MOODYS.COM

29 APRIL 2013

NEWS & ANALYSIS Corporates 2 » Apple's Expansion of Its Capital Return Program Is Credit

Negative » Coca-Cola Enterprises Opts to Buy Shares Rather than German

Bottler, a Credit Negative » Georgia Pacific's Buckeye Buy Is Credit Positive » Caesars Creates a Vehicle for Growth, but Debt Pile Won't

Budge » VCA Antech's Share Buyback Program Is Credit Negative » Brazil's Tax Breaks Are Credit Positive for Domestic Ethanol and

Petrochemical Producers » Deutsche Telekom´s US Subsidiary Merger with MetroPCS Is

Credit Positive » Jockeying for Maroc Telecom Is Credit Negative for Etisalat and

Ooredoo » UK Criminal Investigation of ENRC and Its Boardroom Changes

Are Credit Negative » UK Government's Sale of Urenco Stake May Erode Sovereign

Support » Stora Enso's Restructuring Plan Is Credit Positive

Infrastructure 16 » Australian Airports Would Benefit from Virgin's Takeover of

Tiger

Banks 18

» US Banks Fight Headwind of Noninterest-Bearing Deposit Declines

» US Crackdown on Payday Lending Is Credit Positive for Targeted Banks

» Banco Comercial Portugues Sells Greek Subsidiary, a Credit Positive

» Ukrainian Banks Will Benefit from Deposit Guarantee Liquidity Support

Insurers 24

» Price Transparency on Investment-Linked Products Is Credit Negative to Hong Kong Life Insurers

Sub-sovereigns 26 » Sonora's Ratification of New Vehicle Tax Is Credit Positive

RATINGS & RESEARCH Rating Changes 28

Last week, we downgraded Barrick Gold, Eurasian Natural Resources, Ahorro, Commerzbank, Commerzbank International, Hypothekenbank Frankfurt, QBE Insurance, Towergate Holdings, Towergate Finance, 67 CHL RMBS tranches, and upgraded Intelsat Investments, MetroPCS Wireless, Weyerhaeuser, American Financial Group, Potlatch, and two CHL RMBS tranches, among other rating actions.

Research Highlights 34

Last week we published reports on US cable, global pharmaceuticals, US technology, our high-yield covenant database, US gaming, Brazil sugar-ethanol, China property, North American midstream, Spanish high-yield, Spanish utilities, BRIC’s leading banks, Danish banks, Canadian life insurers, Japanese life insurers, Indian infrastructure, Spain, Bangladesh, Thailand, US not-for-profit healthcare, US sequester and local governments, Russian RMBS, US REITs, and US ABS, among other reports.

RECENTLY IN CREDIT OUTLOOK

» Articles in Last Thursday’s Credit Outlook 39 » Go to Last Thursday’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 29 APRIL 2013

Corporates

Apple’s Expansion of Its Capital Return Program Is Credit Negative Last Tuesday, Apple Inc. (Aa1 stable) announced a sharp expansion of its capital return program, including a sixfold increase in share repurchases to $60 billion and a 15% dividend increase to $11 billion annually. The expanded buyback plan and higher dividend are credit negative for Apple because the company will fund them in part with debt.

Apple holds about 70% of its more than $144 billion in cash and equivalents outside the US. Sustained shareholder demands for higher capital returns will lead to a substantial decline in the company’s domestic cash holdings, which may require further debt issuance to avoid repatriation taxes on its overseas cash. Our Aa1 senior unsecured rating on Apple already reflects these risks.1

Because of the success of the category-leading iPhone and iPad, Apple had amassed a cash hoard of about $98 billion as of the end of 2011. Under pressure to return capital to shareholders, the company last year launched a $10 billion share repurchase program and its first dividend since 1995. Since then, Apple’s cash holdings have continued to grow and cash flow generation has remained robust, heightening the pressure to increase shareholders returns.

Apple describes its latest share repurchase authorization, which it plans to complete by the end of 2015, as the largest ever on record. Meanwhile, its annual dividend payout will be the year’s largest of any US non-financial company we rate.2 But even with these sharply increased shareholder returns, Apple’s balance sheet cash will remain substantial: we believe the company will maintain a net cash balance in excess of $100 billion over the next few years, which significantly exceeds the cash currently held by any other non-financial company US we rate.3

Although we do not look at a company’s stock price in gauging its credit quality, we recognize the board of directors’ prerogative to optimize enterprise value and actions it may take to support the stock price, which often include share buybacks and dividend increases. Apple’s stock price has risen and fallen in recent years to reflect equity investors’ expected growth trajectory. However, as we expect growth to inevitably slow, the company’s high cash balance relative to earnings growth will hurt its return on equity and return on assets metrics, which will likely increase pressure from shareholders to return cash. Apple’s ability to resist shareholders’ demands for higher payouts in order to preserve a high cash balance over the long term is a key uncertainty, and one of the factors that prevented the company from reaching a Aaa rating.

1 See Moody’s Assigns Aa1 Senior Unsecured Rating to Apple Inc., 23 April 2013. 2 See US Technology Industry Dividend Payments to Continue Climbing, but Payout Ratios to Remain Low, 23 April 2013. 3 See US Corporate Cash Pile Totals $1.2 Trillion; Over Half Sits Overseas, 14 March 2012.

Gerald Granovsky Senior Vice President +1.212.553.4198 gerald.granovsky@moodys.com

NEWS & ANALYSIS Credit implications of current events

3 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Coca-Cola Enterprises Opts to Buy Shares Rather than German Bottler, a Credit Negative Last Thursday, Coca-Cola Enterprises Inc. (CCE, A3 stable) said that it will allow its exclusive right to acquire The Coca-Cola Company’s (Aa3 stable) German bottling operation to expire on 25 May and that it intends to increase its share repurchases this year to about $1 billion. The moves are credit negative because the company will be spending more cash on shareholder returns rather than investing in a productive acquisition.

CCE, the third-largest rated Coke bottler, received the exclusive right to buy the German bottler as part of a 2010 transaction that included the transfer of CCE’s North American operations to Coca-Cola and the acquisition of bottling rights in Norway and Sweden. CCE also has European bottling operations in Belgium, France, Great Britain, Luxembourg, Monaco and the Netherlands. The acquisition of the German bottler would have given CCE additional scale and geographic diversification into a territory that borders its current footprint in what is one of Europe’s stronger markets. Although we view the decision to forego the acquisition as credit negative, it would also have been a credit negative if CCE had paid a very high multiple that required a significant increase in leverage.

Now that the potential acquisition is off, the company will repurchase about $1 billion of stock this year, approximately double the amount it had previously announced. The announcement of higher share repurchases follows a 25% increase in its dividend earlier this year.

While the announcement removes uncertainty around a potential debt-financed acquisition, the shift to a more aggressive shareholder-return strategy and resulting higher leverage (with no strategic benefit) could put downward pressure on the rating if leverage continues to increase. The acceleration of CCE’s share repurchase program will lift gross debt/EBITDA to around 3x from the mid-to-high 2x range of recent years. We have previously stated that leverage materially above 3x could lead to a rating downgrade.

Furthermore, while passing on the German bottler opportunity, CCE’s management stated in its quarterly earnings call last Thursday that the company will continue to consider acquisitions. However, its capacity to digest an acquisition without hurting its rating is diminished now that it has chosen to operate with higher leverage. A continuation of more aggressive financial policies that result in leverage closer to the top end of the company’s target leverage range of 2.5x-3.0x net debt/EBITDA would lift gross debt/EBITDA above 3x and could lead to a downgrade.

Linda Montag Senior Vice President +1.212.553.1336 linda.montag@moodys.com

NEWS & ANALYSIS Credit implications of current events

4 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Georgia Pacific’s Buckeye Buy Is Credit Positive Last Wednesday, Georgia-Pacific LLC (Baa2 stable) announced plans to buy all outstanding shares of Buckeye Technologies (unrated) for about $1.5 billion, including the assumption of Buckeye’s debt.

The deal is a credit positive for Georgia-Pacific because it will add a higher-value specialty pulp business to the company’s leading North American market pulp business, which we believe is strategically appropriate. Georgia Pacific will also gain immediate synergies by folding Buckeye’s five pulp mills into its existing mill system. At the same time, the Buckeye acquisition, and one other, both on track to close in mid-2013, will only modestly increase Georgia Pacific’s financial leverage. We expect leverage to return to current levels within a year of closing.

Georgia Pacific’s market pulp business primarily supplies fluff and paper pulp to makers of tissue, writing paper and other commodity products. Buckeye, by contrast, focuses on higher purity dissolving specialty pulp. Not only does that higher purity command higher prices, it also introduces Georgia Pacific to new markets, including automotive products, food casings, liquid crystal display screens and thickeners. The high-purity dissolving pulp is also technically demanding to manufacture, which limits competition and makes the pulp less subject to price variation than commodity paper pulp and low-end dissolving pulp. By buying Buckeye, Georgia Pacific will gain a strong foothold in these new markets, further diversifying its pulp business and customer base.

Late last year, Georgia Pacific said it would pay $750 million to buy International Paper Company’s (Baa3 stable) building products assets, consisting of 16 manufacturing facilities International Paper obtained when it acquired Temple-Inland. Factoring in the acquisition of Buckeye as well as these building products assets, we expect Georgia Pacific’s adjusted leverage will increase less than half-a-turn.

Georgia Pacific is paying $37.50 a share for Buckeye, a 25% premium to Buckeye’s closing stock price on 23 April, the day before the deal was announced. Buckeye will be Georgia Pacific’s largest acquisition since 2005.

Atlanta-based Georgia Pacific, which has annual revenues over $17 billion and has been wholly owned by Koch Industries since 2005, is one of the largest and most diversified paper and forest product companies in the world, with leading market positions in tissue, pulp, containerboard, communication papers and building products (including plywood, oriented strand board, gypsum and lumber).

Memphis-based Buckeye had annual revenues of $900 million in 2012.

Ed Sustar Vice President - Senior Credit Officer +1.416.214.3628 ed.sustar@moodys.com

NEWS & ANALYSIS Credit implications of current events

5 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Caesars Creates a Vehicle for Growth, but Debt Pile Won’t Budge Last Tuesday, Caesars Entertainment Corporation (Caa2 negative) said it will place its online gaming business and some casino assets into a new company in a complex transaction that will raise up to $1.2 billion from its private equity sponsors and public shareholders. The deal will make it easier for Caesars to pursue growth opportunities and provide much-needed liquidity, but it will increase cash on hand by only $360 million, an amount that pales before Caesars’ $24 billion debt load.

The new company, Caesars Growth Partners LLC, will position Caesars to benefit from any expansion of online gaming, which is currently legal in only three US states. We do not expect the new company to carry debt, giving Caesars a vehicle to raise lower cost debt and invest for growth. However, the deal will not move the needle on Caesars’ very high debt/EBITDA leverage of 13.7x, nor will it forestall a probable restructuring at Caesars within two years.

The new company will house Caesars’ interactive division, which owns the World Series of Poker and social games such as Slotomania and Caesars Casino. It will also hold the Planet Hollywood Resort & Casino in Las Vegas, Caesars’ interest in the planned Horseshoe Casino in Baltimore and a stake in future management fees from these properties. The company will be funded with a combined $500 million from Caesars’ private equity sponsors, Apollo Global Management LLC and TPG Capital; cash from existing Caesars shareholders that exercise rights they will receive to buy stock in the new company; and $1.1 billion in Caesars Entertainment Operating Company Inc. (B3 negative) senior notes that are currently held by HBC (unrated), another Caesars subsidiary, that were purchased at a discount in the open market a few years ago.

When the dust settles, Caesars will own 57%-77% of the new company, depending on the participation of shareholders. Caesars Entertainment Operating Company, which issued the bulk of Caesars’ consolidated debt, will receive $360 million of cash in exchange for the two casino properties it is contributing to the new company. But this is only two to three months’ worth of the $1.8 billion annual interest on Caesars’ entire debt load. Nevertheless, it is much-needed liquidity for Caesars, which we estimate will burn at least $300 million of cash in 2013 owing mostly to its high interest expense.

A 35% jump in Caesars’ share price in the two days following the announcement could fuel more debt reduction. If the company takes advantage of a rising stock price to issue more shares, it could use proceeds to buy back debt at a discount to the market value. However, the size of such a transaction would be limited by Caesars’ willingness to dilute existing shareholders, so it would likely whittle down the debt by only a few hundred million dollars.

Margaret Holloway Vice President - Senior Credit Officer +1.212.553.4542 margaret.holloway@mooodys.com

NEWS & ANALYSIS Credit implications of current events

6 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

VCA Antech’s Share Buyback Program Is Credit Negative Last Thursday, animal healthcare company VCA Antech, Inc. (Ba2 stable) said its board had authorized a $125 million share repurchase program, to be funded with internally generated cash and, potentially, with debt. The company said it will complete these share buybacks over the next 12-18 months, while making $50-$60 million worth of acquisitions in 2013, a much lower amount than in recent years.

The plan is credit negative for VCA, which generated $1.7 billion of revenue during 2012. If the buybacks are funded with cash, they will deplete funds that could otherwise be used to reduce debt or to make accretive acquisitions. They could also reduce liquidity, depending on their pace and magnitude. And while VCA has the capacity to fund at least some of the buybacks with its revolving credit facility, with adjusted debt to EBITDA of 3.7x, it has limited cushion within its rating category for additional financial leverage.

The buyback program also signals increasingly shareholder-friendly financial policies, another credit negative. The share repurchase strategy will consume cash for non-productive purposes, rather than using internally generated cash to selectively buy animal hospitals and laboratories that would add to earnings and be inherently deleveraging. VCA completed $140 million of acquisitions in 2012, and $208 million in 2011.

We expect VCA to fund its buybacks predominantly with internally generated cash and to maintain adjusted debt to EBITDA below 3.7x over the next 12-18 months. The company had approximately $105 million in cash as of 31 March. We will continue to monitor the pace and magnitude of VCA’s buybacks and acquisitions to determine their effect on the company’s key credit metrics, especially if they require incremental debt, or if VCA’s revolving credit facility is used. If VCA pursues a combination of share repurchases and cash-financed acquisitions significantly in excess of adjusted free cash flow, it would be a credit negative.

Headquartered in Los Angeles, California, VCA operates approximately 604 animal hospitals and 56 veterinary laboratories in the US and Canada, provides veterinary services and diagnostic testing to support veterinary care, and sells diagnostic imaging equipment and other medical technology products and related services to the veterinary market.

Daniel Gonçalves Analyst +1.212.553.1335 daniel.goncalves@moodys.com

NEWS & ANALYSIS Credit implications of current events

7 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Brazil’s Tax Breaks Are Credit Positive for Domestic Ethanol and Petrochemical Producers Last Tuesday, the government of Brazil (Baa2 positive) lowered taxes for its domestic ethanol and petrochemical industries in a bid to boost production. The tax cuts are credit positive for sugar-ethanol producers, including Agropecuaria Nossa Senhora do Carmo S.A. (Virgolino or GVO, B3 stable) and Raízen Energia S.A. (Baa3 stable), because the measure will increase these companies’ profitability. This will also be credit positive for Braskem SA (unrated),4 Brazil’s largest maker of commodity chemicals, for the same reason.

Effect on GVO and Raizen. The announced ethanol tax incentives will more clearly benefit ethanol producers like GVO and Raizen. Currently, the so-called PIS/Cofins federal tax stands at BRL0.12 per liter on ethanol, with 60% paid by distributors and 40% by producers. Beginning 1 May, collection will be concentrated on producers, which will also receive a 100% tax credit, effectively resulting in a full tax exemption.

The tax incentive amounts to about 10% of hydrous ethanol’s distribution price, before value-added tax (VAT) and freight. We estimate producers would pass through to consumers at least part of their tax savings – 30%-50% initially – to increase ethanol’s ability to compete against gasoline. As a rule of thumb, consumers fill their cars with ethanol only if its price does not exceed 70% of what they would pay for gas. Currently, that’s the case only in São Paulo, Goiás and Mato Grosso, which together consume about 69% of Brazil’s total ethanol consumption, according to the Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP).

The exemption would reduce Raizen’s annual PIS/Cofins payment by BRL148 million and GVO’s by BRL5.4 million, based on hydrous ethanol volumes for their fiscal years, ended respectively on 31 March and 30 April 2012. Assuming the producers pass through 40% of their savings to consumers at the pump, we estimate a potential 140 basis point gain in EBITDA margin to about 35.5% for Raízen Energia, and a 20 basis point EBITDA margin gain to about 33.7% for GVO. Hydrous ethanol represents a smaller part of GVO’s business mix than anhydrous ethanol.

Effect on Braskem. Brazil also announced a new tax structure, known as the Special Regime for the Chemical Industry (Reiq), for key raw materials used by the petrochemicals industry. Under Reiq, which takes effect 1 May, tax rates will decline to 1% from 5.6% for naphtha, ethane, propane, refinery gas, butane and condensates, and to 1% from 9.25% for propylene. These rates will be valid through 2015, increase in 2016 and 2017, and return to their current levels in 2018.

The materials that Reiq targets are about 60% of Braskem’s costs. The tax breaks will benefit Braskem by about BRL900 million in EBITDA per year during 2014-15, Braskem’s full years at Reiq’s lowest tax rates.

The Reiq tax incentives follow other recent government measures to make Brazil’s petrochemical industry more competitive. Last year, it increased the polyethylene import tariff to 20% from 14%, standardized VAT across Brazil and decreased electricity tariffs. These moves, along with the government’s Reintegra program, which provides tax credits for goods exported by Brazilian companies, will help improve

4 We withdrew the corporate family rating for Braskem SA, the main Braskem entity, in March 2011, when it became investment-

grade. Today we rate two Braskem subsidiaries, Braskem Finance Ltd (Baa3 negative) and Braskem America Finance Company (Baa3 negative).

Marianna Waltz, CFA Vice President - Senior Analyst +55.11.3043.7309 marianna.waltz@moodys.com

Barbara Mattos Assistant Vice President - Analyst +55.11.3043.7357 barbara.mattos@moodys.com

NEWS & ANALYSIS Credit implications of current events

8 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Braskem’s performance. In addition, the government continues to consider increasing the import tariff on polypropylene, which would also benefit Braskem.

The company’s credit metrics have deteriorated since late 2011 amid difficult market conditions in Europe and slowing demand in many developing countries, which resulted in intensified competition from low-cost imports, especially from North America. Reiq and other government measures will support Braskem’s competitiveness until the company can make sustainable improvements in its cost structure and continue to invest in feedstock diversification and growth.

NEWS & ANALYSIS Credit implications of current events

9 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Deutsche Telekom’s US Subsidiary Merger with MetroPCS Is Credit Positive Last Wednesday’s MetroPCS Wireless, Inc. (Ba3 stable) shareholders approved merging T-Mobile USA (unrated) with their company, a credit positive for Deutsche Telekom AG (DT, Baa1 stable), the parent of T-Mobile USA. The merger approval clears uncertainties related to DT’s US operation and paves the way for a larger and more powerful mobile company in the US. The new combined entity has greater scale and scope to better compete in the US market. We expect the transaction to close by 1 May.

As part of the transaction, MetroPCS shareholders will receive an advanced cash payment of approximately $1.5 billion from their company. This will be followed by a reverse stock split of the MetroPCS shares before the company is merged into T-Mobile USA. Following the transaction’s close, MetroPCS shareholders will receive 26% of the shares of T-Mobile USA, while Deutsche Telekom will hold 74%, keeping control of it and fully consolidating it.

This transaction improves DT’s market position in the US and clarifies a number of strategic questions about its future interest in the US market. After the merger is completed, T-Mobile USA will have approximately $25 billion in revenues and 42 million customers, both of which are about 12% of the US wireless industry.

We expect T-Mobile to improve its performance as a result of enhanced scale, better device lineup (especially the iPhone), accelerated network investment and a new pricing structure for smartphones. T-Mobile USA will significantly broaden its spectrum portfolio in contiguous geographical areas and its assets are divisible by markets, which could potentially be sold if needed, without materially affecting its overall business.

In addition, a strong liquidity profile and valuable spectrum assets provide credit support. These strengths are offset by T-Mobile’s fourth position in the highly competitive US wireless industry, the capital intensity associated with building out its fourth-generation long-term evolution (4G LTE) network, meeting rapidly rising bandwidth demand and a moderately leveraged balance sheet.

The merger gives T-Mobile USA increased scale and an enhanced competitive position against the big two US wireless operators (Cellco Partnership dba “Verizon Wireless Capital LLC,” (A2 stable), and AT&T Mobility (unrated)) which dominate the market. However, Sprint Nextel Corporation (Sprint, B1 review direction uncertain), the third-largest operator, would likely emerge as a stronger force should SOFTBANK Corporation (Baa3 review for downgrade) be successful in its acquisition of 70% of Sprint’s common stock and planned $8 billion equity infusion. Consequently, we believe that T-Mobile USA will still find it challenging to improve subscriber trends, increase market share and accelerate earnings growth.

We expect T-Mobile USA’s combination of cash and short-term investments to grow modestly through 2013. We expect cash from operations (as adjusted by us) to be about $7 billion in 2013 and capital spending (as adjusted by us) to be about $6.6 billion in 2013.

From a financial ratio analysis perspective, the transaction is broadly neutral for DT because the lease adjusted net debt assumption of about €4.6 billion, resulting from the merger and the consolidation into DT’s accounts, is offset by the €1 billion EBITDA assumption in the ratio calculations. Therefore, DT’s group leverage ratio will remain at 3.1x.

Carlos Winzer Senior Vice President +34.91.768.8238 carlos.winzer@moodys.com

NEWS & ANALYSIS Credit implications of current events

10 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Jockeying for Maroc Telecom Is Credit Negative for Etisalat and Ooredoo Last Wednesday, both Emirates Telecommunications Corporation Ltd (Etisalat, Aa3 stable) and Ooredoo (formerly named Qatar Telecom (Qtel) Q.S.C., A2 stable) bid to buy Vivendi’s (Baa2 negative) 53% stake in Maroc Telecom (unrated). The successful bidder will have to make a mandatory offer to buy out minority shareholders. The transaction would be credit negative for either Etisalat or Ooredoo if in following through on their announced plans they fund the deal entirely with debt, leading to higher financial leverage.

In our view, both companies have an equal chance of winning Maroc Telecom. Etisalat and Ooredoo are the incumbent integrated telecommunication service providers in their respective domestic markets of the United Arab Emirates (UAE) and Qatar. Both operators have an acquisitive growth strategy within their geographical core markets, which includes North Africa. Maroc Telecom’s operations span Morocco and other parts of Africa.

On the basis of Maroc Telecom’s market capitalisation of MAD96.7 billion ($11.3 billion), our base-case scenario, in which there are no minority shareholder tenders, would lead to a debt-funded acquisition of around $6 billion. A scenario in which all minority shareholders tender (including the Government of Morocco with its 30% stake) would initially require debt funding of the entire current market capitalization of $11.3 billion (our high-cost-case scenario).

Pro forma the acquisition of a 53% stake in Maroc Telecom, Etisalat’s consolidated metrics would remain strong with debt/EBITDA leverage of 1.4x and a retained cash flow (RCF)/debt ratio of 24%, according to our estimates, although we would have to also take into account Etisalat’s limited access to Maroc Telecom’s cash flows under that scenario. A fully debt-funded acquisition would result in leverage of 2.2x and Etisalat’s retained cash flow (RCF)/debt weakening to 16%.

The effects on Ooredoo from a base-case and high-cost-case perspective would be more severe in terms of metric deterioration with leverage approaching 2.9x and an RCF/debt ratio of 20% in the base-case outcome, and 3.7x leverage and a 16% RCF/debt ratio in the high-cost case.

We show the pro forma credit metric effects for both companies in the exhibit below.

Martin Kohlhase Vice President - Senior Analyst +971.4.237.9544 martin.kohlhase@moodys.com

NEWS & ANALYSIS Credit implications of current events

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Pro Forma Etisalat and Ooredoo Credit Profiles After Fully Debt-Funded Maroc Telecom Investment

$ bn

Market capitalisation Maroc Telecom (MT)

11.3

53% stake (best case)

6.0

100% stake (worst case)

11.3

Maroc Telecom MAD bn $ bn

FYE 2012 reported debt 8.1 1.0

FYE 2012 cash 1.0 0.1

FY 2012 reported EBITDA 16.7 2.0

FY 2012 reported RCF 4.4 0.5

Etisalat AED bn $ bn

Ooredoo (Qtel) QAR bn $ bn

FYE 2012 adj debt 10.5 2.9

FYE 2012 adj debt 44.9 12.3

FYE 2012 cash 26.4 7.2

FYE 2012 cash 15.0 4.1

FY 2012 adj EBITDA* 17.8 4.8

FY 2012 adj EBITDA 16.9 4.6

FY 2012 adj RCF 6.8 1.8

FY 2012 adj RCF 12.1 3.3

* Does not include the full effect of PTCL consolidation, which will be reflected from 2013 onwards

FYE 2012 key metrics

FYE 2012 key metrics

Debt/EBITDA

0.6x

Debt/EBITDA

2.7x

Net debt/EBITDA**

-0.9x

Net debt/EBITDA

1.8x

RCF/Debt

64%

RCF/Debt

27%

RCF/Net debt**

-43%

RCF/Net debt

40%

** net cash position

Pro forma base-case metrics

Pro forma base-case metrics

Pro forma adj debt (incl. debt of MT)

9.8

Pro forma adj debt (incl. debt of MT)

19.3

Pro forma adj net debt (incl. debt/cash of MT)

2.5

Pro forma adj net debt (incl. debt/cash of MT)

15.0

Debt/EBITDA

1.4x

Debt/EBITDA

2.9x

Net debt/EBITDA

0.4x

Net debt/EBITDA

2.3x

RCF/Debt

24%

RCF/Debt

20%

RCF/Net debt

94%

RCF/Net debt

25%

Pro forma high-cost-case metrics

Pro forma high-cost-case metrics

Pro forma adj debt (incl. debt of MT)

15.1

Pro forma adj debt (incl. debt of MT)

24.6

Pro forma adj net debt (incl. debt/cash of MT)

7.8

Pro forma adj net debt (incl. debt/cash of MT)

20.3

Debt/EBITDA

2.2x

Debt/EBITDA

3.7x

Net debt/EBITDA

1.2x

Net debt/EBITDA

3.1x

RCF/Debt

16%

RCF/Debt

16%

RCF/Net debt

30%

RCF/Net debt

19%

What could change the rating – down

What could change the rating - down

Debt/EBITDA of more than 1.5x

Net debt/EBITDA of more than 3x

RCF/Debt of below 30%

RCF/Debt of below 18%

Note: Maroc Telecom inputs as reported; inputs for Etisalat and Ooredoo as adjusted by Moody’s

Sources: Bloomberg, Maroc Telecom, Etisalat, Ooredoo (Qtel), Moody's Financial Metrics

NEWS & ANALYSIS Credit implications of current events

12 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Even with bank funding, we expect the respective governments of the United Arab Emirates (Aa2 stable), which owns 60% of Etisalat’s capital, and Qatar (Aa2 stable), which has direct and indirect shareholdings of 68% of Ooredoo, to commit equity. Government participation in addition to bank financing makes it uncertain how capital structures will evolve, but could help offset pressure from a fully debt-funded transaction.

The government of Qatar has previously participated in rights issues when Ooredoo made large, transforming acquisitions. Past actions, and the fact that half of Ooredoo’s 10-member board are government representatives, informs our view that the government will very likely provide fresh equity to offset a capital structure where leverage exceeds the company’s 2012 target leverage range of 1.5x-2.5x net debt/EBITDA.

The UAE’s participation is less predictable. When Etisalat made a binding offer in 2010 for Zain (but from which it later stepped back) that would have likely amounted to a material debt increase, there were no clear indications of what – if any – financial support the UAE was willing to provide.

NEWS & ANALYSIS Credit implications of current events

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UK Criminal Investigation of ENRC and Its Boardroom Changes Are Credit Negative Last Thursday, the UK’s Serious Fraud Office said it will begin a criminal investigation relating to allegations of fraud, bribery and corruption by Eurasian Natural Resources Corporation Plc (ENRC, B1 review for downgrade) in Kazakhstan and the Democratic Republic of Congo (DRC). Earlier in the week, ENRC announced the resignation of its chairman, only a few days after a founding shareholder of the company made public his plan to form a consortium with other founding shareholders including the Kazakh Government to consider a bid to take the company private.

The developments are credit negative for ENRC; in response, we downgraded ENRC’s corporate family rating to B1 and placed its ratings on review for further downgrade. We could downgrade ENRC’s ratings again in response to new credit negative developments in the group’s corporate governance, such as reputation-damaging outcomes from the criminal investigation, which might also result in large fines or penalties. Negative rating pressure would also result if there were a material deterioration in ENRC’s liquidity, or a further deterioration in its credit metrics, including debt/EBITDA materially in excess of 3x.

The allegations raise uncertainties about ENRC’s corporate governance, its future direction and its status on the London Stock Exchange’s FTSE 100-index, which further undermines its reputation with investors. In turn, these developments could diminish ENRC’s ability to raise funds for its projects, weakening its liquidity. This is a key vulnerability for the company given its increased funding requirements and reliance on new bank financing to pursue large growth projects over the next 12-18 months. ENRC’s liquidity could be further affected by material fines the UK Serious Fraud Office has the power to impose, subject to the outcome of its investigation.

A lengthy and potentially invasive investigation by the Serious Fraud Office into allegations of corruption at ENRC’s activities in the DRC and Kazakhstan is likely to distract the company’s managerial focus away from the timely execution of mining projects under development in those countries. Any major delay for these projects is likely to hamper ENRC’s financial recovery: the company lost $852 million in 2012 owing to tough industry conditions and asset impairments, and has indicated that these projects are material to its future performance.

Additional challenges include a potential tender offer from its main shareholders, which would be another distraction for the board and senior management in what we anticipate will be another difficult year for the industry. At the same time, the tender offer would be a new crucial test for ENRC’s corporate governance because the board, with its new chairman, Gerhard Ammann, would need to take the interests of minority investors into account vis à vis the bidding shareholders. Meanwhile, pressure related to the tender offer is likely to rise both from inside (bidding shareholders) and outside (Serious Fraud Office, investors, relationship banks and the media) the company, making the tasks of the board and its committees more challenging. The high turnover of the board in the past two years, together with the high number of related-party transactions, reveal the influential role of the three founding shareholders (owning in aggregate 43.8% of the share capital) over ENRC’s board and are key areas of focus for our review.

Gianmarco Migliavacca Vice President - Senior Analyst +44.20.7772.5217 gianmarco.migliavacca@moodys.com

NEWS & ANALYSIS Credit implications of current events

14 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

UK Government’s Sale of Urenco Stake May Erode Sovereign Support Last Monday, the UK government (Aa1 stable) confirmed it would seek to sell all or part of its one-third stake in uranium enrichment company Urenco Ltd. (Baa1 stable) after securing the agreement of its fellow shareholders, the government of the Netherlands (Aaa negative) and its German partners. The UK announcement follows earlier reports that German utilities E.ON SE (A3 stable) and RWE AG (A3 negative), which each own 16.67% of Urenco, were also considering a sale of their stakes in Urenco.

A sale by one of Urenco’s anchor sovereign owners would be credit negative because it raises doubts about the strength of government support for Urenco. The company’s Baa1 rating benefits from a one-notch uplift from its baa2 baseline credit assessment, based on our assumption of moderate support from Urenco’s sovereign shareholders.

However, the legal framework that governs Urenco’s ownership and operation complicates a sale by any of its owners and limits their ability to shed their obligations with respect to the operation of the company, proliferation issues and other matters. These factors would cloud the effect that a sale, should it occur, would have on both governmental support for Urenco and its standalone credit quality.

The UK government has said the country’s security and non-proliferation interests will remain protected after any sale. The non-proliferation commitments underpin the structure and the workings of the enrichment industry. Urenco’s policies and operations, for example, are subject to strong government oversight owing to its government ownership and a number of inter-governmental treaties, including the Almelo Treaty between the UK, Germany and the Netherlands to develop and exploit the gas centrifuge process for producing enriched uranium. Therefore, a change in ownership may have little effect on our assumption of moderate government support that, at most, benefits Urenco’s rating by one notch.

Ignoring the potential for new owners to materially change the company’s financial policies and business model, we believe Urenco’s standalone credit profile is adequate for its baseline credit assessment, despite subdued growth and pricing in the enrichment market. Urenco serves approximately 30% of the global market, has a strong market presence in Europe and the US and solid margins and operating cash flows. However, Urenco funded its five-year capacity expansion programme with debt, therefore its balance sheet remains relatively levered, with debt/EBITDA at 2.9x at the end of 2012. Moreover, the company continues to invest. Consequently, excluding ownership-related changes, we expect limited organic improvement in Urenco’s credit profile because its current owners are likely to take out greater dividends. We also anticipate a higher degree of self-reliance in accumulating funds for the company’s long-term nuclear obligations related to the treatment of uranium tails and decontamination costs, which will delay debt reduction.

In addition to these considerations, most of Urenco’s bondholders are protected against major changes in ownership and credit quality by an investor put provision that may be triggered in the event of an amendment to the Almelo Treaty or the shareholders’ agreement that results in a downgrade of Urenco’s ratings to non-investment grade. A change of control could also trigger the put if existing shareholders cease to hold 50% of the company and that causes a downgrade of the company’s ratings to non-investment grade.

Elena Nadtotchi Vice President - Senior Credit Officer +44.20.7772.5380 elena.nadtotchi@moodys.com

NEWS & ANALYSIS Credit implications of current events

15 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Stora Enso’s Restructuring Plan Is Credit Positive Last Tuesday, Stora Enso Oyj (Ba2 negative), one of the world’s largest paper and forest products companies, announced a restructuring plan that it estimated would reduce fixed costs by €200 million per year. The plan is credit positive because it will support Stora Enso’s profitability and cash flow generation at a time when difficult market conditions for its paper operations in Europe are challenging the company. Stora Enso’s European operations suffer from declining structural demand resulting from a shift of content to digital, cyclical pressures arising from weak macroeconomic conditions in Europe and low prices.

Stora Enso plans to streamline the group’s businesses and overhead functions, including a reduction of its global workforce, increasing use of outsourcing services and disposal of non-core assets. The company expects the programme to yield annual fixed cost savings of €200 million beginning in the second quarter of 2014. These savings include €30 million from restructuring its timber operations, which the company announced earlier this year. The company has also recently announced the closure of high-cost newsprint capacity, totalling about 475,000 tonnes of paper capacity, or more than 6% of the group’s total European paper production capacity.

We believe the additional restructuring and capacity closures will improve cost efficiencies in an industry that we expect will remain challenged by structural and cyclical demand pressure, low prices and elevated input costs. Against that backdrop, capacity reductions and fixed-cost savings are inevitable. However, upfront charges, which Stora Enso has not yet disclosed, will further pressure profits and cash-flow generation in 2013.

Nevertheless, the measures announced last week will help support margin improvement on the back of a tighter supply and demand balance. In addition, lower fixed costs and better capacity utilisation should help improve profitability and secure the cash generation ability of its paper operations. We expect the savings to enhance Stora Enso’s reported EBITDA margin by 150-200 basis points from 9% currently, the lowest level since 2009.

Although we expect the restructuring plan to improve profitability, Stora Enso’s rating outlook remains negative. We expect leverage to remain high over the next two years as indicated by net debt/EBITDA of approximately 4.5x (as adjusted by us) as of March, owing to weak operating performance of its paper operations.

In addition, substantial cash spending on growth projects in emerging markets has significantly increased debt levels at a time when existing operations’ profit contribution is fading. Funding needs related to its aggressive expansion plan will remain high. Of particular note is the planned construction of a €1.6 billion integrated pulp and board mill in China, which is pending owing to delays in project approvals, that will result in negative free cash generation and increasing net debt levels over the next two years.

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

NEWS & ANALYSIS Credit implications of current events

16 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Infrastructure

Australian Airports Would Benefit from Virgin’s Takeover of Tiger Last Tuesday, the Australian Competition & Consumer Commission (ACCC) announced that it would not oppose Virgin Australia’s (unrated) proposed acquisition of 60% of Tiger Airways Australia (unrated) from Singapore-based Tiger Airways Holdings5 (unrated). The ACCC’s approval is credit positive for Australian airports because it removes a major impediment to the transaction, which should lead to continued airline capacity and passenger growth.

As part of the acquisition, Virgin said Tiger Australia would continue operating as a low-cost carrier with flexibility to expand its existing fleet to 35 aircraft from 11 by 2018. The continued presence of Tiger in Australia as a low-cost carrier, along with a possible fleet expansion, should maintain downward pressure on airfares.

Adelaide Airport, whose financing vehicle is New Terminal Financing Company Pty Limited (Baa2 stable), would have been the most adversely affected Australian airport that we rate if Tiger were to have withdrawn from Australia, and therefore it stands to benefit the most from the transaction. Adelaide Airport’s high dependence on Tiger relative to the other airports is a consequence both of its smaller passenger base and higher reliance on domestic passengers, as shown in Exhibit 1.

EXHIBIT 1

Passenger Composition of Rated Australian Airports, 2012

Source: Bureau for Infrastructure, Transport and Regional Economics, Moody’s

Although Tiger Australia only has a small domestic market share of around 3% of available seat kilometers, its low-cost-carrier-oriented pricing strategy has elicited aggressive pricing responses from incumbent carriers since commencing operations in late 2007. The discounted air fares have stimulated domestic passenger volumes in the overall market, which, in turn, has led to increased revenues for airports through increased passenger charges.

5 Singapore Airlines (unrated) owns 32.7% of Tiger Airways Holdings.

0

10

20

30

40

Sydney Melbourne Perth Brisbane Adelaide

Mill

ions

of p

asse

nger

s

Domestic International

Arnon Musiker Vice President - Senior Analyst +612.9270.8161 arnon.musiker@moodys.com

NEWS & ANALYSIS Credit implications of current events

17 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

However, Tiger Australia has consistently incurred losses since operations began, and likely would have withdrawn from Australia had the ACCC rejected the transaction. (Indeed, Tiger Holdings announced that it would not seek new investors for Tiger Australia had the ACCC not approved the deal.)

Based on trends from mid-2011, when the Australian Civil Aviation Safety Authority temporarily suspended Tiger’s operations for safety breaches, we believe Tiger’s withdrawal would have resulted in a material decline in domestic passenger numbers. This is because the other domestic airlines likely would have increased fares in response to improve their yields, rather than increase capacity to meet demand at previous prices.

Exhibit 2 illustrates the effect of Tiger Airways’ operating suspension on total passenger volumes during 2011 for each of the airports we rate, with Adelaide Airport posting the worst performance. The decline in passenger volumes was one of the causes of a large increase in the airport’s leverage, as measured by the ratio of funds from operations (FFO) to debt, to around 7% from 10% for the financial year ended 30 June 2012. Exhibit 2 also shows the recovery in Adelaide’s passenger volumes in fourth-quarter 2012, which partially reflects Tiger’s resumption of services to the city during that quarter.

EXHIBIT 2

Australian Airports’ Passenger Growth Rates

Note: Year-to-date passenger volume over previous year’s year-to-date passenger volume Source: Bureau for Infrastructure, Transport and Regional Economics (BITRE), Moody’s

From an airline perspective, Qantas Airways Ltd (Baa3 stable) will continue to experience challenges in an increasingly competitive domestic market. Tiger’s rebirth under Virgin majority ownership is likely to only add to the tension with any material recovery in yields not yet within sight.

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

All airports Melbourne Sydney Perth Brisbane Adelaide

NEWS & ANALYSIS Credit implications of current events

18 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Banks

US Banks Fight Headwind of Noninterest-Bearing Deposit Declines Last Monday, Zions Bancorporation ((P)Ba1 stable) reported a 6% decline in first-quarter noninterest-bearing deposits, just as several other large US banks have over the past two-week reporting period. In aggregate, the banks reported a drop in noninterest-bearing deposits of nearly 4% versus year end, although, overall, their deposit base was flat (see Exhibit 1). The shift from noninterest-bearing deposits into interest-bearing deposits is credit negative and another source of net interest margin (NIM) compression at a time when margins are already on the decline owing to protracted low interest rates.

EXHIBIT 1

Aggregate Change in Deposits at Large US Banks – First Quarter

Source: Company earnings releases. The 15 banks included are PNC Bank, N.A. (A2 stable, C+/a2 stable),6 U.S. Bank National Association (Aa3 stable, B/aa3 stable), Wells Fargo Bank, N.A. (Aa3 stable, C+/a2 stable), Bank of America, N.A. (A3 stable, D+/baa3 stable), Branch Banking and Trust Company (A1 negative, B-/a1 negative), Citibank, N.A. (A3 stable, D+/baa3 stable), Capital One Bank (USA), N.A. (A3 stable, C/a3 stable), Fifth Third Bank, Ohio (A3 stable, C/a3 stable), Huntington National Bank (A3 stable, C/a3 stable), JPMorgan Chase Bank, N.A. (Aa3 stable, C/a3 stable) KeyBank N.A. (A3 stable, C/a3 stable), Manufacturers and Traders Trust Company (A2 stable, C+/a2 stable), Regions Bank (Baa3 stable, D+/baa3 stable), SunTrust Bank (A3 stable, C/a3 stable), and Zions First National Bank (Baa3 stable, D+/baa3 stable).

Of the 15 banks captured in Exhibit 1, the majority saw a shift to interest-bearing from non-interest-bearing accounts in the first quarter. Banks that added noninterest-bearing deposits have an incremental NIM benefit and those that lost noninterest-bearing deposits face incremental NIM compression.

Of the banks examined, US Bancorp (A1 stable) had the largest noninterest-bearing deposit decline over the past six months, at just over 7%. At the same time, its total deposits grew by nearly 2%, highlighting the shift into interest-bearing accounts. The immediate earnings effect from this shift is minimal because interest-bearing deposits are historically cheap in the current environment. Nonetheless, with US Bancorp’s first-quarter NIM at its lowest point since third-quarter 2007, the decline in noninterest-bearing deposits is another headwind at a time when margins are already under pressure. Indeed, US Bancorp’s management indicated that its second-quarter NIM would decline further.

Conversely, Fifth Third Bancorp (Baa1 stable) grew noninterest-bearing deposits by 9% over the six-month period. Its interest-bearing deposits grew as well. However, it too experienced NIM compression as its loan

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

assessments and the corresponding rating outlooks.

-3.66%

1.55%

0.02%

-4%

-3%

-2%

-1%

0%

1%

2%

Non Interest Bearing Interest Bearing Total

Allen Tischler Senior Vice President +1.212.553.4541 allen.tischler@moodys.com

NEWS & ANALYSIS Credit implications of current events

19 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

yields declined by more than its funding costs. As a result, although Fifth Third’s noninterest-bearing deposit growth is a positive development, the immediate earnings benefit was muted. Like most of its peers, Fifth Third also signaled that further NIM compression is likely.

We believe that the year-end 2012 expiration of the Federal Deposit Insurance Corporation’s (FDIC) Transaction Account Guarantee (TAG) program influenced the decline in noninterest-bearing deposits. TAG was initially created in late 2008 when the US government and bank regulators were rightly concerned about banks’ liquidity during a time of crisis. Under the program, the FDIC provided complete coverage for all noninterest-bearing accounts; the accounts that corporations use to make their payroll and commercial payments. The guarantee meant that no depositor in a noninterest-bearing account had to worry about bank credit risk.

Under the assumption that depositors who valued the unlimited insurance were risk-averse, the reasonable range of alternatives they faced when the TAG program expired were few. Money market mutual funds, a primary source of competition for bank deposit products, currently offer little return, for example. As such, it is not surprising that most of the money stayed within the banking system, but simply shifted to interest-bearing accounts.

In order to fully analyze the influence of TAG expiration on banks’ deposit balances, we looked at the past two quarters together, based on our assumption that some depositors moved their funds prior to year-end. The exhibit below shows the change in both noninterest-bearing deposits (on the vertical axis) as well as total deposits (on the horizontal axis) for large US banks from end-September 2012 through March 2013.

EXHIBIT 2

Banks’ Deposit Trends Varied Over the Past Two Quarters

Note: PNC = PNC Financial Services Group, Inc., USB = U.S. Bancorp, WFC = Wells Fargo & Company, BAC = Bank of America Corporation, BBT = BB&T Corporation, C = Citigroup Inc., COF = Capital One Financial Corporation, FITB = Fifth Third Bancorp, HBAN = Huntington Bancshares Incorporated, JPM = JPMorgan Chase & Co., KEY = KeyCorp, MTB = M&T Bank Corporation, RF = Regions Financial, STI = SunTrust Banks, Inc., and ZION = Zions Bancorporation. Source: Company earnings releases

HBAN

FITB

WFC

ZION

STI

KEY

RF

USB

COF

C

MTB

PNC

BAC

BBT

JPM

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

-2% 0% 2% 4% 6% 8% 10%

Unfavorable Deposit Trend: Incremental NIM Pressure

Favorable Deposit Trend: Incremental NIM Benefit

Change in Total Deposits

Chan

gein

Non

Inte

rest

Bea

ring

Dep

osits

NEWS & ANALYSIS Credit implications of current events

20 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

US Crackdown on Payday Lending Is Credit Positive for Targeted Banks Last Thursday, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) each released guidance to banks under their respective jurisdictions regarding deposit advance loans. The guidance imposes strict limits on the short-term small-dollar payday loan-like product (see exhibit), including a requirement that banks evaluate consumers’ ability to repay the loans and limits on how often banks can lend to the same customer. Also last Thursday, the Federal Reserve issued its own written statement on deposit advance products. The Fed’s statement emphasized the significant risks associated with such loans, including potential consumer harm and the potential for elevated compliance risk, but it did not contain the same specific requirements and limits as the FDIC and OCC guidance.

The stepped-up regulatory focus, which we expect will curb such lending, is credit positive for the small but growing number of banks that are active in the space, for example US Bancorp (A1 stable) and Wells Fargo & Company (A2 negative), given the significant legal, reputational, consumer protection, compliance, and credit risks associated with this product.

Deposit Advance Loans Description

$10 per $100 borrowed = Typical fees on a loan

$180 = Median size of individual advance

$343 = Median outstanding balance of deposit advance loans

304% = APR yield using the average outstanding balance period of 12 days, assuming a fee of $10 per $100

$3,000 = Total amount that more than half (52 percent) of all deposit advance borrowers end up taking out in a year

149 or more = The number of days that customers with more than $3,000 in advances tend to be indebted

12 or less = The number of days that customers with more than $3,000 in advances tend to go between paying an old balance and taking out a new advance

65 percent = Percentage of consumers using deposit advances who also accrued overdraft or non-sufficient funds fees

Source: Consumer Financial Protection Bureau

The FDIC and OCC’s proposed guidance (which is subject to a 30-day comment period) and the Fed’s statement come on the heels of a Consumer Financial Protection Bureau (CFPB) report regarding deposit advance and payday loans. The CFPB report, dated 24 April, found that both products can lead many borrowers into a cycle of high-cost borrowing over an extended period of time, raising substantial consumer protection concerns about debt traps. In a subsequent press release dated 25 April, the CFPB stated that it sees significant consumer risks in both products and that it expects to use its full authorities to provide protections to consumers once it completes further analysis of the short-term, high-cost loan market later this spring.

The guidance is consistent with the FDIC and OCC’s previous efforts to control payday lending by banks and encourage them to offer affordable small-dollar consumer loans. The regulators have consistently voiced their concern that payday lending products pose significant safety-and-soundness, compliance and reputational risks for banks. Past investigations of the sector have resulted in regulatory actions causing

Curt Beaudouin, CFA Vice President - Senior Credit Officer +1.212.553.1474 john.beaudouin@moodys.com

NEWS & ANALYSIS Credit implications of current events

21 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

institutions to discontinue or curtail payday lending,7 and we expect the current regulatory initiative to result in similar actions against banks currently offering these products.

Because the Fed’s statement did not contain the same specific requirements and limits as the FDIC and OCC guidance, the lack of regulatory symmetry may allow certain banks that are active in offering this product (for example, Fifth Third Bancorp (Baa1 stable) and Regions Financial Corporation (Ba1 stable), and are Fed-regulated state-chartered banks, to avoid safety-and-soundness-related restrictions on the product, at least for the time being.

Banks’ interest in deposit advance loans is understandable given the product’s fee-rich nature and the profit challenges banks have faced in recent years. Although none of the major banks break out revenues and income from this product, we believe this activity comprises a small part of their overall net revenues and pre-tax pre-provision income. The regulators’ focus on this product, while still a relatively small part of banks’ overall operations, will allow the banks to diminish their presence in this market with only minor effect on profitability.

Additionally, the flurry of regulatory activity is credit negative for finance companies that obtain a substantial proportion of their revenues from US payday loans, for example, Ace Cash Express, Inc. (B3 stable), CNG Holdings, Inc. (B3 stable), Speedy Group Holdings Corp. (Caa1 stable), because it may lead to changes in the payday loan product that substantially reduce the profitability of these companies. The risks associated with payday lending are already reflected in these companies’ ratings.

7 County Bank of Rehoboth Beach, Delaware, March 2005; First Bank of Delaware, January 2006.

NEWS & ANALYSIS Credit implications of current events

22 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Banco Comercial Portugues Sells Greek Subsidiary, a Credit Positive Last Monday, Banco Comercial Portugues S.A. (BCP, B1 negative, E/caa2 negative)8 announced the sale of its entire share capital of Millennium Bank Greece (MBG, unrated) to Piraeus Bank S.A. (Caa2 negative, E/caa3 stable) for a symbolic price of €1 million. The MBG divestment is credit positive for BCP because it significantly reduces the bank’s exposure to Greece (C). Pending relevant authorities’ final approvals, BCP expects the transaction to take place in the second quarter.

BCP’s divestment of MBG is a positive milestone within BCP’s restructuring and recapitalisation plan: MBG is a highly impaired subsidiary that remains under significant stress and has demanded significant resources from the group. MBG’s very high impairments (it reported a net loss of €266.4 million in 2012) contributed to BCP’s consolidated net loss of €1.2 billion.

Prior to the disposal, BCP will recapitalise MBG for €400 million to offset the Bank of Greece’s estimated capital needs for the bank. However, the capital injection will not affect BCP’s solvency levels (core Tier 1 ratio of 12.4% at end-December 2012) because BCP had allocated €427 million of provisions at year-end 2012 to compensate for potential losses stemming from MBG. As part of the disposal agreement, Piraeus Bank will reimburse all intragroup funding to BCP in two tranches: 1) €650 million will be paid at closing, and 2) €250 million will be reimbursed six months after closing.

BCP will also invest an additional €400 million in Piraeus Bank’s forthcoming capital increase, which is part of Greek banks’ recapitalisation that the Hellenic Financial Stability Fund (HFSF) will mainly fund. BCP’s investment will give it a minority stake in Piraeus Bank’s share capital, but BCP will not consolidate it into the group’s accounts. Six-months after its €400 million investment, BCP will proceed to the orderly disposal of its shareholdings in Piraeus Bank, subject to certain limitations, aiming to exit its Greek investment.

Once MBG is sold, BCP will be able to reduce its risk-weighted assets by €4 billion and will improve its counterparty risk because Piraeus Bank will reimburse BCP all the funding it provided to MBG.

The commitment to participate in Piraeus Bank’s capital increase poses substantial market risk to BCP given Piraeus Bank’s very weak fundamentals and Greece’s stressed operating conditions. In addition, this investment will partially offset BCP’s reduction in risk-weighted assets through its sale of MBG. Despite these challenges, the deal is net credit positive for BCP because it significantly reduces the group’s exposure to the Greek market and we expect it to have a net positive effect on the group’s core capital even with the investment in Piraeus Bank’s capital.

For Piraeus Bank, this deal exacerbates its integration challenges and implementation risks considering that this is the fourth acquisition announced in the past nine months. Prior to the MBG acquisition, Piraeus Bank also took-over 1) the Greek operations of three Cypriot banks in March (Bank of Cyprus Public Company Limited (Ca negative, E/ca), Cyprus Popular Bank Public Co Ltd (C, E/c), and Hellenic Bank Public Company Ltd (Caa3 negative, E/ca)); 2) General Bank of Greece SA (unrated) from Societe Generale in last December; and 3) the healthy part of ATE Bank (unrated) last July. Piraeus Bank has a good track record of acquiring and integrating other banks but faces a very difficult task of simultaneously doing this for six different banks, which continue to operate as separate entities. We expect that aligning all these operations under its own systems and procedures will be quite challenging.

8 The bank ratings shown in this report are the bank’s deposit rating, its standalone bank financial strength rating/baseline credit

assessment and the corresponding rating outlooks.

Pepa Mori Vice President - Senior Analyst +34.91.768.8227 mariajose.mori@moodys.com

Nondas Nicolaides Vice President - Senior Analyst +34.72.569.3006 nondas.nicolaides@moodys.com

NEWS & ANALYSIS Credit implications of current events

23 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Ukrainian Banks Will Benefit from Deposit Guarantee Liquidity Support On 22 April, the National Bank of Ukraine (NBU) introduced a liquidity support mechanism for the Deposit Guarantee Fund (DGF), which insures retail deposits of up to UAH200,000 ($25,000). With this mechanism, the fund will be able to repo its securities with the central bank, thereby speeding up payments to insured depositors. The mechanism is credit positive for Ukrainian banks because it will improve depositors’ confidence in the banking system and support the inflow of customer deposit funding.

Although Ukrainian banks demonstrated healthy 17% retail deposit growth in 2012, we consider deposit volatility a key structural weakness of the Ukrainian banking system, which this liquidity mechanism will mitigate. Before the introduction of repo facilities with the NBU, the fund had to sell its liquid assets (mostly government securities) to pay insured depositors of failed banks. In times of market stress, the DGF had to sell these assets to the market at a discount. Following the introduction of the liquidity support mechanism, the DGF can quickly repo its government bonds with the NBU to meet tight timing requirements (payments to depositors have to be made within seven days of a bank’s failure) even when market conditions are unfavorable.

Despite the introduction of this liquidity mechanism, we consider the amount of reserves accumulated by DGF relatively small; it covers around 1.6% of retail deposits in Ukraine (see Exhibit below). Although this coverage ratio is in line with the European average, the probability of bank failures in Ukraine is much higher than elsewhere in Europe, thus requiring higher coverage. We estimate that DGF’s reserves would be insufficient to cover a single top-15 bank failure in Ukraine, in which case the fund will have to take on loans from the financially pressured Ukrainian government (B3 negative).

Snapshot of Deposit Guarantee Fund Coverage of Individual Deposits

As of 31 December 2012

UAH millions

Systemwide Retail Deposits 369,906

Assets of Deposit Guarantee Fund 6,092

Coverage ratio 1.6%

Source: National Bank of Ukraine and Deposit Guarantee Fund

Elena Redko Assistant Vice President - Analyst +7.495.228.6074 elena.redko@moodys.com

NEWS & ANALYSIS Credit implications of current events

24 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Insurers

Price Transparency on Investment-Linked Products Is Credit Negative to Hong Kong Life Insurers Last Monday, the Hong Kong Federation of Insurers, a self-regulated body of insurers, published a circular mandating that its life insurer members disclose to prospective customers purchasing investment-linked assurance scheme (ILAS) products all major fees and charges payable to the insurer during the policy’s life. The same day, the Hong Kong Monetary Authority, the bank regulator, issued a similar disclosure mandate for ILAS products sold through bancassurance channels.

These disclosures are credit negative for life insurers because they will raise competitive pressure on ILAS products. ILAS is a collective term for investment-linked insurance policies that are similar to mutual funds, but include a small death benefit component. Currently, ILAS is a lucrative product, with a fee structure that can exceed mutual funds by as much as seven percentage points at subscription and two percentage points in annual management costs.

As a result, this regulation, by increasing pricing transparency, will highlight current price differentials not only among different ILAS products but also between ILAS and similar products such as mutual funds and bank wealth management products, which will put pressure on ILAS sales and pricing. Before this guidance, it was not easy for customers to compare charges on ILAS products with other alternative investment products, an obstacle that will no longer be in place. This will affect many life insurers in Hong Kong, because ILAS accounted for 22% of the industry’s new business in 2012, with 11 of more than 50 current players generating more than 50% of their new business from ILAS products.

In addition, the new guidelines will likely increase insurers’ product risk profiles. From the insurers’ perspective, ILAS is a low-risk product with a small mortality risk component and its investment risk borne by the policyholder. We anticipate that a decline in ILAS sales will induce insurers to focus more sales towards traditional policies that possess higher mortality and investment risks.

We expect this tightening in disclosure to most affect those insurers that generate a sizable portion of their new business from ILAS. As shown in the exhibit below, Generali International Limited (unrated), Royal Skandia Life Assurance Limited (unrated), Standard Life (Asia) Limited (unrated), Friends Provident International Limited (unrated), AXA Wealth Management (HK) Limited (unrated) and Zurich International Life Limited (unrated) all derived nearly 100% of their new sales from ILAS in 2012.

Alvis Chan Associate Analyst +852.3758.1516 alvis.chan@moodys.com

NEWS & ANALYSIS Credit implications of current events

25 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Insurance-Linked Assurance Scheme Products as a Percentage of Hong Kong Insurers’ New Business in 2012

Note: Only insurers that generated more than 10% of its new business from ILAS are shown. Source: Office of the Commissioner of Insurance

0%10%20%30%40%50%60%70%80%90%

100%

NEWS & ANALYSIS Credit implications of current events

26 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Sub-sovereigns

Sonora’s Ratification of New Vehicle Tax Is Credit Positive Last Tuesday, the congress of the Mexican state of Sonora (Ba1 stable) ratified the permanent application of a new vehicle tax that although previously approved in the state’s 2013 budget, had been highly contested in the state congress. Ratification is credit positive.

Proceeds from the tax are close to 25% of the state’s own-source revenues, providing a critical source of revenue as Sonora redresses the financial deterioration of the past four years, during which deficits have remained at around 4.9% of total revenues.

For 2013, Sonora established the new vehicle tax (NVT) as a key component of its plan to regain fiscal balance. Last December, the NVT was included in this year’s income law at a rate of 3% of the vehicle value, but opponents in the state congress sought to repeal it. Despite growing public opposition against the NVT, the government stood firm by its decision to maintain the NVT, ratifying its permanence by a close 17 to 15 margin.

Exhibit 1, below, shows that Sonora has found it increasingly difficult to move to balanced cash financing results (revenues less expenditures) since 2009 and the effect that collecting NVT will have in financial results of 2013.

EXHIBIT 1

Sonora, Mexico’s Cash Financing Results (Revenues Minus Expenditures)/Revenues

Source: Moody’s

The NVT was originally designed as a federal tax, but the federal government transferred it to the states in 2011 allowing them full discretion on its management starting in 2012. The state of Sonora opted not to collect the NVT in fiscal year 2012 as it was not included in the state’s 2012 budget.

Taxes in Mexico are one of the few types of discretionary revenues that can be used to fund operating expenditures. By international standards, and as a result of the fiscal arrangements between the federal and state governments, Mexican states have very low taxing powers. The NVT is usually the second contributor of own-source revenue, after the payroll tax. Within Mexico, Sonora is a state with relatively strong own-source revenues, as shown in Exhibit 2.

-10%

-8%

-6%

-4%

-2%

0%

2%

2007 2008 2009 2010 2011 2012 2013E

Sonora Without New Vehicle Tax Sonora with New Vehicle Tax

Roxana Munoz Analyst +52.55.1253.5721 roxana.munoz@moodys.com

NEWS & ANALYSIS Credit implications of current events

27 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

EXHIBIT 2

Mexico States’ Discretionary Own-Source Revenue/Operating Revenue

Source: Moody’s

0%

2%

4%

6%

8%

10%

12%

14%

2007 2008 2009 2010 2011 2012 2013E

Mexican States Average Sonora with New Vehicle Tax Sonora Without New Vehicle Tax

RATING CHANGES Significant rating actions taken the week ending 26 April 2013

28 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Corporates

Barrick Gold Corporation Downgrade

17 Apr ‘13 24 Apr ‘13

Senior Unsecured Rating Baa1 Baa2

Outlook Review for Downgrade Negative

The downgrade reflects the challenges facing the company following the Chilean government's injunction to halt construction activity on the Chilean side of the Pascua Lama mine development because of community concerns over environmental issues. This project, which has seen capital costs increase substantially, was anticipated to begin production in the back half of 2014 and contribute to an improved production profile and cost basis.

Eurasian Natural Resources Corporation Plc Downgrade

31 Jan ‘12 25 Apr ‘13

Senior Unsecured Rating Ba3 B1

Outlook Negative Review for Downgrade

We have downgraded the rating and placed it on review for downgrade because of the turmoil at the board and senior management levels, culminating with the recent resignation of the chairman, in conjunction with ongoing investigations overseen by the UK Serious Fraud Office (SFO). There is also a possible bid by the founding shareholders to take the company private, leading to new degrees of uncertainty and unpredictability over the company’s future direction.

Finmeccanica S.p.A. Review for Downgrade

13 Feb ‘13 23 Apr ‘13

Senior Unsecured Rating Baa3 Baa3

Outlook Negative Review for Downgrade

The current rating may no longer be sustainable given indications of weaker-than-anticipated financial performance in recent periods and weaker prospects for several key defense markets. Pressure on margins has hurt the company's profitability and cash flow generation, results for 2012 show. Notably, revenue has been declining in the company's important Defense Electronics and Security division (about one-third of consolidated group revenue) owing to the challenging operating environment for defense contractors, especially in the United States.

RATING CHANGES Significant rating actions taken the week ending 26 April 2013

29 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Intelsat Investments S.A. Upgrade

2 Apr ‘13 24 Apr ‘13

Corporate Family Rating Caa1 B3

Outlook Review for Upgrade Stable

We now expect Intelsat's capital structure to be sustainable as a consequence of modest, positive cash flow after refinancing its debt at historically low interest rates. The company's strong business profile, which features a large 42 station-kept satellite fleet covering 99% of Earth's population, and a stable, predictable, contract-based revenue stream, also supports the rating.

MetroPCS Wireless, Inc. Upgrade

3 Oct ‘12 24 Apr ‘13

Corporate Family Rating B1 Ba3

Outlook Review for Upgrade Stable

The upgrade reflects that we believe that the company's reverse acquisition of T-Mobile USA will proceed as planned after the MetroPCS shareholders approve the transaction. The reverse acquisition gives MetroPCS improved scale, additional spectrum to compete in the US wireless industry, and new market potential for MetroPCS' well-regarded service plans in unserved and underserved areas.

Weyerhaeuser Company Upgrade

21 Feb ‘13 22 Apr ‘13

Senior Unsecured Rating Ba1 Baa3

Outlook Review for Upgrade Stable

The upgrade recognizes Weyerhaeuser's improving operating and financial performance and also that we expect this performance to become stronger as the company benefits from a continued pickup in US housing activity. Weyerhaeuser’s rating continues to be supported by company's extensive timberland holdings, which provide both debt reduction capability and liquidity. The rating also reflects the company's scale and leading market position in timberlands, wood products and market pulp.

RATING CHANGES Significant rating actions taken the week ending 26 April 2013

30 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Infrastructure

Derby Healthcare plc. Outlook Change

14 Oct ‘ 09 26 April ‘13

Fixed Guaranteed Secured Bonds Baa1 Baa1

Outlook Stable Positive

The change in outlook reflects Derby Healthcare plc’s improved operational performance. The Project is in its fifth year of operations and, following some start-up issues, operating performance is now satisfactory with a low level of financial penalties imposed by the trust. Derby Healthcare plc is a special purpose company with a project agreement to design and build a new acute general hospital at the site of Derby City General Hospital as well as provide some facility management services.

RATING CHANGES Significant rating actions taken the week ending 26 April 2013

31 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Financial Institutions

Ahorro Corporacion Financiera S.V., S.A. Downgrade

24 Oct ‘12 23 Apr ‘13

Issuer Rating Ba3 B3

Outlook Review for Downgrade Negative

The downgrade reflects the negative pressure on ACF's revenue-generation capacity – which has already been severely impaired since the economic crisis started – stemming from the adverse operating environment, limited geographical diversification and intensifying competition from large capital market firms. This pressure is exacerbated by the ongoing change (including the restructuring and consolidation) among the majority of ACF's owners from the Spanish savings bank sector, which has reduced their importance as customers and potential support providers

American Financial Group, Inc. Upgrade

22 Aug ‘12 23 Apr ‘13

Senior Debt Ratings Baa2 Baa1

IFSR A2 A1

Outlook Positive Stable

The upgrades reflect the company's sustained solid financial fundamentals, including consistently strong profitability, good market position in a diverse group of specialty niche businesses, limited catastrophe exposure, and moderate adjusted financial leverage (24% at year-end 2012) with good cash flow and earnings coverage of interest (12.4x and 7.4x on a five-year average basis, respectively).

Clientis AG Review for Downgrade

1 Apr ‘05 24 Apr ‘13

Standalone Bank Financial Strength /Baseline Credit Assessment

C/a3 C/a3 (Review for Downgrade)

Long-Term Ratings A3 A3 (Review for Downgrade)

The review is triggered by (1) uncertainties about the longer-term challenges involved with Clientis's business model given the narrow retail business focus of the group in Switzerland and its small size and scale, constraining its franchise value; (2) continued challenging market conditions for Swiss regional banks, characterised by intense competition and continued margin pressure; and (3) the bank's tighter liquidity metrics and its relatively low liquidity buffers compared with those of its closest peers.

RATING CHANGES Significant rating actions taken the week ending 26 April 2013

32 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Commerzbank AG Downgrade

6 Jun ‘12 23 Apr ‘13

Long-Term Ratings A3 Baa1

Bank Financial Strength /Baseline Credit Assessment D+/baa3 D+/ba1

Outlook Negative Stable

Commerzbank International S.A. (CISAL) Downgrade

Long-Term Ratings Baa1 Baa2

Standalone Bank Financial Strength / Baseline Credit Assessment

C-/baa1 C/baa2

Outlook Negative Stable

Hypothekenbank Frankfurt AG Downgrade

Long and Short-Term Ratings Baa2/P-2 Baa3/P-3

Standalone Bank Financial Strength / Baseline Credit Assessment

E/caa1 E/caa2

Outlook Negative Stable

The one-notch downgrades of the long-term debt ratings for all three banks and, in Hypothekenbank Frankfurt's (HF) case, of the short-term debt rating to Prime-3, were prompted by the one-notch lowering of Commerzbank's baseline credit assessment to ba1 from baa3 and HF's baseline credit assessment to caa2 from caa1. A combination of bank-specific and external factors drove us to lower Commerzbank's baseline credit assessment, including (1) persistent franchise pressures in the context of both the cost of legacy portfolios and weaknesses in core banking activities; and (2) sustained weak intrinsic earnings power, as indicated by weak fiscal 2012 results, particularly in some of its core banking franchises. The lowering of HF's baseline credit assessment to caa2 reflects the constraints stemming from its sizeable and concentrated exposures to commercial real estate, its large holdings of higher-risk public sector assets and the persistent loss generation of these portfolios. As CISAL's standalone baseline credit assessment is maintained at a level of no more than two rating notches that of Commerzbank, its BCA was lowered to baa2 from baa1.

Potlatch Corporation Upgrade

21 Feb ‘12 22 Apr ‘13

Senior Unsecured Debt Ba1 Baa3

Outlook Review for upgrade Stable

The upgrade reflects Potlatch's achievement of our upgrade benchmarks: covering its dividends from both its funds from operations and adjusted funds from operations, maintaining adequate liquidity and keeping its operating margins more stable. Potlatch's ratings continue to be supported by the REIT's diverse timberland portfolio in Arkansas, Idaho, and Minnesota. The REIT's credit profile is strong with moderate leverage.

RATING CHANGES Significant rating actions taken the week ending 26 April 2013

33 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

QBE Insurance Group Limited Downgrade

28 Sep ‘09 21 Apr ‘13

Issuer and Senior Unsecured Debt Ratings

A3 Baa1

The downgrade primarily reflects the group's weakened earnings, internal capital generation and debt service coverage measures, as well as QBE's sustained elevated financial and operational leverage profile, considered on both a nominal and tangible basis. The Australian property and casualty insurance group’s sabove-average aggregate worldwide catastrophe exposures relative to capital, and its recent adverse trends in reserve adequacy are additional considerations

Towergate Holdings II Limited Downgrade

7 Feb ‘12 22 Apr ‘13

Corporate Family Rating B2 B3

Outlook Negative Stable

Towergate Finance plc Downgrade

7 Feb ‘12 22 Apr ‘13

Senior Unsecured Notes Caa1 Caa2

Senior Secured Notes Ba3 B1

Outlook Negative Stable

The downgrade reflects the continued significant levels of financial indebtedness of the Towergate Group and limited EBITDA earnings coverage, which have not significantly improved in recent years, on a comparable basis. Towergate's credit quality, however, continues to benefit from its strong UK insurance broker market presence and its good EBITDA profitability levels compared to those of its peers.

Structured Finance

CHL Prime Jumbo RMBS On 25 April we took action on $1.1 billion of Prime Jumbo residential mortgage-backed securities issued by CHL from 2005 to 2007, downgrading 67 tranches and upgrading two tranches from ten transactions. The downgrades are a result of deteriorating performance and structural features resulting in higher expected losses for the bonds than previously anticipated. The majority of the downgrades are a result of change in principal payments and loss allocation to the senior bonds subsequent to subordination depletion. The upgrades are due to significant improvement in collateral performance.

RESEARCH HIGHLIGHTS Notable research published the week ending 26 April 2013

34 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Corporates

US Cable Industry: Consolidation Ahead As Commercial Opportunity Calls

With the maturation of the pay TV business in the US, and the expected moderation of residential broadband and voice, the commercial segment represents the largest and fastest growth opportunity for cable TV providers. The cable industry will see significant consolidation in the intermediate term to pursue these commercial opportunity.

Global Pharmaceutical Industry: Return To Earnings Growth In 2013 Keeps Outlook Stable

We have, however, lowered our forecast of aggregate EBITDA growth for rated drugs companies to around 1% in 2013 from our December 2012 forecast of 3%, driven mainly by greater-than-expected pressure tied to patent expirations on certain players. The quality of late-stage drug pipelines is improving, and a number of promising and innovate drugs could drive new sales growth in 2013-14.

US Technology Industry: Dividend Payments to Continue Climbing, But Payout Ratios to Remain Low

More US technology companies are initiating dividends, and increasing the size of existing ones. Our rated technology companies are expected to pay out $44.4 billion to shareholders this year, up 35% from last year. And after its recently announced 15% dividend increase. Apple will pay out the most of any company in the US non-financial sector.

Moody's High-Yield Covenant Database: 12 Most-Active Private Equity Sponsors Provide Weak Covenant Packages

The 12-most-active private equity sponsors provide the weakest covenant protections, on average, our study of more than 200 high-yield bonds issued by sponsored North American companies shows. Weaker covenants leave creditors at greater companies shows. Weaker covenants leave creditors at greater risk of debt-funded dividend recaptializations and subordination that could see them take losses in a default.

US Gaming Industry: Consumer Caution Will Limit Growth In Gaming Revenue, Operating Profit

We expect gaming revenues and operating profits will be flat to up slightly this year, leading to a stable outlook for the industry. Under continued pressure from weak growth in disposable personal income and increasing living expenses, US consumer will continue to limit their spending on items more essential than gaming while further increases in gaming supply will add to pressure.

Brazilian Sugar-Ethanol Industry: Tax Incentive Package Is Credit Positive For Ethanol Producers

The Brazilian government’s plan to provide tax deductions and low-cost credit to the ethanol sector is a credit positive for sugar-ethanol producers, including Virgolino de Oliveira (B3 stable) and Raizen (Baa3 stable), and a credit neutral for fuel distributors, such as Ultrapar Participacoes (Baa3 stable).

RESEARCH HIGHLIGHTS Notable research published the week ending 26 April 2013

35 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

China Property Focus - April 2013

The growth momentum in China’s property market continued in March despite the State Council’s policy guidelines to increase controls on the sector, our newsletter says. Property prices in China’s 70 major cities grew further in March 2013 and 2012 results of rated developers were largely in line with expectations, we also report.

North American Midstream Industry: Midstream Infrastructure Spending Boom Continues, Even As Growth Moderates

Our positive outlook reflects the ongoing North American boom in hydrocarbon production. A projected 25%-30% increase in capital spending in 2013 will concentrate on smaller and more manageable projects than in the past.

Surge in Spanish High-Yield Corporate Bond Issuance Diversifies Funding, Reduces Refinancing Risks

More Spanish corporates will be turning to the bond market, a credit positive because this allows issuers to diversify their sources of funding and reduce their reliance on bank lending. It will also allow them to take advantage of current low interest rates and lock in long-term financing at cheap rates, as well as extend debt maturities, reducing refinancing risks.

Infrastructure & Project Finance

Spanish Utilities: Further Regulatory Reform Likely Despite Measures To Eliminate Tariff Deficit Spanish utilities’ earnings have been cut as a result of a significant raft of measures implemented in 2012 and early 2013 by the Spanish government designed to eliminate the tariff deficit. Regulatory risk remains for the Spanish utilities as a result of the government’s recent announcement that additional measures will be needed, against a background of weak electricity demand, variable electricity prices and still high fixed costs.

RESEARCH HIGHLIGHTS Notable research published the week ending 26 April 2013

36 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Financial Institutions

A Peer Comparison of BRIC’s Leading Banks Despite common features, the four largest BRIC banks – Banco do Brasil S.A. (BB), Sberbank, State Bank of India (SBI) and Industrial & Commercial Bank of China Ltd (ICBC) – have diverging credit quality with deposit ratings ranging from Baa3 to A1. The difference in ratings is primarily explained by the respective national governments’ different capacity to provide extraordinary systemic support, rather than significant differences in these banks’ standalone credit profiles.

Danish Banks: SIFI Rules Offer Limited Strengthening To Danish banks

Recent recommendations by Denmark’s Committee on Systemically Important Financial Institutions (SIFIs) included increased capital requirements. We believe that these are credit positive for senior creditors of institutions designated as SIFIs, since it ‘locks in’ higher levels of capital. Still, improvements since the financial crisis mean that the impact of these recommendations on SIFIs’ credit profile will be limited.

Canadian Life Insurance Industry Outlook Stable

Our expectation of modestly improving economic fundamentals, in conjunction with a favorable industry structure demographics, recent hedging of market exposures and realignment of product offerings supports a stable outlook. But downside risks persist, including persistently low interest rates, continued weakness of the US economic recovery, the ongoing sovereign banking crisis in the Euro area, and a worsening slowdown in emerging markets.

Ultra-loose Monetary Policy Means More Problems For Japanese Life Insurers

The monetary-easing measures announced by the Bank of Japan on 4 April targeting lower long-term interest rates will have several credit negative effects on Japanese life insurers, including a reduction in economic capitalization, exacerbation of negative yields and reinvestment risk and delays in efforts to reduce duration mismatches.

RESEARCH HIGHLIGHTS Notable research published the week ending 26 April 2013

37 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Sovereigns

Indian Infrastructure: Increased Private Investment Would Benefit Sovereign Credit Profile

We believe that the current state of policy change and international financing conditions tip the scales in favor of infrastructure expansion, within the context of robust and rising domestic demand. India’s infrastructure is weaker than in comparable emerging markets, which hurts the competitiveness of its export and import-competing sectors and thus widens its trade and current account deficits.

Spain

Spain’s Baa3 government bond rating is based on our assessment of its economic strength as moderate, its institutional strength as high, its government financial strength as low and susceptibility to event risk as high. The short-term outlook for the economy is negative, while there is significant uncertainty over the outlook for growth medium term.

Bangladesh

Bangladesh’s1 Ba3 sovereign rating is mainly supported by strong and stable growth. Government financial performance is mostly in line with that of its rating peers and progress has been made recently on fiscal reforms. Balance of payments pressures have eased since last year and inflation has stabilized.

Thailand

Thailand’s Baa1 government bond rating is based on moderate levels of economic and institutional strength, a high degree of government financial strength, and a low to moderate susceptibility to event risk. Thailand’s large and diversified economy, characterized by strengths in moderate value added manufacturing, tourism, and agricultural exports, has recovered from the cyclical shock caused by flooding in the second half of 2011.

US Public Finance

US Not-For-Profit Healthcare Quarterly Ratings: Small Hospitals Dominate Downgrades in First Quarter 2013

During the first quarter of 2013 we downgraded six ratings in the not-for-profit healthcare sector and upgraded three ratings. Five of the six downgraded ratings were on smaller hospitals with less than $500 million in revenues, suggesting that the most vulnerable providers are those with limited financial resources, which may be unable to absorb the reimbursement pressures facing the industry.

The Sequester Series: Limited Impacts on Local Governments

Only a few, isolated local governments are likely to experience significant negative pressure on their finances because of the ongoing federal sequestration. Sequestration will strain the US economy to some extent, but any material impact on regional economies will be limited to areas with substantial dependence on defense spending or health care. In these regions, local governments relying on revenues from income taxes and sales taxes may face some budget pressures as layoffs, furloughs, and hiring freezes reduce disposable income and consumer spending.

RESEARCH HIGHLIGHTS Notable research published the week ending 26 April 2013

38 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

Structured Finance

Russian RMBS: Performance Will Be Stable Through 2013

The presence of government-backed RMBS purchase programmes primarily explains the stability and renewed growth of the Russian RMBS market. This performance stability, as well as improving origination and servicing standards, underpins our stable outlook. The Russian RMBS market has grown significantly since the end of the 2008-09 financial crisis and has reached record levels due to new entrants and new products. The use of credit bureaus is also becoming standard practice, which greatly improves the quality and quantity of information available.

US REITs: Multifamily Sector Set to Cool After Two Hot Years

Our outlook for the sector remains stable, and our outlook for REITs multifamily sector's fundamentals continues to be positive. However, any further improvement in the sector will be more gradual through the rest of this year and into next as sector fundamentals are set to cool after two strong years. The strong performance in recent years was as a result of the recovery in occupancies and rents, growth in new household formation despite weak job growth, and uncertainty about the single-family market.

ABS Spotlight

In this issue of our newsletter, we offer the first in a series of articles on solar panels, a potential new asset class for ABS. We also show how President Obama’s 2014 budget plan will affect private student loan securitizations and how auto floorplan ABS will withstand falling payment rates. We also outline how US card issuers’ core profitability will continue to rise in 2013.

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

39 MOODY’S CREDIT OUTLOOK 29 APRIL 2013

NEWS & ANALYSIS Corporates 2

» FAA Approval of Boeing 787 Battery Fix Is Credit Positive » Rocket Launch Is Credit Positive for Orbital Sciences » Taminco's IPO Is Credit Positive » ABB Will Acquire Power-One for $1 Billion, a Credit Positive » Berau Coal Audit Highlights Corporate Governance

Challenges » Australian Spectrum Auctions Are Credit Negative for Telstra

and SingTel Optus

Banks 10

» Higher Insurance Coverage on Russian Bank Deposits Would Be Credit Positive

» Mongolia's Amended Foreign Investment Law Is Credit Positive for Banks

Insurers 13 » Fubon Life Will Resume Real Estate Investment, a Credit

Negative

Sovereigns 15

» Mongolia's Amended Foreign Investment Law Credit Positive

Sub-sovereigns 17 » New Federal Loans Mitigate Russian Sub-sovereign

Refinancing Risks, a Credit Positive

Securitization 18 » Japan's Installment Loan ABS Would Be Negatively Affected

by Consumer Class-Action » Australian Final Repo Eligibility Criteria Benefits RMBS

Analysis

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

David Dombrovskis

Ratings & Research: Greg Davies Final Production: Barry Hing