Transcript Slide 1

The D. E. Shaw Group:
Direct Capital
January 2009
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About the D. E. Shaw Group
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Global investment and technology development firm founded in 1988
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Approximately $30 billion in aggregate investment capital as of January 1, 2009
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Headquartered in New York, with offices in North America, Europe, and Asia
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Unusually strong emphasis on quality and depth of personnel
– More than 1,600 employees worldwide, about half of whom are outside the United States
– Approximately 130 Ph.D.’s, and a number of Rhodes, Fulbright, and Marshall Scholars
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Deliberate focus on achieving attractive risk-adjusted returns for investors through a multidisciplinary
approach
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Firm Investment Activities
In the future, the firm may be engaged in additional (or other) areas of activity, which may be similar or dissimilar to the areas of activity above.
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Direct Capital Activities: Overview
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D. E. Shaw Direct Capital provides capital to middle market corporate clients through a process that
emphasizes flexible deal structures, rapid turnarounds, straightforward negotiations, and a proven
ability to close
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The firm’s Direct Capital Activities unit serves clients across a variety of industries throughout North
America and Western Europe, with a particular focus on the energy, business services, and financial
services sectors
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We provide capital throughout the capital structure, including senior debt, high-yield debt, mezzanine
debt, convertible debt, and preferred and common equity
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We have built long-term, recurring business relationships with management teams, lending
institutions, financial sponsors, and intermediaries to provide capital solutions for the following
purposes:
– Acquisitions
– Leveraged buyouts
– Recapitalizations
– Growth opportunities
– Distressed or turnaround solutions
– Rescue finance
– Bridge loans
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Global Reach, Local Presence
 Direct Capital Activities
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Direct Capital Investment Profile
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Ability to originate debt and equity investments, including senior debt, high-yield debt, mezzanine debt,
convertible debt, and preferred and common equity
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Focus on originated transactions rather than syndication or auction situations
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Ability to be the single source for multiple levels of capital, or lead an individual tranche of debt or equity
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Investment areas
– Middle-market and small cap companies
– Predominantly private issuers
– Numerous industry sectors, with a particular focus on energy, and financial services
– North America and Western Europe
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Investment sizes
– Average deal size: $20 million to $50 million
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Typical range of debt deals: $10 million to $100 million
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Typical range of equity deals: $5 million to $50 million
– Ability to invest $100 million or more in select opportunities
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Direct Capital Energy Group
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More than $1 billion invested since 2004 in 38 deals in the energy sector
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Industry Sectors
– Upstream
– Energy Services & Equipment
– Midstream
– Downstream
– Power / Renewables
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Market Approach
– Opportunistic / Flexible / Originated
– “One-Stop” capital solutions
– Focused on management and assets
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Advantages
– Flexibility / Creativity
– Knowledgeable professionals with energy finance backgrounds
– Knowledgeable professionals with restructuring/turnaround backgrounds
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Sample Energy Transactions
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$100mm note with warrants in California-based E&P company
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$70mm senior secured development facility and $10mm equity investment in West Texas based E&P
company
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$34mm preferred equity in Gulf Coast E&P company
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$70mm senior secured notes with warrants in a U.K. based gas storage/LNG project
 $38.5mm senior secured notes in directional drilling company
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$15mm 2nd lien notes and $1mm co-invest equity in oilfield service company
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$25mm control equity investment in refined products terminalling and storage business
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Keys to Survival (the basics still work)
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Understand the term Commodity Cycle… know that history repeats itself
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Prepare for a downturn in good times
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Modest leverage
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Risk management
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Run a downside case, prepare for it
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Run conservative budgets, the strip is a guess… guess low
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Operate / control capex
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Dry powder / cash is king
Buy at low prices; drill in high prices
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Fortunes are acquired at the bottom of a cycle and sold at the top (see first point)
Raise money when you can
Know your lenders / partners
Control your destiny
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Marketplace Today
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Financial Markets
– Wall Street
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New issue debt markets closed
IPO / equity markets closed
– Senior bank market – supporting existing customers
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Large syndicated loans not available
Smaller clubbed loans available in E&P
– 2nd lien / mezzanine – limited availability (D. E. Shaw group)
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Closed for large syndicates
Reduction in capital providers
Smaller privates may be available
– Equity – available but waiting for right opportunities (D. E. Shaw group)
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Supporting portfolio companies
Waiting for right buying opportunities
Some equity buying debt in secondary market
Financeable Transactions Today
– Restructuring of balance sheets
– Borrowing base paydowns
– Liquidity capital for key capex programs with low F&D costs
– Opportunistic transactions
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Recent Investor’s Business Daily Cartoon
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IPAA Version – Historical View
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Positive Outlook for the Industry to Prosper
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Learning from historical cycles
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Most companies well positioned to manage a 12-18 month downturn
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Rebound in supply / demand fundamentals should be shorter cycle
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Risk management focus benefiting companies
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Technical excellence in drilling, completion and operations continue to bolster industry
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Global focus on the importance and needs of our energy markets should continue to make investment
dollars available
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The future is bright with opportunities to position the industry for value creation in 2009 and beyond