'1y;?IIyyIIE..I.. .-I-?r'IZ.--: .-. Q-QI I .I I--Z.I .. -I. -5 i ISI 5:57- gx IQ Iir?"nrV.-: I - - -- T-. -- `wrf i rv I Q.- .--.. I-5-1- .-2-4 .- .. . . .--. . . . -Mi--f I `Ijjf ..3 .-.. - Ill.-- 2.,2lLili-.-- .-.. .Vuti} I 'iJZ71.-.. VLELII - .. - _fQ3- -.,fI_ o":.-afirI,,5Ewry.II>f1iI-Iii.-Sankaty High Yield Partners L.P. Statements of Operations {In Liquidation) For the Years Ended December 31, 2009 and 2008 2009 2003 Investment Income tneninez Interest {net nt` taxes ot`582 and $336) 11,312,4% Uivideittls and other income 626,463 Total investment income rispenses; Interest 7,6116,460 ,(ti2t> tee - 6,1513,060 nftteferrecl tinaneing costs - |'ro1`essiona1| tees and operating expenses 2,212,9113 3.42 I .542 Total expenses 29,3411, 145 Net investinent income 2.610,514 3,512,2% Net realized and unrealized gains and losses Net realiztcd gain (1nss)nn iiwestiiteiits (net ofwitltholding taxes 16,255,31*) and SU) Net realixed gain (less) on fiureigit currency transizttittn 477*,031 Net rcaiixetl gain (loss) on swap contracts 40.528 [5.371,2311) Net realized gain {loss] on deterred linancing costs - (314,043} Nel cliange in tinrealtzed appreciatiuii ofiiwestnteitts {net 0i`ittct'ease in tieterretl with holding and Net ehange in anrealixed appreciation ti?on1 toreign currency translation 50},094 3,203,532 Net change in aitreatixeti appreciation ot` interest rate contracts - 2.297.55**) Net realized and unrealized gain (loss) 4I,54t3,Itn? Net increase (decrease} in net assets resulting from operations EE The notes are an integral part of these financial statements. 3 Sankaty High Yield Partners L.P. Statements of Changes in Net Assets (In Liquidation) For the Years Ended December 31, 2009 and 2008 Limited Partners" General Partner lfnallueatetl Detieit** Total Balance at 3I, 2007 5 ll2,34t?,t320 (`arrietl Interest 8,574.490 - - Allneatinn nt` net decrease in net assets resulting l`ront operations - excluding1nunag_en1ent tee (ll4,5ti?,2tEUR3} (43,452.540} Balance at December 3I, 2008 - - (43,452.540) (43,45 2540) Ilistrihutions - - - - Fee - . - - (`arrietl Interest - - - - Allocation nt`net increase in net assets resulting I`ront operations 7I3,l4l - 43,452,540 44,lti5.oHl Balance at December 3i, 2009 ?l3,l4l -- Tt'l3,l4I lneltldetl in the limited partners' capital account balance as ot`l)ecember 3l, 2[Jlh} and is and retipeelively. whielt relates to limited partners wlto are members of` the Bain Capital Group. The Investment Atlviser has waived tlte management tees with respeet to these limited partners for the year ended Deceniber 3l. 2003the Partnership resulted in an unalloealed detieit as recorded above. limited partners and General Partner had no obligation to make additional contributions lor the unalloeated detieit upon the Iiqttitlation or termination et` the Partnersltip. unalloeated detieit represented the amount olfuture protits that the Partnership would have had to earn hethre the limited partners would have been eligible for additional distributions. Refer to Note 10 Ihr further explanation ofthe allocation ol` ineome and loss. The aeeontpanving notes are an integral part oftltesc linaneial statements. 4 Sankaty High Yield Partners L.P. Statements of Cash lows (In Liquidation} For the Years Ended December 31, 2009 and 2008 2009 2008 Cash provided by operating activities: Purcliases (10,570,852) Proceeds lroiri sales ot` investments 1 14,065,490 204,025,56i i`roir1 principal paydowns ni` investments 10.238,120 122,?23,Fi0t?1 242514,152 Net eltects from foreign currency translation 930,725 Net investment income 2,610,514 Adjustments to reconcile net investment income to net cash provided hy operating activities Non-cash interest and tlivitienti income (3,t>4l ,41 1) of deterred Iinancing, - Iieerease in interest receivable 1,272,014 2,ti5S,0l1 llrcerease in interest payable Increase {decrease) in accrued expenses and other liabilities @1,4281 \iet cash provitieti by operating activities i24,544,l05 Cash pruvitled by {used for) financing activities: Payinenis on Senior Facility {13,052,286} (1 32, I Pavnients on Notes (121,940451) {126,539,08}} Notes Pz1yalile capitalized interest 2,100,959 Payments for tleferretl linaneing costs - {312.500} I"urtners' capital distributions [150.2201 -- Net easit provided by {used lin"] tinancing activities [202442,024) Net increase (decrease) in cash and cash equivalents (4,010,949) (lash and cash equivalents, beginning of year 0,815,380 12,402,354 Cash anti cash equivalents, end ofyear 2,804,431 0,815,3% Suppletnental disclosure of cash infeirmationz {ash paid interest 1,202,3*50 20,243,002 `I`11e aecmnpanyiitg notes are an integral part of these iinancial statements. 5 r?fyi; . 4 --.. - . I- A 4 . I ., wink - *"lvlv . ., .. . . .fi? .--. -- . ~grIrml`qw-V ,5 .. - - =iAlnj.4jEi;;m__gt_ -.4, I I .f *4 v_ $*25 - . I 4 `ai" . I c; .. 1 filr.1*1- II g: JuvWig?-fg., - VA U20ji}---.-- . Sankaty High Yield Partners L.P. Schedule of Investments (In Liquidation) December 31, 2009 l'rincipa1** Amount Senior Bank Debt {continued) Fair Value Chemical7Plasties 2,0111,000 Holding Gmbil Ee Co. KG, Facility 2 Loan, LIBOR 4.000%, due 07717715 1,964,775 509,1115 Cognis 61: Co. KG, Facility C, LIBOR 2.000%, due 09715713 476,677 Univar Inc., Opco 'Iranehc Term Loan, LIBOR 1- 3.000%, due l07I07l4 |,200,678 3,642,130 EIectronic7Eleetr1c 3.242,8 I 9 Acroiiex Incorporated, Tranchc B-1 Term Loan, LIBOR 3.250%, due 08715714 2,977,994 4,3114,995 Scnsata Technologies US Term Loan, LIBOR 1.750%, due 04727713 3,1142,208 1,6 I 3, 1 115 Scnsata Technologies Euro Term Loan, EURIBOR 2.000%, due 04727713 8,887,004 Equipment Leasing 765.331 NES Rentals Holdings, Inc., Permanent Term Loan, LIBOR 6.750%, due11772117I3 552,952 Financial intermediaries 111,599 Dollar Financial Corp., Canadian Borrower Term Loan, LIBOR 1 3.750%, due 10730712 10,246 7,794 Dollar Financial Corp., Delayed Draw Term Loan. 1.1BOR -1- 3.750%, due 10730712 7,534 1,434.1138 'l`ransFirst Holdings, Inc., Term Loan [First Lien), LIBOR -1- 2.750%, due 06715714 |,272,709 1,290,489 Food Products 1,11 Atkins 1~1tnritionals. Inc., '1`errn Loan, LIBOR 4.7511%, due 09714712 1,752,477 Food Services I6 I ,497 Awesome Acquisition Company, Term Loan (Second Lien], LIBOR -1- 5.000%, due 06704714 467,331 Inc., Term Loan (First Lien), LIBOR 15.000%, duc114730712 477,261 236,105 C'1`l Foods Holdings Co., 1.LC, Second Lien Term Loan, LIBOR 5.000%, duc116718714 21111,757 5,1165,506 OSI Restaurant Partners, LLC, Loan, LIBOR 2.250%, due 06714714 4,1511,344 4611,3811 OSI Restaurant Partners, LLC, Pre-Funded RC Facility, EURIBOR 2.250%, due 06714713 377,190 5,333,134 Healthcare I7l.574 Carl Zeiss Vision Holding I, Term B2 Facility (US), LIBOR 2.500%, due 077247l5 l311,739 L2911.11119 Concentra Inc., Loan [Second Lien), LIBOR 5.500%, doe 06725715 1,070,703 236,960 CRC I-Iealth Group, Inc., Senior Unsecured, LIBOR 3.000%, due 11717713 164,835 1,366,282 `1`hc accompanying notes are an integral part financial statements. ?rZR,?li?-=443:r.H I - - - -, --. Qai :1is-= 4a - 4 iifzza4...4.*1 {Quai`.- -- - ij? vv::"'rz 4 4 *526; 4 4-Ir" 4..4bal; . . . g. -- --,5:44--. -4, 41.1I-qv-' lh I I I .. --.-, lis2.rx--Q.., . Hi.-.- . -4IT VF7,_7 ivli4uAvSan katy High Yield Partners L.P. Schedule of Investments {In Liquidation) December 31, 2009 Prineipal** Amount Senior Bank Debt {continued) Fair Value Dil and Gas {continued) I 18.553 Delphi Acquisition llolding I B.V., Facility D1, LIBOR 4.500%, due 077*1 lfl6 5 110,995 1.987,025 Frontier Drilling USA, Inc., 'l`rm Advance, LIBOR -1- 6.000%, due 067*217*l 3 1,835,514 Holdings, L.P., First Lien Second Out, LIBOR 7.000%, due 067*297*12 121,472 TARH Holdings, L.P., Second Lien, LIBOR 13.890%, due 067*297*12 105,680 4,174,897 Publishing 3,999 American Media Operations Inc., Deferred lice Facility - 10.000%, due 017'307'l3 3,728 293,808 American Media Operations Inc., Term Loan, LIBOR 6.500%, due 017*30713 273,884 277,612 Teleeommunieations7*Cellular communications 4,620,000 l'vIi1Iennium New Jersey HoldCo, LLC, Senior Secured, LIBOR +5.500%, due 462,000 570,000 U.S. Telel*'aciI7e Corp., Advance (Second Lien), LIBOR 8.250%, due 08.*047*1 2 467,578 929.578 Utilities - Calpine Corporation, Revolving Commitment, LIBOR 2.875%, due 037'297'14 (58,913) Total Senior Bank Debt {Cost $58,082,782} 47,014,328 Corporate Fixed Income of Total Investments} Aerospace and Defense 91,000 Alien Science and Technology Corporation, Senior Unsecured, 10.250%, due 02.0117*15 69,388 Automotive 480,000 l*1eetPride Corporation,Senior Unsecured, 11.500%, due 107'0I7"l4 436,800 2,490,000 Keystone Automotive Operations, Inc., Senior Subordinated 9.750%, due I 17*01713 1,083,150 965,262 UCI Holtlco Inc, Senior Unsecured, LIBOR -1 7.500%, due 127*157*13 825,299 470.000 United Components, Inc., Senior Subordinated 9.375%, due 067*157*13 454,725 2,799,974 Beverage and Tobacco Core-Mark Holding Company, Inc., Senior Unsecured, 10.125%, due 047017*08* 51,250 4,000,000 Core-Mark Holding Company, Inc., Senior Unsecured, 9.250%, due 067*157*10* 20,000 71,250 The accompanying notes are an integral part ot` these iinancial statements. 9 Sankaty Iliglt Yield Partners L.P. Schedule of Investments (In Liquidation) December 31, 2009 PrincipaI** Amount Corporate Fitted Income (continued) Fair Value Broadcast Radio and Television 520,000 Barrington Broadcasting Group LLC, Senior Subordinated l0.500%, due 08fl5.'I4 367,900 Containers and Glass Products 330.000 Berry Plastics I-Iolding Corporation, Senior Secured, LIBOR 3.875%, due 00r`ISfl4 265,650 Impress Group Senior Unsecured, 17.000%, due l0fI5f16(a) 997,340 Ecological Services and Equipment 440,000 WCA Waste Corporation, Senior Unsecured, 0.250%, due 5r'I4 440,000 Electronicflilectric 2,620,0ttU r-teroilezt Incorporated, Senior Unsecured, 2,593,800 I,6l 0,000 Sensata 'Ieeltnologics I3.V., Senior Subordinated 9.000%, due 05r'0Ir'I6 ta} I ,400,000 Sensata Technologies Senior Unsecured, 8.000%, due I ,463,925 6,253,076 Farmingr?tgriculture 2 I 8,000 Brickman Group Holdings, Inc., Senior Subordinated I due 01723fl 7 2l 8,000 Food Services 23 I ,000 Vicorp Restaurants Ine., Senior Unsecured, due 04fI I - 350.000 Alcris International, Ine., Senior Unsecured, Step Up 9.750%, due 3,500 Retailers (other than foodfdrug) 462,000 Dollarama Group, Senior Subordinated LIBOR 6.750%, clue 08f] 2 533,610 Total Corporate Fixed Income Securities (Cost Structured Investments [13.3 of Total Investments) 23,850,000 Castle Ilill CLC), Limited, Class - I 9,540,000 Castle Hill CLU, Limited, Class - 2 2,962,080 I ,300,303 Eastland CLU LTD, Class Notes 6.000.000 Race Point Limited, Subordinated Interest l,837,800 Race Point II CLD, Limited, Class D-I 825,000 o,32tI,tI00 Race Point II CLU, Limited, Subordinated Interest 3,1 15,760 Total Structured Investments (Cost $45,734,731) I8,540,7Il?l The accotnpanying notes are an integral pan financial statements. I0 Sankaty High Yield Partners L.P. Schedule of Investments (In Liquidation) December 31, 2009 PriucipaI** Amount Limited Partnerships ot`Tota1 Investments) Fair Value CCG C1, LLC, Limited Partnership Interest 1,576,473 Secured Products lnc7HlG Partnership, LP, Limited Partnership Interest 232,750 Thomas 1-1. Lee Equity Fund 57, LP, Limited Partnership Interest 5,398,957 Welsh, Carson, Anderson Stowe IX, LP, Limited Partnership Interest 3,057,496 Total Limited Partnerships {Cost 59,286,070) 10,265,676 Mezzanine (24.3% of Total Investments) Aerospace and Defense [.570,784 Liieport, Senior Subordinated Notes - Mezz, Floating 12.000%, due 10731712 1,570,784 Automotive 1,102,280 Acord Holdings LLC, Senior Sub Notes Mew {Funded), LIBOR 18.500%, 250,218 due 0771 I713 - Aeord Holdings LLC, Senior Sub - l*v1ezyt_DeIayed Draw - (31,512) due 0771 I713 |,897,391 Aeortl Holdings LLC, Senior Sub Notes - Mezz, LIBOR 17.500%, due 0771 1713 430,708 340,099 Acord Holdings LLC, Senior Sub Notes - LIBOR 18.500%, due 07711713 77,202 1,978,086 Auction Broadcasting Company, Series A - Mezz, 16.000%, due 0373I7I0 1,889,073 1,437,512 HWS, LLC [lIenry's1. Senior Subordinated Notes - Mem. LIBOR 17.500%, due 07711713 862,507 3,478,196 Building and Development 742,643 Interstate Plumbing Et Air Conditioning, Senior Sub Notes -- Mezz, 14.000%, due 10726711 603,769 3.196,730 Iron Works, Inc, Senior Subordinated Notes - Mezz, LIBOR 10.500%, due 09714712 1,21 |,561 1,815,330 Business Equipment and Services AIS Holdings Corp., Senior Secured Term Notes (Mezz), LIBOR 6.500%, due 10712712 1,226,796 3,177,174 Restaurant Technologies, Inc., Series I - Mezz, LIBOR 17.500%, due 02701712 3,145,402 258,948 Restaurant Technologies, Inc., Series II - Mezz, LIBOR I- 19.000%, due 02701712 254,028 551,054 Secured Products Inc., Senior Secured Loan {Mem), LIBOR -4- 1 1.250%. due 1272171 I 551,054 5,177,2so Farrning7Agricu1ture 3.994,468 Augusta Lumber, LLC, Series A - Mezz, LIBOR 9.000%, due 03731713 3,323,397 Augusta Lumber, LLC, Series - Mezz, 10.000%, due 12730713 - 3,323,397 The accornnanying notes are an integral part oi` these financial statements. I 1 .--. . . -- - .. . . I .--.. -1..: . re..I.. . .I I 1 UrgiIIEggiva- I rl gifsI.: IIAA .. . . . . cis-. -. ,.gv -r I rfIJ.-- ..-. .-- agi"wl'I..t tau- qqyp-.1- I I-I {mvI-LucaI..- .. . . .gig....I. I I I .. .2-..V.rrf?zre ;i:_TRrv!I" I ?i I I I FEL: f' I I I . #1?iA_ lj nj,3;_jI CLA AUHAZ IF.-J-irai Iliqi - - 4.fl..QLQ1visln'; l_ In -ISankaty High Yield Partners L.P. Schedule of Investments {ln Liquidation) December 31, 2009 Number of Shares Common Stock (continued) Fair Value Healthcare 5 00 American Institute ot` Gastric Bonding, Ltd., Common - (AIGB Group Inc.) - 42,5193 American lnstitute oi Gastric Bending, Ltd., Common -- Holdings, lne.) 84,292 84,292 Leisure 200.000 l3ombardier Recreational Products Inc., Common A 3,294,000 Bombardier Recreational Products Common fe) 366,050 3,001,233 Foto Fantasy. Inc., Common - {113,1-150 The lne., Common 42,781 `Warner lvlusic Group Corp, Common 1,558,230 5,2131,1 1 1 Oil and (las Davis Petroleum Corp., Common (cl} 2,151,568 43,512 TARH Holdings, L.P., Common - 2,151,563 Retailers (other than 8,203 Go|l`Company, CKF6 Holdings, LLC 153,923 MacGregor Go|t`Company, Common - Port Jackson Holdings 10,363 Work Gear, Ine., Common - 873,220 Steel 560,000 Latrobe Steel Company, Common 459,200 Total Comment Stock (Cost $29,742,978) 13,005,089 Preferred Stock of Total Investments) Automotive 34-6 BHM Technologies, LLC, Preferred - 501 Hayes Lernmerz lntemational, lnc., Preferred - 1,158 HWS, LLC, Preferred Stock Business Equipment and Services 78 Katun Corp., Series A Preferred - The acconipanying notes are an integral part of these financial statements. l-4 I I I . In{Crib I. - - - LL.13]'Iij`viiLg'14J1-L.Nfl; lid'.- ll.-...--.. . Irs? iis- cse.-17 --) I .--. Link Iiqm ju') by 4 iw VH A VIE @511 I - - . 5 viyy..1'P"vi. .-- Mci..5.. . 5 - V4 'jv' Ir. . 7 . rr .g_Trr_Y-., . Sir_i_if ITA Av__ Umjiav - - - 42I-igg?fs?{img 4 JJ. .l - I Jack kgilm - ., .I7*Lai- I jr"- VITJ Sankaty High Yield Partners L.P. Schedule eflnvestrnents (In Liquidatien) December 31, 2008 Arneunt Seninr Bank Debt (55.2% eI`Tnta| Investments) Fair Value Aerospace and llefenst: 3 526,01 1* Alien Science and Technelegy Cerperatinn, '1"crm Lean, LIBOR ?1 6.000%. due 02x'06>>'13 IE 263,003 2.05|.440 AWAES Capital Inc., LIBOR 1 1.750%, due 1,306.0554 104,463 ]?Iew1>'23f11 160,369 {Ieepcr-Standard I--1e1ding_s Inc., Tranclie 'I`erm Lean . LIBOR 2.500%, due 12f23:'1 I 80,547 I?`1eetpride IIBOR 2.500%. duc 06f06f13 306,91 ti 1*01111 Lean, l.l1I1.1R 3.000%, due 12i'15I'13 1,207,866 General Meters Cerperatien, Lean. LIBOR due 1,6351,366 RARIIn1dings, Inc., Initial Tcrni I nan. 1.111OR 1 2.250%, due 2,103,216 324.126 Key Saticty Inc., Lean t_Secend Lien}, LIBOR 5.000%. due 09f0I?1fI4 36,006 2.143,735 Lear (Terperatinn, Lear Canada, Term Lean, LIBOR 2.500*ie, dee 041'25fl 2 962,3*16 *125,010 Atltemcitive 1.irnited, I*aci1ily A [I`Je11ar), LIIEUR due 05?i2Ir`12 125,204 225,970 Vistcen (`erperatien, Additienai Terre Lean, LIBOR 121*13.113 185,727 Vistueii Ferperatieii, `Iemi Lean. 1.1BOR 3.000%, due 06f13f13 901126 [Ieverage and Tnbaccu 462,37*2 I3Ia1c1?: Lien Ijevcrzagcs; Inixembeiirg 5.:1 2nd Lien Facility I), Ir 4.250%, due 06f30>>'1 5 {al 320,762 Bleek Lien Beverages Iexembeurg se '1`ranche 2, 2.375%, due I2f31f13 (al 566,365 633.23*} Black Lien Beverages Luxernheurg se `Iranche 2, LIBOR 121*3 544,362 500,000 Reddy Ice tjreup, Inc., Initial Term Lean, LIBOR 1.750%, due 203,250 1.725,244 Broadcast Radio and 'I`eIevisien 563,415 Bentcn Media (jrnup Ileldings, Inc., Aclditiena1'I`erin lean, LIBOR 2.500%, dec 1114 401-1,426 455.333 Benten Media (Ireup 1 Ieldings, Inc., Initial Term Lean, LIBOR 2.500%, due 332,201 250,6 I 4 Citadel Cferperalien, Tranche Term Lean, LIBOR ?1 1.750%, due 100,442 Univisien Eiemmuriicaititins Inc., Initial Term Lean, 1-113OR 2.250%, due 090291*14 3, I 64,647 4,01 1,1-150 The necempanying netes are an integral part efthesc iinunei;11 --rr_,gif-II I- I II I hir-..pegjams ig; zeerzx_Ij`;.1. 4,:-.-., {Iii; g. .-TL, 7 4: ..7.-. . . ., . . - . .. I-gp..-, IrSankaty High Yield Partners L.P. Schedule ef Investments (In Liquidation) December 31, 2008 Principal"' Amuunt Senier Bank Debt (continued} Fair Value TIL Term Lean. EIIRIBOR 2.000%.1Iuc 04f22l'l3 Ia) I5 l,l39.02l Sensala "leelninlugies BV., IIS Term Lean. LIBOR due 04221*13 2,24Il,Il42 Suntjarrl Data Systems Ine., Tenn Lean B. LIBOR I due 02l"2Efl4 0, I-45.45 Iiquipmenl I.casIng 205.33l IES Rentals Irleldings. Inc., Permanent Terrn Lean (Second-Lien). LIBOR 6.250%, due 3 330.240 Financial 330,955 Tranehe 'I`em1 Lean. LIBOR 3.000%, due I lf30!Il I2 ,842 2 I 2,442 Dollar Financial Carp., (`anadian Ben'0n??er 'I`errn Lean. 2.250%. due I22.466 I- 2.250%, due l0I30l'l2 03.225 393.038 Feed Prnducts l.?J0tl?.tI3I Atkins Nutritionals, Inc., 'I`erm Lean, LIBOR 4.500%. due .831,416 Feecl Services I0 I ,402 Aweseine Aequisitien Fempaiiy, Terrn Lean Seeumi Lien 5.0lI0?l?l.. due I4 80,323 232.0l,I i:IuI`l`ets, Inc.. Delayed Draw Loan (IJIIO. - due 214,2*12 242.4 I 0 Funds liulciings Seetmcl-Lien `l`crn1 lean (Second I len}, LIBOR 5.000%, due 002 I HII4 66,665 l.I12n.n5=l NPC lntematiunal, Inc., Term Facility. LIBOR 1.250%. due l0>>"20fI2 232,125 I 0 I-`eudflirug Retailers 5. I 22.434 OSI Restaurant Partners, I.I..C. Lean, LIBOR -I- 2.250%, tluc Ile-I`I4f14 2.332,843 4(rlI.3Sil OSI Restaurant Partners. Pre-Funded RC Facility. I llitjlt due 209116*) Rite Aid thrpuratien. `lranche 2 Term Lean, LIBOR I.25ll%, due 2.43 I .551 4,924,003 Ilealtlieare l. BSN Medica] R.I.., Bla Term Lean Facility, LIBOR 2.500%. clue tu] Ilealth. Inc., Ones Carestrean1 Finance LP, Seninr Secured. 3tlI,Il?5Il LIBOR 2.000%. due 04.I3t}fI 3 l2| .524 (Tarl Zeiss Visien Iinlding Tenn B2 Facility LIBOR 2.500%, due 02r`24o'I5 98.055 l.22ll?.2S0 Concentra Inc., Lean (Secend l.icn), LIBOR 5.500%. clue 305,192 l.I02.394 Cencenrra Inc., '|`rarreI1e 'I'enn Lnan. I.IBOR 2.250%. clue 06225214 L550.3 ll Lean, LIBOR 2.250%, due 02l'00l*l3 9-43.I I0 3.302.5.Ill Term Lean, 2.250%, clue tIf1Bl'l3 Ileallh It-Ianageinenl Associates, Inc., Tenn Lean, LIBOR 1.250%, due 4 il9R.'94Il 203.422 IM US Iluldings, 'I`crrn Lean [Second Lien), I- 4.250%, due I.429.43l Ouintilcs'I`ra11snati01121l (Tern., Lean (First Lien}. LIBOR 2.000%, due 0381213 l.l 64,036 l20.425 Ilnitetl Surgical Partners International. Inc., 1"JclayedDraw 'I`en?n Loan, LIBOR I- 2.000%, due 0421 Elf I 4 I I 42 United Surgical Partners International, Inc., `|`rancl1e Term Lean. LIBOR 2.000%, due 544,409 2. I IIS Oncelegy. Inc., Tranehe Temi Leans, LIBOR +2.250%. due I l.Il45i.909 VWR Funding, Dollar 'Ienn Lean, LIBOR. 2.500%, due 1,252,432 002.420 Wamer Chilcelt I`Tnrpur.1tien, Tranchc Aequisitien Dale Tenn Lean, LIBOR 2.000522.812 The accernnanying, mites are an integral part ef dwese financial statements. 19 HTVIVV IQIEII II.., .VIlj{il- a,VIVII 473 I-I.-4 I iidlif px`, - IV.7**f_j_j_yV_ - .. I I _"ji. Vvgi_.V I QPi.?V.rmi; VV. VI QV gif.VSankaty High Yield Partners Sehedule of Investments [ln Liquidation) December 31, 2003 Amuurtl Seninr Hank Debt (?etJntinue?1.I} Fair Value Oil and Gas (continued) 3 Frontier Drilling IISA, Advanee, LIBOR 1- 6.000%, due 06721713 IB 1,600,101 I, 105,5ll Helix Energy Snlutitms Group, Inc., Temi Loan, LIBOR 2.000%, due 07.70 I 333,369 417.752 Term Loan (First Lien}. LIBOR -1- 4.500%, due 06729712 250,651 4,996,242 Publishing 206,354 .?1trneriean Media Operations Inc., 'Iemi lean, LIBOR 2.490%, due 01730713 l55,]0t> 5.303.434 Nielsen Finance V1'?lIl. Inc., VNU Fielding and Finance BV., Senior Secured, LIBOR 2.000%. due I 3 3,704,790 Retailers [ether than t'tit1?d7drug} 546,0 I4 National Bedding Cumpariy Lien), LIBOR 2.000%, due 02723713 313,577 404,630 National Bedding I ..I ..C., `Ierm Lean (Second Lien), LIBOR 5.000%, due 103,5 72 I 16,325 Nebraska Book (`ompany, lne., Ineremental Term Loan, 1.1I-IOR 2.500%, due 03704709 Aninial Supplies Stores, Inc., Loan, LIBOR 2.250%, due 10726713 1,055,391 224,321 Savers. Ine., Value Village 2.750%, due 01-171 17I 2 103,240 245,405 Savers. Inc., Value Village Stores, ILS. Term Loan. -- 0371 1712 134,054 1,0311,701 Teleeomanunieatinns7(ZeItuIar eummunieatiens 3.275,360 'Ierrn Loan, LIBOR -1- 3.250%, due 2,063,431 1.*775.001 (`Iearwire {`cwporation, Delayed-Draw 'I`ei-in Loan, 6.000%, due 07703712 1,050,625 000,000 Iridium Satellite Loan (Seecmd Lien), 0.000%, due 07727.712 523,000 0114, 1 111-; Iridium Satellite `Iranche A Term Lean (First Lien). LIBOR 5.000%, due 0 795.036 Level 3 Financing, Inc., Lean, LIBOR 2.250%, due 037137|4 1,346,453 560.560 Ilolding Corp., Replacement Term Lean, LIBOR 1- 2.500%. due 02723713 351,234 570,000 LLB. '1`eIe-Paeilie Corp., Advance (Second Lien], LIBOR 3.250%, due 03704712 100,500 Verta1`orc.1nc.. New `I`errn lean [First Lien), LIBOR -1 2.500%, due 2 340,330 Inc., `I`aek--nn Loan {Second Lien}, LIBOR 5.750%, due 0I7317I3 33,577 ISI.746 Ver-taliire. Ine., Term Loan (Second 1 len}, LIBOR -1- 6.000%, 3 655,426 Virgin Mobile USA, Loan, LIBOR 5.500%, due 4710 337,544 7,074,134 Term H-2 Loan, LIBOR 2.375%, due 4,075,325 I2, 145,130 Utilities 337,107 (Yalpine (`enmratiun, Revolving lean (First Lien], LIBOR I 2.375%, due 03729714 197,667 1 5 Reliant Ijnergy, Inc., I-'re--Funded Deposit, 1.750%, due 06730.714 1,277,027 Total Senior Bank Debt {Cost The aeeompaiiying notes are an integra] pan ofttiese tinaneial statements. 21 --.- . .. --. 1--.. -- . . . .. .. T- .-. .. --.-- .. *.1I:r 1.- sn - i I ..4-, I I /7 avg.IbI?m. I I I . .. FIIgh. .--I-..V--. .. . IW., AI I . - 5 .-.. .I..I--. {Iii LMI .-.- . High Yield Partners Schedule oflnvestrnents (In Liquidation] December 31, 2008 Amount Corporate Fixed Income Securities {continued) Fair Value (TItemiealfI'|ststics 330.000 Berry |'|sstics Holding (Zorptirntioit, Senior Secured, 1.1BUR 3.875%, due 09.115fl4 1 15,500 7*20.001 Lueite International Luxembourg Finance Senior Secured. 0.000%, 800,200 tiue Cortgloitterutes I loldings I .imited, Senior Secured, 11.500%, due 31,124 (Tontnitters and Glass Protlucls 520,000 1n1presst`iroupli.V., Senior Secured, (at} 557,862 impress (iroup I-LV., Senior Unsecured, due l0!15flo [at) 2l0,703 1.1450.000 1'1z1stipo1?: Iloldiogs. Senior Unsecured, 8.500%, due 12fl5.115 1,258,000 2,035,565 Ecological Services and Equipment 440,000 Waaste ?Z`orpor:ttion, Senior Unsecured, 0.250%, due 06,115114 330,000 Sensata 'lecltnologies 13.V., Senior Unsecured, due 0510lfl 4 085,400 1.010,000 Scnsuto Technologies 1i.V., Senior Subordinated 9.01111%. due 05*01.*16 (at) o4l,381 15*00.000 Viaisystems Ciroup, lnc, Senior Subortiinztted 10.500%, due I 1,241,000 218.000 Briekntan (iroup Holdings, Senior Subordinated, 1 1.000%, due 01 .*2311 218,000 Food Services L`1turcIt's Funding Corp, Senior Secured, 12.500%, due 1 2,o99,o3? 231,000 Vieorp Restouwnts lnc., Senior linseeurcd, 10.500%, due 1* 2.310 2,201 ,047 214.o07 Ilealth (`orporetion, Senior Unsecured, LIBOR 8.000%, due 102,241 Industrial Equipment I ,380,000 Douglas Senior Unsecured, 7350%, due 01.115.112 759.000 Leisure 2.000.000 firoup, Senior Unsecured, Step .000%. due 12r*l5!14 7*70,000 Nonferrous 350,000 Alerts Internstionul, Inc., Senior Unsecured, 9.000%, due l2i'I5f14 28,000 Retailers {other than foodfdrug} 4o2.000 Dolluratitta (irotzp, Senior Subordinated 288.5*50 The notes are en integral part of these iinunciul statements. 23 alWEE74i"i7Vffiv - . ?o|..HJuiJruqnyhaiffiw - IIN _-nel bhillrl viwwIEIL j?U? ijr;__ .. I pr?I:reilhl . 4-*I-- if-.5 - - I-.Ii`-lf --1 xlrg'; - qy I. I ri-'duqi, 'rvi . sgiwr), i 7 I - 'ol_ ?PfLv fil? IJ I I I wifAA1V I Hb 1} 4-wer ir} _T,oQIilgfw 3 Zi {Til? . 12'raf fn;-I--I-- Zig'-; I 1I II - I .1Qi`; I _1 I ilati,-II..-, few?Ii?IIrg I I I I I I 'i'I I 7.--{naiEr.? 757{jix; A .7.-- 7 I I I . **1Lv NIIQA -.-In777r_Q" rr-J I at7j77.7_r .7.7.7 7777 .7 I I. II I I- 1.$$nmnm%.. -.71; 7 7 I Il; 7.77I I I fli_27_7 A . 7 1.7..7.77ZIIQI 'iI-IIMHN ILRI I.- {LumVIIITP-r-I-I-l rvILI 'o'Il1 . .4k,,lI;VlaSankaty High Yield Partners L.P. Notes to Financial Statements (In Liquidation) December 31, 2009 and 2008 1. Description ol`Partnorship Sankaty High Yield Partners L.P. (the a Delaware limited partnership, was established for the purpose of acquiring and managing a diverse portfolio oi` primarily below investment-grade assets consisting ot` bank loans, corporate tixed income securities, structured instruments, distressed debt, limited partnerships, mezzanine investments, equity securities and certain other investments. The Partnership was organized and commenced operations on April 18, 2001, and will continue until March 31, 2011, unless certain extension or early termination options provided for by the Amended and Restated Agreement of Limited Partnership dated April 13, 2001 (the "Partnership are activated. The general partner ofthe Partnership is Sankaty High Yield Asset Investors Ill, LLC (the "General Partner"), a Delaware limited liability company, whose managing member is Sankaty Investors LLC, a Delaware limited liability company. The General Partner is required to contribute 1% of the aggregate contributed capital of the Partnership. The Partnership has $119 million of capital subscriptions, which were fully funded at December 31, 2009 and 2008, and $581 million of debt financing commitments, of which approximately $141.3 million and $269.7 million were outstanding at December 31, 2009 and 2003, respectively (sec Notes 6 and The debt financing conunitments subject the Partnership to certain covenants, including, but not limited to, limitations on the total amount ol indebtedness ot` the Partnership, certain restrictions on payments, and requirernents conceming compliance with certain financial tests and investment policies. Bank ot` New York Mellon Trust Company serves as the Partnerships administrative agent with respect to the Senior Facility (as defined in Note 6) among the syndicate of lenders, tor which it receives an annual fee from the Partnership. Bank of New York serves as the Partnership's custodian and also serves as the trustee under the Indenture dated January 19, 2006 (the "New lndenture"), for which it receives fees from the Partnership. The New Indenture replaced the Indenture ("Old lndenturc") dated April 18, 2001. On October 9, 2008, the Partnership defaulted on certain covenants ol` its Notes Payable Indenture which accelerated the principal payment ofthe Notes {see Note 7). Based on the acceleration and the net assets ofthe Partnership at this time, the General Partner determined that liquidation of the Partnership was imminent. As a result, the Partnership adopted a liquidation basis of` accounting in conforrnity with accounting principles generally accepted in the United States of America. Under the liquidation basis of accounting, assets are stated at their estimated net realizable values, liabilities are stated at their amount and all expenses at liquidation have been estimated and recognized. Additionally, the Partnership has not disclosed the ratio ot` net investment income or total expenses to average limited partners' capital and the total retum of the Partnership. The Financial Statements do not include any adjustments relating to the recoverability or classitication of recorded asset amounts or the amounts or classification ot` liabilities should the Partnership be unable to continue as a going concern. However, due to the violation of covenants and waiver of these covenants by the Noteholders, the Partnership began selling investments and rising the proceeds to meet the acceleration of the principal payments in accordance with the Pledge and Intercreditor Agreement. The General Partner intends to liquidate the Partnership. The General Partner will continue the process of selling investments and making principal payments until all investments have been sold or all Notes have been paid off. 30 Sankaty High Yield Partners L.P. Notes to Financial Statements (ln Liquidation) [l_e_ee_n_1her 31, 2009 and 2008 2. Summary of Significant Accounting Policies These financial statements have been prepared in accordance with accounting principles generally accepted in United States of America which requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual could differ from those estimates, and such differences could be material. Events or transactions occurring after year end through the date that the linancial statements were issued, March 16, 2010, have been evaluated in the preparation of the financial statements. Valuation The Investment Advisor (as defined in Note 8), in consultation with the General Partner, lair values the investments owned by the Partnership. Corporate fixed income securities are generally iair valued based on the "high bid average" price obtained from an Approved Pricing Service (as defined in the Indenture). Senior bank debt are generally fair valued based on the "mean of mean" price obtained from an Approved Pricing Service. Public equities are generally fair valued based on the price listed on an Approved Exchange {as defined in the Indenture} or, if unavailable, at the last bid price for long positions and last ask price for short positions. Investments that cannot be fair valued, as described above, are either priced by an investment bank or are valued at fair value as in good faith by the General Partner. In cleternrinirrg the fair value of an the General Partner considers such factors as financial statements, earnings forecasts, recent transactions in the sanrc or similar securities and valuation information obtained from broker-dealers. recognized quotation services or independent appraisal firms. The fair value assigned to these investments is based upon available infonnation and does not necessarily represent the arnorrnt which might ultimately be realized upon sale. Equity in structured financing vclricles (such as CLOs) are fair valued by the General Partner using a model that utilizes inputs determined by the General Partner to discount present value of future cash flows from the investment. Investments in Limited Partnerships arc fair valued as Partnership's proportionate investment in the net assets ofthe limited partnership at fair value. The General Partner determines the fair value of certain securities, including structured investments. held by the Partnership on the basis of prices provided by principal market makers. Due to the inherent uncertainty of valuation, this estimated fair value may differ from the value that worrld have been used had a ready rnarkct for the security existed, and the difference could be material. 'l`l1e definition of "fair value" for the purposes of accounting principles generally accepted in the United States of America can and will differ from that used within the covenants of the Partnership's debt financing commitments. Cash and Cash Equivalents included in cash and cash equivalents at December 31, 2009 and 2003 was $2,7l'i',5t'r5 and $6,259,335 respectively, invested ovcmight in highly liquid money rnarkct investment vehicles. As of December 31, 2009 and 2008, the interest rates for these vehicles were 0.01% and 1.53%, respectively. Cash balances are presented gross of amounts due to retail banks, custodial banks and prime brokers. 3l Sankaty High Yield Partners L.P. Notes to Financial Statements (In Liquidation) 31, 2009 and 2008 Investment Transactions and Related Income Investment transactions are accounted for on the trade date. Realized gains and losses on transactions are determined using the specific identification method. Realized and unrealized foreign currency exchange gains and losses on non-U.S. Dollar denominated bomrwings and cash are included in net realized loss on foreign currency translation and net increase in unrealized depreciation from foreign currency translation in the Statements of Operations. The Partnership utilizes multi-currency borrowings to hedge its exposure to currency risk when purchasing like-dettomiitatcd assets. For the Partnership's investments in revolving bank loans, the cost basis of the investments purchased are adjusted for the cash received tor the discount on the total balance committed. The fair value is also adjusted for price appreciation or depreciation on the unfunded portion. As a result, the purchase of commitments that are not completely funded may result in a negative value until it is offset by the future amounts called and funded. Interest incorne is recorded on the accrual basis. Certain fees received or paid on bank loans are recorded as a cost basis adjustment or as income. Dividend income is recorded on the ex--dividcnd date net of withholding taxes. Distributions from debt obligations are recorded as dividend income on the Statement of Operations during the collateralized debt obligatiorfs reinvestment period. Subsequent to this reinvestment period, distributions are recorded as a return of capital. Dividend and interest income paid in the form of additional shares or par value is recorded at current value. Premiums and discounts on securities purchased are amortized using the effective yield method over the life ofthe respective security when cash collection is expected and is included in interest income. Discounts on securities with fair values below 50% of par are not amortized. For the investments in revolving bank loans, the cost basis ofthe investments purchased are adjusted for the cash received for the discount on the total balance committed. The lair value is also adjusted for price appreciation or depreciation on the unfunded portion. As a result, the purchase of commitments not completely funded may result in a negative value until it is offset by the tirturc amounts called and funded. ln some cases, the Partnership invests in securities directly and indirectly through one or more holding companies or other entities in which other parties affiliated with the Partnership may also be investors. In such cases, the Schedule of Investments indicates such relationships and rcllects the Partnership"s share of the underlying investment. Restricted Securities The Partnership is permitted to invest in securities that are subject to legal or contractual restrictions on resale. securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time--consu1ning negotiations and expense, and prompt sale at an acceptable price may be difticult. At December 31, 2009 and 2008, the fair value of restricted securities (excluding 144A issues} amounted to $14,166,224 and $51 ,647,834, respectively. Income Taxes As a partnership, the Partnership itself is not subject to U.S. Federal income taxes. Each Partner is individually liable for income taxes, if any, on its share ofthe Partnership's net taxable income. Interest, dividends and other income realized by the Partnership from non-US sources and capital gains realized on the sale of securities of non-U.S. issuers may be subject to withholdings and other taxes levied by the jurisdiction in which the income is sourced. For foreign partners invested in the Partnership, a reduction in capital could be made for withholding taxes (30% or 32 Sankaty High Yield Partners Ill, L.P. Notes to Financial Statements (In Liquidation) llecember 31, 2009 and 2008 lower treaty tate} on their allocable share of dividends as well as certain interest and other income received by the Partnership from sources within the United States. On January l, 2009, the Partnership adopted an accounting standard which required the Investment Advisor to determine whether tax positions ofthe Partnership are more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. The Advisor has determined that there were no tax positions which met the recognition and rneasurcment requirements of the accounting standard, and therefore, the Partnership did not record an expense related to uncertain positions on the Partnership's Staternent of Operations for the year ended December 3l, 2009. The Partnership files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. ln the normal course of business, the Partnership is subject to examination by federal, state, local and foreign jurisdictions, where applicable. As of December Bl, 2009, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations is frotn the year 2006 forward (with limited exceptions). Foreign Currency Translation The accounting records of the Partnership are maintained in U.S. dollars. The fair values of tbreign securities, currency holdings and other assets and liabilities are translated to U.S. dollars based on the current exchange rates each business day. Income and expenses denominated in foreign currencies are translated at current exchange rates when accrued or incurred. nrealizcd gains and losses on foreign currency holdings and non-investment assets and liabilities attributable to the change in exchange rates are included in foreign currency translation in the Statements of Operations. Net realized gains and losses on tbreign currency holdings and non- investment assets and liabilities are included in net realized gain on foreign currency transactions in the Statements of Operations. The portion of both realized and unrealized gains and losses on investments that result from lluctuations in foreign currency exchange rates is not separately disclosed, but is included in net realized and unrealized gains on investments in the Statements ot`Opcrations. Interest Rate Swaps and Total Return Swaps The Partnership may enter into interest rate or total return swap contracts to increase or decrease its exposure to changes in the level of interest rates or underlying asset values. Interest rate swaps involve the exchange by the Partnership with another party of their respective commitments to pay or receive interest at specilied intervals based on a notional amount of principal, e.g. an exchange of floating rate payments for fixed payments with respect to a notional amount of principal. Total return swaps involve commitments to pay interest in exchange for a rctunt on a basket of securities both based on notional arnounts. To the extent the total retum of the basket of securities underlying the transaction exceeds or tails short of the offsetting interest rate obligation, the Partnership will receive payment from or make a payment to the counterparty, respectively. 33 Sankaty High Yield Partners L.P. Notes to Financial Statements (In Liquidation) December 31, 2009 and 2008 3. Recent Accounting Pronouncements FASB Accounting Standards (Todifieationrm ASC l05-l0 ln June 2009, the FASB issued FASB ASC 105-l0, The FASB Aecriitrttirig C0dgticort`ort"`M cud the Hierarchy of Accepted Accounting (formerly SFAS 168). ASC l05-l0 replaces the SFAS 162, The Hierarchy Accomiri`hg .Pri`rrcipJes, and establishes the FASB Accounting Standards (Zodilieation {"Coditication") as the source of authoritative accounting principles recognized by the FASB to be applied by non-governinental entities in the preparation of financial statements in conformity with GAAP. The Codification became the exclusive authoritative reference at September 30, 2009. Updates to the Codification Standards are issued as Accounting Standard Updates ("ASll"s) by the FASB. The adoption of the Codification docs not impact the Partnership's financial statements except for references made to authoritative accounting literature in the footnotes. FASB Accounting Standards Coditicationm ASC 815-l 0-50 The Partnership adopted amendments to the authoritative guidance on disclosures about derivative instruments and hedging activities on .lanuary l, 2009. The new requirement amends and expands the disclosure requirement related to derivative instruments, to provide users of linaneial statements with an enhanced understanding ofthe use of derivative instruments by the Fund and how these derivatives affect the Iinancial position, financial performance and cash flows ofthe Fund. This Statement requires qualitative disclosures about the objectives and strategies for using derivative instruments, quantitative disclosures about the fair value of, and gains and losses on, derivative instruments. The standard enhances the disclosure requirements for derivative instruments and related hedging activities and thus, the adoption of the standard had no impact on the Statement of Net Assets, Statement of Operations or the Statement of (Lliangcs in Partners' Capital. The Partnership docs not designate any derivative instruments as hedging instruments under the authoritative gui dance. The Partnership may transact in a variety of derivative instruments including, forwards, swaps and options primarily for trading purposes with each instrument's primary risk exposure being interest rate, credit, foreign exchange, or equity risk. The lair value of these derivative instruments is included either as a separate line item or within the Investments line item in the Statement of Net Assets with changes in fair value reflected as realized gains (losses) or net change in unrealized gains (losses) within the Statement of Operations. The partnership did not transact in any derivative instrurnents during the year ended December 2009. 4. Fair value Measurements ln accordance with authoritative guidance on fair value measurements and disclosures under GAAP, the Partnership discloses the fair value of its investments in a hierarchy which prioritizes and ranks the level of market price observability used in measuring assets or liabilities at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Assets or liabilities with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs 34 Sankaty High Yield Partners Ill, L.P. Notes to Financial Statements (In Liquidation) December 31, 2009 and 2008 may include price information, volatility statistics, specific and broad credit data, liquidity statistics, arrcl other factors, In such cases, the dctennination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement. The Partnership's assessment ofthe si gniticance ofa particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment. The General Partner considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categoriaatioir of financial instruments within the hierarchy is based upon the pricing transparency of the iirstruinent and does not necessarily correspond to the General Partners perceived risk of that instrument. Assets or liabilities measured and reported at fair value are classified and disclosed in one ofthe following categories: In determining an asset or liability"s placenrent within the hierarchy, the General Partner separates the Partnerslrip"s investment portfolio into major categories. Each of these categories can further be divided between those held long or short. Level I - Quoted prices are available in active markets identical assets or liabilities as ofthe reporting date. The type of assets or liabilities classified as Level I include listed equities. Level ll -- lirputs are other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active. Certain investments, exchange traded and over-the-counter derivatives. including interest rate swaps, are fair valued by the General Partner using observable inputs, such as quotations received from the dealers or brokers, whenever available and considered reliable. In instances where models are used, the value of an over-the-counter derivative depends upon the contractual terms ol`, and specific risks inherent in, the instrument as well as the availability and reliability of observable inputs. Such inputs include market prices for reference securities, bid and ask prices yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. Certain exchange traded and over-tlre?counter derivatives, such as generic swaps, have inputs which can generally be corroborated by market data and are therefore classified within Level ll. investments that trade in markets that are not considered to be active, but are valued on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level ll. Assets or liabilities which are generally included in this category include corporate fixed income and senior bank debt where there is sufficient market activity for the investment, less liquid and restricted equity securities and certain exchange traded and over- the -c ounter derivatives. Level -- Investments and derivative instrunrents classified within Level have significant unobservable inputs, as they trade infrequently or not at all. Level instruments iirclude private equity investments, certain bank loans and bridge loans, less liquid corporate debt securities (including distressed debt instruments), mezzanine securities, and structured investments. When observable prices are not available for these securities, the General Partner uses one or ITIOIC valuation techniques the market approach or the income approach) for which sufficient and reliable data is available. Within Level the use ofthe market approach generally consists of using comparable market transactions, while the use of the income approach generally consists of the net present valine of estimated future cash flows, adjusted as appropriate for liquidity, credit, market airdfor other risk factors. 35 Sankaty High Yield Partners L.P. Notes to Financial Statements (In Liquidation) l)ecen_ib_eL3l, 2009 and 2008 `l`l1e inputs ttsed by the General Partner in estimating the fair value of` Level investments include the original transaction price, recent transactions in the sarne or similar instruments, completed or pending thi1'd--party transactions in the underlying investment or comparable issuers, subsequent rounds of tinaneing, recapitalizations and other traiisaetions across the capital ot`f`erings in the equity or debt capital markets, and changes in financial ratios or easli flows. Certain Level investments, such as certain structured investments, utilize models which rely on assumptions determined by the General Partner. Level investments may also be adjusted to reflect illiquiclity andfor non-transferability, with the amount of such discount estimated by the General Partner in the absence of market information. The fair value measurement of Level Ill investments does not include transaction costs that may have been capitalized as part ol` the security's cost basis. Assumptions used by the General Partner due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Partnersliip`s results of operations. Assets or liabilities which are generally included in this category include limited partnership interests, CDOS, privately placed debt, and privately placed equity, bonds and loans for which there are 1io observable inputs. At each date, the General Partner updates the Levell and Level Il inputs to reflect observable inputs, though tlte resulting gains and losses are reflected within Level due to the significance ot` the unohservablc inputs. The Following table summarizes the valuation of the Partnership's assets or liabilities by the above fair value hierarchy levels as 31, 2009: Assets at Fair Value as 3l, 2009 in thousands) Level I Level II Level Total Cash Equivalents 5 2,7*18 - 5 - 5 Investments; Corporate Fixed Income - ll.B(l2 2l Fl 12.020 Senior Bank Debt - 41,054 5,960 4?.tll 4 Meazanine - 989 32,9tiT 33.956 Preferred Stock - - 4,586 4,5Stu Lintited Partnerships - - |0,26o l0.2t'it? Structured Investments - - IEt.54l Stock Warrants - -- 61 ol Lemmon Stock 4,7o9 - 8,236 l3.005 Total 5 5 53,345 5 I42,lti? 36 Sankaty High Yield Partners L.P. Notes to Financial Statements (In Liquidation) December 31, 2009 and 2008 The following table summarizes the valuatioti of th Partne1?sl?iip's assets or liabilities by the above fair value hierarchy levels as oi` December 31, 2008: Assets at Fair Value as ol` Decetnber 31. 2008 [in thousands) Level 1 Level ll Level Total Cash Equivalents 6,259 5 - 5 - 5 6.250 Investments: li`oi'poi'ale Fixed lncome - lfi.950 4.311 21,761 Senior Bank l.Jcht - 104,620 17,577 122,206 - - 35.702 35.702 Preferred Stock - - 4,416 4,410 Limited l':1rt11ers1iips - - 10,005 10,005 Structured lnvestrnents -- - 13,013 13,?0l3 Stock Warrants - - 44 44 Steel: 2.,043 - 12, I 43 14. I Bti Total 97,801 227.632 The table presents changes in assets or liabilities that use Level inputs For the year ended December 31, 2009: llalancc Net change Net realized Net purchases, Nei translers Balance [in as of in unrealized gains sales or into andfor (out as ol` |2>>'3lf200i? aains (losses {losses) retzlern tions nl`) Level 1273 li2lJ0*J? Investments: ("orporate Fixed Income Pi 4.311 (5,211) 5 {27 907 2llS Senior Bank Deht 17,577 1,902 {3,504} [l9,?l196) 0,05Ql 5,060 Mezzanine 35,792 (2,126) (2,089,1 401 080 32,067 I'nel-erred Stock 4,416 259 96 [185} 4,5% Sirueturetl Investments 6,036 - {sos} Stool-; l.'v'arrants 44 - [ll ol I 10,005 230 44 (13) 10,26o (`omtnon Stock 12,l43 4,228 (3,712) 577 8,236 Total 97,301 5,336 3 {14,27 5; lI.0o? 512 37 REQQWLI.EUR `{fh.--Ian .1.--.. nikki-iwIIUI - - o~s. Ip I I rl,.'aI. In- I --I-GIIAM4 iciI-jr.-frgcog_r=-ny; I,-ma. -.-.74-.ViibgwSVVL nf:-'Ie. - A . r. ,57Vi?rQ? VV II I - I- Q.-. Sankaty High Yield Partners L.P. Notes to Financial Statements (In Liquidation) December 31, 2009 and 2008 circumstances in which net asset value per share of an investment is not dctertninative of fair value, the Partnership estimates the fair value of an investment in an investment company using the net asset value per share of the investment (or its equivalent) without further if net asset value per share of the investment is determined in accordance with the specialized accounting guidance for Investment Companies as of the reporting entiry's measurement date. The adoption of this guidance does not have a material effect on the financial statements. The Partnership invests in various private equity thirds. The nature of the investments in this category is that distributions are received through the liquidation of the underlying assets of the fund. The Partnership tnay not withdraw from the funds at its discretion. lf these investments were held, it is estimated that the underlying assets ofthe fund would be liquidated over 5 to 8 years. The fair value of each individual investment has been estimated using the reported partners` capital balance ofthe ittvesttnent. There have been no significant changes in valuation teclmiques and related inputs used by the General Partner during the year ended December 31, 2009. 5. Market and Credit Risks of Debt Securities The Partnership's investing activities expose it to various types of risk that are associated with the financial instruments and markets in which it invests. The significant types of financial risks to which the Partnership is exposed are listed below. Market Risk Market risk encompasses the potential for both losses and gains and includes price risk, currency risk and interest rate risk. The fair value ofthe investments will generally fluctuate with, among other things, changes in prevailing interest rates, general economic conditions, the condition of certain financial markets, developments or trends in any particular industry and the financial condition of the issuer. During periods of limited liquidity and higher price volatility, the Partnership's ability to dispose of investments at a price and time that the Partnership deems advantageous may be impaired. Price Risk The prices of securities held by the Partnership may decline in response to certain events, including those directly involving the companies whose securities are owned by the Partnership; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and commodity price fluctuations. Currency Risk I Foreign Markets Risks 'The Partnership may invest in financial instruments and enter into transactions denominated in currencies other than its functional currency. Consequently, the Partnership may be exposed to risks that the exchange rate of its currency relative to other foreign currencies may change in a manner that has an adverse effect on the fair value of that portion of the Partnership's assets or liabilities denominated in currencies other than the functional currency. The Partnership may have investments in various countries, including emerging market countries. investments in these countries involve risks, including, but not limited to, risks relating to adverse political, social, and economic developments in other countries, as well as risks resulting from the differences between the regulations to which issuers and markets are subject in dil`l`crent 39 Sankaty High Yield Partners L.P. Notes to Financial Statements (ln Liquidation) Decenj_tle_r 31, 2009 and 2008 countries. These risks may include expropriation of assets, contiscatoiy taxation, withholding taxes on dividends and interest paid on Partnership investments, currency exchange controls, and other limitations on the use or transfer of Partnership assets and political or social instability. Such investments 1nay also involve currency exchange rate risks. There 1nay be rapid changes in the valine of lbreign currencies or securities, causing the fair value of Partnership investments to he volatile. Interest Rate Risk Interest rate risk refers to the risks associated with market changes in interest rates. Interest rate changes may affect the fair value of a debt instrument indirectly and directly. ln general_ rising interest rates will negatively impact the price of a fixed rate debt instrument and falling interest rates will have a positive cftect on price. Adjustable rate instruments also react to interest rate changes in a similar manner although generally to a lesser degree. Interest rate sensitivity is generally more pronounced and less predictable in instruments with uncertain payment or prepayment schedules. The interest rate hedging transactions subject the Partnership to off balance-sheet risks, which include counterparty credit risk. The Partnership manages this exposure by entering into interest rate hedging transactions with internationally recognized Enancial institutions, which are expected to perfonn under the terms of the contracts, and evaluating the creditworthiness of the institutions by taking into account credit ratings and other factors. Liquidity Risk Liquidity risk is the risk that the Partnership will encounter difficulty in meeting obligations associated with tinaneial liabilities. Among other things, liquidity could be impaired by an inability to access secured andfor unsecured sources of financing. Leverage Risk The Partnership uses leverage directly and indirectly. The Partnership currently uses leverage mainly through the issuance of Notes payable and the Senior facility. The use of leverage will increase the volatility of the Partnership. While the use of borrowed funds will increase returns if the Partnership earns a greater return on the incremental investments purchased with borrowed funds than it pays for such funds. the use of leverage will decrease returns if the Partnership fails to eam as much on such incremental investments as it pays for such funds. The effect of leverage may therefore result in a greater decrease in the capital of the Partnership than if the Partnership was not as leveraged. Financing Risk ln the normal course of business, the Partnership enters into agreements with certain counterparties for derivative transactions. These agreements contain among other conditions events of default and termination events, and various covenants and representations. At certain times during 2009, the Partnership was not in compliance with certain covenants i11 the agreements. lt` such events are not cured by the Partnership or waived by the counterparties, the counterparties may decide to curtail or limit extension of credit, and the Partnership may be tbrced to unwind its derivative positions which may result in material losses. There is no guarantee that the Partnersliip's borrowing arrangements or other arrangements obtaining leverage will continue to be available, or if available, will bc available on tcrins and conditions acceptable to the Partnership. Unfavorable economic conditions also could increase funding costs, limits access to the capital markets or result in a decision by lenders not to extend 40 Sankaty High Yield Partners L.P. Notes to Financial Statements (In Liquidation) December 3l, 2009 and 2008 credit to the Partnership. In addition, a decline in market value of the Partnership's assets may have particular adverse consequences in instances where they have borrowed money based on the fair value of those assets. A decrease in fair value of these assets may result in the lender (including derivative counterparties} requiring the Partnership to post additional collateral or otherwise sell assets at a time when it 1nay not be in the Partnerships best interest to do so. of Investments 'l`he Partnership may invest in securities, bank debt and ether claims, and ether assets, which are subject to legal or ether restrictions on transfer or for which no liquid market exists. The market prices, if any, for such investments tend to be volatile and may net be readily and, for various reasons, the Partnership may net be able to sell them when it desires to do so er to realize what it perceives to be their fair value in the event of a sale. Restricted securities are generally fair valued at a price lower than similar securities that are net subject to restrictions on resale. Seine ofthe Partnership's investments may be illiquid and the Partnership may net be able to vary the portfolio in response to changes in economic and other conditions. The securities that are purchased in connection with privately negotiated transactions are not registered under the relevant securities laws, which may result in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the relevant registration rcquiretnents. Some of the bank loans, mezzanine securities and the structured investments that are purchased and sold are traded in private. unregistered transactions and therefore may be subject to restrictions on resale or otherwise have no established trading market. In addition, as the Partnership will likely be required to liquidate all or a portion of its portfolio quickly to meet debt acceleration requirements, the Partnership may realize significantly less than the fair value at which it previously recorded those investments. The Partnership may fretn time to time invest in derivative contracts traded over the counter, which are not traded in an organized inarkct and may be illiquid. Furthermore, the Partnership may face other restrictions in its ability to liquidate an investment in a business entity to the extent that the Partnership have or could be attributed with material non-public information regarding such business entity. Credit Risk Credit risk refers to the likelihood that an issuer will default in the payment of principal andfor interest on an instrument. Financial strength and solvency of an issuer are the primary tactors influencing credit risk. In addition, subordination, lack or inadequacy of collateral or credit enhancement for a debt instrument may affect its credit risk. Credit risk may change over the life of an instrument and securities which are rated by rating agencies are often reviewed and may be subject to downgrade. The Partnership is subject to the credit risk of its custodians, prime brokers and counterparties to the extent they may be ttnable to fulfill their obligations either to return the Partnership"s securities or to repay amounts owed. Credit risk is measured by the loss the Partnership would record if its counterparties failed pursuant to terms of their obligations to the Partnership. The Partnership is subject to the credit risk of its custodians, prime brokers and counterparties to the extent they may be unable to fulfill their obligations either to retum the Partnership's securities or to repay amounts owed. Credit risk is measured by the loss the Partnership would record if its counter parties failed pursuant to terms of their obligations to the Partnership. 4t Sankaty High Yield Partners L.P. Notes to Financial Statements {ln Liquidation) Qegember 31, 2009 and 2003 Bank Loans The Partnership invests in loans originated by banks and other tinancial institutions, The loans invested in by the Partnership may include term loans and revolving loans, may pay interest at a fixed or floating rate and 11121y be senior or subordinated and may be purchased in the l`orn'1 of assignments or partieipations in all or a portion of` loans from third parties. Purchasers of bank loans are predorninantly commercial banks, investment funds and investment banks. Based on activity in the bank loan market, the Partnership is exposed to liquidity risk as well as the risk of the borrower. High Yield Debt The Partnership invests in high yield debt whose rating is typically below investment-grade by one or more nationally recognized statistical rating organizations or is unrated of comparable credit quality to obligations rated below investment-grade, and has greater credit and liquidity risk than more highly rated debt obligations. As a result, the Partnership is exposed to liquidity risk and the risk of the obligor. 6. Senior Facility The Partnership and various financial institutions entered into a Credit Agreement dated April 18, 2001 with an aggregate line of credit of $325 million. This Credit Agreement terminated on January 19, 2006. All outstanding debt on this Credit Agreetnent was paid oft and the Partnership entered into an amended and restated Credit Agreement with various financial institutions dated January 19, 2006 (the "Senior Pacility"). The aggregate line of credit provided by the Senior Facility is $200 million. The Senior Facility allows for Eurodollar, Base Rate and loans and includes a Swingline lhcility. A commitment t`ee ot` 0.25% is payable for any unused portion oi` the total commitment. The scheduled tcmiination date of the Senior Facility is April 30, 2011. As of December 31, 2009 and 2008, the Partnership had borrowed $0 and $13,657,78o, respectively, under the Senior Facility. ljurodollar loans can be drawn with three days notice for periods of one, two, three or six tnonths and bear interest at the liurodollar Rate (as defined in the Senior Facility) plus .35% per The Eurodollar loans were terminated April 30, 2009. As of December 31, 2009, the Partnership had no Eurodollar loans outstanding. As of December 31, 2008, the Partnership had @9,770,913 of Eurodollar loans outstanding. This balance consists ol` one loan with an interest rate of 5.60% and a maturity date of January 2, 2009. Base Rate loans can be drawn with one day"s notice and bear interest at the higher ot` the federal funds effective rate plus 0.5% per annum, or the prime rate. As of December 31, 2009 and 2008, the Partnership had no Base Rate loans outstanding. l\flulti-currency loans can be drawn with t`our days notice and bear interest at the OIT-Shore Rate (as detined in the Amended Senior Facility) plus .35% per annum, lvlulti-currency loans can be denominated in Pounds Sterling, Canadian Dollars, Swedish Krona, Euros or .S. Dollars. Multi-currency loans cannot exceed $105 million at any time. As of December 31, 2009 and 2008, the Partnership did not have any multi?currency loans outstanding. Swingline loans, which may be drawn down or paid back daily, bear interest at the federal tiinds rate plus 1.0% per annum. Swingline borrowings cannot exceed $35 million at any time and, under the Indenture, swingline borrowings cannot exceed $15 million for more than 42 Sankaty High Yield Partners L.P. Notes to Financial Statements (ln Liquidation) December 31, 2009 and 2008 consecutive business days. As of December 3l, 2009 and 2008, the Partnership did not have any swinglinc borrowings outstanding. Interest incurred on the Senior Facility for the years ended December 31, 2009 and 2008 was $162,337 and $2,343,079, respectively. Cash paid for interest on the Senior Facility during the years ended December 31, 2009 and 2008 was $196,330 and $2,528,328, respectively. 7. Notes Payable At December 31, 2009, pursuant to the New Indenture, the Partnership had tive classes of notes (collectively, the "Notes"}. The Notes had varying tranches as follows: Principal Principal (in millions) {ln millions} Interest Interest at at Rate at Rate at December 31, December 31, December December (`lass Title 2009 2008 Interest 31, 2009 31, 2008 A-l First Senior Secured Floating Rate Notes -- 93.5 l.ll3?tIIR - 3.7*40% 0.32% A-2 First Senior Becured Floating Rate Notes 3.3 I 0.7'8l% 3.920% tt.5o% Second Senior Secured Fixed Rate Notes 3l.2 29.5 Fixed 5.7*07*% 5.207*% I3 Second Senior Secured Floating Rate I 1.4 I l.l LIBOR I.08l% 4.220% Notes 0.80% Senior Subordinated Secured Fixed Rate 8.0 7*.5 Fixed 6.807% Notes tf Senior Subordinated Secured Floating 45.I 43.5 LIBOR 2481% 5.320% Rate Notes 1.9ll% Il Subordinated Secured Fixed Rate Notes 3.8 3.5 Fixed I0.l57% I0. I 57*% IJ Subordinated Secured Floating Rate 19.I l.Il3of.JR I- 8.670% Notes 5.25% li Junior Secured Floating Rate Notes I4.0 I2.8 LIBOR 7*.28 10.420% ?.titi% I5 Second Facility [Notes) 5.4 22.7* LIBOR 0.7*81% 3.920% n.5o% Total l4l.3 256.I Interest is payable quarterly in January, April, July and October ot` each year for the Class A-1, B, Notes and the Second Senior Facility, and semi-atmually in April and October of each year for the Class and Notes. The Notes were scheduled to mature on April 30, 2011. However, dtic to the default and acceleration, the Notes will be paid down in accordance with the waterfall priority disclosed in this note. Members of the Bain Capital Group may own the Notes issued by the Fartriership. Interest incurred on the Notes for the years ended December 31, 2009 and 2008 was $7,444,132 and $16,658286, respectively. Cash paid for interest during the years ended December 31, 2009 and 2008 was $1,006,330, and $l7',2l2,97'3, respectively. Fees paid for the years ended December 31, 2009 and 2008 were $18,24l and $279,983, respectively. In accordance with FASB ASC 825-10, the Company discloses the estimated fair values of certain ot` the Co1npany`s financial liabilities. At December 31, 2009, the Partnership estimated the fair valtie of the Class A-2, Floating Rate, Fixed Rate, Floating Rate, Fixed Rate, Fixed Rate, Floating Rate, Floating Rate, and Senior Facility Notes to be (in millions) $28.0, $25.7, $5.3 respectively. At December 31, 2008, the 43 Sankaty High Yield Partners L.P. Notes to Financial Statements (In Liquidation) December 31, 2009 and 2008 Partnersltip estimated the fair value of the Class A-1, A-2, Floating Rate, Fixed Rate, liloating Rate, Fixed Rate, Fixed Rate, Floating Rate, lj Floating Rate, attd Senior Facility Notes to be (in millions) $34.3, $11.5, respectively. The fair value infomation presented above does not purport to represent, ttor should it be construed to represent, the underlying "rrtarkct" value ofthe Notes or tlte tltat would result frotn tlte sale, or settlement, of such Note. These estimates were based on a discottnting of expected interest and principal distributions at the market rate of similar recently issued notes. Defaults and Waivers to Indenture The Indenture requires tlte Partnership to comply with certain conditiotts, which include an Over- Collatcralization test that requires tlte Partnership to maintain a level of market value investments that exceeds tlte principal outstanding on the Notes. On October 9, 2008, tlte failed this Over--Collateralixatio1t test, which triggered an event of default. There are numerous potential consequences if default under the Indenture occurs and is not remedied. Many of those consequences are beyond the control of tlte Partnership. The occurrence of otte or tnore evems of default would give rise to tlte right of the Noteholders. to exercise their remedies uttder tlte Indenture, without limitation, which includes tlte right to accelerate all outstanding debt attd take actions authorized in such circumstances, any ol` which would impair the ability of tlte Partnership to operate its business as a going concern. During the year ended December 31, 2008, tlte Noteholders waived certain violations outlined itt tlte Indenture and exercised their right to accelerate tlte principal payment schedule of the Notes. Based on tlte terms outlitted itt the Pledge and lntercreditor Agreement. an event of default bestows of tlte Partnership to tlte Controlling Class. On December 18. 2009, the Partnership was notified by the Controlling Class Representative of a Forbearattce and a Notice of Revocation of Liquidation Direction. The Controlling Class Representative has notified the Partnership that it will ttot approve any Liquidation Acceleration or Liquidation Direction at any time when certain collateralization thresholds are met. The Controllittg Class is comprised of more tltatt 35% ofthe Class A--2 Noteholders, but will move down the tranches of Notes as tlte principal repayment is accelerated and classes are paid down. Further, in accordance with the Pledge and lntercreditor Agreement, tlte principal will be paid down in tlte following priority as the Partnership generates caslt through sales of investments: a) Administrative expenses; b) interest dtte and payable to Senior Facility and Class A-l Noteholders ratably ttntil such have been paid in full; c) Principal due and payable to Senior Facility and Class A-1 Noteholders and net settlements on Secured Hedges ratably until such amounts have been paid in tbll; d) Principal attd interest due and payable to Second Senior Note attd Class A-2 Noteholders ratably until such atnounts have beett paid in full; e) Principal and interest due and payable to Class Noteholders ratably until such atnounts have been paid itt full; f) Principal and interest due and payable to Class Noteholders ratably until such amounts have beett paid in full; g) Principal and interest dtte and payable to Class Noteholders ratahly until suclt have beett paid in full; lt) Principal and interest due and payable to Class Noteholders ratably until such have beett paid in full; 44 Sankaty High Yield Partners L.P. Notes to Financial Statements (In Liquidation) December 31, 2009 and 2008 During the year ended December 31, 2009, the Partnership partially paid down the Notes in accordance with the priority stated in the Pledge and lntercreditor Agreement. ln accordance ?with the priority stated above, $13,657,786 and $934160,913 ofthe principal ofthe Senior Facility and Class A-l Notes, respectively, were paid down and $196,330 and $651,180 was paid related to the interest on the Senior Facility and Class A-1 Notes, respectively. ln addition, $10,925,960 and $17,559,578 of the principal ot` the Class A-2 Notes and Second Senior Facility Notes, respectively, were paid down and $136,222 and $218,928 was paid related to the interest on the Class A-2 Notes and Second Senior Facility Notes, respectively. After the event of default occurred, the Partnership was not able to pay interest to the Class B, C, D, and Notes and capitalized this unpaid interest to the principal outstanding of the Notes. During the year ended December 31, 2008, the Partnership partially paid down Noteholders in accordance with the priority stated in the Pledge and lntercreditor Agreement. ln accordance with the priority stated in Note 7, $0 and $120,539087 ofthe principal of the Senior Facility and Class A-1 Notes, respectively, were paid down and $720,000 and $9,073,004 was paid related to the interest on the Senior Facility and Class A--1 Notes, respectively. 8. Related Party Transactions The Partnership entered into an Investment and Advisory Agreement dated April 18, 2001 (the "Advisory Agreement") with Sankaty Advisors, LLC (the "lnvestment Advisor"}, a Delaware limited liability company and related party of the General Partner. In consideration for a management fee, the Investment Advisor provides advisory, administrative and monitoring l`unetions to the Partnership. The management fee is equal to 1.0% per annum of $700 million (the total of the Notes, Senior Facility and partners' capital) and is payable quarterly in advance until the Senior Facility matures. Thereatter, the management i`ee will be paid quarterly in arrears and will equal 1.0% per annum ol` the Average Total Assets (as defined by the Advisory Agreement] ol` the Partnership during such quarter. The investment Advisor may voltmtarily waive all or a part of its management fee with respect to interests in the Partnership held by members ofthe Bain Capital Group. The Investment Advisor waived all management tees for the year ended December 31, 2009 and will waive fees through the liquidation date ot` the Partnership. The amount ol` fees waived during the year ended December 31, 2008 was $816,941. During the years ended December 31, 2009 and 2008, $631,467 and $515,223, respectively, of the Partnerships expenses were paid by a related party of the General Partner and reimbursed by the Partnership. There was a payable of $0 and $262,838, respectively, for the years ended December 31, 2009 and 2008. Brookside Capital Partners Fund, L.P. ("Brookside") The Partnership held a $5 million interest in Brookside, an entity managed by Brookside Capital Partners, lnc., a related party ofthe General Partner which was redeemed on March 31, 2008. At December 31, 2009, the Partnership recorded a $375,667 realized loss on the sale ot` the investment. As of December 31, 2009 and 2008, the Partnership had a receivable of $1,054,943 and $2,809,029, respectively, from Brookside for a redemption holdback and the value ol` designated investments, which is included in the receivable for investments sold in the Statement ol'Net Assets. 45 Sankaty High Yield Partners L.P. Notes to Financial Statements (In Liquidation) December 31, 2009 and 2008 Race Point CLO, Ltd. ("Race Point") The Partnership has invested in Race Point, a cash flow Collateralized Debt Obligation managed by the Sankaty Advisors, LLC. This entity was established for the purpose of making leveraged investments in high yield securities - both bank loans and corporate bonds -- and commenced operations in November 2001. Race Point's capital structure consists ot` $503 million of various classes of debt and Subordinated Interest. Subordinated Interest is unsecured and subordinated with respect to cash payments to all other debt holders. The Subordinated Interest holders do not control the CDO. The Partnerships investment of $6,000,000 of Race Point Subordinated Interest is rellected in the accompanying Schedule of Investments. During the years ended December 31, 2009 and 2003, the Partnership received income distributions ot` $222,974 and $847,606, respectively. from its investment in Race Point, which represent a retum of the Partnerships investment in Race Point. This amount is included in cost ot` investments in the accompanying Statement of Net Assets. The CDO pays a management fee to the Investment Advisor equal to 0.275% annually of the sum of total par ol` the CDO and cash. The CDO may also pay a subordinated management fee equal to 0.25% annually of the sum of total par ol` the CDO and cash if certain criteria in the CDO are met. Beginning in August ol` 2005, the Partnership is being charged management fees by Race Point. Previously, these fees were waived by Race Point. Race Point II (ILO, Ltd. ["Race Point The Partnership has invested in Race Point II, a cash flow CDO managed by the Sankaty Advisors, l.l.C. This entity was established for the purpose of making leveraged investments in high yield securities - both bank loans and corporate bonds and commenced operations in April 2004. Race Point II's capital structure consists of $550 million of various classes oi` debt and Subordinated Interest. Subordinated Interest is unsecured and subordinated with respect to cash payments to all other debt holders. The Subordinated Interest holders do not control the election ot`the directors. As of December 31, 2009 and 2008, the Partnership held $1,500,000 of Class D- Floating Rate Notes and $6,320,000 of Subordiited Interest. During the years ended December 31, 2009 and 2003, the Partnership received income distributions of $130,358 and $1,266,627, respectively, from its investment in Race Point ll, which are included in dividends and other income inthe accompanying Statements of Operations. During the year ended December 31, 2009 the Partnership received a distribution of 55286,586, which represents a return of the Partnershipfs investment in Race Point ll. This amount is included in cost ot` investments in the accompanying Statement ot` Net Assets. The CDO pays management 1`ees to the Investment Advisor equal to 0.10% annually of the sum of total par ofthe CDO and cash. The CDO also pays subordinated management fees equal to 0.50% annually ol` the sum ot` total par ot` the CDO and cash it`certain criteria in the CDO are met. During the years ended December 3 l, 2009 and 2003, the Partnership received interest payments ol` $l42,975 and $177,898, respectively, from its investment in the Race Point ll Class 1)-1 Floating Rate Notes, which are included in interest income in the accornpanying Statements of Operations. Castle 1-Iill CLO, Ltd. ("Castle Hill Ill") The Partnership has invested in Castle Hill a cash tlow CDO managed by Sankaty Advisors LLC. This entity was established for the purpose of making leveraged investments in high yield securities both bank loans and corporate bonds - and commenced operations in August 2004. Castle llill lIl's capital structure consists of $300 million of various classes ol` debt and 46 Sankaty High Yield Partners L.P. Notes to Financial Statements (In Liquidation) December 31, 2009 and 2008 Subordinated interest. Subordinated Interest is unsecured and subordinated w?ith respect to cash payments to all other debt holders. The Subordinated Interest holders do not control the election ofthe directors. As of December 31, 2009 and 2008, the Partnership held $23,850,000 of Class C--1 Floating Rate Notes and $9,900,000 of Subordinated Interest. During the years ended December 31, 2009 and 2008, the Partnership received income distributions of $313,828 and $2,392,039, from its investment in Castle Hill which are included in dividends and other income in the accompanying Staternents of Operations. The CDO pays management fees to the Investment Advisor equal to 0.10% annually of sum of total par of the CDO and cash. The CDO also pays subordinated management fees equal to 0.55% annually of the sum of total par ofthe CDO and cash if certain criteria in the CDO are met. During the years ended December 31, 2009 and 2008, the Partnership received interest payments of $679,643 and $1,228,299, respectively, which are included in interest income in the accompanying Statements of Operations. Bain Capital Investments Certain other investments included in the accompanying Schedule of Investments have been issued by organizations in which investment funds advised by a related party have made substantial equity investments and may control the organization. At December 31, 2009 and 2008, the aggregate valtic securities was $25,024,400 and $37,247,837 respectively. From time to time the Partnership may purchase or sell investments to other entities advised by the Investment Advisor. A11 such cross trades are executed at a price provided by a third party, where available. lf no third party price is available, the Investment Advisor will purchase or the asset to a third party to determine a price or utilize another third party price approved by the Investment Advisor's Compliance Group. All such cross trades are reviewed by the Investment Advisor"s Compliance Group. During years ended December 31, 2009 and 2008, the Partnership bought and sold investments to other entities advised by the Investment Advisor or its affiliates at fair value for proceeds of $18,834,227 and $42,259,994 respectively, resulting in net realized losses of $6,547,021 and $401,836, respectively. 9. Commitments Certain of the limited partnerships in which the Partnership has invested have subscription agreements that were not fully drawn at December 31, 2009 and 2008. Amounts subject to call totaled $227,800 and $284,750 at December 31, 2009 and 2008, respectively. Certain of the 1*artnership`s investrnents in revolving batik loans included unfunded coinnritrnents. As of December 31, 2009 and 2008, unfunded revolver commitments totaled $1,871,179 and $1,709,024, respectively. ln the normal course of business, the Partnership enters into contracts that contain a variety of representations and warranties and which provide general The Partnerships tnaxintum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Partnership that have not yet occurred. However, based on experience, the General Partner expects the risk ofloss to be remote. 47 Sankaty High Yield Partners L.P. Notes to Financial Statements (In Liquidation) December 31, 2009 and 2008 10. Partners' Capital Accounts and Allocations Operating Income, Operating Expenses, Investment Profits and Investment Losses, subject to certain adjustments, are allocated to the partners at least annually. Operating Income and Operating Expenses are allocated to the General Partner and to the limited partners pro rata according to their respective contributed capital accounts. Operating lnconte and Operating Expenses with respect to each period are allocated to the partners before Investment Profits and Investment Losses. The allocation of Investment Profits and Investment Losses is based upon the relative balance in each partners capital account. The amount and timing of all distributions of cash, securities or other property will be at the sole discretion ofthe General Partner. Realized and unrealized profits and losses on certain securities involving initial public offerings are allocated only to those partners that are not considered restricted persons as delined by the Fittaitcial lndustry Regulatory Authority, Inc. Effective lvlarch l, 2004, the PINRA rules were revised and tltese securities, formerly defined as "l?lot Issues," are new redefined as "New lssucs." 'l`lte new rules allow the Partnership to rely on a "de minimus" exception for those partners who do not participate in New Issues. These partners are allowed New Isstte gains aitd losses at the satne percentage as their beneficial ownership unless the combined beneficial ownership of these partners exceeds l0%, in which case only 10% of the New Issue gains and losses will be allocated. The remaining New Issue gains and losses are allocated to those partners who do participate in New Issues. The accounts of those partners who do not participate in New Issues are credited with interest on their proportionate share ot` the funds utilized to purchase New Issues. There were no New Issues allocated for the years ended December 31, 2000 and 2003. The General Partner is entitled to certain allocations of the Partnership's Net Investment Profits and lnvesttnent Losses ("Carried Interest") after the Limited Partners have achieved a certain Annualized Internal Rate of Return Net Investment Profits and Investment Losses are allocated: Pirst, pro rata to all partners until tlte Limited Partners have achieved an 8% Then, tothe General Partner as Carried Interest, until this cumulative amount credited to the General Partner equals 20% of the Allocated Cumulative Investment Profits ("Cuntulative Profits"); Then, to all partners pro rata until the earlier of the cumulative amount credited to partners equals 80% of the Cumulative Profits or the limited partners have achieved a 25% Then, 80% pro rata to all partners and 20% to the General Partner until the limited partners have achieved a 25% Next, to the General Partner until the cumulative amount credited to the General Partner equals 25% of the Cumulative Profits; Then, to all parttiers pro rata until the earlier of the cumulative atnount credited to partners equals 75% of Cumulative Profits or the limited partners have achieved a 30% Then, 75% pro rata to all partners, and 25% to the General Partner until the litnited partrters have achieved a 30% Next, to General Partner until the cumulative amount credited to the General Partner equals 30% of Cumulative Profits; Lastly, 70% pro rata to all partners, and 30% to the General Partner. As ofthe last business day of each fiscal period in which net loss was initially apportioned to the Limited Partners, itet loss will then be allocated between each Limited Partner and the General Partner so as to reverse any net profits allocated as provided above. The General Partner may waive all or any part of the Carried Interest that it would otherwise be entitled to receive from partners who are members of Bain Capital. or the year ended December 31, 2009, there was $0 of Carried Interest allocated. or the year ended December 31, 2008, $8,574,490 of Carried Interest previously allocated to the General Partner was allocated back to the Limited Partner. 48 1.-.V.-- jgIipl `1 - l,1lIb- l-1?Iglg fQjI