3.2
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
43.2
Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Source: J.P. Morgan
Note: Lower rated issuance includes bonds rated Split B or lower. Source: J.P. Morgan
Lower rated new-issue volume as a percent of total issuance

40%
Lower rated issuance % of total issuance
36.3%
Lower rated new-issue volume

70.0 60.0
53.6 54.4 63.7
35% 30% 25% 20% 15% 12.4% 10% 5% 0% 1995 1996
17-year average= 15.9%
26.0%
50.0 ($ bn) 40.0 30.0 20.0 10.0 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
5.9 7.9 17.7 7.6 7.6 3.4 2.3 15.3 18.5 13.7 19.4 31.0 32.6 31.1
20.5% 14.0% 10.7% 16.1% 7.6% 3.6% 3.4%
20.9% 20.6% 17.4% 10.1%
2012
18.0% 17.6%17.3% 16.7% 10.7%
36.8
2011 2011
2012 2012
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: J.P. Morgan
YTD
Source: J.P. Morgan
Refinancing as a percent of lower rated issuance

Refinancing as a % of lower-rated issuance 80% 70% 60% 50% 40% 30%
33.9% 32.9% 26.3% 16.9% 33.8% 17.5% 9.0% 8.1% 72.2% 72.0% 67.8%
Lower rated new-issue volume, excluding refinancings

6.0%
62.5%
71.7% 54.4%
59.9%
Percent of the market
59.2% 55.3%
5.0% 4.0% 3.0% 2.0% 1.0%
Aggressive issuance from 1996 to 1999 accounted for 7.9% of 1998's year-end market size
5.1%
Aggressive issuance from 2004 to 2007 accounts for 10.3% of 2007's year-end market size
3.6% 2.7% 1.8%1.9% 0.9%1.0%
2.7% 2.0%
1.7% 1.3% 0.1%0.1% 0.5% 1.3%
16.0% 20% 13.5% 10%
1.4% 1.4% 0.9% 0.5%
0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD
0.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD
Source: J.P. Morgan
Source: J.P. Morgan
YTD
YTD
11
High-yield new-issue trends

Aggressive issuance
$60.0
Wireline Telecommunications
(contd)
Aggressive issuance
7.0%
Wireline Telecommunications
$50.0 $40.0 ($ bn)
48.8
Percent of the market
Lower rated, nonrefinancing issuance
6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 2010 2011 2012 YTD 0.0% 1995 1996 1997
1.8% 2.7% 3.8%
5.7%
Lower rated, nonrefinancing issuance
5.1%
32.3
$30.0 $20.0 $10.0 $0.0 1995 1996 1997 1998 1999 2000
9.5 5.4 17.0 18.6 14.9 6.3 1.0 0.9 4.3 12.2
25.7 17.5 17.6 12.6 5.4
28.5
2.9% 1.7% 1.3% 0.5%
2.7% 2.0% 1.0% 0.1% 0.1% 1.3% 0.5% 1.4%1.4% 0.9%
13.8
2001
2002
2003
2004
2005
2006
2007
2008
2009
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
16%
2012
510
Source: J.P. Morgan Note: Aggressive issuance includes lower rated securities, excluding refinancings, plus Wireline Telecommunications issuance.
Source: J.P. Morgan Note: Aggressive issuance includes lower rated securities, excluding refinancings, plus Wireline Telecommunications issuance.
Refinancing as a percent of total issuance

100% 91% 90% 78% 77% 76% 75% 80% 73% 72% 70% 66% 70% 63% 60% 57% 55% 54% 60% 53% 50% 50% 50% 50%48% 45%44% 50% 46% 41% 38% 41% 35% 34% 40% 30% 20% 10% 0% 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD
Acquisition financing/LBO as a percent of total issuance

60% 50% 40% 30% 20% 10% 0%
0% 46% 41% 39% 37% 29% 28% 27% 26% 22% 22% 16% 3% 4% 3% 44% 38% 30% 22% 17% 16% 52% 46%
16% 15% 13%
5%
Source: J.P. Morgan
Source: J.P. Morgan
New-issue volume
400.0 350.0 300.0 250.0 ($ bn) 200.0 150.0 100.0 50.0 0.0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD
31 29 1 10 46 69 73 43 47 47 126 100 95 68 151 152 158 106 53 181 149 148 246 220 302 368
Number of new issues

800 700 600 500 400 300 200 100 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD
95 250238 175 189 131 48 139 402 389 378 300 260 115 667 694 653 583 504 375 408 335 321 456 750
Source: J.P. Morgan Note: Includes only US dollar-denominated securities.
Source: J.P. Morgan Note: Includes only US dollar-denominated securities.
12
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD
YTD
Leveraged loan new-issue trends

Ramp up in loan issuance reminiscent of late 90s bond market
400 350 300 250 200 150 100 50 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD
46 10 69 74 43 47 47 151 126 100 60 95 47 46 34 6859 91 152 158 153 183 149 148 181 High-Yield Issuance Institutional Loan Volume 321 387 399 368 302 246 229 300
Easy credit availability leads to an increase in defaults

180 160 140 120 100 80 60 40 20 0
Number of Loan Deals Total Bond and Loan defaults Number of Bond Deals
220
155
106 71 53 38
Deals by use of proceeds (as a percent of total volume)

80% 70% 60% 50% 40% 30% 20% 10% 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD
22% 15% 16% 25% 63%
Lower rated loan new-issue volume(as a percent of total volume)

9.0% 8.2% 8.0% 7.0% 6.2% 6.0% 5.0% 4.0% 2.9% 3.0% 2.3% 2.0% 1.8% 1.9% 1.8% 1.6% 1.8% 2.0% 1.3% 0.9% 1.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
100.4 55.7 24.0 1.3 2.9 0.3 0.3 0.0 0.0 0.5 0.1 2.4 2.5 2.5 7.2
69% 65% 56%
Acquisition
Refinancing
64% 56%
74%
59% 45% 40%
52% 50% 45% 42% 32% 29%
47% 41% 35% 27% 19% 19% 11%
29%
42% 35% 35% 32% 29% 14%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2012
99.1
1000 900 800 700 600 500 400 300 200 100 0
Number of bond and loan defaults
Note: LBO issuance from 2005 through 2007 accounts for more than 50% of the institutional leveraged loan market, compared with 10% in the bond market. Sources: J.P. Morgan; S&P LCD
Note: Lower rated issuance includes loans rated Split B or CCC. Sources: J.P. Morgan; S&P LCD
Second-lien loan new-issue volume

35.0 30.0 25.0 20.0 15.0 10.0 5.0
0.3 3.1 0.7 0.4 0.1 0.1 0.6 3.0 4.2 1.5 12.0 16.3
Still 50% off from prior peak levels
Covenant-lite loan new-issue volume

200.0 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0
189.1
28.3
30.1
16.7 14.3 6.8
0.0 1997 1998 1999 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
YTD
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
YTD
YTD
Number of deals
13
Default data by new-issue year

Default rate (per new-issue year)
1997 1998 $126.0 $150.8 $45.6 $56.0 36.2% 37.1% 548 223 40.7% 1999 $99.8 $34.7 34.8% 324 103 31.8% 2000 $47.3 $21.9 46.2% 114 44 38.6% 2001 $94.7 $16.8 17.8% 252 32 12.7% 2002 $67.9 $6.0 8.9% 238 19 8.0% 2003 $151.6 $13.5 8.9% 421 35 8.3% 2004 $158.2 $15.9 10.1% 432 48 11.1% 2005 $106.1 $7.1 6.7% 302 29 9.6% 2006 $149.1 $19.0 12.7% 250 29 11.6% 2007 $147.9 $13.9 9.4% 321 20 6.2% 2008 $52.9 $3.1 5.9% 115 7 6.1% 2009 $180.7 $4.9 2.7% 323 11 3.4% 2010 $302.0 $4.5 1.5% 512 10 2.0%
New issue volume Defaulted debt Default rate
Number of issuers 555 Number of defaulted issuers 199 Default rate 35.9%
Default rate by rating (per new-issue year)

by par amount 1997 34.7% 25.5% 11.0% 39.1% 37.0% 40.7% 61.3% 1998 2.2% 13.6% 22.0% 45.1% 39.8% 60.4% 74.8% 1999 32.2% 28.4% 45.5% 35.0% 31.5% 46.3% 44.1% 2000 22.2% 11.1% 19.2% 56.5% 87.1% 81.0% 57.6% 2001 16.8% 17.6% 24.0% 17.7% 0.0% 35.8% 0.0% 2002 0.0% 4.8% 2.1% 13.9% 15.3% 0.0% 0.0% 2003 0.0% 3.2% 2.9% 12.5% 19.9% 4.3% 5.0% 2004 4.6% 3.7% 5.9% 14.0% 5.0% 10.1% 75.2% 2005 4.5% 2.0% 2.7% 7.4% 13.1% 11.2% 31.0% 2006 0.0% 4.9% 6.1% 19.3% 17.5% 13.5% 4.7% 2007 0.0% 0.0% 29.6% 12.5% 6.6% 8.3% 31.0% 2008 0.0% 0.0% 0.0% 17.0% 5.2% 0.0% 0.0% 2009 0.0% 0.4% 0.0% 3.9% 13.6% 5.0% 51.6% 2010 0.0% 0.5% 1.6% 1.5% 5.0% 0.0% 4.6%
Split BBB BB Split BB B Split B CCC Not rated
Default rate by industry (per new-issue year)

by par amount 1997 Automotive 53.9% Broadcasting 1.8% Cable and Satellite 48.5% Chemicals 53.0% Consumer Products 48.5% Diversified Media 14.2% Energy 24.3% Financial 28.6% Food and Beverages 49.5% Gaming Lodging and Leisure14.9% Healthcare 35.2% Housing 24.0% Industrials 29.0% Metals and Mining 69.2% Paper and Packaging 40.2% Retail 21.2% Services 18.4% Technology 42.0% Telecommunications 52.4% Transportation 41.6% Utility 8.8% 1998 68.1% 13.0% 59.2% 47.8% 44.8% 20.2% 18.2% 12.8% 45.4% 24.7% 24.1% 2.9% 34.1% 63.5% 4.5% 10.0% 24.5% 41.3% 55.9% 59.9% 7.3% 1999 42.1% 0.0% 56.3% 7.5% 44.7% 0.0% 9.4% 32.3% 26.2% 8.0% 0.0% 7.8% 34.4% 54.9% 27.4% 46.7% 26.2% 8.2% 53.6% 10.6% 19.1% 2000 0.0% 0.0% 73.7% 0.0% 47.1% 0.0% 19.8% 0.0% 100.0% 0.0% 0.0% 13.9% 0.0% 0.0% 58.1% 0.0% 100.0% 0.0% 72.3% 0.0% 19.0% 2001 47.4% 0.0% 35.7% 0.0% 0.0% 9.7% 1.7% 34.7% 9.6% 4.3% 6.2% 0.0% 0.0% 0.0% 16.7% 50.2% 7.2% 0.0% 17.4% 44.4% 58.0% 2002 37.5% 0.0% 36.0% 10.3% 8.5% 0.0% 6.8% 0.0% 12.5% 7.7% 2.8% 14.6% 6.8% 8.3% 22.6% 0.0% 0.0% 0.0% 0.0% 27.8% 0.0% 2003 13.4% 19.5% 0.0% 1.2% 16.4% 45.5% 0.0% 5.2% 8.7% 16.2% 0.0% 5.9% 0.9% 0.0% 15.4% 0.0% 3.4% 0.0% 0.0% 0.0% 24.9% 2004 23.1% 0.0% 14.4% 0.0% 2.7% 28.3% 0.0% 16.0% 12.8% 14.5% 2.7% 20.2% 5.5% 0.0% 19.5% 29.3% 0.0% 10.5% 0.0% 25.0% 19.4% 2005 0.0% 0.0% 0.0% 16.8% 1.5% 61.3% 2.8% 7.4% 13.9% 16.2% 4.6% 11.7% 0.0% 0.0% 33.1% 7.3% 3.2% 3.2% 7.0% 23.0% 0.0% 2006 6.7% 0.0% 4.8% 14.8% 0.0% 71.8% 0.0% 25.6% 0.0% 23.6% 5.4% 8.6% 9.9% 27.4% 0.0% 12.4% 2.4% 12.2% 2.1% 6.1% 22.6% 2007 2.5% 0.0% 27.8% 14.8% 0.0% 50.1% 8.4% 0.0% 12.9% 12.4% 0.0% 0.0% 14.8% 0.0% 42.7% 0.0% 3.4% 8.7% 3.4% 0.0% 19.0% 2008 15.8% 0.0% 3.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 26.3% 0.0% 0.0% 31.9% 0.0% 0.0% 31.0% 64.7% 0.0% 0.0% 2009 0.0% 0.0% 0.0% 0.0% 0.0% 8.4% 3.3% 0.0% 1.6% 0.0% 0.0% 0.0% 3.1% 0.0% 13.0% 15.5% 0.0% 0.0% 0.0% 9.0% 2.9% 2010 0.0% 0.0% 0.0% 0.0% 6.8% 9.0% 4.7% 0.8% 2.5% 0.0% 0.0% 0.0% 0.0% 1.4% 0.0% 0.0% 0.0% 3.5% 0.0% 4.1% 0.0%
Default rate by use of proceeds (per new-issue year)

by par amount 1997 31.2% 50.3% 31.5% 1998 34.9% 46.5% 32.8% 1999 27.2% 44.4% 34.3% 2000 50.4% 55.8% 31.6% 2001 12.1% 31.6% 17.2% 2002 1.7% 5.5% 10.7% 2003 12.1% 7.0% 8.4% 2004 6.9% 4.9% 12.8% 2005 7.1% 10.3% 5.6% 2006 14.8% 3.7% 14.5% 2007 4.1% 8.3% 17.8% 2008 2.3% 0.0% 12.0% 2009 0.0% 1.6% 3.2% 2010 0.0% 0.6% 2.1%
Acquisition Finance General Corporate Refinancing
14
Appendix A
2013 high-yield defaults
Date 11-Jan-13 15-Jan-13 18-Feb-13 28-Feb-13 15-Mar-13 18-Mar-13 25-Mar-13 1-Apr-13 1-Apr-13 29-Apr-13 1-May-13 15-May-13 15-May-13 10-Jun-13 Issuer Penson Worldwide Geokinetics Reader's Digest Conexant Systems Rotech Healthcare Dex One Revel Entertainment GMX Resources Platinum Energy Solutions Chukchansi Physiotherapy Associates AGY Holdings Oncure Holdings Exide Technologies Debt ($ mn) 200.0 300.0 525.0 175.0 520.0 212.3 365.7 377.8 173.1 244.4 210.0 172.0 210.0 675.0 Industry Financial Energy Diversified Media Technology Healthcare Diversified Media Gaming Lodging and Leisure Energy Energy Gaming Lodging and Leisure Healthcare Chemicals Healthcare Automotive Moodys rating at last issue B1 B2 B1 NR B3 NR NR NR NR Caa2 B3 B2 B2 B2 WA recov. 24.00 54.00 38.00 105.75 na 46.00 7.00 91.00 48.00 52.00 75.00 na na na
Source: J.P. Morgan Note: Recovery rate is the weighted average price of all bonds in the capital structure 30 days after default.
2012 high-yield defaults

Date 19-Jan-12 01-Feb-12 06-Feb-12 10-Feb-12 01-Mar-12 30-Mar-12 12-Apr-12 17-Apr-12 14-May-12 21-May-12 09-Jul-12 17-Jul-12 04-Aug-12 15-Aug-12 17-Aug-12 22-Aug-12 06-Nov-12 14-Nov-12 15-Nov-12 17-Dec-12 Issuer Debt ($ mn) 1,000.0 335.0 149.5 211.0 142.8 630.6 451.3 2,786.1 400.0 300.0 250.0 131.8 225.0 119.3 1,500.0 300.0 640.0 509.6 3,700.0 345.2 Industry Consumer Products Retail Industrials Utility Gaming Lodging and Leisure Industrials Food and Beverages Financial Cable and Satellite Diversified Media Metals and Mining Telecommunications Healthcare Healthcare Energy Telecommunications Utility Transportation Utility Financial Moodys rating at last issue B1 B2 Ba3 Caa2 B1 B3 B1 Caa3 NR Caa1 B3 NR NR Caa1 Caa2 B3 NR Ba3 B1 Baa3 WA recov. 74.63 20.00 27.00 83.50 78.00 11.66 73.02 77.35 na 54.25 45.50 25.00 30.00 20.50 24.75 71.75 110.16 37.12 49.03 98.13 Eastman Kodak DirectBuy Holdings Global Aviation LSP Energy Circus & Eldorado Hawker Beechcraft Reddy Ice Residential Capital Corp. LightSquared Houghton Mifflin Harcourt Publishing Co. Patriot Coal FiberTower KV Pharmacuetical Lifecare Holdings ATP Oil & Gas Corporation Broadview Networks Holdings Homer City Funding LLC Overseas Shipholding Edison Mission Energy Midwest Generation
Source: J.P. Morgan Note: Recovery rate is the weighted average price of all bonds in the capital structure 30 days after default.
2012 and 2013 bond distressed exchanges/tenders

Date 19-Apr-12 01-May-12 30-May-12 03-Jul-12 1-Dec-12 1-Dec-12 Issuer Dex One Reichhold Industries Chukchansi Economic Dev. Authority Bon-Ton Stores Energy Futures Holdings LBI Media Debt ($ mn) 98.2 195.0 60.0 330.0 1,100.0 206.0 Transaction Distressed buyback Distressed exchange Distressed exchange Distressed exchange Distressed exchange Distressed exchange Industry Diversified Media Chemicals Gaming Lodging and Leisure Retail Energy Diversified Media
Sources: J.P. Morgan; Moodys Investors Service.
15
Appendix B
2013 leveraged loan defaults
Date 07-Jan-13 01-Mar-13 18-Mar-13 18-Mar-13 25-Mar-13 24-Apr-13 17-Jun-13 Issuer Evergreen International Aviation Yellow Book USA Dex One SuperMedia Revel Entertainment Synagro Technologies Orchard Supply Hardware Debt ($ mn) 284.8 1,099.4 746.7 1,442.0 895.5 346.1 129.0 Industry Transportation Diversified Media Diversified Media Diversified Media Gaming Lodging and Leisure Services Retail WA Recov. 95.05 18.00 71.08 73.53 48.70 81.27 na
Sources: J.P. Morgan; Markit Notes: 1)Recovery rate is the weighted average price of all senior secured loans 30 days after default (second-liens are excluded)
2012 leveraged loan defaults

Date 03-Jan-12 03-Jan-12 11-Jan-12 18-Jan-12 06-Feb-12 03-Feb-12 30-Mar-12 24-Apr-12 14-May-12 11-Jun-12 20-Jun-12 25-Jun-12 31-Jul-12 31-Jul-12 15-Aug-12 17-Aug-12 30-Aug-12 28-Sep-12 10-Oct-12 25-Oct-12 22-Dec-12 31-Dec-12 Issuer Vertrue Coach America IBC Sales Corp (Hostess) Buffets Global Aviation TCO Funding (Tensar) Hawker Beechcraft Bicent Power LightSquared Allied Holdings ATI Acquisition Cinram International Aventine Renewable Energy Legends Gaming Lifecare Holdings ATP Oil & Gas Corporation Contec Southern Air Vertis, Inc. AMF Bowling Worldwide Merrill Corporation LodgeNet Entertainment Debt ($ mn) 551.5 267.4 163.9 244.5 98.1 245.7 1212.9 245.5 1,674.9 164.8 158.0 250.2 200.0 239.6 324.9 360.4 177.9 238.3 386.5 294.9 594.8 345.6 Industry Services Transportation Food and Beverages Food and Beverages Industrials Industrials Industrials Utility Cable and Satellites Transportation Services Diversified Media Energy Gaming, Lodging and Leisure Healthcare Energy Diversified Media Transportation Diversified Media Gaming, Lodging and Leisure Financial Cable and Satellite WA Recov. 28.00 35.50 na 44.30 na 96.92 58.42 58.50 65.38 na 3.00 31.63 51.63 63.25 92.08 96.67 16.83 21.33 28.00 90.00 100.19 68.89
Sources: J.P. Morgan; Markit Notes: 1)Recovery rate is the weighted average price of all senior secured loans 30 days after default (second-liens are excluded)
2012 and 2013 leveraged loan distressed exchanges/tenders

Date 13-Jan-12 20-Mar-12 24-Apr-12 07-May-12 28-Jun-12 Issuer Hanley-Wood Dex One Corp DS Waters Barney's Culligan International Debt ($ mn) 385.9 143.0 465.0 540.0 530.0 Transaction Recapitilization/distressed exchange Distressed buyback Distressed exchange Distressed exchange Distressed exchange Industry Diversified Media Diversified Media Food and Beverages Retail Food and Beverages
Sources: J.P. Morgan; Moodys Investors Service.
16
J.P. Morgan North American Credit Research
383 Madison Avenue, 3rd Floor, New York, NY 10179 JOYCE CHANG Head of Global Credit and Emerging Markets Research (212) 834-4203 H I G H G R A D E S T R AT E G Y A N D C R E D I T D E R I VAT I V E R E S E A R C H ERIC BEINSTEIN GLOBAL HIGH YIELD PETER D. ACCIAVATTI
AND
L E V E R A G E D L O A N S T R AT E G Y
eric.beinstein@jpmorgan.com . . . . . . . (212) 834-4211, dominique.d.toublan@jpmorgan.com . (212) 834-2370 miroslav.j.skovajsa@jpmorgan.com . (212) 834-5154 harpreet.x.singh@jpmorgan.com . . . (212) 834-7591 meghana.j.chugani@jpmorgan.com . (212) 834-3220
peter.acciavatti@jpmorgan.com . . . . (212) 270-9633, tony.linares@jpmorgan.com . . . . . . (212) 270-3285 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . nelson.r.jantzen@jpmorgan.com . . . (212) 270-1169 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . chuanxin.li@jpmorgan.com . . . . . . (212) 270-1813
AUTOMOTIVE eric.j.selle@jpmorgan.com . . . . . . . . . . (212) 270-9624, yao.li@jpmorgan.com . . . . . . . . . . . (212) 270-9455 BASIC INDUSTRIES Chemicals and Metals & Mining svetlana.x.goldenberg@jpmorgan.com . . (212) 270-9453
NORTH AMERICAN HIGH GRADE RESEARCH
Head of High Grade Research
ARUN N. KUMAR
AUTOMOTIVE, SHIPPING eric.j.selle@jpmorgan.com . . . . . . . . . . (212) 270-9624, yao.li@jpmorgan.com . . . . . . . . . . . (212) 270-9455 BASIC INDUSTRIES Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . tarek.x.hamid@jpmorgan.com . . . . . (212) 834-5468, jonathan.j.mann@jpmorgan.com . . . (212) 834-7239 Homebuilding susan.berliner@jpmorgan.com . . . . .(212) 270-3085, wade.m.pontius@jpmorgan.com . . . (212) 834-8341 Metals & Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . dave.adam.katz@jpmorgan.com . . . (212) 270-4593, bayina.bashtaeva@jpmorgan.com . (212) 270-1372 Paper/Forest Products, Packaging tarek.x.hamid@jpmorgan.com . . . . . (212) 834-5468, jonathan.j.mann@jpmorgan.com . . . (212) 834-7239 FINANCE AND SECURITIES COMPANIES dave.adam.katz@jpmorgan.com . . . (212) 270-4593, bayina.bashtaeva@jpmorgan.com . (212) 270-1372 CONSUMER PRODUCTS, FOOD AND RESTAURANTS carla.casella@jpmorgan.com . . . . . . (212) 270-6798, paul.a.simenauer@jpmorgan.com . . (212) 270-6861 ELECTRIC UTILITIES AND POWER GENERATION dave.adam.katz@jpmorgan.com . . . (212) 270-4593, bayina.bashtaeva@jpmorgan.com . (212) 270-1372 ENERGY gregg.w.brody@jpmorgan.com . . . . (212) 834-5997, andrew.aziz@jpmorgan.com . . . . . . (212) 834-9405 HEALTHCARE david.common@jpmorgan.com . . . . (212) 270-5260, jared.a.feeney@jpmorgan.com . . . . .(212) 270-0699
NORTH AMERICAN HIGH YIELD RESEARCH
Head of High Yield Research
DAVID COMMON
Home Builders susan.berliner@jpmorgan.com . . . . .(212) 270-3085, wade.m.pontius@jpmorgan.com . . . (212) 834-8341
Paper/Forest Products, Packaging tarek.x.hamid@jpmorgan.com . . . . . (212) 834-5468, jonathan.j.mann@jpmorgan.com . . . (212) 834-7239
BANKS, FINANCE AND SECURITIES COMPANIES kabir.x.caprihan@jpmorgan.com . . . (212) 834-5613, julie.g.fitzpatrick@jpmorgan.com . . . (212) 270-4584 CONSUMER PRODUCTS virginia.chambless@jpmorgan.com . . (212) 834-5481 ELECTRIC UTILITIES AND POWER GENERATION
susan.voorhees@jpmorgan.com . . . (212) 834-5200, larry.liou@jpmorgan.com . . . . . . . . . (212) 834-9455 ENERGY, PIPELINES, MLPS svetlana.x.goldenberg@jpmorgan.com . . (212) 270-9453
HEALTHCARE arun.n.kumar@jpmorgan.com . . . . . (212) 834-5423, brett.g.gibson@jpmorgan.com . . . . . (212) 270-7484 INSURANCE arun.n.kumar@jpmorgan.com . . . . . (212) 834-5423, brett.g.gibson@jpmorgan.com . . . . . (212) 270-7484 MANUFACTURING, SERVICES Aerospace/Defense virginia.chambless@jpmorgan.com . . (212) 834-5481 Manufacturing and Industrials virginia.chambless@jpmorgan.com . . (212) 834-5481
MANUFACTURING, SERVICES Aerospace/Defense, Industrials, Services yilma.abebe@jpmorgan.com . . . . . . (212) 270-3265
REITS mark.streeter@jpmorgan.com . . . . . (212) 834-5086,, jonathan.d.rau@jpmorgan.com . . . . . .(212) 834-5237 RETAIL virginia.chambless@jpmorgan.com . . (212) 834-5481
GAMING, LODGING, LEISURE Gaming, Lodging susan.berliner@jpmorgan.com . . . . .(212) 270-3085, wade.m.pontius@jpmorgan.com . . . (212) 834-8341 Leisure michael.pace@jpmorgan.com . . . . . (212) 270-6530, maxx.d.kauffman@jpmorgan.com . . (212) 270-6797
TECHNOLOGY/TELECOMMUNICATION, CABLE AND MEDIA Technology brian.m.turner@jpmorgan.com . . . . (212) 834-4035, calvin.chan@jpmorgan.com . . . . . . . (212) 834-4079 Telecommunication Services brian.m.turner@jpmorgan.com . . . . (212) 834-4035, calvin.chan@jpmorgan.com . . . . . . . (212) 834-4079 Media & Entertainment michael.pace@jpmorgan.com . . . . . (212) 270-6530, maxx.d.kauffman@jpmorgan.com . . (212) 270-6797 TRANSPORTATION Airlines/EETCs/Aircraft/Rails/Freight mark.streeter@jpmorgan.com . . . . . (212) 834-5086, jonathan.d.rau@jpmorgan.com . . . . . .(212) 834-5237
RETAIL carla.casella@jpmorgan.com . . . . . . (212) 270-6798, paul.a.simenauer@jpmorgan.com . . (212) 270-6861 TECHNOLOGY/TELECOMMUNICATION, CABLE AND MEDIA Technology/Telecommunication Services thomas.j.egan@jpmorgan.com . . . . . (212) 270-2149, lina.p.kabaria@jpmorgan.com . . . . . (212) 834-5669 Cable/Media michael.pace@jpmorgan.com . . . . . (212) 270-6530, maxx.d.kauffman@jpmorgan.com . . (212) 270-6797
Broadcasting/Publishing avi.a.steiner@jpmorgan.com . . . . . . (212) 270-5512, daniel.k.kenny@jpmorgan.com . . . . (212) 834-8285 TRANSPORTATION Airlines/EETCs/Aircraft/Rails/Freight mark.streeter@jpmorgan.com . . . . . (212) 834-5086, jonathan.d.rau@jpmorgan.com . . . . . .(212) 834-5237
North America Credit Research
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North America Credit Research
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Important Disclosures
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JP Morgan Default Monitor June 2013

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JP Morgan Default Monitor June 2013

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High Yield and Leveraged Loan Research

Nelson Jantzen, CFA

Source: J.P. Morgan

See page 18 for analyst certification and important disclosures.

Source: J.P. Morgan

Despite weakness, distressed high-yield bond debt remains extremely low

6 des and downgrades

High-yield bond defaults

LTM default rate

Par-weighted default rate

Jan-94 Jan-95 Jan-96

Jan-97 Jan-98 Jan-99 Jan-00 Jan-01

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Source: J.P. Morgan

Source: J.P. Morgan

Sources: J.P. Morgan; Moodys Investors Service

Recent default activity

Default rate vs high-yield spreads

2000 1750 1500 1250 1000 Spread to worst

High-yield spreads 561bp High-yield defaults 1.09%

1,220.1 2,530.8 1,762.4 1,637.6

1.50% 3.22% 2.47% 3.97%

2.30% 3.99% 3.43% 5.06%

Sources: J.P. Morgan; Moodys Investors Service

High-yield bond defaults

Debt ($ mn) 675.0

Default rates by industry

Default rate: by rating 12 months prior to default

Source: J.P. Morgan Note: Eighteen-year average is as of December 31, 2012.

Default rate: by rating at issuance

Source: J.P. Morgan Note: Eighteen-year average is as of December 31, 2012.

Average number of years to default

Source: J.P. Morgan Note: Eighteen-year average is as of December 31, 2012.

Fallen angel volume and default rates

Leveraged loan defaults

LTM default rate

Sources: J.P. Morgan; S&P LCD

Sources: J.P. Morgan; S&P LCD

29.7 7.1 8.1 7.9 11.9 1.2 1.2 2.4

Sources: J.P. Morgan; S&P LCD

Sources: J.P. Morgan; S&P LCD

Recent default activity

Default rate vs leveraged loan spreads

581.9 2,270.8 1,442.5 974.9

1.46% 4.01% 3.09% 3.54%

1.88% 3.47% 2.76% 3.18%

Sources: J.P. Morgan; S&P LCD

YTD Default rate by volume

First-lien leveraged loan issuer-weighted recovery rates

Recovery (cents on the dollar)

High-yield bond default and issuer-weighted recovery rates

25-year ann. avg.4.0%

Leveraged loan default and recovery rates

Leveraged loan issuer-weighted recovery rates

Sources: Moodys Investors Service; J.P. Morgan; S&P LCD; Markit

Distressed debt (high-yield bonds)

Distressed debt by industry

Distressed debt vs default rate

12.0% 10.0% 8.0% Default rate

0.05 1.24 0.27 0.40 6.44 8.41

0.5% 0.2% 0.9% 27.3% 71.1%

Distressed debt by rating