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044769 - Talking Points


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									ING Senior Loan Group                                                                                                                                                          Talking Points
                                                                                                                                                                                                                                                    October 28, 2010

                                                               Prices Firm on Solid Technicals, Positive Earnings

Q - How did the bid averages fare this week?                                                                                      Q - What has been the effect on yields?
A – Loan bids moved higher on average, following a slight                                                                         A – On a secondary spread to three year call basis, the yield
pull-back last week. The average bid of the S&P/LSTA                                                                              on the Flow Name Composite increased 2 bps to land at
Leveraged Loan Index Flow Name Composite (the                                                                                     L+469. The chart below shows the secondary spread history
“Composite”), which tracks the 15 largest loans in the                                                                            for the Flow Name Composite since the beginning of 2010.
S&P/LSTA Leveraged Loan Index (the “Index”), increased 36
bps to 95.89%. The broad Index gained 26 bps to close at
92.57%.                                                                                                                                                            Average Three Year Call Secondary Spreads
Technical conditions continue to set the tone, with aggregate                                                                                                           S&P/LCD Flow Name Composite ¹
inflows and prepayments comfortably absorbing several new                                                                                                               January 1, 2010 to October 28, 2010
deals. Market sentiment remained positive in the face of                                                                          L+650
equity market volatility, buoyed by several positive earnings
announcements. On the primary side, heavy oversubscriptions                                                                       L+600

continue to support strong post-break trading levels,
indirectly benefitting secondary loan prices.                                                                                     L+550

The following t
Th f ll i             h t h      the              i history
                 two charts show th average bid price hi t                                                                        L+500
for the Flow Name Composite and the entire Index,
respectively, since the beginning of 2010.                                                                                        L+450

                                                    Average Bid
                                                                                                                                           0                 0             0               0              0             0              0             0                     0            10
                                                                                                                                         01                01            01              01             01            01             01            01                    01           20
                                        S&P/LCD Flow Name Composite                                                              1/1
                                                                                                                                                                                                                                                               /2                 /1/
                                        January 1, 2010 to October 28, 2010

       96                                                                                                                         For the week ended October 22, 2010, the secondary spread
                                                                                                                                  yield on the overall Index ended 2 bps lower at L+576.

                                                                                                                                  The following chart shows the secondary spread history for
                                                                                                                         95.89    the Index since the beginning of 2010.
                                                                                                                                  [Please note that the Index yield data is only available on a one week
                                                                                                                                  lagging basis, thus the data demonstrated below is for the week ending
       91                                                                                                                         October 22, 2010.]
            0            10           10        10          10          10          10          10         10         10
         01            20         /2 0      /2 0       /2 0        /2 0        /2 0        /2 0        /2 0         20
1/   1/2        2/1
                              3/1        4/1       5/1         6/1         7 /1        8/1         9/1          /1/
                                                                                                                                                                         Average Three Year Call Secondary Spreads
                                                                                                                                                                                   S&P/LSTA Leveraged Loan Index
                                                                                                                                                                                   January 1, 2010 to October 22, 2010
                                                    Average Bid
                                        S&P/LSTA Leveraged Loan Index                                                              L+700
                                        January 1, 2010 to October 28, 2010


                                                                                                                        92.57      L+580


        88                                                                                                                         L+500

                                                                                                                                              10              10            10                 10            10              10            10                   10                10               0
                                                                                                                                       /2 0               /2 0        /   20          /   20           /   20         /2 0           /   20              /2 0               /   20              201
        87                                                                                                                       1/8                2/8            3/8             4/8              5/8           6/8             7/8              8/8                   9/8             /8 /
           10           10          10          10          10          10          10         10           10           10
    /2 0            /2 0       /2 0        /2 0        /2 0        /2 0        /2 0        /2 0        /2 0      /1 /
1/1             2 /1       3 /1        4/1         5/1         6 /1        7 /1        8/1        9 /1         10
  ING Senior Loan Group Talking Points                                                                                                                                                                            October 28, 2010

  Q - Did anything happen to the default rate?                                                                                                   Total Loan Fund Assets Under Mangement
                                                                                                                                                  December 31, 1996 to September 30, 2010
  A – No change The chart below shows the historical default                                                            $50B
  rates for the Index by both issuer number and principal
  amount since December 31, 2009.
                             Lagging 12 Month Default Rate
                            S&P/LSTA Leveraged Loan Index                                                               $30B
                           December 31, 2009 to October 28, 2010
 12%                                                                                                                    $20B


  6%                                                                                                                 Year-
                                                                                                                            96 997 998 999 000 001 002 003 004 005 006 007 008 009 p-10
                                                                                                                     end: 19   1   1   1   2   2   2   2   2   2   2   2   2   2
                                                                                                                       one new exchange-traded fund has been launched. All signs
                                                                                         3.22%                         point to more activity, with talk of several new funds
                                                                                         2.28%                         permeating the market.
                                                                                                                       Near-term, absent an unexpected reversal in the path of
   /09        /09      0          0      0      0         0        0         0      0       0        /10
 11      12         1/1     2/1       3/1    4/1    5/1         6/1      7/1     8/1     9/1    10                     default rates and/or economic activity, and barring an
                     Defaults by Issuer Number                         Defaults by Principal Amount                    unforeseen exogenous event, we expect the loan market will
                                                                                                                       remain attractive to investors seeking attractive risk-adjusted
  Q - As mentioned in previous editions of Talking Points,                                                             yields. Looking out a little further, perhaps the tried and true
  inflows have rivaled take-outs as the major theme of 2010.                                                           driver of strong absolute and relative performance – the
  What has driven flows and where do you see them going?                                                               upward move in interest rates – will come into play.
  A – Along with refinance/repayment activity, the return of
  the t il investor h greatly i
  th retail i      t has                t d the loan market i
                              tl impacted th l            k t in                                                       Unless otherwise noted, the source for all data in this report is Standard & Poor’s/LCD. S&P/LCD does not make any
                                                                                                                       representations or warranties as to the completeness, accuracy or sufficiency of the data in this report.
  2010. During the nine-month period ended September 30,                                                               1 – Assumes 3 Year Maturity. Three year maturity assumption: (i) all loans pay off at par in 3 years, (ii) discount from par is
  loan mutual fund assets under management (AUM) grew                                                                  amortized evenly over the 3 years as additional spread, and (iii) no other principal payments during the 3 years. Discounted
                                                                                                                       spread is calculated based upon the current bid price, not on par.
  38%. In fact, the September 30 balance of $45.2 billion (chart                                                       2 – Excludes facilities that are currently in default.
                                                                                                                       3 – Comprises all loans, including those not tracked in the LSTA/LPC mark-to-market service. Vast majority are institutional
  next column) already rivals the historical high water mark of                                                        tranches. Issuer default rate is calculated as the number of defaults over the last twelve months divided by the number of
  $46.7 billion set in 2006. From a flow perspective, 2010 is                                                          issuers in the Index at the beginning of the twelve-month period. Principal default rate is calculated as the amount defaulted
                                                                                                                       over the last twelve months divided by the amount outstanding at the beginning of the twelve-month period.
  expected to double that of 2009 ($7.5 billion YTD and $4.7
                                                                                                                         General Risks for Floating Rate Senior Bank Loans: Floating rate senior bank
  billion, respectively).                                                                                                loans involve certain risks. Below investment grade assets carry a higher than
                                                                                                                         normal risk that borrowers may default in the timely payment of principal and
  The attraction to retail investors lies in a combination of
                                                                                                                         interest on their loans which would likely cause the value of the investment to
  returns and yields that far outstrips other short-duration                                                             decrease. Changes in short-term market interest rates will directly affect the yield
  alternatives, an improving risk profile, and an inherent hedge                                                         on investments in floating rate senior bank loans. If such rates fall, the
  against the eventual move rise in short-term interest rates                                                            investment’s yield will also fall. If interest rate spreads on loans decline in general,
                                                                                                                         the yield on such loans will fall and the value of such loans may decrease. When
  (i.e., participation in rising rates and downside principal                                                            short-term market interest rates rise, because of the lag between changes in such
  protection). With the increase in flows, it’s not surprising to                                                        short term rates and the resetting of the floating rates on senior loans, the impact
  learn that the number of loan funds is growing. In 2010, five                                                          of rising rates will be delayed to the extent of such lag. Because of the limited
                                                                                                                         secondary market for floating rate senior bank loans, the ability to sell these loans
  new open-end products have been introduced. In addition,
                                                                                                                         in a timely fashion and/or at a favorable price may be limited. An increase or
                                                                                                                         decrease in the demand for loans may adversely affect the loans.

Contact Information
                                                              The ING Senior Loan Group is a part of ING Investment Management, the world-wide investment arm of ING Group N.V., with over 700 investment
                                                              professionals managing nearly $500 billion in assets globally. Our Group is headquartered in Scottsdale, Arizona U.S.A., with an additional office in London,
                                                              England. We manage senior loans through three U.S. based mutual funds, a Luxembourg based SICAV, a collective trust for U.S. based pension plans, a
Group Heads                                                   privately offered fund which invests primarily in European loans, and several structured finance vehicles (CLOs).
                                                              The ING Senior Loan Group is comprised of 26 investment professionals and 18 dedicated support staff. There are four portfolio management teams in
Dan Norman                                                    Scottsdale, each of which is responsible for particular industries, and a European team that is responsible for European loan management. Our two Group
                                                              Heads, the chief credit officer and a senior credit officer comprise the Investment Committee, which approves all investment decisions. Finally, the team is
Jeff Bakalar                                                  supported by a highly qualified trading, operations, analytics and legal team that is dedicated exclusively to this asset class.
                                                              This commentary has been prepared by ING Investment Management for informational purposes. Nothing contained herein should be construed as (i) an offer
7337 E. Doubletree Ranch Road                                 to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any
                                                              opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations
Scottsdale, AZ 85258 USA                                      and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and
                                                              uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results,
                                                              performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of
                                                              financial markets, (3) interest rate levels, (4) increasing levels of loan defaults (5) changes in laws and regulations and (6) changes in the policies of
                                                              governments and/or regulatory authorities.
                                                              The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided
                                                              regarding holdings is not a recommendation to buy or sell any security. Fund holdings are fluid and are subject to daily change based on market conditions
                                                              and other factors.

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