High-Yield and Bank Loan Outlook: Leveraged Credit is Still in a Bull Market

1Guggenheim Partners High Yield and Bank Loan Outlook | Q2 2014

April 2014

High-Yield and Bank Loan OutlookLeveraged Credit is Still in a Bull MarketHigh-yield bonds and bank loans posted positive returns of 3.1 and 1.2 percent in the first

quarter of 2014, respectively, as extreme U.S. weather, emerging market concerns,

and tensions in Ukraine failed to dampen strong demand. Leveraged credit continues to

enjoy strong demand and low defaults, and we believe the improving macroeconomic

environment should continue to drive positive returns and tighter spreads until defaults rise.

History shows that defaults do not rise until one to two years after the Federal Reserve begins

tightening interest rates – something not expected to start until mid-2015 at the earliest.

As we have highlighted in previous reports, we believe it is becoming increasingly

important to monitor risks that will influence our strategy shift once it is time to position

portfolios defensively. However, the consequences of these risks would more likely be felt

when the current bull market in credit ends.

Report Highlights§High-yield bonds are entering a realm of relative overvaluation. High-yield bond spreads

and bank loan discount margins continued to tighten in recent months, ending the

quarter at 409 bps and 457 bps, respectively. High-yield bond spreads are below the

historical ex-recession average and yields in both sectors are near their all-time lows.

§Spread compression can nevertheless continue. Continued demand from both

individual and institutional investors should drive high-yield spreads tighter until

default rates rise.

§ Default rates should not start rising until 2016 or beyond.

§We continue to monitor weaknesses in leveraged credit that would influence how we

position our portfolios defensively.

§Risks to the outlook include the growing influence of high-yield ETFs amid declining

dealer inventories, and the implications that a slowdown in the CLO market as a result

of regulatory changes might have on bank loans in the future.

Investment Professionals

B. Scott Minerd Global Chief Investment Officer

Michael P. Damaso

Chairman, Corporate Credit Investment Committee

Jeffrey B. Abrams

Senior Managing Director, Portfolio Manager

Kevin H. Gundersen, CFA

Senior Managing Director, Portfolio Manager

Thomas J. Hauser

Managing Director, Portfolio Manager

Maria M. Giraldo

Senior Associate, Investment Research


Leveraged Credit Scorecard As of Month End

Bank Loans

Dec-13 Jan-14 Feb-14 Mar-14DMM* Price DMM* Price DMM* Price DMM* Price

Credit Suisse Institutional Leveraged Loan Index 465 100.05 454 100.25 456 100.09 457 99.99

Split BBB 295 100.11 290 100.28 299 99.99 303 99.80

BB 356 100.26 347 100.42 351 100.17 353 100.01

Split BB 420 100.28 416 100.44 425 100.13 422 100.11

B 501 99.97 490 100.18 492 100.08 491 99.95

CCC / Split CCC 821 98.99 792 99.67 792 99.71 793 99.78

High-Yield Bonds

Dec-13 Jan-14 Feb-14 Mar-14Spread Yield Spread Yield Spread Yield Spread Yield

Credit Suisse High-Yield Index 436 5.77% 457 5.79% 418 5.32% 409 5.35%

Split BBB 245 4.65% 247 4.06% 226 3.79% 215 3.82%

BB 298 4.96% 323 4.77% 289 4.35% 280 4.44%

Split BB 349 5.17% 377 5.08% 346 4.75% 342 4.84%

B 445 5.75% 460 5.57% 424 5.11% 413 5.12%

CCC / Split CCC 745 7.00% 760 8.57% 697 7.85% 698 7.99%

Source: Credit Suisse. Excludes split B high-yield bonds and bank loans. *Discount Margin to Maturity assumes three-year average life.

Source: Credit Suisse. Data as of March 31, 2014.

Credit Suisse High-Yield Index Returns Credit Suisse Institutional Leveraged Loan Index Returns

4.0%

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

CCC/Split CCCBSplit BBBBSplit BBBIndex

Q4 2013 Q1 2014

3.1%

2.2%

2.8%

3.1%

3.5% 3.5%

3.0%

3.6%

3.3%3.4%

2.9%

3.5%

CCC/Split CCCBSplit BBBBSplit BBBIndex

Q4 2013 Q1 2014

4.0%

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

1.2% 1.1%

0.5%

1.3%

0.8%

1.7%

2.1%

1.3%

3.2%

2.7%

1.8%

0.9%


Macroeconomic OverviewThe Forward Path for Credit Spreads

Inclement U.S. weather caused weaker-than-expected economic data. The harsh,

cold winter resulted in a raft of disappointing reports from U.S. industrial production to

mortgage applications and home sales. At the same time, emerging market volatility driven

by reactions to the Fed’s tapering drove investors back to U.S. Treasuries, causing the 10-year

U.S. Treasury yield to decline 46 basis points to 2.57 percent between December and mid-

February. The S&P 500 tumbled 3.6 percent in January, as investors debated if the weather

or the pace of tapering was causing the U.S. economy to slow.

The events that have characterized the start of 2014 appear unlikely to interrupt the U.S.

expansion, and we expect that spring will bring much of the pent-up demand that is waiting

for the thaw. Recognizing that recent first quarter weakness in economic data is likely to

prove temporary, Federal Reserve Chairwoman Janet Yellen has also made it clear that

tapering is on a pre-set roadmap and that interest rates will begin to rise no sooner than six

months after the Fed’s asset purchases end. The Federal Reserve’s desire to be predictable

should lead to an incremental path for the coming tightening cycle, and that suggests

increasing exposure to floating-rate instruments, such as bank loans.

Their guidance allows us to predict that credit spreads will not turn around soon. The chart

below shows that periods of monetary accommodation are typically followed by one to two

more years of low default rates. Therefore, historical precedence suggests that the current low

default-rate environment should extend at least into 2016. All around, the data increasingly

argues that we should not expect to see credit spreads widen over the next two years.

Federal Funds Target Rate vs. 2-Year Forward High-Yield Default RateHelped by near-zero interest rates, high-yield default rates have now declined to 0.9 percent- well below the historical average of 4 percent. Historically, periods of monetary accommodation have led to low defaults rates for approximately one to two years. The Fed’s indication that short-term rates should continue until the middle of 2015 extends the current low-default rate environment until 2016.

Source: Credit Suisse, Bloomberg, Guggenheim. Data as of March 31, 2014.

16%

14%

12%

10%

8%

6%

4%

2%

0%1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Federal Funds Target Rate

2-Year Forward Default Rate

“Floating-rate assets, particularly bank loans and collateralized loan obligations, will likely continue to outperform. Flows into bank loans should continue as interest rates rise and there is likely some spread tightening left in the sector. Credit spreads should not start to widen until we see an increase in defaults, which start to tick up usually about one to two years after the Fed begins to tighten. So, even if you believe Dr. Janet Yellen will begin raising interest rates in 2015, credit spreads are unlikely to eaningfully widen until late in 2016 or 2017.”

– Scott Minerd, Global CIO


Markets that Stay Overvalued Are Called Bull MarketsEntering the Final Two-Year Stretch of the Rally

At the start of the year, we said the benign credit environment and the supportive technical

backdrop were reasons to remain constructive on leveraged credit. Amid increased

volatility in Treasury rates and U.S. equities in the first quarter, high-yield bonds and bank

loans posted positive quarterly returns of 3.1 and 1.2 percent, respectively. Our conviction

remains unchanged, as the factors that have supported spread compression over the past

few years remain in place.

Demand has not subsided as assets continue to flow into leveraged credit. Bank loans have

had over 90 consecutive weeks of inflows from mutual funds. CLO activity, which many

believed would be hurt by the current interpretation of the recently finalized Volcker Rule,

picked up in February and March following a weak January, totaling $22 billion in the first

quarter. Together, CLO volume and sustained bank loan mutual fund flows are indicative of

the strength of demand for floating-rate assets as the market continues to face the prospect

of rising rates.

High-yield bond demand remains strong, although flows have been less steady on the

back of the unexpected Treasury volatility that kicked off the year. However, mutual fund

managers continue to expect that flows will not experience a significant reversal. We gauge

this based on the amount of liquid assets held in high-yield mutual funds. Mutual funds

must manage for daily redemptions, but maintaining liquidity causes a “cash drag” –

an anchor on performance caused by holding liquid assets with low expected returns.

When managers expect steady flows, they are less inclined to hold a high portion of their

portfolio in liquid assets. High-yield bond funds have traditionally held about 6.5 percent

of their portfolios in liquid assets. As of the end of the first quarter, fund managers held only

5.1 percent of high-yield mutual funds in liquid assets. So far in 2014, the expectation that

inflows will outpace outflows has proven correct, with net inflows totaling $3.4 billion

year-to-date.

High-Yield Mutual Fund Sentiment Remains BullishDuring bullish credit markets, mutual fund managers reduce holdings of liquid assets. Since mid-2013, liquid assets held within high-yield mutual funds have been below the historical average, reflecting bullish sentiment from managers.

Source: JP Morgan, Credit Suisse, Guggenheim. Data as of December 31, 2013.

12%

11%

10%

9%

8%

7%

6%

5%

4%

3%1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

High-Yield Spreads Cautious Area

1,900

1,700

1,500

1,300

1,100

900

700

500

300

100

Mutual Fund Liquid Assets


Five years of strong demand has brought high-yield bonds to a realm of relative

overvaluation, with bank loans not far behind. The Credit Suisse High Yield Index spread

is currently at 418 basis points, below the historical ex-recession average of 537 basis points

and ex-recession median of 498 basis points. The yield-to-worst has also declined to 5.3

percent, and is close to revisiting the all-time low of 5.1 percent set last year.

High-Yield Bond Yields Approach the May 2013 LowAs U.S. Treasury yields decline while spreads tighten, high-yield bond and bank loan yields are close to revisiting the all-time low set in May 2013. Declining yields should make price return a larger driver of total returns.


The three-year discount margin on the Credit Suisse Institutional Leveraged Loan Index

is at 457 basis points, wider than the historical ex-recession average of 356 basis points,

but it is important to highlight a disparity between secondary and primary loan margins.

Bank loans carry less call protection than high-yield bonds, therefore, when prices

rise above $100, borrowers may be prompted to refinance the loan for a lower yield.

This dynamic keeps secondary loan prices constrained by their call price.

The primary market may better represent bank loans at current levels. All-in spreads for

primary BB-rated loans and primary B-rated loans are at 327 basis points and 465 basis

points, respectively, 22 and 23 basis points tighter than indicated by the index. These levels

continue to look compelling when compared to spreads of BB-rated and B-rated bonds,

which are currently at 280 basis points and 413 basis points, respectively.

Given our expectation that default rates will remain low, we believe that short-term sell-offs

should be viewed as attractive entry points, similar to last year’s experience. Although we

witnessed a mass exodus of cash from fixed-income in June of last year, individual and

institutional assets in leveraged credit grew 14 percent on a year-over-year basis, in line

with the four-year compounded annual growth. This resulted in credit spreads tightening

by 105 basis points from the sell-off to year-end.

Jan-08 Jul-08 Jan-09 Jul-09 Jul-10Jan-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

22%

19%

17%

14%

12%

9%

4%

7%

11%

10%

9%

8%

7%

6%

5%

4%

Bank Loans (RHS) Bank Loans Low (RHS)High-Yield Bonds Low (LHS)High-Yield Bonds (LHS)

High-Yield Bonds Low: 5.1% Bank Loans Low: 4.8%


Leveraged Credit Assets Held in Institutional Accounts, Mutual Funds and ETFsLooking at high-yield bond and bank loan assets held in institutional accounts and mutual funds, it is clear that the broad fixed-income sell-off last year marked only a temporary turn in demand. Institutional and mutual funds assets in leveraged credit grew by 14 percent in 2013, with bank loan mutual funds making up 61 percent of total growth.

Source: eVestment Alliance, Morningstar Direct. Data as of December 31, 2013.

$1,200 Bn

$1,000 Bn

$800 Bn

$600 Bn

$400 Bn

$200 Bn

$0 BnDec 2011 Dec 2012Dec 2010 Dec 2013

Bank Loan Mutual Funds & ETFs

Bank Loan Institutional Accounts

High-Yield Mutual Funds & ETFs

High-Yield Bond Institutional Accounts

$165

$26

$299

$151

$180

$449

$146

$308

$173

$419

$74

$288

$57

$166

$331

$223

What Lies Beyond the Finish LineHow Regulatory Changes May Impact Leveraged Credit

Perhaps it is no coincidence that just as improving macroeconomic factors are prompting

the Federal Reserve to taper its Quantitative Easing (QE) program, a slew of anticipated

regulatory changes are coming into effect or are being finalized over the course of this year

that may impact leveraged credit markets. The table below briefly summarizes some of the

forthcoming regulatory changes which we believe may have the most impact on leveraged

credit. These developments will play a role in our strategy shift once it is time to position

portfolios more defensively.

Until April, the most debated issue in leveraged credit was the expected impact from the

recently finalized Volcker Rule regulations of the Dodd-Frank Wall Street Reform and

Consumer Protection Act. Since the financial crisis, parameters detailing a CLO’s allowable

investments have included a high-yield bond bucket which managers tap to boost returns.

Under the regulatory guidance to implement the Volcker Rule’s ban on proprietary

trading, banks may no longer own CLOs that contain non-loan investments (such as

high-yield bonds). According to Thomson Reuters, only 31 percent of U.S. CLOs would be

in compliance (because they have no bond or structured finance holdings). Banks would

be prohibited from owning that remaining 69 percent of the CLO market – or nearly $200

billion – under the Volcker Rule.

Leveraged credit investors feared that banks would be forced to sell their existing CLO

investments, driving CLO spreads wider and stalling origination. CLOs represent half of the

loan market and 57 percent of demand that sustained primary bank loans last year.

Instead, we saw the emergence of new Volcker-compliant structures (referred to as “CLO

3.0”) which contain no bonds during the first quarter. Widespread selling also did not

materialize in the secondary CLO market, helped by the lack of urgency as the conformance

period was not until July 2015. In April 2014, the Federal Reserve pushed the conformance

deadline further to July 2017, making widespread selling less likely to occur at this point.


We expect that the next CLO-related debate will revolve around risk-retention rules,

also part of Dodd-Frank and expected to be finalized this summer with a possible effective

date toward the end of 2015. In their current proposed form, risk retention rules would

require CLO managers to hold 5 percent of each CLO they issue. We believe this is a big

threat to the CLO market, as large CLO managers and frequent issuers may not have the

balance sheet capacity to hold the investment. Our research also shows that the schedule

of current CLOs exiting their reinvestment period makes continued CLO formation

necessary to mitigate bank loan defaults in 2017 and beyond.

Regulation

New Basel Regulatory Capital Regime (Basel III)

Summary: Basel III raises capital requirements for banks and outlines new rules on leverage and liquidity requirements. Basel rules are a set of international banking regulations put forth by the Basel Committee on Bank Supervision which set minimum capital requirements of financial institutions, with the goal of minimizing credit risk.

Highlights: The Supplementary Leverage Ratio (SLR) and the Liquidity Coverage Ratio (LCR) will most likely impact credit liquidity and availability. The SLR calculates the ratio of an institution’s tier 1 capital to on-balance-sheet assets and several off-balance-sheet exposures. The SLR may cause banks to simply shrink their balance sheets or shift operations away from low-margin businesses such as repo funding. The LCR requires a banks to own sufficient high-quality liquid assets (HQLAs) to cover 100 percent of its cash outflows over a 30-day stress period. This may limit banks from extending short-term financing.

Expected to Impact: § High-yield and bank loan liquidity § Credit supply

Dodd-Frank Wall Street Reform and Consumer Protection Act

Summary: Dodd-Frank regulation targets Wall Street reform in response to the financial crisis. The most well known implication of Dodd-Frank is the banking restriction on proprietary trading, as this portion of the act forced banks to shed several of the operations and cost several jobs in 2011.

Highlights: The Volcker Rule and Risk Retention Rules may have the biggest impact on leveraged lending. Both rules affect the demand component of bank loans by potentially exerting downward pressure on CLO origination. CLOs represent about half of the existing loan market.

Expected to Impact: § Loan demand (via CLOs)

Leveraged Lending Guidelines

Summary: Revised guidelines issued by the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC), targeting banks that engage in leveraged lending.

Highlights: There are currently no specific definitions on risky underwriting activity, but market participants agree that leverage multiples, covenants, and analysis showing a borrowers ability to pay back loans will be used by the regulators to identify a “criticized loan.”

Expected to Impact: § Bank loan supply

A dramatic decline in CLO issuance would undoubtedly put upward pressure on loan

spreads today, but, we believe the biggest risk lies in 2017, when 69 percent of the current

CLO market will have reached the end of their reinvestment period. CLOs have a pre-

determined period, typically lasting between two and three years, where they are able to

reinvest proceeds into additional loans. After the reinvestment period ends, CLOs must

use proceeds to pay down debt instead, effectively reducing inflows into the loan market.

The combined effect of a weak CLO primary market and an amortizing secondary CLO

market would be a significant decline in loan demand when coincidentally, 15 percent of

the loan market matures and may be looking to re-extend debt to avoid principal defaults.

With bank loans heavily relying on the sustained demand from CLOs, we will monitor this

trend closely.


69 percent of CLOs currently outstanding would have exited the reinvestment period by the beginning of 2017, raising the question as to what will happen to maturing loans that need to re-extend debt in the midst of a rising-rate environment and a smaller investor market? A robust CLO primary market will be needed to sustain the bank loan market in the future.

CLO Reinvestment Period End-Year

Source: Thomson Reuters, Guggenheim. Data as of February 28, 2014. *Includes CLOs that have already exited their reinvestment period as of March 31, 2014.

As banks have been forced to de-risk due to increased regulation, dealer inventories of high-yield corporate bonds have declined dramatically from their peak in 2007. At the same time, high-yield mutual fund and ETF assets have soared by 163 percent. The combined effect may be a liquidity crunch in high-yield bonds, but we will not know until demand reverses.

High-Yield Bond Dealer Inventories Decline While Mutual Fund / ETF Assets Grow

Source: New York Federal Reserve, Morningstar, Guggenheim. Data as of March 5, 2014. High-yield bond dealer inventory before April 2013 is based on Guggenheim estimates due to limited New York Fed data.

$35 Bn

$30 Bn

$25 Bn

$20 Bn

$15 Bn

$10 Bn

$5 Bn

$0 Bn

$350

$300

$250

$200

$150

$100

$50

$02006 2007 2008 2009 2010 20112003 2004 200520022001 20132012

ETF vs. Non-ETF OAS

High-Yield Mutual Fund and ETF Assets (RHS)

High-Yield Bond Dealer Inventory (LHS)

Basel III and Dodd-Frank Impact on High-Yield Bonds Uncertainty in the Future of Corporate Bond Liquidity

Corporate bond selling was facilitated by banks before the financial crisis, but banks have

significantly reduced their holdings of corporate bonds because of new regulation which

includes higher capital requirements, supplementary leverage ratios, and the ban on

proprietary trading. Data from the Federal Reserve suggests that banks have cut corporate

bond inventories by at least 75 percent from their level at the peak 2007, to $8 billion. This is

significantly smaller than the $32 billion in high-yield assets held in fast-moving ETFs.

69%Reinvestment Period Ends by

December 2016*

31%Reinvestment Period

Ends January 2017 or After


The significant growth in high-yield ETF assets could amplify high-yield bond volatility by compounding selling activity if demand reverses. Several research analysts have shared lists of high-yield bonds with the least presence within ETFs, bonds less likely to suffer from waves of selling from various vehicles. This focus on “non-ETF” bonds appears to be causing spreads for bonds held in ETFs to widen relative to non-ETF bonds.

Bonds Held in ETFs Are Trading at Wider Spreads

Source: Bank of America Merrill Lynch. Data as of January 31, 2014.

Spre

ads (

bps)

30

20

10

0

-10

-20

-30

-40Feb-2010 Aug-2010 Feb-2011 Feb-2012Aug-2011 Feb-2013Aug-2012 Aug-2013

ETF vs. Non-ETF OAS

The impact of limited dealer inventory will be amplified if demand for high-yield bonds

were to turn down dramatically, and mutual fund managers were forced to liquidate assets

at “fire sale” prices, driving prices down and spreads higher. The worst-case scenario would

be a period eerily similar to 2008, when high-yield mutual fund outflows forced managers

to move 11 percent of their assets into cash to meet redemptions, causing high-yield bond

prices to decline 40 percent.

Last year’s sell-off was not as dramatic, and we do not expect a similar 2008-like period

to ensue because high-yield bonds and bank loans continue to meet the investor need

of shortening duration and earning higher yield. However, high-yield bond prices can be

volatile. They declined 3.3 percent last June alone when investors fled bonds. Bank loans

had a similar experience in August 2011, when investors withdrew $7.3 billion from bank-

loan funds and prices declined by 4.5 percent in that single month.

Investment ImplicationsStrategies to Insulate Portfolios from Emerging Risks

As we highlighted in our previous report, emerging risks remain beyond the horizon, but it

is becoming increasingly important to monitor them. We have begun considering ways to

shift portfolios more defensively when the time comes to face higher interest rates, and we

have identified some strategies that can help position portfolios to weather the volatility

that might emerge once we cross that line. These include:

1. Investments which are less likely to be caught in large waves of selling. For example,

bonds that make up a large percentage of an ETF, or are held across multiple ETFs,

may experience severe price declines as the sell-off is compounded by multiple sellers

in fast-moving accounts. Of the top 10 holdings within the two largest high-yield bond

ETFs (HYG and JNK), six securities overlap.


2. Smaller high-yield bonds and bank loans which offer a significant yield pickup over larger deals. In select transactions, investors have the ability to drive deal terms,

an opportunity generally not available in larger debt offerings. Also, during short-term

selling periods, larger, more liquid bonds are typically liquidated first as mutual funds

and ETFs try to meet redemptions. In June 2013, high-yield bonds between $100-$200

million in size lost 1.4 percent, while bonds larger than $500 million lost 2.8 percent.

Credit Suisse High-Yield Bond Index

Size Market Weight Yield to Worst Spread to Worst

$0 mm to $100 mm 0.11% 7.98% 702 bp

$101 mm to $199 mm 1.68% 7.35% 645 bp

$200 mm to $299 mm 7.89% 6.62% 569 bp

$300 mm to $399 mm 11.49% 5.92% 495 bp

$400 mm to $499 mm 10.54% 5.41% 440 bp

$500 mm and Over 68.22% 5.15% 389 bp

Credit Suisse Institutional Leveraged Loan Index

Size Market Weight Yield Spread to Worst

$0 mm to $100 mm 0.78% 8.41% 809 bp

$101 mm to $200 mm 5.29% 6.98% 669 bp

$201 mm to $300 mm 8.40% 5.85% 558 bp

$301 mm to $500 mm 15.92% 4.58% 427 bp

$501 mm to $1000 mm 25.51% 4.46% 414 bp

$1001 mm and Over 44.11% 4.36% 403 bp


3. Spread the maturity profile of credit portfolios. We believe that a barbell strategy

continues to represent a good strategy, as it allows investors to structure a portfolio with

both short- and longer-duration securities. A barbell strategy is typically used to achieve

a desired duration target for investors that have a fixed liability in the future, but it can

also inherently avoid concentrating the maturities of credit investments in one year,

thereby mitigating principal default risk.


Important Notices and Disclosures

Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.

This article is distributed for informational purposes only and should not be considered as investment advice, a recommendation of any particular security, strategy or investment product or as an offer of solicitation with respect to the purchase or sale of any investment. This article should not be considered research nor is the article intended to provide a sufficient basis on which to make an investment decision.

The article contains opinions of the author but not necessarily those of Guggenheim Partners, LLC its subsidiaries or its affiliates. Although the information presented herein has been obtained from and is based upon sources Guggenheim Partners, LLC believes to be reliable, no representation or warranty, express or implied, is made as to the accuracy or completeness of that information.

The author’s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed as to accuracy.

This article may be provided to certain investors by FINRA licensed broker-dealers affiliated with Guggenheim Partners. Such broker-dealers may have positions in financial instruments mentioned in the article, may have acquired such positions at prices no longer available, and may make recommendations different from or adverse to the interests of the recipient. The value of any financial instruments or markets mentioned in the article can fall as well as rise. Securities mentioned are for illustrative purposes only and are neither a recommendation nor an endorsement.

Individuals and institutions outside of the United States are subject to securities and tax regulations within their applicable jurisdictions and should consult with their advisors as appropriate. 1Guggenheim Partners’ assets under management figure is updated as of 12.31.2013 and includes consulting services for clients whose assets are valued at approximately $36 billion.2Guggenheim Investments’ total asset figure is as of 12.31.2013 and includes $12.5 billion of leverage for assets under management and $0.4 billion of leverage for serviced assets. Total assets include assets from Security Investors, LLC, Guggenheim Partners Investment Management, LLC, Guggenheim Funds and its affiliated entities, and some business units including Guggenheim Real Estate, LLC, Guggenheim Aviation, GS GAMMA

Advisors, LLC, Guggenheim Partners Europe Limited, Transparent Value Advisors, LLC, and Guggenheim Partners India Management. Values from some funds are based upon prior periods.

Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: GS GAMMA Advisors, LLC, Guggenheim Aviation, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Investment Management, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners India Management, Guggenheim Real Estate, LLC, Security Investors, LLC and Transparent Value Advisors, LLC. Guggenheim Partners Investment Management, LLC (GPIM) is a registered investment adviser and serves as the adviser to the strategy presented herein. This material is intended to inform you of services available through Guggenheim Investments’ affiliate businesses.

No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC. ©2014, Guggenheim Partners, LLC.


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High-Yield and Bank Loan Outlook: Leveraged Credit is Still in a Bull Market

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