MOODYS.COM

4 MAY 2014

NEWS & ANALYSIS Corporates 2 » Starwood Announces Exploration of All Strategic Options, a

Credit Negative

» Iron Mountain’s Acquisition of Recall Is Credit Positive

» Ferro’s Nubiola Acquisition Is Credit Positive, Despite Use of Credit Facility

» Portucel’s Dividend Hike Is Credit Negative

» Metsä Board’s Disposal of Money-Losing Paper Mill Is Credit Positive

» Takeda's $2.7 Billion Offer to Settle ACTOS Liability Is Credit Negative

» Vedanta’s $3.1 Billion Impairment in Cairn India Tarnishes Its Acquisitive Strategy

Banks 9 » Increased in Bank Lending to Euro Area Corporates Is

Credit Positive

» Commerzbank’s Capital Increase Raises Common Equity Tier 1 Ratio Above 10%

» Russian Banks’ Low Recovery Rates Suggest Unsecured Creditors Face High Losses

Insurers 14 » Assurant Explores Strategic Alternatives for Health Division, a

Credit Positive

» Taiwan’s Guidance on Offshore Insurance Units Is Credit Positive for Domestic Insurers

Sub-sovereigns 16 » Mexico’s Income Tax Windfall Provides Temporary Relief to

States’ Oil-Related Woes

Securitization 17 » Bill Would Thwart Eminent Domain Seizures of Underwater

Mortgages in US RMBS, a Credit Positive

» Stop-Advance Feature in New US RMBS Strengthens Senior Bonds

» Higher Rents Boost Net Yield in SFR Transactions and Support Credit Performance

RATINGS & RESEARCH Rating Changes 21

Last week we downgraded Time Insurance Company, John Alden Life Insurance Company, GE Capital Interbanca, Piraeus Bank, National Bank of Greece, Alpha Bank, Sterling Mid-Holdings, DFC Finance, Greece, Trinidad & Tobago and the City of Athens Greece, and upgraded Quintiles Transnational Holdings, ForteBank, a 2014 Ally prime auto-loan ABS and a 2014 Santander subprime auto-loan ABS, among other rating actions.

Research Highlights 29

Last week we published on global pharmaceuticals, Chinese property developers, US supermarkets, US gaming, global homebuilders and property developers, Brazilian homebuilders, EMEA mining companies, US apparel and footwear, North American high-yield covenants, US corporate defaults, Australian infrastructure, US seaports, Israeli banks, Slovakian banks, Canadian banks, Chinese banks, Pakistan, euro area sovereigns, Gabon, India, Indonesia, sovereign default and recovery rates, Bangladesh, France, Michigan cities, Baltimore Maryland, US equipment ABS, UK covered bonds, Chinese SME loans, Japanese ABS, Australian RMBS, global CLOs, Greek covered bonds, UK credit card securitizations, Asian structured finance and US CMBS, among other reports.

RECENTLY IN CREDIT OUTLOOK

Articles in Last Thursday’s Credit Outlook 37

Go to Last Thursday’s Credit Outlook

NEWS & ANALYSIS Credit implications of current events

2 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Corporates

Starwood Announces Exploration of All Strategic Options, a Credit Negative Last Wednesday, Starwood Hotels & Resorts Worldwide Inc. (Baa2 stable), the owner of marquee names such as the St. Regis and Sheraton hotels, said that it is considering a full range of strategic and financial alternatives to increase shareholder value, with no options off the table. The options include an outright sale of the company to a strategic partner or financial sponsor, an asset sale of one or more of its brands, forming a real estate investment trust, acquiring other brands or a higher level of debt-financed dividends or share repurchases.

This announcement is credit negative because there is a reasonable risk that Starwood’s credit metrics will ultimately weaken over the next 24 months as a result of the review. Starwood currently carries 2.5x-3.0x lease adjusted debt/EBITDAR (using the present value of operating leases) and has a remaining $706 million share repurchase program. The latest announcement follows two years of asset sales totaling about $1.5 billion, with the latest being Starwood’s timeshare business spinoff in February this year.

We would consider downgrading Starwood’s ratings if for an extended period of time debt/EBITDA rose above 3.0x (compared with our pro forma estimate of 3.0x for fiscal 2015 for the spinoff of Starwood’s timeshare business and announced asset sales), EBIT/interest fell toward 3.25x (compared with our pro forma estimate of 4.7x for fiscal 2015), or retained cash flow/net debt declined toward 15% (compared with our pro forma estimate of 18% for fiscal 2015).

The company has not disclosed how long its review period will last, though typically these types of reviews take at a minimum a few quarters. The company’s asset sales are a part of an industry trend of hotel companies migrating toward a franchise model, which is less volatile in a recession and generates higher margins.

The announcement could negatively affect the lodging industry should Starwood be acquired by a strategic operator. The lodging industry is highly fragmented. We estimate that the three largest operators – Marriott International, Inc. (Baa2 stable), Hilton Worldwide Finance, LLC (B1 positive) and InterContinental Hospitality Group (unrated) – all currently have less than a 5% market share, with the top nine players only reaching about a 30% market share. Should one of these three companies choose to acquire Starwood, it may prompt further consolidation within the industry. However, we estimate that the acquisition of Starwood by any of these companies would only result in the combined market share of 7.0%.

We currently believe that Hilton is unlikely to acquire Starwood because it is focused on repaying the substantial debt it assumed in its $26 billion leveraged buyout in 2008. It would also signal a change in strategy for Hilton, which has primarily focused on organic growth. An acquisition of Starwood by Marriott would also mark a change in approach because Marriott has historically focused on organic growth, only making modest tuck-in acquisitions in new geographies. In addition, both Hilton and Marriott have a high level of crossover with the Starwood hotel portfolio. InterContinental Hospitality Group does not have as much crossover with Starwood and has recently acquired independent boutique hotel operator Kimpton Hotels for $430 million in December 2014.

Maggie Taylor Senior Vice President +1.212.553.0424 margaret.taylor@moodys.com

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

NEWS & ANALYSIS Credit implications of current events

3 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Iron Mountain’s Acquisition of Recall Is Credit Positive Last Tuesday, Iron Mountain Incorporated (Ba3 stable) said that it had agreed in principle to acquire Sydney, Australia-based Recall Holdings Limited (unrated) in a transaction valued at about $2.7 billion. The agreement comes after Recall rejected the company’s previous bid, which had been valued at about $1.85 billion in December.

The acquisition is credit positive for Iron Mountain because it will enhance its scale, generate significant cost savings and accelerate the company’s expansion into geographic markets with higher growth prospects than North America and Western Europe. In addition, although leverage will remain higher through 2015 – longer than we had initially expected – the predominantly stock-based acquisition consideration and cost savings will drive accelerated deleveraging upon completion of the deal. The acquisition, which the parties expect to close by late 2015 or early 2016, is subject to both companies completing due diligence and a merger agreement, and regulatory approvals.

Iron Mountain’s intention to finance the acquisition primarily with equity demonstrates management’s commitment to gradually reduce leverage toward its goal of 4x-5x (lease adjusted on a net debt basis). Assuming that Iron Mountain debt finances nearly $250 million of its free cash flow deficit on a standalone basis in 2015, and debt finances approximately $850 million of costs (including about $600 million of net debt at Recall and $180 million of the cash portion of the purchase consideration) related to the Recall acquisition, we estimate that Iron Mountain’s pro forma Moody’s-adjusted total adjusted debt/EBITDA at the acquisition’s close will equal the 5.3x level reported at first-quarter 2015.

Notably, the company’s leverage exceeds the tolerance range of up to 5x (Moody’s-adjusted) for its Ba3 corporate family rating, and has resulted from the large debt funded capital returns to shareholders in connection with its conversion to a real estate investment trust. We had expected leverage to peak at around the mid-5x range in first-quarter 2015 and then begin to decline based on the company’s plans to reduce leverage to its targeted range by increasing the use of equity to finance its growth. However, equity issuances have not materialized. We estimate that Iron Mountain’s dividends of approximately $525 million in 2016 after the Recall acquisition and its capital expenditures to support its growth initiatives will result in an annual funding shortfall of $250-$280 million over the next two years. We expect Iron Mountain to issue at least $200-$250 million of equity each year over the next two years to reduce and maintain leverage below 5x, the upper end of the company’s targeted range.

The acquisition would consolidate Iron Mountain’s main competitor in several key markets and strengthen its position in the document storage markets in North America, Western Europe and Australia. The company would benefit from greater exposure to the faster-growing small and midsize enterprise segment of the market in the US, where Recall performs well. The acquisition will accelerate Iron Mountain’s expansion into Asia-Pacific markets, where outsourcing of document storage by enterprises is in the initial stages relative to the more mature North American and Western European markets. The company has identified $125-$140 million of annual synergies that it expects to achieve in six years after the close of the acquisition. The synergies will mainly stem from the consolidation of storage capacities and operations in the North America and Western Europe and G&A cost savings.

We expect that the proposed acquisition will draw heightened regulatory scrutiny in multiple jurisdictions. In addition, although Iron Mountain has a track record of integrating acquisitions, this would be its largest acquisition. The regulatory review and the challenges of integrating the operations over a large footprint will consume management’s attention over the next several quarters.

However, offsetting those risks is Iron Mountain’s leading market position in the highly fragmented North America storage and records management market, its pricing power that has historically augmented its low-single-digit organic volume growth, predictable storage rental revenues and its good business execution through cost reductions and higher customer retention rates.

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

NEWS & ANALYSIS Credit implications of current events

4 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Ferro’s Nubiola Acquisition Is Credit Positive, Despite Use of Credit Facility Last Wednesday, Ferro Corporation (Ba3 stable) said that it was buying Nubiola Pigmentos (unrated), a global producer of specialty inorganic pigments, for €146 million ($160 million). The acquisition, for which Ferro is paying a reasonable transaction multiple, is credit positive for Ferro because Nubiola’s business is complementary and expands its geographic footprint.

We estimate that Nubiola generated EBITDA of $23 million last year, and has achieved compound annual growth of 4.1% since 2011. The $160 million price that Ferro is paying equals an EBITDA multiple of 5.0x, including Ferro’s expectations for synergies of more than $8 million from integrating Nubiola’s back-office support, and realizing operational, commercial and purchasing synergies within two years of the transaction’s close. Without the synergies, the EBITDA multiple of 7.0x is still low compared with recent market transaction multiplies of 9.0x or more. Ferro’s management expects the acquisition to be accretive to earnings and expects to achieve a return on invested capital of 12%, or 15% including synergies.

Ferro’s financing scheme for Nubiola will moderately increase debt temporarily, since the company will borrow from its $200 million revolving credit facility to supplement its balance sheet cash of $105 million as of 30 March 2015. Although details of the funding have not been announced, we estimate that the revolver borrowings will be repaid within 12 months with cash generated from operations.

Ferro believes that Barcelona, Spain-based Nubiola, which had sales of $119 million in 2014, will help expand its product portfolio by adding Nubiola’s inorganic pigments business, focused on the plastics and construction industries, to its existing inorganic pigments business, whose specialty is glass and metal coatings. Through Nubiola, Ferro gains the world’s largest producer of Ultramarine Blue, which is prized as the most widely used pigment in the plastics industry, and a global producer of specialty iron oxides, chrome oxide greens and corrosion inhibitors. Nubiola contributes a US-based technical lab and a China joint venture to Ferro’s global presence and adds production facilities in Spain, Colombia, Romania and India to Ferro’s footprint, with Colombia and Romania becoming new physical locations.

During the past nine months, Ferro has invested more than $280 million in acquisitions that target higher-margin businesses with stronger market positions, which it expects will increase EBITDA by $60 million following the realization of synergies. The Nubiola transaction, which Ferro expects to close by 30 June, is the latest in Ferro’s ongoing effort to make strategic acquisitions that bolster its expertise in glass-based performance coatings and color solutions, offer geographic expansion, add higher-value products and enhance technical design and product development.

Ferro’s other recent acquisitions include the February 2015 purchase of TherMark Holdings, Inc. for $5.5 million, the September 2014 purchase of Vetriceramici S.p.A. for $108 million, and a 2014 deal for distribution assets in Turkey. Meanwhile, Ferro’s has raised $238 million from the sale of its specialty plastics and polymer additives businesses, which had previously contributed EBITDA of $40 million. The company used cash gains from the divestments to partially finance the aforementioned transactions.

Ferro produces specialty materials including coatings, enamels and pigments for customers in the building and construction, automotive, electronics, appliance and industrial products industries. After almost two years of restructuring, Ferro has sharpened its focus on its core expertise in pigments, glass, ceramic and metal coatings. We expect that Cleveland, Ohio-based Ferro will continue to execute its growth strategy by making small and midsize acquisitions and joint venture investments that it will fund with cash balances, revolver borrowings and cash generated from operations.

Lori A. Harris Assistant Vice President - Analyst +1.212.553.4146 lori.harris@moodys.com

NEWS & ANALYSIS Credit implications of current events

5 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Portucel’s Dividend Hike Is Credit Negative Last Wednesday, Portucel, S.A. (Ba3 stable), a Portuguese producer of office paper, market pulp and energy, said that its shareholders had approved a plan to pay dividends totalling €310.5 million this year. The payout is 55% higher than the €200.8 million that Portucel paid out last year and will help Semapa (unrated), Portucel’s 76% shareholder, fund its upcoming debt maturities. This dividend hike is credit negative for Portucel.

The dividend increase, combined with new strategic and capital-intensive projects, will result in high negative free cash flow during the next two years, a situation that will be exacerbated by Portucel’s plan to make debt repayments totalling €305 million this year. However, we expect the company’s current liquidity (comprising €499.5 million of cash and other liquid assets as of the end of December 2014) and access to capital markets for additional funding to support its credit metrics throughout this period. Moreover, we expect that Semapa will become less dependent on Portucel following the debt reduction, which should result in lower dividend requirements from Portucel starting in 2017.

Portucel initiated a strategic review of its business following the appointment of a new CEO in 2014. The review concluded in mid-February 2015, with the company’s management announcing a three-year restructuring plan to restore profitability amid lower paper and pulp prices.

The plan primarily involves substantially increasing capex to diversify away from its currently narrow product focus on the uncoated wood free market, which has poor growth prospects, into new growth areas, such as tissue and pellets. The strategic plan includes investing approximately $110 million in a greenfield pellets production plant in the US, entering the tissue market through acquisitions (it recently acquired 30,000 tons of tissue capacity in Portugal) and organic growth, and incorporating its existing and growing pulp operations into its growing tissue operations.

For the 12 months ended 30 September 2014, Portucel generated sales of €1.5 billion and Moody’s-adjusted EBITDA of €321.4 million (21% margin). The company employs more than 2,200 at two integrated paper mills and a pulp mill in Portugal. Semapa has been solely dependent on sizable cash dividends from Portucel, a factor that has constrained Portucel’s rating.

Matthias Volkmer Vice President - Senior Analyst +49.69.7073.0758 matthias.volkmer@moodys.com

Dirk Steinicke Associate Analyst +49.69.7073.0949 dirk.steinicke@moodys.com

NEWS & ANALYSIS Credit implications of current events

6 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Metsä Board’s Disposal of Money-Losing Paper Mill Is Credit Positive Last Wednesday, Finland’s Metsä Board Corporation (B1 positive), a leading producer of European primary fibre paperboard, said that it had agreed to sell 100% of its shares in Metsä Board Zanders GmbH, which contains the loss-making business operations of its Gohrsmühle paper mill in Germany, to German industrial holding company Mutares AG (unrated) and its partner company. The transaction is credit positive for Metsä Board because it will improve its margins and leverage.

Although the divestment will reduce Metsä Board’s sales by €90 million, it will improve the company’s operating results by approximately €20 million over 2014 levels, while avoiding sizable closure costs that could have totalled as much as €50 million. Consequently, Metsä Board’s EBITDA margins will increase on a pro forma basis to around 10.9% from 9.5% as of December 2014, and debt/EBITDA will decrease to 4.1x from 4.5x. The company expects the deal to close by the end of May, pending German regulatory approvals. The Gohrsmühle mill has around 480 employees and its main products are cast coated and label papers.

The transaction complements Metsä Board’s strategy of repositioning itself by investing in paper-related segments outside the European paper market. The company aims to fully replace its remaining traditional paper volumes by expanding its more profitable paperboard (carton and linerboard) production by the end of 2017. Metsä Board’s strong financial performance in 2014 reflects its ongoing success in offsetting the accelerated decline in paper volumes by increasing paperboard exports outside Europe, in particular to North America, where demand is growing for its virgin fibre linerboard and lightweight folding boxboards.

Although Metsä Board’s investments in paperboard production capacities will increase in the coming years, we expect its credit metrics to continue to gradually improve. Proceeds from the company’s recent €100 million rights issue will partially fund its business transformation, which includes increasing its folding boxboard production capacity, exiting loss-making paper operations and providing liquidity to fund an investment in associate company Metsä Fibre.

In addition to being a leading European primary fibre paperboard producer, Metsä Board also produces office paper and coated papers and market pulp. In 2014, the company generated sales of approximately €2.0 billion. Metsä Board currently has 3,100 employees and is majority-owned by parent company Metsäliitto Cooperative, which itself is owned by about 125,000 Finnish Forest owners.

Matthias Volkmer Vice President - Senior Analyst +49.69.7073.0758 matthias.volkmer@moodys.com

Dirk Steinicke Associate Analyst +49.69.7073.0949 dirk.steinicke@moodys.com

NEWS & ANALYSIS Credit implications of current events

7 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Takeda’s $2.7 Billion Offer to Settle ACTOS Liability Is Credit Negative Last Tuesday, Takeda Pharmaceutical Company Limited (A1 stable) agreed to settle lawsuits related to its type 2 diabetes drug ACTOS, and took a $2.7 billion charge in the fiscal year ended 31 March 2015. Because of the settlement, we expect Takeda to book a net loss (its first since going public in 1949) of around ¥145.0 billion ($1.2 billion) for the fiscal year. The cash outflow will also reduce Takeda’s ability to compete for attractive acquisition opportunities in the pharmaceutical market.

Additional claims that ACTOS caused bladder cancer, in addition to those covered by the agreement, could still be filed against Takeda. The agreement, which follows a US federal jury’s April 2014 order that Takeda and Eli Lilly and Company (A2 stable) pay a combined $9 billion in damages – an award that the court later reduced to $36.8 million – would offer a payment of close to $296,000 per plaintiff, according to our estimate. Based on trends observed in the past four years since the first lawsuit was filed in 2011, the final number of US cases could eventually exceed 9,000. We expect that the offer will only be valid if 95% or more of all plaintiffs participate in this deal, and waive all their ACTOS-related claims against Takeda.

As of 31 December 2014, Takeda had ¥781.5 billion ($6.5 billion) of cash and cash equivalents, ¥731.1 billion ($6.1 billion) of long-term bonds and loans and ¥181.8 billion ($1.5 billion) of short-term debt due for repayment in 12 months from the reporting date. The settlement will leave sufficient liquidity to repay ¥101.0 billion of maturing debt in the fiscal year ending 31 March 2016 and ¥179 billion the following fiscal year, but Takeda will no longer have a comfortable net cash position on its balance sheet.

ACTOS (generic name: pioglitazone) improves blood sugar control in adults with type 2 diabetes and is still sold in more than 95 countries, including the US. Takeda launched ACTOS in 1999, and it soon became the company’s major revenue and profit contributor until its US patent expired in 2011 (see exhibit).

ACTOS Was Takeda’s Major Revenue and Profit Contributor Until 2011

Sources: Company reports and Moody’s Financial Metrics

Although this settlement offer will cost Takeda substantially and is credit negative, it puts a rough number on what investors otherwise perceive as an uncapped liability. It will also allow Takeda to focus on its new pharmaceutical development strategy.

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Takeda Revenue - left axis Adjusted EBITDA Margin - right axisProportion of Revenue from Actos - right axis

Kailash Chhaya Vice President - Senior Analyst +81.3.5408.4201 kailash.chhaya@moodys.com

NEWS & ANALYSIS Credit implications of current events

8 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Vedanta’s $3.1 Billion Impairment in Cairn India Tarnishes Its Acquisitive Strategy Last Wednesday, Vedanta Ltd. (unrated) announced that it had taken an INR191.8 billion (around $3.1 billion) impairment on its $8.7 billion acquisition of Cairn India Ltd. (CIL, unrated) to reflect its expectation that oil prices will remain weak for some time. Vedanta Ltd. owns 59.9% of CIL, which it purchased in 2011. The $3.1 billion impairment is credit negative for Vedanta Resources Plc (Vedanta, Ba1 negative), which owns 62.8% of Vedanta Ltd., because it implies a longer payback period for the acquisition and increases the challenge of repaying $4.4 billion of acquisition debt financing from its operating cash flow.

Vedanta Ltd.’s massive impairment – one of the biggest in corporate India’s history and 35% of the original acquisition price – highlights the eroded value of its oil and gas assets since 2011.

The $3.1 billion impairment reflects the high price that Vedanta paid for CIL at the peak of the oil and gas cycle, when Brent crude prices exceeded $100 per barrel. On Friday, the closing price was $66 per barrel. Although the non-cash write-down will not immediately affect key credit ratios, it reflects the lasting effect of the lower oil prices on Vedanta’s business profile, which underpinned our change to its rating outlook to negative from stable in January.

Vedanta’s investments in CIL will take longer to recoup. Since its acquisition of CIL in December 2011, Vedanta has received some $250 million in upstreamed dividends from CIL, which have been used to service the acquisition debt. As reflected by the impairment, Vedanta’s investment in CIL will reduce cash flow, making it more difficult for Vedanta to pay down debt.

We expect Vedanta’s leverage to remain above the 3.5x-4.0x range for at least the next two years. The sharp drop in crude oil prices by almost 50% to an average of $56 per barrel since January 2015 from $100 at 31 March 2014 has eroded CIL’s EBITDA by 60% to $1.4 billion in the fiscal year ended 31 March 2015 from $2.4 billion in fiscal 2014. Without accounting for a $3.2 billon disputed tax bill dating to 2007, we expect its debt/EBITDA to climb above 4.3x in fiscal 2016 from around 4.0x in fiscal 2015 and 3.3x in fiscal 2014.

Vedanta has no major debt maturing until June 2016, alleviating any short-term liquidity pressure. However, the company has to maintain tight cash management. CIL’s decision earlier this year to slash capital expenditures by 60% to $500 million for fiscal 2016 from an earlier $1.2 billion plan helps minimize the effect on its weak operating cash flow generation. But Vedanta’s complex holding structure, with most of the debt issued by entities that do not generate cash, makes debt servicing and repayment solely reliant on the indirect upstreaming of dividends from CIL and Hindustan Zinc Limited (unrated).

As a result, the negative pressure on Vedanta’s Ba1 rating continues to build and sets high expectations from its non-oil businesses to perform to partially mitigate the effect of low oil earnings from CIL.

Kaustubh Chaubal Vice President - Senior Analyst +65.6398.8332 kaustubh.chaubal@moodys.com

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

NEWS & ANALYSIS Credit implications of current events

9 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Banks

Increased in Bank Lending to Euro Area Corporates Is Credit Positive Last Wednesday, the European Central Bank (ECB) released data showing that bank lending to non-financial corporations in the euro area increased 0.9% in first-quarter 2015 versus fourth-quarter 2014 – the largest quarterly increase since January 2009 (see Exhibit 1). This credit-positive increase signals improved capacity by banks to lend and corporations’ greater willingness to borrow and spend, both of which benefit issuers in the region.

EXHIBIT 1

Quarter-to-Quarter Growth of Euro Area Bank Lending to Corporates

Source: Haver Analytics

The first-quarter increase in lending was broad across multiple countries. Bank lending increased in 12 of the 19 euro area countries (see Exhibit 2). Lending increases were more pronounced among so-called core euro area countries, but also picked up in some peripheral countries. Bank lending increased by 0.3% in Italy (Baa2 stable), while lending declined by 0.4% in Portugal (Ba1 stable) and by 0.8% in Spain (Baa2 positive). Although Portugal and Spain reported lending declines, their first-quarter figures were an improvement over average quarterly declines since January 2012 of 2.5% for Portugal and 3.5% for Spain.

EXHIBIT 2

Number of Euro Area Countries with Increasing Lending to Corporations

Note: The chart refers to the current 19 members of the euro area, although more have joined recently. Source: Haver Analytics

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Ruosha Li Analyst +44.20.7772.8638 ruosha.li@moodys.com

NEWS & ANALYSIS Credit implications of current events

10 MOODY’S CREDIT OUTLOOK 4 MAY 2015

The increase in lending to the corporate sector echoes a general easing of credit standards and higher demand for loans by corporates, as indicated by the latest ECB’s bank lending survey. This improvement in lending is also consistent with somewhat higher economic growth, spurred by lower oil prices, a weaker euro and monetary stimulus.

Since the start of the euro area crisis, bank lending – the main source of external corporate funding in the euro area – has declined. Outstanding loans to euro area NFCs decreased by 12% between January 2009 and December 2014. Banks reduced lending to the private sector, especially to the corporate sector, to meet greater capital requirements and as a response to higher credit risk in a low or negative growth environment. Lending has also been dampened by lower demand for loans, as businesses cut investment spending in the face of muted growth prospects. As such, signs of broad-based increases in lending to corporates suggest that banks are now more willing to lend, and that corporates are increasingly willing to borrow. This points to strengthening in the recovery and higher economic growth in the euro area, a credit positive for issuers.

NEWS & ANALYSIS Credit implications of current events

11 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Commerzbank’s Capital Increase Raises Common Equity Tier 1 Ratio Above 10% Last Tuesday, Commerzbank AG (Baa1 positive/Baa1 review for downgrade, ba11) issued 113.85 million new shares, or 10% of its share capital before the issuance, resulting in gross proceeds of €1.4 billion. Commerzbank placed the shares with institutional investors via an accelerated book-building. The proceeds raised the bank’s pro forma fully loaded common equity Tier 1 (CET1) ratio to 10.2% from 9.5% as of 31 March, a credit positive. Commerzbank’s pro forma fully loaded CET1 ratio is now above its target of 10% sooner than the bank had projected (see exhibit).

Commerzbank’s Capitalization, 2011 to First-Quarter 2015

Source: Commerzbank

The issuance came a day after the bank published strong preliminary first-quarter results that reflected strong customer and capital markets activity and positive valuation effects. In particular, Commerzbank’s top line increased significantly, with revenues rising to €2.8 billion in first-quarter 2015 from €2.3 billion a year earlier, helped by capital markets tailwinds. The bank’s operating profit rose to €685 million from €324 million a year earlier. We note that the bank was able to post a strong result despite the partial write-down of its €400 million exposure to Heta Asset Resolution AG (backed senior unsecured debt Ca negative).

The positive quarterly results indicate that Commerzbank is benefiting from the current market environment. However, we believe that recording such favourable results on a recurring basis will be challenging given the pressure on margins from low interest rates. Also, we expect the bank to post higher loan-loss provisions on a sustained basis than the €158 million reported for first-quarter 2015, a level that is significantly below the bank’s average €379 million of quarterly provisions during the past three years and lower than any other quarter during that period.

As of 2014, the bank’s cost-income ratio in its core bank was 77.1%, significantly above its target ratio of 60%. So far, the bank has only announced that it would strive to maintain the bank’s €7.0 billion cost base constant. As a consequence, the bank will only be able to achieve its profitability targets if it is able to consistently increase revenues. Otherwise, the bank must lower its costs to achieve its efficiency metric targets.

Commerzbank’s capital increase closes a capitalization gap with its European peers, which all have fully loaded CET1 ratios of 10% or more. At the same time, market consensus on the capital levels required in the current market environment are still evolving and some of the bank’s competitors show significantly higher capitalization rates, partly to accommodate riskier business profiles.

1 The bank ratings shown in this report are Commerzbank’s deposit ratings and senior unsecured debt ratings and outlooks, and their

baseline credit assessments.

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Mathias Kuelpmann, CFA Senior Vice President +49.69.70730.928 mathias.kuelpmann@moodys.com

NEWS & ANALYSIS Credit implications of current events

12 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Russian Banks’ Low Recovery Rates Suggest Unsecured Creditors Face High Losses Last Monday, the Central Bank of Russia (CBR) published a report on bank liquidations showing that bank creditor recovery rates are low. Low recovery rates from already-completed liquidations (usually a multi-year process following a license revocation) are credit negative for unsecured creditors of banks whose licenses have been recently revoked because it strongly suggests they are likely to suffer significant losses as well.

According to CBR data, recoveries across all bank creditor classes were only 33.0% among banks whose liquidations were completed in 2014. For unsecured creditors, recoveries in 2014 were 21.6% (see Exhibit 1). Low recovery rates reflect weak asset quality before a liquidation. By asset type, average historical recoveries between 2005 and 2014 on fixed assets of liquidated banks were 67.0%, while recoveries on securities were 5.0%, recoveries on loans to customers were 11.3%, recoveries on interbank loans and correspondent accounts were 20.8%, and recoveries on other assets were 11.7%.

EXHIBIT 1

Weighted Average Recovery Rates on Liquidated Russian Banks 2005-14 Year of Completed Liquidation

Number of Liquidated Banks

Recovery Rate to All Creditors

Recovery Rate to Unsecured Creditors*

2005 18 2.98% 1.23%

2006 24 13.57% 5.52%

2007 55 20.85% 17.53%

2008 54 44.13% 42.74%

2009 27 26.29% 25.01%

2010 16 31.16% 3.76%

2011 17 63.96% 68.85%

2012 16 6.83% 5.86%

2013 23 34.42% 7.19%

2014 33 32.97% 21.61%

2005-14 283 24.6% 12.6%

Note: * Unsecured creditors are low-ranking creditors, according to applicable bankruptcy law, and include legal entities and private entrepreneurs. Source: Central Bank of Russia

The low recoveries are noteworthy because the number of Russian banks losing their licenses (and subsequently facing liquidation) has increased substantially since mid-2013, when Elvira Nabiullina became head of the CBR and authorities accelerated their efforts to clean up the banking sector.2 The number of banks awaiting liquidation increased markedly after the CBR revoked the licenses of no fewer than 90 problematic banks in 2014 and the first four months of 2015, excluding entities liquidated as a result of mergers and acquisitions (see Exhibit 2).

2 See Russian Central Bank Continues to Shut Down Problematic Small Banks, a Credit Positive, 20 April 2015.

Lev Dorf Assistant Vice President - Analyst +7.495.228.6056 lev.dorf@moodys.com

NEWS & ANALYSIS Credit implications of current events

13 MOODY’S CREDIT OUTLOOK 4 MAY 2015

EXHIBIT 2

Central Bank of Russia’s Bank License Revocations

Sources: Central Bank of Russia and Banki.ru

Among the banks awaiting liquidation, relatively large cases include Mezhprombank, ranked 30th by assets as of June 2010; Masterbank, ranked 72nd as of September 2013; and SB Bank, ranked 84th by assets as of year-end 2014. We downgraded SB Bank to C from Ca in February 2015 and ultimately withdrew our rating. On 20 April, Russia’s Arbitration Court had declared SB Bank bankrupt and determined that creditor claims exceeded the market value of the bank’s assets by three times, which suggests a recovery rate of around 30% or less.

Lengthy and inefficient collateral repossession and resolution procedures in Russia make it difficult for creditors to exercise their claims in a timely manner, forcing them to accept large haircuts. Some banks have also engaged in asset-stripping ahead of their license revocations, for example lending to shell companies or financing purported investment projects that do not actually generate cash, leaving fewer assets for creditors to pursue in liquidation.

Although most institutions that the CBR has forcibly liquidated have been smaller banks outside the top 100 by assets, the sheer number of recent license withdrawals suggests that the problems, including dubious transactions, misrepresentations of financial statements and excessive credit risk and fraud, are not confined to just a few pockets of the banking system. We note that Russia’s related-party lending is among the highest globally,3 which can indicate poor corporate governance when it reflects banks that lend heavily to their key shareholders.

3 See 2013 Survey of Russian and CIS Banks’ Single-Client and Related-Party Concentrations, 13 November 2013.

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NEWS & ANALYSIS Credit implications of current events

14 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Insurers

Assurant Explores Strategic Alternatives for Health Division, a Credit Positive Last Tuesday, Assurant Inc. (Baa2 stable) announced that it would explore strategic alternatives for its Health division. The announcement is credit positive for Assurant because the division reported significant net operating losses in 2014 of $64 million and first-quarter 2015 losses of $80-$90 million.

The company is looking to sell the health business, but absent a sale the company said that it planned to substantially exit the health business by 2016 anyway. There are a number of factors that will influence whether Assurant Health is ultimately sold or allowed to run off, among them the profitability and long-term viability of its individual and small group medical businesses under the requirements of the Affordable Care Act (ACA), in effect since October 2013.

Under the ACA, no underwriting is allowed, and unlimited annual and lifetime coverage are required, resulting in a higher cost of coverage and a sicker pool of insureds. Assurant Health has experienced widening losses through first-quarter 2015 owing to a reduction in its estimated 2014 recoveries from ACA risk-mitigation programs (the reinsurance, risk-adjustment and risk corridor programs widely known as “the three Rs”4) and elevated claims on 2015 ACA policies, among other factors. There is significant uncertainty about future reimbursements from the three Rs for the remainder of 2015.

In addition, although sales of ACA-compliant products continued to rise during fourth-quarter 2014, Assurant Health faces pressure on its market presence and competitive advantage as small employers pare back paid benefits they offer to their employees.

The company also plans to sell its Employee Benefits segment, which has been a relatively stable source of net operating income in recent years (averaging about $50 million over the past five years). A sale of this business, which is well established in the dental insurance market and provides other products such as group disability, group life and voluntary insurance products, would reduce the company’s revenue and earnings diversification. Employee Benefits contributed approximately 12% of revenues and 11% of pre-tax operating earnings in 2014. In addition, Employee Benefits’ net operating income has covered almost 1x of Assurant’s interest expense ($58 million in 2014) in recent years.

The credit implications of a sale of the Employee Benefits segment will be determined by how the company uses the sale proceeds. Possible uses include returning capital to shareholders, acquisitions, deployment in existing lines of business and retirement of debt. Employee Benefits book value was $541 million as of 31 December 2014.

4 The Affordable Care Act established these programs to protect the health insurance industry against the negative effects of adverse

selection (high enrollment by sicker individuals who will require the most costly care) and insurer risk selection (attempts by some insurers to attract healthier policyholders). The risk-adjustment program redistributes funds from insurers with low-risk policyholders to high risk ones. The reinsurance program pays plans that enroll higher cost individuals. The risk corridors program limits losses and gains beyond prescribed ranges. The reinsurance and risk corridor programs are only available during 2014-16. The risk-adjustment program is permanent.

Jasper Cooper, CFA Assistant Vice President - Analyst +1.212.553.1366 jasper.cooper@moodys.com

Rokhaya Cisse, CFA Associate Analyst +1.212.553.3870 rokhaya.cisse@moodys.com

NEWS & ANALYSIS Credit implications of current events

15 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Taiwan’s Guidance on Offshore Insurance Units Is Credit Positive for Domestic Insurers Last Tuesday, Taiwan’s Financial Supervisory Commission released draft guidance that allows domestic insurers to sell policies through their offshore insurance units, including to customers visiting from mainland China, and sets financial strength and business processes requirements for these units. This guidance is credit positive for Taiwan’s life insurers because it will allow insurers to expand their business beyond the highly competitive and mature domestic market, thereby contributing to revenue and profitability. We expect the offshore insurance units to target wealthy customers, mostly from mainland China.

The positive credit implication hinges on balancing business opportunities with risk management issues such as complications around risk underwriting, anti money laundering rules and customer servicing and retention. Taiwan’s relatively low premium rates are partly driven by the country’s demographic features, such as a high life expectancy. The lack of claims experience associated with offshore customers introduces uncertainty in risk underwriting, and aggressive pricing risks eroding profitability. Taiwanese insurers will also incur additional costs in addressing cross-border anti money laundering measures and Know Your Customer processes.

In Taiwan, the opportunity for domestic life insurance sales growth is constrained by a high insurance penetration rate and low protection gap. Taiwan’s life insurance penetration rate – as measured by premium as a percentage of GDP – was 15% in 2013, the highest globally, compared with 8%-12% in other developed Asian markets such as Hong Kong, Japan and Korea. According to a Swiss Re study, the protection gap in Taiwan is one of the lowest in Asia, further constraining demand for protection products. The competitive market has also kept the industry’s return on capital at a low average of around 2% during 2009-13.

Wealth accumulation in foreign currency is an attractive proposition for wealthy mainland Chinese. Other key drivers include access to convertible currencies such as US dollars or Hong Kong dollars, competitive pricing and taxation benefits. Although China’s life insurance pricing liberalization may exert downward pressure on premium rates, the previously mentioned structural drivers will continue to drive demand for offshore businesses.

Offshore insurance units from Taiwan will face stiff competition from rivals in Hong Kong, which has a well-established industry and competitive premium rates. A significant part of the recent growth in the Hong Kong life insurance market, which has grown to become the largest offshore insurance hub in Greater China, has been sales to mainland customers. In 2014, individual life new business generated offshore contributed 30% of annualized premiums and 40% of single premiums written. Working in major Taiwan life insurers’ favor, however, is that they can leverage their large domestic operations to keep expense ratios at relatively low levels.

Eric Yau CFA, FSA Assistant Vice President - Analyst +852.3758.1460 eric.yau@moodys.com

NEWS & ANALYSIS Credit implications of current events

16 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Sub-sovereigns

Mexico’s Income Tax Windfall Provides Temporary Relief to States’ Oil-Related Woes Last Thursday, Mexico’s Ministry of Finance presented its first-quarter budget execution report. The results show higher-than-expected income tax revenue, with income tax collection for first-quarter of 2015 of MXN83.3 billion ($5.4 billion), or 28.8% higher than forecasted in the Ministry of Finance’s 2015 budget monthly schedule (see exhibit). Some of the windfall is from one-off effects of a 2013 fiscal reform aimed at reducing tax deductions and tax consolidation benefits for corporates.

Mexican States’ Monthly Income Tax Forecast and Actual Collection, 2008-15

Source: Mexico’s Ministry of Finance

However, the benefits of this onetime windfall are temporary and only partially compensate long-term challenges related to participaciones transfers, which are non-earmarked transfers to states partly based on oil revenues. Participaciones constitute 35% of Mexican states’ revenues on average and are the main source of debt payment for Mexican regional and local governments.

Oil production will remain lower than forecasted in the 2015 budget, impaired by an accident on the Abkatun Permanente platform in early April. Another factor is the recent depreciation of the Mexican peso to MXN15.22 per US dollar from MXN14.73 at 1 January 2015. This depreciation has reduced the benefits of the Special Tax on Services Production (Impuesto Especial a la Producción de los Servicios, or IEPS), an excise on fuel that acts as an automatic stabilizer when oil prices are low, and poses an additional challenge to the states. A scenario of protracted peso devaluation wherein fuel imports are more expensive in peso terms, combined with the federal government’s current policy of maintaining a maximum price on fuel in 2014, risks further reducing the collection of IEPS.

As the windfall in income taxes partly compensates the reduction in oil production, we expect the general fund of participaciones to be 1%-2% lower than the 2015 budget for all states, an improvement from our previous forecast of 5% below budget. We note that Mexican states have a fund to compensate shortfalls in participaciones transfers whose available assets equal MXN35 billion ($2.27 billion), or 5.7% of the participaciones budgeted for 2015.

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Francisco Vazquez Assistant Vice President - Analyst +52.55.1253.5735 francisco.vazquez-ahued@moodys.com

Eduardo Garcia Associate Analyst +52.55.1253.5716 eduardo.garcia@moodys.com

NEWS & ANALYSIS Credit implications of current events

17 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Securitization

Bill Would Thwart Eminent Domain Seizures of Underwater Mortgages in US RMBS, a Credit Positive Last Wednesday, the US House of Representatives’ Appropriations Subcommittee approved a bill for Transportation, Housing and Urban Development (THUD) appropriations for the fiscal year ending 30 September 2016. If passed, the bill will deter municipalities from using eminent domain to seize underwater mortgages from residential mortgage-backed securities (RMBS) transactions at distressed prices in 2016, a credit positive for RMBS. If municipalities were able to use eminent domain for such seizures in private-label RMBS, as they have discussed in the past few years,5 losses for those RMBS would increase.

The bill includes a provision that would nullify the key exit strategy to make the eminent domain plan profitable for its proponents. The provision would prevent the Federal Housing Administration, the Government National Mortgage Association and US Department of Housing and Urban Development from using funds to “insure, securitize, or establish a Federal guarantee of any mortgage or mortgage-backed security that refinances or otherwise replaces a mortgage that has been subject to eminent domain condemnation or seizure, by a state, municipality, or any other political subdivision of a state.”

Proponents of the eminent domain plan reportedly hoped to use eminent domain to force distressed sales of underwater loans and replace them with smaller government-insured mortgage loans that could be sold at a substantial profit. The bill, which appropriates funds for the agencies for fiscal 2016, would prevent key government agencies from making loans available for such purposes during that time period. Afterward, no such restriction would apply unless Congress enacts similar legislation the following year. The Fiscal Year 2015 Omnibus Appropriations Bill, which became law, included a similar provision restricting the use of agency funds in 2015.

5 See Richmond, California’s Eminent Domain Plan Is Credit Negative, but Replication Elsewhere Is Unlikely, 5 August 2013.

Yehudah Forster Vice President - Senior Credit Officer +1.212.553.7995 yehudah.forster@moodys.com

NEWS & ANALYSIS Credit implications of current events

18 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Stop-Advance Feature in New US RMBS Strengthens Senior Bonds Redwood Trust’s prime residential mortgage-backed securities (RMBS) transaction that closed on 30 April, Sequoia Mortgage Trust 2015-2, introduced a stop-advance feature that benefits senior bonds by reducing the risk of loan losses associated with servicers’ interest advances on long-delinquent loans. The stop-advance feature, which prevents a servicer from advancing principal and interest on loans delinquent 120 days or more, could also decrease the likelihood that a servicing transfer would lead to severe cash flow disruptions if the acquiring servicer recoups large amounts of outstanding advances at once. As implemented in the transaction, the feature adds a risk of interest shortfalls to senior bonds in high-delinquency scenarios, but this risk is small relative to the potential benefits.

Restricted advancing period limits cash diverted to pay junior bonds. Sequoia 2015-2 is the first transaction to limit the time over which the servicer can advance principal and interest on delinquent loans. The 120-day stop-advance requirement preserves principal recoveries for senior bonds in the event that the servicer must liquidate the property backing the loan. In prior RMBS transactions, the servicer is only required to stop advancing once it deems that further advances on the loan would be unrecoverable from eventual property sale proceeds.

A limited advancing period stops junior bonds from continuing to receive interest payments related to delinquent loans. Such a limit can be credit positive for senior bonds because the servicer can recoup interest advances from the proceeds of sales of the properties backing the defaulted loans that it advanced upon; those proceeds would otherwise go toward repaying senior bond principal. The more interest that the servicer advances, the less net recovery proceeds will be available to repay the senior bonds. The advancing limit is credit negative for junior bonds, however, because they may receive fewer interest cash flows related to delinquent loans.

Servicer transfers will be less likely to lead to cash flow disruptions. A shorter advancing period also decreases the risk of cash flow disruptions in the event of a servicing transfer, because the acquiring servicer would have fewer advances to recoup. Acquiring servicers can recoup previously made advances from loan collections if they deem those advances unrecoverable, and those recoupments can lead to shortfalls on the bonds because those collections would otherwise have gone to cover interest payments. In one example, Nationstar Mortgage LLC’s (B2 stable) advance recoupments led to shortfalls on bonds that were backed by loans it acquired from Aurora Loan Services LLC (unrated) and Bank of America, N.A. (A2/A2 review for upgrade, baa26).

Structural details add risk of interest shortfalls in some scenarios. Although Sequoia 2015-2’s stop-advance restriction is positive overall for the senior bonds, structural nuances associated with the feature can lead to senior bond interest shortfalls if there are large amounts of stop-advance loans. The shortfalls can result because the transaction structure reduces the bonds’ monthly interest entitlement by the amount of interest that accrues on the stop-advance loans without an effective mechanism to reimburse the accrued interest. An advancing restriction similar to Sequoia 2015-2’s would avoid this risk, though, if the junior-most bonds’ principal balances absorb any monthly interest shortfalls before the more senior bonds lose interest payments or if the transaction allocates liquidation proceeds to cover interest shortfalls before applying them elsewhere.

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

Peter McNally Vice President - Senior Analyst +1.212.553.3610 peter.mcnally@moodys.com

Yehudah Forster Vice President - Senior Credit Officer +1.212.553.7995 yehudah.forster@moodys.com

Ola Hannoun-Costa Vice President - Senior Analyst +1.212.553.1456 ola.hannouncosta@moodys.com

NEWS & ANALYSIS Credit implications of current events

19 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Higher Rents Boost Net Yield in SFR Transactions and Support Credit Performance Last Tuesday, the US Census Bureau released data showing that US landlords’ ability to demand higher rents for vacant rental units continues to strengthen. Higher rents will boost the net yield in single-family rental (SFR) securitizations and support the deal sponsor’s ability to meet ongoing debt service payments.

The improved cash flow also lessens the refinancing risk in these transactions because a deal sponsor’s eligibility for refinancing the loan backing an SFR transaction depends primarily on the attractiveness of the underlying properties’ cash flow. Refinancing risk, the risk a loan fails to refinance at the end of its fully extended maturity, is the greatest risk inherent in SFR transactions.

As the US economy continues to improve, landlords have been able to charge higher rents, thus increasing the amount of cash available to service debt on SFR transactions. The exhibit below shows that median asking rent for vacant rental units rose 4% to $799 in first-quarter 2015 from $766 a year earlier.

US Median Asking Rent for Vacant Residential Rental Units

Note: Bars represent US recessions. Source: US Census Bureau

The Bureau of Labor Statistics’ Consumer Price Index (CPI) for March also shows a 3.5% rise in rent for primary residences in urban areas over the preceding 12 months. This rise is notable because nearly all properties in SFR transactions are in urban areas. In contrast with this rise in rents, prices for all items in urban areas fell slightly over the same time period.

For the transactions that we rate and for which we have more than six months of performance data, we have seen that rents have risen by approximately 3% annualized. When rents increase by 3% and expenses remain the same, a transaction’s debt yield can increase by approximately 6%. Debt yield is a measure of the net cash that a portfolio generates to service debt repayment.

A steady cash flow stream from the rental properties underlying an SFR transaction will improve a sponsor’s chances of being able to refinance the large loan that backs the transaction when the loan matures. In most cases, if a sponsor is unable to refinance the loan backing the SFR transaction when it matures, the loan will enter special servicing and the special servicer will devise strategies to maximize proceeds from the value of the underlying portfolio.

Demand for rental units is driving the rise in rental prices, a trend that will continue to benefit SFR transactions over the next 12 months. As the Census Bureau survey also shows, in first-quarter 2015, vacancy rates in rental housing fell to 7.1%, a drop of 1.2 percentage points over first-quarter 2014 and their lowest point in the past 10 years. By comparison, vacancy rates for rental units peaked at 10.6% in 2010.

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Navneet Agarwal, CFA Managing Director +1.212.553.3674 navneet.agarwal@moodys.com

NEWS & ANALYSIS Credit implications of current events

20 MOODY’S CREDIT OUTLOOK 4 MAY 2015

At the same time that demand for rental units is climbing, home ownership is declining. This decline in homeownership, especially in the context of an improving economy, is also contributing to the rise in demand for rentals, as consumers who used to own a home opt to rent instead. The Census Bureau survey pegged homeownership at 63.7% in first-quarter 2015, 5.4 percentage points below its peak of 69.1% in 2005 and 1.1 percentage points lower than its level at the end of first-quarter 2014.

RATING CHANGES Significant rating actions taken the week ending 1 May 2015

21 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Corporates Alcoa Inc.

Outlook Change 29 May ‘13 30 Apr ‘15

Corporate Family Rating Ba1 Ba1

Outlook Stable Positive

The outlook change reflects Alcoa’s improving trends in earnings and debt protection metrics as evidenced by the 3.8x EBIT/interest ratio for the 12 months ended 31 March 2015, compared with 2x for the 12 months ended 31 December 2013.

DPx Holdings B.V. Outlook Change 10 Sep ‘14 29 Apr ‘15

Corporate Family Rating B3 B3

Outlook Stable Negative

The outlook change reflects the aggressive financial policies of DPx’s shareholders and the company’s willingness to operate with very high leverage. This is evidenced by the repeated re-leveraging of the business over recent years via leveraged buy-outs, acquisitions and a recently proposed significant dividend payment.

Quintiles Transnational Holdings Inc. Upgrade 24 Sep ‘14 30 Apr ‘15

Corporate Family Rating Ba3 Ba2

Outlook Positive Stable

The upgrade reflects our expectation that the company will continue to be the largest contract research organization in the world, and will benefit from organic growth and stable margins supported by favorable industry fundamentals. The upgrade also reflects our expectation that Quintiles’ scale, diversified customer base and breadth of service offerings will result in stable, consistent cash flow generation and that the company’s debt to EBITDA will generally remain between 3x and 4x.

Spectrum Brands, Inc. Review for Downgrade 20 May ‘11 29 Apr ‘15

Corporate Family Rating B1 B1

Outlook Stable Review for Downgrade

The review for downgrade reflects the increase in leverage that will result from the proposed acquisition of Armored AutoGroup Parent Inc. from Avista Capital Partners for approximately $1.4 billion. The review will focus on Spectrum Brands’ operating strategy, including details of the company’s plan to reduce leverage following the acquisition. We will also assess possible cost synergies and Spectrum Brands’ plan to improve Armored AutoGroup’s operating performance and expand its international presence.

RATING CHANGES Significant rating actions taken the week ending 1 May 2015

22 MOODY’S CREDIT OUTLOOK 4 MAY 2015

United Parcel Service, Inc. Outlook Change 16 Jan ‘13 28 Apr ‘15

Senior Unsecured Rating Aa3 Aa3

Short-Term Issuer Rating P-1 P-1

Outlook Stable Negative

The outlook change reflects the combination of our expectation of lower free cash flow generation because of a lengthy period of increased capital investment, the company’s more aggressive financial policy of funding some share repurchases with debt and the possibility that the company could continue to underperform its annual financial plans.

Infrastructure

Entergy Arkansas, Inc. Outlook Change 31 Jan ‘14 29 Apr ‘15

Issuer Rating Baa2 Baa2

Outlook Stable Positive

The outlook change follows the adoption of a formula rate plan in the state of Arkansas reflecting a new credit-supportive regulatory framework, and the announcement of a filing with the Arkansas Public Service Commission using the new formula rate plan. It reflects our expectation that the utility’s capital expenditure programs will remain manageable and financed with a balanced mix of debt and equity, and that key financial metrics, including a ratio of cash flow pre-working capital to debt, will range from mid-teens to twenties in the following 12-18 months.

Rowville Transmission Facility Pty Limited Outlook Change 30 Mar ‘10 28 Apr ‘15

Senior Secured Bonds Baa1 Baa1

Outlook Stable Positive

The outlook change reflects the facility’s continuing long track record of successful operational performance. We expect outages and performance failures to remain at the very low levels exhibited by the facility to date, which supports cash flow stability.

RATING CHANGES Significant rating actions taken the week ending 1 May 2015

23 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Financial Institutions

Ace Cash Express Outlook Change

18 Oct ‘13 29 Apr ‘15

Corporate Family Rating B3 B3

Outlook Stable Negative

The outlook change reflects the company’s deteriorating asset quality, driven by the growth of its internet lending business, which is pressuring the company’s profitability.

Assurant, Inc. and Affiliates Multiple Actions 30 Apr ‘15

We affirmed the debt ratings of Assurant, Inc. (AIZ; senior debt at Baa2), the A2 insurance financial strength (IFS) ratings of the lead operating subsidiaries of the Assurant P&C Group, and the A3 IFS rating of American Bankers Life Assurance Company of Florida (ABLAC), the credit life operating subsidiary of the P&C Solutions segment. We also affirmed the A3 IFS rating of Union Security Insurance Company, the primary subsidiary of AIZ’s employee benefits segment. We downgraded the IFS ratings of Time Insurance Company and John Alden Life Insurance Company (JALIC), which constitute the Assurant Health segment, to Baa3 from Baa2. These actions follow AIZ’s recent announcement that it is seeking strategic alternatives, including a possible sale, for both the Assurant Health and Assurant Employee Benefits businesses, in order to focus on its housing and lifestyle businesses. The rating outlook for AIZ, Assurant P&C, and ABLAC is stable. The rating outlook for Assurant Health and USIC is developing.

Community Choice Review for Downgrade 4 Oct ‘13 29 Apr ‘15

Corporate Family Rating B3 B3

Outlook Stable Review for Downgrade

The review for downgrade reflects the company’s deteriorating profitability and weakening funding profile. CCFI’s profitability has weakened because of high credit costs, which were driven by the rapid expansion of its internet portfolio in recent periods. The review will focus on the company’s strategy for returning to profitability in light of the continued expansion of online lending associated with very high credit costs, increased interest expenses on the revolving facility and cash-checking revenue pressures resulting from the proliferation of electronic services.

RATING CHANGES Significant rating actions taken the week ending 1 May 2015

24 MOODY’S CREDIT OUTLOOK 4 MAY 2015

CNG Holdings, Inc Outlook Change 7 Jul ‘14 29 Apr ‘15

Senior Unsecured Rating Caa1 Caa1

Outlook Negative Stable

The outlook change reflects the stabilizing earnings at CNG as the restructuring of the UK business has begun as planned, as well as the improving performance of CNG’s specialty finance business WhyNotLeasing, LLC.

Enova International, Inc. Outlook Change 15 May ‘14 29 Apr ‘15

Corporate Family Rating B3 B3

Outlook Negative Stable

The outlook change reflects the company’s solid credit fundamentals, as well as its progress in establishing an independent franchise after separation from its parent Cash America International, Inc. in November 2014.

Essent Guaranty Outlook Change 31 Oct ‘13 27 Apr ‘15

Insurance Financial Strength Baa2 Baa2

Outlook Stable Positive

The outlook change reflects the company’s solid capitalization, meaningful market presence and developing franchise, strong profitability and steady growth in its insurance-in-force.

FIL Limited Outlook Change 28 Feb ‘14 30 Apr ‘15

Senior Debt Rating Baa1 Baa1

Outlook Stable Positive

The outlook change reflects our view that FIL’s increasingly diversified business, with market share gains, will translate into an improvement in the stability of the firm’s revenue base; a significant opportunity created by the UK pension reform will benefit FIL with a growing defined contribution pension business given its superior fund distribution and service platform compared with those of its peers; a declining leverage trend will likely gain momentum; FIL’s self-managed investment portfolio has become increasingly more diversified, profitable and effectively managed, which will, in turn, mitigate some of the risks posed by this private equity investment portfolio; and higher levels of equity, particularly tangible equity, will continue to grow and support not only the third-party asset management business but also FIL’s self-managed investment activities.

RATING CHANGES Significant rating actions taken the week ending 1 May 2015

25 MOODY’S CREDIT OUTLOOK 4 MAY 2015

ForteBank JSC Upgrade 30 Apr ‘15

We upgraded ForteBank’s long-term local- and foreign-currency deposit ratings to Caa1 from Caa2, its senior unsecured debt ratings to Caa2 from C, and subordinated debt rating to Caa3 from C. This upgrade follows the conclusion of our review that was prompted by the implementation of our new bank rating methodology and the completion of the bank’s debt restructuring and merger.

GE Capital Interbanca Downgrade 30 Apr ‘15

We downgraded GE Capital Interbanca’s long-term deposit and senior debt ratings to B3 from B2. The downgrade reflects the lowering of the bank’s adjusted baseline credit assessment to b3 from b2, as well as the introduction of our Loss Given Failure analysis. We also upgraded Interbanca’s standalone baseline credit assessment to caa1 from caa2 and assigned a Counterparty Risk Assessment of B1(cr)/Not Prime(cr). The upgrade of the baseline credit assessment is driven by the recent capital increase provided by Interbanca’s parent, GECC, and by a commitment of a substantial 10-year funding line from GECC. At the same time, we noted that Interbanca remains loss-making and with weak asset quality.

Three Greek Banks Downgraded Downgrade 30 Apr ‘15

We downgraded to Caa3 from Caa2 the long-term deposit and senior debt ratings of three Greek banks: Piraeus Bank S.A., National Bank of Greece S.A., and Alpha Bank AE. All of the banks’ long-term deposit and senior debt ratings carry negative outlooks. The downgrade reflects the continued deterioration in the banks’ funding and liquidity, including sustained deposit outflows and the increased risk of capital controls. The downgrade also takes into account the weakening operating environment, which will aggravate asset quality pressures and constrain the banks’ earnings generating capacity; and the high proportion of deferred tax assets and Greek sovereign exposures that undermine the banks’ capital and solvency.

NCP Finance Outlook Change 13 Sep ‘13 29 Apr ‘15

Corporate Family Rating Caa1 Caa1

Outlook Stable Positive

The outlook change reflects the company’s consistent profitability, improved leverage, and adequate debt service capability while it is also grows its civil service organization client base.

Speedy Group Holdings Corp Review for Upgrade

29 Apr ‘15

We placed on review for upgrade Speedy Group Holdings Corp’s Caa1 corporate family and Caa3 senior unsecured ratings. The review for upgrade reflects Speedy’s solid operating profitability, improved operating efficiency and reduced leverage. The review will focus on Speedy’s ability to maintain stable profitability and accumulate positive shareholder’s equity in the near term.

RATING CHANGES Significant rating actions taken the week ending 1 May 2015

26 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Sterling Mid-Holdings and DFC Finance Corp. Downgrade 29 Apr ‘15

We downgraded Sterling Mid-Holdings Limited’s corporate family and DFC Finance Corp’s (DFC Finance) senior secured ratings by one notch to B3 from B2 and placed the ratings on review for downgrade. The downgrade reflects the deterioration in Sterling’s credit metrics, including sizable net losses and higher leverage. We continue to be concerned about Sterling’s weak profitability and high leverage as well as uncertainties over the company’s ongoing restructuring efforts in the UK.

RATING CHANGES Significant rating actions taken the week ending 1 May 2015

27 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Sovereigns

Greece Downgrade

29 Apr ‘15

Long-Term Issuer Rating Caa1 Caa2

Senior Unsecured Caa1 Caa2

Senior Unsecured MTN (P) Caa1 (P) Caa2

Senior Unsecured Shelf (P) Caa1 (P) Caa2

Foreign Currency Deposit Ceiling Caa1/NP Caa3/NP

Foreign Currency Bond Ceiling Ba3/NP B3/NP

Local Currency Deposit Ceiling A3/P-2 A3/P-2

Local Currency Bond Ceiling Caa1/NP Caa3/NP

Outlook Review for Downgrade Negative

The downgrade reflects the high uncertainty over whether Greece’s government will reach an agreement with official creditors in time to meet upcoming repayments on marketable debt and the significant implementation risks of a follow-up, medium-term financing programme even if an agreement is reached, given the weakened economy and a fragile domestic political environment.

Trinidad & Tobago Downgrade

30 Apr ‘15

Long-Term Issuer Rating Baa1 Baa2

Senior Unsecured Baa1 Baa2

Foreign Currency Deposit Ceiling Baa1/P-2 Baa2/P-3

Foreign Currency Bond Ceiling A1/P-1 A3/P-2

Local Currency Deposit Ceiling A3/P-2 A3/P-2

Local Currency Bond Ceiling A3/P-2 A3/P-2

Outlook Stable Negative

The downgrade reflects persistent fiscal deficits and challenging prospects for fiscal reforms, the decline in oil prices and limited economic diversification to weigh negatively on economic growth prospects and a weak macroeconomic policy framework given lack of a medium-term fiscal strategy.

RATING CHANGES Significant rating actions taken the week ending 1 May 2015

28 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Sub-sovereigns

Athens, Greece

Downgrade

9 Feb ‘15 30 Apr ‘15

LT Issuer Rating (Domestic) Caa1 Caa2

LT Issuer Rating (Foreign) Caa1 Caa2

Outlook Review for Downgrade Negative

The downgrade follows our downgrade of Greece’s government bond rating to Caa2 negative from Caa1 review for downgrade on 29 April 2015. The downgrade thus incorporates Athens’ close operational and financial linkages with the Greek government and the lack of special status, which prevents the city from being rated above the sovereign.

Structured Finance Ally Prime Auto Loan ABS from 2014 Upgraded We upgraded the ratings of three securities and affirmed the ratings of four securities from the Ally Auto Receivables Trust 2014-2 securitization sponsored by Ally Bank, affecting $1.2 billion. The upgrades reflect the build-up of credit enhancement resulting from the sequential pay structure as well as the non-declining over-collateralization and reserve account.

Santander Subprime Auto Loan ABS from 2014 Upgraded We upgraded the ratings of three tranches and affirmed the ratings of four tranches from Santander Drive Auto Receivables Trust 2014-4 securitization sponsored by Santander Consumer USA Inc., affecting $1.1 billion. The upgrades reflect the build-up of credit enhancement resulting from the sequential pay structure and non-declining reserve account. The transaction has also benefited from its over-collateralization reaching the target of 17% of the current balance.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 May 2015

29 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Corporates Global Pharmaceuticals: Successful Drug Launches Will Offset Global Pricing Pressure Rising utilization of prescription drugs, new product launches and mostly positive pricing trends in the US will be offset by patent expirations, currency effects, and pricing pressure outside the US and in some US categories. The stronger US dollar will reduce net profits in 2015 for large US-based companies but have a positive impact on European issuers.

China Property Focus - April 2015 We expect the latest rounds of regulatory loosening on property transactions to support demand for properties and alleviate the downside pressure on property sales volume. National contracted sales for the first quarter of 2015 declined 9.1% year over year, owing mainly to a drop in sales volume for the same period.

U.S Supermarkets: Traditional Supermarkets Up Their Game to Prevent Alternative Food Retailers from Eating Their Lunch The US supermarket industry will narrow its revenue loss to alternative food retailers in the big box, warehouse and dollar store sectors to very modest levels over the next couple of years. Well-managed supermarkets are implementing new strategies to increase customer traffic, the number of items customers purchase and the dollars they spend. Price reductions, customer-loyalty programs, organic products, health and wellness products, and food service offerings are among their many initiatives to attract customers and boost sales.

US Gaming: Connecticut Casinos Need Big Solution to Big Problem In two years, Mohegan Sun and Foxwoods Casino Resort will be facing a significant earnings challenge as Las Vegas-based MGM Resorts International opens a new casino in nearby Massachusetts. The two Connecticut casinos are already dealing with significant competition from neighboring casinos. Mohegan Tribal Gaming Authority, which owns Mohegan Sun, and Mashantucket Pequot Tribal Nation, which owns Foxwoods Resort Casinos, will also feel a significant earnings hit.

Global Homebuilding And Property Development This rating methodology explains our approach to assessing credit risk for companies in the homebuilding and property development industry globally. While reflecting many of the same core principles as the 2009 methodology, this updated document provides a more transparent presentation of the rating considerations that are usually most important for companies in this sector. This report includes a detailed rating grid and illustrative examples that compare the mapping of rated companies against the factors in the grid.

Brazil Homebuilders: Drop in Real Estate Prices Adds Further Stress Brazil’s Economic Research Institute Foundation has published an analysis of the Brazilian real estate market along with a new time series based on the FipeZap house asking price index, which indicates a clear downward trend for real estate prices in the country. This downturn is a major credit negative for all Brazilian homebuilders, particularly to those that have been struggling to deal with high debt levels and rising costs. We consider PDG Realty (B3 negative), Viver Incorporadora e Construtora (Caa1 negative) and Brookfield Incorporações S.A. (B1 negative) the most vulnerable homebuilders in the short term.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 May 2015

30 MOODY’S CREDIT OUTLOOK 4 MAY 2015

EMEA Mining Industry Relative Comparison: Performance and Credit Metrics of Seven High-Yield Mining Companies This report compares JSC Metalloinvest (Ba2 stable), SUEK Plc (Ba3 negative), First Quantum Minerals Ltd. (B1 negative), Nyrstar NV ((p)B3 stable), Consolidated Minerals Ltd (B3 negative), New World Resources NV (Caa3 stable) and Ferrexpo Plc (Caa3 negative), across the metrics that have the strongest impact on their overall credit quality and ratings. Although their business models differ, they all face similar challenges arising from metal price declines and weak end-user markets.

US Apparel and Footwear: Earnings Growth in Constant Currency Will Remain Strong in 2015, But Foreign Exchange Pressures Loom Over the next 12-18 months, apparel makers will continue to benefit from lower input costs and the expansion of their direct-to-consumer businesses. For the most part, the stronger US dollar will not affect income growth this year, though if foreign-exchange rates remain near current levels, it will decline in 2016.

Moody’s North American High-Yield Covenant Database: Protections Continue to Weaken as Investors Hunt for Yield Covenant quality for North American high-yield corporate bonds weakened during the third and fourth quarters of 2014 compared with the first half of the year. The percentage of high-yield lite bonds issuance increased drastically, rising to 37.6% in the second half of 2014 from 22.4% in the first half.

US Corporate Default Monitor: Energy-Led Rise in Projected Default Rate Looks Manageable Good corporate cash flow and favorable access to credit markets have held the US speculative-grade default rate at a low level and relatively steady over the last year. A sharp drop in energy prices that has increased operating and liquidity pressures in the oil and gas sector will likely lift the default rate over the next year. However, we project the default rate will remain well below its 4.4% long-term average since 1993.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 May 2015

31 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Infrastructure Australian Infrastructure: Factors Behind Origin Energy’s Rating Confirmation Origin’s credit profile remains consistent with a Baa2 rating, despite the near-term pressure from its capital commitment to Australian Pacific LNG (APLNG, unrated, 37.5% owned by Origin) and the soft oil price environment. We expect the start of LNG exports at APLNG and the gradual improvement in oil price over the medium term – as reflected in our oil price assumptions – to support a recovery in the company’s financial profile.

Brisa Concessao Rodoviaria’s Tender Offer Result in Relation to 2015 Notes Is Credit Positive The result of the tender offer in relation to the 2016 notes announced by Brisa Concessao Rodoviaria S.A. (BCR) on 28 April is credit positive as it will reduce the company’s refinancing risk and streamline its debt repayment profile. BCR reported that following the solicitation offer process, some €192.7 million in aggregate principal amount of the €600.0 million 4.5% notes due in 2016 had been accepted. Following partial redemption of the notes and issuance of €300 million 1.875% notes due in 2025, BCR’s debt maturity profile will be more evenly spread.

US West Coast Ports Maintain Advantages During Panama Canal Expansion, While East Coast Municipalities Benefit from Jobs The completion of the Panama Canal expansion in early 2016 will have a minimal impact on cargo volumes and revenues for US East Coast ports. The handful of East Coast ports ready for the larger vessels will experience only a slight uptick in cargo traffic, with shipments mostly including non-time-sensitive and low-value goods. However, most East Coast local governments surrounding the ports stand to gain net tax dollars from even marginal cargo increases because they are making little to no direct investments in port upgrades.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 May 2015

32 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Financial Institutions Outlook for Israel’s Banking System Is Stable The outlook reflects our expectations of robust economic growth, rising capital buffers to absorb unexpected losses, strong liquidity and stable deposit-based funding, as well as the credit risks associated with rapid house price increases and the banks’ relatively weak – albeit stable – efficiency and profitability.

Outlook for Slovakia’s Banking System Changed to Stable from Negative The outlook change takes into account the ongoing improvement in the country’s economy, which will support asset quality and maintain profitability for the country’s banks over the coming 12-18 months. It also takes into account the Slovak banks’ healthy capital buffers and favorable funding and liquidity. Export demand, domestic household consumption and investment activity will grow, helped by supportive public policies and declining borrowing costs owing to low interest rates.

Canadian Banks: Oil Price Slump Will Place Greatest Stress on Consumer Loan Exposures Low oil prices have not hurt the Canadian banks’ credit provisions so far. However, if low oil prices persist into the second half, provisions for credit losses will rise, more so for non-mortgage loans to consumers in the oil-producing prairie provinces because of high household debt, than for loans to oil and gas-related corporates. A prolonged slump in oil prices will also depress the capital markets, a significant revenue source for some banks.

Growth of China’s Shadow Banking Slows, but Still Poses Risk The growth of shadow banking has slowed in recent quarters, coming close to the rate of nominal GDP growth, as credit flows shift back toward the formal banking system. These trends reflect measures to contain financial risks, offset by policy easing to support bank lending. However, shadow banking still poses risk to banks because of the significant degree of interconnectedness, as well as maturity mismatches and contagion.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 May 2015

33 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Sovereigns Pakistan Sovereign Analysis Pakistan’s Caa1 rating reflects the government’s very low fiscal strength and high susceptibility to event risks. The change in outlook on the rating to positive from stable on 25 March 2015 takes into account progress made under the government’s three-year, IMF-supported reform program that runs into 2016. The program focuses on fiscal consolidation, debt management, and addressing structural constraints in the energy sector.

Euro Area Sovereigns: Exposures to Greece are moderate In our baseline scenario, we do not expect Greece (Caa2 negative) to default on its obligations to official creditors or to leave the euro area. But our recent rating action indicates that the probability is rising, given the difficult negotiations between the Greek government and its official creditors and the challenging liquidity situation that Greece faces to repay upcoming debt obligations and make domestic payments.

Gabon Sovereign Analysis Gabon’s wealth – derived from almost 50 years of oil exploitation, relatively sound public finances and membership of the Franc Zone – supports its rating of Ba3. However, political risks remain moderate, despite considerable noise and expectations that a unified opposition will challenge the incumbent President Ali Bongo.

India and Indonesia Peer Comparison: Reform Implementation Will Determine Credit Trajectories India’s and Indonesia’s Baa3 sovereign ratings reflect shared credit strengths of robust economic size and growth, and similar credit challenges of weak governance and infrastructure. However, India’s fiscal metrics are weaker than Indonesia’s, and contribute to inflation and high domestic capital costs. Indonesia, on the other hand, is more vulnerable to global trends because of the larger proportion of commodities in its exports, its higher share of non-resident financing of government debt, and its shallower domestic capital market.

Sovereign Default and Recovery Rates, 1983-2014 Before the global financial crisis, no advanced economies held non-investment-grade ratings, but by the peak of the crisis in mid-2013, five did: Greece (C), Cyprus (Caa3), Portugal (Ba3), Ireland (Ba1) and Slovenia (Ba1). Only three still hold non-investment-grade ratings: Cyprus (B3 stable), Greece (Caa1 on review for downgrade) and Portugal (Ba1 stable); Ireland (Baa1 stable) and Slovenia (Baa3 stable) have since regained their investment-grade ratings.

Bangladesh Sovereign Analysis Bangladesh’s Ba3 rating reflects the country’s track record of macroeconomic stability, its modest debt burden, and limited external vulnerabilities with an ample foreign reserve buffer. However, a fractious political environment, narrow tax revenue base, and a very low level of per capita income constrain the rating.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 May 2015

34 MOODY’S CREDIT OUTLOOK 4 MAY 2015

France: New Fiscal Incentive Offers Short-Term Boost, but No Long-Term Effect on Investment and Economic Growth The government of France (Aa1 negative) recently announced several measures to foster investment as part of its Stability and National Reform Programme preparations. In particular, the government will allow a 40% increase in amortization of new industrial investment over the next 12 months. This measure will likely bring investment forward, resulting in higher economic growth in 2015 and early 2016, at a minimal cost to the government’s budget of around 0.02% per year.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 May 2015

35 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Structured Finance Despite Drop in US Farm Income, Strong Obligor Balance Sheets Will Continue to Shield Equipment ABS from Heavy Losses Losses in 2014-15 issued agricultural and construction equipment asset-backed securities will be minimal despite declining commodity prices that will reduce farm net income. Agricultural equipment obligors are in a strong credit position as a result of the strength in their balance sheets since 2011. The combination of farmers’ low overall debt burdens, and the current low interest rate environment, will allow most agricultural equipment obligors to continue to meet their debt obligations in 2015.

UK Covered Bond Programmes Have the Highest Foreign-Exchange Gap in Europe The foreign-exchange (FX) gap measures the alignment of the currencies in the cover pool with those of the covered bonds. Without structural mitigants, programmes with high FX gaps are more exposed to exchange-rate volatility. At 51% on average, UK covered bond programmes have the highest FX gap in Europe, followed by Swiss programmes. However, UK and Swiss covered bond issuers use FX swaps to mitigate FX risk.

Securitization Helps Fund Chinese SME Lenders and Internet Finance Providers, a Credit Positive For China’s SME sector, the emergence of securitization as a funding option is credit positive, because it will allow SMEs to diversify their funding channels at a competitive price. It also provides a strong incentive to score and analyze microfinance credits in a standardized and systematic way in order to meet the proper requirements of a securitized product.

Default Rates For Assets Backing Japanese ABS Will Remain Low Default rates for assets backing Japanese asset-backed securitizations, such as auto loans and credit cards, will remain low in 2015, owing to Japan’s low unemployment rate and the strict underwriting standards of lenders. As such, we maintained low default rate assumptions for the new Japanese asset-backed securities transactions that we rated in the first quarter of 2015.

Australian Housing Affordability: Steady on a National Basis, But Sydney and Melbourne Deteriorate Low mortgage interest rates have helped keep Moody’s Australian Housing Affordability Measure steady at the national level over the past year, offsetting the impact of higher residential property prices and relatively flat household incomes. However, the affordability measure deteriorated for Sydney and Melbourne, where dwelling price rises have been more pronounced.

Lower Prepayment Rates Will Slow CLO Par-Building, Differentiate Managers If leveraged loan prepayment rates continue to fall, CLOs will shift away from current low-risk par-building via small gains on higher-quality assets, in favor of investments spanning a wider risk spectrum. As the credit climate is becoming more volatile, we expect slightly higher defaults, greater price volatility and less loan refinancing among borrowers in the next 12 months.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 May 2015

36 MOODY’S CREDIT OUTLOOK 4 MAY 2015

Mix of New CLOs, Existing CLOs, Other Investors Will Likely Meet Corporate Refi Needs Through 2019 New and existing collateralized loan obligations will provide a significant portion of funding to corporate issuers seeking to refinance before speculative-grade debt maturities reach a five-year high in 2019. CLOs will continue to provide this financing even as new issuance declines as risk retention rules take effect and interest rates rise. Other investors, including high-yield bond investors and hedge funds, will provide the remaining of the funding through 2019.

Greek Covered Bonds Have Protective Measures Against Redenomination, But Their Effectiveness is Uncertain Under our continuing base-case assumption, ongoing efforts to hold the euro area together will likely succeed, but the probability of Greece (Caa2 negative) leaving the euro area in the event of a sovereign default has increased. If it occurs, the consequence of a Greek exit would be a return to a new Greek currency. However, the Greek covered bonds we rate have certain features that may give some degree of protection against the risk of default and the extent of any subsequent losses.

UK Challenger Entrants’ Credit Card Pools Are Riskier Than Those of High-Street Banks “Challenger” entrants in the credit card market, typically non-high street bank lenders that engage in specialized, store or affinity card lending, are driving growth in the UK credit card market. The growth of their books outpaced the high street banks in 2014. That said, challenger entrants’ credit card pools entail additional risks, which relate to the originator’s financial strength, data quality, pool diversification, and potential performance volatility.

Structured Thinking Asia Pacific Low mortgage interest rates have helped keep Moody’s Australian Housing Affordability Measure steady at the national level over the past year, offsetting the impact of higher residential property prices and relatively flat household incomes. However, the affordability measure deteriorated for Sydney and Melbourne, where residential property price rises have been more pronounced.

US CMBS and CRE CDO Surveillance Review Performance was positive in all sectors of our US commercial mortgage-backed securities and commercial real estate collateralized debt obligations quarterly surveillance review, including the multifamily, office, retail and hotel sectors. The decline in Moody’s base expected loss reflects improving economic conditions in the US. The majority of our rating actions were affirmations, with upgrades representing 13.8% of our activity, and downgrades, 8.0%.

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

37 MOODY’S CREDIT OUTLOOK 4 MAY 2015

NEWS & ANALYSIS Corporates 2 » Comcast’s Failed Bid for Time Warner Cable Is Credit

Negative for Both » Piaggio’s Competition in India for Three-Wheel Vehicles

Increases, a Credit Negative

Infrastructure 4 » NGPL Buys Time to Restructure, a Credit Positive » EDP - Energias do Brasil’s Divestiture of EDP Renováveis Is

Credit Positive

Banks 6 » Deutsche Bank Must Execute Consistently to Achieve

Planned Credit Benefits

Insurers 8 » Ontario’s Reduction in Accident Benefits Is Credit Positive for

Canadian Insurers

Sovereigns 10 » Ruling on Ghana’s Maritime Border Dispute with Cote

d’Ivoire Is Credit Positive for Ghana

MOODYS.COM

Report: 180965

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