MOODYS.COM

21 DECEMBER 2015

NEWS & ANALYSIS Corporates 2 » Sato Benefits from Investor Balder Gaining Controlling Stake

Infrastructure 4 » Agreement Is Credit Positive for Los Angeles Airport; Credit

Negative for Ontario Airport » Results of British Electricity Capacity Market Auction Are

Disappointing for Generators

Banks 7 » Hancock Raises Its Energy Loan Reserves, a Credit Negative for

It and Other Banks with Energy Concentrations » Brazil's Central Bank Eases Reserve Requirements to Stimulate

Lending, a Credit Negative for Large Banks » New Legislation Allowing Greek Banks to Sell Bad Loans Is

Credit Positive » Skandiabanken's Write Down of Intangibles Signals Lower

Return on Investments, a Credit Negative » Reserve Bank of India Eases Banks' Final Lending Rate

Requirements, a Credit Positive

Insurers 15 » Spending and Tax Bills Have Positive Credit Implications for US

Health Insurers » Guardian's Sale of RS Investments Is Credit Positive

Sovereigns 18 » Project Financing for Mongolia’s Oyo Tolgoi Mine Paves Way

for Trade and Investment, a Credit Positive

US Public Finance 19 » Oklahoma's Revenue Decline Foreshadows Credit-Negative

Budget Stress for Energy States

Securitization 21 » Argentine Central Bank's Elimination of Interest Rate Caps Will

Negatively Affect Securitizations

RATINGS & RESEARCH Rating Changes 22

Last week, we upgraded AMC Networks and Banco Interacciones and downgraded AstraZeneca, Syniverse Holdings, Yum! Brands and Genworth Seguros de Credito a la Vivienda. Additionally, we took various rating actions on Commercial Mortgage Trust 2007-CD4 and Credit Suisse Commercial Mortgage Trust 2006-C3.

Research Highlights 28

Last week, we reported on diamond miners, the Paris climate accord, global oil & gas, UK and French office real estate, the US fed funds rate hike, UK cinema operators, Abengoa, Argentine agriculture, US beef packers and processors, North American railroads, Russian fertilizer producers, British electricity generators, global investment banks, European, Korean, and Latin American banks; EMEA insurers, Spain, El Salvador, the ASEAN-5 and India, Sub-Saharan African sovereigns, Argentine sub-sovereigns, Querétaro (Mexico), Serbian municipalities, California, EMEA CMBS, Japanese equipment lease ABS, US RMBS, Italian RMBS and SME ABS, US FFELP ABS, US commercial and esoteric ABS, FirstKey Lending’s FKL 2015-SFR1 transaction, Latin American securitizations, Argentine securitizations and Italian ABS, among other reports.

RECENTLY IN CREDIT OUTLOOK

» Articles in Last Thursday’s Credit Outlook 37 » Go to Last Thursday’s Credit Outlook

Moody’s Credit Outlook is on vacation until 11 January.

We wish you happy holidays and a great 2016.

NEWS & ANALYSIS Credit implications of current events

2 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Corporates

Sato Benefits from Investor Balder Gaining Controlling Stake Last Wednesday, Fastighets AB Balder (unrated) announced that it had agreed to acquire an additional 22.9% stake in Sato Oyj (Baa3 stable) from VARMA Mutual Pension Insurance Company for €235 million (SEK2.2 billion), raising Balder’s stake to 53.3% of Sato’s shares and voting rights. The acquisition is credit positive for Sato because the company will be part of a larger and more diversified group, both geographically and in terms of asset classes, with lower leverage metrics and similar financial policies.

Sato’s liquidity will remain solid given that the transaction will not trigger change-in-control clauses in most of its financing arrangements, including the outstanding euro-denominated notes maturing in 2020. Although Balder will consolidate Sato in its accounts starting at the end of this year, Sato will remain a separate legal entity and will continue to publish separate financial accounts. Sato’s Baa3 rating and stable outlook remain unchanged at this stage.

Balder is a Swedish-listed real estate company that owns a property portfolio valued at SEK39.9 billion (€4.3 billion), based on the company’s appraisals, and generates rental income of around SEK2.8 billion (€301 million). Balder’s rental income shows a considerable diversification of risks as regards tenants, sectors and locations. The portfolio includes a mix of residential (35%), office (29%), retail (13%), project (6%) and other properties (17%). Balder’s portfolio comprises 479 properties, including 14,380 apartments located in the central, peripheral and out-of-town parts of Sweden’s main metropolitan areas (32% in Stockholm). The economic occupancy rate was 95% at the end of September 2015.

Pro forma for the consolidation of Sato, Balder’s property portfolio will be valued at approximately SEK67 billion (€7.2 billion). Residential properties will constitute around 65% of the value of the properties of the combined group. By comparison, Sato is virtually entirely focused on residential properties in Finland.

Balder’s leases have an average lease term of 6.4 years and its 10 largest leases account for 10.2% of total rental income. No individual lease accounts for more than 1.6% total rental income and no individual customer accounts for more than 4.9% of total rental income.

Balder owns a 50% stake in a number of companies (combined, 55 properties with total assets of SEK4.3 billion, or €462 million) where Balder handles the management and administration. Balder also has a 44.1% stake in Collector AB (unrated) and a 31% interest in Tornet Bostadsproduktion (unrated).

We expect that the business profile of the combined company will improve over Sato’s standalone business profile given the combined company’s size and diversification, both geographically and in terms of asset classes, despite a reduced focus on the more stable residential segment. The company’s exposure to the stable residential markets in Finland and Sweden (65% of gross asset value) remains substantial, albeit lower than Sato’s alone.

Sweden’s residential property market is highly regulated and structurally undersupplied, and the outlook for Sweden’s commercial property sector remains strong, more than offsetting weakness in Finland and Denmark where Balder has a presence. Geographically, the majority of the combined company’s assets will be in the major Swedish metropolitan areas of Stockholm (20%) and Gothenburg/West (19%) and in Helsinki, Finland (33%).

Balder has announced a SEK1.7 billion capital increase to partially finance the acquisition of Sato’s shares. Pro forma for the capital increase and based on reported figures, we estimate that Balder will have a loan-to-value ratio (LTV) of 49% (50.9% at the end of September 2015), which compares favourably with Sato’s

Roberto Pozzi Vice President - Senior Credit Officer +44.20.7772.1030 roberto.pozzi@moodys.com

Anastasija Vovk Associate Analyst +44.20.7772.1536 anastasija.vovk@moodys.com

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

NEWS & ANALYSIS Credit implications of current events

3 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

56% as of the same date. Balder’s reported LTV is based on the company secured debt only and excludes unsecured debt of around SEK3.7 billion and assets the company does not consolidate.

If we include this additional debt but not the assets that Balder does not consolidate, the combined company’s pro forma LTV would be around 57%, broadly in line with Sato’s current LTV. The value of Balder’s real estate portfolio is based on internal valuations although the company regularly allows parts of its portfolio to be appraised by external parties. Historically, deviations between external and internal valuations have been insignificant, according to the company. Balder’s reported interest coverage was 4.9x in the first nine months of 2015.

NEWS & ANALYSIS Credit implications of current events

4 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Infrastructure

Agreement Is Credit Positive for Los Angeles Airport; Credit Negative for Ontario Airport Last week, California’s City of Los Angeles (Aa2 stable) and the City of Ontario (unrated) reached an agreement to transfer ownership of the Ontario International Airport (ONT, Baa1 stable) to the City of Ontario. The settlement, which was approved by Los Angeles City Council on Wednesday and by the Ontario International Airport Authority (OIAA) on Thursday, ends several legal filings by the City of Ontario and initiates a process to put the Ontario airport under the control of the new OIAA in exchange for a payment to the Los Angeles International Airport. The agreement, which must still be approved by the Federal Aviation Administration, initiates a process, which we expect will take one to two years, that will allow the two parties to move to financial close.

The transfer weakens the Ontario airport’s credit, but strengthens the Los Angeles Department of Airports-LA International Airport Enterprise (LAX, Aa3 positive).

The settlement agreement will increase ONT’s liabilities approximately 190% and decrease its cash approximately 25%. It will also improve the Moody’s-adjusted calculation of LAX’s cash and discretionary reserves 11% once financial close is reached. The final agreement has not been disclosed, but a preliminary agreement released in August required OIAA to pay LAX a $190 million: $70 million at financial closing ($40 million from ONT and $30 million from the City of Ontario), an additional $50 million within five years and $70 million within 10 years. ONT will also be required to issue bonds to retire the airport’s $63 million of outstanding bonds that were issued by the Los Angeles Department of Airports.

If the transaction reaches financial close, LAX will benefit because its management will be able focus on a single airport and not have to devote time and resources to the legal claims brought by the City of Ontario. ONT, which Los Angeles has owned since 1985 and operated since 1967, will now be operated by the OIAA, a new organization formed by a joint-powers agreement between Ontario and San Bernardino County. OIAA has fewer resources than the City of Los Angeles Department of Airports and the airport’s ownership transition presents imposing management challenges. ONT will also need to manage several provisions in the preliminary agreement that protect the approximately 180 City of Los Angeles employees that work at the airport. We do not believe the ownership transfer will significantly affect passenger growth at either airport.

Kurt Krummenacker Vice President - Senior Credit Officer +1.212.553.7207 kurt.krummenacker@moodys.com

NEWS & ANALYSIS Credit implications of current events

5 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Results of British Electricity Capacity Market Auction Are Disappointing for Generators Last Friday, National Grid announced the results of Britain’s second electricity Capacity Market Auction, in which generators and electricity importers offered to make supply available between October 2019 and September 2020 (the 2019-20 demand year) in exchange for a fixed payment. Companies that won contracts will receive £18 per kilowatt (kW) of eligible capacity, which is 9.3% lower than the clearing price in last year’s auction. This will mean lower capacity revenues for many generators in 2019-20 compared to 2018-19.

The credit-negative auction result suggests that the electricity market remains well supplied, despite capacity closures in the past year and media reports that Britain has insufficient spare capacity, reducing the prospect for a near-term recovery in generation spreads.

The total value of contracts awarded for 2019-20 is £944 million, down only 3.5% from 2018-19, as higher volumes offset the lower price (see exhibit). However, the effect on most of the incumbent large utilities is negative because small diesel generators will receive an increasing proportion of the revenues. For example, SSE plc (A3 negative) won contracts for 3.2 gigawatts (GW) of wholly owned capacity in the auction, down from 4.4 GW in last year’s auction. The combination of lower price and contracted capacity will reduce SSE’s capacity revenues by 35% in 2019-20 compared to 2018-19. Despite the reduction, capacity payments will still boost SSE’s FFO by around 3% in 2019-20 compared to March 2015, before capacity payments began.

Value of Britain’s Capacity Contracts Awarded

Delivery Year

2018-19 2019-20

Capacity Awarded 2015 Auction, Gigawatts 0 46.4

2015 Clearing Price (£/kW, 2014-15 average prices) £18.00 £18.00

Capacity Awarded in 2014 Auction, Gigawatts 49.3 5.5

2014 Clearing Price (£/kW, inflated to 2014-15 average prices) £19.85 £19.85

Total Capacity Contracted, Gigawatts 49.3 51.9

2019-20 vs 2018-19 +5.3%

Total Capacity Payment, £ Millions £977.8 £944.0

2019-20 vs 2018-19 -3.5%

Sources: National Grid and Moody’s Investors Service calculations

The capacity auction provides further evidence that the British electricity market remains adequately supplied until at least 2020, which will limit the scope for generation margins to improve from current depressed levels. Although a number of large plants have decided to close in the past year, with the result that domestic generating capacity offered for the 2019-20 delivery year was around 7% lower than for 2018-19, the auction easily procured sufficient capacity to cover expected peak demand at prices 9.3% below the previous year’s auction. In part this was due to the inclusion of interconnectors, transmission lines that import low-cost power from Europe, which had not been allowed to participate in last year’s auction. If the treatment of interconnectors had not been changed, we estimate that the clearing price would have been closer to £25/kW.

Graham Taylor Vice President - Senior Analyst +44.20.7772.5206 graham.taylor@moodys.com

NEWS & ANALYSIS Credit implications of current events

6 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

The capacity market was developed to encourage the construction of new generating capacity, as well as to support existing plants to remain on the system despite weak commodity prices and low load factors. In practice, however, 95% of contracts were awarded to existing plants and interconnectors. We expect that the UK government will review the design of the market in advance of the 2016 auction in order to encourage construction of gas-fired generation on a larger scale.

NEWS & ANALYSIS Credit implications of current events

7 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Banks

Hancock Raises Its Energy Loan Reserves, a Credit Negative for It and Other Banks with Energy Concentrations On 18 December, Hancock Holding Company (Baa1 negative) announced that it will substantially increase its energy portfolio’s loan loss allowance in the fourth quarter. The increased allowance highlights asset quality deterioration in this portfolio and is credit negative because it substantially reduces fourth-quarter earnings. Additionally, it implies increased provisions for other energy-exposed banks.

Hancock will increase its allowance for loan losses in its energy portfolio to $77 million from $35 million at 30 September 2015 to cover what it expects will be $50-75 million of energy charge-offs in this energy cycle. We estimate that Hancock will need to provision $46 million in the fourth quarter, assuming no reserve release or build related to its allowance for other loans. This would result in an approximately 75% drop in Hancock’s quarterly earnings.

Hancock is one of five US banks we rate that have sizeable direct energy loan exposures relative to their tangible common equity (TCE): BOK Financial Corporation (A2 negative), Cullen/Frost Bankers, Inc. (A2 negative), Amarillo National Bank (A1 negative, a31) and Texas Capital Bancshares, Inc. (Baa3 negative). These banks’ concentration risk and the persistently low oil and gas prices increase the likelihood of material credit losses. Furthermore, the banks’ other loan portfolios are concentrated in regional economies that are heavily dependent on the energy sector for business activity and employment. Consequently, we changed their rating outlooks to negative from stable on 9 October 2015.

As shown in Exhibit 1, these four banks’ energy portfolios vary in terms of sector exposure. Loans to upstream exploration and production (E&P) companies make up the bulk of energy exposures for BOK, Cullen/Frost and Texas Capital. E&P loans are typically reserve-based, with higher recoveries than other types of corporate debt because of their specialized structure, regular reassessment and the well-developed secondary market for oil and gas reserves. For Hancock, the majority of its portfolio is to support services companies, which, in a downturn, face more intense cost-cutting pressure and downward pressure in collateral values (e.g., drilling equipment). While Hancock’s support services portfolio is favorably diversified between drilling support, non-drilling support and transportation, the support services sector is experiencing more deterioration overall. This is evident in Hancock’s sector allocations of a 7.2% allowance for support services loans compared to 2.2% for E&P and 0.6% for midstream companies.

1 The ratings shown are Amarillo’s deposit rating and baseline credit assessment.

Megan Snyder Analyst +1.212.553.4986 megan.snyder@moodys.com

NEWS & ANALYSIS Credit implications of current events

8 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

EXHIBIT 1

Four US Banks with Energy Loans by Sub-Sector as a Percent of Tangible Common Equity as of 30 September 2015

Sources: Company filings

Using Hancock’s allowance to loans ratios by energy sector, we estimated the incremental need for energy provisions in the fourth quarter, as shown in Exhibit 2. For BOK to match Hancock’s reserve ratios, it would need an incremental $16 million provision for its energy portfolio in the fourth quarter, approximately 15% of quarterly pre-provision income (PPI); Cullen/Frost would need to provision $27 million, approximately 30% of quarterly PPI. Texas Capital does not disclose its existing allowance allocated for energy. Assuming Hancock’s reserve ratios, we estimate Texas Capital would need an allowance of $30 million for its energy portfolio. Our estimates do not include any energy loan charge-offs or recoveries in the fourth quarter, nor reserve release or build for non-energy related portfolios. And, while we differentiated the reserve ratios by energy sector, the portfolio attributes for each bank may differ and require different reserve ratios. Nonetheless, we expect higher provisions for banks’ energy portfolios.

EXHIBIT 2

Estimated Fourth-Quarter 2015 Provisions for Energy Loan Portfolios, $ Millions

Source: Moody’s Investors Service estimates

Upstream, 82%

Upstream, 34%

Upstream, 67%Upstream, 56%

Support Services, 11%

Support Services, 54%

Support Services, 18%

Support Services, 11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

BOK (A2 negative) Hancock (Baa1 negative) Cullen/Frost (A2 negative) Texas Capital (Baa3 negative)

Upstream Midstream Downstream Support Services Other Energy Related Loans

99% 94% 93%

78%

$58

$35$26

$16

$46

$27$30

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

BOK (A2 negative) Hancock (Baa1 negative) Cullen/Frost (A2 negative) Texas Capital (Baa3 negative)

$ M

illio

ns

Exisiting Allowance Estimated 4Q Provision for Energy Loans Estimated Allowance

NEWS & ANALYSIS Credit implications of current events

9 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Brazil’s Central Bank Eases Reserve Requirements to Stimulate Lending, a Credit Negative for Large Banks Last Wednesday, the Brazilian Central Bank announced that it would relax certain reserve requirements on savings deposits to encourage banks to provide financing for infrastructure projects. The looser reserve requirement rules are credit negative for the largest banks in the system because it will induce them make more long-term loans at a time when asset risks are likely to remain high because of the ongoing economic recession in Brazil (Baa3 review for downgrade).

Specifically, the central bank said it would extend a deadline to repay reserves that had been released in May, and would allow banks to allocate an additional BRL3 billion ($750 million) in reserves, provided that the resources are used to provide infrastructure finance. Of the BRL22 billion ($5.5 billion) that were released in May, roughly BRL10 billion ($2.5 billion) remain unused, and banks will now have until 2019 to use those reserves before they have to be replaced.

Public banks including Caixa Economica Federal (Baa3/Baa3 review for downgrade, ba32) and Banco do Brasil S.A. (Baa3/(P)Baa3 review for downgrade, ba1) will be most pressured to increase lending as a result of the measures because they control 58% of the savings deposits in the system, which means they will receive a significant amount of the released reserves.

Although liquidity is not a constraint on banks’ loan originations now, their profitability has been challenged by lower business flows and high credit costs. While making infrastructure loans using these low-cost resources may be appealing because it can improve earnings, it will also expose them to increased asset quality risks. If these funds are not allocated, they will remain at the central bank with remuneration.

At the same time, the regulator also announced that banks can increase deductions from their mandatory reserves on demand deposits to BRL70 million from BRL44 million. The increased deductions will release about BRL1 billion in resources without restrictions, which will help shore up liquidity at small and medium-sized banks, enhancing these lenders’ cash position during periods of declining business volumes and lower profitability. Small and medium-sized banks will likely invest the funds in government bonds, which currently yield 14%, to help boost their performance.

The new rules also released banks from setting aside reserves related to time deposits issued to Brazil’s deposit insurance fund, Fundo Garantidor de Credito (FGC). Previously, banks were required to set aside reserves equal to 25% of time deposits received from the FGC. This measure will support liquidity at Banco BTG Pactual S.A. (Ba2/(P)Ba2 review for downgrade, ba2), which recently received BRL6 billion in liquidity assistance from the FGC that would have required the bank to set aside BRL1.5 billion in reserves.

2 The bank ratings shown in this report are the bank’s deposit rating, senior unsecured rating and baseline credit assessment.

Ceres Lisboa Senior Vice President +55.11.3043.7317 ceres.lisboa@moodys.com

NEWS & ANALYSIS Credit implications of current events

10 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

New Legislation Allowing Greek Banks to Sell Bad Loans Is Credit Positive Last Tuesday, the Greek parliament approved new legislation, effective 1 January 2016, that allows banks to sell their nonperforming loans (NPLs). We expect banks to take advantage of the new law to gradually reduce NPLs, which comprised around 36% of gross loans as of September 2015, and which remain one of the main challenges to restoring their solvency following their recent recapitalisation. We also believe that it will take around a year for the development of a secondary NPL market because potential buyers would prefer to see the implementation and effectiveness of the laws before they invest.

Banks were able to sell NPLs in the past, although the legislative framework was inadequate in matters related to the servicing of the loan, whereas the revised detailed regulatory and institutional framework clarifies such issues. Under the new law, Greek banks will be able to sell large corporate NPLs and housing loans not linked to the borrower’s primary residence. We estimate that around 65% of the roughly €85 billion of total NPLs are eligible for sale under the new legislation. The sale of NPLs can benefit banks directly by unlocking capital to support their credit quality, and indirectly by diminishing the time and resources necessary to manage the bad loans.

Based on the government’s ongoing negotiations with its official lenders, we expect the roughly €30 billion of remaining NPLs, which are composed of loans to small businesses and freelancers, mortgage loans for primary residences, consumer loans and loans carrying Greek state guarantees, to be treated under separate legislation by mid-February next year. We expect the government to make it harder for banks to sell such loans, given the conditional safety net it has provided to these classes of borrowers in recent years. Around 43% of Greek banks’ NPL portfolio is composed of consumer loans and mortgages (see exhibit below), although not all mortgage loans finance a primary residence.

Greek Banks’ Nonperforming Loans by Segment, September 2015

Sources: Banks’ Investors Presentations and Moody’s Investors Service

Greek banks have increased their loan-loss provisions in the past few years to around 66% of NPLs as of September 2015, from around 49% in 2013. The European Central Bank’s provisioning requirements under the asset quality review of its comprehensive assessment of Greek banks in 2014 and 2015 drove the increases. At banks where the provisioning coverage is even higher than the average of 66%, selling NPLs at 40-50 cents to the euro could even generate accounting profits. However, eligible-for-sale NPLs also contain a substantial amount of non-viable entities and loans that if sold could generate additional losses for the banks.

The success of the new legislation will depend on investors’ appetite and asset management funds’ willingness to invest in Greek banks’ NPLs, which we believe is contingent on political stability in the country. In addition to the NPL legislation, the Greek parliament significantly amended the foreclosure law

Business57%

Mortgage27%

Consumer16%

Nondas Nicolaides Vice President - Senior Credit Officer +357.25.693.006 nondas.nicolaides@moodys.com

Stelios Kyprou Associate Analyst +357.25.693.002 stelios.kyprou@moodys.com

NEWS & ANALYSIS Credit implications of current events

11 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

last month, aiming to speed up foreclosures and increase banks’ ability to liquidate property held as collateral against NPLs. Faster foreclosures could discourage strategic defaults, which will help Greek banks gradually reduce the high level of NPLs on their balance sheets.

Although the foreclosure law was drafted to help banks manage their NPLs while protecting only specific classes of borrowers, foreign investors interested in buying Greek NPLs will likely await successful implementation of the law and gauge its effectiveness before they make any investment. In addition, according to Bank of Greece residential property data, the decline in nominal apartment prices in the first three quarters of 2015 was 5%, 7.5% in 2014 and 41% since September 2008, which negatively affects the application of the foreclosure law owing to the risk of further price declines from mass foreclosures.

NEWS & ANALYSIS Credit implications of current events

12 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Skandiabanken’s Write Down of Intangibles Signals Lower Return on Investments, a Credit Negative On 17 December, Skandiabanken AB (A2 Negative, baa13) announced that it will write down around 60% of its intangible assets, or SEK246 million, related to an extensive information technology (IT) renewal. The write down signals lower expected returns on the investments the bank made on its new IT and digital banking platform. Skandiabanken continues to grapple with weak efficiency and this write down indicates further delay in remedying its challenges, a credit negative.

The write down of the intangibles highlights Skandiabanken’s challenges with its IT renewal strategy and pressures the bank to deliver on cost savings in the coming years. Skandiabanken’s Swedish business, which divested its Norwegian subsidiary in October, is adversely affected by structural cost inefficiencies, as highlighted by a cost-to-income ratio of around 80%-100% in the past decade (104% at the end of September 2015). In 2013, Skandiabanken initiated investment in an ambitious IT project to address these issues, increasing intangible assets to SEK415 million at the end of September 2015 from zero at year-end 2012. The IT project was completed in 2015 and the value of the intangible assets reflects the bank’s expectation that the new IT platform would generate cost savings and other financial benefits.

However, a recent impairment test of the bank’s intangible assets indicated that their value was overstated. The bank tests the intangibles for impairments through a discounted cash flow model, driven by a five-year business forecast (including expected lending volumes and cost savings), growth rates beyond the five-year horizon, and a discount rate. At year-end 2014, the bank’s expected growth rate beyond the five-year horizon was 2% and the discount rate 10.6%. We expect Skandiabanken in its recent test revised down its growth estimates because of lower cost savings from IT investments, thus reducing the value of intangibles. Our current negative outlook on Skandiabanken’s ratings specifically reflects the challenges the bank faces, taking into account its track record of weak efficiency leading to low, at times negative, profitability (see exhibit).

Skandiabanken's Low Return on Equity and High Cost to Income Ratio for Its Swedish Business

Note: Return on Equity for 2012 excludes SEK81 million net income from discontinued operations. Source: Skandiabanken AB

We expect the write down will reduce annual depreciation by nearly half, providing a minor improvement to future net income. Based on the last 12 months, we estimate that the cost to income ratio would have improved only slightly to 102%-103% from 105%, including reduced depreciation. Moreover, the write down will decrease Skandiabanken’s tax expense for 2015 by up to SEK70 million (based on the effective tax

3 The ratings shown are the bank’s deposit rating and baseline credit assessment.

0%

-1%

2% 3% 5%0%

-1%-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

2009 2010 2011 2012 2013 2014 Q3 2015

ROE from Continued Operations Cost/Income

Aleksander Henskjold Associate Analyst +44.20.7772.1954 aleksander.henskjold@moodys.com

Giovanni Fontana Vice President - Senior Analyst +44.20.7772.1475 giovanni.fontana@moodys.com

NEWS & ANALYSIS Credit implications of current events

13 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

rate from the last 12 months). However, we expect that the limited positive effects on net income will be insufficient to bring the bank’s efficiency much nearer to peers, because we expect Skandiabanken’s lower profitability to more than offset them.

The write down of intangible assets has no direct effect on Skandiabanken’s capitalization because intangibles are excluded from regulatory capital calculations. Nevertheless, the write down will reduce the bank’s equity-to-total-assets ratio to 6.5% from 6.8%, based on 30 September reporting.

In October 2015, Skandiabanken completed the demerger of its profitable Norwegian branch to focus on its core Swedish market, after which, the Norwegian business was sold through an IPO. For the first nine months of 2015, income before tax was SEK392 million for the Norwegian business, while the Swedish operations reported a SEK25 million pre-tax loss.

NEWS & ANALYSIS Credit implications of current events

14 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Reserve Bank of India Eases Banks’ Final Lending Rate Requirements, a Credit Positive On 17 December, the Reserve Bank of India (RBI) finalised guidelines for banks’ calculation of lending rates. Compared to draft guidelines released in September, the new calculation methodology applies only to new loans after 1 April 2016 instead of all existing loans and banks will have a tenor-based benchmark instead of a single base rate. The new guidelines will reduce pressure on the banks’ net interest margins (NIMs), a credit positive.

Under the finalised guidelines, banks will gradually adopt the marginal cost of funds lending rate (MCLR) to price their loans. The components of MCLR are the marginal cost of funds, negative carry on the cash reserve ratio,4 operating costs and tenor premium.

Indian banks currently set their base rates on either their average cost of funds, or marginal cost of funds. However, because the marginal cost of funds would result in a lower cost of funds amid declining policy rates, banks have not used it. The RBI lowered policy rates by 125 basis points year-to-date while banks have reduced their base rates much less. The RBI expects the shift towards the MCLR calculation to result in lower lending rates for borrowers.

The MCLR applies only to new loans after 1 April 2016, instead of all existing loans as in the draft. MCLR will be a tenor-based benchmark instead of a single rate. This allows banks to more efficiently price loans at different tenors based on different MCLRs, according to their funding composition and strategies. To illustrate, if a bank intends to fund a five-year loan based on its one-year deposits base, by pricing it off the one-year MCLR, there would be lower mismatch between yields and the cost of the bank’s intended funding base if policy rates were to change.

For new loans approved from 1 April, banks will also be allowed to specify interest reset dates, which are linked either to the date the loan was approved or the date of MCLR review. The interval between rate resets can be up to one year. This provides an additional layer of flexibility for banks to align their overall portfolio lending rates to their overall portfolio deposit costs.

Existing loans will continue to be priced off of a base rate until they are repaid or renewed, giving banks ample time to transition to the new methodology without affecting their NIMs. Under the existing base-rate framework, banks can use any appropriate benchmark to determine their cost of funds, including the average cost of funds method.

In the draft guidelines released in September, all floating-rate loans would have been re-priced at the marginal rate. The repricing would have negatively affected banks’ NIMs in a declining rate environment because only new deposits would have benefitted from lower rates while the entire existing floating-rate book would have been repriced downward.

4 The ratio is the minimum percentage of customers’ total deposits that Indian banks must hold as reserves either in cash or as

deposits with RBI; it is currently 4%.

Christopher Han Associate Analyst +65.6311.2611 christopher.han@moodys.com

Srikanth Vadlamani Vice President - Senior Credit Officer +65.6398.8336 srikanth.vadlamani@moodys.com

NEWS & ANALYSIS Credit implications of current events

15 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Insurers

Spending and Tax Bills Have Positive Credit Implications for US Health Insurers Last Friday, the US Congress passed and President Barack Obama signed two bills that include modifications to three major provisions of the Affordable Care Act (ACA). Two of the provisions, a one-year suspension of the Health Insurance Industry Tax in 2017 and a two-year delay in the so-called Cadillac tax (the planned fee to be assessed on high-cost health-benefit plans employers provide to their employees) are credit positive for insurers because they remove taxes that make their products more expensive.

Somewhat offsetting this however is a continuation of a provision that restricts the government’s ability to make payments to insurers under the risk corridor program. This has credit-negative implications because it will result in the loss of reimbursements insurers were due as a result of losses incurred from ACA polices sold in both 2014 and 2015.

The Health Insurance Industry Tax (HIIT) began in 2014 and is assessed on health insurers. The total tax assessed on the industry in 2014 was $8 billion and is not deductible for income tax purposes. The tax is allocated to health insurers based on each health insurer’s market share of net premiums. The amount paid by the larger health insurers in 2014 is shown in the exhibit below.

2014 US Health Insurance Industry Tax by Insurer

Senior Debt Rating $ Millions

UnitedHealth Group Inc. A3, negative $1,300

Anthem, Inc. Baa2 review for downgrade $893

Aetna Inc. Baa1 review for downgrade $605

Humana Inc. Baa3 review for upgrade $562

Cigna Corporation Baa1 review for downgrade $238

Health Net, Inc. Ba2 review for downgrade $141

WellCare Health Plans, Inc. Ba2 stable $138

Centene Corporation Ba2 review for downgrade $126

Sources: Company filings

The total HIIT increased to $11.3 billion in 2015 and 2016, and is scheduled to increase to $13.9 billion in 2017. Insurers have paid for this tax by building the cost into their premiums. Therefore the suspension of the tax in 2017 is not a net windfall for insurers but should make their products, both public exchange and non-exchange insurance plans, more attractive and affordable.

Starting in 2018 the ACA calls for a 40% tax on higher-end or Cadillac health plans whose value is more than $10,200 for individual coverage and $27,500 for a family. The tax would effectively discourage companies from offering high-cost health plans to employees. A survey by The International Foundation of Employee Benefit found that 60% of employers will incur the Cadillac tax unless they make changes to their insurance plans. The loss of revenue to insurers as employers either reduce or eliminate health insurance for their employees would be a credit negative for insurers. The two-year suspension of this tax provides insurers a reprieve.

Steve Zaharuk Senior Vice President +1.212.553.1634 stephen.zaharuk@moodys.com

NEWS & ANALYSIS Credit implications of current events

16 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Another aspect of these taxes’ suspension is the likelihood that the suspension will be continued indefinitely because future congresses will find it difficult to reinstate taxes that increase premiums or possibly cause employees to lose their employer-provided healthcare benefits. The risk-corridor program was established as a temporary program in the ACA for 2014-16 to stabilize premiums by having insurers share gains and losses on qualified plans sold under the ACA. The program mandates insurers whose premiums exceed claims costs by a certain amount to make payments to the government. Conversely, the federal government is supposed to reimburse insurers if their premiums fall short by a certain amount.

Health insurers’ 2014 claims for risk corridor funds totaled $2.87 billion, while payments into the fund only amounted to $362 million. A provision in the 2014 budget bill prevented the Centers for Medicare & Medicaid Services (CMS) from using other funds to make up the deficit, consequently allowing them to pay only 12.6% of the amount owed to insurers. The payment shortfall has been ruinous to some insurers, especially the start-up cooperatives, forcing many of them to go out of business. The continuation of this provision in the 2015 budget bill prevents CMS from using other funds to make up not only the 2014 shortfall but any deficit that arises from the 2015 plan year. While the larger national health insurers will take a financial hit, their size and strong capital positions allow them to absorb these losses, but it will likely result in other smaller insurers closing their doors.

NEWS & ANALYSIS Credit implications of current events

17 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Guardian’s Sale of RS Investments Is Credit Positive On Friday, RS Investments (unrated), a wholly owned mutual fund business of Guardian Life Insurance Company of America (financial strength Aa2 stable), and Victory Capital (unrated) announced that Victory will acquire RS Investments from Guardian for an undisclosed amount. The sale of RS Investments, a mutual fund company specializing in US and global/international equities, is credit positive for Guardian because it will benefit from the divestiture of a non-core operation that is not at scale.

RS Investments operates in a sector separate from its life insurance parent and had roughly $19 billion in assets under management as of 30 September 2015. The transaction is scheduled to close in the second quarter of 2016, pending regulatory approvals.

This is Guardian’s second divestiture in 2015 of non-core operations. The first one, eMoney Advisor (unrated), was sold to FMR LLC (A2 stable) in the first quarter of 2015 for $267 million, and the company recognized a $150 million gain on the sale. The prolonged low interest rate environment has prompted insurance companies like Guardian to divest lower-returning businesses that are unlikely to achieve the scale needed to produce a competitive return on capital over the next few years. RS Investments’ contribution to the total pre-tax operating earnings of Guardian was less than 5% through third- quarter 2015.

Guardian will likely use the proceeds from its recent divestitures and excess surplus from its strong capital position (company action level risk-based capital ratio of 527% at year-end 2014) to grow its other businesses, including its 401(k) business, which also has insufficient scale to be competitive, but is a core strategic business line for the company. Guardian will also likely try to further enhance its currently strong market position in group non-medical.

Guardian, a mutual life insurer, is one of the top five writers of participating whole life insurance policies, which supports its Aa2 financial strength rating, as well as a leading provider of group non-medical and individual disability insurance. RS Investments, a mutual fund company, offers investment management solutions for institutional and individual investors and the advisors who serve them.

Manoj Jethani Assistant Vice President - Analyst +1.212.553.1048 manoj.jethani@moodys.com

NEWS & ANALYSIS Credit implications of current events

18 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Sovereigns

Project Financing for Mongolia’s Oyo Tolgoi Mine Paves Way for Trade and Investment, a Credit Positive Last Monday, Turquoise Hill Resources (unrated), which has a majority stake in Mongolia’s (B2 negative) largest copper and gold mine, Oyu Tolgoi (unrated), secured a $4.4 billion project finance facility. The financing agreement clears a major hurdle to the development of the underground portion of the mine. This will pave the way for an increase in copper and gold production over the next seven years, boosting export growth and supporting foreign reserves, all of which will improve Mongolia’s capacity to repay external debt maturing over the short-term.

The Mongolian government and Rio Tinto plc (A3 stable), which has a controlling stake in the mine, agreed in May to develop the underground portion, which accounts for four-fifths of the mine’s total value, finally turning the page on three years of dispute. Still, falling commodity prices and a lack of clarity on funding raised questions about the commercial viability of the project. Monday’s financing agreement dispels these concerns and clears the way to start development, due in mid-2016.

After payment of fees and taxes, Oyu Tolgoi pegs net proceeds from the financing facility at $4.1 billion. One of the largest project financing agreements in the mining industry, a syndicate of international financial institutions and export credit agencies are providing funding, representing the governments of Australia, Canada and the US, along with 15 commercial banks. The all-in interest rate is a six percentage point spread over Libor. In addition to this facility, the syndicate has agreed to a full debt capability of $6.0 billion, providing the option of an extra $1.6 billion of supplementary debt if required. The next step is for Oyu Tolgoi to complete a feasibility study and secure necessary permits. We expect these will be forthcoming.

Development of the underground portion of the mine will support Mongolia’s external resilience, but improvements will likely be gradual. We expect the project to generate an increase in net foreign direct investment inflows to approximately $300 million over the next year, up from the $77 million we project for 2015. Foreign investment should continue to increase until the anticipated completion date in 2021, while the ramp-up in copper and gold production will boost export growth and foreign reserves.

Given that these benefits will only occur over time, and in view of Mongolia’s large debt repayment needs (especially in 2017, 2018 and 2022) external risks remain elevated. As such, Mongolia will continue to depend greatly on multilateral and bilateral support. We project the sovereign’s External Vulnerability Indicator, which measures the ratio of external debt payments in the next 12 months to current reserves, to fall to 244% in 2017 from 278% in 2016, still significantly above the 100% threshold that indicates fragility in the balance of payments.

Anushka Shah Assistant Vice President - Analyst +65.6398.3710 anushka.shah@moodys.com

NEWS & ANALYSIS Credit implications of current events

19 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

US Public Finance

Oklahoma’s Revenue Decline Foreshadows Credit-Negative Budget Stress for Energy States Last Tuesday, the state of Oklahoma (Aa2 stable) revised downward its revenue projections for the fiscal year ending 30 June 2016 by $444 million, or 8%, and projected a $900 million, or 13%, decline in fiscal 2017 as a result of the deepening energy glut. Continued low prices and production are credit negative for Oklahoma and other energy-producing states because they will stress their budgets.

The projected revenue shortfall comes after a 12% shortfall in total tax collections in November compared with last year. The state considers a shortfall of more than 5% versus the forecast to be a “revenue failure.” The state expects total tax collections for full fiscal 2016 to miss its forecast by 7.7%, which will lead to expenditure cuts of 2%-4% starting as early as next month. The revenue failure also legally permits the legislature, which reconvenes in February, to access up to $144 million of the state’s $385 million rainy- day fund.

Oklahoma’s bigger challenge will be to address its sizable structural budget gap for the fiscal year beginning 1 July. To close it, the state is likely to use at least some of its reserves, drawing down the financial cushion it built up during the energy boom.

As Exhibit 1 shows, energy prices have declined rapidly. All states with large energy sectors will be affected by the oversupply of oil and natural gas in the US, but differ in their direct reliance on oil revenues and reserve levels (see Exhibit 2). Alaska’s (Aaa negative) substantial cushion leaves it well positioned, despite a large share of production taxes in its budget. This contrasts with Oklahoma and Louisiana (Aa2 negative), which both have more diversified tax structures and economies but also have lower reserves that leave them with less room to address growing budget gaps. New Mexico (Aaa stable), North Dakota (Aa1 stable) and Texas (Aaa stable) are more insulated from energy price declines owing to their economic diversification, less reliance on oil revenues in their general fund budgets and larger reserves.

EXHIBIT 1

Actual and Moody’s Forecast Oil and Natural Gas Prices On 15 December, we revised down our oil and natural gas price forecasts.

Source: Moody’s Investors Service

$0

$1

$2

$3

$4

$5

$0

$20

$40

$60

$80

$100

$120

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

WTI Crude Price per Barrel Natural Gas Price per MMBtu

Julius Vizner Assistant Vice President - Analyst +1.212.553.0334 julius.vizner@moodys.com

NEWS & ANALYSIS Credit implications of current events

20 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

EXHIBIT 2

Credit Characteristics of Energy-Producing States as of Fiscal 2014

Note: State fiscal years end 30 June. Sources: States’ budget information and audited financial statements and Moody’s Investors Service

We expect all energy states to be negatively affected by the same factors that led to Oklahoma’s contraction. Decreased US production will lead to increasing job losses in oil and gas and related manufacturing sectors, all of which involve jobs that are well paid on average. These losses will depress energy states’ personal income, corporate income and sales taxes through the second half of fiscal 2016 and into fiscal 2017.

NEWS & ANALYSIS Credit implications of current events

21 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Securitization

Argentine Central Bank’s Elimination of Interest Rate Caps Will Negatively Affect Securitizations Last Friday, Argentina’s central bank lifted certain regulations that, among other things, imposed interest rate caps on the personal loans, auto loans and, indirectly, credit card financing that banks and regulated financial companies issue. The end of interest rate caps is credit negative for new securitizations in Argentina because it will encourage regulated financial companies to offer loans to higher-risk borrowers on the assumption that they are compensated for the higher risk by higher interest rates. This will ultimately have an adverse effect on collateral quality.

Since June 2014, when the central bank initially implemented the interest rate caps, regulated financial companies adjusted their underwriting guidelines to compete within a lower-risk segment of borrowers. Ending these caps allows these companies to return to riskier borrower segments, increasing the risk profile of their loan portfolios, which, in turn, will erode collateral quality for new securitizations.

The increase in interest rates will also likely increase the excess spread for new transactions. This effect, albeit positive at first glance, risks turning negative if sponsors decide to balance the levels of credit enhancement in the transactions by decreasing subordination levels. When analyzing sources of credit enhancement in securitization transactions, we favor subordination over excess spread because the protectiveness of subordination is not affected by prepayments or the timing of defaults.

The new regulation, coupled with the central bank’s recent decision to tighten monetary policy, also will put pressure on the cash flows of existing transactions. Securitizations will face higher debt service payments because peso-denominated transactions in Argentina typically bear variable coupon rates. However, all securitizations in Argentina feature interest rate caps on their liabilities, which will limit the decline in excess spreads on these transactions.

Collateral quality deterioration aside, the deregulation will boost originator profitability and liquidity in the Argentine securitization market. Eliminating the restrictions will allow for more loans to become available to Argentine consumers across different risk segments, thus increasing origination volumes. A more liberalized market will also give financial companies the ability to more effectively match pricing with the risk profile of borrowers, which will positively affect profit margins.

Deregulation will also boost the issuance of structured finance transactions in the domestic capital market. Securitization issuance volumes, measured in US dollar terms, have decreased during the past four years in part because of the influx of bonds into the local capital markets from the sovereign and some corporates and as a result of the central bank’s restrictions. This trend will reverse as a consequence of the sovereign’s likely return to international credit markets. Lifting the interest rate caps will accentuate this rebound given that higher origination volumes will translate into greater funding needs.

There will also be more liquidity in the securitization market given that banks will be able to more freely invest in securitizations. Since June 2014, banks were banned from investing in transactions backed by loans bearing interest rates that exceeded the regulated caps. As part of the resolution published by the central bank, banks will now be allowed to invest in securitization transactions without restrictions.

Frank Medrisch, CFA Analyst +54.11.5129.2644 frank.medrisch@moodys.com

RATING CHANGES Significant rating actions taken the week ending 18 December 2015

22 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Corporates

AMC Networks Inc. Upgrade 4 Dec ‘12 18 Dec ‘15

Corporate Family Rating Ba3 Ba2

Outlook Positive Stable

The upgrade reflects AMC's material reduction in leverage and a demonstrated commitment to a more conservative capital structure. Moreover, we do not expect any significant use of debt for stock buybacks or acquisitions in the near-term. AMC Networks has had strong revenue growth driven primarily by US Advertising Sales and significant growth from US affiliate fees, though international and digital sales have also increased year over year.

AstraZeneca PLC Downgrade 9 Nov ‘15 18 Dec ‘15

Senior Unsecured Rating A2 A3

Short Term Issuer Rating P-1 P-2

Outlook Negative Stable

The downgrade primarily reflects the material weakening of AstraZeneca's credit metrics following its planned acquisitions of Acerta Pharma, ZS Pharma (closed on 17 December 2015) and Takeda Pharmaceutical Company Limited respiratory assets, which will add around $10.3 billion of debt to the company's adjusted debt of $14 billion as per the 12-month period through September 2015. Post-acquisitions, AstraZeneca's credit metrics would substantively deteriorate with CFO/debt dropping to below 25% on a pro-forma basis at year-end 2015 from 35.3% as per the 12-month period through September 2015 and debt/EBITDA increasing materially above 3x on a pro-forma basis at year-end 2015 from 2.5x as per the 12-month period through September 2015.

Syniverse Holdings, Inc. Downgrade 22 Jan ‘13 15 Dec ‘15

Corporate Family Rating B2 B3

Outlook Stable Negative

The downgrade and change in outlook reflects the company's heightened leverage, declining operating performance, execution risk as technology standards transition, and free cash flow that is low relative to debt. Operating performance will likely remain weak as legacy businesses decline and the company is unlikely to de-lever easily given the large debt balance outstanding. In addition, foreign currency headwinds are exacerbating Syniverse's challenges.

RATING CHANGES Significant rating actions taken the week ending 18 December 2015

23 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Woodside Petroleum Ltd Outlook Change 16 Dec ‘14 16 Dec ‘15

Long Term Issuer Rating Baa1 Baa1

Outlook Stable Negative

Woodside's negative outlook reflects our expectation that earnings and credit metrics in 2015 will be weaker than previously expected, and will take longer to rebalance to more appropriate levels for the rating under our revised base case assumptions. The change in outlook follows the revision of our oil and natural gas price assumptions on 15 December 2015, in light of continuing oversupply in both the global oil markets and the US natural gas market.

Yum! Brands Inc. Downgrade 20 Oct ‘15 15 Dec ‘15

Corporate Family Rating Ba1 Ba3

Outlook Review for Downgrade Negative

The downgrade reflects Yum’s strategy of returning substantial capital to shareholders in conjunction with the planned separation of its Yum China Division, which we expect will result in unadjusted leverage of approximately 5 times. The negative outlook reflects our concerns regarding Yum's credit metrics longer term once its ultimate capital structure is in place and the spin-off of Yum China is complete.

RATING CHANGES Significant rating actions taken the week ending 18 December 2015

24 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Financial Institutions

Actions Taken on Five South African Banks Multiple

17 Dec. ‘15

We affirmed the Baa2 long-term deposit and senior debt ratings and changed the corresponding rating outlook to negative from stable, of the five largest South African banks: Standard Bank of South Africa, FirstRand Bank Limited, ABSA Bank Limited, Nedbank Limited and Investec Bank Limited. We also affirmed Standard Bank Group's Baa3 issuer rating and changed the outlook to negative from stable, given the weakening of South Africa’s credit profile, as captured by our outlook change on the government’s Baa2 rating to negative from stable on 15 December 2015.

Actions Taken on Development Bank of Southern Africa and Industrial Development Corp. of South Africa

Multiple

17 Dec. ‘15

We affirmed Industrial Development Corporation of South Africa’s Baa2 foreign-currency long-term senior unsecured issuer rating and changed the outlook to negative from stable. We also affirmed Development Bank of Southern Africa's Baa2 foreign-currency long-term senior unsecured issuer rating and maintained its negative outlook. The rating action on these two government related issuers follows the weakening of the South African government's credit profile, as captured by our outlook change on the government’s Baa2 rating to negative from stable on 15 December 2015.

Actions Taken on Royal Bank of Scotland Group and Subsidiary Multiple

14 Dec. ‘15

We affirmed The Royal Bank of Scotland plc's (RBS) A3 supported long-term deposit and senior unsecured debt ratings following the affirmation of the bank's ba1 standalone baseline credit assessment. We also affirmed the long-term senior unsecured debt rating of the holding company, The Royal Bank of Scotland Group plc (RBSG), at Ba1. The rating outlook of both RBS and RBSG was changed to positive from stable, reflecting the substantial progress the firm has made on its restructuring plan and our expectation that its credit fundamentals will continue to improve over the next 12-18 months.

Banco Interacciones, S.A. Upgrade 11 Jul’ 14 15 Dec ‘15

Counterparty Risk Assessment N/A Baa3(cr)

Long-Term Bank Deposit Ratings Ba2 Ba1

Senior Unsecured Rating N/A Ba1

Baseline Credit Assessment ba3 ba2

Adjusted Baseline Credit Assessment ba3 ba2

Outlook Stable Stable

The upgrade takes into account Banco Interacciones, S.A.'s niche business model focused on collateralized lending to Mexican states and municipalities and their suppliers, as well as the bank's consistent earnings generation, driven by its expertise and long-standing relationships in the sub-sovereign segment.

RATING CHANGES Significant rating actions taken the week ending 18 December 2015

25 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Genworth Seguros de Credito a la Vivienda Downgrade 6 Nov’ 14 16 Dec ‘15

Insurance Financial Strength Rating Baa3 Ba1

Outlook Review for Downgrade Negative

The downgrade results from Genworth Mexico's decision not to proceed with obtaining a supplemental guarantee from a financially strong international development finance institution, following the downgrade of the company's ultimate parent, Genworth Holdings Inc. (Genworth, Ba1 negative) on 11 February. This action concludes the review for downgrade of Genworth Mexico's ratings initiated on 6 November 2014.

Russian International Bank Outlook Change 5 Jun‘11 18 Dec ‘15

Counterparty Risk Assessment N/A B2(cr)

Long-Term Bank Deposit Ratings B3 B3

Baseline Credit Assessment b2 b3

Adjusted Baseline Credit Assessment b3 b3

Outlook Stable Negative

The outlook change was driven by the increased vulnerability of the bank's solvency and liquidity metrics, characterized by a sizable credit exposure to related parties, very high single-name concentrations in the bank's loan book, a high level of dollarization of the bank's operations, as well as the recent deterioration of the bank's liquidity profile.

SCOR SE Outlook Change 25 Feb‘15 15 Dec ‘15

Insurance Financial Strength Rating A1 A1

Outlook Stable Positive

The outlook change reflects the continued improvement in SCOR's market position and franchise, our expectation for continued stability in SCOR's earnings resulting from the group's diversified business model and relatively low exposure to the most volatile reinsurance segments, as well as its strong capitalization and risk management.

RATING CHANGES Significant rating actions taken the week ending 18 December 2015

26 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Sovereigns

South Africa Outlook Change

15 December ‘15

Gov Currency Rating Baa2 Baa2

Foreign Currency Deposit Ceiling Baa2 Baa2

Foreign Currency Bond Ceiling Baa2 Baa2

Local Currency Deposit Ceiling A1 A1

Local Currency Bond Ceiling A1 A1

Outlook Stable Negative

The change in outlook reflects the increased probability that growth will remain low for a prolonged period of time due to the structural challenges facing the mining industry and other sectors of the economy. It also reflects the risk of fiscal slippages on the face of slower growth and rising political pressures.

Romania

Outlook Change

11 December ‘15

Gov Currency Rating Baa3 Baa3

Foreign Currency Deposit Ceiling Baa3 Baa3

Foreign Currency Bond Ceiling Baa3 Baa3

Local Currency Deposit Ceiling A3 A3

Local Currency Bond Ceiling A3 A3

Outlook Stable Positive

The change in the outlook on Romania's outlook to positive from stable reflects Romania's significant progress in correcting its macroeconomic imbalances, reducing the economy's vulnerability to external shocks and paving the way for robust economic growth. It also reflects Romania’s sizeable fiscal adjustment in the recent past, leading to a significant reduction of the government's fiscal deficit and contributing to a stabilization of the government's debt-to-GDP ratio.

RATING CHANGES Significant rating actions taken the week ending 18 December 2015

27 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Sub-Sovereigns

Alba Iulia, Romania

Outlook Change 29 Apr 2014 15 Dec 2015

Long-Term Issuer Rating (Domestic) Ba1 Ba1

Long-Term Issuer Rating (Foreign) Ba1 Ba1

Outlook Stable Positive

The change in outlook from positive to stable reflects the improvement in operating environment for Romanian sub-sovereigns, as reflected in Moody's outlook change on Romania's Baa3 government bond rating to positive from stable on 11 December 2015. It also reflects the strong correlation between the sovereign and sub-sovereigns.

Structured Finance

Rating Upgrades, Downgrades and Affirmations of Approx. $4.1 Billion in CD 2007-CD4 Commercial Mortgage Pass-Through Certificates On 17 December we upgraded the ratings on two classes, downgraded the ratings on four classes and affirmed the ratings on 11 classes in CD 2007-CD4 Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2007-CD4. The ratings on two P&I classes, A-4 and A-1A, were upgraded due to a significant increase in defeasance, as well as our expectation of additional increases in credit support. The ratings on two P&I classes, A-MFX and A-MFL, were affirmed because the transaction's key metrics are within acceptable ranges. The ratings on nine P&I classes, C through L, were affirmed because the ratings are consistent with our expected loss. The ratings on two P&I classes, A-J and B, were downgraded due to the expected timing of the resolutions of the loans in special servicing. The ratings on the two IO classes, XC and XW, were downgraded due to a decline in the credit performance of their referenced classes.

Various Rating Actions on Approximately $1.2 Billion of Credit Suisse Structured Securities On 16 December we upgraded the rating on one class, downgraded the ratings on two classes and affirmed the ratings on two classes in Credit Suisse Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2006-C3.The ratings on the P&I Classes A-3 and A-1-A were affirmed because the transaction's key metrics are within acceptable ranges. The rating on the P&I Class A-M was upgraded due mainly to an increase in credit support since our last review. The rating on the P&I Class A-J was downgraded due to realized and anticipated losses from specially serviced and troubled loans that are higher than expected. The rating on IO Class A-X was downgraded due to the uncertainty of future interest payments.

RESEARCH HIGHLIGHTS Notable research published the week ending 18 December 2015

28 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Corporates

Diamond Miners May Have to Cut Prices Further to Revive Demand Lower demand for diamond jewelry and overstocking will force diamond miners to cut costs further as the latest drop in diamond prices has been insufficient to revive demand. These price cuts and lower production volumes will weaken miner's operating performance. However, production and sales reductions will eventually help rebalance the market, and the sector’s solid long-term fundamentals will help support the pricing power of rough diamond producers.

Environmental Risks and Developments: Paris Agreement Advances Adoption of Carbon Regulations; Credit Impact to Rise The Paris agreement will likely advance the adoption of carbon and other greenhouse gas emission regulations, with increasing credit implications for many sectors globally. However, the future course of carbon emissions remains highly variable, depending on the extent to which governments both implement their agreed commitments and further tighten their emission targets over time.

Oil and Natural Gas Industry – Global: Threat of Prolonged Oversupply Drives Prices Lower We have sharply lowered our oil price assumptions as continued high levels of production by global oil producers has significantly exceeded growth in oil consumption. The potential lifting of Iranian sanctions could add significant supply to the market in 2016, offsetting or even exceeding expected declines in US production, leading to a prolonged period of oversupply that will keep oil prices down for longer than previously anticipated.

Office Real Estate – UK and France: A Tale of Two Cities: London is Growing Rapidly, Paris is Hindered by Anaemic Economy London’s strong economy, along with regulatory limits on new construction and occupier demand, will support a brisk pace of growth in the city’s real estate market. However, sluggish macroeconomic growth in Paris will subdue growth, although some signs of improvement are beginning to emerge, led by professionally managed real estate companies, which continue to outperform in Paris and London. The prudently managed balance sheets of these companies and strategic pursuit of profitable growth opportunities will improve their performance and boost their credit profiles.

Cross-Sector - US: Federal Reserve's First Rate Hike in Nine Years Will Have Limited Credit Implications An interest rate hike will not have immediate, direct credit implications for our rated financial institutions, corporates, the US government, municipals, utilities and structured finance instruments. Rates will still be historically low and the pace of tightening gradual. We expect that policymakers will proceed cautiously, keeping a close eye on the US economy and its ability to withstand tighter monetary conditions.

RESEARCH HIGHLIGHTS Notable research published the week ending 18 December 2015

29 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Odeon & UCI Bond Midco and Vougeot Bidco (Vue): Peer Comparison: UK Cinema Operators Face Similar Challenges But Vue Benefits From Stronger Overseas Growth and Metrics VougeotBidco (Vue) has an advantage over Odeon in terms of geographic diversification, quality of theatres and overall experience. Although it is a draw which company has better leverage, Vue has a stronger EBITDA margin, which supports its interest coverage ratio and cash generation. Both have similar exposure to Hollywood’s film slate and potential changes in consumer behavior.

Abengoa S.A.: Reverse Factoring Has Debt-Like Features Reverse factoring can be used as a short-term financing tool for long-term needs. If these sources of funding were to become unavailable to a company, this could affect a company’s short-term liquidity. Reverse factoring also includes other debt-like characteristics. Furthermore, we believe that reverse factoring is likely more widespread than is reported.

Corporates - EMEA: Flexibility and Innovation Will Determine Which European Corporates Are Winners and Losers From Climate Summit Deal We believe that companies with flexible business models are best positioned to absorb credit challenges associated with tighter emissions standards. Those that are slow to innovate and respond will see their credit quality weaken. However, the credit impact for individual issuers will depend less on the commitments made in Paris than on the timing and scope of the regulations that may follow. In addition, energy efficiency measures will challenge many industries and lead to increased credit differentiation.

Agriculture and Protein Industries – Argentina: Elimination of Export Tax Relieves Regional Producers The change in agricultural tax policy is credit positive for the region’s producers of agricultural goods, including Asociacion de Cooperativas Argentinas Coop. and Quickfood, a subsidiary of Brazilian food conglomerate BRF. The goal of the elimination of export taxes on agricultural goods, including beef, corn and wheat, and the reduction in export taxes on soybeans by 5% is to boost production and encourage farmers to sell stocked grain to bolster central bank reserves.

US Protein Industry: Beef Packer 2016 Profit Margins Will Fall As Processors Face Continuing Challenges Challenges for the beef industry include weak exports, lower demand from China, increasing competition from Australia, Mexico and Canada and lower-cost alternatives such as chicken and pork, which will pressure profit margins in the first half of 2016. Although these conditions will ease somewhat in the second half of the year, major packers such as Tyson Foods, JBS USA, LLC and National Beef Packing Company Inc. will remain profitable, but their margins will still remain lower.

Non-Financial Corporations – US: Rising US Interest Rates Challenge Companies With Lowest Credit Quality As debt investors become more discriminating, the weakest companies will be the most vulnerable to the decline in affordable credit. The small number of companies with both weak business fundamentals and aggressive capital structures are particularly vulnerable to rising rates: the available suppliers may shun them, or offer to extend credit only at crippling prices.

RESEARCH HIGHLIGHTS Notable research published the week ending 18 December 2015

30 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

North American Railroads: Downstream Effects of Rail Mergers Could Have Adverse Credit Implications Canadian Pacific's proposal to merge with Norfolk Southern, Burlington Northern Santa Fe, LLC (BNSF) could trigger downstream effects with negative credit implications for the broader sector. The merger could increase leverage to fund combinations of railroads and lead to potentially onerous conditions that could be imposed by the Surface Transportation Board, the industry’s regulator.

Chemicals - Russia: Exports Shield Fertilizer Makers from Recession at Home, Weak Global Prices Export-focused Russian fertilizer producers will be able to maintain their financial strength, despite the country's recession. Moderately weakening global fertilizer prices, which we expect to fall 10%-15% over the next 12-18 months, will have limited impact on the companies' strong margins and cash flows because of their low costs. However, they are vulnerable to the risk of a prolonged weakness in Russia's economy because their major production facilities are located there.

Results of Capacity Market Auction Disappointing for Generators National Grid announced the results of Britain’s second electricity Capacity Market Auction, in which generators and electricity importers offered to make supply available between October 2019 and September 2020 in exchange for a fixed payment. The auction result suggests the electricity market remains comfortably supplied, despite capacity closures in the past year and media concern that Britain has insufficient spare capacity.

RESEARCH HIGHLIGHTS Notable research published the week ending 18 December 2015

31 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Financial Institutions

Global Investment Banks – Global: 2016 Outlook – Solvency Improving Despite Challenging Environment (Presentation) Strengthened capital and liquidity, driven by regulatory reforms, will continue to bolster the credit quality of the Global Investment Banks (GIBs). The GIBs' focus on improving efficiency will drive further efforts to reduce their geographic footprints, exit high-capital-intensity businesses and run off legacy portfolios. Asset quality will remain strong, with some possible deterioration for those GIBs with material exposures to leveraged lending, energy & commodities and emerging markets.

Banks - Europe: 2016 Outlook - Fundamentals Now Stable, But Asset Risk and Profitability Pressures Remain (Presentation) The financial fundamentals in most European banking systems will further stabilize owing to tighter regulation, stronger capitalization and a modest pick-up in private-sector credit demand. However, with interest rates near record lows, net interest margins will continue to narrow, while funding costs have little room to fall further. In some countries the high stock of problem loans will remain a concern, notwithstanding the overall reduction in the overhang of bad loans.

2016 Outlook - Stable Outlook for Korean Banks Despite Pressure on Profitability and Downside Risks to Asset Quality (Presentation) Government measures to address high levels of household debt and spur corporate sector restructuring, as well as efforts to balance consumer protection with de-regulation, have effects that negatively affect bank profitability. Record-low interest rates also pressure bank profits, limiting their internal generation of capital. Meanwhile, failure or delays in corporate sector restructuring could increase credit charges for banks, especially those with greater exposure to problem sectors such as shipbuilding.

Banks - Latin America: Stress Tests Reveal Capital Weaknesses in Some Banking Systems Most Latin American countries have experienced significant economic slowdowns, capital outflows and sharp currency depreciations, and will not see strong recoveries in the coming year. We expect these challenging conditions will lead to a rise in problem loans and a slight decline in banks' capital ratios, particularly in Brazil. While the expected outcome is not severe, the region remains susceptible to shocks that could lead to a scenario in which banks do face more significant levels of financial stress.

EMEA Insurance Monitor This issues feature articles: “European Insurance: Key Credit Issues in 2016”; “Solvency II Update: Internal Model Approval and Ratio Disclosures”; “Lloyd’s Adapts to Defend its Market Position Amid Strong Price Competition & Secular Changes”; “Credit Insurers’ Profitability Remains Robust, But Likely to Decline as a Result of Emerging Markets Slowdown”

RESEARCH HIGHLIGHTS Notable research published the week ending 18 December 2015

32 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Sovereigns

Government of Spain: FAQ on Growth Prospects, Fiscal Trajectory and Their Associated Risks Spain (Baa2 positive) is currently the fastest growing of the big four euro area economies, which marks a major turnaround from only three years ago for the currency union's fourth largest economy. Recent growth performance has been impressive. The economy has emerged from a deep and prolonged recession and we expect it to register real GDP growth of 3.2% and 2.7% this year and next. However, Stronger-than-expected growth has not led to better-than-expected fiscal outcomes, though the government has brought tax cuts forward to 2015.

Government of El Salvador: Pension Reform and Approval of Long-term Debt Issuance are Key Challenges in First Half of 2016 The government of El Salvador (Ba3, Negative) will face two key challenges in the first half of 2016: the passage of pension reform and legislative approval for the issuance of long-term debt. The government has indicated it will prioritize passage of a pension reform proposal to reduce the impact that pension-related expenses have on government finances. The government will also have to seek approval in the Legislative Assembly to issue long-term debt to retire short-term borrowings.

Governments of ASEAN-5 and India: Currency Flexibility, Policy Vigilance Support Sovereign Credit Profiles The currencies of the Asian sovereigns– India (Baa3 positive), Indonesia (Baa3 stable), Malaysia (A3 positive), the Philippines (Baa2 stable), Singapore (Aaa stable) and Thailand (Baa1 stable)1 – have depreciated significantly over the last year. Exchange rate pressures may persist in 2016 as China’s (Aa3 stable) slowdown curbs export growth and US (Aaa stable) monetary policy tightening weakens net capital inflows.

Sovereigns – Global: Likely Fed Rate Hike Reflects Strength of US Recovery, But Exposes Some EM Sovereigns to Volatile Capital Flows The rise in the short-term interest rate target by the Federal Reserve on Wednesday reinforces our view that the economy of the United States (Aaa stable) is on track for above trend growth, likely to reach a cyclical peak in 2016. While higher US growth supports improved growth expectations in most advanced economies, we do not expect the Fed action to have a significant impact on interest rates or currencies of other developed countries.

Sovereigns - Sub-Saharan Africa: Most commodity exporters still vulnerable to price shock, scope for counter-cyclical policy is limited Despite efforts to diversify their economies and accumulate buffers, commodity exporters in Sub-Saharan Africa (SSA) remain vulnerable to commodity price shocks. The most recent collapse in the prices of oil, copper and iron ore, amongst others, has slowed growth significantly, increased fiscal and external imbalances, and weakened currencies.

RESEARCH HIGHLIGHTS Notable research published the week ending 18 December 2015

33 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Sub-Sovereigns

Cross Sector - Argentina: Rapid Pace of Policy Change is Credit Positive, But Raises Short-Term Challenges The country’s new president announced a series of policy adjustments this week designed to reduce the country’s economic distortions and set the economy on a path to growth. The most substantial change was unveiled on 16 December, when Finance Minister Alfonso Prat-Gay indicated that capital controls would be lifted, allowing the peso to float more freely. While this led to a sharp 29% depreciation of the currency, the liberalized policy will attract increased foreign investment and help stabilize the country’s international reserves.

Querétaro, Mexico, Pension Reform Is Credit Positive The Mexican State of Querétaro’s (Baa1 stable) congress recently approved a reform to its state Workers Act pension which will restrict sudden yearly increases in pension obligations beginning in 2016 . Without the reform, the state’s pension expenditures would have doubled before 2020. Since Queretaro has no pension fund, it pays all pension-related expenditures directly from its yearly budget.

Lower Share of Income Tax Would Negatively Affect Serbian Municipalities Serbia’s Ministry of Finance proposed last Monday to lower to 50% from 80% the share of proceeds from the country’s income tax destined to local governments. If approved, the new bill would become effective in January 2017, a credit negative for Serbian municipalities.

Environmental Risks and Developments: Paris Agreement Advances Adoption of Carbon Regulations; Credit Impact to Rise The Paris agreement will likely advance the adoption of carbon and other greenhouse gas emission regulations, with increasing credit implications for many sectors globally. However, the future course of carbon emissions remains highly variable, depending on the extent to which governments both implement their agreed commitments and further tighten their emission targets over time.

US Public Finance

Higher For Longer - California Pension Costs to Remain Elevated Under CalPERS’ Risk Reduction Plan The California Public Employees Retirement System adopted a new “de-risking” policy in November intended to reduce the exposure of California’s governments to adverse investment performance. While the move is slightly credit positive for the state of California, the process will take many years to fully implement and substantial fiscal risks to local governments from pensions remain.

RESEARCH HIGHLIGHTS Notable research published the week ending 18 December 2015

34 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

Structured Finance

2016 Outlook - CMBS Will Remain a Niche Product in the CRE Debt Funding Market Commercial mortgage-backed securities (CMBS) will remain a niche product in the commercial real estate (CRE) debt funding market in Europe in 2016. Arrangers continue to rely on specific situations to be competitive on pricing and to choose securitization rather than syndication as a funding tool. Specific situations could be higher leverage of the loans, higher speed of execution expected by a borrower, some more esoteric underlying assets or large debt amounts.

Equipment Lease ABS - Japan: Improving Business Environment Is Credit Positive The improving operating environment for corporates in Japan will ensure that default rates of equipment lease receivables backing Japanese asset-backed securities (ABS) will remain low, a credit positive. The average default rate for equipment lease ABS declined to around 0.4% in 2015, driven primarily by deals backed mainly by equipment lease receivables from large and medium corporates.

2016 Outlook – US RMBS Credit Quality and Performance Will Remain Strong in 2016 Overall, the credit quality of new private-label residential mortgage-backed securities (RMBS) transactions will remain strong in 2016, although lenders will increasingly expand their underwriting guidelines to allow for lower borrower FICO scores and higher loan-to-value ratios.

RMBS and SME ABS - Italy: Resolution of Four Banks Under Bank of Italy Administration Is Credit Positive for RMBS and SME Deals As a result of recent Italian bank resolution actions, four unrated Italian banks that were under the administration of the Bank of Italy will separate the “good” and “bad” portions of their balance sheets. The risk of a forced liquidation is significantly reduced. These actions are credit positive for 13 residential mortgage-backed securities (RMBS) and small-and-medium enterprise asset-backed securities (SME ABS) transactions we rate because, in each case, a newly created “good bank” will be the transaction servicer, sharply reducing the likelihood of a servicing transfer to a back-up servicer.

ABS - US: 2016 Outlook - Slow Loan Repayment Rates Will Continue to Affect Paydown Speeds of FFELP ABS The slow repayment rates of the collateral in asset-backed securities (ABS) backed by Federal Family Education Loan Program (FFELP) loans will continue in 2016, driven in part by the large number of FFELP borrowers enrolled in debt-repayment plans that push loan payoff dates further into the future. Although most tranches will eventually pay off in full because of the government guarantee of defaulted FFELP loans, non-payment by final maturity will trigger an event of default for the affected ABS. At the same time, the credit performance of FFELP loans will likely improve somewhat in 2016 owing to further strengthening of the job market for young college graduates.

Environmental Risks and Developments: Paris Agreement Advances Adoption of Carbon Regulations; Credit Impact to Rise On 12 December, participants in the United Nations Framework Convention on Climate Change 2015 Conference of the Parties in Paris (COP21) unveiled the first universally accepted blueprint to limit the impact of climate change, with the cornerstone of the deal to restrict global warming to “well below 2C above pre-industrial levels” and “pursue efforts” to limit the temperature increase to 1.5C by reducing greenhouse gas emissions. The Paris Agreement will advance the adoption of carbon and other greenhouse gas emission regulations, with increasing credit implications for many sectors globally.

RESEARCH HIGHLIGHTS Notable research published the week ending 18 December 2015

35 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

2016 Outlook - Steady Economy Will Support Credit Performance of Commercial & Esoteric ABS The credit performance of most asset classes in the US commercial and esoteric (C&E) sector will remain steady or improve in 2016. Continued strength in the US macroeconomy will benefit C&E sectors including equipment loans and leases, small business loans, restaurant whole business and timeshare receivables, while steady growth in global airline passenger traffic will benefit the aircraft sector and a small increase in trade growth will help support container ABS. Idiosyncratic or other factors will drive performance of other asset classes. For example, lower volume growth in major rail freight categories, combined with costly retrofit requirements for tank cars carrying flammable liquids, will have a negative effect on railcar ABS securitizations.

RMBS - US: Underperforming Loan in FirstKey Lending SFR Deal Will Have Slight Impact on Performance The underperformance of the Delavaco loan in the securitized pool backing FirstKey Lending’s FKL 2015-SFR1 transaction, the first multi-borrower single-family-rental (SFR) securitization we have rated, will have minimal impact on the deal's performance because of the small size of the loan; the low LTV at closing (61.2%), which could limit losses in a liquidation scenario; and the cash trap mechanisms in the transaction. The borrower has also taken actions to improve the performance of the loan going forward, including working with a new property manager and repairing Section 8 homes to collect on deferred US Department of Housing and Urban Development payments.

ABS, RMBS, Covered Bonds - Latin America: 2016 Outlooks – Varying Macroeconomic Scenarios Will Determine Performance of Latin American Securitizations In Argentina, economic reform under newly elected President Mauricio Macri could have a significant effect on the performance of securitizations next year. Elsewhere in the region, Brazil’s challenging macroeconomic environment will lead to weaker collateral performance, while in Mexico the credit quality of new issuance will remain solid.

Argentina: Rapid Pace of Policy Change is Credit Positive, But Raises Short- Term Challenges Over the past week Argentina’s new president has announced a series of policy adjustments designed to reduce the country’s economic distortions and set the economy on a path to growth. The most substantial change is the lifting of capital controls, which will allow the peso to float more freely. While that announcement led to a sharp 29% depreciation of the currency, the more liberal policy will attract increased foreign investment and help stabilize the country’s international reserves.

2016 Outlook - Macro Trends Weigh on Securitization Globally as Lender Competition Heats Up Loan underwriting standards will continue to deteriorate in some structured finance sectors in 2016, while others will need to adjust to new regulations. Rising US interest rates, low oil prices, muted growth in Europe and slowing growth in China are among the other challenges that will affect securitization markets around the globe next year.

RESEARCH HIGHLIGHTS Notable research published the week ending 18 December 2015

36 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

New Rules for Servicers Are Credit Positive for Italian Structured Finance Deals; Consumer ABS Will Benefit Most The Bank of Italy’s new regulatory framework for financial intermediaries carrying out servicing activities is credit positive for all Italian structured finance deals. Organizational and risk control requirements for servicers will be more stringent, which will further mitigate operational and commingling risk in securitizations. As a result, the structural integrity of securitizations will improve, helping to ensure the continuity of payments to noteholders.

RECENTLY IN CREDIT OUTLOOK Select any article below to go to last Thursday’s Credit Outlook on moodys.com

37 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

NEWS & ANALYSIS Corporates 2 » Fed's Rate Hike Starts $450 Billion Reduction in Pension

Underfundings, a Credit Positive » Newell’s Jarden Deal Builds Scale but Adds Debt, a

Credit Negative » Argentina Eliminates Agricultural Export Tax, a Credit

Positive for Protein and Agricultural Producers » Sanofi’s Asset Swap with Boheringer Ingelheim Would Be

Credit Positive » STC's Voluntary Tender Offer to Increase Stake in VIVA

Kuwait Is Credit Positive

Infrastructure 9 » SoCalGas Gas Storage Leak Is Credit Negative

Banks 10 » UK Court Decision Is Credit Positive for Lloyds Banking Group » Banco Santander Totta's €300 Million Capital Increase Is

Credit Positive » Sparebanken Hedmark Acquires Remaining Stake in Bank 1

Oslo Akershus, a Credit Positive » Greece's Attica Bank Meets Its Baseline Scenario Capital

Needs, Avoiding Credit-Negative Resolution

Sub-sovereigns 16 » Querétaro, Mexico, Pension Reform Is Credit Positive

38 MOODY’S CREDIT OUTLOOK 21 DECEMBER 2015

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EDITORS PRODUCTION ASSOCIATE News & Analysis: Elisa Herr and Jay Sherman Sol Vivero Ratings & Research: Bronwyn Collie