Exiting Lowell

All,

We are exiting our position in the 8.5% 22s at 91c/E. Please refer to our current in-depth analysis here.

We’ve held the position for a year now and while we’ve made a good return, its' been a rather more exiting time than we had hoped for.

With the current financing in place, Lowell now have limited time to turn themselves around to a point where we would be comfortable with the refinancing risk. While it is entirely possible - perhaps likely - that Lowell tap alternative sources of funding and become more creative in dicing their portfolio, we are missing a more meaningful improvement in cashflows compared to what the company could have achieved if that had taken priority.

We had originally meant to hold the bonds through Q3 numbers in November, for which management have promised a marked improvement in leverage. However,

1) while that may come and may be sufficient for many types of investors, we still do not quite see eye to eye with management on what leverage means, even if we’ve had a little rapprochement on the last call.

2) bonds have traded up without good news (on CF), so what are we waiting for? Supposedly another 10 cents upside...

3) we could easily be disappointed by the actual improvement eventually presented and if so become very, very concerned about Lowell very quickly.

Compared to the 10 points of upside, we see far more downside now in the business, given that thus far the fundamental improvement in cash generation has not arrived. Coupled with further potential layering of the bonds - be it directly/structurally, or via a parallel vehicles and therefore in the age structure of the portfolio, none of the above makes us hold these bonds over bonds in any other issuer.

We will continue to cover Lowell in detail, but for the time being consider it safer to step onto the side-lines and let someone else capture those 10 cents.

Wolfgang