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Tetragon Financial Group Limited (TFG) - Performance Report for Period Ended 30 September 2012

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LONDON, October 29, 2012 /PRNewswire/ --


Tetragon Financial Group Limited ("TFG") is a Guernsey closed-ended investment company traded on NYSE Euronext in Amsterdam under the ticker symbol "TFG." (1)

In this report we provide an update on TFG's results of operations for the period ending September 30, 2012.

  • Executive Summary:

Q3 2012 results reflect continued strength of the U.S. CLO portfolio

                              Distributions: TFG
                              declared a Q3 2012
                              dividend of $0.115 per
                              share, unchanged from
                              Q2 2012. Inclusive of   Net Asset Value
                              the Q3 dividend, the    ("NAV"): Rose to
                              rolling 12-month        $1,623.6 million or
                              dividend growth rate    $14.29 per share at the
                              (year-on-year) was      end of Q3 2012, the
    Earnings per Share: TFG 15.8%. TFG also used    highest level to date,
    generated EPS of $0.62    over $6.7 million to    and an increase of 3.9%,
    during Q3 2012 (Q2 2012:  buy back shares below   on a per share basis,
    $0.69).                   NAV during the quarter. from Q2 2012.


Figure 1 below shows an historical summary of TFG's Net Assets, NAV per share and share price.

    Figure 1
 
                                 Q3 2008  Q4 2008 Q1 2009 Q2 2009 Q3 2009
    Consolidated Net Assets ($
    MM)                         $1,348.0 $1,142.0  $723.4  $693.1  $720.8
    NAV / Share                   $10.69    $9.06   $5.75   $5.50   $5.71
    Price/ Share                   $5.00    $2.87   $1.01   $1.18   $1.90


    Figure 1
 
                                Q4 2009 Q1 2010 Q2 2010  Q3 2010  Q4 2010
    Consolidated Net Assets ($
    MM)                          $807.0  $867.0 $909.40 $1,018.6 $1,137.5
    NAV / Share                    6.47   $7.02   $7.44    $8.43    $9.47
    Price/ Share                  $3.91   $4.50   $4.14    $4.39    $5.70


    Figure 1
 
                  Q1 2011  Q2 2011  Q3 2011  Q4 2011  Q1 2012  Q2 2012  Q3 2012
    Consolidated
    Net Assets
    ($ MM)       $1,298.0 $1,368.3 $1,413.6 $1,474.4 $1,510.1 $1,570.3 $1,623.6
    NAV / Share    $10.85   $11.52   $12.06   $12.71   $13.12   $13.75   $14.29
    Price/ Share    $7.60    $8.30    $6.40    $6.25    $7.10    $7.37    $8.54


  1. Source:  NAV per share based on TFG's financial statements as of the relevant quarter-end date; TFG's closing share price data as per Bloomberg as of the last trading day of each quarter. Please note that the NAV per share reported as of each quarter-end date excludes any shares held in treasury or in a subsidiary as of that date.

  • Net Income: Consolidated net income of $70.8 million for Q3 2012 (Q2 2012: consolidated net income of $79.2 million).

This Performance Report constitutes TFG's interim management statement as required pursuant to Section 5:25e of the FMSA.  Pursuant to Section 5:25d and 5:25m of the FMSA, this report is made public by means of a press release and has been filed with the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) and also made available to the public by way of publication on the TFG website (http://www.tetragoninv.com).  

  • Executive Summary (continued):

  • Asset Breakdown: The figures below illustrate the split of net assets by asset class at the end of Q3 2012 ($1,623,626,806) and Q2 2012 ($1,570,273,629), respectively.

    Figures 2a and 2b
 
                               Q3 2012                $1,623,626,806
    U.S. CLOs           $1,058,214,648 $1,623,626,806           100%
    Euro CLOs             $118,812,433
    CLO Mezz                $1,500,695
    Direct Loans          $107,554,223
    Asset Managers         $10,500,252
    Real Estate Funds      $10,518,839
    Cash Less Net
    Liabilities           $316,525,716
 
                               Q2 2012                $1,570,273,630
    U.S. CLOs           $1,061,599,321 $1,570,273,630           100%
    Euro CLOs             $115,412,741
    CLO Mezz                $1,283,100
    Direct Loans           $87,423,004
    Asset Managers         $10,411,090
    Real Estate Funds       $8,065,210
    Cash Less Net
    Liabilities           $286,079,164


Investment Portfolio Performance Highlights

TFG's underlying U.S. CLO collateral performance remains robust, supporting strong Q3 2012 results.

                                                       v CLO Returns:
                                                       Weighted-average IRRs
                                                       on CLO equity
                               v Collateral            investments rose to
                               Performance: TFG's      17.9% (Q2 2012: 17.6%)
                               average CLO portfolio   with the U.S. CLO
    v Cash Flows: TFG          statistics remained     average IRR at 20.0%
    generated $119.1 million   strong during Q3 2012,  (Q2 2012: 19.7%) while
    of cash flows from its CLO despite registering a   the average IRR of
    equity investment          modest pick-up in       TFG's European CLOs
    portfolio in Q3 2012 (Q2   CCC+/Caa1 or below      increased to 8.1% (Q2
    2012: $110.0 million).     rated asset holdings.   2012: 8.0%).
 


  • Executive Summary (continued):

Investment Portfolio Performance Highlights (continued):

Figure 3 below shows a historical summary of the weighted-average IRR on TFG's CLO equity investments.

    Figure 3
 
                                                                           Q3
                                       Q3 2008 Q4 2008 Q1 2009 Q2 2009   2009
    Weighted-Average IRR on TFG's CLO
    Investments                          16.9%   13.8%   10.6%    9.2%  10.3%
    U.S. IRR                             17.5%   14.4%   11.3%   10.4%  12.4%
    EUR IRR                              14.7%   11.4%    7.8%    4.8%   2.0%


    Figure 3
 
                                                                           Q4
                                       Q4 2009 Q1 2010 Q2 2010 Q3 2010   2010
    Weighted-Average IRR on TFG's CLO
    Investments                          11.9%   12.3%   13.1%   13.7%  15.1%
    U.S. IRR                             14.1%   14.3%   14.9%   15.8%  17.0%
    EUR IRR                               2.5%    3.5%    4.2%    4.6%   6.7%


    Figure 3
 
                                        Q1    Q2    Q3    Q4    Q1    Q2    Q3
                                      2011  2011  2011  2011  2012  2012  2012
    Weighted-Average IRR on TFG's
    CLO Investments                  15.8% 16.3% 16.8% 17.6% 17.5% 17.6% 17.9%
    U.S. IRR                         17.8% 18.4% 18.8% 19.6% 19.7% 19.7% 20.0%
    EUR IRR                           8.0%  8.1%  8.4%  8.6%  7.9%  8.0%  8.1%


  1. Source: TFG as of the outlined quarter-end date.

  • New CLO Equity Investments: During Q3 2012, TFG invested $21.7 million in a majority stake in the equity tranche of a new issue CLO transaction to be managed by a third-party manager previously represented within TFG's CLO portfolio. Additionally, on October 4, 2012, LCM successfully closed LCM XII, a $518.25 million new issue CLO(2)  TFG invested $25.4 million in the equity tranche of LCM XII, representing a majority position of the tranche.
  • Direct Loans: TFG held direct loans with a fair value of $107.6 million at the end of Q3 2012, up from $87.4 million as of the end of Q2 2012.  Overall, the direct loan portfolio performed in-line with expectations during this period experiencing no defaults.
  • Real Estate Investments:  During Q3 2012, TFG invested a further $1.5 million into GreenOak-managed real estate. The total amount of capital invested in GreenOak-managed real estate since inception is approximately $9.7 million as of the end of Q3 2012.

We continue to seek to diversify the investment portfolio across asset classes and types, industries, geographies and investment duration.

  • Executive Summary (continued):

Asset Management Segment: Third-party AUM continues to grow.

We believe that TFG owning or having stakes in asset management businesses may provide repeatable income streams and reduce fees paid to third-party managers.

    Figure 4
 
    LCM Asset Management LLC - CLO
    AUM - $MM
    Deal Name                 Q1 2010  Q2 2010 Q3 2010 Q4 2010 Q1 2011

    Pre-Acquisition CLOs      2,353.7  2,340.5 2,314.0 2,268.2 2,238.1
    Post-Acquisition CLOs         0.0      0.0     0.0   671.1   671.3
    Total                       2,354    2,341   2,314   2,939   2,909


    Figure 4
 
    LCM Asset Management LLC - CLO
    AUM - $MM
    Deal Name                Q2 2011  Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

    Pre-Acquisition CLOs     2,161.2  2,075.8 2,035.9 1,984.6 1,889.4 1,778.6
    Post-Acquisition CLOs    1,322.5  1,323.0 1,323.2 1,725.0 2,196.6 2,164.3
    Total                      3,484    3,399   3,359   3,710   4,086   3,943


    LCM: LCM continued to perform well during Q3 2012, with all LCM Cash Flow
    CLOs (3) continuing to pay senior and subordinated management fees. As
    of the end of Q3 2012 LCM's total loan assets under management stood at
    $3.9 billion (Q2 2012: $4.1 billion). With the closing of LCM XII CLO in
    early October 2012, LCM's assets under management stood at $4.4 billion as
    of October 5, 2012.


    Figure 5
 
    GreenOak - AUM
    calculations
 
                               AUM
                             Q4 2010 Q4 2011 Q1 2012 Q2 2012 Q3 2012

    Europe                       505     491   1,602   1,573    1688
    U.S.                           -      96     114     129     188
    Japan                          -      17      16      39      23
    Total GreenOak AUM           505     605   1,732   1,741   1,899


    GreenOak: GreenOak continued to execute on its business growth strategy,
    including increasing investor commitments to its funds.
 


  • Corporate-Level Performance Details:

  • Capital Distributions:  TFG's Board approved a dividend of $0.115 per share with respect to Q3 2012, unchanged from the prior quarter.  As of September 30, 2012, inclusive of the dividend declared with respect to Q3 2012, the rolling 12-month dividend growth rate (year-on-year) was 15.8%.(4). Since its public listing TFG has distributed or declared a cumulative amount of approximately $2.12 per share via quarterly dividends. In addition, TFG's NAV per share, as reported each quarter, among other things, reflects value created for shareholders via the repurchase of shares below NAV. During Q3 2012, TFG repurchased a total of 886,721 shares at an aggregate cost of approximately $6.7 million, at an average price of $7.51 per share. Since the inception of the buy-back program, TFG has repurchased a total of 19.4 million shares, at an aggregate cost of approximately $105.5 million, at an average price of $5.44 per share.  Please refer to Figure 6 and Figure 7 for a summary of TFG's historical NAV per share, dividend distributions, and share buy-back program.

    Figure 6
 
                             Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009

    NAV / Share               $10.69   $9.06   $5.75   $5.50   $5.71
    Cumulative DPS            $ 0.90  $ 0.93  $ 0.96  $ 0.99  $ 1.02


    Figure 6
 
                              Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010

    NAV / Share                  6.47   $7.02   $7.44   $8.43   $9.47
    Cumulative DPS             $ 1.08  $ 1.14  $ 1.22  $ 1.30  $ 1.39


    Figure 6
 
                                                     Q4             Q2
                         Q1 2011 Q2 2011 Q3 2011   2011 Q1 2012   2012 Q3 2012

    NAV / Share           $10.85  $11.52  $12.06 $12.71  $13.12 $13.75  $14.29
    Cumulative DPS        $ 1.48  $ 1.58  $ 1.68 $ 1.79  $ 1.89 $ 2.01  $ 2.12


  1. Source: NAV per share and Cumulative DPS as per TFG's financial disclosures for each relevant quarter-end date. The cumulative DPS reflect dividends announced with respect to each relevant quarter. Please note that dividends announced with respect to each quarter are typically not distributed to shareholders until the beginning of the following quarter. Please note further that the NAV per share reported as of each quarter-end date excludes any shares held in treasury as of that date. Performance Fee

    Figure 7
 
                                       Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009
    Quarterly # of Shares Repurchased
    (in '000s)                             732   1,000     484      94      85
    Average Purchase Price of Shares
    Repurchased                         $ 5.62  $ 3.37  $ 1.60  $ 1.10  $ 1.25


    Figure 7
 
                                       Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010
    Quarterly # of Shares Repurchased
    (in '000s)                           1,758   1,378   1,582   1,815     967
    Average Purchase Price of Shares
    Repurchased                         $ 3.22  $ 3.87  $ 4.67  $ 4.27  $ 5.23


    Figure 7
 
                                        Q1    Q2    Q3    Q4    Q1    Q2    Q3
                                      2011  2011  2011  2011  2012  2012  2012
    Quarterly # of Shares
    Repurchased (in '000s)             662 1,287 1,695 1,432 1,358 1,064   887
    Average Purchase Price of Shares     $     $     $     $     $     $     $
    Repurchased                       7.25  7.84  6.73  6.23  6.73  7.34  7.51


  1. The Average Purchase Price of Shares Repurchased is a weighted-average using the number of shares repurchased each quarter including commissions.
  2. Performance Fee 

A performance fee of $19.5 million was accrued in Q3 2012 in accordance with TFG's investment management agreement and based on a "Reference NAV" of Q2 2012.  The hurdle rate for the Q4 2012 incentive fee has been reset at 3.0031% (Q3 2012: 3.1085%) as per the process outlined in TFG's 2011 Audited Financial Statements and in accordance with TFG's investment management agreement. (5)

  • Investment Portfolio Performance Details:
  • CLO Portfolio Size: At the end of Q3 2012, the estimated total fair value of TFG's CLO equity investment portfolio was approximately $1,177.0 million ($1,058.2 million of U.S. and $118.8 million of European investments), broadly unchanged from $1,177.0 million ($1,061.6 million of U.S. and $115.4 million of European investments) at the end of Q2 2012. TFG's total indirect exposure to leveraged loans through its CLO equity investments was approximately $18.7 billion as ofthe end of Q3 2012. (6)
  • CLO Portfolio Composition: 80 transactions as of the end of Q3 2012, up from 79 as of the end of the prior quarter, reflecting the closing of one new issue CLO equity investment. The number of deals in the portfolio increased to 71 from 70 as of the end of the prior quarter. The number of external CLO managers remained unchanged from Q2 2012, at 27. (7)

  • CLO Collateral Performance: At the end of Q3 2012, approximately 97% of TFG's CLO investments were passing their junior-most O/C tests, weighted by fair value.(8) Similarly, 66 or approximately 93% were passing when weighted by the number of deals.  At the end of the previous quarter, 98% of TFG's CLO investments were passing their junior-most O/C tests, weighted by fair value, or 66 and 94% when weighted by the number of deals.

100% of TFG's U.S. CLOs were passing their junior-most O/C tests as of September 30, 2012 (note that U.S. CLOs represented approximately 90.0% of the total fair value of TFG's CLO equity investment portfolio). (9)(10). In comparison, the market-wide average of U.S. CLOs estimated to be passing their junior O/C tests as of the end of Q3 2012 was approximately 96.3% (when measured on a percentage of deals basis). (11).Please refer to Figure 8 below for a summary of TFG's investments' historical junior O/C test performance.

Figure 8: TFG's Gross Investment and Operating Cash Flows ($MM) vs. of CLOs Passing Junior-Most O/C Tests (i)(ii)

    Figure 8
 
    ALL DEALS
                                                  Q4
                                        Q3 2008  2008  Q1 2009 Q2 2009 Q3 2009
    Gross Cash Receipts from
    Investments ($MM)                   $ 77.7  $ 75.6  $ 47.1  $ 31.9  $ 35.3
    % CLOs Passing Junior-Most O/C Test
    (# Deals)                             100%     95%     60%     58%     60%
    Cash Flows from Operations ($MM)   $ 102.0  $ 67.5 $  42.2  $ 36.6  $ 27.7


    Figure 8
 
    ALL DEALS
                                                          Q2             Q4
                                        Q4 2009 Q1 2010  2010  Q3 2010  2010
    Gross Cash Receipts from
    Investments ($MM)                   $ 38.4  $ 51.1  $ 60.9 $ 71.8  $ 78.9
    % CLOs Passing Junior-Most O/C Test
    (# Deals)                              68%     80%     84%    88%     94%
    Cash Flows from Operations ($MM)    $ 32.5  $ 20.5  $ 43.2 $ 55.3  $ 34.8


    Figure 8
 
    ALL DEALS
                                Q1     Q2     Q3                     Q2    Q3
                               2011   2011   2011  Q4 2011 Q1 2012  2012  2012
    Gross Cash Receipts from           $      $                      $      $
    Investments ($MM)         $ 90.9  102.4  105.1  $ 113.2 $ 102.7 110.0  119.1
    % CLOs Passing
    Junior-Most O/C Test (#
    Deals)                       95%    96%    96%     94%     93%    94%   93%
    Cash Flows from                                                         $
    Operations ($MM)          $ 52.2 $ 30.2 $ 78.7 $ 92.8  $ 80.7  $ 89.6 102.0


(i) The percentage of TFG's CLOs passing their junior-most O/C tests has been calculated as the ratio of the number of deals passing their junior O/C tests to the total number of CLO deals held by TFG as of the applicable quarter-end date.  

(ii) Gross Cash Receipts from Investments refer to the actual cash receipts collected during each quarter from TFG's CLO investments. Cash Flows from Operations refer to cash inflows from investments less expenses and net cash settlements on FX and credit hedges.  

  • Investment Portfolio Performance Details (continued):
  • CLO Portfolio Credit Quality: The weighted-average WARF across all of TFG's CLO equity investments stood at approximately 2,605 as of the end of Q3 2012. Each of these foregoing statistics represents a weighted-average summary of all of our 71 deals. (12) Each individual deal's metrics will differ from these averages and vary across the portfolio.

                                   Q3             Q1
              ALL CLOs            2012  Q2 2012  2012  Q4 2011 Q3 2011 Q2 2011

    Caa1/CCC+ or Below Obligors:   6.4%    5.7%   6.2%    7.0%    7.0%    7.2%
               WARF:             2,605   2,578  2,588   2,624   2,614   2,642


                                  Q1    Q4    Q3
              ALL CLOs           2011  2010  2010  Q2 2010 Q1 2010 Q4 2009 Q3 2009

    Caa1/CCC+ or Below Obligors: 7.6%  8.3%  9.6%   10.5%   11.1%   12.0%   12.6%
               WARF:            2,664 2,671 2,658   2,706   2,762   2,809   2,813


                                   Q3             Q1
    US CLOs                       2012  Q2 2012  2012  Q4 2011 Q3 2011 Q2 2011

    Caa1/CCC+ or Below Obligors:  4.9%    4.2%   4.8%    5.5%    5.5%    5.8%
    WARF:                        2,528   2,491  2,504   2,533   2,522   2,542


                                  Q1    Q4    Q3
    US CLOs                      2011  2010  2010  Q2 2010 Q1 2010 Q4 2009 Q3 2009

    Caa1/CCC+ or Below Obligors: 6.5%  6.9%  7.9%   8.4%    9.4%    12.0%   12.8%
    WARF:                       2,591 2,622 2,610  2,648   2,719    2,799   2,824


                                  Q3 
    EUR CLOs                     2012  Q2 2012 Q1 2012 Q4 2011 Q3 2011 Q2 2011

    Caa1/CCC+ or Below Obligors: 12.2%  11.6%   11.1%   12.3%   12.0%   12.3%
    WARF:                        2,903  2,910   2,900   2,948   2,941   2,997


                                  Q1    Q4    Q3
    EUR CLOs                     2011  2010  2010  Q2 2010 Q1 2010 Q4 2009 Q3 2009

    Caa1/CCC+ or Below Obligors: 11.4% 13.1% 15.3%  17.4%   16.8%   15.6%   12.0%
    WARF:                        2,914 2,837 2,817  2,898   2,907   2,845   2,779


TFG and Market Default Rates:  TFG's lagging 12-month corporate loan default rate was broadly unchanged from the prior quarter, ending Q3 2012 at 0.9%. (13)By geography, TFG's U.S. CLO equity and direct loan investments registered a lagging 12-month default rate of 0.6%, with European CLO equity investments at 3.3%. By comparison, the lagging 12-month U.S. institutional loan default rate fell slightly to 1.00% by principal amount as of September 30, 2012, according to S&P/LCD, down from approximately 1.04% as of the end of Q2 2012.(14). The lagging 12-month default rate for the S&P European Leveraged Loan Index ("ELLI"), however, rose to 6.2% as of the end of Q3 2012, (15)up from 5.5% as of the end of Q2 2012. (16). Please refer to Figure 9 on the following page for a summary of TFG's historical CLO equity and direct loan investments' default performance.

  • Investment Portfolio Performance Details (continued):
  • Firgure 9: TFG and U.S Market-Wide Trailing 12-Month Default Rates (i)(ii):

    Figure 9
 
                                                                           Q3
                                       Q3 2008 Q4 2008 Q1 2009 Q2 2009   2009

    TFG Trailing 12-Month Loan Rate     1.5%    2.5%    4.0%    5.1%    6.7%
    S&P/LCD Trailing 12-Month Default
    Rate                                1.9%    3.8%    7.8%    9.2%    9.8%


    Figure 9
 
                                                                           Q4
                                       Q4 2009 Q1 2010 Q2 2010 Q3 2010   2010

    TFG Trailing 12-Month Loan Rate     6.5%    4.9%    3.6%      2.2%  1.7%
    S&P/LCD Trailing 12-Month Default
    Rate                                9.6%    5.8%    4.0%      3.6%  1.9%


    Figure 9
 
                                              Q2    Q3    Q4    Q1    Q2    Q3
                                   Q1 2011  2011  2011  2011  2012  2012  2012
    TFG Trailing 12-Month Loan
    Rate                            1.1%   0.8%  0.6%  0.4%  0.8%  0.9%  0.9%
    S&P/LCD Trailing 12-Month
    Default Rate                    1.1%   0.9%  0.3%  0.2%  0.2%  1.0%  1.0%


(i) Source: TFG as of the outlined quarter-end date. The calculation of TFG's lagging 12-month corporate loan default rate does not include certain underlying investment collateral that was assigned a "Selective Default" rating by one or more of the applicable rating agencies. Such Selected Defaults are included the S&P/LCD lagging 12-month U.S. institutional loan default rate discussed above. Furthermore, TFG's CLO equity and direct loan investment portfolio includes approximately 9.1% CLOs with primary exposure to European senior secured loans and such loans are included in the calculation of TFG's corporate default rate.

(ii) Source: S&P/LCD Quarterly Review as of the outlined quarter-end date.

  • Direct Loan Investments: As of September 30, 2012, TFG owned liquid U.S. bank loans with an aggregate par amount of approximately $107.8 million and total fair value of $107.6 million. For the quarter, there were net realized gains of approximately $0.1 million. In addition, the portfolio earned $1.2 million of interest income and discount premium during the third quarter.
  • Real Estate Investments: An early Japanese investment vehicle made its first distribution of approximately $0.8 million to TFG for a realized IRR of approximately 70%. Another $0.1 million is expected to be distributed in early 2013, which would result in a total projected return on this investment in the region of 116%. TFG has continued to fund its investment capital commitments to GreenOak's investment projects, and has now funded approximately $9.7 million from inception through the end of Q3 2012 to finance investments in Japan, the United States and Europe.

  • Asset Management Platform Details:

  • LCM Developments: LCM's operating results and financial performance remained strong throughout Q3 2012, with all LCM Cash Flow CLOs remaining current on their senior and subordinated management fees as of September 30, 2012.Taking into account all LCM-managed vehicles, the gross income for Q3 2012 for LCM totaled $5.4 million. Pre-tax profit for the entire LCM business, of which TFG owns 75%, was approximately $2.9 million as of the same period (2011 quarterly average of $2.1 million). TFG continues to leverage and benefit from the LCM team's expertise in the ongoing management of the company's direct loan investment portfolio.

                    LCM Asset Management Performance Snapshot
                            Q3   Q2   Q1   Q4
                           2012 2012 2012 2011

    Gross Fee Income ($MM) $5.4 $4.4 $4.4 $4.3
    Pre-tax Income ($MM)   $2.9 $2.1 $2.0 $2.2


                           Q3 2011 Q2 2011 Q1 2011 Q4 2010 Q3 2010 Q2 2010

    Gross Fee Income ($MM)  $4.4    $3.9    $3.8    $3.4    $3.0    $2.9
    Pre-tax Income ($MM)    $2.2    $1.9    $1.9    $1.1    $1.4    $1.4


  • GreenOak Real Estate Developments: GreenOak continued to execute on its business growth strategy, including increasing investor commitments to its funds. GreenOak's investment team is actively building a pipeline of interesting opportunities in the United States, Japan, and Europe, which we expect to continue to materialize over the next several quarters.

We continue to seek to grow and expand our asset management businesses and capabilities as we further our efforts to transition the company to a broadly diversified financial services firm that benefits from diverse income streams.  We continue to review potential market opportunities in this regard.

  • Loan and CLO Market Developments:

Q3 2012 U.S. leveraged loan default rate eases as near-term outlook remains benign: The U.S. lagged 12-month loan default rate stood at 1.00% by principal amount as of Q3 2012, down slightly from 1.04% as of the end of Q2 2012. (17). Various loan managers believe that, absent a macro-economic shock, near-term U.S. loan default rates may remain below the historical average, as a number of near-term default catalysts, such as near-term maturities, have been addressed and the list of potential default risks remains concentrated in a few credits. (18)

U.S. and European repayments decline: The U.S. S&P/LSTA Leveraged Loan Index repayment rate averaged 7.4% during Q3 2012, down from 8.3% in Q2 2012.(19). Repayments within the S&P European Leveraged Loan Index ("ELLI") fell to €3.4 billion, down from €6.0 billion in Q2 2012. (20)

"Maturity wall" erosion continues: During Q3 2012, U.S. S&P/LSTA Index issuers took advantage of strong high yield bond and loan market conditions to repay or extend approximately $20.0 billion or 17% of loan maturities due by the end of 2015. (21.). High yield bond take-outs were a significant driver of this activity rising to $9.7 billion during Q3 2012 vs. $3.8 billion in Q2 2012. (22)

U.S. and Euro loan prices rise: U.S. secondary loan prices rose during Q3 2012, as the U.S. S&P/LSTA Leveraged Loan Index returned 3.43% for the quarter. (23) . Similarly, the S&P European Leveraged Loan Index ("ELLI") returned 2.28% during Q3 2012 (ex. currency effects). (24). We believe that strong technical market conditions, reduced uncertainty around the Euro sovereign debt crisis, and the Fed's announcement of QE3, among other factors, contributed to this demand-driven rally.

U.S. new issue loan volumes rise, European volumes decline: Institutional U.S. loan issuance rose to $81.0 billion in Q3 2012, up from approximately $52.0 billion in Q2 2012. (25). European primary loan issuance declined to €5.2 billion in Q3 2012 from €7.5 billion in Q2 2012, with sponsored transactions representing only €4.0 billion of Q3 2012 volume, the lowest level since Q4 2011.(26)

U.S. CLO and European O/C ratios improve quarter-on-quarter: During Q3 2012, O/C ratios of both U.S. and European CLOs improved on average. According to Morgan Stanley, the median junior O/C test cushion for U.S. CLOs rose to 4.54% at end of Q3 2012 (27) up from 4.37% in Q2 2012 (28.) while the median junior O/C test cushion for Euro CLOs rose to 0.91% (29) vs. 0.77% in Q2 2012.(30)

)

U.S. CLO debt spreads tighten: Average secondary U.S. CLO debt spreads tightened across the capital structure at the end of Q3 2012 vs. the prior quarter reflecting increased investor risk appetite, among other factors.(31)

CLO new issue spreads also tightened during the quarter. Although CLO AAA prices have been stickier than mezzanine tranches, market participants anticipate that AAA spreads will continue to tighten as they converge with the spread compression experienced by comparable securitized asset classes, such as CMBS, particularly in light of anticipated QE3 asset purchases. (32)

Q3 2012 new issue arbitrage CLO volumes pick-up: U.S. arbitrage CLO issuance rose during Q3 2012 as 33 deals totaling $14.3 billion were priced during the quarter, up from $12.4 billion and 28 vehicles priced during Q2 2012, bringing the YTD volume to $32.5 billion via 76 deals.(33). This pick-up in issuance was accompanied by continued expansion of the CLO buyer base and growing diversification of CLO managers, as the number of managers issuing deals rose from 24 in 2011 to 50 YTD 2012, including nine first-time CLO managers.  (34)

  • FairValue Determination for TFG's CLO Equity Investments:

  • In accordance with the valuation policies as set forth on the company's website, the values of TFG's CLO equity investments are determined using a third-party cash flow modeling tool. The model contains certain assumption inputs that are reviewed and adjusted as appropriate to factor in how historic, current and potential market developments (examined through, for example, forward-looking observable data) might potentially impact the performance of TFG's CLO equity investments. Since this involves modeling, among other things, forward projections over multiple years, this is not an exercise in recalibrating future assumptions to the latest quarter's historical data.
  • Subject to the foregoing, when determining the U.S. GAAP-compliant fair value of TFG's portfolio, the company seeks to derive a value at which market participants could transact in an orderly market and also seeks to benchmark the model inputs and resulting outputs to observable market data when available and appropriate. Please refer to the 2011 Annual Report for a more detailed description of the cash flow projection and discounting process.

  • Forward-looking CLO Equity Cash Flow Modeling Assumptions:

  • The Investment Manager reviews, and adjusts in consultation with TFG's audit committee, as appropriate, the CLO equity investment portfolio's modeling assumptions as described above.  At the end of Q3 2012, key assumptions relating to defaults, recoveries, prepayments and reinvestment prices were unchanged from the previous quarter.
  • These key average assumption variables have been summarized in the table below. The modeling assumptions disclosed below are a weighted average (by U.S. dollar amount) of the individual deal assumptions, aggregated by geography (i.e. U.S. and European). Such weighted averages may change from month to month due to movements in the amortized costs of the deals, even without changes to the underlying assumptions. Each individual deal's assumptions may differ from this geographical average and vary across the portfolio.

In addition to the reinvestment price, reinvestment spread and reinvestment life assumptions are also input into the model to generate an effective spread over LIBOR.   Newer vintage CLOs may have a higher weighted average reinvestment spread over LIBOR (as of the end of Q3 2012 387 bps for newer vintage CLOs and 274 bps for older vintage CLOs) or shorter reinvestment life assumptions than older deals. Across the entire CLO portfolio, the reinvestment price assumption of 98% for the remainder of 2012 for U.S. deals and 100% for European deals with their respective assumed weighted-average reinvestment spreads, generates an effective spread over LIBOR of approximately 344 bps on broadly syndicated U.S. loans, 272 bps on European loans, and 394 bps on middle market loans.(35)

  • Forward-looking CLO Equity Cash Flow Modeling Assumptions (continued):

U.S. CLOs - Unchanged

         Variable             Year                Current Assumptions
    CADR
                                           1.0x WARF-implied default rate
                       2012-2013           (2.2%)
                                           1.5x WARF-implied default rate
                       2014-2016           (3.3%)
                                           1.0x WARF-implied default rate
                       Thereafter          (2.2%)
    Recovery Rate
                       Until deal maturity 73%
    Prepayment Rate
                                           20.0% p.a. on loans; 0.0% on
                       Until deal maturity bonds
    Reinvestment Price
                       2012                98%
                       Thereafter          100%


European CLOs - Unchanged

           Variable               Year              Current Assumptions
    CADR
                                              1.5x WARF-implied default rate
                           2012-2014          (3.1%)
                                              1.0x WARF-implied default rate
                           Thereafter         (2.1%)
    Recovery Rate
                           Until deal
                           maturity           68%
    Prepayment Rate
                           Until deal         20.0% p.a. on loans; 0.0% on
                           maturity           bonds
    Reinvestment Price
                           Until deal
                           maturity           100%


  • Application of Discount Rate to Projected CLO Equity Cash Flows and ALR:

In determining the applicable rates to use to discount projected cash flows, an analysis of observable risk premium data is undertaken. During Q3 2012 certain observable data and research, covering both CLO equity and debt tranches (including originally BB and BBB-rated debt tranches), suggested that risk premia on U.S. CLO equity decreased. For example, according to Citibank research, the spread on originally BB-rated tranches decreased from approximately 11% at the end of Q2 2012 to 8% as of the end of September 2012. (36)

  • Although the aforementioned spreads decreased over the quarter, they have, until recently, fluctuated within a relatively narrow range, which we believe supports the maintenance of TFG's discount rates for U.S. CLOs of 20% for strong deals, and 25% for the others, as an appropriate spread over mezzanine tranches. As we look forward, we will continue to monitor the spreads on mezzanine tranches, as well as other publicly available data points, for evidence of any sustained shifts in risk premia.  If recent trends continue we may consider a reduction in certain of the applicable discount rates in Q4 2012. Currently, all of the applicable U.S. deals are considered to be strong and are discounted at 20%.

Per Citibank research, European originally BB-rated tranche yields decreased significantly to 16% from 22% as of September 2012, which is lower than the yield of 24% at the end of 2011. (37). These spreads are still significantly above the equivalent U.S. CLO debt tranches and given the ongoing uncertainty surrounding Europe, we believe that there is sufficient support to maintain TFG's differentiated discount rate for all European deals at 30%.

  • As a general rule, where the discount rate being applied to the future cash flows is greater than the IRR on a particular deal, the fair value for that deal will be lower than its amortized cost. The difference between these two figures, on an aggregate basis across the CLO equity portfolio, has been characterized as the "ALR Fair Value Adjustment" or "ALR".  Through the process described above, as of the end of Q3 2012, the total ALR stands at $107.0 million, consisting of $9.1 million for U.S. deals and $97.9 million for European deals, as compared to $109.3 million at the end of Q2 2012 ($11.7 million for U.S. deals and $97.6 million for European deals).
  • The average carrying value of TFG's U.S. CLO equity investments, which accounted for approximately 90.0% of the CLO equity investment portfolio by fair value, was approximately $0.75 on the dollar at the end of Q3 2012, down from $0.77 the end of Q2 2012.
  • The average carrying value of the European deals rose from €0.42 per Euro as of the end of Q2 2012 to €0.43 per Euro as of the end of Q3 2012. This reflected, among other things, a recovery in the O/C cushions of some European deals, which all else being equal increase the value of future projected cash flows. It is important to note, however, that significant dispersion of carrying values exists across transactions within each geographic grouping, particularly in the case of Europe, with a range of carrying values of €0.09 to €0.67 per Euro.

  • Application of Discount Rate to Projected CLO Equity Cash Flows and ALR (continued):

  • As discussed in the 2011 Annual Report, the applicable discount rate for the new vintage deals is determined with reference to each deal's specific IRR, which, in the absence of other observable data points, is deemed to be the most appropriate indication of the current risk premium on these structures. At the end of Q3 2012, the weighted average discount rate (and IRR) on these deals was 12.2%. Such deals represented approximately 12.8% of the CLO equity portfolio by fair value (up from 11.3% at the end of Q2 2012).  We will continue to monitor observable data on these newer vintage transactions to determine whether the IRR remains the appropriate discount rate.

  • Hedging Activity:

  • As of September 30, 2012, TFG had no direct credit hedges in place, but employed certain foreign exchange rate and "tail risk" interest rate hedges to seek to mitigate its exposure to foreign exchange risk and a potential significant increase in U.S. inflation and/or nominal interest rates, respectively. We review our hedging strategy on an on-going basis as we seek to address identified risks to the extent practicable and in a cost-effective manner.

  • Summary and Outlook:

TFG saw strong operating and financial results during Q3 2012, driven primarily by the performance of its U.S. CLO portfolio. During the quarter, TFG's U.S. CLO portfolio benefitted from widening loan spreads and low defaults as well as the continued prevalence of LIBOR floors, which became increasingly valuable as realized and forward LIBOR rates declined. As in prior quarters, TFG's European CLOs remained under pressure and faced difficult macro-economic conditions and a challenging reinvestment environment given the rally in quality secondary loan prices and limited supply of new issue European loans. Overall, however, cash flows from TFG's CLO equity investments remained healthy, permitting continued capital distributions to TFG's shareholders during the quarter.

TFG's asset management businesses also performed well during the third quarter. Including the recently closed LCM XII deal, both LCM and GreenOak grew their assets under management from the end of the second quarter and saw positive investment portfolio quality trends. We seek to grow our asset management businesses by, among other things, providing capital to our management segments, either directly or via seed or equity investments in the funds that they may manage.  We believe that doing so may help attract significant third-party fee-paying capital onto our management platforms and increase the income streams available to TFG. The successful closing of the $518.25 million LCM XII transaction in early October 2012 (priced during Q3 2012) exemplifies this strategy, as TFG took a majority equity position in the deal by investing $25.4 million, with the remainder of the deal's capital coming from third-party investors. GreenOak also added assets in the U.S. and Europe, with total AUM rising to $1.9 billion at the end of Q3 2012, up from $1.7 billion at the end of Q2 2012.

Our outlook for the near-term performance of TFG remains constructive, as we anticipate that the recent stabilization of capital market conditions may continue to provide a favorable environment for TFG's U.S. CLO investment portfolio and asset management platform.  On the investment portfolio front, we remain focused on maximizing the returns of our older vintage CLO transactions as they exit their reinvestment periods and on identifying attractive risk-adjusted returns in the new issue and secondary CLO markets.  Despite the recent improvement in market sentiment, we are mindful of a number of unresolved systemic risks ranging from slow growth in Europe and the fiscal cliff in the United States to geopolitical instability in the Middle East. We, therefore, seek to remain selective and opportunistic in the timing of our investments with the goal of obtaining attractive risk-adjusted returns while preserving the ability to mitigate certain downside risks.  

We anticipate that LCM and GreenOak will look to grow their AUM during the remainder of the year and to continue to capitalize on their current momentum and increased investor appetite. As we have stated in the past, we remain focused on growing the company's asset management business as we believe this may create value for the company's shareholders by strengthening and diversifying TFG's income streams.

  • Quarterly Investor Call:

We will host a conference call for investors on November 5, 2012 at 15:00 GMT/16:00 CET/10:00 EST to discuss Q3 2012 results and to provide an update on TFG.  

The conference call may be accessed by dialing +44-(0)20-7162-0125 and +1-334-323-6203 (a passcode is not required). Participants may also register for the conference call in advance via the following link
https://eventreg2.conferencing.com/webportal3/reg.html?Acc=515826&Conf=209349

Additional call details are as follows:

Event title:         Tetragon Investor Call

Conference ID:       923889

Moderator:           David Wishnow

A replay of the call will be available for 30 days by dialing +44 (0) 20 7031 4064 and +1 954 334 0342, conference ID 923889 and as an MP3 recording on the TFG website.

    Expected Upcoming Events                Date
    Q3 Dividend Record Date                 October 31, 2012
    Quarterly Investor Call                 November 5, 2012
    October 2012 Monthly Report             November 20, 2012 (approx)
    Q3 Dividend Payment Date                November 20, 2012


              TETRAGON FINANCIAL GROUP
                Financial Highlights
                                                  Q3 2012   Q2 2012   Q1 2012

    Net income ($MM)                                 $70.8     $79.2     $53.4
    EPS ($)                                          $0.62     $0.69     $0.46
    CLO Cash receipts ($MM) (1)                     $119.1    $110.0    $102.6
    CLO Cash receipts per share ($)                  $1.05     $0.96     $0.89
    Net cash balance ($MM)                          $353.1    $299.1    $224.8
    Net assets ($MM)                              $1,623.6  $1,570.3  $1,510.1
    Number of shares outstanding (million) (2)       113.6     114.2     115.1
    NAV per share ($)                               $14.29    $13.75    $13.12
    DPS ($)                                         $0.115    $0.115    $0.105
    Weighted average IRR on completed
    transactions (%)                                 17.9%     17.6%     17.5%
    Number of CLO investments (3)                       80        79        78
    ALR Fair Value Adjustment ($MM)               ($107.0)  ($109.3)  ($120.7)
 
    (1) Gross cash receipts from CLO portfolio.
    (2) Excludes shares held in treasury and in
    a subsidiary.
    (3) Excludes CDO-squared and ABS CDO transactions written off in
    October 2007. TFG continues to hold the economic rights to 3 of these
    written-off transactions.


         TETRAGON FINANCIAL GROUP
           Financial Highlights
                                                                     Quarterly
                                        Q4 2011   Q3 2011   Q2 2011   Average

    Net income ($MM)                       $80.3     $67.3     $88.1     $73.2
    EPS ($)                                $0.69     $0.57     $0.74     $0.63
    CLO Cash receipts ($MM) (1)           $113.2    $105.1    $102.4    $108.7
    CLO Cash receipts per share ($)        $0.97     $0.89     $0.86     $0.94
    Net cash balance ($MM)                $211.5    $155.6     $67.7    $218.6
    Net assets ($MM)                    $1,474.4  $1,413.6  $1,368.3  $1,493.4
    Number of shares outstanding
    (million) (2)                          116.0     117.2     118.8     115.8
    NAV per share ($)                     $12.71    $12.06    $11.52    $12.91
    DPS ($)                                $0.11     $0.10     $0.10     $0.11
    Weighted average IRR on completed
    transactions (%)                       17.6%     16.8%     16.3%     17.3%
    Number of CLO investments (3)             77        75        75        77
    ALR Fair Value Adjustment ($MM)      ($128.7)  ($118.0)  ($133.8)  ($119.7)
 
    (1) Gross cash receipts from CLO
    portfolio.
    (2) Excludes shares held in
    treasury and in a subsidiary.
    (3) Excludes CDO-squared and ABS CDO transactions written off
    in October 2007. TFG continues to hold the economic rights to
    3 of these written-off transactions.


                TETRAGON FINANCIAL GROUP
     Quarterly Statement of Operations as at 30 Sep
                          2012
                                                                       Q2 2012
                 Statement of Operations                 Q3 2012 ($MM)   ($MM)
 
    Interest income                                            59.4       58.3
    CLO management fee income                                   5.4        4.4
    Other income                                                1.4        1.8
 
    Investment income                                          66.2       64.5
 
    Management and performance fees                           (25.5)     (28.3)
    Admin / custody and other fees                             (5.5)      (4.6)
 
    Total operating expenses                                  (31.0)     (32.9)
 
    Net investment income                                      35.2       31.6
 
    Net change in unrealised appreciation in
    investments                                                38.3       52.1
    Realised gain / (loss) on investments                       0.5       (0.1)
    Realised and unrealised losses from hedging and
    fx                                                         (1.7)      (2.9)
 
    Net realised and unrealised gains from
    investments and fx                                         37.1       49.1
 
    Income taxes                                               (0.8)      (1.0)
    Noncontrolling interest                                    (0.7)      (0.5)
 
    Net increase in net assets from operations                 70.8       79.2


                TETRAGON FINANCIAL GROUP
     Quarterly Statement of Operations as at 30 Sep
                          2012
                                                                     Q4 2011
                 Statement of Operations              Q1 2012 ($MM)   ($MM)
 
    Interest income                                            57.5       55.1
    CLO management fee income                                   4.4        4.3
    Other income                                                1.3        2.9
 
    Investment income                                          63.2       62.3
 
    Management and performance fees                           (19.5)     (28.6)
    Admin / custody and other fees                             (4.8)      (7.6)
 
    Total operating expenses                                  (24.3)     (36.2)
 
    Net investment income                                      38.9       26.1
 
    Net change in unrealised appreciation in
    investments                                                16.2       58.5
    Realised gain / (loss) on investments                       0.1        0.3
    Realised and unrealised losses from hedging and
    fx                                                         (0.7)      (3.3)
 
    Net realised and unrealised gains from
    investments and fx                                         15.6       55.5
 
    Income taxes                                               (0.6)      (0.7)
    Noncontrolling interest                                    (0.5)      (0.6)
 
    Net increase in net assets from operations                 53.4       80.3


                  TETRAGON FINANCIAL GROUP
               Balance Sheet as at 30 Sep 2012
                                                           Sep-12
                                                             $MM
 
    Assets
    Investments in securities, at fair value                1,307.1
    Cash and cash equivalents                                 353.1
    Amounts due from brokers                                   13.1
    Derivative financial assets - interest rate swaptions       3.1
    Other receivables                                           3.2
    Total Assets                                            1,679.6
 
    Liabilities
    Amounts payable for purchase of investments                16.9
    Other payables and accruals                                26.6
    Amounts payable on Share Options                            4.2
    Income and deferred tax payable                             2.5
    Derivative financial assets - forward contracts             4.8
    Total Liabilities                                          55.0
 
    Net Assets Before Noncontrolling Interest               1,624.6
 
    Noncontrolling interest                                     1.0
 
    Total Equity Attributable to TFG                        1,623.6


                        TETRAGON FINANCIAL GROUP
        Statement of Cash Flows for the period ended 30 Sep 2012
                                                                      Sep-12
                                                                     $MM (YTD)
 
    Operating Activities
    Operating cash flows before movements in working capital after
    dividends paid to Guernsey feeder                                    272.6
    Change in payables/receivables                                        (0.3)
 
    Cash flows from operating activities                                 272.3
 
    Investment Activities
    Amounts payable for purchase of investments
    Proceeds on sales of investments
    - Proceeds sale of CLOs                                                0.2
    - Proceeds from the sale of Bank Loans                                43.0
    - Proceeds from Real Estate                                            0.8
    Purchase of investments
    - Purchase of CLO Equity                                             (86.7)
    - Purchase of CLO Mezz                                                (1.1)
    - Purchase of Bank Loans                                             (44.6)
    - Investments in Real Estate                                          (9.8)
    - Investments in Asset Managers                                       (2.7)
 
    Maturity and prepayment of investments                                22.6
 
    Cash flows from operating and investing activities                   194.0
 
    Amounts due from broker                                                2.8
    Net purchase of shares                                               (17.3)
    Dividends paid to shareholders                                       (37.3)
    Distributions paid to noncontrolling interest                         (0.8)
 
    Cash flows from financing activities                                 (52.6)
 
    Net increase in cash and cash equivalents                            141.4
    Cash and cash equivalents at beginning of period                     211.5
    Effect of exchange rate fluctuations on cash and cash
    equivalents                                                            0.2
 
    Cash and cash equivalents at end of period                           353.1


CLO Equity Portfolio Details

As of September 30, 2012

                                                          Wtd
                      Original    Deal          End of    Avg
                       Invest.
                          Cost Closing  Year of  Reinv Spread
                 Deal     ($MM                          (bps)
    Transaction  Type USD) (1)    Date Maturity Period    (2)
    Transaction   EUR
    1             CLO     37.5    2007     2024   2014    354
    Transaction   EUR
    2             CLO     29.7    2006     2023   2013    387
    Transaction   EUR
    3             CLO     22.2    2006     2022   2012    386
    Transaction   EUR
    4             CLO     33.0    2007     2023   2013    402
    Transaction   EUR
    5             CLO     36.9    2007     2022   2014    395
    Transaction   EUR
    6             CLO     33.3    2006     2022   2012    367
    Transaction   EUR
    7             CLO     38.5    2007     2023   2013    374
    Transaction   EUR
    8             CLO     26.9    2005     2021   2011    359
    Transaction   EUR
    9             CLO     41.3    2007     2023   2013    384
    Transaction   EUR
    10            CLO     27.0    2006     2022   2012    354
    EUR CLO
    Subtotal:            326.3                            377
 
    Transaction    US
    11            CLO     20.5    2006     2018   2012    362
    Transaction    US
    12            CLO     22.8    2006     2019   2013    369
    Transaction    US
    13            CLO     15.2    2006     2018   2012    405
    Transaction    US
    14            CLO     26.0    2007     2021   2014    410
    Transaction    US
    15            CLO     28.1    2007     2021   2014    439
    Transaction    US
    16            CLO     23.5    2006     2020   2013    421
    Transaction    US
    17            CLO     26.0    2007     2021   2014    364
    Transaction    US
    18            CLO     16.7    2005     2017   2011    351
    Transaction    US
    19            CLO      1.2    2005     2017   2011    351
    Transaction    US
    20            CLO     26.6    2006     2020   2012    452
    Transaction    US
    21            CLO     20.7    2006     2020   2012    445
    Transaction    US
    22            CLO     37.4    2007     2021   2014    456
    Transaction    US
    23            CLO     19.9    2007     2021   2013    383
    Transaction    US
    24            CLO     16.9    2006     2018   2012    410
    Transaction    US
    25            CLO     20.9    2006     2018   2013    428
    Transaction    US
    26            CLO     27.9    2007     2019   2013    433
    Transaction    US
    27            CLO     23.9    2007     2021   2014    547
    Transaction    US
    28            CLO      7.6    2007     2021   2014    547
    Transaction    US
    29            CLO     19.1    2005     2018   2011    443
    Transaction    US
    30            CLO     12.4    2006     2018   2012    480
    Transaction    US
    31            CLO      9.3    2005     2017   2012    338
    Transaction    US
    32            CLO     24.0    2007     2021   2014    349
    Transaction    US
    33            CLO     16.2    2006     2020   2012    369
    Transaction    US
    34            CLO     22.2    2006     2020   2012    388
    Transaction    US
    35            CLO     23.6    2006     2018   2012    441
    Transaction    US
    36            CLO     28.4    2007     2021   2013    457
    Transaction    US
    37            CLO      9.3    2005     2017   2011    345
    Transaction    US
    38            CLO     23.7    2007     2021   2013    353
    Transaction    US
    39            CLO      7.8    2005     2017   2011    331
    Transaction    US
    40            CLO     13.0    2006     2020   2011    419
    Transaction    US
    41            CLO     22.5    2006     2020   2013    371
    Transaction    US
    42            CLO     22.4    2007     2021   2014    411
    Transaction    US
    44            CLO     22.3    2006     2018   2012    328
    Transaction    US
    45            CLO     23.0    2006     2018   2012    315
    Transaction    US
    46            CLO     21.3    2007     2019   2013    344
    Transaction    US
    47            CLO     28.3    2006     2021   2013    346
    Transaction    US
    48            CLO     23.0    2006     2019   2013    365
    Transaction    US
    49            CLO     12.6    2005     2017   2011    358
    Transaction    US
    50            CLO     12.3    2006     2018   2012    362
    Transaction    US
    51            CLO     18.0    2007     2020   2013    402
    Transaction    US
    52            CLO      0.3    2003     2015   2008    442
    Transaction    US
    53            CLO      0.6    2004     2016   2011    312
    Transaction    US
    54            CLO      0.5    2005     2017   2012    341
    Transaction    US
    55            CLO      0.3    2005     2017   2011    352
    Transaction    US
    56            CLO     23.0    2007     2019   2014    383
    Transaction    US
    57            CLO      0.6    2007     2019   2014    383
    Transaction    US
    58            CLO     21.8    2007     2019   2014    388
    Transaction    US
    59            CLO      0.4    2007     2019   2014    388
    Transaction    US
    60            CLO     18.8    2010     2021   2014    424
    Transaction    US
    61            CLO     29.1    2007     2021   2014    351
    Transaction    US
    62            CLO     25.3    2007     2020   2013    389
    Transaction    US
    63            CLO     27.3    2007     2021   2013    400
    Transaction    US
    64            CLO     15.4    2007     2021   2013    454
    Transaction    US
    65            CLO     26.9    2006     2021   2013    378
    Transaction    US
    66            CLO     21.3    2006     2020   2013    351
    Transaction    US
    67            CLO     27.3    2007     2022   2014    352
    Transaction    US
    68            CLO     19.3    2006     2020   2013    436
    Transaction    US
    69            CLO     28.2    2007     2019   2013    416
    Transaction    US
    70            CLO     24.6    2006     2020   2013    322
    Transaction    US
    71            CLO      1.7    2006     2018   2012    362
    Transaction    US
    72            CLO      4.8    2007     2019   2014    383
    Transaction    US
    73            CLO      1.9    2007     2019   2014    383
    Transaction    US
    74            CLO      5.5    2007     2019   2014    388
    Transaction    US
    75            CLO     32.7    2011     2022   2014    421
    Transaction    US
    76            CLO      1.9    2006     2018   2012    315
    Transaction    US
    77            CLO     14.5    2011     2023   2016    424
    Transaction    US
    78            CLO     22.9    2012     2023   2015    518
    Transaction    US
    79            CLO     19.4    2012     2022   2015    465
    Transaction    US
    80            CLO     22.7    2012     2022   2016    468
    Transaction    US
    81            CLO     21.7    2012     2024   2016    462
    US CLO
    Subtotal:          1,257.0                            402
 
    Total CLO
    Portfolio:         1,583.3                            397
 


                                       Current   Jr-Most
                  Original   Current       Jr-       O/C     Annualized         ITD Cash
                   Cost of   Cost of             Cushion                        Received
                     Funds     Funds  Most O/C        at    (Loss) Gain               as
                     (bps)     (bps)   Cushion     Close     of Cushion    IRR      % of
    Transaction        (3)       (4)       (5)       (6)            (7)    (8)  Cost (9)
    Transaction
    1                   55        59   (2.87%)     3.86%        (1.28%)      -     29.6%
    Transaction
    2                   52        53     0.25%     3.60%        (0.57%)  10.0%     65.1%
    Transaction
    3                   58        67     1.76%     5.14%        (0.50%)  12.3%    103.1%
    Transaction
    4                   48        47     3.17%     5.76%        (0.47%)  14.0%     74.1%
    Transaction
    5                   60        60     3.03%     5.74%        (0.52%)   9.8%     50.8%
    Transaction
    6                   51        60   (0.60%)     4.70%        (0.83%)   6.3%     49.7%
    Transaction
    7                   46        46   (1.24%)     3.64%        (0.89%)   5.0%     31.9%
    Transaction
    8                   53        56   (1.67%)     4.98%        (0.93%)  10.4%     87.1%
    Transaction
    9                   50        45     0.94%     6.27%        (0.97%)   7.6%     43.4%
    Transaction
    10                  50        52   (1.11%)     4.54%        (0.92%)   7.1%     32.7%
    EUR CLO
    Subtotal:           52        54     0.16%     4.84%        (0.81%)            53.8%
 
    Transaction
    11                  45        45     5.51%     4.55%          0.16%  20.9%    149.2%
    Transaction
    12                  46        46     5.72%     4.45%          0.21%  21.0%    144.7%
    Transaction
    13                  47        47     6.24%     4.82%          0.23%  21.5%    157.7%
    Transaction
    14                  49        50     4.35%     5.63%        (0.23%)  18.9%    122.1%
    Transaction
    15                  52        48     3.71%     4.21%        (0.09%)  28.7%    170.3%
    Transaction
    16                  46        45     3.62%     4.44%        (0.13%)  20.9%    152.7%
    Transaction
    17                  40        40     9.48%     4.24%          0.94%  23.0%    146.6%
    Transaction
    18                  45        48     8.44%     4.77%          0.53%  19.9%    166.2%
    Transaction
    19                  45        48     8.44%     4.77%          0.53%  23.7%    160.5%
    Transaction
    20                  52        52     4.14%     5.28%        (0.19%)  22.3%    163.1%
    Transaction
    21                  53        52     3.51%     4.76%        (0.20%)  19.4%    138.7%
    Transaction
    22                  53        53     3.39%     5.00%        (0.29%)  21.3%    130.9%
    Transaction
    23                  66        66     3.20%     4.98%        (0.33%)  20.7%    140.4%
    Transaction
    24                  46        47     5.21%     4.17%          0.17%  17.4%    120.6%
    Transaction
    25                  46        46     6.12%     4.13%          0.35%  22.5%    147.9%
    Transaction
    26                  43        44     4.09%     4.05%          0.01%  19.2%    120.7%
    Transaction
    27                  51        51    11.35%     6.11%          0.92%  32.2%    188.9%
    Transaction
    28                  51        51    11.35%     6.11%          0.92%  42.4%    108.6%
    Transaction
    29                  66        93     5.52%     4.82%          0.10%  18.7%    154.9%
    Transaction
    30                  67        68     2.19%     5.16%        (0.47%)  19.3%    127.4%
    Transaction
    31                  52        52     3.32%     5.02%        (0.23%)  16.5%    159.7%
    Transaction
    32                  59        59     4.21%     5.57%        (0.27%)  20.4%    125.0%
    Transaction
    33                  56        80     5.06%     6.99%        (0.29%)  14.3%    130.7%
    Transaction
    34                  50        50     5.01%     6.66%        (0.28%)  18.8%    133.3%
    Transaction
    35                  52        52     1.97%     5.00%        (0.48%)  20.9%    156.0%
    Transaction
    36                  46        56     2.30%     5.18%        (0.52%)  20.2%    128.1%
    Transaction
    37                  50        61     4.59%     4.34%          0.04%  15.9%    143.9%
    Transaction
    38                  42        42     3.98%     5.07%        (0.20%)  27.4%    163.8%
    Transaction
    39                  70        88     4.02%     3.15%          0.13%   9.8%     84.4%
    Transaction
    40                  39        41       N/A       N/A            N/A  22.5%    162.6%
    Transaction
    41                  48        49     4.69%     4.71%        (0.00%)  21.6%    151.0%
    Transaction
    42                  47        48     5.12%     3.92%          0.22%  21.3%    127.3%
    Transaction
    44                  54        62     2.38%     4.16%        (0.28%)  12.5%    109.5%
    Transaction
    45                  46        46     2.65%     4.46%        (0.31%)  10.7%     88.9%
    Transaction
    46                  51        51     2.95%     4.33%        (0.26%)  10.2%     75.0%
    Transaction
    47                  47        43     3.69%     4.34%        (0.11%)  21.3%    149.9%
    Transaction
    48                  46        46     2.79%     5.71%        (0.49%)  16.9%    109.6%
    Transaction
    49                  40        42     3.32%     3.94%        (0.09%)  12.9%    105.7%
    Transaction
    50                  40        39     2.90%     4.25%        (0.21%)  13.6%    103.1%
    Transaction
    51                  53        53     4.37%     4.47%        (0.02%)  21.4%    135.8%
    Transaction
    52                  93       N/A    30.64%     3.20%          2.94% 278.6%    974.4%
    Transaction
    53                  61        84    17.47%     4.00%          1.71%  36.1%    287.8%
    Transaction
    54                  56        59     5.68%     3.69%          0.27%  59.7%    745.4%
    Transaction
    55                  39        43     5.97%     3.59%          0.33%  62.8%    700.9%
    Transaction
    56                  42        42     4.76%     4.53%          0.04%  22.9%    146.5%
    Transaction
    57                  42        42     4.76%     4.53%          0.04%  49.4%    721.6%
    Transaction
    58                  49        49     3.72%     4.04%        (0.06%)  25.1%    150.8%
    Transaction
    59                  49        49     3.72%     4.04%        (0.06%)  52.9%    992.4%
    Transaction
    60                 198       198     4.52%     4.50%          0.01%  11.3%     23.4%
    Transaction
    61                  45        45     3.00%     4.04%        (0.19%)  17.2%    104.1%
    Transaction
    62                  42        42     4.35%     5.20%        (0.15%)  21.9%    145.4%
    Transaction
    63                  53        53     2.85%     4.78%        (0.37%)  19.3%    119.6%
    Transaction
    64                  38        38       N/A       N/A            N/A  22.4%    116.2%
    Transaction
    65                  47        48     2.88%     4.96%        (0.35%)  14.2%     93.0%
    Transaction
    66                  49        49     3.67%     4.05%        (0.06%)  21.7%    152.3%
    Transaction
    67                  46        45     4.61%     4.38%          0.04%  20.1%    126.0%
    Transaction
    68                  48        48     6.30%     4.41%          0.32%  27.3%    181.7%
    Transaction
    69                  44        44     7.51%     5.61%          0.35%  26.0%    165.6%
    Transaction
    70                  52        52     6.22%     6.21%          0.00%  18.8%    126.3%
    Transaction
    71                  40        39     2.90%     4.25%        (0.21%)  28.2%     59.7%
    Transaction
    72                  42        42     4.76%     4.53%          0.04%  21.0%     49.9%
    Transaction
    73                  42        42     4.76%     4.53%          0.04%  21.0%     49.9%
    Transaction
    74                  49        49     3.72%     4.04%        (0.06%)  22.6%     52.0%
    Transaction
    75                 168       168     4.43%     4.05%          0.30%  13.1%     24.1%
    Transaction
    76                  46        46     2.65%     2.43%          0.04%  46.0%     47.9%
    Transaction
    77                 212       213     5.38%     5.04%          0.43%  13.3%      5.0%
    Transaction
    78                 217       217     4.45%     4.00%          0.64%  13.2%     10.7%
    Transaction
    79                 215       215     4.13%     4.00%          0.20%   9.4%      6.4%
    Transaction
    80                 185       185     4.17%     4.17%        (0.00%)  13.2%      0.0%
    Transaction
    81                 216       217     4.00%     4.00%              -  11.6%      0.0%
    US CLO
    Subtotal:           67        68     4.42%     4.62%        (0.01%)           121.4%
 
    Total CLO
    Portfolio:          64        65     3.54%     4.67%        (0.18%)           107.5%
 
    Notes
    (1) The USD investment cost fixes the USD-EUR exchange rate of European
    CLOs at the same rate to avoid the impact of skewed weightings and FX
    volatility.
    (2) Par weighted average spread over LIBOR or EURIBOR (as approproate)
    of the underlying loan assets in each CLO's portfolio.
    (3) Notional weighted average spread over LIBOR or EURIBOR (as
    appropriate) of the debt tranches issued by each CLO, as of the closing
    date of each transaction.
    (4) Notional weighted average spread over LIBOR or EURIBOR (as
    appropriate) of the debt tranches issued by each CLO, as of the most
    recent trustee report date.
    (5) The current junior-most O/C cushion is the excess (or deficit) of the
    junior-most O/C test ratio over the test requirement, as of the latest
    trustee report available as of the report date.
    (6) The junior-most O/C cushion at close is the excess (or deficit) of the
    junior-most O/C test ratio over the test requirement that was expected on
    each deal's closing date. Please note
    that two of TFG's investments are so called "par structures" which don't
    include a junior O/C test. They have been marked by an "N/A" in the
    relevant junior-most O/C test columns.
    (7) Calculated by annualizing the change from the expected closing date
    junior-most O/C cushion to the current junior-most O/C cushion.
    (8) Calculated from TFG's investment date. Includes both historical cash
    flows received to-date and prospective cash flows expected to be received,
    based on TFG's base case
    modeling
    assumptions.
    (9) Inception to report date cash flow received on
    each transaction as a percentage of its original
    cost.
 


CLO Equity Portfolio Details (continued)

As of September 30, 2012

                Amount     Amount         Cushion   Cushion    Number of
         Date Maturing Amortizing       (Deficit) (Deficit) Transactions
      2010 or
      Earlier      0.0        0.3            0.0%     <= 0%            5
         2011      0.0      107.5            2.0%  0% to 2%            4
         2012      0.0      327.7            4.0%  2% to 4%           28
         2013      0.0      611.1            6.0%  4% to 6%           29
         2014      0.0      435.5                   Over 6%           12
         2015      0.3       42.3
         2016      0.6       58.9
         2017     57.7        0.0
         2018    189.6        0.0
         2019    181.1        0.0
         2020    253.2        0.0
         2021    440.0        0.0
         2022    221.4        0.0
         2023    180.0        0.0
         2024     59.2        0.0
         2025      0.0        0.0
         2026      0.0        0.0


    Notes
    (1) The USD investment cost fixes the USD-EUR exchange
    rate of European CLOs at the same rate to avoid the
    impact of skewed weightings and FX volatility.
    (2) Par weighted average spread over LIBOR or
    EURIBOR (as approproate) of the underlying
    loan assets in each CLO's portfolio.
    (3) Notional weighted average spread over LIBOR or
    EURIBOR (as appropriate) of the debt tranches issued by
    each CLO, as of the closing date of each transaction.
    (4) Notional weighted average spread over LIBOR or
    EURIBOR (as appropriate) of the debt tranches issued by
    each CLO, as of the most recent trustee report date.
    (5) The current junior-most O/C cushion is the excess (or
    deficit) of the junior-most O/C test ratio over the test
    requirement, as of the latest trustee report available as of
    the report date.
    (6) The junior-most O/C cushion at close is the excess (or
    deficit) of the junior-most O/C test ratio over the test
    requirement that was expected on each deal's closing date.
    Please note
    that two of TFG's investments are so called "par structures"
    which don't include a junior O/C test. They have been marked
    by an "N/A" in the relevant junior-most O/C test columns.
    (7) Calculated by annualizing the change from
    the expected closing date junior-most O/C
    cushion to the current junior-most O/C
    cushion.
    (8) Calculated from TFG's investment date. Includes both
    historical cash flows received to-date and prospective cash
    flows expected to be received, based on TFG's base case
    modeling
    assumptions.
    (9) Inception to report date cash
    flow received on each transaction as
    a percentage of its original cost.


Tetragon Financial Group Limited (TFG)

Portfolio Composition

Portfolio Held by Tetragon Financial Group Master Fund Limited

(unless otherwise stated)

As of September 30, 2012

                                      TFG
                                     group
                                      Net
                                     Market
                        TFG Share     Cap       TFG group Net
    Report Date         Price ($)   ($MM)(1)    Assets ($MM)
    30
    September
    2012                  $8.54      $970.2  $1,623.6
 
    Capital                                              Risk     Investment
    Allocation by                                      Capital    Fair Value
    Asset Class                                       Allocation ($MM)(2,3,4)
 
    Broadly Syndicated Senior
    Secured Loans: US                                   77.0%       $989.1
    Broadly Syndicated Senior
    Secured Loans: Europe                                9.2%       $118.8
    Middle Market Senior Secured
    Loans: US                                           13.8%       $176.6
 
                Total                                   100.0%     $1,284.6


    Geographic Allocation by Asset                             Asia
    Class                                    USA     Europe   Pacific Total
 
    Broadly Syndicated Senior Secured
    Loans                                   89.3%    10.7%     0.0%   100.0%
    Middle Market Senior Secured Loans     100.0%     0.0%     0.0%   100.0%
 
                                            90.8%     9.2%     0.0%   100.0%


                                           Bank Loan
    Top 15 Underlying Bank Loan Credits   Exposure (5)
 
    HCA Inc                                  0.88%
    Univision
    Communications                           0.86%
    First Data
    Corp                                     0.80%
    UPC Broadband                            0.74%
    Federal-Mogul                            0.73%
    Aramark Corp                             0.73%
    Charter Communications                   0.72%
    Cablevision Systems
    Corp                                     0.70%
    Asurion Corp                             0.65%
    Las Vegas
    Sands                                    0.62%
    Sabre Holdings Corp                      0.62%
    Reynolds
    Group                                    0.61%
    Bausch & Lomb
    Inc                                      0.60%
    SunGard Data Systems
    Inc                                      0.60%
    Huntsman ICI                             0.60%


 
    EUR-USD
    FX:     1.29
    (1) Calculated using TFG shares outstanding (net of 10.0
    million shares held in treasury and 8.5 million shares held by
    a subsidiary) and month end exchange price.
    (2) Excludes CDO-squared and ABS CDO
    transactions which were written off in October
    2007. TFG continues to hold the economic rights
    to 3 of these written-off transactions.
    Excludes TFG's investments in CLO mezzanine
    tranches.
    (3) Excludes TFG's investments in
    LCM Asset Management LLC,
    GreenOak Real Estate LP and
    GreenOak related funds or
    investments, and CLO mezzanine
    tranches.
    (4) Equivalent to Investment in
    Securities at Fair Value in the
    US GAAP Financial Statements.
    (5) Includes par amount of loans held directly
    by TFG and also loan exposures via TFG's CLO
    equity tranche investments. With respect to CLO
    equity tranche investments, calculated as a
    percentage of total corporate loan assets that
    TFG
    has exposure to based on its
    equity-based pro-rata share of
    each CLO's total portfolio. All
    calculations are net of any
    single name CDS hedges held
    against that credit.


An investment in TFG involves substantial risks.  Please refer to TFG's website atwww.tetragoninv.com for a description of the risks and uncertainties pertaining to an investment in TFG.

This release does not contain or constitute an offer to sell or a solicitation of an offer to purchase securities in the United States or any other jurisdiction.  The securities of TFG have not been and will not be registered under the US Securities Act of 1933 (the "Securities Act"), as amended, and may not be offered or sold in the United States or to US persons unless they are registered under applicable law or exempt from registration.  TFG does not intend to register any portion of its securities in the United States or to conduct a public offer of securities in the United States.  In addition, TFG has not been and will not be registered under the US Investment Company Act of 1940, and investors will not be entitled to the benefits of such Act.  TFG is registered in the public register of the Netherlands Authority for the Financial Markets under Section 1:107 of the Financial Markets Supervision Act ("FMSA") as a collective investment scheme from a designated country. This release constitutes regulated information ("gereglementeerde informatie") within the meaning of Section 1:1 of the FMSA.

   
    Board of Directors
    Paddy Dear                  Reade Griffith                       Byron Knief*                          
    Rupert Dorey*               David Jeffreys*                      Greville Ward*      

       
    *Independent Director

    Shareholder Information

    Registered Office of TFG and the Master Fund        Issuing Agent, Dutch Paying and
    Tetragon Financial Group Limited                    Transfer Agent        
    Tetragon Financial Group Master Fund Limited        Kas Bank N.V.
    1st Floor Dorey Court                               Spuistraat 172
    Admiral Park                                        1012 VT Amsterdam, The Netherlands
    St. Peter Port, Guernsey
    Channel Islands GYI 6HJ                             Legal Advisor (as to U.S. law)
                                                        Cravath, Swaine & Moore LLP        
    Investment Manager                                  One Ropemaker Street
    Tetragon Financial Management LP                    London EC2Y 9HR
    399 Park Avenue, 22nd Floor                         United Kingdom
    New York, NY 10022                            
    United States of America                            Legal Advisor (as to Guernsey law)
                                                        Ogier
    General Partner of Investment Manager               Ogier House
    Tetragon Financial Management GP LLC                St. Julian's Avenue
    399 Park Avenue, 22nd Floor                         St. Peter Port, Guernsey
    New York, NY 10022                                  Channel Islands GYI 1WA
    United States of America                                    
                                                        Legal Advisor (as to Dutch law)
    Investor Relations                                  De Brauw Blackstone Westbroek N.V.
    David Wishnow / Yuko Thomas                         Claude Debussylaan 80
    ir@tetragoninv.com                                  1082 MD Amsterdam, The Netherlands
                                       
    Press Inquiries                                     Stock Listing
    Brunswick Group                                     NYSE Euronext in Amsterdam
    Andrew Garfield/Gill Ackers/Brian Buckley                    
    tetragon@brunswickgroup.com                         Administrator and Registrar    
                                                        State Street (Guernsey) Limited
    Auditors                                            1st Floor Dorey Court
    KPMG Channel Islands Ltd                            Admiral Park                
    20 New Street                                       St. Peter Port, Guernsey    
    St. Peter Port, Guernsey                            Channel Islands GYI 6HJ
    Channel Islands GYI 4AN                        
                                           
    Sub-Registrar and Transfer Agent                                  
    Computershare                
    One Wall Street                                                                        
    New York, NY 10286                                                
    United States of America


ENDNOTES

(1) TFG invests substantially all its capital through a master fund, Tetragon Financial Group Master Fund Limited ("TFGMF"), in which it holds 100% of the issued shares. In this report, unless otherwise stated, we report on the consolidated business incorporating TFG and TFGMF.  References to "we" are to Tetragon Financial Management LP, TFG's investment manager.

(2) $518.25 million of total securities were issued in LCM XII CLO with a corresponding $500.0 million target asset par amount.

(3) The LCM I, LCM II, LCM III, LCM IV, LCM V, LCM VI, LCM VIII, LCM IX, LCM X, and LCM XI CLOs are referred to as the "LCM Cash Flow CLOs."  The LCM VII CLO was a market value CLO previously managed by LCM, which was liquidated commencing in 2008, and is not included in the mentioned statistics.  In addition, these statistics do not include the performance of certain transactions that were developed and previously managed by a third-party prior to being assigned to LCM, some of which continue to be managed by LCM.

 (4) The rolling 12-month dividend growth rate is calculated by dividing the sum of the dividends per share distributed or declared over the last 12 months by the dividends per share distributed or declared over the prior 12 months, less one.

(5)The hurdle rate is reset each quarter using 3M USD LIBOR plus a spread of 2.647858% in accordance with TFG's investment management agreement.  Please see the TFG website, www.tetragoninv.com, for more details.

(6) Includes only look-through loan exposures through TFG's CLO equity investments.

(7) Excludes CDO-squared and ABS CDO transactions which were written off in October 2007. TFG continues to hold the economic rights to three of these written-off transactions.

(8) Based on the most recent trustee reports available for both our U.S. and European CLO investments as of September 30, 2012.  

(9) As of September 30, 2012, European CLOs represented approximately 10% of TFG's CLO equity investment portfolio; approximately 66% of the fair value of TFG's European CLOs and 50%, when measured as a percentage of the total number of European deals, were passing their junior-most O/C tests.

(10) As O/C tests are breached, CLO structures may divert excess interest cash flows away from the equity tranche holders, such as TFG, to pay down the CLO's debt thereby curing the O/C breach via deleveraging.  Accordingly, the affected investments ceased to generate cash flows to TFG or are expected to cease generating cash flows on the next applicable payment date. Once enough debt has been repaid to cure the O/C test breach, distributions of excess interest cash to equity holders may resume to the extent not precluded by the investments' realized or unrealized losses.  

(11) Morgan Stanley CLO Market Tracker, October 5, 2012; based on a sample of 462 U.S. CLO transactions.

(12) Weighted by the original USD cost of each investment.

(13) The calculation of TFG's lagging 12-month corporate loan default rate does not include certain underlying investment  collateral that was assigned a  "Selective Default" rating by one or more of the applicable rating agencies. Such Selected Defaults are included the S&P/LCD lagging 12-month U.S. institutional loan default rate discussed above. Furthermore, TFG's CLO equity and direct loan investment portfolio includes approximately 9.2% CLOs with primary exposure to European senior secured loans and such loans are included in the calculation of TFG's corporate default rate.

(14) S&P/LCD News, "With no defaults in September, leveraged loan default rate eases," October 1, 2012.

(15) S&P/LCD News, "(EUR) S&P ELLI: Default rate climbs to 6.2% in September." The ELLI default rate is calculated by defining "default" as (a) an event of default, such as a D public rating, a D credit estimate, a missed interest or principal payment, or a bankruptcy filing; or (b) the beginning stages of formal restructuring, such as the start of negotiations between the company and lenders, or hiring of financial advisors.

(16) S&P/LCD News, "(EUR) S&P ELLI: Default rate climbs to 5.5% in June, "July 9, 2012.

(17) S&P/LCD News, "With no defaults in September, leveraged loan default rate eases," October 1, 2012.

(18) S&P/LCD News, "With no defaults in September, leveraged loan default rate eases," October 1, 2012.

(19) S&P/LSTA Leveraged Lending Review 3Q 2012.

(20) S&P/LCD News, "(EUR) ELLI repayments fall to two-year low," October 10, 2012.

(21) S&P/LCD Quarterly Review, Third Quarter 2012.

(22) S&P/LCD Quarterly Review, Third Quarter 2012.

(23) S&P/LCD Quarterly Review, Third Quarter 2012.

(24) S&P/LCD News, "(EUR) S&P ELLI gains 0.63% in September," October 8, 2012.

(25) S&P/LCD Quarterly Review, Third Quarter 2012.

(26) S&P/LCD News, "(EUR) (EUR) Topical: Loan volume lags 2011 despite strong technicals," October 3, 2012.

(27) Morgan Stanley CLO Market Tracker, October 5, 2012; based on a sample of 462 U.S. CLO transactions.

(28) Morgan Stanley CLO Market Tracker, July 10, 2012; based on a sample of 481 U.S. CLO transactions.

(29) Morgan Stanley CLO Market Tracker, October 5, 2012; based on a sample of 194 European CLO transactions.

(30) Morgan Stanley CLO Market Tracker, July 10, 2012; based on a sample of 195 European CLO transactions.

(31) Wells Fargo Structured Products Research - CLOs. "The CLO Salmagundi: New Capital Rules May Benefit CLO Issuers," June 28, 2012.

(32) J.P. Morgan U.S. Fixed Income Markets Weekly, September 21, 2012.

(33) Wells Fargo Structured Products Research - CLOs. "The CLO Salmagundi: WAL Tests," September 28, 2012. Issuance volumes based on transactions priced, but not necessarily closed with the applicable time frame.

(34) Morgan Stanley CLO Market Tracker, October 5, 2012.

(35) For U.S. broadly syndicated CLOs, and in particular deals issued post-2010, the assumed reinvestment effective spread may receive an additional benefit from LIBOR floors, with such benefit dependant on future LIBOR rates.

(36) Citi Global Structured Credit Strategy, October 4, 2012.

(37) Citi Global Structured Credit Strategy, October 4, 2012.

For further information, please contact:

TFG:
David Wishnow/Yuko Thomas
Investor Relations
ir@tetragoninv.com

Press Inquiries:
Brunswick Group
Andrew Garfield/Gill Ackers/ Brian Buckley
+44-20-7404-5959
tetragon@brunswickgroup.com













SOURCE Tetragon Financial Group Limited















































































































































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