MOODYS.COM

22 JUNE 2015

NEWS & ANALYSIS Corporates 2 » Standard Pacific and Ryland Merger Is Credit Positive for Both » Transunion Will Use IPO Proceeds to Reduce Debt, a

Credit Positive » Hill-Rom Purchase of Welch Allyn More than Triples Its Debt, a

Credit Negative » Ollie's Holdings' Planned IPO Is Credit Positive » Harley-Davidson's $750 Million Debt-Funded Share Repurchase

Plan Is Credit Negative » Keysight Technologies’ Planned Acquisition of Anite Is

Credit Positive » Hudson Bay's Planned €2.42 Billion German Department Store

Acquisition Is Credit Positive » Seadrill Partners Acquires Another Ultra-Deepwater Drillship

Despite Challenging Market, a Credit Negative » Nets' Acquisition of Nordea Merchant Acquiring Is

Credit Negative » Tata Steel and JSW Steel Will Benefit from India's Increased

Steel Import Duties

Infrastructure 14 » Britain’s Early End to Subsidies Is Credit Negative for Wind

Power Developers » Regulator's Prolonged Investigation of Electricite de France's

Nuclear Plant Is Credit Negative

Banks 17 » US Restrictions on Six Large Bank Servicers Are Credit

Negative; Non-Bank Servicers Will Benefit » Zions' Sale of Trust Preferred CDOs Is Credit Positive » Shanghai Pudong Development Bank's Acquisition of Shanghai

International Trust Is Credit Positive » Bank of Thailand's Liquidity Coverage Ratio Implementation Is

Credit Positive for Banks

Insurers 24 » Prudential Will Reduce Its Exposure to Variable Annuity

Guarantee Risk, a Credit Positive » Ruling of Zero Damages in Starr International Case Is Credit

Positive for AIG » Tokio Marine’s Proposed Acquisition of HCC Is Credit Negative

for Tokio Marine, Credit Positive for HCC

Sub-sovereigns 28 » Lower Borrowing Cost to Russian Regions Is Credit Positive

RATINGS & RESEARCH Rating Changes 30

Last week, we upgraded United Continental Holdings, Citibank Japan, Allied Bank Limited, Habib Bank Ltd., MCB Bank Limited, National Bank of Pakistan, United Bank Ltd., Suncorp-Metway and Louisiana Citizens Property Insurance Corp and downgraded one class of Greenwich Capital Commercial Funding Corp., Commercial Pass-Through Certificates, Series 2007-GG9. Additionally, as a result of our revised bank methodology, we took assorted rating actions on Bank Uralsib, Burgan Bank, San-in Godo Bank, Daishi Bank, Oesterreichische Volksbanken, 20 Spanish banks, nine Malaysian banks, seven Bolivian banks and one leasing company, six Nordic banking groups, SC Citadele Banka, Siauliu Bankas and Unibank.

Research Highlights 38

Last week, we published reports about Asia-Pacific telecommunications, US speculative-grade corporates, global pharmaceuticals, North American automotive bond covenants, Mexican homebuilders, corporate lending under Basel III, US automotive retail services, North American chemicals, fallen angels and rising stars, global marine seismic industry, US spec grade liquidity, North American trucking, Korean Hydro and Nuclear Power, Italian energy networks, Spanish banks, European money funds, Pakistan, Japan, Bulgaria, Belize, Finland, English housing associations, Virginia’s Hampton Roads region, US municipal broadband, European CLOs, global RMBS prepayments, US RMBS and CMBS reps and warranties, and Kookmin Bank’s covered bonds, among other reports.

RECENTLY IN CREDIT OUTLOOK

» Articles in Last Thursday’s Credit Outlook 45 » Go to Last Thursday’s Credit Outlook

NEWS & ANALYSIS Credit implications of current events

2 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Corporates

Standard Pacific and Ryland Merger Is Credit Positive for Both On 14 June, Standard Pacific Corp. (B1 stable) and The Ryland Group Inc. (Ba3 stable) announced an all-stock merger agreement that would create the fourth-largest builder in the US by revenue. The deal is credit positive for both companies, giving the combined firm more size, operating leverage and purchasing power, as well as the chance to cut costs to produce savings that the companies estimate will reach $65 million a year.

We expect the transaction to lower the overall cost of capital for the combined entity and that the company will reduce debt leverage faster than either would have separately, owing to projected cost savings and top-line benefits. Pro forma adjusted homebuilding-debt leverage at 31 March was 50% for the combined entity, whereas for the same time period Standard Pacific’s debt leverage was 56% and Ryland’s was 53%. Both companies were on their way to reducing debt leverage below 50% and we expect that trend to continue. All current debt securities, with the exception of revolving credit lines, will remain in place. In addition, because the combined company would now control 74,000 lots (nearly six years of inventory), we expect investment in land to slow somewhat.

Ryland serves more first-time and move-up homebuyers, while Standard Pacific sells more expensive homes. The combined business will offer houses for a wider range of buyers. For the 12 months that ended in March, the merged builder would have produced $5.1 billion in revenue and pre-tax earnings of about $625 million from the sale of 12,600 homes.

The combined company would have the top market share among homebuilders in Chicago, Illinois; Raleigh-Durham, North Carolina; and San Diego, California, and serve 41 metropolitan areas in 17 states. Even so, it would still get more than a quarter of its revenue from California and 19% from Texas, where Ryland and Standard Pacific have significant overlap.

Investment fund Mattlin Patterson, Standard Pacific’s largest shareholder, has said that it would approve the transaction and the companies expect the deal to close in September. No premium is being paid in the all-stock merger and Standard Pacific stockholders will own 59% of the combined company, while Ryland investors will hold 41%.

Tiina Siilaberg Assistant Vice President - Analyst +1.212.553.4068 tiina.siilaberg@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 22 JUNE 2015

Transunion Will Use IPO Proceeds to Reduce Debt, a Credit Positive Last Monday, TransUnion (B2 review for upgrade) said it expects to raise net proceeds of about $610 million ($703 million if the underwriters exercise their option to purchase additional shares in full) from its initial public offering, and use the proceeds plus $350 million of a new term loan to repay $1 billion of outstanding senior unsecured notes, a credit positive.

Pro forma for the IPO, TransUnion will reduce debt by about $621 million, yielding about $86 million in annual interest expense savings. We estimate that total Moody’s-adjusted debt/EBITDA for the 12 months that ended 31 March 2015 will decline about 1.4x to mid-5x, while free cash flow as a percentage of total debt will improve to about 4.5% from less than 1% for the same period. The reduced interest expense will free up cash to pursue growth strategies.

TransUnion -- along with Equifax Inc. (Baa1 stable) and Experian plc (unrated), which issues debt through its Experian Finance plc unit (Baa1 stable) -- is one of the three global consumer credit reporting agencies. Each has similar market share in the US. Barriers for new entrants are high because the three companies’ technology and data are integrated into customer systems and processes. However, Equifax and Experian have historically maintained conservative financial policies and have significantly stronger balance sheets and net leverage below 2.5x while TransUnion’s pro forma leverage will remain high near 5x. The stronger financial profiles of Equifax and Experian have allowed them to make strategic acquisitions to diversify revenues and increase scale. In the companies’ past three respective fiscal years, Experian spent approximately $2 billion on acquisitions and Equifax spent around $1.5 billion, while TransUnion spent about $420 million.

TransUnion’s organic revenue growth on a constant-currency basis accelerated to 13.1% in the first quarter of 2015, up from 5.3% in 2014, and it currently exceeds those of its peers. TransUnion’s growth is benefiting from an improved macroeconomic environment, higher demand for consumer credit reports, growth in emerging markets and increasing subscriptions for online personal credit-monitoring services. Revenue growth also demonstrates progress in management initiatives that began in 2012 and encompassed incremental investments in technology, developing data analytics capabilities and leveraging consumer data assets to develop new products to further penetrate existing industries and to expand into new industries, such as healthcare. In addition, the company made operational improvements and increased spending on acquisitions, which it primarily funded with debt. Management has targeted organic long-term revenue growth of about 6% and adjusted EBITDA growth of about 10%. We believe that increased investments in the business coupled with growth in consumer borrowing in its principal markets would likely support revenue growth in the mid-single digit percentages over the next two to three years.

Despite EBITDA growth, TransUnion’s free cash flow will be constrained by the increase in cash taxes after this year as taxable income grows and US net operating loss carry-forwards are depleted. In our opinion, future deleveraging will principally come from EBITDA growth because we expect the company to prioritize spending on acquisitions consistent with the recent trends. Still, the IPO will accelerate the deleveraging and we expect total debt to EBITDA to decline to about mid 4x by the end of 2016.

Raj Joshi Assistant Vice President - Analyst +1.212.553.2883 raj.joshi@moodys.com

NEWS & ANALYSIS Credit implications of current events

4 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Hill-Rom Purchase of Welch Allyn More than Triples Its Debt, a Credit Negative Last Wednesday, hospital-bed maker Hill-Rom Holdings Inc. (Baa3 review for downgrade) announced plans to acquire medical device manufacturer Welch Allyn (unrated) for about $2.05 billion in cash and stock. The deal is credit negative for Hill-Rom because it will more than triple the company’s debt and increase its financial leverage to more than 4.5x debt/EBITDA from 2.5x as of 31 March 2015. After the deal’s announcement, we put Hill-Rom’s rating on review for downgrade, citing the possibility that its credit rating will fall to speculative grade.

Under the terms of the deal, Hill-Rom will pay Welch Allyn’s shareholders $1.625 billion in cash, which it plans to finance with incremental debt, plus 8.1 million newly issued shares of its common stock. The transaction will increase Hill-Rom’s debt to above $2 billion from around $580 million as of 31 March 2015, and weaken its credit metrics to levels that no longer support an investment grade rating.

Hill-Rom said it plans to reduce its net leverage to 3.5x by the end of fiscal 2017 on the strength of the combined company’s cash flow. But that level of financial leverage is far above our long-range expectation of below 2.0x debt/EBITDA for Hill-Rom’s current Baa3 rating. Hill-Rom has also become more shareholder-friendly over the past year: management plans to use 45%-60% of its operating cash flow for M&A and return 15%-20% to shareholders in the form of dividends and share repurchases. Hill-Rom used debt to fund its $250 million acquisition of Trumpf Medical in June 2014.

Still, Hill-Rom gains strategic benefits with the Welch Allyn deal. Welch Allyn, which makes diagnostic equipment, physical exam instruments and patient-monitoring systems, will increase Hill-Rom’s scale and product diversity. The combined company will have $2.6 billion in revenues, according to Hill-Rom, compared to $1.8 billion for Hill-Rom alone. The acquisition will also reduce Hill-Rom’s reliance on capital equipment sales to hospitals, which are seeking to curb or delay their spending on big-ticket items, including hospital beds. After adding Welch-Allyn, which sells many of its products to physician’s offices, less than one third of Hill-Rom’s revenues will come from large, acute-care capital equipment.

Hill-Rom also said the deal, which it expects to close in September, will be immediately accretive to its gross profit margins and add 10% to its earnings per share in 2016. Hill-Rom expects to achieve annual synergies of about $40 million by 2018.

John Zhao, CFA Vice President - Senior Analyst +1.212.553.0399 zhenyu.zhao@moodys.com

NEWS & ANALYSIS Credit implications of current events

5 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Ollie’s Holdings’ Planned IPO Is Credit Positive Last Monday, Ollie’s Holdings Inc. (B2 stable) said that it expected to raise $150 million from an initial public offering. If successful, the proposed IPO would be credit positive because the retailer plans to use a portion of the net proceeds to repay debt.

Ollie’s is owned by private-equity firm CCMP Capital Advisors LLC and company management. The company has made a number of debt-financed cash distributions to its shareholders since CCMP acquired it in 2012. Last month, Ollie’s announced a cash distribution of about $50 million that it financed through borrowings under its amended $125 million asset-backed lending revolving credit facility. The debt-financed dividend increased debt/EBITDA to about 5.1x from around 4.7x for the last 12 months to 31 January 2015 and lowered EBITA/interest to approximately 2.4x from about 2.6x.

We expect that the proposed IPO and resulting debt reduction will lower debt/EBITDA to about 4.0x, which would be below our debt/EBITDA trigger in the high-4.0x range for a ratings upgrade. However, an upgrade would also require a profitable expansion of the company’s store base, adequate liquidity and a sustained reduction in leverage.

Ollie’s has a loyal customer base that has resulted in a 16% cumulative average growth rate in revenues from September 2012 to January 2015, and same-store sales growth of 4.4% in 2014. EBITDA margins have also been healthy and fairly stable at about 12.5% for the past three years despite the opening of 53 new stores since September 2012. The company has been expanding retail square footage at a compound annual growth rate in the high teens over the past few years, and we expect this pace to continue.

As a result of the investment in new stores and the associated working capital, debt reduction has been moderate. We expect the company to maintain good liquidity, which will allow it to invest in continued store growth.

Mickey Chadha Vice President - Senior Analyst +1.212.553.1420 manoj.chadha@moodys.com

NEWS & ANALYSIS Credit implications of current events

6 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Harley-Davidson’s $750 Million Debt-Funded Share Repurchase Plan Is Credit Negative Last Wednesday, Harley-Davidson Inc., which issues debt through Harley-Davidson Financial Services Inc. (HDFS, A3 stable), said it will take on $750 million in debt to fund additional share repurchases during the second half of 2015. The debt-funded share buyback is credit negative because it will increase leverage and reduce the financial resources available to Harley-Davidson’s industrial operations as the company faces increasing price competition from export-oriented Japanese and European motorcycle manufacturers that benefit from the strong dollar.

Pro forma for the $750 million in debt that will fund additional share repurchases, we expect adjusted debt/EBIDTA to rise to a still-low 0.6x from 0.09x for the 12 months ended 29 March 2015. HDFS is well capitalized with a debt/equity ratio of 6.3 to 1; its 30-day past due accounts are 2.6%, down from 5.0% at June 2009, and its fixed-charge coverage approximates 3x. Harley-Davidson’s liquidity profile also remains strong. As of March 2015, the company had $1.2 billion in cash and marketable securities and approximately $2 billion in committed and available credit facilities. These liquidity resources provide ample coverage of the approximately $1.6 billion in debt coming due during the next 12 months.

The competitive stress that will result from foreign manufacturers reducing motorcycle prices anywhere from $1,000-$3,000 per unit poses a formidable challenge to Harley-Davidson. But the company has stated that it will not reduce the prices of its motorcycles in response to competitive discounts. Price discounting would have a severely negative effect on the brand image and value strategy that is core to Harley-Davidson’s business model. The company has not disclosed a long-term plan for contending with the possibility of an extended period of currency-driven price discounting. Such a plan could incorporate a range of actions that include an acceleration of internal cost reduction initiatives, subvented financing by HDFS, ceding some market share and providing optional parts and accessories as standard equipment.

We expect that any combination of these responses would result in a decline in industrial EBITA of $1.2 billion that the company generated in the 12-month that period ended 31 March 2015. These responses will also contribute to an increase in debt/EBITDA. Nevertheless, we expect that leverage, profit margins and liquidity will remain supportive of the current rating.

We believe that achieving an A2 long-term rating and a Prime-1 short-term remains an objective of Harley-Davidson owing to the significant cost of funding benefits that would accrue to HDFS. The finance operations play a critical role in Harley-Davidson’s strategy and they maintain outstanding debt of approximately $5.9 billion. A critical determinant of Harley-Davidson’s ability to achieve the A2/P-1 rating level will be the success of the company’s strategy for responding to competitive discounting. The company has the operational and financial resources to contend with this challenge.

However, we believe that an important risk factor is the possibility of further debt-financed share repurchases. The $750 million debt-financed repurchases come largely in response to the equity market’s anxiety over competitive discounting and the resulting decline in Harley-Davidson’s share price. There is a risk that this increase in share repurchase activity will not adequately stabilize the stock price and that the company may choose to undertake additional debt-funded repurchases. Harley-Davidson could face the challenge of balancing two competing objectives: leveraging up its balance sheet to further reward shareholders when its stock price is under pressure, and maintaining adequate balance sheet strength to support its credit quality.

Bruce Clark Senior Vice President +1.212.553.4814 bruce.clark@moodys.com

NEWS & ANALYSIS Credit implications of current events

7 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Keysight Technologies’ Planned Acquisition of Anite Is Credit Positive Last Tuesday, Keysight Technologies Inc. (Baa3 stable) said that it had agreed to acquire Anite plc (unrated) for £388 million ($606 million) in cash. The planned transaction, which Keysight expects to complete by the end of October, is credit positive because it will fill an important hole in the company’s product portfolio without increasing leverage.

Keysight plans to fund the acquisition with cash on hand and free cash flow that it generates until closing. As of 30 April 2015, Keysight had a cash balance of $894 million, most of which the company holds offshore. We expect Keysight to generate more than $150 million of adjusted free cash flow between 30 April and the end of October.

Because of the planned purchase of Anite, we expect that the company will not reach its goal of reaching a net cash position during the fiscal year ending 31 October 2015 until sometime in 2017. Because Anite has no debt, generates free cash flow and has a slightly higher reported EBITDA margin than Keysight, we expect the acquisition to result in a modest improvement in Keysight’s debt/EBITDA, excluding integration costs. Adjusted debt/EBITDA was 2.39x for the 12 months ended 31 January 2015.

Anite’s line of software testing systems for wireless handset manufacturers complements Keysight’s portfolio of research and development testing equipment for wireless hardware and network equipment. This should allow Keysight to compete more effectively with Anritsu (unrated) and Rohde & Schwarz (unrated), both of which have product lines that include hardware and software testing systems.

Terrence Dennehy Vice President - Senior Analyst +1.212.553.1015 john.dennehy@moodys.com

NEWS & ANALYSIS Credit implications of current events

8 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Hudson Bay’s Planned €2.42 Billion German Department Store Acquisition Is Credit Positive On 15 June, Toronto, Canada-based Hudson’s Bay Co. (B1 stable) said it will pay about €2.42 billion to buy Germany’s top department store chain, Galeria Kaufhof, from Metro AG (Baa3 stable). Hudson’s Bay owns its namesake stores across Canada and US-based luxury retailer chains Lord & Taylor and Saks: Galeria Kaufhof is its first foray into Europe.

The acquisition is credit positive because it will reduce Hudson Bay’s concentration in North America and add meaningful scale to its portfolio of premium stores. The Kaufhof acquisition will increase the Hudson Bay’s total sales 50%, and 33% of its business will be in Germany and Belgium, where Kaufhof operates 135 stores under the banners Galeria Kaufhof, Sportarena and Galeria Inno.

Although the acquisition will push leverage to a very high 6.3x from 5.9x, we affirmed Hudson Bay’s B1 rating to reflect the company’s solid liquidity profile and its significant untapped asset-based revolving credit facilities. Hudson Bay also has a majority ownership of prime real estate assets across all of its banners, including the flagship stores of Lord & Taylor and Saks Fifth Avenue on Fifth Avenue in New York City.

However, the Kaufhof deal comes less than two years after Hudson Bay completed its debt-financed $2.4 billion acquisition of Saks Inc., leaving the company with little capacity to assume additional debt while maintaining its B1 rating.

We think Hudson Bay is unlikely to materially reduce its debt over the next couple of years, in part because it plans a sizable capital investment for a major reconfiguration of its flagship Saks Fifth Avenue property on Fifth Avenue in New York. Since acquiring Saks in November 2013, the company has primarily reduced debt through asset sales, such as the $650 million sale/leaseback of the flagship Toronto Hudson’s Bay store.

We do not expect Hudson Bay to generate substantial free cash flow given its growth initiatives, including investments in its Omni channel strategy, continued expansion of Saks Fifth Avenue OFF 5TH, and the introduction of full-line Saks Fifth Avenue stores in Canada. We therefore expect that the company will continue to deleverage modestly over time, primarily as it continues to realize acquisition-related synergies and earnings improve as it realizes returns from these growth initiatives.

We expect Kaufhof will operate as a substantially separate business and retain its seasoned management, which will limit the company’s execution risk. Hudson Bay has integrated Saks according to plan and has experience managing complex acquisitions such as the Lord & Taylor carve-out from its prior owners and the subsequent acquisition of Hudson's Bay. We think Hudson’s Bay can drive improvement at Kaufhof in areas where Hudson’s Bay has some relative strength, such as its experience in off-price retailing through the Saks Fifth Avenue OFF 5TH brand.

Scott Tuhy Vice President - Senior Credit Officer +1.212.553.3703 scott.tuhy@moodys.com

NEWS & ANALYSIS Credit implications of current events

9 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Seadrill Partners Acquires Another Ultra-Deepwater Drillship Despite Challenging Market, a Credit Negative Last Wednesday, offshore drilling company Seadrill Partners LLC (Ba3 negative) announced that its 58%-owned subsidiary, Seadrill Operating LP, had entered into an agreement with Seadrill Limited (unrated), Seadrill Partners’ parent, to acquire the ultra-deepwater drillship, West Polaris, for a price of $590 million.

This Seadrill Limited “drop-down” of an asset into Seadrill Partners, its master limited partnership drillship-owning subsidiary, is credit negative for Seadrill Partners because it uses up $204 million of Seadrill Partners’ $242 million of cash as of 31 March in a challenging offshore drilling environment that we expect to continue through at least 2016. The transaction also adds a seven-year-old drillship that increases the fleet’s average age, while slightly worsening Seadrill Partners’ 2015 debt/EBITDA, according to our estimates.

Seadrill Partners will assume an additional $336 million of debt as part of the purchase that cross defaults with its parent, a credit negative because Seadrill Limited currently has significant funding requirements of $3.5 billion due for new vessels over the next two years if it cannot negotiate delivery delays and $3.1 billion in debt maturities and bank amortisation payments in 2015 and 2016.

Seadrill Operating’s $204 million net purchase price, after assuming $336 million of debt outstanding and $50 million in additional debt due to Seadrill Limited in 2021, will be funded by cash on balance sheet. It is the first time that Seadrill Partners will fund a drop-down without raising money in a public offering of common units.

West Polaris is a sixth-generation, dynamically positioned drillship delivered from the Samsung shipyard in 2008 and has a contract with its current customer, ExxonMobil (Aaa stable), that runs until March 2018. The company expects West Polaris to carry out operations in Angola until the end of its contract at an effective day rate of $450,000 per day, after taking into consideration approximately $203,000 per day that Seadrill Partners will pay Seadrill Limited during the life of the contract. The effective reduction of West Polaris’ current $653,000 per-day rate reduced the drop-down cost and Seadrill Partners’ re-contracting risk. However, the drop-down will increase its fleet’s average age to 4.3 years from 4.0 years, although it will also increase diversification to 11 vessels.

For the first time after a drop-down, the board does not intend to increase quarterly cash distributions, reflecting an intention to reduce risk by increasing distribution coverage. However, the company has not cut its distributions, unlike the parent, which completely eliminated its $1.5 billion a year dividend. On the other hand, we expect continued distributions and increased coverage after this drop-down to leave Seadrill Partners better positioned to raise equity in the future, which would be credit positive.

Using the $450,000 effective day rate, excluding mobilisation and other special and standby rates, if we assume a standard operating expense for an ultra-deepwater drillship of $170,000 per day and utilisation of approximately 90%, the drillship would generate approximately $86 million a year of EBITDA and approximately $65 million in cash, according to our estimates. The $386 million of debt financing for West Polaris results in debt/EBITDA on the drillship of 4.5x at the point of acquisition, which is above our approximately 4.0x expectation for Seadrill Partner’s debt/EBITDA at the end of 2015. However, debt/EBITDA will only increase by 0.1x as a result and the $50 million debt to Seadrill Limited will be automatically reduced if West Polaris signs a new contract below $450,000 per day. Seadrill Partners’ fleet will now have 10 of its 11 vessels contracted through 2016, but leverage will increase from 2017 onwards if dayrates do not improve from current levels as contracts start to roll off.

Douglas Crawford Vice President - Senior Analyst +44.20.7772.5215 douglas.crawford@moodys.com

NEWS & ANALYSIS Credit implications of current events

10 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Nets’ Acquisition of Nordea Merchant Acquiring Is Credit Negative Last Monday, Nassa Finco AS (Nets, B2 stable) announced that it had agreed to acquire Nordea Merchant Acquiring (unrated) from Nordea Bank AB for a total consideration of DKK1.7 billion (€230 million). Although this acquisition is strategically sound, the planned transaction is credit negative because it will increase leverage and it confirms the company’s intention to participate in the consolidation of payment acquiring and processing in the Scandinavian region.

Nets expects to complete the transaction in the fourth quarter of this year, subject to approval by the relevant authorities and obtaining necessary permits. The acquisition will be funded by a new €150 million incremental term loan B facility and existing sources of liquidity, which we expect to come mainly from the DKK1.5 billion revolving credit facility. Assuming that the facility is used to complement the new term loan B to fund the acquisition, pro forma leverage will increase to 6.1x from 5.5x for the 12 months that ended 30 April 2015.

We expect deleveraging of less than 0.5x by the end of 2015 in the absence of further acquisitions. Deleveraging will mostly rely on the company’s ability to extract further cost savings (for which timing is uncertain) amid current modest revenue growth. Since its acquisition by a consortium of private equity sponsors in July 2014, restructuring and reorganisation have generated cost savings of approximately DKK150 million in the 16 months to April 2015, while organic revenue growth was approximately 1% in 2014. We believe that there is significant potential for further cost savings, but savings so far have only partially mitigated the addition of new debt to fund acquisitions.

Over the past six months, Nets raised a significant amount of incremental facilities totalling €250 million to fund the acquisitions of DIBS Payment Services AB, Paytrail Plc, and more recently Nordea MA. Based on the company’s recent track record, we expect Nets to continue making add-on acquisitions that will further constrain deleveraging.

Nordea MA provides the multi-channel (including point-of-sale terminals and eCommerce) merchant acquiring services of Visa and MasterCard transactions. The acquisition will expand Nets’ geographical diversification because Nordea MA generates the majority of its revenues in Sweden, where Nets is relatively under-represented. In addition, Nordea MA will increase Nets’ acquiring merchant customer base across the Nordic and Baltic region and strengthen its distribution network to target in particular small-and-medium sized customers.

Sebastien Cieniewski Vice President - Senior Analyst +44.20.7772.1964 sebastien.cieniewski@moodys.com

NEWS & ANALYSIS Credit implications of current events

11 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Tata Steel and JSW Steel Will Benefit from India’s Increased Steel Import Duties Last Tuesday, the government of India raised the import duties on flat steel products to 10.0% from 7.5% and on long products to 7.5% from 5.0%. Higher import duties on carbon steel products are credit positive for Tata Steel Ltd. (Ba1 stable) and JSW Steel Limited (Ba1 stable) because they will support Indian steel prices and contribute to Indian steel producers’ profitability.

The import duties will ease some of the downward pressure on domestic steel prices from cheaper Chinese steel imports. Indian steel prices have dropped 27% over the past 12 months owing to a 70% increase in cheaper imports, one third of which came from China. As of the quarter ended 31 March 2015, cheaper imports led to a 6% decline in realized per tonne prices at Tata Steel, versus a year earlier, and a 10% decline at JSW Steel during the same period (see Exhibit 1).

EXHIBIT 1

Tata Steel’s and JSW Steel’s Quarterly Realized Prices versus Indian Steel Price

Note: Tata Steel’s numbers exclude the Ferro Alloys and Minerals Division. Sources: Steel First, the companies and Moody’s Investors Service

Higher realized steel prices will help reverse weakening profits at both companies for the six months to 31 March 2015. As Exhibit 2 shows, Tata Steel reported a 50% drop in EBITDA per tonne for the quarter ended 31 March 2015 because it had to buy iron ore instead of using its captive iron ore supply, which a temporary mining ban had blocked. Tata Steel’s captive iron ore supply has since been restored and we expect its EBITDA per tonne to reach $190-$210 per tonne over the next six months from $132 in the six months to 31 March 2015 as it draws down its inventory of expensive iron ore and returns to using its captive iron ore. However, a recent change in India’s mining regulation will increase the royalties Tata Steel pays on its captive mines, which will keep its profitability below the highs of more than $250-$300 per tonne. Profitability at JSW Steel, which buys externally all of the iron ore it uses, will more directly reflect the increase in realized prices.

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

Apr-June 13 Jul-Sep 13 Oct-Dec 13 Jan-Mar 14 Apr-June 14 Jul-Sep 14 Oct-Dec 14 Jan-Mar 15

Per T

onne

India Domestic Hot Rolled Coil EXW JSW Steel Tata Steel India

Vincent Tordo Associate Analyst +65.6398.8331 vincent.tordo@moodys.com

NEWS & ANALYSIS Credit implications of current events

12 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

EXHIBIT 2

Tata Steel’s and JSW Steel’s Quarterly EBITDA per Tonne

Note: Tata Steel’s numbers exclude the Ferro Alloys and Minerals Division. Sources: Steel First, the companies and Moody’s Investors Service

Although Indian steel demand is poised to outpace other emerging markets, competition from imported steel is likely to remain strong, keeping some pressure on Indian steel prices. The World Steel association expects Indian apparent steel demand to grow by 6.2% in 2015 and 7.3% in 2016, compared with a decline in all other large emerging countries except Turkey (see Exhibit 3).

EXHBIT 3

Emerging Markets’ Steel Consumption 2014-16 Million Tonnes Percent Year-on-Year Growth Rate

Countries 2014 2015(f) 2016(f) 2014 2015(f) 2016 (f)

China 710.8 707.2 703.7 -3.3% -0.5% -0.5%

India 75.3 80.0 85.8 2.2% 6.2% 7.3%

Russia 43.1 40.2 39.6 -1.4% -6.7% -1.6%

Turkey 30.7 31.7 32.0 -1.8% 3.0% 1.1%

Brazil 24.6 22.7 23.4 -6.8% -7.8% 3.1%

Note: Data for apparent steel use, finished steel products

Source: World Steel Association’s Short Range Outlook, April 2015

Moreover, lower Indian steel prices are likely to help reduce the cost of manufacturing and infrastructure building, two key aspects of the government of India’s pro-growth agenda. As Exhibit 4 shows, Indian steel prices have consistently been higher than steel prices in other emerging markets.

$0

$50

$100

$150

$200

$250

$300

$350

Apr-June12

Jul-Sep 12

Oct-Dec 12

Jan-Mar 13

Apr-June13

Jul-Sep 13

Oct-Dec 13

Jan-Mar 14

Apr-June14

Jul-Sep 14

Oct-Dec14

Jan-Mar15

JSW Steel Tata Steel India

NEWS & ANALYSIS Credit implications of current events

13 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

EXHIBIT 4

Indian Steel Prices versus Those of Other Emerging Markets

Source: Steel First

$0

$100

$200

$300

$400

$500

$600

$700

Mar

-13

Apr-

13

May

-13

Jun-

13

Jul-

13

Aug-

13

Sep-

13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb-

14

Mar

-14

Apr-

14

May

-14

Jun-

14

Jul-

14

Aug-

14

Sep-

14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb-

15

Mar

-15

Apr-

15

May

-15

Jun-

15

Per T

onne

China Export Hot Rolled Coil FOB Main Port Turkey Domestic Hot Rolled Coil EXWIndia Domestic Hot Rolled Coil EXW South East Asia Import Hot rolled Coil CFR (Vietnam)

NEWS & ANALYSIS Credit implications of current events

14 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Infrastructure

Britain’s Early End to Subsidies Is Credit Negative for Wind Power Developers Last Thursday, the UK government said that it would close its subsidy regime, known as the Renewables Obligation, for onshore wind farms in England, Scotland and Wales (Northern Ireland is excluded) on 31 March 2016, a year earlier than originally scheduled. The decision is credit negative for the developers of more than 8 gigawatts (GW) of onshore wind farms at various stages in the planning and construction process.

Among the companies most exposed are British utilities SSE plc (A3 negative), Scottish Power Limited (Baa1 stable) and Infinis Energy Plc (Ba3 stable), which we estimate have more than 2 GW of projects that could be affected. If companies fail to complete projects by the closure date, they face the loss of subsidies that typically comprise around 50% of revenues for onshore wind farms. If they choose to cancel planned developments, the companies cannot recover their sizable development costs.

More generally, the change is negative for developers of all renewable energy projects in Great Britain because it reverses previous government policy without justification on cost or affordability grounds. This will create uncertainty regarding UK support of other renewable energy technologies, even if the curtailment of onshore wind support does not affect projects already constructed. In 2014, the onshore wind sector benefited from £800 million ($1.25 billion) of subsidies under the scheme, and generated nearly 5% of the UK’s total electricity supply.

In a concession to the sector, the government is offering a grace period for well-advanced projects that met a series of conditions as of 18 June. The government has released few details about the conditions, which will include planning consent, a grid connection offer and acceptance and “evidence of land rights.” The government has given no indication about the length of the potential grace period, but estimates that the grace period will allow for the completion of projects totaling 5.2 GW.

We expect that the policy will have little effect on the amount of onshore wind built over the next few years. With developers already accelerating project timelines ahead of the previous subsidy end date in 2017, and assuming that the grace period is at least a year, a majority will be able to complete projects in either the new timeline or the grace period. Although developers in theory will have the option to bid assets failing to meet the subsidy deadline into the successor subsidy scheme, we expect that the government will restrict funding for “mature” technologies.

The early withdrawal of support for onshore wind may ultimately benefit offshore wind developers such as Dong Energy A/S (Baa1 stable), RWE AG (Baa1 stable) and E.ON SE (Baa1 stable) because the UK is currently struggling to meet its 2020 renewable generation target (see exhibit), and may now place more emphasis on offshore wind technology. The reduction in support for onshore wind follows a similar move against large-scale solar farms in 2014.

Matthew Huxham Assistant Vice President - Analyst +44.20.7772.5268 matthew.huxham@moodys.com

NEWS & ANALYSIS Credit implications of current events

15 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

UK Renewable Electricity Usage versus 2020 Target UK faces uphill struggle to meet 2020 renewable electricity target.

Sources: Eurostat and Moody’s Investors Service

The UK government’s action is credit neutral for the owners of operational onshore wind farms and other renewable electricity technologies. It is also neutral for developers in Northern Ireland, including Viridian Group Investments Limited (B1 stable), where regional policymakers have announced that they will use their devolved power to block the plans proposed by London.

0%

5%

10%

15%

20%

25%

30%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2020

NEWS & ANALYSIS Credit implications of current events

16 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Regulator’s Prolonged Investigation of Electricite de France’s Nuclear Plant Is Credit Negative Last Wednesday, France’s nuclear safety authority (ASN) said it would not decide until early 2016 whether a potentially faulty component in the Electricite de France (EDF, A1 negative) Flamanville nuclear power plant currently under construction is safe, or needs to be replaced. The ASN’s prolonged investigation is credit negative for EDF because it exposes the company to further delays and cost overruns on a project that is already significantly behind schedule.

We estimate that every year of delay in completing the Flamanville project costs EDF between €500 million and €1 billion. The reactor was originally due to begin operating in 2012, but is now not scheduled to do so until 2017. As of 2012, EDF estimated the total cost of the project at €8.5 billion, up sharply from the original budget of €3.3 billion.

EDF, France’s state-controlled electricity provider, revealed in April 2015 that anomalies had been detected in the vessel of the 1.6GW nuclear reactor under construction in Flamanville, Normandy. The vessel, built under contract by French state-owned nuclear construction and services group Areva, is designed to prevent leaks of radioactive fuel.

The Flamanville reactor’s technical problems with the new European pressurised reactor (EPR) system upon which the plant is based could set back joint efforts by EDF and Areva to export the technology globally. None of the five projects using the technology have yet become operational. Areva is building an EPR-based reactor in Finland at Olkiluoto and it has experienced delays and cost overruns. (The French utility has no financial involvement in the Olkiluoto project.) EDF plans to build a 3.2 gigawatt EPR at Hinkley Point in the UK. The other two EPRs are currently being built in Taishan (China) by a consortium including Chinese operator CGNPC and EDF.

Reinforcing France’s nuclear technology export is one of the objectives the French government proposed for a broad strategic partnership between EDF and Areva. On 3 June, the government said this would include EDF taking a majority stake in Areva’s nuclear reactors and services unit. This business unit had €3.1 billion of revenues in 2014. Financial details of the proposed transaction, including any assumption by EDF of liabilities related to Areva contracts, have not been disclosed.

On 16 April, we downgraded EDF’s issuer and senior unsecured ratings to A1 from Aa3, reflecting the risks associated with the transition of EDF's French power generation and supply activities towards an increasing exposure to market power prices from a predominantly regulated cost-reflective tariff model.

The rating outlook is negative, largely reflecting the risks associated with the planned combination of activities between EDF and Areva, including the extent to which EDF could become exposed to Areva’s liabilities on past and ongoing contracts, and the financial effect of the transaction.

Paul Marty Vice President - Senior Analyst +44.0.20.7772.1036 paul.marty@moodys.com

NEWS & ANALYSIS Credit implications of current events

17 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Banks

US Restrictions on Six Large Bank Servicers Are Credit Negative; Non-Bank Servicers Will Benefit Last Wednesday, the US Office of the Comptroller of the Currency (OCC) announced that it had placed restrictions on six large banks because of their continued deficiencies in servicing delinquent loans. Although we expect the restrictions to have a limited effect on the banks’ financial metrics, the consent order is credit negative because it demonstrates, even after four years of trying, the banks’ difficulty in improving their controls and processes to current regulatory standards, thereby exposing the banks to potential additional restrictions and fines along with further damage to their reputations and franchise values.

The six affected banks are Wells Fargo & Company (A2 stable), JPMorgan Chase & Co. (A3 stable), U.S. Bancorp (A1 stable), HSBC USA Inc. (A2 stable), Santander Holdings USA, Inc. (Baa2 negative), and EverBank Financial Corp. (unrated).

The announcement is credit positive for non-bank originators and servicers such as Nationstar Mortgage LLC (B2 stable), PHH Corporation (Ba3 stable) and Quicken Loans Inc. (Ba2 stable), which have significantly increased their market share as banks have reduced their residential mortgage lending and servicing owing to increased regulatory burdens and costs.

The OCC alleges that the six banks continue to fail to comply with 2011 consent orders (that were amended in 2013) under which the banks agreed to correct deficiencies in their servicing practices. As a result, the OCC has restricted the six banks’ servicing operations from entering into new third-party servicing agreements, expanding outsourcing activities, expanding offshoring activities, and appointing new senior servicing officers. Although restricted from these four actions, each bank can seek non-objection from the OCC to take any of these actions. The exceptions are Wells and HSBC, which the OCC has outright prohibited from entering into new third-party servicing agreements and expanding offshoring activities. The OCC also terminated consent orders against Bank of America Corporation (Baa1 stable), Citigroup Inc. (Baa1 stable) and PNC Financial Services Group, Inc. (A3 stable) after determining they were in compliance.

The OCC findings revealed insufficient management oversight, process and control weaknesses, possible system deficiencies and an inability to remedy outstanding issues. Particularly troubling is that these banks have not remediated these issues since the original consent orders in April 2011 despite having increased oversight of their servicing operations and enhancing their servicing systems to address regulatory changes and heightened levels of regulatory scrutiny.

With banks retrenching, the largest non-bank mortgage companies’ percent of originations and servicing has increased significantly (see Exhibits 1 and 2). The top non-banks originated 13.1% of loans in 2014, compared with 7.7% in 2012. The top non-bank servicers’ market share has almost doubled over the past two years to 14.4% of all US residential mortgages as of year-end 2014, versus 7.7% as of year-end 2012.

Warren Kornfeld Senior Vice President +1.212.553.1932 warren.kornfeld@moodys.com

Gene Berman Assistant Vice President - Analyst +1.212.553.4139 gene.berman@moodys.com

NEWS & ANALYSIS Credit implications of current events

18 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

EXHIBIT 1

Top Ten Residential Mortgage Originators 2014 versus 2012 2014 2012

$ Billions Market Share $ Billions Market Share

Wells Fargo $175 15.6% Wells Fargo $524 25.6%

JPMorgan 78 7.0% JPMorgan 181 8.8%

Quicken 59 5.3% U.S. Bancorp 88 4.3%

Bank of America 55 4.9% Bank of America 79 3.8%

U.S. Bancorp 37 3.3% Quicken 70 3.4%

PHH 36 3.2% Citigroup 65 3.2%

Citigroup 31 2.8% PHH 56 2.7%

PennyMac Loan Services, LLC 29 2.6% Flagstar Bancorp, Inc. 54 2.6%

Flagstar Bancorp, Inc. 25 2.2% BB&T Corporation 33 1.6%

Freedom Mortgage Corporation 24 2.1% PennyMac Loan Services, LLC

21 1.1%

Total US Originations $1,122 100.0% Total US Originations $2,044 100.0%

Non-Banks in Top Ten $147 13.1% Non-Banks in Top Ten $147 7.2%

Top Ten Originators $548 48.8% Top Ten Originators $1,171 57.3%

Sources: The companies and the Mortgage Bankers Association

EXHIBIT 2

Top Ten Residential Mortgage Servicers by Loan Balance 2014 versus 2012 2014 2012

$ Billions Market Share $ Billions Market Share

Wells Fargo $1,752 17.8% Wells Fargo $1,873 18.9%

JPMorgan 949 7.0% Bank of America 1,332 13.4%

Bank of America 693 9.6% JPMorgan 1,102 11.1%

Ocwen Financial Corporation 399 3.3% Citigroup 452 4.6%

Nationstar 381 2.9% U.S. Bancorp 264 2.7%

Citigroup 325 3.9% Nationstar 208 2.1%

U.S. Bancorp 290 3.9% Ocwen Financial Corporation

204 2.1%

Walter Investment Management 256 2.3% PHH 184 1.9%

PHH 227 2.4% Walter Investment Management

90 0.9%

Quicken 161 1.6% Quicken 80 0.8%

Total $9,887 100.0% Total $9,976 100.0%

Non-Banks in Top Ten $1,424 14.4% Non-Banks in Top Ten $766 7.7%

Top Ten Servicers $5,432 54.9% Top Ten Servicers $5,789 58.0%

Sources: The companies and US Federal Reserve

The shift in volume from banks to non-bank mortgage companies results from both regulatory and market factors. Banks have realized substantially lower profitability from the mortgage market owing to rising costs, substantial fines and legal fees. Many non-bank mortgage companies do not have the same legacy issues

NEWS & ANALYSIS Credit implications of current events

19 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

that the large banks have, which minimizes the likelihood of incurring fines and legal fees. These regulatory burdens have also forced banks to become more selective, focusing predominantly on prime and super prime customers, while the non-banks are more willing to lend to riskier borrowers. These factors have resulted in significant growth in the non-bank mortgage market.

NEWS & ANALYSIS Credit implications of current events

20 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Zions’ Sale of Trust Preferred CDOs Is Credit Positive Last Tuesday, Zions Bancorporation ((P)Ba1 no outlook) announced that during the second quarter it sold $574 million (amortized cost) of trust preferred CDOs. Although this resulted in a pre-tax loss of $137 million, it also eliminated a longstanding credit risk concentration, which is credit positive. The sales of the CDOs remove an asset class that contributed to a historical credit risk concentration and was a source of earnings volatility. It will also benefit Zions’ capital because it will lessen losses under regulatory stress tests and reduce Zion’s risk-weighted assets.

The sales also illustrate that Zions’ enhanced centralized risk management function is gaining traction. Although this function is long-established at most large regional banks, Zions only began this process a few years ago. Among various organizational changes was the appointment of Zion’s first chief risk officer in 2013. The company also recently hired a new CFO upon the retirement of the previous CFO. We believe the organizational changes and improving risk management led to the decision to sell the CDOs.

The $574 million sale marks the complete exit of a portfolio that once totaled more than $2.5 billion. We view the CDOs and Zions’ commercial real estate (CRE) loans in aggregate because of the high correlation of performance (the CDOs were linked to small banks with large CRE exposures).

The exhibit below shows the substantial reduction in Zions’ concentration of CDOs and CRE to 195% of tangible common equity as of first-quarter 2015 from 540% in third-quarter 2008. The CDOs also caused large impairment charges and realized losses that the company recognized over its years of ownership. The elimination of future charges is credit positive.

Zion Bancorporation’s Commercial Real Estate and CDO Holdings

Source: Zions Bancorporation

Additionally, we expect the sale to substantially lessen Zions’ stress-test losses, particularly under the severely adverse economic scenarios in the Federal Reserve’s capital stress test. The sale will also benefit Zions’ capital ratios. These securities had a weighted average risk weighting of a high 178%. Despite the loss, the reduction of risk-weighted assets should offset this and lead to a net increase in regulatory capital ratios.

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

3Q08 Loans+CDO 3Q08 TCE 1Q15 Loans+ PF CDO 1Q15 TCE

$ Bi

llion

s

Commercial Construction Resi Construction Multifamily Commercial Mortgage Farmland CDO

CRE + CDO % TCE = 472% + 68% = 540%

CRE + CDO % TCE = 195% + 0% = 195%

Rita R. Sahu, CFA Vice President - Senior Analyst +1.212.553.1648 rita.sahu@moodys.com

NEWS & ANALYSIS Credit implications of current events

21 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Shanghai Pudong Development Bank’s Acquisition of Shanghai International Trust Is Credit Positive Last Tuesday, Shanghai Pudong Development Bank Co. Ltd. (SPDB, Baa1 stable, ba11) announced that it will buy a 97.3% stake in Shanghai International Trust Company (SIT, unrated) for RMB16.35 billion from multiple shareholders. The transaction is credit positive for SPDB because it will benefit SDPB’s asset management business and deposit base, and may result in stronger government support.

SPDB will complete the acquisition by issuing shares to 11 SIT shareholders, including Shanghai International Group (SIG, unrated), which holds a 66.33% stake, Shanghai Jiushi Corporation (unrated) and Shenergy Company (unrated). After the deal, SPDB will become the fourth commercial bank in China to hold a trust license. SIG is a financial holding company wholly owned by the Shanghai municipal government, and is SPDB’s largest shareholder with a 24.3% stake in the bank directly and through SIT and two other government-owned entities.

With a trust license, SPDB can offer its clients a broader product line, which will improve its asset management business and secure its deposit base. This is increasingly important because the competition for deposits has intensified in China following the central bank’s interest rate liberalization.

We also view this transaction as part of the Shanghai government’s plan to consolidate the financial industry and, by injecting SIT into SPDB, establish SPDB’s pillar role. SIG is one of the 11 shareholders that will subscribe to the shares SPDB issues, which we estimate will increase its stake in SPDB to 26.6%. This will strengthen the potential for support from the Shanghai government in times of need.

From a financial perspective, the effect of the deal is marginal, although it will slightly benefit SPDB’s revenue structure and return on assets. As most of SIT’s revenues are fee-based, the percentage of fee-based income for SPDB will increase slightly to 22.2% from 21% currently. We expect that SIT will grow its trust business by leveraging SPDB’s client base, and that SPDB will improve its asset management business and benefit from SIT’s diversified products, which would grow SPDB’s fee-based income and help offset the effects of interest rate fluctuations. The transaction’s effect on profitability will be marginal, with the bank’s pro forma annualized return on equity decreasing to 15.4% from 15.8% in the first quarter of 2015, while pro forma annualized return on assets increases to 1.09% from 1.06%. The bank’s capital ratio will remain mostly unchanged because the transaction involves no cash.

Although the trust business is a risk area owing to its ties to shadow banking activities, the risk in this case is limited by SIT’s relatively well-performing business. Based on those Chinese trust firms that released their annual profits for 2014, SIT placed seventh in net profits. SIT’s return on equity was around 16.8% for 2014 and 22% for the first quarter of 2015 on annualized basis (see exhibit below). SIT also holds 51% shares in China International Asset Management Co., Ltd. (unrated), the 10th-ranked asset management company in terms of assets under management as of the end of 2014.

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

Yulia Wan Assistant Vice President - Analyst +86.21.2057.4017 yulia.wan@moodys.com

NEWS & ANALYSIS Credit implications of current events

22 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Shanghai International Trust Company’s Net Profit and Return on Equity

Source: Shanghai Pudong Development Bank Co. Ltd.’s Asset Acquisition and Related Party Transaction Plan (Draft)

Additionally, given that the government is increasing its oversight of the trust industry, we expect SPDB to improve its information disclosure and corporate governance of SIT as part of the integration process to reduce its future exposure.

0%

5%

10%

15%

20%

25%

0

200

400

600

800

1,000

1,200

1,400

1,600

2013 2014 1Q15

RMB

Mill

ioin

Net Profit - left axis Return on Equity - right axis

NEWS & ANALYSIS Credit implications of current events

23 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Bank of Thailand’s Liquidity Coverage Ratio Implementation Is Credit Positive for Banks On 12 June, the Bank of Thailand announced that it had finalized detailed rules on liquidity coverage ratio (LCR) implementation for Thai commercial banks. This is credit positive for the Thai commercial banks we rate because it will further strengthen their already-strong liquidity buffers and resistance to a short-term loss of funding.

The rules, which take effect on 1 January 2016, include a minimum LCR of 60% of 30-day stress outflows, and rise incrementally to 100% by 1 January 2020. Although Thai banks have not officially reported their LCR calculations, we estimate that our rated Thai commercial banks already comply with LCR norms. The banks predominantly rely on customer deposits for funding, and have low asset-weighted average market funds ratios (market funds as a percent of tangible banking assets) of 10%. The banks also hold a significant amount of high-quality liquid assets (HQLA), including local government securities, in their investment portfolio.

We estimate the banks’ LCR, defined as Level 1 HQLA (i.e., cash, excess reserves at the central bank, government securities, and central bank debt) as a percent of assumed total deposit outflow. Thai regulatory calculations use a run-off rate of 10% of less-stable deposits, which is in line with the Basel Committee guidelines. However it is difficult to know what each bank would classify as stable or non-stable deposits on their balance sheets, so our analysis covers a range of outflows, estimated as a percent of total deposits to test the resilience of their liquidity profiles.

As the results in the exhibit below indicate, rated Thai commercial banks have more than sufficient liquid assets to cover a 15% withdrawal of their overall deposits, which supports our assumption that the banks are well in compliance with LCR norms. Their liquidity measured this way has been fairly stable for the past three years.

Thai Commercial Banks’ Weighted Average of High-Quality Liquid Assets as a Percent of Assumed Deposit Run-Off Rate

Note: Numbers on x-axis indicate the assumed deposit run-off rate. Sources: Moody’s Banking Financial Metrics and Moody’s Investors Service estimates

The Bank of Thailand’s guidelines are broadly aligned with the Basel Committee recommendations, with the exceptions being a later implementation date and the scope of LCR application. LCR calculations for Thai banks are applied on an unconsolidated basis and will exclude subsidiaries. Although the monitoring of liquidity risks and funding needs at the group level is important, we expect that the effect on the Thai banks we rate will be minimal because these banks do not have large subsidiaries.

631%

316%

210%

581%

291%

194%

605%

303%

202%

0%

100%

200%

300%

400%

500%

600%

700%

5% 10% 15% 5% 10% 15% 5% 10% 15%

FY2012 FY2013 FY2014

Daphne Cheng Analyst +65.6398.8339 daphne.cheng@moodys.com

NEWS & ANALYSIS Credit implications of current events

24 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Insurers

Prudential Will Reduce Its Exposure to Variable Annuity Guarantee Risk, a Credit Positive Last Wednesday, Prudential Financial Inc. (Baa1 stable) announced that one of its insurance subsidiaries had entered into a new business reinsurance contract with Union Hamilton (unrated), a subsidiary of Wells Fargo & Company (A2 stable). The contract, which passes the risk of the living benefit rider on one of Prudential’s most popular annuities away from the company, is credit positive because it leaves Prudential’s new sales less financially exposed to the risk of low interest rates, a decline in equity markets and policyholder behavior.

Under the terms of the contract, Prudential will reinsure 60% of its new Highest Daily Suite (HDI) 3.0 rider business written in 2015 and 50% in 2016, up to a total of $5 billion for the two years. Prudential’s HDI living benefit rider permits an annuity holder to take periodic withdrawals of around 5% per year of a prescribed benefit base amount, depending on age (higher for older contract holders and lower for younger ones).

Prudential’s HDI variable annuity, the company’s top-selling annuity, comes with an auto-rebalancing feature that shifts customer funds to fixed income as the equity markets decline, lowering the company’s hedging cost for this product and protecting policyholders’ principal against falling equity values. The 2014 breakdown of annuity sales shows that the HDI, the majority of which is HDI 3.0, is 70% of the company’s annuity sales (see exhibit below).

Breakdown of Prudential Financial’s $10 Billion of Annuity Sales in 2014

Notes: *Affected business. **Variable annuity with no equity exposure. ***Legacy variable annuity products, base contract with no living benefit guarantees and fixed annuities. Source: Prudential Financial, Inc.

Even with a less-risky product design, Prudential, similar to its peers, still faces uncertainty associated with policyholder behavior, such as the actual utilization of the benefit versus pricing. Additionally, companies selling variable annuities with living benefits must also manage potentially volatile regulatory reserve and capital requirements.

Two years ago, Prudential’s management made diversification away from equity guarantees part of its product strategy. The reinsurance contract helps accomplish this goal while allowing the company to retain fees associated with the underlying contract. Although management did not provide specifics, it indicated that it expects the contract to have a positive effect on the pricing of new business. Although Prudential

Highest Daily Suite *70%

Prudential Defined Income **19%

Other ***11%

Scott Robinson Senior Vice President +1.212.553.3746 scott.robinson@moodys.com

NEWS & ANALYSIS Credit implications of current events

25 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

must pay Union Hamilton a fee to take the rider risk, Prudential holds less capital on the base annuity, in which it is much less exposed to equity guarantees, compared with an annuity with a living benefit rider.

Variable annuities with guarantee features were in the spotlight when policyholder account values plunged along with equities during the financial crisis. The drop obliged insurers to increase reserves and capital to offset the risk of having to pay higher claims related to the guarantees. In response to the crisis, variable annuity providers including Prudential raised prices, significantly tightened product design and, more recently, emphasized sales of variable annuities without guarantees, or reinsured the guarantee. In addition to Prudential, an insurance subsidiary of Lincoln National Corporation (Baa1 stable) entered into a similar contract to reinsure its variable annuity living benefit in 2013.

NEWS & ANALYSIS Credit implications of current events

26 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Ruling of Zero Damages in Starr International Case Is Credit Positive for AIG Last Thursday, insurer Starr International Company, Inc. (SICO, unrated) filed a notice of appeal with the United States Court of Federal Claims with regard to the court’s decision earlier in the week to award zero damages to SICO in its lawsuit against the United States pertaining to the 2008 government rescue of American International Group, Inc. (AIG, Baa1 stable). SICO’s appeal notice also covered a June 2013 court decision dismissing other SICO claims.

Despite the pending appeal, we regard the court’s initial result of zero damages to SICO as credit positive for AIG, reducing the likelihood that AIG will incur losses under the indemnity provision in a credit facility granted to AIG by the Federal Reserve Bank of New York (FRBNY) as part of the government rescue.

Before the government rescue, SICO and affiliates, led by AIG’s former CEO Maurice Greenberg, were AIG’s largest shareholder, with just over 10% of its common stock. In September 2008, the FRBNY provided an $85 billion credit facility to AIG, and the United States received approximately 80% of AIG’s equity. SICO alleged that the interest rate imposed on AIG and the appropriation of 80% of AIG’s equity violated certain clauses of the US Constitution. On behalf of two classes of AIG shareholders, SICO sought damages in excess of $40 billion.

While AIG was not a party to the SICO action, the United States alleged, as an affirmative defense, that AIG was obligated to indemnify the FRBNY and its representatives, including the Federal Reserve Board of Governors and the United States, for any recovery by SICO. Under the FRBNY credit agreement, Section 8.05(b), AIG indemnified the FRBNY and its representatives for losses related to the credit agreement, subject to certain conditions.

SICO commenced its lawsuit against the United States in November 2011, and the case went to trial in the fall of 2014. In the decision announced last week, the court agreed with SICO’s claim that the terms of the government rescue amounted to illegal exaction, but awarded no damages. The court argued that the rescue did not cause any economic loss to SICO or other AIG shareholders, given that without the rescue, AIG would have filed for bankruptcy and the value of its common stock would have dropped to zero.

SICO now appeals to the United States Court of Appeals for the Federal Circuit with regard to last week’s decision as well as one issued by the claims court in June 2013. In the June 2013 ruling, the court dismissed SICO’s shareholder derivative claims, whereby SICO sought AIG’s participation in its lawsuit against the United States. Through the derivative claims, SICO alleged that the government, in addition to illegally exacting 80% of AIG’s equity, also gave away to AIG counterparties AIG’s legal rights and $33 billion of its collateral through transactions with Maiden Lane III (a special purpose vehicle) in November 2008.

AIG notes that any indemnification obligation to the United States would arise only if SICO prevails in its complaint, receives an award of damages and prevails through any appellate process; the United States commences an action against AIG seeking indemnification; and the United States is successful in such an action through any appellate process. If SICO prevails through the appellate process and the United States seeks indemnification, AIG intends to assert defenses.

We believe an ultimate ruling in favor of SICO would call into question various terms of the FRBNY credit agreement, including the indemnity provision. We regard the SICO litigation as a remote risk for AIG, with a potentially high cost, but with major uncertainties at each stage of what we expect will be a multi- year process.

Bruce Ballentine Vice President - Senior Credit Officer +1.212.553.7212 bruce.ballentine@moodys.com

NEWS & ANALYSIS Credit implications of current events

27 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Tokio Marine’s Proposed Acquisition of HCC Is Credit Negative for Tokio Marine, Credit Positive for HCC Last Wednesday, Tokio Marine Holdings, Inc. (TMHD, unrated; parent of Tokio Marine & Nichido Fire Insurance Co [financial strength Aa3 negative]) and HCC Insurance Holdings, Inc. (HCC, Baa1 review for upgrade) jointly announced that Tokio Marine will acquire HCC for ¥940 billion (about $7.5 billion) in cash.

The transaction is credit negative for Tokio Marine and credit positive for HCC. The deal will increase Tokio Marine’s goodwill and underwriting risk, and result in lower capital levels. HCC will gain the support of a higher credit quality parent.

Tokio Marine’s planned acquisition of HCC will be financed through cash on hand plus an unspecified amount of borrowings, and therefore will have a credit-negative effect on Tokio Marine’s balance sheet at least in the short term. Some of its cash will be replaced by up to ¥560 billion in goodwill. Furthermore, Tokio Marine’s leverage will increase through the consolidation of HCC’s existing debt plus any new debt taken on to finance the acquisition.

However, in the long term, there are benefits for Tokio Marine from the transaction, including diversifying the company’s P&C insurance product lines and geographical exposure and expanding its presence in the US specialty market with a highly profitable insurer. Tokio Marine, as one of the largest P&C insurers in Japan, primarily writes auto insurance, fire insurance, personal accident, and other lines. Prior to the acquisition of HCC, approximately 30% of its total revenue for fiscal 2013 (ending 31 March 2014) was earned outside of Japan. With the HCC acquisition, around 40% of Tokio Marine’s revenue will be outside of Japan. We consider a further shift in some of Tokio Marine’s geographical exposure to the US and away from Japan positive, given the negative effects of Japan’s aging and shrinking population on the domestic P&C market.

The transaction is credit positive for HCC because of Tokio Marine’s implied support to HCC’s creditors to protect its ¥940 billion investment. We expect HCC’s business strategy and risk profile will remain essentially unchanged. Also, in keeping with Tokio Marine’s past practices with acquisitions, we expect that the current management team and other key employees will remain in place. HCC has a strong franchise as a diversified specialty insurance operation with a strong earnings track record with net income of $458 million in 2014 up from $407 million in 2013, based on a disciplined underwriting culture. HCC has demonstrated expertise within its chosen insurance niches, which include directors and officers, errors and omissions, aviation, energy and marine, medical stop loss, and other specialty lines. The group generally employs an opportunistic underwriting approach, emphasizing or de-emphasizing certain lines of business depending on prevailing market conditions which helps drive its good profitability.

The transaction would partially address some of HCC’s challenges, which include the company's modest scale relative to competitors, and its product risk characteristics which include high loss limits and potential volatility in certain lines of business. One of the company's largest lines is directors and officers insurance, which has exposure to the financial services sector, and hence to lawsuits relating to financial market stresses. HCC also writes a small number of specialty financial products, such as aircraft and real estate residual value and mortgage guarantee, which historically have low loss frequency combined with high potential loss severity. Tokio Marine could provide support to HCC in a stress scenario in which one or more of HCC’s lines of business experience sizable losses.

Eiji Kubo Analyst +81.3.5408.4038 eiji.kubo@moodys.com

Jasper Cooper Assistant Vice President +1.212.553.1366 jasper.cooper@moodys.com

NEWS & ANALYSIS Credit implications of current events

28 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Sub-sovereigns

Lower Borrowing Cost to Russian Regions Is Credit Positive Last Tuesday, the Central Bank of Russia decreased a key repo refinancing rate by 100 basis points to 11.5% to increase financial sector liquidity to stimulate the economy. This rate reduction is credit positive for Russian regions because it will decrease the cost of new borrowing and will partially ease pressure on regions with high funding needs.

Before last Tuesday’s rate cut, the central bank had already pared 450 basis points off the key refinancing rate since the beginning of the year. We estimate that the new cost of funding for Russian regions will be around 12%-16%, down from over 17% (including bank loans) five months ago. As a result, we estimate that the regions we rate will save up to RUB17 billion of annual interest expense on the new debt they borrow this year to cover refinancing needs and 2015 deficits.

Exhibit 1 shows that the gradual decline in the key refinancing rate has already resulted in more than a 300-basis-point decrease in yields of Russian regional governments’ bonds this year. Interest rates on bank loans are also decreasing.

EXHIBIT 1

Russian Regional Government Yield-to-Maturity Bond Index

Source: Financial Cbonds Information

We expect that regions with substantial refinancing needs in the next 18 months will benefit most. As Exhibit 2 shows, such regions include the Republic of Komi (B1 negative), the Oblast of Nizhniy Novgorod (B1 negative), the Republic of Mordovia (B2 negative), the Krai of Krasnoyarsk (B1 negative), Oblast of Omsk (Ba3 negative) and the Oblast of Vologda (B2 negative).

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Vladlen Kuznetsov Vice President - Senior Analyst +7.495.228.6060 vladlen.kuznetsov@moodys.com

NEWS & ANALYSIS Credit implications of current events

29 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

EXHIBIT 2

Near-Term Refinancing Requirements of Moody’s-Rated Russian Regions as a Percent of 2014 Operating Revenue

Notes: All ratings have negative outlooks. For calculation of ratios for June-December 2015 refinancing needs, a corresponding fraction of annual revenues was used as a denominator. Sources: Russian Federal Treasury, issuer data and Moody’s Investors Service calculations

This decrease in cost of borrowings will not be sufficient to mitigate the increasing pressure on Russian regions from rising debt burdens following the deteriorating fiscal performance of the sector. We expect the sector-wide deficit to reach up to 10% of total revenues (or over RUB500 billion) in 2015 which could increase outstanding debt by up to 25%. In addition, the new interest rates are still 200-300 basis points higher than those during most of 2014.

0%

5%

10%

15%

20%

25%

30%Market Debt Due June-December 2015 Market Debt Due in 2016

RATING CHANGES Significant rating actions taken the week ending 19 June 2015

30 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Corporates

A.P. Moller-Maersk A/S Outlook Change 25 Sep ‘13 17 June ‘15

Long-Term Issuer Rating Baa1 Baa1

Outlook Stable Positive

The outlook change reflects improvement in the company’s financial metrics resulting from the material reduction in debt adjustments related to operating leases.

TransUnion Review for Upgrade 11 Mar ‘14 18 June ‘15

Corporate Family Rating B2 B2

Outlook Stable Review for Upgrade

The review for upgrade reflects the company's announcement that it expects to complete an IPO of its common stock that will generate approximately $620 million in gross proceeds. If the IPO is consummated, we expect TransUnion's debt to decrease by approximately $620 million, while the company anticipates about $86 million in interest cost savings. The reduction in interest expenses, coupled with TransUnion's organic revenue growth and declining spending on business optimization and technology infrastructure initiatives, would increase the company's free cash flow.

United Continental Holdings, Inc. Upgrade 23 Dec ‘14 15 June ‘15

Corporate Family Rating B1 Ba3

Outlook Positive Positive

The upgrade reflects improvements in the company’s metrics so far in 2015, with more to come as we expect the cost of Brent oil to stay well below its 2014 average of about $100 per barrel during the remainder of this year. The upgrade also takes into account the company’s demonstrated reduction of funded debt from pre-payments and its continuing focus on controlling non-fuel unit costs to support operating cash flow.

Woolworths Limited Outlook Change 28 Oct ‘05 17 June ‘15

Long-Term Issuer Rating A3 A3

Outlook Stable Negative

The outlook change reflects the continued material negative trend in comparable store sales across the Australian Food and Liquor business, the core business supporting Woolworths’ ratings.

RATING CHANGES Significant rating actions taken the week ending 19 June 2015

31 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Financial Institutions

AIG Taiwan Review for Downgrade 27 Jul ‘12 15 Jun ‘15

Insurance Financial Strength A2 A2

Outlook Stable Review for Downgrade

The review for downgrade follows American International Group, Inc.’s (AIG, Baa1 stable) announcement that AIG Asia Pacific Insurance Pte Ltd (AIG API) will sell its 100% stake in AIG Taiwan to Nan Shan Life Insurance Co Ltd (unrated) for a consideration of TWD4.923 billion ($158 million). We expect a likely reduction in the strength of parental support for AIG Taiwan. Currently, AIG Taiwan has a standalone credit profile of baa1 and its final insurance financial strength rating of A2 incorporates two notches of uplift based on the ownership and implied support from A2-rated AIG API as well as the benefits of being part of AIG's global property casualty insurance business.

Bank Uralsib Downgrade 17 Mar ‘15 17 Jun ‘15

Long-Term Local and Foreign Currency Deposit Ratings B2 Caa1

Baseline Credit Assessment b2 caa1

Outlook Review for Downgrade Negative

In light of our new global bank rating methodology, the downgrade reflects the "Weak+" macro profile of Russia (Ba1 negative) and the bank’s core financial ratios.

Burgan Bank Downgrade 17 Mar ‘15 15 Jun ‘15

Long-Term Foreign and Local Currency Deposit Ratings A3 A3

Baseline Credit Assessment ba1 ba2

Adjusted Baseline Credit Assessment ba1 ba1

Outlook Review for Downgrade Stable

In light of our new global bank rating methodology, the downgrade reflects our assessment that the bank is exposed to a weaker operating environment than that of other Kuwaiti and Gulf banks and its capitalization, as expressed by Moody's ratio of tangible common equity to risk-weighted assets, is below that of similarly rated domestic and regional peers.

RATING CHANGES Significant rating actions taken the week ending 19 June 2015

32 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Citibank Japan Upgrade 29 Nov ‘13 18 Jun ‘15

Long-Term Deposit Rating A3 A1

Outlook Stable Stable

The upgrade reflects our expectation that following the sale of its retail banking business, Citibank Japan’s more narrow franchise will increase both its dependence on, and its systemic and strategic importance to, Citigroup. As a result, we consider that Citibank Japan is highly integrated and harmonized within Citigroup and is therefore more likely to benefit from the bail-in of holding company creditors in the event of a bank resolution of Citigroup.

Daishi Bank Upgrade 18 Mar ‘15 16 Jun ‘15

Long-Term Foreign and Local Currency Deposit Ratings A3 A2

Baseline Credit Assessment baa2 baa1

Adjusted Baseline Credit Assessment baa2 baa1

Outlook Review for Upgrade Stable

In light of our new global bank rating methodology, the rating actions reflect Japan’s “Strong” macro profile, the banks’ good capitalization and liquidity profile and a very high likelihood of government support.

Five Pakistani Banks Upgraded

17 Jun ‘15

We upgraded the local-currency deposit ratings of five Pakistani banks to B3/Not-Prime from Caa1/Not-Prime and their foreign-currency deposit ratings to Caa1/Not-Prime from Caa2/Not-Prime. The affected banks are Allied Bank Ltd, Habib Bank Ltd., MCB Bank Ltd, National Bank of Pakistan and United Bank Ltd. At the same time, we raised the baseline credit assessments of Allied Bank, Habib Bank, MCB Bank and United Bank to b3 from caa1. The rating actions reflect our revised assessment of Pakistan's (B3 stable) macro profile to "Very Weak+" from "Very Weak"; our expectation that the improved economic outlook and government credit profile will lead to further improvements in the banks' financial profiles; and the government's still-limited, albeit slightly strengthened, capacity to support the banks.

Oesterreichische Volksbanken AG Downgrade 30 Oct ‘14 15 Jun ‘15

Long-Term Foreign and Local Currency Deposit Ratings B2 Caa1

Senior Unsecured Debt B2 Caa1

Baseline Credit Assessment caa3 caa3

Subordinated Debt Ca Ca

Outlook Review for Downgrade Negative

In light of our new bank rating methodology, the downgrade reflects the following considerations: (1) the "Moderate+" macro profile of Oesterreichische Volksbanken AG; (2) a reassessment of its weak financial profile as a wind-down entity with higher-risk assets, a diminishing earnings base and low capitalization; (3) the protection offered to creditors more senior in the creditor hierarchy, as captured by our Advanced Loss Given Failure liability analysis; and (4) the reduced likelihood of support from the Austrian government in the event of need.

RATING CHANGES Significant rating actions taken the week ending 19 June 2015

33 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Outlook on American Financial Group Revised to Stable

15 Jun ‘15

We revised the outlook to stable from negative on the Baa1 senior debt rating of American Financial Group, Inc., the A1 insurance financial strength (IFS) ratings of AFG's property and casualty (P&C) operations led by Great American Insurance Company (GAIC), and the A2 IFS rating of AFG's life insurance subsidiary Great American Life Insurance Company. The outlook change reflects good underwriting profit margins across the P&C group’s many specialty business segments.

Outlook on Horace Mann Educators Corporation and Subsidiary Revised to Positive

15 Jun ‘15

We revised the outlook to positive from stable on the Baa3 senior debt rating of Horace Mann Educators Corporation (HMEC) and the A3 insurance financial strength rating of its life insurance subsidiary Horace Mann Life Insurance Company (HMLIC). The outlook change reflects the improved profitability and strong capital adequacy of HMLIC and its significant contribution to the earnings of HMEC.

Radian Group Review for Upgrade 1 Apr ‘15 15 Jun ‘15

Senior Unsecured Debt B2 B2

Outlook Stable Review for Upgrade

The review for upgrade follows Radian Group’s announcement that it plans to issue $300 million in senior unsecured debt, maturing in 2020, the proceeds of which will be used mainly for the repurchase of some of its outstanding 2017 convertible notes. We believe the contemplated debt issuance would meaningfully improve the holding company's debt maturity profile and relieve near-term liquidity pressure on the group.

RATING CHANGES Significant rating actions taken the week ending 19 June 2015

34 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Raymond James Outlook Change 3 Apr ‘12 16 Jun ‘15

Senior Unsecured Rating Baa2 Baa2

Long-Term Issuer Rating Baa2 Baa2

Outlook Stable Positive

The outlook change reflects the company's improved financial metrics, sustained strong performance in growing its diverse business activities and the consistency of management's stewardship and execution. These factors have bolstered Raymond James’ consolidated earnings base while delivering low pre-tax margin volatility.

Reviews of 20 Spanish Banks Concluded

17 Jun ‘15

In light of our new bank rating methodology, we concluded our reviews of the ratings of 20 banks in Spain. In light of the new banking methodology, our rating actions generally reflect the following considerations the "Moderate +" macro profile of Spain (Baa2 positive); the improved outlook for banks' core financial fundamentals based on the strengthening operating environment; the protections offered to depositors and senior creditors as assessed by our advanced loss given failure analysis, reflecting the benefit of instrument volume and subordination protecting creditors from losses in the event of resolution; and a decline in the likelihood of government support for all Spanish banks. The rating actions include the following: 12 long-term bank deposit ratings upgraded, one affirmed, five confirmed and two downgraded; five short-term bank deposit ratings upgraded, 12 affirmed and three confirmed; eight bank senior unsecured debt ratings upgraded, two confirmed and two downgraded; two short-term bank senior unsecured debt ratings upgraded and seven affirmed; as well as six baseline credit assessments raised, 13 affirmed and one confirmed.

Review of Nine Malaysian Financial Institutions Concluded

16 Jun ‘15

In light of our new bank rating methodology , we concluded our reviews of nine Malaysian financial institutions and assigned counterparty risk assessments to eight banks. In light of our new global bank rating methodology, the rating actions reflect the following considerations: Malaysia's "Strong" macro profile, the banks' strong core financial ratios, qualitative adjustments at the baseline credit assessment level, affiliate support considerations and revisions in our government support assumptions for the Malaysian banks.

Reviews of Seven Bolivian Banks and One Leasing Company Concluded

17 Jun ‘15

In light of our new bank rating methodology, we concluded our reviews of Banco Mercantil Santa Cruz S.A., Banco Nacional de Bolivia S.A., Banco Bisa S.A., Banco Unión S.A., Banco Solidario S.A., Banco Fassil S.A., Banco Fortaleza S.A. and Bisa Leasing S.A. We lowered the global scale local currency deposit ratings of Banco Mercantil Santa Cruz S.A., Banco Nacional de Bolivia S.A., Banco Bisa S.A., Banco Solidario S.A. and Banco Unión S.A. to Ba3 from Ba2. We also downgraded Banco Solidario's global local currency senior unsecured and subordinated debt ratings. In addition, we downgraded Bisa Leasing S.A.'s global scale senior unsecured debt ratings to Ba3 from Ba2. In light of our new global bank rating methodology, the rating actions generally reflect the "Weak" macro profile of Bolivia, the banks' core financial ratios and the likelihood of government support for these institutions.

RATING CHANGES Significant rating actions taken the week ending 19 June 2015

35 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Reviews of Six Nordic Banking Groups Concluded

17 Jun ‘15

In light of our new bank rating methodology, we concluded our reviews on the ratings on six Nordic banks and their subsidiaries. In light of the revised bank rating methodology, our rating actions on these six banking groups generally reflect the following considerations: their "Strong +" to "Very Strong -" macro profiles; the banks' healthy and strengthened core financial ratios; the protection offered to depositors and senior creditors, as captured by our Advanced Loss Given Failure liability analysis, reflecting the benefit of instrument volume and subordination protecting creditors from losses in the event of resolution; and the likelihood of government support for these institutions.

San-in Godo Bank Upgrade 18 Mar ‘15 16 Jun ‘15

Long-Term Foreign and Local Currency Deposit Ratings A3 A2

Baseline Credit Assessment baa2 baa1

Adjusted Baseline Credit Assessment baa2 baa1

Outlook Review for Upgrade Stable

In light of our new global bank rating methodology, the rating actions reflect Japan’s “Strong” macro profile, the banks’ good capitalization and liquidity profile and a very high likelihood of government support.

SC Citadele Banka Upgrade 17 Mar ‘15 17 Jun ‘15

Long-Term Local and Foreign Currency Deposit Ratings B2 B1

Baseline Credit Assessment b3 b3

Adjusted Baseline Credit Assessment b3 b3

Outlook Review for Upgrade Positive

In light of our new global bank rating methodology, the upgrade reflects Citadele's "Moderate" macro profile; the bank's improving financial fundamentals, mainly strengthening profitability and decreasing problem loans; the protection offered to senior creditors by substantial volumes of bail-in-able securities, as captured by our Advanced Loss Given Failure liability analysis; and a reduction in the likelihood of government support.

Siauliu Bankas Upgrade 17 Mar ‘15 17 Jun ‘15

Long-Term Local and Foreign Currency Deposit Ratings B1 Ba2

Baseline Credit Assessment b3 b3

Adjusted Baseline Credit Assessment b3 b3

Outlook Review for Upgrade Stable

In light of our new global bank rating methodology, the upgrade reflects Siauliu's "Strong-" macro profiles; the bank's improving financial fundamentals, mainly strengthening profitability and decreasing problem loans; and the protection offered to senior creditors by substantial volumes of bail-in-able securities, as captured by our advanced loss given Failure liability analysis.

RATING CHANGES Significant rating actions taken the week ending 19 June 2015

36 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Suncorp-Metway Limited Upgrade 05 Jan ‘11 19 Jun ‘15

Long-Term Issuer Rating A1 A1

Baseline Credit Assessment baa2 baa1

Outlook Stable Stable

The upgrade reflects the bank’s reduced non-performing loans, higher capital levels and lower reliance on wholesale funding.

Two Chinese Banks Placed on Review for Upgrade

18 Jun ‘15

We placed on review for upgrade China Merchants Bank Co., Ltd's (CMB) long-term deposit rating of Baa1 and China Guangfa Bank Co., Ltd's (CGB) long-term deposit rating of Ba2. We also placed on review for upgrade CMB's long-term senior unsecured MTN program of the bank and its branches. The review for upgrade reflects our re-assessment of government support for these two banks. The review will assess whether to increase the amount of support included in the two banks' ratings in the context of their market position and shareholding structure.

Unibank Downgrade 17 Mar ‘15 17 Jun ‘15

Long-Term Local and Foreign Currency Deposit Ratings B1 B2

Baseline Credit Assessment b2 b3

Outlook Review for Downgrade Stable

The downgrade follows the conclusion of the review initiated on 17 March 2015, which had been prompted by changes arising from the implementation of our new global bank rating methodology and the bank's weakened financial fundamentals.

RATING CHANGES Significant rating actions taken the week ending 19 June 2015

37 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

US Public Finance

Louisiana Citizens Property Insurance Corp Upgrade 15 Feb ’12 18 Jun ‘15

Revenue Bonds A3 A1

Outlook Stable Stable

The upgrade reflects the company’s (1) strengthened and stabilized management and administrative processes since Hurricane Katrina, (2) track record and expertise in administering the assessment mechanism through several storms since Katrina and (3) successful efforts to transfer risk and reduce the necessity of post-event bonding in coming years.

Structured Finance Actions Taken on GCCFC 2007-GG9 On 18 June we upgraded the ratings on two classes, downgraded the rating on one class and affirmed the ratings on seven classes in Greenwich Capital Commercial Funding Corp., Commercial Pass-Through Certificates, Series 2007-GG9. The actions affected approximately $4.06 billion of structured securities, with the upgrades reflecting the increase in credit support resulting from loan paydowns, amortization, and recoveries from liquidated loans for principal and interest classes A-4 and A-1-A. We downgraded the rating on the interest-only class because the credit performance of its reference classes declined.

RESEARCH HIGHLIGHTS Notable research published the week ending 19 June 2015

38 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Corporates

Asia Pacific Telecommunications: Outlook Is Stable as Revenue Grows, Margin Contracts, Capex Declines While increased data usage on mobile devices will continue to drive revenue growth for the Asia-Pacific telecommunications industry, rising mobile-penetration rates and competition are slowing the pace of the growth. Companies’ revenue growth will remain broadly in line with their home countries’ GDP growth, given the domestic nature of the business. US Corporates: M&A, Shareholder Returns Drive Lower Cash Balances At Spec- Grade Firms Aggregate cash holdings continued to rise among investment-grade companies in 2014, but fell among speculative-grade companies, driven by the latter’s steeper increases in capital spending and heavier allocation of discretionary cash flow to shareholder returns and acquisitions. Investment-grade cash has increased in each of the last seven years, and we expect growth again this year based on our expectations for cash flow generation and overall spending. Global Pharmaceuticals: Merck, Roche and Others Challenge Bristol's Lead in Immuno-Oncology Bristol-Myers Squibb is currently the leader in the development and commercialization of the new drugs, but competitors Merck, Roche and AstraZeneca are not far behind. Competitive dynamics will evolve based on clinical trial results, collaborations, drug combination approaches and diagnostic tests to determine which patients will have the best response. Moody's High Yield Covenant Database: North American Automotive Bond Covenant Protection Remains Weak Even excluding automobile manufacturers’ high-yield lite covenant packages, bonds from the automotive industry had an average covenant quality score of 4.32, still weaker than the 3.91 recorded for other US non-financial sectors. Growth in demand continues to drive investor appetite for bonds from the industry despite their offering less protection in most of the risk categories we look at. Mexican Homebuilders See Housing Subsidy Increase, a Credit Positive The representatives of Mexico’s Ministry of Agrarian, Land and Urban Development and Mexican Ministry of Finance, have announced a MXN2.7 billion increase in the housing subsidies to homebuyers in 2015. The announcement is credit positive for Mexican homebuilders because the subsidies will increase demand for low-income housing. Additionally, it is proof of the federal government’s support for the sector, particularly after recent cuts in the federal budget. Liquidity and Funding Considerations for Corporates Under Basel III The Basel III framework will help improve the banking sector’s ability to absorb shocks arising from financial and economic stress. It could thereby create greater stability in the credit markets, which is beneficial for corporates. However, if banks are to earn an adequate return on the higher capital and liquidity positions required under Basel III, they will need to increase pricing for their services and possibly exit unprofitable lines of business.

RESEARCH HIGHLIGHTS Notable research published the week ending 19 June 2015

39 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

US Automotive Retail Services: CEI’s Acquisition of Dealertrack Raises the Heat in Dealership Management Sector Cox Enterprises Inc.’s (CEI, Baa2 stable) announcement that it is acquiring DealertrackTechnologies Inc. (Ba3 stable) is credit positive for Dealertrack, which will benefit from CEI’s much larger financial resources and deeper reach within the US retail automotive market. But the deal stands to pressure the leading providers of customized dealership management systems, including CDK Global Inc. (Baa3 stable) and Dealer Computer Services (dba Reynolds & Reynolds, Ba3 stable), which together control about 90% of the US dealership management systems market. North American Chemicals: EPA Proposal Credit Negative for Ethanol Producers The Environmental Protection Agency’s recent proposal for effective US fuel ethanol volume requirements through 2016 is credit negative for ethanol producers. While the proposed volumes for 2015 and 2016 are still higher than existing levels and a new subsidy for blender pumps could improve ethanol infrastructure in the US, the revised volume requirements are below both the levels set by the Renewable Fuel Standard of 2007 and the current production capacity of the ethanol industry. Investment-Grade Transition Risk Quarterly Update - First Quarter 2015 This special comment discusses recent changes in the credit quality of investment-grade corporate and financial issuers, focusing on fallen angels and rising stars. We downgraded 42 companies from investment grade to speculative grade in the first quarter of 2015. Two thirds (28) of these rating actions followed the downgrade of Russia’s government rating to Ba1 from Baa3 in February.

Global Marine Seismic Industry: Uncertainty about Recovery to Prolong Pressure on Seismic Companies The 55% plunge in benchmark crude prices from June 2014 to March 2015 has made companies more cautious in terms of offshore exploration activity, as they seek to align their spending with diminished cash flow expectations. Spending on seismic is typically the first item that oil exploration and production companies cut and the last they reinstate when they resume investing. SGL Monitor: Energy Continues to Fuel LSI Gains, But Support Remains The Liquidity Stress Index (LSI) for US speculative-grade companies hit a four-and-a-half-year high in mid-June, continuing its rise over the past year on the back of liquidity pressures in the oil and gas sector. The LSI, which declines when liquidity improves, stood at 4.8% in mid-June, up from 4.7% in May. North American Trucking: Chassis Owner's Expected to Continue Diving into Pools The transition from longer-term leasing to a daily pooling model has resulted in better-than-expected financial performance for the two largest North American chassis owners. TRAC Intermodal, LLC (B1 stable) and Flexi-Van Leasing, Inc. (B1 stable) have enjoyed increases in profitability and asset returns as chassis demand remains elevated at major US ports. Elevated container inflow has led to heightened demand for chassis, currently outstripping supply.

RESEARCH HIGHLIGHTS Notable research published the week ending 19 June 2015

40 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Infrastructure

Korea Hydro and Nuclear Power Company: Decommissioning of Reactor Is Credit Neutral On 9 June, Korea Hydro & Nuclear Power Company Limited (KHNP, Aa3 positive), a 100% owned subsidiary of Korea Electric Power Corporation (KEPCO, Aa3 positive), decided not to seek a second extension of the operational life of the Kori #1 nuclear reactor with a capacity of 587 megawatts. Although the decommissioning was on the recommendation of the Korean government (Aa3 positive), the decision does not signal a change in the government's policy towards the country's nuclear power generation, and therefore has no immediate impact on KHNP's or KEPCO's credit quality.

Italian Energy Networks: Regulator’s First Consultation Paper on New WACC for Energy Grids is Credit Neutral The consultation paper prioritizes the stability and continuity of the regulatory framework, and preserves the goal of ensuring fair capital remuneration to the operators of electricity and gas distribution networks. The paper does not disclose potential outcome ranges, but our expectation of an average cut of approximately 150 basis points in weighted average cost of capital (WACC) from 2016 seems consistent with its guidelines, as well as our assessment of the potential impact of lower allowed WACCs on Italian utilities with exposure to energy networks.

RESEARCH HIGHLIGHTS Notable research published the week ending 19 June 2015

41 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Financial Institutions

Spain Banking System Outlook We have revised our outlook for Spain’s banking system to positive from negative, with a robust domestic economic recovery helping the country's financial institutions to strengthen their credit fundamentals. While these improvements are coming from a low base, and legacy issues from the crisis will weigh on the country and its banks for years to come, we do not expect any major credit issues – save for external shocks – to derail the positive trajectory over the next 12 months.

Money Fund Consolidation Is Credit Positive For Managers and Investors The European money market fund industry is increasingly dominated by fewer – and more sophisticated – players with a reduced number of funds. Fund managers facing higher operating and compliance costs will gain by merging, because volume will offset profit margin compression. These developments favor large players that can leverage the liquidity business as part of their broader strategy.

Money Market Fund Reform in US, EU: Similar Rules, Different Effects As in the US, the goal of proposed money market fund (MMF) reforms in Europe is to enhance MMFs' ability to withstand stressed market conditions. However, in Europe, unlike the US, institutional prime constant net asset value MMFs will transition to variable net asset value funds only gradually, with a new, five-year interim fund category called low-volatility net asset value.

RESEARCH HIGHLIGHTS Notable research published the week ending 19 June 2015

42 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Sovereigns Pakistan Sovereign: Key Drivers Behind the Upgrade to B3 Pakistan’s net foreign reserves climbed to $12.3 billion as of 5 June 2015 from just $3.2 billion in January 2014. Proceeds from successful privatization offerings and progress on structural reforms have reinforced its position, while the China-Pakistan Economic Corridor will, over time, bolster growth through investment in transportation and power generation infrastructure. As progress on these fronts becomes more firmly entrenched, the risk that Pakistan will default recedes.

Japan Sovereign: Acceleration in GDP, Wage Growth Is Credit Positive Japan’s (A1 stable) government has announced that the economy expanded at a much faster pace than it previously reported in the January-March quarter, with figures indicating a modest pickup in wage growth. The data are credit positive, as a stronger economy would increase tax revenues and facilitate steps toward fiscal consolidation, including a planned hike in the consumption tax in April 2017.

Bulgaria Sovereign Analysis Bulgaria’s Baa2 rating is underpinned by debt metrics that compare favorably with those of similarly rated peers, and the stabilization of its external position. Despite external headwinds, deflation and the collapse of the Corporate Commercial Bank, Bulgaria’s real growth accelerated to 1.7% in 2014 from 1.1% in 2013.

Belize Sovereign: Key Drivers for Caa2 Stable Affirmation We forecast that economic activity in Belize will expand by 2.5% in 2015-16, in line with its long-term average growth of 2.5%-3.0%, underpinned by continuing strength in the tourism sector and further recovery in agricultural output. Construction activity is likely to slow as public investment projects will be cut back, following the government’s efforts to boost capital expenditure in 2014 and rebuild infrastructure that was damaged by the heavy rains the previous year. Furthermore, declining oil output will continue to drag on economic performance.

Finland Sovereign Analysis Finland’s Aaa rating reflects fiscal prudence and institutional strength, which are both among the strongest in our sovereign ratings universe, and which reflect broad political commitment to fiscal consolidation and economic renewal. The key credit challenges for Finland are to improve its growth outlook and to reverse the rise in the government’s debt load, which is particularly difficult in light of Finland’s subdued economic outlook.

RESEARCH HIGHLIGHTS Notable research published the week ending 19 June 2015

43 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Sub-sovereigns

English Housing Associations: Macroeconomic Assumptions Will Not Provide the Same Cushion Going Forward English Housing Associations (HAs) have over the past three years generally outperformed the projections set out in their long-term business plans. This is partly because those plans have been based on conservative macroeconomic assumptions regarding inflation and interest rates. However, changes in the economic and regulatory environment, and in HAs’ own debt profiles, mean these assumptions will no longer provide the same cushion going forward. Future outperformance relative to HAs’ business plans will therefore likely depend more on operational efficiency.

US Public Finance

Virginia's Hampton Roads Region Responds to Flood Risk Vulnerable to flooding because of its location, southeastern Virginia municipalities need to further bulk up capital infrastructure investment even though preventative risk planning and measures have mitigated any negative credit impact from flooding. By proactively managing these challenges, the municipalities can insulate themselves from severe credit impact. The region is home to the world’s largest naval base and is the second-largest US east coast port.

Municipal Broadband Systems Expose Local Governments to Enterprise Risk Local governments operating municipal broadband services are exposed to the enterprise risk of supporting a nonessential service in a highly competitive landscape. These systems need to remain nimble to capture customers, entailing constant capital improvements to incorporate technological changes and speed. Thus, pressure to invest is heightened and usually accomplished via debt issuance. These debt structures can increase risk in the first few years.

RESEARCH HIGHLIGHTS Notable research published the week ending 19 June 2015

44 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

Structured Finance

European CLO 2.0s' Selective Retail Exposure Is Credit Positive The credit quality of retail companies in European CLO 2.0 transactions is better than the credit quality of the overall retail sector because the companies are in economically stable countries such as the UK, Germany and the Netherlands. We expect modest to strong retail sales growth in these countries as a result of low and declining unemployment rates. Performance of the retail sector will continue to vary significantly by country in Europe, but the exposure of CLO 2.0s to retail companies in the UK in particular, which we believe will outperform the euro area, is credit positive.

Global RMBS Prepayment Rates Will Remain Steady Collateral performance in global residential mortgage-backed securities (RMBS) will remain stable as a result of steady constant prepayment rates (CPR), which serve as a measure of voluntary prepayment activity in RMBS and hence of the degree of related prepayment risk in these transactions. In European RMBS, improving macroeconomic conditions and competition among lenders will cause CPRs to increase slowly across the continent. In the US, CPRs will remain steady as many borrowers have already refinanced given low interest rates.

New York High Court Rules that Reps and Warranties End Six Years from Deal Closing, a Credit Negative for RMBS and CMBS This decision is credit negative for residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) because some representation & warranty (R&W) breaches may only be apparent much later than six years after a deal closes. In addition, the ruling is now controlling law in New York, where many RMBS and CMBS R&W breach lawsuits are heard. However, one credit-positive aspect of the ruling is that for future transactions, the court obliquely indicated that agreements expressly providing that R&Ws last for the life of the loan should be enforceable.

Kookmin Bank Covered Bond Demonstrates New Funding Option for Korean Banks and Improved Credit Protection to Investors The establishment of Korea’s first covered bond program by Kookmin Bank is credit positive for Korean banks because it provides a new funding option for that will be more readily available in times of financial crisis. Kookmin’s program is multi-series and allows for more timely issuance, and its structure is comparable with other global covered bond programs, which will help improve the liquidity of Korean covered bonds.

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

45 MOODY’S CREDIT OUTLOOK 22 JUNE 2015

NEWS & ANALYSIS Corporates 2 » CVS Pays $1.9 Billion for Target Pharmacy…and a

Growth Opportunity » Target Sells Underperforming Pharmacy Business to CVS, a

Credit Positive » Cox Enterprises' Acquisition of DealerTrack Is Credit Negative » Colt Defense's Chapter 11 Bankruptcy Filing Is Credit

Negative for Bondholders » Conditional Approval for Canadian LNG Project Is Credit

Negative for PETRONAS » POSCO Will Benefit from Sale of 38% Stake in Engineering

and Construction Unit » Vedanta Resources Will Benefit from Plan to Merge Vedanta

Ltd. and Cairn India » Lidl’s Move into Australia Would Be Credit Negative for

Supermarket Leaders Woolworths and Coles

Banks 10 » Russia Lowers Key Rate, Alleviating Pressure on Bank Margins » China Proposes Credit-Positive Change for Margin Financing

and Securities Lending Rules » Kookmin Bank Covered Bond Programme Is Credit Positive

Insurers 16 » Sun Life Acquires Real Estate Asset Manager, a Credit Positive

Sovereigns 17 » MERS Virus Weakens Consumer Sentiment in Korea,

a Credit Negative

US Public Finance 19 » Rhode Island Retires Longstanding Pension Litigation

Securitization 21 » New York High Court Rules that Reps and Warranties End Six

Years from Deal Closing, a Credit Negative for RMBS and CMBS

MOODYS.COM

Report: 182473

© 2015 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATING AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY’S (“MOODY’S PUBLICATIONS”) MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS FOR RETAIL INVESTORS TO CONSIDER MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS IN MAKING ANY INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s Publications.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc., have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc., for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

For Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail clients. It would be dangerous for “retail clients” to make any investment decision based on MOODY’S credit rating. If in doubt you should contact your financial or other professional adviser.

For Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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