MOODYS.COM

4 APRIL 2016

NEWS & ANALYSIS Corporates 2 » Ceridian HCM's $150 Million Cash Infusion Will Replenish

Diminished Liquidity » Capital Injections in Rumo Support Its Debt Amortization and

Investment Plans » Vedanta Resources Relieves Near-Term Liquidity Crunch with

Hindustan Zinc Dividend » Measures to Cool China's Hot Property Markets Are Credit

Negative for Developers

Infrastructure 7 » APA Group's Acquisition of Diamantina Power Station Is

Credit Negative

Banks 8 » State Street's Acquisition of GE Asset Management Is Credit Positive » UK's Incremental Capital Rules and Clarity on Stress Testing Are

Credit Positive for Banks » Russia Considers Restricting Internal Risk-Based Modelling, a

Credit Positive for Large Banks » Banque Du Caire’s Planned Stock-Exchange Listing Is

Credit Positive » Australia's Adoption of Basel Committee's Net Stable Funding Rule

Would Be Credit Positive

Insurers 16 » MetLife Sheds SIFI Designation, a Credit Negative

Sovereigns 17 » Belarus' Loan from Eurasian Fund for Stabilization and

Development Is Credit Positive

US Public Finance 19 » San Bernardino, California's Bankruptcy Settlement Is Bad News

for Pension Bondholders

Securitization 20 » FDIC Safe Harbor Requirements Strengthen Chase 2016-1 Prime

RMBS Transaction

RATINGS & RESEARCH Rating Changes 21

Last week, we downgraded Caesars Entertainment Resort Properties, Caesars Growth Properties Holdings, Sherwin-Williams, Sysco, 3M, Bank of East Asia, SquareTwo Financial, Empire Generating and five classes of LB-UBS 2006-C6, and we upgraded HD Supply, DNB Bank ASA, Saga, Aircastle, GE Capital Interbanca, Prospect Holding Company, Inter-American Investment, $7.8 billion of Santander subprime auto loan ABS and two classes of DBUBS 2011-LC2, among other rating actions.

Research Highlights 33

Last week, we published on South Korean corporates, ASEAN corporates, cell tower operators in India and Indonesia, Neiman Marcus, global pharmaceuticals, US gaming, US high-yield covenants, Western Digital and Seagate HDD, oil & natural gas, Ford and General Motors, project finance defaults, US regulated utilities, Finnish electricity providers, German life insurers, MetLife, global auto insurers, Chicago, US private student loan ABS, US ABS, US auto and equipment ABS, Valeant, US RMBS, US CMBS, US CLOs, European CLOs, EMEA auto ABS, EMEA ABS and SME transactions, European RMBS and ABS, UK RMBS, Japanese auto ABS, Asia-Pacific structured credit, Korean and Singapore covered bonds and Australian RMBS, among other reports.

RECENTLY IN CREDIT OUTLOOK

» Articles in Last Thursday’s Credit Outlook 40 » Go to Last Thursday’s Credit Outlook

NEWS & ANALYSIS Credit implications of current events

2 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Corporates

Ceridian HCM’s $150 Million Cash Infusion Will Replenish Diminished Liquidity Last Wednesday, Ceridian HCM Holdings Inc. (B3 stable) said that Thomas H. Lee Partners L.P., Fidelity National Financial Ventures Group, Ceridian HCM management and other shareholders made a $150 million cash infusion into Ceridian Holding II Inc., which owns the shares of Ceridian HCM. The infusion is credit positive because it will replenish Ceridian HCM’s liquidity, which has been drawn down as the company invests in the growth of its cloud-based businesses.

Ceridian HCM received half of the infusion and will receive the remaining $75 million over the next three years under a binding commitment from Ceridian Holding II LLC. The infusion should prevent Ceridian HCM’s cash balance (just $73.4 million as of 31 December 2015) from becoming dangerously low. Thus, we believe that the cash balance plus the $75 million commitment from Ceridian Holding II LLC will be sufficient for Ceridian HCM to fund its business plan until the operations consistently generate substantial positive free cash flow.

We believe that Ceridian HCM will have sufficient liquidity over the next one to three years, given our expectation that annual free cash flow generation in 2016 and 2017 will be no worse than the negative $56 million (excluding discontinued operations) in 2015. The replenished cash balance will support this level of free cash flow consumption. Moreover, Ceridian HCM has some availability under its revolver to meet any additional cash needs. As of 31 December 2015, the revolver availability was limited to about $45 million owing to borrowing constraints imposed by the leverage ratio springing financial covenant.

Over the next 12-18 months, financial risk is limited because there is no debt maturing prior to the senior secured term loan, which matures in September 2020, and debt amortization is limited to the $7 million annual amortization on this debt. Longer term, Ceridian HCM will need to address its debt maturities, which could prove challenging in the absence of substantial growth in revenues and EBITDA.

Terrence Dennehy Vice President - Senior Analyst +1.212.553.1015 john.dennehy@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 APRIL 2016

Capital Injections in Rumo Support Its Debt Amortization and Investment Plans Last Monday, Rumo Logistica Operadora Multimodal S.A. (B1 stable) announced that it will receive a capital injection of around BRL2.4 billion ($660 million) of seven-year debentures, BRL2.0-BRL3.0 billion new shares, a BRL2.1 billion credit line from Banco Nacional de Desenvolvimento Economico e Social (BNDES), Brazil’s main development bank, and a BRL550 million credit line from Banco do Brasil. The capital injection, new shares and credit lines are credit positive for Rumo, whose liquidity was tight relative to its debt amortizations and planned capital investments for 2016-18. The company will use the proceeds to extend its debt amortizations, reinforce its cash position, and finance part of its capital-expansion plans.

Although Rumo’s still-weak adjusted debt protection metrics (including leverage of 5.0x-6.0x and interest coverage, as measured by EBIT/interest of 1.0x-1.5x) and negative free cash flow generation, will not improve significantly with the proposed transactions, the company has effectively opted to pay some of its debt amortizations in advance using the proposed debentures and other credit lines.

Rumo, Brazil’s largest independent rail-based logistics operator, had only BRL580 million in cash on hand as of December 2015, straining its ability to pay down its short-term debt. The company plans to use proceeds from the new debentures and other credit lines to amortize in advance part of its BRL6.3 billion in debt coming due in 2016, 2017 and 2018, which combined constitute 73% of its total reported debt. Most of the amortizations are related to bilateral loans from commercial banks.

The equity issuance will help Rumo reinforce its cash position and capital investment of about BRL7.5 billion through 2018, according to our estimates. The new credit lines with BNDES -- already a creditor for about 45% of Rumo’s BRL8.6 billion in reported debt -- demonstrate the bank’s commitment to helping Rumo finance its capital investments.

Despite Brazil’s challenging economic outlook, Rumo’s turnaround plan after its July 2015 merger with América Latina Logística leaves it better positioned to profit from a likely increase in rail volumes, based on increased crop results and market-share gains from trucking competitors. Agricultural commodities constituted around 90% of the volumes that Rumo transported in 2015. Rumo’s customer base consists of large clients, including the world’s largest commodities traders, for which Rumo is the only efficient transportation option available.

Rumo’s high leverage reflects its debt-funded capital investment and negative free cash flow in the capital-intensive transportation industry. Rumo’s gross debt/EBITDA ratio, including our standard adjustments, was 6.3x at the end of 2015, versus 7.0x a year earlier. The decline reflects positive results from Rumo’s new management’s turnaround efforts, but remains higher than the 5.7x level reported at the end of 2013.

Although the proposed capital injection will help Rumo fund its capital spending program, we estimate that negative cash flow will still require incremental additions to debt, keeping the total adjusted debt/EBITDA ratio around 5.0x-6.0x for the foreseeable future.

Marcos Schmidt Vice President - Senior Analyst +55.11.3043.7310 marcos.schmidt@moodys.com

NEWS & ANALYSIS Credit implications of current events

4 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Vedanta Resources Relieves Near-Term Liquidity Crunch with Hindustan Zinc Dividend Last Wednesday, Hindustan Zinc Ltd. (unrated) declared an INR24-per-share special dividend totaling INR122.1 billion ($1.8 billion). The dividend is credit positive for Vedanta Resources plc (B2 negative) because its 62.9%-owned subsidiary Vedanta Ltd. (unrated) will receive INR65.8 billion ($982 million) for its 64.9% shareholding in Hindustan Zinc, providing Vedanta Resources much-needed liquidity to meet its debt maturities of $2.67 billion in the fiscal year ending March 2017. The dividend can cover one third of the fiscal year’s maturing debt, or almost 52% of the $1.9 billion in debt maturing between April and July 2016.

We expect Vedanta Resources to deploy the dividend proceeds toward debt reduction, which will improve leverage. We expect adjusted leverage to decline to 4.3x-4.8x by March 2017 from 5.5x as of December 2015 and our estimate of 5.7x as of March 2016 (see Exhibit 1).

Vedanta’s Adjusted Leverage Following Receipt of the Dividend Payment

Sources: Moody’s Financial Metrics and Moody’s Investors Service forecasts

Vedanta Resources will pay the balance of its fiscal 2017 debt maturities with fresh term loans, working capital loans and the release of funds from working capital. However, it still faces material refinancing risk, with $2.7 billion of debt due in fiscal 2018 and $4.3 billion due in fiscal 2019. The large dividend comes as Vedanta Resources is grappling with weaker earnings and rising leverage owing to the severe decline in commodity prices.

Hindustan Zinc’s low-cost position and debt-free balance sheet will support free cash flow generation in the future; as at December 2015, Hindustan Zinc reported cash balances of $5 billion.

3.4x

2.6x

3.9x

3.1x3.4x

4.3x

5.5x 5.7x4.3x - 4.8x

1x

2x

3x

4x

5x

6x

$0

$1

$2

$3

$4

$5

$6

FY10 FY11 FY12 FY13 FY14 FY15 September2015 (LTM)

FY16Moody'sEstimate

FY17Moody'sForecast

$ Bi

llion

s

Moody's Leverage Expectations - right axis EBITDA - left axis Actual Leverage - right axis

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

NEWS & ANALYSIS Credit implications of current events

5 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Measures to Cool China’s Hot Property Markets Are Credit Negative for Developers On 25 March, Shanghai and Shenzhen authorities announced measures aimed at curbing residential property price appreciation after a run-up in prices over the past six to nine months. The new measures are credit negative for property developers with substantial operations in these two cities because they will likely suppress sales by reducing the number of eligible buyers. They will also hinder second-home buyers from upgrading to more expensive residences.

The key measures in both cities include raising the down-payment requirements for second-home mortgages, increasing land supply for residential housing and clamping down on improper financing arrangements for down payments. Shanghai raised the second-home mortgage down-payment ratio to 50%-70% from 30% of property value, while Shenzhen increased it to 40% from 30%, reversing an easing initiated nationwide in September 2014.

Shanghai and Shenzhen are among the most important cities in China and many of the 49 Chinese property developers that we rate have material exposures to both cities. Among these developers, the following have the largest exposures: Yanlord Land Group Limited (Ba3 stable), China Jinmao Holdings Group Limited (Baa3 stable), China SCE Property Holdings Limited (B1 stable), Powerlong Real Estate Holdings Limited (B2 positive), Greenland Hong Kong Holdings Limited (Ba1 negative), CIFI Holdings (Group) Co. Ltd. (Ba3 stable), China Resources Land Limited (Baa1 stable), Road King Infrastructure Limited (B1 stable) and Hopson Development Holdings Limited (B3 stable). As Exhibit 1 shows, at least 25% of their contracted sales came from Shanghai and/or Shenzhen in 2015, and we expect both cities to remain the main contributors to these companies’ sales over the next six to 12 months.

EXHIBIT 1

Nine Rated Chinese Developers with Substantial Contracted Sales and Land Bank Exposures to Shanghai and Shenzhen

Percent of Land Bank by Gross Floor Area

Percent of Contracted Sales by Sales Value

Total Contracted Sales by Sales Value

Issuer Shanghai Shenzhen Shanghai Shenzhen

Yanlord Land 16% 14% 38% 4% 42%

China Jinmao 12% 0% 38% 0% 38%

China SCE 8% 2% 29% 8% 37%

Powerlong 16% 0% 32% 0% 32%

Greenland Hong Kong 4%* 0% 30% 0% 30%

CIFI 18% 0% 28% 0% 28%

China Resources Land 2% 5% 6% 21% 27%

Road King Infrastructure 8% 0% 27% 0% 27%

Hopson Development 15% 0% 25% 0% 25%

Notes: Land bank information was as of December 2015 and contracted sales information was for full-year 2015. * Moody’s Investors Service estimate. Sources: The companies and Moody’s Investors Service

However, developers such as China Resources Land, China Jinmao, Yanlord and CIFI have strong sale execution records, brand names, and sound financial and liquidity positions that provide them some buffer to manage the resultant risks. Additionally, a significant portion of sales from China Jinmao and Powerlong are from commercial properties that the regulatory tightening does not affect. For Greenland Hong Kong, financial and operating support from its parent Greenland Holding Group Company Limited (Baa3 negative)

Kaven Tsang Vice President - Senior Credit Officer +852.3758.1304 kaven.tsang@moodys.com

Victor Wong Associate Analyst +852.3785.1569 victor.wong@moodys.com

NEWS & ANALYSIS Credit implications of current events

6 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

mitigates the risk. Although regulatory tightening may affect sales growth for China SCE, Road King and Hopson, their existing financial positions provide some rating headroom to accommodate a potential sales slowdown. The effects on China SCE’s cash flow will also be partly moderated by its good liquidity buffer.

Over the past six to nine months, property prices in Shanghai and Shenzhen have increased significantly on strong demand. In February, year-over-year residential property prices rose 25.1% for Shanghai and 57.8% for Shenzhen (see Exhibit 2), according to the National Statistics Bureau of China.

EXHIBIT 2

Year-on-Year Residential Property Price Changes for Tier 1 Cities and 70 Major Cities in China

Sources: National Bureau of Statistics of China and Moody’s Investors Service

Further policy fine-tuning will continue in cities where price growth has also been robust. In addition to Shanghai and Shenzhen, Suzhou, Nanjing, Wuhan and Langfang, have also announced measures to curb property price growth over the past two weeks.

-10%

0%

10%

20%

30%

40%

50%

60%Shenzhen Shanghai Beijing 70 cities

NEWS & ANALYSIS Credit implications of current events

7 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Infrastructure

APA Group’s Acquisition of Diamantina Power Station Is Credit Negative On 29 March, Australia-based APA Group (for which APT Pipelines Limited (Baa2 stable) is the financing vehicle) announced that it will become sole owner of the Diamantina Power Station (DPS), acquiring the remaining 50% equity interest in the asset from AGL Energy Ltd (Baa2 stable) for AUD151 million. APA also intends to refinance DPS’ existing debt facility of AUD400 million.

APA intends to wholly debt-finance the transaction, a credit negative. The additional AUD550 million of debt will moderately weaken APA’s financial metrics. Leverage, as measured by APA’s ratio of funds from operations to debt, will decline to 9%-10% over the next three years from 10.5% in December 2015, the first half of APA’s fiscal year, which ends in June. APA’s financial metrics were particularly strong at the December half year owing to additional equity raised for a previous transaction.

Additionally, the power station, as a standalone single asset, has higher counterparty and industry concentration risk than APA’s pipelines, which will reduce the percentage of earnings APA’s pipeline business contributes to around 89%, weakening the group’s business profile. In particular, 75% of the power station’s output is sold to a zinc and copper mine ultimately owned, but not guaranteed, by Glencore International AG (Baa3 stable), which modestly increases APA’s exposure to challenging conditions in commodity markets.

Although most of the payments from Glencore are independent of volumes, weak commodity prices give rise to uncertainty about the mine’s continued operation. Given the size of the contract, sourcing alternative customers in the hypothetical event of the mine closure would likely be challenging. However, Glencore agreed to new environmental licensing conditions to allow the mine and its associated smelter and refinery facilities to continue operations through to the end of 2022.

For AGL, the transaction is credit positive. Apart from the disposal proceeds, the sale shows management’s intention to grow AGL’s core business, particularly its new energy business that focuses on renewable and distributed generation.

The transaction also highlights an emerging trend for energy and resource companies such as AGL and Origin Energy Limited (Baa3 review for downgrade) to divest non-core infrastructure assets such as non-merchant power stations, pipelines and gas storage facilities to specialist infrastructure assets owners and operators such as APA, which is Australia’s largest pipeline owner and operator (see exhibit).

Australian Specialist Operators’ Recent Acquisitions of Non-Core Infrastructure Assets Date Transactions

Mar 2016 APA acquired 50% of Diamantina Power Station from AGL Energy for AUD150 million

Feb 2016 Ausnet Services acquired Mortlake Power Terminal from Origin Energy for AUD110 million

Nov 2015 QIC Ltd (unrated) acquired Iona Gas Storage Plant from EnergyAustralia (unrated) for AUD1.78 billion

Sept 2015 Morrison & Co acquired a 50% interest in Macarthur Wind Farm from AGL for AUD532 million

Source: Australian Securities Exchange

Proceeds from these transactions are often used by energy utilities to fund investments in strategic areas, such as the development of renewable and distributed energy generation, or to strengthen their balance sheets in order to counter the effect of falling commodity prices.

Spencer Ng Vice President - Senior Analyst +61.612.927.08191 spencer.ng@moodys.com

NEWS & ANALYSIS Credit implications of current events

8 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Banks

State Street’s Acquisition of GE Asset Management Is Credit Positive Last Wednesday, State Street Corporation (A2 review for upgrade) agreed to acquire GE Asset Management (GEAM) from General Electric Company (A1 stable) in a cash transaction valued at up to $485 million. The transaction is credit positive for State Street because it would diversify its asset management capabilities away from index funds. Furthermore, the purchase price is reasonable with only a modest hit to State Street’s capital base. Only if State Street unexpectedly fails to retain a significant number of GEAM’s external clients would the deal be a misstep.

The purchase of GEAM will add scale to State Street’s global investment management business, which is already sizable and profitable and generated about 10% of the company’s 2015 pre-tax earnings. At year-end 2015, State Street had $2.2 trillion in assets under management, an amount that will increase by about 5% once GEAM’s roughly $100 billion in assets under management are added. More importantly, the deal will broaden State Street’s existing active equity, fixed-income and hedge fund capabilities. Currently, about 95% of State Street’s assets under management, excluding cash, follow a passive investment approach, such as index funds.

The predictability of State Street retaining GEAM’s clients is supported by the fact that its largest client, by far, appears to be GE’s own pension and other benefit plans. GE’s 2015 10-K shows that the fair value of its own pension plan assets was $45.7 billion at year-end 2015 and the fair value of other pension plans that it administers, such as those of companies acquired by GE, were an additional $17.4 billion. Together, these plans account for more than 60% of the assets under management that State Street will acquire.

In its own announcement of the deal, GE noted that an independent fiduciary reviewed the transaction and approved State Street to manage the assets. This external validation reinforces our credit-positive view that State Street is a capable asset manager. With that said, GEAM brings State Street new alternative asset classes, such as direct private equity and real estate. Consequently, GEAM staff retention is critical to maintaining GEAM’s value. To that end, we expect the existing GEAM team to join State Street. Nonetheless, retention of most of the remaining roughly 40% of assets currently managed by GEAM for a variety of external clients will be critical to the transaction’s success.

Our conclusion that State Street is paying a reasonable price for GEAM is based on its expectation that incremental revenue from the acquisition will be $270-$300 million in the first 12 months after it closes. Using the midpoint of that range, $285 million, as well as State Street’s reported three-year average investment management pre-tax margin of 25%, incremental earnings would approximate $46 million after-tax, assuming a 35% tax rate. That suggests a purchase price of about 10x-11x earnings. This analysis ignores expected merger and integration costs of $70-$80 million through 2018.

To fund the purchase, State Street will issue preferred stock to offset the transaction’s effect on its leverage capital ratios. However, State Street also disclosed that its fully phased-in risk-based capital ratios would decline 40-50 basis points, which we see as the deal’s most credit negative aspect. Tempering this development has been the significant increase in State Street’s fully phased-in common equity Tier 1 ratio over the course of 2015 as it actively managed down its risk-weighted assets. We expect a smooth regulatory approval process and presume that the effect of the GEAM acquisition on State Street’s capital position will be incorporated into its 2016 Federal Reserve Comprehensive Capital Analysis and Review submission, which is due on or before 5 April.

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

NEWS & ANALYSIS Credit implications of current events

9 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

UK’s Incremental Capital Rules and Clarity on Stress Testing Are Credit Positive for Banks Last Tuesday, the Bank of England summarised the outcome of the 23 March Financial Policy Committee (FPC) meeting. In its statement, the FPC noted that risks to UK financial system stability have risen. Consequently, the FPC will impose a new countercyclical capital buffer for UK banks, set at 0.5% of their UK risk-weighted assets (RWAs), effective 29 March 2017, a credit positive.

Most banks already have enough capital to cover this initial 0.5% increase in the countercyclical buffer since it was already included in their UK pillar 2 capital buffers.1 However, the FPC considers 1% the target buffer in a standard risk environment and has made clear its intentions to increase the countercyclical buffer by another 0.5%, which we expect over the next 12-18 months if economic conditions do not change dramatically. In tandem, to avoid any overlapping, the FPC has applied a one-off reduction of the required Pillar 2 capital buffers by 0.5%, since it aims to enhance transparency having separated the countercyclical buffer.

The additional buffer is credit positive for banks since it signals a net increase in capital requirements. The countercyclical capital buffer must be held in the form of common equity Tier 1 (CET1) capital, which is the highest quality form of loss-absorbing capital. The planned increase in the countercyclical buffer indicates that the FPC is ready to be more proactive with capital requirements. The FPC cited a deterioration in the outlook for financial stability because of a weaker global economic outlook, uncertainty ahead of the referendum on continued UK membership in the European Union and the rapid growth in consumer and buy-to-let lending amid the UK’s relatively high level of household indebtedness.

The Bank of England also released key assumptions for its 2016 stress test scenario for large UK banks and building societies, which includes increased and bank-specific hurdle rates compared to the standard 4.5% minimum hurdle rate used in the 2015 exercise. Based on the most recent financial results, the exhibit below shows the hurdle rates as well as the current CET1 ratios for the entities included in the 2016 stress test exercise: Barclays plc (Baa3 stable), HSBC Holdings plc (A1 negative), Lloyds Banking Group plc (Baa1 positive), Nationwide Building Society (A1 positive, a32), The Royal Bank of Scotland Group plc (Ba1 positive), Santander UK Plc (A1 stable, a3) and Standard Chartered plc (A1 negative).

UK Bank CET1 Capital Ratio as Percent of Risk-Weighted Assets

Royal Bank of Scotland Lloyds Barclays Plc Santander UK

Standard Chartered

HSBC Holdings

Nationwide Building Society*

Pillar 1 Capital Requirement 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5%

Pillar 2A Total Requirement (CET1) 2.8% 2.6% 2.2% 2.0% 1.0% 1.3% 3.4%

Total Hurdle Rate 7.3% 7.1% 6.7% 6.5% 5.5% 5.8% 7.9%

G-SIB Buffer 0.4% 0.0% 0.4% 0.0% 0.4% 0.4% 0.0%

Total Systemic Reference Point 7.7% 7.1% 7.1% 6.5% 5.9% 6.2% 7.9%

Actual CET1 Ratio 15.5% 12.8% 11.4% 11.6% 12.6% 11.9% 21.9%

Note: *Values as of 31 December 2015 except for Nationwide as of 30 September 2015.

Source: Company annual reports and Moody’s Investors Service

1 Pillar 2 capital, set following a supervisory review process, complements the Pillar 1 minimum capital requirements, but aims to

more fully capture all elements of risk that are specific to an individual bank’s risk profile. 2 Ratings for Nationwide and Santander UK are deposit ratings and baseline credit assessments.

Carlos Suarez Duarte Vice President - Senior Analyst +44.20.7772.1061 carlos.suarezduarte@moodys.com

Maxwell Price Associate Analyst +44.20.7772.1778 maxwell.price@moodys.com

NEWS & ANALYSIS Credit implications of current events

10 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

The Tier 1 leverage ratio hurdle rate has remained unchanged from the 2015 stress test at 3%, for all participating banks. The 2016 stress test assumes significant adverse shocks to the UK and international operating environments, such as a 4.3% decline in UK output over the first year, an increase in the UK unemployment rate to 9.5% by 2017, a 31% decline in UK house prices from peak to trough, a 3.0% contraction in 2016 euro area GDP and a 0.5% contraction in China’s 2016 GDP compared to growth of just under 7% in 2015. We believe that the conservatism of the stress test scenario is credit positive for large UK banks since it will highlight potential weaknesses in the banks’ capital structures in a materially adverse macroeconomic scenario.

In addition, the 2016 stress test will also include a “systemic reference point” which takes account of a bank’s relative systemic importance to the overall financial system. The global systemically important bank (G-SIB) capital buffer of 1%-2.5% of CET1 capital will apply to Royal Bank of Scotland, Barclays, Standard Chartered and HSBC and will be incrementally phased in between this year and 2019. The purpose of implementing a G-SIB-specific buffer is to ensure that those banks can withstand greater stress, ensuring that credit services are not withdrawn from the wider economy when they are most needed.

NEWS & ANALYSIS Credit implications of current events

11 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Russia Considers Restricting Internal Risk-Based Modelling, a Credit Positive for Large Banks Last Thursday, Kommersant quoted Central Bank of Russia (CBR) Deputy Chairman Vasily Pozdyshev as saying that the CBR planned to narrow the application of internal risk-based (IRB) modelling for risk-weight calculations. The proposed changes, which follow recommendations by the Basel Committee on Banking Supervision (BCBS), are credit positive for Russia’s largest banks because they will result in a less significant reduction in risk-weighted assets (RWAs) and, accordingly, more conservative capital management.

The Basel committee had proposed removing the option to use IRB approaches for credit exposures to financial institutions, large corporate borrowers (defined as corporates belonging to consolidated groups with total assets exceeding €50 billion), and equity holdings. Accordingly, banks will be obliged to apply standardized risk weights to these assets. We consider excluding these particular asset classes from the scope of IRB as prudent, given their inherent modelling risks.

Currently, all Russian banks use the standardized approach to calculate RWAs. However, they were recently allowed to apply for permission to use IRB, with some potentially starting to report using this method as soon as the second half of 2016, after the regulator completes its audit of their models. According to earlier CBR guidance, the central bank, when granting permission to use IRB, will take into account the candidate bank’s asset size, with assets in excess of RUB500 billion viewed as giving the bank enough data to run a reliable IRB model. According to unaudited local GAAP data as of 1 March 2016, 16 banks in Russia met this asset size criterion.3 Two banks, Sberbank (Ba2/Ba1 review for downgrade, ba2 review for downgrade4) and AO Raiffeisenbank (Ba2/Ba2 review for downgrade, ba2 review for downgrade), have publically confirmed that they have already applied for permission to use IRB models.

Although public information about banks’ credit exposure to the largest corporates is not available, Russian corporates that meet the BCBS proposed minimum for a consolidated group’s total assets are mainly concentrated in the oil and gas sector, and include Gazprom PJSC (Ba1 review for downgrade), OJSC Oil Company Rosneft (Ba1 review for downgrade) and Lukoil, PJSC (Ba1 review for downgrade). Accordingly, our evaluation of the proposed changes’ implications for affected banks takes into account the share of interbank and equity holdings in total assets and the share of the loan book allocated to the oil and gas sector.

On this basis, Binbank (unrated) has the highest share of total assets in interbank exposures and equity holdings among banks with total assets of more than RUB500 billion (see Exhibit 1), followed by VTB24 (Ba2 review for downgrade, b1). Gazprombank (Ba2 review for downgrade/Ba2 negative, b1), Credit Bank of Moscow (B1/B1 stable, b1), Bank VTB, JSC (Ba2/Ba1 review for downgrade, b1) and Promsvyazbank (Ba3/Ba3 negative, b1) have the highest exposures to the oil and gas sector (more than 10% of their respective gross loans), which we use as a proxy for the credit exposure to the largest Russian corporates (see Exhibit 2). As a result, if these banks start using the IRB approach, their capital management is most likely to benefit from the proposed regulatory amendments.

3 This excludes National Clearing Centre, which has a banking license but is not a banking franchise. 4 The bank ratings shown in this report are the bank’s foreign currency deposit rating, senior unsecured debt rating (where

available) and baseline credit assessment.

Svetlana Pavlova Assistant Vice President - Analyst +7.495.228.60.52 svetlana.pavlova@moodys.com

Ilya Pestryakov Associate Analyst +7.495.228.61.17 ilya.pestryakov@moodys.com

NEWS & ANALYSIS Credit implications of current events

12 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

EXHIBIT 1

Russian Banks’ Share of Interbank Exposures and Equity Holdings in Total Assets Local GAAP data as of 1 March 2016.

Sources: Central Bank of Russia and Moody’s Investors Service

EXHIBIT 2

Russian Banks’ Oil and Gas Sector Loans as a Percent of Total Gross Loans Latest available IFRS data, using the closest proxy for each bank.

Note: *Proxy calculated by subtracting Bank of Moscow’s loans to oil and gas from VTB Group’s loans to oil and gas and dividing the difference by VTB Bank’s standalone gross loans from local GAAP. Sources: The banks and Moody’s Investors Service

57%

31%25% 23%

19% 17% 16% 15% 15% 12%9% 8% 8% 7% 6% 4%

0%

10%

20%

30%

40%

50%

60%

Interbank Exposures Equity Holdings

19%

15%13%

10%

8% 7%6%

4% 3% 3% 3% 3%

0%2%4%6%8%

10%12%14%16%18%20%

NEWS & ANALYSIS Credit implications of current events

13 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Banque Du Caire’s Planned Stock-Exchange Listing Is Credit Positive On Sunday, the governor of the Central Bank of Egypt announced plans to float a 20% stake in the government-owned Banque Du Caire (B3 stable, caa15) through an initial public offering (IPO). The planned listing on the Egyptian stock-exchange is credit positive because it will increase Banque Du Caire’s low capital buffers, improve its market access for raising more equity and debt and increase reporting transparency and timeliness, an issue for government-owned Egyptian banks.

The IPO will increase Banque Du Caire’s low capital levels, a key weakness for government-owned Egyptian banks. Banque Du Caire is 100% owned by Banque Misr SAE (B3 stable, caa1), itself a 100% government-owned bank. As of September 2015, Banque Du Caire’s shareholders equity was EGP5.5 billion, or 6% of total assets. At 8% as of December 2014, its Tier 1 ratio was also below the banking system average of 11%. If shares are offered at the current book value (i.e., the bank’s current shareholder equity per share), the bank will raise EGP1.4 billion or around 2% of total assets. That said, larger privately owned banks trade at nearly 3x book value, so a higher price may be achieved. A stock exchange listing will make it easier for Banque Du Caire to tap the market again in the future – for either equity or debt – because the bank will be familiar to investors. Given that the IPO covers only 20% of shares, we expect the government, via Banque Misr, will remain a committed shareholder willing to support the bank in case of need.

Higher capital buffers will support Banque Du Caire’s solvency, especially in view of its large concentrations in Egyptian government securities and its plans to grow loans to small and medium enterprises (SMEs) aggressively. As of December 2015, 44% of banking system assets were invested in government securities. We estimate Banque Du Caire’s exposure to government securities accounted for more than 40% of assets as of September 2015. In addition, the bank’s Chairman and CEO Mounir El-Zahid recently announced plans to more than double loans to the riskier SME sector, to EGP3.4 billion by December 2016 from EGP 1.4 billion as of December 2015. The bank’s strategy is in-line with the central bank’s January 2016 requirement that Egyptian banks grow SME loans to 20% of gross loans over the next four years.

The IPO will also improve Banque Du Caire’s reporting transparency and timeliness because as a listed bank, it will be bound to a reporting schedule. Delays in publishing results are common for Egypt’s government-owned unlisted banks because their accounts require auditing by a public sector auditor. Moreover, a stock exchange listing will be accompanied with increased disclosures, especially in the areas of corporate governance and asset quality.

The listing is part of the government’s effort to increase investment and boost economic growth which, although improved from 2011-13, has lost steam. GDP growth for the quarter ending September 2015 was 3.1%, lower than 4.5% for the fiscal year ending June 2015. The share listing will deepen the domestic stock exchange and facilitate greater investor interest. Only 13 out of 40 banks operating in Egypt are listed, covering 25% of the market by assets. Banque Du Caire will be the third largest traded bank, after Commercial International Bank (Egypt) SAE (B3 stable, b3) and QNB Al Ahli (unrated).

5 The bank ratings shown in this report are the bank’s domestic deposit rating and baseline credit assessment.

Marina Hadjitsangari Associate Analyst +357.2569.3034 marina.hadjitsangari@moodys.com

Melina Skouridou, CFA Assistant Vice President - Analyst +357.2569.3021 melina.skouridou@moodys.com

NEWS & ANALYSIS Credit implications of current events

14 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Australia’s Adoption of Basel Committee’s Net Stable Funding Rule Would Be Credit Positive Last Thursday, the Australian Prudential Regulation Authority (APRA) released for consultation a discussion paper outlining its proposed implementation of the net stable funding ratio (NSFR), a key part of the Basel III regulatory framework that requires banks to maintain more stable sources of funding for their on- and off-balance-sheet activities.

Adoption of the NSFR framework in Australia would be credit positive for Australian banks, particularly those with a higher percentage of wholesale funding, including Australia and New Zealand Banking Group Limited (Aa2/Aa2 stable, a16), Commonwealth Bank of Australia (Aa2/Aa2 stable, a1), National Australia Bank Limited (Aa2/Aa2 stable, a1), Westpac Banking Corporation (Aa2/Aa2 stable, a1) and Macquarie Bank Limited (A2/A2 stable, baa1).

The NSFR standard seeks to limit excessive reliance on short-term funding by obliging banks to maintain a minimum level of long-term resources (so-called stable funding) against all bank activities. The NSFR’s objective is to promote bank liquidity.

APRA’s proposed framework largely adopts the Basel Committee on Bank Supervision’s (BCBS) NSFR rules. APRA has also proposed that the new standard take effect January 2018, consistent with the international timetable outlined by the BCBS. The framework will apply to the 15 largest banks in Australia.

The banks’ liquidity will particularly benefit from the adoption of the NSFR. Although the banks have significantly reduced their proportion of wholesale funding, the proportion remains high relative to peer banking systems (see Exhibit 1). Australian banks’ funding profiles are also more short-term in nature: as Exhibit 2 illustrates, the maturity structure of Australian banks’ unsecured debt compares unfavourably with that of their global peers. Adopting NSFR will require the banks to reduce their reliance on wholesale debt and lengthen their maturity profiles.

EXHIBIT 1

Australian Banks’ Proportion of Wholesale Funding to Tangible Bank Assets versus Peers

Note: Data for 2015 is as of the respective countries’ fiscal year-end for Australia, Canada and New Zealand, and as of first-half 2015 for other countries. Source: Moody’s Financial Metrics

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

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Sweden Canada Australia United Kingdon New Zealand United States Singapore

2008 2009 2010 2011 2012 2013 2014 2015

Ilya Serov Senior Vice President +61.292.708.162 ilya.serov@moodys.com

NEWS & ANALYSIS Credit implications of current events

15 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

EXHIBIT 2

Australian Banks’ Unsecured Debt Maturities as Percent of Total Unsecured Debt versus Peers

Note: Maturity profile based on face value issuance amount for unsecured debt issued by Moody's-rated banks. Source: Moody’s Financial Metrics

APRA proposed certain Australia-specific adjustments, primarily regarding the treatment of the debt securities and self-securitised assets held as collateral for the committed liquidity facility extended to banks by the Reserve Bank of Australia as part of Australia’s liquidity coverage ratio (LCR) regime. The proposal would assign a 10% required stable funding (RSF) factor to committed liquidity facility-eligible debt securities, a lower factor than would otherwise be the case, but not extend concessional treatment to self-securitised assets, which will continue to attract an RSF factor commensurate with that for the underlying mortgage loans. Although this restricts the regulatory benefits of self-securitised assets, we continue to see such assets – and other mortgages that can be readily self-securitised – on the Australian banks’ balance sheets as a critical liquidity support.

The implementation of the NSFR may negatively affect profitability as banks switch to more costly deposit funding and lengthen the maturity profile of their wholesale debt. However, the NSFR addresses a key weakness of Australian banks’ credit profiles – their high reliance on wholesale debt – and therefore its adoption is an important and credit-positive regulatory initiative.

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2016 2017 2018 2019 2020 2021 & Beyond

Global Australia

NEWS & ANALYSIS Credit implications of current events

16 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Insurers

MetLife Sheds SIFI Designation, a Credit Negative On Wednesday, a US federal judge rescinded MetLife, Inc.’s (A3 review for downgrade) designation as a non-bank systemically important financial institution (SIFI). The ruling, which can be appealed by the US Financial Stability Oversight Council (FSOC), is credit negative for MetLife because it eliminates a layer of additional regulatory oversight.

In December 2014, the FSOC designated MetLife as a non-bank SIFI, placing the firm under the jurisdiction of the Federal Reserve, thereby providing regulatory oversight beyond the state insurance regulatory framework. In January 2015, MetLife filed an action to overturn the designation as expressly permitted by the Dodd-Frank Act. The US District Court of the District of Columbia on Wednesday ruled to rescind MetLife’s SIFI designation, supporting the view that MetLife’s operations do not pose a threat to the financial stability of the US.

In a two-page court order, US District Judge Rosemary Collyer indicated that the FSOC’s designation of MetLife was arbitrary and capricious and violated the Dodd-Frank Act and the Administrative Procedures Act. Her reasoning was that the FSOC had failed to assess MetLife’s vulnerability to material financial distress and that the agency had depended on unsubstantiated, indefinite assumptions and speculation that failed to satisfy the statutory standards for designation and the FSOC’s own interpretive guidance.

Additionally, the judge said that the FSOC had failed to consider the economic effects of designation on MetLife. Details behind the judge’s decision will not be made public until a meeting between MetLife and the FSOC scheduled for 6 April, when the two parties will determine what part of the decision can be made public. The details behind the decision are important because they determine how challenging it would be for the FSOC to overcome the judge’s concerns.

Losing the SIFI designation removes the additional scrutiny of rigorous stress testing and requirements related to solvency, capital adequacy, and liquidity. Although MetLife has strong risk management, the court’s decision also lessens the deterrent to assuming outsize risks. Additionally, MetLife could operate at lower capital level targets and it would be easier to return capital to shareholders. Somewhat offsetting these negatives is greater operational flexibility without the SIFI designation. Additionally, MetLife will no longer be held to a different standard from others life insurers, something that would have put MetLife at a competitive disadvantage.

We do not expect the court decision to affect MetLife’s plan, announced in January, to pursue a separation and potential disposition (through an initial public offering, spinoff or sale) of a substantial portion of its US retail business. According to MetLife, its decision to pursue a separation was only partially based on the ramifications of the US retail business being regulated as part of a SIFI. The other driver was MetLife’s strategy to direct capital to lines of business with lower capital requirements and more cash-generation potential. Furthermore, although MetLife has shed its SIFI status, the FSOC can take a number of actions, including appealing the recent ruling or seeking to re-designate MetLife as a SIFI.

In the meantime, the judicial outcome could lead the other insurance SIFIs, American International Group, Inc. (Baa1 stable) and Prudential Financial, Inc. (Baa1 stable), to work toward removing their SIFI designation. On Thursday, General Electric Company (A1 stable) formally requested the FSOC to release the company from its non-bank SIFI designation because it has reduced the size of its financing business.

Scott Robinson Senior Vice President +1.212.553.3746 scott.robinson@moodys.com

Shachar Gonen Vice President - Senior Analyst +1.212.553.3711 shachar.gonen@moodys.com

NEWS & ANALYSIS Credit implications of current events

17 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Sovereigns

Belarus’ Loan from Eurasian Fund for Stabilization and Development Is Credit Positive Last Wednesday, Belarus (Caa1 negative) received the first $500 million tranche of a $2 billion, 10-year loan from the Eurasian Fund for Stabilization and Development (EFSD), a regional fund managed by the Eurasian Development Bank (Baa1 stable). The loan, to be disbursed in seven tranches in 2016-18, will fill a financing gap and aims to support economic structural reforms.

The new loan is credit positive for Belarus. The EFSD’s $2 billion loan provides low-cost financing to service upcoming debt payments, and prods reforms to address the structural deficiencies in the Belarusian economy that potential lenders -- most notably the International Monetary Fund (IMF) and the EFSD – require.

Belarus’ external payments position remains extremely weak, which weighs on its credit quality, making it difficult to access financing to roll over existing foreign currency debt: Belarus has foreign currency payments of approximately $3.5 billion in 2016, $2.9 billion in 2017 and $3.1 billion in 2018.

Moreover, the country ran current account deficits averaging 7.9% of GDP in 2010-15 amid declining foreign direct investment (FDI). As a share of GDP, FDI fell to 2.4% in 2014 from 2.7% in 2013, below the 2010-15 average of 3.1%. The lack of sufficient foreign exchange inflows will continue to weigh on foreign currency reserves, which declined to $1.9 billion at year-end 2015 from a high of $4.7 billion in August 2013 as shown in the exhibit below. We expect foreign exchange reserves to fall to $1.5 billion by year-end 2016.

Belarus Foreign Exchange Reserves

Sources: National Bank of the Republic of Belarus and Moody’s Investors Service

Belarus has long relied upon Russia (Ba1 review for downgrade) and multilaterals for financial support. Over the past three years, however, the IMF and EFSD balked at providing financing to Belarus because of its lack of progress on structural reforms, and in January, Russia’s Ministry of Finance announced that lending to foreign governments would decrease in 2016 amid its own economic difficulties, although Russia advanced Belarus $760 million in July 2015.

A major benefit of the EFSD loan program is that funding is likely on more favorable terms than what Belarus could have obtained on the private market, since multilateral loans are normally at below market rates and for longer durations than private loans. Cheaper funding costs increase the likelihood that Belarus will service its debt over the medium term. Furthermore, the EFSD loan has a five-year grace period, which gives Belarus more time to improve its external payments position.

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Joshua Grundleger Associate Analyst +1.212.553.1791 joshua.grundleger@moodys.com

Ernest Sergenti Assistant Vice President - Analyst +1.212.553.4196 ernest.sergenti@moodys.com

NEWS & ANALYSIS Credit implications of current events

18 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

The structural reforms the sovereign agreed to implement include promoting a flexible monetary policy, balancing the budget (particularly through the reduction of selected subsidies) and reducing the costs of doing business. Participation in the loan program is a material incentive for additional progress on such structural reforms, which, given that Belarus is currently one of the most centrally planned economies, is credit positive.

NEWS & ANALYSIS Credit implications of current events

19 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

US Public Finance

San Bernardino, California’s Bankruptcy Settlement Is Bad News for Pension Bondholders Last Monday, the City of San Bernardino, California (unrated) announced a settlement in bankruptcy proceedings with Commerzbank Finance & Covered Bond S.A. (Baa3 stable) and Ambac Assurance Corporation (unrated), creditors of the city’s approximately $100 million in pension obligation bonds (POBs).

The settlement’s stated 40% recovery rate is significantly higher than the city’s original 1% proposal, but it is still a significant loss and credit negative for the San Bernardino POB holders and for all investors in unsecured local government debt paid from general government revenues and without a general obligation (GO) pledge. Although “unconditional legal obligations” of San Bernardino, its POBs were unsecured obligations, and this agreement is another example of relatively low recovery rates for such debt in bankruptcy compared with secured debt and pension obligations to current employees and retirees.

In the settlement, the city promises to pay a total of $51 million over 30 years, beginning one year after the bankruptcy court approves San Bernardino’s plan of adjustment. Based on limited available information, and using our standard methodology incorporating the present value of the settlement terms, we estimate that the city’s POB holders will actually recover less than 30% of their investment, not the stated 40%. The low recovery rate on San Bernardino’s POBs repeats similar outcomes in other municipal bankruptcy cases. POB investors recovered 12% in Detroit, Michigan (B2 positive) and 41% in Stockton, California (POBs Ca stable). Besides Stockton, other POBs in California currently with speculative grade ratings include Fresno (POBs Ba2 positive) and Richmond (POBs Ba2).

In Detroit and Stockton, retirees and current employees had far higher recovery rates on their unfunded pension promises than did POB creditors. Stockton’s pensions were not impaired, and Detroit’s pensioners retained approximately 82% of their benefits. San Bernardino suspended its employer contributions to the California Public Employees’ Retirement System (CalPERS, Aa2 stable) for one year after it filed for bankruptcy in 2012, but agreed to a schedule to repay its foregone contributions in a 2014 deal and to contribute according to the actuarial requirements annually determined by CalPERS going forward.

In exchange for preserving pensions, retirees agreed to cuts in other post-employment benefits, or OPEB, primarily retiree health insurance. The city eliminated its monthly subsidies and retirees were placed in a retiree-only benefit program, instead of a blended program with active city employees, resulting in increased premiums. We previously estimated that these changes would result in a 86% cut to the city’s OPEB liabilities. Cutting OPEB along with debt, while leaving pensions untouched, is consistent with Stockton and Detroit bankruptcies. Our calculations estimated OPEB recovery at only 1% for Stockton and 10% for Detroit.

Compared to the $100 million in defaulted POBs, San Bernardino’s plan to leave accrued pension benefits unimpaired leaves it responsible for $275 million of unfunded liabilities on a reported basis as of June 2014, which equates to a Moody’s-adjusted net pension liability of $860 million. Beyond just the unfunded liability however, the city retains all of the pension asset performance risk going forward, meaning it continues to backstop $1.2 billion of total pension liabilities on a reported basis ($1.8 billion on a Moody’s-adjusted basis).

Karolina Norris Associate Analyst +1.214.979.6858 karolina.norris@moodys.com

Thomas Aaron Vice President - Senior Analyst +1.312.706.9967 thomas.aaron@moodys.com

NEWS & ANALYSIS Credit implications of current events

20 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Securitization

FDIC Safe Harbor Requirements Strengthen Chase 2016-1 Prime RMBS Transaction On 1 April, Chase Mortgage Trust 2016-1 (Chase 2016-1) closed, the first prime residential mortgage-backed security (RMBS) transaction to come to market since the Federal Deposit Insurance Corporation’s (FDIC) securitization safe harbor rule went into effect in September 2010. Under the rule, the securitized mortgage loans backing Chase 2016-1 are isolated from consolidation risk in the unlikely event that the sponsor, JPMorgan Chase Bank, becomes insolvent. In addition, Chase 2016-1 incorporates several unique features that align incentives in the transaction and provide strong protections to bondholders. Comprising $1.9 billion of both conforming and non-conforming loans, Chase 2016-is one of the largest post-crisis RMBS transactions to date.

Chase 2016-1 capital structure is simple and contains tight triggers. Chase 2016-1 has a simple six-tranche (A, M-1, M-2, M-3, M-4 and B) transaction structure that complies with the safe harbor rule’s six-tranche maximum limitation. One pool of mortgages supports this structure, which is less complex than comparable deal structures that allow for differing payment and loss allocations among various bonds and pool groups. In addition, the transaction’s pro-rata payment structure contains tight performance triggers that offer protection to the certificates under a range of performance scenarios and are tighter than comparable triggers in standard shifting-interest structures. The performance tests protect both the senior and subordinate bonds based on credit enhancement deterioration and performance deterioration.7

Retention of a 5% economic interest aligns incentives with investors. As stipulated by the rule, the sponsor, JPMorgan Chase Bank, N.A. (Chase) retains a 5% vertical strip on Classes M-2, M-3, M-4 and B, in addition to holding the A and M-1 certificates. The retention of this vertical strip aligns Chase’s interest in the credit risk of the underlying loans with investors’ interests.

Servicing arrangement aligns servicing responsibilities and costs with deal performance. The servicing fee structure for Chase 2016-1 includes a base servicing fee for all loans, with increasing incentives for nonperforming loans. This fee-for-service structure aligns the monetary incentives of the servicer with its costs. Thus, the institutional and reputational strength of the servicer, combined with requirements under the safe harbor rule, mitigates the moral hazard that the servicing arrangement will unduly influence the servicer’s behavior. Further, the transaction does not include principal or interest (P&I) advancing, limiting the costs to the servicer. Nevertheless, the servicer is obligated to make protective advances for taxes, insurance and property preservation. Lack of P&I advancing reduces the unpredictability of cash flows driven by the servicer’s stop-advance policies. An available-funds waterfall whereby P&I shortfalls (if any) are covered upfront mitigates interest shortfall risk.

Initial reserve fund to cover repurchases strengthens the R&W framework. The transaction incorporates an initial repurchase reserve fund of $8 million, the equivalent of 5% of the cash proceeds of the securitization. Given the originator’s robust business practices,8 the strong quality of the collateral and the one-year sunset period for the fund, the transaction will not likely use the reserve fund materially but to complement and support the R&W framework.

Disclosure and reporting requirements provide more transparency. This transaction incorporates FDIC-required specific disclosures and reporting requirements related to performance of loans and securities, which will improve transparency to investors.

7 See First Issue from Chase Mortgage Trust in 2016, 14 March 2016. 8 See Originator Assessment: JPMorgan Chase Bank, N.A., 18 October 2012.

Padma Rajagopal Analyst +1.212.553.7997 padma.rajagopal@moodys.com

Diana P. Moreno Assistant Vice President - Analyst +1.212.553. 7102 diana.moreno@moodys.com

RATING CHANGES Significant rating actions taken the week ending 1 April 2016

21 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Corporates

Caesars Entertainment Resort Properties, LLC Downgrade

28 Mar ‘14 28 Mar ‘16

Corporate Family Rating B3 Caa1

Outlook Negative Negative

The downgrades reflect a higher probability that Caesars Entertainment Resort Properties and Caesars Growth Properties will be adversely affected by the ongoing bankruptcy of Caesars Entertainment Operating Company and related litigation. This action follows the 15 March 2016 independent examiners report filed in the United States Bankruptcy Court for the Northern District of Illinois. The ratings outlook for both companies is negative as restructuring activity at parent Caesars Entertainment Operating Company could have a material negative operating and financial impact on both entities.

HD Supply, Inc. Upgrade

3 Aug ‘15 28 Mar ‘16

Corporate Family Rating B2 B1

Outlook Positive Positive

The action stems from our forecast for continued organic growth in the company’s operating profits and cash flow generation, driven mainly by higher volumes across its businesses. We also believe that credit metrics will continue to improve. We anticipate gains across all lines of business, especially Facilities Maintenance.

International Business Machines Corporation Outlook Change

23 Nov ‘10 30 Mar ‘16

Long-term Issuer Rating Aa3 Aa3 (affirmed)

Short-term Issuer Rating P-1 P-1 (affirmed)

Outlook Stable Negative

The outlook change reflects concerns that it will remain challenging for IBM to grow revenue and profitability as it transitions its portfolio toward what it expects will be higher value-added offerings, as embodied by the company's portfolio of data analytics and cloud-based offerings.

RATING CHANGES Significant rating actions taken the week ending 1 April 2016

22 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Sherwin-Williams Company Downgrade

7 Jul ‘15 21 Mar ‘16

Senior Unsecured Rating A2 A3

Short-term Issuer Rating P-1 P-2

Outlook Stable Review for Downgrade

The downgrade reflects the company’s announcement that the significant increase in debt that could arise from the acquisition of The Valspar Corporation for roughly $9.3 billion in cash. The size of this transaction entails significant risks as Sherwin-Williams has never attempted to acquire a company as large as Valspar and will be entering several industrial market segments were it does not currently compete. We have subsequently placed the ratings of Sherwin-Williams and Valspar on review for downgrade.

Sysco Corporation Downgrade

22 Feb ‘16 22 Mar ‘16

Senior Unsecured Rating A2 A3

Short-term Issuer Rating P-1 P-2

Outlook Review for Downgrade Negative

The actions consider Sysco’s financing package for its proposed acquisition of Brakes Group. The debt from this transaction, combined with the debt necessary to execute the second $1.5 billion in share repurchases later this year, will cause Sysco's leverage as measured by debt/EBITDA to spike to almost 3.3 times from the December 2015 LTM of 2.7 times, with reductions to below 3 times at least 18 months away.

3M Company Downgrade

3 Feb ‘15 29 Mar ‘16

Senior Unsecured Rating Aa3 A1

Short-term Issuer Rating P-1 P-1 (affirmed)

Outlook Negative Stable

The downgrade follows 3M's announcement of its new five-year plan for 2016-20, pursuant to which the company expects to continue increasing debt appreciably to help fund acquisitions and share repurchases. The stable outlook is predicated on our expectation that 3M will demonstrate organic revenue growth of at least 2%, EBITA margins of around 25% and free cash flow of about $2.5 billion annually. Furthermore, it reflects our anticipation that the increase in financial leverage will taper off under 3M's new five-year plan.

RATING CHANGES Significant rating actions taken the week ending 1 April 2016

23 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Financial Institutions

DBS Bank (Hong Kong) and OCBC Wing Hang Bank Outlook Change

31 Mar ‘16

We changed to negative from stable the outlook on the ratings of DBS Bank (Hong Kong) Limited and OCBC Wing Hang Bank Limited. At the same time, we affirmed the two banks' baseline credit assessments (BCAs), adjusted BCAs, counterparty risk assessments (CR assessments), and all of their ratings. The rating actions follow the similar rating actions taken on the two banks' parents, DBS Bank Ltd. (Aa1 negative) and Oversea-Chinese Banking Corp Ltd (OCBC, Aa1 negative), and the change of Moody's Macro Profile for Hong Kong's banking system to "Strong" from "Strong+."

Bank of East Asia and three Hong Kong Banks Downgrade and Outlook Change

17 Mar ‘16

We have downgraded Bank of East Asia's long-term and short-term deposit ratings to A3/Prime-2 from A2/Prime-1. We have also downgraded its long-term senior unsecured debt rating to A3; senior unsecured commercial paper rating to Prime-2; and long-term CR Assessments to A2(cr). The outlook on all ratings remains negative. Meanwhile, the deposit and senior unsecured debt ratings of Bank of East Asia incorporate multiple notches of support from the Hong Kong government. The downgrade of its deposit and senior unsecured ratings therefore considers that the government's support for the bank could be weaker than what we had previously assessed. We also revised to negative from stable the rating outlook on three Hong Kong banks. The rating action reflects our expectations of a more challenging operating environment for banks in Hong Kong. On 12 March 2016, we changed the outlook on Hong Kong government's Aa1 sovereign rating to negative from stable. The revision of the sovereign outlook reflects our concern that Hong Kong's increasing economic and financial linkages with China (Aa3 negative) give rise to potential negative spillovers from China and ultimately weaker growth. These three banks' current impaired loan ratios are exceptionally low at below 0.6%, due to benign operating conditions in Hong Kong since the global financial crisis. However, the expected deterioration in operating conditions will likely lead them to report increases in impaired loans in coming years.

Bank of Singapore Limited Outlook Change

10 Jun‘15 31 Mar ‘16

Counterparty Risk Assessment Aa1(cr) Aa1(cr)

Long-term Bank Deposit Ratings Aa1 Aa1

Long-term Issuer Ratings Aa1 Aa1

Adjusted Baseline Credit Assessment aa3 aa3

Baseline Credit Assessment a3 a3

Outlook Stable Negative

RATING CHANGES Significant rating actions taken the week ending 1 April 2016

24 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Large Singapore Banking Groups Outlook Change

31 Mar ‘16

We revised to negative from stable the rating outlook on four Singapore financial institutions. The institutions affected are DBS Bank Ltd., DBS Group Holdings Ltd, Oversea-Chinese Banking Corporation Limited and United Overseas Bank Limited. The rating action reflects our expectation that a more challenging operating environment for banks in Singapore in 2016, and possibly beyond, will pressure the banks' asset quality and profitability.

HSBC China & Hang Seng China Outlook Change

17 Mar ‘16

We changed to negative from stable the outlook on the ratings for HSBC Bank Company Limited (HSBC China) and Hang Seng Bank Limited (Hang Seng China). At the same time, we have affirmed the two banks' baseline credit assessments (BCAs), adjusted BCAs, counterparty risk assessments, as well as all their ratings. The change in the ratings outlook to negative from stable for HSBC China and Hang Seng China reflects a similar change in the ratings outlook to negative on their parents' ratings, and our expectations of a more challenging operating environment for banks in China. HSBC China and Hang Seng China's long-term deposit and issuer ratings incorporate multiple notches of uplift based on our assessment of a very high level of affiliate support in times of need. The outlook on their ratings is therefore affected by the change in outlook for HSBC's and HSB's ratings, respectively. The change of China's macro profile has led us to reassess HSBC China's and Hang Seng China's financial factors and standalone profiles.

London Stock Exchange Group & Affiliates Outlook Change

17 Mar ‘16

We affirmed the Baa1 long-term issuer rating on London Stock Exchange Group plc ("LSEG") and changed the outlook to positive from stable. The positive outlook reflects the anticipated improvement in LSEG's credit profile if the announced all-share merger with Deutsche Boerse AG ("DB1", unrated) is completed. At the same time, we have also affirmed the Baa1 long-term issuer rating of London Stock Exchange plc, as well as LSEG's Baa1 senior unsecured and (P)Baa1 senior unsecured programme ratings, and changed the outlook to positive from stable. Should the merger occur on terms broadly consistent with those announced, LSEG's credit rating would likely be upgraded. Upon completion, we expect LSEG bondholders to benefit from the combined group's improved revenue diversification, more stable earnings, lower leverage and improved franchise strength.

Three Italian Banks Outlook Change

14 Mar ‘16

We affirmed the issuer and deposit ratings of Iccrea BancaImpresa S.p.A. (Iccrea), Cassa Centrale Banca -- Credito Cooperativo del Nord Est (Cassa Centrale Banca), and Cassa Centrale Raiffeisen dell'Alto Adige (Cassa Centrale Raiffeisen); all outlooks are now negative. The action reflects the high probability that deposits and bonds we currently rate will fall under a future cross-guarantee scheme within the Italian mutual banking network, and that the rated entities' risk profiles are therefore likely to converge towards the creditworthiness of a future mutual banking group. The negative rating outlooks reflect the rating agency's initial assessment of an overall weaker risk profile of the combined Italian mutual banking sector compared to the rated entities' current standalone creditworthiness. This action was triggered by a law decree approved by the Italian government in February 2016, which aims to reform and consolidate the country's fragmented mutual banking sector. The new framework -- once approved -- is likely to be implemented by 2018.

RATING CHANGES Significant rating actions taken the week ending 1 April 2016

25 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Saga Plc Upgrade

15 Mar ‘16

We upgraded Saga Plc's corporate family rating to Ba1 from Ba2 and probability of default rating to Ba2-PD from Ba3-PD. Consequently, we also upgraded Saga MidCo Limited's instrument ratings on the Term Loan A and Revolving Credit Facility to Ba1 from Ba2. The outlook is stable. The rating upgrade is primarily driven by the material improvement in Saga's financial flexibility metrics following the voluntary prepayment of GBP 200 million of the Group's GBP 700 million Term Loan A during the first half of 2015. The rating upgrade is also supported by the group's good underlying profitability growth and overall strong cash-flow generation. As a result of the aforementioned voluntary debt repayment, partially offset by the GBP 70 million RCF drawdown, Saga's debt-to-EBITDA (calculated on a Moody's basis) fell from 3.2x as at 31 January 2015 to around 2.6x as at 31 July 2015, which is below our 3.0x upgrade trigger to a Ba1 corporate family rating. Over the next 12-18 months, we expect Saga will continue to reduce its leverage position and increase earnings coverage of interest supported by both underlying EBITDA growth and further voluntary debt repayment.

People’s United and Subsidiaries Review for Downgrade

14 Mar ‘16

We placed the long-term ratings of People's United Financial Inc. and its bank subsidiary, People's United Bank N.A. on review for downgrade and affirmed its short-term ratings. The following ratings are on review for possible downgrade: People's United Financial Inc.'s Baa1 senior unsecured debt, Baa1 long-term issuer rating, (P)Baa1 shelf rating for senior unsecured and subordinate debt, (P)Baa2 shelf rating for preferred stock and (P)Baa3 shelf rating for non-cumulative preferred stock. The review for downgrade is driven by People's comparatively weaker capital and liquidity positions relative to peers in light of its growing commercial real estate portfolio. People's CRE concentration has grown to 3.7 times its tangible common equity base at a time when competition for loan growth can test controls and challenge banks' ability to maintain prudent underwriting.

DNB Bank and Six Other Norwegian Banks Upgrade and Outlook Change

16 Mar ‘16

The rating agency changed the outlook to negative from stable on the deposit and debt ratings of four regional savings banks, SpareBank 1 SR-Bank ASA, Sparebanken Vest, Sparebanken Sor and Sparebanken Sogn og Fjordane, to capture downward pressure on earnings and increasing asset risks in their corporate and commercial real estate lending books as a result of a slowdown in Norway's economic growth driven by a reduction in petroleum sector investments. At the same time, we affirmed the deposit and senior debt ratings of these banks, ranging from A1 to A2, to reflect their strong financial profiles, Norway's still very strong operating environment overall, and our assessment of the protection offered to creditors by their liability structures and the likelihood of affiliate and government support. We also upgraded the long-term debt ratings of DNB Bank ASA (DNB) to Aa2 from Aa3, aligning them with the bank's Aa2 deposit ratings, which were also affirmed, to reflect the increase in loss absorbing liabilities on the bank's balance sheet over the last several quarters, which benefits the position of senior unsecured debt in the loss hierarchy under Moody's loss given failure (LGF) framework. Finally, we affirmed the Aa3 senior unsecured debt and deposit ratings of Nordea Bank Norge ASA and the A1 senior unsecured debt and deposit ratings of SpareBank 1 SMN, and maintained stable outlooks on these ratings. The stable outlook on SpareBank 1 SMN's A1 senior unsecured debt and deposit ratings reflects their resilience to some performance deterioration, taking into account the bank's current stronger than peer performance metrics.

RATING CHANGES Significant rating actions taken the week ending 1 April 2016

26 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Aircastle Limited Upgrade

25 Jun ‘15 16 Mar ‘16

Long-term Corporate Family Ratings (Domestic) Ba2 Ba1

Senior Unsecured (Domestic) Ba2 Ba1

Pref. shelf Non-cumulative (Domestic) (P)B2 (P)B1

Preference Shelf (Domestic) (P)B1 (P)Ba3

Subordinate Shelf (Domestic) (P)Ba3 (P)Ba2

Senior Unsecured Shelf (Domestic) (P)Ba2 (P)Ba1

Outlook Positive Stable

The upgrades reflect the measures Aircastle has taken in the last five years to improve the risk profile of its aircraft fleet and strengthen its liquidity, while maintaining a strong capital position and growing its franchise. The company has reduced its residual risks by selling or retiring aircraft, lessening the likelihood of impairment charges and improving earnings stability. It has also significantly reduced its investment in freighter aircraft given the sector’s overcapacity. The company has also strengthened its liquidity profile by lowering its reliance on secured funding.

GE Capital Interbanca

Upgrade

29 Oct ‘15 14 Mar ‘16

Counterparty Risk Assessment B1(cr) B1(cr)

Long-term Bank Deposits (Domestic) B3 B2

Long-term Bank Deposits (Foreign) B3 B2

Short-term Bank Deposits (Domestic) NP NP

Short-term Bank Deposits (Foreign) NP NP

Baseline Credit Assessment caa1 caa1

Adjusted Baseline Credit Assessment b3 caa1

Outlook Stable Stable

The upgrade of GE Capital Interbanca’s deposit ratings considers the final approval by the Italian government of two decrees that transpose the European Bank Recovery and Resolution Directive into the Italian legal framework. This hierarchy reduces the likelihood of a very low loss-given-failure. However, we have downgraded the adjusted baseline credit assessment in recognition of the bank’s intrinsic weaknesses, including the poor quality of the loan book resulting from weak underwriting standards prior to the acquisition by General Electric Capital Corporation (GECC, A1 stable), low pre-provision profitability, and full dependence on parental funding. It will remain challenging for the bank to sustain current levels of profitability given very large portion of the bank's loan book that are non-performing, and thus non-interest generating, combined with the high funding costs following the re-negotiation of the bank's credit lines from GECC.

RATING CHANGES Significant rating actions taken the week ending 1 April 2016

27 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Hong Kong Mortgage Corporation Ltd. (The)

Outlook Change

17 Jul ‘15 18 Mar ‘16

Senior Unescured (Domestic) Aa1 Aa1

Senior Unsecured MTN (Domestic) (P)Aa1 (P)Aa1

Long-term Issuer Rating (Domestic) Aa1 Aa1

Senior Unsecured (Foreign) Aa1 Aa1

Senior Unsecured MTN (Foreign) (P)Aa1 (P)Aa1

Long-term Issuer Rating (Foreign) Aa1 Aa1

Short-term Issuer Rating (Domestic) P-1 P-1

Other Short Term (Foreign) (P)P-1 (P)P-1

Short-term Issuer Rating P-1 P-1

Outlook Stable Negative

The outlook change follows our revision of Hong Kong government’s Aa1 rating outlook to negative from stable. Hong Kong Mortgage Corporation's long-term ratings are aligned with those of the Hong Kong government given the former government’s ownership and public policy mandates, broad representation of government officials and legislators on its board of directors, and ongoing and expected extraordinary government support during times of stress.

Ocwen Financial Corporation Review for Downgrade

3 Jun ‘15 16 Mar ‘16

Long-term Corporate Family Ratings B2 B2

Senior Secured Bank Credit Facility (Domestic) B2 B2

Senior Unsecured (Domestic) B3 B3

Outlook Stable Review for Downgrade

The review reflects Ocwen’s weak Q3 and Q4 profitability, largely due to continued high legal, regulatory, and servicing expenses. The company’s financial profile is also challenged by the more limited opportunities available in its core market, credit impaired residential mortgage servicing. The company is currently unable to acquire new mortgage servicing as part of its agreements with the New York Department of Financial Services and California Department of Business Oversight, leading it to diversify into markets outside of its expertise.

Prospect Holding Company, LLC Upgrade

12 Feb ‘16 15 Mar ‘16

Long-term Corporate Family Ratings Caa2 Caa1

Outlook Stable Stable

The upgrade reflects Prospect's improving profitability and lower financial leverage after the company repurchased nearly 68% of its senior unsecured notes at a discount of 40%. After the bond buyback, Prospect will meaningfully reduce its interest expenses and recognize gains on early extinguishment of debts, improving the company's profitability and leverage. In addition, we expect the company to reduce operating expenses and focus on organically growing retail purchase originations, which are less vulnerable to rising interest rates than refinance originations.

RATING CHANGES Significant rating actions taken the week ending 1 April 2016

28 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

SOHO China Limited Review for Downgrade

28 Aug ‘15 14 Mar ‘16

Long-term Corporate Family Ratings (Domestic) Ba2 Ba2

Long-term Corporate Family Ratings (Foreign) Ba2 Ba2

Senior Unsecured (Foreign) Ba2 Ba2

Outlook Stable Review for Downgrade

The review considers SOHO’s decline in interest income, which materially contributed to earnings growth in 2015. Despite the 148% increase in rental growth in FY2015, SOHO China's weak EBITDA/interest coverage of 0.7x does not support its Ba2 ratings. We believe company's cash position will continue to fall because it still has to fund capital expenditure to complete three projects estimated at around RMB2 billion a year until at least 2018.

SquareTwo Financial Corporation Downgrade

15 Jan‘16 31 Mar ‘16

Long-term Corporate Family Ratings Caa2 Ca

Senior Secured Rating Caa3 Ca

Outlook Review for Downgrade Negative

The downgrade reflects SquareTwo's increasing refinancing risk due to the impending maturity of its senior revolving credit facility on 6 April 2016. SquareTwo is currently in active discussions with investors and lenders as part of a broader evaluation of financing options. In addition, the company announced that it does not anticipate making the semi-annual interest payment to the holders of the second lien notes which is due 1 April 2016. The negative outlook reflects the significant challenge which SquareTwo's management faces in completing a significant refinancing in current market conditions and the potential for a weak recovery on the existing purchased debt portfolio should refinancing efforts fail.

RATING CHANGES Significant rating actions taken the week ending 1 April 2016

29 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Infrastructure

Basin Electric

Review for Downgrade

20 May ‘15 30 Mar ‘16

Issuer Rating A2 A2

Outlook Negative Review for Downgrade

The review reflects weak consolidated financial coverage metrics for fiscal year 2015, and our expectations that metrics will continue to remain weak owing to commodity price driven pressures on consolidated net margins and increased debt to fund Basin's sizable consolidated capital expenditures.

Empire Generating Co LLC

Downgrade

26 Feb ‘14 31 Mar ‘16

Senior Secured Bank Credit B1 B2

Outlook Stable Negative

The action was prompted by weaker-than-expected financial performance and continued weak financial results stemming from a prolonged environment of lower commodity prices. The downgrade incorporates increased refinancing risk owing to excess cash flow generation to date that is much lower than anticipated and revised projections showing that lower excess cash flow generation will continue in light of lower power prices. It also recognizes that the completion of the Constitution Pipeline will be one year later than previously envisioned, further delaying the potential improvement in natural gas price basis differential currently impacting Empire's region.

Kunlun Energy

Outlook Change

17 Feb ‘16 30 Mar ‘16

Issuer and Senior Unsecured A1 A1

Outlook Review for Downgrade Negative

The negative outlook of Kunlun Energy's rating reflects the increased pressure on its standalone credit profile. The company’s weak upstream operations and sluggish growth in natural gas sales are a key factor in this pressure, along with the potential increase in leverage to finance the new Shaan-Jing Line IV and the acquisition of Kunlun Gas.

RATING CHANGES Significant rating actions taken the week ending 1 April 2016

30 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Sovereign

Inter-American Investment Corporation

Upgrade

14 Apr ‘15 31 Mar ‘16

Senior Unsecured Aa2 Aa1

Outlook Positive Stable

The upgrade was prompted by evidence of increased member support following the Board of Governors' decision to consolidate the Inter-American Development Bank Group private sector operations at the Inter-American Investment Corporation and the capital subscription process. It also reflects our expectation that as the IIC expands its operations over the next five years, its intrinsic financial strength metrics will remain very strong relative to Aaa- and other Aa1-rated multilateral development banks.

Mexico

Outlook Change

5 Feb ‘14 31 Mar ‘16

Senior Unsecured A3 A3

Outlook Stable Negative

The outlook change considers subdued economic performance and continued external headwinds that will challenge the government's fiscal consolidation efforts and increase the risk that rising debt ratios will not stabilize over the rating horizon. It also considers that contingent liabilities in the form of possible government support to PEMEX, given liquidity pressures at the state-owned oil producer, could further undermine the fiscal consolidation process.

RATING CHANGES Significant rating actions taken the week ending 1 April 2016

31 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Sub-Sovereign

Outlook Change to Serbian Sub-sovereigns The outlook change to the City of Novl Sad and the City of Valjevo reflects the improving operating environment in Serbia, as reflected by the positive outlook on the sovereign rating. The creditworthiness of both cities is closely linked to that of the sovereign, as Serbian local governments depend on revenues that are linked to the sovereign's macroeconomic and fiscal performance. Positive national economic growth and favorable medium-term prospects will translate into higher revenues, and thus a stronger credit profile for sub-sovereigns.

Novi Sad, City of

Outlook Change

19 Jul ‘13 21 Mar ‘16

Long-term Issuer Rating (Domestic) B1 B1

Long-term Issuer Rating (Foreign) B1 B1

Outlook Stable Positive

Valjevo, City of

Outlook Change

19 Jul ‘13 21 Mar ‘16

Long-term Issuer Rating (Domestic) B2 B2

Long-term Issuer Rating (Foreign) B2 B2

Outlook Stable Positive

RATING CHANGES Significant rating actions taken the week ending 1 April 2016

32 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Structured Finance

Rating Affirmations of Eight Classes and Downgrade of Five Classes of LBUBS 2006-C6 On 18 March 2016 we affirmed the ratings on eight classes and downgraded the ratings on five classes in LB-UBS Commercial Mortgage Trust 2006-C6, Commercial Mortgage Pass-Through Certificates, Series 2006-C6. The ratings on five P&I classes were affirmed because the transaction's key metrics are within acceptable ranges. The ratings on two P&I classes were affirmed because the ratings are consistent with our expected loss. The ratings on five P&I classes were downgraded because realized and anticipated losses were higher than expected. The rating on the IO class was affirmed based on the credit performance of the referenced classes.

Rating Upgrades of Approximately $7.8 billion of Santander Subprime Auto Loan ABS On 21 March we upgraded 27 tranches and affirmed an additional 53 tranches from Santander Drive Auto Receivables Trust securitizations issued between 2011 and 2015. The securitizations are sponsored by Santander Consumer USA Inc. The upgrades resulted mainly from the build-up of credit enhancement due to the sequential pay structures and non-declining reserve accounts. Except for the 2015-3 and 2015-4 transactions, all outstanding deals have also benefited from over-collateralization reaching target levels.

Rating Affirmations and Upgrades of Approximately $1.75 Billion of Structured Securities On 24 March 2016 we upgraded the ratings on two classes and affirmed the ratings on 13 classes in DBUBS 2011-LC2 Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates. The ratings on the P&I classes B and C were upgraded primarily due to an increase in credit support since our last review, as well as our expectation of additional increases in credit support resulting from the payoff of loans approaching maturity that are well positioned for refinancing. The ratings on the other ten P&I classes were affirmed because the transaction's key metrics are within acceptable ranges.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 April 2016

33 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Corporates

South Korea Corporates: Credit Quality Will Be Stable in 2016, but Weak Macro Conditions Increase Challenges Despite significant macroeconomic-related challenges, most rated Korean companies will show broadly stable financial leverage in 2016 as a result of austerity efforts and steady earnings from a lower base in 2015. However, financial leverage for some companies in the retail, steel, and technology industries will remain elevated or deteriorate further after weakening in 2015.

Inside ASEAN The growth prospects of ASEAN's major export-orientated economies — Singapore, Malaysia and Thailand — will remain weaker than those of more domestic demand-driven economies — such as Indonesia and the Philippines — in 2016 and 2017. Vietnam will remain a regional growth outperformer on the back of robust manufacturing activity and strong foreign direct investment flows.

India and Indonesia Telecommunications Tower Operators: Revenue Growth, Consolidation Will Accelerate as Mobile Operators Sell Towers Revenue growth for the tower companies should reach 8%-10% over the next 1-2 years, because mobile operators in the two markets are building out and strengthening their third- and fourth-generation footprints, and will therefore seek to lease tower space and sell more of their own towers. However, while the tower companies will likely continue growing, geographic, operational and regulatory differences between the two countries will affect their growth rates and financials.

Neiman Marcus Group LTD LLC: Focus Remains Firmly on Funding Growth as Luxury Headwinds Continue Neiman Marcus will spend heavily in 2016-17 on its e-commerce platform, international expansion and operational improvements to counter challenging conditions in the luxury retail sector. While funding growth initiatives is key, this strategy heightens credit risk for the company if customer demand does not rebound after this period of elevated capital spending and high leverage.

Global Pharmaceuticals: Pipelines Strengthen, Helping to Buffer Rising Patent Exposures The issuers with the strongest late-stage pipelines relative to their existing revenues include AstraZeneca, Celgene, AbbVie, Roche, Novo Nordisk and GlaxoSmithKline. Among this cohort of 16 global branded pharmaceutical companies, the pipelines for Johnson & Johnson, Pfizer, Gilead and Sanofi have weakened over the past year. Meanwhile, seven companies are at risk of biosimilar competition over the next three years as their patents expire.

US Gaming: Increasing Our EBITDA Forecast by 1% as Cost Cutting Pays off; Outlook Is Stable We have raised our earnings growth forecast for the US gaming industry to 4%-5%, from 3%-4%, which remains within the range for a stable outlook. The new forecast reflects the continued benefits that industry-wide expense reductions will have on casino operators over the next 12-18 months, bolstering operating leverage during a period when we forecast flat revenue growth.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 April 2016

34 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

US High-Yield Covenants: Despite Commodities Rout, Chemical Bonds Continue to Offer Weak Protections Chemical bonds’ weak covenant quality scores reflect the chemical sector’s higher-than-average share of near investment grade rated bond issuances, as well as its slightly higher portion of private-equity owned companies and high-yield lite deals. Companies with higher-rated bonds are usually able to borrow with less restrictive covenants.

Western Digital and Seagate HDD Peer Comparison: Western Digital is Stronger, but Execution Risk Weighs on Credit Western Digital has the advantage over Seagate HDD in terms of customer and product diversity, business profile and execution track record. Its acquisition of SanDisk will also give the company an advantage in the next-generation solid state drive (SSD) segment. However, Western Digital has significantly increased its leverage to acquire SanDisk, and its ability to integrate the company and investment in the capital-intensive SSD segment constrain its credit profile and ability to reduce its debt.

Global Oil and Natural Gas: Ratings Reflect Expectations that Oil Prices Will Remain Weak Through Medium Term The recent modest recovery in oil prices will only provide minor relief from severe stress for companies that incurred large amounts of debt to ramp up supply that now significantly exceeds demand. The markets will limit capital access to spec-grade energy companies until high crude inventories decline and there is evidence of sustained OPEC production cuts. Our ratings do not move in lockstep with our price estimates, but should be viewed in the context of our pessimistic medium-term outlook for the energy industry.

Ford Motor and General Motors Competitive Gap Tightening The competitive gap between Ford and General Motors has been tightening, with few areas of credit differentiation between the companies’ North American portfolios, profit margins, balance sheet strength or liquidity positions. We do not see either emerging as a leader in the areas of electric vehicles, connectivity, ride sharing and autonomous vehicles., the next areas of focus in the auto industry.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 April 2016

35 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Infrastructure

Default and Recovery Rates for Project Finance Bank Loans, 1983-2014 A study concentrating on the default and recovery rates for project finance bank loans through 2014 finds The 10-year cumulative default rate for project finance bank loans is consistent with 10-year cumulative default rates for corporate issuers of low investment-grade credit quality. This study updates a March 2015 report.

US Regulated Utilities: Electric and Gas Utility Deals Bring Benefits, But Higher Leverage Mitigates Impact US regulated utility holding companies are paying high multiples to acquire natural gas infrastructure assets and financing the deals mostly with holding company debt which has heightened financial risk at the holding company level and weakened consolidated financial metrics. Though the combination brings growth opportunities, it has led to negative ratings actions.

Finnish Electricity Providers: Regulator’s Proposed Curb on Tariffs, Dividends Is Credit Negative Proposals by the Finnish electricity regulator to cap the frequency and size of tariff increases and limit dividends would, if implemented, be credit negative for Finnish electricity distribution companies with large investment programmes, particularly those with holding company debt that must be serviced with dividends, and may erode confidence in the stability and predictability of the regulatory regime. These proposals follows public outcry at large tariff increases by power providers.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 April 2016

36 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Insurers

German Life Insurers Outlook Is Negative on Continued Low Rates While anticipated economic expansion in Germany of 1.8% in 2016 and continued low unemployment are positive for German insurers, persistently low interest rates will negate these benefits and continue to weaken life insurers' profits. Conversely, the outlook for the P&C sector remains stable on continued pricing discipline and expectation that insurers will report below 100% combined ratios in 2016.

MetLife Sheds SIFI Designation, a Credit Negative On 30 March, a federal judge rescinded MetLife, Inc.’s (A3 review for downgrade) designation as a non-bank systemically important financial institution (SIFI). The ruling, which can be appealed by the Financial Stability Oversight Council (FSOC), is credit negative for MetLife because it eliminates a layer of additional regulatory oversight.

Self-Driving Cars Could Send Global Auto Insurers Skidding Accident avoidance features in vehicles, such as automatic braking, adaptive cruise control, and lane departure prevention, are becoming more prevalent and will lead to lower accident frequency in the next five to 10 years, a benefit for auto insurers. Longer term, self-driving cars could translate into significantly lower premiums and profits for insurers as the number of accidents declines dramatically.

US Public Finance

Illinois Court Nixes Chicago’s Bid to Restructure Retiree Benefits, a Credit Negative The March 24 decision by the Illinois Supreme Court to strike down Chicago’s (Ba1 negative) efforts to address the unfunded liabilities of two of its four pension plans is credit negative. The court ruled Public Act 98-0641 unconstitutional, which significantly limits the city’s ability to lessen its pension burden through restructuring of retiree benefits. Chicago’s unfunded pension burden is the highest among large US cities.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 April 2016

37 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

Securitization

US Private Student Loan ABS: High Concentration of Collateral Tied to a High Defaulting For-Profit School Heightens Risks Two recent asset-backed securities (ABS) transactions backed by private student loans have included high concentrations of collateral tied to a single for-profit institution. Such exposure is credit negative for the transactions, owing to 1) those for-profit loans having very high default rates and 2) the regulatory scrutiny facing for-profit institutions, which could result in school closures and loan forgiveness mainly for in- school borrowers.

US ABS Spotlight - March 2016 In this edition we provide highlights of the recent ABS Vegas 2016 conference and, in connection with the publication of our Global Auto ABS Market Comparison Tool, give a global overview of auto ABS structures and performance. We also examine the effects of annual pay loans and leases on equipment ABS, the high concentration in two recent private student loan ABS deals of collateral tied to a single for-profit institution and the impact of AT&T Inc.’s planned launch of a new Internet video service on wireless tower ABS. These and other articles in this month’s issue will keep you informed of key credit issues and developments in the US and Canadian ABS markets.

US Auto and Equipment ABS Benefit from Underwriter Caution Amid Volatile Market Coupons on some recent US auto and equipment asset-backed securities (ABS) differed markedly from the guidance provided by underwriters before they marketed the deals. In most cases the coupons were lower. Lower coupons strengthen the credit quality of ABS by creating additional excess spread, which is a form of credit enhancement.

Valeant's Woes Are Credit Negative for US CLOs with Large Exposures Last Tuesday, Valeant Pharmaceuticals International Inc., one of the most commonly held names in US collateralized loan obligation (CLO) portfolios, lowered its 2016 earnings forecast, announced weaker revenue growth and disclosed a covenant breach because of a delayed 10-K filing. Following the announcement, we downgraded Valeant’s corporate family rating one notch and kept it on review for downgrade.

US RMBS: Credit Scores Prove Effective in Predicting Delinquencies in GSE Risk- Sharing Transactions A lower original credit score alone indicates a higher likelihood of borrowers missing a mortgage payment early in government-sponsored enterprises’ risk-sharing transactions. The credit scores of borrowers in Connecticut Avenue Securities transactions issued by Fannie Mae and Structured Agency Credit Risk transactions issued by Freddie Mac who missed a mortgage payment at least once early in the transaction’s life generally are approximately 30 points below the average. As such, lower original credit scores signal higher odds of borrowers becoming delinquent early in future credit-risk transfer transactions.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 April 2016

38 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

US RMBS: Limited Prepayments from Disqualification or Premium Release Are Credit Positive for SFR Transactions SFR prepayments from disqualified or premium-released properties are credit positive for SFR transactions. Operators can usually release any disqualified property from an SFR securitization by selling the property, then using the associated allocated loan amount to pay down the notes. In the case of a voluntary prepayment, the SFR operator has to pay a premium on top of the released property allocated loan amount. So far, the disposal of disqualified properties has driven the majority of prepayments, though voluntary releases completed at a premium have occurred in a few transactions.

US CMBS: Oil Slump Is a Moderate Credit Negative While the performance of specific collateral backing commercial mortgage-backed securities (CMBS) in specific geographies has weakened, the overall impact of lower oil prices has been tempered by a number of factors, including limited CMBS exposure, economic diversity of many oil-producing metro areas, limited growth in the supply of commercial real estate and strong property- and loan-level fundamentals.

US CMBS: Oil Slump Will Have Limited Impact on Performance of Existing Deals The total amount of CMBS loans in ‘oil markets’ is about $26 billion, or just 4% of the larger CMBS market, with most of this accounted for by Houston. Limited loan and deal exposure and strong collateral-level credit characteristics will help to mitigate the impact of the oil bust on US CMBS performance while oil prices remain low.

US CLOs: Qualified Bill Offers Indirect Credit Positive Effects The Barr-Scott bill’s lower risk retention requirement would significantly reduce the financial burden for managers of bringing new deals to market. This would encourage new CLO issuance, adding liquidity to the leveraged loan market and formalizing objective credit criteria for qualified CLOs, which in turn would discourage the issuance of riskier types of CLOs.

European CLOs: 2.0 Template Continued to Evolve in 2015 In 2015, we rated 31 new broadly syndicated loan (BSL) CLOs, up slightly from 30 in 2014. The 2015 transactions largely followed the post-crisis, CLO 2.0 template, but with some structural modifications that address investor preferences, as well as the regulatory and market environment.

EMEA Auto ABS: Financed Insurance Poses Set-Off Risk, but No Material Effect on Deal Performance Is Likely The majority of auto asset-backed securities (ABS) in EMEA contain loans or leases that also finance insurance along with the vehicle. This arrangement can result in set-off risk, or the risk that the borrowers or lessees reduce their loan or lease payment amount due to a securitization as a result of the default of a third party.

EMEA Consumer ABS and SME Transactions How Originator Characteristics Can Influence Credit Quality Several characteristics determine whether a stronger originator can positively influence the credit quality of EMEA consumer asset-backed securities (ABS) and SME deals, including (1) clear delineation between sales and loan approval functions and consistently applied underwriting standards; (2) thorough checks of the originator's securitized portfolio data; and (3) state-of-the-art IT platforms and software applications. We consider these factors, among others, in our originator reviews.

RESEARCH HIGHLIGHTS Notable research published the week ending 1 April 2016

39 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

European RMBS & ABS Credit Insight Newsletter Headlines in this edition include: Continuing Interest Drop in Europe Is Credit Negative for Many Structured Finance Deals, but Upward Trend Likely in 2017; Bad-Loan Plan Using Securitisation Lets Banks Clean-Up Balance Sheets, Albeit With Possible Losses; UK Challenger Banks Will Likely Use Securitisation to Compete for UK Mortgages; New Bankruptcy Law Will Have Only Minor Impact on Russian RMBS and ABS Performance, Despite Rising Consumer Loan Arrears; Performance of Volkswagen ABS Transactions in Europe Remains Steady; New Spanish Consumer ABS Will Benefit From Increased Bank Competition and Stabilizing Macro Factors; Belgian SME Loan Securitizations Are Among the Strongest in Europe.

UK RMBS: Flood Re Will Have Limited Impact on Collateral in England Large-scale floods, as witnessed last December, highlighted the difficulty UK homeowners hit by flooding have in obtaining affordable home insurance. From next month, eligible UK homeowners in flood-prone areas will be able to find affordable house insurance through the UK government insurance plan, Flood Reinsurance Scheme, or Flood Re. Some 350,000 homeowners could benefit from more affordable insurance premiums and reduced policy excesses.

Japanese Auto ABS: VW Performance Steady in Wake of Emission Problems The performance of Moody’s-rated Japanese asset-backed securities (ABS) backed by auto loans originated by Volkswagen Financial Service Japan Ltd (VWFSJ) has remained strong since the disclosure of emissions irregularities in some diesel-engine VW vehicles. As of 29 February 2016, the weighted average gross default and delinquency rates of VWFSJ-sponsored auto loan ABS transactions were approximately 0.2% (three-month average) and 1.1%, respectively, steady with the rates in September 2015, when the emissions irregularities were announced.

Asia Pacific Structured Thinking Newsletter - March 2015 Headlines in this edition include: Asia Pacific: Negative Impact from China Slowdown on Asia Securitization Will Vary by Country, but Will Be Generally Limited; Asia Pacific: Heard from the Market - Covered Bond Markets Will Continue to Develop; Australia: Negative Euribor Rates Pose Risks to Some Australian RMBS and ABS; China: Auto ABS Delinquencies Will Rise Moderately in 2016 After Declining in Q4 2015.

Korean and Singapore Covered Bond Performance The stable and strong financial standing of the issuers for each transaction in Korea and Singapore, the stable credit quality of the cover pool assets — comprising residential mortgage loans — and the stable ratings of each sovereign contributed to the stable performance of covered bond transactions in the two markets.

Australia Residential Mortgage Delinquency Map: Improving NSW Underpins Steady Performance Delinquencies on Australian home mortgages will rise slightly over 2016 from current low levels, owing to below-trend economic growth and a slower pace of house price growth in some cities. Arrears will be highest in those states whose economies are most dependent on the resources sector. GDP growth will likely be towards the upper end of our 1.5% to 2.5% forecast range for 2016, but this will be below the long-term average of 3.5%.

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

40 MOODY’S CREDIT OUTLOOK 4 APRIL 2016

NEWS & ANALYSIS Corporates 2 » Dell's Planned Sale of IT Services Unit to NTT Data Will

Reduce Debt » Generic Voltaren Gel Launch Is Credit Positive for Amneal

and Negative for Endo » IHS Acquires Markit, a Credit Positive » Micro Focus Acquires Serena Software, a Credit Positive

Infrastructure 6 » Minnesota Regulator Authorizes Credit-Positive Interim Rate

Increase for Otter Tail Power

Banks 7 » Hancock's Energy Provision Is Credit Negative for It and

Other Energy-Concentrated Banks » Basel Committee Proposes Restrictions on Banks' Internal

Models, a Credit Positive » UK's Proposed Rules on Buy-to-Let Lending Would Be

Credit Positive » Banco Popolare and BPM Merger Would Be Credit Positive

for the Banks and Italian Banking System » Russian Construction Industry's Slowdown Is Credit Negative

for Banks Exposed to the Sector » Russia's New Rules on Banks Holding Government Deposits

Are Credit Negative

Sovereigns 18 » Israeli Supreme Court Ruling on Gas Field Agreement Delays

Development, a Credit Negative » Singapore Budget Targets Fiscal Surplus amid Calibrated

Growth Support, a Credit Positive

US Public Finance 21 » Illinois Court Nixes Chicago's Bid to Restructure Retiree

Benefits, a Credit Negative » Michigan's Emergency State Funding for Detroit Schools Is

Credit Positive

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Report: 188781

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and inappropriate for retail investors to use MOODY’S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

EDITORS SENIOR PRODUCTION ASSOCIATE News & Analysis: Elisa Herr and Jay Sherman Sol Vivero Ratings & Research: Joe Mielenhausen