MOODYS.COM

8 JULY 2013

NEWS & ANALYSIS Corporates 2

» US Tax Claims Are Credit Negative for Tyco International Ltd. and Its Former Subsidiaries

» A Charter Takeover of Time Warner Cable Would Be Credit Negative

» Tribune to Increase Debt by $2.7 Billion to Pay for Local TV Stations, a Credit Negative

» Intuit’s Planned Sale of Its Financial Services and Healthcare Units Is Credit Negative

» US Home Health Rate Cuts Would Be Credit Negative for Gentiva » HD Supply’s IPO Will Help It Pay Down Debt » Coca-Cola FEMSA’s Acquisition of Bottler Fluminense Is Credit

Positive » Royal Philips’ Pension Plan Agreement Is Credit Positive » Saint-Gobain’s 73% Take-Up of Scrip Dividend Option Is Credit

Positive » Proposed Medicare Cuts to Dialysis Reimbursements Would Be

Credit Negative for Fresenius Medical Care » Sappi’s Sale of Forestland Assets in Swaziland Is Credit Positive » China’s Natural Gas Price Increase Is Credit Positive for Chinese

Gas Companies » Suntory’s Spinoff of Its Beverage and Food Unit Is Credit

Positive

Banks 15

» US Bankruptcy Court Rules SIPA Does Not Protect All Repo Claims, a Credit Negative for Counterparties

» Brazilian Government Changes BNDES’ Dividend Rules, a Credit Negative

» Brazil’s Banks Large Exposures to EBX Group Companies Are Credit Negative

» Itaú’s Acquisition of Citigroup’s Uruguayan Retail Business Is Credit Positive

» Dutch Parliament Proposes Lowering Bank Levy to Protect Capitalization, a Credit Positive

» Metropolitan Bank & Trust’s Sale of Non-Core Assets Is Credit Positive

Insurers 25 » Pooling of UK Flood Risk Is Credit Positive for Property and

Casualty Insurers

Sovereigns 27

» Egypt’s Political Crisis Deepens Polarization, a Credit Negative » Peru’s Civil Service Reform Is Credit Positive » IMF Reaches Agreement on Financial Support for Pakistan, a

Credit Positive

US Public Finance 31 » Our New Pension Data for US States Show the Costs of

Underfunding » Maine Decreases Local Governments’ Revenue Share in State’s

Biennial Budget, a Credit Negative » New York Court Upholds MTA Payroll Mobility Tax, a Credit

Positive » Vote by Glendale, Arizona to Support Professional Hockey Is

Credit Negative

RATINGS & RESEARCH Rating Changes 38

Last week we downgraded Cengage Learning Acquisitions, Empire Today, OGX Petroleo e Gas Participacoes, The Housing Bank for Trade and Finance, Cairo Amman Bank, Arab Bank PLC, Bankia, Catalunya Banc, NCG Banco, Banco Popular Espanol, and five Spanish covered bond programs, and upgraded KION Group, Sociedad Concesionaria Autopista Vespucio Sur, Sociedad Concesionaria Rutas del Pacifico, and Standard Bank, among other rating actions.

Research Highlights 45

Last week we published on US cable, global airlines, Spanish banks, Lithuania, Bulgaria, Bangladesh, CLOs and US RMBS, among other reports.

RECENTLY IN CREDIT OUTLOOK

» Articles in Last Monday’s Credit Outlook 47 » Go to Last Monday’s Credit Outlook

Click here for Weekly Market Outlook, our sister publication containing Moody’s Analytics’ review of market activity, financial predictions, and the dates of upcoming economic releases.

NEWS & ANALYSIS Credit implications of current events

2 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Corporates

US Tax Claims Are Credit Negative for Tyco International Ltd. and Its Former Subsidiaries Last Monday, Tyco International Ltd., the guarantor of Tyco International Finance S.A. (A3 stable), disclosed that the US Internal Revenue Service (IRS) is denying the deductibility of about $2.86 billion of interest on intercompany loans that the company had claimed as expenses for the 1997-2000 tax years. As a result of the denial, the IRS is seeking payment of $1.067 billion in taxes, penalties and other related liabilities (excluding applicable interest). The claims are shared liabilities of Tyco and its former subsidiaries Tyco Electronics and Tyco Healthcare, which were spun off in 2007 and are now known, respectively, as TE Connectivity Ltd., whose borrowing entity is Tyco Electronics Group S.A. (Baa2 positive), and Covidien plc, whose borrowing entity is Covidien International Finance S.A. (Baa1 stable). Each is liable for the entire amount in the unlikely event that the others default.

The IRS claims are credit negative for Tyco, TE Connectivity and Covidien because the potential tax liabilities would consume liquidity and potentially result in modest upticks in debt. Tyco has said it will challenge the claims in US Tax Court. But if the IRS were to fully prevail in court, the company said it would expect the IRS to disallow $6.6 billion in interest deductions on intercompany loans for later periods as well. We estimate such an outcome will increase the IRS’ total claims by more than threefold to $3.46 billion, before applicable interest. Our estimate does not take into account pre-separation tax positions, including net operating loss carry-forwards at one or more of the companies, which could materially reduce any claims (e.g., TE Connectivity’s carry-forwards totaled $1.3 billion as of 30 September 2012).

Interest would apply on the amount of any settlement of taxes due for 1997-2000 and subsequent years. Interest accruals could be substantial and the total potential liability could grow over time. Resolution of the 1997-2000 and subsequent tax year issues may take several years. Any settlement, regardless of the amount, will adversely affect all three entities’ liquidity – and potentially their ratings – should significant debt be incurred to fund a settlement. Still, as the firms have several years to retain cash, shore up existing backup revolving credit arrangements or issue debt in advance of future settlement, any rating effect is uncertain at this time.

Each company has substantial liquidity and appears able to fund the current claim or a substantially larger claim over the next few years if needed. Under a 2007 agreement regarding their pre-separation tax liabilities, their respective shares of the total IRS liability would be 27% for Tyco, 31% for TE Connectivity and 42% for Covidien. Under a separate 2012 tax-sharing agreement, two other former Tyco subsidiaries – The ADT Corporation (Baa2 negative) and Tyco Flow Control acquirer Pentair, Inc. (Baa2 stable), whose principal borrowing entity is Pentair Finance S.A. (Baa2 stable) – would pay a portion of any Tyco liabilities in excess of $500 million.

Matthew B. Jones Vice President - Senior Analyst +1.212.553.3779 matthew.b.jones@moodys.com

NEWS & ANALYSIS Credit implications of current events

3 MOODY’S CREDIT OUTLOOK 8 JULY 2013

A Charter Takeover of Time Warner Cable Would Be Credit Negative Over the past week, there have been widespread media reports that Liberty Media Corp. (unrated) Chairman John Malone is angling to take over Time Warner Cable, Inc. (TWC, Baa2 stable), through his 27% stake in Charter Communications Inc. (Ba3 stable). If Mr. Malone were to strike a deal and succeed, it would be credit negative for TWC because of the additional debt that would most likely be needed to finance such a large deal.

Our analysis suggests that the combined company’s leverage would be a steep 5.4x, compared with TWC’s current debt/EBITDA of 3.4x, assuming funding the purchase included $20 billion each of additional debt and equity.

The sharp leverage increase would likely knock TWC’s investment-grade position to a high-yield rating of Ba. In addition, TWC bondholders would face exposure to other risks. The company has no poison pill or other strong defenses, short of increasing its scale through acquisitions, to ward off unsolicited bids. That would be problematic for existing bondholders because they would face daunting exposure to a highly leveraged company.

The additional debt from a Charter takeover of TWC would raise the combined company’s overall debt to almost $60 billion, making it the largest high-yield, non-financial corporate issuer by far or among the 10 largest investment-grade, non-financial corporate issuers. In our view, this would make the deal particularly difficult to finance, and make debt issuance much costlier.

Neil Begley Senior Vice President +1.212.553.1977 neil.begley@moodys.com

NEWS & ANALYSIS Credit implications of current events

4 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Tribune to Increase Debt by $2.7 Billion to Pay for Local TV Stations, a Credit Negative Last Monday, Tribune Company (Ba3 review for downgrade) agreed to buy 19 stations in 16 markets from Local TV Finance, LLC (B3 stable) and sister company FoxCo Acquisition Sub, LLC (B2 stable) for $2.725 billion in cash. Although the acquisition, which will accelerate broadcast industry consolidation, makes strategic sense, the transaction is credit negative because it will increase Tribune’s leverage. On Tuesday, we put Tribune’s rating under review for downgrade in connection with the deal.

The acquisition will boost two-year average debt/EBITDA to more than 4x from 3x (including our standard adjustments), which remains within the Ba3 rating category for pure-play broadcasters. However, under terms of the $3.8 billion credit facility Tribune will issue to fund the deal, the company is permitted to use proceeds from the sale of its publishing assets, equity investments or real estate to fund dividends rather than repay debt. If it opted to fund dividends, such a move could push leverage to levels that exceed the Ba3 category for broadcasters.

Moreover, Tribune, the nation’s third-largest newspaper publisher and owner of dailies such as the Baltimore Sun, Chicago Tribune and Los Angeles Times, has signaled it plans to sell publishing assets. The newspaper businesses that could be divested account for more than $200 million of EBITDA, or over 20% of the company’s total EBITDA. If Tribune were to lose this EBITDA and use the sale proceeds for dividends rather than for repaying debt, leverage would rise to more than 5x, which could result in our downgrading the rating by one notch.

Despite the risk of higher leverage, the acquisition makes strategic sense and will give Tribune more access to a fast-growing and more lucrative market than publishing. Pro forma for the Local TV and FoxCo purchase, Tribune would operate 42 television stations (47% of pro forma 2012 revenue) in 33 markets, 14 of which would be in the 20 largest US markets, and reach 44% of US households, the most of any TV broadcaster.

The acquisition also adds meaningfully to Tribune’s network and geographic mix and provides it with greater scale and leverage when negotiating with cable and satellite operators over retransmission fees (fees that distributors such as cable and satellite companies pay broadcasters to carry their signals) or when negotiating with networks or programming suppliers.

Carl Salas Vice President - Senior Credit Officer +1.212.553.4613 carl.salas@moodys.com

NEWS & ANALYSIS Credit implications of current events

5 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Intuit’s Planned Sale of Its Financial Services and Healthcare Units Is Credit Negative Last Monday, Intuit Inc. (Baa1 stable) said it had agreed to sell its financial services division to private-equity firm Thoma Bravo LLC (unrated) for about $1.025 billion in cash. The company also said it plans to sell its small healthcare business, Intuit Health Group. The planned sales of the two non-core businesses, which account for about 7% of Intuit’s total revenue, are credit negative because the company plans to use the proceeds from the sale of the financial services division to accelerate share repurchases and because the divestitures will reduce Intuit’s scale and diversity.

We expect the sale of the financial services division, which excludes its online money management service Mint.com and its business information exchange unit OFX, to close in early September. We anticipate that the planned sale of Intuit Health Group will generate less than $100 million in proceeds and expect it to close by the end of the year.

The planned transactions should leave Intuit more focused on its core tax preparation and small business software products, which command higher profit margins than the soon-to-be-divested businesses. In addition, acquisition activity may decline because the company will no longer feel pressure to achieve scale in its small financial services and healthcare divisions via acquisitions.

As a result, Intuit will retain solid financial metrics for its Baa1 rating. We expect 2013 debt/EBITDA of less than 0.75x and free cash flow (after dividends but before share repurchases) in excess of $900 million. With balance sheet cash of more than $1 billion, liquidity is good.

Edmond DeForest Vice President - Senior Analyst +1.212.553.3661 edmond.deforest@moodys.com

NEWS & ANALYSIS Credit implications of current events

6 MOODY’S CREDIT OUTLOOK 8 JULY 2013

US Home Health Rate Cuts Would Be Credit Negative for Gentiva On 27 June, the US Centers for Medicare & Medicaid Services (CMS) issued a proposal that, if implemented, would result in significant Medicare reimbursement cuts for home health companies over the next three years. The worse-than-expected proposal – which is the maximum rate cut allowed under the federal Affordable Care Act – is credit negative for home healthcare providers, including Gentiva Health Services, Inc. (B3 stable).

The proposal seeks to slash the reimbursement rate that Medicare pays to home health companies by 3.5% each year from 2014 to 2017. Home health companies provide nursing and other therapeutic services to patients at home, typically after acute-care hospital stays or to help them manage chronic conditions.

We estimate that approximately 44% of the $1.7 billion in revenues that Gentiva reported for 2012 came from Medicare-reimbursed home healthcare services. If the company is unable to offset the effect of the proposed rate cuts on its top-line results, we estimate its EBITDA could decline by as much as 40% from 2012 levels within the next three years.

CMS has yet to approve or finalize its rate cut plan. The agency is seeking public comment on its proposal until 26 August 2013 and it is possible that it will lower the final rate reduction. In addition, the proposal contains some elements that could help offset the rate cuts, at least initially. These include a home health payment percentage update and a suggested 3.5% annual increase in low-utilization payment adjustments per-visit payment amounts. Taking these offsets into account, the rate reduction’s net effect would be around negative 1.5% in 2014. However, under the current proposal, the rate cut would return to 3.5% per year, beginning in 2015.

Gentiva’s operating results have already been hurt by Medicare reimbursement rate cuts for home health services in 2011 and 2012. But we expect the reimbursement environment for hospice services – which are the other half of Gentiva’s business – to remain benign for the next couple of years. This will help buffer the negative earnings pressure on Gentiva’s home health business.

Gentiva’s sound liquidity would also help cushion the blow of a home-care rate cut, at least initially. As of 31 March, the company maintained a sizable cash position of approximately $160 million and had around $65 million of additional liquidity under its revolving credit facility. Current free cash flow is approximately $50-$60 million, further supporting its ability to withstand reimbursement rate cuts.

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

NEWS & ANALYSIS Credit implications of current events

7 MOODY’S CREDIT OUTLOOK 8 JULY 2013

HD Supply’s IPO Will Help It Pay Down Debt On 27 June, HD Supply Holdings (unrated) said it had raised about $1.1 billion from an initial public offering (IPO) of 61.1 million shares of subsidiary HD Supply, Inc. (B3 stable). The share flotation is credit positive for HD Supply, one of the largest North American industrial distributors, because it will use about $1.0 billion to reduce debt, while the balance will help pay transaction fees and other expenses.

In applying most of its IPO cash toward debt reduction, HD Supply will significantly improve its credit metrics, reducing its pro forma debt/EBITDA to about 7.8x from 9.0x today, reflecting our standard adjustments. It will also save HD Supply about $100 million in annual interest payments, increasing its interest coverage – which we define as the ratio of EBITDA minus capex over interest expense – to slightly above 1.0x from 0.9x for the 12 months through 5 May, the end of HD Supply’s first quarter. The company indicated it will likely redeem its $950 million 10.5% senior subordinated notes due 2021 on 1 August, the earliest that the redemption can occur at a 103% redemption price premium.

HD Supply’s operating performance depends on numerous industries, rather than a single end market. The company supports commercial and residential construction, and to a lesser extent, electrical consumption and repair and remodeling. HD Supply also provides maintenance, repair and operations services – a steady source of revenues.

HD Supply’s revenues, profits and operating margins have improved largely because of its successful sales initiatives and cost reductions within its Facilities Maintenance, Waterworks, and Power Solutions businesses. However, HD Supply derives much of its revenue from the construction industry, which is in the early stages of a tentative recovery. US residential construction is now showing signs of a sustained revival. Our forecast estimates that new housing starts will rise steeply to 950,000 in 2013, up from an estimated 780,000 in 2012 and 610,000 in 2011.

Peter Doyle Vice President - Senior Analyst +1.212.553.4475 peter.doyle@moodys.com

NEWS & ANALYSIS Credit implications of current events

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Coca-Cola FEMSA’s Acquisition of Bottler Fluminense Is Credit Positive On 28 June, Coca-Cola FEMSA, S.A.B. de C.V. (A2 stable) said it would acquire Brazilian bottler Companhia Fluminense de Refrigerantes, S.A. (unrated) for $448 million in cash. The acquisition is credit positive because it will expand Coca-Cola FEMSA’s presence in Brazil, and the purchase price will have little effect on its credit metrics.

Coca-Cola FEMSA, Latin America’s largest Coca-Cola bottler, is acquiring a rival whose Brazilian business is about one tenth the size of its own. In the 12 months ended 31 March, Coca-Cola FEMSA sold approximately 486 million unit cases in Brazil, excluding beer, while Fluminense sold close to 57 million unit cases.

Although Fluminense is much smaller, the acquisition will provide Mexico City-based Coca-Cola FEMSA with potential operating efficiencies. Fluminense’s distribution territories in the populous Brazilian states of Minas Gerais, Sao Paulo and Rio de Janeiro are adjacent to Coca-Cola FEMSA’s current footprint in Brazil. The deal will increase Coca-Cola FEMSA’s Brazilian points of sale by 15,000 to close to 195,000.

The cash acquisition of Fluminense, a privately owned Coca-Cola bottler, will have little effect on Coca-Cola FEMSA’s credit metrics. Fluminense will increase Coca-Cola FEMSA’s EBITDA by about $40 million and add essentially no debt. We estimate that net debt/EBITDA leverage, including our standard adjustments, will remain essentially unchanged at 0.7x as of 31 March. The deal will reduce Coca-Cola FEMSA’s cash to about $637 million, but this is still 1.7x its short-term debt as of 31 March.

The deal continues an acquisition spree for Coca-Cola FEMSA. The company made its first foray outside of Latin America in December when it acquired a 51% stake in Coca-Cola Bottling Philippines, Inc. (unrated) for $688.5 million, and it has merged with several Mexican bottlers including Grupo Yoli in January.

Alonso Sánchez Rosario Assistant Vice President - Analyst +52.55.1253.5706 alonso.sanchezrosario@moodys.com

NEWS & ANALYSIS Credit implications of current events

9 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Royal Philips’ Pension Plan Agreement Is Credit Positive Last Monday, Royal Philips N.V. (A3 negative) announced it had signed an agreement with Dutch trade unions, including a collective wage increase and changes in Philips’ Dutch pension plan (the company’s largest pension plan). The agreement, which is subject to customary approvals, improves Philips’ credit profile because it will no longer be liable for funding the plan’s potential future deficits, effectively converting it to a defined-contribution pension plan from a defined-benefit plan.

The proposed changes in the Dutch pension plan comprise a change in the retirement age (to 67 years from 65 years), a fixed annual company cash contribution rate for the next five years and the introduction of an employee contribution. Philips will make a one-off €600 million contribution to the company’s Dutch pension fund. For the US pension fund, for which Philips made similar agreements, it will post a one-off curtailment gain of €78 million in the second quarter, which will be included in reported EBITA.

Philips’ debt/EBITDA was 2.9x on our adjusted basis at the end of March and is currently weaker than our minimum 2.0x level for the A rating category. At the end of March, Philips reported gross debt of €4.6 billion and total cash of €3.1 billion. Our adjusted debt includes roughly €879 million of pension adjustments and €2.0 billion for operating leases. Consistent, though fairly low, profitability (the company’s EBITA margin was 7.0% for the 12 months ended in March, based on our adjusted figures) on top of modest leverage and lower interest rates has allowed interest coverage to remain adequate with EBITA/interest of 4.0x for the 12 months ended in March. We expect that the transaction, once completed as described, will further decrease the adjustment for pension obligations, thus improving adjusted leverage and coverage ratios depending on how the company funds its contribution to the Dutch pension fund.

Our current negative outlook on Philips’ rating primarily reflects the risk that the company’s profitability may remain below the requirements for an A3 rating despite the group’s ongoing Accelerate! business transformation and cost savings programs, and that its cash flow generation may also remain fairly weak as well as volatile. However, the results the company achieved in the past two quarters suggest that Philips is moving closer to its own 10%-12% EBITA margin target.

We would downgrade Philips’ rating if 1) its 8.0% EBITA margin (as defined by the group at the end of the first quarter) fails to move towards the group’s targeted 10%-12% by the end of 2013 on a 12 months basis; 2) the same margin fails to improve towards the 10%-12% level on our adjusted basis, which would mainly require a sustainable reduction in restructuring costs; 3) the group fails to maintain a solid financial profile such that its retained cash flow/net adjusted debt fell below 30% on a sustained basis, and if its working capital requirements remained significant and volatile; and 4) its free cash flow/gross adjusted debt failed to improve to at least 10% in 2013 and remain in the 10%-20% range thereafter.

Roberto Pozzi Vice President - Senior Analyst +49.69.70730.719 roberto.pozzi@moodys.com

NEWS & ANALYSIS Credit implications of current events

10 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Saint-Gobain’s 73% Take-Up of Scrip Dividend Option Is Credit Positive Last Wednesday, French building materials manufacturer Compagnie de Saint-Gobain SA (Baa2 negative) announced a high 73% take-up of the scrip dividend option that it offered to shareholders this year as an alternative to a cash dividend of €1.24 per share. The take-up reduces Saint-Gobain’s cash dividend payment to €180 million, versus cash dividends of €646 million paid in 2012, which will help to improve the company’s cash flow and strengthen its weak credit metrics this year.

We initially expected a take-up of around two thirds for the scrip dividend option based on historic take-up levels. In total, Saint-Gobain will issue 16.9 million of new shares at a total value of €474 million, thereby strengthening its balance sheet.

The successful re-introduction of a scrip dividend is another step in Saint-Gobain’s plan to restore operating performance and credit metrics, which weakened in 2012 because of challenging market conditions and declining demand for the group’s flat glass and European construction products. These divisions have been affected by weak consumer demand in Europe, which resulted in a 10.5% decline in reported EBITDA to €4.4 billion in 2012 from a year earlier. Other measures include €1.1 billion of cost reductions in 2013 over 2011, an acquisition freeze, a €200 million reduction in capital expenditures from €1.8 billion in 2012 and tight working capital management. The company executed a scrip dividend during the global economic downturn in 2009 and 2010, achieving 65% and 72% take-up levels, respectively.

Based on credit metrics for the year ended in December 2012, the reduction of cash dividend payments to just €180 million will improve retained cash flow (RCF)/net debt by around three percentage points, bringing it above 17% on a pro forma basis. Factoring in the sale of Saint-Gobain’s North American glass packaging activities announced earlier this year, which will improve RCF/net debt by approximately one percentage point, Saint-Gobain is moving very close to the threshold of 20% that we said it would have to achieve to maintain its current rating. This compares with an RCF/net debt level of 14.1% at year-end 2012 and does not yet include any benefits from cost savings, capex reductions and improvements in operating performance.

Christoph Schneider Associate Analyst +49.69.70730.752 christoph.schneider@moodys.com

NEWS & ANALYSIS Credit implications of current events

11 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Proposed Medicare Cuts to Dialysis Reimbursements Would Be Credit Negative for Fresenius Medical Care Last Monday, the US Department of Health and Human Services (HHS) announced plans to cut payments to kidney-dialysis centers beginning in 2014. If implemented as outlined in the announcement, Fresenius Medical Care AG & Co. KGaA (FMC, Ba1 stable) would sustain a 9.4% reduction in Medicare reimbursement payments, a credit negative.

FMC, as the world’s largest dialysis provider, has a large presence in US, where it generates close to two thirds of its $13.8 billion global revenues, or around $8.8 billion based on 2012 results. Of that $8.8 billion, North American dialysis care services payments account for $8.2 billion. Slightly less than half of these sales (48% or $3.95 billion) are from Medicare reimbursements, with most of the remainder coming from private health insurance coverage. A 9.4% reduction in reimbursement payments would translate into around $370 million of lost revenues, or approximately 17% of FMC’s reported operating profit, other things being equal.

However, we do not expect HHS to implement the current proposal without further changes and we expect that the magnitude of reduction in reimbursement rates will be smaller following negotiations and a public-comment period that ends 30 August.

Moreover, FMC has a number of options to absorb any reduction in reimbursements. As an integrated provider that sells both products and services, FMC has flexibility to mitigate lower revenues in treatment services through higher dialysis product sales. In addition, the opportunities for organic volume growth remain strong, which has been a key factor in mitigating the effect of both bundle pricing and recent cuts from sequestration. FMC’s scale and balanced financial profile should also provide for economies of scale not available to smaller or significantly higher levered competitors. In fact, there is a possibility of smaller operators being forced out of the market under HHS’ current proposals, which would be a positive development for the established players in the market.

Even though HHS’ ultimate reimbursement reduction is likely to hamper FMC’s ability to grow organically, lower spending on acquisitions alone would offset the negative effect on cash flow. We expect FMC to adjust its strategy once it gets more clarity about the reimbursement reduction.

FMC is the world’s leading provider of dialysis products and dialysis services, and reported revenues of $13.8 billion in 2012. The company operates as a dialysis service provider, a dialysis product manufacturer for its own dialysis clinics and a supplier of dialysis products to other dialysis service providers.

Alex Verbov Vice President - Senior Analyst +49.69.70730.720 alex.verbov@moodys.com

Benedikt Schwarz Associate Analyst +49.69.70730.942 benedikt.schwarz@moodys.com

NEWS & ANALYSIS Credit implications of current events

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Sappi’s Sale of Forestland Assets in Swaziland Is Credit Positive Last Monday, South African forest products company Sappi Limited (Ba3 stable) announced that it had sold its subsidiary Usutu Forest Products Company (Usutu) to Montigny Investment Limited (unrated) for a total consideration of ZAR1 billion ($102 million). The transaction, which is subject to customary closing conditions, is credit positive for Sappi because the proceeds will allow it to reduce debt and improve debt protection metrics, such as its net debt/EBITDA, at a time when its operating profitability faces challenges from soft paper industries in Europe and South Africa.

In order to protect its balance sheet, Sappi is pursuing ways to generate cash, including non-core asset disposals such as this latest announcement. We understand that the company intends to use the proceeds to reduce its net debt position, which stood at about $2.15 billion as of March. Such a move would modestly reduce Sappi’s net debt/EBITDA by about 0.1x-0.2x from 3.9x (as adjusted by us) as of March.

Because we expect Sappi’s EBITDA to further erode in the next few months, the disposal also underlines management’s commitment to relieve the pressure on the company’s credit metrics. Moreover, the proceeds will help Sappi’s lower its net debt load to its publicly communicated target of close to $2 billion for the 2013 financial year, which ends in September.

Challenging market conditions, particularly in Europe and South Africa, along with declining demand, weak pricing power and elevated costs have squeezed Sappi’s EBITDA. The company’s reported EBITDA declined by about 30% year on year in the six months ended in March.

Although the proceeds from asset sales will bolster Sappi’s balance sheet, they will not be enough to fully offset the negative effects of lower profits on the company’s credit metrics. These pressures are unlikely to abate over the next one to two years because we expect paper volumes to continue declining and pricing power within the sector to remain subdued owing to persistent overcapacity. That said, asset disposal proceeds, combined with the ramp up of two of Sappi’s strategic dissolving wood pulp projects, should support a turnaround in its credit metrics in 2014.

Usutu controls approximately 67,000 hectares of softwood plantations, a decommissioned pulp mill and two villages in close proximity to the pulp mill, and all located in the Kingdom of Swaziland. Sappi’s conversion and expansion of its Ngodwana plant to produce dissolving wood pulp rather than bleached softwood pulp, has reduced its softwood requirements in the region.

Anke Rindermann Vice President - Senior Analyst +49.69.70730.788 anke.rindermann@moodys.com

NEWS & ANALYSIS Credit implications of current events

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China’s Natural Gas Price Increase Is Credit Positive for Chinese Gas Companies On 28 June, China’s National Development and Reform Commission (NDRC) said it will increase the wholesale price of natural gas for non-residential users and expand the use of a market-based pricing mechanism starting 10 July. These changes are credit positive for China’s upstream natural gas suppliers, particularly China National Petroleum Corporation (CNPC, Aa3 stable), which supplies around 70% of the natural gas that China consumes.

The price increase will significantly lift the profitability of CNPC’s natural gas business. CNPC has experienced significant losses owing to the difference between the cost of gas imported from central Asia and its domestic wholesale gas price, which is set by the government. The NDRC last raised natural gas prices in 2010.

Chinese companies imported 42.5 billion cubic meters of gas in 2012, up from 4.0 billion in 2007. This sharp increase has placed a large financial burden on CNPC because the company is by far China’s largest gas importer. PetroChina Company Limited (unrated), CNPC’s key listed subsidiary, reported that it lost RMB41.9 billion on its natural gas import business in 2012, largely offsetting the profits from its domestic gas business and leaving PetroChina’s natural gas and pipeline segment with an operating loss of RMB2.1 billion.

According to the NDRC’s announcement, the nationwide average natural gas price at gate stations (where trunk pipelines connect with local gas distribution networks) will increase by around 15.4% to RMB1.95 ($0.310) per cubic meter from RMB1.69 ($0.268). The tariff for residential users will not increase.

Although the increase is still not enough to cover the gap between imported gas prices and the domestic tariff, it will significantly boost the profitability of CNPC’s natural gas and pipeline segment. CNPC’s imported gas accounted for roughly one quarter of its total natural gas sales in 2012.

If assuming a 15% average increase in gas wholesale price and gas sales volumes to non-residential users of around 95 billion cubic meters in 2013, the operating profit of CNPC’s natural gas and pipeline segment will rise by approximately RMB30 billion, which is around 16% of CNPC’s 2012 operating profit. The price hike will also benefit China Petrochemical Corporation (Sinopec, Aa3 stable) and China National Offshore Oil Corporation (CNOOC, Aa3 stable), although to a lesser degree because their gas sales volumes are lower than CNPC’s.

The NDRC also said it will expand the market-oriented price mechanism for natural gas it introduced in Guangdong province and Guangxi Zhuang Autonomous Region in early 2012. The wholesale tariff at gate stations for incremental non-residential gas usage above the existing volume in 2012, or 112 billion cubic meters as per NDRC, will be priced at 85% of the cost of alternative energy sources, such as fuel oil and liquid petroleum gas. The NDRC estimates the incremental gas volume will be about 11 billion cubic meters in 2013.

We believe these changes signal the central Chinese government’s intention to resolve the structural problems of the natural gas industry so it can be developed on a sustainable basis. The artificially low natural gas tariff relative to other energy sources and the burden it places on natural gas suppliers is one impediment to the sustainable growth of the industry.

Kai Hu Vice President - Senior Credit Officer +86.10.6319.6560 kai.hu@moodys.com

NEWS & ANALYSIS Credit implications of current events

14 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Suntory’s Spinoff of Its Beverage and Food Unit Is Credit Positive Last Wednesday, Suntory Holdings Limited (A3 stable) spun off its Suntory Beverage & Food Limited (unrated) non-alcoholic beverage subsidiary in an initial public offering (IPO) valued at more than ¥370 billion, net of fees. The IPO is credit positive for Suntory because it will use about ¥68 billion of the proceeds to pay down debt, which totaled approximately ¥680 billion as of 31 March. In addition, the cash proceeds will allow Suntory to pursue, without relying on additional debt, growth through acquisitions or investments. In fact, Suntory could deleverage through acquisitions, as added EBITDA from acquired companies will reduce its ratio of debt to EBITDA.

The ¥68 billion in post-IPO debt reduction will improve the company’s debt/EBITDA to 3.1x from 3.3x as of 31 December 2012. It will also boost retained cash flow (RCF)/net debt to more than 50% from 30% at year-end 2012.

We expect Suntory will use much of the remaining proceeds for acquisitions outside Japan. We expect Suntory will seek acquisition opportunities overseas considering that about 80% of its revenues already come from the mature Japanese domestic market; it can leverage its experience with its 2009 Orangina acquisition; and our belief that growth in the global beverage industry will come from developing markets.

The group currently has substantial funding flexibility. Suntory Beverage & Food will be highly liquid given the cash proceeds from the IPO, and Suntory Holdings’ debtholders will continue to have full access to the assets and cash flow of Suntory Holdings’ alcoholic beverage businesses. According to the IPO filing, the spun-off Suntory Beverage & Food had operating cash flow of about ¥86 billion in the fiscal year ended 31 December 2012, or roughly two thirds of consolidated Suntory Holdings’ ¥130 billion. Although there will be some eliminations in the consolidated statements, cash flow from the remaining business will support the holding company’s debt.

The post-IPO capital structure, including the debt split between the rated holding company and the unrated subsidiary, is not clear at this point. Pro forma for the IPO, some of Suntory’s credit metrics will approach levels that we have previously highlighted as possible triggers to consider an upgrade. Positive rating pressure on the ratings will emerge if Suntory enhances its operating cash flow or otherwise improves its financial leverage and debt/EBITDA declines below 3.0x, RCF/net debt rises above 25% and debt/capitalization declines below 50%. But we will balance any positive rating pressure from the IPO against any stress arising from acquisitions and the potential for structural subordination.

Suntory Holdings will maintain approximately 60% ownership in Suntory Beverage & Food, and the alcoholic beverage segment will not be a part of the transaction.

Mariko Semetko Assistant Vice President - Analyst +81.3.5408.4209 mariko.semetko@moodys.com

NEWS & ANALYSIS Credit implications of current events

15 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Banks

US Bankruptcy Court Rules SIPA Does Not Protect All Repo Claims, a Credit Negative for Counterparties On 25 June, the US Bankruptcy Court for the Southern District of New York ruled that counterparties in certain repurchase (repo) contracts with insolvent broker-dealers do not qualify as “customers” under the Securities Investor Protection Act (SIPA). The ruling is credit negative for repo counterparties that do not properly entrust the repurchased property for safekeeping by the broker-dealer because they will be left with only a general unsecured claim against the estate of the insolvent brokerage.

A repo is a financing mechanism in which one party sells a security to another party, with an obligation to buy it back at a particular date in the future. Custody of the security during the term of the repo may reside with the buyer (bilateral repo), a third party (tri-party repo) or in an internal account of the seller (hold-in-custody, or HIC, repo).

In the case at hand, a number of banks had bilateral repos in place with Lehman Brothers Inc. (LBI) at the time that it filed for bankruptcy. LBI’s liquidation is governed by SIPA, which gives preferential treatment to “customers” of the insolvent broker-dealer. A number of circuit courts have interpreted the definition of “customer” under SIPA to mean an investor who has “entrusted cash or securities” to a broker-dealer for the purpose of trading securities on the investor’s behalf.

The banks claimed that they qualified as customers under the SIPA definition because they delivered the purchased securities with the intention that such securities would be returned on a certain date and because they retained all benefits of ownership of the securities (e.g., the right to interest payments). They also relied on a 1986 New Jersey US District Court ruling related to the failure of securities firm Bevill, Bresler & Schulman that claims made against a broker-dealer in relation to HIC repos were customer claims under SIPA.

The bankruptcy court disagreed, holding that entrustment under SIPA requires actual possession of the securities by the insolvent broker-dealer at the time the putative customers commenced their case. The court decided that LBI did not hold the securities and, under the terms of the relevant documentation, had no obligation to do so. The repo transactions were governed by an industry standard master repurchase agreement (MRA), which expressly permitted LBI to use the purchased securities as collateral in transactions with other counterparties or commingle them with other property in its own operating account.

Further, the court found that the repo claims were comparable to claims made earlier by other LBI counterparties under so-called to-be-announced (TBA) contracts. In its TBA decision, the court found that these counterparties were not SIPA-protected customers because the contractual right to acquire securities when they are issued is not equivalent to possessing the securities. Finally, the court said that the Bevill, Bresler precedent did not apply because it was limited to situations involving HIC repos, and no such custodial arrangement was present in the bilateral repos under review.

Repos along with TBAs are the most common credit-risk-sensitive product traded by banks apart from derivatives. The court’s ruling makes it clear that repo counterparties that wish to achieve customer status under SIPA must now incur the added expense of maintaining a secure custodial arrangement as part of their repo agreement. In any case, repo counterparties that choose to continue dealing under the MRA now have clarity regarding their priority status in a SIPA liquidation.

Teresa Wyszomierski Chief Legal Officer - Financial Institutions Group +1.212.553.4129 teresa.wyszomierski@moodys.com

NEWS & ANALYSIS Credit implications of current events

16 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Brazilian Government Changes BNDES’ Dividend Rules, a Credit Negative On 28 June, the Brazilian government issued a presidential decree changing Banco Nacional de Desenvolvimento Econômico e Social - BNDES’ (Baa2 positive) bylaws to allow it allocate to dividends BRL1.2 billion ($535 million) of its existing reserves, at the request of Brazil Minister of Finance Guido Mantega. The change in the bylaws is credit negative for BNDES because it further exposes its capital to the desires of its shareholder, the government, which now has the ability to directly tap the bank’s profit reserves for extraordinary dividends and can do so even before reserves meet statutory minimums.

The decree states that the National Treasury will compensate BNDES for the appropriation of its reserves by injecting capital into the bank in the form of government securities or other non-cash resources, such as hybrid instruments. The compensation aims to preserve the bank’s solvency and leverage capacity, a measure that would be positive were it not for the low quality of such instruments, particularly in comparison to cash, and which adds very little to BNDES’ ability to absorb losses.

As of December 2012, BNDES’ common equity accounted for roughly 40% of the bank’s regulatory capital (see exhibit), while lower quality capital instruments such as hybrids and subordinated debt together accounted for 42%. Brazil’s capital regulations establish that Tier 2 capital is limited to a maximum of 100% of a bank’s Tier 1 capital and subordinated debt is constrained at 50% of Tier 1 capital.

BNDES’ Regulatory Capital as of December 2012

Source: BNDES, Moody’s

As stated in BNDES’ bylaws, the bank can allocate 15% of adjusted net income as reserves for future capital increases. Additionally, BNDES is allowed to build reserves for operating margin, which encompasses the remaining balance of adjusted net income, after the payment of dividends and creation of all legal reserves. The creation of these reserve accounts is limited to 30% of the bank’s capital for reserves for future capital increases and 50% for reserves for operating margin.

Common Equity

Profit Reserves

Tier 1Hybrid Instruments

Tier 2 Hybrid Instruments

Subordinate Debt

Equity Valuation Adjustments

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Tier 2 Capital

Tier 1 Capital

Alexandre Albuquerque Assistant Vice President - Analyst +55.11.3043.7356 alexandre.albuquerque@moodys.com

NEWS & ANALYSIS Credit implications of current events

17 MOODY’S CREDIT OUTLOOK 8 JULY 2013

By issuing debt to capitalize BNDES, the government directly increases its gross debt. BNDES’ payment on 28 June of BRL1.985 billion in dividends, including BRL1.200 billion as profit reserves, was prompted by the government’s need to support its fiscal target, which for 2013 has been lowered to 2.3% of GDP from 3.1%. Brazil’s government-owned banks, and BNDES in particular, have been the largest dividend contributors among all state-owned companies. BNDES paid BRL12.94 billion in dividends to the treasury in 2012.

Aside from BNDES, government-owned Caixa Economica Federal (Baa2 positive, D/ba2 stable)1 contributed another BRL1.2 billion in dividends and Banco do Brasil S.A. (A3 positive, C-/baa2 stable) paid BRL409 million.

1 The bank ratings shown in this report are the banks’ domestic deposit ratings, their standalone bank financial strength

ratings/baseline credit assessments and the corresponding rating outlooks.

NEWS & ANALYSIS Credit implications of current events

18 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Brazil’s Banks Large Exposures to EBX Group Companies Are Credit Negative Last Monday, Brazilian start-up oil and gas company OGX Petroleo e Gas Participações S.A. (Caa2 negative) announced it had suspended development of four of its fields because of greater-than-expected geological complexity that resulted in high financial leverage relative to production and cash flows and weakened the company’s liquidity. The announcement triggered a selloff of the bonds and stocks of many entities controlled by OGX parent EBX Group (unrated). OGX’s announcement is credit negative for banks with large credit exposures to EBX companies because the interconnectedness of EBX entities means problems in one particular company could spread to the others.

Based on information in the companies’ first-quarter 2013 fillings, we estimate that EBX and its subsidiaries have more than BRL11 billion ($5 billion) of loans concentrated at major banks, with government-owned Banco Nacional de Desenvolvimento Econômico e Social - BNDES (Baa2 positive) and Caixa Economica Federal (Baa2 positive, D/ba2 stable)2 accounting for 7roughly 55% of the total debt. Itaú Unibanco Holding S.A. (Baa1 positive) and Banco Bradesco S.A. (A3 positive, C-/baa1 positive) each have about BRL1.2 billion of credit exposure to EBX. Other banks with EBX exposure include Banco Santander (Brasil) S.A. (Baa1 stable, C-/baa2 stable), Banco ABC Brasil S.A. (Baa3 stable, D+/baa3 stable), Banco Citibank S.A. (Baa2 stable, C-/baa2 stable) and HSBC Bank Brasil S.A. – Banco Multiplo (A1 stable, C-/baa2 stable).

Brazilian investment bank Banco BTG Pactual S.A. (Baa3 stable, D+/baa3 stable) has BRL649 million of outstanding loans to some of EBX’s companies, accounting for 7.4% of its loan book in 2012. In addition, since March it has served as a financial advisor to EBX on a restructuring that has included the sale of minority stakes in the various companies to international investors.

Measured against earnings and Tier 1 capital, the exposures are manageable for Itaú and Bradesco. However, BNDES, Caixa, Citibank, BTG Pactual and ABC Brasil could sustain sizable losses to their earnings and capital bases in a default (see exhibit). If we deduct the full amount of exposure to EBX’s companies from individual banks’ Tier 1 equity, the hit on their Tier 1 capital after the stress would be more significant to government-owned banks’ already weak capital ratios.

2 The bank ratings shown in this report are the banks’ local deposit ratings, their standalone bank financial strength ratings/baseline

credit assessments and he corresponding rating outlooks. The exception is Banco Citibank S.A., whose ratings are its foreign deposit rating, standalone bank financial strength ratings/baseline credit assessments and the corresponding rating outlooks.

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

NEWS & ANALYSIS Credit implications of current events

19 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Brazilian Banks’ Exposures to EBX Group Companies Based on Banks’ December 2012 Financials

Estimated Aggregate Exposure to Group EBX companies BRL million

Percent Total

Assets

Percent Total Loans

Percent Sharehol-

ders' Equity Percent

Tier 1 Percent

Net Profit Tier 1 Ratio

Estimated Tier 1 Capital after stressing X-

companies exposure

Gov

erm

ent-

owne

d BNDES 4,888 0.68% 0.99% 9.4% 10.1% 59.7% 8.4% 7.5%

Caixa 1,392 0.20% 0.48% 5.6% 4.9% 22.9% 6.6% 6.3%

Banco do Brasil 156 0.01% 0.03% 0.2% 0.2% 1.3% 10.6% 10.5%

Priv

atel

y-ow

ned

Bradesco 1,251 0.14% 0.43% 1.8% 1.9% 11.0% 11.0% 10.8%

Itaú Unibanco Holding 1,235 0.12% 0.34% 1.6% 1.7% 9.1% 11.0% 10.8%

BTG Pactual 649 0.53% 7.44% 6.4% 6.3% 31.5% 12.2% 11.4%

HSBC Bank 351 0.28% 0.60% 3.5% 3.6% 28.7% 10.6% 10.2%

Santander (Brasil) 290 0.06% 0.14% 0.4% 0.4% 10.3% 19.3% 19.2%

Citibank 206 0.39% 1.39% 4.1% 2.6% 42.1% 15.6% 15.1%

ABC Brasil 107 0.79% 1.26% 6.4% 6.4% 47.1% 10.6% 10.0%

Source: Moody’s, companies’ first-quarter 2013 fillings

However, poor disclosure regarding collateral, loan conditions and off-balance sheet and other non-lending exposures makes our assessment preliminary and possibly understated.

We note that over the past months, as the group’s difficulties have surfaced, investors have been growing hopeful that a restructuring or new loans would arise via development lender BNDES, its largest creditor. However, because of growing public protests and popular outcry in Brazil, it will be more difficult for the group to find such a solution through BNDES or any other government-owned bank. BTG Pactual is working on a complete spinoff of the EBX Group that would include the sale of companies and projects and lead to a significant dilution of EBX’s ownership in these companies and a debt restructuring. This plan would pay off the group’s short-term banking debt and reduce its size.

NEWS & ANALYSIS Credit implications of current events

20 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Itaú’s Acquisition of Citigroup’s Uruguayan Retail Business Is Credit Positive On 28 June, Itaú Unibanco S.A. (Baa2 stable, C-/baa1 positive),3 Brazil’s largest private-sector bank, announced that its subsidiary Banco Itaú Uruguay S.A. (Itaú Uruguay, Baa3 stable, D/ba2 stable) would buy the local retail banking division of Citigroup Inc. (Baa2 negative) in Uruguay. The acquisition, which is subject to the approval of the Uruguayan authorities and the central bank, is credit positive for Itaú Uruguay because it will consolidate its position within Uruguay’s retail banking segment, especially among high-income individuals, by becoming the country’s leading Visa credit card lender.

Itaú already has a 25% stake of the credit card business in Uruguay and through this purchase will add $265 million in deposits, $60 million in credit card loans and more than 15,000 clients, and will control 31% of the country’s credit card business. The transaction will also include the acquisition of the Diners Club credit card brand, along with 50 employees and two branches.

Consumer lending has been a fast-growing business for Uruguay’s banks, which have reported average annual growth rates of 20% over the past five years (see Exhibit 1). In part, this expansion reflects improved labor and income conditions that boosted domestic demand at a time when banks were focusing on higher-margin consumer finance businesses, and low global interest rates negatively affected banks’ primary business of investing resident foreign deposits in international banks. The credit card business accounts for roughly 70% of the consumer finance operations within Uruguay’s banking system owing to the product’s attractive lending rates (see Exhibit 2).

EXHIBIT 1

Uruguay’s Consumer Finance Lending Trend

Source: Central Bank of Uruguay

3 The ratings shown in this article are the banks’ foreign deposit rating, its standalone bank financial strength rating/baseline credit

assessment and the corresponding rating outlooks.

$0

$1

$2

$3

$4

$5

$6

$ bi

llion

s

Valeria Azconegui Assistant Vice President - Analyst +54.11.5129.2611 valeria.azconegui@moodys.com

NEWS & ANALYSIS Credit implications of current events

21 MOODY’S CREDIT OUTLOOK 8 JULY 2013

EXHIBIT 2

Uruguay’s Lending Rates

Source: Central Bank of Uruguay

Itaú Uruguay’s loan portfolio grew 22.4% in 2012 and 40.6% in 2011, supported by the bank’s Tier 1 ratio of 11.1%. Credit cards were 7% of the bank’s private-sector lending portfolio and produced 15% of its profits in 2012. The bank had a low non-performing loan ratio of 0.7% in December 2012, and reserve coverage exceeded 300%. Acquiring Citigroup’s portfolio gives Itaú Uruguay an opportunity to reinforce its franchise and earnings generation capacity and take advantage of Uruguay’s operating environment, including our expectation of real GDP growth of 3.5% for 2013.

Itaú Uruguay had $3.25 billion in assets at the end of May and already has 23 branches and 250,000 clients in the country. The bank is also the second-largest private bank in Uruguay in terms of deposits and loans, with a market share of 9.3%. The market leader is government-owned Banco de la República Oriental del Uruguay (Baa3 stable, D+/ba1 stable), which has a 45% market share.

Already operating in Argentina, Chile, Paraguay and Uruguay, Itaú Unibanco aims to be Latin America’s global bank by 2020. The bank also has a regional presence through its investment-banking arm, Itaú BBA.

0%

10%

20%

30%

40%

50%

60%

70%

Average Lending Rate (UYU) Credit Card Rate (UYU)

NEWS & ANALYSIS Credit implications of current events

22 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Dutch Parliament Proposes Lowering Bank Levy to Protect Capitalization, a Credit Positive On 28 June, the Dutch Parliament report on the Structure of Dutch Banks published recommendations reconsidering the bank levy enacted in July 2012 and paid by the banks for the first time in fourth-quarter 2012, in light of its negative implications on banks’ capital and the availability of credit in the Netherlands (Aaa negative). We view this as a change in view of the Parliament, indicating that strengthening banks’ balance sheets and capital supersedes the government’s objective of having banks contribute to the banking system’s cleanup. This is credit positive for bondholders.

The levy was meant to have the banking sector contribute to costs the government has borne since 2008 to stabilize the financial sector. The annual tax is based on the banks’ unsecured debt financing. Ranging from €112 million to €196 million for the three largest banks, the tax accounted for 9% of Rabobank Nederland’s (Aa2 negative, B-/a1 negative)4 net profit last year, 5% of ING Bank N.V.’s (A2 negative, C-/baa1 negative) net profit, and 12% of ABN AMRO Bank N.V.’s (A2 negative, C-/baa2 negative) net profit.

Maintaining the bank levy in the coming years will add to the substantial new taxes that Dutch banks will incur in 2014, as shown in the exhibit below. The new taxes include a one-off resolution levy of €1 billion as a contribution to the bailout of SNS Reaal N.V. (Ba2 review for downgrade) earlier this year, with around 90% borne by the three largest banks. Additionally, from 2015 onward, the banks will also be subject to the new Dutch deposit guarantee scheme (DGB), implying a contribution of approximately €350 million per year for the whole banking industry. The DGB contribution will be enforced in 2015, rather than in 2013 as initially scheduled, to allay the burden from the tax to bailout SNS Reaal. Furthermore, the European Union directive on recovery and resolution, which entails the creation of national resolution funds, will also result in additional (still uncalibrated) costs for Dutch banks.

Bank Levy and Other Levies versus 2012 Net Profit for the Largest Dutch Banks

Notes: (1) Total 2012 net profit reported by the three largest Dutch banks (2) Based on the bank tax paid by the three banks in 2012 (3) To be paid in 2014 (4) To start in 2015 Source: Banks’ financial statements, Moody’s

4 The ratings shown in this article are the banks’ foreign deposit rating, its standalone bank financial strength rating/baseline credit

assessment and the corresponding rating outlooks.

€0

€1

€2

€3

€4

€5

€6

€7

2012 Net Profit (1) Annual Bank Tax (2) Estimated Charge for SNS Reaal Bail-In (3)

Estimated Annual DGB Charge (4)

€bi

llons

Yasuko Nakamura Vice President - Senior Analyst +33.1.5330.1030 yasuko.nakamura@moodys.com

NEWS & ANALYSIS Credit implications of current events

23 MOODY’S CREDIT OUTLOOK 8 JULY 2013

These tax costs impair banks’ ability to shore up their capital base because they coincide with the banks’ increasing loan-loss provisions for domestic exposures because of the Netherlands’ deteriorating operating environment, and higher solvency requirements related to the implementation of a capital requirement directive (CRD IV) and capital requirement regulation (CRR). These taxes may also restrict the availability of financing to support the domestic economy, which is a major concern for the parliament and explains this change in mindset towards the levy.

The recommendation may result in the removal of the levy, but may be conditioned on a requirement that banks commit to bolstering their capital structure and continue lending.

NEWS & ANALYSIS Credit implications of current events

24 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Metropolitan Bank & Trust’s Sale of Non-Core Assets Is Credit Positive On 27 June, Philippines-based Metropolitan Bank & Trust Company (MBT, Ba1 stable, D+/ba1 stable)5 announced that it had concluded a share sale and purchase agreement to sell a 20% equity stake in Global Business Power Corporation (GBPC, unrated) to ORIX Corporation (Baa2 stable) of Japan for PHP7.15 billion. This sale is credit positive for MBT because we estimate its consolidated Tier 1 capital ratio will increase to 15.3% from 14.8% at the end of March, after factoring in the gains from the share sale. Such a ratio compares with the 14.7% average Tier 1 ratio at the end of March for the Philippines-based banks we rate.

Another credit positive is that the disposal allows MBT to avoid a punitive deduction in its Tier 1 capital that results from equity investments in non-financial entities under the new Basel III capital framework to be implemented next year. We estimate that if MBT had retained its current stake in GBPC, its Tier 1 ratio would decline to 13.6% under the new capital regime, based on March 2013 financials.

From a strategic perspective, the transaction reflects MBT’s proactive efforts to dispose of non-core assets and free up capital in preparation for business growth and higher capital requirements under the new Basel III regime. We understand that management plans to dispose of its remaining 29% stake in GBPC by the end of 2013. The bank had previously sold its holdings in Toyota Motor Philippines to GT Capital via two separate transactions, one in December 2012 and the other in January 2013, for a total of PHP9 billion. The latest sale continues the bank’s strategy of monetizing its non-core assets and deploying capital to fund its core lending business.

In late May, the bank announced that it had received approval from Bangko Sentral ng Pilipinas, the Philippines’ central bank, to pay dividends amounting to a 30% payout ratio in the form of stock rather than cash. We view this initiative as credit positive because it demonstrates the proactive stance the bank is taking on capital management. The stock dividend will allow it to retain capital for future growth, as opposed to a cash dividend payout.

MBT is the second-largest bank in the Philippines, with market share of about 14% by loans and 13% by deposits.

5 The ratings shown in this article are the banks’ foreign deposit rating, its standalone bank financial strength rating/baseline credit

assessment and the corresponding rating outlooks.

Simon Chen, CFA Assistant Vice President - Analyst +65.6398.8305 simon.chen@moodys.com

Shaoyong Beh Associate Analyst +65.6398.8309 shaoyong.beh@moodys.com

NEWS & ANALYSIS Credit implications of current events

25 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Insurers

Pooling of UK Flood Risk Is Credit Positive for Property and Casualty Insurers On 27 June, the UK government and the Association of British Insurers (ABI) announced they had reached a memorandum of understanding (MOU) on developing a not-for-profit scheme (Flood Re) by summer 2015 to ensure flood insurance remains available to policyholders in flood-exposed regions of the UK. We consider these developments to be credit positive for UK property and casualty (P&C) insurers.

Flood Re will supersede the Statement of Principles on the Provision of Flood Insurance (SoP), which expired on 30 June. It will provide certainty for insurers on their potential exposure to flood-prone UK regions by giving insurers the option to cede their domestic flood risk to Flood Re. In addition, the agreement ensures that most property owners in flood-exposed areas6 can access insurance coverage at capped prices. Premiums pooled into Flood Re would then pay relevant flood-related claims. Until Flood Re is fully operational, insurers will continue to offer flood protection as a standard part of buildings and contents insurance under the terms of the SoP.

Flood Re will be run and financed by insurers on a not-for-profit basis, charging member firms aggregate annual fees of £180 million, based on their UK home insurance market share. This is the equivalent of approximately £10.50 per household policy. This levy will be fixed for five years and then renegotiated at regular intervals over what the MOU expects will be the 20-25 years duration of Flood Re.

We expect Flood Re to be capitalised to fully meet losses at the 99.5% value-at-risk level, an event 6x the largest recent UK flood event, which was in 2007. In the event of losses exceeding this level, the UK government will provide a backstop for further losses.

These developments will lead to a number of credit positive steps for UK P&C. Insurers can continue writing coverage in flood-prone areas, but can cap their potential losses to a severe UK flood event by ceding such risks to Flood Re. The ABI estimates that approximately 500,000 flood policies per year will be ceded to Flood Re, out of 5.8 million UK properties that the UK Department for Environment, Food and Rural Affairs says are at some risk of flooding and which may otherwise have been refused coverage. In addition, the UK government will provide letters of comfort to the industry confirming its long-term commitment to spending on flood risk management, which may ultimately reduce the severity or frequency of future flood events.

Among UK insurers, those most likely to benefit from these developments have significant market shares in UK household insurance, including Aviva Insurance Limited (financial strength A1 stable), Direct Line Group (including U K Insurance Limited financial strength A2 stable), Royal & Sun Alliance Insurance plc (financial strength A2 stable) and AXA Insurance UK plc (financial strength Aa3 negative). The exhibit below lists the UK P&C insurance market share as of 2011.

6 Flood Re will exclude homes in the highest council tax band in England (Band H), the equivalent properties in Scotland, Northern

Ireland and Wales, and homes sold after 1 January 2009 and “genuinely uninsurable properties.”

David Masters Vice President - Senior Analyst +44.20.7772.1605 david.masters@moodys.com

NEWS & ANALYSIS Credit implications of current events

26 MOODY’S CREDIT OUTLOOK 8 JULY 2013

UK Property and Casualty Insurance Market Share by Gross Written Premiums in 2011

Source: Association of British Insurers

Aviva11%

Direct Line Group9%

RSA Group8%

AXA8%

Zurich Insurance7%AIG

5%Allianz4%

Ageas4%

BUPA4%

LV=3%

Other37%

NEWS & ANALYSIS Credit implications of current events

27 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Sovereigns

Egypt’s Political Crisis Deepens Polarization, a Credit Negative Last Thursday in Egypt (Caa1 negative), following widespread anti-government protests, the military installed Supreme Constitutional Court Judge Adly Mansour as the country’s interim leader and removed Mohammed Morsi as president. The next day, Islamist supporters of Mr. Morsi clashed with the military and opponents of the ousted president, with deadly results. These developments are credit negative. The forced leadership and ensuing violence heighten the country’s political uncertainty, which has already undercut economic growth and weakened Egypt’s external position.

Tensions between the opposition and the government over the past 12 months have hampered the political process and raised uncertainty about the direction, formulation and implementation of government policies. The military has now suspended the constitution and provided a roadmap to adopt a new constitution and hold presidential and legislative elections. Reforms sought by the Ministry of Finance, which would receive International Monetary Fund (IMF) support and which are increasingly necessary to garner investor confidence and shore up government finances, are on hold, pending the establishment of a stable government.

In light of the uncertainty until the eventual formation of a new civilian government, we believe that economic activity will deteriorate further. Egypt’s economy is weaker than it was at the beginning of 2011, when Egypt’s revolution took place. In the IMF’s April World Economic Outlook update, it revised down Egypt’s 2013 growth forecast to 2% from 3%.

The government’s fiscal position is also weaker, with limited ability to address social demands. We estimate that the general government deficit approached 13.0% of GDP in the fiscal year ended in June, compared with a deficit of 9.8% of GDP in fiscal 2011. Government spending alone has not been able to contain adverse social effects of the revolution. Unemployment was 13.2% in the first quarter of this year, up from 8.9% at the end of 2010, while inflation rose to 8.2% in May from 4.3% in November 2012, as shown in the exhibit.

Egypt’s Deteriorating Inflation, Employment and FX Reserves in the First Two Years of Its Revolution

Source: Egypt’s Ministry of Finance and Central Bank

$0

$5

$10

$15

$20

$25

$30

$35

$40

0%

2%

4%

6%

8%

10%

12%

14%

$ bi

llion

s

Urban CPI, year-on-year - left axis Unemployment Rate - left axis

Foreign Exchange Reserves - right axis

Tom Byrne Senior Vice President - Regional Credit Officer +65.6398.8310 thomas.byrne@moodys.com

Mathias Angonin Associate Analyst +971.4.237.9548 mathias.angonin@moodys.com

NEWS & ANALYSIS Credit implications of current events

28 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Moreover, the deterioration in the external payments position will likely intensify. Tourist arrivals were 16% below their 2010 level in the first four months of this year. The current account deficit increased to 3.1% of GDP in 2012 from 2.0% in 2010 before the revolution, but the greatest pressures were seen in the financial account of the balance of payments, which is highly sensitive to confidence.

Recent political events may prompt donors that supported the Morsi government to reassess their support, leading to a renewed decline in reserves. Qatar has been one of the most generous supporters. However, even before last week’s events in Cairo, there were signs of donor fatigue. In May, Qatar converted an apparent grant of $2.5 billion transferred to the Central Bank of Egypt in December 2012 into a debt payable over 18 months. Financial support such as Qatar’s has likely been the key driving factor behind the recent increase in gross international reserves – to $16.1 billion in May, a record high since January 2012 and the second consecutive monthly increase.

However, the greatest risk to Egypt’s external position would arise if social unrest and political turmoil intensify to a degree whereby Egyptians lose confidence in their post-revolution future. One credit negative manifestation of this would be residents converting local currency deposits into foreign currencies and transferring large volumes of funds out of the country. This would destabilize the banking system and add to Egypt’s economic deterioration.

NEWS & ANALYSIS Credit implications of current events

29 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Peru’s Civil Service Reform Is Credit Positive Last Tuesday, Peru’s Congress passed the Civil Service Reform Law, the first major attempt by any government of Peru (Baa2 positive) since the 1990s to improve the civil service and the current administration’s most important reform. The reform is credit positive because it will enhance the sovereign’s institutions and bolster the government’s ability to deliver social services, follow its public investment plans and improve its planning and regulatory capacity.

Congressional approval by a commanding margin of 59-45 reflects the government’s willingness and ability to make difficult decisions, despite strong opposition, contrary to the expectations of many observers. Although important implementation risks remain, and the benefits of this reform will likely take several years to bear fruit, this is a very important first step to strengthening the sovereign’s institutions.

The reform institutes a civil service meritocracy, replacing the existing seniority-based system for promotions. Civil servants who repeatedly fail new exams regarding their specific duties will be subject to dismissal, while those who score within the top 10% of their class will be better positioned for promotions and will receive additional training or other types of benefits.

By providing a proper incentive structure, we expect the reform to enable the government to improve the overall quality and capacity of the civil service, which would improve the government’s ability to execute its capital spending plans and deliver social services.

Capital spending, which is necessary if Peru is to improve its infrastructure, has reportedly been hampered by the low caliber of many of the civil servants charged with implementing it, as reflected by the World Bank’s poor score for the Peruvian government’s effectiveness. The inadequacy of basic services in rural areas, including health and education, has fueled popular opposition to a number of large mining projects that are important for the sovereign’s continued economic growth; the local population objects to what it sees as insufficient benefits from these projects.

Although the administration plans to increase public sector wages in order to attract more talent,7 the current reform also limits collective bargaining, which should help the government control the rate of increases in public salaries and reduce unions’ power to block further reforms. In addition, the law consolidates the three different types of public servants’ contracts and 40 different pay scales into one, which is likely to improve the transparency and efficiency of civil service operations.

The civil service reform is part of a broader government effort to introduce key reforms. In the past few weeks, these reforms have included measures to encourage greater private investment, particularly in infrastructure, and the first stage of a capital markets reform, which the authorities hope will improve the efficiency of Peru’s relatively undeveloped capital markets. By providing small and midsize enterprises with access to a viable alternative source of financing, we expect the capital markets reform to support the country’s continued economic growth, which has averaged 6% in recent years.

7 The previous government slashed public-sector wages, which drove public servants into the private sector.

Renzo Merino Associate Analyst +1.212.553.0330 renzo.merino@moodys.com

Aaron Freedman Vice President - Senior Credit Officer +1.212.553.4426 aaron.freedman@moodys.com

NEWS & ANALYSIS Credit implications of current events

30 MOODY’S CREDIT OUTLOOK 8 JULY 2013

IMF Reaches Agreement on Financial Support for Pakistan, a Credit Positive Last Thursday, an International Monetary Fund (IMF) mission to Pakistan (Caa1 negative) reached a staff-level agreement to provide $5.3 billion of financial assistance under a 36-month extended fund facility (EFF). The IMF’s financial assistance will be credit positive for Pakistan since it would provide the funding to help re-finance $2.1 billion of loan repayment due to the IMF this year, and avert a balance-of-payment crisis in Pakistan. In addition, the structural reforms stipulated by the program support economic prospects, which would help reduce the budget deficit.

Although the key elements of the program have been agreed upon, final approval by the IMF’s executive board is pending. We think approval will be forthcoming and that the program will become effective in early September.

Given Pakistan’s fragile external position, securing creditor support has been a key item on the agenda of the new government, which was elected in mid-May. Current account deficits have been modest, at 2.1% of GDP for the fiscal year ended June 2012. However, declining financial inflows of both debt and equity, coupled with debt repayments to the IMF from a previously suspended loan agreement, have resulted in a sharp drawdown in reserves. Official foreign reserves stood at $6.3 billion on 21 June, down from $10.8 billion a year ago. A further $2.1 billion due to the IMF for the remainder of 2013, and another $2.1 billion in 2014 would weigh on reserves.

Pakistan’s foreign reserve buffer against external financial shocks is thinning to a precarious degree. Official foreign exchange reserves are barely sufficient to meet IMF loan repayments this year and next. We expect the EFF program to boost Pakistan’s reserve buffer to $8.3 billion in fiscal 2014 from our previously projected $6.5 billion. The additional reserves would lower our External Vulnerability Indicator for Pakistan – which gauges whether foreign reserves are adequate to cover short-term external debt and long-term debt maturing over the next year in the event of sudden stop in external credit – to 77%, from the 100% we had previously anticipated.

Successful completion of the EFF program would entail substantial fiscal consolidation, another credit positive for the sovereign. With the fiscal deficit at 8.8% of GDP in fiscal 2012, Pakistan’s large and persistent fiscal imbalances constrain its rating. The IMF’s preliminary approval of Pakistan’s entry in the EFF program suggests that the sovereign will have to achieve a sustained improvement in tax collections, phase out untargeted subsidies, take steps to resolve longstanding problems in the energy sector and restructure public sector enterprises. These measures, once undertaken, will help bolster fiscal stability and relieve pressure on the banking system, which currently finances 52% of the fiscal deficit.

However, Pakistan, like other sovereigns that have sought support under IMF programs, has a weak track record of reform implementation. Performance will be key if Pakistan is to gain more than a temporary reprieve from impending financial instability. Finally, improvement in external liquidity, coupled with steps toward fiscal consolidation, would free up resources to help boost economic growth. In fiscal 2013, the government estimated that real GDP growth slowed to 3.6% year on year from the 7% achieved during the five years preceding the global crisis in 2008.

Anushka Shah Analyst +65.6398.3710 anushka.shah@moodys.com

Tom Byrne Senior Vice President - Regional Credit Officer +65.6398.8310 thomas.byrne@moodys.com

NEWS & ANALYSIS Credit implications of current events

31 MOODY’S CREDIT OUTLOOK 8 JULY 2013

US Public Finance

Our New Pension Data for US States Show the Costs of Underfunding On 27 June, we released adjusted pension data for the 50 US states, based on our recently published methodology for analyzing state and local government pension liabilities. The adjusted state data underscore the gap between total benefit promises and the value of pension assets on hand. The adjusted data highlight the effect of the failure of some states to make adequate contributions to their pension plans, especially those states that make contributions on behalf of local governments, school districts and universities.

To achieve greater comparability and transparency in our credit analysis, we recalculate reported state net pension liabilities based on a market-determined discount rate and the market value of assets in each plan. We also allocate the net pension liabilities of multiple-employer cost-sharing plans among the plan sponsors based on the pro rata contribution of each sponsor to the plan and additional information from state officials and pension administrators. These data allow us to rank states based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity, including state revenues, GDP and personal income.

State pension burdens vary widely, as the exhibit below illustrates. For fiscal 2011, the accumulated pension burden of US states, as measured by ANPL relative to all governmental funds revenues, ranges from 6.8% to 241%. The states with the lowest pension burden are Nebraska (Aa1 stable) at 6.8%, Wisconsin (Aa1 stable) at 14.4% and Idaho (Aa1 stable) at 14.8%. The states with the highest pension burden are Illinois (A1 negative) at 241%, Connecticut (Aa3 stable) at 190% and Kentucky (Aa2 negative) at 141%. The state median for this metric is 45.1%.

State Net Pension Liability as a Percent of State Governmental Revenues

Note: Valuation dates range from 2009 to 2012 Source: Audited financial reports for states and various pension plans and Moody’s calculations

Marcia Van Wagner Vice President - Senior Analyst +1.212.553.2952 marcia.vanwagner@moodys.com

NEWS & ANALYSIS Credit implications of current events

32 MOODY’S CREDIT OUTLOOK 8 JULY 2013

The largest accumulated liabilities most often reflect decisions not to fund contributions at levels reflecting actuarial guidelines. To reduce current expenditures, states that underfund simply increase the portion of their liability that must be amortized, resulting in actuarially required contributions that become larger and more difficult to meet. For this reason, funding history is an important credit factor.

For some states, such as Louisiana (Aa2 stable) and Maryland (Aaa negative), the shortfall in their contributions is a result of statutory requirements or formulas that have failed to keep up with the pace of growing liabilities. However, several states have expanded the gap between an actuarially sound contribution and their actual contributions by taking “pension holidays” or other actions to achieve budget relief. Over the past three years, we have downgraded six of the 10 states with the largest pension burdens – Illinois, Connecticut, Kentucky, New Jersey (Aa3 stable), Hawaii (Aa2 stable) and Pennsylvania (Aa2 stable) – largely because of the management and growing size of their pension liabilities.

The level of state contributions to cover pension costs of teachers and other local government employees is another significant factor in the size of state liabilities. Although underfunding of a state’s own pension benefits has contributed to large net liabilities, total liabilities in Illinois, Connecticut, Kentucky, New Jersey, Hawaii, Maryland and Louisiana also include those for school districts. Other states that have taken on this responsibility, either through statute or in practice, include North Carolina (Aaa stable), North Dakota (Aa1 stable), Vermont (Aaa stable) and West Virginia (Aa1 stable). Maryland is shedding its responsibility for paying pension normal costs for teachers by gradually shifting those expenses to local governments over four years.

The full report, Adjusted Pension Liability Medians for US States, is here.

NEWS & ANALYSIS Credit implications of current events

33 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Maine Decreases Local Governments’ Revenue Share in State’s Biennial Budget, a Credit Negative On 26 June, the State of Maine (Aa2 negative) legislature approved a biennial budget that cut state revenue sharing to local governments by 34% for fiscal 2014 and 2015 (beginning 1 July). The budget reduces the state revenues that the cities and towns use to maintain services and provide property tax relief and will make them more dependent on property taxes, a credit negative for the local governments.

Over the past decade, the state has distributed an average of $110 million annually to municipalities, peaking at $133 million in fiscal 2008. In fiscal 2013, however, the amount declined to $95 million and will fall to $65 million in fiscal 2014 and $60 million in fiscal 2015, a 55% cut from 2009 levels. Disbursements of state sales and income tax revenue are based on the municipalities’ population and demographics, and the program has been in effect since 1972.

As shown in the exhibit below, state revenue sharing has dropped in recent years to a funding level $44 million below what the statutory formula would produce. The original fiscal 2014-15 budget proposed by Governor Paul LePage called for a complete elimination of state revenue sharing, but the legislature overrode the veto.

Disparity Between Actual Revenue Sharing and Statutory Revenue Sharing Formula Is Growing

*Estimated **Budget projection Source: Maine Office of the Treasurer

The $30 million reduction in revenue sharing from 2013 to 2014 will increase local governments’ dependence on property taxes. The enacted state budget for the first time allows a two-year exemption from the property tax levy limit known as LD-1, which holds annual increases to a factor based on the 10-year average of statewide real personal income and local property value growth. In fiscal 2014, municipalities are allowed to adjust the levy limit up to offset the entire reduction in state revenue sharing.

While this will provide local governments some additional budgetary flexibility, it passes the burden to property taxpayers when, statewide, Maine’s economy remains weak, job growth is subpar and the demographic outlook is unfavorable. Maine’s population is the oldest in the country and, according to Moody’s Economy.com, the median age will continue advancing because college graduates and other parts of the labor force are leaving the state. Maine’s local governments are already challenged to attract commercial taxpayers to diversify their primarily residential tax bases; rising property tax rates will only increase this struggle.

$0

$20

$40

$60

$80

$100

$120

$140

$160

$ M

illio

ns

Actual Revenue Sharing Statutory Revenue Sharing Formula

Lauren Von Bargen Analyst +1.212.553.4491 lauren.vonbargen@moodys.com

Nicholas Lehman Analyst +1.617.371.2940 nicholas.lehman@moodys.com

NEWS & ANALYSIS Credit implications of current events

34 MOODY’S CREDIT OUTLOOK 8 JULY 2013

The economic center for the state, Portland (general obligation Aa1 stable), will experience the largest cut (in total dollars), with a cumulative $4.7 million loss for fiscal 2014-15, or just under 2% of the city’s budget. The city’s recently amended fiscal 2014 budget absorbed the cut with a tax rate increase and a $1.1 million reduction in expenditures, including the elimination of two full-time equivalent positions. Similarly, Bangor (general obligation Aa2) plans to offset its $2.5 million cut in state revenues over two years with a tax rate increase and a reduction in staff. The loss for Bangor is approximately 2.6% of its budget.

NEWS & ANALYSIS Credit implications of current events

35 MOODY’S CREDIT OUTLOOK 8 JULY 2013

New York Court Upholds MTA Payroll Mobility Tax, a Credit Positive On 26 June, a New York State appellate court reversed a lower court decision and upheld the constitutionality of the Metropolitan Transportation Authority’s (MTA) payroll mobility tax (PMT), which is pledged to its transportation revenue bonds (TRBs, A2 stable). The ruling is credit positive for the MTA, which stood to lose at least $1.3 billion annually, or 10% of its total consolidated revenues, and 12% of revenues pledged to the TRBs.

The MTA operates public transit and commuter services across the New York City region. It has faced financial challenges over the past several years because of the economic slowdown, sizable fixed costs for labor expenses, growth in uncontrollable expenses such as pension contributions to offset investment losses and escalating debt service costs owing to borrowing for the MTA’s substantial capital projects. In total, the MTA has $33.2 billion of debt outstanding issued through several credits, including the TRBs, of which there is $18.8 billion outstanding, and the Triborough Bridge and Tunnel Authority (TBTA), which has outstanding $6.9 billion of general revenue bonds (senior bonds rated Aa3) and $1.8 billion of subordinate bonds (rated A1).

The state enacted the PMT in 2009 to provide the MTA with recurring revenues to help close large budget gaps that it forecasted for fiscal 2010 and beyond. The PMT is a 0.34% tax (34 cents per $100) on payroll expenses of most employers (both public and private) and the self-employed in the MTA transportation district, which includes New York City and the surrounding New York counties of Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester.

The additional resources provided by the PMT, along with a successful ongoing budget reduction program and planned biennial fare and toll increases, helped the MTA weather the recession and slow economic recovery. Before the PMT’s approval, the MTA planned severe service reductions and substantial fare hikes to balance its budget.

The MTA has faced other lawsuits over the constitutionality of the PMT, and the MTA prevailed in all. Plaintiffs have 30 days to appeal the latest court decision, and Nassau County has announced it intends to do so. The PMT has been an important resource for the MTA, raising $1.3 billion in 2012, or 12% of 2012 revenues pledged to TRB debt service (see exhibit). The TRBs are secured by a gross pledge of the operating revenues from MTA’s transit and commuter systems, as well as TBTA operating surpluses after TBTA debt service, subsidies from governmental entities and certain other tax-supported operating subsidies.

Metropolitan Transportation Authority Revenues Pledged to Transportation Revenue Bond Debt Service in 2012

Source: Metropolitan Transportation Authority disclosure document

Transit fares34%

Commuter fares11%

Other operating revs 4%

TBTA surplus5%

St/Local Op Subsidies10%

MMTOA Receipts 13%

Urban Taxes 4%

Payroll Mobility Tax 12%

Other non-operating revenues7%

Nicole Johnson Senior Vice President +1.212.553.4573 nicole.johnson@moodys.com

NEWS & ANALYSIS Credit implications of current events

36 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Although the MTA pays the debt service on the TRBs before operating expenses, we analyze the credit in the context of the MTA’s overall operations. The PMT accounts for about 10% of the MTA’s total consolidated revenues, which include the TBTA and the transit and commuter systems. Loss of this revenue stream would add significant financial strain on the MTA and eliminate a sizable resource available for payment of debt service on the TRBs. Pledged revenues provided 9.4x coverage of TRB debt service in 2012 on a gross basis. Net coverage after operating costs was just 1.0x, underscoring the MTA’s tight operating margin and the importance of the PMT revenues.

NEWS & ANALYSIS Credit implications of current events

37 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Vote by Glendale, Arizona to Support Professional Hockey Is Credit Negative Last Tuesday, Glendale, Arizona’s (general obligation A2 negative) city council voted to approve an arena management agreement for the city-owned Jobing.com Arena. The agreement is credit negative for the city because it will obligate it to pay $15 million annually for up to 15 years to the potential buyer of the National Hockey League’s (NHL) Phoenix Coyotes.

The fee equals 9% of budgeted general fund revenues for the fiscal year ending 30 June 2014. Furthermore, the city’s budget assumes only a $6 million arena management fee. The increase would exacerbate the city’s already challenged financial position if uncertain revenue sharing from the arena fails to substantially offset the fee.

The arena management agreement hinges upon the successful purchase of the Coyotes franchise by Renaissance Sports and Entertainment (RSE) from the NHL, which bought the team out of bankruptcy in 2009. RSE is the latest suitor for the Coyotes and follows several failed attempts to purchase the team by other investors. If RSE fails to purchase the Coyotes, the franchise could be relocated to another market and the $15 million annual arena management agreement would be void. If the team relocates, the city’s general fund would benefit from reduced expenditures and greater operating flexibility.

The city’s intent is to protect its investments in its sports and entertainment district. City officials have long considered professional sports an economic driver for the city and the Coyotes are the anchor tenant of the city-owned-and-financed Jobing.com Arena. Glendale has more than $140 million of outstanding long-term debt that financed construction of the arena and is supported by a pledge of general excise tax receipts, a key general fund resource.

City officials and RSE anticipate that shared revenues from arena naming rights, parking fees, rents and ticket surcharges will somewhat offset the management fee. However, we believe that reliance on uncertain excise revenues from the arena presents notable downside risk to the city’s budget.

The city has demonstrated its commitment to keeping the Coyotes in Glendale in recent years. The former city council remitted approximately $50 million of payments to the NHL over the 2011-12 fiscal years, which contributed to the city’s challenged financial position. Including accrued liabilities of $45 million for loans from various enterprises that funded payments to the NHL, the city’s general fund reported negative reserves equal to 22% of revenues on an audited GAAP basis as of 2012. These borrowings constitute uncommon actions among local governments and indicate the significant effect that supporting the Coyotes has on the city’s operations. The city’s contributions to the NHL offset the Coyotes’ substantial operating losses borne by the league while pursuing a long-term owner willing to keep the team in Glendale.

The lingering effects of the recession, despite substantial spending cuts to critical city services and additional revenue from recent tax increases, also exacerbated the city’s challenges.

Pat Liberatore Analyst +1.415.274.1709 patrick.liberatore@moodys.com

RATING CHANGES Significant rating actions taken the week ending 5 July 2013

38 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Corporates

Cengage Learning Acquisitions, Inc. Downgrade

3 Apr ‘12 3 Jul ‘13

Corporate Family Rating Caa3 Ca

Outlook Negative Negative

On 2 July, the company announced that it had filed a voluntary petition for reorganization under Chapter 11. The downgrade reflects this filing, which we classify as a default.

Empire Today, LLC Downgrade

18 Jan ‘11 3 Jul ‘13

Corporate Family Rating B3 Caa1

Outlook Stable Stable

The downgrade reflects Empire’s weak operating performance which has been below expectations and has resulted in margin erosion and deterioration in credit metrics. The downgrade also reflects the deterioration in Empire’s liquidity, which, although currently adequate, has only a modest cushion for any shortfall in profitability.

KION Group Upgrade

5 Jun ‘13 2 Jul ‘13

Corporate Family Rating B3 Ba3

Outlook Review for Upgrade Stable

The three-notch upgrade reflects the significant improvement in KION’s group net leverage following its successful IPO, with around €0.9 billion of the proceeds being applied to net debt reduction.

Nokia Oyj Review for Downgrade

23 Jul ‘12 3 Jul ‘13

Corporate Family Rating Ba3 Ba3

Outlook Negative Review for Downgrade

The review follows Nokia’s announcement that it will acquire the 50% stake in Nokia Siemens Networks B.V. that it does not already own, This transaction will be credit negative for Nokia, bringing its net cash position close to the minimum net cash levels expected for the Ba3 rating at a time when the group’s mobile phone business continues to generate negative free cash flows.

RATING CHANGES Significant rating actions taken the week ending 5 July 2013

39 MOODY’S CREDIT OUTLOOK 8 JULY 2013

OGX Petroleo e Gas Participacoes SA Downgrade

9 Apr ‘13 2 Jul ‘13

Corporate Family Rating B2 Caa2

Outlook Review for Downgrade Negative

The downgrade is driven by weak oil production and cash flows, which are impairing the asset coverage of the company’s senior unsecured notes. The negative outlook reflects OGX’s constrained liquidity profile through 2014.

Tribune Company Review for Downgrade

28 Nov ‘12 2 Jul ‘13

Corporate Family Rating Ba3 Ba3

Outlook Stable Review for Downgrade

The review follows the company’s announcement that it had entered into an agreement with Local TV Holdings, LLC to acquire 19 stations in 16 markets for $2.725 billion in cash. The company received $4.1 billion of committed financing including a new $300 million cash flow revolver facility to fund the acquisition and refinance existing debt. Although the acquisition will favorably shift Tribune’s revenue and cash flow profile away from publishing, the debt financed transaction markedly increases leverage and reduces coverage ratios.

RATING CHANGES Significant rating actions taken the week ending 5 July 2013

40 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Infrastructure

Sociedad Concesionaria Autopista Vespucio Sur, S.A. (Vespucio Sur) Upgrade

15 Jul ‘ 08 1 Jul ‘13

Senior Secured Debt Underlying Rating Baa3 Baa2

Outlook Stable Positive

The upgrade reflects the consistent traffic and revenue growth over the past four years, and a steady and strong financial performance evidenced by the maintenance of strong credit metrics. The Baa2 rating also incorporates the strong economic indicators of the service area and traffic profile amid a stable and predictable regulatory framework.

Sociedad Concesionaria Rutas del Pacifico (RdP) Upgrade

5 Jan ‘ 12 1 Jul ‘13

Senior Secured Bonds Baa2 Baa1

Outlook Positive Stable

The upgrade reflects the consistent traffic and revenue growth over the past four years, and a steady and strong financial performance evidenced by the maintenance of strong credit metrics. The Baa1 rating also incorporates the strong service area economy and traffic profile amid a stable and predictable regulatory framework.

Tata Power Company (TPC) Outlook Change

5 Oct ‘ 12 1 Jul ‘13

Corporate Family Rating B1 B1

Senior Secured Bond Rating B2 B2

Senior Unsecured Foreign Currency Rating

(P)B2 (P)B2

Outlook Stable Negative

The outlook change reflects renewed uncertainties related to material covenant breaches on bank debt associated with TPC’s Gujarat-based Mundra Ultra Mega Power Project, a project being executed under its fully owned subsidiary, Coastal Gujarat Power Limited (CGPL). Although CGPL had secured waivers for the covenant breaches, they expired on 30 June 2013, bringing the liquidity risk associated with the project back to the fore.

RATING CHANGES Significant rating actions taken the week ending 5 July 2013

41 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Financial Institutions

BNY Mellon, Northern Trust and State Street Placed on Review for Downgrade On 2 July, we placed the long-term ratings of three large US trust and custody banks on review for downgrade; while affirming their Prime-1 short-term ratings. Specifically we placed on review the ratings of The Bank of New York Mellon Corporation (Aa3 holding company senior, Aa1 bank deposits, B/aa3 bank financial strength/baseline credit assessment), Northern Trust Corporation (A1 holding company senior, Aa3 bank deposits, B/aa3 bank financial strength/baseline credit assessment) and State Street Corporation (A1 holding company senior, Aa2 bank deposits, B/aa3 bank financial strength/baseline credit assessment).

The reviews will focus on the long-term profitability challenges facing these banks as aggressive pricing at the banks’ core custody products and services keeps overall fee revenue at roughly the same level as total expenses. The review will also examine the banks’ ability to generate more revenue from custody-related services and cut costs.

Three Jordanian banks’ Deposit Ratings Downgraded On 2 July, we downgraded the local-currency deposit ratings of the three Jordanian banks: The Housing Bank for Trade and Finance (HBTF) to Ba3/Not-Prime from Ba1/Not-Prime, the Cairo Amman Bank (CAB) to Ba3/Not-Prime from Ba2/Not-Prime, and Arab Bank PLC to Ba2/Not-Prime from Baa2/Prime-2. Concurrently, we also downgraded all three banks’ foreign-currency deposit ratings to B2 from Ba3, and lowered the baseline credit assessments of HBTF to b1 from ba2, CAB to b1 from ba3 and Arab Bank to ba2 from baa2. All ratings now carry stable outlooks.

The rating actions follow our 26 June downgrade of Jordan’s government bond rating to B1 from Ba2. The actions also reflect, to differing degrees (1) the Jordanian government’s weakened capacity to provide support to the banks; (2) the high credit linkages between banks’ balance sheets and sovereign credit risk, and (3) fragile operating conditions, both domestic and regional.

Ratings of BFA/Bankia, Catalunya Banc and NCG Banco Downgraded On 2 July we downgraded the ratings of the three Spanish banking groups owned by the Fund for the Orderly Resolution of the Banking System (FROB). We downgraded the debt and deposit ratings of Bankia by two notches to B1 with negative outlook. We also downgraded the debt and deposit ratings of Catalunya Banc S.A. and NCG Banco S.A. two notches to B3 with a negative outlook. These actions reflect our accompanying downgrades of their standalone credit assessments. We downgraded the standalone credit assessment of Bankia by one notch to b3 and the assessments of Catalunya Banc and NCG Banco by three notches to caa2. Vulnerabilities in the credit profiles of the banks even after receiving extensive public-sector support packages prompted the lower assessments. The banks continue to have very weak asset quality, weak profitability levels; and face very challenging restructurings.

RATING CHANGES Significant rating actions taken the week ending 5 July 2013

42 MOODY’S CREDIT OUTLOOK 8 JULY 2013

African Bank Limited Outlook Change

4 Mar ‘13 3 Jul ‘13

Long-Term Debt & Deposits Rating Baa3 Baa3

Standalone Bank Financial Strength / Baseline Credit Assessment

D+/ba1 D+/ba1

Outlook Stable Negative

We changed the outlook because we are concerned that the bank’s asset quality may deteriorate more severely than we had initially anticipated, partly because of the more pronounced deterioration in African Bank’s Ellerines-originated portfolio. The outlook change also reflects the weakening in the bank’s earnings-generating capacity amid lower loan-related income and increasing loan-loss provisioning requirements. The bank’s Ellerines-originated portfolio has shown more pronounced deterioration than the bank’s other loans, with recent loan vintages continuing to show signs of stress.

Bank of Ayudhya (BAY) Outlook Change

24 Jun ‘09 3 Jul ‘13

Long-Term Debt & Deposit Ratings. Baa2 Baa2

Short-Term Ratings P-2 P-2

Standalone Bank Financial Strength / Baseline Credit Assessment

D+/ba1 D+/ba1

Outlook Stable Positive

The outlook change follows the Bank of Tokyo-Mitsubishi UFJ’s 2 July announcement that it plans to acquire a majority equity stake in BAY. In the announcement, BTMU has agreed to purchase GE Capital International Holdings Corporation’s 25% stake in BAY and will then make a voluntary tender offer that could take its total stake in the bank up to 75%.

Banco Indusval S.A. Outlook Change

7 Feb ‘13 4 Jul ‘13

Long-Term Debt & Deposits Rating Baa2 Baa2

Short-Term Rating P-2 P-2

Standalone Bank Financial Strength / Baseline Credit Assessment

D-/ba3 D-/ba3

Outlook Stable Negative

The negative outlook incorporates the pressures recent acquisitions may be having on BI&P’s ability to generate sustainable earnings as the bank prolongs a business restructuring phase, further limiting earnings generation.

RATING CHANGES Significant rating actions taken the week ending 5 July 2013

43 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Banco Popular Espanol S.A. Downgrade

24 Oct ‘12 4 Jul ‘13

Long-Term Debt & Deposits Rating Ba1 Ba3

Standalone Bank Financial Strength / Baseline Credit Assessment

D/ba2 E+/b1

Outlook Review for Downgrade Negative

The downgrade reflects the bank’s weakened financial profile and the deterioration of asset-quality metrics in most asset classes. The bank has a significant exposure to the non-real estate corporate sector, its key strategic focus, from which we expect further deterioration.

Banco Sabadell Review for Downgrade

5 Oct ‘12 4 Jul ‘13

Long-Term Debt & Deposits Ratings Ba1 Ba1

Subordinate Debt Ratings Ba3 Ba3

Standalone Bank Financial Strength / Baseline Credit Assessment

D/ba2 D/ba2

The review has been prompted by the risks of broader asset quality deterioration at Banco Sabadell, particularly in the non-real-estate corporate segment, which has been the bank’s traditional focus. There are also risks associated with the continuing weak outlook for the non-export-oriented corporate sector amid the ongoing contraction in the domestic, non-export oriented economy in Spain.

CIBC Mellon Trust Company Review for Downgrade

8 Mar ‘12 2 Jul ‘13

Standalone Bank Financial Strength / Baseline Credit Assessment

B-/a1 B-/a1

Senior Unsecured Deposit Rating Aa3 Aa3

Outlook Stable Review for Downgrade

The action follows our 2 July announcement that we had placed the long-term ratings of three large US trust and custody banks on review for downgrade, including those of CMT’s 50% shareholder, The Bank of New York Mellon.

RATING CHANGES Significant rating actions taken the week ending 5 July 2013

44 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Standard Bank Plc Upgrade

27 May ‘10 4 Jul ‘13

Long-Term Debt & Deposits Rating Baa2 Baa1

Sub- Debt & Junior Sub Debt Baa3 Baa2

In light of an increased degree of integration between Standard Bank Plc (SBP) and its parent Standard Bank Group (SBG), including funding support and a firm formalised commitment to maintain minimum regulatory capital adequacy levels, we have withdrawn SBP’s standalone bank financial strength rating and positioned its debt ratings at those of SBG.

Sovereigns

Sri Lanka Outlook changed

2 Jul ‘13

Foreign Currency Rating B1 B1

Outlook Positive Stable

The outlook change primarily reflects a decline in the strength of the external payments position in the past two years. There has also been a slowdown in the pace of fiscal consolidation.

Structured Finance

Five Spanish Covered Bond Programs Downgraded We downgraded the ratings on the covered bonds issued under five Spanish covered bond programs following our downgrade of the senior unsecured ratings of the issuers that support these covered bonds. Specifically, we:

» downgraded to Ba1 from Baa1 the ratings of the mortgage covered bonds and public-sector covered bonds issued by Bankia, S.A.

» downgraded to Ba2 from Ba1 the ratings of the mortgage covered bonds and public-sector covered bonds issued by Catalunya Banc, S.A.

» downgraded to Ba2 from Ba1 the ratings of the mortgage covered bonds issued by NCG Banco, S.A.

See also “Ratings of BFA/Bankia, Catalunya Banc and NCG Banco Downgraded” in Financial Institutions section.

RESEARCH HIGHLIGHTS Notable research published the week ending 5 July 2013

45 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Corporates

Time Warner Cable Likely to Lose Investment Grade Rating In a Charter Takeover Time Warner Cable’s Baa2 rating is at risk in most Charter Communications (Ba3 stable) takeover scenarios. A takeover would pressure its ratings if a deal significantly increased its debt and leverage levels. We also note that TWC’s takeover defenses are limited, making it exposed to unsolicited bids.

Global Airline Industry’s Capacity Discipline, Lower Fuel Costs to Buoy Operating Profits Despite Slowing Demand The slow US economic recovery, continued weakness in Europe and restrained corporate spending will crimp demand for passenger airline travel. But lower fuel costs should offset the soft demand as well as higher non-fuel operating expenses. As a result, operating profitability should grow modestly. Yields will remain under pressure.

Financial Institutions

Credit Profiles of Many Spanish Banks Continue to Deteriorate Amid a Weak Domestic Economy The sustained weakness of the domestic economy, which has led to rising levels of non-performing corporate loans, is likely to weaken still further the credit profiles of many Spanish banks, notwithstanding the measures taken to boost their capital and strengthen loan-loss provisions. We expect the Spanish economy to remain in recession in 2013, with growth recovering slowly from 2014. However, growth will initially remain concentrated in the export sector, with the domestic economy continuing to contract at least through 2014.

RESEARCH HIGHLIGHTS Notable research published the week ending 5 July 2013

46 MOODY’S CREDIT OUTLOOK 8 JULY 2013

Sovereigns

Lithuania Credit Analysis Our Baa1 rating on the government of Lithuania balances our assessment of the country’s (i) small, open and flexible export-oriented economy; (ii) high institutional strength, as evidenced by the strong structural and consolidation measures undertaken in the past three years; and (iii) moderate government financial strength, based on manageable debt levels and the gradual decline in its fiscal deficits.

Bulgaria Credit Analysis The Baa2 rating assigned to the Government of Bulgaria is underpinned by the country’s moderate economic and institutional strength as well as high government financial strength, which contribute to its moderate susceptibility to event risk.

US Suspension of Trade Benefits to Bangladesh May Reduce Investment Flows On 27 June, the US Trade Representative announced that the US would suspend Bangladesh (Ba3 stable) from eligibility for trade benefits, under the Generalized System of Preferences program, because of insufficient progress towards reforms on worker rights and safety standards The direct effect on Bangladesh’s exports to the US will likely be very limited, but the move may dampen broader investment flows to Bangladesh, eventually posing risks to its external position.

Structured Finance

CLO Interest Even with the recent surge in CLOs issuance, credit risk to investors from ramp-up failures remains low, our newsletter says. Also in this issue, we highlight commentary from participants attending our June Boston and Chicago Roundtables.

Home Prices Improve, but Servicing Risks Offset Benefit to Legacy US RMBS Residential mortgage-backed securities (RMBS) issued between 2005-2008 will continue to benefit from rising home prices but many risks remain that will limit how much performance improves. Although higher home values will result in lower loan-to-value ratios (LTVs) that give borrowers more incentive to keep making timely payments on their mortgages, losses tied to servicing issues will significantly offset the benefits to mortgage pools.

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

47 MOODY’S CREDIT OUTLOOK 8 JULY 2013

NEWS & ANALYSIS European Union Bank Resolution and Bail-In Rules 2

» Bank Bail-in Rules Are Credit Negative for Senior Creditors » Exclusion from Bail-In Is Credit Positive for Covered

Bondholders

Corporates 5

» TransDigm's Special Dividend Is Credit Negative » US Met Coal Struggles Against New Low Benchmark Price » Arch Coal Will Benefit from Its Canyon Fuel Divestiture » Whiting's $860 Million Asset Sale Leaves BreitBurn with Greater

Leverage » Aussie Dollar's Fall Is Credit Positive for Miners; Credit Negative

for Retailers and A-REITS » Higher Indian Natural Gas Price Is Credit Positive for ONGC

& RIL

Infrastructure 12 » E.ON Sells German Distribution Network, Reducing Debt

Banks 13 » US Supreme Court Upholds Waiver of Class-Wide Arbitration, a

Credit Positive for Banks » TD's Bid for CIBC's Aeroplan Contract Is Credit Negative for Both

Banks » Brazilian Bank Loan Spreads Narrow, Pointing to Weak Second-

Quarter Earnings » Erste Group's Capital Raise Will Help Repay State Aid, a

Credit Positive

Insurers 21

» US P&C Insurers Get Credit-Positive Supreme Court Decisions on Generic Drug and Employer Liability

» Alberta’s Worst Floods Are Credit Negative for Canadian Insurers

Sovereigns 25 » Albania's Smooth Election Brings It Closer to EU Candidate

Status, a Credit Positive » Qatar's Smooth Political Transition Reflects Stable

Institutions, a Credit Positive

Sub-sovereigns 27 » Cost to Alberta, Canada from Flooding Will Be Ameliorated

by Federal Assistance

US Public Finance 28 » Tenet's Acquisition of Vanguard Will Increase Competition

Against Not-for-Profit Hospitals » Student Loan Rate Hike Is Negative for US Tuition-

Dependent Colleges

Securitization 31 » Higher Student Loan Rate Is Not a Big Factor for Student

Loan Securitizations

US Accounting 33 » FASB's Proposed Disclosure on Going Concern Uncertainties

Are Too Little, Too Late for Investors

RATINGS & RESEARCH Rating Changes 34

Last week we upgraded Delta Air lines, Sapphire Power Finance, Lincoln National Corporation and its operating subsidiaries, Export-Import Bank of Malaysia Berhad, the Republic of Bashkortostan in Russia, and downgraded PepsiCo, TransDigm, FPLE National Wind Portfolio, Lansforsakringar, National Financial Partners, Jordan, 34 US prime jumbo RMBS tranches, among other rating actions.

Research Highlights 44

Last week we published on US wireline, US wireless, North American rail, North American coal, global integrated oil and gas, US telecom, India’s fuel subsidies, North American auto parts, North American capital goods, Japan electric power, Australia airports, Hong Kong banks, US home equity lines, US life insurer derivatives regime, US life insurer variable annuities, Malaysia, Sub-Saharan Africa, Macao, Mauritius, Qatar, German Lander, US states pension liabilities, Florida, Asian-Pacific RMBS, German mortgage covered bonds, and US RMBS, among other reports.

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EDITORS PRODUCTION ASSOCIATE News & Analysis: Jay Sherman, Elisa Herr and Wendy Arthur

David Dombrovskis

Ratings & Research: Robert Cox Final Production: Barry Hing