perspectives on value and recent m&a transactions current cable landscape april 24, 2013 citi...

Perspectives on Value and Recent M&A Transactions

Current Cable Landscape

April 24, 2013

Citi Corporate and Investment Banking | Media

Strictly Private and Confidential

Table of Contents

1. Public Market Update 1

2. M&A Market Update 13

3. M&A Case Studies

a. Cablevision’s Sale of Optimum West to Charter 24

b. Cogeco’s Acquisition of Atlantic Broadband 27

c. Apollo, Oaktree and Crestview’s Sale of Charter Shares to Liberty Media 30

1. Public Market Update


Cable Stocks Have Outperformed1-Year Stock Price PerformanceSince 4/19/2012

Note: Cable based on volume weighted average of Cablevision, Charter, Comcast, and Time Warner Cable.DBS based on DirecTV and Dish.RBOC based on Verizon and AT&T.

Cable

RBOC

DBS

S&P500

30.3%

15.8%

29.4%

11.2%

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

30.0%

40.0%

Apr-12 Jul-12 Oct-12 Jan-13 Apr-13

Cable DBS RBOC SP50

1

Change in:

1-Year Forward EBITDA Forward EBITDA Shares

Change Estimate Multiple Deleveraging Outstanding Other(1)

$11.08 $2.52 $7.07 ($1.17) $0.71 $1.96

9.85 5.26 (5.87) 0.29 10.98 (0.81)

41.59 17.69 44.81 (14.91) (3.65) (2.36)

0.58 (6.75) (0.15) 5.82 0.61 1.05

Performance Drivers Differed by Operator

Note: Data current as of 4/19/2013.(1) Other reflects changes in minority interest, non-cable assets, unconsolidated investments and preferred shares.

Drivers of 1-Year Share Price Performance

2

EBITDA Multiples Have Increased

Cable Deal Hiatus

Note: Multiples represent averages. No private cable transactions announced during 2008 – 2009.

Public cable multiples have recovered from 2008 and private market multiples have expanded.

Public and Private FV / EBITDA Multiples Over Time

10.2x 10.0x

8.4x

7.7x

8.5x

6.7x

5.7x 5.9x

6.0x 6.0x

6.5x 6.7x

11.0x

10.5x

9.9x

11.4x

8.5x

8.7x

7.7x

8.5x

8.1x 8.0x

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Current

Public Multiples Private Multiples

3

8.1x

6.5x 6.1x 5.9x

6.2x

5.7x

7.1x

6.4x

CHTR CMCSA TWC CVC DTV DISH VZ T

8.7x 7.3x 6.3x 6.6x

Public Valuations Reflect Recent PerformanceFirm Value / 2013E EBITDA

TelcoCable DBS

2013E – 2015E EBITDA CAGR

Consolidated FV / ’13 EBITDA

(1) (1) (1)(1)

Source: Company filings and Wall Street research.Note: Market data as of 4/19/2013.(1) Represents Cable Firm Value / 2013E Cable EBITDA. CVC / Charter pro forma for sale / acquisition of Bresnan. CMCSA pro forma for acquisition of 49% stake in NBCU.

6.6% 4.9% 3.4% 0.1% 3.1% 6.7% 4.8% 3.9%

4

0.0%

10.0%

20.0%

30.0%

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Debt Markets Love CableRobust Financing Markets…

Yie

ld T

o

Wo

rst

HY CCC IndexHY B IndexHY BB index10-yr Treasury

…That Are Highly Supportive of Cable

2010 2012 / 2013Size Coupon Size Coupon Rating

Charter $700 8.125% $500 5.750% BB-

MCCC 350 9.125 300 6.375 B-

Suddenlink 600 8.625 1,000 6.375 B-

(%) CCC B BB 10-Yr20 Yr Avg. 14.6% 10.1% 8.1% 4.8%

9 Yr Avg 14.6 8.8 7.1 3.6

Current 8.6 5.5 4.3 1.7

5

--20406080100

USM

LEAP

CLWR

TP

S

VZ

T

--

$10

$20

$30

$40

T VZ CTL WIN S FTR CMCSA TWC COX CHTR CVC Suddenlink BHN Other

0 20 40 60 80 100

Suddenlink

CTL

BHN

CVC

CHTR

COX

DISH

VZ

DTV

T

TWC

CMCSA

Large Players Focused on the Landscape

Enterprise (2012 Revenue, $ in millions)

Other

Residential(subscribers in millions)

Wireless(subscribers in millions)

--

Source: Company filing, Equity Research.

Residential~$190 bn

Wireless~$210 bn

Enterprise~$100 bn

VideoData

6

Demand for Data is Primary Driver of Outperformance…

#FiOSHH

#U-VerseHH

Fiber % US HH Passed

Cable % US HH Passed

Initial Telco Fiber Rollout Complete

Cable Homes Passed:

97% of HHs

Telco Homes Passed:

43% HHs

Cable is Advantaged in Reach…(US Household Fiber / Cable Coverage, HH in mm)

…And HSD Technology (Download Speed in Mbps)

Cable offers a superior product across 54% of its homes

passed

38

5%

33% 40% 43%

96% 97% 97% 97%

0%

20%

40%

60%

80%

100%

120%

2007 2009 2011 2012

17

47 50

42

23

9 6 5

Fiber Cable LTE WiMax DSL

7

37%

25%

10%

5% 5%

18%

AT&T Verizon Centurylink Windstream Cable Other

…Commercial Opportunity is a Secondary Driver…

$37.0

$25.0

$10.0

$5.0 $4.4 $3.8$2.3 $1.9 $1.2 $0.7 $0.3 $0.3 $0.3

$10.0

--

$10

$20

$30

$40

T VZ CTL WIN S FTR CMCSA TWC COX CHTR CVC Suddenlink BHN Other

Enterprise: A $100 billion Market Opportunity…(Revenue Market Share)

Other

Estimated Opportunity:

$25bn

Acquired a CLEC and VoIP provider


$20bn

Acquired Navisite, an enterprise hosting

provider


~$9bn in Tier 2/ 3 Cities

Provides services in the New York metro

area through Optimum Lightpath

Recently acquired cloud

communications provider Telovations

Cable Operators Plan to Expand Capabilities to Drive Market Share Gains(2012E Enterprise Revenue, $ in bn)

Cable Other

8

…Both Contributing to Revenue GrowthRevenue Growth Contribution2011A – 2012A Growth in Revenue & Segment Growth Contribution

20.5% 19.2%

33.7%

35.9%

52.7%

25.8%

25.2%

38.0%

20.1%

19.7%

9.3%

$2,378

$1,711

$300

Comcast TWC Charter

Video Data Commercial Other

9

57.7%

46.0% 41.4% 41.3% 39.8%

35.8% 34.3%

CVC COX CMCSA TWC Suddenlink Mediacom CHTR

Growth Profiles Enhanced by “Catch-up” Opportunity

HSD Penetration (% of HP)

Cable Penetration% of Homes Passed; as of 12/31/12

PSU Growth2012A

53.3% 46.4% 36.4% 38.7% 33.9% 32.7% 33.7%

(0.3%)

(1.8%)

3.0%

6.5%

1.6%

0.5%

3.2%

CVC COX CMCSA TWC Suddenlink Mediacom CHTR

10

$11.8$15.3

$20.5$0.8

$1.6

$3.0

$14.9

$18.3

$22.3

$27.4

$35.2

$45.8

2009 2012 2015

Investors Focused on Costs

4.1% 4.0%

3.5% 3.6% 3.2%

3.0%

8.2% 8.3% 8.2% 8.2% 7.9%

7.4%

2010 2011 2012 2013E 2014E 2015E

APRU Prog. Cost / Sub

Video Gross Profit Margin

Programming Costs Increasing Faster than ARPU… % Growth

62% 60% 58% 56% 54% 52%

Source: Wall Street research.

Primarily Driven by Sports Rights & Retrans Fees(Affiliate Fees: ’09A – ’15E) ($bn)

Sports

Retrans

Cable Nets

8.7%

9.2%

6.8%

7.2%

27.8%

23.7%

9.1%

10.3%

’09 – ’12 CAGR

’12 – ’15 CAGR

11

Programming Costs Pressuring MarginsChange in Programming Cost / Sub2012A vs. 2011A

EBITDA Margin Y-o-Y Change (bps)

EBITDA Margin2012A

34.5%

36.0% 35.9% 37.1%

41.0%

38.3% 37.4%

CVC-Adj TWC CHTR Suddenlink CMCSA Mediacom COX

(449) (75) (120) (301) (2) 33 (129)

11.3% 11.1%

9.3% 9.1% 8.4%

7.9%

5.4%

CVC TWC CHTR Suddenlink CMCSA Mediacom Cox

12

2. M&A Market Update


21,995

12,030

4,462 4,381

2,893 2,013

1,211 1,000

20,100

14,056

4,726 4,536

1 2 3 4 5 6 7 8 9 10 11 12

Further Consolidation Likely

TelcoCable DBS

Current Cable Landscape(Subscribers in 000s)

14

Three Groups of Acquirors

Large Operators

Roll-ups / Platform Expansion

Financial Buyers

· Leverage programming costs

· Reduce tax payments

· Operating cost reduction

· Consolidate rural systems

· Adjacent markets

· Leverage SG&A costs

· Low risk investment

· Need leverage / scale

· What is exit?

Acquiror Type Motivations Example

Charter/Optimum West

Cogeco /Atlantic Broadband

Liberty / Charter

West

15

Wide Range of Processes

Process 1 Process 2 Process 3 Process 4 Process 5

Type of Process

Broad Auction Limited Auction Broad AuctionBilateral

NegotiationLimited Auction

Catalyst for Process

Sponsor nearing end of investment

Not aligned with Company’s core

markets


Death of founder


Focus parent’s business

Prior Processes

3 0 0 0 0

Total Number of Parties Involved

7+ Did not sell 12+ 2 6

16

Scale is Increasingly Valuable to Operators2012A Programming Cost per Subscriber

$30.00

$32.00

$34.00

$36.00

$38.00

$40.00

$42.00

$44.00

0 5 10 15 20 25

Pro

gra

mm

ing

Co

sts

($ p

er

sub

pe

r m

on

th)

Subscribers (mm)

2012A Capex per Subscriber

Largest firm pays ~20% less

than smallest firms

$200

$250

$300

$350

$400

$450

0 5 10 15 20 25

Ca

pe

x P

er

Su

bsc

ribe

r

Subscribers (mm)

(1)

(1)

(1)

(1)

(1) Based on regression curve including CMCSA, CHTR, CVC, TWC DTV and DISH.17

Synergies Have Been MeaningfulPrecedent Transaction Synergies

(1)

Source: Company filings, Wall Street research.(1) Represents tax shield of incremental interest cost.

Target: Optimum West Atlantic Broadband OneLink Insight

Acquiror: Charter Cogeco Liberty Global TWC

Cost Synergies

Programming -- -- $1 $30

% of Programming 2.1% 11.4%

Overhead $7 -- $2 $35

% of Overhead 51.4% 39.9% 39.6%

Operating -- -- $15 $35

% of Operating 25.7% 10.1%

Other $19 -- --

Total Costs $7 $19 $18 $100

% of Total 2.0% 9.5% 14.6% 14.3%

WestWest

18

Synergy Potential Will Drive View of ValueLarge Strategic Mid-Sized Strategic Financial Sponsors

Revenue · Some · Penetration? · None

Cost Structure % Synergy % Synergy % Synergy

Programming 20% 5% 0%

Field Costs 10% 5% 0%

Marketing 15% 10% 5%

Customer Service 0% 0% 0%

Corporate Overhead 50% 25% 15%

Other Operating Costs 5% 2.5% 0%

Total Synergies 10 – 15% 5 – 10% 1 – 2.5%

19

Tax Assets Can Be Valuable

(1) Based on regression curve including CMCSA, CHTR, CVC, TWC DTV and DISH.

Larger Operators Looking to Reduce Taxable Income(2013E Taxable Income)

Value of A Tax Step-up Can Be AttractiveIllustrative $750mm Tax Step-up Example

Potential Fully Utilized Value of Tax Step-up

Transaction Summary & Asset Write-Up

Transaction Value $1,000

Tax Asset Basis $0

Asset Write-Up $1,000

Intangibles 80% $800

Tangibles 20% $200

Net Present Value of Tax Benefits

Fiscal Year Ending December 31,($ in millions) # 2014 2015 2016 2017 2018 2028

Intangibles -- 15yr Straight-Line # $53 $53 $53 $53 $53 $0

Tangible Assets -- 7yr MACRs Schedule 29 49 35 25 18 014.3% 24.5% 17.5% 12.5% 8.9% 0.0%

Total Incremental D&A $82 $102 $88 $78 $71 $0

Tax Savings @ 40.0% # 33 41 35 31 28 0

Cost of Capital

7.0% 7.5% 8.0% 8.5% 9.0%

NPV $250 $243 $237 $231 $226

($ in millions) Comcast TWC Cox Cablevision

2013E Taxable Income $10,047 $3,493 $2,000 $45

Existing NOL assets 158 322 250 --

20

Seller and Buyer Have Different Perspectives

(1) Includes debt and swap breakage costs and other transaction costs.

0.8xEBITDA

2.4xEBITDA

Transaction A Transaction BTWC CVCInsight Bresnan

Seller's ViewAnnounced Purchase Price / Cash to Sellers $3,000 $1,365

Cost Assumed by Buyer (1) $150 --

Adjusted Purchase Price $3,150 $1,365

Disclosed EBITDA $382 $179

Performance Adjustment (10) --

Programming Dis-synergies -- (15)

Adjusted EBITDA $372 $164

Seller's EBITDA Multiple 8.5x 8.3x

Buyer's ViewAnnounced Purchase Price / Cash to Sellers $3,000 $1,365

After-tax Costs (1) $50 --

PV of Tax Asset (300) (400)

PV of Synergies (800)

Adjusted Purchase Price $1,950 $965

Disclosed EBITDA $382 $164

Revenue Synergies -- 24

Adjusted EBITDA $382 $188

Buyer's EBITDA Multiple 5.1x 5.1x

21

Financial Sponsors Focused on Cable Sector Numerous Sponsors Bidding On Cable Assets What Are Sponsors Looking For?

Management Team

Platform for Roll-ups

“Catch-up” Opportunities

Scale / Leverageability

· Can back existing teams

· Provide additional expertise

· Spreads costs across markets

· Increases exit alternatives

· Underpenetrated “rural” systems

· Chance to upgrade plant

· Need scale and an exit

· Leverage required to hit returns

22

Returns Dependent on Scale and Leverage

Illustrative Cable LBO

Minimum scale required for sufficient leverage

and to preserve exit opportunities

Lenders attracted torecurring free cash flow, physical assets,

high margins

Bond market can be accessed foradditional leverage if issuance is above

~$150mm

Market conditions have increased leverage available to acquirors

($ in millions)

Cable System EBITDA $75

Purchase Multiple 9.5x

Purchase Price $713

Leverage Capacity

Secured Debt Capacity 4.0x

Secured Debt $300

Incremental Unsecured Capacity 2.0x

Unsecured Debt $150

Total Debt $450

Implied Equity Investment 263

% of Purchase Price 37%

23

3. M&A Case Studies


a. Cablevision’s Sale of Optimum West to Charter

West


Charter / Optimum West Transaction Overview

On February 7th, 2013, Cablevision Systems Corporation entered into a definitive agreement to sell Bresnan Broadband Holdings, LLC (“Optimum West”) to Charter Communications Inc. for $1.625 billion

Purchase price represents 10.0x Optimum West’s

LTM Adjusted Operating Cash Flow

Optimum West serves approximately 366,000 customers in Montana, Colorado, Wyoming and Utah

Cablevision had acquired Bresnan in June 2010 for $1.4 billion (8.1x LTM EBITDA)

Citi advised Cablevision on the transaction

($ in millions, excl. per sub)


Transaction Multiples Metric

FV / Basic Subs ('000s) 304 $5,343

FV / 9/30 LTM AOCF $163.1 10.0x

FV / 9/30 LQA AOCF 183.2 8.9

Implied Transaction Multiples

Limited number of targeted participants

13 weeks from beginning of process to signing

Distribution of information package in first round

Full diligence in second round

ProcessOverview

24

Optimum West Headends

Optimum West States Served

Kalispell Havre

Great Falls

Missoula

Helena

BozemanBillings

Jackson

CodySheridan

Gillette

Casper

L ara m ie

Cheyenne

Cedar City

Grand Junction

Lamar

Canon City

Durango

Montana

UtahColorado

Wyoming

Geographic OverviewGeographic Overview Key Operating MetricsKey Operating Metrics

(September 30, 2012)

(1) 3-product bundling defined as the percentage of unique customers who subscribe to three of Optimum West’s core products (video, HSD, voice).

Optimum West Asset Overview

Metric Performance

Premises Passed 665,500

Basic Penetration(% of Premises Passed)

45.7%

Digital Penetration(% of Basic Subscribers)

83.3%

HSD Penetration(% of Premises Passed)

42.9%

Voice Penetration(% of Premises Passed)

25.4%

3-Product Bundling(1) 40.6%

% above 750 MHz 90.0%

Principal Competitors· CenturyLink

(No IPTV video offering)· DirecTV, DISH

West

25

· Carrier class plant and network with 90% two-way 750 – 860 MHz capacity

· State-of-the-art Network Operations Center, Regional Operations Center and principal

call centers all within Optimum West’s footprint

· Market leader in video and HSD with 45.7% and 42.9% penetration, respectively

· In the areas it serves, Optimum West is the only integrated triple-play provider in the

market (CenturyLink has limited HSD speeds (3 Mbps) and no proprietary video product)

· Strong household and population growth

· High levels of employment and stable economic base

· Significant new home construction

· $80 million in capital to migrate off net2phone, introduce higher HSD speeds and

connect additional headends

· Revamped sales and marketing team by adding door-to-door sales resources and

dedicating resources to SMB, bulk and Enterprise customer segments

Optimum West Transaction Rationale

Attractive Markets

Strong Competitive Position and Unmatched

Product Offering

Fully Upgraded,

High Quality Systems

Significant Investment

and Operating Improvements by Cablevision

26

b. Cogeco’s Acquisition of Atlantic Broadband


Transaction Overview

On July 18th, 2012, Cogeco announced the acquisition of Atlantic Broadband (“ABB”) for $1.36 billion in cash

Transaction valued at 8.8x forward EBITDA (8.3x net of tax structure)

Cogeco is a leading cable operator based in Montreal, Canada

Atlantic Broadband is the 14th largest cable provider in the U.S., serving 251,000 basic cable subscribers

ABB was previously owned by ABRY Partners and Oak Hill Capital Partners (acquired from Charter in 2004)

Structure provides meaningful tax benefits back to Cogeco

($ in millions, excl. per sub data)


Transaction Multiples Metric

FV / Basic Subs (000s) 252 $5,403

FV / LTM EBITDA $154 8.8x

FV / 2013E EBITDA 164 8.3

Implied Transaction Multiples

Cogeco will acquire 100% of ABB in an all-cash deal

– Cogeco received incremental financing for $660mm of the purchase price

– Cogeco funded the remaining portion of the purchase price with cash and its own credit facility

Transaction closed in December 2012

Key TermsOverview

27

Atlantic Broadband Asset OverviewBusiness Overview

Geographic Footprint(As of 6/30/2012)

14th largest cable provider in the U.S.

Technologically advanced network

– ~7,900 miles of network plant with an average

density of 65 homes per mile

– 92% of the platform fully upgraded to all digital or

operating 750MHz capacity or higher

– DOCSIS 3.0 covers 85% of homes passed

– 98% of homes passed are internet and telephone

ready and two-way connection capable

Key Operating Statistics(As of 6/30/2012)

Source: Company materials.(1) As a percentage of homes passed.

Amount Penetration

Homes Passed 515,346 --

PSUs 480,057 --

Digital Video Customers 98,434 19.1%

Total Video Customers 251,718 48.8

HSI Customers 155,845 30.2

Phone Customers 72,494 14.1

(1)

Western PennsylvaniaHomes Passed: 243,177Basic Customers: 122,419

Maryland/DelawareHomes Passed: 60,530Basic Customers: 21,126

Aiken (South Carolina)Homes Passed: 56,114Basic Customers: 22,641

Miami BeachHomes Passed: 155,525Basic Customers: 85,532Note: Basic Customers include Basic Television and Digital Video customers.

Atlantic BroadbandHeadquartersQuincy, MA

28

· ~30% commercial revenue CAGR despite having less than 10% of market share

· Approximately 40,000 businesses within existing network

· 92% of platform was fully upgraded to all digital or operating at 750MHz or higher

· DOCSIS 3.0 covers 85% of ABB’s homes passed

· 7,900 miles of network with average density of 65 homers per mile

· Underpenetrated markets imply room for growth

· Less competitive markets suggest ability to maintain pricing

· Platform allows Cogeco to explore other ways to deploy capital in the U.S. cable sector

· Neighboring markets facing limited competition as well

Atlantic Broadband Transaction Rationale

Attractive Entry into

U.S. Markets

High Quality Network

Infrastructure

Commercial Growth

Opportunity

Provides Platform for Future Growth

29

c. Apollo, Oaktree and Crestview’s Sale of Charter Shares to Liberty Media


Apollo, Oaktree and Crestview’s Sale of Charter Shares to Liberty Media

Implied Valuation of Charter

On March 19, 2013, Apollo, Oaktree, and Crestview entered into a definitive agreement with Liberty Media to sell 26.9 million shares and 1.1 million warrants of Charter Communications for $2.617bn

Shares were sold for $95.50 per share, representing a premium of 6.0% to Charter’s closing share price on March 15th, 2013

Values Charter at 8.0x FV / 2013E EBITDA

The transaction is expected to close in the first half of the 2nd quarter of 2013

Citi acted as financial advisor to Apollo and Oaktree on this transaction

Pro Forma Ownership

(1) Total proceeds includes warrants.

Under the terms of the stockholder’s agreement, Liberty Media has the right to name up to four directors

Liberty is restricted from acquiring a stake exceeding 35% until January 2016 and 39.99% into perpetuity

Overview

Governance

@ Market($ in millions) (3/15/13) Sale Price

Share Price $90.09 $95.50

Implied Equity Value $9,950 $10,584

Implied Firm Value 23,115 23,749

Valuation Metric Multiple

FV / '13E EBITDA $2,958 7.8x 8.0x

FV / '14E EBITDA 3,243 7.1 7.3

EV / '13E FCF 432 23.0 24.5

EV / '14E FCF 769 12.9 13.8

(in millions) Shares Sold % Ownership Sold % Ownership PF

Apollo Stake 17.8 17.6% 0.0%

Crestview Stake 2.2 2.2 7.4

Oaktree Stake 6.9 6.8 2.2

Total Stake Sold 26.9 26.6% 9.6%

Share Price $95.50 -- --

Total Proceeds (1) $2,617 27.3% --

30

Charter Asset OverviewBusiness Overview· Fourth largest U.S. cable operator based on homes passed

and basic video customers

· Diverse geographic footprint spread across mid-tier metropolitan and rural areas

· Thomas Rutledge joined as CEO in Nov 2011 and has hired other legacy Cablevision key executives

· Significant capital invested in plant upgrades

Key Operating Stats

· 4,197,000 basic video subs (1)

· 3,484,000 digital video subs

· 3,917,000 high speed data subs

· 1,979,000 telephone subs

· 13,577,000 total RGUs

(1) Includes commercial video and residential video.

Geographic Footprint(As of 12/31/2012)

31

· Charter’s owners have made significant capital investments in infrastructure upgrades

· Liberty investment comes at time when Charter is primed for growth

· Best opportunity for re-entry for Liberty Media as large stake with governance rights

could be acquired at a modest premium

· Charter operations large enough to benefit from scale with a path to more over time

· Investment in Charter represents a re-entry into U.S. cable market

(Sold TCI to AT&T in 1999)

· Liberty Global owns numerous international cable assets across 13 countries

Charter Transaction Rationale

Strong Cable Operating Experience

Consistent with Liberty Media Investment

Strategy

Capital Investment Has Been Made

32


Q&A

33

Citi Contact Information

Christina MohrManaging Director, Mergers & Acquisitions

· Office: 1 (212) 816-9247

· E-mail: [email protected]

Derek Van ZandtManaging Director, Global Communications Group

· Office: 1 (212) 816-0633

· E-mail: [email protected]


34

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Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters. By acceptance of these materials, you and we hereby agree that from the commencement of discussions with respect to any Transaction, and notwithstanding any other provision in this presentation, we hereby confirm that no participant in any Transaction shall be limited from disclosing the U.S. tax treatment or U.S. tax structure of such Transaction.

We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us. We will ask for your complete name, street address, and taxpayer ID number. We may also request corporate formation documents, or other forms of identification, to verify information provided.

Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time without notice and are not intended as a solicitation with respect to the purchase or sale of any instrument. The information contained in this presentation may include results of analyses from a quantitative model which represent potential future events that may or may not be realized, and is not a complete analysis of every material fact representing any product. Any estimates included herein constitute our judgment as of the date hereof and are subject to change without any notice. We and/or our affiliates may make a market in these instruments for our customers and for our own account. Accordingly, we may have a position in any such instrument at any time.

Although this material may contain publicly available information about Citi corporate bond research, fixed income strategy or economic and market analysis, Citi policy (i) prohibits employees from offering, directly or indirectly, a favorable or negative research opinion or offering to change an opinion as consideration or inducement for the receipt of business or for compensation; and (ii) prohibits analysts from being compensated for specific recommendations or views contained in research reports. So as to reduce the potential for conflicts of interest, as well as to reduce any appearance of conflicts of interest, Citi has enacted policies and procedures designed to limit communications between its investment banking and research personnel to specifically prescribed circumstances.

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