Natixis euro high income fund pitch book - may 2011 en montreux demode mod

Natixis Euro High Income FundMontreux – Citywire eventPhilippe Berthelot, CFAHead of Credit

May, 11-13th 2011

Natixis International Funds (Lux) I

2 www.am.natixis.com

Agenda

•High Yield at Natixis Asset Management

•Why invest in Euro High Yield?

•Why now?

•Natixis Euro High Income Fund


Agenda



•Why now?



• 10 specialised credit portfolio managers– 18 years of professional experience on average

• AUM – 3.9 Bn€ as at 12/31/2010

• Experience since 2000 across the credit spectrum

– Core CreditCoreCore Plus

– Satellite CreditHigh YieldHold To MaturityAbsolute returnConvertible bonds

– Synthetic credit Credit collateralCPPI

Head of Fixed IncomeIbrahima Kobar, CFA

[22,17]

Head of Credit and Structured Credit

Philippe Berthelot, CFA [19;1]

Portfolio Managers

Christine Barbier [25;21]Hanna Stekelorom, CFA [28;17]

Philippe Garnier [22;11]Vincent Marioni, SFAF [13;2]

Cyrille Philippe [18;4]Denis Passot [26;20]

Fabien Vieillefosse [11;11]Sophie Pensel [10;0]

Ousséni Parkouda [4;4]

Credit investment management team at Natixis AM

[Years prof. exp.; Y at NAM]


• 2 Senior Credit Portfolio Managers

– CFA and SFAF charterholders with a credit analysis experience.

* Covering HY with levaraged loans skills

Dedicated resources to High Yield at Natixis AMPortfolio Managers and Credit analysts work closely together

Philippe Berthelot, CFAHead of Credit19 years of professional experience

Vincent Marioni, SFAFSenior Portfolio Manager13 years of professional experience

Cynthia Voorhees, CFA [21;1]

+ 11 Sector credit specialists

Financial Defensive Cyclical

BanksBrokersInsurersReal Estate

Consumer non cyclicalConsumer productsFood and BeveragePharmaceuticalsTobaccoSupermarcketsCommunicationUtilities Energy

Consumer cyclicalBasic industryCapital GoodsTechnologyTransportation

Sanda Molotcov, CFASaad BenlamineKaysser CherifJérôme Loire, SFAFTo be Hired

Sylvie Sauvage, SFAFMarie-Aude de Lavallade, SFAFFabien Frappart

Bertrand RocherMaggie Cheng, CFAQuentin Girod

High yield - Stéphanie Iem, CFA*

• A research team comprised of 11 credit industry analysts.

– Including 1 analyst fully dedicated to High Yield*

• 2 quantitative analysts

– Chafic Merhy

– Guillaume Bernis


+

Investment discipline

• Stable business model with predictable cash flows

• Improving industry fundamentals

• Positive year-over-year cash flow

• Excess cash flow being used to improve credit worthiness

• Companies with deteriorating fundamentals & high default probabilities

• Issuers whose management focus is shareholder oriented

• Companies with business models that we do not understand

-

Idea Generation through…Proprietary research

We aim to allocate to… We aim to avoid…

Our Credit analysis include recovery assessment Our Credit analysis include recovery assessment and liquidity analysis for HY companiesand liquidity analysis for HY companies


A disciplined investment process

PORTFOLIO CONSTRUCTION &

MANAGEMENT

Bottom-up Process & diversification

Outperform the benchmark and be ranked in the first quartile*,With a defined risk budget

Directional(Over- or Under-weight)

3

Aim

Drivers

Objectives

21

Security selection Ensure risk-adjusted return

* In the Morningstar / Lipper peergroups or equivalent

Portfolio Managers and credit analysts work closely together

HY DIRECTION

Defined during our Credit Strategic Committee

IDEA GENERATION

Supported by fundamental

credit analysis


Agenda



•Why now?



Why invest in Euro High Yield?

The High Yield asset class is very appealing:

• A diversifying asset class– Negative or low correlation of the HY spreads with other asset classesNegative or low correlation of the HY spreads with other asset classes

• Asset class expected to experience significant growth ahead– From bank financing (loans) to public debt market (bonds)From bank financing (loans) to public debt market (bonds)

• Appealing returns over the past 10+ years vs equities:

• Regulatory framework (Solvency 2) favours HY investing compared to equities

Govies 5 years Swap 5 years VDAX EuroStoxx

HY Euro OAS correlation

-0.47 -0.34 0.49 -0.50

Source : Natixis Asset Management

Annual return 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Cum. 11

years

Average

Annual Return

Euro Stoxx 50 -0.9% -18.4% -35.1% 18.7% 9.9% 24.6% 18.5% 10.4% -40.8% 25.9% -2.1% -18.6% -1.7%

HY Euro (HEC4) -12.1% -10.5% 2.0% 23.3% 13.3% 6.4% 8.1% -1.8% -31.5% 68.2% 13.0% 64.9% 5.9%

Source : Bloomberg, BOAML


Source : Merrill Lynch Indices HP00, décember 2001, december 2010

The size and the number of issuers have grown over the last decade.

94

159

204

144

222

360

20

151

88

0

50

100

150

200

250

300

350

400

2001 2007 2010

in n

um

ber

0

20

40

60

80

100

120

140

160

in b

illi

on

EU

R

Issuers

Issues

Size (BnEUR)

Why invest in Euro High Yield? Euro High Yield no longer considered a niche


2011 :

Market Value : € 151 bn

360 issues

204 issuers

Market Value by Rating :Top 10 Issuers %FIAT 7.20F 6.26GMAC 5.53GM 3.92TDCDC 2.29RIFP 1.90ALUFP 1.82LINGR 1.79INEGRP 1.75RESCAP 1.67

Market Value by Rating :Top 10 Issuers %XRX 4.07MONILN 3.72NLI 3.67MSSRGR 2.63COLTEL 2.57KPNQWE 2.55KAPPA 2.43ESGLN 2.42MEPC 2.38POLTEL 2.35

2001


144 issues

94 issuers

2007


+ €20 bn off benchmark

(PIKs, FRNs…)

222 issues

159 issuers

Source : Merrill Lynch Indices HP00

Market Value by Rating :

Top 10 Issuers %

FIAT 4.35

HEIGR 4.20

F 2.75

LBTYA 2.43

WINDIM 2.35

AIG 2.32

INTNED 2.24

RENAUL 2.18

CONGR 2.09

RIFP 1.95

Market Value by MLSECTOR (level 3): Europe HY Index Lv3 20

0.0 5.0 10.0 15.0 20.0 25.0

Automotive

Banking

Basic Industry

Capital Goods

Consumer Cyclical

Consumer Non-Cyclical

Energy

Financial Services

Healthcare

Insurance

Media

Real Estate

Services

Technology & Electronics

Telecommunications

Utility

2001

2007

2011

Rating Europe HY Index

0.0 5.0 10.0 15.0 20.0 25.0 30.0

C

CC

CCC3

CCC2

CCC1

B3

B2

B1

BB3

BB2

BB1

2001

2007

2011

From a niche market to a true asset class (Dec.01-Jan 11)


Euro High Yield vs US High Yield

Euro HY market used to lag behind US market but Euro High Yield is catching up (Size difference: 1 to 5).

HY – Europe (HP00) HY – United States (H040)

Size 151 B€ 746 B€

Number of issues 360 2114

Number of isuers 204 1013

Source : HP00 et H040, figures as of end 2010


Why invest in Euro High Yield ?Regulatory framework favours high yield investing (e.g. Solvency II)

Capital requirement is much less a burden for HY assets vs Equity investments (based on the specifications from QIS 5)

– For instance, capital requirement that has been calculated for the HY Merrill Lynch index (HEC4, refrence index of Natixis Euro high Income) amounts to ca 20% with an average modified duration of 3.70 and an average rating BB- (linear) / B+ (WARF) vs 39% for listed equities.

Source Crédit Suisse

NB: Calculation above made on a stand alone basis, ignore diversification benefits in case of diversified portfolios blending various asset classes


Agenda


•Why invest in High Yield?

•Why now?



Why now?

1. Key interest rates still low despite some further rate hikes to expect from the ECB in order to fight headline inflation which is above ECB target…

2. Low growth in Euroland (but Germany) and low core inflation…3. Strong fundamentals and a decreasing default rate

Yields29 /04/2011

Spreads in bps vs

swaps

EONIA 1.42% N/A

Obl (5 years) 2.60% -39

Government Bond Index (ML E2AS)

3.63% 70

IG Index (ML EROO) 4.00% 117

HY Index (ML HEOO)

7.49% 404

Risk premium (in bps, OAS) 29 /04/2011

BBB 215

BB 390

B 536

C/CCC 1093

EMBI 281 (vs Treasuries)

Attractive yields compared to the other fixed income asset classes

Attractive risk premium whatever the rating within the speculative grade segment

Yields on High Yield stay attractive


Macro-economic outlooks

Quantitative factors (annual average) in %

USA Japan Europe UK

GDP 2011 3.10 1.50 1.80 1.60

GDP 2012 3.00 2.00 1.70 1.70

Inflation 2011 2.00 -0.30 2.30 4.00

Inflation 2012 1.90 -0.20 2.00 2.50

Contrasted macro background in Euroland : Low growth but Germany , low core inflation but headline inflation (much above target) and still low rates but short term interest rates on the rise …

Source: CIS, Natixis Asset Management, March 2011


HY Fundamentals: Ratings trend and defaults forecasts for US & EUROPE(sources Bloomberg as of 19/04/11 / Moody’s as of march 2011)

In Europe the Upgrade/Downgrade ratio is OKThe US Upgrade/Downgrade ratio stays OKDefault Rate: IG + HY

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

janv.-70janv.-73janv.-76janv.-79janv.-82janv.-85janv.-88janv.-91janv.-94janv.-97janv.-00janv.-03janv.-06janv.-09

global US non US

Moody’s forecast a European Speculative default rate of 1.0% and 1.6% in the US at the end of 2011.

Our internal NAM model exactly confirms this base scenario.


EUR High Yield Supply: € 50 bn exp. in 2011(as of 1/04/2011, source BOAML)

HY EUR new Issues (USD equiv.)

% fallen Angels within US & Europe HY universe JP Morgan Survey result on 2011 primary supply investors expectations


HY Valuation: US Leveraged Loans & Eur HY

The S&P/LSTA U.S. Leveraged Loan 100 Index weighted average bid price of constituents based upon dollar outstanding amounts as of 19/04/2011

JPM Rock Bottom Spread (as of 07/04/2011)


Valuation Euro High Yield

1M 3M 1 year YTD 2011

Index returns in local currency as of 04/25/2011

Total Return

Price Return

Total Return

Price Return

Total Return

Price Return

Total Return

Price Return

EurBBBCorp (ER40) 0.82 0.37 1.59 0.28 2.88 -2.38 1.77 0.09

HY Europe (HP00) 1.49 0.89 3.10 1.31 9.15 1.47 5.72 3.37

EUR HY BB/B 3% (HEC4) 1.29 0.72 2.78 1.04 8.13 0.77 4.86 2.60

Source: CSC NAM, April 2011

Cum 5 year default rate@ 19/04/11

Implied default rate

Historical average

European Itraxx XOver @ 375 bp

21.73%(20% recovery)

18.92%


Agenda


•Why invest in High Yield?

•Why now?



Natixis Euro High Income Fund

Features

• UCITS III-compliant subfund of the SICAV Natixis International Funds (Lux) I• Investment universe: High Yield corporates (including financials)

• The fund is hedged against currency risk and does not look to take on relative duration

• A fundamental Bottom Up approach

• Main alpha driver : security selection

• Resources:– 2 senior Portfolio Managers – 11 experienced credit analyts– 2 quantitative analysts

www.am.natixis.com

Reference information

Swing pricing:

In the event of large subscriptions, redemptions and/or switches in and/or out of a Fund in a same business day, and in order to take the dilution impacts into account and to protect the Shareholders’ interests, the Management Company reserves the right to apply a “swing pricing” as part of its daily valuation policy. This means that, if on any business day, the aggregate transactions in Shares of a Fund exceed a threshold determined by the Management Company, the Net Asset Value of the Fund may be adjusted by an amount, not exceeding 2% of the relevant Net Asset Value, in order to reflect both the estimated fiscal charges and dealing costs that may be incurred by the Fund and the estimated dealing spread of the assets in which the Fund invests/disinvests.Where a dilution adjustment is made, it will typically increase the Net Asset Value per Share when there are important net inflows into the Fund and decrease the Net Asset Value per Share when there are important net outflows

Reference indexBofA Merrill Lynch Euro High Yield BB-B Rated Constrained Index

Inception date November 18, 2010

Investment vehicle Sufund of the Natixis International Funds (Lux) I SICAV

Custodian Brown Brothers Harriman (Luxembourg) S.C.A.

Audit PricewaterhouseCoopers S.à.r.l. – Luxembourg

Investment Manager Natixis Global Associates

Sub-delegated Investment Management Company

Natixis Asset Management

Lead Portfolio Manager Philippe Berthelot, Vincent Marioni

ISIN

I/A (EUR) – LU0556616935- I/D (EUR) LU0593537219 R/A (EUR) – LU0556617156 –R/D (EUR) LU0593537482 S/A (EUR) – LU0556617313- S/D (EUR) LU0593537565RE/A (EUR) – LU0556617586

Share class TER, %Max sales charge, %

Minimum initial amount

S - Super institutional

0.75 3.00 EUR 15,000,000

I - Institutional 1.00 3.00 EUR 100,000

R – Retail 1.65 3.00 EUR 1,000

RE – Retail E 2.00 - EUR 250

Valuation frequency Daily

Cut off D, 13h30 Luxembourg time

* À titre indicatif


Few recent investments

Recent investments made in the portfolio :

Kion 7.875% 2018 NC 14 (B2/B) @ 100.00% (YTW 7.875 % / ASW + 455 bps)

CMA CGM 8.875% 2019 NC 15 (B2/B-) @ 100.00% (YTW 8.875% / ASW + 529 bps)

Elster 6.25% 2018 NC 14 (Ba2/BB-) @ 100.00% (YTW 6.25% / ASW + 280 bps)

Erste Bank 5.294% Perp T1 call 16 (Ba2) @ 83.00% (YTW 9.44% / ASW + 548 bps)

GEO 10.375% 2019 NC 14 (B-/Caa1) @ 100.00% (YTW 10.375 % / ASW + 680 bps)

Ontex 7.5% 2018 NC 14 (Ba3/B+) @ 101.75% (YTW 7.20% / ASW + 408 bps)

Eaccess Ltd 8.375% 2018 NC 15 (Ba3/BB) @ 100.00% (YTW 8.375% / ASW + 492 bps)

Goodyear 6.75% 2019 NC 15 (Ba2/BB) @ 100.00% (YTW 6.75% / ASW + 323 bps)


Focus on a recent investment :

Why we like the new € Foodcorp 8.75% 2018 :

A low cyclical Food & Retail Issuer which offers a good visibility on cash flows in a country with a structurally growing middle class population.

Strong market shares on various products from Mayonnaise (44%) to Dry Dog Food (50%).

Good deleveraging potential from a 5.9X Net Debt/Ebitda Ratio in early 2011 thanks to healthy growing margins.

Ability to pass raw material price increases.

Sound liquidity position with R 312M cash on balance sheet and R 250M undrawn RCF.

The company is owned for more than 50% by Managenement and Staff.

Likely M&A target for bigger and better rated Food producers like Nestle or Unilever.

A decent return with a Yield of 8.75% for a Secured Note

A South African producer of private label food products (Moody’s B2 / S&P B-)

Source : Company reports

EBITDA Breakdown

Source : Company reports

FCF Breakdown


Natixis Euro High Income Snapshot, 30/04/11

WINDIM 3.2F 3.0HEIGR 2.9BPCEGP 2.9LBTYA 2.7CONGR 2.6ZIGGO 2.4CASH 2.4INTNED 2.4MWDP 2.4ARGID 2.1MDPAC 1.9PICSUR 1.9FIAT 1.9ELTUS 1.8Total 36.5

Top 15 Issuer MW% (Natixis EHI)

FIAT 3.0HEIGR 3.0WINDIM 3.0LBTYA 3.0RIFP 2.9PEUGOT 2.8CONGR 2.6INTNED 2.4RENAUL 2.3MWDP 2.2F 1.9LHAGR 1.9FIIM 1.8ARGID 1.8ZIGGO 1.7Total 36.3

Top 15 Issuer MW% (HEC4)Characteristics 30-avr.-11 Natixis EHI HEC4NAV (,000) 111 843Nb Issues 83 257% Cash CASH 2.4 0.0Average Coupon 6.62 7.37Average Yield to Worst 6.76 7.11Average Effective Yield 6.68 7.00Average OAS 405.25 440.97Average ASW 353.60 379.64Average Mod Duration to Worst 3.42 3.47Average Effective Duration 3.71 3.72WARF 1760 1784Average rating BB- BB-/B+% Investment grade 8.18Long/Short CDS %NAV



Maturity bucket (Market Weight%)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

<3 3-5 5-7 7-10 >10

Natixis EHI HEC4

Spread bucket (Market Weight%)

0

10

20

30

40

50

60

0-200 200-400 400-600 600-800 800-1000 >1000

Natixis EHI HEC4

Natixis EHI Price bucket (Market Weight%)

60-802%

>8098%

0-200%

40-600% 20-40

0%

Natixis EHI Curency breakdown (Market Weight%)

EUR100%



Natixis EHI geographical breakdown (Market Weight%)

Other3% US+Canada

9%

Western Europe83%

Eastern Europe5%

ML3 Sector Breakdown (Market Weight%)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Natixis EHI

HEC4

Natixis EHI 10.9 13.2 11.7 5.3 3.5 8.1 3.9 3.5 1.5 4.9 10.5 0.7 9.9 3.5 6.4 0.0

HEC4 15.9 13.5 13.6 6.5 2.0 6.8 3.2 4.9 3.3 3.0 8.8 1.0 10.3 1.8 5.3 0.1

Automotive

BankingBasic

IndustryCapital Goods

Consumer Cyclical

Consumer Non-

CyclicalEnergy

Financial Services

Healthcare

Insurance MediaReal

EstateServices

Technology &

Electronic

Telecommunicatio

nsUtility

Rating Split (Market Weight%)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Natixis EHI HEC4


Performance Natixis Euro High Income since launch

Portfolio HEC4

Performance from 22/11/2010 to 21/04/2011 (source: Natixis Performances)

4.23 3.87

APPENDIX


TEV Natixis Euro High Income, Barclays POINT at 29/04/11


Credit case : Ziggo B.V.

Why we like Ziggo :

Ziggo’s cable infrastructure passes through 55% of Dutch households, of whom 80% are client

Good deleveraging potential supported by Best-in-class EBITDA margin at 54% of revenues

The Netherlands are highly densely populated allowing low maintenance and investment costs

Negligible event risk given the nature of the business and its leading market position

Moderate revenue growth expected on the next 3 years supported by triple play penetration

Soft competition in the Dutch cable market at this stage

Adequate liquidity position

The largest cable operator in the Netherlands (Moody’s Ba3 / S&P B+ / NAM HY2+)


Credit case : Ziggo B.V.

Because :

We believe in Ziggo’s ability to deleverage over time

We like the predictable nature of the business

We think that the yield of the 2018 bond at nearly 7% is attractive given our risk assessment and the liquidity of the bond

Even if :

The competition by the incumbent telecom operator KPN is growing

The expected recovery rate on the bond given the structural subordination to senior secured bank debt could be nihil

Ziggo 8% 2018 ___ Price (Left) ___ Yield to Worst (Right)

Souce JP Morgan Inc as of 13/10/10


Company – Review

Fundamental Score (3 year horizon)

Investment Grade: IG1, IG2, IG3, IG4, IG5High Yield: HY1, HY2, HY3Not rated (NR)Default (D)Workout (W)Avoid (A)

12 month Outlook

= + -

Event RiskNegative HighNegative LowNegligiblePositive LowPositive High Uncertain

Ratings Target

(what will rating agencies rate company in 12/18 months time)

IG5 = Severe deterioration ahead

IG3 = Slightly higher risk + volatility but very low risk of default

IG 4 = Higher risk and volatility but low risk of default.

IG1 = very low risk & volatility

IG2 = relatively low risk & volatility

HY1 = Core

HY2 = Alpha

HY3 = Cautious


HY & IG correlation with rates

EAC = IG indexECHY / ECHY BB-B = HY index / HY constrained index


Xover Equilibrium Model


Valuation : Total Return Credit vs Govt Bonds

•The outperformance of the Credit asset class over Govies continues

• European HY performance remains far ahead IG one

• In the US, the outperfor-mance of credit is as appealing

YTD Performance US Credit vs Govies and HY as of 18/04/2011

0.00

1.00

2.00

3.00

4.00

5.00

1 - 3Y 3 - 5Y 5 - 7Y 7 - 10Y

Credit Govt HY

YTD Performance € Credit vs Govies & HY as of 18/04/2011

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

1 - 3Y 3- 5Y 5 - 7Y 7 - 10Y

Credit Govt HY

Source : Barclays, Natixis AM


Biography

Philippe Berthelot, CFA - Head of credit teams (Corporate credit and structured credit)Philippe Berthelot holds a Master’s degree in Management Science from the European business school (Paris), and a Master’s degree in Finance from ESC Tours, a French graduate business school. He is also a CFA charter-holder.

Philippe Berthelot began his career in 1992 at CDC Gestion, as fixed income and money market portfolio manager. In 1998, he joined AXA Investment Managers (Paris) where he was fixed income portfolio manager on euro aggregate and credit expertise. He became Head of euro credit team in 2002, and then Head of euro fixed income in 2006. In January 2009, he was promoted Head of continental credit Europe at AXA Investment Managers.

He oversaw two co-lead portfolio managers of the High Yield fund ‘AXA IM Europe Haut Rendement’ from early 2005 to June 2009. AXA IM Europe Haut Rendement (C) FR0000979841 / AXAEHYC FP Equity

In January 2010, Philippe Berthelot joined Natixis Asset Management as Head of credit teams.He is currently the co-lead portfolio manager of the Natixis Euro High Income Fund.

Philippe Berthelot has 19 years of professional experience and has been working for our company for 1 year.


Biography

Vincent Marioni – Credit and high yield portfolio managerVincent Marioni is a postgraduate in Finance at ESC Lille (now SKEMA BusinessSchool) and is certified by EFFAS (the European Federation of Financial Analysts Societies).Vincent Marioni started his career in 1998 as a credit analyst at Ixis Capital Markets. In 2002 he became credit portfolio manager at La Banque Postale Asset Management and was responsible for European ABS management. In 2005, he joined BPCE in order to manage a total return portfolio of investment grade and high yield credit, cash and synthetic.Vincent Marioni joined Natixis Asset Management in 2009 as a portfolio manager specialised in structured credit and high income. He is currently the co-lead portfolio manager of the Natixis Euro High Income Fund.Vincent Marioni has 13 years of professional experience and has been working for our company for 2 years.