Invesco s Senior Loan Platform May 2012 Presented by: Scott Baskind Senior Portfolio Manager 0000000
Bank Loans are Trading Cheap to Historic Levels % Par Average Bank Loan Bid Source: Standard & Poor s LCD and S&P/LSTA Leveraged Loan Index. Includes all loans. Jan. 1997 through May 1, 2012. Historical Price Data Date Price Discount Margin Average 95.18 L+437 High 3/2005 101.01 L+251 Low 12/2008 63.08 L+1641 Current 4/2012 95.48 L+563 Market is attractive vs. historic norms, especially when normalized for Oct 08-Mar 09 Current STM: L+563 Historical STM: L+402 1 Source: S&P LCD January 1997- April 2012 1 Excludes Oct. 2008-Mar.2009 2
Technicals and Headline Risk Creating Mini Cycles S&P 500 vs. S&P/LSTA Index Source: Standard & Poor s LCD and Bloomberg, April 2012. Headline Q1 11: Japanese Earthquake/ Tsunami Q2 11: US Fed Pledges to Keep Rates Low Q3 11: Escalation European/ US Debt Q4 11: European Credit Crisis Continues Q1 12: Europe Fears Subside Q3: Risk on / Risk off Q1: Risk on Supply and Demand Q1 11: $15.4bn of inflows Q2 11: Neutral Q3 11: $6.9bn of outflows Q4 11: Lack of new issue Q1 12: $5.8bn of CLO issuance 1 Correlation pre-lehman of 0.21 has increased to 0.59 post-lehman 2 because of a broader investor base Decline in CLO participation from 60% of the market in 2007 to 40% in 2011 3 Creating opportunity around full cycle bottom up value driven security selection 1 S&P LCD 4/1/2012 2 J.P. Morgan. Pre-Lehman includes Jan 1997- Sept 1997, Post-Lehman includes Oct 2008-Oct 2011 3 LCD Quarterly Q4 2011 and Q2 2007 3
Loan Market Technicals Institutional Loan Market Size Source: Standard & Poor s LCD Sources of Inflows 1 Relative Yield CLO Issuance Retail Inflows Estimated Institutional Inflows 2 Total Inflows Net New Issue Supply $5.42bn $0.29bn $6.5bn $12.21bn $-3.66bn Yield to Maturity Spread to Worst At Forward Libor Duration (Years) 5 Year Treasuries 0.83% 4.90 10 Year Treasuries 1.95% 8.90 Barclays US Agg 2.07% T + 1.24% 5.07 ML US HY Index 7.56% T + 6.16% 4.29 Inflows Net of Available Supply $15.87bn 1 Source: S&P s LCD 3/29/2012 2 Estimated based on ISSM s year to date institutional inflows. S&P LSTA Index L + 5.63% T + 5.90% 6.56% 45-60 Days 4
Solid Fundamental Credit Performance Improving Fundamentals 1 Revenue Growth Bank Loan Default Rate Bank Loan Maturity Schedule EBITDA Growth Q1 2011 5.99% 8.16% Q2 2011 7.27% 8.14% Q3 2011 6.62% 5.83% Q4 2011 4.59% 8.07% Long-term average default rate Leveraged loans: 3.8% Good earnings performance going back to Q3 09. Issuers with public filings have demonstrated 10 consecutive quarters of EBITDA growth 2 Average quarterly EBITDA growth of 15.5% from Q3 09 to Q4 11 may be difficult to sustain, but with 2012 GDP growth forecasted to be 2% 3, we expect trends to remain positive Corporate issuers in the senior secured loan market have benefited from robust capital markets during the last two years and have strengthened their balance sheets, improved liquidity and addressed near term maturities No catalyst for a liquidity event: limited near term maturities support our 2% default outlook Low growth environment favors debt vs. equity 1 Source: ISSM issuer database- median year over year growth stats 2 Source: LCD, April 1, 2012 3 Source: JPM 2011 HY Annual Review December 2011 5
Attractive Risk Return Equation Senior Secured Loan Market Implied Default Rate Historical STM 1 L+331 Less Credit Loss 108 Historical Risk Premium L+223 STM April 2012 L+563 Less Historical Risk Premium L+223 Excess Spread 340 bps Implied Default Rate (30% LGD) 11.33% Peak Default Rate 2 10.81% New Issue New deals coming at premiums to historic levels Good blend of current income and yield Mostly proven issuers with above average credit profiles US$18.5 billion of New Issue Activity over the past 30 days New Issue Economics Attractive Spread = L + 482.5 bp LIBOR Floor = 137.2 bp OID = 133 bp Current Forward Calendar at US$31.8 billion 4 Est. 2012 Default Rate 3 2.00% This should not be considered a recommendation to buy or sell any particular holding. 1 Historical spread, price and yield reflect pre-credit crisis average from Jan. 31, 1997-Dec. 28, 2007 2 Date: 11/30/2009 3 Estimated Default: JP Morgan 2011 HY Annual Review- Dec. 2011 4 Source: S&P LCD April 30, 2012 6
Invesco s Senior Loan Capabilities Invesco Senior Secured Management, Inc. ( ISSM ), with US$16.5 billion of senior loan assets under management, is one of the largest institutional and retail managers in the asset class. Invesco s full cycle approach to managing senior loan credit risk is grounded in active, bottom-up research and has enabled our strategies to add value over the long term. Our senior loan platform is also supported by global resources of Invesco, Ltd., one of the world s largest asset management companies. Attribute Size Product Scope Tenure/Experience Investment Style US$16.5 billion senior loan assets under management One of the largest retail and institutional managers of senior loans 1 Manage 30+ funds, encompassing a variety of strategies Global platform with U.S. and European senior loan expertise Ability to deliver customized opportunities Top position in all 3 major sectors- Retail, Institutional, CLO Team of 39 professionals including 29 investment professionals Five-person Senior Investment Committee with average 23 years experience Experience spans multiple credit cycles Disciplined, fundamental approach to investing Focused on credit selection Designed to optimize portfolio return and minimize downside risk through full cycle Benefit ACCESS, EXECUTION AND ALLOCATION ACTIVE MANAGEMENT THROUGHOUT ALL MARKET CYCLES LARGE CREDIT TEAM MONITORING SENIOR LOANS TO MINIMIZE DOWNSIDE RISK DEDICATED LOAN PLATFORM SINGULARLY FOCUSED ON THE UNIQUE ASSET CLASS 1 Based on evestment assets under management as of Dec. 1, 2011. Source: Invesco. Data as of March 31, 2012. 7
Senior Loans at Invesco One of the largest managers of senior secured bank loans for both retail and institutional senior loan investors US$16.5 billion in bank loan assets under management Invesco Bank Loan Key Strategies: US CLOs European CLOs Cross-over CLOs Separate Accounts Commingled Institutional Opportunistic Offerings Retail ETF Based on assets under management on 3/31/2012 Source: Invesco as of December 31, 2011. Strategies listed are not all available in all jurisdictions or to all investors. Please consult your local Invesco representative for more information. 8
About Risk The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Current tax levels and reliefs may change. Depending on individual circumstances, this may affect investment returns. As with all investments, there are associated inherent risks. Neither Invesco Senior Secured Management, Inc. nor any affiliate of Invesco Ltd. guarantee the return of capital, distribution of income or the performance of any investment. This document is by way of information only. Asset management services are provided by Invesco in accordance with appropriate local legislation and regulations. Where Invesco has expressed views and opinions, these may change. The nature of this investment is different from traditional funds and the risks inherent in it are not typically encountered in traditional funds. The investment undertakes special risks which may lead to substantial loss. Investors are advised to consider their own financial circumstances and the suitability of the investment as part of their investment portfolio, and investors are advised to obtain all information and professional advice before making the investment. Credit risk is the risk of loss on an investment due to the deterioration of an issuer s financial health. Such a deterioration of financial health may result in a reduction of the credit rating of the issuer s securities and may lead to the issuer s inability to honor its contractual obligations, including making timely payment of interest and principal. Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. A majority of the funds assets are likely to be invested in loans and securities that are less liquid than those rated on national exchanges. There is no guarantee that the investment techniques and risk analysis used by the funds portfolio managers will produce the desired results. The prices of securities held by the fund may decline in response to market risks. Nondiversification increases the risk that the value of the fund s shares may vary more widely, and the fund may be subject to greater investment and credit risk than if it invested more broadly. The ability of an issuer of a floating rate loan or debt security to repay principal prior to maturity can limit the potential for gains by the fund. To the extent that the fund is concentrated in securities of issuers in the banking and financial services industries, the fund s performance will depend to a greater extent on the overall condition of those industries. The value of these securities can be sensitive to changes in government regulation, interest rates and economic downturns in the U.S. and abroad. The fund may use enhanced investment techniques such as derivatives. The principal risk of derivatives is that the fluctuations in their values may not correlate perfectly with the overall securities markets. Derivatives are subject to counterparty risk the risk that the other party will not complete the transaction with the fund. Leveraging entails risks such as magnifying changes in the value of the portfolio s securities. 9
Important Information This document is intended for one-on-one use only. It is not intended for and should not be distributed, or relied upon, by other persons including members of the public or retail investors. Please do not redistribute this document. Please consult each product s offering document / prospectus for additional information about the portfolios. Consider the investment objectives, risks, charges and expenses of the product carefully before investing. The offering document / prospectus contains this and other information about each product. To obtain an offering document / prospectus, contact your Invesco representative and read offering document carefully before investing. This document contains confidential information, is for informational purposes only and is not an offering. This document does not form part of any prospectus or any offering document. This is not an offer to buy or sell any security. This does not take into account individual objectives, taxation position or financial needs and should not be relied upon as the sole factor in an investment making decision. Nor does this constitute a recommendation of the suitability of any investment strategy for a particular investor. While great care has been taken to ensure that the information contained herein is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. Past performance not indicative of future results. An investment cannot be made directly in an index. Where Invesco has expressed views and opinions, these may change. Invesco Senior Secured Management, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the distributor for the Invesco and Invesco Van Kampen Funds. Both firms are indirect, wholly owned subsidiaries of Invesco Ltd. All data provided by Invesco unless otherwise noted. Additional Disclosure for AUM Sources: Invesco, Morgan Stanley/Van Kampen Investments. Assets under management and client-related data as of March 31, 2010; investment professional and employee data as of June 1, 2010. Includes U.S.-domiciled mutual funds, PowerShares ETFs and ETNs, UITs, subadvised, variable insurance funds, SMAs and money market funds distributed and overseen by Invesco. Invesco PowerShares Capital Management LLC is the sponsor for the PowerShares QQQ, BLDRS and DB products. Invesco Distributors, Inc. and its affiliate, Invesco PowerShares Capital Management LLC, have an agreement with Deutsche Bank to provide certain marketing services for the PowerShares DB products. Neither firm is affiliated with Deutsche Bank. Invesco PowerShares Capital Management LLC is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd. s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd. ALPS Distributors, Inc. is the distributor of PowerShares QQQ, BLDRS Funds and the PowerShares DB Funds. Invesco Distributors, Inc. is not affiliated with ALPS Distributors, Inc. 10