Consumer Loan Receivables. Greg Nelson President Aileron Capital Inc. October 27, 2013

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1 Consumer Loan Receivables are an Ideal Asset Greg Nelson President Aileron Capital Inc. October 27, 2013

2 Disclaimer The material contained herein is for information purposes only and does not constitute an offer to sell securities. An offer can only be made through the Offering Memorandum and the appropriate exemption documents provided to prospective purchasers through a registered exempt market dealer. This material is in no way a complete description of the proposed investment and is in all respects subject to the provisions of the Offering Memorandum. These offerings may be subject to potential risks associated with the investment, including market, liquidity and investment return risk. Please consult the offering documents for further information regarding these potential risks. In order to be eligible for subscription in this offering, individuals must satisfy the criteria required for Accredited, Eligible and/or Sophisticated investors as described in the Offering documents. 2

3 What is an Ideal Asset Class We want to have: High Cash Yield Low Losses Low Funding Costs Low Servicing/Operating Costs High Barriers to Entry Conservatively Funded/Structured Provides diversification 3

4 The $40+ Billion Secret Consumer Credit Finance / Asset Backed Securities (ABS) Credit cards, vehicles, equipment and installment loans More profitable than mortgages Higher yields Low market risk Shorter duration Currently dominated by the Canadian banks 4

5 High Yields Q Canadian Credit Card Performance Index Updated: September 12 Transaction Performance Pool Balance 1 Debt Balance 2 Payment Rate 3 Gross Yield 4 Net Loss Rate 5 Broadway Credit Card Trust S P D 1,217,537, ,363, % 19.57% 6.38% Canadian Credit Card Trust S P D 1,605,241,537 1,361,950, % 22.73% 3.59% CARDS II Trust S P D 13,440,769,616 6,343,055, % 22.90% 4.17% Eagle Credit Card Trust S P D 1,881,086, ,000, % 24.20% 3.89% Glacier Credit Card Trust S P D 3,940,880,569 1,363,661, % 21.10% 6.25% Gloucester Credit Card Trust S P D 1,917,813,931 1,101,000, % 18.20% 6.64% Golden Credit Card Trust S P D 8,624,750,017 6,138,731, % 19.30% 2.29% Master Credit Card Trust S P D 7,264,114,882 4,536,821, % 22.17% 3.69% SCORE Trust S P D 571,274, ,000, % 16.65% 2.68% Industry 40,463,469,195 23,660,476, % 21.47% 4.01% 5

6 Low Losses Q Canadian Credit Card Performance Index Updated: September 12 Transaction Performance Pool Balance 1 Debt Balance 2 Payment Rate 3 Gross Yield 4 Net Loss Rate 5 Broadway Credit Card Trust S P D 1,217,537, ,363, % 19.57% 6.38% Canadian Credit Card Trust S P D 1,605,241,537 1,361,950, % 22.73% 3.59% CARDS II Trust S P D 13,440,769,616 6,343,055, % 22.90% 4.17% Eagle Credit Card Trust S P D 1,881,086, ,000, % 24.20% 3.89% Glacier Credit Card Trust S P D 3,940,880,569 1,363,661, % 21.10% 6.25% Gloucester Credit Card Trust S P D 1,917,813,931 1,101,000, % 18.20% 6.64% Golden Credit Card Trust S P D 8,624,750,017 6,138,731, % 19.30% 2.29% Master Credit Card Trust S P D 7,264,114,882 4,536,821, % 22.17% 3.69% SCORE Trust S P D 571,274, ,000, % 16.65% 2.68% Industry 40,463,469,195 23,660,476, % 21.47% 4.01% 6

7 Low Funding Costs Canada Newswire October 24, 2012 Glacier Credit Card Trust, Series sold $400 million of Senior and $ million of Subordinated five year notes. Senior Notes 2.394% Subordinated Notes 3.174% The investment dealer arms of BMO and CIBC were the lead managers. 7

8 Diversification Different asset class Not dependent upon asset valuation Not dependent upon asset sales No development risk Relatively low correlation with the economy No derivatives involved 8

9 Why is this Market Untapped? Significant Barriers to Entry Need to Originate Many Small Loans Historically the market was dominated by credit card issuers, i.e. banks and financial institutions, or large national retail chain stores, i.e. Canadian Tire Corp. Requires hands on management of accounts (experienced collections staff) 9

10 High Rates Poor Quality Credit Depending on the nature of the asset Necessity products Convenience factor In many cases, monthly payment drives the decision making process, not the interest rate Therefore, many high interest rate loans are acceptable to consumers 10

11 Same Consumer Different Rates! 2.9% Mortgage 49.9% Computer 14.9% Used Car Loan 24.9% Jet Ski Loan 11

12 What we Bring to the Table.. We have consolidated a network of consumer lending companies in Canada that originate and administer consumer loans. Originate consumer loans for: Home Improvement HVAC, windows, doors etc. Vehicle financing, including recreational Small appliances Consumer electronics 12

13 Solid Infrastructure We have assembled a team with securitization and operational expertise to create an institutional grade investment structure. We have engaged a Backup Servicer who currently manages 11 billion in assets across North America. Annual income to the noteholders of between 6.50% and 9.25%. Safety in Numbers TM : Numerous small loans rather than a concentrated portfolio High overall gross yield on portfolio > 35% High excess spread to absorb losses Overcollateralized by 10% Class B notes (Subordinated debt) as added security for Class A notes. Locked in superior return for 5+ years NO deductions for expenses of offering (every dollar is invested)! 13

14 Benchmark Portfolio As of June 30, 2013 a Benchmark Portfolio of consumer loans originated and serviced by one of our originators consisted of $26.2 million of principal receivables with the following characteristics: Average number of receivables outstanding were 8,796 69% of the portfolio at this date had interest rates in excess of 25% Net losses for the six months ended June 30, 2013 were 1.81%. For the 12 months ended Dec 31, 2012, net losses were 3.96 %. The top four geographic concentrations of receivables were: Ontario (59.65%), Alberta (17.56%), British Columbia (8.15%) and Saskatchewan (5.49%). 14

15 How we Compare Benchmark Portfolio vs. CCQI Benchmark Portfolio Canadian CCQI (i) 2013 (ii) Average receivables outstanding (C'000s) 15,724,296 26,224 21,510 18,139 11,424 Net losses (%) (i) As at June 30, 2013, Canadian CCQI Standard & Poor's Canadian Credit Card Quarterly Index (ii) Benchmark portfolio as at June 30,

16 Controlling Loss Rates Portfolio servicing and specifically the Collections team management are paramount to the success of the portfolio: Low defaults: less than 4.0% annualized loss rate (In the benchmark portfolio) since inception in This compares to ~7% net loss rate for Canadian Tire. Demonstrates the value and necessity of real time, hands on collection activity. Senior managers individually have in excess of 20 years credit and collection experience. 16

17 Credit Support Credit Support Senior Notes Subordinated Notes Subordination 15% - Overcollateralization 1 10% 10% Excess Spread (estimated at closing) 25% 25% Plus: Cash Collateral Account (Zero at closing, and up to 6% depending on the level of excess spread) 1"The"Eligible"Receivables"are"expected"to"be"purchased"with"a"minimum"discount"of"10%"of"the"face"amount"of"the" receivable"balance." 17

18 Belts and Suspenders! Early Amortization Triggers: If Default Rates increase and/or Excess Spread decrease to certain levels, the program stops purchasing loans and begins to amortize early. After a defined Trigger Event, all collections are used to retire Class A Note Interest and Principal, followed by Class B Note Interest and Principal 18

19 A Quick Comparison Beacon (Series ) Glacier (Series ) Overcollateralization 10.0% 5.5% Subordination 15.0% 5.5% Overall Portfolio Yield >30.00% % 2 Portfolio Losses ~ % % Coupon Senior 6.500% 2.394% Coupon Sub 9.250% 3.174% Ratings None AAA(sf)/A(sf) 1 For full portfolio details, see Beacon Consumer Holdings Inc. Offering Memorandum 2 For 8 months ended Aug 31, As per DBRS rating reports. 19

20 Available Now Accredited or OM Exemption Investors only $10,000 minimum RSP, RIF & TSFA Eligibility Approximately 5 yr. Term (6 for Sub Notes) 6.50% Series Class A Notes, and 9.25% Series Class B Notes Interest paid monthly 20

21 Summary An alternative but not new Retail access to a proven market Excellent yield Low market risk No currency risk, no hedging, no derivatives No sale of assets required to repay investors Safety in numbers Overcollateralization High gross yields fund margin of safety Senior Notes benefit from Subordinates Notes Both Notes benefit from 10% overcollateralization 21

22 How to Participate Available though Registered Exempt Market Dealers across Canada CONTACT YOUR DEALING REPRESENTATIVE or visit us at 22