The Credit Outlook Sovereign Debt Worries Cloud Fragile Economic Recovery

8/9/2019 The Credit Outlook Sovereign Debt Worries Cloud Fragile Economic Recovery

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Credit Market Research

www.fitchratings.com

Global

Special Report

The Credit OutlookSovereign DebtWorries Cloud Fragile Economic Recovery

SummaryThe worst of the most severe recession since the 1930s is fading stabilisation isoccurring and a slow recovery is in progress. Following the financial crisisinducedrecession, the many aggressive fiscal and monetary efforts by governments aroundthe world appear to have been successful in kickstarting economic activity. FitchRatings believes the turning point for the world economy was reached in mid2009,and the agency has revised upwards its forecasts for growth in the major advancedeconomies to 1.9% for 2010. Ratings are stabilising across all sectors, apart from in

structured finance and highgrade sovereigns.

However, the economic recovery is fragile, and needs to move on to a selfsustaining phase. The recovery has been driven by temporary factors the reboundin world trade, a slowdown in inventory destocking, and fiscal policy easing. Thenecessary trigger of increased investment is hampered by the continueddeleveraging, constrained credit availability, and uncertain labour market prospectsaffecting the consumer and housing segments, although prospects for a pickup inprivate investment especially in the US are brighter.

The corporate sector is struggling with stubbornly high overcapacity, which acts asa disincentive for capex. In the public sector, which has shouldered much of thefinancial burden of the problems in the private sector, large budget deficits are

forcing policy back into restraint mode (Government Debt/GDPchart), and placingincreasing pressure on highgrade sovereign creditworthiness.

Across Fitchs rated universe, the developed market basecase assumption is forslow and anaemic recovery. Hence, the single most significant risk to ratings is adoubledip recession. This could be triggered by the upcoming fiscal tighteningcycle which will be the greatest in history. However, Fitch expects its effect ongrowth to be delayed due to lags in the economy.

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009e 2010f 2011f

(Year)

Mature economies EM(%)

Government Debt/GDP

Source: Fitch

Analysts

Monica Insoll+44 20 7417 [email protected]

Mariarosa Verde+1 212 908 [email protected]

Trevor Pitman

+44 20 7417 [email protected]

Group Credit OfficersGerry Rawcliffe (Sovereign; Public Financeand Financial Institutions EMEA & APAC)+44 20 7417 [email protected]

Eric Friedland (Public Finance US)+1 212 308 [email protected]

JooYung Lee (Financial Institutions US)+1 212 908 [email protected]

Eileen Fahey (Regional Credit Officer US)+1 312 368 [email protected]

Andrew Murray (Insurance EMEA & APAC)+44 20 7417 [email protected]

John Hatton (Corporate EMEA & APAC)+44 20 7417 [email protected]

Timothy Greening (Corporate US)+1 312 368 [email protected]

Glenn Costello (Structured Finance)+1 212 908 [email protected]

Stuart Jennings (Structured Finance EMEA)+44 20 4717 [email protected]

Thomas McCormick (Global Infrastructure andProject Finance)+1 212 908 [email protected]


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The Credit Outlook Sovereign Debt Worries Cloud Fragile Economic RecoveryMay 2010 2

Outlooks Overview

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70

Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110

(Quarter/year)

Banks Insurance Corporates SF Sovereign Aggregate ex. SF

(% of portfolio)

Negative Outlooks

Source: Fitch

Outlooks have been stabilising across most sectors since Q309. In structured finance,the continued negative trend is driven mainly by US RMBS and, to a lesser extent,US CMBS.

The insurance sector outlooks have started to stabilise after a significant increasein the proportion of negative outlooks from 2008. The negative outlooks broadlyreflect the relatively high level of insurers exposure to volatile investment marketsand uncertain economic conditions, as well as the absence of expected governmentsupport as a stabilising factor (compared with financial institutions).

Sovereign Overview

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5

10

15

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25

30

Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110

(Quarter/year)

Developed markets Emerging markets All(% of portfolio)

Sovereign Negative Outlooks

Source: Fitch

Outlook Trend

For highgrade sovereigns, the broad outlook isnegative for credit and ratings

Emerging market sovereign credit quality willcontinue to improve

Key Risks

Failure to articulate credible fiscalconsolidation programmes threatens financialstability

Confidence shocks that undermine access tolongterm and affordable fiscal funding

Uncertain prospects, especially for highlyleveraged economies, compound the fiscalchallenges

Persistent global imbalances pose a risk tosustained economic recovery


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Public Finance Overview

Key Risks

Weaker fiscal revenues High capex to boost employment Rising deficits, including current balance Increased debt and refinancing needs Immigration and ageing population placing pressure on current expenditure

Financial Institutions Overview

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50

60

Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110

(Quarter/year)

EMEA North America EM All(% of portfolio)

Financial Institutions Negative Outlooks

Source: Fitch

Outlook Trend

Global rating outlooks for financial institutionsshould achieve further stabilisation in 2010

Key Risks

Further asset quality deterioration, includingasset bubbles in Asia

Refinancing/market access

Profitability and liquidity

Adverse regulatory developments

Sovereign credit profile pressure

Insurance Overview

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60

70

Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110

(Quarter/year)

EMEA North America All(% of portfolio)

Insurance Negative Outlooks

Source: Fitch


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Outlook Trend

Sectors moving towards stabilisation as capitalmarket conditions improve

Operating fundamentals expected to remainweak from high unemployment and volatility ininvestment returns

Key Risks

Further losses expected in commercialproperty

Regulatory capital exposure to creditmigration

Sovereign credit profile pressure

Pressure on investment return guarantees

Weak premium rate environment for somenonlife lines

Corporates Overview

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Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110

(Quarter/year)

EMEA North America EM All(% of portfolio)

Corporate Negative Outlooks

Source: Fitch

Outlook Trend

Ongoing stabilisation of rating outlooks

EM growth compensates for flat performancein western Europe

Key Risks

Overcapacity reducing expansionary capexneeds but hampering profitability

As the benefits of central fiscal stimuli fade,increased private sector investment is neededto sustain growth

Leveraged finance refinancing risk


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Global Infrastructure and Project Finance Overview

Key Risks

Revenue growth

Counterparty stress

Energy prices

Employment growth

Inflation

Structured Finance Overview

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10

20

30

40

50

Q109 Q209 Q309 Q409 Q110

(Quarter/year)

EMEA North America All(% of portfolio)

Structured Finance Negative Outlooks

Source: Fitch

Outlook Trend

Aggressive 2006 and 2007 vintages drivenegative outlooks in most sectors

Negative outlooks for US RMBS, due tocontinued weakness in US residential realestate

Stable ratings for consumer ABS senior classesare expected to continue

Concerns over refinancing a key factor innegative outlooks for CMBS and structuredcredit

Key Risks

Elevated unemployment rates and weakrecovery

Continued depressed property values and highloss severities

Refinancing risk where loan maturities areapproaching

Sovereign risk and rising rates in the eurozone

Sovereign

Developed MarketsHighgrade sovereign credit profiles remain under pressure following theextraordinary intervention and support for the financial sector, as well as fiscalstimulus packages. However, the deterioration in public finances primarily reflectsthe severity of the recession which has hit taxrich sectors especially hard(finance and housing), and driven up welfare spending. Moreover, government debtis rising most rapidly in those economies that experienced the largest runup inprivate sector indebtedness prior to the crisis, notably the US, UK, Spain andIreland.

However, the sovereign currently (May 2010) under most pressure Greece(BBB-/Negative) did not incur large fiscal costs in support of its financial sector,and did not experience a severe recession. Rather, the crisis of confidenceafflicting Greece reflects previous episodes of fiscal misreporting and indiscipline,as well as concerns over the political will and capacity to implement the fiscal andstructural reforms necessary to place public finances on a sustainable path.


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Greeces EUR53bn gross financing requirement for 2010 pales into insignificance againsttotal borrowing by European governments this year which Fitch projects will beEUR2,200bn, slightly greater than the historical high of 2009. The sharp increase in

shortterm debt by many sovereign borrowers is a source of concern, due to the higherexposure to interest rate shocks and, potentially, financing shocks.

The crisis in Greece underscores the importance of credible fiscal consolidationprogrammes for maintaining investor confidence and market access. Small socalledperipheral economies of the eurozone notably Portugal and Ireland (bothdowngraded to AA over the last six months, though the Outlook on Portugalremains Negative) and to a lesser extent Spain (AAA/Stable), are sufferingcontagion from the worsening Greek financial crisis. While all face significanteconomic and fiscal challenges, Fitch regards their underlying sovereign creditfundamentals as much stronger than Greece. Nonetheless, Fitch has highlighted theneed for a strengthening of fiscal consolidation programmes, and the substantialadditional measures recently announced by the Portuguese and Spanish

governments to reduce their budget deficits are being assessed.The budgetary and economic restructuring challenges facing European countrieswith twin fiscal and current account deficits has raised investor concerns over thesustainability and policy framework governing the eurozone. The announcement ofa package of financial support measures by the EU and IMF in excess of EUR720bn,and the decision by the ECB to purchase private and public (including sovereign)debt securities, has significantly eased nearterm financing risk faced by someeurozone governments. Moreover, the European Commission has drafted proposalsto strengthen fiscal surveillance and discipline in the eurozone. Nonetheless, untilgovernments are seen to be delivering on bringing budget deficits down andeconomic recovery is secured further episodes of volatility in government bondmarkets (and financial markets more generally) is likely.

While the current market and media focus is on the eurozone, most highgradesovereign governments face significant budgetary adjustment in the order of 4pp7pp of GDP just to stabilise the public debt ratio at the elevated levels projectedfor end2011. The potential for negative fiscal surprises and volatility ingovernment bond markets including beyond the eurozone will remain high forthe foreseeable future.

Against this backdrop and amid heightened concerns over sovereigncreditworthiness, governments will need to respond in a timely and credible fashionto ensure that budget targets are met and debt levels stabilised and eventuallylowered over the medium term. The governments facing the most challengingbudgetary adjustment over the mediumterm are Japan, Ireland, the UK, Spain, theUS and, to a lesser degree, France.

For the US, the nearterm risk to the AAA status is low given its exceptionalfinancing and economic flexibility, and the US dollars role as the worldspredominant reserve currency. Nonetheless, Fitch expects public debt on a generalgovernment basis (i.e. consolidated federal, state and local) to rise to more than90% of GDP by end2011 (up from 57% at end2007), which would mark the highestlevel among current AAArated sovereigns. The UK faces a similarly daunting fiscalchallenge; but with lower financing flexibility and a less dynamic economy, in theabsence of greater urgency in reducing its record budget deficit, the UK will bevulnerable to further economic and financial shocks.

Government debt continues to rise inexorably in Japan gross government debt isequivalent to two times annual national income. Concerns over the longrun

sustainability of public finances are compounded by persistent deflation and theabsence of a credible commitment to fiscal consolidation.


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Emerging MarketsBy contrast, the performance of many emerging markets (EMs) through the crisishas demonstrated considerable resilience against an extraordinary external shock.

The ability to pursue countercyclical monetary and fiscal policies is testament tothe stronger macroeconomic and credit fundamentals of EM economies going intothe current crisis in comparison with previous crises. But while significant monetaryand fiscal stimulus has prevented deep recessions in most, inflationary pressuresare beginning to emerge most notably in Brazil, China and India and timelypolicy response will be necessary to ensure that monetary and macroeconomicstability remains firmly secured.

Nonetheless, there are significant divergences in economic performance and creditquality across EM economies. Moreover, although emerging economies (especially inAsia) have led the global economic recovery, this primarily reflects the rebound inglobal trade and the inventory cycle that will only be sustained if there is arecovery in final consumption demand in the major advanced economies (MAEs),

most notably the US. The success of EM is a function of strengthenedmacroeconomic policy frameworks and globalisation global economic recoverycannot be sustained without the EMs, but nor can it be powered by them alone.

For China, the transition to greater reliance on market mechanisms and aconsumptionled economy is vital to sustaining growth over the mediumterm butis also associated with potential risks to macrofinancial stability. Though the stateand creditled stimulus programme has been supportive of global as well as Chinesegrowth, the transition away from an investment and exportled economy remains amediumterm challenge for the authorities.

In contrast with previous crises, Latin America demonstrated strong resilience tothe significant external financing shock. The region entered the period of the globalfinancial crisis in relatively good health, with recordhigh international reserves,manageable external account imbalances, modest government debt burdens, andcomparatively healthy financial systems that were not exposed to toxic assets orhighly dependent on external funding. Moreover, economic recovery in the regionhas been significantly supported by expansionary economic policies, an increase incommodity prices since the trough in early 2009, and a recovery in external privatecapital inflows.

Fitch expects Latin American economic growth to recover to 3.6% in 2010,reinforced by a more favourable global financial and economic environment, afurther modest increase in commodity prices, and continued capital inflows. On thedomestic front, demand will be underpinned by a recovery in consumer andbusiness confidence indicators and continued supportive economic policies.

The economic and credit outlook for Emerging Europe remains mixed. More than athird of the sovereign ratings remain on negative outlook as they cope with thelegacy of (largely western European) bankfuelled credit booms. Nonetheless, thebalance of rating outlooks is becoming more favourable, and negative rating actionsover the coming 12 months are likely to be significantly down on the 200809 periodas economies recover and private sector balance sheets are healed.

Public Finance

EMEAEuropean local and regional governments (LRGs) will continue to face toughchallenges and difficult policy decisions in 2010, as they adjust to reduced fiscalrevenue whilst managing very rigid operating expenditure in a number of countries.

Downward rating pressure will continue, especially for entities with longtermstructural problems. These are mainly LRGs that have greater reliance on fiscalrevenue related to economic activity on their territory (such as personal income tax,corporate income tax or VAT), or taxes related to property transactions (such as


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stamp duty or property transfer tax). Furthermore, in some jurisdictions there is atime lag between a decline in economic performance and the impact on budgets this can be one or two years, depending on the timing of filing tax returns.

The economic slowdown will result either (at best) in a very modest rise in taxrevenue compared with 2008, or (at worst) a decline, as experienced by a numberof LRGs in 2009 whose tax revenue declined by up to 20% compared with 2008. LRGswith a greater dependence on tax revenue from the sale of housing or buildingactivities have been particularly affected, as these sectors have experienced thegreatest slowdown. Unemployment will have a negative impact on revenue, withfiscal revenue such as personal income tax, corporate income tax and VAT underpressure due to muted profitability and a fall in consumer confidence and spending.

Fitch expects higher overall deficits to continue to be recorded through 2010, andin some cases this will be at the current balance level as some LRGs have found itdifficult to rein in operating expenditure due to its rigidity and sheer essentialnature (such as health care and education in some instances). Furthermore, capex

in public infrastructure is expected to remain high in 2010 and 2011, as LRGs adoptanticyclical measures to boost employment activities in parallel with policiesadopted by the various central governments. In addition, the sharp increase in theimmigrant population, and ageing of the population, will continue to put pressureon education and health care expenditure in those countries where theseresponsibilities have been devolved to LRGs.

Although access to the capital markets has improved and many LRGs have tappedthis source of funding substantial debt still needs to be refinanced or raised in2010 to cover budget deficits. Fitch expects total issuance to remain high this year.

United StatesThe US public finance rated universe is large and diverse, with many distinct credit

drivers. While this asset class overall exhibits a high level of credit quality andstability, the common theme for 2010 focuses on budget constraints in the wake ofthe financial crisis, as well as recessionary pressures.

On the whole, states have experienced extreme financial stress, with the state taxsystems reacting quickly to changing economic conditions. Reserves, which werebuilt up in the recovery, have been largely drawn down for budget balancing.Without federal stimulus assistance, draconian cuts would have been required inmost states. The phaseout of federal stimulus funds is a pressure, while thebudgeting decisions made by many states to underfund pension obligations servesto exacerbate longerterm pressures.

However, stabilisation has been achieved by various factors, as states generally

have broad economic and taxbase resources and exhibit sovereign attributes, asthey have substantial control over taxing and spending, although this variessomewhat from state to state. Furthermore, debt levels are generally low (


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Management has played a significant role in how economic stress has affectedcredit quality; the impact of eroded operating margins will be mild if managementdemonstrates its willingness and ability to make the necessary adjustments to

maintain prudent reserves. Local government debt levels will be stable to slightlyhigher in 2010.

For the water and sewer sector, the greatest threat to financial stability over thenearterm is declining revenues, as utilities have contended with dwindlingconnection fees, moderating usage, and falling investment income. To mitigate theimpact of these revenue declines and to maintain credit stability, it will be criticalthat ratesetting bodies continue to implement rate hikes that ensure fullcostrecovery and preserve financial margins. This could prove challenging in some cases,as government officials seek to limit utility increases in the face of rising taxes andfees to support other governmental functions, which in many cases are undersevere budgetary stress.

Continued economic weakness could erode financial performance, and so access to

capital markets for infrastructurefunding is critical. If there is difficulty accessingcapital, and projects cannot be delayed, utilities could be forced to implementrapidly escalating rate hikes to accommodate much higher fixed costs or to increasepayasyougo capital funding.

The healthcare sector will experience revenue pressure, cost inflation and volumelosses, which will more likely result in erosion of margin and coverage in 2010 thanin 2009. Negative rating pressure will continue to be disproportionately felt bylowerrated entities due to their smaller market positions, lighter financialresources, and more limited access to capital. The impact of healthcare reform onproviders is uncertain. However, the providers of scale with robust and diverserevenue streams should continue to absorb the effects of reform without creditdeterioration. Those organisations without such attributes, or with limited success,

will likely be pressured to remain independently viable.

The main rating driver in the housing universe is the continued economic pressureon homeowners, which has been caused by falls in home price valuations, thepresence of negative borrower equity, and the continued decline in mortgage loanperformance leading to higher foreclosure rates. Profitability at State HousingFinancing Agencies (SHFAs) has been declining, with reduced interest income oninvestments and increases in loanloss reserves. Many SHFA variablerate demandbonds are backed by liquidity facilities that have expiration dates in 2010, and willbe under pressure to renegotiate with the existing provider or find new liquidityproviders. The anticipated rise in conventional mortgage market interest ratesshould make the SHFA loan product more attractive, spurring more loan originations.

Overall, the public power sector continues to benefit from solid creditfundamentals, including: the basic necessity of an available electric service; localcontrol over ratesetting without state commission oversight; a cost advantagecompared with neighbouring investorowned utilities; and benefits associated witha diversified and predominantly residential and commercial customer base (asopposed to an industrial customer base).

Risks include increased costs associated with compliance to state (and potentiallyfederal) renewable portfolio standards. Also, the spectre of congressional carbonlegislation or EPA carbon regulation will have an impact on power costs in thefossil fuel dependent regions (Southeast, Midwest, Texas). Several public powerutilities are still pursuing large capex programmes that will require them toincrease leverage, causing higher rates and a loss of financial flexibility.

Higher education will continue to benefit from strong revenue generation, tiedlargely to students; and sophisticated financial and investment managementpractices, which has helped to mitigate the downdraft in college endowment and


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longterm investment performance created by turbulence in global financialmarkets in late2008 through mid2009. However, competition among institutions isexpected to intensify.

Financial InstitutionsFitchs rating outlooks for financial institutions should stabilise further in 2010, asmany entities raised capital to strengthen their balance sheets or experienceddowngrades in 2009/early2010. In addition, a significant minority of banks,especially in EMEA and Asia, are currently at their sovereignderived support ratingfloors, limiting rating pressure to that derived from the sovereign credit profile.

Nevertheless, financial institutions typically lag underlying economic recovery, andunemployment rates have yet to peak in most major economies. Therefore,pressure remains on asset quality and financial systems. Profitability shouldimprove from the lows of 2009, particularly as access to the capital markets hasbecome easier and funding costs have been reduced somewhat though many

financial institutions still face profitability weakness from holding higher levels ofcapital and liquidity.

Lingering margin pressure from low interest rates, potential continuation of highlevels of credit costs (provisioning or losses), and (for many) the cost of holdinghigher levels of liquidity throughout 2009, continue to weigh on the financialinstitutions rating universe.

A protracted weak economic recovery could have an impact on outlooks, as couldvarious changes in regulatory environments over time. There is currently muchdebate at both national and international levels on the shape of future bankingregulation. Broadly speaking, these discussions fall into two areas: a change toaddress idiosyncratic risks, and to address systemic risks. Although these measuresshould make banks less likely to fail, they may inevitably curb their profitability.Addressing the systemic risks, arising especially from the size andinterconnectedness of large international financial institutions, is considerablymore challenging, and progress is likely to be slow.

North AmericaSome modest improvement in outlooks is expected in 2010. Many US financialinstitutions which experienced downgrades in the wake of the financial crisissuccessfully raised capital in 2009 to help stabilise their balance sheets. However,the high proportion of negative outlooks in North America relative to other regionsreflects the continued asset quality pressure on regional banks related specificallyto their significant commercial real estate exposure.

Finance and leasing companies also have negative outlooks, with both consumer

and commercial operations continuing to face challenging operating environments.Key rating issues relate to access to stable sources of liquidity; refinancing risks;and negative asset quality trends. Securities firms and investment managers havestable outlooks, with those companies benefiting from the improving capitalmarkets.

Canadian financial institutions face a more stable economy that has weathered theglobal financial crisis much better than that of the US. Asset quality and capitalhave held up despite some of the deterioration experienced elsewhere during thecrisis.

EMEAPressure on asset quality and financial systems is also prevalent in developed

Europe. However, the higher proportion of stable outlooks in the region is driven bythe fact that a larger proportion of the regions ratings are at their support floors.This contrasts with North America, where very few ratings are driven by support.


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The negative outlooks in developed Europe reflect some of the challenges theunsupported financial institutions face as they emerge from the global economicrecession.

Emerging markets in Europe were the worst affected by the financial crisis, and aretherefore a primary driver behind the negative outlooks for EMEA. Although theRussian banking system has accounted for a large part of these, positive ratingpressure may develop due to improvements in the financial system infrastructure,in particular access to liquidity.

The preponderance of stable outlooks in the Middle East and Africa relates largelyto the fact that many are at their support floor ratings in those regions.

Emerging MarketsAsiaPacific financial institutions have been relatively unharmed by the globalfinancial crisis and subsequent recession. This was due to only limited exposure todeveloped market financial assets; ample deposit funding; and liquidity from high

domestic saving rates and the absence of major residential real estate bubbles.

Banking systems in the region have benefited from the economic recovery sinceearly 2009, and Fitch generally expects asset quality problems to remainmanageable. This is both in terms of the absolute level of nonperforming assetsthat ultimately emerge, and in terms of the banks ability to maintain sufficientoperating profitability to absorb the impact of falling balance sheet valuations asthey are recognised.

Outlooks across AsiaPacific are overwhelmingly stable. However, given theinterconnected nature of the global economy, and the reliance of many regionaleconomies on international trade, positive rating pressure is subject to the US andEurope achieving a more sustained and durable macroeconomic recovery.

Fitch has growing concerns about continued credit expansion and rising leverage inthe Chinese banking system, and the outlook for asset quality and real estate pricesin this rapidly growing market. In Japan, capital quality will remain an issue forsome banks, with the sector as a whole having poor prospects both for profitabilityand asset growth in a deflationary zerointerestrate environment. Consequently, inboth China and Japan, individual ratings remain under downward pressure; andalthough many banks are assigned a stable outlook, in a majority of cases this isbecause they find themselves at their support floors.

In Latin America, ratings are predominantly stable as a result of the regionseconomies recovering quickly from economic contraction which has been sharp inmany countries, but generally of a shortterm nature. Despite weakness in the USeconomy and the broader recession across the developed markets, Latin Americanfinancial institutions managed relatively well through the crisis, reflecting theresilience of most of the regions national economies.

The outlook for the region points to accelerating growth and stabilisation of ratingoutlooks. Banks remain profitable, and fundamentals have held up despite expecteddeterioration in asset quality. Capitalisation in the sector has improved and fundingpressures are receding, although institutionallyfunded nonbanks and some midsized banks in various countries have experienced liquidity problems.

InsuranceRatings for the life and nonlife sectors remain largely on negative outlook, althoughratings stabilisation is expected in several markets during 2010. The main differentiatorbetween life and nonlife is their relative exposure to the turmoil in credit and equitymarkets, with the former maintaining higher investment leverage and greatersusceptibility of many products to recessionary or inflationary pressures, particularlydue to the longevity of products. The reinsurance sector outlook is stable.


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The ratio of negative outlooks is very similar in the US and EMEA although somedifferences in the nature of risks do exist by market. For example, Europeaninsurers clearly have greater exposure to eurozone sovereigns, a number of which

have come under some pressure in recent weeks. In contrast, in Fitchs view USinsurers generally have greater exposure to further realised losses from commercialreal estate.

LifeNegative rating pressure in the life sector in 2010 results from the risk of furtherinvestment losses (particularly in the commercial real estate market), weakeroperating fundamentals, and lower coverage metrics and riskbased capitalpressures relative to credit migration in fixedincome portfolios. In addition, thecurrent lowinterestrate environment presents significant challenges for manyinsurers, especially in the presence of guaranteed investment returns.

Rating actions taken by Fitch in 2009 incorporated a conservative forecast for

additional investment losses, and a slow economic recovery. Rating downgrades willcontinue to outnumber upgrades in 2010, although the pace and number ofdowngrades will moderate compared with the previous year.

NonLifeThe outlook for the personal and commercial line sectors for the nonlife(property/casualty) insurance industry remains negative with the exception ofthe UK and Germany, which were revised to stable from negative in March and May2010, respectively.

Risks have focused on the volatile investment markets and uncertain economicconditions, although concerns for some markets are now shifting more towards thetraditional underwriting cycle and competitive pressures. In particular, thecommercial segment in the US market is characterised by intense competition andunsustainably low pricing.

The nonlife outlook in the UK and Germany have been revised to stable due toexpectations that earnings will stabilise during 2010; improved rates in some keylines; and an improvement in macroeconomic conditions. In the US, it is anticipatedthat the personal lines sector may return to a stable outlook earlier thancommercial lines due to more visible signs of improvement in pricing, and Fitchsview that the personal lines segment is less likely to see very weak pricing levels(for example, ratios of claims plus expenses to premiums in excess of 110%).

ReinsuranceOngoing improvements in capital markets conditions have sufficiently easedconcerns regarding reinsurers ability to access funding on reasonable terms

following a significant catastrophe event. Concurrent with these improvements, the2009 hurricane season in the US passed without a major event, dramaticallyreducing reinsurers exposure to potential nearterm needs for capital.

The reinsurance sectors credit quality is less sensitive to macroeconomic factorsthan that of many other financial services. Reinsurers are most directly exposed tomacroeconomic deterioration through pressures on the asset side of their balancesheet. In this regard, asset quality within reinsurers investment portfolios isrelatively high, with values having improved markedly in 2010 to date.

Compared with primary market peers, reinsurers were resilient in the course of the20082009 financial crisis, and have generally rebuilt their capital bases to thelevels last seen at the end of 2007. Moreover, the lack of practical alternatives to

reinsurance, including limited activity in the insurancelinked securitisation market,continue to place reinsurers in a strong competitive position to provide capacity forthe insurance sector.


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Corporates

EMEA

In Q110, Fitchs forecast trend towards stabilisation of rating outlooks has gainedmodest momentum, at existing or lower rating levels than at the start of the creditcrunch. However, with economic growth still very tentative across Europe, the mainrisk to corporates in the region is that of a doubledip recession.

Corporate credit profiles will be at risk if economic growth is dampened as a resultof fiscal tightening by countries needing to avoid further deterioration of statefinances. By contrast, the direct risk to company ratings of a modest sovereigndowngrade in highgrade countries is considered limited, as most corporate ratings(particularly in highgrade countries) have no direct linkage to the sovereign.

The slow economic recovery is mirrored in expectations for capex. Fitchs ratedEMEA universe cut capex by 8% on average in 2009, and is not forecast to increasespend from this low level for the next two years. This behaviour reflects a number

of factors, including a continued focus on cash preservation and (for somecompanies) more difficult access to financing, although the key driver is thesubstantial overcapacity persisting in many industries.

In cyclical industrial sectors, eg automotive and basic materials, companiesestimate it may take five to seven years to recover the level of demandexperienced at the peak of the last cycle. Overall, Fitch expects EMEA ratedcorporates will only return to 2007 levels of absolute profitability beyond 2011. Thissubdued activity will have obvious negative knockon effects on employment andGDP throughout the economy.

So how to achieve topline growth? At this stage of the postcrisis cycle, the spectreof shareholderbiased activities is likely to resurface. M&A deals may still form a

trickle rather than a flood, and are funded in a conservative way by an equityportion (eg Kraft/Cadbury), although market appetite may gradually allow greaterdebtfunding during the year. The liquidity crunch is receding, and for largeinvestmentgrade entities the bond market is keen to provide the termout fundingrequired.

Many businesses are focused on increasing their exposure to growth markets in theBRICs (Brazil, Russia, India and China) and other emerging markets, given thatdeveloped market consumers are constrained by the need to deleverage and withan ongoing tone of job insecurity. An absence of opportunities for acquisitions maydrive companies to dividend increases (having reduced payments in 2009) and sharebuybacks. Overall, these actions are typically negative for credit profiles.

In the leveraged finance universe, the good news in the shortterm is that thedefault rate is expected to fall. However, many LBOs continue to haveunsustainable capital structures, and will begin to face bullet repayments from2012 which will require refinancing. With a large proportion of Fitchs shadowratedleveraged portfolio rated B* and below, the availability of such refinancing (bond,bank, CLO) cannot be taken for granted, especially for the weaker LBOs. Continueddislocation at the sovereign level may also affect market access for such entities.

United StatesThe US corporate recovery is expected to be unusually slow because the economyhas fallen unusually far the excess industrial and labour capacity that has to beabsorbed before investment can return to normal is larger than in recent recessions.Total industrial capacity utilisation in 2009 was only 70%, the lowest since 1962when the government started compiling the data. The previous low was 74% in 1982,during the 198083 doubledip recession. However, with the severe downcyclehaving turned, analysis is now concentrating on the unique risks each issuer faces ina prolonged period of slack demand.


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As in EMEA, sovereign/state/local government funding pressure forms an importantbackdrop to the corporate recovery. The pressures on state and local budgets in theUS, which will intensify in the absence of further federal aid, may result in

weakening aggregate demand and falling employment.Individual companies also face the risks of being drafted into trade wars, ascountries and trading blocks attempt to maximise exports and minimise imports.

Rising interest rates would challenge the relative ease with which corporates arerefinancing debt. Real rates are arguably at average levels, but even real rates willhave to go up eventually unless there are major changes in US fiscal policy. One ofthe reasons companies have been able to refinance rather than default since late2009 is that nominal, riskfree interest rates are so low that even an enormous riskpremium results in a manageable, highsingledigit nominal rate. The currentaverage nominal yield for BBB bonds of about 6.2% is slightly below the 7.3%average for the last 75 years.

In the leveraged loans space, the refinancing cliff of 20122014 is similar to that inEurope. However, buoyant capital markets conditions in Q110 have been seizedupon by many refinancing issuers, and Fitch believes market forces will combine tosmooth out much of the steep maturity curve.

Emerging MarketsThe largest EM economies are demonstrating a greater resilience than theirdeveloped market peers, underlining the prospect of a twospeed return to trendgrowth levels. In turn, this is leading to a relatively faster rate of recovery in thecredit quality of corporate issuers domiciled in the major EMs.

However, a global doubledip recession scenario would clearly have a substantialnegative impact on corporates in EM economies and particularly those that are

more exposed to, and dependent on, global export markets.In Asia, one of the principal credit themes is the initiation of tightening measuresby the Chinese authorities to try to rein in price inflation in various asset markets.Chinas tightening measures have included increasing bank capital reserverequirements, raising interest rates, and implementing directives to the banksregarding their lending practices. Some specific measures have also been directedat speculators operating in the housing market, reflecting concerns about thedevelopment of a potential bubble in certain regional markets.

While Fitch shares these concerns, and recognizes the need for the Chineseauthorities to manage proactively the pricing dynamics of the market in order toaid genuine demand from local workers, the agencys outlook on the sector is for agenerally stable environment in 2010. Rated issuers in this universe have contractedsales for their foreseeable future, but the real concern is entities purchasing landnow for buildouts in two to three years time.

With Asias large EM economies China and India expected to continue leadingthe global economic recovery (with projected GDP growth rates of 8.8% and 7.0%,respectively, for 2010), Fitch expects that corporates in these countries willcontinue to pursue targeted growth strategies. These would likely involveincreasing levels of outward crossborder M&A activity designed to enhance accessto commodity raw materials and energy security, as well as expanding geographicaldiversification and vertical integration. Fitch expects that some Indian corporateswill opt to use debt to finance acquisitions, potentially exerting some stress oncredit metrics, whereas Chinese stateowned companies are more likely to utilisethe governments huge foreign exchange reserves as an acquisition currency.

In Latin America, market sentiment is improving and there is a return to a morenormal business environment. Liquidity risk, in particular, has eased as the


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availability of financing recovered strongly in the second half of 2009. Since themiddle of 2009, several nonbank corporates with ratings that range from B toBBB have successfully tapped the debt capital markets. As a result of these

capital market conditions, plus aboveaverage support provided by relationshipbanks and government development banks, capital structures can generally bedescribed as above average. Debt amortisation schedules appear manageable formost rated companies in the region.

Across central and eastern Europe (CEE), the Middle East and Africa, corporatecredit quality remains more challenged than in other EM regions, reflecting moreuncertain economic prospects especially across the CEE territories. Investmentlevels are expected to recover through 2010, and to stabilise broadly at theseheightened levels through 2011 as domestic markets begin to recover. Theseimprovements in local economies are being driven substantially by the recovery incommodity prices since mid2009, with a slowdown in destocking and strongdemand from China having been key drivers.

Global Infrastructure and Project FinanceRevenues for most transportation and energy credits have stabilised, and shouldbenefit from continued growth. Infrastructure and project financings were affectedin the downturn, but benefited from a substantial core of demand as well asstructural liquidity features that dampened credit volatility.

Following two consecutive years in which Fitch downgraded ratings or assignednegative outlooks to reflect increased economic risks, ratings in the transportationand energy sectors have generally settled at levels consistent with the currentenvironment. This is primarily due to a return to modest growth in both thedeveloped and developing economies, although both the strength and duration ofthe recovery remain uncertain.

Where revenue is linked to inflation, as in many social infrastructure transactionsbenefiting from inflationlinked government payments, growth may continue to bebelow expectations in this lowinflation environment.

The continuation of relatively high unemployment levels may dampen demandgrowth during the recovery, particularly in the developed economies. Facilities inwhich discretionary spending by consumers is an important part of revenue aremore exposed than facilities essential to daily life in the local economy.Transportation and energy credits in developing economies were less affected bythe downturn, and exhibit stronger growth in demand in the recovery than theircounterparts in developed economies.

Deferred maintenance and underinvestment in infrastructure assets held by the

public sector has created pressure to increase leverage to fund required capitalinvestment, notwithstanding currently diminished traffic and revenues. This hasbecome particularly evident in the US transportation system. The current level ofstress on local government budgets suggests that traditional capital support fromstate owners of infrastructure will be increasingly difficult to obtain and may beimpractical to finance. An increase in user paid tariffs may be politicallyunachievable in the current environment.

Additional leverage to fund infrastructure growth without corresponding revenuegrowth from increased tariffs, could create downward rating pressure. Publicprivate partnership (PPP) financing of infrastructure along lines now common inEurope, and the use of PPP concessions to monetise existing assets, may beincreasingly used to reduce budget pressure and fund necessary infrastructure

investment.

Project financings involve longterm debt that typically requires some growth inrevenues over time to support full and timely repayment. The effects of the recent


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period of growth below expectations have been factored into the current ratings. Aprolonged sluggish recovery creating growth rates continuously below expectationswould create additional rating pressure, as it will become increasingly unlikely that

a project can reach its longterm revenue objective through exceptional futuregrowth.

Energy projects with power purchase agreements and transport assets likeairports and maritime ports with strong lease agreements were helped throughthe downturn by structures supporting demand and holding down costs.

The credit quality of weak counterparties, particularly in the airport and maritimesectors, remains a concern. Although the monopolistic positions of the supportedinfrastructure assets, and the essential nature of the needs they provide (which hasbeen proved even in periods of economic stress), have historically mitigated weakcounterparty risk, the related industries are more challenged today than everbefore and the ratings on supported projects may be subject to greater volatility.

The energy sector can benefit from the increases in energy prices and demand thatmay be generated by the increased economic growth anticipated in the recovery.But a second dip in prices and demand due to sluggish economic growth wouldput further pressure on merchant facilities. It might also create pressure onfacilities that have relied on the support of take or pay contracts to remainstable in the downturn. The credit quality of offtake counterparties would benegatively affected by prolonged weak energy prices and demand, placing pressureon the ratings of supported facilities.

Conversely, a return to sustained high oil prices will also affect all transportationsectors again, with airline and shipping company viability more at risk and tollroad activity subject to tepid growth.

The emergence of an uncertain energy price regime creates additional challenges.The correlation of power prices to natural gas prices diverged significantly over2009; and while natural gas prices have recovered, they are still a distance fromthe historical relationship. While these prices are expected to stabilise, at whatlevel this settles is unknown, and the impact on merchant power projects isuncertain given their vulnerability to displacement from more efficient gasfiredfacilities.

Renewable energy facilities remain stable, and are less affected by energy prices ordemand as they typically benefit from supportive regulatory regimes.

Declines in traffic on toll roads have exceeded levels typically associated with thedecline in economic activity and GDP in a recession. Toll roads were adverselyaffected at first as a result of sharp increases in fuel prices in 2007. Once fuel

prices declined, unemployment and falling GDP became the drivers of reducingtraffic on toll roads. Even with the return of modest GDP growth, weak employmentgrowth during the recovery may continue to affect toll roads.

The current low level of inflation has clearly affected social infrastructure projects(schools, government accommodations, hospitals) that benefit from inflationindexed availability payments. The financings were structured around revenueforecasts anticipating inflation in the range of central government forecasts (2%2.5%). A prolonged low level of inflation could lead to reduced debt servicecoverage unless there is an offsetting reduction in expenses. On the other hand,high levels of inflation loom over many economies as a result of massivegovernment spending during the downturn. Moreover, high levels of inflation maycause operating and maintenance costs to outstrip revenue growth in some project

financings.


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Structured FinanceIn all major markets, recessionary conditions (particularly higher unemployment)continue to put pressure on MBS and ABS, to varying degrees. Sustained or

worsening levels of unemployment are a key risk factor in ratings performance inseveral markets. Lack of refinancing opportunities due to depressed propertyvalues and ongoing deleveraging of the banking system continues to pressureCMBS across the globe. While residential and commercial property values havestabilised somewhat in major markets such as the US and UK, additional declinesare a substantial risk, particularly for residential real estate.

United StatesUS structured finance continues to be characterised by deteriorating outlooks forasset performance, despite indications of a gradual recovery in US economicconditions. Further weakness in asset performance is not likely to translate directlyinto nearterm ratings downgrades in most sectors, however, as rating actions takento date have incorporated a degree of prospective stress.

Key variables that will significantly influence asset performance trends includeunemployment (which Fitch expects will remain high) and GDP growth (which theagency projects at 3% in 2010). The extent of recovery and stabilisation in UScapital markets is also a key variable that will influence performance across allsectors. With US structured finance issuance minimal since 2007, there is a largeconcentration in transaction vintages from 2006 and 2007. These vintages,originated at the peak of the market, exhibit aggressive credit characteristics(especially in RMBS and CMBS). and are likely to continue to experienceperformance issues and have a negative outlook even into a general economicrecovery.

ABS ratings have been relatively resilient through the course of recent economic

turbulence. However, downgrades exceeded upgrades in Q110, with student loanABS accounting for much of the activity. Sectors directly correlated to consumers(credit card and auto) are expected to incur increasing delinquencies and losses in2010. Unemployment remains the key credit driver underlying delinquency anddefault performance trends in these sectors. Fitchs rating outlook for prime creditcard and auto loan senior classes is stable, as highlyrated consumer ABS canwithstand substantial additional deterioration.

Unemployment is also a key risk driver for RMBS, alongside further declines inhousing prices. Fitchs current expectations are for an approximately 10% nationaldecline in housing prices throughout 2010. The number of severely delinquentborrowers in RMBS pools has continued to build, creating the potential for largevolumes of loan liquidations, adding downward pressure on housing prices.

Meanwhile, principal forgiveness programmes add to uncertainty. As a result,Fitchs outlook for prime, AltA, and subprime RMBS ratings remains negative.

Concerns for CMBS centre on the availability of financing, together with continuedsevere declines in property values, which will drive performance trends in thesector. Large floatingrate loan transactions are particularly at risk, due toconcentrations of maturing loans that are secured by more transitional assets andhotels. The speed and scope of economic recovery in the US will have an impact onasset values and performance trends across all the property sectors of CMBS, whichare sensitive to levels of GDP growth, employment and consumer spending.

Fitchs rating outlook for fixedrate transactions is stable given that recent ratingactions address the continued rise in delinquencies. Most large loan transactionswill retain some 'AAA' rated bonds, but the outlook for the lowerrated bonds isnegative.


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In structured credit, CDOs collateralised by middlemarket and highyield corporateloans have experienced collateral credit deterioration generally in line withhistorical peaks, resulting in stable ratings for highinvestmentgrade tranches. This

trend is expected to continue in 2010, subject to the risk of worsening economicconditions.

The availability of refinancing for corporate debt becomes a factor for largeamounts of debt maturing in 2013 and 2014. As maturity dates approach withoutbetter refinancing opportunities in the market, any inability to achieve refinancingwill move over time from becoming a possibility to a greater likelihood. If there isno significant easing in lending conditions, this could cause further downgrades ofspecific transactions. However, as far as US leveraged loans are concerned, Fitchbelieves that the gap between demand and supply is much smaller than absolutedebt maturities imply.

Lastly, the performance of bank trust preferred securities collateral is under stressdue to banks exposure to distressed commercial real estate.

EMEAThe difficult economic environment will continue to exert negative rating pressureon EMEA structured finance transactions. Outlooks for ratings in most sectorsremain negative, reflecting the high concentration of outstanding transactions fromthe aggressively structured vintages at the peak of 2006 and 2007. However,performance has stabilised in some sectors, and the outlook is brighter as a resultof stronger prospects for GDP, growth and unemployment.

Sovereign risk has emerged as an issue within the eurozone, most specifically forstructured finance transactions secured on assets located in Greece. Despitemembership of the eurozone, Fitch determined that the degree of uncertaintyimplied by the heightened level of sovereign risk meant that structured finance

ratings up to AAA could no longer be supported. As a result, many Greekstructured finance securities that were previously rated AAA have beendowngraded to AA.

A continued negative outlook for the sovereign means that Greek structured financesecurities will in general also have a negative outlook. While no other eurozonecountry currently faces the same degree of challenge as Greece, a similar approachwould be taken to other countries in the event that of similar developments.

In the ABS market, the consumer segment continues to perform relatively well inmost jurisdictions; however, performance in Spain remains under significantpressure due to the economic downturn and sharp increases in unemploymentwhich has reached 20%. Arrears have increased, and recoveries are expected to be

weak compared with initial expectations. UK credit card transactions have seenstabilised delinquencies and chargeoffs since peaking in 2009, but highindebtedness and continuing rising unemployment through 2010 means this sectorremains vulnerable.

In the RMBS sector, negative rating pressure is likely to remain focused on juniorclasses. However, some criteria changes (for example, in respect of theNetherlands NHGbacked RMBS), as well as isolated transactions with outlying poorperformance, could see negative rating action further up the scale. Spanish RMBSwhich have riskier attributes (eg high LTV) will continue to face performancechallenges, with high arrears and low recoveries expected. UK prime RMBS hasexperienced increased arrears, while cumulative peaktotrough declines in houseprices are ultimately expected to reach approximately 25%.

However, credit protection is such that only junior tranches should suffer potentialrating action. UK nonconforming RMBS are benefiting from the current lowerinterest rates which support performance, yet transactions remain vulnerable to


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interest rate rises, low prepayment limiting accumulation of credit protection, andhigh loss severities.

The outlook for CMBS and structured credit ratings is dominated by loomingrefinance risk for existing CMBS and leveraged loan CLOs, both concentrated around20122014. With the erosion of time and no significant easing in lending conditions,this could cause further downgrades of specific transactions. For UK CMBS, primemarkets have undergone some recovery, with yields falling. However, the sectorremains vulnerable to a renewed downturn and hence renewed pressure onvalues.

Most synthetic corporate CDOs have already been downgraded to below investmentgrade. Fitch maintains a negative rating outlook for SME CDOs. Senior tranches areexpected to remain stable; but junior and mezzanine tranches remain exposed tonegative obligor and sector performance. The 2006 and 2007 vintage Spanish SMEtransactions continue to face the greatest challenges, and performance is likely tocontinue to be volatile given the ongoing stressed economic outlook.


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Appendix Related Research

Sovereign Eurozone Contagion: Common Challenges and Fundamental Differences, 10 May 2010

EMU Convergence Report: 2010, 6 May 2010

Just How Indebted Is the Japanese Government?, 22 April 2010

Latin American Sovereign Outlook 2010, 20 April 2010

Global Economic Outlook, 1 April 2010

AAA Sovereigns Under Pressure, 11 March 2010

Fitch Ratings Sovereign 2009 Transition and Default Study, 25 March 2010

European Government Borrowing, 26 January 2010

Sovereign Review and Outlook, 22 December 2009

Public Finance Institutional Framework for Russian Subnationals, 29 April 2010

Build America Bonds Broaden Municipal Market Credit Considerations, 27 April 2010

U.S. Public Finance Rating Actions 2009, 22 April 2010

Institutional Framework for New Zealand Subnationals, 20 April 2010

Spanish Autonomous Communities New Funding System, 21 April 2010

Institutional Framework for Australian Subnationals, 7 April 2010

Fitch Ratings International Public Finance 2009 Transition and Default Study, 26 March 2010

Recalibration of U.S. Public Finance Ratings, 25 March 2010

Fitch Ratings U.S. Public Finance Transition and Default Study 19992009, 25 March 2010

State Housing Finance Agencies 2009 Review and 2010 Outlook, 25 March 2010

French Regions' Financial Monitor 2010 Amendment (English Version), 19 March 2010

Tax Supported Rating Considerations for 2010, 22 February 2010

2010 Water and Sewer Outlook, 10 February 2010

2010 Nonprofit Hospitals and Health Systems Outlook, 01 February 2010

German Municipalities Important Role Within the Federal System, 20 January 2010

European Local and Regional Governments Outlook 2010, 16 December 2009

Financial Institutions The Role of the ECB Temporary Prop or Structural Underpinning?, 11 May 2010

Burden Sharing: Who Pays Next Time?, 10 May 2010

Global Bank Rating Trends Q110, 7 May 2010

Improving Bank Liquidity Standards, 5 May 2010

EM Banking System Datawatch, 29 April 2010

EM Banking System Datawatch, 29 April 2010

Banks Exposure to European Commercial Real Estate, 22 April 2010

Japanese Mega Banks Outlook Lacklustre: When Will Profitability Pick Up?, 21 April 2010

U.S. Financial Institutions Financial Reform: Five Issues to Watch, 26 March 2010

U.S. Financial Institutions Financial Reform: Five Issues to Watch, 26 March 2010

Fitch Ratings Global Corporate Finance 2009 Transition and Default Study, 18 March 2010

U.S. Banking Quarterly 4Q09, 08 March 2010

What a Difference a Year Makes: Latin American Banks Review and Outlook 2010, 08 February 2010

U.S. Diversified Financial Services, 03 February 2010

Banks in Asia (Excluding Japan): Outlook for 2010, 02 February 2010

Credit Outlook for Major European Banks 2010 A Rocky Road Ahead, 19 January 2010

Insurance German NonLife Insurers , 11 May 2010

NAIC RiskBased Capital Key Challenges Interpreting Results , 6 May 2010

Capital Raised in U.S. Insurance Sector: Dominated by Life Insurers , 6 May 2010

Property/Casualty Insurers Financial Leverage and Debt Servicing Capacity , 16 April 2010

UK NonLife Outlook Revised to Stable.", published22 March 2010

Property/Casualty Insurers' YearEnd 2009 review, 17 March 2010

2010 Rating Outlook Negative for U.S. Life Insurance Sector, 20 January 2010

Reinsurance Outlook Revised to Stable", 11 November 2009

Insurance Industry Rating Outlooks: Global Update, 2 September 2009
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Corporate European Leveraged Credit Review Diverging Fortunes Set to Continue, 13 May 2010

The B/CCC Debate, 12 May 2010

Crossover Corporate Issuers Cliffhangers, 6 May 2010

U.S. Corporate Capital Expenditure Study, 4 May 2010

$150 per Barrel Crude Oil: Credit Implications across the Corporate Sector, 3 May 2010

EMEA Corporate Portfolio: Spring 2010 Updated Delicate Stabilisation, 28 April 2010

Weak Emerging Market Insolvency Regimes Drive Caution, 19 April 2010

ShortTerm Memory Loss: Corporate Issuers Taking Calculated Risks with Committed Credit Facilities , 25 March 2010

EMEA industrial: 2010 Outlook, 24 February 2010

Senior Secured Bond Issuance: Buys Time, but may not Solve the Problem of Leverage, 18 February 2010

Forecasting EMEA Corporates' Recovery: The Slow Haul Back, 14 December 2009

Stabilising Corporate Ratings in Europe and AsiaPacific, 14 October 2009

Global Infrastructure and Project FinanceAirline Consolidations in a Recovering Economy: Will It Be Beneficial for U.S. Airports? , 28 April 2010

High Speed Rail Projects: Large, Varied and Complex , 6 April 2010

Indian Infrastructure Outlook 2010, 4 March 2010

Australian Infrastructure & Project Finance Outlook 2010: An Expanding State of Play, 3 March 2010

Latin American Infrastructure & Project Finance 2010 Outlook, 2 March 2010

Global Infrastructure & Project Finance 2010 Outlook, 1 March 2010

Structured Finance The Role of the ECB in Structured Finance, 13 May 2010

EMEA ABS Sector Outlook April 2010, 27 April 2010

EMEA RMBS Sector Outlook April 2010, 27 April 2010

EMEA CMBS Sector Outlook April 2010, 27 April 2010

EMEA Structured Credit Sector Outlook April 2010, 27 April 2010

U.S. CMBS 2009 Default Study: Cumulative Defaults Doubled in 2009, 21 April 2010

EMEA Structured Finance Sector Outlook April 2010, 20 April 2010

Fitch Bank TruPS CDO Default and Deferral Index, 15 April 2010

2010 Outlook for Global ABCP , 5 April 2010

Fitch Ratings Global Structured Finance 2009 Transition and Default Study , 26 March 2010

Japanese Structured Finance: 2009 Review and 2010 Outlook, 9 February 2010

Australian 2010 Structured Finance Outlook, 2 February 2010

2010 NonJapan Structured Finance Outlook, 12 January 2010 U.S. Structured Finance: 2010 Outlook, 8 December 2009
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ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READTHESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS . IN ADDITION, RATING DEFINITIONS AND

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Copyright 2010 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004.Telephone: 18007534824,(212) 9080500. Fax: (212) 4804435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rightsreserved. All of the information contained herein is based on information obtained from issuers, other obligors, underwriters, and othersources which Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of any such information. As a result, theinformation in this report is provided "as is" without any representation or warranty of any kind. A Fitch rating is an opinion as to thecreditworthiness of a security. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specificallymentioned. Fitch is not engaged in the offer or sale of any security. A report providing a Fitch rating is neither a prospectus nor asubstitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of thesecurities. Ratings may be changed, suspended, or withdrawn at anytime for any reason in the sole discretion of Fitch. Fitch does notprovide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on theadequacy of market price, the suitability of any security for a particular investor, or the taxexempt nature or taxability of payments madein respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities.Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate allor a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee.

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