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Corporate Banking Overview

2004 OGIS Private Capital Conference April 19, 2004. Corporate Banking Overview. Current Market Dynamics and the Effect on the Energy Sector. Corporate Banking – Transition Overview . Significant changes to global Banking marketplace over the last decade

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Corporate Banking Overview

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  1. 2004 OGIS Private Capital Conference April 19, 2004 Corporate Banking Overview Current Market Dynamics and the Effect on the Energy Sector

  2. Corporate Banking – Transition Overview • Significant changes to global Banking marketplace over the last decade • Consolidation and stratification of Banks • Sophistication/specialization in product offerings • Increased outside competition --“Disintermediation” • Change in Risk/Return metrics • Result: Positive for Energy sector

  3. Corporate Banking – Recent History • Commercial Banking: Early-to-mid ’90s • Over capacity; ample liquidity (+international flows) • Declining returns • Higher rate environment -- expensive capital structures • Creeping credit quality issues • ’97/’98 Inflection point • Asian crisis • Product price cyclical downturn • Result: Retrenchment • Increased pricing (both IGrade and non-IGrade) • Overall improvement in bank terms/conditions

  4. Corporate Banking – Recent History • 2000/2001 Inflection point • “Enron, etc., etc.” problem • Exposure limits issue becomes paramount • Basel – Return on “economic” v. “regulatory” capital • Result: Capital rationalization • Reduced hold levels – “Concentration risk” realization • Pricing is market driven – versus “competing” markets • More risk layoff – Product pricing / hedging • Reduced tenors • Better risk/return fits • 2004 – “It was the best of times,…….” • Post “recession” boom mentality • Strong market appetite for debt • Capital availability – “Buckets and buckets”

  5. Corporate Banking – Current Situation • 1Q04 – General Bank market conditions • Debt market mentality – from moderate/optimistic to very aggressive • Strong pressure in all layers – senior, sub/2nd lien, mezzanine, convertibles • Highly leveraged deals have moved from the margin to the mainstream • Tolerance for collateral shortfalls has increased • Pricing has been pressured due to ample liquidity • Institutional sector (Term B) has steadily increased share – not yet in Energy

  6. Corporate Banking – Transition Overview • Evolutionary changes to Bank market • Consolidation of players • Composition of players – “Core” v. “Non-Core” • Changed objectives • “Cheap” capital v. “Scarce” capital • Stratification of Banks • Leverage expertise/position into other services • Corporate Bank  I-Bank • Product specialization

  7. Energy Corporate Banking – Recent Trends • Slow deal flow

  8. Domestic M&A Deal Flow * Source:John S. Herold M&A Database * 1Q04 annualized

  9. Energy Corporate Banking – Recent Trends • Slow deal flow • Price decks – capacity inflation

  10. Collateral Value Growth --Bank Average Price Deck

  11. Collateral Value Growth --Bank Average Price Deck

  12. Energy Corporate Banking – Recent Trends • Slow deal flow • Price decks – capacity inflation • Borrower liquidity – low utilization • Commodity hedging • Low interest rate environment  competition • B Term loans • Bridge commitments • Focused “Micro-cap” market players

  13. Energy Corporate Banking – Summary • Big evolutionary changes last decade • Changes in players, products, credit availability • More to come with continued consolidation and granularity of markets • Ample supply of capital – Public/Private • Core Energy Banks remain focused, committed and competitive

  14. Energy Finance Group Dallas / Houston

  15. Comerica Energy Banking Profile Comerica Bank • One of the nation’s largest bank holding companies, with over $53 billion in assets • Headquartered in Detroit, #1 Bank in Michigan • 1st in the nation in commercial and industrial loans as a percentage of assets • Major growth markets are Texas and California

  16. Comerica Energy Banking Profile • Focused on the North American energy market as a core line of business • Long, established track record -- Dedicated to the industry • Focus on upstream, midstream and energy services • Target market is the micro- to mid-cap energy company, both private and public • Creative and Flexible Approach • Strong Technical Expertise

  17. Comerica Energy Banking Profile • Strong, historical growth trends • Commitments to sector up +25% p.a. over last 7 years • Senior, Experienced Team in Place • Added to professional staff to support growth and uptiering objectives • Relationship Driven • Responsive and Timely • Increasing lead and administrative agency assignments, elevating our profile in the sector

  18. Mark Fuqua Energy Finance Dallas (214) 969-6562 Charles Hall Energy Finance Houston (713) 220-5614 Comerica Energy Banking Team Mona Foch Energy Services Houston (281) 243-1442

  19. Energy Finance Group We Listen. We Understand. We Make It Work.®

  20. Energy Finance Group We Listen. We Understand. We Make It Work.®

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