IHO Verwaltungs GmbH. Credit Flash HY Autos. 14 October 2016 Credit Research

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1 Credit Flash HY Autos IHO Verwaltungs GmbH Recommendation: S&P assigned ratings to the recently issued notes of IHO Verwaltungs GmbH (IHO), previously Schaeffler Verwaltung Zwei GmbH, which are two notches lower compared to Moody s given different rating methodologies. We initiate coverage on IHO bonds with a buy recommendation. Despite assuming some conglomerate spread premium, we believe that IHO aims to achieve average IG ratings, just like Schaeffler AG (SAG). Among Schaeffler bonds, we recommend to switch from the SHAEFF 3.5% 5/22 bond, which trades already above its call price, into the IHO 3.75% 9/26 bond, which trades with a sub/senior cash multiple of >2x. Major rating drivers are as follows: 1. improving leverage at INA-Holding Schaeffler GmbH & Co. KG (INA) with SAG achieving its leverage target by 2020 and Continental keeping its credit metrics and rating; 2. FFO interest cover with stable dividend payments by SAG and Continental SAG's publicly communicated dividend policy is set at 25-35% of net income, and, in , Continental's dividend payout ratio moved within a fairly narrow range of 24-28% of net income; and 3. LTV (loan-to-value ratio or net market leverage), with the combined market valuations of Continental and SAG staying rather stable. We expect IHO to present a clearly formulated financial and strategic policy and to improve reporting. Moody s also stated that this was another prerequisite for IHO s achieving an IG rating. For IHO to achieve upgrades and finally an IG bond rating by S&P, however, we believe it will be necessary to reduce SAG senior debt, but also the linkage between INA and SAG and/or to improve IHO s asset diversification and thus to change to S&P s investment-holding rating methodology. The debt leverage development at INA is difficult to track using public data, given that the financial statements of INA are published late at (e.g. FY14 s statement was filed in March 2016). Difference in rating methodologies: S&P continues to apply its group rating methodology to the Schaeffler group and has calculated a group credit profile of bb+. It then assigned a bond rating of BB- to reflect the structural subordination of the significant amount of senior debt at SAG. S&P said that it does not apply its investment-holding criteria to Schaeffler group as the company is only active in two industries (automotive and industrial) instead of the three its criteria apply to. In contrast, Moody s rates IHO at Ba1 and estimates the probability of its experiencing a loss-given default (LGD) to be at 50% and gives a three-notch subordination to the Baa1 rating which is based on INA statements (12-18 months forward looking from FY15) that fully consolidate SAG (Baa3s/BB+s) and Continental (Baa1s/BBB+s/BBBp). LTV and asset coverage: Due to the recent decline in Continental s market cap, IHO s LTV weakened to 21.7% (i.e. market value coverage of 4.6x, although the collateral coverage is significantly lower). Bond interest, liquidity and net cash flow: Interest will be payable entirely in cash for the first two interest periods, 5/17 and 11/17. After this, the PiK triggers look at the extent the cash interest is covered by average, or projected, liquidity (cash plus available RCF). Pro forma the refinancing, we estimate IHO's total liquidity to be EUR 352mn, which includes EUR 152mn in cash and cash equivalents. Moody's expects IHO s net cash flow to reach EUR 355mn in 2017, including EUR 525mn in dividends received minus EUR 140mn in interest paid and EUR 30mn of costs and taxes. Recommendation Buy (Initiation of coverage) Major SHAEFF bond issues IHO Verwaltung Mat Cpn OAS spread (bonds: Ba1/BB-) EUR 9/ % 249 EUR 9/ % 299 EUR 9/ % 335 USD 9/ % 242 USD 9/23 4.5% 283 USD 9/ % 294 Schaeffler AG (issuer/bonds: Baas3s/BB+s) Mat Cpn OAS spread EUR 5/20 2.5% 91 EUR 5/22 3,5% 82 EUR 5/ % 122 USD 5/21 425% 225 USD 5/ % 315 Ratings IHO L-T S-T Outlook Moody's Ba1 -- STABLE S&P BB+ -- STABLE Financial calendar 2016 Schaeffler AG 3Q16 results: 9 November Continental AG 3Q16 results: 10 November SCHAEFFLER AG AND IHO BONDS OAS in bp (IHO), ASW (SHAEFF) in bp USD_OpCo sensec EUR_OpCo sensec EUR_HoldCo USD_HoldCo SHAEFF_CDS 400 IHO 3.25% 9/23 IHO 3.75% 9/ (EUR) EUR) 300 IHO 2.75% 9/21 (EUR) IHO / (USD) SHAEFF 4.75% IHO 4.5% 9/ /23 (USD) IHO 4.125% (USD) SHAEFF 4.25% 9/21 (USD) 150 5/21 (USD) 100 SHAEFF 3.25% 5/25 (EUR) 50 SHAEFF 2.5% 0 5/20 (EUR) SHAEFF 3.5% 5/22 (EUR) mdur MARKET CAP OF BOTH ASSETS in EUR bn Oct-15 Oct-15 Nov-15 Dec-15 Dec-15 Jan-16 Feb-16 Feb-16 Mar-16 Apr-16 Apr-16 May-16 Jun-16 Jun-16 Jul-16 Aug-16 Sep-16 Sep-16 Oct-16 Source: iboxx, Markit, Bloomberg, UniCredit Research Author Dr. Sven Kreitmair, CFA (UniCredit Bank) sven.kreitmair@unicredit.de Bloomberg UCGR Continental market cap Internet Schaeffler market cap (RS) in EUR bn UniCredit Research page 1 See last pages for disclaimer.

2 Rating methodology comparison between S&P and Moody s Ratings Methodology Outlook statements S&P (21 September 2016) Moody s (12 September 2016) SAG: BB+ stable (bond rating: BB+) Group credit profile: bb+, SAG s SACP: bbb- IHO: BB+ stable (Bond rating of BB- is constrained by the structural subordination to the significant amount of senior debt at SAG, leading a recovery rate of 0-10%.) S&P continues to apply its group rating methodology to SAG due to strong ties to the Schaeffler group. Nevertheless, the rating agency has changed its assessment of SAG within the group to highly strategic from core, primarily because of the falling away of crossdefault language for the credit facilities at the IHO level. S&P has not uncoupled SAG from the group since INA-Holding Schaeffler GmbH & Co. KG retains control of the group through its indirect 75% stake in SAG and its 100% voting rights. S&P does not apply its investment holding criteria to Schaeffler group, as SAG is only active in two industries (automotive and industrial) instead of three, to which its methodology criteria apply. The stable outlook reflects the opinion that the Schaeffler group will maintain a strong operating performance in , including an adjusted EBITDA margin of approximately 18%. S&P views adjusted FFO/debt of about 25% and debt/ebitda <3.0x as being in line with its BB+ rating. S&P calculates its group credit ratios based on consolidated INA group accounts with its 46% stake in Continental at equity. Upside scenario: S&P could raise its rating if Schaeffler group further reduced debt and strengthened its FOCF generation. This could occur if the group's credit profile were strengthened, with FFO/debt consistently well above 30% and debt/ebitda below 2.0x. Downside scenario: S&P would likely lower its rating if Schaeffler group meaningfully underperformed its base-case expectations, with FFO/debt falling sustainably below 20%. This scenario could unfold as a result of a significant slowdown in emerging countries and developed economies or if the group experienced pronounced cuts in orders from some larger customers. SAG: Baa3 stable (bond rating: Baa3) IHO: Ba1 stable (bond rating: Ba1 and probability of experiencing a LGD of 50%). This equals a three-notch subordination to the Baa1 (12-18 months forward looking from FY15) rating, based on INA s statements that fully consolidate SAG (Baa3s/BB+s) and Continental (Baa1s/BBB+s/BBBp). The Global Automotive Suppliers Rating Methodology is the principal methodology used in rating IHO. The methodology grid, the calculation of which was based on INA statements that fully consolidate SAG and Continental, indicates a Baa2 rating based on 2015, moving to a Baa1 for the Moody's month forward-looking view. The three-notch difference between Ba1 and Baa1 can be explained by 1. the existence of sizeable minority stakes, given that IHO owns only 75% of SAG and 36% of Continental; 2. a structural subordination of IHO debt vis-à-vis debt at the SAG and Continental levels; and 3. a lack of clearly formulated, conservative financial policy and the evolving structure of IHO, which lacks an established track record so far. The stable outlook reflects Moody s expectation that IHO will maintain a strong liquidity profile and credit metrics as indicated by net-marketvalue leverage of around 20% and FFO interest cover that is >3.0x in the next months (FFO=dividends received less costs and taxes). Factors that could lead to an upgrade are as follows: the adoption of a clearly formulated financial policy and strategy aimed at preserving a conservative capital structure and improved reporting at the IHO level, maintaining net market value leverage around 20%, maintaining FFO interest cover of >3.0x, track record of Moody s-adjusted debt/ebitda of below 2.5x (2.7x for 2015) and Moody s adjusted EBITA margin of around 12% (11.7% in 2015) both are based on INA s statements that fully consolidate SAG and Continental. Factors that could lead to a downgrade are as follows: deteriorating liquidity, sustaining net market value leverage of >30%, sustaining FFO interest cover <2.5x, keeping Moody s-adjusted debt/ebitda well above 2.5x and allowing Moody s-adjusted EBITA margin to deteriorate towards 10% (both are based on INA s statements that fully consolidate SAG and Continental), liquidity deterioration Hurdle ratios FY15: FFO/debt: 22.5%, debt/ebitda: 2.98x IHO standalone (pro forma September 2016 refinancing): net market value leverage as of end-august 2016: 20%, FFO interest cover: 3.5x INA statements that fully consolidate SAG and Continental: debt/ebitda: 2.7x, RCF/net debt 28.2% Source: Moody s, S&P, UniCredit Research Credit profile development of IHO s two assets Continental AG Schaeffler AG Continental had a low adjusted gross leverage (UniCredit Research) in LTM 1H16 of 1.5x, which was also supported by low rubber prices, which are somewhat correlated to the oil price. As the company has indicated that it plans to undertake acquisitions and has a rating target of BBB+/BBB, we do not expect it to further deleverage (see our Daily Credit Briefing from 4 August). Before its recent refinancing, SAG's leverage was expected to decline from 2.1x in 2015 to <1.5x in 2018 and to <1.0x in 2020 if cumulative FCF is EUR 3.5bn in , dividends are EUR 1.75bn and net deleveraging of EUR 1.25bn occurs. SAG said that this recent refinancing transaction allowed it to reduce its leverage to 1.3x on a pro forma basis and to reach its 1.5x target much earlier than expected. Nevertheless, we note that this deleveraging at the level of INA-Holding was more or less neutral, as leverage at the HoldCo level increased to the same extent that leverage at SAG decreased. For more information on SAG's 2020 business plan targets, see our Daily Credit Briefing from 21 July. UniCredit Research page 2 See last pages for disclaimer.

3 IHO NET CASH FLOW Moody's estimate Maximum allowed (accumulation, if not fully utilized) H H E % stake in Continental AG % stake in SAG 255 Dividends received Interest received Income taxes received Total cash inflows Dividends paid * 200* Interest paid Income taxes paid Costs and taxes -30 Total cash outflows Net cash flow * An additional EUR 150mn p.a. specifically for tax purposes is allowed, but IHO s parent holds 10% stake in Continental AG, which pays dividend. Source: company reports, Moody s, UniCredit Research INTEREST (IN EUR MN) Amount EUR amount Coupon Interest EUR mn SHAEFF 2.75% 9/21 (call ) EUR SHAEFF 3.25% 9/23 (call ) EUR SHAEFF 3.75% 9/26 (call ) EUR SHAEFF 4.125% USD/EUR (call ) USD SHAEFF 4.5% 9/23 (call ) USD SHAEFF 4.75% 9/26 (call ) USD Term loan 9/21, E3M+275bp (@ E3M: %) EUR , % Note: first two coupon payments, on 15 May 2017 and 15 November 2017, are in cash. Source: Bloomberg, UniCredit Research LIQUIDITY RCF 9/21, E+275bp 200 Pro forma cash and cash equivalents Source: Moody s UniCredit Research IHO ASSET VALUE (IN EUR MN) CUR_MKT_CAP SHA GR market cap 9,128 CON GR market cap 34,991 IHO asset value (75.1% SAG and 36% Continental AG) 19,452 Source: Bloomberg, UniCredit Research MOODY S HURDLE RATIOS Upgrade Downgrade Net market leverage (IHO debt in % of IHO asset value) 21.7% ~20% >30% FFO interest cover (dividends received less costs/taxes divided by interest) 3.5x >3.0x <2.5x INA debt/ebitda 2.7x <2.5x >2.5x Source: Moody s, UniCredit Research UniCredit Research page 3 See last pages for disclaimer.

4 CORPORATE STRUCTURE Maria Elisabeth Schaeffler Thumann 20% Georg F. W. Schaeffler 80% INA-Holding Schaeffler GmbH & Co. KG IHO Holding GmbH & Co. KG IHO Beteiligungs GmbH HoldCo Restricted Group HoldCo facilities EUR 2.25bn & USD 1.5bn HoldCo notes IHO Verwaltungs GmbH Free float Schaeffler AG Restricted Group 75.1% 36% 10% 54% Schaeffler Group facilities Schaeffler AG Continental AG USD 2.15bn EUR 1bn & USD 1.3bn Schaeffler Group notes Schaeffler Finance B.V. Schaeffler Technologies AG & Co. KG Other Subsidiaries Source: company data, UniCredit Research UniCredit Research page 4 See last pages for disclaimer.

5 FINANCIAL STATISTICS (INA-HOLDING SCHAEFFLER GMBH & CO. KG, PUBLISHED MARCH 2016) EUR mn Sales 44,340 46,419 EBIT margin adj. 9.5% 10.6% EBITDA rep. 6,658 7,347 EBITDA margin adj. 16.1% 17.2% Net income 1,734 2,650 Funds from operations (FFO) 4,717 5,184 Operating cash flow 4,739 4,861 Free cash flow rep. (after Capex) 2,143 1,893 Dividend payment Retained cash flow (RCF) 4,351 4,836 Acquisitions / disposals Share buyback / issues 0 0 Total debt rep. 14,715 15,434 Net debt rep. 12,203 11,328 Adj. for pensions 3,919 5,553 Adj. for operating leases and others 1,590 1,684 Net debt adj. 17,712 18,565 DEBT LEVERAGE PROFITABILITY AND INTEREST COVERAGE 30% 29% 29% 28% 28% FFO adj./net debt adj. Total debt adj./ebitda adj. Net debt adj. / EBITDA adj. (RS) % 17% 17% 17% 17% 16% 16% 16% 16% 16% EBITDA margin adj. EBITDA gross interest cover adj. (RS) % % CREDIT METRICS EBIT net interest cover adj EBIT gross interest cover adj EBITDA net interest cover adj EBITDA gross interest cover adj FFO adj. / net debt adj. 27.7% 29.2% FFO adj. / total debt adj. 24.3% 23.9% RCF adj. / net debt adj. 25.7% 27.4% RCF adj. / total debt adj. 22.5% 22.4% Net debt adj. / EBITDA adj Total debt adj. / EBITDA adj FFO adj. / net interest adj FFO adj. / gross interest adj Total debt adj. / total capital. adj. 69.5% 66.3% Net debt adj. / net capital. adj. 66.6% 61.7% Equity / total assets 16.5% 18.5% Source: UniCredit Research UniCredit Research page 5 See last pages for disclaimer.

6 BOND DOCUMENTATION SEPTEMBER 2016 ISSUANCE: EUR: SHAEFF 2.75% 9/21, 3.25% 9/23, 3.75% 9/26 AND USD: SHAEFF 4.125% 9/21, 4.5% 9/23, 4.75% 9/26 Issuer Schaeffler Verwaltungs Zwei GmbH (to be renamed IHO Verwaltungs GmbH) Interest rate payment Interest shall be payable entirely in cash ( cash interest ) for the first two interest periods and for the final Interest period ending at the stated maturity of the notes. For any other interest period, interest shall be payable entirely in cash, except that, if the applicable amount (as defined below) for the relevant interest payment date is: (i) 75%, but is < 100%, of the aggregate amount of Cash Interest that would otherwise be due on the relevant interest payment date, then the Issuer may, at its option, elect to pay interest on (a) 25% of the then outstanding principal amount of the Notes by increasing the principal amount of the outstanding Notes or by issuing Additional Notes in a principal amount equal to the PIK Interest (cash interest plus 0.75% p.a.) and (b) 75% of the then outstanding principal amount of the Notes as Cash Interest; (ii) 50%, but is < 75%, of the aggregate amount of Cash Interest that would otherwise be due on the relevant interest payment date, then the Issuer may, at its option, elect to pay interest on (a) 50% of the then outstanding principal amount of the Notes as PIK Interest and (b) 50% of the then outstanding principal amount of the Notes as Cash Interest; (iii) 25%, but is < 50%, of the aggregate amount of Cash Interest that would otherwise be due on the relevant interest payment date, then the Issuer may, at its option, elect to pay interest on (a) 75% of the then outstanding principal amount of the Notes as PIK Interest and (b) 25% of the then outstanding principal amount of the Notes as Cash Interest; or (iv) < 25% of the aggregate amount of Cash Interest that would otherwise be due on the relevant interest payment date, then the Issuer may, at its option, elect to pay interest on the Notes entirely as PIK Interest. Applicable amount shall be an amount equal to the lower of: (1) an amount equal to the Average Liquidity (actual cash balance plus actual available RCF drawings), as calculated on the Applicable Amount Determination Date, less EUR 350mn; and (2) an amount equal to the Projected Liquidity (projected for a three-month period following an interest payment date), as calculated on the Applicable Amount Determination Date, less EUR 350mn. The insufficiency or lack of funds available to the Issuer to pay Cash Interest as required by the two preceding paragraphs shall not permit the Issuer to pay PIK Interest in respect of any Interest Period and the sole right of the Issuer to elect to pay PIK Interest shall be as (and to the extent) provided in the two preceding paragraphs. Actual liquidity: Actual cash balance Call/put Call schedule 2021 EUR/USD Notes: On or after 15 September 2018: %/ %, 2019: % / %, 15 September 2021 and thereafter: 100% 2023 EUR/USD Notes: On or after 15 September 2019: %/102.25%, 2020: %/ % and 2021 and thereafter: 100% EUR Notes: On or after 15 September 2021: %, 2022: %, 2022 and thereafter: 100% 2026 USD Notes: On or after 15 September 2019: %, 2020: %, 2021: %, 2022 and thereafter: 100% Equity clawback Prior to first call, up to 40% at %/ %, %/104.5%, %/104.75% Make-whole clause Prior to first call, at Bund +50bp. Change of control Poison Put at 101% if other person/group owns > 50% voting power of the issuer s voting stock or family shareholders cease to own >30% of the voting power of the issuer s voting stock Guarantees -- Security Subject to the terms of the security documents and the Issuer Security Pooling and Intercreditor Agreement, the obligations of the Issuer under the Notes will be secured by: pledges over 333,000,001 common shares in Schaeffler AG (representing 66.7% of the voting shares (Stammaktien) and 50% plus one share of the total share capital of Schaeffler AG) held by the Issuer; and pledges over 31,471,390 common shares in Continental AG held by the Issuer (representing a number of common shares in Continental AG equal to the aggregate principal amount of the Notes plus EUR 800mn, divided by the volume weighted average price per share of Continental AG quoted on the Frankfurt Stock Exchange during the last 60 trading days (the Continental Share Value ) on August 31, 2016, multiplied by 1.75). The Collateral securing the Notes also secures on a pari passu basis obligations under the Issuer Facilities Agreement, certain hedging obligations and any future indebtedness that is permitted under the Indenture to share the Collateral. Liens over assets forming part of the Collateral will be automatically released under the indenture under certain circumstances, including upon the release of any and all liens over such assets (other than permitted liens) securing other debt, including debt under the Issuer Facilities Agreement. Ranking The notes will be will be general senior obligations of the Issuer; will, together with the obligations under the Issuer Facilities Agreement and certain hedging obligations, be secured by security interests over the Collateral; will be structurally subordinated to any existing and future indebtedness of the Issuer s subsidiaries (in particular, Schaeffler AG and its subsidiaries); will be effectively subordinated to any existing and future indebtedness of the Issuer that is secured by property or assets that do not secure the Notes, including any remaining indebtedness under the Schaeffler AG Loan Notes secured by share pledges over 23,250,361 common shares of Continental AG, to the extent of the value of property and assets securing such indebtedness; will rank pari passu in right of payment with all existing and future indebtedness of the Issuer that is not subordinated in right of payment to the Notes, including any remaining indebtedness under the Schaeffler AG Loan Notes and the Issuer Facilities Agreement, respectively; will rank senior in right of payment to all existing and future indebtedness of the Issuer that is subordinated in right of payment to the Notes; and will be effectively senior to all of the Issuer s existing and future unsecured indebtedness to the extent of the value of the property or assets securing the Notes. Source: company data, UniCredit Research UniCredit Research page 6 See last pages for disclaimer.

7 BOND DOCUMENTATION SEPTEMBER 2016 ISSUANCE: EUR: SHAEFF 2.75% 9/21, 3.25% 9/23, 3.75% 9/26 AND USD: SHAEFF 4.125% 9/21, 4.5% 9/23, 4.75% 9/26 (CONT D) Issuer Certain covenants Schaeffler Holding Finance BV Limitation on debt Combined coverage ratio 2.0x and (y) issuer group LTV ratio < 2.5x Most important carve-outs/exceptions: Debt of the issuer or any restricted subsidiary that is a member of the issuer group under credit facilities in an aggregate principal amount at any one time outstanding not to exceed an amount equal to EUR 1.2bn, plus, in the case of any refinancing of any debt permitted under this clause (1) or any portion thereof, the aggregate amount of all fees, underwriting discounts, premiums and other costs and expenses in connection with such refinancing; Debt incurred by the issuer or any restricted subsidiary in an aggregate principal amount EUR 200mn at any one time outstanding. Debt incurred by the issuer or any restricted subsidiary that is a member of the issuer group in respect of any loans or advances made by any member of the Schaeffler OpCo Group not to exceed an aggregate principal amount of EUR 500mn at any one time outstanding, plus any interest which may capitalize on any such loans or advances from time to time, less the principal amount of Indebtedness incurred under clause 15 that is repaid, redeemed or refinanced with the proceeds from Permitted Refinancing Indebtedness incurred under clause 12. Limitation on sale of certain assets Limitation on restricted payments Limitations on transactions with affiliates Fall-away/suspension covenants Negative pledge Anti-layering Consideration for asset sale at least fair market value 75% in form of cash equivalents and 90% in cash or cash equivalents any designated non cash consideration received by the issuer or any restricted subsidiary in such asset sale having an aggregate fair market value, taken together with all other designated non cash consideration received pursuant to this covenant that is at that time outstanding, not to exceed the greater of (i) EUR 500mn and (ii) 5.0% of Total Assets, at the time of receipt of such designated non-cash consideration Application of proceeds need to be within 365 days, otherwise asset sale offer for excess proceeds of EUR 50mn Aggregate amount of restricted payments/investments do not exceed the sum of: 100% of any dividends or other distributions received since April 1, 2016 by the issuer or any restricted subsidiary that is a member of the issuer group from (i) any unrestricted subsidiary (including, for the avoidance of doubt, any member of the Schaeffler OpCo Group), (ii) Continental and (iii) any other Investments (other than Investments in Subsidiaries) held by the Issuer or any restricted subsidiary that is a member of the issuer group; plus 50% of the sum of the aggregate consolidated net income of each restricted OpCo Group TopCo, in each case on a cumulative basis repurchase, redemption or other acquisition or retirement for value of any Capital Stock may not exceed EUR 10mn in any LTM period ((with unused amounts being carried over to succeeding twelve month periods subject to a maximum of EUR 10.0mn in any twelve month period); permitted upstream payments do not exceed an amount equal to (i) EUR 550mn in 2016 and (ii) EUR 350mn in any calendar year thereafter General basket of EUR 275mn any restricted investment provided that issuer group LTV <5.0x Not payment > EUR 20mn, unless: EUR >50mn: if not less favorable than comparable transaction with an unrelated person; EUR >100n: third-party fairness opinion. Yes Yes No Source: company data, UniCredit Research UniCredit Research page 7 See last pages for disclaimer.

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Key 6a: Employees or members of the Board of Directors of UniCredit Bank AG and/or any other employee that works for UniCredit Research (i.e. the joint research department of the UniCredit Group) and/or members of the Group Board (pursuant to relevant domestic law) are members of the Board of Directors of the analyzed company. Members of the Board of Directors of the analyzed company hold office in the Board of Directors of UniCredit Bank AG (pursuant to relevant domestic law). The application of this Key 6a is limited to persons who, although not involved in the preparation of the analysis, had or could reasonably be expected to have access to the analysis prior to its dissemination to customers or the public. Key 6b: The analyst is on the Supervisory Board/Board of Directors of the company they cover. Key 8a: UniCredit Bank AG and/or any related legal person hold a net long position exceeding 0.5% of the total issued share capital of the issuer. Key 8b: UniCredit Bank AG and/or any related legal person hold a net short position exceeding 0.5% of the total issued share capital of the issuer. RECOMMENDATIONS, RATINGS AND EVALUATION METHODOLOGY Company Date Rec. Company Date Rec. Company Date Rec. IHO 14/10/2016 Buy Overview of our ratings You will find the history of rating regarding recommendation changes as well as an overview of the breakdown in absolute and relative terms of our investment ratings on our website Note on the evaluation basis for interest-bearing securities: Recommendations relative to an index: For high grade names the recommendations are relative to the "iboxx EUR Benchmark" index family, for sub investment grade names the recommendations are relative to the "iboxx EUR High Yield" index family. Marketweight: We recommend having the same portfolio exposure in the name as the respective iboxx index. We expect that the average total return of the instruments of the issuer is equal to the total return of the index. Overweight: We recommend having a higher portfolio exposure in the name as the respective iboxx index. We expect that the average total return of the instruments of the issuer is greater than the total return of the index. Underweight: We recommend having a lower portfolio exposure in the name as the respective iboxx index. We expect that the average total return of the instruments of the issuer is less than the total return of the index. Outright recommendations: Hold: We recommend holding the respective instrument for investors who already have exposure. We expect that the total return of the instruments of the issuer is equal to the yield. Buy: We recommend buying the respective instrument for investors who already have exposure. We expect that the total return of the instruments of the issuer is greater than the yield. Sell: We recommend selling the respective instrument for investors who already have exposure. We expect that the total return of the instruments of the issuer is less than the yield. We employ three further categorizations for interest-bearing securities in our coverage: UniCredit Research page 8.

9 Restricted: A recommendation and/or financial forecast is not disclosed owing to compliance or other regulatory considerations such as a blackout period or a conflict of interest. Coverage in transition: Due to changes in the research team, the disclosure of a recommendation and/or financial information are temporarily suspended. The interest-bearing security remains in the research universe and disclosures of relevant information will be resumed in due course. Not rated: Suspension of coverage. Trading recommendations for fixed-interest securities mostly focus on the credit spread (yield difference between the fixed-interest security and the relevant government bond or swap rate) and on the rating views and methodologies of recognized agencies (S&P, Moody s, Fitch). Depending on the type of investor, investment ratings may refer to a short period or to a 6 to 9-month horizon. Please note that the provision of securities services may be subject to restrictions in certain jurisdictions. You are required to acquaint yourself with local laws and restrictions on the usage and the availability of any services described herein. The information is not intended for distribution to or use by any person or entity in any jurisdiction where such distribution would be contrary to the applicable law or provisions. If not otherwise stated daily price data refers to pre-day closing levels and iboxx bond index characteristics refer to the previous month-end index characteristics. Coverage Policy A list of the companies covered by UniCredit Bank is available upon request. Frequency of reports and updates It is intended that each of these companies be covered at least once a year, in the event of key operations and/or changes in the recommendation. SIGNIFICANT FINANCIAL INTEREST UniCredit Bank AG and/or other related legal persons with them regularly trade shares of the analyzed company. UniCredit Bank AG and/or other related legal persons may hold significant open derivative positions on the stocks of the company which are not delta-neutral. UniCredit Bank AG and/or other related legal persons have a significant financial interest relating to the analyzed company or may have such at any future point of time. Due to the fact that UniCredit Bank AG and/or any related legal person are entitled, subject to applicable law, to perform such actions at any future point in time which may lead to the existence of a significant financial interest, it should be assumed for the purposes of this information that UniCredit Bank AG and/or any related legal person will in fact perform such actions which may lead to the existence of a significant financial interest relating to the analyzed company. Analyses may refer to one or several companies and to the securities issued by them. In some cases, the analyzed companies have actively supplied information for this analysis. INVESTMENT SERVICES The analyzed company and UniCredit Bank AG and/or any related legal person concluded an agreement on the provision of investment services in the previous 12 months, in return for which the Bank and/or such related legal person received a consideration or promise of consideration or intends to do so. Due to the fact that UniCredit Bank AG and/or any related legal person are entitled to conclude, subject to applicable law, an agreement on the provision of investment services with the analyzed company at any future point in time and may receive a consideration or promise of consideration, it should be assumed for the purposes of this information that UniCredit Bank AG and/or any related legal person will in fact conclude such agreements and will in fact receive such consideration or promise of consideration. ANALYST DECLARATION The author s remuneration has not been, and will not be, geared to the recommendations or views expressed in this study, neither directly nor indirectly. ORGANIZATIONAL AND ADMINISTRATIVE ARRANGEMENTS TO AVOID AND PREVENT CONFLICTS OF INTEREST To prevent or remedy conflicts of interest, UniCredit Bank has established the organizational arrangements required from a legal and supervisory aspect, adherence to which is monitored by its compliance department. Conflicts of interest arising are managed by legal and physical and non-physical barriers (collectively referred to as Chinese Walls ) designed to restrict the flow of information between one area/department of UniCredit Bank and another. In particular, Investment Banking units, including corporate finance, capital market activities, financial advisory and other capital raising activities, are segregated by physical and non-physical boundaries from Markets Units, as well as the research department. Disclosure of publicly available conflicts of interest and other material interests is made in the research. Analysts are supervised and managed on a day-today basis by line managers who do not have responsibility for Investment Banking activities, including corporate finance activities, or other activities other than the sale of securities to clients. ADDITIONAL REQUIRED DISCLOSURES UNDER THE LAWS AND REGULATIONS OF JURISDICTIONS INDICATED You will find a list of further additional required disclosures under the laws and regulations of the jurisdictions indicated on our website Notice to Austrian investors: This analysis is only for distribution to professional clients (Professionelle Kunden) as defined in article 58 of the Securities Supervision Act. Notice to investors in Bosnia and Herzegovina: This report is intended only for clients of UniCredit in Bosnia and Herzegovina who are institutional investors (Institucionalni investitori) in accordance with Article 2 of the Law on Securities Market of the Federation of Bosnia and Herzegovina and Article 2 of the Law on Securities Markets of the Republic of Srpska, respectively, and may not be used by or distributed to any other person. This document does not constitute or form part of any offer for sale or subscription for or solicitation of any offer to buy or subscribe for any securities and neither this document nor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. Notice to Brazilian investors: The individual analyst(s) responsible for issuing this report represent(s) that: (a) the recommendations herein reflect exclusively the personal views of the analysts and have been prepared in an independent manner, including in relation to UniCredit Group; and (b) except for the potential conflicts of interest listed under the heading Potential Conflicts of Interest above, the analysts are not in a position that may impact on the impartiality of this report or that may constitute a conflict of interest, including but not limited to the following: (i) the analysts do not have a relationship of any nature with any person who works for any of the companies that are the object of this report; (ii) the analysts and their respective spouses or partners do not hold, either directly or indirectly, on their behalf or for the account of third parties, securities issued by any of the companies that are the object of this report; (iii) the analysts and their respective spouses or partners are not involved, directly or indirectly, in the acquisition, sale and/or trading in the market of the securities issued by any of the companies that are the object of this report; (iv) the analysts and their respective spouses or partners do not have any financial interest in the companies that are the object of this report; and (v) the compensation of the analysts is not, directly or indirectly, affected by UniCredit s revenues arising out of its businesses and financial transactions. UniCredit represents that: except for the potential conflicts of interest listed under the heading Potential Conflicts of Interest above, UniCredit, its controlled companies, controlling companies or companies under common control (the UniCredit Group ) are not in a condition that may impact on the impartiality of this report or that may constitute a conflict of interest, including but not limited to the following: (i) the UniCredit Group does not hold material equity interests in the companies that are the object of this report; (ii) the companies that are the object of this report do not hold material equity interests in the UniCredit Group; (iii) the UniCredit Group does not have material financial or commercial interests in the companies or the securities that are the object of this report; (iv) the UniCredit Group is not involved in the acquisition, sale and/or trading of the securities that are the object of this report; and (v) the UniCredit Group does not receive compensation for services rendered to the companies that are the object of this report or to any related parties of such companies. Notice to Canadian investors: This communication has been prepared by UniCredit Bank AG, which does not have a registered business presence in Canada. This communication is a general discussion of the merits and risks of a security or securities only, and is not in any way meant to be tailored to the needs and circumstances of any recipient. The contents of this communication are for information purposes only, therefore should not be construed as advice and do not constitute an offer to sell, nor a solicitation to buy any securities. Notice to Cyprus investors: This document is directed only at clients of UniCredit Bank who are persons falling within the Second Appendix (Section 2, Professional Clients) of the law for the Provision of Investment Services, the Exercise of Investment Activities, the Operation of Regulated Markets and other Related Matters, Law 144(I)/2007 and persons to whom it may otherwise lawfully be communicated who possess the experience, knowledge and expertise to make their own investment decisions and properly assess the risks that they incur (all such persons together being referred to as relevant persons ). This document must not be acted on or relied on by persons who are not relevant persons or relevant persons who have requested to be treated as retail clients. Any investment or investment activity to which this communication related is available only to relevant persons and will be engaged in only with relevant persons. This document does not constitute an offer or solicitation to any person to whom it is unlawful to make such an offer or solicitation. Notice to Hong Kong investors: This report is for distribution only to professional investors within the meaning of Schedule 1 to the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong) and any rules made thereunder, and may not be reproduced, or used by or further distributed to any other person, in whole or in part, for any purpose. This report does not constitute or form part of an offer or solicitation of any offer to buy or sell any securities, nor should it or any part of it form the basis of, or be relied upon in connection with, any contract or commitment whatsoever. By accepting this report, the recipient represents and warrants that it is entitled to receive such report in accordance with, and on the basis of, the restrictions set out in this Disclaimer section, and agrees to be bound by those restrictions. UniCredit Research page 9.

10 Notice to investors in Ivory Coast: The information contained in the present report have been obtained by Unicredit Bank AG from sources believed to be reliable, however, no express or implied representation or warranty is made by Unicredit Bank AG or any other person as to the completeness or accuracy of such information. All opinions and estimates contained in the present report constitute a judgement of Unicredit Bank AG as of the date of the present report and are subject to change without notice. They are provided in good faith but without assuming legal responsibility. This report is not an offer to sell or solicitation of an offer to buy or invest in securities. Past performance is not an indicator of future performance and future returns cannot be guaranteed, and there is a risk of loss of the initial capital invested. No matter contained in this document may be reproduced or copied by any means without the prior consent of Unicredit Bank AG. Notice to New Zealand investors: This report is intended for distribution only to persons who are wholesale clients within the meaning of the Financial Advisers Act 2008 ( FAA ) and by receiving this report you represent and agree that (i) you are a wholesale client under the FAA (ii) you will not distribute this report to any other person, including (in particular) any person who is not a wholesale client under the FAA. This report does not constitute or form part of, in relation to any of the securities or products covered by this report, either (i) an offer of securities for subscription or sale under the Securities Act 1978 or (ii) an offer of financial products for issue or sale under the Financial Markets Conduct Act Notice to Omani investors: This communication has been prepared by UniCredit Bank AG. UniCredit Bank AG does not have a registered business presence in Oman and does not undertake banking business or provide financial services in Oman and no advice in relation to, or subscription for, any securities, products or financial services may or will be consummated within Oman. The contents of this communication are for the information purposes of sophisticated clients, who are aware of the risks associated with investments in foreign securities and neither constitutes an offer of securities in Oman as contemplated by the Commercial Companies Law of Oman (Royal Decree 4/74) or the Capital Market Law of Oman (Royal Decree 80/98), nor does it constitute an offer to sell, or the solicitation of any offer to buy non-omani securities in Oman as contemplated by Article 139 of the Executive Regulations to the Capital Market Law (issued vide CMA Decision 1/2009). This communication has not been approved by and UniCredit Bank AG is not regulated by either the Central Bank of Oman or Oman s Capital Market Authority. Notice to Pakistani investors: Investment information, comments and recommendations stated herein are not within the scope of investment advisory activities as defined in sub-section I, Section 2 of the Securities and Exchange Ordinance, 1969 of Pakistan. Investment advisory services are provided in accordance with a contract of engagement on investment advisory services concluded with brokerage houses, portfolio management companies, non-deposit banks and the clients. The distribution of this report is intended only for informational purposes for the use of professional investors and the information and opinions contained herein, or any part of it shall not form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. Notice to Polish Investors: This document is intended solely for professional clients as defined in Art. 3.39b of the Trading in Financial Instruments Act of 29 July 2005 (as amended). The publisher and distributor of the document certifies that it has acted with due care and diligence in preparing it, however, assumes no liability for its completeness and accuracy. This document is not an advertisement. It should not be used in substitution for the exercise of independent judgment. Notice to Serbian investors: This analysis is only for distribution to professional clients (profesionalni klijenti) as defined in article 172 of the Law on Capital Markets. Notice to UK investors: This communication is directed only at clients of UniCredit Bank who (i) have professional experience in matters relating to investments or (ii) are persons falling within Article 49(2)(a) to (d) ( high net worth companies, unincorporated associations, etc. ) of the United Kingdom Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or (iii) to whom it may otherwise lawfully be communicated (all such persons together being referred to as relevant persons ). This communication must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons. CR e 10 UniCredit Research page 10.