STANTON ASSET MANAGEMENT

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STANTON ASSET MANAGEMENT

CORPORATE FIXED INCOME MARKET MONITOR

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FOR INVESTMENT PROFESSIONALS ONLY

Third Quarter 2015

Data as of September 30, 2015

$6.8 $16.0 $36.0 $12.1 _$9.7 $9.0 $13.3 $45.3 $13.3 _$10.6 0 10 20 30 40 50

<2 year 2 -‐ 4 year 5-‐ 7 year 10 year Long 2014 2015 YTD 0 200 400 600 800 1000 1200 1400 1600 1800 2000 2003 2006 2009 2012 2015 Canadian Investment Grade Canadian High Yield Canadian Broad Market

ASSET CLASS PERFORMANCE

Annualized performance since January 2010: 5.5%

Market Data (Avg.) Size Performance Spread DuraIon Yield to

Worst 1 month 3 months YTD 1 year

$ Billion % % % % bps Years %

CANADIAN GOVERNMENT 424 -‐0.06 1.02 2.98 5.64 0 7.1 1.1

CANADIAN INVESTMENT GRADE 423 -‐0.12 -‐0.17 2.18 3.88 157 6.0 2.6

CANADIAN HIGH YIELD 11 -‐0.26 -‐2.92 0.11 -‐4.40 659 3.5 7.4

CANADIAN BROAD MARKET 1,594 -‐0.34 0.18 2.63 5.43 80 7.7 2.0

HISTORICAL SPREAD

YTD NEW ISSUANCE BY TERM

bps

Source: Bloomberg, BofA Merrill Lynch, JP Morgan, Credit Suisse, RBC Capital Markets, TD Securi^es. Data as of September 30, 2015.

The informaôn contained in this report has been compiled by Stanton from sources believed to be reliable. No representaôns or warranty, express or implied, are made by Stanton or any other person as to its accuracy, completeness or correctness. All comments, opinions and es^mates contained in this report cons^tute Stanton’s judgment as of the date of this report and are subject to change without no^ce and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitaôn of an offer to buy any securiês. This material is prepared for general circulaôn to Investment Professionals and does not provide regard to the par^cular circumstances or needs of any specific person who may read it. Stanton, nor any other person, accepts any liability whatsoever for any direct or consequenâl loss arising from any use of this report or the informaôn contained herein. This report may not be reproduced, distributed or published by any recipient hereof for any purpose. 2

Canadian Corporate Bonds

MARKET COMMENTARY

Concern over slower growth in China and pressure in the commodity complex pushed Canadian spreads wider in Q3. On the rate front, the weaker macro picture increased expecta^ons for a more dovish BoC, resul^ng in the Canadian 10-‐year declining to 1.43%. In this environment Government Bonds outperformed, returning 1.02%, followed by Investment Grade and High Yield, which returned -‐0.17% and -‐2.92% respec^vely.

Canadian investment grade spreads widened by 25 bps to 157 bps in Q3. Infrastructure, Regulated U^liês and Retail outperformed, widening the least during the period. Conversely, BBB rated Energy Infrastructure, Oil & Gas and Pipelines widened by the largest margins at 39 bps, 44 bps and 46 bps respec^vely. Year-‐to-‐date new issuance is now approximately $92 billion, up nearly 14% year-‐over-‐year. Increased deal flow is largely from Financials, which includes insurance, banks, mortgage companies and auto and machine financing. In contrast, new issuance from non-‐financial corporates is down 7.5% year-‐over-‐year at $26.8 billion.

Canadian Investment Grade bonds declined moderately in Q3, alongside risk assets, as fears concerning the global economy permeated markets. With spreads at their widest levels in over three years, we feel this presents an akrac^ve entry point for the asset class. Using modest assump^ons, achieving a total return of 3% to 5% over the next 12 months is reasonable.

C $ Billion $8,000 $10,000 $12,000 $14,000 $16,000 2010 2011 2012 2013 2014 2015 Growth of $10,000

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Third Quarter 2015

0 100 200 300 400 500 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 -‐30 -‐20 -‐10 0 10 20 30 40 1984 1988 1992 1996 2000 2004 2008 2012 $ Bi lli on s

Market Data (Avg.) _Size _Performance _{Spread
DuraIon
Yield
to}

Worst 1 month 3 months YTD 1 year

$ Billion % % % % bps Years %

GLOBAL HIGH YIELD 2,040 -‐2.60 -‐4.50 -‐1.40 -‐2.90 680 4.0 7.9

US HIGH YIELD 1,263 -‐2.59 -‐4.90 -‐2.53 -‐3.57 654 4.2 8.0

CANADA HIGH YIELD 11 -‐0.26 -‐2.92 0.10 -‐4.40 659 3.5 7.4

EUROPE HIGH YIELD 312 -‐2.50 -‐2.30 -‐0.50 0.24 549 3.6 5.7

EMERGING MARKETS HIGH YIELD 345 -‐2.49 -‐5.04 2.80 -‐4.55 934 3.7 10.1

Source: Bloomberg, BofA Merrill Lynch, JP Morgan, Barclays, Credit Suisse. Data as of September 30, 2015.

The informaôn contained in this report has been compiled by Stanton from sources believed to be reliable. No representaôns or warranty, express or implied, are made by Stanton or any other person as to its accuracy, completeness or correctness. All comments, opinions and es^mates contained in this report cons^tute Stanton’s judgment as of the date of this report and are subject to change without no^ce and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitaôn of an offer to buy any securiês. This material is prepared for general circulaôn to Investment Professionals and does not provide regard to the par^cular circumstances or needs of any specific person who may read it. Stanton, nor any other person, accepts any liability whatsoever for any direct or consequenâl loss arising from any use of this report or the informaôn contained herein. This report may not be reproduced, distributed or published by any recipient hereof for any purpose. 3

ASSET CLASS PERFORMANCE

ANNUAL HIGH YIELD NEW ISSUANCE

$ Bi

lli

on

s

HIGH YIELD MUTUAL FUND FLOWS

Global High Yield Bonds

Q3 was vola^le for global credit markets. Depressed commodity prices remained a headwind and concern over global growth persisted, culmina^ng in the Fed’s decision to delay lil-‐oﬀ in September. Alterna^vely, the FOMC elected to remain cau^ous and con^nue to survey global stability.

U.S. 10-‐year yields ended the quarter at 2.04%, down from 2.35% on June 30, while high yield suffered its worst quarter since Q3 2011, returning -‐4.9%. Spreads widened by 162 bps, ending the quarter at 662 bps, while energy con^nued to weigh on the market, with spreads widening by 386 bps to 1098 bps. Aggregate spreads are currently at three year wides, while energy spreads have moved out to financial crisis levels. In this environment, new issuance was muted, with volumes totaling $21.1 billion in September. Year-‐to-‐date issuance now stands at $250.9 billion, down 12% year-‐over-‐year. Energy and Metals & Mining were the worst performing sectors during the quarter returning -‐16.0% and -‐15.0%, respec^vely. High yield flows were nega^ve for the quarter, as $6.8 billion flowed out of the asset class.

With market vola^lity having pushed high yield spreads to thee year wides, we feel the asset class currently offers an asymmetric risk/return profile. Under assumpôns of modest macro improvements, the total return outlook appears akrac^ve. Should commodity prices stabilize, we feel high yield has the potenâl to return 8% -‐ 10% over the next 12 months, with rela^vely limited downside. YTD $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 2009 2010 2011 2012 2013 2014 2015 Growth of $ 10,000 2015 YTD

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Third Quarter 2015

-‐20 0 20 40 60 80 2003 2005 2007 2009 2011 2013 2015 $ Bi lli on s 0 200 400 600 800 1997 2000 2003 2006 2009 2012 2015 $ Bi lli on s

INSTITUTIONAL LOAN ISSUANCE ASSET CLASS PERFORMANCE

Market Data (Avg.) Size RaIng Yield DuraIon Spread VolaIlity (%) Performance (%)

$ B % Years bps 1yr 30D YTD 1yr 2yr

FLOATING RATE SENIOR LOAN INDEX 934 B+/BB-‐ 6.3 <0.25 551 1.42 -‐0.67 1.61 1.23 2.76

FLOATING RATE NOTE INDEX 39 BB-‐ 6.3 <0.25 625 1.68 -‐1.72 0.06 -‐0.99 2.24

SHORT DURATION HIGH YIELD BOND INDEX 491 BB-‐ 6.6 1.9 591 1.99 -‐1.51 0.72 -‐0.10 2.15

LEVERAGED LOAN MUTUAL FUND FLOW

Source: Bloomberg, Bank of America Merrill Lynch, Barclays, Credit Suisse. Data as of September 30, 2015

The informaôn contained in this report has been compiled by Stanton from sources believed to be reliable. No representaôns or warranty, express or implied, are made by Stanton or any other person as to its accuracy, completeness or correctness. All comments, opinions and es^mates contained in this report cons^tute Stanton’s judgment as of the date of this report and are subject to change without no^ce and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitaôn of an offer to buy any securiês. This material is prepared for general circulaôn to Investment Professionals and does not provide regard to the par^cular circumstances or needs of any specific person who may read it. Stanton, nor any other person, accepts any liability whatsoever for any direct or consequenâl loss arising from any use of this report or the informaôn contained herein. This report may not be reproduced, distributed or published by any recipient hereof for any purpose. ₄

FloaIng Rate Senior Loans

Global markets were vola^le in the third quarter of 2015. Commodity prices remained a headwind while concern over global growth resulted in the U.S. Fed maintaining zero interest rate policy. In this environment the U.S. 10-‐year moved lower, ending the quarter at 2.04%. The market is now puong a 41% probability of the ﬁrst hike coming in December and a 48% probability in January.

While loans outperformed most risk markets in Q3, the asset class was not immune to macro vola^lity and declined 1.22%. Higher rated credits with robust balance sheets and likle exposure to commodi^es outperformed, as did names with strong domes^c sales. Conversely, commodity sectors such as Energy and Metals & Minerals underperformed. The average loan price is now $94.33 versus $96.72 on June 30, while the discount margin to three year takeout has widened to 581 bps from 524 bps. New issuance slowed to $59 billion on the vola^lity and usual summer lull. The year-‐to-‐date total is now $266 billion, well oﬀ the $409 billion pace this ^me last year.

With loans now trading at 2012 levels and paying a current yield of approximately 5%, we view the risk-‐adjusted return profile as akrac^ve. While vola^lity may persist in the short-‐ term, return projecôns of 6% -‐ 8% over the next 12 months are not unreasonable. Moreover, given Energy exposure of less than 4% for loans, versus nearly 13% for high yield, loans remain rela^vely insulated from extended weakness in oil. Finally, we believe eventual lil off from the Fed should akract flows as investors seek to mi^gate the risk of higher rates.

YTD

Selected Index New Issues Size RaIng Yield DuraIon Spread Price Performance _(%)

EﬀecIve $ B % Years bps Since Issue

CHARTER COMMUNICATIONS 08-‐24-‐15 2.8 BBB-‐/BB+ 4.6 0.125 327 100.19 -‐0.08 JARDEN CORP. 07-‐29-‐15 0.6 BBB-‐/BB+ 4.5 0.125 277 99.94 0.50 CONSTELLATION BRANDS 07-‐16-‐15 1.4 BB 2.9 0.125 155 96.88 0.27 $8,000 $10,000 $12,000 $14,000 $16,000 2009 2010 2011 2012 2013 2014 2015 Growth of $10,000

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Third Quarter 2015

ABOUT STANTON

Stanton Asset Management is an independent investment management firm that offers fixed income and equity investment strategies with over $800 million of assets under management. Stanton is registered with and regulated by the AMF, the OSC, and the Alberta Securiês Commission. Stanton’s team is comprised of over fourteen professionals responsible for investment and risk management, compliance, operaôns, legal, client servicing and finance. The investment team brings extensive experience across asset classes in Canadian and global markets including investment grade bonds, high yield bonds, floa^ng rate debt, conver^ble bonds and equiês. Stanton is the porpolio advisor of O'Leary Funds and also manages porpolios for private, family office, corporate and ins^tuônal clients.

Canadian Corporate Bonds Global High Yield Bonds FloaIng Rate Senior Loans

Average Credit RaIng A BB-‐ B+/BB-‐

Maturity 8 -‐ 10 years 6 -‐ 8 years 2 -‐ 5 years

Market Size $ Billion _{Approx.
$400} _{Approx.
2,100} _{Approx.
1,000}

# of Issues Approx. 850 Approx. 3,700 Approx. 1,650

Connor O’Brien, MBA

President and CIO Adam Smalley, CPA, MBA Senior Porpolio Manager – Fixed Income

INVESTMENT TEAM

Over 25 years of global investment experience, including on Wall Street in M&A, capital markets and private equity, and in Canada in managing porpolios invested in Canadian and global equity and debt securi^es.

Previously with Lehman Brothers and Par-‐Four Investment Management in New York, a ﬁrm managing total assets of over $3 billion in non-‐ investment grade debt.

INVESTMENT PROCESS

The firm’s investment process combines both top-‐down and bokom-‐up analysis. Our approach focuses on allocaôn decisions based on top-‐down assessment of macroeconomic condiôns and asset class valuaôn, and on fundamental bokom-‐up research and selecôn of securiês in order to add value within defined levels of porpolio risk.

ASSET CLASS CHARACTERISTICS

Credit asset classes are unique in that they provide investors with akrac^ve yield, coupled with reduced vola^lity and low

correlaôn to tradiônal fixed income. Canadian investment grade corporate bonds, global short duraôn high yield

bonds and floa^ng rate senior loans are a ~1.9 billion USD ins^tuônal asset class with a long history of stable returns.1 Since 2009, these three asset classes have generated posi^ve returns on an annual basis, which is not the case for the tradiônal fixed income asset class. As a result of these posi^ve features, ins^tuônal investors seeking added yield and diversificaôn have increased their allocaôn to these asset classes.

Top-‐Down Analysis Bogom-‐Up Analysis Porholio Monitoring Porholio ConstrucIon SecuriIes with Best

PotenIal Risk-‐Adjusted Return

Contact InformaIon

Connor O’Brien, cobrien@stantonasset.com T: (514) 849-‐0064 Rocio Gueto, rgueto@stantonasset.com T: (514) 798-‐9168 1010 Sherbrooke Street West # 1700, Montreal (QC), H3A 2R7 www. stantonasset.com

1. Source: The BofA Merrill Lynch, Credit Suisse

Index Data: “Floa^ng Rate Senior Loan Index”: Credit Suisse Leveraged Loan Index; “Floa^ng

Rate Note Index”: Barclays U.S. HY FRN Index. “Short Dura^on High Yield Bonds”: The BofA Merrill Lynch 0-‐3 Year Dura^on BB-‐B Global Non-‐Financial High Yield Constrained Index

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