January 2009

The D. E. Shaw Group:Direct Capital

About the D. E. Shaw Group

Global investment and technology development firm founded in 1988

Approximately $30 billion in aggregate investment capital as of January 1, 2009

Headquartered in New York, with offices in North America, Europe, and Asia

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

Deliberate focus on achieving attractive risk-adjusted returns for investors through a multidisciplinary approach

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Firm Investment Activities

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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.

Direct Capital Activities: Overview 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

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

We provide capital throughout the capital structure, including senior debt, high-yield debt, mezzanine debt, convertible debt, and preferred and common equity

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

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Direct Capital Activities

Direct Capital Investment Profile

Ability to originate debt and equity investments, including senior debt, high-yield debt, mezzanine debt, convertible debt, and preferred and common equity

Focus on originated transactions rather than syndication or auction situations

Ability to be the single source for multiple levels of capital, or lead an individual tranche of debt or equity

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

Investment sizes

– Average deal size: $20 million to $50 million

Typical range of debt deals: $10 million to $100 million

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

More than $1 billion invested since 2004 in 38 deals in the energy sector

Industry Sectors

– Upstream

– Energy Services & Equipment

– Midstream

– Downstream

– Power / Renewables

Market Approach

– Opportunistic / Flexible / Originated

– “One-Stop” capital solutions

– Focused on management and assets

Advantages

– Flexibility / Creativity

– Knowledgeable professionals with energy finance backgrounds

– Knowledgeable professionals with restructuring/turnaround backgrounds

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Sample Energy Transactions

$100mm note with warrants in California-based E&P company

$70mm senior secured development facility and $10mm equity investment in West Texas

based E&P company

$34mm preferred equity in Gulf Coast E&P company

$70mm senior secured notes with warrants in a U.K. based gas storage/LNG project

$38.5mm senior secured notes in directional drilling company

$15mm 2nd lien notes and $1mm co-invest equity in oilfield service company

$25mm control equity investment in refined products terminalling and storage business

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Keys to Survival (the basics still work)

Understand the term Commodity Cycle… know that history repeats itself

Prepare for a downturn in good times

– Modest leverage

– Risk management

– Run a downside case, prepare for it

– Run conservative budgets, the strip is a guess… guess low

– Operate / control capex

– Dry powder / cash is king

Buy at low prices; drill in high prices

– 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 Financial Markets

– Wall Street

New issue debt markets closed

IPO / equity markets closed

– Senior bank market – supporting existing customers

Large syndicated loans not available

Smaller clubbed loans available in E&P

– 2nd lien / mezzanine – limited availability (D. E. Shaw group)

Closed for large syndicates

Reduction in capital providers

Smaller privates may be available

– Equity – available but waiting for right opportunities (D. E. Shaw group)

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

Positive Outlook for the Industry to Prosper

Learning from historical cycles

Most companies well positioned to manage a 12-18 month downturn

Rebound in supply / demand fundamentals should be shorter cycle

Risk management focus benefiting companies

Technical excellence in drilling, completion and operations continue to bolster industry

Global focus on the importance and needs of our energy markets should continue to make

investment dollars available

The future is bright with opportunities to position the industry for value creation in 2009 and

beyond

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