C

Global High Yield and Leveraged Loan Research
September 1, 2011
High-Yield Market Monitor

High Yield and Leveraged Loan Research
Performance Risk aversion was certainly a prevalent theme in August, as risky assets underperformed amidst continued global economic concerns, the downgrade of the US long-term debt by S&P, and European sovereign stress. Market volatility surged, as evidenced by the VIX, which averaged 35.0 over the course of the month, compared with an average of only 18.2 during the first seven months of the year, and peaked at a 29-month high 48.0 on August 8. Both high-yield and leveraged loan mutual funds reported large outflows in August, with loan funds reporting a record monthly outflow of $4.7bn (10.5% of assets under management), and high-yield bond funds reporting a $4.4bn outflow. In the wake of all this, high-yield bonds and loans returned -3.7% and -4.4%, respectively, and the S&P 500 returned -5.4%. The 10-year Treasury was up +5.6% and investment-grade bonds managed a +0.35% gain. Spreads and yields High-yield bond spreads widened 144bp to 726bp, off slightly from their intra-month high of 751bp, and now up 149bp YTD. Leveraged loan spreads increased 209bp to L+793bp, the highest month-end level since November 2009. The IG CDX (115bp) and HY CDX (638bp) increased 19bp and 148bp, respectively while LCDX increased 136bp to 406bp. The average yield for junk bonds increased 123bp during the month to 8.39% (intra-month high of 8.64%) and are almost the same as they were exactly one year ago (844bp). New-issue activity With volatility rampant and the end of summer slowdown in full effect, the high-yield primary market was extremely quiet in August, as only four issues totaling $1.2bn priced, the lowest number of deals and lightest volume of issuance since December 2008. The loan primary market was also subdued, with 26 loans pricing for $7.6bn, the second lowest monthly volume this year. Year-to-date, high-yield new-issue volume now totals $201bn, compared with $175bn over the same period last year, while leveraged loan volumes total $196bn, surpassing the $155bn priced during all of last year. Defaults For the second time in four months there were no defaults in the leveraged credit market. The trend in default activity remains extremely low, with a monthly average of 1.4 companies and $635mn defaulting YTD. Year to date, 11 companies have defaulted, affecting $5.1bn. By comparison, 30 companies and $11.7bn defaulted during the first eight months last year. The par-weighted high-yield default rate decreased to 0.99% from 1.03%, after hovering between 0.75% and 0.81% from November to June. For loans, the par-weighted default rate decreased to 0.45% from 0.84%, its 21st decline in the last 22 months and the lowest level since December 2007.
Peter D. AcciavattiAC
(1-212) 270-9633 peter.acciavatti@jpmorgan.com
Tony Linares
(1-212) 270-3285 tony.linares@jpmorgan.com
Nelson Jantzen, CFA
(1-212) 270-1169 nelson.r.jantzen@jpmorgan.com
Alisa Meyers
(1-212) 834-9151 alisa.meyers@jpmorgan.com
Rahul Sharma
J.P. Morgan India Private Ltd. rahul.z.sharma@jpmorgan.com J.P. Morgan Securities LLC
See page 20 for analyst certification and important disclosures.
J.P.Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
www.morganmarkets.com
Peter D. Acciavatti (1-212) 270-9633 peter.acciavatti@jpmorgan.com Tony Linares (1-212) 270-3285 tony.linares@jpmorgan.com
High Yield and Leveraged Loan Research High-Yield Market Monitor September 1, 2011
Nelson Jantzen (1-212) 270-1169 nelson.r.jantzen@jpmorgan.com Alisa Meyers (1-212) 834-9151 alisa.meyers@jpmorgan.com
August summary: Risky assets succumb to headline risk and heightened market volatility Risk aversion was certainly a prevalent theme in August, as risky assets underperformed amidst continued global economic concerns, the downgrade of the US long-term debt by S&P, and European sovereign stress. Market volatility surged, as evidenced by the VIX, which averaged 35.0 over the course of the month, compared with an average of only 18.2 during the first seven months of the year, and peaked at a 29-month high 48.0 on August 8. Both high-yield and leveraged loan mutual funds reported large outflows in August, with loan funds reporting a record monthly outflow of $4.7bn (10.5% of assets under management), and high-yield bond funds reporting a $4.4bn outflow. In the wake of all this, high-yield bonds and loans returned -3.7% and -4.4%, respectively, and the S&P 500 returned -5.4%. The 10-year Treasury was up +5.6% and investment-grade bonds managed a +0.35% gain. Risky assets traded off their lows late in the month, helped in large part by speculation the Fed would take additional steps to stimulate the economy. Stocks rallied the most, returning +8.5% in the months last eight days of trading, while bonds and loans returned a much more modest +0.22% and +0.20% respectively. The underperformance of high yield versus stocks can partially be explained by the illiquidity of late August, but probably more so as high-yield continues to catch up to the 13% correction the S&P 500 had endured MTD through the 19th. By comparison, the 10-year Treasury and investment grade bonds returned -1.26% and -0.85%, respectively, over the last 8 trading days of August. Throughout August, economic data continued to point towards slower growth than what was anticipated only a month ago. J.P. Morgans economists revised down their growth projections due to weaker consumer sentiment, deteriorating household wealth and no signs of a lift in the housing market. Specifically, growth in the current quarter looks only moderately softer than their previous projection, however the risks to the previous projection for 2.5% growth in Q4 are now very clearly to the downside and thus they lowered their forecasted growth in that quarter to 1.0%. They also lowered 1Q12 growth to 0.5% from 1.5%. In sum, over the next four quarters they do not see growth that is much faster than the growth that took place in the first half of this year.
High-yield bonds and equities vastly underperformed Treasuries in August
12.0% 8.0% Cumulative returns 4.0% 0.0% -4.0% -8.0%
-3.65% -5.68% S&P 500 HY bonds 10-Yr Treasury 5.57%
-12.0% -16.0% 11-Aug 13-Aug 15-Aug 17-Aug 19-Aug 21-Aug 23-Aug 25-Aug 27-Aug 29-Aug 31-Aug 1-Aug 3-Aug 5-Aug 7-Aug 9-Aug
Sources: J.P. Morgan; Bloomberg
Performance High-yield bonds returned -3.65% in August, the markets worst monthly return since November 2008 and tenth worst monthly performance in the last 25 years. Institutional leveraged loans returned -4.38%, their worst performance since November 2008 and fourth worst in the markets 20-year history. In other fixed income markets, the 10-year Treasury and investment-grade bonds posted positive returns, +5.57% and +0.35%, respectively. Equities underperformed and posted negative returns for the fourth consecutive month, as the S&P 500 and Russell 2000 returned -5.43% and -8.70%, respectively. Year to date, high-yield bonds and leveraged loans have returned +3.04% and -1.77%, respectively, while the 10-year Treasury, investment grade bonds and the S&P 500 have returned +12.38%, +6.12%, and -1.77%, respectively. High-yield bond spreads widened 144bp to 726bp, off slightly from their intra-month high of 751bp, and now up 149bp YTD. By rating, BB- and B-rated bond spreads increased 110bp and 141bp to 545bp and 770bp, respectively, while CCC-rated bond spreads rose 253bp to 1190bp. Year to date, BB- and B-rated bond spreads have increased 124bp and 178bp, respectively, while CCC-rated bond spreads have increased 201bp. Meanwhile leveraged loan spreads increased 209bp to L+793bp (based on an estimated 3-year discounted spread), the highest month-end level since November 2009. The IG CDX (115bp) and HY CDX (638bp) increased 19bp and 148bp, respectively while LCDX increased 136bp to 406bp. The average yield for junk bonds increased 123bp during the month to 8.39% (intra-month high of 8.64%) and are almost the same as they were exactly one year ago (844bp). For government benchmarks, the 5- and 10-year Treasury yields decreased 39bp to 0.96% and 57bp to 2.22%, respectively. Within the asset class, CCC-rated bonds vastly underperformed higher rated bonds. Specifically, CCCs returned -7.06%, while Bs returned -3.95% and BBs returned -2.49%. Year to date, BB-rated bonds (+3.65%) have outperformed CCC-rated bonds (-0.64%) and B-rated bonds (+2.94%). Meanwhile, CCC-rated loans returned -4.18%, while B- and BB-rated loans returned -4.89% and -4.01%, respectively. Year to date, Bs have returned -1.44%, CCCs -1.52%, and BBs -2.12%. By sector, all of the J.P. Morgan Global High-Yield Indexs 21 industries provided negative returns in August. The months worst performer was Diversified Media with a -5.96% return, followed by Housing and Transportation, which returned -5.81% and -5.03%, respectively. The best (least negative), performing industry was Consumer Products, which returned -1.64%. Year to date, 17 industries have a positive total return and 4 are negative. Energy is the top performer with a total return of +6.08%, followed by Technology (+5.54%) and Utility (+4.69%). The worst performing industry YTD is Diversified Media with a -2.58% return. Defaults, distressed, and credit trends For the second time in four months there were no defaults in the leveraged credit market. The lack of default activity in August comes on the heels of a revised one default in July (OPTI Canada) totaling $2.6bn in bonds, the highest volume since November of last year. The trend in default activity remains extremely low, with a monthly average of 1.4 companies and $635mn defaulting YTD. By comparison, an average of 3.7 companies and $1.7bn defaulted per month in 2010. Year to date, 11
3
companies have defaulted (6 bond-only issuers, 4 loan-only borrowers, and 1 company with bonds and loans outstanding), affecting $5.1bnhigh-yield bonds total $4.2bn and institutional loans total $925mn. By comparison, 30 companies and $11.7bn defaulted during the first eight months last year. The par-weighted high-yield default rate decreased to 0.99% from 1.03%, after hovering between 0.75% and 0.81% from November to June. The default rate is down from 2.69% a year ago and remains well below the 25-year average of 4.2%. The issuer weighted default rate for bonds decreased to 2.02% from 2.22% last month. For loans, the par-weighted default rate decreased to 0.45% from 0.84%, its 21st decline in the last 22 months and the lowest level since December 2007. The default rate is down from 4.74% a year ago and remains well below the long-term average of 3.85%. The issuer-weighted loan default rate declined to 1.00%. Going forward, we continue to expect high-yield bond and loan default rates to remain below their 4.2% and 3.9% long-term averages over the next two-and-a-half years. Specifically, for high-yield bonds, we forecast the default rate to be 1.0% at year-end, 1.5% in 2012, and 2.0% in 2013. For loans, we forecast default rates to be 1.5% at year-end and 2.0% in both 2012 and 2013. Even with increased concerns of an economic relapse and odds of a recession increasing (our economists believe the odds of a recession are 33%), we think the lack of bridge risk, limited investor leverage, the composition of new-issuance since early 2009, and a focus by corporations on deleveraging versus re-leveraging has the high-yield market in good shape heading into a period of continued market uncertainty and heightened risk. Even in a recession scenario we would expect default rates to rise much less compared with past recessions, peaking at roughly 6%, versus just above 10% in past recessions. The average high-yield bond price (excluding defaults) declined sharply to $97.78 from $102.46 month-over-month, while the median bond price also decreased, falling to $100.00 from $103.50. The size of the distressed bond market increased for the fourth consecutive month in August, reaching its highest volume since September 2009. Bonds that trade at or below 50% of par now total $14.2bn, up from $7.1bn last month, accounting for 1.40% of the total US high-yield bond market, up from 0.69% last month. Bonds trading at or below 70% of par increased nearly two-fold to $32.58bn, or 3.2% of the market. Meanwhile, for loans, the average bid price, according to S&P LCDs US Performing Loan Index decreased to $89.94 from $95.55 at the end of July. From a distressed perspective, 9.56% of the institutional loan market traded below $80 as of August 29, up from 6.59% at the end of July. Meanwhile, 1.98% of the institutional loan market traded below $60, up from 1.30% month over month. For the first time in twenty four months credit trends turned negative, as the number of downgrades outpaced the number of upgrades. In total, 17 companies were upgraded totaling $10.0bn, compared with 19 downgraded totaling $14.0bn. Year to date, 274 upgrades total $327bn, and 179 downgrades total $165bn, equal to an upgrade-to-downgrade ratio by issuer of 1.53:1 and by dollar volume of 1.99:1.
High-yield primary market activity With volatility rampant and the end of summer slowdown in full effect, the high-yield primary market was extremely quiet in August. For the month, only four issues totaling $1.2bn priced, the lowest number of deals and lightest volume of issuance since December 2008. Further highlighting the dearth of activity, if you exclude the second half of 2008 when issuance completely evaporated, you have to go back 9 years to August 2002 to find a lighter month of deal volume. By comparison, monthly issuance averaged $28bn per month in the years first seven months and $25bn in 2010. From a historical perspective, August has on average proven to be the lightest month for issuance volume, averaging $7.8bn over the last 15 years ($3bn below the markets overall monthly average of $11.0bn). Year-to-date, new-issue volume now totals $201bn, compared with $175bn over the same period last year, and full-year 2010 volume of $302bn. The non-dollar high-yield new issue market was completely shut down in August and YTD volume remained unchanged at US$-equivalent $41.5bn versus $30.8bn over the first 8 months last year.
High-yield new-issue volume in August was lowest monthly volume since December 2008
50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.9 4.7 5.0 2.7
Jan-09 Mar-09
High-yield issuance ($ bn)
40.5 34.2 26.5 26.0
45.7 36.1 34.3 33.1 32.3 33.1 34.1 26.8 19.9 17.5
11.1
17.5 14.4 11.7
20.4 20.420.1 19.5 16.2
24.7 16.5 6.9 7.2
22.4
Jan-10
Nov-09
Nov-10
Sep-09
Sep-10
Jan-11
Jul-09
Jul-10
May-09
May-10
Source: J.P. Morgan
Leveraged loan primary market activity The loan primary market was also subdued in August, but much more active compared to the high yield bond market. Constricting deal flow were record loan fund outflows ($4.8bn in the last four weeks), market volatility, and seasonal factorsAugust is the weakest month of issuance, averaging $4.4bn over the last 13 years, $7bn less than the markets overall monthly average. For the month, 26 loans priced for $7.6bn, the second lowest volume YTD (January $7.3bn). Interestingly, for the second consecutive month, acquisition financing activity exceeded refinancings. Over the last two months, acquisition financing activity has accounted for 75% of total issuance, while refinancing activity has accounted for only 18%. By comparison, during the first half of the year, those percentages were flipped, 19% for acquisition-related deals and 70% for refinancings. Year-to-date, leveraged loan volumes total $196bn, surpassing the $155bn priced during all of last year. The forward calendar has also contracted, with only 28 transactions totaling $12.4bn remaining. Of interest, among those on the forward calendar, 22 deals totaling $11bn are aimed towards acquisition/LBO financing.
May-11
Mar-10
Mar-11
Jul-11
0.0
1.2
New loan activity declined for the third consecutive month

Institutional loan issuance ($ bn)
Jan-09
Jan-10
Nov-09
Nov-10
Sep-09
Sep-10
Jan-11
Jul-09
Jul-10
May-09
May-10
Sources: J.P. Morgan; S&P LCD
High-yield bond and loan mutual fund flows Both high-yield and leveraged loan mutual funds reported large outflows in August. Leveraged loan funds reported a record outflow of -$4.7bn, which included weekly outflows of $945mn, a record $2.1bn, $1.5bn, and $261mn. As a percentage of assets under management, the past 4 weeks outflows amount to 10.5% of AUM. Of course, the recent exodus occurs on the heels of a +$32bn move into the asset class between 4Q10-2Q11. High-yield bond funds reported outflows of $4.4bn, less than the $7.1bn outflow in June, but still among the top five largest monthly outflows on record (and still missing monthly reporting fund data). Year-to-date, inflows into high-yield bond funds dropped to $2.0bn, versus $12.5bn for all of last year, while inflows into leveraged loan funds are still $20.0bn, versus $17.9bn for all of last year.
High-yield and loan funds both saw large outflows in August
8.0 6.0 4.0 ($bn) 2.0 0.0
Bank loan funds High-yield bond mutual funds 1.9 1.1 1.0 3.0 2.1 2.0 1.5 0.3 3.9 4.4 1.5 1.7 0.9 4.1 2.1 5.9 4.9 5.1 4.2 3.7 3.8
0.9 0.6 0.8
2.3 1.6 2.1
1.8
3.6 0.9
May-11
Mar-09
Mar-10
Mar-11
1.8
2.7 0.3
-2.0 -4.0 -6.0 -8.0
-2.5 -5.7
-1.2
-0.5 -4.7 -4.4
Apr-10
Aug-10
Sep-10
Apr-11
May-10
Sources: Lipper FMI; J.P. Morgan
May-11
Aug-11
-7.1
Feb-10
Nov-10
Dec-10
Feb-11
Jan-10
Jun-10
Oct-10
Jan-11
Jun-11
Jul-10
Mar-10
Mar-11
Jul-11
Jul-11
55 49.9 50 44.4 45 38.2 40 35 30 25.8 25 18.8 18.3 20 16.2 16.1 14.1 15 12.5 10.9 13.5 13.7 10.910.1 10.7 9.4 10 7.6 7.3 5.4 6.8 6.3 3.8 3.3 5 3.7 2.1 1.4 3.1 1.4 1.0 1.3 0.4 0
Performance
Returns of various assets
JPM Global HY 5.48% 2.14% 27.50% 11.55% 3.07% 11.45% 2.88% 2001 2002 2003 2004 2005 2006 2007 S&P LL 4.18% 1.91% 9.97% 5.17% 5.08% 6.77% 2.02% JPM JULI-IG 10.70% 10.67% 8.20% 5.97% 1.41% 3.80% 5.83% 10-yr Trsy 3.74% 14.63% 1.73% 4.68% 1.93% 1.44% 9.76% JPM EMBI-Glbl 1.36% 13.12% 25.66% 11.73% 10.73% 9.88% 5.86% S&P 500 -11.87% -22.10% 28.69% 10.87% 4.93% 15.80% 5.49% Russell 2000 2.56% -22.01% 47.29% 18.45% 4.63% 18.44% -1.56% FTSE 100 -13.85% -21.95% 18.39% 11.64% 21.28% 14.89% 7.59% MSCI EM -4.91% -4.96% 54.55% 24.65% 33.36% 32.20% 39.52% CDX HY -7.52% 15.04% 2.86% 4.75% 8.67% -2.49% LCDX na CDX IG 0.34% 1.14% -2.08%
Sources: J.P. Morgan; Bloomberg; Ibbotson Associates; S&P LCD Notes: Investment-grade returns in 1998 and 1999 are measured by the Merrill-Lynch Corporate Master.
2008 2009 2010 1Q11 2Q11 Aug-11 QTD YTD LTM
-26.83% 58.90% 15.05% 4.21% 1.22% -3.65% -2.31% 3.04% 9.37%
-29.10% 51.62% 10.14% 2.42% 0.18% -4.38% -4.27% -1.77% 2.79%
0.54% 18.48% 9.50% 0.85% 2.47% 0.35% 2.68% 6.12% 4.77%
20.22% -8.76% 8.27% -0.42% 3.52% 5.57% 9.01% 12.38% 5.99%
-10.91% 28.18% 12.04% 1.02% 4.03% 0.53% 2.49% 7.70% 7.49%
-37.00% 26.46% 15.06% 5.92% 0.10% -5.43% -7.36% -1.77% 18.50%
-33.49% 27.18% 26.86% 7.94% -1.61% -8.70% -12.00% -6.54% 22.19%
-27.99% 27.90% 13.18% 1.31% 1.70% -6.54% -8.52% -5.75% 7.25%
-53.18% 78.58% 19.04% 1.95% -1.10% -8.91% -9.27% -8.52% 9.15%
-12.45% 19.47% 12.04% 1.45% 0.87% -5.87% -6.64% -4.46% 5.80%
-17.28% 27.31% 8.17% 1.05% -1.55% -6.84% -5.71% -6.20% 0.35%
-4.61% 4.86% 1.48% 0.05% 0.70% -0.91% -1.02% -0.27% 1.63%
Returns of J.P. Morgan high-yield indices

Global 5.48% 2.14% 27.50% 11.55% 3.07% 11.45% Dom. 6.68% 3.20% 26.80% 11.10% 2.42% 11.56% Dev. 5.70% 1.98% 27.47% 11.25% 2.62% 11.58% Dev. BB 10.50% 6.00% 19.03% 9.28% 2.58% 8.67% 3.57% -16.81% 39.64% 12.86% 3.69% 1.56% -2.34% -0.67% 4.61% 8.84% Instl 9.80% 4.88% 19.70% 9.87% 2.86% 9.31% 35.09% 13.28% 3.96% 1.36% -2.79% -1.14% 4.17% 9.38% HY 100 -1.29% -1.84% 30.39% 11.44% 2.34% 11.52% 55.03% 14.58% 4.58% 1.32% -3.66% -2.32% 3.51% 11.01% Liquid 1.66% -1.42% 28.66% 11.29% 2.34% 10.64% 55.05% 14.42% 4.24% 1.13% -3.62% -2.05% 3.26% 10.08% Euro -16.30% -8.60% 20.37% 14.02% 4.61% 9.66% Sterling 0.39% -12.06% 23.94% 22.73% 4.25% 12.32% 45.31% 16.09% 3.63% 1.78% -5.52% -5.17% 0.03% 2.74%
2001 2002 2003 2004 2005 2006
Source: J.P. Morgan Notes: The European Currency Index includes euro and sterling denominated corporate bonds and returns are stated in local currency. The European Aggregate Index includes euro, sterling, and US dollar denominated corporate bonds and returns are stated in local currency.
2009 2010 1Q11 2Q11 Aug-11 QTD YTD LTM
2007 2008
2.88% -26.83% 58.90% 15.05% 4.21% 1.22% -3.65% -2.31% 3.04% 9.37%
2.58% -26.55% 58.18% 14.73% 4.20% 1.19% -3.51% -2.08% 3.24% 9.61%
2.69% -26.80% 58.76% 14.86% 4.25% 1.20% -3.58% -2.22% 3.16% 9.57%
3.97% -17.80%
2.36% -25.03%
2.40% -26.33%
-1.35% -34.86% 73.44% 14.75% 3.40% 2.22% -5.49% -5.65% -0.27% 3.92%
0.68% -19.80%
3.70% -30.17% 69.31% 16.12% 4.69% 1.45% -4.04% -3.54% 2.45% 8.40%
US$Europe -15.91% -19.68% 37.66% 14.72% 7.12% 10.68%
-0.74% -31.35% 68.42% 14.79% 3.51% 2.25% -5.65% -5.79% -0.28% 3.79%
Euro Curr. -12.00% -9.41% 20.84% 15.32% 4.57% 9.25%
0.37% -31.73% 70.20% 15.13% 3.74% 2.03% -5.20% -5.10% 0.44% 4.86%
Euro Agg. -13.91% -13.75% 27.30% 14.99% 5.26% 9.60%
Returns by industry and rating

1Q11 2Q11 Aug-11 QTD YTD LTM 1Q11 2Q11 Aug-11 QTD YTD LTM 1Q11 2Q11 Aug-11 QTD YTD LTM Automotive 1.52% 0.70% -3.65% -2.49% -0.31% 5.15%
Performance
Broadcasting 4.12% 1.00% -4.55% -3.91% 1.05% 11.95%
Cable and Sat. Chemicals 3.98% 2.98% 1.18% 2.07% -2.53% -3.09% -1.40% -1.13% 3.73% 3.93% 10.04% 12.31%
Returns by industry August 2011

Consumer Products Cable and Satellite Utility Healthcare Energy Chemicals Food and Beverages Retail Telecommunications Financial Services Automotive JPM Global HY Industrials Gaming Lodging and Leisure Metals and Mining Paper and Packaging Broadcasting Technology Transportation Housing Diversified Media
Global HY 4.21% 1.22% -3.65% -2.31% 3.04% 9.37%
Housing Industrials 3.31% 3.79% 0.21% 1.33% -5.81% -3.82% -5.51% -2.69% -2.17% 2.33% 5.61% 8.43% Split BBB 3.61% 2.23% -1.76% 0.54% 6.50% 9.47%
BB 3.31% 1.45% -2.49% -1.10% 3.65% 8.23%
Metals Paper Mining Packaging 4.82% 4.14% 1.16% -0.91% -4.14% -4.47% -2.51% -2.80% 3.38% 0.30% 9.78% 7.88% Split BB 3.88% 1.05% -2.95% -1.37% 3.53% 8.43%
Consumer Diversified Products Media 3.46% 3.72% 0.80% -0.41% -1.64% -5.96% -0.82% -5.69% 3.43% -2.58% 8.65% 3.28% Retail 2.37% 0.66% -3.26% -1.74% 1.25% 5.80%
Energy 5.23% 1.30% -3.07% -0.49% 6.08% 11.54% Services 4.26% 0.60% -3.55% -1.86% 2.93% 9.24%
Financial 5.18% 1.46% -3.50% -2.44% 4.11% 10.42%
B 4.49% 1.15% -3.95% -2.60% 2.94% 9.71%
Split B 5.42% 0.77% -5.33% -4.83% 1.09% 9.22%
TechTransnology Telecom. portation 6.89% 4.10% 2.70% 1.96% 1.85% 0.81% -4.67% -3.40% -5.03% -3.17% -2.45% -4.42% 5.54% 3.44% -1.04% 16.68% 8.73% 4.85% CCC 5.55% 0.56% -7.06% -6.39% -0.64% 9.89% Not rated 4.56% 2.01% -2.53% -1.59% 4.97% 12.20%
Food and Bev. 3.13% 1.56% -3.11% -1.54% 3.13% 8.46%
Gaming Leisure 4.30% 1.77% -3.94% -2.68% 3.31% 11.03%
Healthcare 3.68% 1.73% -2.94% -1.68% 3.71% 8.37% Utility 5.03% 2.44% -2.72% -2.69% 4.69% 8.80%
Year to date
-1.64% -2.53% -2.72% -2.94% -3.07% -3.09% -3.11% -3.26% -3.40% -3.50% -3.55% -3.65% -3.65% -3.82% -3.94% -4.14% -4.47% -4.55% -4.67% -5.03% -5.81% Energy Technology Utility Financial Chemicals Cable and Satellite Healthcare Telecommunications Consumer Products Metals and Mining Gaming Lodging and Leisure Food and Beverages 6.08% 5.54% 4.69% 4.11% 3.93% 3.73% 3.71% 3.44% 3.43% 3.38% 3.31% 3.13% 3.04% 2.93% 2.33% 1.25% 1.05% 0.30% -0.31% -1.04% -2.17% -2.58%
Returns by rating August 2011

Split BBB BB Not Rated Split BB JPM Global HY B Split B CCC/Split CCC -7.06% -5.33%
Defaulted 0.03% 0.19% -2.86% 0.34% 0.57% 11.07%
-1.76% -2.49% -2.53% -2.95% -3.65% -3.95%
Year to date
Split BBB Not Rated BB Split BB JPM Global HY B Split B CCC/Split CCC -0.64% 1.09% 4.97% 3.65% 3.53% 3.04% 2.94% 6.50%
JPM Global HY Services Industrials Retail Broadcasting Packaging Paper and
Automotive Transportation Housing Diversified Media
-5.96%
Source: J.P. Morgan 8
Spreads
31-Dec-04 30-Dec-05 29-Dec-06 31-Dec-07 31-Dec-08 31-Dec-09 31-Dec-10 31-Aug-11 Change 1Q11 2Q11 Aug-11 QTD YTD 31-Dec-02 31-Dec-03
Spreads in the high-yield market
JPM Global HY 958bp 484bp
Split-BBB 442bp 217bp
344bp 378bp 317bp 589bp 1731bp 657bp 577bp 726bp -64bp 55bp 144bp 159bp 149bp
591bp 292bp
BB
Split-BB 720bp 369bp
858bp 462bp
1487bp 734bp
Split-B
718bp 822bp 606bp 969bp 3139bp 1082bp 989bp 1190bp
2368bp 1033bp
CCC
Source: J.P. Morgan
-127bp 67bp 253bp 261bp 201bp
Spread to worst
2000bp 1800bp 1600bp 1400bp 1200bp 1000bp 800bp 600bp 400bp 200bp
20-year average= 584bp 20-year median= 517bp Dec-90 1096bp Sep-02 1070bp Dec-08 1925bp
31-Aug-11 726 bp
Yield to to worst
21.0% 19.0% Yield to worst 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0%
31-Aug-11 8.39%
Oct-90 19.12%
20-year average= 10.38% 20-year median= 10.08% Nov-00 14.80%
Dec-08 20.92%
Spread to worst
Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Source: J.P. Morgan
Yield of the 10-year Treasury

10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0%
31-Aug-11 2.22%
Premium to Treasury and spread to worst

2000bp 1800bp 1600bp 1400bp 1200bp 1000bp 800bp 600bp 400bp 200bp 0bp
Spread to worst Premium to Treasury
Source: J.P. Morgan
Spread to worst
Yield
Source: J.P. Morgan
Source: J.P. Morgan
31-Aug-11 726 bp 31-Aug-11 327.49%
935.0% 835.0% 735.0% 635.0% 535.0% 435.0% 335.0% 235.0% 135.0% 35.0%
Premium to Treasury
Spreads
1400 bp 1200 bp 1000 bp 800 bp 600 bp 400 bp 200 bp 0 bp
Spread between investment-grade and high-yield bonds
Spread between bonds rated BBB and BB

600 bp Difference in yields
Difference in yields
20-year average= 394bp 20-year median= 350bp
500 bp 400 bp 300 bp 200 bp 100 bp 0 bp
20-year average= 119bp 20-year median= 101bp 31-Aug-11 181 bp
31-Aug-11 397 bp
Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Source: J.P. Morgan
Source: J.P. Morgan
Spread between bonds rated BB and B

600bp Difference in yields 400bp 300bp 200bp 100bp 0bp
31-Aug-11 217 bp
Spread between bonds rated B and CCC

2000 bp Difference in yields 1750 bp 1500 bp 1250 bp 1000 bp 750 bp 500 bp 250 bp 0 bp
31-Aug-11 419 bp
500bp
Source: J.P. Morgan
Source: J.P. Morgan
Spread to worst by rating

3600 bp 3000 bp Spread to Worst 2400 bp 1800 bp 1200 bp 600 bp Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 0 bp
BB B CCC
Spread between high-yield bonds and emerging-market bonds

600 bp 400 bp Difference in yields
-200 bp -400 bp -1000 bp -1200 bp -600 bp -800 bp
200 bp 0 bp
Source: J.P. Morgan
Note: Emerging-market bonds are measured by the JPMorgan EMBI-Global Index. Source: J.P. Morgan
10
Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
31-Aug-11 -264 bp 19-year average= -44bp 19-year median= -45bp
Gainers and Losers

101.50 114.25 86.50 103.00 106.80 110.27 86.50 113.69 104.75 111.09 30.50 58.00 29.00 44.50 45.00 45.50 70.00 28.00 64.50 30.00 Price Price Change 11.75 Financial 5.88 Cable/Satellite 5.00 Consumer Products 4.73 Gaming/Lodging 4.05 Utility 3.62 Consumer Products 3.50 Consumer Products 3.25 Energy 3.25 Services 2.97 Utility Industry
High-yield bonds
Month
Gainers Hanover Insurance Group 8.207% Jr Sub Nts 27 Insight Communications 9.375% Sr Nts 18 Eastman Kodak 7.250% Sr Nts 13 ROC Finance LLC 12.125% Sr Sec Nts (2nd Ln) 18 DTE Energy 7.458% Sr Sec Nts 24 Steelcase 6.375% Sr Nts 21 Eastman Kodak 9.750% Sr Sec Nts (2nd Lien) 18 Seacor Holdings 7.375% Sr Nts 19 Vangent 9.625% Sr Sub Nts 15 Sithe/Independence Funding 9.000% Sr Sec Nts 13
Year to date
Nortel Networks 10.750% Sr Guar Nts 16 Nortel Networks 10.125% Sr Guar Nts 13 Windsor Financing 5.881% Sr Sec Nts 17 Provident Financing Trust 7.405% Trust Pfd Secs 38 Bonten Media Acq. 9.000% Sr Sub Toggle Nts 15 Telcordia Tech. 11.000% Sr Sec Nts (2nd Lien) 18 DTE Energy 7.458% Sr Sec Nts 24 Appleton Papers 11.250% Sr Sec Nts (2nd Lien) 15 Capmark Financial Group 6.300% Sr Nts 17 Hercules Offshore 10.500% Sr Sec Nts 17 Sino-Forest 10.250% Sr Nts 14 Sino-Forest 6.250% Guar Nts 17 Bear Creek 9.000% Sr Nts 13 DirectBuy Holdings 12.000% Sr Sec Nts (2nd Ln) 17 NBC Acquisition 11.000% Sr Disc Nts 13 William Lyon Homes 10.750% Sr Nts 13 PMI Group 6.000% Sr Nts 16 CMA CGM 8.500% Sr Nts 17 William Lyon Homes 7.500% Sr Nts 14 Norske Skog Canada 7.375% Sr Nts 14 Losers Gainers
Sino-Forest 10.250% Sr Nts 14 Aquilex Holdings 11.125% Sr Nts 16 Sino-Forest 6.250% Guar Nts 17 Hawker Beechcraft 8.500% Sr Nts 15 Hawker Beechcraft 8.875% Sr Toggle Nts 15 CMA CGM 8.500% Sr Nts 17 GMX Resources 11.375% Sr Nts 19 PMI Group 6.000% Sr Nts 16 Colt Defense 8.750% Sr Nts 17 Norske Skog Canada 7.375% Sr Nts 14
Losers
Change -43.50 -37.88 -33.00 -30.50 -30.00 -29.00 -25.25 -23.50 -23.00 -22.50
Note: Based on the JPMorgan Global High-Yield Index. Source: J.P. Morgan
Paper/Packaging Industrials Paper/Packaging Industrials Industrials Transportation Energy Financial Industrials Paper/Packaging
Industry
112.00 111.00 112.70 96.43 76.25 122.75 106.80 97.50 56.47 98.50 30.50 29.00 4.00 34.75 2.00 27.50 28.00 45.50 27.50 30.00 Price
Price
Change 27.50 26.50 23.46 23.09 23.00 22.25 19.09 17.50 17.42 15.75
Change -85.00 -71.88 -67.63 -62.25 -62.00 -58.75 -55.38 -54.50 -47.50 -44.50
Technology Technology Financial Financial Broadcasting Technology Utility Paper/Packaging Financial Energy
Industry
High-yield equities
Month
Gainers Clearwire Communications Eastman Kodak Susser Holdings PAETEC Holding Corp CF Industries Merge Healthcare Dollar General Collective Brands Inc Ferrellgas Universal Corp Losers
Note: Based on the JPMorgan Global High-Yield Index. Source: J.P. Morgan
Paper/Packaging Paper/Packaging Food/Beverages Retail Retail Housing Financial Transportation Housing Paper/Packaging
Industry
CLWR EK SUSS PAET CF MRGE DG PSS FGP UVV Ticker
Ticker
3.21 3.18 21.10 5.61 182.75 5.92 36.60 13.49 22.59 40.70
Price
Change 1.04 0.78 4.79 1.19 27.43 0.84 5.14 1.71 2.43 3.98
% change 47.9% 32.5% 29.4% 26.9% 17.7% 16.5% 16.3% 14.5% 12.1% 10.8%
Year to date
Global Crossing Petrohawk Energy Corp MCE Finance Intertape Polymer Coleman Cable Coffeyville Resources Elan Pharmaceuticals EV Energy Partners Blyth Inc Western Refining MGIC Investment Corp Gentiva Health Services FriendFinder Networks CEDC Finance Corp. International Media General Beazer Homes USA ArvinMeritor Radian Group Penson Worldwide Delta Petroleum Losers Gainers
GLBC HK MPEL ITPOF CCIX CVI ELN EVEP BTH WNR MTG GTIV FFN CEDC MEG BZH MTOR RDN PNSN DPTR Ticker
Ticker
28.45 38.76 13.00 2.35 12.27 28.47 10.67 68.88 56.92 17.44
Price
Change 15.53 20.51 6.64 1.20 5.99 13.29 4.94 29.63 22.44 6.86
% change 120.2% 112.4% 104.4% 104.3% 95.4% 87.5% 86.2% 75.5% 65.1% 64.8%
Gentiva Health Services GTIV 7.61 -10.38 -57.7% Clearwater Paper CLW 36.82 -38.82 -51.3% James River Coal Co JRCC 10.82 -8.14 -42.9% American Reprographics ARC 3.91 -2.92 -42.8% GMX Resources GMXR 2.89 -1.96 -40.4% Skilled Healthcare Group SKH 5.43 -3.37 -38.3% Penn Virginia PVA 8.16 -4.96 -37.8% ArvinMeritor MTOR 8.45 -5.05 -37.4% Sandridge Energy SD 7.34 -4.18 -36.3% Comstock Resources CRK 20.35 -11.55 -36.2% Note: Based on issuers within the JPMorgan Global High-Yield Index that have public equity. Source: J.P. Morgan
Price
Change
% change
Price 2.60 7.61 3.01 7.04 2.23 2.11 8.45 3.33 2.04 3.22
Change -7.59 -18.99 -6.99 -15.86 -3.55 -3.28 -12.07 -4.74 -2.85 -4.38
% change -74.5% -71.4% -69.9% -69.3% -61.4% -60.9% -58.8% -58.7% -58.3% -57.6%
Note: Based on issuers within the JPMorgan Global High-Yield Index that have public equity. Source: J.P. Morgan
11
Source: J.P. Morgan.
2002 2003 2004 2005 Volume (billion) $67.9 $151.6 $158.2 $106.1 Number of issues 260 504 583 375 By rating (as a percent of total volume) Split BBB 9.8% 7.4% 8.9% 5.9% BB 20.8% 20.6% 21.1% 21.6% Split BB 14.4% 9.3% 5.4% 8.3% B 51.6% 52.7% 44.0% 46.8% Split B 2.6% 6.0% 12.1% 10.0% CCC 0.3% 3.0% 7.0% 6.3% NR 0.5% 1.1% 1.4% 1.1% By use of proceeds (as a percent of total volume) Acquisition finance/LBO 15.5% 13.5% 25.9% 38.0% General corporate 4.3% 7.1% 12.2% 11.8% Refinancing 73.4% 74.6% 57.4% 50.2% By security type (as a percent of total proceeds) Cash pay 99.1% 97.8% 97.7% 96.3% PIK/Deferred 0.9% 2.2% 2.2% 2.9% Toggle notes 0.0% 0.0% 0.1% 0.8% By industry (as a percent of total volume) Automotive 2.4% 3.2% 2.8% 5.7% Broadcasting 4.3% 1.4% 0.3% 2.2% Cable and Satellite 3.1% 4.3% 6.6% 6.4% Chemicals 3.2% 5.6% 5.8% 2.0% Consumer Products 2.9% 2.5% 3.0% 3.2% Diversified Media 5.3% 5.5% 2.9% 0.9% Energy 10.9% 10.5% 9.4% 11.9% Financial 2.1% 3.3% 3.2% 3.6% Food and Beverages 5.4% 3.9% 2.7% 2.2% Gaming Lodging and Leisure 12.3% 5.8% 8.4% 5.4% Healthcare 9.2% 5.5% 7.1% 9.2% Housing 3.5% 2.8% 5.0% 4.9% Industrials 6.5% 6.2% 5.1% 4.3% Metals and Mining 3.1% 3.4% 4.2% 4.8% Paper and Packaging 9.0% 7.6% 4.2% 4.8% Retail 1.9% 2.2% 2.8% 4.2% Services 4.6% 4.3% 3.3% 5.9% Technology 4.8% 2.5% 4.5% 7.3% Telecommunications 1.7% 9.1% 9.3% 6.7% Transportation 1.6% 1.5% 1.4% 1.1% Utility 2.3% 8.9% 8.1% 3.2%
New-issue activity
2006 $149.1 335 1.4% 29.3% 9.6% 38.8% 11.2% 9.0% 0.7% 44.4% 16.1% 38.4% 92.3% 4.8% 3.0% 9.0% 0.4% 6.3% 5.4% 1.7% 5.5% 9.5% 2.1% 2.5% 5.6% 7.1% 2.0% 3.4% 3.7% 3.3% 3.5% 5.0% 11.0% 6.9% 1.1% 5.2%
2007 $147.9 321 6.5% 16.0% 7.9% 33.4% 21.1% 14.0% 1.1% 51.5% 12.0% 35.2% 87.7% 1.8% 10.5% 3.1% 1.6% 1.2% 2.3% 0.5% 3.4% 12.1% 5.0% 4.2% 3.7% 9.5% 2.5% 5.0% 8.3% 1.1% 4.5% 4.6% 4.9% 6.0% 1.1% 15.5%
2008 $52.9 115 2.5% 26.1% 13.1% 32.4% 7.5% 15.9% 2.7% 46.3% 10.9% 40.5% 88.5% 2.6% 8.9% 2.5% 1.2% 27.5% 0.9% 0.5% 1.5% 18.6% 0.0% 0.5% 9.7% 1.2% 5.4% 3.3% 3.3% 2.4% 3.4% 7.5% 4.1% 1.6% 0.9% 3.8%
2009 $180.7 408 9.3% 25.9% 19.8% 34.4% 6.9% 3.5% 0.3% 5.3% 15.9% 76.2% 99.0% 0.5% 0.4% 3.6% 2.5% 8.0% 2.8% 1.7% 2.1% 12.2% 1.7% 4.4% 7.4% 7.4% 4.0% 3.1% 4.5% 7.2% 4.1% 2.5% 2.0% 11.6% 2.8% 4.5%
2010 $302.0 653 8.5% 20.0% 14.8% 38.7% 10.0% 6.8% 1.3% 15.6% 15.0% 66.5% 99.6% 0.3% 0.1% 4.1% 1.6% 3.0% 4.2% 2.4% 1.9% 13.4% 8.7% 3.9% 4.0% 8.9% 5.0% 5.6% 5.9% 4.5% 2.6% 3.8% 4.5% 6.3% 2.4% 3.1%
1Q11 $89.6 197 4.3% 16.7% 13.1% 46.5% 7.0% 10.4% 2.0% 13.0% 16.6% 63.8% 97.9% 0.5% 1.6% 3.6% 1.7% 7.3% 0.5% 1.7% 0.6% 13.5% 9.5% 2.2% 4.1% 0.0% 6.7% 4.3% 4.5% 5.2% 4.4% 4.3% 5.9% 4.8% 4.8% 2.7%
2Q11 $92.4 197 4.5% 28.2% 11.0% 37.8% 7.4% 9.8% 1.3% 24.0% 16.8% 55.0%
Aug-11 $1.2 4 0.0% 21.2% 0.0% 0.0% 0.0% 78.8% 0.0% 33.9% 44.9% 21.2%
QTD YTD $18.7 $200.6 35 429 0.0% 44.2% 0.0% 33.7% 1.3% 20.7% 0.0% 30.9% 18.8% 47.1% 4.0% 24.5% 10.9% 41.3% 6.6% 11.1% 1.5% 19.7% 16.9% 58.2% 97.6% 0.6% 1.7% 5.0% 1.9% 6.5% 0.8% 0.8% 1.6% 13.1% 8.0% 2.8% 3.9% 9.6% 5.7% 4.1% 6.6% 4.6% 3.3% 3.4% 5.5% 5.6% 2.9% 4.4%
97.7% 100.0% 96.1% 0.9% 0.0% -59.0% 1.4% 0.0% 62.9% 7.5% 2.4% 7.1% 1.3% 0.1% 1.4% 13.9% 6.4% 3.2% 3.5% 0.0% 5.2% 4.2% 8.8% 2.2% 2.3% 3.2% 4.9% 6.8% 1.7% 7.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 12.7% 21.2% 0.0% 32.2% 33.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 7.3% 7.5% 8.4% 3.2% 5.1% 0.0% 3.5% 2.5% 5.5% 13.4% 2.4% 0.0% 6.2% 3.2% 0.0% 0.0%
New-issue volume
300.0 275.0 250.0 225.0 200.0 175.0 150.0 125.0 100.0 75.0 50.0 25.0 0.0
302
Number of new issues

700
201 667 694 583 408
600 500 400 300 200 100 0

175 189 131 402 250 238 139 48 389 378
653
($ bn)
126 46 69 43 47 73
151 100 47 95
152 158
106 68
149 148
181
504 300
375 260
429
335 321
31 29
53
1 10
95
115
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD
Source: J.P. Morgan 12
Source: J.P. Morgan
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD
Market technicals
Sources of supply and demand
New issuance Fallen angels TOTAL SUPPLY Calls Tenders Maturities Rising stars Coupon reinvestment @ 75% Mutual fund flows (AMG) 2002 67.8 141.6 209.4 17.1 8.8 50.6 16.3 50.0 16.3 2003 151.6 39.7 191.3 37.6 18.6 89.8 13.4 52.5 2004 158.2 37.2 195.4 60.7 40.2 74.1 30.6 53.0 2005 106.1 112.8 218.9 38.2 38.7 54.2 38.1 55.4 2006 149.1 30.1 179.2 27.4 49.0 57.9 30.4 56.9 2007 147.9 50.7 198.6 46.3 63.8 32.0 19.2 58.6 2008 52.9 55.9 108.8 14.9 36.0 26.9 26.5 57.7 2009 180.7 150.2 331.0 22.7 45.6 36.8 13.1 68.8 2010 302.0 28.0 330.0 61.1 60.7 32.1 32.9 72.3 1Q11 89.6 5.8 95.5 23.9 15.8 13.7 12.0 18.5 2Q11 92.4 10.8 103.2 24.3 16.7 7.4 5.6 20.9 -4.4 70.5 32.7 Aug-11 1.2 0.0 1.2 2.2 1.4 4.6 1.8 6.5 QTD YTD 18.7 200.6 1.4 18.1 20.0 218.7 10.4 2.6 7.9 3.2 12.9 58.6 35.1 29.0 20.8 52.3
TOTAL DEMAND NET SUPPLY
159.1 50.3
32.9 244.7
-2.1 256.5 -61.1
-8.8 215.8 3.1
5.5 227.1 -47.9
5.0 225.0 -26.4
6.5 168.5 -59.7
31.9 218.8 112.1
12.5 271.5 58.5
8.1 92.0 3.5
-4.4 12.1
-1.7 2.0 35.4 197.9 -15.4
-53.4
-10.9
20.8
Sources: J.P. Morgan; Bloomberg; AMG Data Services
High-yield mutual fund flows

36.0 24.0 12.0 0.0
1.7 11.0 5.2 2.3 6.5 10.9 21.6 19.7 32.9 31.9
Annual net supply

112.1 120.0 100.0 80.0 58.5 47.6 50.3 60.0 43.2 48.2 40.0 21.0 20.8 17.1 12.5 20.0 11.1 3.1 0.0 -5.5 -6.7 -20.0 -26.4 -40.0 -47.9 -60.0 -53.4 -59.7 -61.1 -80.0
Fund flows ($ bn)
5.2 -0.6 -3.2
3.4
1.8
3.9 -2.1 -8.8
5.5 5.0
6.5
2.0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
45.6
Sources: J.P. Morgan; AMG Data Services
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD
Source: J.P. Morgan
High-yield calls
70.0 60.0 Called debt ($ bn) 50.0 40.0 30.0 20.0 10.0 0.0
5.0 5.6 14.8 10.4 11.5 11.6 17.1 37.6 60.7 46.3 61.1 58.6
High-yield tenders
70.0 60.0 Tendered debt ($ bn) 50.0 40.0 30.0 20.0 10.0 2009 2010 YTD 0.0
3.6 6.1 13.6 22.4 15.7 18.6 9.6 8.8 40.2 38.7 49.0 35.5 63.8 60.7
38.2 27.4
2010
22.7 14.9
12.9
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: J.P. Morgan
Source: J.P. Morgan
2009
2010
YTD
YTD
35.1
-12.0
-6.3
($bn)
11.1
15.9
16.3 13.2
12.5
13
Defaults
LTM default rate
18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
based on par amount

Default rate Nov-09 16.32%
(incl. dist.exch.)
LTM default rate

14.0% 12.0% 10.0% Default rate 8.0% 6.0% 4.0% 2.0% 0.0%
based on number of issuers

Mar-02 12.24%
Par-weighted default rate
Default rate including distressed exchanges
Jan-02 10.24%
Nov-09 10.98%
Aug-11 0.99%
Aug-11 2.02%
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
11
Source: J.P. Morgan
Source: J.P. Morgan
Default volume
94.6 100 90 80 70 56.0 55.6 60 50 28.3 40 22.0 24.9 22.9 22.922.0 30 19.4 15.1 20 8.6 7.3 10.3 8.2 8.0 7.2 5.0 7.94.2 4.7 3.4 4.85.2 3.2 10 2.5 3.6 0.30.11.10.61.0 0
Number of defaults
160 140 120 100 80 60 40 20 0
8 10 23 17 18 28 23 27 33 86 49 51 62 31 20 16 37 26 47 18 138 116 87 61 29 21 18 70 42 21 7
($bn)
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Sources: J.P. Morgan; Moodys Investors Service
Recent default activity

June 2011 July 2011 August 2011 Monthly average 3-year 5-year 10-year 25-year
Percent of the high-yield market
Volume ($ mn) 452.0 2,575.0 0.0
Number 1 1 0
LTM default rates by dollar by issuer 0.81% 1.03% 0.99% 2.25% 2.22% 2.02%
Distressed debt
70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%
Bonds trading at or below 50% of par or accreted value Bonds trading at or below 70% of par or accreted value
Jan-94
Jan-96
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Source: J.P. Morgan
14
Jan-10
3,249.2 2,216.3 2,229.2 1,573.8
3 3 3 4
4.32% 2.95% 3.68% 4.24%
5.05% 3.79% 4.85% 5.25%
29-Aug-11 Below 70%= 3.22% Below 50%= 1.40%
2008
2010
Jan-10
Jan-11
Ratings upgrades and downgrades

2001 230 586 0.4 96.6 245.1 0.4 2002 194 597 0.3 72.6 391.3 0.2 2003 214 439 0.5 119.0 227.3 0.5 2004 280 330 0.8 166.8 196.8 0.8 2005 301 287 1.0 222.4 268.2 0.8 2006 547 496 1.1 351.6 446.3 0.8 2007 376 392 1.0 266.5 333.5 0.8 2008 238 470 0.5 147.7 506.8 0.3 2009 212 481 0.4 242.4 418.7 0.6 2010 387 258 1.5 365.6 216.4 1.7 1Q11 115 73 1.58 152.4 57.0 2.7 2Q11 Aug-11 116 74 1.6 151.1 82.5 1.8 17 19 0.9 10.0 14.0 0.7 QTD 43 32 1.3 23.94 25.11 1.0 YTD 274 179 1.53 327.4 164.6 2.0
By number of issuers Upgrades Downgrades Upgrade/downgrade ratio By dollar volume ($bn) Upgrades Downgrades Upgrade/downgrade ratio
Source: J.P. Morgan
Upgrades and downgrades (par amount)

600.0 500.0 400.0 ($ bn) 300.0 200.0 100.0 40 39 46 25 0.0 1996 1997
80 69
Upgrades and downgrades (issuer)

446 334 267 148 242 507 419 366
Upgrades
700 600
327
Downgrades
Upgrades
391 245 222 227 197 167
352 268
500 400 300 200 100 0 1995 1996

114 72
Downgrades
425 259 223
586 446
597 439 280 330
547 496 301 287 376 392
470
481 387 258 274 179
216
109 127 97 98 95
73
119
165
237
230
147 135 139 95 93
194
214
238 212
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
YTD
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: J.P. Morgan
Source: J.P. Morgan
LTM upgrade-to-downgrade ratio (par amount)

2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 LTM upgrade-to-downgrade ratio
31-Aug-11 1.84
LTM upgrade-to-downgrade ratio (issuer)

1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00
31-Aug-11 1.52
LTM upgrade-to-downgrade ratio
Dec-95
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Source: J.P. Morgan
Dec-10
Source: J.P. Morgan
Dec-09
2009
Dec-10
15
2010
YTD
Nelson Jantzen, CFA (1-212) 270-1169 nelson.r.jantzen@jpmorgan.com Alisa Meyers (1-212) 834-9151 alisa.meyers@jpmchase.com
Rising stars and fallen angels

2001 29 49 0.6 24.1 66.4 0.4 2002 13 63 0.2 16.3 141.6 0.1 2003 13 43 0.3 13.4 39.7 0.3 2004 26 22 1.2 30.6 37.2 0.8 2005 36 25 1.4 37.8 112.8 0.3 2006 27 22 1.2 30.4 30.1 1.0 2007 24 30 0.8 19.2 50.7 0.4 2008 25 27 0.9 26.5 56.0 0.5 2009 15 58 0.3 13.1 150.2 0.1 2010 20 13 1.5 32.9 28.0 1.2 1Q11 9 3 3.0 12.0 5.8 2.1 2Q11 Aug-11 9 3 3.0 6 11 0.5 1 0 0.0 1.8 0.0 0.0 QTD 2 2 1.0 3.2 1.4 2.3 YTD 20 8 2.5 20.8 18.1 1.2
By number of issuers Rising stars Fallen angels Rising star/fallen angel ratio By dollar volume ($bn) Rising stars Fallen angels Rising star/fallen angel ratio
Source: J.P. Morgan
Rising stars and fallen angels (par amount)

150.0 125.0 ($ bn) 100.0 75.0 50.0 25.0 16 0.0
6 1512 16 3 24 29 11 10 66 40 16 13 37 38 31 3030 51 19 56 27 33 28 2118
Rising stars and fallen angels (issuer)

150 113
Rising stars
142
70 60 50 40 37 30 20 10 1995 1996 0
20 44 31 17 6 18 18 39 27 23 23 29 13 49
63
Rising stars
43 26 22 13
Fallen angels
Fallen angels
36 25 27 22 24
58
30
25
27 15
20
14
25 24
13
13
20 8
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
YTD
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: J.P. Morgan
Source: J.P. Morgan
Fallen angel bonds to be added to the J.P. Morgan Global High Yield Index
Issuer Donnelley & Sons MDC Holdings MDC Holdings FPL Energy American Wind Sunoco Inc Sunoco Inc Coupon 6.125% 5.500% 5.625% 5.608% 5.750% 9.625% 15-Jan-17 15-May-13 1-Feb-20 10-Mar-24 15-Jan-17 15-Apr-15 Maturity Par ($mn) 525.0 176.7 250.0 232.0 400.0 250.0 Ba1 Baa3 Baa3 Baa3 Ba1 Ba1 Mdy BB+ BB+ BB+ BB BB+ BB+ SP 8.2% 2.4% 6.1% 5.2% 6.0% 5.1% YTW 718bp 228bp 425bp 279bp 490bp 445bp STW
Approx. Glbl Index weight 0.06% 0.02% 0.03% 0.03% 0.05% 0.04%
Inclusion Date 1-Sep-11 3-Oct-11 3-Oct-11 3-Oct-11 1-Nov-11 1-Nov-11
Note: If a bond is downgraded to high yield (fallen angel) it is added to the index subject to a seasoning periodit is added to index the first business day of the month closest to 90-days following the downgrade to high-yield. If a bond is upgraded to investment grade (rising star), it is immediately removed from the index. Source: J.P. Morgan.
16
2010
YTD
Summary profile of JPMorgan High-Yield Indices as of August 31, 2011

Market value (bn) $776.4 $685.2 Number of issues 1,651 1,455 Number of issuers 1,192 1,038 Yield to worst 8.39% 8.34% Spread to worst 726 bp 722 bp Current yield 8.54% 8.51% Coupon 8.42% 8.40% Yield to maturity 8.60% 8.56% Maturity 6.70 yrs 6.71 yrs Yield to worst date 5.92 yrs 5.90 yrs Duration 4.27 yrs 4.26 yrs Premium to Trsy 1103.99% 1109.51% % of par 100.30% 100.35% % of par (excl. def.) 100.41% 100.46% Global Devel. Domestic $635.6 1,368 975 8.36% 723 bp 8.53% 8.42% 8.58% 6.72 yrs 5.92 yrs 4.27 yrs 1118.13% 100.52% 100.63% $310.5 575 391 6.46% 526 bp 7.27% 7.52% 6.70% 7.35 yrs 6.45 yrs 4.60 yrs 854.89% 104.12% 104.12% Dev BB $496.2 984 716 7.31% 616 bp 7.92% 8.07% 7.56% 6.97 yrs 6.06 yrs 4.39 yrs 976.15% 102.85% 102.85% Instl
Index profile
Source: J.P. Morgan
$151.9 99 99 8.21% 693 bp 8.50% 8.36% 8.49% 7.50 yrs 6.71 yrs 4.70 yrs 968.95% 99.91% 99.91%
HY 100
$213.4 192 192 8.10% 694 bp 8.47% 8.42% 8.38% 6.91 yrs 6.02 yrs 4.38 yrs 1042.28% 101.34% 101.34%
Liquid
89.6 13.1 204 53 154 45 9.37% 9.92% 818 bp 810 bp 8.09% 9.08% 7.46% 8.14% 9.40% 9.94% 4.94 yrs 6.93 yrs 4.74 yrs 6.85 yrs 3.62 yrs 4.58 yrs 749.42% 501.84% 94.38% 91.61% 94.83% 92.53%
Euro
Sterling US$ Euro. Euro. Curr. Euro. Agg. $59.6 102 71 8.16% 700 bp 8.22% 8.06% 8.30% 6.61 yrs 6.09 yrs 4.36 yrs 940.06% 98.29% 98.29% 143.1 248 188 9.63% 834 bp 8.33% 7.63% 9.66% 5.32 yrs 5.13 yrs 3.81 yrs 723.39% 93.87% 94.20%
185.4 320 225 9.24% 798 bp 8.24% 7.67% 9.30% 5.63 yrs 5.40 yrs 3.98 yrs 790.37% 94.79% 95.05%
Summary profile of JPMorgan High-Yield Global Index as of August 31, 2011

By industry Automotive 3.23% Broadcasting 1.56% Cable and Satellite 4.27% Chemicals 3.36% Consumer Products 2.04% Diversified Media 1.76% Energy 12.90% Financial 9.27% Food and Beverages 3.90% Gaming Lodging and Leisure 5.00% Healthcare 7.13% Housing 5.00% Industrials 4.90% Metals and Mining 6.04% Paper and Packaging 4.56% Retail 3.70% Services 4.26% Technology 4.82% Telecommunications 6.00% Transportation 2.52% Utility 3.79% JPMorgan Global HY Index by rating Split BBB 9.79% BB 25.44% Split BB 12.05% B 33.30% Split B 8.63% CCC/Split CCC 9.29% Not Rated 0.37%
Source: J.P. Morgan
Market weight
Market value
No. of issues 48 30 40 56 50 41 203 138 83 94 110 91 100 82 88 68 95 66 62 50 56 114 369 205 554 161 190 15
STW 626 bp 815 bp 679 bp 585 bp 712 bp 1054 bp 620 bp 706 bp 718 bp 811 bp 714 bp 867 bp 716 bp 658 bp 768 bp 710 bp 838 bp 830 bp 700 bp 831 bp 757 bp 411 bp 545 bp 648 bp 770 bp 1022 bp 1190 bp 903 bp
YTW 7.39% 9.34% 7.81% 6.70% 8.17% 11.42% 7.44% 8.21% 8.20% 9.05% 8.30% 9.85% 8.17% 7.67% 8.97% 8.28% 9.34% 9.50% 8.17% 9.53% 9.06% 5.55% 6.59% 7.66% 8.76% 11.24% 12.96% 9.77%
YTM 7.47% 9.50% 8.30% 7.74% 8.60% 11.65% 7.53% 8.26% 8.34% 9.27% 8.46% 9.86% 8.38% 7.86% 9.16% 8.59% 9.67% 9.72% 8.40% 9.62% 9.18% 5.72% 6.84% 7.88% 8.99% 11.39% 13.06% 9.92%
Current yield 7.93% 9.16% 8.86% 8.20% 8.67% 10.47% 7.85% 7.95% 8.76% 9.15% 8.45% 9.05% 8.41% 8.05% 8.66% 8.53% 9.26% 9.48% 8.49% 8.98% 8.72% 6.58% 7.36% 8.10% 8.93% 10.34% 11.18% 9.82%
YTW date 5.69 yrs 5.99 yrs 5.21 yrs 4.52 yrs 5.43 yrs 4.65 yrs 6.31 yrs 6.60 yrs 5.24 yrs 4.91 yrs 5.78 yrs 5.92 yrs 5.18 yrs 5.47 yrs 6.82 yrs 7.05 yrs 4.95 yrs 6.10 yrs 6.07 yrs 7.09 yrs 7.75 yrs 8.31 yrs 5.97 yrs 6.07 yrs 5.48 yrs 5.23 yrs 5.40 yrs 4.14 yrs
Duration 4.24 yrs 4.28 yrs 4.03 yrs 3.50 yrs 3.98 yrs 3.47 yrs 4.65 yrs 4.40 yrs 4.00 yrs 3.67 yrs 4.36 yrs 4.27 yrs 3.96 yrs 4.17 yrs 4.70 yrs 4.26 yrs 3.69 yrs 4.26 yrs 4.39 yrs 4.64 yrs 5.26 yrs 5.47 yrs 4.38 yrs 4.45 yrs 4.04 yrs 3.74 yrs 3.82 yrs 3.28 yrs
Average rating Split BB B B Split BB B B Split BB Split BB B B B Split BB Split BB Split BB Split BB B B B Split BB Split BB Split BB
$25.1 $12.1 $33.1 $26.1 $15.8 $13.7 $100.1 $72.0 $30.3 $38.8 $55.4 $38.8 $38.0 $46.9 $35.4 $28.7 $33.1 $37.4 $46.6 $19.5 $29.4 $76.0 $197.5 $93.5 $258.5 $67.0 $72.1 $2.8
17
JPMorgan High Yield Indices Available Daily on Bloomberg

Menu Key CHYI JPDO JPDV JPBB JINS JHYT Index Euro Sterling USD European European Aggregate European Currency High Yield Liquid Menu Key CHYE CHYP CHYD JPEA JPEY JHLI
Several High Yield Credit Indices are available to investors on Bloomberg. To access the JPMorgan High Yield Index main menu, type CHHY <GO>. The following page provides the menu key to access each high-yield index homepage. Index USD Global USD Domestic USD Developed USD Developed BB USD Institutional HY 100
For example, type CHYI <GO> to bypass the main menu page and proceed directly to the JPMorgan USD Global High Yield Index. For each index, five options are available: Option 1) Index Values and Returns Option 2) Yield to Worst Values Option 3) Spread to Worst Values Option 4) Market Weighted Average Statistics Option 5) Index Description For each index, current and historical index level, yield and spread data are available, as well as the following market weighted average statistics: Market Weight Years to YTW Date Coupon Current Yield Price Volatility Duration Years to Maturity If you do not have access to JPMorgan High Yield indices on Bloomberg and would like to gain access, please send your Bloomberg S/N number and Login UUID number to Alisa Meyers via Bloomberg message or e-mail (hy_strategy@jpmorgan.com). We welcome any questions or comments.
18
J.P. Morgan North American Credit Research

383 Madison Avenue, 3rd Floor, New York, NY 10179
JOYCE CHANG Head of Global Credit and Emerging Markets Research (212) 834-4203
H I G H G R A D E S T R AT E G Y A N D C R E D I T D E R I VAT I V E R E S E A R C H ERIC BEINSTEIN

eric.beinstein@jpmorgan.com . . . . . . . (212) 834-4211, dominique.d.toublan@jpmorgan.com . (212) 834-2370 miroslav.j.skovajsa@jpmorgan.com . (212) 834-5154 anna.x.cherepanova@jpmorgan.com . (212) 834-3220
GLOBAL HIGH YIELD
AND
L E V E R A G E D L O A N S T R AT E G Y
PETER D. ACCIAVATTI
peter.acciavatti@jpmorgan.com . . . (212) 270-9633, tony.linares@jpmorgan.com . . . . . . (212) 270-3285 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . nelson.r.jantzen@jpmorgan.com . . . (212) 270-1169 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . alisa.meyers@jpmorgan.com . . . . . (212) 834-9151
ARUN N. KUMAR NORTH AMERICAN HIGH GRADE RESEARCH
AND
DAVID COMMON NORTH AMERICAN HIGH YIELD RESEARCH
Co-Heads of Credit ResearchHigh Grade and High Yield

AUTOMOTIVE eric.j.selle@jpmorgan.com . . . . . . . . . . (212) 270-9624, jenna.l.giannelli@jpmorgan.com . . . (212) 270-9455 BASIC INDUSTRIES Chemicals and Metals & Mining robin.levine@jpmorgan.com . . . . . . (212) 270-1536, svetlana.x.goldenberg@jpmorgan.com . (212) 270-9453 Home Builders susan.berliner@jpmorgan.com . . . . .(212) 270-3085, richard.j.degaetani@jpmorgan.com . (212) 834-9524 Paper/Forest Products, Packaging tarek.x.hamid@jpmorgan.com . . . . . (212) 834-5468, kevin.p.tomassetti@jpmorgan.com . (212) 834-4079 AUTOMOTIVE eric.j.selle@jpmorgan.com . . . . . . . . . . (212) 270-9624, jenna.l.giannelli@jpmorgan.com . . . (212) 270-9455 BASIC INDUSTRIES Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . tarek.x.hamid@jpmorgan.com . . . . . (212) 834-5468, kevin.p.tomassetti@jpmorgan.com . (212) 834-4079 Home Builders susan.berliner@jpmorgan.com . . . . .(212) 270-3085, richard.j.degaetani@jpmorgan.com . (212) 834-9524 Metals & Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . dave.adam.katz@jpmorgan.com . . . (212) 270-4593, bayina.bashtaeva@jpmorgan.com . (212) 270-1372 Paper/Forest Products, Packaging tarek.x.hamid@jpmorgan.com . . . . . (212) 834-5468, kevin.p.tomassetti@jpmorgan.com . (212) 834-4079 BANKS, FINANCE AND SECURITIES COMPANIES kabir.x.caprihan@jpmorgan.com . . . (212) 834-5613, matthew.hughart@jpmorgan.com . . (212) 270-4584 CONSUMER PRODUCTS, FOOD AND RESTAURANTS, RETAIL virginia.chambless@jpmorgan.com . (212) 834-5481, james.r.stone@jpmorgan.com . . . . . (212) 270-1682 ELECTRIC UTILITIES AND POWER GENERATION susan.voorhees@jpmorgan.com . . . (212) 834-5200 ENERGY, PIPELINES, MLPS robin.levine@jpmorgan.com . . . . . . (212) 270-1536, svetlana.x.goldenberg@jpmorgan.com . (212) 270-9453 HEALTHCARE, INSURANCE arun.n.kumar@jpmorgan.com . . . . . (212) 834-5423, brett.g.gibson@jpmorgan.com . . . . . (212) 270-7484 MANUFACTURING, SERVICES Aerospace/Defense, Industrials, Services virginia.chambless@jpmorgan.com . (212) 834-5481, james.r.stone@jpmorgan.com . . . . . (212) 270-1682 REITS, GAMING, LODGING REITs mark.streeter@jpmorgan.com . . . . . (212) 834-5086,, nicholas.j.northington@jpmorgan.com .(212) 834-5237 Gaming, Lodging susan.berliner@jpmorgan.com . . . . .(212) 270-3085, richard.j.degaetani@jpmorgan.com . (212) 834-9524 TECHNOLOGY/TELECOMMUNICATION, CABLE AND MEDIA Technology/Telecommunication Services brian.m.turner@jpmorgan.com . . . . .(212) 834-4035 Cable/Satellite michael.pace@jpmorgan.com . . . . . (212) 270-6530, arjun.c.chandar@jpmorgan.com . . . (212) 270-6797 Broadcasting/Publishing . . . . . . . . . . . . . . . . . . . . . . avi.a.steiner@jpmorgan.com . . . . . . (212) 270-5512, kenneth.r.norden@jpmorgan.com . . (212) 270-1564 TRANSPORTATION Airlines/EETCs/Aircraft/Rails/Freight/Shipping mark.streeter@jpmorgan.com . . . . . (212) 834-5086, nicholas.j.northington@jpmorgan.com .(212) 834-5237 FINANCE AND SECURITIES COMPANIES dave.adam.katz@jpmorgan.com . . . (212) 270-4593, bayina.bashtaeva@jpmorgan.com . (212) 270-1372 CONSUMER PRODUCTS, FOOD AND RESTAURANTS, RETAIL carla.casella@jpmorgan.com . . . . . . (212) 270-6798, paul.a.simenauer@jpmorgan.com . . (212) 270-6861 ELECTRIC UTILITIES AND POWER GENERATION dave.adam.katz@jpmorgan.com . . . (212) 270-4593, bayina.bashtaeva@jpmorgan.com . (212) 270-1372 ENERGY gregg.w.brody@jpmorgan.com . . . . (212) 834-5997, jason.homler@jpmorgan.com . . . . . (212) 834-9405 HEALTHCARE, INSURANCE david.common@jpmorgan.com . . . . (212) 270-5260, jared.a.feeney@jpmorgan.com . . . . .(212) 270-0699 MANUFACTURING, SERVICES Aerospace/Defense, Industrials, Services yilma.abebe@jpmorgan.com . . . . . . (212) 270-3265, ryan.p.dean@jpmorgan.com . . . . . . (212) 270-9566 GAMING, LODGING, LEISURE Gaming, Lodging susan.berliner@jpmorgan.com . . . . .(212) 270-3085, richard.j.degaetani@jpmorgan.com . (212) 834-9524 Leisure michael.pace@jpmorgan.com . . . . . (212) 270-6530, arjun.c.chandar@jpmorgan.com . . . (212) 270-6797 TECHNOLOGY/TELECOMMUNICATION, CABLE AND MEDIA Technology/Telecommunication Services thomas.j.egan@jpmorgan.com . . . . . (212) 270-2149, lina.p.kabaria@jpmorgan.com . . . . . (212) 834-5669 Cable/Satellite michael.pace@jpmorgan.com . . . . . (212) 270-6530, arjun.c.chandar@jpmorgan.com . . . (212) 270-6797 Broadcasting/Publishing avi.a.steiner@jpmorgan.com . . . . . . (212) 270-5512, kenneth.r.norden@jpmorgan.com . . (212) 270-1564 TRANSPORTATION Airlines/EETCs/Aircraft/Rails/Freight/Shipping mark.streeter@jpmorgan.com . . . . . (212) 834-5086, nicholas.j.northington@jpmorgan.com .(212) 834-5237
North America Credit Research
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Conflict of Interest: This research contains the views, opinions and recommendations of J.P. Morgan credit research analysts. Research analysts routinely consult with J.P. Morgan trading desk personnel in formulating views, opinions and recommendations in preparing research. Trading desks may trade, or have traded, as principal on the basis of the research analyst(s) views and report(s). Therefore, this research may not be independent from the proprietary interests of J.P. Morgan trading desks which may conflict with your interests. In addition, research analysts receive compensation based, in part, on the quality and accuracy of their analysis, client feedback, trading desk and firm revenues and competitive factors. As a general matter, J.P. Morgan and/or its affiliates normally make a market and trade as principal in fixed income securities discussed in research reports.
Important Disclosures
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Global High Yield and Leveraged Loan Research

High-Yield Market Monitor

(1-212) 270-3285 tony.linares@jpmorgan.com

Nelson Jantzen, CFA

(1-212) 270-1169 nelson.r.jantzen@jpmorgan.com

(1-212) 834-9151 alisa.meyers@jpmorgan.com

See page 20 for analyst certification and important disclosures.

Sources: J.P. Morgan; Bloomberg

High-yield issuance ($ bn)

40.5 34.2 26.5 26.0

17.5 14.4 11.7

20.4 20.420.1 19.5 16.2

24.7 16.5 6.9 7.2

Source: J.P. Morgan

New loan activity declined for the third consecutive month

Sources: J.P. Morgan; S&P LCD

0.9 0.6 0.8

2.3 1.6 2.1

-2.0 -4.0 -6.0 -8.0

-0.5 -4.7 -4.4

Sources: Lipper FMI; J.P. Morgan

2008 2009 2010 1Q11 2Q11 Aug-11 QTD YTD LTM

-26.83% 58.90% 15.05% 4.21% 1.22% -3.65% -2.31% 3.04% 9.37%

-29.10% 51.62% 10.14% 2.42% 0.18% -4.38% -4.27% -1.77% 2.79%

0.54% 18.48% 9.50% 0.85% 2.47% 0.35% 2.68% 6.12% 4.77%

20.22% -8.76% 8.27% -0.42% 3.52% 5.57% 9.01% 12.38% 5.99%

-10.91% 28.18% 12.04% 1.02% 4.03% 0.53% 2.49% 7.70% 7.49%

-37.00% 26.46% 15.06% 5.92% 0.10% -5.43% -7.36% -1.77% 18.50%

-33.49% 27.18% 26.86% 7.94% -1.61% -8.70% -12.00% -6.54% 22.19%

-27.99% 27.90% 13.18% 1.31% 1.70% -6.54% -8.52% -5.75% 7.25%

-53.18% 78.58% 19.04% 1.95% -1.10% -8.91% -9.27% -8.52% 9.15%

-12.45% 19.47% 12.04% 1.45% 0.87% -5.87% -6.64% -4.46% 5.80%

-17.28% 27.31% 8.17% 1.05% -1.55% -6.84% -5.71% -6.20% 0.35%

-4.61% 4.86% 1.48% 0.05% 0.70% -0.91% -1.02% -0.27% 1.63%

Returns of J.P. Morgan high-yield indices

2001 2002 2003 2004 2005 2006

2009 2010 1Q11 2Q11 Aug-11 QTD YTD LTM

US$Europe -15.91% -19.68% 37.66% 14.72% 7.12% 10.68%

Euro Curr. -12.00% -9.41% 20.84% 15.32% 4.57% 9.25%

Euro Agg. -13.91% -13.75% 27.30% 14.99% 5.26% 9.60%

Returns by industry and rating

Broadcasting 4.12% 1.00% -4.55% -3.91% 1.05% 11.95%

Returns by industry August 2011

Global HY 4.21% 1.22% -3.65% -2.31% 3.04% 9.37%

BB 3.31% 1.45% -2.49% -1.10% 3.65% 8.23%

Financial 5.18% 1.46% -3.50% -2.44% 4.11% 10.42%

B 4.49% 1.15% -3.95% -2.60% 2.94% 9.71%

Split B 5.42% 0.77% -5.33% -4.83% 1.09% 9.22%

Food and Bev. 3.13% 1.56% -3.11% -1.54% 3.13% 8.46%

Gaming Leisure 4.30% 1.77% -3.94% -2.68% 3.31% 11.03%

Returns by rating August 2011

Defaulted 0.03% 0.19% -2.86% 0.34% 0.57% 11.07%

-1.76% -2.49% -2.53% -2.95% -3.65% -3.95%

JPM Global HY Services Industrials Retail Broadcasting Packaging Paper and

Automotive Transportation Housing Diversified Media

Source: J.P. Morgan 8

Spreads in the high-yield market

JPM Global HY 958bp 484bp

Split-BBB 442bp 217bp

Split-BB 720bp 369bp

718bp 822bp 606bp 969bp 3139bp 1082bp 989bp 1190bp

Source: J.P. Morgan