Copyright© 2010 by Standard & Poor’s Financial Services LLC (S&P) a subsidiary of The McGraw-Hill...

Copyright© 2010 by Standard & Poor’s Financial Services LLC (S&P) a subsidiary of The McGraw-Hill Companies, Inc. 1

2010 LCD Issuer Review and Outlook

Standard & Poor’s LCD

Mike Audino (212) 438-1865, [email protected] DeLuca (212) 438-1739, [email protected]

January 21, 2010


2010 Issuer Review and Outlook

LCD provides issuer specific credit research and historical financials on over 35 leveraged companies across several industries. Many of these companies are widely held by leveraged loan and high yield investors and encompass distressed as well as performing credits.

The following report will present a summary of each company’s key information such as recent historical financials and credit statistics, company description, and strengths and weaknesses as well as provide additional commentary as to what happened in 2009 and what investors should look for in 2010. For additional details, including enterprise valuation/recovery prospects for many of these credits, please refer to the issuer reports and issuer financials pages of our website lcdcomps.com.

Please see the following page for an index of industries and companies that will be discussed in this report


2010 Issuer Review and Outlook: Companies Covered

PageChemicals Summary 4Georgia Gulf 5Hexion 6Momentive Performance Materials 7Solutia 8

Distressed Summary: 9Accuride 10Citadel Broadcasting 11FairPoint 12Six Flags 13

Healthcare Summary: 14Iasis Healthcare 15LifeCare 16Rotech Healthcare 17Sun Healthcare Group 18Vanguard Health Systems 19

Media: General Summary 20Cengage Learning 21Valassis Communications 22

Media: TV/Radio/Newspapers: Summary 23Cumulus Media 24Emmis Communications 25Gatehouse 26Gray TV 27

PagePaper/Packaging 28Appleton 29Exopack 30

Solo Cup 31Verso 32Xerium 33

Retailers/Distributors 34Burlington Coat Factory 35Claire’s Stores 36Keystone Automotive 37Michaels Stores 38Neiman Marcus 39Rite-Aid 40

Other 41Alion Science and Technology 42Atlantic Broadband 43Dana 44Knology 45Mediacom 46Ply Gem 47Venoco 48


Chemicals

Chemical manufacturers entered 2009 with highly leveraged balance sheets and faced weak demand from worsening global economic conditions. Most sector participants bounced off the first and second quarter lows with sequentially increasing revenue and EBITDA through the quarter ended September 30, 2009 driven by increasing volume from improving global economic conditions.

For 2010, the worst may be in the past. Economic conditions are better, demand is improving as destocking is over, companies are selectively raising prices, and credit markets are open. With the restructuring initiatives largely completed, companies can look towards the future with more confidence compared to that of January 2009.

Companies discussed include:• Georgia Gulf Corp.• Hexion Specialty Chemicals, Inc.• Momentive Performance Materials, Inc.• Solutia, Inc.


Georgia Gulf

Georgia Gulf is a manufacturer of chemicals and vinyl based building and home improvement products. The Company was formed in October 2006 when Georgia Gulf, a manufacturer of chemicals, acquired Royal Group Technologies, a manufacturer of building products, to vertically integrate and to take advantage of the favorable market conditions that existed at the time in the building products industry. However, shortly after the transaction closed, the US housing industry began to decline and along with it, the Company’s Sales and EBITDA. EBITDA for the LTM period ended September 30, 2009 was $141 million compared to approximately $350 million of pro-forma LTM EBITDA at June 2006.

Strengths• Good market share in certain segments but large competitors• Diversity of end markets in the chemicals division• Value-added products in the building materials segment• Free cash flow exited negative territory during the quarter ended September 2009• Recently completed debt for equity exchange significantly reduced leverage and interest expense

Weaknesses• Cyclicality/Significant exposure to the US housing industry• Raw material price sensitivity – oil, oil based chemicals and natural gas• Commodity products in the chemicals division

SummaryThe Company faces many challenges in the quarters ahead as it attempts to navigate through a difficult operating environment. Until the housing and construction markets recover, investors should expect disappointing results that include weak EBITDA, and lackluster cashflow.

Free cash flow

Sales GPM EBITDA EBITDA margin

EBITDA - capex / interest FCF Senior debt Total debt

Senior debt to EBITDA

Total debt to EBITDA

Total Liquidity

(AR 80%+Inv 60%+PPE

33%)/Total DebtA/R days

Inv. days

A/P days LCD EBITDA

Company adjusted EBITDA

LTM 12/31/08 2,916,477 6.8% 150,118 5.1% 0.65 (29,532) 476,112 1,505,150 3.17 10.03 232,875 32% 27.5 49.2 23.1 19,974 24,500 LTM 3/31/09 2,611,348 7.1% 147,025 5.6% 0.65 (28,683) 603,047 1,518,000 4.10 10.32 175,871 32% 28.6 52.4 22.7 5,640 10,900 LTM 6/30/09 2,285,848 8.2% 130,204 5.7% 0.56 (110,598) 591,300 1,431,818 4.54 11.00 112,000 35% 26.4 42.7 18.4 53,871 59,400 LTM 9/30/09 2,023,626 10.4% 141,220 7.0% 0.68 54,138 319,614 501,927 2.26 3.55 168,839 102% 27.4 42.7 20.2 61,735 59,974

Operating performance Leverage Other Quarterly EBITDA


Hexion Specialty Chemicals

Hexion Specialty Chemicals, Inc., is among the global leaders in the manufacture and distribution of thermosetting resins (thermosets). Thermosets are a critical ingredient in all paints, coatings, glues, and adhesives used in consumer and industrial applications. The Company has 94 production facilities throughout the world serving more than 8,300 clients in more than 100 countries (2008). The Company was formed during 2005 upon the merger of Borden Chemical, Inc., Resolution Performance Products LLC, Resolution Specialty Materials LLC, and Bakelite AG (previously acquired by Borden). The Company is owned by an affiliate of Apollo Management, L.P.

Strengths∙• Global leadership in the manufacture of thermosetting resins• Product use is diverse and resin is a critical ingredient in the performance of end products. Company has raised prices throughout 2009• Diverse base of established clients in more than 100 countries with no single client representing more than 3% of annual revenue• Strategically placed production facilities provide both scale and participation in all growing economies• Apollo Management, L.P. continues to provide financial support to the Company

Weaknesses∙• Senior and total leverage is excessive due to deteriorating EBITDA and acquisition related debt obligations• End markets served are cyclically weak and not expected to significantly strengthen during the coming quarters• Availability of credit for the Company and its clients could limit participation in any recovery. The revolving loan commitment matures on May 31, 2011• The Company is subject to numerous environmental regulations at the domestic federal, state, and local levels as well as foreign laws and regulations • Pension and post employment benefit obligations are extensive

Summary: With global markets firming, the ability for Apollo to cure defaults, the essential nature of the Company’s products in numerous applications, no debt maturing until May 2011, and continued low interest rates, Hexion appears to have the wherewithal to survive and participate in the long awaited growth in the global economies.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE


Inv. days

A/P days LCD EBITDA


LTM 12/31/08 6,093,000 13.6% 343,000 5.6% 0.69 (768,000) 3,236,000 4,084,000 9.43 11.91 163,000 30% 54.4 47.3 46.1 37,000 46,000

LTM 3/31/09 5,371,000 13.1% 235,000 4.4% 0.33 (642,000) 2,874,000 3,796,000 12.23 16.15 328,000 28% 51.0 48.6 44.1 26,000 61,000

LTM 6/30/09 4,650,000 13.8% 144,000 3.1% 0.01 (540,000) 2,875,000 3,555,000 19.97 24.69 351,000 29% 43.8 41.1 47.5 23,000 90,000 LTM 9/30/09 4,119,000 15.3% 200,000 4.9% 0.25 (420,000) 2,895,000 3,507,000 14.48 17.54 357,000 31% 40.0 36.4 47.3 114,000 128,000



Momentive Performance Materials

Momentive Performance Materials, Inc. is one of the largest producers of silicone and silicone derivatives in the world, and a leading manufacturer of products derived from quartz and specialty ceramics. The Company’s products are a small but critical ingredient in end products manufactured by its clients. Silicone is an additive that enhances the performance characteristics of a wide array of products to increase resistance (to heat, ultraviolet light, and chemicals), lubrication, adhesion, and viscosity. A small product sample follows: shower caulk, pressure sensitive labels, foam products, cosmetics, and tires. Quartz and specialty ceramics are utilized in the manufacture of highly engineered products, such as semiconductors and lenses. The Company’s manufacturing base includes 25 facilities located throughout the world. Clients include Proctor & Gamble, 3M, Goodyear, Unilever, Motorola, L’Oreal, and BASF. The Company was formed during December 2006 upon the sale of GE Advanced Materials by GE to Apollo Management, L.P.

Strengths• Global leadership in the silicone industry• Company’s products are a critical production input that enhances the performance of end products• Diverse base of established clients with no single client representing more than 6% of annual revenue• Good liquidity with no debt maturing until 2011

Weaknesses• Senior and total leverage is excessive due to deteriorating EBITDA• End markets are cyclically weak and not expected to strengthen significantly in the coming quarters• Capital intensive business whose capital outlays may not be indefinitely deferred

Summary:Revenue snapped briskly upward during the third quarter as inventory destocking ebbed in end markets served. Liquidity is strong as solid operating expense management, lower inventory investment, and muted capital outlays drove cash balances to $404 million at September 2009. Despite the good performance during the quarter, the Company remains highly leveraged, and interest coverage is weak. The Company needs a benign interest rate environment, sustainable end market growth, and improving operating performance during the coming quarters so that leverage and interest burden continues to ease.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE 33%)/Total

DebtA/R days Inv. days

A/P days LCD EBITDA


LTM 12/31/08 2,639,254 30.4% 258,373 9.8% 0.42 (62,454) 1,334,400 3,239,836 5.16 12.54 466,142 30% 77.4 85.2 72.9 (16,648) 67,900

LTM 3/31/09 2,400,701 28.5% 147,138 6.1% 0.12 (106,423) 1,403,400 3,292,822 9.54 22.38 411,697 27% 81.5 104.8 78.0 (13,170) 14,900

LTM 6/30/09 2,153,245 28.7% 101,149 4.7% 0.09 (102,850) 1,513,300 3,173,645 14.96 31.38 339,302 29% 67.6 95.1 62.6 50,264 63,600 LTM 9/30/2009 2,021,782 28.5% 110,978 5.5% 0.18 (51,417) 1,338,700 3,220,610 12.06 29.02 418,346 29% 63.9 84.1 63.2 90,532 93,500



Solutia

Solutia, Inc. is a manufacturer of high performance chemical and engineered materials used in a broad array of consumer and industrial applications. Operating activities are grouped among the Saflex, CPFilms, and Technical Specialties segments. Approximately 74% of 2008 revenue is from overseas markets. Saflex (39% of 2008 revenue) is the world’s largest manufacturer of PVB (Polyvinyl Butyral) sheet, a plastic interlayer used in the manufacture of laminated glass for automobile and architectural glass. The CPFilms segment (11% of 2008 revenue) manufactures films for color filters, computer touch screens, and flat panel monitors. The Technical Specialties unit (50% of 2008 revenue) manufactures products for sale to the rubber industry, heat transfer fluids, and aviation hydraulic fluids. The Company is the largest supplier of insoluble sulfur products, a key vulcanizing agent for the global tire industry.

Strengths• Leadership positions in insoluble sulfur used in production of tires and PVB used in the global safety glass industry• Adjusted LTM EBITDA at September 2009 approached $343 million, representing 21.1% of LTM revenue, and the Company recently increased full year 2009 guidance of $350 million to $365 million• Access to capital markets. In addition to the recent notes offering, the Company completed during June 2009, a secondary offering of common stock raised net proceeds of $119 million. Proceeds repaid unsecured notes of $74 million• Proforma for the $400 million note issuance, senior and total leverage was 2.5x and 3.5x, respectively at September 2009• Proforma for the $400 million note issuance, liquidity at September 2009 was $298 million

Weaknesses• Primary markets are cyclically weak. Approximately 70% of total revenue is from the global automotive and construction industries• Revenue of $448 million for the quarter ended September 2009 was 23% lower the quarter ended December 2008 from lower volume across all businesses due to continuing weakness in the global automotive, construction, and industrial sectors• Revenue for the LTM period ended September 2009 declined $1.5 billion, or 48%, to $1.6 billion from $3.1 billion at December 2008 from lower sales volume, divested businesses, and unfavorable exchange rates• Legacy post retirement and environmental liabilities

Summary:With the transformation to a specialty chemical business model (with corresponding higher margins) nearing completion, the Company performed well during the quarter ended September 2009. The uncertainty related to legacy obligations continues and global end markets continue to be weak. That said, debt obligations were realigned, EBITDA margins widened from improved gross margin, and capital outlays were held near the maintenance level. Despite heading into the seasonally weak fourth quarter, the Company has cash balances of $184 million.

Free cash flow





Total Liquidity


DebtA/R days Inv. days

A/P days LCD EBITDA


LTM 12/31/08 3,096,000 18.1% 231,000 7.5% 0.84 (492,000) 1,371,000 1,396,000 5.94 6.04 225,000 64% 55.6 97.4 55.2 24,000 72,000

LTM 3/31/09 2,450,000 21.3% 221,000 9.0% 0.91 66,000 1,322,000 1,349,000 5.98 6.10 163,000 64% 55.9 125.7 55.8 52,000 56,000

LTM 6/30/09 1,765,000 29.7% 252,000 14.3% 1.49 144,000 1,182,000 1,191,000 4.69 4.73 211,000 64% 46.8 102.0 43.8 92,000 96,000 LTM 9/30/09 1,626,000 32.3% 270,000 16.6% 1.64 168,000 867,000 1,198,100 3.21 4.44 298,000 64% 50.2 87.9 43.4 102,000 119,000



Distressed/Bankruptcy

2009 was clearly a difficult year for many firms for a variety of reasons. The key factors include the weak economy, too much leverage, secular changes to its industry, and poor timing and execution of acquisitions. That said, however, all of these companies are on a path towards a restructuring which should allow them to move forward in 2010 and beyond. Some face more challenges then others but an improving economy should at least help them stabilize their revenue in the near term. The following summaries address each company’s strengths and weaknesses assuming a restructuring.

Companies discussed include:• Accuride• Citadel Broadcasting• FairPoint• Six Flags


Accuride

Accuride Corporation is a manufacturer and supplier of commercial vehicle components in North America. Accuride's products include commercial vehicle wheels, wheel-end components and assemblies, truck body and chassis parts, seating assemblies and other commercial vehicle components. The Company believes that it has a number one or number two market position in several products including steel wheels, forged aluminum wheels, brake drums, and disc wheel hubs. The Company serves OEMs, and their related aftermarket channels in most major segments of the commercial vehicle market. Key customers include Daimler Truck North America, PACCAR, International Truck, and Volvo/Mack, which combined account for approximately 53% of net sales in 2008.

Strengths• Market Leadership: Accuride is a market leader in truck wheels with long term relationships with many of the key manufacturers. When the economy improves, it is probably safe to assume that Accuride will get its fair share, if not more• Margin Improvement: Historically the company has done a good job of managing through a downturn and then substantially improving margins through a recovery. For example, pre TTI merger Accuride’s EBITDA margins improved from 12.3% in 2001 to over 19% in 2002• Positive industry trends supporting future demand for new trucks: According to ACT Research, statistics such as fleet age are at its highest point since 1986, which could imply that existing trucks will be replaced soon

Weaknesses• Cyclical industry/declining sales and EBITDA: Sales and EBITDA have fallen sharply given the decline in the economy and in new truck sales• Negative industry trends related to new truck sales. With fleet operators facing declining trends in volumes, pricing, and utilization, there is little incentive to buy new trucks• Lack of geographic diversity: In 2008, only 16.8% of sales were to customers outside of the US• Customer concentration: Top four customers represent over 50% of sales• Sensitivity to the price of raw materials (aluminum and steel) but pass through and hedging agreements with customers exist

Summary:The Company operates in a highly cyclical industry so until the economy and the market for heavy duty trucks improves the Company’s sales and EBITDA will be under pressure. However, when the economy does improve, the Company should be well positioned to take advantage of an upturn.

Free cash flow





Total Liquidity


DebtA/R days

Inv. days

A/P days LCD EBITDA


LTM 12/31/08 931,409 6.0% 51,052 5.5% 0.41 (38,850) 294,625 651,169 5.77 12.76 146,076 31% 39.7 46.3 33.7 11,304 15,000 LTM 3/31/09 836,775 5.2% 41,496 5.0% 0.35 (35,287) 321,440 599,540 7.75 14.45 60,492 32% 41.7 60.7 34.5 1,055 1,400 LTM 6/30/09 727,069 1.8% 13,249 1.8% (0.13) (29,727) 354,337 632,437 26.74 47.73 49,057 29% 42.5 55.5 26.9 (7,877) (3,500) LTM 9/30/09 632,791 0.5% (1,279) -0.2% (0.35) (56,730) 357,214 631,693 (279.29) (493.90) 26,517 28% 41.8 49.1 22.8 (5,761) 11,154



Citadel Broadcasting

Citadel is a radio-broadcasting company comprised of two segments. The Radio Market segment represents 83% of revenue and contains the company’s 165 FM stations and 58 AM stations in more than 50 markets. The Radio Network segment represents 17% of revenue and contains the ABC Radio Networks, which creates and distributes programming to more than 4,000 affiliates and provides both sales and distribution services for the ESPN Radio Network.

Strengths:• Geographic diversity; solid market share in markets served• Solid portfolio of assets that could be sold when markets recover• Strong historical cash flow/minimal capex: free cash flow was greater than $120 million in each of the past five years• A cost-reduction plan has reduced expenses, but it is unclear how much cost has been permanently reduced. It appears that some costs are down because

of the lower revenue and the loss of the two network programs

Weaknesses:• High leverage• Competition from terrestrial radio, Internet, satellite radio, and portable music players• Dependence on advertising, particularly from companies in weaker sectors such as auto, restaurants and banks• Competition among local media outlets for advertising dollars is increasing amid a declining pool of traditional advertisers• Longer-term revenue growth might be difficult due to changes in the advertising market, such as advertisers diverting a portion of expenditures to Internet-

based media

Summary:The company has a solid portfolio of radio assets and EBITDA has improved in 2009 but the weak advertising market, competition and secular changes to the radio industry are areas of concern.

Free cash flow




Total debt to EBITDA Total Liquidity

(AR 80%+Inv 60%+PPE

33%)/Total Debt LCD EBITDA


LTM 12/31/08 863,121 59.1% 250,895 29.1% 1.14 121,662 2,010,681 2,059,041 8.01 8.21 30,634 10% 59,845 61,949 LTM 3/31/09 816,098 57.6% 225,649 27.6% 1.12 119,435 2,011,650 2,059,381 8.91 9.13 27,357 8% 24,506 N/ALTM 6/30/09 774,973 57.2% 199,742 25.8% 0.92 102,043 2,033,453 2,081,367 10.18 10.42 28,839 9% 51,784 N/ALTM 9/30/09 744,893 56.8% 186,972 25.1% 0.74 48,596 2,056,233 2,104,330 11.00 11.25 27,422 9% 50,837 N/A



FairPoint Communications

FairPoint Communications, Inc. is a provider of communications services to residential and business customers including local and long distance voice, data, and broadband services. FairPoint operates 32 local exchange companies in 18 states with approximately 1.7 million access line equivalents. The companies operate as the incumbent local exchange carrier in each of their respective markets. In March 2008, FairPoint acquired Verizon’s Northern New England wireline business for approximately $2.0B or 5.6x EBITDA. This transaction transformed Fairpoint from a relatively small telecom company into the 7th largest local exchange carrier in the US. FairPoint’s proforma revenue and EBITDA were expected to be $1.4B and over $600million versus approx $280 million and $115 million before the acquisition. However, the Company experienced several issues that caused the Company to significantly underperform those expectations and ultimately file for bankruptcy.

Strengths:• Solid operating base given that the Company is the incumbent local exchange carrier in each of its markets• Growth opportunities in terms of DSL• Cost structure should stabilize given the transition from Verizon has been completed

Weaknesses:• Declining demand for traditional wireline telecom services. The Company and industry in general have experienced a decrease in access lines as businesses and consumers have switched to wireless and VOIP• Regulatory issues: The Company is regulated by the various state public utilities commissions in which it operates• Weak EBITDA and cashflow trends: Third quarter EBITDA was $25 million and cashflow was negative • Customer service issues: The transition from Verizon’s network was not as smooth as anticipated and, as a result, there were various customer service issues • Competition: Cable providers offering the triple play have gained customers at FairPoint’s expense

Summary:FairPoint has struggled with many issues over the past several quarters however the company is the incumbent local-exchange carrier in its markets, which gives it a solid operating base. If the company can complete its restructuring and solve its technology issues it may be able to focus on its business again, which should allow it to at least stabilize sales and potentially grow over the next few years.

Free cash flow





Total Liquidity


DebtA/R days

Inv. days A/P days LCD EBITDA


LTM 12/31/07 1,274,619 54.7% 313,445 24.6% 10.2% (239,487) 1,930,000 2,480,006 6.16 7.91 125,025 33% 48.2 23.6 72.1 50,487 136,163 LTM 3/31/08 1,303,835 55.0% 304,055 23.3% -12.9% (226,168) 1,976,700 2,518,412 6.50 8.28 97,242 33% 52.8 23.2 98.5 74,071 125,088 LTM 6/30/08 1,258,756 54.3% 274,473 21.8% -7.0% (253,856) 1,967,625 2,497,277 7.17 9.10 83,364 33% 57.5 26.7 120.6 78,918 90,892 LTM 9/30/08 1,198,785 54.0% 228,919 19.1% -4.4% (162,504) 1,965,450 2,513,676 8.59 10.98 65,629 32% 62.1 23.5 101.4 25,443 -



Six Flags

Six Flags is an operator of 20 regional theme parks with locations primarily in the United States. The Company has several well-known theme parks including Six Flags Great Adventure, Six Flags Over Texas and Six Flags Great America. Total attendance increased to 25.34 million in 2008 from 24.9 million in 2007 and adjusted EBITDA increased to $275 million in 2008 from $189 million in 2007. Attendance for the first nine months of 2009 was 21.2 million, down 5% from 22.2 million in the same period of 2008.

Strengths• Geographic diversity in the US• Strong brand name• Strong Sales and EBITDA in 2008 despite the economy• Relatively cost effective entertainment option

Weaknesses• Weak operating metrics: Attendance and per capita spend are both down in 2009 versus 2008 • Limited opportunities to meaningfully increase EBITDA particularly considering the weak advertising markets and employment trends which limits

sponsorship transactions and group attendance• High capex and fixed costs• Numerous competitors in the form of other theme parks and entertainment options in key markets

Summary:With little room for improvement in EBITDA, substantial capex, a recession impacting consumer spending, Six Flags faces many challenges.

Free cash flow





(AR 80%+Inv 60%+PPE


Inv. days

A/P days LCD EBITDA


LTM 12/31/08 1,021,298 50.5% 269,052 26.3% 1.13 (37,495) 1,081,700 2,366,242 4.02 8.79 211,832.00 23.1% 29.3 33.1 33.5 6,040 5,153

LTM 3/31/09 1,004,974 50.2% 264,951 26.4% 1.31 (89,493) 1,086,283 2,311,909 4.10 8.73 80,352.00 24.0% 39.1 33.4 32.8 (61,588) (60,938)

LTM 6/30/09 961,369 48.4% 234,671 24.4% 1.11 (31,486) 1,153,975 1,153,975 4.92 4.92 128,838.00 49.5% 10.4 21.3 16.5 54,690 56,322 LTM 9/30/09 929,064 41.1% 208,804 22.5% 0.97 (4,173) - - - - 262,126.00 0.0% 9.2 12.2 8.5 209,662 220,160



Healthcare

The dominant theme for participants in the healthcare industry during 2009 was the healthcare reform legislation being negotiated in both houses of Congress. The legislation has changed considerably since first introduced with the Senate and House versions now being reconciled. Facing uncertainty in regulatory, reimbursement, and economic spheres, participants appeared to build liquidity throughout 2009. Operating performance has been generally good throughout 2009 despite increasing unemployment and continuing weak economic conditions. For 2010, the uncertainty related to regulatory, reimbursement, and economic conditions has abated somewhat. That said, industry participants will likely continue to build liquidity until the final form of healthcare legislation is known.

Companies discussed include:

•Iasis Healthcare LLC•LifeCare•Rotech Healthcare, Inc.•Sun Healthcare Group, Inc.•Vanguard Health Systems, Inc


Iasis

Iasis Healthcare LLC, is an operator of (a) 15 acute care hospitals and one behavioral facility with 2,789 total beds in six regions (73.8% of 2008 revenue); and (b) Health Choice Arizona, Inc., Phoenix, Arizona, a Medicaid and Medicare managed health plan serving 181,000 members (26.2% of 2008 revenue). The Company considers the acute care hospitals to be located in regions with strong population growth attributes relative to the rest of the US. Acute care hospitals are located in Salt Lake City, Utah; Phoenix, Arizona; Tampa-St. Petersburg, Florida; metropolitan San Antonio, Texas (3); Las Vegas, Nevada; and West Monroe, Louisiana. The Health Choice contract with the Arizona Health Care Cost Containment System commenced October 1, 2008 with a three-year term followed by two additional one-year options. The Company was acquired during June 2004 by an investor group lead by Texas Pacific Group (74.4%), JLL Partners Inc. (18.85%), and Trimaran Fund Management L.L.C. (6.8%).

Strengths• Strong liquidity with the revolving loan commitment portion of the senior secured credit facilities maturing on April 17, 2013• Service offering resulted in steadily increasing LTM revenue and an EBITDA margin consistently in the range of 12% since September 2008. Plant is

modern with no deferred capital spending anticipated• All hospitals are properly licensed and accredited by the Joint Commission (formerly the Joint Commission on Accreditation of Healthcare Companies)• Demonstrated ability to successfully navigate the complex regulatory systems governing licensing, accreditation, operations, and reimbursement

Weaknesses• Continuing weak economic conditions may drive uncompensated and charity care to higher levels• Revenue is highly concentrated from Medicare and Medicaid payers whose changes could adversely affect reimbursement rates• The healthcare industry is highly competitive and highly regulated by a myriad of federal, state, and local government and government agencies• It is unclear what the impact of the healthcare reform proposal currently under consideration by Congress will have on industry participants

SummaryIasis Healthcare operates in the highly competitive and extensively regulated health care industry. The Company’s hospitals are all licensed to operate in the various local jurisdictions and fully-accredited by the Joint Commission. The Company has strong liquidity, no near term debt maturities, and consistent EBITDA margins. Like all participants in the healthcare industry, it is unknown at this time what the magnitude and breadth of the impact of the healthcare reform legislation currently under consideration by Congress will be on industry participants.

Free cash flow





Total Liquidity


DebtA/R days

Inv. days

A/P days LCD EBITDA


LTM 12/31/08 2,115,066 36.3% 261,566 12.4% 1.72 47,776 626,123 1,110,193 2.39 4.24 230,139 49.3% 36.5 12.4 16.6 65,450 66,700

LTM 3/31/09 2,150,804 36.6% 276,033 12.8% 2.15 78,548 624,651 1,108,242 2.26 4.01 259,436 50.8% 37.6 12.5 16.5 84,909 86,159

LTM 6/30/09 2,219,862 36.4% 284,996 12.8% 2.51 140,294 577,623 1,060,951 2.03 3.72 316,425 52.1% 37.0 11.5 15.6 77,310 78,560 LTM 9/30/09 2,361,972 36.3% 229,716 9.7% 2.15 166,337 - 1,059,837 - 4.61 206,528 51.3% 34.2 11.3 15.6 2,047 67,936



LifeCare

LifeCare Holdings operates a network of long-term acute care hospitals (“LTACHs”) that serve patients too healthy to remain in intensive-care facilities, but needing specialty care above what is provided at home or in a nursing home. Key examples include patients with respiratory, skin and other complex medical needs. The company operates 11 freestanding hospitals and nine "hospital within a hospital" facilities, for a total of 20 facilities in 10 states.

Strengths:• Favorable Medicare reimbursement environment • Good portfolio of facilities although 10 of the 20 are concentrated in the Dallas, San Antonio, TX and Shreveport, LA areas• Sales, EBITDA and margins have improved• Management’s focus on increasing patient acuity has favorably impacted revenue• Good liquidity

Weaknesses:• High total leverage/minimal free cash flow• Operating metrics down versus the previous year• Payer mix/Regulatory risks. While the outlook for Medicare reimbursement for LTACHs is currently favorable, the situation can change quickly. Medicare has reduced reimbursement rates and amended/increased various rules for LTACHs in the past• Weak historical performance as revenue and EBITDA have declined despite more beds in 2009 versus 2005. According to the Company, 2005 adjusted

EBITDA was $76.7 million• Limited revenue and EBITDA growth opportunities/high fixed costs

Summary:• While EBITDA has rebounded from the 2007-2008 lows, the Company still faces several issues most importantly is its high leverage/capital structure. The

Medicare reimbursement environment is currently favorable which should give it an opportunity to reduce debt over the next several quarters.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE


A/P days LCD EBITDA


LTM 12/31/08 351,971 35.5% 38,874 11.0% 0.68 (811) 256,713 390,332 6.60 10.04 67,562 21% 63.9 37.9 13,843 13,589 LTM 3/31/09 358,234 36.0% 42,467 11.9% 1.01 8,976 281,700 414,876 6.63 9.77 60,624 21% 66.4 41.7 13,463 16,460 LTM 6/30/09 363,247 36.8% 43,217 11.9% 1.08 1,747 280,438 413,300 6.49 9.56 56,118 20% 69.9 42.6 8,774 12,000 LTM 9/30/09 365,114 37.4% 44,523 12.2% 1.18 19,266 279,800 411,260 6.28 9.24 72,285 17% 66.7 41.8 8,443 9,200



Rotech

Rotech Healthcare, Inc. participates in the home health care industry with revenue derived from the rental and sale of (a) oxygen and other respiratory therapy equipment and systems, and medications (88.6% of 2008 revenue); and (b) durable medical equipment (10.4% of 2008 revenue). The Company has a nationwide presence with approximately 450 operating locations in 48 states. Equipment and services are primarily provided to older individuals with breathing disorders related to chronic obstructive pulmonary diseases (COPD). COPD is a group of diseases such as chronic bronchitis, emphysema, and sleep apnea that results in narrowing airways, and shortness of breath. COPD is the fourth most common cause of death in the United States. Approximately 59% of revenue for the nine months ended September 2009 was derived from Medicare, Medicaid, and other federally funded programs (Department of Veterans Affairs).

Strengths• Nationwide distribution system with approximately 450 non-urban locations in 48 states• Strong service offering as products and services are critical to the health and well being of its patients and may not be deferred• The Company reported unrestricted cash of $69.5 million at September 2009• Systems are in place to monitor compliance with the complex regulatory systems governing licensing, accreditation, operations, and reimbursement.• The Company reported it was in compliance with the covenants

Weaknesses• The Company is highly leveraged with the senior secured credit facility due September 26, 2011 and the 9.5% senior subordinated notes due April 1, 2012• Revenue is highly concentrated among Medicare, Medicaid, and other federally funded programs• The healthcare industry is competitive and highly regulated at the federal, state, and local levels• The final form of the potential healthcare reform legislation currently in Congress is unknown

Summary:Rotech operates in the highly regulated home healthcare industry. The Company has a nationwide platform with most revenue derived from the rental and sale of oxygen and other respiratory therapy equipment and related medication. Each of the approximate 450 locations is accredited by the Joint Commission and the Company’s record regarding regulatory compliance is satisfactory. Like all participants in the healthcare industry, it is unknown at this time what the magnitude and breadth of the impact of the ‘healthcare reform’ legislation currently under consideration by Congress will be on participants in the home healthcare industry.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE


Inv. days

A/P days LCD EBITDA


LTM 12/31/08 544,533 73.0% 73,246 13.5% 0.51 19,141 212,561 500,087 2.90 6.83 74,700 19% 45.8 27.0 79.3 21,460 N/A

LTM 3/31/09 524,852 73.5% 77,587 14.8% 0.75 8,049 219,866 507,355 2.83 6.54 69,847 20% 50.0 27.7 67.5 20,591 N/A

LTM 6/30/09 495,976 74.7% 80,828 16.3% 0.91 23,602 233,452 510,914 2.89 6.32 69,525 19% 53.5 31.5 71.1 21,601 N/A LTM 9/30/09 485,667 75.8% 89,230 18.4% 1.01 14,155 225,765 513,166 2.53 5.75 83,088 19% 48.0 35.0 90.0 25,578 N/A



Sun Healthcare

Sun Healthcare Group, Inc. participates in the domestic healthcare industry providing a wide array of inpatient services principally to the senior population. Inpatient services (89% of 2008 revenue) are delivered at 207 locations comprised of (a) 184 skilled nursing centers; (b) 15 assisted living centers; and (c) eight mental health facilities with an aggregate 22,345 licensed beds in 25 states.

Strengths• Strong liquidity at September 2009 of $167 million comprised of unrestricted cash of $117 million and revolving loan availability of $50 million. Senior

secured obligations come due on April 13, 2013• Consistent gross margin of 13% drives steady LTM EBITDA margin approximating 9% at the close of the previous four quarters• Senior and total leverage of 2.1x and 4.3x is considered manageable given the consistency of quarterly EBITDA in the range of $38 million to $45 million

since December 2007• Demonstrated ability to successfully navigate the complex regulatory system governing licensing, certification, operations, and reimbursement

Weaknesses• Difficult reimbursement environment as several states have implemented rate freezes and cuts in Medicaid to balance budgets. The Centers for Medicare

and Medicaid Services recently issued changes that result in a net reduction in reimbursement rates through 2010• The healthcare industry is highly competitive• The healthcare industry is extensively regulated by federal, state, and local government regulation governing licensing, operations, certification, and reimbursement• The final form of the potential health care reform legislation currently in Congress is unknown and could alter the health care industry in a manner adverse to the Company

Summary:The Company performed well during the quarter ended September 2009. Total debt is manageable and coverage ratios continue to be satisfactory. On September 9, 2009, the Company reported modestly lower guidance with respect to revenue and EBITDA for the year ending December 31, 2009 due to lower reimbursement rates from Medicare and Medicaid. The challenges confronting the Company going forward are related to reimbursement rates that will be under continuous pressure at the state and federal level, and the final form of the potential health care reform legislation.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE


A/P days LCD EBITDA


LTM 12/31/08 1,824,184 13.0% 160,607 8.8% 2.09 45,291 525,841 725,841 3.27 4.52 142,153 50% 39.5 12.6 38,784 43,272

LTM 3/31/09 1,834,238 13.2% 165,521 9.0% 2.16 63,971 506,286 706,286 3.06 4.27 149,945 52% 39.8 13.4 43,105 N/A

LTM 6/30/09 1,848,930 13.1% 162,840 8.8% 2.12 57,756 503,216 704,282 3.09 4.32 145,672 53% 41.1 12.8 41,992 46,292 LTM 9/30/09 1,863,101 13.4% 165,181 8.9% 2.13 63,653 502,600 702,576 3.04 4.25 167,405 53% 40.8 11.6 41,300 42,172



Vanguard Healthcare

Vanguard Health Systems, Inc., headquartered in Nashville, Tennessee, participates in the domestic health care industry operating (a) 15 acute care hospitals with 4,135 licensed beds and complementary outpatient facilities in four metropolitan markets (79% of FYE June 2009 revenue) and (b) three managed care plans in Arizona (2) and metropolitan Chicago (21% of FYE June 2009 revenue) serving 218,700 members at June 2009. Acute care hospitals are located in San Antonio, Texas; the metropolitan area of Phoenix, Arizona; the metropolitan area of Chicago, Illinois; and Massachusetts. The Company was originally organized during 1997 and was acquired by the Blackstone Group during 2004.

Strengths∙• Strong liquidity of $608 million comprised of unrestricted cash of $389.3 million and unused revolving loan commitment of $218.8 million at September 2009 • The hospital groups are clustered among four major metropolitan areas that are convenient to and easily accessed by nearby populations• Demonstrated ability to recruit nurses and physicians with 50 and 150 new physicians during FY2008 and FY2009, respectively• Strong service offering drives steadily increasing revenue and results in EBITDA margins in excess of 9% during each of the four fiscal years. Plant is

modern and up to date with no deferred capital spending anticipated

Weaknesses∙• Company is highly leveraged and exposed to both interest rate and refinancing risks given the current state of uncertainty in the financial markets. The

Company recently launched $1 billion notes offering as part of a leveraged recapitalization• The healthcare industry is highly competitive and heavily regulated by a myriad of federal, state, and local governments and agencies• Receivables are highly concentrated since 56.1% of revenue is derived from Medicare (39.4%) and Medicaid (16.7%)• It is unclear what the impact of the ‘healthcare reform’ proposal currently under consideration by Congress will have on industry participants

Summary:Vanguard Health Systems operates in the highly regulated health care industry. The Company’s hospitals are all licensed to operate in the various local jurisdictions and fully-accredited by The Joint Commission. Importantly, the hospital groups serve highly populated metropolitan areas of San Antonio, Phoenix, Chicago, and Massachusetts characterized by high population growth and median income in excess of national averages. Like all participants in the healthcare industry, it is unknown at this time what the magnitude and breadth of the impact of the ‘healthcare reform’ legislation currently under consideration by Congress will be on industry participants.

Free cash flow





(AR 80%+Inv 60%+PPE

33%)/Total Debt A/R days A/P days LCD EBITDA


LTM 12/31/08 2,953,800 25.5% 279,400 9.5% 1.34 129,700 770,300 1,544,300 2.76 5.53 454,400 42% 33.8 23.8 77,700 78,500

LTM 3/31/09 3,086,200 25.6% 290,200 9.4% 1.41 167,100 768,300 1,547,800 2.65 5.33 512,000 43% 32.6 23.5 85,000 86,200

LTM 6/30/09 3,199,700 25.3% 298,000 9.3% 1.46 176,100 766,400 1,551,600 2.57 5.21 527,000 41% 32.3 21.3 73,500 74,500 LTM 9/30/09 3,304,100 24.6% 301,900 9.1% 1.35 213,200 766,400 1,555,400 2.54 5.15 608,100 41% 30.2 21.0 65,700 68,700



Media: General

While 2009 was a difficult year for Media firms, there were a few bright spots in the industry. For example, those firms that focused on providing consumers with value (Valassis) and sold into stable end-markets (Cengage) were examples of firms that survived 2009 relatively unscathed. For 2010, the key factors for these two companies are again the threat of Internet based competition and their ability to adapt in a changing marketplace. Valassis Communications has been able to do this by shifting distribution of its shared mail packages to direct mail as opposed to newspapers. Cengage on the other hand faces competition from used book and book rental websites that threaten its lucrative new text book business:

Companies discussed:• Cengage• Valassis


Cengage Learning

Cengage Learning is a provider of proprietary publications and information-based solutions for academic, professional and library markets worldwide. The company delivers teaching, learning and research solutions to colleges, schools, instructors, students, and libraries. The company has two reportable segments, APG and Gale:• APG is the company’s largest segment (approximately 90% of sales), and it provides both print-based and digitally-enabled learning solutions to students, faculty, institutions and professionals in the secondary and post-secondary education markets. The company publishes for a range of disciplines within the academic market, including business and economics, mathematics, physical sciences, computing, humanities, and social sciences.• Gale provides specialized products that support education and research in academic and K-12 libraries and offers resources that support the information needs of public-library users.

Strengths• Stable demand in the education market• Large portfolio of books and publications, both print and digital• Solid market position• Revenue, EBITDA and margins have improved

Weaknesses• High total leverage/minimal free cash flow relative to debt• Covenants: the company is in no danger of violating covenants, but that does not mean that senior leverage is low. In this case the covenants were set with too much cushion, with the lowest senior-leverage covenant at 7.75x• Growth rate is below competitors• Negative trends in terms of state budgets that will depress funding for libraries and schools in general• The used-book market should continue to impact publishers of new books given the high cost of new textbooks• Technology risk: e-books, book-rental websites and the availability of information on the Internet could affect publishers• Sensitivity to commodity prices, particularly paper

Summary:The company has performed well despite the economy, which speaks to the stability of the company’s sales and EBITDA. However, the company’s leverage, free cash flow and growth prospects are areas of concern.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE

33%)/Total DebtA/R days Inv. days A/P days LCD EBITDA


LTM 12/31/08 1,839,016 58.8% 647,365 35.2% 0.81 135,247 4,059,600 6,229,100 6.27 9.62 537,800 6% 77 92.2 176.2 153,000 153,000

LTM 3/31/09 1,863,300 59.8% 685,000 36.8% 0.86 129,893 4,049,400 6,022,500 5.91 8.79 354,800 5% 70 116.8 202.6 59,500 59,500

LTM 6/30/09 1,958,000 59.9% 740,800 37.8% 0.94 85,000 4,223,300 5,934,500 5.70 8.01 141,600 7% 52 92.1 156.3 132,700 132,700 LTM 9/30/09 1,895,200 59.2% 701,700 37.0% 0.91 137,500 4,099,100 5,818,900 5.84 8.29 115,800 8% 48 69.0 135.9 356,500 356,500



Valassis Communications

Valassis is a marketing services and printing Company that offers a variety of services to clients primarily in the consumer products, retail, financial and telecom verticals. The Company offers a number of marketing programs including, shared mail, free standing inserts (FSI), run of the press (ROP), and product sampling. The Company’s main products are shared mail and FSI, which are individual print advertisements of various clients aggregated in a single package or booklet, delivered through the USPS or newspapers. For the third quarter, shared mail and FSI represented 59% and 17% of total revenue.

Strengths:• Positive industry trends particularly with regard to coupon redemption trends• Solid Customer Base: The Company’s key clients include those in consumer products, grocery, and drug stores. The Company does not have material exposure to the hardest hit industries in this recession such as auto, real estate and building materials • Strong Market share in FSI: The Company estimates that its market share in FSI was approximately 42% in the second/third quarter• Strong Free Cashflow: Cashflow was minimal in the third quarter but it is strong on a year to date basis. The fourth quarter is typically a strong quarter for cashflow. Capex for 2009 is expected to be $20 million versus $25 million in 2008

Weaknesses:• Dependence on advertising: The Company derives most of its revenue from the advertising and promotional activities of its clients. These types of expenditures are cyclical and have low switching costs • Dependence on newspaper circulation: The general decline in newspaper circulation negatively impacts the FSI and ROP business because they are delivered through newspapers. However, the company has noted that it is shifting customers to Shared mail to offset this decline • Increasing Costs: The company has had substantial success in reducing costs but it is unclear how much has been permanently reduced. Also, the USPS recently announced that it was facing substantial losses. If the USPS increases postage rates and/or reduces delivery services this could decrease the Company’s margins. However, the company, based on recent comments by the USPS, believes that postage rates appear stable in 2010• Technology Risk: As the share of internet based/digital advertising increases, it will likely negatively impact the Company’s core businesses. Valassis does have a digital media division but it generated less than 7% of total revenue • Competition: There are numerous competitors in the direct mail and print advertising industries including News America Marketing

Summary:The Company has performed well with margins and EBITDA increasing as a result of the favorable industry trends and the company’s cost reduction initiatives.

Free cash flow





(AR 80%+Inv 60%+PPE


Inv. days

A/P days LCD EBITDA


LTM 12/31/08 2,381,907 22.1% 200,332 8.4% 1.84 71,598 610,727 1,202,567 3.05 6.00 216,056 40.7% 64.5 8.9 56.1 56,729 62,566

LTM 3/31/09 2,335,981 21.7% 192,496 8.2% 0.64 114,845 576,360 1,116,417 2.99 5.80 174,493 39.9% 74.4 9.9 67.3 52,041 53,873

LTM 6/30/09 2,285,093 22.2% 202,016 8.8% 0.70 121,012 553,247 1,093,305 2.74 5.41 230,639 35.9% 66.8 8.8 75.4 61,486 64,978 LTM 9/30/09 2,265,506 23.6% 229,890 10.1% 0.68 150,146 512,400 1,052,426 2.23 4.58 110,865 40.0% 65.6 7.6 87.4 59,634 63,902



Media: Radio/TV/Newspaper

In 2009, Media companies had a difficult year as many firms suffered from the weak economy, competition from Internet based alternatives, poor advertising markets, and high leverage.

For 2010 the longer-term outlook is still negative even with an improving economy given the secular changes impacting the industry such as competition from internet based alternatives. The key factor to watch going forward is how these firms adapt to the internet. Many of them offer content on-line but it remains to be seen if they can generate meaningful revenue to at least partially offset what has been lost over the past few years. With leverage ratios at some firms well over 7x and cash flow minimal, their ability to generate cash flow and reduce debt will be key to avoiding bankruptcy. Citadel recently filed for bankruptcy as slow revenue growth, high leverage and a covenant issue ultimately forced the company into a formal restructuring. That said, while the longer-term outlook is negative, 2010 might see an uptick in revenue as the economy and the advertising markets rebound. Also, local TV could see some additional improvement as 2010 is an election year.

Companies discussed include:• Cumulus Media• Emmis Communications• Gatehouse Media• Gray TV


Cumulus Media

Cumulus Media is an owner and operator of FM and AM radio stations serving mid-size and smaller cities throughout the United States. Cumulus is the second largest radio broadcast company in the United States based on station count, and in combination with its affiliate Cumulus Media Partners, LLC, the company believes it is the fourth largest radio broadcast company in the United States based on net revenues. In total, the company currently controls approximately 350 radio stations in 68 U.S. media markets.

Strengths:• Geographic and station diversity• Historical cash flow/ Minimal capex• Cost reduction plan has significantly reduced expenses

Weaknesses:• High leverage• Dependence on advertising, particularly from companies in weaker sectors such as auto, restaurants and banks• Numerous competitors in terms of radio, internet, satellite, portable media players and etc. Dependence on advertising and in particular advertisers in weak

sectors of the economy including auto, restaurants and banks • Revenue growth: Longer term revenue growth might be difficult due to more secular changes in the advertising market, such as advertisers diverting a

portion of expenditures to internet-based media and issues at traditionally strong advertising categories

Summary:The Company has had a difficult year but managed to stabilize EBITDA due to its cost reduction plan. While reducing expenses is usually a positive step, at some point revenue must increase if the company is to delever. That may be difficult over the near term but with stable EBITDA the company has bought some time for the markets to recover

Free cash flow





(AR 80%+Inv 60%+PPE


A/P days LCD EBITDA


LTM 12/31/08 311,538 35% 88,991 28.6% 2.45 70,585 696,000 696,000 7.82 7.82 153,003 8% 57 37 12/31/2008 21,993 22,776 LTM 3/31/09 293,991 34% 79,648 27.1% 2.73 68,526 682,244 682,244 8.57 8.57 144,877 7% 63 41 3/31/2009 6,947 7,539 LTM 6/30/09 276,325 35% 75,861 27.5% 3.09 49,119 644,081 644,081 8.49 8.49 32,382 8% 50 39 3/31/2009 22,772 23,383 LTM 9/30/09 261,502 35% 71,004 27.2% 3.02 40,884 642,445 642,445 9.05 9.05 39,192 7% 55 39 3/31/2009 19,292 20,142



Emmis Communications

Emmis Communications owns and operates radio and magazine entities in large and medium sized markets throughout the U.S. Emmis’ key radio markets are Los Angeles, New York, Chicago, Austin, St. Louis and Indianapolis.

Strengths:• Good market presence in key media markets New York and Los Angeles. Over 50% of revenue is derived from these markets• Historical cash flow/ Minimal capex• Cost reduction plan expected to reduce expenses by $10 million in 2009.• Radio advertising in general is less expensive than other forms of advertising such as TV• Liquidity: The company’s liquidity is adequate but limited with $16.5 million in cash and $13.1 million in availability

Weaknesses:• High leverage• Flat to declining near term revenue trends that are exacerbated by the loss of the Hungarian radio license that represented $9.5 million and $20.5 million in

net revenue for the first nine months of 2009 and for the full year 2008• Numerous competitors in terms of radio, internet, satellite, portable media players and etc.• Dependence on advertising and in particular advertisers in weak sectors of the economy including auto, restaurants and banks • Despite Emmis’ presence in strong media markets, the company has underperformed relative to its competitors• Revenue growth: Longer term revenue growth might be difficult due to more secular changes in the advertising market, such as advertisers diverting a

portion of expenditures to internet-based media and issues at traditionally strong advertising categories (see above)

Summary:The company continues to struggle and is in need of an uptick in the economy and the advertising market if sales and EBITDA are to improve.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE

33%)/Total DebtA/R days A/P days LCD EBITDA


LTM 2/28/09 333,873 23.0% 58,299 17.5% 0.46 19,158 421,355 422,412 7.23 7.25 192,931 13% 71.2 20.4 3,568 3,430

LTM 5/31/09 309,455 20.2% 45,731 14.8% (0.21) 25,725 347,000 347,823 7.59 7.61 88,928 15% 65.8 22.1 4,018 4,018

LTM 8/31/09 283,198 17.6% 34,533 12.2% (0.31) 20,114 346,104 347,149 10.02 10.05 29,425 15% 59.8 17.5 9,995 10,171

LTM 11/30/09 262,640 16.7% 29,138 11.1% 0.10 7,824 343,000 344,103 11.77 11.81 29,617 15% 63.7 18.9 11,557 11,735



Gatehouse Media

Gatehouse Media is one of the largest publishers of locally based print and online media in the U.S., as measured by number of daily publications. The portfolio of products includes 88 daily and 280 weekly newspaper along with over 250 websites. The Company believes that it reaches approximately 10 million people on a weekly basis and serves over 233,000 business accounts.

Strengths• Geographic and advertising customer diversity• Good market share as the company believes that it is usually the primary source of news and information for the small to midsized communities in which it serves• Low substitution risk as local advertisers have fewer options than national advertisers in reaching customers which benefits Gatehouse Media’s newspapers and websites• Cost reduction plan has reduced expenses and improved margins• Low Capex

Weaknesses• High leverage with minimal cash flow. YTD 2009 freecash flow is break-even versus $1.2 billion in debt. Term loans mature in 2014• Dependence on advertising revenue as, historically, over 70% of revenue is generated from advertising with the remainder dependent on circulation (20+%) and commercial printing• Key advertisers such as help wanted, auto and real estate have struggled due to the economy. In addition, a quick recovery in these sectors is unlikely• Increasing competition in terms of Internet based news and information, classified and help wanted sites• Flat to decreasing subscription rates for the company and across the industry• Minimal asset coverage• Minimal Liquidity with no revolver availability and $12.5 million of cash

SummaryThe Company had a difficult year and is faced with several challenges going forward. The good news for the Company is that it successfully reduced costs which helped to improve the severe negative EBITDA trends experienced in Q1.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE


Inv. days

A/P days LCD EBITDA


LTM 12/31/08 693,119 43.9% 105,987 15.3% 1.09 (18,929) 1,195,000 1,223,863 11.27 11.55 11,744 11% 39.8 10.0 18.3 27,083 27,135 LTM 3/31/09 663,399 42.7% 91,739 13.8% 1.03 (6,013) 1,195,000 1,225,218 13.03 13.36 9,236 10% 44.6 10.8 18.5 5,709 5,660 LTM 6/30/09 630,793 41.8% 81,412 12.9% 1.03 3,748 1,195,000 1,223,704 14.68 15.03 16,241 9% 37.3 9.8 16.3 21,966 22,064 LTM 9/30/09 604,121 41.8% 80,395 13.3% 1.13 1,053 1,197,000 1,208,589 14.89 15.03 12,513 9% 39.2 8.3 13.0 25,637 26,254



Gray TV

Gray Television, Inc. is a television broadcast company headquartered in Atlanta, Georgia that provides news and entertainment programming to 36 company owned television stations serving 30 markets. Each of the stations are affiliated with either CBS (17 stations), NBC (10 stations), ABC (8 stations) or FOX (1 station). In addition, Gray currently operates 40 digital second channels including 1 ABC, 5 Fox, 8 CW and 16 MyNetworkTV affiliates plus 8 local news/weather channels. Key markets include Charleston, Omaha, Lexington, KY, Tallahassee, FL, and South Bend, IN.

Strengths • Geographic diversity with operations in 17 university towns and state capitals• Good portfolio of stations in that 24 of the 36 stations are ranked #1 in their local markets with the remaining ranked #2• Political Advertising, unlike other ad categories, is a stable source of revenue for Gray and the industry• Good historical cashflow with manageable capex. However, cashflow has been negative in 2009, partially due to 2009 not being a strong election year• Cost reduction plan has reduced expenses• Recent retransmission agreements will increase revenue by $13 million in 2009. However, there is uncertainty regarding the sustainability of this revenue• 2010 should be a better year for revenue given various state level elections and the Winter Olympics on NBC stations. However, the positive impact of the elections in 2010 will not meaningfully impact EBITDA until the second half of 2010

Weaknesses:• Revenue is dependent on local and national advertising and auto is still a major component of total revenue• Total liquidity (cash+ revolver) is limited at $37 million • The company is close to violating its leverage covenant• Internet based news and weather information services potentially could draw viewers and advertisers from traditional media outlets like local TV• Networks are exploring broadcasting programming on the Internet (Hulu.com) and setting up cable networks which would bypass affiliates• Weak programming lineup at NBC

Summary:The company had a difficult year and is faced with several challenges going forward. The good news for the company is that 2010 is an election year which should positively impact EBITDA in 2010. However, the majority of that revenue will not occur until the second half of 2010 which means that the next few quarters should be relatively flat with the third quarter unless the advertising market and economy improves.

Free cash flow




Total debt to EBITDA Total Liquidity LCD EBITDA


LTM 12/31/08 327,176 39.0% 113,507 34.7% 1.80 48,561 800,380 800,380 7.05 7.05 42,911 39,532 40,280 LTM 3/31/09 317,531 38.5% 107,717 33.9% 1.84 39,530 798,359 798,359 7.41 7.41 64,857 11,654 11,772 LTM 6/30/09 303,845 36.8% 96,454 31.7% 1.38 30,549 795,849 795,849 8.25 8.25 36,920 16,298 11,772 LTM 9/30/09 287,660 34.6% 84,449 29.4% 1.07 19,884 793,829 793,829 9.40 9.40 37,391 16,965 17,172



Paper/Packaging

Participants in the domestic paper/packaging industry entered 2009 highly levered and ladened with acquisition related debt while facing weak demand from worsening economic conditions. Like other industrials, sector participants restructured to align operations with quickly evaporating volume. Participants bounced off the first and second quarter lows with steady quarterly revenue growth through the quarter ended September 30, 2009 from improving demand and firmer economic conditions.

For 2010, the sector is expected to continue to improve based on a firmer domestic economy, a cautious industry wide approach to capacity increases, low inventory levels in the distribution channels, and firmer prices. The cost of energy inputs and raw materials, however, may serve to dampen the upside.

Companies discussed include:• Appleton Papers Inc.• Exopack• Solo Cup• Verso Paper Corp.• Xerium Technologies, Inc


Appleton Papers

Appleton Papers manufactures carbonless, thermal, and other specialty papers as well as plastic film and flexible packaging. The Company’s primary product is carbonless paper sold under the NCR Paper brand pursuant to a long-term licensing agreement. Carbonless paper and affiliated products, which accounted for 56% of 2008 revenue, are used in end products such as multipart business forms for invoices and receipts. Appleton manufactures rolls of carbonless paper that are sold to paper converters, business forms printers, and merchant distributors. The Company anticipates that the market for carbonless paper will continue its long-term decline. Thermal paper products, which accounted for 29% of 2008 revenue, are used for point-of-sale transactions, shipping labels, tickets, and printer applications. The Company anticipates that new applications will drive continuing growth in this segment. Packaging applications and security papers constituted 12% and 3%, respectively, of 2008 revenue. The five largest clients of the carbonless and thermal segments represented approximately 38% and 36%, respectively, of 2008 revenue. The Company is owned by an ESOP.

Strengths• Industry leader in the carbonless and thermal-paper segments, with a strong research-and-development function• Entrenched base of clients in the carbonless and thermal-paper segments• Liquidity for the most recent quarter was $44 million and comprised of cash of $4 million and revolver availability of $40 million • No near-term debt maturities, as the maturities of the revolving loan commitment and term loan were extended to June 2012 and June 2013• The Company believes that the recorded environmental liability is adequate

Weaknesses• Continuing decline in the use of carbonless paper• The Company is highly leveraged, with a capital-intensive business model• Each of the carbonless and thermal business units remains dependent on several large clients for significant portions of revenue. Pricing power is limited• Ongoing ESOP repurchases and other post-retirement benefit obligations could strain cash flow from operations and limit capital investment

Summary:The Company has aggressively worked to reduce outstanding debt and performed reasonably well given general economic conditions and the continuing decline in the use of carbonless paper. That said, Appleton’s balance sheet remains highly leveraged. This coupled with the capital intensive business model, continuing ESOP related outlays, and other post retirement obligations may serve to strain cash flow during the coming quarters. The Company recently projected compliance with the senior secured loan agreement though July 2010, but that projection is dependent upon continuing debt reductions and achieving projected operating rates in a difficult environment.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE


Inv. days

A/P days LCD EBITDA


LTM 1/03/09 964,577 25.2% 73,925 7.7% (0.47) (85,160) 327,173 604,053 4.43 8.17 56,280 49% 43.5 69.7 38.9 4,504 N/A

LTM 4/05/09 940,897 24.7% 72,669 7.7% (0.10) (59,431) 353,854 623,034 4.87 8.57 28,457 49% 40.9 75.1 31.7 22,812 N/A

LTM 7/05/09 904,529 25.6% 80,238 8.9% 0.35 (36,502) 352,923 624,903 4.40 7.79 25,989 47% 43.5 74.9 30.0 33,809 N/A LTM 10/04/09 871,660 27.0% 84,545 9.7% 0.72 22,622 333,662 569,631 3.95 6.74 43,839 50% 42.2 64.4 30.4 23,420 N/A



Exopack

Exopack is a provider of flexible packaging, film products, and specialty substrates in North America and Europe. The Company designs, manufactures and supplies paper and plastic flexible packaging and film products to customers in a variety of industries, including the food, medical, pet food, chemicals, personal care, lawn and garden and building materials. Exopack has 17 manufacturing facilities across the United States, Canada and the United Kingdom. The customer base includes several Fortune 500 companies.

Strengths:• Diversified by product type and end market. Consumer/food packaging segment is performing relatively well despite the economy • Sales divided almost equally between paper and plastic which gives the Company some flexibility• More than half of sales volume is under contract that allows for the pass through of raw material price increases, which leads to relatively stable margins over the year. The remaining sales volume is transactional which also reduces commodity risk• Revolver and Notes mature in 2011 and 2014• Some asset coverage

Weaknesses:• High Leverage/Flat historical EBITDA/Capex/minimal historical free cashflow • Top 10 customers account for approximately 40% of its total revenue• Numerous Competitors• Some cyclicality given the exposure to the building materials and industrial industries• Many commodity type products• Numerous adjustments to EBITDA

SummaryWhile revenue and EBITDA have stabilized, the Company’s cashflow and leverage are areas of concern.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE

33%)/Total Debt A/R daysInv. days

A/P days LCD EBITDA


LTM 12/31/08 781,732 10.5% 49,533 6.3% 0.98 (6,190) 294,574 294,574 5.95 5.95 31,512 60.6% 40.1 52.6 37.3 12,804 14,529 LTM 3/31/09 757,439 11.2% 53,390 7.0% 1.24 2,394 300,195 300,195 5.62 5.62 27,573 59.0% 42.4 51.4 38.2 15,490 18,018 LTM 6/30/09 724,963 11.4% 54,361 7.5% 1.09 4,685 293,392 293,392 5.40 5.40 26,295 59.4% 45.0 55.2 41.5 13,838 16,371 LTM 9/30/09 695,187 11.9% 54,331 7.8% 0.97 2,210 297,629 297,629 5.48 5.48 23,344 59.4% 43.9 53.8 41.2 12,199 15,516



Solo Cup

Solo Cup Company is privately owned and operated as a manufacturer and distributor of single use products utilized to serve food and beverages in home, restaurant, and foodservice settings. Sales to the foodservice and retail clients represented 83% and 17%, respectively, of 2008 revenue. Products are sold under the Solo®, Sweetheart®, Jack Frost®, Bare by Solo®, and Trophy® brands as well as private label. Products include cups, lids, food containers, plates, bowls, cutlery, and food packaging containers with products available in plastic, paper, foam, recycled content, and other renewable materials. Revenue is seasonal with the second and third quarters historically the strongest. Approximately 93% of revenue is generated in North America. Solo operates 15 manufacturing facilities and 13 distribution centers in North America, the UK, and Panama. Vestar Capital Partners IV, LP owns a minority interest.

Strengths• No near term debt maturities, contractual principal payments, or liquidity issues as the Company reported cash of $24 million and revolving loan availability of $110 million at September 2009 • Strong brand awareness and a leader in the $6.3 billion US cup and lid industry• Entrenched client relationships with leading distributors and national accounts in North America• Improving cash flow as cash from operations improved during the year to date period• Plant considered modern and efficient as capital outlays remained in line with historical experience

Weaknesses• Competitive industry with well capitalized participants including Dart Container, Georgia-Pacific, Pactiv, Berry Plastics, and International Paper• Revenue growth dependent upon discretionary consumer spending• LTM revenue at September 2009 steadily declined since the quarter ended December 2008• LTM EBITDA of $94 million at September 2009 declined for the 6th consecutive quarter

Summary:Given generally tough economic conditions, the Company has performed well during 2009. The Company did well to extend the maturities of the senior secured debt in an uneven credit environment. With the domestic economy stabilizing, the Company’s prospects for better financial results during 2010 are improving. Going forward, the Company needs to get the inventory investment right to drive growth in revenue and EBITDA so that total leverage eases back in line with historical experience.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE

33%)/Total Debt A/R days Inv. days A/P days LCD EBITDA


LTM 12/31/08 1,847,034 17.6% 143,324 7.8% 1.01 52,241 391,486 718,190 2.73 5.01 177,049 64% 28.8 80.3 21.5 23,584 31,800

LTM 3/31/09 1,735,408 16.9% 121,893 7.0% 0.70 59,784 303,138 696,642 2.49 5.72 124,025 64% 29.4 82.3 21.8 17,168 19,700

LTM 6/30/09 1,612,711 17.2% 115,873 7.2% 0.65 98,807 306,437 631,437 2.64 5.45 107,465 64% 26.2 70.5 21.9 42,481 45,800 LTM 9/30/09 1,520,611 17.7% 93,633 6.2% 0.21 90,338 300,000 630,917 3.20 6.74 133,496 64% 27.7 74.4 25.8 10,400 32,600



Verso Paper

Verso Paper Corp. manufactures coated ground wood paper, coated freesheet paper, supercalendered paper, and kraft pulp. The company’s products are used in catalogs, magazines and high-end advertising brochures. Revenue from the sale of coated ground wood and coated freesheet paper represented 53% and 31% of revenue, respectively, and a combined 79% of tons sold during the year ended December 31, 2008. The catalog channel represents the predominant use of company’s products, and no single client represented more than 10% of revenue (2008). The company operates 11 paper machines in four mills located in the US. Apollo Management, L.P. acquired the company from International Paper during August 2006 and completed an initial public offering during May 2008. At September 30, 2009, Apollo was the largest shareholder controlling approximately 62% of the company’s common stock.

Strengths• Industry leader in the manufacture of coated groundwood paper in North America with 1,693 million tons of annual production capacity• Entrenched client relationships with publishers of magazines and catalogs as well as distributors to the print trade ensure participation in recovery in any uptick in media and advertising spending• Catalog publications are considered important to the multi-channel marketing strategy for retail clients• Broad product offering from ultra light weight coated ground wood to heavyweight coated freesheet and supercalendered papers • Strong liquidity in the aggregate amount of $199 million includes cash of $93 million and revolving loan availability of $106 million

Weaknesses• Highly leveraged condition due to declining EBITDA from cyclically weak paper demand and debt related to the 2006 acquisition by Apollo• Technology risk for magazine channel clients as consumers may shift toward the Internet as primary news and information source• Revenue is correlated to general economic conditions and spending in the media and advertising industry • Capital intensive business model and high operating leverage• Margins are susceptible to volatile production inputs for chemicals, wood, and energy• Highly competitive and highly regulated industry in terms of safety and environmental compliance

Summary:Verso Paper’s dependence upon the sale of coated ground wood and coated freesheet for catalogs and magazines makes it susceptible to the industry’s inherent supply demand imbalances and the cyclicality of media and advertising industry. A strengthening economy, increasing employment, and improving consumer confidence should bode well for advertising and media spending that is expected to gradually improve during 2010. In the near term, however, and to confront the possibility that paper demand does not materialize, the company needs to maintain management discipline until such time that external conditions improve in order to drive leverage lower.

Free cash flow





Total Liquidity


DebtA/R days

Inv. days A/P days LCD EBITDA


LTM 12/31/08 1,766,813 17.2% 196,440 11.1% 0.92 (30,423) 345,671 1,357,671 1.76 6.91 178,542 34.0% 46.9 24.3 138.7 29,565 31,900

LTM 3/31/09 1,599,980 15.2% 136,467 8.5% 0.47 (90,475) 345,000 1,347,886 2.53 9.88 77,893 31.1% 56.2 26.9 184.5 2,576 10,100

LTM 6/30/09 1,446,493 11.6% 96,680 6.7% 0.28 (39,332) 410,129 1,365,694 4.24 14.13 183,134 32.4% 45.0 14.8 139.7 (15,440) N/A LTM 9/30/09 1,355,733 9.2% 57,318 4.2% 0.05 40,998 345,040 1,248,435 6.02 21.78 199,199 32.9% 39.7 14.4 131.9 40,617 N/A



Xerium Technologies

Xerium Technologies, Inc. is a manufacturer of industrial textiles commonly known as paper machine clothing and roll covers used in the production of paper. Clothing products (65% of 2008 revenue) are highly engineered synthetic textile belts that transport paper as it is formed, pressed, and dried while moving through paper-making machines. Roll cover products (35% of 2008 revenue) coat the machines’ large steel cylinders between which the paper travels during processing. Both products are consumable and remain in constant contact with the paper stock during processing and contribute to the quality of the final paper product as well as the overall efficiency of the production process. Xerium has 34 facilities in 14 countries. No individual client represented more than 5% of revenue during 2008 while the 10 largest clients represented 24%.

Strengths• Products are consumable, highly engineered and tailored to the clients’ paper making processes with a direct impact on the characteristics of the finished

paper product• Entrenched client relationships with leading manufacturers of paper• Established global distribution network/repair facilities with 34 facilities in 14 countries

Weaknesses• Company is operating pursuant to a waiver agreement with the lenders that terminates February 1, 2010• Company is highly leveraged due to slowing revenue driven by lower paper demand that lengthened the replacement cycle resulting in deteriorating EBITDA• End markets are highly cyclical and recent global recession resulted in curtailments, and idling of paper making machines that drove lower paper production

across all grades, especially newsprint and packaging• Availability of credit for the Company and its clients could impact the Company and its client base

SummaryIn response to its weakened financial condition, the Company again retained AlixPartners, LLC as financial advisor. Xerium’s clothing and roll cover products are consumable and essential to the paper production process. With a long history of experience, technological prowess, and facilities located in all major markets, the Company should be positioned to participate in the industry going forward. At the current time, however, end markets are cyclically weak, and paper producers continue to rationalize output in line with anticipated lower demand

Free cash flow





Total Liquidity


DebtA/R days

Inv. days

A/P days LCD EBITDA


LTM 12/31/08 638,139 45.4% 128,573 20.1% 1.48 38,040 606,200 616,957 4.71 4.80 80,633 41.1% 58 102 52 16,714 24,551

LTM 3/31/09 595,655 45.1% 117,458 19.7% 1.63 5,544 600,000 609,336 5.11 5.19 47,498 38.2% 66 123 64 21,530 20,169

LTM 6/30/09 546,105 44.6% 117,275 21.5% 1.33 (719) 609,400 618,752 5.20 5.28 42,196 38.8% 57 118 45 29,443 31,600 LTM 9/30/09 517,106 46.1% 90,445 17.5% 1.01 4,170 619,500 628,554 6.85 6.95 43,615 38.8% 55 107 37 22,758 25,096



Retailers & Distributors

Retailers start 2010 better positioned then they did in 2009. The retail environment was grim early in 2009 as rising unemployment and declining consumer confidence saw many retailers post significant declines in same store sales. However, as the year went on and the economy stabilized retailers performed better. Many still posted declining same store sales but the rate of decline was beginning to moderate. Also, retailers, like most firms in 2009, reduced expenses and right-sized inventory which also helped them to weather the storm. The key factors to look for in 2010 are unemployment trends, inventory metrics and consumer confidence. Most of the firms LCD covers offer specialty merchandise that are not necessarily consumer staples and thereby require solid consumer confidence to justify discretionary purchases. With the exception of Burlington Coat, leverage and cashflow are also areas of concern for the credits noted below.

Companies covered include:

• Burlington Coat Factory• Claire’s Stores• Keystone Automotive• Michaels Stores• Neiman Marcus• Rite-Aid


Burlington Coat Factory

Burlington Coat Factory (BCF) operates 442 stores in 44 states primarily under the Burlington Coat Factory Warehouse name. BCF offers customers a full line of value-priced apparel, including ladies sportswear, menswear, coats, family footwear, baby furniture and accessories, as well as home décor and gifts. BCF’s selection provides a wide range of apparel, accessories and furnishing for all ages.

Strengths• Solid Brand name• Geographic diversity • Value Priced merchandise• Cost reduction plan has stabilized EBITDA and margins• Good Liquidity

Weaknesses• Q2 2010 same store sales declined 5.2%/Dependent on consumer spending • Minimal historical free cashflow versus over $1.3B in debt but recent trends are improving• Substantial capex for store maintenance and expansion• Competition

Summary:BCF appears to be relatively well positioned to weather the downturn in the economy. The Company’s brand name, value-priced merchandise, and focus on reducing costs are the Company’s key strengths. The Company, however, is still faced with declining same store sales.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE

33%)/Total Debt Inv. daysA/P days LCD EBITDA


LTM 2/28/09 3,540,651 39.0% 261,048 7.4% 1.25 71,787 908,107 1,336,592 3.48 5.12 455,344 57% 117.4 72.6 132,344 136,469

LTM 5/30/09 3,571,367 38.4% 261,014 7.3% 1.42 42,339 1,021,057 1,449,546 3.91 5.55 261,110 48% 117.7 54.9 17,366 33,591

LTM 8/29/09 3,569,490 38.4% 265,047 7.4% 1.89 223,106 884,352 1,312,847 3.34 4.95 432,874 57% 140.1 69.8 12,519 18,005 LTM 11/28/09 3,533,151 38.5% 267,403 7.6% 2.22 204,522 864,752 1,292,161 3.23 4.83 655,958 64% 121.3 80.7 105,174 111,509



Claire’s Stores

Claire’s Stores is a specialty retailer offering value-priced, fashion accessories and jewelry for kids, teens, and young women in the 3 to 27 age range. As of Oct 31, 2009, Claire’s operated a total of 2,954 stores, of which 2,001 were located in the US and Canada, and 953 stores were located in the United Kingdom, France, Switzerland, and other countries in Europe. In addition, the company franchised 192 stores in the Middle East and operated 215 stores in Japan through Claire's Nippon joint venture. The company’s stores operate under the trade names “Claire’s” and “Icing.”

Strengths• Strong Brand Name• Product assortment/solid merchandising given increasing transaction values• Value Pricing• Margins are improving due to better merchandise margins and lower SG&A • Liquidity: The company has over $165.2 million in cash on its balance sheet• Manageable capex despite over 2,900 company owned stores

Weaknesses• Same store sales are still flat to down • Leverage: As a result of the decline in EBITDA, the company is highly levered at 12x• Minimal historical cashflow versus $2.5 billion in debt: Over the past three years, the company has generated a minimal amount of cashflow versus almost $2.5B in debt. However, the key point here is that even with $250 million in EBITDA (versus $207 million for the LTM period ended Oct 2009), cashflow would only be approx $70 million assuming: 1) $150 million in interest, 2) $25 million in Capex and 3) $5 million Cash Taxes• Fashion related merchandise• Decrease in mall traffic• Capital structure: The loans are covenant-lite, pricing is L+275 and all of the debt is USD denominated. The company operates 946 stores in Europe

Summary:The company’s is faced with several challenges going forward including leverage, cashflow and same store sales growth. However, the company’s brand name, customer base, merchandising and cost reduction strategies are the factors that will position the company for growth in the future.

Free cash flow



Senior debt to

EBITDATotal debt to EBITDA

Total Liquidity


DebtInv. days

A/P days LCD EBITDA


LTM 1/31/09 1,412,960 49% 187,002 13% 0.65 (58,032) 1,622,250 2,581,772 8.68 13.81 204,574 6% 47 24 1/0/1900 73,636 76,390 LTM 4/30/09 1,379,055 49% 196,717 14% 0.77 (35,611) 1,618,625 2,587,696 8.23 13.15 206,703 6% 60 35 4/30/2009 36,576 36,250 LTM 8/1/09 1,333,278 49% 194,736 15% 0.83 (24,650) 1,615,000 2,566,260 8.29 13.18 182,350 6% 62 31 8/1/2009 48,433 50,496 LTM 10/31/09 1,324,711 50% 208,700 16% 0.97 9,733 1,610,000 2,528,981 7.71 12.12 165,159 4% 79 38 10/31/2009 50,055 53,700



Keystone Automotive Operations

Keystone Automotive Operations is a distributor of specialty automotive equipment and accessories in North America. The company offers an assortment of specialty products in the automotive aftermarket industry, including more than 250,000 items from over 600 suppliers. Examples of key products include grille guards, cargo nets, off-road suspension kits, roof racks, custom exhaust systems and trailer hitches. The company has 20 locations serving over 17,000 customers in North America.

Strengths• Geographic, product, supplier and customer diversity• Company offers marketing and technical support to small aftermarket auto accessories manufacturers• Strong market share/Limited competition, as major auto parts retailers do not stock a similar breadth and depth of products• Minimal capex• No near term maturities (2012)• Liquidity: Some liquidity in terms of cash and R/C availability. Increase in cash occurred in Q1 2009 due to working capital as inventory levels flat to Q4 2008. CFO was flat in Q2 2009 but increased in Q3 2009

Weaknesses• Auto accessories are a discretionary expenditure • Company does not focus on parts such as brakes, tires, and maintenance items that are needed for the mechanical operation of a car or truck• High leverage, minimal cash flow and declining EBITDA• SUVs are a key segment for accessories, and sales in this segment are expected to decline as new car sales shift to smaller cars and crossovers• Dependence on new car sales to drive the sale of accessories as some accessories are installed shortly after a vehicle is purchased• Term Loan is covenant-lite

SummaryKeystone Automotive has a strong market share, product and geographic diversity and unlike typical distributors, offers value-added services. However, the reduction in consumer discretionary spending weighs heavily on the firm because its products are generally deemed extras or add-ons that are tangential to the mechanical operation of vehicles. Therefore, until the economy improves, the Company’s sales and EBITDA will be constrained.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE

33%)/Total DebtA/R days Inv. days

A/P days LCD EBITDA


LTM 12/31/08 566,281 31.2% 32,373 5.7% 0.78 (2,459) 218,481 393,507 6.75 12.16 65,967 29% 36.2 126.5 34.2 (792) N/ALTM 3/31/09 542,121 31.3% 27,238 5.0% 0.70 23,255 218,000 393,015 8.00 14.43 96,258 29% 32.3 118.8 40.4 5,265 N/ALTM 7/4/09 505,914 31.0% 19,390 3.8% 0.46 33,824 217,500 392,524 11.22 20.24 91,637 27% 29.6 100.2 46.9 7,754 N/ALTM 10/3/09 486,270 30.9% 17,931 3.7% 0.43 36,061 217,000 392,032 12.10 21.86 96,901 26% 29.3 108.0 48.4 5,704 N/A



Michaels Stores

Michaels Stores, Inc, is the largest arts and crafts specialty retailer in North America providing materials, ideas and education for creative activities. Michaels Stores, Inc. operates approx. 1,023 Michaels retail stores in 49 states, as well as in Canada, averaging 18,300 square feet of selling space per store. The stores offer arts and crafts supplies and products for the crafter and do- it yourself home decorator. The Company also operated 155 Aaron Brothers stores in 9 states, averaging 5,500 square feet of selling space per store, offering photo frames, custom framing services, and a wide selection of art supplies.

The Company’s typical customer is: • Female - 90% are women and 63% are married• Young- 71% of customers are under 55, with 46% of them between the ages of 35 and 54• Middle class- 64% of customers have household incomes greater than $50,000, with a median income of about $65,000• Loyal - Most customers shop for craft supplies at least twice a month, with approximately half of their visits to Michaels

Strengths• Strong Brand Name/ Loyal customer base• Value Pricing• Flat same store sales despite the recession• Stable margins• Liquidity: The Company has over $500 million in liquidity

Weaknesses• Leverage: Company is highly levered at over 8x• Minimal Historical cashflow versus $4 billion in debt• Competition

Summary:Michaels Stores has performed relatively well despite the economy. The key point to take away here is that even in a bad recession, the company’s core customer is loyal and will continue to buy products. The company does face several challenges ahead if it is to reduce debt and leverage for the next several quarters, but sales and EBITDA should be relatively stable, with some upside over that timeframe.

Free cash flow





Total Liquidity


DebtInv. days

A/P days LCD EBITDA


LTM 11/1/08 3,833,706 38% 505,557 13% 1.31 101,730 2,710,000 4,183,000 5.36 8.27 602,000 19% 167 42 103,000 112,000

LTM 1/31/09 3,817,000 36% 439,000 12% 1.17 (26,000) 2,445,000 3,929,000 5.57 8.95 627,000 17% 100 26 190,000 207,000

LTM 5/2/09 3,822,000 36% 454,000 12% 1.32 69,000 2,464,000 3,957,000 5.43 8.72 571,000 17% 149 36 98,000 107,000

LTM 8/1/09 3,833,000 36% 472,000 12% 1.50 124,000 2,459,000 3,964,000 5.21 8.40 562,000 17% 164 37 81,000 85,000



Neiman Marcus

Neiman Marcus is a retailer of luxury goods. The company was founded in the early 1900s and currently operates 41 Neiman Marcus full- line stores at prime retail locations in major U.S. markets and two Bergdorf Goodman stores on Fifth Avenue in New York City. The company also operates catalogs and e- commerce websites under the brands Neiman Marcus, Bergdorf Goodman and Horchow and 28 clearance centers.

Strengths• Strong Customer Base: The company has a strong customer base of affluent consumers that are attracted to the company’s designer merchandise and strong customer service • Strong Brand Name: The Neiman Marcus and Bergdorf Goodman brand names are well known in the luxury goods marketplace• Relationship with Designers: The company has strong relationships with designers that ensures that it will receive the right merchandise at the right time• Liquidity: The company has strong cash balances and over $500 million in revolver availability• Margins: company has had some success in improving margins and reducing costs

Weaknesses• First quarter 2010 financial results were weak versus 2009 and significantly below 2008 (EBITDA 38% below 2008) • Leverage: As a result of the substantial decline in EBITDA, the company is highly levered at 11x• Minimal Historical cashflow versus $3 billion in debt• Merchandise strategy: While expanding mid-priced merchandise might increase customer traffic, the risk of this strategy is that it could diminish the brand and alienate the core customer • Competition: There are numerous competitors in this industry, such as Saks, Nordstrom, Bloomingdales and the retail stores of luxury goods designers. In addition, as Neiman introduces mid-priced merchandise, there are additional competitors that include department stores and specialty chains• Cyclicality / Decrease in “aspirational/incremental” customers as a result a downturn in the economy. Given 10% unemployment and deleveraging households it may be difficult for aspirational customers to return in the near future

Summary:The company had a difficult year and needs an uptick in the economy for EBITDA to meaningfully improve.

Free cash flow





Total Liquidity


Debt Inv. days A/P days LCD EBITDA


LTM 1/31/09 4,159,604 33% 450,904 11% 1.24 (9,503) 1,625,000 2,946,199 3.60 6.53 799,384 29% 105 24 24,583 24,600

LTM 4/30/09 3,907,529 32% 354,181 9% 0.94 25,121 1,625,000 2,963,311 4.59 8.37 739,388 29% 149 31 105,300 105,300

LTM 8/1/09 3,643,346 30% 273,811 8% 0.73 109,288 1,625,000 2,980,838 5.93 10.89 791,925 26% 125 30 5,712 5,700

LTM 10/31/09 3,526,459 30% 264,540 8% 0.76 255,182 1,598,383 2,972,173 6.04 11.24 826,615 28% 136 40 128,945 5,700



Rite-Aid

Rite Aid, Inc. is the third largest retail drug store chain in the United States. The Company operated 4,801 stores in 31 states and the District of Columbia as of November 2009. The Company sells prescription drugs (67.2% of 2008 revenue) and a wide assortment of other merchandise, or front-end products including over the counter medications (8.7% of 2008 revenue), health and beauty aids (5.3% of 2008 revenue), and other general merchandise (18.8% of 2008 revenue). Private label products represented 13.5% of front end sales during 2008. The Company acquired the Brooks Eckerd drugstore chain during June 2007 from The Jean Coutu Group (PJC) Inc.

Strengths• Industry leader with established base of 4,801 stores in 31 states• Strong market presence in densely populated regions, such as New York City, Los Angeles/Orange County, Philadelphia and San Diego• Good liquidity with aggregate cash and unused revolving loan commitment of $1.06 billion at November 2009

Weaknesses• Highly leveraged as a result of the 2007 acquisition of Brooks Eckerd• Declining same store sales and inability to drive consistent growth• Competitive industry with well capitalized participants including CVS Caremark Corporation, Walgreen Company, and Wal-Mart Stores, Inc.• Pharmaceutical sales and reimbursement rates are extensively regulated at the federal and state levels. The final form of healthcare legislation currently

under discussion in Congress is not known

Summary:Rite Aid remains highly leveraged from acquisition related obligations. With the integration of Brooks Eckerd in the past and despite the tough economy, management needs to improve store merchandising and operations, drive dependable top-line growth, and steadily improve margins. The company also needs to simultaneously increase front-end and prescription sales, and to drive margins closer to those of industry peers. Improving cash flow over time should result in lower dependence on external debt and ultimately should lower leverage.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE

33%)/Total DebtInv. days

A/P days LCD EBITDA


LTM 2/28/09 26,289,268 29.0% 636,493 2.4% 0.37 (104,413) 3,330,472 6,011,709 5.23 9.45 875,690 56% 69.7 23.9 168,690 261,381

LTM 5/30/09 26,207,590 28.9% 677,812 2.6% 0.69 467,742 3,026,651 5,691,324 4.47 8.40 1,038,264 58% 66.9 24.5 201,632 249,196

LTM 8/29/09 26,029,216 28.7% 705,251 2.7% 0.97 339,782 3,253,218 5,914,641 4.61 8.39 855,412 57% 67.8 24.9 175,883 216,535 LTM 11/28/09 25,912,898 28.6% 726,338 2.8% 1.11 (85,683) 3,794,076 6,421,643 5.22 8.84 903,000 59% 69.5 25.6 180,133 254,192



Other

For those firms that LCD covers but do not necessarily fit in an industry or category previously mentioned, please see the following pages for those issuers noted below:

• Alion• Atlantic Broadband• Dana• Knology• Mediacom• Ply Gem• Venoco


Alion Science and Technology

Alion Science and Technology Corporation, is a contractor to US government agencies providing scientific, engineering, and technology solutions primarily related to national defense, and homeland security, as well as for energy and environmental issues. The largest client of the Company is the US Department of Defense that represented 92% of 2009 revenue spread among approximately 700 separate contracts. At September 2009, Alion’s contractual backlog approximated $6.4 billion with a historical contract renewal rate of 87% during the past three years. The US Navy is the largest individual client of the Company representing 46% of 2009 revenue. Services to the Navy include (a) ship design and production support; (b) ship systems integration; (c) ship systems design for propulsion, HVAC, electrical, etc.; (d) mission and threat analysis; as well as (e) business and financial management, to name a few. Alion employs approximately 3,400 associates with 18% having Top Secret or higher security clearances. The Company is employee owned through an ESOP trust.

Strengths• Contract backlog approximates $6.4 billion, or approximately 8 times annual revenue• Strong contract renewal experience with historical renewal rate approximating 87% during the past three years• Entrenched client relationship with the Department of Defense, especially the US Navy• Among the larger contractors to the Department of Defense ranked by prime contracting revenue

Weaknesses• Near term debt maturity as the revolving loan commitment matures during September 30, 2010• Revenue is concentrated among seven contracts within the Department of Defense representing 52% of 2009 revenue• Highly leveraged financial condition with substantial interest burden• Revenue is contract driven and dependent upon annual appropriations by the US government• Government contracting industry is highly competitive with many better capitalized participants

Summary:Alion has a strong backlog, entrenched relationships with the Department of Defense and the Navy, strong contract renewal experience, is a key provider of technical services to the Navy, and considered to be positioned to expand these relationships. The miscalculation of EBITDA and ensuing failure to comply with the senior secured loan agreement during historical periods notwithstanding, the Company has demonstrated the ability to operate in a leveraged environment in an industry characterized by contract revenue and annual government appropriations.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE


A/P days LCD EBITDA


LTM 12/31/08 745,133 23.3% 48,467 6.5% 0.92 51,837 232,073 521,642 4.79 10.76 51,330 28% 81.7 33.6 16,370 N/A

LTM 3/31/09 751,319 23.1% 53,322 7.1% 1.12 40,879 236,645 528,090 4.44 9.90 41,980 29% 82.5 33.4 14,990 N/A

LTM 6/30/09 769,603 23.0% 55,760 7.2% 1.10 28,564 231,776 525,090 4.16 9.42 49,190 28% 79.4 28.6 11,406 N/A LTM 9/30/09 802,225 23.3% 56,524 7.0% 0.99 6,812 229,221 526,813 4.06 9.32 36,003 28% 75.1 27.9 13,758 N/A



Atlantic Broadband

Atlantic Broadband Finance, LLC, provides communications and entertainment (phone, Internet, and cable) services to both residential and business clients in four domestic clusters located in central Pennsylvania; Miami Beach, Florida; Aiken, South Carolina; and the Maryland/Delaware region. The Company considers itself the 15th largest cable provider in the US. The number of total homes passed has been steady over time at approximately 505,000 with approximately 279,000 cable, 132,000 Internet, and 60,000 telephone subscribers at September 30, 2009. Revenue is derived from the collection of monthly subscription fees that may be discontinued by the subscriber at any time. The Company paid aggregate dividends to members of $98 million during the period from December 2006 through September 30, 2009. The largest shareholders of the Company were ABRY Partners and affiliates and Oak Hill that owned an approximately 73.6%; and 14.8%, respectively, of the outstanding common stock of Atlantic Broadband at December 31, 2008.

Strengths• Market clusters are smaller and generally mature with limited availability of the high-speed alternative Internet options marketed by competing firms• Strong EBITDA margins consistently in the range of 38-40% since December 2007 • Cash from operations adequately covers all capital outlays• Moderately leveraged operator with strong cash flow

Weaknesses • Near term debt maturity with respect to $40 million of the $67.5 million revolving loan commitment terminating on March 1, 2010• Smaller provider in a highly competitive industry with better capitalized competitors• Technology risk from Internet delivery of programming may result in subscriber attrition• Smaller subscriber base limits the ability to negotiate lower rates for programming and other operating expenses• Incumbent providers are expanding services to include bundled service offerings across the voice, Internet, and video spectrum• Extensively regulated at the federal, state, and municipal levels

Summary:The Company generates solid cash flow from the disparate market clusters that was recently amplified by capital spending restraint and the cessation of dividends to members. Industry wide competition appears to be heating up and the management team will be facing increasing programming costs and necessary higher capital spending going forward with a smaller revolving loan commitment. The management team is experienced in operating in a leveraged environment and is expected to perform well in the face of market and industry challenges..

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE


A/P days LCD EBITDA


LTM 12/31/08 280,986 54.0% 110,274 39.2% 1.47 10,531 457,800 614,849 4.15 5.58 84,090 12.1% 10.3 36.0 29,505 N/A

LTM 3/31/09 287,494 54.2% 113,882 39.6% 1.65 19,889 446,673 603,664 3.92 5.30 67,070 12.1% 10.3 34.5 29,959 N/A

LTM 6/30/09 293,363 54.4% 117,918 40.2% 1.92 37,113 442,600 599,570 3.75 5.08 77,963 12.0% 9.4 31.4 30,748 N/A LTM 9/30/09 297,870 55.0% 122,288 41.1% 2.15 48,573 441,500 598,393 3.61 4.89 89,709 11.9% 9.4 30.6 32,076 N/A



Dana

Dana Holding Corporation manufacturers OEM and aftermarket parts for global manufacturers of automobiles, commercial vehicles, and off-highway equipment. The Company’s product offering includes: (a) automotive (57% of 2008 revenue) – light axles, driveshafts, structural products, sealing products, thermal products, and aftermarket products for light trucks, sport utility vehicles, crossover vehicles and passenger cars; (b) commercial (22% of 2008 revenue) – axles, driveshafts, chassis and suspension modules, ride controls and systems, sealing products, and thermal products, and aftermarket products for medium and heavy-duty trucks, buses, and other commercial vehicles; (c) off-highway (21% of 2008 revenue) – axles, transaxles, driveshafts, suspension components, transmissions, electronic controls, sealing products, thermal products, and aftermarket products for construction machinery, RVs, agricultural, mining, forestry, and material handling equipment. During 2008, product revenue was generated in North America (48%), Europe (30%), South America (14%), and Asia (8%). The 10 largest clients during 2008 represented approximately 52% of revenue with Ford being the largest single client representing 18% of 2008 revenue. No other client represented more than 6% of 2008 revenue. The Company has 113 facilities in 26 countries and employed 22,500 associates at June 2009.

Strengths• Company established as a strategic partner to the entrenched client base. Ford’s improved performance should benefit the company• High switching costs as components are typically specified into platform for the life of the vehicle• Industry leader with world wide manufacturing and distribution capability• Company expects to be in compliance with financial covenants governing loan agreements through the third quarter of September 2010• Post emergent debt level is manageable at current levels of adjusted EBITDA

Weaknesses• Global economic conditions weigh on final demand for automotive, commercial, and off-highway products produced by immediate clients• Reliance upon cyclically weak automobile manufacturers that represented 57% of 2008 revenue• Extensively regulated industry at the federal level with CAFÉ standards yet to be finalized• The inability to recover commodity costs

Summary:The Company has performed well with strong liquidity, anticipated loan compliance through the third quarter of September 2010, and has manageable leverage based on the expense reduction plans subsequent to emerging from bankruptcy in January 2008.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE


Inv. days

A/P days LCD EBITDA


LTM 12/31/08 8,095,000 7.9% 157,000 1.94% (0.62) (1,287,000) 1,251,000 1,251,000 7.97 7.97 822,800 145% 60.1 58.9 57.9 (58,000) 10,000

LTM 3/31/09 6,999,000 7.0% 1,000 0.01% (1.56) (402,000) 1,179,000 1,228,000 - - 583,900 137% 60.4 66.1 56.8 (49,000) 16,000 LTM 6/30/09 5,856,000 7.5% (8,000) -0.14% (1.45) (342,000) 1,065,000 1,099,000 - - 558,400 149% 60.2 64.7 51.9 73,000 94,000 LTM 9/30/09 5,256,000 9.3% 62,000 1.18% (0.65) (36,000) 991,000 1,021,000 15.98 16.47 920,000 159% 53.8 54.4 47.7 96,000 101,000



Knology

Knology, Inc. provides interactive communications and entertainment (phone, Internet, and cable) services to both residential and business clients. Service is provided via the Company’s wholly-owned and fully-upgraded minimum 750 MHz interactive broadband network. The Company provides a full suite of video, voice and data (triple play) services in 10 markets in the Southeastern United States, and two markets in the Midwestern United States.

Strengths• Cash from operations adequately covers all capital outlays • No near term debt maturities as lenders recently agreed to extend the maturity of senior secured term loans from June 30, 2012 to June 30, 2014 • Strong operating margins with quarterly EBITDA consistently in the range of 29% to 32% since March 2008 • Integration of PCL Cable expected to be well within capabilities of the Company • Moderately leveraged operator with strong cash flow and ample cash reserves

Weaknesses• Smaller provider in a highly competitive industry with better capitalized competitors • Smaller subscriber base limits ability to negotiate lower rates paid for programming and other operating costs • Incumbent providers are expanding services to include bundled service offerings across the voice, internet, and video spectrum • Reliance upon access to competitors’ telephone networks to provide local telephone service • Extensively regulated at the federal, state, and local level

Summary:The Company continues to reward investors with consistent revenue growth, improving cash flow, and strong EBITDA margins that combined with scheduled principal payments serve to steadily reduce leverage and business risk. The integration of PCL Cable is expected to be seamlessly completed as this is the smallest acquisition since 2007.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE



LTM 12/31/08 410,230 69.9% 130,203 31.7% 1.77 33,628 606,836 611,683 4.66 4.70 103,262 25% 28.09 71.29 33,508 35,248

LTM 3/31/09 413,576 69.8% 131,505 31.8% 1.89 39,234 600,000 600,873 4.56 4.57 75,648 25% 27.63 69.13 33,658 35,252

LTM 6/30/09 419,385 69.4% 135,259 32.3% 2.03 47,589 595,000 599,256 4.40 4.43 89,900 24% 26.50 67.79 35,119 36,967 LTM 9/30/09 421,971 69.3% 133,203 31.6% 2.02 49,027 594,686 601,384 4.46 4.51 97,604 24% 28.04 75.44 30,918 35,964



Mediacom

Mediacom Communications Corporation provides communications and entertainment (phone, Internet, and cable) services to both residential and business clients in smaller cities and towns predominantly in the Midwestern and Southern regions of the United States. The Company considers itself the 7th largest cable provider in the US with 2.79 million homes passed in 22 states. At September 2009, Mediacom served 1.26 million basic subscribers, 765 thousand HSD customers, 665 thousand digital clients, and 274 thousand telephony customers. Revenue is derived from the collection of monthly subscription fees that may be discontinued by the subscriber at any time.

Strengths:• Strong EBITDA margins consistently in the range of 35 – 37% since December 2007• No near term debt maturities except for negotiated step downs of the revolving loan commitment and the Broadband term loan A on March 31, 2010• Cash from operations adequately covers capital outlays• Leveraged operator with strong cash flow and adequate liquidity primarily in the form of unused revolvers of $584 million at September 2009

Weaknesses:• Operating margins may be under increasing pressure from increasing programming costs, competition, and limited ability to raise the price of service in the

face of 10% unemployment and a slow growth economy• Highly competitive industry with larger and better capitalized participants• Incumbent providers are expanding services to include bundled service offerings across the voice, Internet, and video spectrum• Technology risk from Internet delivery of programming may result in subscriber attrition• Extensively regulated at the federal, state, and municipal levels

Although more highly leveraged than some industry comparables, Mediacom has good liquidity, strong cash flow, and has rewarded investors with EBITDA margins consistently in the 35% range since 2007. The challenges facing the Company appear to be contained to increasing programming costs and heightened competition for subscribers in a sluggish economy with high unemployment.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE



LTM 12/31/08 1,401,894 58.2% 506,766 36.1% 1.02 (21,110) 2,191,000 3,316,000 4.32 6.54 829,311 16.6% 20.4 1.9 128,373 129,600

LTM 3/31/09 1,422,653 58.0% 515,645 36.2% 1.13 21,048 2,275,000 3,400,000 4.41 6.59 698,545 16.2% 20.0 1.0 133,339 135,100

LTM 6/30/09 1,437,647 57.8% 521,674 36.3% 1.26 38,493 2,245,000 3,370,000 4.30 6.46 680,074 16.5% 20.7 4.3 135,002 136,800 LTM 9/30/09 1,448,477 57.6% 526,191 36.3% 1.41 86,323 2,525,000 3,375,000 4.80 6.41 654,042 16.4% 21.5 6.4 129,477 131,300



Ply Gem

Ply Gem is a manufacturer of residential exterior building products in North America. The Company offers a comprehensive product line of vinyl siding, vinyl windows and doors, and vinyl and composite fencing that serves both the home repair and remodeling and new home construction sectors in the United States and Western Canada. The Company believes that its vinyl building products have the leading share of sales by volume in siding and windows. For the first nine months of 2009, the siding segment represented 60% of sales and the window and door segment approx 40%. Ply Gem was acquired by CI Capital in 2004.

Strengths: • Increasing Market Share/outperforming the industry/Solid Brand name/Geographic diversity in the US• Improving EBITDA/Margins due to facility closures and lower SG&A • Liquidity: The company had over $116 million in cash and revolver availability as of October 3, 2009• Manageable capex

Weaknesses:• Cyclical business/Dependence on housing starts and remodeling activity • Leverage remains high at over 7.9x and sales and units are still down versus the previous year • Weak cashflow trends versus over $875 million in proforma debt: The key point is that even with $115 million in EBITDA, free cash is minimal assuming: 1)

$100 million in interest, 2) $10 million in Capex and 3) $5 million Cash Taxes• Competition with numerous national and regional manufacturers of siding and windows

Summary:The company’s recent actions to reduce debt and right-size its cost structure have clearly been positives. However, the Company still operates in a difficult sector and leverage is high.

Free cash flow





Total Liquidity


DebtA/R days

Inv. days

A/P days LCD EBITDA


LTM 12/31/08 1,175,019 17.2% 81,648 6.9% 0.47 (75,434) 754,040 1,114,186 9.24 13.65 111,089 18.2% 49.6 56.3 37.6 4,307 5,739

LTM 3/31/09 1,101,397 16.7% 60,994 5.5% 0.31 (65,922) 764,297 1,124,433 12.53 18.44 61,015 18.0% 48.5 60.9 28.6 (18,912) (13,337)

LTM 6/30/09 1,020,693 17.2% 61,480 6.0% 0.37 (62,171) 774,555 1,134,681 12.60 18.46 72,182 19.1% 41.9 45.5 24.8 36,013 41,513 LTM 9/30/09 971,337 19.1% 74,573 7.7% 0.50 8,403 759,828 885,236 10.19 11.87 116,267 25.5% 43.8 39.3 27.6 53,165 57,597



Venoco

Venoco, Inc. is an independent energy company engaged in the acquisition, exploitation, and development of oil and natural gas properties in California and Texas. The Company’s principal properties are located both onshore and offshore in California’s Sacramento Basin, and onshore along the Gulf Coast of Texas. Total proven reserves for oil and natural gas at December 31, 2008 were 50.5 MMbbls and 235.7 Bcf, respectively, as adjusted for the sale of Hastings during February 2009.

Strengths:• No near term debt maturities as newly issued Senior Notes are due in 2017 and the maturity of the second-lien term loan is 2014. The revolving loan

commitment needs to be refinanced during 2011• Extensive use of derivative contracts to mitigate oil and natural gas price volatility and stabilize cash flows• Reported reserves of 94.3 MMBOE and a potential production horizon of 12 years• Institutional expertise in extracting oil and gas from the Monterey shale formation in the California region• Lease extensions at the existing South Ellwood field would double the size of the existing field that could be serviced from the existing platform

Weaknesses:• Extensively regulated and highly competitive industry with better capitalized competitors• Geographic concentration in California• Potential limitation on hedging activities under consideration by the CFTC may limit ability to mitigate volatile commodity prices• Dependent upon external funding to finance exploration and development activities • Continuing low prices for oil and gas could lead to further reductions in borrowing base availability

Summary:Importantly, the Company priced a debt offering on October 2, 2009 that triggered the automatic two-year extension of Venoco’s second-lien term loan. The Company reaffirmed 2009 guidance in investor presentation dated October 5, 2009.

Free cash flow





Total Liquidity

(AR 80%+Inv 60%+PPE


Inv. days

A/P days LCD EBITDA


LTM 12/31/08 559,520 72.2% 360,957 64.5% 0.52 (120,482) 635,052 800,268 1.76 2.22 119,291 34.0% 47 24 139 40,164 68,676

LTM 3/31/09 480,878 68.8% 288,917 60.1% (0.57) (123,144) 500,105 664,715 1.73 2.30 127,620 31.1% 56 27 184 22,546 53,147

LTM 6/30/09 375,645 62.3% 195,507 52.0% (2.39) (156,664) 544,874 694,532 2.79 3.55 68,684 32.4% 45 15 140 27,952 44,076 LTM 9/30/09 286,635 55.8% 122,039 42.6% (3.14) (131,495) 539,485 689,178 4.42 5.65 66,073 32.9% 40 14 132 31,377 48,000


Copyright© 2010 by Standard & Poor’s Financial Services LLC (S&P) a subsidiary of The McGraw-Hill...

Documents

Transcript of Copyright© 2010 by Standard & Poor’s Financial Services LLC (S&P) a subsidiary of The McGraw-Hill...