MOODYS.COM

15 JULY 2013

NEWS & ANALYSIS Corporates 2

» Raytheon Wins US Navy Contract to Develop Electronic Jamming System, a Credit Positive

» Kroger's Agreement to Buy Harris Teeter for $2.5 Billion Is Credit Positive

» Tribune's Exit from Newspapers Will Result in Credit-Negative Loss of Cash Flow

Infrastructure 5

» Political Risk Increases for PG&E, California's Largest Utility

Banks 6 » Proposed US Leverage Requirement Is Credit Positive for Banks » US Crackdown Is Credit Negative for Consumer Debt Collectors » A European Single Resolution Mechanism Is Credit Negative for

Bank Bondholders » RCI's Strong Deposit Growth Is Credit Positive

Insurers 11 » US Life Insurers Would Benefit from Public Pension Plan

Proposal » UK Life Insurers Face Credit-Negative Competition from

Government Pension Scheme » Assicurazioni Generali Buys Out Minority Interests in Its

German Insurance Operations, a Credit Positive

Asset Managers 16

» Alternative Asset Managers Get Credit-Positive Lift from US Advertising Rule Change

Sovereigns 18 » Massive Financial Aid to Egypt from Gulf Governments Is Credit

Positive » Czech Republic's New Liquidity Management Reduces

Borrowing Requirements

US Public Finance 21 » San Francisco Community College's Looming Loss of

Accreditation Is Credit Negative

Securitization 23 » US Used Car Price Declines Are Credit Negative for Auto

Securitizations

RATINGS & RESEARCH Rating Changes 25

Last week we upgraded Expro Holdings UK, Prudential Financial, Jalisco State in Mexico, and 40 US subprime RMBS tranches, and downgraded Post Holdings, Banco Populare, Banca Italease, Unicaja Banco, Clark County School District in Nevada, North Las Vegas, and 42 Italian and Portuguese RMBS tranches, among other rating actions.

Research Highlights 33

Last week we published reports on US multi-employer pension plans, US consumer durables, US healthcare, Georgia Power Company, banking systems in Switzerland, the UK, Kuwait, Russia and South Africa; US property & casualty insurers, Latin American insurance, Columbian insurance, Costa Rica, Belarus, three US states’ late fiscal budgets, European CMBS, and US self-storage securitizations, among other reports.

RECENTLY IN CREDIT OUTLOOK

» Articles in Last Thursday’s Credit Outlook 37 » Go to Last Thursday’s Credit Outlook

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

NEWS & ANALYSIS Credit implications of current events

2 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Corporates

Raytheon Wins US Navy Contract to Develop Electronic Jamming System, a Credit Positive Last Tuesday, Raytheon Co. (A3 stable) announced that the US Navy awarded it a $279.4 million contract to develop its “Next Generation Jammer” electronic attack system. The cost-plus-incentive-fee contract is credit positive for Raytheon because it could lead to potentially more significant work in what is likely to be a multi-billion-dollar, multi-decade program. It is also a critical win over BAE Systems plc (Baa2 stable), Northrop Grumman Corporation (Baa1 stable) and incumbent system producer Exelis Inc. (Baa3 negative).

Raytheon may have had an edge over other bidders because it already supplies the Navy with active electronically scanned array radar on numerous fighter aircraft (the radar must be integrated with the new jamming system). But Exelis had the incumbent position on the current-generation jammer, while BAE Systems and Northrop Grumman both have extensive experience and leading shares in defense electronics as well, so the contract was truly up for grabs. With each of the other bidders having a presence in both defense electronics and targeted aircraft programs, a protest of the award is likely.

The new system will replace the ALQ-99 tactical jamming system that the Navy uses on its EA-18G Growler tactical airborne electronic attack aircraft. We believe the new system will eventually be deployed on the significantly larger F-35 Joint Strike Fighter fleet and that it could be used on future unmanned aircraft platforms as well.

Raytheon must first build a prototype, which will require about two years, followed by several years of additional engineering and manufacturing development before the Navy awards a low-rate initial production contract.

The new electronic jamming system will provide military aircraft with the critical ability to overcome anti-access/area-denial threats, making the program less likely to be affected by still-pending sequestration cuts and the broader downturn in defense spending that we expect to see over the second half of the decade.

Given the difficult budgetary environment, we believe pricing was a major factor in the Navy’s decision to award Raytheon the new contract. We expect pricing pressure will continue and it may affect winning bidders’ profitability over the coming years, especially as contracts transition from cost-plus to fixed-price status.

Russell Solomon Senior Vice President +1.212.553.4301 russell.solomon@moodys.com

NEWS & ANALYSIS Credit implications of current events

3 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Kroger’s Agreement to Buy Harris Teeter for $2.5 Billion Is Credit Positive Last Tuesday, The Kroger Co. (Baa2 stable), the largest US supermarket chain, said it will pay about $2.5 billion to buy Harris Teeter Supermarkets Inc. (unrated), including the assumption of about $100 million of debt. While the debt-financed deal will initially weaken Kroger’s credit metrics, the transaction is credit positive because it will enhance Kroger’s competitive position by increasing its scale and geographic diversity with minimal store overlap. The acquisition will also be earnings accretive in the first year.

We estimate that the acquisition will increase Kroger’s pro forma debt/EBITDA to about 3.8x from about 3.0x for the 12 months ended 25 May, while pro forma EBITA/interest will decline to about 3.7x from around 4.2x. However, we expect this weakening in credit metrics to be temporary as the combined company will continue to grow same-store sales in the 3.0%-3.5% range and increase EBITDA by $225-$250 million in the next 18-24 months while focusing on debt reduction. We expect the company’s debt/EBITDA to improve to a more historical and normalized level of about 3.5x over the next 18-24 months. If needed, the company can curtail share purchases and instead use free cash flow to reduce debt. Kroger has said it is committed to maintaining a reported net total debt/EBITDA of 2.0x-2.2x, which currently translates to debt/EBITDA of 3.5x-3.8x, including our standard adjustments.

Harris Teeter is a strong regional supermarket chain that has demonstrated consistent top-line growth – same-store sales growth was 3.7% for the quarter ended 2 April – and a healthy EBITDA margin of about 7.4% for the fiscal year, ended 2 October 2012. The company operates 212 stores in eight US states, primarily in the southeastern and mid-Atlantic US, and in Washington, DC. The strength of Harris Teeter’s brand provides Kroger with the opportunity to apply its successful marketing and pricing strategies to Harris Teeter’s customer base. The acquisition will also help Kroger increase its overall market share in the southeast and mid-Atlantic states at the expense of competitors like Publix Super Markets (unrated), BI-LO, LLC (B2 stable), Delhaize America, LLC’s (Baa3 stable) Food Lion and Safeway Inc. (Baa3 negative).

Kroger’s pricing, service and merchandising initiatives have helped it consistently grow its same-store sales. Even through the last recession, the company continued to report positive same-store sales growth in the low single-digits, when many of its peers reported negative-to-flat same-store sales. Moreover, the company’s focus on customer satisfaction and loyalty, its ability to offer a one-stop shopping experience and a wide array of private label and prepared foods, gives it a distinct competitive advantage over its peers. Although Kroger is also caught in the fray of strong price competition among traditional supermarkets and alternative food retailers like Wal-Mart Stores, Inc. (Aa2 stable), we believe it will remain a leader in food retailing and a very strong and effective competitor given its size, store format diversifications, price initiatives, and wide array of private and national brands.

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

NEWS & ANALYSIS Credit implications of current events

4 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Tribune’s Exit from Newspapers Will Result in Credit-Negative Loss of Cash Flow Last Wednesday, Tribune Company (Ba3 review for downgrade) said it would spin off its publishing division. The move would separate Tribune’s high-growth broadcasting and digital media operations from its mature newspaper publications and transform the once diversified media company into a pure-play owner of broadcast properties and related network and online offerings.

The spinoff will be credit negative for Tribune, costing it more than $200 million in annual cash flow. But Tribune would ease the strain on its credit if the terms of the spinoff include handing off a portion of the company’s consolidated debt to its publishing arm, which includes The Chicago Tribune, Los Angeles Times and six other major metropolitan daily newspapers.

Earlier this month, Tribune said it had agreed to spend just over $2.7 billion to buy 19 stations in 16 markets from Local TV Finance, LLC (B3 stable) and sister company FoxCo Acquisition Sub, LLC (B2 stable).1 Although that acquisition makes strategic sense for Tribune because it gives the company more access to a fast-growing and more lucrative market than publishing, it will weaken Tribune’s credit quality by increasing its leverage; the transaction would raise the company’s debt/EBITDA ratio to over 4.0x, from 3.0x today.

Tribune’s latest proposal could push its leverage even higher, with debt/EBITDA rising to more than 5.0x and making a downgrade of its long-term ratings more likely. The sale or spinoff of Tribune’s newspaper business could cost it more than $1.5 billion of annual revenues and more than $200 million of annual EBITDA, or more than 20% of Tribune’s total EBITDA. The loss of this EBITDA would push leverage up considerably unless Tribune hands off some of the newspapers’ debt or unfunded pension liabilities to the new entity. Whether the company chooses to do this remains to be seen.

The sale of Tribune’s newspaper business has been a clear possibility ever since the company emerged from bankruptcy at the beginning of 2012. But under the terms of its $1.1 billion credit facility, Tribune had permission from creditors to divest its publishing assets and use the proceeds to fund dividends, rather than pay down debt. Tribune’s proposed $3.8 billion credit facility for funding its acquisition of Local TV offers the same shareholder-friendly latitude. However, Tribune will have higher leverage after it acquires Local TV.

Tribune would lose a critical supply of cash flow if it proceeds to spin off newspaper operations, or if it funds dividends from sale proceeds under the previous plan. Neither move would offer any benefit to Tribune’s debt burden.

1 See Tribune to Increase Debt by $2.7 Billion to Pay for Local TV Stations, a Credit Negative, Moody’s Credit Outlook, 8 July

2013.

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

NEWS & ANALYSIS Credit implications of current events

5 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Infrastructure

Political Risk Increases for PG&E, California's Largest Utility On 8 July, the Consumer Protection and Safety Division (CPSD) of the California Public Utility Commission (CPUC) requested a procedural approval to correct its $2.25 billion San Bruno Penalty recommendation for Pacific Gas & Electric Company (PG&E, A3 stable). We consider the request credit negative for PG&E, California’s largest utility, since it could lead to a higher penalty.

Even though we believe PG&E's A3 rating with a stable outlook is appropriate at this time, we may take a rating action or change our outlook should we believe that the political developments over the next several weeks result in a harsher regulatory environment, or an increased penalty that would be difficult for PG&E to finance with equity alone.

The events that lead to this procedural request are highly unusual. According to industry sources and press reports, some of the attorneys assigned to the San Bruno case at the CPSD had a sharp disagreement with the head of the CPSD on the severity of the penalty when the recommendation brief and the follow up clarification were issued. The disagreement resulted in their reassignment to other cases and those attorneys subsequently went public with their grievances, including one, according to The Oakland Tribune, who maintained that some of CPSD's recommendations made in the briefs were unlawful. On 26 June, the CPUC reinstated the lead attorney for the case. A week and a half later, on 8 July, the lead attorney filed a request on behalf of the CPSD for the procedural change as discussed above, but without the head of the CPSD's signature.

While we cannot opine on the validity of the claims by the attorneys, we are concerned that the San Bruno case has lasted almost three years and counting without being resolved. The process around the San Bruno case has long been contentious. The cost related to San Bruno keeps growing and the latest twist adds to uncertainty just when the case appeared to be moving towards closure.

Although we believe the penalty amount will be financed with equity, thus protecting debtholders and credit quality, there is an increasing potential for a surprising outcome that would impair PG&E's credit quality.

Toby Shea Vice President - Senior Analyst +1.212.553.1779 toby.shea@moodys.com

NEWS & ANALYSIS Credit implications of current events

6 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Banks

Proposed US Leverage Requirement Is Credit Positive for Banks Last Tuesday, the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corp. jointly issued a notice of proposed rulemaking (NPR) that would increase and enhance the minimum Tier 1 leverage ratio requirement for US banks that have been designated as global systemically important banks (G-SIBs). This proposal is credit positive for US banks because the leverage ratio provides a check and balance to the risk-weighted capital adequacy measures by limiting banks’ ability to leverage up on perceived “low risk” assets that at a later date may contain high unexpected losses. In addition, since most of the banks do not currently meet the new minimums, the proposed rulemaking will require banks to increase their capital or reduce assets in order to comply by the 2018 final implementation date.

The banks subject to the proposed requirement are Citigroup Inc. (Baa2 negative), JPMorgan Chase & Co. (A2 negative), Bank of America Corporation (Baa2 negative), The Bank of New York Mellon Corporation (Aa3 review for downgrade), The Goldman Sachs Group, Inc. (A3 negative), Morgan Stanley (Baa1 negative), State Street Corporation (A1 review for downgrade) and Wells Fargo & Company (A2 negative).

The supplementary leverage ratio is a simple and transparent measurement of capital adequacy that complements risk-weighted capital adequacy measurements. Risk-weighted measurements attempt to differentiate the risk of asset classes, requiring banks with higher-risk assets to hold more capital.

In isolation, the risk-weighted capital approach can lead to banks reporting satisfactory capital ratios even though they are highly leveraged to low-risk assets. The approach also can allow banks’ management to arbitrage the risk-weighted capital rules, which are a product of modeling and underlying assumptions that lack transparency and are subject to manipulation, in order to optimize capital and return measurements. Because the supplemental leverage ratio does not attempt to determine the loss content or differentiate risk between asset classes, it provides a check to risk-weighted capital ratios in that the use of adjusted average balance sheet assets and off-balance-sheet exposures help to ensure that banks have cushions for unexpected losses. Meanwhile, the existence of risk-weighted capital measurements helps to discourage banks from holding only high-risk assets.

US regulators have already adopted a minimum supplementary leverage ratio of 3%, consistent with Basel III. However, the US has long had a leverage ratio that prevented the major US banks from being as leveraged as some major European banks. This latest proposal would require that the eight US bank holding companies and their insured depository institutions maintain supplementary leverage ratios of 5% and 6%, respectively.

The supplementary leverage ratio differs from the current Tier 1 leverage ratio in that the denominator includes off-balance-sheet exposures. The NPR estimates that the supplemental approach increases leverage exposure by 43%, meaning that to maintain the same leverage ratio as under the current approach, the average company would have to hold 43% more capital. In addition, the NPR notes that if the 5% minimum were in effect as of third-quarter 2012, the covered holding companies that did not already meet the minimum would need to increase their Tier 1 capital by approximately $63 billion. This amount is quite manageable given that the proposed effective date is 1 January 2018 and that the banks could easily meet this requirement through retained earnings.

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

NEWS & ANALYSIS Credit implications of current events

7 MOODY’S CREDIT OUTLOOK 15 JULY 2013

The exhibit below illustrates the aggregate Tier 1 leverage (current approach) and Tier 1 risk-based capital ratios of the eight G-SIBs since 2007. The widening gap between the leverage and risk-based ratio through 2012 highlights the shedding of high risk-weighted assets and other actions to optimize capital.2 Given the inclusion of off-balance-sheet exposures in the supplemental leverage ratio, the bank holding companies would not have met the 5% minimum in 2007 and would have been required to raise capital at the time, which would have better prepared them for the global financial crisis.

Aggregate Capital Ratios of the G-SIBs, 2007 to First-Quarter 2013

Note: 2007 and 2008 exclude Goldman Sachs and Morgan Stanley, which were not reported at those dates. Source: Federal Reserve Y-9Cs

2 The narrowing of this gap in first-quarter 2013 reflects an increase in risk weights owing to the implementation of the revised

market risk rules.

0%

2%

4%

6%

8%

10%

12%

14%

2007 2008 2009 2010 2011 2012 1Q13

Tier 1 Leverage Ratio Tier 1 Risk Based Capital Ratio

NEWS & ANALYSIS Credit implications of current events

8 MOODY’S CREDIT OUTLOOK 15 JULY 2013

US Crackdown Is Credit Negative for Consumer Debt Collectors Last Wednesday, the US Consumer Financial Protection Bureau (CFPB) issued bulletins to protect consumers from unscrupulous debt collectors, including the banks, payday lenders, finance companies, and debt collection firms under its jurisdiction. The CFPB bulletins notified companies that debt-collection practices that misrepresent the size of a consumer’s debt, the company’s right to collect the money, or other unfair, deceptive or abusive acts may violate the law.

This salvo from the CFPB is credit negative for firms actively engaged in consumer debt collection, including debt collection companies, large credit card lenders, payday lenders, private student lenders and other consumer lenders. The bulletin portends tightened regulatory oversight, which will increase the firms’ compliance requirements and costs, including more management time, legal expense, internal audit staff and reporting systems, and potentially enforcement-related financial penalties that would adversely affect the firms’ profitability.

The Bureau published two bulletins on debt collection. The first states that any entity subject to the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, whether a third-party collector or a creditor collecting its own debts, can be held accountable for any unfair, deceptive, or abusive practices in collecting a consumer’s debts. The second warns companies to avoid deceptive statements concerning the effect of paying a debt on a consumer’s credit score, credit report, or creditworthiness.

Rated issuers particularly affected by the CFPB action are the following:

Debt collection firms: SquareTwo Financial Corporation (B2 stable), which buys defaulted debt and collects the proceeds for itself, and West Corporation (B1 stable), Expert Global Solutions, Inc.3 (B2 stable), DCS Business Services, Inc. (B2 stable) and iQor US, Inc. (B3 stable), which do not make material purchases of defaulted debt, but rather collect debt for other companies in return for a recovery fee.

Credit card issuers: JPMorgan Chase & Co.4 (A2 negative), American Express Company (A3 stable), Capital One Financial Corporation (Baa1 stable), Bank of America Corporation (Baa2 negative), Citigroup Inc. (Baa2 negative), Discover Financial Services (Ba1 stable).

Payday lenders: Dollar Financial Group, Inc. (B2 positive), Community Choice Financial Inc. (B3 stable), Ace Cash Express Inc. (B3 stable), CNG Holdings, Inc. (B3 stable), Speedy Group Holdings Corp. (Caa1 stable).

Private student lenders: SLM Corporation (Ba1 review for downgrade).

3 On 10 July, the Federal Trade Commission ordered Expert Global Solutions to pay a fine of $3.2 million for allegedly making

illegal collections calls and not verifying debt in dispute. The proposed order is subject to court approval. It is the largest fine the FTC has issued against a third-party debt collector,

4 JPMorgan Chase is already under federal and state regulatory scrutiny for its credit card debt collection practices.

Curt Beaudouin, CFA Vice President - Senior Credit Officer +1. 212.553.1474 john.beaudouin@moodys.com

NEWS & ANALYSIS Credit implications of current events

9 MOODY’S CREDIT OUTLOOK 15 JULY 2013

A European Single Resolution Mechanism Is Credit Negative for Bank Bondholders Last Thursday, the European Commission (EC) published a draft regulation on a single resolution mechanism (SRM) that would empower a European Union (EU) authority with bank resolution powers that national authorities currently exercise within their own borders. The SRM is part of the EU’s objective of creating a “banking union.” Although the EC’s ultimate objective is to preserve financial stability across the region, a transfer of resolution powers to an EU body from national authorities increases the likelihood that bank failures will result in losses for bondholders, a credit negative.

The adoption of a single authority charged with the resolution of banks is the next step to what the EC has done so far. Already, the commission has adopted a single supervisory mechanism (SSM) that tasks the European Central Bank (ECB) with supervising banks in the euro area, and recently EU finance ministers endorsed a directive on bank recovery and resolution. Establishing a single authority to resolve failed banks would ensure a more predictable and orderly resolution process in the EU, and reduce the risk of EU countries applying bank recovery and resolution differently, even with its safeguard mechanisms.

For the EC, it is also important to ensure that bank shareholders and other private stakeholders bear the cost of bank failures, which is more likely if a central authority handles the resolution process. National-level decisions about bailouts often focus on the immediate consequences of not supporting banks rather than the long-term budget implications of providing support. A central authority would address the EC’s concern about the imbalance that exists in the EU when wealthy countries can afford to bailout their banks, but less wealthy nations must enforce a bail-in.

The EC’s proposed regulation calls for the ECB to identify failing banks or banks likely to fail and assess whether shareholders can solve the problems and whether a failure would threaten the banking system. If there is a systemic risk that the banks’ owners cannot address, and normal liquidation proceedings are not viable, the ECB would propose a resolution to the SRM board. The board would further investigate the matter, joined by the ECB and the relevant national authority or authorities in the case of cross-border banks. Then, the SRM board would submit a proposal to the EC, which would then decide whether to accept or reject the SRM board’s proposal. Any losses stemming from the resolution process are to be borne by the institution’s shareholders and creditors. Nevertheless, an orderly resolution may require external funds; hence the EU’s need to set up a resolution fund, which would be activated once the failing bank’s internal resources have been exhausted.

The EC aims to begin enforcing the regulation in January 2015. However, the proposal to centralise decision-making authority in the EC remains highly controversial and will be challenged by national governments, including the German government, which favour greater national discretion, or at least consensus, in resolution decisions. Resolving these differences will take time.

Alain Laurin Associate Managing Director +33.1.5330.1059 alain.laurin@moodys.com

NEWS & ANALYSIS Credit implications of current events

10 MOODY’S CREDIT OUTLOOK 15 JULY 2013

RCI’s Strong Deposit Growth Is Credit Positive Last Wednesday, RCI Banque (Baa3 stable, D+/baa3 stable),5 the captive bank of automaker Renault S.A. (Ba1 stable), announced that it has already met its 2014 goal of having online saving accounts contribute 10% of its funding. It now targets having such accounts contribute 20%-25% of its funding in 2016. This development is credit positive because it reduces RCI’s reliance on market funding.

The announcement follows RCI’s launch of its deposit-gathering facility in February 2012. At the end of June, deposits totaled €2.6 billion, or the equivalent of RCI’s initial target of 10% of outstanding loans by 2014, with the funds coming from France (€1.2 billion since February 2012) and Germany (€1.4 billion since February 2013). After initially offering only current accounts, RCI added term deposits in both jurisdictions. Overall, RCI’s success in deposit collection demonstrates the bank’s ability to reduce its share of confidence-sensitive market funding, a strong positive.

RCI is following a path taken by other captive banks facing funding difficulty amid depressed European car sales. The wholesale funding markets’ sensitivity to investor sentiment has prompted these banks to consider diversifying their funding sources and increase the share of securitisation in their total funding. Banque PSA Finance (Ba1 stable, D/ba2 stable) launched a deposit-gathering plan in 2013. Volkswagen Bank GmbH (A3 positive, C-/baa2 stable), which has long had direct banking operations, reported customer deposits of €25.4 billion, or 77% of outstanding loans, at year-end 2012. Although online retail deposits tend to be a relatively expensive funding source, it is less confidence-sensitive than market funding.

RCI’s strong deposit growth is also credit positive for its auto securitizations because of the key operational role that the captive bank plays in these transactions. RCI’s auto securitizations are organically linked to RCI’s financial health insofar as the captive bank serves multiple roles in its securitizations including originator, servicer, vehicle realization agent or maintenance provider. The performance of all RCI securitizations hinges on RCI’s ability to adequately perform these key roles, and will thus benefit from the improved funding diversification.

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

assessment and the corresponding rating outlooks.

Erwan Audigou Associate Analyst +44.20.7772.1546 erwan.audigou@moodys.com

Guillaume Lucien-Baugas Assistant Vice President - Analyst +33.1.5330.3350 guillaume.lucien-baugas@moodys.com

Ariel Weil Vice President - Senior Analyst +33.1.5330.1048 ariel.weil@moodys.com

NEWS & ANALYSIS Credit implications of current events

11 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Insurers

US Life Insurers Would Benefit from Public Pension Plan Proposal Last Tuesday, Senator Orrin Hatch introduced the Secure Annuities for Employee (SAFE) Retirement Act of 2013 as a solution to the underfunding risks facing many state and municipal pension plans. The bill would effectively allow public pension sponsors to have more predictable pension plan costs by allowing the pension plans to fund retirement benefits for their participants with annuities purchased from state-licensed insurance companies. Because the bill limits annuity providers to life insurers, its enactment would provide credit-positive revenue growth and earnings diversity for those insurers most active in the retirement space.

The industry’s expertise with asset/liability and investment management as well as the natural hedge that longevity risk (risk of living longer than expected) provides against mortality risks they typically assume in life insurance contracts makes this opportunity a good fit.

How SAFE works. According to the bill, public plan sponsors would satisfy their future pension funding obligations through the annual purchase of a group annuity contract from a life insurer. Insurers would be selected through a local government-hosted bidding process. To rein in the costs of future pension benefits, the plans would solicit bids for the amount of retirement benefits that could be purchased for a given dollar amount of plan contributions each year, thereby fixing the cost of future retirement benefits earned by plan participants, on a going-forward basis, each year.

Potential growth for the life insurance industry. According to Senator Hatch’s 20126 report on the state of the public pension system, the underfunding of state and local pensions could exceed $4 trillion. Assuming that the potential market for public defined benefit pensions is just a fraction of this amount ensures the life insurance industry a significant amount of added volume.

However, and more significantly, these are new net inflows. Unlike the corporate defined benefit/defined cost pension market, where new business often represents churning assets from other existing providers, these flows would represent new money to be managed.

Life insurers likely to benefit the most are those that have scale in administering retirement business and significant assets under management. The largest life insurance groups ranked by assets are presented in the exhibit below. In addition to assets we present the insurers’ group annuity premiums as a proxy for their retirement business scale.

6 Senator Orrin Hatch, State and Local Government Defined Benefit Pension Plans: The Pension Debt Crisis that Threatens

America, January 2012.

Rokhaya Cissé Associate Analyst +1.212.553.3870 rokhaya.cisse@moodys.com

NEWS & ANALYSIS Credit implications of current events

12 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Top 10 Life Insurance Groups by Total Statutory Assets as of First-Quarter 2013

Rank Insurance Group and Insurance Financial Strength Rating Total Statutory Assets $ millions 2012 Group Annuity Premiums $ millions

1 MetLife, Inc. (Aa3 negative) $580,003 $17,242

2 Prudential Financial, Inc. (A1 stable) 512,003 41,679

3 Manufacturers Life Insurance Co(A1 stable) 256,458 9,923

4 American International Group(A2 stable) 250,049 5,536

5 TIAA-CREF Life Insurance Co(Aaa negative) 245,694 4,440

6 New York Life Insurance Group(Aaa negative) 241,627 5,176

7 Northwestern Mutl Life Ins Co.(Aaa negative) 207,774 278

8 Lincoln National Life Insurance Co.(A1 stable) 198,206 3,287

9 ING Groep N.V.(A3 negative) 191,842 17,014

10 Massachusetts Mutual Life Ins. Co. (Aa2 stable) 186,859 12,692

Notes:

1) Naming convention and amounts listed reflect the consolidation of multiple legal entities within each group’s US operations as reported by SNL Financial. The insurance financial strength rating is the rating on the US life insurance operating companies.

2) We present group annuity premiums as a proxy for an insurer's retirement business because pension plans purchase annuities on a group basis. Hartford Financial Services ranked 8th overall. However, we excluded it because of the sale of its retirement services business to MassMutual in 2012.

Source: SNL Financial, LC. Contains copyrighted and trade secret materials distributed under license from SNL. For recipient's internal use only.

NEWS & ANALYSIS Credit implications of current events

13 MOODY’S CREDIT OUTLOOK 15 JULY 2013

UK Life Insurers Face Credit-Negative Competition from Government Pension Scheme Last Tuesday, the UK Government announced that beginning in 2017, it would remove many of the restrictions that prevent the government-established National Employment Savings Trust (NEST) from fully competing with UK life insurers for pensionable assets. Increased competition from a government-appointed, low-cost provider is credit negative for UK life insurers.

The planned changes will permit individuals to increase annual savings into NEST above the existing annual cap of £4,500, and will allow transfers of existing pension assets to/from NEST, significantly increasing the program’s flexibility.

NEST originated in 2012 and is the UK government’s attempt to increase pension savings, particularly among younger and lower paid employees, through establishing a government-owned provider of pensions operating at low margins. In the UK, individuals can benefit from tax-advantaged annual allowances for pension contributions for as much as £50,000 in the 2013-14 tax year, which runs 6 April 2013-5 April 2014.

When NEST scheme restrictions are removed in 2017, NEST will become a more active competitor with existing UK life insurers and will likely draw inflows that would have flowed to insurers. Equally, the ability to transfer assets onto the NEST platform from insurers’ balance sheets will likely lead to net outflows of pension assets from UK life insurers.

Furthermore, the lower charges on NEST products will likely compel insurers to lower their own charges on pension products, particularly as NEST establishes itself as a viable competitor to existing life insurance pension schemes. By 2030, NEST estimates that it could control assets worth as much as £150 billion (a significant increase compared to the modest £8 million of assets under management from the 210,000 members it reported in June).

The exhibit below shows the total UK life insurance market, as measured by 2011 gross premiums, indicating those insurers we consider to be most affected by these developments: Standard Life Assurance Ltd (financial strength A1 stable), Legal & General Assurance Society Ltd (financial strength Aa3 stable), Aegon NV (UK entity not rated, AEGON NV senior unsecured A3 stable), Aviva Life & Pensions UK Ltd (financial strength A1 stable), Prudential Assurance Company Ltd (financial strength Aa2 stable), and Scottish Widows plc and Clerical Medical Investment Group Limited (financial strength A2 stable, both part of Lloyds Banking Group).

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

NEWS & ANALYSIS Credit implications of current events

14 MOODY’S CREDIT OUTLOOK 15 JULY 2013

UK Total Life Insurance Gross Premiums in 2011, £ millions Rank Company Premium

1 Aviva Life plc £10,172

2 Standard Life plc £9,677

3 Lloyds Banking Group £7,327

4 Legal & General £6,839

5 Aegon NV £5,803

6 Prudential £5,387

7 Friends Life £4,831

8 Zurich Financial Services £3,973

9 Royal London Mutual £2,989

10 Old Mutual plc £2,532

Na Other Providers £14,652

Total £74,182

Source: Association of British Insurers

The downside risks from NEST’s increased competitive presence will be partially mitigated by the fact that the life insurers’ asset management arms will ultimately manage some of NEST’s assets. For example NEST also announced last Tuesday that Legal & General would manage part of its real estate portfolio. Furthermore, NEST’s target customer base will remain low to moderate earners, leaving unclear how many of its customers would be in a position to save more than the current limit of £4,500 per annum. Finally, we expect that the key industry players will continue to try to differentiate themselves through enhanced service offerings, which may offset the cost advantages NEST can provide.

NEWS & ANALYSIS Credit implications of current events

15 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Assicurazioni Generali Buys Out Minority Interests in Its German Insurance Operations, a Credit Positive Last Tuesday, Assicurazioni Generali S.p.A. (financial strength Baa1 negative) announced it would buy out the minority interests in Generali Deutschland Holding AG (unrated), the holding company for its German operations. The buyout is credit positive for Generali because full control of Generali Deutschland will bolster the parent’s net income.

Generali, which as of year-end 2012 owned 93.02% of Generali Deutschland, agreed to buy a 3% stake from a group of private investors for around €171 million. It will buy the remaining 4% by exercising the right for a squeeze-out, which will require Generali Deutschland shareholders’ approval. Part of the deal’s funding will be via the placement of 15.5 million treasury shares valued at about €217 million. Following the squeeze-out, Generali Deutschland will be delisted from the Frankfurt Stock Exchange.

Generali Deutschland reported a return on capital of 9.9% in 2012 according to our definition (see exhibit below), and net income of €504 million. As a result, the transaction will add around €35 million to net income attributable to Generali. Generali expects the buyout, together with the placement of its treasury shares, to be broadly neutral in terms of its Solvency I ratio, which at year-end 2012 was 150%.

Improving Profitability of Generali Deutschland

2009 2010 2011 2012 1Q 2013 2013

Forecast

Net Income (€ millions) €340.5 €402.2 €416.9 €503.6 €140.0 > €430

Return on Capital [1] 7.9% 9.0% 9.1% 9.9% 2.8% na

Combined Ratio [2] 95.6% 95.5% 95.4% 93.4% 92.3% <95%

New Business Margin (over Annual Premium Equivalent) [3]

16.4% 17.3% 16.7% 17.6% na na

[1] Return on capital is the sum of net income before non-controlling interest expense as a percent of the two-year average of financial debt, shareholders’ equity and non-controlling interests

[2] Combined ratio is the sum of underwriting, operating and administrative expenses as a percent of net premium earned

[3] New business margin is new business value as a percent of annual premium equivalent and annual premium equivalent is the sum of new business regular premiums and 10% of new business single premiums

Source: Generali Deutschland annual and interim reports

The acquisition is in line with Generali’s plan to take full ownership of its strategic operations while not negatively affecting its capitalisation. This transaction, together with the sale of its Mexican operations and of its US Life reinsurance operation last June, indicates continued good progress in Generali’s restructuring.

Generali’s German business is the company’s second-largest operation, accounting for 25% of its written premiums. Generali Deutschland is the second-largest insurance group in Germany, with a market share of more than 9%, and is the country’s largest direct insurer. Generali Deutschland’s main operating entities include Generali Lebensversicherung AG (financial strength A3 negative), AachenMuenchener Lebensversicherung AG (financial strength A3 negative), Cosmos Lebensversicherung AG (financial strength A3 negative) and Central Krankenversicherung AG (financial strength A3 negative).

Martina Reptova Associate Analyst +44.20.7772.1531 martina.reptova@moodys.com

NEWS & ANALYSIS Credit implications of current events

16 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Asset Managers

Alternative Asset Managers Get Credit-Positive Lift from US Advertising Rule Change Last Wednesday, the US Securities and Exchange Commission (SEC) voted 4-1 to lift an 80-year-old ban on advertising for private investment funds. The ability to advertise is credit positive for alternative asset managers such as Blackstone (unrated), Carlyle (unrated), KKR (unrated) and Och-Ziff (unrated), and large traditional asset managers with alternative investment management platforms such as BlackRock (A1 stable), Franklin Resources (A1 stable) and Invesco (A3 stable).

Public advertising will help these managers reach a wider investor audience, which will benefit efforts to raise assets under management (AUM), which benefit funds’ management companies whose management fees are calculated as percentage of AUM.7 The ruling is credit negative for the US-registered mutual fund industry because private investment funds will be able to compete openly with mutual funds and their advertisements will not be held to the same strict standards that mutual funds advertisements are.

The SEC’s new rule comes more than a year after President Obama enacted The Jumpstart Our Business Startups (JOBS) Act, which instructed the SEC to amend Rule 506 of the Securities Act of 1933 as part of a broader goal to modernize the Securities Act. Rule 506, widely used by private investment funds when raising capital, provides an exemption from public registration for issuers engaging in private security offerings, but prohibits the use of general solicitations or general advertising to sell the offering.

The new rule removes the prohibition to solicit or advertise to accredited investors, which the SEC defines as an individual whose net worth is at least $1 million, excluding the value of their primary residence, or an annual income of $200,000 or more, or joint income with a spouse exceeding $300,000 in each of the last two years. Issuers must take reasonable steps to determine the accredited status of each purchaser.

Greater advertising access to the pool of high net worth and mass affluent investors will likely lead to more AUM growth. Carlyle estimates this broader pool of accredited investors controls $10-$11 trillion in investable assets, more than twice the size of the hedge fund and private equity industries combined.

Big traditional asset managers with large alternative platforms, such as BlackRock, Franklin Resources and Invesco, are most ready to take advantage of the new rule. These firms already have large established marketing and media infrastructures given their substantial mutual fund businesses, which we expect them to leverage.

The large alternative asset managers, such as Blackstone, Carlyle, KKR and Och-Ziff, are likely to take a measured approach given their lack of experience communicating with the broader public, even as they take full advantage of the rule to build brand awareness. We expect their efforts will lead to stronger client retention rates and afford more opportunities to expand into new market segments.

The registered mutual fund industry stands to be the biggest loser from the SEC ruling. The rule permits private investment funds to advertise side by side with mutual funds. Competition will be most pronounced for the 40 million or so accredited investors with between $250,000 and $1 million in investible assets. Further, unlike mutual fund performance advertising, the rule does not impose strict rules on how private

7 Impact of JOBS Act on Alternative Investment Managers, 23 January 2013.

Rory Callagy Vice President - Senior Analyst +1.212.553.4374 robert.callagy@moodys.com

NEWS & ANALYSIS Credit implications of current events

17 MOODY’S CREDIT OUTLOOK 15 JULY 2013

investment funds advertise. The lack of restrictions on advertising does increase the risk that investors in private investment funds may be negatively affected by the potential for fraudulent schemes or an influx of misleading advertising.

The new rule is expected to go into effect in mid-September.

NEWS & ANALYSIS Credit implications of current events

18 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Sovereigns

Massive Financial Aid to Egypt from Gulf Governments Is Credit Positive Between 7 and 10 July, Egypt (Caa1 negative) received $12 billion (almost 5% of GDP) in financial support packages from the governments of Saudi Arabia (Aa3 stable), the United Arab Emirates (UAE, Aa2 stable) and Kuwait (Aa2 stable) to, as the Saudi government put it, “support the challenges” the country faces. These packages are credit positive because they will have the immediate effect of offsetting pressures on Egypt’s balance of payments by substantially bolstering official foreign exchange reserves. The funds also provide considerable support to the government’s increasingly strained budget. Nonetheless, this funding provides only temporary relief from the political and economic challenges facing Egypt.

Saudi Arabia will provide $5 billion, Kuwait $4 billion and the UAE $3 billion, all of which will mostly be deployed to support Egypt’s external balance of payments. Half of the $12 billion total package will support the Central Bank of Egypt’s (CBE) balance sheet, with Saudi Arabia and Kuwait each contributing $2 billion in deposits, and the UAE providing a $2 billion, interest-free loan. The deposits will immediately boost Egypt’s official reserves, which have fallen precipitously since the toppling of the government of Hosni Mubarak in February 2011. In June alone, reserves fell $1.1 billion to $14.9 billion (see exhibit). All things being equal, funds placed in the central bank would lift reserves to more than $20 billion, a level last seen in late 2011. Over the next six months or so, those funds would likely more than offset the drain of reserves brought on by the current account deficit, external debt repayment and capital flight (unrecorded outflows reported in Egypt’s balance of payments statistics).

Egypt’s Shrinking International Liquidity Buffer

* Outflows from foreign currency loans, securities, and deposits with residual maturity of up to one year, as of previous year December. Source: Central Bank of Egypt

Another mode of balance of payments support is cash grants from Saudi Arabia and Kuwait to finance $3 billion worth of petroleum product and gas imports. This, too, is a sizable figure given that we had estimated that the current account deficit in 2013 would be $5-$6 billion before last week’s aid.

The fiscal support element of the Gulf governments’ aid package will come from $3 billion in cash grants, shared equally by the donor governments. This will ease pressures on Egypt’s budget; we estimate the deficit will be around 13.0% of GDP in the fiscal year ended 30 June, compared with a deficit of 8.3% of GDP in fiscal 2010, before the revolution. The oil and fiscal cash grants will also help ease import constraints and

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

Steffen Dyck Assistant Vice President +65.6398.8324 steffen.dyck@moodys.com

NEWS & ANALYSIS Credit implications of current events

19 MOODY’S CREDIT OUTLOOK 15 JULY 2013

ameliorate social pressures. Fuel shortages, for example, contributed to public anger at the government of former president Mohamed Morsi.

Even though the size of the Gulf governments’ package far eclipses the proposed International Monetary Fund’s (IMF) $4.8 billion program, which has not advanced beyond the staff level agreement stage, the fiscal reforms associated with an IMF program are also necessary to reduce deficit and debt refinancing requirements. The burden of deficit financing has fallen heavily on local banks, whose ability to continue to fund the government has become stretched.

Government funding stress is not only reflected in the rise in yields on government securities in the wake of the revolution, but also via direct borrowings from the CBE totalling EGP84.6 billion ($12.1 billion) for January through May. Moreover, aid from the Gulf states alone, unless accompanied by a strong economic policy framework, is unlikely to bolster confidence enough to reinvigorate domestic and foreign investment to pre-revolution levels.

NEWS & ANALYSIS Credit implications of current events

20 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Czech Republic’s New Liquidity Management Reduces Borrowing Requirements Last Monday, outgoing Czech Republic Finance Minister Miroslav Kalousek announced that the sovereign’s 2013 financing needs would be lower by CZK110-CZK140 billion versus the government’s original forecast, a reduction of 3%-4% of GDP. The smaller figure is the result of a framework introduced at the start of the year for liquidity management that pools public institutions’ funds into a single treasury account (STA) at the central bank. The framework, along with progress achieved on fiscal consolidation, is credit positive for the Czech Republic (A1 stable) because it will reduce the need for debt issuance, decreasing rollover risk and funding costs at a time of financial market volatility.

As a result of the new framework, the state treasury’s total liquidity has steadily increased at a stronger-than-expected pace, providing an extra cash buffer that the Ministry of Finance can tap to cover unexpected financing needs and streamline liquidity management. The average daily balance of the state treasury accounts was nearly CZK300 billion during the first half of 2013, more than double the average of a year ago (see exhibit). The Ministry of Finance expects liquidity to further increase during the second half of this year as more state organizations transfer their cash funds to the single treasury account to comply with the STA framework and which prompted Mr. Kalousek’s comments.

Czech Republic State Treasury Account Daily Balance, CZK Billions 2011 2012 H1 2012 H1 2013

Average daily balance 79.5 178.7 159.3 298.1

Funds in CZK 59.5 156.2 134.3 242.5

Funds in EUR 20.0 22.5 25.0 55.6

Source: Czech Republic Ministry of Finance

The STA framework requires that governmental entities, including state organizational units and state contributory organizations, transfer all of their cash resources to the state treasury account at the Czech National Bank within five years. Other entities, such as local governments, voluntary municipal associations and public universities have the option of maintaining accounts at commercial banks. The system allows for a more efficient allocation of liquidity within the public sector and is not uncommon among other sovereigns we rate. Because public agencies currently hold excess liquidity and can tap the centralised funds when needed in the future, the new framework does not negatively affect them.

The additional liquidity will allow the sovereign to decrease prudential cash reserves it holds on hand (over CZK100 billion at the end of June) and use the cash as a funding resource. With more funds available, the government will not need to issue as much debt as the authorities had anticipated at the beginning of the year. Beyond reducing total financing needs, the STA also provides a source of short-term bridge financing by allowing the Ministry of Finance to tap funds in the account that do not belong to the central government.

Nevertheless, we note that actual financing needs will depend on fiscal account performance during the second half of the year, the amount of cash reserves that are used towards financing needs, and the spending patterns of the state organizations that have transferred their cash to the single treasury accounts.

The benefits of the government’s liquidity framework further enhance the Czech Republic’s already solid fiscal accounts and provide the incoming administration with room to ease fiscal policy should it choose to support the nascent economic recovery. Moreover, the sovereign has covered more than 60% of its financing needs for 2013 and access to additional liquidity will allow the Ministry of Finance to take a more opportunistic approach to debt issuance through the end of the year at a time of increased market volatility.

Jaime Reusche Assistant Vice President - Analyst +1.212.553.0358 jaime.reusche@moodys.com

Rebecca Karnovitz Associate Analyst +1.212.553.1054 rebecca.karnovitz@moodys.com

NEWS & ANALYSIS Credit implications of current events

21 MOODY’S CREDIT OUTLOOK 15 JULY 2013

US Public Finance

San Francisco Community College’s Looming Loss of Accreditation Is Credit Negative On 3 July, the Accrediting Commission for Community and Junior Colleges (ACCJC), which accredits colleges in California, Hawaii and US Pacific Islands, decided to terminate the accreditation of San Francisco Community College District (general obligation A1 review for downgrade) effective 31 July 2014. The decision was based on the district’s failure to address numerous deficiencies regarding governance, fiscal management and financial accountability. This development is credit negative for the community college district, which has $359 million of general obligation debt, because a loss of accreditation threatens the district’s ability to continue operations. It also reflects a credit negative trend of growing accreditation pressure on California community college districts (CCDs).

We expect that payment of San Francisco CCD’s general obligation debt will not be interrupted because the county, not the CCD, levies and collects property taxes and acts as the paying agent for the district’s bonds. However, the smooth functioning of this process has not been tested in the case of a complete closure of a CCD, which is a possible scenario in San Francisco’s case.

ACCJC has imposed accreditation sanctions on 20% of rated California CCDs, up from 12% in 2004 (see Exhibit 1). This rise is consistent with a broader national trend, with sanctions increasing almost 50% among the seven regional accrediting commissions between 2009 and 2012. Historically more rigorous than other commissions, ACCJC has issued sanctions to 17% of its members, versus an average of 2% for the remaining six commissions (see Exhibit 2). These actions range from a warning to termination of accreditation.

EXHIBIT 1

The ACCJC Sanctioned 12 Rated California Community College Districts in 2013 District Sanction Level Rating Outstanding Debt $ millions

San Francisco Show Cause – Termination Pending A1 negative $359.1

Hartnell Probation Aa2 121.5

Redwoods Probation Aa2 review for downgrade 29.9

Victor Valley Probation Aa2 137.8

Los Angeles Campus-specific Aa1 stable 2,305.9

Yosemite Campus-specific Aa2 306.2

Yuba Campus-specific Aa2 148.1

Coast Warning Aa1 338.9

El Camino Warning Aa1 170.1

Imperial Warning Aa3 negative 80.2

San Luis Obispo County Warning Aa2 26.9

Solano Warning Aa3 104.7

Source: Accrediting Commission for Community and Junior Colleges Directory of Accredited Institutions, July 2013; debt figures from fiscal 2011-12 debt statements

Michelle Choi Associate Analyst +1.212.553.4780 michelle.choi@moodys.com

Joshua Levine Associate Analyst +1.212.553.4826 joshua.levine@moodys.com

NEWS & ANALYSIS Credit implications of current events

22 MOODY’S CREDIT OUTLOOK 15 JULY 2013

EXHIBIT 2

ACCJC Has the Highest Percentage of Sanctioned Members

Note: We did not include the Northwest Common Colleges & Universities owing to some of its sanctions not being public. Source: The accrediting commissions

Despite the large number of sanctions issued to California CCDs, termination of accreditation is rare. Compton Community College District (general obligation A2 stable) is the only other rated CCD in the state to have lost its accreditation. To prevent Compton CCD’s closure, the state facilitated a merger with an accredited CCD to ensure the uninterrupted education of students and provided a $30 million emergency loan to help offset the loss of federal aid.

We expect that there would be significant political pressure on the state to take similar actions to support any other district that loses accreditation, including San Francisco CCD. However, the size and complexity of San Francisco CCD’s operations would make intervention difficult and costly. San Francisco CCD’s unrestricted general fund revenues in the fiscal year ended 30 June 2012 were $192 million, while total full-time student enrollment was 34,649. When Compton CCD lost its accreditation in 2006, its unrestricted general fund revenues were $28 million and it had 2,700 full-time students.

The financial effect of the ACCJC’s decision on San Francisco CCD could be immediate and significant, including the possible cessation of operations, if it loses its planned appeal and the state does not intervene. Termination of accreditation would lead to the loss of both state grant funding and Title IV federal financial aid. Elimination of these funding streams, which comprise 54% of unrestricted general fund revenue, would strain the district’s ability to maintain baseline operations. Tuition and fee revenue would also likely suffer. Full-time equivalent student enrollment already fell by 12% in fiscal 2012 after the commission required the CCD to show cause as to why its accreditation should not be revoked. Although the district will maintain accreditation over the coming year and during the appeal process, we expect enrollment to continue declining as students seek alternative local colleges.

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NEWS & ANALYSIS Credit implications of current events

23 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Securitization

US Used Car Price Declines Are Credit Negative for Auto Securitizations Last Monday, Manheim Consulting published its latest monthly Used Vehicle Value Index showing the index at its lowest quarterly level since third-quarter 2010. The declines in used vehicle prices are credit negative for auto securitizations, particularly for subprime auto loan and auto lease asset-backed securitizations (ABS).

Because vehicle prices are declining, we expect the ABS pools to realize lower collateral proceeds upon borrower default or lease turn-ins, and subsequent vehicle resale than they did in the past two years, when vehicle prices were higher. The price declines have also diminished residual value gains for auto-lease ABS because of the lower collateral proceeds when cars are turned in at the end of a lease and remarketed.

In the auto loan sector, the negative effect of the price dips is greater in subprime ABS than in prime given subprime borrowers’ higher number of defaults: when customers default, the cars are resold, but at lower values than previously. As seen in the exhibit below and as we forecast in our US Auto ABS: 2013 Outlook, used car prices will drop this year and recoveries for defaulted auto-loan ABS will fall closer to pre-crisis levels of approximately 50%, in part because of the recent increase in supply of off-lease vehicles available to used car buyers. Our 50% forecast for defaulted auto-loan ABS recovery compares with recovery levels, as seen in the exhibit, of 55%-65% in 2011 and 2012. The incremental effect to subprime auto-loan ABS losses as a result of lower recoveries would range between 0.50% and 1.50% on an annualized basis, assuming an average annualized gross default rate of 10%.

EXHIBIT 1

Recoveries on Defaulted Auto Loans versus Manheim Index

Source: Moody’s, Manheim Consulting

Auto-lease ABS are now close to the end of double-digit percentage residual value gains seen in 2011 and 2012, as seen in Exhibit 2. The recent declines in used vehicle prices have led to a decline in proceeds on the sale of returned vehicles to a point where the prior 10%-20% residual value gains seen in 2011 and 2012 only averaged 5.4% in second quarter.

A continued decline in used car prices will bring existing pools to a point where proceeds are close to securitized residual values, which were set when used car prices were higher. The pace of decline will cause

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Aron Bergman Assistant Vice President - Analyst +1.212.553.1419 aron.bergman@moodys.com

NEWS & ANALYSIS Credit implications of current events

24 MOODY’S CREDIT OUTLOOK 15 JULY 2013

the current residual value gains in securitizations to eventually become moderate losses. These transactions have enough credit protection to withstand high levels of residual value loss.

EXHIBIT 2

Auto Lease Sector Monthly Residual Value Gains vs. Manheim Index

Source: Moody’s, Manheim Consulting

The Manheim Index, which measures used vehicle auction values on a seasonally adjusted basis, was 119.7 for June, bringing the index’s second-quarter average to 119.3, the lowest level since the third quarter of 2010, when the average was 118.9. The price declines are attributed to additional supply in the used car market because of 1) an increase in new car sales and associated trade-ins, 2) high volume of maturing leases turn-ins, 3) and heightened replenishment in fleet and rental car sectors compared with the tight used vehicle inventories in the wake of the financial crisis, reflecting postponed purchasing decisions.

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RATING CHANGES Significant rating actions taken the week ending 12 July 2013

25 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Corporates

Boparan Holdings Limited Outlook Change

7 Apr ’11 11 Jul ‘13

Corporate Family Rating Ba3 Ba3

Outlook Stable Negative

We have changed the outlook to negative because we expect that Boparan’s operating performance and credit metrics, specifically its margins and leverage, to continue to weaken over the near term after the company's recent acquisition of VION's UK red meat and poultry business, which is dilutive of Boparan's profitability. Another factor is the ongoing challenges in the trading environment.

Daimler AG Outlook Change

30 Aug ’11 11 Jul ‘13

Long-Term Issuer Rating A3 A3

Short-Term Issuer P-2 P-2

Outlook Positive Stable

The outlook change reflects the erosion in Daimler’s credit metrics since 2011 to a level below what would be needed to qualify for a rating upgrade, as well as our expectation that within the next 12-18 months the group will be unable to return to metrics that would support a higher rating. Daimler's performance lately has been relatively resilient, however, and we expect its pipeline of new model launches to help to counterbalance the ongoing challenges in Europe's car market.

Expro Holdings UK 3 Limited Upgrade

21 Dec ’12 10 Jul ‘13

Corporate Family Rating Caa1 B3

Outlook Stable Stable

The upgrades reflect Expro's stronger performance in the year ending March 2013, with EBITDA and free cash flow generation better than we had expected. It also incorporates our view that the company's near-term market outlook is positive and that continued strong operating performance is likely to help the company deliver on its business plan.

RATING CHANGES Significant rating actions taken the week ending 12 July 2013

26 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Koninklijke Ahold N.V. Outlook Change

3 Mar ’11 8 Jul ‘13

Long-Term Issuer Rating Baa3 Baa3

Outlook Stable Positive

The outlook change primarily reflects Ahold's track record of continued stable operating performance, despite a challenging retail environment in both the US and the Netherlands, with a further improvement in reported underlying operating income in fiscal 2012. It also reflects Ahold’s ability to generate around €1 billion of reported free cash flow per annum, which provides the company with significant financial flexibility.

Post Holdings, Inc. Downgrade

22 Oct ’12 11 Jul ‘13

Corporate Family Rating Ba3 B1

Outlook Negative Stable

The downgrade comes in response to Post's launch of a $350 million senior unsecured debt offering, which will expand the size of the company’s existing 7.375% senior unsecured notes due 2022 to $1,375 million face value from $1,025 million. It primarily reflects the increased leverage that will result from the proposed debt issuance and uncertainty about how the proceeds will be used.

RATING CHANGES Significant rating actions taken the week ending 12 July 2013

27 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Infrastructure & Project Finance

Duke Energy Corporation Review for Upgrade

3 Jul ‘ 12 9 Jul ‘13

Senior Unsecured Long-Term Rating Baa2 Baa2

Outlook Stable Review for Upgrade

The review of the ratings of Duke Energy and three of its subsidiaries reflect three positive developments for Duke: the commercial operation of the Edwardsport Integrated Gasification Combined Cycle plant in Indiana; rate settlements at both of its North Carolina utilities; and a regulatory agreement in North Carolina on outstanding issues following its merger with Progress Energy. Another factor is that there are now clearer succession plans with the appointment of the company's Chief Financial Officer to be its CEO.

NewHospitals (St. Helens & Knowsley) Finance plc. Outlook Change

4 May ‘ 12 9 Jul ‘13

Index-Linked Guaranteed Senior Secured Bonds

A2 A2

Variation Bonds A2 A2

Index-Linked Guaranteed Senior Secured Bank Facility

A2 A2

Underlying Rating Bonds/EIB Loan Baa1 Baa1

Outlook Positive Stable

The outlook change reflects the risks associated with a 2.5-year programme to rectify defects in one of the project hospital’s external panels, although we expect the cost will be met by the original construction contractor. The Whiston Acute General Hospital has manufacturing defects in its external cladding panels. Given the duration and scope of the rectification work, there is some uncertainty about what impact the works may have on the project's operating performance,

Southern California Gas Company Outlook Change

16 Feb ‘10 9 Jul ‘13

Senior Unsecured Debt Rating A2 A2

Outlook Stable Positive

The outlook change follows our assessment of the impacts of SCG's recent 2012 general rate case decision and its five-year $5.9 billion capital expenditure program. The general rate case outcome is supportive of SCG's credit quality because it establishes sufficient revenue requirements for the next few years. In addition, we believe that SCG's embarking on the largest capital program in its history, including a pipeline safety enhancement program, will be positive for the company's credit quality by giving it a new opportunity to substantially add to its rate base.

RATING CHANGES Significant rating actions taken the week ending 12 July 2013

28 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Financial Institutions

Three Korean securities firms Outlook Change

On 9 July, we changed the outlook on the Baa2 long-term foreign currency issuer ratings of KDB Daewoo Securities, Samsung Securities, and Woori Investment & Securities to negative as we also affirmed them. The negative outlook reflects our growing concern over the persistent pressure on the profitability of these firms, as well as the increase in earnings volatility owing to the currently negative operating environment. Profitability among the companies has deteriorated because of lower brokerage commissions, which account for 30%-40% of their net revenues.

Banco Popolare Downgrade

14 May ‘12 8 Jul ‘13

Long-Term Debt & Deposit Ratings Baa3 Ba3

Standalone Financial Strength/ Baseline Credit Assessment

D+/ba1 E+/b3

The lower standalone financial strength/baseline credit assessment reflects very significant and increasing pressures on Banco Popolare’s asset quality, profitability and capitalisation. The significant levels of loan loss provisions, which were triggered by a Bank of Italy review of Italian banks' reserve coverage levels of their problem loans, are one sign of the weakness of the bank's asset quality and the inadequacy of the provisions the bank has previously taken.

Banca Italease S.p.A. Downgrade

14 May ‘12 8 Jul ‘13

Long-Term Debt & Deposit Ratings Ba1 B2

Standalone Financial Strength/ Baseline Credit Assessment

E+/b1 E/caa3

Subordinate Debt Ba3 Caa2

The downgrade follows the downgrade of Italease’s parent, Banco Popolare, as well as the bank's need for parental support, given that Italease – which is in run-off – is structurally unprofitable and has poor asset quality.

RATING CHANGES Significant rating actions taken the week ending 12 July 2013

29 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Ibercaja Banco Review Extended

24 Oct’ 12 11 Jul ‘13

Long-Term Debt & Deposit Ratings Ba2 Ba2

Standalone Financial Strength/ Baseline Credit Assessment

D-/ba3 D-/ba3

Outlook Review for Downgrade Review for Downgrade

We have extended the review for downgrade because of the downside risks to the bank's standalone credit profile associated with the planned integration with Grupo Banco Cajatres S.A, which has been approved by the board of both banks.

Liberbank Mixed

24 Oct ‘12 11 Jul ‘13

Long-Term Debt & Deposit Ratings Ba3 B1

Standalone Financial Strength/ Baseline Credit Assessment

E/caa1 E+/b2

Outlook Review for Downgrade Negative

The upgrade of Liberbank’s standalone financial strength/baseline credit assessment reflects its improved credit-risk profile following the recapitalisation plan that it recently implemented to offset the €1.2 billion capital deficit. The recapitalisation plan encompasses public-sector support, a mandatory burden-sharing exercise on its junior instruments and asset sales. The downgrade of the bank's debt and deposit ratings is because we have normalized our support assumptions. We had previously taken into consideration the availability of extraordinary government support for senior debt because of the government's 2012 decision to request funding from the European Stability Mechanism.

Prudential Financial Upgrade

On 11 July we upgraded the long-term debt ratings of Prudential Financial, Inc., senior debt to Baa1 from Baa2, and the insurance financial strength ratings of its domestic life insurance operating subsidiaries, including lead company Prudential Insurance Company of America (PICA), to A1 from A2. We also upgraded the short-term rating for commercial paper of Prudential Funding, LLC to P-1 from P-2. The rating outlook on Prudential and all of its insurance affiliates is stable.

The upgrade of Prudential's ratings reflects the company's improved financial profile and capital position, as well as the steps the company has taken to reduce financial leverage and maintain ample liquidity at the holding company. We also note the ongoing reduction of the risk profile of Prudential’s new business through the design of its products.

RATING CHANGES Significant rating actions taken the week ending 12 July 2013

30 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Unicaja Banco Downgrade

24 Oct’ 12 11 Jul ‘13

Long-Term Deposit Ratings Ba1 Ba3

Standalone Financial Strength/ Baseline Credit Assessment

D+/ba1 E+/b1

Outlook Review for Downgrade Review for Downgrade

The downgrade of Unicaja's bank financial strength rating reflects the bank’s weakened financial profile and the deterioration of asset-quality metrics in most asset classes. The ongoing economic challenges are exerting pressure on Unicaja's assets beyond commercial real estate, exacerbated by the bank's operating focus on Andalusia (Ba2 negative), one of Spain's weakest regions.

The continued review for downgrade ratings reflects the downside risks to its standalone credit profile that could stem from the planned integration of the significantly weaker Banco CEISS.

Sovereigns

Colombia Outlook Changed

31 May ‘11 8 Jul ‘13

Gov Currency Rating Baa3 Baa3

Foreign Currency Deposit Ceiling Baa3 Baa3

Foreign Currency Bond Ceiling Baa2 Baa2

Local Currency Deposit Ceiling A1 A3

Local Currency Bond Ceiling A1 A3

Outlook Stable Positive

The outlook change is because we expect fiscal consolidation to continue. Reduced fiscal deficits continue to lower the government’s debt metrics, while Colombia has a consistent and predictable macroeconomic policy environmental and adequate financials buffers that safeguard against external shocks. Colombia has a manageable and falling government debt burden, which combined with ample access to domestic and international funding results in limited rollover risk. We forecast that central government debt will fall to 32% of GDP this year, from 43% in 2003.

RATING CHANGES Significant rating actions taken the week ending 12 July 2013

31 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Sub-sovereigns

Bogota Distrito Capital (Colombia) Outlook Change

20 Nov ‘02 10 Jul ‘13

Issuer Rating Baa3 Baa3

Outlook Stable Positive

Municipality of Medellin (Colombia) Outlook Change

5 Feb ‘10 10 Jul ‘13

Issuer Rating Baa3 Baa3

Outlook Stable Positive

The outlook change for cities of Bogotá and Medellín follows the outlook change on Colombia's ratings reflecting the operating and financial links of the cities with the central government and their stable financial and debt metrics.

Jalisco, State of (Mexico) Upgrade

25 Mar’13 9 Jul ‘13

Issuer Rating B1/Baa3.mx Ba2/A2.mx

Outlook Negative Stable

The upgrade reflects our assessment of Jalisco's credit profile following the post-default actions undertaken by the new administration. The upgrade also reflects Jalisco's strong economic fundamentals and moderate debt levels. In January 2013, 23 days after defaulting on a MXN1.4 billion short-term loan with Banco Interacciones, the State of Jalisco repaid its obligation in full and without imposing any loss to the lender. Throughout the default, the state continued to honor timely all of its outstanding debt obligations.

RATING CHANGES Significant rating actions taken the week ending 12 July 2013

32 MOODY’S CREDIT OUTLOOK 15 JULY 2013

US Public Finance

Clark County School District, NV Downgrade

6 Sep ‘12 10 Jul ‘13

General Obligation Rating Aa3 A1

Outlook Stable Stable

The downgrade reflects the district's weakened financial position relative to large school districts nationwide, continued insufficient coverage of limited tax debt service from property tax levies with limited levy raising ability, and an ongoing, though diminished, operational imbalance.

North Las Vegas, NV Downgrade

15 Aug ‘12 11 Jul ‘13

General Obligation Rating Baa2 Ba1

Outlook Stable Stable

The downgrade reflects the city's persistent and substantial operating challenges. Its weak financial position and tensions with labor groups resulted in a declaration of a state of emergency for fiscal 2014, marking the second such declaration in two years. The city also remains reliant on outsized transfers from its water and sewer enterprises to support its general fund and correct substantial budgetary imbalances. Slow and uneven recovery in both the metro area's tourism dependent economy and still weak property values continue to weigh on the city's tax revenues, which remain well below pre-recession levels.

Structured Finance

Actions on US Subprime RMBS On 11 July we upgraded the ratings of 40 tranches and downgraded the rating of one tranche backed by subprime loans, issued by various issuers, totaling $1.3 billion. The actions are a result of the recent performance of the underlying pools and reflect our updated loss expectations on the pools. The upgrades are a result of improving performance of the related pools or building credit enhancement on the bonds or both.

Italy and Portugal RMBS Rating Sweep We downgraded by two notches on average the ratings on 42 notes in seven Italian and 11 Portuguese RMBS transactions because credit enhancement is insufficient to protect against sovereign and counterparty risks. We also upgraded the ratings on two notes and confirmed the ratings on 14 notes because their credit enhancement is adequate to protect against sovereign and counterparty risk.

RESEARCH HIGHLIGHTS Notable research published the week ending 12 July 2013

33 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Corporates

US Multiemployer Pension Funding Remains Depressed

The continuing weak funding levels of most multi-employer pension plans in the US are leading to continuing large amounts of imputed debt at participating companies. In a few cases, the magnitude of future pension plan funding obligations is placing downward pressure on ratings. In this report we examine 118 plans, including some of the largest in the country. We estimate that these plans are collectively underfunded by upwards of $277 billion.

US Consumer Durables: Cost Cuts, Gradual US Economic Expansion, Continue to Drive Operating-Profit Growth

We are maintaining our positive outlook on the US consumer durables industry despite soft revenue growth during the first half of the year. We expect aggregate operating profit to rise 5.5% to 6.5% over the next 12 to 18 months, driven by cost efficiencies and revenue growth in the second half of 2013 and 2014. Improved cost structures, gradual US economic expansion, increased consumer confidence and continuing signs of stability in the US housing market will offset challenges such as rising interest rates.

Moody's Healthcare Quarterly

US healthcare companies today face multiple regulatory and economic challenges, including the ongoing implementation of the Affordable Care Act. In the latest edition of Healthcare Quarterly, we look at companies' preparedness for the changes that lie ahead from a credit perspective, examining the financial profiles of seven subsectors of the healthcare industry to determine their strength today relative to three years ago.

Infrastructure & Project Finance

Georgia Power Company: Answers to Frequently Asked Questions About the Vogtle New Nuclear Construction Project

Georgia Power announced material cost increases and schedule delays at the nuclear construction project earlier this year. Although construction of the project has increased Georgia Power’s business and operating risk profile, the most recent cost and schedule related developments have thus far been manageable at the utility’s current rating level.

RESEARCH HIGHLIGHTS Notable research published the week ending 12 July 2013

34 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Financial Institutions

Switzerland Banking System Outlook

Our decision to maintain the stable outlook on the Swiss banking system reflects Swiss banks’ solid financial fundamentals, which include low levels of problem loans, strong capital ratios, limited reliance on wholesale funding and substantial loss absorption capacity through earnings and loan loss reserves. In addition, the creditworthiness of the Swiss sovereign (Aaa stable) as well as the low level of unemployment support our view that the stable operating environment for Swiss banks will continue.

United Kingdom Banking System Outlook

Although the UK continues to face the prospect of low medium-term economic growth, we do not expect a deterioration in the operating environment for banks, leading to our change to a stable outlook. Moreover, unemployment has not increased as much as in previous recessions, thereby contributing to a stabilisation in banks' asset quality. Despite the downside risk posed by some banks' commercial real estate concentrations and exposure to peripheral European economies, we expect the aggregate level of impairments to continue to decline and non-performing loans to stabilize at around 5% for the system as a whole.

Kuwait Banking System Outlook

Our outlook for Kuwait’s banking system remains stable, unchanged from 2011. The stable outlook reflects our expectation of a benign operating environment, supported by high oil revenues and government spending. Accommodative operating conditions will continue to underpin financial stability, including the banking sector’s robust capitalization and ample liquidity.

Russian Banks: Basel III Rules Will Improve Quality Of Capital Implementation of Basel III will be credit positive for Russian banks as it will improve the quality of the banks’ capital; the banks will have to issue new contingent capital of higher quality to replace legacy subordinated debt. However, we also believe that Basel III has credit-negative implications for the junior creditors of the banks, due to the introduction of burden sharing for Tier 2 and hybrids, and because these instruments are unlikely to benefit from systemic support.

South Africa’s Unsecured Lending Market Faces Rising Asset-Quality Risks

South Africa’s unsecured consumer lending market has experienced significant growth in recent years, following the introduction of the National Credit Act in 2007, the reduction in interest rates to a 38-year low, and strong nominal wage increases. However, the sector is now faced with increasingly difficult operating conditions, which, combined with the seasoning of loan books, will lead to further asset-quality deterioration and higher loan loss provisioning expenses.

US P&C Insurance Interest Rate Challenges: Capital Volatility If Rates Keep Moving Up, Lackluster Returns If Rates Stay Low

The recent rise in interest rates has highlighted a key risk for US property and casualty (P&C) insurance companies. If rates continue moving up, which we believe is the more likely scenario, companies will face capital volatility as bond prices decline. If rates stay low, or resume their long term downward trend, earnings will be pressured by weak investment income.

RESEARCH HIGHLIGHTS Notable research published the week ending 12 July 2013

35 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Latin America Insurance: Key Regional Trends & Credit Drivers

The region’s insurance markets have expanded and matured significantly in recent years and should continue to do so, given a combination of broadly positive macroeconomic drivers and sustained political stability throughout most of the region. Other supportive factors are an expanding middle class, significant infrastructure development and industrialization initiatives, and strengthened regulatory frameworks.

Colombian Insurance Industry Scorecard

The Columbian insurance market is undergoing a period of rapid premium volume growth which, coupled with new insurance regulations, is driving further development of the industry and greater competition among insurers. But challenges in the years ahead include exposures to catastrophe losses arising from earthquakes as well as frequent floods caused by the “La Niña” phenomenon and insurers’ high reliance on investment returns to offset weak underwriting results.

Sovereigns

Costa Rica

Costa Rica's Baa3 government bond rating is supported by a relatively well-diversified economic base, whose main sectors are high-value-added manufacturing, transportation, communication, and tourism. Costa Rica is poorer and smaller than its rated peers but growing faster. An equally important factor supporting the ratings is Costa Rica's strong institutions, which provide a significant degree of policy predictability. The oldest democracy in the region, Costa Rica has a long tradition of consensus-building and consultation.

Belarus

The Belarusian economy’s increasing reliance on external debt to fuel domestic credit and investment is a key constraint on the country’s B3 rating. Impediments to improvements in competitiveness, such as high wage growth and cross-subsidisation across state-owned firms, also are constraints. These factors are partially offset by the economy’s relatively high diversification compared to regional and rating peers, strong average growth rates, a fairly skilled workforce, relatively developed infrastructure, low inequality, and high per capita incomes.

US Public Finance

Three States Late with Fiscal 2014 Budgets

Massachusetts, North Carolina and Oregon missed the 1 July deadline to pass a fiscal 2014 budget, but the missed deadlines have no immediate credit implications. Missing the budget deadline is not uncommon among the states, and government shutdowns have been rare. In general, when a state fails to pass a budget on time the legislature does pass a continuing resolution to maintain operations, as all three late states did this year.

RESEARCH HIGHLIGHTS Notable research published the week ending 12 July 2013

36 MOODY’S CREDIT OUTLOOK 15 JULY 2013

Structured Finance

European CMBS: Structural Features Drive Increased Interest Shortfalls

We expect further interest shortfalls for European CMBS. Interest shortfalls are more likely to occur in transactions with, first, loan-level appraisal-reduction mechanisms and increased loan-level interest shortfalls; and, second, substantially reduced loan pools, particularly if issuer level costs are higher, on a certain interest payment date.

Self-Storage Industry Is Poised for More Growth The US self-storage sector is poised for continued strong growth this year, owing to solid tenant demand and rising rents. Limited new supply of facilities also is driving the industry’s success, and the underlying dynamics likely will be strong for the next three to five years.

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

37 MOODY’S CREDIT OUTLOOK 15 JULY 2013

NEWS & ANALYSIS Corporates 2 » Brambles' Spinoff of Recall Business Is Credit Negative » Quebec Derailment Is Credit Negative for Rail and Pipeline-

Constrained Oil Producers

Infrastructure 5 » Baltimore Convention Center Hotel Will Need City Funds, a

Credit Negative

Banks 6 » Banks’ Inconsistent Calculation of Capital Ratios Mars Comparability » Egypt's Political Crisis Is Credit Negative for Banks » Malaysian Banks Benefit from Tightened Lending Criteria

Insurers 10 » US Affordable Care Act Modifications Are Credit Negative for Insurers » For US Mortgage Insurers, Final Basel III Rule Is Credit Positive

Securitization 12 » New Canadian Covered Bond Rules Are Credit Positive » Takeover of RHG Would Be Credit Positive for RHG RMBS

CREDIT IN DEPTH US Auto ABS 14

Weakening loan credit, stiff competition among originators, and ready funding for asset-backed securities portend higher credit losses in subprime auto lending. This credit weakening is evident in the performance of subprime loans over the last three years. But because it has been gradual, losses will not spike immediately. Nevertheless, more borrowers are going to default eventually, as originations continue to grow.

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EDITORS PRODUCTION ASSOCIATE News & Analysis: Elisa Herr, Jay Sherman and Sharon Rose

David Dombrovskis

Ratings & Research: Robert Cox Final Production: Barry Hing